1. Compulsory stipulations to be included in the rules

Trade name and registered office

(Cooperatives Act, Chapter 2, Section 3; Trade Names Act, Section 7, Paragraph 1, Point 5)

The trade name of a cooperative must be unique, distinctive from other registered trade names, and not to be confused with them. According to the Trade Names Act, the Finnish trade name of a cooperative must contain the word “osuuskunta” or the compound element “osuus” or the abbreviation “osk”. The trade name must not contain any person’s name or any reference to the members’ obligation to pay extraordinary payments.

The trade name must not be misleading, including references to other legal forms or activities not determined in its rules. If the cooperative intends to use its trade name in two or more languages, every version must be included in the rules. The foreign language versions must be translations of the Finnish trade name. The cooperative can have other trade names in other languages.

Detailed instructions concerning the trade name are available on the Finnish Trade Register website (https://www.prh.fi/fi/kaupparekisteri/yritystennimet.html )

The rules must always contain the cooperative’s trade name and the municipality in Finland where the seat (registered office) of the cooperative is located. The location is of primary importance because, in principle, the cooperative’s general meeting has to take place there if no other place has been stipulated in the rules. The court of the tribunal having jurisdiction is also determined according to the registered office, which must always be a municipality in Finnish territory but not necessarily associated with the cooperative activities. The address registered by the cooperative does not have to be in the same municipality as the registered office, although this is the usual case.

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Trade name and registered office

The trade name of the cooperative is X osuuskunta
and its registered office is in Kittilä

[/types]

Purpose and line of activities of the cooperative

(Cooperatives Act, Chapter 1, Section 5)

Purpose of the cooperative:

According to the Cooperatives Act, the purpose of a cooperative is to pursue an economic activity to support the economy or the business of its members, allowing its members to take advantage of the services offered by the cooperative or provided by its subsidiary or by other means. The rules of a cooperative can regulate its purpose differently. The purpose of a cooperative can be,. e.g., ideological, or its purpose can be generating profit for its members based on the latter’s capital.

If the cooperative’s purpose is as in the Cooperatives Act, it is not compulsory to state it in the rules, but it would emphasize the fundamental difference between a limited company and a cooperative. However, if it is something else than pursuing an economic activity to support the housekeeping or the business of its members, the purpose must be mentioned.

Line of activities of the cooperative:

The rule governing its line of activities determines the economic industries in which the cooperative is or will be active. The line of activity must be true and accurate. It can be limited or complex, and it can contain various lines of activities. It should comprehend all lines of activities pursued now or in the future.

The lines of business can be defined generally as “any legal activity”, but this is not recommended because it does not clarify which are the real activities exercised by the cooperative. Besides, the registration of the cooperative can cause problems.

The division of tasks between the cooperative and its members means that the cooperative provides services and its members use them. The services provided by the cooperative can vary and be related to marketing or acquiring money, goods, or services. A cooperative of self-employed professionals can offer a place of business and the equipment to exercise a profession (medical center), a point of sale for products, marketing services (taxi-center), bookkeeping, and other administrative services for the self-employed. A cooperative can be active on various lines of business at the same time.

The one governing its line of activities belongs to the most important rules of the cooperative also because it defines the functioning of the cooperative and the powers of its statutory bodies. Such a rule limits the board members’ powers and the manager director (Chapter 6, Section 28.2).  Exceeding these powers can lead to the board members’ or the managing director’s liability if the cooperative or a contracting partner suffer any loss.

2. Membership of the Cooperative

Application for admission, beginning and ending of membership (COA, Chapter 3)

According to COA, Chapter 3, Section 1, an application for admission to a cooperative shall be filed in writing with the cooperative board of directors. The board of directors will decide on admission. It can also accept an admission procedure according to which the admission decision is to be made elsewhere. The rules can stipulate that the cooperative’s general meeting (or the supervisory board) decides on the admission of new members.

