Co-op Law
Resources for Worker Cooperatives
Co-op Law
Resources for Worker Cooperatives

New York Cooperative Law

New York believes in the ability for cooperatives to create community resilience and “improve economic welfare”. The New York Cooperative Corporations Law governs the founding and running of co-ops in New York with a few exceptions. 

Cooperative Law Generally

The cooperative form has long been recognized in New York State as one that is capable of “improving the economic welfare of its people, particularly those who are producers, marketers or consumers of food products.”1 While cooperatives are subject to a wide variety of laws in New York State, the Cooperative Corporations Law (“CCO”) governs them generally. It was passed into law in 1951, replacing the previous Cooperative Corporations Law of 1926.

Cooperative History

New York has long been an epicenter for the cooperative housing movement. According to members of the National Association of Housing Cooperatives (NAHC), in “Brief History of Cooperative Housing, the first residential cooperative in the United States was established in 1876 on West 18th Street in Manhattan. Other sources identify the first residential cooperative as being establish in 1881 at 152 West 57th Street in Manhattan.

Furthermore, according to a study by NYU’s Furman Center for Real Estate and Urban Policy in 2006, New York City has the largest proportion of residential cooperatives in the United States.

Upstate New York has made a couple attempts at starting a cooperative movement: the New York State Federation of Cooperatives, which operated from an unknown starting date until 1984, and Commonworks, which operated for much of the 1990s. These organizations supported a variety of cooperative endeavors, including consumer coops, bakery coops, construction worker coops, and a variety of other worker owned cooperatives.

Statutes

The Cooperative Corporations Law

The New York State Cooperative Corporations Law, Article 1, Section 3(c) states that “a cooperative shall be either a general cooperative, a membership cooperative, an agricultural cooperative as defined in article six of this chapter or a worker cooperative as defined in section eighty-one of this chapter.”  The purposes for which a general cooperative may be formed can be found in CCO Article 2, Section 13. Section 3(k) of the New York Cooperative Corporations Law  defines a membership cooperative as “a non-stock cooperative which admits only natural persons to membership, which provides services only to its members and which makes no distribution of net retained proceeds other than to its members on the basis of their patronage.” In contrast, a general cooperative may be formed as a stock cooperative and “may issue, to members or others, shares of stock of a different class or classes not evidencing membership.” See CCO Article 2, Section 10.

There is no statute specifically governing consumer or producer cooperatives. As with other cooperatives in New York State, they may be formed under the Cooperative Corporations Law or as another entity type that has adopted a cooperative governance model.

 

By default, a cooperative formed under the Cooperative Corporations Law is classified as a non-profit corporation.

Naming your Cooperative

Like many other states, New York State restricts which businesses can and cannot use the word “cooperative” in their name. Specifically, CCO section 3(j) prohibits use of the words “cooperative,” “cooperation” or any abbreviation or variation thereof in any business not formed under the cooperative corporations law. It allows any cooperative corporation duly formed under the CCO to sue for an injunction against any prohibited use of these terms, and it treats any violation of this prohibition as a misdemeanor offense, punishable by a fine of not more than five hundred dollars.

This rule, however, is not absolute. in 1970, the New York Attorney General issued an opinion stating the that use of the word “Coop” was not prohibited in the case of a business named “Tire Supply at Coop City.” They reasoned that the word “Coop” was clearly intended to indicate location, not to suggest that the business would be operated as a cooperative corporation. While not binding as precedent, the Attorney General’s opinion suggests that where there is no risk of confusion to general public as to whether a business is intended to be run as a cooperative corporation, a non-cooperative business may be allowed to include the word “cooperative” or an abbreviation thereof in its name. (See 1970 N.Y. Op. Atty. Gen. No. 31 (N.Y.A.G.), 1970 WL 197708)

Issues of Note- Senate Bill S2184

Senate Bill S2184, introduced on January 23, 2019 and referred to the Commerce, Economic Development, and Small Business Committee on January 8, 2020, seeks to establish a state university-based center for employee ownership.

Section 1 would amend the Economic Development Law to create the Center for Employee Ownership, a program within the State University of New York that would support education and outreach on employee ownership succession plans.

Sections 2-6 would amend the Public Authorities Law to establish a lending program to support loans and loan guarantees for employee-owned businesses, with a focus on business succession and purchases of pre-existing businesses by employees.

Section 7 would amend the Tax Law so that sales of stock to employee-owned enterprises would be exempt from capital gains tax.

Legal Entities

While many cooperatives in New York State form under the Cooperative Corporations Law, a business that wants to function as a cooperative may be formed as any of the major legal entity types (partnership, limited partnership, limited liability partnership, “C” and “S” corporations, nonprofit corporations, LLCs). What really matters is that the business’s governing documents establish the business as one that will function cooperatively. It is common for cooperative businesses to form as New York State LLCs with cooperative governance built into their operating agreements.

Article 5-A. Worker Cooperative Corporations

The legislature of New York State has expressed a policy of promoting the creation of worker cooperatives, stating that is believes “that such cooperative ownership will result in increased job satisfaction and increased productivity and will enable workers to receive the fullest economic benefits from their endeavors. It is also expected that the establishment of cooperatives… will result in the creation of new jobs in all economic sectors, will offer greater economic stability in the communities of this state and will discourage the movement of capital and jobs out of this state.” See CCO Article 5-A, Section 80.

