Delving into the pros and cons of forming as a Cooperative Organization under Chapter 54 or opting for an LLC or Corporation structure, this page navigates the specific legal requirements each entails. It also highlights the vibrant ecosystem of cooperatives across various sectors in North Carolina, from food and grocery to energy and worker cooperatives.
Cooperative Law Generally
Cooperatives in North Carolina can choose to operate under Chapter 54- Cooperative Organizations or as an LLC or Corporation. Below we will discuss the pros and cons to each legal entity and explore what the legal requirments are for each.
Statutes
Chapter 54: Cooperative Organizations
Chapter 54 of the General Statutes of North Carolina represents a comprehensive set of laws specifically tailored to govern cooperative organizations within the state. In summary, Chapter 54 of the General Statutes of North Carolina is designed to facilitate the establishment and operation of cooperative organizations, emphasizing democratic governance, mutual benefit, and economic sustainability for their members and communities. The details of the statutes are outlined below under Governance and Management.
Legal Entities
Cooperatives can also organize as a regular business corporation or LLC, and specify their intent to operate cooperatively in their by-laws or operating agreement. Organizing as a “non-cooperative cooperative” may be preferable or necessary in some instances. For example, Chapter 54 requires that a cooperative be founded by five or more people, thus a small cooperative (a small design or engineering firm, for example) would not be able to organize under this statute. Additionally, Chapter 54 requires the existence of a board of directors. Some cooperatives may want to govern their venture directly (without a Board) and thus may prefer to organize as an LCC as it does not require a Board. Additionally, Chapter 54 provides limited liability to member-owners only for the debts of the business, rather than for all liabilities. Insurance can be purchased to cover this gap in liability, but some cooperative founders may feel more comfortable with the broader form of limited liability offered by traditional business corporations and LLCs. It is worth noting, however, that only entities organized under Chapter 54 are permitted to use the word “Mutual” in their name.
Credit Unions
The formation of credit unions in North Carolina is governed by Article 14A of Chapter 54 of the North Carolina General Statutes. The supervision and regulation of credit unions is governed by Article 14B, while membership is governed by Article 14D. The role of the board of directors and officers is governed by Article 14E, savings accounts by Article 14F, loan-making by Article 14G, the selling of insurance by credit unions by Article 14H, credit union investments by Article 14I, and reserve allocation requirements by Article 14J. The taxation of credit unions is discussed in Article 14L.
Governance & Management
Chapter 54
Formation (Section 54-113 and 114):
- Five or more people can form a cooperative. They must file articles of organization with the Secretary of State.
The articles must include:
- Name of the association
- Names and residences of the founders
- Statement of purpose
- Principal place of business
- Authorized capital stock amount
- Number and par value of shares
- Personal liability of members is limited to the cooperative’s debts.
Board of Directors (Section 54-124):
- A board of at least five people must be created.
Profit Allocation (Section 54-126):
- Profits or losses must be shared based on each member’s contribution (patronage) compared to the total patronage by all members.
Ownership Restrictions (Section 54-120):
- Shareholders are limited to one vote each.
- No one can own shares worth more than 20% of the paid-in capital stock.
Co-ops in NC
Food and Grocery Cooperatives
North Carolina boasts a vibrant scene of grocery cooperatives, contributing to the local economy and community well-being. Here’s a more organized look at the state’s grocery co-ops, including those in development.
Weaver Street Market – Carrboro, NC
Ownership: Two classes of owners (consumers and workers).
Incorporation: Under NCGS Chapter 54.
Deep Roots Market, Inc. – Greensboro, NC
French Broad Trading Cooperative – Asheville, NC
Hendersonville Food Cooperative – Hendersonville, NC
Tidal Creek Cooperative Food Market – Wilmington, NC
Chatham Marketplace – Hillsborough, NC
Company Shops Market – Elon, NC
Bread Uprising– North Carolina’s Triangle region
Fertile Ground – Raleigh, NC
Renaissance Community Co-op – Greensboro, NC
Energy Cooperatives
Piedmont Biofuels
Worker Cooperatives
Opportunity Threads, a worker-owned cut-and-sew company and Morganton, NC.
Tangerine Clean, a worker-owned natural home cleaning cooperative operating in Durham and Chapel Hill, NC.
Bountiful Backyards, a worker-owned edible landscaping cooperative based in Durham, NC.
Firestorm Cafe & Books, a worker-owned coffee shop and bookstore in Asheville, NC.
Cooperative Support Organizations
Carolina Common Enterprise is a cooperative development center founded in 2012 that serves individuals, businesses, and local governments in the state of North Carolina and plans to eventually serve others throughout the Southeast. Carolina Common Enterprise provides technical assistance, organizational consulting, and support to emerging and expanding cooperatives and other community enterprises; develops and disseminates education materials, processes, and curricula to improve the effectiveness and governance of cooperative businesses and advance public understanding of the significance of cooperative enterprise; and develops and organizes sources of financial capital for rural and community-based enterprises.
The Center for Participatory Change (CPC) works to strengthen grassroots capacity, build collective power, and create equity in western North Carolina. The CPC’s worker-owned business project recognizes the need to create living wage jobs for very low-income immigrants and provides intensive technical assistance and training. The Center for Participatory Change (CPC) has supported worker-owned cooperatives in Burke, Buncombe, Yancey and Transylvania counties with over $55,000 through The Community Foundation of Western North Carolina’s Women for Women grant program and Opportunity grant program.
The Fund for Democratic Communities (F4DC), a Greensboro-based private foundation, supports community-based initiatives and institutions that foster authentic democracy to make communities better places to live. F4DC makes grants to groups that engage in participatory democracy to further their social change objectives; convenes groups and individuals committed to social and economic justice through deepening democratic practice; conducts research; and produces materials to nurture the growth of authentic democracy. F4DC was founded in 2007 and since then has made over $1 million in grants to support grassroots democratic organizing efforts, including organizing efforts around cooperatives, primarily focused in the Southeast, North Carolina and Greensboro.
Related Articles
State-by-state Guide to Cooperative Law
Cooperatives typically are organized under state laws. Currently, co-op law differs greatly from state to state. Not every state has specific statutes for creating cooperatives,
How Cooperatives Work
While there are many similarities to traditional businesses, cooperatives operate differently both legally and in practice. According to the International Cooperative Alliance, a cooperative “is
Subchapter T: Patronage Taxation
Subchapter T: The Most Common Tax Status for Co-ops The Subchapter T designation is designed specifically to address the unique nature of cooperative income. It
