Starting a Cooperative in Finland

Decision Making in the Cooperative

Content

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 general meeting of the cooperative

Members use their decisional powers during the general meetings and in matters belonging to them according to the law or the rules.

The meeting is convened in the locality of the cooperative’s registered office. The meeting can take place elsewhere if the cooperative has an office in the locality or if more than half of the cooperative members have their official residence according to the member register.

A member can participate in the meeting also by mail or by a communication link, or by other technical means. It is required that the right to participate and the correctness of ballots can be checked in a procedure comparable to the one adopted at the meeting place

Concerning the convocation of the cooperative’s general meeting, the contents of the notice of convocation, its time of notice and way of communication, and the delivery and availability of the meeting documents, the provisions of the Cooperatives Act, chapter 5 apply. The notice of the cooperative’s general meeting can also be published in a newspaper decided by the board of directors and widely spread amongst the members, or sent by e-mail to the address communicated by the member or by other electronic means.

 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.

§ The ordinary general meeting of the cooperative

The cooperative’s ordinary general meeting must be held within six months from the end of the financial year.

The meeting will decide on:

  1. the approval of the annual accounts
  2. the use of the surplus indicated in the balance sheet
  3. the discharge of the members of the board of directors and of the general manager
  4. the number of the members of the board of directors (THIS only if the number of the members in the board is not fixed according to the rules)

will elect:

  1. the members of the board of directors needed
  2. if needed, the financial auditor and the alternate financial auditor, or the performance auditor and the alternate performance auditor

 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.

§ Initiative right of a member

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, provided that the member requests this early enough to be included in the notice of convocation.

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.

§ Board of directors

The cooperative board of directors is composed of at least three (3) and at most five (5) members. Each member’s office starts at the end of the meeting during which they were chosen and ends at the next/second/third ordinary general meeting of the cooperative when the new board is chosen. The board will elect a chairperson at the first meeting following their choice.

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.

§ Meetings of the board of directors

The chairperson of the board of directors is responsible for the convening of its meetings whenever needed. The chairperson must convene a meeting if one member of the board or the managing director requires so. If the chairperson of the board of directors, despite a request, does not convene a meeting, any member of the board can deliver a notice of convocation, if at least half of the board members accept the convening. The managing director can also deliver the notice.

The board of directors can decide that non-members of the board can participate in the meeting. The managing director is entitled to participate in the board of directors’ meetings and be heard, even if not being its member unless the board of directors decides otherwise.

 § Decision making of the board of directors

The board of directors will have a quorum with more than half of its members present. However, no decision will be made unless all members have been reserved, as far as possible, the opportunity to participate in consideration of the matter.

Unless a qualified majority is required in the rules, the board’s decision shall be the opinion receiving the support of over half the directors present or, if there is a tie, the opinion receiving the support of the chairperson. If there is a tie when electing the chairperson, the decision will be drawn by lot.

Minutes will be kept of the board of directors’ meetings, to be signed by the person chairing the meeting, and by at least one director appointed to the task by the board of directors. A director and the managing director have the right to have a dissenting opinion entered into the minutes. The minutes of the meetings shall be given consecutive numbers and archived reliably.

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.

§ Duties of the board of directors

The board of directors will carefully have to promote the cooperative’s interest. It ensures the administration and the appropriate organization of the activities (universal powers). It is responsible for the appropriate organization of the accounting and internal control.

In a particular case, the board of directors can decide on a matter belonging to the managing director’s universal powers. It can defer a matter belonging to the board’s universal powers or the managing director to the general meeting for decision.

The board of directors or its member must not comply with a decision of the general meeting or by the board of directors if the decision is contrary to the Cooperatives Act or the cooperatives’ rules and thus invalid.

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.

§ Managing director

The cooperative has a managing director if the board of directors decides so.

The managing director will carefully have to promote the cooperative’s interest. The managing director will deal with the cooperative’s current business according to the instructions and stipulations of the board of directors (universal powers). The managing director is responsible for the compliance of the cooperative’s accounting with the law and the reliable organization of the financial management.

Considering the scale and nature of the cooperative’s operations, the managing director may take unusual or wide-ranging measures only if authorized by the board of directors or if it is impossible to wait until the board of directors’ decision without causing substantial impairment to the cooperative’s operations. In the last case, the board must be informed of the measures as soon as possible.

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.

§ Representation of the cooperative

The cooperative is represented, and its trade name is signed by the chairperson and the board of directors. And the managing director, always two persons together. Additionally, the board of directors can delegate the right of signature to any person named, who is entitled to sign the trade name together with a member of the board of directors, or the managing director. The board of directors can also decide to award procuration rights.