- Cooperatives Generally
- Sample Bylaws and Operating Agreements
- State Specific Secondary Sources
- Issues of Note
- Cooperative Support Organizations
The cooperative form has long been recognized in New York State as one that is capable of “improving the economic welfare of its people, particularly those who are producers, marketers or consumers of food products.”1 While cooperatives are subject to a wide variety of laws in New York State, the Cooperative Corporations Law (“CCO”) governs them generally. It was passed into law in 1951, replacing the previous Cooperative Corporations Law of 1926.
Relevant history of cooperative law in New York
New York has long been an epicenter for the cooperative housing movement. According to members of the National Association of Housing Cooperatives (NAHC), in “Brief History of Cooperative Housing, the first residential cooperative in the United States was established in 1876 on West 18th Street in Manhattan.2 Other sources identify the first residential cooperative as being establish in 1881 at 152 West 57th Street in Manhattan.3
Furthermore, according to a study by NYU’s Furman Center for Real Estate and Urban Policy in 2006, New York City has the largest proportion of residential cooperatives in the United States.4
Upstate New York has made a couple attempts at starting a cooperative movement: the New York State Federation of Cooperatives, which operated from an unknown starting date until 1984, and Commonworks, which operated for much of the 1990s. These organizations supported a variety of cooperative endeavors, including consumer coops, bakery coops, construction worker coops, and a variety of other worker owned cooperatives.5
Today, there are an increasing number of cooperatives and organizations that support cooperatives in New York State and New York City. For example, the Center For Family Life (CFL) operates a Cooperative Development Program that incubates and supports worker-owned cooperative businesses with a mission of economic and social justice, including Si Se Puede/We Can Do It cleaning, Beyond Care childcare, Golden Steps elder care, Émigré Gourmet catering, Trusty Amigos dog walking and pet 2care, Maharlika office cleaning, Sunset Scholars tutoring, and NannyBee childcare.
A full list of CFL supported cooperatives may be found here.
In recent years, New York City has made an effort to encourage the development of worker cooperatives in the city. The Worker Cooperative Business Development Initiative (“WCBDI”) was formed in 2015 by the NYC Department of Small Business Services in collaboration with the ICA Group. Its mission is to help New Yorkers overcome economic and social inequality through cooperative business. It provides a wide range of services and one-on-one support for new worker cooperatives. In 2015, $1.2 million was distributed to eleven partner organizations, while in 2016, $2.1 million was distributed to fourteen partner organizations to assist those organizations in their efforts to support worker cooperatives.
Different types of cooperative legal entities
Section 3 of Cooperative Corporations Law defines a “cooperative” as a corporation organized for the “cooperative rendering of mutual help and service to its members….” It distinguishes cooperatives into four main types: general cooperatives, membership cooperatives, agricultural cooperatives, and worker cooperatives. New York State also recognizes housing cooperatives and rural electric cooperatives, though these are primarily authorized and governed by laws outside of the Cooperative Corporations Law.
Housing cooperatives are generally formed under the New York Business Corporations Law (“BCL”) and are subject to additional rules under the Real Property Actions and Proceedings Law (“RPAPL”) and the New York General Business Law Section 352-e (“GBL”), which governs real estate syndication. Low income housing cooperatives are generally created under the BCL and Article XI of the Private Housing Finance Law. An example of an offering plan for a housing cooperative in New York City can be found here . The Urban Homesteading Assistance Board (“UHAB”) has prepared a legal handbook for limited equity cooperatives, which can be found here. Additional information about housing cooperatives can be found here.
Rural Electric Cooperatives may be formed under the Rural Electric Cooperative Law (“REL”), signed into effect on April 29, 1942. Rural Electric Cooperatives typically function as consumer cooperatives, wherein members use their collective purchasing power to buy electricity and maintain electrical infrastructure in areas where such utilities were not readily available. On May 12, 2942, Delaware County Electric Association, Inc., from Delhi, New York, converted to a cooperative and became the first cooperative formed in existence under that law.6 In 1997, 1st Rochdale Cooperative Group Ltd., formed with the purpose of performing the function of a rural electric cooperative in and around New York City.7 It was created and is owned by housing cooperatives in the NYC metropolitan area.
