General Provisions on a Production Cooperative
📘 I. General Characteristics of a Production Cooperative
A production cooperative is a special form of commercial organization distinguished by:
the personal labor participation of its members;
the pooling of their property;
the members’ mutual subsidiary liability for the cooperative’s obligations.
🔷 It combines features of both a business partnership (property contribution and commercial purpose) and a non-profit structure (personal participation, collectivism, democratic governance).
📑 II. Detailed Commentary on the Article’s Clauses
🔹 Clause 1. Basis for Formation: Labor and Property
“…for joint entrepreneurial activity based on their personal labor participation and the pooling of property contributions”
📘 Key features:
Members of the cooperative work personally, receiving income not as hired employees but as co-participants in the entrepreneurial process.
They pool property and bear joint risk.
The purpose is profit-making (unlike consumer cooperatives).
📎 Related provisions:
Law of the Republic of Kazakhstan “On Production Cooperatives” dated October 5, 1995 No. 248-I;
Articles 10 and 33 of the Civil Code of the Republic of Kazakhstan — concept and forms of a legal entity.
🔹 Clause 2. Minimum Number of Participants — Two
📌 A cooperative cannot be established by one person (unlike an LLP or JSC).This emphasizes its collective nature and excludes sole management.
📎 Judicial practice:Courts have recognized production cooperatives as invalid or subject to liquidation where there was no second participant, particularly in cases involving fictitious or “one-day” cooperatives.
🔹 Clause 3. Subsidiary Liability of Members
“…in the amounts and manner provided by the Law on Production Cooperatives”
📘 Key difference from LLP/JSC:
Members are liable with their own property if the cooperative’s assets are insufficient to cover its debts.
This liability may be limited by the charter or proportionate to contributions, but it cannot be fully excluded.
🔎 Example:
The cooperative “Agro-Trud” had five members. During bankruptcy proceedings, liabilities exceeded assets. According to the charter, each member bore subsidiary liability within twice the amount of their contribution.
📎 Related provision — Article 44 of the Civil Code of the Republic of Kazakhstan (liability of a legal entity), Law “On Production Cooperatives,” Article 10.
🔹 Clause 4. Regulatory Framework
“…determined by this Code and legislative acts”
📘 This means the cooperative is governed not only by the Civil Code, but also by:
a special law;
tax, labor, and antimonopoly legislation;
regulations concerning property management, accounting, and statistics.
🔹 Clause 5. Specific Features for Agricultural Cooperatives
“…in the form of a production cooperative… except in cases provided by the Law ‘On Agricultural Cooperatives’”
📘 Law of the Republic of Kazakhstan dated October 29, 2015 No. 372-V “On Agricultural Cooperatives”:
contains special rules on membership, shareholders, and state support;
allows participation of legal entities (e.g., farming enterprises);
regulates agricultural processing, marketing, supply, etc.
📎 Example:An agricultural cooperative created for milk procurement and processing may receive state subsidies, which do not apply to ordinary production cooperatives.
⚖️ III. Comparison with Other Legal Entity Forms
| Criterion | Production Cooperative | LLP | Joint-Stock Company |
|---|---|---|---|
| Participation | Personal labor + property | Property only | Property only |
| Liability | Subsidiary | Limited to contribution | Limited to shares |
| Number of participants | ≥ 2 | ≥ 1 | ≥ 1 |
| Profit distribution | Based on labor participation and contribution | Proportionate to shares | Proportionate to shares |
📘 IV. Practice and Risks
✅ Typical areas of application:
small production artels;
sewing workshops, farming enterprises;
private cleaning, carpentry, repair cooperatives.
⚠️ Risks:
subsidiary property liability;
disputes over labor participation;
conflicts between labor and property contributions.
📝 V. Conclusions
A production cooperative is a form of entrepreneurial association combining personal labor participation and property contributions.
Unlike an LLP, members bear subsidiary liability.
Special rules apply to agricultural cooperatives, including support measures and specific regulation.
The legal regime is based on the Civil Code, the Law on Production Cooperatives, and sector-specific legislation.
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