Cooperative advantage


What is different about a cooperative identity:

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

Membership Membership is open to all applicants who will be users – suppliers, customers, workers (depending on the type of cooperative) The investment determines membership and may not be open but restricted to invitees only.
Ownership Members (users) Investors (generally not users of the business)
Investment Shares issued by the cooperative retain their nominal value, and members can’t buy from other members. Shares usually change hands at current market rates, between shareholders
Voting One member one vote – control relates to membership, not the number of shares 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 usually significant. Investors receive a share of the entity’s profits 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 business activities, for example, sector-wide marketing, bulk purchasing. The business advantage is often not received by the cooperative but goes directly into members’ hands. Investment is for return on capital, dividends
Terms of trade Usually, members price purchases at a compromise between the lowest possible cost and best possible return for suppliers; sales to members are generally between the highest possible price and lowest possible cost for customers. The critical factor is the economic viability of the members’ businesses, achieved by the long-term success of the cooperative. The lowest possible purchase price is usually sought, and the highest possible sales price is generally levied, with maximization of profits for the investor-owned business always the critical factor.