Basic Cooperative Principles


G. McKee.

Authors: Greg McKee, North Dakota State University,, and Donald Frederick, Rural Business-Cooperative Service, USDA

Summary: This article provides a comprehensive summary of basic information on the cooperative way of organizing and operating a business. It covers the nature and extent of the use of cooperatives, compares cooperatives to other business structures, explains the roles various people play in a cooperative and discusses equity accumulation and income taxation. The purpose is to make available, in a

Defining Financial Condition and its Warning Signs

Author: Chris Peterson, Michigan State University,

Because members are owners, they need to care about the financial condition of their cooperative. Financial condition reflects a firm’s ability to raise and use funds. Strong financial condition results from effective operating profitability (revenues exceed expenses), efficient asset management (only necessary and profitable assets are invested in), efficient capital structure management (liabilities are not used in excess) and appropriate pay out of returns to owners through dividends and appreciation of ownership value. …

Future Challenges for Cooperative Finance: Reasons that more Capital, not less will be Essential

Author: Chris Peterson, Michigan State University,

The good news about cooperative finance is that many members coming together to form and operate a cooperative have more financial resources collectively than each would have alone. As a result, cooperatives allow members to reap returns on assets related to their personal operations that they could not otherwise reap. But challenges exist for cooperatives and their members in the financial arena.

As the only source of equity capital, the total pool of …

Cooperative Financing

Author: Chris Peterson, Michigan State University,


What is finance and why does it matter to cooperatives?

In the context of business firms, finance encompasses all aspects of raising and using cash and related funds for the long-run and short-run purposes of a firm. Finance includes cash management (taking in and expending cash), extending and using trade credit (accounts receivable and accounts payable), investing in long-run assets (e.g., property, plant and equipment) and short-run assets (e.g., inventory), raising funds (e.g., …

Cooperative-Level Profits

Author: Chris Peterson, Michigan State University,

Historically, cooperatives were thought of as “nonprofit” or “not-for-profit” organizations. These terms confuse the original notion of the operation-at-cost principle with profit-generating ability. Like all businesses, cooperatives need to generate profit to survive and prosper. They are never in business merely to break even.

Like all businesses, cooperatives create revenues through sales and have expenses. The difference between revenues and expenses is profit or net income just like any standard business would have. …

Returning Cooperative-Level Profits: Mechanics of Patronage Refunds

Author: Chris Peterson, Michigan State University,

The mechanics of returning net income to members is rather straightforward. On an annual basis, net income is divided by patronage revenue. Assume that this number is 10 percent for a particular cooperative for a particular year. Each member receives a patronage refund equal to 10 percent of the value of the patronage business that the member did with the cooperative. If the member did $10,000 in patronage, the refund is $1,000 ($10,000 …

Unique Causes of New Cooperative Failure

Authors: Brian Henehan, Cornell University,, and Bruce Anderson, Cornell University

Reviewers: Gerald White and Brent Gloy, Cornell University

New cooperatives can be prone to a number of unique business problems. The primary goal of new cooperatives is to help address the economic problems of members or seize new opportunities. If these problems are due to overall weaknesses in the industry that members operate in, the new cooperative may begin its life in a more hostile economic environment than other …

Human Aspects of Control

Authors: Phil Kenkel, Oklahoma State University,, and Bill Fitzwater,
Oklahoma State University

Some balance is needed between individual discretion and formalized measures of performance. The greater the professional competence of the manager or staff involved, the more decentralized the decision-making process can be. Therefore, different types of controls are needed at different levels of the organization. Board members and managers must communicate, discuss and attain a high level of commitment to the goals and objectives of the organization. The …

Role of the Chairman

Authors: Phil Kenkel, Oklahoma State University,, and Bill Fitzwater,
Oklahoma State University

The chairman has a special role in the voting procedures of the board. The chairman is responsible for enforcing good decorum in the board room. He may appoint committees or decide points of order.

Voting by the chairman is a sensitive issue in many cases. According to Robert’s Rules of Order, the chair can make motions, speak on one side or the other on every motion, and …

Common Errors in Parliamentary Procedure

Authors: Phil Kenkel, Oklahoma State University,, and Bill Fitzwater,
Oklahoma State University

  1. Prolonged discussion without a motion. This tends to violate the principle of “one thing at a time.” It is the main reason the chair gets in trouble conducting meetings. Discussion without a motion can become rambling argument rather than constructive discussion; the chair may stop this rambling by requesting the business be placed before the group in the form of a motion.
  2. Failure to confine discussion to