Study of legal framework acting in the Republic of Armenia regulating the activities of Cooperatives
YEREVAN 2014
Study of legal framework acting in the Republic of Armenia
regulating the activities of Cooperatives
Necessity and importance of cooperatives......
3 a. Legal acts regulating the activities of cooperatives acting in the
Republic of Armenia (Law, Decision of the Government, Normative Act, etc.)...... 18
List of the legal acts regulating the activities of cooperative acting in the Republic of Armenia...... 35 b. Analysis of strengths and weaknesses of legal acts focusing on legal
acts related to agricultural cooperatives......
36 c. Study and analysis of draft legal acts on cooperatives currently
circulated within the RA Government (focusing on agricultural cooperatives); expected outcomes of adoption (approval) of draft legal
acts...... 42
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Study of legal framework acting in the Republic of Armenia regulating the activities of Cooperatives.
Necessity and importance of Cooperatives
Cooperatives have existed for over two hundred years. Acting in all spheres of economic activity, cooperatives are more durable than investment tended companies. Cooperative model has permanently adapted to the changing conditions, and the innovative new ways of cooperation have arisen in order to solve the new economic and social problems.
Cooperatives have developed in the countries with highly different political conditions, economic development levels, cultural characteristics and historical background. The number of certain types of cooperatives has noticeably icreased in specific countries.
At the end of nineteenth century cooperatives, as economic and social institutions, have played an important role in Central and Eastern Europe. There were interesting examples of succeeding with independent initiatives in Czech, Bulgaria, Serbia and Poland namely before entering of the socialism in these countries. Likewise, cooperatives have had the key role in developing countries, even though they often have not been defined and regulated by the law. The main reason for the success and longevity of cooperatives is that they are not interested in maximizing investors’ profit, but interested in satisfying needs of communities. Cooperatives should be referred as common (collective) solvers of problems.
Cooperatives’ world history provides lessons to be learnt in order to understand their rationale.
Cooperatives have also prospered as they have inherent advantages in comparison with the investment tended organizations, in a sense that they assume such a role that investment tended organizations are unable or do not wish to assume. Users and consumer cooperatives have been established to decrease fees and retail prices, agricultural cooperatives have been established to strengthen weak market potential of manufacturers, the workers cooperatives have been established for self-management of their businesses. Workers and communities have established the mutual assistance companies to provide global insurance and assistance. Cooperatives have contributed to the improvement of life quality of the most vulnerable and wider groups of society by satisfying the needs of their members. Many public welfare programs have been brought to
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life due to inventions and experimental works carried out by cooperatives. The basic institutions providing welfare have initially developed through the mutual assistance and cooperative groups. Historical evidence indicates that during the crises cooperatives are not only surviving better than other types of organizations, but also resist crisis influence successfully.
The history of British consumer cooperatives of the nineteenth-century is a sustainable development story, which was only insignificantly affected by the periodic declines. In the 1930s during the Great Depression cooperatives of energy and telecommunications spherehelped to reform the U.S. agriculture. In the 1960s, the cooperative movement began in New York City involving 27,000 families. In the 1970s, during a radical restructuring, a number of Workers' Cooperatives increased in Europe, where a number of failures within that cooperatives was lower than within commercial companies. In 2008-2009, once again the crisis attested the power and flexibility of cooperatives.
In order to assess the scales of Cooperative's movement, it is necessary to carry out a realistic evaluation of the total extent of cooperative sector.
In the whole wide world there are three times more member-owners of cooperatives than an individual shareholders of the joint stock companies, and in rapidly developing countries (Brazil, Russia, India, China) the number of cooperative’s members exceeds the number of shareholders for four times. The total membership of cooperatives is from 800 million to 1 billion. According to the International Cooperative Alliance, cooperatives operate in all countries, with their importance to be especially big in poor communities.
In European countries about 60 percent of the total market share of agricultural cooperatives is in sphere of processing and sales of agricultural products and about 50 percent in sphere of supply of inputs. In the U.S. about 28 percent of the market share of cooperatives is in processing and sales of agricultural products and about 26 percent - in market supply of inputs.
About 56 thousand credit cooperatives and credit associations operate in the world. There are about 4200 credit cooperative banks with 36 thousand branches in Europe.
400 thousand persons work in and 29 million people are members of 3200 consumer cooperatives of the European retail trade sector.
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According to the International Cooperative and Mutual Insurance Federation, in 2008, 25 percent of the global insurance market was cooperatives’ share.
Social cooperatives, which are widely spread particularly in European countries and in Canada, are the new types of cooperatives, which clearly aim at improving collective benefit. As a type of cooperative, social cooperative is between traditional cooperative and non-profit organization and generally brings numerous interested parties (members of the cooperative) together for the purposes of common interest.
A cooperative should be viewed as such type of a private enterprise, which is owned by its members, is jointly controlled by them and provides services to them.
The objectives of cooperatives are economicmainly . The establishment and successful development of a cooperative is not an easy task. Generally it is time-consuming and complicated process. Market conditions, policy of the government, as well as legal framework should favour the development of cooperatives. At the same time, the essential prerequisite is the selection of strong leaders with management skills and capacities, as well as existence of sufficient financial resources.
A cooperative, under the influence of current trends of the market tended reforms, privatization and decentralization, is rightly viewed as the most appropriate organizational form in order to call into being the economic initiatives of villagers, to implement sustainable development and good management.
The best evidence of the abovementioned is the emphasis of the importance of cooperatives in the development of agriculture made by many countries, donors and NGOs. However, the state should not interfere in the establishment and management of cooperatives. The task of the government is an implementation of the functions supporting their establishment, as well as forming favorable legal and economic environment. By the simplest definition, a cooperative is the voluntarily established economic unit to produce goods and supply services, the members of which carry out the management and jointly share the emerged risks and profits1.
According to the definition of the International Co-operative Alliance (Established in 1895, in London) “A cooperative is an autonomous association of persons, who are voluntarily
1Urutyan V., Avetisyan S. Agricultural Cooperatives. Yerevan, Asoghik, 2011, page.
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united to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise”2.
The characteristics and statistics of the cooperative movement in the Republic of Armenia
It is obvious from the nature of problems currently faced in Armenia's agri-food sector, that the successful development of agriculture and agri-businesses is essentially conditioned by the establishment and development of cooperatives. In conditions of market economy the cooperation can coordinate the various functions in agricultural production, as well as in service, marketing and supply processes. The idea of cooperation is conditioned by the necessity of solving problems in agriculture area, such as difficulties in marketing of the agricultural products, inaccessibility of the services and the main resources used, such as techniques, fuel, fertilizers, etc. Many international and national programs and activities in the Republic of Armenia have been aimed at promoting the establishment and development of cooperatives.
It is expedient for the cooperative movement in the Republic of Armenia to be presented by the following stages:
1993-1999
Since 1993 some local and regional organizations and associations guided by the principles of autonomy and volunteerism have been registered, which nevertheless did not operate in future. In 1994 the “Armenian farmer’’ Association was organized, which involved mainly the rural farms , and as those farms were of various nature the association have not functioned and suspended its activity.
In 1995 “Armenian Rural Union” non-governmental organization was established. In 1998 “National Union of Farmers” was established. In 2004 “National Union of Farmers” was renamed as “National Association of Farmers”.
In the late 90s about 400 irrigation water users consumer cooperatives were established, which supplied the irrigation water to the agricultural farms of separate communities. In 2002 most of
2 www.ica.coop.
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these organizations were liquidated after the adoption of the Law of the RA “On Water Users’ Associations and the Federation of Water Users’ Associations” when the Water Users’ Associations were established for the implementation of this function. Currently there are 44 Water Users’ Associations.
At this stage, most of these organizations were closed because of the farmers’ mentality, wrong apprehension of the identity and principles of cooperatives, as well as passive participation and non-participation of members in the management and economic activities of cooperatives.
2000-2010
The peculiarity of the second stage is that many international development organizations started implementing their plans for or through the establishment of cooperatives in the Republic of Armenia.
Since 2001 “Agricultural Association” consumer cooperatives were established. Since 2001, 50 credit clubs were established with the financial-economic support of the Marketing Assistance Program of the U.S. Department of Agriculture. Most of these clubs are currently liquidated. The RA law “On Agricultural Credit Club” is in force till now and is considered as a fairly well- developed, containing definite elements related to the identity of cooperatives.
Since 2001 the Milk marketing consumer cooperatives were established with the assistance of the Marketing Assistance Program of the U.S. Department of Agriculture. In 2001 “Federation of Agricultural Association” - Association of Legal Persons was established by the initiative of 8 local farmer organizations. 22 consumer cooperatives from the 6 marzes of the Republic of Armenia are currently included in the association. Within the framework of many donor programs the “Federation of Agricultural Association” have carried out the capacity building projects, trainings, as well as providing of consultations and advocacyfor the consumer cooperatives.
On February 21, 2007 “Farm Credit Armenia” Universal Credit Organization commercial cooperative was established with the assistance of the U.S. Department of Agriculture, which is the only financial cooperative in Armenia. It was established by 57 farmers. On September 18, 2007 it was registered by the Central Bank of Armenia as Universal Credit Organization commercial cooperative.
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“Farm Credit Armenia” Universal Credit Organization” commercial cooperative in the territory of the RA provides credits to individuals and legal persons engaged in agriculture, in processing of agricultural products, as well as in entrepreneurial activity.
The organization provides 4 main types of financial products: agricultural loans, agribusiness loans, SME (small and medium-enterprise) loans, leasing of the agricultural machinery.
According to the data as of the beginning of 2013 “Farm Credit Armenia” Universal Credit Organization” commercial cooperative consists of more than 2300 member-shareholders. The organization has 4 branches.3
The programs were implemented by a number of donor organizations and the assistance was provided within the framework of the programs for the establishment of the cooperatives. For example, with the assistance of UMCOR Armenia in 1999-2003 the Community Associations Program was implemented and 7 cooperatives were established within the framework of the program, in 2003-2006 the Farmer Organizations Support Program was implemented and 6 Cooperatives were established within the framework of the program, in 2009-2011 “Sustainable Cooperative Extension and Agricultural Development” Program were implemented and 14 cooperatives were established within the framework of the program. Within the framework of the last program the cooperatives received loans for procuring big quantity of agricultural inputs. Partner-cooperatives of the program also received trainings on management and marketing, as well as consultancy.
In 2011 Oxfam Armenia implemented “Encouraging small-scale farmers” program. Within the program 10 agricultural cooperatives, 3 cooling and collection centers were founded in the targeted communities, the management of which was entrusted to the newly opened cooperatives. Such programs are currently being implemented also by Oxfam.
“World Vision Armenia” organization with its local economic development component also works with cooperatives. Particularly, 10 consumer cooperatives were established by the organization in Gegharkunik and Aragatsotn marzes, in order to implement economic development programs in targeted communities through the cooperatives.
3www.fca.am
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Except the abovementioned organizations a number of programs for development of cooperatives were also implemented by the local non-governmental organizations mostly within the framework of the donor programs (“Green Lane” NGO, “Shen” NGO, etc).
More than 75 percent of the established consumer cooperatives were established within the framework of some donor program and by the active participation of those donors. Actually, the partial success was registered at this stage due to technical financial support of the donor programs and international organizations. Most of the cooperatives established at this stage ceased to exist after the completion of the donor programs or existed only on paper.
The cooperatives remained as insufficiently developed and were far from being considered as a full part of the agricultural value chains. The reasons that hindercooperatives to achievesuccesses vary and can be considered being in legal, economic, informational and, sometimes, in social and psychological areas.
2010-2020
At this stage, the role of farmer organizations and cooperatives in the state strategic plans was greatly highlighted in the state policy and fixed in the program "On Strategy for Sustainable Agricultural and Rural Development of Armenia for 2010-2020"4.
The promotion of establishment of agricultural cooperatives is included among the priority tasks for 2012-2013 of Government of the RA. Within the framework of “Community Agricultural Resource Management and Competitiveness’’5 Project 67 “Community-based Pastures users’ association” consumer cooperatives were established in 2011-2013, which would actively participate in the project and in economic and community subprojects envisaged by the project.
The data on cooperatives statistics are presented below.
3737 producer cooperatives and 307 consumer cooperatives are registered according to the data of the State Register as of January 1, 20136.
4 Decision of the Government of the RA N 1476-N dated on 10.11.2010. 5http://www.arspiu.com/en/carmac 6Based on the Study ,,On Legislative Reforms for Cooperatives: Guidelines for Armenia”.
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The “Pastures users’ association” consumer cooperatives established within the framework of the “Community Agricultural Resource Management and Competitiveness’’ (CARMAC) Project are included in the structure of consumer cooperatives.
It is difficult to figure out the number of the actually functioning producer cooperatives and the share of the agricultural production cooperatives in the above mentioned number.
The number of 307 consumer cooperatives registered by the RA marzes as of January 1, 2013 is presented in Table 1.
Table 1
The number of consumer cooperatives by the RA marzes as of January 1, 2013
Marzes Number of Cooperatives
Yerevan 26
Aragatsotn 32
Ararat 36
Armavir 37
Gegharkunik 38
Lori 23
Kotayk 15
Shirak 22
Syunik 20
Vayots Dzor 23
Tavush 35
Total 307
Source: Study “On Legislative Reforms for Cooperatives: Guidelines for Armenia”
More consumer cooperatives are registered in Aragatsotn (10.4%), Ararat (11.7%), Armavir (12%), Gegharkunik (12.4%) and Tavush (11.4%) marzes. This can be explained by the
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agricultural-orientation of those marzes (taking into account that most of the consumer cooperatives are agricultural) and by the big number of agricultural donor projects in mentioned marzes.
According to the assessment as for the end of 2013, more than 20 percent of the consumer cooperatives have no relation to agriculture. The others can more or less be considered as agricultural.
127 agricultural consumer cooperatives of general nature, 22 milk producers’ consumer cooperatives, 40 irrigation water users’ consumer cooperatives and 67 pasture users’ consumer cooperatives are registered in Armenia.
As since 2002, after the adoption of the Law of the RA “On Water Users’ Associations and the Federation of Water Users’ Associations” the Water Users’ Associations started implementing the irrigation water supply functions, about 400 community irrigation water users’ consumer cooperatives established in 90s, were liquidated.
□ Irrigation water users’ consumer cooperatives
□ Milk producers’ consumer cooperatives
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□ Agricultural consumer cooperatives
□ Pasture users’ consumer cooperatives
□ Others
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Chart 1: Number of Consumer Cooperatives based on sphere of activity (Study “On Legislative Reforms for Cooperatives: Guidelines for Armenia”)
67 Pasture Users’ Associations Consumer Cooperatives were established in 2011-2013 within “Community Agricultural Resource Management and Competitiveness’’ Project, the location of which by marzes, regions and communities is presented in the Table 2.
