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2°26 BULLETIN 1392, U. 8. DEPARTMENT OF AGRICULTURE 
NONSTOCK, NONPROFIT FORM 
All of the associations are organized on the nonstock, nonprofit 
plan—a plan that many consider truly cooperative and peculiarly 
effective in maintaining unity of interest and producer control. 
Other factors influencing the adoption of this form were (1) legal 
expediency, and (2) the ‘necessity of using a plan that would facili- 
tate rapid and large-scale organization. 
Under this plan of organization, which meets the requirements of 
section 6 of the Clayton “Act, the Capper- Volstead Act, the uniform 
cooperative-marketing act that is now in effect in whole or in part 
in 87 States, and other State acts legalizing such associations, cot- 
ton growers who join the associations receive nontransferable mem- 
bership certificates. ach member has one vote. There is no stock 
on which to base voting power, or on which to pay dividends, and 
there are no profits to distribute. Operations are, therefore, con- 
fined in purpose to rendering service and effecting savings for 
members. 
Each member receives the average sale price of his pooled cotton 
less freight, insurance, interest, and deductions to cover his pro rata 
share of other marketing and overhead costs, including deductions 
for reserves. 
RESERVES 
The primary purpose in creating and maintaining a reserve is to 
provide financial stability, and to have funds available for meeting 
losses or for other direct or collateral requirements. Not only is 
it advisable to have such a fund available in a nonstock organiza- 
tion in the event of impaired price levels or other adverse conditions 
beyond control of the organization, but also to assure the payment 
of claims arising in its ordinary business transactions. The mill 
trade desires to buy cotton from merchants or shippers who have 
large assets, or at least sufficient assets to cover all reasonable claims 
for refunds. The existence or nonexistence of such a fund also 
affects the credit standing of an organization with financial insti- 
tutions and agencies. 
The associations provide for reserves by authorizing the deduc- 
tion of a certain percentage of the gross proceeds from “sales of cot- 
ton each season. The maximum amounts that may be retained for 
‘this purpose by the different associations in any season range from 
1 to 5 per cent, with 2 per cent the limit in most cases. Inasmuch 
as it has been the policy to make net returns to members as large 
as possible, the actual deductions have ranged from 0.5 to 2 per cent, 
with 1 per cent the amount retained by 10 associations. ‘The North 
Carolina and Mississippi Delta associations issue interest-bearing 
certificates to members for the amounts deducted. The others do 
not issue certificates, although a few pay interest at the end of each 
year at the rate of 6 per cent per annum. 
The associations have title to the reserves, and the use made 
thereof is controlled by the boards of digectors, Members have an 
equity in the reserve, in the event it is distributed, in proportion 
to the amounts deducted from their accounts; but directors control 
the time and conditions of distribution. The Staple Cotton Co- 
operative Association provides in its new contract for the im- 
mediate retirement of all advance fund certificates issued to mem- 
