United States Department of Agriculture l Rural Development l Cooperative Information Report 7
Preface This guide outlines the process of organizing and financing a cooperative business. Rather than being a complete handbook, this publication

represents the most important elements to consider when forming a

cooperative. It lists what special expertise is necessary, and where to

look for help.

Earlier versions of this publication emphasized working with groups of

agricultural producers to develop markets and sources of supply for

farm operators. This version has been broadened to also include nonfarm cooperative applications. The cooperative business structure,

already shown to be successful in agriculture, also has been useful in

helping others obtain desired benefits or provide needed services in

areas like housing, utilities, finance, health care, child care, and small

business support.

Cooperative Information Report 7

Revised September 1996

Reprinted November 2010

Galen Rapp and Gerald Ely

i
Contents Who Sparks a Cooperative? 1

What Is a Cooperative Business? 1

Distinctive Features 1

Why Cooperatives Are Organized 2

Marketing Activities 2

Purchasing Supplies/Services 3

Organizing Steps 3

Leadership and Advisers 4

Exploratory Meeting 5

Member-User Survey 6

Market, Supply Sources, Cost Analysis 6

Feasibility Analysis 7

Capitalizing the Cooperative 7

Common Stock 8

Preferred Stock 8

Membership Certificates 8

Capital Certificates 8

Stock or Nonstock Structure 8

The Member Investment 8

Sources of Debt Capital 9

Projecting Capital Needs 9

Legal Considerations 9

Legal Papers 10

Articles of Incorporation 10

Bylaws 10

ii
Contents Membership Application 10

Marketing and Purchasing Agreements 11

Revolving Fund Certificates 11

Charter Member Meeting 11

Implementing the Business Plan 12

Membership Drive 12

Acquiring Capital 13

Manager Selection 14

Acquiring Facilities 14

General Rules for Success 14

Use Advisers and Committees Effectively 14

Keep Members Involved and Informed 15

Maintain Good Board-Manager Relations 15

Conduct Businesslike Meetings 16

Follow Sound Business Practices 16

Forge Links With Other Cooperatives 16

Common Pitfalls To Avoid 16

iii
How To Start a Cooperative

Who Sparks a Cooperative?

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. 

These leaders can be small business owners,

manufacturers, growers, artisans, or citizens who lack,

or are losing, a market for their products, satisfactory

sources of production supplies, or services related to

their occupation. Or they may wish to secure some

other needed service or develop sources of additional

income.

What Is a Cooperative Business?

A cooperative is a business owned and controlled

by the people who use its services. They finance and

operate the business or service for their mutual benefit. By working together, they can reach an objective

that would be unattainable if acting alone. 

The purpose of the cooperative is to provide

greater benefits to the members such as increasing

individual income or enhancing a member’s way of

living by providing important needed services. The

cooperative, for instance, may be the vehicle to obtaining improved markets or providing sources of supplies or other services otherwise unavailable if members acted alone. 

Distinctive Features

In many respects, cooperatives resemble other

businesses. They have similar physical facilities, perform similar functions, and must follow sound business practices. They usually incorporate under State

laws and require bylaws and other necessary legal

papers. Members elect a board of directors to represent

their interests. The board sets policy and hires a manager to run the cooperative’s day-to-day business.

Even though cooperatives are similar to many

other businesses, they are distinctively different. Some

differences are found in the cooperative’s purpose,

ownership, control, and distribution of benefits.

Cooperatives follow three principles that define or

identify their distinctive characteristics:

• user-owned,

• user-controlled, and

• user-benefited.

The user-owned principle means the people who

own and finance the cooperative are those who use it.

“Use” usually means buying supplies, marketing

products, or using services of the cooperative business. 

Members finance the cooperative through different methods: 1) by a direct contribution through a

membership fee or purchase of stock; 2) by an agreement to withhold a portion of net earnings (profit); or

3) by assessments based on units of product sold or

purchased. 

For instance, a tomato grower would be assessed

a fee such as 10 cents for every box marketed through

the cooperative. These assessments, generally referred

to as per-unit retains, help finance the cooperative’s

operations.

The user-controlled principle (also called democratic control) says those who use the cooperative also

control it by electing a board of directors and voting

on major organizational issues. This is generally done

on a one-member, one-vote basis, although some cooperatives may use proportional voting based on use of

the cooperative.

The user-benefited principle says that the cooper1
ative’s sole purpose is to provide and distribute benefits to members on the basis of their use. Members

unite in a cooperative to receive services otherwise not

available, to purchase quality supplies, to increase

market access, or for other mutually beneficial reasons.

Members also benefit from distribution of net earnings

or profit based on the individual’s business volume

with the cooperative.

To operate under these distinctive principles, an

important practice, particularly for new cooperatives,

is to conduct continuing member education. This is

especially important for attracting and recruiting new

members. It is also necessary because the cooperative’s

membership continually changes. Older members

retire and new ones join.

Keeping owners informed is an important practice for any business, but vital in a cooperative for at

least three reasons:

(1) The democratic control principle, exercised

through majority rule, requires that the entire ownership (members) be informed and involved to

assure that enlightened decisions are made;

(2) Members must indicate their needs and accept the

accompanying financial responsibilities before the

cooperative can fulfill those needs; and 

(3) Some people are not familiar with the cooperative

form of business. The educational system in the

United States contains little, if any, information

about cooperatives. So, the cooperative, itself, must

become the educational institution.

Why Cooperatives Are Organized

People organize cooperatives to improve their

income or economic position or to provide a needed

service. This may be achieved through one or more of

the following:

Marketing Activities

Improve bargaining power— Combining the volume of

several members leverages their position when dealing

with other businesses.

• California:The California Canning Peach

Association is a cooperative bargaining association based in Lafayette. Peach growers contract their production to processors. The grower-owned cooperative bargains with the largest

processors for grower price and delivery

schedule. Members realize significant additional money per ton for their peaches than

growers who market on an individual basis.

The cooperative also keeps growers advised on

projected market volume and other conditions

that may effect their operations.

Reduce costs— Volume purchasing reduces the purchase price of needed supplies. Earnings of the cooperative returned to individual members lower their net

costs.

• Maine:St. Mary’s General Hospital in

Lewiston, a 230-bed rural health care facility, is

a member of Synernet, a cooperative that

serves 20 hospitals. In one year, St. Mary’s

saved more than $479,000 by purchasing fuel

oil, medical supplies, laboratory products,

food, film, pharmaceutical, and services

through the cooperative. These savings helped

health care providers stretch limited resources.

Obtain market access or broaden market opportunities—

Value is added to products by processing or offering

larger quantities of an assured type and quality to

attract more buyers.

• Oregon:Tillamook County Creamery

Association was organized in 1909 as a quality

control organization for 25 cheese factories

operating in Tillamook County, an area 30

miles wide and 60 miles long between the

Pacific Ocean and the Coastal Range

Mountains. During the past years, the 25 cooperatives have consolidated into a single cooperative. Tillamook produces and sells more

than 45 million pounds of cheese a year. Sales

are mainly in the Pacific Coast States of

Oregon, Washington, and California, with an

ever-growing volume going to all parts of the

United States. Due to the emphasis the cooperative places on family farm operations, young

dairy producers have been encouraged to stay

on the farm and continue to build on the foundation laid by earlier generations.

Improve product or service quality— Member satisfaction

is built by adding value to products, competition the

cooperative provides, and improved facilities, equipment, and services.

• Iowa:Frontier Cooperative at Norway started

out in a van in 1976. Its mission was to provide

low-cost organic herbs and spices to its members. Today, with 5,400 members, Frontier is a

solidly managed cooperative that’s become the

Nation’s premier distributor of organic seasonings. Developing new products rates high on

the cooperative’s list, such as Frontier Pure

2
Lager, an organic beer, as well as encapsulated herb

products. 

• NorthCarolina:Watermark Association of

Artisans was formed in 1978 by 35 rural

women near Elizabeth City. They pooled their

efforts to sell baskets, quilts, and other handmade gift items. Today, the 750 member-artisans produce decorative wooden products,

rocking horses, antique quilts, rag dolls, teddy

bears, duck decoys, wreathes, and baskets

which are marketed around the world. About

three-fourths of the members are from lowincome backgrounds. Many are single, unemployed mothers with few job skills.

Purchasing Supplies/Services

Obtain products or services otherwise unavailable—

Cooperatives often provide services or products that

would not attract other private businesses. 

• Oregon:Members of Blue Water Harvesters

Cooperative in Port Oxford harvest sea

urchins. They depended on several private

firms to extract and clear package “roe” for

export to Japan. In recent years, all of these

firms ceased operations. The watermen were

left without a processing facility. So, the cooperative purchased a processing facility which

enabled members to continue their livelihood

through cooperative action.

• Michigan:Frankfort is a small city of 1,500 on

the shores of Lake Michigan. Many older residents wanted the comfort and convenience of

retirement living, but didn’t want to leave the

area. Initially, 54 couples moved into an especially designed, new elderly housing cooperative close to the center of the community. The

new cooperative is the latest example of an

emerging trend in providing affordable senior

citizen housing facilities that are ideally suited

to small rural communities.

• Flexiblemanufacturingnetworks—These are

a mechanism for small manufacturing enterprises in local geographical areas. By joining

under a cooperative umbrella, members

achieve certain shared objectives that might be

otherwise impossible to achieve on their own.

Through networks, members share costs for

market research, environmental compliance, or

technical training for employees. Joint production development and market penetration are

also feasible objectives.

• FarmCreditSystem—This nationwide network of cooperative lending institutions provides credit and financially related services to

farmers, ranchers, and their cooperatives. In

existence for more than 75 years, the System is

the largest provider of agricultural credit in the

United States. The System specializes in lowcost financing for agricultural enterprises and

rural utilities. Its expertise is unequaled by any

other lender.

