sample legal documents templates and sample of authorization letter legal documents
Sample Legal Documents
Donald A. Frederick, Attorney-Adviser
One of the axioms of business planning is that a strong
foundation is essential if an organization is to have a strong
structure. An important component of a strong cooperative
foundation is a set of basic legal documents that conforms to
Federal, State, and local law and facilitates conducting the busi-
ness affairs of the association to enhance the mutual well-being
of the members.
This report explains the role each document plays in build-
ing the organization and the various issues treated in each docu-
ment. It discusses options available to members in handling
many of the issues. It also presents sample language as an aid in
preparing initial documents, or in revising existing ones, to
make sure they promote the objectives of the cooperative ven-
Most of the sample language in this report is suitable for
virtually any type of cooperative. Where the language must be
tailored to reflect specific functions of the association, wording
appropriate for an agricultural marketing cooperative is used.
Counsel can help make the necessary modifications to cover
supply and related service organizations and nonagricultural
One point cannot be stressed too much Cooperative orga-
nizers, advisers, and leaders should not just sit down and copy
these, or any other set, of legal documents and declare them as
their own. These foundation documents should only be adopted
after review by a competent attorney, one who understands the
unique characteristics of cooperatives and the industry in which
the association does business. This will maximize the likelihood
that the documents will conform to applicable law and meet the
specific needs of the association and its members.
One problem in drafting organizational papers is they can
be thorough or simple, but not both. This report contains many
“compromises” between these two objectives. This only rein-
forces the need for cooperative founders and leaders, and their
professional advisers, to avoid adopting any sample set of docu-
ments verbatim and to review existing documents on a regular
1The idea of forming a cooperative is usually conceived and
nurtured by a few individuals who foresee coordinated group
action as a solution to a problem confronting themselves and
similarly situated persons. This organizing group often has to
formulate a development plan, arrange for or provide seed
money, and contribute sweat equity to get the association up and
The organization period involves considerable discussion
and data collection. While these efforts provide a good forecast
for the level of support the cooperative is likely to attract, before
launching the venture it is a good idea to have those persons
who say they want the services of the cooperative formally com-
mit to use those services.
The organization agreement secures both a patronage and a
financial commitment from prospective members. It is also a
vehicle for educating prospective members about the coopera-
tive form of business and the objectives of the proposed associa-
Statement of Purposes
This first provision in a typical organization agreement sets
out the services the proposed organization will perform. The
services can be described in broad terms, such as to “process”
and “market” certain farm commodities and “furnish” certain
The language should refer only to services the cooperative
will provide from its inception. This minimizes member pres-
sure to expand the scope of operations too rapidly. For example,
it is usually best not to mention furnishing supplies in the orga-
nizational agreement if the new organization will limit its initial
activity to marketing fresh vegetables.
The undersigned, a producer of agricultur-
al products, hereinafter referred to as “Producer,”
together with other signers of agreements similar
hereto, propose to organize a cooperative association
1.under the laws of the State of
for the purpose of
Although the association has not yet been incorporated, a
decision making process should be formalized. The organizers
will usually appoint some or all of their group to an official
organization committee that will serve as the initial policy body
for the association. This provision lists the committee members
and sets out the committee’s authority.
2. (a) The association shall be organized with
suitable articles of incorporation and bylaws as
determined by an organizational committee consist-
ing of the following persons:
(b) This committee may, by vote of a majori-
ty of its members, increase its membership, fill any
vacancy therein, and appoint any subcommittees
deemed necessary to conduct its affairs. The com-
mittee, or any subcommittee designated by it, may
prescribe an organization fee to be paid by each per-
son signing an organization agreement and may
incur necessary obligations, make necessary expen-
ditures, and take any such action as may, in its dis-
cretion, be deemed advisable to further the organiza-
tion of the association.
