March 2007

Cooperative Development Services

The Co-op Advantage

• What is Cooperative?
• Types of Cooperatives
• Developing a Cooperative
• Organizational Structure and Chart
• Roles
• Financial Programs
• Development Assistance
• More Information

WHAT IS A COOPERATIVE?

A cooperative is a distinct type of organization, collectively owned and democratically controlled by the members of the cooperative to satisfy their common economic, social or cultural needs.

1st Principle:
Voluntary and Open Membership

Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2nd Principle:
Democratic Member Control

Cooperatives are democratic organizations controlled by their members, who actively participate in setting policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary Cooperatives, members have equal voting rights (one member, one vote) and Cooperatives at other levels are organized in a democratic manner.

3rd Principle:
Member Economic Participation

Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes:

• developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible;

• benefiting members in proportion to their transactions with the cooperative; and

• supporting other activities approved by the membership.

4th Principle:
Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5th Principle:
Education, Training and Information

Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their Cooperatives. They also inform the general public - young people in particular - and opinion leaders about the nature and benefits of co-operation.

6th Principle:
Cooperation among Cooperatives

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, regional, national, and international structures.

7th Principle:
Concern for Community

While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.

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TYPES OF COOPERATIVES

There is a wide range of traditional cooperatives operating in Manitoba. Each provides different services to meet the varying needs of their members. Types of cooperatives include producer/marketing, retail supply, utilities, cable television, agricultural services, fish marketing, child care, farmers' markets and community service.

Workers' and housing cooperatives, while built on the traditional model, contain additional components that need to be recognized. Adding to the mix is a non-traditional cooperative that has emerged in recent years, called the New Generation Cooperative or NGC.

Workers' Cooperatives

The objective of a workers' cooperative is to provide employment to its members, who are also the owners. Members provide the capital to finance the business, each sharing the costs and risks of ownership.

Major benefits to the employee-members include involvement in the policy-making process, through the election of a Board of Directors, profit sharing through patronage allocations, and a quality of work life that is established by the membership.

Housing Cooperatives

The objective of a housing cooperative is to provide housing to its members. As is the case with other cooperatives, it is owned and controlled by its member residents, who elect a board of directors to represent them. Under Manitoba legislation, housing cooperatives fall under two categories: not-for-profit and others.

This legislation puts certain limitations on not-for-profit housing cooperatives. For instance, they are precluded from selling investment shares and are required to carry on business without the purpose of gain for their members. The legislation also addresses the uniqueness of housing by providing standards to define members' obligations to the cooperative.

New Generation Cooperatives

New Generation Cooperatives (NGCs) represent an emerging trend in agriculture, forestry, fishing and other industries that are supplied by producers. These are distinct types of cooperatives formed to enable members to process raw commodities. As a result, members not only receive market prices for their produce, they also gain the opportunity to profit from processing and marketing these value-added products.

It is primarily the financial structure and membership requirements that distinguish NGCs from the more traditional cooperatives. Typically, higher equity investments are required by members in order to establish a processing plant. Furthermore, the number of members is limited to those who purchase delivery rights, as well as by the processing capacity of the plant. Because of the unique structure of NGCs, members feel a greater degree of personal ownership and a stronger commitment to the cooperative.

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DEVELOPING A COOPERATIVE

Identify the opportunity

Every new business venture begins with an idea. It could be a new product or service, or a variation on an existing one. Often, the process to start a cooperative begins with a group realizing they face a common challenge, a perceived opportunity or a mutual need.

Determine the project need

Once the need for a cooperative is determined, arrange a meeting with potential members, where community leaders can present the idea and its benefits, and obtain feedback from interested parties.

It is a good idea to survey the potential members to measure the concept, evaluate the volume of business that may exist and determine if people are willing to contribute financially to the project.

Do a feasibility study

If the interest to proceed is sufficient, your next step is to select a steering committee and have a feasibility study completed. The study should be done by someone who is an industry expert and is independent of the cooperative.

The results of the feasibility study will help your group assess the project's potential success, however, it is not a guarantee. It will provide you with the information you need to make a sound decision on whether to proceed with the venture, and how best to go about it.

When the feasibility study is complete and indicates feasibility and viability, present it to the potential members of the cooperative to consider how to proceed.

Ingredients for a successful cooperative

Although there are many ways to develop a cooperative, there are certain steps or processes adopted by many successful cooperatives.

