Cooperative: meaning and legal aspects under Czech law

Co-operatives work on the principle of membership and democratic control, allowing members to share profits and decide the direction of the business. But how exactly do they work and what are their benefits? That’s what we look at in our article. We’ll reveal why a co-operative could be the right choice for your business or community project.

družstvo, bytové družstvo
6 minutes of reading

Chapters of the article

What is a cooperative and how is it formed?

Under Czech law, a cooperative is formed by incorporation with a deed of incorporation and subsequent registration in the Commercial Register at the competent court. At least five founders are required to establish a cooperative and these persons must be members of the cooperative. A cooperative may be established for the purpose of doing business or for the purpose of satisfying other needs of its members.
The process of establishing a cooperative generally involves the following steps:

  • Drawing up the cooperative’s statutes: Persons who plan to form a cooperative must write bylaws that set forth the rights and obligations of the members, the objectives of the cooperative, the governing bodies, etc.
  • Founders’ meeting: the founders meet for a constituent meeting to approve the statutes and elect the first members of the cooperative’s statutory body, which is the board of directors.
  • Registration in the Commercial Register: Once the statutes are approved at the constituent assembly, the cooperative applies to the court and becomes a legally valid entity after meeting all legal requirements, including registration.

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What are the advantages of the cooperative legal form?

  • Joint enterprise: a cooperative allows several persons with similar interests and objectives to join together in one legal entity. This can facilitate joint enterprise and the achievement of common goals.
  • Democratic structure: members have the right to participate in decision-making and influence the direction of the cooperative. Each member has one vote, regardless of the amount of his/her investment in the cooperative.
  • Limited risk: Members are not personally liable for the cooperative’s obligations. Their liability is limited to their investment in the cooperative.
  • Economic benefits: cooperatives often have better access to credit or financing because banks and other institutions can see greater stability and credibility in the collective business.
  • Flexibility: The legal framework of cooperatives provides some flexibility in organisation and operation, allowing the cooperative to adapt to the specific needs of members.
  • Social aspect: Cooperatives often serve to promote the social, cultural or economic interests of their members and can thus benefit the community.

Tip: Co-operative building is starting to boom again. Some cities, including Prague, are launching projects based on cooperation between local government and the private sector to make housing more affordable for citizens. We have summarised how housing cooperatives work and what the advantages and disadvantages of cooperative housing are in our article.

It should be remembered that each legal form has its advantages and disadvantages, and the decision to form a cooperative should be considered in light of the particular situation and needs of the founders and members. It is advisable to consult with a legal expert before setting up a cooperative to ensure that all legal requirements are properly followed.

Co-operative versus company

In many ways, cooperatives resemble commercial companies. They can be used to bring people together and generate profits together. However, they differ in a number of ways.

A company may be formed by two or more persons and is created by registration in the commercial register. A cooperative, on the other hand, must be formed by at least five founders who are also the first members of the cooperative. It must also be registered in the commercial register.

A commercial company may be owned and managed by both natural and legal persons, with assets and income distributed among the owners according to their ownership shares. A cooperative, on the other hand, is owned by members who share ownership and decision-making of the cooperative and are jointly liable for its obligations. It is typical of a cooperative that its members make decisions democratically, i.e. each member has one cooperative share, i.e. the same rights and obligations as the other members.

The primary purpose of a company is profit, which is distributed among the members who own shares in the company. A cooperative often has other purposes, such as providing services or meeting the needs of its members, and the profits must be distributed to the members according to set rules.

The members of a company are usually limited to the amount of their contributions to the company. In a cooperative, the members are jointly liable for the obligations of the cooperative.

In general, a partnership is suitable for businesses where speed and flexibility are important and for projects that require more capital.

Tip: How to set up an SVJ or housing cooperative? Establishing a unit owners’ association or housing cooperative does not only concern the first owners of flats in a newly built apartment building. What are other situations where this happens? And how to proceed with the establishment and what not to forget? In our article we have prepared a practical and clear guide for you.

Bodies of the cooperative

A cooperative is formally formed and dissolved by registration, or deletion, in the Commercial Register. As a rule, the cooperative may be represented externally by its chairman or vice-chairman of the board of directors.

Themembers’ meeting is the highest-ranking body of the cooperative, where all members of the cooperative meet to discuss the cooperative’s affairs. The legal framework for its operation is clearly set out in the Companies Act. The most important powers of the members’ meeting include the election and removal of the members of the board of directors and the audit committee, the approval of the cooperative’s budget and the annual accounts.

TheBoard of Directors is the statutory body of the cooperative, which carries out its day-to-day administration and represents the cooperative vis-à-vis third parties. The legal and statutory provisions reserve to the Board of Directors all matters not reserved for decision by the members’ meeting.

Thecontrol committee shall perform the control function in the cooperative. Its independence from the board of directors enables it to exercise impartial supervision over the overall activities of the cooperative, including commenting on the annual accounts.

Who can become a member of the cooperative?

Natural and legal persons can be members of the cooperative. Membership is open to natural persons who have completed compulsory schooling and have reached the age of 15. Membership begins either on the date of the establishment of the cooperative (applies to founding members) or during the lifetime of the cooperative by being accepted as a member on the basis of a written membership application.

Specific forms of cooperative

Specific forms of cooperatives are social and housing cooperatives. A social cooperative aims to promote social cohesion and its effectiveness is intended to be of general benefit.

The most typical form of cooperative is the housing cooperative, which is usually established to provide for the housing needs of its members. In addition, it may manage houses with flats and non-residential premises owned by other persons or engage in business as a secondary activity. However, all its profits must be used to meet the housing needs of its members. At least three members are required to form a housing association.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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