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.

How a Cooperative Actually Works

A cooperative is a real trading business — it buys, sells, employs people, takes on debt, and competes in the open market. What sets it apart is who controls it and where the surplus goes, not how it operates day to day.

Joining. A person becomes a member by meeting the cooperative's membership criteria and, in most cases, contributing share capital — a one-off joining fee, a refundable share, or a deposit. That share buys one thing above all: a vote. It is not a tradable financial stake whose value rises and falls with the market, which is the central difference from owning stock in a company.

Governing. Members elect a board of directors, usually on a one-member-one-vote basis. The board sets strategy and appoints professional managers to run operations. Members do not manage the business directly — large cooperatives like Crédit Agricole or REI employ thousands of staff — but the people who run it ultimately answer to the people who use it.

Sharing the surplus. At year end, after the cooperative covers its costs and sets money aside in reserves, any remaining surplus is returned to members in proportion to how much they used the cooperative — not how much capital they hold. A farmer who sold more grain through the co-op, or a shopper who spent more at the store, receives a larger share. In US tax law this is the patronage dividend; electric cooperatives call it capital credits; consumer co-ops often call it a member dividend or rebate.

This single rule — return value by use, not by capital — is what makes a cooperative a cooperative. It is also why a cooperative behaves differently in a downturn: with no outside shareholders demanding a return, worker cooperatives tend to cut hours rather than jobs, and consumer co-ops tend to hold prices steady rather than maximise margins.

A Brief History

The modern cooperative model is usually traced to Rochdale, England, in 1844, when 28 weavers and artisans — the Rochdale Pioneers — opened a small store selling food at fair prices. Squeezed by low wages and adulterated goods, they pooled their money and wrote down a set of operating rules: open membership, democratic control, and a dividend paid to members in proportion to their purchases. Those Rochdale Principles became the template for cooperatives worldwide and survive, updated, in the International Cooperative Alliance's seven principles today.

The idea spread quickly and adapted to local needs. In Germany, Friedrich Wilhelm Raiffeisen and Hermann Schulze-Delitzsch built the first cooperative credit and rural banks in the 1860s — the ancestors of today's Volksbanken and Raiffeisenbanken. In France, agricultural lending cooperatives grew into Crédit Agricole. In North America, Alphonse Desjardins founded the first caisse populaire in Quebec in 1900, seeding the credit-union movement across the United States and Canada. In India, the dairy cooperative model pioneered at Anand in Gujarat became Amul and the foundation of the country's "White Revolution."

What began as a defensive response to industrial-era exploitation is now a mainstream economic structure embedded in banking, farming, retail, housing, and energy on every continent.

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. According to the International Cooperative Alliance and the International Labour Organization:

3 million cooperatives operate worldwide
1 billion+ people are members of at least one cooperative — roughly one in eight people on earth
280 million people work in or for a cooperative — about 10% of the global employed population
The 300 largest cooperatives generate combined revenues of over $2 trillion annually (ICA World Cooperative Monitor)
Cooperative enterprises hold an estimated $20 trillion in assets

The scale is easiest to see sector by sector. In banking, the World Council of Credit Unions counts over 92,000 credit unions across 118 countries serving 400 million-plus members, and Europe's cooperative banks hold trillions in assets. In agriculture, cooperatives handle a large share of output in many countries — India's dairy cooperatives alone collect tens of millions of litres of milk a day from smallholder villages. In the United States, 900-plus electric cooperatives deliver power to 42 million people across roughly 56% of the country's land area, and 1.5 million American families live in housing cooperatives. See the full breakdown on the cooperative statistics page.

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
Crédit Agricole (France) — the world's largest cooperative bank, owned by roughly 12 million mutual shareholders through its local and regional banks

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

The same model scales from a 17,000-member food co-op in Brooklyn to a federation of 100+ businesses like Spain's Mondragon. What unites them is the governance rule, not the size or sector.

How Cooperatives Differ from Similar Models

"Member-owned" and "not purely shareholder-driven" describe several structures, and they are easy to confuse. The distinctions are mostly legal and historical:

Model	Owned by	Key difference from a cooperative
Cooperative	Members (users, workers, or producers)	Returns surplus by patronage (use), one member one vote
Mutual	Members (typically policyholders or depositors)	Functionally close; "mutual" is the usual term in insurance and some savings institutions
Nonprofit	No owners; governed by a board/trustees	Cannot distribute surplus to members at all — a co-op can and does
Employee-owned (ESOP)	Employees, via a trust holding company stock	Ownership is through shares in a conventional company, often without one-member-one-vote
Corporation	Shareholders (investors)	Returns profit by shares held, votes weighted by capital

A practical test: if surplus flows back to the people who use the business in proportion to that use, and each of them has an equal vote, it is operating as a cooperative — whatever it is called locally. See cooperative vs corporation, cooperative vs mutual, and cooperative vs nonprofit for fuller comparisons.

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.

How do cooperatives make money?

A cooperative earns money the same way any business does — by selling goods or services for more than they cost to provide. The difference is what happens to the surplus. Instead of paying it out to outside shareholders, the cooperative keeps reserves for stability and returns the rest to members in proportion to how much they used it (the patronage dividend). Members may also earn a modest, capped return on the share capital they contributed, but that is secondary to their benefit as users.

How do you start a cooperative?

The broad path is the same in most countries: gather a founding group of members (many jurisdictions set a minimum, often around 3–15 people), agree a clear common purpose, draft bylaws that set out membership rules and one-member-one-vote governance, register with the relevant authority, and issue membership shares. The specifics — which regulator, minimum members, capital requirements — vary by country. See our step-by-step guide on how to start a cooperative and how to register a cooperative.

What are the disadvantages of cooperatives?

The model has real trade-offs. Raising large amounts of capital is harder, because cooperatives cannot sell equity stakes to outside investors the way corporations can. Democratic decision-making can be slower than top-down control, especially as membership grows into the thousands or millions. And the one-member-one-vote structure can struggle to keep members engaged once a cooperative becomes very large. Our guide to the advantages and disadvantages of cooperatives covers these honestly.

Who owns a cooperative?

Its members own it — collectively and equally in voting terms. There are no outside shareholders. Each member typically holds one share that carries one vote, regardless of how much they have spent, produced, or deposited. This is the defining ownership feature that separates a cooperative from an investor-owned company, where control is weighted by the size of each shareholder's stake.

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