Why cooperative corporation law and what is a cooperative corporation?
A cooperative corporation, or often called simply “cooperative” is a special form of corporation. By definition, a cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. Cooperatives can include businesses, organizations multi-stakeholder or hybrid cooperatives that share ownership between different stakeholders’ groups, and platform cooperatives.
The manner in which cooperatives function can vary from state to state
However, most states search to adopt a community-based nature of cooperatives. And by doing so, they limit the power that individual stakeholders can have in the cooperative. Generally, no matter how high an individual’s ownership in the cooperative corporation is, each of the stakeholders is entitled to only one vote in the decision-making process. By adopting this mechanism, cooperatives make sure that there is a fair balance when making a decision.
When considering whether to operate as a cooperative corporation or not, one should take into consideration factors such as liability, formation, management structure, operation, tax treatment and ownership of assets.
The cooperative corporation is a special form of corporation that places ownership and/or control in the hands of the employees or patrons of the corporation. The idea behind the cooperative corporation is that the corporation centers around the community and it serves and gives back to the same individuals the entity employs or have direct say in the corporation. Many are in fact familiar with cooperatives or at the very least they have heard about them. In everyday world cooperative corporations are present in the form of local food cooperatives or credit unions. However, there are also other form of cooperatives such as journalism cooperatives.
Similar to a regular corporation, shareholders in a cooperative corporation enjoy limited liability
Moreover, this type of corporation allows transfer of shares and perpetual existence – even after the original shareholders have left the company. Even if shareholders of a cooperative corporation enjoy limited liability for the debts of the cooperative, forming a cooperative can be moderately complex in terms of burden and cost. Aside from the normal steps taken when opening a corporation, one must also decide up front when and on what basis to distribute profits in the form of patronage dividends.
Furthermore, operating a cooperative is also moderately burdensome and costly. There are several additional formalities that one has to follow in order to operate a cooperative. Formalities can include activities such as election and removal of directors, filling vacancies on the board, and shareholders’ approval in management decisions. Moreover, state laws can impose a record-keeping requirement.
However, on a positive note, forming a cooperative can provide significant tax benefits compared to other forms of corporations. For instance, profit cooperatives that distribute their profits to patrons are not taxed at federal level as long as the profits follow specific rules.
US cooperatives’ contribution to the national and local economies can be measured in both financial and non-financial terms. Cooperatives keep profits locally, pay taxes locally, take part in community improvement programs and provide services for a large number of people in the country. The statistics show that the 29,284 cooperatives operating in the US generate over 2 million jobs and create more than $74 billion in wages annually. Moreover, in the US, cooperatives tend to have a better survival rate on a 5-year statistic. For instance, cooperatives have a 90% survival rate compared to traditional business who have only 35% survival rate. An example are the credit unions, which are a type of cooperative banks. They have faced five times lower failure rate than other banks during the financial crisis.
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