Rules of Association (or bylaws) are the rules and regulations that govern and define various aspects of a co-operative’s business.
Rules of Association can vary widely across organizations and reflect both the business of the co-operative and values and interests of its members. They also outline the procedures the organization uses to carry out its business.
When you incorporate a co-operative in British Columbia, you have to submit Memorandum of Association documents to the government, along with Rules of Association.
A good set of rules are:
In BC, all co-ops are governed by the Cooperative Association Act, and the rules a co-op creates for itself are an extension of that legislation. The good news is that you don’t have to write these from scratch: the government includes a sample set of Rules of Association. All co-ops need to use these rules as a starting point. Unfortunately, the sample they provide includes over 170 sections, most of which you probably will not need.
Below is an overview of each part of the Rules of Association. We include insights and examples to help you build your own set of rules. To get going, you may want to familiarize yourself with the BC government’s sample, which you can find here. Not surprisingly, any rules you create that do not comply with the legislation are overruled by the provincial legislation.
In this section of the rules, define key terms and provide clarification on important questions. Think about frequently-used terms that have unique meaning for your co-op and need to be clarified. Make a list. Agree to the shared definition and include them in this section.
Part 2 – Membership
How does someone become a member of your co-op? What is the process for becoming a member? And how would you remove a member from the organization? This section is important as it determines who owns and controls the organization.
Groups completing their rules should consider whether an individual should have to meet any additional requirements before becoming a member. For example, a worker co-operative could require someone to complete a probationary period before applying for membership.
In Rule 8 you set the number of shares that someone needs to buy to become a member. Set the cost of shares and the number issued in your Memorandum of Association. That way, you can just add those numbers here. Generally, share price and quantity issued are based on the financial needs of your co-op. If your co-op has multiple classes of membership, you should include share requirements for each separate class in your rules.
Rules 11-15 set out what happens if a member wants to withdraw from the co-op. They also set the process for removing a member, and how that member can appeal the decision if their membership is terminated. There might be additional reasons a member may have to be removed that are unique to different co-ops, and those should be included here as well. Having clear rules provides structure and a clear path for members of a co-op to follow during conflict or when navigating contentious issues.
A joint membership is held by two or more people (or organizations). The rules about joint memberships outline what happens if a joint member dies, how a joint member can serve on the board, and what happens if joint members withdraw from the co-op. Allowing for joint memberships can have advantages, especially for members that are families — like co-op grocery stores or daycare co-ops. However, producer or worker co-ops will probably want to prohibit joint memberships.
This section outlines the special rights and restrictions given to investment shares and shareholders. This may include the par value of the shares, whether or not they can be transferred, if investment shareholders can elect a director, what happens to shares if the co-op dissolves, how dividends might be issued, and how shares can be redeemed.
If the co-op won’t issue investment shares, this section only needs to state that “the authorized share structure is set out in the memorandum of association.”
In this section, outline how members pay for shares. Specifically, set out the procedure to follow if a member doesn’t pay for his/her shares. This procedure can involve the directors calling on the member for unpaid amounts and/or charging interest on unpaid amounts. Also, outline the amount of notice provided to a member with unpaid shares before they forfeit their membership. Likewise, the process of a membership being forfeited should be included. This issue might seem like common sense, but stating the rules clearly now can help mitigate issues later on.
Legally, co-operatives in BC “must” provide share certificates to their members and investment shareholders. One certificate should be provided to every individual member, and if the certificate is lost or destroyed the co-op replaces it. Each certificate issued is manually signed by at least one director or officer.
This section outlines how shares are transferred from one individual to another. A standard set of rules that details the transfer is supplied. When a transfer can happen and when it takes effect, and the role of directors have in approving and recording the transfer, is included. This standard process may not be relevant for co-ops without share capital or those that do not want shares to be transferred, such as worker or producer co-operatives. In these cases, the co-op may simply purchase shares back from the member rather than allowing them to be transferred from one member to another.
Not to be confused with the previous entry, this section outlines the procedure for dealing with shares following the death of a member of the co-operative. Standard procedure involves the deceased member’s beneficiary providing proof of the death to the board. At that point, the deceased member’s shares are transferred to the beneficiary or may be redeemed by the co-op.
