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Cooperative Development Services

Building a Cooperative


The Cooperative is a business democratically governed by its members who have committed to success. Its establishment requires more steps than a regular business, we identify three major steps starting with the phase before incorporation, incorporation, and finally after incorporation. The different phases include but are not limited to the following steps and depend on the type of cooperative.

See also: Cooperative Development Curriculum

 

8 Steps to Build A Cooperative (PDF)

  1. Identify the Opportunity
  2. Determine the Need and Support for the Project
  3. Undertake a Feasibility Study
  4. Select a Champion
  5. Incorporate and Raise Finances
  6. Prepare a Business Plan
  7. Review the Business Plan and its Assumptions with Potential Members
  8. Build and Operate the Co-op

Sections:

 

Before Incorporation

During this phase the Cooperative’s members explore the advantage and disadvantage to pursue a regular business. The group will identify the different challenges related to the business idea and the group commitment.

Every new business venture begins with an idea. It could be a new product or service, or an expansion of an existing one. Often the process to start a co-op begins with a group realizing they share a common challenge or need, or they perceive an opportunity of common interest.

At this stage the idea might be monitored by a few members that are known for their leadership. The idea to develop a Cooperative not a different business includes the sense of community participation in the accomplishment of the project.  

The question that very often comes first is how to regroup the interested participant or potential members into the project, so it is the first marketing challenge that the members face when they develop a common project.

The group works on the idea and finalizes the project goals and objectives and with the help of a business specialist the formula of a Cooperative including the value and respect of its seven principles will be discussed in realizing the project.

The pre-feasibility period explores the business idea potential and the group commitment to make the project happen. 

  1. The business assessment: reviews the originality of the idea and clarifies the nature of the needs that the business will cover, the skills needed to accomplish it, the potential profit for members, community and others, the cost estimated, the capital required and the regulations and policies managing the specific business
  2. The group assessment: the group leader should do the inventory of the different skills available and evaluate them to the business need: the leaderships capacities on how far they can mange as a group a business, the financial capacity to achieve their goals and the ability to find funds as known the Cooperatives are in lack of available funds. The most important assessment might be how the members can work together and act positively for a common goal
  3. The group leader explores The Cooperatives Act

The result of this assessment gives the co-op leaders the ability to determine primary needs in running a business and managing a group of owners. It’s time to hold a first meeting with a large group of potential members where the project leaders can present an overview of the project components and obtain feedback from interested parties.

Making members aware of the business idea and sharing knowledge and tips on the topic, the steps required for incorporation and the Cooperatives Act (part1) will help the co-op to build the volume of use report and the kind of services to maintain. The steering committee is ready for the next step after trust between members has been gained.

 

Incorporation Phase

Connecting to the pre-incorporation phase the leader should explore the legal requirement to incorporate as a Cooperative; the founders must be at least three people or two organizations and meet The Cooperative Act (part 2) (PDF) requirement to incorporate. The Cooperatives may be for profit or not-for-profit and under each category it may be with shares or without shares. Under with share it may be only membership shares or membership share and investment shares. Those differences should be clear to the member founder because they will determinate the source of financing for the Cooperative.

At this stage the leaders need to explore The Cooperatives Act and regulations related to the type of Cooperatives they expect to conduct, to fill out the registration forms and remit the fees required.

Before starting the process of incorporation, the co-op conducts a strategic plan to identify its mission, vision and objectives which will be communicated to other members and the community. It’s time to set up the goals and the deadline of the co-op project and should also set up tools and measurement to measure its success or failure and evaluate the work of different stakeholders.

The legislation has identified articles and by-laws for each kind of Cooperatives which can be found on the following links:

After reserving the right name, the founders submit the articles in duplicate to The Registrar of Cooperatives.

 

After Incorporation

Now you are incorporated and the Cooperative carries its legal name, so the Cooperative will start applying for funds that are available at its business development stage.

The board founder will now concentrate effort and resources in recruiting more members, searching financial resources to get started the business function by conducting a Feasibility Study, developing the cooperative By-laws and pursuing a Business Plan and exploring available Programs to finance the cooperative.

Bylaws

The group leaders develop by-laws and a manual of procedure to identify the framework of the Cooperative.

In The Cooperatives Act, each Cooperative must carry a by-law that clarifies the duties and rights of the Cooperative within the members, the directors, the customers, the community, employees and all stakeholders that the Cooperative is or might have relationship with.

A sample of different bylaws is available within the Cooperative development services that the leaders can extend and develop to meet their Cooperative business needs. The by-laws shall be submitted to the registrar for approval within 30 days following its adoption at the first general meeting and will not be considered as an official document until reception of the registrar approval.

