In the previous article on the functioning of cooperative societies, we dealt with their composition from the point of view of the governing bodies and the members that make them up. However, in this article we will focus on the liability that comes with being a member, the contributions and mandatory social funds, the economic and accounting sphere of the society, and the temporary and permanent union of cooperative societies.

LIABILITY OF THE MEMBERS

 

Continuing with the system of infractions and sanctions in the cooperative sphere, the internal liability of the members (in addition to other responsibilities such as compliance with commercial legislation) will be compulsorily established in the bylaws. In this way, the will to make cooperative activity more flexible is once again reflected, by empowering the members themselves to decide what the consequences of non-compliance with the rules of the society will be.

Infringements are classified in a manner analogous to the usual differentiation made in the laws (minor, serious and very serious). There is one aspect that is not left to the free choice of the cooperatives: the statute of limitations (2, 4 and 6 months for minor, serious and very serious infringements, respectively). The raison d’être of this is to respect legal certainty when it comes to the functioning of the social discipline regime. It is not feasible to require a member to comply with a sanction indefinitely, so these deadlines are set to protect the cooperative member, who is the backbone of the cooperative society.

There are 3 additional rules in the liability regime:

  • The competences in sanctioning matters are of the Governing Council.
  • The affected party will be entitled to present its allegations in a previous hearing.
  • The affected party shall be entitled to challenge the sanctioning resolutions within the time limits provided for by law.

In this case, the principle of hearing is defended, enabling the possible active subject of the infraction to defend himself and to be able to eliminate or reduce the corresponding sanctions.

SOCIAL CONTRIBUTIONS AND MANDATORY SOCIAL FUNDS

In real estate cooperatives, it is important to distinguish the type of cooperative from the beginning in order to be able to determine the mandatory funds.

This is because there are two main types of real estate cooperatives in the classification by duration: temporary and indefinite.

In temporary cooperatives, the purpose is to provide the members with certain goods to cover their needs. The cooperative is a sort of joint promoter, acts as a temporary union and, after operations, is dissolved.

In the indefinite ones, either because the members want to maintain the link for future occasions, or because they want to extend their activity to the sale or cession to third parties, there is no fixed duration, but it is intended to continue with the activity until the extinction of the cooperative is agreed or another reason to conclude the cooperative activity occurs.

The social contributions will form the economic/productive base of the cooperative society. Thanks to these, the machinery that makes it possible for the members to advance towards their common objectives will be put into operation.

The two main types of contributions are:

There are three main features of corporate contributions:

  1. They are updateable (for purposes of interest to be received, for example).
  2. They are transferable (inter vivos or mortis causa).
  3. They are refundable (although certain contributions can be fixed in the Bylaws that will not be refunded if the Board of Directors does not consider it appropriate).

One main advantage that encourages the formation of cooperative societies as opposed to other types of collective societies is that the social contributions are not as restricted as other types of securities when it comes to disposing of them. That is to say, for example, in a limited partnership, the transfer is more complicated, both because of the preferential acquisition rights and because of the possible refusal of transfer by the partners. The line of flexibility already mentioned above is followed, allowing members to adapt the operation of the cooperative to their particular wishes and needs.

However, not only contributions will form part of the social patrimony. It is also contemplated:

  • Contributions outside the share capital (non-refundable).
  • Special participations (freely transferable)
  • Other financing (mainly bond issues and participation accounts).

Not all cooperative societies have the possibility of starting their activity with a share capital that is quantified at a high value. Therefore, it is as important, or even more important than in other types of companies, to be able to resort to external financing to reinforce the margin of movement when it comes to covering the company’s expenses. It should be remembered that, on numerous occasions, these companies arise in a rural environment where the economic benefits or profits are more precarious or are projected in tighter profit margins, so it is possible that the objectives do not begin to be achieved until after certain years of minimum profits.

THE ECONOMIC SPHERE: FINANCIAL YEAR AND ACCOUNTING

As in any cooperative society, the control of the corporate economy is important when it comes to promoting the achievement of objectives. The law establishes some general features of the accounting of the cooperative, which also operates in housing cooperatives and which will be summarized below in two blocks.

