think outside the boss (fall 2015 edition): how to start and operate a worker owned business

Think Outside the Boss

How to Create a Worker-Owned Business?

Agenda for Day

Presentation:

Introduction to coops

Entity Formation

Difference between Nonprofits and Coops

STRETCH BREAK - 5 mins

Managing the Business

Employment Law Issues

Getting the Green I: Loans and Memberships

Getting the Green II: Securities

How the Money Flows [Tax and Accounting]

Agenda for Day Part II

Snack Break

Breakout Sessions

Real Live Worker Owners (Mandela Food

Cooperative, Arizmendi Cooperative)

Legal Issues (Janelle Orsi, Sushil Jacob)

Bookkeeping and Accounting (Esther Cervantes,

Mary Carleton)

Coop Academy and Legal Cafe Information

(Ricardo)

INTRODUCTIONSushil Jacob

Staff Attorney

East Bay Community Law Center

Because the economy needs a new

“Operating System”

Why Worker

Cooperatives?

Beyond Mainstream Perceptions

How Coops Impact the

Economy

Cooperatives

are

everywhere!

What Are Worker

Cooperatives?

In a worker co-op, the workers are the members

(and thus the owners).

The Cooperative

Principles

1. Voluntary and open membership

2. Democratic member control

3. Members’ economic participation

4. Autonomy and independence

5. Education, training and information

6. Cooperation among coops (inter-cooperation)

7. Concern for community

What Make Worker Coops Different

From Other Coops?

Sovereignty of Labor

Remove the boss, remove

the exploitation of labor

History

Knights of

Labor

Mondragon, Spain

Cleveland, Ohio

Why Worker Ownership?

Higher Job Satisfaction

Higher Incomes

Sustainability/Involvem

ent in the local

community

Resiliency in economic

downturns

Next: Forming a Cooperative

Entity

Anuthara Hegoda, Law Clerk

Green-Collar Communities Clinic (GC3)

East Bay Community Law Center

Introduction to Legal entities

LEGAL ENTITIES

1. What are legal entities and why do we form

them?

2. What is limited liability?

3. What are the most common forms of legal

entity?

LEGAL ENTITY

A legal entity is the legal structure and rules under

which a business operates.

Examples of legal entities:

General stock corporation

Cooperative corporation

LLC

SHOULD YOU FORM AN

ENTITY?

Factors to consider:

Liability

Tax considerations

Mission/formation

Business goals

Control

Costs of formation

Capital requirements

Liability

Tax Treatment

Mission/

Formation

Liability

• Unlimited

• Can sue YOU

and your

business

Tax Treatment

• Avoid $800/year (min)

entity tax

• Taxed as partnership

Mission/Formation

• Avoid

organizational

formalities

PARTNERSHIPS

PROS AND CONS OF ENTITY

FORMATION

Pros• Can limit liability

• Credibility

• Attract investors

• Tax election

• Governance structure

Cons•Potential additional tax

•Minimum franchise tax

•Corporate formalities

•Time and cost of formation

• General Stock Corporation

• Cooperative Corporation

• Limited Liability Company (LLC)

LEGAL ENTITIES WE’LL

DISCUSS TODAY

GENERAL STOCK

CORPORATION

• The most common form of business entity

• Owned by shareholders, governed by a board of directors

• General purpose: make a profit for shareholders

• Shares of stock usually issued in exchange for capital contributions

• Voting power directly related to number of shares owned

• Entity-level taxation

COOPERATIVE

CORPORATION• Best incorporates cooperative principles of

democratic decision-making and worker-ownership

• General purpose: operate at cost for members

• Legal requirements e.g. notice period for member meetings, cap on capital distributions

• Must have “cooperative”

in business name

• One-member-one-vote principle

required by CA law

• Special tax deductions available

for patronage

LIMITED LIABILITY COMPANY

(LLC)

• Similar to corporation but more flexible

• Limited liability

• Governed by Operating Agreement between members

• Lower level of corporate formalities than corporations

• Can incorporate one-member-one-vote principle, but not required by law

• Members considered partners, not employees

• Pass-through taxation

FORMING A LEGAL ENTITY

Before incorporation:

