Abstract
With the distinguishing features of the Nordic legal systems applying, the Finnish legal system is part of the civil law. Hence, the main legal source is legislation. Finnish cooperative legislation dates back to the beginning of the twentieth century, more precisely to 1901 when Tsar Nikolai II of Russia signed into Law on Cooperation (Osuustoiminatlaki) the bill that the Diet of the autonomous Grand Duchy Finland had adopted unanimously. The law makers of the time thought it utmost important to “[…] pass legislation on economic associations […] as the legal form of stock companies cannot apply to these associations (cooperatives).” Whether this reasoning resulted from plans by the legislature to tighten the rules on stock companies, as the cited source seems to suggest, or whether the then already existing cooperative movement would have pressed for separate legislation in any case, remains for legal historians to clarify. However, like in all industrializing countries of that time, the aim was to enable economically weaker strata of society to organize their activities in a legal form.
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Notes
- 1.
Cf. Mattila (1990).
- 2.
Alanen (1964), p. 217 (translated and adapted by author).
- 3.
Indeed, Pellervo-Seura, the confederation of Finnish cooperatives, had been founded in 1899 already.
- 4.
Cf. Introduction to the “The Finnish Cooperative Societies Act and Model Rules for Local Cooperative Societies” by Pellervo-Seura and Kulutusosuuskuntien Keskusliitto (1955), p. 6.
- 5.
The number of stock companies (osakeyhtiöt), which is taken throughout the text as representing the main form of capital-based companies, is many times that number. Frequently, the discussion in Finland concludes from this to the minor importance of cooperatives. The comparison of the number of registered entities is however misleading. Another measure could be the number of share holders and/or members in the various types of organizations.
- 6.
According to the classification by the International Cooperative Alliance (ICA). Cf. http://www.global300.coop/Search. Last accessed July 16, 2012. The most wide-spread type of cooperatives seems to be water cooperatives.
- 7.
As for the latter, cf. Troberg (2000).
- 8.
Cf. for data http://www.om.fi/Satellite?blobtable=MungoBlobs&blobcol=urldata&SSURIapptype=BlobServer&SSURIcontainer=Default&SSURIsession=false&blobkey=id&blobheadervalue1=inline;filename=Luonnoshallituksenesitykseksiuudeksiosuuskuntalaiksi18062012.pdf&SSURIsscontext=SatelliteServer&blobwhere=1335337489281&blobheadername1=Content-Disposition&ssbinary=true&blobheader=application/pdf, pp. 5–7. Accessed 17.7.2012. Concerning the contribution of cooperatives to the GDP, the figures vary between 10 and 25 %.
As for a concise overview of the history as well as new developments, cf. Seppelin (2000).
- 9.
English excerpts from the Act are taken from the “Unofficial translation © Ministry of Justice, Finland Co-operatives Act (1488/2001; OSUUSKUNTALAKI)” Source: http://www.finlex.fi/fi/laki/kaannokset/2001/en20011488.pdf. Accessed May 17, 2012. The translation does not include the amendments to the Act.
The Act is subdivided into Chapters, the Chapters into §§, the §§ further into subparagraphs etc. In order to avoid misunderstandings by readers accustomed to English terminology, “§§” are referred to as “sections”. Example: “Chapter 1, Section 1.” For ease of reading, further subdivisions are not indicated, unless the context so requires.
- 10.
They concern mainly prudential mechanisms.
- 11.
This is at least the implicit conclusion of an EU commissioned assessment of the implementation of EC Council Regulation 1435/2003 on the Statute for a European Cooperative Society (SCE) according to its Article 79. Cf. “Study on the implementation of the Regulation 1435/2003 on the Statute for a European Cooperative Society (SCE), October 5, 2010”, available at: http:/ec.europa.eu/enterprise/policies/sme/promoting-entrepreneurship/social-economy/or at:http://www.euricse.eu/node/257.
- 12.
As for the 1901 Law, cf. for example Paasikivi (1902). To be noted for the foreign reader that Paasikivi became President of Finland after World War II. This is one of the reasons I chose to refer to his writing out of a then still abundant literature on cooperative law (cf. also at footnote 21). His knowledge of cooperatives is indicative of how much cooperatives were part of socio-political thinking at the time. Concerning the cooperative law until 1982, cf. Olsson (1982). As for the 1981 amendments to the 1954 Law, cf. Vuori (1981).
- 13.
The limits the 1954 Law put on financing (member shares only) were seen as the major draw-back of this law. Cf. Leppänen (2003). The 1981 amendments introduced supplementary share schemes, the possibility to use non obligatory parts of the reserve fund and parts of the surplus for capitalization purposes. The 1989 amendments introduced investment shares for members and non members which are similar to voice-less preferred shares in stock companies and allow for the possibility to convert a cooperative into a stock company. For more details, cf. Laisaari (2003), op. cit., 8–11.
- 14.
In this text referred to as “stock companies”.
- 15.