In principle, any cooperative always has the right to choose its members; nobody has an unconditional right to become a member. The cooperative’s membership is always personal; no member can transfer his or her membership, not even to an heir after the member’s death.

It may be stipulated in the rules that admission is to be granted to everyone who meets the admission criteria (e.g., chartered member of a profession, age majority) and grounds for expulsion (e.g., the member has stopped using the services of the cooperative or has breached its rules).

A member has the right to resign from the cooperative (COA, Chapter 3, Section 2). It may be stipulated in the rules that a member’s right to resign be suspended until the lapse of a set period from the beginning of the membership. The period of suspension shall be no longer than three years. This so-called qualifying period during which the member cannot resign is intended to guarantee a level playing field, especially for the starting cooperative. If the right to resign members is restricted, it can be worth considering if there should be a separate agreement on the consequences imposed on the member when he or she stops using the services of the cooperatives, a commitment made when applying for membership.

Membership register (COA, Ch. 4, S. 14 to 16)

The board of directors must keep an up-to-date list in alphabetical order of the members of the cooperative. The board of directors is in charge of keeping the membership register but not obliged to keep the register itself. The list must include the name and address of the member, the number of his or her shares, and the admission date. It is allowed to add other data related to the member, relevant for covering the relationship with the member. If non-members can subscribe shares of the cooperative, there must be a register of these owners of holdings.

Former members of the cooperative must be kept on the lists until the cooperative has reimbursed their share. This list can be combined with the member register or kept reliably otherwise, and the usual member data must be complemented with the ending date of membership.

For details of the member register and its public nature, see the Cooperatives Act, Chapter 4, Section 14 to 16.

Use of services of the cooperative
The obligation of the member to use the services of the cooperative

The cooperative members contribute to the operation of the cooperation by taking advantage of the services it provides. The possibility to use the services of the cooperative is a membership right, but the law does not oblige any members to do so. The cooperative’s success and hence, that of its members implies more often than not that the members commit themselves to their cooperative. If there is a need to commit the members to the cooperative and underline the member’s obligation to use the services of the cooperative, it can be stipulated in the rules that the member is required to use the services offered by the cooperative and, moreover, which consequences will result from the member’s failure to fulfill this obligation. Usually, the member is bound to be expelled from the cooperative.

There is no need to stipulate the penalties too much in detail; a universal stipulation will suffice: the penalties are decided by the general meeting or by the board of directors, or they are agreed on separately, in the membership agreement, for instance. The penalties can be pecuniary compensations. They should be proportional to the importance of the failure of the member for the cooperative. At the same time, they must be equitable for every member.

The right of non-members to use the services of the cooperative

The repealed former cooperatives act contained a list of stipulations to be included in the rules, one of which concerned the offering of services to non-members, which had to be enshrined in the rules. Even if the corresponding provision is absent from the Cooperatives Act in force, the purpose of any cooperative, to pursue an economic activity to support the housekeeping or the business of its members, allowing its members to take advantage of the services offered by the cooperative, has not changed. The primary purpose remains that the services of the cooperative are to be used only by its members.

However, there is no need to restrict the activities of the cooperative to the circle of its members. Its rules can include the stipulation permitting it to provide services also to non-members. For a worker cooperative, this kind of stipulation may help the rules if the idea is that not all workers are members of the cooperative.

3. Shares of the Cooperative

The share, the amount paid up and the refund for a share (COA, Chapters 4 and 9)

The share and the obligation to take the share:

The biggest modifications in the Cooperatives Act, in force since the beginning of 2014, concern the shares of a cooperative. The contractual freedom was enlarged, the conditions for shares can be stipulated more freely in the rules. The essential changes concerning the shares are:

