:Title: Ned Uganda >> How to Start a Cooperative :Author: Mark Grimes :Date: Thu, 20 Sep 2007 08:24:32 PDT :Modified: Thu, 20 Sep 2007 09:03:46 PDT :URL: http://www.ned.com/group/neduganda/news/8/ OK, given feedback from Christina, Evvy and Linda (per their request) here is detailed information related to coops, how they are formed, how they best work, how they *don't* work, and general guidelines and practical information. Whereas before there may have been a case of "not enough information" I hope this now is not a case of "too much information." It seems like a good place to start. Cooperatives worldwide generally operate using the same principles as adopted in 1995 by the International Cooperative Alliance. The principles are part of a cooperative statement of identity which also includes the definition of a cooperative and a list of cooperative values. Definition: A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Values: Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others. **Principles** 1. 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. 2. Democratic Member Control — Cooperatives are democratic organizations controlled by their members, who actively participate in setting their 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. 3. 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. They 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. 4. 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. 5. 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 inform the general public — particularly young people and opinion leaders — about the nature and benefits of cooperation. 6. Cooperation among Cooperatives — Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures. 7. Concern for Community — While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members. **Worker-owned Cooperatives** Worker cooperatives are businesses that are owned and democratically governed by their employees. They operate in numerous industries, including childcare, commercial and residential cleaning, food service, healthcare, technology, consumer retail and services, manufacturing, wholesaling and many others. Some 300 worker co-ops throughout the U.S. provide their employees with both jobs and ownership—allowing them to directly benefit from the financial success of the business. **Democratic Governance** Like other cooperatives, the board of directors for a worker co-op is elected by, and from within, its membership-in this case, the workers. The board is always majority controlled by the workers, though some worker co-ops have outside directors and advisors serving on their boards. Management structures of worker co-ops vary greatly, depending on the desires of the members. Some worker co-ops use a traditional, management hierarchy, while others use more flat management systems that allow employees to be more directly involved in management decisions. Others use a team-based system that employs elements of both traditional and open management systems. **Profits and Wages** Each year, worker co-ops return profits not needed for reinvestment in the business, to their worker-owners in the form of patronage dividends. Dividends are typically distributed based on management position, hours worked, salary and/or seniority. Similarly, pay structures vary greatly. Some worker co-ops use a traditional, seniority- and skill-based pay scale. At the other end of the spectrum are worker co-ops that pay all workers the same wage. **Joining a Worker Co-op** Typically, workers may join their co-op after a probationary period lasting from a few months to more than a year. At that time, workers are allowed to buy an equity share in the business—the cost of which is usually deducted from their paychecks in small amounts each month. In some cases, existing worker-owners may vote on whether to accept the new member as a co-owner. When workers leave the co-op, their equity share is returned to them. **Elements of Success** A successful cooperative has committed members and effective leadership. In addition, starting a cooperative requires a great deal of time, energy, and technical resources. The recognition of a common need which the cooperative can fulfill is key to the success of the cooperative. To ensure success, members must actively participate in their cooperative. Members have the responsibility to finance the cooperative and use its services. Critical to the success of the cooperative is the members' willingness to provide an initial investment for start-up costs, to permit the retention of earnings so that the cooperative may grow, and to provide prompt payment of bills due the cooperative. Strong and effective management is also a key to the success of the cooperative. Good board/manager relations are also critical. As noted, the board is responsible for establishing policy and the manager carries it out. The board and management must recognize and respect their different roles and work together for the good of the cooperative. **Benefits** Belonging to a cooperative can be the key to prosperity and even survival for many small businesses. Throughout history, cooperatives have been innovators and pacesetters, and this is just as true of a purchasing/shared services cooperative as any other. Members of these cooperatives have found that they can adapt quickly to changing economic conditions rather than become victims of them. Through these cooperatives, businesses and public entities have found they can reduce costs, respond better to competition, and improve overall performance. **USA Co-op Statistics** - 29 cooperatives have annual revenue in excess of $1 billion, including such well-known names as Land O'Lakes, Inc., and ACE Hardware. The top 100 co-ops have a combined $117 billion in revenues. - Cooperatives range in size from large enterprises, including U.S. Fortune 500 companies, to single, small local storefronts. - 270 telephone cooperatives provide service to two million households. - Some 250 purchasing cooperatives offer group buying and shared services to more than 50,000 independents businesses. - Nearly 10,000 U.S. credit unions have 84 million members and assets in excess of $600 billion. - Cooperatives operate in every industry including agriculture, childcare, energy, financial services, food retailing and distribution, health care, insurance, housing, purchasing and shared services, telecommunications, and others. - About 30 percent of farmers' products in the U.S. are marketed through more than 3,000 farmer-owned cooperatives. - Approximately 900 rural