CI

The CooperativeApproach to Crafts
tive Approach to Crafts

ed States Department of Agriculture

Rural Business-Cooperative Service

Cooperative Information Report 33

R. Wade Binion and Gerald Ely

February 2000
ofessionals produce crafts in the United States. But they often have

m return for their production. Craft cooperatives, guilds, or informal

f major importance in solving marketing problems faced by craftspeo

rief review of craft development in the United States, discusses the

olving craft marketing problems, and offers development guidelines

s publication is an update of several earlier versions on the subject.

Report 33

ricultural marketing specialist with the Cooperative Development

ral Business-Cooperative Service; Gerald E. Ely is a cooperative

 Pennsylvania. Parts of this document were prepared earlier by USDA

d.)

i
 Foothills Craft Guild, Mountain View, AR,

d in 1962 as a member-owned craft coop

ive traditional crafts and provide access to

ets. When the Guild expanded in 1965 to a

rganization, the name was changed to the

aft Guild. It has more than 300 members

es four retail outlets in Hot Springs, Little

eka Springs, and Mountain View (also the

Guild’s headquarters).
i

Craft Production and Marketing .................................................1

Cooperatives ................................................................3

Cooperative Structure .........................................................4

Local Cooperatives .......................................................4

Regional Cooperatives ....................................................4

Craft Cooperative Activities ....................................................6

Marketing ..............................................................6

Production Assistance ....................................................7

Technical Assistance .....................................................7

Getting Started ..............................................................7

W ork of the Steering Committee ................................................7

Steering Committee Report ................................................9

Organizing ................................................................10

Legal Documents .......................................................10

Board of Directors ......................................................10

Other Considerations ........................................................10

Quality Control .........................................................10

Management ..........................................................10

Record keeping ........................................................12

Taxes ................................................................12

General Rures for Success ...................................................12

Study Applicable Laws ..................................................12

Get Expert Help ........................................................13

Conduct Sound Operations ...............................................13

Record Agreements, Contracts, and Commitments in Writing ....................13

Realistic in Evaluation and Projections ......................................13

Establish and Maintain High Quality Standards ...............................13

Sources of Assistance .......................................................13

Federal Agencies .......................................................13

State and Local Agencies ................................................16

APPENDIX A-Sample Craft Producer Survey Questionnaire .........................20

APPENDIX B-Table 1 ........................................................23

APPENDIX C-Sample Bylaws .................................................24

APPENDIX D-Sample Marketing Agreement ......................................30

APPENDIX E-Cooperative General Manager’s Job Description

and Board Duties and Responsibilities ...............................32
sans, Inc., Camden, NC, is a retail and wholesale marketing cooper

 NEED, the educational arm of the cooperative, is an nonprofit

ts classes in crafts, business, and personal development skills to

control their economic and social conditions.
become increasingly

rban areas of the

rs have contributed

interest in the

 in diverse ethnic

isure time; an appre

ities of hand-pro

or additional income.

r therapeutic or self

 craftspeople market

income. The demand

as enabled many pro

l income from their

al people improve

production and mar

USDA’s Rural

e (RBS).

arketing

ducer makes crafts in

t may involve more

he craft design may

es passed from one

ne supplied by some

 in the home, or be

aftsperson.

oduced in a central

esponsible for com

e from beginning to

end. The least common type of craft productionis an industrialized process where a prototype ofthe craft is designed and then mass-produced ina factory-like setting.

Craftspeople market their work through

both retail and wholesale outlets. Retail sales aremade directly to the ultimate customer, either in

person or by mail, through the craftsperson’sown shop or studio or at a fair. Those who retail

their finished product must cover the costs ofproduction and marketing from the retail pricereceived. Marketing expenses are discussed onpage 9.

In the wholesale market, crafters will sell

their product to a buyer who typically purchasescrafts from multiple sources. The wholesaler willthen resell the crafts at a marked up price.Wholesaling crafts involves more than just negotiating a price. It includes solving problems inshipping, storage, financing, risk bearing, andmarket information. These concerns must beaddressed by either the craft producer or thewholesaler.

Some options available for the craftsperson

in selling their craft in the wholesale market are:

● Deal directly with the retailer. Craft producers who deal directly with retailers

sell their crafts outright or consign them.

When crafts are sold outright, the retailer

takes title of the product on delivery.W ith consignment, the producer retainstitle to the crafts until they are sold. Ineither case, producers must be able tohandle wholesaling functions and set aprice that will cover their expenses andgenerate a reasonable profit. If the crafts

are sold on consignment, producersshould expect payment within 30-45 daysafter the sale. Because producers sellingon consignment assume retailingexpenses such as insurance, losses due toshop wear, and financing inventorythroughout the selling period, they normally receive 60-70 percent of the retail

price. Consignment puts more risk on the

producer than any other wholesalemethod.

● Hire a commissioned sales representative. A commissioned sales representative acts as the producer’s agent in negotiating sales to wholesale buyers. Sales

representatives typically receive a 10-20percent commission for all services. Withthis method, the producer retains ownership of the crafts until they are sold andshipped to the buyer. Craft producers 

The Cooperative Approach to Crafts

R. Wade Binion and Gerald E. Ely

1
must handle other responsibilities suchas setting wholesale selling prices, checking the buyers’ credit, and preparing,packing and shipping orders.

● Sell directly to wholesale merchants or

jobbers. Wholesale merchants or jobbersbuy crafts from producers and then resellthem to other buyers. They assume theresponsibility for performing most of thewholesaling functions and receive compensation by marking up the price beforereselling the crafts. Producers who selldirectly to a wholesaler spend less timeon wholesaling activities than with anyother wholesaling method. Many cooperatives wholesale crafts for their members.

Craft marketing has not developed without

serious problems. The return to the craft producer has often been meager.Efforts at self-support through craft production involve many

frustrations, such as:

● Lack of market contact. Craft producers

who live in isolated rural areas often

have limited access to markets. They areoften forced to accept whatever price isoffered for their craft products. Isolation

may also create a lack of awareness ofwhat is marketable in metropolitan areas.

● Lack of access to supply sources.

Production of quality crafts requires theuse of quality supplies. The same isolation that separates many craft producersfrom potential markets also restricts theavailability of supplies needed to pro

 cooperative shop with 25 members, is set at the foot of

ns east of the Mississippi River near Burnesville, NC.

am.
3

hen available, the

 purchased in rela

es at the higher retail

ining. Training in

y be handed down

to another or

chnical school or uni

ning a producer needs

ul businessperson is

 If a craft producer

esign skills and

t, they may have

ng the best alterna

and marketing their

e with these prob

ople to form cooper

iness that is formed

ain services more

ally as a group than

n. Members of craft a

ontrol, and operate

l benefit.

g been the organiza

eople meet problems

bilities. While the

not necessarily

ide an opportunity to

urces to overcome

rship, partnership,

on, a cooperative

 it is to succeed.

Competent planning and management are theforemost requirements in effective craft marketing cooperatives.

Cooperatives are similar to other corporations in that both:

● Incorporate under State laws● Prepare bylaws and other legal documents● Have a separate legal existence● Elect boards of directors who set policy

and hire a manager to conduct day-today activities.

In other ways, cooperatives are distinctly

different from investor-owned corporations.

These differences, called cooperative principles

or characteristics, are:

● Ownership benefits and obligations in

proportion to use

● Democratic control● Service at cost● Limited return on equity capital.Ownership benefits and obligations in proportion to use means that cooperatives are

owned and financed by the members who usethem. Benefits are derived in proportion to eachmember’s use of the cooperative’s servicesrather than in proportion to the amount ofinvestment. (This differsfrom investor-ownedcorporations where owners account for littlebusiness volume, but are primarily interested inreturns on invested capital.) Having differentpurposes, cooperatives and investor-owned corporations will likely make different planningdecisions for their businesses.

The second principle, democratic control,

dictates that the cooperative operate by consensus, or majority rule. All members of the cooperative have an obligation to participate in thedecision making process. They must adopt andamend bylaws, decide major policy issues, determine cooperative direction, and elect the boardof directors. Democratic control usually meansthat each member has one vote, regardless of theamount of stock owned or the volume of business conducted with the cooperative. Therefore,a member with 10 percent of the stock has thesame vote as a member with 1 percent. Likewise,the member who sells or buys the most throughthe cooperative has the same voting status as theone who uses its services the least.

