WHAT ARE NEW GENERATION COOPERATIVES?
New generation cooperatives are designed to enable producers to
profit from the production and marketing of value-added products made
from their raw commodities.
Like all cooperatives, a new generation cooperative is a distinct type
of organization, that is collectively owned and democratically
controlled by its members. It satisfies their common economic needs and
ambitions while respecting the seven principles of cooperatives.
New generation cooperatives are an option for use in agriculture,
forestry, fishing and other industries that are supplied by producers.
Formed to enable members to process raw commodities, members should not
only receive market prices for their produce upon delivery; they should
also gain the opportunity to profit from the processing and marketing of
the value-added products produced by their new generation cooperative.
The distinction from the traditional cooperative arises from the
evolution of people banding together to obtain goods and services at
cost or to provide marketing services for their raw commodity
production, to producers banding together to strengthen their economic
position by vertically integrating everything from purchasing their
production inputs to marketing processed goods into retail markets.
These evolutionary cooperatives have expanded upon the seven basic
principles of co-operation as approved by the International Co-operative
Alliance, while still meeting the intention of the principles. These
principles and their application by new generation cooperatives follow.
Membership is open to anyone who can supply the raw commodity.
However, the number of members is limited by the capacity of the
cooperative to process the raw commodity and market the processed
products and by-products within one of its operating cycles.
Democratic control is still one member one vote; however, The
Cooperatives Act of Manitoba allows for holders of investment shares to
hold separate shareholders’ meetings and to elect a representative to
the board of directors.
Member economic participation is based upon patronage. Equity
requirements and profit sharing are tied directly to patronage. To
encourage investment, The Cooperatives Act of Manitoba allows investment
shareholders to receive more than the traditional token return on
capital provided, up to a maximum set out by the Articles of
Incorporation.
Autonomy and independence are often the driving force behind these
cooperatives. In many cases, developing a new generation cooperative is
the only way to get out from under the control of a monopoly or
oligopoly.
Education, training and information about cooperatives in general, and
the benefits of the new generation model are essential to the success of
these cooperatives. It is only by having committed informed members that
a new generation cooperative can succeed.
Cooperation among cooperatives is respected by these cooperatives, and
alliances with production, service and marketing cooperatives may
enhance their profitability.
Concern for community was behind some of the original new generation
cooperatives. The leaders saw them as one way to retain their children
and grandchildren in the community by stopping the exporting of jobs
necessary to retain these children. By building value-added processing
plants in their community to process local production, the jobs and
opportunities for additional economic spin-offs would give the next
generation the choice of careers in their home community. The new
generation cooperative model is well suited to assist in community
development.
Distinct Features
The continuing evolution of cooperatives to meet the changing
economics in agriculture, fishing, forestry and other industries, has
resulted in the creation of a new generation of cooperatives that
differs from the traditional cooperative in four areas:
- The focus is on the value-added processing or manufacturing of
raw commodities delivered to the cooperative by its members and the
marketing of the resulting products.
- A significant equity investment is required by each member, with
the total initial equity contribution being a major portion of the
gross project costs.
- A two-way contract between the member and the cooperative
requires each member to deliver, and the cooperative to accept, an
agreed-upon amount of the raw commodity for each delivery right
(special investment share under Manitoba legislation) owned by the
member.
- Membership is limited to the number of special investment shares
(delivery rights) required to be sold by the cooperative to its
members in order to meet its processing capacity.
It is primarily the financial structure and membership requirements
that distinguish new generation cooperatives from the more traditional
cooperatives. Typically, higher equity investments are required by
members in order to establish a processing plant. The number of members
is also limited to those who purchase delivery rights, as well as by the
processing capacity of the plant. Members feel a greater degree of
personal ownership and a stronger commitment to the cooperative because
of the unique structure of new generation cooperatives.
Manitoba Legislation
The Cooperatives Act and Regulations of Manitoba now have provisions
that provide for the uniqueness in capital structure that new generation
cooperatives require. Provisions that restrict returns on share capital,
limit the sale of shares to members, and restrict directors to members,
have been eliminated.
