Co-ops 101 & 202

CED Workshop, June 8th, 2011Peter Cameron, Co-op Development

Manager

Your Presenter

Peter CameronCo-op Development ManagerOntario Co-operative Associationpcameron@ontario.coopwww.ontario.coop1-888-745-5521519-763-8271 ext. 23

OverviewCo-ops 101What is the Ontario Co-operative Association?What is a co-op?Co-ops in Ontario and across CanadaHistory of the Co-op MovementWhy choose a Co-op?Co-ops 202 -Models, Structure and RolesFSCO and Incorporation ProceduresFinancing Co-operativesWhat’s the Co-op Difference?Opportunities, Challenges and Trends

The Ontario Co-operative Association

Mission: To lead, cultivate and connect the co-operative sector.

Vision: An Ontario where co-operatives contribute to the sustainability and growth of our economy and communities.

The Ontario Co-operative Association

Four Strategic areas:1.Lifelong Co-operative Learning

2.Communications and Member Relations

3.Co-operative Development

4. Government Relations

WHAT IS A CO-OP?(it’s not just a work placement in school)

A Co-operative is…

An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

Examples of Co-ops- Co-operators Insurance - Desjardins Credit Union- Mountain Equipment Co-op- Gay Lea Dairy- Organic Meadow Dairy- AgEnergy- La Siembra –Cocoa Camino Fair Trade Co-op- Co-op Cabs-Co-operative Housing Federation of Canada

Co-operative Principles

Seven Principles of Co-operatives Worldwide

1.Voluntary and open membership2.Democratic member control3.Member economic participation4.Autonomy and independence5.Education, training and information sharing6.Co-operation among co-operatives7.Concern for community

Elaborated in 1995 by the International Co-operative Alliance

Co-ops in Canada

Canada’s 10,000+ co-ops and credit unions have combined assets of approximately $167 billion

Co-ops and credit unions employ over 160,000 people

In Canada, 4 out of every 10 Canadians are members of at least one co-op (or 43%)

Approximately 70% of Québec’s population and 56% of Saskatchewan’s population are co-op members

THE ONTARIO CO-OPERATIVE SECTOR: 1300 CO-OPS; 1900 LOCATIONS; 400 COMMUNITIES

Co-ops in OntarioThere are more than 1,300 co-ops and credit unions in Ontario

The province’s co-ops and credit unions have over $30 billion in assets

More than 1.4 million individual members belong to a co-op or credit union

Ontario has the second highest number of non-financial co-ops in Canada, after Quebec

Ontario’s Co-op Sector Today

•1,300 co-ops in Ontario •1,900 locations in 400 communities•1.4m members; 49k volunteers (10k directors)•16k employees

Housing,

587 or 45%

A BRIEF HISTORY OF CO-OPS

Where do Co-ops come from?

Co-ops have strong roots in both 19th century rural communities and the newly industrialized urban areas of the late 1800sFocus on providing goods and services to members meant co-ops were formed to provide:

Essential services in under-resourced communitiesFair and accessible alternatives to existing services

Many of these same motivations exist today, but with additional pressures and trends

The Rochdale Pioneers

1844: Formed in England by skilled workers facing poverty and unfair conditions due to industrialization of the workplace Co-op provided access to affordable food and essential goods Origin of the 7 Principles

Antigonish MovementMaritime-based co-operative movement spearheaded by priests and educators: Moses Coady, Jimmy Thompkins, Hugh MacPherson

Advocated for as a way for Nova Scotians to lift themselves out of poverty and achieve greater freedom and self-realization

1860s-1890s: farmer co-ops started in great numbers but high failure ratesby 1910s co-ops were more successful and widespread

Alphonse (and Dorimène) Desjardins

1900: First North American caisse populaire (credit union) formed in Levis, QCWas a response to usurious interest rates (3000%) faced by farmers and factory workers Based on the German, Italian and French models of community banks

