1. Introduction: What is a cooperative and why is it important?
A cooperative is a democratic organisation of members who jointly own and manage a business. The cooperative is a special form of collaboration and legal entity because it is distinguished by its unique legal structure and the fact that members make decisions and reap benefits collectively. This special legal form enables independent entrepreneurs, farmers, consumers and other entrepreneurs to combine their material and business interests for economic benefit. A cooperative is an autonomous organisation that unites people or producers to meet common economic, social or cultural needs. In this guide, you will learn what a cooperative means, why it is important, and how it works in practice.
We cover the core concepts, different types of cooperatives, legal aspects such as liability and corporation tax, and practical examples of successful Dutch cooperatives. Whether you are considering setting up a cooperative association or simply want to understand how cooperative entrepreneurship works, this guide provides you with all the essential information.
The cooperative as a legal form offers unique advantages such as economies of scale, joint purchasing power and democratic control, making it a suitable alternative to traditional forms of enterprise. Cooperatives offer economies of scale through joint purchasing or sales, saving members money. In addition, cooperatives give their members access to goals or markets that would be unattainable for individuals.
2. Cooperative Meaning: Core concepts and definitions
2.1 Basic definitions
A cooperative, officially called a cooperative association, is a legal entity in which members jointly own and democratically manage a business. The Civil Code defines a cooperative as an association with legal personality whose purpose is to serve the material interests of its members through commercial activities. In the Netherlands, there are three types of cooperatives: UA, BA and WA, which regulate the liability of members. Whether or not the members are liable is agreed upon at the time of incorporation.
The key characteristics are:
- Membership: A minimum of two members is required for establishment.
- Democratic governance: Each member has voting rights in the general meeting of members
- Joint ownership: Members collectively own the company
- Economic objective: Focused on material benefits for members
- Knowledge sharing: Cooperatives often meet the need for knowledge sharing among members
- Innovation: Collaboration within cooperatives stimulates innovation through the sharing of ideas and resources
In addition to democratic governance and joint ownership, it is important to note that the cooperative manages invoicing, activities and the distribution of profits among its members.
A cooperative association differs from a regular association in that it is permitted to distribute profits to members, which is not possible in regular associations. However, a disadvantage of a cooperative is that decisions are sometimes made more slowly due to its democratic structure.
2.2 Relationships with other concepts
Cooperatives relate to other legal forms as follows:
- Versus private limited company/public limited company: Democratic governance (one member, one vote) versus shareholder power based on capital
- Versus association: Possibility of profit distribution and focus on material interests versus idealistic goals
- Versus partnership: Legal personality versus no separate legal entity
- Versus VOF: Limited liability options versus joint and several liability
- Versus mutual insurance association: A mutual insurance association is a special form of insurance that only insures its members. Like a cooperative, it is an association with legal personality, but the focus is on insuring members. Its establishment and liability are legally comparable to those of a cooperative.
The concept is closely linked to democratic governance, whereby the board enters into agreements on behalf of all members, but the members jointly take the most important decisions.
3. Types of cooperatives
There are different types of cooperatives, each with their own focus and advantages for members. Many cooperatives are established around a joint product or service, with the joint nature of the product being central to the collaboration. The choice of a particular type of cooperative depends on the business interests and the way in which members want to work together. The two most common types of cooperatives are business cooperatives and entrepreneurial cooperatives.
A business cooperative focuses on representing the business interests of its members. This includes joint purchasing, sharing advertising costs or collectively processing products. By working together within a business cooperative, members can benefit from economies of scale and a stronger position in the market. This type of cooperative is ideal for companies that want to join forces to work more efficiently and save costs.
The business cooperative is particularly popular among self-employed entrepreneurs, such as freelancers. In this form, entrepreneurs work together on projects or assignments that they cannot carry out individually. A major advantage is that clients have a single point of contact, while the members of the cooperative retain their independence. This makes the entrepreneurial cooperative a flexible and accessible legal form for professionals who want to collaborate without giving up their own business.
In addition to these main forms, there are other types of cooperatives, such as consumer cooperatives and producer cooperatives, each aimed at strengthening the interests of its members. Whichever form you choose, the basic principle remains that members are stronger together and can achieve more through cooperation than they could alone.