The return on investment shares is now limited to a maximum as set out
in the Articles of Incorporation. Investment shares may be sold to
non-members, and boards of directors may now have up to 20 per cent non
member content to enable investment shareholders to elect
representatives to the board of directors.
There are three types of shares provided for under Manitoba legislation.
These are special investment shares, membership shares, and investment
shares. Professional assistance from lawyers and accountants should be
obtained to set up an appropriate capital structure.
Special Investment Shares
Under The Cooperatives Act of Manitoba, special investment shares is the
term given to describe the special class of shares that may be issued by
a cooperative to its members. Each member who owns shares of this
special class is obliged to conduct a specific amount of business with
the cooperative (delivery rights). These shares are subject to the
Offering Statement process administered by the Registrar of
Cooperatives.
These shares do not have a par value. The price, when issued by the
cooperative to the member/producer is set by the cooperative based upon
its financial requirements. The subsequent trading value is set by the
amount a new producer or existing member, wishing to deliver more to the
cooperative, is willing to pay to existing special-investment
shareholders to acquire additional delivery rights.
These shares do not have redemption rights. The owner does not have the
right to redeem them at the cooperative. The owner may sell them to
another member/producer; however, the purchaser must be a member or be
applying for membership that is subject to the approval of the
cooperative.
Upon wind-up of the cooperative, these shares rank last, behind all
other claims on the assets of the cooperative. The remaining property,
after payment of all debts and liabilities, including unpaid dividends,
and redemption of all other classes of shares, is distributed pro rata
among the holders of these special investment shares, based upon the
number of special investment shares held.
The original selling price of these special investment shares at the
start of the project is set by the total equity to be raised by this
class of shares, the total quantity of raw commodity that the proposed
plant can process in an operating cycle, and the number of shares that
are to be issued.
For example, if a seed processing plant needs $5 million in equity from
the sale of these shares, and the plant can process 200,000 tons of
seed, then each ton of seed must raise $ 25 ($5 million ? 200,000 tons)
to meet the equity requirement. If each share requires the delivery of
10 tons of seed, then each share would cost $250 ( 10 tons x $25 ). The
minimum number of shares to meet membership requirements could be set at
10, which makes the minimum investment required for membership $ 2,500 (
$250 x 10 shares ). This would limit membership to a maximum of 2,000
($5 million divided by $2,500).
New generation cooperatives require a substantial equity commitment from
members. Equity targets are often set at approximately 60 per cent or
more of project costs, including the costs of feasibility and viability
studies, business plans, plant construction, and operations, until the
plant is functioning. Annual profits are allocated through patronage
returns to producers, which should be payable in cash within one
operating cycle. The high initial equity requirement is designed to
ensure that there is already sufficient working capital in place to fund
the ongoing operation of the plant and the marketing side of the
business. This makes the investment in special investments shares more
attractive, as the profits do not have to be retained to build equity
and may be returned to the producers/members in cash.
Membership Shares
The Cooperatives Act of Manitoba provides for a class of shares known
as membership shares. These membership shares are purchased to qualify
for membership. The membership shares are par value shares and the Act
and Regulations limit dividends on membership shares in keeping with the
cooperative principle of limited return on membership shares. The
requirements as to the minimum number of membership shares to be held by
each member, and the rate of return, are set out in the Articles of
Incorporation. The bylaws provide guidance on the criteria for
membership shares to be eligible for redemption and as to the order in
which membership shares may be redeemed.
Each membership shareholder is entitled to one vote at a meeting of
members. Membership shareholders are the owners of the cooperative and
control the business and affairs of the cooperative through an elected
Board of Directors.
Investment Shares
Previously, the raising of equity through share offerings was
difficult for several reasons. The reasons relate to requirements that
cooperative shares have a par value, leaving no possibility for capital
gains, and the legislated limit on the rate of return, which leaves no
possibility of the investor sharing in the prosperity of the
cooperative.