Table 2
Number of consumer cooperatives established within “Community Agricultural Resource Management and Competitiveness’’ Project bymarzes, regions and communities
N/N Region Communi Name of the cooperative Numbe
ty r of membe rs
SHIRAK
1 Amasia Berdashen Consumer Cooperative “POGA” 58
2 Tsakhgut Consumer Cooperative “Pasture Users’ Association of 32 Tsakhgut Community”
3 Ani Sarnaghby Consumer Cooperative “Pasture Users’ Association of 217 ur Sarnaghbyur”
4 Aghin Consumer Cooperative “Pasture Users’ Association of 92 Aghin Community”
5 Basen Consumer Cooperative “Pasture Users’ Association of 149
Akhury Basen Community” 6 an Jrarat Consumer Cooperative “Harsnasar-2011” 181
7 Aygabats Consumer Cooperative “Pasture Users’ Association 104 “Aygabats-2011”of Aygabats Community”
8 Lernakert Consumer Cooperative “Pasture Users’ Association 186
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“Lernakert-2011”of Lernakert Community”
9 Harich Consumer Cooperative “Pasture Users’ Association 217 “Harich-2011” of Harich Community”
10 Mets Consumer Cooperative “Pasture Users’ Association 224 Artik Mantash “Basen-2011”
11 Arevshat Consumer Cooperative “Pasture Users’ Association of 325 Arevshat Community”
12 Saralanj Consumer Cooperative “Pasture Users’ Association of 156 Saralanj Community”
13 Nahapetav Consumer Cooperative “Pasture Users’ Association of 157 an Nahapetavan Community”
Total 2098
LORI
1 Atan Consumer Cooperative “Pasture Users’ Association of 33 Atan Community”
2 Shamut Consumer Cooperative “Pasture Users’ Association of 34 Shamut Community”
3 Dsegh Consumer Cooperative “Pasture Users’ Association of 284 Tuman Dsegh Community” yan 4 Ahnidzor Consumer Cooperative “Pasture Users’ Association of 44 Ahnidzor Community”
5 Lorut Consumer Cooperative “Pasture Users’ Association of 84 Lorut Community”
6 Marts Consumer Cooperative “Pasture Users’ Association of 45 Marts Community”
7 Karinj Consumer Cooperative “Pasture Users’ Association of 43
14
Karinj Community”
Total 567
ARAGATSOTN
1 Tatul Consumer Cooperative “Pasture Users’ Association of 98
Tatul Community”
2 NerkinSas Consumer Cooperative “Pasture Users’ Association of 172 nashen NerkinSasnashen Community” Talin 3 Agarakava Consumer Cooperative “Pasture Users’ Association of 119 n Agarakavan Community”
4 Ashnak Consumer Cooperative “Pasture Users’ Association of 131 Ashnak Community”
5 Geghadzor Consumer Cooperative “Pasture Users’ Association of 180
Geghadzor Community”
6 Aragats Norashen Consumer Cooperative “Pasture Users’ Association of 180 Norashen Community”
7 Berkarat Consumer Cooperative “Pasture Users’ Association of 135 Berkarat Community”
8 Lernapar Consumer Cooperative “Pasture Users’ Association of 80 Lernapar Community”
9 Ashtara Avan Consumer Cooperative “Pasture Users’ Association of 157 k Avan Community”
Total 1252
SYUNIK
1 Akner Consumer Cooperative “Pasture Users’ Association of 131
Akner Community” 2 Verishen Consumer Cooperative “Pasture Users’ Association of 186
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Verishen Community”
3 Khnatsakh Consumer Cooperative “Pasture Users’ Association of 120 Khnatsakh Community”
4 Khoznavar Consumer Cooperative “Pasture Users’ Association of 68
Khoznavar Community”
5 Khndzores Consumer Cooperative “Pasture Users’ Association of 263 k Khndzoresk Community”
6 Goris Vaghatur Consumer Cooperative “Pasture Users’ Association of 78 Vaghatur Community”
7 Karashen Consumer Cooperative “Pasture Users’ Association of 88 Karashen Community”
8 Tatev Consumer Cooperative “Pasture Users’ Association of 110 Tatev Community”
9 Tegh Consumer Cooperative “Pasture Users’ Association of 240 Tegh Community”
10 Harzhis Consumer Cooperative “Pasture Users’ Association of 127 Harzhis Community”
11 Tsghuk Consumer Cooperative “Pasture Users’ Association of 66 Tsghuk Community”
12 Sisian Shaki Consumer Cooperative “Pasture Users’ Association of 62 Shaki Community”
13 Spandarya Consumer Cooperative “Pasture Users’ Association of 79 n Spandaryan Community”
14 Gorayk Consumer Cooperative “Pasture Users’ Association of 88 Gorayk Community”
Total 1706
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TAVUSH
1 Nerkin “Pasture Users’ Association of Nerkin Tsaghkavan 44
Tsaghkava Community” Consumer Cooperative n
2 Achajur “Pasture Users’ Association of Achajur Community” 145
Consumer Cooperative
3 Sevkar “Pasture Users’ Association of Sevkar Community” 116 Consumer Cooperative
4 Sarigyugh “Pasture Users’ Association of Sarigyugh Community” 97 Consumer Cooperative
5 Ijevan Kirants “Pasture Users’ Association of Kirants Community” 45 Consumer Cooperative
6 Yenokava “Pasture Users’ Association of Yenokavan Community” 57 n Consumer Cooperative
7 Lusadzor “Pasture Users’ Association of Lusadzor Community” 47 Consumer Cooperative
8 Voskepar “Pasture Users’ Association of Voskepar Community” 75
Consumer Cooperative
9 Noyem Baghanis “Pasture Users’ Association of Baghanis Community” 52 beryan Consumer Cooperative 10 Jujevan “Pasture Users’ Association of Jujevan Community” 55 Consumer Cooperative
11 Dovegh “Pasture Users’ Association of Dovegh Community” 42 Consumer Cooperative
Total 775
GEGHARKUNIK
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1 Chkalovka “Pasture Users’ Association of Chkalovka Community” 102
Consumer Cooperative
2 Tsovagyu “Pasture Users’ Association of Tsovagyugh Community” 275 gh Consumer Cooperative Sevan 3 Geghamav “Pasture Users’ Association of Geghamavan Community” 36 an Consumer Cooperative
4 Vardadzor “Pasture Users’ Association of Vardadzor Community” 75
Consumer Cooperative
5 Madina “Pasture Users’ Association of Madina Community” 103 Consumer Cooperative Martuni 6 Verin “Pasture Users’ Association of Verin Getashen 307 Getashen Community” Consumer Cooperative
7 Lanjaghby “Pasture Users’ Association of Lanjaghbyur Community” 182 ur Consumer Cooperative
8 Shorzha “Pasture Users’ Association of Shorzha Community” 151
Consumer Cooperative
9 Chamb Ttujir “Pasture Users’ Association of Ttujur Community” 200 arak Consumer Cooperative 10 Ardanish “Pasture Users’ Association of Ardanish Community” 59 Consumer Cooperative
11 Gegharku “Pasture Users’ Association of Gegharkunik Community” 265
Gavar nik Consumer Cooperative 12 Dzoragyu “Pasture Users’ Association of Dzoragyugh Community” 230 gh Consumer Cooperative
13 Vardeni Mets “Pasture Users’ Association of Mets Masrik Community” 300 s Masrik Consumer Cooperative
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Total 2285
67 Total for 6 marzes 8683
The reasons that hinder the cooperatives to achieve success in being considered as full members of the system of values vary, as it is mentioned above. Among these reasons, the emphasis is to be made on the reasons in the legal sphere, particularly on the laws related to the cooperatives functioning in the RA.
The acting laws do not fully regulate the procedure of establishment, functioning and liquidation of cooperatives and there is the necessity to improve and amend them.
Legislative reforms will be essential for the sustainability and development of cooperatives.
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A. Legal acts regulating the activities of cooperatives acting in the Republic of Armenia (Law, Decision of the Government, Normative Act, etc.)
The Republic of Armenia doesn’t have a complete, comprehensive law on cooperatives. The cooperatives sphere is regulated by the following main legal acts:
1. Civil Code of the Republic of Armenia (AL-239, adopted on May 5, 1998, took effect on January 1, 1999).
According to the Paragraph 3 of the Article 51 “Types of legal persons’’ of the Civil Code of the RA “Depending upon the nature of activity, cooperatives may be organizations pursuing the extraction of profit as the basic purpose of their activity (commercial organizations) or not having extraction of profit as such a purpose (noncommercial organizations)’’.
The Articles 117-121 (paragraph 3) of the Code are completely related to cooperatives.
The Article 117 of the Code is related to the basic provisions of Cooperatives, which gives the definition of cooperatives, the content of the Charter of cooperatives, makes reference to the peculiarities of cooperatives and to the other laws defining the legal status.
Particularly, according to the Paragraph 1 of the mentioned Article “A cooperative is a voluntary amalgamation of citizens and legal persons on the basis of membership with the purpose of satisfying the financial and other needs of the participants, an amalgamation realized by the combining of property share contributions by its members”.
The Paragraph 2 of the Article notes that a cooperative must contain, in addition to the information indicated in Paragraph 2 (The Charter of a legal person must indicate the name of the legal person, its location, and the procedure for managing the activity of legal person, as well as must contain other information provided by the present Code and (or) law for legal persons of the respective type) of Article 55 of the present Code, the terms on amount of share contributions of members of the cooperative; on procedure of its payment and on liability of members of the cooperative for violating those obligations; on staff and on competence of bodies of management of the cooperative and the procedure for their decisions-making, including matters on which decisions are taken unanimously or by a qualified majority of votes; on procedure of compensation of the losses of the cooperative by the members of cooperative”.
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The Provision of Paragraph 3 of the Article defines that “The name of a cooperative must contain an indication on the basic purpose of its activity and also the word “cooperative.”
Paragraph 4 of the present Article, containing final provisions, defines that “The peculiarities and legal status of individual types of cooperatives, in particular of consumer cooperatives and condominiums, and the rights and duties of their members shall be provided by the present Code and other laws.” It particularly refers to the Laws of the Republic of Armenia “On Consumer Cooperation” and “On condominiums”.
The Article 118 of the Code is related to the management of the property of a Cooperative, which gives a definition on the property of a cooperative, the division of shares of its members, contribution of the share, formation of indivisible funds, procedure of decision-making on use of indivisible funds, covering of losses by means of additional payments, joint vicarious liablility of the members of cooperative, dividing of the remained property among its members after the liquidation of a cooperative, etc.
Particularly, according to paragraph 1 of the mentioned Article: “Property that is in the ownership of a cooperative is divided into the shares of its members in accordance with the Charter of cooperative”.
Paragraph 2 of the Article defines that “A member of the cooperative has the duty to pay his share contribution in full before registration of the cooperative unless otherwise provided by the Charter of cooperative”.
Paragraph 3 of the Article is related to indivisible funds and in particular defines that “The Charter of cooperative may establish that a certain part of the property belonging to the cooperative constitutes indivisible funds used for purposes defined by the Charter. A decision on formation of indivisible funds shall be taken by the members of the cooperative unanimously, unless otherwise provided by the Charter of cooperative”.
Paragraph 4 of the Article is related to the covering of losses occurred by means of additional payments, particularly, “within two months after the approval of the annual balance sheet, members of a cooperative are obligated to cover losses occurred by means of the additional payments. In case this duty is not fulfilled the cooperative may be liquidated judicially upon demand of creditors. The members of a cooperative bear jointvicarious liability for its
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obligations within the limits of the not contributed part of the supplementary contribution of each member of the cooperative”.
Paragraph 5 of the Article is related to the dividing of the remained property among its members after the liquidation of a cooperative, particularly according to the Code “Property remaining after the liquidation of a cooperative shall be divided among its members in accordance with the Charter of cooperative”.
The Article 119 of the Code is related to the management of a Cooperative, particularly, the superior body of management of a cooperative, the executive bodies, the management bodies and the procedure for their decision-making, the exclusive competences of the general meeting of the cooperative, the right to vote of a member of cooperative in decision-making at the general meeting, etc.
Particularly, according to paragraph 1 of the mentioned Article “The superior body of management of cooperative is the general meeting of its members. In a cooperative with more than fifty members, a supervisory board may be established, which shall exercise supervision of the activity of the executive bodies of cooperative. Members of the monitoring board do not have the right to act in the name of the cooperative. The executive bodies of the cooperative are the board and/or its chairman. They shall exercise the current leadership of the activity of the cooperative and report to the supervisory board and the general meeting of members of the cooperative. Only members of the cooperative may be members of the monitoring board, of the board of the cooperative, or chairman of the cooperative. A member of cooperative may not simultaneously be a member of the monitoring board and a member of the board or chairman of the cooperative.
Paragraph 2 of the Article defines: “The management bodies of the cooperative and the procedure for their decision-making is provided by law and the Charter of cooperative.
Paragraph 3 of the Article is related to the exclusive competence of the general meeting of members of the cooperative, particularly: “The following is in the exclusive competence of the general meeting of members of the cooperative:
1) Changing the charter of the cooperative;
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2) Establishment of a supervisory board and terminating the powers of its members, as well asestablishing executive bodies of the cooperative and terminating their powers, unless this right has been given by the Charter to the supervisory board;
3) Accepting and excluding members of cooperative;
4) Approving annual reports and accounting balance sheets of the cooperative and distributing its losses;
5) Adopting decisions on the reorganization and liquidation of cooperative.
Paragraph 4 of the Article defines: “A member of the cooperative is entitled with one vote decision-making at the general meeting’’.
The Article 120 of the Code is related to the termination of membership in a Cooperative and transfer of share, which particularly refers to the procedure of exit of a member of a cooperative from the cooperative, excluding of a member of a cooperative from the cooperative in case of nonperformance or improper performance of the duties vested upon him and also in other cases provided by the Charter of cooperative, the right of a member of a cooperative to transfer his share to another member of cooperative, the inheritance of members of cooperative, seizure of a share of a member of a cooperative for the personal debts, etc.
Paragraph 1 of the Article refers to the right of a member of a cooperative to exit from the cooperative, which defines that “A member of a cooperative has the right to exit from the cooperative. In this case he must be paid the value of his share or given property corresponding to his share, as well as other payments provided by the Charter of cooperative must be made. Payment of share value or giving other property to an disaffiliating member of the cooperative shall be made at the end of the financial year and upon the approval of the accounting balance sheet of the cooperative, unless otherwise provided by the Charter of cooperative”.
Paragraph 2 of the Article refers to the excluding of a member of a cooperative from the cooperatives envisaged by law, which defines that: “A member of the cooperative may be excluded from the cooperative by decision of the general meeting in case of nonperformance or improper performance of the duties vested upon him by the Charter of cooperative, and also in other cases provided by a law or the Charter of cooperative. A member of a cooperative who is
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excluded from it has the right to receive his share and other payments provided by the Charter of cooperative”.
Paragraph 3 of the Article refers to the right of a member of a cooperative to transfer his share to another member of the cooperative, which defines: “A member of a cooperative has the right to transfer his share or a part of it to another member of the cooperative, unless otherwise provided by a law and by the Charter of cooperative. The transfer of a share (or part of it) to a citizen who is not a member of the cooperative is permitted only by the consent of the cooperative. In this case other members of the cooperative enjoy a priority right of purchase of such a share (or part of it). If members of the cooperative do not use their priority right within the time period provided by the Charter of cooperative, the share may be alienated to a third party”.
