Management of a Production Cooperative

I. General Characteristics of Management in a Production Cooperative (PC)

Management in a PC is a democratically organized system in which all members are vested with equal rights in deciding fundamental issues, regardless of the size of their share contribution or their labor participation. Article 99 of the Civil Code of the Republic of Kazakhstan (CC RK) establishes a three-tier governance model:

1. General meeting of members (the supreme body);
2. Executive body (board or chairperson);
3. Supervisory board (control body), if established.

II. Detailed Analysis of the Provisions of the Article

Clause 1. Organizational Structure

1. General meeting of members — the supreme body. All members have equal votes (Art. 99(4)), regardless of their share contribution, which distinguishes a cooperative from LLPs and JSCs.
2. Supervisory board — established at the discretion of the members:
   • Exercises control over the executive body.
   • Has no representative functions.
   • Conflict of interest is avoided: dual membership in both the board and the supervisory council is prohibited.
3. Executive body:
   • May be collegial (board) or sole (chairperson).
   • Carries out day-to-day management.
   • Is accountable to the general meeting and, where applicable, the supervisory board.

Clause 2. Regulation of Powers

The competence of management bodies and decision-making procedures must be clearly defined in the charter; otherwise, legal risks may arise, especially in disputes among members. Considerations include:

• Article 97 CC RK — on the content of the charter;
• Law of the RK “On Production Cooperatives” — detailed regulation of procedures for convening, voting, authority, and reporting.

Clause 3. Exclusive Competence of the General Meeting

It includes:

1. Amendments to the charter — including income distribution, property rights, and labor duties.
2. Formation/removal of management and supervisory bodies.
3. Admission and expulsion of members — an important safeguard against passive or conflict-prone participants.
4. Approval of reports and income distribution — linking the cooperative model with personal labor.
5. Decisions on reorganization and liquidation — require quorum and reinforced majority (per charter).

🔹 The charter may expand this list, but delegation of such powers to the executive body is prohibited.

Clause 3-1. Special Management Regime in Bankruptcy

When rehabilitation or bankruptcy procedures are introduced, powers are transferred:

• To a temporary administrator (in rehabilitation);
• To a bankruptcy administrator (in liquidation).

📎 Basis: Law of the RK “On Rehabilitation and Bankruptcy” and Article 99(3-1) CC RK.

Clause 4. The Principle “One Member — One Vote”

• This is a fundamental cooperative rule reflecting equality of members regardless of financial contribution.
• A different order is possible only in multipurpose cooperatives with category-based membership, if permitted by special law.

III. Comparative Analysis with Other Legal Entities

IV. Judicial Practice and Risks

🔹 Disputes often arise in cases of:

• Removal of board members without grounds stipulated in the charter.
• Profit distribution inconsistent with labor contribution, in the absence of transparent criteria.
• Expulsion of a member where procedures are not followed (notice, right to explanation, etc.).

📎 The Supreme Court of the RK emphasizes: “The cooperative charter must contain mechanisms of internal control and dispute resolution; otherwise, the general provisions of the CC RK and legislation on production cooperatives apply.”

V. International Standards (Comparison)

📘 The International Cooperative Alliance (ICA) recognizes the principles of:

• “One person — one vote”;
• Priority of labor participation and democratic governance;
• Limitation of executive body powers.

📌 These standards are integrated into Kazakhstan’s legislation through norms on subsidiary liability, participation in management, and distribution of income based on labor.

VI. Conclusions

1. Article 99 CC RK establishes a democratic governance model in which decisions are made collectively, and management bodies are formed from among the members themselves.
2. Equality of votes, mandatory personal participation, and direct control are distinguishing features.
3. The charter plays a key role in preventing internal conflicts and must contain detailed rules on management, powers, and responsibilities of bodies.
4. In the absence of a supervisory board, the risk of the executive body’s unchecked authority increases.

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