In Ohio, an estimated 8% of the state’s farms sell about $90 million worth of agricultural products directly to consumers, according to the U.S. Department of Agriculture National Agricultural Statistics Service (USDA NASS, 2024a; USDA NASS, 2024b). While farms have multiple direct-to-consumer market channels, the more than 8,000 farmers markets estimated to operate across the United States are an important way for farmers to reach customers directly (USDA NASS, 2020). A 2020 national survey estimated that farmers markets accounted for about 17% of direct-to-consumer sales by farmers (USDA NASS, 2022).
Generally, “a farmers market is a public and recurring assembly of farmers or their representatives selling the food that they produced directly to consumers” (Farmers Market Coalition, 2024). Advocates for farmers markets, such as the Farmers Market Coalition (n.d.), cite many benefits:
- Helping Farms and Farmers Succeed
Farmers with direct-to-consumer sales are more likely to remain in business than other farms (Key, 2016). Farmers selling food through direct channels (e.g.., farmers markets) are more likely to be female and aged 34 or younger (USDA NASS, 2022). - Creating Community Food Access Points
Ninety-nine percent of farmers markets responded to a 2019 USDA survey about selling fruits and vegetables. About half of the responding markets accepted federal nutrition programs like Supplemental Nutrition Assistance (SNAP) (USDA NASS, 2020). - Positive Community Impact
About half of farmers markets responding to a 2019 USDA survey employed a paid market manager, and just over 5,000 markets across the United States engaged over 31,000 volunteers (USDA NASS, 2020).
As community members or farmers consider starting a new farmers market, or work together to grow an existing market, the market’s business structure can play a pivotal role in its success. A market’s business structure can impact who has rights to participate in decisions, the market’s obligations as an employer, the market’s legal ability to accept tax-deductible charitable contributions, the personal liability of market leaders, and more. In some contexts, a cooperative model may foster the participation of community members or farmers in decision-making, allow members to share in profits and build financial equity, and create a stable structure for leadership succession.
This fact sheet will share a basic overview of the farmers market development process, the importance of business structures for farmers markets, and introduce the potential benefits and challenges of structuring a cooperative market. Some key questions are included that stakeholders can ask professional advisors to determine the fit for a cooperative structure for their farmers market.
Farmers Market Development Process
Starting a new farmers market involves many important considerations including building a community of farmers, engaging with local leaders, growing a reliable customer base, marketing effectively, developing strong operational plans, and other factors. While not a comprehensive, step-by-step outline, experts generally recommend the following key steps when starting a new farmers market:
- Understand the interest and demand for a market among the community and farmers, including defining the goals or purpose of the market and evaluating current local food market trends.
- Explore operational considerations like location, facilities, market days and times, management, licensure and legal requirements, risk management strategies, financial needs and sources of funding, and more. Markets may find it useful to draft a business plan to develop robust operating plans.
- Establish leadership, develop market rules, and craft decision-making structures, including who is involved in decision-making, how rules are enforced, and who is “in charge” at a market.
- Determine the business structure that meets the needs of the market and submit the necessary filings, develop financial recordkeeping systems, set up tax obligations, obtain licenses and permits, and complete other administrative tasks for the market entity.
- Recruit vendors and community partners, secure funding, implement risk management strategies (e.g., purchasing insurance), hire staff or recruit volunteers, promote the market, plan community programs, and engage local, state, and federal initiatives as appropriate. (Community Farm Alliance, n.d.; Farmers Market Federation of NY, n.d.; Hofmann & Dennis, 2007; Painter & Chippendale, 2023)
The plans market leaders develop during this start-up process will influence the most appropriate business structure for their circumstances. A business plan, or at least systematically exploring key questions, can even help entrepreneurs prepare to work with an attorney and communicate their goals (Russell & Radebaugh, 2024).
Farmers Markets and Business Structures
As the key steps above demonstrate, new farmers markets should consider business structures during start-up planning. Business structure refers to the legal entity form used by a market or other business.
A farmers market may be an independent legal entity, like a corporation, or it may operate as a program of an existing organization, like a nonprofit corporation or municipality. A market’s business structure can impact how decisions are made, potential staffing options and obligations as an employer, the extent of personal liability for market leaders, eligibility for certain types of funding (e.g., grants, charitable donations), how the market is taxed, and more (Vermont CAFS, n.d.6).
Considering business structures is not only for start-up farmers markets. Existing farmers markets may also need to consider their business structure at critical points in their growth or maturation. For example, if a market that started as a program of an existing nonprofit has grown significantly in size and complexity, it may be helpful for market leaders to consider whether the market needs its own legal identity and business entity. Additionally, if an existing market changes its financial model to consistently rely on funding sources like grants or donations, or if the decision-making framework for a market needs to change to meet the community’s goals, the market’s leadership may want to consider updating its business structure.