1. Choose business name

• Check availability/avoid confusion

2. Prepare Bylaws or Operating Agreement

3. Prepare and file Articles of Incorporation or Articles

of Organization

4. File Statement of Information

FORMING A LEGAL ENTITY

After incorporation:

1. Obtain employment identification number with

IRS and employer account number with state

2. Open bank account

3. Obtain necessary licenses/permits/insurance

4. Hire/retain accountant or bookkeeper

5. Implement operational and management structure

REVIEW

1. What are legal entities and why do we form

them?

2. What is limited liability?

3. What are the most common forms of legal

entity?

Anuthara Hegoda, Law Clerk

Green-Collar Communities Clinic (GC3)

East Bay Community Law Center

Nonprofit Organization

“We’re a nonprofit organization . . .

We didn’t plan it that way, but that’s how

it worked out.”

What does it mean to you?

What is a nonprofit?

A corporation

That may be tax-exempt

Organized and operated exclusively

for a charitable purpose (aka

“exempt purpose”)

We know so much about healthy,

sustainable gardening . . . We should

start an URBAN FARM and teach

people about healthy eating through

a CAFÉ!

Green

Commonwealt

h Farm & Cafe

Nonprofit or co-op? 4 main factors to

consider

1. Purpose

2. Control

3. Funding

4. Profits

Nonprofit or co-op? Factors to

consider

1. Purpose

Who do you primarily hope to benefit?

Can you articulate an “exempt purpose”?

Let’s make Green

Commonwealth Farm &

Café a nonprofit!

It’ll be a 501(c)(3), and get

donations and grants, and

be exempt from taxes!

501(c)(3)

Tax-Exempt

Nonprofit

Corporation

CHARITABLE

/

EDUCATION

AL Purposes

PERSONAL/

COMMERCIAL

Purposes

Nonprofit or co-op? Factors to

consider

2. Control

Worker-owner control vs. majority

“independent” board

Nonprofit or co-op? Factors to

consider

3. Funding

Investments vs. contributions

Nonprofit or co-op? Factors to

consider

4. Profits

Distribution vs. reinvestment in the

exempt purpose

QUIZ: What are the 4 main factors to consider

when choosing between a nonprofit and a co-

op?

1.

2.

3.

4.

1. Purpose

2.

3.

4.

QUIZ: What are the 4 main factors to consider

when choosing between a nonprofit and a co-

op?

QUIZ: What are the 4 main factors to consider

when choosing between a nonprofit and a co-

op?

1. Purpose

2. Control

3.

4.

QUIZ: What are the 4 main factors to consider

when choosing between a nonprofit and a co-

op?

1. Purpose

2. Control

3. Funding

4.

QUIZ: What are the 4 main factors to consider

when choosing between a nonprofit and a co-

op?

1. Purpose

2. Control

3. Funding

4. Profits

The Bottom Line

A co-op is a for-profit business

that benefits its members (the

worker-owners)

A nonprofit organization is an

organization dedicated to serving

the community at large

GovernanceA Few Things Everyone

Should Know About

GovernanceWhoa! It’s all about

governance!

Every member has one vote…In the election of the board and major

decisions

Power

Power

Cooperatives don’t have to be

this:

Alvarado Street

Bakery Elects a

Board

Arizmendi Bakery

is a Collective

Members

Board

Every

Member is

on the

Board

Members

Board Every Member

is on the Board

Cooperative with a

small Board of

Directors

Collective

Officers don’t necessarily have more power than

othersSecretary: Gives notices, tracks membership, keeps minutes, etc.

President: Signs official documents

Treasurer: Keeps accounts

The State of California

wants to know that

SOMEONE is doing

this stuff.

Members Elect the Board on a

One Member, One Vote Basis

This means that co-ops

are ultimately

accountable to members,

even if members don’t

call the shots on a day to

day basis.

