Co-ops 101 & 202

1. Co-ops 101 & 202 CED Workshop, June 8th, 2011 Peter Cameron, Co-op Development Manager

2. Your Presenter • Peter Cameron • Co-op Development Manager • Ontario Co-operative Association • pcameron@ontario.coop • www.ontario.coop • 1-888-745-5521 • 519-763-8271 ext. 23

3. Overview • Co-ops 101 • What is the Ontario Co-operative Association? • What is a co-op? • Co-ops in Ontario and across Canada • History of the Co-op Movement • Why choose a Co-op? • Co-ops 202 -Models, Structure and Roles • FSCO and Incorporation Procedures • Financing Co-operatives • What’s the Co-op Difference? • Opportunities, Challenges and Trends

4. The Ontario Co-operative Association Mission: To lead, cultivate and connect the co-operative sector. Vision: An Ontario where co-operatives contribute to the sustainability and growth of our economy and communities.

5. The Ontario Co-operative Association Four Strategic areas: • Lifelong Co-operative Learning • Communications and Member Relations • Co-operative Development 4.Government Relations

6. (it’s not just a work placement in school) What is a co-op?

7. A Co-operative is… An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

8. Examples of Co-ops • - Co-operators Insurance • - Desjardins Credit Union • - Mountain Equipment Co-op • - Gay Lea Dairy • - Organic Meadow Dairy • - AgEnergy • - La Siembra –Cocoa Camino Fair Trade Co-op • - Co-op Cabs • -Co-operative Housing Federation of Canada

9. Co-operative Principles Seven Principles of Co-operatives Worldwide • Voluntary and open membership • Democratic member control • Member economic participation • Autonomy and independence • Education, training and information sharing • Co-operation among co-operatives • Concern for community Elaborated in 1995 by the International Co-operative Alliance

10. Co-ops in Canada • Canada’s 10,000+ co-ops and credit unions have combined assets of approximately $167 billion • Co-ops and credit unions employ over 160,000 people • In Canada, 4 out of every 10 Canadians are members of at least one co-op (or 43%) • Approximately 70% of Québec’s population and 56% of Saskatchewan’s population are co-op members

11. THE ONTARIO CO-OPERATIVE SECTOR: 1300 Co-ops; 1900 Locations; 400 Communities

12. Co-ops in Ontario • There are more than 1,300 co-ops and credit unions in Ontario • The province’s co-ops and credit unions have over $30 billion in assets • More than 1.4 million individual members belong to a co-op or credit union • Ontario has the second highest number of non-financial co-ops in Canada, after Quebec

13. Ontario’s Co-op Sector Today 1,300 co-ops in Ontario 1,900 locations in 400 communities 1.4m members; 49k volunteers (10k directors) 16k employees Housing, 587 or 45%

14. A Brief History of co-ops

15. Where do Co-ops come from? • Co-ops have strong roots in both 19th century rural communities and the newly industrialized urban areas of the late 1800s • Focus on providing goods and services to members meant co-ops were formed to provide: • Essential services in under-resourced communities • Fair and accessible alternatives to existing services • Many of these same motivations exist today, but with additional pressures and trends

16. The Rochdale Pioneers • 1844: Formed in England by skilled workers facing poverty and unfair conditions due to industrialization of the workplace • Co-op provided access to affordable food and essential goods • Origin of the 7 Principles

17. Antigonish Movement • Maritime-based co-operative movement spearheaded by priests and educators: Moses Coady, Jimmy Thompkins, Hugh MacPherson • Advocated for as a way for Nova Scotians to lift themselves out of poverty and achieve greater freedom and self-realization • 1860s-1890s: farmer co-ops started in great numbers but high failure rates • by 1910s co-ops were more successful and widespread

18. Alphonse (and Dorimène) Desjardins • 1900: First North American caissepopulaire (credit union) formed in Levis, QC • Was a response to usurious interest rates (3000%) faced by farmers and factory workers • Based on the German, Italian and French models of community banks

