Abstract
This chapter aims to provide an analytical and conceptual framework with which to understand cooperative law and undertake comparative investigation of this complex and fascinating area of law. Accordingly, it will not offer a detailed account of positive cooperative law—which, on the other hand, is the principal object of the following chapters of this book—but will rather concentrate on the main terminological and substantial issues that a modern and coherent theory of cooperative law is expected to deal with.
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- 1.
This chapter, especially if read in conjunction with the following chapters of this book, may also serve as a support to lawmakers who wish to introduce or improve cooperative law. To this particular end, however, a more practical and comprehensive text is Henrÿ (2012a). Notwithstanding its relatively long history (see Münkner (1982), p. 15, taking the Prussian Cooperative Societies Act of 1867 as the first law specially made to suit the organizational pattern of cooperative societies, but at the same time admitting: that before that time in England the first cooperatives were registered as friendly societies and as of 1852 as industrial and provident societies; that in France legal provisions were made in 1867 by including a special chapter on companies having a variable capital in the company code; and that in Michigan, USA, a law expressly recognizing cooperatives was made already in 1865; on the evolution of cooperative law, see also Montolio (2011); a historical account of cooperative law is offered in the chapters in part III of this book, normally in their first section), cooperative law is a subject largely neglected by legal scholarship, which results in very few, partial and outdated comparative studies and even in the almost total absence of cooperative legal studies in some countries (even in those characterized by a long and outstanding tradition in law and legal studies, like France: see Hiez 2013). By way of contrast, Germany and Italy (and more recently, but to a constantly increasing extent, Spain) are probably the countries where cooperative legal theory is most developed, at least in Europe. In particular, in Italy, cooperatives are a matter fully dealt with in all genres of legal literature (monographs, commentaries, treaties, manuals, articles and notes, etc.). The location of cooperative law in the civil code of 1942 has certainly contributed to this result.
- 2.
By way of contrast, in the rest of this book, due to its overall objectives, a more descriptive approach will be followed in presenting both national (part III) and international and supranational cooperative law (part II).
- 3.
The International Cooperative Alliance (ICA) is an independent, non-governmental organization established in 1895 to unite, represent and serve cooperatives worldwide. It has 270 member organizations from 97 different countries as of 30 January 2013, thus indirectly representing around one billion individuals worldwide (source www.ica.coop, accessed 19 March 2013). Those included in the Statement of 1995, approved in Manchester, represent the third version of the ICA Principles; the preceding ones were contained in the declarations of 1937 and 1966; as this book will show (in part III), some national cooperative laws still refer to, or incorporate, the 1966 version of the ICA Principles. For a history of the international cooperative movement and the ICA, see, among others, Birchall (1997).
- 4.
ILO Recommendation n. 193/2002 concerning the promotion of cooperatives—which may be found at http://www.ilo.org/dyn/normlex/en/f?p=1000:12100:0::NO::P12100_ILO_CODE:R193, accessed 20 March 2013—revises and replaces (see par. 19, ILO Recommendation n. 193/2002) preceding ILO Recommendation n. 127/1966 on the same subject but with different scope; however, on the relationship between the two recommendations, see amplius Henrÿ (2013a).
- 5.
See in this sense Henrÿ (2013a).
- 6.
This methodology was already applied, although with limited regard to the comparative analysis of European national cooperative laws, in Fici (2013c), pp. 37ff.
- 7.
Still, there are exceptions, which however have not precluded the formation of cooperative-type organizations: see Caroll (2013). Historically, before the enactment of laws on cooperatives, cooperative-type entities were mostly formed by employing a company type and adapting it to their specific needs, something which the law itself explicitly recognized as possible at times (see, for example, articles 219–228 of the repealed Italian commercial code of 1882, mentioned in Fici 2013a).
- 8.
“Cooperative enterprises build a better world” was the slogan of the 193/2012 United Nations’ International Year of Cooperatives, the purpose of which was to highlight the contribution of cooperatives to socioeconomic development, recognizing, in particular, their impact on poverty reduction, employment generation and social integration (see https://www.un.org/en/events/coopsyear/index.shtml, accessed 20 March 2013). On the socio-economic function of cooperatives, see also the Communication from the European Commission COM(2004)18 final, of 23 February 2004, on the promotion of cooperative societies in Europe. Many scholarly contributions highlight the socio-economic importance of cooperatives and their significance for human beings. Cf., among others and more recently, Restakis (2010); Sanchez Bajo and Roelants (2011); Henrÿ (2012a), pp. 16ff., which however emphasizes that “cooperatives cannot—and must not—save the world”, namely, they are “a special type of private enterprise” and not “a panacea for all the evils of this world” (ivi, p. 1). This is perfectly consistent with the approach to cooperatives and cooperative law adopted in this chapter.
- 9.
See infra, sec. 1.2.
- 10.
On the contrary, ILO's; Recommendation n. 193/2002s; first paragraph states: “It is recognized that cooperatives operate in all sectors of the economy”, which is a point several national cooperative laws clarify. The last statement in the text, as correctly pointed out by Henrÿ (2012b), p. 200, “does not overlook the fact that the formation of cooperatives often remains the only ‘choice’ that disadvantaged people have”. This seems to be, however, the consequence not much of a legacy of the past but rather of the very characteristics of this legal form, including the marginal role of capital, the democratic principle of administration, etc. Nearly a century ago, Charles Gide, a pioneer of cooperative theory—after stating that “if the consumers’ society had no other aim but to enable the working classes and the poor to feed themselves better, that would be no small thing”—recognizes that “consumers’ co-operation is not confined to the supply of food stuffs, but is able to extend to all the needs of human life, such as clothing, furnishing, and, above all, housing … And not only to the supply of material needs, but also to intellectual and moral ones …” (Gide (1921), pp. 2–3). Cf. also Gadea et al (2009), p. 32.
- 11.
On the macroeconomic benefits of a pluralistic market where for profit, cooperative and nonprofit, as well as public, enterprises operate simultaneously, see Stiglitz (2009), p. 345; Birchall (2011), p. 13: “diversity is important because it affects the capacity of a society to respond to uncertain future changes”. See also par. 6, ILO Recommendation n. 193/2002: “A balanced society necessitates the existence of strong public and private sectors, as well as a strong cooperative, mutual and the other social and non-governmental sector”; and COM(2004)18 final, of 23 February 2004, cit.: “today the Commission recognizes the rich variety of enterprise forms in the EU is an important element for the EU economy”.
Global data on cooperatives may be found in Birchall (2011), pp. 9ff.; Sanchez Bajo and Roelants (2011), pp. 105ff.
- 12.
This is the methodology found in Hansmann (1996), whose final words are worth mentioning here: “Freedom of enterprise is a fundamental characteristic of the most advanced modern economies. Capitalism, in contrast, is contingent; it is simply the particular form of patron ownership that most often, but by no means always, proves efficient with the technologies presently at hand” (ivi, p. 297). Birchall (2011), p. 31, holds that “it is not possible to explain the presence of [cooperatives] without analyzing their advantages when compared to those of their competitors”. In times of economic and financial crisis, cooperative scholars emphasize the comparative advantage of cooperatives over other legal forms, as a consequence of their distinct identity: see in particular Sanchez Bajo and Roelants (2011), and Birchall and Ketilson (2009); Birchall (2013), pp. 1ff. Cf. also Spear (2000), pp. 507ff.
- 13.
See par. 6, ILO Recommendation n. 193/2002: “Governments should provide a supportive policy and legal framework consistent with the nature and function of cooperatives and guided by the cooperative values and principles set out in Paragraph 3”.
- 14.
