To the C2BE Template LLC Operating Agreement

User’s Guide

to the C2BE Template LLC Operating Agreement:

Michigan LLC operating as a worker cooperative[1]

What are the main activities of the cooperative? How will it generate enough revenue to become financially self-sustaining?
If you are registering as an L3C, do you have a charitable mission? If so, what is it? Is your profit-seeking activity significant, but not primary? non-significant?
What State will your cooperative business be operating in? Will you have operations in more than one State? Will you have Members who live in more than one State?
Do you only want to allow Worker-Owners to be Members? In this context, “Member” means someone who has (a) an ownership interest, (b) voting rights, and (c) profit-sharing rights. Do you want to create another class of Membership for Investors/Supporters? How about Consumer-Owners?
Will there be a Trial Period before a new worker can become a Member? If so, how long?
How large of a vote is required to approve a new worker as a Member? How many existing Members must vote on that decision? Will you require new Members to pay a Membership Fee? (also called a Membership Contribution). If so, how much will it be? Are there any other qualifications required to become a Member?
Does the business need to raise capital? If so, how much? How will it be raised? Through member contributions, outside Investors, loans, grants, crowdfunding or some other option?
Do you need to engage Investors/Supporters? If so, what benefits are you willing to grant them? An ownership interest? Voting rights over certain decisions? A guaranteed rate of return, say, for example, 3%? A combination of these? Are you willing to grant Investors a prioritized repayment preference upon the liquidation or dissolution of the business? (This means that if the business goes under, Investors would be paid back before Members).
Will the Worker-Members behave more like employees, partners, or independent contractors? Under employment law, workers who are employees require that the business to pay minimum wage, overtime, unemployment insurance, workers’ compensation, and payroll taxes (Medicare and Social Security). In contrast, if workers are partners or independent contractors the business does not need to make these payments, although partners and independent contractors need to pay self-employment taxes on their income. For any worker classification, will the business earn enough income to support the workers financially?
Are any workers undocumented? If so, he or she is legally prohibited from being employed, though not from owning a business. Therefore, deciding to treat undocumented workers as partners or independent contractors rather than employees is less likely (though not guaranteed to) avoid violating immigration law.
Based on the business’s finances, what tax treatment makes the most sense? Pass-through or partnership taxation? Double taxation? Or Subchapter T taxation?
How do you want the co-op to be governed? By the Members themselves? By a Board of Directors that is elected by the Members? By external Managers who are elected by the Members?
If you decide to have a Board of Directors, how many people will serve on it? Do all the Board Directors need to be Members? Can there be Non-Member Directors? Are there qualifications to serve on the Board? How long is the term of office? Will there be term limits? Do you want staggered terms? Will the Board have an advisory role only? Or will it be able to make decisions that are binding?
Do you want to have regular meetings? How often? Do you want to require that notice be sent out before meetings? Do you want to require that minutes be taken?
How will decisions be made? By a simple majority vote? A supermajority? (something more than a majority?) How about consensus, modified consensus, or sociocracy? Will different decisions be made in different ways? Will certain decisions require a higher voting threshold?
Do you want to require that a Quorum be present for decisions to be made? If so, how should the Quorum be satisfied? A majority of the total Membership or some other formula or percentage of members?
Do you want to have Officers? If so, which ones? What are their duties, and qualifications? How long will their terms be? Will terms be staggered? Do you want Officers to periodically rotate positions?
Do you want to have Committees? If so, which ones? What are their duties and powers? How often will they meet?
How will Members be disciplined? How will Members be removed from the business? How will Non-Member Directors or external Managers be removed?
If there is a surplus, how much of it will be reinvested back into the business to keep it growing? How much of it will be allocated to the Members? Do you want to designate a specific ratio to follow, or do you want to make this decision on an ongoing basis? Is this a board decision, a member decision or are both involved?
Since this business is behaving like a worker cooperative, after reinvesting some of the Surplus back into the business, you will want to allocate the remaining Surplus to the Members, based on their work performed, or patronage. Do you want to calculate patronage based on the hours that each Member works? Or do you want to include other factors in the patronage formula, such as position, pay rate, and/or seniority? Other factors, for example, extraordinary contributions to the co-op’s success?
Of the total patronage distribution due to each Member, how much will be paid out in cash? How much will be credited to their individual capital accounts? Do you even want to maintain capital accounts? Will the cooperative be able to use some portion of Members’ capital accounts to finance itself? Do you want to pay interest on the balance in individual capital accounts?
How long will it take for the annual amount of the patronage dividend credited in each Member’s capital account to be paid back, or “redeemed,” to each Member? If a Member leaves the business, how long will it take for their capital account to be totally redeemed?
If there is a loss, how will it be applied? Solely on the collective account or also the individual capital accounts? Do you want to designate a specific ratio to follow, or do you

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want to make this decision on an ongoing basis?

Upon dissolution of the company, what do you want to happen to the assets?
Who will have the authority to sign checks on behalf of the business? Who will have the authority to sign contracts on behalf of the business?
How will you decide to amend the Operating Agreement? A two thirds vote? Do you want to have Operating Rules that are easier to change? Do you want to compile Operating Rules and other policies in a Policy Handbook?
Do you want to indemnify Members, Officers, Directors, and Managers?

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[1]Adapted from:Jenny Kassan, 28 essential questions for any start-up to ask - and try to answer - before meeting with a lawyer.