Mississippi lacks a unified cooperative statute, instead providing specific laws for creating agricultural marketing, credit, electrical, and nonprofit cooperatives. Cooperatives with objectives outside these categories may opt to form as LLCs with cooperative principles in their bylaws, or incorporate in another state and then apply to operate in Mississippi as a foreign corporation.
Cooperative Law Generally
History of Co-ops in MS
Historically, Mississippi has been a largely agricultural state. In light of this history, it is unsurprising that there are many agricultural cooperatives in the state. These cooperatives amplify the selling power and buying power of farmers, and are an economically powerful means of ensuring financial sustainability.Such financial sustainability was unavailable to the African-American community in Mississippi because of the history of slavery and subsequently Jim Crow segregation. Whites often excluded African Americans from participation in existing agricultural cooperatives.This exclusion from economic participation and this deprivation of financial stability led to an emphasis on cooperativism among some leaders in the Mississippi African-American community.
First Co-op in MS
One of the first examples of the cooperative movement in Mississippi came about because of the National Federation of Colored Farmers, Inc. (“NFCF”). The first local chapter of the NFCF was started in Howard, Mississippi in 1929. Thirty tenants and sharecroppers who had been barred from membership in the white cooperative in the area started this chapter and through it, their own cooperative. By joining together into a cooperative they were able to purchase goods wholesale for low prices. These low prices attracted many more members, so the cooperative grew. This growth did not come without a price. The white planters, from whom many of the African American tenants and sharecroppers leased land, stopped giving them cash advances prior to the harvest. Nonetheless, over the ten-year life of the cooperative, many members were able to buy their own farms and, through that purchase, a measure of economic independence.
Mississippi Freedom Democratic Party
Another cooperative movement in Mississippi was led by Fannie Lou Hamer, the founder of the Mississippi Freedom Democratic Party. She believed that political independence was not freedom without economic independence, and that economic development should focus on the community, not the individual. Based on these principles, she founded the Freedom Farm Cooperative. This cooperative, begun in the late 1960’s, was designed to help displaced farm workers become self-reliant.The Freedom Farm initiated several plans to achieve this goal. Freedom Farm first bought fifty-five pigs and started a pig bank. Cooperative members were assigned a pregnant sow on the condition that they donate two pigs from each litter back to the cooperative. This was supposed to allowed the pig bank to expand so more members could become self-reliant. It worked. By 1975, the original fifty-five pigs had become two thousand pigs. Other actions taken by Freedom Farm included purchasing housing to sell back to individuals on a rent-to-own basis, making loans to support black business development, and buying a factory in order to open a sewing cooperative. Unfortunately, despite its grand ambitions, Freedom Farm survived only for ten years, into the late 1970s.
Cooperation Jackson
Most recently, the cooperative movement among Mississippi’s African-American community has been taken up by Cooperation Jackson in Jackson, Mississippi. Cooperation Jackson developed out of the mayoral campaign of Chokwe Lumumba. The platform emphasized creating jobs in and generally revitalizing Jackson, Mississippi through the development of community-owned cooperatives. Lumumba often stated that his campaign was an attempt to extend the legacy of Fannie Lou Hamer and the Mississippi Freedom Democratic Party of the 1960’s. Lumumba won the Jackson mayoral race. Unfortunately, several months after taking office he passed away. Despite his passing, his son and members of his campaign staff took up the campaign platform and have continued it through Cooperation Jackson, which functions as a cooperative incubator.
Statutes
Agricultural Marketing Cooperatives
Mississippi Code Annotated Section 79-19 outlines the legal framework for agricultural marketing cooperatives within the state. These cooperatives are designed to manage and promote a wide array of agricultural products including, but not limited to, horticulture, viticulture, forestry, dairy, livestock, poultry, bee products, and other farm commodities as specified in § 79-19-3(a).
Formation Requirements
The formation of an agricultural marketing cooperative in Mississippi is contingent upon the assembly of a specific number of individuals. For cooperatives focused on the cultivation, breeding, sale, or management of livestock or poultry, a minimum of five individuals is required as per § 79-19-5. For all other types, twenty individuals are necessary to form the cooperative, in accordance with the same section. A critical stipulation is that the majority of these founding members must be residents of Mississippi.
