Cooperative (Co-op)
A business owned and controlled by the people who use it, called 'members.' Members pool resources, share profits based on use, and vote on major decisions democratically (one member, one vote).
Ownership
Members who use the cooperative's services. Each member typically has one vote regardless of investment amount.
Pass-Through Taxation
Yes
State Filing Required
Yes
Self-Employment Tax
Varies
Varies by state. Most cooperative statutes provide limited liability for members similar to an LLC or corporation.
Pass-through by default. Co-ops file Form 1120-C. Profits distributed as patronage dividends are deductible by the co-op and taxed once at the member level.
Self-Employment Tax
Depends on member's role. Active worker-owners may pay SE tax on their share.
How to Form
File articles of incorporation under the state's cooperative statute, adopt bylaws, issue membership certificates. Some states have specific cooperative corporation laws.
Ongoing Compliance
File Form 1120-C annually, hold member meetings, distribute patronage dividends based on use, maintain cooperative records.
- Democratic control (one member, one vote)
- Profits distributed based on use, not just investment
- Pooling of resources for member benefit
- Can qualify for special tax treatment
- Complex governance (member voting, board, management)
- Harder to raise outside capital (no traditional stock)
- Slower decision-making than other structures
- Limited state-specific guidance compared to LLCs and corporations
Agricultural producers, credit unions, housing co-ops, food co-ops, and worker-owned businesses where democratic control and benefit-sharing are core values.
- •Form 1120-C (Cooperative Return)
- •Form 1099-PATR (Patronage Dividends)
See our Tax Forms reference for details on each form.