On this page
- What a cooperative is
- Advantages and disadvantages
- Key factors for choosing this structure
- Register as a cooperative
As a registered legal entity, a cooperative differs from a company in that it requires at least five shareholders, each of whom hold equal voting rights. Cooperatives 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.
Cooperatives are regulated by Consumer Affairs Victoria (CAV).
If you are unsure if this is the right business structure for your business, use our guide to help.
Advantages of cooperatives are:
All shareholders have an equal vote at general meetings regardless of their shareholding or involvement in the cooperative.
Lower debt risk
Shareholders, directors, managers and employees have no responsibility for debts of the cooperative 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.
The Cooperative Federation of Victoria Ltd and Consumer Affairs Victoria can provide you with assistance when establishing a cooperative.
A cooperative is member owned and controlled, rather than controlled by investors.
Share the load
All members and shareholders have to be active in the co-operative.
Disadvantages of cooperatives are:
Number of members
There must be a minimum of five member.
Limited profit distribution
There is a usually a limited distribution of surplus (profits) to members/shareholders and some cooperatives may prohibit the distribution of any surplus to members/shareholders
Difficulty attracting members
As cooperatives 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
Cooperatives require ongoing cooperative education programs for members.
Key factors to decide
Consider the following if you decide to register as a cooperative:
Anyone can apply to be a member of a cooperative, 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.
Cooperatives are subject to Corporations Law and the Cooperatives National Law.
Change of rules
Although a cooperative is an organisation run under rules established at its incorporation, a cooperative 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 Cooperatives at Consumer Affairs Victoria for approval.
According to the Cooperatives Act 1996, directors of a cooperative 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 cooperative property or information
- avoid the taking of unauthorised benefits
- act honestly
- act within the powers granted to them.
A director's statutory duties include those set out in the Cooperatives 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 cooperative or any of its books, and must deliver up all documents they are 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 cooperative. Get more information and guidance about cooperatives from the Consumer Affairs website.
Register as a cooperative
To register a cooperative you must:
- decide if forming a cooperative is the right option for your entity - CAV has information that can help you work out your decision
- once the cooperative's name, rules and any disclosure statements have been approved, hold a formation meeting