UNION OF SOVIET SOCIALIST REPUBLICS: LAW ON COOPERATIVES

UNION OF SOVIET SOCIALIST REPUBLICS: LAW ON COOPERATIVESAuthor(s): William G. FrenkelSource: International Legal Materials, Vol. 28, No. 3 (MAY 1989), pp. 719-753Published by: American Society of International LawStable URL: http://www.jstor.org/stable/20693328 .Accessed: 12/06/2014 11:50

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

American Society of International Law is collaborating with JSTOR to digitize, preserve and extend access toInternational Legal Materials.

http://www.jstor.org

This content downloaded from 185.44.79.22 on Thu, 12 Jun 2014 11:50:51 AMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=asilhttp://www.jstor.org/stable/20693328?origin=JSTOR-pdfhttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsp

719

UNION OF SOVIET SOCIALIST REPUBLICS : LAW ON COOPERATIVES* [June 1, 1988]

+Cite as 28 I.L.M. 719 (1989)+

Introductory Note

William G. Frenkel

The Union of Soviet Socialist Republics took another step toward adopting a free-market, decentralized economy with privately-owned means of production when the Supreme Soviet of the U.S.S.R. adopted the Law on Cooperatives on June 1, 1988? This new comprehensive legislation makes dramatic changes on the face of the domestic economy (1) by legitimizing essentially private companies, referred to as "socialist cooperatives" but endowed with unmistakable features of corporations and (2) by introducing independent planning into certain sectors of the economy heretofore characterized by central planning.

Although the Law on Cooperatives primarily addresses questions of private business development by Soviet nationals, it should also be of interest to non-Soviet lawyers. First, cooperatives are, in

many instances, given the right to consummate commercial transactions with foreign companies directly, without the intermediation of Soviet foreign trade organizations. Secondly, cooperatives are also empowered to be Soviet partners in lieu of Soviet governmental bodies and state enterprises in joint ventures with foreign companies. Finally, the presence of privately-held cooperative enterprises in the Soviet market now provides a novel alternative for firms doing business in the U.S.S.R., as the cooperatives function both as suppliers and consumers of goods and services.

The legal framework for forming and managing Soviet cooperatives does not vary significantly from typical U.S. statutes covering corporations or cooperative associations. As a legal, juridical entity, a Soviet cooperative may own property, maintain bank accounts, incur obligations, issue securities, conduct commercial transactions with other enterprises and individuals, market and distribute its production, employ workers and sue in a court of law or arbitrate. One of the limitations is that cooperatives cannot own land and other natural resources, but must lease these resources from the state. Another important limitation is the requirement that members or shareholders of the cooperative cannot be passive investors but must actively participate in the cooperative activities. Initially, there were no restriction on business activities, but six months after the Law on Cooperatives was enacted, the U.S.S.R. Council of Ministers issued a decree

limiting certain activities of cooperatives and imposing a range of restrictions on others. Cooperatives may be formed in all branches of industry, agriculture, trade and cultural endeavors.

* I Reproduced with permission from the English translation, Copyright William G. Frenkel 1989. The official Russian text appears in Vedomosti Verkhovnogo Soveta SSSR (1988), No. 22, Item 355. Mr. Frenkel Ts an attorney with LeBoeuf, Lamb, Leiby & MacRae, New York.]


http://www.jstor.org/page/info/about/policies/terms.jsp

720

The Law on Cooperatives is but a single step in the Soviet attempt for economic reform. Private business activity never

completely ceased to exist in the U.S.S.R., and the Soviets acknowledged the dimensions of the underground economy in November 1986 by passing legislation allowing state sector employees to earn money privately in their leisure time. The 1988 law formalizes the concept of a privately-held company with the stylistic modifications necessary to integrate it into the Marxist-Leninist economic philosophy.

I.L.M. Content Summary

[Introduction - I.L.M. Page 723

[Comprehensive law on cooperatives]

I. SOCIALIST COOPERATIVE AND ITS PLACE IN THE ECONOMY OF THE COUNTRY - I.L.M. Page 724

Art. 1 Cooperatives in the System of Socialist Social Relations [The state supports the cooperative movement.

Cooperatives are designed to stimulate economic competition in domestic markets for goods, services, and employment]

Art. 2 Law on Cooperatives [This law governs rights and duties related to the creation and activities of cooperatives]

Art. 3 System of Cooperatives, Types of Cooperatives [Cooperatives are either industrial, consumer, or a

mixture of the two]

Art. 4 The Principle Tasks of Cooperatives [Satisfaction of consumer and national economy needs]

II. A COOPERATIVE AS THE PRIMARY LINK IN THE COOPERATIVE SYSTEM IN THE U.S.S.R. - I.L.M. Page 726

Art. 5 The Socialist Cooperative [A cooperative is a juridical person that may have

branches and representations]

Art. 6 Cooperative Labor Force [Definition]

Art. 7 Property of the Cooperative [Definition. A cooperative may own property]

Art. 8 The Legal Protection of the Cooperative Property [A cooperative's ownership shall be protected to the same

degree as state ownership. Property may not be used for purposes unrelated to purposes set forth in the cooperative' s charter]

Art. 9 The Use by A Cooperative of Natural Resources and Property Not Owned Thereby

[Duty to comply with applicable regulations]



721

Art. 10 Principles of the Cooperative Activities [List of principles. Cooperatives have standing to sue.

Cooperatives may engage in joint ventures]

Art. 11 Formation of a Cooperative Enterprise; Charter [Existence commences when the charter is registered. A cooperative may exist either independently or under the auspices of the state, another cooperative, or some other social enterprise]

Art. 12 Membership in a Cooperative Enterprise [Every citizen over 16 years old is eligible. Membership is a contractual relationship. Settlement of disputes. Expulsion of members]

Art. 13 Rights and Duties of Members of the Cooperative [Rights include: Participation in management arid elections; profit-sharing; employment a>nd certain employment benefits. Duties include: Compliance with the charter and with decisions of elected directors and officers; performance of work duties]

Art. 14 Management of the Cooperative Enterprise [Policy is: Socialist self-management; openness (glasnost); and participation of members in

decisionmaking. Management bodies include: General assembly (of members); board of directors; audit commission]

Art. 15 Termination of the Cooperative Activities [By decision of the cooperative's general assembly or

decree of the Executive Committee of People's Deputies]

Art. 16 Unions and Associations of Cooperatives [The major objectives of such unions and associations are set forth]

III. ECONOMIC FOUNDATIONS OF THE BUSINESS OPERATIONS IN TH? COOPERATIVE SYSTEM - I.L.M. Page 736

Art. 17 The Foundations of the Cooperative Business Activities [The cooperative's activities are autonomous. Business

with the state is conducted at arms-length]

Art. 18 Planning [Plans are to be approved by the general assembly of the cooperative. Planning shall be guided by market demand]

Art. 19 Prices and Pricing Policies [Prices are established through negotiation with

consumers]

Art. 20 Profits and Their Distribution [No rules are set by the state, and the state may not interfere]



722

Art. 21 Taxation of the Cooperative Income [Taxes are collected from revenues of the cooperative and from personal income of the members]

Art. 22 The Cooperative's Finances

[Profits should be maximized; reinvestment of profits for expansion is permitted; insurance policies may be obtained; issuance of shares is governed by Soviet law]

Art. 23 Credit and Payments [Cooperatives may borrow from banks of their own selection. Cooperatives may also make loans and charge interest]

Art. 24 The Social Development of the Cooperative [Decisions shall be made by the general assembly of the cooperative concerning improvement of working and living conditions]

