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Legal entity as a member of a cooperative

The law stipulates that a housing cooperative must have at least three members, regardless of whether they are natural or legal persons. Under the current Corporations Act, it is possible for a legal person to be a member. What does all this entail?

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Who can become a member of the cooperative?

According to the law, both natural and legal persons can be members of a cooperative. A natural person who has completed compulsory schooling and has reached the age of 15 may become a member. Membership begins either on the date of the establishment of the cooperative (this option 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.

The process of setting up a cooperative generally involves the following steps:

  • Drawing up the cooperative’s statutes: Persons planning to form a cooperative must write a constitution that sets out the rights and obligations of 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.

The possibility to exclude the membership of a legal entity in the statutes

While the law allows for the membership of a legal entity in a housing cooperative, it also gives individual housing cooperatives the option to prohibit the membership of a legal entity. Prohibiting the membership of a legal entity in a housing cooperative can only be done in the statutes of the housing cooperative. This then precludes the transfer of the cooperative share (flat) into the ownership of any legal person.

If the statutes of the housing cooperative do not contain a provision prohibiting the membership of a legal person, the legal person may be a member of the housing cooperative. However, caution must be exercised when reviewing the bylaws in an attempt to find such a prohibiting provision. The prohibition need not necessarily be couched in words: ‘membership of a legal person in a housing association is prohibited...’, but may be described by a number of other formulations, for example: ‘thepurpose of the housing association is to provide for the housing needs of natural persons only‘.

Before concluding a purchase agreement for a membership share in a housing cooperative, it is therefore always worth consulting us on this issue and having us check the statutes from this perspective.

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 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.

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.

Membership Restrictions

In addition to the above, the law gives housing cooperatives the possibility to limit the membership of a legal entity. In practice, this may mean, for example, that the statutes stipulate that a certain type of legal entity, such as a limited liability company, may not be a member of a housing cooperative. Or the articles may prohibit the membership of persons with a particular business or activity, for example, companies whose business includes hospitality or gambling.

Amendment of articles – consequent exclusion of membership

Above we have only dealt with the question of prohibition or restriction of membership of a legal person in a housing association, which is already contained in the articles of association. However, the view on the membership of a legal person in a particular housing association may change during the lifetime of the housing association.

So what if a housing association subsequently changes its statutes, for example by making the restriction on legal entity membership a complete ban? The law addresses this as well. Any additional amendment to the statutes must not have retroactive effect and affect a legal person who was already a member of the housing association before the amendment to its statutes.

Download the free readable ebook for HOA and BD presidents and their members and avoid the legal risks that accompany the management of your building.

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

Are you solving a similar problem?

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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.

Education
  • 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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