How Cooperatives Empower Entrepreneurs and their Communities

What is a Cooperative?

A cooperative (“co-op”) is defined by the International Cooperative Alliance as an “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”[1] Co-ops are created and operated by individuals who share a common goal.[2] For entrepreneurs, co-ops can help fill market gaps because their business structure has elements of freedom for ownership, use, and control, and co-ops tend to be resilient in the economy.[3] Co-ops are growing across the United States; the United States Department of Agriculture (“USDA”) estimated in 2022 that more than 30,000 co-ops operate throughout the United States, accounting for over 2 million jobs, 350 million memberships, and $660 billion in annual revenue.[4]

Co-ops have seven defining principles: (1) voluntary membership; (2) democratic member control; (3) member economic participation; (4) autonomy and independence; (5) education, training and information; (6) cooperation among cooperatives; and (7) concern for community.[5] These seven defining principles allow co-ops to focus not only on the structure and organization that best supports their members, but also the communities that they are based in and support through their business practices.[6]

Co-ops are financed through both debt and equity.[7] Co-op membership requires an equity contribution, “usually through purchasing common stock or a membership certificate.”[8] Co-ops also frequently elect executives to organize and lead the business.[9] Members preserve control by electing directors to represent their interests in governing the organization.[10] Directors “hire and oversee the general manager or CEO; establish operating policies and act to meet the mission and vision of the [co-op] through forward thinking and strategic planning.”[11]

Benefits to Creating and Owning a Co-op

Co-ops provide a range of economic and social benefits.[12] Co-ops provide “employment, investment opportunities and collaborative growth” to their communities.[13] Depending on the type of co-op, additional advantages arise from the legal structure itself.[14] For example, some state statutes extend to certain co-ops “exceptions to securities laws for credit unions or more relaxed benefit limitations for farmers associations.”[15]

Co-ops also play an essential role in job creation and rural development.[16] One example of this is the Gullah Farmers’ Cooperative Association, founded in 2010 to support Gullah farm operations in North Carolina, South Carolina, and Georgia.[17] This co-op “serves as both an economic engine and a cultural steward--helping member farms market their produce fairly while sustaining the unique farming legacy of the Gullah people.”[18] The co-op distributes produce to regional buyers, “including schools, hospitals, restaurants, grocery stores, and food banks.”[19]

Furthermore, agricultural co-ops are gaining support through state and federal organizations.[20] Today, agricultural co-ops “operate in 9,500 locations in [all] 50 states” and maintain a reputation of “a resilient, sustainable business model.”[21]

Restrictions and Disadvantages to Co-ops

Despite their advantages, co-ops are required to operate within limits imposed by applicable state and tax laws.[22] Most jurisdictions and the federal government do not require co-ops to pay income taxes and may provide for additional beneficial tax treatment.[23] On the other hand, some jurisdictions impose limitations on benefits, such as certain methods of profit distribution among co-op members.[24] State law also governs which types of co-ops are recognized in each jurisdiction; some states only permit the formation and operation of co-ops in specific industries.[25] 

A perceived disadvantage to co-ops is a slower growth rate compared to traditional corporations, although at least one study suggests otherwise.[26] However, because co-ops typically have a “long term, community-oriented focus,” they do grow differently than traditional public companies.[27] Because of this community focus and voting structure, members may have difficulty reaching a consensus on decisions that affect growth.[28] Co-op decision-making, particularly for those decisions involving higher risk, tends to take more time than traditional businesses because co-op members depend on the organization through their ownership stakes.[29] Additionally, in some types of co-ops (e.g., agricultural farm-owned co-ops), there may an imbalance between directors with business experience and members with industry experience.[30] This disparity can be resolved by looking for leadership with experience in the industry as well as in business growth.[31]

Conclusion

Co-ops empower entrepreneurs by providing a flexible, member-driven business structure that supports surrounding communities while fostering innovation.[32] By embracing the co-op principles, entrepreneurs can leverage a cooperative approach to encourage democratic decision-making, equitable economic participation, and long term sustainability.[33] Co-ops like the Gullah Farmers’ Cooperative Association demonstrate that co-ops not only drive economic growth, but also preserve cultural and community values.[34] This unique business structure provides an opportunity for business success and community well-being to go hand-in-hand.[35]

[1]  Cooperative Identity, Values & Principles, Int’l Coop. All., https://ica.coop/en/cooperatives/cooperative-identity#definition-of-a-cooperative (last visited Nov. 26, 2025).

