Let’s set up a

co-operative

Definition of a Co-operative

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.

International Co-operative Alliance, ICA, 1995

By their own efforts, but joined together!

Pellervo Society in the early 20th century

Finland, the Country with the Strongest

Co-operative Membership

• A co-operative is a business form and model that has been in use for a long time worldwide – like a limited company.

• Over 700 million people are members of co-operatives. Half the world’s population is influenced by co-operatives. There are co-operatives all over the world.

• Within the EU there are 300,000 co-operatives with 140 million members.

• Worker and social co-operatives employ 1,5 million people in Europe.

• In the USA there are nearly 50,000 co-operatives with 150 million members.

• Finland has the strongest co-operative membership; 59 % of the population say they are members of a co-operative.

• International Co-operative Alliance (ICA) unites co-operatives in different countries. ICA has members in 94 countries -www.ica.coop

Co-operative Values and PrinciplesCo-operatives are based on the following values:

Self-help, self-responsibility, democracy, equality, equity, solidarity, honesty, openness, social responsibility and caring for others.

The co-operative principles are guidelines by which co-operatives put their values into practice:

Voluntary and open membership, democratic member control, member economic participation, autonomy and independence, education, training and information, co-operation among co-operatives and concern for community.

Basic co-operative values were implemented in the Co-operatives Act. A co-operative can find original success factors and competitive edge by adhering to the Co-operatives Act and by adopting the basic, co-operative idea.

Features of a Co-operative (1)• A co-operative is a business enterprise with economic interests that

is owned and democratically controlled by its members. The starting point is equal cooperation of the members.

• The purpose is to promote the members’ economy by using the services provided by the co-operative. Profit-making is not the main goal.

• Power of decision is exercised by the principle: one member, one vote even if the members have different number of shares. The power of decision can, however, be differentiated by rules.

• Membership and share capital have not been determined in advance.

• A co-operative shall, however, have no less than three members.• There is no requirement for minimum share capital in a co-operative

(in contrast to 2 500 € in a limited company).

Features of a Co-operative (2)

• A co-operative can admit new members, membership is voluntary and one can resign from a co-operative. One can also be expelled from it.

• The surplus generated is normally allocated in proportion to the members’ transactions with the co-operative.

• The members are not personally liable for the obligations of the co-operative, unless extraordinary payments are stipulated in the rules.

• All co-operatives have their own rules written with the particular co-operative in mind.

• The Act applies to all co-operatives.

Different Types of Co-operatives • Consumer co-operative (for instance a retail co-operative)

where a customer of the co-operative is also a member.• Service co-operative (for instance a co-operative bank or an

indemnity insurance company), where those using the services of the co-operative are members.

• Producer co-operative (for instance a co-operative creamery), where the producers of raw material are members .

• Consumer and producer co-operatives have their roots in the early 20th century when the Finnish co-operative movement was born.

• New generation co-operatives are ”new wave” co-operatives that have been set up in different lines of business since the late 1980s.

Second Coming of Co-operatives

• During the last 20 odd years nearly 3,000 new co-operatives have been set up.

• They are being set up in the countryside as well as in cities.

• Co-operatives are being set up in nearly all lines of business but mainly in the service sector.

• The biggest groups are worker co-operatives and water co-operatives.

• This development is a result of changes in society.

Co-operative as a Business Form –

Entrepreneur’s Approach

• Cooperation, combining know-how and support received from the others empower and encourage. A lower threshold to become an entrepreneur.

• Co-operative values are manifested in democratic decision-making and equal opportunities for work, which motivate the members.

• You can get started even with less capital if the line of business allows it. The Co-operatives Act prescribes no minimum share capital.

• Cooperation decreases the costs per member, which reduces the entrepreneurial risks.

• A business form with limited liability: A member of a co-operative is liable for the obligations of the enterprise with his or her share price, unless the rules stipulate extraordinary payments.

• A flexible business form: a flat and flexible organization that promotes innovative ideas; easy to join, easy to resign; also possible to expel a member.

