<ul><li>Part IV:  Finance and Taxation for Cooperatives </li></ul>
I. Who Finances the Business <ul><li>Members as Owners – provide equity capital  </li></ul><ul><li>Purchase of common stoc...
Common Stock <ul><li>Voting stock – usually one-member one-vote. </li></ul><ul><li>Some cooperatives vote on a proportiona...
Preferred Stock <ul><li>May be sold to provide for additional capitalization. </li></ul><ul><li>Either members or non-memb...
Transferable Delivery Rights <ul><li>Long-term delivery rights used by some cooperatives (right and obligation to deliver ...
II. Who Finances the Business <ul><li>Members as Users of the Cooperative – also provide equity capital in other ways and ...
Retained Patronage, Per-Unit Retains & Equity Redemption <ul><li>Retained patronage – cooperative profits distributed as p...
III. Who Finances the Business  <ul><li>Creditors as Lenders of Debt Capital </li></ul><ul><li>Types and Sources of Debt C...
IV. How Cooperatives Are Taxed <ul><li>The cooperative deducts patronage paid to members from its taxable income during th...
IV. How Cooperatives Are Taxed <ul><li>Cooperative Patron </li></ul><ul><li>Expenses Income </li></ul><ul><li>Purchase Cor...
V. How Cooperatives Are Taxed <ul><li>Cooperative deducts patronage refunds distributed to member users. </li></ul><ul><li...
V. How Cooperatives Are Taxed <ul><li>Business Type Times Earnings Taxed Level </li></ul><ul><li>Proprietorship   1 Owner ...
VI. Flow of Funds to Finance a Business S 4.12 <ul><li>Cash inflow </li></ul><ul><ul><li>Equity investments </li></ul></ul...
VI. Flow of Funds to Finance a Business Accounts Receivable Inventory Fixed Assets Cash Sale of Fixed Assets Customer Purc...
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Agri 2301 part IV Cooperative finance and taxation

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Agri 2301 part IV Cooperative finance and taxation

