This section will help you understand the purpose and detail of governing documents.
Formalising your governance arrangements - governing document
The way that your co-operative’s governance is arranged will be recorded in something called a governing document.
You will almost certainly need to work with an advisor to create your governing document, but it is useful to understand in advance what its purpose will be and what sort of information will be included within it.
The term ‘governing document’ is a general term: depending on your chosen legal form it might be called one of a number of different names, such as ‘rules’ if you are a society, or ‘articles’ if you are a company.
What does a governing document contain?
The governing document will define why your organisation exists, what it intends to do and how it will do it.
It will also detail the purpose of your co-operative and its relationship both to its members and to the outside world.
Your governing document will contain information about all the practical matters related to how an organisation is run, including:
- Its aims or objects and how they will be achieved;
- Who the members are, how and why they can become members and how they meet and make decisions;
- Whether there is a governing body, what it is called, how it is appointed and how it meets and makes decisions;
- What happens to any surplus; and
- What happens to assets when the organisation is sold, taken over or wound up.
Although there is a degree of flexibility as to exactly what is contained in a governing document, all will include aspects of the Act/law that they organisation is registered under. So, for instance, the governing document of a co-operative society will contain aspects of the Co-operative and Community Benefit Societies Act 2014.
Additionally, some legal forms, for example community interest companies, are required to have certain clauses in their governing document in order to be able to register as such.
Does my co-operative need a governing document?
If your co-operative is likely to be an unincorporated association partnership or a limited liability partnership, you will not be required to have a governing document. However, in all these cases it is considered good governance to have a record of what the purpose of the organisation is and the relationship of the members to the organisation.
Any charitable organisation must have a governing document whether incorporated or not. All incorporated organisations apart from a limited liability partnership will not be able to incorporate without a governing document.
Any organisation seeking grant funding will almost certainly have to supply a governing document as part of the application process.
The co-operative Values and Principles in a governing document
The International Co-operative Alliance Values and Principles are the reference point establishing and practicing good governance in all co-operative businesses. In order for the values and principles to form the basis of a co-operative’s governance and have any meaning in practice, they must be embedded within a co-operative’s governing document.
Below is a rough guide to how the values and principles might be embedded in your co-operative’s governing document:
Principle 1: Voluntary and Open Membership
A co-operative’s governing document must include a provision that clearly defines who its members are and their relationship with the co-operative. Members are the owners of the co-operative and it must be voluntary - just because a person may be eligible to be a member of a particular co-operative doesn’t mean that they are required to become a member. On the other hand if someone is eligible to be member, the co-operative must not create artificial barriers to them becoming a member.
Principle 2: Democratic Member Control
A co-operative’s governing document should include a provision that enable members to actively participate in the governance of the co-operative, typically through voting at general meetings on a one member one vote basis.
The co-operative’s governing document should include a provision that requires the majority of the governing body to be elected by and from the membership and mechanisms to hold the governing body to account when making key decisions about the business of the co‑operative.
The governing document should include a provision that sets out how any underlying assets will be dealt with in if it should wind up. Typically, a common or co-ownership provision will be included.
Principle 3: Member Economic Participation
The co-operative’s governing document will include a provision that enables members to contribute to and control the capital of the co-operative. Depending on the co-operative’s legal form, this may be through the holding of shares in the co-operative or by committing to a guarantee in the event the co-operative should wind up with outstanding debts.
Principle 4: Autonomy and Independence
Depending on the legal form, a co-operative must have more than one member, which may be individuals or organisations, or a combination of the two.
The governing document should include a provision that limits the rate of interest paid on money borrowed from members and other financial institutions.
Principle 5: Education, Training and Information
The co-operative’s governing document should reflect a commitment to educate and train its members about the values and principle of co-operation, what it means to be a member of their co-operative and provide the required training to enable them to actively participate as member of the co-operative.
The co-operative’s governing document should reflect a commitment to educate and train its governing body about their role and responsibilities and provide the required training to enable them to be an effective Board of their co-operative.
Principle 6: Co-operation among Co-operatives
The co-operative’s governing document should include provisions for what it will do with its surplus assets upon winding up, including the possibility that any assets may be transferred to another co-operative or to the Co-operative Movement. Often this Principle may only be mentioned in the governing document as an intention or something to aspire to once the co-operative is trading successfully.
Principle 7: Concern for Community
The co-operative’s governing document should set out the defined community it will benefit. This may be a community of interest, a geographical community or society more widely.
Additional governance documents
Your co-operative is likely to require some additional documentation related to its governance in order to supplement and add to the primary governing document.
More about additional governance documents
The creation of these additional documents is useful as, unlike changes to the primary governing document, changes to any additional documents generally do not have to be registered with any regulator. For example, your primary governing document may specify that one condition for membership is the payment of a subscription, whereas the amount of the subscription can be specified in additional documents.
In addition to the primary governing document, your co-operative is likely to require the following additional documentation related to its governance:
- Secondary rules
- Membership description and agreement
- Standing orders
- Policies and procedures.
For more detail on additional governance documents please read more about what Co-operatives UK's Advice team offers.
Taking the final step – creating your governing document
You will need to work through to the end of this section of The Hive before you are ready to create your governing document. When you reach this stage, we will point you to sources of advice should you need them, such as Co-operatives UK’s Advice Team, who can help you through the process of registering your co-operative, including creating your governing document.Updated: 10/03/2016