About Co-ops
NCB Capital Impact's constituency is broad and includes cooperatives and non-profit "co-op-like" organizations. Read about co-op values and principles, how to start a co-op, and additional co-op resources below.
What is a Co-op?
A cooperative (co-op) is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations. Cooperatives are member-owned and democratically controlled enterprises. Members may unite in a cooperative for many reasons--to get services otherwise not available, to get quality supplies at the right time, to have access to markets or for other mutually beneficial reasons.
Cooperative Values
Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.
Cooperative Principles
Cooperatives worldwide generally operate using the same principles as adopted in 1995 by the International Cooperative Alliance.The principles are part of a cooperative statement of identity, which also includes the definition of a cooperative and a list of cooperative values.
- Voluntary and Open Membership - Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
- Democratic Member Control - Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote) and cooperatives at other levels are organized in a democratic manner.
- Member Economic Participation - Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. They usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
- Autonomy and Independence - Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
- Education, Training and Information - Cooperatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. They inform the general public — particularly young people and opinion leaders — about the nature and benefits of cooperation.
- Cooperation among Cooperatives - Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
- Concern for Community - While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.
Co-ops: A Start-Up Guide
Starting a co-op has all the complexity and dynamics of a traditional business start-up. To maximize your chances for success, check out our brief guide below which cover basic business topics like financing and management, and include links to more comprehensive resources.
I. Laying the Groundwork
Starting a cooperative is a complex undertaking. Responsibility for starting a cooperative and seeing the project through rests mostly with a leadership group. All the dynamic interplay of a business start-up will be evident. The key fundamentals of market assessment, management, capitalization, member equity, distribution, etc. need to be discussed early on.
The catalyst for cooperative formation is a shared recognition that a group approach is the best means of taking advantage of a business opportunity, improving a market for a product, providing a needed service, or securing a predictable and often lower-cost access to supplies. A new cooperative will have a better chance of surviving if it begins by handling only a few products or services. As the cooperative entity's members and management gain experience and develop a track record, new products and services can be added and its membership or operating territory expanded.
II. Determining Concept Feasibility
If your cooperative concept is a good idea and there are strong expressions of interest, it's generally prudent at this point to conduct some sort of feasibility study for the proposed cooperative. Marketing and industry data should be researched, and adequate member commitment assessed.
Assuming this leadership group finds general support for their idea, the next step is to seek advice from resource persons familiar with cooperative organization, operation, finance and accounting, as well as industry experts knowledgeable in the type of product or service the cooperative would provide.
III. Forming the Cooperative Entity
After the feasibility study, a more formal process gets under way. This includes incorporating the entity, soliciting members, developing a business plan, and securing financing.
As with any business start-up technical advice may be necessary from time to time from a variety of people experienced in cooperative organization, business operations, and the legal, financial and accounting aspects of cooperatives. Member commitment is crucial. A start-up requires sufficient numbers of potential members with sufficient volume to make the business viable, and a willingness on their part to finance and patronize the new venture.
Legal counsel is also important. Counsel prepares the corporate documents that give the cooperative and its members the flexibility and protection desired, and advises on legal compliance with incorporation, and the very important securities and co-op tax laws.
Drafting articles of incorporation and bylaws is an important step. Most states have one or more laws authoring the formation of cooperative corporations. Some of these laws are specifically designed for agricultural cooperatives while others are more suited to consumer and other types of cooperatives.
Should you not find a satisfactory cooperative law in your state you might wish to consider incorporating in some other state or under the general corporation laws if permitted and structuring the cooperative features in the bylaws. An experienced "co-op" attorney can help you determine the advantages of incorporation under various statutes, including the District of Columbia Cooperative Association Act.
IV. Financing the Enterprise
As with any new business, starting a cooperative without adequate financing is an almost certain recipe for failure. The problem develops from trying to operate with limited membership equity capital relative to total capital requirements.
Cooperatives must have ownership capital to conduct day-to-day operations, to provide the necessary facilities, and to create a base for obtaining external (bank) financing. Members must provide this capital through investments, retained earning, member deposits or subordinated member loans. Member capital is the best source of financing; the more members provide the less the cooperative will need to borrow from other sources. It is also a measure of their commitment to the venture.
Loans may be used to finance working capital, equipment and buildings. These types of financing are available from the NCB Capital Impact.
New cooperatives may be able to obtain private or government loans, grants or guarantees, depending on what programs are currently available and the need the cooperative intends to address. In seeking financing, the cooperative leadership should develop a business plan which describes the need for the cooperative, the membership support, marketing plan, projected cash flow and operating results for the next three to five years.
V. Hiring Strong Management
Finding an experienced, qualified manager or management team is one of the most crucial tasks facing a cooperative. The prospects for success depend more on the manager than on almost any other factor.
The managerial candidate needs to have experience in the product or the service the cooperative is going to provide. In addition, a good cooperative manager must be able to work with people and understand the special nature of the cooperative's patrons, who are both customers and owners.
It is the responsibility of the board of directors to employ the manager and to establish the board policies for the organization. The manager is responsible for carrying out the policies of the board and for employing the personnel to operate the business. Good board/management relations are essential to the effectiveness of a cooperative. Their roles and responsibilities need to be clearly defined, mutually understood and respected.
Learn More
The book "How to Organize a Cooperative," available through the online Cooperative Catalog, provides further information on cooperative formation. In addition, the US Department of Agriculture has produced How to Start a Cooperative: Your How-To Document. Also check out HOME BASE, our manual on cooperative housing development.
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