What legal entities do most cooperatives within a given sector actually form under?
While many cooperatives in New York State form under the Cooperative Corporations Law, a business that wants to function as a cooperative may be formed as any of the major legal entity types (partnership, limited partnership, limited liability partnership, “C” and “S” corporations, nonprofit corporations, LLCs). What really matters is that the business’s governing documents establish the business as one that will function cooperatively. It is common for cooperative businesses to form as New York State LLCs with cooperative governance built into their operating agreements.8
Statutory restrictions around using the word “cooperative” in New York
Like many other states, New York State restricts which businesses can and cannot use the word “cooperative” in their name. Specifically, CCO section 3(j) prohibits use of the words “cooperative,” “cooperation” or any abbreviation or variation thereof in any business not formed under the cooperative corporations law. It allows any cooperative corporation duly formed under the CCO to sue for an injunction against any prohibited use of these terms, and it treats any violation of this prohibition as a misdemeanor offense, punishable by a fine of not more than five hundred dollars.
This rule, however, is not absolute. in 1970, the New York Attorney General issued an opinion stating the that use of the word “Coop” was not prohibited in the case of a business named “Tire Supply at Coop City.” They reasoned that the word “Coop” was clearly intended to indicate location, not to suggest that the business would be operated as a cooperative corporation. While not binding as precedent, the Attorney General’s opinion suggests that where there is no risk of confusion to general public as to whether a business is intended to be run as a cooperative corporation, a non-cooperative business may be allowed to include the word “cooperative” or an abbreviation thereof in its name. (See 1970 N.Y. Op. Atty. Gen. No. 31 (N.Y.A.G.), 1970 WL 197708)
The Cooperative Corporations Law
The New York State Cooperative Corporations Law, Article 1, Section 3(c) states that “a cooperative shall be either a general cooperative, a membership cooperative, an agricultural cooperative as defined in article six of this chapter or a worker cooperative as defined in section eighty-one of this chapter.” Section 3(k) defines a membership cooperative as “a non-stock cooperative which admits only natural persons to membership, which provides services only to its members and which makes no distribution of net retained proceeds other than to its members on the basis of their patronage.” In contrast, a general cooperative may be formed as a stock cooperative and “may issue, to members or others, shares of stock of a different class or classes not evidencing membership.” See CCO Article 2, Section 10. The purposes for which a general cooperative may be formed can be found in CCO Article 2, Section 13.
There is no statute specifically governing consumer or producer cooperatives. As with other cooperatives in New York State, they may be formed under the Cooperative Corporations Law or as another entity type that has adopted a cooperative governance model.
By default, a cooperative formed under the Cooperative Corporations Law is classified as a non-profit corporation.
New York Consolidated Laws, Cooperative Corporations Law – CCO § 3. Definitions
(d) A cooperative corporation shall be classed as a non-profit corporation, since its primary object is not to make profits for itself as such, or to pay dividends on invested capital, but to provide service and means whereby its members may have the economic advantage of cooperative action, including a reasonable and fair return for their product and service.
New York State draws a distinction between charitable non-profits and non-charitable non-profits. Non-charitable non-profits may not qualify for certain tax exempt statuses that would be available to a charitable non-profit, but they may still qualify to accept tax-deductible donations. Please consult with an accountant or an attorney specializing in tax-exempt status for additional details.
This default non-profit classification is overridden in the case of worker cooperatives, which must be operated for profit.
Article 5-A. Worker Cooperative Corporations
The legislature of New York State has expressed a policy of promoting the creation of worker cooperatives, stating that is believes “that such cooperative ownership will result in increased job satisfaction and increased productivity and will enable workers to receive the fullest economic benefits from their endeavors. It is also expected that the establishment of cooperatives… will result in the creation of new jobs in all economic sectors, will offer greater economic stability in the communities of this state and will discourage the movement of capital and jobs out of this state.” See CCO Article 5-A, Section 80.