The Ontario Roots

Co-ops started later in Ontario compared to other parts of Canada:

Lack of financial support from government (as in Prairies and Maritimes)Lack of understanding about the co-op modelLate start for farmers seeking political solutions to their economic situationTook until 1917 to see legislation that would allow for co-ops

First co-ops were farmer based and in rural areas

Growth Continues

40s-60s: Credit unions start to grow in prominence (1400 by the 60s); agriculture co-ops decline in numbers but increase in business, number of child care co-ops start to grow70s-80s: housing co-ops begin in earnest due to government funding agreements, credit union numbers drop due to mergers90s-00s: co-ops focused on social services and sustainability start to be developed: energy, transportation, vulnerable populations

Why choose a co-op (1)?

• Economies of scale: Bulk buying; sharing of costs and expenses; joint processing or branding

• Accountable & inclusive: Open to everyone; each member has equal vote regardless of investment; local decision making

• Build stronger communities: Most co-ops are community based - investment and surplus stays in the local community; collaboration

• Members’ needs met: may not always be ROI

Why choose a co-op (2)?• Benefits to both member-owners and users:

Investment and economic contributionValue addedDemocratic functioning and collaboration

• Self-determination: Member-ownership makes co-ops less vulnerable to takeovers by outsiders

Co-ops can own non-co-op subsidiaries or businesses

• Multiple bottom lines – financial, social and environmental

The Co-operative Context

Wherever a member need can be identified, a co-op can be structured around itCo-ops have always had roles where public or private entities cannot meet community needs eg. Credit Unions have stayed when banks have pulled outAs community needs have changed, so have the types of co-ops

Originally, strong needs seen for basic farm needs and infrastructure in rural areasNow, co-ops providing many services, Renewable Energy, Car Co-ops, Health Care, Child Care, Housing, Senior Care

Survival Rate of Co-ops

Co-operatives generally have a higher survival rate than traditional business corporations

Summary of the Benefits of Co-operatives

Contributes to community well-being

Supports the triple bottom line (economical, social and environmental)

Builds and enhances local prosperity

Empowers people in a democratic way

Helps individuals increase livelihood assets

CO-OPS 202 The what, why and how of co-ops:

Basic Co-operative Structure

Role of Members and Board

Co-ops are member-owned and organized in a democratic structure to meet member needs

The “business function” of the co-op consists of activities that meet those needsThe “democratic function” is the control of the membership over the co-op, carried out by a board of directors elected by members

Board oversees both business and democratic functions of co-op

Role of Staff

Primary role of staff is to carry out activities according to board’s strategy to meet member needs

Senior management is hired directly by the board to manage the business function of the co-op

Senior manager hires additional staff to assist with particular business functions or activities

Junior staff report to a senior staff person, who in turn reports to the boardStaff do not tell the board what to do, they provide information and recommendations

Board provides plan and direction to senior staff person, who in turn works with other staff to implement the plans

Starting-up a Co-op

5 people to start a co-op (3 for worker co-op)Articles of Incorporation go to a different agency than other corporationsRegulating body: Financial Services Commission of Ontario (FSCO)Required details are different: share structure and member investment

Co-op Legislation

Ontario Co-operative Corporations ActOntario Credit Unions and Caisses Populaires ActFederal Co-ops –Canada Corporations Act –operating in more than one provinceUnofficial Co-ops – “Co-op-like” organizations not legally incorporated under the CC ActMay operate in a co-operative manner, or follow the

7 Principles

FSCOFinancial Services Commission of Ontario

The Financial Services Commission of Ontario (FSCO) registers organizations conducting business as a co-operative under the Co-operative Corporations Act. You should be aware that many co-operatives are regulated under additional pieces of legislation. Day care co-operatives for instance, are also regulated under the Day Nurseries Act.

