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WHAT IS A “CO-OPERATIVE”?
The word “co-operative” comes from the word “co-operate”, which means working
together to reach a common goal. A co-operative is a voluntary organisation formed by
a group of people who have a common need that they want to address jointly, or a group of
people who want to create employment for themselves.

A co-operative is controlled democratically, so that each member has an equal voice in
decisions. A co-operative’s primary duty is to its members, not to anyone else outside the
co-operative. The benefits of the co-operative are shared by all of the members.

In a co-operative, people can unite their ideas, their skills and their resources to do things
which they would not be able to do on their own. It is important to remember that a
co-operative is a kind of business. It is NOT a welfare organisation.




      What is not a co-operative?
      People sometimes pool money or other resources to set up a business
      enterprise that is designed to make a profit. But if this enterprise does not
      employ members, or serve the needs of the members (other than their need
      to make money), then it cannot be a co-operative.



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The definition of “co-operative” in the Co-operatives Act is based on an internationally-
accepted definition of a co-operative:

       A co-operative means an autonomous association of persons united
       voluntarily to meet their common economic, social, and cultural needs
       and aspirations through a jointly-owned and democratically-controlled
       enterprise organized and operated on co-operative principles.

We can break down this definition into five main points in order to understand it more
clearly:

         A co-operative is an independent organisation. It must stand or fall on its own feet.

         A co-operative is a group of persons who freely decide to come together to meet
         common needs and goals.

         A co-operative is jointly owned. Its primary duty is to its members, not to anyone
         else outside the co-operative. The benefits of the co-operative are shared by all
         of the members.

         A co-operative is controlled democratically, so that each member has an equal
         voice in decisions.

         A co-operative must follow co-operative principles in its organisation and activities.


CO-OPERATIVE PRINCIPLES
There are seven co-operative principles that are followed by co-operatives all over the
world. Everyone who is involved in a co-operative should know and understand these
basic co-operative principles.

(1)   Voluntary and open membership

Co-operatives are voluntary organisations. No one can be forced to join a co-operative.
Co-operatives are open to all persons who are able to use their services and willing to
accept the responsibilities of membership. There must be no gender, social, racial,
political, or religious discrimination.

(2)   Democratic member control

Co-operatives are democratic organisations controlled by their members. The members
take an active part in setting policies and making decisions.

The co-operative might elect particular members to be on certain committees or to carry
out certain tasks. But these members must always answer to the membership. They must
carry out their responsibilities in the interests of the co-operative and keep the membership
informed on what they do.

2     GUIDE TO THE SOUTH AFRICAN CO-OPERATIVES ACT 2005
Everyone in a primary co-operative has an equal voice – one member, one vote. It does
not matter how many shares a member holds, or how much business a member does
with the co-operative, or how much work each member does. Every member has an
equal say in all major decisions. Voting rights in higher-level co-operatives must also be
organised in a democratic manner.




(3)   Member economic participation

The primary aim of a co-operative is to provide services to its members. The goal
of a co-operative is to provide services to its members at affordable prices, or to create
employment for its members. The needs of the members come first. The members of a
service co-operative may want to market their products at a good price. They may want
to purchase goods at a bargain. They may want to be able to get a loan at a reasonable
interest rate. Workers in worker co-operatives want to earn good wages. The aim of the
co-operative is to provide the desired benefits as effectively as possible, in a sustainable way.

Any services provided by a co-operative must be provided mainly to its members.
For example, a farmer’s marketing co-operative should market mostly crops or livestock
produced by its members, not by persons outside the co-operative. The sewing machines
which belong to a sewing co-operative should be mainly for the use of its members, not
for people outside the co-operative.

