The CNL enables the incorporation of two categories of co-operative13:
- Distributing co-operatives (with a share capital), and
- Non-distributing co-operatives,
- with share capital
- with no share capital.
- As the name suggests, a distributing co-operative may distribute dividends or rebates based on share capital or on patronage (business done by the member with the co-operative). Distributions will be based upon the co-operative achieving an operating surplus or profit, or there may be a distribution of surplus assets if the co-operative is wound up.
- A non-distributing co-operative may not distribute surpluses or assets to members either during its life or when it is being wound up.
- Non-distributing co-operatives meet the definition of ‘not for profit’ as set out in Australian taxation legislation. If a non-distributing co-operative has a charitable purpose, then it may also be able to be registered as a charity.
If the non-distributing co-operative has share capital, any shares issued to members cannot carry a dividend, although shareholders may be entitled to services from the co-operative as members, and may be entitled to rebates as a result of their transactions with the co-operative. These co-operative types can issue shares to members to raise capital, and these shares may be withdrawable, thereby providing interest free capital for the co-operative’s activities.
A non-distributing co-operative without share capital will not be able to issue shares to raise capital.
All co-operative types can issue other securities such as debentures and Co-operative Capital Units (CCUs) that carry an interest payment.
The ability to issue shares, pay dividends, interest or rebates will be important in considering what type of co-operative will best serve the interests of a particular community.
A co–operative formed to establish a craft beer brewery could be incorporated as a non–distributing co-operative. Shares in the co-operative would not carry a dividend, however, members would benefit from the provision of services such as discounted products or events. The non–distributing co–operative form is frequently used by sporting or other interest focussed clubs, such as ski clubs, where capital is required to set up the enterprise, but the overwhelming purpose is to provide a service, such as accommodation at the ski club lodge.