Articles and Bylaws

Summary

This fact sheet is a guide for directors, members, and managers of existing and developing co-operatives.  It explains how to develop and amend Articles and bylaws to tailor them to the unique needs of an individual co-operative and to meet legal requirements.  

This publication provides general guidance and should be used in consultation with The Co-operatives Act, 1996, and The Co-operatives Regulations, 1998 (provincial legislation) plus appropriate legal, technical and managerial advice and support.  We also recommend A Co-operative Glossary and International Co-operative Alliance: Statement of the Co-operative Identity, two fact sheets in the ongoing series being produced by Saskatchewan Rural Development.

The following items are addressed in this publication:

Articles of Incorporation

Bylaws
A. Required Bylaws

1.  Membership
            -Qualifications for Membership
            -Withdrawal of Members
            -Termination of Membership
            -Joint Membership
            -Classes of Membership

2.  Share Capital or Membership Fee Requirements
           -Co-operatives with Share Capital
           -Co-operatives Without Share Capital

3.  Board of Directors
           -Qualifications of Directors
           -Election of Directors
           -Term of Office
           -Removal of Directors
           -Appointment of Officers

4. District Boundaries

5. Delegate Structures

6. Dissolution

B. Optional Bylaws

1. Voting

2.  Distribution of Surplus

3.  Amendment of Bylaws

C. Assembling Bylaws

Articles, bylaws and policies form a hierarchy within the internal regulatory structure of a co-operative.  Articles, at the top of the hierarchy, require a special resolution to be approved or amended.  Bylaws, at the second level, require approval by ordinary resolution.  Policies, at the third level, generally are developed and amended by the Board of Directors.  This hierarchy is important when you decide which issues, other than those required by the Act, should be addressed in the Articles, bylaws or policies of your co-operative.

ARTICLES OF INCORPORATION

Articles of Incorporation are the instrument by which a group of individuals enter into an agreement to form a co-operative.  Articles are developed, approved, and signed by the incorporators of a co-operative and must be filed with the Registrar of Co-operatives in the prescribed form, with required fees.  The Registrar, subject to approving the Articles and bylaws, will issue a Certificate of Incorporation. 

Articles may only be amended by special resolution which requires a majority of at least two-thirds of the votes cast at a general meeting at which there has been not less than 10-days notice provided to members of the intention to propose the special resolution.

The Act requires that Articles include the following:

1. The Name of the Co-operative:  A co-operative's name must include the word "Co-operative"  (or "Cooperative"), and the last word must be "Limited", "Ltd.", "Limitée" or "Ltée". The name must not be the same as or similar to that of another co-operative previously or currently registered in Saskatchewan unless approved by the Registrar.

2. Share Capital:  When a co-operative is organized with share capital or equity, the Articles must state the par value (fixed price by which shares are sold or repurchased by the co-operative) and number of shares to be issued.  If  a co-operative has two or more classes of shares, the Articles must state the designation, par value, special preferences, rights, conditions, restrictions, limitations and prohibitions attached to each class.

3. No Share Capital:  If a co-operative is established without share capital, the Articles must contain a statement that the interest of each member is the same as that of every other member.

4. Number of Directors:  The Articles should state the minimum and maximum number of directors.  Unless the number of incorporators or members is less than six, a co-operative is required to have a minimum of five directors.  

5. Names of First Directors:  The Articles must include the names in full, and place of residence of the first directors.

6. Objects: The Articles should contain a concise statement (usually one paragraph) describing the objects or purpose for which the co-operative is established.  This paragraph usually begins with the wording "On a co-operative basis. . ."

7. Restrictions:  The Articles may include a statement outlining restrictions, if any, on the business of the co-operative.   If a co-operative includes a restriction, any involvement in the restricted activity is prohibited.

Articles may also include any provisions permitted by the Act to be set out in the bylaws.  

BYLAWS

Bylaws set out the basic rules and guidelines, within the Act, by which a co-operative governs itself. Bylaws are first developed, ratified and registered by the incorporators of a co-operative.  They must be certified by the president and secretary, and filed with the Registrar along with the Articles as part of fulfilling the regulatory requirements for incorporation.

