The legal structure of any business defines ownership, control, and earnings distribution. Like other businesses, a cooperative incorporates as a legal entity under state statutes, which provide a framework for governance and operations. Statutes are not uniform, so specific legal requirements for cooperative structure will vary by state.
The ownership and control of most businesses is related to the level of equity investment. Profits are returned to investor-owners based on the amount of their investment. In contrast, a cooperative business is owned and democratically controlled by its members who provide the equity investment. Any profit is distributed to members in proportion to their use, or ‘patronage’, of the cooperative’s services.
In some states, cooperatives are incorporated as a type of nonprofit corporation, since a cooperative’s primary orientation is to benefit members by providing goods or services at cost. However, unlike traditional nonprofits, which legally have no owners, nonprofit cooperative business statutes provide for member ownership and member rights including voting, profit distributions, and rights to assets sold.
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