Art. 25 Labor and its Remuneration [Levels of compensation are determined autonomously by the cooperative. Health and safety standards for state enterprises also apply to cooperatives. Cooperative members are entitled to the same social insurance and social security benefits as state enterprise workers]

Art. 26 Economic Incentives for Scientific and Technical Progress [Tax benefits and exemptions shall be provided for in Soviet legislation]

Art. 27 Material and Technical Support for the Cooperative [The state shall develop such market support]

Art. 28 A Cooperative's Foreign Economic Activity [Joint foreign enterprises are permitted with socialist, capitalist, and developing countries]

IV. THE STATE AND COOPERATIVES - I.L.M. Page 7 50

Art. 29 Relations Between State Bodies and Cooperatives [The state will provide assistance and support]

Art. 30 Soviets of People's Deputies and Development of Cooperatives

[Role described]

Art. 31 Employee Training for Cooperatives [Necessary training and education shall be provided in state educational institutions. Cooperatives may also contract for needed training]

Art. 32 Financial Disclosure, Accounting and Control [Accounting practices must comply with state-promulgated regulations]



723

THE LAW OF THE UNION OF SOVIET SOCIALIST REPUBLICS ON COOPERATIVES IN THE U.S.S.R.

June 1, 1988

The Supreme Soviet of the U.S.S.R., Moscow

This Law, in accordance with the U.S.S.R. Constitution, sets forth economic, social, organizational and legal conditions for cooperatives/ activities on the basis of development of Leninist tenets on the subject of

cooperatives as applied to the modern stage of socialism in the U.S.S.R.

The Law calls to promote the immense potential capacity of the cooperative movement, growth of its role in the acceleration of the socio-economic development of the country, to strengthen the process of democratization in the business sector, to give new impetus to the collective farm movement and create the conditions to attract broad segments of the population to cooperative forms of business. It is further aimed at the global utilization of cooperative forms of business to meet the growing demands of the Soviet business community and consumers for supplies of food, consumer goods, housing, industrial production, technology and various services. The Law establishes basic principles for the development of the cooperative democracy, defines the relations between the state and cooperative enterprises, guarantees free choice of the forms of business activity for cooperatives, opens up a wide scope for initiative and self governance, and elevates the responsibility of the members of cooperatives for the results of their labor.

The Law guarantees to citizens the right to join and to withdraw from cooperatives voluntarily, the right to participate in management of the cooperative business, independence of the cooperative business and autonomy of the cooperative in decision making, social justice and social equality in the right to employment, personal income proportional to amount and quality of labor, and the right to social security.

The Law on Cooperatives in the U.S.S.R. is directed at collaboration between the state and the collective farm cooperative sectors of the socialist economy on the basis of equal rights and is meant to facilitate the further development of the political and economic systems of the U.S.S.R.



724

I. SOCIALIST COOPERATIVES AND ITS PLACE IN THE ECONOMY OF THE COUNTRY

Article 1. Cooperatives in the System of Socialist Social Relations

1. The socialist cooperatives (hereinafter referred to as "coop?r?ti ves" or "cooperative enterprises") are a continuously developing progressive form of socially beneficial activity. They open up extensive opportunities to citizens to apply their efforts and knowledge to productive work in accordance with each person's talent, willingness and abilities, to enjoy profits in proportion to the quantity and quality of the work contributed to the cooperative activities and to satisfy the demands of its members.

2. Under the conditions of the political and economic systems of the U.S.S.R., where the leading role is assumed by the state or collective ownership form, a cooperative form of property, which facilitates a more comprehensive utilization of the potential and advantages of socialism, augmentation of the social wealth, distribution of high quality goods and services to markets and the decrease in their cost and the more complete satisfaction of the material and spiritual needs of the Soviet people, is highly desirable.

3. The state, in considering the critical significance of cooperatives for economic and social advancement of the society, the rational utilization of material and labor resources, fortification of the democratization process, wholly supports the cooperative movement, takes part in its enlargement and guarantees strict observance of the law and protection of the lawful interests of cooperatives and their members.

4. The cooperative enterprises and organizations together with state enterprises and unions represent the fundamental component of the single national business complex. Work in cooperatives is honorable, prestigious and is thoroughly sanctioned by the state.

5. Cooperatives in the U.S.S.R. provide to members of cooperatives real opportunities and pecuniary interest in raising business effectiveness on the basis of independent planning and fulfillment of cooperative business plans, the distribution and sale of goods, the execution of work, the provision of services and implementation of other types of activities as well as to improve the social conditions in the life of a cooperative' collective.

Activities of cooperatives, high labor productivity and their system of employee compensation are all designed to stimulate the cultivation of economic competition in the markets for goods, jobs and services among cooperatives and between the cooperative and state sectors and are expected to raise effectiveness of business and commerce.



725

Article 2. Law on Cooperatives

The rights and liabilities related to creation and activities of cooperatives are regulated and enforced by this Law and other acts of law issued by the legislatures of the U.S.S.R. and Union Republics in accordance therewith.

Article 3. System of Cooperatives, Types of Cooperatives

1. The consistent development of the cooperative movement in the country is turning cooperatives into a widely spread system organically connected to the state sector of economy and

private labor activity of the population. Cooperatives may be formed and function in the agricultural sector, where their predominant form is a kolkhoz, in the industry, construction, transportation, trade and food industry, consumer services and in other fields of the industry and social and cultural life. The cooperative is empowered to engage in all kinds of activities except those specifically prohibited by the Soviet federal or republican law.

2. In the system of socialist cooperatives, there are two

types of cooperatives: industrial and consumer. Industrial

cooperatives are to be engaged in production of goods and provision of services to other enterprises, organizations, agencies and individuals. Such cooperatives are to be formed and to function for the purposes of manufacturing, procurement, processing and distribution of agricultural production, articles of industrial and technical uses, manufacturing of consumer

goods, collection and processing of secondary raw materials and industrial waste, technical repair and service, commercial, residential and road construction, retail trade, restaurant and

catering service and other consumer services, cultural

endeavors, rendering of medical services, rendering of legal, advisory, planning, design, research and other services as well as in the area of fishing, fish farming, timber and forestry, extraction of minerals and other natural resources and other

spheres of business activity. The activities of such cooperatives are based on the individual labor participation of their members. Consumer cooperatives are to satisfy needs of their members and other individuals in retail trade and consumer services. The members of cooperatives may also participate in such activities as to improve and enhance their housing, country homes and gardens, parking garages, cultural leisure and social services. In addition to the enumerated functions, consumer cooperatives may also perform various industrial functions, that is, to be cooperatives of the "mixed" type.

Article 4. The Principal Tasks of Cooperatives

1. The principal aim of the cooperative activities is satisfaction of consumer and national economy needs in consumer

goods, foodstuffs, residential construction, industrial production, and services in high demand. Development of labor and social activeness of cooperatives members, growth of their

prosperity, cultural standards and professional skills are also of importance.



726

Accomplishment of these objectives in the system of cooperatives is to be aided by the growth of industry and its effectiveness, by assuring improvement in quality of production and services, by increasing labor productivity, by utilizing fully local raw materials and by designing and implementing waste-free and energy-efficient technologies,

2. Cooperatives will increase participation of the population in socially useful work, will facilitate production of new goods and services and will attract supplementary labor resources as well as will create the conditions for participation in cooperative activities for individuals in their spare time on a contractual basis. Cooperatives, operating on the principles of self-financing, provide through its revenues and profits increase in the standard of living of cooperative members and their families, solve social problems, create favorable opportunities for high productivity labor, provide for the protection of property interests and social rights of cooperative members and take part in contributing to the state treasury.

