Introduction

Very few have ever been involved in founding a cooperative before setting foot in Proakatemia’s doors for the first time. While the term “cooperative” may be familiar to many, few entrepreneurial-minded students have a clear understanding what forming a cooperative entails.

This essay aims to assist new international teams in the early stages of forming a team company. The contrast between the amount of information available in English and Finnish on founding a cooperative in Finland is significant. In essence, this essay seeks to provide international teams with a unified understanding of the cooperative founding process.

What is a Cooperative?

A cooperative is a form of business, like a limited company. However, it differs from other business forms in that its primary purpose is not profit maximisation. According to Yrittajat.fi, “The purpose of a cooperative’s activities is to support the members’ household or business by conducting economic activities in such a way that members can take advantage of the services provided by the cooperative.”

If the purpose of a cooperative is not profit maximisation, why do we establish one?

Since September 1, 2019, the requirement for a 2500€ share capital to found a limited company was removed. This makes founding a limited company somewhat cheaper. So, why not just establish a limited company? The advantage of a cooperative is that it supports a model where the business does not need to have a specific direction or idea. At Proakatemia, team companies usually work on numerous projects, often simultaneously. The fundamental principle of a cooperative is to benefit the interests of all its members. A cooperative is especially suitable for joint entrepreneurship, regardless of the industry (suomi.fi).

Another basic principle of a cooperative is to make decisions based on the majority principle. The Cooperative Act stipulates decision-making as follows: Members exercise their decision-making power at the cooperative meeting. Decisions are made by a majority of the votes cast, unless otherwise provided for by this Act or the rules. The rules may provide that the members’ decision-making power is exercised by a representative body (Cooperative Act 1, 6§). Thus, without amendments to the rules, a newly founded cooperative makes its decisions only with the majority’s approval, providing a basis for equality.

Founding documents for a cooperative

The foundational documents of a cooperative consist of a set of official papers essential for the establishment and registration of a new cooperative in Finland. These documents provide the legal and administrative basis upon which a cooperative structures its operations, playing an important role in governance and decision-making processes. Typically, these foundational documents include an agreement and bylaws, which collectively outline the cooperative’s purpose, operational methods, members’ rights and responsibilities, and administrative procedures.

According to Finnish legislation, several critical elements must be incorporated into the cooperative’s foundational documents. The founding agreement must be in written form and signed by the founding members. The bylaws should specify the cooperative’s name, domicile, and field of operation, as well as detail the conditions for membership initiation and termination. Additionally, the bylaws must outline the cooperative’s decision-making bodies, their powers, and meeting protocols. Careful and detailed preparation of these foundational documents is crucial, as they serve not only as legal instruments but also as a means to ensure the cooperative’s transparent, fair, and democratic governance.

Before the creation of a cooperative’s founding documents, it is essential for the cooperative to have a business name. The business name must uniquely identify the cooperative and distinctly differentiate it from names already registered. It is beneficial to review names that have already been registered during the naming process. Business names can be independently researched through services like YTJ and Virre.

A cooperative is established through a written founding agreement. The founding agreement of a cooperative must contain at least the following information:

Content of the Founding Agreement (Cooperative Act 2:2 §)

The founding agreement must specify:

• Cooperative’s name
• Founding members and their shares
• Share price and final payment date
• Board members
• Fiscal year
• Possible auditors or operational auditors
• Possible CEO
• Possible members of the supervisory board
• Information about any shares and shareholders.

Furthermore, according to section 3 of the Cooperatives Act, the cooperative’s bylaws must be attached to the founding agreement.

Section 3 of Chapter 3 of the Cooperatives Act specifies the mandatory provisions that must be included in the bylaws. The cooperative’s bylaws must always mention:

• The cooperative’s business name
• The Finnish municipality that serves as the cooperative’s domicile
• The cooperative’s field of operation

The bylaws allow members to dictate the cooperative’s operations (Cooperatives Act, Chapter 1 §9). However, the bylaws cannot contradict the Cooperatives Act or any other Finnish legislation. For example, the bylaws cannot state that a member can be expelled without written notice, as section 9 of Chapter 3 of the Cooperatives Act mandates that a written notice of the grounds for firing and the deciding body of the cooperative must be delivered to the member at least one month before making the expulsion decision. The notice must be sent to the address listed in the member register or otherwise known to the cooperative.

