Partnerships between Co-ops and Nonprofits

Guest post by Luis Sierra of California Center for Cooperative Development

Nonprofits that are exempt from federal tax under Internal Revenue Code Section 501(c)(3) must engage in activities that can be characterized as charitable, educational, or religious.  Nonprofits can give money to needy individuals or to other nonprofits, but not to other kinds of organizations.  Because cooperatives are not tax-exempt nonprofits, a nonprofit giving money to a cooperative business would not be an activity allowed by the IRS.  Nonprofits can, in some cases, do work that might be beneficial to cooperative such as educational activities that teach people how to start and run a cooperative.

There are some examples of cooperatives that are associated with a non-profit in a way that meets legal requirements.  Mandela Marketplace is a nonprofit and Mandela Foods Cooperative is a worker co-op operating a grocery store in Oakland.  The nonprofit receives grants and donations and they in turn provide job training to future potential members of Mandela Foods, nutrition education for the general community, and do other projects like find minority farmers for Mandela Foods to purchase products from, and other work associated with addressing food desert or community food security problems.  The activities that Mandela Marketplace conducts are under the realm of job training for low income residents, nutrition education, and technical assistance for low income socially disadvantaged farmers, and these are legitimate activities of the nonprofit which also happen to benefit the cooperative.

Members of the Lake County Community Co-op formed a nonprofit called CREATE.  The Co-op distributes food to its member-owners through an online market.  CREATE runs a community garden, farmers’ markets, and nutrition education programs.  The activities that CREATE conducts are in the realm of supplemental nutrition assistance and nutrition education.

An added note from Jenny Kassan:

Note that nonprofits are allowed to contract with for-profit organizations for services such as printing, legal services, conducting workshops, etc.  The only limit on this is that they should not pay above fair market value for these services (and research that shows they are not paying above fair market should be documented) and if there is a relationship between the nonprofit and the for-profit, conflict of interest policies should be followed (e.g. if someone on the board of the nonprofit is also on the board of the for-profit, that person should not participate in the decision to hire the for-profit).  So a nonprofit could receive a grant and pay it to a co-op for goods or services such as conducting workshops, rent, meeting supplies, etc.

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