Co-operative rules

In NSW, co-operatives are mainly governed by:

• Co-operatives National Law (the CNL)
• 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.

Rules are a contract

The rules of a co-operative function as a contract between:

• the co-operative and each member
• the co-operative and each director, chief executive officer (CEO), and 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 covered in Schedule 1 of the CNL. The rules may include other provisions for a co-operative. However, they must not contradict 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
• Model Rules for a non-distributing co-operative without share capital
• Model Rules for a non-distributing co-operative with share capital 

Draft rules can also be found through Co-op Maker. This resource has an online template for legal documents. This includes the rules for forming a distributing co-operative in Australia.

The Model Rules include the matters that are required by Schedule 1.

Co-operatives should carefully review their proposed rules. They must suit their operations to 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 the reason the co-operative exists, either alone or along with another activity
• makes a significant contribution to the business of the co-operative, that is, it contributes at least 10% to the turnover, income, expenses, surplus, or business of the co-operative.

Members must meet the active membership requirements to be entitled to vote and to retain their membership. The active membership requirements must:

• be reasonable, in light of the co-operative's activities as a whole
• be clear, repetitive and measurable, and
• clearly define how long a member must use or support an activity or keep a relationship with the co-operative. For example members must undertake specified obligations each financial or calendar year.

For non-distributing co-operatives, a regular subscription is enough to establish active membership. It must support a primary activity 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, along 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

Some rules cannot be changed without a prior written approval from the Registrar. 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 registered as a club, that limits some members' voting rights.

To seek prior approval of the above rules, lodge a Form C11 Application for Prior Approval Rule Amendment with NSW Fair Trading. This should be done before the notice of a special resolution to amend the rules is sent to members. Lodgement details and fees are on the form.

Approving a rule change

A co-operative can usually amend its rules only by passing a special resolution. This resolution must pass with a two-thirds majority (or a higher if required in its rules). Visit the making decisions in a co-operative page for more information about special resolutions.

A co-operative board may, in rare cases, amend the rules by resolution. This can only occur where an amendment is enforcing a direction, requirement, restriction or prohibition 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.

If a co-operative proposes to amend 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 Form C10 Application to Register Rule Amendment. This must be lodged with NSW 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 can obtain a copy of the rules from the co-operative. They must pay any fee in the co-operative's rules, or $5 if no fee is set.

NSW Fair Trading also provides a copy of the registered rules. For more information, go to the accessing co-operatives public records page.

Related  legislation

• Co-operatives National Law
• Co-operatives National Regulations
• Co-operatives (New South Wales) Regulation 2020
• Rules of a co-operative - Schedule 1