The incorporation phase gives the Cooperative a legal entity that will be the moral responsible for managing fund and the Cooperatives operations.

The following are templates of Bylaws for different categories of cooperatives which the cooperative can adjust to its unique needs and choose from the options available.

View or download the current by-laws samples and by-laws option related to your cooperative.

 

Financial Programs

Cooperatives may benefit from different financial programs and specific ones which include the following programs:

The Cooperative Loan and Loan Guarantee Board

This Board has the ability to provide loans guarantees to co-ops in Manitoba to enable them to secure the financial services necessary to develop or expand a viable co-op enterprise.

The Cooperative Loans and Loans Guarantee Board provides financial help to co-op organizations. The Board provides loan guarantees to viable co-ops that are unable to get financing on reasonable terms in order to support the growth and development of the sector.

Eligibility Criteria

To be eligible for a loan guarantee co-ops must demonstrate the following:

  • The required financing is not available on reasonable terms from lenders or other sources, even after an effort has been made, but would be available with assistance from Government.
  • The funds will not be used for refinancing or for payment of an existing debt.
  • The loan is for productive purposes and is necessary to the success of the project.
  • There is reasonable evidence that the co-op will be viable and able to repay the loan.
  • Reasonable security is available.
  • Members have sufficient equity so that their risk is at least equal to the amount of the guarantee being requested.
  • Normal co-op principles and business practices are and will continue to be followed.

Terms and Conditions

  • Each co-op applying for financial help is treated as unique.
  • Repayment terms will vary, depending on the circumstances of the co-op.

Making An Application

The Board meets regularly to review applications. Contact Cooperative Development Services for an initial consultation. Staff can also assist you with:


Canadian Agricultural Loans Act (CALA)

This is a Federal Government Program that provides loans up to $3 million for agricultural Cooperatives with the Minister's approval.

Neighbourhoods Alive

Neighbourhoods Alive! provides financial support to encourage revitalization in designated neighbourhoods for housing and physical improvements, employment and training, education and training and safety and crime prevention. Co-ops are eligible to seek funding.

Jubilee fund

* Other financial programs available through the World Trade Centre or at Entrepreneurship Manitoba

A Federal / Provincial joint service, the center and its satellite offices provide a wealth of information on financial and other services provided by all levels of government and non government organizations.

 

Business Plan

The incorporation process gives the Cooperative its legal identity that allows the right to raise funds and apply for specific funding and programs.

The Cooperative business is similar to a regular business conducted by a sole proprietor, corporation or other formula to run the business, so the Cooperative conducts a business plan to determinate exactly the amount of investment it is going to explore, market available, competitor and its business environment by the study of the internal and external challenges.

The business plan is a document providing a complete description of the proposed co-op 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 the plan has been approved by the steering committee, the Cooperatives' leaders present the business plan to the potential membership. The information is required to enable them to 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, especially potential stakeholders such as lenders, suppliers and customers from whom the co-op is seeking financial or other support. So, it is valuable and important that the business plan explains:

  • why they should invest in the business you're proposing
  • the seriousness of the Cooperative enterprise
  • the team's ability to launch and develop it successfully and to repay any financial assistance
  • the governance and management skills for such business

The business plan is needed for both the Cooperative project and for the founders:

  • The founder would like to see in the business plan: the history of the Cooperative; reputation and credibility of managers; the kind of project; the financial capacity for the Cooperative; the feasibility of the project; the risk and the assets available; the quality and the consistency of the documents
  • For the Cooperative the business plan gives an overview on: the kind and details of the project; the commitment of the group; the feasibility of the project; the kind of concluded and potential partners; the benefit into the community and the financial plan

After completing the business plan and the management tools to work with, a meeting with the members is important to have more commitment, recruit more members into the Cooperative and review the business with the potential members.

  • Understanding the business plan, its assumptions and demonstrating that the project should be successful is key to giving members enough information and confidence that they will be willing to supply the necessary equity, attracting competent management and securing lenders and other creditors necessary to operate the business successfully
  • The business plan should be studied by the potential members
  • Members should demonstrate their willingness to proceed with developing the project by providing the required capital, as set out in the business plan, to attract the other stakeholders into the project
  • Before embarking on a campaign to secure capital from members, you must ensure that the appropriate approvals have been received from The Registrar of Cooperatives for an Offering Statement (PDF) or The Securities Commission for an Initial Purchase Offering
  • If the decision is made to proceed with the venture, the key areas to address are the organizational structure management, and implementation of the business plan

When the management type is defined and the business plan has been accomplished it is time to hold a meeting with the large members to support the business plan and raise fund through recruitment of new members who will have the right to vote during the Cooperative meeting.

