INTERNAL ORGANIZATION OF COOPERATIVE SOCIETIES
The Law on Cooperative Societies establishes a general framework for the internal organization of cooperatives.
Already in the explanatory memorandum, the attempt to be flexible in setting the rules for the operation of cooperatives is highlighted, but there are certain common elements that all of them must share.
In real estate law, real estate cooperatives are one of the giants in market competition. They can integrate from the smallest members to the largest owners. Each one will participate in one way or another, with more or less weight when it comes to making decisions and receiving benefits. But each member will strengthen the cooperative more, allowing the entry and exit of these societies more easily than in other societies, such as Limited Companies.
The most important provisions of the law are divided into 4 groups that will be developed below:
- The partners (types of partners, rights and obligations, registration and deregistration of partners, liability of partners).
- Bodies (General Assembly, Governing Council, Resources Committee).
- Economic sphere (social contributions, obligatory social funds, documentation and accounting).
- Special issues (structural modifications, cooperative associationism).
It is necessary to distinguish between two types of members that do not appear in all cooperatives.
In the first place, the real estate lessor member, who is the one who seeks the exploitation of the capital stock and not the ownership (at least, indefinitely).
Secondly, the real estate owner member, who will hold the ownership of the real estate, to exploit or enjoy it himself or to cede its use and enjoyment to interested third parties.
Turning to the general scope of cooperatives, there are no subjective limitations to be a member of a cooperative. That is to say, both individuals and legal entities, public and private (including communities of property) can be members of this type of company.
However, the Bylaws will also establish additional conditions for acquiring the status of member, which will be set at the time of incorporation of the cooperative society.
Three types of members can be distinguished:
-The principal members, who are those who will participate fully in the social activity (including aspects such as decision-making). They are usually the founding members, although the inclusion of new principal members is permitted by the procedure set out in Article 13 of the Law on Cooperative Societies.
–Collaborating members, who will not participate directly in the activity set out in the corporate purpose, but will contribute directly or indirectly to the achievement of the objectives (for example, by contributing capital stock). Limits are established for this type of partner, both in terms of contributions and decision-making.
-The working partners, who will contribute with the provision of professional work and will also contribute capital stock to achieve the objectives set. The main difference with the rest of the members (in addition to the remuneration for professional services) is that, as it is usually a temporary link to the cooperative, at the end of their work, they will also return what they have contributed as social capital.
With respect to the obligations of the members, established in Article 15 of the Law of Cooperative Societies, 6 main obligations are distinguished:
- To comply with the agreements that arise within the cooperative society.
- To participate in the cooperative activities (with the minimum requirements stipulated in the Bylaws).
- To respect the secrecy of data affecting the interests of the cooperative.
- To accept the positions for which they were elected (except for just cause).
- To comply with the economic obligations.
- Not to carry out competitive activities with the cooperative (unless authorized by the Governing Council).
The rights of members are set forth in Article 16 of the Law of Cooperative Societies and are as follows:
- To participate in decision making.
- To be a voter and eligible for the governing bodies of the company.
- To participate in all the activities of the cooperative.
- Cooperative return *.
- Updating, liquidation and receipt of interest on capital stock.
- Voluntary cancellation.
- Right to information
- Professional training
The right to information is developed in Article 16 itself, giving members the possibility of control with a minimum access to certain documents (accounting, information on members, Register Book, Bylaws…). For the rest of the information, a request procedure is provided (10% of the members, or at least 100, may request the information they consider appropriate to the Governing Council, which will provide it within one month (except for exceptional reasons set out in the law itself).
The registration procedure is set out in Article 13 of the Law on Cooperative Societies and the competent body is the Governing Council. With respect to the cancellation of cooperative members, there are two types of cancellations:
- Voluntary cancellation (at the request of the member).
- Compulsory cancellation (loss of membership requirements).
- Both are processed by the Governing Council.
Every cooperative society has the power to establish the internal organization it deems appropriate.
There are, however, a number of governing bodies that must comprise its internal structure. These are the General Assembly, the Governing Council and the Intervention.
The other bodies (such as the Resources Committee) will be created at the choice of the company itself.
Although all the cooperatives seek self-promotion, eliminating other third party developers if viable, the figure of management companies also appears in the real estate cooperatives. What does this mean? It means that once again there will be an intermediary with two main consequences:
-The first is that the management risks are assumed, even if this part of the activity is delegated to another entity.
-The second is that the partner is limited when it comes to making decisions about the company and its course.
This means that the risks are maintained or increased and the power of the partners is reduced when the management companies come into play (although there are exceptions).
The managers themselves often decide to turn the situation around: by creating first- and second-degree cooperatives, they remove the members of other cooperatives from the equation. This is the other side of the coin, and a further danger for cooperative members, who must choose very carefully what steps to take.
Regarding the General Assembly, the main competences are:
- Adoption of agreements and decision making in general.
- To set the general policies of the cooperative society.
- Controlling the performance of the Governing Council, as well as issuing recommendations to it.
There are two types of assembly: ordinary or compulsory , convened within 6 months of the end of the previous year, and the extraordinary assembly, convened by the Governing Council itself, the members or the Intervention.
The Assembly itself is constituted by the Governing Council, and is a periodic body (not permanent, like the other governing bodies).
It is a body in which the members discuss the decisions to be taken and assess whether the functioning of the other bodies is correct.
It participates, therefore, in the cooperative activity from start to finish (from the establishment of general policies to the subsequent accountability of the other governing bodies).
Each member has one vote, respecting the right of participation established in the Law of Cooperative Societies (Article 16).
Resolutions are adopted by different quorums depending on their nature (absolute majority, qualified majority, etc.).
Article 31 of the Law on Cooperative Societies provides for the challenge of resolutions on the following grounds:
- Violation of the Law
- Non-compliance with the contents of the bylaws
- Injury to the interests of the members.
Regarding the Governing Council, the law attributes 3 main competences to this body: management, supervision and representation (especially at the top management level of the cooperative society).
The composition of the Governing Council will include at least 3 directors, and a Chairman, a Vice-Chairman and a Secretary (who will be the Secretary both of the Council and of the cooperative at the general level).
The members will be elected at a General Assembly and by secret ballot, and their term of office will range from 3 to 6 years, as established in the bylaws (with the possibility of re-election).
There is an exception to the obligation to establish this body: the alternative of the sole administrator (when there are less than 10 members in the cooperative society).
The Intervention is the documentary review body par excellence. It will be in charge of supervising compliance with the Statutes and the law, and will issue the final report on the Annual Accounts and the Management Report.
The auditors shall be elected by the shareholders (one third may be elected by independent experts). There may not be a greater number of auditors than directors.
Articles 40 et seq. of the Law on Cooperatives establish provisions common to the Board and the Comptroller, such as intervention, the incompatibility regime or the sanctioning regime.
As the main complementary body, the Appeals Committee is responsible for processing appeals against sanctions issued by the Governing Council. It is a body that protects the relationship between members and the Governing Council, facilitating the resolution of internal conflicts within the sphere of responsibility of the members.
If you want to know more about the functioning of the cooperative societies you can read about it in the articles of our blog or you can contact us.