Written by Elizabeth L. Carter of Urban Cooperative Enterprise Legal Center

In its attempt to create its first cooperative in a place where the term “cooperative” is vaguely understood, the Urban Cooperative Enterprise Legal Center (UCELC) launched its Cooperative Academy. After conducting various presentations on cooperative enterprises, it made sense to create a structured educational platform, such as a Cooperative Academy, that promotes cooperative enterprises, equips participants with tools for starting a cooperative, and provides a structured collaborative environment for participants to come together as a unit.

A Cooperative Academy is an effective way to introduce the cooperative business model to interested parties where it allows for active learning, practical exercises, and collaboration that prepare participants to become a cohesive unit. Creating the format of the Academy is the first step. Thereafter, an appropriate curriculum can be formed. The format and curriculum of a Cooperative Academy varies. For instance, the Cooperative Academy of Green Workers Cooperatives in Bronx, New York is a five (5) month long training and support program focused on worker cooperatives that aspire to make positive environmental impacts.[1] Worcester Roots in Massachusetts has a ten (10) week Academy that provides entrepreneurial training and mentorship to a variety of sustainable cooperative businesses, including youth cooperatives.[2] Similarly, Colors Cooperative Academy in Michigan is divided into three (3) phases including a thirteen (13) week course in phase I describing general cooperative, business, and legal principles, and phase III launching a worker-owned food business.[3] Like Colors, Project Equity has a thirteen (13) week course, but unlike Colors, where the Academy is focused only on worker-owned food businesses, Project...

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Written by Elizabeth L. Carter of Urban Cooperative Enterprise Legal Center

It was an early Saturday morning in April and the room was full of enthused urban gardeners and supporters. I was presenting on food cooperatives and agricultural land trusts. The City of Newark (“City”) had recaptured many of the “adopt-a-lots” that were used for community gardens as part of its Valentine’s Land Sale Day. As mentioned in Part I, this sale made available to the public 100 city-owned vacant lots for only $1,000 in order to attract residents to the city.The gardeners had all come together to learn new ways of gaining political strength in the face of land insecurity and food deserts. This was not the first time the gardeners had come together, but it appeared to be the first time they came together to create a serious collective project.

One thing that I learned in my study of cooperatives is that they are often formed out of necessity, such as when people of color or religious minorities are  locked out of mainstream society and are  required to create their own institutions for living.[1] Although not locked out of mainstream society entirely, these urban gardeners were still shutout of the planning and decision-making processes of the lots’ disposition and as such, they lost a very important asset to their livelihood and communities. This loss created a sense of urgency to form an alliance that would combat land insecurity, food deserts, and community disintegration through urban agriculture.

The alliance started off strong with consistent meetings, but it was not long before the momentum began to slow down. Part of the reason for the slowdown was due to the change in seasons. The  gardeners are busy gardening during the warmer months. However, another reason for the slowdown was, in my opinion, the lack of...

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Written by Elizabeth L. Carter of Urban Cooperative Enterprise Legal Center

It all began in the summer of 2014 when I was invited to an atypical birthday celebration; one that did not include drinks, music, or food. I take that back. It did involve food, but this food still needed to be planted!  I was interested in attending this birthday party because I wanted to learn how to grow my own food and thought that getting my hands dirty at this garden was the first step in doing just that. No, this garden was not a fancy botanical garden. Rather, it was a small community garden encircled by homes on its left and an old, vacant warehouse on its right. Across from this small garden was another seemingly vacant lot that temporarily housed a composting site. Raised beds laid atop of these lots in order to avoid possible contamination of the food, which is to be expected in an old industrial city like Newark. Nonetheless, this small garden was an oasis to this rustic neighborhood, providing fresh vegetables and fruits—at no cost—to community members where otherwise, fresh produce was not so accessible. An added bonus to this garden was the lone basketball court that provided kids some park activity right in the neighborhood. With all these benefits, the garden was undeniably a valuable asset to the community. However, the value of this garden was not realized by everyone in the city.

During the garden party, I was planting tomatoes in the raised garden beds when I stopped to ask the master gardener, who also lived nearby, the history around these lots. I learned that the city had an “adopt-a-lot” program where city-owned vacant lots were leased to the community for one-year for $1 a year.[1] These lots were used for many reasons, including local food production, education, and entrepreneurialism where gardeners created for-profit and not-for-profit businesses out...

