Keywords

1 Introduction: Swiss Cooperative Law as an Enabler of or Hurdle to Cooperative Growth

Cooperatives in Switzerland are governed by “Title Twenty-Nine: The Cooperative” in the Code of Obligations, which has remained essentially unchanged since its entry into force in 1937Footnote 1 (in detail see Troxler, 2021, § 1 N 198 ff). This means that the current cooperative law is still based on the model of the genuine cooperative, that is, the typical self-help cooperatives of the nineteenth century (for details see Troxler, 2021, § 1 N 208): These typical self-help cooperatives are a reaction to the Industrial Revolution and Capitalism of the nineteenth century, which had brought many people into economic hardship and dependency (see Chap. 5). Since protection and help could not be expected from the state (there was no welfare state yet) and only a few were able to extricate themselves from their misery, like-minded people joined forces, to overcome a particular economic shortage, be it, for example, a lack of affordable goods for daily use or a lack of fair loans (Troxler, 2021, § 1 N 16 ff., N 40 ff., N 66, N 73). These typical self-help cooperatives, which seek to satisfy a concrete common need through mutual or joint self-help (instead of being profit-orientated), are thus the guiding principle of the Cooperative Law of 1936.

While the demands of the economy and society have changed since then (for example, for economic hardship there is the welfare state today; and from the 1960s onward, a change in values also set in Troxler [2021, § 1 N 181, 1 N 87]), cooperative law has remained largely unchanged; it has only been revised selectively and rather casually in recent years and decades (see Troxler, 2021, § 1 N 198 ff.).

So todayFootnote 2 we have the ambivalent situation that on the one hand, well-known Swiss companies are organized in the legal form of cooperatives and existing cooperatives (as of January 01, 2023, there were 8.248 [according to the Federal Office of the Commercial Register]) cumulatively make a constant contribution to value creation (with a share of more than 10% of GDP) to the Swiss economy (see, e.g., Kilgus, 2021a, § 2 N 53 ff.; Genossenschaftsmonitor, p. 10). On the other hand, the absolute number of cooperatives has been declining since the mid-1990s (see Kilgus, 2021a, §2 N 14) and the legal form of cooperative is chosen for only 0.3% of all new company formations; to put it differently, for many years now, only around 90–150 companies a year have been founded in the legal form of cooperatives (Kilgus, 2021a, § 2 N 44 f.).

On the one hand, there are reasons why cooperatives (like Migros, Coop, Raiffeisen, Fenaco, Mobilar, and Mobility) are so successful, but on the other hand, there are also reasons why the legal form is so rarely chosen. Various publications deal with the possible reasons for the latter (see, e.g., Fabrizio, 2022, p. 10 ff.; Troxler, 2021, § 1 N 181 ff.). For the purposes of this chapter, however, the focus will be on a specific research question: This chapter seeks to answer the question of whether this current legal framework enables or stifles the growth of cooperatives and, if the latter, what the legal situation would have to be to facilitate the former.

Answering this question requires giving a brief overview of the meaning of business growth and on the current legal framework. Parts 3.2 and 3.3 provide this overview. In the subsequent main part of this chapter (3.4), selected characteristics of a cooperative are examined with a view to the research question: The principle of open membership and the identity principle, the cooperative purpose, the minimum number of 7 members, the financing and the organization, respectively, reorganization of cooperatives—are these characteristics rather a driver or obstacle to cooperative growth?

2 Business Growth

Business growth, in simple terms, means an increase in the size or scope of a company's operations. It is commonly seen as a prerequisite for the survival of a company. Therefore, companies seek to grow in order to achieve economies of scale, to exploit business opportunities, to meet market competition by diversifying their product range, to gain economic and market power, to increase profit (whether in order to distribute them to owners or to reinvest in the business etc.) and to increase the value of the business.

In principle, there are two types of growth: organic and inorganic growth. Organic growth, also called internal growth, sees a company grow in a planned and slow way from within. Such growth is typically achieved by a company reinvesting part of its profits into the company year on year. In this way, it can ultimately finance growth through intensification, diversification and/or modernization.

In contrast, inorganic growth (so-called external growth) takes place from the outside. Classic forms of inorganic growth are corporate mergers, whether through company acquisitions, mergers or cooperation agreements (joint ventures). In contrast to organic growth, inorganic growth can be rapid and enables the immediate use of the acquired assets (for the whole section, see MBA Knowledge Base, The Concept of Business Growth).

3 Legal Framework

From a legal point of view, the cooperative is (only) one of the ten forms of companies provided by the legislature enumeratively.

Like the other forms of companies which in principle pursue economic purposes (cf. Art. 59 para. 2 Civil Code [CC]), cooperatives are regulated in the Code of Obligations (CO) (third section). This means that the provisions on cooperatives are part of the general company law; they are not regulated in a special law, as is the case in some other countries (Fabrizio, 2021a, § 3 N 3, for example, in Germany and Austria, see Fabrizio, 2021b, § 6 N 10).

Furthermore, the Company Law in Switzerland provides a separate legal form for the cooperative with respect to their pursuit of cooperative purposes (codified in Art. 828 ff. CO). This is by no means a matter of course. The United Kingdom, for example, does not provide a separate legal form for the cooperative, but cooperative purposes can in principle be pursued in any legal form (e.g., company, limited liability partnership or general partnership) (cf. Snaith, 2021, § 6 N 11).

However, even in Swiss company law, the cooperative holds a special position, as suggested by the title of the third section of the CO, which clearly distinguishes between “commercial companies” on the one hand and “cooperatives” on the other (Fabrizio, 2021a, § 3 N 4).

