New Generation Co-Operatives
 |
| Agdex#: |
836 |
| Publication Date: |
March 2002 |
| Order#: |
02-017 |
| Last Reviewed: |
August 2008 |
| History: |
Original Factsheet |
| Written by: |
R.W.Gamble - Finance and Business
Structures Program Lead/OMAFRA |
Table of Contents
- Introduction
- Section 1 — Basics O A New Generation Co-Operative
- Comparison of Tradition and New Generation Co-operatives
- Section 2 - Forming A New Generation Co-operative
- Advantages and Disadvantages of New Generation
Co-operatives
- Section 3 — Operating The New Generation
Co-Operative
- Sources Of Information On Co-Operatives
- References
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Introduction
The emergence of the "New Generation Co-operative" (NGC) is a relatively
recent trend in Ontario. Traditional co-operatives have existed in Ontario
for more than 150 years, and the rural community has been active participants
in these.
Current changes in technology, local and international markets, and trading
arrangements present both challenges and opportunities for the agricultural
industry and rural communities. Farmers have responded by diversifying
production and developing new opportunities for the processing and adding
value to their products.
Responding to these opportunities, some farmers pooled their resources
and now own and operate processing and value-added businesses. This has
the potential of improving incomes, creating jobs and economic growth
for rural communities. This value-added approach was pioneered by American
sugar beet growers in the mid 1970’s. From that model New Generation
co-operatives have developed which are today processing diverse commodities
such as bison, durum wheat, soybeans, eggs and poultry. Although some
co-operatives have actually increased the price of the raw commodity,
the primary economic benefit to members is the return on investment in
the processing activities.
This Factsheet explains the New Generation Co-operative structure and
will help you determine if it is suitable for you.
For more information on the process of forming a co-operative refer to
Factsheet How to Form a Co-operative,
Order No. 02-019.
Section 1 — Basics of a New Generation
Co-Operative
How Are New Generation Different From Traditional Co-Operatives?
New Generation Co-operatives share many of the key attributes of traditional
co-operatives, including:
democratic control, based on one-member, one-vote
distribution of earnings based on use of service or sales to the co-operative
a board of directors elected by the membership.
However there are some general attributes that make New Generation Co-operatives
different from traditional co-operatives. They are:
delivery rights are contracted and tied to the level of investment
membership is limited to those who purchase delivery rights
higher levels of equity investment by individual members is required
shares that provide delivery rights can be transferred and can fluctuate
in value.
Comparison of the Tradition and and the New
Generation co-operatives are listed below.
Key Attributes Of The New Generation Co-Operative
Delivery Rights
Equity shares in a New Generation Co-operative (NGC) give co-operative
members both the right and obligation to deliver a certain amount of farm
product to the co-operative each year. The use of delivery rights that
are purchased by the member means that their investment is proportional
to their use of the co-operative. Any patronage refunds that the co-operative
generates are distributed to members according to the level of product
they delivered to the NGC.
Delivery rights shares act as a two-way contract between the producer-members
and the co-operative — they obligate the producer-members to deliver
product each year to the co-operative, and in turn the co-operative is
obligated to accept delivery of the product. This assures producers of
a market for their product and the co-operative of a steady supply of
its primary input. If producers cannot meet the quality or quantity commitments
from their own product, they must purchase the product elsewhere to fulfill
the delivery requirements. Otherwise, the co-operative will purchase the
needed product and charge the member the difference.
Comparison of Tradition and New
Generation Co-operatives
Co-operative Principles
Voluntary and Open Membership — voluntary
organizations, open to all persons able to use their services and willing
to accept the responsibilities of membership.
Traditional Co-operative
Yes
New Generation Co-operative
Membership restricted to only those who purchase delivery
rights shares
Co-operative Principles
Democratic Member Control — co-operatives
are democratic organizations controlled by their members, who actively
participate in setting their policies and making decisions.
Traditional Co-operative
Yes
New Generation Co-operative
Yes
Co-operative Principles
Member Economic Participation — members contribute
equitably to and democratically control, the capital of their co-operative.
