Understanding Co-ops

What is a Co-op?

An organisation owned by and democratically operated for those using its services.

There are many kinds of cooperatives, ranging from craft co-ops with a single shopfront to New Zealand’s largest commercial business, Fonterra. Here is simple and short definition of a cooperative: a user owned and controlled business from which benefits are derived and distributed equitably on the basis of use.

The activities can be virtually any legal business operation provided for in the rules or constitution of the cooperative, and may be for the supply of goods or services to members and/or for the supply of goods or services to others.

In a lot of ways, cooperatives operate like any other business, but they do have a number of unique characteristics:

  • They are owned and democratically controlled by their members – the people who use the Co-op’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.
  • Conscious of the need to operate profitably rather than at a loss, Co-ops 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-op’s profit.
  • They exist primarily to serve their members.
  • They pay tax on income kept within the cooperative for investment purposes and as a reserve, while surplus revenues from the Co-op are returned to the members, who pay tax on that income.

The member-owners share equally in the control of their cooperative, 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-op in a way that serves the members’ interests.