The Centre for Co-operative Studies is a research centre based at UCC, which promotes education, training and research into co-operatives, social enterprises and local development. Co-operatives are jointly owned and democratically controlled businesses that provide goods and services to their member owners who work together for mutual benefit. They act as a means of facilitating collective action in many sectors of the economy, including financial services; housing; food processing and marketing; retailing; community, health and other social care services; and enterprise and development. The International Co-operative Alliance, an apex body for co-operatives, estimates that it represents close to 1 billion members of co-operatives, which employ 250 million people and generate more than US$2 trillion in turnover across the world.
The intention of the proposed amendment to sections 5 and 9 is to reduce the number of members required to establish a co-operative from seven to three. As mutual organisations, a distinct feature of co-operatives is that a group of people come together with a shared purpose to meet their common needs. In many cases, this will necessitate a comparatively large group of people, such as for agricultural processing or marketing, the provision of utilities such as water or housing, or retailing, where a large membership base may be needed to achieve economies of scope and scale and the services provided by the co-operative to members, or potential members, are likely to be in considerable demand. However, in other situations, the number of initial members needed to form a co-operative is likely to be much lower. For example, in the case of worker or employee-owned start-up co-operatives, which can operate in any sector of the economy, the initial membership base may be more similar to conventional, non-co-operative start-ups. There is some evidence that a requirement to have a minimum of seven members is high for groups wishing to operate as a co-operative, and it is likely to be higher than the average numbers involved in start-up companies in Ireland.
Consequences of the requirement to have seven members at the outset for such co-operatives may include potential co-operatives choosing other models of incorporation that may not align with the co-operative ethos and practice or with the ideals of the owners, and the use of proxy members.
By way of international comparison, the co-operatives unit of the International Labour Organization, ILO, which is an agency of the United Nations, UN, collates the minimum number of co-operative members required to register a co-operative among member states. Of member states, the United Kingdom, Canada, Italy, Spain, Germany, Finland, Japan, Belgium, the Czech Republic and Uruguay have a requirement for three members. Other countries require a higher number but many require three. Work in progress by the International Co-operative Alliance reports that in the countries where worker co-operatives are well developed, the minimum number of founding members is low, such as two in France, and three in Italy and Spain.
The proposed amendment will bring the legislation more in line with international practice and companies legislation in Ireland. It will also address ILO recommendation No. 193 of 2002, which applies to all types and all forms of co-operatives. The recommendation indicates that "cooperatives should be treated in accordance with national law and practice and on terms no less favourable than those accorded to other forms of enterprise and social organization"; that "governments should provide a supportive policy and legal framework consistent with the nature and function of cooperatives and guided by the cooperative values and principles"; and that they should "establish an institutional framework with the purpose of allowing for the registration of cooperatives in as rapid, simple, affordable and efficient a manner as possible".
Co-operatives in many sectors of the world and many sectors of the economy are diverse, may develop in novel ways in the future and should not be hampered from doing so. Worker co-operatives are few at present in Ireland and perhaps not sufficiently attended to in the current legislation. Changing the minimum number may be helpful and is unlikely to have much of a cost implication. A counter argument could be made, however, that reducing the number to three could lead to misinterpretation of what a co-operative is, namely, an organisation committed to providing solutions on a mutual and voluntary basis, open to all who can use its services and share in its benefits. In this context, three would make little sense for many co-operative sectors aiming to provide a service widely, such as the traditional sectors of credit and agriculture. As I mentioned, however, there are cases where a requirement for seven members sets the bar quite high, such as in enterprise development or new areas that might include youth employment initiatives, which are of particular interest to the committee.
It is important to remember that the proposed legislation, and legislation in general, is just one piece of the jigsaw of co-operative development. A range of other supports and easily accessible information on co-operatives is required to facilitate better use of the model. When promoted by co-operative development unit in the 1980s and 1990s, with support from the Government, trade unions and others, there was a marked uptake of the model. Similarly, support from Údarás na Gaeltachta over the years has seen a community co-operative sector emerge. Countries that provide such supports tend to have a vibrant co-operative sector.
On balance, we support the proposed amendment to reduce the number of members required to establish a co-operative to three. It will make registration easier and we do not envisage any significant unintended consequences.
The intention of the amendment to section 14 is to make regulations exempting specified classes of society from the obligations to file annual returns and other specified documents relating to the annual returns. The Bill's sponsor, Deputy Clare Daly, has acknowledged that part of the amendment will require some rewording or redrafting. In a small but recent study we conducted at University College Cork, we examined co-operative start-ups, how people use the co-operative model, what facilitates them and what barriers they have experienced. We found that members of small-scale co-operatives felt that what was required of them in respect of audited accounts and returns was disproportionate to the scale of operations and was scarcely different from the application of larger co-operatives. The audit requirement can be a costly, administrative burden on small societies but there are clear benefits to having audited accounts, such as transparency and trust. We recommend retaining the requirement for annual returns and audited accounts, while allowing specified societies to apply for an audit exemption under certain conditions, which might include an asset size or turnover threshold, or the criteria as outlined by ICOS, as is the case in companies legislation.
We need not spend much time on the use of electronic communication. As of December 2018, the RFS online portal has been available and I believe that takes care of it.