Hello there,
Just joined, after all these years of being in a workers co operative!
Curious to know if anyone might share their equation for distributing dividends between members of their Co Ops? We are member/worker owned and there are currently 8 of us and 2 employees.
Also, how you decided whether or not to distribute divi’s.
Thanks! And look forward to reading all the other posts!
@richard-rowley might be able to say how Agile Collective do this?
Hi, jumping in to say I’m also curious about this! Working towards developing a cooperative, so would love to hear other peoples experiences.
In my experience most worker co-ops don’t use dividends much. They tend to distribute surplus through wages and reinvest/ donate the rest.
Dividends can be useful conceptually (separating ownership from labour), but they’re often more complex and not especially tax efficient because they happen after corporation tax is paid.
In terms of how co-ops tend to distribute benefits, like dividends or wages, there isn’t a consensus - with dividends I’d assume most groups do it based on hours worked, some would do a flat distribution and others do an equity based approach
Its complicated!
Caleb is right that dividends are “paid after corporation tax is paid” in the sense that they are a direct distibution of retained earnings. Earnings which you’ve (probably) already paid corporation tax on. This is in contrast to a “bonus as wages” which “hits” the profit and loss account before tax (as an expense). A dividend is not an expense - its a reduction in retained earnings 
However if a co-op - say - made a loss in a year but had massive reserves/retained earnings, then they could finance either a dividend or a bonus through wages. In that case - both methods of distributing profit would be paying “profit after tax”. Because really you are just distributing money you’ve kept. Money which the government has taxed for the right to keep it.
What co-ops/companies often do with “bonus as wages” is pay them such that it reduces their coroporation tax bill for the year - sometimes to nil. They would especially do this if they already had enough reserves in the coffers i.e they are already loaded.
I’ve seen co-ops pay a mix of “bonus as wages” and dividends to members. Why would they do this? Because for the individual receiving either, they have different tax impact. Paying dividends isn’t particuarly complicated. Income tax rates (bonus as wages) is different (higher) than dividend tax rates. Why would that be? Some say its because our economy is designed to privilege holders of equity (shareholders) to the detriment of workers.
Everybody’s tax position is different and what is more tax efficient for one person member is not tax efficient for another member. There is no one-size-fits-all answer to whether to distribute profit as dividends vs wages.
On the subject of how to divvy things up - it can’t hurt to go back to this classic banger from the ICA:
*Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
*
Cooperative identity, values & principles | ICA
In other words, as stated previously, members could be paid bonus or dividends based on hours worked (in proportion to their transactions with the cooperative). In a “traditional company” the starting point for what level of dividends is paid, would be that person’s shareholding. More shares = more dividends. But in many (but not all) co-operatives, each member owns the same value of share, £1!
Hi, sorry for radio silence and thank you so much for your response!
We actually do distribute dividends to members, only if we’ve made a profit. We also inject money back into the Co Operative, plus have a Community 1% Fund where we donate up to £500 to a chosen charity. We are still on a very basic wage and dividends are certainly not a given.
It’s interesting to hear others views on this. Our Co Operative has been running for 41 years now and we’ve pretty much always paid divi’s the same way.
I just want to caveat my post by saying that the situation with dividends turns significantly on whether a workers co-op is a company or a co-operative society.
The above scenario I described is really “for companies”. A key point is that company dividends are not tax deductible. However - for co-ops which are co-operative societies, what are often called “dividends” are a really a “cost of capital” ie discretionary interest on shares. Why is that important? Well because share interest is tax deductible.
Its therefore possible for co-ops who have been incorrectly treating share interest to resubmit amended tax returns and get significant tax refunds.
if you think this applies to you then DM me or email me at jed@tsa.coop
NB: Co-ops UK are publishing updated guidance on this soon that TSA were involved in. When they do, I’ll post it here.
Hi Jed,
Thanks for the response!
We are a limited company Co Operative. We’ve always shared dividends (when we’ve decided we can). We work on a living wage, which is equal for every member that works with us. And then, we gain dividends. BUT, as you say, they are tax deductable so we have to pay tax on them if they are over something ridiculous, like £500 (can’t remember the exact amount now, as it changes).
Good to know that Co Ops UK are publishing guidance that’s in keep with the now. I’ll keep my eye on that, as we are members.
Many thanks!
Hi Ellie,
Exciting times for you! What will you be doing?