The
Farmer Professional Co-operatives
Law, 2006
Passed by
the 24th Sessions of the 10th National People’s Congress
on October 31, 2006
Unofficial translation
Table of Contents
Part I Interpretation and Application
Part II Incorporation and Registration
Part III Members
Part IV Organizational Structure
Part V Financial Management
Part VI Merging, Reorganization, Dissolution and Liquidation
Part VII Support Measures
Part VIII Legal Liabilities
Part IX General
Part I
Interpretation and Application
1. The Farmer Professional Co-operatives Law, 2006 addresses all legislative areas concerning farmer professional co-operatives (hereinafter referred to as “Co-operatives”). Its purpose is to facilitate and direct the development of farmer Co-operatives, standardize organization and behaviors of them, protect legal interests of Co-operatives and members, and foster growth of agricultural and rural economy.
2. Co-operatives are self-help organizations which are associated voluntarily and controlled by producers of same agricultural products or service providers and users of same agricultural business operations. The farmer Co-operatives are based on the rural household contract system.
Farmer Co-operatives focus on the needs of their members, which includes the purchase of agricultural inputs, marketing, processing, transportation, storage of agricultural products and provision of information and technologies.
3. The farmer Co-operative shall comply with the following principles:
(a) farmers play the dominant role among its members;
(b) the key purpose is to serve members and act in the common interests of all members;
(c) the members shall join and exit voluntarily;
(d) all members are equal and Co-operatives are democratically controlled;
(e) surplus should be redistributed based on the volume of members’ patronage.
4. Registration shall be made by the farmer Co-operatives; then legal entities will be granted to them.
The farmer Co-operatives’ assets include capital raised by members, accumulated surplus, government direct financial support, grants from other parties and other sources; the Co-operatives have the right to own, use and dispose of them and take liabilities for debts with such assets.
5. Liabilities of members of Co-operatives are limited to their contribution and shares of the accumulated surplus in their personal accounts.
6. The state protects all legal interests of farmer Co-operatives and their members, any individuals and agencies are not allowed to violate them.
7. Running and operation of farmer Co-operatives shall comply with laws, regulations, social norms, and business ethics and be undertaken in an honest and credible manner.
8. The State will facilitate the development of Co-operatives by providing financial support, tax breaks, banking services, technical assistance, human development and direction of industrial policies.
The State encourages civil society to provide services to farmer Co-operatives.
9. The level of government that is at county and higher level should organize local agricultural bureaus and line agencies to provide support and services to formation and development of farmer Co-operative within their jurisdictions pursuant to the Law.
Part II
Incorporation and Registration
10. A farmer Co-operative can be incorporated when it meets the following conditions:
(a) subject to sections 14 and 15, a minimum of 5 persons are required to apply for incorporation;
(b) a bylaw pursuant to the Law;
(c) a organization structure pursuant to the Law;
(d) a registered office pursuant to legal, regulatory and bylaws;
(e) share capitals contributed by members pursuant to the bylaws.
11. The first meeting of the founding members should be held with the participation of all founding members. When the Co-operative is incorporated, persons who want to be members voluntarily will be founding members.
The agenda of the founding members’ meeting must include:
(a) the adoption of the bylaws prescribing the rules of administration of the Co-operative;
(b) the election of members of the Board of Directors, of the Director of the Board of Directors, and of executive members or members of the Supervision Committee;
(c) the review of other key issues.
12. A Co-operatives should include bylaws relating to:
(a) name and address of office;
(b) business activities;
(c) the qualifications, withdraw, cease and termination of membership;
(d) members’ right and obligations;
(e) organization structure and origination of it, authority, terms of office and rules of decision-making;
(f) amount of membership fees and way of contributing;
(g) financial management, allocation of surplus and pay-off of deficits;
(h) procedures to amend the bylaws;
(i) application of dissolution and methods of liquidation;
(j) public disclosures and ways;
(k) others need to be specified.
13. The incorporators shall apply for incorporation by sending to the registrar- Industry and Commerce Bureau:
(a) the articles of incorporation in the prescribed form;
(b) minute of founding members’ meeting which are signed and sealed by all the founding members;
(c) the bylaws signed and sealed by all founding members;
(d) office and identification documents of legal first Director and other Directors;
(e) the prescribed fees signed and sealed by members;
(f) document for use of office;
(g) other papers pursuant to legal and regulatory documents.
