QUESTION DETAIL
Related User
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I'm working with a client who is starting a new business. She has registered the business as an LLC with the Virginia State Corporation Commission. She wants the business to be a workers owned cooperative where each "employee" is considered an equal owner and compensation is equal as well. The cooperative does not intend to make its customers members as in a farm cooperative. Are there any tax implications for this "worker's owned cooperative"?
ANSWER
The BIDaWIZ Team's Answer:
Typically, for tax purposes a cooperative is treated as a pass through entity in which the profits and losses are distributed evenly to each user-owner. Thus, the cooperative does not pay taxes at the federal level. What specific type of cooperative is the client setting up? Please note that cooperatives are governed by Section 26, Chapter 1, Subchapter T of the Internal Revenue Code.
Expert Carlton Melton's Answer:
Just to followup on the prior response, without having more information it is difficult for me to be very specific with my answer. With that said, it appears that the worker-owned cooperative will be taxed in a similar fashion to a traditional LLC. Each employee will be taxed on their earned wages, and each owner will be taxed on his/her distributive share of the cooperative's net income. Consideration should be given to the patronage rules regarding cooperatives, as well as special rules that could possibly apply if any one of the owners ever sold their stock in the LLC.
