EURICSE (2024). Synthesis Report On Council Regulation No. 1435.2003 - Statute For A European Cooperative Society

1. Introduction

This Synthesis Report summarises the findings of the project "Synthesis report and preparation of a workshop on Council Regulation (EC) No. 1435/2003 of 22 July 2003 - Statute for a European Cooperative Society (SCE)" (call for tenders GROW/2023/LVP/0088, launched and managed by the European Commission, DG GROW - Internal Market, Industry, Entrepreneurship and SMEs).

The report assesses the state of play of the application of the Statute for a European Cooperative Society in the 30 EU/EEA Member States pursuing three interconnected aims: to map the existing SCEs in EU/EEA; to understand the factors affecting the establishment of an SCE; to provide a set of recommendations for further policy actions.

2. Structure, sources and essential elements of the legal framework on the European cooperative society

This Synthesis Report analyses the state of application of Council Regulation (EC) No. 1435/2003 (hereinafter also "SCE Regulation" or "Regulation") in the EU/EEA Member States (hereinafter "MSs")¹. To fully understand the nature of the Regulation and the impact on its application, it is necessary to outline the main elements that characterize the SCE Regulation and the legal form it establishes: namely, the European Cooperative Society (SCE).

2.1. The SCE essential elements

The SCE has the following main characteristics:

• it is a cooperative legal form; it has full legal personality, which it acquires upon registration in the relevant national register²; the liability of the members of an SCE is in principle limited to the subscribed share capital³;
• it is a European legal form of organization – like the "European Company" (Societas Europaea, SE) provided for by Regulation No. 2157/2001⁴ –, since it is established under EU law rather than the national law of a MS (although, as observed below, the national laws of Member States play a substantial role in the regulation of SCEs);
• it is an additional and optional legal form of a cooperative, which can be chosen by European citizens and/or legal entities instead of a cooperative governed by national law⁵ (cooperatives are, albeit in different ways, recognized and regulated in all EU/EEA jurisdictions)⁶;
• it must meet a cross-border requirement, since its membership (at least at the stage of incorporation) must be composed of citizens and/or organizations from at least two Member States⁷; however, an SCE does not necessarily have to carry out crossborder activities;
• an SCE has the right to transfer its registered office (which must coincide with its head office) to another MS⁸;
• it has variable capital (which however may never be less than EUR 30,000) and a variable number of members (at least five natural persons or two legal entities); therefore, it is not necessary to formally amend an SCE statute and to raise or reduce the share capital in order to admit new members or to repay subscriptions in the event of a member's exit⁹;
• its main object is the promotion of the members' interests, more precisely, "the satisfaction of its members' needs and/or the development of their economic and social activities, in particular through the conclusion of agreements with them to supply goods or services or to execute work of the kind that the SCE carries out or commissions"; members' needs may also be satisfied by promoting the participation of the members in economic activities, in one or more SCEs and/or national cooperatives¹⁰;
• an SCE is not subject to any restrictions regarding the economic activity that it may carry out to pursue its objectives; it may also perform its activities through a subsidiary¹¹;
• in accordance with its main purpose as defined by law, an SCE is composed of "user-members", namely, members who use (as customers) or produce (as employees or suppliers) the goods and services of the SCE¹²; an SCE may also admit "investor (non-user) members" but only within certain limits and conditions¹³;
• the "door" of an SCE is potentially "open", thanks both to the variability of capital and membership, which simplifies the admission and exit of members, and to the protection given to the interest of candidates for membership, who are guaranteed by law the possibility of appealing to the members' general meeting in the case of refusal of admission¹⁴;
• it is a democratic organization led by members (rather than by capital), in which each user-member has one vote regardless of the number of shares they hold¹⁵ and investor (non-user) members, if admitted as members, may not together have voting rights exceeding 25% of the total voting rights¹⁶; exceptions to the "one member, one vote" principle are possible only within certain limits and conditions established by law¹⁷;
• its organizational structure comprises a general meeting of the members and – depending on the system of administration opted for in the statutes – either a supervisory organ, which supervises the duties performed by the management organ, and a management organ, which is responsible for managing and representing the SCE in dealings with third parties and in legal proceedings (two-tier system), or an administrative organ, which is responsible for managing and representing the SCE in dealings with third parties and in legal proceedings (one-tier system);
• in line with its main purpose and the nature of its membership, an SCE usually distributes dividends to members in proportion (not to the capital conferred to the SCE, but) to the quantity and/or quality of their activity with the SCE or the service they have performed for it¹⁸;
• an SCEs has "own" assets, namely, assets to which members have no rights, even in the event of a member leaving or the dissolution of the SCE; more precisely, the SCE must establish a legal reserve (at least equal to the minimum amount of the share capital, i.e., EUR 30,000) to which the members who leave the SCE have no right¹⁹ and the residual net assets of the SCE (i.e., the assets that remain after the payment of all amounts due to creditors and the reimbursement of the members' capital contributions) must be distributed, at the time of dissolution, "in accordance with the principle of disinterested distribution", which is to say, "to another cooperative body pursuing similar aims or general interest purposes"²⁰;
• an SCE must involve its employees in accordance with the provisions of Directive 2003/72/EC²¹.

