Capital management in cooperatives: a balancing act
Cooperatives are based on an accessible business model that has proven its flexibility in a multitude of contexts. Of course, we can think of the big cooperative organisations like Desjardins, Sollio or Agropur; but these big players started from the ground up by pooling human, financial and technical resources to meet the needs of a group, a community or a few entrepreneurs. This is how the law defines these enterprises: a cooperative is a legal person made up of persons or companies who have common economic, social or cultural needs and who, in order to meet those needs, join together to operate an enterprise in accordance with the rules of cooperative action.
In addition to the aforementioned flagships of the Quebec economy, there are a number of cooperatives of varying sizes that continue to drive the development of the Quebec economy.
Current events are a constant reminder not only of the importance of cooperatives in the fabric of the Quebec economy, but also of their usefulness and relevance. Whether it's the debate over regional aviation services, the sale of local goods and services or business succession, cooperative enterprises respond to a wide range of issues.
However, these companies must meet financial requirements to ensure their long-term survival. Members must invest a certain level of capital for which they can expect a certain return. This capital, subject to certain restrictions, can be held in a Registered Retirement Savings Plan (RRSP) and qualify for tax benefits under the Co-operative Investment Plan (CIP). However, these tax programmes have their own requirements and constraints. In addition, the commercial transactions that members carry out with their cooperative may entitle them to a member dividend. Finally, the financial institutions that grant credit to co-operatives also have their requirements.
Co-operative managers must therefore strike this difficult balance between maximising member benefits, complying with the requirements of financial institutions, managing tax programmes and general tax compliance, and ensuring the long-term development of the business.
Here are some questions to ask:
What patronage refunds can be paid?
Has the tax deductibility of patronage refunds been optimised?
Has the repayment of capital for outgoing members been planned?
Have the tax requirements of RRSPs or RRIFs been met?
Is holding through an RRSP relevant for all members, where appropriate?
How can the use of the ICP be optimised for members?
Does the co-operative have a development project, such as a significant investment or business acquisition, that will require a certain level of capital?
What level of capitalisation is required?
Do the general by-laws reflect the co-operative's capital management guidelines?
Mallette's team of multidisciplinary experts will guide you through all these issues and help you make the best strategic decisions for the benefit of both members and the cooperative.
Don't hesitate to contact us.
DOLBEAU-MISTASSINI
Vincent Duguay, CPA auditor | [email protected]
LA POCATIÈRE
Jessy St-Onge Lemieux, CPA auditor | [email protected]
LÉVIS
Alain Fortier, FCPA auditor | [email protected]
Nadia Rhéaume, CPA auditor | [email protected]
MONTMAGNY
Patricia Deschênes | [email protected]
SAINT-HYACINTHE
Audrey Leblanc, CPA auditor | [email protected]
Claire Picard, CPA auditor | [email protected]