This includes payment of any required fees.  Bylaws must also be ratified by a simple majority vote of the members present and voting at the first general meeting of a co-operative.  This meeting must be held within four months following incorporation.  

Future changes to the bylaws also require a simple majority vote of members, provided that notice of any proposal to make such an amendment was forwarded to each member with the notice of meeting.  If notice was not provided, an amendment may be presented but a two-thirds majority is required for passage.  

The Co-operatives Act, 1996 prescribes that co-operatives must have bylaws that address the following key issues:

1.       Membership

a)  qualification of members
b)  joint membership
c)  withdrawal of membership
d)  termination of membership
e)  where required, provisions relating to classes of membership

2.       Financial Requirements of Members

a)  share capital contributions, member loans, etc.
b)  membership fees

3.       Board of Directors

a)  qualification
b)  election
c)  term of office

4.       District Boundaries:  if applicable, procedures for establishing
          districts

5.       Delegate Structures:  if applicable,

a)  election
b)  power and duties

6.       Dissolution:  provisions relating to the distribution of property upon
          dissolution of the co-operative

These items reflect the core legal components under the Act,  and are key to establishing a  co-operative's organizational and governance structure.  Although some issues, such as districts or classes members, may not apply to all co-operatives, the above list provides a basic framework for developing bylaws.  In addition to these items, members of a co-operative may pass bylaws on any matter, provided it is consistent with the Act.  

Bylaws provide the legal framework for a co-operative to operate effectively and to meet the objectives of its members.  When members develop bylaws, they  must consider carefully the effect of any bylaw on the co-operative's organization and operations.  The following section addresses issues to be considered in developing bylaws on areas required by the Act.

REQUIRED BYLAWS

MEMBERSHIP
Membership is core to any co-operative.  The International Co-operative Alliance's Statement of Co-operative Identity includes "Voluntary and Open Membership" as its first principle.  This principle further states that membership in  co-operatives is "open to all persons able to use their services, and to accept the responsibilities of membership without gender, social, racial, political or religious discrimination."

Membership provisions in The Co-operatives Act, 1996 generally adhere to this principle.  The Act specifically provides that co-operatives must include bylaws regulating the qualification, withdrawal and termination of membership.

Qualifications for Membership

The following five factors should be considered in determining who is qualified for membership in any co-operative and in developing bylaws to address this issue:

1. Ability to use the services of the co-operative;
2. Capacity of the co-operative to provide service;
3. Payment of any fees or purchase of any shares required as a condition of membership;
4. Agreement to abide by the bylaws and accept responsibilities of membership; and
5. Approval by the Board of Directors of the co-operative.

There are generally two approaches to formulating bylaws relating to the qualification of members.  The first is to formulate a bylaw stating specifically who is eligible to apply for membership in the co-operative.

Example:
Membership in the co-operative shall be open to all tomato producers in Saskatchewan willing to deliver tomatoes for processing by the  co-operative.

To become a member of the co-operative, a person must apply in a form prescribed by the Board of Directors, and the application must be approved by the board and recorded in the minutes.          
 
A second approach is to simply define eligibility as being able to use the services of the co-operative.
Co-operatives which do not have special requirements of members (such as retails and community service co-operatives) generally take this simpler approach.

Example:
Membership in the co-operative shall be open to anyone who can use the services of the  co-operative. To become a member of the co-operative, a person must apply in a form prescribed by the Board of Directors and the application must be approved by the board and recorded in the minutes.

This approach may also be used by co-operatives with more specialized membership but, in such cases, this approach delegates to the board greater authority in approving applications for membership.  

In addition, to support the implementation of its bylaws on membership, a co-operative should have standardized membership application forms and policies and procedures for processing them. Applications should clearly state all conditions relating to membership, including a statement that the member agrees to abide by the bylaws of the co-operative and accepts responsibilities of membership.

Withdrawal of Members

Co-operatives, as voluntary organizations, must also have bylaws relating to the withdrawal of members.  

1. These bylaws should address three issues;
2. The requirement of a member to provide notice;
3. The period of notice required; and
4. The maximum time allowed for the co-operative to repay equity or other money credited to the withdrawing member.  