Paragraph 4 of the Article refers to the inheritance of members of the cooperative stipulating that “In case of death of a member of the cooperative, his heirs may be accepted as members of the cooperative unless otherwise provided by the charter of the cooperative. Otherwise, the cooperative shall pay the heirs the value of the share of the deceased member of the cooperative”.
Paragraph 5 of the Article refers to the confiscation of a share of a member of a cooperative for the personal debts, stipulating: “The confiscation of a share of a member of a cooperative for his personal debts is allowed only in case of insufficiency of his other property to cover such debts. Confiscation for the debts of a member of a cooperative may not cover the indivisible funds of the cooperative”.
The Article 121 of the Code refers to the Reorganization and Liquidation of Cooperatives and defines that “A cooperative may be voluntarily reorganized or liquidated by decision of the general meeting of its members. Other bases for and the procedure of reorganization and liquidation of a cooperative are established by the present Code and other laws.
The Civil Code of the RA provides an opportunity to implement agricultural entrepreneurs’ joint activity without the formation of a legal person, on the basis of a Contract of joint activity.
Particularly, paragraph 2 of the Article 26 (Law AL-243-N “On addition to the Civil Code of the RA” dated December 26, 2008, and “Law AL-217-N “On amendment and addition to the Civil Code of the RA’’ dated December 21, 2010) defines that “A citizen has the right to conduct
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entrepreneurial activity without the formation of a legal person from the time of state registration as an individual entrepreneur. The citizens without state registration or accounting (without the formation of legal person and without the registration as an individual entrepreneur) have the right to conduct entrepreneurial activity, if they are license fee payers or have concluded the Contract of joint activity for the production of agricultural products. The citizens engaged in agricultural production are entities of entrepreneurial activity only within the limits of the Contract of Joint activity”.
The Article 1026 of the Civil Code (Law AL-243-N “On addition to the Civil Code of the RA’’ dated December 26, 2008) refers to the Contract of Joint Activity, paragraph 1 defines that “Under a Contract of Joint Activity, two or more persons (the participants) undertake to unite their contributions and act jointly without the formation of a legal person to acquire profit or achieve another objective not contradicting to a law”.
Paragraph 2 of the Article refers to the parties to a Contract of Joint Activity, defines that “Only individual entrepreneurs and/or commercial organizations and/or citizens engaged in agricultural production may be parties to a Contract of Joint Activity concluded for the conduct of entrepreneurial activity”.
Paragraph 4 of the Article defines that “The Contract of Joint Activity shall be concluded in written form”.
The Article 10381 of the Civil Code of the RA which refers to the specifications of the Contract of Joint Activity concluded by the citizens engaged in agricultural production, paragraph 1 defines that “In order to engage in agricultural production the citizens shall sign the Contract of Joint Activity in written form”, and paragraph 2 stipulates that “At the request of one of the parties to a Contact of Joint Activity the contract shall be verified by a notary”. If according to the contract the real estate or the rights to the real estate shall be invested by the participants, as well as in other cases envisaged by the law the contract is to be verified by notary. The notarized contract shall enter into force upon verification by notary, and the rights to the real estate arising from the contract emanate from the moment of state registration.
Paragraph 3 of the Article defines that “The Contract of Joint Activity signed in a simple written form (without notarization) shall be signed by all participants (parties) to the contract and the authenticity of the signature may be verified by the head of a community”.
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Paragraph 4 of the Article refers to the indispensable provisions of the Contract of Joint Activity, particularly defining that “In the Contract of Joint Activity tt is compulsory to specify the parties to the Contract, the types of deposit (property or rights of property or other investments) invested by each of them, the value and their mony valuation size, the terms of use of the deposit, the persons who are eligible to act on behalf of the participants and the accounting of the common shared property of the participants (if the common shared property is provided by the contract) and their passport data, the order of profit distribution and of replacing persons who are eligible to act on behalf of the participants, as well as other provisions specified by law and by the mutual consent of the parties”.
According to the Civil Code of the RA the sample form of the Contract of Joint Activity is established by the Decision N1270-N “On establishment of the sample form of the Contract of Joint Activity concluded by the citizens engaged in agricultural production” of the Government of the RA of November 6, 2009.
Paragraph 6 of the present Article (10381) defines that: “The contract of joint activity shall not be rescinded or terminated in cases provided by the Article 1035 (related to the termination of the Contract of Joint Activities), with the exception of cases when the contract validity is expired and if only one participant remains as a party to the contract. . In case of the death of participant to the contract, his heir may be a party to the contract..
In order to promote the activity in agriculture without formation of a legal person according to the Contract of Joint Activity and to create equal conditions of taxation with entrepreneurs in separate agricultures for minimum threshold for payment of value added tax, appropriate amendment to the RA Law “On Value Added Tax” was made in 2011 (HO-126-N of May 6, 2011) according to which “In accordance with the Contract of Joint Activities each entity (participant) engaged in agricultural production shall act as a separate tax payer pursuant to the procedure prescribed by the legislation of the RA”.
In accordance with the Contract of Joint Activities the activity of the entities (participants) are considered as agricultural production, if 90 percent of the product produced in a result of their activities is an agricultural product.
The product defined by the paragraph 2 of the Article 11 of the Law AL-183 of the RA “On income tax’’ of December 27, 1997 shall be considered as an agricultural product.
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The law of the RA AL-91 “On Consumer cooperation’’ of December 30, 1993 is one of the legislative acts regulating the field of the consumer cooperatives. The law is essentially amended in 2012 (Law of the RA AL-184-N “On amendment to the Law on Consumer cooperation” of September 11, 2012).
The law of the RA “On Consumer Cooperation” defines the organizational and legal principles of the consumer cooperation, the terms and conditions of the activity on formation of consumer cooperation, as well as the principles of their relations with the public authorities.
The Article 1 of the law refers to the definition of the consumer cooperative, the legislative framework regulating its activity and the activity framework of the consumer cooperative.
Paragraph 1 of the Article stipulates that “The consumer cooperative in the Republic of Armenia is a voluntarily legal person not pursuing the extraction of profit, formed to satisfy the needs of less than 5 members (participants) with goods and services, to present and protect their interests”.
Paragraph 2 of the Article stipulates that “The activity of the consumer cooperative is regulated by the Civil Code of the RA, the present law and other legal acts”.
Paragraph 3 stipulates that “Consumer cooperative, for its purpose, may perform any activity not prohibited by the Law of the RA”.
The Article 2 of the law, which refers to the participants of the consumer cooperatives, defines that “Participants (members) of the Cooperative may be citizens and/or individual entrepreneurs that signed the Contract of Joint Activity and the citizens engaged in agricultural production.
The Article 3 of the law which refers to the association of the consumer cooperatives, defines “Essence of the association, the participants’ rights of the association, the superior body and the scope of its jurisdiction, the procedure for representing the participants in general meeting of association’s representatives, the procedure for adopting decisions in general meeting, the termination of the associations’ activity, the executive and supervisory bodies of association.
Paragraph 1 of the Article, which refers to the essence of the association of consumer cooperatives and its regulation, stipulates that “The association of the consumer cooperatives (hereinafter “Association”) is the consumer cooperation formed by the proprietary and/or other participation of the legal persons. The association is a legal person, the activity of which is
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regulated by the principles provided by the Civil Code of the RA for the association of the legal persons according to the specifications envisaged by the law.
Paragraph 2 of the Article, which refers to the rights of the association’s participants, defines that “Association’s participant has the right to exit from the association having received its part of the property belonging to the association in money or other material terms, as provided by the procedure of the association”.
Paragraph 3, which refers to the superior body and the scope of its jurisdiction, stipulates that “The superior management body of the association is a general meeting of the representatives of its participants, which approves the size of the share of association members (in case of shared participation in association), elects management and supervisory bodies, hears their reports, sets the size of maintenance costs of these bodies, decides on the establishment, reorganization and liquidation of subsidiaries and resolves other issues related to its competence by this Law and the Charter of the association”.
Paragraph 4 of the Article defines that “At a general meeting the representatives of associations nominate an equal number of representatives regardless of the size of the share”. “The decision of the general meeting of representatives shall be deemed adopted if more than 50 percent of all representatives of the participants joined the association voted for it” (Paragraph 5 of the Article).
Paragraph 6 of the Article, which refers to the termination of association activity, defines that “Association activity is terminated by a decision of representatives of the general meeting by secret ballot if at least two-thirds of the representatives of the participants joined the association voted for it”.
Paragraph 7 of the Article, which refers to the executive and supervisory bodies of association, defines that: “Executive body of association is the Administration and the supervisory body is the Supervisory Committee”.
Activities of the Administration and Supervisory Committee are regulated by the Charter of Association.
Paragraph 8 of the Article, which refers to the procedure of distribution and future use of the property upon termination of the association activity, stipulates that: “Upon termination of
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association activity the procedure of distribution and future use of the property remained after the payment of taxes, the other obligatory payments, the fulfilling its obligations to creditors is determined by the Charter of association’’.
The Article 4 of the law, which refers to the inter-relations between the consumer cooperatives and associations of consumer cooperatives, the state government and local self-governing bodies, includes the provision on rights of consumer cooperatives and protection of their interests, the independence of activity of the consumer cooperatives, the prohibition of the intervention of state government and local self-governing bodies in the activities of cooperatives, the compensation for material damage caused to consumer cooperative due to illegal intervention, not bearing liability by both the state government and local self-governing bodies and the consumer cooperative for their obligations, etc.
Paragraph 1 of the Article, which refers to the rights of consumer cooperatives and association of consumer cooperatives and protection of their interests, stipulates that “The Republic of Armenia recognizes the rights of consumer cooperatives and association of consumer cooperatives and protects their legitimate interests. The State promotes the development and strengthening of the economic independence of consumer cooperatives’’.
Paragraph 2 of the Article, which refers to the independence of activity of the consumer cooperatives, defines that “Consumer cooperative in its authorized activities is independent from the state government and local self-governing bodies, public, political and other organizations”.
Paragraph 3 of the Article related to the intervention in the activities of cooperatives, defines that “State governing and local self-governing bodies are prohibited from intervening in the activities of cooperatives, with the exception of the cases provided by the legislation of the Republic of Armenia”.
Paragraph 4 of the Article refers to the compensation for material damage caused to consumer cooperative due to illegal interference, defining that “Material damage caused to consumer cooperative due to illegal intervention of the state government and local self-governing bodies shall be compensated by the procedure envisaged by the legislation of the Republic of Armenia”.
Paragraph 5 of the Article refers to the liability for the obligations of the state government and local self-governing bodies and the consumer cooperative which is not borne by these bodies,
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defines that “The state government and local self-governing bodies are not liable for the obligations of consumer cooperative, and the latter is not liable for the obligations of these bodies”.
The Article 5 refers to the state registration of the consumer cooperative, defines that “The consumer cooperative is considered established and may act as a legal person from the date of the state registration provided by the legislation of the Republic of Armenia”.
3.There are also elements concerning the identity of cooperatives in Law of the RA “On Water Users’ Associations and the Federation of Water Users’ Associations” (Law AL-374-N of July 1, 2002) and in Law of the RA “On Agricultural credit clubs’’(Law AL-332 of June 3, 2002).
The objective of the Law of the RA “On Water Users’ Associations and the Federation of Water Users’ Associations”, is to define the operational basis of Water Users’ Associations and Federations of Water Users’ Associations, the grounds for establishment and termination thereof, as well as the principles of relationships with state bodies and other bodies aimed at increasing the operational effectiveness of the Republic of Armenia irrigation system (Article 1).
Law of the RA “On Agricultural credit clubs” “regulates the status of agricultural credit clubs and legal relations related to their activities, determines club establishment, membership, principles of management, obligatory requirements and conditions on involving resources and providing credit, insurance and other services to club members, as well as regulating, supervising and reporting procedures”.
In case of the first law the Water Users’ Association is defined as a non-profit organization established by the Water Users’ (in our case mostly by the farmers) that operate in the public interest to carry out the operation and maintenance of irrigation system.
The Association supplies irrigation water to member or non-member irrigation water users, individuals and legal persons, possessing land in the service area.by right of ownership or by right of useprovided for more than three years.
Unlike the cooperatives Water Users’ Associations are not a joint property of the members and a water user member of the Association does not have a right to the part of the property of the association. This law contains points complying with the provisions of the
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international law on cooperatives, for example on organizational structure, the summoning of the general meeting through representatives by each representative area, in case of a big number of members in the Association, with each Association member entitled withs one vote (nevertheless, the charter may provide that the number of member’s vote is defined as per his/her land area size within the service area.), etc.
The activity of these associations are coordinated by the Regulatory Board established by Government of the RA and only after providing written conclusion on technical-economical appropriateness of the territories served by the Association it is possible to summon the founders meeting within 1 month and fix the date for holding the first meeting of association.
This Regulatory Board and administration body of water systems mostly control and coordinate the activity of Water Users’ Associations and Federations of Water Users’ Associations, including providing authorization to amend the Charter and reorganize and liquidate the Association (See Articles 4, 6, 32, 32.1):
The present law also defines that the State support provided for the operation and maintenance of the irrigation system, as well as other agricultural support can be distributed by Associations and Federations. According to our data as per now such support has been the state subsidy provided for decreasing the price of irrigation water.
4. The other law containing elements on cooperatives’ identity and activity is the law of the RA “On Agricultural credit clubs’’ which could likely be named a Law “On cooperatives” as it contains the elements on cooperative’s ideology and value system. The Agricultural credit club is defined as a volunteer unit established for mutual financial assistance and based on the membership of individuals conducting agricultural activities. The Club is a non-profitable non- commercial organization and can be established according to the legal status of non-commercial cooperative or union of legal persons. The law clearly states that the club provides members with services of mutual financial assistance that are not the subject of entrepreneurial activity and are implemented on behalf of all members and with their subsidiary risk.
The law includes a number of provisions which are in conformity with the provisions of the International Federation of Cooperatives. For examples, Club’s own means are divided into two parts: shared ownership and joint non-shared ownership.
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Shared ownership of the club is share capital accumulated from mandatory and voluntary payments of the club members. There is no dividend payment: the members can receive those funds once they leave the club.
Joint non-shared ownership of the club is: reserve funds aimed at covering the loans, reserve funds for mutual financial assistance, reserve funds accumulated from grants. When a member leaves the club, he loses his ownership rights to these funds. Non-shared ownership funds of the club are not shared among its members; they are disposed and used by the general decision of club members and can be shared only in case of the liquidation of club among its members who are club members at the moment of liquidation. Such funds are proportional to the share of each member in shared ownership.
The Club cannot involve loan funds from legal persons and individuals that are not Club members and cannot provide loan funds to them.
The Club is established by the decision of the Founding meeting of minimum 10 individuals who are united with economic interest and agricultural activities conducted in the same or neighboring communities. The membership of the club is clearly stated in the law: only club members can be included in the club council and the supervisory committee. Each member of the club is entitled with one vote for decision-making.
