UNDERSTANDING COOPERATIVES UNIT 2 Cooperative Business Principles Slides

UNDERSTANDING COOPERATIVES UNIT 2 - Cooperative Business Principles Slides for Unit 2 Rural Development – Cooperative Programs U. S. Department of Agriculture

Cooperative Definition Reviewed A cooperative is a business owned and controlled by persons who use its services. Benefits are derived and distributed equitably on the basis of use • It is mainly distinguished from other business forms by three contemporary principles S 2. 1

Definition of a Principle A basic idea defining special characteristics S 2. 2

Contemporary Cooperative Principles • The User-Owner Principle People who own and finance the cooperative are those that use it S 2. 3

Contemporary Cooperative Principles (Continued) • The User-Control Principle People who control the cooperative are those who use S 2. 4

Contemporary Cooperative Principles (Continued) • The User-Benefit Principle The cooperative’s sole purpose is to provide and distribute benefits to users on the basis of their use S 2. 5

Rochdale Principles Control Ownership 1. Members vote on democratic (one-member, one-vote) basis 2. Membership is open 3. Patrons provide equity 4. Equity ownership share of patrons is limited S 2. 6

Rochdale Principles/Practices Benefits Other 5. Net income is distributed to patrons as refunds on a cost basis 6. Limited return on equity capital 7. Exchange of goods and services at market prices 8. Duty to educate 9. Cash trading only 10. Assume no unusual risk 11. Political and religious neutrality 12. Equality of sexes in membership S 2. 7

Traditional Cooperative Principles Service at Cost The cooperative’s operations are reduced to an at-cost basis at the end of the fiscal year when surpluses are returned to members Obligations/Benefits Proportional to Use Benefits are received in proportion to use of co-op. Members also share responsibility for providing financing (or losses) in proportion to use S 2. 8

Traditional Cooperative Principles Limited Return on Equity Capital Members finance the cooperative in proportion to use. Returns to their financial investment are secondary to value of services. Democratic Control Member control recognizes that members can control either through one vote per member or a voting system that relates to the extent each member patronizes the cooperative S 2. 9

Quote “Important principles may and must be flexible. ” --Abraham Lincoln S 2. 10

Contemporary Principles Explained User-Control User-Owner User-Benefit 1. Members vote on a democratic or proportional basis and govern their cooperative 2. Members provide capital to finance their cooperative and returns are limited 3. Cooperative provides needed services and net income is distributed to members as refunds on a cost basis S 2. 11

International Cooperative Alliance The International Cooperative Alliance is an independent, non-governmental association which unites, represents and serves cooperatives worldwide. The ICA was founded in London in 1895. Its members are national and international co-operative organizations in all sectors of activity including agriculture, banking, energy, industry, insurance, fisheries, housing, tourism and consumer co-operatives. ICA has more than 250 member organizations from over 100 countries, representing more than 760 million individuals worldwide. S 2. 12