Creating a Co-operative: An Information Guide

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The 7 Steps in Forming a Co-operative

Phase I - Develop the Co-operative Business Idea

Step 1: Assemble a group of interested people

• Identify the needs to be met:
  • availability or stability of employment
  • availability of certain products or services
  • quality of certain products or services
  • products or services at a better price
  • market development
• Identify professional assistance needed to launch the business:
  • legal consultant
  • co-operative development consultant
  • feasibility study, business plan and financial consultant
  • accounting consultant
  • other _______________

Step 2: Conduct a pre-feasibility study

• Conduct a preliminary market review.
• Identify available technical and financial assistance.
• Assess receptiveness to the co-operative business idea in the local community.
• Evaluate if the co-operative is the best legal framework to use or if the kind of co-operative selected is the most suitable.
• Define the intended benefits of the co-operative for members (eg. quality, price) and characteristics:
  • products and services offered (consumer co-op)
  • or products and services marketed (producer co-op)
  • or jobs and working conditions (worker co-op)
• Evaluate the project's potential to attract the minimum number of members required.

If this preliminary study is not conclusive, the group should re-evaluate its business idea.
If this study shows that the planned co-operative is feasible, the group can proceed to the second phase.

Phase II - Co-ordinate the Pre-Co-operative's Activities

Step 3: Hold an organizing meeting

• Choose the corporate name of the co-operative and location of its head office.
• Define the co-operative's mission (objectives, purpose).
• Elect a temporary board of directors and secretary to the board.
• Officially submit an application for incorporation as a co-operative to the provincial ministry responsible for co-operatives or to Industry Canada , if you are incorporating federally.

Step 4: Conduct a viability study

• Obtain financing for the viability study from such sources as:
  • internal financing by the members
  • special grant
  • and/or negotiate a technical assistance or business start-up agreement with a specialized organization.
• Define the strategic objectives.
• Evaluate the various strategic scenarios, production costs, and human, material and financial resources necessary.
• Evaluate the various start-up financing scenarios.
• Do a preliminary projection of budgeted statements and of a cash budget (revenues and expenditures, investments by members in share capital, partners, credit union or bank loans, grants).

If this study concludes that the co-operative's business idea is not financially viable, the group should consider terminating the project. If the study shows that the new co-operative will be financially viable, the group can proceed to the third phase.

Phase III - Organize and Start up the Co-operative

• Set up ad hoc committees to distribute the workload among the members of the temporary board of directors. For example:
  • planning committee
  • training committee
  • committee to draft by-laws

Step 5: Organize the association

• Decide on the association's structure and define the various categories of members, if necessary (e.g., consumers, suppliers, workers).
• Determine the roles and responsibilities of the various democratic bodies (general meeting, board of directors, committees).
• Establish the articles and by-laws.
• Recruit members.
• Organize and offer a program to train members in the administration and management of a co-operative, the chairing and running of annual meetings (e.g., parliamentary procedure), and the operation of a committee or board.

Step 6: Organize the enterprise

Step 6.A: Plan the operation of the enterprise

• Draw up an organization chart of the enterprise.
• Do the operational planning for the first year of activities.
• Negotiate contracts for the supply of necessary products and services (inputs) and, as required, sales or marketing contracts (depending on the kind of co-operative and the nature of the enterprise).
• Devise and implement an accounting system.
• Define the duties and responsibilities of each position.
• Develop a salary policy.
• Select and/or recruit the person who will occupy the position of chief executive officer/general manager.

Step 6.B: Plan and organize the enterprise's start-up financing

• Determine the value of the membership share to become a member (e.g., $5 or $500?)
• Determine the value of the share capital on start-up and during the first three years of operation (in terms of the expected growth in the number of members).
• Prepare the preferred share by-laws (if applicable).
• Prepare the loan by-laws (if applicable).
• Draw up the overall financing plan for the first three years of operation.
• Draw up the business plan.
• Negotiate the capital contribution of external financial partners (if necessary); e.g., venture capital corporations, private funds, caisse populaire or credit union investment programs.
• Apply for a government start-up grant (if available and if necessary).
• Negotiate medium-term credit union or bank loans and a line of credit.

Step 6.C: Recruit and train the enterprise's staff

• Select and recruit employees (responsibility of chief executive officer, except in the case of a worker co-operative where recruitment decisions are usually made collectively).
• Organize and offer a staff training program.
• Organize and offer a co-operative training program.

Step 6.D: Ensure the legality of the enterprise's operations

• Take care of the legal formalities and obtain the legal authorization necessary to start up the enterprise's activities:
  • federal: employer numbers for government discounts, for GST/HST, for Revenue Canada
  • provincial: numbers for the provincial revenue department, for provincial tax
  • co-operatives may also have to register with, or be licenced by, other legislation or federal or provincial departments
  • municipal: municipal permits, employer number, etc.

Step 7: Hold the initial general meeting

• Adopt the by-laws.
• Adopt the business plan.
• Approve the co-operative's membership in a sectoral federation or an inter-sectoral co-operative organization.
• Appoint an external auditor.
• Elect the members of the board of directors, and of any other committees (if the general meeting has the power to do this).