The change of terminology concerned especially the general assembly, management bodies, loan capital, mergers, scissions, liquidation, penal responsibility and damages. Cf. Laisaari (2003), p. 10; Leppänen (2003), 13. Another, possibly research worthy change is the change from “Law on Cooperation” (1901) to “Law on Cooperatives” (1954ff.) to see whether it was a linguistic issue only.
- 16.
As for the motives, cf. footnote 8.
- 17.
The term “bylaw/s” is used to signify the internal rules of the cooperatives (other words: “statutes”, “bye-laws”, “rules”). The English version of the Act uses the term “rules” (säännöt).
- 18.
According to Laisaari 2003, 10, the bylaw autonomy extends even to the purpose of the cooperative. This is now enshrined in the new law.
- 19.
Pöyhönen (2011), op. cit.
- 20.
Such research would be facilitated to the extent cooperatives use the model by-laws provided for by their federations.
- 21.
The statement relies on Seppo Pöyhönen’s findings. Cf. Pöyhönen (2011), op. cit., 41. The situation reflects the state of cooperative law research in the country since the 1950s. Seppo Pöyhönen’s books and the ones indicated in the bibliography at the end remain an exception. Seppo Pöyhönen’s doctoral dissertation (2011), came after a pause of 50 years. To be regretted especially the discontinuity of commentaries on the cooperative law. For the past, cf. Rapola and Halme (1939) and Hakulinen and Rapola (1954). The often heard demand for laws to be written in language “the man in the street” can understand could be at least complemented by a demand to revive this tradition.
There are, however, an increasing number of undergraduate theses being submitted at various universities and higher education institutions.
- 22.
Cf. Aro (1985), p. 103.
- 23.
Its Article 1, Paragraph 3 states “An SCE shall have as its principal object the satisfaction of its members’ needs and/or the development of their economic and social activities …”
- 24.
The definition is based on Chapter 1, Section 4 of the Act in connection with Chapter 1, Sections 5 and 6 of the Bookkee** Act (Kirjanpitolaki, 30.12.1997/1336).
- 25.
Cf. (in chronological order) Aspara, Jaakko, Suurosuuskunnat ovat etääntyneet juristaan, in: Helsingin Sanomat 11.10.2011; Niemelä, Kuisma, Vahvoja osuuskuntia tarvitaan, in: Helsingin Sanomat 20.10.2011; Laukkanen, Leo, Osuustoiminnan periaatteet ovat hukassa, in: Helsingin Sanomat 10.5.2012, C9; idem, Osuustoimintayritykset etääntymässä omistajistaan, in: Länsi Savo 11.5.2012, 17; Metsä, Touko, Osuustoiminnan periaatteet pysyvät, in: Helsingin Sanomat 11.5.2012, C7; Jussila, Iiro, Tutustukaa osuustoiminnan periaatteisiin, in: Helsingin Sanomat 19.5.2012, C9; Mattila, Noora, Yhteishyvä vai imperiumi, in: Helsingin Sanomat 22.6.2012, D4; Linkola, Pertti, Suomessa ei tunnisteta osuuskuntamallin etuja, in: Helsingin Sanomat 29.7.2012, B; Niemeläinen, Johannes, Raha on karannut ihmisten ulottumattomiin, in: Taloussanomat 2.8.2012, 06:01.
- 26.
Calculated in proportion to the “priced” transactions (cf. Chapter 8, Section 2 of the Act), i.e. quantity and quality are given a price.
- 27.
As do a number of other European cooperative laws, for example the Portuguese cooperative law (cf. Montolío 2000, p. 475). The distinction followed here is that between “surplus” (result on transactions with members) and “profit” (result on transactions with non-members). The term “non-member” is imprecise as it signifies both those non-members who are provided with the same services of the cooperative as are members and those third parties with whom the cooperative has market transactions. The differentiation does not only concern the result as such, but also the way this result is produced. Concerning transactions with members: near-cost calculation, on cooperative terms; and concerning transactions with non-members: commercial terms. The price calculation also determines whether members are promoted or not. On the grounds of these strictly interpreted and ideally applied cooperative principles one could say that there should not be any surplus for distribution to members at all. Another price as compared to the price charged to non-members should be charged to members independently of the priced volume of the individual transaction. In practice, cooperatives in Finland distribute regularly bonuses, cf. Pöyhönen (2011). The argument goes that these bonuses are proof of the promotion of the members by the cooperative. Bonuses reward the priced volume of transactions and are not in all respects congruent with the differentiation used here.
Possibly, the differentiation between “surplus” and “profit” disappeared with the introduction of the possibility to also transact with non-members. The use of the word “surplus” (ylijäämä) by the legislator so far cannot, however, be seen as a pure linguistic matter.
- 28.
Cf. for example Leppänen (2003) p. 14–17 (14). This explains the income tax treatment of cooperatives and also the further harmonization of the rules on the distribution of surplus with that of profits in stock companies under the new law.
- 29.
- 30.
Chapter 8, Section 6 reads as follows:
“Use of assets, reserve fund, premium fund and revaluation fund
Decision to distribute surplus
-
(1)
The decision to distribute surplus shall be made by the general meeting of the cooperative.
