A Study of the Statutory Background for Worker Cooperatives in the US: A Proposal for a Regulatory Framework

Summary

Summary: 1. Introduction. 2. The concept of worker cooperatives. 3. Workers’ cooperatives in the USA, their tax regulation at a federal level: a view through judicial doctrine. 4. Statutory background. 4.1. The Single Tax principle. 4.1.1. The Mississippi Valley Portland Cement v. USA: the substance over form doctrine and a definition of patronage refunds. 4.2. The 50 % rule. 5. The Statutes of incorporation at a State level. 6. A proposed model for unincorporated cooperatives: The Uniform Limited Cooperative Association Act. 7. Conclusions. 8. References.

Abstract: The lack of a clear and comprehensive regulatory framework for worker cooperatives is one of the main causes for their scarcity in the USA, as it causes ignorance and uncertainty even though cooperatives are one of several forms of doing business recognized by the Internal Revenue Code (like sole proprietorships, partnerships, limited liability companies, LLC’s, and Subchapter S corporations). Tax laws divide businesses into those categories, each with its own special tax provisions and worker cooperatives try to fit into any of those forms of business while “acting on a cooperative basis”, thus, having their own specificities. Even though at a State level there are regulations for agricultural cooperatives in all States, there are only less than 30 States that have either worker cooperative regulations, general cooperative regulations or consumer regulations which worker cooperatives can use.

This paper aims to conduct a comparative statutory research on cooperative law for worker cooperatives in the USA, with a view of promoting an increased understanding within the academic and governmental communities, at a national and international level in order to promote worker cooperatives. In the case of New York public policies tacking this issue are already being devised. If this goal is achieved we will all benefit from them.