It helps to remember that there are

different realms in which people

exercise control:

1. Worker Owners/Members: Elect the Governing Board

and make certain major decisions.

2. Governing Board: Appoints the Officers and

managers; make high level decisions that steer the

company/organization toward its goals.

3. Officers: Corporations generally require President,

Secretary, and Treasurer. These are primarily

administrative in nature, and have special powers if you

want them to.

4. Managers: Manage the day-to-day operations.

I’m going to work in an

organization where my voice

matters, I have control over

my work, I can use my

creativity, build community,

and have fun!

Everyone is

behind the

wheel!

Beware of the

Tyranny of StructurelessnessI know

what we

should

do!

Rex

Cooperatives often make the mistake of

not adopting clear governance

procedures.

Need to be quite specific about stuff like:

•Procedures for meetings

•Procedures for making, reviewing, and adopting proposals

•Process for giving notice and creating agendas

•Spheres of decision-making, management, and operations

•Committees, Circles, Spheres, Managers, etc.

•Composition and election of governing bodies/committees,

etc.

•Voting rights

•Procedures for amending governing documents

•Conflict of interest policies

Note that this stuff is partially dictated

by the statute that governs the entity.

Documents can’t look like

this:

Give Governance Models

Some Legal TeethNeed to be quite specific about stuff like:

•Procedures for decision-making, AND

•Spheres of decision-making, management, and operations

•Committees, Circles, Spheres, Managers, etc.

•Composition and election of governing bodies/committees,

etc.

•Place, time, process for meetings

•Process for giving notice and creating agendas

•Voting rights

•Procedures for amending governing documents

•Conflict of interest policies

Meetings can’t feel like hell.

Get trained. Learn the system.

Practice it. Grow to love it.

Some worker cooperatives are

exploring Holacracy(www.holacracy.org)

1. Distributing Governance Throughout the

Organization, rather than requiring that all decisions flow up the

chain of command. Division of the organization into semi-autonomous

circles that are strategically interlocked to ensure communication flows up

to a general circle.

2. Roles: Each person in the

organization fills multiple

roles and can move in

and out of the roles

somewhat flexibly, rather

than filling a single

position with a single job

description. Within a role,

people have a lot of

autonomy.

3. Accountabilities:Each role is accountable

to a circle of people - i.e.,

they report to that group

on how they are doing

with the tasks required of

that role.

Role: Accountable to: Recycling Building Management Circle

Grant Writer Fundraising Circle

Cartoonist Communications Circle

Window Washer Building Management Circle

Legal Advice Legal Services Circle

Happy Hours Fun Circle

4. Highly Structured Meetings!

•Everyone Has a Voice: Most meetings are held

by going in a series of circles, which helps to

ensure that everyone has a voice. Everyone can

bring a proposal.

• Keeps Personality Politics at Bay: The high

level of structure keeps personality politics from

dominating organizational culture, and keeps

individuals from taking up too much space with too

much talking.

•Different Meeting Process for Different Types

of Meetings: Governance meetings, strategy

meetings, and tactical meetings.

5. Proposals Move Things Forward!

• Anyone can bring a proposal. In fact, everything discussed in

the context of a governance meeting is discussed in the context of

a proposal.

This allows everyone to follow their passions and

inspirations, and also have a voice in the direction of the

organization.

• Proposals are adapted through a structured feedback process.

•Proposals are accepted if no one objects to the proposal on

the basis that it moves the organization backward in its mission or

harms the organization.

• Accepted proposals can be revisited and adapted at any

time. This allows the organization to be nimble, experiment, shift

course quickly, and adjust to small changes, all while moving

forward.

Let’s encourage hundreds of

thousands of existing

businesses to sell to workers

and convert to cooperatives!