Traditional Co-operative
Yes
New Generation Co-operative
Members share in earnings according to their delivery rights.
Higher equity contributions are required.
Co-operative Principles
Autonomy and Independence —
co-operatives are autonomous organizations controlled by their members.
In agreements with other organizations, or raising capital from external
sources, negotiated terms ensure democratic control and autonomy is maintained.
Traditional Co-operative
Yes
New Generation Co-operative
Yes
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Co-operative Principles
Education, Training and Information —
co-operatives provide education and training for members, elected representatives,
managers and employees so they can contribute effectively to future development.
Traditional Co-operative
Yes
New Generation Co-operative
Yes
Co-operative Principles
Co-Operation Among Co-Operatives —
co-operatives serve their members most effectively, and strengthen the
co-operative movement by working together through local, national, regional,
and international structures.
Traditional Co-operative
Yes
New Generation Co-operative
Yes
Co-operative Principles
Concern for Community — co-operatives work for
sustainable development of their communities through policies approved
by their members.
Traditional Co-operative
Yes
New Generation Co-operative
Yes
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The price of each delivery right share is typically determined
by dividing the total amount of equity capital the co-operative requires
to finance the business by the processing capacity of the co-operative’s
facilities. If the co-operative requires $20 million in equity capital
and the capacity of the facility is 5 million bushels then the price per
delivery right share is $4 per share.
Closed Membership
In contrast to traditional co-operatives that accept new members on a
continual basis, membership in a New Generation Co-operative is restricted
once the targeted amount of delivery rights shares are sold. New members
are allowed only when an existing member wishes to sell some of their
delivery rights shares to another producer, or if the processing capacity
of the facility expands beyond what the current members can supply. This
ensures a stable level of supply of product for the NGC. Membership may
change because producers wish to sell some of their delivery rights shares,
but this does not change the supply of product being delivered to the
co-operative. The sale of shares between producers usually requires approval
from the board of directors.
Higher Level of Initial Equity Investment
A New Generation Co-operative typically requires members to make a significantly
higher investment than for most traditional co-operatives. This is because
NGC’s raise between 30%–50% of their total capital requirements
from selling shares. Usually a minimum number of delivery rights shares
must be purchased to be eligible for membership. Because a member’s
investment is significant they tend to remain more committed and involved
in a NGC then in a traditional co-operative.
Equity investment also increases the likelihood of a return to the members
at the year end because of reduce financing costs. This may not be true
in the start-up years of the business. If the NGC expands its operational
capacity, more delivery rights shares are sold to provide the necessary
equity financing for expanding.
Transfer, Appreciation or Depreciation of Delivery Rights Shares
Co-operative members can transfer their delivery rights shares to other
members or other producers, subject to board approval. The share price
is negotiated and fluctuates according to the performance and earning
potential of the co-operative.
Why Choose A New Generation Co-Op Structure Over Any Other?
The New Generation Co-operative structure is not the only business structure
available to those interested in value-added business ventures. Partnerships,
incorporated companies, and joint ventures are other structures to consider.
When is it appropriate to consider a NGC? While there is no definitive answer
there are circumstances when a New Generation structure may be a better
choice than another type of business structure. These include:
- when equal membership control is important
- when a sense of co-operative effort is required
- when members would have a greater comfort level with the co-operative
structure and the co-operative structure is more easily explained and
understood
- when community acceptance of the business is important — co-ops
have a long standing commitment to education, local control and concern
for local community and therefore may be more attractive to some communities
than alternate business models.
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Perhaps the most unique feature of the co-operative is the principle
of one member one vote. This is unlike the corporate structure, where
shareholders’ voting power is proportional to share ownership. For
example, a shareholder who owns 51% of the shares gets 51% of the vote,
essentially controlling the corporation. In a NGC regardless of how many
delivery rights a person owns, they only have one vote. For members with
a larger percentage of delivery rights this could be viewed as a disadvantage,
while the member with a smaller percentage of delivery rights would most
likely consider it advantageous because it assures them some control.
The Advantages and Disadvantages of New Generation Co-operatives in Section
2 outlines some of the advantages and disadvantages of the NGC business
structure.