Most cooperatives, especially those involved in marketing
agricultural commodities, need a minimum level of product to
be successful and the best possible projections of anticipated
volumes to plan effectively. Their organization agreements
should spell out the extent of the prospective members’ commit-
ment: usually all production, a defined volume of product,. or
production from a set number of acres. If either all production
or production from a set number of acres is used, a projection of
likely volume delivered should also be secured. Sample lan-
guage is provided for each type of commitment:
Producer agrees to sign a marketing agree-
ment committing all(product) produced by
Producer, on land owned or leased by Producer, to
the cooperative for direct marketing, processing, or
other disposition as the cooperative sees fit.
Producer estimates such production will total
Producer agrees to sign a marketing agree-
ment to commit(units) of
uct), produced by Producer, to the cooperative for
direct marketing, processing, or other disposition as
the cooperative sees fit.
3. Producer agrees to sign a marketing agree-
ment to commit all(product) produced by
Producer on acres of land, owned or leased by
Producer, to the cooperative for direct marketing,
processing, or other disposition as the cooperative
sees fit. Producer estimates such production will
3.If the cooperative is likely to have a minimum quality stan-
dard that must be met before product will be accepted, that stan-
dard should also be explained and the person or entity judging
quality should be named.
Every new business must have equity capital. In a coopera-
tive, the members supply that capital. In this provision the
prospective member agrees to provide initial financial support
for the cooperative.
Each prospective member should commit to purchase one
share of common voting stock (or, in a cooperative, pay
a membership fee) for a fixed dollar amount, perhaps 1,000.
This investment gives the member the right to vote on issues
submitted to the membership.
Often the initial investment tied to membership status does
not raise enough equity to fund the association. Additional cap-
ital is needed. Usually the organizers have substantial leeway in
collecting and recognizing this investment. Each prospective
member may be asked to make an equal contribution, or the
level can vary with anticipated patronage. While this invest-
ment is classified as preferred stock in this report, it can also be
structured as equity credits, revolving fund credits, or any simi-
lar term satisfactory to the organizers.
Organizers should avoid using any term usually associated
with debt capital, such as “note” or “bond,” and should also
avoid creating a second class of common stock, which is sure to
be confused with regular voting common stock.
The agreement should expressly state that this financial
commitment is irrevocable unless the organization effort is ter-
minated. Initial development of the cooperative is totally
dependent on promised financial support being forthcoming.
Leaders must have the tools to force compliance with this com-
mitment, by legal action if necessary.
4. Producer agrees to purchase one share of
voting common stock of the association, par value
payable on demand following a favorable
vozihe signees of agreements similar hereto to
nonstockincorporate the association.
Producer further agrees to purchase
shares of nonvoting preferred stock of the associa-
tion, par value each, and agrees to pay for
same as follows:
cash on demand following incorpora-
tion of the association,
on or before
on or before
Producer expressly understands that this stock
subscription agreement is an irrevocable legally bind-
ing obligation which will be relied upon by the asso-
ciation, other producers who subscribe to its stock,
and lending institutions from which the association
will seek financing to implement its cooperative pur-
If a cooperative is organized as a corporation, the
sample language might be altered to call for payment of a mem-
bership fee, rather than purchase of a share of common stock,
and payment of an additional sum into an equity account, rather
than purchase of nonvoting preferred stock.
Calling of Membership Meeting
One of the principal responsibilities of the organization com-
mittee is to determine if enough firm interest exists to justify form-
ing the cooperative. It is advisable to put a time limit on member
solicitation. An open-ended solicitation period may exceed the
patience of early signees to get started or abort the effort.
If the committee decides there is enough interest, the agree-
ment usually calls for a meeting of the signees to make the final
decision to complete formation and begin operation of the coop-
erative. While the typical agreement provides that the affirma-
tive vote of a simple majority of signees approves formation, the
committee should move cautiously if substantial resistance
S-develops. Few associations overcome internal strife during the
formation period to become useful and viable cooperative enter-
5. If, on or before 9 19-t
zation committee is of the opinion that sufficient
signup has been obtained to enable the association to
operate efficiently, the committee shall set a time
and place for a meeting of those persons who have
signed this agreement to determine, by majority vote,
whether to proceed with the formation and opera-
tion of the association, and to consider such other
business as may be deemed appropriate.