Because

Elizabeth Yates, Law Clerk

Green Collar Communities

East Bay Community Law Center

Employment Law and Coops

Roadmap

Traditional Employment vs. Cooperatives

Who is Considered an Employee / When Employment Laws Apply

Four Major Categories of Workers NOT Considered Employees

Traditional Employment =

Working for Others

Obligations of Employers

• Maintaining workers

compensation insurance;

• Paying minimum wage

and overtime;

• Payment of payroll taxes

and other withholdings;

• Complying with standards

for hours and working

conditions;

• Complying with

occupational safety and

health laws;

• Posting of certain kinds of

notices and posters

related to employees’

rights; and

• Adhering to certain

recordkeeping

requirements.

Verifying employees’

eligibility to work in the

U.S.

Cooperatives: Working WITH

Others

True or False:

Coops do NOT have to worry

about Employment Laws.

FALSE!

▪ Why?

▪ Because coop members might be considered employees under current labor and employment laws.

▪ So, the coop might need to comply with laws that are designed to protect workers!

Ok, so what do we do… ?

▪ Be safe = assume everyone is an employee.

▪ Then work backwards from there to see if you can find any exceptions.

4 Ways for People to Work Together and

NOT be Employees:

1. PARTNERS: People that work together for

their mutual benefit

2. VOLUNTEERS: People that do unpaid work

for public benefit, humanitarian, or charitable

purposes

3. INTERNS/TRAINEES: People that do

unpaid work for their own educational benefit

4. INDEPENDENT CONTRACTORS: People

that do work, but do so in an independent

manner

For more info on

partnerships, see pages 64-

69 in your TOTB Manual.

If NO “master-servant” relationship,

then NO employment laws apply

Partner Factors:

1) Control & operation of

business

2) Participation in profits and

losses

3) Employment security

PARTNERS: MUTUAL

BENEFIT

Volunteers: Public Benefit

But typically, you

CANNOT volunteer

for a for-profit

business. NOTE: most coops do NOT

fit under the charitable, religious, or humanitarian categories unless they are 501(c)(3) nonprofits.

As a general rule, you CAN volunteer for nonprofit

organizations that are engaged in charitable,

religious, or humanitarian purposes.

Interns/Trainees: Own

Educational Benefit

YES, for-profit

businesses can

have unpaid

interns!

BUT Interns

should be there

to LEARN!Want more info on these

criteria? See pages 60-62 in the

TOTB Manual.

Independent Contractors:

Independent Manner

Who controls the

manner and means of

production

How much skill is

required

Who owns the tools and

instrumentalities

Location of the work

Duration of the

relationship

Right to assign

additional projects to the

hired party

Extent of discretion

over work hours

The method of

payment

Whether the work is

part of the regular

business of the hiring

party

The provision of

employee benefits

The tax treatment of

the hired party

Just call them

Independent

Contractors?

Green Commonwealth Farm

Our coop founders decide to create an urban farm with

30 new members

Goals: access to fresh produce and also profit

All members are required to spend 3 hours per week

volunteering on the farm to get cheap produce

Each members spends time irrigating the farm, tilling

the beds, and harvesting, and also handle some

administrative tasks

Each 3-hour shift has a supervisor that manages the

members

What If:

To be safe…

Be more democratic!

Argue that your members are all partners and do the following:

(1) Have all members serve on the Board of Directors.

(2) Make decisions by a consensus process or with supermajority voting; this arguably gives each member a strong voice in each decision.

(3) Give each member a lot of control over their own work, or create many semi-autonomous departments or committees that control their own work, procedures, and hours.

(4) Make it somewhat difficult to fire people, by requiring a vote of a large number of members.

Moving On…

All of this is nice but…

…can we talk about the money now?

GETTING THE GREEN I: BANK

LOANS AND MEMBER

CONTRIBUTIONS

Show Me The MONEY!!

Businesses need money to operate, how

do we get some?

Overview

Traditional Businesses and Worker-

Cooperatives

Best Practices

Alternative Sources of Funding

Securities Law

Traditional Businesses

A Traditional Business (non-cooperatively run)

Typically, the owner would use person savings.

Over time, the business owner may approach a

bank or venture capitalist for additional funding.

Personal Savings

Loan

Alternatives

Venture Capital

Successful Business

Financing A Worker Co-op

Generally….

