Co-op Governance

Environmental Justice League of Rhode Island Co-op Class

Prepared by Worcester Roots, November 2018

With Curriculum contributions from:

Boston Center for Community Ownership

Democracy At Work Institute

Overview

Module 1:

• Values, Vision, Mission, Goals, and Strategies

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Module 2:

• Rights and Responsibilities of Co-op Membership
• Setting your membership fee and trial period
• Options for Decision Making
• Organizational Structure
• Decision Making Worksheet

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Module 3:

• Documents that Define your Co-op
• Choice of Legal Entity
• Legal Resources

Worksheets:

www.WorcesterRoots.org/governance

Module 1:�Values, Vision, Mission, Goals, and Strategies

Values of a Cooperative Business

Abstract statements about ethical principles that your members agree on.

Consider setting these first.

Values of a Cooperative Business

Statements:

ex: Everyone has a right to a minimum income.

ex: Everyone should have the right to participate in the decisions that affect their lives.

ex: We all need to work together to dismantle systems of oppression.

Or a list of words/phrases:

ex: Power of Youth, Cooperative Economics, Collective Liberation, Participatory Education

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Activity: Values Worksheet

Vision of a Cooperative Business

A broad but descriptive statement of the future your group would like to see.

The vision is not only what your business will do, but what the world would look like if everyone held the same values you do.

Vision of a Cooperative Business

Examples:

• We envision a world where every child has access to a quality education, in a safe and healthy learning environment.

✹

• Our vision is for a post-carbon economy, where our community relies only on sustainable, non-polluting energy to power our buildings, industry, and transportation system.

Activity: Vision Worksheet

Mission of a Cooperative Business

What is your organization going to do to achieve a chunk of that vision?

The mission statement is the most important one in terms of the law, it’s the one you tell to the government and the world at large - the reason for your organization’s existence.

Your organization is only really authorized to carry out activities that are specified in your mission statement, and its trustees (board of directors) can be held liable for failing to carry out activities specified in the mission statement.

Mission: How broad?

You want it to be broad enough to include all the things you might want to do, but specific enough so that you can show how your activities are achieving your mission.

The mission of an organization is rarely changed - once every 10-20 years, if that.

Mission: How broad? Examples...

Too broad: Our mission is to provide jobs to local residents.

Too specific: Our mission is to provide full-service composting services to small restaurants in Dorchester.

Just right: Our mission is to provide jobs to local residents and increase the rate of recycling in Boston’s neighborhoods, by providing education and training, recycling and disposal services to local businesses, and by converting waste products into sustainable sources of energy.

Activity: Mission Worksheet

Module 2:�Rights and Responsibilities of Co-op Membership

Decision Making

Organizational Structure

Rights and Responsibilities of Co-op Membership

Subtitle:

Content

ANOTHER COMPANY … responsibilities������

ANOTHER COMPANY … rights������

Rights? Responsibilities? �������

Free from harassment and discrimination

Treat others with respect and dignity

To work without micromanagement

To be a self leader and role model of our values

To have transparency in to the business

To build my own business literacy and participate in opportunities

To provide input in to certain business decisions

To be informed and be able to provide high quality input

Our Story

Setting your membership fee and trial period

Questions to consider in setting membership fee:

• How much capital does your co-op need to start? Do you have other sources?
• What is considered a significant investment for your members?
• What is prohibitive for your prospective members?
• Is your co-op OK with new members financing their investment fee?

Questions to consider in setting trial period:

• How much interaction do you have with new workers?
• How much training is required?
• How much turnover is common in your industry? In your co-op?

Options for Decision Making

Voting Based Systems

Robert's Rules of Order:

The Rules are written in a book that is available at bookstores. The rules can be quite complicated and the meeting procedure is very formal, and sometimes people who know the rules better have an advantage in meetings over those that don't. Only one proposal can be considered at a time. The group can specify what proportion of the membership is needed to approve a decision - usually 51%, 67%, or 75% of members.

Roberta's Rules of Order:

is a book published in 2004 to provide an alternative to Robert's Rules that is less formal, more simple, and more adapted to modern life. As in Robert's Rule, the group specifies what proportion of the membership is needed to approve a decision.

Consensus Based Systems

Formal Consensus:

Consensus decision making was outlined in a book by CT Butler, who was a member of Food Not Bombs. It was used by many political groups in the US in the peace and anti-nuclear movements in the 1970s and 80s, and today is still used by many political activist groups. To practice consensus, the group must first agree on their mission and values. Decisions require 100% of members, and the group meets and gathers and shares information until a proposal is reached that 100% of the members can live with. One member can 'block' the decision if they believe it violates the group's agreed mission and values.

Consensus-Based Systems

Modified Consensus:

Many groups decide that 100% agreement is not always possible or practical. They use a "consensus seeking" process where they try to reach 100% consensus. But if they can't do that, a proposal can still be approved with "Consensus minus one" (or "consensus minus two or three") or super majority vote.

Consent:

Sociocracy and other dynamic governance systems use a consent-based system.

Activity: Discuss with your group what decision-making process best fits your co-op.

Organizational Structure

in Cooperatives: Governance vs Management

elect

manage

empower

Participatory Management

Dynamic & Semi-autonomous Management

vs

Participatory Management

How do participative managers operate?

