Written by Richard Gürlich
of GÜRLICH & Co.
Cooperative, and membership of it
A cooperative is a partnership of unlimited (not stipulated in advance) number of persons established for purpose of entrepreneurial activity or securing economic, social or other needs of its members. This is to acquaint the readers with the basic characteristics of the cooperative and provide information about rights and duties and connected questions resulting from the title of membership in the cooperative.
As stated above, the cooperative is a partnership of an unstipulated number of persons established for the purpose of entrepreneurial activity or securing of economic, social or other needs of its members. A cooperative must have at least five members, which is not valid if its members are at least two legal entities. Each cooperative is a legal entity and for by obligation guarantees its whole property. Generally the members of a cooperative do not guarantee the obligation of a cooperative, but the exception may be adjusted in the statutes of a cooperative and meeting of members may then decide about a certain amount of compensation fees for certain members for the coverage of losses of a cooperative.
As far as the name is concerned – commercial firm, it must be included the indication “cooperative”.
The basic capital of cooperative is formed by summation of members´ deposits. The members of the cooperative bind themselves to this. Statutes determine the amount of basic capital of the cooperative that is recorded in Trade Register and has to be at least 50 000 CZK.
Cooperative is managed by its statutory body, the Board and the highest authority is the meeting of the members of the cooperative that may elect and recall the members of the Board, to decide about distribution and utilization of profit or loss, to decide about the transformation, distribution or cancellation of the cooperative, etc.
Simultaneously the law stipulates that members of the Board and Supervisory Board of the cooperative, proxies and the director are not allowed to be entrepreneurs or members of statutory and supervisory bodies of legal entities with similar subject matter of the activity. But this may be adjusted in the statutes.
From the point of view of the difference between a cooperative and a company it is necessary to differentiate the number of its members that is not fixed in the cooperative. It means that in the course of its duration it is possible that further members may enter or leave without the necessity to change the statutes. This allows simple changes to the membership. A leaving member will not influence the cooperative. But if the number of members falls under 5 members or at to at least two legal entities, then the court may cancel the cooperative and order a liquidation.
Types of cooperative
It is possible to differentiate between several types of cooperatives, namely on the basis of the purpose for which they have been established. It is the common entrepreneurial activity of members, support and securing of entrepreneurial activity of members and securing of other needs of members.
The first group is represented by such cooperatives to which their members have gathered for joint entrepreneurial activity. By means of this joint activity the members manage with joint property.
The second group is represented by cooperatives in which the members have gathered, not because of joint entrepreneurial activity, but in order to be supported by these cooperatives materially, by services, financially or otherwise during their own entrepreneurial activities.
The third group is represented by cooperatives in which their members have gathered in order to secure the established cooperative by satisfaction of their social, cultural, educational and other similar needs and interests including similar needs and interest of their families.
It is necessary to point out that in practice the individual types of cooperatives may rather blend together because securing of above mentioned needs may relate to each other.
Housing cooperative – special kind of cooperative
The significant type that does not fall into any of the above stated category is the housing cooperative. Housing cooperatives are such cooperatives for buildings construction which have had financial assistance according to special regulations designated as building housing cooperatives. They are cooperatives established on the basis of law on peoples´ cooperatives and on cooperative organizations and on cooperatives that have originated for the purpose of purchasing the building from the municipality, so called privatised housing cooperatives.
Furthermore, it includes such cooperatives that have been established for the purpose of the construction of houses with flats and, because of eventual transfer of units into ownership of members, so called investor housing cooperatives and cooperatives established for construction and administration of garages.
Membership of the cooperative
Membership of a cooperative is based on the principle of spontaneity, relating to an origin of membership on the basis of free will. It means that this spontaneity in persists in such a relationship.
It is significant that the principle of equality means equality of aspiring members as equal to the position of members during performance of mutual rights and duties of members.
The only allowable difference between members derives from their functions or work engaged within the cooperative.
Origin of membership
Membership of cooperative may originate in connection with the origin of the cooperative, by admission of “pretender” into the membership of the cooperative on the basis of written application for admission, by transfer of membership or by other way stipulated by the law.
Another way is transformation, e.g. merger, eventual division of cooperative, and the situation of so called detachment according to law on the ownership of flats. The intention of the institution was the aim to remedy the situation having occurred as a consequence of the former consolidation of a cooperative, either under pressure from above or directly by the decision of the respective union of cooperatives according to then valid legal regulations.
Membership does not originate before payment of initial investment. The origin may be also stated in the statutes that the membership originates only on the day agreed upon as a day of the origin of a working relationship. Further conditions of membership may be regulated by the statutes of the cooperative.
Extinction of membership
This may be effected only by methods presumed in the law. The law stipulates that the extinction of the membership of a cooperative may be realized by agreement, resignation, exclusion, by death of member, by extinction of cooperative, by date of extinction of legal relationship between the member and the cooperative, transfer of membership or in some other way.
Also it refers to a situation being connected with proceedings against the property of members of a cooperative for satisfaction of debts of its creditors.
This way of extinction is needed for creditors of a cooperative member to enable them to reach the capital participation of such cooperative member. It is due to the fact that only by extinction of membership, the member may claim the settlement of his capital participation in cooperative.
Subject of membership
From the title of membership, members´ cooperative rights and duties are stipulated by law by statutes of the cooperative. Here is stated the right of a member to participate in meetings of cooperative bodies, to vote during meetings of such bodies and to make suggestions, to be voted to such bodies, etc. In this respect it is not possible to marginalize certain obligations, mainly obligation to payoff membership deposits or the obligation of proper discharge of the function in cooperative bodies.
When cooperative becomes extinct its member may claim the settlement amount. It is basically a fragment representing part of capital that indicates the participation of former member in cooperative property. When stipulating the amount of settlement amount account is taken not only of the investment deposited by former member into the cooperative, but also the capital having been increased in consequence of its membership. When stipulating the settlement amount it is arrived at from the property that the cooperative shows in its closing accounts.
Claim for settlement originates from the day of extinction of membership. Claim for its payoff originates after three months from approval of closing of the accounts for the year when membership became extinct.
Transfer of membership
In connection with transfer of membership it is advisable to point out that the rights and duties of members may be transferred to other cooperative member or to a third person. The statutes can determine the detailed conditions under which the transfer may be realized. Transfer to a third person indicates stricter conditions because such transfer has to be approved by the Board.
The acquirer of rights and duties of the member becomes a cooperative member to the extent of rights and duties of transferring member. There is the question whether it is possible to transfer only some rights and duties of the member. Even the law does not make this clear. In practice it will be important to judge if the full-value membership really originates by the transfer. For example the member of a building housing cooperative, whose membership is in relation to rights and duties concerning cooperative flats and cooperative garages, would transfer to another person the rights and duties of member related to only one of the stated functions.
In such a case the transferee obtains a sufficiently wide sphere of rights and duties as a member in order to enable the origin of new independent membership – with only limited extent of rights and duties of a member – it is necessary to point out that the statutes of cooperative may exclude, in certain cases, the transfer of membership or they can also stipulate the cases when the approval of the Board with transfer of membership cannot be refused or such approval is not required.
Special arrangement may be found in the field of cooperative saving banks where according to the Law the membership is not transferable externally but only between members of cooperative saving banks.