What is a cooperative?

A cooperative is a business or organization owned by and operated for the benefit of those using its services. Profits and earnings generated by the cooperative are distributed among the members, also known as user-owners. Typically, an elected board of directors and officers run the cooperative while regular members have voting power to control the direction of the cooperative. Members can become part of the cooperative by purchasing shares, though the amount of shares they hold does not affect the weight of their vote. Cooperatives follow these seven basic principles.

A cooperative enthusiast would probably say that ANY organization that is committed to and practices cooperative principles is a cooperative. A corporate lawyer would say that a cooperative must be formed under a cooperative statute. A tax lawyer would say it doesn’t matter what statute it’s formed under as long as it “operates cooperatively” as that term is defined in tax law.

Does a cooperative register as a nonprofit or for-profit?

It depends on the state. In states that offer the LCA (Limited Cooperative Association) model, like Colorado and Washington DC, you would file under 'Corporation', as cooperatives are for-profits. In rarer circumstances, like in Michigan, you could file under 'Other Non-Profit/Tax-Exempt Organizations' because the state allows cooperatives to be registered as a nonprofit.

• Tax-exempt nonprofit - Cannot distribute profits to members or investors.
• Cooperative corporation - Distributes profits based on members’ participation in the cooperative (through patronage dividends).

What is a solidarity cooperative?

A cooperative where ownership is shared between customers, tenants and workers, often with distinct membership categories.

How does a solidarity cooperative compare to others?

• Producer cooperative - Allows its members to cooperatively market and sell products, most commonly found in the agriculture industry (30% of total agricultural production is marketed by co-ops.)
• Purchasing cooperative - Groups of businesses that wish to jointly purchase services or supplies, allowing them to compete with national chains.
• Consumer cooperative - Organized by consumers who want to achieve better prices or quality in the goods or services they purchase.
• Worker cooperative - A company owned by its employees, and its purpose is to provide employment for the members.
• Housing cooperative - One or more residential buildings owned by a corporation that is membership-based, with each member granted the right to occupy one housing unit.

Cooperative principles

The basic (non-legal) cooperative principles according to the International Cooperative Alliance are:

1. Voluntary and open membership: Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political, or religious discrimination.
2. Democratic member control: Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote), and cooperatives at other levels are also organized in a democratic manner.
3. Member economic participation: Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.