COOPERATIVES

PART I: DEFINITION AND LEGAL ORIGIN OF THE COOPERATIVE

Unlike commercial companies, cooperatives are special structures established with a focus on "meeting the needs of their members" rather than "making a profit," and they acquire their legal existence subject to strict formal requirements.

1. Definition and Characteristic Features of Cooperatives (Article 1)

The law defines the cooperative not merely as a business, but as a mechanism for "mutual assistance and solidarity."

• Legal Entity: A cooperative is a legal entity independent of its members.
• Variable Membership and Capital: This feature is the most distinctive characteristic of a cooperative. As the number of members increases, the capital automatically increases, and as it decreases, it decreases. Unlike joint-stock companies, it is not necessary to amend the articles of association each time a "capital increase" occurs.
• Solidarity and Guarantee: A cooperative is not just a capital-based organization, but also a union of "guarantee" and "solidarity."

2. Establishment Process and Validity Conditions (Articles 2-3)

The establishment process was simplified bureaucratically with the changes in 2018, but its rigor was preserved.

• 7 Partner Requirement: A minimum of 7 founding partners is a legal requirement for the establishment of a cooperative.
• Formal Requirement: The articles of association must be signed in the presence of authorized personnel at the Trade Registry Directorate. This ensures the reliability and transparency of the transaction.
• Ministry Approval and Registration: The articles of association are submitted to the Ministry of Trade. After obtaining the Ministry's approval (permission), the cooperative registered and announced in the Trade Registry .
• Acquisition of Legal Personality (Article 7): The cooperative acquires legal personality upon registration. Those acting on behalf of the cooperative before registration (founders) personally and jointlyliable for their actions.

3. Articles of Association: The Constitution of the Cooperative (Articles 4-6)

The law divides the articles of association into three types of provisions:

A. Mandatory Provisions (Article 4)

If these clauses are not included in the contract, the cooperative cannot be established.

• Level of Liability: The extent to which partners will be liable for debts (limited, unlimited, or with additional payments) must be clearly stated.
• 1/4 Capital Requirement: It is a mandatory provision that at least one-quarter of the cash capital must be paid in advance at the time of establishment.

B. Optional Provisions (Article 5)

These are areas left to the discretion of the partners. The duration of the cooperative or its relations with associations fall into this category.

C. Interpretive Provisions (Article 6)

If the articles of association leave certain gaps (for example, the procedure for calling a meeting), the law comes into play. For instance, if not specified in the contract, the call registered mail, a local newspaper, or an online news site .

4. Protection of Name and Title (Article 2)

The title "Cooperative" applies only to organizations established under this law. Furthermore, the use of the names of public institutions (e.g., "National Education Cooperative," using the institution's name directly) in titles is prohibited. This provision aims to prevent consumers and third parties from being deceived by the assurance of a "public authority.".

5. Special Facilitations for Housing Cooperatives

The law has accelerated the process by accepting the commitments of housing cooperatives to transfer real estate (transfer title deeds) to their members as valid without requiring any other formal procedure (such as a notary).

PART II: ACQUISITION AND LOSS OF PARTNERSHIP STATUS

1. Entering into the Partnership: The Process of Will and Acceptance (Articles 8-9)

Cooperative membership is a contractual relationship subject to specific conditions.

• Legal Capacity and Application: Individuals must possess the legal capacity to exercise their civil rights. The application is made in writing , stating that the applicant accepts all the rights and obligations of the articles of association .
• Role of the Board of Directors: The board of directors must finalize the application within one month . This is a mandatory period to prevent arbitrariness.
• Limited Capacity (Construction Cooperatives): In construction cooperatives, the number of members cannot exceed the number of residential or commercial units to be constructed. This aims to maintain the financial and physical balance of the project.
• Publicly Funded Cooperatives: In cooperatives receiving public support, acceptance of eligible members is mandatory; the board of directors does not have the authority to refuse membership (in order to protect democratic participation).

2. Withdrawal from Partnership: “Open Door” and its Limits (Articles 10-13)

One of the fundamental principles of cooperatives voluntary participation and withdrawal. However, this right should not jeopardize the financial stability of the cooperative.

