Allocated member equity is considered temporary capital, thus cooperatives have an obligation to eventually repay equity to their members. Although failure to redeem equity is considered an injustice to members, the co-op board of directors must have the authority to do so.

Equity redemption programs are intended to promote the cooperative principle of having co-ops owned and controlled by current members. However, they also complicate the management of the co-op's capital, and must be done judiciously in order to prevent any adverse financial impact on the co-op. The board of directors and the management must ensure that the co-op is adequately capitalized at all times.

Note that unallocated member equity (equity that is not assigned to individual member accounts) is considered permanent capital. Thus many co-ops use unallocated equity to build a capital base which is not redeemed. It is important that unallocated equity not be allowed to become too large a portion of the total equity in a cooperative, however. Since management, not the members, control unallocated equity, such a situation leads to declining user control in the co-op.

"Your co-op's on-going success depends on constant vigilance to business basics and keeping in contact with your members."
Karen Zimbelman Cooperative Consultant