Khaleej Times, Saturday, Nov 12, 2022 | Rabi Al Thani 17, 1444
New law to help cooperatives in diversification, cover more sectors
Emirates:
New Cooperative Law will encourage members of the community to establish
cooperatives in new sectors and diversify their operations to increase its
contributions to the UAE’s non-oil gross domestic product (GDP) to five per cent
by 2031, says a top official of Ministry of Economy.
Abdullah bin Ahmed Al Saleh, Undersecretary of the Ministry of Economy, said the
UAE issued the Federal Decree-Law No. 6 of 2022 on cooperatives, aimed at
developing and enhancing the cooperatives sector to take it to higher levels of
prosperity.
“In light of the new law, the Ministry of Economy has set two new goals. The
first one is to increase the contribution of cooperatives to the non-oil GDP to
five per cent by the year 2031 as compared to the sector’s current contribution
of less than one per cent. The second goal is to increase the number of members
contributing to cooperative unions to nearly 500,000 from the current 100,435,”
Al Saleh said at the media briefing.
The ministry urged the cooperatives to diversify their operations to various
kinds such as consumption cooperatives, production cooperatives, employees' and
professionals' cooperatives, community cooperatives, service cooperatives
(financial and health), digital cooperatives, platform cooperatives, and other
cooperatives approved by the Cabinet.
The Ministry of Economy said law establishes a milestone in the cooperatives
sector, thus contributing to building a leading cooperative experience that
keeps pace with international standards.
Al Saleh emphasized that the UAE, in line with its wise leadership’s vision and
directives, has adopted a new perspective on the development of the cooperatives
sector, in order to position it as a key pillar to the country’s sustainable
economic and social development.
The country is keen to launch policies that comprehensively enhance the
performance of this key sector, strengthen the cooperatives system and its
contribution to the national GDP, and support the diversity, competitiveness,
and sustainability of national economy in line with the principles of the 50 and
the UAE Centennial 2071 goals.
New regulations soon
Al Saleh said the new law on cooperatives marks an important stage in the
development of the sector’s governance.
“The Ministry of Economy and its partners, including local and federal
government entities, the cooperatives sector, and the private sector, have
adopted a proactive and flexible approach to the development of the law, also
taking future economic trends into consideration,” he said.
Furthermore, he said the ministry relied on comparative studies that use
advanced countries in the field of cooperatives as case studies.
“The UAE Federal National Council has also reviewed the Law to ensure an updated
and integrated legislation in line with global best practices, and to meet the
evolving needs of the UAE’s business environment.”
Flexible and proactive approach
The Ministry worked alongside its partners to develop the articles of the law by
following a flexible and proactive approach that foresees future trends and
through comparative studies that analyzed leading global cooperative models in
order to create the new, integrated legislation. It aligns with global best
practices and efficiently meets the demands of the UAE’s business environment.
Al Saleh stated that the new law is an extension of the legal and corporate
frameworks governing the UAE’s cooperatives sector currently, ensuring its
sustainability and maximizing its growth potential.
“The law creates new prospects for all members of society to participate in the
cooperative sector’s operations, in addition to building a new generation of
leaders in the cooperatives sector. It generates more employment opportunities
in this vital sector, encouraging and spreading the innovative cooperative
culture in society. This will be achieved by allowing non-citizens to obtain
memberships in the country’s cooperatives, except for consumer cooperative
associations with memberships that are exclusive to UAE nationals,” he said.
More room for unions
As per the law, cooperative unions in the UAE will have more room to diversify
their activities and expand in the country’s markets while ensuring complete
protection of the participants’ rights. The law also supports building leading
Emirati cooperative associations in new sectors, most notably the new economy
sectors, as well as in the fields of health, education, tourism, financial
services, and other vital and priority sectors in the UAE.
The law allows for listing and trading cooperative associations in the country’s
financial markets in order for them to benefit from the advanced and innovative
services provided by the country’s financial markets in terms of transparency,
flexibility, and speed of procedures.
The law also supports the expansion of cooperatives’ activities and businesses
in the country and the provision of technical, financial, operational, and
marketing support to them by allowing them to add strategic partners for the
benefit of the cooperative. The Ministry of Economy will issue a decision
shortly specifying the terms and procedures for adding strategic partners to
cooperatives.
In addition, the law gives cooperative associations the right to establish all
types of companies, as per the requirements and procedures specified by the
relevant authorities. They also have the right to acquire shares in other
companies and cooperative associations, as well as the option to acquire or
participate in the establishment of commercial companies or cooperative
associations, whether alone or with others.
Supporting digital economy
The new law supports the national digital economy as well by allowing the
establishment of new cooperative association in digital fields, and the
expansion in advanced technological activities, thus keeping pace with global
advancements in this regard, and supporting the UAE’s vision on investing in and
expanding the new economy sectors.
