What patronage shares mean

Co-operatives must reward members who work harder on the co-operative’s behalf and deal with members who try to get away with the least amount of work.

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The Zulu words for patronage are ukwengamela and ubutholi. In a co-op, the patronage proportion is the proportion of the value of the transactions conducted by a member with or through the co-op in relation to the value of the transactions conducted by all the members during the same period. Patronage support is an element of the Co-operatives Act that makes the legal entity of a co-op different from that of a company or close corporation. It allows those with little or no financial means to contribute to the business and benefit from their participation.

Patronage could take the form of financial support (trading), commodity support (produce supplied to the co-op for re-sale) or even “sweat” support (effort or labour dedicated to the co-op). The annual general meeting (AGM), in which all members participate in the decision-making, must decide how to measure patronage. Workers in a co-op can each have their harvested produce weighed and recorded to allocate the bonus fund accordingly. This is sweat support – the harder a person works during the harvest, the more they receive in bonus money.

It’s also a way of dealing with unproductive co-op members. Trading patronage usually occurs in a co-op that buys and sells agricultural produce. At the end of the financial year, the total of the financial transactions is recorded and the members who bought or sold the most receive more bonus money than the others. Bonus funds must be dealt with according to the constitution. The books must be audited. A minimum amount should be kept in an indivisible reserve fund. This is usually a minimum of 5%. It’s best to have a special bank account for this fund.

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Left-over funds can be used to pay interest on member shares (when those with more shares receive more money) or to pay a bonus to members. An AGM resolution would decide whether patronage proportion will be paid out in cash, or to buy paid up shares, or not paid out at all and instead invested in a deferred bonus payment fund account. The constitution must be very clear on this issue and AGM decisions must be recorded to avoid conflict. Susan Pletts runs Wanyuka Consultants in KwaZulu-Natal, which provides various services, including farming training and mentorship for emerging farmers in KZN. Call her on 082 572 3724, or e-mail [email protected].