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What’s a Co-operative?

What’s a Co-operative?

Co-operatives are sometimes referred to as the 'hipsters' of company structures. Read on to see if a Co-operative structure is right for you.

9th September 2019
Reading Time: 3 minutes

What’s A Co-operative?

A Co-operative and mutual structure is different from most company structures. Unlike private companies, they don’t seek to maximise profits. Rather, they aim to offer their members better prices and lower costs. You probably don’t realise it, but some of Australia’s most well-known businesses operate under a co-operative structure like Dairy Farmers Australia. Even famous Football teams like Barcelona FC operate under a co-operative structure. However, co-operatives are gaining popularity amongst alternative entrepreneurs because of their unique benefits and the impact they can have on local communities. Co-operatives are a great middle-ground between a non-for-profit and private company. Therefore, a co-operative might be the right structure for your business idea.

What Is The Legal Structure Of A Co-operative?

Consumer Affairs Victoria defines co-operatives  ‘as a democratic organisation, owned and controlled by its members for a common benefit.’ Co-operatives traditionally base their values on self-help, self-responsibility, equality and solidarity. Unlike private companies, there is no limit to the number of shareholders that can be part of a co-operative. Co-operatives create fairness because each member is granted a single vote. Ownership for members is also restricted to 20%. All members can also nominate themselves as directors and can elect directors. Like any business, though, they still have to be registered with the local state authority. The Co-operatives National Law Application Act 2013 governs applications for co-operatives.  

What Are The Types of Co-operatives I can operate?

There are two distinct types of co-operatives. Non distributed and distributed. Non-distributing co-operatives use surplus funds to support their activities. Distribution doesn’t occur for members. This structure is most appropriate for community-based organisations. However, distributing co-operatives allow for the delivery of surpluses to members. Allocations can occur through dividends, rebates, or bonus shares. Co-operatives tend to also to fall into similar categories. These categories can also include Consumer Co-operatives which buy and then sell goods to members at a competitive rate. For example, the Co-op Book shop seeks to buy and sell textbooks at competitive prices for students. Community-based Co-operatives provide resources, information, and skill-sharing that encourages ownership and participation.

The Benefits of Co-operatives

The real benefit of a co-operative is the value it brings to its members and the community. Sometimes, the problem with a publicly listed company is that ownership can be centralised amongst a few shareholders who dictate the direction of the company. These members often seek to maximise their investment. However, co-operative members receive the value from the business activity and can reinvest those funds into the local community. Co-operatives function on the basis of the International Cooperative Principles. These principles include having a concern for the community and providing members with the necessary skills to succeed in the industry.

Co-operatives might be the future of business

It can be challenging to determine which is the most appropriate business structure to choose. Co-operatives have a long and proud history around the world and may become an even more mainstream company structure for businesses going forward. Companies are seeking to become more ethically focused in a globalised world. Entrepreneurs will start turning to co-operatives to operate their business and represent their values. Whether you’re a wholefoods junkie looking to start a bulk foods business, or a weavers group in India seeking to distribute funds amongst your community, the future of Co-operatives is looking bright. If you want further guidance on which business structure is right for you, it’s worth getting in touch with a business lawyer.

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Joshua Cutrone

Josh is a Legal intern at Lawpath. He is a Commerce/Law student at Macquarie University. He has an interest in cyberlaw and blockchain technology.