Not less than ten days before the meeting,
notice of the time and place of the meeting shall be,
sent to all signees by first-class mail, and an appro-
priate notice shall be published in one or more
newspapers of general circulation in the area in
which those who signed agreements like this one
Sometimes the agreement will set minimum levels of sup-
port that must be committed before the prospective members
will vote to begin the venture, If the organizers decide to adopt
that option, the first paragraph of this provision might begin:
5. If, on or before bona fide
producers of agricultural products otherwise eligible
to become members in the association agree to exe-
cute marketing agreements covering (units)
of (product) and subscribe to provide equi-
ty to the association equal to the sum of at least
dollars, ( ), the organization committee shall
set a time and place for a meeting . . . (continue as
There should be a clearly stated obligation placed on the
organization committee to keep good records and make the
19-tappropriate disposition of any funds remaining after the vote on
formation of the cooperative is conducted.
6. The organization committee shall keep
detailed, accurate accounts of all receipts and of all
expenditures of every kind. It shall have such accounts
audited and render a written report thereof to the
board of directors of the association when organized.
And it shall thereupon turn over to the association any
balance remaining in its hands of obligation. If
the association is not organized, such unexpended bal-
ance shall be prorated among, and returned to, those
who contributed to the organization fund.
The agreement should conclude with spaces for the
prospective member to sign the agreement, and provide his or
her address, and for the chairperson of the organizing committee
to sign the agreement as an acceptance.
SELECTING THE PROPER STATE
While no drafting is involved, and thus no sample language
is provided in this section, an important step in the develop-
ment of a successful cooperative is selection of the proper statu-
tory foundation for the association.
To operate effectively in today’s business world, a coopera-
tive must be a unique legal entity, separate from its members.
The best way to create this unique entity is to form a cooperative
A cooperative becomes a corporation when its organizers
follow the steps set out in a law authorizing the formation of
corporations. There is no Federal incorporation statute.
Cooperatives incorporate under an appropriate State law.
Incorporation offers several advantages over alternative
structures, such as partnerships and unincorporated associations:
l Incorporation facilitates the orderly succession of owner-
ship. The entity has a perpetual life. As some members resign and
freenew people join, redemption and issuance of a share of common
stock or a membership certificate is a relatively simple means of
clarifying each person’s status and rights in the association.
l A corporation conveys to members and outsiders the
image of a solid, longlasting venture.
l If a cooperative is incorporated, the personal liability of
each individual member, for losses suffered by the cooperative,
is limited to the member’s equity in the cooperative.
The organization of a cooperative as a business corporation
has some important implications for how it conducts its affairs:
l A corporation derives all of its legal authority from the
State. It is a “person” in the eyes of the law, just like a natural
contracts, borrow money, own property, and sue and be sued.
l While its powers are broad, those powers are limited to
the ones granted by the State. For example, when the State agri-
cultural cooperative law says only agricultural producers can
vote in farmer cooperative affairs, no one else has the right to
participate in policy decisions made by the membership.
l The cooperative must obey business laws. Since man-
agers and directors make the decisions for the corporation, they
have an obligation to know and make sure the association fol-
lows all applicable laws.
Persons who organize a cooperative have several incorpora-
tion statutes to choose from:
l All States have special cooperative incorporation
statutes. Some are broad, permitting the incorporation of virtual-
ly any business as a cooperative. Other are limited in scope.
Many States have an Agricultural Cooperative Associations Act
specially written to authorize incorporation of associations of
producers of agricultural products.
person. It can do many things natural persons can, such as signl Every State has a general business corporation statute. A
cooperative can be incorporated under this law and have its
cooperative character established through proper drafting of the
articles of incorporation and bylaws.
l While most cooperatives are incorporated under a law of.
the State where the principle office is located, a few are orga-
nized under the laws of a different State.
