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"Profit" means income in excess of expenses, and in for-profit companies the profit is used either reinvested or paid to the owners as a dividend. Credit union

"Profit" means income in excess of expenses, and in for-profit companies the profit is used either reinvested or paid to the owners as a dividend. Credit unions (and other US 501c3 organizations) do not exist to make a profit, and any income they have in excess of expenses is reinvested. There are no dividends. These are two utterly different sorts of things.

jltsiren 2y ago
As I said, that was my non-American perspective. You gave a specific legal definition in a single jurisdiction. It does not match the definition in many other jurisdictions or the intuitive understanding many people have. From my perspective, there is no fundamental difference between an ordinary company distributing its profits as dividends, an employee-owned company distributing profits as higher wages or bonuses, and a coop distributing its profits by providing better/cheaper services to its members. They are all for-profit businesses. Only the mechanisms of profit distribution are different.
- PaulDavisThe1st 2y ago
  Then I consider your perspective flawed. A company that exists to make money for its owners, who do not materially participate in the operations of the company, is (for me) substantively and qualitatively different from worked-owned coops, consumer-owned coops, credit unions etc. I'd be interested in a jurisdiction that does not make this distinction.
  - jltsiren 2y ago
    My perspective was from Finland. Non-profit status there is tied to what the organization does rather than to the specific form of the organization. As a rule of thumb, if the organization competes against for-profit organizations, it's probably a for-profit organization for tax purposes. That covers most coops, including credit unions. There are of course specific rules for different types of organizations, but they don't change the big picture.
    - PaulDavisThe1st 2y ago
      The US has a second form - the "benefit corporation" - that is based on what the organization does. It is possible to be a for-profit or not-for-profit benefit corporation, though sort of by definition almost all US not-for-profit organizations are inherently "benefit corporation" since otherwise they would likely lose their not-for-profit status. But this reminds me ... I think that this conversation has not paid enough attention to the difference between the legal sense of a non-profit (in the USA, a 501c3 is the main classification, though there are others) and the colloquial sense (such as a credit union). In the USA, you cannot be a 501c3 and also a credit union, for example. or a consumer owned cooperative. Nevertheless, people will sometimes refer to such organizations as "not for profit". I think there's less difference between the USA and Finland than we've been suggesting.
rqtwteye 2y ago
"Credit unions (and other US 501c3 organizations) do not exist to make a profit, and any income they have in excess of expenses is reinvested. There are no dividends." A lot of non-profits funnel the "income they have in excess of expenses" to their execs or friends of the execs who provide business services. They don't reinvest or give to charity.
- PaulDavisThe1st 2y ago
  This is indeed a problem. A really big problem. But it is not the same problem profits being distributed to owners who do not materially participate in the operations of the company.
bongodongobob 2y ago
I don't see the difference. Just increase what you pay your execs. Boom, you didn't make a profit.
piperswe 2y ago
If there are no dividends, then why is my checking account called "Dividend-Bearing Checking"?
- PaulDavisThe1st 2y ago
  Because English is a language that allows homonyms.
jjav 2y ago
> "Profit" means income in excess of expenses Problem with this (in all kinds of contexts) is that it is trivially easy for any company to have zero profit. Just give out all the profit as bonuses to execs and done, zero profit. Or in cases where there is some oversight that makes it look bad, just hire a handful of consulting companies (just by random chance owned by friends and family of the execs) to do some highly overpriced work and get rid of the "profit" that way while still funneling the money back to them.
- imtringued 2y ago
  >Just give out all the profit as bonuses to execs and done, zero profit. It gets taxed as personal income so where is the problem? Even if the execs are located in Georgia where dividends and stock appreciation count as foreign source income and remain untaxed, the bonus is considered to have been earned in Georgia and is taxed (at a low rate).
  - jjav 2y ago
    > It gets taxed as personal income so where is the problem? The thread was about non-profits. So it's a way to run a non-profit that meets the letter of the law but keeps raking in enourmous profits by shifting them elsewhere. There are other scenarios as well where this is abused. For instance regulated corporations that are supposed to have a cap on profits in an attempt to control prices. But that fails, because they can raise prices infinitely and just shift the profits elsewhere.

