Framework Act on Cooperatives to Take Effect from

December 2012

The Ministry of Strategy and Finance announced on January 26 that the Framework Act on Cooperatives, passed at the National Assembly on December 29, 2011, will be enforced from December 2012.  The act is expected to help boost Korea’s real economy, as it will encourage the establishment of small businesses and contribute to job creation. 

A cooperative or a federation of cooperatives is a unique corporation, different from an incorporated company defined by the Commercial Law, as it is operated democratically by member companies, owns property in common and puts a limit on the amount of dividend payments.  Various kinds of businesses including services can form cooperatives or federations of cooperatives, such as those of daycare, nursing, cleaning and recycling as well as manufacturing and distribution.  There are many types of businesses worldwide run as cooperatives or federations of cooperatives, such as FC Barcelona, Allianz and the Associated Press (AP). 

From December this year, five or more incorporators from any industry will be able to establish a cooperative following the process the act stipulates.  Cooperatives shall be legal entities as they will report the establishment to the relevant city mayors or province governors, and social cooperatives, which usually provide welfare services to vulnerable groups, shall be legal entities as they will report the establishment to the minister of strategy and finance.  The minister “shall administer policies on cooperatives, establish a master plan and conduct a factual survey every three years”, the result of which is reported to the competent standing committee of the National Assembly.

To prepare for enforcement of the law in December, a joint ministerial task force was established on January 18.

Rationale behind the Act

The Framework Act on Cooperatives enables the establishment of cooperatives or federations of cooperatives in various industries, providing small businesses with opportunities for fair competition.

The act gives cooperatives or federations of cooperatives the status of a legal entity as a corporation, which eliminates difficulties faced by bodies without the status.

The act covers matters not included in existing acts, meeting new demand from social and economic changes.  Thirty-two organizations including the Consumer Cooperation International in South Korea formed a committee to work on the enactment of the cooperative law in October 2011. 

The act was recommended by the United Nations and the iCOOP Solidarity of Consumer Co-operatives, as the organizations designated 2012 as the year of cooperatives in UN Resolution 64/136, ‘Cooperatives in Social Development’ in 2009.  Interest in cooperatives has been rising as they can contribute to social integration by narrowing gaps between developed and developing countries, as well as gaps within countries.