0168 DEVEL GDE FP - Centre for the Study of Co-operatives

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0168 DEVEL GDE FP - Centre for the Study of Co-operatives

B U I L D I N G T H ENEWS A S K A T C H E W A NNew Generation Co-operativesfor Agricultural Processing andValue Added ProjectsD E V E L O P M E N T G U I D ESaskatchewanEconomic andCo-operativeDevelopment

New Generation Co-operativesDevelopment GuideNovember 1999Table of ContentsHow to Develop a New Generation Co-operative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1The First Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2The Co-operative Development Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Developing the Organizational Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Developing the Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

How To Develop A New Generation Co-operativeWhat is a New Generation Co-operative?New Generation Co-operatives (NGCs) representan emerging trend. NGCs use the governancestructures of traditional co-ops, such as democraticcontrol represented by one-member, one-vote.However, this new model typically requires higherlevels of equity investment from its members.Membership is limited to those who purchase deliveryrights and members generally have a contract with theco-operative, stipulating delivery rights andobligations.New Generation Co-operatives add value to rawproduct through secondary processing. There isinterest in forming these co-ops in emerging specialtymarkets such as bison, pasta, wild boar, herbs andspices. New Generation Co-ops offer innovativeoptions to process products in Saskatchewan, creatingjobs throughout the province.The New Generation Co-operatives Act providesthe legal framework for this exciting new economicdevelopment tool.What do you need to get started?• A business opportunity• People who want to pursue the opportunity andinvest in it• A willingness to enter into a producer contract,and• Enthusiasm and the desire to co-operate1

The First StepsIdentify the opportunityEvery new business venture begins with an idea,which could be a new product or service or a variationon an existing one.Generally, agricultural producers marketunprocessed products such as grain, fruit, vegetablesor livestock. These are subject to highly variableprices based on supply and demand – often in thevolatile international market place.Processing such products locally may be a businessopportunity.Choose an organizational structureThere are numerous organizational modelsavailable including traditional business structures andthe New Generation Co-operative. The importantfeatures of a New Generation Co-operative include:• one member-one vote applies regardless ofequity;• members must provide the equity requiredthrough the purchase of shares;• members must commit to entering intoa contract to deliver a prescribed amountof product to the co-operative; and,• members must be willing to participate in thedevelopment work and ongoing committee andboard structures.Unlike other business types, co-operatives by theirnature are collective or group activities. The size ofthe group required will be determined by the nature ofthe project, but at least six individuals are required toincorporate a co-operative.Establish the interim boardAfter deciding to establish a New GenerationCo-operative, the group’s next step is selecting aninterim board of directors. The board should then starta feasibility study.Assess feasibility of your businessA feasibility study is usually required to assess amajor project. It should be undertaken by someoneindependent of the co-operative who has knowledgeof the industry, and should address the following:• market opportunities;• competition;• start-up costs;• capital costs;• production costs;• investment requirements;• amount required and availability of raw product;• size of membership required;• potential return on investment; and• personnel and management requirements andavailability.The results of the feasibility study will provide anassessment of the potential for success, but it is not aguarantee. It will help members of the groupdetermine whether they wish to proceed.The Next StepsThe two key areas which must next be addressedare: developing an effective co-operative organization,and achieving a viable and sustainable business plan.This guide assumes that a New GenerationCo-operative structure is the preferred approach.2

The Co-operative Development ProcessThe following chart sets out the key steps indeveloping an NGC. The precise order may vary fromproject to project. It begins with a single streamedprocess which identifies and assesses a businessopportunity. Detailed descriptions of each step canbe found on the following pages.The First StepsIdentify the business opportunityChoose an organizational structureEstablish an interim boardAssess feasibility of your businessIf your business is feasible, the focus is now on developing both an organizational structure and a business plan.Developing the StructureDeveloping the Business PlanLegal incorporationDevelop and ratify articles ofincorporation and bylawsElect Board of DirectorsLegal registrationMembership recruitment – sale of sharesDevelop a capital financing planDevelop a marketing planSecurities approvalLocate and build plantOrganization becomes operationalBegin business operations3

