You should familiarize yourself with four chapters of the Consolidated Statutes of Pennsylvania: Title 15, Chapter 71, which is Pennsylvania's Cooperative Corporation Law of 1988 and governs cooperative corporations generally; Chapter 5, which relates to corporations; Chapter 1, which relates to general provisions; and Chapter 77, which governs workers' cooperative corporations. You may also wish to familiarize yourself with our pages on forming a corporation in Pennsylvania.

Under Chapter 71, a cooperative can be formed in Pennsylvania by "setting forth in its articles a common bond of membership among its shareholders or members by reason of occupation, residence or otherwise."As you will see below, the Pennsylvania formation laws for a for-profit cooperative and a nonprofit cooperative are largely parallel to the Pennsylvania laws governing the formation of for-profit corporations and nonprofit corporations. Therefore you may follow the Pennsylvania corporation formation laws except in areas where the law differentiates between the formation of a corporation and cooperative, which are detailed below.

Although Chapter 71 governs cooperative formation generally, it may also be possible to form a journalism cooperative under Pennsylvania law as a worker cooperative. See 15 Pa. Cons. Stat. § 77. A worker cooperative is a cooperative that is formed, owned, and controlled by the business' workers, with its membership entirely comprised of those workers. Under 15 Pa. Cons. Stat. § 7703, Pennsylvania permits the formation of a workers' cooperative by "five or more farmers, mechanics, laborers or other persons who have incorporated themselves together . . . for the purpose of carrying on agricultural . . . or commercial business; for the purpose of manufacturing, . . . merchandise, chattels, . . . ." It is possible that the product of a journalism organization might be considered a "commercial business." Because the cooperative law is complex, you may with to seek the assistance of an attorney if you decide to form a workers' journalism cooperative in Pennsylvania.

On this page, you will find general information about (1) choosing a name for the cooperative; (2) recruiting directors and officers for your cooperative; (3) structuring your cooperative; (4) preparing the articles of incorporation and bylaws for your cooperative; (5) advertising for your cooperative; (6) registering in the state of Pennsylvania; (7) holding an organization meeting; (8) registering as an employer with the IRS and the State of Pennsylvania; (9) tax information; and (10) maintenance requirements.

1. Choose a name for the cooperative and check for availability

• Please see our section on choosing and checking the availability of a name for your business, as well as our section on the trademark law aspects of choosing a name.
• Your cooperative's name must contain the term "cooperative" or an abbreviation of cooperative and a corporation cannot use the term "cooperative" unless it is a cooperative corporation. See 15 Pa. Cons. Stat. § 7103.
• For more information on how to choose a name for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For more information on how to choose a name for your nonprofit cooperative, see our page on How to Form a Nonprofit Corporation in Pennsylvania.

2. Recruit and/or appoint directors and officers for your cooperative.

• For information on how to recruit and/or appoint directors and officers for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For information on how to recruit and/or appoint directors and officers for your nonprofit cooperative, see our page on How to Form a Nonprofit Corporation in Pennsylvania.

3. Structure your cooperative.

a. Determine the different levels of membership/stock.

• The cooperative's articles of incorporation shall establish qualifications for membership in the cooperative, indicating a common interest among the members based upon their occupation, residence or other factors. See 15 Pa. Cons. Stat. § 7102(a).
• Each member of a for-profit cooperative corporation in Pennsylvania will generally have one vote, regardless of the number of shares held. See 15 Pa. Cons. Stat. § 7111. 
  • Pennsylvania recognizes a limited number of exceptions to this rule which likely would not apply to a journalism cooperative, including cooperatives organized based upon the members' respective interests in real property, market shares, useful property, or cooperative activity. If the cooperative corporation is organized in one of these interests, the articles of the cooperative may allow voting according to those interests. You should seek counsel from an attorney if you want to apply these exceptions to your cooperative. See 15 Pa. Cons. Stat. § 7111.
• For a non-profit cooperative, members may be required to sign a contract, which must be filed with the Department of State. See 15 Pa. Cons. Stat. §§ 7122, 7123. The contract may require a cooperative member to:

1. Sell, market or deliver products produced or to be produced to the corporation;
2. Give authorization to the corporation to act on the member's behalf with respect to the products produced or to be produced;
3. Buy or procure goods or services from ot through the corporation; and
4. Give authorization to act on the member's behalf with respect to the procurement of goods or services. See 15 Pa. Cons. Stat. § 7121.

b. Decide how to distribute profits.

• A cooperative corporation in Pennsylvania may issue patronage rebates or dividends, or other distributions to its members or patrons, "in conformity with the purposes for which it is incorporated." See 15 Pa. Cons. Stat. § 7112. See our general page on patronage dividends for more information.
• Pennsylvania law does not recognize "a patronage rebate or dividend that is, or is equivalent to, a reduction in the charge made by a cooperative corporation for goods or services" as a rebate or dividend under any other provision of the law. See 15 Pa. Cons. Stat. § 7112. Although the meaning of this rule is not entirely clear, this suggests that a member discount given to a member at the time of sale is not a rebate for which a tax deduction may be taken under the special rules for taxing cooperatives (see below). 

