Seven Steps to Form a Co-op

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This resource comes from Co-opZone, which provides Canadians with resources and consultants to help develop co-operatives.

Phase One - 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)