Worker cooperatives are specifically authorized under Article 5-A of the Cooperative Corporations Law. They “may be formed for any lawful business purpose and may be conducted for profit.” (See CCO § 13) While there are no restrictions preventing a non-profit from being governed similarly to a worker cooperative, businesses electing to be governed as a worker cooperative under Article 5-A may not “be classed as a non-profit or not-for-profit corporation.” (See CCO § 83)
Except for in a narrow set of circumstances, “no capital stock other than membership shares shall be given voting power in a worker cooperative.” See CCO §89 . This in effect means that the worker cooperative should generally be governed by the principle of one member, one vote.
Section 88 of the Cooperative Corporations Law further requires that the certificate of incorporation or the by-law of a worker cooperative “shall establish qualifications and the method of acceptance and termination of members.” “Upon completion of their probationary period, all regular full-time or part-time employees must be offered membership in the worker cooperative.” This suggests that a business electing to be governed as a worker cooperative under Article 5-A of the New York Cooperative Corporations Law may be prohibited from having permanent employees. It appears that the length of the probationary may be defined by the company. There is no guidance for the length of the period in the statute. However, it does appear that a probationary period and path to membership must be established in the governance documents of the worker cooperative.
Article 6. Agricultural Cooperative Corporations
The statute governing agricultural cooperative corporations is CCO Article 6 . The legislature of New York State has expressed a belief that agricultural cooperatives “promote the effective production and merchandising of agricultural commodities by providing the means by which farmers may act together in manufacturing, processing, preparing for market, handling and/or marketing their farm products and by enabling farmers to act together in purchasing, testing, grading, processing, distributing and/or furnishing farm supplies and/or farm business services through cooperatives operated for the mutual benefit of the members thereof as producers and purchasers.” See CCO Section 110 .
The term “Agricultural Cooperative” is defined as “a cooperative, either stock or non-stock, operated for the mutual benefit of the members in which (1) no member is allowed more than one vote because of the amount of stock or membership capital he or she may own therein, and (2) the cooperative does not pay dividends on stock or membership capital in excess of twelve per centum per annum, and (3) the cooperative does not deal in farm products, agricultural waste products or agricultural compost, farm supplies, farm business services and the capture of methane and other gases for the generation and use or sale of energy, as defined in section 1-103 of the energy law with or for non-members in an amount greater in value than the total amount of such business transacted by it with or for members.” See CCO Section 111 . “Only persons engaged in the production of agricultural products, or cooperative corporations of such producers organized under the laws of this or any other state, shall be eligible for membership in any agricultural marketing or purchasing corporation formed or operated under the provisions of this article.” See Id..
Article 7. Credit and Agency Corporations
New York State CCO Article 7 allows for a cooperative corporation to be organized as an agency, subsidiary, or holding corporation to assist and finance other cooperative corporations and to help them obtain loans from the federal intermediate credit bank under the agricultural credits act of 1923. A credit corporation may also be formed by a cooperative corporation to help finance ordinary crop operations of the members of that cooperative corporation. See CCO Section 120.
Any credit corporation may make loans to members of a cooperative corporation owning stock in the credit corporation. No other loans are allowed. Loans cannot be for more than ten years, and they must be for agricultural, dairy, or horticultural purposes. See CCO Section 121.
An example of a financial cooperative operating in New York is Farm Credit East, though it is unclear whether or not they are specifically formed as a cooperative under the laws of New York. More information about Farm Credit East may be found here.
Sample Bylaws and Operating Agreements
Park Slope Food Coop
More coming soon!
