Category: Cooperatives

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

In the early 1800s, cooperative businesses appeared on several fronts. In Britain, cooperatives were formed as a tool to deal with the depressed economic and social conditions related to the struggles with Napoleon and industrialization. In the United States, farmers began to process their milk into cheese on a cooperative basis in diverse places such as Goshen, Connecticut, and Lake Mills, Wisconsin.

Writers sometimes trace …

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

Members are the foundation of the cooperative. They organized it. Their needs are the reason for its existence. Their support, through patronage and capital investment, keeps it economically healthy. And their changing requirements shape the cooperative’s future.

Statutory law and the basic legal documents of a cooperative–articles of incorporation, bylaws and contracts between the cooperative and its members–give the members the tools to control the …

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

Cooperatives may delay the pass-through of the tax obligation from the cooperative to the patron without jeopardizing single tax treatment of those moneys.

Any patronage-based allocation not meeting the requirements of the Code to be “qualified,” has “nonqualified” status. When a nonqualified allocation is made, the cooperative pays corporate income taxes on the funds retained. The patron has no tax obligation on these funds in …

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

The individually owned business is the oldest and most common form. One person owns, controls and conducts the business. Characteristics of individually owned businesses include:

• Control. The owner is responsible for management, makes all the major operational decisions and sets the business policies.

• Capital. The owner supplies the equity and is responsible for all debts.

• Earnings. Profits belong to the owner.

• Taxes. Profits are taxed

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

Probably the most widely known and proven of collaborative business organizations are cooperatives. They are usually formed of many entities and are legally constituted, limited liability corporations controlled by their members.

Cooperative members are often in the same industry and have common economic interests that may involve joint marketing, purchasing of supplies and/or the providing of services.

Organizational Characteristics of Cooperatives

• A separate, legal limited-liability

• Social Service Cooperatives
• Supply and Purchasing Cooperatives
• Processing and Marketing Cooperatives

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

Cooperative Principles

Various writers over the past century have analyzed and observed the application of cooperative principles. Although slight differences in terminology appear on the various lists, three principles emerge as being widely recognized and practiced.

These principles are more than just good practices, policies or common sense. They distinguish a cooperative from other kinds of business. They are also recognized in state and …