Demutualization – The process by which a member-owned organization (a mutual) changes its legal structure to a stock company. A mutual is a company created to provide a specific service at a low cost to benefit its members. Traditionally, a mutual raises capital from its members in order to provide them services, while a stock company raises capital from shareholders and other financial sources in order to provide services to its customers.
Depending on the organization’s profit structure, a mutual may redistribute some profits to its members, whereas a stock company distributes profits to equity or debt investors. In a mutual, the legal roles of customer and owner are joined (members), and in a stock company the roles are distinctively divided. In demutualization, ownership of the company is separated from the exclusive right to use the services provided by the company.
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