1. According to the Cooperatives Act, a cooperative has only one type of shares, with equal conditions
2. According to the Cooperatives Act, the share has no nominal value, but there is an issue price to be paid, determined by the general meeting of the cooperative, decided by the general meeting or by its delegation by the board of directors
3. It can be stipulated in the rules that the cooperative has several types of shares, the conditions of which differ, referred to as the cooperative wishes to determine, like membership shares, yield shares, incentive shares, etc. Different shares can qualify for different financial returns, the amount for refund can vary, etc. The differences of the shares must be enshrined in the rules.
4. In the rules, a nominal value can be stipulated for a share, referred to as a contribution
5. If the share has a nominal value, say 100 euros, the general meeting can decide that the issue price to be paid for the share is higher than its nominal value, e.g., 500 euro.
6. The rules can stipulate that shares can be subscribed by non-members, too

Every member must take one share. The rules can stipulate that a member must take several shares. If the member is obliged to take several shares, the rules must include the obligation’s vesting criteria. The members cannot divest their holdings under the membership obligation as long as they are members.

Even if the member is obliged to take several shares, these do not confer a right to vote in the general meeting. The Cooperatives Act’s starting point is that every member has only one vote in the general meeting. It can be stipulated in the rules, however, that a member can have several votes, for instance, due to the several shares taken by him or her. In the Cooperatives Act, the number of votes of one member has been restricted: the member’s number of votes may not exceed 20 times the number of votes of any other member.  (Cooperatives Act, Chapter 5, Section 13)

If the share has a nominal value (the “price” stipulated in the rules), the cooperative must always reimburse at least the nominal value. The issue price to be paid for one share is determined by the cooperative’s general meeting or by the board of directions of the cooperative under delegation of the general meeting of the cooperative, whenever the share has no nominal value. Also, the general meeting of the cooperative or the board of directors, under the general meeting’s authorization, can decide to charge for a share an issue price higher than its nominal value.

The share price payment can be stipulated in the rules, or the payment terms can be decided by the general meeting or by the board of directors under its delegation. Especially with the obligation to take several shares, it is usual to allow some time to pay the share.

Refund of the amount paid for a share

The cooperative reimburses the issue price to its member when the membership ends or when the share is divested. According to the Cooperatives Act, the amount to be reimbursed is the amount subscribed in capital for the share, in any event not more than the issue price paid for the share. It can be stipulated in the rules that the actual refund for a share is less or more than this.

The issue price is refunded after the period required by the Cooperatives Act, i.e., one year after the closing of the financial year during which the membership ended. The rules can require a longer or shorter period for reimbursement. If you wish to stipulate for a longer period than in the COA, the rules must clarify which rights the person bound to receive the refund has during the waiting period.

The amount paid by the member for the share is a risky asset placed in the cooperative. If the cooperative has no distributable assets, it is possible that the amount will be repaid only partially or not at all. The capacity of refund will be examined on the basis of the financial year during which the membership ended. The person’s right to reimbursement remains if the rules contain a stipulation of postponement of the share refund (cf. COA ch. 17 s. 3).

In the stipulations related to shares, it is worth paying attention to the following elements:

1. Is one class of shares enough for the cooperative, or should there be various with different conditions
2. Is there a nominal value for a share, also constituting the minimum amount to be paid for it
3. How much of the amount paid-up for a share is paid back to the member
4. Is there a desire to decrease or increase the period of refunding the amount paid-up for a share compared to the law requirement (one year after the closing of the financial year dfuring which the share was terminated)
5. Is there a desire to increase the period during which the right to refund is valid (i.e., the right to postponement)

Joining fee

The Cooperatives Act no longer contains provisions on any joining fee raised from the members. Separate provisions for the joining fees were no longer considered necessary because the subscription price to be paid for a share can be determined according to the decision of the general meeting of the cooperative, whether the share has a nominal value or not. Part of the accession charge can be defined as a joining fee.

Different subscription prices can be levied from the cooperative’s members at different times. For instance, a member joining later pays a higher subscription price for the share than the incorporator. Irrespective of the nominal value of the share. If the share’s nominal value is, e.g., €100, the subscription price can be set at €500, of which €400 constitutes the joining fee, not to be refunded according to the resolution concerning the subscription price.