Organizational Structure
The New Generation Co-operative, like the traditional co-operative has
4 key groups of people.
- Members — Members, as owner-users,
are the reason the co-op is organized. The members are represented
in the co-op by the Board of Directors.
- Board of Directors — The Board of
Directors is a policy-making body elected by the members, who oversee
the co-op’s business affairs. Directors, as trustees, establish
policy, report to members and give direction to the co-op’s hired
management, generally without getting involved with the day-to-day
operations.
- Management — Management supervises
and co-ordinates the day-to-day operations and are supervised by the
board.
- Staff of the Co-operative — Staff
of the co-operative report to management.
Section 2 - Forming A New Generation
Co-operative
The process of forming a NGC is essentially the same as any other co-operative.
The Factsheet How to Form a
Co-operative, Order No. 02-019 outlines these steps, including the
process of incorporation. Developing a fully-operating business from an
initial idea requires strong organizational and communication skills and
a comprehensive business plan. Feasibility studies and business plans
are critical to the success of these ventures. NGCs often operate in niche
markets where it is important to understand the type, quality, and quantity
of product demanded. A clear understanding of markets and consumers enables
these ventures to serve markets that large corporations cannot.
The following steps outline the order of events typical in the formation
of a co-operative.
The Initial Idea and Key Organizers — An idea for
the co-op is usually formed by a key group of individuals who see a business
opportunity or a solution to a problem.
Selection of a Steering Committee — Select a steering
committee from the initial group and from those willing to fund the feasibility
study.
Conduct a Feasibility Study — Decide on the scope
of a feasibility study, including areas of study and budget required.
Evaluate the feasibility of the business idea carefully before proceeding.
Determine the most efficient plant size. This, in turn, determines the
amount of product the plant can accept. Look to either organizers, potential
members of an economic development agency to fund the feasibility study.
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The study determines the economic viability of the venture and also outlines
the market advantages, if any, of a member-owned processing co-operative.
Selection of an Interim Board — If the feasibility
study is positive and you decide to form a co-operative, dissolve the
steering committee and replace it an interim board. Elect a chairman and
explore funding options to complete the business plan. The interim board
can decide if it is appropriate to recruit a chief executive officer.
Advantages and Disadvantages of New Generation
Co-operatives
Advantages
- Efficient due to the integration of production and processing. NGC
members can alter practices at one step in relation to the needs of
the other, thus improving the overall system.
Disadvantages
- While high quality production should not be regarded as a disadvantage
it can be a challenge for some producers
Advantages
- Stability — the control membership creates a stable business
environment which increases efficiency.
Disadvantages
- A high level of initial investment is required.
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Advantages
- Market niche producers can gain ownership in further processing.
Disadvantages
- Higher levels of risk are involved than in a traditional co-operative.
A failure can result in a substantial loss for investors.
Advantages
- Because delivery shares specify quality and production standards they
can satisfy niche markets that require identity preservation and high
quality.
Disadvantages
- A high level of expertise is needed in the processing side of the
venture, both in management and marketing. It can be a challenge finding
and attracting this level of ability.
Advantages
- Equity investment increases member commitment
Advantages
- Tradable equity shares creates a capital base which increases the
attractiveness to other lenders and investors.
Advantages
- Generates rural development and community investment and renewal.
Incorporation of the Co-operative — The timing
of incorporation depends on a number of factors including the need to
enter into legal agreements such as confidentiality agreements, letters
of intent, supply agreements, funding agreements with governments. As
soon as there is potential exposure to liability incorporation is recommended.
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Development of the Business Plan and the Legal Organization of
the Co-operative — The business plan outlines the
goals and objectives of the co-operative and the steps to reach those
goals. The board uses this information to promote the co-operative and
is a basis for filing an offering statement with the Financial Services
Commission of Ontario, where required. (see Financing the Co-operative)
This must be done before the sale of shares can take place.
Information on feasibility and preparing business plans is available
from OMAFRA, local Business Enterprise Centres and private consultants.
