Sample Bylaws for a Missouri Cooperative Association

Sample Bylaws for a cooperative association formed under Missouri law.

Bylaws of SAMPLE Missouri Co-op C.A.

For Docracy users: This sample is meant to be viewed as a PowerPoint or Google slides presentation. To view this agreement with all of the links, notes, and formatting, please contact [email protected] or visit https://docs.google.com/presentation/d/1ewNab-AoIvz3t3_yK-f0i523uNADMnz5IRbw4C-HKQQ/edit?usp=sharing

These are sample bylaws for a cooperative association formed under Missouri law, in the form of slides. This draft is by Sarah Kaplan and Jennifer Kovar, updated as of May, 2018. We acknowledge Janelle Orsi, Executive Director of the Sustainable Economies Law Center. These bylaws are based on Janelle’s draft. We made a few changes based on experience and preferences, and added a sample version of the provisions that the Missouri Cooperative Associations Act requires bylaws to address. Please note that the Missouri Cooperative Associations Act requires the bylaws to address certain issues, and if your co-op differs from the sample, Missouri law may require you to add certain statements to your bylaws. See MO Rev. Stat. 351.1030 or ask your lawyer. These sample bylaws are made available under the creative commons share-alike attribution license. These bylaws are not tailored to any particular co-op and are not legal advice. If you’d like help from a lawyer, feel free to contact Sarah or Jennifer.

Please read the notes.

There are notes to these slides. You might need to move the slider at the bottom of the screen to see them. The notes are meant to help the reader. The notes, and this slide about the notes, are NOT part of the bylaws.

Name, Purpose, and Values

The name of this cooperative is:

The purpose of this cooperative is to:

This organization values:

The name of each cooperative shall include the words ‘Cooperative’, ‘Association’, ‘Cooperative Association’, ‘Co-op’, or ‘C.A.’ Mo. Rev. Stat. 351.1012(1). Missouri law allows cooperative associations to be formed for any lawful purpose, see Mo. Rev. Stat. 351.1015 (b), so long as it is organized “for the mutual welfare of its members.” Mo. Rev. Stat. 351.1006.

MEMBERS

Becoming a Member

The cooperative will issue a membership to any person who has met the membership requirements written by the board, which may include a capital contribution, membership fee, and/or a commitment to perform work for the cooperative. The cooperative may have any number of members.

The cooperative shall have one class of member. Each member shall have one vote. [If more than one class of membership, name them and define their different rights and obligations.] 5

Voluntary and Open Membership

Membership shall be open to any individual who is eligible and who accepts the responsibilities of membership. 6 All cooperatives may set eligibility requirements. In a consumer co-op, the requirements might just be paying the membership fee and shopping once every 12 months. In a worker co-op, the requirements would include performing the kind of work needed. Missouri cooperatives may limit the number of members. See MO Rev. Stat. 351.1030.2(2).

Member Meetings

The board will organize at least 1 member meeting per year and give members at least 30 days notice. The board will organize additional member meetings if a meeting is requested by 10 members and will give members at least 14 days notice. Notice of a special meeting must state the purpose of the meeting. Members may attend meetings by remote communication so long as all members can communicate at the same time. Quorum for a member meeting is 51% of all members of the cooperative. 7

Characters in blue should be tailored to your cooperative’s size and activities. Missouri co-op associations must give at least two weeks’ notice of regular member meetings if notice is by email or phone call, or mail the notice at least 15 calendar days before the meeting. See Mo. Rev. Stat. 351.1099 and Mo. Rev. Stat. 351.1216. A quorum for a member meeting must be at least 10% of the total number of members of the cooperative. See Mo. Rev. Stat. 351.1105. In general, small worker cooperatives would have every member on the board and/or would have a high quorum for member meetings. In contrast, in large consumer or producer cooperatives, the board makes most decisions, and a low quorum for member meetings makes it easier to have enough members come to a meeting to make decisions.

Member Voting

Each member has one vote in elections and other member decisions, regardless of the member’s patronage or contributed capital. [OR if there are different classes of membership that have different voting rights, explain those differences.]

Member decisions are approved by majority vote. Votes may be taken in meetings using paper ballots, electronic voting, or raised hands. Votes may be taken outside of meetings using paper ballots or electronic voting. [Option: The Board will determine a process for voting by proxy in case a member is incapacitated or cannot cast their own vote.] 8

Characters in blue should be tailored to your Cooperative’s size and activities. The voting rules must comply with Mo. Rev. Stat. 351.1117 and 351.1120 Please note that voting power other than one vote per member will disqualify the cooperative from favorable tax status under Subchapter T of the Internal Revenue Code. If you want to know more about how to minimize a cooperative’s tax liability, feel free to ask ([email protected]).

