Purpose: To prepare necessary legal document and incorporate co-operative

Incorporation gives the co-operative a distinct legal standing and limits the financial liability of its members. A co-operative can be incorporated under federal or provincial legislation. Most agricultural co-operatives in Canada are incorporated under provincial legislation. Members of the steering committee should be familiar with the Cooperative Association Act and the Companies Act to ensure that the requirements of the province of British Columbia are met. If it is the co-operative's intent to conduct business in more than one province, you should investigate federal incorporation.

Use the services of an attorney or advisor familiar with co-operatives throughout this step. Such services are important to ensure that all documents comply with provincial and federal laws and will not conflict with operating procedures of the co-operative.

Select and register a name.

According to B.C. law a co-operative's legal name must contain the word "co-operative." You may also include one of these words: association, society, union or exchange. You cannot use the terms company" or "limited." Note that it is illegal in British Columbia to use the term "co-operative" in the name of an organization unless it is incorporated under the Cooperative Association Act.

A Name Approval Request Form (available from the Ministry of Finance and Corporate Relations) must be submitted to the Registrar of Companies. A search will be conducted to ensure no other group is using the same name. The name search is a mandatory requirement toward incorporation.
Draft the Memorandum of Association. The Memorandum of Association is a legally binding, witnessed document. It sets out basic information about the co-operative and specifies:

• the name of the co-operative;
• the co-op's registered office address;
• business restrictions and restrictions of powers;
• the value, type and number of shares;
• the names and addresses of the founding members.

A minimum of five people are needed to incorporate a co-operative in British Columbia. To belong to a co-operative, individuals must purchase at least one member share. In addition to member shares, different classes of investment shares can be issued to members, each with different values and rights attached.

For a complete description of the Memorandum of Association, see the Cooperative Association Act, Schedule A.

Draft the Rules of the Association.

The Rules of the Association state how the co-operative will conduct business. To incorporate in B.C., the rules must be consistent with the Cooperative Association Act which specifies which topics must be addressed. Important areas that require rules include:

• membership requirements;
• the rights and responsibilities of members;
• the number of shares a member may hold;
• how shares are transferred;
• the grounds and procedures for member expulsion;
• how meetings are called and conducted;
• how directors are elected or removed, their duties, terms of office, and compensation;
• the dates of the fiscal year;
• the requirement to conduct business on a co-operative basis;
• how net surplus of the co-op will be distributed;
• the process for redeeming member equity;
• the handling of losses;
• how non-member business is treated;
• the dissolution of the co-operative;
• the process for amending the rules.

A sample set of rules is provided in Schedule C of the Act. However, since no single set of rules fits every co-operative, the sample rules should be changed to reflect your co-operative's specific mission and objectives. Considerable care should be given to drafting the rules as they are legally binding on all members of the co-operative. Once they are filed and approved, the rules can only be changed by an extraordinary resolution. An extraordinary resolution requires a majority vote of not less than 75 percent of the membership present at a general meeting and the approval of the Registrar of Companies.

Incorporate the co-operative.

Incorporating a co-operative under B.C. legislation involves paying an incorporation fee of $250* and submitting the following documents to the Superintendent of Co-operatives in Victoria:

• Memorandum of Association;
• Rules of Association;
• Notice of Registered Office;
• List of First Directors;
• Statement of Intent.

The List of First Directors includes the names, and the occupations of the founding directors (often the members of the steering committee). It must also state the period for which the directors will serve. The term of the first directors usually lasts until the first general meeting. The Statement of Intent is a supplementary document and is not legally binding. However, the Superintendent of Co-operatives will request a copy and will use it to determine if the business will in fact operate on a co-operative basis. The Statement includes the following information:

• the services the co-op intends to provide;
• the way in which the co-op proposes to provide those services to its members;
• any connection the co-op expects to have with other co-op organizations or businesses.

Once the documents are approved by the Superintendent, the B.C. Registrar of Companies issues a certificate of incorporation and the co-operative is entered on the corporate register.

Draft other legal documents.

In addition to the documents required for incorporation, legal agreements between the members and the co-op, such as membership and marketing agreements, should be drafted at this point. You will need to ensure that such agreements are consistent with the co-op's rules and memorandum. These documents should therefore be drafted by (or, at a minimum, reviewed by) an attorney experienced with agricultural co-operatives.

Co-operative marketing agreements specify the volume of product members are obligated to market or deliver to the co-operative. The following subjects should be specified in a marketing agreement:

• the extent of members' obligation to market through the co-operative;
• the terms and conditions under which the products will be marketed;
• accounting procedures.

For marketing co-operatives that choose not to use marketing agreements, these subjects should be addressed within the co-operative's rules.

Hold the first annual general meeting to approve the rules and elect directors.

Within three months of incorporation, the board of directors must call the first annual general meeting of the co-operative. At the meeting, members will need to elect directors to the board and vote to accept or amend the rules of the co-op. Any amendments to the rules are subject to review by legal council. Before the meeting, circulate a copy of the rules and a list of board candidates to all prospective and current members.

Decision Question: Will the bylaws be approved? Who serve on the board of directors?