Rights and Obligations of a Cooperative Member: Transfer of Shares and Expulsion

Quick Overview

• A cooperative member may vote, attend members’ meetings, elect the cooperative’s governing bodies, and, subject to certain conditions, enjoy the benefits of the cooperative.
• A cooperative member’s basic obligations include complying with the bylaws and the decisions of the cooperative’s governing bodies.
• Additional rights and obligations are specified in the bylaws, such as the obligation to pay the membership share, pay rent, or work for the cooperative.
• The transfer of a cooperative share is governed by law and the bylaws; special rules apply to housing cooperatives.
• Serious or repeated breaches of obligations may result in a member’s expulsion from the cooperative.

Are you unsure whether the cooperative’s bylaws restrict your rights or impose obligations on you beyond what is required by law? Our attorneys will review the bylaws and the cooperative’s specific practices and explain how you can defend your rights.

Legal Framework Governing the Rights and Obligations of Cooperative Members

The basic legal framework is based on the Business Corporations Act. Section 575 of this Act specifies the obligations and duties of cooperative members. This provision states that

A member has the right, in accordance with the law and the bylaws, in particular:

a) to vote and be elected to the cooperative’s governing bodies,

b) to participate in the management and decision-making of the cooperative,

c) share in the benefits provided by the cooperative.

A member is, in particular, obligated to:

a) comply with the bylaws,

b) comply with the decisions of the cooperative’s governing bodies.

The law actually stipulates only the bare minimum, noting that this is a general and, above all, illustrative list. In practice, the characteristics and modes of operation of individual cooperatives differ so greatly that it is impossible to define more universal rights and obligations that would apply to every type of cooperative. For example, mandatory work for the cooperative is typically part of the obligations (and, at the same time, rights) in social cooperatives; however, it would not make much sense in a housing cooperative.

From our experience, we know that members often rely solely on general information found online and do not read their cooperative’s bylaws until a dispute arises. Yet it is precisely the bylaws that can determine, for example, the conditions for transferring a share, other payment obligations, or specific grounds for expulsion. When assessing a dispute, it is therefore always necessary to consider not only the law but also the current version of the bylaws and the decisions of the cooperative’s governing bodies.

Rights of Cooperative Members Under the Law

The law lists as the first right the right to elect members of the cooperative’s governing bodies from among the other members of the cooperative , and conversely, the right to be elected to these bodies.

The second right mentioned is the right to participate in the management and decision-making of the cooperative. This typically occurs through participation in members’ meetings, where a member has the opportunity to submit proposals, communicate with other members of the cooperative, and, above all, vote. Direct participation in the management of the cooperative is also reflected through membership in the cooperative’s elected bodies, namely the board of directors, the audit committee, and other bodies established by the cooperative.

The final right mentioned in the law—namely,“to share in the benefits provided by the cooperative”—is a very broadly formulated principle reflecting the fact that cooperatives are generally focused on providing specific services or manufacturing products and often offer discounts on their goods or services, or they may make tools or equipment used by the cooperative available to members, or offer other similar benefits. The specific amount of discounts and the procedure for claiming benefits must again be set forth in the bylaws, as a housing cooperative, for example, may offer entirely different benefits than a manufacturing cooperative.

Additional rights also arise from the Business Corporations Act. These include, for example, the right to a settlement share and the right to challenge the validity of a resolution passed by the members’ meeting, etc.

Members may stipulate the right to a share of profits in the articles of association.

Obligations Imposed on Cooperative Members by Law

The fundamental obligation is the duty to comply with the cooperative’s articles of association. This underscores the importance of the cooperative’s fundamental internal regulations, particularly given that, by their very nature, not all obligations can be enshrined in law.

Failure to comply with the obligations set forth in the bylaws may result in the expulsion of a cooperative member, which is a significant tool that further underscores the importance of the bylaws.

Another obligation is the duty to comply with the resolutions of the cooperative’s governing bodies, primarily the members’ meeting and the board of directors.

Other typical obligations that the bylaws may impose on cooperative members relate to monetary or non-monetary contributions to the cooperative, the obligation to work for the cooperative or provide other assistance, and so on.

When Can a Member Be Expelled from the Cooperative?

A member may be expelled from the cooperative if they seriously or repeatedly violate their membership obligations, cease to meet the conditions of membership, or if another important reason specified in the bylaws arises. Thus, a mere minor or one-time lapse is not sufficient. The cooperative must be able to describe and prove the specific grounds for expulsion.

A decision to expel a member is generally preceded by a written warning. In this warning, the cooperative must specify which obligation the member is violating, inform the member of the possibility of expulsion, and provide a reasonable period of time for the member to remedy the situation, but no less than 30 days. A warning is not required if the consequences of the violation can no longer be remedied.

The board of directors or another body designated by the articles of association decides on expulsion. The decision must be in writing, substantiated, and must include instructions on the right to file an objection. The cooperative must make a decision no later than six months from the date it became aware of the grounds for expulsion, and no later than one year from the date the grounds arose.

