Bylaw Starter Kit
Your bylaws and member agreements define how money, power, and information flow in your cooperative. We always recommend that you work with an attorney who specializes in cooperative formation to help you incorporate, and to develop your bylaws and membership agreements, but before you spend time and money with your lawyer, your founding members can start to think through the core agreements you want reflected in those documents.
How to Start
After you have completed your ownership model canvas draft, make a google document, and work with your founding members to answer the governance questions below.
While you will not be able to answer all the questions without guidance, try to complete 60-70% of the questions before you write your first by-law draft with your attorney.
As you work with your attorney, keep this summary updated for your staff and members as a more readable preamble to your actual by-laws.
Bylaw Design Questions:
1. Who are your members?
Who would qualify to be a member-owner?
If you have more than one membership class, what are the other membership classes?
2. What are the benefits of becoming a member
For each membership class:
What are the intended benefits of becoming a member-owner?
3. What are the requirements to become a member?
For each membership class:
How much does a membership share cost?
What are other non-financial requirements to be a member?
4. What are the basic governance rights of membership?
In a cooperative, each member gets one vote in board elections and in any other votes taken by members, we call this one member, one vote.
If you are a multi stakeholder co-op (i.e. your cooperative has more than one membership class), how do you want to divide up the percentage voting rights per class?
How often is your membership required to meet? (Most groups have at least a yearly annual member meeting)
Is the annual meeting face to face or can people also attend virtually?
What should the quorum for your annual meetings be?
Quorum is the minimum percentage of members that must be present at any official membership meetings in order to make the proceedings of that meeting valid (your group can meet informally at any time, but you’ll need a quorum if you want to hold an official vote). Setting quorum should be based on the size of your membership and how tough it is to get your group together.
If you are a consumer co-op, quorum might be as low as 10-20% of members attending.
If you are a worker co-op, quorum might be as high as 50-70% of members attending.
5. How else does the membership hold the board and management accountable?
In a cooperative, members can generally run for the board, vote for the board, and vote on major corporate or strategic issues (like dissolution, merger, acquisition, etc.), what additional governance powers, if any, do members have direct decision-making authority over?
Do members need to approve by-law changes, or can board act on its own?
Ie if a board votes to change the by-laws, then often the by-law changes should also be approved by the members, because a by-law change is often connected to a larger change in strategy or vision.
Do members have direct oversight of cooperative leadership or through the board?
Ie the cooperative will conduct an annual member survey to measure member satisfaction with leadership, but the cooperative’s CEO or President is directly accountable to the board who will implement changes.
Can members force a “special meeting” of the cooperative?
Typically there will be a provision that if at least 10-20% of members want to force a special meeting they can. This is a provision to keep co-ops accountable to members even if the board has run “off course”.
6. What are the financial rights?
For each membership class: what is the patronage formula? Ie for every $100 generated in year end profit, how would it be allocated amongst members?
For a consumer cooperative, the patronage formula is often based on the percentage of product purchased by each person within the group.
For a worker cooperative, the patronage formula is often based on the percentage of hours worked by each person within the group.
For a producer coop, the patronage formula is often based on what percentage of product is sold or produced by each member within the group.
For your founding members, do you want them to receive some sort of extra benefit to compensate for the risks they took?
If you are a multi stakeholder co-op, what is the percentage profit share between different classes? Ie if you had both consumers and workers, would you allocate 60% of profits to consumers, and 40% to workers?
7. Board of Directors
How many people will be on your board?
Many boards start out with 3 or 5 people, and then expand up to 7 or 9 people over time (note the use of odd numbers in order to avoid a tie).
Ie the cooperative will have 5 directors, members may vote to increase the number of directors to as many as 7.
Who might be the first people to sit on your board? (If you have a multi stakeholder cooperative, your board will need at least one representative from each membership class).
Can the board add outside directors beyond just members?
Many boards allow room for, but do not require, 1-2 outside directors
Does your CEO / leadership sit on the board?
Most CEOs attend board meetings but don’t vote
How is the board nominated and elected?
Letting all members vote on board member elections is a basic governance right in a cooperative. (If you have a multi stakeholder cooperative, members generally only vote within their class, ie workers get to vote for who holds the worker board seats)
What kinds of decisions might your cooperative’s board make, and what percentage of directors does the board need to make decisions? (Often decisions may be made in different ways based on how big the topic is, simple majority means 51% or greater of your board, super majority generally means 66% or 75%)
Ie the board makes decisions by a simple majority vote (except where a higher voting threshold is required)
Ie we need 51% of the board to make a change to membership requirements or fees
Ie we need 66% of our board to change our by-laws
Ie we need ie 75% of the membership to vote to authorize to liquidate or sell the company
8. Capital structure/investment
Consider how much money you will need over the next 6-12 months, does your cooperative need to raise capital?
If so, will it be primarily through member contributions? Do you also need outside lenders?
Do you also want the option for outside investors to own a minority share of the co-op?
If you can not raise enough money from your members from membership fees or membership stock purchase, you will need to consider outside loans or investors.
If you have outside investors, what governance rights can they have? (Often in a cooperative, outside investors have limited voting rights, ranging from no governance rights at all, to board observer rights, to holding a minority of board seats.)
Does your board need to vote before taking outside capital?
Acknowledgements to The Democracy At Work Institute, Riezman Berger, Tuttle Law Group, Jason Weiner PC, Co-op Law, and Upside Down Consulting for many of these bylaw starter questions. Looking for more detail? Here is another great guide to understanding the most common sections of most by-laws.
Membership Agreement:
The membership agreement is a legal agreement, (either a section of your by-laws, or a totally separate document based on your by-laws), that lays out the agreement between member and cooperative from the member point of view. It should include:
What is your basic mission statement:
We exist to address what problem for whom?
What benefits should a member expect back from your co-op
Kinds of services (keep it super high level as this is legal, ie better to say we intend to offer x, rather than saying we will deliver you x per month)
What will the member pay for the benefits of membership?
Upfront stock purchase fee
Are there any ongoing fees?
Are there any other requirements for someone to be accepted as a member?
If worker co-op, after how long, and what approval process?
If other co-ops, what other requirements (if any) might you have?
What are the expectations or obligations of being a member?
Annual meeting participation
How else would a member support your co-op?
How will each member’s patronage be calculated?
Ie for every $100 generated in year end profit, how is it allocated?
What happens if a member wants to leave?
How do they give notice?
Do they get their stock purchase fee back?
What happens if the co-op wants a member to leave?
Under what conditions have they violated or not met the most basic conditions of being a member
How much notice do you have to give?
Does the staff decide? Or the board?