The conversion of the LLC into a co-operative and its implications : a Maltese analysis

Abstract

Purpose: The objectives of this study is to establish the rationale, if any, for and difficulties encountered in carrying out mutualisation, to evaluate the corporate governance and financial implications of such a change and to propose a viable regulatory framework for implementing such conversions. Design: This objective was achieved by carrying out 21 semi-structured interviews, with professional persons involved in Maltese co-operatives. Nine interviews were held with accountants, four with lawyers and eight with co-operative experts. Findings: Mutualisation is a sound business choice for entities having a more social orientation to their objectives. In the process, entities tend to experience initial difficulties owing to different legal structures and entity objectives. As for corporate governance, it is the disposition of members and management rather than the model itself which is relevant. As for the regulatory framework there is a present statutory gap which needs to be filled. Finally, financing issues may need to be addressed, in view of the need to re-structure capital. Conclusion: The rationale for mutualisation is increased shareholder focus on co-operation as against profit maximisation, this necessitating a re-ordering of shareholder priorities. Mutualisation calls for corporate governance changes, re-balancing the social and financial interests of members. It also often requires capital restructuring, in view of changes in shareholdings and the need to ensure continued external financing. Finally, the study proposes new legal provisions to faciliate mutualisation. Value: This study hopes to provide useful insights on the the major mutualisation issues and to propose a viable way of carrying it out successfully.