Cooperative

What it means

A cooperative is an association with an open number of members that either carries on business or meets its members’ needs. Under the Commercial Code it is founded by at least five individuals, or by two if they are legal persons.

It differs from a limited liability company in its open membership: a member joins or leaves without amending the founding document and without the others’ consent. Members are not liable for its debts; the cooperative answers with all its assets.

A cooperative sits between a trading company and an association. Unlike a civic association, it may carry on business as its main activity and distribute profit; unlike an s. r. o., its purpose is often not a return for owners but service to members - housing, joint purchasing or selling what they produce.

How it works in practice

A cooperative is founded at a constituent meeting that adopts the statutes and elects the bodies, and it comes into being only on entry in the commercial register; the constituent meeting is recorded in a notarial deed. Its bodies are the members’ meeting, the board as statutory body, and a control commission.

It keeps double-entry books and files its accounts with the Register of Financial Statements like any other company. A member’s share of profit is paid under the profit-share regime rather than as wages, and a member leaving receives a settlement share.

When a member leaves, the articles set how the settlement share is calculated, usually from the financial statements for the year in which membership ended. The share therefore falls due only once those statements are approved. The payout needs to be built into cash planning, especially when several members leave at once.

What to watch out for

The statutes may impose on members a duty to cover the cooperative’s loss, capped at the statutory multiple of the membership contribution. Anyone who signs the statutes without reading that clause gets a demand for payment after a bad year that they never budgeted for.

Cooperatives often keep no up-to-date list of members. If it then cannot be shown who is a member, the quorum of the members’ meeting cannot be shown either, and its resolutions - approving the statements or the profit distribution included - can be challenged. Fixing this after the fact is slow and holds up even routine register filings.