This thesis, although dealing specifically with Oregon Agricultural
cooperatives, has significance for agricultural cooperatives on
a national basis when discussing equity financing.
The central issue is whether a patron may in effect transfer
his cooperative equity holding to another person without impairing
the total function of the cooperative? To answer this question
it is necessary to further define the nature of cooperative equities
and also provide clearer information into the legal, tax, accounting
and operational techniques used in cooperative equity financing.
This study examined cooperative bylaws which make specific
references to the handling of equities including transfers under
different circumstances.
The Internal Revenue Code provisions and specific IRS rulings
with regard to equity issuance, transfer and redemption are dealt
with in depth and summarized into probable tax consequences.
Securities regulation with respect to cooperative equity allocations
are also examined. Existing statute and regulation as well as
proposed reforms are reviewed and summarized.
Alternate methods of equity transfers are then identified and
analyzed with respect to cash flow and taxation.
Alternate methods of equity transferability are identified
and thoroughly analyzed with respect to taxation, investment opportunity
and cash flow. Comparative illustrations are utilized to present
differences in holding various equities versus transferring equities
at a discounted value given assumptions of tax rates, investment
opportunities, revolving periods, etc.
In conclusion, a number of decision criteria must be considered
prior to evaluating a program of equity transferability which are as
follows:
1) Cash Needs of Patrons - Cooperative patrons generally have
a need for on-farm capital and may face a substantial
opportunity cost in holding equities.
2) Distribution of Equity Holding - Certain patrons may be
personally well-capitalized and willing to finance equity
holding while undercapitalized patrons, former patrons,
and estates of deceased patrons may seek to redistribute
equity holdings.
3) Establishment of a Market - Methods and standards of equity
valuation in transfer which could be established in a
market may lead to both beneficial and costly effects for
the cooperative and patron in both the long and short term.
4) Cooperative Benefits - A number of benefits accrue to the
patron through operation of a cooperative such as the
effect on the market structure, economies of scale, farmer
participation in ownership and control, etc. These
benefits should be understood and evaluated when considering
tradeoffs caused through potential costs associated with
equity transferability.
5) External Considerations - Perhaps the most important single
factor is the effect of costs associated with potential alteration
of government control or regulation of cooperative
taxation, securities regulation, and marketing practices.
Recommendations in the area of equity transferability are intended
to improve cooperative service and response to cash needs of patrons
while limiting cooperative exposure to adverse or costly regulation.
It is suggested that a judicious program of equity transferability
may be feasible for "tax-exempt" (as defined by I.R.S.) cooperatives.
Cooperative bylaws and operating procedures should be reviewed
to assure the handling of transfers, the scope of transferability,
the rights of non-patron equity holders, and adequate disclosure of
information meets the approval of directors and/or legal counsel
in limiting potential problem areas.
Consideration is also given to alternate capital programs and
methods of equity distribution which may meet both cooperative and
patron goals. / Graduation date: 1978
| Identifer | oai:union.ndltd.org:ORGSU/oai:ir.library.oregonstate.edu:1957/25969 |
| Date | 18 May 1978 |
| Creators | Valpey, John Richard |
| Contributors | Reeder, Clinton B. |
| Source Sets | Oregon State University |
| Language | en_US |
| Detected Language | English |
| Type | Thesis/Dissertation |
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