A cooperative is a business owned and controlled by the people who use its SERVICES and whose benefits are derived and distributed equitably on the basis of use. Cooperative user-owners are generally called members. Cooperatives are similar to private businesses, but members benefit based on their use of cooperative services, and earnings are allocated to members based on the amount of business they do with the cooperative. Usually incorporated under state laws, cooperatives elect a BOARD OF DIRECTORS and hire a manager to run day-to-day operations, but unlike private enterprises, they do not seek to make a profit.
Cooperatives are organized to
• improve bargaining power
• reduce costs • obtain products or services
• create new and expand existing marketing opportunities
• improve the qualities of products or services
• increase INCOME
Because cooperatives are state-chartered, cooperative members, like SHAREHOLDERS of CORPORATIONs, have limited LIABILITY. Unlike corporations, where voting is based on the number of shares of stock held, in most cooperatives each member has one vote. In the United States, cooperatives, like S CORPORATIONs, are subject to single-tax treatment. Most PROFITs from a cooperative are distributed to members as patronage refunds, which are taxable income for members. CAPITAL for a cooperative comes from the members rather than from outside investors. Cooperatives, like any private enterprise, also borrow funds as needed from traditional lending institutions; the largest single category of cooperatives in the United States is CREDIT UNIONs. In addition, there are thousands of health-care, news-service, consumer, and agricultural cooperatives. In the United States, the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, created in 1752, is said to have been the first cooperative in the country. Organized by Benjamin Franklin this cooperative is still in existence. Many cooperatives follow the principles adopted by the Rochdale Equitable Pioneers Society, established in England in 1844 by 28 craftsmen and entrepreneurs to purchase supplies and consumer goods cooperatively.
• open membership
• one member, one vote
• cash trading
• membership education
• political and religious neutrality
• no unusual risk assumption
• limitation on the number of shares owned
• limited interest on stock
• goods sold at regular retail prices
• net margins distributed according to patronage
The Grange, founded in Washington, D.C. 1867, was a major agricultural cooperative, and by 1920 there were over 14,000 farmer cooperatives operating in the United States. By 1995 that number was reduced to 4,000, primarily farm-supply and grain and oilseed marketing coops. Farm Credit Service, established in 1916, is the country’s oldest financial credit cooperative.