Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP

What is a Mutual Company?

A mutual company refers to a private firm that considers its policyholders or customers as its owners. The clients, being the ultimate owners of the company, earn profits based on the mutual company's performance. Generally, they receive profits as dividends based on a pro-rata approach, that is the amount of money that a client has invested with the mutual company.

How Does a Mutual Company Work?

Usually, the insurance industry, several banking trusts, credit unions in Canada, community banks based in the United States and savings and loans institutions follow the structure of the mutual company. In an insurance mutual company, the person who holds the policy is entitled as the insured party or client of the company, as well as the insurer or the part owner. Mostly, private organizations instead of public firms represent mutual companies. Lots of the U.S. and Canada-based mutual companies have been preferring a joint stock corporate form over a mutual structure for many decades. This process is referred to as demutualization. The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, founded by Benjamin Franklin, is the oldest insurance organization that commenced its operations in 1752.

Benefits of a Mutual Company

The ownership structure allocated to policyholders is one of the advantages that mutual insurance companies has to offer. Ultimately, they can receive the capital straight either by the way of dividends or premium amount. For instance, a North-Carolina based liability insurance firm has reimbursed its policyholders with capital of $6 million as dividends, and the firm has been following the practice since 2011. Also, since the year it came into existence, that is 1977, the firm had given back around $13 million to its policyholders as dividends. Mutual company also has an added advantage of offering specialization to its policyholders. There are lots of mutual insurance firms that are a result of associations or experts having a specific skill set, which lets them to emphasize on a single objective instead of focusing on many. A monolithic style of management enables mutual firms to stay away from fields that don't give them the benefit of core competence.

Related Topics

• Business Entities (Intro)
• Why is studying business entities important?
• Considerations When Forming a Business Entity
• Holistic (Detailed) Overview of Setting Up a Business Entity
• What are Business Entities?
• What is a Closely-held vs Publicly-held Business?
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• What are the primary characteristics of business entities?
• What is Creation of a business entity?
• Where to Form a Business
• Incorporating in Delaware
• Forming an LLC in Nevada or Wyoming
• Creating a Company Offshore
• Promoter
• Promoter Liability
• De Jure Corporation
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• What is Continuity of a business entity?
• Business Continuity Planning
• Buy Sell Agreements
• Shotgun Clause
• Winding Up
• Dissolving a Foreign Qualification
• What is the Ownership structure of a business entity?
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• Parent Company
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• Wholly-Owned Subsidiary
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• Holding Company
  
• State-Owned Enterprise
• Mutual Company
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• Entity Theory
• Piercing the Corporate Veil
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• What is Taxation of a business entity?
• What is Sales & Use tax?
• What are payroll and self-employment taxes?
• What are the major characteristics of a Sole proprietorship?
• Uniform Partnership Act
• Uniform Limited Partnership Act
• Partnership Agreement
• At-Will Partnerships
• Responsibilities of Partners to the Partnership
• Silent Partner
• Funding the Partnership
• How are Partners Compensated
• Splitting Equity in an Industrial Partnership
• Terminating the Partnership
• Types of Partnerships
• What are the main characteristics of a General partnership?
• Tort Liability of General Partner
• What are the main characteristics of a Joint venture?
• What are the main characteristics of a Limited partnership?
• Family Limited Partnership
• Master Limited Partnership
• What are the main characteristics of a Limited liability partnership?
• What are the main characteristics of a Limited liability company?
• Forming an LLC
• Articles of Organization
• Operating Agreement or LLC Agreement
• Why You Need an LLC Agreement
• LLC Compensation of Members
• LLC Taxation
• Converting to an LLC
• What are the main characteristics of a Corporation
• Articles of Incorporation 
• What to include in the Articles of Incorporation
• Corporate Bylaws
• Exiting the Corporation
• Dissenter's Rights
• What are the requirements to be an S Corporation?
• Non-Profit Organization
• NonProfit Business Entities
• Private Foundation
• A Detailed Explanation of the Sole Proprietorship
• Taxation of Sole Proprietorship
• A Detailed Explanation of the General Partnership
• 50/50 Partnerships: Never a Good Idea
• Publicly-Traded Partnerships
• A Detailed Explanation of the Limited Liability Company
• A Detailed Explanation of the Corporation
• Keepwell Agreement (Letter of Comfort)
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• A Detailed Explanation of the Non-Profit Entity
• Public Limited Company (UK)