II. A COOPERATIVE AS THE PRIMARY LINK IN THE COOPERATIVE SYSTEM IN THE U.S.S.R.

Article 5. The Socialist Cooperative

1. A cooperative is a public organization of the U.S.S.R. citizens, who voluntarily joined as members thereof to jointly conduct business and other activities on the basis of its rightfully owned, leased or borrowed property, independence, self-governance and self-financing as well as financial interestedness of the cooperative members and the fullest integration of such interests with the interests of the cooperative and the society at large.

2. The cooperative as the primary link in the system of cooperatives in the U.S.S.R is called upon to partake actively in the economic and social development of the country and in the achievement of the highest goal of the public industry under socialism ? the most complete satisfaction of the people's growing material and spiritual needs.

3. In the interests of fulfilling the plans determined by this Law, a cooperative is empowered to make any decisions not in conflict with this law or the cooperative's charter. A cooperative is a juridical person, enjoys rights and incurs liabilities related to its activities, and operates on cost accounting.

Cooperatives may include in their corporate structure structural subdivisions, including territorially established sub units, such as divisions, plants, farms, shops, stores and others, functioning, as a rule, on the basis of collective, family or individual contracts, including the right to lease property. Cooperatives may also open their branches and representations.



727

Article 6. Cooperative Labor Force

1. Members of a cooperative, who contribute their labor to its activities as well as persons employed in the cooperative under an employment agreement comprise the labor force of the cooperative.

2. A cooperative is to staff its operations on the principles of full cost-accounting and self-financing. Cooperatives are to attain favorable end results and to take care of improving the members and employees' professional qualifications, who are to be assigned jobs and tasks on the basis of their competence and cooperative's economic interests.

3. The party organization of the cooperative, being a political nucleus of its personnel, acts within the constraints of the U.S.S.R. Constitution to facilitate increase in the industrial initiative and social activity of the personnel, growth of its political consciousness and a sense of ownership and responsibility for economic achievements of the cooperative.

4. Socio-economic decisions related to the cooperative activities are made and adopted by its governing body with the participation of its staff and functioning party as well as labor union, Komsomol and other social organizations in accordance with their charters and this legislation.

Article 7. Property of the Cooperative

1. The property of the cooperative consists of the means of production owned by the cooperative and other property necessary for implementation of the purposes set out in the charter. A cooperative may own buildings, construction, machinery, equipment, means of transportation, farm animals, manufactured production, goods, monetary funds and other property in accordance with the cooperative objectives.

2. The property of a cooperative is formed from monetary and in kind contributions of its members, its manufactured production, profits received from sales and other activities, proceeds from the sales of stock and other valuable securities and bank loans. Other state, cooperative and social organizations as well as its employees may also make monetary and property contributions to the cooperative property on the basis of a contract.

3. The cooperative property includes the property of enterprises and organizations formed and fully owned by that cooperative as well as the property of other organizations where the cooperative has partial ownership to the extent of such share. The property of unions or associations membership of which only includes cooperatives is either jointly owned by all member cooperatives or belongs to the union or association.

4. The cooperative as the rightful owner of its property or a lessee of leased property is obligated to augment and enhance



728

it and effectively utilize and safeguard it. No one is authorized to use cooperative property to yield unlawfully gained profits and for other illegal pecuniary purposes.

Article 8. The Legal Protection of the Cooperative Property

1. Cooperative ownership as a form of socialist property is inviolable and is under protection of the state. The law protects cooperative ownership of property on equal terms with state ownership. Cooperative property may be confiscated or seized only upon a court or arbitrator's decree in accordance with their jurisdiction and competence.

2. The right to own, use and dispose of the cooperative property belongs exclusively to the cooperative entity. Use of the cooperative property for purposes unrelated to the purposes specified in the charter is not permitted.

3. Cooperatives are entitled to:

sell and resell to other enterprises, organizations, agencies and individuals, trade, lease and lend free of charge buildings, installations, equipment, means of transportation, inventory, raw materials and other capital and other assets as well as to depreciate and to write off obsolete or worn out capital assets, contractually transfer, convey and lend material resources and monetary instruments to other enterprises, organizations and individuals engaged in manufacturing goods or providing services for such cooperative.

4. The cooperative bears independent liability under its obligations with all of its property, including capital assets. The state is not liable for the obligations or debts of a cooperative. The cooperative has no liability for the obligations of its members or the state. Members of a cooperative have no liability for the cooperative obligations and debts, except in the certain instances enumerated in this Law, other U.S.S.R legislation, Soviet Republic legislation or the cooperative charter.

Article 9. The Use by A Cooperative of Natural Resources and Property Not Owned Thereby

1. The use of land and other natural resources by a cooperative is accomplished in accordance with the applicable legislation of the U.S.S.R. and Union Republics. The cooperative bears the responsibility for compliance with applicable regulations and taking of necessary measures to use such resources cost-effectively and rationally as well as for the protection of the land, water, forests and environment.

2. The cooperative should ensure effective utilization of land, take constant care of its fertility, cautiously use it for the purposes it was leased for, protect the environment from



729

pollution and other detrimental effects and in connection therewith to employ industrial production on the basis of waste free and reduced waste technology. The cooperative is to take steps to implement environmental protection which must compensate for the negative effects of industry on the environment and which must be financed with the cooperative's own funds. In special cases, financing of such environmental protection projects can be provided by the central state authorities. The cooperative is under obligation to pay damages for the injury sustained by the environment as a result of violations of the environmental

legislation. Activities of a cooperative maliciously and

willfully violating the environmental laws and regulations are to be enjoined and fined in accordance with the U.S.S.R legislation and Union Republics' law.

3. In order to achieve the purposes set forth in its charter, a cooperative may contractually use property borrowed from the state, cooperative and other organizations and individuals. Upon such parties' consent, a cooperative may acquire buildings, space, equipment and other property as part of its capital assets.

Article 10. Principles of the Cooperative Activities

1. Cooperatives' activities are based on the principles of voluntary admission to the cooperative membership, unrestricted withdrawal therefrom, harmonization of personal, collective and state interests, business independence and autonomy, pecuniary interest and social justice, direct involvement of cooperative members in its management on the basis of cooperative democracy and socialist law.

2. No interference into the business or other activities of a cooperative enterprise on the part of the state or cooperative bodies (such as cooperative unions or associations) is allowed except where provided by law. The cooperative shall have the right to institute a legal proceeding in a court of law or state arbitrage challenging the legality of an act undertaken by a state or cooperative agency in contravention of the law or without having competent jurisdiction over the cooperative. Any damages suffered by the cooperative enterprise as a result of illegal acts of the state or cooperative agencies violating rights of the cooperative or due to defaults in the performance of its obligations to the cooperative by the cooperative bodies, shall be compensated by such bodies. Disputes over compensation shall be handled by the courts of law or the state arbitrage.

3. In order to utilize the cooperative industrial potential more effectively and to expand the manufacturing ?r provision and sales of goods and services, cooperative enterprises may integrate their operations with those of the government, cooperative or other social enterprises and organizations by pooling funds and other assets.