The Cooperatives Act of Manitoba, revised on July 1, 1999, provides for
the sale of investment shares which, if the Articles of Incorporation
allow, may be sold to non-members. These investment shares can be used
to enable any individual, as well as development corporations, municipal
governments and other corporations resident in the community, to support
the project by supplying additional equity funding.
The preferences, rights, conditions, restrictions, limitations,
prohibitions, redemption terms and methods of holding meetings of
shareholders, quorums, rights of voting, and ability to elect a
representative to the Board of Directors, must all be set out in the
Articles of Incorporation.
The terms of the investment shares are set by the cooperative to serve
its financial objectives in harmony with the need to offer sufficient
incentives to make the investment shares an attractive investment.
These shares are subject to the offering statement process if their sale
is restricted to members only, and to the prospectus process
administered by the Manitoba Securities Commission if they can be sold
to non-members.
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DEVELOPING A NEW GENERATION COOPERATIVE
Identify the opportunity
Every new business venture begins with an idea. It could be a new
product or service, or a variation on an existing one. Often, the
process to start a new generation cooperative begins with a group
realizing they face a common challenge. The perceived opportunity or
mutual need requires the strength provided by acting together to improve
the chances of success.
Determine the project need
Once the need for a new generation cooperative is determined, a meeting
with potential members and community leaders starts the process. The
community leaders can present the idea and its benefits to potential
members, usually the producers of the raw commodity. It is necessary to
obtain feedback from all interested parties to determine interest.
Following the meeting, a survey of the people in attendance, plus others
identified as potential members or investors, will help quantify
interest. The survey should be designed to provide information to
measure the concept, evaluate the volume of business that may exist, and
determine if people are willing to contribute financially to the
project.
Do a feasibility study
If the interest to proceed is sufficient, a steering committee,
comprised of a combination of community leaders and producers, can
oversee the preparation of a feasibility study. An industry expert
independent of the cooperative should do the study. The study should
have local input regarding availability of resources within the
immediate trading area. These resources include the number of existing
and potential producers, the amount presently produced as well as the
potential production, size and the available skills within the local
labour force, and availability of transportation services to supply the
raw product and to ship the processed products and byproducts.
The results of the feasibility study will demonstrate the project’s
potential for success. However, the study only determines that the
project is feasible, it is not a guarantee of success. It will provide
information needed to make a sound decision on whether to proceed with
the venture, and how best to go about it.
When the feasibility study has been completed, reviewed and amended by
the steering committee, and indications are that the project is feasible
and viable, the steering committee can then present it to the potential
members of and investors in the cooperative. At this point the potential
membership is in a position to consider how to proceed.
Ingredients for success
Although there are many ways to develop a new generation cooperative,
there are certain steps and processes adopted by many successful
developers of cooperatives.
If the decision is made to proceed with the venture, the key areas to
address are the organizational structure and the
business plan.
For the most part, cooperatives require assistance from experienced
outside resources, such as lawyers, accountants, community leaders and
industry experts. They have the knowledge and experience to develop
reasonable and appropriate organizational structures and sound business
and financial plans.
Incorporation of a new generation cooperative
When enough potential members, to achieve the volumes of business
outlined in the feasibility study, are prepared to provide start-up
equity, it is time to proceed with the incorporation of the new
generation cooperative. The decision to proceed should be made by those
people who have either invested funds towards the project, or are
prepared to sign commitment letters to assure that the next stage will
have enough financial support to cover costs incurred in the
incorporation process, the development of a business plan and an equity
campaign.
In Manitoba, incorporation requirements include the following minimum
standards:
- three individuals or two corporations willing to act as
incorporators
- three individuals willing to act as first directors
- approval of the proposed name at the Office of the Registrar of
Cooperatives
- completion of a name reservation at the Companies Office
- completion of Articles of Incorporation
The approved Name Reservation from the Companies Office, Articles of
Incorporation, and if required, the Offering Statement, must be
submitted to the Registrar of Cooperatives together with the required
fees.