Non-Profit Designation
Despite the potential for profit generation, agricultural marketing cooperatives under this statute are classified as non-profit entities. This classification stems from the cooperatives’ primary objective to procure profits for the member producers rather than for the cooperative itself. There are specific limitations on the cooperative’s dealings with non-member products, only permitting such transactions when they are essential and incidental to the handling of member products (§ 79-19-9(a)). The statute governing non-profit corporations in Mississippi does not say they can use the term “cooperative” in their business name. Miss. Code. Ann. § 70-11. However, case law in the state confirms that the term can be used in the name of a non-profit organization formed according to §70-11. The case called Staple Cotton Co-op. Ass’n v. Fed. Staple Cotton Co-op. Ass’n, 249 Miss. 465 (1964) takes for granted that a non-profit organization can use the term “cooperative” or “co-op” in its name.
Using “Cooperative” in the name
The term “cooperative” can be used in the name of agricultural marketing cooperatives, agricultural finance cooperatives, generation and transmission cooperatives, and non-profit cooperatives.
The agricultural marketing cooperative statute states that an organization formed for “producers’ cooperative marketing activities” can use the term “cooperative” as part of its business name so long as it is formed in compliance with the relevant statute. Miss. Code. Ann. § 79-19-39 (West).
Agricultural Credit Cooperatives
Mississippi Code Annotated Section 81-15 establishes the legal foundation for the creation of agricultural credit entities, including both corporations and cooperatives. This legislation specifically facilitates the establishment of agricultural credit corporations that align with the Federal Intermediate Credit Bank based in New Orleans, Louisiana. An organization formed as a cooperative under this statute is called an “agricultural credit cooperative association.”
Formation Requirements
The statute allows for the formation of an agricultural credit cooperative association by ten or more individuals actively involved in the production, or the production and marketing, of staple agricultural products or livestock. These founding members have the flexibility to establish the cooperative with or without capital stock
As of the most recent update, Mississippi hosts five agricultural credit corporations. It is important to note that all of these entities are corporations rather than cooperatives. This distinction emphasizes the structured approach Mississippi has adopted towards facilitating agricultural finance, aligning with specific statutory guidelines to support the sector’s economic activities.
Generation and Transmission (Electrical) Cooperatives
A generation and transmission (“G&T”) cooperative is a corporation formed to provide wholesale power supply to its members. The members of a G&T cooperative consist of a group of corporations that supply electricity. Miss. Code Ann. § 77-5-256 (West). The purpose of the G&T cooperative should be to render service primarily to its members. Miss. Code. Ann. § 77-5-256 (West). New members can be accepted only by unanimous vote of the board of the cooperative. Id.
G&T cooperatives in Mississippi are subject to the rules, regulations, and requirements of the Rural Utilities Service, the Federal Energy Regulatory Commission, and the North American Electric Reliability Corporation. Additionally, they are subject to the regulations of the Mississippi Public Service Commission as provided in Sections 77-3-11, 77-3-12, 77-3-14, 77-3-25, 77-3-27, and 77-3-45. These sections are interpreted according to the policy objective set out in Section 77-3-2 and the definitions from Section 77-3-3.
Of note, the Mississippi Public Service Commission does not have jurisdiction to regulate the rates for the sale and/or distribution of gas or electricity by a G&T cooperative to the cooperatives members. § 77-3-5. This is subject to one exception. That exception provides that the Mississippi Public Service Commission can enforce a rule requiring two percent of G&T cooperative’s gross revenue from sales to residential and commercial customers within a municipality to go to that municipality.However, since Dec. 3, 2015, the PSC has been setting rates that G&T cooperatives must pay to customers for customer’s own solar energy creation. This net metering rule, which was five years in the making, was immediately appealed by a network of G&T cooperatives in Mississippi. The PSC refused to consider the appeal, leaving the G&T cooperatives the option of taking the issue to court. They lobbied and had legislation proposed that would clarify that the PSC cannot set net metering rates for G&T cooperatives. This legislation was retracted. Instead, G&T cooperatives negotiated a compromise with the Public Service Commission. This compromise allows the Public Service Commission to continue setting rates for net metering.
Using “Cooperative” in the name
The generation and transmission cooperative statute says that only organizations formed in compliance with the statute can call themselves “electric cooperatives.” Miss. Code. Ann. § 77-5-209 (West).
General Purpose Co-Op Bill
A general purpose cooperative bill has been proposed in Mississippi every year since at least 2010. It has at times passed the House, and at times passed the Senate, but it has never passed both. Most recently, the bill, called MS SB2623 (An Act for the Incorporation of Cooperative Associations), was proposed by state Senator John Horhn in 2017. It died in committee on January 31, 2017.