The third principle specifies that the underlying purpose of the cooperative is to provide

service to member-owners at cost. This doesn’tmean the cooperative can’t charge competitiveprices for supplies or services. As with any business, the cooperative must generate gross margins sufficient to cover operating costs and meetcontinuing capital needs. However, after a cooperative has determined its actual costs at the end

of each fiscal year, any net margin (profit)isallocated to the member-owners in proportion to

their patronage (use) of the cooperative. The distribution of the net margins can be by a combination of cash payments or book credits, knownas allocated reserves.

The fourth principle, limited returns on

equity capital, discourages investor-orienteddecision making and helps retain the cooperative’s service orientation. Equity investments,however, do help defray the members’ cost ofproviding capital to the cooperative. Statestatutes may limit the amount of dividends or
perative. This

ten into the

nciples are the

 designed to

ts users. They set

ypes of busi

n cooperative,

nt to it. By lim

 member, the coop

e to the needs of

roviding services

paid on equity

s determined by

cooperative

serving the needs

aft producers are

on. The local

ely on these

er.

 same marketing

, thus creating

e local manager.

an effective

nd production

cooperative makes

t sales volume

eting programs

re training assis

problems are also

 businesses.

Regional Cooperatives—The financial,

management and marketing problems of a localcooperative can sometimes be solved by theeconomies of scale found in a regionalcooperative with many producer-members. Aregional cooperative has a centralized, federated,or mixed structure, depending on the type ofmembership.

A centralized regional cooperative is really

alarge local with individual members from a

much broader area. A federated regional is acooperative of cooperatives. Members are localcooperatives rather than individuals. Controlrests with locals who in turn are controlled by

individual members, the chief beneficiaries ofboth local and regional operations. A regionalcooperative with mixed structure consists ofboth individual members and local cooperatives. 

The federated structure seems well suited

for the craft industry because it can serve diverseneeds of local cooperatives while preservingtheir autonomy. Organizing a federation takesonly a few local craft cooperatives. Often theselocals have worked together informally becauseof mutual problems. If they think a federationcan help solve their common problems, they canmeet other local cooperatives with similar interests. The organizational processes are similar tothose used in establishing a local cooperative.

Advantages of the federated cooperative

include the ability to combine the efforts andresources of a larger number of producers into astronger economic effort without producer-members losing their identity with their local cooperative. Weaknesses include less flexibility in

making major operating changes and a need forconstant communication between the federation,local cooperatives, and members.

At work is Carolyn McKecuen, the manager ofW atermark Crafts, Inc., a predominately wholesale cooperative with 300 members inCamden, NC.
5

Craft-Producer Member Craft-Producer Member Craft-Producer MemberCraft-Producer Member

Craft-Producer Member

Local

Craft Cooperatives

Craft-Producer Members

Local

Craft Cooperatives

Craft-Producer Members

Local

Craft Cooperatives

Craft-Producer Members

Local

Craft Cooperatives

Craft-Producer Members

Locals

Craft-Producer Members

Locals

Craft-Producer

Member

Craft-Producer

Member

Craft-Producer

Member

Craft-Producer

Member

res for a Regional Craft Cooperative
Craft Cooperative Activities

The needs of craftspeople depend on location, the type of craft produced, skill levels, and

other factors. A cooperative’s membership mustdetermine what is needed and how to meetthose needs. In general, cooperatives have foundit advantageous to assist in such areas as marketing, production assistance, and obtaining technical assistance for producers. A comprehensiveprogram to assist members offers the greatestpotential for success.Marketing—Numerous potential craft markets

go untapped because producers are eitherunaware they exist or are unable, individually,to

supply that market. A craft cooperative can linkthe production capabilities of its members with awide array of markets. Successful linkage notonly increases the producer’s income, but

benefits the buyer. Marketing activities mightinclude:

● Identifying potential customers and

target markets

● Evaluating customer’s needs● Giving producers feedback on the latest

trends in color, design, and competition

● Setting uniform quality standards, developing coordinated lines, and guaranteeing delivery to attract wholesale buyers,

and

● Providing retail and wholesale services

such as operating a retail shop, selling atwholesale craft or gift shows, sponsoringcraft fairs, publishing retail mail ordercatalogs, using sales representatives, oracting as a wholesale merchant.

and Crafts Incorporated, a state-wide cooperative of

ut craft producers, in Anchorage, AK; an Aleut grass

eaded coin purse; and an Eskimo ivory and antler carv

Department of Interior, Indian Arts and Crafts Board.
7

have successfully

ough cooperatives.

ve in North Carolina

 members since its

 retail shop plus a

siness that sells to

atalog companies, and

oughout the United

ountries. Another

 its first storein

ed to five retail out

The cooperative

mprove production

uality and decrease

terials or supplies to

le supply of materi

cost.

se of machinery or

be too expensive for

uy.

of equipment, sup

nological develop

 adapted to members’

cesses.

on techniques,

 processes, and space

nt.

olor selection.

cessful craft

equires a variety of

ources. Various forms

may be obtained

● Training in design, production, and business skills to improve craft products and

the managerial capabilities of its members

● Information about governmental regulations regarding labeling, licensing, taxation, etc.● Assistance in securing loans to purchase

supplies, equipment, or needed services.However, cooperatives should not lendmoney to producers or guarantee loansfor them.

● Information about new books, periodicals, seminars, exhibitions, and other

activities that can contribute to members’professional growth.

Assistance should be directed toward better

equipping members to conduct their craft business. Because assistance will change as the cooperative grows, it must be imaginative, dynamic,and responsive to the members’ expresseddesires.

Getting Started

Formation of a cooperative generally

results from the interest of a few craft producers,usually friends who share common economicproblems. If group action offers the potential forsolving these problems, the members shouldenlist others with similar interests to join them.

If the group, after informal discussion,

decides to form a cooperative, they should contact an individual familiar with the process tobecome acquainted with the necessary steps informing the cooperative. This person may befrom the local office of the State CooperativeExtension Service (CSREES), an establishedcooperative, a local credit union, the state cooperative council, or a cooperative development

specialist with USDA’s State Rural Development

Office. (See other sources of assistance on pages13-16).

If further interest is shown, a meeting of

potential members should be held, at which theproposed cooperative is outlined. This shouldinclude a full discussion of problems to besolved, the cooperative’s potential, and, if possible, examples of other craft cooperatives’ experiences. Participants should discuss if solutions to

identified economic problems be found through

existing businesses and organizations?

W ork of the Steering Committee

A steering committee should be formed at

this meeting if sufficient interest exists. The committee can provide producers with the information needed to decide if they want to organize a

cooperative. The committee may do the researchitself or obtain outside help and serve as a gobetween. The information that producers needabout a potential cooperative and membersincludes:

Need—Does an economic need exist for the

service a cooperative might provide? Is the

service already available in the area? Acooperative is not needed unless members canreceive benefits they cannot get otherwise.

