---
authors:
- Aya.elfadil
categories:
- Business
- Economics
contributors:
- Aya.elfadil
date: 2022-09-20 00:00:00
summary: A cooperative is a democratic enterprise where members have equal ownership
  and control, and they work together to achieve economic, social, and cultural needs
  and aspirations. This article explores the definition, establishment, principles,
  and cooperative capital.
tags:
- cooperative
- co-op
- business model
- Rochdale Principles
title: Cooperative
---

### Definition

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](https://en.wikipedia.org/wiki/Rochdale_Principles/), which
are:

1.  Open and voluntary membership.
2.  Democratic member control, with one vote for each member.
3.  Members' economic participation.
4.  Independence and autonomy.
5.  Information, education, and training.
6.  Cooperation among cooperatives.
7.  Concern for the community.

### Cooperative Capital

**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:

1.  **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.
2.  **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:

1.  **Consumer Cooperatives**.
2.  **Worker Cooperatives**.
3.  **Purchasing Cooperatives**.
4.  **Producer Cooperative**.

### Other Types

- **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

### Definition

**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.

#### Retail Co-ops

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.

#### Housing cooperative

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.

### Disadvantages

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.

### Examples

- In the **United Kingdom**, [The Co-op](https://www.coop.co.uk/) 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](https://en.wikipedia.org/wiki/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 Cooperatives

### Definition

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](https://en.wikipedia.org/wiki/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.

#### Example

The **Mondragon Corporation** is the largest worker owned cooperative in
the world and has been in continuous operation since 1956.

### Characteristics

- 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.

Other characteristics:

- 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.

### Membership

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.

### Decision-making

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.

### Assets

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.

### Finance

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.

### Disadvantages

1.  **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).
2.  **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.
3.  **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.
4.  **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.

## Purchasing Cooperatives

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.

### Examples

Among the most prominent purchasing cooperatives are:

- **[Best Western International,
  Inc](https://www.bestwestern.com/en_US.html/)**: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](https://www.acehardware.com/)**: 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](https://www.ccaglobalpartners.com/)**:
  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 Cooperative

**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.

### Examples

- **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.

## Sources:

- <https://www.reddit.com/r/cooperatives/comments/324q1q/rcooperatives_faq/>
- <https://en.wikipedia.org/wiki/Cooperative#Types_of_cooperatives>
- <https://en.wikipedia.org/wiki/Worker_cooperative>
- <https://en.wikipedia.org/wiki/Consumers%27_co-operative>
- <https://ncbaclusa.coop/resources/what-is-a-co-op/>
- <https://www.techtarget.com/whatis/definition/cooperative-co-op>
- <https://www.reddit.com/r/cooperatives/comments/324q1q/rcooperatives_faq/>
- <https://coopcreator.ca/resource/how-to-handle-share-capital-in-a-co-op/>
- <https://www.reddit.com/r/cooperatives/comments/1pcve9/can_someone_explain_to_me_how_a_consumer_coop/>
- <https://www.co-operative.coop/about-us/our-co-op>
- <https://canadianworker.coop/about/what-is-a-worker-co-op/>
- <https://institute.coop/what-worker-cooperative>
- <https://www.reddit.com/r/explainlikeimfive/comments/cl38tc/eli5_how_do_workers_coops_actually_work/>
- <https://en.wikipedia.org/wiki/Purchasing_cooperative>
- <https://en.wikipedia.org/wiki/Fishery_cooperative>
- <https://en.wikipedia.org/wiki/Agricultural_cooperative>
- <https://en.wikipedia.org/wiki/Best_Western>
- <https://en.wikipedia.org/wiki/ACE_Hardware>
- <https://en.wikipedia.org/wiki/CCA_Global_Partners>

## DOD coverage

- [Civics Ecosystem Toolkit v1.2](../../blog/posts/2026-05-20-civics-ecosystem-toolkit.md) — a practical guide to cooperative governance in the Australian civic context


## See also

- [Worker Cooperatives](worker-cooperatives.md)
- [Community Business](community-business.md)
- [Economic Democracy](economic-democracy.md)
- [Workplace Democracy](workplace-democracy.md)
- [Decentralized Autonomous Organization](decentralized-autonomous-organization.md)
- [Co-operative Bonds](../organisations/cooperative-bonds.md)
- [888 Causeway Cooperative](../organisations/888-cooperative-causeway.md)
- [CAPAD](../organisations/capad.md)
- [bHive](../organisations/bhive.md)
- [Earthworker Cooperative](../organisations/earthworker-cooperative.md)
- [Loomio](../organisations/loomio.md)
