Limited cooperative association

In business, and only in United States corporate law, a limited cooperative association (LCA) is a type of for-profit cooperative which is chartered to allow for outside investment by non-owner members. LCAs combine cooperative principles with elements of partnership and limited liability company principles, and are recognized in several U.S. states.[1] It is a form of multi-stakeholder cooperative.

Aspects

A key difference between most cooperatives and an LCA is the latter's recognition of two classes of members: patron members (limited to consumers, workers, producers or others who make use of the cooperative's services and receive membership, as is the case in most traditional cooperatives) and investor members (those who are required to make a contribution to the LCA but are either not permitted or not required by the articles of organization or bylaws to conduct patronage with the LCA).

Another is the minority involvement of investor members in the decision-making process as well as in profits and loss. Under most statutes, investor members may participate in decision making, but patron members must remain the majority of the total voting power in the LCA, and the majority of the board of directors of the LCA must be elected by patron members. In addition, certain decisions require an affirmative vote by a majority of voting patron members in an LCA, such as amendments to articles or bylaws, dissolution, disposition of assets, conversion, or merger of the LCA.

Finally, while LCAs are typically taxed like other for-profit cooperatives under subchapter T of the Internal Revenue Code, an LCA may elect for subchapter K tax status, also known as partnership taxation, in which the LCA is not taxed at the federal level and instead passes income, losses and taxation through to the members. However, subchapter K may be more difficult due to limitations on unallocated reserves, and self-employment taxes.[2]

Legislation by state

The LCA was first promoted under the Wyoming Processing Cooperative Law in 2001 to allow joint ownership by farmers and investors and aid the formation and development of farm producer-owned ventures. Similar legislation was passed in multiple states, with many states adopting the Uniform Limited Cooperative Association Act (ULCAA), which was drafted by the Uniform Law Commission in 2007.[3]

Criticism

In the magazine Cooperative Grocer, writer Laddie Luschin cautioned against this approach as fundamentally against what coops stand for, even going so far as to label it a "trojan horse" that allows for "coop washing".[6]