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A Study on Cooperative Legislations of Six Countries
  • Issue Date 2019-03-31
  • Page 410
  • Price 13,000
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Ⅰ. Backgrounds and Objectives
○ The objective of this study is to comprehensively research and analyze the legal framework for cooperatives in six advanced countries, thereby using the research findings as basic data for amending Korean law in order to enforce the Framework Act on Cooperatives effectively and sustainably.
○ Background: Requests have been made to conduct legislative evaluations for legal reform in order to tackle operational issues encountered for the five years since the enforcement of the Framework Act on Cooperatives and to contribute to the quantitative and qualitative development and sustainability of cooperatives.
○ International background: In 2017, a group of European legal scholars published the Principles of European Cooperative Law(PECOL), presenting ideal legislative principles of cooperatives. The PECOL also presented legislative principles incorporating the legal identity of cooperatives and mostly refers to the cooperative law of Italy, Spain and Portugal.
○ Principles of amending the Framework Act on Cooperatives: Taking into account these backgrounds, the principles of amending the Korean Framework Act on Cooperatives should be:
To respect the unique nature of cooperatives and to ensure that cooperatives can remain competitive in a business environment;
To adhere to the standpoint that a cooperative is a form of business organization having a unique identity; and 
To additionally improve the existing legal framework that has discriminated against cooperatives or has created barriers to entry.
 
Ⅱ. Main points
○ Under the French and Italian legal framework, provisions on cooperatives exist in various laws as well as in civil law and commercial law. However, Spain, Portugal and Germany have the consolidated legal framework providing for cooperatives, including establishment, operation and governance.
○ Portugal has cooperative law in parallel with civil law and commercial law. The cooperative law consists of the general law and specific laws, which is similar to Korean legal system that has the framework Act and specific Acts. Under Korean law, the Framework Act and specific acts exist in parallel and thus are not mutually binding. However, Portuguese law is different from Korean law in that Código Cooperativo, a higher statute, is binding on Decreto-Lei, a lower statute.
○ The purpose and definition of cooperatives upholds the ICA statement on the identity of cooperatives and focus on meeting the needs of member and improving their status.  
○ The legal personality of a cooperative is a for-profit company (in France, Italy, Spain, Portugal and Germany). It shall be clearly noted that what is emphasized by the term “for-profit company” is the attribute of a cooperative as a business enterprise that can make profits and distribute a surplus to its members, rather than the meaning of profit-making. 
○ A cooperative is duly formed by registering its establishment. With regard to public interest purposes, special treatments are rendered in the course of implementing the policy, for example, a certification system in Spain; tax incentives in Portugal; and giving a priority in public bidding in Italy. The establishment of a business organization itself does not required authorization.
○ Facing with the decline of welfare states and living a New Normal in the years of economic depression, the six countries have commonly introduced and legislated on so-called “public interest cooperatives,” which are cooperatives providing public services or mainly engaging in business activities pursuing public value. Public interest cooperatives aim to pursue the general interest as well as the public interest. Their members are comprised of multi-stakeholders. Such cooperatives are hybrid ones in that even a government or local government is eligible to be a member in France and Portugal. 
○ The number of minimum members varies from two (if established as a private limited company in France or pursuant to the Spanish cooperative law) to seven; but in most cases, the minimum requirement has been adjusted to three. This is partly because the number of minimum members could be an obstacle to getting an opportunity to start a new business easily and expeditiously in advanced countries where the market economy is mature and saturated and the economic growth rate is low or negative.
○ As an enterprise responsible for communities and markets, the legal framework for cooperatives in these six countries permits cooperatives to compete equally with for-profit companies. For governance of cooperatives, the legal framework permits governance provisions to be prescribed by the articles of association at the general meeting of members, considering that cooperatives are democratic associations of persons.
○ It is widely accepted that Germany has an advanced auditing system of cooperatives. In Germany, cooperatives are legally obliged to be members of an auditing federation. Such legislation allows cooperatives to gain social trust by auditing each other and to be independent from the interference of the national government. All six countries have far more detailed provisions on auditing than the Korean Framework Act.
○ This study examines six countries that have well-established legislation providing for capital raising of cooperatives. The legislation recognizes capital contribution by cooperative members as capital, considering a cooperative as an enterprise with variable capital. Accordingly, variations in the amount of the capital do not require disclosure and no fees or taxes are imposed.
○ With regard to capital raising, the admissibility of investor members is very limited. French and Italian laws provide for the most diverse ways of raising capital. In Germany, investor members have been admitted in cooperatives since the SCE permitted investor members. This is to protect cooperatives from capital constraints when competing with for-profit companies in the market.
○ In France, Italy, Spain and Portugal, cooperatives are under obligation to devolve to mutual funds (cooperatives funds) through cooperation among cooperatives. It is currently recognized that mutual funds are contributing to developing and expanding cooperatives in such respective countries.
○ Five countries, except Germany, established and enforce laws on social entrepreneurship. The laws adopted the ICA’s statement on cooperatives, jointly-owned and democratically-controlled enterprises, as the definition and principles of social enterprises. Such laws put emphasis on workers’ cooperatives to solve social and community issues, such as long-term unemployment, social exclusion, provision of social services to vulnerable social groups and revitalization of communities, and provide for tax incentives. 
○ In Portugal and France, the nation and public institutions are eligible to become cooperative members. When a cooperative pursues the public interest and the same value as pursued by a public institution, such as solving social problems, as well as satisfying its members’ needs, the public institution is eligible to be a member of the cooperative and is permitted to participate in setting the common goals, sharing risks and profits, and making decisions. This is a new form of public-private partnership.
○ The legislative evaluation and legal framework analysis of the Framework Act on Cooperatives and eight specific cooperatives Acts suggest that an effective legal structure should first be established by fully amending the Framework Act on Cooperatives and, subsequently, the Framework Act on Cooperatives and eight specific separate cooperatives Acts should be consolidated in phases.
 
Ⅲ. Expected effects
○ Examining and analyzing legal systems for cooperatives in six countries will help to find ways to improve the Korean legal system governing cooperatives.