 

Feasibility Study

The steering committee is ready to conduct a feasibility study but in some cases it’s hard for  the leaders to do it, so asking for help or hiring a consultant expert in the field conducted by the business is worthwhile for the success of the co-op business. The success of the Cooperative depends on the criteria given to the consultant and the needs matching the qualification of the expert.

The group leader might continually review the idea and the previous assessment for the project until they decide it is what they are looking for. The results of the feasibility study will become the cornerstone for many subsequent decisions. 

Ideally the feasibility study should be done by someone who is an industry expert and is independent from the potential co-op membership. Note: the cost of the feasibility study may be partially offset by government programs or other sources.

For the most part, development of a new co-op usually requires assistance from experienced outside resources, such as lawyers, accountants, community leaders and industry experts. These resources will help you to develop reasonable and appropriate organizational structures and sound business and financial plans.

The financial support programs usually require a contribution from the applicant, so for the Cooperative before starting to raise funds for the business duties the members will be required to make an up front financial contribution to cover the costs of the feasibility study and the legal duties which usually are not covered by the financial programs.

The results of the feasibility study will provide you with the information you need to assess the project’s potential for success and make a sound business decision. However, it is not a guarantee, and the decision to proceed with the venture and how best to go about it should rest with the potential members.

The steering committee comes up with the feasibility study led by a chosen leader representative of the potential members such as funding institutions, suppliers and customers meeting for more information and attempting to formulate the Cooperative business as the Cooperative is a community driven business.

The leader representative will be chosen for the following skills:  

  • An understanding of how co-ops function (administratively and financially)
  • An understanding of business development processes and practices
  • An understanding of the feasibility study process and the ability to interpret  its results
  • The ability to communicate effectively with potential members, suppliers and clients
  • The ability to build consensus with potential members
  • Credibility with potential members (i.e. may be a stakeholder)
  • Genuine enthusiasm for the project

These kinds of studies might be supported by the following financial programs:

 

Managing the Cooperative

The Cooperatives models vary according to the member organization to achieve their goals and business needs. The majority of Cooperatives start small regardless of the size of the Cooperative to achieve their goals while the business is running.

 We identify three kinds of management and usually relate to the size of the Cooperative, primary or association management, secondary or mix management and tertiary or business management.

  • Association / Primary Management (PDF): In this case the Cooperative is managed only by the members through the board of directors.

  • Mix / Secondary Management (PDF): Is the most common type of management where the Board of Directors hires and supervises the staff management, in this case the governance structure will expand to a manual of procedure into the business and relate to the by-laws of the association.

  • Business Management (PDF): It's seen within worker co-op where the employees are members, so the governance structure will concentrate on different element to a business purpose and it's the hardest management that the Cooperatives occur being a boss and an employee.

Maintaining the Cooperative

Depending on the kind of Cooperative, to maintain it successfully, you shall establish parameters and criteria for your success and failures, so you can parameter your Cooperative on your scale. The Cooperative is not related 100% as a business to make profit but it has to be sustainable, because it’s a community based project where benefit to the community will ensure its longevity. The Cooperative management should encourage and involve a large number of potential members willing to conduct business with the Cooperative.

  • Hold regular information meetings
  • Establish an education program for the members and the community
  • Participate in events within the community
  • Secure relationships with other organizations
  • Get into federation and professional associations
  • Become informed within the development of Cooperatives

After the incorporation phase and the business have already started its ongoing process, the Cooperative will build its own management system regarding its size, services, products and clients.

The governance is the efficient and appropriate way that the organization has to work with. The Cooperative establishes a manual of roles and responsibilities for all participants. The first learning and teachers of the governance model are the directors of the board.

Good Governance (PDF) sets up a formal system with the conditions supporting its development based on five keys:

  1. Determinate power, roles, responsibilities and respect of areas of competence. (PDF)
  2. Transparency and communication
  3. Democratic and/or participative management
  4. Leadership of director and members
  5. Education and training.

The Cooperative as a democratic organization works via a board of directors, which needs a manual and tools to work with, so the governance model gives the board the guidelines to act and react at any circumstance.

The Structure of the Cooperative (PDF) will determinate the interaction and the accountability for every component of the organization.

 

Contact Us:

Cooperative Development Services
Manitoba Growth, Enterprise and Trade
250 - 240 Graham Avenue
Winnipeg, Manitoba R3C 0J7

Phone: 204-724-2616
Email: co-ops@gov.mb.ca

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