The SCE legal identity, as stemming from the SCE Regulation, aligns with the cooperative identity recognized and protected at international level by the 1995 Statement of the International Cooperative Alliance²², as well as by the ILO recommendation No. 193/2002 on the promotion of cooperatives²³.

Compared to the standard national regulation of cooperatives at EU level , the SCE Regulation differs primarily in its higher minimum capital requirement (EUR 30,000) to establish an SCE and the obligation for SCEs to involve employees. While other SCE requirements are usually mirrored in national laws shaping the identity of national cooperatives25, SCEs are not identical to national cooperatives. In some countries, certain differences may impact the degree of acceptance of the SCE Regulation, as it will be underlined in this Synthesis Report.

2.2. Sources of SCE law

Regulation No. 1435/2003 does not provide for a complete and autonomous regulation of SCEs, which are also governed by the national law of the MS in which they have their registered office.

Indeed, according to art. 8(1) of Regulation No. 1435/2003 on the law applicable, "an SCE shall be governed:

1. by this Regulation;
2. where expressly authorized by this Regulation, by the provisions of its statutes;
3. in the case of matters not regulated by this Regulation or, where matters are partly regulated by it, of those aspects not covered by it, by:
4. the laws adopted by Member States in the implementation of Community measures relating specifically to SCEs;
5. the laws of Member States that would apply to a cooperative formed in accordance with the law of the Member State in which the SCE has its registered office;
6. the provisions of its statutes, in the same way as for a cooperative formed in accordance with the law of the Member State in which the SCE has its registered office".

Formally, EU law takes first place in the hierarchy of the sources of SCE law, whilst national law (of the country of registration) takes second place, since it applies only to matters not regulated or aspects not covered by the SCE Regulation. However, things are substantially different. In the Regulation there are 101 specific references (of various nature) to national law in addition to the general reference in art. 8(1)(c), and many of them give explicit precedence to national law in the regulation of the SCE. This significantly reduces the scope of the matter regulated by EU law and increases the role of national law. The regulation of the SCE is not fully supranational. The inevitable consequence is that, in fact, there is not one SCE but 30 models of SCE as the number of EU/EEA Member States and the applicable national laws. For the same reason, the broad application of national law to SCEs reduces the differences between an SCE and a cooperative established under the national law of the country of registration of an SCE.

Furthermore, the applicable national law is not easily identifiable, because, according to the references in the SCE Regulation, it may consist of specific national laws implementing the SCE Regulation – art. 8(1)(c)(i) –, national cooperative laws – for example, art. 17(1) – and even national public limited-liability company laws – for example, art. 17(1) – and the national law in general – for example, art. 7(4). The interaction between EU law and national laws makes the current legal framework on SCEs not only variable depending on the country of registration but also, in general, extremely complex.

With regard to specific national laws and rules adopted by Member States to implement the SCE Regulation under art. 8(1)(c)(i), the situation varies from country to country²⁶.

In the vast majority of Member States, a specific law has been adopted to implement the SCE Regulation. In some Member States, these specific laws introduced ad hoc provisions into the national Cooperative Acts (e.g., in Bulgaria, France and Slovenia) and other national laws (notably, the laws on the registration of business organizations) to take SCEs into account.

In some Member States, SCEs are recognized and regulated within other legal types of organizations in general laws, such as the Belgian Company and Association Code of 2019, where SCEs are specifically addressed in articles 16:1-16:12.

In other Member States, such as Italy, Malta and Portugal, a decision was taken not to enact any implementing law. In Malta such a law was considered unnecessary, whilst in Italy SCEs have been addressed in two ministerial acts.

In addition to the laws implementing the SCE Regulation, Member States have also adopted specific laws to transpose the employees' involvement Directive, which complements the SCE Regulation, into national law.

