- COOPERATIVES GENERALLY
- ISSUES OF NOTE
- COOPERATIVE SUPPORT ORGANIZATIONS
Legal Entities for Cooperatives in Mississippi
There is no general, all-purpose cooperative statute in Mississippi. Instead, there are individual statutes which allow the formation of particular types of cooperatives. These statutes allow for the formation of agricultural marketing cooperatives, agricultural credit cooperatives, electrical cooperatives, and nonprofit cooperatives. Any cooperative that wishes to form in the state of Mississippi but that does not have one of the allowable purposes will have to form as a different type of entity. Such a cooperative can form as an LLC in Mississippi and embed cooperative principles into the bylaws of the organization. Alternatively, the cooperative could incorporate out of state and then petition the Mississippi Secretary of State for entrance into Mississippi as a foreign corporation.
History of Cooperativism in Mississippi
Historically, Mississippi has been a largely agricultural state. In light of this history, it is unsurprising that there are many agricultural cooperatives in the state. These cooperatives amplify the selling power and buying power of farmers, and are an economically powerful means of ensuring financial sustainability.
Such financial sustainability was unavailable to the African-American community in Mississippi because of the history of slavery and subsequently Jim Crow segregation. Whites often excluded African Americans from participation in existing agricultural cooperatives.
This exclusion from economic participation and this deprivation of financial stability led to an emphasis on cooperativism among some leaders in the Mississippi African-American community.
One of the first examples of the cooperative movement in Mississippi came about because of the National Federation of Colored Farmers, Inc. (“NFCF”). The first local chapter of the NFCF was started in Howard, Mississippi in 1929. Thirty tenants and sharecroppers who had been barred from membership in the white cooperative in the area started this chapter and through it, their own cooperative. By joining together into a cooperative they were able to purchase goods wholesale for low prices. These low prices attracted many more members, so the cooperative grew. This growth did not come without a price. The white planters, from whom many of the African American tenants and sharecroppers leased land, stopped giving them cash advances prior to the harvest. Nonetheless, over the ten-year life of the cooperative, many members were able to buy their own farms and, through that purchase, a measure of economic independence.
Another cooperative movement in Mississippi was led by Fannie Lou Hamer, the founder of the Mississippi Freedom Democratic Party. She believed that political independence was not freedom without economic independence, and that economic development should focus on the community, not the individual. Based on these principles, she founded the Freedom Farm Cooperative. This cooperative, begun in the late 1960’s, was designed to help displaced farm workers become self-reliant.
The Freedom Farm initiated several plans to achieve this goal. Freedom Farm first bought fifty-five pigs and started a pig bank. Cooperative members were assigned a pregnant sow on the condition that they donate two pigs from each litter back to the cooperative. This was supposed to allowed the pig bank to expand so more members could become self-reliant. It worked. By 1975, the original fifty-five pigs had become two thousand pigs. Other actions taken by Freedom Farm included purchasing housing to sell back to individuals on a rent-to-own basis, making loans to support black business development, and buying a factory in order to open a sewing cooperative. Unfortunately, despite its grand ambitions, Freedom Farm survived only for ten years, into the late 1970s.
Most recently, the cooperative movement among Mississippi’s African-American community has been taken up by Cooperation Jackson in Jackson, Mississippi. Cooperation Jackson developed out of the mayoral campaign of Chokwe Lumumba. The platform emphasized creating jobs in and generally revitalizing Jackson, Mississippi through the development of community-owned cooperatives. Lumumba often stated that his campaign was an attempt to extend the legacy of Fannie Lou Hamer and the Mississippi Freedom Democratic Party of the 1960’s. Lumumba won the Jackson mayoral race. Unfortunately, several months after taking office he passed away. Despite his passing, his son and members of his campaign staff took up the campaign platform and have continued it through Cooperation Jackson, which functions as a cooperative incubator.
Typical Means of Cooperative Incorporation in Mississippi
Most cooperatives in Mississippi form in one of two ways. They either (1) incorporate under a cooperative statute in another state and then petition for admission to do business in Mississippi as a foreign entity or (2) form as an LLC and incorporate cooperative principles into their bylaws. The Mississippi Secretary of State encourages use of LLCs.
The primary example of a business that went out of state to incorporate as a cooperative is Rainbow Natural Grocery Cooperative in Jackson, Mississippi. Rainbow Natural Grocery Cooperative was incorporated under Wisconsin law. It was then authorized by the Mississippi Secretary of State to do business in the state.
The primary example of an LLC with cooperative principles embedded in its structure is Cooperation Jackson in Jackson, Mississippi.