The first block corresponds to the annual financial year. The duration of each fiscal year is 12 months, distinguishing two types of results:

  • Cooperative results
  • Extra-cooperative results

Beyond the evaluation of the results, which will be different depending on what the law and the bylaws establish for each cooperative, there are two main situations to be observed:

  • Positive result: in this case, surpluses are generated. A part will be distributed among the members according to what has been agreed, but there is a minimum percentage for the Mandatory Social Fund and the Education and Promotion Fund.
  • Negative result: in the same way that surpluses are distributed, the assumption of losses is distributed, with an order of imputation established by law. First, the debts are covered by the voluntary funds. Secondly, compulsory funds are used. Lastly, and in the event that the corporate funds were not sufficient, the partners will assume the losses generated by the corporate activity.

The partners will have two ways to cover the debts: either directly, by means of disbursement of the economic amount, or indirectly, where there are two options, the deduction of the contributions to the share capital or the charge to the returns that correspond to the partner (in the following 7 years).

The second block would correspond to the accounting, which is where the origin of the result of the corresponding fiscal year is reflected through the Record Books. Here it will be possible to evaluate where the profits or losses come from, and the decisions to be taken accordingly. In addition, the behavior of the partners and the governing bodies will be controlled, being able to extract from the examination of the accounting books the demand of certain responsibilities before the cooperative society.

The books that must compulsorily make up the Accounting are:

a) Record book of members.
b) Record book of contributions to the capital stock.
c) Minute books of the General Assembly, of the Governing Council, of the liquidators and, if applicable, of the Resources Committee and of the preparatory meetings.
d) Book of inventories and annual accounts and journal.
e) Any others required by law.

As in all societies, the Annual Accounts shall be prepared and presented and audited, establishing total control over the use of economic resources, and trying to prevent any part of the members or the governing bodies from harming individual and collective interests and slowing down or making it impossible to achieve the corporate purpose.

THE COOPERATIVE UNION: THE TEMPORARY AND PERMANENT UNION OF COOPERATIVE SOCIETIES

Association in the cooperative sphere is not limited to the internal regime. Cooperatives are allowed to collaborate among themselves in 3 ways:

  • The formation of 2nd degree cooperatives, in which two or more cooperatives decide to merge into a single company.
  • Structural modifications (merger, spin-off, transformation).
  • Cooperative associativism (middle ground between first-tier and second-tier cooperatives).

A cooperative A may decide to join with cooperative B to form a 2nd grade real estate cooperative, called C. But there may also be a union between 2nd grade cooperatives that want to specialize in one part of the business: C decides to promote sales, and joins with D, which will be in charge of the construction and real estate advertising part.

The cooperative activity does not end with the liquidation of the fiscal year and the presentation and auditing of the Annual Accounts. When the results are evaluated, it can be determined that mutual aid with other cooperatives is more convenient because the objectives are unfeasible in the short or medium term for the cooperative society by itself.

In this case, commercial legislation offers the solutions that cooperatives can adopt. Collaboration beyond the members (between cooperatives) is an interesting alternative, since most cooperatives are grouped by sectors and areas. This means that, for example, for some agricultural cooperatives in the Andalusia area, where this corporate model is common, it will be more beneficial to share tangible fixed assets as if they were a single company. Acquisition and maintenance costs are divided… risks are minimized when it comes to assuming losses and profits are shared among more parties, but they also increase.

Cooperatives offer individuals and entrepreneurs a new form of operation that fosters solidarity and allows entrepreneurs who do not have sufficient funds to opt for the means of production that they could not otherwise have. In a market economy that relies on large-scale production, the cooperative association is the alternative for the most modest members. The greatest challenge, as it is said in the exposition of motives of the Law of Cooperative Societies, is to combine solidarity with the adaptation to a market where competitiveness grows exponentially.

If you want information about the constitution and/or operation of this type of societies, please contact us.