A cooperative (also known as co-op) is a democratic enterprise or organization in which all members have equal ownership and control. Members, whether they are consumers, employees, or residents, have an equal say in the business's operations and a part of its profits. It is democratic in that each member has a single vote in the election of the cooperative's board of directors. Members join voluntarily to achieve their economic, social, and cultural needs and aspirations. Cooperatives usually have social aims, which they try to accomplish by investing a share of trading earnings back into their communities.
Establishing a Cooperative
Creating a cooperative needs business skills. Cooperatives are distinctive and demand special attention. They require formal decision-making structures, specialized financial tools, and legal expertise. When planning a business, one needs to receive as much support as possible, including financial, legal, and administrative guidance. There are regional, national, and global organizations that encourage the formation of cooperatives such as the International Cooperative Alliance (ICA).
Principles and Norms of the Cooperatives
Most cooperatives adhere to the Rochdale Principles, which are:
- Open and voluntary membership.
- Democratic member control, with one vote for each member.
- Members' economic participation.
- Independence and autonomy.
- Information, education, and training.
- Cooperation among cooperatives.
- Concern for the community.
Cooperative share capital refers to the funds a business raises in exchange for ownership. Typically, this refers to the fee an individual pays to join a cooperative. It is a form of investment accumulated by the cooperative through the paid participation shares of its members. The total quantity of participation shares paid to the cooperative represents the capital of the cooperative. The co-operative share capital is often non-redeemable and non-divisible among members. Moreover, it is implemented by co-ops of all sizes and types.
The process for becoming a member of a co-op is governed by its bylaws. Normally, this requires submitting an application form and agreeing to use the cooperative's services. Importantly, the majority of cooperatives require members to purchase co-op shares. Cooperatives can offer two forms of shares:
- Membership shares: These shares grant ownership in a co-op, the right to vote at members' meetings, and a share of the profits. Members often acquire a certain number of membership shares at a fixed par value (the value does not change). Most co-ops allow members to purchase as many shares as desired. For instance, a membership share costs one dollar, and a person can purchase ten memberships, or more, for ten dollars.
- Investment shares: The purpose of these shares is to raise capital, and they do not provide the same rights as membership shares. They are often more valuable than membership shares, however, they do not provide ownership or control. Investment shareholders must be paid first in the case of a profit assertion, and in the case of a dissolution, investment shareholders receive their money before members. Moreover, investment shares issued by cooperatives should have a clear financial and strategic purpose.
Cooperatives as a Legal Entity
A cooperative is a legal entity whose members own and democratically control it. Members frequently have a close relationship with the business as producers or consumers of its goods or services, or as employees. The legal entities exhibit a variety of social traits. Open membership implies that anyone who meets certain nondiscriminatory requirements may join. Economic benefits are delivered in accordance to each member's level of participation in the cooperative, such as through a dividend on sales or purchases, rather than in proportion to capital invested.
Types of Cooperatives
Main types of Cooperatives include:
- Consumer Cooperatives.
- Worker Cooperatives.
- Purchasing Cooperatives.
- Producer Cooperative.
- Multi-stakeholder Cooperatives: also called hybrid coops, are cooperatives in which ownership is shared by various stakeholders; they have representatives from several stakeholder groups.
- Second/Third-tier Cooperatives: are cooperatives comprised of other cooperatives as members.
- Platform Cooperatives: are cooperatives that facilitate the sale of products and services through a jointly owned and administered website, mobile app, or protocol.
Consumer Cooperative is a business owned by its members, administered democratically, and dedicated to meeting their needs and objectives. These cooperatives operate within the market system, independently of the state, as a kind of mutual assistance focused on service rather than financial gain. Food co-ops are a common example of a consumer-owned and operated cooperative. There are also numerous kinds of consumer cooperatives, including health care, insurance, housing, utilities, and personal finance, including credit unions, which operate in a wide range of industries.
A retail cooperative is a store owned by its consumers, such as a grocery store. Although the term "cooperative retail societies" or "retail co-ops" is used in some countries to refer to consumer cooperatives, however, they are distinct from retailers' cooperatives, whose members are retailers and not customers.
A consumer cooperative must be an open cooperative that draws consumers, workers, and investors. The primary distinction between a worker coop and a consumer cooperative is that, despite the fact that labor may be performed by its members, the objective of the organization is not to enrich the workers, but to pay whatever is necessary to have the task done.
Management and Administration
Consumer cooperatives adhere to the democratic member control principle, sometimes known as one member, one vote. The majority of consumer cooperatives are governed by a board of directors elected by the membership. The board is responsible for recruiting management and ensuring that the cooperative accomplishes its financial and nonfinancial objectives. In the bylaws or organizing documents of the cooperative, democratic activities such as petitioning and recall of board members may be codified. Moreover, anyone can purchase at a consumer co-op, but only members have access to specific advantages and can vote for the board of directors. Membership meetings are frequent in most consumer cooperatives (often once a year). As mutually held enterprises, each member of a community has an ownership stake equal to the amount they contributed upon joining.
