Cooperative organizations are organized to meet the common needs of a particular group of people. Often created in times of social and economic stress as a grass-roots response to market imperfections, cooperative structure is influenced by the particular situation, the law, and historical and cultural factors.
While there is no universal definition of a cooperative, two are commonly referred to in the United States.
The U.S. Department of Agriculture
(USDA) defines a cooperative as
user-controlled business that distributes benefits on the basis of use. Member
users, or patrons, own and democratically elect the board of directors, which provides
oversight of the co-op. Net earnings are distributed on the basis of
proportional use, or patronage, rather than on investment.
A broader definition of a cooperative has been developed by the International Alliance of Cooperatives (ICA), which describes a co-op as “an autonomous, voluntary association meeting common economic, social, and cultural needs through a jointly owned and democratically controlled enterprise."
Businesses operating on a cooperative basis subordinate the interests of the
capital investor to those of the business user, and returns on capital are
limited. Member patrons are the primary source of equity capital.
Cooperatives also differ from other business structures because they often operate on principles that encompass broader social or community, as well as business, concerns. These seven cooperative principles have been developed and modified over time, and are generally accepted by cooperatives worldwide.
1. Voluntary and Open Membership
2. Democratic Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Cooperation among Cooperatives
7. Concern for Community
More recently, in response to changing market conditions, some cooperatives in the United States have experimented with modifying these principles. For example, some cooperatives have used closed membership to maximize efficiency, profitability and the return on member equity investments. New cooperative laws in some states have granted voting rights to non-user investors.