Several groups and individuals have been pushing for the passage of this legislation. Melbah Smith, a longtime leader of the Federation of Southern Cooperatives, now-retired Executive Director of the MS Center for Cooperative Development, and now-retired Executive Director of the Coalition for a Prosperous Mississippi, has been one of the key players. Recently, the Southern Grassroots Economies Project has been instrumental in attempting to organize a coalition to get the legislation passed. In 2016, they began an attempt to organize diverse groups such as the American Bar Association, agricultural cooperatives, G&T cooperatives, local banks, credit unions, Rainbow Natural Grocery Cooperative, the Mississippi Black Caucus, Alcorn State University, and regional planning authorities.
As the bill died in committee, this strategy was not successful on its first attempt. Melbah Smith has spoken on several occasions about what she sees standing in the way of the legislation. Although she believes the opposition is largely coming from unknown sources, she has speculated that the committee members believe allowing a general purpose cooperative statute promotes the formation of unions. She has connected this to the misperception of cooperatives as socialist or communist. At another time she has stated that resistance may come from fear that cooperatives will cause a change in the status quo, thereby shifting economic or political power. To these fears, she replies that cooperatives are about workforce development, business development, and economic opportunity.
Legal Entities
There is no general, all-purpose cooperative statute in Mississippi. Instead, there are individual statutes which allow the formation of particular types of cooperatives. These statutes allow for the formation of agricultural marketing cooperatives, agricultural credit cooperatives, electrical cooperatives, and nonprofit cooperatives. Any cooperative that wishes to form in the state of Mississippi but that does not have one of the allowable purposes will have to form as a different type of entity. Such a cooperative can form as an LLC in Mississippi and embed cooperative principles into the bylaws of the organization. Alternatively, the cooperative could incorporate out of state and then petition the Mississippi Secretary of State for entrance into Mississippi as a foreign corporation.
LLC’s
The Mississippi Secretary of State does not permit LLCs with cooperative principles in their bylaws to use the word “cooperative” in their name. However, Luke Lundemo, the founder of Rainbow Natural Grocery Cooperative in Jackson, Mississippi, says the Mississippi Secretary of State has promised to work with business owners to fix this issue. It is not clear if there is a timeline for that change. In the meantime, LLC’s can use terms very close to “cooperative,” such as such “cooperation,” as demonstrated by Cooperation Jackson, LLC in Jackson, Mississippi.
Governance & Management
Voting Rights
According to the Agricultural Marketing Cooperative statues, the governance of the cooperative ensures democratic participation through the allocation of one vote per share of stock. Given the ownership cap, combined with the minimum membership requirement, the voting system is designed to uphold the principle of equal representation, preventing disproportionate influence by any single member.
Financing Cooperative Enterprises
Agricultural Marketing Cooperatives
Stock Ownership Regulations
Section 79-19-25 of the Agricultural Marketing Cooperative statute places restrictions on the ownership of common and preferred voting stock within an agricultural marketing cooperative. No individual stockholder is permitted to own more than one-twentieth of the common or preferred voting stock. It is permissible, however, for a stockholder to own more than one-twentieth of each stock class if the cooperative’s bylaws do not impose stricter ownership limits.
Agricultural Credit Cooperatives
Capital Stock Structure
For cooperatives opting to incorporate capital stock, there are two distinct methods for raising this capital:
1. Paid-Up Cash Plan: Capital stock is directly invested by the members upfront.
2. Accumulative Plan: The capital stock of the cooperative grows in tandem with an increase in the cooperative’s loans, as outlined in § 81-15-7. This plan allows for a more gradual accumulation of capital based on the lending activity of the cooperative.
Loan Provisioning
According to § 81-15-13, these agricultural credit cooperatives are authorized to extend loans for a broad range of agricultural purposes. This includes financing for the raising, breeding, fattening, or marketing of livestock, thereby supporting various aspects of the agricultural industry.
Cooperative Support Organizations
Legal Support for Cooperatives
- Mississippi Association of Cooperatives
- Daniel, Coker, Horton, and Bell, P.A.
- Larry D. Moffett specializes in electric cooperative governance and operations.
Business Support for Cooperatives
- Federation of Southern Cooperatives
- Mississippi Association of Cooperatives
- MAC provides assistance to agricultural cooperatives. They can help with business plans, feasibility analyses, marketing studies, strategic plans, cooperative organization and development, and organizational structure and development. They provide services such as membership education, board of directors training, management and staff development, and financial planning assistance.
- Southern Reparations Loan Fund
- This organization lends to democratically-governed enterprises that meet the needs and elevate the quality of life of African American, immigrant, and poor white communities in the US South.
Author
Thanks to volunteer researcher Jay Cumberland for compiling this information!
This is not legal advice. Please consult an attorney for your specific questions regarding your cooperative.
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