• Obtainmarketaccessorbroadenmarket

opportunities—Value is added to products by

processing or offering larger quantities of an

assured type and quality to attract more buyers.

• FranchisePurchasingCooperatives—

Individually owned units are organized to

gain economy of scale in purchasing goods

and services. Some have formed insurance

companies, established leasing programs, or

developed financing programs for members’

equipment. Benefits are derived not only from

savings through group purchasing, but also

from sharing earnings based on each member’s

business volume with the cooperative.

Reduce Cost/Increase Income— Reducing the cooperative’s operating costs increases the amount of earnings

available for distribution to members to boost their

income. 

• Missouri:Glasgow Cooperative, Inc., was

organized in 1923 as a farm supply purchasing

association. It serves farmers in a 15-mile

radius of Glasgow. In its 70-year history, it has

returned nearly 8 percent of the gross sales in

patronage back to the members. The cooperative also has an excellent history of revolving

member equities. Both activities have reduced

the cost of providing farm supplies to the

members.

Organizing Steps

Starting a cooperative is a complex project. A

small group of prospective members discuss a common need and develop an idea of how to fulfill it.

Depending on the situation generating the idea, a new

cooperative may be welcomed with enthusiasm or

may be met with vigorous competitive opposition. 

If opposed, leaders must be prepared to react to

various strategies of competitors such as price changes

to retain potential cooperative members’ business; bet3
ter contract terms or canceled contracts; attempts to

influence lenders against providing credit; and even

publicity, misstatements, and rumors attacking the

cooperative business concept.

Regardless of the business climate for the proposed cooperative, leaders must demonstrate a combination of expertise, enthusiasm, practicality, dedication, and determination to see that the project is

completed. 

Figure 1 summarizes the sequence of events leading to the formation of a cooperative.

Leadership and Advisers

Responsibility for starting a cooperative and seeing the project through rests mostly with the leadership group. Leaders begin by discussing their idea at

one or more small group meetings with other prospective members or users. If the group supports the idea,

the next step is to seek the advice of someone familiar

with cooperatives.

Specialized help is needed throughout the various stages of starting a cooperative. Leaders need

someone familiar with the cooperative-forming

process to work with them step by step concerning

legal, economic, and financial aspects.

Depending on the resources available and interest found among sources of specialized help, the group

should request a person from one of the organizations

to serve as an adviser.

• Businessandcooperativespecialistsare needed. Most States have Rural Development

offices and many have a cooperative development specialist on the staff who can help you

get started. They can recommend other specialized services and talents that will be needed

during organization stages. 

Other resource people are available from county

Extension Service offices or land-grant universities,

State cooperative councils, Centers for Cooperatives,

National Cooperative Bank, area offices of CoBank, St.

Paul Bank of Cooperatives, or an established cooperative in your area. USDA’s Rural Business-Cooperative

Service in Washington, DC, also assists groups seeking

to develop cooperatives by conducting feasibility studies, providing educational services, and helping with

implementation.

• Legalcounsel,preferably an attorney familiar

with State cooperative statutes, is needed.

Among sources to check for one are State

Extension specialists working with cooperatives,

the State cooperative council, CoBank, St. Paul

Bank for Cooperatives, National Cooperative

Bank, National Society for Cooperative

Accountants, USDA’s Cooperative Services, or

an established cooperative in the area.

An attorney prepares the organization papers or

checks the legality of those written by someone else.

Early expertise is needed to acquire property, make

capitalization plans, borrow money, and write agreements and contracts. Even after the cooperative is

operating, an attorney should be retained who can

help ensure the organization conforms to applicable

laws.

• Financialcounselfrom some financial institution should be sought early regarding anticipated capital needs and methods of financing.

4

Figure 1—Sequence of Events Outline

1. Invite leading potential member-users to meet and

discuss issues. Identify the economic need a cooperative might fill.

2. Conduct an exploratory meeting with potential

member-users. If the group votes to continue, select

a steering committee.

3. Survey prospective members to determine the

potential use of a cooperative.

4. Discuss survey results at a second general meeting

of all potential members and vote on whether to

proceed.

5. Conduct a needs or use cost analysis.

6. Discuss results of the cost analysis at a third general

meeting. Vote by secret ballot on whether to proceed.

7. Conduct a feasibility analysis and develop a business plan.

8. Present results of the feasibility analysis at the

fourth general meeting. If participants agree to proceed, decide whether to keep or change the steering

committee members.

9. Prepare legal papers and incorporate.

10. Call a meeting of charter members and all potential

members to review and adopt the proposed

bylaws. Elect a board of directors.

11. Convene the first meeting of the board and elect

officers. Assign responsibilities to implement the

business plan.

12. Conduct a membership drive.

13. Acquire capital and develop a loan application

package.

14. Hire the manager.

15. Acquire facilities.

16. Begin operations.
This institution can provide advice on designing the

feasibility study to meet requirements of a lending

agent. Staff specialists on finance and accounting matters can also advise the cooperative. An independent

accounting firm that has the knowledge of cooperative

operations should be hired to establish the bookkeeping system, tax records, and a plan for revolving capital prior to sale of stock or collection or handling of

members’ money. Later, the board will need to hire an

outside accounting firm to conduct the annual audit.

• Technicaladvicemay be needed periodically

from a variety of technicians and persons experienced in cooperative business operations.

Exploratory Meeting

To determine the level of interest in starting and

supporting a cooperative, invite potential members to

a general meeting. Announce the meeting date, time,

and place via newspapers, radio, telephone, at other

meetings, by letter, or word of mouth. Invite outside

advisers.

The leadership group should develop an agenda

and select a presiding officer who can conduct a business meeting. Sometimes, an adviser can act as chair or

help answer questions. Primary agenda items should

include:

• What is the need; 

• Possible solutions; 

• Cooperative principles and terminology;

• Cooperative operating practices;

• Advantages and disadvantages of a cooperative;

• General risk capital equity and financial

requirements; and

• Various forms of member-user commitment

needed.

One approach is to have one member of the leadership group discuss the need and another summarize

how the proposed cooperative might solve it. In addition, a representative of a successful cooperative might

explain its operations, benefits, and limitations.

Allow plenty of time for discussion. Prospective

members should be encouraged to express their views

and ask questions. All issues raised should be

addressed, although answers may be delayed until later

meetings when more information becomes available.

Cooperative Bulletins

Answers to some of the frequently asked questions may be found in an array of cooperative bulletins

published by USDA’s Rural Business-Cooperative

Service (Appendix VII, Helpful References).

1. What is a cooperative and how is it different from

other business?

2. Who controls a cooperative?

3. What is the risk investment (equity) and why is it

needed?

4. How much is my initial investment (equity capital)?

5. Will my investment (equity) requirement be determined by volume or by number of members?

6. Can we simply cosign a bank note instead of raising

a cash investment (equity)? What risks are involved

in cosigning?

7. How much money can I lose if the cooperative fails?

8. Can I sell my stock and other investments (equities)

and get out of the cooperative whenever I want?

Can I sell it to whomever I want?

9. What are marketing or purchasing agreements and

why are they needed? How long do they last? If I

can’t meet the terms of the agreement, do I have to

pay a penalty?

10. What are net margins and net earnings?

11. What are patronage refunds and retained patronage refunds?

12. Why can’t the cooperative pay 100 percent cash

patronage refunds?

13. Why do we have to pay income taxes on our

patronage refunds, particularly the retained portion, if we don’t actually receive money?

14. What are per-unit capital retains and what’s their

purpose?

15. When will the cooperative refund my retained allocations and per-unit retain? Will I be able to get

this money when I retire? Will my estate be able to

get it after I die?

16. Can we restrict cooperative membership?

17. If a cooperative is supposed to help its members,

why are prices at the cooperative no better and

sometimes worse than prices elsewhere?

Steering Committee Formation and Duties— 

If the group wants a more detailed study after discussion is completed, it should select a steering committee. This group should have a keen interest in the

cooperative, be well-respected within the community,

and have sound business judgment. Committee members often become the initial organizers and members

of the cooperative’s first board of directors.

The first function is to select officers of the steering committee, usually at the close of the general informational meeting. Next, establish a deadline for completing a business analysis, including a target date for

surveying potential members. Periodic progress meetings retain interest of prospective members.

5
The steering committee, with the help of one or

more advisers, determines if a cooperative is feasible.

First, it judges whether the proposed cooperative is

likely to succeed and benefit its members. Second, if

the proposal passes this test, the committee prepares a

specific, detailed business plan for the new cooperative.

Assistance from specialists in law, accounting,

finance, economics, engineering, and cooperative business operations is critical during the business analysis

phase.

Economic need is fundamental to the formation

and successful operation of any cooperative. The committee should examine what products or services the

cooperative could provide, those needed from other

sources, and whether costs would be reduced or quality improved. Intangible functions also should be considered. Will the cooperative provide a needed service,

preserve a market, stabilize prices, or encourage more

orderly marketing?

Is the projected initial investment (equity) within

the financial ability of the potential members

involved?

The committee should consider alternatives to

starting a new cooperative. Could similar services be

provided by another nearby cooperative, either directly or by establishing a branch? If forming a new cooperative is the best alternative, the group should consider linking with regional cooperatives to obtain

additional benefits.

A new cooperative should initially limit services

to avoid elaborate or costly facilities above those

absolutely needed. If successful, services can later be

expanded.