Statutory Restriction Around Use of “Cooperative”
The term “cooperative” can be used in the name of agricultural marketing cooperatives, agricultural finance cooperatives, generation and transmission cooperatives, and non-profit cooperatives.
The agricultural marketing cooperative statute states that an organization formed for “producers’ cooperative marketing activities” can use the term “cooperative” as part of its business name so long as it is formed in compliance with the relevant statute. Miss. Code. Ann. § 79-19-39 (West).
The generation and transmission cooperative statute says that only organizations formed in compliance with the statute can call themselves “electric cooperatives.” Miss. Code. Ann. § 77-5-209 (West).
The statute governing non-profit corporations in Mississippi does not say they can use the term “cooperative” in their business name. Miss. Code. Ann. § 70-11. However, case law in the state confirms that the term can be used in the name of a non-profit organization formed according to §70-11. The case called Staple Cotton Co-op. Ass’n v. Fed. Staple Cotton Co-op. Ass’n, 249 Miss. 465 (1964) takes for granted that a non-profit organization can use the term “cooperative” or “co-op” in its name.
The Mississippi Secretary of State does not permit LLCs with cooperative principles in their bylaws to use the word “cooperative” in their name. However, Luke Lundemo, the founder of Rainbow Natural Grocery Cooperative in Jackson, Mississippi, says the Mississippi Secretary of State has promised to work with business owners to fix this issue. It is not clear if there is a timeline for that change. In the meantime, LLC’s can use terms very close to “cooperative,” such as such “cooperation,” as demonstrated by Cooperation Jackson, LLC in Jackson, Mississippi.
Agricultural Marketing Cooperatives
The statute governing agricultural marketing cooperatives is Miss. Code. Ann. § 79-19. Agricultural marketing cooperatives can deal with “horticultural, viticultural, forestry, dairy, livestock, poultry, bee, and other farm products.” § 79-19-3(a). Depending on the purpose of the given cooperative, either five or twenty people are needed to form the cooperative. Five are needed if the cooperative is “designed to grow, breed, sell, or handle livestock or poultry. § 79-19-5. Otherwise, twenty are needed. § 79-19-5. Regardless of whether twenty or five, the majority of the forming members must be residents of Mississippi. §79-19-5.
Even if the agricultural marketing cooperative formed under this statute is a for-profit organization, it will be considered a non-profit organization. This is because agricultural marketing cooperatives are organized to make profits for members as producers rather than for the cooperative itself. Because the organization must work for members rather than itself, there are restrictions on handling of non-member products. The products of non-members can be handled only “as necessary and incidental to the handling of the products of members.” § 79-19-9(a).
The statute prohibits any individual stockholder in an agricultural marketing cooperative from owning more than one-twentieth of the common stock or of the preferred stock with voting rights attached. However, a stockholder can own more than one-twentieth of each class of stock. The one-twentieth maximum for common stock and preferred stock with voting rights can be changed to a more restrictive percentage in the bylaws of the cooperative. § 79-19-25.
Each share of stock in the agricultural marketing cooperative entitles the stockholder to one vote. Since individual ownership of shares cannot exceed one-twentieth and since the minimum number of cooperative members is usually 20, this ensures that one person has one vote. §79-19-25
The full text of the statute can be found here: https://law.justia.com/codes/mississippi/2013/title-79/chapter-19/
Agricultural Credit Cooperatives
Agricultural credit corporations and agricultural credit cooperatives can be formed under Miss. Code. Ann. § 81-15. This statute provides for the formation of agricultural credit corporations associated with the Federal Intermediate Credit Bank in New Orleans, Louisiana. An organization formed as a cooperative under this statute is called an “agricultural credit cooperative association.”
Ten or more persons who are “engaged in producing, or producing and marketing, staple agricultural products, or livestock” can join together to form an agricultural credit cooperative association. These persons can form the cooperative either with or without capital stock. If they form the cooperative with capital stock, that capital stock can be raised either through a paid-up cash plan or through an accumulative plan. Under an accumulative plan, the capital stock increases proportionally to the increase in the cooperative’s loans. § 81-15-7.
These cooperatives can make loans for any agricultural purpose and for the raising, breeding, fattening, or marketing of livestock. § 81-15-13.
Currently, there are only five agricultural credit corporations in Mississippi. They are all corporations, not cooperatives.
The full text of the statute can be found here: http://law.justia.com/codes /mississippi/2013/title-81/chapter-15
Generation and Transmission (Electrical) Cooperatives
A generation and transmission (“G&T”) cooperative is a corporation formed to provide wholesale power supply to its members. The members of a G&T cooperative consist of a group of corporations that supply electricity. Miss. Code Ann. § 77-5-256 (West). The purpose of the G&T cooperative should be to render service primarily to its members. Miss. Code. Ann. § 77-5-256 (West). New members can be accepted only by unanimous vote of the board of the cooperative. Id.