OMAFRA’s Factsheets on the web Evaluating
the Feasibility of Business Opportunities, Order No. 03-051
and Preparing Business
Plans, Order No. 99-011.
Preparation of an Offering Statement — Co-operatives
wishing to raise more than $200,000, issue shares to more than 25 members
or issue shares with a value of more than $1,000 per member are generally
required to file an offering statement (similar to a prospectus) with
the Financial Services Commission of Ontario (FSCO).
Conducting a Fund Raising Campaign — Once the
legal and filing requirements are in place and the business plan finished,
the board can launch the funding campaign.
A key element in forming a co-operative is the involving potential co-op
members. This ensures a variety of input to the plan and encourages members
to develop ownership and commitment to the co-op.
Incorporating The Co-Operative
The Co-operative Corporations Act is administered by the Financial Services
Commission of Ontario. A co-operative requires at least 5 persons to incorporate.
These incorporators may be individuals at least 18 years old, or they
can be corporations, including other co-operatives. The following is a
summary of some of the more important requirements of the Act,
however it should not be used in place of the Act. A schedule of
fees for incorporation is available from the Financial Services Commission
of Ontario.
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Articles Of Incorporation
To incorporate a co-op in Ontario, you must file Articles of Incorporation
with the Financial Services Commission of Ontario (FSCO). The Articles of
Incorporation, along with the Co-operative Corporations Act, provide
the basic legal framework for your co-op. They outline its purpose and how
it will be financed. The articles of incorporation include:
- the name and location of the co-operative, names, addresses, and signatures
of the incorporators
- the number of directors of the co-operative
- share structure of the co-operative
- how the co-op finances itself: by accepting loans, selling debentures,
or charging membership fees
- any special restrictions or provisions which apply to the co-operative.
The FSCO can be contacted at:
Financial Services Commission of Ontario
P.O. Box 85
5160 Yonge Street, 4th floor
North York (Ontario)
M2N 6L9
Telephone: 1- 800-668-0128
(416) 226-7776
Web site: www.fsco.gov.on.ca
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Federal Incorporation
If the co-operative is going to do business outside Ontario consider
incorporating federally. To incorporate under federal legislation, the
co-op must be conducting business in 2 or more provinces and have a fixed
place of business in more than one province. Under the federal Co-operatives
Act, at least 3 persons age 18 or older are required to incorporate
a co-operative. Please note that co-operatives incorporated outside of
Ontario are subject to the Ontario Securities Commission (OSC). This means
they will be required to meet the regulations and securities legislation
administered by the OSC.
Contact the Co-operatives Secretariat, Agriculture and Agri-food Canada
by phoning (613) 759-7194 or on the Web site at www.agr.gc.ca/policy/coop/
for information on federal incorporation.
A more detailed discussion of the incorporation process can be found
in the Factsheet How To Form
a Co-operative,
(Order No. 02-019).
Preparing By-Laws
The next step is to elect officers and enact by-laws. By-laws explain
how the co-operative will operate and expand on the articles of incorporation.
Bylaws do not need to be filed with the FSCO. They take effect once approved
by the board of directors and ratified by the members. The NGC may wish
to include the marketing obligations of the members and co-operative right
in their bylaws.
Have the articles and by-laws prepared by professionals familiar with
co-operative law and practice. Involve directors in the process, making
sure they understand how the articles and by-laws affect the co-op.
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Financing The Co-Operative
Co-operatives can raise capital through equity or debt financing. Co-operatives
can choose to incorporate either "with share capital" or "without share
capital". Incorporating "with share capital" allows a co-operative to
raise capital by selling shares as well as using debt instruments such
as debentures. A co-operative that incorporates "without share capital"
can only raise capital through debt financing and may not issue shares.
A co-operative must decide how they will file before the incorporation
process begins.
The co-operative’s business plan states how much capital the co-op
needs and for what purpose. The sale of shares in the co-op would finance
the purchase or construction of the processing facility. As stated earlier
New Generation Co-operatives typically raise 30%–50% of their capital
by selling shares linked to delivery rights. This higher equity reduces
dependence on debt financing and thus enhances the viability of the enterprise.
