Phase 1: Establishing a co-operative

Step 1: Develop the idea
Define the problem

The first step is identifying the problem you want to address, identify the factors that are causing the problem and why other organisations may not be succeeding.

It is also important to understand why a co-operative model is appropriate or better suited to addressing the problem than other organisational models such as a not-for-profit or for profit organisation.

Key Questions

  • What is the problem and what are the primary causes of the problem?
  • What is your motivation for addressing the problem?
  • Why have government, not-for-profits and/or for-profit organisations, failed to solve the problem?
  • Why will a co-operative model be an appropriate model for addressing the problem?

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Choose the type of co-operative

Once you have a good understanding of the problem and have decided a co-operative is the right model, you will need to determine the type of co-operative: Consumer; Producer; or Enterprise co-operative. The type of co-operative will depend upon the problem you are addressing, your members’ needs, the purpose of the co-operative, and the outcomes to be achieved.

Consumer:
Members jointly purchase programs and services, improving value for money and access to expert advice.

Producer:
Provide members with an income as well as empower employees with a stake in the organisation’s decision-making process.

Enterprise:
Enable self-employed members and member businesses or community groups to band together and find strength in numbers.

Key Questions

  • What is the primary purpose of your co-operative? Financial or social?
  • Do you wish to provide a financial return to members?

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Define the product or service

The next step is to define the product or service you will providing to meet your members’ needs and the purpose of the co-operative. It is important to understand how your product or service will address the problem, create change and achieve the desired outcomes. It is also important to understand what will make your product or service unique and ensure members remains part of your co-operative.

Key Questions

  • What are the outcomes you want to achieve?
  • What is the theory of change (ie how do your products and services deliver outcomes for members)?
  • Who is the target market?
  • What is the product(s) or service(s) which help to create change?
  • How is your product or service different to your potential competitors?
  • Will your product or service meet your members’ needs?

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Choose the co-operative structure

The type of co-operative structure is largely determined by whether you will provide a financial return to your members.

Distributing co-operatives are usually driven by a need to provide a financial return to their members through dividends, rebates, and/or lower prices. Profits are re-invested back into the business to reduce costs.

Non-distributing co-operatives are usually driven to provide a social outcome for their members through better services, more choice, and control and flexibility. Profits are re-invested into the business to benefit members. 

Key Questions

  • What is the primary purpose of your co-operative? Financial or social?
  • Do you wish to provide a financial return to members?

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Identify the first members

To register your co-operative you will need at least 5 people or corporations to be members (this is a legal requirement). The first members will play an important role (particularly if a small co-operative) in establishing and building the momentum of your co-operative to be a successful and sustainable business. Each member will have an equal ownership and control in decision-making, so choose your first members wisely.

Consider establishing clear roles and responsibilities for each member to address registration, financing, rules, and the business plan. If your members do not have the required skills, consider employing professionals such as legal consultants, accounting and financial advisors, co-operative advisors and business advisors.

Key Questions

  • Who will benefit from the products and services offered?
  • What relationship will they have with the co-operative e.g. customers, employees, suppliers?
  • What skills and capability do we need to help us establish the co-operative?
  • What level of activity will members have in the co-operative?
  • What will be the roles and responsibilities of the members?

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Step 2: Business Model
Engage stakeholders

Engaging with key stakeholders such as current and future members, customers, suppliers, funders, and local community groups is best conducted throughout the establishment and operation of your co-operative. It will not be a one-off task. This will ensure that you remain in-tune with your members’ needs and maintain support from your stakeholders.

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Develop feasibility study

When you have a number of members interested in your products and services, you will need to undertake a feasibility study. A feasibility study is developed prior to developing a business plan and will help you to determine the viability of your co-operative. It should be a consolidation of answers to key questions you have asked along the journey but should answer one key question: will your co-operative be financially viable?

Key Questions

  • How many members are expected to join?
  • What are the benefits your members are expecting?
  • What is the potential size of the market?
  • Who will your key competitors be?
  • What makes you unique to your members?
  • What are the risks, benefits, strengths, weaknesses and threats?
  • What are your primary costs in establishing and operating the
    co-operative?
  • How much money will need to be raised?
  • How long before you expect to break even? 

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Develop business plan

A business plan is more detailed than a feasibility study. The business plan should describe in detail your vision, products and services, member needs, channels to market, customer segments, the resources needed including assets, equipment, intellectual property, people, and costs.

The business plan is an essential resource to use to promote the co-operative, to garner interest and support from funders and stakeholders.

Key Questions

  • How many members are expected to join?
  • What are the benefits your members are expecting?
  • What is the potential size of the market?
  • Who will be your key competitors?
  • What makes you unique to your members?
  • What are the risks, benefits, strengths, weaknesses and threats?
  • What are your primary costs in establishing and operating the co-operative?
  • How much money will need to be raised?
  • How long before you expect to break even?
  • Is it viable?

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Identify capital and finance needs and options

To establish your co-operative you may need to secure finance to cover costs and provide much needed cash flow until your revenue is stable.

There are many ways to finance your co-operative. The sources of finance will depend on the type of co-operative you are establishing, the products and services offered, your structure, and how you will repay the finance. 

Potential sources of finance include pre-registration contracts; shares; entry fees, debentures; loans; grants; and co-operative capital units.

The feasibility and business plan will help you to identify how much money you will need to raise and the size and source of potential revenues.

Key Questions

  • Does your business feasibility study and business plan help you identify your capital and finance needs?

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Step 3: Form the co-operative
Define the rules of, and register, the co-operative

Defining the rules for your co-operative sets the foundation for how it will operate and is a contract between the co-operative and your members.

The rules are also a contract between the co-operative and each Director, CEO and Secretary of the co-operative. Model rules are available from the Registrar of Co-operatives in your State or Territory.

The rules contain matters such as: Activities; Governance arrangements; Rights and liabilities of members; Grievance procedures; Shares and fundraising, and Financial reporting requirements. 

The draft disclosure statement must be submitted to the Registrar with the co-operative’s rules and written notice of intention to apply for registration as a co-operative before the formation meeting is held.

Resource Links

Contact your local registrar…

Registration
Process

Rule
Template

Disclosure Statement Template

Fees

New South Wales

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Northern Territory

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Queensland

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South Australia

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Tasmania

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Western Australia

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Australian Capital Territory

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Victoria

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National Laws

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Complete your Rules and Disclosure Statement online

The Co-op Builder is a step-by-step tool that assists groups prepare essential legal documents for forming a distributing co-operative.

The builder consists of a Constitution Builder to help prepare the rules for a commercial co-operative, and a Disclosure Statement Builder, which helps users prepare the co-op equivalent of a prospectus for potential members and investors.

The Co-op Builder was developed by the BCCM for the Farming Together program and is free to use on the Farming Together website.

Hold formation meeting

Once the rules have been defined, the disclosure statement agreed to by members and the formation meeting has been held, you can then register your co-operative.

The formation meeting must be held with at least 5 prospective members and be held within 6 months of the Registrar’s approval of the proposed rules. A Chairperson will be elected to run the meeting and a Secretary elected to write and record the meeting. A resolution should be moved that the co-operative be formed and the rules adopted.

A two-thirds majority vote at the meeting is required to authorise the application for registration.

Resource Links