Duties of Members-Owners

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

Members are the foundation of the cooperative. They organized it. Their needs are the reason for its existence. Their support, through patronage and capital investment, keeps it economically healthy. And their changing requirements shape the cooperative’s future.

Statutory law and the basic legal documents of a cooperative–articles of incorporation, bylaws and contracts between the cooperative and its members–give the members the tools to control the cooperative and the duty to use those tools for their mutual benefit. Legal rights and responsibilities of cooperative members normally include:

• Adopt and amend the articles of incorporation and bylaws.

• Elect and, if necessary, remove directors.

• Decide whether to dissolve, merge or consolidate the cooperative or form a joint venture with other cooperative or noncooperative firms.

• Make sure officers, directors and other agents comply with laws applicable to the cooperative and with its articles of incorporation, bylaws and membership contracts.

Members also have general responsibilities toward their cooperative. Unlike the passive investor in a general business corporation, the member-owner-user of a cooperative must patronize and guide the venture for it to succeed. Employees and advisers need to understand these member obligations and help members fulfill them.

• Patronize the cooperative. Members must make a conscious decision to be committed to the cooperative, even when short-term prices or services may be better elsewhere. If members do not want to use the cooperative, the need for it must be re-examined.

• Be informed about the cooperative. To carry out their other duties, members must know what the cooperative is about; what it can do for them; its purpose, objectives and policies; and the issues it faces. They can obtain information through annual meetings, reports and newsletters, and from talking to the manager, staff, directors and other members. To effectively exercise their right of ownership, a member needs a good understanding of the present situation and projected future operations.

• Be conscientious when selecting and evaluating directors. Although the cooperative is a user-owner, democratically controlled form of business, members cannot make all the decisions directly. They select from among their peers individuals with the best judgment and business management skills to represent them in management affairs as the cooperative’s board of directors. Loyalty, integrity, the ability to make wise business decisions and willingness to serve are necessary characteristics for board members.

• Provide necessary capital. Members must provide the equity financing their cooperative needs for acquiring inventory, facilities, services and working capital. This is done initially through the purchase of stock or a membership. It continues by permitting the cooperative to retain a portion of the earnings allocated to each member and through the collection of per-unit retains from checks to members for the proceeds of sale from marketing member products. If the cooperative loses money, members have the same obligation to share those losses as they do the earnings.

• Evaluate performance of the cooperative. Members should examine the annual report and observe whether the cooperative is meeting their needs. If they are dissatisfied with cooperative performance, they should share their concerns with the directors. They should also express support for things the cooperative is doing well. Directors cannot effectively represent the members if they do not know the members’ true feelings.

Relations between members and the cooperative include incorporated, loose-knit, non-contract arragements and contract arrangments. Incorporated and loose-knit are groups of people who may form relationships through a firm. Consumers and others may form loosely organized buying clubs. Contract arrangments create benefits by buying in volume. They need commitments of a certain volume, but they do reduce costs by tailoring orders to member needs and just-in-time inventory control.