FAQs About MEC and Co-ops
What is a co-operative?
A co-op is a democratically owned business structure in which members pool their resources to obtain a benefit.
Anyone can join MEC by buying a $5 membership share (called a subscription share). It allows you to purchase goods, vote on how the Co-op is governed, and further the Co-op's mission. Because voting is based on one vote per member, no single member can hold more influence over the Co-op than any other, and all members enjoy the same rights and privileges. The value of the subscription share is always only $5. Since each member is an owner and new members can always join, the benefits of ownership are not restricted to a limited group of individuals.
How are co-ops different from corporations?
Corporations are owned by shareholders. While the term "shares" also applies to co-ops, the way they are governed is different. In publicly-traded corporations, share values are based on what the market believes they are worth. Shareholders can buy and sell their shares. Voting is generally based on one vote per share. In privately held corporations, shares are held by investors, though not traded on the stock market.
Corporate shareholders expect the value of their shares to increase over time and to return money to them. Therefore, corporations are managed with the goal of maximizing annual profits to pay increasing dividends year over year which, in turn, leads to increasing share prices. The price on an MEC share has remained $5 since 1971.
Does MEC make a profit?
Yes, MEC is a healthy business and is profitable. However, like all co-ops, its reason for existence is not to make profit, but to provide benefits to its members.
At the end of the year, after we pay our suppliers, employees, and our operating costs, we return any surplus to our members in the form of patronage shares.
The Rules of Co-operation specify how the Co-op conducts its affairs. In Rule 5, MEC's members decided that patronage dividends can be used to fund the business, can be donated for charitable or educational purposes, or returned to the members in the form of share redemptions. Each year the Board determines the financing needs of the Co-op. When affairs are sound and the organization is adequately funded, the Co-op buys back patronage shares from its members' accounts and returns money to the members.
Does MEC pay taxes?
Yes, MEC pays capital taxes and municipal property taxes.
MEC also pays corporate income tax on any earnings left at the end of the year. MEC's corporate income tax is calculated earnings that remain after a patronage shares are allocated to members. When MEC declares a patronage dividend, its taxable income is almost zero.
MEC is a big business, unlike many small co-ops. Shouldn't the government change legislation to force it to pay tax?
MEC operates within the law and fulfils its regulatory obligations as a co-operatively owned business. If the legislation were changed to require co-operatives to pay income tax on earnings before patronage returns are deducted, MEC would, of course, change its practices accordingly.
MEC is certainly a great success story in the Co-operative movement. We are the largest retail co-operative in Canada in terms of membership. In 2007, we expect sales of about $250 million. This represents a lot of satisfied members sharing the benefits of their collective purchasing power.
Shouldn't MEC choose to pay tax and return less money to its members?
That's a question that has to be determined by the membership itself. So far, they have directed the Co-op to retain the money in members' share accounts.
The main reason for this is because it is a cost-effective way to reinvest in the business. Unlike publicly-traded corporations, MEC has limited access to capital other than debt, which can be costly. Corporations can offer additional shares for sale, raising new capital through the sale of equity in the company. At MEC, ownership is established through the sale of $5 membership shares and there are no equity shareholders in the traditional sense.
How does MEC support the community other than by paying taxes?
MEC is responsible to operate in a financially sound manner on behalf of its members (its most immediate community) and in accordance with co-operative principles. We also feel it is our responsibility to conduct our operations in an environmentally and socially sustainable manner, support community groups that are aligned with our members' values, and promote corporate social responsibility and co-operative business structures.
MEC demonstrates what can be done through collective democratic ownership. Despite our size and scope, we are still governed by one vote per member. No member has a larger or smaller influence over the company, and no one extracts personal equity from the actions of the company. As always, membership is open to anyone who buys a share.