A mutual company is an organization, typically an insurance provider, that is owned by its members. This fact makes it different from both a public company and cooperatives. Mutualization of an organization, in many cases, provides its members with a more stable organization that frequently shares its profits with its members but often can have cash flow problems and suffer from stagnation.
A mutual company exists for a different purpose than most other business models. This company's primary goal is to bring in revenue solely from its members in order to fund operating expenses and provide services to those members. This is unlike a public company that is traded on the stock market or even many private companies that have the explicit goal of turning as much profit as possible. It also differs from a cooperative because it does not share its profits with individual stake holders and only in rare cases sends dividends to its members.
The mutual company model commonly is associated with the life insurance business. An example of this would be an insurance provider that charges a member a yearly rate for coverage. The company will have thousands of other members also paying yearly rates for coverage and other services. From this pool of money, the mutual company will pay its staff, pay off life insurance policies of members who die and pay for all operating expenses. All money that is left over goes directly back into the company, and no money from external sources is brought in.
A mutual company provides its members with a few advantages that larger, public or co-op organizations cannot deliver. Stability is by far the biggest advantage, and because of their self-sufficiency, these organizations do not increase premiums for members as frequently or try for large expansions to increase revenue. Another appealing aspect of this model is that policyholders feel a sense of ownership because most mutual companies keep members updated about all actions. In many cases, they accept suggestions and even allow members to vote on organizational decisions.
A mutual company also has disadvantages compared to other models of business. One such disadvantage is stagnation. This means that mutual companies are not as fluid as larger, public companies and cannot open branches and offer services to as many areas as their competitors. Another problem that many mutual companies have is a lack of funding, because there can be times when member contributions are not enough to cover all of the company's expenses.