The cooperative enterprises shall have the right to take part in the following activities:



730

(1) joint performance of work related to the restructuring, modernization and technological upgrade of the industrial enterprises, the acceleration of scientific and technological progress, the improvement of output quality, and the development of the production of consumer goods and the distribution of consumer services to the populace;

(2) the establishment of inter-disciplinary enterprises, repair, construction, trade, commercial and other outlets;

(3) construction and commercial exploitation of the agricultural operations, residential housing, highway construction and other social and home consumer projects; and

(4) the training of specialists and the creation of educational and training facilities.

All of the above and any other joint activity is to be implemented on a contractual basis. Soviets of people's deputies and other state agencies are to aid the cooperative enterprises in development of the joint enterprises and organizations and in promotion and enforcement of the rights granted to cooperatives.

Article 11. Formation of a Cooperative Enterprise; Charter

1. A cooperative enterprise is formed by citizens exclusively on a voluntary basis without any special permission from Soviet state agencies or departments. A cooperative is deemed in existence once its charter, which is the basic organizational document governing its activities, is registered. The charter is adopted at a general meeting of citizens desirous to form a cooperative. The minimum number of cooperative members shall be three citizens. Cooperatives can be formed and operated either as independent entities or under auspices of the state, other cooperative, and other social enterprises, organizations or departments.

2. The cooperative charter is to be registered with the Executive Committee of the Regional, City or District Soviet of People's Deputies (Ispolkom of Oblastsovet, Gorsovet or Raisovet), located at the site of the cooperative. If the cooperative is formed under the auspices of another organization, the organization's consent is required for registration of the cooperative charter.

3. In the event cooperative activities require a parcel of land or other natural resources, permission from the owner or lessee - be it a government agency or an individual/institutional sub-lessee is required prior to registration of the charter.

4. The cooperative charter shall be reviewed by the Executive Committee within the period of one month from the date the charter is submitted for registration. Should the Executive Committee fail to observe the one month period for review of the submitted charter, the cooperative may appeal to the superior Executive Committee, or to the republican Council of Ministers.



731

Th? appeal shall be heard by these bodies within fifteen days. The only legal ground for rejection of the cooperative charter for registration by the Executive Committee may be that one or more provisions of the charter contravene the legislation in force.

5. The following points shall be addressed in a cooperative charter: name of the cooperative, its location, object and goals of its activities, procedures for admission to and withdrawal from the cooperative membership, rights and obligations of the cooperative members, management and control, authority and competence of the management team, procedures for formation of the cooperative capitalization and allocation and distribution of profits, terms of and conditions for reorganization and liquidation. The charter may contain any other provisions relating to the activities of the cooperative enterprise, provided that they are not inconsistent with this statute.

6. Modifications and amendments to the charter, proposed by the general meeting of the cooperative membership, shall be registered pending review by the Executive Committee within time periods set forth above.

7. An appeal challenging a refusal to register a cooperative's charter or modifications and amendments thereto may be submitted to the Executive Committee of the superior Soviet of People's Deputies autonomous republican Council of Ministers, republican Council of Ministers or to a court of law. Appeals so submitted must be heard within one months.

Article 12. Membership in a Cooperative Enterprise

1. Every citizen over the age of sixteen years, who has the desire and ability to implement objectives of the cooperative, may become a member of a cooperative unless Soviet federal or republican laws provide to the contrary. Other cooperatives, state and social organizations may also become members of the cooperative in accordance with this statute or the cooperative charter. All relations between the cooperative and its members shall be founded on a contractual basis.

2. A citizen may be a member of an industrial cooperative and of a consumer cooperative at the same time. Employees of state or cooperative enterprises may maintain membership in one manufacturing cooperative only and participate in its activities in their free time after work. An employee shall not be required to obtain a permission from its primary employer to become a member or an employee of a cooperative.

3. All disputes as to membership in the cooperative and relations among its members shall be heard by the authorized commissions within the cooperative according to the procedure set forth in its charter, or by the court of law, if so provided for in the federal and republic legislation.



732

4. A member of a cooperative may be expelled from the cooperative pursuant to a decision of its general assembly. Expulsion of members of the cooperative may be appealed to a court of law.

5. Persons who had been adjudged in a court of law incompetent or unauthorized to participate in certain activities cannot be members, officers or employees of a cooperative undertaking same activities* Persons who had been convicted for larceny, embezzlement, bribery or other property crimes cannot be elected chairman or member of the board of directors, chairman or member of the audit commission, or to any other positions connected with the treasury functions or any other positions of financial responsibility or management.

Article 13. Rights and Duties of Members of the Cooperative

1. Members of all cooperatives have the following rights:

(1) to participate in management and activities of the cooperative, vote for election of and be elected directors and officers of the cooperative, recommend proposals to improve on cooperative activities and eliminate shortcomings in the cooperative operations and performance of its management;

(2) to receive their share of profits subject to be distributed to the cooperative members in proportion to their labor contribution, or in proportion to their capital or investment contribution to the cooperative fund;

(3) to make use of the cooperative property, privileges and benefits, provided for the benefit of the membership;

(4) to obtain information on any question of the cooperative activities and operations.

Members of the manufacturing cooperatives further have the following additional rights:

(1) to obtain employment in the cooperative enterprise, including the right to select a profession or specialty in accordance with the employee's calling, talents, professional training, education and the cooperative's requirements;

(2) to rest or leisure time, paid vacations and holidays in accordance with the regulations promulgated for the given category of employees;

(3) to social security and social insurance; and

(4) to satisfaction of their cultural and other needs, as agreed on by the general meeting of the cooperative membership.



733

2. The members of all cooperatives are held to meet the

following obligations:

(1) to comply with the provisions of the cooperative charter and to obey the decisions made at the general meetings of the cooperative membership, elected board of directors and officers;

(2) to carry out their respective responsibilities related to the employment status or investment contributions;

(3) to participate actively in management of the cooperative business affairs; and

(4) to safeguard and solidify the state and cooperative property and to prevent waste and inefficient use of such

property.

The members of the manufacturing cooperatives further have the following obligations:

(1) to employ advanced forms and methods of cooperative work/production and be responsible for the results of their labor, to improve the industrial and labor discipline, work

safety techniques and their own qualification; and

(2) to utilize rationally and safeguard the natural resources in custody of the cooperative.

3. The members of the cooperatives also have other rights and obligations as provided for in the cooperative charter.

Article 14. Management of the Cooperative Enterprise

1. Management of a cooperative is carried out on the basis of socialist self-management, wide democracy, openness (glasnost), and the active participation of the membership in

decision-making on all questions of the cooperative activities.

2. The supreme body of management in a cooperative enterprise is the general membership assembly ("general assembly") which elects a chairman, or in larger cooperatives, which elects a board of directors. Every member, whether a natural person or an organization, has one vote regardless of the amount of its capital contribution. Employees of the cooperative also take part in the general assembly with the right to cast an "advisory vote."

3. General assembly acts as follows:

(1) it adopts the charter and amends or modifies it;

(2) elects the chairman, board of directors and the audit commission, and monitors their performance;



734

(3) decides on the questions of admission to, expulsion and withdrawal from the cooperative membership;

(4) adopts and amends the cooperative by-laws, employment compensation, and decides on questions of financial responsibility for damages to the cooperative and other internal affairs of the cooperative;

(5) determines the amounts for the admission fees and capital contributions in accordance with the charter;

(6) approves the plans for cooperative activities and financial or other statements;

(7) determines the order and procedures for distribution and allocation of profits and types, amounts and uses of the cooperative funds and reserve funds as well as the question of pricing; and

(8) decides the questions of reorganization and liquidation of the cooperative enterprise, its mergers and acquisitions and admission to and withdrawal from joint cooperative conglomerates or unions.