3.1 Legal Definition and Characteristics

Depending on the discipline, there are different definitions of what a cooperative is or what constitutes it (see Chaps. 2 and 4). Legally, cooperatives in Switzerland are defined in Art. 828 CO as:

  1. 1.

    […] a corporate entity consisting of an unlimited number of persons or commercial enterprises which primarily aims to promote or safeguard the economic interests of the company’s members by way of collective self-help or which is established for charitable purposes.

  2. 2.

    Cooperatives with a predetermined nominal capital are not permitted.

In order to be able to answer the research question adequately, it is worth taking a closer look at the individual components of this legal definition:

As a corporate entity, a cooperative is a legal entity, but—like the other corporations of the Code of Obligation (company limited by shares [AG], limited liability company [GmbH]) and Civil Code (association [Verein])—a company with owners (shareholders or members), not, like foundations (Stiftung), independent special-purpose fund with state supervision.

A cooperative is an association of persons, which necessarily presupposes that it must consist of a plurality of persons (see Fabrizio, 2021d, Art. 831 N 6). According to Art. 831 para. 1 CO, “[at] least seven members must be involved in the establishment of a cooperative” (emphasis added). Compared to all other forms of companies, the minimum number of members for a cooperative is quite high: associations of persons (such as the simple partnership [einfache Gesellschaft], the general partnership [Kollektivgesellschaft]) need only two members (cf. Art. 530 para. 1 CO; Art. 552 para. 1 CO); legal entities such as a company limited by shares (AG) or a limited liability company (GmbH) require a mere single shareholder (cf. Art. 620 para. 1 CO; Art. 772 para. 1 CO).

The reason for the higher minimum number of members is, above all, the idea of collective self-help. Put differently, the idea is that a cooperation is composed of a multitude of forces that are stronger together, but weak on their own (Fabrizio, 2021d, Art. 831 N 1; Troxler, 2021, § 1 N 76 ff., each with further references). According to the Federal Supreme Court, the minimum number of seven members of a cooperative is a defining element of a cooperative (“begriffsbestimmendes Element der Genossenschaft,” BGE 138 III 407, E. 2.5.2.). This means that a cooperative must have at least seven members at all times: not only at the time of the establishment but also (uninterruptedly) during its existence.

Furthermore, the cooperative is a company whose number of members is not fixed nor limited (cf. Art. 828 para. 1 CO), which means that in principle, a cooperative can accept new members at any time and to an unlimited extent. This requirement is called “non-closed membership,” also referred to as the “principle of open membership” or “principle of the open door” (see Fabrizio, 2021c, Art. 828 N 26 ff., with further references; in detail Forstmoser, 1974, Art. 839 N 7 ff.). A consequence of this requirement is that cooperatives with a predetermined nominal capital are not permitted (cf. Art. 828 para. 2 CO); instead, the capital must be modifiable (see Fabrizio, 2021c, Art. 828 N 113 ff. with further references; Meier-Hayoz et al., 2018, § 19 N 41; Baudenbacher, 2016, Art. 828 N 26; Natsch, 2016, Art. 828 N 15).

Moreover, the cooperative is an association of persons for the joint pursuit of a common purpose. The phrase “by way of collective self-help” underlines this, but is—especially from today's perspective—obsolete (Fabrizio, 2021c, Art. 828 N 80, N 94 ff.; Forstmoser, 2020, pp. 215, 220). This is because “collective self-help” is not a formal legal criterion, but a “sociological element” (Sten. Bull. 1932 S 198 [Amstalden, rapporteur], emphasis added), intended to emphasize the “cooperative” character (see Fabrizio, 2021c, Art. 828 N 8 f.; Sten. Bull. 1934 S 752 [Scherer, rapparteur]). That is, a cooperative is a corporate entity based on the solidarity of its members, their cooperation and joint economic activity (Fabrizio, 2021c, Art. 828 N 81, with further references; cf. Sten. Bull. 1932 S 197 [Amstalden, rapporteur]). However, the Supreme Court ruled in 1967 that a member of a cooperative could only be obliged to make contributions to the cooperative if such an obligation was provided for in the articles of association (BGE 93 II 30, Guiding principle 2). Yet a cooperation can also be founded without such contributions (BGE 93 II 30, E. 4.). With this ruling the Supreme Court accepted that membership in a cooperative does not necessarily mean contributing to the activity of the cooperative, and thus, at the same time, accepted the “collective self-help” in reality being insubstantial (Fabrizio, 2021c, Art. 828 N 90; with further references Forstmoser, 2020, p. 215; Troxler, 2020, p. 703; other view: Reymond & Trigo Trindade, 1998, pp. 14 f.). Today, collective self-help as a means of pursuing the company’s purpose(s) can only be found in the so-called typical cooperatives. That is cooperatives that seek to satisfy a concrete common need by the members themselves actively participating (for example, a solar cooperative in which the members only pay for the solar system, but not—respectively less—for the installation of the solar panels on the roof, because the existing members lay the solar panels themselves for new members, and so on). Whereas for so-called atypical cooperatives (such as large retail cooperatives without any obligation for members to participate) it has become largely irrelevant (Forstmoser, 2020, p. 220).

