This is a translation of our Finnish Model Rules for Cooperatives for orientation. In Finland you have to submit cooperative bylaws/rules in Finnish or Swedish to the Finnish Patent and Registration Office when registering a cooperative.
Every cooperative must have rules according to which it must operate, together with the applicable law. The incorporators of the cooperative have to agree on the rules’ contents and attach them to the incorporation instrument and file them at the Trade Register, accompanied with the incorporation instrument when notifying the cooperative for registration.
Model rules for a water cooperative are available in Finnish here.
The Finnish Cooperatives Act, Chapter 3, Section 3 contains the minimum compulsory stipulations that must be included in the rules. The rules must always contain:
- the trade name of the cooperative
- the municipality in Finland where the seat of the cooperative is located
- the line of activities of the cooperative
The Cooperatives Act provisions are largely facultative, which means the things can be stipulated otherwise in the rules of each cooperative. According to Chapter 1, Section 9, the members can determine its activities, but any stipulation contrary to the Cooperatives Act or any other mandatory law provision is illegal. Mandatory provisions of law concern mainly the protection of the members and creditors of the cooperative. Examples of these include rules pertaining to members’ expulsion, decisions requiring a qualified majority of votes, and the distribution of assets.
If the rules of the cooperative fulfill only the minimum contents according to the Cooperatives Act, the following stipulations are to be applied to the operation of the cooperative:
- Only the members of cooperative can use its services;
- The shares have no nominal value, and the issue price of a share is determined by the general meeting or the board of directors;
- All shares confer an equal economic right in the cooperative;
- The cooperative is not entitled to distribute any surplus (nor to augment its reserve fund);
- The term of office of the board of directors is until further notice. The board can be composed of at least one and at most five members. With less than three members on the board, at least one alternate member has to be elected
- The board represents the cooperative. If the cooperative has a managing director, he or she can represent it in matters belonging to his powers according to the Cooperatives Act;
- One financial auditor and one alternate are elected for the cooperative if required by the Audit Act. The term of office of the auditor ends when a new one is elected;
- If the election of a financial auditor is not compulsory according to the Audit Act, it is mandatory to elect a performance auditor for the cooperative and an alternate;
- In case of winding-up, the net assets of the cooperative are distributed based on the number of members.
The rules enable the tailoring of the cooperative to serve its and its members’ needs as best as possible. Most often, rules fulfilling the minimum requirements are not sufficient. There is no use in limiting oneself to the minimum rules required by the Cooperatives Act in practice. The most essential stipulations almost invariably included in the rules of any cooperative that differ from the presumed stipulations of the Cooperative Act concern the distribution of possible surplus, provision of services of the cooperative to others than members, and the representation of the cooperative. If any of these stipulations are excluded from the rules of the cooperative, there has to be a motivation for this, and the incorporators must understand what this means for the cooperative’s operation.
On the other hand, it is good practice to avoid a set of rules regulating too strictly the cooperative’s operation because they might lead to frequent amendments of rules. Because the rules are tailored to every cooperative and the stipulations contained therein equal in legal force to law, the rules must correspond to all stipulations essential for the operation of the cooperative and its and its members’ status, based on the Cooperatives Act. Only the rules are registered. It may be difficult to change the rules later because any amendment of the rules requires the qualified majority of at least two-thirds of votes, in some cases a unanimous resolution. Besides, the registration of amendments generates costs for the cooperative. That is why the detailed “guidelines” can and should be agreed in a membership agreement.
The Trade Register checks during the registration of a cooperative that the stipulations contained in the rules are not against the Cooperatives Act or any other law nor contrary to accepted principles of morality. That is the utmost limit of the examination obligation of the Trade Register.
PLEASE READ THE COOPERATIVES ACT BEFORE DRAWING UP THE RULES! fhttp://www.finlex.fi/fi/laki/ajantasa/2013/20130421?search%5Btype%5D=pika&search%5Bpika%5D=osuuskuntalaki
Guidance for drawing up of rules
Anyone relying on the model rules has to remember that they are seldom adapted for different types of cooperatives unaltered. The incorporators of any cooperative drawing up its roles should consider them carefully from the point of view of the operation of their cooperative and adapt them accordingly. However, all rule stipulations listed hereunder are not necessary to be included in the rules; every cooperative may choose the ones corresponding to their needs.
These model rules are mainly suitable for smaller cooperatives. The management model is simple and basic, with the board of directors, a managing director, and the general meeting. The model rules lack any stipulations concerning the supervisory board and the representative assembly. And they do not address the possibility of implementing stocks as shares of the cooperative.
The model rules incorporate all essential stipulations for matters encountered often in practice while administrating any cooperative. Part of the rule stipulations are according to the minimum provisions of the Cooperatives Act. If there is no deviation from the Cooperatives Act’s provisions, they do not have to, but they can be written down in the rules. If the minimum provisions of the Cooperatives Act are written in the rules, the result can be more transparent because all essential stipulations regulating the operation of the cooperative and the relationship between the cooperative and its members are found in the same place. In addition to the rules, every incorporator and future member of a cooperative should always read the Cooperatives Act and other relevant laws regulating the operations of a cooperative, like the Accounting Act and the Audit Act.
When drawing up the rules, you should pay attention to the following things and verify if there is a need for a stipulation deviating from the Cooperatives Act. If there is no corresponding stipulation in the rules, the Cooperatives Act provisions are applied instead.
- provision of service to non-members (presumption in the Act: services only available to members)
- restriction of the member’s right to resign from the cooperative (presumption in the Act: with immediate effect)
- distribution of the surplus and its key (presumption in the Act: no right to distribute the surplus)
- stipulations concerning the persons entitled to sign on behalf of the trade name (presumption in the Act: the entire board of directors. Besides, the managing director is entitled in matters belonging to his or her powers)
- stipulation concerning not electing a performance auditor (presumption in the Act: the election of a performance auditor is obligatory if a financial auditor is not selected)
- varying number of votes for each member (presumption in the Act: one member, one vote)
- is there a nominal value for a share (presumption in the Act: the issue price is determined by the general meeting or the board of directors, under delegation)
- member’s obligation to take more than one share (presumption in the Act: every member must take one share)
- shares with different rights or obligations and their differences (presumption in the Act: all shares confer the same rights)
- are the shares transferable (presumption in the Act: untransferable)
- accession charges (presumption in the Act: no charge for accession)
- extension or reduction of the term for the amount to be repaid to the member from the share (presumption in the Act: within one year from the end of the financial year during which the member resigned or reduced the number of shares)
- possibility of accelerated repayment of a share (presumption in the Act: within one year from the end of the financial year during which the membership ended)
- possibility of late repayment of the contribution of a resigned member (one year: if the cooperative has not sufficient assets for the reimbursement according to the accounts of the financial year during which the member resigned or reduced the number of shares, there is no reimbursement of contribution at all)
- possibility of extra payments (presumption in the Act: no right to extraordinary payments)
- obligation of extra payments to the creditors in case of bankruptcy or liquidation of the cooperative (presumption in the Act:: no obligation of additional payments)
- distribution of the assets if the cooperative ceases to operate or is wound up (presumption in the Act: in proportion to the number of the members)