The family cooperative is a cooperative in which members of a family make up the members. Among other things, this should offer advantages in the taxation of company profits and their distribution to members. Finally, cooperatives benefit from tax advantages in certain operational activities. But also in the context of asset protection, a family cooperative should be advantageous. Thus, it offers protection of the assets tied to it if a member is liable to third parties on a private level. Furthermore, the possibility of company succession is combined with the other advantages that a family cooperative offers. However, a family cooperative must also comply with all the principles that apply by law to all cooperatives. This also means that the sole purpose of a cooperative is to promote its members. If this principle is disregarded, then this can lead to the dissolution of the family co-operative.

A family cooperative is basically a cooperative in which its members are family members. On the one hand, this may sound quite banal, but it is the attribute family that plays a decisive role in the naming of this form of company. Because the family, as a haven of moral and other values and a symbol of an always closely connected community, has its own value in the age of universal marketing, or – well, to say it with a pinch of cynicism – market value. Because the argument to generate advantages in different respects in the family context can be associated with many products in order to perform persuasion on an emotional level.

Therefore, in this article we want to deal critically with the family cooperative. So we want to know whether the family coat that was given to the family co-operative at the time of naming actually delivers the values associated with it. In recent years, the family cooperative has received a very positive response as a design model, especially in social media. So let’s see if this is justified, or if there is only one FIAT Panda under the Ferrari red.

So let’s ask again what a family cooperative is. And this time, we put our question to the legislator. But he will be silent on this, for he has never used this term in any law he enacted. Therefore, we are sure that the family cooperative is only a cooperative that is very special in its design.

So if the legislator does not know an independent family cooperative because it is based on a legal basis, he at least knows the cooperative as a legal form. He even enacted a specific law, namely the Cooperative Act (GenG). There we find pretty much everything we need to know about the nature of the cooperative. Thus, it is stated at the outset in § 1 GenG as a characteristic that the purpose of the cooperative is to promote its members in economic terms. In addition, a social or cultural support purpose is also possible. Even a non-profit secondary purpose can exist here, but it must not be in the foreground. The cooperative is to achieve its goal through joint business operations. This means an egalitarian leadership principle based on grassroots democratic decision-making processes.

In addition to the legal definition of the legal form cooperative society, the GenG contains, as already mentioned, of course also other civil law rules in this regard. However, the legal situation regarding certain aspects of the cooperative is much less clear from a tax point of view. We know that the cooperative – and thus also the family cooperative – is subject to both trade tax and corporate tax. However, for example, there are no clear rules regarding the valuation of shares in a cooperative with regard to gift tax or inheritance tax. Although in such cases it is often the courts that ultimately decide on such matters, in this respect too there has been little clarification about the status of cooperatives. It is therefore disconcerting to note that the legal situation regarding cooperatives is unsatisfactory in some respects. This also applies to family cooperatives.

So far, so abstract. Now let’s look at an important aspect of the real-world family cooperative. More specifically, we want to pay attention to the process of establishing a family cooperative. If minor children or other incapacitated family members who require a legal representative are also to be members of the family association, then special rules apply.

The sticking point here is that the parents usually also want to become members of the cooperative. In this context, however, they must by no means appear at the same time both as a private person with their own membership as well as as a legal representative of the minors at the establishment. This is called a legal ban on self-contracting. It thus prevents decisions in situations that could constitute a conflict of interest.

Now you can overcome this hurdle. For this purpose, a supplementary caregiver is appointed via a family court. Its task is to represent the interests of minors or otherwise incapable of doing business in the establishment of the family cooperative in place of the parents. The supplementary care therefore passes from the parents to the supplementary caregivers the concern that no disadvantage arises from the child's accession to the family cooperative. Because the BGB protects minors from legal transactions, which can bring them advantages as well as disadvantages. In addition, the family court involved can request the approval of a guardianship court. Only with the consent of the family court can a minor child become a member of the family cooperative.

Even if the family cooperative may be only a very special cooperative in terms of the composition of its members, there are certain advantages associated with it. We will now discuss them briefly, but without excluding those that can also be implemented through other legal forms.

