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Establishment and membership of a cooperative

A cooperative is a specific type of corporation that is worth forming for many reasons. Typically when you need to manage an apartment building, but also perhaps when you want to provide social services or join together for agricultural activities. How to proceed if you have such an intention?

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Types of cooperatives

While the housing cooperative probably needs no introduction to the general public, and many of us remember agricultural cooperatives from the past (although today’s cooperatives differ from them in many ways, of course), the social cooperative is a relatively little-used legal entity. It is set up when you want to systematically develop activities of general interest aimed at promoting social cohesion in order to integrate disadvantaged people into society, both in terms of work and social integration. Typically, this may include the creation of employment opportunities, social services and health care, education, housing and sustainable development.

They are primarily governed by the general provisions of the Companies Act, but also have certain specificities, for example concerning the prohibition of transfer and transfer of membership shares.

An interesting example of cooperatives that straddle the line between housing and social cooperatives are some social cooperatives that are dedicated to community housing. They have found inspiration, among other things, in the Association of Tenement Houses in Germany, where this project has been running for years and brings together some 130 houses. In contrast to traditional housing cooperatives, there is much more emphasis on community and the joint acquisition of a house. The house is usually bought collectively and the rent is paid jointly to repay the mortgage or direct loans with which the house was bought. Often public spaces, workshops, children’s play areas, gardens or cafés are also part of the ‘house projects’. Shared houses are an example of such an arrangement.

Do you need to draw up the statutes of a cooperative?

We will make sure that your statutes comply with the law. We will set up a unit owners’ association or a turnkey housing cooperative for you. We will draw up or check the statutes of your HOA or condominium. We will also take care of the follow-up process for the establishment of the HOA or condominium.

Tip: 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 cooperatives work and what are their benefits? That’s what we look at in our separate article. We’ll reveal why a co-operative could be the right choice for your business or community project.

Establishment of a cooperative

Before starting a cooperative, you should have a clear idea of its purpose and objectives. Think about why you are choosing the form of cooperative, who will be members, what resources and assets the cooperative will need and what benefits it will bring to members and their community. Once you have these answers, you can start taking practical steps.

Setting up a cooperative starts with drawing up a memorandum of association during the incorporation meeting, after which the cooperative is registered in the commercial register. The cooperative must draw up its articles of association in accordance with the applicable laws.

To set up a cooperative, it is necessary to hold a constituent meeting during which all important details are verified by a notary. Once the founders are clear on the basic issues, a convenor should be appointed and planning for the founding meeting should begin. Prospective members must apply and attend this meeting.

During the founding meeting, the statutes of the cooperative are approved, its organs are elected and the terms of the membership contributions are set. It is important that all members have the same rights and obligations.

Conditions for membership of the cooperative

The specific conditions to be fulfilled by individual members of the cooperative are not laid down by law, but primarily by the cooperative’s statutes. However, it is essential that the conditions must be met not only when joining the cooperative but also throughout the entire period of membership. If a member ceases to fulfil the conditions, he or she may be expelled.

What the specific conditions for entry apply to depends primarily on the nature and purpose of the cooperative. It may be a certain type of in-kind contribution or a professional prerequisite.

In the case of a social cooperative, the situation is again a little more specific. Membership is open to a person who works for the cooperative on the basis of an employment contract or as a volunteer without remuneration, or, conversely, to persons who are provided with socially beneficial activities within the cooperative (education, shopping, care services, etc.). If a member ceases to carry out certain activities for the cooperative, he or she may be expelled from the cooperative after 90 days, as provided by law. However, the law does not address how to deal with members who have been provided with social cooperative services. It is therefore up to the statutes to regulate such conditions.

Also, a housing cooperative has certain specifics for the establishment of membership, which are related, for example, to the conclusion of a marriage. This is dealt with in more detail in the texts on the subject.

Tip: 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 cooperatives work and what are their benefits? That’s what we look at in our separate article. We’ll reveal why a co-operative could be the right choice for your business or community project.

Creation of membership on formation and during the lifetime of the cooperative

Those interested in forming a cooperative should apply for membership of the cooperative to be formed at the constituent meeting at the latest. A further condition is that the prospective member meets the conditions set out in the law (e.g. the deposit requirement) and the statutes and that the application is approved. Once the cooperative is established, its members are granted membership on the date of its establishment.

However, membership may also arise after the establishment of the cooperative, i.e. during its lifetime. A written application must be made and the conditions imposed by the statutes must be fulfilled. It is then up to the competent body of the cooperative (typically the members’ meeting), which has this power, to decide. Membership can never arise retrospectively, i.e. at the earliest on the date of the decision or on one of the following days.

Generally, membership in a cooperative is for an indefinite period of time. However, there are cases where it is conditional and linked to employment with the cooperative. If the contract is for a fixed period, membership is usually limited to that period (unless the statutes say otherwise).

Other ways in which membership of the cooperative may arise during its term are:

  • transfer of cooperative shares,
  • transfer of the cooperative share to the legal representative of a former member.

In general, this possibility is provided for in the Business Corporations Act, but it may again be regulated in more detail by the articles of association.

Co-ownership of a share by more than one person

The current legislation allows in some cases for the ownership of a cooperative share by more than one person. However, if the share is co-owned, the co-owners of the share are joint members of the cooperative and the share is administered in relation to the cooperative by a trustee, who is one of the co-owners on the basis of a contract of mandate. However, this procedure does not apply to a share which is held in community of property. In this case, the rights and administration of the share may be exercised by either spouse.

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. In our article, we take a look at how such housing cooperatives work and what the advantages and disadvantages of cooperative housing are.

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Statutes for HOA or housing cooperatives

We will review your HOA or housing cooperative bylaws or we will write them up for you from scratch. We will always ensure that they comply with current legislation. Our bylaws are always tailored to the needs of the residents of the building. We can also set up your HOA or housing association on a turnkey basis. We will arrange everything quickly, flawlessly and at pre-determined prices. You can pay only after the service has been provided.

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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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