What is a co-op?

October 26, 2025

By Nadia Cabrera-Mazzeo, Esq.

Cooperatives are businesses that are (1) democratically-governed, (2) pay out profits on the basis of participation, not ownership stake, and (3) prioritize benefits to members over returns on financial investments. Co-ops can be for-profit or nonprofit and they can be almost any type of business.

Co-ops under New Mexico law

While some states have a type of legal entity called a Cooperative Corporation, groups looking to organize as co-ops in NM must use an LLC, corporation, or cooperative association. A cooperative association in NM is a nonprofit corporation that can conduct any type of businesses. Unlike regular nonprofits, cooperative associations do not have to fulfill a charitable purpose. But like regular nonprofits, cooperative associations cannot freely pass on profits to its members. Some money is allowed to be paid to members as “interest-dividends” (different than patronage dividends) but that amount is limited by the law.

The members of a cooperative association may be individuals or other organizations. Members make an initial money investment in the co-op and get one share. Each member is only entitled to one share and one vote. Proxy voting is not allowed, meaning members cannot allow someone else to vote on their behalf. The law also limits how much money a co-op can spend on marketing and promotion. Oftentimes, only members who are actively receiving goods/ services from the co-op are eligible for continued membership. Depending on the co-op’s bylaws, members usually get their investment back when they leave the co-op.

The most common types of co-ops in New Mexico are utility companies and food co-ops. This co-op legal structure is also a great fit for resident-owned communities where residents collectively own the real estate or other assets of the community in which they live (this is not currently common in New Mexico).

General Types of Cooperatives

   Consumer:  Members are the consumers that directly use the product or service offered by the co-op (e.g. food co-ops, utility co-ops, credit unions)

   Producer:  Members are the people who create the products or services offered by the co-op (e.g. farming co-ops where farmers pool their product to sell to a wider market or micro bakeries that come together to share a commercial kitchen and equipment)

   Purchasing:  Members are businesses that join together to enhance their purchasing power and get benefits like wholesale discounts

   Worker:  Members are the employees of the co-op (e.g. employee-owned businesses)

   Housing:  Members are the residents of the jointly owned real estate

   Multi-stakeholder/ Hybrid:  Members are a combination of groups with different but overlapping interests

The Internationally Recognized Cooperative Framework

Not all states demand that a specific legal structure be the only one entitled to the co-op name. Even in the U.S., some states allow any type of business to be called a cooperative. There are 7 widely recognized cooperative principles that define a co-op:

1. Open and voluntary membership—anyone who meets the eligibility requirementsoutlined in the bylaws can be a member;

2. Member economic participation—everyone contributes some money and is entitled to returns proportionate to their contribution;

3. Democratic member control—everyone gets an equal vote regardless of how much money they put in;

4. Autonomy and independence—the business is not beholden to big investors or majority owners;

5. Education, training, and open information—because every member is an equal owner, everyone has access to the same information;

6. Cooperation among cooperatives—co-ops look for formal and informal ways to support other co-ops;

7. Concern for community—the business is based on values and operates to provide some benefit to the community at large.

There are infinite ways to express these principles. For example, principle #4 autonomy and independence does not mean that the co-op can’t raise capital from single investors. The co-op may do so when investors explicitly agree to certain rules that promote the co-op’s autonomy and explicitly limit investor control. For example, investors can agree to be paid back slowly through non-exploitative practices and to not attempt to exert control over the co-op.

Key Elements of Cooperative Businesses

   Solid bylaws that establish the collective ownership structure, member eligibility, rights, duties, and powers, etc.

   Strong business plan & strategy to ensure that the business itself is viable. Unless the co-op is a nonprofit, the collectively-owned business must be able to make ends meet through conventional revenue streams like market pricing.

   Board of Directors that is elected by members, follows the bylaws, and keeps the organization accountable and on the right path. Even cooperative-style businesses organized as LLCs should have a Board of Directors.

   Democratic governance structure where every member gets one vote.

   Well-written member agreements that can be understood without a lawyer. Members must fully understand their rights, obligations, and potential consequences for violations when buying into a cooperative.

Law office of Nadia Cabrera-Mazzeo, Esq.

Small business and contracts lawyer

Based in Taos, serving clients throughout New Mexico

505 427 2025

nadia@honestcontracts.com

The information on this website is not legal advice and does not create an attorney-client relationship. The rates and fees listed on this website may not be the most up to date.