Cooperative Management

Management of a cooperative is often 

incorrectly thought of as including only the 

hired manager and his or her key staff. This 

is far from the truth. Cooperative management should be regarded as a team consisting of four elements — members 

(owners), board of directors (elected), the 

manager (hired), and other responsible 

employees (paid). Each part of the team 

has its own distinctive duties and responsibilities for performing management functions in a cooperative. This allows them 

definite, reserved rights in the ownership 

and control of the business. These important rights give them the privilege of taking 

an active part in the management of the 

business. To be effective, each must exercise these rights; otherwise they will have 

no voice in management.

Successful management of a cooperative, therefore, is based on intelligent and 

active cooperation of the members with the 

board and the manager/employees. Each 

group must shoulder its responsibilities. Cooperatives, as a form of business owned 

and controlled by the people who use it, 

are the same as a sports team in that they, 

too, have several important ingredients 

needed to make a complete team. The 

most essential one is people:

u Members, as the owner-users;

u Board of Directors, as the policymaking 

body;

u Hired Management, as the supervisor; 

and

u Employees, as the work force. 

Each has specific roles and responsibilities in the overall operation of a cooperative.

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Understanding Cooperatives:

Who Runs the Cooperative 

Business? Members

Cooperative Information Report 45, Section 4

When you think about sports, whether it be football, baseball, or basketball, you realize several key 

ingredients are needed to set the 

stage for a successful, winning season — a coach, players, fans, and a 

game plan. People, using these 

ingredients, work together to make it 

happen — the coach serves as the 

guider; the players are the executors; the fans are the support system; and the game plan is the 

blueprint for the team to come 

together and perform. Each segment 

is an important part to the whole.

United States

Department of

Agriculture

Rural Development

Rural Business

and Cooperative

Service

October 1994

Reprinted

April 2011

Manager

Employees

Members

Board of 

Directors
Rights and Responsibilities of 

Members

This section specifically discusses the 

responsibilities of members. (Sections 

describing the responsibilities of the board 

of directors and management /employees 

are numbers 5 and 6, respectively.)

Members are the foundation of the 

cooperative business. They organized it. 

Their needs are the reason for its existence. Their support, through patronage 

and capital investment, keeps it economically healthy. And their changing requirements shape the cooperative’s future.

But along with all of this comes rights 

and responsibilities that members must 

accept and exercise for the cooperative to 

meet effectively the needs of its owners — 

specific rights under the law and as outlined in the cooperative’s bylaws and 

articles of incorporation, and responsibilities, both moral and legal, regarding those 

rights.

Rights

Rights of a cooperative member normally 

include:

u Adopt and amend the articles of incorporation and bylaws.

u Elect and, if necessary, remove directors 

of the business.

u Dissolve, merge, or consolidate the 

cooperative or form a joint venture with others. 

u Require officers, directors, and other 

agents to comply with the law under 

which the business was set up, and with its 

articles of incorporation, bylaws, and membership contracts.

u Hold directors and officers liable for 

damage injurious to members. 

u Examine the annual reports.

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Responsibilities

1. Patronize the cooperative. Members 

must make a conscious decision to be 

committed to the cooperative and to maintain that commitment even when short-term 

prices or services may be better elsewhere, 

or competitors make more attractive offers. 

If members do not want to use the cooperative, the need for it must be reexamined. 

2. Be informed about the cooperative. To 

carry out their responsibilities, members 

must know what the cooperative is, what it 

can do for them, its purpose, objectives, 

policies, and the issues it faces. They can 

obtain information through annual reports 

and newsletters, and from talking to the 

manager, staff, directors, and other members. To effectively exercise their right of 

ownership, a member needs a good understanding of the present situation and projected future operations.

3. Participate in selecting and evaluating 

directors. As owners, members assume a 

positive, broad role in the cooperative’s 

management. Although the cooperative is 

a user/owner (democratically) controlled 

form of business, members cannot make 

all the decisions directly. They select from 

among their peers individuals with the best 

judgment and business management skills 

to represent them in most management 

affairs as the cooperative’s board of directors. This is definitely one of the most 

important responsibilities.

Selecting the most popular or least controversial person is not the wisest choice 

for this job. Members need to study carefully the strengths and weaknesses of the 

cooperative and determine how the leadership skills of the candidates address them. 

Loyalty, integrity, the ability to make wise 

business decisions, and willingness to 

Members are the foundation of the cooperative business. They 

organized it. Their 

needs are the reason 

for its existence. 
serve are necessary characteristics for 

board members.

But this election does not mean the end 

of the members’ responsibility. They need 

to keep in contact with the directors to ask 

questions, make comments, and request 

changes or new services. They also need 

to observe and evaluate how directors perform.

