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cooperatives_and_associations
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Large print fact sheet.

Drafting first rules - co-operatives 

What are the co-operatives rules? 

A co-operative is governed primarily by the Co-operatives National Law (the CNL) and the Co-operatives National Regulations (the CNR) as applied in NSW. In addition, its operations and its relationship with its members are governed by its rules.

Every co-operative must have a set of rules. The rules are a contract between the co-operative and its members as well as between each member.

Before considering the rules, the type of co-operative must be determined as either a distributing co-operative (with share capital) or a non-distributing co-operative (with or without share capital) as this will, in turn, determine the matters to be included in the rules.

What must the rules include?

Matters set out in Schedule 1 of the CNL must be included. These are:

  • name of the co-operative
  • active membership provisions
  • mode and conditions of admission to membership, and the payment to be made, or the share or interest to be acquired, before rights of membership are exercised
  • rights and liabilities of members, and of the estates of deceased members, and the rights and liabilities of representatives of members under bankruptcy or mental incapacity
  • circumstances in which members may be expelled or suspended and the rights and liabilities of expelled and suspended members
  • circumstances in which membership ceases
  • charges or subscriptions payable by a member to the co-operative
  • circumstances in which fines and forfeitures may be imposed on members of the co-operative, and the amount of the fines, being not more than the maximum amount prescribed by the National Regulations
  • grievance procedures for settling disputes between the co-operative and any of its members or between a member and another member
  • restrictions, if any, on the powers of the co-operative and the board
  • number of directors, qualifications of directors, the way of electing, remunerating and removing directors and filling a vacancy, the period for which directors are to hold office, whether directors are to retire by rotation or otherwise, and the holding of annual elections
  • quorum for and the procedure at meetings of the board 
  • device, custody and use of the seal of the co-operative
  • how the funds of the co-operative are to be managed, and in particular the mode of drawing and signing cheques, drafts, bills of exchange, promissory notes, and other negotiable instruments for the co-operative  
  • custody of securities belonging to the co-operative
  • how debentures may be transferred 
  • date on which the financial year of the co-operative ends
  • preparation of financial reports of the co-operative, the provision of those reports to members of the co-operative, and whether and how those reports are to be audited or reviewed
  • how a loss that may result from the transactions of the co-operative is to be provided for  
  • procedure for calling general and special meetings, the requisite notices of meetings, and the quorum for meetings of the co-operative 
  • procedure at meetings of the co-operative, including the following:
    • the rights of members in voting at meetings
    • the way of voting
    • the majority necessary for carrying resolutions, and any special majority in addition to that required under this Law necessary for carrying specified resolutions
  • method of conducting postal ballots ( including special postal ballots), including the following:
    • the sending and filing of information and votes by fax or electronic means
    • the way of voting
    • the majority necessary for carrying resolutions, and any special majority in addition to that required under this Law necessary for carrying specified resolutions
  • way of amending the rules
  • how the co-operative may be wound up
  • a mater prescribed by the National Regulations for the purposes of this clause
  • other matters that appear necessary or desirable to the co-operative.

Additional matters

The rules may include the objects of the co-operative as well as  any other appropriate provision for an individual co-operative if  not contrary to legislation.

Depending on the type of co-operative, additional matters will be required to be included in the rules as outlined below.

Share capital

If a co-operative has share capital, the rules must provide for the following additional matters:

  • nominal value of each share in the co-operative
  • amount of the contingent liability, if any, attaching to the shares
  • terms on which shares, not including bonus shares, but including shares (if any) with a contingent liability attached to them are to be issued
  • periodic subscriptions by which or the manner in which shares are to be paid for
  • in the case of a distributing co-operative – how any surplus may be distributed
  • allocation of a deficiency on the winding up of a co-operative
  • forfeiture of shares on expulsion or on failure to pay any subscription or call, the extent to which members whose shares have been forfeited are to remain liable for any amount still unpaid for them, and the sale or cancellation of forfeited shares
  • how shares may be transferred
  • a matter prescribed by the National Regulations for the purposes of this clause.

Non-distributing co-operative

The rules for a non-distributing co-operative must also provide for the following additional matters:

  • that there must be no return or distribution of surplus or share capital to members other than the nominal value of shares, if any, at winding up, and 
  • for the way of distribution of the surplus property at winding up.

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What are the model rules? 

The National Regulations contain Model Rules. These rules provide core rules including all the matters that are required by Schedule 1.

Model Rules are available for the following types of co-operatives:

Co-operatives engage in a wide range of activities and the Model Rules are not intended to deal with all aspects of the business or activities of a co-operative.

Before adopting Model Rules a co-operative should carefully consider if the provisions of the relevant model rule suits its proposed activities and intentions.

Where a co-operative wishes to address a particular matter in a manner that is different to the model rule, then it will be adopting its own rules.

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Preparing the co-operatives rules 

The co-operative must ensure its rules comply with the requirements of the CNL and the CNR.

Consideration of the active membership provision is critical. There are two parts, firstly the primary activity of the co-operative and secondly, it must specify precisely what a member is required to do in support of the primary activity to maintain a relationship with the co-operative.  Please refer to the Co-operatives active membership information sheet for further information concerning active membership.

Depending on the complexity of the proposed co-operative it may be necessary to seek financial or legal advice to assist in preparing the rules.

Own rules

In most cases a co-operative will adopt its own rules. A co-operative can include some or all of the relevant model rules in its own rules making any additions or changes to the rules as appropriate for that co-operative.

Model rules

Where a co-operative adopts the Model Rules it is important to the note the following:

  • the Model Rules are to be completed by inserting specified details or by striking out any words as specifically required or permitted in the Model Rules. A row of dots in a model rule indicates that a relevant detail or other information is required to be inserted in that particular rule.
  • if any other change is made to the text of the rules or if any additional rules or matters are included then the co-operative should adopt its own rules.

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Approving the rules 

A co-operative’s rules must be approved by the Registrar as part of the formation process.

Once the rules have been drafted, a complete set of the proposed rules must be submitted to Fair Trading’s Registry Services together with an Application to approve co-operative name, rules and formation disclosure statement form for approval.

A distributing co-operative must submit a formation disclosure statement at the same time. Amendments may be required prior to approval following Fair Trading’s review.

Once approved, Fair Trading will forward the necessary approval and other documents to proceed with the formation meeting.

It is important to note that the approved rules cannot be amended at the formation meeting.

Once the approved rules have been adopted by the co-operative at its formation meeting, they may only be altered in accordance with the requirements of the CNL and the Regulations.

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Further information 

For further information please contact:

Registry Services
PO Box 22
Bathurst  NSW  2795
Tel: 6333 1400
Freecall: 1800 502 042
Email: registryinquiries@finance.nsw.gov.au

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