As a consequence of being based on the members’ joint activity, a cooperative is a company that is based on persons (see Fabrizio, 2021a, § 3 N 94 f.). In contrast to capital-based companies (such as the company limited by shares [AG]), person-based companies have partly comprehensive membership obligations, including the duty of loyalty toward the company (in general on the characteristics of personal companies Meier-Hayoz et al., 2018, § 3 N 5). This is why, in a cooperative, the member and his or her personal commitment and abilities are of great importance (Meier-Hayoz et al., 2018, § 3 N 9 f., N 14, N 16 ff.). At the same time, membership rights do not depend on a capital investment (with the exception of the interest on share certificates, of which several may be acquired pursuant to Art. 853 CO). Instead, they depend, for example, on the relationship of the cooperative members to the cooperative: on their personal commitment, their contribution to the cooperative and their use of cooperative facilities (cf. Art. 859 para. 2 CO) (Meier-Hayoz et al., 2018, § 3 N 30). The person-based (not capital-based) character of the cooperative is also shown by the principle of equal treatment (Art. 854 CO), most clearly expressed by the mandatory rule: one vote per person (Art. 885 CO). And it is shown by the fact that in principle it is not possible to transfer membership by legal transaction (subject to the exceptions by law, namely in Art. 849 para. 3 CO and Art. 850 CO) (see Fabrizio, 2021a, § 3 N 91 f.).

A cooperative is a company with specific purposes to be pursued. Until December 31, 2020, a cooperative's objectives were primarily economic ones. Non-economic purposes—or in other words ideal objectives—could be pursued by cooperatives, but there was disagreement as to which degree this should be possible. Because of Art. 828 para. 1 CO stated that a cooperative “primarily aims to promote or safeguard specificFootnote 3 economic interests of the company’sFootnote 4 members” (emphasis added; on the state of opinion see, for example, Fabrizio, 2021c, Art. 828 N 46 ff.). Although not in line with the then applicable law, commercial registrars and jurisprudence always considered cooperatives with a non-profit, i.e., non-economic, purpose to be permissible (for a summary of the legal situation applicable until the end of 2020, see Fabrizio, 2021c, Art 828 N 102 ff.). This understanding finally translated into law on January 01, 2021, at which point the “non-profit oriented” cooperative also became expressly permitted.

Another characteristic of a cooperative is the so-called identity of members and customers, the so-called identity principle (Fabrizio, 2021c, Art. 828 N 53, with further references). That means, that—on the one hand—a cooperative should direct its activities primarily toward its members and not toward third parties (Fabrizio, 2021c, Art. 828 N 53). Business with persons, who are not members on the other hand, is—due to a strict understanding of this principle—only permitted within limits (for details, see Fabrizio, 2021c, Art. 828 N 54 ff., with further references). For a long time, however, cooperatives (particularly large ones) have been treating members and non-members almost or entirely the same (see, e.g., Reymond & Trigo Trindade, 1998, p. 4; Gerber, 2003, pp. 212 f., 253 ff; Forstmoser et al., 2012, p. 20; Natsch, 2005, pp. 94f.). Although this practice contradicts the guiding principle of the historical legislature, today nobody—neither jurisprudence nor the courts—would seriously question its admissibility. A reason is the approval of membership without any obligation to contribute (see above; Fabrizio, 2021c, Art. 828 N 58): If it does not make a difference if a member contributes to the cooperative or not, why distinguish between members and others?

And finally, a central characteristic that distinguishes the cooperative from other forms of companies is the restriction to the pursuit of certain economic interests of the members: A cooperative must provide its members with certain economic benefits, i.e., satisfy a very specific need (e.g., the need for fair loans, for affordable housing, for mobility for all or for affordable consumer goods) (Fabrizio, 2021c, Art. 828 N 60f., with further references). It may not pursue a so-called dividend-seeking purpose, that is seeking profits with the (sole) aim of then distributing them to the members (respective to their capital participation) (Fabrizio, 2021c, Art. 828 N 69; Chabloz, 2017a, Art. 828 N 20; Forstmoser et al., 2012, p. 7; Druey et al., 2015, § 9 N 22). That was common sense in jurisdiction und jurisprudence, based on the word “specific” (“bestimmte”) in the phrase “which primarily aims to promote or safeguard specificFootnote 5 economic interests of the company’sFootnote 6 members” in Art. 828 para. 1 CO (emphasize added). Yet, as the word “specific” was deleted from this phrase in the revision of the commercial register law, it is uncertain whether this restriction for cooperatives is still valid. There is no indication in the legislative materials that the word was deleted deliberately, that is that there was an actual intention to make a complete reorientation of the cooperative purpose (cf. BBl 2015 3654, which does not even mention the deletion of the word). It seems, however, more likely that it was only intended to simplify the wording by deleting a (supposedly) obsolete word (Fabrizio, 2022, p. 9). Nevertheless, there are representatives of jurisprudence who assume that the new wording of Art. 828 para. 1 CO will finally enable the cooperative to pursue the same purposes as the company limited by shares [AG] and the limited liability company [GmbH] (Forstmoser, 2020, p. 222).

3.2 Membership

Membership in a cooperative is structured fundamentally differently than, for example, in a company limited by shares (AG). With a view to answering the research question, it is therefore necessary to develop a basic understanding of membership in a cooperative and the rights and obligations of members:

The rights and duties of a member in a cooperative depend rather on his or her personality, than his or her capital participation. That is why a cooperative is a so-called person-related company.

The rights and duties of the members (like the rights and duties of shareholders in general, regardless of the form of the company) can be divided into pecuniary and non-pecuniary rights and duties. First of all, the rights of the members of a cooperative:

The non-pecuniary rights can be divided into participation rights on the one hand and protection and control rights on the other. The central participation right of the members is the right to vote. Whereas in a company limited by shares [AG] and a limited liability company [GmbH] the voting power generally is related to the size of the shareholding (Meier-Hayoz et al., 2018, § 3 N 67, cf. Art. 692 para. 1 CO: “[...] in proportion to the total nominal value of the shares belonging to them” or Art. 798 CO), in a cooperative the principle applies: one person, one vote. This principle is mandatory (Art. 885 CO). This means that every member of the cooperative has one vote and one vote only, regardless of how much he or she is involved in the cooperative and regardless of how much he or she has contributed to the share capital.

