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Shareholders and Governance in Co-operatives

The foundation for any co-operative is its shareholders (often called “members”). Shareholders can support their co-op financially by contributing start-up funds and/or using its services. Co-operatives that raise funds by selling shares (and those that collect membership fees) need to have a good idea of who their members are and how they can contribute to set the co-op up for success.

Being a member/shareholder in a co-operative

Becoming a member of a co-op also makes you an owner. This usually includes getting to vote on major decisions, an opportunity to run for a board position, dividends, and access to information about the co-operative. However, being a member also comes with responsibilities, including financially supporting the co-op, participating in its governance, holding directors and staff accountable, and offering suggestions on how to improve the business.

Different types of shareholders

Many co-operatives issue different types and classes of shares to accommodate different interests or to raise funds. Co-ops issue two different types of shares: membership and investment.

Membership shares (sometimes called “common shares”) usually cost less, but give shareholders more control of the co-op. Buying a membership share makes you an owner of the co-op and gives you the right to vote or run for the board.

Buying an investment share (sometimes called a “preferred share”) means making a greater investment in the co-op and earning a greater return. These shares, however, don’t give you the ownership rights that membership shares do.  Investment shareholders are usually restricted to holding 20% of board seats, and must also purchase a membership share to gain these member rights.

Some co-operatives use different classes of membership shares to assign different rights to separate interest groups. These are called “multi-stakeholder co-operatives”. For example, imagine a co-op grocery store that is owned by its employees, but that also allows its customers to be shareholders. These two groups of “stakeholders” will have different concerns and levels of investment. In this case, it would be a good idea to give workers a bigger share of the profits, and more representation on the board than the consumer members.

Board representation

Every co-op has a board of directors that oversees its operations. This board is elected by the membership shareholders. It’s important to set up a governance system that allows all shareholders (and different classes of shareholders, if you have them) to provide input into how the business is run. Ensuring that everyone has the opportunity to participate in the co-op’s governance can help make sure people’s expectations are met, and that concerns are dealt with before they become bigger problems. If there are different groups of people involved in your co-op, it’s a good idea to make sure they have some representation on the board.

You can outline the board’s structure in the co-op’s bylaws to make sure you get the right mix of people. Create a board nominating committee before the election to recruit new candidates that fit the board’s criteria.

Questions to consider

  • From a shareholder’s perspective, what are the incentives to becoming a part of the co-operative?
  • Will shareholders be interested in participating in the co-op’s board?
  • Are there different interest groups that would be interested in being involved with the co-op?
  • Does the co-op provide a strong business case to attract investors?
  • Will investors want some control over the operations of the co-op?
  • How can different classes be represented on a board? Is this equitable? Will this decision decrease interest in being a shareholder?

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