What are bylaws?
Bylaws are the rules and regulations that govern various aspects of a co-operative business. They shape the business and structure how the co-operative goes about doing business. Bylaws vary widely among organizations and reflect both the business of the co-operative and values and interests of its shareholders. They also set the groundwork for further policy development, and outline the procedures for carrying out the business of the co-operative.
While bylaws are required by legislation, they also help provide clarity of purpose and shared understanding of key processes for shareholders, which is key to ensuring engagement and patronage from shareholders and a healthy core business. A good set of bylaws is:
This section of your bylaws should identify the location of the registered office of the co-operative business as stated in the articles of incorporation, which, for legal reasons, needs to be a physical location, not a post office box.
The declaration of the fiscal year outlines the timeframe in which your co-operative business will operate each year. It’s important to consider this date to be different than a grand opening or anniversary, as your year-end date determines when you file your return, potentially undergo a financial audit and organize an annual members/shareholders meeting. An anniversary is a celebration, while the financial year-end, in contrast, usually includes a lot of business tedium, planning and the voting in of a new board of directors.
Conditions of being a shareholder
Possibly the most important bylaw to consider is the conditions of holding a share in the company. This section outlines who can become a shareholder, which defines ownership and control over the business. Share ownership can be open and include anyone using the co-op’s services, such as in the case of many retail co-ops. Or it can be closed to those approved by the board of directors, like some housing co-ops.
The conditions of share ownership should also outline how someone applies to become a shareholder. In many cases, a written application is submitted to the board of directors, and is accompanied with payment for the purchase of a share. Shareholders determine the price assigned to a share at a general meeting.
Legally, bylaws need to include a provision allowing or prohibiting joint shares in the co-operative business. Defining joint share ownership outlines whether more than one individual or legal entity can own a single share or not.
Allocation of surplus
Important to co-operative business bylaws is clearly outlining what happens to surplus revenue (profit). For example, many co-operative businesses include a stipulation that a portion of the surplus (e.g. 10%) be allocated to reserves or community projects. Some co-operative businesses distribute profits amongst shareholders, which is called a dividend. Co-operatives distributing dividends to shareholders should state in their by-laws that dividends are issued proportionate to the shareholder’s use of the business’ services and may not be issued for negligible amounts (e.g. less than $10).
Withdrawal of share by shareholders
This section of the bylaws should outline the process followed when a shareholder wants to withdrawal their share from the business. Many co-operative businesses require shareholders to submit a written notice of intention to withdraw and the matter is resolved at a board meeting. Co-operative businesses pay all amounts held to the credit of the shareholder within a set time frame (e.g. 2 weeks) after accepting a shareholder’s application to withdraw.
Termination of a share by directors
If a co-operative business needs to remove a shareholder, this section of the bylaws outlines the process of removing a shareholder by the board of directors. Removing a shareholder generally requires a two-thirds vote in favor of termination at a board meeting, and it’s often the role of the board secretary to notify the shareholder of the decision in writing and within a set time frame following a successful vote to remove (e.g. 10 days).
The shareholder may appeal this decision at a shareholder meeting by giving written notice of their intention to appeal to the board secretary within one month of being given their notice of termination. A two-thirds majority vote at the shareholder meeting is required to overturn the order. In the event a share is terminated, all amounts held to the shareholders credit by the co-operative would be paid out within a pre-determined time (e.g. within six months of termination).
Terminations of share by shareholders
Similar to the section above, this section of the bylaws outlines the process that is followed when shareholders wish to terminate the share of another shareholder. Notice of the contest must be given to the shareholder at least 10 days before the shareholder meeting during which the share will be contested. The termination must be approved by a two-thirds vote of present shareholders.
Notice of meetings
This section of the bylaws outlines the process for giving shareholders notice of an annual or general meeting. Co-operative businesses usually give between 10-60 days’ notice to all shareholders. Boards use a variety of methods to provide notice, but they generally include mail, newspaper ads, flyers or phone calls. The place designated for the meeting should be within the operating area of the co-operative business.
This section of the bylaws outlines the number of shareholders required to make decisions at general or special meetings. This may include a set number (e.g. 10) or a percentage of the business’ shareholders (e.g. 10%). Some co-operative businesses, may simply require that quorum be the board of directors plus one-two.
When quorum is not met, the meeting may be adjourned, but no business should be decided.
