cooperative

A cooperative, often called a co-op, is an association of members with a common profession, trade, or interest who work together to process, market, distribute, or provide goods and services. A cooperative operates for the benefit of its members by pooling resources and offering services or financial advantages, sometimes including the distribution of earnings. Unlike corporations organized primarily to generate profits for shareholders, cooperatives emphasize meeting the shared needs of members. Co-ops are generally democratic in structure, though some exceptions exist.

Cooperatives are found in many sectors of the economy, including consumer cooperatives (such as food stores, bookstores, and hardware stores), rural utility cooperatives, credit unions, housing cooperatives, agricultural cooperatives (for supply, marketing, and production), and worker cooperatives.

Cooperatives are usually organized under state law and governed by a charter and bylaws. Like other business organizations, they have directors and management, but members typically exercise equal voting rights tied to membership. Employees may also be granted membership with additional benefits. The structure and scope of a cooperative depend on its purpose and industry. Some statutes provide special treatment, such as exemptions from certain securities laws for credit unions or relaxed benefit limitations for farmers’ associations.

To maintain cooperative status, organizations must comply with state incorporation laws and applicable tax provisions. Federal and state law may grant favorable tax treatment, including exemption from income tax, provided statutory requirements are followed. If a cooperative distributes profits in ways inconsistent with cooperative principles, it may be treated as a regular corporation.

For example, under 12 U.S.C. § 1141j (Title 12, Chapter 7A), an association qualifies as a cooperative if it meets at least one of three requirements:

  1. Each member has only one vote.
  2. Dividends on stock or membership capital do not exceed 8 percent per year.
  3. Transactions with nonmembers do not exceed the value of transactions with members.

[Last reviewed in August of 2025 by the Wex Definitions Team] 

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