Write the bylaws

Who this is for#

Founders and counsel drafting the rulebook that, in a 308B cooperative, carries most of the membership, voting and capital terms.

The short answer#

Bylaws are required ^{P1, § 308B.241, subd. 1}. They must be adopted before the cooperative makes any distribution to members and before it accepts contributions to any class whose rights are set in the bylaws ^{P1, § 308B.241, subd. 3}. Treat the bylaws as the document you finish before taking any money.

What the statute says the bylaws must contain#

Section 308B.241, subd. 2 has two lists ^P1.

Matters that must be in the bylaws if they are not in the articles (subd. 2(a)):

• the cooperative's purpose;
• its capital structure and classes;
• voting and governance rights;
• the one-vote-per-patron-member rule, or the patronage-voting allocation;
• a statement that membership interests may be transferred only with board approval;
• allocation rules for nonpatron interests, if nonpatron interests are authorized.

Matters the bylaws "shall include" (subd. 2(b)):

• the number, qualifications, election, powers, duties and compensation of directors;
• member qualifications and any limits on membership;
• admission, withdrawal, suspension and expulsion of members;
• members' rights, obligations and the assignability of their interests;
• any provisions the articles require to be included in the bylaws.

Steps#

1. Fix the member model first. Who is a patron member? What counts as patronage? The statute leaves that to the cooperative: patronage is business, transactions or services "done for or with the cooperative as defined by the cooperative" ^{P1, § 308B.005, subd. 21}. Write the definition down. See Define members and membership classes.
2. Set the board. At least five directors; a cooperative with 50 or fewer members may prescribe three or more in its articles or bylaws § 308B.405. Unless articles or bylaws provide otherwise, a majority must be members and a majority must be elected exclusively by patron members. With allocation-unit or equity-based voting, patron-elected directors retain at least half the general board voting power § 308B.411 ^P1.
3. Set voting. Patron members have one vote except as additional patronage-based voting is authorized under § 308B.551. Their collective vote defaults to a majority of votes cast; a bylaws alternative cannot reduce it below 15 percent of total vote § 308B.545 ^P1.
4. Set capital and allocations. Patron interests collectively must hold at least 60 percent of financial rights, or 15 percent if authorized on the conditions in § 308B.601, subd. 3. The bylaws prescribe the allocation of profits and losses and distributions between patron and other interests, subject to the 50 percent or 15 percent floors in § 308B.721 ^P1. Distributions and patronage rules: Allocate patronage and make distributions.
5. Add the meeting rules. Board notice is at least 10 days, or 3 days for organizational meetings, unless articles or bylaws differ § 308B.425; board quorum defaults to a majority of directors § 308B.431. Member quorum has a statutory minimum, which articles or bylaws adopted by members may increase, not lower § 308B.525 § 308B.535. Only members may adopt or amend a bylaw fixing a greater member quorum or vote; amendment uses the greater existing or proposed quorum and vote § 308B.241, subds. 5-6 ^P1. See Run board and member meetings.
6. Consider emergency bylaws. Section 308B.241, subd. 7 allows them ^P1.
7. Adopt them. Before the next annual or special members' meeting, a majority of directors may adopt and amend bylaws. For member adoption at a meeting, the notice must state that bylaws will be voted on and provide copies or state where copies are available and summarize the proposed provisions § 308B.241, subdivision 3(b) ^P1.
8. Keep them. The bylaws are among the records the cooperative must keep at its principal office ^{P1, § 308B.245}.

Amending#

The board may amend the bylaws at any time unless the statute, articles or bylaws reserve the power to members, or a bylaw prohibits the board from doing so. A board amendment must be given to members within 10 days, and the notice of the annual meeting must include a summary or the actual amendments ^{P1, § 308B.241, subd. 4; § 308B.511}. See Amend the articles and bylaws.

Member control agreements#

A member control agreement is a separate document signed by all members, including nonvoting members, and all persons who are parties to contribution agreements. It may address the subjects listed in § 308B.627, but cannot vary patron voting control under § 308B.545 or patron allocation/distribution rules under § 308B.721 and § 308B.725 ^P1.

In practice#

[OPINION] A model set of bylaws is not a substitute for the member-model decisions in step 1. The statute expects the cooperative to supply its own definition of patronage and its own admission, withdrawal and expulsion rules, so those are the terms most worth having a lawyer review.

Common mistakes#

1. Making distributions before bylaws are adopted, or accepting contributions to a class whose rights are established in the bylaws before adoption § 308B.241, subdivision 3. [OPINION] Adopt bylaws before collecting membership money rather than relying on a narrow exception.
2. Copying bylaws from a 308A cooperative or a nonprofit without checking the 308B voting and patron-share rules.
3. Leaving "patronage" undefined.
4. Setting a quorum or notice period that your members cannot practically meet.
5. Forgetting that board amendments must reach members within 10 days.

Open questions#

The statute does not say what happens to a distribution made before bylaws are adopted. It prohibits one; consequences are for counsel.