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Reinventing Co-operatives

Seamus O'Donohoe National Rural Network

Secretary Annual Conference

ICOS Ltd Tuesday 1st December 2009

1www.nrn.ie

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Cooperative Definition

“A cooperative is a user owned and user

controlled business that distributes benefits

on the basis of use.”

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The Co-operative Identity

IMPROVEMEMBERS

INCOMES/SERVICES

PIONEERNEW

DEVELOPMENTS

IMPROVETHE

SOCIAL ENVIRONMENT

ABUSINESS

ORGANISATION

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Co-operatives – a Neglected Option

• Co-operative way is worth a second look• Not just a particular corporate form

– A definition– A set of principles– A set of values– Particularly suited to recessionary times

• When the state and markets let you down organise yourself!

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Co-operatives Suffer From Poor Visibility!

• Poorly understood• Company is the choice of default

– May not suit all purposes

• Public bodies have a responsibility • Promoters have a responsibility

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Communication Challenges

• Greater requirement for communication and education in the co-operative model– Co-ops usually have a larger membership,– Some members less knowledgeable in business– Public, banking and professions less familiar

• An Investment that can pay for itself• Success and failure on the part of a co-op is more

visible than in a private company

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The Business Model

Entrepreneurship(Risk, Innovation, Market Demand)

ManagementCapital(sweat equity)LabourBusiness Environment(Govt. Policy, Grants, Taxation, Credit Policy)

Communications/Transparency

Choice of Legal Structure =

Ownership

Control

Financing

Benefit (Profits, Prices)

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Similarities To Companies

• Legal Framework

• Board Of Directors

• Mission / Objectives / Strategy

• Capital

• Managers

• Surplus [Profits]

• Efficient/effective

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Choice of Co-op Legal Form

• Industrial and Provident Societies– Form Most Commonly Used for registering Co-operatives – Highly Adaptable, – Accommodates Many Different Types of Co-operative

• Credit Unions– A Distinctive Form of Co-operative Society– Members Save Together and Lend to Each Other

• European Co-operative Statute• Other Business Forms can be used

– Partnerships– Companies (several variants)

• Evaluate against business plan!

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Co-operative Organisation

• Traditional co-operatives• New generation co-operatives• Subsidiaries with partial public ownership• Equity seeking joint ventures• Strategic alliances with plc’s

– Alternative co-operative models differ in the way ownership rights are defined and assigned to stakeholders

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When Does the Co-op Model Fit Best?

• Fits best where;

– Where the perspective members are have more or less the

same needs

– Where means exist of ensuring loyalty

– Where the ‘prize’ is worth the effort

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Diversity of Co-operative Ventures

• Caravan and Camping and Mobile Home Society• Independent Hostel Owners Co-operative Society• Mean Scoil San Nioclas• North Kerry Arts and Cultural Society• Roscommon Retail Therapy Society• Sligo Football and Sport Development Society• Alpaca Association of Ireland Co-operative Society• Regional Airport• Prayer Group!

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Why Invest In Coops ?

• One of many alternative uses for time and money

• If market failure occurs

– When prices are not fair-to high or too low or

– Goods and services that are demanded cannot be obtained

– Producers, consumers, workers see the benefits of organising

themselves

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Economic Justification I

Overcoming Market Failure

• The Co-operative Role– Pooling Resources– Controlled by Members

“Apparently his idea was to induce people to combine for business purposes and thereby to help themselves while they helped one another. Wealth was to be created by thrift, honest dealing and by the loyalty of the participants in the partnership with one another” RA Anderson “With Plunkett in Ireland”

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Participation of Other Stakeholders

• Co-operative may need ‘investors’ other than the members • Stakeholders

– The community ( potential customers)– User firms and businesses ( other private firms, co-ops – hotels,

processing co-op’s etc)– Public sector ( hospitals, schools, local authority housing)

• Creation of membership categories– Varying rights and responsibilities

• Share type allocated• Voting rights• Board representation• Financial reward

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Why Should I Become Involved?

– Do I want a passive or active involvement• Price taker or price maker?• Service or no service

– Consider joining existing co-operatives – Might it be easier to restructure than to start anew?– Start from new?– A partnership arrangement may be an option?

• Local, Regional and National Public Bodies may be more attracted to a ‘co-operative/partnership model’ when seeking to supply a service

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When Does the Co-op Model Fit Best?

• Matching ambition to capability• Taking manageable steps v giant steps!• Beneficiary led is best• Fits best where;

– Where members are ‘homogenous’ in their needs

– Where a means exists for members to honour their obligations

– Where the business has an attractive risk/reward ratio

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Seek Advice

• ICOS• Solicitor/Accountant• Teagasc• Partnership Companies• County Enterprise Board• Registry of Friendly Societies• Other Development Agencies

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Goodness of Fit

• Is the co-op the best fit?

• Has an evaluation been done?

• Develop business strategy first

• Then examine legal structures

• If co-op is best choice, alignment with business plan will

require analysis and planning to ensure viability

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Issue Co-op Private CompanyVoting One man one Vote One vote per share

Membership 7 to No limit 1 to 100

Share Capital Unlimited To amt authorised

Funds from Public Yes, with permission No

Audit Exemption No Yes

Individual Share Investment Limit

Yes No

Co-op v Private Company

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Issue Co-op Private Company

Incorporation Costs €228 if model rules are used unchanged plus initial administration/affiliation charge to ICOS of €407

€60, plus cost of model memo and articles plus solicitor/accountants fees

Tax Burden Same Same

Compliance Burden -   Conduct an annual audit, -   Submit annual/triennial returns

- Conduct an annual audit -   Submit annual return-   Notify changes of directors -  Significant fines/ penalties-   Answerable to DCE

Increase /Reduce Share Capital

Yes Yes but constraints

Co-op v Private Company

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Issue Co-op Private Company

Principle Source of Professional Advice-    Customisation of rules-    Registration of the Society-    Interpretation of rules, -    Disputes resolution, -    Attendance at Board & AGM’s

ICOS Solicitor/Accountant

Transfer of Shares Rules delimit Memorandum delimits

Powers of Nomination Up to €15,000 No

Intestacy Up to €10,000 No

Co-op v Private Company

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Adherence to Values Brings Success

• Co-operatives are based on;– Self-help, self-responsibility, democracy, equality, equity

and solidarity, honesty, openness and social responsibility

• Where the members can see value in committing for the long term, – The co-operative model will succeed

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Conclusion

• Choices

– Do nothing and take what the market/state is willing to

offer on their terms and conditions

– Become actively involved in the marketplace and have

some influence over what you are going to be paid and the

terms and conditions that should apply