Are your cooperative bylaws working for you?

Authored by Eric Kroll and Tara Guler

Cooperative industry insights

The U.S. business landscape is rapidly changing as business leaders try to anticipate the impacts of potential tax reform and changes to regulations. Cooperatives across the country continue to explore innovative ways to increase value to members through consolidations, mergers, cost reduction efforts, or additional member service offerings, to name a few. These pursuits could have significant implications for your cooperative’s bylaws.

Whether exploring a transaction, strategically selling a significant asset or restructuring an equity program, a cooperative’s bylaws should govern how a cooperative operates. However, it is surprisingly common for a cooperative’s bylaws to have evolved at a slower pace than its business. This situation could put both management and the board of directors at a disadvantage should the cooperative be at an inflection point.

Important bylaw considerations

A cooperative’s bylaws should be a living and breathing document that is revisited on a frequent basis. Seven key considerations when it comes to evaluating your cooperative’s bylaws, include:

  • Do your bylaws reflect how your cooperative currently operates?
    • Are your bylaws clear on the meetings, committees, titles, etc. of your board?
    • Are member terminations clearly stated to avoid Capper Volstead Act issues?
    • Do your bylaws reflect what you are really doing?
  • What is the process to change the bylaws?
    • Can the board change bylaws without member approval?
    • Are there certain restrictions on what can be changed in the bylaws?
  • Is the patronage dividend calculated on a book or tax basis?
    • Is it clear in the bylaws, or is it vague and the cooperative has adopted one method?
    • Is the method providing the desired result for the members and cooperative?
  • Do your bylaws allow for inclusion or exclusion of certain items from available patronage dividends?
    • Are hedging gains/losses, gain/loss on a sale of a significant asset, lawsuit proceeds allowed to be included or excluded from patronage dividends?
  • Do your bylaws allow you to allocate losses to members?
    • Is it clear which members will get any special allocation of certain patronage income and how that will be determined?
  • Do your bylaws have a member “consent” provision regarding qualified written notices of allocation?
    • Does the cooperative have any documentation to confirm the members received the qualified written notice and understand its implications?
  • Do the bylaws contain a good description of the cooperative’s capital plan?

How Baker Tilly can help

When reviewing your bylaws, it helps to engage people who have experience working with cooperatives in order to efficiently navigate potential issues. Like the cooperative industry, Baker Tilly is rooted strongly in the Midwest with a national reach.

Our cooperative team is active in the industry, speaking at conferences, sharing insights and thought leadership and driving our clients’ businesses forward.

As with any legal document, how your bylaws are worded can have unintended tax and accounting consequences, as well as limit the options for the board and management team. Baker Tilly’s team leverages significant experience in reviewing cooperative bylaws across industries and can assist the company in ensuring your bylaws are working for you!

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.