5. Law of the RA “On the state registration of legal persons, the state inventory of the separated subdivisions, institutions of legal persons and individual entrepreneurs” regulates the relations arising in the field of the state registration (including cooperatives) and the state inventory, establishes peculiarities of administrative proceedings on state registration and state inventory, competences of the bodies performing state registration and state inventory , scope of information maintained in the Unified State Rregister, as well as conditions and procedure for providing of information.
According to Paragraph 3 of the Article 26 of the law, in case of registration of cooperatives, along with the data that are to be registered in the State Registry of the Legal Entities, the size of the undivided share fund must be indicated also.
6.The 15th activity of the concept established by the directive (NK-91-N) of President of the Republic of Armenia “On approval of Food Security concept of the Republic of Armenia” of
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May 18, 2011, states that “The main activities on providing the development of Agri-food system (8) are establishment of the cooperatives, associations, partnerships and other business unions and formation of product farms’.
7. The activity “The promotion of the implementation of activities and formation of the agricultural cooperatives in the Republic of Armenia” is envisaged by 2.14 point of the Annex of Decision N1522-N of the Government of the RA “On approval of the Program activities arising from the Food Security concept of the Republic of Armenia” of October 13, 2011 and the expected results are “increased efficiency of use of natural resources, improved conditions of the entrepreneurs’ activity and of agricultural production efficiency”.
8. “Strategy for Sustainable Rural and Agricultural Development in the Republic of Armenia for 2010-2020’’ contains the public policy provisions in the field of agricultural cooperatives.7
Sub-paragraph 1, paragraph 36, section 2 “Agricultural development vision” of the Strategy stipulates the following provision: “Agriculture and rural development vision is conditioned by the agrarian reforms, expansion of the market orientation of the economy, specifications of agrarian sector and is supported by the State.
1) The development of the family rural farms is integrated with the commercial agricultural organizations with intensive technologies, the cooperatives and the market infrastructure”.
“Deepening of agrarian reforms, development of agricultural cooperatives” is highlighted among the main objectives of the strategy (IV section).
The paragraph 42 of the section 5 “Key strategic directions” stipulates the following provisions:
“The Activities of the development of managing types of agriculture will be aimed at promotion of various types of cooperation in agriculture, which will be implemented in the following areas:
- establishment of various agriculture-oriented cooperatives and formation of favorable conditions by improvement of legislation,
- comprehensive state support aimed at formation of cooperatives and expansion of their activity,
7 (Decision N1476-N of the Government of the RA “On approval “ Strategy for Sustainable Rural and Agricultural Development in the Republic of Armenia for 2010-2020 and List of activity for implementation of the Strategy for Sustainable Rural and Agricultural Development in the Republic of Armenia for 2010-2020”, dated November 4, 2010)
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the development of cooperation through enlargement of agricultural farms,
support to the formation of the structures facilitating the movement (from production to consumption) of agricultural products, particularly agricultural post-harvesting infrastructure, product’s logistics system (marketing, storage, processing, packaging and transportation); for organizing the agricultural markets in main cities at the weekends, for developing various types of cooperation by establishment the wholesale trade system in all marzes and regions,
support to the enlargement of milk collection points and consumer cooperatives system, the regulation of using fresh and processed milk in dairy production, regulation of the storage, sorting, packaging and marketing of the food in accordance with the food safety requirements.
limitation of indirect sales (via intermediary) of agricultural products, particularly fresh fruits and vegetables, establishment of wholesale collection points for providing retail facilities with goods through the development of cooperation, their capacity expansion, especially assistance for re-equipment by means of storage, sorting, packaging and transportation”.
A number of activities of the “List of activity for implementation of the Strategy for Sustainable Rural and Agricultural Development in the Republic of Armenia for 2010-2020” established by annex 2 of the Decision of RA Government N1476-N of 2010 of the are aimed at the development of agricultural cooperatives, in particular:
- Promotion of the activity and formation of the agricultural cooperatives in the Republic of Armenia (1st activity), (goal-promoting the formation of agricultural cooperatives in different directions and creation of favorable conditions for the activity),
- Adoption of the Law “On amendments to the Law of the RA “On consumer cooperatives’’ (2nd activity), (the objective is the promotion of the process of formation of agricultural consumer cooperatives through reduction of a number of members required for the establishment of consumer cooperatives),
- Adoption of the Law of the RA “On amendments to the Law of the RA “On Value added tax’’ (3rd activity), (the objective is the promotion of agricultural joint activities through the expansion
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of the VAT acting threshold with respect to all independent economic entities of agricultural products within the framework of the contract of joint activity),
-“Development and adoption of the concept for enlargement of rural farms in the Republic of Armenia” (4th activity), (the objective is on the basis of identification of the factors and existing problems limiting the process of enlargement of the rural farms to disclose the state policy directions and mechanisms for their solution,
- Implementation of the gradual modernization activities for agricultural machinery collection park: promotion of industrial-technical services functioning on the basis of the incorporated cooperation(37th activity), (the objective is the technical re-equipment),
- Preparation and Implementation of the Community Agricultural Resource Management and Competitiveness Project (Loan Project) (40th activity), the objective is raising efficiency and competitiveness of livestock industry and increasing amount of livestock products through the management and efficient use of available resources in rural communities),
- Making of the draft law of the RA “On amendments to the Civil Code of the RA’’ (47th activity), (the objective is the regulation of the rights to produce agricultural production without state registration by the citizens that are not the parties to the Contract of joint activities and involved in production of agricultural products.9. The provisions for development of agricultural cooperation in the RA are included in Protocol decision N-43 of the RA “On approval of the concept of enlargement of rural farms and the timetable of activities providing the implementation of the concept” of November 3, 2011.
Sector 5 “Enlargement of the rural farms through the promotion of agricultural cooperation and other types of economic management” of the mentioned concept provides the following: “Using of effective types for economic management and cooperation between rural farms is an objective requirement. The development of agricultural cooperatives is a key priority in an agrarian policy and farm enlargement.
Agricultural cooperatives are established to satisfy more efficiently the financial and other needs of participants, based on voluntarily membership of managing entities carrying out the activity in agri-food sector of the RA and by combining proprietary, financial and other types of shares (share fees) of its members.
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The following principles are taken into account in organizing cooperatives:
1)Voluntariness of membership in cooperative;
2) Mutual assistance of members of the cooperatives and effective participation in cooperatives’ economic activity;
3) Participation in cooperatives’ management on democratic basis;
4) Ensuring the economic independence of the members of cooperative;
5) Improving socio-economic conditions of rural population and promoting sustainable development of communities (settlement).
An agricultural cooperation includes various types of cooperatives that can be classified by to the primary activities, particularly: consumer, production, processing, marketing, logistics, service providing, credit, horticultural and other cooperatives with specialized activities which are not prohibited by the legislation of the Republic of Armenia.
Increasing an agricultural productivity is mainly conditioned by promotion of the process of establishment of agricultural cooperatives. Currently, there are a number of problems to be solved, particularly:
1) Insufficient cooperation between the state and the private sector in industrial-technical provision of the agriculture and formation and development of competitive, accessible services for the purpose;
2) Imperfection of advisory and informational system addressed to the investment of the modern technologies in agri-food system and the efficient forms of organizing production;
3) A slow process of formation of favorable legal and economic framework for the establishment of cooperatives;
4) The lack of state support for the investment of the effective insurance system in agriculture sector;
5) The necessity of expansion of the state support, as well as improvement of mechanisms to be applied;
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6) Underdevelopment of institutional structure and industrial infrastructure in the field of marketing of the agricultural products, as well as food safety;
7) Low efficiency of management and using of land, water, labor resources.
The following activity is defined by Paragraph 5 of the schedule of activities providing the implementation of the mentioned concept: “The expansion of the support aimed at the development and formation of agricultural cooperatives in the Republic of Armenia (expected results: Specific activities (projects) for promoting agricultural cooperation, specifically on contractual basis, will be implemented, as a result of which the current rural farms will be expanded and the unit for the development of cooperation, as well as the Foundation “Center of Support to Agricultural cooperatives” will be established within the state authorized body).
The following activity is defined by Paragraph 6 of the schedule of activities providing the implementation of the mentioned concept: ”Promotion of the agricultural cooperation or other types of legal form of management, as well as implementation of pilot projects for consolidation of lands”, (expected results - Implementation of the pilot project will provide an opportunity to explore the efficiency of investment (application) of the proposed conceptual approaches, as well as shortcomings and omissions made in practice, which will serve as a basis for further expansion of the mentioned procedures. Pilot projects will be implemented through providing of proper public awareness.
10.In Annex 2 of the decision N 10-N of the Government of the RA “On approval of the Activity program for 2014 of the Government of the RA and its priority tasks” the increasing of the food security in the RA is envisaged as a priority task and the implementation of Pilot projects for the establishment of the cooperatives which will provide an opportunity to improve the types of agricultural management and organize production and agricultural supplying more efficiently is envisaged as an activity for the implementation of the priority task..
In the abovementioned Annex 2 the continuation of support to high mountainous and boundary rural communities specialized in livestock farming is envisaged as another priority task and the implementation of the activities for strengthening the capacities of pastures’ users consumer cooperatives established in communities of the marzes of the RA is envisaged as an activity for the implementation of the priority task. .
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List of legal acts related to the activities of cooperatives
1. Civil Code of the Republic of Armenia (AL-239)
2. Law of the RA “On consumer cooperation” (AL-91)
3. Law of the RA “On Water Users’ Associations and the Federation of Water Users’ Associations” (AL-374-N)
4. Law of the RA “On Agricultural Credit Clubs” (AL-332)
5. Law of the RA “On the state registration of legal entities, the state inventory of the allocated divisions, institutions of legal entities and individual entrepreneurs’’
6. Directive of the President of the Republic of Armenia “On approval of food security concept of the Republic of Armenia” of May 18, 2011(NK-91-N)
7. Decision of the Government of the RA “On approval of the Program activities arising from the food security concept of the Republic of Armenia” of October 13, 2011 (N 1522-N)
8. Decision of the Government of the RA “On establishment of the sample form of the Contract of joint activities concluded by the citizens engaged in agricultural production” dated November 6, 2009(N1270-N)
9. Decision of the Government of the RA “On establishment of the list of activities for the implementation of the “Strategy for Sustainable Rural and Agricultural Development in the Republic of Armenia for 2010-2020’’” of November 4, 2010 (N1476-N)
10. Protocol decision of the RA “On approval of the concept of enlargement of rural farms and the timetable of activities providing the implementation of the concept” of November 3, 2011 (N43)
11. Decision of the Government of the RA “On approval of the Activity program for 2014 of the Government of the RA and its priority tasks’’(N 10-N)
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B. ANALYSIS OF STRENGTHS AND WEAKNESSES OF LEGAL ACTS FOCUSING ON LEGAL ACTS RELATED TO AGRICULTURAL COOPERATIVES
Based on studies of provisions of legal acts related to agricultural cooperation, the strengths and weaknesses of applicable legal acts have been assessed.
First, we would like to address the strengths of legal acts as follows:
1. At present various legal acts are effective in the Republic of Armenia (respective paragraphs and articles of the RA Civil Code, a separate law regulating the sphere of consumer cooperation, laws regulating business relationships of water users’ associations and credit clubs, strategic documents that clarify primary policy directions in agricultural cooperation area), which clearly regulate business relationships in agricultural cooperation. In particular:
1) The legislation provides the definition of a cooperative;
2) The legislation stipulates that the charter of a cooperative must contain terms regarding the amount of share contributions of cooperative members, the procedure for making share contributions and cooperative members’ liability for violating obligations to make share contributions, the composition and competence of management bodies and the procedure for their decision making, including on questions to be resolved unanimously or by a qualified majority of votes, as well as on the procedure for covering by the cooperative members of losses incurred by it;
3) Pursuant to the applicable legislation, the name of a cooperative must contain an indication of the basic purpose of its activity and also the word “cooperative”.
4) The legislation stipulates that peculiarities and legal status of individual types of cooperatives, and the rights and duties of their members shall be established by the law: in our context, this refers to the RA Law “On Consumer Cooperation” and RA Law “On Condominiums”;
5) The legislation defines cooperative’s property management relations, namely those relating to division of property owned by a cooperative into shares of its members; payment of share contributions; formation and use of indivisible funds; joint and
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several subsidiary liability of cooperative members; distribution of property remaining after cooperative’s liquidation, etc.
6) The legislation defines management relations in a cooperative, in particular, the superior management body and executive bodies; decision making procedure by management bodies, etc.
7) The applicable legislation establishes relations associated with termination of membership in a cooperative and transfer of shares; conditions for exclusion of a member from cooperative due to nonperformance or improper performance of duties placed upon it by the charter of the cooperative as well as in other cases; the right to transfer a member’s share to other members of the cooperative; conditions of inheritance and levy of execution on shares of cooperative’s members;
8) The legislation provides for state registration of a cooperative, by virtue of which the cooperative is recognized by the state as a subject of civil law;
9) The legislation establishes reorganization and liquidation relations of cooperatives.
10) RA Civil Code allows for conducting joint agricultural activities without forming a legal person. Citizens engaged in agricultural production are considered as entities of entrepreneurial activity only within the framework of contract of joint activity. The legislation defines peculiarities of the contract of joint activities, the sample form of which is established by respective RA government decree. Each of the entities (participants) engaged in agricultural production that functions under a contract of joint activities in the manner stipulated by the RA legislation acts as separate taxpayer;
11) RA legislation (RA Law on Consumer Cooperation) sets organizational and legal principles of consumer cooperatives, procedure and conditions of their establishment (formation) and operation, as well as principles of their relationship with government bodies.
12) The law provides the definition of consumer cooperative, and under applicable legislation the minimum number of consumer cooperative members is reduced;
13) The legislation clearly outlines the scope of consumer cooperatives’ activities;
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14) Under the legislation a wide range of consumer cooperative membership is established, thus citizens and (or) individual entrepreneurs having entered into a contract of joint activities as well as citizens involved in agricultural production may be participants (members) of consumer cooperative;
15) The legislation defines the nature of consumer cooperatives association, rights of association participants, the supreme body and scope of its competence, procedure for representation of participants at the general meeting of association representatives, decision making procedure at the general meeting, conditions of termination of association activities, its executive and supervising bodies;
16) The legislation establishes relationships between consumer cooperatives, consumer cooperatives associations and state administration and local self-governing bodies which comprise provisions on protection of consumer cooperatives’ rights and interests, independence of consumer cooperatives’ activities, prohibition on interference with cooperatives’ activities by state administration and local self- governing bodies, compensation for damage caused to consumer cooperatives due to illegal intervention, exclusion of dual liability for state administration and local self- governing bodies’ obligations, and other provisions;
17) The legislation establishes relations concerning to state registration of consumer cooperatives;
18) A number of other laws, namely the RA Law “On Water Users’ Associations and Federations of Water Users' Associations” and the RA Law “On Agricultural Credit Clubs” also incorporate elements of cooperative identity. The latter expressly specifies that services of mutual financial assistance provided to club members are not a subject of entrepreneurial activity and are implemented on behalf of all members and through their subsidiary risks. RA Law “On Agricultural Credit Clubs” comprises series of provisions that are in line with those of International Co-operative Alliance (ICA). Thus, for example, Club’s own means are divided into two parts: shared ownership and joint non-shared ownership. Shared ownership of the club is the share capital accumulated from mandatory and voluntary payments of the club members. Such funds do not pay dividends and can be returned to members only
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upon their withdrawal from the club. Joint non-shared ownership of the club include reserve funds aimed at covering the loans, reserve funds for mutual financial assistance and reserve funds accumulated from grants. Upon withdrawal from the club a member forfeits his rights to joint non-shared ownership.