19. The Ontario Roots • Co-ops started later in Ontario compared to other parts of Canada: • Lack of financial support from government (as in Prairies and Maritimes) • Lack of understanding about the co-op model • Late start for farmers seeking political solutions to their economic situation • Took until 1917 to see legislation that would allow for co-ops • First co-ops were farmer based and in rural areas

20. Growth Continues • 40s-60s: Credit unions start to grow in prominence (1400 by the 60s); agriculture co-ops decline in numbers but increase in business, number of child care co-ops start to grow • 70s-80s: housing co-ops begin in earnest due to government funding agreements, credit union numbers drop due to mergers • 90s-00s: co-ops focused on social services and sustainability start to be developed: energy, transportation, vulnerable populations

21. Why choose a co-op (1)? • Economies of scale: Bulk buying; sharing of costs and expenses; joint processing or branding • Accountable & inclusive: Open to everyone; each member has equal vote regardless of investment; local decision making • Build stronger communities: Most co-ops are community based - investment and surplus stays in the local community; collaboration • Members’ needs met: may not always be ROI

22. Why choose a co-op (2)? • Benefits to both member-owners and users: • Investment and economic contribution • Value added • Democratic functioning and collaboration • Self-determination: Member-ownership makes co-ops less vulnerable to takeovers by outsiders • Co-ops can own non-co-op subsidiaries or businesses • Multiple bottom lines – financial, social and environmental

23. The Co-operative Context • Wherever a member need can be identified, a co-op can be structured around it • Co-ops have always had roles where public or private entities cannot meet community needs eg. Credit Unions have stayed when banks have pulled out • As community needs have changed, so have the types of co-ops • Originally, strong needs seen for basic farm needs and infrastructure in rural areas • Now, co-ops providing many services, Renewable Energy, Car Co-ops, Health Care, Child Care, Housing, Senior Care

24. Survival Rate of Co-ops Co-operatives generally have a higher survival rate than traditional business corporations

25. Summary of the Benefits of Co-operatives • Contributes to community well-being • Supports the triple bottom line (economical, social and environmental) • Builds and enhances local prosperity • Empowers people in a democratic way • Helps individuals increase livelihood assets

26. The what, why and how of co-ops: Co-ops 202

27. Basic Co-operative Structure

32. Role of Members and Board • Co-ops are member-owned and organized in a democratic structure to meet member needs • The “business function” of the co-op consists of activities that meet those needs • The “democratic function” is the control of the membership over the co-op, carried out by a board of directors elected by members • Board oversees both business and democratic functions of co-op

33. Role of Staff • Primary role of staff is to carry out activities according to board’s strategy to meet member needs • Senior management is hired directly by the board to manage the business function of the co-op • Senior manager hires additional staff to assist with particular business functions or activities • Junior staff report to a senior staff person, who in turn reports to the board • Staff do not tell the board what to do, they provide information and recommendations • Board provides plan and direction to senior staff person, who in turn works with other staff to implement the plans

34. Starting-up a Co-op • 5 people to start a co-op (3 for worker co-op) • Articles of Incorporation go to a different agency than other corporations • Regulating body: Financial Services Commission of Ontario (FSCO) • Required details are different: share structure and member investment

35. Co-op Legislation • Ontario Co-operative Corporations Act • Ontario Credit Unions and Caisses Populaires Act • Federal Co-ops –Canada Corporations Act –operating in more than one province • Unofficial Co-ops –“Co-op-like” organizations not legally incorporated under the CC Act May operate in a co-operative manner, or follow the 7 Principles

36. FSCOFinancial Services Commission of Ontario • The Financial Services Commission of Ontario (FSCO) registers organizations conducting business as a co-operative under the Co-operative Corporations Act. You should be aware that many co-operatives are regulated under additional pieces of legislation. Day care co-operatives for instance, are also regulated under the Day Nurseries Act.