Economic need depends on producers’ circumstances. For example, a group of potters

found that by ordering a truckload of clay

together they could save on shipping costs totheir remote location. Stuffed-animal makers inAppalachia attracted more buyers and obtainedbetter prices because their cooperative offered acomplete line of animals and guaranteed volumeand delivery.
ch as increased

to the market, or

 apparent, craft

ative is their

shed a need for

onsensus about a

ommittee should

.

ness—It is very

ifficult, to obtain

 amount of

duct through a

ribute a

 producers. (See

producer

 taken in project

put. Hobbyists

al production

g up with a

eering committee

 of potential

ality and mar

t qualified to

should be called

st ensure that

otential members’

he producers,

stillinterested in

 in a way that

ires little invest

cipate in a fair

y attend alone.

he steering

the producers are

es as ownermembers of the proposed cooperative. Such responsibilities include: ● Participating in the affairs of the coopera- tive. Members elect directors to the board, adopt or change bylaws, and decide such policy issues as a major investment or the cooperative’s method of financing. To make sound decisions, members must keep informed about the cooperative. Members must be willing to serve on committees such as standards, marketing, or member relations. ● Using the cooperative. Members must use their cooperative if it is to succeed. To enable the cooperative to make the best purchasing and sales decisions, members must sign a marketing contract. (See Appendix D, Sample Marketing Contract.) The contract stipulates produc- tion commitments of members, responsi- bilities of the cooperative, and penalties for noncompliance. If producers are unwilling to sign a marketing contract, their need for a cooperative should be examined closely. ● Financing equity capital needs. Members must provide the cooperative with the equity capital necessary to provide a base for financing its operations. Generally, members invest in a cooperative in pro- portion to their use. That is, a member with $10,000 worth of anticipated sales should invest 10 times the equity as a member with a projected $1,000 in sales. Ifproducers are not willing to take a financial risk, they should not organize a cooperative. ● Paying for operating expenses. Like any business, a cooperative’s operations must be financially sound. If producers want a suc- cessful cooperative, they must be willing to pay for operating expenses through ade- quate margins on products marketed and supplies purchased. Adequate gross margins will be at least 45-50 percent of sales. If a nucleus of producing and committed crafts- people does not exist, a cooperative should not be formed. Craft Markets—Just as craft producers marketing individually must examine their options, potential members must look at what options the cooperative can offer. What markets exist locally and what volume of sales can be expected? Will sales be through a cooperative- operated retail shop or gallery? Is there potential for wholesale sales in local shops or in craft shops outside the area? Are there marketing techniques that could be used to expand the volume of sales, such as mail order catalogs or participation in craft fairs? Before deciding on a market area, a group must carefully research potential customers and their buying patterns. For example, if 80 percent of the potential customer base is middle- to upper-income women, the cooperative may want to be located next to a fashionable dress shop. Other gift stores may find that their best locations are in cities with such characteristics as having a population under 100,000, a university, a substantial number of professional workers, or families with higher-than-average incomes. Census data can pinpoint areas with population characteristics best suited to the situation.
9

l sales will depend

 that can be identi

 difficult to project

timating operating

mating sales. The

swer such questions

the costs associated

ve, both total and

 these expenses be

year? Included will

 mortgage payments,

urance. (Expense and

own in Appendix B.)

ses, talk to people

r craft marketing

ll vary depending on

pply procurement

 Projected financial

oped for each mode

mittee a clear picture

 and earnings.

tions about the

the production

and then develop pro

or 3 years of busi

ld include monthly

ating statements and

 will help determine

ooperative to become

 operating capital is

ecting inventory

. Without any

es have to rely on

hemselves fro m

investing in large quantities of slow-movingitems, some cooperatives buy in limitedquantities. Others start with consignment andswitch to outright purchase by buying the fastestturning items first.

Capital Needs and Financing—The Bank of

America advises, “Most banks will not considerextending more than half the capital (fixed andoperating) necessary to launch a store.” This

puts responsibility on members to provide the

remaining equity capital needed. As owners ofthe cooperative, members should be willing andable to make the needed investment. How muchcapital, for fixed assets and operating capital,will be required to start the cooperative? Howmuch can members provide and on what basis?What are the other potential sources of capital?

The amount of capital will depend on the

operational characteristics being considered bythe cooperative. A marketing program thatincludes a retail sales facility probably willrequirelarger amounts of capital than a program

based on wholesale sales from a small warehouse facility. Also, a cooperative that plans tobuy crafts outright will need more operatingcapital than one that will operate on consignment.

Grants from public sources, foundations,

and churches have been used by many cooperatives to get started. But caution should be usedwhen considering starting a cooperative withgrant funding. Many times groups organize acooperative just so they can get a grant, or theyplan its operations around a continuous subsidy.When the grant money dries up, the cooperativefails. Grants are helpful for training or design

assistance. But, a cooperative must be able tooperate successfully without grant fundingwithin a few years or it shouldn’t be started.

Steering Committee Report

The steering committee should consider

any other factors relevant to the creation of thepotential cooperative, such as the costs of organizing, distribution of membership, methods ofpayment to producers, and the capital structure.The steering committee should prepareareport

of its findings for potential members. The reportneed not detail all facts and figures gathered inthe study, but it should outline the process usedby the committee for its findings and make recommendations for further action.

The steering committee report should be

presented to a second meeting of potential members. Each point should be discussed thoroughly,even if it means another meeting is needed. Thediscussions should be realistic in helping potential members fully understand the possibilitiesfor success and potential problems. The meetingshould involve potential members, ExtensionService personnel, community leaders, bankers,and others who might be involved with the organization if it is established. If a craft cooperativeis considered feasible and sufficient prospective

members want to join, the further organizingsteps should be taken.

If steering committee report is if accepted

by potential members, it serves as the blueprintfor organizing. Recommendations not acceptedshould be revised until there is a consensus onthe major elements of the new cooperative.
tes govern the

d. The legal

nsists of the

ylaws. These

ith careto

te laws and

organization.

on are a state

 cooperative is

ed with the

bylaws state the

o business and

cles of incorpora

ents for member

es; methods for

 and quorums;

ties of directors;

er provisions for

ive.

e must be drafted

ntial cooperative

tatutes. A compe

rative laws

oup on legal pro

rative. (see

er the articles

d, charter mem

he bylaws and

utes dictate the

ed, such as time

f the meeting, and

d of directors

doption of the 

bylaws. Among the business matters to bedecided at this meeting:

● Elect officers of the cooperative.● Arrange to print copies of the articles of

incorporation and bylaws to distribute toall members.

● Select a bank and authorizing officers

and employees to handle funds and issuechecks.

● Arrange for bonding officers and

employees in accordance with bylaws.

● Arrange for bookkeeping and auditing.● Arrange for business facilities.● Adopt procedures for selecting a manager, his/her qualifications, responsibilities, and developing a job description.

(see Appendix E.)

● Develop duties and responsibilities of

directors, rules for board members, andcriteria for separating board and management decisions. (see Appendixes C and E)

Also see the list of Rural BusinessCooperative Service publications dealing with

the organizational process, responsibilities ofdirectors, and the operation of cooperatives atthe back of this publication.Other Considerations

In addition to the survey and organization

procedures, those forming a cooperative mustdeal with several other considerations.Quality Control—Many difficulties and failures

of craft cooperatives are associated with the lackof quality control. Consistently high qualityproducts are essential for successful craftmarketing.

Numerous procedures have been used to

maintain the quality of craft work. The mostsuitable procedure for any cooperative dependson the size and distribution of the membership,type of marketing activity engaged in, and thevariety of crafts produced.

Usually a set of standards is established

that specifies the type of items not accepted bythe cooperative and the minimum qualityacceptable for various craft items. The standardsshould be clearly defined (in writing or throughexamples) and understood by the members.

In addition to the standards, a procedureto

evaluate the craft work must be developed. Thisshould also be clearly described and accepted bymembers. 

The review procedure should provide for

continuous evaluation of the member’s work. Incases of rejected work, an explanation for the

rejection should be given and provision made forreconsidering the crafts. A committee is usuallyelected to conduct the quality-control procedure.The committee should consist of members, themanager, and perhaps someone outside thecooperative participating in an advisory capacity. (See previous section on the Work of the

Steering Committee.)

The need for quality goes beyond craft

products. The entire operation of the cooperativeshould reflect a concern for high quality.Constant attention must be given to the imagecreated in the cooperative’s business forms,

brochures, packaging, billing, displays, andother contacts with the public or members.

Management—Successful cooperative

management depends on effective teamwork ofallthree parts of the management team—members, board of directors, and hired
11

 the foundation of the

he reason it exists.

 responsibilities to

n it, and support it in

informed on a regu

tive and should com

ectors.

tees, establish poli

es, decide on pro

 and, in a general

tivities of the coop

ts, review reports,

its. Their most

 and perhaps the

nd evaluate the man

esponsible for select

vities to obtain the

y the members and

esponsible to the

he day-to-day activi

ts policy decisions.

ave some technical

ty, as well as general

skills. The manager

, supervise, and

ually adept at work

 in developing plans

olicies and objec

f Qualla Arts and Crafts Mutual Inc. is

ch as this being made by Eva Wolfe.

an crafts cooperative in Cherokee NC.