• Freedom to Leave: No one can be forcibly retained in the cooperative; agreements to the contrary are null and void.
• 5-Year Restriction: To protect the cooperative's investments, the right to withdraw may be restricted for a maximum of 5 years .
• Timing: Exits are generally for the end of the fiscal year and require six months' notice.
• Notarization: If the board of directors does not accept the resignation, the partner's departure is legally considered complete when they send a notice through a notary public.

3. Transfer of Partnership and Inheritance (Articles 14-15)

Partnership status is not merely a personal right; it is an economic value.

• Inheritance: If a partner dies, the partnership ends; however, the continuation of the partnership can be ensured for the heirs through the articles of association.
• Transfer: Partnership rights can be transferred to another person. If the transferee meets the partnership requirements, the board of directors is obliged to accept that person.
• Joint Ownership of Property (Article 15): In some cases, joint ownership may be linked to the ownership of a real estate property (e.g., a housing complex or business). In this case, a note is made in the land registry, and when the ownership changes hands, the joint ownership automatically passes to the new owner.

4. Expulsion from Partnership and Right to Defense (Article 16)

Expulsion of a partner from the cooperative is the most severe sanction and is subject to very strict procedural rules.

• Written Reasons Only: A partner can never be expelled for a reason not explicitly stated in the articles of association.
• Procedure: The decision to expel a member must be made by the board of directors (or the general assembly), must be reasoned, and must be notified through a notary public
• Appeal Procedures: The partner has the right to file a lawsuit in court or appeal to the general assembly within 3 months of receiving the notification
• Finality Condition: Until the expulsion decision is finalized by the court or the general assembly, the partner's rights (voting rights, etc.) continue, and no new partner can be admitted in their place.

5. Settlement with the Departing Partner (Article 17)

A person who leaves or is expelled from the cooperative may claim their monetary rights within the cooperative.

• Calculation: Payments are calculated according to the balance sheet of the year in which the investment was made (excluding reserves).
• Payment Delay: If mass layoffs threaten the cooperative's existence, the general assembly may postpone these payments for up to 3 years .
• Statute of limitations: Claims of a departing partner 5 years are filed within that timeframe.

PART III: RIGHTS AND OBLIGATIONS OF PARTNERS

1. Partnership Certificates and Shares (Articles 18-19)

The rights of each member joining the cooperative are represented by a certificate.

Means of Proof: A partnership agreement is not a negotiable instrument (like a check or promissory note); it is merely a document proving the partner's rights and payments made.

Share Value and Limit: Each member must acquire at least one share. The value of one share is 100 TL (the Ministry may increase this). A member can pledge a maximum of 5,000 shares. This limit is in place to prevent the cooperative from falling under the financial dominance of a single individual.

Creditors' Situation: Personal creditors of a partner cannot directly seize the partner's share in the cooperative or their house; they can only seize the partner's share of the profit (income-expense difference) and liquidation share.

2. In-Kind Capital and Valuation (Articles 20-22)

Partners can contribute not only money to the cooperative, but also real estate, machinery, or a business (in-kind capital).

Expert Assessment: It's not enough to simply say, "I determined the value of the goods." Experts elected by the general assembly or appointed by the court will determine the value.

Transparency: The expert report is sent to the shareholders and voted on before the general assembly.

3. Right to Information and Equality (Articles 23-26)

The cornerstone of cooperative movements is democracy.

Equality of Rights: Every partner is equal in rights and obligations, regardless of their share.

KOOPBIS Period: With the 2021 amendment, the board of directors is obliged to make the balance sheet, reports, and member lists available for members to review via KOOPBIS (Cooperative Information System). This right cannot be waived by contract.

Confidentiality: A partner is obligated to maintain confidentiality regarding business secrets learned through the exercise of their right to access information. Failure to do so may result in imprisonment or a fine.

Voting Rights: Anyone who has been a member for 3 months prior can attend the general assembly (there is no time limit in housing cooperatives).