An Offering Statement is required when:
a) the amount of the membership requirement exceeds $1,000 in
membership shares and/or loans
b) special investment shares (delivery rights) are being issued
c) investment shares are being issued to members only.
The Offering Statement must be filed with the Registrar of
Cooperatives. A request for exemption from filing an Offering Statement
can be made to the Registrar. An exemption may be granted; however, the
use of a disclosure document may be required in lieu thereof. A
disclosure document is a less formal document that discloses the risks
and conditions associated with the purchase of shares in the new
generation cooperative. It is also used as the marketing and information
package given to potential shareholders.
A prospectus must be filed with the Securities Commission when
investment shares are being sold to the public. The Securities
Commission has rules and regulations regarding situations where an
exemption may be granted or use of a disclosure document is permitted.
In Manitoba, the incorporation process may be expedited by restricting
the share capital option to simply issuing membership shares and/or
loans for less than a total of $ 1,000 per member and collecting a
membership fee. This leaves the details for the investment shares and
special investment shares until after the business plan is completed and
approved by the members. At this point, the required securities filings
and the filing of Articles of Amendment can be done to reflect the
decisions made on the capital structure.
The funds received from the membership shares and fees are used to cover
the costs of applying for funding for assistance in developing the new
generation cooperative, preparation of the business plan, research and
development costs, the costs associated with attracting producers into
membership, and maintaining contact with the membership as the project
proceeds.
After incorporation
Once the incorporation process is complete, the incorporators are
usually the first directors and the only members until new members are
approved by the board. At the first meeting of members and potential
members, held as soon as possible after incorporation, voting members
elect directors, approve bylaws, and set out financial requirements of
membership. The bylaws must be submitted to the Registrar of
Cooperatives within 30 days of this meeting.
Potential members should be encouraged to join before the meeting in
order to have the right to vote at the meeting.
This is also the time to sell membership shares and collect membership
fees to provide the new generation cooperative with some working capital
until the business plan is brought to the membership for approval.
The business plan
A business plan is a document providing a complete description of the
operations of the proposed new generation cooperative. The plan must
include financial projections for capital costs, inventories,
receivables, banking arrangements for lines of credit, working capital
loans to cover receivables and inventories, mortgages on the capital
assets, the amount of share capital required, sales volumes, production
costs, operating expenses, break-even volumes, marketing opportunities,
commitments and all other pertinent information about the venture,
including details about the competency of the proposed management team.
It must also address all issues relevant to the project.
The share capital requirements must set targets for each category - the
membership shares, the special investment shares or delivery rights, and
investment shares where this option is being considered.
Once the board of directors approves the business plan, and a decision
is made to proceed based on the probability that the project will be a
success as outlined by the business plan, a members meeting is
necessary. The business plan would be presented to the membership by the
board of directors with the support of the consultants responsible for
its preparation. The members require the information in the business
plan to enable them to decide if they are willing to risk investing
equity in the project.
The support of the membership is essential. Once the membership approves
the business plan, the Articles of Incorporation can be amended to
include the proposed share structure, and the Offering Statement and/or
Prospectus can be filed with the appropriate authorities (or requests
can be made for exemptions to the filing requirements). The board is
then in a position to make presentations to the individuals or
organizations for financing. It is important that the presentations
explain:
- why investments in the new generation cooperative should be
made;
- the seriousness of the proponents of the project; and
- the ability of the board and management to launch and develop
the project successfully.
Prepare for business launch
Once the business plan has been approved, leaders should be identified
(for consistency) to run the membership and equity drive. When members
have committed to deliver the volumes of raw product, and have purchased
the special investment shares required by the business plan, the new
generation cooperative is ready to launch the project.
A members meeting should be held to confirm that the equity and delivery
targets have been achieved and to obtain approval of the membership to
continue the project. This will involve hiring management, acquiring or
building facilities, hiring and training staff and commencing of
business operations. In the event that there is any significant
deviation from the business plan, the members should be consulted before
further commitments are made.