To keep the business functioning, large consumer co-ops require employees, managers, clerks, products, and customers. In smaller enterprises, consumers/owners are frequently also workers. Consumers' cooperatives might have vastly different beginnings and management structures, but to remain genuine to the business model, the organization must adhere to the Rochdale Principles.
Financial and Capital Strategies
The capital needed to establish or acquire the business is provided by the goods and services consumers themselves. The primary goal of a consumers cooperative is to deliver quality products and services to members at the lowest possible prices, rather than maximizing profits above what customers are willing to pay. Therefore, consumer cooperatives set their prices in line with the rest of the market.
A consumer-owned corporation, unlike a for-profit company, may retain the difference between the cost of the product and its selling price, distribute it to achieve the consumer's social objectives, or return it to the consumer/owner as an overpayment. The money saved up can be kept as a reserve or used to grow the business by buying working capital or capital assets like buildings and machinery.
Some people say that surplus payments to consumer-owners should be taxed the same way dividends are. Others say that consumer cooperatives don't make a profit in the traditional sense, so they don't have to follow the same tax rules.
While consumer cooperatives are democratically governed, they are exposed to the same challenges as democratic governments in general. Such challenges can be avoided by supplying member-owners with dependable instructional resources addressing current business conditions on a regular basis. Moreover, because a consumer cooperative is owned by the consumers of a service or product as opposed to the producers of that service or product, the same kind of labor difficulties may emerge between workers and the cooperative as they would in any other company. This is one argument in support of worker cooperatives as opposed to consumer cooperatives.
- In the United Kingdom, The Co-op is one of the largest consumer co-operatives in the world. It is the fifth largest food retailer in the United Kingdom, with more than 2,500 local, convenience, and medium-sized stores, and is owned by millions of members. It has clear financial and operational goals, employs approximately 70,000 people. The Co-op operates nearly 5,500 locations under the 'Co-op' brand, including Co-op Food, Co-op Funeralcare, Co-op Travel, Co-op Legal Services, and Co-op Electrical. The Co-operative Group is by far the largest of these enterprises, operating over 4,500 stores and the collective purchasing group.
- In Japan, the consumer cooperative movement is large and well-developed, it has over 14 million members. In April of 2003, retail co-ops alone generated a total of 2.5 trillion yen (21 billion U.S. dollars). Co-op Kobe with over 1,2 million members, is the largest retail cooperative in Japan and one of the largest cooperatives in the world.
Worker co-ops are enterprises that are owned and operated democratically by the workers. They place workers and community welfare at the center of their objectives; the primary goal it to provide jobs for its members by operating a business that adheres to the principles and values of the cooperative. Workers' cooperatives also adhere to the Rochdale Principles and values, a set of fundamental cooperative operating principles. They can also be defined as enterprises that manufacture a product or provide a service for profit and in which the workers are members or worker-owners.
The Mondragon Corporation is the largest worker owned cooperative in the world and has been in continuous operation since 1956.
- They aim to create and preserve sustainable jobs and generate wealth, to improve the quality of life of worker-members, to dignify human labor, to permit democratic self-management by employees, and to promote community and local development.
- Workplaces are a must in order for the members to be able to contribute their personal labor and financial resources.
- Work must be performed by members; consequently, members are workers and workers are members.
- The relationship of worker-members with their cooperative is distinct from that of traditional wage-based employment and from that of self-directed independent work.
- Internal regulations are determined by regimes that have been democratically agreed upon and approved by all workers.
- Their labor relations and management, as well as the use and control of production resources, must be autonomous and unhindered by the government or third parties.
- The business is owned by the workers, and they receive a share of the profits based on the amount of effort they put in.
- adherence to the idea of one worker, one vote on the board of directors is maintained.
Members purchase membership shares or pay a membership fee and are entitled to one vote regardless of the number of shares they own. Moreover, members have an equal opportunity to influence how the business is managed and to provide feedback on decisions that affect their everyday work life. They participate in business operations, governance, and management. The majority of the employees in a given worker cooperative business are worker-owners, however there may be some casual or wage employees with whom profits and decision-making are not necessarily equally distributed. Employees are usually subjected to a trial or screening period before being granted full rights to vote. Moreover, investing in the cooperative does not grant voting privileges, and only worker-owners have the ability to vote on matters that directly impact the co-op.
Ownership and decision-making authority of a worker cooperative should be placed completely in the hands of worker-owners, and the worker-owners as a whole hold the ultimate authority. They control the cooperative's resources and the labor process, such as salary or working hours. Moreover, in the case of indirect control members of representative decision-making bodies (such as the board of directors) must be chosen by worker-owners (who then hire the management) and subject to removal by worker-owners. Furthermore, communication, trust, and cooperation are critical to the success of the cooperative as they help to develop policies that govern the cooperative's immediate and long-term operations.