In this section, outline how a member redeems their share in a co-op. Redeeming shares means the organization purchases all or some of a member’s shares either at par value or at a rate determined by the board. As such, this section should provide the board the authority to purchase shares from members. It should also outline how the co-op can go about this. The co-op may also sell shares it has redeemed.
In the template provided by the provincial government, rule 51 allows a member to redeem his/her shares, other than those required to be a member, when they turn 60. This is a common provision for consumer co-ops, but may not be a good fit for all types of co-ops. When determining the rules around the redemption of shares, keep in mind the long term viability of the co-op and protect it from risk.
This section simply requires the co-op to maintain a list of members and investment shareholders.
In the province provided template, this rather large section contains 27 rules. These rules provide all the information you need to know about co-operatives’ annual general meetings (AGMs), including:
The rules around notice are particularly important. According to the Act, a co-op must give at least 14 days’ notice of the AGM if a special resolution will be proposed, and only 7 days’ notice if you’ll just be discussing ordinary business. However, you can choose to require longer notice in your rules. It’s important for the board to follow the procedures for giving notice of the meeting to ensure it complies with the law, and also encourages members to attend.
Other rules in this part include provisions about who should chair the meeting, the duties of the secretary, and whether the co-op can host a meeting by conference call.
Rules 69-71 focus on quorum at the AGM — this is the number of members that have to be present to carry on business at the meeting. The sample rules set this at 10% of the total number of members, but this may be an unattainable number if the co-op has a large membership. It’s a good idea to plan for the long-term here, based on the type of co-op you have and the membership you want. A worker co-op will probably find it easier to get a high percentage of its members to attend the AGM; a consumer co-op with hundreds (or thousands) of members will have a harder time. Don’t set yourself up for failure. The Act doesn’t provide a required minimum quorum, so your co-op can set a level for quorum that makes the most sense in the long-term.
In this section, outline processes the chair needs to oversee during votes at general meetings, including
NOTE: All resolutions are considered ordinary resolutions (unless specified otherwise in the rules or the Act). This means they only require a majority of people present at the meeting to vote in favour of the resolution.
These resolutions are decided by show of hands and may be individually counted (ie. “polled”) if the chair or another member requests it. Rule 89 says any ballot or proxy must be retained by the co-op for 3 months in case a dispute arises.
For community service co-ops or those that do not have outstanding investment shares, skip this section. For those with investment shares, in this section outline the rules for meetings of a co-op’s investment shareholders. If you are okay with what’s been provided by the province, simply state that the same rules that govern annual members’ meetings apply to investment shareholders.
In this section, outline member voting rights and regulations for proxies. Proxy voting is when someone who is entitled to vote, but who is unable to attend the meeting, appoints someone to vote in their place. The sample Rule 96 says that the member must live at least 80 km away from the meeting place to appoint a proxy. Rules 98 and 99 set out the procedure and provide a sample form that you can use to appoint a proxy. You can change these provisions to suit your co-operative (changing the 80 km distance, for example).
In this section, outline the number of directors allowed on the board and the qualifications they should have. In BC, co-ops need to have a minimum of 3 directors, but should also set a maximum number. The sample rules list the qualifications for directors, including that a majority of directors must not be employees of the co-op. Unless you’re an employee-owned co-op, this is a good suggestion. The Act says the minimum qualifications for a director are:
In this section outline the process for:
When just starting out, it’s a good idea to stagger the terms of directors, and the rules should outline the procedure for this. Staggered terms of office mean that a portion of the board will come up for election each year, which prevents the entire board from facing election (and possibly replacement) at one time. It also gives people who have not sat on the board a chance to serve.
The sample rules offer a system for electing directors to staggered terms, but alternative methods can also be used. For example, directors elected at the second annual meeting can decide who among themselves will serve a term that ends on the next even year (e.g. 2020) or odd year (e.g. 2021). In elections after that, directors will be elected to 2-year terms. Although this will only apply to the co-op’s early elections, it is essential that it be included in the rules.
In this section, you should also outline the procedure for handling a vacancy on the board. The directors may continue to function as a board if they still have a quorum and can appoint a member to fill the vacancy. If the board does not have a quorum of directors, a special meeting will need to be called to elect new directors.
In this section, outline board meeting procedures, including:
You should also outline how to give notice of meetings, and what should be included in the notice. NOTE: This may be quite simple as it is usually decided over e-mail.
Meeting in-person is not always possible. Rule 132 and 135 allows the board to do business without an in-person meeting.
Boards often strike committees to organize and disperse the work that needs to be done. Boards can create committees at regular board meetings. In this section, outline some of the basic meeting rules, including:
NOTE: The resolution that creates the committee usually includes the names of the directors that make up this committee. The provincial sample also suggests creating a Terms of Reference for each committee. The Terms would outline committee member duties and authority. In practice, most committee work is fairly straight-forward, and a Terms of Reference may be an unnecessary step.
In this section provide an overview of the process for appointing the co-op’s officers. An officer is a director with additional responsibilities that are set by the Act, the rules, and the board. These positions typically include: president, vice-president, secretary, and treasurer (or a single position called secretary-treasurer). The board appoints officers by ordinary resolution. If they choose, a board can also assign them with additional powers and duties.
This section contains only one rule, which states that your co-op has to follow the conflict of interest regulations written in the Act. If you dig into the Act, Sections 86-96 deal with the conflict of interest rules. The important bits to understand are sections 86(3) (which lists situations that are not considered a “disclosable interest”), 87 (when disclosure of a conflict of interest is necessary), and 88 (how to make a disclosure).
In short, if a director or officer of your co-op faces (or thinks they face) a conflict of interest, they should bring it to the board to figure out the best course of action.
This section only contains rule 150: a co-operative must indemnify its directors and officers. This means the co-op has a duty to protect its directors and officers from liability through insurance. Co-ops should get directors’ liability insurance in order to meet this requirement.
The provincially supplied rules contain a lot of information in this section that impacts the operations of the co-op. Below is a highlight and synopsis of these.
Rules 151 to 153 are particularly important: these allow you to set restrictions on the borrowing and investing powers of your co-op’s board. If you choose to place restrictions (ie. a maximum amount) on the board’s ability to invest or borrow money, pay attention to this section.
Rule 154 simply says to follow the Act when it comes to appointing an auditor. When you check the Act, it says the members of the co-op may dispense with an audit only if it is a community service co-op that is not required to undergo an audit by the registrar. As such, expect to appoint an auditor.
The rules also state what the co-op can do with its profits. Rule 157 and 158 explain how profits should go towards reserves and deficits first, after which the board can decide how to distribute the rest of the profits to the members, through patronage returns or dividends.
In this section include a process for resolving disputes within the co-op. A 3-person committee of members needs to be appointed. The committee should be made up of one individual involved in each side of the dispute, and a third party appointed by the two other members. This committee will receive information on the dispute and put forward a decision.
This part explains how notice should be provided to directors, members, investment shareholders, and the co-op. There are several ways you can give notice, but these can be refined based on the needs of the co-op. The rules protect the processes of the co-op and provide for situations where a person can’t be located to be given the notice, if there was an accidental omission, and if notice is sent to someone that has died (their beneficiary may act in their place).
In this section, outline how the co-op should serve documents to intended recipients through registered mail or personal service. The Act says any documents that must be served by the co-op may also be sent by registered mail, personally delivered, or left at its registered office.
If the co-op doesn’t use a seal, those with signing authority can simply sign off on things. If your co-op will have a seal, in this section you should outline how the co-op’s seal (or stamp) is to be created. Generally, this is done by the board. You should also note where the seal should be stored. Often this is at the co-op’s registered office. And, finally, indicate who may attest the seal. Note also that the seal should be placed over the signatures of those designated signing authority. Otherwise, just let those with signing authority sign off on things.
The provincial template states that “retention of, and entitlement and access to, records of the Association are governed by the Act.”
The Act says the storage of the co-op’s records is important, and that they have to be kept at the co-op’s registered office. Those records include anything related to the co-op’s incorporation documents, minutes, financials, resolutions, and policies. These records are available to the directors, but the board can decide if they should be available to all members. The memorandum and rules of association, however, have to be given to the members and investment shareholders.
The Act outlines what the co-op can change and how. In short, the co-op can essentially change everything through a special resolution.
Need a business plan? Start here. The Biz Plan Creator is an easy-to-use and helpful tool. Designed to guide you through the process, the Biz Plan Creator offers a user-friendly platform and clear advice at every stage. Plus, it includes a secure account and customized branding of your plan. So, you can leave and come back to your plan as needed. And when you’re done, a branded PDF business plan ready for investors and financiers is your reward.