What is a co-operative?

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Definition of a co-operative

A co-operative is a democratic organisation, owned and controlled by its members for a common benefit. Co-operatives are traditionally based on values of self-help, self-responsibility, equality and solidarity.

Members of a co-operative can benefit from economies of scale through the combined purchasing, distribution or marketing power or influence of the group. They share in the group’s investment and operational risks and losses, as well as its benefits.

Unlike private companies, co-operatives do not have a limit on membership numbers. Their ‘one member, one vote’ system also differs from public companies, where voting rights are linked to share ownership.

In a co-operative:

  • all members have equal status and voting rights
  • no member can hold more than 20 per cent of shares
  • all active members can nominate as directors and elect directors
  • capital is used for the group’s common interest.

Co-operatives are administered under the Co-operatives National Law, applied in Victoria by the Co-operatives National Law Application Act 2013. The Co-operatives National Law applies in Victoria and NSW, and is expected to commence in other states and territories over the next 18 months.

We keep a public register of Victorian co-operatives, authorise their registration and enforce the Co-operatives National Law in Victoria.

The name of a registered co-operative always includes the word ‘Co-operative’, ‘Co-op’ or ‘Coop’ and ends with ‘Limited’ or ‘Ltd’.

What can a co-operative do?

Co-operatives can be involved in a variety of social and commercial activities. A co-operative may carry out any activity defined within its rules.

Co-operatives generally fall into four categories:

  • Consumer – buying and then selling goods to members at a competitive rate
  • Marketing – branding, marketing and distributing members’ products and services
  • Service – providing services to members, such as health, electricity or housing
  • Community – resource, information and skill sharing that encourages ownership and participation.

Distributing and non-distributing co-operatives

Co-operatives can be established as either a distributing or a non-distributing organisation.

A distributing co-operative may distribute any surplus funds to its members.

A non-distributing co-operative will use surplus funds to support its activities. Funds are not distributed to members. Non-distributing co-operatives are likely to be more appropriate for a community organisation.

You need to specify the type of co-operative you wish to establish when it is formed.

A distributing co-operative must have share capital and at least five active members. If less than five active members wish to form a co-operative, permission must be obtained from the Registrar.

A co-operative can distribute part of its surplus to members by way of bonus shares, dividends or rebates. When a distributing co-operative is formed, each member must buy the minimum number of shares stated in the co-operative’s rules. Members receive a return on the capital they invest if the co-operative is wound-up.

A non-distributing co-operative must also have at least five active members, but must not distribute surpluses to members. It can have share capital, but does not have to. Members can only get back, at most, the original value of their shares in the co-operative’s capital if the co-operative is wound-up.

Should you form a co-operative?

To successfully form a co-operative, you should be able to answer ‘yes’ to all or most of the following questions.

  • Will membership be voluntary and open to any person who would be able to maintain an active relationship with the co-operative?
  • Will the co-operative be run on the basis of one member, one vote? (If the co-operative is a co-operative group, each member organisation must be represented democratically.)
  • Will financial decisions be made democratically?
  • Will surpluses be distributed only for developing the co-operative, benefiting members in proportion to their transactions within the co-operative, paying a dividend or supporting activities by members?
  • Will the co-operative be an autonomous, community-focused organisation, controlled by its members?
  • Will there be at least five members who are eligible as members under the co-operative’s proposed rules?
  • If you are forming a co-operative group, will it contain two or more member co-operatives?

Last updated: 04/10/2016

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