Co-operatives are associations of persons which are protected in the Italian Constitution: in fact Article 45 of the Italian Constitution states: “the Constitution recognises the social function of co-operative societies that are based on the values of solidarity and that do not pursue goals of private profit”.
In co-operatives predominant importance is ascribed to the social function, which consists in implementing a democratic decentralisation of the power of organisation and management of production while, at the same time, ensuring that the results of production are equitably shared by all the members.
Legislation in support of cooperatives has been developed on the basis of Article 45 of the Constitution (Basevi Law Decree c.p.s. n° 1577 of 14.12.1947; refer to the reform introduced by Act n° 59 of 31.1.1992).
In general, co-operatives are based on solidarity and equity and do not pursue the goal profit-making as do joint-stock companies. The solidarity consists in managing services to be used by the members, who are the preferred but not exclusive recipients of the goods and services at the disposal of the co-operative at conditions that are more favourable than those of the market since there are no intermediaries in the production and distribution cycle.
The members of a cooperative must belong to a given category and must share identity and interests.They are the recipients of the so-called mutual advantage that is characterized by two essential elements: the members enjoy the goods or services offered by the cooperative and they enjoy economic benefits in the form of lower prices or higher salaries; there may also be an exchange in the sense that the members offer their work in return for the services or goods of the co-operative.
In fact, a twofold order of relations is established between co-operative society and member: the societal relationship, which consists in participating in the organisation in common, and various multiple so-called mutual relationships, or exchange and labour relations, separate from the societal relationship.
It follows that the partners are the recipients not only of a delimited percentage of profits, but also of rebates, consisting of sums of money periodically distributed by the co-operative in proportion not to the capital invested, but to the amount of services exchanged between the member and the co-operative over a certain period of time.
The running of a commercial enterprise is not irreconcilable with the mutual aim of the co-operative society, which can therefore operate also with third parties, thus carrying out a profit-making commercial activity, independently from the mutual purpose pursued on the basis of its by-laws.
In fact the mutual aim, may be present in different degrees, consisting either of pure mutuality, characterised by the absolute absence of any profit-making purpose, or partial mutuality, whereby the enterprise can operate, not only with its members, but also with third parties and make profits.
However mutual purpose is in any case ensured because the by-laws envisage a limit on the proportion of profits that can be distributed, they prohibit the distribution of reserves and establish the obligation of assigning at least thirty per cent of the net annual profits to the legal reserve, whatever the amount of money in the legal reserve.
The principle of the so-called “open door” applies to cooperative societies as far as capital is concerned, unlike the case of joint-stock companies; this means that a minimum share capital is not required and members can join or leave without the need to amend the by-laws. With regard to the general meetings in line of principle, and with some limited exceptions, most cooperatives are governed on a strict "one member, one vote", basis irrespective of the quota of capital held by each member.
The recent company reform act has introduced a number of changes for cooperatives. One change worth mentioning is the division into two basic types of entities: cooperative societies that are primarily based on mutuality and those in which the mutual feature is not a strong one. There are differences both in the regulations that govern these entities and in the fulfilments they are obliged to comply with. The fulfilments are more burdensome for the more markedly mutual cooperatives, but on the other hand, the benefits they enjoy are a great many, with the tax benefits topping the list.
Moreover, the distinction between cooperatives with limited and unlimited liability no longer exists. All cooperatives envisage limited liability for their members and the provisions of the Civil Code for cooperatives and special legislation apply to them, and where specific circumstances are not provided for in these latter forms of legislation, then the provisions that governs joint-stock companies will apply. And where given legal requirements are present, the members can choose to be regulated by the provisions set out for limited liability companies (this is compulsory where the society has less than nine members; there must however be at least three members who are to be individuals and not legal entities). The major innovation is that that in the absence of specific rules, the provisions that govern joint-stock companies ultimately apply, albeit taking into account the differences in type of company. This obviously raises problems that only a highly qualified professional can solve.
New rules have been introduced also with regard to participation, members who provide funding, withdrawal and exclusion, general meetings and representation, management and audits, rebates, financial statements and reserves, transformation, dissolution and conveyance, and in many other areas.
Seek the advice of a notary public who will help you make your way through the peculiar and difficult body of rules governing co-operatives, deriving from a combination of the provisions of the Civil Code, of the Constitution and of special legislation, and who will be pleased to explain the conditions for obtaining any the available special tax exemptions.