“Companization” of the cooperative form is viewed by some scholars as a recent trend in cooperative legislation: see in particular Henrÿ (2012a), pp. 9ff., which divides the evolution of cooperative legislation into two phases: The first marked by distinguishing cooperatives from companies; the other one, starting in the 1970s, approximating them to companies, by unifying special laws applying to different types of cooperatives at national levels, unifying and harmonizing cooperative laws across national borders, and aligning cooperative law with stock company law, especially as far as the matters of capital structure, management and control mechanisms are concerned. Moreover, according to this Author, “The alignment of cooperative law with stock company law goes beyond introducing features of stock companies into cooperative laws proper. It can also be read from the at times indiscriminate application of other rules to cooperatives which were designed for stock companies and which contribute to shaping cooperatives as institutions and/or to defining their operations. … we need generally to look at labor, tax and competition law, (international) accounting/prudential standards, bookkeeping rules, and audit and bankruptcy rules”. Similarly, others speak of “hybridization” (Spear (2010)), and “degeneration” of the cooperative model (Somerville (2007), p. 5, 10).
- 15.
If on the one hand it is true that “a good law cannot be drafted without a clear concept of the subject-matter for which the law is devised” (so Münkner (1974), p. 19), on the other hand law itself significantly contributes to the definition of the subject matter and the circulation of the concept thereof. It is not to hold a pan-legal view of the reality, but only to point out the role of law in shaping and interpreting the reality.
- 16.
See Court of Justice of the European Union, 8 September 2011 (C-78/08 to C-80/08), currently available at http://curia.europa.eu/juris/liste.jsf?language=en&jur=C,T,F&num=C-78/08&td=ALL, and amplius on this point Fici (2013b).
- 17.
See Henrÿ (2012a), p. 40f., which highlights the following: The existence of a cooperative law is a necessary, though not a sufficient, condition for getting a cooperative policy to work; the rule of law is a fundamental element in the new approach to development, which emphasizes respect for human rights; national laws are a necessary means to implement public international cooperative law, of which ILO R. 193 forms the nucleus; in international cooperation and among global economic agents, law is used in an ever-increasing manner as a means of information and communication, namely, law is a reference point and a guideline; law bridges the gap between the complexity of social life and the definition and attribution of various roles in society, on the one hand, and the knowledge, or rather the lack thereof about technology and social issues required in order to understand these complexities, on the other; law is a suitable and tested means to represent and maintain a just balance between the autonomy of the cooperators and the cooperatives, on the one hand, and the powers of the state, on the other; and law is a means to transform informality into formality.
- 18.
The economic theory of cooperatives is vast. Extensive surveys of the literature, as well as ample bibliographic references, may be found in Bonin et al. (1993), pp. 1290ff.; Kalmi (2003); Mazzarol et al. (2011). See also, recently published articles in the Journal of Entrepreneurial and Organizational Diversity (JEOD), available at www.jeodonline.com.
- 19.
To give but an example, moreover of a supranational flavor, the regulation of the European Cooperative Society (on which see specifically Fici 2013b) is contained in a text divided into eight chapters, which are: general provisions; formation; structure; issue of shares conferring special advantage; allocation of profits; annual accounts and liquidated accounts; winding-up, liquidation, insolvency and cessation of payments; additional and transitional provisions. Henrÿ (2012a), pp. 63ff., distributes the main contents of an ideal model of a general cooperative law between the following sections: preamble; general provisions; formation and registration; membership; organs/bodies and management; capital formation, accounts, surplus distribution and loss coverage; audit; dissolution; simplified cooperative structures; horizontal and vertical integration; dispute settlement; miscellaneous.
- 20.
On the supplemental application to cooperatives of the law of companies or other entity types, see immediately below in the text.
- 21.
On the other hand, a point treated in all the chapters in part III of this book (usually in their eleventh section) is cooperative taxation.
- 22.
See, above all, the “double track” model of cooperative legislation described in following sec. 1.7.
- 23.
Cf. Kraakman et al. (2009), p. 18f.
- 24.
Discrimination would be unlawful on several grounds, such as the principle of equal treatment and freedom of enterprise and competition, as well as public international law, i.e., ILO Recommendation n. 193/2002 (see supra, sec. 1.1). To help avoid such illegal treatment of cooperatives as compared to other business organizations, some cooperative laws explicitly state, in their opening provisions, that cooperatives are free to conduct any economic activity and operate in any sector of the economy. See, for example, art. 1, par. 2, of the French cooperatives act n. 47-1775 of 10 September 1947: “Les coopératives exercent leur action dans toutes les branches de l’activité humaine”; art. 1, par. 2, of the Spanish cooperatives act n. 27/1999 of 16 July 1999: “cualquier actividad económica, lícita podrá ser organizada y desarrollada mediante una sociedad constituida al amparo de la presente Ley”; art. 7, par. 1, of the Portuguese cooperative code: “desde que respeitem a lei e os princípios cooperativos, as cooperativas podem exercer livremente qualquer actividade económica.” This point is treated in the chapters in part III of this book (usually in their fourth section).
- 25.
A prominent example of this model is represented by the German act on cooperatives of 1889 although, even in this jurisdiction, some rules applicable to cooperatives may be found in other instruments such as the law on conversion of 1994/1995: see Münkner (2013). The cooperative code is the distinguishing feature of the Portuguese legal system, together with the numerous references to, and the special protection of cooperatives in the Constitution. Notwithstanding the code, however, in the Portuguese jurisdiction, there is a considerable amount of special laws on particular types of cooperatives: see Namorado (2013). The UK legislation on cooperatives provides a yet more particular example, as an administrative authority (the Federal Conduct Authority—FCA) is entrusted with the definition of a bona fide cooperative (i.e., a genuine cooperative) and only few explicit indications as to what a bona fide cooperative should or must be, are found in the applicable law (i.e., the Industrial and Provident Societies Act—IPSA of 1965, to be renamed the Co-operative and Community Benefit Societies and Credit Unions Acts 1965–2010 when sec. 2 of the Co-operative and Community Benefit Societies Act 2010 is brought into force): see Snaith (2013).
- 26.
This model can be found, for example, in Italy, where notwithstanding the fact that cooperatives are regulated in the civil code, there are other laws dealing with general aspects, such as investor members, consortia of cooperatives, and cooperative auditing: see Fici (2013a). Another example is Austria, where the general act on cooperatives of 1873 is complemented by an act on cooperative auditing, another on the merger of cooperatives, and yet another on cooperative insolvency: see Miribung and Reiner (2013).
- 27.
The general regulation of cooperatives is found, for example, in the Italian and in the Netherlands civil codes, in the Czech and in the Slovakian commercial codes, in the Belgian company code, in the Liechtenstein natural persons and company act.
- 28.
See, e.g., Australia, Canada, India, Spain, and United States. With regard to the Spanish jurisdiction, significantly Gadea et al (1009), p. 62, points out that the fragmentation of cooperative law in Spain, due to distribution of competences between the State and the Autonomies, is potentially harmful for cooperatives competing with capitalistic enterprises which, in contrast, enjoy a uniform treatment under State law.
- 29.
This point is treated in the chapters in part III of this book, normally in their second section. In Japan a general law on cooperatives does not exist, but several special laws: see Kurimoto (2013). In the Republic of Korea, a general law on cooperatives was introduced only in 2011 and now co-exists with several special laws: see Jang (2013). In China there is only a law on farmer specialized cooperatives: see Ren and Yuan (2013).
- 30.
