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Co-ops & Investor-Owned Corporations

What's the Difference? When choosing a company with which to do business, your primary concerns may be quality, service and price. But there are other, less transparent factors that also need to be considered. It can pay to compare businesses and their organizational principles so that you, the customer, benefit most.

Landscapes Summer 2005



Owned by members -- the people who buy the goods or use the services of the cooperative.


Owned by outside shareholders who may or may not use the goods and services of the business.


Democratically controlled by the members on a one-member, one-vote basis (i.e., all members have an equal voice in the business, regardless of their equity share).


Controlled by shareholders according to their investment share. Shareholders must meet a threshold of ownership to have any meaningful control over the company.

Board Membership

The board is made up of co-op members who are elected by members. Most, if not all, directors are independent -- they are not selected by the CEO and typically do not work for or have any business relationship with the co-op, other than their patronage of it. Management typically does not hold board seats.


The board is made up of a combination of independent directors, management directors and other directors who have financial or business ties to the organization. CEOs often serve as board chair.

Board Compensation

Cost reimbursement for board meetings. Board members often serve on an uncompensated, volunteer basis or for nominal conpensation.


Significant financial compensation is provided.

Board Nominations

Candidates are nominated by members either directly (including self-nomination) or by a nominating committee made up of board members or other co-op members. They typically issue a call for nominations prior to each election. Co-ops circulate a single election ballot including all nominated candidates.Bylaws generally allow any member to nominate a director-candidate. If a petition is required to place a candidate's name on the ballot, the threshold for signatures is generally low (e.g., 100 signatures or 1 percent of membership).


Candidates are nominated by the board of directors and management, and often by a nominating committee. Management maintains control over board candidates. Board proxy materials include only board nominees. Shareholders have limited ability to nominate their own director candidates and must do so on a separate proxy statement that they circulate and tabulate at their own expense. Shareholders must also execute that separate proxy card to vote for other candidates. Shareholders may recommend nominees to the nominating committee, but companies rarely nominate such candidates. Shareholders also may nominate directors in person at the annual meeting, but such nominees are rarely elected.

Board Elections

The board is elected by members on a one-member, one-vote basis. Members vote in person at the annual meeting, by mail or electronically, or by a combination of these methods.


Board elections are better characterized as shareholder "ratification" of the uncontested, management/board-selected slate offered on the proxy statement. The board typically nominates only enough candidates, often incumbents, to fill open seats. Shareholders submit proxy in advance or must attend the annual meeting to vote in person.


Board members are directly accountable to members through these nomination and election procedures. Board members can be, and often are, voted out in contested elections.          


Election and nomination procedures afford little meaningful oversight to shareholders. It is difficult and costly for shareholders to remove board members.


Surplus revenues (profits) earned by the co-op are reinvested in the business and/or returned to members as patronage -- or through lower prices or fees -- based on how much business they conducted with the co-op that year. Many co-ops are obligated to return a portion of their "surplus revenues" to members each year.


Profits are returned to shareholders based on their ownership share. Corporations are generally not obligated to pay out dividends.


Maximize member service.


Maximize shareholder returns.


Depending on the type, co-ops can organize under a variety of structures: as co-ops, as non-profits and as regular corporations. All co-ops operate according to co-op principles.


Generally organized as C corporations.

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