Co-operative as a business model

The purpose of a co-operative is to promote the economic and business interests of its members by way of the pursuit of economic activity where members make use of the services provided by the co-operative directly or through a subsidiary or otherwise.

It may be stipulated in the rules of the co-operative that its main purpose is an ideological goal. Therefore for instance a coalition of co-operatives as an interest group or a Village Association could operate as a co-operative and participate in economic activities.

What is a co-operative?

A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social and/or cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
Its purpose is to offer to its member’s services and commodities as affordably as possible and to secure the members well-being.

It is an economical approach based on equality and justice which signifies that it has a democratic governance system. In the co-operative model the service-users own the service-providers.

Different Types of Co-operatives

  • Consumer co-operative (for instance a retail co-operative) where a customer of the co-operative is also a member.
  • Service co-operative (for instance a co-operative bank or an indemnity insurance company), where those using the services of the co-operative are members.
  • Producer co-operative (for instance a co-operative creamery), where the producers of raw material are members.
    • Consumer and producer co-operatives have their roots in the early 20th century when the Finnish co-operative movement was born.
  • New generation co-operatives are ”new wave” co-operatives that have been set up in different lines of business since the late 1980s.

Capital and rules

Co-operative is an organisation whose membership and share capital have not been determined in advance. There is no requirement for minimum share capital in a co-operative.
The members are not personally liable for the obligations of the co-operative, unless extraordinary payments are stipulated in the rules. This is, however, quite rare.

All co-operatives have their own rules written with the particular co-operative in mind. But the Finnish Co-operatives Act applies to all of them.

The net assets and surplus belongs to the co-operative. The assets can be allocated to the members if the co-operative is dissolved. If the co-operative distributes surplus to its members, the distribution-principles have to be determined in the rules.
The surplus generated is normally allocated to the members primarily as service-users not as investors in proportion to the members’ transactions with the co-operative.

Although, generating surplus is not the main goal of a co-operative, in practice, it is desirable to have some left over to be used in the development of the co-operative.

Membership and governance

A co-operative can admit new members, membership is voluntary and one can resign from a co-operative. One can also be expelled from it. In this respect it is a flexible business model.

The members exercise their rights at the general meeting of the co-operative in person. The members can also use delegates elected among members. A co-operative has a board of directors chosen by the general meeting and the board normally appoints the chief executive officer. In addition, a co-operative can also have a supervisory board.

Power of decision is exercised by the principle one member one vote even if the members have different number of shares. The power of decision can, however, be differentiated by rules in first-degree co-operatives. It cannot, however, be more than twenty times that of another member’s.  In second-degree co-operatives where majority of members are co-operatives or other communities the one member one vote principle can be departed freely.

Duties of the General Meeting of a Co-operative

  • The general meeting shall decide on the important resources of the co-operative.
  • The ordinary general meeting has to be held within six months from the end of the financial year
    • to approve the income statement and the balance sheet
    • to decide on measures in view of surplus
    • to discharge from liability
    • to choose the members of the board of directors or possibly the supervisory board and the auditors.
  • In addition, the general meeting decides on the amendments to the rules, deregistration of the co-operative and o n the increase of the share price, among other things.