Cooperatives in Maryland May Now be Structured as Limited Liability Companies

Cooperatives are organizations that are owned by the people who use the services of the organization, or provide the services necessary for the organization to function. Members of a cooperative are sometimes the workers within the organization, or producers (as in a food cooperative), or consumers of the goods or services produced by the organization. Common examples are credit unions, farm cooperatives, child care cooperatives, and rural electrification cooperatives. Principles that typically govern cooperatives are democratic governance (one member, one vote), decision-making by consensus, and a focus on member satisfaction – sometimes at the expense of higher profits.

Maryland’s New Limited Worker Cooperative Association Act

A group wishing to operate in Maryland now has the option of using the limited liability company business structure, thanks to passage of the Maryland Limited Worker Cooperative Association Act, which took effect October 1, 2026. A limited worker cooperative association (LWCA) is a Maryland limited liability company that elects this cooperative status in its articles of organization.

How an LLC Elects LWCA Status

An LLC can elect LWCA status by reciting the election in its articles of organization that are filed with the state. It may also elect to be a “collective worker cooperative,” which is a single-class entity made up of worker members who manage all the company’s affairs. An LWCA ordinarily needs at least three members to begin operations, but there is an exception if its sole member is itself an LWCA. Worker members are individual patron members whose patronage includes labor for the enterprise.

Governance and Operating Agreement Requirements

An LWCA must have an assembly of voting members and a board of at least three representatives to manage its affairs. There is an exception for collective worker cooperatives, which are not required to have a board. Within an LWCA’s operating agreement, there must be provisions addressing capital structure, membership classes and admission, voting, contributions, transfers, profit allocations and distributions, representative terms, and its intended federal and State income-tax election and implications for worker members. The new Maryland law does not itself create a special state tax rate or guarantee tax savings. The Internal Revenue Service provides special rules for federal taxation of cooperatives under Subchapter T of the Internal Revenue Code. Unless the articles of organization provide otherwise, an LWCA’s debts and obligations are those of the association, not of a person merely because that person is a member.

Profit Allocations and Member Interests

An operating agreement for an LWCA can define member classes, including investors, and the allocation of profits and losses, but profits declared as patronage allocations and paid or credited to patron members must be divided according to their relative patronage for the period. The company’s governing documents must address recall and redemption of interests when membership ends. These tools are designed to support worker ownership and continuity without promising any particular financial return.

Is an LWCA Structure Right for Your Business?

An LWCA structure may suit a business whose owners want worker participation backed by statutory voting protections, the organizational flexibility of an LLC, and defined means of sharing patronage-based earnings. The value of the structure depends on carefully drafted articles and a cooperative agreement, as well as individualized tax, employment, insurance, and financing considerations.