Formation of Worker Cooperatives in New York November 13 th, 2015 Missy Risser, Staff Attorney Urban Justice Center, Community Development Project

AGENDA PART I: What is a Worker Cooperative PART II: Entity Options in New York PART III: Step-by-Step Guide to Formation

PART I: WHAT IS A WORKER COOPERATIVE? Business democratically owned and managed by worker-owners 1 Worker 1 Vote Profits usually shared by members based on “patronage”

PART I: WHY WORKER COOPERATIVES? Offer stable, safe, dignified, and better-paid jobs Improve working conditions of: individuals who work in sectors with high exploitation Individuals with significant barriers to employment Allow members to control their workplace, build leadership, civic engagement and self-advocacy skills, and encourage participation in broader movements for social and economic justice

PART II: COOP ENTITY OPTIONS IN NY Membership Cooperative (CCL & NPCL) Worker Cooperative Corporation (5-A of CCL & BCL) LLCs (LLC Law)

COOPERATIVE CORPORATION LAW (CCL) NY CCL functions in conjunction with the BCL and NPCL Purpose to improve the “ economic welfare of its people …to encourage their effective organization in cooperative associations for the rendering of mutual help and service." § 2 of the CCL (emphasis added). The CCL permits the formation of four types of co-ops: (1) agricultural, (2) general, (3) membership, and (4) worker. Generally, the membership and worker types are most relevant for our practice.

MEMBERSHIP COOPERATIVE CORP. 1) “Non-stock cooperative 2)…which admits only natural persons to membership, 3)…which provides services only to members and 4)… which makes no distribution of net retained proceeds other than to its member on the basis of their patronage." CCL § 3(k) Membership cooperative corporations are governed by the Not- for-profit Corporation Law (NPCL). CCL § 5

MEMBERSHIP COOPERATIVE CORP. “ Marketing and Referral Coop” Nonprofit Governed by members Collectively trains & markets services of members Members receive job referrals, then contract directly with clients

WORKER COOPERATIVE CORPORATION A worker cooperative incorporated under Article 5-A of the CCL & under the BCL. CCL § 80 Democratically controlled by its members May be formed for any lawful business purpose CCL § 13 Conducted for profit (not a not-for-profit corporation) CCL § 83

WORKER COOPERATIVE CORP. Typically, members are employees of the Cooperative Members receive 1 vote each on major decisions Receive wages during year and patronage dividends at the end of the year/accounting period Often have internal capital account systems

LLC LLCs combine corporation-style limited liability and partnership-style flexibility, which allows LLC Coops to be structured as cooperatives Members generally viewed as owners, not employees Most LLCs are taxed as a partnership – the income, losses, deductions, credits pass through to members for federal tax purposes Members include their share of the LLCs income or losses on their individual tax returns

Cooperative Structures (under NY Statute) Membership Cooperative Corporation (under Not-for-Profit Corporation Law) Article 5-A Worker Cooperative Corporation (under Business Corporation Law) Limited Liability Company (LLC) Formation Costs $110 to form$160 to form$750-$1,100 Taxes If cooperative meets certain criterion, may be exempt from federal & state taxes. Otherwise, must pay federal & state taxes based on any income left over at the end of the year, but can deduct amount that goes to members Corporation pays federal & state taxes based on any income left over at the end of the year, but can deduct amount that goes to members. No tax on organization. Federal and state income tax passes through to members. Must pay $ a year in NY corporate franchise tax. Governance Requirements Need at least five directors on board of directors, with three-year, staggered terms 2/3 of members needed to adopt or amend by-laws Need at least one Director Flexible regarding governance Name Must have “Cooperative,” “Corporation,” “Incorporated,” or “limited” in name Must have “Cooperative,” “Corporation,” “Incorporated,” or “limited” in name Cannot use name “Coop” or “Cooperative” in name. Must use “Limited Liability Company,” “LLC” or “L.L.C.” in name Employment Law Members generally not considered employees Members generally considered employees Members generally not considered employees

PART III: STEP-BY-STEP GUIDE TO FORMATION 1.Check Name Availability in DOS Database; 2.File Organizing Docs: Articles of Organization ($200; for LLC) or Certificate of Incorporation ($125 or $160; for Corporations) with DOS; 3.Adopt Governance Docs: Bylaws (Generally Only Corporations) or Written Operating Agreement (LLCs Only)Within 90 Days; 4.Comply with Publication Requirements (LLCs Only): Within 120 of Filing AOI, Publish in 2 Newspapers Designated by County Clerk Information About Registration of LLC, For Six Weeks Each ($500+). Get Affidavits of Publication From Newspapers & Send in Affidavits With a Certificate of Publication to DOS ($50)

PART III: COOP FORMATION ADDITIONAL STEPS 1.Obtain EIN 2.Procure Insurance 3.Obtain Req’d Licenses & Permits 4.Open Bank Account 5.ID Bookkeeper/Accountant 6.Draft Additional Contracts, Manuals, Etc