How to Start a 

Cooperative

USDA Rural Development: Organizing a Cooperative 1
Contents: How to Start a Cooperative

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• Why Start a Cooperative?

• Rule of Thumb Timeline

• Steps (from How to Start a Cooperative report)*

• General Rules for Success

• Potential Pitfalls

• Summary

• More Information 

*Cooperative Information Report 7, How to Start a Cooperative, USDA: http://www.rurdev.usda.gov/rbs/pub/cir7/cir7.pdf

USDA Rural Development: Organizing a Cooperative
Why Start a Cooperative?

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• A compelling need and a few community 

leaders can spark the idea of forming a 

cooperative.

• Usually, these leaders have an economic need 

or desire a service they believe a cooperative 

can provide. 

• They also know others who have similar 

interests.

USDA Rural Development: Organizing a Cooperative
General Rule of Thumb Timeline

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3 Months 2 Years

USDA Rural Development: Organizing a Cooperative

First meeting of cooperative idea Cooperative opens doors

...up to...
Starting a Cooperative – Phases 

• Phase I: Identify Economic Need

 Steps 1 & 2

• Phase II: Deliberate

 Steps 3 - 5

• Phase III: Implement

 Steps 6 - 7

• Phase IV: Execute

 Steps 8-12

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The 12 steps described in this presentation are from How to Start a 

Cooperative, CIR 7. In practice the sequence of steps often vary depending 

on the type of cooperative development project and wish of organizers.

USDA Rural Development: Organizing a Cooperative
Phase I: Identify Economic Need

Step 1: Leaders meet to discuss issues and 

determine the economic need the 

cooperative might meet. 

Development practitioners/advisors from outside the 

group should be contacted to help with the project if the 

leaders decide to continue.

USDA Rural Development: Organizing a Cooperative 6
Use of Outside Advisors

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• Outside advisors can greatly aid a group throughout the 

development process.

• Cooperative specialists or practitioners, consultants, 

technical advisors/industry analysts can help facilitate the 

process, help with market analysis, technical aspects 

(facilities, equipment), conduct feasibility studies, 

develop business plans, etc.

• Financial counsel can help with capital needs assessment 

and accumulation of capital.

• Legal counsel can assist with drawing up the legal 

documents and filing incorporation papers with State.

USDA Rural Development: Organizing a Cooperative
Phase I: Identify Economic Need

Step 2: Invite potential member- users to a meeting to decide if 

interest is sufficient to support a 

cooperative.

• A steering committee should be 

selected if group votes or decides 

to continue the process.*

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*Decisions whether to proceed with the development project will be made often 

throughout the process and various steps taken (this is further explained in the 

How to Start a Cooperative report). If the group decides NOT to proceed during any step, 

the process ends.

USDA Rural Development: Organizing a Cooperative
Phase II: Deliberate

Step 3: Survey potential members. Conduct a 

member-use analysis and initial market analysis.

Collects information on prospective members’ needs, anticipated business 

volume, location and business or service characteristics of prospective 

members, opinions of prospective members, variety of products or services 

needed, etc.

Present results to potential members; vote on whether to proceed.

(Use of an outside advisor is especially useful in this step)

USDA Rural Development: Organizing a Cooperative 9
Phase II: Deliberate

Step 4: Conduct a Feasibility Study.

A feasibility study is an important analytical tool to show how a business will 

operate within the proposed cooperative’s industry. 

Based on well-determined assumptions, researched information, and the 

member-use and market analysis. 

Key actions: - Decide who will conduct the study

- Develop sound and realistic project assumptions

- Determine components for a comprehensive study

- Assess the study

- Accept or reject the study - Vote on whether to proceed

USDA Rural Development: Organizing a Cooperative 10
Phase II: Deliberate

Step 5: Prepare a Business Plan.

Feasibility study acts as the foundation of 

this plan. The Business Plan provides a plan 

of action and specifics on how the 

cooperative business will operate.

Go over plan in detail, adjust, and finalize.

USDA Rural Development: Organizing a Cooperative 11
Phase III: Implement

Step 6: Employ Legal Council for Legal 

Papers.

Articles of incorporation state the purpose of the cooperative business and give 

distinct legal standing. Bylaws state how the cooperative will conduct business 

and are consistent with both State statutes and the articles of incorporation.

Other legal documents include the membership application, membership or 

stock certificate, marketing/purchasing agreements, revolving fund certificate, and meeting notices and waivers of notice.

Review all legal documents and the final business plan and decide whether to 

file articles of incorporation.

USDA Rural Development: Organizing a Cooperative 12
Phase III: Implement

Step 7: Hold First Meeting of the 

Cooperative.

The goal of this meeting is to approve the finalized 

bylaws, discuss the implementation of the business 

plan, and elect the first Board of Directors (members 

of the first board of directors are sometimes named in 

the articles of incorporation; if not, elect).