000 worth of crafts annually. Photo by

nterior, Indian Arts and Crafts Board.
r should be made

e is the key

operative will

 manager’sabil

ons deal with the

. Appendix E

 manager’sjob

d responsibili

e the manager’s

ilities of the

l for all

, this is

 because members

heir business is

eps most of the

ors must ensure

and meet the

 If the boardis

 it may be liable

mber funds. Some

nual budget as

ncial records.

projections are

ard approval.

s to help

entories and

or the coming

ger and board

 accurate, timely,

on on various

ondition. At a

ide answers to

these questions:

● How much cash was received and fro m

whom? How much was spent and forwhat? How much cash is on hand and inthe bank?

● To whom has credit been granted? How

much? What payments have beenreceived and for which account? Whichaccounts are delinquent? Do theseaccounts violate credit policies? Whatactions have been taken to collect theseaccounts?

● What is the inventory? (Inventory should

be kept by units and dollars for eachitem.) What has been added? What hasbeen removed? How much is in stock?What are the turnover rates and grossmargins for inventory categories?

● What are the fixed assets? What is their

depreciated value?

● What are the accounts payable? Is the

cooperative delinquent on any payments?

● What is the monthly operating statement

for each division?

● What is the monthly balance sheet for the

entire operation?

Answering these questions is essential to

good cooperative management. Keeping goodfinancial records is vital. It is wise to hire a localaccounting firm to assist in setting up the bookkeeping system. If this is not possible, commercialrecord keeping systems may be used.

Several reliable computer accounting programsare available that can be adapted to meet theneeds of a craft cooperative.

At least once a year, an independent auditor should audit the cooperative’s records. A

financial statement that meets the needs of theboard and tax purposes will then be prepared.

Additional information on keeping cooperativerecords can be obtained from RBS.

Taxes—Craft cooperatives are subject to the

same taxes as any that other. Income tax is paidon that part of net margins paid out as dividendson stock. Income tax is not paid on that part ofnet margins allocated to patrons, provided that

patrons have given prior consent to treat theallocation as income on their tax returns. 

The Internal Revenue Service has information regarding the applicable codes and filing

regulations. Property taxes, Social Security,unemployment taxes, and necessary license feesmust be paid by cooperatives. State sales taxesmust be collected and paid quarterly, or morefrequently depending on the State law.

General Rules for Success

Just as there is no guarantee for success in

any small business, there is no guarantee for thesuccess of a craft cooperative. Observing severalbasic rules, however, can help assure success.Study Applicable Laws—Most States have one

or more laws that apply to the formation ofnonagricultural cooperatives. Copies of theselaws can be obtained from an attorney or theproper State official. Internal Revenue Serviceregulations as well as State and local tax,licensing, and zoning laws must be reviewed. Inaddition, some craft products come underregulations that might affect the operation of thecooperative. For example, some States have
13

rements for bedding,

ects of establishing

 that those forming it

gal and accounting

e early in the

e the risk of

pone securing expert

use it effectively.

ns—A cooperative is

lties arise if the

sual basis. Standard

edures should be

 benefits may be

 operation of a

ceed as a business.

racts, and

—Cooperatives

financial and

veral sources. Verbal

ndings become

d program changes.

everything in

es of organizational

 between the members

e initiated to help

ng an orderly mar

eliminates those pro

 use the cooperative

buyers but carelittle

ive’s marketing

ecifies in legal form

rom their associa

nitiated by the board,

with assistance from legal counsel, before thecooperative initiates a marketing program. Asample marketing contract is contained inAppendix D.

Realistic Evaluations, Projections—Craft

production can offer people either a primary orsecondary source of income and have asignificant role in enhancing the position ofcraftspeople. But, it cannot be all things to allpeople or completely provide for all the needs ofcraftspeople. Recognize the limitations andavoid promises of services or benefits thatcannot be met realistically.To avoid problems,

producers should be careful to organize acooperative with others who have similareconomic needs and goals.

High Quality Standards—The image of the

cooperative as a source of quality craft productsand as a sound, reliable business is critical to itssuccess. Most craft cooperatives requireproducers to pass the cooperative’s quality

standards before they can become a member.Whatever membership requirements acooperative enacts, it should avoid conflict withstatutory requirements or public policy. Forexample, a cooperative should not discriminateon the grounds of race, color, sex, or nationalorigin.

Sources of Assistance

Craft cooperatives have been started with

assistance from a wide variety of sources. Nosingle source can provide everything needed.

Much work must be done by those who will usethe cooperative. Here is a list of some of the programs or agencies that might provide assistance.Federal Agencies—Some Federal Governmentprograms offer assistance to developing craftcooperatives and other small businesses. Alisting of Federal and State organizations iscontained in the International Directory ofResources for Artisans which is available from:

The Crafts Center1001 Connecticut Avenue NW, Suite 525

W ashington, DC 20036email:craftsdc@erols.comThe Crafts Center, a nonprofit membership

organization serving the interests and needs oflow-income artisans, provides technical assistance and information to help artisans. A comprehensive listing and description of Federalprograms in the arts and humanities is containedin the Catalog of Domestic Federal Assistance,available at most local Federal offices andlibraries. Here are some principle ones you maybe working with.

Rural Business-Cooperative Service(RBS)—The U.S. Department of Agriculture’s

RBS devotes its total effort to preserving andimproving the mainstays of Americanagriculture-the family farm and ruralcommunity.Itsdirectrole is in providing

knowledge to improve the effectiveness andperformance of the cooperative business throughresearch, technical assistance, and education.Research is conducted to acquire and maintainthe base of information necessary for RBS to give
istance

 Studies of

ntrate on such

ural, managerial,

and economic

vided in response

may come from a

nting to organize

d of an estab

nd education is

 operating effi

responsibilities.

the economic fea

ing new products

n on the merits

rming new ones.

 decision- making

 enterprise. For

lture

e Service

 SW, Stop 3250

50

da.gov

ative Service has

 and information.

 by the

926 to promote

rinciples and

romoting such

nd marketing

ns, and others.

ures that the

 continue serving

itsproducers. This practice recognizes that even

member-owners can’t support their cooperative

if they don’t understand it. A continuous education program is needed because of: (1) aturnover in membership, and (2) the need toupdate technical skills in order to operate an efficient business with competent employees, directors, and management.

Cooperative State, Research, Education andExtension Service (CSREES)—In cooperation

with land-grant universities and the StateCooperative Extension Service, the USDA’s

CSREES conducts a variety of educational andtechnical assistance activities in crafts. Theprograms vary from one State to another.Contact the local Extension Office listed in thetelephone directory, the CSREES director at aState land-grant college or university,or:

Cooperative State Research,

Education and Extension ServiceU.S. Department of Agriculture1400 Independence Avenue, SWW ashington, DC 20250-0900email: www.reeusda.gov

National Endowment for the Arts (NEA)—The NEA, primarily through Folk andTraditional Arts Programs, makes grants tocraftspeople and organizations. Detailedinformation about programs, applicationprocedures, and deadlines is available from:

DirectorFolk and Traditional ArtsNational Endowment for the Arts1100 Pennsylvania Avenue, NW, Suite 720

W ashington, DC 20004email: www.arts.endow.gov

Bureau of the Census—Information that can

be helpful in selecting a store site is availablefrom the bureau. The Census of Retail Tradecontains such data as the number of gift shopsby State, their sales, and the number of paidemployees. The Census on Population andHousing describes a population or potentialcustomers by their age, sex, income, education,occupation, etc. The 12 regional data-user servicecenters sponsor frequent workshops on how tointerpret this data. For more information, contactyour local library or write:

U.S. Department of CommerceBureau of the CensusCustomer ServiceW ashington, DC 20233email: www.census.gov

Indian Arts and Crafts Board—This boardis

responsible for several programs that provide

technical assistance and educational material onNative American crafts. For information, contact:

U. S. Department of the InteriorIndian Arts and Crafts BoardGeneral Manager1849 C Street, NW, Stop 4004

W ashington, DC 20240

Small Business Administration (SBA)—SBA

provides financial, technical and managementassistance to help Americans start, run, andgrow their business. Management counseling isprovided by business executives and
15

rtisans, Inc., Camden, NC., sells its crafts

ribbons point to countries that have pur

ark. The items on the tables are samples of

.
ervice Corps of

 counseling that

rnment and

 through the

nter.Pre

ometimes held for

 SBA district

SBA publishes the

t of publications

 and manage a

s include

ment planning,

ion. For more

ct SBA office or

tion

any of the

ier have

fices. In addition,

ed:

merce, industrial

 development.

issions.

development

ncies.

 and 

ations, including:

American Craft Council21 S. Eltings Corner RoadHighland, NY 10019(800) 836-3470Aid to Artisans, Inc.14 Brick Walk LaneFarmington, CT 06032Volunteer Lawyers for the Arts1 E. 53rd St., Sixth FloorNew York, NY 10019American Indian Arts and Crafts Association122 La Veta N.E., Suite BAlbuquerque, NM 87108Artists Equity Association501 7th Street, NWW ashington, DC 20004National Cooperative Business Association1401 New York Avenue, NW,Suite 1100W ashington, DC 20005

● Other books and magazines of interest

include:

The Crafts Report MagazinePhotographing your CraftsThe Law in Plain English 

for Craftspeople

Business Forms and Contracts 

for Craftspeople

To order write:The Crafts ReportP. O. Box 1992W ilmington, DE 19899-1992(800) 777-7098email:www.craftsreport.com

Other Books:

The Business of Crafts: The Complete

Directory of Resources for Artisans, by TheCrafts Center Crafts Market Place: Where andHow to Sell Your Crafts, by Argie Manolis(Editor) Handmade for Profit: Hundreds ofSecrets to Success in Selling, by Barbara BrabecAvailable from USDA/RBS:

How to Start a Cooperative, CIR 7;Tax Treatment of Cooperatives, CIR 23;Sample Policies for Cooperatives, CIR 39;Sample Legal Documents for 

Cooperatives, CIR 40;

Cooperatives 101: An Introduction to 

Cooperatives, CIR 55;

Understanding Cooperative Bookkeeping 

and Financial Statements, CIR 57; and

Directory of U.S. Arts and Crafts 

Cooperatives, SR 40.

To order writeUSDA/Rural Business-Cooperative ServiceCooperative Development Division1400 Independence Avenue, SW, Stop 3254

W ashington, DC 20250-3254email: www.coopinfo@usda.gov
17

in Creek, WV, specializes in coordinated

ngings.

allery in Stonington, ME, is owned and oper

rtists.

ew of the gallery owned by members of a

 Mendocino, Inc. The cooperative is at a

oto by Tom Liden.

19

rquoise nugget in

y Hopi Arts and

tive Guild of Second

epartment of

afts Board.

 United States, some

 sold their textiles 

hrough cooperatives.
Date 

_____________________

Dear Craft Producer:

Several craft producers in _____________________ County(ies) are considering the

organization of a craft cooperative to market craft products and/or purchase supplies in

bulk. It is our hope that by working together we can receive a better price for our productor save money on our supplies. There may also be other activities we can do together.

Before we start, it is important to decide if enough interest exists for the

cooperative to be successful. Weare asking craft producers like you to tell us if they are

interested in the idea of a craft cooperative and, if so, how much business they might dowith the cooperative.

Please fill out the form and return it to the address on the bottom. Filling out a

questionnaire does not mean that you must join the cooperative or that the cooperativewill be organized. It is only to help us decide if enough people are interested.

W e appreciate your taking time to fill out the questionnaire and returning it to us.Sincerely,

J. DoeChairman of Steering Committee

Survey Form

Address: J. DoeCraft Cooperative Survey Committee

That TownThis State 00000

rvey

ire is an exam

o gather basic

need for a craft

to fit the partic

 preceding the

it, you should

he purpose of

 information will

 by the potential

stionnaire

tee. If the infor

 interview,the

d.
21

_________________________________________

Date 

__________

_______________________________________________________________

box number) 

____________________________________________________________

___________________________________________________________________

__________________________ Night _____________________________

me do you spend per week making your craft items? _______ hours/week

 formed, would you be willing to expand your production?

❏ Uncertain

eed additional help to produce your crafts?

❏ Uncertain

o you produce?

____________________________________________________________________

you work with?

❏ Natural Items❏ Clay❏ Gold or Silver❏ Fabric❏ Other (specify)

 you spend on material last year? $ 

rested in purchasing part of your supplies through a cooperative?

ies would you be interested in purchasing?

____________________________________________________________________________________________________________________________________________________
11. Did you sell any craft work during the past year? ❏ Yes ❏ No

If yes: About how many dollars’ worth did you sell?Retail $_______________ Wholesale $_______________About what part? ❏ All ❏ Half ___Percent

12. Where do you sell your crafts? (Check all that apply)

❏ Fair/Show ❏ Show/shop ❏ Wholesale ❏ Other

13. What was the price range of the three most important items you produced?

Item Price range

______________________ $ _________ to $ ______________________________ $ _________ to $ ______________________________ $ _________ to $ ________

14. How did you learn to produce your craft?

❏ Taught myself ❏ High school or Vocational & Technical school❏ Taught by member of family ❏ College or university❏ W orkshop or training session

15. W ould you like additional training? ❏ Yes ❏ No

If yes: What type of training?

❏ New techniques/design ❏ Marketing/business❏ Production ❏ Other (specify)

16. Are you willing to sign a marketing agreement committing yourself to sell crafts through the

cooperative? ❏ Yes ❏ No

17. Banks generally require respective members to make initial investments of 20-50 percent

initial capital needed to purchase/build facilities and finance operations. Are you willing tomake an initial investment in the cooperative in proportion to your projected use? 

❏ Yes ❏ No

18. Per-unit retains are a method of supplying continuing equity capital to the cooperative.

They are deducted from patrons’ sales proceeds in proportion to the volume of productsthey market through the cooperative. Are you willing to finance the cooperative with perunit retains? ❏ Yes ❏ No
23

Table 1—Operating expenses ratios for a hypothetical gift story with $150,000 annualsales, $40.000 net worth, and 2,000 square feet

Percent Dollars

Sales: 100.00 150,00Cost of salesMerchandise 49.0 73,500Freight 4.0 6,000

_________

Total 53.0 79,500Gross margin = A 47.0 70,500

Expenses:Owner or manager wages 12.0 18,000Payroll 8.0 12,000Rent 4.0 6,000Advertising 3.0 4,500Supplies 2.1 3,158Depreciation 1.5 2,250Utilities 1.5 2,250

Taxes-payroll 1.3 1,950Taxes-other 1.1 1,650Repairs and maintenance 1.1 1,650Interest 1.0 1,500Auto expense 1.0 1,500Travel and entertainment 1.0 1,500Insurance 0.9 1,350Professional fees 0.8 1,200Collection expense 0.7 1,015Telephone 0.5 750Miscellaneous 1.3 1,950

_________ _________

Total = B 42.8 64,200Net margin or (loss) before taxes: A – B = 4.2 6,300

Compiled by Paul Ungrodt, Jr., President of Ideation, Inc., Ann Arbor, Michigan.
is presented to

at should be

 changed to

ngements of your

t be consistent

on and require

s.

ylaws can be

on Report 40,

operatives,

rvice, USDA.

_______________

________________

 corporation is

xercise areset

tion of the corpo

grees to be a

 a marketing

 purchases one

ts other condi

he board of direc

he association.

excluded fro m

 the cooperative

ional origin.

All applications for membership must be

approved by the board of directors. Memberstatus is effective as of the time the boardapproves the application for membership.

Note: In non-stock cooperatives, this section should include a discussion of membership

fees. The amount of the membership fees shouldbe set by a majority vote of the board of directorsand set forth in the minutes as to the amount.

Section 2. Suspension or TerminationIn the event the board of directors of the

association shall find, following a hearing, thatany of the common stock of this association hascome into the hands of any person who is noteligible for membership, or that the holderthereof has ceased to be an eligible member,or

that such holder has not marketed through theassociation the products covered by a marketingagreement with the association, or not otherwisepatronized the association for a period of ( )years, or otherwise violated the articles of incorporation, bylaws, or other agreements madewith the association, the association may suspend such holder’s rights as a member and terminate the membership.