[2] See, e.g., Darrah Perryman, More Than Just a Co-op: How Cooperatives Strengthen Economic Power, U.S. Dep’t Agric. (Oct. 24, 2022, 9:13 AM), https://www.usda.gov/about-usda/news/blog/more-just-co-op-how-cooperatives-strengthen-economic-power (providing an example of a co-op with a shared goal of “support[ing] local farmers by helping them market their produce and mak[ing] a viable living.”).

[3] See How Does a Business Cooperative Work? Benefits and Challenges Explained, NCBA CLUSA (July 9, 2025), https://ncbaclusa.coop/blog/how-does-a-business-cooperative-work/.

[4] Perryman, supra note 2.

[5] Cooperative Identity, Values & Principles, supra note 1.

[6] See id.

[7] Cooperative Finance, U. Wis. Ctr. for Coops., https://uwcc.wisc.edu/resources/finance-2/cooperative-finance/ (last visited Nov. 26, 2025).

[8] Id.

[9] See Directors or Board Members, Cornell SC Johnson Coll. of Bus., https://cooperatives.dyson.cornell.edu/home/leading-a-cooperative/directors-or-board-members/ (last visited Nov. 26, 2025).

[10] See id.

[11] Id.

[12] See Advantages of the Co-op Business Models, NCBA CLUSA (July 1, 2022), https://ncbaclusa.coop/blog/advantages-of-the-cooperative-business-model/.

[13] Id.

[14] See Co-operative (Co-op), Cornell L. Sch. Legal Info. Inst., https://www.law.cornell.edu/wex/co-operative_(co-op) (last visited Nov. 26, 2025).

[15] See id.

[16] See Legal Considerations for Creating a Cooperative, DeWitt Law Firm, PLLC, https://www.dewitt.law/blog/business-law-articles/legal-considerations-for-creating-a-cooperative/ (last visited Nov. 26, 2025) (stating that co-ops “generate millions of jobs” and address “the need to serve rural and other underserved communities”).

[17] See About Us, Gullah Farmers’ Coop. Ass’n, https://gullahfarmers.org/about/ (last visited Nov. 26, 2025).

[18] See id.

[19] See id.

[20] See Perryman, supra note 2.

[21] Id. (“USDA Rural Development continues to partner with cooperatives as they serve their members’ needs, fill market gaps, and create opportunities.”).

[22] Co-operative (Co-op), supra note 14.

[23] Id.

[24] Id.

[25] See Legal Considerations for Creating a Cooperative, supra note 16.

[26] See Vincent Bérubé, Andrew Grant & Tarek Mansour, How Cooperatives Grow, McKinsey & Co., https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Strategy/McKinsey%20on%20Cooperatives/PDFs/McK_on_Cooperatives-How_cooperatives_grow.ashx (last visited Nov. 26, 2025).

[27]See id.

[28] See Amy Levine & Hudson Rowland, Exploring Challenges and Opportunities for Consumer Products Co-Ops, Clarkston Consulting (Nov. 17, 2023), https://clarkstonconsulting.com/insights/opportunities-for-consumer-products-co-ops/.

[29] Id.

[30] Id.

[31] See id. (recommending that co-ops look for leaders “who can add diversity of perspective”).

[32] See Advantages of the Co-op Business Models, supra note 12.

[33] See id.

[34] See About Us, supra note 17.

[35] See id.