Glossary of Cooperative Terms

Glossary of Useful Terms

  • Articles of Incorporation– the document filed with the state that forms a corporate entity.
  • Assets– resources with an economic (typically monetary) value that an individual, or business has ownership of.
  • Board of Directors– the individuals that serve as the governing body of the organization.
  • Bylaws– the document that regulates the governance and internal affairs of a corporation.
  • California Corporations Code– state law governing formation and operation of business entities.
  • Candidacy Period– a period of work an employee must complete to become eligible for membership in a worker cooperative.
  • Capital– money used in a business, whether supplied by owners (equity) or borrowed (debt).
  • Capital Account Cooperative– a cooperative with a system of internal capital accounts that reflect its net worth and determine the redemption value of member shares and written notices of allocation.
  • Capitalization– the amount and source of money needed to start and operate the cooperative.
  • Class– memberships that are identified in the articles or bylaws as being a different type of membership or that have the same rights with respect to voting, dissolution, redemption, distributions and transfer.
  • Collateral– asset used to secure a loan.Collective Account- an internal account containing net income retained in the cooperative and not allocated to members.
  • Collective Board– a worker cooperative in which there is only one class of members consisting of worker-members, all of whom are members of the board
  • Community Investor– in a California worker cooperative, a shareholder who is not a worker and whose voting rights are limited to approval rights only over a merger, sale of major assets, reorganization, or dissolution.
  • Debt Financing– obtaining money for a business by borrowing from a bank or other lender. While some collateral may be required to obtain the loan, the lender does not have any ownership or direct control of the business affairs, except in certain instances of default.
  • Dividend– amount paid to business owners based on their investment. Typically, dividends represent a portion of profits paid to members proportionate to the shares held. In a worker cooperative, patronage “dividends” are also distributed on the basis of patronage with the cooperative, usually determined by wages earned or hours worked.
  • Equity– the ownership interest in a business, typically calculated by subtracting all liabilities (amounts owed) from all assets (amounts and property owed). Equity is generally made up of investments by worker-owners, other than loans, and the cumulative profits of the business.
  • Equity Capital– money supplied by the owners of a business, which is used towards financing the various needs of the business.
  • Governance– this refers to the way a company is controlled and how decisions are made.
  • Individual Capital Account– an internal capital account reflecting a member’s equity interest and allocated patronage dividends in a worker cooperative.
  • Indivisible Reserves Account– in the context of a California worker cooperative, an internal account with funds derived from non-patronage-sourced income, that will not be distributed to members, and that must, upon dissolution, be allocated to a cooperative development organization identified in the cooperative’s articles of incorporation or bylaws.
  • Internal Capital Account– an account in a worker cooperative reflecting a portion of its net worth. Worker cooperative corporations formed as capital account cooperatives typically have up to three types of internal capital accounts: (1) individual capital accounts, (2) a collective reserve account, and (3) an indivisible reserves account.
  • Liabilities– a financial obligation that arises out of a prior transaction.
  • Limited liability entity– this refers to a type of business that provides extra protection to its owners if it is sued. The owners of a limited liability business, if sued, may lose the business, but in most cases, will not lose their personal assets.
  • Margins– in cooperative terminology, net income is often referred to as “margins.”
  • Member– in a California cooperative corporation, anyone who has the right to vote for the Board of Directors or who has a proprietary interest in the cooperative. “Shareholder” has the same meaning as “member” under the statute.
  • Multi-stakeholder Cooperative– a cooperative with multiple classes of members.
  • Officers– executive agents of the business, responsible for certain duties, such as signing documents, keeping meeting minutes, providing notices, signing checks, and so on.
  • Operating Agreement– the document that regulates the internal affairs and governance of an LLC.
  • Patronage– the volume or value (or both) of a patron’s purchases from, and use of services furnished by, the cooperative, and products and services provided by the patron to the corporation for marketing. In a worker cooperative, a patron is a worker member, and patronage is measured by work performed.
  • Preferred Shares– an investment class of shares that typically have priority over member shares with respect to dividends and liquidation distributions and are nonvoting.
  • Profits– in the context of California cooperative corporations, this is defined as the excess of revenues over expenses for a fiscal year attributable to non-Member labor.
  • Representative Board– a Board of Directors elected by the members, distinguished from a Collective Board which is composed of all the members.
  • Revenue– income that a business receives from normal business activities.
  • Revolving Capital Accounts– written notices of allocation that are paid to members on a first-in, first-out basis, rather than upon termination of membership or fixed maturity dates. Dates of redemption are generally flexible and controlled by the board or other designated decision-making body.
  • Revolving Funds– funds made available for cooperative and business investment purposes by some public agencies or nonprofit organization. These may be borrowed and then repaid on specified terms so that others may borrow the money at a later time.
  • Shareholder– in a California cooperative corporation, anyone who has the right to vote for the Board of Directors or who has a proprietary interest in the cooperative. “Shareholder” has the same meaning as “member” under the statute.
  • Subchapter T– a federal tax provision that allows cooperatives to avoid double taxation on net income that is allocated to members on the basis of patronage.
  • Surplus– in the context of California cooperative corporations, this is the net income that is attributable to member labor.
  • Written Notice of Allocation– a certificate issued to a member specifying the amount, if any of the patronage dividend allocated to the member and retained by the cooperative.
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