The registrar will complete the process within 20 days of the application and issue certificate of incorporation to the incorporators who meet relevant conditions.
The Co-operative shall send articles of amendment in the prescribed form to the registrar.
The regulation on Registration of farmer Co-operative will be made by the State Council. There are no registration fees.
Part III
Members
14. Every citizen, firm, government-affiliated agency or civil society organization, who is engaged in activities associated with co-operatives, who can make use of services provided by the Co-operative, who subscribes to the articles of incorporation and has agreed to abide by the bylaws and other procedures, is deemed to have agreed to become a member of the Co-operative and, on incorporation of the Co-operative, is to be entered into the Co-operative’s register of members. However, agencies that have public administration function shall not become a member of Co-operative.
A name list of members shall be prepared by the Co-operative and sent to the registrar.
15. No less than eighty percent of a Co-operative’s members should be farmers.
In Co-operatives whose number of members is less than 20, one company or government-affiliated agency or civil society organization can become a member; in those whose number exceeds 20, the number of companies, government-affiliated agencies and civil society organization (legal entities) cannot exceed five percent of the total number of members.
16. A member of a Co-operative is entitled to exercise the following rights:
(a) is entitled to control the Co-operative democratically by voting at the General Meeting, and is eligible to be a Director;
(b) makes use of services and facilities provided by the Co-operative;
(c) is entitled to receive surplus pursuant to the bylaws or decisions made by the General Meeting;
(d) has access to the bylaws, name list, meeting minutes of the General Meeting or delegates meeting, decisions made by the Board of Directors and Supervision Committee, financial statements and book-keepings;
(e) other rights pursuant to the bylaws.
17. No member or delegate is entitled to more than one vote in the General Meeting.
A Co-operative may provide in its bylaws for classes of members whose share of patronage or capital contribution are relatively bigger can vote separately. Votes they cast cannot exceed twenty percent of the total. The number of members of this class should be disclosed to other members when each General Meeting is held.
The bylaws can have restriction on areas of vote entitled to this class of members.
18. Members shall take the following obligations:
(a) comply with decisions mad by the General Meeting, delegates meeting and Board of Directors;
(b) contribute capital pursuant to the bylaws;
(c) make transaction with the Co-operative pursuant to the bylaws;
(d) pay-off deficits pursuant to the bylaws;
(e) other obligations laid down in the bylaws.
19. A member may withdraw from a Co-operative by making an application three months before the end of a fiscal year; of which, the member who is company, government-affiliated agency or civil society organization, their application for withdrawal should be made six months before the end of a fiscal year; a member also may withdraw from a Co-operative on any terms and conditions provided in the bylaws. A membership is terminated at the end of a fiscal year.
20. A member shall continue to enforce contract with a Co-operative before termination of membership; or on any terms and conditions provided in the bylaws or separate arrangement made with a Co-operative.
21. A membership is terminated, the Co-operative shall: within a period of time provided in the bylaw, purchase from member at par value all shares in the capital stock of Co-operative held by the member; and pay to the member all amount held to the member’s credit; subject to 37 (b), pay dividends to the member before membership is terminated.
The member whose membership is terminated shall shoulder deficits and debt obligations before the termination comes into effect.
Part IV
Organizational Structure
22. The General Meeting is presented by all the members of a Co-operative, it is the governing body of a Co-operative; the agenda of a General Meeting must include:
(a) the adoption and amendment to the bylaws;
(b) the election of members and first Director of Board of Directors, acting supervision members or member of Supervision Committee;
(c) a sale, lease or exchange of all or substantially all of the property of a Co-operative, investment, pledge creates security interests in all or any property of the Co-operative, and other key decisions;
(d) approve annual work report, scheme of allocation of surplus and deficits;
(e) resolution on amalgamation, split, dissolution and liquidation;
(f) number, qualification and term of office of management;
(g) report made by Director of the Board of Directors or the Board of Directors about changing of its members;
(h) others provided in the bylaws.
23. When the General Meeting of a Co-operative is held, the number of members who are present should be more than two thirds of the total of it.
Election and resolution shall be made and approved by half of votes cast at a General Meeting; amendment to the bylaws or amalgamation, split, dissolution shall be approved by two thirds of votes cast at a General Meeting. Or otherwise provide in the bylaws which specifies higher percentage of member approval.
