One issue that all independent farmers face is the question of how to consistently and effectively control the price they pay for the products and services necessary to operate their business as well as the price they receive for the goods which they produce. One common and effective way of controlling these prices is the formation of farming cooperatives or “Co-ops.” Farming cooperatives are legal business entities created under state law which are owned and operated for the purpose of benefiting those individuals who use its service. Farm cooperatives can serve a variety of functions including, but not limited to, providing loans to farmers, purchasing and selling supplies with greater bargaining power than that of the individual farmer, bargaining on behalf of its members, providing transportation services, and marketing agricultural products for its members. Farm cooperatives are formed by filing the legal documents required for incorporation in the home state of the cooperative. Laws regarding incorporation are different in each state so it is important to become familiar with the rules regarding incorporating in the state in which you reside. In addition to filing the necessary paperwork for incorporation, the cooperative must also adopt and ratify bylaws. Bylaws are the legally enforceable set of rules that establish the rights and obligations of the cooperative’s members. Bylaws further govern the election and duties of the board of directors of the cooperative. It is the board of directors that supervise and handle the business matters of the cooperative. Another important duty of the board of directors is to select the individual who will serve as the cooperative’s manager or chief executive officer.

One of the most important steps in the formation and operation of a farm cooperative is the acquisition of the startup capital necessary to achieve the business goals of the cooperative. There are many different ways to finance the establishment of a cooperative. Two common ways of financing a new farm cooperative are charging a membership fee to those individuals using and benefiting from the cooperative and by selling membership stock to those individuals using and benefiting from the Cooperative. A good resource for information regarding rural development and farm cooperatives can be found at www.rurdev.usda.gov.

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