See Henrÿ (2012a), p. 59f., which refers to a trend towards having one single general law covering all types of cooperatives, possibly with specific parts/chapters for specific types of cooperatives/activities, because this should best guarantee the autonomy of cooperatives, diminish bureaucracy, avoid the fragmentation of the cooperative movement, contribute to legal security for those dealing with cooperatives, be the most adequate tool, in the context of development constraint, to reach congruency between development-oriented, member-oriented and self-sufficiency goals of cooperatives. On this point see also the 2001 United Nations Guidelines aimed at creating a supportive environment for the development of cooperatives, at paragraphs 11 and 12, in http://www.un.org/esa/socdev/social/documents/AnnexE200168.pdf, accessed 25 March 2013.
- 31.
Being contained in laws that are “special” with respect to the “general” cooperative law, the provisions of a special cooperative law should prevail over those of the general cooperative law, which should apply to special cooperatives only additionally and residually, i.e., to fill the gaps left by the special law and moreover to the extent that they are compatible with those of the special law. This is explicitly stated, for example, by art. 2520, par. 1, Italian civil code.
- 32.
France is probably the most remarkable example in this regard. See Hiez (2013).
- 33.
This corresponds, for example, to the Italian model, although in Italy the special regulations are not provided by a single act, but contained in distinct acts: see Fici (2013a).
- 34.
As in companies there is a sole type of relationship between the legal entity and its members (the organizational relationship which derives from the contribution of capital, even if members’ motivations for contributing capital may differ) and the nature of members and of the output are generally irrelevant.
- 35.
See Kraakman et al. (2009), p. 17. On the importance of this point from a regulatory point of view, see Report of the Reflection Group on the Future of EU Company Law (Brussels, 5 April 2011) http://ec.europa.eu/internal_market/company/docs/modern/reflectiongroup_report_en.pdf, accessed 25 March 2013.
- 36.
It must noted, however, that normally cooperative law explicitly establishes that the supplemental application to cooperatives of company law may take place only to the extent that it is compatible with the specific nature of cooperatives or with the principles of cooperative regulation. On the other hand, as Ian Snaith opportunely points out, “while certain differences between company law and cooperative law are necessary for the protection of cooperative identity, others, such as the example of insolvency rescue procedures, simply reflect a failure to update the law applicable to cooperatives which results in obstacles for societies when they operate as businesses in the market place” (see Snaith (2013)).
- 37.
This is the case of Italy, for example.
- 38.
This is probably the case of UK.
- 39.
In Portugal, for example, notwithstanding cooperatives are referred to by law simply as “cooperatives”, and moreover are regulated in a cooperative code, the law of companies may additionally and residually apply to cooperatives provided that it is compatible with the cooperative principles (see art. 9 of the Portuguese cooperative code of 1996).
- 40.
See Kraakman et al. (2009), pp. 20ff., also for references to the existing literature on this intriguing subject.
- 41.
See infra, sec. 1.6.1.
- 42.
But see Henrÿ (2012a), p. 104, which argues that “globalization and an adequate assessment of the comparative advantages and disadvantages of enterprise types are facilitated by the harmonization of cooperative laws. Harmonization requires cross-border comparison, not only of the existing legal rules, but also of the principles underlying them. Also national and regional law reforms require comparing, as lawmakers may not experiment and hence must rely on foreign experience. It is however essential to avoid past mistakes which consisted often in unreflected transfers of legal know-how. More than before, the art of the legislators will consist in harmonizing laws without confusing laws with law and without confusing law with Law. The search for cooperative laws which better reflect the cultural diversity within countries and across borders is a challenge. It is a delicate task because it could be understood as going against globalization and it could run the risk of causing cooperative movements to disintegrate by giving away too many of their common features. But, the choice is not between a unitary system and cultural diversity. The choice is cultural diversity in human unity”.
- 43.
See the chapters in part II of this book.
- 44.
Hansmann and Kraakman (2000), pp. 386ff. As the Authors explain, “essential” means that for aspects of organizational law other than asset partitioning, workable substitutes could be found elsewhere in the law (ivi, p. 437).
- 45.
Hansmann and Kraakman (2000), p. 393f.
- 46.
Hansmann and Kraakman (2000), p. 394f.
- 47.
Hansmann and Kraakman (2000), p. 397.
- 48.
This point is dealt with in the chapters in part III of this book, usually in their fifth or seventh section. For example, Italian cooperative law awards legal personality to registered cooperatives (arts. 2523 and 2331 of the Italian civil code), and explicitly stipulates that “only the cooperative with its assets is liable for its obligations” (art. 2518 of the Italian civil code) and that “personal creditors of the member may not levy execution on its share or stocks, as long as the society is in existence” (art. 2537 of the Italian civil code). Italian cooperatives are therefore, no doubt, “strong-form legal entities” according to Hansmann and Kraakman’s taxonomy.
- 49.
To be sure, the Authors add that “liquidation protection from the individual owners themselves” (which involves the right to withdraw) is a third element of asset partitioning which generally characterizes those entities in which asset partitioning comprises the element of priority of claims and liquidation protection from personal creditors of the entity’s owner (“strong-form legal entities”): see Hansmann and Kraakman (2000), p. 435. Indeed, as regards cooperatives, cooperative law is more liberal with respect to withdrawal rights of members, as in many jurisdictions an ample interpretation of the “open door” principle may be found, which also regards member exit from the cooperative. However, this does not alter the conclusion in the text, namely, that providing for (a strong type of) asset partitioning should not be considered an essential function of cooperative law.
- 50.
Hansmann and Kraakman (2000), p. 435f., and see ivi fn. 77 for explanation.
- 51.
Admittedly, a different conclusion might regard social or general interest cooperatives if one shares a certain view of them, as will be pointed out later in the text. Obviously, if social cooperatives are meant to belong to the category of nonprofit organizations, an essential function of social cooperative law would then be that of providing for the non-distribution constraint (or at least, for a weaker form of it).
- 52.
See Council Regulation (EC) n. 2157/2001 of 8 October 2001 on the Statute for a European company (SE). It is also worth mentioning, in this specific regard, current company law in Peru, which, unlike the former law on this matter, does no longer connect a company to a profit making purpose, but simply to the conduction of business activity (see Torres Morales (2013)). In contrast, in some jurisdictions, the purpose of distributing profits to shareholders is explicitly assigned to companies (see, for example, art. 2247 of the Italian civil code), and it is therefore debated whether a company without a profit distribution purpose might be established, at least in the absence of a special law explicitly providing for this possibility (see for the Italian debate Marasà (1984)).
- 53.
See art. 1, par. 3, and art. 65ff., Council Regulation (EC) n. 1435/2003 of 22 July 2003 on the Statute for a European cooperative society (SCE), and Fici (2013b).
- 54.
In this regard I borrow the use of the term “neutral” from Santini (1973), pp. 151ff.
- 55.
In this sense Kraakman et al. (2009), p. 1.
- 56.
This is also consistent with the enactment in some jurisdictions of laws on “social enterprises” which recognize as social enterprises (also) companies without a lucrative aim, of course provided that they met additional requirements (see Italian legislative decree n. 155/2006 and the UK regulation on the Community Interest Company—CIC, on which some references may be found in Snaith (2013)).
- 57.
This should serve as a warning in the debate on the introduction of a cooperative law in those countries that still lack it, as Ireland, for example. See on this point, also for references, Fici (2013c), p. 52.
- 58.
See supra, sec. 1.1 and fns. 11 and 12.
- 59.
In these terms Kraakman et al. (2009), p. 22.
- 60.
Cf., among others, Sanchez Bajo and Roelants (2011), pp. 101ff.
- 61.
Cf., also for references, Zamagni (2005), pp. 31ff.; Borzaga et al. (2009), in www.ssrn.com.
- 62.