  1. 1. <ul><li>Part IV: Finance and Taxation for Cooperatives </li></ul>
  2. 2. I. Who Finances the Business <ul><li>Members as Owners – provide equity capital </li></ul><ul><li>Purchase of common stock </li></ul><ul><li>Purchase of preferred stock </li></ul><ul><li>Transferable Delivery Rights </li></ul>S 4.1
  3. 3. Common Stock <ul><li>Voting stock – usually one-member one-vote. </li></ul><ul><li>Some cooperatives vote on a proportional basis. </li></ul>S 4.2
  4. 4. Preferred Stock <ul><li>May be sold to provide for additional capitalization. </li></ul><ul><li>Either members or non-members can purchase. </li></ul><ul><li>May pay a limited dividend. </li></ul><ul><li>Has no voting privileges. </li></ul>S 4.3
  5. 5. Transferable Delivery Rights <ul><li>Long-term delivery rights used by some cooperatives (right and obligation to deliver a specified quantity of production). </li></ul><ul><li>Tied to purchase of shares of preferred stock representing the delivery right. </li></ul><ul><li>May sell the rights with board approval. </li></ul>S 4.4
  6. 6. II. Who Finances the Business <ul><li>Members as Users of the Cooperative – also provide equity capital in other ways and may have their equity redeemed. </li></ul><ul><li>Retained patronage </li></ul><ul><li>Per-unit retains </li></ul><ul><li>Members are entitled to equity redemption </li></ul>S 4.5
  7. 7. Retained Patronage, Per-Unit Retains & Equity Redemption <ul><li>Retained patronage – cooperative profits distributed as patronage (some in cash, some allocated). </li></ul><ul><li>Per-unit retains are based on the volume or value of business conducted with the cooperative. </li></ul><ul><li>Equity redemption—oldest retained patronage or per-unit retains are redeemed first. Equity account balances must be adequate to finance the cooperative (board decision). </li></ul>S 4.6
  8. 8. III. Who Finances the Business <ul><li>Creditors as Lenders of Debt Capital </li></ul><ul><li>Types and Sources of Debt Capital </li></ul><ul><ul><li>Long-term sources </li></ul></ul><ul><ul><ul><li>Commercial Banks </li></ul></ul></ul><ul><ul><ul><li>CoBank </li></ul></ul></ul><ul><ul><ul><li>Insurance Companies </li></ul></ul></ul><ul><ul><ul><li>National Cooperative Bank </li></ul></ul></ul><ul><ul><ul><li>State governments </li></ul></ul></ul><ul><ul><ul><li>Sale of Commercial Paper </li></ul></ul></ul><ul><ul><ul><li>Leasing </li></ul></ul></ul><ul><ul><li>Short-term sources </li></ul></ul><ul><ul><ul><li>Commercial Banks </li></ul></ul></ul><ul><ul><ul><li>CoBank </li></ul></ul></ul><ul><ul><ul><li>National Cooperative Bank </li></ul></ul></ul><ul><ul><ul><li>Credit Unions </li></ul></ul></ul><ul><ul><ul><li>Suppliers </li></ul></ul></ul>S 4.7
  9. 9. IV. How Cooperatives Are Taxed <ul><li>The cooperative deducts patronage paid to members from its taxable income during the year the profits are earned. </li></ul><ul><li>Members include the patronage (both cash paid to them and the amount retained by the cooperative) received from the cooperative in their taxable income </li></ul>S 4.8
  10. 10. IV. How Cooperatives Are Taxed <ul><li>Cooperative Patron </li></ul><ul><li>Expenses Income </li></ul><ul><li>Purchase Corn ($600) Sell Corn $600 </li></ul><ul><li>Merchandising </li></ul><ul><li>expense ($300) </li></ul><ul><li>Total ($900) </li></ul><ul><li>Sell Corn $1,000 </li></ul><ul><li>Margin $100 Patronage Refund $100 </li></ul><ul><li>Taxable Income 0 Taxable Income $700 </li></ul>S 4.9 Taxation Example
  11. 11. V. How Cooperatives Are Taxed <ul><li>Cooperative deducts patronage refunds distributed to member users. </li></ul><ul><li>Income from nonmembers is subject to federal tax at the cooperative level. </li></ul>S 4.10 Single Tax Treatment
  12. 12. V. How Cooperatives Are Taxed <ul><li>Business Type Times Earnings Taxed Level </li></ul><ul><li>Proprietorship 1 Owner </li></ul><ul><li>Partnership 1 Owners </li></ul><ul><li>Corporation </li></ul><ul><li>Investor-General 2 Corp/Owners </li></ul><ul><li>Cooperative 1 Owners </li></ul><ul><li>S Corporation 1 Owner </li></ul>S 4.11 Tax Treatment
  13. 13. VI. Flow of Funds to Finance a Business S 4.12 <ul><li>Cash inflow </li></ul><ul><ul><li>Equity investments </li></ul></ul><ul><ul><li>Sales of fixed assets </li></ul></ul><ul><ul><li>Sales of inventory </li></ul></ul><ul><ul><li>Accounts receivable collection </li></ul></ul><ul><ul><li>Depreciation </li></ul></ul><ul><ul><li>Creditors – advances </li></ul></ul><ul><li>Cash outflow </li></ul><ul><ul><li>Purchases of fixed assets </li></ul></ul><ul><ul><li>Purchases of inventory </li></ul></ul><ul><ul><li>Advances on products purchased </li></ul></ul><ul><ul><li>Paying accounts payable </li></ul></ul><ul><ul><li>Customer credit </li></ul></ul>
  14. 14. VI. Flow of Funds to Finance a Business Accounts Receivable Inventory Fixed Assets Cash Sale of Fixed Assets Customer Purchases Collections Creditors Owners Depreciation S 4.13 Exhibit

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