FSCO Services for Co-opsHow to Register a Co-operative Find out Which Co-operatives are Registered with FSCO Tips for Co-operatives Relating to Offering Statements Tips for Co-operatives Relating to Articles of Incorporation and Amendments Tips for Renewable Energy Co-operatives Relating to Articles of Incorporation and Amendment Legislative and Regulatory Changes: Co-operative Corporations Act and Regulation Amendments Resolving Co-operative Complaints Fee Schedule under the FSCO Act (Certificates of Status) Fee Schedule under the Co-operative Corporations Act Forms

For more information:

Phone: (416) 250-7250Toll free: 1-800-668-0128 Fax: (416) 226-7838Attention: Licensing and Market Conduct DivisionOr, you may write to:

Licensing and Market Conduct DivisionFinancial Services Commission of Ontario5160 Yonge Street, Box 85, 4th Floor, Toronto, ON M2N 6L9

Maintaining a co-op

Yearly filing of informationRunning member meetings

and AGMsGood member-board

relationsOnCo-op offers a plain

language Guide to the Act

FINANCING CO-OPERATIVES

Financing Co-ops

Co-ops can raise money through traditional channelsCan also raise funds from members and community investorsOffering Statement (analogous to prospectus)• Must be prepared in certain cases• Receipt from FSCO required• Can sometimes be challenging process

Offering Statements

Offering statements are special documents that are prepared for co-ops to use to sell securities to members and others• Analogous to prospectus required by OSC

Not required in certain casesMeant to be a full, plain and continuous disclosure of risk to investorNeed to be submitted and receipted by FSCO before co-op can sell securities

When is an OS required?

If your co-op has less than 35 security holders, you do not need an offering statementMore than 35, co-op can still be exempt from an OS if co-op meets certain conditionsTwo most common are:

Raising <$200,000 in total through the offeringMembers contributing <$1,000/yr, <$10,000 lifetime

Conditions usually practically DO NOT apply to RE co-ops (especially wind projects), so OS required

Why is this a problem?

Process is administrative and financial burdenFSCO has been somewhat obstructive in the past because do not understand the sector well (or co-ops in general)Business with members requirement has been difficult to quantify, led to problems with OSOn Co-op and partners have been advocating for changes since 2003 –progress is being made

Three ways co-operatives differ from other businesses

2. Democratic Structure

1. Co-operative Values

3. Allocation of Profit

Co-ops vs. Business Corporations

CO-OPERATIVES Exist to meet needs of members Accountable to members Surplus distributed to members

One member one vote

Board represents members; 80% of directors must be members

Shares generally not traded

BUSINESS CORPORATIONS Exist to maximize ROI Accountable to shareholders Unlimited return on shareholders’

capital Vote based on number of shares

held Board represents shareholders;

director may not be shareholder Shares may be traded

Co-ops vs. Non-Profits

CO-OPERATIVES Always member controlled

One member one vote Mandated to meet the needs of

members Board of Directors elected from

membership 20% can be non members

Operate under CC Act or CU&CP Act; with or w/out share capital

Surplus & patronage may be distributed to members

NON-PROFITS Usually member controlled

Membership voting classes Broader mandate to the

community Board of Directors elected from

membership Operate without share capital

under Ontario Corp. Act Surplus kept to further goals and

objectives of organization

Opportunities by Sector

As a result of changing needs and new pressures, there are particular sectors with growing opportunities:

Renewable energyBusiness succession from sole proprietors retiringTransportationRural InfrastructureLocal and organic foodMicrofinance and social finance

Long term possibility: Home and health care

Challenges

Lack of awareness can make development difficult (esp. in emerging sectors) Access to financing is difficult

Few co-op specific sources or programs that support co-ops in early stages or otherwiseDealing with conventional financial institutions can be difficultOntario co-ops have unique capital process, but can be challenging to manage

Challenges

Co-op model is viewed as alternative to the dominant form of enterprise (shareholder business)

Always on the outside of what the public and government expect and are familiar with

Not the same connection to non-profit /“social enterprise” sector as exists in other locations

Limited opportunities and success in seeking joint support and recognition

Influences and Trends

GlobalizationGrowing consumer cultureGrowing interest in local and organic foodTechnologyInterest in corporate social responsibility and sustainabilityGo big or go home (merge, merge, merge!)Others….?