Member contributions/Outside Investors = Equity

Financing

Loans = Debt Financing

Member Contributions/Outside

Investors

Loans

Alternative Financing

Successful Worker Cooperative

Raising Money

LOANS – Traditional Lenders Banks want to see that you have enough money to

cover your debt.

Trend of Profitability

Personal Guarantee

Business Plan

Size of the Loan

Best Practices

Preparation

Understanding their Perspective

Attention to Detail

Research

Follow-up/Keep at it!

Alternative Ways to Raise $$$

Membership Capital

Donations

Micro Loans

Pre-Selling

Bartering

QUICK COMPARISON

Traditional Sources (Banks and Credit

Unions)

Alternative Financing (microloans, for

example)

Greater Funding

Potentially higher interest rates

May require 2 to 3 years of profitability

May require good credit, collateral, or

equity

Less Funding

Potentially lower interest rates

May invest in startups

Credit, collateral, and equity

requirements vary by lender

Getting the Green II: Securities

Law

Things

to Know

The

definition

of security

You

cannot

offer or

sell a

security

without

registering

… unless

you have

an

exemption

.

Basic Definition:

Security

You create a

security when

you ask people

to put money

into your

business or

venture, and

you offer them

a return. Walt Disney Stock Certificate

(a security!)

Why does Securities Law

Matter

Offering or selling securities

must be registered with the

proper authorities

Even ASKING people to

invest in your business

could be illegal, unless you

register that security.

So what are YOU doing that is

creating securities?

Selling Stock

Asking people to invest money in your business

Offering a share of your business’s profits

Member capital buy-in

Here Are a Few

Exemptions to

Help You Out!Follow along the “Think Outside the Boss”

Manual for more in depth details

CA Limited Offering Exemption §

25102(f)

In California

Up to 35 lenders or

investors

People with whom you

have a pre-existing

No Advertising

Simple online filing with

the CA Department of

Business Oversight

Unlimited # of Accredited

Investors

Really rich people Directors and

Officers

CA Cooperative Equity Exemption

§25100(r)

A California cooperative can raise up to $300 from each member without that qualifying as a security

Each person must be a member and have voting rights

Can’t use a promoter

CROWDFUNDI

NG

Crowdfunding

The CROWDFUND Act

PROPOSED EXEMPTION

You can raise up to $1,000,000

You can invest the larger of $2,000 or 5% of

annual income/net worth

Direct Public Offerings

Can publically advertiseinvestment opportunities to the public

Can DIRECTLY sell

securities without a

3rd party

intermediary

TO REVIEW!

1. Raising money from friends and family? Use a limited offering.

2. Raising money from directors, officers, managing members, or Mitt Romney? Think accredited investors.

3. Raising $300 from all your voting co-op members? Try the cooperative exemption.

4. Using the internet to raise little bits of money from lots of people? Might use crowdfunding in the future.

5. Don’t fit into an exemption? Don’t

Outside Investing vs. Cooperative

Principles

CASE STUDY: Equal Exchange

CD

Certificate of Deposits pooled together to guarantee loans to buy coffee, tea, and cocoa from farmer cooperatives at fair prices

Control preservedProfit returns limited to

the interest rate of CD

SECURITIES LAW REVIEW!

1. A security is created when you offer a return when you ask people for money for your business

2. When offering or selling securities, you must registerthe security unless…

3. There are several exemptions that worker-owned cooperatives can take advantage of to avoid registration of securities.

USE THEM!!

How Money Moves Through a Cooperative

(It’s AMAZING!)Presented by Janelle Orsi

Executive Director of the Sustainable Economies Law Center (TheSELC.org)

Featuring:Money

A B

My Capital Account:

$10,000

My Capital Account:

$10,000

IN

OUT

(Business expenses)C

$5

,00

0

I just work here.

A B

IN

OUT

C

(Net

income)

Worked1200 hours

Worked

1800 hours

Worked

1500 hours

Wag

es:

$30,0

00

A B

IN

OUT

C

(Net

income)

Worked1200 hours

Worked

1800 hours

Worked

1500 hours

Wag

es:

$30,0

00

Not!