Member-User Survey

Formal survey techniques are best for estimating

potential membership. The adviser usually drafts the

survey questionnaire for the steering committee to

review. Appendix I carries a sample questionnaire, but

the following list gives a general idea of the needed

information:

1. Volume of need or use in an appropriate unit of

measure for the most recent or typical year;

2. Member-user experience and capabilities—years in

present location, overall success, demand specific to

the cooperative venture, and production and marketing success;

3. Variety of products or services to be offered or needed;

4. Period of need or services;

5. Current unit value—sales price or cost per unit;

6. Member-user—location of use or need;

7. Familiarity with and use of other cooperatives and

willingness to join, finance, and use one.

While the questionnaire is being prepared, the

steering committee should develop a list of potentially

interested members. When the questionnaire is completed and approved, the committee interviews potential members.

Steering committee members might travel with

the adviser or advisers to locate potential users or otherwise fix locations on a map. But the adviser, not

committee members, should conduct the survey interview to preserve confidentiality of information provided. Such occasions should be carefully assessed beforehand.

The adviser should also discuss and answer

questions about the proposed cooperative venture.

Surveys also can be conducted at scheduled group

meetings at a central location.

Estimates of both membership and volume

should be conservative. Not all persons interested will

join initially and some may wait to join later. And,

unfortunately, not all who join will make the fullest

use of the cooperative’s services.

The adviser analyzes the survey, prepares a

report, and presents it to the steering committee. The

results and implications are then discussed at a meeting of all persons surveyed. Survey results should

reveal how potential members identify the economic

need and the degree of interest in a cooperative to fulfill that need. The survey should indicate the level of

support in terms of business volume and if financial

commitment is sufficient to organize and successfully

operate the cooperative. The final action at this meeting is a vote on whether to continue.

Market, Supply Sources, Cost Analysis

A vote to continue challenges the steering committee and adviser to identify suitable markets,

sources of supply, and service providers and their

requirements. Here are some ways to gain this information:

1. Use previous research and industry common knowledge.

2. Survey market, supply, or service provider sources.

Although the advisor should be primarily responsible for developing the questionnaire, this phase

should be a joint effort. Contact users of the services,

potential buyers or suppliers, to determine their

requirements.

3. Ask State and/or Federal offices (such as the Rural

6
Development offices, Extension Service, or community

action agencies), universities, cooperative centers,

commodity organizations, or private consulting firms

to conduct the research and use their findings.

The adviser analyzes the survey results. This

process may determine the scope of the cooperative’s

activities. Contacts are then made, either by the adviser or steering committee members, with engineers,

equipment dealers, real estate agents, and others for

cost estimates on establishing and operating the cooperative’s physical facilities.

The adviser reports on the potential markets or

supply sources to the steering committee. Once the

report is approved, the steering committee calls the

third general meeting. The adviser presents the preliminary market or supply estimation and cost analysis. Both are subject to change.

After the market or supply report is discussed

and accepted, the group should vote by secret ballot

on whether to continue the organizational process. By

now, the steering committee and adviser should have

a good idea of the minimum volume of business, number of members, and financial commitment needed to

justify starting the cooperative. Where support is questionable, the token investment should be refunded.

Supporters should sign a premembership agreement (Appendix III). This agreement helps determine

the extent of serious interest in the proposed cooperative. The signer agrees to join, patronize, and furnish a

specific amount of initial risk capital.

Initial investment by members should be in proportion to their intended use of the cooperative, but

start at a minimal amount such as 10 percent of potential risk capital (equity) needed to operate. This goal

should be met before continuing organizational efforts.

Potential members should be given a written statement about how their investment will be used and procedures for returning unused funds if the project is terminated or the individual later decides not to join. The

money should be deposited in an interest-bearing account

and records kept of investments and expenditures.

Generally, this money is used for organizational costs like

supplies, postage, phone bills, and attorney fees.

Feasibility Analysis

The emerging picture of the size and scope of the

cooperative now permits the adviser and the steering

committee to develop basic operating assumptions.

Together, they consider facilities needed, operating

costs, capitalization, and financial requirements.

An important part of the feasibility analysis is to

review the sensitivity of the business to changes in volume or operating costs. For example, what impact will

a 25-percent decrease in product sales, perhaps due to

adverse weather, have on profitability? Other key factors might include wage rates, operating efficiencies,

interest rates, etc. 

The adviser determines operating efficiencies,

estimates labor needs, develops service and payment

schedules, and gathers other cost data. The steering

committee will have to contract with an engineering

firm or equipment dealer, for instance, to obtain specialized data on facilities, equipment, and labor costs.

Facilities needed may include land, buildings,

and equipment. The committee bases estimates on the

expected business volume by the probable members,

plus some allowance for future expansion. The cost of

buying or leasing existing facilities and equipment

should be investigated. Professionals and skilled technicians should be consulted to determine the need for

new facilities and assess the value of any existing facilities being considered.

Operating costs include employee salaries, utilities, taxes, depreciation, interest, and costs of office

and other supplies. The adviser, with help of the committee, determines what items to include and their

probable cost, based on operating assumptions.

If the operating revenues for the projected volume of

business show little or no margins over estimated

costs, the committee should project the volume needed

to produce acceptable margins. In most businesses,

per-unit operating costs tend to decline as the volume

increases.

A cooperative’s lowest possible operating costs

occur when its members furnish it with the maximum

amount of business it can handle.

Capitalizing the Cooperative

Capitalization is the amount and source of

money needed to start and operate the cooperative.

The committee recommends a plan of capitalization

including: (1) determine whether the capital structure

is to be stock or nonstock; (2) estimate the amount of

member investment (risk capital); and (3) estimate the

amount and source of borrowed money needed (debt

capital).

While many State incorporation statutes permit

organizing as either a stock or nonstock cooperative, a

number limit them to agricultural producers. In a

stock cooperative, members are issued stock certificates as evidence of their membership and capital

investment. More than one type of stock may be

issued.

7
Common Stock—

Stock cooperatives issue shares of common stock to show

membership and voting rights. Common stock may be

divided into classes. Each class may have different par

values and carry different voting privileges. Usually,

cooperatives don’t pay interest on common stock.

Preferred Stock—

Preferred nonvoting stock may be issued to both nonmembers and members for additional capital investment.

This stock may be divided into classes. Each has different

par value and/or other conditions. Interest paid on preferred stock may be limited by State statute and redemption determined by the board of directors. If the cooperative is changing structure or going out of business,

preferred stock is paid before the common stock. 

Membership Certificates—

If the cooperative is organized as a nonstock organization, usually membership and capital certificates are

insured. This certificate is issued when membership

fees are paid and establishes voting rights in the cooperative. The amount of capital collected from membership fees is usually considered as incidental to capitalizing of the cooperative. Membership certificates are

generally noninterest bearing.

Capital Certificates—

Capital certificates of a nonstock cooperative are the

equivalent of preferred stock issued by a stock cooperative. They are sold in various denominations, may

bear interest, and may or may not have a due date.

They have no voting privileges and may be owned by

nonmembers.

The combination of membership fees, sale of capital certificates, and capital certificates issued for

retained patronage are sources of risk capital (equity)

for nonstock cooperatives. (Certificates issued for

retained patronage may carry a due date to implement

systematic rotation.)

Stock or Nonstock Structure?—

A new cooperative may choose either method for

structuring risk capital. A stock structure is more easily understood by most potential members. If organizing as a nonstock cooperative, more member education

may be needed to explain the risk capital structure

described in the bylaws. 

The Member Investment

Investing risk capital is a basic member responsibility. The initial investment required (equity capital)

from each member will be determined by the projected

cost of facilities, estimated daily volume of business,

cash flow requirements, projected number of members, and their volume or use of the business.

Members’ initial risk capital investment should

be large enough for them to realize they have a financial stake in the business to protect. If the investment

(equity) requirement is based on volume (vs number

of members), the investment should be in proportion

to their expected use. Those who wish to contribute

more than their share may purchase preferred stock or

capital certificates that earn fixed dividends, but carry

no additional voting privileges. Members may also

provide short-term debt capital in the form of certificates of investment.

Members provide additional amounts of risk

(equity) capital as they use their cooperative. One

method is through per-unit capital retains. The cooperative deducts from transactions an amount based on

the value or quantity of services provided or products

marketed. Another method is to retain part of the

cooperative’s net earnings at the end of each business

year. Under both of these methods, the risk capital

(equity) investments are credited to members’ equity

account in the cooperative’s accounting system.

Like other businesses, cooperatives must build

financial reserves. These can be used both to carry

them through times when operating expenses exceed

income and to financial growth. Sometimes, part of

these reserves is dedicated to a specific purpose, such

as covering uncollectible accounts (bad debts).

Another portion may be set aside to fund a new facility or the startup of a new member service. 

Accumulated reserves relieve the pressure on the

cooperative to borrow money or reduce important services through tough times. And they lessen the likelihood the cooperative will have to ask the members for

a direct investment of additional risk capital to meet

unexpected needs.

As part of the capitalization plan, the steering

committee estimates the amount of reserves that will

be needed and the method of obtaining them. State

law should be checked for rules on reserve levels or

methods of accumulation.

The membership fee or payment for a share of

stock is usually retained by the cooperative, at least

until the membership is terminated. However, another

element of the capitalization plan should be a strategy

for revolving member equity capital related to business done with the cooperative, retained patronage

refunds, and per-unit retains. When the cooperative’s

equity is sufficient to meet its needs, a portion of each

8
year’s income should be used to redeem the oldest

patronage-based equity.

This equity is replaced by funds retained from

the current year’s patrons. The schedule for revolving

equity is set by the board of directors. A systematic

equity redemption program keeps the cooperative

financed by current users in proportion to their use.

Sources of Debt Capital

How much debt capital the cooperative can borrow depends on how much risk (equity) capital members initially invest, cash flow, quality of management,

and the degree of risk in the venture. Members should

contribute equity capital amounting to at least half the

total capital requirements. But, it usually takes several

years of operations to reach this goal.

