What is a Cooperative Business?

Understanding Cooperative Forms of Business [Book Excerpt] - ABA Book Briefs Blog

A cooperative business generally has the following characteristics:

1. It is owned and controlled by the people who use its services or buy its products (its "owner/customers").
2. Its primary focus is to provide its services or goods to its owner/customers and not to the general public.
3. It is democratically controlled by its owner/customers, and each owner/customer has one vote regardless of the amount of services or products it purchases from the cooperative.
4. The primary objective of the cooperative is to maximize benefits, rather than profits, for its owner/customers.

Federal and state governments treat cooperatives differently from other business entities. One reason is that the rewards from their operations go almost entirely to their owner/customers rather than to outside investors, and they often provide services or products that would otherwise be unavailable from investor-owned enterprises. The success of agricultural cooperatives in helping farmers emerge from economic depression paved the way for the formation of other cooperatives, such as those providing electric and telephone service in rural areas, attracted by tax advantages and low-cost, government-backed financing. While preferences continue to be extended to some cooperatives today, governments have also imposed restrictions on cooperatives based on their unique characteristics.