Question

What are the three things a cooperative board of directors must balance when making profit allocation decisions (when deciding how to utilize their profitability that year)?

Answer 1

1, Handling of Extraordinary Gain
All net income in a fiscal year must be distributed by the cooperative board of directors based on current year’s patronage or based on patronage over a historical number of years.

2. Distribution of Liquidation Proceeds.

The cooperative board of directors needs to find an effective method for distributing liqiodation proceeds amongst its members. One approacg to distibuting these is to distibute it 1st, to preferred stock if any, 2nd to named patronage equity, and, 3rd to common stock or member capital

3, Creation of Allocation Units.

Many Bylaws authorize the board to create allocation units to determine and distribute net income.The board may allocate net income in divisions established on any reasonable basis, such as based on business or product line or based on geographic operation.