Long-term credit is the usual way of acquiring

part of the money to finance land, buildings, and

equipment. The period of the fixed asset loan depends

on a number of factors, but it is usually related to the

facility’s projected life.

The committee should explore various sources of

long-term loans and recommend the source that can

supply the financing best suited to the proposed cooperative. Among sources of facility loans are State

offices of USDA’s Rural Development, CoBank, St.

Paul Bank for Cooperatives, National Cooperative

Bank, programs of commercial banks, credit unions,

and insurance companies. Other financial arrangements may be available that are temporary or unique

to the new cooperative venture.

Operating capital may be obtained through shortterm loans (1 year or less) after the cooperative

becomes established. A new cooperative, however, can

obtain only part of its operating funds from short-term

loans. Member equity must make up the balance.

Sources of short-term credit include credit

unions, commercial banks, banks for cooperatives in

the Farm Credit System, and the National Cooperative

Bank. The committee should explore all sources and

recommend the lender that best meets the requirements of the proposed cooperative

Projecting Capital Needs

The adviser prepares a feasibility analysis report

that outlines all assumptions and income and expense

projections based on standard financing practices and

presents it to the steering committee. The report is

reviewed and revised to develop a realistic business

plan that can be approved by potential members and

implemented without significant change.

This report is discussed at a fourth general meeting of potential members. It should cover the cooperative’s purpose, goals, and economic functions, including assumptions and financial projections for startup

and at least the first 3 years of operations. Specific topics include:

1. Volume projections;

2. Risk capital (equity) investment requirements—initial and continuing;

3. Financing projections, including tables for monthly

cash flows, annual projections of operating statements, balance sheets, and a statement of cash flow;

4. Financial package and method of capitalization;

5. Payment schedules;

6. Projected patronage refunds—cash and retained;

and

7. Implementation schedule.

Financial projections may include “best” and

“worst” case scenarios to demonstrate sensitivity to

changes in operating assumptions.

By now, most specific operational plans have

been determined. Yet to be decided is the selection of a

manager, facility location, and subjects to be covered

in the articles of incorporation and bylaws.

If members elect to continue the process, the

steering committee is instructed to arrange for incorporation and carry out the business plan.

Legal Considerations

Organizing committee members should become

acquainted with legal aspects of cooperatives by

studying laws applicable to them and businesses generally (Appendix VII).

Every State has one or more laws authorizing the

formation of cooperative corporations, although a

number of them are restricted to agricultural producers. Copies may be obtained from an attorney, the

Secretary of State, or State Corporation Commissioner.

Several Federal laws are especially important for

cooperatives. The Capper-Volstead Act of 1922, sometimes called the “Magna Charta” of farmer marketing

cooperatives, recognizes the rights of producers to act

together in handling, processing, and marketing their

production without violating antitrust law. Producers

may also form marketing agencies in common. But

even though cooperatives have this organizational

protection, their operations are subject to the same

antitrust laws as other businesses.

The Farm Credit Act of 1971 defines a cooperative that is eligible to borrow from the banks for cooperatives in the Farm Credit System and the conditions

the cooperative must meet. The National Consumer

9
Cooperative Bank Act created a similar financial institution, the National Cooperative Bank, to serve nonfarm cooperatives.

The Internal Revenue Code describes the tax

treatment of cooperatives and their patrons and tax

reporting requirements.

Legal Papers—

Perhaps the most important process, other than determining the business feasibility, is drafting articles of

incorporation and bylaws. Other legal documents

include the membership application, membership or

stock certificate, revolving fund certificate, marketing/purchasing agreements, and meeting notices and

waivers of notice (Appendix III). Also review Sample

Legal Documents for Cooperatives (CIR 40).

Articles of Incorporation—

Incorporation is usually the best method of organizing.

Each State has special enabling laws under which

cooperatives may incorporate. It may be preferable to

incorporate under the State’s general corporation

enabling act, but structure bylaws to operate as a cooperative.

Incorporation gives the cooperative a distinct

legal standing. Members generally are not personally

liable for the debts of an incorporated organization

beyond the amount of their investment. The articles

indicate the nature of the cooperative business. The

articles should specify rather broad operating authority when incorporating even though services may be

limited at the beginning.

These articles usually contain the name of the

cooperative, principal place of business, purposes and

powers of the association, proposed duration of the

association, names of the incorporators (in most

States), and information about the capital structure. In

some States, the names of the first officers of the association must be included.

Filing the articles of incorporation (usually with

the Secretary of State) activates the cooperative corporation. After the organizing committee approves the

articles, the attorney files for the corporation charter

and includes the recording fees. Once chartered by the

State, the cooperative should promptly adopt bylaws.

Bylaws—

They state how the cooperative will conduct business

and must be consistent with both State statutes and the

articles of incorporation.

Bylaws usually have membership requirements

and lists rights and responsibilities of members;

grounds and procedures for member expulsion; how

to call and conduct membership meetings, methods of

voting, how directors and officers are elected or

removed, and their number, duties, terms of office,

and compensation; time and place of director meetings; dates of the fiscal year; requirement to conduct

business on a cooperative basis; how net margins will

be distributed; process for redemption of members’

equity; a consent provision that members will include

the face value of written notices of allocation and perunit retain certificates as income in the year they are

received; distribution of nonpatronage income; handling of losses; treating nonmember business; dissolution of the cooperative; indemnification of directors;

and the process for amending the bylaws.

Also covered is how the board is structured to

represent the membership, given geographical distribution and size of the membership and the scope of

business and function of the cooperative. Directors

may be selected to represent districts based on membership density, to reflect commodities or services to

be handled, or some other basis that provides equitable representation. The organizing committee’s recommended management structure should include the

basis for director representation, voting methods, and

board officers, and their terms. 

For marketing cooperatives that lack a marketing

agreement, the bylaws specify the extent of members’

obligation to market through the cooperative. They

outline the terms and conditions under which the

products will be marketed and accounting procedures.

The committee prepares the articles and bylaws

with the help of an attorney so provisions comply with

laws of the State in which the cooperative is incorporated. The committee’s role also is to assure the bylaw

provisions will not conflict with operating procedures.

Membership Application—

This form has five main parts: applicant’s statement

asking to become a member of the cooperative, signature of the applicant, statement of cooperative acceptance of applicant, signatures of the president and secretary, and a statement of the duty and intent of the

member.

The application, signed by the member and

approved by the board of directors, is the legal proof

that a patron is a member. A cooperative should have

a completed membership application on file from

every member. Membership and the amount of business done with members and nonmembers are important factors for certain antitrust and taxation provisions.

10
A membership certificate may be issued to each

member as evidence of entitlement to all of the rights,

benefits, and privileges of the association.

Marketing and Purchasing Agreements—

In the marketing agreement, the association agrees to

accept specified products of stated or better quality, to

market them to the best of its ability, and to return to

members all marketing proceeds less deductions for

expenses and continuing capital needs. A similar contract with members can be structured for service and

supply cooperatives.

This continuing or self-renewing agreement

should specify that after it has been in force for some

initial period, it should continue indefinitely unless the

member (or the cooperative) states in writing a desire

to cancel or modify it. A cancellation request must be

made during a specified annual period as noted in the

contract.

An agreement ensures sufficient control over

products or services to be delivered so the cooperative

can function. This is especially helpful in the first few

years of operation when the cooperative is establishing

its reputation as a responsible and successful business.

Marketing and purchasing agreements have helped

some cooperatives get needed outside financial help.

In some cases, cooperatives that use contractual

agreements must file them with the State Government.

Revolving Fund Certificates—

When a cooperative retains funds from business with

or for patrons as capital investments, it issues a written

patronage refund certificate or a similar document to

the member as a receipt for capital investments that

will eventually be revolved or redeemed. Meanwhile,

the retain is used to finance the business. Member

investments may be deductions based on per-unit of

product handled or services used, reinvested patronage refunds, or original capital subscriptions, if a nonstock cooperative.

Charter Member Meeting

According to most statutes under which cooperatives are organized, articles and bylaws must be adopted by a majority vote of the members or stockholders.

For convenience in organizing, only the persons

named in the articles of incorporation, called the charter members, must vote to adopt the bylaws. These

persons are regarded as members or stockholders as

soon as the articles of incorporation are filed. A good

practice, however, is to invite everyone who has

signed a premembership agreement to the meeting to

ratify the bylaws.

A temporary presiding officer conducts this first

meeting and reports that the articles of incorporation

have been filed. A draft of the proposed bylaws is presented, discussed, and adopted as read or amended.

Further action is usually needed to accept those

members or stockholders who have subscribed for

stock or agreed to become members but are not named

in the articles of incorporation. Under some statutes,

however, the incorporators can adopt the bylaws as

incorporators rather than as members or stockholders.

If members of the first board of directors have

not been named in the articles of incorporation, they

should be elected at this meeting.

Here are some suggestions for selecting the first

board of directors:

• use a nominating committee to develop a

panel of candidates for the board;

• select only members as candidates;

• nominate two candidates for each position;

and

• vote by secret ballot.

Implementing the Business Plan

Once the bylaws have been adopted, the board of

directors should meet as soon as possible to avoid having to send out legal notices of it to directors. Directors

approve various resolutions designed to make the

cooperative an operational business and ready to serve

members.

Officers of the cooperative are elected and directors assigned to individual or committee responsibilities to implement the business plan. Members may be

assigned to committees, but at least one board member

should be on each committee to enhance communications. Target dates are established for important events

such as groundbreaking, construction completion,

dedication or open house, and full-capacity operations.

