Agribusiness Library

LESSON L060008: COOPERATIVES AS UNIQUE CORPORATIONS

Objectives1. Compare and contrast the distinguishing characteristics of corporations and cooperatives.

2 Compare and contrast the advantages and disadvantages of corporations and cooperatives.

Terms•Cooperative•Corporation•Dividends•Patronage payments•S corporation•Shareholders

Corporations and cooperatives A. A corporation is a business that is treated as a

single entity, yet it is owned by several people. 1. The corporation is treated as a single

entity; it can own property. 2. The corporation is owned by

shareholders —people who own stock in the company.

3. Capital is raised by selling shares of stock.

4. The corporation is separate from the operator.

5. Different classes of stock may be sold. 6. The corporation is taxed as a legal

entity. 7. The corporation pays dividends (a

share of the profits) to the shareholders to distribute profits.

8. A sub-chapter S corporation is a special type of corporation. a. Stock is limited to one class. b. No more than 75 shareholders are

allowed. c. It is taxed like a partnership.

B. A cooperative is a business organization where the owners are the customers. 1. Cooperatives emphasize member

control. 2. Members with a mutual interest

organize cooperatives. 3. Cooperatives are operated on a

non-profit basis. 4. Patronage payments are the

profits paid to members based on their use of the cooperative.

5. Membership is voluntary. 6. Most cooperatives operate

on a one-member, one-vote basis.

7. Its members elect the board of directors, which is composed of cooperative members.

8. Cooperative stock does not increase or decrease in value.

Advantages and disadvantages of corporations and cooperatives

A. Agricultural corporations have numerous advantages. 1. Raising capital is easier in corporations than in

partnerships and sole proprietorships. 2. There is a separation between ownership and

management.

3. The business continues smoothly, regardless of illness or death.

4. Ownership is easily transferred. 5. The liability of owners is

limited to the stock purchased. 6. Corporations provide a good

way to pool the resources of numerous individuals.

B. A cooperative offers numerous advantages to its members. 1. The cooperative’s philosophy

centers on member services. 2. Liability is limited to the amount of the investment. 3. Numerous people pool their resources to start the

cooperative. 4. All members share control of the business; no one or

two people can control the company. 5. A long life of the cooperative is likely.

C. A corporation may pose several disadvantages. 1. Organizing a corporation can be complicated and

costly. 2. Corporations usually have

additional bookkeeping and accounting costs.

3. Freedom of actions and changes to the business are limited.

4. It is expensive to end the business.

5. There are considerable legal aspects to consider.

6. Double taxation may occur; the corporation’s income is taxed, as is the dividend paid to stockholders.

7. It may be less of a personal business.

D. Very few disadvantages of a cooperative are apparent. 1. Legal formalities can be

numerous. 2. A large share of ownership is

impossible. 3. Management of the business is

limited to the general manager.

REVIEW•What are the characteristics of a corporation and a cooperative?•What are the advantages of a corporation and a cooperative? What are the disadvantages of a corporation and a cooperative?