Starting a cooperative

Co-opoly: The Game of Cooperatives

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In a nutshell, Cooperatives and Credit unions (which are legally structured as depositor-owned financial service co-ops) are corporations. They may incorporate in the state in which they do business or perhaps in another state whose statutes regarding cooperatives may be more favorable. They enjoy some tax exemptions because they are not obligated to seek profit for investors, but are created to meet members’ needs.

Generally, a group of people committed to starting a co-op forms a steering committee to guide the process of creating Articles of Incorporation, bylaws, mission and vision statements, member agreements, business and marketing plans, financial documents, etc., as well as to oversee an equity drive and the election by members of the first board of directors.

The first step any group should take on the road to becoming a co-op is for all the members to educate themselves about what a co-op is and is not. They may decide, during this process, that a different type of association is a better fit. A national network of co-op development centers [1] is a good place for the group to get help. There are also several cooperative development funds (eg: http://www.cooperativefund.org) with a regional or national focus; they offer substantial technical assistance as well as loans to start-up groups.

A typical guide to starting a co-op is on website of the Cooperative Development Institute. A newly revised free, online manual for consumer-owned food stores is on the website of the Cooperative Grocers Information Network. More resources and links are at the National Cooperative Business Association site.

Worker co-ops around the country have organized into regional conferences and a US Federation of Worker Cooperatives [2]. They actively promote existing co-ops’ support for new worker-owned enterprises through peer training, mentoring, lending and other means. Depending on the type of co-op being formed—whether owned by workers, consumers or producers, and in whatever industry or agricultural sector, and so on--there are resources available to help organize and launch a successful enterprise.

Contents

Legal Structure

See also: Forms of incorporation.

There are two main paths to becoming a coop:

  1. Incorporate under a co-op statute in any state OR Incorporate as a corporation and adopt cooperative by-laws.
  2. Limited Liability Corporations (LLCs), if they operate cooperatively and have cooperative by-laws, can technically be cooperatives.

Some states - such as Massachusetts, Maine, Connecticut, Vermont, and New York - have specific incorporation statutes for Worker cooperatives, which has several advantageous over incorporating as a LLC that operates a worker co-op. [3]

The Co-op Development Process

The following are core features of a typical (though not universal) cooperative development process.

  • Usually need a minimum of 40 hours of board meetings (or core group meetings); the process often lasts 12-18 months
  • Answer questions about Members, Needs, Vision, Values, and Strategy
  • Create founding board
  • Invest dollars for pre-development
  • Conduct feasibility study
  • Incorporate and adopt by-laws
  • Create business plan
  • Sign membership agreements
  • Make equity investments
  • Get financing
  • Hire manager
  • Open for business

The Stages of a Cooperative Development Process

Stage One: Exploration (Typically 3-6 months)

Explore your new business idea.

Subject
You will need to...
By the end of this stage you’ll have…
Organizational Development Form an Organizing or Steering Committee with people who represent the cooperative’s potential members. Identify your mission and core values. A committed group of people who agree on what they want this business to sell to whom.
Business Development Define your key business concept – What products and services might the co-op supply that could make a significant economic difference in the lives of its members?

Create a project development plan and budget.

Conduct Market Research to determine the need for your cooperative’s products and services and complete your feasibility analysis to see if you have a viable business idea.

Market research that shows there is a large enough market and sufficient product to sell that the cooperative will be financially viable and make a significant economic contribution to its members;

A clear plan and budget for each stage of development

Member Development Share information with potential members about your business idea. Growing interest from potential cooperative members.
Fund-raising Secure funds for Stage One and begin fundraising for Stage Two. Funds raised to cover the cost of development for Stage One and some of Stage Two.

Stage Two: Business Planning (Typically 3-6 months)

Figure out how to make your business idea a reality.

Subject
You will need to...
By the end of this stage you’ll have…
Organizational Development Set up your Founding Board, incorporate your cooperative, and adopt Bylaws that describe how you will work together. A legally incorporated cooperative with a seated board.
Business Development Create a Business Plan and Marketing Plan that describes how you will launch your business, what it will cost, and where you’ll get the money.

Raise money (equity) from members and get a loan to launch your business.

A Business Plan and Marketing Plan showing how the cooperative will be launched.
Members Recruit members for your cooperative. Enough members and money to launch your cooperative.
Fund-raising Secure development funds for Stages Two and Three. Funds raised to cover the cost of development for Stage Two:

Stage Three: Cooperative Launch (Typically 2-6 months)

Get the business set up and ready to open.

Subject
You will need to...
By the end of this stage you’ll have…
Organizational Development (If applicable) Set up office and hire staff. An office set up and staffed.
Business Development Contract for and market products and services.

Pre-sell members and/or customers products and services.

Initial products and services ready to offer;

Customers signed up for products and services.

Members Orient new members to their roles and responsibilities. Members educated about their rights and responsibilities as co-op members.

Stage Four: In Business

Open the doors and start providing goods and services.

