The Co-operative Formation Checklist

Every effort has been made to ensure that the information on this web site is correct. The Co-operative Federation of Victoria Ltd and its employees or agents shall not accept any responsibility for loss or other consequence which may arise acting or refraining from acting as a result of material on this web site.

This checklist is a work in progress and designed to assist you to make decisions on the structure and operations of your co-operative when there is discretionary decision-making.

Co-operatives Act 1996 Part 5 - Rules covers effect, content, purchase and inspection of , model rules and alteration. Schedule 1 of the Act includes those matters for which rules must make provision. There are 26 requirements for all co-operatives. Nine additional ones for co-operatives with a share capital and two for non-trading co-operatives.

Each co-operative has a set of Rules which govern the operations of the co-operative. These Rules must be consistent with the Co-operatives Act and any inconsistency is overrided by the Act.

Co-operatives Act 1996 , cover co-operatives in Victoria. Consumer Affairs Victoria keeps a public register of co-operatives, authorises registration and enforces the Act.

A detailed guide about running a co-operative, Guide to Forming and Running a Co-operative has been developed by Consumer Affairs Victoria.

There are four types of rules that can be downlo0aded from the Consumer Affairs Victoria web site:

The Co-operatives Act’s provisions have non-discretionary and discretionary provisions:

The checklist assumes that a co-operative is using a set of Model Rules as a basis for its own Rules. The checklist, therefore, is about the discretionary provisions but it is not a substitute for professional legal advice and a thorough reading of the Co-operatives Act and the Model Rules. Seeking professional legal advise in part depends on the extent that the co-operative's Rules will depart from the Model Rules. It is also important to secure the services of lawyers who are familiar with and knowleagable about co-operative legislation.

The checklist is not exhaustive.

Email comments on the checklist

Name

Division 7 Name and registered office requires that the name of the co-operative must include Co-operative, Cooperative or Co-op and that Limited or Ltd must be the last word of the name.

1. What will be the name of the co-operative?

Type

Co-operatives Act 1996: Under Part 2 Division 1 Types of co-operatives there is a registration choice as a trading or non-trading co-operative.

2. Will registration be as a trading or non-trading co-operative?

Trading co-operatives must have shares. For non-trading co-operatives, there is a choice of having shares or no shares. Trading co-operatives are also required to prepare disclosure statements.

3. Will the non-trading co-operative have shares?

4. What are the arguments for and against shares in a non-trading co-operative?

Co-operative Values and Principles

Co-operatives have a choice of including in their Rules the co-operative values and principles:

Co-operatives are unique businesses that are based on explicit values and principles. These are articulated in the International Co-operative Alliance's Statement on the Co-operative Identity adopted in 1995.

Definition

A co-operative 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

The cooperative principles are guidelines by which cooperatives put their values into practice.

Ist 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 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 also organised 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 their 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 inform  the general public – particularly young people and opinion leaders – about the nature and benefits of cooperation.

6th Principle: Cooperation among Cooperatives Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

7th Principle: Concern for Community Cooperatives work for the sustainable development of their communities through policies approved by their members. 

Author: International Co-operative Alliance, 1995 The ICA is the international non-government organisation which unites, represents and services co-operatives worldwide. It was established in London, UK, in 1898. It has more than 250 member organisations from over 100 countries and represents more than 760 million individuals.


Membership

Co-operatives Act 1996: While co-operative membership is open subject to active membership, you do have a choice as to whether or not to have body corporate members and members under 18 years of age. Members under 18 do not have a vote and cannot stand for office.

5. Who will be members of the co-operative?

6. Will the co-operative have members under 18 years of age and why?

7. Will the co-operative have corporate members and why?

8. If applicable, what will be the minimum number of shares a member is required to have and why?

9. Will these shares be fully or partially paid up and why?

10 What will be the potential liability of members unpaid on shares, compulsory loans and compulsory acquisition of shares?

Active Membership

Co-operatives Act 1996: Part 6 - Active Membership states that the rules of co-operatives must contain provisions that impose a duty on all persons who become members to be active members.

A decision needs to be made on who will be members of the co-operative and this has to be based on the primary activity or activities of the co-operative.

