What is a Cooperative?

A cooperative (also written as "co-op" or "co-operative") is a business that is owned and democratically controlled by its members — the people who use its services or work for it.

Unlike a conventional company owned by outside shareholders seeking profit, a cooperative exists to serve its members' needs. Profits (called surpluses in cooperative terminology) are shared among members, reinvested in the business, or used for community benefit — not extracted by external investors.

The International Cooperative Alliance defines a cooperative as:

"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."

The Core Difference: Members, Not Shareholders

Feature	Corporation	Cooperative
Owned by	Shareholders (investors)	Members (users/workers)
Voting	Proportional to shares owned	One member, one vote
Purpose	Maximise shareholder return	Serve member needs
Profits go to	Shareholders	Members (proportional to use)
Control	Board elected by shareholders	Board elected by members

This structure creates a fundamentally different incentive: the people who run the cooperative are the same people who benefit from it.

Who Are the Members?

Depending on the type of cooperative, members can be:

Farmers sharing equipment, storage, and marketing (agricultural co-ops)
Workers who collectively own their employer (worker co-ops)
Customers of a retail store or food market (consumer co-ops)
Residents sharing ownership of an apartment building (housing co-ops)
Utility customers who collectively own their electric grid (electric co-ops)

The defining feature is that members have a dual role: they are both the owners of the business and its primary beneficiaries.

The 7 Cooperative Principles

All genuine cooperatives follow the seven principles established by the International Cooperative Alliance — codified at the ICA's cooperative principles page:

Voluntary and Open Membership — anyone who can use the cooperative's services can join
Democratic Member Control — one member, one vote
Member Economic Participation — members contribute to and benefit from the capital
Autonomy and Independence — cooperatives are self-governing
Education, Training, and Information — investment in member knowledge
Cooperation Among Cooperatives — cooperatives work together
Concern for Community — cooperatives work for sustainable community development

How Big is the Cooperative Sector?

The cooperative economy is larger than most people realise:

3 million cooperatives operate worldwide
1.2 billion people are members of at least one cooperative
280 million people work in or for a cooperative — 10% of the global employed population
The 300 largest cooperatives generate revenues of over $2 trillion annually
65% of total agricultural production in some countries goes through cooperatives

Key examples of major cooperatives:

Mondragon Corporation (Spain) — one of the world's largest worker cooperatives, €12B revenue
Dairy Farmers of America — 11,000 member farms, $18B revenue
REI — 22 million members, the largest consumer cooperative in the US
Migros — Switzerland's largest retailer, owned by 2 million members
SNCF (France) — national rail cooperative serving millions

Types of Cooperatives

There are eight main types of cooperatives, classified by who the members are and what the cooperative does:

Agricultural cooperatives — farmers pooling resources
Worker cooperatives — employee-owned businesses
Consumer cooperatives — customer-owned stores
Housing cooperatives — resident-owned buildings
Electric cooperatives — member-owned utilities
Banking cooperatives — credit unions and cooperative banks
Marketing cooperatives — collective marketing organisations
Food cooperatives — community-owned food stores

Cooperatives vs Companies: Key Differences

Purpose

Companies exist to maximise profit for shareholders. Cooperatives exist to serve the needs of their members — lower prices for consumers, better prices for farmers, better working conditions for employees.

Governance

In a company, voting power is proportional to share ownership — the biggest shareholders have the most control. In a cooperative, every member has one vote regardless of how much capital they have contributed.

Distribution of Surplus

When a company makes profit, it is distributed to shareholders based on how many shares they hold. When a cooperative makes a surplus, it is returned to members based on how much they participated — how much they bought, produced, or worked. This is called the patronage dividend or rebate — see patronage refunds for a full explanation.

Capital

Companies raise capital by selling shares to investors. Cooperatives raise capital through member contributions — joining fees, share purchases, or retained surpluses. Members earn a return on their invested capital, but this is secondary to their benefit as users.

Advantages of Cooperatives

Democratic control — members have a say in how the organisation is run
Aligned incentives — the business serves the people who use it
Profit sharing — surpluses return to members, not external investors
Stability — cooperatives are less likely to be sold, closed, or offshored by remote shareholders
Community commitment — cooperatives are rooted in the communities they serve
Economic resilience — research shows cooperatives survive economic downturns better than conventional firms

Common Questions

Are cooperatives non-profit?

No. Cooperatives are not non-profits. They generate revenue, cover costs, and often produce a surplus. The difference is that surpluses are returned to members rather than distributed to outside investors. Cooperatives are properly described as member-benefit organisations, not non-profits.

Can cooperatives be large businesses?

Yes. Some of the world's largest organisations are cooperatives. Dairy Farmers of America has $18B revenue. Mondragon employs 81,000 people. The Japanese agricultural cooperative JA Group has assets exceeding $1 trillion.

Are credit unions cooperatives?

Yes. Credit unions are financial cooperatives — they are owned by their members (depositors and borrowers) and operated for their benefit. They follow all seven cooperative principles. The National Credit Union Administration (NCUA) regulates and insures federal credit unions in the United States.

What is the difference between a cooperative and a mutual?

Mutuals are similar — both are member-owned and not-for-external-shareholder-profit. The distinction is mainly legal and historical. In practice, the terms are often used interchangeably, though cooperative is more common in agriculture, worker ownership, and retail, while mutual is more common in insurance.

The Bottom Line

A cooperative is a business structured around people, not capital. It answers the question: what if the people who use a business also owned and controlled it?

The 3 million cooperatives operating worldwide — from small village credit unions to billion-dollar agricultural networks — demonstrate that this model works across every sector, every country, and every scale.

Explore further:

What are Cooperatives? Definition, Meaning & How They Work