What is a co-operative

Co-operatives let you pool your resources with other operators in your industry. A co-operative belongs to its members, and it operates for their benefit. The members will share:

• the investment and operational risks
• all the benefits
• any losses.

A co-operative has the legal status of an individual. It may sue—or be sued—under its corporate name. This protects the members from being personally liable for most legal issues.

A member will only need to pay for:

• their shares
• any charges listed in the rules.

Types of co-operatives

Distributing co-operatives

A distributing co-operative must have share capital. The co-operative charges members a set fee for a share. This share capital will help to carry out the business of the co-operative.

A distributing co-operative can return or distribute profits (or extra share capital) to its members. The return to an individual will depend on how many shares the member has. Members must hold at least the minimum shareholding specified in the rules.

A distributing co-operative may distribute to members a part of the surplus generated in a year by way of:

• a rebate
• the issue of bonus shares to members
• the issue of a limited dividend.

A distributing co-operative:

• can perform commercial functions that an individual could not
• can take part in business to make a profit for their members (unlike an incorporated association)
• does not put an upper limit on membership (unlike a private company)
• has a strict 1 member, 1 vote system (unlike a private company).

You can buy multiple shares, but it won’t increase the strength of your vote.

Non-distributing co-operatives

A non-distributing co-operative can’t give financial returns to its members. This rule applies to returns or distributions on surplus or capital.

It can still trade and make a profit but cannot distribute these profits to its members. It can only use the profits to expand or improve on their primary activities. A non-distributing co-operative can operate either with share capital, or without.

A non-distributing co-operative with share capital must follow additional rules for buying or selling shares. These additional rules are included in the model rules as rules 16 through to 23.

If your non-distributing co-operative closes down, it must not return any surplus funds to its members, other than share capital (at the nominal value of those shares).

The rules must specify the shares’ nominal value.

Structure

You need at least 5 proposed members to form a co-operative or a lesser number if approved by the Office of Fair Trading (OFT). This becomes the primary level of your membership structure.

If 2 or more co-operatives join, they form a co-operative group.

Principles

Co-operatives work under the following 7 principles:

• anyone can become a member
• each member has 1 vote
• they divide profits among their members, based on how active each member is within the cooperative
• they are run by and for their members
• they give education and training to members, their representatives, managers and employees
• they maintain local, state, national and international networks for members
• they help to uphold the sustainable development of their communities.

Setting up and registering a co-operative

Follow the below steps to set up a co-operative:

• create the draft rules for your co-operative
• prepare a draft disclosure statement if you are going to be a trading co-operative
• check the co-operatives register and name your co-operative
• submit your draft rules and disclosure statement to the OFT for approval
• hold a formation meeting
• apply to register your co-operative with OFT.

If approved, we will register your co-operative and issue you with a certificate of registration.