Chapter 15 - § 15.2 • COOPERATIVE PHILOSOPHY AND PRINCIPLES

• Jurisdiction: Colorado

§ 15.2 • COOPERATIVE PHILOSOPHY AND PRINCIPLES

§ 15.2.1—General Principles

Although no one can trace the exact roots of the first cooperative, they have existed formally for over 250 years. One of the earliest efforts in the United States was a mutual fire insurance company that Benjamin Franklin helped to organize in 1752. Despite this early date, most writers trace cooperative organizations to 1844, when the Rochdale Society of Equitable Pioneers, often called the Rochdale Society, was formed in England by weavers to obtain groceries and supplies for their members. The Rochdale Pioneers developed their cooperative around a set of principles first published in 1850. Those principles, in various forms (ranging in number from three to as many as 20), have served as the philosophical basis upon which cooperatives have formed since.⁷ The principles are guideposts for most, but not all, cooperative organizations. The following statement can be distilled from the various iterations of the statements of principles:

A cooperative is an autonomous and independent organization owned, financed, and controlled by the persons who use it and which provides and distributes benefits to those persons based on the amount of their use while also seeking to provide education, training and information with a concern for community responsibility.

Traditional cooperative principles have also been summarized by:

• Service at cost;
• Financial obligation and benefits proportional to use;
• Limited return on equity capital; and
• Democratic control.⁸

A more comprehensive statement of cooperative principles is contained in Exhibit 15A.

The Colorado Cooperative Act defines a "cooperative" as an entity organized under the Act with five characteristics, four of which reflect the preceding cooperative principles.⁹ There is, however, no stated penalty if an entity is organized under the Act and fails to meet the principles stated in the definition. These principles are decidedly aspirational in nature.

§ 15.2.2—Service at Cost

The concept of "service at cost" or "operating at cost" is meant to illustrate that a cooperative is not designed principally to make and retain a profit for itself at the enterprise level. Unfortunately, this has led many to believe that cooperatives are "nonprofit" organizations akin to nonprofit charitable enterprises. This is an incorrect characterization. "The purpose of a user-owner cooperative business is to provide economic benefits to its members rather than to generate a return on investment."¹⁰ In a typical nonprofit organization, all earnings must be retained in the organization and, if the organization is dissolved, its assets usually must be transferred to another nonprofit organization. In a cooperative, any earnings at the entity level are allocated among the patrons...