Mutualization

What Does Mutualization Mean?

Mutualization is the process by which a conventional business reorganizes so that its members become part-owners, holding the majority of the company’s stock and receiving dividends from its profits as part of their compensation.

After mutualization, members also become clients of the organization, creating an incentive for them to support and patronize the business further.

A company that has undergone mutualization is referred to as a mutual company or a cooperative.

Insuranceopedia Explains Mutualization

At the end of each calendar year, members of a cooperative receive dividends from the company’s profits.

In addition to these earnings, members of a mutual company also have the authority to elect its leadership, including the board of directors.

Insurance companies can operate as mutual companies or transition into one. In such cases, policyholders may receive dividends and have a voice in choosing the company’s leaders.

The reverse process, where a cooperative transforms into a standard business, is referred to as privatization, demutualization, or converting the company into a stock-owned entity.