In the co-operative business world we talk of co-operatives making "a surplus" rather than "a profit"; "profit" being the total annual positive result of business trading, "surplus" being that part of profit derived from the economic relationship with members. As a general application of this 3rd Co-operative Principle, profit ought to be allocated to indivisible reserves and not distributed to members.5

Every co-operative needs to make a surplus to be viable, to maintain the value of capital members have invested in the business and its indivisible reserves, and to enable a co-operative to achieve the objective of meeting its members' economic, social and cultural needs and aspirations. But this surplus belongs to the members and it is for the members to decide how it is used.

The 3rd Principle sets out three ways in which members may choose to use surpluses generated by a co-operative enterprise. Members may choose to use surpluses:

• To develop their co-operative, "possibly by setting up reserves, part of which at least would be indivisible". This approach of investing surpluses in the development of their co-operative' business should be the normal way to allocate surpluses that are not returned to members. It is vitally important to strengthening a co-operative's business and securing its long-term viability. It also enables a co-operative to diversify and provide the products and services that its members need. A share of the surplus, at a level set by the general assembly sufficient to secure long-term viability, should always be used to strengthen and develop a co-operative's business activities. Stronger co-operatives better protect and serve their members.
• Reinvesting in modernising physical and other infrastructure and in improving human resources; investing in human resources and the education and training of members, employees and the general public should be seen as increasing real intangible 'human capital' and worthy of investment.
• Developing new co-operative activities with the aim of diversifying the co-operative economy. Co-operatives providing a whole variety of services to members was an original objective of the Rochdale Pioneers. These activities should, as a priority, be developed through capital contributions. A venture capital approach to enable long-term development of new co-operative activities by the co-operative or by supporting the development of new or other co-operatives in clusters may be appropriate. A constellation of economic activities as co-operatives can be encouraged by such an approach, although it is not the only way to support new co-operative development.
• To pay a return to members, often referred to as the "dividend or patronage refund", based on a member's participation in the co-operative. This is the traditional way to reward members for their support of the co-operative, the "Rochdale Dividend" being one of the key people-centred business innovations that led to the Rochdale Pioneers' success.
• To support other activities that are approved by members, including social and cultural activities that support the co-operatives commitment to the communities within which they operate. This includes supporting activities consistent with the 5th Principle, Education, Training and Information, the 6th Principle, Co-operation among Co-operatives and the 7th Principle, Concern for Community.

One of the most important other activities that members can - and should - choose to support is to promote an economic environment favourable to the further development of the co-operative movement, locally, nationally, regionally, and internationally. Co-operatives are encouraged to consider paying a portion of their surpluses into a fund to found and strengthen other co-operatives. Co-operatives are also encouraged to support the Alliance by becoming members or associate members directly or through their national apex co-operative organisation.

Using surpluses to fund activities that support communities in which co-operatives operate firmly links this 3rd Economic Principle to the 7th Principle, Concern for Communities. Great caution should be exercised in the sale of a co-operative's assets. Surplus produced by selling assets should not be distributed to members because the objective of a co-operative is to render service to members not to generate a surplus for distribution to members by the sale of assets.