Cooperative Principles

Whether you operate as worker-owned, consumer/purchase or hybrid cooperative, around the world, all cooperatives operate according to the same principles and values adopted by the International Cooperative Alliance.  They were first set out in 1844 by the Rochdale Society of Equitable Pioneers in Rochdale, England and have formed the basis for the principles on which co-operatives around the world continue to operate.  

The Rochdale Principles are a set of ideals for the operation of cooperatives. The principles are:

 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.

Democratic Member Control

Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions.  Members serve as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights: 1 member, 1 vote. 

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 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.   

 Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter to 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 co-operative autonomy. 

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.

 Cooperation among Cooperatives

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

Concern for Community

Cooperatives work for the sustainable development of their communities through policies approved by their members.

The terms “cooperative” and “nonprofit” often refer to specific types of corporations recognized under state law, and the rules and requirements for incorporating under either vary by state. To simplify this discussion, let’s focus on the legal distinction between a cooperative corporation incorporated under state law and a nonprofit organization tax exempt under Section 501(c)(3) of the Internal Revenue Code. Both entity types primarily exist to benefit their constituencies rather than shareholders. And both cooperative and nonprofit corporations can be governed democratically and generate a profit.

One primary difference between a cooperative corporation and a tax-exempt nonprofit corporation is how money flows back into the community: a tax-exempt nonprofit organization cannot distribute profits to members or investors, while a cooperative corporation generally distributes profits based on members’ participation in the cooperative (through patronage dividends). The primary source of funding may also be different: whereas a cooperative corporation generates most or all of its revenue through the sale of goods and services, a nonprofit can receive tax-deductible donations from community members and foundations, and is limited in the amount of business activity it conducts unrelated to its charitable purpose.

Speaking of charitable purposes, another distinction is that a 501(c)(3) tax-exempt nonprofit may have more limits on its activities than a cooperative corporation, as it must be organized and operated exclusively for charitable, educational, or other exempt purposes. Exempt purposes can include (in the words of the IRS) relief of the poor, distressed, or underprivileged; combating community deterioration; eliminating prejudice and discrimination; and education, to name a few. These tax-exempt purposes must benefit the broader public and a charitable class of people (such as low-income, distressed, marginalized, etc). Thus, a 501(c)(3) nonprofit is primarily accountable to the public, though, like a cooperative, may choose to have a membership to which it is accountable.

So the primary differences are how the organization is capitalized and who it is directly accountable to, both of which have to do with how the organization interacts with outside stakeholders. Internally though, nonprofits and cooperatives can actually be structured in very similar ways to ensure democratic control by workers and other important constituencies.

Again, this is not a complete overview of the laws governing 501(c)(3) public charities or cooperative corporations. For much more of cooperative and nonprofit law, visit two of SELC’s online legal resources libraries: Co-opLaw.org for cooperatives and CommunityEnterpriseLaw.org for nonprofit law.

Above information is an excerpt from:

Cathy, Co-op. "How Are Nonprofits and Co-ops Different?" Cooperative Development Institute. N.p., 22 Mar. 2016. Web. 25 Apr. 2017. <www.cdi.coop>.

Most of what makes a worker co-op successful is what makes any business successful.

• Strength of your team
• Know your customers (what they want, when, how)
• Consistent tracking of your business finances (cash flow, balance sheet, and P&L)
• Working your network
• Management experience
• Ability to adapt and evolve
• Transparency within the teams
• Clear decision-making process
• Strong accountability systems

List of Pros of Cooperatives*

1. They instill an atmosphere of cooperation.
Advocates of cooperatives emphasize the overall social and psychological influence brought about by the worker-control parameters in these associations. This factor is believed to help transform the adversarial relationships that are common in most classical firms into an atmosphere of cooperation. Considering the idea of a cooperative, once members start to identify their individual and collective efforts with the organization’s improved performance, cooperative problem solving also starts to take place. This more communicative workplace will result in improvements in production processes, thanks to a good flow of information across the floor. Also, it leads to a heightened satisfaction spreading throughout its members, which can help with lowering worker turnover and absenteeism.

2. They are democratic.
One of the greatest perks of having a cooperative model in business is the democratic approach to ownership. Members get to practice democracy in a place where they spend most of their day.  Managerial, Operational and Profit sharing are decided by the collective.  Members can choose their own leadership structures, accountability systems, benefits, and other perks that normally would not trickle down to wage workers.

3. They provide great economic benefits to members.
Generally, each type of cooperative comes with broadly defined economic advantages. For members of consumer cooperatives, they are entitled to receive patronage dividends, which are distributed from net earnings and determined by the amount the members spent on their products since the payout of the last period. Also, members who work within the cooperative are qualified to get substantial merchandise discounts. For property-owning members of residential cooperatives, they will serve as stockholders, so they will receive benefits from the incurring interest and maintenance costs.

4. They can make for engaged employees and customers.
When employees are given a greater stake in their business’s outcomes, they would be more engaged and would perform better. Whatever their roles in the business, they are given the right to take part in making decisions, which will be better informed if employees have a role to play in the management process. Customers will also be more likely to continue patronizing the business if they are members having a stake in its future.

5. It keeps more money in the local community.

* Blogger. "10 Pros and Cons of Cooperatives." Green Garage. Green Garage Blogger, 1 Apr. 2015. Web. 25 Apr. 2017. <https://greengarageblog.org/10-pros-and-cons-of-cooperatives>.

CONSUMER COOPERATIVES: Owned by consumers who buy goods or services from their cooperative.

SHARED SERVICES/PRODUCER COOPERATIVES: A group of producers who unite to market or process their product or services.

WORKER COOPERATIVES: Owned and democratically governed by employees who become co-op members.

HYBRID COOPERATIVES: A combination of co-op types, where people with common interests band together.