The board needs to act immediately on some specific items:

• conduct a membership drive;

• adopt a form of membership application or

stock subscription;

• adopt the forms for contractual agreement if

used;

• acquire capital;

• select a bank in which to deposit funds;

• initiate steps to hire a manager;

• authorize officers or employees to handle

cooperative funds and issue checks;

• design and install an accounting system. 

• provide for bookkeeping and auditing ser11
vices;

• print the articles of incorporation, bylaws, and

other member documents for distribution to all

members;

• bond officers and employees in accordance

with bylaws; and

• pick a business location and seek bids for facilities and equipment.

A director training schedule should be established to discuss topics such as legal liability, cooperative finance, management supervision, and member

relations. Session topics for the entire membership

should include member responsibilities, cooperative

operating policies, and tax treatment of patronage

refunds.

Membership Drive

A new cooperative must have enough members

to start operation and justify its existence. Additional

members may be needed to financially strengthen the

association or increase its volume.

Cooperatives that provide supplies and services

normally have open membership. Those that process

and market or bargain for price and contractual agreement or offer limited services may have a selective

membership policy. Members should feel a responsibility to recommend others believed to be qualified

users. That’s why it’s important for members to understand what their cooperative is, how it operates, its

benefits, and its limitations.

People join cooperatives primarily for economic

benefits—services and increased income. Most people

want to be shown the advantages of cooperative membership. If those benefits are not evident, few

prospects will join and even if they do, they probably

won’t regularly patronize the cooperative.

New members may be asked to join by purchasing stock or paying a membership fee and signing an

application. The applicant should get a receipt for

funds collected. The cooperative must followup with

membership and stock certificates and related material.

Accurate accounting of money is an extremely

sensitive issue. The cooperative should retain an independent accounting firm to assist in recording funds

prior to any sale of stock or the collection of substantial amounts of money.

Acquiring Capital

Starting a new cooperative can create a need for

substantial capital. A problem develops when trying to

operate with limited membership equity capital and

sizable total capital requirements. Therefore, member

equity must be carefully weighed against projected

cooperative capital needs.

Methods for acquiring capital and classification

of financial instruments are covered under the

“Feasibility Analysis” section. The task of financing a

new cooperative with member equity alone is usually

impossible. Therefore, additional sources for funds are

needed. Local area banks are good possibilities. Others

are the cooperative banks in the Farm Credit System,

the National Cooperative Bank, State Rural

Development offices, and other governmental funds,

depending on what may be available at the time.

Another option may be to sell preferred stock to members and others in the community. 

The best source of financing for a cooperative is

from members. The more financing members provide,

the less the cooperative business will need to borrow

from other sources. Usually, cooperatives sell common

or preferred stock to members to raise capital. The

common stock is usually tied to voting rights, but

there are several types. For example, class A could be

designated as voting stock and limited to one share

per member while class B could be nonvoting stock

that members could purchase based on their anticipated volume of business. 

Preferred stock also can be sold to outside

investors and members. Although owners of preferred

stock have no voting rights, this stock carries less risk

than common stock. Members of the community in

which the cooperative is to be located may purchase

preferred stock to keep the cooperative as a local business.

Conservatively estimate the amount of capital

raised from preferred stock sales. Some States limit

dividends that can be paid on both common and preferred, thereby making preferred stock unattractive to

outside investors. Stock sale programs should be carefully reviewed by an attorney to ensure conformance

with State and Federal security laws.

Commercial banks, particularly those in the area

where the cooperative will operate, are an important

source for loans. Personnel of these banks already are

familiar with the economy in the area and probably

know many of the cooperative’s prospective members.

These banks also offer a variety of banking services the

cooperative will need once it begins operations. New

cooperatives often can get loans with the help of

Federal Government agencies or other guarantees.

Farm Credit System banks, particularly the St.

Paul Bank for Cooperatives and CoBank, both of which

are nationally chartered, are major sources of credit to

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newly organized and established agricultural and rural

utility cooperatives and their members. Farm Credit

System banks make loans to cooperatives to purchase

fixed assets and operating loans. Individual farmers

borrow funds to purchase land and to finance farm

operations. The system is used also to finance members’ share of equity capital for a new or expanding

marketing, purchasing, or related service cooperative.

National Cooperative Bank is another source for

loans and startup financing. Its financing activities are

directed primarily to nonagricultural cooperatives

including consumer, worker, retailer-owned, health,

housing, and other types of cooperatives. Funds may

be available for certain types of cooperatives, including those in rural communities.

Cooperative leaders need to carefully develop the

loan application to make a good first impression on

the potential lender. Lenders will insist on seeing certain key documents before considering a loan request.

Special expertise is important in helping prepare these

documents, including that of an economist, marketing

specialist, attorney, certified public accountant, and

perhaps others whose specialty is related to the activities proposed for the cooperative.

The most requested documents are:

Projected Volume of Business—

The best source for these projections comes from the

potential member survey conducted as a part of the

feasibility study. If the business is seasonal, it is important to accurately characterize how production or purchasing and sales occur to determine the appropriate

facility and equipment needs.

Market Information—

Lenders don’t want to finance a proposed business

without a market. They want to know who the customers are, if markets have been located, and expected

prices and volumes.

Cash Flow—

Projected cash flow (Appendix IV) information may be

the most important to the lender. It gives a continuous

month-by-month cash income and expense prediction.

Key items in the final analysis are the net cash flow for

the month and the ending cash balance. Lenders are

particular concerned with the net ending cash balance.

Does the cooperative have sufficient funds to operate

and pay bills? Should more equity capital be injected?

Is additional borrowed capital needed, particularly for

operating during heavy seasonal periods? Can controllable expenses be reduced during periods of low

income? Are cash reserves adequate to overcome

adverse market swings? And, most importantly, can

the cooperative repay its loans? Most lenders want 3-

year projections.

Operating Statement—

For a new cooperative, the projected operating statement provides an expected picture of operations for

one or more years (Appendix IV). It contains information on sources of income as well as expenses. The key

figure is the “bottom line” that indicates whether net

margins (profits) are anticipated. A monthly operating

statement provides information to lenders and assists

the board in making major policy and management

decisions.

Balance Sheet—

For the newly formed cooperative seeking financing

from outside sources, the projected balance sheet is

extremely important (Appendix VI). It projects the

future value of the cooperative and indicates its solvency and ability to satisfy creditors’ claims when due.

In summary, it lists the cooperative’s assets, liabilities,

and net worth.

Schedule of fixed asset costs and depreciation.

Lenders look for collateral to secure their loans. A condensed listing (Appendix V) quickly conveys what the

cooperative needs to purchase or lease. To assure the

lender that depreciation has been accurately noted, it

is also desirable to outline in table form the classes of

assets, cost, life expectancy, and annual depreciation.

Loan Package—

A summary of scheduled financing needs and sources

saves the lender time in assembling the various pieces

of data for analysis. It should show major items for

which loans and member equity will be spent

(Appendix VI). These items are extracted from the projected cash flow data. A brief resume of the designated

manager should be included in the documents given

to the potential lender. If a person has not been chosen, the manager’s job description should be included.

Manager Selection

Selecting the manager is one of the most critical

task for the board of directors. The success of the cooperative depends more on the manager than any other individual. The manager directs the day-to-day operations.

The organizing committee begins the task of

manager selection by developing a position description. A supplemental statement should indicate the

relationship and responsibilities of a manager and the

13
board of directors in a cooperative.

Long and varied lists have been compiled of

qualities to seek in a manager, but three areas are suggested—education, experience, and ability to work

with people. Manager candidates need to be judged in

these areas from three perspectives—commodity

expertise, business requirements generally, and

knowledge of cooperatives in particular because of

their unique characteristics.

Finding a manager with both education and

experience with cooperatives is important for several

reasons. Unlike investor-owned corporations, a cooperative manager should not participate in cooperative

ownership. Career decisions could conflict with ownership interests. Cooperatives do not offer managers

stock options or profit sharing, although some cooperatives have incentive plans. The candidate needs to

understand the special nature of the cooperative’s

patrons because they’re both customers and owners.

This dual relationship adds a unique dimension to a

candidate’s requirements to work with people on a

daily business basis.

Good managers are hard to find, especially for

cooperatives. The best source is often other cooperatives. Leads may be obtained by contacting the managers of other cooperatives, directors of State cooperative councils, national cooperative organizations, the

advisers who helped form the cooperative, and

employment agencies.

Acquiring Facilities

The job that probably takes the most foresight,

analysis, judgment, and timing is acquiring a business

site, building, machinery and equipment, and other

supplies. The steering committee’s business analysis is

the blueprint. The newly selected manager should participate in facility decisions.

Facilities should be located conveniently for

members but enable establishing good distribution

links with suppliers, markets, and other business services.

Directors need to study facility requirements

thoroughly. Their decisions will influence the cooperative’s operations for many years. It’s important to

avoid using so much capital for fixed facilities and

startup that cash flow is jeopardized.

A useful planning tool is an acquisition schedule

and budget. It would list items in the logical order

they should be acquired, based on need, delivery time,

loan requirements, funds available, and other factors.

This should be built into the cash flow projection for

the startup period. Changes to this plan should be analyzed before enactment.

General Rules for Success

Several basic rules for successful formation of a

cooperative apply to more than one step of the process

and to continuing operations. Some rules are unique to

the cooperative form of business. They include effective use of advisers and committees, keeping members

informed and involved, maintaining good board/manager relations, following sound business practices,

conducting businesslike meetings, and forging links

with other cooperatives.

Use Advisers and Committees Effectively

Organizing human resources and effectively

using their expertise is central to any successful business. Maximum participation by potential members is

crucial to the success of the cooperative.

