The Co-op Development Path

THE SEVEN STEPS IN FORMING A CO-OPERATIVE

PHASE I – DEVELOP THE CO-OPERATIVE BUSINESS IDEA

Step 1: Assemble a group of interested people

  • Identify the needs to be met:
    • unavailability or instability of work,
    • unavailability of certain products and services,
    • poor quality of certain products and services,
    • products and services that are overpriced,
    • market development.
  • Identify professional assistance needed to launch the business:
    • co-operative developer,
    • feasibility study, business plan and financial consultant,
    • accounting consultant, legal consultant, others

Step 2: Conduct a pre-feasibility study

  • Conduct a preliminary market review
  • Identify available technical and financial assistance
  • Assess receptiveness to the co-operative business in the local community
  • Evaluate if the co-operative is the best legal framework to use or if the kind of co-operative selected is the most suitable
  • Define the intended benefits of the co-operative for members, (eg. quality, price) and characteristics:
    • products and services offered (consumers’ co-operative)
    • or products and services marketed (producers’ co-operative)
    • or salaries and working conditions (workers’ co-operative)
  • Evaluate the project’s potential to attract the minimum number of members required.

If this study is not conclusive, the group should re-evaluate its business idea. If this study shows that the planned co-operative is feasible, the group can proceed to the second phase.

PHASE II – CO-ORDINATE THE PRE CO-OPERATIVE’S ACTIVITIES

Step 3: Hold an organizing meeting

  • Choose the corporate name of the co-operative and the location of its head office
  • Define the co-operative’s mission (objectives, purpose)
  • Elect a temporary board of directors and secretary to the board
  • Officially submit an application for incorporation as a co-operative from the provincial ministry responsible for co-operatives or from Industry Canada, if you are incorporating federally

Step 4: Conduct a viability study

  • Obtain financing for the viability study from such sources as:
    • internal financing by the members
    • special grant
    • and/or negotiate a technical assistance or business start-up agreement with a specialized organization.
  • Define the strategic objectives
  • Evaluate the various strategic scenarios, production costs, and human, material and financial resources necessary
  • Evaluate the various start-up financing scenarios
  • Do a preliminary projection of budgeted statements and of a cash budget (revenues and expenditures, investments by members in share capital, partners, credit union or bank loans, grants).

If this study concludes that, although the planned co-operative looks feasible it would not be financially viable, the group should consider terminating the project. If the study shows that the new co-operative will be financially viable, the group can proceed to the third phase.

PHASE III – ORGANIZE AND START UP THE CO-OPERATIVE

Set up ad hoc committees to distribute the workload among the members of the temporary board of directors. For example:

  • planning committee
  • training committee
  • committee to draft by-laws

Step 5: Organize the association

  • Decide on the association’s structure and define the various categories of members, if necessary (consumers, suppliers, workers)
  • Determine the roles and responsibilities of the various democratic bodies (general meeting, board of directors, committees)
  • Establish the articles and by-laws
  • Recruit members
  • Organize and offer a program to train members in the administration and management of a co-operative, the chairing and running of annual meetings (eg. “parliamentary procedure”), the operation of a committee or board.

Step 6: Organize the enterprise

Step 6.A: Plan the operation of the enterprise

  • Draw up an organization chart of the enterprise
  • Do the operational planning for the first year of activities
  • Negotiate contracts for the supply of necessary products and services (inputs) and, as required, sales or marketing contracts (depending on the kind of co-operative and the nature of the enterprise)
  • Devise and implement an accounting system
  • Define the duties and responsibilities of each position
  • Develop a salary policy
  • Select and recruit the person to occupy the position of chief executive officer/general manager

Step 6.B: Plan and organize the enterprise’s start-up financing

  • Determine the value of the membership share to become a member
  • Determine the value of the share capital on start-up and during the first three years of operation (in terms of the expected growth in the number of members)
  • Prepare the preferred share by-laws (if applicable)
  • Prepare the loan by-laws (if applicable)
  • Draw up the overall financing plan for the first three years of operation
  • Draw up the business plan
  • Negotiate the capital contribution of external financial partners (if necessary); venture capital corporations, private funds or credit union investment programs
  • Apply for a government start-up grant (if they are available and if required)
  • Negotiate medium term credit union or bank loans and a line of credit

Step 6.C: Recruit and train the enterprise’s staff

  • Select and recruit employees (responsibility of chief executive officer, except in the case of a worker co-operative where recruitment decisions are usually made collectively)
  • Organize and offer a staff training program
  • Organize and offer a co-operative training program

Step 6.D: Ensure the legality of the enterprise’s operations

Take care of the legal formalities and obtain the legal authorization necessary to start up the enterprise’s activities:

  • federal: employer numbers for government discounts, for GST/HST) for, Canada Revenue Agency
  • provincial: numbers for the provincial revenue department, for provincial tax
  • co-operatives may also have to register with, or be licenced by, other legislation or federal or provincial departments
  • municipal: municipal permit, employer number, etc.

Step 7: Hold the initial general meeting

  • Adopt the by-laws
  • Adopt the business plan
  • Approve the co-operative’s membership in a sectoral federation or an intersectoral interco-operative organization
  • Appoint an external auditor
  • Elect the members of the board of directors, and of any other committees (if the general meeting has the power to do this)

Adapted from the AAFC & Industry Canada Guide to Creating a Co-operative. For more information, click here.