Cooperatives are member-owned and democratically controlled businesses that distribute profits based on an equitable patronage system. Cooperatives are structured by type of cooperative, the tax status and the legal entity that is chosen by its members. The decision depends on the mission and needs of the co-op.
Difference between Co-op Type, Legal Entity and Tax Status
Co-op Type:
Cooperatives put wealth and decisions into the hands of workers and consumers, building community well-being and investing in local economies. The type of cooperative formed is determined by the member needs and purpose. Different co-op types may qualify for specific tax benefits or face specific tax obligations based on their organizational structure and purpose. For instance, a housing cooperative may have different tax considerations compared to a worker cooperative.
Legal Entity:
Members must decide the legal entity that best fits the needs of the co-op. A legal entity describes the legal structure under which a business operates. It is important to choose the right entity for a number of reasons, including the application of employment law, liability, and taxation.This also depends on the laws relevant in the state you are forming your co-op.This purpose impacts how co-ops are structured and managed. Worker, housing, immigrant and social coops are some examples of types of co-ops people can form.
Tax Status:
The IRS requires that a co-op chooses a specific tax status, which determines how much and what type of taxes a business pays. A co-op has several options to choose from to obtain tax benefits. Deciding on a legal entity is a crucial aspect of this process.
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California Worker Cooperative Entity and Tax Choice
When considering entity types for a worker cooperative, there are multiple options available. One possibility is to incorporate as a cooperative corporation if one exists under state law. However, it’s important to keep in mind that there are other options to choose from. To help make an informed decision, it’s helpful to consider factors about
Tax Status
A business’ tax status determines how much income tax it pays and how that tax is calculated. The type of legal entity a business is formed under may influence the way its tax status is applied. There are a few different types of tax statuses a co-op can choose from that may be more advantageous