Weaknesses of legal acts are as follows:
1) Currently Armenia does not have a single comprehensive law on cooperatives or separate agricultural cooperatives;
2) Analysis of laws regulating the sphere of cooperatives indicates that pursuant to the RA Civil Code and laws on above-described separate types of cooperatives, the cooperatives in Armenia can be commercial, including production cooperatives which, according to the RA legislation, are profit seeking organizations and non-profit (non-commercial) (RA Civil Code, Article 51.3). Existing laws are not in compliance with provision of Recommendation No. 193 on “Promotion of Cooperatives” adopted in 2002 by International Co-operative Alliance and International Labor Organization;
3) According to Statement on the Co-operative Identity promulgated by International Co- operative Alliance, cooperative is defined as “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”. This statement on cooperatives should not be considered just as a definition but rather a guide for laws regulating the sphere of cooperatives, which is currently not applied under the existing legislation;
4) Analysis of the RA law “On Consumer Cooperation” and the RA Civil Code makes it clear that a large number of legislative elements of cooperative activities should be regulated by charters of cooperatives, since these laws do not completely regulate the relationships associated with cooperative’s establishment, activity and dissolution, therefore they need to be improved and amended. Moreover, the provisions of the RA Consumer Cooperation Law do not comply with internationally accepted concepts and principles of consumer cooperatives. According to internationally accepted criteria, consumer cooperatives are a special type of supply cooperatives. In some cases they are involved only in retail and
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wholesale trade, i.e. they conduct economic and commercial activities. Primary goal of these cooperatives is to ensure savings in the process of procurements made by farmers;
5) Since the charter of a particular cooperative, as a matter of fact, constitutes a set of provisions deriving from the law on cooperatives, therefore without proper, substantial provisions of cooperative laws it would be impossible to have adequate charters which should actually represent the internal legislation of cooperatives. In case of Armenia, as demonstrated by studies, major part of cooperatives, both production and consumer, have adopted “sample” charters, without giving due consideration or deciding on whether or not the particular model is appropriate for their cooperative;
6) Analysis of some charters of consumer and production cooperatives shows that cooperatives’ charters do not reflect cooperative principles and value system; moreover, in case of production cooperatives they even contradict the internationally accepted definition and general business characteristics of cooperatives. Upon registration Armenian cooperatives basically use charter samples which, as a rule, are introduced into the charters of particular cooperatives with almost identical content. Charters of both consumer and production cooperatives are similar;
7) However, along with the foregoing, a production cooperative, as per its charter, contains some elements of cooperative identity, sometimes even more than a consumer cooperative. For example, a production cooperative may, by unanimous decision of its general meeting, establish an indivisible fund, make allocations from its profits to create reserve, accumulation or other funds; the share fund and each member’s share is clearly defined;
8) Analysis reveals that most of the studied basic elements of cooperative legislation are non- existent in cooperatives’ charters; consequently they should have interpretations in the legislation regulating cooperative activities. This primarily refers to the following:
Definition and objective;
Economic activity restrictions;
Activity with non-members;
Registration;
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Minimum number of members;
Investor-members;
Admission of new members;
Minimum capital requirement;
Identification and distribution of dividends on the basis of and in proportion to activities;
Voting rights;
Management and administrative bodies;
Assets devolution in case of dissolution;
Conversion into another legal form of company or entity;
Specific tax approach;
Public and/or other forms of supervision (auditing), including precautionary supervision specific for cooperatives and not merely financial supervision.
9) Currently existing legislation in the Republic, particularly mechanisms of calculation of minimum VAT threshold for agricultural cooperatives do not create a supportive environment for cooperation development.
Elimination of above-described weaknesses in cooperative legislation will be conductive to implementation of measures towards improvement of the legislation regulating the given sphere and these measures may include clarifications on main directions of agricultural cooperation development policy and drafting and adoption of a separate agricultural cooperation law.
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C. STUDY AND ANALYSIS OF DRAFT LEGAL ACTS ON COOPERATIVES CURRENTLY CIRCULATED WITHIN THE RA GOVERNMENT (FOCUSING ON AGRICULTURAL COOPERATIVES); EXPECTED OUTCOMES OF ADOPTION (APPROVAL) OF DRAFT LEGAL ACTS
1. Presently, one of the circulated drafts that regulates agricultural cooperation sphere is the draft concept on “Development of Agricultural Cooperation in the Republic of Armenia”. The latter has been discussed according to the established procedure by government bodies and non- government organizations. The final discussion was held at the Financial-economic Inter- ministerial Commission under the RA government.
The draft Concept consists of the following structural parts:
1) Introduction;
2) General Provisions;
3) Main Purpose and Objectives;
4) Nature and Principles of Cooperation;
5) Cooperatives and Cooperative Associations;
6) Factors hindering agricultural cooperation and possibilities of overcoming the identified barriers;
7) Improvement of legislative framework of agricultural cooperation;
8) State support for cooperation development;
9) Expected outcomes of the Concept implementation.
Introductory part of the draft Concept emphasizes that in recent years substantial positive changes have been recorded due to state programs implemented in the sphere through the efforts of entities involved in agriculture. However, natural and economic potential utilization rate in agriculture is still significantly low mainly due to small farm sizes, low profitability of agricultural production and slow cooperation development rates.
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The study of cooperation practice demonstrates that resources of private sector producers (especially of small and medium scale) are most efficiently utilized when they unite on a voluntary basis to jointly conduct production and economic activities. In this case, the importance of various forms of cooperatives is highlighted, which enables each of their members to use their economic potential to the maximum extent and to ensure incomparably high revenues at various stages of reproduction.
Among various types of cooperatives, the draft Concept specifically emphasizes the agricultural cooperatives, and it states that efficient introduction and implementation of its principles may play a crucial role in addressing current issues in agricultural sector of the Republic and in the future development of agriculture.
Development of cooperation in agricultural sector of the Republic aims at effectively addressing the problems existing in production and consumption areas through establishment of various forms of cooperatives and promotion of their activities, improving production efficiency and increasing cooperative members’ revenues.
Introductory part of the draft Concept indicates that adoption of the concept will contribute to clarification of the policy targeted at promoting the development of cooperatives, will foster the establishment of legislative framework and, in general, the creation of favorable environment for cooperation development. The draft derives from the RA National Security Strategy, Action Plan of the RA Government and the Strategy for Sustainable Agricultural and Rural Development of
Armenia for 2010-2020.
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General Provisions section of the draft particularly states that as a result of privatization of land, livestock, agricultural equipment and other production facilities carried out in 1990s of the last century approximately 340 thousand farm households were formed and are currently operating. In average, they account for about 1.4 ha agricultural lands, including 1.1 ha arable lands. Farm sizes vary from 0.6 to 3.1 ha across marzes.
Currently plant breeding (horticulture) is carried out on 1.2 mln. fragmented land plots in the Republic. Under existing conditions agricultural farms account for about 97.0 percent of agricultural GDP. This figure demonstrates the restriction of activities conducted through other forms of entrepreneurship, particularly through cooperation. Actually, farm households with low output level and competitiveness are prevalent in agricultural sector of the Republic.
Small and separated agricultural farms, fragmented land plots, slow rates of land market development, difficulties related to production and marketing of agricultural products prevent from achieving efficient production rates in agriculture. According to the draft concept, in general, agricultural entities in the Republic of Armenia face the following challenges:
low level of purposeful use of land resources, especially arable lands, resulting in impossibility to apply adequate crop rotation and to implement required agritechnical measures;
insufficiency of agricultural equipment: during the last two decades machinery stock has been replenished with extremely small number of items, existing equipment does not meet technical standards for agricultural machinery, is obsolete and negatively affects the productivity of machine assemblies, consequently the operational expenses and maintenance costs;
high percentage of manual labor and low level of production intensification;
insufficient supply and maintenance of material and technical resources;
impediments in the sphere of sales and processing of agricultural raw materials and products;
marketing of agricultural products at domestic level is hampered by the population’s low purchasing power, difficulties exist in products export area;
lack of working assets in agribusiness.
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The general conclusion contained in the draft Concept outlines that because of small farm sizes, low mechanization level of agricultural labor, improper adherence to agritechnical and zoo technical rules, and deficiency of affordable credit resources labor efficiency continues to remain low in the industry and farming revenues do not ensure satisfactory quality of life in rural households.
As per the draft Concept, high rural poverty rate and its growth trends require steps targeted at increasing revenues in rural regions, one of key directions of which being the development of cooperatives in agriculture.
Alongside the aforementioned circumstances, cooperation process in agriculture proceeds very slowly, farmers work separately, the formation of unified structures aimed at jointly addressing their problems is complex and has negative impact on the organization of efficient agricultural production.
In the draft concept a reference is made to assistance provided by international organizations and through loan programs, namely World Bank assisted Community Agricultural Resource Management and Competitiveness Project, USDA Marketing Assistance Project, United Nations Development Program, Center for Agribusiness and Rural Development Foundation, UMCOR, OXFAM and others. Also, the significance of Federation of Agricultural Associations Union of Legal Entities in the cooperative movement in the Republic is highlighted.
The main purpose of the Concept is laid down as follows: “reveal impediments to cooperation development process in agriculture and identify ways for their elimination, through establishment of various types of cooperatives and promotion of their activities address production and consumption problems in agrarian sphere, facilitate the growth of production efficiency and an increase in cooperative members’ revenues”.
To achieve the specified aim, the following basic objectives, as outlined in the concept, need to be accomplished:
Improving and amending the legislation that promotes the development of cooperatives in agriculture;
Rendering advice on establishment, advantages and activities of cooperatives;
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Enhancing state support to agricultural cooperatives development, improving state and private sector interaction mechanisms;
Targeting the programs implemented in agricultural sector towards development of agricultural cooperation.
Under the title “The Nature and Principles of Cooperation” of the Concept, the cooperation is defined as a partnership of separate individuals, various groups and economic entities unified to jointly conduct business or perform certain functions. Agricultural cooperation, as a form of market economy, should be developed in the Republic on the basis of certain generally accepted principles.
The Concept addresses the following principles promulgated by International Co-operative
Alliance in 1995:
Voluntary and Open Membership: Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
Democratic Control of Cooperative’s Activities by the members: Co-operatives are democratic organizations controlled by their members, i.e. members actively participate in setting their policies and making decisions. In cooperatives having large number of members, immediate control is carried out by representatives elected under a certain procedure, who are accountable to the cooperative membership. As a rule, members have equal voting rights (one member, one vote).
Economic Participation of Members: Members equitably contribute to and use the property of their cooperative.
Autonomy and Independence: Cooperatives are autonomous organizations controlled by their members. If they enter into agreements with other organizations, including the government, they do so on terms that maintain their cooperative autonomy and independence.
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Education, Training and Information: Cooperatives provide education and training for their members, managers, and specialists. They inform the general public about their activities and provide necessary information on obligations and benefits.
Co-operation Among Cooperatives: In order to most effectively implement their statutory objectives, serve their members and strengthen the cooperative movement, cooperatives collaborate with local, national, regional and international structures.
Concern for Community: Cooperatives work for the sustainable development of their communities through policies approved by their members.
In “Cooperatives and Cooperative Associations” section of the Concept, cooperative is defined, in most simple terms, as an entity established on a voluntary basis to produce and supply goods and services to its members or participants, where members jointly control and share originated risks and profits within the framework of services received from the cooperative.
According to the Statement on the Co-operative Identity promulgated by International Co- operative Alliance, cooperative is defined as "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise."
The draft Concept incorporates the definitions of cooperative contained in the RA legislation (namely in RA Civil Code and RA Law “On Consumer Cooperation”).
It also points out that according to international practice the following types of cooperatives exist:
Production cooperative;
Processing cooperative, established for production of processed foods (meat products, dairy, bakery products, canned fruits, vegetables and berries, drinks, beverages, etc.), as well as processed non-food products (combined feed, certain pharmaceutical products, lubricants, etc.);
Marketing cooperatives, established for marketing agricultural products and services produced by their members; such cooperatives may also engage in products storage,
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transportation, packaging and promotion activities as well as perform other functions at various commodity flow stages;
Supply cooperatives, established for provision of fertilizers, fuel and lubrication materials, plant protection chemicals, seeds, fodder, agricultural machinery, spares, seedlings, livestock young, and other goods for agricultural production;
Service cooperatives, established for provision of agricultural labor mechanization, plant protection, livestock breeding, animal health, land improvement (amelioration), rural construction, agro-advisory, informational, health care, educational and household services to rural population;
Credit cooperatives, established to increase rural population’s access to credits, to ensure safekeeping of their mony savings, as well as to conduct other investment and financial transactions;
Insurance cooperatives, established to render crop, livestock, production facilities and property insurance services as well as individual medical insurance services to the population in settlement.
Taking into consideration the specifics of Armenia’s agriculture, the draft Concept prioritizes the following types of cooperatives (according to lines of activity):
production of agricultural products;
supply of agricultural inputs;
operation of agricultural machinery;
accumulation and storage of produced output;
marketing of produced output;
processing of agricultural products;
rendering advisory services;
rendering professional services (plant protection, agritechnical, livestock breeding, animal health and other services);
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resource management (pastures, irrigation networks, degraded lands, saline lands, etc.);
employment of mutual financing mechanisms.
Pursuant to the Concept, agricultural cooperatives may combine several activity directions.
In accordance with their charter, cooperatives may combine separate forms of activities and operate as multi-industry (multi-sphere) cooperatives.
To conduct their activities in more efficient manner, cooperatives may join other legal entities to form unions or associations.
Within the framework of the Concept, factors hindering agricultural cooperation and possibilities of overcoming identified barriers are outlined.
As per the Concept, main impediments to the development of agricultural cooperation in the Republic include:
Imperfection of legal framework in cooperation area;
Lack of willingness and trust to conduct activities through combined inputs;
Low level of economic entities’ awareness of cooperation principles and advantages;
Small number of assistance programs promoting cooperation process in agriculture;
Need for strengthening the capacities of advisory system that facilitates the introduction of cooperation in agriculture and improvement of their operation mechanisms.
The Concept identifies the possibilities of overcoming barriers to cooperation process in agriculture as follows:
Improvement of legislative framework for cooperatives, in particular agricultural cooperatives;
Implementation of measures, programs aimed at raising awareness of cooperative advantages among agricultural entities, study and localization of good international practices in agricultural cooperation area;
Implementation of organizational support programs for establishment of cooperatives in agricultural sector and formation of specialized groups entrusted to implement the process;
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Implementation of state programs encompassing accessible mechanisms for material and technical supply and technical assistance which foster activities of existing agricultural cooperatives and stimulate the establishment of new cooperatives;
Promotion of mutually beneficial long-term contractual relationships between cooperatives and agricultural product processing enterprises, suppliers of material and technical resources, agricultural product exporters.