4. Provide necessary capital. A primary 

responsibility is to finance the cooperative 

for the purpose of acquiring needed goods 

and services, not for financial returns. This 

is done initially through the purchase of 

stock or a membership. It is continued 

through patronage and/or use of the cooperative. One-time assessments or investments also may be necessary to finance 

special fixed assets or services. For a 

cooperative to be successful, it must have 

a volume of business. Normally, the greater 

the volume of business, the greater the efficiency obtainable, the more services available, and the higher the earnings (profit) 

are for members. Members’ patronage 

finances the cooperative so the business 

can continue. The greater the patronage, 

the more likely the cooperative will be able 

to provide, expand, and improve its services. But if that is not the case, and the 

cooperative loses money, members have 

the same responsibility to share in those 

losses as they do in the earnings.

5. Adopt legal papers. Members are 

responsible for understanding, adopting, 

and amending legal papers. They should 

read and understand the cooperative’s articles of incorporation and bylaws to know 

how the business is to operate and what 

services it can provide. Before voting to 

approve bylaw amendments, they need to 

analyze them to determine how they will 

affect the business. Members must also 

become acquainted with the contents of 

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legally enforceable marketing contracts or 

other legal papers before signing them so 

that they can fulfill their obligation to the 

business.

6. Evaluate performance of the cooperative.

Members should examine the annual report, 

observe whether the cooperative is meeting 

their needs, and analyze efforts of the cooperative to communicate with members and 

the public.

Certainly this list is not all-encompassing, 

and some of the responsibilities listed are 

more important than others. But to be a 

meaningful and useful business organization, the cooperative must have members 

who understand it and take their rights and 

responsibilities seriously.

Qualifications of Members 

Requirements for membership in cooperatives can consist of the following:

u Members must be producers of farm 

products (if an agricultural cooperative). 

They may be a landowner receiving share 

rent as well as an owner-operator or tenantoperator. The bylaws of many cooperatives 

provide that if members do not patronize 

their cooperative for (1 or 2) consecutive 

years, they lose the right to vote, and the 

Members select from 

among their peers individuals with the best 

judgment and business 

management skills to 

represent them in most 

management affairs as 

the cooperative’s board 

of directors. This is definitely one of the most 

important responsibilities.

Members
This circular is one of a continuing series that provides training information and presentations for education 

resource persons who may or may not be familiar with the cooperative form of business. This series provides the 

basic background material they need and in a form that can be readily adapted, with limited preparation time, to a 

lecture or other presentation.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis 

of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental 

status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) 

Persons with disabilities who require alternative means for communication of program information (Braille, large 

print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC 20250-9410, or call toll-free 

at (866) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 (English Federal-relay) or (800) 845-6136 

(Spanish Federal-relay). USDA is an equal opportunity provider and employer. 

loan. Rural residents, nonfarmers as well as 

farmers, in areas served by rural electric or 

telephone cooperatives, become members 

to receive service. Persons wanting to participate in rural housing, recreation, credit 

unions, or other cooperative programs must 

become members to receive these services.

Conclusion

The sole reason for any cooperative’s existence is to serve the needs of its user-owners. But these needs can neither be flashed 

on a computer screen in response to the 

push of a button nor drawn from a hat at 

the opening of each board meeting.

In truth, there is no way to learn what 

these needs are unless the cooperative 

member voices them to the board of directors and paid management. The annual 

meeting is the vehicle for this. Cooperative 

members attending their annual meeting 

are not intended to be only an audience, 

but rather a vital part of the meeting. This is 

their opportunity to evaluate the operations, 

finances, and policies of the cooperative, 

along with expressing their needs and 

views.

Exercise your rights and responsibilities 

in participating in the business you own 

and control, as a cooperative member. n

membership stock or certificate is transferred to a non-voting status.

u They must have a financial investment 

ranging from $1 to $10,000 or more. A few 

agricultural cooperatives do not have any 

financial requirements — only that a person 

must be a farmer patron, or in some cases 

also do a specified minimum amount of 

business a year.

u A formal application for membership 

must be completed, including payment of a 

membership fee or purchase of a share of 

common stock for membership.

Members are obligated to patronize their 

cooperative. This varies from a loosely 

implied obligation to a legally binding contract between members and their association to patronize it on a specific basis. 

Types of service that members want dictate 

the nature of the patronage obligation. Generally, these agreements are more binding 

in cooperatives providing marketing services than in those purchasing supplies or 

providing specialized services. Some cooperatives require in their bylaws or legally 

enforceable marketing contracts that members must do a specified percent of their 

business with the cooperative annually.

Farm Credit System cooperatives require 

eligible persons seeking loans to purchase 

membership stock before completing the 

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The sole reason for any 

cooperative's existence 

is to serve the needs of 

its user-members. 

To see this and 

other USDA cooperative publications online, visit: 

http://www.rurdev.

usda.gov/rbs/pub/

cooprpts.htm 

To order hard copies, e-mail: 

coopinfo@wdc.

usda.gov

or telephone:

1-800-670-6553.