Some farmers markets start as a program of, or are operated by, an existing entity (e.g., another business, a community nonprofit, or a local government). These markets are not independent legal entities and are sometimes referred to as being part of an umbrella organization. The legal entity type of the umbrella organization can determine the market’s obligations while the umbrella organization is responsible for the business entity and tax obligations of the market (Vermont CAFS, n.d.3; Vermont CAFS, n.d.5). Other markets that are informal gatherings of producers without official rules or organizational structures, sometimes called pop-up markets, may not be legal entities nor part of other umbrella organizations. These types of markets may be considered unincorporated nonprofit associations (Painter & Chippendale, 2023; Vermont CAFS, n.d.3).
Farmers markets might operate in a variety of legal forms, including sole proprietorships, partnerships, limited liability companies, corporations, nonprofit organizations, cooperatives, unincorporated associations, or other forms (Vermont CAFS, n.d.4).* A business or organization’s legal structure, or the legal entity it uses, is a separate concept from a business or organization’s tax status, although the two are closely related. The tax implications of choosing a specific business entity are a vital but complex consideration—only the basics are shared here.
*The Farmers Market Legal Toolkit from the Center for Agriculture and Food Systems at Vermont Law School provides detailed information about various business structures for farmers markets and managing risks at markets.
Cooperatives as a Business Structure for Farmers Markets
Cooperative businesses are owned and controlled by their member users. They distribute benefits, such as profits, based on use and are grounded in principles like democratic member control and concern for community (Wadsworth, 2014). Cooperatives operate in many sectors of the economy, including the following:
- insurance
- financial services
- housing
- purchasing
- utilities
In agriculture, cooperatives market various food and farm products, procure supplies and inputs, and provide services (Wadsworth et al., 2021).
Farmers markets structured as cooperatives might be owned and governed by farmers who sell at the market, by community members who shop at the market, or by both groups together in a “multistakeholder” cooperative, although state laws and other factors may influence who can be a member and the structure of a cooperative’s membership (Vermont CAFS, n.d.1).
Cooperatives can be organized legally as cooperative entities or as non-cooperative legal entities, including corporations, limited liability companies, and other legal forms with cooperative principles embedded into the entity’s organizing documents and operations (Radebaugh & Russell, 2024). The most appropriate legal structure for a cooperative, or any business, is best determined in consultation with a competent and knowledgeable attorney, accountant, and other business professionals.
Depending on the legal structure used, starting a cooperative generally involves understanding members’ needs, assessing the economic viability, and creating a legal entity with the state business authority, for example, by filing articles of incorporation, adopting internal governing documents such as bylaws and membership agreements, holding a member meeting, and electing a board of directors, among other steps (Rapp & Ely, 1996).
|
|
General Description |
Considerations for a Farmers Market |
|
Ownership |
The owners of a cooperative are usually users—farmers marketing their products or customers purchasing goods or services. Co-op owners are often called members (Wadsworth & Eversull, 2012). |
The member-owners of a cooperative farmers market might be farmer-vendors, customers, or both. |
|
Decision Making |
Member-owners elect a board of directors from the membership who oversee and make many of the co-op’s decisions. Members can generally vote on major issues. Voting uses a democratic structure (e.g., “one-member, one-vote”) (Wadsworth & Eversull, 2012). |
A cooperative farmers market might hold an annual meeting where farmers and customer members elect a board of directors to oversee the market, hire a manager, and make major decisions for the market. |
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Capital |
Generally, a co-op can raise equity capital from members and debt from financial institutions (USDA RDCP, 2011). Other kinds of funding, such as grants, may be available in specific circumstances. |
A cooperative farmers market may ask member-owners to make a financial contribution when they join the cooperative. When eligible, the market may also apply for grants from government agencies or community organizations. |
|
Profits |
The profit a cooperative generates on qualifying business can generally be allocated to members based on their use of the cooperative or reinvested in the cooperative (Wadsworth & Eversull, 2012).* |
A cooperative farmers market that generates a profit at the end of the year may return part of the profit to member-owners, reinvest it in the market, or some combination of both. |
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Taxation |
Qualifying businesses operating on a cooperative basis are generally eligible for federal income tax treatment under Subchapter T of the Internal Revenue Code where income is taxed either at the cooperative-level or member-level, creating the opportunity for ‘single tax treatment.’ It is important for cooperatives to understand whether they meet the requirements to file under Subchapter T. Some types of cooperatives may be eligible for certain exemptions from federal income tax (USDA RDCP, 1995a; U.S. Department of Treasury Internal Revenue Service, 2025). |
A cooperative of any kind should generally consult a knowledgeable cooperative accountant and tax expert to understand and ensure they are meeting their federal, state, and local tax obligations. |
