A co-operative is a business formed by a group of people who all own the co-operative and participate in its control. So, the business is owned and run by its members who buy shares to become members. All the members of the co-operative have one vote each so that even if a company buys many shares in a co-operative, it still only has one vote, like everyone else. Members elect three or more directors who manage and control the daily affairs of the co-operative and who are answerable to the members.

FINANCING A CO-OPERATIVE

Members contribute to the capital of their co-operative and control the economic affairs of the co-operative in a democratic way. Capital is the money and equipment which the co-operative uses to carry out its goals. Co-operatives can get capital from money paid for shares issued to members, membership fees, grants, donations, loans and surplus money left over from previous years of operation. Some (and possibly all) of the capital which the co-operative uses actually belongs to the members, usually in the form of shares and bonus shares. Each member invests some money and gets some shares in return. The shares show that the member owns some of the assets (the money and property) of the co-operative. Any other capital which the co-operative uses belongs to the co-operative as a whole.

PROFITS IN A CO-OPERATIVE

Although a co-operative is not formed with the aim of making profits, most co-operatives do have a bit of profit to divide up after paying employees and meeting other expenses. In a co-operative all the members own the profits. If the co- operative has money left over after it has paid all its debts and taxes and provided the planned benefits to its members, this is called a “surplus”. The surplus is normally used to develop the co-operative. For example, a co-operative can use its surplus to expand and develop the co-operative’s business or the services it offers to its members. But if there is an extra unplanned surplus, this means that (in a worker co-operative) the wages could have been higher or (in a service co-operative) the prices or fees or commissions charged for the service were too high. In this case, the surplus can be returned to the members, or used to support other activities approved by the members. Any surplus that is returned to the members must be shared in proportion to the contribution each member made to the surplus. For example, a grocery co-operative might return a portion of its surplus to its members, in proportion to the value of the purchases made by each of them during the year.

Overall, members do not usually receive a big return on the amount they contribute to the capital of the co-operative when they become members. This makes a co-operative different from a company. A shareholder in a company buys shares in the hopes of making a profit. A member of a co-operative joins the co-operative and contributes to its capital because the co-operative will provide a benefit to its members.

THE PURPOSE OF A CO-OPERATIVE

The primary aim of a co-operative is to provide services to its members. The goal of a co-operative is to provide services to its members at affordable prices or to create employment for its members. The needs of the members come first. For example, the members of a service co-operative may want to market their products at a good price. They may want to purchase goods at bargain prices. They may want to be able to get a loan at a reasonable interest rate. Employees in worker co-operatives want to earn good wages. The aim of the co-operative is to provide the desired benefits as effectively as possible, in a sustainable way.

Any services provided by a co-operative must be provided mainly to its members. For example, a farmer’s marketing co-operative should market mostly crops or livestock produced by its members, not by persons outside the co-operative. The sewing machines that belong to a sewing co-operative should be mainly for the use of its members, not for people outside the co-operative.

PRINCIPLES OF A CO-OPERATIVE

• It is owned by all its members. The members each make a contribution to the co-operative (for example, part of a few month’s wages)
• Management makes decisions together with the members
• Management is accountable to the members
• Members themselves decide how to organise the co-operative, for example, what the wages and working hours will be
• Profit and loss is divided among the members

STARTING AND REGISTERING A CO-OPERATIVE

The Co-operatives Act (No 14 of 2005) creates the foundation for a more active and supportive environment for co-operatives. The registration procedure is simpler, it redefines government’s role as a facilitator in promoting co-operatives, provides for different types of co-operatives in all sectors of the economy, and ensures co-operative principles are observed.

Anyone starting a co-operative must first register it with the Company Intellectual Property Commission (CIPC) which is an agency of the Department of Trade Industry and Competition.

CIPC responds to queries from the public, provides information about co-operatives and how to register them, and promotes the establishment of co-operatives in poor rural communities. CIPC is responsible for registering and deregistering co-operatives, as well as analyzing the financial statements of co-operatives. They will also provide a sample constitution for a new co-operative and other documents that are needed for the various kinds of co-operatives. The following outline summarises the steps involved in starting and registering a co-operative.