11 What will be the co-op's primary activity(ies)?

12 What criteria will be used to determine active membership?

13 Will this criteria be meaningful or tokenistic?

14 Is this criteria achievable and practical?

15 Will there be entrance and periodic fees and why?

16 If there are entrance or periodic fees, what types of fees and what amount and why? Will they, for example, be based on turnover?

17 Will members be required to have specified dealings with the co-operative and why and will this depend on capacity?

18. Will members be required to participate in co-operative education programs?

Meetings

Co-operatives Act 1996: Part 9 Management and Administration of Co-operatives Division 1 - The Board provides for meetings of the board.

A board has to meet at least once every three months.

19 How often will the board meet?

20 What will be the quorum at board meetings - the legislation requires a minimum of 50% of the number of directors?

21 Do you want board and sub committee minutes available to members?

22 Who shall sign financial documents?

23 Will the board transact business outside board meetings?

24 Do you want the chairperson to have a second vote at board meetings?

25 How many members will be a quorum at a general meeting?

26 What percentage of members will be necessary to requisition a special general meeting?

27 Will you want proxy voting and why?

 28 Do you want to have the capacity for postal ballots other than special postal ballots? If so, what will be the manner for conducting postal ballots?

Directors

29 How many directors will be on the board and why?

30 What will be the term of office of a director and why?

31 How will directors retire? Will it be by rotation or some other method?

32 What will be the qualifications for directors and why?

33 Will directors be required to undertake co-operative education programs?

34 Do you want to have independent non-member directors and why?

35 Do you want the ability to appoint deputy directors and why?

36 Do you want the capacity to delegate any of the board’s functions to a committee and why?

37 Will these committees include non-members provided they are a minority?

38 Do you know what functions you wish to delegate and why?

39 Do you want board and committee minutes available to members and why?

40 Do you want the capacity of directors to receive fees and, if so, what amount and why?

Expulsion and suspension

You have to decide the circumstances in which members may be expelled or suspended.

41 What will be the circumstances in which members will be expelled?

Financial Year

You have to decide the date on which the financial year of the co-operative will conclude.

42 What will be the date for the conclusion of the co-operative's financial year?

Powers

Co-operatives Act 1996: A co-operative has the powers of a natural person. Under Part 3 - Legal Capacity and Powers Division 2 - Doctrine of ultra vires abolished s 41 provides that a co-operative’s rules may contain an express restriction on, or an express prohibition of, the exercise by the co-operative of a power of the co-operative.

43 You have to decide whether or not you want to restrict any power of the co-operative and, if so, what restriction?

Miscellaneous

Co-ops can charge fees and impose fines.

44 Do you want to charge a fee for members wanting a copy of the rules and if yes, what amount up to a limit of $5?

45 Do you wish to impose fines on members for breaching the rules and if yes what will the maximum fine be up to a maximum of $1000?

Disclosure Statement

Under Divison 3, trading co-operative are required to prepare disclosure statements explaining the reason the applicants seek to register the co-operative, the proposed activities, the perceived need, the expectation of the applicants as to the type of people who will wish to become members, pre-conditions that may exist for the successful commencement of activities and benefits of membership.

Questions to be addressed in the disclosure statement include:

46 Who can be a member of the co-operative?

47 The rationale behind the eligibility requirements for initial and ongoing membership?

48 What will be the procedures to be followed by applicants for membership?

49 How will these procedures relate to co-operative values and principles?

50 What will be the rights and liabilities attaching to shares?

51 What will be the rights and liabilities attaching to membership of the co-operative?

52 What will be the key features of any contracts required to be entered into by the co-operative including contracts between the co-operative and members??

53 What are the relevant qualifications of directors?

54 What will be the projected income and expenditure of the co-operative including a proforma balance sheet and formation expenses?

55 What capital will need to be raised initially?

Surplus

Division 4 - Disposal of surplus from activities allows for co-operatives to provide in their rules how the surplus is distributed subject to being a trading or non-trading co-operative. A non-trading co-operative cannot distribute any surplus to members.

56 Will the rules allow for part of any surplus to be distributed to non-members?

57 Will the rules allow for part of any surplus to be distributed for charitable purposes?

Last updated: 14-Jul-2005 10:24 AM