|
*Some cooperatives may have a non-profit corporation structure or tax-exempt status that impacts or restricts their ability to distribute profits to individual members. |
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The potential benefits of structuring a farmers market as a cooperative might include:
- Member Ownership and Decision-Making
Democratic control by members is a defining principle of cooperatives, and member-owners have rights to participate in major decisions, often using a one-member, one-vote system. Cooperative decisions are usually made by a board of directors elected from and by the members (Zeuli & Cropp, 2004). - Profit Sharing
Cooperatives generally allocate at least part of their profits to member-owners, creating opportunities for member-owners to receive cash profit distributions, build financial equity, or both, based on their use of the business, although cooperatives that adopt certain tax-exempt statuses may not be able to distribute profits to individuals (Wadsworth & Eversull, 2012; U.S. Department of Treasury Internal Revenue Service, 2025). - Community Focus
As a business, the focus of a cooperative is on providing benefits to its members (Zeuli & Cropp, 2004). Internationally recognized cooperative principles highlight that “cooperatives work for the sustainable development of their communities” (International Cooperative Alliance, n.d.). This member and community orientation might align with the purpose of a farmers market. - Existence of the Market Beyond Current Leaders’ Participation
Operating a farmers market can be a great deal of work. To ensure a market operates successfully well into the future, it may be important to consider how to effectively share or transfer leadership responsibilities and create a stable leadership structure over time. As independent legal entities governed by a board, cooperatives have opportunities to share leadership responsibilities. Generally, co-ops can exist perpetually if appropriate formalities are met (USDA, 1995b). - Limitation of Liability and Easily Updated Membership
For cooperatives organized as cooperative associations, the personal liability of each member is generally limited to the equity the member holds in the cooperative and the cooperative has an established process for adding and removing members (USDA, 1995b).
Cooperatives may have disadvantages compared to other business structures for farmers markets. For example, cooperative markets organized for profit may be limited in their ability to rely on volunteers or unpaid staff compared to nonprofit organizations. This limitation is due to employment laws generally prohibiting for-profit businesses from engaging volunteers (Vermont CAFS, n.d.1; Vermont CAFS, n.d.2). Cooperatives may find it harder to raise certain kinds of capital (e.g., investment capital) compared to corporations, and some owners may prefer to share profits based on investment (money invested into the cooperative) rather than use (business done with the cooperative). Also, the taxation of a cooperative may be more complex than other business structures (Vermont CAFS, n.d.1). Cooperatives rely on strong engagement and participation from members, such as a board of directors that shares decision-making as a group, compared to structures that rely on just one or a few people to make decisions (Vermont CAFS, n.d.1).
Questions for Considering a Cooperative Farmers Market
The right business structure for an enterprise depends on its specific context. The business structure should be determined in consultations with knowledgeable, competent professionals (i.e., attorneys, accountants, tax professionals).
As part of their planning process, a group considering the cooperative farmers market model may find it useful to explore:
- Is there a group of farmers or community members interested in sharing ownership of our farmers market?
- How does our group want to share decision-making for the farmers market?
- Will farmers or community members support the market financially through memberships in a cooperative?
- Do we plan to rely primarily on grants or charitable donations to fund our market?
- What experts and professional advisors should we consult to learn more about the cooperative model for our farmers market?
For groups interested in sharing ownership and decision making, financially supporting the market, building financial equity and aligning member benefits with cooperative principles (i.e., democratic member control), a cooperative model may warrant further exploration.
Conclusion
Farmers markets are an important market channel farmers use to reach consumers directly. As communities, farmers, and others consider starting a new farmers market, or plan to grow their already-operating market, many decisions may benefit from an intentional planning process, including exploring and working with advisors to determine the best business structure for a market. Farmers markets can be organized using various business structures. A cooperative model offers potential benefits like member-ownership and decision-making, profit sharing, and a stable structure for leadership succession and maintaining ongoing operations. However, the cooperative model may also present challenges such as limiting the ability to rely on unpaid volunteers, limiting methods of raising capital, and creating complexity.
Disclaimer: This information is provided for educational purposes only. It is not legal advice. It is not a substitute for the potential need to consult with a competent attorney in the appropriate jurisdiction.
Acknowledgment
The development of this fact sheet was supported, in part, by a U.S. Department of Agriculture Rural Cooperative Development Grant. USDA is an equal opportunity employer and service provider. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture.
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