Cooperatives and How They Differ From Other Business Models

by Michael Wolfe; Updated September 26, 2017

Cooperatives, often referred to as co-ops, are organizations whose members work together on a voluntary basis to achieve a common goal. Members will generally join a cooperative in order to accomplish goals that they they would not be able to achieve on their own. Cooperative membership can be composed of individuals or it can be composed of a group of businesses. Although similar to other businesses, cooperatives differ from traditional corporations and partnerships in a number of different ways.

Democratic Control

One of the main differences between a cooperative and a traditional business is that the organization and management of the cooperative is democratic, not hierarchical. While traditional businesses are run by a top-down method of governance, in which one person or a group of persons at the top of organizational hierarchy make most of the decisions, in a cooperative decisions are made by all members. Although some members may be vested with special privileges, they are only granted these powers if the members approve of doing so.

Voluntary Organization

Co-ops, like regular businesses, often have employees that are paid a set wage. However, much of the work of a co-op is carried out by members volunteering their services. For example, in a grocery co-op, members may be required to work a certain number of shifts each month to maintain their membership. While a regular business may accept a few volunteers, the bulk of the labor is carried out by paid employees.

Ownership

A cooperative is owned exclusively by its members. While a regular business may issue stock or be owned by outside investors, all co-ops are owned entirely by the people who work in them. While some cooperatives are not for profit, meaning that the profits generated by the co-op are used exclusively to run the co-op, others are run like businesses. In this case, profits generated by the co-op are distributed among members.

Cooperatives

If making a profit is the goal of a cooperative, it is usually only one of its goals. Unlike traditional business organizations, cooperatives are often dedicated to improving the community or achieving another social goal. While some businesses may also work towards the welfare of a community, their primary responsibility is to their investors. Because co-ops are owned by their members, the members can choose to devote the organization to a goal besides making profits.

About the Author

Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.