Additional capital may be raised through preferred share offerings, member
loans and other securities. If the co-op is not successful this investment
may be lost.
Offering Statements and Exemptions from Filing
Before a co-operative issues either shares or debentures it must determine
if it has to file an offering statement with the FSCO. The offering statement
gives potential investors a full, true and plain disclosure of all material
aspects of the co-operatives operations and proposed business. This includes
both the current state of the business and the intended use of the money
being raised. The offering statement allows a potential member to access
the risk associated with investing in the co-op.
A co-operative does not have to file an offering state if there are:
- 25 or fewer security holders
- more than 25 security holders but the shares or debt obligations issued
to members does not exceed $1,000 per member in a year and does not
exceed an aggregate value of $10,000 per member or the aggregate value
of all securities issued does not exceed $200,000.
Offering statements are complex legal documents and should be prepared
by a professional with specific experience preparing such documents.
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Equity Financing
(Incorporation With Share Capital)
Incorporating with share capital means a requirement of membership is
the purchase of shares. This is an investment in the co-op. If the co-op
is not successful, the investment may be lost. Share capital incorporation
allows greater financing flexibility because a share capital co-op can
use debt financing as well as equity financing.
Types of Shares
All co-operatives that incorporate with share capital can issue membership
and preference shares. Preference shares can have different
rights and privileges attached to them. This is the case in NGCs that
issue preference shares with delivery rights. These are sometimes called
equity shares; however they are simply a specific class
of preference share. The NGC share structure typically includes membership
shares and several classes of preferred shares. One of the classes of
preferred shares has delivery rights attached to it.
Membership Shares
The membership share gives the holder the right to vote and the right
to purchase preference shares, to which delivery rights are attached.
Only producers of the commodity can hold membership shares, thereby ensuring
control of the venture remains in the hands of the producers. Voting rights
are tied to membership, independent of the level of investment. This ensures
that no one member can exercise control over the group.
Preferred Share with Delivery Rights
The preference share with delivery rights allows the member to delivery
their product to the co-operative. Selling shares to members helps the
co-op raise the necessary startup capital. Each equity share purchased
gives the member the right and the obligation to deliver one unit (i.e.,
one animal or one bushel of crop) of product to the co-operative for processing.
(see Section 1 for more on delivery rights)
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The purchase of delivery rights represents a significant investment on
behalf of producer-members and a significant equity infusion for the co-operative.
For example, in 1990, the North American Bison Co-operative sold 180 membership
shares at a cost of $100 (U.S.) each. These 180 members purchased a minimum
of 10 equity shares at a cost of $250 (U.S.) each, a minimum investment
of $2,500 (U.S.).
The preference shares with delivery rights may be both tradable and transferable
subject to the co-op’s articles and by-laws. They can be sold to
other producers with the approval of the board or transferred to the next
generation of family members.
Preferred Share Without Delivery Rights
The preferred share without delivery rights allows the co-op to invite investment
from non-producers. Preferred shareholders cannot vote except in certain
circumstances as described in the legislation. Communities and non-producers
might choose to invest in the co-operative because they want to support
development in their communities and encourage job and wealth creation close
to home. The preference share can be attractive to investors for a number
of reasons:
- Co-ops generally require dividends to be paid on preference shares
before they are paid on membership shares.
- When a co-op is dissolved or wound up, preference shareholders generally
rank ahead of holders of membership shares in their claim on the co-op’s
assets, but behind creditors and debenture holders.
Premiums and Dividends
To help protect investors against inflation, the co-op may choose to
pay an extra amount or premium for preference shares they redeem. The
maximum premium for a preferred share is 10%/yr compounded or the Consumer
Price index, whichever is greater. Paying a premium ensures that the value
of your co-op's shares keeps pace with inflation. Paying premiums also
means your co-op will have less equity, so striking a balance is important.
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Your co-op may also pay investors a return on their membership and preference
shares. This return is called a dividend. The maximum dividend
any co-op may pay on membership shares is capped at 2% above the prime
rate of any financial institution (credit union, bank, trust company)
named in the co-op's by-laws.
