What is a Cooperative?

Definition

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. In Georgia, you must be a group of agricultural producers in order to organize under the Georgia Cooperative Marketing Act (GA 2-10-80). However, any group may form a business which acts and functions as a cooperative.

A cooperative exists to provide economic services to its members rather than just to generate a return on investment. A portion of all of its capital comes from members rather than outside investors. Capital is obtained by direct contributions through membership fees or sale of stock, by agreement with members to withhold a portion of net income based on patronage, or through assessments on some regular basis such as per unit of product sold or purchased, or per acre, and so on.

Cooperatives, both rural and urban, have been part of the American economy for more than 100 years. In the United States there are more than 40,000 cooperatives that serve one out of every four citizens. Application of the cooperative business structure in rural economies is virtually limitless.

Why Cooperatives are Organized

1. Improve bargaining power
2. Reduce costs
3. Obtain products or services otherwise unavailable
4. Expand new and existing market opportunities
5. Improve product or service quality
6. Increase income

Types of Cooperatives

Producer-owned cooperatives are owned by farmers, producers or small businesses. Agricultural producers or crafts people organize cooperatives to process and market their goods (dairy co-ops), and to provide themselves with credit (credit unions and Farm Credit System), equipment and production supplies (Southern States stores). Similarly, retail stores or small businesses organize cooperatives to provide supplies or common services (ACE Hardware).

Consumer-owned cooperatives enable consumers to secure a wide array of goods and services. For example, they may offer health care, utilities, insurance, and housing. They may buy and sell food, heating fuel, hardware, and other chemical goods. Or, they may operate credit unions, childcare facilities and funeral and memorial societies. Almost all consumer needs can be met with cooperatives. In Georgia we have examples of many of these types of co-ops.

Worker-owned cooperatives are businesses owned and controlled by their employees. Worker cooperatives may be found in almost any industry. An examples may be employee-owned food stores.

Principles of Cooperatives

The cooperative principles are guidelines by which cooperatives put their values into practice.

1st principle: 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.

2nd principle: 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 organized in a democratic manner. The Georgia Code requires that co-ops practice the one person, one vote principle.

3rd principle: 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. In Georgia, dividends are limited to a maximum of 8 percent. 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.

4th principle: Autonomy and Independence. Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5th principle: Education, Training, and Information. Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of cooperation.

6th principle: Cooperation Among Cooperatives. Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.

7th principle: Concern for Community. Cooperatives work for the sustainable development of their communities through policies approved by their members.

10 Important Steps In Organizing A Cooperative

1. Hold an exploratory meeting with others who have a similar interest and determine whether you have common needs and desire to address those needs as a group.
   
2. Select a steering committee to guide the group through the formation process.
   
3. Conduct a survey of potential members.
   
4. Analyze markets for products, supplies, and services.
   
5. Prepare a business plan.
   
6. Incorporate the business.
   
7. Adopt bylaws and select a board of directors.
   
8. Find investment funds--including member investment needed to carry out the business plan.
   
9. Hire management and employees, and acquire facilities and equipment.
   
10. Begin operations.

The Georgia Cooperative Development Center can help groups work through each of these steps.