3. Why cooperatives are important in Dutch business
Cooperatives have played a crucial role in the Dutch economy since the 19th century. Created in response to the Industrial Revolution, they offered small entrepreneurs, farmers and workers a way to organise themselves against the market power of large players. Awareness of the cooperative as a legal form is growing, even though it is less well known than other forms such as BV or NV.
Modern relevance:
- Rabobank: Largest cooperative bank in the Netherlands with more than €600 billion in assets
- FrieslandCampina: International dairy giant owned by 16,000 dairy farmers
- PLUS: Supermarket chain in which independent entrepreneurs work together
- Cooperatives can offer products or services collectively, giving members access to a broader market
Statistics and impact: The Netherlands has approximately 2,500 economically active cooperatives, operating in sectors ranging from agriculture to healthcare. These organisations serve millions of members and collectively generate tens of billions of euros in turnover.
Benefits for members:
- Cost sharing: Shared costs for purchasing, marketing and administration
- Joint purchasing power: Better negotiating position with suppliers
- Risk spreading: Distribution of entrepreneurial risks across multiple members; by collaborating with other members, income and risks are distributed fairly.
- Economies of scale: Access to markets and services that are unattainable individually
4. Comparison table: Cooperative vs other legal forms
| Aspect | Cooperative | Private limited company | Association | Partnership |
|---|---|---|---|---|
| Liability | UA/BA/WA variants | Limited | None | Joint and several |
| Profit distribution | Permitted to members | Yes, via dividend | Not permitted | Directly to partners |
| Voting rights | Democratic (1 member = 1 vote) | Based on shares | Democratic | Per partner |
| Legal personality | Yes | Yes | Yes | No |
| Incorporation costs | Notarial deed required | Notarial deed required | No notary required | No notary required |
| Corporation tax | Yes | Yes | No (unless a company) | No |
| Minimum number of members | 2 | 1 | 2 | 2 |
| Financing | Members often act as guarantors for loans; financing can be difficult without clear assets | Financing through share capital or loans | Limited financing options, often dependent on contributions | Financing by partners, often private contributions |
5. Step-by-step: How a cooperative works in practice
Step 1: Understanding structure and organisation
A cooperative consists of various bodies, each with its own role:
General meeting of members:
- Highest body within the cooperative
- Makes important decisions about amendments to the articles of association, appointment of the board, and allocation of profits
- All members have voting rights, regardless of their financial contribution
- The highest authority within a cooperative is the general meeting of members, where members exercise their voting rights. Members themselves agree on the distribution of profits within the cooperative. A portion of the profits, the surplus profit, is distributed to the members on a pro rata basis.
Board:
- Day-to-day management of the cooperative
- The board enters into agreements on behalf of the cooperative
- Accountability to the general meeting of members
- Supervising day-to-day operations
- The board members of the cooperative are registered with the Chamber of Commerce and are responsible for the governance of the cooperative.
- A cooperative can also enter into contracts with third parties, which must be stated in the articles of association. In principle, directors are not liable for any debts incurred by the cooperative, except in the case of mismanagement.
Members:
- Owners of the cooperative
- Both customer and owner of the company
- Right to information and participation
Step 2: Types of liability
When establishing a cooperative, a choice must be made between three forms of liability:
- Members are completely excluded from liability for debts
- Most commonly used form for modern cooperatives
- Protects members’ personal assets
- In the case of a cooperative B.A. or W.A., the board must submit a list of members to the Chamber of Commerce every year. Please note: in certain cases, such as mismanagement, a director may be held personally liable.
- Members are completely exempt from liability for debts
- Most commonly used form for modern cooperatives
- Protects members’ personal assets
B.A. (Limited Liability):
- Members are liable up to a predetermined amount
- Often used for cooperatives where members want to bear an equal share of the risk
- Maximum liability is specified in the articles of association
- Members can be held jointly and severally liable
- Similar to a general partnership structure
- Rarely used due to high risks for members
- If members opt for statutory liability (WA), they are jointly and equally liable for debts.