There is no cap on the dividend that may be paid on preference shares
unless your co-op chooses to have one.
Debt Financing
(Incorporation Without Share Capital)
Both New Generation and traditional co-operatives can raise financing
from their members. Even co-ops issuing shares can require member loans.
Like dividends on membership shares, the maximum rate of interest co-ops
may pay on member loans is capped at 2% above the prime lending rate of
any financial institution (credit union, bank or trust company). Co-ops
must repay member loans, together with any accrued interest, when the
member leaves the co-op.
Patronage Loans
Your co-op may also require members to lend it some or all of their patronage
returns. Patronage returns loaned back to your co-op are called patronage
loans. By requiring members to make patronage loans, your co-op can use
its own earnings for debt financing. The maximum rate of interest your
co-op may pay on patronage loans is the same as on member loans.
Member, Non-Member and Institutional Loans
If required the co-operative may borrow additional money from members,
non-members, and financial institutions at the going market rate. The
availability and cost of those loans depends on the financial condition
of the co-operative and it’s credit rating.
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Debentures
A co-op can also issue debentures. Specific assets may be used as security
by co-ops issuing debentures. If your co-op has fixed assets financed
by equity, such as real estate and buildings, it may be able use these
to attract investment in its debentures. Co-ops may issue many kinds of
debentures, but usually they promise to make regular interest payments
and to pay off the principal on a certain date. If the co-operative fails
to make these payments, debenture holders have the right to sue your co-op.
There is no cap on the rate of return a co-operative may offer investors
on its debentures, although the co-op will need to decide how much it
can afford. Debentures can also be unsecured.
Section 3 — Operating The New Generation
Co-Operative
Key Attributes Of Successful New Generation Co-Opertaives
Successful New Generation Co-operatives appear to focus on a set of key
attributes. These are:
- Vision and leadership — motivated and determined producers
- Soundness of the business opportunity — a market that can be
profitably supplied and where a reliable supply of raw product is critical
to success
- Acceptable business climate — opportune timing in terms of entry
into the industry and for obtaining investment from producers
- Professional management of the processing facility
- A stable supply of primary input
- Aggressive pursuit of a particular market segment
- A diversified customer base.
Marketing Agreements
New Generation Co-operatives rely on marketing contracts with their members
to ensure a continuous supply of raw product. Include the following in a
marketing contract:
- clarification of who owns the product and at what point the ownership
changes
- the rights and duties of the member to market their products through
the co-op
- the terms and conditions under which the products will be marketed
and accounted for including quality requirements and delivery dates
- the course of action available to the co-operative, against the member
in the event of non-delivery of the product
- the course of action available to the member, against the co-operative
in the event of non-payment for the product
Since the marketing agreement with the member is such a vital document
for the New Generation co-op it is important to draft it carefully. Legal
advice is important. Some of the marketing agreements key points can be
included in the co-operative’s by-laws.
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Using The Revenue Surplus
Surplus is what is left of earnings after paying operating expenses.
How a co-operative uses its surplus can directly affect the financing
requirements. The co-op will likely need to keep part of its surplus in
the form of retained earnings or reserves. Retained earnings are used
to finance expansion in operations or to replace worn-out assets. Determine
the operating requirements of the co-op before distributing any earnings
to members and shareholders.
Dissolution
If members decide to dissolve the co-op, they must first signify their
intent by filing articles of dissolution with the affect the financing
requirements. The co-op will likely need to keep part of its surplus in
the form of retained earnings or reserves. Retained earnings are used
to finance expansion in operations or to replace worn-out assets. Determine
the operating requirements of the co-op before distributing any earnings
to members and shareholders.
Taxation Of Surplus Earnings
The method used to distribute the surplus earnings affects the tax treatment
of the surplus both for the co-op and its members and investors. Patronage
returns are paid out of the co-operative’s pre-tax income and are
recorded as an expense. This lowers the amount of tax that the co-op may
have to pay.
Dividends on shares are paid out of the co-op’s after-tax income
and are taxed in the hands of the member. Co-op shareholders may claim
the federal tax credit for dividends paid by the co-op. For specific tax
information consult an accountant.
