By amending its rules, a co-operative may convert from a co-operative with share capital to a co-operative without share capital, or vice versa; or from a distributing co-operative to a nondistributing co-operative, or vice versa. The conversion from a non-distributing to a distributing co-operative requires the Registrar’s approval.
Demutualisation: a co-operative becoming a company
At times co-operative members decide to change the co-operative’s structure and incorporate it as a company. Often demutualisation has occurred to separate the legal roles of the customer and owner; to maximise the return to owners instead of customers; to take the focus from customer services to profits; to obtain external finance; to expand or diversify activities; to gain a windfall for members; to broaden a membership base; to trade freely across state borders or to compete more effectively with publicly listed companies in the market. Sometimes the profit motive outweighs the broader co-operative values.
Decisions to demutualise in the past have often been driven by the regulatory framework. It is hoped many of the reasons that co-operatives demutualise have now been removed with the Cooperatives National Law in place.
A co-operative may apply to become registered, incorporated or otherwise established as a company under the Corporations Act, or a corporation prescribed by the national regulations or local regulations. The members must, by special resolution passed by a special postal ballot, approve the proposed application, decide on a new name and adopt constituent documents. The transfer must result in all persons who were members of the co-operative at the date of transfer becoming members of the new body.
A co-operative without share capital must publish the proposal to transfer in a local newspaper, and if the new body will have share capital, all the members will have an equal shareholding. The application needs to be approved by the Registrar.
In the case of a transfer of a co-operative having share capital to a new body having share capital, the transfer must result in every member of the co-operative at the date of transfer who held shares in the co-operative being the holder of shares in the capital of the new body equal in number and nominal value to the shares held by the member as a member of the co-operative.
Mutualisation: a corporation becoming a co-operative
Some companies which operated under co-operative principles opted to be corporations to be able to trade across state borders, reduce costs and obtain external finance. The Co-operatives National Law (CNL) was introduced to resolve those issues, so such companies might now become co-operatives, making it obvious to customers that they operate with co-operative values and principles.
A corporation which operates under co-operative principles may convert to a co-operative. The conversion must not prejudice any right of a member to any shares held. The change of registration and incorporation does not affect the identity of the corporation.
Before applying to the Registrar, a formation meeting must be held where a resolution must approve the proposed registration, amendments to existing constituent documents to enable the corporation to comply with the CNL, a formation disclosure statement (if required, and passed by a two-thirds majority) and the proposed rules of the proposed co-operative.
An association becoming a co-operative
An association might choose to become a co-operative if the scale of its activities has grown, it finds that the CNL provides more protection for its assets and member’s rights, it requires alternative options for fundraising, or it finds co-operative principles and values better suit the association’s ideals.
The association can apply to the Registrar to transfer registration to a co-operative using an available form, changing its name and rules, passing a special resolution, providing a statement that the new co-operative will prohibit the distribution of profits to members, and demonstrating that relevant funding bodies have been advised of the proposed transfer of registration.