The internationally agreed upon cooperative principles inform the financial workings of cooperative businesses. When it comes to the ways cooperatives raise funds, distribute surplus income (or profit), pay out member equity, and more, whether at their startup or over time, the co-op principles generally inform financial operations in the following ways:
- Financing the operations of a cooperative is the responsibility of current member-owners – this is sometimes called the “proportionality” principle.
- Cooperatives provide limited returns on equity capital or investment, and although cooperatives can utilize non-member investment, returns on those investments may be limited to prioritize member democratic control. This is sometimes referred to as “subordination of capital.”
- Cooperatives prioritize member benefit by employing patronage systems that return surplus funds, or profits, to members based on their use of the co-op, with the goal of creating a “service-at-cost” model. Cooperatives generally prioritize member benefit over profit maximization, which is sometimes called the “operation at cost” principle.
References
- Baarda, J. (2007). “Financing the Cooperative Enterprise.” Retrieved from http://www.geo.coop/sites/default/files/finance.pdf
- “Co-ops 101: An Introduction to Cooperatives.” (2012). U.S. Department of Agriculture Rural Development, Cooperative Information Report 55. Retrieved from http://www.rd.usda.gov/files/cir55.pdf
- Frederick, D. & Ingalsbe, G. (1993). “What are Patronage Refunds?” U.S. Department of Agriculture Agricultural Cooperative Service Cooperative Information Report 9. Washington D.C.: U.S. Government Printing Office.
- Jacobs, K., Kenkel, P., & Briggeman, B. (2023). Capitalization, equity, and growth in cooperative firms. In M.S. Elliott & M.A. Boland (Eds.), Handbook of Research on Cooperatives and Mutuals (pp. 277-290). Edward Elgar Publishing.