European Cooperative Society. ITS INTEREST IN CO-OPERATIVE PRACTICE - Sociedad Cooperativa Europea....

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September 20

2011

European Cooperative Society

ITS INTEREST IN CO-OPERATIVE PRACTICE

Sociedad Cooperativa EuropeaSU INTERÉS EN LA PRÁCTICA

COOPERATIVA(inglés)

Sozietate Kooperatibo EuroparraKOOPERATIBEN ERREALITATERAKO

ONURAK (ingelesez)

Working Paper

(Non-professional translation)

As a Working Paper, it doesn´t reflect any institutional position or opinion of EKAI Center.

Las opiniones recogidas en este documento no comprometen en ningún caso a las entidades colaboradoras

Ekai Center

Innovating Public Policy

Garaia Innovation Centre, 20500 Mondragon (Spain)

www.ekaicenter.eu




ITS INTEREST IN CO-

OPERATIVE PRACTICE

EKAI CenterGaraia Innovation Centre,20500 Mondragon (Spain)

Tel: +34 943 250104e-mail: [email protected]

www.ekaicenter.eu 2

On the European Cooperative Society and its interest in the co-operative

practice:

1. After 8 years since the adoption in 2003 of the Regulation on the

Statute for a European Cooperative Society and once approved the

arrangements for its implementation in the European Union states

(in Spain, through Law 3 / 2011 of 3 March), it is becoming urgent an

analysis that goes beyond the conceptual and symbolic interest of

this new form of company to deepen in the practical advantages that

it could mean for people interested in making use of it, as a

necessary basis to advance -if necessary- in policies adequate to

boost the use of this legal form in the member states of the Union.

2. A first consequence of the implementation of the SCE has been that,

from that moment on, all the Member States of the European Union

do have a co-operative law. This fact, by itself, has been a major

achievement, both symbolic and normative.

3. The SCE has also meant a leap forward in European terminology

harmonization in the co-operative world. Although these facts are




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not always sufficiently appreciated, it is an important factor for

future cooperative developments in Europe. It is essential that we

begin to understand each other. Having a common vocabulary is also

essential to be able to learn from each other, to understand the legal

practices of other countries, etc.

4. The European Cooperative Society is also the beginning of the

conceptual harmonization of cooperatives in Europe. The

harmonization of legal structures and some basic legal concepts,

such as what is a cooperative law, what is a cooperative, capital,

statutes, results, etc..

5. The SCE has also boosted the improvement of cooperative laws in

different countries, in order to approach to the content of the

Statute. The SCE has already become a challenge for governments,

experts and cooperative associations. In several states specific

analysis have been undertaken on the differences between the

Statute of the SCE and national cooperative laws of the State, trying

to compare advantages and disadvantages between the two of them

and propose –if necessary- the appropriate regulatory

improvements. Some states have started on this research work, and

some of them have already made specific legal changes as a result.




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6. In EKAI Center we have always maintained a reasonable doubt about

the real probabilities that the European Cooperative Society was

actually applied in a significant way for the purposes which appeared

to be regarded as its main objective of facilitating a legal instrument

to make easier the interstate cooperative societies. The analysis and

assessment of the reality of the implementation of the SCE in the

European Union as a whole seems to prove that indeed this use has

been limited. The basic reason is that the operating interest of the

homogenization of regulations that certain groups of companies get,

for example, through the European Company Statute, has little

interest in inter-cooperative collaboration between States, which isnot based on hierarchical groups but on federative groups, in which

it is unusual to share the management of the internal corporate

structure of each cooperative. The fact that a number of

cooperatives in different states could all submit to the regime of the

European Cooperative Society to manage more easily their

corporate systems is unlikely in co-operative practice.

7. However, there are other important elements that affect the

practical benefits of using the European Cooperative Society. In

particular, there are two different views to take account of in this

regard:




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a) The undeniable interest that the image effect of using an

“European” form of company has in many cases.

b) The possibility that the SCE is not used only for purposes of

making interstate collaborations easier, but also as a new legal

option for co-operatives which, by themselves, do have interstate

characteristics.

8. According to paragraph 1 of Article 2 of the Statute of the SCE:

"1. An SCE may be formed as follows:

...

