Geographic Territory Served 

Cooperatives can differ in structure, 

depending on the size of the area served: 

local or regional.

Local cooperatives typically operate in a 

single State, often within one or two counties. Individuals are the members of these 

local cooperatives.

Regional cooperatives usually serve an 

entire State or a number of States. They 

can have operations that are nationwide or 

that cover major portions of the United 

States. Some regional cooperatives also 

have international operations with sales 

and members in more than one country.

Governance or Control 

Structures

Based on membership structure, cooperatives can be classified as centralized, federated, or mixed.

A local cooperative is a centralized 

cooperative — individual producers make 

up the membership. A centralized regional 

may serve members in a large geographical area, and have one central office, one 

board of directors, and a manager (chief 

executive officer) who supervises the entire 

operation. Business may be conducted 

through several branch offices.

A federated cooperative is a cooperative 

of cooperatives. The members of a federated cooperative are local cooperatives, 

each operated by a manager responsible 

to a board of directors. Each local association in a federated cooperative is a separate business entity that owns a 

membership share entitling it to voting 

rights in the affairs of the regional.

Cooperative structure can be classified into 

five types as follows: geographic, governance, functions, financial, and other 

arrangements. Each will be defined and 

discussed in this circular.

1

Understanding Cooperatives:

The Structure of

Cooperatives

Cooperative Information Report 45, Section 3

Cooperatives exist in nearly every 

business sector and are organized in 

a variety of ways. Like other businesses in our economy, they range in 

size from organizations with only a 

few member-owners to large and 

complex organizations with thousands of member-owners. The way a 

cooperative is organized determines 

how it is operated, managed, and 

controlled by its members, and the 

types of benefits offered. 

United States

Department of

Agriculture

Rural Development

Cooperative

Programs

October 1994

Reprinted

April 2011

Regional Cooperative
The federated cooperative has its own 

hired management and staff, and a board 

of directors elected by and representing 

the local associations.

A mixed cooperative is a combination of 

the two — their members may be individual 

producers as well as local cooperatives.

Functions Performed

Cooperatives may perform one or more of 

these functions for members:

u Marketing products;

u Purchasing supplies; and

u Providing services.

Marketing 

The need to meet consumer demands and 

expand markets for products presents an 

2

increasing problem for farmers acting independently. Few farmers produce in quantities needed to deal directly with large 

wholesalers or retailers. Marketing cooperatives provide an increasing variety of 

off-farm processing and marketing services 

for about one-fourth of all products that 

farmers produce.

Marketing cooperatives help farmers 

produce and process quality products to 

market specification. Cooperative marketing includes the operation of grain elevators, milk plants, wool pools, cotton gins, 

livestock markets, vegetable markets, and 

nut- and fruit-packing plants. Some marketing cooperatives include the coordination 

of processing, canning, drying, blending, 

concentrating, extracting, freezing, or consumer packaging of animal and animal 

products, such as dairy, fish, meat, and 

poultry and the same for fruit, nut, and vegetable products, and many other products 

in integrated organizations.

Marketing cooperatives enable farmermembers to extend control of their products as long as the cooperative retains 

physical or legal title to a commodity handled through processing, distribution, and 

sale.

Some marketing cooperatives also can 

be called bargaining associations, which 

may not handle the actual product but rather act as the selling agent on behalf of the 

member.

Purchasing 

Farmers first turned to cooperatives as 

economic tools to gain advantage of quality and quantity of farm production supplies 

such as feed, fuel, fertilizer, and seed. 

These early efforts often became businesses having full-time managers and warehouses to handle other production supplies 

and services such as farm chemicals, aniBased on membership structure, 

cooperatives can be 

classified as centralized, federated, 

or mixed.

FARMER FARMER FARMER

COOPERATIVE

FARMER FARMER FARMER FARMER

LOCAL

COOPERATIVE

LOCAL

COOPERATIVE

COOPERATIVE

FARMER FARMER

LOCAL FARMER

COOPERATIVE

COOPERATIVE

Centralized

Federated

Mixed
mal health products, fencing, building supplies, construction contracting, automotive 

accessories, etc.