In the absence of specific provision for the joining fee in the rules, when the joining fee is levied together with the subscription price of the share, the general meeting discussing the subscription price (or the board, if it is allowed to determine the subscription price upon specific powers or according to the rules) must decide which part of the subscription price is to be refunded at the end of membership.

The rules can still contain a specific provision for the joining fee.

The joining fee can have various purposes. For instance, to safeguard its solvency, the joining fee allows the cooperative to gather equity that is not returned to the member at the end of membership. The joining fee can also eliminate the loss of value of old shares when new ones are issued, in which case the joining fee is a kind of compensation paid by new members when they start to enjoy the wealth created by the old members’ operations.

The joining fees of infrastructure cooperatives are usually used to cover the associated power, data, water, or other network connection costs. Because of the interpretation adopted for the tax treatment of infrastructure cooperatives’ joining fee for VAT purposes, the model rule for the joining fee does not apply as such to, e.g., water cooperatives.

The joining fee can be refundable or non-refundable. The amount levied from the members as a joining fee is not usually refunded to them after their membership. Still, the rules can stipulate that the joining fee is transferable when the member leaves the cooperative. It is also possible to return the amount of subscription price levied as a joining fee is refunded partly or entirely. This is mentioned in the resolution on the subscription price.

It is very complicated to include the detailed conditions for joining in the rules. If you wish to regulate the joining fee in the rules, it is better to leave the definition open-

4. Obligation to pay not based on subscription of shares during the operations of the cooperative

Like in a limited company, the cooperative member is not liable for the cooperative’s debts during its operations if this has not been specifically stipulated in the rules. These kinds of stipulations in the rules merit thorough considering. The obligation of the members to pay in case of bankruptcy or liquidation of the cooperative (the obligation of supplementary payments) is such an important derogation from the general rule that there has to be a due cause.

Extraordinary payment (COA, Chapter 13)

The cooperative member is not liable in any way for the cooperative’s debts, nor can the member be forced to participate in the cooperative’s investments with their money. However, it can be stipulated in the rules that the cooperative’s general meeting may decide to levy an extraordinary payment from its members for a specific need, determined in the rules, during the operations of the cooperative. In this case, the rules must also contain the basis for this obligation to pay and the maximum limit of any payment acceptable for a member during the financial year. Usually, this extraordinary payment is not refunded, but the rules can also stipulate that it has to be refunded.

The decision to levy an extraordinary payment is a resolution of the general meeting with a simple minority unless the rules stipulate a higher majority for such a resolution.

When considering an extraordinary payment stipulation, it is useful to think of the possible future needs that would justify extraordinary payments from the members. Do not include such a stipulation in the rules if the cooperative has no intention to levy these payments from its members.

Obligation of extraordinary payment (COA chapter 14)

The member’s personal liability for the cooperative’s debts is limited to the amount of money placed in the cooperative as equity capital. This principle is identical to limited companies. The rules of the cooperative can stipulate that its members are liable for its debts in case the own funds of the cooperative in bankruptcy or insolvency will not suffice to pay its debts (obligation of extraordinary payment). The obligation of extraordinary payment is a significant derogation from the rule according to which members are not liable for the cooperative’s debts.

If the stipulation for the obligation of extraordinary payment is included in the rules, the rules must also stipulate how the liability is shared between members, whether the obligation of extraordinary payment is limitless or limited, and, in the last case, what is the limited amount.

The board of directors of the cooperative has to ensure that anybody applying for membership has been clearly informed of the eventual obligation of extraordinary payment. This should be made so that it will be possible to demonstrate later that the member has been informed of this obligation.

Because the members’ obligation of extraordinary payments is a rare exception and there is no reason for the cooperative to deviate from liability for debts identical to limited companies, the model rules do not contain a model stipulation for such an obligation.