All of the above decisions are within the exclusive

authority and competence of the general assembly; however, other exclusive powers can be retained by the general assembly in accordance with the cooperative charter Or by vote of the general assembly. In larger cooperatives, the general assembly can

delegate some of its powers to a commission or agents accountable thereto.

4. The board of directors (or the chairman in a cooperative lacking a board of directors) manages daily affairs and

operations of the cooperative and makes decisions on all

questions not reserved to the exclusive realm of the general assembly or a committee appointed by it. The chairman of the

cooperative is also the chairman of the board of directors. Th? board of directors ensures the implementation of the decisions rendered by the general assembly or its committees, represents the cooperative in its relations with the governmental bodies, other enterprises and organizations, enters into agreements on behalf of the cooperative and acts in other ways.

The audit commission ("Revisor") conducts audits and

investigates the cooperative enterprise's financial and business performance.

Article 15. Termination of the Cooperative Activities

1. Reorganization (merger, consolidation, division, spin off, separation or other transformation) and termination of the business activities of the cooperative (liquidation) shall be effected according to a decision by the general assembly.

2. The cooperative activities may also be terminated on the basis of a decree by the Executive Committee of People's



735

Deputies in the event of insolvency or bankruptcy of the cooperative or in the event of multiple instances of willful and blatant violations of the law despite warnings to that effect. Such decree terminating the cooperative activities may be appealed within three months to the Executive Committee of the superior Soviet of People's Deputies, Council of Ministers of the Republic or to a court of law.

3. Property remaining after the liquidation of the failed cooperative shall be distributed in accordance with the provisions of the Civil Code, unless this statute governs and provides for special consequences.

Article 16. Unions and Associations of Cooperatives

1. Cooperatives may, on strictly voluntary basis, join together to form unions and associations on the basis of their activities and geographic location in districts, regions, autonomous and union republics as well as in the country as a whole.

2. The major objectives of such unions and associations of cooperatives consist of the following:

1) development of the cooperative democracy, collective discussion of particularly crucial questions of the cooperative activity, sharing of experience, generation of recommendations on how to utilize to the fullest the available resources and opportunities, and promotion of the cooperative movement;

2) facilitation of the improvement in the industrial or production specialization, coordination of the cooperative activities, establishment of commercial relation? between cooperatives to ensure adequate supply of materials and technology, storage and distribution of output;

3) research of the state of and the potential for developing the markets for goods and services to be provided for by the cooperative enterprises;

4) ensuring representation of the cooperatives in protecting their rights, rendering legal advice and representing their interests in state agencies, courts and international organizations; and

5) aiding the cooperatives in achieving higher industrial productivity, incorporating scientific and technological advances into the industrial process, promotion and advertising of products and training and education of personnel.

The representatives or agents of the cooperatives at a joint meeting may decide to empower the unions or associations to take on certain business functions to be centrally performed for a number of cooperatives.



736

3. The unions or associations of cooperatives shall be formed at meetings or congresses of delegates or representatives of the cooperatives. Such unions or conglomerates shall act on the basis of their charters adopted at the cooperative union meetings. The cooperative unions need not register its charters with a governmental body. The union of cooperatives begins its legal existence as a juridical person from the time its charter is adopted.

III. ECONOMIC FOUNDATIONS OF THE BUSINESS OPERATIONS IN THE COOPERATIVE SYSTEM

Article 17. The Foundations of the Cooperative Business Activities

1. The cooperative activities in the U.S.S.R are based on the principles of the socialist economic management, self financing, and wide utilization of commodity/monetary relations. The cooperative form of manufacturing and distribution of products and profits shapes the features of the business mechanism in a cooperative enterprise, as relating to planning, pricing, labor compensation, relation of the cooperative to the state budget and banks, and supply of materials and technology.

2. An industrial cooperative is an economically independent collective socialist supplier of material goods. The cooperative enterprise itself determines the directions of its activities, manufacturing capacity and structure, oversees its planning and organization and markets its goods and services.

A consumer cooperative is an independent business entity, which covers its expenditures with the membership fees and profits from its business activities.

3. Business transactions with the state, cooperative and other social enterprises, organizations and citizens, which constitute the market for selling the cooperative production (goods and services) and the market for supplying the cooperative

with raw and other materials, are conducted strictly on a contractual basis. A contract is the exclusive legal and economic document governing all terms of the transaction.

Compliance with the contractual conditions and full consideration of the consumer interests and needs are the supreme demand on the cooperative activities and are the basic criteria of the quality and effectiveness of its operations. Noncompliance with contractual obligations on the part of the cooperative makes it financially responsible for the breach in accordance with the terms of the contract and invokes the prescribed remedies. The state, cooperative and other social enterprises, organizations and private citizens also incur liability for noncompliance with contractual conditions and compensate the cooperative's damages in accordance with the agreement.

Entering into agreements, including the choice of contractual parties, is within the exclusive competence of the



737

cooperative and other government, cooperative and other

enterprises. Interference with the commercial relations between the cooperatives and other enterprise, organizations and private citizens by the state and cooperative agencies or their officials is not allowed.

Article 18. Planning

1. A cooperative plans its industrial, production and financial activities and its social development independently. All plans, proposed expenses and projected revenues shall be

approved by the general assembly of cooperative members. In

establishing such plans, the cooperative is to be guided by the demand for its production, goods and services and opportunities for penetration of the market and realizing profits, necessary to sustain the costs of industrial and social development and labor. Also to be considered is the effective utilization of land and other natural resources, maximum capacity of the plant, application of progressive technologies, economic consumption of raw materials, energy and other fuels, search for and use of local and secondary resources, decrease of industrial waste and

growth in the industrial labor productivity. The foundation for plans consists of contracts entered into with consumers of goods and services and suppliers of materials and technology.

2. A cooperative has the right to accept and execute

government orders, including those involving bidding alongside state, cooperative and other organizations. In order to fill a

government order, the cooperative may subcontract work with other

enterprises and enter into agreements with suppliers and end consumers. Cooperatives are to be actively involved in the economic competition with the state and other enterprises and organizations for state orders and contracts through achieving increased production quality of its goods and services and lower prices and costs. Cooperatives and their unions and associations may take part in wholesale trade fairs and enter into agreements with consumers and suppliers for the purchase of material and technical resources.

3. The cooperative is to consider the long-term economic

objectives set by the government in its planning activities, such as price and tariff levels on products and services rendered

pursuant to government contracts, income tax rates, interest rates charged on banks loans, fee payments for use of natural resources and for emission of pollution and waste into the environment, and payments to the state fund of social security. No other economic standards or criteria is suggested to be used in the cooperative planning activities. Cooperatives are to coordinate the questions of use of natural resources and

protection of environment with the Executive Committees of the local Soviets of People's Deputies.

4? To attain comprehensiveness in establishing production plans and the coordination of the cooperative business activity with that of the other enterprises and organizations within that cooperative's geographic service area or in the same industry,



738

the cooperative is to report to the management body or the enterprise under auspices of which the cooperative had been formed projected production capacity, projected sales and projected revenues and costs. In so doing, a cooperative may exercise discretion in deciding on the questions of supply of material and technical resources and contracting for construction and installation work for the production of goods or provision of services. The management body together with the cooperatives operating within the relevant territory or sector shall ensure comprehensive coordination of cooperatives' proposals and takes them into consideration in the overall plans for the economic and social development of that region or sector.