The Act sets out that this term of repayment may not be longer than five years except in the case of equity that has been allocated in the form of patronage dividends.  

Example:

A member may withdraw from the co-operative by giving to the secretary of the co-operative  __  days notice of  intention to withdraw.  

The board, by resolution, may accept any application to withdraw upon shorter notice.  

The co-operative shall pay all amounts held to the credit of a member within ___ days (months, years) of the board's acceptance of the member's application to withdraw.

Termination of Membership

Bylaws must also set out the rules respecting the termination or retirement of a membership.  

The Act provides that either the Board of Directors or the members of a co-operative may order the termination of a membership and lists the issues that must be addressed in bylaws relating to this issue, including:

1. The process by which a termination of membership may be made;
2. The amount of notice required to be given to the member;
3. The process by which a member may appeal; and
4. The requirement for repaying the member any share capital or other amounts held to their credit.  

Either the board or members, through a vote, may order the termination of a membership, so two bylaws are required.  

Examples:
Termination of Membership by the Board of Directors:
The directors may, by at least a two-thirds vote at a meeting duly called, order the retirement of a member from the co-operative.  

The secretary of the co-operative shall, within ten (10) days from the date on which the order is made, notify the member in writing of the order.  

The member may appeal the order to the next general meeting of the co-operative by giving written notice of the intention to appeal to the secretary within thirty (30) days from the date he received notice.  Where the member makes the appeal, a two-thirds majority of the members present and voting shall be required to rescind the order.

If the retirement of a member is ordered in accordance with the provisions of this bylaw, the co-operative shall pay to the member all amounts held to his credit within ___ days (months) of the members retirement.

Termination of Membership by the Members of a Co-operative:

The members may terminate the membership of a member where:

1. The member has received at least ten (10) days notice of the general meeting at which his membership is to be considered;
2. The termination is approved by at least two-thirds of the members who are present at the general meeting and cast vote; and
3. If the retirement of a member is ordered in accordance with the provisions of this bylaw, the co-operative shall pay to the member all amounts held to his credit within ___ days of the member^s retirement.

When the termination of a membership is initiated and voted on by the general membership, there is no second or further appeal by the member to the general membership.  

The Act requires that within one year of the termination of a membership, the co-operative will purchase all shares held by the member and repay any other monies held by the co-operative.  

The Act does not require the co-operative to provide a reason for ordering the termination of a membership but it does, subject to certain limitations, permit a person whose membership has been terminated to appeal to the Registrar of Co-operatives.

Joint Membership

A co-operative must also have a bylaw respecting  joint membership.  Joint membership refers to situations where two or more persons (usually members of one family)  are party to a single membership.  Joint membership does not apply to organizational memberships because organizations or corporations are considered to have the legal status of a person, and therefore apply for membership in the same manner as an individual person.

If a co-operative does not wish to permit joint membership, it must state this in its bylaws.

Example:

There shall be no joint membership in the co-operative.

A co-operative that permits joint membership must set out the conditions in which two or more persons may apply for joint membership, including the rights and obligations of each party to the joint membership with respect to voting and other issues.  The Act provides that, unless the bylaws state otherwise, each of the joint members is entitled to vote and to exercise full rights and responsibilities of membership, except that only one joint member may be a director at any one time.  Joint members are equally liable for all charges imposed or payable with respect to membership.  

Example (single vote):

Two or more persons may apply for joint membership in the co-operative.  Parties to a joint membership have one vote and shall determine which party to the membership shall cast the vote. Only one party to the joint membership may hold office as a director at any one time.  Each party to a joint membership shall have the right of survivorship.

Example (multiple voting):

Two or more persons may apply for joint membership in the co-operative.  Each party  to the joint membership shall have one vote, except that only one party may be hold office as a director at any one time.  Each party to a joint membership shall have the right of survivorship.

Joint survivorship refers to the right of each party of the joint membership to continue as member in the event of the death or withdrawal of one of the other parties.