5. Use of the assets of the cooperative

Surplus (COA chapter 16, Sections 5 & 6)

The stipulation of the rules regulating the surplus distribution is one of the most important. The economical yield from the cooperative’s operations, i.e., the surplus according to the income statement, can only be distributed to the members if this is permitted in the rules. In the absence of rules on the criteria of distribution, the surplus will be divided proportionally to the number of services of the cooperative used by its members.

The criteria for the surplus distribution can be stipulated quite freely in the rules. The surplus can be stipulated to be distributed according to the proportion of used cooperative services, the amount of capital placed in the cooperative, or any other distribution method. The rules can allow different parallel ways of distribution and their order of application.

The next model includes the two most common criteria for surplus distribution. The first one is very general as an expression, “return of the surplus proportionally to the use of the services”. Its practical implementation must be considered carefully in, e.g., worker-cooperatives with diversified lines of business.

Refunding of the share (COA chapter 17)

When a member leaves the cooperative or terminates a share not tied to the membership, the cooperative returns the amount marked as share capital paid with the subscription price. The amount to be refunded can also be stipulated in the rules or the decision concerning the subscription price.

The rules can freely stipulate the amount of share to be refunded. As to the subscription price, the cooperative can refund less or more than was paid for the share. The refunding of the share requires that the cooperative has distributable non-restricted equity at the end of the financial year during which the membership ended, or the share was terminated.

Day of refund:
According to the Cooperatives Act, the amount refunded from the share is paid one year after the end of the financial year during which the membership ended, or the share was terminated. The rules can stipulate a longer or a shorter period of refund. The period or refund is always at least six months from the end of the financial year.

If the rules stipulate that the payment is refunded later than one year after the end of the financial year, there has to be a stipulation about the shareholder’s rights between the share termination and the share refund.

If no derogation is made from the refund in accordance with the Cooperatives Act, there is no need to incorporate a stipulation about the share refund.

6. Decision Making in the Cooperative

Members exercise their decisional powers in the cooperative’s general meeting, which decides on matters belonging to it under the Cooperatives Act or the rules. There has to be one meeting yearly, the ordinary general meeting, but the rules can stipulate on more general meetings. Especially in small cooperatives, there is usually no need for more ordinary meetings, because the board of directors can always convene an extraordinary general meeting. Also, the auditor and the blocking minority of members have the right to demand the organization of a general meeting of the cooperative.

The ordinary general meeting must convene within six months from the end of the financial year ja decide on the matters required by the Cooperatives Act, Chapter 5, Section 4, the most important of which are the approval of the annual accounts and the discharge of the cooperative directors. The rules can stipulate other matters to be decided by the general meeting. If more than one general meeting is stipulated, the rules must stipulate the matters to be decided in them.

In principle, the cooperative’s general meeting must take place in the locality of its registered office. The rules can stipulate for another locality. Especially for cooperatives with extensive area coverage and lots of members living elsewhere than in the locality of its registered office, it may be appropriate to include a stipulation for another place of meetings.

The rules can stipulate that a member may also participate by mail or by a communication link or other technical means. It is required that the right to participate and ballots’ correctness can be checked in a procedure comparable to the one adopted at the meeting place. However, a cooperative can not renounce a traditionally convened general meeting or limit its members’ possibility to participate.

In cooperatives with only a few members, matters belonging to the general meeting can be decided without convening the meeting if all members wish to do so unanimously. The resolutions must be written down, dated, and signed by at least two members.

 The statutory general meeting of the cooperative (COA Chapter 5, Section 4)

The following model stipulation lists the compulsory matters to be considered in the ordinary general meeting but does not mention any organizational details. These can be clarified in the rules if this is considered appropriate. Organizational details cover the opening of the meeting, the choice of its chairperson and secretary (the chairperson designates the secretary for the meeting), and the choice of at least one scrutineer of the minutes, the establishment of the quorum, and the adoption of its agenda.