- Members can be held jointly and severally liable
- Similar to a general partnership structure
- Rarely used due to high risks for members
These three forms of liability determine the extent to which members are financially responsible for the debts of the cooperative. A cooperative must include UA, BA, or WA at the end of its name in accordance with its liability regime.
U.A. (Excluded Liability):
- Members are completely excluded from liability for debts
- Most commonly used form for modern cooperatives
- Protects members’ personal assets
B.A. (Limited Liability):
- Members are liable up to a predetermined amount
- Often used in cooperatives where members want to bear an equal share of the risk
- Maximum liability is specified in the articles of association
W.A. (Statutory Liability):
- Members can be held jointly and severally liable
- Similar to a general partnership structure
- Rarely used due to high risks for members
Step 3: Establishment and registration
- A cooperative is officially established by drawing up a notarial deed and registering with the Chamber of Commerce.
- A notary draws up the deed of incorporation
- Articles of association are included in the deed
- The notary registers all members as co-founders
- The notarial deed contains the articles of association of the cooperative, in which important agreements and rules are laid down. The articles of association of the cooperative must be amended by the notary in order to make changeable agreements. When a cooperative is established, the conditions for membership are also included in the articles of association.
- A notary draws up the deed of incorporation
- Articles of association are included in the deed
- Notary lists all members as co-founders
- The notarial deed contains the articles of association of the cooperative, in which important agreements and rules are laid down. The articles of association of the cooperative must be amended by a notary in order to make changeable agreements. When a cooperative is established, the conditions for membership are also included in the articles of association.
- A notary draws up the deed of incorporation
- Articles of association are included in the deed
- Notary lists all members as co-founders
Mandatory registrations:
- Registration with the Chamber of Commerce Trade Register within 8 days
- Apply for a VAT identification number if applicable
- UBO registration (ultimate beneficial owners) is mandatory
- Any industry-specific licences
- The cooperative must be registered in the Trade Register in order to operate officially
- Registration with the Chamber of Commerce Trade Register within 8 days
- Apply for VAT identification number if applicable
- UBO registration (ultimate beneficial owners) mandatory
- Any industry-specific licences
Tax obligations:
- Cooperative corporation tax: standard rate applies
- VAT registration for turnover above €20,000
- Payroll taxes if staff are employed. Cooperatives must comply with legal requirements for administration and annual reports. There are annual obligations for the cooperative to prepare annual reports.
Administration and annual reports for cooperatives
Solid administration is the backbone of every cooperative. Not only is it a legal requirement, it also ensures that the cooperative can operate transparently and responsibly towards its members and external parties. Whether you have a cooperative with limited liability (BA), statutory liability (WA) or excluded liability (UA), administrative obligations are an essential part of cooperative entrepreneurship.
7. Profit and tax in cooperatives
The financial structure of a cooperative is unique and offers members various opportunities to benefit from the collective success. The profit of a cooperative consists of two parts: the extension profit and the profit of the cooperative itself. The extension profit is the part of the profit that is paid directly to the members of the cooperative, usually based on their contribution or the work they have done within the cooperative. This ensures that members benefit directly from their efforts and cooperation.
The other part is the profit that remains within the cooperative. This profit can be used for investments in the business, such as expansion, innovation or strengthening the financial position. The cooperative may also decide to distribute part of this profit to the members, depending on what is laid down in the articles of association.
In terms of taxation, the cooperative pays corporation tax on the profit remaining after distribution of the retained earnings. This makes the cooperative comparable to other legal entities such as private limited companies. Members of the cooperative who work as self-employed entrepreneurs, for example with a sole proprietorship, pay income tax on their own profits, including the portion they receive as extended profits from the cooperative.
In addition, the cooperative must register with the Tax and Customs Administration and will be assigned a VAT identification number. The cooperative is obliged to file VAT returns on its turnover. Members of the cooperative may also be self-employed for VAT purposes and must then charge VAT when invoicing the cooperative. This ensures that the tax position of both the cooperative and its members remains clear and transparent, allowing both to reap the full benefits of cooperative entrepreneurship.
