Why Build a Cooperative in Your Community?

Why Build a Cooperative in Your Community?

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Why Build a Cooperative in Your Community 300x192 Why Build a Cooperative in Your Community?

Unlike other types of business structures, a cooperative generally operates on a democratic platform wherein the broad participation of the people in managing a business is vital. At its core, a cooperative focuses more on meeting the social and economic needs of the community rather than profiting more from its business. The organization harnesses the available resources from its members and its business partners for investment capital and raw materials. However, it doesn’t treat its employees simply as resources, but as partners in building their business.

Democratic Ownership and Delegation of Work

A cooperative follows the principle of participatory governance, which means the people are given the power to decide among themselves the best way to run their business. In a company, decision making starts from the top where executives provide business direction and create the policies that employees must follow. Comparatively, the process of making decisions in a cooperative starts from the bottom where the members hold an assembly meeting presided over by the Board of Directors and guided by the cooperative’s Articles of Incorporation.

In the same vein as a democratic government, members choose the officers of the Board of Directors from their current members. The members who got elected as officers become responsible for the cooperative’s business operations, including accounting, inventory management, and sales. So, each officer must have a set of skills to perform well on the job. For instance, the person responsible for the organization’s financial records must be experienced in balancing the books and working on accounting tasks.

Meeting the Social and Economic Needs of the Community

Empowering the people moves the locus of control to the community rather than the select few managing the business. Now, it’s not a question of whether or not you’re getting that promotion this year, but whether you’re satisfied with the direction the cooperative’s business is going. You already know you’re benefiting from the cooperative and you don’t have to worry about losing your job because you already own the business. Your only focus now is helping everyone else in your community benefit from the cooperative.

Profit Sharing and Patronage Refunds

Generally, a for-profit cooperative promotes profit-sharing based on equity. Members buy a minimum number of shares and the funds are used as capital for the business. Some members may choose to buy more than what was required although this doesn’t give them more rights or privileges than the other members. However, they’ll likely receive a greater share during the distribution of the co-op’s net surplus – which is akin to a company’s net profits. The net surplus is arrived at after portions have been allocated to the reserve fund, for the Education and Training budget, and for an optional fund for community development or for the acquisition of real properties.

Another means of returning the cooperative’s earnings back to the community is through patronage refunds, which are as effective as money, but limited to what’s been specified in the By-Laws. For instance, members who frequently shopped at a food cooperative’s grocery store may receive coupons for buying a minimum number of items. In another example, a member who has accumulated a minimum amount of purchases at the end of the fiscal year receives an equivalent value of preferred shares.

Although the cooperative’s officers and employees receive a monthly paycheck, the amount may not be on par with a private enterprise’s compensation package. Yet, many people still choose to work for a service or worker’s cooperative because the benefits they receive go beyond the financial. For some, the psychological benefits alone motivate them to contribute their time, money, and energy into building a thriving cooperative business in their community.

Mike L. is author and editor at Sowest. Mike has produced and marketed innovative content for many blogs. Stay in touch with Mike on Sowest .

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