NAME OF CO-OPERATIVE

Every registered co-operative must have a name that is different from the names of other co-operatives and it must not be misleading or prohibited in some way. The name must be reserved before registering the co-operative. Visit the CIPC website: www.cipc.co.za/Online transacting/ New E-services or BizPortal- www.bizportal.gov. za to reserve a name. A reserved name will be valid for 6 months from the date of approval but it can be extended on application and payment of a fee.

APPLICATION FOR REGISTRATION

Before a co-operative can apply for registration, there must be at least one meeting of people who are interested in forming the co-operative. There should be a minimum of 5 people and a minimum of 2 directors. The member’s fee must be equal for all the members of the co-operative. The people present at this meeting must adopt the constitution of the co-operative and elect the first directors of the co-operative.

After this meeting, the group must submit an online application for registration to CIPC. Visit their website: www.cipc.co.za and first register for a customer code (guidelines are provided on the site). Then login to the site, click on ‘New services”, and follow the prompts.

The following documents must be submitted to CIPC with the application:

• Completed, printed and signed system-generated Co-op1 Form
• Pages of the system-generated constitution signed by all founding members
• The Cor9.4 (Confirmation Notice of Name reservation) must be attached for an approved name
• Certified ID copies for South African citizens and passport copies for non-South African citizens for all the founding members must be uploaded during the capturing process

The amount of the registration fee will be provided by CIPC.

REGISTRATION

CIPC will register the co-operative if the application meets the following conditions:

• The application satisfies all the requirements in the Co-operatives Act.
• The constitution of the co-operative meets all the requirements in the Co-operatives Act.
• The constitution of the co-operative is consistent with the co-operative principles.
• The proposed name of the co-operative follows the rules in the Co-operatives Act about co-operative names.

If CIPC is satisfied that the application meets all of these conditions, then it will provide a registration certificate with a registration number. Once a co-operative is registered, it becomes a ‘legal person’. This means that it has legal powers similar to those of companies and other such groups.

For example, a CC can continue to exist even if its membership changes over time. It can open bank accounts and own land and other property. It can enter into contracts and be a party to court cases. As a “legal person”, the co-operative will have many of the same rights and powers as individuals. Before the group is registered as a co-operative, it does not have these powers.

Once the co-operative is registered, the Department of Trade and Industry will be able to give it the necessary support if it –

1. Follows the co-operative principles
2. Consists of black people, women, youth, people who live in rural areas, or people with disabilities

AND

3. Promotes equity and greater participation by its members.

THE CONSTITUTION OF A CO-OPERATIVE

CIPC can provide a sample constitution for a new co-operative. Visit their website: www.cipcco.za for details.

KEEPING RECORDS

The Co-operatives Act has strict record-keeping rules. A co-operative must keep the following documents at its registered office:

• Its constitution and any rules made separately from the constitution
• Minutes of all general meetings
• Minutes of all meetings of the board of directors
• Proper accounting records, including a record of the transactions between the co-operative and each member of the co-operative
• A list of its members with the following information for each member:
  • name and address
  • the date the person became a member
  • the date that the person’s membership came to an end (if this has happened)
  • the amount of membership fees paid
  • the number of membership shares held by the member
  • the number and amount of loans made to the member
• A register of its directors with the following information for each director, including both present and former directors:
  • name, address and ID number
  • the date the person became a director
  • the date that the person stopped being a director (if this has happened)
  • the name and address of any other co-operative, company or close corporation where a director acted as a director or a member, now or in the past
  • a register of all directors’ interests in contracts or other undertakings involving the co-operative

For more information on how to start and register a co-operative see the following websites:

• CIPC: www.cipro.co.za
• SEDFA (Small Enterprise Development and Finance Agency): www.sedfa.org.za for up-to-date information on co-operatives and the law