When a membership is terminated, the

association shall repurchase the member’s shareof common stock for par value. The holder shallreturn to the association the certificate evidencing the holder’s share of stock. If such holderfails to deliver the certificate, the associationmay cancel such certificate on its books andrecords, and the certificate is then null and void.

A suspended or terminated member shall

have no rights or privileges on account of anystock held, nor vote or voice in the management

or affairs of the association other than the rightto participate in accordance with law in case ofdissolution.Article III. Meetings of Members

Section 1. Annual MeetingThe annual meeting of the members of this

association shall be held in the city of___________________, during the month of_______________________ of each year, at suchtime and in such place as the board of directorsshall designate, or on any date the board shalldesignate at least thirty (30) days in advance ofthe date specified above.

Section 2. Special MeetingsSpecial meetings of the members of the

association may be called at any time by order ofthe board and shall be called on written requestof at least _________members, or at least__________percent ( %) of the membership,whichever is a greater number. (Check with Statestatues for percentage.)

Section 3. Notice of MeetingsW ritten or printed notice of every regular

and special meeting of members shall be prepared and mailed to the last known post officeaddress of each member not less than ( ) daysbefore such meeting. Such notice shall state theobject or objects thereof and the time and placeof meeting. No business shall be transacted atany special meeting other than that referred to inthe notice.

Section 4. VotingUnless otherwise stated in the articles of

incorporation, or these bylaws, or required by
25

ns shall be decided by

 members voting

ntitled to only one

esent to vote. Voting

ed. Proxy voting

y shall be in writing,

more than one proxy.

rmitted.

d by a partnership,

ntity, the member

he person who shall

er. That designation

written notice of a

 in the designated

e association.

pecial membership

) members or per

hip, whichever is a

 State Statue for per

ness

 at the annual meeting

by proof of due notice

rticles of incorpora

and/or adopting the

.

al of minutes.

he board and com

.

.

8. Election of directors to fill expiring

terms.

9. Adjournment.

Article IV. Directors and Officers

Section 1. Number and Qualifications of

Directors 

The association shall have a board of directors of ( ) members of the cooperative. Each

director elected shall be a member of this association in good standing.

No person shall be eligible to be a director

if that person is in competition with, or is affiliated with any enterprise that is in competitionwith, the association. If a majority of the board ofdirectors of the association finds at any time following a hearing that any director is so engagedor affiliated, that person shall thereupon cease tobe a director.

No director after having served for ( )

consecutive full term(s) shall be eligible to succeed him or herself, but after a lapse of ( )year(s) shall again be eligible.

Section 2. Election of DirectorsAt the first annual meeting of the members

of this association, directors shall be elected tosucceed the incorporating directors.( )director(s) shall be elected for one (1) year; ( ) directors for two (2) years; and ( ) directors for

three (3) years. At each annual meeting thereafter, new directors shall be elected for a term ofthree (3) years each to succeed those directorswhose terms are expiring.

All directors shall be elected by secret

ballot, and the nominee(s) receiving the greatestnumber of votes shall be elected.

Section 3. Election of OfficersThe board of directors shall meet within

seven (7) days after the first election, and withinseven (7) days after each annual election, andshall elect by ballot a president, vice president,secretary, and treasurer, each of whom shall hold

office until the election and qualification of asuccessor, unless earlier removed by death, resignation, or for cause.

The president and vice president shall be

members of the board of directors. The secretaryand treasurer need not be directors or membersof the association.

Section 4. VacanciesWhenever a vacancy occurs in the board of

directors, other than from the expiration of aterm of office, the remaining directors shallappoint a member to fill the vacancy until thenext regular meeting of the members. If the termof the vacating director does not expire at thatregular member meeting, a special election shallbe held to select a director to fill the year oryears remaining in that term.

If one or moreofficer positions become

vacant, such offices shall be filled by the board ofdirectors, through election by ballot, at either aregular or special meeting of the board.

Section 5. Regular Board MeetingsIn addition to the meetings mentioned

above, regular meetings of the board of directorsshall be held monthly, or at such other times and

at such places as the board may determine.

Section 6. Special Board MeetingsA special meeting of the board of directors

shall be held whenever called by the president orby a majority of the directors. Only the business
hall be transacted

or a special meet

 signed by the

eting, shall be

secretary, and

f such meeting.

eetings

each meeting of

given each direc

of, the secretary

 )hours prior

h notice may be

d their appearance

aiver of notice.

 directors shall

ing of the board.

nd Compensation

urse directors

rred in carrying

ties.

 of the members

be determined by

at any annual or

on.

f directors, or

y of any board

ion in the associ

ctors

ll fail to meet the

ction 1 of this

3) consecutive

r special, with

 notice of such

meetings has been given in accordance withthese bylaws, then it shall be the duty of theboard to remove said director and to fill thevacancy in accordance with Section 4 of thisArticle.

Members, through petition noting the

charges and signed by at least ( ) or ( )percen ( %) of the membership, whichever

is a greater number, may request the removal of

any member of the board. Such director shall benotified in writing of the charges and given anopportunity to be heard at a membership meeting of the association. Removal of a director shallrequire a vote of ( ) % of members voting.Any vacancy resulting from such action shall befilled by nomination and vote of members atsuch meeting.

Article V. Duties of the Board of Directors

Section 1. Management of BusinessThe board of directors shall have general

supervision and control of the business and theaffairs of the association and shall make all rulesand regulations not inconsistent with law,thearticles of incorporation, or bylaws for the management of the business and the guidance of themembers, officers, employees, and agents of theassociation.

Section 2. Employment of ManagerThe board of directors shall have power to

employ, define duties, fix compensation, and dismiss a manager with or without cause at anytime. The board shall authorize the employmentof such other employees, agents, and counsel asit,from time to time, deems necessary or advisable in the interest of the association. The manager shall have charge of the business of the association under the direction of the board of directors. Section 3. Bonds and Insurance The board of directors shall require the manager and all other officers, agents, and employees charged by the association with responsibility for the custody of any of its funds or negotiable instruments to give adequate bonds. Such bonds, unless cash security is given, shall be furnished by a responsible bonding company and approved by the board of direc- tors, and the cost thereof shall be paid by the association. The board of directors shall provide for the adequate insurance of the property of the associ- ation, or property that may be in the possession of the association, or stored by it, and not other- wise adequately insured, and, in addition, ade- quate insurance covering liability for accidents to all employees and the public. Section 4. Accounting System and Audit The board of directors shall have installed an accounting system which shall be adequate to meet the requirements of the business, and shall require proper records to be kept of all business transactions. At least once in each year, the board of directors shall secure the services of a competent and disinterested public auditor or accountant, who shall make a careful audit of the books and accounts of the association and render a report in writing thereon, which report shall be submit- ted to the directors and the manager of the asso- ciation and made available to the members of

the association.
27

de at least a balance

s and liabilities of

ating statement for

ew.

 shall select one or

tories of the funds of

ne the manner of

disbursing the funds

orm of checks and the

they shall be signed,

uch banks and the

uch checks and the

s may, at its discretion,

rship an executive

s and determine their

owers and duties. The

gate to the executive

portion of the func

rd, subject to the

 and control of the

s of any meeting of

l be mailed to all

days following such

s may, at its discretion,

s it deems appropri

icers

sident

 preside over all

 and of the board of

eetings of the board of

l acts and duties

usually performed by a presiding officer. The

president shall also appoint such committees asthe board of directors may deem advisable forthe proper conduct of the association, except theStandards/Pricing and Nominating Committees.These latter committees shall be elected by theboard.

Section 2. Duties of Vice President

The vice president shall act as chairperson

of the Standards/Pricing Committee. In theabsence or disability of the president, the vicepresident shall perform the duties of the president, provided, however, that in case of death,

resignation, or disability of the president, theboard of directors may declare the office vacantand elect any eligible person president.