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ORGANIZATIONAL STRUCTURE |
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ROLES
1. Members
Members have the overall responsibility to ensure that the new
generation cooperative continues as a strong viable organization.
Members are expected to:
- patronize and support the cooperative;
- set broad objectives and bylaws;
- observe the bylaws and policies of the organization;
- participate in members meetings and keep informed;
- provide financing;
- elect a competent board of directors;
- appoint the auditor;
- participate on committees;
- approve any fundamental changes to the Articles of
Incorporation;
- approve amendments to the bylaws;
- approve any major purchase or disposal of assets; and
- remove a director for cause.
2. Directors
The directors are elected by the members to manage the cooperative
and to provide leadership.
Directors are expected to:
- conduct the business and the affairs of the cooperative in the
best interest of the membership;
- develop policies and provide general direction to management,
committees and members;
- ensure that adequate financial records, membership list, minute
book and other records are kept;
- obtain training required in their roles as directors;
- hire competent management;
- provide information and leadership to members and management;
- monitor performance of management and committees;
- ensure new members receive orientation regarding their rights
and responsibilities; and
- approve new member applications and withdrawal or termination of
memberships.
3. Management
The directors may delegate responsibilities to management.
Management is expected to:
- manage the business operations according to board policies;
- hire and supervise staff;
- present operating reports to the board and recommend policy
changes; and
- promote good public and member relations.
4. Committees
Directors may establish various committees to perform specific tasks.
Committees:
- usually consist of directors, members and sometimes staff;
- act only under the authority of the board;
- should have a specific purpose and written terms of reference;
and
- should report to the directors.
Some typical committees established by cooperatives are fundraising,
nominating, finance, member relations, special events, building and
audit.
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FINANCIAL PROGRAMS
I. The Co-operative Loans and Loans Guarantee Board
This Board provides loan guarantees. Cooperatives applying for a loan
guarantee must demonstrate that:
- the funds will not be used for refinancing or for payment of an
existing debt;
- an effort has been made to secure financing at reasonable terms;
- the loan is for productive purposes and the guarantee is
necessary to the success of the project;
- there is reasonable evidence of an ability to repay the loan;
- normal cooperative principles and business practices are being
followed;
- reasonable security is available; and
- members have sufficient equity so that their risk is at least
equal to that of the requested guarantee.
It is important that cooperatives have access to the basic financial
services necessary for their development and expansion. Cooperatives may
consider applying to the board if they are unable to obtain financing on
reasonable terms.
For more information on The Co-operative Loans and Loans Guarantee
Board, please contact:
The Co-operative Loans and Loans Guarantee Board
Attention: David Kerr
905G Norquay Building
401 York Avenue
Winnipeg, Manitoba R3C 3P8
(204) 945-8650
or
Toll free:
1-866-MANITOBA (626-4862)
or
Contact your local GO Team Office
or
email co-ops@gov.mb.ca
II. The Cooperative Promotion Board
The Board was established to assist and encourage the development of
cooperative enterprise in Manitoba. Grants may be awarded:
- as awards, scholarships or bursaries, for any competition or
studies related to the philosophy, principles, business or affairs
of cooperatives;
- to promote cooperative research, information and education
projects;
- to develop and promote cooperatives; and
- to promote the general welfare of the cooperative organization.
For more information on The Cooperative Promotion Board, please contact:
Cooperative Promotion Board
Attention: Margot Cathcart
1129 Queens Avenue
Brandon, Manitoba R7A 1L9
(204) 726-6207
or
Toll Free: 1-800- MANITOBA (626-4862)
or
Contact your local GO Team Office
or
Email: co-ops@gov.mb.ca
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DEVELOPMENT ASSISTANCE
Assistance is available to individuals, groups and communities wishing
to develop a new generation cooperative, and to existing cooperatives
wishing to expand their operations or convert to the new generation
model. Manitoba’s Cooperative Development Services provides, through its
consultants, support and assistance with all the steps involved in
setting up a cooperative.