 Member’s initiative right (COA, Chapter 5, Section 6)

Each member has the right to request that a matter which belongs to the general meeting’s competence be referred to this meeting for decision. Thus, the initiative right only applies to matters on which the cooperative’s general meeting can decide according to the Cooperatives Act or the rules. The most important of these are the election of the board of directors and the discharge of the board and the managing director if there is one, and the distribution of the surplus of the cooperative, the amendment of the rules as well as any matter essential for the existence of the cooperative, structural modifications and the end of operations.

The referral of a matter must be required from the board of directors early enough for it to be included in the convocation notice. A stipulation in the rules cannot limit the member’s initiative right, but these can stipulate a more extensive initiative right for the members.

The model rule is according to the COA, so its purpose is mostly informative, and its inclusion in the rules is not compulsory.

Stipulations concerning the board of directors (COA Chapter 6, Sections 1 to 16):

The board of directors is the only compulsory organ of the cooperative. Every cooperative must have a board of directors. The Cooperatives Act contains rather extensive provisions on the choice and qualifications of the board of directors’ eligibility, its duties, decision-making, and complements to its members if the office of a member ends early due to resignation or dismissal. The stipulations about the board of directors and its decision-making are mostly informative; they do not need to be included in the rules.

When drafting the rules, it is important to consider whether the number and the office of directors should be stipulated differently than in the Cooperatives Act default provisions. Likewise, it is worthwhile to consider if the members of the board should have any special qualifications or not.

Board of directors (COA, chapter 6)

According to the Cooperatives Act, one to five members can be chosen for the board of directors, but the rules can stipulate any number of members. If less than three are chosen, at least one alternate member must be chosen.

If there is no stipulation in the rules concerning the board of directors’ office, it will last until a new member is chosen. The rules can stipulate freely on the duration of the office. With a defined duration of more than one year, it is advisable to stagger the ends of offices so that only a part of the board will be leaving yearly. When electing the first board of directors, the durations of their offices will be drawn by lot.

Eligibility requirements can be stipulated in the rules for the persons to be chosen as members of the board of directors; the most frequent of these concerns the cooperative’s membership. It is worth considering if there is a need to limit members’ eligibility because this can exclude unnecessarily people with the know-how needed in the board. Without any specific reason, there is no use in electing too many members. The effective operation of the board of directors may be hampered because of an oversized composition. The default of the law, five members at most, should be enough for most small cooperatives.

The following model contains stipulations for the minimum and maximum size of the board of directors. The members are chosen each year, but their office can be longer, too. If the rules do not fix the number of the members in the board of directors, the general meeting must yearly establish the number of such members before their election. According to this model, the entire board of directors is changed every year.

Meetings and decision making of the board of directors (OKL 6:3- 6 §§)

In the model rule, the central stipulations on the convocation and the decision-making of the meetings of the board of directors are according to the Cooperatives Act. The stipulations are mostly informative, and their inclusion in the rules is not compulsory.

Duties of the board of directors (COA, Chapter 6, Sections 2 and 7)

The board of directors has universal powers in all matters related to the business of the cooperative. This means that the board ultimately decides on everything that was not specifically delegated by the Cooperatives Act or by the cooperative’s rules to the general meeting, to the supervisory board, or the managing director. This is why the stipulation in the rules, at its shortest, only repeats the provision of the Cooperatives Act. The stipulation can contain an indicative list of what the duties of the board might cover. An exhaustive list, however, would not be possible. If the board’s duties are listed in the rules, there may be uncertainty about who/which organ will decide on the matters not mentioned in the list. This is why we recommend stipulations to be made only if the powers of the board of directors are somehow restricted to transfer the powers of decision-making to the general meeting of the cooperative.

Managing director (COA Chapter 6, Sections 17 to 20)

The cooperative can but is not required to appoint a managing director. If none is chosen, the board of directors’ chairperson is in charge of the managing director’s duties.

