Discussion topics should include:

u What information about the perceived 

need is readily available?

u Could a cooperative effort address this 

need?

u What information about cooperatives is 

available?

u Who can serve as an adviser to the 

group?

u Who should be invited to a meeting of 

potential users?

u How should potential users be contacted?

If a cooperative seems to offer a solution, a larger meeting of interested potential 

users may be planned.

Hold Initial Exploratory Meeting

A meeting of potential member-users 

should be called to decide if interest is sufficient to support a cooperative. The meeting date, time, and place should be publicized in advance. The leadership group 

should select a chairperson to conduct a 

meeting and develop an agenda. These 

items should be discussed:

u What is the need;

u Possible solutions;

u Cooperative principles and terms;

u Advantages and disadvantages of a 

cooperative;

u What financial and other commitments 

are expected of user-members;

u Cooperative organization and feasibility 

analysis process;

u Allow time for potential members to ask 

questions. If the group votes to continue 

with more detailed study, a steering committee should be selected.

If interested in forming a cooperative, learn 

all you can about the legal, economic, 

and financial aspects of a cooperative 

business. Careful planning increases the 

chances of success.

Why Groups Organize 

Cooperatives:

u To improve bargaining power;

u To reduce costs;

u To obtain products or services;

u To create new and expand existing market opportunities;

u To improve the quality of products or 

services;

u To increase income.

Steps in Organizing 

Determine the Economic Need

A cooperative is organized in response to a 

specific problem or opportunity. The idea is 

often initiated by a small group that meets 

to discuss the need. The meeting should 

focus on the economic need and the 

potential use of a cooperative as a solution. 

1

Understanding Cooperatives:

How to Start a Cooperative

Cooperative Information Report 45, Section 14

United States

Department of

Agriculture

Rural Development

Cooperative 

Programs

September 1995

Revised

April 2011

When Should a Cooperative be 

Organized? Cooperatives are formed 

in response to an economic need, 

such as providing marketing, processing, bargaining, manufacturing, 

and purchasing services not currently available, or available only at 

excessive cost. 

Stage 1

Is there an 

economic need?

p Yes - Proceed to 

Stage 2

p No - Stop cooperative development
Select a Steering Committee

Steering committee members should have 

both an interest in the cooperative and 

sound business judgment. They often become the cooperative’s incorporators and 

may serve as its first board of directors. 

The committee has a two–part job:

u Deciding the feasibility of the cooperative: Will the proposed cooperative succeed? Will it be valuable to members?

u Preparing a specific, detailed business 

plan for the proposed cooperative.

The committee should consult specialists in the areas of law, finance, and cooperative business operations. Two essential 

studies must be initiated: a member-use 

analysis and an initial market analysis.

Conduct a Member-Use Analysis and Initial Market Analysis.

The steering committee must take steps to 

learn all it can about the cooperative’s potential members and what the cooperative 

can do for them. The survey should explore 

four areas: 

u Members’ needs—The cooperative is 

formed and operated for the sole purpose 

of meeting members’ needs; 

u Anticipated business volume—The 

cooperative must have some assurance of 

sufficient volume to operate as a business 

and to plan for facilities and needed equipment;

u Location and business or service characteristics of prospective members—Where, 

how, and when the cooperative delivers its 

services is a prime consideration; 

u Opinions of members—How do potential members feel about cooperatives and 

participation in one? Member participation 

in decisionmaking activities and sense of 

cooperative spirit are important for success.

2

Prior to conducting the initial market 

analysis, the steering committee will first 

meet to review the member-use analysis. 

Potential members have been surveyed 

regarding their interest in jointing the proposed cooperative, anticipated business 

volume, and willingness to commit their 

product and capital. Depending on results, 

the steering committee then decides 

whether to proceed with the project.

Following a decision to proceed, an initial market analysis is conducted to determine if the proposed cooperative has an 

economic role in the marketplace. This 

analysis will identify and examine market 

conditions to provide insight into appropriate activities for the cooperative, volume, 

facility, and technological needs, and other 

pertinent factors.

The market or supply analysis will determine if the proposed cooperative has an 

economic role in the marketplace. The 

analysis will identify which activities are 

appropriate, business volume, and financial capabilities of the potential cooperative 

members.

Second Member Exploratory Meeting

This meeting of potential members reviews 

results of the member-use and inital market 

analyses. Based on the information presented, the participants vote either to continue or abandon the project. If they choose 

to continue, the next step is to conduct a 

comprehensive feasibility analysis.

Potential members may be asked to 

invest earnest money at this point to demonstrate their commitment to the cooperative and to cover further analysis and 

organizational costs.

Stage 2

Can a cooperative 

offer a soution?

p Yes - Proceed 

to Stage 3

p No - Stop 

cooperative 

development. 

Consider other 

organization 

structure.

Member participation 

in decisionmaking 

activities and sense of 

cooperative spirit are 

important for success.
Conduct a Feasibility Analysis

A comprehensive feasibility analysis, conducted by an experienced practitioner, will 

help the steering committee determine if 

the proposed cooperative is feasible given 

well-determined assumptions, researched 

information, and the member-use and initial 

market analyses. This study determines 

management, marketing, technical, economic, and financial feasibility, and presents the entire cooperative concept in one 

document. It will provide the foundation for 

the business plan if a decision to proceed 

is made.

