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-