Cooperative Establishment

Written by Almer Adiyatma Rahimsyah on 05/08/2024
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

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Introduction

Cooperatives (Koperasi) are member-owned organizations that operate on the principles of mutual benefit, democratic governance, and collective economic empowerment. They serve as a powerful vehicle for individuals to pool resources, share risks, and achieve common goals in various sectors, including agriculture, retail, finance, and services. By prioritizing the needs of their members over profit maximization, cooperatives foster community development, enhance social cohesion, and promote sustainable economic practices.

Definition

According to Article 1, Paragraph 1 of the Cooperative Law Number 17 of 2012

concerning cooperatives, a cooperative is defined as a legal entity established by individuals or cooperative legal entities. This entity operates by separating the wealth of its members as capital to conduct business that fulfills common aspirations and needs across economic, social, and cultural domains, adhering to the values and principles of cooperatives.

The Importance of Cooperative Establishment

Cooperatives play a crucial role in fostering economic democracy and enhancing social welfare. Their importance can be categorized into several key areas:

Economic Empowerment:
Cooperatives empower individuals by providing access to resources, services, and markets that may otherwise be unattainable. This empowerment leads to improved economic conditions for members and their communities.
Community Development:
By promoting local businesses and investing in community initiatives, cooperatives contribute to the overall development of local economies. This fosters sustainable growth and enhances the quality of life for community members.

Social Cohesion:
Cooperatives encourage collaboration and solidarity among members, fostering a sense of belonging and community. This social cohesion is vital for building trust and mutual support within communities.

Democratic Governance:
Cooperatives operate on democratic principles, allowing members to participate in decision-making processes. This inclusivity ensures that the interests of all members are considered, promoting fairness and equity.

Resilience:
Cooperatives can enhance economic resilience by diversifying income sources and reducing dependency on external markets. This resilience is particularly important in times of economic uncertainty.

The Best Time to Establish a Cooperative

The establishment and development of cooperatives can be strategically timed to maximize their impact and effectiveness. Key moments to consider include:

Community Needs Assessment:
When a community identifies specific needs or gaps in services, forming a cooperative can be an effective response. This proactive approach ensures that the cooperative is tailored to address the unique challenges faced by its members.
Market Opportunities:
The emergence of new market opportunities, such as demand for local products or services, presents an ideal time to establish a cooperative. By capitalizing on these opportunities, cooperatives can enhance their viability and sustainability.

Benefits of Cooperative Establishment

Establishing cooperatives offers a multitude of benefits that can be categorized into economic, social, and tax-related advantages:

Economic Benefits:
- Access to Goods and Services: Cooperatives provide members with access to goods and services at lower prices, higher quality, and greater convenience than what might be available individually. This leads to cost savings and improved living standards.
- Increased Income: By generating employment opportunities and distributing profits, cooperatives can enhance the income of their members. This contributes to poverty reduction and improved economic well-being.
- Economic Development: Cooperatives stimulate local economies by creating new businesses and promoting local investment, resulting in increased tax revenues and overall economic growth.
Social Benefits:
- Community Development: Cooperatives support local businesses and invest in community projects, contributing to sustainable development and enhancing community welfare.
- Participation and Empowerment: Members have an equal say in decision-making processes, empowering individuals and fostering a sense of ownership and responsibility within the community.
- Social Cohesion: By working towards common goals, cooperatives foster strong relationships among members, promoting a sense of belonging and shared purpose.
Tax Benefits:
- Tax Advantages for Members: Cooperatives can distribute profits as patronage dividends, which are taxed at lower rates than other income types. Members may also deduct their share of cooperative losses from taxable income.
- Tax Revenues for Governments: Cooperatives contribute to government revenues through sales taxes, property taxes, and other taxes on cooperative activities, supporting public services and infrastructure.

Cooperative Establishment Process

Establishing a cooperative involves a systematic process that ensures compliance with legal requirements and effective organization. The following steps outline the process for establishing a cooperative:

Formation of a Founding Group:
A minimum of 20 individuals is required to establish a primary cooperative, while at least three primary cooperatives are needed to form a secondary cooperative. The founding group should share common economic interests and a commitment to cooperative principles.

Drafting the Articles of Association:
The founding group must create the cooperative's articles of association, which outline the cooperative's objectives, governance structure, membership criteria, and operational procedures. This document serves as the foundational legal framework for the cooperative.

Notarization of the Cooperative Establishment Deed:
The cooperative establishment deed must be prepared in the Indonesian language and notarized by a registered notary. If a notary is unavailable in the area, the sub-district head authorized by the minister can create the deed.

Submission for Legal Entity Ratification:
The application for the cooperative's establishment deed must be submitted to the minister responsible for cooperative affairs. This application should include the articles of association and details about the founding members and management.

Ministerial Review and Approval:
The minister has a maximum of 30 days to review the application. If the application meets legal requirements, the cooperative will receive ratification as a legal entity. If rejected, the founders can reapply within 30 days.

Registration and Compliance:
Once ratified, the cooperative must register with relevant government authorities and comply with ongoing legal and regulatory obligations, including tax regulations and reporting requirements.

How We Can Help

Establishing a cooperative requires a foundation of trust among members, coupled with diligent oversight from supervisors and transparent management from the board. Expert guidance is essential to navigate the complexities of cooperative formation and operation. Putranto Alliance can assist in these processes:

Consultation Services: Professional advisors can offer insights into the cooperative model, helping potential founders understand the benefits, challenges, and requirements of establishing a cooperative.
Legal Assistance: Experienced solicitors can assist in drafting the articles of association and the cooperative establishment deed, ensuring compliance with legal requirements and regulations.
Business Planning: Assistance in developing a comprehensive business plan can help outline the cooperative's objectives, operational strategies, and financial projections, enhancing its viability and sustainability.
Ongoing Support: Continuous support can be provided to cooperatives post-establishment, including guidance on financial management, member engagement strategies, and compliance with regulatory obligations.

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FAQs

What is a savings and loan unit?

A savings and loan unit is a specific business unit within a non-savings and loan cooperative that operates either conventionally or under Sharia principles.

How to choose the best cooperatives?

Selecting a cooperative should involve evaluating its economic and social value, assessing its development trajectory, and gathering information on its management practices.

What are the benefits of joining cooperatives?

Cooperatives provide numerous economic and social benefits for their members and communities. They promote entrepreneurship, generate income and employment opportunities, and reduce costs, contributing to the creation of more equitable and sustainable economies.

What are the legal requirements for establishing a cooperative?

The establishment of a cooperative requires a minimum number of founding members (20 for primary cooperatives and 3 for secondary cooperatives), the drafting of articles of association, notarization of the establishment deed, and submission for legal entity ratification by the relevant minister.

What is the role of members in a cooperative?

Members of a cooperative are both owners and users of the cooperative’s services. They participate in decision-making processes, elect management, and share in the cooperative’s profits and responsibilities.

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