The Agricultural Co-operative Act governs the formation and operation of an agricultural cooperative in Illinois.1 A cooperative is a user-owned and controlled business that generates benefits for its users and distributes these benefits to each member based on the amount of usage.
In Illinois, a agricultural cooperative is an association of eleven (11) or more persons, a majority of whom are residents of Illinois and who are engaged in the production of agricultural products. The association may engage in cooperative activity in connection with the:
- producing, marketing, or selling of agricultural products;
- harvesting, preserving, drying, processing, canning, packing, grading, storing, warehousing, handling, shipping or utilization of agricultural products;
- manufacturing or marketing of the by-products of agriculture;
- manufacturing, sale or supplying the machinery, equipment or supplies in relation to these activities;
- financing of these activities;
- provision of business or educational services on a cooperative basis for those engaged in agriculture as bona fide producers of agricultural products or any of the other activities mentioned above.
The cooperative is non-profit, to the extent that the association is not organized to make profits as an association, but to make profits for the individual members as agricultural producers. The return on stock or membership capital cannot exceed 8% per year, and in no fiscal year can the value of business done with non-members exceed the business done with members. The cooperative may only admit members, or issue capital stock to, those persons engaged in the production of agricultural products and/or cooperative associations. A cooperative association may become a member of another cooperative association.
Among the legal considerations for the formation and operation of a cooperative include:
- Securing financial commitments and patronage through an organization agreement;
- Filing of articles of incorporation with the Illinois Secretary of State;
- Drafting bylaws and marketing agreements (the individual contract each member has with the cooperative);
- Drafting the membership application.
There are several online publications available on the legal aspects of cooperatives, as well a general information on starting a cooperative:
- The Farmer's Legal Guide to Producer Marketing Associations, by Doug O'Brien, Neil D. Hamilton, and Robert Luedeman, 2005.
- Cooperative Marketing Agreements: Legal Aspects, USDA, July 1992.
- Cooperative Information Report 7 containing information on how to start a cooperative, USDA/Rural Business Cooperative Service, September 1996.
- Cooperative Information Report 40 provides sample legal documents for cooperatives, USDA/Rural Business Cooperative Service, 1990.
1 An agricultural cooperative could organize under the General Not for Profit Corporation Act of 1986. However, under this Act, a corporation may not issue shares, pay a dividend, or distribute money, property or other assets (except upon dissolution). Thus, the cooperative could not pay patronage refunds, which is one of the reasons to operative as a cooperative.
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