26 BULLETIN" 1414, U. S. DEPARTMENT OF AGRICULTURE 



ORGANIZATION EXPENSE 



The expense of organization is legally an obligation of the in- 

 corporators of a cooperative association. It is, however, universally 

 the custom for the newly formed corporation to assume this expense. 

 Organization expense is usually met by the collection of a member- 

 ship fee from each member at the time he joins the association, or 

 by the sale of capital stock, if the association is incorporated with 

 capital stock. Occasionally a loan is made for the organization of 

 a cooperative association by interested business men, banks, or other 

 agencies. Frequently, in such instances, the expenses of organiza- 

 tion are refunded over a period of years by deductions from the 

 sales made through the association. This last method has the dis- 

 advantage of embarrassing the management with a deficit at a time 

 when a careful check on expenditures is most necessary. Other 

 things being equal, a new organization should plan to meet organi- 

 zation expense through fees or stock subscriptions. 



PERMANENT INVESTMENTS 



The extent of the permanent investments of a cooperative asso- 

 ciation depends upon its size and the nature of the business in which 

 it proposes to engage. Keal estate, packing plants, packing equip- 

 ment, storage warehouses, office buildings, and equipment represent 

 the most usual permanent investments of fruit and vegetable asso- 

 ciations. The possibility of hiring or leasing such plants or equip- 

 ment is a factor to be considered. 



Associations formed with capital stock as a rule plan to finance 

 permanent investments, in part, by the sale of the common stock of 

 the association. When the amount raised in this way is insufficient, 

 an issue of preferred stock is sometimes offered to investors. The 

 holders of preferred stock, as the name implies, have a prior equity 

 in the assets of the association over the holders of common stock. 

 They are not entitled, howeA^er, to a voice in the management of the 

 enterprise, except in some States under special conditions. The divi- 

 dend paid on preferred stock is at a previously determined rate. 



The average fruit and vegetable association, however, usually 

 adopts the jDolicy of applying the proceeds from the sale of com- 

 mon stock among its members to the financing of fixed investments, 

 and negotiates a loan for the additional capital necessary. The 

 creditors of the organization are secured by a mortgage, or trust 

 deed, on the property. If this is considered insufficient security, the 

 directors may be requested to add their personal indorsement to the 

 association's note. This is an assumption of financial responsibility 

 that is unfair to the individuals concerned. Some method should be 

 devised under these conditions, to make all members equally re- 

 sponsible for the liabilities incurred by investments in fixed assets. 



The most satisfactory solution of this problem is to insist on in- 

 vestment in the enterprise by all the members. That will give it 

 sufficient stability to finance investments in permanent assets by a 

 corporation note secured by a mortgage on the property involved. 

 No enterprise dependent upon the personal credit of a few individ- 

 uals connected with it can be said to be on a stable basis. 



