Co-operatives are one way to structure your business venture. Members will own and operate the co-operative. Once you form a co-operative, it has its own legal identity separate from the members who establish it. The ‘Co-operative Rules’ define the social or commercial activity of the co-operative. These rules also govern the co-operative’s day-to-day operation.

Forming a Co-Operative

You may consider forming a co-operative if you wish to provide benefits to yourself and other members. In a co-operative, members are also owners, and you will make decisions to benefit all members in mind. In practice, this means that one member also has one vote when it comes to decision-making. Hence, you can view a co-operative as an organisational structure that promotes democratic principles and equality.

A co-operative is a common organisational structure for people with similar goals. Additionally, forming a co-operative may be ideal for providing yourself and other members with more bargaining power when trading in the market. For example, a co-operative can often buy goods at a reduced price because of the size of its orders. When acting on his or her own, an individual would not get the same price.

The co-operative members have common economic, social and cultural goals that are met by governing principles of self-help, self-responsibility, and solidarity.

Difference Between a Co-operative and Other Incorporated Organisations

The co-operative is known for its promotion of democratic principles and equality. It is different from a company because of its “one man, one vote” structure. Additionally, a co-operative is different from an incorporated association because of the ability to distribute surplus funds to its members if they decide to do so. This means that unlike an incorporated association or club, a co-operative does not need to be “not for profit” or to distribute surpluses funds to its members. 

However, surplus funds do need to be used for mutual member benefit. There are two types of co-operatives: distributing or non-distributing. This means you can distribute surplus funds to co-operative members directly (distributing), or you can only use funds to support the co-operative activities (non-distributing).

Do Members of a Co-Operative Have Personal Liability?

Once you form a co-operative, it will have its own legal identity. Consequently, you can enter into legal transactions such as contracts or acquire property. This also means the co-operative bears liability for its conduct and others can sue it. Member liability is confined by the amount owed to the co-operative as a result of membership. This can include share capital, fees or subscriptions.

Governing Co-operatives

Each state and territory have legislation to govern co-operatives. The Co-operatives National Law (CNL) is a body of law gradually being introduced throughout Australia. The transfer to the CNL will:

  • reduce the administrative costs of co-operatives by removing jurisdiction-based registration requirements;
  • simplify financial reporting requirements for ‘small’ co-operatives;
  • allow Model rules to be adopted;
  • introduce duties of directors, officers and employees to reflect the duties of directors of companies; and
  • impose new secretary obligations.

NSW and Victoria have adopted the CNL, with other states and territories expected to follow by adopting or passing legislation consistent with the CNL.

Common Types of Co-Operatives Within Australia

You can own and operate almost any business using a co-operative structure. However, several types are common in Australia, and these businesses play an essential role in the Australian economy.

Financial co-operatives include those providing superannuation products, loan facilities, service unions and investment products. These are colloquially known as building societies, credit unions, mutual banks and member-owned superannuation funds.

Retail co-operatives include businesses that offer discounted consumer products to their members such as wine, groceries, textbooks, and returned services league (RSL) clubs.

Service co-operatives include childcare, healthcare and housing services. Typically these arrangements are undertaken due to dissatisfaction with private consumer options. Members will manage these services with a shared sense of community, support and mutual benefit.

Producer co-operatives typically work by buying goods produced by co-operative members and then on-selling them to retailers. Value is added by individual producers banding together to streamline labelling and production for all members’ benefit. 

Setting Up a Co-Operative

There are nine steps to set up a co-operative:

  1. Choose a name. The name must include the word ‘Co-operative’ and must end with ‘Limited’.
  2. Draft the co-operative rules. The rules govern the way a co-operative will operate. The rules will require details such as the name, primary activity, membership provisions, rights and liabilities of members, number of directors and meeting procedures. There are model rules included in the legislation.
  3. Draft the disclosure document. You will only need the disclosure document for distributing co-operatives. This document will explain members’ financial involvement or liability. It will require details of projected income and expenditure, names of prospective members and directors, and the extent of members’ participation.
  4. Send the co-operative rules and disclosure document to the state or territory registry.
  5. Prepare the application to register a co-operative. Additionally, have the co-operative rules, disclosure document and membership forms ready for the formation meeting.
  6. Once you have received preliminary approval of your co-operative rules and disclosure document, organise a formation meeting with at least five prospective members.
  7. Attend the formation meeting to elect the directors, chairperson and secretary. You also need to vote on the co-operative rules and approve the application to register the co-operative. Those present at the meeting can complete the membership application form.
  8. After the formation meeting, send the application form, fee and finalised co-operative rules and disclosure document to the state or territory registry.
  9. Once the co-operative is registered, a certificate of incorporation will be issued.