Section 3. Duties of SecretaryThe secretary shall keep a complete record

of all the meetings of the association and of theboard of directors and shall have general chargeand supervision of the books and records of theassociation, other than financial. The secretaryshall sign papers pertaining to the association asauthorized or directed by the board of directors.The secretary shall serve all notices required bylaw and by these bylaws and shall make a fullreport of all matters and business pertaining tothe office and present this report to the members

at the annual meeting. The secretary shall keepthe corporate seal and all books of blank certificates, complete and countersign all certificatesissued, and affix the corporate seal to all papersrequiring a seal; shall keep a complete membership list; shall keep complete stock ownershiprecords; shall act as secretary to the ExecutiveCommittee; shall make all reports required by

law; and shall perform other such duties as may

be required by the cooperative or the board ofdirectors. Upon the election of a successor,the

secretary shall turn over all books and otherproperty belonging to the association.

Section 4. Duties of TreasurerThe treasurer shall be responsible for the

keeping and disbursing of all monies of the association and shall keep accurate books of accountsof all transactions of the association. The treasurer shall perform such duties with respect tothe finances of the association as may be prescribed by the board of directors. At the expiration of his/her term of office, the treasurer shall

promptly turn over to his/her successor allmonies, property, books, records, and documents

pertaining to his/her office or belonging to theassociation.

Section 5. Duties and Powers of the ExecutiveCommitteeThe Executive Committee shall be authorized to act in place of the board between board

meetings, with its actions subject to review by

the board. The executive committee shall meet asfrequently as the efficient operation of the association requires, or upon call by the president

and/or manager.

Article VII. Operation at Cost andMembers’ Capital

Section 1. Operation at CostThe association shall at all times be operated on a cooperative service-at-cost basis for the

mutual benefit of its member patrons.

Section 2. Margin AllocationIn order to induce patronage and to assure

that this association will operate on a service-atcost basis in all its transactions with its members,
account on a

atrons on an

eived from busi

n a patronage

f providing such

 additions to

e on the basis of

product mar

ed from) the

obligated to pay

 in cash or by

 each member

 of any amount

f a patron shall

without the con

hall have been

ciation.

to provide capital

by the board of

lue of product

on. Such per-unit

e member’s capital

 on any capital

umentation

the association

 a manner that, at

amount of capital,

if any, so furnished by each member is clearlyreflected and credited in an appropriate record

to the capital account of each member.

The association shall, within eight and onehalf (8-1/2) months after the close of each fiscal

year, notify each member of the capital so credited to the member’s account. The notice shall bein the form of a written notice of allocation orper-unit retain certificate (as those terms areused in Subchapter T of the Internal RevenueCode) or other appropriate written document.The board shall have discretion to issue suchnotices and certificates in either “qualified” or“non-qualified” form as permitted by the

Internal Revenue Code and other applicable law.

Section 7. Fiscal Year

The fiscal year of this association shall commence on the first day of (month) and end on the

last day of (preceding month).ARTICLE VIII. Equity Redemption

Section 1. Regular Redemption, RevolvingFundIf, at any time, the board shall determine

that the financial condition of the associationwill not be impaired thereby, capital credited to

members’ accounts may be redeemed in full orin part. Any such redemption of capital shall bemade in order of priority according to the year inwhich the capital was furnished and credited,the capital first received by the association beingfirstredeemed.

Section 2. Discretionary Special RedemptionNotwithstanding any other provision of

these bylaws, the board, at its absolute discretion, shall have the power to retire any capital

credited to members’ accounts on such terms

and conditions as may be agreed upon by the

parties in any instance in which the interests of

the association and its members are deemed to

be furthered thereby and funds are determined

by the board to be available for such purposes.

ARTICLE IX. Consent

Each person who hereafter applies for and

is accepted to membership in this association,and each member of this association on the effective date of this bylaw who continues as amember after such date, shall, by such act alone,consent that the amount of any distributionswith respect to his/her patronage occurring afterthe effective date of this bylaw, which are made

in qualified written notices of allocation or qualified per-unit retain certificates (as defined in 26U.S.C. 1388), and which arereceived by him/her

from the association, will be taken into accountby him/her at their stated dollar amounts in themanner provided in 26 U.S.C. 1385(a) in the taxable year in which such written notices of allocation and per-unit retain certificates arereceived

by him/her.

W ritten notification of the adoption of this

Article, a statement of its significance, and acopy of the provision shall be given separately toeach member and prospective member beforemembership in the association.

ARTICLE X. Nonmember Business

This association may conduct business with

nonmembers on either a patronage or nonpatronage basis. However, this association shallnot market the products of nonmembers in anamount the value of which exceeds the value ofthe products marketed for members. It shall notpurchase supplies and equipment for nonmem-
29

 of which exceeds

and equipment pur

nage Income

ome of the associa

ts derived from all

 not qualify as

expenses properly

on of such nonpa

nd all income taxes

 the association.

be used in behalf of

bers in accordance

including assign

rve account and allo

to members, as may be

 directors.

ses

ation suffers a loss

s conducted with or

be apportioned

he year of loss so that

 practicable, be borne

ear on an equitable

full authority to pre

pital furnished by

such loss otherwise

g the patrons. In the

 one or more depart

eration of this associ

 cause an overall loss

 or losses may be pro

maining profitable

their respective per

during such fiscal

Section 2. Nonpatronage LossesIf, in any fiscal year, the association incurs a

loss other than on patronage operations, suchloss may be charged against any reserve accumulated from nonpatronage earnings in prioryears.

Section 3. General ProvisionsThe board of directors shall have no

authority to make assessments against members.This section shall not be construed to deprive theassociation of the right to carry backward or forward losses from any source whatsoever inaccordance with the Internal Revenue Code orState taxing statutes.

ARTICLE XIII. Dissolution and PropertyInterest of Members

Upon dissolution, after all debts and liabilities of the association shall have been paid, all

shares of preferred stock and common stockredeemed, and all capital furnished throughpatronage shall have been retired without priority on a pro rata basis, the remaining propertyand assets of the association shall be distributedamong the members and former members in theproportion which the aggregate patronage of

each member bears to the total patronage of allsuch members insofar as practicable, unless otherwise provided by law.

ARTICLE XIV. Indemnification

The association shall indemnify its officers,

directors, employees, and agents to the fullestextent possible under the provisions of the(applicable State law), as it may be amendedfrom time to time.

The association may purchase liability insurancecoverage for any person serving as an officer,

director, employee, or agent to the extent permitted by applicable State law.ARTICLE XV. Amendment

If notice of the character of the amendment

proposed has been given in the notice of meeting, these bylaws may be altered or amended atany regular or special meeting of the membersby the affirmative vote of ( ) of the memberspresent or voting by proxy.
ent

ng agreements,

Report 40,

operatives,

usiness

I hereby agree to deliver to (Nameofcraftcooperative) the following items, to be marketed wholesale and/or retail at the discretion of the management:

Quantity Item Price

by (date), unless terminated in writing by either party within thirty (30) days of specifieddate. The association agrees to market said crafts in the manner described herein.As a member producer of (nameofcooperative) I agree to:1. Be bound by the cooperative’s articles of incorporation, bylaws, rules and regulations now

or hereafter adopted.

2. Agree to offer all of my approved products to the cooperative first, before offering them to

any other market.

3. Abide by the association’s price structure that in the event I produce more items (or a

volume of items) than the association can sell, I can sell to another market at a price no lessthan the association’s price. If I sell to an individual, I must sell at retail price.

4. Appoint the association my agent to sell all the crafts contracted for which have been

approved by the Standards Committee. After approval, all products received by the association will be inspected for quality and workmanship; I will accept the return of unsatisfactory products.

5. Deliver such crafts at such time and to such places as may be prescribed by the association,

or its representative.

6. Notify the association of any lien on the products delivered.

7. Sell to the association only these products designed and contracted for by the association.

8. Pay the cooperative a penalty on any crafts not delivered as agreed in this contract. The

penalty would be equal to the gross margin lost to the cooperative by the undeliveredcrafts, plus any legal fees it incurs in the collection of the penalty.

