A cooperative is a form of business organization in which the business is owned and controlled by those who use its services. A cooperative may be organized as a legal entity or it may be an unincorporated association. Cooperative associations are organized as legal entities under and overned by Minnesota Statutes Chapter 308A. Non-Minnesota cooperatives that wish to do business in Minnesota register under Chapter 303.
Cooperatives are organized primarily for the purpose of providing service to their user-owners, rather than to generate profit for investors. Although cooperatives had their origins in Minnesota in the agricultural sector, in recent years many consumer cooperatives have been established. Some of the more common purposes for which cooperatives are formed are:
- To supply members with agricultural production components such as fuels, fertilizers, feed and chemicals;
- To provide members with an organizational structure for jointly handling and marketing their products;
- To provide services to members, like housing, electricity, telephone, insurance, and health care.
Cooperatives have several features that distinguish them from for-profit business corporations. These include control of the cooperative by user-owners, services provided at cost, and limited return on equity capital.
Cooperatives are required to file a periodic registration in every odd-numbered year. Failure to file this registration will result in dissolution. The cooperative will have one year to reinstate by filing the registration and paying a $25 fee.
Cooperatives are owned and controlled by their members. By statute in Minnesota, members each have one vote, rather than multiple votes based on their capital investment in the cooperative. In some other states, proportional voting based on a member’s volume of business with the cooperative is allowed. Operations generally are conducted by a board of directors elected by members, and by management hired and supervised by the board.
Service at Cost
Cooperatives stress providing services to members at the lowest responsible cost. After setting aside reserves to protect the cooperative’s financial security and growth, any remaining net margin is distributed to members as a patronage refund, according to the business volume each has done with the cooperative during the year.
Limited Return on Equity Investment
Cooperatives are designed primarily to provide services to members, rather than to produce a profit for investors. Accordingly, the return on investment in the form of dividends is limited.
Minnesota statutes permit, but do not require, the payment of dividends on capital stock. Dividends may be paid only when the net income of the cooperative for the previous fiscal year is sufficient, and dividends may not be cumulative.
In an effort to encourage capital investment, all forms of cooperatives in Minnesota are allowed to take on investor-members in addition to the traditional patron-members. Investor members may not necessarily purchase products from the cooperative but join the cooperative to earn a profit from an investment and to provide capital funds for cooperative expansion. In allowing for investor-members, the law largely combines portions of the traditional cooperative statute with portions of the limited liability statute.