jltsiren 2y ago

As I said, that was my non-American perspective. You gave a specific legal definition in a single jurisdiction. It does not match the definition in many other jurisdictions or the intuitive understanding many people have. From my perspective, there is no fundamental difference between an ordinary company distributing its profits as dividends, an employee-owned company distributing profits as higher wages or bonuses, and a coop distributing its profits by providing better/cheaper services to its members. They are all for-profit businesses. Only the mechanisms of profit distribution are different.

PaulDavisThe1st 2y ago
Then I consider your perspective flawed. A company that exists to make money for its owners, who do not materially participate in the operations of the company, is (for me) substantively and qualitatively different from worked-owned coops, consumer-owned coops, credit unions etc. I'd be interested in a jurisdiction that does not make this distinction.
- jltsiren 2y ago
  My perspective was from Finland. Non-profit status there is tied to what the organization does rather than to the specific form of the organization. As a rule of thumb, if the organization competes against for-profit organizations, it's probably a for-profit organization for tax purposes. That covers most coops, including credit unions. There are of course specific rules for different types of organizations, but they don't change the big picture.
  - PaulDavisThe1st 2y ago
    The US has a second form - the "benefit corporation" - that is based on what the organization does. It is possible to be a for-profit or not-for-profit benefit corporation, though sort of by definition almost all US not-for-profit organizations are inherently "benefit corporation" since otherwise they would likely lose their not-for-profit status. But this reminds me ... I think that this conversation has not paid enough attention to the difference between the legal sense of a non-profit (in the USA, a 501c3 is the main classification, though there are others) and the colloquial sense (such as a credit union). In the USA, you cannot be a 501c3 and also a credit union, for example. or a consumer owned cooperative. Nevertheless, people will sometimes refer to such organizations as "not for profit". I think there's less difference between the USA and Finland than we've been suggesting.

rqtwteye 2y ago

"Credit unions (and other US 501c3 organizations) do not exist to make a profit, and any income they have in excess of expenses is reinvested. There are no dividends." A lot of non-profits funnel the "income they have in excess of expenses" to their execs or friends of the execs who provide business services. They don't reinvest or give to charity.

PaulDavisThe1st 2y ago
This is indeed a problem. A really big problem. But it is not the same problem profits being distributed to owners who do not materially participate in the operations of the company.

bongodongobob 2y ago

I don't see the difference. Just increase what you pay your execs. Boom, you didn't make a profit.

piperswe 2y ago

If there are no dividends, then why is my checking account called "Dividend-Bearing Checking"?

PaulDavisThe1st 2y ago
Because English is a language that allows homonyms.

jjav 2y ago

> "Profit" means income in excess of expenses Problem with this (in all kinds of contexts) is that it is trivially easy for any company to have zero profit. Just give out all the profit as bonuses to execs and done, zero profit. Or in cases where there is some oversight that makes it look bad, just hire a handful of consulting companies (just by random chance owned by friends and family of the execs) to do some highly overpriced work and get rid of the "profit" that way while still funneling the money back to them.

imtringued 2y ago
>Just give out all the profit as bonuses to execs and done, zero profit. It gets taxed as personal income so where is the problem? Even if the execs are located in Georgia where dividends and stock appreciation count as foreign source income and remain untaxed, the bonus is considered to have been earned in Georgia and is taxed (at a low rate).
- jjav 2y ago
  > It gets taxed as personal income so where is the problem? The thread was about non-profits. So it's a way to run a non-profit that meets the letter of the law but keeps raking in enourmous profits by shifting them elsewhere. There are other scenarios as well where this is abused. For instance regulated corporations that are supposed to have a cap on profits in an attempt to control prices. But that fails, because they can raise prices infinitely and just shift the profits elsewhere.