A new Co-operatives Act (the "Act") will come into effect in Finland on 1 January 2014. According to the government proposal, the goal of the reform is to update the operational preconditions of co-operatives to correspond to the demands of modern business operations and to strengthen the competitive position of Finnish co-operatives.

The Act will simplify the process of incorporating a co-operative, reduce governance obligations, and facilitate the process of acquiring capital from members and investors. The Act also aims to increase the usability of co-operatives as a company form. Co-operatives' operational preconditions are improved by the addition of more non-mandatory regulation. Freedom of contract is expanded, particularly in regard to shareholder equity financing. Furthermore, the restrictions and form requirements stipulated by the Act are made less stringent.

The position of members, managers, investors, creditors, and other interest groups is improved through regulatory clarification and by emphasizing co-operatives' duty of disclosure without burdening co-operatives with significant extra costs.

The Act is based on the Limited Liability Companies (LLC) Act of 2006 and, the regulation is partly identical and uses the same wording as the LLC Act. The first chapter of the LCC Act is dedicated to the essential principals of LLCs, and, likewise, the first chapter of the Act focuses on the principles of co-operatives. This assists in understanding the content and the purpose of the more detailed sections in the following chapters.

The regulation dealing with the special characteristics of co-operatives in the Act is largely identical to the principles expressed in the Co-operatives Acts of 1954 and 2001. However, the wording of some sections is amended to correspond with modern Finnish. One significant difference between a co-operative and a LLC is that a member of a co-operative can be dismissed if the requirements set in section 3 of chapter 3 are fulfilled. In contrast, shareholders cannot be dismissed from an LLC; hence the LLC Act contains no such provision.

The Act caters specifically to the needs of small co-operatives, which form the majority of Finnish co-operatives. For example, it enables the incorporation of a co-operative by only one or two members.

Another significant revision is included in section 4 of chapter 4, which stipulates that a co-operative may choose whether or not its shares have a nominal value. Moreover, according to section 4 of chapter 2, the subscription price of shares will be credited to the share capital unless it is provided in the incorporation instrument or rules that a part of it is to be credited to the reserve for invested unrestricted equity or unless it is otherwise provided in the Accounting Act (1336/1997).

There are around 5,000 co-operatives in Finland, of which 4,466 are water co-operatives. According to the Ministry of Justice, the goal is that current co-operatives do not need to change their mode of operating because of the Act. The intent of the transitional provisions is that the Act will not cause co-operatives and their interest groups unnecessary costs or other difficulties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.