Which of the following are advantages of cooperatives? (choose all that apply)

The International Cooperative Alliance is the global steward of the Statement on the Cooperative Identity – the Values and Principles of the cooperative movement.

In 1995, the ICA adopted the revised Statement on the Cooperative Identity which contains the definition of a cooperative, the values of cooperatives, and the seven cooperative principles as described below. You can also consult the Guidance Notes on the Cooperative Principles and Values which give detailed guidance and advice on the practical application of the Principles to the cooperative enterprises.

Definition of a Cooperative

A cooperative is 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.

Cooperative values

Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

Cooperative Principles

The cooperative principles are guidelines by which cooperatives put their values into practice.

1. Voluntary and Open Membership

Cooperatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control

Cooperatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are also organised in a democratic manner.

3. Member Economic Participation

Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.

4. Autonomy and Independence

Cooperatives are autonomous, self-help organisations controlled by their members. If they enter into agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5. Education, Training, and Information

Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.

6. Cooperation among Cooperatives

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

7. Concern for Community

Cooperatives work for the sustainable development of their communities through policies approved by their members.

Guidance Notes on the Cooperative Principles

In 2016, the ICA’s Principles Committee released the Guidance Notes on the Cooperative Principles, giving detailed guidance and advice on the practical application of the Principles to cooperative enterprise. These Guidance Notes aim to state our understanding of the application of the Principles in contemporary terms for the 21st century.

What is a co-operative?

As a registered legal entity, a co-operative differs from a company in that it requires at least five shareholders, each of whom hold equal voting rights. Co-operatives apply the concepts of sharing, democracy and delegation in order to benefit all members. Generally, all members are expected to participate and share the responsibility of running the organisation.

Co-operatives are regulated by Consumer Affairs Victoria (CAV).

If you're unsure whether a co-operative is the right business structure for your business, use our step-by-step guide to help you decide.

Advantages of a co-operative

Advantages of co-operatives are:

Equal votes

All shareholders have an equal vote at general meetings regardless of their shareholding or involvement in the co-operative.

Lower debt risk

Shareholders, directors, managers and employees have no responsibility for debts of the co-operative unless those debts are caused recklessly, negligently or fraudulently.

Age of members

Members, other than directors, can be under 18, though these members cannot stand for office and do not have the right to vote.

Support

The Co-operative Federation of Victoria Ltd and Consumer Affairs Victoria (CAV) can provide you with assistance when establishing a cooperative.

More control

A co-operative is member owned and controlled, rather than controlled by investors. All members and shareholders have to be active in the co-operative.

Disadvantages of a co-operative

Disadvantages of co-operatives are:

Number of members

There must be a minimum of five members.

Limited profit distribution

There is usually a limited distribution of surplus (profits) to members/shareholders, and some co-operatives may prohibit the distribution of any surplus to members/shareholders.

Difficulty attracting members

As co-operatives are formed to provide a service to their members rather than a return on investment, it may be difficult to attract potential members/shareholders whose primary interest is a financial return.

One vote only

Even though some shareholders may have a greater involvement or investment than others, they still only get one vote.

Ongoing educational requirements

Co-operatives require ongoing cooperative education programs for members.

Key factors to decide

Consider the following if you decide to register as a co-operative.

Membership

Anyone can apply to be a member of a co-operative, with the directors making decisions about the suitability of applicants. Directors are nominated and elected by members, and have specific duties that are defined by common and statutory law. Any member may choose to nominate themselves as director.

Legislation

Co-operatives are subject to Corporations Law and the Cooperatives National Law.

Change of rules

Although a co-operative is an organisation run under rules established at its incorporation, a co-operative may change its rules. Any such rule changes must be passed by special resolution at a general meeting, following submission of a draft of the resolution and the relevant form to the Registrar of Co-operatives at Consumer Affairs Victoria for approval.

Director's duties in a co-operative

According to the Co-operatives Act 1996, directors of a co-operative are subject to both common law and statutory duties.

Common law duties

According to common law duties, a director must:

• act in good faith
• act with care and diligence
• avoid conflicts of interest
• avoid the unauthorised use of co-operative property or information
• avoid the taking of unauthorised benefits
• act honestly
• act within the powers granted to them

Statutory duties

A director's statutory duties include those set out in the Co-operatives Act 1996. The duties specified are:

• to act honestly
• to exercise care and diligence
• not to improperly use information gained as a director or misuse improperly his or her position to manage the co-operative
• not to contravene any section of the act, particularly any applicable to directors

For example, a director must not act fraudulently or conceal, mutilate or falsify securities of the co-operative or any of its books, and must deliver up all documents they're required to.

Further information for directors

This information is presented as a guide to help you understand a director's role and responsibilities in a co-operative. Get more information and guidance about co-operatives from CAV's website.

How to register as a co-operative

To register a co-operative, you must:

• decide if forming a co-operative is the right option for your entity – CAV has information that can help you decide
• hold a formation meeting once the co-operative's name, rules and any disclosure statements have been approved

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