I. COOPERATIVE PRINCIPLES

1. Service at cost. A cooperative is in business to provide services to it's member-owners at cost. It operates on behalf of its member-owners and the benefits belong to them. Any net earnings (profits) in excess of the cost of the cooperatives' doing business belong to the member-owners and not to the cooperative corporation. This means, for example, a member with 10% of the cooperatives volume will get 10% of the net earnings allocated to the members at the end of the year.

The net earnings are allocated to the member-patrons after the fiscal year is over. The cooperative has the option of retaining some of the earnings in the cooperative to be used as capital (retained earnings). These earnings are held by the cooperative in capital accounts for each member and eventually are revolved back to the members and paid in cash. Net earnings not retained for capital are paid in cash to patrons. The board makes these decisions each year.

Service at cost does not mean a cooperative can provide services at a loss. For any business to be successful, whether it be a partnership, investor-owned corporation, or cooperative, it must generate net earnings; it must create enough income to cover operating expenses and meet continuing capital needs.

2. Democratic control. Control of a cooperative is exercised by the members, usually on a one member, one vote basis. Some cooperatives permit voting in proportion to the amount of business each member does with the cooperative. However, some limit is usually placed on the maximum number of votes any member may cast. It would be counter-productive to have a few growers controlling the cooperative for their own interest. Since cooperatives are owned and controlled by the people who use them, only producers can be members of and vote in an agricultural cooperative.

Adoption of and amendment to the bylaws, election of directors, and votes on other important cooperative business issues are ways in which members exercise their control.

3. Financial obligation and benefit in proportion to use. Members own the cooperative and have the benefits and financial responsibilities associated with ownership. As earnings are given back to members in proportion to their use, members also have an obligation to provide adequate capital to the cooperative in proportion to use. A person with 10% of the volume uses 10% of the facility and should have a corresponding 10% investment. The more you use the cooperative (thereby benefitting) the more capital you will be required to invest. Retained patronage refunds and per unit retains are some of the tools to implement this user-financier objective.

4. Limited dividends on stock. This means that payment for the use of members' equity capital is limited. It does not mean that overall benefits are limited. The main value of a cooperative to its members is in the marketing or supply services it provides, not as a return on investment in the cooperative.

Limiting the return on invested capital complements the service orientation of the cooperative and assures profits are distributed on the basis of use, not on the basis of investment. Due to the limited return on investment principle for a cooperative, there is no real monetary incentive for outside investors to invest in a cooperative, so most capital will have to come from membership.

These four basic principles ensures cooperatives are a fair and democratic type of corporation. They seek to benefit members as users and not as investors. A cooperative can be an ideal way for a group of producers with common economic problems to do business together. Forming a cooperative represents an agreement among a group of producers to act collectively in marketing their products or providing some other needed service. This requires giving up some control to a central organization. The benefits of collectively working together versus doing so individually are numerous.

In reality, a cooperative can be organized to take on a function any other business would undertake. There are no unusual limits on cooperative business activities. The only limits are the desires and needs of those interested in forming a cooperative.

Contemporary Principles

o The User-Owner Principle: People who own and finance the cooperative are those who use it.

o The User-Control Principle: People who control the cooperative are those who use it.

o The User-Benefits Principle: The cooperative's sole purpose is to provide and distribute benefits to users on the basis of their use.

International Cooperative Alliance Principles

DEFINITION: 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.

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.

PRINCIPLES

1st Principle: Voluntary and Open Membership

Cooperatives are voluntary organizations, 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.

2nd Principle: Democratic Member Control

Cooperatives are democratic organizations 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 organized in a democratic manner.

3rd Principle: 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. They 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 the 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.

4th Principle: Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, 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.

5th Principle: 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 cooperatives. They inform the general public -- particularly young people and opinion leaders -- about the nature and benefits of cooperation.

6th Principle: Cooperation among Cooperatives

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

7th Principle: Concern for Community

While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.

 

Last Revised: September 4, 2001

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