Cooperative Bulletins

Answers to some of the frequently asked questions may be found in an array of cooperative bulletins published by USDA’s Rural Business-Cooperative Service (Appendix VII, Helpful References).

1.  What is a cooperative and how is it different from other business?
2.  Who controls a cooperative?
3.  What is the risk investment (equity) and why is it needed?
4.  How much is my initial investment (equity capital)?
5.  Will my investment (equity) requirement be determined by volume or by number of members?
6.  Can we simply cosign a bank note instead of raising a cash investment (equity)? What risks are involved in cosigning?
7.  How much money can I lose if the cooperative falls?
8.  Can I sell my stock and other investments (equities) and get out of the cooperative whenever I want? Can I sell it to whomever I want?
9.  What are marketing or purchasing agreements and why are they needed? How long do they last? If I can’t meet the terms of the agreement, do I have to pay a penalty?
10.  What are net margins and net earnings?
11.  What are patronage refunds and retained patronage refunds?
12. Why can’t the cooperative pay 100 percent cash patronage refunds?
13. Why do we have to pay income taxes on our patronage refunds, particularly the retained portion, if we don’t actually receive money?
14. What are per-unit capital retains and what’s their purpose?
15. When will the cooperative refund my retained allocations and per-unit retain? Will I be able to get this money when I retire? Will my estate be able to get it after I die?
16. Can we restrict cooperative membership?
17. If a cooperative is supposed to help its members, why are prices at the cooperative no better and sometimes worse than prices elsewhere?

Steering Committee Formation and Duties-

If the group wants a more detailed study after discussion is completed, it should select a steering committee. This group should have a keen interest in the cooperative, be well-respected within the community, and have sound business judgment. Committee members often become the initial organizers and members of the cooperative’s first board of directors.

The first function is to select officers of the steering committee, usually at the close of the general informational meeting. Next, establish a deadline for completing a business analysis, including a target date for surveying potential members. Periodic progress meetings retain interest of prospective members.

The steering committee, with the help of one or more advisers, determines if a cooperative is feasible. First, it judges whether the proposed cooperative is likely to succeed and benefit its members. Second, if the proposal passes this test, the committee prepares a specific, detailed business plan for the new cooperative.

Assistance from specialists in law, accounting, finance, economics, engineering, and cooperative business operations is critical during the business analysis phase.

Economic need is fundamental to the formation and successful operation of any cooperative. The committee should examine what products or services the cooperative could provide, those needed from other sources, and whether costs would be reduced or quality improved. Intangible functions also should be considered. Will the cooperative provide a needed service, preserve a market, stabilize prices, or encourage more orderly marketing?

Is the projected initial investment (equity) within the financial ability of the potential members involved?

The committee should consider alternatives to starting a new cooperative. Could similar services be provided by another nearby cooperative, either directly or by establishing a branch? If forming a new cooperative is the best alternative, the group should consider linking with regional cooperatives to obtain additional benefits.

A new cooperative should initially limit services to avoid elaborate or costly facilities above those absolutely needed. If successful, services can later be expanded.

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