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Cooperative Bylaws

Unlike Articles of Incorporation, Bylaws do not need to filed with the state.  However, Bylaws are an important document that lays out how the cooperative is to be governed.  The governing body (whether it consists of an elected Board of Directors or all members of a collective[1]) must abide the Bylaws. 


Typically, a cooperative’s Bylaws can only be changed by a democratic vote (or in some cases, consensus[2]) of the membership.  For this reason, cooperatives usually limit their Bylaws to fundamental governance-level issues.  More specific operational procedures may be documented in policy manuals or handbooks, which can be changed as needed by Directors, (co-)managers, committee members, staff, or other bodies using approved decision-making processes.

Bylaws are organized into sections, and most sections are broken up into subsections.  In this document, only the lengthier sections are broken up into subsections for ease of reading.  However, shorter sections can benefit from being broken down as well.  Bylaws can be easily referenced when numbers or letters are assigned to sections and subsections.    

Many consumer-owned cooperatives post their Bylaws on their websites. More links and resources can be found on theUS Federation of Worker Cooperatives’ Resources Library.

See also: Cooperative Bylaws Examples


Cooperative Bylaws should include:


I.    Mission, purpose, and legal structure 


This section often includes the cooperative’s mission statement, vision statement, or stated purpose.[3]  This is also a good place to restate the information outlined in the Articles of Incorporation.  The Bylaws should agree with the Articles, but you may wish to include this useful phrase:

“The articles of incorporation are hereby made a part of these bylaws.  In case of any inconsistency between the articles of incorporation and these bylaws, the provisions of the articles of incorporation are controlling.”[4]


II.    Membership

This section should describe each membership class (if more than one). For each membership class, outline who is eligible for membership, the requirements for membership, voting rights.  Specify rules for suspension or termination of membership, including guidelines for returning member investments.  Note that membership shares are often non-transferrable.[5][2]

In worker cooperatives, this section or an alternative section may also outline guidelines relating to additional rights and responsibilities of workers.  Such guidelines may address working conditions, the pay scale or pay differential, and more.[5] 



III.    Membership Meetings 


This section should address the details of annual (or periodic) general membership meetings.  Such details may include:

a)    How often are regular membership meetings held?  How is the agenda compiled?  How is the time and location of the meeting announced?

b)    How are special membership meetings called?  How are special meetings announced?

c)    What decision-making process is used?  Consensus?  Modified consensus?  Majority vote?  What percentage of participants must vote in favor in order to approve a decision?  Do stand-asides affect the outcome?  Possible “majority” thresholds include 50% plus 1, 66%, 75%, and occasionally greater percentages.

d)   What number or percentage of members is needed for quorum?[4]  

IV.    Board of Directors

Note: in some smaller cooperatives (especially collectives), the entire membership constitutes the governing body, or the Board.[2]  If this is the case, members may still find it useful to distinguish governance-level decisions from operational decisions.[1]

The “Board Directors” section should answer these questions:

a)    What is the minimum or maximum number of Board Directors?  It may be useful to specify a range in the Bylaws, so the Board can grow if needed.  Cooperatives often try to have an odd number of directors.  Do you want the Board to reflect certain constituents?  Many consumer-owned cooperatives strive to fill a certain number of seats with staff members.

b)    How are Board Directors elected?  How long are Board terms?  Many cooperatives try to stagger terms, so that only about half of the Board seats are up for re-election at a time.  This helps to ensure organizational stability and preserve institutional memory.

c)     How are vacancies filled?  Some cooperatives allow the Board Directors to fill vacant seats, while others require a special vote of the membership.[5] [6]  Others offer vacant seats to runners-up from recent elections.

d)    Under what circumstances can Directors be removed?  What is the process for removing Directors?  In cases of serious misconduct or negligence, suspension or removal may be automatic.  In other cases, there may need to be a mechanism for empowering members to recall Directors or Board Decisions.

e)    Will Directors be paid for serving on the Board?  If so, how much?  Different states have different statutes. 

f)    Do you wish to prohibit Board Directors from voting if they have a conflict of interest (such as compensation of officers)?  Here is a useful phrase:

“It shall be the duty of all board directors to make prompt and full disclosure to the board of any personal, professional, or financial conflict of interest in a matter under discussion.  When a conflict of interest is disclosed, the board member must not participate in the discussion or vote on the relevant issue.”[4] 

 
g)    How often are Board Meetings held?  How will the time and location be communicated to members?  Under what circumstances can emergency Board meetings be called, and how will they be announced?

h)    What are the general duties of Board Directors?  What is their relationship to the management, staff, and members?

i)    What is the role of the management?  Typically (co-)managers oversee daily operations in compliance with general guidelines set by the Board, and report to the Board of Directors.

j)    Will there be Board Committees?  Should these be defined in the Bylaws?  How are Board Committees formed?  What are the limitations of Board Committees’ decision-making power?[6]


V.    Board Officers

The Board may be required to designate a President / Chair, Secretary, Treasurer, and / or alternatives.  Check your state’s requirements, and outline the duties of each officer in subsections.  Also specify how officers are designated (elected directly by the membership or chosen by Board Directors) and how long their terms last.

VI.    Finances


Be sure to cover the following (check your state’s statutes):

a)       How are net proceeds (both margins and losses) apportioned?

b)       How are proceeds distributed?

c)       What are your policies for patronage refunds and reserves?

d)       Check the IRS code for guidelines for equity records.  Cover equity redemption for terminating members, deceased members, and unclaimed equity.

e)       Consent to patronage distributions.  Another useful phrase:

“Consent to patronage distributions” means that all members will report their co-op patronage refunds and retained capital equity to the IRS as earnings.  Each year members will receive a 1099 form itemizing their patronage refunds earned in that year.”[4]
  
It is helpful to state in the Bylaws and in your membership contract that individuals consent to comply with relevant tax laws upon becoming members.[1]


VII.    Administration and Miscellaneous


This section can include a variety of topics (organized into subsections).  Topics may include when the fiscal year begins, what meeting process is used (Robert’s Rules of Order, Butler’s Formal Consensus, or another system detailed in a separate text that can be referenced by members), use of a corporate seal or logo, indemnification and insurance coverage for Directors, financial reviews, options for advisory councils and committees, and more.[4]  Separate sections can be created for these topics if desired.[5]


VIII.    Amendment to the Bylaws


It is important to state the procedure for amending the Bylaws.  How does a Board Director or member propose an amendment?  How is an amendment approved?  (This often requires a period or special general membership meeting and a vote of the membership.  Some cooperatives require that members petition for a special meeting and / or Bylaws change in order to demonstrate that their proposal has some support.)


IX.    Dissolution


What procedures should be followed if the cooperative goes out of business?  If members or Board Directors are interested in dissolving the cooperative voluntarily?  How will remaining assets be divided?  This part should be consistent with your Articles of Incorporation.[4]

Model Bylaws for A Worker Cooperative

The ICA Group presents legal forms and guidelines for creating a worker cooperative corporation in their publication "ICA MODEL BYLAWS FOR A WORKER COOPERATIVE" (Download: File:ICA Model Bylaws for a Worker Cooperative.pdf). While this publication is not designed as a substitute for competent legal advice, it can be a helpful tool in your consultations with local counsel.

References 

  1. 1.0 1.1 1.2 Electric Embers Bylaws: http://usworker.coop/content/electric-embers-bylaws
  2. 2.0 2.1 2.2 Quilted Bylaws / Operating Agreement: http://usworker.coop/content/quilted-bylaws-operating-agreement
  3. Mariposa Food Co-op Bylaws: http://usworker.coop/content/mariposa-food-co-op-bylaws
  4. 4.0 4.1 4.2 4.3 4.4 4.5 A Guideline for Cooperative Bylaws: http://madworc.org/sites/madworc.org/files/guideline%20for%20cooperative%20bylaws
  5. 5.0 5.1 5.2 5.3 Collective Copies Bylaws: http://usworker.coop/faceted_search/results/taxonomy%3A287
  6. 6.0 6.1 Workers Diner Bylaws: http://usworker.coop/content/workers-diner-bylaws


File:Recommended Structure for by-Laws 2.pdf