At least once annually the directors shall determine and distribute net proceeds as follows: 1. There shall be deducted from total proceeds: a. All operating expenses and costs. b. The cost of supplies, commodities, equipment, and other property or services procured or sold for patrons. c. The cost of services performed for patrons. d. All taxes and all other expenses. e. Reasonable and necessary reserves for depreciation, depletion, and obsolescence of physical property, doubtful accounts, and other valuation reserves, all of which shall be established in accordance with usual and customary accounting practices. 2. The remainder of the total proceeds are net proceeds and shall be distributed and paid as follows: a. An amount, not to exceed five percent thereof, may be set aside as an educational fund to be used in teaching or promoting cooperative organization or principles when approved by a majority of the members voting at any annual meeting. Such fund shall for all purposes except the computation of net proceeds be deemed an expense of operation of the cooperative. Such funds shall not be used in any political activity. Such educational funds shall not be paid to any other cooperative, mutual aid corporation, or other general farm organization unless such cooperative, mutual aid corporation, or general farm organization receiving such funds provides in its bylaws or articles that officers and directors shall be elected by secret ballot and that only active or retired farmers and ranchers, their spouses, and their children, are eligible to vote on the affairs of the cooperative, mutual aid corporation, or general farm organization. b. A share of the net proceeds may be set aside for or paid to employees. Such amount shall for all purposes except the computation of net proceeds be deemed an expense of operation of the cooperative. c. In a cooperative organized with capital stock, such dividend may be paid upon capital stock as is authorized by the articles. No dividend may be paid if the capital is impaired or if payment of such dividend would result in an impairment of capital. 3. Unless the articles or bylaws otherwise expressly provide, none of the remainder of the net proceeds shall constitute income of the cooperative but all thereof shall be distributed and paid to patrons, whether members or not, as follows: a. Reasonable reserves for necessary purposes may be created, which shall be credited to patrons in accordance with the ratio which their patronage bears to total patronage. b. All the remainder of the net proceeds shall be distributed and paid to patrons in accordance with the ratio which their patronage bears to total patronage. c. There shall be no distinction between the persons entitled thereto, but such reserves and distribution may be based upon business done with particular departments or in particular commodities, supplies, or services, or upon classification of business according to the type or nature thereof. 4. If the articles or bylaws so provide: a. Any of the net proceeds may be credited to allocated or unallocated surplus or reserves of the cooperative. b. None of the remainder shall constitute income to the cooperative, but all thereof shall be distributed and paid in accordance with the ratio which individual patronage bears to total patronage, either to all patrons, to member patrons only, or to all patrons with nonmembers receiving a lower proportion than members, as the bylaws may provide. There shall be no other distinction between members and nonmembers, but distribution may be based on business done with particular departments, or in particular commodities, supplies, or services, or upon classification of business according to type or nature thereof. 5. The distribution and payment of net proceeds under subsections 3 and 4 may be in cash, credits, stock, membership interests, certificates of interest, revolving fund certificates, letters of advice, or other certificates or securities of the cooperative or of other associations, corporations, or limited liability companies, in other property, or in any combination thereof. 6. All or any part of the net proceeds may be applied to losses incurred in prior years, and the bylaws may also include any reasonable provisions for the apportionment of losses. 7. When authorized by a majority of the members voting at any annual meeting, the directors may provide for the deduction from patronage dividends of membership dues in any other cooperative, mutual aid corporation, or other general farm organization.
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