5. To produce more scientifically valid and balanced plans, central economic management bodies and their republican agencies, ministries, departments, union and autonomous republican Councils of Ministers and local Executive Committees of the Soviets of People's Deputies shall provide to cooperatives, upon their request, every possible assistance in the employment of normative documents on the organization of production, labor and capital construction and the implementation of measures calculated to make economical use of material and financial resources and measures affecting other areas of cooperatives' activity.

Article 19. Prices and Pricing Policies

1. Prices and tariffs for production (work, services) of the cooperative shall reflect the socially necessary cost of production and sales and shall take into account consumer behavior, quality of goods or services and market demand. Prices are to be formed on the basis of the mutual interests of the

cooperative and consumers as well as that of the national economy and must facilitate the development of the cost accounting and self-financing.

2. A cooperative sells its production and goods or provides its services at the prices and tariffs established by the cooperative pursuant to bargaining or negotiation with the consumers or wholly independently. The prices or tariffs developed in the commercial relations between the cooperatives and their customers are intended to influence the economic interests of the cooperatives, to stimulate improvement of the quality of their production, to advance technology and industrial organization, and to diminish unnecessary expenditures. Competition in the markets for goods and services is expected to effect lessening of the production costs.

3. The production of goods or provision of services made by the cooperative pursuant to government contracts or orders as well as the production manufactured by the cooperative of raw materials or other materials supplied by the state to the cooperative is to be sold to other enterprises, organizations or private individuals at the prices or tariffs set centrally, or where it is provided for by law to the state enterprises at the



739

negotiated prices or tariffs. The same rule applies to formation of retail prices for the goods distributed to the cooperative by the state from the government market reserves for reselling to the retail consumers and to setting prices and mark-ups for the goods sold by the cooperative which it bought in the state and cooperative retail commercial network. The cooperative may negotiate mark-ups or discounts with the customer in applying the centrally set wholesale prices for performing supplementary services in marketing, distribution and packaging.

4. The government control of prices or tariffs is exercised whenever the production of the cooperative is sold under government contracts or from materials or components supplied to the cooperative from the government reserves and whenever the cooperative resells the goods acquired in the retail commercial network. If the cooperative sells at inflated prices or tariffs, the illegal profits gained as a result of price gauging are to be disgorged. The cooperative shall also pay fines in the amount of the illegally-gained profit. In the event of selling at inflated prices, the purchaser has the right to void the transaction and to rescind the purchase agreement.

Article 20. Profits and Their Distribution

1. A cooperative due to its socio-economical nature is a

self-capitalizing enterprise or organization. Activity at a loss is incompatible with its very nature.

A cooperative's profits are formed from the revenues or receipts obtained from the sales of the production. From these revenues, a cooperative's costs are covered. Gross revenues are utilized by the cooperative to pay back its debts and obligations to creditors and banks and are Chanelled to the operating reserve in order to expand operations, to pay labor costs and to provide for social development. Th? right to distribute a part of the gross income to industrial or social development and to pay for the labor services is an exclusive right of the general assembly of th? cooperative members. Special attention should be paid to the scientifically-founded relationship between the labor costs and funds put into the development of the enterprise. A cooperative is to determine the types, amounts and procedures for formation of the various funds and reserves. The state and cooperative bodies do not set any rules regarding the cooperative funds.

2. The deductions to the centralized funds and reserves of the unions and associations of the cooperatives shall be made in accordance with long-term stable plans. The deductions are to be set on a democratic basis by the representatives of the cooperatives' meetings. These also decide on the procedure, distribution and use of the funds and reserves. Any interference by the government and state economic management bodies into formation and use of the centralized funds and reserves of the unions or associations of the cooperatives is forbidden.



740

Article 21. Taxation of the Cooperative Income

1. A cooperative participates in the formation of the state budget through its contribution of taxes and other payments provided for by the law. Taxation provides an incentives to the cooperative to choose effective directions to channel its business activities, for the industrial structure and technology and for methods of making profits. The tax structure also ensures the realization of the principles of social justice. The tax system must provide for a differentiated approach to setting the tax rates depending on the types of cooperatives and their business goals.

2. Taxes are collected from the revenues or income of the cooperative as well as from the personal income of the cooperative members and employees. In order to motivate the cooperative to expand production, the tax rates shall be stable and fixed for the period of at least five years. In order to assure economically sound relations between the means employed by the cooperative for the industrial and social development and for payment of labor costs, the tax rates on the income of the cooperative members and employees will be based on the progressive scale. In the event a cooperative sells its production at the centrally set prices or tariffs, taxation of the cooperative members and employees is to be done at the rates established for the employees of the state enterprises and organizations.

In order to stimulate the production of goods and provision of services most needed by the consumer sector and lowering of prices on such goods and services, the local Soviets of people's deputies and other government bodies are hereby empowered to grant complete or partial exemptions from taxation of the cooperative income and of the income of the cooperative members and employees in accordance with the Soviet federal law. A deduction shall be allowed for the amount of incoine contributed to the Soviet Children's Fund named after V.l. Lenin, Soviet Peace Fund, Soviet Cultural Fund and other charitable funds.

3. A cooperative involved in rendering services to its own members and at the same time involved in the manufacture or service industry for profit has its profit taxed at the rates set for the industrial cooperative enterprises.

4. The tax revenues collected from the cooperatives shall be wholly contributed to the budgets of the local and regional economies and used for the economic and social development of such territories so as to answer the local Soviets of people's deputies' concerns and to motivate them to expand cooperative business activity, creation of additional employment, and improvement in the marketing of consumer goods and services.

5. The cooperative shall strictly obey by the tax law. In the event of tax evasion or concealment of part or all of the taxable income, the cooperative shall incur a fine in the amount



741

of the concealed income and all other fines prescribed by the Soviet federal law. All recurring instances of tax evasion of income concealment shall cause the appropriate state finance

agency to petition the Executive Committee of the local Soviet of People's Deputies to terminate the business activity of such a cooperative.

Article 22. The Cooperative's Finances

1. The business activity of the cooperative shall be directed at strengthening its financial position by expanding its output capacity, increasing industrial efficiency, decreasing production costs and improving the production quality. The cooperative financial resources are to be formed from the sales of goods and services, amortization and depreciation deductions, capital contributions and membership fees of the cooperative members, other organizations and employees as well as from the obtained loans and credit arrangements and the funds obtained from the sale of valuable securities (shares of stock).

2. A cooperative employs its financial resources for industrial expansion and social development without any limitations, regardless of the source for such resources. The state, in rendering financial aid to the cooperative, may in its discretion contribute from its budget to the cooperative's capital expenses on commercial terms.

3. In order to form a stable financial structure and to compensate for damage incurred as a result of acts of God and other unforeseen events, a cooperative may insure its property and property interests with the government insurance agencies. Insurance is to be obtained by cooperatives voluntarily, pursuant to a decision of the general assembly. Cooperatives and their associations have the right to form cooperative insurance companies and to determine conditions, terms and types of insurance policies they write.

4. To mobilize the funds available among the cooperative members and employees and other enterprises and organizations and to use such funds as supplementary source of capital for

financing of the creation, expansion, conversion to new production lines and product mix reflecting demand and technical modernization of the cooperative enterprise, cooperatives and their associations may issue shares of stock for sale and distribution to the cooperative members, their employees and to other organizations and enterprises.