If the decision is made to proceed, with the venture, the key areas to address are the organizational structure and the business plan.

For the most part, cooperatives require assistance from experienced outside resources, such as lawyers, accountants, community leaders and industry experts. They will help you develop reasonable and appropriate organizational structures and sound business and financial plans.


Incorporating your cooperative

Proceed with the incorporation of the cooperative only when a decision to proceed is obtained by enough potential members to achieve the volumes of business outlined in the feasibility study. Manitoba requires the preparation of Articles of Incorporation and bylaws that will reflect cooperative principles.

To incorporate, there are minimum standards that must be met. You must have:

• three individuals or two corporations willing to act as incorporators;

• three individuals willing to act as first directors;

• approval of the cooperative’s name at the Office of the Registrar of Cooperatives;

• completion of a name reservation at the Companies Office;

• completion of Articles of Incorporation; and

• completion of bylaws.

If the amount of the membership requirement exceeds $1,000 in membership shares and/or loans, or if investment or special investment shares (delivery rights) are being issued, an Offering Statement must be filed with the Registrar. A request for exemption from filing an Offering Statement can be made to the Registrar, who may provide the exemption but may require the use of a disclosure document.

If any investment shares are being sold to the public, a prospectus must be filed with the Securities Commission.

The approved Name Reservation, Articles of Incorporation, bylaws and if required, the Offering Statement, must be submitted to the Registrar of Cooperatives together with the required fees.


After incorporation

Once the incorporation process is complete, the incorporators are the first directors and the only members until new members are approved by the board. Arrange a meeting of members and potential members as soon as possible. Potential members should be encouraged to join before the meeting in order to have the right to vote. At the meeting, voting members should elect directors, approve the bylaws, set out financial requirements of membership and arrange to finance the preparation of a business plan.

The business plan

A business plan is a document providing a complete description of the proposed cooperative enterprise. The plan must include financial projections, marketing opportunities and other pertinent information about the venture. It must also address all issues relevant to the project.

Once a decision is made to proceed, present the business plan to the potential membership. The member owners require the information to help them decide if they are willing to risk investing equity in the new business.

After securing the members' support, present the plan to the individuals or organizations from whom the cooperative is seeking financial support. It is important that the business plan explain:

• why they should invest in the enterprise you're proposing;

• the seriousness of the enterprise; and

• the team's ability to launch and develop it successfully.

Prepare for business launch

Once the business plan has been decided, identify leaders to run the equity drive. When the volumes of business and equity targets set out in the business plan have been agreed to by the members, and they are prepared to support and do business with the cooperative, the cooperative is ready to launch the business.

This will involve hiring management, acquiring or building facilities, hiring and training staff and opening for business.

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ORGANIZATIONAL STRUCTURE

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ROLES

1. Members

Members have the overall responsibility to ensure that the new generation cooperative continues as a strong viable organization.

Members are expected to:

• patronize and support the cooperative;

• set broad objectives and bylaws;

• observe the bylaws and policies of the organization;

• participate in members meetings and keep informed;

• provide financing;

• elect a competent board of directors;

• appoint the auditor;

• participate on committees;

• approve any fundamental changes to the Articles of Incorporation;

• approve amendments to the bylaws;

• approve any major purchase or disposal of assets; and

• remove a director for cause.

2. Directors

The directors are elected by the members to manage the cooperative and to provide leadership.

Directors are expected to:

• conduct the business and the affairs of the cooperative in the best interest of the membership;

• develop policies and provide general direction to management, committees and members;

• ensure that adequate financial records, membership list, minute book and other records are kept;

• obtain training required in their roles as directors;

• hire competent management;

• provide information and leadership to members and management;

• monitor performance of management and committees;

• ensure new members receive orientation regarding their rights and responsibilities; and

• approve new member applications and withdrawal or termination of memberships.

3. Management

The directors may delegate responsibilities to management.

Management is expected to:

• manage the business operations according to board policies;

• hire and supervise staff;

• present operating reports to the board and recommend policy changes; and

• promote good public and member relations.

4. Committees

Directors may establish various committees to perform specific tasks.

Committees:

• usually consist of directors, members and sometimes staff;

• act only under the authority of the board;

• should have a specific purpose and written terms of reference; and

• should report to the directors.

