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Legal Definition of Cooperatives Law
Legal Definition of Cooperatives Law
Legal Definition of Cooperatives Law
In the simplest sense, when people come together and organize around a common goal,
they form a cooperative. The common goal is usually economic.
A cooperative may be a corporation or organization. Typically, it's a nonprofit that's
organized by individuals who have similar needs. The cooperative pursue those needs or
the common purpose.
Cooperatives are distinguished from nonprofit corporations in how they raise capital.
Instead of selling shares, cooperatives sell memberships. In addition, cooperatives don't
give voting rights to shareholders; voting rights belong to those who have purchased
memberships. Cooperative law follows a similar process to collaborative law.
In business, a cooperative refers to the formation of a nonprofit entity that's designed to
benefit people who use its services. About 100 million Americans are part of a cooperative.
Roughly 47,000 cooperatives exist, and of those, credit unions are the most common type,
with over 10,000 in existence.
There are other kinds of goods and services that can be provided under cooperative
principles, such as the following:
Utilities
Agricultural goods
Insurance
Child care
Preschools
Health care
Food
Equipment
Legal services
Employment services
Different Perspectives
If you consider cooperatives from a tax law perspective, these organizations are entitled to
a number of beneficial tax treatments. This applies to regular cooperatives, tax-exempt
cooperatives, and agricultural cooperatives.
Eligibility doesn't depend on whether the organization was created under a specific statute.
Instead, it simply has to meet the tax law definition of a cooperative. Basically, it must
operate on a cooperative basis.
Because the IRS's Revenue Code and regulations don't specify what operating on a
cooperative basis means, the definition has been tested through the courts. In the case of
Puget Sound Plywood v. Commissioner, the court stated that “operating on a cooperative
basis” means the following:
It's under the democratic control of the members, meaning that the members govern
the cooperative on a one-member/one-vote basis.
It operates at cost, meaning that if the cooperative has any money left over —
beyond what's considered to be a reasonable reserve — after paying expenses, that
money goes back to the members.
It involves subordination of capital, meaning that any returns to investors are limited.
https://www.upcounsel.com/cooperative-law-definition