Co-operative as a Business Form –

Employment Approach

• A way to employ oneself, for instance when studies are finished.

• The members can maintain their professional skills and keep working.

• The right to unemployment security continues if the co-operative has at least 7 members (= the share per member is then less than 15 %).

• Easy for the purchaser to make use of the services when the co-operative organises the members’ work and the purchaser has only one invoice to pay (the co-operative takes care of the employer obligations).

Success Factors behind a Skills-based

Co-operative

• Ongoing development of the activities• Good financial management• Thorough preparations before setting up the business• Entrepreneurial attitude and perseverance central• One or two key figures that exercise leadership suitable

for the co-operative business form.• Innovativeness – co-operative as a business form

promotes an innovative approach.• Wide networks• All these success factors relate to the members’ skills and

commitment.

Source: Eliisa Troberg, Helsinki School of Economics and Business Administration

Co-operative Management –

Signals of Problems in a Co-operative

• Members are not fully committed to the activities. There are both active and passive members.

• Passive members expect that the others will take care of common matters relating to entrepreneurship on behalf of them.

• Entrepreneurial attitude may be lacking in leadership and working. Co-operative is not considered as an enterprise.

• Especially multibranch co-operatives have different areas of interest, goals and people. This may lead to lack in consistency.

• Equal voting rights can cause the problem ”A house without a leader”, that is, the co-operative does not have a key figure responsible for the operative management.

• Deficient leadership can weaken the members’ motivation and commitment.

• Activities can die out when the members find employment elsewhere.

Stages in Setting up a Co-operative

• A viable business idea and a well-thought-out business plan

• Securing sufficent financing

• Incorporation documents: incorporation instrument, rules,

minutes of the board meeting

• Notification for registration

• Finding out if the activities eventually are subject to license

• Organising internal supervision, accounting and audit

• Sufficient insurance.

Setting up a Co-operative• To set up a co-operative, an incorporation instrument is

drawn up and the rules of the co-operative are appended.• Also appended are the minutes of the first meeting of the

board of directors and the minutes of the eventual meeting where the chief executive officer was appointed.

• A co-operative shall be notified for registration within six months of the signing of the incorporation instrument.

• Notification is done in writing to the Trade Register. It goes also to the VAT Register, the Prepayment Register and possibly to the Employer Register.

• The members of the board of directors, the eventual CEO and the auditors shall produce a written document that they consent to being appointed to the position.

• Liability for obligations undertaken after the signing of the incorporation instrument shall lie with the co-operative once it has been registered.

To be Included in the

Rules of a Co-operative

• the trade name of the co-operative• the municipality in Finland where the seat of the co-operative

is located• the line of business of the co-operative• the nominal value of a share (share price), the time and

manner of the payment thereof• the financial year of the co-operative.

= ”the Penny Pincher Model”

• In practice it is sensible to have more paragraphs that direct the day-to-day activities.

• Every co-operative stipulates its own rules with that particular co-operative in mind.

Member Agreement can be of Use

• Member agreement consists of a set of internal rules for the co-operative, not included in the rules of the co-operative.

• The agreement requires that all the members know the goalsof the co-operative and their own goals.

• The agreement can take up for instance Commitment of the members and the added value generated by the

membership of the co-operative Daily routines and how to take care of them – sharing of the duties

and the responsibilities Dealing with problems and setting the atmosphere Taking care of the clients, maintaining the client list Ensuring the quality Scheduling duties, price setting and budget.

• Member agreements of limited companies can be used as a model.

Management of a Co-operative• The members exercise their rights at the general meeting of

the co-operative in person by the principle one member, onevote, unless otherwise stipulated in the rules (not more thanten times the number of votes of another member).

• The members can exercise their rights also by delegateselected among the members.

• A co-operative has a board of directors chosen by the general meeting of the co-operative.

• In addition to the board of directors, a co-operative can alsohave a supervisory board.

• The general meeting of a co-operative appoints at least oneauditor and one alternate auditor.

• The board of directors can, and normally does, appoint a chiefexecutive officer.

