Rules are a contract
In NSW co-operatives are governed primarily by the Co-operatives National Law (the CNL) and the Co-operatives National Regulations (the CNR) and Co-operatives (New South Wales) Regulation 2020 (the Local Regulations).
Its operations and relationship with its members are also governed by its rules.
The rules of a co-operative have the effect of a contract between:
- the co-operative and each member
- the co-operative and each director, chief executive officer and the secretary of the co-operative
- each member.
A member may take action against the co-operative if a breach of the rules has occurred. Go to the managing co-operative disputes page for more information.
Content of the rules
A co-operative’s rules must provide for the matters included in Schedule 1 of the CNL. The rules may contain other provisions appropriate for an individual co-operative as long as those provisions are not contrary to the co-operatives legislation.
A co-operative can adopt its own rules or the model rules. A co-operative can include some or all of the relevant model rules in its own rules.
Model Rules are available for the following types of co-operatives:
- Model Rules for a distributing co-operative (RTF, 434.53 KB)
- Model Rules for a non-distributing co-operative without share capital (RTF, 312.51 KB)
- Model Rules for a non-distributing co-operative with share capital (RTF, 364.94 KB)
Draft rules can also be found through Co-op builder. This resource provides an online template for the legal documents including the rules, for a formation of a distributing co-operative in Australia.
The Model Rules include the matters that are required by Schedule 1.
Co-operatives should carefully consider its proposed rules to ensure they suit their operations and meet the requirements of Schedule 1.
Active membership provisions
The co-operative’s rules must include active membership provisions. These set out the co-operative’s primary activity/activities and what a member has to do to be an active member.
A co-operative’s primary activity is:
- either by itself or together with another activity, the basic purpose for which the co-operative exists
- makes a significant contribution to the business of the co-operative, i.e. it contributes at least 10% to the turnover, income, expenses, surplus or business of the co-operative.
Members of a co-operative must satisfy the active membership requirements in the co-operative’s rules in order to be entitled to vote and to retain their membership. The active membership requirements must:
- be reasonable when considered in relation to the activities of the co-operative as a whole
- be clear, repetitive and measurable, and
- clearly define the period in which a member is required to use or support an activity or to maintain a relationship with the co-operative. For example members must undertake specified obligations each financial or calendar year.
For non-distributing co-operatives an obligation to pay a regular subscription to be applied to a primary activity of the co-operative is sufficient to establish active membership of the co-operative.
For distributing co-operatives the active membership provisions must require a member to use an activity of the co-operative for carrying on a primary activity together with any other provisions approved by the Registrar.
A co-operative must keep records to enable it to identify which of its members are active.
Prior approval of rule changes
Certain rules cannot be amended unless the prior written approval of the Registrar is obtained. This applies to rules relating to:
- the active membership provision (unless the change falls within a previously approved guideline)
- rules relating to the conversion of a non-distributing co-operative to a distributing co-operative
- rules of a co-operative that is a registered club which restricts the voting rights of different classes of members.
To seek prior approval of the above rules lodge a C11 Application for Prior Approval Rule Amendment form with NSW Fair Trading before the notice of the special resolution to amend the rules is sent to members. Lodgement details and fees are on the form.
Approving a rule change
In most cases a co-operative can only amend its rules or adopt new rules by passing a special resolution with a two-thirds majority (or a higher majority if required in the co-operative’s rules). Go to the making decisions in a co-operative page for more information concerning special resolutions.
In very limited circumstances a board of a co-operative may pass a resolution amending the rules. This may only occur where an amendment is giving effect to a requirement, direction, restriction or prohibition imposed or given under the CNL.
Notice to members
A co-operative must give members not less than 21 days’ notice of the proposed amendment.
The notice to the members must state the:
- intention to propose the special resolution to change the rules
- reasons for proposing the change
- effect of the special resolution being passed.
Where a co-operative proposes amending its active membership provision the notice to members must also state:
- whether the member is eligible to vote on the resolution
- the full text of the proposed resolution
- a copy of section 156 of the CNL concerning cancellation of membership of an inactive member.
Registering a rule change
If the rule change is approved, lodge a C10 Application to Register Rule Amendment form with Fair Trading within 28 days. Lodgement details and fees are on the form (late fees apply).
An amendment to the rules does not have any effect until it is registered.
Obtaining a copy of the rules
Members are entitled to obtain a copy of the rules from the co-operative on payment of the fee (if any) specified in the co-operative’s rules (or on payment of $5.00 if no fee is set out in the rules).
A copy of the registered rules can also be obtained from Fair Trading. Go to the accessing co-operatives public records page for more information.
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