Shares to be issued by a cooperative or its union or association shall be governed by the federal legislation of the U.S.S.R. and shall comply with such regulation. The stock so issued shall be guaranteed and secured by the property of the cooperative. The total price for all outstanding stock of a cooperative shall not exceed, as a rule, total gross revenues of such cooperative. Members of the cooperative shall acquire preferential rights or options to purchase shares. The cooperatives and their associations are to determine the par



742

value of the shares, which shall remain irrevocable for the period of their validity, and the procedure for payment of annual dividends. The amount of annual dividends may be set by the general assembly of the cooperative with participation of the stockholders on the basis of projected revenues and cooperative management strategies.

The permission to issue stock is granted to a cooperative by the competent financial authorities in coordination with the Bank of U.S.S.R. which services the issuer cooperative after the examination of the cooperative's credit history. In case of the refusal to grant such a permission, the authority shall provide to the cooperative an explanation of the reasons. Decision to disallow issuance of stock may be appealed to a superior financial authority. The state shall not be responsible for the cooperative obligations incurred in connection with the issuance, distribution and trade of its securities.

Article 23. Credit and Payments

1. Availability of credit in the cooperative system facilitates strengthening of the financial position of cooperatives, stimulates their development and diversification of consumer product lines and general expansion of production of industrial goods and services. Newly created cooperatives may be entitled to credit on special conditions which are set by the banking institutions. Cooperatives shall have the right to open bank accounts for financial transactions in the locations where its branches, factories and wholesale and retail points are situated. The cooperative shall further have the right to select a bank independently.

2. Credit is to be extended to cooperatives by banks on the basis of credit agreements setting forth respective obligations and responsibilities of the parties. For use of the credit cooperatives are to pay interest to the banks in the agreed amount. Banking institutions are to keep the deposited funds of the cooperative in their business and other accounts, and for the use of deposits, the banks shall pay interest to the depositor cooperatives. In addition to giving business loans, the role of the banks is to process transactions of the cooperatives and to render them the necessary assistance in financial management.

In order to guarantee independent decision making and business management of the cooperative with regard to disposal of its funds, any debiting of the cooperative accounts may be lawfully accomplished only upon directives of the cooperative or by a court or arbitrator's decree. A cooperative is to settle financial transactions, including payments to the treasury and payment of labor wages and salaries in the order of their accrual. Cooperative are to settle their accounts on obligations to other enterprises, organizations and individuals through credit transfer via financial institutions or through cash transactions without any restrictions on the amount of the payments. A cooperative shall independently determine the upper limit of its bank cash deposits kept to satisfy current liabilities.



743

3. The cooperative should strengthen the accounting discipline and bears full responsibility for compliance with credit agreements and meeting payment schedules. A cooperative that systematically fails to meet its obligations in repaying its debts may be declared in default and insolvent by the creditor bank. To take measures toward improving the cooperative financial health, the creditor banks shall be entitled to fix priorities of payment among the other creditors of the insolvent cooperative. Creditor enterprises and organizations which are

suppliers of the debtor cooperative may stop deliveries in progress or rendition of services to the cooperative declared insolvent. As an exception, cooperatives may obtain credit using guarantees of its parent cooperative or enterprise, under auspices of which the debtor cooperative was formed.

In the case of operating at a loss and insolvency of the debtor cooperative, a creditor bank has the right to raise the question of liquidation of the insolvent cooperative before the Executive Committee of the local Soviet of People's Deputies, provided that property interests of all other creditors are protected in the course of the liquidation.

4. A cooperative may lend money and provide credit with its own funds to other enterprises and organizations on th? basis of mutual agreement, including the terms of interest charged for use of the funds.

5. Unions and associations of cooperatives shall have the right to form industrial or regional cooperative banks. Cooperatives constituting membership of such unions or amalgamations shall enter into the banking business voluntarily. A cooperative bank is a financial institution, which provides funds for the development of cooperatives, facilitates commercial transactions for its customers depositors and borrowers and represents its clients' interests in the financial government authorities. On the basis of investment contract with the issuer cooperative or its union or association, banks may perform certain functions or operations in connection with issuance and distribution of securities and shares of stock of the cooperative.

Cooperative banks are to utilize the available funds of cooperatives on the basis of mutual agreement. Such banks may also take deposits from other enterprises, organizations and individuals and borrow money from certain specialized banks of the U.S.S.R. Cooperative banks may also participate as a member of cooperatives with their funds on the basis of a mutual agreement.

The charter of cooperative banks shall be registered with the State Bank of the U.S.S.R.

Unions or associations may upon consent of their member cooperatives form financial syndicates which shall act as a single borrower and debtor on the collective obligations of the member cooperatives in dealing with creditor banks and other enterprises and organizations.



744

6. Pursuant to a decision of the general assembly, the cooperative may place part of its available funds into government obligations, bank certificates of deposit and other valuable securities. All profits realized from such operations are to be credited to the cooperative assets.

In order to ensure formation of financially stable cooperative enterprises and compensation for injuries and damages or losses caused as a result of acts of god, force majeure and other unforeseen events unrelated to the cooperative activity, the cooperative may insure its property and property interests in the state insurance agencies. Insurance is to be obtained voluntarily by the decision of the general assembly of the cooperative membership. The cooperatives and their unions and associations have the right to establish cooperative insurance companies and determine terms of, procedures for and types of insurance policies.

Article 24. The Social Development of the Cooperative.

1. A vigorous social policy must be pursued as a very important avenue of the cooperative's activity. Matters concerning the cooperative's social development shall be decided by the general assembly. A cooperative is to show concern to improve working and living conditions and to meet the interests and needs of its members, its employees, and their families, and it is also to assist them in every way in cooperative and individual housing construction, and to provide loans for these purposes. A cooperative is to show special concern for war and labor veterans.

2. A cooperative constructs residential housing, pre-school establishments and other social facilities out of its own resources, takes part in such construction on a shared basis and may also lease or acquire such facilities.

3. A cooperative conducts its social activity in close collaboration with the local Soviets of People's Deputies and the state agency that manages the sector of the national economy to which the cooperative by its activity belongs.

Article 25. Labor and its Remuneration

1. Labor in a cooperative is as socially significant as the labor of workers and employees in state enterprises and organizations.

Labor relations between members of cooperatives are regulated by the present statute and the cooperatives' charters, while the labor relations of employees are regulated by the U.S.S.R. and union republican labor legislation.

2. A cooperative uses labor compensation as a very important means of providing incentives to increase labor productivity, enhance product quality, and tighten up production and technological discipline.



745

A cooperative independently determines the forms of and systems for remunerating the labor of its members and employees. Labor remuneration in cooperatives can be in money or in kind. Labor organization and remuneration are, as a rule, based on the principles of the collective, family and individual contract and on the end results of work. Cooperative members' individual earnings are determined by their labor contribution and the size of that part of its gross income which is directed towards labor remuneration.

A cooperative may employ under employment contract citizens who are not cooperative members with payment for their labor being agreed between the sides.

People working in cooperatives in their spare time outside their main occupation are not subject to the restrictions defined in the legislation on combining more than one job.

Citizens working in a cooperative are entitled to and retain their pension, study grant or stipend and wages from their main job in full. The maximum wages of cooperative members and other workers are not subject to any limitation.

3. A cooperative independently determines measures of disciplinary responsibility for its members.

Disciplinary penalties, including dismissal, can be imposed on the chairman of a cooperative and members of the board of directors and auditing commission only by decision of the general assembly of cooperative members and on officers and other administrative or executive employees also by the cooperative board of directors. No state or cooperative bodies are entitled to impose disciplinary penalties on the chairman, officers or other administrative or executive employees of a cooperative.

Together with material incentives, a cooperative makes extensive use of a system of moral incentives to achieve high production indicators and conscientious work.

