Converting an LLC into a co-operative part 2 : background and analysis

Abstract

With the two-tier structure being optional under the Co-operative Societies Act (CSA), many co-operatives are disregarding such alternative and opting towards the one-tier system. Upon affecting mutualisation, limited liability companies (LLCs) need not necessarily change their corporate governance structure to that of a two-tier one with a specific supervisory board. As an alternative and as illustrated in Figure 1, co-operative entities, especially larger ones, may make up their statutory Committee of Management (COM) of non-executives, with the day-to-day decisions being left over to an executive management committee, formed by the higher level managers of the co-operative. In such a corporate governance structure, it is imperative that the appropriate liaison is maintained between the two committees. Furthermore, in larger co-operatives, an Audit Committee may operate as a sub-committee of the COM on the lines of those established by LLC’s.