In Brief:
- In August 2022, the UAE enacted a new law on Cooperative Societies that fundamentally improves their legal framework, and will greatly affect the development and operation of Cooperative Societies.
- The licensing, regulation and supervision of Cooperative Societies is transferred from the Ministry of Social Affairs to the Ministry of Economy, together with the local licensing authority in the respective Emirate.
- Cooperative Societies must regularise their status and align with the new legislation within two years of the entry into force of the law.
A cooperative is a society formed by a group of persons to achieve economic, social, cultural objectives and needs. Although cooperatives ("Coops") are mostly associated with food and supermarkets, they can have several objectives, and a variety of means to achieve them.
In line with its objective of developing a strong Coops sector that contributes significantly to the GDP, the UAE has introduced on 17 August 2022 Federal Decree Law no. (6) of 2022 ("Law"). This enactment replaces Federal Law no. (13) of 1976 on Cooperative Societies and Federal Law no. (2) of 1975 on Agricultural Cooperative Societies ("Old Laws"), which have governed Coops in the UAE since the mid 1970s.
The new legislation fundamentally improves the legal framework of Coops in the UAE by addressing issues that arose under the repealed Old Laws. It empowers Coops to embrace a transformative mind-set, and to seek investment opportunities, which will allow them to grow. Some of the main objectives of the Law are to enhance the role of Coops in achieving sustainable development and the development of a non-traditional cooperative sector.
The most significant change introduced in the Law is the transfer of powers from the Ministry of Social Affairs, which previously oversaw the application of the Old Laws, to the local licensing authority of each Emirate (the "Authority"), in conjunction with the Ministry of Economy ("MOE"). The role of the MOE is regulatory in nature, and almost all executive and approval powers are held by the Authority, which is also in charge of registration of the Coops. Powers are generally shared between the MOE and the Authority, and according to Article 22, the Cabinet may delegate any of the powers of the MOE to the Authority.
The change in the supervisory authority demonstrates the intent of the UAE to promote Coops as a commercial sector, which also explains the many similarities with the provisions governing commercial companies.
The Law includes many noteworthy improvements to the legal framework of Coops. For example, Paragraph 2 of Article 6 grants a legal personality to the temporary committee appointed by the founding members at the incorporation stage. Also, Coops will be subject to a governance regime to be prepared by the MOE and approved by the Cabinet. Additionally, Article 10 introduces a distinction between Major and Non-major Coops. Such distinction has significant importance, because it impacts how the shareholding of Coops could be structured, Shareholders in major Coops may benefit from certain privileges, such as multiple voting rights, or preferred rights, and such Coops may avail of special voting systems.
Also, the Law gives Coops a range of means of growth. For example, it allows Coops to establish companies, acquire shares in existing companies or cooperatives, open branches throughout the UAE, list their shares on the financial markets in the UAE, and incorporate joint or union Coops.
Another key feature of the Law is the classification of Coops into six categories: consumer, production, employee and professional, community, service (financial, health, educational, and housing, etc.), digital and platform Coops, and any other category of Coop that the Cabinet may introduce based on the recommendation of the MOE.
In order to stimulate the growth of Coop, the Law reduces the minimum number of members from 15 to 10, and fewer members could be accepted if justified. Additionally, membership is no longer reserved for UAE citizens for most categories of Coop.
The Law also includes important good governance provisions. First, Coops have to be managed by a board of directors ("Board"). The Board shall elect a Chairman, Vice Chairman, and may elect a Managing Director. Second, a person cannot be a member of the Board of more than one Coop with the same objectives. Members of the Board cannot hold positions as Chairman, Vice Chairman, or be part of the executive management in the same Coop or in another Coop. Furthermore, the Managing Director of a Coop cannot simultaneously hold the position of Chief Executive Officer or General Manager in another Coop.
According to the Law, Coops in the UAE must regularise their status and align with the Law within two years of the Law's entry into force on 1 December 2022. There are many provisions of the Law that await clarification and/or further details that should appear in the executive regulations. Therefore, the provisions of the Law cannot be fully implemented until the executive regulations issues further clarifications, which is expected by end of June 2023.
Should you require any information on the newly enacted law on Cooperative Societies, or any assistance in the regularisation process, please contact Yasser Omar, co-author of this article, Executive Partner, and Head of Corporate and Commercial, Abu Dhabi.