One of key aspects of the Concept is the improvement of legal framework for agricultural cooperation.
Pursuant to the Concept, legislative reforms have critical importance for the development and sustainability of agricultural cooperatives. Nonetheless, improved and amended legislative framework is a necessary but not sufficient condition for proper development of cooperatives.To ensure adequate cooperation development, the following measures need to be taken:
Application of stimulation tools for establishment and sustainability of cooperatives;
Raising awareness of cooperative advantages and principles among agricultural entities;
Establishment of institutional mechanisms facilitating the establishment of agricultural cooperatives.
The Concept explicates that legislative documents do not completely regulate the legal framework for cooperatives, calling for their renewal and amendment.
Key directions of legislation amendment and improvement are as follows:
Implementation of legislation improvement measures in cooperation area, namely those stipulated in Section 4 (paragraph 4.1) of “2012-2016 Strategic Program for Legal and Judicial Reforms in the Republic of Armenia and the List of Measures Deriving from this Program” approved by the RA President’s Executive Order NK-96-A of June 30, 2012;
Cooperative legislation should be underpinned by 7 principles of the International Co-operative Alliance;
Legislative regulation needs to be improved for the following relationships in cooperation area:
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a. relationships arising in connection with establishment, operation, termination of activities, reorganization, dissolution of cooperatives, as well as rights, obligations and responsibility of their participants;
b. key concepts relating to cooperatives;
c. core principles guiding the establishment and implementation of activities of cooperatives;
d. types and peculiarities of cooperatives;
e. specifics of establishment and functioning of cooperative associations;
f. characteristics of establishment of cooperatives and of their constituent (organizational) documents;
g. characteristics of accession to and termination of membership in cooperative;
h. specific tax approaches;
i. management structure of cooperative, powers of the general meeting, procedure for conducting and decision making at the general meeting;
j. property relations in cooperative;
ja. relations associated with reorganization or dissolution of cooperatives.
In order to promote the establishment of cooperatives in agriculture, the draft Concept emphasizes the importance of formulating the following provisions that need legislative regulation:
The basic goal of any cooperative is satisfying the interests of its members. To achieve tangible savings through expansion of commodity turnover and production volumes and to ensure financial stability, a cooperative may supply goods and services also to non-members. However, the percentage of those services should be limited, and the cooperative should direct its main services to meet the interests of its members. The share of cooperative’s activities shall be expressly defined between the members and non-members in the charter of the cooperative. A cooperative member, in addition to being an owner, shall also participate in the cooperative’s management and use its services. There is no sense having non-committed members who are also non-active users of the cooperative’s services. Passive members undermine the role of the cooperative and abate the spirit of cooperation. It is necessary to
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formulate a legislative provision that prevents the formation of cooperatives which is incompliant with cooperative principles, and makes a provision for cancellation of membership if the participation in cooperative is less than one year.
Efficiency of cooperatives’ activities largely depends on the participation of members in its management. A cooperative shall have obligatory and voluntary management bodies. Currently, management of cooperatives is regulated by Article 119 of the RA Civil Code. As a result of legislative improvements, the functions, duties and procedure of formation of mandatory and voluntary management bodies as well as approaches for establishment of respective commissions should be clearly defined.
Indivisible funds are a guarantee for the stability of cooperatives and are applied to cover cooperatives’ losses. Indivisible funds are not divided between the members and are inaccessible during the cooperative’s existence. International practice demonstrates that indivisible funds of cooperatives are mandatory and are not subject to taxation. To safeguard a cooperative against unanticipated risks, different countries have fixed minimum rates of indivisible funds, ranging from 5% to 30% of the annual profit. It is necessary to define a legislative provision that makes indivisible funds obligatory for cooperatives operating in the Republic and stipulates a minimum threshold for indivisible fund at 5% of annual profit until it reaches the amount of statutory capital.
The study of cooperative practices in different countries evidences that their cooperative laws contain a requirement for mandatory audit which pursues the single goal of making certain that cooperatives adhere to the defined rules. The audit of cooperatives is mostly separated from state functions and is implemented by cooperative associations. In this case the goal of monitoring is not levying fines and penalties from cooperatives but rather supporting and guiding them to the right direction. A legislative provision containing a requirement to conduct annual audit should be formulated to ensure that cooperatives adhere to accepted principles and are effective in a transparent manner. The audit should have advisory character and be separated from auditing services delivered for other companies.
An important part of the draft Concept outlines the directions of state assistance to promote the development of cooperation.
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The Concept stipulates that interaction between agricultural entities and implementation of effective economic management modes is an objective requirement. From this perspective, the development of agricultural cooperatives represents a crucial direction in agrarian policy.
The development of cooperatives, as specified in the Concept, is an essential direction towards increase of agricultural sector competitiveness, reduction of rural poverty, and thus needs comprehensive and consistent state support. To this end, an adequate state assistance policy should be employed, comprising the following aspects:
Implementation of a number of essential programs in agriculture through cooperatives. This refers to competitive grant programs within the framework of loan programs, technology assessment and other projects;
Giving priority to agricultural cooperatives upon distribution of agricultural machinery and equipment (e.g. tractors, harvesting combines for wheat and fodder, tractor trailers and farming tools, milk storage and processing equipment) imported into the Republic at the cost of grant funds and other sources;
Application of affordable mechanisms of leasing technical facilities for agricultural cooperatives and provision of affordable loans;
Inclusion of agricultural cooperatives, in the order of priority, in agricultural loan rates subsidization programs, using specific approach;
Ensuring the continuity of World Bank supported “Agricultural Resource Management and Competitiveness Project”, and based on experience and expertise gained through the Project, implementation of similar loan programs in other communities of the Republic; dissemination of the Project lessons and outcomes in other communities;
Fostering contractual relations of agricultural cooperatives with agricultural product processing, agricultural product exporting companies and companies supplying resources applied in agriculture (fertilizers, chemicals, fuel, technical facilities, etc.).
The Concept suggests that in the field of raising awareness of cooperative principles and values among agricultural entities the following steps should be taken:
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Employment of various tools of European Union TAIEX project aimed at studying international cooperative practices and assessment of their localization possibilities;
Rendering advice on cooperative principles, values and advantages in rural communities through agricultural extension and advisory system of the RA Ministry of Agriculture, using versatile tools such as workshops, information factsheets, individual meetings, mass media, etc.
Elaboration of successive steps in cooperatives development (roadmap guide for cooperatives), building awareness of their peculiarities among agricultural entities in rural communities, and rendering assistance in establishment of cooperatives through agricultural extension and advisory system of the RA Ministry of Agriculture or separate specialized teams.
In the Concept, based on cooperative development practice and technical literature, the steps of cooperatives’ establishment are conditionally divided into 8 phases and their separate components.
Referenced phases include:
1) Developing initiative (identifying an opportunity);
2) Discussing the idea of cooperative at the community meeting;
3) Creating initiating commission;
4) Studying opportunities (feasibility study)and conducting inquiry among members;
5) Justifying organizational form;
6) Securing member commitment;
7) Involving other stakeholders,
8) Starting up the cooperative.
As per the Concept, formation of institutional mechanisms stimulating the establishment of cooperatives may include the following steps:
With an aim of coordinating the process of establishment of agricultural cooperatives in the Republic and promotion of their activities, to establish Agricultural Cooperative Facilitation
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Unit within the structure of the authorized state administration body for agriculture, as a result of structural changes and from among existing staff members; the Unit shall conduct its activities in collaboration with marz Agricultural Support Centers;
In view of the fact that the formation of cooperatives has proved to be successful, and their operations more sustainable when the establishment and start up activities of cooperatives have been accompanied by certain support elements, in particular advice, provision of technical facilities and affordable loan funds etc., it is deemed reasonable to reorganize the “Support Fund of Village and Agriculture” operating within the structure of the RA Ministry of Agriculture, vesting it with functions of supporting agricultural cooperatives, and to secure its proper activities. The Fund will be effective within the framework of the RA Law “On Foundations” (AL-516-N, 2003), and its activities will be financed through any sources not prohibited by the legislation (grants, loan funds, state budget funds, etc.). Objectives of the Fund in terms of support to agricultural cooperatives include:
a. organizing the establishment of agricultural cooperatives and providing advisory assistance in their activities;
b. implementing diverse support projects for agricultural cooperatives;
c. providing loan funds to agricultural cooperatives on favorable conditions;
d. using other modes and mechanisms of assistance not prohibited by the law.
The Concept outlines major outcomes anticipated from implementation of measures contained in the document, which include:
Stimulation of agricultural cooperatives establishment process due to improvement of the legislation regulating relationships associated with establishment of cooperatives and their activities, expansion of operating cooperatives’ capacities;
Creation of favorable environment for targeted use of agricultural resource potential, particularly land resources;
Increased efficiency of farm households’ operations resulting from adequate pricing, quality and timely organization of work due to joint solution of production, supply, sales and other problems of farm households;
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Increased opportunities for implementation of agritechnical practices, advanced technologies and crop rotation techniques in agriculture;
Furthering the development of rural communities through expansion of cooperative activities;
Strengthening agricultural producers’ social status and economic potential, increasing agricultural output level due to development of cooperatives;
Facilitating the solution of a number of challenges facing farm households through various types of cooperatives, associations. In particular, the following issues can be addressed more smoothly:
a. production and technical services, supply issues;
b. marketing and export of products;
c. preferred orientation of production;
d. introduction of new technologies, technical re-equipment of production;
e. marketing issues.
The Concept states that cooperative activities will entail tangible growth of employment rates in settlement, increase in agricultural output and processed product volumes which will lead to increased income of the population and enhanced food security level in the country.
The draft Concept includes a Schedule of Measures providing the implementation of the “Concept on Development of Agricultural Cooperation in the Republic of Armenia”, which contains 11 measures with respective anticipated results, persons in charge, implementation schedules and financing sources.
Aforementioned measures, together with expected results, are presented below:
1. Carry out awareness-raising activities on advantages and efficiency of agricultural cooperatives (through advocacy on cooperative advantages and efficiency among farm households, ensuring the adherence to the voluntary principle of formation of cooperatives and promoting their establishment);
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2. Include a separate training course on agricultural cooperation in educational programs of Agricultural Extension and Advisory System, Armenian State Agrarian University and agricultural colleges (raising awareness of peculiarities and advantages of agricultural cooperation, preparing specialists in sphere of agricultural cooperation);
3. Elaborate mechanisms targeted at economic sustainability of cooperatives and submit proposals on their application (enhancing capacities of operating agricultural cooperatives, creating incentives for establishment of new cooperatives);
4. Establish one pilot cooperative with agricultural orientation (gained experience will serve as basis for formation of cooperatives and application of efficient mechanisms for other farm households);
5. Develop collaboration with International Co-operative Alliance (building opportunities for localization of international cooperation practices);
6. Submit the draft of RA Government Protocol Decree “On Exemplary Charter of Agricultural Cooperatives” to the RA Government(legal assistance in cooperatives establishment process, ensuring approximation of organizational (constituent) documents to the requirements of legal acts);
7. Elaborate and publish Roadmap Guide for cooperatives, carry out works aimed at its introduction (rendering advice in the process of cooperatives establishment and assistance in organization of cooperatives);
8. Organize annual scientific and practical conferences (presenting best cooperation practices, summarizing results, providing moral and material incentives);
9. Based on experience and outcomes gained through “Agricultural Resource Management and Competitiveness Project”, file an application on implementation of similar loan programs in other communities of the Republic (increasing agricultural revenues through promotion of livestock breeding cooperatives, efficient development of natural feedlots and other resource potentials);
10. Gain experience in cooperation through employment of various tools of European Union TAIEX project (studying international cooperative practices and making proposals on their localization);
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11. Reorganize the “Support Fund of Village and Agriculture”, vest it with functions of supporting agricultural cooperatives and secure its proper activities (raising funds necessary to support cooperation, creating prerequisites for their targeted and efficient use).
2. Another circulated draft legal act on agricultural cooperation is the “Strategic Plan for Perspective Development of Armenia for 2013-2025”.
The first provision of “Rural and Agricultural Perspective Development Visions” included in the part titled “Development Perspectives of the Sphere” under sub-section 4.2.4 “Agriculture and Rural Development” is set forth as follows: “through implementation of intensive technologies, development of farm households integrated with commercial agricultural organizations, cooperatives and market infrastructures”. One of the key provisions of the draft is laid down as follows: “Under existing circumstances, an essential importance is placed on improvement of forms of economic management, in particular on the policy promoting the cooperation. The following major directions of cooperation development are deemed more expedient:
1) Improvement and amendment of legislation;
2) Application of incentive tools for establishment of cooperatives;
3) Awareness raising on cooperatives’ principles and advantages among agricultural entities;
4) Establishment of institutional mechanisms facilitating the establishment of agricultural cooperatives.”
The adoption of the Strategic Plan will allow elaborating, adopting and implementing project documents furthering the development of agricultural cooperation in specified directions, including projects implemented through the RA state budget funds.
3.One of the most essential drafts that promotes cooperation and regulates relations in agricultural cooperation is considered the draft RA Law “On Agricultural Cooperation”. This law is still at the stage of review, to be followed by amendment of the draft based on discussion results.
The draft law consists of 7 Chapters and 36 Articles as follows:
Chapter 1.General Provisions.
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Article 1.Scope of Regulation.
Article 2. The Legislation on Agricultural Cooperatives.
Article 3. Basic Concepts used in the Law.
Article 4. Aims and Objectives of Agricultural Cooperatives.
Article 5. Legal Status of Cooperative, Key Principles of Establishment and Functioning.
Article 6. Types of Cooperatives.
Article 7. Cooperative Associations.
Article 8. Branches and Representative Offices of Cooperatives and Associations.
Chapter 2.Establishment and Membership of Cooperative.
Article 9. Establishment of Cooperative.
Article 10. Incorporation of Cooperative.
Article 11. Charter of Cooperative.
Article 12. State Registration of Cooperative.
Article 13. Members of Cooperative.
Article 14. Accession of New Members.
Article 15. Termination of Membership in Cooperative and Transfer of Share.
Chapter 3.Management of Cooperative.
Article 16. Structure of Management Bodies of Cooperative;
Article 17. Powers of the General Meeting.
Article 18. Regular General Meeting.
Article 19. Extraordinary General Meeting.
Article 20. Procedure for Calling the General Meeting.
Article 21.Procedure for Conducting and Decision Making at the General Meeting.
Article 22. Executive Body of Cooperative.
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Article 23. Monitoring Board of Cooperative.
Article 24. Supervisory Committee of Cooperative
Chapter 4.Property of Cooperative.
Article 25. Sources of Formation of Cooperative’s Property
Article 26. Contribution of Shares.
Article 27. Distribution of Surplus and Profit of Cooperative.
Article 28. Property Liability of Cooperative and its Members.
Chapter 5.Reorganization and Dissolution of Cooperative.
Article 29. Reorganization of Cooperative.
