What is a co-operative?

Co-operatives are autonomous legal entities formed by people to serve their needs or the needs of their community. They are democratically controlled and operate on the basis of open membership and economic participation.

Co-operatives are incorporated bodies. This means that the co-operative has a separate legal identity apart from its members so that it can buy, own or sell property itself and its members are not liable for the co-operative’s debts: it is a limited liability entity.

As an incorporated body it has a governance model similar to a company with a board of directors that is accountable to members. Members of a co-operative have only one vote each regardless of the number of shares they may hold.

As vehicles for community investment purposes, co-operatives have the power to issue equity and debt securities.

Under the CNL, Australian co-operatives require an active ongoing commitment from members to support the objectives of the co-operative. The requirement for active membership means that co-operatives are not merely static investment vehicles; they must be based on the notion of co-operation between individuals. The consequent strength of the active membership requirement is that it requires a long term commitment by both the co-operative and its members within a mutually beneficial relationship. This mutuality contributes strongly to the model’s self-sustainability.

Co-operatives are regulated under state and territory laws specifically drafted for co-operatives, although many provisions are borrowed from the law relating to companies in Australia. The Co-operatives National Law (CNL) is a scheme for the uniform regulation of co-operatives in each State and Territory12.

The CNL adopts seven internationally recognised co-operative principles and makes specific provision to enforce or facilitate co-operatives adherence to these principles.

co-operative principles

Section 11 of the CNL provides that the legislation is to be interpreted so as to promote the co-operative principles.

The co-operative principles make the co-operative model an ideal legal entity for community or social enterprise. Equipped with corporate fundraising tools they can serve communities by recognising and serving the specific needs or wants of a community and by engaging those communities through investment and participation.

Democratic community engagement is a powerful force for regeneration of local communities and for the fostering of new business ventures. Co-operatives combine and blend the roles of member, investor, customer and volunteer.

Regulations governing the issue of securities by co-operatives have always been geared towards offers to invest in securities in small amounts. The types of securities that may be offered as investments by co-operatives depends on the type of co-operative, as not all co-operatives can issue share capital.