Differences Between Cooperatives & Traditional Businesses

A cooperative is a business ownership structure that gives stakeholders both ownership equity and a voice in decision making. Every cooperative is unique, with its own business model and bylaws governing the specifics of ownership and decision making. Despite inherent differences, cooperatives share an ethic of gearing operations towards the interests of the members as a whole rather than towards the interests of a select group of managers or investors.

Traditional businesses may be sole proprietorships, owned by a single individual, or partnerships, closely held by a limited number of individuals. Traditional businesses can also be corporations, which are legal entities distinct from their individual owners. Some states, such as Arizona, regard cooperatives as types of corporations, while other states, such as Washington, offer the cooperative option as a formally recognized business structure. Regardless of whether it is formally structured as a cooperative or as a corporation, a cooperative is owned by its members.

In a traditional business the equity, or ownership share, of owners or stockholders may be sold, traded, or earned by means of sweat equity -- meaning trading work in exchange for a share of ownership. In a cooperative business, worker members may only earn equity in exchange for their work, though a sweat-equity process referred to as "patronage." The process of earning patronage equity varies from one cooperative to another, and can involve a small initial investment of time or a longer-term commitment.

In a traditional business, critical decisions are usually made by owners, by boards of directors, or by officers, such as a CEO. For the most part, the more closely held the business, the more the owners are involved in the decision making process. For example, the owners of a partnership are often actively involved in all major company decisions. A cooperative comes with voting rights of one vote per member, so decision-making power is broadly shared. A cooperative may elect a board of directors to expedite decision making, but each member has an equal vote in the election of the board.

Because cooperative members have a stake in company ownership and decision making, they tend to be more engaged than employees of businesses that simply pay workers for their labor. Because of this high level of engagement, cooperatives tend to have a lower worker turnover rate than traditional businesses, and workers are more likely to be involved in all phases of a company's activities.