The board of directors generally appoints the managing director. The rules may stipulate that the managing director be chosen by the general meeting or the supervisory board (if there is one). The managing director’s duties include dealing with the cooperative’s current business according to the instructions of the board of directors. Similarly, as with the board’s duties, those belonging to the managing director can not be listed exhaustively. The model rule includes the essential contents of the Cooperatives Act concerning the managing director. The stipulation is not compulsory. The fact the rules do not have a specific stipulation for the managing director is no obstacle for the election of one in the future.

Right of representation of the cooperative (COA Chapter 6, Section 26)

According to the Cooperatives Act, the board of directors represents the cooperative. The managing director can represent it in matters belonging to his duties according to the same Act. When representing the cooperative, the board of directors must have a full presence. Representing includes the right to sign the cooperative’s trade name.

In practice, the requirement according to which only the entire board of directors can represent the cooperative and sign in its name is difficult to execute. This is why it is advisable to include in the rules the stipulation according to which the right of representation is delegated by position to the chairperson or a member of the board of directors or the managing director either with an exclusive right to sign or by stipulating that a member of the board and the managing director have, in the presence of another such person, the right of representation and signature on behalf of the cooperative. Besides, we recommend a stipulation about the board of directors’ powers to award the right of representation to another person named.

Procuration rights are similar to the right of signature but somewhat more restricted.

7. Financial year, financial statements and auditing

Financial year and financial statements (COA Chapter 8, Sections 3 to 12, and Accounting Act, Chapter 1, Section 4, and Chapters 3 to 6)

The financial year can be specified either in the incorporation instrument or the rules. The decision to modify the financial year is always done by the cooperative’s general meeting, irrespective of where the stipulation is included.

According to the Accounting Act, the financial year is a 12 month period, usually the calendar year. When starting or unwinding the operations or after the amendment of the financial statement date, the financial year can be shorter or longer but not exceeding 18 months. The first and the last financial year can be as short as required.

In case the first financial year of the cooperative is shorter than six months, it is worthwhile to stipulate in the rules the first date of the cooperative’s financial statements. In this case, the first financial year will be long enough. In practice, the first financial year start from the signing date of the incorporation act.

Financial auditor and performance auditor (COA, chapter 7 and the Audit Act)

Choice of financial auditor:

The cooperative’s obligation to elect a financial auditor and to execute a financial audit is included in the Audit Act. The default rule is that the choice of the auditor and the execution of an audit are compulsory. The Audit Act has provisions for the qualification of the financial auditor to be chosen. The financial auditor has to satisfy the formal requirements of the Audit Act and have the diploma certifying his professional competence (authorized by Finland Chamber of Commerce, “KHT-tilintarkastaja”, or by a local Chamber of Commerce, “HTM-tilintarkastaja”) ), or it has to be an authorized audit firm (KHT or HTM) (Audit Act, Chapter 6, Sections 30 to 34).

According to the Audit Act, small entities, amongst which cooperatives, are exempted from the obligation to have their accounts audited and to elect an auditor, if during the financial year currently ended and during one immediately preceding only if one of the minimum criteria of the Audit Act is fulfilled:

1. the annual balance sheet exceeds € 100,000;
2. the turnover or the corresponding revenue exceeds € 200,000;
3. more than three persons are employed on average.

Even if the Audit Act does not require any auditor, the cooperative’s rules can stipulate that one must be chosen. In this case, the internal rule is mandatory, and the cooperative is required to have one.

The choice of the financial auditor belongs to the general meeting. If an auditor is chosen, there has to be one financial auditor and a second alternate auditor. The auditors remain in office until further notice unless the rules have stipulations for a definite term of office.

Choice of a performance auditor:

The Audit Act requires cooperatives to appoint a performance auditor for the cooperatives exempted from the requirement to appoint a financial auditor without stipulating the rules concerning the obligation to appoint one. If only one performance auditor is chosen, there has to at least one alternate performance auditor. However, this does not mean that the cooperative can derogate from the Cooperatives Act and stipulate that it will not select any performance auditor. The general meeting always elects the performance auditors.

