Cooperative Basics: Meaning of Cooperatives

Cooperative Basics
Meaning of cooperatives
The basic reason for having cooperatives as a form of economic enterprise in an

economy is to help people work together and move forward in a collective way.
Cooperatives are considered to be the best form of economic enterprise because they are
capable of seeking a balanced adjustment between collective spirit and individual
rights.
Cooperatives mix together the characteristics of traditional business and non-profit

organizations. Their operation is typical in that they combine economic and social
objectives in their business pursuit.
A cooperative is an autonomous association of persons united voluntarily to meet their

common economic, social and cultural needs and aspirations through a jointly and
democratically controlled enterprise. As self-help organizations, cooperatives in both
developing and developed countries help raise the income and employment prospects
of its members.
Cooperatives as a form of economic enterprise involve getting things done

between free human beings with:
(i) equal rights;
(ii) equal human prestige (and mutual respect for each other); and
(iii) equal legal standing so that everyone's welfare is considered.
Characteristics of co-operatives
The important characteristics of a co-operative are as follows:
1. An enterprise
A co-operative is an economic organization and is not a charity. It operates within a

market-based economy. It is an organization based on "self-help"
2. Membership
In a co-operative membership is entirely voluntary and is not based upon any other

affiliation (e.g. political, religious, and racial).
3. Owned and controlled by a group of legal persons
Management is controlled by a board of directors who are elected by the members.

One unique feature of a cooperative is that each member usually has only one vote
in selecting directors, regardless of the amount of equity that member has in the
cooperative. A co-operative is owned and controlled by the persons who benefit
from the activities it undertakes.
The organization may be comprised of individuals and/or other legal entities (e.g.
other co-operatives, companies, etc.). It is based on a stakeholder group with a
mutual interest (e.g. all consumers, farmers, workers, tenants, etc.) To function
properly the solidarity of the group needs to, be maintained and developed by
communication, education and training.
4. The purpose of common benefit
A co-operative is not based on one set of members gaining benefit from other
members of the group. It is based on the concept that benefits are shared fairly
between members on the basis of their economic participation in the enterprise. A
co-operative is primarily intended to benefit those who are members, but is not
based on exploiting others; and benefits from further collaboration between other
similar groups may also be sought
5. Activities of the enterprise
A co-operative undertakes activities that benefit the members. The activity of the
enterprise is the primary basis of the benefits provided to members.
6. Capital
Equity comes from the members, rather than outside investors. It is obtained by
direct contributions through membership fees or sale of shares, and by agreement
with members to withhold a portion of net income based on patronage. If a
cooperative fails, the liability of each member is limited to the amount he/she has
invested.
7. Life
A cooperative usually has a perpetual existence. Members can routinely join or
resign without disrupting ongoing operations.
Advantages
 owned and controlled by members;

 democratic control by one member, one vote;
 limited liability; and
 profit distribution (surplus earnings) to members in proportion to use of service;
surplus may be allocated in shares or cash.
Limitations
 possibility of conflict between members;

 longer decision-making process;
 participation of members required for success;
 extensive record keeping necessary; and
 less incentive to invest additional capital.

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Cooperative Basics

The basic reason for having cooperatives as a form of economic enterprise in an

Cooperatives mix together the characteristics of traditional business and non-profit

A cooperative is an autonomous association of persons united voluntarily to meet their

Cooperatives as a form of economic enterprise involve getting things done

A co-operative is an economic organization and is not a charity. It operates within a

In a co-operative membership is entirely voluntary and is not based upon any other

Management is controlled by a board of directors who are elected by the members.

4. The purpose of common benefit

5. Activities of the enterprise

 owned and controlled by members;

 possibility of conflict between members;

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