Cooperative shares — return or risk?
What is a cooperative? - The definition
One cooperative is “an association organized as a corporation of an unclosed number of persons or commercial companies, which primarily aims to promote or secure the economic interests of its members in joint self-help or which is organized as a non-profit organization” (Art. 828 OR, https://www.fedlex.admin.ch/eli/cc/27/317_321_377/de#a828). It is therefore a voluntary association of several persons or trading companies with a common goal, which can include economic as well as social and cultural concerns. Typical cooperatives in Switzerland include housing cooperatives, cooperative banks and agricultural collaborations. The cooperative principle is based on community and transparency: Joining or leaving is possible at any time, and each member has equal voting rights (head voting principle), regardless of the amount of their shares.
Basic principles of a cooperative
Cooperatives are based on several basic principles that distinguish them from other forms of business:
- Self-help: Cooperatives aim to help their members in economic, social or cultural matters through collective cooperation.
- Self-government: The members manage the cooperative themselves and make decisions about the general meeting, an administration and a supervisory body.
- personal responsibility: Each member is liable for the cooperative's liabilities and is also the owner and decision maker.
Through the so-called identity principle The members of a cooperative are also its owners and benefit directly from the activities and success of the cooperation.
What are cooperative shares?
To become a member of a cooperative, a written declaration is required, which often includes the acquisition of cooperative shares goes hand in hand. These shares represent a member's capital contribution and entitle him to use the cooperative's services. The number of shares and the amount of the deposit vary depending on the cooperative and can be determined by the cooperative itself.
instance: In a housing cooperative, a member invests in cooperative shares to gain access to housing. It does not own a specific apartment, but a share of the cooperative's total property, which entitles it to pay rent to the cooperative and at the same time has a share in the assets.
- benefits: Members enjoy a high level of residential security and generally have a lifelong right of residence. The shares remain in their possession and can be returned upon withdrawal.
- drawbacks: Cooperatives decide together on the allocation of apartments, so members may face a long waiting period. Repayment of shares may also be delayed, and in some cases an additional fee is due upon entry
Are cooperative shares a sensible investment?
The average interest rate on cooperative shares is around 1.5 to 5% per year. During membership, they can receive annual dividends, but these are capped at some cooperatives and the difference is reinvested in the cooperative. Upon resignation, the purchase price of the shares will be refunded to the members. However, there is no guarantee of profit: Members only receive dividends when the cooperative makes a profit.
tip: The payment of shares and dividends is often offset against outstanding claims from the cooperative if the member has corresponding liabilities.
Risks for members
Cooperative shares offer an attractive opportunity to benefit from stable dividends and at the same time the purpose of the cooperative. However, there are also risks: In the event of insolvency of the cooperative, members are liable with their contributed capital and bear the full business risk. If a cooperative makes losses, the members can even be required to pay an additional contribution in the articles of association.
Important: Before you purchase cooperative shares, you should find out about the financial situation and statutes of the cooperative, including the rights and obligations of the members as well as the areas of investment (e.g. exclusively for members' apartments).
.png)