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Other Co-Operative Regulations And Issues
Audit Requirement
The Co-operative Corporations Act specifies an auditor must be appointed
to examine the financial records and make an annual report. The auditor
must be impartial and cannot be a director or employee of the co-op.
Withdrawal of Members
Member shares of the co-op are personal property and are transferable
subject to the conditions in the Act. A member may withdraw from
the co-op by giving 6 months notice. After the notice period has expired,
the co-op must begin to purchase the member’s shares or repay the
member’s loans. A deceased member’s shares or loans must be
paid out within 6 months of the death. A member can be expelled by a majority
vote of the Board of Directors and the co-op must pay out the former member’s
shares or loans within 1 year. A member who has voted against a resolution
that (in effect) materially changes the nature of the co-op may withdraw
their membership and their shares or loans must be paid out within ninety
days. A material change could include a sale or disposition of the property
of the co-op, amalgamation with another co-op or conversion of the co-op
into a corporation.
In each case, the Act contains riders which give the co-op the power
to delay pay-out of members if the pay-out would render the co-op insolvent
or be extremely detrimental to the financial stability of the co-op. A
co-op isconsidered insolvent if it’s liabilities exceed the sale
value of assets or if it is unable to pay debts as they become due.
Summary
The New Generation Co-operative is an evolving model which may be suitable
in a variety of situations, but certainly not all. Apply caution in using
the model to ventures that do not incorporate the strategies of two-way
delivery contracts and high member equity investment. Producers must be
willing to commit time to the development process, to invest sufficient
equity to capitalize the project, and to contract product to supply the
plant, or the project will not succeed. If producers are not committed
through delivery contracts and investment, it will be difficult to leverage
other investment funds either as debt or outside investment capital. If
the two-way contracts are replaced with softer delivery agreements, the
risks to the co-operative venture increase because the co-operative will
not have a secure supply of product.
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It is highly recommended that advice from lawyers, accountants and business
planners who are familiar with the co-operative incorporation process
be obtained since co-operative incorporation is significantly different
from regular business incorporations.
Sources Of Information On Co-Operatives
In addition to the Ministry of Finance, information is available to co-ops
from:
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References
Co-operatives in Ontario, Ontario Ministry of Finance, A series of publications
that include: Guide to Setting Up and Co-operative, Incorporating a Co-operative
With Share Capital, Incorporating a Co-operative Without Share Capital,
Legal Requirements.
Canadian Co-operative Association, New Generation Co-operative Factsheet
Series, # 1– Overview, #2 – Regulatory Requirements and #3 –
Taxation, Ontario Region (CCA)
1-888-745-5521 or (519) 763- 8271
Web site:www.ontario.coop/pages/index.php?main_id=1
How to Form a Co-operative, Co-operatives Secretariat, Agriculture and
Agri-food Canada, Web site: www.agr.gc.ca/policy/coop/
New Generation Co-operatives: Responding to Change in Agriculture, Brenda
Stefanson and Murray Fulton.
Centre for the Study of Co-operatives, University of Saskatchewan, 1997,
Web site: www.coop-studies.usask.ca/
Creating ‘Co-op Fever’: A Rural Developer’s Guide To Forming
Co-operatives, William Patrie, Rural Development Director, North Dakota
Association of Rural Electric and Telephone Co-operatives
New Generation Co-operatives on the Northern Plains, Agri-Food Research
& Development Initiative (ARDI) and University of Manitoba Web site:
www.umanitoba.ca/afs/agric_economics/ardi/
This publication is intended as general information and not as specific
advice concerning individual situations. Although it outlines some of
the legal and tax considerations of co-operatives it should not be considered
as either an interpretation or complete coverage of the Income Tax Act,
the Co-operative Corporations Act or the various law affecting incorporation
of co-operatives. The Government of Ontario assumes no responsibility
towards persons using it as such.
The author would like to acknowledge the assistance of George Alkalay,
Northfield Ventures Ltd., King City, Ontario in reviewing this Factsheet.
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