Worldwide, some 800 million people are members of co-operatives, and it is estimated that co-operatives employ about 100 million people, but what is a co-operative?
As the name suggests, a co-operative is all about working together toward a common goal. This goal could be saving money or building houses, but in this article we are interested in co-operatives as a legal format for starting a small business.
A co-operative business is based on democracy – every member in the co-operative participates in making decisions that control the business.
To become members, people buy a share of the co-operative, and get one vote each. Even if a company buys many shares in a co-operative, it still only has one vote, like everyone else.
Members then elect at least three directors, who manage and control the daily running of the co-operative and who are answerable to the members.
There are some important differences between a small enterprise that is run as a co-operative and one that is run as a company.
The main ones are that:
- A co-operative is controlled by everyone who works in it (most co-operatives have a strict “one member, one vote” system).
- A co-operative is generally not run for a profit, although it must be financially viable.
- All members of a co-operative benefit from any surplus money that it makes.
There is a ‘moral incentive’ for being in the co-operative – a desire to be part of a democratic business that benefits a community.
PROS AND CONS
The main advantage of co-operatives is that they allow members to ‘pool’ what they produce, so that they can achieve something that they could not do on their own. Take the example of small farmers who plant mainly for subsistence but sometimes produce more vegetables and crops than they can use.
It is not affordable for each farmer to transport their own surplus because the amount is too small to make it viable. But they could form a co-operative to take the surplus to a market, rather than each try and do that on their own. A co-operative can rationalize costs and make the process more efficient and affordable.
While co-operatives are designed to benefit each member, this also comes with a disadvantage: making decisions can take longer and can be more difficult, because more people must have their say. In a small business with one owner, it is a fairly simple process to make a decision and implement it.
But co-operatives must have strong governance procedures so that every member can exercise their right to be part of important decisions.