Developing the Organizational StructureA successful co-operative must develop an effective organizational structure that reflects the needs andinterests of its members and enables it to establish a successful business operation.Legal incorporationLegal incorporation includes the development ofArticles of Incorporation and Bylaws.Articles of Incorporation represent anagreement between members on the corefunctions and objectives. The articles alsoestablish the share structure that will provide thefinancing for implementation of any businessplan. The Articles of Incorporation must set out:• the name of the co-operative;• provisions relating to the share structure,including:★★★par value and number ofcommon sharesprovisions, if any, relating to memberright sharesprovisions, if any, for other classes ofpreferred shares including whether suchshares may be sold to the public;• the minimum/maximum number ofdirectors and the names of the firstdirectors; and,• the objectives of the co-operative andany restrictions on the business of theco-operative.Elect Board of DirectorsThe directors play an important role in aco-operative. As the elected representatives ofthe members, directors are responsible for theoverall management of the co-operative’s assetsand activities. This includes hiring of a generalmanager and general stewardship of the co-operative.Legal registrationArticles of Incorporation and Bylaws must beregistered by the Corporations Branch, SaskatchewanJustice in the form set out in Regulations.Membership recruitment and sale of sharesThe final stage of the development process is therecruitment of members. This includes raising theequity required to become operational. This will bedetailed in the business plan.Section 6 of the New GenerationCo-operative Act details these requirementsfully.Bylaws set out the basic rules and guidelineswithin the Act, by which a co-operative governsitself. Section 7 of the New GenerationCo-operatives Act lists the areas which thebylaws must address.4

Developing The Business PlanA comprehensive business plan is essential for the organization to realize its objectives. The business plan willestablish capital requirements to develop and operate the business. This includes:• a capital financing plan,• a marketing plan, and• a plan to build, develop and operate the production plant.Develop a capital financing planNew Generation Co-operatives are primarilyfinanced through the use of member right shares.These are a form of preferred shares linked to theright and obligation of members to deliver aprescribed amount of raw product to the co-operativefor processing. The co-operative may also issue otherforms of preferred shares to both members and nonmembers.Member right shares and delivery contractsThis form of shares is a new feature ofThe New Generation Co-operative Act.It is a non-voting share (each memberautomatically has one vote).The price of member right shares is usuallycalculated by determining how much capital isrequired to be raised by the sale of the sharesand dividing this total by the number of units ofproduct required.The value of these non-par value shares willbe determined by their market value and mayincrease or decrease accordingly.Other Preferred SharesThe New Generation Co-operatives Actpermits the issuance of preferred shares to bothmembers and non-members. These shares,subject to certain conditions, are non-voting,although the members in the Articles ofIncorporation may permit non-member investorsto elect up to 20% of the board of directors.Develop a marketing planTo ensure that a co-operative is able to operateas a sound business, it must analyze its market beforegetting underway. This is essential to ensure that thereis a market for the product being produced at a pricethat purchasers are prepared to pay.Securities approvalAn offering of shares or other securities, unlessexempted by the Act or Regulations, must beapproved by either the Co-operative Securities Boardor the Saskatchewan Securities Commission. For moreinformation on these steps contact the SaskatchewanSecurities Commission at (306) 787-5645.Locate and build the plantThe location of the plant should not be decideduntil all economic factors have been considered.Location is critical to the success of most ventures andshould be chosen on the basis of factors that will givethe enterprise the best chance of success. Factors toconsider are:• proximity to members and markets;• transportation routes, highways, railways;• availability of labour;• availability of land and buildings; and,• levels of taxation, environmental and otherregulations.5

Saskatchewan Economic and Co-operative Development can help you along the way. You’ll find us throughoutthe province, ready with advice and assistance. For more information, please contact the Co-operativeDevelopment Co-ordinator at 1-800-265-2001 or the office nearest you:North Battleford1202 - 101st StreetNorth Battleford, SK S9A 1E9Phone: (306) 446-7444 Fax: (306) 446-7442Prince AlbertBox 30033rd Floor, City Hall1084 Central AvenuePrince Albert, SK S6V 6G1Phone: (306) 953-2275 Fax: (306) 922-6499Yorkton50 Smith Street EastYorkton, Sk S3N 0H5Phone: (306) 786-1415 Fax: (306) 786-1417Swift Current885-6th Avenue North EastSwift Current, SK S9H 2M9Phone: (306) 778-8415 Fax: (306) 778-8526Estevan303 Wicklow Centre1133 - 4th StreetEstevan, SK S4A 2V6Phone: (306) 637-4505 Fax: (306) 637-4510Regina1925 Rose StreetRegina, SK S4P 3P1Phone: (306) 787-2753 Fax: (306) 787-1620Saskatoon122-3rd Avenue NorthSaskatoon, SK S7K 2H6Phone: (306) 933-5758 Fax: (306) 933-7692This document was prepared as a guide and does not provide comprehensive information on all of the specific issues that individualgroups will likely have to address. Most groups, in developing their projects, will be required to supplement this information byaccessing other resources.6

SaskatchewanEconomic andCo-operativeDevelopment

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