Legal Definitions - cooperative

A cooperative, also known as a co-op, is a group of farmers, businesses, or manufacturers who work together to process, prepare, market, handle products, supplies, and/or services for the benefit of its members. Members of a cooperative receive earnings in proportion to their contribution to the group.

For an association to be considered a cooperative under the United States Code, Title 12 Chapter 7A, it must meet at least one of the following requirements:

• Each member of the association is only allowed one vote.
• The association must not pay dividends on stock or membership capital over 8 percent per annum.
• The association must not deal with products, supplies, or services with nonmembers if such dealings are greater in value than such dealings with its members.

For example, a group of farmers may form a cooperative to collectively purchase seeds and fertilizer at a lower cost. The cooperative can then sell the crops at a higher price, and the profits are distributed among the members based on their contribution to the group.

Another example is a group of small business owners who form a cooperative to share resources and reduce costs. They may collectively purchase office supplies or marketing services, and the savings are passed on to the members.

These examples illustrate how cooperatives can benefit their members by pooling resources and sharing costs, ultimately leading to increased profits and success for all involved.