4. Partners' Liability Regime (Articles 27 – 37)

Dissolution of Partnership (Article 27): A partner who fails to pay their debt will be notified by a notary or registered mail. If they do not pay within one month, their partnership will automatically dissolve.

Status of New Members (Article 35): If a person who has newly joined a cooperative has done so knowingly, they are liable for debts incurred before their membership, just like other members.

Liability After Withdrawal (Article 36): If the cooperative goes bankrupt within one year (or the period specified in the contract) of the withdrawal of a member, that member remains liable for the outstanding debts. This is to prevent malicious resignations (abandoning a sinking ship).

COOPERATIVE ACCOUNTS AND INCOME-EXPENSE MANAGEMENT (Articles 38 – 41)

Unlike profit-making companies, cooperatives a "Risturn" (Income-Expense Difference Reimbursement) system. The aim here is not to generate profit, but to produce services at cost. If a surplus (income-expense difference) is generated at the end of the year, the fate of this money is strictly regulated by law.

1. Distribution of the Difference Between Revenue and Expenses (Article 38)

While "profit sharing" (dividends) in commercial companies is distributed according to share percentage, the situation in cooperatives is as follows:

• Transaction Ratio: If the difference between income and expenses is to be distributed among the members, this the volume of business (transactions). (For example, a member who sells more products to the cooperative or makes more purchases from the cooperative will receive a larger share.)
• Interest on Capital Shares: In order for interest to be paid on shareholders' capital shares, at least 50% of the difference between income and expenses must first be distributed to the shareholders. The interest paid cannot exceed the highest rate paid on government bonds.
• Transactions with Non-Members: Income arising from transactions between the cooperative and non-members cannot be distributed to members unless provided for in the articles of association; in a special fund .

2. Reserve Funds: Cooperative Guarantee (Articles 39-41)

To ensure the cooperative is resilient against potential future losses, the law mandates savings.

• Mandatory Allocation: No distribution can be made to partners until at least 10% of the difference between income and expenses has been allocated to the reserve fund. In parent organizations, an additional 5% is allocated to the extraordinary reserve fund.
• Prohibition on Distribution: Reserve funds are the cooperative's "rainy day fund." Any provision in the articles of association stating that this money will be distributed to the members is invalid (Article 39).
• Order of Priority: When a distributable difference arises, reserves and statutory funds are set aside first; the remainder is returned to the shareholders (Article 41).

3. Compensation for Damages

If the fiscal year ends in a loss (negative result):

1. The losses are first from reserve funds .
2. If the reserve funds are insufficient, additional payments or partnership shares .
3. No income-expense difference or interest can be distributed in subsequent years until all losses from previous years have been fully recouped.

4. Relief Funds (Article 40)

Cooperatives may establish "Aid Funds" for their staff or members with a sense of social responsibility. These funds are kept separate from the cooperative's main assets and are used only for the purposes for which they are allocated (health, education, etc.).

CHAPTER V: COOPERATIVE ORGANIS

1. General Assembly: The Supreme and Non-Transferable Authority (Articles 42-54)

The general assembly is the central body where all shareholders are represented.

• Non-transferable Powers: The power to elect the board of directors and supervisory board, amend the articles of association, determine real estate purchase and sale limits, and discharge (acquit) the boards is solely within the authority of the general assembly.
• Call for Meetings: The ordinary general assembly is held within the first 6 months of each year. If the board of directors does not issue a call, the auditors, the higher-level association, or, at the request of shareholders holding a 1/10 stake, the court or the Ministry may issue a call.
• Digitalization and KOOPBIS: With the 2021 and 2024 updates, it became possible to hold general assemblies electronically ; it was stipulated that only those whose names are on the KOOPBIS list could participate in the meeting
• Voting Rights: The "one member, one vote" rule is fundamental. In representation, a member can generally only represent one person (this number can increase to 9 in large cooperatives).

2. Board of Directors: Executive and Representative Body (Articles 55 – 64)

It is the body that manages the daily operations of the cooperative, consisting of at least 3 people.

