Mutual Company

AAA

DEFINITION of 'Mutual Company'

A private company whose ownership base is made of its clients or policyholders. The defining feature of a mutual company is since its customers are also its owners, they are entitled to receive profits or income generated by the mutual company. Such distribution of profits may typically be in the form of dividends made on a pro rata basis, based on the amount of business each customer conducts with the mutual company. Also referred to as a "cooperative."

INVESTOPEDIA EXPLAINS 'Mutual Company'

The mutual company structure is commonly found in the insurance industry, as well as in savings and loans associations. In addition, many banking trusts and community banks in the U.S., and credit unions in Canada, are also structured as mutual companies.


The term "mutual" is believed to arise from the fact that in an insurance mutual company, for instance, a policyholder is both the insured party (as the company's customer) and the insurer (as part owner).


Most institutions that are structured as mutual companies are private entities rather than publicly traded companies. In recent decades, many mutual companies in the U.S. and Canada have opted to change from the mutual structure to a joint stock corporate structure, a process known as demutualization.

RELATED TERMS
  1. Life Insurance

    A protection against the loss of income that would result if ...
  2. Public Company

    A company that has issued securities through an initial public ...
  3. Private Company

    A company whose ownership is private. As a result, it does not ...
  4. Demutualization

    When a mutual company owned by its users/members converts into ...
  5. Mutualization

    The process of changing a firm's business structure so the owners ...
  6. Cost Test

    A standard test applied to a process to determine if the net ...
RELATED FAQS
  1. What's the difference between publicly- and privately-held companies?

    Privately-held companies are - no surprise here - privately held. This means that, in most cases, the company is owned by ... Read Full Answer >>
  2. How can I calculate funds from operation in Excel?

    In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through ... Read Full Answer >>
  3. When does Q4 start and finish?

    Most companies such as Facebook have financial years that end on December 31st. For these companies, the fourth quarter begins ... Read Full Answer >>
  4. When is it useful to look at a company's fixed asset turnover ratio?

    It is useful to look at a company's fixed asset turnover ratio when an outside observer, such as an investor, wants to know ... Read Full Answer >>
  5. What is the difference between perfect and imperfect competition?

    Perfect competition is a microeconomics concept that describes a market structure controlled entirely by market forces. In ... Read Full Answer >>
  6. How difficult is it to understand business analytics?

    In the abstract, business analytics is the study of financial, economic, consumer and production data through statistical ... Read Full Answer >>
Related Articles
  1. Home & Auto

    How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.
  2. Home & Auto

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  3. Economics

    Understanding Organizational Behavior

    Organizational behavior is the study of how humans interact in group environments.
  4. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  5. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  6. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  7. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  8. Economics

    How Does a Company Use Raw Materials?

    Raw materials are the basic components of a finished product.
  9. Investing Basics

    What is a Private Company?

    A private company is any corporation that does not have shares publicly traded in the equity markets.
  10. Economics

    What is an Original Equipment Manufacturer (OEM)?

    An OEM is a company whose products are used as components in another company's product.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!