The general rules of finance apply to co-operatives. Like all businesses, agricultural co-operatives must maintain sufficient levels of equity capital to ensure the financial viability of their operations.
However, in a co-operative, equity capital also provides the basis for member ownership and control. This feature makes some of the financial characteristics of co-operatives different from other forms of business.
The following considerations factor into the financial decisions and policies of co-operatives:
• Control over the co-operatives future and direction must rest with the membership, and not with outside interests. Therefore, the bulk of a co-operatives equity capital should be obtained from members.
• Members, as the owners of the business, have an obligation to contribute capital to the co-operative in proportion to the benefits they expect to receive from its operation.
• Equity ownership should be held by the current membership of the co-operative, namely those who have recently used the services provided by the business.
These considerations influence the ways in which co-operatives finance their operations and handle equity in the business.
In this section, some of the methods agricultural co-ops use to acquire capital, accumulate equity, and redeem member equity are outlined.
Two specific types of co-operative capital structures are discussed in detail—the base capital plan and the financial structure.
When forming a co-operative business, co-operative leaders must plan how they will acquire sufficient capital to finance the start-up of the business.
Potential sources of capital for new co-operatives include -
member investment and debt financing. The investment of capital by people or organizations who are not members of the co-operative.
Direct investment by members can also be a way for established co-operatives to raise capital for a special need, such as purchasing new assets or expanding operations.
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