• Cooperative Training: A critical innovation introduced in 2021. Cooperatives of a certain size are required to complete a cooperative training program within nine months of being elected as managers .
• Membership Requirements: Applicants must be Turkish citizens and not have been convicted of any dishonorable crime.
• Responsibility: Board members are punished as "public officials" while performing their duties. This means they are treated as civil servants in cases of embezzlement or abuse of office.
• Tort Liability: The cooperative is liable for damages caused by managers during the performance of their duties; however, the cooperative may seek recourse against the negligent manager for these damages.

3. Board of Auditors: Internal Audit Mechanism (Articles 65-68)

They oversee the board of directors on behalf of the general assembly.

• Training Requirement: Just like managers, auditors are also subject to cooperative training.
• Importance of the Report: If the auditor's report is not presented to the general assembly, the decisions taken at that general assembly regarding the approval of the balance sheet and the discharge of the board of directors invalid .

4. External Audit: A New Era in Transparency (Article 69)

This is one of the most important amendments to the law in 2021. Now, cooperatives are audited not only by their own internal auditors but also by professional external auditors.

• Who can do it? Independent auditors (authorized by the Public Oversight Board), Certified Public Accountants/Chartered Accountants, or umbrella organizations authorized by the Ministry.
• Scope: The audit covers not only bookkeeping but also whether the financial statements accurately reflect the realities of the situation.

5. Annulment of Decisions and Liability (Article 53)

If a decision taken at the general assembly is contrary to the law, the articles of association, or the rules of good faith, within one month . The annulment lawsuit can be filed by the partners who dissented at the meeting, the board of directors, or the managers who have personal liability.

CHAPTER VI: SUPERIOR ORGANIZATIONS (UNIONS AND CENTRAL UNIONS)

Cooperatives form a pyramid-shaped structure to combine their economic power, strengthen their control mechanisms, and gain international representation.

1. Organizational Pyramid (Articles 70, 72, 76, 77)

The cooperative's top-level organization consists of four main levels:

1. Unit Cooperatives: A basic structure established by at least 7 members.
2. Cooperative Unions (Article 72): They are established by the coming together of at least 7 cooperatives whose subjects are the same or related . If regions have been defined, more than one union on the same subject cannot be established in the same region
3. Central Unions (Article 76): This is the umbrella organization established by cooperative unions among themselves.
4. Turkish National Union of Cooperatives (Article 77): It is the highest umbrella organization. It is established by the unions and central unions.

2. Critical Functions: Supervision and Training (Articles 70-75)

Senior organizations are not merely structures that exist on paper; they have significant authority over their subordinate units.

• Supervisory Authority: Central unions are responsible for supervising the unions and cooperatives under their control. This is a "self-regulation" mechanism that precedes state supervision.
• Education: Developing a cooperative culture and training managers are fundamental tasks of the umbrella organizations.
• Limitation of Liability (Article 71): A cooperative cannot be burdened with more debt or liability than what is stipulated in its articles of association simply by joining a union. A member cannot be held directly responsible for the debts of the parent organization.

3. Incentives and Obligations (Article 72/4)

With the changes made in 2021, joining the umbrella organization has ceased to be a "choice" and has become an "economic necessity":

• Credit and Support Condition: If a cooperative is not a member of a union, and the union is not a member of a central union, it cannot provide guarantees for publicly funded loans or act as an intermediary for agricultural subsidies.
• Obligation to Accept: Faced with this obligation, umbrella organizations cannot refuse to accept cooperatives that apply to them as members.

4. Management and Representation (Articles 73, 74, 78)

• Democratic Representation: The general assemblies of the unions consist of representatives elected by the member cooperatives. A cooperative can send a maximum of 5 representatives .
• Board of Directors: The union's board of directors must consist of representatives from different cooperatives; the entire board cannot be composed of members from the same cooperative (Article 74).
• Classification as a Public Official: Senior union executives, just like unit cooperative executives, public officials .

5. Turkish Cooperatives Advisory Board (Article 80)

It is a platform that brings together the state and the cooperative sector to determine cooperative policy.