It is usually best to organize under a cooperative incorpora-
tion statute of the State where the association’s headquarters is
located. But it’s very important that the statute authorizing the
cooperative permits a structure that meets the needs and desires
of the members. The General Business Corporation Act and
of-State incorporation laws should be considered if the applica-
ble cooperative law doesn’t permit the necessary organizational
A few so-called cooperatives are organized under a general
not-for-profit corporation statute. Usually this is done to make it
easier to obtain grant money. There are some potential adverse
legal consequences of this type of incorporation that should be
reviewed before following this path:
l Most not-for-profit corporation laws expressly forbid the
distribution of any earnings to members, trustees, officers, or
other private persons. This means an association organized
under such a statute can’t pay patronage refunds, one of the
main reasons for operating a business as a cooperative.
0 In many States, if a nonprofit corporation goes out of
business, members are prohibited from sharing in any assets left
after the debts are paid.
l Nonprofit corporations sometimes have had more trou-
ble than cooperative corporations enforcing marketing agree-
ments with their members. Cooperative statutes frequently pro-
vide specific authority for enforcement of marketing agreements.
Not-for-profit acts have no such provision.
If the leadership determines a cooperative is not organized
out-under the appropriate State statute, it is usually possible to rein-
corporate without seriously disrupting the ongoing business of
the association. This will ordinarily involve redrafting the orga-
nization papers to conform to the new law and paying a modest
fee to the appropriate State agency.
ARTICLES OF INCORPORATION
Once the leadership has determined the statute to use as
the legal authority for a cooperative, the first document prepared
is the articles of incorporation (articles). It is the acceptance of
the articles by the State that establishes the cooperative as a
unique “person” under the law.
Most incorporation laws require a fairly common set of
provisions to be included in the articles. These are discussed
The statute will also require that before the articles are
they must be recorded in the office of a designated State
officer. Failure to properly file the articles makes any business
activity vulnerable to legal challenge.
It is usually permissible to include information in the arti-
cles beyond that required by the incorporation statute.
However, this is ordinarily not done because it is frequently
more difficult to amend the articles than it is with other docu-
ments that may contain the same information.
The articles are not a piece of paper to be prepared and
then forgotten. The articles are routinely given the same respect
by the courts as a statute. Therefore, the articles are binding on
the directors, officers, and manager of a cooperative. Conduct
beyond that authorized in the articles can subject the coopera-
tive and its leaders to potential legal liability.
The following are the elements common to most coopera-
tive articles of incorporation.
The heading sets out the title of the document, the name of
the cooperative, and the title of the authorization statute.
below.ARTICLES OF INCORPORATION
(Name of Cooperative)
We, the undersigned, all of whom are engaged in the
production of agricultural products, do hereby vol-
untarily associate ourselves together for the purpose
of forming a cooperative association, with (or with-
out) capital stock, under the provisions of the
Act of the State of
The official name of the cooperative must be stated in the
body of the articles and is usually the first provision:
ARTICLE I. NAME
The name of the association shall be
Principal Place of Business
This is a simple statement of the general location of the
ARTICLE II. PRINCIPAL PLACE
The association shall have its principal place
of business in the city of
County of, Stateof ’ .
The purposes for which the cooperative is being organized
are specifically set out. While the purposes clause of the organi-
zational agreement is limited to immediate objectives, the pur-
Purposesposes are usually stated as broadly as possible in the articles of
incorporation. Any service the cooperative may someday pro-
vide is frequently authorized, at least in a general way. This
reduces the likelihood the articles will have to be amended
whenever the association is asked by the members to provide
ARTICLE III. PURPOSES
The association is formed for the following
purposes: To market for its members and other pro-
ducers any and all agricultural products or any prod-
ucts derived therefrom: to engage in any activity in
connection with the picking, gathering, harvesting,
receiving, assembling, handling, grading, cleaning,
shelling, standardizing, packing, preserving, drying,
processing, transporting, storing, financing, advertis-
ing, selling, marketing, or distribution of any such
agricultural products or any products derived there-
from: to purchase for its members and others farm
supplies and equipment: to manufacture, process,
sell, store, handle, ship, distribute, furnish, supply,
and procure any and all such farm supplies and
equipment; and to exercise all such powers in any
capacity and on any cooperative basis that may be
The State statute authorizing formation of a cooperative
will set out in detail the activities the cooperative may engage
in. As a general rule, the statutory language is copied virtually
verbatim into the articles. The following is an example of a typi-
cal statutory provision restated as an article of incorporation:
ARTICLE IV. POWERS
This association shall have the following pow-
13(a) To borrow money without limitation as to
amount of corporate indebtedness or liability: to give
a lien on any of its property as security therefore in
any manner permitted by law: and to make advance
payments and advances to members and other pro-
To act as the agent or representative of any
member or members in any of the activities men-
tioned in Article III hereof.
