The legal structure of cooperatives

What is a cooperative in legal terms? It is an organization legally owned and controlled by the cooperative members. Members are mostly manufacturers, consumers or employees associated with the company.

Cooperatives can exist in different legal forms. They may be registered and limited by warrant, stock, or partnership, or they may be unregistered. In some European countries, such as Sweden and Finland, these are the specific forms of incorporation that cooperatives can take, while in the United States state-specific laws regulate the legal structure of cooperatives. Under various state and federal laws, cooperatives may either be unincorporated or structured as limited liability companies, partnerships, or non-corporate corporations. In the case of incorporated cooperatives, the variations allow for varying degrees of return and degree of control, mostly based on members’ participation in the cooperative.

Economical advantages

Much of the success of cooperatives and mutuals can be attributed to the creation of a competitive environment. What follows is an environment that has regulation, longevity, and the latitude and underlying structure to enable the implementation of welfare goals. In this sense, the cooperative finds significant benefit in a competitive environment, provided that the regulatory structures are maintained and fundamental principles are respected.

However, there are other factors that determine the competitive health of a cooperative. In 1991, Llewellen and Holmes postulated that mutuals must have a fairly large efficiency advantage over AGs. This allows them to set goals that differ significantly from those of the AG, but without this efficiency advantage, the two forms of business gradually lose their distinctiveness. From this perspective, competition and low margins are detrimental to mutuals by minimizing behavioral differences to AGs.

There is significant ambiguity and judgment in these areas, particularly in the case of building societies and mutual life insurers in the UK. Where banks differ from building societies, UK Plc and their competitors may not have the same differentiation.

Building societies, such as mutual life insurers, can make decisions about their goals in a regulated environment with high returns on capital. And of course, this choice introduces complications, as these price level targets can be set on a market basis, not only in relation to the supply of people who are denied access or offered on poor terms by another provider, but also in the presumptive analysis of the conduct of non-competitors.

Customers and their perspectives are also of great importance when considering the competition and its effects. When a consumer is well-informed and the market environment is highly competitive, consumers demand only the best. On the other hand, when markets are imperfectly competitive and consumers are uninformed, institutional policy can strongly determine how consumers are treated. In the history of cooperatives, in such situations, sellers have either taken advantage of the consumer or taken an ethical responsibility for him.

Much of the importance of mutuals in the savings market may be attributed to the generally uninformed decision-making of small depositors. According to Rasmusen’s Uninformed Depositor Model, banks typically operate on the basis of an information asymmetry, where managers have an understanding of the risks they face, while depositors receive relatively little information. This, of course, is explained by the high cost of meaningful participation in building societies, where the benefits derived from constant knowledge of and participation in matters do not justify the cost of maintaining that awareness, as illustrated by Ingham and Thompson. At one point in the history of co-ops, building societies were fined for not showing up for annual meetings until people started going to the nearest bar when the call came. Rasmussen claims that depositors will prefer a mutual account if they perceive increased regulation and thus a lack of risk taking. They may also understand the risk-taking nature of bank managers versus the caution of mutual managers, as postulated by both Rasmusen and Masultis.

It could be argued that the mutuals’ success is the result of simplified relationships due to the lack of external shareholders or the mutuals’ ability to use surpluses to lower product prices. However, when there is a market for corporate control, or when there are external claimants, there can be significant pressure for cost savings. Before deregulation in the UK, building societies sought growth through increasing and consistent income, which was in managers’ interests. Such trifles, however, are of little concern to the uninformed depositor.

Masulis has suggested that MS&Ls directors only have access to part of the income generated by the savings and loans business, therefore they are less compelled to take risks, while Plc executives are able to sell their shares and Corporate profits benefit enormously from this.

The identity of cooperatives

The values ​​of “self-help, personal responsibility, democracy and equality, justice and solidarity” are the basis of cooperatives. In addition, there are the seven cooperative principles of open membership, fair control by all members, economic participation of all members, independence and autonomy, education, helpful and friendly relationships with other cooperatives and civic engagement.

Cooperatives can be divided into two categories: producer cooperatives or consumer cooperatives. They are closely linked to collectives, although social well-being is prioritized over profit motives. The identifying suffix of cooperatives on the web, and any organization using this suffix must uphold the values ​​of the cooperative.

The history of cooperatives has shown that members of cooperatives, like their predecessors, value honesty, social responsibility, openness, ethical decisions and concern for the well-being of others. There are a number of social characteristics attributed to such legal entities, but they all encourage open membership and proportionately distributed economic benefits based on participation rather than capital investment.