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Reflection on the compensation of losses against the share capital, in agri-food cooperative societies, with limited liability, and with the power to refuse the return of the share capital to the members (most common scenario in well-managed cooperatives).

Law 27/1999 on Cooperatives constitutes the general regulatory framework, applicable to cooperatives that carry out their activity in the territory of several Autonomous Communities. And Law 20/1990, of December 19, on the Fiscal Regime of Cooperatives, with some subsequent modification, establishes the fiscal framework.

Agri-food cooperatives are those that associate owners of agricultural, livestock or forestry farms, including the owners of these farms, under a shared ownership regime; whose purpose is to carry out all types of activities and operations aimed at making better use of the farms of its members, its elements or components of the cooperative and the improvement of the agricultural population and the development of the rural world.

In this type of cooperatives, the fluctuation of results between good and bad years is common. There are years of significant losses that must be attributed to the partners, due to bad harvests, weather, etc.

The compensation of losses of a cooperative is subject to special rules. In principle they will be offset against accumulated reserve funds. However, any amount not compensated from the voluntary and mandatory funds must be attributed to the partners. As occurs with the application of surpluses, the attribution of losses to members will be carried out in proportion to the operations, services or activities carried out by each of them in the cooperative.

The creation of “a special account” is also allowed to compensate for losses, charged to future positive results, which may well be called “negative results from previous years”, and which has a maximum time limit of 7 years, to be absorbed by the positive results. Otherwise, the partners must replace the differential with other options.

The spirit of compensation for losses is the replacement to the cooperative's assets of the financial loss caused by the losses. However, it can be read that the compensation limit is the partner's Share Capital. And this makes sense in cases of dissolution of the entity, due to the limited nature of the partner's liability.

The partner's Social Capital is also sometimes used to offset his or her share of the year's losses, but this procedure does not make sense.

Some considerations on the nature of Social Capital.

In cooperatives each person has one (or weighted) vote and all votes have the same value. Social Capital is not linked to political rights and this makes contributions more of a financing component than a power structure.

Regarding the consideration of own funds or liabilities, of the Share Capital, we can usually speak of own funds, because the returns of contributions to the Share Capital can be refused by the Governing Council, according to the provisions of the corporate statutes, if it has been collected good. Despite this, the variability of Social Capital is frequent and logical, which allows the entry of new partners and their departure.

Thus, the compensation of losses should be made with the equity accumulated in the voluntary or mandatory funds, or maintained in “negative results from previous years” to be compensated with subsequent benefits within a period of 7 years, or through the contribution of “cash ” by members based on their participation in the activities. Even contributing Social Capital to compensate for the financial deficit. But it does not precede, in my opinion, a compensation of losses against the previous Social Capital of the cooperative member, when it also turns out that the return can be refused according to the statutes. This operation therefore does not really replace the financial loss that the cooperative suffers due to losses, and it simply becomes an aesthetic issue, losses are “erased” and Social Capital is “erased”, having to finally go to a financial institution, to replenish the financial situation.

Jose Antonio Fuertes Sierra
EUDITA AUDITEBRO, SA

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