Third Member Exploratory Meeting

At the third exploratory meeting, the steering committee presents the comprehensive 

feasibility analysis findings to potential 

members and provides the committee’s 

recommendation on whether to proceed. If 

the decision by the group is then to proceed, the next step is to prepare a business 

plan and draft legal documents.

Prepare a Business Plan

Every business should have a business 

plan. The steering committee should 

arrange for completion of an in-depth business plan prepared by a professional familiar with cooperative organization. The plan 

is developed from the foundation provided 

by the feasibility analysis and provides an 

organizational map that the new cooperative will follow as it begins operations.

Draft Legal Papers and Incorporate

The articles of incorporation state the purpose and scope of the cooperative business and give the cooperative a distinct 

legal standing. 

The bylaws state how the cooperative 

will conduct business and must be consistent with both State statutes and the arti3

cles of incorporation. Legal counsel should 

be consulted on these and other legal documents, such as membership or marketing 

agreements.

Fourth Exploratory Member Meeting

At this meeting, potential members review 

the work and recommendations of the 

steering committee, including the articles of 

incorporation, bylaws, and any adjustments 

made to the business plan. Support for the 

cooperative should again be evaluated by a 

vote on whether or not to form the cooperative. If affirmative, the incorporators file the 

articles of incorporation.

First Annual Meeting of 

Cooperative

At the first meeting of the cooperative, 

members carry out two very important 

member responsibilities:

u Approve the bylaws;

u Elect the board of directors.

Steering committee members are often 

board candidates, but other members may 

also be elected to these leadership positions.

First Board of Directors Meeting

The first meeting of the board of directors 

should focus on selection of the board 

officers, committee appointments, and 

carrying out the business plan. Additional agenda items include arranging debt 

capital, conducting a membership drive, 

establishing manager qualifications, and 

conducting a manager search.

Acquire Capital

The board of directors is responsible for 

arranging adequate capital. Capital may 

be raised by members purchasing stock 

(equity) and borrowing funds (debt) from a 

lending institution. Members must invest or 

Stage 3

Is there member 

interest?

❑ Yes - Proceed 

to Stage 4 

❑ No - Stop 

development

Stage 4

Is cooperative 

plan feasible?

p Yes - Proceed 

to Stage 5 

p No - Stop 

development 
Summary

A cooperative is a unique form of business 

used by people and businesses for their 

mutual benefit. Whatever its purpose, starting a cooperative requires considerable 

time, energy, and commitment by potential 

members to finance and use the business 

and select knowledgeable directors who 

will hire a competent manager. n

Where to Get Help

The U.S. Department of Agriculture’s Rural 

Development (RD) offices in some States 

have cooperative development specialists 

on staff who can help you. For additional information, contact USDA’s Rural BusinessCooperative Progams in Washington, D.C. 

Its staff of professionals can help organize a 

new cooperative and provide technical assistance to existing cooperatives. Write to:

Rural Business-Cooperative Service

Stop 3254

Washington, DC 20250–3254

Phone (202) 720–3350

FAX (202) 690–2750, 

Attention: CDD

http://www.rurdev.usda.gov/

cooperatives.html

For more details, see the following 

USDA Rural Development publications:

How to Start a Cooperative, CIR 7

Cooperative Feasibility Guide, SR 58

pledge sufficient capital in the business to 

demonstrate commitment to the cooperative’s success. Exact amounts will depend 

on activity and lender requirements. 

Projected cash–flow schedules and financial statements from the business plan are 

important in determining capital needs and 

arranging for debt capital.

Hire a Manager

One of the most important duties of the 

board of directors is to hire a qualified 

manager who is responsible for day–to–day 

operations.

Hire Employees, Acquire Facilities, Begin 

Operations

The manager hires capable employees and 

advises the board on what facilities and 

equipment to acquire, within the budget 

and operation guidelines established by the 

board.

Important Factors for Cooperative Success

Experience shows that a newly organized 

cooperative’s chances for success can be 

improved by doing the following:

u Clearly identifying the economic need;

u Reaching agreement on the cooperative’s mission;

u Developing good leadership;

u Gaining the commitment of members to 

do business with the cooperative;

u Following sound business practices.

4

Stage 5

Do members commit 

capital and 

business volume?

Are resources 

available?

p Yes - Begin 

operations

This circular is one of a continuing series that provides training information and presentations for education 

resource persons who may or may not be familiar with the cooperative form of business. This series provides the 

basic background material they need and in a form that can be readily adapted, with limited preparation time, to a 

lecture or other presentation.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis 

of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental 

status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) 

Persons with disabilities who require alternative means for communication of program information (Braille, large 

print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC 20250-9410, or call toll-free 

at (866) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 (English Federal-relay) or (800) 845-6136 

(Spanish Federal-relay). USDA is an equal opportunity provider and employer. 

To see this and 

other USDA cooperative publications online, visit: 

http://www.rurdev.

usda.gov/rbs/pub/

cooprpts.htm 

To order hard copies, e-mail: 

coopinfo@wdc.

usda.gov

or telephone:

1-800-670-6553.