General Assistance
Consultants are available to help recruit potential members through
public meetings. The proponents of the project present their idea and
its benefits at the meeting. The consultants provide counseling
services to help the proponents measure and evaluate the project, and
determine if the project will best be served by using the cooperative
model of democratic control.
Other assistance includes:
- general information on cooperatives
- non-financial assistance programs for development of
cooperatives
- financial assistance programs for start-up or expansion of
cooperatives
- consultants who can help identify needs and opportunities for
cooperative development
- encouragement and support for individuals, groups and
organizations considering developing cooperatives for community
improvement and economic diversification
Incorporation
Cooperative Development Services provides information on various
corporate structures and other matters relevant to the filing of a
request to the Registrar of Cooperatives for incorporation. Cooperative
Development Services offers counseling assistance in the incorporation
of new generation cooperatives. Professional assistance from lawyers and
accountants is recommended, especially in matters of share structures
and compliance with legal matters regarding the selling of shares.
Counseling services
Consultants may provide basic information and advice that will help
emerging cooperatives ask the right questions when dealing with
professional advisors. Consultants will provide information on programs
and services offered by all levels of government and non-government
organizations to developing businesses, especially those directly
related to the industry the new generation cooperative intends to
operate.
Training
Training of directors and members on their roles and responsibilities is
provided upon request.
Regulatory
Assistance may be provided to help cooperatives comply with the
requirements of The Cooperatives Act and Regulations. The Registrar of
Cooperatives provides the generic filing information and forms upon
which the consultants base their assistance.
Operations
Operation planning services are important components of the startup
process. Consultants are available to provide assistance with
operational matters, including how to set and meet operational
objectives, expansion planning, and research and development of new
products. They will also help you access government programs that can
provide additional assistance, especially the programs and services
provided by the Industry and Trade branches of Manitoba Industry, Trade
and Mines.
For more information or assistance on how to incorporate, contact:
Cooperative Development Services
905G-401 York Avenue
Winnipeg, Manitoba R3C 0P8
Phone: 204-945-8650
Fax:204-945-6134
or
1129 Queens Avenue
Brandon, Manitoba R7A 1L9
204-726-6207
or
Toll free:
1-866-MANITOBA (626-4862)
or
Contact your local GO Team Office
or
email co-ops@gov.mb.ca
|
Department of Finance
Financial Institutions Regulation Branch
Registrar of Cooperatives
1115-405 Broadway
Winnipeg MB R3C 3L6
Telephone: 1-204-945-4466
Toll Free MB only: 1-800-282-8069
Fax: 1-204-948-2268
E-mail:
Registrar of Co-ops |
For information on prospectus requirements
contact:
Manitoba Securities Commission
500-400 St. Mary's Avenue
Winnipeg, MB R3C 4K5
Telephone: 1-204-945-2548
Fax: 1-204-945-03303
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COOPERATIVE
PRINCIPLES
The Cooperatives Act of Manitoba requires that the Articles of
Incorporation contain a statement that "the cooperative will be
organized and operated and will carry on business on a cooperative
basis." In addition to specific requirements of the act and regulations,
it is also intended that any cooperative carrying on business in
Manitoba will do so in conformance with the seven principles of
co-operation. The official English language text for the seven
principles as approved by the International Co-operative Alliance is:
1st Principle:
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.
2nd Principle:
Democratic member control
Cooperatives are democratic organizations controlled by their members,
who actively participate in setting 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.
3rd Principle:
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. Members usually receive limited
compensation, if any, on capital subscribed as a condition of
membership. Members allocate surpluses for 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
- supporting other activities approved by the
membership
4th Principle:
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.
5th Principle:
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 also inform
the general public - young people in particular - and opinion leaders
about the nature and benefits of co-operation.
6th Principle:
Cooperation among cooperatives
Cooperatives serve their members most effectively and strengthen the
cooperative movement by working together through local, regional,
national, and international structures.
7th Principle:
Concern for community
While focusing on member needs, cooperatives work for the sustainable
development of their communities through policies accepted by their
members.
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