If the cooperative’s bylaws meet the minimum content required by the Cooperatives Act, the cooperative must apply certain provisions of the Cooperatives Act in its operations, such as:

• Only members may use the cooperative’s services,
• Shares are of no nominal value, the subscription price for a share is determined by the cooperative’s meeting or board,
• All shares confer equal economic rights,
• The cooperative cannot distribute surplus (including fund increases),
• The board is elected indefinitely. At least one and no more than five members can be elected to the board. If fewer than three members are elected to the board, at least one alternate must also be elected,
• The board represents the cooperative. The CEO can represent the cooperative in matters within the CEO’s authority under the Cooperatives Act, if there is a CEO,
• The cooperative must elect one auditor and an alternate if the Auditing Act requires the election of an auditor. The auditor’s term ends upon the election of a new one,
• If the Auditing Act does not require the election of an auditor for the cooperative, an operational auditor and an alternate must be elected,
• Upon dissolution, the cooperative’s net assets are distributed based on the number of members.

However, the minimum content rules set by the Cooperatives Act are generally not sufficient. According to the guide for founding a cooperative by Pellervo, the most critical provisions that are almost always included in the bylaws, differing from the assumed regulations of the Cooperatives Act, concern the distribution of surplus, offering services to non-members, and representation of the cooperative. Omitting these regulatory provisions must be justified, and the founders must understand the implications of such omissions for the cooperative’s operations. When drafting the bylaws, it is crucial to consider the aspects defined by the Cooperatives Act for the cooperative unless otherwise stated in the bylaws. This ensures that the bylaws serve the needs of both the cooperative and its members.

However, overly detailed regulations governing the cooperative’s activities should be avoided. Changing the bylaws is challenging as it always requires at least a 2/3 majority consent. Bylaw amendments also incur costs. For example, cooperatives established as part of training programs typically have relatively low revenues, making frequent amendments to the bylaws prohibitively expensive for the cooperative

Once the founding agreement, including the bylaws, has been created, it is necessary to submit a notification of the founding agreement to the Finnish Patent and Registration Office. Should the founding agreement be dated earlier and not submitted on time, the establishment process will become void (suomi.fi).

The Cooperative Founding Process

Forming a cooperative involves a paper founding notification, which is mailed to the Patent and Registration Office. This notification can also register the cooperative for pre-tax, employer, and value-added tax registers. The founding agreement includes two different documents: The Founding Agreement and the Cooperative’s Rules. The processing of the founding notification costs 370 euros (as of 2024). A proof of this payment should be included in the same envelope as the founding agreement and the rules. Once the founding notification with the payment proof is sent, the cooperative is awaiting approval from the Patent and Registration Office.

What to Consider When Creating a Founding Notification?

Often, new team companies receive a template for the founding notification from previous year’s team cooperatives. The temptation to use founding documents approved by the Patent and Registration Office can be significant, but it is absolutely to be avoided. Each Proakatemia cooperative is different and consists of different members, all of whom have different thoughts and needs on how the cooperative operates. It is advisable to focus on and allocate enough time for creating the founding agreement and bylaws. If the content of the notification is rushed, mistakes and inappropriate rules for the team can remain. Changing these mistakes and rules becomes expensive for the cooperative, as making changes is not free.

Conclusion

As we can determine, founding a cooperative is not rocket science. However, if one wants to do it correctly, it requires sufficient time. It’s impossible to determine each member’s goals and ways of operating within the first week. To correctly establish a cooperative at once, common rules, values, and goals need to be clarified. If documents are filled out in a rush without collectively understanding the company’s  needs, the founding agreement may need to be corrected multiple times before approval. This benefits no one. Founding a cooperative is not a race. Projects can be carried out through businesses from previous years, allowing the founding notification to be made carefully.

References:

Osuuskunnan perustajan opas. (n.d). Pellervo.fi. https://perustajanopas.pellervo.fi/

Osuuskunnan perustamissopimus ja säännöt. (n.d). Suomi.fi. https://www.suomi.fi/yritykselle/yrityksen-perustaminen/yritysmuodot/opas/osuuskunta/osuuskunnan-perustamissopimus-ja-saannot

Osuuskunta. (n.d). Yrittajat.fi. https://www.yrittajat.fi/tietopankki/yrittajaksi-ryhtyminen/yritysmuodot/osuuskunta/

Osuuskuntalaki 421/2013. (n.d). Finlex.fi. https://www.finlex.fi/fi/laki/alkup/2013/20130421#:~:text=J%C3%A4senet%20k%C3%A4ytt%C3%A4v%C3%A4t%20p%C3%A4%C3%A4t%C3%B6svaltaansa%20osuuskunnan%20kokouksessa,ett%C3%A4%20j%C3%A4senten%20p%C3%A4%C3%A4t%C3%B6svaltaa%20k%C3%A4ytt%C3%A4%C3%A4%20edustajisto.