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Home , Business operations, Cooperative, Organization

Understanding : How to Start a Cooperative Information 45, Section 14

Discussion topics should include: When Should a Cooperative be u What information about the perceived United States need is readily available? Department of Organized? Cooperatives are formed u Could a cooperative effort address this Agriculture need? Rural Development in response to an economic need, u What information about cooperatives is Cooperative such as providing marketing, pro- available? Programs cessing, bargaining, , u Who can serve as an adviser to the group? September 1995 and services not current- u Who should be invited to a meeting of Revised potential users? April 2011 ly available, or available only at u How should potential users be contact- excessive cost. ed? If a cooperative seems to offer a solu- tion, a larger meeting of interested potential If interested in forming a cooperative, learn users may be planned. all you can about the legal, economic, and financial aspects of a cooperative Hold Initial Exploratory Meeting . Careful increases the A meeting of potential member-users chances of success. should be called to decide if is suf- ficient to support a cooperative. The meet- Why Groups Organize ing date, time, and place should be pub- Cooperatives: licized in advance. The group u To improve bargaining power; should select a to conduct a u To reduce costs; meeting and develop an agenda. These u To obtain products or services; items should be discussed: u To create new and expand existing mar- u What is the need; ket opportunities; u Possible solutions; u To improve the quality of products or u Cooperative principles and terms; 1 services; u Advantages and disadvantages of a u To increase income. cooperative; Is there an u What financial and other commitments economic need? Steps in Organizing are expected of user-members; Determine the Economic Need p Yes - Proceed to u Cooperative and feasibility Stage 2 A cooperative is organized in response to a analysis process; specific problem or opportunity. The idea is u Allow time for potential members to ask p No - Stop cooper- often initiated by a small group that meets questions. If the group votes to continue ative development to discuss the need. The meeting should with more detailed study, a steering com- focus on the economic need and the mittee should be selected. potential use of a cooperative as a solution.

1 Select a Steering Committee Prior to conducting the initial Member participation Steering committee members should have analysis, the steering committee will first both an interest in the cooperative and meet to review the member-use analysis. in decisionmaking sound business judgment. They often be- Potential members have been surveyed activities and sense of come the cooperative’s incorporators and regarding their interest in jointing the pro- may serve as its first . posed cooperative, anticipated business cooperative spirit are The committee has a two–part : volume, and willingness to commit their important for success. u Deciding the feasibility of the coopera- product and . Depending on results, tive: Will the proposed cooperative suc- the steering committee then decides ceed? Will it be valuable to members? whether to proceed with the . u Preparing a specific, detailed business Following a decision to proceed, an ini- plan for the proposed cooperative. tial market analysis is conducted to deter- The committee should consult special- mine if the proposed cooperative has an ists in the areas of , , and - economic role in the marketplace. This erative . Two essential analysis will identify and examine market studies must be initiated: a member-use conditions to provide insight into appropri- analysis and an initial market analysis. ate activities for the cooperative, volume, facility, and technological needs, and other Conduct a Member-Use Analysis and Ini- pertinent factors. tial Market Analysis. The market or supply analysis will deter- The steering committee must take steps to mine if the proposed cooperative has an learn all it can about the cooperative’s po- economic role in the marketplace. The tential members and what the cooperative analysis will identify which activities are can do for them. The survey should explore appropriate, business volume, and finan- four areas: cial capabilities of the potential cooperative u Members’ needs—The cooperative is members. formed and operated for the sole purpose of meeting members’ needs; Second Member Exploratory Meeting Stage 2 u Anticipated business volume—The This meeting of potential members reviews cooperative must have some assurance of results of the member-use and inital market Can a cooperative sufficient volume to operate as a business analyses. Based on the information pre- offer a soution? and to plan for facilities and needed equip- sented, the participants vote either to con- ment; tinue or abandon the project. If they choose p Yes - Proceed u to Stage 3 Location and business or charac- to continue, the next step is to conduct a teristics of prospective members—Where, comprehensive feasibility analysis. p No - Stop how, and when the cooperative delivers its Potential members may be asked to cooperative services is a prime consideration; invest earnest money at this point to dem- development. u Opinions of members—How do poten- onstrate their commitment to the coopera- Consider other tial members feel about cooperatives and tive and to cover further analysis and organization participation in one? Member participation structure. organizational costs. in decisionmaking activities and sense of cooperative spirit are important for suc- cess.