Annual General Meetings (AGMs)
This section of a set of bylaws is optional. If included, this section outlines the agenda of the meeting’s business discussions and decisions being made at the annual general meeting. A sample outline of the agenda may look something like this:
Appointing an auditor
Within the bylaws there should also be an outline for the process of appointing an auditor. Auditors are usually appointed at a general meeting by a shareholders vote, and following confirmation the auditor typically holds this office until the next general meeting.
This section of the bylaws governs the way shareholders vote at special or general meetings. The section should make provision for: the way to vote (e.g. by show of hands), the set of circumstances where a secret ballot is used (e.g. demanded by five voting shareholders), and whether votes will be accepted by mail, electronic means or by proxy. Make sure to indicate that each shareholder is allowed only one vote on any decision. The meeting’s chair is entitled to vote on decisions, but cannot cast a second vote in the event of a tie. Decisions are passed by reaching a majority of voting shareholders. If a vote ends in a tie, the motion/resolution is defeated.
This section of the bylaws outlines the process for amending, repealing, enacting, confirming or replacing any bylaws at a general or special meeting. Typically, if notice of the proposed change is forwarded to shareholders prior to the meeting, the decision is made by a simple majority vote. In the event notice is not given to shareholders prior to the meeting, a two-thirds majority is usually required to accept the proposed change.
This section of the bylaws governs the qualifications, tenure and process for selecting shareholders to serve on the board of directors. Most co-operative businesses set limits for the minimum and maximum number of directors in their articles of incorporation and allow shareholders to select the number elected each year at an annual meeting.
The bylaws should clarify the qualifications, if any, required by an individual to serve as a director (e.g. be 18 years or older, not hold the status of bankrupt, be of sound mind, is a shareholder of the co-operative, etc.). Some co-operative businesses allow employees to serve on the board of directors, but set a limit on the number of employees serving on the board (e.g. 2).
Directors are elected at the annual meeting, typically holding office for a specific term, and until the annual meeting where a successor is elected. Directors may be removed from the board if shareholders pass a special resolution with a two-thirds majority at a general meeting.
The bylaws should outline the procedures for nominating individuals to serve on the board of directors. A list of candidates for the board of directors should be maintained and presented to shareholders at the annual meeting. Election of directors should use a secret ballot and allow shareholders to vote for the number of candidates eligible to be elected at that meeting (e.g. if there are 3 positions on the board being contested, shareholders may cast 3 ballots).
If there is a vacancy on the board of directors, the board can appoint a director to serve until the next general meeting or allow the vacancy to remain until the next general meeting – assuming the board still has a majority (quorum) of directors. If the board does not have quorum, they must call a general meeting and elect directors to fill the vacancies.
Remuneration paid to directors (if any) must be approved at general meetings.
Board and committee meetings
This section of the bylaws outlines the processes governing meetings of the board of directors or committees. Most decisions at the meetings are decided by a simple majority vote with each director being entitled to one vote. Some co-operative businesses allow meetings to be held using telephone or other electronic means. This is particularly beneficial for remote or geographically dispersed board members, but should be clarified in the bylaws. Boards can also allow
motions/resolutions to be passed by the board without meeting (i.e. over e-mail) if all directors consent and this consent is filed in the minutes. The meeting’s chair is entitled to a vote on any motion/resolution, but cannot cast a second vote in the event of a tie.
This section of the bylaws should outline the offices for board members. Once elected, the board votes to appoint a president and vice-president. A secretary or secretary-treasurer must also be appointed; however, this office is not required to be filled by a director. The role of secretary or secretary-treasurer may be filled by a shareholder or employee of the co-operative business. The board also creates a specific list of duties and accountabilities for each officer, as well as directors and committees (an advisory body made up of at least 2 shareholders including one director).
Directors’ duties and powers
This section of the bylaws should outline the responsibilities of directors and will likely depend on the specific business of the co-operative. Some key stipulations may include appointment of management, exercise borrowing powers, exercise powers directly or indirectly through staff, and formulating remuneration for management/staff.
This section of the bylaws outlines the process to be followed in the event shareholders vote to approve the dissolution of the business. Upon dissolution, all assets must be converted to cash to repay any outstanding debts and repurchase common shares held by shareholders. Any remaining cash is usually donated to a non-profit organization specified in the resolution to dissolve the business.
We also have a sample set of bylaws to help with this process.