Cooperatives provide work for 10% of the employed population, and the three hundred biggest cooperatives have a turnover of over $2,409 billion while still focusing on improving their surrounding societies.

Entrepreneurs and communities need to understand cooperatives to embrace their advantages. Learn how business cooperatives work, their benefits and how to join or start one.

What Is a Business Cooperative?

A business cooperative is a type of corporate entity owned by many members, with a membership that is inclusive and open.

Here are the top three characteristics of a business cooperative:

• Joint ownership: Members in a cooperative can be both users and owners of the product. They can also be support or investor members who contribute to its advancement without using any of the goods.
• Democratic governance: Co-ops have a “one member, one vote” principle that encourages all members to participate actively in the annual general meeting (AGM) and contribute to important company decisions.
• Surplus management: Members can decide the best ways to distribute or reinvest surpluses, giving everyone a chance to suggest improvements to the business.

The main difference between cooperatives and traditional businesses is that a co-op is democratically owned.

How Does a Business Cooperative Work?

Business cooperatives work in alignment with the seven standard principles outlined by the International Cooperative Alliance (ICA). These values help the organization gain active and equal participation from members.

Here’s a breakdown of the seven principles:

1. Voluntary and open membership: Cooperatives open their services to all persons who are willing to accept the responsibilities of membership.
2. Education and training: They incorporate education and training for all members in their day-to-day operations so that everyone can contribute to the overall development of the cooperatives.
3. Democratic member control: Cooperatives are run democratically by their members. They elect representatives, committees and a board of directors. Members organize voting and elections democratically.
4. Cooperation: Members of cooperatives must collaborate to serve and strengthen the movement through international, national and local structures.
5. Autonomy and independence: If cooperatives enter into agreements with any other establishment, they must do so on terms that provide democratic control to members and help maintain their autonomy.
6. Economic participation: Members must contribute equitably to the capital of the cooperative and receive limited compensation. Any surpluses are used for contributions toward the collective, building reserves of funding for member-approved activities.
7. Concern for community: Cooperatives have an obligation to build policies and goals to work toward the sustainable development of their communities.

Key Benefits of Business Cooperatives

Business cooperatives create robust communities that fill market gaps in the economy and tend to be particularly resilient. They give members more freedom to own, use and control their shares democratically, which also means every person involved deeply cares about meeting the vision.

Here are the top benefits of business cooperatives.

Economic Advantages

Business cooperatives distribute profits among members, creating a local economy that keeps money circulating. Profits are considered a surplus and are typically used toward patronage refunds. The model of cooperatives helps build a foundation of wealth within the community that opens doors to creating access to resources.

The collective action makes it easier for small-scale producers who may typically struggle to afford high-quality inputs. This benefit makes it a more inclusive and less restrictive process, as compared to traditional business models.

One of the biggest economic advantages of co-ops lies within the tax code. Cooperatives still pay taxes on profits. However, they can use member payouts and refunds to significantly lower their taxable income.

Community Impact

Cooperatives are deeply dedicated to serving their communities. They are typically long-term fixtures in the community that provide steady employment for locals. In addition to job creation, they also contribute directly to the socioeconomic development of the community.

Cooperatives can help make communities eligible for grants, loans and other financial assistance options. They can help build a more resilient local economy that has a ripple effect, encouraging other businesses to follow suit.

Member Empowerment and Equity

One of the core benefits of a cooperative model is that each member holds equal power, creating democratic power over company decisions. All voices are equal, building a more inclusive workplace environment compared to traditional businesses, where only a small group of shareholders gets a say on company decisions. This democratic governance creates a sense of responsibility among members, encouraging personal and professional growth.

Cooperatives also encourage voluntary and open membership, which creates opportunities for more individuals of different genders, races and economic statuses. With this more inclusive model, cooperatives can also accept new members and grow at an unprecedented rate.

Access to Resources and Collective Bargaining Power

Cooperatives hold shared resources like equipment and facilities that help boost efficiency within the organization. By pooling together funds and resources, cooperatives have stronger collective bargaining power, which gives them increased market access and the ability to negotiate for better prices and quality.

Since the cooperative business model prioritizes access over profit, these businesses leave their communities and employees in better positions. They can invest back into the community, giving locals access to opportunities that residents may not qualify for otherwise.

Sustainable Business Practices

Cooperatives prioritize sustainable business practices like fair trade and environmentally friendly techniques. Their commitment to maintaining and improving the long-term well-being of the community pushes them in the direction of sustainability.

The United Nations General Assembly designated 2025 as the International Year of Cooperatives and highlighted the undeniable contribution of cooperatives toward sustainable development. Unlike traditional businesses that only have one bottom line, cooperatives have a triple bottom line — people, the planet and profits.

Common Challenges Faced by Business Cooperatives

Business cooperatives have many advantages, but that doesn’t mean they don’t face any difficulties. The following are some common challenges:

• Raising startup capital and accessing financing: Starting a business cooperative requires adequate capital for legal fees, inventory and construction. Younger cooperatives may find it especially challenging to access funding.
• Achieving consensus in decision-making: Cooperatives’ democratic nature can make decision-making more complex because it requires extra time to count votes and reach a consensus.
• Member engagement and participation: Active member participation is vital for cooperatives to thrive, but a lack of awareness or reduced interest can affect their member-driven democratic nature.
• Competition with traditional businesses: The cooperative identity can be a significant advantage and help companies gain traction. Smaller cooperatives might have difficulty standing out when competing with traditional businesses.
• Legal and regulatory hurdles: Cooperatives may face challenges navigating the regulatory landscape, which differs significantly from that of traditional businesses. To overcome these challenges, they may need additional support to understand and take advantage of the legal structure.

Tips for Starting or Joining a Business Cooperative

If you’re starting a business and considering a cooperative, conduct a feasibility study. It will help you determine whether a cooperative would be beneficial for your community and business. You’ll also need to gain members by looking for individuals who may be interested in joining and contributing.

If the feasibility study is successful and you’ve decided on the type of co-op you’d like to start, you’ll need to elect a board of directors and incorporate bylaws into your process. Create the cooperative business plan and include things like an executive summary of your mission statement, market analysis and funding plans.

One of the most important tips for starting or joining a business cooperative is getting support to better navigate the complexities. The National Cooperative Business Association CLUSA International (NCBA CLUSA) is the leading voice in America for cooperatives looking to build better, more inclusive workplaces and strive toward creating a better world.

Learn More About the Cooperative Model With the NCBA CLUSA

Are you looking to start or join a cooperative? The NCBA CLUSA has worked for over 100 years to create stronger, collaborative partnerships that live up to the principles of a cooperative.

We are passionate about helping more people understand the benefits of the cooperative business model. Our vision is to build an inclusive economy and to provide a resource for co-ops around the world.

Contact us today to discover more about cooperatives.