Selecting potential members with an eye for

expertise is important in setting up the general steering committee. Finding true specialists may not be

possible among the leaders interested in organizing a

cooperative. However, some may have an interest in

areas that enables them to better understand the “language” of technical advisers.

It’s important to have an adviser on cooperative

organization work with others in helping them apply

their expertise to the cooperative situation whenever it

differs from other forms of business.

Subcommittees used in the formation process

should focus on membership, facilities, site selection,

finance, legal documents, and communications. In

some cases, one or more of these can be combined.

Committees also are useful in the ongoing management of the cooperative. Committees within the

board can specialize in the same areas used in the formation process. Additional temporary or permanent

committees might include advisory groups for youth

and young member activities, education and training,

long-term planning, commodities and services, member and public relations, and legislative affairs.

Keep Members Informed and Involved

Member responsibilities start with the conception

of the cooperative and remain throughout its life to

assure successful organization, sound management,

and operation.

The communications and education function

needs to be an integral activity of the management

team. It requires the assistance, knowledge, and

14
involvement of cooperative staff and member leadership groups. Effective communications and education

programs require financial support and must be

backed by specific board and management policies.

When members are involved and informed about

the cooperative, they measure their needs in terms of

dollars and are more willing to invest in and patronize

the cooperative. Cooperative members should be intimately familiar with it and assume a positive, broad

role in its management and direction:

• understand its purpose, objectives, benefits,

limitations, operations, finances, and longterm plans,

• read and understand the articles of incorporation and bylaws,

• know that laws limit their rights or powers

and those of their board of directors,

• understand that bylaws or policies of the elected directors may further limit their operations

by establishing member obligations, regulations, and quality controls exceeding those prescribed by legal statutes and provide equity

(risk) capital for the cooperative business.

Most cooperatives have a small beginning and

find it necessary to borrow. Later, as they become

established and business services expand, they generally find it neither necessary nor wise to rely on only

member capital to meet all financial needs. The member or equity capital is used as a base to apply for a

loan. 

In summary, members’ participation in affairs of

their cooperative increases their feeling of ownership

and responsibility for its success.

Maintain Good Board-Manager Relations

The differing responsibilities of the board of

directors and the manager must be clearly understood

and carried out.

Directors represent members and are legally

responsible for the performance and conduct of the

cooperative. All corporate powers of the cooperative,

other than those specifically conferred on members,

are vested in its directors and outlined in the bylaws

and in State and Federal legal statutes.

Directors’ three major responsibilities are to set

policies, employ and evaluate the general manager’s

ability to carry them out, and provide adequate financing for the cooperative. 

The board also has some specific management

responsibilities such as functioning as trustees for the

members in safeguarding their assets in the cooperative; setting goals, objectives, and general policies;

adopting long-term strategic plans; employing a competent manager and evaluating performance; preserving the cooperative character of the organization;

establishing an accurate accounting system; adopting

an annual operating budget; appointing an outside

firm to perform an annual audit; controlling the total

operation; and authorizing distribution of cooperative

net earnings and redemption of members’ equities.

The board, in turn, delegates responsibility for

daily operations to a hired general manager or chief

executive officer. The general manager hires or discharges employees, including department heads, who

with the manager comprise the hired management

staff or team.

Responsibilities of hired management include

managing or directing daily business activities; carrying out policies set by the board; setting goals and

making short-term plans; employing, training, and discharging employees; organizing and coordinating

internal activities in compliance with cooperative goals

and objectives and board policies; keeping complete

accounts and records and developing an annual operating budget; and providing the board with periodic

reports.

Questions often arise as to the division of responsibilities between the board and hired management.

Sometimes they overlap and an exact division cannot

be made. Some factors to consider are: the time period—long-term decisions are the responsibility of the

board while management makes short-term decisions;

idea decisions are usually introduced by the board and

actual decisions implemented by management; decisions involving policy are the responsibility of the

board, and cooperative functions are handled by management; broad primary control activities usually concern the board, while secondary controls pertaining to

short-run operations are the responsibility of management. When it comes to staffing, the board hires the

manager who, in turn, selects the staff of the cooperative.

Use of policy and procedure manuals and job

descriptions along with frank discussions of questions

when they arise can help maintain an understanding

of the division of responsibility.

Conduct Businesslike Meetings

A cooperative is a business so its meetings

should be conducted in a businesslike manner.

Policy should be established for determining a

reasonable quorum for membership and board meetings. A quorum is the specific or minimum percentager of members required to be present to conduct

15
official business. Quorum requirements are sometimes

written into State statutes, but should be discussed in

the bylaws. As membership expands, the percentage

quorum increases the actual number needed. Setting

the quorum too high increases the risk of not getting

enough member participants to deal with business

matters needing attention.

Parliamentary procedure is appropriate for

orderly democratic group action. It enables the chair to

lead a group smoothly and efficiently in determining

the wishes of the majority while protecting the rights

of the minority.

A good meeting just doesn’t happen. It results in

carrying out several successive steps: planning ahead,

involving members, following a published agenda,

and following through on meeting actions.

Follow Sound Business Practices

The major challenge to cooperative members, the

board of directors, and operating management occurs

after business operations begin. Many of the startup

responsibilities continue after the cooperative begins

operating. 

For example, it’s critical to operate on a sound

business basis to avoid year-end losses. Requirements

include developing and installing a double-entry

accounting system, preparing financial reports including operating and capital improvement budgets,

reporting to the membership in a clear and timely

manner, and conducting long-term planning.

Beyond complete and accurate documentation of

income and expenses, a cooperative must keep exact

member records. They account for members’ initial

and subsequent investments and member purchasing,

marketing, and/or services used to determine patronage allocations from net earnings. Members also need

these records for their own personal accounts, particularly for income tax purposes.

The management staff prepares periodic operating statements and balance sheets to inform the board

and members on how the cooperative is performing

and its financial condition. A full report is typically

issued annually, with abbreviated monthly or quarterly reports for board use. Reports should come often

enough for the board to satisfactorily monitor business

activities, take appropriate actions, and to keep members informed on how their cooperative is progressing.

An annual independent audit serves as an outside

appraisal of the cooperative’s financial condition, a

check on the business and accounting procedures, and

how the cooperative has conformed with tax and other

legal requirements. 

Once the cooperative is organized and operating,

members need to consider how they want it to grow.

That takes both short- and long-term strategic planning. Long-term planning, which looks 3-to-5 years

ahead, usually gets inadequate attention. But this is

becoming more important because of more rapid technological, economic, and social changes. Planning

involves developing a vision and mission statement,

appraising the future, assessing the external and internal business environment, defining desired goals with

stated objectives, and developing a course of action to

reach them.

Forge Links With Other Cooperatives

An early exercise to determine whether to start a

new cooperative was to investigate the alternative of

linking with an existing cooperative that could expand

its service territory. Even if starting a new cooperative

is the best course of action, the search for beneficial

links with other cooperatives should continue.

Alliances with regional cooperatives or other

businesses may be valuable sources for supplies, marketing outlets, and related services. Membership in

State and national cooperative associations can keep

the new cooperative abreast of what others around the

country are doing. These associations can be sources of

education and training programs, legislative and public relations support activities, and help identify

sources of special expertise.

Avoiding Potential Pitfalls

New organizations are most vulnerable in their

early formative years. Here are some tips for new

cooperatives to avoid potential pitfalls:

1. Lack of clearly identified mission—A new cooperative shouldn’t be formed just for the sake of forming

one. The potential member-user must identify a

clear mission statement with definite goals and

objectives.

2. Inadequate Planning—Detailed plans for reaching

defined goals and the mission are important. Indepth surveys of the potential member-user needs

coupled with business feasibility studies are necessary. Stop the organizational process if there isn’t

sufficient interest in the cooperative by potential

member-users or if it isn’t a sound business venture.

The human cost in time and organization expense

may be better used elsewhere.

16
3. Failure to use experienced advisors and consultants—Most persons interested in becoming member-users of a new cooperative haven’t had cooperative business development experience. Using

resources persons experienced in cooperative development can save a lot of wasted motion and

expense. 

4. Lack of member leadership—Calling on the services

of experienced resource persons can’t replace leadership from the organizing group. Decisions must

come from the potential member-user group and its

selected leadership. Professional resource persons

should never be in decisionmaking positions. 

5. Lack of member commitment—To be successful, the

new cooperative must have the broad-based support

of the potential member-users. The support of

lenders, attorneys, accountants, cooperative specialists, and a few leaders won’t make the cooperative a

business success.

6. Lack of competent management—Most cooperative

members are busy operating and managing their

own businesses and lack experience in cooperative

management. The directors hire experienced and

qualified management to increases the chances for

business success.

7. Failure to identify and minimize risks—The risk in

starting a new business can be reduced if identified

early in the organizational process. Careful study of

the competition, Federal, State, and local

Government regulations, industry trends, environmental issues, and alternative business practices

helps to reduce risk.

8. Poor assumptions—Often, potential member-users

and cooperative leaders overestimate the volume of

business and underestimate the costs of operations.

Anticipated business success that ends in failure

places the organizers in a “bad light.” Quality business assumptions tempered with a dose of pessimism often proves to be judicious.

9. Lack of financing—Regardless of the amount of time

spent in financial projection, most new businesses

are underfinanced. Inefficiencies in startup operations, competition, complying with regulations, and

delays often are the causes. Often, the first months

of business operations and even the first years are

not profitable, so adequate financing is important to

survive this period.

10. Inadequate communications—Keeping the membership, suppliers, and financiers informed is critical during the organization and early life of the

cooperative. Lack of or incorrect information can

create apathy or suspicion. The directors and management must decide to whom and how communications are to be directed.

Considerable time and effort are spent in starting

a new cooperative. Avoiding the pitfalls experienced

by others helps to increase your effort to be successful.