In a typicalbusiness, workers work very hard to generate value…

Ideally, dollars are a reward for

generating value.

B

C

A

You

made

me!

But the money doesn’t get to reward those

workers for the full value they

generate…

And if a dollar could show us

how it feels about that…

AB

C

wages

profits

A B

IN

C

(Net

income)

Worked1200 hours

Worked

1800 hours

Worked

1500 hours

How much is “surplus?”

How much is “profit?”

OUT

A B

IN

C

(Net

income)

Worked1200 hours

Worked

1800 hours

Worked

1500 hours

How much is “surplus?”Member hours = 3000

How much is “profit?”Non-member hours = 1500

OUT

A B

IN

C

(Net

income)

Worked1200 hours

Worked

1800 hours

Worked

1500 hours

How much is “surplus?”Member hours = 3000 (2/3 of total hours)

How much is “profit?”Non-member hours = 1500(1/3 of total hours)

OUT

A B

IN

C

(Net

income)

Worked1200 hours

Worked

1800 hours

Worked

1500 hours

surplus = 2/3

profit = 1/3

OUT

A B

IN

C

(Net

income)

surplus

profit

OUT

A B

IN

C

(Net

income)

surplus

profit

The Collective

Account

OUT

Cooperatives have a special tax status!Thanks to Subchapter T of Internal Revenue Code!

• “Dividends” don’t get taxed twice: Net profits distributed to members are tax deductible to the cooperative

• Only if you are operating on a “cooperative basis,” which means: distributions of net profits are based on the "quantity or value of business done with or for such patron." Distributions to patrons not made in proportion to business done with the cooperative cannot qualify as patronage refunds.

RurDev.USDA.Gov has lots of resources explaining all this.

A B

IN

C

(Net

income)

surplus

profit

The Collective

Account

OUT

X

A B

IN

OUT

C

(Net

income)

surplus

profit

The Collective

Account

Worked1200 hours

Worked

1800 hours

I should get a

bonus…

$12,000A’s share

B’s share

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000A’s share

B’s share

They decided to pay 1/3 in cash and 2/3 in a “Written Notice of Allocation.”

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000A’s share

B’s share

They decided to pay 1/3 in cash and 2/3 in a “Written Notice of

Allocation.”

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000A’s share

B’s share

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000

My Capital Account:

$10,000 + $12,000

My Capital Account:

$10,000 + $8,000

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000

My Capital Account:

$10,000 + $12,000

My Capital Account:

$10,000 + $8,000

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000

My Capital Account:

$10,000 + $12,000

My Capital Account:

$10,000 + $8,000

What on earth is this???

Self-employment income? (15% extra in taxes)

orRegular income??

A B

IN

OUT

(Net

income)

surplus

profit

The Collective

Account

$12,000

My Capital Account:

$10,000 + $12,000

My Capital Account:

$10,000 + $8,000

B

My Capital Account:

$10,000 + $12,000

My Capital Account:

$10,000 + $8,000

A

OUT

B

My Capital Account:

$10,000 + $12,000

My Capital Account:

$10,000 + $8,000

A

OUT

IN

B

My Capital Account:

$10,000 +

$12,000

My Capital Account:

$10,000 +

$8,000

A

OUT

IN

$6,00

0

$9,00

0

Free money! You already paid taxes

on it!

B

My Capital

Account:

$10,000 +

$6,000 +

$8,000 =

$24,000

My Capital

Account:

$10,000 +

$4,000 +

$6,000 =

$20,000

A

B

My Capital

Account:

$10,000 +

$6,000 +

$8,000 =

$24,000

My Capital

Account:

$10,000 +

$4,000 +

$6,000 =

$20,000

A

It’s time for something new.

I’m leaving.

B

My Capital

Account:

$10,000 +

$6,000 +

$8,000 =

$24,000

My Capital

Account:

$10,000 +

$4,000 +

$6,000 =

$20,000

A

I’ll sell my share and get RICH!