Worker cooperatives are specifically authorized under Article 5-A of the Cooperative Corporations Law. They “may be formed for any lawful business purpose and may be conducted for profit.” (See CCO § 13) While there are no restrictions preventing a non-profit from being governed similarly to a worker cooperative, businesses electing to be governed as a worker cooperative under Article 5-A may not “be classed as a non-profit or not-for-profit corporation.” (See CCO § 83)

Except for in a narrow set of circumstances, “no capital stock other than membership shares shall be given voting power in a worker cooperative.” See CCO §89 . This in effect means that the worker cooperative should generally be governed by the principle of one member, one vote.

Section 88 of the Cooperative Corporations Law further requires that the certificate of incorporation or the by-law of a worker cooperative “shall establish qualifications and the method of acceptance and termination of members.” “Upon completion of their probationary period, all regular full-time or part-time employees must be offered membership in the worker cooperative.” This suggests that a business electing to be governed as a worker cooperative under Article 5-A of the New York Cooperative Corporations Law may be prohibited from having permanent employees. It appears that the length of the probationary may be defined by the company. There is no guidance for the length of the period in the statute. However, it does appear that a probationary period and path to membership must be established in the governance documents of the worker cooperative.

Article 6. Agricultural Cooperative Corporations

The statute governing agricultural cooperative corporations is CCO Article 6 . The legislature of New York State has expressed a belief that agricultural cooperatives “promote the effective production and merchandising of agricultural commodities by providing the means by which farmers may act together in manufacturing, processing, preparing for market, handling and/or marketing their farm products and by enabling farmers to act together in purchasing, testing, grading, processing, distributing and/or furnishing farm supplies and/or farm business services through cooperatives operated for the mutual benefit of the members thereof as producers and purchasers.” See CCO Section 110 .

The term “Agricultural Cooperative” is defined as “a cooperative, either stock or non-stock, operated for the mutual benefit of the members in which 

(1) no member is allowed more than one vote because of the amount of stock or membership capital he or she may own therein, and 

(2) the cooperative does not pay dividends on stock or membership capital in excess of twelve per centum per annum, and 

(3) the cooperative does not deal in farm products, agricultural waste products or agricultural compost, farm supplies, farm business services and the capture of methane and other gases for the generation and use or sale of energy, as defined in section 1-103 of the energy law with or for non-members in an amount greater in value than the total amount of such business transacted by it with or for members.” See CCO Section 111 .

 

“Only persons engaged in the production of agricultural products, or cooperative corporations of such producers organized under the laws of this or any other state, shall be eligible for membership in any agricultural marketing or purchasing corporation formed or operated under the provisions of this article.” See CCO Section 111

 

Article 7. Credit and Agency Corporations

New York State CCO Article 7 allows for a cooperative corporation to be organized as an agency, subsidiary, or holding corporation to assist and finance other cooperative corporations and to help them obtain loans from the federal intermediate credit bank under the agricultural credits act of 1923. A credit corporation may also be formed by a cooperative corporation to help finance ordinary crop operations of the members of that cooperative corporation. See CCO Section 120.

Any credit corporation may make loans to members of a cooperative corporation owning stock in the credit corporation. No other loans are allowed. Loans cannot be for more than ten years, and they must be for agricultural, dairy, or horticultural purposes. See CCO Section 121.

An example of a financial cooperative operating in New York is Farm Credit East, though it is unclear whether or not they are specifically formed as a cooperative under the laws of New York. 

Types of Co-ops

Housing Co-ops

Housing cooperatives are generally formed under the New York Business Corporations Law (“BCL”) and are subject to additional rules under the Real Property Actions and Proceedings Law (“RPAPL”) and the New York General Business Law Section 352-e (“GBL”), which governs real estate syndication. Low income housing cooperatives are generally created under the BCL and Article XI of the Private Housing Finance Law. The Urban Homesteading Assistance Board (“UHAB”) has prepared a legal handbook for limited equity cooperatives. Additional information about housing cooperatives can be found here.

Rural Electric Co-ops

Rural Electric Cooperatives may be formed under the Rural Electric Cooperative Law (“REL”), signed into effect on April 29, 1942. Rural Electric Cooperatives typically function as consumer cooperatives, wherein members use their collective purchasing power to buy electricity and maintain electrical infrastructure in areas where such utilities were not readily available. On May 12, 2942, Delaware County Electric Association, Inc., from Delhi, New York, converted to a cooperative and became the first cooperative formed in existence under that law.6 In 1997, 1st Rochdale Cooperative Group Ltd., formed with the purpose of performing the function of a rural electric cooperative in and around New York City. It was created and is owned by housing cooperatives in the NYC metropolitan area.

Governance & Management

Sample Bylaws and Operating Agreements

Park Slope Food Coop Bylaws 

Cooperative Support Organizations

Legal Support for Cooperatives

Business Support for Cooperatives

Worker Cooperative One-on-One Support

Worker Co-op Financing Support

Secondary Sources

 
 
 
 
 
 

Author

Sam Gray is a Senior Staff Attorney at Brooklyn Legal Services Corporation A, where he represents a wide variety of non-profits and community based organizations in transactional and real estate matters. Before working at Brooklyn Legal Services, he managed a law practice, Liszka & Gray, LLC. He also served a couple years on the board of the New York City Real Estate Investment Cooperative.

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The information presented on Co-oplaw.org is largely based on California law and IS NOT LEGAL ADVICE.

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