FAQ’s
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If you’re in the early stages of forming a cooperative—or just exploring the idea—you likely have many questions. Below are some of the most common ones, but remember, ICDC is here to provide guidance tailored to your unique needs.
Let us help you navigate the process and set your cooperative up for success!
What is a cooperative?
A cooperative is a member-owned, member-controlled, and member-benefited business. Unlike traditional businesses, co-ops operate democratically, following a one-member, one-vote policy—ensuring that all members have an equal say in decision-making.
Members invest financially in the cooperative and receive benefits based on their participation and use of the business throughout the year. This unique structure prioritizes community, fairness, and shared success over maximizing profits for outside investors.
What types of cooperatives exist?
Cooperatives span a wide range of industries, serving diverse community and business needs. Common types of co-ops include:
✔ Food & Agriculture – Grocery co-ops, farmers markets, CSAs, and farm-based co-ops
✔ Housing – Resident-owned communities and cooperative housing associations
✔ Electric & Utilities – Member-owned power and broadband cooperatives
✔ Financial – Credit unions and cooperative lending institutions
✔ Artisan & Worker-Owned – Craft, trade, and worker cooperatives
✔ Purchasing & Marketing – Businesses that pool resources for buying power and promotion
✔ Child Care – Parent- and provider-run cooperative child care centers
These are just a few examples—cooperatives can be found in nearly every sector! Learn more in our “About Co-ops” section.
Is a cooperative a nonprofit?
While a cooperative operates on a not-for-profit basis, it is not a nonprofit organization. Like any for-profit business, a co-op generates revenue, but instead of distributing excess profits to outside shareholders, the profits are returned to the members through patronage refunds, based on their use of the cooperative.
This structure allows co-ops to balance financial sustainability with member benefits, ensuring that the cooperative serves the needs of its members and the community.
Does a cooperative pay taxes?
Yes, cooperatives pay taxes just like any other business, including taxes on real estate, personal property, sales, employment, utilities, and more. Cooperatives are single-taxed, meaning they are taxed only at the member level, unlike C-corporations, which face double taxation—once at the entity level and again at the shareholder level.
However, there is a unique tax treatment for patronage refunds. The net margin (income minus expenses) in a cooperative is not taxable because it is returned to the members as patronage refunds. Instead, patronage refunds are taxed at the patron level, not at the cooperative level.
What are patronage refunds?
Patronage refunds are payments made to cooperative members at the end of the year, based on their use of the cooperative. These refunds are derived from the net savings (profits) of the cooperative.
Members are required to pay income taxes on the amount of the patronage refund they receive.
What are the advantages of a cooperative vs. other business forms?
Cooperatives offer unique advantages compared to other business structures, thanks to three core principles: user-owned, user-controlled, and user-benefited.
✔ User-Owned: The members finance the cooperative through their transactions, meaning they are both the owners and the primary contributors to the cooperative’s success.
✔ User-Controlled: The cooperative is democratically controlled by its members, who elect the Board of Directors. This board acts as the link between the membership and the manager, ensuring decisions align with members’ interests.
✔ User-Benefited: Members profit from the cooperative in the form of patronage refunds, which are returned based on the amount of business conducted with the cooperative.
What makes cooperatives truly unique is that customers, owners, patrons, and members can all be the same person—creating a direct connection between the cooperative’s success and the benefits it provides to its members.
Who can be a member of a cooperative?
Anyone can become a member of a cooperative, as long as they meet the qualifications for membership outlined in the cooperative’s bylaws. These qualifications vary from co-op to co-op and typically reflect the specific needs or goals of the cooperative.
Each cooperative sets its own criteria for membership, ensuring that those who join align with the cooperative’s mission and values.
Why should I join a cooperative?
You should join a cooperative because you find its services or products valuable to your needs. Beyond that, people and businesses choose cooperatives for a variety of reasons, including:
✔ Increase Income – Cooperatives help members earn more through shared benefits
✔ Boost Bargaining Power – Gain leverage when negotiating prices or terms
✔ Access Products or Services – Obtain offerings that might otherwise be unavailable
✔ Expand Market Opportunities – Grow your business by tapping into new or existing markets
✔ Improve Quality – Enhance the products or services you receive
✔ Lower Operating Costs – Reduce costs through collective purchasing and shared resources
Joining a co-op means not only accessing valuable resources, but also becoming part of a community working together for mutual benefit.
What is the first thing to do when starting a cooperative?
The first step in starting a cooperative is to identify a small group of like-minded individuals who share a common vision for how a cooperative can improve their economic and social well-being. This small group often becomes the steering committee if the cooperative moves into the development stage.
Once the group is established, the next task is to define the services the cooperative will provide. After this, the cooperative can begin to identify and contact potential members who will join and support the initiative.
Who should be involved in forming the cooperative?
The success of a cooperative’s formation depends on a core group of committed members who can work both independently and collaboratively. The size and composition of this leadership group will vary based on the cooperative, but ensuring the right people are involved from the start can significantly enhance decision-making.
In addition to the leadership group, it’s crucial to identify and involve technical advisors and other support professionals as early as possible. This could include experts from business support agencies and private consultants. Invite them to meetings and engage them in the process from the outset to ensure well-rounded guidance and support.
Does ICDC only work with agricultural cooperatives?
No, ICDC works with all types of cooperative ventures. Whether you’re focused on agriculture, housing, child care, or another industry, we’re here to help explore the opportunities for your group.
Get the process started by filling out our information form today, and let’s see how we can support your cooperative’s growth and success.
Indiana Cooperative Development Center
225 S. East Street, Suite 252
Indianapolis, IN 46202
Phone: 317.692.7707
Email: info@icdc.coop
ICDC is an equal opportunity employer and provider.