• Participants include National Unity Party executives, as well as representatives from the Presidency (former State Planning Organization representatives), the Ministries of Trade, Agriculture, Finance, National Education, and banks.
• Objective: To align the state's development plans with the goals of cooperatives.

CHAPTER VII: DISSOLUTION AND LIQUIDATION OF COOPERATIVES

1. Reasons for Dissolution (Article 81)

A cooperative enters the dissolution process when one of the following situations occurs:

• Voluntary Dissolution: Upon expiration of the term stipulated in the general assembly resolution or the articles of association.
• Financial Collapse: Declaration of Bankruptcy.
• Neglect and Inertia: Failure to hold the ordinary general assembly for three consecutive years (This indicates that the cooperative has effectively ceased to exist).
• Achievement of Goal: In housing cooperatives, the distribution of title deeds to the residential/commercial units signifies that the cooperative has achieved its goal and is automatically dissolved.
• Ministry/Court Decision: Determination that achieving the objective is no longer possible or circumstances contrary to the law.

2. Liquidation Process and Liquidatory Board

After the decision to dissolve is made, the cooperative takes on the title "In Liquidation...".

• Liquidators: If the court or the general assembly does not appoint them, the board of directors conducts the liquidation. Liquidators, like the directors, have the same responsibilities as "public officials".
• Quorum for Decisions: In cooperatives undergoing liquidation, unless otherwise stipulated in the articles of association, a quorum (majority number) is not required for general assembly meetings; a majority vote of those present is sufficient.

3. Distribution of Liquidation Surplus (Article 83)

If the cooperative has any assets remaining after its debts have been paid:

1. Priority: Debts are paid first, then the partners' capital shares are returned.
2. Remaining Amount: If the articles of association do not contain a clause stating "the remaining value will be distributed to the partners ," then the remaining funds cannot be distributed to the partners.
3. National Unity Share: The undistributed amount the Turkish National Union of Cooperatives.

4. Dissolution by Merger (Articles 84-85)

In the event that one cooperative is absorbed (taken over) by another cooperative:

• Creditor Protection: The assets of the dissolved cooperative separately . This ensures that the rights of former creditors are not lost in the new structure.
• Status of Members: Upon registration, the members of the dissolved cooperative become members of the new cooperative with all their rights and obligations.
• Takeover by a Public Institution: If a municipality or public legal entity takes over a cooperative, the general assembly may decide not to initiate the liquidation process.

5. Special Cases for Housing Cooperatives

• Individual Ownership: Title transfer procedures (condominium ownership) must be completed within a maximum of 1 year after obtaining the building occupancy permit
• Expelled Member: A member who leaves or is expelled from a cooperative during its dissolution process cannot have their residence/business premises reclaimed. However, this person is obligated to contribute to the liquidation costs.

CHAPTER VIII: DUTIES AND POWERS OF MINISTRIES

1. The Ministry's Primary Role: Guidance and Intervention (Article 86)

The ministry is not only a supervisory body, but also the patron of cooperatives

• Organizational Support: Provides guidance and advice to management during the establishment phase.
• Credit Coordination: Acts as a "coordinator" with other ministries to facilitate access to credit facilities for producer cooperatives.
• Authority to Dissolve: The court applies for the dissolution of cooperatives that act illegally or fail to achieve their objectives.

2. Ministry Representative (Government Commissioner) (Article 87)

For general assemblies to be considered valid, the presence of the state is essential

• Mandatory Call: at least 15 days before .
• Opening and Observation: The meeting cannot be opened without the representative (exception: if a representative is duly requested to be late by one hour, the meeting will begin without a representative).
• Task: The representative does not participate in the voting; they only monitor the conformity of the decisions with the law, the articles of association, and the agenda, and record dissenting opinions in the minutes.

