THE ORIGIN OF COOPERATIVE SOCIETIES AND THEIR DEFINING FEATURES
Cooperative societies emerged in the mid-18th century in Fenwick (Scotland), although the concept of the modern cooperative society was coined in Rochdale, when a group of workers decided to join together to trade in essential goods and use the surplus to help their fellow citizens.
There is a definition that is drawn from the very name of these societies: the collaboration among the members for the achievement of objectives that, to a greater or lesser degree, are common.
What is a cooperative? A corporate model where a group of individuals working in a specific business sector decide to pool part of their capital to work together and achieve their objectives. That is to say, there is going to be a capital contribution that is going to be exploited by all, and the main purpose is simple: to facilitate that the partners can access to a commercial sector that, in other occasions, would not be viable for them.
In the Spanish context, the regulation of cooperative societies is found in Law 27/1999, of July 16, 1999, on Cooperatives. This law outlines a path to follow for potential cooperative members, from the first steps of the society (incorporation), through decision-making, governing bodies, assemblies… and ending with a system of responsibilities and sanctions. In this case, the text will focus on the process of incorporation of a cooperative society.
But it also has a place in the Spanish Constitution itself, specifically in Article 129.2. In the explanatory memorandum of the Law on Cooperatives, the principles governing cooperative activity are highlighted: solidarity, democracy, equality and social vocation. This does not mean that they should not adapt to an increasingly competitive market. The flexibility of the law itself is emphasized, which only establishes a general framework of basic rules and facilitates self-management by the cooperative society itself (they establish most of the rules governing the society through their bylaws, respecting the legal limits).
THE LAW AS A GUIDE FOR THE CONSTITUTION OF A COOPERATIVE SOCIETY
Already in the explanatory memorandum of the Law of Cooperatives (after its last modification) certain important points are established at the time of incorporating a company, which have been changed to streamline the process:
- The minimum number of partners to create the society is reduced to 3 in case of being a first degree cooperative (several partners create a cooperative society) and to 2 in case of being a second degree cooperative (several cooperatives create a ”parent” cooperative).
- The Constituent Assembly is eliminated, requiring only the simultaneous presence of the members before a notary. This reduces the time required for incorporation, which is important when it comes to starting the cooperative activity.
- Title I (Chapter II) will regulate the incorporation of a cooperative society, in Articles 7 and following of the Law of Cooperatives. The main steps to be followed to create a cooperative society from scratch will be explained below:
- Drawing up the public deed of incorporation: article 7 establishes the obligation to convert this into a public deed. Article 10 develops the minimum content of the deed of incorporation:b) Manifestación de éstos de que reúnen los requisitos necesarios para ser socios.
a) The identity of the grantors.
b) Manifestation of these that they meet the necessary requirements to be partners.
c) The will to constitute a cooperative society and the type of cooperative.
d) Accreditation by members of the minimum contribution at the time of incorporation.
e) Value and data of the non-monetary contributions.
f) Accreditation that the total amount of the paid-up contributions is not less than the minimum capital stock established in the bylaws.
g) Identification of the positions of the first Governing Council, the Comptroller or Comptrollers and a statement that they are incapacitated or prohibited from holding such positions.
h) Declaration that there is no other entity with the same name (presenting the accrediting certification issued by the Registry of Cooperative Societies).
i) Corporate bylaws.
This minimum content reflects two main objectives: that the rules of the cooperative society are established from the beginning and that there is an economic and organic base that allows it to function efficiently. The aim is to avoid that, due to the facilities for the creation of a cooperative, societies are created that are doomed to failure from their birth, demanding universal minimums.
- Registration of the deed of incorporation in the Register of Cooperative Societies. The deadline for registration of the articles of incorporation in the Register of Cooperative Societies is one month (it is not a preclusive period, but if a year passes without registration, the Register will decide whether or not to reject the registration of the cooperative society).
