In case of productive associations, such as co-operative creameries, or elevators, dividends have to be paid on raw materials delivered. In case an association is both a selling and productive enterprise, the dividends may be divided on both goods purchased and material delivered. All concerns which do not comply with the provisions of the above law are prohibited to use the term "co-operative" as a part of their corporate name or the designation of their business.
According to the Nebraska law, Senate File No. 88,
the words "co-operative company, corporation, or association" are defined to mean a company, corporation, or association which authorizes the distribution of its earnings in part or wholly on the basis of, or in proportion to, the amount of property bought from or sold to members, or of labor performed, or other service rendered to the corporation. A co-operative concern has the power "to regulate and limit the right of stockholders to transfer their stock, and to make by-laws for the management of its affairs, and to provide thereon the term and limitation of stock ownership, and for the distribution of its earnings."
The California law, Civil Code, Secs. 653M to 653S, provides for organization of agricultural, viticultural, and horticultural co-operative associations which shall not have a capital stock and shall not be working for profit. Each such association shall determine by its by-laws the amount of membership fee, the number and qualifications of members, conditions of voting, the methods of business, and the division of earnings.
There is no question that every state must have special legislation for co-operative associations quite distinct from that relating to private business concerns. A co-operative association must have the legal power to regulate and limit the right of shareholders to transfer their shares, to make by-laws for the management of business, to limit the share ownership, to decide on the proportion and method of distribution of its surplus earnings. It must limit dividends on shares to the prevailing rate of interest and provide a certain percentage for a reserve fund until the latter has accumulated up to a certain proportion of the capital invested. A part of the remainder should be retained for educational and other social-welfare purposes, the rest proportioned to the amounts of goods purchased, products contributed, or services rendered. The co-operative law should provide for one-member-one-vote. Irrespective of the number of shares owned, or the goods purchased, or the products contributed, or the services rendered, only one vote should be granted to each member.