37. FSCO Services for Co-ops • How to Register a Co-operative • Find out Which Co-operatives are Registered with FSCO • Tips for Co-operatives Relating to Offering Statements • Tips for Co-operatives Relating to Articles of Incorporation and Amendments • Tips for Renewable Energy Co-operatives Relating to Articles of Incorporation and Amendment • Legislative and Regulatory Changes: Co-operative Corporations Act and Regulation Amendments • Resolving Co-operative Complaints • Fee Schedule under the FSCO Act (Certificates of Status) • Fee Schedule under the Co-operative Corporations Act • Forms

38. For more information: • Phone: (416) 250-7250Toll free: 1-800-668-0128 Fax: (416) 226-7838Attention: Licensing and Market Conduct Division • Or, you may write to: Licensing and Market Conduct DivisionFinancial Services Commission of Ontario5160 Yonge Street, Box 85, 4th Floor, Toronto, ON M2N 6L9

39. Maintaining a co-op • Yearly filing of information • Running member meetings and AGMs • Good member-board relations • OnCo-op offers a plain language Guide to the Act

40. Financing co-operatives

41. Financing Co-ops • Co-ops can raise money through traditional channels • Can also raise funds from members and community investors • Offering Statement (analogous to prospectus) • Must be prepared in certain cases • Receipt from FSCO required • Can sometimes be challenging process

42. Offering Statements • Offering statements are special documents that are prepared for co-ops to use to sell securities to members and others • Analogous to prospectus required by OSC • Not required in certain cases • Meant to be a full, plain and continuous disclosure of risk to investor • Need to be submitted and receipted by FSCO before co-op can sell securities

43. When is an OS required? • If your co-op has less than 35 security holders, you do not need an offering statement • More than 35, co-op can still be exempt from an OS if co-op meets certain conditions • Two most common are: • Raising <$200,000 in total through the offering • Members contributing <$1,000/yr, <$10,000 lifetime • Conditions usually practically DO NOT apply to RE co-ops (especially wind projects), so OS required

44. Why is this a problem? • Process is administrative and financial burden • FSCO has been somewhat obstructive in the past because do not understand the sector well (or co-ops in general) • Business with members requirement has been difficult to quantify, led to problems with OS • On Co-op and partners have been advocating for changes since 2003 –progress is being made

45. Three ways co-operatives differ from other businesses 1. Co-operative Values 2.Democratic Structure 3. Allocation of Profit

46. BUSINESS CORPORATIONS Exist to maximize ROI Accountable to shareholders Unlimited return on shareholders’ capital Vote based on number of shares held Board represents shareholders; director may not be shareholder Shares may be traded Co-ops vs. Business Corporations CO-OPERATIVES • Exist to meet needs of members • Accountable to members • Surplus distributed to members • One member one vote • Board represents members; 80% of directors must be members • Shares generally not traded

47. NON-PROFITS Usually member controlled Membership voting classes Broader mandate to the community Board of Directors elected from membership Operate without share capital under Ontario Corp. Act Surplus kept to further goals and objectives of organization Co-ops vs. Non-Profits CO-OPERATIVES • Always member controlled • One member one vote • Mandated to meet the needs of members • Board of Directors elected from membership 20% can be non members • Operate under CC Act or CU&CP Act; with or w/out share capital • Surplus & patronage may be distributed to members

48. Opportunities by Sector • As a result of changing needs and new pressures, there are particular sectors with growing opportunities: • Renewable energy • Business succession from sole proprietors retiring • Transportation • Rural Infrastructure • Local and organic food • Microfinance and social finance • Long term possibility: Home and health care

49. Challenges • Lack of awareness can make development difficult (esp. in emerging sectors) • Access to financing is difficult • Few co-op specific sources or programs that support co-ops in early stages or otherwise • Dealing with conventional financial institutions can be difficult • Ontario co-ops have unique capital process, but can be challenging to manage

50. Challenges • Co-op model is viewed as alternative to the dominant form of enterprise (shareholder business) • Always on the outside of what the public and government expect and are familiar with • Not the same connection to non-profit /“social enterprise” sector as exists in other locations • Limited opportunities and success in seeking joint support and recognition