- Preparation of the bylaws. In fact, by requiring in the articles of incorporation to verify that the minimum contribution is equal to or greater than the minimum incorporation capital fixed in the bylaws, it follows that these bylaws must be created prior to the articles of incorporation (it is not specified when, but it would be the first step of incorporation).
- The minimum content of the bylaws is also fixed in Article 11 of the Law on Cooperatives, with three types of mandatory stipulations:
- Relative to the partners (minimum contribution, types of partners, rights and duties of the partners).
- Relative to the company ”strictu sensu” (corporate name, corporate purpose, registered office, territorial scope, duration of activity and minimum share capital).
- Relating to the internal and external relationship of the company (reimbursement of partners, responsibilities and penalties, members of the Board of Directors).
BENEFITS AT THE TIME OF INCORPORATION OF THE COOPERATIVE SOCIETY
The form of incorporation of the cooperative society, divided in 3 steps, has already been analyzed. But, what are the advantages of incorporating a cooperative company as opposed to other companies such as a corporation or a limited liability company?
- The entry barriers are minimal. The number of partners is easy to obtain and there is no minimum capital established by law (it is established by the partners in the bylaws).
- There is no strict procedure for establishing rules or bodies prior to incorporation. What is required is a minimum content of the deed and bylaws, to ensure a fair and lawful operation.
- The main formal requirement is the registration of the cooperative society in the Register of Cooperative Societies, a procedure that is neither excessively burdensome nor difficult to carry out.
- With the aforementioned suppression of the Constitutive Assembly, the partners sign the deed of incorporation before the notary and this verifies the acceptance of the established conditions.
- It is possible to start the activity without having definitively constituted the cooperative society. Article 9 of the Law of Cooperatives creates the concept of ”cooperative society in constitution”, with only one requirement: to include in its corporate name the words ”in constitution”. However, the liability regime is joint and several until the society is registered and assumes these expenses with its social patrimony.
MAIN FEATURES OF THE COOPERATIVES
In summary, the form of incorporation of the cooperative society is characterized by 3 main features:
1.-Procedural economy (analogous to the civil procedural one).
2.- Economic flexibility
3.-Reduction of the incorporation terms.
It is faster, cheaper and simpler than with other companies, attracting more and more individuals who do not want to assume a high economic risk and need support to be able to start or continue with their commercial activity.
COOPERATIVES IN REAL ESTATE LAW: HOUSING COOPERATIVES
The direct connection between the corporate and real estate fields, at least in this case, is that of housing cooperatives. The definition of these cooperatives is simple: by collaborating through this type of society, the members manage to eliminate the intermediary or promoter and they themselves manage the entire sale and purchase procedure.
ADVANTAGES OF REAL ESTATE COOPERATIVES
There are two main advantages, therefore, united by a causal link: the elimination of the promoter reduces the costs of the sales and purchases, so there is a great saving when it comes to financing expenses, reducing the costs by a third.
There is a benefit that is not so easily extracted, but which is also interesting: like all cooperatives, there is an initial movable and real estate capital that can allow the members to start the activity prior to the payment of the total cost.
In other words, in addition to reducing costs, the availability of the real estate is faster. There are other benefits compared to the individual sale and purchase, and that is that the conditions offered by the sellers will be more beneficial, as they will be attracted by a business with more security than the one that would be faced, for example, by a private individual alone.
DURATION OF THE COOPERATIVE
A main doubt arises. While in other cooperatives the duration of the company is clear (x years or until the corporate purpose is fulfilled), how is the duration of these housing cooperatives delimited? If one of the members sees that the first operations work, he/she will surely be interested in increasing the capital contributed (via reinvestment of dividends, for example). This is not a problem: the duration can be modified in the Assembly, if it has been stipulated, or it can be extended.
INVESTMENT IN A COOPERATIVE
The conclusion is clear: in an investment that involves a high risk, being associated in a corporate form that is very flexible, but at the same time protective of the partners, helps any type of entrepreneur or individual to start businesses (from start-ups to high-flying operations) without fear of losing a large part of their assets.
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