The term cooperative association signifies a business organization formed by a group of individuals for their mutual benefit. A cooperative is owned and operated by its members and is generally organized either under general business laws or under specific statutes applicable to cooperative associations. A cooperative corporation is distinct from a charitable association organized for some benevolent purpose.
A cooperative corporation is a grouping of persons for their common advantage or advancement, financial or otherwise, and is organized for the mutual benefit of its members[i]. For instance, the purpose of cooperative marketing is to promote the direct marketing of agricultural products by eliminating speculation and waste. By virtue of cooperative bargaining, members secure a better platform for selling their products and are able to conduct their business at a lower cost per unit.
The members’ rights and duties are governed by the by laws or charter of the association and members cannot claim any right which is not expressly provided in the charter of incorporation. Thus, the members of a nonstock consumers’ co-operative organized under the Co-operative Corporations Law, whose articles of incorporation and by-laws contain no provisions relating to distribution of assets or rights of members upon dissolution have no rights, vested or contingent, in the assets of such corporation upon dissolution[ii].
Each shareholder has equal ownership and exercises an equal share in the control of the association, irrespective of the number of shares of stock held by such shareholder[iii]. Profit earned by the association is proportionately divided among the shareholders on the basis of the amount of their patronage during the period the profit was earned. A cooperative association will continue to function even after the withdrawal or expulsion of individual members and individual members will not have any present possessory interest in the association’s assets until liquidation.
A cooperative conducts most of its business with its own members. Voting rights of the members are not determined by the number of shares held by them and each member or stockholder has one vote, unless otherwise stipulated by the articles of association.
A cooperative association is subject to the provisions of the Social Security Act. For taxing purposes, both the non-exempt stock cooperative and its stockholders are taxed on amounts which the non-exempt cooperative distributes as dividends on its capital stock[iv]. A co-operative may repurchase its own stock so long as it does not impair capital stock[v].
An incorporated cooperative association is a distinct legal entity and can sue and be sued as an entity, provided, the statute creating such organization stipulates so. However, courts have also held that “an express statutory provision is not indispensable to an association’s capacity to sue or be sued in its association name. Such a suit may be maintained by virtue of a necessary implication arising from statutory provisions, as in cases where an unincorporated association is recognized as a legal entity by statutes which do not in terms authorize it to sue or be sued as such[vi].”
By virtue of its separate legal status, an unincorporated association can acquire, hold, encumber, or transfer an estate or interest in real or personal property in its own name[vii].
[i] Michael v. St. Paul Mercury Indem. Co., 92 F. Supp. 140, 144 (D. Ark. 1950)
[ii] Attinson v. Consumer-Farmer Milk Co-op., 197 Misc. 336 (N.Y. Sup. Ct. 1950)
[iii] Lambert v. Fisherman’s Dock Cooperative, Inc., 115 N.J. Super. 424 (App.Div. 1971)
[iv] Farmers Cooperative Co. v. Birmingham, 86 F. Supp. 201, 211 (N.D. Iowa 1949)
[v] Burk v. Coop. Fin. Corp., 62 Wn.2d 740, 748 (Wash. 1963)
[vi] Teubert v. Wisconsin Interscholastic Athletic Asso., 8 Wis. 2d 373, 376 (Wis. 1959)
[vii] Uniform Unincorporated Nonprofit Association Act § 4