A co-operative is a member-owned and controlled business from which benefits are derived and distributed equitably on the basis of use.
There are many kinds of co-operatives, ranging from craft co-operatives with a single shopfront to New Zealand's largest commercial business, Fonterra.
Co-operatives operate similarly to other businesses but they do have a number of unique characteristics:
- They are owned and democratically controlled by their members – the people who use the co-operative's services or buy its goods, not by outside investors.
- They return surplus revenues to their members in proportion to their use of the co-op, not in proportion to their investment or share ownership.
- They meet their members' needs either by buying members' produce at the best price or by providing affordable and high quality goods and services, rather than maximising the co-operative's profit.
- They exist primarily to serve their members.
- They pay tax on income kept within the co-operative for investment purposes and as a reserve, while surplus revenues from the co-operative are returned to the members, who pay tax on that income.
The member-owners share equally in the control of their co-operative, meeting at regular intervals to review reports and elect Directors from among themselves. The Directors in turn employ people to manage the day-to-day affairs of the co-operative in a way that serves the members' interests.
Types of co-operatives
There are six types of co-operative and they serve many different needs. In general, they operate under the same basic principles as defined by the International Co-operative Alliance.
These co-operatives are owned by people who produce similar types of products – farmers who grow crops, raise cattle or milk cows, or by craft workers and artisans. By banding together, co-operating producers leverage greater bargaining power with buyers. They also combine resources to more effectively market and brand their products.
Purchasing/shared services co-operatives
These co-operatives are owned and governed by independent business owners that come together to enhance their purchasing power, lower their costs and improve their competitiveness and ability to provide quality services and products. They operate in all sectors of New Zealand’s economy and include some of the largest businesses in the country.
These co-operatives are financial entities that belong to their members, who are at the same time owners and customers. They can be set up as a bank, a building society or a credit union.
These businesses are owned entirely by those who take out policies. Surpluses are either used to reduce future premiums or rebated to policyholders as a dividend.
These co-operatives are owned by the people who buy the goods or use the services of the co-operative. Consumer co-ops may sell consumer goods such as food, or provide housing, or provide a service.
These businesses are owned and governed by the employees of the business. They operate in all sectors of the economy, providing workers with both employment and ownership.