To buy, lease, hold, and exercise all privi-
leges of ownership over such real or personal prop-
erty as may be necessary or convenient for the con-
duct and operation of the business of the association,
or incidental thereto.
To draw, make, accept, endorse, guaran-
tee, execute, and issue promissory notes, bills of
exchange, drafts, warrants, certificates, and all kinds
of obligations and negotiable or transferable instru-
ments for any purpose that is deemed to further the
objects for which this association is formed, and to
give a lien on any of its property as security therefor.
To acquire, own, and develop any interest
in patents, trademarks, and copyrights connected
with, or incidental to, the business of the associa-
To cooperate with other similar associa-
tions in creating central, regional, or national coop-
erative agencies, for any of the purposes for which
this association is formed, and to become a member
or stockholder of such agencies as now are or here-
inafter may be in existence.
To have and exercise, in addition to the
foregoing, all powers, privileges, and rights con-
ferred on ordinary corporations and cooperative
(b)marketing associations by the laws of this State and
all powers and rights incidental or conducive to car-
rying out the purpose for which this association is
formed, except such as are inconsistent with the
express provisions of the act under which this asso-
ciation is incorporated, and to do any such thing
anywhere; and the enumeration of the foregoing
powers shall not be held to limit or restrict in any
manner the general powers which may by law be
possessed by this association, all of which are here-
by expressly claimed.
The articles will say how long the cooperative is autho-
rized to exist. Virtually all modern laws permit perpetual exis-
tence. Some laws in effect at the time longstanding cooperatives
were organized limited the permissible life of a cooperative to a
set period of time, such as 50 years. Associations that have been
active for several decades should check to make sure their dura-
tion clause provides for perpetual operation.
ARTICLE V. PERIOD OF DURATION
This association shall have perpetual exis-
Most statutes require the articles to name the initial policy-
makers of the cooperative. A majority of the incorporation
statutes ask for the number of directors and names and address-
es of the initial board. The articles often require “at least” the
minimum number of directors required by statute: the precise
number is set in the bylaws. Some statutes ask for the names
and addresses of incorporators, in which case the appropriate
title and references to incorporators would be substituted for
“directors” in the example. If the law asks for both. then this
draft provision is essentially inserted a second time and appro-
Durationpriately worded in each instance.
ARTICLE VI. DIRECTORS
This association shall have at least _ direc-
The names and addresses of those who are to
serve as the initial directors are:
The articles usually contain a description of the capital
structure of the cooperative.If stock is issued, the number of
shares authorized and the par value of each share of each class
of stock (common, preferred) are set forth. The rights granted
owners of each class of stock, the restrictions on owners of each
class, and the dividends to which each class is entitled are also
If stock is not issued, a description must be included of
how the rights and interests of the members will be determined.
The capital stock example provides for both voting com-
mon and nonvoting preferred stock. Nonvoting preferred stock
is a useful way to account for additional nonpatronage invest-
It has also been used as a way of raising
equity from nonmembers, such as other members of the commu-
nity interested in supporting the cooperative. If any interest in
the cooperative is being sold to nonmembers, counsel must be
retained to advise the association on applicable securities law
The sample language also assumes that the organization
ments by members.
nonstockSample language for both a stock and a If proportional voting based on
limits each member to one vote.
patronage is utilized, counsel will have to prepare a description
of how votes will be accumulated and any limit on the number
of votes any one member can amass.
