Co-operatives exist to provide benefits in the form of goods and services to their members. This differs from the primary purpose of other types of business organizations-such as sole proprietor- ships, partnerships, and corporations-which typically exist to generate profits for the owners of the business. Other significant differences between co-operatives and other types of businesses have to do with ownership, control, and the way the benefits from operating the business are distributed.
Co-operatives are financed by the people who use the services provided by the business. Investing risk capital in a co-operative business is a basic member responsibility and a function of owning the co-operative.
In a corporation, anyone with capital to invest may become an investor, regardless of whether or not they use the services provided by the business. Similarly, anyone may establish a sole proprietor- ship or participate in partnerships, regardless of whether or not they use the services provided or patronize the business. Sole proprietorships, part- nerships, and corporations are often referred to as investor-owned firms when compared to co-operatives, which are member-owned, and, in the case of agricultural co-operatives, producer- owned.
Co-operative control is expressed through the principle of "one member, one vote"-each member has only one vote regardless of the amount of capital that member has invested in the business. Members' control over a co-operative is normally exercised through the election of a board of directors from the membership. The board represents the membership in providing direction to the business by establishing the overallgoals and policies of the co-op. In a co-operative, the central issue of control typically focuses on deter- mining the types of services provided by the business.
In corporations, shareholders normally hold control over the business in proportion to the amount of capital they invest. Shareholders elect a board of directors who guide the affairs of the corporation in the interests of theshareholders. The directors may or may not be shareholders themselves. The central issue of control in corpo- rations is typically the returns to the shareholders' investment in the firm compared to other current investment opportunities.
In a corporation, if individual shareholders cannot vote or choose not to, they may assign their voting rights to other individuals by proxy. In a co-operative business, voting by proxy is permitted only under certain circumstances.
In non-incorporated private businesses, individual partners or proprietors exercise direct control over the business.
In co-operatives, benefits are distributed to the members in proportion to their use of the goods and services provided by the business. Any surplus(gross income less expenses) generated through a co-op's business operations are either reinvested in the business to improve the services provided or they are redistributed to the members in the form of patronage refunds. Patronage refunds are calculated in proportion to a member's use of the services provided by the co-operative.
In investor-owned firms the profits generated from the operation of the business are typically distributed to investors in proportion to the capital they have invested in the firm. In corporations, this is done by paying dividends on investment shares.
Co-operatives are incorporated. A member-owner of a co-operative has limited liability for financial loss. Therefore, like the stockholder in a corpora- tion, a co-op member can lose no more than the amount of money that he or she has invested in the business. In contrast, in a sole proprietorship or partnership, the owner or partners are liable for all debts, operating losses or other liabilities incurred by the business.