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What does a “Mutual Company” or “Mutual Organisation” mean?

Mutual Company Meaning

A mutual company is an organisation which is owned by its members or customers or policyholders who are the main stockholders in the company. Such companies raise funds from its members in the form of premiums.

A mutual company may not necessarily have external shareholders. Hence, the funds/profits of the generated is not shared among the members in the form of dividends, but rather they benefit from various services provided by the organisation to its members viz. health and wellbeing programs, etc.

Also known as (A.k.a.)

Such a mutual company is also widely known as mutual organisation or mutual business or mutual society. Or even sometimes, simply as a 'mutual'.

Taxation

In some countries, these mutual companies enjoy special income tax benefit, and mostly do not pay tax.

These companies generally reinvest their profits for the benefit of its members and in the operational and manpower costs of the organisation for the growth of the company.

Difference between a Mutual Company and a Cooperative

A mutual company is also sometimes referred to as a cooperative. But it is in some ways different from it.

Unlike a cooperative company wherein generally members directly invest in the business in the form of capital — in a mutual company, members do not invest in capital but rather obtain theirs rights to profits and other services through their relationship with the company by becoming a member of it by giving funds in the form of premiums, etc.

Advantages of Mutual Company

One of the major plus points for a mutual company's members who pay premiums, is that they are able to recover their funds invested in the form of many benefits received from the mutual company from frequently, rather than the shareholders of other companies who have to wait a whole year to receive dividends which is also not very certain for each year.

Some mutual companies also use their surplus/profits to reduce members' premiums.

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