All of the information in the example below is important
and should be included somewhere in the organizational docu-
ments. However, not all incorporation laws require that all of it
be in the articles. It may be possible to place some of these pro-
visions in the bylaws.
ARTICLE VII. CAPITAL STOCK (stock cooperative)
Section 1. Classes and Authorized Amounts.
The capital stock of the association shall consist of
shares of common stock with a par value of
per share, and shares of preferred stock with a
par value of per share.
Section 2. Common Stock. The common stock
of this association may be purchased, owned, or held
only by agricultural producers who (1) patronize the
association in accordance with uniform terms and
conditions prescribed by it, and (2) have been
approved by the board of directors.
‘Producer’ shall mean and include persons
(natural or corporate) engaged in the production of
(product), or other agricultural products,
including tenants of land used for the production of
any such product, and lessors of such land who
receive as rent therefore part of any such product of
such land, and cooperative associations (corporate or
otherwise) of such producers.
Each member shall hold only one share of
common stock and each eligible holder of common
stock shall be entitled to only one vote in any meet-
ing of the stockholders upon each matter submitted
to vote at a meeting of the stockholders.
In the event the board of directors of the asso-
ciation shall find, following a hearing, that any of
17the common stock of this association has come into
the hands of any person who is not eligible for mem-
bership, or that the holder thereof has ceased to be
an eligible member, such holder shall have no rights
or privileges on account of such stock, or vote or
voice in the management or affairs of the association
other than the right to participate in accordance with
law in case of dissolution, The association shall
repurchase such stock for par value. If such holder
fails to deliver any certificate evidencing the stock,
the association may cancel such certificate on its
books and records, and the certificate is thereby null
The common stock of this association may be
transferred only with the consent of the board of
directors of the association and on the books of the
association, and then only to persons eligible to hold
it. No purported assignment or transfer of common
stock shall pass to any person not eligible to hold it,
nor the rights or privileges on account of such stock,
nor a vote or voice in the management of the affairs
of the association.
This association shall have a lien .on all of its
issued common stock for all indebtedness of the
holders thereof to the association.
No dividends shall be paid on the common
Section 3. Preferred Stock. The preferred
stock of this association may be issued to any per-
son, association, partnership, or corporation.
Preferred stock shall carry no voting rights.
Noncumulative dividends not to exceed
percent (_%) per year may be paid on preferred
stock at the absolute discretion of the board of direc-
Preferred stock may be transferred only on the
books of the association. It may be redeemed in
whole or in part on a pro rata basis at par, plus any
dividends declared and unpaid, at any time on thirty
18(30) days’ notice by the association, provided said
stock is redeemed in the same order as originally
issued by years. If the owner fails to deliver any cer-
tificate evidencing such stock, the association may
cancel the stock on its books.
This association shall have a lien on all of its
issued preferred stock for all indebtedness of the
holders thereof to the association.
Upon dissolution or distribution of the assets
of the association, the holders of all preferred stock
shall be entitled to receive the par value of their
stock, plus any dividend declared and unpaid, before
any distribution is made on the common stock.
The association shall not have capital stock
but shall admit applicants to membership in the
association upon such uniform conditions as may be
This association shall be
prescribed in its bylaws.
operated on a cooperative basis for the mutual bene-
fit of its members as producers. Membership in the
association shall be restricted to producers and asso-
ciations of producers who shall patronize the associ-
The voting rights of the members of the asso-
ciation shall be equal, and no member shall have
more than one vote upon each matter submitted to a
vote at a meeting of the members.
The property rights and interests of each
member in the association shall be unequal and shall
be determined and fixed on a patronage basis, and
the net proceeds from the business of the association
shall be allocated to member-patrons in the propor-
tion that the patronage of each member bears to the
total patronage of all the members of the association.