2 Conduct a Feasibility Analysis cles of . Legal counsel should A comprehensive feasibility analysis, con- be consulted on these and other legal doc- ducted by an experienced practitioner, will uments, such as membership or marketing help the steering committee determine if agreements. the proposed cooperative is feasible given well-determined assumptions, researched Fourth Exploratory Member Meeting information, and the member-use and initial At this meeting, potential members review market analyses. This study determines the and recommendations of the , marketing, technical, eco- steering committee, including the articles of Stage 3 nomic, and financial feasibility, and pres- incorporation, bylaws, and any adjustments ents the entire cooperative concept in one made to the . Support for the Is there member document. It will provide the foundation for cooperative should again be evaluated by a interest? the business plan if a decision to proceed vote on whether or not to form the coopera- ❑ Yes - Proceed is made. tive. If affirmative, the incorporators file the to Stage 4 articles of incorporation. Third Member Exploratory Meeting ❑ No - Stop At the third exploratory meeting, the steer- First Annual Meeting of development ing committee presents the comprehensive Cooperative feasibility analysis findings to potential At the first meeting of the cooperative, members and provides the committee’s members carry out two very important recommendation on whether to proceed. If member responsibilities: the decision by the group is then to pro- u Approve the bylaws; ceed, the next step is to prepare a business u Elect the board of directors. plan and draft legal documents. Steering committee members are often board candidates, but other members may Prepare a Business Plan also be elected to these leadership posi- Every business should have a business tions. plan. The steering committee should arrange for completion of an in-depth busi- First Board of Directors Meeting ness plan prepared by a professional famil- The first meeting of the board of directors iar with cooperative organization. The plan should focus on selection of the board is developed from the foundation provided officers, committee appointments, and Stage 4 by the feasibility analysis and provides an carrying out the business plan. Addi- Is cooperative organizational map that the new coopera- tional agenda items include arranging plan feasible? tive will follow as it begins operations. capital, conducting a membership drive, establishing manager qualifications, and p Yes - Proceed Draft Legal Papers and Incorporate conducting a manager search. to Stage 5 The articles of incorporation state the pur- p No - Stop pose and scope of the cooperative busi- Acquire Capital development ness and give the cooperative a distinct The board of directors is responsible for legal standing. arranging adequate capital. Capital may The bylaws state how the cooperative be raised by members purchasing stock will conduct business and must be consis- () and borrowing funds (debt) from a tent with both State statutes and the arti- lending . Members must invest or

3 pledge sufficient capital in the business to Summary demonstrate commitment to the coopera- A cooperative is a unique form of business tive’s success. Exact amounts will depend used by people and for their on activity and lender requirements. mutual benefit. Whatever its purpose, start- Projected cash–flow schedules and finan- ing a cooperative requires considerable cial statements from the business plan are time, energy, and commitment by potential important in determining capital needs and members to finance and use the business arranging for debt capital. and select knowledgeable directors who will hire a competent manager. n Hire a Manager One of the most important duties of the Where to Get Help board of directors is to hire a qualified The U.S. Department of Agriculture’s Rural manager who is responsible for day–to–day Development (RD) in some States operations. have cooperative development specialists on staff who can help you. For additional in- Hire Employees, Acquire Facilities, Begin formation, contact USDA’s Rural Business- Operations Cooperative Progams in Washington, D.C. The manager hires capable employees and Its staff of professionals can help organize a advises the board on what facilities and new cooperative and provide technical as- Stage 5 equipment to acquire, within the budget sistance to existing cooperatives. Write to: and operation guidelines established by the Do members commit board. Rural Business-Cooperative Service capital and business volume? Stop 3254 Are resources Important Factors for Cooperative Success Washington, DC 20250–3254 available? Experience shows that a newly organized Phone (202) 720–3350 cooperative’s chances for success can be FAX (202) 690–2750, p Yes - Begin improved by doing the following: Attention: CDD operations u Clearly identifying the economic need; http://www.rurdev.usda.gov/ u Reaching agreement on the coopera- cooperatives.html tive’s mission; To see this and u Developing good leadership; For more details, see the following other USDA coop- u Gaining the commitment of members to USDA Rural Development publications: erative publica- do business with the cooperative; How to Start a Cooperative, CIR 7 tions online, visit: u Following sound business practices. Cooperative Feasibility Guide, SR 58 http://www.rurdev. usda.gov/rbs/pub/ This circular is one of a continuing series that provides training information and presentations for cooprpts.htm resource persons who may or may not be familiar with the cooperative form of business. This series provides the basic background material they need and in a form that can be readily adapted, with limited preparation time, to a To order hard cop- lecture or other presentation. ies, e-mail: The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis coopinfo@wdc. of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an indi- usda.gov vidual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) or telephone: Persons with disabilities who require alternative means for of program information (Braille, large print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD). 1-800-670-6553. To file a complaint of discrimination, write to USDA, Assistant for Civil Rights, of the Assistant Sec- retary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC 20250-9410, or call toll-free at (866) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 (English Federal-relay) or (800) 845-6136 4 (Spanish Federal-relay). USDA is an provider and employer.