The German Registered Cooperative: The German eG-Recht

eG-Recht (eingetragene Genossenschaft): The German Registered Cooperative

How is a registered cooperative legally structured?

The cooperative is a company without a fixed number of members. Its purpose is to promote the acquisition or the economy of its members or their social and cultural interests by means of joint business operations. In accordance with this purpose, the original aim of the cooperative is the self-help of its members through mutual support. Members can be natural persons, legal entities, general partnerships and limited partnerships.

What is to be observed legally when founding such a (e.G.) cooperative?

According to § 4 GenG, at least three members are required in order to found a cooperative. According to § 5 GenG these conclude a written partnership agreement, which does not require notarisation, but must be signed by all members involved in the foundation and who have joined the cooperative until it is submitted to the register court. Furthermore, according to § 10 GenG, an entry in the register of cooperatives is required. This is kept by the local court in whose district the cooperative’s registered office is located. The entry has legal effect, i.e. the cooperative only acquires the legal status of a registered cooperative upon registration. The addition “registered cooperative” or the abbreviation “e.G.” must then be included in the company name.

The cooperative has no fixed capital. Each member signs one or more shares in the sense of § 7 No. 1 GenG, on which payments must be made. With regard to the amount, the articles of association must make provisions for only one tenth of the share with regard to the amount and the time of the payment (minimum contribution). Since the capital is made up of the contributions of the members, it depends on the number of members.

What does the membership in a e.G. legally mean?

Membership is acquired either by participating in the foundation or by joining this later. The membership itself is not transferable. Only inheritance is possible.

The most important right of membership is the right to use the common support facilities. This right also extends to the distribution of surplus. Furthermore, according to § 43 GenG, members have the right to participate in the general meeting and to exercise their voting rights. The most important obligation is the payment of deposits.

Organs of the cooperative and functions: how does it work?

The principle of self-organization applies to the cooperative, i.e. all organs can only be organized by their own members. The cooperative has a total of three organs:

  • General Assembly;
  • Supervisory Board;
  • Board of Directors.

The General Assembly consists of all members of the cooperative. However, if it has more than 1,500 members, an assembly of representatives can be formed in accordance with § 43 a GenG. As the supreme decision-making body, the general assembly elects the supervisory board, decides on the articles of association and makes decisions on the management of the business and the distribution of profits.

The supervisory board consists of at least three members to be elected by the general assembly. The division of responsibility assigned to it is clearly defined by § 38 GenG. Its main task is to monitor the activities of the executive board. In cooperatives with no more than 20 members a supervisory board can be dispensed with by provision in the articles of association. In this case the general meeting exercises the rights and duties of the supervisory board.

Depending on the articles of association, the management board is elected by the general meeting or by the supervisory board and consists of at least two members. The Board of Directors manages the cooperative on its own responsibility. However, it must observe the restrictions imposed on it by the articles of association and the fact that its activities are bound by the resolutions adopted by the General Assembly. The Board of Directors has the power of management and representation.

Who is liable for obligations of the e.G.?

According to section 2 GenG only the assets of the cooperative are liable for the cooperative’s obligations. In the case of insolvency, however, an obligation of the members to make additional contributions can be provided for in the articles of association if the creditors cannot be satisfied from the existing assets of the cooperative.

How is the cooperative treated for tax purposes?

The board of directors must prepare the annual financial statements within five months of the end of the financial year. These are then adopted by the general meeting in accordance with § 48 Paragraph 1 GenG. The annual accounts must be submitted to the register of cooperatives together with the management report and the supervisory board report.

With regard to corporation tax all acquisition and commercial cooperatives are taxable (§ 1 Paragraph 1 Number 2 Corporation Tax Act – KStG). Hauberg, forest, forestry and deciduous cooperatives are exempt if they only maintain or lease a business as an ancillary business (§ 3 paragraph 2 KStG).

With regard to trade tax, acquisition and business cooperatives are taxable due to their legal form (§ 2 paragraph 2 page 1 of the Trade Tax Act – GewStG). Pursuant to § 3 No. 8 GewStG, the provisions of the Körperschaftssteuergesetz (German Corporation Tax Act), which exempt the profits of acquisition and commercial cooperatives from taxation in whole or in part, also apply to trade tax. Hauberg, forest, forestry and deciduous cooperatives that only maintain a commercial enterprise as an ancillary business are tax-exempt under § 8 No. 5 GewStG.

How is the cooperative dissolved?

A cooperative can be dissolved, for example, by the passage of time or by a resolution of the general assembly. The liquidation of the company is then usually carried out by the board of directors. Once this has been completed, the cooperative is declared to cease to exist. At the end of a blocking year, the net assets of the cooperative are distributed to the members.