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Members contribute to the “capital” of their co-operative and control the eco-
nomic affairs of the co-operative in a democratic way. “Capital” is the money
and equipment which the co-operative uses to carry out its goals. Co-operatives can get
capital from money paid for shares issued to members, membership fees, grants, donations,
loans and surplus money left over from previous years of operation. Some (and possibly
all) of the capital which the co-operative uses actually belongs to the members, usually in
the form of shares and bonus shares. Each member invests some money and gets some
shares in return. The shares show that the member owns some of the assets (the money
and property) of the co-operative. Any other capital which the co-operative uses belongs
to the co-operative as a whole.

Members do not usually receive a big return on the amount they contribute to
the capital of the co-operative as a condition of membership. This makes a
co-operative different from a company. A shareholder in a company buys shares in the
hopes of making a profit. A member of a co-operative joins the co-operative and contributes
to its capital because the co-operative will provide a benefit to its members.




If the co-operative has money left over after it has paid all its debts and taxes
and provided the planned benefits to its members, this is called a “surplus”.
The surplus is normally used mainly to develop the co-operative. For example,
a co-operative usually plans to have some surplus which it can use to expand and develop
the co-operative’s business or the services it offers to its members. But if there is an extra
unplanned surplus, this means that (in a worker co-operative) the wages could have been
higher or (in a service co-operative) the prices or fees or commissions charged for the service
were too high. In this case, the surplus can be returned to the members, or used to support
other activities approved by the membership.

Any surplus that is returned to the members must be shared in proportion to the
contribution each member made to the surplus. For example, a grocery co-operative
might return a portion of its surplus to its members, in proportion to the value of the
purchases made by each of them during the year.



4    GUIDE TO THE SOUTH AFRICAN CO-OPERATIVES ACT 2005
(4)   Autonomy and independence

Co-operatives are independent self-help organisations controlled by their members. They
can make agreements with government and other organisations, but they must make
sure that they always remain under the democratic control of their own members. They
must not be controlled by any outside party.

(5)   Education, training and information

A co-operative should provide ongoing education and training for its members, elected
officers, managers and employees. It should teach all of its members about the admini-
stration and management of the co-operative, the rights and duties of membership, and
the business of the co-operative. All of the members of the co-operative should be equipped
to contribute effectively to the development of the co-operative. The co-operative should
also give information to the general public about co-operatives and how they work.




(6)   Co-operation amongst co-operatives

Co-operatives should work together with other co-operatives. This helps to strengthen the
co-operative movement.

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(7)   Concern for community

Co-operatives work for the sustainable development of their entire communities. The
decisions are made by the members, but the members are expected to show concern for
community development which can help everyone.


WHY DO WE NEED A LAW
ON CO-OPERATIVES?
The preamble (introduction) to the law explains why co-operatives are important in South
Africa. It also explains why South Africa needs a new legal framework for co-operatives:

      (1)   Co-operatives are based on the important values of self-help, self- reliance,
            self-responsibility, democracy, equality and social responsibility.

      (2)   A strong co-operative movement in South Africa can advance social and eco-
            nomic development by creating employment, generating income, promoting
            black economic empowerment, and helping to end poverty.

      (3)   Co-operatives will strengthen the South African economy by creating a
            larger number of sustainable economic enterprises in a wider variety of sectors.

      (4)   The South African government is committed to providing a supportive legal
            environment that will help co-operatives develop and succeed.

      (5)   The new law on co-operatives will make sure that the co-operative principles
            are followed in South Africa.

      (6)   The new law on co-operatives will make it possible for co-operatives to register
            with the government and to have their own legal status.

      (7)   The new law on co-operatives will
            make it easier for the government
            and others to provide support
            to new co-operatives,
            particularly
            co-operatives
            owned by
            women and
            black people.

      Preamble to the
      Co-operatives Act




6     GUIDE TO THE SOUTH AFRICAN CO-OPERATIVES ACT 2005
The following chapters of this booklet summarise the main provisions of the
Co-operatives Act 14 of 2005, which replaces the Co-operatives Act 91 of 1981.

Section references are included so that you can check the law itself if you need
more information.

The sections of the Act are not always summarised in the order that they appear
in the law itself. Some parts of the law are easier to understand if they are
explained in a different order.




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