Classes of Membership

Most co-operatives have a single class of members, each having the same qualifications, rights and obligations.  However, some choose to divide their members, who are shareholders, into different classes. The bylaws must set out the qualifications and terms of membership in each class and the means of transferring from one class to another.  For example, a food processing co-operative could be owned by a combination of agricultural producers, employees and other investors, each group forming a class with different qualifications for membership, equity financing obligations, and rights regarding distribution of the surpluses of the co-operative.

Example:

There shall be three classes of members -  producer members, employee members and investor members -with the following rights and qualifications:

Producer member: Must be an individual engaged in the production of _______ who has purchased ________ shares in the co-operative and signed a contract to deliver __________ units to the co-operative.

Investor member: Must be an individual who has purchased at least _______ preferred shares in the co-operative.

Employee member: Must be an employee of the co-operative who has purchased at least ________ shares in the
co-operative.

Applications for membership must state the class of membership for which the individual is applying.  A qualified member may apply to the Board of Directors to convert his membership from one class to another class.

SHARE CAPITAL OR MEMBERSHIP FEE REQUIREMENTS

The section on Articles of Incorporation in this publication addresses how a co-operative may be established with or without share capital.  The bylaws must set out specific requirements respecting the purchase of shares, payment of fees or any other financial requirement that is a condition of membership.

Co-operatives with Share Capital

The amount of shares or equity investment required of each member relates directly to the capital requirements of the particular co-operative.  Co-operatives require capital to purchase assets and to initiate operations.  These can be funded by share capital contributions, member loans, preferred shares, debentures, and loans from financial institutions.  When establishing a co-operative, the incorporators must estimate the co-operative's total capital requirements and determine the amount which can e raised from compulsory sale of shares to members.  For example, if a co-operative wishes to raise $500,000 from the sale of membership shares, and can provide services to only 100 members, it must be able to attract 100 members willing and able to pay $5,000 to join the co-operative.

Example:

Each application for membership must be accompanied by a payment of $      for the purchase   ____   shares in the co-operative.

Some co-operatives, particularly agricultural producer co-operatives, link share purchase requirement to the rights and obligations to deliver a defined product to the co-operative for processing.  Different members will have different levels of investment according to the amount of delivery rights they purchase.

Example:

Each application for membership must be accompanied by a payment of $      for the purchase   ____   shares for each unit of delivery rights/obligations..

Co-operatives without Share Capital

Co-operatives without share capital generally require members to pay a membership fee to join the co-operative and sometimes require an annual fee to maintain membership.  The amount of the fee or fees is determined by each co-operative and must be set out in the bylaws.

Example:

Each application for membership must be accompanied by a payment of $      for the purchase of a membership in the co-operative.

BOARD OF DIRECTORS

The Articles set out the minimum and maximum number of directors a co-operative may have.  The bylaws will establish the qualifications, means of election, term of office and procedures for removal of directors from office.  

Qualifications of Directors

The Act provides that a director of a co-operative must be an individual and either a member of the co-operative or a duly appointed representative of a member that is a partnership, association, firm, body corporate or public body.  The bylaws may provide for specific qualifications for directors.  Qualifications may relate to such things as levels of patronage, eligibility of employees of the co-operative, and class of membership.  These conditions must be clearly stated and not be based on gender, social, racial, political or religious status.  

Eligibility of employees of a co-operative to be directors of the co-operative which employs them is one of the most common factors incorporated into bylaws respecting the qualification of directors.  Bylaws may be used either to permit or restrict employee directors.  The Act permits co-operatives, other than consumer co-operatives, to have one-third of the board made up of employees.  Bylaws may extend this to include all of the directors.  Such a provision is common in worker co-operatives, for example.

Consumer co-operatives, under the Act, may not elect employees to the board unless there is a bylaw permitting such election.  The Act restricts consumer co-operatives from having a bylaw that would permit more than one-third of the directors to be employees.

Example:

Employees are eligible to be elected to the Board of Directors, but not more than 50 per cent of the directors may be employees.

Election of Directors
The Articles set out the maximum and minimum number of directors, while the bylaws state the exact number of directors or state the range specified in the Articles. Bylaws should also state the process for nomination of candidates for election as directors and other specific rules a co-operative wishes to adopt respecting the election of directors.