4. The length and division of the working day in a cooperative and the procedure for granting days off, leave, vacation, including extra days, and other work conditions are defined in the cooperative's by-laws.

A cooperative is to take measures to ensure safety at work and accident prevention and provide hygienic and sanitary conditions at work, guided by the provisions and norms laid down for state enterprises and organizations in the relevant sectors of the national economy.

5. Members of a cooperative who participate therein by their labor receive the same social insurance and social security benefits as workers and employees. The time spent working in the cooperative is included in their length of service record.



746

Pregnant members of a cooperative are granted lighter work while retaining the average earnings of their previous job. They receive the same length of antenatal, maternity and postnatal leave and other benefits for pregnant women and women with young children as those fixed for women who are state workers or employees. A cooperative may allow extra leave for them. Women with young children are to be provided the requisite child-care facilities.

A cooperative fixes for members or employees under 18 a shorter working day and other benefits provided for workers and employees under existing legislation.

By decision of its general assembly a cooperative is entitled to introduce additional social security benefits for its members out of its income.

6. A cooperative is to make deductions out of its income into the state social insurance fund by the procedure and on the scale fixed by the U.S.S.R Council of Ministers to provide for its members' social insurance and social security rights.

Article 26. Economic Incentives for Scientific and Technical Progress.

1. Cooperatives' activity in the sphere of scientific and technical progress must be aimed at producing goods and services that are competitive on the market. A cooperative is to update its goods in timely fashion, adapting to meet the needs, requirements and demands of consumers. To this end the cooperative is to raise its technical standards and to improve its technology.

2. A cooperative has the right to enjoy the results of the work of academic and sectoral science and production, planning and design, and technological institutes on an equal footing with state sector enterprises and organizations on a contractual basis.

The state supports in every possible way the extensive use of the latest achievements of science and technology within the cooperative system and resolutely discourages all actions by administrative organs and state officials to hinder this process.

State bodies are obliged to examine cooperatives' proposals and applications for scientific research and experimental design work, reach appropriate decisions on them and assist their implementation on a financially autonomous basis in every way.

3. A cooperative is entitled to set up by itself or jointly with other enterprises or organizations, science, technology and other creative research groups to carry out research and introduce scientific developments into production on a contractual basis.



747

4? The quality of goods and services is a determining factor in assessing the results of a cooperative's activity and the introduction of the achievements of scientific and technical progress. Concern for the honor of its brand name should be a matter of professional pride for every member of cooperative. To enhance the quality of their goods and services and raise their competitiveness cooperatives and their unions or associations have the right to hold exhibitions and trade fairs for their products and services, advertise their goods and services extensively through the mass media and issue publicity or promotional materials.

The quality requirements for cooperative goods and services, and the necessary measures to ensure quality, must

satisfy U.S.S.R and union republican quality control legislation.

The cooperative must ensure the strict observance of state standards and other norms protecting the interests of the state and consumers, particularly health and safety requirements and environmental protection. Cooperative goods must show the manufacturer's name and have a trade mark registered under the

prescribed procedure except in cases for which provision is made under U.S.S.R legislation.

During the period when new high-quality goods and services involving increased production costs are being assimilated a

cooperative may be allowed income tax benefits and exemptions in accordance with the procedure prescribed by U.S.S.R legislation.

State bodies in conformity with their responsibilities strictly monitor a cooperative's observance of U.S.S.R and union

republican legislation on the quality of goods, jobs and services.

Article 27. Material and Technical Support for the Cooperative.

1. A cooperative acquires its required raw and semi finished materials, tools, equipment and other goods wholesale from state and cooperative enterprises and organizations, collective farm markets and individuals, uses material resources

obtained from customers (citizens, enterprises and organizations) under contracts concluded with them, and also acquires goods in the state and cooperative retail trade network. Local Soviet of People's Deputies Executive Committees may draw up a list of food items and other products which are not to be sold to cooperatives in the state and cooperative retail trade network. If a cooperative acquires such restricted goods in the retail trade network and uses them to produce goods, jobs and services, all income received from their sale is subject to confiscation and fine.

The state adopts measures to develop the network of wholesale bases and specialized shops for supplying cooperatives with goods in accordance with their orders.



748

2. A cooperative's production of goods, jobs and services under contracts to carry out a state order is to be backed up by centrally allocated material and technical resources.

3. In order to produce goods, jobs and services, a

cooperative organizes, if necessary, the extraction and processing of local raw materials and materials and minerals according to the set procedure, the collection and processing of secondary resources and waste products, subsidiary agricultural production and the manufacture and repair of equipment, tools and appliances, and its own after-sale service.

4. A cooperative has the right to acquire, exchange, lease and loan from state, cooperative and other social enterprises or

organizations and citizens unused buildings, premises, machinery, equipment, means of transport and raw and other materials.

5. A cooperative producing consumer goods or offering services to the population is to pay for material and technical resources at wholesale prices with mark-ups, if any, or at retail prices; in their absence payment shall be at contract prices.

A cooperative specializing in manufacturing technological or industrial goods and offering services to state enterprises and organizations purchases its raw and semi-finished materials, tools, equipment and goods at wholesale or contract prices.

Article 28. A Cooperative's Foreign Economic Activity

1. Cooperatives and their unions or associations play an active part in foreign economic activity, help strengthen the country's economy and enhance its international standing, accumulate foreign currency holdings and create opportunities to speed up scientific and technical progress and increase the efficiency of cooperative production.

Foreign economic activity by cooperatives and their unions or associations is carried out on the basis of foreign currency self-capitalization and self-financing.

2. Cooperatives engaged in production and their unions or associations whose products, jobs and services are competitive on the foreign markets may be granted in accordance with set procedure the right to carry out their own export and import transactions.

Cooperatives and their unions or associations may also carry out their transactions relating to the export and import of goods, jobs and services on a contractual basis through the relevant foreign trade organizations.

Cooperatives and their unions or associations are entitled to carry out foreign trade transactions with foreign cross-border trade partners in accordance with the set procedure.

3. To increase economic interest and responsibility and to enhance independence in carrying out export and import



749

transactions the foreign currency earnings of cooperatives and their unions or associations from the export of goods, jobs and services are, after appropriate deductions have been made in line with the standards set by the U.S.S.R Council of Ministers, at the cooperatives' disposal, cannot be confiscated and may be held over for subsequent years.

Cooperatives and their unions or associations may use foreign currency resources earned from the export of goods, jobs and services to import the equipment, raw and semifinished materials and other goods, jobs and services necessary to develop their production and increase commodity turnover and to strengthen the material and technical base of the socio-cultural sphere.

Where a union or association of cooperatives is authorized to directly carry out export and import transactions, currency earnings from foreign economic activity are distributed, after state deductions have been made, in proportion to each cooperative member's contribution to those currency earnings. By general assent of the cooperatives belonging to a union or association some of the foreign currency earned by them may be transferred into the centralized fund of the union or association.

4. To accelerate scientific and technical progress and enhance the competitiveness of their goods and services, cooperatives engaged in production activity may set up joint enterprises and international associations and organizations with relevant organizations in CMEA and other socialist countries and joint enterprises with companies in capitalist and developing countries.

Cooperatives determine by agreement with their foreign partners the specialization of joint enterprises or organizations and the volume and structure of production based on the effective demand for the goods, jobs and services and the conditions of their sale, including prices or tariffs. Joint enterprises or organizatio

Documents

UNION OF SOVIET SOCIALIST REPUBLICS: LAW ON COOPERATIVES