Concerning the performance auditor, there is no professional qualification required, unlike for the financial auditors. This does not mean that any layman could be designated as the performance auditor. The Finnish Cooperatives Act assumes the performance auditor has the necessary knowledge and experience of financial and legal affairs proportionally to the nature and the extensiveness of the cooperative’s operations in question. Also, the performance auditor has to independent of the cooperative and its administration. According to the Cooperatives Act, the performance auditor is not allowed to be, amongst others, a member of the board of directors, the managing director, a near relative of these, or a person employed by the cooperative. Members of the cooperative are not unable to act as performance auditors. (Eligibility and independence of a performance auditor, cf. COA Chapter 7, Section 9).

Options for the choice of a financial auditor or a performance auditor

1 ) Stipulation in the rules with only a reference to the Audit Act:

The cooperative’s general meeting is required to elect at least one financial auditor, and an alternate financial auditor or, the financial auditor has to be an audit firm. If, according to the Audit Act, the cooperative is not required to choose a financial auditor, the general meeting is required to choose at least one performance auditor and one alternate performance auditor. Both the financial auditor and the performance auditor will be in office until further notice. The rules can stipulate otherwise for their office.

The preceding stipulation in the rules is mainly informative; it is not compulsory to include it if the cooperative is to confirm itself to the provisions of the laws (Cooperatives Act and Audit Act) for the financial and performance auditors.

2) The rules have an unconditional stipulation for the choice of a financial auditor:

The financial auditor and the alternate financial auditor must always be chosen, even if the Audit Act does not require a financial auditor’s election for a cooperative.

3) Stipulation in the rules excluding the choice of a performance auditor:

8. Other provisions

 Amendment of the rules (COA Chapter 5, Sections 29 to 31)

The amendment of the rules isf always a resolution requiring a qualified majority. A stipulation in the rules can not tone down this requirement of a qualified majority, but there can be a stricter majority requirement. The general meeting of the cooperative always decides the amendment of rules.

In principle, the amendment of the rules requires at least 2/3 of votes cast in the general meeting. If the amendment has or may have a material impact on the rights of a member or those arising from a share, or if the decision increases members’ obligations towards the cooperative, its acceptance requires a majority of 9/10 of the votes cast in the general meeting or even unanimous support from all the members represented in the meeting depending on the materiality of the impact of the amendment on rights and obligations related to the cooperative membership or share.

If the requirement of the qualified majority concerning the amendment of rules is not are not made more stringent, this stipulation is rather informative, and it is not compulsory to include it in the rules.

Liquidation of the cooperative and distribution of its assets (COA chapter 23)

If there is a desire to cease the operations of the cooperative and to distribute its assets to its members, the cooperative must be wound-up according to the liquidation procedure. The decision to liquidate the cooperative requires the qualified majority of 2/3 of the votes cast in the general meeting. The rules can require a larger majority of votes.

During the liquidation procedure, the liquidator chosen by the general meeting will liquidate the assets of the cooperative and pay its debtors. From the remaining net assets, the amount of share carried into the cooperative capital will be returned to the member, and then the remaining assets will be refunded to the shares proportionally to their number.

The rules can stipulate that the surplus be divided according to the number of shares subscribed or fully paid by the members, or according to the membership’s length, or under various simultaneous criteria specified in the rules. Under these stipulations, the surplus can be distributed to non-members, e.g., In pursuance of public benefit purposes. Alternatively, the rules can stipulate that the surplus distribution is to be decided by the cooperative’s general meeting.

If there is no derogation from the default provisions of the Cooperatives Act, the stipulations concerning the winding-up and liquidation of a cooperative are not such essential stipulations regulating its operations cannot be considered necessary or complementary to be copied into the rules. However, if the qualified majority requirement is desired to be more stringent for the decision of liquidation or if the criteria of distribution of net assets is to be derogated, these stipulations must be included in the rules.