State Specific Secondary Sources
Worker Cooperatives in New York City: A Model for Addressing Income Inequality
Worker Cooperatives for New York City: A Vision for Addressing Income Inequality
WORKING TOGETHER: A Report on the Fourth Year of the Worker Cooperative Business Development Initiative (WCBDI) (FY 2018)
LOW-INCOME & IMMIGRANT WORKER COOPERATIVE FORMATION
A plan for regional cooperative development in upstate New York
Forging Food Justice Through Cooperatives in New York City
Consumers Cooperative Services (CCS) was a white collar consumers cooperative in New York City which ran a chain of cooperative restaurants, bakeries and grocery stores. It was founded in 1920 by a group of socially minded women, among them Mary E. Arnold, Mabel Reed, Dorothy Kenyon, Mary LaDame and Ruth True.
NYC Business – Worker Cooperative Business Development Initiative
Issues of Note
Senate Bill S2184, introduced on January 23, 2019 and referred to the Commerce, Economic Development, and Small Business Committee on January 8, 2020, seeks to establish a state university-based center for employee ownership.
Section 1 would amend the Economic Development Law to create the Center for Employee Ownership, a program within the State University of New York that would support education and outreach on employee ownership succession plans.
Sections 2-6 would amend the Public Authorities Law to establish a lending program to support loans and loan guarantees for employee-owned businesses, with a focus on business succession and purchases of pre-existing businesses by employees.
Section 7 would amend the Tax Law so that sales of stock to employee-owned enterprises would be exempt from capital gains tax.
More details can be found here.
Cooperative Support Organizations
Legal Support for Cooperatives
Community Economic Development Clinic (CUNY Law)
2 Court Square| Long Island City, NY 11101-4356
Julian M. Hill
Community Economic Development Clinic at Albany Law School
80 New Scotland Avenue
Albany, NY 12208-3494
Sam Gray (Brooklyn Legal Services Corporation A)
Valeria A. Gheorghiu
Business Support for Cooperatives
These organizations provide training and support to help cooperatives organize and grow.
Anti-Oppression Resource and Training Alliance: AORTA
Center for Family Life
Cooperative Economics Alliance of New York City (CEANYC – pronounced “scenic”)
NYC Network of Worker Cooperatives (NYC NOWC)
495 Flatbush Ave. Suite 2 Brooklyn, NY 11225
Green Worker Cooperatives
718-617-7807 x 704
Worker’s Justice Project
Brooklyn, NY 11211
2111 Bath Ave
Brooklyn, NY 11214
Worker Cooperative One-on-One Support
One-on-one business plan development, marketing and market research, governance and internal manuals assistance, strategic planning, translation services, bookkeeping, financial planning, and succession planning.
Bronx Cooperative Development Initiative
2431 Morris Avenue
Bronx, NY 10468
Business Outreach Center Network
85 S. Oxford Street
Brooklyn, NY 11217
40 Broad Street, 5th Floor
New York, NY 10004
New York City Network of Worker Cooperatives
136 Lawrence Street, Suite 3B
Brooklyn, NY 11225
Need Help Converting Your Business to a Worker Cooperative?
Democracy at Work Institute
394 Broadway, 5th Floor
New York, NY 10013
The ICA Group
244 Fifth Avenue, Suite C230 New York, NY 10001
Worker Cooperative Financing Support
The Working World
394 Broadway, 5th Floor
New York, NY 10013
Sam Gray is a Senior Staff Attorney at Brooklyn Legal Services Corporation A, where he represents a wide variety of non-profits and community based organizations in transactional and real estate matters. Before working at Brooklyn Legal Services, he managed a law practice, Liszka & Gray, LLC. He also served a couple years on the board of the New York City Real Estate Investment Cooperative.Footnotes
- New York Consolidated Laws, Cooperative Corporations Law – CCO § 2. Declaration of policy
- https://cooperator.com/article/the-cooperative-century/full . See also https://opencommons.uconn.edu/cgi/viewcontent.cgi?article=1337&context=econ_wpapers
- Andrew Alpern, in his book “Luxury Apartment Houses of Manhattan”