Some Agricultural Cooperative 
Principles 
In carrying out the one objective—to help 
farm families—the following fundamental prin- 
ciples of non-profit cooperatives are recognized 
and adhered to: 
1. Human rights are superior to property 
rights. The member has one and only one 
vote, regardless of the number of shares of 
stock held in the organization. 
2. Use of the organization is on a voluntary 
basis. 
3. Returns on invested capital are limited. 
4. The operation is conducted on a non- 
profit basis. Net savings or margins are 
returned to users in proportion to their 
patronage. 
5. Members and non-members are treated 
alike. 
6. Full and complete information is made 
available to members and to the public. 
Agricultural cooperatives are usually in- 
corporated under different laws than those that 
govern other businesses. Southern States 
Cooperative is incorporated under the Coop- 
erative Marketing Act of the State of Virginia. 
The law contains provisions for the protection of 
members and the general public and the required 
adherence to cooperative principles and non- 
profit operations. The basic requirements of the 
Federal and state cooperative statutes are set 
forth below: 
1. A true farmer-cooperative must operate 
on a non-profit basis. No profits can be 
realized by the cooperative corporation as 
such. Any net margins over operating 
expenses, after reasonable and necessary 
reserves, belong to and must be returned 
to those who use the institution and in 
proportion to the use made of the or- 
ganization by each person. These returns 
are called patronage refunds. 
bo 
. A true farmer-cooperative may have as 
members only producers of agricultural 
products. 
3. A true farmer-cooperative must do at 
least 50% of its total business with mem- 
bers. 
4. A true farmer-cooperative must conduct 
at least 85% of its total business with 
agricultural producers—actual farmers. 
5. A true farmer-cooperative can pay only 
limited interest on capital. In the State 
of Virginia dividends on capital are limited 
by law to 6%: by Federal law to 8%. This 
means that Southern States cannot pay 
any stockholder more than 6% per annum 
for the use of his money, while in pro- 
prietary (private) business a person may 
receive unlimited dividends on his stock 
investment. 
6. In a true farmer-cooperative the member 
has but one vote. Stock does not vote. 
In proprietary (private) business a person 
has as many votes as the number of shares 
he owns. This cooperative provision for 
“one-man, one-vote” control makes for 
real democracy. 
Organizations that can conform to these basic 
principles, along with other legal requirements, 
are true farmer-cooperatives and are exempt 
from Federal income taxes for the simple reason 
that the cooperative can have no income for its 
own account. 