On the possible enabling function performed by mandatory rules, in a similar way to default rules and in a context of plurality of legal forms and freedom of choice among these forms, see Kraakman et al. (2009), p. 22.
- 63.
The reference in the text is to Hansmann and Kraakman (2000–2001), p. 439, which predicts the “end of history”, for corporate law taking the ideology of shareholder primacy, shared by all major jurisdictions, as the definite push toward similar rules of corporate law and practice worldwide. It argues that “the bulk of legal development worldwide will be toward a standard legal model of the corporation”, although not excluding the possibility that in some cases jurisdictions may converge on inefficient rules. In turn, the title of the Hansmann and Kraakman’s contribution echoes the well-known Fukuyama’s book of 1992.
- 64.
On the importance of cooperative identity as a starting point for comparative research in the field of cooperative law, see Fajardo et al. (2012).
- 65.
This does not exclude that in some jurisdictions not-for-profit entities might explicitly be banned from running an enterprise, while in other jurisdictions the law of not-for-profit entities might be silent about the activity a not-for-profit entity is permitted to conduct, which may be interpreted in different ways, either as allowing all types of activities or allowing only those not explicitly referred to for-profit entities.
- 66.
Therefore, what qualifies nonprofit entities is the “non-distribution constraint”, and not the fact that they are barred from earning profits, as correctly pointed out by Hansmann (1996), p. 17f., according to which, therefore, a nonprofit entity’s members cannot be considered “owners” since they lack the right to appropriate the firm’s residual earnings, which, together with the right to control the firm, is an essential element of ownership.
- 67.
This is true in principle, as in theory the pursuit of the general interest may also be compatible with the nonprofit entity acting, though not exclusively, with and for its members, inasmuch as these members pertain to the category of beneficiaries by satisfying the needs of whom the nonprofit entity is meant to pursue an altruistic or general interest purpose.
The qualification of a purpose as “altruistic” does not necessarily entail a positive evaluation of this purpose in terms of social or general welfare. “Altruistic” here is just opposed to “internal”. An altruistic purpose may well have or not have a positive impact on the society and the community, which depends on many factors, notably the nature of the beneficiaries and of the interests served by the not-for-profit entity.
- 68.
What has been stated in the text does not rule out the possibility to have other, non-cooperative, legal entities pursuing a mutual purpose, which is however an issue that this chapter will not specifically address.
- 69.
Think, for example, of a company that on a voluntary basis decides to allocate a not irrelevant part of its annual profits to practices of so-called corporate social responsibility (CSR).
- 70.
Example includes, among others, the “social enterprise” company, which may be set up under Italian law n. 155/2006 on social enterprise (on which, also for a comparative analysis, see Fici (2009), pp. 77ff.), the UK community interest company (CIC) and the low-profit limited liability company (L3C) available in some US states (on which see Brakman Reiser (2011)).
- 71.
At the same time, it is widely accepted that before the Rochdale Society, and not only in the UK, other cooperative-like entities existed already. Rochdale became the home of modern cooperation mainly due to the adoption and formalization by the Society of specific rules of conduct, which definitely contributed to its success and then inspired the cooperative movement and the ICA in the formulation of the cooperative values and principles. Quotations are countless: It may suffice to mention here Gide (1921), pp. 13ff.; Fauquet (1951), pp. 57ff.; Digby (1948), pp. 9ff.; more recently, among others, Birchall (2011), p. 6; Sanchez Bajo and Roelants (2011), p. 115. See also, for basic information, http://www.rochdalepioneersmuseum.coop/.
- 72.
For the readers’ convenience, I reproduce here the “objects” of the Society as found at http://www.rochdalepioneersmuseum.coop/about-us/1844-rule-book: “The objects and plans of the Society are to form arrangements for the pecuniary benefit, and improvement of the social and domestic condition of its members, by raising a sufficient amount of capital in shares of £1 each, to bring into operation the following plans and arrangements:
-
The establishment of a store for the sale of provisions, clothing, etc.
-
The building, purchasing or erecting of a number of houses, in which those members desiring to assist each other in improving their domestic and social condition may reside.
-
To commence the manufacture of such articles as the Society may determine upon, for the employment of such members as may be without employment or who may be suffering in consequence of repeated reductions in their wages.
-
As a further benefit and security to the members of this Society, the Society shall purchase or rent an estate or estates of land, which shall be cultivated by the members who may be out of employment or whose labor may be badly remunerated.
-
That as soon as practicable the Society shall proceed to arrange the powers of production, distribution, education and government, or in other words, to establish a self-supporting home colony of united interests, or assist other societies in establishing such colonies.
-
That for the promotion of sobriety, a temperance hotel be opened in one of the Society’s houses as soon as convenient.
To note that in the list of objects found in Gide (1921), p. 16f., and which this Author reproduced from the Pioneers’ Almanack of 1854 (see ivi, p. 16, fn. 2), there are small formal differences, and the first object mentioned above—namely, “The establishment of a store for the sale of provisions, clothing, etc.”—does not appear.
-
- 73.
This point is usually treated in the third section of the chapters in part III of this book. See also the chapters in part II for information on supranational cooperative law.
- 74.
The ICA Principles are not so precise in this regard. They certainly regard a cooperative as an organization acting (mainly) in the interest of their members (see the definition), but do not delineate the concept of cooperative enterprise with the members, although they refer to cooperative members as “users” of the “services” provided by the cooperative (1st principle) and speak of “member transactions” with the cooperative (3rd principle).
Cooperatives are legal entities that run an enterprise, therefore they are business organizations. Consequently, organizations set up or conceived by law for carrying out a non-entrepreneurial activity (e.g., awarding grants, providing free services, etc.) might never be considered cooperatives.
- 75.
A “mutual purpose” is explicitly referred to cooperatives, for example, in Italian law (see art. 2511, Italian civil code, and Fici 2013a).
- 76.
On the necessity to identify the purpose of cooperatives by referring not only to their final aim but also to the way in which this aim is pursued, cf. Digby (1948), p. 7: “there is … something more precise which distinguishes co-operative from other business activities, something which belongs partly to end and partly to means”.
- 77.
Notwithstanding they act in the interest of their members, cooperatives, however, are not entirely “inward” oriented, as will be highlighted in following sec. 1.4.2.4. More radically, cooperatives that do not act (mainly) in the interest of their members but in the general interest are also found in cooperative legislation (see sec. 1.4.2.5).
- 78.
Or “cooperative business”, see Fauquet (1951), p. 95.
- 79.
This may also be expressed by the distinction between a “profit undertaking” and a “service undertaking” as conceptualized by Fauquet (1951), pp. 88ff.
- 80.
In the non-legal literature, this tri-partition is employed, among others, by Birchall (2011), p. 3f.
- 81.
In fact, worker cooperatives might be correctly considered a subtype of producer cooperatives where labor is the factor of production supplied by the members to the cooperative, and in some countries, indeed, the formula “producer cooperatives” is used to refer to cooperatives formed by workers and aiming at providing jobs to them. The choice to consider them separately is due to the special problems of regulation that worker cooperatives raise in light of the particular factor of production provided by the members, that is, labor. On the other hand, producer cooperatives could also be considered a type of consumer cooperatives, to the extent that acquiring goods or services from the members is considered the service that the cooperative provides to its members.
- 82.
This corresponds to a cooperative practice and is moreover a possibility envisaged by some cooperative acts: see, e.g., art. 4, par. 2, of the Portuguese cooperative code; art. 105 of the Spanish cooperative act; art. 2513, par. 2, of the Italian civil code.
- 83.
However, this does not exclude, as we shall see, that cooperative members can/must also contribute capital and therefore hold “shares” of the cooperative capital.
- 84.