The protection and control rights of the members of a cooperative are (inter alia): the right to request information and to inspect certain documents (Art. 857 CO), the right to challenge resolutions made by the general assembly or by ballot (Art. 891 CO) and the right to sue persons, engaged in the board of directors, business management or auditing of the cooperative, for liability (Art. 916 ff. CO).

Regarding the pecuniary rights, the central right of the cooperative members is the right to use the cooperative’s facilities (or services). Although this right is not explicitly mentioned in the law, it is generally agreed that—with certain exceptions, such as in the case of non-profit cooperatives—it follows directly from the cooperative purpose of promoting members (BGE 118 II 168, E. 3.b.aa; Fabrizio, 2021a, § 3 N 107; Meier-Hayoz et al., 2018, § 19 N 87; Gerwig, 1957, p. 278; Dubach, 1932, pp. 95 f.; Bernheimer, 1949, p. 97). As a rule, this specific right of use should also be the motive for joining the cooperative (e.g., for joining a housing cooperative, the aforementioned solar cooperative or for joining a cooperative that provides for the joint use of agricultural equipment) (Fabrizio, 2021a, § 3 N 107).

Unlike the shareholders of a company limited by shares (AG), cooperative members are not entitled to a share in the annual profit. In the case of a cooperative, any net profit on the business operations passes in its entirety to the company’s assets, unless otherwise stipulated in the articles of association (Art. 859 para. 1 CO, so-called principle of reinvestment). In this way, company assets are built up over time, especially in cooperatives without share capital (Neuhaus & Balkanyi, 2016a, Art. 859 N 1; Neuhaus & Balkanyi, 2016b, Art. 860 N 3, N 5; Chabloz, 2017b, Art. 859 N 5; Gerwig, 1957, p. 53; Schneider, 1949, p. 46). The principle of reinvestment thus serves as a way for a cooperative to finance itself (cf. Fabrizio, 2021c, Art. 828 N 65; Forstmoser et al., 2012, pp. 8 f.).

If a distribution of the net profit is provided for in the articles of association, the profit is—as a rule—distributed according to the use of the cooperative facilities by individual members (Art. 859 para. 2 CO). The background to this regulation is that, ideally, a cooperative should not earn money on transactions it conducts with its members in accordance with its statutory purpose (e.g., a housing cooperative in renting flats or the aforementioned solar cooperative in laying solar panels for its members). Yet, as a cooperative must still cover its costs, it is allowed to include a safety margin when setting prices. Thus, it is possible that a financial surplus remains at the end of the year. And this surplus should be given back to the members depending on the use of the cooperative facilities or services (see Fabrizio, 2021c, Art. 828 N 64; Forstmoser et al., 2012, p. 8; Gerwig, 1957, p. 183; Reymond & Trigo Trindade, 1998, p. 15).

If the cooperative has issued share certificates, the maximum dividend that may be paid on them shall correspond to the usual interest rate for long-term loans without special collateral (Art. 859 para. 3 CO). This provision also serves to secure the self-financing of the cooperative (Fabrizio, 2021c, Art. 828 N 68). After all, interest and dividends would only lead to fewer assets being available to the cooperative, they are therefore “not the goal” of cooperative activity (BBl 1928 I 292). Rather, the income of the cooperative is to be preserved (Fabrizio, 2021c, Art. 828 N 68, with further references).

An additional point is that members departing a cooperative are not entitled to a settlement by law (cf. Art. 865 para. 1 CO). This means that the right to the full or partial repayment of the value of the share certificate only exists if granted by the articles of association (cf. Art. 864 para. 1 CO).

And finally the duties of the members of a cooperative: For members, there is only one mandatory legal obligation: the duty of loyalty. According to Art. 866 CO, “[t]he cooperative members are obliged to safeguard the interests of the cooperative loyally and in good faith.” This includes, on the one hand, the safeguarding of interests and, on the other hand, the refraining from all actions that could endanger the purpose of the cooperative (Fabrizio, 2021a, § 3 N 117; Rothenbühler, 1984, p. 36). However, what the duty of loyalty actually entails and how far it extends, cannot be generalized, but must be considered separately for each cooperative—according to the intended purpose and the means provided for in the articles of association (Fabrizio, 2021a, § 3 N 117; BGE 101 II 125, E. 3a; Brunner-Dobler, 2008, p. 97; Meier-Hayoz et al., 2018, § 19 N 74; Forstmoser, 2020, p. 215). In view of the approval of non-contributory membership, however, the importance of the duty of loyalty must be put into perspective. In fact, it only plays a role in typical self-help cooperatives, that means cooperatives which seek to satisfy a concrete common need through mutual or joint self-help (such as the solar cooperative described above, in which members are actively involved); in atypical cooperatives (e.g., such as large retail cooperatives without any obligation for members to participate), on the other hand, it is de facto meaningless.

In a cooperative, it is possible to stipulate a large number of personal duties in the articles of association: duties to perform, to tolerate and/or to refrain from (cf. Fabrizio, 2021a, § 3 N 119 f.). To take the example of the solar cooperative again, in such a cooperative members might be obliged—in return for the discounted installation of a solar system—to lay solar panels for future members of the cooperative.

Of course, financial obligations (such as the purchase of a share certificate, an entrance fee, the payment of a severance penalty on departing) and obligations to cover losses (be it the obligation to make further contributions or the personal liability of the members) can also be provided for in the articles of association (for details, see Fabrizio, 2021a, § 3 N 123 f.).