The limitation of liability on the property of the family cooperative offers its members the protection of their own private assets. Because if third parties have claims against the family cooperative, then no personal liability of the members takes place. In the case of a partnership, this is generally quite different, so that a liability to the private assets of the shareholders is hardly avoidable there.

In the event that the family cooperative has to file for insolvency, the statutes may contain a regulation on the additional payment obligation by the members. In this case, it is even possible to exclude an additional funding obligation.

Conversely, a family cooperative can offer the advantage that private claims on one of its members do not require coverage with the assets of the cooperative.

In this context, it may also be of interest to mention that there is no publicity obligation regarding members in a family cooperative. Only members of the family cooperative are entitled to access, as well as third parties who can show a legitimate interest. But also the registry court can demand the presentation of the list of members.

In principle, members of a family cooperative can freely transfer their shares.

However, restrictions can be specified in the statutes. This can create a protective mechanism so that a takeover by third parties is excluded.

One point that facilitates the establishment of a family cooperative is that you do not have to observe any legally prescribed minimum capital, such as for example at the GmbH.

In addition, the amount of shares in a family cooperative as well as the number of purchaseable shares can be freely arranged in the statutes.

In addition, family cooperatives do not have to pay business tax and corporate tax on certain incomes. This applies to income related to agriculture and forestry or rental and leasing.

Lucrative appears to a family cooperative but also that the profit distributions to the members can also be tax-free. Of course, this is also subject to certain conditions. One of these is that the income takes place in the exchange of services with the members.

Since the purpose of a cooperative is very narrowly defined by law, a family cooperative must also pay close attention to ensuring that it is adhered to. At the same time, one must also prevent the family cooperative from pursuing any other purposes than those permitted by law.

So when we try to reconcile these legal requirements with a family cooperative, we have to realize that their main purpose is mostly asset management or even tax avoidance. The same applies, of course, to family cooperatives that operate the company only for the development of their own, common interests, such as a fleet, sports facilities or other leisure activities. Because it should be clear that the tax advantage aspect in particular is in the foreground.

In such a case, one should expect the cooperative examination association to examine the concept of establishing a family cooperative very critically. Where appropriate, the investigating body may establish in its opinion the lack of conformity of the purpose of the family association to be established with the purpose provided for by law. This can prevent the admission of the family cooperative.

However, in the course of this examination, it may also happen that the family cooperative receives the approval. Thus, if the establishment of the family cooperative takes place, but later it turns out that it actually has no legal purpose, then this can lead to its dissolution.

In order: like all cooperatives, a family cooperative is also subject to ongoing examination by a cooperative examination association. If the examination now shows, among other things, that the purpose of the family association does not in any way correspond to the legally predetermined purpose, then it reports this fact to the competent supreme state authority. Thus, an action for dissolution is submitted to the locally competent district court. Consequently, this court decides on the dissolution of the family cooperative. It then finally initiates everything else, so that the register court finally executes the dissolution in the cooperative register.

For the sake of completeness, it should be mentioned that in addition to the highest state authority, the Federal Financial Supervisory Authority (BaFin) is also entitled to initiate this measure. However, this only occurs within the framework of their banking supervision, because this also applies to the cooperative Volksbanken and Raiffeisenbanken.

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Due to the media attention that the family cooperative recently received, the Genossenschaftsverband e.V. was prompted to make a clear statement. In doing so, he comes to the conclusion that the purpose of a family cooperative does not achieve congruence with the statutory purpose of a cooperative. The consequence that one draws from this is that as an auditing association one must refuse to establish a family cooperative. Similarly, it must also be ensured in the context of the ongoing duty test that this legally prescribed purpose is in the foreground.

However, it is the case that cooperatives are members of the cooperative examination associations that they examine. In the past, it was the case that the examination mostly seems serious. However, the increase in the establishment of family cooperatives and investment cooperatives as well as dubious business practices, which have attracted media attention, has led to a tightening of control. In 2020, for example, Baden-Württemberg has taken a Federal Council initiative in order to achieve a legal curbing of the abusive establishment or continuation of investment cooperatives. This should then also have an impact on the attractiveness of the family cooperative as a design model.