2012 UN International Year of Co-ops

On December 18, 2009, the United Nations General Assembly adopted a resolution declaring 2012 the International Year of Co-operatives, in order to highlight the participation of co-operatives in economic development and social innovation around the world.

This resolution urges governments to create an environment conducive for co-operative development and to increase their contributions for the overall conditions in which they operate.

Discussion

Ways in which the co-op model contributes to job creation & retention and fosters local economic development

Next Steps…working together, moving forward…

Time for Questions…

Thank you

Useful Resources Ontario Co-operative Association

www.ontario.coop

Conseil de la coopération de l’Ontario

www.cco.coop

Canadian Co-operative Association www.coopscanada.coop

Conseil Canadien de la Coopération www.ccc.coop

Co-operatives Secretariat www.agrc.gc.ca/policy/coop

CIEP Presentation March 30/11Everything you wanted to Know about

Worker Co-ops

What is a Worker Co-opWorker co-operatives are businesses that are owned and democratically controlled by the members. The main purpose of a worker co-operative is to provide employment for its members. Each member pays a membership fee or purchases a membership share, and has one vote regardless of how much money they have invested in the co-op. The Co-op’s assets are collectively owned and surplus earnings are allocated to the workers according to policies established by the co-op, often in proportion to hours worked by members and with limited return on shares and member loans.

How Does It Differ from Other Businesses?

Traditional businesses aim to make profit for the shareholders, who receive their share of that profit according to the amount of money they have invested in the business. Control of the business is also based on the amount of money invested, usually one vote per share purchased.In a worker co-op, each member has one vote no matter how many shares they have purchased. They all have equal say in the way the business is run and in the decisions affecting their everyday work lives. Members combine their skills, interests and experiences to achieve mutual goals, such as creating jobs for themselves, providing a community service or increasing democracy in the workplace. Because they develop the policies that determine the co-operative’s daily and long-term operation, trust, communication and co-operation are vital to the co-op’s success.

Can It Work For You?The worker co-op idea can work for you if you have a marketable product, start-up capital and a plan for organization and growth. Of course you must be prepared to work long hours and overcome the many challenges which face all new enterprises.

Canadian WC’s

300 WC’s across Canada14,658 Members and 10,792 employees$474 billion in revenue generated$325 million in assets

Worker Co-ops in the U.S.

223 firms (1% of co-op enterprises)5,514 Members (includes PT)2,380 non-member employees$219 million in annual revenue (’08)

Source U of Wisconsin 2009

Examples of WC’s

- The Big Carrot- Sumac Worker Co-op –Planet Bean- Urban Cyclist- Come As You Are- Just US- La Siembra –Cocoa Camino

International Worker Co-ops

Mondragon – founded in 1956,five membersFour main areas –Finance, Industry, Retail, KnowledgeTop Basque business Group, 7th in SpainAnnual Revenue $23 Billion92,773 employees 83% membersVoted MAKE –Most Admired Knowledge Enterprises top 10 in Europe for 2009

International WC’s -continued

Italy –Region of Emilia Romagna4 million people -2/3rds are members of co-ops, 10% employed by co-ops7,500+ Co-ops of which 2/3 are WCs30-40% of GDPHigh standard of living1992 law passed 3% of profits to Co-op fundFour national apex co-op organizations

Constitution of the Italian Republic (1947), Article 45:

"The Republic recognizes the social function of co-operation with a mutual and non-profit character. The law promotes and favors its growth by the most suitable means and ensures, by appropriate controls, that its character and purposes are respected.”