Example:

There shall be _______ directors, or

At each annual meeting, the members shall, by ordinary resolution, determine the number of directors to be elected within the range set out in the Articles of Incorporation.  If the members fail to specify the number of directors at the annual meeting, the number  of directors shall be equal to the number set in the previous year.

Directors hold office until the conclusion of the meeting at which their successors are elected.

Term of Office

Bylaws should specify the length of term for which directors are to be elected and any limits on the number of consecutive terms a director may serve.  Co-operatives often provide for the rotation of terms of office.  For example, if there is a three year term, one-third of the directors' terms would expire each year.  This requires election of some of the directors for shorter terms at the first general meeting.

Example:

Directors shall be elected for a three year term.  To permit a rotation in office, at the first general meeting of the co-operative, one-third of the directors shall be elected for a one year term, one-third shall be elected for a two year term, and one-third shall be elected for three year term.  In subsequent years, all directors being elected to fill a term that has expired shall be elected for a three year term.  Directors shall be eligible for re-election.

The bylaws should also include provisions with respect to the filling of vacancies.

Example:

Where there is a vacancy on the board, and where there is a quorum of directors, the remaining directors may exercise all the powers of the directors, or fill the vacancy until the next annual meeting; and where there is not a quorum of directors, the remaining directors shall call a general meeting for the purpose of electing members to fill any vacancies.

Removal of Directors

Directors may only be removed from office by a resolution of members.  Bylaws must specify the process to be used and the vote required.  The bylaw may not require a vote greater than a two-thirds majority.  

Example:

The members of a co-operative may, by a resolution approved by two-thirds of the votes cast at a general meeting, remove a director from office.

Appointment of Officers

The bylaws must also provide for the appointment of officers by the board.  All co-operatives must appoint, usually through election, a president and vice-president who must be directors.  Boards must also appoint a secretary and treasurer or a secretary-treasurer who may, but need not be, a director.  The bylaws may also provide for other officers to be appointed.  

Example:

The Board of Directors shall:

1. Elect a president and a vice-president from among their number;
2. Elect or appoint a secretary and treasurer, or a secretary-treasurer who may, but need not be, a director;
3. Designate the officers of  the co-operative, appoint persons as officers, specify their duties, and delegate to them the necessary powers to manage the business affairs of the co-operative.

DISTRICT BOUNDARIES

Some co-operatives have bylaws that divide the territory in which the members reside into districts.  This provision can be useful when electing delegates within a large region.  Bylaws must set out the procedure for establishing and altering district boundaries.  

Example:

The directors shall, from time to time, divide the area served by the co-operative into not fewer than _______ and not more than ______ districts.

DELEGATE STRUCTURES

Bylaws may also provide for the election of delegates, defining the powers, duties, method of election, voting rights and proceedings for removal of delegates.  Usually delegates represent a district or a class of members. The Act permits the members at any annual meeting or special meeting called for that purpose to amend the bylaws to eliminate a delegate structure.  

Example:

Each member group (district, class, etcetera) shall hold a delegate selection meeting each year, at least _____ days prior to the annual general meeting of the co-operative.  At this meeting, the members shall elect ______ delegates who shall have all the powers of the general membership at any general meeting of the co-operative.  The term of office of the delegates shall be ______ years.

The member group that elects a delegate may, at a delegate selection meeting or special meeting called for that purpose, remove the delegate by a vote of ______ (minimum, simple majority).

DISSOLUTION

A co-operative must include a bylaw that states how the remaining property of the co-operative will be distributed if the co-operative is dissolved. Upon dissolution, the remaining assets of a co-operative must be used first to pay all creditors, and second to repay members' equity and other money held to the credit of members.

The bylaw respecting dissolution must set out how any assets remaining, after creditors and members have been paid, should be distributed.  

Bylaws respecting dissolution may simply provide for all decisions to be made respecting distribution of remaining assets at the time of dissolution or they may specify that surpluses be distributed in a defined manner.  Some co-operatives (such as community service co-operatives) are established to provide services on a not-for-profit basis and therefore do not permit surpluses to be distributed to members either in the form of patronage dividends or upon dissolution.  Such co-operatives often state in their bylaws that surpluses at dissolution be distributed to specific co-operatives, non-profit corporations or charities.

