Property of a Production Cooperative
📘 I. Legal Nature of the Cooperative’s Property
A production cooperative (PC) is an association of citizens in which the labor participation and contributions of its members form both the cooperative’s property and their rights to it. Unlike commercial partnerships and companies, in a PC personal labor participation affects the distribution of income rather than ownership.
📑 II. Commentary on Article 98 of the Civil Code of the Republic of Kazakhstan(Civil Code of the Republic of Kazakhstan)
🔹 Paragraph 1. Share (Pai) and Distribution of Property
“Property owned by a production cooperative shall be divided into shares of its members in proportion to their contributions, unless otherwise provided by the charter of the cooperative.”
📘 The key concept is the share (pai) — a member’s property interest in the cooperative. It includes:
· initial property (or monetary) contributions;· additional contributions made by decision of the general meeting.
📎 Unless otherwise specified in the charter, distribution of the cooperative’s property upon liquidation or withdrawal of a member is carried out in proportion to share contributions.
📌 Other options are possible:
· participation determined not only by contribution but also taking into account labor input;· differentiated rules for categories of members (e.g., “founders” and “newly admitted members”).
📎 Judicial practice in Kazakhstan:
· Upon liquidation of a PC, the court considers the actual contribution to property if the charter gives priority to the “contribution assessed by a commission” rather than the nominal amount.· The absence of charter provisions specifying the procedure for evaluating contributions leads to disputes regarding the size of shares (in economic disputes between PC members).
🔹 Paragraph 2. Distribution of Net Income
“Net income of the cooperative shall be distributed among its members in accordance with their labor participation, unless otherwise provided by the charter of the cooperative.”
📘 Net income = income – expenses – mandatory deductions. By default, it is distributed according to labor participation.
📎 The following are taken into account:
· number of hours worked;· productivity or performance results;· coefficients for complexity or hazardous working conditions.
📌 If the charter provides for another approach (for example, distribution in proportion to shares), this is permissible but should not replace the labor-based nature of the cooperative with a purely investment model.
📎 The Law of the Republic of Kazakhstan On Production Cooperatives also requires mandatory personal labor participation of members.
🔹 Paragraph 3. Right to Allocation of a Share upon Liquidation or Withdrawal
“In the event of liquidation of a production cooperative or withdrawal of a member, such member has the right to receive the allocation of his/her share.”
📘 This is the fundamental property right of a PC member — to receive his/her share in the form of:
· a monetary amount corresponding to the value of the share;· or property in kind, if permitted by the charter and consistent with internal valuation.
🔎 The right to receive the share arises:
· after satisfaction of creditors’ claims;· or, in case of voluntary withdrawal, after approval of the annual balance sheet.
📎 If a member withdraws before the end of the financial year, the valuation of the share may be carried out taking into account average annual profit, in accordance with internal regulations or by an independent appraiser.
📌 The payment period must be established by the charter. In its absence, Article 279 of the Civil Code of the Republic of Kazakhstan (settlements upon division of property of a legal entity) and the Law “On Production Cooperatives” shall apply.
⚖️ III. Related Legal Provisions
| Provision | Content |
|---|---|
| Civil Code of the Republic of Kazakhstan Articles 96–97 | General provisions on production cooperatives and the charter |
| Civil Code of the Republic of Kazakhstan Article 41 | Constituent documents |
| Law of the Republic of Kazakhstan On Production Cooperatives | Detailed rules on membership, property, and withdrawal |
| Tax Code of the Republic of Kazakhstan | Specifics of taxation of income and payments |
| Civil Procedure Code of the Republic of Kazakhstan | Judicial mechanisms for recovery of a share |
🧠 IV. Practical Examples
✅ Example 1:
The cooperative “Sheber” has 10 members. Each holds a share of 1,000,000 KZT. One member withdraws after working for six months. The charter allows return of the share proportionally to the period of membership — the member receives 500,000 KZT plus part of the profit.
✅ Example 2:
PC “Aul-Agro” upon liquidation distributes net income according to the formula: 70% based on labor participation, 30% based on shares. One member is an investor who did not participate in work. His income is calculated only from the 30% portion (based on his contribution).
📌 V. Conclusions
Property relations in a cooperative are strictly regulated by the charter, which must include rules on shares, income distribution, and withdrawal.
Distribution of net income based on labor participation is the priority rule reflecting the cooperative nature.
Upon withdrawal or liquidation, a member has the right to receive his/her share in monetary or in-kind form.
The absence of specific provisions in the charter may lead to disputes over the size of the share, payment terms, and methods of settlement.
Attention!
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