electric cooperatives own and maintain nearly half of the electric distribution lines in the U. S., cover 75 percent of the land mass and provide electricity to 37 million people. - More than 1,000 mutual insurance companies, with more than $80 billion in net written premiums, are owned by their policyholders. - More than 6,400 housing cooperatives provide homes for 1.5 million households. - U.S. co-ops serve some 120 million members, or 4 in 10 Americans. — Statistics gathered from various sources as of March 2005. **Lessons for Success** The following tips for cooperative success are adapted from articles printed in the NCBA Cooperative Business Journal and the U.S. Department of Agriculture's magazine for cooperative businesses. **Why Cooperatives Fail** 1. Poor selection of directors, especially those who fail to support their cooperative 2. Members who join but never use their cooperative and bypass it for a small gain elsewhere 3. Members who use cooperatives but fail to take responsibility. Each member must be ready to accept responsibility when asked, or as the need arises. Every member should have an equal opportunity to be president of the cooperative. 4. Members who never ask questions and who let a few persons make policy 5. Members who don't attend annual meetings and directors who fail to attend board meetings 6. Lack of consistent membership education about the problems cooperatives face and the challenges they must meet 7. Not supporting the cooperative with enough money (risk capital) to get the job done 8. Low-cost management - it's the most expensive item for a cooperative. High-priced management is usually the least expensive item. 9. Not closely watching the formation of cliques and special interest groups within the cooperative 10. Concealing facts about a cooperative. All facts, both good and bad, should be placed on - not under - the table. 11. Errors in financial policy, such as over-extension of credit, too little capital, poor accounting records, lack of a financially sound, systematic program for reimbursement of equity 12. Errors in educational and social work. This begins by failing to teach cooperative ideals to members unfamiliar with how cooperatives function, neglecting general educational programs, failure to develop member loyalty or countering the development of factions within the association. 13. Management errors, such as inadequate inventory, poor location, improper equipment, neglected appearance of physical facilities, employee dishonesty, ineffective management, incompetent directors, nepotism, poorly conducted meetings, admittance of disloyal and dissatisfied members. **Why Cooperatives Thrive** 1. Providing only the goods and services members use 2. Financed by the members. The greater the financing (risk capital) supplied by the members, the more efficient the cooperative. 3. Using all major fixed assets at the 75 percent level, or more members who do the majority of their business with the cooperative 4. Low administrative and overhead costs 5. More individualized and specialized services, particularly in the marketing area 6. Maintaining an open line of communication with members. Individual members will then become more influential 7. Selecting and developing a quality management team. 8. Placing more emphasis on electing business-oriented directors 9. Developing and implementing a systematic method of cooperative education for members, employees, directors and paid management 10. Aggressively positioning for changes in operations, markets and member needs. **How to Start a Cooperative** 1. Hold a meeting of leading persons to discuss a need that forming a cooperative might meet. 2. Hold an exploratory meeting of interested persons. Vote whether to continue. If affirmative, select a steering committee. 3. Conduct a survey to determine cooperative feasibility. 4. Hold a second general meeting to discuss the survey results. Vote on whether to proceed. 5. Conduct a market or supply and cost analysis. 6. Hold a third general meeting to discuss the results of the market or supply and cost analysis. Vote by secret ballot on whether to proceed. 7. Conduct a financial analysis and develop a business plan. 8. Hold a fourth general meeting to hear results of the financial analysis. 9. Vote on whether to proceed. If affirmative vote on whether the steering committee should remain intact or whether changes should be made. 10. Draw up necessary legal papers and incorporate. 11. Call a meeting of all potential charter members to adopt the bylaws. Elect a board of directors. 12. Call the first meeting of the board of directors and elect officers. Assign responsibilities to implement the business plan. 13. Conduct a membership drive. 14. Acquire capital - develop a loan application package. 15. Hire a manager 16. Acquire facilities 17. Start up operations. The primary organizational documents for cooperatives are the Articles of Incorporation and the Bylaws. Other legal documents may include the membership application and membership certificate. The Articles of Incorporation state the kind and scope of the cooperative business. Often broad operating authority is stated even though services may be limited at the beginning. The articles usually contain the following: 1. Name of the cooperative 2. Principle place of business 3. Purposes and powers of the cooperative 4. Proposed duration of the cooperative 5. Names of the incorporators 6. A provision for redemption of member equity although sometimes this is in the bylaws The Bylaws state the rights and obligations of the cooperative's board of directors and members and guide the day-to-day operations of the cooperative. The bylaws usually specify the following: 1. Requirements for membership 2. Rights and responsibilities of members 3. Grounds and procedures for member expulsion 4. Procedures for calling and conducting membership meetings 5. Voting procedures 6. Procedures to elect or remove directors and officers the number, duties, terms of office, and compensation of directors and officers 7. Time and place of the directors meetings 8. Dates of the fiscal year 9. Information on how the net earnings will be distributed 10. Other rules for management of the cooperative Grace. George. Munnu. Teopista. Peter. Robert. Any and **all** Ugandan based members, this is the time to jump in and ask questions. Ask specifics. Offer ideas. Dig for clarification. Please realize there's no such thing as a bad question. It may well be too that some questions don't have answers yet...and that's okay too.