A mutual company is owned by its clients or customers, and thus strives to operate effectively on a nonprofit basis. Many banks, especially savings banks, credit unions and insurance companies originally were organized as mutual companies. Today, many of these mutual companies have converted to stockholder-owned public companies.
A mutual company is supposed to operate in the best interests of its clients, returning excess profits to them. At a mutual bank or credit union, depositors often receive higher rates of interest on their money than at shareholder-owned banks. At a mutual insurance company, policy holders typically receive an annual rebate on their premium payments if the company enjoys a profit, with this rebate usually called a dividend. Mutual fund company Vanguard also is a mutual company in the sense of being owned by its clients, and its commitment to cost control and low fees stems from this mode of organization.
Do not confuse a mutual company with a mutual fund company. The former reflects the manner in which the company is organized. The latter is a type of investment company, in which investors purchase proportionate shares of a pool of investments. A mutual fund company may, or may not, be organized as a mutual company.
When mutual companies have converted to stockholder-owned public companies, the existing clients (depositors or policy holders) normally are given the first right of refusal to purchase stock in the reorganized company, sometimes at preferential prices.
