What is the definition of Mutual Insurance Company?
A Mutual Insurance Company is a company that has its customers (the policyholders) as the owners.
For this kind of company, there are no stocks or shareholders. Instead, the policyholders (or a specified class of policyholders) vote the members of the company's board of directors. The elected board of directors will be the one to select the officers that will run the company. The policyholders also vote on any plan to demutualize the company.
The policyholders are also entitled to a portion of the profits by way of dividends. These dividends from the company are neither taxable nor guaranteed.
The disadvantage of mutual companies is that it may find it hard to raise capital. So some companies have decided to demutualize in order for them to be able to offer shares of stocks and thus raise capital.
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