24. At minimum a General Meeting of a Co-operative shall be held once a year, the call of meeting is provided at the bylaws. In any of following cases, a special meeting should be called:
(a) receipt of request made by thirty percent of members;
(b) called by acting Supervision Committee member or Supervision Committee;
(c) others provided at the bylaws.
25. A structure of delegation can be used for Co-operatives whose number of members exceed 150, subject to the bylaws. The meeting of delegates can exert part or all rights of the General Meeting as provided in the bylaws.
26. A Co-operative shall appoint a Director or Board of Directors and other members of the Board of Directors. The Director is the legal representative of the Co-operative.
A Co-operative may appoint an executive supervisor or a Supervision Committee. The Director, members of the Board of Directors and management may not assume the role of Supervision Committee member.
The Director and members of Board of Directors, and the executive supervisor or members of the Supervision Committee are elected by the General Meeting, subject to this Law and the bylaws, to exercise powers are accountable to the General Meeting.
For decisions made by Board of Directors and Supervision Committee, no member is entitled to more than one vote.
27. Minutes are to be kept of: all resolutions and proceedings at General Meetings, Board of Directors and Supervision Committee with seals of all members, Board of Directors members and Supervision Committee members.
28. Subject to the decisions made by the General Meetings, the Board of Directors may, from time to time: hire managers and accountants, who can also assume management positions. Subject to the bylaws or decisions made by Board of Directors, manager can hire other staffs.
Subject to the bylaws or delegated power of the Board of Directors, manager manages business and affairs of the Co-operative.
29. The Board of Directors and management of a Co-operative shall not:
(a) appropriate, use or allocate property of a Co-operative without authorization of members;
(b) without authorization of members and not pursuant to the bylaws, lend money on the debit of the Co-operative or hypothecate and pledge create a security interest in all or any of property of the Co-operative, owned or subsequently acquired, to secure any debt obligation of the Co-operative;
(c) receive and retain commissions of transactions with the Co-operative;
(d) undertake activities contrary to the interests.
Members of Board of Directors and management’s incomes generated from the above activities will be confiscated by the Co-operative; loss-making from such activities will be made up by them.
30. Members of Board of Directors and the management of a Co-operative shall not assume positions of members of Board of Directors and management of other Co-operatives that are undertaking similar business.
31. Civil servants who are engaged in the operation of a Co-operative shall not assume such positions as members of Board of Directors, members of Supervision Committee, management or accountants.
Part V
Financial Management
32. Subject to relevant laws and regulations, the Finance Department of the State Council shall develop accounting practice for farmers professional Co-operatives. The Co-operatives should undertake book keeping in compliance with such accounting practice.
33. Subject to the bylaws, Board of Directors shall prepare an annual work report, a plan for allocating of surplus or paying off deficits incurred, and financial statements; these documents should be ready for inspection by members 15 days before the General Meeting takes place.
34. A Co-operative shall keep separate accounts for transactions with members and non-members.
35. Subject to the bylaws or decisions made by the General Meeting, the Co-operative may set aside any part of surplus in reserves. The reserves may be used to pay off deficits incurred, to expand business or to credit to members’ capital contribution.
Subject to the bylaws, reserves shall be credited to the members’ accounts.
36. Co-operatives shall open an account for each member, which includes:
(a) the member’s capital contribution;
(b) the member’s amount of reserves;
(c) the member’s patronage or business volume with the Co-operative.
37. Where a Co-operative has a surplus in a fiscal year, before it allocates the surplus among or credits it to members, the Directors should use any part of the surplus to pay off deficits incurred previously and for any reserve it is required to maintain.
Subject to the bylaws or resolutions made by the General Meeting, the Directors may allocate and credit or pay to members the remains after making provision for the matters described in the preceding paragraph:
(a) in proportion to the business done by the members with or through the Co-operative in that fiscal year, total patronage dividends may not be less than 60 percent of the remain of surplus;
(b) the surplus after making payment of patronage dividend shall be allocated to members by computing the proportions of each member’s capital contribution, reserves, government subsidies and other grants.
38. Executive supervisors or Supervision Committee that are elected by members of co-operatives shall conduct internal audit of their own co-operatives, the results of such audit will be reported to the General Meeting.
The General Meeting may make resolutions to contract auditors to audit the financial statements.
Part VI Merging, Split, Dissolution and Liquidation
39. Merging of Co-operatives. Within 10 days of merging decision is made, a written notice shall be sent to each known creditor. The merged Co-operative will inherit all assets and liabilities of each of the merging Co-operatives.