General Meeting of a Co-operative

• The general meeting of a co-operative is a forum wherethe members can use their power of decision in mattersconcerning the co-operative.

• Every year is held at least one ordinary general meetingof the co-operative or a meeting of the delegates.

• It is possible to hold extraordinary meetings.

• Unanimous decision of the members may decide in the competence of the general meeting of the co-operative.

• The main rule is that every member has one vote in allmatters (if not otherwise stipulated).

• The general meeting of a co-operative has to be held in the municipality where the seat of the co-operative is located (if not otherwise stipulated).

Duties of the General Meeting

of a Co-operative

• The general meeting shall decide on the important resourcesof the co-operative.

• The ordinary general meeting has to be held within sixmonths from the end of the financial year

to approve the income statement and the balance sheet

to decide on measures in view of surplus

to discharge from liability

to choose the members of the board of directors orpossibly the supervisory board and the auditors.

• In addition, the general meeting decides on the amendmentsto the rules, deregistration of the co-operative and on the increase of the share price, among other things.

The Board of Directors• A co-operative shall have a board of directors that represents the co-

operative and decides on the management of it and also on the arrangement of its operations.

• The board of directors consists of at least one and at most sevenmembers, even more if so stipulated in the rules. If the boardconsists of several directors, one director shall chair its meetings.

• All the members of the board of directors shall be called to the meeting, otherwise it is illegal. The board of directors has a quorumwith more than half the directors present.

• The term in office of the directors continues until further notice. It is possible to stipulate freely the length of the term.

• There can be alternate directors in the board of directors. If the board consists of fewer than three directors, it shall have at least onealternate director.

• The Act does not impose specific qualifications for the board of directors. Each director and alternate director shall produce a dulydated and signed document where he or she consents to beingappointed to the position.

Chief Executive Officer (CEO)• A co-operative may have a chief executive officer.

• The chief executive officer may also be appointed by the board of directors without a specific stipulation thereof in the rules.

• The chief executive officer can be a member of the board of directorsbut not of the supervisory board.

• The duties are to promote the interests of the co-operative and to seeto the running management of it in accordance with the orders and instructions of the board of directors.

• The CEO is entitled to represent the co-operative in a matter thataccording to the Co-operatives Act and the rules belongs to his orher duties.

• The CEO shall produce a duly dated and signed document to the effect that he or she consents to being appointed to the position.

Joining a Co-operative

• Becoming a member of an already existing co-operativeis an alternative when co-operative entrepreneurship is of interest but there is no group to set one up with.

• Many co-operatives are on the lookout for new, suitablemembers.

• It pays off to do the groundwork in advance, to be in touch with the co-operative and to get to know how itoperates.

• Application for admission is filed with the board of directors that decides on admission of a new member.

• In addition to the share price there is also an admissioncharge that will not be returned.

Co-operative Education• Co-operative is successfully being used as an environment for studies in

entrepreneurship.• Co-operative is a genuine enterprise, not a virtual or training enterprise,

regulated by general laws on business activities. • It is a question of real entrepreneurship, though with less pressure to get

results.• It is important to review the liabilities of the members of the board of

directors.• Organising the daily routines: financial management, insurance,

accounting, marketing.• The prices of the products and services generated by an educational co-

operative shall not differ too much from the normal market price in the municipality. A lower price can, to a degree, be explained by the fact thatthe students are not yet expected to be fully qualified.

• While working, a member of a co-operative has an employmentrelationship with the co-operative with all its obligations.

• An underage person can not be an incorporator or a member of the board of directors but can join a co-operative.

Services of the Pellervo Society

• Information online for co-operatives - www.pellervo.fi/

• A step-by-step guide in Finnish to setting up a co-operative http://perustajanopas.pellervo.fi

• Incorporation and legal advice

• The magazine Osuustoiminta – for professionals in management and administration

• Efficent shareholder management (Tehokas omistajahallinto), a handbook for co-operativeadministrators

• Education in the PI Leadership Academy

www.pellervo.fi