6 BULLETIN 541, U. S. DEPARTMENT OF AGRICULTURE. 



DIFFERENCES BETWEEN NONSTOCK AND STOCK FORMS OF 

 ORGANIZATION. 



The stock form of organization is the most common, but as this 

 type does not meet the requirements of section 6 of the Clayton Act, 

 added importance is given to the nonstock form, as far as agricul- 

 tural associations are concerned. A fundamental difference be- 

 tween the two forms of organization is that, in one, stock must be 

 purchased before a person is entitled to membership, while in the 

 other it is customary to require a membership fee only. 



In the stock form, there is no doubt about the financial interest 

 of each member in the organization, while in nonstock organiza- 

 tions such interest can not always be so easily ascertained. When 

 the necessary capital is secured exclusively by means of a member- 

 ship fee, there is little difficulty in this particular; but if the money 

 be obtained by levying assessments on the members in proportion 

 to the business done for them by the association, it is impossible to 

 know what each member's interest is unless complete records be 

 kept. 



The ordinary stock corporation distributes its profits in the shape 

 of dividends on its shares of capital stock, while, in a truly coopera- 

 tive organization having capital stock, any surplus to be divided is 

 distributed, by first paying upon the capital stock a sum which 

 represents a fair rate of interest on the money invested, and then 

 dividing the balance in the form of what has been popularly called 

 "patronage dividends," the latter distribution being based upon the 

 amount of business transacted for the members by the organization. 

 As a concrete illustration of these two methods, the following may 

 be used: If a stock corporation with a capital of $5,000, divided into 

 50 shares of $100 each, does a business of $100,000 and accumulates a 

 surplus of $1,000, above expenses and what is necessary for maintenance 

 and reserve funds, a dividend of 20 per cent may be paid on each 

 share; that is, every stockholder may receive $20 for each share he 

 owns. If this organization operates on the cooperative plan, it will 

 pay a dividend which is equivalent to a fair rate of interest, say 6 

 per cent, on the capital invested in its stock, amounting to $6 per 

 share, or a total of $300 in the form of interest, and then distribute 

 the remaining $700 in the form of so-called "patronage dividends," 

 amounting to 70 cents on every $100 of patronage. Nonstock 

 organizations formed in accordance with the requirements of section 

 6 should distribute savings on a ratable basis of patronage. 



Another common difference between the ordinary stock form and 

 the nonstock form of organization relates to the voting power of 

 the members. In the former it is customary to allow each member 

 to vote according to the number of his shares, while in the latter all 

 members have the same voting power. However, it should be 



