The Structure of a Cooperative Organization

A cooperative is a business organizational structure geared toward democratic control and shared decision-making. There is no single format for structuring a cooperative, because every cooperative business is shaped to reflect the concerns and passions of its individual members. Regardless of the uniqueness of cooperative organizations, they share core elements that can be shaped creatively and idiosyncratically. Decisions about the nature of a cooperative structure should be made thoughtfully and carefully in order to avoid confusion and conflict down the line.

Membership is at the heart of every cooperative: The individuals who collaborate to run a business must be vetted and admitted according to a core set of principles and criteria that are clearly designated when the cooperative is formed. Membership in a cooperative must be earned through patronage, or contribution of work rather than money. According to cooperative organizational principles, every member is entitled to an equal vote, although the bylaws may specify that some decisions are made specifically by the board of directors, which is democratically elected by the entire membership.

A cooperative's bylaws are the foundation of its organizational structure. The bylaws specify how often the cooperative will hold general meetings, how often its board of directors will meet and how often its members will elect the board of directors. These regulations also specify how the cooperative will be formed, how it will reimburse members who leave and how it may be dissolved, if necessary. Cooperative bylaws also include terms for officer and employee indemnification, or the extent to which the cooperative will provide financial and legal backup for members who may be held individually liable for their actions while at work.

The board of directors makes big-picture decisions for a cooperative. The exact process and scope of the board's decision-making powers should be outlined in the cooperative's bylaws. The board should be democratically elected by the cooperative's members and it should have an odd number of members in order to avoid stalemates from tie votes. A cooperative's board may also contain a secretary to take notes and a treasurer to keep track of money matters.

The financial structure of a cooperative organization is based on equity, or membership and capital shares. Membership shares entitle owners to voting rights, and capital shares entitle members to share in the organization's profits. Both membership and capital shares must be acquired through sweat equity, or work that is compensated with ownership rather than money. The exact mechanism for distributing equity varies with the individual co-op and must be spelled out in the bylaws.