Legal Considerations

Organizing committee members should become acquainted with legal aspects of cooperatives by studying laws applicable to them and businesses generally (Appendix VII).

Every State has one or more laws authorizing the formation of cooperative corporations, although a number of them are restricted to agricultural producers. Copies may be obtained from an attorney, the Secretary of State, or State Corporation Commissioner.

Several Federal laws are especially important for cooperatives. The Capper-Volstead Act of 1922, sometimes called the “Magna Charta” of farmer marketing cooperatives, recognizes the rights of producers to act together in handling, processing, and marketing their production without violating antitrust law. Producers may also form marketing agencies in common. But even though cooperatives have this organizational protection, their operations are subject to the same antitrust laws as other businesses.

The Farm Credit Act of 1971 defines a cooperative that is eligible to borrow from the banks for cooperatives in the Farm Credit System and the conditions the cooperative must meet. The National Consumer Cooperative Bank Act created a similar financial institution, the National Cooperative Bank, to serve nonfarm cooperatives. The Internal Revenue Code describes the tax treatment of cooperatives and their patrons and tax reporting requirements.

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