17
Appendix I Sample Member–User Questionnaire

Prepare an introductory letter to accompany the survey and state the purpose. Stress

that the data will be kept confidential and used only for the stated purpose.

Producer Survey: XYZ Vegetable Cooperative

While you are not required to respond, your help is needed to provide data for a

new vegetable marketing cooperative. All answers will be treated confidentially.

1. Contact person for the farm  ____________________________________________

Address _____________________________________ Phone  _________________

2. Farm location—see attached map – County ______________ Grid No. _______

3. How much of your vegetable acreage is irrigated? ___________ acres.

4. Give type and capacity for any of the following facilities and equipment you own.

type and capacity

Cooling facilities _____________________________________________________

Packing equipment  __________________________________________________

Refrigerated truck  ___________________________________________________

Nonrefrigerated truck  ________________________________________________

(over 1 ton)  ________________________________________________________

Mechanical harvester _________________________________________________

5. Check the following supplies or services you are interested in obtaining from

the proposed cooperative if a competitive fee is established.

_____ Packing containers

_____ Vegetable marketing

_____ Vegetable packing

_____ Seeds

_____ Plants

_____ Other (specify)

6. Are you willing to follow the proposed cooperative’s recommendations on

varieties to plant and cultural and harvesting practices?

Yes ___ No ___

7. Banks generally require cooperative owners to raise 35 to 50 percent of the

needed capital. Assuming the cooperative appears feasible, are you willing to

make an initial cash investment in it in proportion to your intended use?

Yes ___ No ___

What is the maximum amount you are willing to invest?

8. Per-unit retains are a capital investment that is deducted from patron's sales

proceeds in proportion to the volume of products they market through the

cooperative. Are you willing to finance the cooperative with per-unit retains?

Yes ___ No ___

18
Appendix I

continued

9. A delayed producer payment is one way of reducing equity for operating capital. Are you willing to accept a delayed crop payment in lieu of a larger initial

cash equity investment?

Yes ___ No ___

If yes, for how long? ___ days

10. In a pool, producers are grouped by type and grade over a selected period of

time (week, month, or season). Producers are paid the average price the cooperative receives for the pooled products less packing and marketing fees. Are

you willing to market your vegetables on a pooled basis?

Yes ___ No ___

11. Are you willing to sign a marketing agreement to sell all or a fixed quantity

(acreage) of your vegetables through the proposed cooperative?

Yes ___ No ___

12. Where do you plan to market your vegetables in the current year (by percentage of production)?

a. Roadside stands ___ percent

b. Farmers’ markets ___ percent

c. Other markets (specify) ____________________ ___ percent

13. Please record production and marketing data in the accompanying table.

19

Acreage you plan Acreage you plan

Months Major Harvested or to be planted Volume sold to sell through to contract with

usually markets ——————————————————— —————— cooperative in cooperative in Experience

Crop harvested in 199X 199V 199W 199X 199Y 199Z 199V 199W 199Y 199Y in production

Asparagus ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Broccoli ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Cabbage ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Cauliflower ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Eggplant ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Greens ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Peppers ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

String beans ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Summer squash ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Sweet corn ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Tomatoes ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

Winter squash ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

____________ ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

____________ ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

____________ ________ ________ ____ ____ ____ ____ ____ ____ ____ ____________ ____________ ___________

1  A–Roadside stands. B–Farmers’ markets. C–Other markets—as detailed to question 12.

2  199X is current year.
Appendix II Steering Committee Report Outline

I. Preface

A. How the project started. 

B. Who is involved. 

II. Contents listing.

III. Summary of findings

IV. Main text.

A. Introductory statement of the economic situation leading to the proposed

cooperative.

B. Producer survey results.

C. Estimated volume of business.

D. Marketing alternatives.

E. Operating procedures.

F. Financing projections.

G. Financial alternatives.

H. Organizational structure.

I. Operating policies.

J. Projected startup date.

K. Summary of estimated benefits.

20
Appendix III

continued

Sample Legal Document Outlines 

Premembership Agreement

1. Statement of purposes for which new cooperative is tho be formed.

2. Description of steering organization committee and its powers.

3. Statement of what new cooperative’s bylaws will provide when formed.

4. Notice that steering committee may call meeting of prospective members.

5. Duties of steering committee to keep records and make accounting to cooperative

when formed.

6. Subscription agreement for membership certificate or stock.

7. Agreement to sign marketing agreement if cooperative is to have one.

Articles of Incorporation

of _______________________________________________________ Association

We, the undersigned, all of whom are residents and citizens of the State of

__________________________, engaged in the production of agricultural products,

do hereby voluntarily associate ourselves for the purpose of forming a cooperative

association, (with/without) capital stock, under the provisions of the

___________________________ Cooperative Marketing Act of the State of

__________________________.

Article I— Name

Article II— Purposes

Article III— Powers; Limitations

Section 1. Powers

Section 2. Limitations

Article IV— Place of Business

Article V— Period of Duration

Article VI— Directors

Article VII— Membership (for nonstock cooperative) or

Article VII— Capital Stock (for stock cooperative)

Section 1. Authorized Amounts; Classes.

Section 2. Common Stock.

Section 3. Preferred Stock.

In testimony whereof, we have hereunto set our hands this _____ day of __________ ,

19__ .

State of 

County of ____ SS.

21
Appendix III

continued

Before me, a notary public, within and for said county and State, on this ___ day of

__________ , 19__ , personally appeared _____ , known to me to be one of the identical persons who executed the within and foregoing instrument, and acknowledged

to me that he/she had executed the same as a free and voluntary act and deed for the

uses and purposes therein set forth.

Witness my hand and official seal the day and year set forth.

Notary Public __________________________________________ 

In and for the County of _____________________ , State of _____________ . 

My Commission expires ___________

Bylaws

Article I — Membership

Section 1. Qualifications.

Section 2. Suspension or Termination.

Article II — Meetings of Members

Section 1. Annual Meetings.

Section 2. Special Meetings.

Section 3. Notice of Meetings.

Section 4. Voting.

Section 5. Quorum.

Section 6. Order of Business.

Determination of quorum.

Proof of due notice of meeting.

Reading and disposition of minutes.

Annual reports of officers and committees.

Unfinished business.

New business.

Election of directors.

Adjournment.

Article III — Directors and Officers

Section 1. Number and Qualifications of Directors.

Section 2. Election of Directors.

Section 3. Election of Officers.

Section 4. Vacancies.

Section 5. Board Meetings.

Section 6. Special Meetings.

Section 7. Notice of Board Meetings.

Section 8. Compensation.

22
Appendix III

continued

Section 9. Quorum.

Article IV — Duties of Directors

Section 1. General Powers.

Section 2. Employment of Manager.

Section 3. Bonds and Insurance.

Section 4. Accounting System and Audit.

Article V — Duties of Officers and Manager

Section 1. Duties of President.

Section 2. Duties of Vice President.

Section 3. Duties of Secretary.

Section 4. Duties of Treasurer.

Section 5. Duties of Manager.

Article VI — Executive Committee and Other Committees

Section 1. Powers and Duties.

Section 2. Other Committees.

Article VII — Membership Certificates

If the association is organized with capital stock, the outline might read:

Article VII — Stock Certificates

Section 1. Common Stock.

Section 2. Other Committees.

Article VIII — Operation at Cost and Patrons’ Capital

Section 1. Service at Cost.

Section 2. Refunds and Patrons’ Capital.

Section 3. Revolving Capital.

Section 4. Transfer.

Section 5. Consent.

Section 6. Consent Notification to Members and Prospective Members.

Article IX — Dissolution and Property Interest of Members

Article X — Unclaimed Money

Article XI — Fiscal Year

Article XII — Miscellaneous Provisions

Section 1. Waiver of Notice

Section 2. Bylaws Printed.

Section 3. Seal.

Article XIII — Amendments

We, the undersigned, being all of the incorporators and members of the

______________ association, do hereby assent to the foregoing bylaws and do adopt

the same as the bylaws of said association; and in witness whereof, we have hereunto subscribed our names, this ________ day of ______ , 19__ .

23
Appendix III

continued

Membership Application and Marketing Contract

THIS AGREEMENT between the ____________________________ , Inc., hereinafter

referred to as the Association, and the undersigned Producer, witnesseth:

The Producer

1. Applies for membership in the Association, and if accepted as a member, agrees to

be bound by its articles of incorporation, bylaws, rules, and regulations as now or

hereafter adopted.

2. Appoints the Association as agent to sell all the __________________ of marketable

quality produced an any farm in control of or operated by the Producer, except

that required for consumption on the farm.

3. Will deliver such products at such times and to such places in unadulterated form

under such conditions as may be prescribed by proper authorities.

4. Will notify the Association of any lien on the products delivered hereunder, and

authorizes the Association to pay the holder of said lien from the net proceeds

derived from the sale of such products before any payment is made to the

Producer hereunder.

5. Will provide capital in such amounts and in such a manner as may be provided in

the bylaws.

The Association:

1. Accepts the application of Producer for membership in the Association.

2. Agrees to act as agent for the marketing of products of Producer as herein provided.

3. Will dispose of Producer’s products in a manner deemed to be most advantageous

for its members.

4. Will account to the Producer in accordance with this contract for all amounts

received from the sale of products as herein provided.

5. Will reflect in an appropriate capital account the capital received from each

patron.

The Producer and the Association mutually agree that the Association shall have the

power:

1. To establish various plans for making returns to the Producer.

2. To blend or pool proceeds from sales of products of the Producer with the proceeds of the sales of products of other Producers, and to account to or settle with

Producer therefore in accordance with established plans.

3. To process or cause to be processed products of the Producer and dispose of the

same in the manner deemed most advantageous to its members.