G&T cooperatives in Mississippi are subject to the rules, regulations, and requirements of the Rural Utilities Service, the Federal Energy Regulatory Commission, and the North American Electric Reliability Corporation. Additionally, they are subject to the regulations of the Mississippi Public Service Commission as provided in Sections 77-3-11, 77-3-12, 77-3-14, 77-3-25, 77-3-27, and 77-3-45. These sections are interpreted according to the policy objective set out in Section 77-3-2 and the definitions from Section 77-3-3.
Of note, the Mississippi Public Service Commission does not have jurisdiction to regulate the rates for the sale and/or distribution of gas or electricity by a G&T cooperative to the cooperatives members. § 77-3-5. This is subject to one exception. That exception provides that the Mississippi Public Service Commission can enforce a rule requiring two percent of G&T cooperative’s gross revenue from sales to residential and commercial customers within a municipality to go to that municipality.
The full text of § 77-5-256 can be found here: http://billstatus.ls.state.ms.us/ documents/2016/html/HB/1100-1199/HB1138SG.htm
The full text of § 77-3 can be found here: http://law.justia.com/codes/mississippi /2013/title-77/chapter-3/
ISSUES OF NOTE
General Purpose Co-Op Bill
A general purpose cooperative bill has been proposed in Mississippi every year since at least 2010. It has at times passed the House, and at times passed the Senate, but it has never passed both. Most recently, the bill, called MS SB2623 (An Act for the Incorporation of Cooperative Associations), was proposed by state Senator John Horhn in 2017. It died in committee on January 31, 2017.
Several groups and individuals have been pushing for the passage of this legislation. Melbah Smith, a longtime leader of the Federation of Southern Cooperatives, now-retired Executive Director of the MS Center for Cooperative Development, and now-retired Executive Director of the Coalition for a Prosperous Mississippi, has been one of the key players. Recently, the Southern Grassroots Economies Project has been instrumental in attempting to organize a coalition to get the legislation passed. In 2016, they began an attempt to organize diverse groups such as the American Bar Association, agricultural cooperatives, G&T cooperatives, local banks, credit unions, Rainbow Natural Grocery Cooperative, the Mississippi Black Caucus, Alcorn State University, and regional planning authorities.
As the bill died in committee, this strategy was not successful on its first attempt. Melbah Smith has spoken on several occasions about what she sees standing in the way of the legislation. Although she believes the opposition is largely coming from unknown sources, she has speculated that the committee members believe allowing a general purpose cooperative statute promotes the formation of unions. She has connected this to the misperception of cooperatives as socialist or communist. At another time she has stated that resistance may come from fear that cooperatives will cause a change in the status quo, thereby shifting economic or political power. To these fears, she replies that cooperatives are about workforce development, business development, and economic opportunity.
The link to the 2017 version of the general purpose cooperative bill is here: http://billstatus.ls.state.ms.us/documents/2017/html/SB/2600-2699/SB2623IN.htm
Net Metering of Electric Cooperatives
The Mississippi Public Service Commission (“PSC”) does not have authority to regulate rates for the sale and/or distribution of gas or electricity by a G&T cooperative. However, since Dec. 3, 2015, the PSC has been setting rates that G&T cooperatives must pay to customers for customer’s own solar energy creation. This net metering rule, which was five years in the making, was immediately appealed by a network of G&T cooperatives in Mississippi. The PSC refused to consider the appeal, leaving the G&T cooperatives the option of taking the issue to court. They lobbied and had legislation proposed that would clarify that the PSC cannot set net metering rates for G&T cooperatives. This legislation was retracted. Instead, G&T cooperatives negotiated a compromise with the Public Service Commission. This compromise allows the Public Service Commission to continue setting rates for net metering.
COOPERATIVE SUPPORT ORGANIZATIONS
Legal Support for Cooperatives
- Larry D. Moffett specializes in electric cooperative governance and operations.
Business Support for Cooperatives
- MAC provides assistance to agricultural cooperatives. They can help with business plans, feasibility analyses, marketing studies, strategic plans, cooperative organization and development, and organizational structure and development. They provide services such as membership education, board of directors training, management and staff development, and financial planning assistance.
- This organization lends to democratically-governed enterprises that meet the needs and elevate the quality of life of African American, immigrant, and poor white communities in the US South.
Thanks to volunteer researcher Jay Cumberland for compiling this information!
This is not legal advice. Please consult an attorney for your specific questions regarding your cooperative.