Cooperative Finance and Cooperative Identity

Abstract

The question addressed in this paper is whether the financial structure of cooperatives constitutes a badge of identity that differentiates cooperatives from other corporate legal forms such as capital-based companies.

To this end, it examines features of their financial structure that are considered typical of cooperatives in a number of documents published by international organizations: the International Co-operative Alliance's Statement on the Co-operative Identity (ICA, Manchester, 1995); the International Labour Organization's R193 Promotion of Cooperatives Recommendation (ILO, 2002); Council Regulation (EC) No. 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE), and the Communication from the Commission to the Council and the European Parliament, the European Economic and Social Committee, and the Committee of Regions on the promotion of co-operative societies in Europe (Brussels 23.02.2004, COM(2004) 18).

All these documents agree in pointing to the ICA cooperative principles as characteristics that identify cooperatives. They also agree in pointing to certain aspects of the financial structure of cooperatives as identifying features: most of the cooperative's share capital has to be held by the cooperating members, shareholding does not determine the member's rights, any return on capital must be at a limited rate, and part of the cooperative's reserves cannot be divided among the members.

Other aspects of their financial system, while typical of cooperatives, are not so essential to their nature. These include reserves remaining indivisible even if the cooperative is dissolved or changes its legal form, and variable share capital.

Lastly, this examination has brought to light certain weaknesses in the legal system covering cooperatives that need to be remedied by measures such as establishing guarantees for members when the cooperative demands new contributions to capital, favouring solvency by strengthening the creation and preservation of the cooperatives' capital and reserves, and others that have come to light as a result of allowing or demanding stability (rather than variability) of the cooperative capital, such as making shares easier to transfer or allowing cooperatives to acquire their own shares in order to make it easier for members to join and leave.

Keywords: Cooperatives, Cooperative Law, Cooperative Identity, Cooperative Finance, Cooperative Principles

JEL Classification: K29, L29, L39