What is a co-operative?

As a registered legal entity, a co-operative differs from a company in that it requires at least five shareholders, each of whom hold equal voting rights. Co-operatives apply the concepts of sharing, democracy and delegation in order to benefit all members. Generally, all members are expected to participate and share the responsibility of running the organisation.

Co-operatives are regulated by Consumer Affairs Victoria (CAV).

If you're unsure whether a co-operative is the right business structure for your business, use our step-by-step guide to help you decide.

Advantages of a co-operative

Advantages of co-operatives are:

Equal votes

All shareholders have an equal vote at general meetings regardless of their shareholding or involvement in the co-operative.

Lower debt risk

Shareholders, directors, managers and employees have no responsibility for debts of the co-operative unless those debts are caused recklessly, negligently or fraudulently.

Age of members

Members, other than directors, can be under 18, though these members cannot stand for office and do not have the right to vote.

Support

The Co-operative Federation Ltd and Consumer Affairs Victoria (CAV) can provide you with assistance when establishing a cooperative.

More control

A co-operative is member owned and controlled, rather than controlled by investors. All members and shareholders have to be active in the co-operative.

Disadvantages of a co-operative

Disadvantages of co-operatives are:

Number of members

There must be a minimum of five members.

Limited profit distribution

There is usually a limited distribution of surplus (profits) to members/shareholders, and some co-operatives may prohibit the distribution of any surplus to members/shareholders.

Difficulty attracting members

As co-operatives are formed to provide a service to their members rather than a return on investment, it may be difficult to attract potential members/shareholders whose primary interest is a financial return.

One vote only

Even though some shareholders may have a greater involvement or investment than others, they still only get one vote.

Ongoing educational requirements

Co-operatives require ongoing cooperative education programs for members.

Key factors to decide

Consider the following if you decide to register as a co-operative.

Membership

Anyone can apply to be a member of a co-operative, with the directors making decisions about the suitability of applicants. Directors are nominated and elected by members, and have specific duties that are defined by common and statutory law. Any member may choose to nominate themselves as director.

Legislation

Co-operatives are subject to Corporations Law and the Cooperatives National Law.

Change of rules

Although a co-operative is an organisation run under rules established at its incorporation, a co-operative may change its rules. Any such rule changes must be passed by special resolution at a general meeting, following submission of a draft of the resolution and the relevant form to the Registrar of Co-operatives at Consumer Affairs Victoria for approval.

Director's duties in a co-operative

According to the Co-operatives Act 1996, directors of a co-operative are subject to both common law and statutory duties.

Common law duties

According to common law duties, a director must:

  • act in good faith
  • act with care and diligence
  • avoid conflicts of interest
  • avoid the unauthorised use of co-operative property or information
  • avoid the taking of unauthorised benefits
  • act honestly
  • act within the powers granted to them

Statutory duties

A director's statutory duties include those set out in the Co-operatives Act 1996. The duties specified are:

  • to act honestly
  • to exercise care and diligence
  • not to improperly use information gained as a director or misuse improperly his or her position to manage the co-operative
  • not to contravene any section of the act, particularly any applicable to directors

For example, a director must not act fraudulently or conceal, mutilate or falsify securities of the co-operative or any of its books, and must deliver up all documents they're required to.

Further information for directors

This information is presented as a guide to help you understand a director's role and responsibilities in a co-operative. Get more information and guidance about co-operatives from CAV's website.

How to register as a co-operative

To register a co-operative, you must: