FGM Co-op Update – The Legalities

FGM co-op Fiona and Ben

It’s been roughly 8 months since we announced FGM Internet Marketing’s intention to convert from a single member LLC to a workers’ co-operative. For more background on why we made this decision, and some information about what a workers’ co-operative is, be sure to check out our co-op blog.

In the past 8 months, Ben and I have been busy serving our clients, exploring what being a co-operative actually is, and how to implement that in our business. While Ben excels in copywriting and my strong suit is digital marketing, we both had a lot of questions about the legalities of co-operatives. Thankfully, we were connected to the Sustainable Economies Law Center and their Legal Cafe to help us get answers to some of our questions.

What Legal Entity Should We Be?

Currently, FGM Internet Marketing is a single-person LLC registered with the State of South Carolina. 

Would we need to change the legal entity in order to be a co-operative? 

The good news is that we can operate as an LLC and be a workers’ co-operative. In order to do this, Ben and I will be drafting an operating agreement that outlines exactly how we’ll organize this new multi-member LLC. 

An alternative way to structure this would be to form as a co-operative corporation, a legal designation that exists in California (and possibly other states) but is not so common in South Carolina. 

The primary difference between remaining an LLC or becoming a corporation is whether we would pay ourselves as 1099s (like contractors) or become employees (W9s) and withhold taxes. 

Ben and I already work as 1099s to the business, and we imagine future members will be comfortable with this setup as well since all of our contractors already work this way. 

I got advice from my CPA on how to handle tax filing and the biggest bit of guidance she gave was to make the official “switch” at the end/beginning of the month so the books are cleaner.

Our New Operating Agreement

Creating our new operating agreement is the next big step (or hurdle!) in getting this workers’ co-operative off the ground. The operating agreement is similar to bylaws and outlines the essential workings of the business, a document that Ben and I (and future members) agree to work by. 

Our attorney from the Sustainable Economies Law Center advised that the most important parts of the operating agreement would be:

  • How to become a member of the co-operative
  • How to exit the co-operative
  • How to resolve member disputes/disagreements

We were also sent a sample LLC operating agreement for a workers’ co-operative, and that has certainly given us good guidance on what we want to create. 

As to how to become a member of the co-operative, we’re looking at the amount of time someone will have worked with FGM Internet Marketing before being eligible to apply for membership. We’re also structuring a buy-in, which could be either monetary, in sweat equity, or a combination of both. Finally, any new member would have to be voted in by the current membership.

To exit the co-operative, we need to outline the process of giving notice, and how to disperse any capital that the member is due. Finally, disagreements between people are inevitable so we need to figure out the dispute resolution process before we encounter the need to use it. 

Once we have finalized our operating agreement, we’ll need an attorney who practices in South Carolina to help us file it with the SC Secretary of State to make it official. We will make our operating agreement public so that you can see the standards we’re holding ourselves to, and give people the opportunity to learn about a different way to do business.

What We’re Reading

Alongside speaking to an attorney and my CPA, Ben and I are reading as much as we can about co-operatives to learn from our predecessors’ successes and mistakes. 

Humanizing the Economy: Co-operatives in the Age of Capital by John Restakis gives a great account of the history of co-operatives as well as in-depth analysis of co-operative economies like the Emilia-Romagna region of Italy. 

Building Co-operative Power: Stories and strategies from worker co-operatives in the Connecticut River Valley by Janelle Cornwell, Michael Johnson and Adam Trott with Julie Graham is a fantastic practical guide to starting worker cooperatives and growing a co-operative economy. This may become essential reading and onboarding for FGM co-op members.

FGM co-op Fiona and Ben