6. Common misconceptions about cooperatives
Misunderstanding 1: Cooperatives are only for farmers and the dairy industry Although agricultural cooperatives are historically important, nowadays there are cooperatives in almost every sector: energy, healthcare, retail, transport and services. For example, self-employed persons can work together in a cooperative to jointly acquire assignments.
Misconception 2: Cooperatives are not allowed to make a profit Cooperatives are indeed allowed to distribute profits to their members. The difference with an association is that the distribution of profits is permitted, provided that this is done in accordance with the articles of association and in the material interests of the members.
Misconception 3: All members are always personally liable In the case of U.A. (excluded liability), members are not liable at all for the debts of the cooperative. Former members are also excluded from liability after termination of their membership.
Pro tip: Avoid these misunderstandings by providing clear information from the outset about the chosen form of liability and the possibilities within the cooperative model.
7. Practical example: Successful Dutch cooperative
Case study: FrieslandCampina – from local dairy factories to international cooperative
Initial situation (1871): Local dairy farmers in Friesland set up small cooperative dairies to process and sell milk jointly. Individual farmers were too small to negotiate directly with large buyers.
Steps to success:
- Local cooperation: Farmers within a certain region pooled their milk
- The joint product, namely dairy, forms the basis of the cooperation within the cooperative and is central to the joint business operations.
- Mergers and economies of scale: Smaller cooperatives merged to become regional players
- Internationalisation: Expansion into foreign markets for better sales opportunities
- Innovation and modernisation: Investments in technology and product innovation
- Strategic acquisitions: Growth through acquisitions at home and abroad
Current results (2023):
| Aspect | Number/Amount |
|---|---|
| Number of members (dairy farmers) | 16,000 |
| Annual turnover | € 13 billion |
| Countries of operation | 100 |
| Employees worldwide | 23,000 |
| Milk processing per day | 36 million litres |
This case shows how a cooperative can grow from local collaboration to an international player, with members benefiting from economies of scale and a stronger market position.
8. Frequently asked questions about the meaning of a cooperative
Question 1: What is the difference between a cooperative and an association? A cooperative may distribute profits to its members and focuses on material interests, while an association pursues idealistic goals and may not distribute profits. Both have legal personality and a democratic management structure.
Question 2: Can cooperatives distribute profits to members? Yes, that is an important difference from associations. Cooperatives may distribute profits to members, provided that this is stated in the articles of association and is done in accordance with the agreed distribution key.
Question 3: What taxes does a cooperative pay? A cooperative is subject to corporation tax (25.8% on profits above €395,000), VAT on turnover, and payroll taxes if it employs staff. The cooperative pays these taxes in the same way as other legal entities.
Question 4: Is a cooperative suitable for self-employed persons? Yes, self-employed entrepreneurs can set up a cooperative for joint purchasing, contract acquisition, or sharing office space. Please note that this may have consequences for social security and social security contributions.
Question 5: How do you dissolve a cooperative? A cooperative is dissolved by an official decision of the general meeting of members, followed by liquidation and deregistration with the Chamber of Commerce. Any remaining assets are distributed in accordance with the articles of association. In the event of dissolution or bankruptcy, the members of the cooperative may be liable to the cooperative itself for any shortfall.
9. Conclusion: Key points about the meaning of a cooperative
The 5 most important points about cooperatives:
- Democratic ownership: Members are joint owners and govern democratically with equal voting rights
- Flexible liability: Choice between U.A., B.A., or W.A. determines members’ personal risks
- Economic advantages: Economies of scale, cost sharing and joint purchasing power strengthen market position
- Profit distribution permitted: Unlike associations, cooperatives may distribute profits to members
- Wide range of applications: Suitable for various sectors, from agriculture to modern services
When is a cooperative suitable? A cooperative is well suited to entrepreneurs who want to work together but retain their independence, want to buy or sell jointly, or consider democratic control important.
When is it not suitable? For rapid decision-making, external investors, or when members have very different interests that are difficult to reconcile.
Next step: Are you considering setting up a cooperative? Contact a solicitor or barrister at Law & More for tailored advice.
Action: Evaluate whether the advantages of cooperative entrepreneurship fit your business goals and whether you are willing to invest in democratic decision-making and member involvement.