1. FACILITATE the conversation
2. OPENLY share information and knowledge
3. ENCOURAGE people to share their ideas
4. SYNTHESIZE all the available information
5. Take the best possible decision
6. COMMUNICATE their decision BACK to the group

Dynamic & Semi-autonomous Management

Decision Making Matrix

Sample Decision-Making Matrix

Inform | Input | Decide

Sample Decision-Making Matrix

Sample Decision-Making Matrix

Sample Decision-Making Matrix

Test for Effectiveness - How do we know if the board should be consulted?

Does the matter

• Affect a large number of co-op members?
• Commit a substantial portion of the financial resources?
• Affect operations over a long period of time?

Yes? Consult the board.

No? Decide at will

Test for Significance - How do we know if the board should consult the full membership of the cooperative?�

Does the matter

• Affect the likely survival of the co-op?
• Affect policies for hiring or terminating members?
• Affect the basic character of the cooperative?

Yes? Consult the members.

No? Let the board decide.

Activity: Decision-Making Matrix Worksheet

Module 3:�Documents that Define your Co-op

Choice of Legal Entity

Legal Resources

Documents that Define your Co-op

Articles of Incorporation

Or “Articles of Organization”

The Articles are filed with the state government. They list the names and addresses of the directors and officers of the co-op, and those are public information available online (RI: www.sec.state.ri.us or MA www.mass.gov).

This is the document that establishes your co-op as either and LLC or a cooperative corporation, both of which protect the members from individual liability, as long as good governance is practiced. A corporation files Articles of Incorporation, and an LLC files Articles of Organization.

Bylaws - or - Operating Agreement

The Bylaws or Operating Agreement (OA) is not filed with the state, but might be reviewed by the IRS to determine whether you can be taxed as a cooperative. Corporations file Bylaws, and LLC's file Operating Agreements. Whichever one you choose, this is the document that defines you as a cooperative, not just any old corporation or LLC. It defines the rights and responsibilities of membership, how decisions will be made in the co-op, and how any profits or losses will be distributed.

Membership Agreement, Certificate of Stock

The Membership Agreement is a contract signed by individuals, which makes them members of the cooperative. In a cooperative corporation, the member might also receive a Certificate of Stock when becoming a member.

Annual Report

An Annual Report must be filed with the Massachusetts Secretary of the Commonwealth every year, in order to keep the cooperative corporation or LLC in good standing and keep the liability protections in place for the co-op members.

Business Plan

The Business Plan describes how the co-op intends to make a profit. It describes the products or services the co-op will sell, and describe the operations, equipment, buildings, technology, and financing that will be needed for the co-op to succeed financially. The Business Plan includes a projected budget for the first 3-5 years of the co-op's operation, and should be updated every year.

Employee/Member Policies

Operating Procedures

The Policies describe how each member or employee will be treated as a worker in the co-op, including policies about time off, benefits, when a member can be fired and asked to leave the cooperative, and grievance procedures, among other issues.

The Operating Procedures describe the business systems used by the cooperative. The Operating Procedures should make it easy for new members to learn how things are done in the co-op.

Activity: Explore Sample Articles of Incorporation and Bylaws

Choice of Legal Entity

Why incorporate? Things to consider...

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Liability

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Taxation

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Set-Up

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Cost

Types of Legal Entities

• General Partnership (unincorporated)
• Corporations (C-Corp, S-Corp, B-Corp, co-op specific entities)
• Limited Liability Company (LLC)

Corporations

• Independent entity owned by shareholders, who elect a board of directors which then appoint officers
• Can all be one person
• Limited Liability protections
• Double Taxation, both corporation and shareholders are taxed
• Unless Cooperative Corporation used
• In RI: $280 filing fee, $50 annual report filing fee
• In MA: $275 minimum filing fee, $125 annual report filing fee
• Minimum corporate excise tax is approximately $456 a year

Worker Cooperative Corporations

• In Massachusetts: Employee Cooperative Corporation MGL 157A
• In Rhode Island: Workers’ Cooperatives Title 7, Chapter 6.2
• May include “Co-op” or “cooperative” in name
• Taxed by IRS through Subchapter T

Limited Liability Company (LLC)

• Owned by “members”
• Limited Liability - assets of company at risk not of members
• One level of taxation - All LLC income allocated to the members (and they pay taxes on all income/profits regardless of whether the LLC makes distributions)
• May elect to be taxed as a corporation
• Comprehensive operating agreement is not required by law but is strongly encouraged
• In MA: $500 initial fee and $500 yearly report filing fee
• In RI: $150 initial fee, $50 yearly filing fee

Benefit Corporation

• Does not affect the company’s tax status
• Can register a “mission”
• Have to submit an annual benefits report to the state and designate a “benefits director”
• Different than “B-corp” Certification

Legal Resources

• Sustainable Economies Law Center - lots of good co-op resources: www.TheSELC.org
• Free / low cost legal support in Rhode Island:
• RWU Law’s Business Start-up Clinic: https://law.rwu.edu/academics/juris-doctor/clinics-and-externships/business-start-clinic
• Rhode Island Legal Services: www.rils.org
• Free / low cost legal support in Massachusetts:
• Lawyers for Civil Rights: www.LawyersForCivilRights.org
• Harvard Transactional Law Clinic: www.clinics.law.harvard.edu/tlc/
• Greater Boston Legal Services: www.gbls.org

More Info:

www.WorcesterRoots.org/governance

www.USworker.coop

www.Institute.coop/governance

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