Cooperatives as organizational arrangements of collective economic activity can break up interlocked capital, labout and output markets in rural areas and alleviate poverty. The recent parallel law on cooperatives provides and opportunity to take a fresh look at this issue. There is no coherent theory of cooperatives that brings forth general principles for successful cooperative arrangements. We discuss some basic concepts while comparing different types of economic organization, and illustrate them with a few empirical examples to bring forth the conditions under which cooperative arrangements can generate conomic surplus and alleviate poverty.