CONTENTS
Historical Perspective ...............................
.2
Member Equity ....................................
.4
Meeting the Capital Needs of Cooperatives ........ .4
Types of Member Equity ....................... .5
Forms of Allocated Equity ..................... .6
Base Capital Plan .................................. .8
Equity Redemption .................................
.9
Revolving Fund Considerations ................. .9
Special Equity Redemption Programs ............ .lO
Measuring Equity Performance ................. .ll
Debt Capital .....................................
.12
Short-term Debt ............................
.12
Long-term Debt ............................
.14
Sources of Debt .............................
.15
Cooperative Taxation .............................. .17
The Future of Cooperative Finance .................... .19
Appendix A - Glossary of Terms
..................... .22
Appendix B - Sample Financial Statements ......... w ... .24
Note: The material on cooperative taxation is presented only to provide information to
persons interested in the tax treatment of cooperatives and does not represent omcial pol-
icy of the U.S. Department of Agriculture, the Internal Revenue Service, the U.S.
Department of the Treasury, or any other Government agency.
Cooperative Information Report 1, Section 9
Issued February 198 1, revised July 1995
tures of
ments u
Cooperative
Financing
and Taxation
The field of cooperative finance is very specialized. The fea-
a cooperative make its fi
nique and, consequently, n
ancial
.ot we1
characteristics
1 understood by
and require-
’ many in the
financial community. Despite this, the general rules of finance apply
equally to cooperatives as well as any other business enterprise.
Specifically, a cooperative must have adequate equity capital and
maintain sufficient cash flow to service its debt.
The most unique feature of a cooperative, compared with
Investor Owned Firms (IOFs), is that a cooperative is organized by
and for its member/patrons. Its members are both