3.3 Organization of Cooperatives

In order to be able to answer the research question, it is also worthwhile to have an overview of the organization of the cooperative. This refers to the bodies of a company, their responsibilities and interactions.

Three mandatory bodies are provided for in Swiss cooperative law:

  1. 1.

    The general assembly of members (or one of its surrogates) as a legislative body.

  2. 2.

    The board of directors (“Verwaltung”) as an executive body.

  3. 3.

    The auditors as the controlling body.

Other bodies are optional (for details, see, e.g., Fabrizio, 2021a, § 3 N 80 f.).

The general assembly of members is the supreme body of a cooperative. The most important decisions are assigned to it by law and the general assembly elects the administration and the auditors (Art. 879 para. 2 CO). At the general assembly of members, every member has one vote (Art. 885 CO). Any gradation of the voting right is prohibited. Furthermore, the possibility of proxy voting is limited (cf. Art. 886 para. 1 CO).

According to the current law, in the case of cooperatives with more than 300 members or in which the majority of members are themselves cooperatives, the articles of association may stipulate that all or some of the powers of the general assembly of members be exercised by ballot (Art. 880 CO) or also electronically (cf. Art. 893a CO). Alternatively or additionally, it may be stipulated that all or some of the powers of the general assembly of members are delegated to an assembly of delegates (Art. 892 para. 1 CO). In the latter case, the members participate in the decision-making processes of the cooperative in a representative democratic way: through delegates who are elected by the members of the cooperative.

The board of directors is the management and representative body of the cooperative (Fabrizio, 2021c, Art. 828 N 57). It is elected by the general assembly of members (or one of its surrogates) (Art. 879 para. 2 no. 2 CO). The board of directors of the cooperative is a collegial body. It consists of at least three persons; a majority of them must be members (Art. 894 para. 1 CO). The directors must conduct the business of the cooperative with all diligence and employ their best endeavors to further the cooperative’s cause (Art. 902 para. 1 CO). This obligation is based on the cooperative purpose (cf. Art. 828 para. 1 CO), and clearly distinguishes the duties of the board of directors of a cooperative from those of the board of directors of a company limited by shares (AG), which will regularly be oriented toward (short to medium-term) profit maximization.

As a control body, the auditors ensure (above all) that the general assembly of members can exercise its powers properly, in particular, to approve the annual accounts (Art. 959 ff. CO), the management report and (if applicable) the consolidated accounts, to decide on the allocation of the disposable profit, but also to discharge the members of the board of directors.

3.4 Cooperative Union

For a certain type of cooperative—whose economic importance is immense—there are special rules on organization: the cooperative union.

The cooperative union is an association of at least three cooperatives in the legal form of a cooperative (Art. 921 OR); it may consist exclusively of cooperatives as well as of at least three cooperatives and other persons, natural or legal.

Art. 922 ff. CO provide for special provisions for the organization of a cooperative union. For example, the supreme governing body of the cooperative union is the assembly of delegates, unless the articles of association stipulate otherwise (Art. 922 para. 1 CO, insofar deviating from Art. 879 para. 1 CO). Furthermore, the mandatory rule “one person one vote,” applicable to the “simple” cooperative, can be deviated from (cf. Art. 922 para. 3 CO). And—in contrast to the “simple” cooperative—the board of directors does not have to be made up of members from the affiliated cooperatives only (cf. Art. 923 CO).

The cooperative union is not only a special cooperative, it is also a group of companies. This is because it necessarily represents a merger of companies—in this case of at least three cooperatives. Yet, unlike ordinary groups, it is not structured “from the top down” (via shareholdings and voting rights), but “from the bottom up”: The member cooperatives are represented in the cooperative union through the assembly of delegates and can thus (indirectly) exercise their ownership rights: The election of the board of directors, the decision on the articles of association of the cooperative union as well as the exercise of their protection and control rights. The cooperative union is therefore also referred to as an “inverted group” (Meier-Hayoz et al., 2018, § 19 N 156; Schmid, 1979, p. 34; von Büren, 2005, p. 220).

On the other hand, cooperative law provides for specific management and control mechanisms (especially in Art. 921 ff. CO). Various obligations can be imposed on the members by the articles of association of the cooperative union. Inter alia, the articles of association may grant the directors of the union the right to monitor the business activities of the affiliated cooperatives (Art. 924 para. 1 CO). They may also grant them the right to challenge the resolutions made by the individual affiliated cooperatives (Art. 924 para. 2 CO).

In combining obligations of the affiliated cooperatives and such control rights for the directors of the cooperative union “tightly managed economic units” can be created (Meier-Hayoz et al., 2018, § 19 N 156).

Well-known cooperatives in Switzerland, such as Migros, Raiffeisen and Fenaco, use the legal form of the cooperative union.

3.5 Financing of Cooperatives

The financing of cooperatives has some special features compared to other types of companies. Therefore, it too should be explained in an overview.

A cooperative can build up equity capital through financial contributions by members (share certificates, membership fees, entrance fees etc.) and through surpluses, which are reinvested (cf. Art. 859 para. 1 CO: “Unless the articles of association provide otherwise, any net profit on the cooperative’s business operations passes in its entirety to the cooperative’s assets”).

The part of the equity capital that is raised through the acquisition of share certificates by the members is also referred to as cooperative or share certificate capital. Unlike other corporations (especially company limited by shares [AG] and limited liability company [GmbH]), the creation of share capital is not obligatory for cooperatives (cf. Art. 828 para. 2, 833 no. 1 CO). Thus, there are cooperatives where the equity capital consists only of reinvested profits; in some cases, these cooperatives then provide for additional funding obligations and/or limited or unlimited liability of the cooperative members as compensation, yet this is by no means mandatory.

