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Business LibreTexts

2: Cooperatives and Mutuals are Firms

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  • The purpose of a firm is to decide what to produce, how to produce it, and how to distribute what is produced. Legal forms of organizations include for-profit corporations, non-profit organizations, partnerships, and sole proprietorships. The majority of business organizations in the U.S. are corporations, and are referred to as C corporations because such organizations tax the corporation differently from the owners of the corporation. A number of these corporations are publicly traded, which means they issue stock that can be bought and sold by buyers and sellers in an organized stock exchange. Stock owners include institutional investors such as mutual funds, pension (private and public) funds, and life insurance companies. Cooperatives are a special case of corporations.

    This chapter describes how a firm is organized. Market economies such as those found in the U.S. and in many other parts of the world operate efficiently when firms are organized in the ways discussed in this chapter. The next chapter describes the organizational characteristics of a cooperative, while the third chapter describes the accounting and financial characteristics of a cooperative or mutual, with the economic transaction clearly showing why a cooperative is different from other forms of business. It is important for the reader to understand what a firm is in order to fully understand the concepts underpinning cooperation and mutualism.