-
(2)
The general meeting of the co-operative may decide to distribute surplus in excess of what has been proposed or approved by the board of directors only if it is under the rules bound to do so.”
The section was amended in 2003, i.e. after the publication of the official English translation (cf. footnote 9) by adding a third subsection which, however, is of no influence on the said.
The rule seems questionable in the light of the third ICA principle (cf. the 1995 ICA Statement on the co-operative identity).
-
(1)
- 31.
As for the imprecise use of the term “non-member”, cf. above at footnote 27.
- 32.
The remark is derived from a joint reading of the purpose section (Chapter 1, Section 2) and the section cited here.
The issue also relates to the autonomy of the cooperatives, especially where non-member business undermines the decision making power of the members in real terms. This is not discussed in the literature.
- 33.
For example the Law on Trade Names (Toiminimilaki, 2.2.1979/128).
- 34.
In its explanatory note to the draft cooperative bill the Ministry of Justice explained that the current rule on the minimum number of members is being circumvented by inviting straw members to join and that the introduction of the equivalent rule into the Limited Liability Companies Act in 1978 did not cause any problems for these companies. It sees the current clause on the minimum number of members as a restriction.
At the same time, the new law changes the required “incorporation instrument” (perustamiskirja, Chapter 2, Section 2) to “founding contract” (perustamissopimus). It is not clear how in the proposed one-person cooperative such a contract can be concluded.
- 35.
Without over-emphasizing language issues, it is to be noted that much of the confusion relating to the nature of cooperative shares ensues from using the same word, “share”, to signify different matters, so much so that the debate at international level starts reflecting back on jurisdictions which use different words, like the Finnish one. The new law is an example. It replaces the word “investment share” (sijoitusosuus) with stock (osake).
- 36.
The new law provides for the possibility through the by-laws to issue shares without nominal value.
- 37.
This seems to be the view of the Ministry of Justice, which therefore proposed with its draft of the new law a harmonized terminology.
- 38.
Unrestricted divisibility of the reserve fund is questionable in the light of the third ICA principle.
- 39.
Unless one were to consider the bonus payments as such a calculation.
- 40.
“Paid” instead of “returned”.
- 41.
Cf. above remarks (footnote 34) concerning the term “founding contract” and the use of the term “owner”.
- 42.
Cf. Henrÿ (2012).
- 43.
Fajardo et al. (2012).
References
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Seppelin M (2000) Osuustoiminnan jalanjäljllä. Katsaus suomalaisen osuustoimintaliikkeen historiaan (Tracing cooperation. A glance at the history of the Finnish cooperative movement). Helsingin yliopiston osuustoiminta instituutin julkaisuja 28, Helsinki
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Further Reading
Aro P-L (1985) Carrying on a trade and forms of business enterprise. In: Uotila J (ed) The Finnish legal system, 2nd edn. Finnish Lawyers Publishing Company, Helsinki, pp 101ff
Mähönen J, Villa S (2006) Osuuskunta [The cooperative]. Vantaa
Mannio L (2004) Osuuskunnat ja verotus [Cooperatives and taxation]. Edita, Helsinki
Montolío JM (2000) Legislación cooperativa en la Unión Europea. Ministerio de Trabajo y Asuntos Sociales, 6. Finlandia, Madrid, pp 245ff
Henrÿ H (1993) Structural changes in co-operative movements and consequences for co-operative legislation in Western Europe–Finland. In: Shah A (ed) Structural changes in co-operative movements and consequences for co-operative legislation in different regions of the world. ILO, Geneva, pp 91ff
Henrÿ H (1995a) Co-operative legislation in Finland: trends and implications. In: The world of co-operative Enterprise, pp 177ff
Henrÿ H (1995b) Co-operative organization and competition law in Finland. In: Co-operative organization and competition law. Report to a Round Table held at the KolleKolle Centre at Vaerlose/Copenhagen. ILO, Geneva, pp 71ff
Henrÿ H (1996) Taxation of co-operatives in Finland. Contribution to the Roundtable on Co-operative Organization and Tax Law, organized by Prof. Hans-H. Münkner, 23–24 June 1996 at Marburg/Germany (manuscript)
Henrÿ H (2009) The Finnish cooperative law. In: Droit comparé. Des coopératives européennes, sous la direction de David Hiez. Larcier, Bruxelles, pp 115ff
Pöyhönen S (2005) Osuuskunnan hallinto ja osuuskuntalaki [Cooperative management and cooperative law], 2nd edn. Talentum, Helsinki
Tommonen P (2002) Business law. In: Pöyhönen J (ed) A introduction to Finnish law. Kauppakaari, Helsinki, pp 115ff
Acknowledgments
I would like to thank Prof. Dr. Tapani Köppä, Varatuomari Anne Kontkanen and Dr. Seppo Pöyhönen for their valuable comments.
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Henrÿ, H. (2013). Finland. In: Cracogna, D., Fici, A., Henrÿ, H. (eds) International Handbook of Cooperative Law. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-30129-2_16
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