Cooperative law normally requires a minimum number of members to establish a cooperative. A trend may be observed in cooperative law to reduce this minimum number, which in Europe for example is currently of three members on average. Strikingly, in some jurisdictions, the introduction of a cooperative with a single member is under discussion (see Henrÿ (2013b); but see also van der Sangen (2013), pointing out that under Dutch law a cooperative can survive with one single member), which seems a contradiction in terms, as cooperatives unlike companies cannot be viewed as mere instruments to separate a patrimony and moreover cannot by definition be controlled by a single person (see infra, sec. 1.6.2). On the other hand, there is no reason why a cooperative should have a higher number of members than a company, at least under general cooperative regulation, because special acts on particular types of cooperatives might duly provide for a higher minimum number (e.g., in cooperative banks).
- 85.
Cooperatives are, therefore, made up of user-members. To protect this profile, cooperative law usually allows cooperative by-laws to provide for requirements for obtaining and maintaining the status of member. Accordingly, as we shall point out (see sections 1.5.1. and 1.6.3.), the circulation of the status of cooperative member is not free as the circulation of company shares usually is. Cooperatives, unlike companies, are therefore normally characterized by intuitus personae. On the other hand, the admissibility of non-user members, including investor members, in a cooperative is a controversial issue, differently solved by national cooperative laws: see infra, sec. 1.5.3.
- 86.
See Münkner (1974), pp. 31ff.; Münkner (1982), p. 52; Münkner and Vernaz (2005), p. 140, according to which: “Some scientists of cooperative theory see this principle as the most important characteristic feature distinguishing cooperatives from other forms of organization. It means that as a matter of principle the supporters (shareholders and decision-makers) and the users of the services of the cooperative enterprise … are the same persons, i.e. are identical”. This should also explain the qualification of cooperatives as “self-help organizations” (see ICA Statement under “values”), given that they are established by members to satisfy their common needs. However, this formula seems too generic as all organizations, including companies, are established to satisfy member needs (in case of companies, to invest their capital), although, of course, the nature of a member’s needs in companies and in cooperatives is different, which, among other things (members’ joint control, democracy, “outward” orientation as a consequence of the “external” allocation of own resources, etc), contributes to determining the “social function” of cooperatives as compared to companies (on this point see infra, sec. 1.4.2.4).
- 87.
Hansmann (1996), p. 11f.
- 88.
Hansmann (1996), p. 11.
- 89.
- 90.
Accordingly, at a Conference recently held in Venice in March 2012, Henry Hansmann gave a presentation with the evocative title of Nearly All Firms Are Cooperatives, where he reduced all firms, save nonprofit ones which do not have owners, to the concept of cooperative.
- 91.
By way of contrast, Hansmann (1996), p. 14, holds that members’ contribution of capital are, in effect, loans, although the fact that the fixed interest rate paid on loans from lender-members is typically set at zero obscures this fact.
- 92.
The role of the enterprise is, therefore, diverse in cooperatives and in companies. As Charles Gide puts it, “it is only in co-operative association that production is organized solely with the view of satisfying needs” (Gide (1921), p. 12), whereas in companies, production is a means for making profits. In his famous article concluding for the absence of any difference between cooperatives and companies from an economic point of view, even Pantaleoni (1898), p. 208, admits that “at most, the difference that exists between a cooperative and a different type of enterprise is the same as that which exists between a person who directly produces what he needs, and a person who produce that indirectly for himself, namely, by exchanging a product in the manufacturing of which he specialized” [translation by author]; although, admittedly, in this article this conclusion is limited to consumer cooperatives and explicitly refused for producer cooperatives: “They have to sell their products to the public. And this breaks off any further discussion” [translation by author] (ibidem). See also Birchall (2011), p. 2, giving the same emphasis as in the text to the fact that cooperatives are owned by those who benefit directly from its activities; and Fauquet (1951), pp. 88ff.
- 93.
Or, if one wants to adopt a slightly different view shared by some jurisdictions, one must state in a partially different way that the relationship between the cooperative and its members comprises both an organizational relationship and an exchange relationship.
- 94.
“Cooperative act” is a term and a concept diffuse in the Latin American legal environment, although it may also be found in the Spanish jurisdiction where, more precisely, reference is made to the “cooperative activity” (actividad cooperativizada) (see Fajardo 2013). These transactions are termed “mutual relationships” in the Italian legal system (see Fici 2013a). In the German legal scholarship, they are known as “purpose transactions” (Zweckgeschäft) as opposed to “counter-transactions” (Gegengeschäft), i.e., “transactions necessary to make purpose transactions possible, e.g. in the case of consumer cooperatives, purchasing goods from wholesalers or producers in order to sell them to members, and in the case of marketing cooperatives, selling the products of the members to wholesalers. Such counter-transactions are by their nature usually transactions with non-members in a broader sense and are not relevant in the discussion of whether or not business with non-members is allowed” (in these terms, Münkner (2013)).
- 95.
See art. 15, par. 2, lit. b, of the Spanish cooperative act, which stipulates the members’ obligation to transact with the cooperative to the minimum extent provided for by its by-laws. However, as Gide (1921), p. 63, warns—“the loyalty of members is a matter of education, not of coercion”. Binding and uniform agreements between a farmer cooperative and its members, which award the cooperative the power to define quantity, quality and other terms of the exchange relationships, are one of the attributes of the so-called “new generation cooperative” model (see Chaddad and Cook (2004), p. 355; more recently, Chaddad (2012), p. 456).
- 96.
See art. 2516 of the Italian civil code.
- 97.
In the sense that in jurisdictions where these transactions are seen as “cooperative acts”, their being subject to ordinary contract or labor law should be excluded, given that these cooperative acts are not “contracts” or “labor relationships” but “cooperative acts”. On the other hand, in jurisdictions emphasizing the double quality of cooperative members, as members of the organization and users of the cooperative enterprise, it is more probable that cooperative transactions are considered, at least residually and additionally, subject to ordinary contract and labor law.
- 98.
Gide (1921), p. 49f., which goes on to mention German law in force at that time prohibiting it under severe penalties.
- 99.
Gide (1921), p. 50, which however explains that the Society adopted, as an ingenious rule, the method of giving the non-members a bonus or dividend at half the rate of that returned to members, placing the surplus in the reserve fund.
- 100.
This point is usually treated in the third or fourth section of the chapters in part III of this book.
- 101.
In some jurisdictions, this is an obligation only under tax law, which means that under organizational law cooperatives may freely act with non-members, which is not a sound solution in principle, on the basis of the arguments put forward in the text. In other jurisdictions, where a minimum of mutuality is required for all cooperatives, the different degree of mutuality only affects the tax treatment of cooperatives. A very meticulous identification of the limits within which activity with non-members is permitted may be found in Japanese law: see Kurimoto (2013).
- 102.
Which, however, is a solution that makes sense only if these reserves are indivisible also upon dissolution, because otherwise members would equally profit from non-member transactions although at a later stage, i.e., at cooperative dissolution.
- 103.
Which, however, is a solution that does not transmit adequate incentives to non-members to become members, unless of course they are specifically interested in holding governance rights.
- 104.
See art. 3 of Law 47/1775. See also art. 23 of Mexican general cooperative law of 1994 and Gide (1921), p. 52.
- 105.
Explicitly in this sense art. 45 of the Italian constitution.
- 106.
A prominent example is represented by the Portuguese constitution, which presents a considerable amount of provisions on cooperatives and their promotion by the State. References to cooperatives and a State’s obligation to promote them are very common in the Constitutions of Latin-American countries. See also the recent 97th amendment to the Indian Constitution, making the establishment of cooperatives a fundamental right of citizens.
- 107.