Some typical committees established by cooperatives are fundraising, nominating, finance, member relations, special events, building and audit.

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FINANCIAL PROGRAMS

I. The Co-operative Loans and Loans Guarantee Board

This Board provides loan guarantees. Cooperatives applying for a loan guarantee must demonstrate that:

• the funds will not be used for refinancing or for payment of an existing debt;

• an effort has been made to secure financing at reasonable terms;

• the loan is for productive purposes and the guarantee is necessary to the success of the project;

• there is reasonable evidence of an ability to repay the loan;

• normal cooperative principles and business practices are being followed;

• reasonable security is available; and

• members have sufficient equity so that their risk is at least equal to that of the requested guarantee.

It is important that cooperatives have access to the basic financial services necessary for their development and expansion. Cooperatives may consider applying to the board if they are unable to obtain financing on reasonable terms.

For more information on The Co-operative Loans and Loans Guarantee Board contact:

The Co-operative Loans and Loans Guarantee Board
Attention: David Kerr
905G Norquay Building
401 York Avenue
Winnipeg, Manitoba R3C 3P8
Phone: (204) 945-8650

Toll free: 1-866-MANITOBA (626-4862)

Contact your local GO Team Office

Email co-ops@gov.mb.ca


II. The Cooperative Promotion Board

The Board was established to assist and encourage the development of cooperative enterprise in Manitoba. Grants may be awarded:

• as awards, scholarships or bursaries, for any competition or studies related to the philosophy, principles, business or affairs of cooperatives;

• to promote cooperative research, information and education projects;

• to develop and promote cooperatives; and

• to promote the general welfare of the cooperative organization.

For more information on The Co-operative Loans and Loans Guarantee Board or The Cooperative Promotion Board, please contact:

Cooperative Promotion Board
Attention: Margot Cathcart
1129 Queens Avenue
Brandon, Manitoba  R7A 1L9
Phone: 204-726-6207

Toll Free: 1-800- MANITOBA (626-4862)

Contact your local GO Team Office

Email: co-ops@gov.mb.ca

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DEVELOPMENT ASSISTANCE

Assistance is available to individuals, groups and communities wishing to develop a new generation cooperative, and to existing cooperatives wishing to expand their operations or convert to the new generation model. Manitoba’s Cooperative Development Services provides, through its consultants, support and assistance with all the steps involved in setting up a cooperative.


General Assistance

Consultants are available to help recruit potential members through public meetings. The proponents of the project present their idea and its benefits at the meeting. The consultants provide counselling services to help the proponents measure and evaluate the project, and determine if the project will best be served by using the cooperative model of democratic control.

Other assistance includes:

• general information on cooperatives

• non-financial assistance programs for development of cooperatives

• financial assistance programs for start-up or expansion of cooperatives

• consultants who can help identify needs and opportunities for cooperative development

• encouragement and support for individuals, groups and organizations considering developing cooperatives for community improvement and economic diversification

Incorporation

Cooperative Development Services provides information on various corporate structures and other matters relevant to the filing of a request to the Registrar of Cooperatives for incorporation. Cooperative Development Services offers counseling assistance in the incorporation of new generation cooperatives. Professional assistance from lawyers and accountants is recommended, especially in matters of share structures and compliance with legal matters regarding the selling of shares.

Counseling services

Consultants may provide basic information and advice that will help emerging cooperatives ask the right questions when dealing with professional advisors. Consultants will provide information on programs and services offered by all levels of government and non-government organizations to developing businesses, especially those directly related to the industry the new generation cooperative intends to operate.

Training

Training of directors and members on their roles and responsibilities is provided upon request.


Regulatory

Assistance may be provided to help cooperatives comply with the requirements of The Cooperatives Act and Regulations. The Registrar of Cooperatives provides the generic filing information and forms upon which the consultants base their assistance.

Operations

Operation planning services are important components of the startup process. Consultants are available to provide assistance with operational matters, including how to set and meet operational objectives, expansion planning, and research and development of new products. They will also help you access government programs that can provide additional assistance, especially the programs and services provided by the Industry and Trade branches of Manitoba Industry, Trade and Mines.

For more information or assistance on how to incorporate, contact:

For information on prospectus requirements contact:

Manitoba Securities Commission
500-400 St. Mary's Avenue
Winnipeg, MB R3C 4K5
Phone: (204) 945-2548
Fax: (204) 945-03303

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