To better understand how cooperatives and corporations are different, it helps to review the most common types of business partnerships. There are three types of business: sole proprietorship, partnership, corporation, and the newest form the Limited Liability Corporation or LLC.
Of the corporations, there are general corporations and cooperatives. Thus a cooperative is a type of corporation. The term “investor-oriented firm”, or IOC, is commonly applied to corporations and other businesses that are not cooperatives.
Cooperatives:
Cooperatives usually invoke ideas of rural and agricultural concerns, but the cooperative form of corporation is found in many areas of American business, to the tune of 30,000 to 40,000 of such corporations in the United States. 30,000 of these cooperatives are said to account for over 3 trillion in assets, over 500 billion in revenues and over 250 billion in wages and benefits.
Cooperatives are found in a host of industries and areas, such as insurance, credit and finance, child care, health care, housing and utilities.
One division in identifying cooperative ownership is whether the cooperative is consumer based or producer based cooperative. Of the producer based cooperatives, most exist in the agricultural area.
Because cooperatives are organized on many structures and with many factors going on, there is no one definition that applies to all. There are some areas that can be examined to determine a class or similar type of structure:
Principles: The interest of the capital investor takes a subordinate role to the interests of the patron, or business user and the capital returns are limited. Member/Patron are the capital investors and get a return on their investment on the basis of their patronage and not on the basis of their investment.
“User-owned, user-controlled business that distributes benefits on the basis of use.” 1 is the way that the USDA describes cooperatives. “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.” 2 is the way that the International Cooperative Alliance describes a cooperative.
There may be a way to read the by-laws and articles of incorporation for a cooperative, but they are not even dependable for classifying all cooperatives on a reliable basis.
Other documents and status include the incorporation status, the tax filing status, ownership considerations and boundary issues.
Boundary issues involve the incredible complexity of whether the cooperative is a quasi-government entity, a non profit entity or the newest version, the Limited Cooperative Association, which is a hybrid of traditional cooperative and limited liability company.
There are also Partnerships, Associations and Clubs, and Employee Stock Ownership Plans that can be considered to be cooperatives.
In summary, investigating, locating, classifying or even identifying all of the cooperatives that exist in the USA is a daunting task, especially with the boom in quasi-government entities, especially the tens of thousands of “districts” and “special districts” that sometimes cannot even be identified in the whole on a state by state basis.
In summary, the main feature of a cooperative is on the user-owner control, basis and benefit. Benefits distribution is based on level of business that a member does with the cooperative and not the level of investment that the patron has put in. But, the newest form is placing more interest on the level of investment than in traditional cooperatives.
Corporations:
A general corporation is a legal entity that operates like an artificial person, with a trend toward increasing rights that are afforded to real individuals or that are in excess of the rights that are afforded to individuals, such as being able to contribute unlimited and secret funding to political campaigns.
A general corporation has rights to own property, to enter into contracts, to buy and sell products and services, to borrow money, and to be held liable for debts and other damages.
Limited Liability Companies (LLC):
A limited liability company is recognized in state statutes, where they are allowed, but not by the Federal government for tax purposes. The company must be registered as a corporation, partnership or sole proprietorship for filing tax returns.
An LLC allows owners to have limited liability for debts and for the actions of the LLC. this is an increasingly popular form of partnership and can apply to foreign, single person or cooperatives or corporate businesses.
In summary, cooperatives can be in many forms and structures and with a definition matrix that is very complicated and difficult to use in classifying the many types and arrangements of the businesses. But, compared to corporations, the benefits do not accrue to investors as much as they accrue to those who do the most business with the cooperative as owner/users. Newer forms of cooperatives are trending toward giving more benefits to investors in relation to the size of their investment rather than the size of their business with the cooperative.
http://reic.uwcc.wisc.edu/issues/
http://www.umanitoba.ca/afs/agric_economics/ardi/coopus.html
http://www.irs.gov/businesses/small/article/0,id=98277,00.html
