A cooperative is a member-owned business organisation with at least five shareholders, all of whom have equal voting rights regardless of their level of involvement or investment. However, every shareholder is expected to help run the cooperative.
Like a company, a cooperative is a separate legal entity and shareholders, directors, managers and employees are not liable for any debts incurred unless those debts are the result of flagrant recklessness, negligence or fraud.
Cooperatives promote a democratic style of management and promote the concepts of sharing resources and delegation to increase competitiveness.
A cooperative usually only allows a limited distribution of profits to members/shareholders (some don't allow any). They are formed primarily to provide a service to members rather than any financial gain.
Advantages and disadvantages of a cooperative
It is usually inexpensive to register a cooperative.
All members and shareholders must be active in the cooperative.
Shareholders have an equal vote at general meetings regardless of their shareholding or involvement in the cooperative.
Members, other than directors, can be under 18, though these members cannot stand for office and do not have the right to vote.
Shareholders, directors, managers and employees have no responsibility for debts of the cooperative unless those debts are caused recklessly, negligently or fraudulently.
A cooperative is owned and controlled by its members, rather than its investors.
As cooperatives are formed to provide a service to their members rather than a return on investment, it may be difficult to attract potential members/shareholders whose primary interest is a financial return.
There must be a minimum of five members.
There is a usually a limited distribution of surplus (profits) to members/shareholders and some cooperatives may prohibit the distribution of any surplus to members/shareholders.
Even though some shareholders may have a greater involvement or investment than others, they still only get one vote.
Active and direct involvement of members/shareholders in the cooperative.
Requires continuous cooperative education programs for members.