Al Saleh emphasized that the new law supports the UAE’s efforts in organising
cooperative work in accordance with the international best practices, as it has
seven conditions that cooperative associations must adhere to in order to
maintain the core principles of the cooperative sector. Most notably, these
include the implementation of the general policy of cooperative unions emanating
from the law and its executive regulations; voluntary contribution to social
responsibility, especially by allocating a percentage of their annual or total
profits for this purpose; not inciting hatred and sectarian, racial or religious
conflicts; and working to raise the social and economic prosperity of their
members.
Al Saleh clarified that the new cooperatives law organises all the procedures
and working mechanisms in the field, as well as the establishment of new
cooperative associations in the country. The law also grants the Ministry of
Economy and relevant authorities the right to oversee and follow up with
cooperative unions and their activities, members, and contributors according to
clear methods, in addition to governing the general policy preparation processes
for cooperative unions and their categories.
He further pointed out that the new law will be implemented starting December
2022, and that the Ministry is currently preparing its executive regulations, in
collaboration with its partners from federal and local entities and
representatives from the cooperative, and it is expected that these regulations
will be issued within the next six months.
“The new law identifies the rights and obligations of cooperative societies and
regulates their account auditing processes and compliance as per the best
practices in a manner that preserves the rights of all concerned parties. The
law also regulates judicial governance and all aspects of cooperative societies’
work, granting existing cooperative societies a period of no more than two years
to adjust their statuses,” Al Saleh said.
Samah AlHajeri, director of Cooperatives & Strategic Reserve, Ministry of
Economy, said the UAE is moving forward with the development of the cooperative
sector in accordance with international best practices, thus cementing the
national economy’s strength and promoting its resilience and sustainability, and
ability to compete regionally and globally.
During the media briefing, AlHajeri highlighted the main provisions of the new
law, which foster the readiness and growth of the UAE cooperative sector and
promote its competitiveness regionally and globally. These are:
• The standards to incorporate a new cooperative society in UAE. During
the incorporation phase, the founders shall elect, from among themselves, a
committee comprising not less than three persons, including a president, a
vice-president, and a financial officer, to assume the tasks and mandate to be
agreed upon to complete the procedures of incorporation, contracts, and
disbursement and legally represent the cooperative society before official
entities. The founders shall be jointly responsible towards the cooperative
society’s obligations during the incorporation phase, as well as the funds to be
deposited in the cooperative society’s account.
• The
law enables cooperative societies to open branches in UAE, subject to
the approval of the concerned authorities.
• The law grants the cooperative society the right to transform into a
company in the specified form, as per the conditions to be stipulated in the
executive regulations of the law. Moreover, a cooperative society may merge with
another one, subject to the approval of the concerned authority.
• The law enables cooperative societies of the same type to incorporate
a cooperative union among themselves; cooperative societies, irrespective of
their number, may establish joint cooperatives, subject to the requirements
stipulated in the executive regulations of this law.
• Upon its formation, the cooperative society will have a legal entity
and a financial liability that is independent from the members. The cooperative
society is entitled to borrow from the private or the public sector, issue
bonds, securities or any financial instruments or shares according to conditions
and standards to be specified in the executive regulations.
Al Hajri also explained the requirements related to the membership of
cooperative societies in the country, most notably:
• The establishment of a cooperative society comprising at least 10
people with an exception may be made by a decision from the competent authority.
The executive regulations of the law specify the conditions of forming the board
of directors, its terms of reference, the provisions of assignment, exit, heirs,
and voting.
• Cooperatives must keep a Cooperatives Register, which includes all
data about the members, their qualities and the number of shares they own. The
cooperative shall have a capital to the extent necessary to achieve its
purposes, consisting of nominal shares of equal value.
• The cooperative's capital consists of cash shares and in-kind shares.
The cash contributions should be deposited in a bank in the country, and the
in-kind shares are financially assessable assets not pledges or services.
• The law divides cooperatives into two categories: the first category
is non-core cooperatives where each contributing member has one vote regardless
of the number of shares he owns. The second category is core cooperatives that
may grant additional privileges to the contributing members, including multiple
voting rights, increased volume of investments, and other preferential rights
according to conditions and controls to be stipulated in the law and its
executive regulations.
In addition, the law specifies penalties and fines for violators, the most
prominent of which are:
• A fine of no less than Dh200,000 and not more than Dh1 million, for
anyone who furnishes false or misleading data in the articles of incorporation,
statutes, share prospectuses, or annual statements and reports.
• A fine of no less than Dh100,000 and not more than Dh1 million for
anyone who unlawfully uses a name or logo that disguises it as a cooperative.
This also includes those who use a cooperative logo illegally.
The new law clarifies that the distribution of net profits after deducting the
legal reserve stipulated in the new law is 10 per cent of the net profits to be
deducted annually, up to 50 per cent of the capital.
The distribution of profits shall be in the form of returns on transactions
granted to each member according to the volume of his dealings with
cooperatives, returns on shares for all members according to the percentage
approved by the General Assembly, returns on financial shares and financial
instruments, in addition to the remuneration of members of the board of
directors, provided that the General Assembly of the cooperative determines this
bonus, not exceeding 10 per cent of its annual net profit, as well as what the
General Assembly decides to allocate to social responsibility.