So, what is a cooperative? According to Merriam-Webster Dictionary, a cooperative is “an enterprise or organization owned by and operated for the benefit of those using its services.” Put simply a cooperative is a business owned and controlled by the people that it services.
Unlike other businesses, a cooperative is not profit-driven. The purpose of a cooperative is to meet a common need amongst its members and to provide greater benefits to its members such as increasing income levels for members or enhancing way of living. But just because a cooperative is not profit driven does not mean that it is a non-profit. In fact, cooperatives operate in a manner to earn a profit, but co-ops strive to keep net income low by providing products and services at or near cost.
Cooperative businesses have three distinctive economic principles that separate them from other business structures, and they are:
1) User-Owned: The people (members) who use the co-op’s services help finance the co-op’s operations, and thus they own the business. Members are responsible for providing some of the start-up funding, and they provide working capital to the co-op by using its services.
2) User-Controlled: Members of the co-op govern the business directly by voting on significant issues and indirectly through representatives on the board of directors that they elect. Co-ops are democratically-controlled businesses, and voting rights are tied to membership status (usually one-member, one-vote) and not based on the level of investment.
3) User-Benefitted: Members receive benefits from the co-op based on their use of the services of the cooperative. Members who use the co-op more receive more of the benefits. Co-op benefits may include better prices for goods, improved services, market for goods, or source of inputs. Net profits of the cooperative are allocated to members based upon their use of the co-op’s services.
The Kentucky Center for Agriculture and Rural Development (KCARD) is a cooperative development center, and KCARD has assisted approximately 50 cooperatives in their development. If you would like more information about cooperatives or are interested in starting a cooperative business, please contact us at kcard@kcard.info or at 859-550-3972.