Solicit expert advice about security regulations before moving far in issuing any significant number of shares of stock and shares with a significant par or face value. The most common source of capital for all types of business firms is profit generated from internal operations. Cooperatives, while making no profits, can accumulate surpluses or net savings, other names for profits. Income taxes must be paid on such surpluses. It is not sound for a cooperative to use such a method extensively for securing capital, as it violates a basic cooperative principle.
Many cooperatives use the approach of tax paid surplus as one method of getting some capital.
Some cooperatives keep no earnings derived from member business but strive to make a profit on non-member business, pay taxes on the earnings and allocate the remainder to the capital account. Be careful to always have member business as the primary goal, or again it becomes something less than a true cooperative. An estimate is made of operating costs for some future period which is then prorated equally among all members. It is not a solution to long-term equity capital, but it does help build operating capital. Steps in organizing a co-op Do not rush organization.