Member Decisions

If requested by 5 members, the board will put a proposed decision or discussion topic on a member meeting agenda or submit a proposal (by postal mail, email, or other electronic communication) to the membership for a vote outside of a meeting. The members may make decisions on any subject matter, including on matters normally decided by the board. Member decisions supersede board decisions. Any proposal to dissolve the cooperative or transfer substantially all of the cooperative’s assets must be approved by two-thirds of the members.* 9

Characters in blue should be tailored to your Cooperative’s size and activities. * See Mo. Rev. Stat. 351.1162 If you are considering a merger, you will need to look at Mo. Rev. Stat. 351.1153.

Terminating Membership

A member may withdraw at any time by giving written notice to the board. A membership will terminate automatically if a member dies, is adjudged incompetent by a court, or received a court order of relief under bankruptcy law. The board may expel a member who fails to pay a required membership fee or capital contribution, or who behaves in a way that is significantly harmful to the cooperative, as long as the board uses a written, consistently applied, fair, and reasonable procedure for expulsion that gives the member a reasonable period of time to explain and/or correct a problem. 10

Restrictions on Transfer

Memberships are transferable only to the cooperative. Any other attempted transfer is void. [If transferable, explain how. Examples: transferable only to the cooperative, to a member’s own revocable living trust, or not transferable without approval of the board.] 11

Note that if you don’t restrict transfer of membership in the event of a member’s death, incompetence, or bankruptcy, the member’s legal representative can exercise the member’s rights. See Mo. Rev. Stat. 351.1132. If we did not say that a membership terminates automatically in the event of bankruptcy on the previous slide, we would say on this slide: “Any receiver in bankruptcy shall have only the rights of an assignee, meaning that the receiver would have financial rights but no governance rights.”

Members’ Best Interests

The cooperative will act on behalf of the members and in the members’ best interests in negotiating for and procuring goods, services, and programs for the members. The cooperative will not be liable if a member fails to perform or pay under any contracts, unless the cooperative has agreed to do so. 12

BOARD

Board of Directors Basics

The board governs the cooperative and can make any decision on behalf of the cooperative, but decisions made by members supersede decisions made by the board. The board may NOT obtain management services from a third party. [Optional: if you do want the board to be able to hire management services from a third party, delete this provision.] The cooperative’s board will have at least 5 directors, and they will be elected by the members for staggered 2-year terms.* The first class of 2 Directors will serve until the next annual meeting. The second class of 3 Directors will serve a 2-year term. All following terms will be 2-year terms.* Members may vote to increase the number of directors as high as [number]. Members may remove directors and may hold elections to replace them. 14 *This paragraph is to comply with Mo. Rev. Stat. 351.1045.

If the co-op has multiple classes of board members, the initial board members’ term will end at the annual meeting when the multiple classes become effective. Then each subsequent year, there will be an election for one class of board members.

Characters in blue should be tailored to your cooperative’s size and activities. Good to know about Missouri law: cooperative associations may have non-patron members. A majority of the directors shall be elected exclusively by the patron members. Mo. Rev. Stat. 351.1048.2(2). Directors elected by different types of members can be given different voting authority. Sarah’s interpretation is that this allows co-ops to reserve certain board decisions for directors elected by a certain class of members, and it also allows co-op bylaws to specify the number of votes of directors elected by different classes of members. BUT the co-op law protects patrons: “at least one-half of the voting power on general matters of the cooperative shall be allocated to the directors elected by members holding patron membership interests.” Mo. Rev. Stat. 351.1048.2(3)(b).

Director Qualifications

Directors must…. [Example: Require a Director to be a member of the Cooperative.]

Directors [may/shall not] be compensated for serving on the board. 15

Note that a Director need not be a member unless the Bylaws require it. See Mo. Rev. Stat. 351.1048(2)(2)

Board Meetings

The Board will meet at least 6 times per year, with at least 10 days’ prior written notice. Any [number] of Directors may call additional meetings with at least 10 days’ prior written notice. Any or all Directors may attend by electronic communication, as long everyone who attends can communicate in real time (contemporaneously). If a Director cannot attend, they may write to the Board before the meeting about how they would vote if they had been in attendance at the meeting. A Director who does this will not be counted for quorum, but their written vote will be counted, unless the proposal substantially changes before votes are counted.* 16

Characters in blue should be tailored to your Cooperative’s size and activities. *See Mo. Rev. Stat. 351.1057.6.

Board Decisions

In meetings, the board makes decisions by majority* vote (except where a higher voting threshold is required), so long as a majority** of directors is present. The board may make decisions outside of a meeting if all directors consent to the decision in writing. 17

*The bylaws may require a greater majority, but a simple majority vote is the minimum vote for board decisions allowed by law. See Mo. Rev. Stat. 351.1042.

