DEFINITION of Mutualization

Mutualization is the process of changing a firm's business structure from a joint stock company to a mutual structure where the stockholders or customers own a majority of shares. They become eligible to receive cash distributions from the company in direct proportion to the amount of revenue the company earns from each member. This form of business structure is also known as a cooperative. The opposite of mutualization is privatization or demutualization.

BREAKING DOWN Mutualization

The mutual business structure can be very beneficial to a member, as each member will receive a dividend for doing business with the company, but this distribution may be a tax-free distribution depending on the laws of the jurisdiction in which the member lives. An example of a mutualized company is a grocery chain in which each shopper can become a member and receive money each year for shopping at that grocery chain. The bank and insurance company Mutual of Omaha and Liberty Mutual are mutual companies. The organization that started Liberty Mutual is owned by policy holders.