Patronage refund is the name for the profit that co-ops return to their members. Essentially, each member gets back part of the profit from their own purchases, but only the part not needed to keep the co-op in good shape to serve the members well.
Every autumn after profitable years, the Wedge Co-op distributes a patronage refund to its members.
Members Are the Cooperative
Co-ops are distinctive businesses based on member ownership. Members buy eight $10 shares to join ($80 stock purchase), but co-op profit is not distributed based on how many shares are owned. Instead, it is distributed based on how much each member spends at (or patronizes) the co-op — hence the term "patronage refund."
Our co-op provides the goods that our members want and sets prices to cover the costs of providing those goods in a retail environment. Prices need to be set slightly higher than routine costs to allow for the uncertainties of the real world, such as fluctuations in food costs, equipment failures, inflation, recessions and liabilities that all organizations face. A well-run cooperative will maintain the ability to pay its vendors and employees despite inevitable uncertainties. Consequently, most years the cooperative should generate a surplus of income over expenses – in other words, earn a profit.
Surplus from Sales to Members Belongs to Members
Cooperatives enjoy a privileged status and can return the surplus (profit) to the members as patronage refunds that are tax free to both the co-op and the members. By law, patronage refunds must: 1) be only from member income; 2) be allocated based on each member's purchases (patronage) from the co-op; and 3) be allocated to an individual account in the name of each member.
The cooperative can distribute the patronage refunds to each member as cash or retain a portion as additional investment in the business. The board of directors considers the co-op's fiscal year financial performance, its overall financial position and its plans for the future, and then decides what portion to pay as cash. The cash portion is sent (as a check) with a notice of allocation that also indicates the retained investment (recorded as nonvoting stock) held in the member's name.
Who Is Eligible?
To be eligible for a patronage refund, a member must have shopped as a member in good standing for at least some part of the fiscal year in question. The Wedge's fiscal year runs from July 1 to June 30 . Checks are mailed in October or November.
Cash refunds are sent to members who purchased enough products to have earned at least $2 as a cash portion, otherwise the entire refund will be issued as retained stock.
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