Most purchasing cooperatives have affiliated with other cooperatives, often through 

regional and interregional cooperatives. 

These efforts reduce farmer costs and 

strengthen purchasing power through owning large-scale facilities, such as petroleum 

refineries and feed mills.

One of a purchasing cooperative’s 

objectives is to reduce production costs for 

members through quantity purchasing, 

manufacturing, and distributing, procuring 

quality products, and providing related services as needed. Distribution to producer 

members is a major concern at the local 

level because added services are needed. 

Another objective is to provide a dependable supply of quality products for members.

Many cooperatives now perform both 

marketing and purchasing functions, 

although they started as single-function 

organizations.

Service

Some agricultural service cooperatives provide services related to the production and 

marketing of farm commodities. Others 

provide general services.

Related service cooperatives offer unlimited possibilities and are used in ever-widening circles to solve mutual problems and 

provide specialized services that affect the 

location, form, or quality of farm products 

or supplies for members. Services may be 

part of the operation, or they may be performed by separate cooperatives. 

Examples of services offered by farm 

supply co-ops include: recommending and 

applying fertilizer, lime, or pesticides; cotton ginning; animal feed processing; and 

crop harvesting. General service coopera3

tives provide a number of specialized services assisting farmers in their business 

such as credit, electricity, and telephone 

service.

Financial 

Cooperatives are incorporated as either 

stock or nonstock organizations. The type 

of capital structure is specified in the articles of incorporation.

If the association is a capital stock organization, members receive stock certificates 

as evidence of their ownership interest. 

More than one type of stock may be issued, 

but usually no more than two types are necessary. Most stock cooperatives issue one 

share of common stock per member to 

show membership. Preferred stock is 

issued to show additional capital contributions. (Common stock is usually the voting 

stock; preferred stock is generally nonvoting.)

If the association is a nonstock organization, it issues some kind of certificate to 

show capital contributions of members. Two 

types are usually used — a membership 

certificate as written proof of the right to 

vote and capital certificates in a manner 

similar to the way stock cooperatives use 

preferred stock.

Other Structural Arrangements

Subsidiary 

A corporation organized, owned, and controlled either totally or partially by a parent 

cooperative. Its purpose is to assume certain duties and functions of the parent 

cooperative.

Marketing Agency-in-Common 

Organized by two or more marketing cooperatives to market products or provide services for member cooperatives. It does not 

The cooperative can 

be most effective by 

serving its members' 

needs.
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. 

records. The cooperative then pays patronage refunds on the basis of the agent’s 

records.

Private Dealers

The dealer, as a franchise, keeps records. If 

the franchiser cooperative makes money 

and pays patronage refunds, these go to 

the dealer’s customers and the dealer is 

paid a commission on sales.

Conclusion

Cooperatives are classified as a way to 

easily identify the nature of the business. 

The classifications do not mean that one 

type may necessarily be better or worse 

than another. It simply means that there are 

distinguishing differences among the types, 

and shows the wide variety of cooperatives 

and the differences in their operations, 

management, control, etc.

What is important for cooperative members to understand about cooperative 

structure and their own organization is:

u What type of cooperative it is;

u How it is structured; and

u How the cooperative, whatever its classification, can be most effectively used by 

its members for serving their needs and 

achieving objectives. n

physically handle products, and it generally 

does not take title to them. Its sole responsibility is to arrange for the sale of its members’ products.

Joint Venture 

An association of two or more participants, 

persons, partnerships, corporations, or 

cooperatives to carry on a specific economic operation, enterprise, or venture. The 

identities of these participants remain separate from their ownership or participation in 

the venture.

Holding Company 

A corporate entity with a controlling ownership in one or more operating companies. 

The degree of ownership can vary widely, 

as long as the holding company can exercise control through the operating company’s board of directors. Usually the holding 

company generates no revenues from 

operations; income is limited to returns 

from investments in the operating companies.

Contract Agent 

A county or community cooperative may 

organize, owning nothing but contracts and 

paying only the money to hire an agent to 

handle the goods and keep patronage 

4

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.