Subject
You will need to...
By the end of this stage you’ll have…
Organizational Development Provide staff and management education and engage in strategic planning. A viable business, up and running, bringing economic benefit to its members and functioning in a democratic, responsible manner.
Business Development Provide products and services in response to member needs; engage in sales and marketing and ongoing business development.
Members Engage in member and board education.

Steps to Starting a Cooperative

Main article: Steps to starting a cooperative.

There are seven main steps to starting a cooperative. Click the above link for more information on each.

STEP 1: Gathering Information
STEP 2: Get Organized
STEP 3: Research Feasibility
STEP 4: Review Findings
STEP 5: Membership Drive
STEP 6: Planning and Financing
STEP 7: Begin Operations

Questions to Ask Before Creating Legal Documents

These are questions to answer before you consult with an attorney to help you design your legal documents - such as bylaws, Articles of Incorporation, and Membership Agreements.[4] Not all questions are universally applicable to every co-op, so check to see if these questions are relevant to your situation.

Building Shared Vision, Mission, Values and Strategy

  • Who are the members of this cooperative? What needs of theirs is the cooperative designed to meet?
  • List the assumptions you hold.
  • Identify the blocks for moving forward.
  • List the core values/principles that guide the cooperative.
  • How do you want the world to be different because the cooperative exists?
  • What is the vision you hold for this cooperative?
  • What do you want the cooperative to accomplish? What is its mission?
  • Who will serve as the start-up board of directors, overseeing the development activities?

Membership

  • Who is eligible for membership?
  • What equity will members contribute?
  • Will members each have one vote? Or will there be weighed voting?
  • Are there financial obligations for voting?
  • Are all members treated the same? Or are there classes of members?
  • How can a member terminate his/her membership? How can the coop terminate a member’s membership?

Board

  • Who is eligible to serve on the board?
  • What are their duties?
  • How many seats should there be?
  • Will you have board member from outside the organization?
  • How long will a board member serve?
  • How are board members elected? Removed?
  • Are they paid? Are expenses reimbursed?
  • How will vacancies be filled?
  • How often will the board meet? What quorum is required? What meeting notice is required?
  • Will there be standing committees of the board? If yes, what are they and what are the functions?
  • Will there be officers? If yes, what offices, terms, duties, selection process?

Capital Structure

  • What will your capital structure be? (Will you issue shares of stock? Membership/Common? Preferred? How many? At what value?)
  • What are the rights and responsibilities of each stockholder?
  • Will shares earn dividends?
  • What will the redemption procedure be?

Patronage Dividends

  • What is the basis for distributing patronage dividends to members?

Membership Meetings

  • How often will members meet? Who can call a special meeting? What notice is required? What quorum is required?
  • What issues will members decide?
  • How can members vote? By proxy, by mail, electronically?
  • How will the by-laws be amended?

Membership Agreements

  • What will members receive?
  • What will members agree to give?
  • How will money change hands?
  • How will quality be evaluated?
  • How will the agreement be enforced?
  • How will the agreement be terminated/renewed?

Keys to Successful Cooperative Development

General Guidelines for Success

  • Keep your focus
  • Keep members informed and involved
  • Build strong member leadership and commitment
  • Set realistic goals and assumptions
  • Conduct businesslike meetings
  • Follow sound business practices
  • Base decisions on market research rather than opinions
  • Create a comprehensive business plan
  • Use advisors and committees effectively

The project starts with

  • A compelling need
  • A strong champion
  • A clear vision
  • A good business idea

The founding board has

  • Business acumen
  • A diversity of skills
  • Integrity
  • Interested in the most viable business possible
  • Commitment to the project
  • The ability to govern the co-op

Project planning includes

  • Thorough market understanding
  • Honest market research
  • Effective business plan
  • Due diligence
  • Exit strategy
  • A conscious transition from development to operation
  • Forge links with other cooperatives
  • Identify and minimize risks
  • Maintain honest, open communications
  • Invest in member, board and staff education
  • Hire competent management
  • Raise sufficient capital
  • Establish a realistic market entry strategy
  • Make sure you have enough product to sell to a large enough market to make money

Founding members are

  • Committed to the project
  • Motivated by a common vision
  • Flexible thinkers

From a financial perspective, the project has

  • Adequate capitalization
  • Early member financial commitment
  • Financial feasibility
  • A commitment to use money wisely
  • Adequate financial resources

The project has

  • Strong management
  • Bylaws that spell it out
  • Fortuitous timing
  • Adequate human resources
  • The ability to learn from failure
  • A commitment to continuous communication with members, board, management and consultants
  • A commitment to education and training
  • Quick buy-in and the ability to build on success
  • A skilled co-op development facilitator

See also

Further Resources

For Worker Cooperatives

Democracy in the Workplace: All About Worker Co-ops half-hour documentary made in 1999, available on Google video.


References

  1. http://www.cooperationworks.coop
  2. http://www.usworker.coop
  3. Adams, Frank T., and Gary B. Hansen. Putting Democracy to Work: a Practical Guide for Starting and Managing Worker-owned Businesses. San Francisco: Berrett-Koehler, 1992. Print. Page 225.
  4. "How to Start a Co-op" packet. http://www.cdi.coop/CDIcompletestart-uppkt2010.pdf
 



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