Home > What Is a Co-op? > Business Structure Comparison
Business Structure Comparison
(For additional resources, see Co-op Topics)
The legal structure of any business organization defines ownership, control,
and earnings distribution. Like other businesses, cooperatives typically
incorporate as a legal entity under state statutes, which provide parameters for governance and operation. State statutes are not uniform,
however, so specific legal requirements for cooperative structure will vary by state.
The ownership and control of most business structures is related to the level of capital investment.
Profits are returned to investor-owners based on the amount of their investment.
In contrast, a cooperative business is owned and democratically controlled by its member
patrons. Any profit is distributed to member patrons in proportion to their use, or “patronage,”
of the cooperative's services.
In some states, cooperatives are treated as a type of nonprofit corporation,
since a cooperative’s primary orientation is to benefit members by providing
goods or services at cost. However, this type of nonprofit business is
different from organizations incorporated under general nonprofit statutes,
which legally have no owners, and must retain any net earnings within the
organization. Nonprofit cooperative
business statutes provide for member patron ownership, member voting rights for
boards of directors,profit distributions to members, and member rights to
assets sold if the cooperative should dissolve.
||Unincorporated Cooperative Association (UCA)
(C or S)
|Limited Liability Company (LLC)
|Who are the owners?
||Members (individuals or entities)**
||Members (individuals or entities); may include
both patron and investor classes
||One or more shareholders (individuals or
S Corp limited to 100 shareholders.
|One or more individuals who are members
||At least two individuals or entities
|What are membership requirements?
||Determined by bylaws. Usually one
share/fee. May include other requirements.
||Determined by bylaws.
||One share of stock, with rights and privileges
attached to it determined by the articles of incorporation, bylaws,
shareholder agreement, and applicable law.
||At discretion of LLC members
||At discretion of partners
||At discretion of owner
||Membership fee may be required
|What is the business purpose?
||To meet member needs for goods or services;
earn return on member investment
||To meet member needs for goods or services; earn
return on member investment
||To earn a return on owner investment
||To earn a return on owner investment; provide
employment for members (usually)
||To provide employment for partners and a return
on partners' investments
||To provide employment
for owner and a return on owner's investment
||To provide services or information
|How is the business financed?
||Stock/shares to members, and/or outside
investors; retained profits
||Stock/shares to patron and investor members; retained profits
||Sale of stock; retained profits
||LLC member investments; retained profits
||Partner investments, retained profits
||Proprietor's investment; retained profits
||Grants, individual contributions/ donations, fees for
|Who receives profits?
||Members in proportion to use; preferred
shareholders in proportion to investment, up to 8%
||Patron members in proportion to use; patron and
investment members in proportion to investment
||Shareholders in proportion to investment
||LLC members in proportion to investment, or by
||Partners in proportion to investment or by
||Retained within the organization
pays income taxes on profit?
Members on qualified profit distributions based on patronage*; co-op
pays on nonqualified and unallocated profits
||Members pay individual rate, or can elect to be
taxed as cooperative corporation
||C Corp. pays on profits, shareholders pay
individual capital gains rates on dividends;
S Corp stockholders pay
individual rate on profit share and capital gains
|LLC members pay individual rate, or can elect to
be taxed as a corporation
||Partners pay individual rate
||Proprietor pays individual rate
||Not applicable; tax exempt
owner legal liability?
to member's investment
to member's investment
||Limited to shareholder's investment
||Limited to member's investment
||Unlimited for general partners, limited to investment of limited
||Unlimited for proprietor
to assets of the organization
*Members of personal consumer co-ops do not pay taxes on patronage refunds
that follow certain IRS guidelines.
**Preferred stock shareholders may include nonmembers, and may vote on
certain issues such as dissolution. As a group, preferred stock
shareholders do not set policy; only members can vote for directors.
There may be exceptions to what is summarized here. See state business
statutes and/or consult an attorney for further information.