Co-op Business Law: Minnesota Cooperative Associations Act

ByAaron Hall Updated Business Law

A cooperative association, also known as a co-op, is a type of business that can be incorporated in Minnesota under the Minnesota Cooperative Law (prior to 2003) or the Minnesota Cooperative Associations Act (since 2003). A co-op is essentially a business that produces or distributes goods or services, owned and operated by its owners, for their mutual benefit.

This article begins by explaining some basic co-op concepts. This is followed by an explanation of the old (prior to 2003) Minnesota Cooperative Law statute because it is easier to understand than the 2003 law. This article concludes with a summary of changes in the new (since 2003) Minnesota Cooperative Associations Act.

Minnesota Cooperative Basics

This section covers a few common questions for those who are new to co-op law in Minnesota.

How is a Co-op Different from Other Business Types?

Unlike an LLC or corporation, a co-op’s benefits are generally based on patronage. “Patronage” means business, transactions, or services done for or with the co-op. For example, in an electric co-op, the members may buy electricity from the co-op. In a dairy co-op, the members may sell milk to the co-op, which then resells the milk at a profit.

For illustration, an electrical co-op could be set up to share profits with members based on their patronage. A member who purchased 1% of the co-op’s electricity could receive 1% of hits profits that year, member who purchased 5% of the co-op’s electricity could receive 5% of hits profits that year, and so on.

Compared to other business types (e.g. corporation, partnership, and LLC), co-ops are relatively rare in Minnesota. But they are an important option for those who desire the co-op framework rather than creating a custom framework in an LLC.

Are There Alternatives to a Co-op?

Yes. Most new business owners who seek a co-op can accomplish their purposes through other business types. One frequent choice is an LLC, which allows broad flexibility in designing the entity for the needs of the co-op owners. However, a co-op has some limitations, which may be preferred by those seeking a pure co-op structure without the broad flexibility of an LLC.

What Laws Govern Minnesota Co-ops?

Cooperatives in Minnesota are governed by either

This distinction is important. Co-op members should be clear on which chapter (Chapter 308A or 308B) governs their cooperative because Chapter 308B (the newer law) provides a lot more flexibility in the co-op’s articles, bylaws, and rules.

Co-ops Under the Old Minnesota Cooperative Law (Chapter 308A)

This section covers co-ops under the Minnesota Cooperative Law, Chapter 308A of the Minnesota Statutes.

It is easier to learn about co-ops by learning the Minnesota Cooperative Law because it is shorter and simpler than the Minnesota Cooperative Associations Act, which is longer and provides many options for greater flexibility.

What Can a Co-op be Used For?

Examples of co-ops range from a food co-op where families buy food together in bulk, farm co-ops, and credit unions. However, Minnesota law allows a cooperative for “conducting an agricultural, dairy, marketing, transportation, warehousing, commission, contracting, building, mining, telephone, manufacturing, mechanical, mercantile, electrical, heat, light, or power business, or for any combination of these purposes or for any other lawful purpose.” Minn. Stat. § 308A.101, subdiv. 1.

What Can a Co-op Do?

Minnesota law authorizes cooperatives to engage in a variety of business practices. For example, a cooperative may buy, sell, or deal in its own products, the products of the cooperative’s individual members or patrons, the products of another cooperative or association, or of its members or patrons. A cooperative may enter contracts, buy and sell real estate, construct buildings, issue bonds, make advances to members or patrons, accept deposits, lend and borrow money, acquire and dispose of stock, and more. For a complete list see Minnesota Statutes section 308A.201.

Who Controls a Co-op?

A cooperative is governed by its board of directors. Minn. Stat. § 308A.301. A board must have at least five directors, except a cooperative housing corporation, which must have at least three directors. Minn. Stat. § 308A.305. The process for members electing a board of directors is provided in Minnesota Statutes section 308A.311. The process for filling vacancies on a board of directors is provided in Minnesota Statutes section 308A.315. The process for removing directors is provided in Minnesota Statutes section 308A.321.

Can a Co-op have Officers?

Yes. The board must elect: (1) a president; (2) one or more vice-presidents; (3) a secretary; and (4) a treasurer. Minn. Stat. § 308A.401, subdiv. 1(a). The board may elect additional officers as the articles or bylaws authorize or require. Minn. Stat. § 308A.401, subdiv. 1(b).

How is Money Handled in a Co-op?

A cooperative may set aside a capital reserve, up to five percent of the annual net income for promoting and encouraging cooperative organization, and reserves for new buildings, machinery and equipment, depreciation, losses, and other proper purposes. Minn. Stat. § 308A.701.

A cooperative may distribute its income and profits as provided in Minnesota Statutes section 308A.705.

Do Co-ops Need to Offer Stock to Co-op Owners?

No. In Minnesota, stock cooperatives and nonstock cooperatives are allowed. Minn. Stat. § 308A.125. A co-op can be owned by either stockholders/shareholders or members.

For guidance on co-op stock, see Minnesota Statutes sections 308A.501 to 308A.505.

For guidance on co-op membership, see Minnesota Statutes sections 308A.601 to 308A.645.

How Do You Start a Co-op?

In general, the existence of a cooperative begins when the Articles of Incorporation are filed with the secretary of state. Minn. Stat. § 308A.155, subdiv. 1. However, there are exceptions for co-ops that failed to properly file. Minn. Stat. § 308A.145.