Another fundamental difference to the other forms of corporations of the CO (above all company limited by shares [AG] and limited liability company [GmbH]) is that share certificates are not tradable. They never have the character of securities (cf. Art. 853 para. 3 CO) and the mere transfer of the share certificate does not automatically make the acquirer a member. Rather, in principle, the acquirer only becomes a member of the cooperative (Art. 849 para. 1 CO) through a resolution on the accession in accordance with the law and the articles of association (cf. 840 para. 3 CO). That means, in any case another act (be it the mere declaration of accession or the resolution on the accession by the competent body of the cooperative)—in addition to the acquisition of the share certificate—is required to become a member of a cooperative. This makes the share certificate completely unsuitable for trading via the stock exchange. Raising equity capital via the stock exchange is therefore not possible for a cooperative.

Another special feature when compared to the company limited by shares [AG] and the limited liability company [GmbH] is the restriction for dividends in Art. 859 para. 3 CO: “Where share certificates exist, the portion of the net profit paid out on them must not exceed the usual rate of interest for long-term loans without special security.” This restriction intentionally makes investments in a cooperative unattractive (Note: this restriction does not apply to credit cooperatives; Art. 861 para. 1 CO provides for facilitations for these kind of cooperatives).

In contrast, the cooperative is not subject to any restrictions on debt financing. Rather, it can make use of all the usual credit instruments, namely bank credits and loans, but also bonds or syndicated loans. Bond issues, for example, can also be traded on the stock exchange.

4 Selected Characteristics of Swiss Cooperative Law and the Question of Whether Swiss Cooperative Law Is a Driver or Obstacle for Cooperative Growth

With this basic information on the peculiarity of the legal form of a cooperative, the research question is now to be answered–step by step or characteristic by characteristic:

4.1 Principle of Open Membership and Identity Principle

The principle of open membership or “principle of the open door” enables continuous inorganic growth (as discussed in Sect. 3.2). Through the accession of new members, who because of the identity principle can usually also be customers or suppliers (depending on the type of cooperative), a cooperative can grow externally: in terms of the number of members, but also financially, provided that new members have to acquire (at least) one share certificate.

The so-called identity principle, i.e., the basic identity of members and customers or (depending on the type of cooperative) suppliers, offers several opportunities with regard to possible growth.

This principle can contribute to increasing the degree of self-sufficiency of a company. For example, if—as in the case of the Fenaco cooperative—the farmers are also members of the cooperative, this—along with the members’ duty of loyalty—helps to maintain supply chains or to develop new ones. Depending on what kind of new members are recruited, there is either an intensification (for example, in the case of a farmer’s cooperative because the new members are grain producers like the previous ones) or a diversification (e.g., because the new members, unlike the previous ones, are not grain producers but winegrowers). Another example: Assuming that the already mentioned solar cooperative gains new members of the previous kind (people who want to have solar panels on their roof), it has two advantages: first, more customers for its service, second, more people who provide the service. Both result in an intensification. If, on the other hand, it opens up to new members of a different kind (e.g., suppliers of solar panels), the cooperative can not only offer services in the future but also sell a product. This would be a diversification. Both intensification and diversification reduce dependence on other companies (e.g., external suppliers). At the same time, there is the possibility of controlling the suppliers (who are members) through the structure of the cooperative (resp. the cooperative union) and the obligations it imposes and, if necessary, of encouraging them to comply with applicable legal provisions.

Then the dual role as member and employee or customer or supplier allows different interests to be taken into account (in the general assembly, which means in the supreme body of the corporation, and in the board of directors). In this way, innovations (be it product innovation, process innovation, marketing innovation or organizational innovation) can be initiated. Growth through modernization is therefore also favored by the identity principle.

4.2 Cooperative Purpose

The specific cooperative purpose, on the other hand, is—with regard to the possibility of a company to grow—ambivalent:

On the one hand, it offers the possibility of combining economic and non-economic purposes in a way that no other legal form can: namely without violating the legitimate dividend interests of its shareholders. This can certainly be an advantage with regard to the expansion of business activities, for example, into areas that appear rather unattractive from the point of view of (purely) profit-seeking forms of company (e.g., social housing, low-cost day-care centers, organic farming). Serving such financially unattractive markets can also positively influence the public perception of a company, that is its image. Indirectly, such a positive perception or image can ultimately lead to increased customer numbers and, by extension, sales in the profit-oriented areas of the company. This context offers the opportunity for (albeit very slow) organic growth.

On the other hand, the cooperative purpose restricts business growth: Some business activities, especially in the financial market, may not be carried out in the legal form of a cooperative: For example, since January 01, 2012, the cooperative is no longer a permissible legal form for newly founded pension funds (in the area of compulsory insurance in accordance with the Federal law on occupational pension schemes [BVGFootnote 7]). Managers of collective assets, fund management companies and securities firms may not use the legal form of a cooperative (Art. 25, 33, 42 Financial Institutions Act [FinIA]Footnote 8). And so-called FinTechs can only use the legal form of cooperative to a limited extent: A FinTech can use the legal form “cooperative” as long as it operates in an area for which it does not (yet) require a license (so-called license-free area). This means either within the scope of the so-called sandbox privilege (pursuant to Art. 6 para. 2 of the Banking Ordinance [BankVFootnote 9]) or as a credit cooperative, that is not active in the financial sector, pursues idealistic purposes or common self-help and uses the deposits exclusively for this purpose and the deposits have a term of at least 6 months (pursuant to Art. 5 para. 2 lit. f Banking Ordinance [BankV]). If, on the other hand, a FinTech is seeking a so-called FinTech license pursuant to Art. 1b of the Banking Act (BankGFootnote 10) (“promotion of innovation”), a cooperative is not available as a possible legal form (see Art. 14a Banking Ordinance [BankV]). In these areas, cooperatives can therefore hardly grow, if at all, whether through diversification or modernization.

