Co-op Q&A is a quarterly publication from the Member Relations Team. The goal is to provide education about the cooperative business model and answer commonly asked questions by our employees and patrons. Our topic this quarter is patronage & members’ equity.
What’s the difference between patronage and equity?
Patronage is the pro rata share of the coop’s profits (savings) allocated to patrons based on their use of the coop in a single fiscal year. Often a portion of the patronage will be paid in cash and the remainder deferred to be paid in the future. The accumulation of deferred patronage is considered equity. Equity is therefore the member-owners’ investment in a cooperative over several years of doing business at the coop.
Do other businesses offer the benefits of patronage and equity?
No, patronage and equity are a unique concept only applicable to the cooperative business model.
What does the cooperative do with the deferred patronage called equity?
Deferred equity is an important part of the coop’s overall capital structure. The cooperative uses deferred patronage (equity) to make capital investments in facilities and equipment and to fund the day-to-day operations of the coop.
Are patronage allocations and/or equity redemptions guaranteed every year?
No. The cooperative has to have earnings to either allocate patronage or redeem equity. Both patronage allocations and equity redemptions are at the discretion of the Board of Directors.
Who decides how patronage is allocated?
The Board of Directors decides how patronage should be calculated and paid.
How and when does the Board determine patronage allocations?
The Board determines the allocation of patronage on an annual basis following the end of our September 30th fiscal year. It is imperative that the cooperative has a solid financial performance for there to be earnings to distribute. Management of the coop in partnership with an outside accounting firm work through various models which are reviewed by the Board in order to make their decisions.
Who decides when equity should be paid?
The Board of Directors decides when equity should be paid.
How and when does the Board determine what equity should be paid?
It’s a delicate balancing act between meeting the capital needs to operate the cooperative and redeeming members’ equity redemption, all based on the coop’s earnings or savings. The Board has on-going conversations about paying equity. Management of the coop prepares various models for consideration when deciding to redeem equity. The Board of Directors has established a goal to have a robust equity redemption plan.
Was Country Partners recently in the news related to their equity?
Yes! On July 21, 2020, Country Partners issued a press release regarding a large equity redemption of $4.1 million in total member equities.
Does my age impact when I receive my equity?
While we historically had some equity that we considered “aged equities,” those classes of equity have been fully redeemed. At this point in time, your age has no impact on when you receive your equity. All the equity is now “revolving equity,” which is redeemed based upon the year that it was earned.
How much Members’ Equity is left on the Coop’s Balance Sheet following this large redemption?
There is still $40 million in revolving equity on Country Partners’ balance sheet. This equity is in the name of specific patrons and will be redeemed based upon the year it was earned.
Is there a way to redeem the equity of a deceased family member?
Yes! The equity of a deceased cooperative member is eligible for application for redemption. Please get in contact with the office in Gothenburg and we can help you through this process. Completed applications are presented to the Board of Directors for review and approval on a monthly basis.
How does patronage and equity impact my taxes?
Your patronage earnings in the cooperative are taxed only once. If qualified patronage is earned, the patronage is taxable in the year of allocation, regardless of when it is paid. If non-qualified patronage is allocated, those earnings are taxable when paid. Historically, it was most common for the cooperative to issue qualified patronage; however, in recent years, more non-qualified patronage has been issued due to the overall tax strategy for the cooperative and its members.
How do I know my current equity position in Country Partners Cooperative?
A patron statement accompanies the patronage checks when those are mailed. Equity redemption check stubs also show the member’s current equity position. If you are needing more information or have questions, just call the office in Gothenburg and we’ll be glad to help you.
What happens to my equity if I move from the area and quit doing business with the cooperative?
If you move from the area and quit doing business with the cooperative, your previously earned equity will still be eligible for redemption based upon the year it was earned. It is important that you keep your current address on file with Country Partners Cooperative so that we can locate you at the point that your equity is redeemed.
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