See for references fn. 8 above. It is also worth noting that the law of the Republic of Korea obliges the central government to designate a Cooperatives Day ad a Week of Cooperatives every year: see Jang (2013).
- 108.
The 5th ICA principle is relevant in this regard as it includes non-members among the potential beneficiaries of education and training and the general public of information campaigns; the 6th ICA principle inasmuch as it foresees a sort of solidarity among cooperatives; and the 7th because it explicitly envisages the use of resources in favor of the community.
- 109.
On the social function of cooperatives see Fici (2009).
- 110.
In which case, those who deny the cooperative difference, especially on the basis of the fact that cooperatives, like companies, promote the economic interest of members, their “egoism”, such as Pantaleoni (1898), would not be mistaken.
- 111.
See, in this sense, Hansmann (1996), p. 17.
- 112.
See supra fn. 70.
- 113.
Admittedly, the UK community benefit society, as currently provided for by IPSA 1965, has a longer history than the Italian social cooperative of 1991. However, the community benefit society is not a cooperative in the strict sense, since the law does not require it to have a cooperative structure and moreover conceives it as an alternative to the bona fide cooperative (a society may be registered under IPSA 1965 either as a bone fide cooperative society or as a community benefit society). In fact, it is a controversial issue whether community benefit societies–or BenComs, as they are usually referred to–must operate on a one member, one vote basis. The author is grateful to Michael Cook from the Federal Conduct Authority-FCA and Ian Snaith for having provided him with more details on this point, which however it is not possible to present and discuss in this chapter.
- 114.
Admittedly, this is a conclusion that may partially vary depending on the jurisdiction concerned. In particular, while in some jurisdictions it is clear that social cooperatives, or similar, must exclusively pursue the general interest, in other jurisdictions social cooperatives, or similar, are more precisely conceived as cooperatives acting mainly (but not exclusively) in the general interest, which means that they can benefit their members, although this must not be their primary objective.
- 115.
Examples include Finnish act n. 1351/2003, the already mentioned Italian act n. 155/2006 and the UK CIC regulation.
- 116.
For example, the governance structure of a general interest cooperative should be designed by law in coherence with its purpose which is external in character, e.g., by giving voice to beneficiaries who are not members or, more in general, to representatives of the community within which the cooperative operates.
- 117.
Depending on the type of entity and on the jurisdiction, these contributions may be of a different nature, provided that they are assets capable of economic assessment.
- 118.
Admittedly, this function of the capital in companies is debated among legal scholars (see Macey and Enriques (2000–2001); and Kraakman et al. (2009), p. 130f., also for more references), and in effect, even in the regulation of public companies this minimum amount is in some jurisdictions so low that admittedly the capital may hardly be attributed this function. In addition, the requirement of a minimum capital may be meant to play the diverse function of ensuring the financial stability and viability of the entity, which perhaps may be the case for cooperative law.
- 119.
As for creditors of the company, it is self-evident that reductions in the amount of the capital may undermine their rights. As for shareholders, variations in the amount of the capital may affect their ownership rights given that they depend on the proportion of shares held (see on this point Kraakman et al. (2009), p. 192f.).
- 120.
The original rules of conduct as published in the Pioneers’ annual almanac (and found at http://www.rochdalepioneersmuseum.coop/about-us/the-rochdale-principles) included: “That capital should be of their own providing and bear a fixed rate of interest”. In the 3rd ICA principle, entitled “Member Economic Participation”, it is stated that “Members contribute equitably to … the capital of their cooperative” and “receive limited compensation, if any, on capital subscribed as a condition of membership”.
- 121.
This may suffice to clarify that the cooperative, and not the members, is the owner of the capital. Members, in contrast, hold shares of the capital, which they receive in exchange for their contributions to the formation of the cooperative capital. The possibility for the members to become owners again of their contributions depends on the regulation of member exit from the cooperative and of the devolution of residual assets upon cooperative dissolution.
- 122.
In which case, the particular dual nature of cooperative members, as members of the organization and users of the cooperative enterprise, would not be compromised, as in theory membership could be linked to elements other than capital contribution, for example, the very participation in cooperative transactions. For a different opinion, see Münkner (1982), p. 98f., according to which “membership and minimum share capital contribution cannot be separated. Every member has to make a financial contribution.… This link of membership and minimum share contribution is the reason why variable membership also means variable share capital”. To note, in addition, that the absence of capital is a distinguishing features of “mutuals”, which for the rest are not different from cooperatives. A cooperative legislation excluding the necessity of the cooperative capital would almost dissolve the difference between cooperatives and mutuals.
- 123.
Like, for example, that in art. 3(2) of the SCE Regulation, which stipulates a minimum amount of €30,000.
- 124.
A different issue is whether a cooperative can raise additional capital by issuing new shares to be subscribed by its existing members, and how this matter should be regulated in consideration of the interests involved.
- 125.
See infra, sec. 1.6.3.
- 126.
See Münkner (1982), p. 96. It must be underlined that capital variability does not per se imply that third parties have a right to be admitted to membership and that members may freely withdraw from the cooperative, which in fact depends on how the admission of new members and member withdrawal are regulated. Furthermore, the admission of new members and the exit of existing members are matters that cannot be put at the same level, as they have partially different justifications and raise different questions: see infra, sec. 1.6.3.
- 127.
For the same conclusion cf. Fajardo (2012), p. 12, in www.ssrn.com, according to which: “Variability of share capital is not an essential feature of cooperatives but is a legal instrument that encourages voluntary and open membership”.
- 128.
See infra, sec. 1.6.1.
- 129.
See art. 3(2) of the SCE Regulation (already mentioned in fn. 123) and art. 390 of the Belgian Company Code, which requires a minimum amount of €18,550. Other cooperative laws require (not really a minimum capital but) a minimum contribution by members, which however is usually very low.
- 130.
For references to this debate, see supra fn. 118.
- 131.
See also Fajardo (2012), p. 4.
- 132.
As pointed out more than 90 years ago by Gide (1921), p. 85, with the intention to dissipate the mistrust of capital, “… as long as capital has neither the right of control nor a share in the profit, its domination is hardly to be feared, and the desire for protection against its encroachments seems almost fantastic”.
- 133.
A sound cooperative method to raise capital by additional financial contributions by members is to provide for in the cooperative by-laws that members must subscribe capital in proportion to their use of the cooperative enterprise, i.e., depending on how much they consume from, provide to, or work with their cooperative: see Münkner (1982), p. 100. It must be pointed out, however, that if capital subscription were the measure of member participation in the cooperative business and not the reverse (i.e., members who participate more must provide more capital), the cooperative would operate in contrast to the principle of equal treatment of members regardless of the capital provided. This operational mode raises, therefore, a serious issue in terms of cooperative identity, as it considerably approximates cooperatives to investor-driven business organizations (it may be found in the “new generation cooperative” model: see for references fn. 95).
- 134.
As Münkner (1982), p. 95, puts it, “the co-operative society [is] a group of persons in which the personal participation of the individual members is more important than their capital contribution”. See also Gide (1921), p. 78f., according to which “it is obvious that this right [to approve or disapprove of the transferee] ought to be reserved, because it would not always be advisable to admit the first comer to replace a retiring member; co-operative societies are associations of persons as distinct from joint-stock companies, which are merely associations of capital”; and Verrucoli (1962), p. 564. Of course, the intuitus personae may vary depending on the type of cooperative and its characteristics, such as its size: it is presumably higher in a small worker or producer cooperative than in a large consumer cooperative, for example.
- 135.
See infra, sec. 1.6.2.
- 136.