In addition, the restriction on dividends in Art. 859 para. 3 CO for cooperatives is generally regarded as a lack of incentive for (financial) participation in a cooperative (Note: this restriction does not apply to credit cooperatives; Art. 861 para. 1 CO provides for facilitations for these kind of cooperatives cooperatives). Due to this restriction, the incentive to acquire share certificates beyond the minimum required by the cooperative is lacking. This also severely slows down even the possible organic growth of a cooperative.

It must, therefore, be stated that the cooperative purpose rather inhibits growth than promotes it. Nevertheless, the question of a possible improvement through legal reform cannot be answered so unambiguously: It is true that a revision of the cooperative purpose could lead to a comprehensive opening of the cooperative for the general pursuit of economic interests. Like the company limited by shares [AG] and the limited liability company [GmbH], it would thus be permissible for all (legally permitted) economic purposes.

However, it must be borne in mind that this would mean giving up the most distinctive feature that distinguishes it from the other two legal forms (the natural promotion of its members). Sooner or later, its raison d'être could be called into question.

A sensible but rather moderate change would therefore be, for example, to allow the legal form of cooperative to be used for activities from which it has been or is currently excluded, especially in the financial market (e.g., pension funds in the area of compulsory insurance, certain financial institutions in the sense of the FinIA and FinTechs), without convincing reasons (for details, see Kilgus, 2021b, § 4 N 119, N 28 f., N 31).

4.3 Minimum Number of 7 Members

At first glance, the minimum required number of members does not appear directly relevant to the growth potential of a cooperative. Yet, according to Swiss law, the minimum number of seven has a major impact. It prevents cooperatives from being founded (see Fabrizio, 2022, p. 10) and also endangers the existence of (economically successful) ones. For, “where the number of members subsequently drops below the minimum number, the provisions of the law on companies limited by shares on defects in the organization of a company apply.” (Art. 831 para 2 CO). In the worst case, this procedure can lead to the dissolution of the cooperative (cf. Art. 731b para. 1bis no. 3 CO: “The court may in particular dissolve the company and order its liquidation according to the regulations on insolvency proceedings.”). In this respect, reducing the legal minimum number of members to two or three (through legislative reform) could help to maintain a company’s ability to grow.

4.4 Duties of Members

The possibility of imposing obligations (including financial ones) on the members can also enable cooperatives to grow organically: For example, the obligation to purchase share certificates above the legal minimum (of one share certificate, cf. Art. 853 para. 1 CO) can raise additional (financial) resources for investments.

Furthermore, the personal liability of the members and/or the obligation to make additional contributions can also facilitate growth. For example, these obligation(s) can serve as (additional) collateral for potential lenders. In individual cases, the granting of credit (also for cooperatives without share capital) is actually only made possible by this additional collateral; in any case it is based on a broader collateral basis. Organic growth, that is through investments in research and development, can thus also be financed (indirectly) through these possible additional obligations for members.

4.5 Financing

The options provided by law for financing a cooperative are also both conducive and obstructive to the growth of a cooperative:

On the one hand, the principle of reinvestment contained in Art. 859 para. 1 CO (“An annual profit from the operation of the cooperative shall, unless the articles provide otherwise, fall in its entirety to the cooperative's assets.” [emphasis added]) facilitates the self-financing of a cooperative; moreover, the dividend restriction contained in Art. 859 para. 3 CO ensures that profits of the cooperative are retained instead of being fully distributed to the members. Both promote the internal growth of a company.

On the other hand, the dividend restriction means that there are no (or at least few) incentives for new members to join the cooperative and for existing members to purchase additional shares.

In addition, the cooperative's options for financing itself through equity instruments are limited. Cooperatives, with the exception of cooperative banks (who have a relatively newly granted option of issuing participation certificates) do not have the option of issuing participation certificates (cf. Art. 14 ff. Banking Act [BankG]).

Furthermore, a cooperative can only finance itself on the capital market to a limited extent: Only debt instruments can be traded (on or off the stock exchange); whereas cooperative share certificates are not tradable, as they are not securities.

As with the purpose of a cooperative, it must be stated that financing is more of an obstacle to the growth of a cooperative than it is conducive to it. This is because the two factors that can favor internal growth (principle of retention and restriction on dividends) are relativized by the lack of incentives for financial participation and the limited possibilities for equity financing (whether on or off the stock exchange).

Various authors therefore call for a less severe restriction on dividends (Troxler, 2013, p. 27; Gerber, 2003, p. 322). The possibility of issuing participation certificates (and profit participation certificates) is also raised again and again (see already Gerber, 2003, p. 322)—notwithstanding the now existing special regulation for banking cooperatives.

Some authors also criticize the fact that the equity instruments available to a cooperative cannot be listed on the stock exchange (Gerber, 2003, p. 322). If a cooperative was allowed to issue participation certificates at least these participation certificates could be listed and traded via the stock exchange. Regardless, Walter Gerber claims to consider issuing share certificates as securities in order to make them tradable and thus more attractive for investors (Gerber, 2003, p. 322).

Here too, however, it must be borne in mind that a possible revision of cooperative law would be confronted with the challenge of improving the financing possibilities (and thus the conditions for organic growth), but without sacrificing the essential characteristics of the cooperative, which include the lack of a dividend policy.

Therefore, in order to preserve the non-dividend-seeking character of the cooperative, the dividend restriction should—in my opinion—not be completely removed; however, the limit could be set higher so that dividends would be allowed to a somewhat greater extent in the future.

