faqs: frequently asked questions

What is a cooperative?
What is a new generation cooperative?
Is a co-op non-profit?
Does a cooperative pay taxes?
How many people do you need to start a co-op?
Who can be a member of a cooperative?
Why should I join a cooperative?
What are patronage refunds?
Who elects the board of a cooperative?
Who hires the manager of a cooperative?
Who deals with day-to-day functions?
Who deals with long-term goals?
What types of cooperatives are there?
What are the advantages of a cooperative vs. other business forms?
Does OCDC work only with agricultural cooperatives?

What is a cooperative?

A cooperative is a unique form of business known as user-owned, user-benefited, and user-controlled. Benefits from the cooperative are returned to the members/patrons based on their use of the cooperative during the year. A cooperatives is democratically controlled by their members/patrons through a one-member/one-vote policy. Members/patrons own the cooperative through their financial investment in the business. back to top

What is a new generation cooperative?

A New Generation Cooperative (NGC) is slightly different than the traditional cooperative model in that it requires a delivery of product for each share of stock you purchase. The shares are linked to delivery rights and if you fail to deliver your requirement, the cooperative buys on the open market and charges your account for the difference in price. NGCs are usually more capital-intensive projects that include a processing facility that must maintain a certain throughput.

Is a co-op non-profit?

A co-op operates on a not-for-profit basis. They operate to make a profit just like any other for-profit business, except that the profits in a cooperative are returned to the members in the form of patronage refunds. This assumption comes from certain states where co-ops incorporate under the non-profit statute. We have a co-op law here in Ohio (Ohio Revised Code 1729) under which most co-ops incorporate.

Does a cooperative pay taxes?

Cooperatives pay taxes on real estate, personal property, sales, employment, utilities, etc. just like all other businesses. Cooperatives are single taxed like all other businesses except for C-corporations, which are double taxed at the entity and stockholder levels. The single tax treatment is not special to the cooperative structure, but the taxation of the patronage refunds is unique. The net margin (income – expenses) is NOT considered taxable income because it is returned to the patrons. The net margins are returned as patronage refunds and are taxed at the patron level in all situations.

How many people do you need to start a co-op?

According to the Ohio Revised Code 1729 (The Co-op Law), you must have 2 members to start a cooperative in Ohio.

Who can be a member of a cooperative?

Anyone can be a member of a cooperative as long as you meet the qualifications for membership. Each cooperative has qualifications you must meet to become a member of their cooperative, these are contained in their By-laws.

Why should I join a cooperative?

You should join a cooperative because you find their services or products valuable to you as an individual. See the publication on What are Cooperatives to identify additional benefits of joining a cooperative.

What are patronage refunds?

Patronage refunds are the amount of payment that a cooperative patron receives at the end of the year based on her/his use of the cooperative. These refunds come from the net savings of the cooperative. The patron pays income taxes on these refunds.

Who elects the board of a cooperative?

The members of the cooperative elect the Board of Directors at the annual meeting.

Who hires the manager of a cooperative?

The Board of Directors hires and works closely with the manager in managing the cooperative.

Who deals with day-to-day functions?

The manager or CEO of the cooperative deals with the day-to-day decisions for the cooperative operations. He/She is given short term (immediate) decision authority by the Board of Directors. He/She makes decisions on purchasing supplies, marketing products, hiring and firing of employees.

Who deals with long-term goals?

The Board of Directors is responsible for the long-term goals and operation of the cooperative. The manager and the Board work hand in hand on strategic goals and plans for the cooperative, but the Board has the ultimate decision on long-term strategies. The Board addresses the manager’s salary, building buildings, issuing stocks and reviewing the financials of the cooperative

What types of cooperatives are there?

There are numerous types of cooperatives that cover many industries. Some examples would be food, agriculture, natural resources, housing, electric, credit unions, artisan, purchasing, marketing and child care cooperatives just to name a few.

What are the advantages of a cooperative vs. other business forms?

Cooperatives are unique to other corporations because they have three distinguishing principles: user-owned, user-controlled and user-benefited. The user-owned principle signifies that the users are the ones who are financing the cooperative by transacting business. User-controlled means that the Board of Directors is elected by the members of the cooperative and serves as the link between the membership and the manager. User-benefited indicates that the members are the ones profiting from the cooperative because patronage refunds are returned to the members based on the amount of business they conducted with the cooperative. The uniqueness of cooperatives is that the customers, owners, patrons and members could be the same person.

Does OCDC work only with agricultural cooperatives?

OCDC works with all cooperative ventures. Let us explore the opportunities with your group.