3. Record Keeping and Accounting Procedures (Articles 88-89)

• Sample Articles of Association: The Ministry prepares drafts for the articles of association, which are considered the "constitution" of cooperatives. This ensures legal uniformity.
• Turkish Commercial Code (TCC) Compliance: With the 2018 amendment, the accounting and bookkeeping procedures of cooperatives are directly based on the provisions of the Turkish Commercial Code . This ensures the full integration of cooperatives into commercial life

CHAPTER IX: VARIOUS PROVISIONS AND PENALTIES

1. Tax Exemptions (Article 93)

This is the biggest advantage cooperatives have over commercial companies. If your cooperative is a member of a higher-level organization (union), it benefits from the following exemptions:

• Books of Account and Articles of Association: Certification procedures are exempt from all fees and stamp duty.
• Property Taxes: Real estate owned is exempt from tax as long as it is not rented out or generating income.
• Bank and Insurance Transactions Tax (BSMV): Interest and commissions arising from transactions with partners are exempt from this tax.
• Women's and Disabled Cooperatives: With the 2021 regulation, cooperatives whose majority of members are women or disabled are exempt from registration/announcement fees and chamber registration fees.

2. Criminal Liability (Supplementary Article 2)

Cooperative management is a serious responsibility. The law directly links certain acts of negligence to imprisonment:

• Severe Penalties (3 months to 2 years imprisonment): Failure to hand over ledgers, money, or documents to the new administration; failure to provide information to auditors; acting illegally in real estate purchases.
• Minor Penalties (up to 9 months imprisonment): Failure to convene the general assembly on time; failure to maintain the share register properly.
• Judicial Fines: In addition to imprisonment, judicial fines ranging from 30 to 500 days' wages are also imposed.

3. Incompatible Duties (Additional Article 3)

This clause, introduced to prevent conflicts of interest, states:

• Cooperative managers and auditors cannot also hold salaried positions or serve on the boards of directors of companies or foundations in which the cooperative is a shareholder.
• Nepotism Prohibition: Spouses and second-degree relatives of managers cannot be employed in companies where the cooperative owns more than 50% of the shares.

4. Digital Transformation: KOOPBIS (Additional Article 5 and Temporary Article 8)

A new era in cooperative movements began in 2021.

• Mandatory: All cooperative data (member list, balance sheets, reports) into the Cooperative Information System (KOOPBIS).
• Responsibility: The board of directors is responsible for any failure to enter the information.
• Extension of Time: With the latest amendment made in 2024, the Ministry was granted the authority to grant additional time for the system transition process (adaptation).

5. Important Technical Details

• Commercial Cases (Article 99): Cases involving cooperatives are considered "commercial cases" even if the parties are tradespeople, and the Simplified Trial Procedure (a faster method of litigation).
• Reference to Joint Stock Companies (Article 98): In all cases not covered by this law, the provisions of the Turkish Commercial Code regarding Joint Stock Companies shall apply.
• Adaptation Obligation (Temporary Article 9): Existing cooperatives are required to adapt their articles of association to the provisions of the new law by the end of 2026 (within 5 years from the date of entry into force). Otherwise, they will be considered dissolved.

6. Inspection and Suspension from Duty (Articles 90-91)

The ministry's most stringent powers are concentrated in these articles:

• Audit Team: Inspectors, controllers, and assigned personnel have the authority to examine all funds, assets, ledgers, and confidential documents of the cooperative.
• Provisional Removal from Office: If the Ministry determines that the managers have acted in a manner clearly contrary to the law, it may provisionally remove these individuals from office in the name of "public interest. In this case, the Ministry shall convene an extraordinary general assembly within one year.
• Information Disclosure Obligation: Cooperative officials are required to provide all information completely and truthfully during audits. This is not a request, but a legal obligation.

7. Credit Supervision (Article 90/4)

Public institutions that provide loans to cooperatives (such as Ziraat Bank, municipalities, etc.) can always inspect on-site whether the money is being used for its intended purpose, the quality of the construction, and its compliance with the technical project.

In conclusion : 

Law No. 1163 defines cooperatives as a non-profit, democratic, and transparent model of solidarity where each member has a single vote . The system imposes significant responsibilities on managers, similar to public officials , while encouraging production and housing acquisition through tax exemptions and state support. With current regulations, the digital tracking of all financial processes via KOOPBIS and professional auditing have been made mandatory, thus safeguarding the rights of members.