This is the same reason why there are many cooperative laws that—following the Rochdale Society’s example (see Gide 1921, p. 83)—put a ceiling on the amount of capital a single member is permitted to subscribe, so as to avoid the emergence of a de facto predominant role (legal supremacy, in fact, is impossible given the rule “one member, one vote”) of one member over the others. In this case, the problem is not to protect members’ control, since he who holds the largest amount would be a member, but members’ joint control, which is a principle of regulation that precludes, as we shall see (infra, sec. 1.6.2), a single member from controlling a cooperative.
- 137.
An example may be: consumer cooperative Alfa buys grapes at a total price of, say, 10, and then sell them to their members at a total price of 10. Alfa does not have additional costs and revenues. In this case its annual profit is zero, as R10 − C10 = P0 (where R = Revenues; C = Costs; and P = Profit).
- 138.
A very simple example may be: producer cooperative Beta buys grapes from its members at a total price of 10, which then transforms into wine to be sold on the market. Market price for the wine at the time of the sale is 9. Since R9 < C10, Beta suffers a loss of 1 due to the inexact calculation of the price of the grapes at the time of transacting with its members.
- 139.
One of the Rochdale Society’s original rules of conduct (see supra fn. 120) was: “market prices should be charged and no credit given nor asked”; see also Gide (1921), pp. 42ff., which emphasizes the benefits for both a consumer cooperative and its members to adopt this system of sale.
- 140.
In the French experience of consumer cooperatives, a recurring and evocative formula is trop perçu, which rightly emphasizes the fact that the cooperative overcharges its members when it does not sell at cost price.
- 141.
It must be noted that the mechanism of generation of this surplus is different according to the type of cooperative, whether a consumer cooperative or a producer and a worker cooperative. In a consumer cooperative, the surplus is simpler to calculate as it results from the difference between revenues and costs of the activity with the members, or cooperative transactions. In contrast, in a producer and in a worker cooperative, the surplus is the difference between revenues from market transactions and costs of the activity with the members. As we shall see (see infra in the text and fn. 142), this in part affects the way in which the surplus is to be calculated when the cooperative is not fully mutual, that is, when it conducts cooperative transactions also with non-members as generally permitted by law within certain limits and conditions (see supra, sec. 1.4.2.3).
- 142.
Probably, this is more complex in producer and worker cooperatives than in consumer cooperatives. Two examples may help understand this point. Consumer cooperative Alfa sells ten apples to ten members at a selling price of 10 each. Apples are paid 9 each by Alfa and, to simplify, these are its only costs. Thus, at the end of the financial year, Alfa has R = 100 and C = 90. The cooperative surplus is 10 (R100 − C90 = S10). If Alfa sold apples also to, say, ten non-members at a selling price of 10 each, its total revenues would be 200 and its total profit 20 (the difference between R200 and C180), but the cooperative surplus would remain 10, as the sum of 10 out of the total profit of 20 stems from non-member cooperative transactions and therefore cannot be considered cooperative surplus (but simply profit). Producer cooperative Beta buys ten apples from ten members at a price of 9 each. Beta sells the apples on the market at 10 each and thus obtains 100 as total revenues. R100 − C90 = S10 is the cooperative surplus. If Beta bought ten additional apples from ten non-members at a price of 9 each, selling them afterwards at 10 each, then its total revenues would be 200, but the cooperative surplus would remain 10, as 10 apples from non-members have contributed to R = 200. To note that if there is difference between members and non-members as regards the price received for the apples and the quality of the apples provided, the calculation of the cooperative surplus would be more complex.
- 143.
As found at http://www.rochdalepioneersmuseum.coop/about-us/the-rochdale-principles. See also Gide (1921), p. 55, according to which this method “has been the chief cause of the success of consumers’ cooperation”.
- 144.
This implies that the establishment of individual accounts for each member is necessary, which nowadays electronic devices may render very easy. Another problem is how to measure such participation, whether in quantitative or qualitative terms. This is an issue, however, that depends on the type of cooperative, and which therefore the law should empower cooperative by-laws to define.
- 145.
See, for example, art. 2545sexies, par. 1, of the Italian civil code, which explicitly obligates cooperatives to distribute cooperative returns in proportion to the quantity and quality of mutual transactions.
- 146.
Which may finely be summarized by stating that a cooperative is an entity “working with capital, not for capital” (in these terms Münkner (1974), p. 76).
- 147.
Cooperatives are, therefore, subject to a partial profit distribution constraint, although it must be clarified that this formula is correct only to the extent that profits and not surplus, as well as return on capital and not return on cooperative transactions are considered. In general, there is no limit on the amount that may be returned to members in consideration and in proportion to their participation as consumers, providers or workers of the cooperative enterprise; and such a potential limit, indeed, would make no sense, as cooperative returns, as stated, are only a different way of enacting the cooperative mutual purpose, and therefore do not contradict it, unlike dividends on capital. Evidently, a partial remuneration of the capital subscribed should encourage further subscriptions as compared to the total absence of remuneration: This is the reason why a limited capital remuneration is admitted in cooperatives, notwithstanding the contradiction that however it gives rise to in a mutual purpose entity.
- 148.
As Gide (1921), p. 86, puts it, “As we know, it is the rule that capital has no share in the profits. Where it is given a share the society ceases to be co-operative, even if wrongly calls itself such”. By way of contrast, this Author was in favor of recognizing an interest on capital (see ivi, p. 87f.).
- 149.
This point, as well as those which immediately precede and follow, are usually treated in the seventh section of the chapters in part III of this book.
- 150.
In which case, of course, members, either individually or collectively, may exercise all the rights that cooperative law confers on them in order to react against organs’ harmful and unlawful decisions, including the right to remove directors when they decide not to distribute profits.
- 151.
Cooperative by-laws, of course, may play a role in limiting or regulating this power.
- 152.
In some jurisdictions cooperative law also provides rules on the use of the legal reserve, in order to safeguard it and the interests behind its compulsory establishment.
- 153.
Of course, this refers to a situation in which cooperative law allows non-member cooperative transactions on the one hand, and on the other hand, makes it compulsory for a cooperative availing itself of this opportunity to allocate to indivisible reserves profits arising from these transactions.
- 154.
Indeed, the 3rd ICA principle, when mentioning this “common property”, does not explicitly refer to indivisible reserves, but this in fact should be the case. In legal terms, the formula “common property” is misleading as all the assets of a cooperative, and not only the non-distributable reserves, form its property, including distributable reserves and the capital.
- 155.
See Münkner (1974), p. 100.
- 156.
See supra, sec. 1.4.2.4.
- 157.
See recently on this subject, MacPherson (2013).
- 158.
See supra, sec. 1.4.2.5.
- 159.
This point is usually treated in the twelfth section of the chapters in part III of this book.
- 160.
Usually, residual assets are considered those assets which result after payment of all amounts due to creditors and reimbursement of members’ capital contributions at their nominal value (see, for example, art. 75, of the SCE Regulation).
- 161.
This is the rule, for example, in Italy, although with limited regard to mainly mutual cooperatives (see Fici 2013a).
- 162.
When providing for the disinterested devolution of residual assets, cooperative law, indeed, approximates to the law of nonprofit organizations, which normally includes, and should be expected to include, this requirement.
- 163.
A rule prescribing the disinterested devolution of residual assets would, therefore, adequately counterbalance and protect the rule on the establishment of reserves, given that accumulated reserves inevitably provide members with incentives to demutualize (in order for them to appropriate these reserves).
- 164.
See, for example, art. 1(2) of the SCE Regulation.
- 165.
See Chaddad and Cook (2004), pp. 355ff., where it describes the model of “cooperatives with capital-seeking entities”.
- 166.
As is the case in Italy, for example (see Fici 2013a).