Article 30. Conducting Audit of Cooperative.
Article 31. Dissolution of Cooperative.
Article 32. Dissolution Procedure.
Chapter 6.State Assistance in Sphere of Agricultural Cooperation.
Article 33. Relationships of Agricultural Cooperatives, Cooperative Associations and State Administration and Local Self-government Bodies;
Article 34. Directions of State Support in Sphere of Agricultural Cooperation.
Chapter 7. Final provisions
Article 35. Responsibility for violating the requirements of the law
Article 36. Entry into force
The necessity of the enactment of the law draft in the reasoning of the draft law is the following. The use of the potential in the natural resource economies is yet at a low level despite the slight progress during the last couple of years. One of the main reasons is the small size of the rural households and the slow process of the joint ventures of the households. Therefore, it is necessary to promote the joint usage and consolidation of land, the organization (of implementing) of cooperative events derived from the RA government program which was
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approved by the RA government decision of May 16, 2013, and the 2010-2020 RA sustainable rural and agricultural development strategy, which was approved by the RA governments N1476-N decision on November 4, 2010 and other legal acts and documents via/through different levers and mechanisms.
The RA does not yet have a single comprehensive general law on cooperatives, as other countries do. The cooperative sector is yet regulated by the RA Civil Code, according to point 3 of the article 51 “cooperatives are distinguished as profit-seeking (commercial) or non-profit (non-commercial) organizations depending on their nature”.
The articles 117-121 of the RA Civil Code fully refer to cooperatives. Article 117 refers to the main provisions of cooperatives, which define a cooperative, content of the charter of a cooperative, main provisions, specifications of different types of cooperatives and refer to other laws defining the given legal situation. However, the law does not regulate all the relationships regarding agricultural cooperatives. Therefore, the elaboration and enactment of the proposed law will serve to accomplish the legislation regulating agricultural cooperatives relationships.
The RA laws about cooperatives generally do not correspond with the standards of the provisions of Recommendation 193 on the “Promotion of Cooperatives” by the International Labor Organization’s accepted in 2002 by the (Armenia is a member since 1992) and the provisions established by the International Cooperative Alliance.
Agriculture is a priority sector in RA’s economy and it has unique features. Therefore, it is appropriate to have a separate legal document regulating the cooperative relationships.
Currently there are 340 thousand agricultural households as a result of the liberalization of economy in the republic, the privatization (private ownership) of land, livestock, agricultural machinery and other means of production. Those entities own 1.4 ha agricultural lands. The agricultural households are not managed efficiently because of the size of agricultural farms, inefficient exploitation of potential resources, the dispersion and small sizes of the land plots, yet slow formation of the land market and difficulties related to the production and marketing of agricultural products.
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In the given situation there is a demand and necessity to improve the economic methods applied in the agricultural sector, to implement a coherent state policy aimed at the development of cooperatives, which requires a general legal document regulating the given sector.
According to the draft law the implemented policy in the given sector is as follows:
Currently, the agrarian policy is focusedon the development of the agricultural methods applied in the agricultural sectors, particularly in the promotion of cooperatives. The development of cooperatives is a priority in the 2010-2020 RA rural and agricultural sustainable development strategy in the RA government’s activity plan.
Within the framework of the strategy, the events in the context of the development of methods applied to run the agricultural households are aimed at promoting different types of agricultural cooperatives.
Promoting cooperatives in the agriculture of the Republic require implementing a set of activities, especially regulating the relationships in the agricultural cooperative sector by improving the legislation, implementing economic mechanisms to boost the establishment of cooperatives, awareness raising on the principles and values of the cooperatives among the agricultural entrepreneurs, developing institutional structures to promote the establishment of agricultural cooperatives.
In order to develop/establish agricultural cooperatives, the abovementioned systematic policy should be implemented based on the provisions of the proposed draft law.
In the justification of the draft law the following objectives are mentioned:
1. increasing the efficiency of the joint activities of the members,
2. mobilization of more resources than each of the members could invest individually,
3. creating more favorable alternative conditions for purchasing goods and services,
4. creating opportunities to educate, train and enhance the abilities of the members,
5. running the business more efficiently than it would have been possible doing it alone.
According to the reasoning of the draft law, the following results are expected from the adoption and implementation of the draft law:
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The legislative basis for the development of agricultural cooperatives will be improved;
The primary directions of state policy in the agricultural cooperative sector will be clarified;
Establishment of agricultural cooperatives will be promoted;
As a result of the joint solution of production, supply, marketing and other problems of rural households, as well as of managing the prices, quality and timeliness of work, the efficiency of the rural farms activities as well as competitiveness of the entrepreneurs in the sector will be increased;
The level of food security in the country will be increased;
The activities of the cooperatives will contribute to the development of the rural communities.
The subject of the RA law “On Agricultural Cooperation” is the formation of agricultural cooperatives, (their) membership, activities, management, termination of activities, restructuring and dissolution and it defines the rights, duties and responsibilities of the members.
The draft law sets the legislative framework (Article 2) on agricultural cooperation, in particular, the “Legislation on agricultural cooperatives consists of the RA Civil Code, this law and other legal acts.
If there are other provisions defined by international treaties of the RA, than those stipulated by this law, the provisions of the international treaties supersede provisions of this law.”
Article 3 of the draft law defines the main terms, which include the following: agricultural cooperatives, agri-food system, agriculture, agricultural production, agricultural produce, agricultural cooperative, mandatory shares (payments), additional (share) payments, cooperative employee, cooperative’s indivisible fund, cooperative’s reserve fund, patronage, participation in the economic activities of the cooperative.
Article 4 of the draft law defines the objectives and tasks of the agricultural cooperation, in particular the objectives of the “Agricultural cooperatives” (thereafter cooperatives) are as follows:
a) increasing the efficiency of the joint activities of the members,
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b) mobilizing more resources than individual cooperative members can invest,
c) creating more favorable alternative conditions for purchasing goods and services,
d) creating opportunities for educating, training and enhancing the skills of the members,
e) running the business more efficiently than it may be done individually.
The tasks of the cooperatives are as follows:
a) protecting the interests of the cooperative’s members,
b) responding to economic issues, which can have a negative impact on the activities of the cooperative’s members,
c) enjoy the advantages of a joint work.
Article 5 of the draft law defines the legal status of the cooperative, the main principles of its establishment and functioning. In particular, “the Cooperative is a legal entity, the economic initiatives of which create means to improve the welfare of its members or implement more general social objectives.
The main objective of the economic initiative of cooperation should not be neither profit extraction nor the distribution of the whole profit. The objective of the cooperative is revealing the general economic, social and cultural needs of the members through positive economic outcomes.
The positive economic outcome in the cooperative is distinguished as profit generated from transactions with non-members and surplus generated from transactions performed with cooperative members according to the principles of the cooperative. According to the principles of the cooperative, the profit should be transferred to the indivisible and reserve funds of the cooperative, and the surplus or part of it should be distributed among the members in proportion to their activity in a definite period of time.
The article defines the main principles for establishing of cooperatives and implementing their activity. The principles are as follows: voluntary and open membership of cooperatives, democratic control of the activities of the cooperative by the members, economic participation of the members, autonomy and independence, education, training and information, cooperation among cooperatives, concern for the community.
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Chapter 6 of the draft law defines the types of cooperatives, in particularly their peculiarities, which are classified as follows:
1. Agricultural production for joint production and the sale of agricultural raw materials and food from vegetable/plants and animal origin;
2. Established for the purpose of provision of agricultural inputs - the members are supplied with fertilizers, fuels and lubricants, chemicals for crop protection/pesticides, seed, fodder, agricultural machinery, spare parts, planting material/seedlings, young animals, other products for the purpose of agricultural production;
3. Service (service providing) cooperatives - provide the following services - agricultural machinery services for plant protection, breeding, animal husbandry, reclamation, rural construction, providing scientific-consultation, informational, household services to the rural population;
4. Marketing of the agricultural products - these cooperatives are established for the purpose of marketing of the agricultural products and services produced by the members and may also perform the following functions: storage of the products, transportation, packaging, advertising and other product movement functions along the entire chain from production to consumption.
5. Agricultural Products Processing - - are established for the purpose of food (meat, dairy products, cereals, preserved fruits, vegetables and berries, beverages, etc), as well as non-food products (mixed fodder, medicinal herbs, essential oils, etc) production from processing of the agricultural raw materials and products.
6. Providing Consulting Services – are established for the purpose of providing consultations, supporting inthe introduction of modern technology and providing information to the cooperative members in related to various area of agricultural sector,
7. Applying mutual financing mechanisms – are established to increase the access to credit funds, to provide maintenance of money savings, as well as to implement other investment transactions.
The draft law states the following: “Cooperatives can combine different types of activities according to their charters and act as multi-brach cooperatives”.
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Article 7 of the draft law’s defines that “Cooperatives can establish unions on contractual basis in order to more efficiently coordinate their activities, protect their rights, provide information and consulting services, increase the qualifications of the cooperative members and employees, perform market analysis, provide technical support, provide technical support to member cooperatives, provide capacitybuilding of the member cooperatives, as well as perform other activities in the agri-food system. The peculiarities and the relationships between the members of the cooperative unions are defined in the given Article of the draft law.
Article 8 of the draft law refers to the branches and representative offices of the cooperative unions. In particular, the draft law states that “Cooperatives and the unions have the right to create separate divisions, branches and representative offices on the basis of the law and other legal acts.
A branch is a division of the cooperative or union, which is located outside the area of the latter, and carries out all or part of the functions of the charters of the union, including representational functions;
A representative office is a division located out of the cooperative's or union's location, which represents and protects the interests of the cooperative and union”. Article 9 of Chapter 2 of the draft law, “Establishment and membership of Cooperatives” refers to the establishment of the cooperative, in particular, the following is defined: ”A cooperative can be established by creating a new cooperative, by merging existing cooperatives and by separating them”.
Article 10 of the draft law refers to the establishment of cooperatives and states: “The establishment of a cooperative through its foundation is done by the decision of the founding general assembly of those natural persons, who have shown interest”.
Subsequently, the draft defines the relationshipsrelated to the establishment of a cooperative through its foundation.
Article 11 of the “Charters of Cooperatives” is one of the key Articles of Chapter 2 of the draft law. The draft law stipulates that “the charter of the cooperative is the constating document of the cooperative”. The draft law stipulates that the charter of the cooperative
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defines the following:The name of the cooperative – full, abbreviated and should include the word “cooperative”;
The location of the cooperative;
The procedures of generation of the cooperative’s capital;
The procedure for the establishment of cooperative’s management bodies, the structure and authority, and the decision-making procedures;
The rights and responsibilities of the cooperative members, including the amount of share payments, the procedure of making payments and the obligation of the members for violating that commitment;
The form of the cooperative’s membership certificate;
The procedures of admitting a new member;
The procedures of leaving the cooperative by its member;
The procedure for appealing the decision of a certain member to leave the cooperative;
The primary objective (subject) of the cooperative’s activities;
The procedures of the formation and usage of the indivisible and reserve funds of a cooperative;
Procedures of profit and loss distribution of a cooperative;
The appealing procedure for the cooperative members;
The beginning and the end of the fiscal year;
The procedures of assigning a mony value to the land plots and other property paid as share payments by the cooperative members;
The procedures for planning and holding the general meeting;
The procedure of appealing a rejected membership application;
The procedures of voluntary dissolution of a cooperative;
Grievance redress mechanisms;
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The procedures of auditing;
The procedures of regulation of activities with non-members;
Other provisions of the Code and the draft law.
Article 12 of the draft law refers to the state registration of the cooperative. The draft law states that “The cooperative relates to state registration by the legal bodies performing state registration for legal persons according to RA law on “State Registration of Legal Entities” and by the procedures defined in the given law.
Existence of the following documents is a requirement for the registration of cooperatives according to the Draft law to ensure further sustainability of cooperatives:
economic program of a cooperative;
receipt of share payment;
Minutes of the general meeting of acooperative.
Article 13 of the draft law refers to the members of the cooperative. According to the draft law “RA citizens over 16 years of age, as well as legal persons, who accept the charter of a cooperative, may become members of a cooperative.”. It is stated that “The number of members of a cooperative must be no less than 7 natural or legal persons. The managing body of the cooperative must consist of members over 18 years of age”.
1. The given article of the draft law states the rights and responsibilities of the members of a cooperative, in particular: a. The member of a cooperative have the right to participate in the management of a cooperative and at the general meeting, to come up with proposals, to vote, to elect and be elected; b. Receive information on the financial and economic activities of a cooperative; c. Benefit from the educational and consultation services of the cooperative; d. Receive the defined surplus of the cooperative’s activities according to the law and the cooperatives charters in the form of patronage, as well as the limited dividends defined by the general assembly;
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e. Purchasing goods under favorable conditions and using the services provided by the cooperative, f. Leave the cooperative at one’s discretion irrelevant ofthe wish of other members; g. Sell the shares to one or several members of a cooperative or to a third party; h. Receive one’s invested nominal share value and one’s share of the residual value of the cooperative (except the indivisible fund) in case of dissolution; i. Receive the nominal value of the invested share when leaving the cooperative; j. Receive information from the management of a cooperative on the financial state of the cooperative; k. Request extraordinary audit; l. Exercise other rights defined by the law and the charter of a cooperative.
2. The responsibilities of the members of a cooperative a. Pay the membership share payments defined by the procedures in the charter of the cooperative in a timely manner in order to improve the financial state or the creditworthiness of the cooperative; b. To implement the decisions of the general assembly of the cooperative; c. To avoid the functions that detriment the objectives of a cooperative; d. Not to disclose confidential information about the activities of the cooperative, with the exception of cases provided by law; e. For the losses of a cooperative its members are responsible only with their shares; f. Bear other responsibilities vested on them by the law or by the charter of a cooperative.
3. Restrictions for the members of a cooperative who are members of a cooperative and work in a cooperative with labor contract are as follows:
a. cannot be elected for the management bodes of a cooperative;
b. do not participate in a voting in the general assembly.
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Article 14 of the draft law refers to the procedures of becoming a member of a cooperative. The draft law defines that “After the state registration of the cooperative, citizens or legal person wishing to join (to become a full right member of) the cooperative, are to submit a written application to the board of a cooperative, and if a board is not rovided by the charter, it should be submitted to the chairman of a cooperative. The board (chairman) of the cooperative examines the application within one month and makes a decision on accession of a new member to the cooperative or rejecting an application.
The decision (either positive or negative) of the board (chairman) is subject to approval by the general assembly formed from the members of the cooperative. The draft law stipulates that “The conditions of the cooperative’s membership and the procedures for the evaluation of the applications are set by the charter”.
Article 15 of the draft law refers to the termination of the (cooperative) membership and transfer of share. According to the draft law “The bases for termination of a membership of cooperative members are as follows:
1. Voluntary withdrawal of a membership;
2. Expulsion from the cooperative;
3. Returning a share or selling it;
4. Dissolution of the legal person which is a cooperative member.
The draft law defines also other conditions for becoming a member of a cooperative.
Article 16 of the chapter 3 “Management of the cooperative” of the draft law refers to the structure of the management bodies of a cooperative.
