Mar. 29, 2021 • by Jeffrey Pote

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It’s still March and it’s still B Corp month! We’re always pleased to celebrate B Corps and businesses operating as a force for good! In previous entries, I’ve discussed Public Benefit Corporations and Public Benefit LLCs. This time, I’d like to highlight another type of PBC, the Public Benefit Cooperative.

Many people, it seems, are unaware that Colorado’s Public Benefit Corporations Act (PBCA) is not just for conventional for-profit corporations. Certainly any for-profit Colorado corporation can be organized as a public benefit corporation under the PBCA, but so can all three types of Colorado cooperatives. (Specifically, cooperatives organized under Articles 55 56 as well as limited cooperative associations (LCAs) organized under Article 58 can all elect public benefit corporation status under the PBCA.FN1)

By electing public benefit corporation status under the PBCA, a cooperative or LCA commits itself to responsible and sustainable operations and to being managed in a way that balances (a) the financial interests of its owners (members), (b) the interests of materially affected stakeholders, and (c) the specific public benefit purposes identified in the cooperative’s or LCA’s organizing document.FN2

The word 'COOPERATION' appears in gray text, selected on a screen by a business person in a gray suit with a blue tie with blue gears connected in a pattern in front.

The "public benefits" permitted under the PBCA could be either producing positive effects or reducing negative ones. And there are a wide variety of types of benefits that a cooperative or LCA may pursue, including those "of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature."FN3

"The Board of Directors and officers of the coop or LCA are obligated to balance the interests of members and materially affected stakeholders and the public benefit purposes identified in the organizing document when managing the coop's or LCA's business and affairs."

Once organized for the public benefit, the Board of Directors and officers of the coop or LCA are, accordingly, obligated to balance the interests of members and materially affected stakeholders as well as the public benefit purposes identified in the organizing document when managing the coop's or LCA's business and affairs. For this reason, the organizing document should ideally provide some guidance to help prioritize these various considerations in management decisions.

Like public benefit corporations, cooperatives and LCAs organized under the PBCA are required to prepare an annual report that describes the progress the business has made towards its proscribed public benefit purposes, the setbacks or obstacles faced, and the impact it has had on materially affected stakeholders. Ideally this progress should be measured and evaluated against a third-party standard.

The report should be posted on the website of the coop or LCA and distributed to all of its members. In this way, a coop or LCA organized under the PBCA provides transparency to its members and even the public, more generally, by informing them of the impact its having with respect to the pursued public benefit and any materially-affected stakeholders.

A supermajority vote of coop or LCA members is also required before it can reorganize in any way – including conversions or mergers – that would abandon its commitment to operating for the public benefit. This approval requires at least the affirmative vote of two thirds of the members present and voting (at a meeting where a quorum is present), but the bylaws may require a greater percentage.

Electing public benefit corporation status helps ensure that any entity that makes that election operates as a force for good and cannot easily give up this commitment. Since organizing under the PBCA helps lock in the purposes and mission of a cooperative or LCA, any such entity that is interested in becoming a certified B Corp will be required to be organized (or reorganize) under the PBCA.FN4

As previously noted, a certified B Corp is not a type of business entity, but a trademarked certification maintained by the nonprofit organization B Lab that is open to various kinds of entities depending on their verified assessment along various factors related to sustainable, responsible, and ethical business operations and practices.

Cooperatives and LCAs organized under the PBCA are great candidates to become certified B Corporations due to the ability of either a cooperative or LCA to create various classes of membership related to categories of materially affected stakeholders.

sunset at City Park in Denver Colorado with downtown Denver in the background as geese feed on the green grass

These "multi-stakeholder cooperatives" (MSCs) don't just consider the interests of their stakeholders, but provide them a "seat at the table" with true ownership, control, and even financial benefit based on the coops or LCAs operations. This is a true stakeholder-ownership model for a business organization and it gives the members of these businesses an equal vote on member decisions as well as the ability to nominate, elect, and remove the managing directors.

More information on organizing a corporation, cooperative, or LCA under the PBCA can be found in the section on Public Benefit Corporations on the corporations page. And the potential advantages and disadvantages of electing public benefit corporation status are discussed more fully in the article titled: Colorado Corporations: To PBC or Not To PBC?

This article only touches the surface when it comes to options related to cooperatives and PBCs and the sort of entity that may be right for your business. If you have questions or would like to discuss anything discussed here, please Reach out, Today!

This article provides only general information and is not intended to be a substitute for legal advice.

Click Here to Toggle End Notes:

FN1: C.R.S. § 7-101-503(1). While Article 55 is generally utilized by utility and electric coops, Article 56 is the newer statute in Colorado which suits a wide variety of worker, producer, consumer, or multi-stakeholder cooperatives. Limited cooperative associations (LCAs) organized under Article 58 are more flexible structures that are a bit of a hybrid between true coops and limited liability companies (LLCs). A deep dive into these structures, their formation, governance, tax treatment, and a comparison of these various coop options is a topic for another day. But for more information, please see the page on Colorado cooperatives.

FN2: The organizing documents for Article 55 and Article 56 cooperatives are Articles of Incorporation, while the organizing documents for Colorado LCAs are Articles of Organization. In either case, the Articles, inter alia, state clearly that the coop or LCA has been organized under the PBCA as a public benefit corporation and identify its public benefit purposes. See C.R.S. § 7-101-503(1). This information in the public record create by filing the Articles provides notice to the public generally that the coop or LCA is committed to operating for the public benefit - both generally and specifically with respect to any state public benefit.

FN3: C.R.S. § 7-101-503(2).

FN4: Under the current requirements for becoming a certified B Corp, cooperatives and LCAs in Colorado and other states are treated as corporations that must organize (or reorganize) under the available public benefit corporation (or benefit corporation) laws of the state of formation. This requirement makes sense for conventional for-profit corporations due to concerns related to shareholder primary that might hinder the genuine operation of a corporation for the public benefit and as a force for good. The application of this requirement to cooperatives and LCA may be more oversight than a position supported by American jurisprudence.

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