4. Prepare your articles of incorporation and bylaws.

• To form a cooperative, you must identify in your articles of incorporation the criteria for membership, as discussed above. You must also state that you are forming a cooperative corporation. See 15 Pa. Cons. Stat. § 7102.
• A for-profit corporation or a nonprofit corporation can be converted into a cooperative corporation under Pennsylvania law. See 15 Pa. Cons. Stat. §§ 7104, 7106.
• Conversion of a nonprofit corporation can occur when an existing non-profit organization elects to adopt a plan of conversion and files articles of amendment; the plan of conversion must be approved by 2/3 of the votes cast by all shares of each class of shareholders. See 15 Pa. Cons. Stat. § 7106.
• Conversion of a for-profit corporation has similar procedural requirements to conversion of a non-profit corporation; a for-profit must also give dissenting shareholders who objects to the conversion the rights and remedies of dissenting shareholders. See 15 Pa. Cons. Stat. § 7104.
• For more information on how to prepare your articles of incorporation and bylaws for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For more information on how to prepare your articles of incorporation and bylaws for your nonprofit cooperative, see our page on How to Form a Nonprofit Corporation in Pennsylvania.

5. Advertise.

• If you are forming a for-profit cooperative, you will need to publish a statement of your intent to file or the actual filing of the articles of incorporation in two newspapers of general circulation, one of which is a legal journal. For more on how to advertise for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• You do not need to advertise if you are forming a non-profit cooperative.

6. Register with the State of Pennsylvania.

• For information on how to register with the State of Pennsylvania for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For information on how to register with the State of Pennsylvania for your nonprofit cooperative, see our page on How to Form a Nonprofit Corporation in Pennsylvania.

7. Hold an organization meeting.

• For information on holding an organization meeting for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For information on holding an organization meeting for your nonprofit cooperative, see our page on Forming a Nonprofit Corporation.

8. Get your Employer Identification Number, register employees.

• Request an Employer Identification Number (EIN) from the IRS. This can be done via its online application. There is no filing fee.
• If you have an employee or employees in Pennsylvania (including officers), you need to register for Pennsylvania employment taxes through the Online PA-100 interface or the Online Business Registration Interview interface. 
• Whenever you hire an employee in Pennsylvania, you must inform both the IRS and the Commonwealth of Pennsylvania. You can find details of all the necessary steps, including verifying work eligibility and withholding allowances, on the Hiring Employees section of the IRS website. You can find state-level information on reporting new hires at the Pennsylvania New Hire Reporting website. 
• If you have an employee or employees in Pennsylvania, you are required to carry workers' compensation insurance. The Pennsylvania Department of Labor & Industry administers the program.
• For more information on how to get your Employer Identification Number and register employees for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For more information on how to get your Employer Identification Number and register employees for your nonprofit cooperative, see our page on How to Form a Nonprofit Corporation in Pennsylvania.

9. Tax information.

• Cooperative corporations are taxed at the federal level in a special way. See our page on federal taxation of cooperatives for more information.
• As a small business owner or employer, there may be other informational returns that you have to file annually or semi-annually with the IRS. For more information, take a look at the IRS Guide To Information Returns.
• Pennsylvania's corporate tax is comprised of a corporate income tax and a capital stock tax. The net income tax is collected at a rate of 9.99%. The capital stock tax is somewhat complicated, determined by first adding net income divided by .095 to net worth multiplied by .75 (NI/.095 + .75*NW). If the number you get is less than $300,000, you do not owe capital stock tax. If the number you get is greater than $300,000, the tax will amount to .389% (.00389) of all dollars over $300,000. The capital stock tax is being phased out and will no longer be in effect starting in 2011. Most small online publishing operations probably will not have sufficient net worth or income to trigger the capital stock tax obligation.
• It is not clear whether Pennsylvania cooperatives receive state tax deductions similar to the federal tax deduction for patronage rebates.

10. Other requirements for maintaining a cooperative corporation in Pennsylvania.

• The Pennsylvania laws governing formation of for-profit and nonprofit corporations, and therefore cooperatives, each have their own maintenance requirements. These include things like setting up a bank account for your business and keeping certain documents at the corporation's place of business. 
• For information on other requirements for maintaining a cooperative corporation in Pennsylvania for your for-profit cooperative, see our page on How to Form a Corporation in Pennsylvania.
• For information on other requirements for maintaining a cooperative corporation in Pennsylvania for your nonprofit cooperative, see our page on Forming a Nonprofit Corporation.

Note: The information contained on this page is meant for general information purposes only, and DMLP makes no claim as to comprehensiveness or accuracy of the information. Because of the complexity of tax issues associated with starting any business, you are encouraged to consult with a tax attorney and/or accountant to ensure compliance with federal, state, and local tax requirements. The DMLP is not a substitute for individualized legal advice, especially not individualized tax advice.