Patronage refund is the name for how co-ops send profits back to their owners. Essentially, each owner gets back part of the profit from their own purchases.
Co-ops are distinctive businesses based on cooperative ownership. While owners purchase equity shares, the profits are not distributed based on how many shares are owned. Co-op profit is distributed based on how much each owner spends at the co-op; that is their patronage.
VFC finds the food and other products that our owners want and sets prices to cover the costs of providing them in a retail store. Every owner purchase is recorded when you use your owner number. Those records are the basis for the patronage refund in profitable years.
Surplus from Owner Sales Belongs to the Owners
Food Cooperatives enjoy a privileged status and can return the profit to the owners as patronage refunds that are tax free to both the co-op and the owners. The cooperative can distribute the patronage refunds to each owner as cash or retain a portion as additional investment in the business.
The board of directors looks at the financial performance each year, considers the co-op's financial position and plans for the future. They decide what portion to pay as cash.
Co-op shares differ from stock in other kinds of businesses. They do not gain or lose value, they cannot be traded and they do not increase owner voting power. The non-voting shares are how we record who the Co-op assets belong to.
Who is Eligible
To be eligible for a patronage refund, an owner must have shopped as an owner in good standing during the fiscal year (July 1-June 30).
IRS rules require that at least 20% of a patronage refund be distributed to owners in cash. This year the entire $40,000 patronage refund declared by the Board of Directors will be distributed in cash to owners who have purchased enough product to have earned at least $5. In future years, at the discretion of the BoD, up to 80% of the declared refund may be retained by the Co-op and held in the owner’s name.