Cooperative – preferred new legal structure for businesses in Switzerland?

Companies can be registered as various legal structures. One recognised model is referred to as the “Cooperative”. The main characteristic of this legal entity, is for each member to have an equal vote. In Switzerland there are now more than 9’600 cooperatives registered, of which about 500 have a recorded turnover exceeding CHF1 billion.

In fact, two of the most well-known retail giants in Switzerland – Coop and Migros – are both registered as cooperatives. And the roots of the business model were first recorded in 1844 in northern England, with a group of 28 artisans known as the “Rochdale Pioneers“.

In Switzerland any entrepreneurial business may take the legal form of a cooperative (Art. 828-926 of the Swiss Code of Obligations). The basic model behind cooperative businesses is still the same today, and these operate for the benefit of their members, and distribute any surplus not reinvested in the business, back to its members. A limited company on the other hand, is where usually only one person holds more than 51% of the shares and therewith, has the majority voice and decision-making power.

Examples of cooperatives in Switzerland 

With almost everyone in Switzerland buying at least some of their grocery supplies from a cooperative each week, and with Switzerland in 2nd place behind New Zealand in terms of employment per 100 inhabitants by a cooperative – it is a fair to say that cooperatives are well respected in Switzerland.  But the fact is that the majority of new start up companies are registered using the “limited” legal status, and this is still the most common capital company structure in Switzerland, with 112,518 limited companies registered in Switzerland in 2023, compared to 9’600 cooperatives.

However, some recent examples indicate that this may be about to change – at least in some sectors. Two recent examples in Switzerland:

Güter Food Company. This is a relatively new start up grocery store located in Bern – the capital of Switzerland which is known for its politically & ecologically-interested public. To shop at Güter, you need to become a member – in effect – a shareholder. The minimum contribution for this is CHF50. (This is for regular membership status and returnable if and when leaving).

It is also possible to become an active member. This enables a voice in how the company is run, but also entails working at least 2.45 hours each month (for free).  The company has 3 core values which are: community, solidarity and ecological, with the goal of sourcing goods that achieve these values. It is organised in the following way:

• • Firstly in topic-specific working groups, which in turn are represented on the management board. The working groups are shown below.
    • Finance working group, with the sole responsible for the finances of the company.
    • The Products working group defines the products to be sold and leads negotiation with suppliers.
    • Finding equipment and maintenance is handled by the Space and Infrastructure working group.
    • The Media and Communication working group is responsible for retaining and attracting new members.
    • The working group “Structures” supports Güter, in its efforts to retain a democratic an efficient structure.

Red Brick Chapel. When the Beatles signed their first record deal, they were reportedly only paid one penny per record sold. In fact, the history of popular music is littered with examples of bands that were duped by (their) managers and record companies.

The Red Brick Chapel is a Swiss record company, and the only one so far that is organised as a cooperative. But given there are no sustainable or ecological questions to answer here, does this make sense?

• The main selling point for recording artists for joining this cooperative, is that they retain control of their music after it is recorded.
• And with some of the artists signed to the label currently enjoying commercial success, this could this be a new model for trusted recording labels.

From the above, it is clear that the cooperative legal structure, offers company members a voice in the running of the business. Given that the “one person – one voice” system is also an integral part of Swiss politics, it should come as no surprise that the cooperative structure is popular in Switzerland. But does it have a future and will it ever go mainstream?

Forming a Cooperative in Switzerland

A brief overview of how to set up a cooperative and what are the main characteristics and benefits are illustrate:

• Seven partners are required as a minimum to found a cooperative, however once the cooperative has been set up, the number of partners may be reduced.
• The partners may be legal entities or natural persons.
• It is not necessary to have registered capital, but if registered capital is in place, each partner must hold at least one share with a fixed nominal value.
• The partners are responsible for corporate assets.
• The administrative bodies required for a cooperative company are:
  • A General Meeting
  • A Board (at least three members). The Board is also required to keep an updated list of all members of the cooperative, with their full names and addresses.
  • A Statutory Auditor
• The company must be registered in the Swiss company trade register. The name can be freely chosen, but must include “société coopérative”.

Advantages & disadvantages of a Cooperative

The Cooperative legal structure is really designed for prioritising development and mutual economic assistance. In the case of the Güter Food Company it seems to make perfect sense. People with a similar interest (organically and sustainable sourced products) work together as a unit (akin to “direct democracy”) to promote a business that they all benefit from personally, as well as ensuring their beliefs and standards in ecological and sustainable sourcing are met.

• However, one down side is that the broadly supported right of co-decision of a cooperative may become a hindrance because it can slow down procedures.
• The legal form of the cooperative is also seen as a  disadvantage when it comes to business transactions or capital markets transactions:
  • the principle of one vote per head effectively prevents any undesired influence from the competition, but also prevents alliances with a financial obligation.
  • Because of the lack of fixed share capital and an insufficient credit base, some cooperatives only have limited access to the capital markets and therefore cannot access equity capital.
• The pros can also be the cons with the basic that employees become co-owners. But former members can still be part of the cooperative, while some employees do not become members. Their views are taken no less seriously because of this.

Do Cooperatives work for all businesses?

In a cross section of industry sectors and legal structures, it seems plausible, that a digital start-up company for example, (with an original idea, product or patent – with the aim of attracting investors to multiply and grow exponentially), would look for a legal form of ownership suited to agile decision making and open to ownership change. Indeed in new product | rapid growth scenarios such as in the Biotech, Pharmaceutical and ICT sectors, an LLC type structure would probably be more suitable.

On the other hand, those businesses that embrace long term core values, based on shared beliefs and principals where growth is more organic could definitely look to the cooperative model to see if the fit is right for them.

Summary:

• According to Professor Dr. Emmanuel Kamdem, Secretary General of the Pan African Institute for Development (PAID), the cooperative model “brings market logic together with social inclusion, making solidarity the focus of concern”.
• This is particular suited to sustainable production with smaller producers being able to benefit from the united power of the cooperative – much the same as the founders of the model, the Rochdale Pioneers did.  The cooperative legal structure focuses on the guarantee of the social and economic advancement of the members, and the goal is “not just maximisation of profits,” according to Professor Kamdem.
• One of the world’s most successful cooperatives is “Fair Trade”. Present in over 130 countries including in Switzerland, it enables small farmers and artisans to market their products successfully and thereby compete with multi-national shareholder companies.
• But as we have seen with both the Güter Food Company and Red Brick Chapel, modern interpretation and adaption of the classic cooperative structure also means that the principles can work in the 21st century. And as the world changes and ecological and sustainable principles take centre stage, the question arises whether the cooperative legal structure will now go mainstream?   As author Margaret Peters famously said “Time has a wonderful way of showing us what matters”.

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