40. When a Co-operative is split, its assets shall be split as well, and a written notice shall be sent to each known creditor. The splitting Co-operatives will take joint obligations for paying liabilities as they become due, unless a written agreement is entered into with creditors for liabilities.
41. A Co-operative may be dissolved for the following reasons:
(a) in such cases as specified by the bylaws;
(b) through a dissolution resolution made by the General Meeting;
(c) a dissolution due to merger or split,
(d) if its business license is terminated or removed by the court.
When a Co-operative is dissolved pursuant to sub-section (a) (b) or (d), liquidators shall be appointed by the General Meeting within 15 days after the special resolution of dissolution. When no liquidators are appointed within the time span specified, members and creditors can make an application to the court to appoint liquidators, the court shall make an order to appoint liquidators.
42. On the appointment of liquidators, all the powers of Directors vest in the liquidators, carry on the business of the Co-operative as required as for an orderly liquidation, settle or compromise any claims by or against the Co-operatives, distribute the remains of assets after paying for all claims against the Co-operative, bring, defend and take part in any civil, criminal and administrative action or proceeding in the name and on behalf of the Co-operative, after paying or making adequate provision for all claims against the Co-operative, the liquidator shall apply to the registrar for approval of the final accounts and issuing a certificate of dissolution.
43. Liquidators shall give notice of appointment within 10 days it is made to all members and each claimant and creditor and publish notice of appointment in the Gazette within 60 days it is made. Any person who has a claim against the Co-operative is required to present details of the claim in writing to the liquidators not later than 30 days after receipt of notice or no later than 45 days after the first publication of the notice. If all members and creditors receive the notice within specifieid period of time, liquiditors dont need to publish notice.
Any person who has a claim against the Co-operative is required to present particulars of the claim in writing to the liquidators. The liquidators shall maintain separate list of creditors.
The liquidators shall not pay for the discharge of its obligations during the notice.。
44. When a Co-operative is dissolved for the reason described in 41(a), or when it is brought to the court for bankruptcy, the members shall not apply for withdrawal from the Co-operative.
45. Subject to approval of the General Meeting or court order, the liquidators can work out scheme for paying for staffs’ salaries and insurances, settling or compromising any claims by or against the Co-operative.
Where at anytime the liquidators determine that the Co-operative is unable to pay or adequately provide for the discharge of its obligations, the liquidators shall apply to the court for bankruptcy.
46. The government’s direct financial support shall not be allocated to members as property left after liquidation. How to allocate the kind of property will be stated in Regulation of the State Council.
47. Liquidators shall be accountable and carry out liquidation pursuant to the law. The liquidators shall pay compensation to the members and creditors for the mistakes they make on purpose or unintended.
48. The Bankruptcy Law applies to Co-operatives. After paying the cost of liquidation and claim against a Co-operative, the remaining money shall be use to pay unsettled bills of transactions with farmers members.
Part VII Support Policy
49. The State can entrust farmer Co-operative to implement rural and agricultural development projects.
50. The central and local governments shall provide funding to support Co-operative’s activities such as information, training, quality standard and certification of agri-products, agricultural facilities, marketing and extension. Preferential treatment will be given to Co-operatives who are running in ethnic minorities’ area, remote area and poor area and those who are producing products which are urgently needed by the state and civil society.
51. The State policy financial institutions shall provide various source of funding to farmer Co-operatives. The specific polices will be made by the State Council.
The State encourages commercial financial institutions to provide various financial services to Co-operatives.
52. Co-operatives qualify for tax breaks in agricultural production, processing, marketing services and other farming activities as stipulated by the government.
Other tax breaks designated for Co-operatives will be made by the State Council.
Part VIII Legal Liabilities
53. Any person who has concealed, misappropriated or withheld any property of a Co-operative, or any person who has made unlawful intervention of operation of Co-operative, or any person who has levied unlawful fees to a Co-operative, or any person who has forced a Co-operative to pay for some services and make them lose money, will be brought to the court.
54. If a Co-operative has obtained its incorporation by fraud, the registrar will order it to make corrections within a specified time span; for cases of severe violations, it will be ordered to be dissolved.
55. A Co-operative that provides fake or false facts in its financial statements will be brought before the court.
Part IX General
56. This Law will come into force on July 1, 2007.