4.6 Organization/Reorganization

Concerning the organization of a cooperative, there are especially two aspects, which have an impact on a cooperative’s potential for inorganic growth:

The first aspect is the mandatory principle “one person, one vote.” Due to this principle, it can be difficult to obtain the required majorities for a strategic reorientation (changes in purpose, mergers, etc.):

  • The articles of association may provide for high quorums for provisions amending the articles of association (cf. Art. 888 para. 2 CO). A strategic reorientation of cooperatives, which depending on the structure may also include the acquisition of other companies, would not be easy to implement in such a case.

  • For certain decisions, special quorums apply by law, especially in the Merger Act (“Fusionsgesetz” [FusG]Footnote 11). For example, mergers that only contain a settlement for the shareholders of the transferring company, require the consent of 90% of the shareholders entitled to vote of the transferring company (cf. Art. 18 para. 5 Merger Act [FusG]).

The mandatory rule “one person one vote” can therefore in individual cases slow down inorganic growth or even make it impossible.

  • Thanks to the Merger Act, which came into force in 2004, cooperatives are largely on an equal footing with companies limited by shares (AGs) under merger law. However, some restrictions still exist. For example, the simplified procedure according to Art. 23 ff. Merger Act is not available to cooperatives for intra-group mergers, as this simplified procedure applies only to corporations as defined in Art. 2 lit. c Merger Act [FusG]. And cooperatives do not qualify as such “corporations,” even if they have issued share certificates. This is why commercial registrars have refused to apply Art. 23 f. Merger Act [FusG] to cooperatives. As a consequence, the possibilities to grow inorganically are not less, but procedurally more difficult, compared to other corporations (i.e., corporations as defined in Art. 2 lit. c Merger Act [FusG]).

The literature criticizes this current reality and warns that “[o]f course [...] there is an economic need for intra-group mergers, especially in the case of purely cooperative structures.” Franco Taisch and Ingrid D'Incà-Keller therefore demand—de lege ferenda—the creation of facilitations also for intra-group mergers of cooperatives (Taisch & D’Incà-Keller, 2010, p. 358).

5 Conclusion

The cooperative is a special legal form with characteristics that set it apart from other legal forms. The most distinctive feature compared to other forms of companies is the purpose of the cooperative (the natural promotion of its members), which also determines other characteristic features, such as financing—Are these characteristics rather a driver or obstacle to cooperative growth?

Having explored the extent to which selected particulars of the legal framework inhibit or promote the potential for growth of cooperatives—both organic and inorganic—it can be concluded that the answer is ambivalent:

On the one hand, it can be stated that there is a potential for specific cooperative growth with regard to: a) the number of members; b) the composition of the members, which—depending on what kind of members are recruited—may help to increase the degree of self-sufficiency of the cooperative; c) the interests and ideas of the members, who are represented in the decision-making bodies and in this way can directly initiate innovations; d) the obligations of the members, especially financial ones, which might help to raise additional (financial) resources or serve as collateral for investments; e) the possibility of combining economic and non-economic purposes, which can help to positively influence the public perception; and f) the principle of reinvestment together with the dividend restriction, which facilitate the self-financing of the cooperative.

All these factors allow for slow (but rather sustainable) growth: in terms of members, assets, market shares and profit (be it organic or inorganic).

On the other hand, cooperatives face constraints in areas that are generally considered essential for growth, especially in the areas of financing and organization (as well as reorganization). This includes: a) the possibilities to issue equity instruments are limited (at least for simple cooperatives); b) incentives to acquire share certificates are limited; c) share certificates are not tradable and cooperatives are thus prevented from trading them on the stock exchange; d) certain fields of business, especially in the financial market, are precluded from cooperatives from the outset. Moreover, due to the mandatory principle “one person, one vote” it can be difficult to obtain the required majorities for a strategic reorientation and concerning mergers, cooperatives cannot make use of the simplified procedure.

So, if one focuses on areas that are classically considered essential for growth, it must be stated that the Swiss cooperative law is more of an obstacle than an enabler to the growth of a cooperative.

Of course, there are proposals and desires regarding how cooperative law could be made more growth friendly. Most of them aim at reducing specific cooperative barriers. For example, reducing the legal minimum number of members to two or three, but above all barriers with regard to the purpose and the financing of cooperatives (which both are more of an obstacle to the growth of a cooperative than they are conducive to it): such as allowing the cooperative to pursue all legally permitted purposes, moreover less severe restriction on dividends and if necessary, the possibility of issuing participation certificates or other equity instruments, which could then possibly also be traded on the stock exchange. Some of these proposals can certainly be implemented easily and without affecting the specifics of the cooperative as a legal form (such as reducing the legal minimum number of members). Concerning others the challenge is rather to remove obstacles to cooperative growth without endangering the cooperative characteristics: for example, in order to preserve the non-dividend seeking character of the cooperative, not completely removing the dividend restriction, but setting the limit higher so that dividends would be allowed to a somewhat greater extent in the future. Moreover, the cooperative could be recognized as a permissible legal form for activities, especially in the financial market, which it is not allowed to carry out today (e.g., pension funds in the area of compulsory insurance, certain financial institutions in the sense of the FinIA and FinTechs); however, the demand for opening up the cooperative for all legally permitted purposes (not only the natural promotion of its members but also sheer dividend-seeking purposes) must be questioned critically.

Since, as far as reforms with regard to the purpose of cooperatives and the financing of cooperatives are concerned, it is important not to rush into adopting or demanding the adoption of all (supposed) privileges of other legal forms. For the more the characteristics of the cooperative are abandoned or diluted, the more the question will be asked, sooner or later, about the raison d'être of the cooperative as a separate legal form.