9. Provide my patterns/designs, for approved craft products, to the association, and/or I will

assist in training other members to meet market needs.
31

o:

 as members when their products have been approved by the

rketing of products of the member producer as herein provided.

 crafts in a manner deemed to be most advantageous for its members.

r in accordance with this contract for all amounts received from the

__

______________________________________________

___________________________________

________________________________

 and box number

__________________________________________________

__

State _________ Zip _____________________ County _______________________

_________________________

______________

(Night)

_________________________

y of __________________ ,20_____

ve)

__________________________________________________

____________________ , Manager
er's 

 Duties 

 decision a coop

 is choosing a

ities and evaluat

directors set

y decisions set

esponsibility in

 coordinating,

he cooperative.

nction effectively,

r responsibili

 well as the

olicy.

job description,

e guidelines to

mance.

ship has dele

esponsibility for

ons. The board, in

y on day-to-day

lines. The board

 effective opera

margins, main

es assistance and

lops desired

e manager is

ctors.

he following spe

ned:

Planning1. Make policy recommendations to the

board in all areas of management.

2. Analyze the potential of and make recommendations on products or services the cooperative will provide.

3. Prepare operating and capital requirement budgets for boardreview and approval.4. Develop a staffing plan with job descriptions for each specific area of employment.Organizing Work1. Submit monthly and other special

reports as needed, provide general information

and recommendations to the board of directors,

assist the board in formulating policies, and provide all available facts and information useful inmaking board policy.

2. Implement staffing plan, including training and development, to achieve cooperative’s

operational goals.

3. Organize work schedules, staff assignments, product flow, marketing initiatives and

other procedures to achieve cooperatives operational goals.

4. Promote cooperative membership

through publicity and other means.

Directing Cooperative Business1. Carry out board policy.2. Carry out sales/production promotions

on all products as planned for in the budget.

3. Assign realistic sales goals, duties, and

responsibilities to each employee.

4. Direct and supervise all employees. 5.Train employees and develop employee

skills to improve their performance.

6. Hold employee meetings to give pertinent information, get employee advice, and

develop group interest and enthusiasm for various programs important to the cooperative.

7. Encourage member and employee selfdevelopment.8. Arrange for receipt of craft products

from members and payment to members asdescribed in policy and procedure manual

9. Provide for adequate maintenance for all

equipment and facilities.

10. Enforce facility regulations and develop

safe work habits for employees.

Coordination1. Coordinate all production, marketing,

inventory, shipping and other business functionsof the cooperative.

2. Coordinate board/manager communications, committee functions and membership

communications.

3. Carry on community relations activities.4. Develop to the utmost a sound working

relationship with other cooperatives and thebusiness community whenever feasible.

5. Personally and officiallyrepresent the

cooperative by participating in communityaffairs.

6. Develop the image of the cooperative as

an economic institution in the job community.

Fiscal Controls1. Make yearly budget projections for the

board of directors and submit data to directors

periodically. Submit monthly operating reports,

comparing them with the same periods fro mprior years and with the budget projections.

2. Maintain desirable gross margins,

expense ratios, and inventory controls.
33

ceivable and payable

ement procedures to

completing annual

o the board.

r periodic reports

ements.

rd to review/receive

erage annually.

 of Directors 

eral duties and

ut in the association’s

nsibilities are impor

anager, determine

nd authority.

 guiding the manager

 minutes. The poli

ms as credit to

f supply inventories,

ersonnel regulations,

thly financial

ments for board

to prepare, before the

 operating budget for

roval.

special meetings of

 of all contracts

has entered by

es, loan agreements,

7. Be sure that any projected expansion

program is definitely needed and that adequatefinancing is provided before giving final

approval.

8. Maintain an active interest in the amount

and condition of inventories and make inspections as conditions warrant.

9. Employ a qualified auditor to make an

independent audit at least once each fiscal yearand report directly to the board.

10. The secretary should make the minutes

of the board of directors’ meetings available to

the auditor for actions that might affect the auditor’sreport.

11. Review at least once each fiscal year the

amount of insurance of various kinds carried bythe cooperative and determine if coverage is sufficient. Fidelity bonds on employees should alsobe checked.

12. Continue to give your cooperative close

attention even when it seems to be functioningsuccessfully under able management.

13. Develop good patron and public relations as a joint undertaking with management.14. Plan with the manager to conduct

annual meetings and provide the membershipwith reports based on the annual audit.

15. Be alert to every opportunity to

improve knowledge and understanding of cooperative business procedures.

16. Abide by and support all decisions

reached by a majority vote of the board.

17. The board should not delegate any of

the responsibilities clearly belonging to it.

18. Remember that boards of directors

make policy decisions and should not assumeresponsibilities clearly in the field of management.

19. A credit policy established by directors

for members should be observed in everyrespect by directors themselves when makingpurchases.

20. Individual board members should not

act independently on matters that should bedecided by the entire board.

21. A director continuously failing to use

the services of the cooperative should be disqualified from board membership.Rules for Board MembersWhen elected, directors should:

1. Attend and participate in board meetings.2. Be attentive.3. Be prompt.4. Notify someone they will be absent if

unable to attend a meeting.

5. Help the chairperson stay with the

agenda.

6. Not ask for or expect special favors fro m

the cooperative.

7. Not use their position for personal gain.8. Be loyal and support the cooperative.9. Be fully informed and knowledgeable

about the cooperative’s operation. The cooperative must be defended from attacks of people

who don’t understand how cooperatives are

organized and how they work.

10. Remember that their job is to direct the

cooperative’s business. They establish policy,

they don’t manage. The most common errormade by directors is to infringe on management’s prerogatives.

11. Set policy and see that management follows it. Such important functions as keeping

bylaws and articles of incorporation current,
etting credit

operative has an

ified Public

oard functions.

s paid up.

s adequately paid.

nominated for a

 “lukewarm”

y 11 p.m.

” This can be

me and staying

ent Decisions 

ecisions leave off

s begin contin

tive board mem

nes can be used to

uld be made by

ment. The list

e important deci

 to members is

, who may subse

to officers,

neral manager,in

d and initiates

 authority

s concerned pri

le management is 

 decisions.

ctives, policies,

s of the board.

4. Decisions related to how and when

objectives, goals, and policies are to be attainedare the responsibility of management withinguidelines established by the board.

5. Decisions involving long-range commitment of resources, which include facilities,

finances, or manpower,

are the board’sresponsibility.

6. Decisions involving intermediate and

short-term commitment, organization, and control or resources are the responsibility of management.

7. Decisions related to assurance of capable

management succession by providing for executive depth and training are the board’sresponsibility.

8. Decisions specifying the ideal pattern of

board performance and for review of and perpetuation of this ideal through indoctrinationand training of directors are the board’sresponsibility.

9. Control over long-range financial commitments, financial structure, objectives, policies, 

public and member relations, and overall management performance are decisions of the board.

10. Control over operatives, subordinate

managers and employees, budgets, procurement, production, marketing plans, and industrial andemployee relations programs are decisions for

management.
35

U.S. Department of Agriculture

Agricultural Cooperative Service

W ashington, DC 20250-6576

usiness-Cooperative Service (RBS) provides research, management, and educa

assistance to cooperatives to strengthen the economic position of farmers and other

esidents. It works directly with cooperative leaders and Federal and State agencies

ove organization, leadership, and operation of cooperatives and to give guidance

her development.

perative segment of RBS (1) helps farmers and other rural residents develop coop

s to obtain supplies and services at lower cost and to get better prices for products

l; (2) advises rural residents on developing existing resources through cooperative

to enhance rural living; (3) helps cooperatives improve services and operating effi

 (4) informs members, directors, employees, and the public on how cooperatives

nd benefit their members and their communities; and (5) encourages international

tive programs. RBS also publishes researches and educational materials and issues

Cooperatives magazine.

S. Department of Agriculture (USDA) prohibits discrimination in all its programs

ivities on the basis of race, color, national origin, sex, religion, age, disability,

al beliefs, sexual orientation or marital or family status. (Not all prohibited bases

o all programs.) Persons with disabilities who require alternative means for com

ion of program information (Braille, large print, audiotape, etc.) should contact

 TARGET Center at 202-720-2600 (voice and TDD).

 a complaint of discrimination, write: USDA, Director, Office of Civil Rights, Room

 Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-

r call 202-720-5964 (voice and TDD). USDA is an equal opportunity provider and

er.