Me:

Not really.

B

My Capital

Account:

$10,000 +

$6,000 +

$8,000 =

$24,000

A

$500$500$500

B DC

Member

hours

worked over

the years =

20,000

Member

hours

worked over

the years =

15,000

Member

hours

worked over

the years =

10,000

Let’s sell this business for $1,000,000 and retire!

B DC

Member

hours

worked over

the years =

20,000

Member

hours

worked over

the years =

15,000

Member

hours

worked over

the years =

10,000

We’re gonnaget RICH!

Us:

B DC

Member

hours

worked over

the years =

20,000

Member

hours

worked over

the years =

15,000

Member

hours

worked over

the years =

10,000

Hey! ‘Member

me?

A

B DC

Member

hours

worked over

the years =

20,000

4/10

of all hours

Member

hours

worked over

the years =

15,000

3/10

of all hours

Member

hours

worked over

the years =

10,000

2/10

of all hours

A

Member

hours

worked over

the years =

5,000

1/10

of all hours

B DC

Member

hours

worked over

the years =

20,000

4/10

of all hours

Member

hours

worked over

the years =

15,000

3/10

of all hours

Member

hours

worked over

the years =

10,000

2/10

of all hours

A

Member

hours

worked over

the years =

5,000

1/10

of all hours

A B

My Capital Account:

$10,000

My Capital Account:

$10,000

IN

OUT

(Business expenses)

But let’s say that you don’t make much money in the first year or two….

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

Should you share losses equally, even if one

person worked more?

A B

My Capital Account:

$6,000

My Capital Account:

$4,000

IN

OUT

(Business expenses)

Should you divide losses based on patronage??

Well that doesn’t seem fair…

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

If next year brings lots of surplus, should you divide it only based on next year’s patronage?

Well that doesn’t seem fair….

DC

My Capital Account:

$10,000My Capital Account:

$10,000

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

If next year brings lots of surplus, should you divide it only based on next year’s patronage?

DC

My Capital Account:

$10,000My Capital Account:

$10,000

Surplus!

A B

My Capital Account:

$15,000

My Capital Account:

$15,000

IN

OUT

(Business expenses)

If next year brings lots of surplus, should you divide it only based on next year’s patronage?

DC

My Capital Account:

$20,000My Capital Account:

$20,000

Surplus!

A B

My Capital Account:

$18,500

My Capital Account:

$18,500

IN

OUT

(Business expenses)

Can you reward A and B for their risk taking and hard work in creating new jobs?? Probably.

DC

My Capital Account:

$16,500My Capital Account:

$16,500

Measure patronage with more than just hours:Give value to seniority.Give value to sticking with it through the lean years!Give value to measurable job creation.Give value to experience.

A B

My Capital Account:

$10,000

My Capital Account:

$10,000

IN

OUT

(Business expenses)

You could also let the Collective Account go into the negative and require that next year’s earnings restore it.

The Collective

Account

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

Ok, we took a loss. Can we use that on our taxes to offset other income?

In a cooperative corporation, that’s awkward.You can’t issue a negative 1099-PATR.

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

Ok, we took a loss. Can we use that on our taxes to offset other income?

In a cooperative corporation, that’s awkward.You can’t issue a negative 1099-PATR.

There is no such thing as this:

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

Ok, we took a loss. Can we use that on our taxes to offset other income?

You can show a capital loss when you cash out of the cooperative down the road.

A B

My Capital Account:

$5,000

My Capital Account:

$5,000

IN

OUT

(Business expenses)

Ok, we took a loss. Can we use that on our taxes to offset other income?

If we were taxed like a partnership, then we can have a tax benefit from the loss!

LLCs and partnerships CAN do this:

Cooperative finances will change our economy!

B DCA

Cooperatives are meant to PROVIDE stable jobs, to reward workers EQUITABLY, to

keep wealth LOCAL, and to create LASTING enterprises in our COMMUNITIES.