Internal Cooperative Financing
Internal Capital Accounts consist of financial contributions from the members that are temporarily held by the cooperative. These funds are used to finance operations and share financial risk among the members in a fair manner.
Each member of a worker cooperative has an account where a portion of the earnings are diverted for a fixed period of time before being paid out. The funds are inaccessible to the members during this time though interest is usually paid on the money held in the account. These earnings are pooled together and used by the cooperative to finance operating expenses, capital expenditures, or other business needs. The financial risk is shared by the members because if the cooperative fails the money in the internal capital accounts can be lost.
The fixed holding period solves a problem of different time horizons for young and old workers. Younger workers would benefit most by having more money reinvested in the cooperative as they will be around longer and benefit most from its continued prosperity. Older workers approaching retirement have an interest in having as much money paid out as possible.
Members may also be required to contribute a fixed amount of capital when they join. In the cases where a new member does not have the money it is often loaned to them by the cooperative. The loan is payed off through deductions from wages or profit distributions. The money is returned to the members when they leave the cooperative.