According to the draft law “the supreme body of the cooperative is the general assembly, which can be regular or extraordinary. Мembers of а cooperative have а right to be present at the general meeting, participate in the discussion of the issues on the agenda and vote for adopting decisions. Each member of a cooperative at the general meeting is entitled with one vote.”
According to the draft law, a supervisory board may be established if the cooperative consists of 50 or more members, which will supervise the activity of the executive bodies of the
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cooperative. The supervisory board members have no right to act on behalf of a cooperative. The draft law provides for other conditions for the supervisory board operations.
Article 17 of the draft law refers to the competences of the general meeting.
The draft law provides for “the exclusive powers of the general meeting of the members of the cooperative to be as follows:
1) Approving the charter, making changes and amendments therein, approving the revised charter;
2) Approving the number of members of a monitoring board, election of its members and the early termination of their authority, as well as formation of the cooperative’s executive body and termination of their authority, if that right has not been given to the supervisory board by upon cooperative’s charter;
3) The election of the steering committee (controls) and the early termination of its authority in cases provided by the charter;
4) Approval of the annual report and the accounting balance and distribution of losses;
5) Making decision on the distribution of the surplus of a cooperative among the cooperative members;
6) Approving the cooperative’s development programs and adopting the documents regulating the internal operations of a cooperative;
7) Making decision on the shares as well as the amount, terms and procedures of other payments of the members of a cooperative;
8) Making decision on the conditions of generation, as well as the amount and procedures of use of the indivisble and reserve funds;
9) Establishment and liquidation of branches, representative offices and agencies;
10) The admission and expulsion of members of a cooperative;
11) Making decision on the policy of remuneration of the administration members and (or) the chairman of a cooperative, as well as on the reimbursement of expenses of supervisory board;
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12) Making decisions on bringing to responsibility the members of administration and (or) the chairman of the administration, as well as members of the supervisory board and members of steering committee;
13) Making decision on cooperatives accession to the union or disaffiliation with the union;
14) Making decisions related to the alienation of the cooperative’s property;
15) Making a decision on the auditing of a cooperative;
16) Approving decisions on the reorganization and liquidation of a cooperative, as well as appointing a liquidation committee and accepting the liquidation balance;
17) Making a decision on the terms and procedures of providing credits (loans) to the members of a cooperative;
18) Defining the form and amount of the returned share of members leaving the cooperative;
19) Making other decisions and solving other issues provided by this law and the charter of а cooperative.”
This article includes other relationships related to the general meeting.
Article 18, which refers to the regular general meeting, states: “A regular general meeting is held within dates provided by the charter, but no less than once a year. The regular general meeting is called by the executive body”.
Article 19 of the draft law refers to the extraordinary general meeting of the cooperative. The draft law states: “An extraordinary general meeting is convened in cases specified by the charter, including when it is necessary to protect the interests of a cooperative and its members”.
Article 20 of the draft law refers to the procedures of convening a general meeting. According to the draft law “The first meeting is held not later than within 2 months after the state registration of the cooperative”. The draft law states, that “The body or persons holding the general meeting are obliged to inform cooperative members on the meeting at least 20 days prior the meeting by sending registered mails or notifying in person, with condition that the members are notified at least 5 days before the meeting”. According to the draft law “The administration
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of a cooperative is responsible for organization of the general meeting, and if there is no administration, the responsibility rests with the chairman of a cooperative”.
The draft law also states that “An extraordinary general meeting is held by the request of at least 10 percent of cooperative’s members, or by the request of supervisory board or steering committee. If the administration of a cooperative (the chairman of a cooperative) does not perform its duties of convening an extraordinary meeting, the supervisory board assumes those duties, and in case the latter is absent or is unable to perform the duties, the members of a cooperative shall form a group that will initiate and convey an extraordinary general meeting”.
Article 21 of the draft law refers to the procedures of holding of a general meeting and decision-making. The draft law stipulates that “The general meeting is held in accordance with the procedures provided by the law, the charter of a cooperative and its internal documents. Other procedures for conducting a general meeting not stipulated by the charter of the cooperative and other internal documents are defined by general meeting.
Article 22 of the draft law refers to the executive body of a cooperative. According to the draft law “The executive bodies of a cooperative are the administration and (or) the chairman. For the cooperatives with less than 10 members, an election of only a Chairman and Deputy Chairman of a cooperative can be provided by a charter. The draft law provides that “The Chairman of a cooperative and the members of administration are elected for a period of 5 years, unless otherwise provided by the charter:
- Only the cooperative members who turned the age of 20 may be elected as the Chairman and the members of the Administration of the Cooperative. The chairman and the administration members of a cooperative must be over 20 years of age.
The chairman of a cooperative is the head of administration.
According to the draft law “The competencies of the executive body of a cooperative includes the following:
1. Deciding the main directions (priorities) of a cooperative activities;
2. Convening general meetings and approving the agenda;
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3. Preparing proposals on the remuneration, as well as procedures and terms for reimbursement of expenses of the steering committee (controls) of a cooperative;
4. Setting the remuneration amount for the person (persons) implementing audit of a cooperative;
5. Acting on behalf of a cooperative without the power of attorney, as well as making transactions and representing its interests;
6. Providing powers of attorney to receive the right to act on behalf of a cooperative, including powers of attorney with the right to transfer.
7. Issuing orders on the appointment of the staff of a cooperative, their transfer and dismissal, applying incentives and penalties;
8. Initial discussion of applications on accession of new members to a cooperative or those disaffiliating with a cooperative, as well as initial discussion of the expulsion of cooperative members;
9. Preparing proposals jointly with the supervisory board on the additional shares (payment of shares), dividends and the amount of other payments, as well as providing loans to the members of a cooperative;
10. Discussing the audit reports (the results of the inspection) jointly with the supervisory board and implementing measures to eliminate the violations (shortcomings)revealed ;
11. Evaluating non-mony shares (land, property, etc.) expressing them in mony (value/cost) units;
12. Making transactions for which the general meeting is not authorized (small transactions) in the manner prescribed by the charter of a cooperative;
13. Exercising other authorities vested by this law or the charter of a cooperative.
Article 23 of the draft law refers to the supervisory board of a cooperative. According to the draft of the law “A member of a cooperative who is at least 20 years of age may be elected in the supervisory board. A monitoring board may be formed in the cooperatives with more than 50 members and should consist of no less than 3 persons, which are elected at the general meeting of a cooperative”.
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According to the draft law “The supervisory board:
1) Supervises the activities of the administration and the chairman of a cooperative, is authorized to check the cash register of a cooperative, securities and commercial documents, to inventorize and perform other functions related to the supervision of a cooperative’s financial and economic activities;
2) Carries out mandatory verifications of the reliability of the annual accounting balance and annual report of a cooperative and presents conclusions on its findings to the general meeting;
3) Draws conclusions on the applications for accession or leaving a cooperative;
4) Can initiate convening of a general meeting;
5) Presents proposals for auditing the activitiess of a cooperative;
6) Performs other authorities provided by the charter of a cooperative.
Article 24 of the draft law refers to the steering committee of a cooperative. According to the draft law “The steering committee can be established in a cooperative with more than 25 members and consists of no less than 2 members, which are elected at the general meeting of a cooperative. If a cooperative consists of up to 25 members, the charter of a cooperative can provide for that the election of a controls only”.
The draft law provided that “The steering committee (controls)
1) Supervises the financial activities of the committee;
2) Analyses the results of the financial year, the financial state of ա cooperative, reveals the violations of the financial activities and presents proposals on their elimination based on the request of the general meeting or the supervisory board or at least 10 per cent the overall number of cooperative members, as well as based on its own initiative;
3) According to the law, performs other functions vested by the charter of a cooperative.
The draft law provides that “The results of the verification of the financial activities of a cooperative performed by the steering committee (controls) and the proposals, findings, and conclusions prepared based on its results, shall be discussed in a manner prescribed by a a
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cooperative and appropriate measures should be taken by the general meeting of a cooperative or the supervisory board or the executive body of a cooperative”.
Chapter 4 of the draft law refers to the property of a cooperative. Article 25 of the Chapter refers to the sources of generation of a property of a cooperative. The draft law provides that “The sources for property generation of a cooperative are considered private, as well as loan proceeds. The percentage of the loan proceeds is provided by the charter of a cooperative. The private resources of the cooperative are generated from the share payments, as well as from the additional shares sold to the members, the resources received from the activities of a cooperative, as well as securities, and bank deposits”.
According to the draft law “The cooperative is the owner of shares paid by the members of a cooperative as membership fees”.
Article 26 of the draft law refers to the payment of shares. The draft law defines that “The payment of shares (mandatory and additional) is expressed in mony (value) terms. If a share or part of a share has been paid in a form of land, labor, property or a right to a property, these are assessed in mony (value) terms, which is approved by the decision of the general meeting. The draft law provides also other relationships of share payments.
One of the important Articles of the draft law is the distribution of the surplus and profit of a cooperative.
According to the draft law “The distribution of the surplus and profit based on the accounting balance of a cooperative in a manner prescribed by law is implemented for the following main directions:
1) Replenishment of indivisible and reserve funds;
2) Paying the surplus to a cooperative members;
3) Distribution of profit among the members under a limited approach;
4) Other payments provided by the charter of a cooperative.
The draft law provides that “The profits from transactions with the non-members of cooperatives are allocated to the indivisible and reserve funds, and a part of the surplus from transactions with the members of the cooperative is distributed among the members of a cooperative proportional
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to their participation, in the form of patronage” as well as “The proportion of the surplus from the transactions with the members of a cooperative which is allocated to the members of a cooperative and replenishment of other funds is set by the charter of a cooperative”.
Article 28 of the draft law refers to the property accountability of a cooperative and members of a cooperative. According to the draft law “For its commitments the cooperative is liable with all the own property of a cooperative and is not liable for the commitments of the members of a cooperative”.
Chapter 5 of the draft law refers to the reorganization and liquidation of a cooperative. Article 29 of the draft law refers to the reorganization of a cooperative, according to which “The reorganization of a cooperative is performed in a manner prescribed by law, after the liquidation of a cooperative”.
Article 30 of the draft law refers to the carrying out an audit of a cooperative. The draft law provides that “The cooperative audit has an advisory character, intended to assess the compliance with the rules provided for the cooperative and to guide the works aimed at eliminating the identified inconsistencies, if such exist. The audit of a cooperative is separated from the state functions and is performed by the unions of cooperatives.
Article 31 of the draft law refers to the liquidation of a cooperative. The draft law provides that “Liquidation is the cessation of the activities of a cooperative without handing the rights and obligations to others through succession.
A Cooperative can be liquidated;
1) By the decision of the general meeting;
2) Invalidation of the registration of a cooperative juridically;
3) When the number of cooperative members is less than the minimum number provided by the law;
4) When the cooperative is insolvent;
5) When the cooperative does not perform any activities for more than 2 years;
6) In other cases provided by the law.
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The draft law provides that “In order to perform the procedures for liquidation the general meeting approves the final balance, makes decisions on the procedures and dates of the liquidation according to the charter of the cooperative, as well as on the allocation of the remaining property of the cooperative after satisfaction of the claims of the creditors”.
Article 32 of the draft law provides the liquidation procedures of a cooperative. In particular “The management responsibilities of a cooperative are placed upon the liquidation committee upon its appointment. The liquidation committee presents the cooperative in court”. The draft law also provides for other relationships regarding the liquidation of a cooperative.
Chapter 6 of the draft law refers to the state support to the agricultural cooperative sector.
Article 33 of the draft law concerns to the relationships between agricultural cooperatives, agricultural union of cooperatives and state and local self-government bodies.
The draft law provides that “The RA recognizes the rights of agricultural cooperatives and their unions and protects their legitimate interests. The state supports the development of agricultural cooperatives and strengthening their economic independence.
According to the draft law “The activities of agricultural cooperatives are independent from the state and local self-government bodies, NGO’s, political and other organizations. Interference in the activities of the agricultural cooperatives by state and local self-government bodies is forbidden, except in cases stipulated by the RA legislation. The financial losses incurred as a result of interference by state and local self-government bodies, are to be compensated according to the (procedures provided for by) RA legislation.
The state and local self-government bodies are not responsible for the obligations of the agricultural cooperatives and the latter isn’t responsible for the obligations of the state bodies.
Article 34 of the draft law refers to the focus of state support on the agricultural cooperative sector. The draft law states that “The state promotes the establishment of cooperatives in the agri-food system by providing subsidies, implementing action plans, creating a favorable administrative and legislative environment, providing cooperatives with scientific, human, information and consultation resources.
According to the draft law the focus of state support in agricultural cooperative sector is as follows:
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1) Supporting to the introduction of modern technologies and to the technical equipping;
2) Providing priority of cooperatives as counterparts in state programs and state procurement processes;
3) Equalization of taxation and other state support conditions of cooperatives and organizations involved in agro-products (raw materials) production;
4) Supporting the establishment of contractual relations with companies, which process agricultural raw materials, supply resources used in agriculture and carry out the marketing of production;
5) Support the logistics of business forums, exhibitions, expo’s in order to increase the competitiveness of products of cooperatives with the potential to export to foreign countries;
6) Support by providing consultations, trainings and reliable information;
7) Protection of interests of the local market and local producers;
8) Support the introduction of the agricultural insurance system;
9) Implementing a policy aimed at making agricultural loans more affordable;
10) Implementing programs to provide food safety and develop organic agriculture;
11) Financing activities aimed at soil replenishment, irrigation, primary seed production, protection of plants, animal husbandry and veterinary services;
12) Implementing programs for the best understanding of the importance of cooperatives;
13) Priority involvement of cooperatives in educational, statistical and research procedures;
14) Support in the areas provided by this law and other legal acts.
Chapter 7 of the draft law refers to the “Final provisions”. Articles 35 and 36 define the responsibility for violating the requirements of the law, as well as the entry into force of the law.
5. The following are the expected results of the adoption (approval) of the draft law:
1) A single integrated law regulating the legal relationships of agricultural cooperatives;
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2) The legislation regulating the activities of agricultural cooperatives will be in compliance with a list of international documents, including the “Declaration of Coopertives’ identity” document by International Alliance of cooperatives, the provisions of the Recommendation (Number 193)of International Labour Organization“ Support to Cooperatives” adopted in 2002, etc.;
3) The primary focus of the state policy in sphere of developing agricultural cooperatives will be clarified;
4) The establishment of agricultural cooperatives will be promoted;
5) The efficiency of the agricultural household activity and the competitiveness of entrepreneurs in the agricultural sector will be enhanced;
6) The capacity of functioning cooperatives will be enhanced;
7) The activities of the cooperatives will contribute to the development of rural communities;
8) The activitiess of cooperatives will increase rural population employment rates, the volume of agri-products and products processed from them, which will result in thei ncrease in the income of the population and the level of food security of the country will be enhanced;
9) Conditions will be created for the targeted and efficient use of land resources;
10) The issues of agricultural machinery maintenance and supply, marketing of products, export, preferred specialization in production, insvestment of new technologies, reequipping of a production will be easily resolved through agricultural cooperatives.
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