A co-operative is an organisation that is owned and operated by its members. It is commonly used as a structure for people who have similar goals, be they social, economic, or even cultural. With the benefit of members lying at its core, values of democracy, equality, self-responsibility and solidarity have been traditionally cited as governing principles for its operation.

If you want to undertake a social or economic activity, a co-operative may allow you to benefit from economies of scale because of the combined influence of the group. For example, individual grocery stores could form a co-operative and use their increased bargaining power to receive discounts from suppliers. In this scenario, the co-operative members are businesses.

Like a company, a co-operative is a legal entity. This means members’ liability is limited to the amount paid for share capital. It also means that a co-operative can enter contracts, be sued, and continue operation despite changes in membership.

There are three steps to form a co-operative in New South Wales.

Drafting the Co-operative Rules and Disclosure Statement

In order to get started you need to think about the way in which your co-operative will be structured, taking into consideration the proposed activity, purpose, membership, directors’ duties, decision-making powers or meeting procedures.

There are model co-operative rules in the Co-operative National Regulations (CNR). These can be used to draft your co-operative rules, but it’s a good idea to get the assistance of a business lawyer to review and prepare advice specific to your proposed activity.

Aside from the rules, a disclosure statement needs to also be drafted. This statement outlines the financial involvement and liability of each member and should ideally be supported by an accountant or auditor.

The NSW Fair Trading Registry Service (“Registry”) needs to approve the co-operative rules, disclosure statement, as well as your proposed co-operative name.

The Formation Meeting

The formation meeting is an opportunity for the prospective members to approve the co-operative rules. You’ll need to have at least five prospective members available to attend the meeting.

What will happen at the meeting? This is a chance for prospective members to discuss and vote on the proposed rules. If the rules are approved then the co-operative can be formed. If there are changes, another formation meeting will need to be organised.

If an agreement is met, members can apply for membership at the meeting. To complete the meeting, other administrative matters are dealt with including the presentation of the disclosure document, the election of the board of directors, a chairperson and secretary and the authorisation of a contact person for the Registry.

Register Your Co-operative

Within two months of the formation meeting, you will need to send all the required documents (application form, co-operative rules, disclosure statement) to the Registry along with an application fee. You will then be issued with a registration certificate for your co-operative.

Co-operatives National Law

The law governing co-operatives in NSW has been adopted from the Co-operatives National Law (CNL). The CNL is being introduced gradually to the states and territories either by adopting it or passing legislation consistent with it. So far NSW and Victoria have adopted the CNL, reducing the administrative cost for co-operatives to operate between the two states.

Conclusion

In deciding whether or not a co-operative is the right business structure for your proposed activity, keep in mind its purported values of shared ownership and mutual benefit. A LegalVision business lawyer can advise you on whether or not a co-operative would be appropriate for your business and help to draft your co-operative rules and disclosure statement. Just give us a call on 1300 544 755!

Lachlan McKnight

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