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Cooperative Formation Checklist by Jason Wiener


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questionnaire for multi-stakeholder co-ops

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Cooperative Formation Checklist by Jason Wiener

  1. 1. © 2017 – Jason Wiener|p.c. COOPERATIVE FORMATION CHECKLIST  Please provide a statement of the Cooperative’s mission.  Please provide a statement or list of the cooperative’s core values.  What other features or terms associated with the Cooperative do you want to require member input on or a member vote to change? 1) Articles of Incorporation/Organization. a) What is the full name of the cooperative? If this will be a limited cooperative association, is there any concern about using the word "limited cooperative" in the name? [some permutation of limited cooperative or limited cooperative association must be in the official name] Do you have a preference on the suffix (e.g. LCA, Coop, Ltd. Coop. Assoc., etc)? b) Membership or stock cooperative? A Membership cooperative has a less formal capital structure and some or all of a member’s buy-in is treated as a non-refundable revenue contribution to the coop. On the other hand a stock cooperative involves paid-in-capital in exchange for cooperative stock. The Capital contribution goes into an internal capital account and can be redeemed back to the Member upon termination or separation. The distinction has more of a perceptual difference and less of a technical one. Think REI versus an equity partnership. c) If formed with shares: a. Will there be more than one classification of shares (i.e. will there be separate classifications of memberships)? b. If multiple classifications, what will be their respective attributes, rights and interests? c. Will preferred stock or preferred equity be used for patronage dividends? d. Will investor-members invest in voting or non-voting preferred stock? d) What is the address of the initial business office? e) Who will be the registered agent? f) What will be the address of the registered agent? g) Name and address of incorporators. There needs to be at least one.
  2. 2. © 2017 – Jason Wiener|p.c. h) How many directors will the cooperative have? i) Who will hold the following offices (if they are to be created)? i) President ii) Vice President(s) iii) Secretary iv) Treasurer v) Others j) Who will be the initial directors (minimum of 3)? Names and addresses? Term for initial directors? k) Capitalization Issues: a. Will there be a membership fee? If so, how much? This may be determined by the capital needs of the cooperative’s formation. b. What will the par value be for a share of each class of stock? c. Will preferred shares (for pure investor-members) have voting rights or no voting rights? 2) Bylaws: a) What are the qualifications for each class of membership? (These need to be considered carefully.) b) Do we want restrictions on the transfer of equities other than membership or qualifying stock? c) Are there to be any limitations on a member's ability to withdraw from the cooperative? d) On what conditions may a member be terminated? e) When a member withdraws or is terminated, when and how will be member's equities be returned? f) Will participating non-member patrons be permitted? On what terms and conditions? g) What is the date of the annual meeting?
  3. 3. © 2017 – Jason Wiener|p.c. h) Where will the annual meeting be held? i) Should voting by mail/email (or facsimile) be permitted on any or all issues presented to the members? Should this be at the discretion of the directors? j) Do we want to provide for a simple majority vote by members or require a higher percentage in some cases? k) Is the percentage by which members must approve any matter voted on by members figured on total members or on those present and voting? l) What quorum should be required for a members meeting? m) What is the maximum number of directors? Stated number? Should the number be fixed or within a range? If within a range, how is the exact number to be determined--by directors or members? n) Should all directors be elected at-large by all patron-members, or should directors be elected by each member class to represent that member class? Thus, should the Board be representative or all at-large? o) Is there a desire for any outside (non-member) directors? [There are limits to the % of non-member directors in CRS Article 58.] p) Should there be a limit on the number of terms a director can serve? q) What should the nominating process for directors be? r) What should the length of directors’ terms be? Staggered terms? s) Do we want more than a majority vote of directors for any major business decisions? How much? t) What percentage of member votes are required to remove directors? u) Which officer positions should be required? v) Who should select/elect the officers? w) Who should have the power to remove officers (directors or members)? x) Do we want more than a majority vote (of whomever is to remove officers) to remove officers? How much? y) Will there be a manager? Staff?
  4. 4. Checklist Page 4 © 2017 – Jason Wiener|p.c. z) Will there be a management agreement with a third party? If so, what are its terms? aa) Should financial statements be compiled, reviewed or audited? bb) What kinds of financial reports should be given to the members? cc) How should the capital for the cooperative (beyond initial qualifying investments) be obtained? dd) Should patronage refunds be utilized? If so, on what basis should they be determined? How much of patronage dividends should be retained and how much should be distributed? ee) Should the cooperative use a base capital plan? If so, how should it be constructed? Should it require cash contributions? ff) On what conditions, should patronage refunds, per unit retains or base capital be redeemed: "revolving fund," "percentage of the pool (or total)" or other basis? gg) Should the cooperative have the ability to use both qualified and non-qualified written notices of allocation? hh) Should it be provided that the cooperative can handle matters in a taxable manner? ii) How are losses to be handled? Should members be required to contribute cash to cover losses? jj) How should disputes in the cooperative between members or between a member and the cooperative be resolved? kk) What should be the order for distributing funds on dissolution? If there are residual proceeds after all members and stakeholders are repaid their initial capital contributions, to whom should the residual value be distributed? Would you like to include a poison pill that dis-incentivizes profitable demutualization/dissolution by rendering all residual proceeds inaccessible and by placing them in trust for a mission-aligned non-profit or other entity? ll) Do we want to avoid Colorado's unclaimed property statute?
  5. 5. Checklist Page 5 © 2017 – Jason Wiener|p.c. mm) Do we want more than a majority vote of directors in order to amend the bylaws? What percentage? nn) What percentage of members should be permitted to amend the Bylaws? oo) Should an alternative dispute resolution procedure be provided? pp) May members, directors, officers participate in non-cooperative businesses, even if they compete with the business of the Cooperative? 3) Membership Agreement a) Are there any provisions other than applying for membership and agreeing to abide by the rules applicable to the cooperative which should be included? b) For worker/service provider members, should these members be able to finance their share purchase or membership fee through payroll deductions or “earn-in” loans? c) Is it desired that members agree not to solicit employees or service-providers from the cooperative without the coop’s written consent? d) Is it desired that members agree not a covenant not to compete with the specific business interests of the cooperative? 4) Other Information (for tax identification number application and other purposes): a) Identify the organizers (including their names, addresses and backgrounds). b) Provide a detailed description of the business to be conducted by the cooperative, its objectives, and goods and services which it will provide? c) Has a business plan been prepared? If not, outline key matters which would normally be found in a business plan. d) Are financial projections available? e) Will the cooperative be permitted to engage in non-member business? If so, on what basis?
  6. 6. Checklist Page 6 © 2017 – Jason Wiener|p.c. f) Number of employees (peak) expected in next 12 months? Average? g) When was (will) business (be) started? h) When were (will) wages first (be) paid? i) Telephone number? j) If in manufacturing business, what is principal product and raw material used? k) Will (Do) you operate more than one place of business? l) If selling products, do you principally sell wholesale, retail or other (describe)? m) Have you ever applied for a tax ID number for this or any other business? If so, what was the date, city, state and previous number (if known)?