Understanding Your Internal Capital Account (ICA)
ICA's are special accounts that every Obran Member receives when they join the cooperative.
Last updated
ICA's are special accounts that every Obran Member receives when they join the cooperative.
Last updated
When you first sign up to become an Obran Member you will either make a one-time purchase of a Patron Member Share or decide to take deductions from your pay to finance the purchase. In either case, your Membership Agreement will spell out the terms you choose. You will receive a member number, which is your proof of ownership. You will use your member number to cast your vote in cooperative elections, among other uses.
Unlike stocks you might buy (say on Wall Street) Obran's Member Shares are fixed (ie never change) in value. This means that all shares are worth $250 when they are purchased, and will always be worth $250. Each Member can only purchase one share. These funds are accounted for and viewable in the Member Center and within the cooperative's balance sheet, which is distributed to every member at least once per quarter.
Just like any healthy and growing business we need to make sure we invest some of our surplus (profits) into growth. This is both to fuel our core value of innovation but also to make sure we are in a strong economic position in case of a bad year. We call these funds our "Undivided Reserve". Every year the Board of Directors comes together to set a target for how much the cooperative will need to contribute to build or maintain its undivided reserve. The board also sets a target for how much it will distribute to members as Patronage rebates or member profit share.
You can think of your member internal capital account like a credit union savings account with super powers. These super powers include allowing you to credit (put money into) and debit (take money out of) your account, as well as participate in sharing the profits and losses of the cooperative. Any money in your internal capital account is considered member equity. Account balances are accounted for and viewable in the member center and on the cooperative's balance sheet.
You can think of your member internal capital account like a credit union savings account with super powers.
In addition to the purchase of a membership share, all members are required to deposit at least 1% of every paycheck into their Internal Capital Account. These deposits are your contribution to the total equity of the cooperative and are used to grow the enterprise, which in turn grows profits and creates new benefits. When you sign up for membership, you may also elect to deposit more than 1% per paycheck. While the cooperative generally borrows money to fund acquisitions and operating needs, this pool of capital account cash from its membership provides a flexible base of operating cash without ongoing financing payments. This is both an expression of solidarity, as well as a means of financing more creative work of the cooperative, such as helping members save for unexpected or major expenses.
It is important that every member understand the risks associated with contributions made to Internal Capital Accounts. While the cooperative maintains these accounts in FDIC Insured Banks, some portion of your balance (generally no more than 20%) will be subject to restrictions for withdrawal.
In all cases, to stay in good standing with the cooperative your internal capital account cannot dip below $250. This minimum balance is only accessible to you if you wish to leave membership.
Otherwise, while the funds in your capital account, pooled with those of the other members, provide meaningful and flexible operating cash to the cooperative, they belong to you, and you may request a withdrawal of any amount of the surplus balance above $250 at any time by contacting the Money Ops team. The cooperative has up to six months to fulfill this request in order to navigate any temporary cash constraints. However, generally the cooperative makes best efforts to distribute these funds with your next paycheck. The cooperative maintains a reserve of capital account funds at all times to support the timely fulfillment of these and other capital account transaction needs.
As a conglomerate corporation, the cooperative operates a diversified portfolio of businesses. At the end of the year, we account for all profits or losses within the cooperative's businesses and share them across all Members' internal capital accounts based on their portion of the total hours worked.
As an example of how this works:
If the cooperative made $1000 in profit and during that year had 5 members who each worked the same amount, each member would receive the same contribution to their internal capital account.
Member 1 worked 2000 hours = $200 or 20% of Profits
Member 2 worked 2000 hours = $200 or 20% of Profits
Member 3 worked 2000 hours = $200 or 20% of Profits
Member 4 worked 2000 hours = $200 or 20% of Profits
Member 5 worked 2000 hours = $200 or 20% of Profits
If the cooperative made $1000 in profit and during that year had 5 members who worked different amounts, they would each get their fair portion of the profits contributed to their internal capital accounts:
Member 1 worked 1000 hours = $213 or 21.3% of Profits
Member 2 worked 700 hours = $148 or 14.8% of Profits
Member 3 worked 1500 hours = $319 or 31.9% of Profits
Member 4 worked 500 hours = $107 or 10.7% of Profits
Member 5 worked 1000 hours = $213 or 21.3% of Profits
Every year the cooperative accounts for its income and expenses and allocates a percentage of the net income to our membership in the form of patronage rebates. The cooperative also has the ability to pay those rebates in the form of Written Notices of Allocation.
Because of the preferential tax treatment cooperatives have under Subchapter T, we are able to change our corporate tax rate to reduce the cost of business reinvestment and growth. While we are taxed in the same way as a traditional corporation on earnings we retain collectively (our undivided reserve), earnings allocated as member patronage through written notices of allocation (and not as cash) are effectively reinvested in the business tax-free on a temporary basis.
Through paying lower taxes, we are able put more of our earnings back in the business, which creates an opportunity to fuel growth in the short run to a greater extent than would be possible for a traditional corporation. Of course, allocating earnings as patronage, and not collectively, also creates a future refund obligation that is important to manage.
Internal capital accounts are one of the primary ways the cooperative shares financial value back to our members. This benefit is meant to help us live out our values of balance and solidarity! Annually the cooperative's Board of Directors sets a minimum target amount of cash reserves that the cooperative must maintain in the case of emergencies and to fund any payout request from members.