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Written by Kelsey Jae Nunez, Kelsey Jae Nunez, LLC

Thanks to social media, I’ve seen many inspiring videos about creative new businesses that focus on building community. Recently, I learned about Fleet Farming, a company whose team travels the town on bikes converting lawns into gardens.[1] I’ve seen documentaries about urban greenhouses and food hubs, portable shower trucks and tiny-home villages for the homeless, bicycle-pickup compost services, manufacturing furniture with repurposed plastic . . . awesome ideas! As I’m watching, I start wishing that we had these companies in my town. I think to myself, “Who do I know that could do this? What organizations out there could take this project on? Is there a business model that would work here?” This naturally leads to me pondering my role in encouraging social enterprises in our developing cooperative and sharing economy. As a lawyer creating a new niche practice, what can I do to act as a catalyst?  And, when projects start taking shape, what are the ethical liabilities associated with acting as a deal maker and attorney?

Janelle Orsi’s book, Practicing Law in the Sharing Economy,[2] is a great source of knowledge and inspiration, and one of the key points that stood out to me in the early chapters is the need to educate the community on what a cooperative and sharing economy can look like. Building a practice requires communicating your value and drawing people to your services. I know many compassionate and brilliant people making this community better, but due to various circumstances they are stuck in conventional models of adversarial negotiations and top-down hierarchical working relationships. Turning these people into my clients is more than “rainmaking” - it becomes its own form of community building.

As pollinators of this movement, we can emulate what the Sustainable Economies...

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Written by Geoffrey Gilbert, Sustainable Economies Law Center Intern

Navigating the world of investing can be overwhelming, and investment advisers can be a really important asset for investors looking to protect and grow their savings. However, investors looking to put some savings in non-traditional asset classes with a social mission, like local businesses or a worker cooperatives, might have to look beyond investment advisors.

Often, investing in local and democratic economies simply isn’t on an investment adviser’s radar. Investment firms often don’t focus their due diligence on small local businesses or worker cooperatives, and if an investment adviser’s firm hasn’t vetted an investment option, the adviser might not be allowed, by the firm, to discuss it directly with a client. Investment companies and advisors might also be unfamiliar with cooperative business practices, making them uncomfortable with assessing a coop’s financial viability. As a result, many investment advisers, seeking primarily to maximize the risk-adjusted return of their client portfolios, are content to simply recommend investing in a mix of funds that capture traditional asset classes, like U.S. and international stocks and bonds.

While investment advisers might interpret their fiduciary duties as requiring that they maximize the risk-adjusted return of client portfolios above all else, they likely are not restricted by their fiduciary duties from educating clients about socially driven investments and recommending them as investment options. Section 206 of the Investment Advisors Act of 1940 spells out an investment adviser’s four primary fiduciary duties, which effectively prohibit fraud and failure to disclose.[1] Further clarifying an investment adviser’s fiduciary duties, the courts have ruled that investment advisers must disclose self-dealing that affects clients, and the Securities and Exchange...

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Written by Will Pasley

 

My grandfather ran his own small mold making and plastic forming business.  I remember as a child walking through the cavernous machine shop, being amazed at the wide array of machines that each had their own important function.  I was always excited to be there because I love machines and understanding how things work, and also because there was always chocolate.  Each of those machines had a limited function and had to be used in sequence to get the right product.  Because all those machines were needed, the capital cost to produce items was high.

I love to tinker and to build things, I have even entertained the idea of making an aluminum foundry and sand mold set so I can produce aluminum shapes.  But that would take a fair amount of time, and I would have to make the shapes by hand with wood before I could copy them with aluminum.  That is time consuming and I haven’t made the time to do it.  This is why centralized manufacturing has worked so well for 200 years since it is more capital, time, and resource efficient.

3-D printing turns the centralized manufacturing model on its head.  Relatively small machines can be used to produce what it took a whole workshop full of machines to produce.  There are 3-D printers that use a variety of materials and they can vary in size and scale.  I think most importantly, they can create items using only the electronic representation of an idea.  I can draw out a schematic on the computer and a 3-D printer can produce it straight from the raw material in little time.  I think that the future is heading toward a decentralized manufacturing model, and that holds a host of legal problems.

The first and most obvious is that a 3-D printer would make copyright and patent infringement much easier.  I could copy someone’s sculpture with a simple 3-D laser scan of it.  I could produce a...

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Written by Elizabeth L. Carter of Urban Cooperative Enterprise Legal Center

“We've learned how to run a business, and some former inmates now have their own small businesses outside as a result. If you can change the way people think in prison, you can do anything. It is a model for social change."

- Roberto Luis Rodriguez Rosario, prison cooperative member of Cooperative Services ARIGOS.

