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Charter of a Production Cooperative
📘 I. Legal Nature of the Charter of a Production Cooperative
The charter of a production cooperative is the primary founding document that defines:
· the goals and principles of its activity;
· the internal structure and management procedures;
· the property and labor obligations of members;
· the procedure for income distribution and liability.
🔷 The charter determines the legal framework of the cooperative, including provisions not regulated by law.
🔷 According to paragraph 2 of Article 41 of the Civil Code of the Republic of Kazakhstan, a legal entity that is required to have a charter cannot be registered without one.
📑 II. Detailed Commentary on the Content of the Charter (pursuant to Article 97 of the Civil Code of the RK)
🔹 1. Mandatory Information under Paragraph 5 of Article 41 of the Civil Code of the RK
The charter of a cooperative, like that of any legal entity, must include:
· the name of the cooperative;
· its location (registered address);
· the subject and purposes of activity;
· the management bodies and their competencies;
· the procedure for forming property;
· the liability of members;
· conditions for reorganization and liquidation.
📎 Legal Framework:
· Article 41 of the Civil Code of the RK;
· Law of the RK “On State Registration of Legal Entities and Record Registration of Branches and Representative Offices”.
🔹 2. Amount of Members’ Shares
“…provisions on the size of the members’ shares”
📘 A share is a monetary or property contribution made by a member upon joining the cooperative.
🔎 The charter should specify:
· the nominal value;
· possibly — differentiation by member categories;
· mechanism for adjusting shares.
🔹 3. Composition and Procedure for Contributions
“…and members’ liability for failure to make contributions”
📘 The charter must define:
· types of contributions allowed (monetary, property, labor);
· deadlines and methods for making contributions;
· sanctions for non-fulfillment or delay (e.g., fine, exclusion, reduction in profit share).
🔹 4. Nature and Procedure of Labor Participation
“…and their liability for failure to fulfill the obligation of personal labor participation”
📘 A key feature of the cooperative: a member is not just an investor, but must personally participate in labor.
📎 The charter should define:
· the minimum labor contribution (e.g., hours per week/month);
· working schedule;
· types of labor;
· sanctions for non-participation (up to exclusion or reduction of income).
📎 According to Article 15 of the Law of the RK “On Production Cooperatives”, temporary exemption from labor participation is allowed with the consent of the general meeting.
🔹 5. Procedure for Distribution of Net Income
📘 Possible models include:
· based on labor participation (e.g., hours worked or output);
· based on share size;
· a combined model (e.g., 70% based on labor, 30% based on share).
🔎 The charter should establish:
· frequency of distribution (quarterly, annually);
· conditions for allocations to reserves or funds;
· limitations (e.g., prohibition of distribution in case of losses).
🔹 6. Management Bodies and Decision-Making Procedures
“…including matters to be decided unanimously or by qualified majority vote”
📘 Management bodies of the cooperative:
· General Meeting of Members (supreme body);
· Executive Board (executive body);
· Chairperson;
· Audit Commission (supervisory body).
📎 The charter must specify:
· the competence of each body;
· procedures for convening meetings;
· voting format (open/secret);
· quorum and voting thresholds:
o simple majority (50% + 1);
o qualified majority (e.g., ⅔ or ¾);
o unanimity — for key decisions (e.g., reorganization, sale of assets).
⚖️ III. Judicial and Administrative Practice
🔎 In several cases concerning the liquidation of production cooperatives, courts have declared them fictitious if their charters:
· did not contain provisions on labor participation;
· did not establish liability for non-participation;
· were formal and did not reflect actual operations.
📎 Example: An economic audit revealed that the cooperative operated as an LLC with hired employees and did not perform functions typical of a cooperative — its charter was deemed non-compliant with legal requirements.
📘 IV. Comparison with Other Legal Forms
| Element | Production Cooperative | LLC | JSC |
|---|---|---|---|
| Mandatory labor participation | ✅ Yes | ❌ No | ❌ No |
| Subsidiary liability of members | ✅ Yes | ❌ No | ❌ No |
| Profit distribution by labor and share | ✅ Yes | By share only | By shares only |
| Decisions made by all members | ✅ Yes | ✅ Yes (by shareowners) | ✅ Yes (by shareholders) |
📝 V. Conclusions
1. The charter of a production cooperative must be more detailed and individualized than that of an LLC or JSC, as it regulates both property and labor obligations.
2. Failure to comply with charter requirements may result in registration denial or recognition of the cooperative as fictitious.
3. The charter must clearly outline:
o participation conditions (share, labor);
o procedure for income distribution;
o member liability;
o governance structure and procedures.
Attention!
Law and Law Law Law draws your attention to the fact that this document is basic and does not always meet the requirements of a particular situation. Our lawyers are ready to assist you in legal advice, drawing up any legal document suitable for your situation.
For more information, please contact a Lawyer / Attorney by phone: +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085.
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