“A new cooperative must have enough members to start operations and justify its existence.” (Wadsworth, 2015, p. 13)
An important part of implementing a new cooperative business is building membership. A new cooperative will need to communicate with potential members about the services of the co-op and the potential benefits to members.
Members may join the co-op by completing an application, purchasing stock or paying a membership fee, or some other process as determined by the co-op steering committee or directors. The new co-op will need to have these processes outlined in advance of collecting memberships and should develop the appropriate documents for these processes. Documents might include a membership or stock certificate, a membership application, or a marketing agreement.
A membership application can act as a summary of the members’ responsibilities and commitments to the co-op, which should be detailed in the co-op’s articles of incorporation, bylaws, and marketing agreement as necessary. The application serves as the applicant’s certification that they meet the requirements for membership in the co-op and as a document for the board officers to acknowledge this certification.
The following excerpt from the publication, “Sample Legal Documents for Cooperatives,” is an example of a membership application template.
Applicant’s Statement. I hereby apply for membership in _________________ and agree to abide by the articles of incorporation and bylaws of the association, now and hereafter in effect, copies of which have been presented to me for inspection. I certify that I am a producer of _________________, have tendered the purchase price of one share of common voting stock, have signed a marketing agreement, and met such other qualifications for membership as have been explained to me.
After my membership shall have been in effect for one year from the date of its acceptance by the association, either party may terminate it by notifying the other party in writing of this intention between _______ (date) and _______ (date) of any year. If neither of the parties to this agreement so notifies the other, it is mutually agreed that this shall constitute conclusive evidence that the parties have renewed this agreement for another year.
Applicant’s: name _________________
telephone number _________________
social security number _________________
Applicant’s signature _________________
Acceptance. This certifies that _________________ is a member of _________________ and is entitled to all of the rights, benefits, and privileges of membership in the association.
(1995 p. 60)
Cooperatives marketing products on behalf of their members often require a contract with each member that establishes the terms of their business transactions. These marketing agreements are more important for co-ops that are working to enhance members’ returns on their products. Marketing agreements vary across co-ops according to the market and commodity covered by the agreement. The marketing agreement sections might include an introduction, terms, enforcement, termination, renewal, and other sections as needed.
Because contracts establish “enforceable rights and obligations for both parties,” the cooperative directors and members should fully understand the implications of marketing agreements for the co-op and their individual operations by consulting legal resources and professionals.
Dr. Chris Bruynis discusses formal agreements as a key factor in co-op success.
Cooperative Membership Records
The membership of a cooperative changes over time as new members join and existing members exit. For various reasons, it is important for cooperatives to keep their membership records current. For instance, many statutes, such as state incorporation laws and the Capper-Vostead Act, require inactive members to be removed from co-op records. In addition, cooperatives filing taxes as an exempt cooperative under Section 521 of the Internal Revenue Code must meet specific membership requirements that require keeping accurate records. Additionally, inactive memberships in the co-op can create issues in managing the finances of the co-op.
Learn more about the importance of keeping accurate membership records inn the publication, “Keeping Cooperative Membership Rolls Current,” published by the U.S. Department of Agriculture.
Frederick, D. (1995). “Sample Legal Documents for Cooperatives.” U.S. Department of Agriculture Rural Business/Cooperative Service Cooperative Information Report 40. Washington, D.C.: U.S. Government Printing Office.
Frederick, D. (1991). “Keeping Cooperative Membership Rolls Current.” U.S. Department of Agriculture AgriculturalCooperative Service Cooperative Information Report 37. Washington, D.C.: U.S. Government Printing Office.
O’Brien, D., Hamilton, N., & Luedeman, R. (2005). “The Farmer’s Legal Guide to Producer Marketing Associations.” Drake University Agricultural Law Center.
Wadsworth, J. (2015). “How to Start a Cooperative.” U.S. Department of Agriculture Rural Development Business and Cooperative Programs Cooperative Information Report 7. Washington, D.C.: U.S. Government Printing Office.