**The quorum for board meetings must be at least one-third of all directors currently holding office. Mo. Rev. Stat. 351.1060. Each director has one vote unless directors are divided into classes and given different voting power by the bylaws. See Mo. Rev. Stat. 351.1048(3) and the notes to slide 14.

Committees

The board may create committees to carry out work for the board, as long as the board authorizes them to do so. The board must keep a current list of each committee and its area of authority and budget, if applicable. [Option: To serve on a committee, a person must/must not be a member or Director of the Cooperative.] 18

The section of the Missouri Cooperative Associations Act that governs committees is Mo. Rev. Stat. 351.1069.

Officers

The board will appoint (and may also remove) officers with the following responsibilities:

President: Organize meetings and coordinate decision-making process.

Secretary: Maintain records, send notices, manage communications with members.

Treasurer: Oversee financial management and financial reporting for members. 19

The Board: (1) may elect a chair and one or more vice chairs to run meetings, (2) must elect a President and Secretary (which can be a combined role), and (3) may elect additional officers if the bylaws allow. See Mo. Rev. Stat. 351.1084.

FINANCES

Taxation

The Cooperative will be taxed as a [partnership or corporation]. [If the Cooperative is taxed as a corporation, include this: “and issues patronage dividends to members as defined by Subchapter T of the Internal Revenue Code. Members acknowledge that they are responsible for reporting those patronage dividends on their personal tax returns.”] 21

Mo. Rev. Stat. 351.1030(2)(c) requires bylaws to state “The taxation structure of the cooperative, including a statement of the taxation classification of the cooperative as decided by the board. A cooperative may elect to be taxed as a corporation or as a partnership under sections 351.1000 to 351.1228[.]” If taxed as a corporation, the cooperative may subtract “Patronage Dividends” from its taxable income, if it meets all of the requirements under Subchapter T of the tax code. Subchapter T gives cooperatives partial to total pass-through tax status. Normal taxation for corporations will apply otherwise. Please note that Subchapter T’s requirements are in addition to the requirements of Missouri law, and Missouri law is more permissive. If you would like to know more about how to minimize a cooperative’s tax liability, feel free to send an email to [email protected]

If taxed as a partnership, all items of income and loss will pass through to members. Seek the advice of an accountant about whether partnership or corporate tax status would be better for your cooperative.

Allocating Earnings and Losses

At least once a year, the cooperative will allocate, and may distribute, net earnings to each member in proportion to the member’s patronage, which is measured [insert your way of measuring patronage here, e.g. “by value of crops contributed” or “by number of hours worked”] or [according to a written board policy.]

Income sourced from non-patrons will not be allocated to members.* Losses will be allocated in any manner the Board determines to be fair and equitable, considering the circumstances leading to the loss. 22

The Board has the authority to define how patronage is measured. See Mo. Rev. Stat. 351.1003(24).

* This part can be customized. The thing to understand is that income from non-patrons cannot be returned to patron members as patronage dividends. That is, income from non-patrons will always be part of the co-op’s taxable income (if taxed as a corporation). Some co-op professionals believe that income from non-patrons should always be part of the co-op’s reserve, and never be distributed to members, because then there is no incentive to extract profits from people who do the same thing as patrons but who are paid less. If you have a class of non-patron investor members who are to be paid back on their investment, it is tax efficient to pay them first out of “profit,” which means net income from non-patron business, because that leaves as much of the “patronage net income” as possible for the patronage dividends.

Member Accounting

Amounts that are allocated to a member but not paid out are recorded in the member’s “Member Account,” which is a ledger for each member on the cooperative’s books. A Member Account reflects the member’s capital contribution, plus allocations of net earnings, minus distributions (pay-outs), minus losses. 23

Please note that if the cooperative wishes to subtract patronage dividends from the co-op’s taxable income, it must make sure the allocations comply with all of the requirements for patronage dividends under Subchapter T of the I.R.C.

When a Membership Ends

When a member leaves the cooperative, they receive undistributed allocations and the balance of their capital contribution (the balance of their Member Account). If the cooperative does not have enough cash on hand to pay the entire amount, the cooperative may pay a departing member in the form of a promissory note. This promissory note does not make the departing member a “creditor” if the Cooperative dissolves. [Option: Upon the death of a member, their designated beneficiary, or if none, their estate shall receive the balance of the member’s Member Account or receive a promissory note as described above.] 24

For unclaimed dividends, see Mo. Rev. Stat. 351.1150. The cooperative can donate unclaimed dividends to a tax-exempt non-profit or retain them in the Cooperative’s operational reserve funds.