Running a Co-Operative

The elected board of directors need to manage the day-to-day running of the co-operative in line with the co-operative rules and legislation.

Financial Reporting

A co-operative needs to maintain its registry of financial records for a minimum of seven years. You must lodge an annual report with the relevant state or territory registry before the end of the financial year. The type of annual report lodged will depend on whether a co-operative is classified as small, large or distributing. You may open a bank account in the name of the co-operative. Likewise, the co-operative rules should outline which signatories are authorised to operate the account.

Meetings

After an initial board meeting, a co-operative needs to hold board meetings every three months. You must hold an annual general meeting to present the annual report, the election of directors, and allow members to ask questions or make comments. The board or members can also call upon extraordinary general meetings. The co-operative rules and legislation outline the procedure for setting up these meetings, including what constitutes a quorum and the record-keeping requirements.

Register

A co-operative needs to make available certain documents and maintain registers. These include: 

  • the co-operative rules; 
  • co-operative legislation;
  • minutes from meetings; 
  • annual reports; and 
  • a register of directors, members and loans. 

All members should be able to inspect the register without cost.

Decision-Making in a Co-Operative

You can make decisions in a co-operative by an ordinary resolution or special resolution. An ordinary resolution requires a simple majority of members. A special resolution needs a two-third majority of members. Certain decisions require a special resolution as outlined in the CNL or the appropriate state or territory legislation. There are also special circumstances where an ordinary or special resolution needs to be passed through a postal ballot or special postal ballot.

Closing a Co-Operative

It is not uncommon for a co-operative to close. Different factors will lead to this decision. For example, members may no longer share common goals, or economic conditions may not be favourable to continue running the co-operative. A co-operative can close by:

  • voluntary wind-up by members;
  • voluntary deregistration by members; and
  • insolvency commenced by directors, creditors or the court.

Key Takeaways

  • A co-operative is an organisational structure that promotes a common goal and mutual benefit. It is based on shared ownership.
  • In a co-operative, each member has one vote, and you make decisions democratically.
  • You can set up a co-operative as either a distributing or non-distributing entity.

Frequently Asked Questions

Can I change a co-operative to another business structure?

A co-operative can change to a registered company, an incorporated association or an Aboriginal corporation. The appropriate state or territory registry must approve of the business structure’s change. If the registry approves the change, you must notify members, and (in most cases) pass a special resolution.

What is the difference between a small and a large co-operative?

A small co-operative needs to satisfy certain criteria to be classified as “small”. This includes satisfying at least two of the following points: the consolidated revenue must be less than $8 million; the value of consolidated gross assets must be less than $4 million or; the number of employees must be fewer than 30.

The above figures are based on the previous financial year and will take into consideration the co-operative’s controlled entities.

A small co-operative cannot have any securities on the issue to non-members, this is unless the non-members are former members who have cancelled their membership. A small co-operative can not issue shares to more than 20 members in one financial year. If more than 20 members have been issued with shares, the value of the shares must not be more than $2 million.

If a co-operative does not meet the above criteria, it will be considered a large co-operative. The classification of a co-operative will determine its financial reporting obligations.

Can I change the co-operative rules once they have been drafted?

The co-operative rules can be changed. However, some changes may require approval from the state or territory registry before taking effect. The rules that need approval include those relating to: active membership; converting from a non-distributing to a distributing co-operative; the co-operative’s primary activities; winding up and the issue or sale of shares.

You can lodge an application to make changes at the state or territory registry. Members will also need to be notified and often a special resolution needs to be passed to make the relevant changes.

Do co-operative directors and officers have specific duties?

The CNL and relevant state or territory legislation outlines the specific obligations and duties of directors and officers in a co-operative. They include acting honestly, acting with care and diligence, not disclosing confidential information and ensuring the co-operative can meet its financial obligations.

How Can LegalVision Help Me?

LegalVision provides businesses and individuals with tailored online legal advice. The important question is to determine whether a co-operative is the right organisational structure for you. We can provide advice on whether a co-operative would suit your goals and activity. Once you are sure that a co-operative is the best structure for you, we can draft your co-operative rules and provide you with advice on the legal obligations of running a co-operative. If you require assistance with your co-operative, contact LegalVision’s business structuring lawyers on 1300 544 755 or fill out the form on this page.

Get in Touch

Fill out the form below and a LegalVision team member will be in touch shortly!

  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer