What Is a Cooperative?

A cooperative, sometimes known as a co-op, is a type of business owned by a group of people who have certain rights and obligations to the business. Often, the relationship between the group of owners and the business is more involved than simply having money in the business, and owners are also often employees, consumers, or producers for the business. There are many different types of cooperative businesses, but some of the most common are credit unions, housing cooperatives, and utility cooperatives. The term co-op has recently taken on several more specific meanings, typically referring to employee and consumer owned stores or housing situations in which the members perform household duties collectively and live in ways that are highly intertwined.

The basic idea behind a cooperative is that by pooling resources and working together, a group can fare better than if each member were to strike out on his or her own. This is most clearly the case when small farms group together in order to cut down on the costs of machinery or to appeal to large buyers. The key to most cooperatives is that the members of the group must have something to gain from the union. In some cases, people form cooperatives for purely ideological reasons, which can itself be a benefit.

Credit unions are a very successful kind of cooperative banking solution in which the members of the union control the activities of the financial institution. These cooperatives are popular in part because the risk of corruption is lower, and people feel that they are investing in their own communities. In most cases, credit unions provide the same services as banks but often do not have as many locations as national banks.

Cooperative businesses of other types can exist to solve any situation in which a group might benefit from bargaining collectively. For example, any store in which there is a potential benefit for regularly buying products in bulk might make a good cooperative. Grocery stores and other necessary basic stores often fare well, because people can see the direct way in which their collective purchasing provides benefits. Co-ops of this sort are typically owned by the consumers rather than the producers, and membership may be provided by a fee or by working part time in the store.

More recently this type of business has taken on an additional meaning and is characterized in many cultures as part of a specific cultural movement. People who are living cooperatively are usually not considered the same type of entity as cooperative businesses, primarily because in a social co-op people are bound by social rules rather than legal contracts. It is important to note that this more specific interpretation of the cooperative principle does not apply to all businesses that call themselves co-ops.