If the cooperative is dissolved or sold, or if substantially all of its assets are transferred, any proceeds remaining after creditors are paid will be distributed:

First to current members to pay their Member Account balances;

Next to past and present living members that the cooperative can find with reasonable effort, in proportion to their lifetime patronage of the cooperative. In this situation, amounts owed to past and current members from Member Account balances will be treated with equal priority, even though a past member may have received a promissory note.

When the Cooperative Ends

A cooperative can be dissolved by 2/3 vote of the members or by order of a court. See Mo. Rev. Stat. 351.1162.

ADMINISTRATION

Keeping Records

[In the google slides, this appears as a table. Check it out.]

Type of Record How/Where to Keep Record

Name, address, and annual patronage of each current and past member (patron and non-patron) and their patron or non-patron membership interests. Keep as a permanent record in a form that allows preparation of an alphabetical list of members with each member's address. Make sure at least one copy is available at the principal office.

Name and last known business address of each current board member and officer. Make sure at least one copy is available at the principal office.

Minutes and agendas of all member meetings and board meetings, and all waivers of notices of meetings by members and/or directors Keep as permanent records. Make sure at least one copy is available at the principal office.

All actions take by the members or board without a meeting. Keep as permanent records. Make sure at least one copy is available at the principal office.

See Mo. Rev. Stat. 351.1033 for the list of all records that must be kept by the cooperative.

Keeping Records, continued.

Type of Record How/Where to Keep Record

Complete and accurate financial records, including all interim financial statements prepared for periods ending during the last fiscal year, and all year-end financial statements, if any, prepared for the previous four fiscal years. Keep as permanent records. Make sure at least one copy is available at the principal office.

Copies of all tax returns filed by the cooperative for the previous four tax years. Keep as permanent records. Make sure at least one copy is available at the principal office.

All governing instruments, including these Bylaws, the Articles of Organization, all amendments and restatements of them. Keep as permanent records. Make sure at least one copy is available at the principal office.

Accessing Records

The board will make the above records available to members, but the board may make policies to limit the sharing of information* and shall keep information confidential when required by law or by contract.** The board will send an annual financial report to members by email, postal mail, or any electronic platform accessible to members and directors. 29

* See Mo. Rev. Stat. 351.1033.1(4). For example, the Board could make a rule to black out sensitive information about why a worker was fired when members view or copy the document.

** See Mo. Rev. Stat. 351.1033.2. Notice The cooperative may provide notice to its members or directors about any meeting or action in an email, text message, postal mail, or any electronic platform accessible to members and directors. 30 See Mo. Rev. Stat. 351.1216 for types of notice and when it is deemed to have been given.

Binding the Cooperative

Any officer of the board may sign a document or make a binding commitment on behalf of the cooperative. The board may designate other people, such as certain directors or staff, to do the same. 31

Changing the Articles

The cooperative’s articles of organization may be changed with the following steps (see Mo. Rev. Stat. 351.1018 for detailed rules): The board must pass a proposed amendment by a majority vote. The board must send a copy of the proposed amendment to all members and call for a members’ meeting. The members’ meeting must have a quorum of members present or by alternative ballot. The proposed amendment must pass by a majority vote at the members’ meeting. An authorized officer or director must file the articles of amendment with the Secretary of State. 32 For the default rules on how articles of association may be changed, see Mo. Rev. Stat. 351.1018.

To make sure it is not too difficult to pass an amendment, make sure your quorum requirement for a members’ meeting is low enough. Slide 8 (Member Voting) states the quorum requirement.

Changing the Bylaws

The cooperative’s bylaws may be changed by its members with the following steps: A copy of the entire proposed amendment is sent to all members with the notice of the members’ meeting. The members’ meeting must have a quorum of members present or by alternative ballot. The proposed amendment must pass by a majority vote at the members’ meeting.

If the amendment does not affect the decision-making powers or financial rights of a member, the board may change the bylaws with the following steps: A copy of the entire proposed amendment is sent to all members prior to the board vote. The proposed amendment must pass by a 2/3 vote of the entire board (not only of the quorum present). Board members may vote by alternative ballot. 33

For the default rules on how members may change the bylaws, see Mo. Rev. Stat. 351.1030.5. For the default rules on how the Board may change the bylaws, see Mo. Rev. Stat. 351.1030.4. If your cooperative would prefer to give all amendment powers to its Members, it does not have to let the board make any amendments. Consider what is more practical for your particular cooperative. The default is that the board can change the bylaws without member approval. So if you don’t want that, the bylaws should say that only the members can change the bylaws; that member approval is required; or any specific provision can require member approval to change.

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