How a Member Can Defend Themselves Against Expulsion

The member facing expulsion may file a reasoned objection to the decision with the members’ meeting. The member must do so within 30 days of receiving the decision. If the members’ meeting rejects the objections, the member may, within three months of receiving the meeting’s decision, file a lawsuit seeking to have the expulsion decision declared invalid.

Until the expiration of the statutory period or, as the case may be, until the final conclusion of the court proceedings, the cooperative may not exercise against the member any rights that would otherwise arise from the termination of membership.

Rights and Obligations of Housing Cooperative Members

Transfer of Rights and Obligations

As a general rule, members of a housing cooperative may transfer their membership rights and obligations to another member of the cooperative only if the bylaws do not prohibit such a transfer. At the same time, an agreement to transfer membership rights and obligations to another person is subject to the approval of the board of directors.

However, a special provision applies to housing cooperatives, under which the transfer of rights and obligations associated with membership in a housing cooperative by agreement is not subject to the approval of the cooperative’s governing bodies. The membership rights and obligations associated with membership are transferred to the transferee in relation to the cooperative upon submission of the membership transfer agreement to the relevant cooperative or on a later date specified in that agreement.

The same effects as the submission of the membership transfer agreement take effect as soon as the relevant cooperative receives written notice from the current member regarding the transfer of membership and the transferee’s written consent.

The transfer of membership rights and obligations in the cooperative may thus be carried out on the basis of a relevant agreement both between existing members of the cooperative and between a member of the cooperative and a third party. The parties to the agreement are the transferor of the membership rights and obligations associated with membership in the housing cooperative and the transferee, not the housing cooperative itself.

When transferring a cooperative share, price is not the only factor. The contract must also address the effective date of the transfer, any related debts, the handover of the apartment, and the terms of the bylaws. We will draft or review the contract to ensure the transfer proceeds safely.

Entering into a Lease Agreement for a Cooperative Apartment

Membership in a housing cooperative has many specific features compared to membership in other cooperatives. The most fundamental of these is the member’s right to enter into a lease agreement for an apartment. The cooperative’s bylaws must always specify the conditions under which a member of the housing cooperative acquires this right. In the case of a housing cooperative, a member has the right to enter into a lease agreement for a cooperative apartment for an indefinite term. The agreement applies to an apartment in whose acquisition the member participated through a membership contribution, or to an apartment to which an additional membership contribution is tied. This refers to situations where an existing cooperative member, who has already fulfilled their contribution obligation, commits to making an additional membership contribution—for example, when additional apartments are built, an extension is added, and so on. This may result in either the right to enter into a lease agreement for an additional cooperative apartment or an increase in the member’s equity interest in the housing cooperative.

Rights and Obligations Associated with Renting a Cooperative Apartment

As we have already mentioned, the rights and obligations of cooperative members are primarily based on the bylaws. Here is an overview of the most commonly stipulated rights and obligations:

• the obligation to pay rent, including utility fees, contributions to the repair fund, and annuity payments,
• the obligation to comply with the specified penalties for late payment
• the obligation to report structural modifications and obtain the cooperative’s approval for them (without which such modifications cannot be carried out),
• the obligation to comply with the bylaws; failure to do so may result in the member’s expulsion,
• the obligation to vacate the apartment if the member loses their membership rights,
• the obligation to notify the cooperative of and provide proof for any change in the information recorded in the membership roster,
• the obligation to refrain from any action that hinders the maintenance, repair, modification, reconstruction, or other alteration of the building or land that has been duly decided upon, and to allow access to the cooperative apartment,
• the obligation to comply with the house rules, observe fire safety regulations, properly use and maintain the cooperative apartment or cooperative non-residential space, including the building’s common areas and facilities, and protect the cooperative’s property from danger, damage, destruction, or loss,
• the right to vote, with each member having one vote. The bylaws may stipulate that voting rights vary according to the size of the apartment,
• the right to purchase the apartment, provided that the members’ meeting agrees to the sale of apartments.

It is important to keep in mind that failure to comply with the obligations set forth in the bylaws may result in a member’s expulsion from the cooperative. If you are facing such a situation, do not hesitate to consult a lawyer.

Summary

The rights and obligations of a cooperative member are primarily based on the Business Corporations Act and the bylaws of the specific cooperative. In particular, a member has the right to participate in decision-making, vote, elect the cooperative’s governing bodies, and enjoy the benefits provided by the cooperative. At the same time, members must comply with the bylaws and the decisions of the cooperative’s governing bodies and fulfill other obligations, such as paying their membership contribution or fees associated with their cooperative apartment. The transfer of a cooperative share is governed by law and the bylaws, with special rules applying to housing cooperatives. Serious or repeated breaches of obligations may lead to a member’s expulsion from the cooperative, a decision that can be challenged through objections and subsequently in court.