What is a cooperative?
Cooperatives let you pool your resources with other operators in your industry. A cooperative belongs to its members, and it operates for their benefit. The members will share:
- the investment and operational risks
- all the benefits
- any losses.
A cooperative has the legal status of an individual. It may sue—or be sued—in its corporate name. This protects the members from being personally liable for most legal issues.
A member will only need to pay for:
- their shares
- any charges listed in the rules.
A trading cooperative must have share capital. The cooperative charges members a set fee for a ‘share’. This ‘share capital’ will assist to carry out the business of the cooperative.
A trading cooperative can return or distribute profits (or extra share capital) to its members. The return to an individual will depend on how many shares they have or business done with the cooperative.
A trading cooperative:
- can perform commercial functions that an individual could not
- can take part in business to make a profit for their members (unlike an incorporated association)
- does not put an upper limit on membership (unlike a private company)
- has a strict ‘1 member, 1 vote’ system (unlike a private company).
You can buy multiple shares, but it won’t increase the strength of your vote.
A non-trading cooperative can’t give financial returns to its members. This rule applies to returns or distributions on surplus or capital.
It can still trade and make a profit, but cannot distribute these profits to its members. It can only use the profits to expand or improve on their primary activities. A non-trading cooperative can operate either with share capital, or without.
A non-trading cooperative with share capital has to follow additional rules for buying or selling shares. These additional rules are included in the model rules as Rules 13 through 23.
If your non-trading cooperative closes down, it must not return to its members any surplus funds other than
share capital (at the nominal value of those shares).
The rules must specify the shares’ nominal value.
You need at least 5 proposed members to form a cooperative. This becomes the primary level of your membership structure.
If 2 or more cooperatives join together, they form an association. This is the secondary level of your structure. These associations can form a federation, which is the tertiary level of the structure.
Cooperatives work under the following 7 principles:
- Anyone can become a member.
- Each member has 1 vote.
- They divide profits among their members, based on how active each member is within the cooperative.
- They are run by and for their members.
- They give education and training to members, their representatives, managers and employees.
- They maintain local, state, national and international networks for members.
- They help to uphold the sustainable development of their communities.