Co-operatives Act, 2005 (Act No. 14 of 2005)

Regulations

Principles of Good Governance for Co-operatives

11. Capital of Co-operatives
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Co-operatives capital generally comes from either members by way of share capital, or retained earnings or reserves. Retained earnings or reserves do however take time to build up, and are not available at start-up. Funding can also be provided by co-operative funding institutions including banks.

 

The 3rd co-operative principle deals with member economic contribution. This principle requires members to contribute equally in amounts proportionate to their membership shares and to democratically control the capital of their co-operative, usually by—

(i)Retaining part of the capital as common property of the co-operative;
(ii)Giving members limited compensation, if any, on capital subscribed as a condition of membership;
(iii)Allocating surpluses to an indivisible reserve subject to minimum and maximum requirements, or any other reserve as stipulated in the constitution of the co-operative or as considered necessary or desirable by the members of the co-operative; and
(iv)Benefit members in proportion to the rand value of their transactions with the cooperative.

 

South African co-operative legislation requires co-operatives to stipulate a percentage of the surplus to be set aside as an indivisible reserve provided that such reserve must not be less than one percent and not be more than 5 percent of the net asset value of the co-operative as reflected in its most recent audited report, independently reviewed report or annual report.

 

The capital contributed by members may comprise of entrance fees, membership fees or subscriptions, the consideration of membership shares or additional shares in a co-operative, member-loans, and funds of members.

 

The return paid on member capital is limited to the maximum percentage fixed in accordance with the constitution of the co-operative.

 

11.1        Indivisible reserve and other reserves

 

Co-operatives are required to put at least a percentage of the surplus in an indivisible reserve. The indivisible reserve is indivisible amongst members. The indivisible reserve must not be less than 1% or more than 5% of the net asset value as reflected in the most recent audited report, independently reviewed report or annual report. A social co-operative may set aside 100% of its surplus in an indivisible reserve.

 

In addition to the above indivisible reserve the constitution of the co-operative may provide for other reserves, whether indivisible or otherwise.

 

A co-operative must use its reserves only in accordance with the manner and for the purpose contemplated in its constitution which may include—

(a)To sustain the co-operative during periods of financial crises;
(b)To finance capital expenditure; and
(c)To finance training and capacity building of members, directors, managers or employees.

 

Records of the indivisible reserve and other reserves must be kept separately in the financial records of the co-operative and must indicate the purpose for which it may be utilized.

 

A co-operative must report fully on all its reserves as well as on the use of these reserves in its annual financial statements.