- 167.
As is the case in Italy, for example (see Fici 2013a).
- 168.
Investor members may be differently termed depending on the jurisdiction, for example, supporting members, non-user members, and so on.
- 169.
Examples include, among others, art. 2526, par. 2, of the Italian civil code and art. 59(3) of the SCE Regulation. Within this limit, these laws permit cooperative statutes to award each investor member more than one vote in the general meeting, which may be considered another measure designed to attract investor members. See also COM(2004)18 final, of 23 February 2004, cit., par. 3.2.4.
- 170.
- 171.
See Gide (1921), p. 75.
- 172.
This point is usually treated in the eighth section of the chapters in part III of this book.
- 173.
See also Fauquet (1951), p. 21, according to which: “a co-operative association is not an impersonal grouping of capital, but in the fullest sense of the term an association of persons. The rule of ‘one man, one vote’, …, is its fundamental rule for all the mutual relations of the members within the association. Each co-operative association is a democracy”.
- 174.
See, e.g., recital n. 8 in the preamble to the SCE Regulation.
- 175.
More precisely, at least two different approaches may be found in this regard: some cooperative laws allow this method in all types of cooperatives (see, e.g., art. 59(2) of the SCE Regulation), while others only in some types (see, e.g., art. 2538, par. 4, of the Italian civil code, which limits this possibility to cooperatives consisting of entrepreneurs or firms).
- 176.
See, among others, Royer (1992), pp. 79ff.
- 177.
Münkner (1974), p. 60, which continues by stating: “Therefore, if voting power would be allotted in proportion to the volume of business, the maximum number of votes given to one member should be limited and each member should at least be given one vote. Even the proportional voting may be a first step to split the membership into various classes and to destroy the internal democratic structure of a cooperative society”.
- 178.
See, e.g., art. 59(2) of the SCE Regulation and art. 2538, par. 4, of the Italian civil code.
- 179.
As in contrast argued by Zoppini (2004), p. 444, which adds that the single vote favors the preferences of the “median member” rather than the “marginal member”, and above all, that it contributes to create an “internal” market within the cooperative, as long as it favors and promotes members’ opportunities of exchange rather than the remuneration of the subscribed capital.
- 180.
See supra par. 4.2.4.
- 181.
See ILO Recommendation n. 193/2002, par. 6(d).
- 182.
As Gide (1921), p. 13f., reports, Robert Owen—the “Father of Cooperation”—defined cooperation by this formula: “You must become your own merchants and your own manufacturers … to be able to supply yourselves with goods of the best quality and at the lowest price”. See also Verrucoli (1962), p. 551: “In a cooperative, members do not aim at earning an unlimited profit, but simply at eliminating a speculating middleman, by collectively substituting him” [translation by author]; Birchall (2011), p. 3
- 183.
- 184.
The accountability of elected representatives to the membership is explicitly stated in the 2nd ICA Principle. One of the Rochdale Society’s original rules was “that frequent statements and balance sheets should be presented to members”.
- 185.
This point is usually treated in the eighth section of the chapters in part III of this book.
- 186.
Cooperative by-laws may also be left an option among the available systems of administration.
- 187.
See art. 2542, par. 2, of the Italian civil code, which has replaced the repealed rule requiring all the members of the board of directors to be members of the cooperative.
- 188.
See supra fn. 84 with regard to legislation providing for a cooperative established by only one member or not providing for the dissolution of a cooperative where only one member is left.
- 189.
Cf. Zoppini (2004), p. 443.
- 190.
In general, external control may be the result of legal or factual arrangements: It may depend on the concentration of ownership rights (majority of votes in the general meeting or a lower number of votes, which however allows a “dominant influence” in the general meeting), or on a contract directly aiming at subjecting the business organization (“domination contracts”) or however giving rise to a “dominant influence” (e.g., a franchising or a loan contract providing for ample powers on the side of the franchisor or the lender; exclusive dealings; etc.).
- 191.
In certain cases, member education and training is, as mentioned (see supra, sec. 1.5.2.4), a task assigned to federations of cooperatives or that cooperatives may carry out by their federations.
- 192.
A very common rule in cooperative law is to make acquisition of membership subject to the approval of directors, to obligate directors to motivate the refusal of admission, and to entitle candidates refused membership to appeal to the general meeting. Solutions vary as regards the role of the general meeting—whether it can reverse the directors’ refusal of admission or simply refer again the issue to them—and the possibility for candidates to take legal actions against the cooperative in the case of persistent refusal. In some instances, moreover, the conduct of cooperatives in relation to new admissions may be relevant under cooperative revisions by federations, where compliance with cooperative law and principles is supervised. It must be recalled that the rule on capital variability does not automatically imply that a cooperative is open to any request for admission: the capital variability rule only serves to facilitate the open character of a cooperative, but does not make it compulsory.
- 193.
Very interesting words in this regard may be found in the UK regulation of bona fide cooperatives, more precisely, in the FCA’s instructions for the registration of a bona fide cooperative under IPSA 1965. See also Münkner (1982), p. 53, according to which this principle “does not mean that every person has a right to become a member”, but only “that there shall be no artificial limitation of the entry of new members and that there shall be no discrimination”. Of course, the “open door” principle does not rule out the possibility for cooperative by-laws to provide for particular requirements for membership, based on the nature of the cooperative enterprise, its area of operations, etc.
- 194.
See Verrucoli (1962), p. 551, which emphasizes the class’ solidarity or category’s loyalty that pushes cooperatives to reduce the difference between the price of the performance executed or received by the member and the current market price of the performance with a view of extending the benefits of the enterprise to the largest possible number of members. For this Author, the “open door” principle is the most typical manifestation of the functional link between the cooperative and the category of those who bear certain needs, which originates, justifies and characterizes a cooperative.
On the other hand, a reasonable compromise between the interest of present members in preserving their current utility and the interest of third parties in being admitted to membership could be to give the new member a different (and lower) status for a given period of time after which he becomes a full member. This is something foreseen, for example, by Italian cooperative law (see art. 2527, par. 3, of the Italian civil code, as regards the category of “members on probation”).
- 195.
Namely, those among whom the cake has to be divided. To be sure, an increase in the number of company’s owners may happen by issuing new shares. However, company law normally protects current shareholders by awarding them preemption rights over the new shares, thereby preserving the existing equilibrium within the company in the distribution of benefits at any given time.
- 196.
See again on this point Gide (1921), p. 75f.
- 197.
See amplius, though in Italian, Fici (2012), pp. 213ff.
- 198.
It must be noted, in addition, that in some jurisdictions the promotion of cooperatives is compulsory for legislatures, possibly also under tax law, as it corresponds to the constitutional will. In these cases, any discourse about the possible infringement of competition law seems unproductive, provided of course that tax measures are reasonable and applicable to entities, which in effect have a cooperative nature in accordance with organizational law. Also, it must be underlined that some types of cooperatives, such as social cooperatives, may be the recipients of a promotional tax treatment (e.g., VAT exemptions) for they act in the general interest, which addresses the State’s interests and justifies the promotional treatment.
- 199.
Cooperative tax law is the subject of a specific section (normally the eleventh section) of the chapters in part III of this book. The Peruvian chapter in this volume is very interesting and worth reading in this regard, as it clearly illustrates a specific issue of cooperative taxation, namely that which arises from the distinction between “cooperative acts” and “business acts” performed by a cooperative.
- 200.
See amplius Coates (2013).
- 201.
See amplius Fici (2013a).
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Fici, A. (2013). An Introduction to Cooperative Law. In: Cracogna, D., Fici, A., Henrÿ, H. (eds) International Handbook of Cooperative Law. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-30129-2_1
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