One of the ways members help the co-op get started is by investing equity. Some of these funds will be used to pay for initial operating costs (membership brochures printing, web site hosting, a professional market appraisal, etc).
The rest will later be combined with member loans to form our startup capital. With this capital we will then leverage loans from financial institutions.
Just like an individual invests their own money to start a private business, we’ll be pooling our money to form our co-op.
And like any successful business, a successful co-op will be able to repay the investment at a later date if the member decides to leave. The investor’s profit will include all of the co-op benefits we’ve talked about elsewhere (and will detail later). These can include a patronage refund in each profitable year and possibly a year-end distribution of profit into member’s equity accounts.
Different co-ops use different methods to raise equity. To help us decide how to proceed, it seemed like a good idea to investigate what others have done. The founding team has undertaken some research to educate themselves and the community. The full results can be found here.
Some co-ops have elected to collect a lump sum when the member first joins, others leave open the possibility of repeated or ongoing equity investments. The required investment levels, payment plans and low income options seem to be tailored to the needs of each community.
In our area we seem to have a wide range of household income levels. So we may want to keep our minimum investment (one share) somewhat low but allow for the purchase of multiple shares. We’ll need as much capital as we can to start with, but our future growth/health will be easier if we have regular equity investments each year.
The following proposed membership equity plan may cover all these issues...
- A minimum of one $100 share investment will be required to be a member. Until we open our doors this will be all that’s required to be a voting member. Once we open our doors it will take this $100 investment, plus the yearly $10 investment mentioned below, to entitle the member to full co-op benefits including the ability to vote.
- A payment plan (of $25 per quarter) will be offered. All benefits, except voting will be available immediately. Voting rights will be available at the $100 investment level.
- A low-income plan (of whatever can be invested) will be offered. Voting rights will begin after six months.
- The payment and low income plans would be mentioned on our publications but individuals would be required to apply for either of these in person at one of our membership events.
- Perhaps payment or low-income plan members will be able to work volunteer hours in exchange for some or all of their $100 share investment. We hope to uncover more information about volunteer plans with further research.
- We’d encourage investments of up to three shares and tell people ahead of time that we’ll probably be asking for these additional investments as we continue to raise money for opening. (The $300 limit is proposed to comply with what appears to be California state rules.)
- The purchase of additional shares does not affect the number of votes for that household. All members get only one vote.
- Once we open, all members will need to invest $10 per year to remain in good standing.
- Attempts will be made to contact members inactive for a year. After two years of inactivity their equity will be added to general co-op equity.
- Equity will be refundable only after three years of co-op operation. (To give the co-op a chance to become profitable and start to pay off loans.)
- The refund would not come out of exiting co-op capital but instead would come from new membership investments. It’s possible that a refund request would be held up until the funds are available. (This will protect the existing capital base.)
- Note that memberships and shares are non-transferable. (Again to comply with state rules.)
Obviously this plan would need to be reviewed by an attorney and is subject to change. Yet it’s being proposed in order to get us thinking and talking about what would work best for us. Membership equity details are an important part of the bylaws. Bylaw changes after incorporation are possible but it’s a whole lot easier to make changes before.
What do you think of this plan?
Patrick
Note: this is the first of a series of co-op proposals for us to consider during our start up efforts. Planned for later posting will be proposals on: volunteer plans, member benefits and low-income/disabled plans.
Too complex, with too many options and catches and continuing fees.
I recently started working out in Santa Monica, so I joined Cooportunity to experience a modern coop and see if I would really want to join the coop when it comes to Altadena. My ability to "unjoin" at any time (without your mandatory three year delay!!!!!) made this experiment completely risk free.
I chose to pay their full membership share cost up-front. Because I did so they waived their processing fee and gave me a gift card, total value of this was equivalent to 12.5% of the cost of the full membership share. They also threw in two reusable cloth shopping bags of minimal value, but great utility. ( BTW they use the same, very sturdy and quite reusable plastic bags that Wild Oats used to use if you don't bring your own bag.)
But any members can pay as little as 1/8th of the total fee per year until they have paid the full amount. There is no "low income" stigma attached to this -- it is an option open to all -- and as long as members increase their investment by that minimum yearly amount (which averages to just a bit over $2/month) they enjoy full membership benefits.
But once you've paid off your membership, that's it! For life! No "Costco"-style yearly fees just to stay a member. This is a coop, not a corporate big box "club".
Simple, fair, but clearly successful!
Jugband,
Thanks for the comments. We'll look at ways to make this plan simpler but let me take this opportunity to clarify some of the points of the proposal...
"...without your mandatory three year delay..."
- The member equity refund delay will only be at the beginning. During this startup phase the co-op will need every long-term membership that it can get. Yes, we'll put together a budget, and allow for contingencies, but there's a chance that something unforeseen could come up. We recognize that this delay might be off-putting so some potential members but they will still be welcome to shop at the co-op during this time. They just won't get all of the benefits. After this startup phase the three year hold will no longer be in place.
"...But once you've paid off your membership, that's it! For life!"
- Actually Co-opportunity seems to have learned their lesson about "lifetime" memberships. This used to be common among co-ops years ago. But then they needed more equity for a store relocation, renovation or expansion. What was the co-op to do after promising their members that they had lifetime memberships? Changing the policy would anger some people. If we look closely at Co-opportunity's membership page (http://www.coopportunity.com/co_opComp/pages/membership/howToJoin.htm) we'll see that they don't promise this is a lifetime membership. It's now common to not promise such a cap because the member-elected board may one day ask members for more investments.
"...No "Costco"-style yearly fees just to stay a member..."
- Right and that wouldn't be the case under this proposal. The $10 per year would be more refundable investment. So, for the same $200 investment that one would make to join Co-opportunity, one could instead join our co-op under this proposal and be a member for 10 years ($100 at first plus $10 per year). We hope that many will invest up to the $300 limit but this would not be required.
By having a yearly investment requirement we hope to build more capital. This way we can branch out from the grocery store with a cafe/brew pub and a farm. This will take cash. We hope to find enough members in our area that understand this and will join with us.
- Patrick