Examples:

Upon the dissolution of the co-operative, property and unallocated surplus shall be distributed according to the special resolution to dissolve, or

Upon dissolution of the co-operative, the property and unallocated surplus shall be donated to _________. (State  non-profit corporation(s), association(s), or co-operative(s)  established for charitable or benevolent purposes, or to another co-operative(s) with similar objects.)

OPTIONAL BYLAWS

The previous section addresses all areas that co-operatives must include in their bylaws, but co-operatives must also address other issues. Members may decide to have additional bylaws to address other issues or to formulate policies to address them.

There are two reasons for the inclusion of other provisions in bylaws.  One is to provide for restatement or clarification of provisions included in the Act, providing members with an easy reference on issues that commonly affect the co-operative.  Examples include provisions relating to voting, the distribution of surplus, and amendment of bylaws.  A second reason is to provide for member control over a particular issue.  Enshrining a provision in the bylaws ensures it can only be changed with the consent of the members.

Following are some subjects that, while not required by the Act, are addressed in the bylaws of many co-operatives.

VOTING

Subject to the Act, bylaws set out the rules for voting at board and general meetings.  The Act and co-operative principles prescribe one-member-one-vote and do not permit proxy voting.  Bylaws must be consistent with these principles but can include provisions such as rules for determining when a secret ballot is required.  

Example:

Members or delegates shall vote by a show of hands or, where three members entitled to vote at a meeting so demand, by secret ballot.

Election of directors shall be by secret ballot.

The chairman shall have the right to vote but shall not be entitled to cast a second vote in the event of a tie.

In the case of a tie, the motion shall be declared lost.

DISTRIBUTION OF SURPLUS

Surplus is defined as the amount that remains after deducting all expenses from the total revenue of the co-operative.  There are several issues that should be addressed in developing bylaws relating to the distribution of surpluses.  First, a co-operative must determine if it is legally able to distribute its surplus to its members.  If it is a community service co-operative or if its objects define its activities to be of a not-for-profit nature, it may not distribute any surpluses to members and it may specify this in its bylaws.

Example:

Any surplus resulting from the operations of the co-operative will be placed in reserve and cannot be distributed to the members of the  co-operative.

Co-operatives that are permitted to distribute surpluses will do so according to the level of patronage by individual members.

Example:

Any surplus arising from the yearly operations of the co-operative shall be divided among the members in proportion to the volume of business of each member at a rate determined by the Board of Directors.

Amendment of Bylaws

Co-operatives may also include provisions on amending bylaws.

Example:

Members of the co-operative may, at any annual meeting or any special meeting called for the purpose, enact, amend, repeal, replace or confirm any bylaws, where written notice of the proposed enactment, amendment, repeal, replacement or confirmation is forwarded to each member of the co-operative with the notice of the meeting at which the enactment, amendment, repeal, replacement or confirmation is to be considered, by a majority of the votes cast at the meeting.  If this notice was not forwarded to each member of the co-operative, a two-thirds majority of the votes cast at the meeting is required for passage of any amendments.

ASSEMBLING BYLAWS

Bylaws should be organized in a clear and concise document so related bylaws are together and specific references can be located quickly.  They are usually organized according to subject and are numbered for easy reference.  A multi-tiered system is often used with either a combination of letters and numbers (1., A., a.) or decimals (1, 1.1, 1.2).

The document often includes a section that gives definitions of key legal terms used in interpreting bylaws such as "Act", "regulations", and "directors". This section can be developed by reviewing the contents of the bylaws and identifying the words that require definition.  Many key definitions are provided in The Co-operatives Act, 1996 and The Co-operatives Regulations, 1998.

For additional information contact Saskatchewan Regional Economic and Co-operative Development toll free at 1-800-265-2001.  We also invite you to visit or contact us through our web site on the Internet at http://www.recd.gov.sk.ca

Prepared by: Saskatchewan Regional Economic and Co-operative Development