Cooperatives: Beyond the dichotomy between non-profit and for-profit - A joint ILO-ICA brief

The relationship between cooperatives and profit is complex and often misunderstood. Cooperatives occupy a unique space between non-profit and for-profit institutions: they are best described as limited-profit institutions, reflecting their distinct purpose, associative nature and member-centred governance.

Proper understanding and accurate legal classification of cooperatives are critical to their sustainability and contribution to decent work and sustainable development.

In line with cooperative principles, surplus may be distributed to members in proportion to their transactions, while profits from non-member transactions must be transferred to indivisible reserves. Governments should recognize this unique character in policy and law, guided by ILO Recommendation No. 193 and related instruments.

Context note

This brief was prepared in a specific policy context concerning the Kingdom of Saudi Arabia. Its purpose is to clarify the distinctive nature of cooperatives as autonomous, member-based enterprises, founded, inter alia, on the economic participation of their members, and to distinguish them from charitable organizations. The analysis and framing should therefore be interpreted in light of that context and should not be read as a general statement applicable across all legal systems or regulatory environments.

The brief is currently under revision to further clarify terminology and support consistent interpretation across jurisdictions.