It is important to have a good turnout of members at 

this meeting.

USDA Rural Development: Organizing a Cooperative 13
Phase IV: Execute

Step 8: Convene First Meeting of Board of 

Directors.

New directors elect officers per the bylaws, appoint committees, and 

with a well-defined agenda, discuss other important action items.

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Board action items:

- Membership drive

- Membership application or stock subscription.

- Acquisition of capital

- Bank selection

- Initiate hiring of management (necessary qualifications)

- Authorize officers/employees to handle funds

- Provide for bookkeeping and accounting services

- Printing of articles, bylaws and member documents for distribution

- Choose a business location (if not already selected) and seek bids for equipment 

and facilities

USDA Rural Development: Organizing a Cooperative
Phase IV: Execute

Step 9: Hold a Membership Drive.

Necessary when the new cooperative needs 

more members than those who had shown 

commitment and taken part in early meetings.

Arrange informal meetings and communicate 

the vision and goals of the new cooperative and 

how it will benefit members. 

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While many members may already be committed, the cooperative may seek other 

potential members to ensure there is enough for a successful business.

USDA Rural Development: Organizing a Cooperative
Phase IV: Execute

Step 10: Acquire Capital.

The board of directors needs to arrange for adequate capital to 

finance the new cooperative’s start-up operations. 

Most often raised from members purchasing stock (equity) and 

borrowing funds (debt) from a lending institution. 

The projected cash-flow analysis and financial statements from the 

feasibility study & business plan clarify the capital needs.

Members need to have “skin in the game” (an equity investment) 

for the cooperative to prosper.

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Sources of capital for the new cooperative is often: membership stock shares, member and 

outside equity contributions, loans, grants, etc.

USDA Rural Development: Organizing a Cooperative
Phase IV: Execute

Step 11: Hire Manager.

This person will be responsible for the day-to-day 

operations of the cooperative. 

The manager will then execute the business plan. 

This person should have business accumen and 

experience and fully understand what a cooperative is 

and how they are governed and function.

USDA Rural Development: Organizing a Cooperative 17
Phase IV: Execute

Step 12: Acquire Equipment and 

Facilities, Open Doors.

The manager and board together determine 

what location, facilities and equipment are 

needed and then acquires (or rents) them. 

The business plan often provides the blueprint 

for this step so it serves as the guide.

USDA Rural Development: Organizing a Cooperative 18
General Rules for Success

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• Use advisors and committees effectively

• Maintain good board-manager relations

• Conduct businesslike meetings

• Follow sound business practices

• Forge links with other cooperatives and 

cooperative associations

USDA Rural Development: Organizing a Cooperative
Potential Pitfalls

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• Lack of clearly identified 

mission

• Inadequate planning

• Failure to use experienced 

advisors and consultants

• Lack of member leadership

• Lack of member 

commitment

• Lack of competent 

management

• Failure to identify and 

minimize risks

• Poor assumptions

• Lack of adequate financing

• Inadequate 

communications

USDA Rural Development: Organizing a Cooperative
Summary

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• Developing a cooperative organization is a complex process that will 

involve a number of steps. The precise sequence of steps will be 

dependent on the type and scope of the cooperative project. 

• Outside advisors often play an important role in many aspects of the 

process, but strong leadership from within the group of potential 

members is imperative throughout the entire process.

• Realistic assumptions and accurate information leading to realistic 

projections are critical in the decision-making stages. 

• There must be a critical mass of loyal members willing to make a personal, 

business, and financial commitment to the cooperative.

• All potential members, advisors, and partnering organizations involved in 

the development of the cooperative must have a thorough understanding 

of the unique principles and practices of a cooperative organization and 

support them.

USDA Rural Development: Organizing a Cooperative
More Information

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• How to Start a Cooperative (USDA Cooperative Information Report 7) 

• Creating Co-op Fever: A Rural Developer’s Guide to Forming Cooperatives 

(USDA Service Report 54)

• Vital Steps: Cooperative Feasibility Study Guide (USDA Service Report 58)

• Sample Legal Documents for Cooperatives (USDA Cooperative Information 

Report 40)

• Co-ops 101 (USDA Cooperative Information Report 55)

• Co-op Essentials: What They Are and the Role of Members, Directors, 

Managers, and Employees (USDA Cooperative Information Report 11)

• And other USDA cooperative publications and materials found at: 

http://www.rd.usda.gov/publications/publications-cooperatives

• USDA Cooperative Programs: http://www.rd.usda.gov/programs- services/cooperatives

• Cooperative Development Centers: 

http://www.rd.usda.gov/files/RD%20Cooperative%20Development%20Centers

%2020150121.pdf

• Madison Principles—professional standards for developers: 

http://www.cooperationworks.coop

USDA Rural Development: Organizing a Cooperative