Cooperative advantage

At a glance – what is different about a cooperative identity:

Cooperatives are uniquely member-owned, member-controlled entities which exist to provide benefits to members. The challenge for the board of a cooperative is to work out how to achieve this benefit, which may not be related to profit for the cooperative. Cooperatives use profits to achieve activities; investor-owned entities use activities to achieve profits. There is a fundamental difference – the cooperative advantage. 


ELEMENT

COOPERATIVE

INVESTOR-OWNED ENTITY

Membership

Membership is open to all applicants who will be users – suppliers, customers, workers (depending on the type of cooperative)

Membership is acquired by investment and may not be open but restricted to invitees only

Ownership

Members (users)

Investors (generally not users of the business)

Investment

Shares retain their nominal value and are issued by the cooperative, not bought from other members

Shares usually change hands at current market rates, between shareholders

Voting

One member one vote – control relates to membership, not how many shares are held

One share one vote – control relates to the number of shares held by each shareholder

Benefits

Members receive patronage benefits (rebates) in proportion to the use they make of the cooperative. Return on invested capital is not normally significant

Investors receive a share of the profits of the entity as dividends, based on the number of shares owned

Reason for membership

Membership is usually to gain an economy of scale advantage for the member’s own business activities, for example sector-wide marketing, bulk purchasing. The business advantage is often not received by the cooperative but directly in members’ hands

Investment is for return on capital, dividends

Terms of trade

Purchases from members usually are priced at a compromise between lowest possible cost and best possible return for suppliers; sales to members are usually a compromise between highest possible price and lowest possible cost for customers. The key factor is the economic viability of the businesses of the members, achieved by the long term success of the cooperative

The lowest possible purchase price is usually sought and the highest possible sales price is usually levied, with maximization of profits for the investor-owned business always the key factor