Example of By-laws pertaining to capital stock and patronage refunds
IV. CAPITAL STOCK
1. Issuance and terms. To evidence capital funds provided by owners, the Cooperative shall issue its common stock with a par value of five dollars per share. Common shares may be issued only to persons eligible for and admitted to ownership in the Cooperative. Shares shall be issued only upon full payment of their purchase price.
2. Certificates. Every holder of a fully paid share shall be entitled to receive a certificate evidencing such holding. All certificates shall be signed personally or by facsimile by an authorized officer and shall be numbered and recorded in a stock register maintained by the Cooperative. Each certificate shall contain a prominent notation that it is not transferable and that voting rights pertain only to ownership in the Cooperative on the basis of one voice or vote per owner. The Cooperative may issue a replacement certificate for any certificate alleged to have been lost, stolen or destroyed without requiring the giving of a bond or other security against related losses.
3. Redemption. Upon request following termination of ownership, common shares shall be redeemed when replacement capital is provided by other owners. Such shares shall be redeemable at the lesser of their carrying value on the books of the Cooperative or their net book value, less a reasonable processing fee, if any, as determined under a uniform policy by the Board. Redemption proceeds shall be subject to offset by amounts due and payable to the Cooperative by the owner. No redemption shall be made when such payment would impair the ability of the Cooperative to meet its other obligations as they become due. Reapplications for ownership after full or partial redemption shall be subject to full repayment of redemption proceeds. The Cooperative shall have the right to recall, at its carrying value on the books of the Cooperative, any shares held by an owner in excess of the amount required for ownership status.
V. DISTRIBUTIONS OF NET SAVINGS
1. Patronage refunds. The Cooperative shall annually allocate and distribute to its patrons as patronage refunds its adjusted net savings from business done with them in such manner and within such time as to constitute patronage dividends within the meaning of federal income tax law. Any allocations of such a nominal amount as not to justify the expenses of distribution may, as determined by the Board, be excluded from distribution provided that they are not then or later distributed to other patrons.
2. Adjusted net savings. In determining adjusted net savings, the net savings of the Cooperative derived from the excess of revenues over costs and expenses, to the extent attributable to business done with patrons and otherwise allowable under federal income tax law, shall be reduced by: (i) not less than ten percent of such savings as a reserve fund until there is accumulated net savings of not less than fifty percent of paid- up capital stock, such additions to the reserve fund being allocated or allocable on a patronage basis; (ii) not less than five percent of the remaining savings as an educational fund to be used in teaching cooperation; and (iii) such reasonable reserves for necessary business purposes as is determined by the Board. Additions to required reserve and educational funds may, as determined by the Board, be made from nonpatronage- sourced earnings or from earnings attributable to non-owner business. In determining adjusted net savings, the Cooperative shall use a single allocation unit except to the extent that, subsequent to the adoption of these by-laws, it shall engage in any new and distinct line of business.
3. Distribution and notice. Adjusted net savings shall be allocated to participating patrons in the proportion which their patronage bears to the total of all patronage during the fiscal year. In the case of non-owners, such patronage must be evidenced by tabulated receipts for all or selected purchases from the Cooperative, and must be remitted to the Cooperative within the time determined by the Board. Patronage refunds to owners shall be evidenced by written notices of allocation delivered to recipient patrons within eight months and fifteen days following the close of the fiscal year. Such notices shall be accompanied by checks in an amount determined by the Board which must be at least twenty percent of the total allocation. No part of patronage refunds to participating non-owners shall be currently distributed.
4. Consent of owners. By obtaining or retaining ownership in the Cooperative, each owner shall thereby consent to take into account, in the manner and to the extent required by Section 1385 of the Internal Revenue Code, the stated dollar amount of any qualified written notice of allocation in the taxable year in which such notice is received.
5. Amounts not currently distributed. The portion of patronage refunds not currently distributed by check shall:
(a) in the case of owners whose share purchase requirement is fully paid, be credited towards purchase of additional shares in their names;
(b) in the case of subscribers, be credited to their share accounts; and
(c) in the case of participating non-owners, be credited to provisional share accounts in their names.
If, within three years, such subscribers or non-owner patrons shall fail to become fully- paid owners, the amounts credited to their share accounts shall go to the educational fund, and such persons shall have no further rights to such amounts.
VI. MISCELLANEOUS OPERATING PROVISIONS
1. Bonding. Any officer or employee of the Cooperative handling funds or securities shall be covered by an adequate bond in such amounts and on such terms as may be determined by the Board. The costs of such bonds shall be paid by the Cooperative. 2. Audit. An annual audit of the books and accounts of the Cooperative shall be made. A written report of the audit, including a statement of the amount of business transacted with owners and with non-owners and a balance sheet and income statement, shall be submitted to the annual meeting of owners.
3. Employee Relations. It is the declared policy of the Cooperative to recognize the right of its employees to organize and bargain collectively as regards their wages and other conditions of employment, and to present and adjust grievances of individuals or groups of employees through their chosen representatives.
4. Fiscal Year. The fiscal year of the Cooperative shall end on the Saturday closest the end of the calendar year.
5. Annual Report. An annual report shall be prepared each year in accordance with the District of Columbia Cooperative Law and duly filed.
VII. INTERPRETATION AND AMENDMENT
1. Severability. In the event that any provision of these by-laws is determined to be invalid or unenforceable under any statute or rule of law, then such provision shall be deemed inoperative to such extent and shall be deemed modified to conform with such statute or rule of law without affecting the validity or enforceability of any other provision of these by-laws.
2. Amendment. These by-laws may be amended or repealed only at a meeting of owners, provided that the proposed amendments are stated or fully described in the notice of the meeting at which the amendments are to be adopted.
On dissolution any surplus of assets shall be distributed either or both of the following ways: (a) Among those patrons who have been owners at any time during the last six years, on the basis of their patronage during that period. (b) As a gift to the _____________or other non-profit organization......... *****
EXPLANATION OF PATRONAGE REFUND CONSENT PROVISION
The Internal Revenue Code generally requires each person receiving a patronage refund to include the amount of such distribution in his or her gross income in the taxable year in which it is received. Under by-law V.3, mere acceptance or retention of ownership in the Cooperative constitutes consent to such inclusion in taxable income, including the portion of the patronage rebates that is retained by the Cooperative for its capital needs. The Cooperative has been advised by legal counsel, however, that the general rule for inclusion in income of patronage refunds is subject to an exception that is applicable to consumer cooperatives. Under that exception, a patronage rebate is not required to be included in gross income if the owner's purchases from the Cooperative related to "personal, living or family items." The patronage refund would be taxable to a member only if his or her purchases related to the operation of a trade or business or other income-producing activities. In effect, the consent provision is of no significance to owners of the Cooperative, except as to organizational owners and except where the purchases of owners who are natural persons are for business or income-producing purposes.