What Should Be in a Co-op’s Articles of Incorporation?

Both stock and nonstock cooperatives must have Articles of Incorporation. Minn. Stat. § 308A.125.

A Minnesota cooperative must have Articles of Incorporation that include
  1. the name of the cooperative;
  2. the purpose of the cooperative;
  3. the principal place of business for the cooperative;
  4. the period of duration for the cooperative, if the duration is not to be perpetual; and
  5. the registered office address of the cooperative and the name of the registered agent, if any, at that address.

Minn. Stat. § 308A.131, subdiv. 1(a).

The articles may contain other lawful provisions including

  1. if the cooperative is to be organized on a capital stock basis, the total authorized number of shares and the par value of each share:
  2. if the shares of the cooperative are to be classified, a description of the classes of shares, including a statement of the number of shares in each class and relative rights, preferences, and restrictions granted to or imposed upon the shares of each class; and
  3. the names, post office addresses, and terms of office of the directors of the first board.

Minn. Stat. § 308A.131, subdiv. 1(b).

The following provisions are presumed to be part of the articles of a cooperative formed under Chapter 308A:

  1. individuals owning common stock shall be restricted to one vote in the affairs of the cooperative or a statement that the cooperative is one described in section 308A.641, subdivision 2;
  2. shares of stock are transferable only with the approval of the board;
  3. dividends on the capital stock and nonstock units of equity of the cooperative may not exceed eight percent annually;
  4. net income in excess of dividends and additions to reserves shall be distributed on the basis of patronage, and that the records of the cooperative may show the interest of patrons, stockholders of any classes, and members in the reserves; and
  5. only common stockholders have voting power.

Minn. Stat. § 308A.131, subdiv. 1(d).

How Can a Cooperative Amend Its Articles of Incorporation?

First, the board by majority vote must pass a resolution stating the text of the proposed amendment. Minn. Stat. § 308A.135, subdiv. 1.

Second, a majority of the co-op members must approve the amendment. Minn. Stat. § 308A.135, subdiv. 1.

Third, the co-op must file the amendment with the state. Minn. Stat. § 308A.135, subdiv. 2.

Fourth, the co-op must prepare a certificate stating: (A) the vote and meeting of the board adopting a resolution of the proposed amendment; (B) the notice given to members of the meeting at which the amendment was adopted; (C) the quorum registered at the meeting; and (D) the vote cast adopting the amendment. Minn. Stat. § 308A.135, subdiv. 3.

If the co-op does not have any members or stockholders with voting rights, a majority of the board of directors may amend the Articles of Incorporation. Minn. Stat. § 308A.135, subdiv. 4.

What Should Be in a Co-op’s Bylaws?

In Minnesota, bylaws are optional for cooperatives. Minn. Stat. § 308A.165, subdiv. 1.

A co-op’s bylaws may contain any provision relating to the management or regulation of the affairs of the cooperative that are not inconsistent with law or the articles. Examples include the following:

the number of directors, and the qualifications, manner of election, powers, duties, and compensation, if any, of directors;

  1. the qualifications of members, stockholders, and patrons and limitations on their number;
  2. the manner of admission, withdrawal, suspensions, and expulsion of members;
  3. property, voting, and other rights and privileges of members;
  4. the appointment and authority of committees;
  5. the appointment or election, duties, compensation, and tenure of officers;
  6. the time, place, and manner of calling, conducting, and giving notice of member, board, and committee meetings, or of conducting mail ballots; and
  7. the making of reports and financial statements to members.

Minn. Stat. § 308A.165, subdiv. 3.

Does Minnesota Have Special Laws for Certain Industries?

Utility Cooperatives

Yes. Here are some examples:

Creamery Cooperatives

Yes. Here are some examples:

Water Quality Cooperatives

Yes. One example includes Minnesota Statutes section 308A.201, subdivision 15 (water quality cooperative condemnation power).

Telecommunication Services Purchasing Cooperatives

Yes. Here are some examples:

Can Minnesota Co-ops be Merged or Consolidated?

Yes. The process for a merger or consolidation of cooperatives is provided in Minnesota Statutes section 308A.801.

How Can a Co-op Be Dissolved and Terminated?

For guidance on liquidating, dissolving, winding up, and termination of a cooperative, see Minnesota Statutes sections 308A.901 to 308A.995.

Co-ops Under the New Minnesota Cooperative Associations Act (Chapter 308B)

This section covers co-ops under the Minnesota Cooperative Associations Act, Chapter 308B of the Minnesota Statutes.

How are the Minnesota Cooperative Associations Act and Minnesota Cooperative Law related?

The Minnesota Cooperative Associations Act is entirely separate from the Minnesota Cooperative Law (Chapter 308A). That is, the Minnesota Cooperative Associations Act does not build on nor lay on top of the Minnesota Cooperative Law. By analogy, the Minnesota Cooperative Associations Act is separate from the Minnesota Cooperative Law just as the Minnesota Business Corporation Act is separate from the Minnesota Revised Uniform LLC Act.

What is Different Under the New Minnesota Cooperative Associations Act?

In general, the new Act provided in Chapter 308B provides co-op members would more flexibility in how they set up their co-op.