1. A cooperative may set aside a portion of net income allocated to the patron membership interests as the board determines advisable to create or maintain a capital reserve.

2. Except as otherwise set forth in the bylaws, in addition to a capital reserve, the board may, for patron membership interests:

(1) Set aside an amount, to be determined by the board, of the annual net income of the cooperative for promoting and encouraging the cooperative;

(2) Set aside and retain that portion of the annual net income as determined by the board to be necessary to meet the upcoming and ongoing capital needs of the cooperative; and

(3) Establish and accumulate reserves for advancement of the cooperative’s business purposes.

3. Net income allocated to patron members in excess of dividends on equity and additions to reserves shall be distributed to patron members on the basis of patronage. A cooperative may, but is not obligated to, establish pooling arrangements, allocation units, or both, as determined by the board, whether the units are functional, divisional, departmental, geographic, or otherwise and may account for and distribute net income to patrons on the basis of such allocation units or pooling arrangements. A cooperative, as determined by the board, may offset the net loss of an allocation unit, pooling arrangement, or both, against the net income of other allocation units or pooling arrangements, and may set off any amounts owed to the cooperative by a member from amounts otherwise distributable to a member.

4. Unless otherwise set forth in the bylaws, distribution of net income shall be made at least annually. The board shall present to the members at their annual meeting a report covering the operations of the cooperative during the preceding fiscal year.

5. A cooperative may distribute net income to patron members in cash, capital credits, allocated patronage equities, revolving fund certificates, scrip or its own or other securities as determined by the board.

6. The cooperative, through its bylaws or through a separate agreement by and between the member and the cooperative, may obligate the member to accept the method of taxation of the member’s distribution as determined by the board, regardless of the form of such distribution.

7. The cooperative may provide in the bylaws that nonmember patrons are allowed to participate in the distribution of net income payable to patron members on equal or unequal terms with patron members.

8. Except as otherwise set forth in the bylaws, if a nonmember patron with patronage credits is not qualified or eligible for membership, a refund due may be credited to the nonpatron’s individual account. The board may issue a certificate of interest to reflect the credited amount.