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Footnotes

* The research activity for this Synthesis Report was carried out between May and August 2024. The European Research Institute on Cooperatives and Social Enterprises (EURICSE, www.euricse.eu) fed the Synthesis Report with desk research, a questionnaire and interviews. The Report was drafted by EURICSE's Senior Research Fellow, Professor Antonio Fici (University of Rome "Tor Vergata"), with the contribution of Gianluca Salvatori and Barbara Franchini (EURICSE) based on the responses to a questionnaire administered to a team of 22 specially appointed national experts, covering a total of 30 EU/EEA Member States. Relevant information was also provided by selected stakeholders (mainly representatives of the cooperative movement) interviewed at national level. This Synthesis Report was also supported by information provided by national experts from the Commission Expert Group on the Social Economy and Social Enterprises (GECES). Relevant insights were also provided by selected stakeholders (i.e., representatives of existing SCEs, representatives of the cooperative movement at national and EU level, researchers and experts in cooperative law) who participated in a workshop held at the European Commission premises in September 2024. The main objective of the workshop was to take stock of the application of the SCE Regulation and to discuss challenges related to its application, with a view to identify the needs and opportunities to make it more effective and known at national level and among potentially interested stakeholders.

1. Council Regulation (EC) No. 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE). https://eurlex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32003R1435

2. See art. 1(5) and art. 18.

3. See art. 1(2) 3rd subparagraph, according to which "Unless otherwise provided by the statutes of the SCE when that SCE is formed, no member shall be liable for more than the amount he/she has subscribed. Where the members of the SCE have limited liability, the name of the SCE shall end in 'limited'".

4. Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE). https://eurlex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32001R2157

5..As art. 1(1) states: "A cooperative society may be set up within the territory of the Community in the form of a European Cooperative Society (SCE) on the conditions and in the manner laid down in this Regulation". The 20th recital in the preamble declares that "this form of organization should be optional".

6. For this reason, the SCE can be considered the 28th legal model of cooperative in the EU.

7. More precisely, art. 2, par. 1, in regulating the formation of an SCE ex novo or by merger or conversion of existing national law cooperatives, respectively requires that the founders be resident in at least two MSs and/or, if companies, firms and other legal bodies, be governed by the law of at least two different MSs; that the cooperatives to be merged be governed by the law of at least two different MSs; and finally, that for at least two years the cooperative to be converted have had an establishment or subsidiary governed by the law of another MS.

8. See art. 6, applying the "real-seat" theory, and art. 7 on the transfer of an SCE's registered/head office.

9. See articles 1(2) and 3(5).

10. See art. 1(3).

11. See art. 1(3).

12. See art. 14(1), which also clarifies that members who are legal bodies shall be deemed to be users by virtue of the fact that they represent their own members provided that their members who are natural persons are users.

13. See recital No. 9 and art. 14(1).

14. See art. 14(1).

15. See art. 59(1).

16. See art. 59(3).

17. The first possible derogation is the attribution of plural votes to members in proportion to a member's participation in the cooperative activity, as a customer, provider or employee. This attribution may not exceed five votes per member or 30% of total voting rights, whichever is the lower [art. 59(2), 1st subparagraph]. The second hypothesis concerns SCEs in which the majority of members are cooperatives. If the applicable national law so permits, SCE statutes may confer plural votes in accordance with a member's participation in the cooperative activity, including participation in the capital and/or by the number of members of each comprising entity [art. 59(2), 3rd subparagraph]. The third concerns investor members. They may be awarded plural votes if the applicable national law so permits, but in any event they may not together have more than 25% of total voting rights [art. 59(3)]. Other specific derogations regard SCEs involved in financial or insurance activities [art. 59(2), 2nd subparagraph] and the attribution of plural votes to employees' representatives [art. 59(4)].

18. See art. 66. The payment of a return on the paid-up capital is treated by law as a sort of last option, which may even be prohibited by statutes (see art. 67).

19. See art. 65. This partial asset-lock serves to consolidate the financial structure of an SCE, also in the interest of its future members, and to create a link with the cooperative movement, since other cooperatives benefit from the residual assets of dissolved SCEs.

20. See recital 10, 7^th indent.

21. See art. 1(6). Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society with regard to the involvement of employees. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32003L0072

22. See https://ica.coop/en/cooperatives/cooperative-identity and the ICA's Guidance Note on the cooperative principles https://ica.coop/sites/default/files/2021-11/ICA%20Guidance%20Notes%20EN.pdf

23. See https://webapps.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:R193.

24. See G. Fajardo-García, A. Fici, H. Henrÿ, D. Hiez, D. A. Meira, H.-H. Muenker, I. Snaith, Principles of European Cooperative Law. Principles, Commentaries and National Reports, Intersentia, 2017.

25. See also A. Fici, An Introduction to Cooperative Law, in D. Cracogna, A. Fici, H. Henrÿ (Eds.), International Handbook of Cooperative Law, Springer, 2013.

26. A list of these implementation laws may be found in Annex 1 to this Synthesis Report

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