The assets are owned jointly, and excess earnings are distributed to the workers in accordance with the rules and policies of the cooperative, frequently based on the number of hours worked by members, with limited returns on shares and loans.
Worker Cooperatives have created a wide range of financing techniques over time in order to survive and succeed in the market. Cooperative firms usually use many sources of funding simultaneously as each method tends to be unstable on its own. Examples of financing methods are:
- Internal Capital Accounts (or Member Buy-Ins): Shares of capital provided directly and equitably to workers.
- Committed Capital (or Preferred Stock): Capital shares offered to external accredited investors who are not affiliated with the cooperative.
- State Financing: The state offers loans or direct funding for the production, community services, and investments of worker cooperatives.
- Traditional Business Transitions: A traditional business owner's decision to retire and transfer ownership of the company to a workers' cooperative often entails a financial investment by the retiring owner.
- Peer Financing: Some worker cooperatives use surplus income to give loans or establish providing funds in order to assist other cooperatives that are establishing or failing.
- Direct Public Offerings: Loans or contributions flowing either socially from communities or individually from both accredited and non-accredited investors.
- Community Development Financial Institutions: They serve as security for other forms of investment and/or as support for another form of financing, rater than providing the majority of co-op's funds.
- One-Man, One-Vote Policy: This is arguably the greatest disadvantage. It indicates that each member has one vote in the co-op, regardless of the amount of capital they have provided. Although this has some benefits, such as eliminating hierarchies and centralization of control, it often results in a lack of cash (the essence of any organization that generates income).
- Restricted Growth: Since external investors, such as private firms, are obliged to be co-op members, external investments are no longer feasible (with the single vote). Expansion is only achievable if new members (similar to partnerships) join, which is a very slow and time-consuming process.
- Reduction in Functional Efficiency: In a worker-cooperative, decisions must be approved by all members, as opposed to top management in a normal business. This already has a significant impact on efficiency, making the procedure complicated and time-consuming. Furthermore, a co-op cannot make decisions that will have a detrimental influence on its business in the long run.
- Rifts and Disputes: Conflicts and disagreements can damage the foundation of a cooperative. As the number of directors has increased to encompass all employees, the effect has been magnified several times. Inter-coop disagreements will very certainly have a stronger and broader impact than a traditional company conflict.
A purchasing cooperative is a sort of joint collaboration, typically between enterprises, to agree to aggregate demand in order to obtain lower rates from specified suppliers. They also comprise retailers' cooperatives. Numerous cooperative purchasing systems impose usage and access fees. Fees may be levied as an annual enrollment fee or a transaction fee, such as a 1% or 2% tax on the value of each transaction. Government entities often use purchasing cooperatives because they are compelled to comply with regulations mandating competitive bidding beyond specific criteria.
Among the most prominent purchasing cooperatives are:
- Best Western International, Inc:Established in 1946 by M. K. Guertin. The franchise, headquartered in Phoenix, Arizona, consists of more than 2,000 hotels across North America. It also licenses its trademark "Best Western Hotels & Resorts" to more than 4,700 hotels worldwide.
- Ace Hardware: Founded in 1924 as Ace Stores, is an American hardware retailers' cooperative headquartered in Oak Brook, Illinois. It is the largest hardware retail cooperative in the world and the largest non-grocery retail cooperative in the United States.
- CCA Global Partners: Formerly known as Carpet Co-op of America, is a shared services membership purchasing cooperative company founded in Manchester, New Hampshire in 1984 as a carpet cooperative. It has since expanded into fourteen distinct co-ops spanning a variety of businesses. It consists of around 4,000 stores in the United States, Canada, and other countries.
- Agricultural service cooperatives provide a variety of services to its individual farming members as well as to agricultural production cooperatives, in which production resources such as land or machinery are pooled and members farm together.
Producer cooperatives, in which members are producers, provide the services necessary to transport a product from the site of production to the point of consumption. Moreover, they enable enterprises with several employees to become members. Small companies can also form producer cooperatives in order to combine their savings and access capital, acquire supplies and services, or advertise their products and services.
- Agricultural Cooperatives: often known as a farmers' co-ops, are cooperatives in which farmers combine their resources in certain areas of operation, they are jointly owned or managed by a cooperative society. Members of agricultural production cooperatives share production resources (land, equipment) and farm cooperatively.
- Agricultural Marketing Cooperatives: are cooperatives that conduct a number of interconnected operations, including production planning, farming and harvesting, sorting, packing, transportation, storage, food processing, distribution, and sale. They are frequently established to promote particular products.
- Fishery Cooperatives: or fishing co-ops are cooperatives in which individuals involved in the fishing sector combine their resources for fish farming, catching, distributing, and marketing. Fishermen are assigned precise amounts of fish through cooperatives to prevent one group from monopolizing the catch. Therefore, in order to have a larger business to buy and sell their fish, fishing cooperatives collaborate with distributors.