In Part II of my “Prisoner’s Dilemma” series, I highlighted UCELC’s realization that starting a cooperative inside of prison is both ideal and practical where members naturally come together as a support group and learn to cooperate with one another before they reach instability outside of prison. However, this coming together may not be an option for many prisoners where certain laws prohibit prisoners cooperating with one another. This was the case with the prison co-op Cooperative Services ARIGOS in Puerto Rico. Here, members of the cooperative had to petition the governor and legislature to change the law to allow prisoners to come together and form a cooperative enterprise.[1]

In addition, Cooperative Services ARIGOS found a way to get the prison to agree with them conducting business inside its walls. For instance, the prison granted space to the cooperative and provided it certain services in exchange for 15 percent of the cooperative’s revenue.[2] This engagement turned out to be fruitful for both the cooperative and the prison because the cooperative members received well above the prison wage of $25 a month for every 160 hours worked on a typical prison job and in return, the prison received $10,000 to $15,000 in revenue. Rather, the cooperative members worked for...

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Written by Elizabeth L. Carter of Urban Cooperative Enterprise Legal Center

According to “Prisoner’s Dilemma” in game theory, prisoners must cooperate in order to achieve the best outcome for each. However, that is easier said than done. Cooperation is an intentional act that requires a willingness to be active for a mutual benefit.[1] It essentially requires a rethinking of success where one thinks beyond what is best for the self and towards what is best for the entire group. In the end, cooperation ensures that what is best for the group is also best for the individual, and the individual helps shape the group goal through active participation. So how does a prisoner realize that cooperation brings better results? It seems that this epiphany is only really realized through natural circumstances, such as through years of kinship as seen in the early limited-equity housing cooperatives of New York City where strong tenant associations created the most successful cooperatives. [2] This is also true for the all-prisoner Cooperative Services ARIGOS where the members first started as a therapy group where they were able to get to know one another and find a common ground before forming an intentional community, such as a cooperative.[3] Cooperation naturally served as a rehabilitative tool for these prisoner members and, according to one member, creating crafts on a cooperative basis transformed their lives without them even noticing.[4]

As recognized in Part I of this “Prisoner’s Dilemma” series, a campaign promoting prison cooperatives will require dedicated individuals coming together despite their difficult circumstances inside of a prison.  As difficult as this may sound, it may actually be more practical to create a prison cooperative inside of a prison than a cooperative comprised of only formerly...

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(Image Credit: Kzollman via Wikimedia Commons)

Written by: Elizabeth L. Carter of Urban Cooperative Enterprise Legal Center

Prisoner’s Dilemma in game theory provides that cooperation among the players achieves the best outcome for all participants. Just as the fictitious prisoners found in most renditions of the Prisoner’s Dilemma, the prisoners of Cooperative Services ARIGOS in Puerto Rico also found that it was in every prisoner’s interest to cooperate and create a crafts business that would provide both income and rehabilitation for the prisoner-members.[1] According to game theory, these prisoner-members are successful because they realized the benefit of cooperation for mutual aid and ARIGOS now has fifty members who have been released from prison, and all, but one have successfully re-integrated into society. [2]  

This success story of a cooperative made entirely of prisoners was the motivation behind the Urban Cooperative Enterprise Legal Center (UCELC)’s Prison Industrial Complex and Recidivism Campaign where the founders believe that the cooperative model is the most effective solution at preventing recidivism and prison exploitation, which is quite frankly, a no-brainer. For instance, a prison cooperative allows members to become positively active by using their skills, talents, and passions to become producers of goods and services that they own. Of course, there is an economic benefit to prisoners owning the goods and services that they produce, which is a stark difference from the typical exploitation of prisoners by outside corporations that use prison labor for very little or no wages.[3] However, cooperatives do not just provide legitimate economic benefit to prisoners and the formerly incarcerated. Rather, prison cooperatives provide a healthy, positive...

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Written by Janelle Orsi and Hasmik Geghamyan

Imagine that your client is a charitable or educational organization and their funds have been coming primarily from one source. Assuming they will not meet the public support test for public charity status and the IRS will treat them as an operating foundation, what are the key things we should advise our client about how to run their organization and how to comply with IRS rules?

In truth, funding sources fluctuate. And it is easier to run an organization when you get all of your funding from a few big grants, rather than applying for a multitude of little grants. So will the compliance requirements be burdensome to the organization if they don't meet the public support test?

Private Operating Foundation

If the IRS treats a 501(c)(3) organization as a private operating foundation, the organization will still be subject to most of the rules pertaining to private foundations but will also be treated like a public charity for certain purposes.

A private operating foundation falls somewhere between a private foundation and a public charity (IRC §4942(j)(3)). Private operating foundations are organizations that devote their assets or income to the active conduct of a charitable purpose, rather than making grants to other organization.

Federal Tax Treatment of Private Operating Foundations

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