- by conversion of a cooperative formed under the law of a Member

State, which has its registered office and head office within the

Community if for at least two years it has had an establishment or

subsidiary governed by the law of another Member State."

9. This means that, in fact, almost all industrial or commercial

cooperative of medium or large size may decide to "convert" into a

European Cooperative Society if they think that it is in their interest.

It is enough for that having a facility -not even a subsidiary is

necessary-, in another State of the European Union.




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10. Therefore, it is not necessary that the SCE is based on interstate

cooperation between cooperatives in different Member States. This

fact, perhaps not sufficiently underlined, substantially expands the

map of potential users of this Statute.

11. The choice of the Statute of the European Cooperative Society can

be of great interest for those cooperatives interested in the internal

implementation of the two-tier system of corporate governance.

Very especially, of course, in states such as Spain, whose cooperative

legislation does not allow the use of this modality of governance.

12. The choice between a one-tier or a two-tier system of governance of

the cooperative is a key strategic decision. The co-operatives

interested in it should analyze very well the respective advantages

and disadvantages of its application to each particular case.

13. In short, the choice of the two-tier system by an individual

cooperative may have two advantages:

a) To ensure respect for the management field of the General

Manager

b) To ensure the independence of the supervisory body,

preventing the body itself of being controlled by managers and




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so ensuring the effectiveness of the monitoring and supervisory

functions.

14. Anyway, the cooperative which –through conversion- has the goal of

using the SCE as a tool to access to the two-tier system should

carefully take account of both these potential advantages and the

disadvantages that may arise as a result in terms of participation or

involvement of different interest groups of the Cooperative.

15. In short, it is clear that with the Statute of the European Cooperative

Society, the two-tier system is now a real option for the Spanish co-operatives.

16. A clear differential factor in the operational practice of the European

Cooperative Society with regard to the Spanish cooperative

legislation is the lower level required by the European regulation

concerning the provision of mandatory funds related to profits.

17. In fact, this is the related text of paragraphs 2 and 3 of Article 65 of

the Statute:

"2. ... the statutes shall require the establishment of a legal

reserve funded out of the surplus before any other allocation.




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Until such time as the legal reserve is equal to the capital referred

to in Article 3(2), the amount allocated to it may not be less than

15% of the surplus for the financial year after deduction of any

losses carried over”.

18. It looks quite clear that the provision of mandatory funds (both

Promotion and Education Fund or the equivalent in the respective

cooperative law –there is not a fund like this in the Statute of the

SCE- and the mandatory reserve funds) is substantially lower in the

SCE than in the Spanish co-operative legislation.

19. This obviously means that there may be a particular operating

interest for some cooperatives to carry out a conversion into SCE

only to benefit from a regime of lower allocation of mandatory

funds.

20. Analyzing the implications of this option for the whole Spanish

Cooperative movement is not part of this report. But it should be

underlined that, for a given individual cooperative, which considers

that doesn´t need to allocate mandatory funds in the level required

by the Spanish law, the decision to convert into a European

Cooperative Society may be of great interest.




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21. Very likely, the key operational advantage of the option for the

Statute of the European Cooperative Society lies in the “image”

effect of the use of a “European” corporate structure.

22. This "image" effect may be of interest, first of all, in circumstances or

environments where it is understood that the image of the

cooperative society itself in front of members, customers,

environment, etc. can be improved by giving it a “European” status

and name.

23. But, very specially, this “image” effect may be of particular interest

in shaping interstate structures, to the extent that the "European"

image means a neutral approach in the relations between people or

entities that are associated from different states, neutrality which is

not achieved with an entity whose image and name are very directly

related to one of the member states participating in the project.

24. There are some other operational aspects of less interest to

individual cooperatives, including the possibility of opting for an

unlimited liability regime, the use of the registered office of the

Cooperative with certain operational and tax purposes, and so on.

But it seems that these are not very significant comparative

advantages.




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25. In short, the operational benefits that the choice of the Statute of

the European Cooperative Society may suppose for some co-

operatives appear to lie essentially in the following areas:

a) The possibility of opting for the two-tier system of corporate

governance

b) The significantly lower mandatory allocation of funds

c) Essentially, the "image" effect of making use of an “European”

corporate legal structure and business name.

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