4. To collect from buyers of products the purchase price therefore and to remit the

same to Producer under a plan authorized by this contract after making uniform

deductions deemed adequate for all necessary expenses and for capital purposes.

In case of a breach of this contract by the Producer, the actual damage to the

Association and other producers cannot be determined. Therefore, Producer agrees

to pay to the Association as liquidated damages for such breach, the sum of

_________ dollars (_________) per ____________ on all products that would have

been delivered had the Producer not breached the said contract.

And the Association shall further be entitled to equitable relief by injunction or

otherwise to prevent any such breach or threatened breach thereof and the payment

of all costs of litigation in connection with the exercise of any or all of the remedies

available to the Association.

24
Appendix III

continued

This contract shall remain in effect for an initial term of (______) years from the

date hereof. Following the initial term, the contract may be cancelled by notice given

in writing by either party to the other within ten (10) days after any yearly anniversary date, and such cancellation shall become effective on the last day of the second

calendar month following the month during which such notice is given.

Date ______________

Producer’s signature ________________________   (________________________)

Print name here

Address

___________________________________________________________________________

(R.F.D. or Street No.) (Town) (State and Zip Code)

Social Security No. _____________________  County____________________________

Accepted this day of _________. 19__ .

______________________________ , Inc.

By ______________________________ , Pres.

By ______________________________ , Secy.

(Some State laws provide for filling or recording cooperative marketing contracts in

a county recorder’s office to give notice to third parties that the contract exists. And

acknowledgment if the contract is to be filed or recorded.)

Membership Certificate

This certifies that _______________________________ of _________________________

is a member of _______________________________ Association and is entitled to all

of the rights, benefits, and privileges of the Association.

Date _______________________________ .

_______________________________

(President)

Waiver of Notice of First Meeting of Board of Directors

We, the undersigned, being all the directors of 

____________________________________________________________________

(Name of association) 

____________________________________________________________________ , 

(State) (Town)

hereby waive notice of a meeting of such directors at ___________o’clock am./pm. on

_______ the _______ day of ______________ , 19__ , at 

____________________________________ in ___________________ , _____________ 

(Place of meeting) (Town) (State)

for the purpose of electing officers of the association to serve during the ensuing

year, adopting the form of marketing contract, and hereunto subscribed our names,

this _____________________ day of _____________________ , 19__ .

______________________________ 

______________________________ 

______________________________ 

25
Appendix IV Sample Projected Financial Statements— Examples of Gross Margins and

Commission Fees

Table 1— Projected cash flow, fiscal year ending July 31, 19__ 

Item Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Total

Dollars

Cash received:

Product sales xx x x x x xx x xx xx

Capital retain 

assessment xx x x x x xx x xx xx

Commission fees xx x x x x xx x xx xx

Supply sales xx x x x x xx x xx xx

Interest income xx x x x x xx x xx xx

Operating loan xx x x x x xx x xx xx

Facility loan xx x x x x xx x xx xx

Total cash received xx x x x x xx x xx xx

Cash disbursed:

Fixed assets xx x x x x xx x xx xx

Product purchases xx x x x x xx x xx xx

Supply purchases xx x x x x xx x xx xx

Wages xx x x x x xx x xx xx

Packing xx x x x x xx x xx xx

Inspection fees xx x x x x xx x xx xx

Insurance xx x x x x xx x xx xx

Transportation xx x x x x xx x xx xx

Utilities xx x x x x xx x xx xx

Maintenance xx x x x x xx x xx xx

Office supplies xx x x x x xx x xx xx

Legal fees & audit xx x x x x xx x xx xx

Brokerage fees xx x x x x xx x xx xx

Taxes & licenses xx x x x x xx x xx xx

Loan repayment xx x x x x xx x xx xx

Facility loan-principal xx x x x x xx x xx xx

Facility loan-interest xx x x x x xx x xx xx

Inventory-principal xx x x x x xx x xx xx

Inventory-interest xx x x x x xx x xx xx

Total cash disbursed xx x x x x xx x xx xx

Net cash flow xx x x x x xx x xx xx

Cash balance, previous year xx x x x x xx x xx xx

Ending cash balance xx x x x x xx x xx xx

26
Appendix IV

continued

Table 2— Projected operating statement, year ending July 31, 19__ 

Item Dollars

Income:

Product sales x

Supply sales x

Commission fees x

Total sales x

Cost of products sold x x

Cost of supplies sold x

Gross margin x

Other income (interest) x

Total Revenue x

Expenses:

Wages x

Packaging x

Inspection fees x

Insurance x

Transportation x

Utilities x

Maintenance x

Office supplies x

Legal fees & audit x

Brokerage fees x

Taxes & licenses x

Subtotal x

Interest-inventory x

Interest-operating loan x

Depreciation x

Total Expenses x

Net margin x

Allocation of net margin x

Cash refund payable x

Allocated reserve x

27
Appendix IV

continued

Table 3— Projected balance sheet, as of July 31, 19__ 

Item Dollars

ASSETS

Current:

Cash x

Inventory x

Accounts receivable x

Prepaid insurance x

Interest receivable x

Total current x

Fixed:

Land, buildings, equipment and organizational costs x

Less reserve for depreciation x

Net fixed assets x

Total assets x

LIABILITIES AND MEMBER EqUITy

Current liabilities:

Inventory loan x

Facility loan x

Interest payable x

Patronage refund payable x

Accounts payable x

Total current x

Long term liabilities:

Facility loan x

Total long term x

Member equity:

Stock purchased x

Allocated earnings x

Unallocated earnings x

Per unit capital retains x

Total member equity x

Total liabilities and member equity x

28
Appendix IV

continued

Table 4— Projected source and use of funds statement, year ending July 31, 19__ 

Item Dollars

SOURCE OF FUNDS

Operations:

Net margin x

Depreciation x

Per unit capital retains x

Facility loan x

Operating loan x

Inventory loan x

Total sources x

USE OF FUNDS

Patronage refunds payable in cash x

Additions to fixed assets x

Additions to investments x

Deferred charges x

Loan principal paid x

Net increase in working capital x

Total uses x

Changes in working capital:

Change in current assets:

Cash and certificates of deposit x

Accounts receivable x

Accrued interest payable x

Operating loan payable x

Term loan payable x

Net change in current liabilities x

Net change in working capital x

29
Appendix V Sample schedule of fixed asset costs and depreciation

Item Cost Annual depreciation

Dollars

Land x NA

Less timber sale x NA

———— ————

Total land, net x NA

Buildings and equipment x x

Buildings (18 year life): x x

Erected building, site preparation x x

Engineering x x

Equipment installed (12 year life) x x

———— ————

Total buildings and equipment x x

Organizational expense (5 year life) x x

———— ————

Total fixed assets x x

NA = Not applicable

30
Appendix VI Sample schedule of financing needs and sources

Item Fixed assets Inventory capital Operating capital 

Total provided

Dollars

Total capital xxx x

Equity xxx x

Borrowed funds: xxx x

Bank loan xxx x

Long-term notes xxx x

31
Appendix VII Helpful References

Rural Cooperative Publications. CIR 4, 2005

Cooperatives in Agribusiness. CIR 5, 2002

What Are Patronage Refunds? CIR 9, Reprinted 1993

Cooperatives: What They Are and the Role of Members, Directors, 

Managers, and Employees. CIR 11, 2001

Organizing and Conducting Cooperatives' Annual Meetings. CIR 21, 1992

Tax Treatment of Farmer Cooperatives. CIR 23, Revised 1995

Director Liability in Agricultural Cooperatives. CIR 34, Reprinted 1996

Understanding Capper-Volstead. CIR 35, 1985

Sample Policies for Cooperatives. CIR 39, Reprinted 1993

Sample Legal Documents for Cooperatives. CIR 40, Reprinted 1995

Understanding Cooperatives. CIR 45, Sect. 1-14 (Educational Series), 1994-95

Do Yourself a Favor: Join a Cooperative. CIR 54, 1996

Understanding Cooperative Bookkeeping and Financial Statements. CIR 57, 1998

The Circle of Responsibilities for Co-op Boards. CIR 61, 2003

Cooperative Directors: Asking Necessary Questions. CIR 62, 2003

Nominating, Electing & Compensating Co-op Directors. CIR 63, 2005

Creating 'Co-op Fever': A Rural Developer's Guide to Forming 

Cooperatives. SR 54, 1998

Cooperative Feasibility Study Guide. SR 58, 2000

These and other USDA Rural Development Cooperative Programs publications are

available free by writing to:

USDA Rural Development

Cooperative Programs

Stop 3250

Washington, DC 20250-3250 

Publications are also available online at

www.rurdev.usda.gov/rbs/pub/newpub.htm. 

32
U.S. Department of Agriculture

Rural Development

Rural Business-Cooperative Service

Cooperative Programs

Stop 3250

Washington, D.C. 20250-3250

Rural Business-Cooperative Service (RBS) Cooperative Programs

provides research, management, and educational assistance to

cooperatives to strengthen the economic position of farmers and

other rural residents. It works directly with cooperative leaders

and Federal and State agencies to improve organization,

leadership, and operation of cooperatives and to give guidance to

further development.

Cooperative Programs (1) helps farmers and other rural residents

develop cooperatives to obtain supplies and services at lower cost

and to get better prices for products they sell; (2) advises rural

residents on developing existing resources through cooperative

action to enhance rural living; (3) helps cooperatives improve

services and operating efficiency; (4) informs members, directors,

employees, and the public on how cooperatives work and benefit

their members and their communities; and (5) encourages

international cooperative programs. RBS also publishes research

and educational materials and issues Rural Cooperatives magazine

(www.rurdev.usda.gov/rbs/pub/openmag.htm).

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.