Social Economy Legislation: Co-operatives Third Southern Ontario Social Economy Node Symposium May 1, 2008 Presented by Brian Iler

Introduction  What makes a co-op different from a on- profit, or a business?  How does the law reflect that difference?  How do the Ontario legislation, and proposed changes, enhance co-ops’ ability to grow and prosper?

Co-operatives mix social and business goals  Some co-operatives are purely social, or even charitable in nature  Others operate closer to the business end of continuum.  All co-operatives have, as their primary purpose, mutual self-help for their members, by providing members with goods, or services

Democratic Control  Fundamental principle: one member, one vote (no more, and no less), regardless of 1.business with the co-op, and 2.how much invested  Business – vote ~ proportionate to capital invested  Non-profits – usually as democratic as co- operatives.

50% Rule  If a co-operative has for three years or longer conducted 50 per cent or more of its business with non-members of that co-operative, the co-operative may be changed into a business corporation or a non-profit corporation

Role of capital reversed  Co ‑ operatives pay the cost of acquiring capital as a cost of doing business  Net income, after expenses and paying the cost of capital, either:  reserved for social purposes, or  allocated in proportion to the amount of business (patronage) the member has done with the Co ‑ operative

Dissolution  Net assets to:  Members equally (default) - or based on last five years’ patronage  Charities or other co-operatives Business? To shareholders Non-profits? To other non-profits/charities

Regulation of Co-op Capital Ontario’s regime is unique. Co-op securities regulation balances:  The need for effective and efficient capital financing  Protection of vulnerable potential investors through full disclosure - an informed investment decision.

Exemptions  Co-op securities may be sold without regulatory approval: 1.To the first 35 security owners 2.for the first $200,000 capital in the co ‑ operative (may increase to $2 million) 3.up to $1,000 per year per member, to a maximum of $10,000 (may increase to $10,000 and $100,000, respectively)

Co-op Offering Statements  Where 1.exemptions not available, or 2.where the marketing of co-op securities would be enhanced by a government ‑ approved disclosure document, an Offering Statement is prepared and approved (“receipted”) by the Financial Services Commission of Ontario.  “Full true and plain disclosure of all material facts”

Changes in the 1990s  For worker co-ops: deeming employment to be business with members  For non-profit housing co-ops, a separate regime for terminating membership and occupancy rights, and imposing robust distribution constraints  Removed ceilings on return on invested capital  Audit exemptions expanded

Recent Legislative Changes  Directors may approve new shares  More flexibility on how shares may be redeemed or purchased  Higher offering statement exemptions  Director liability – rules changed to match protection given to directors of business corporations  Mailing no longer required – may be used

Current Proposals  More harmonization – offering statement process available to all co-ops  Quorum – multi-stakeholder co-ops  Mail ballot for director elections  Modernize accounting standards  Up to 20% of directors non-members  Deemed business – energy co-ops

Current Issues  50% Rule – only Quebec has  Par value shares – don’t reflect market value  Addressing regulatory capacity  Attracting capital  Improving policy environment – co-op secretariat