The New Cooperatives Law and Its Key Rules on Formation, Management and Profit Distribution

Umm Al-Qura published the Cooperatives Law in its Regulations and Laws section on 7 Rabi II 1448 AH, corresponding to 18 September 2026, according to the date shown on the publication page. Under Article 48, the new law replaces the Cooperative Societies Law issued by Royal Decree No. M/14 dated 10 Rabi I 1429 AH. The law concerns anyone who establishes a cooperative or takes part in its membership or management.

In Brief

The law requires at least twelve founders, and a cooperative acquires legal personality once it is registered with the Ministry and publicly announced. Each member has one vote in the general assembly regardless of the number of shares held, and each member’s liability is limited to the shares he or she owns. The law sets mandatory percentages for profit distribution and gives the Ministry oversight powers that extend to dissolution and liquidation. It takes effect ninety days after its publication in the Official Gazette.

What Is a Cooperative Under the New Law and Who Supervises It?

Article 1 defines a cooperative as an independent association that its members join voluntarily to meet their shared economic, social and cultural needs through joint ownership. Under the same article, a member may be a natural person or a legal entity. Article 5 provides that a cooperative serves its members primarily and may serve others as long as this does not prejudice the interests of its members.

Article 1 defines the Ministry as the Ministry of Human Resources and Social Development, which oversees and supervises cooperatives under Article 39. Under Article 2, technical supervision of activities lies with the relevant government authorities, each within its own remit, in coordination with the Ministry.

How Do You Establish a Cooperative and How Long Does the Ministry Take?

Article 3 provides that a cooperative must have at least twelve founding members. In exceptional cases specified in the Implementing Regulations, the Minister may approve formation with at least five members. Under Article 12, the founders prepare the memorandum of association and the bylaws and are jointly liable for the costs and obligations of formation. The same article provides that formation expenses are repaid to them from the cooperative’s capital after registration and public announcement.

Article 13 sets out what the memorandum of association must contain, including the names of the founders, the cooperative’s head office, its type and objects, the amount of capital and the value of each share. Article 14 details the content of the bylaws, such as membership conditions, the powers of the board and the general assembly, and the rules for distributing profits and covering losses. Under Article 10, the cooperative’s name must indicate its cooperative nature and the type of its activity.

Under Article 16, the Ministry reviews the application and registers and announces the cooperative within sixty days of the application date if all requirements are met. If the application is incomplete, the Ministry notifies the applicant and grants a period set by the Implementing Regulations, failing which it may reject the application. Article 9 provides that a cooperative acquires legal personality only after registration and public announcement.

What Are a Member’s Rights on Withdrawal, Expulsion or Death?

Article 7 allows a member to withdraw and transfer his or her shares to another member or to a non-member with the approval of the board of directors. If a transfer is not possible and the board approves the withdrawal, the member recovers the value of the shares plus any profits earned or minus any losses incurred.

A member who loses membership because a membership condition is no longer met, or who is expelled, recovers the value of his or her shares in the same way. On a member’s death, the heirs agree either that one, some or all of them will take the member’s place if they meet the membership conditions, or that the value of the shares will be refunded. Article 8 limits a member’s liability to the shares he or she owns, and Article 6 provides that the share value is fixed except in cases specified in the Implementing Regulations.

How Is the General Assembly Convened and What Is Its Quorum?

Under Article 17, the general assembly consists of all members and meets at least once a year. An ordinary meeting is valid if twenty five percent of the members attend. If the quorum is not met, the meeting is postponed for fifteen days and is then valid with ten percent attendance. Resolutions are passed by a majority of the votes of those present, the chair has the casting vote in a tie, and meetings and voting may be held by technological means.

Article 18 provides that each member has one vote regardless of the number of shares he or she owns. A member may appoint another member who does not sit on the board of directors as proxy, and no member may act as proxy for more than one member.

Extraordinary meetings are governed by Article 21 and deal with amending the bylaws, disposing of real estate and investments, dissolution, merger and division. A majority of members must attend for the meeting to be valid. If the quorum is not met, the meeting is postponed for fifteen days. The postponed meeting is valid with twenty five percent attendance, and its resolutions then require a majority of seventy five percent of those present. If this quorum is not met either, those present may decide unanimously and refer their resolutions to the Ministry for consideration and approval.

What Are the Rules on Board Composition and Term of Office?

Article 22 requires every cooperative to have a board of directors of at least five members elected by the general assembly. The article allows persons who are not members of the general assembly to be elected, provided they make up no more than twenty percent of the total board. As an exception to the election rule, the founders appoint the first board from among themselves.

Under Article 23, a board term may not exceed four years. The general assembly may re-elect members for a further term unless the bylaws provide otherwise. Membership may be renewed for additional terms with the Ministry’s approval in exceptional cases specified in the Implementing Regulations. Under Article 24, if an election cannot be held when a term ends, the board continues in office for no longer than the period set by the Implementing Regulations.

Under Article 27, a board meeting is valid if a majority of its members attend, including the chair or the deputy chair. Under Article 28, the chair of the board represents the cooperative before the courts and third parties, and the bylaws may grant this authority to the chief executive officer. Article 30 provides that the board appoints a chief executive officer to manage the cooperative’s affairs and sets his or her powers, duties and entitlements.

How Are a Cooperative’s Profits Distributed?

Article 34 requires a cooperative to allocate twenty percent of its profits to a statutory reserve until the reserve balance equals the capital. Once that point is reached, this percentage is transferred to the general reserve under the same article. Members may receive no more than twenty percent of the remaining profits in proportion to each member’s contribution to capital.

At least five percent of the remaining profits is allocated to social services, and the same amount to member training and capacity building. Whatever remains is distributed to members on the basis of the return on their transactions with the cooperative, as set out in the Implementing Regulations.

Article 35 prohibits distributing any surplus in the years following a loss year until the losses have been covered from the statutory and general reserves. Article 36 restricts the use of the statutory reserve to covering losses or to the liquidation of the cooperative.

What Powers Does the Ministry Have Over Oversight and Dissolution?

Article 39 empowers the Ministry to examine a cooperative’s activities and audit its accounts through external auditors. It may suspend the implementation of any resolution of the general assembly or the board of directors that breaches the law, the Implementing Regulations or the bylaws.

Under Article 40, if the Ministry finds a violation, it requires the violation and its effects to be remedied within no more than thirty days from the date it was discovered. If the violation is not remedied, the Ministry may issue a warning, suspend the cooperative’s activity, or do both. Under the same article, anyone affected by such a decision may challenge it before the competent court.

Article 43 lists the cases in which the Ministry may dissolve and liquidate a cooperative. These include failing to commence operations within two years of registration and public announcement, failing to issue financial statements for two consecutive years, and losses exceeding half of the paid up capital for two consecutive years. They also include membership falling below the required minimum for more than twelve months, departing from the cooperative’s objects, and refusing to remedy violations. Anyone affected by a dissolution decision may challenge it before the competent court.

When Does the Law Take Effect and What Are Its Key Deadlines?

Article 49 provides that the law takes effect ninety days after its publication in the Official Gazette. Article 47 requires the Minister to issue the Implementing Regulations within ninety days of the law’s approval, to take effect on the same date as the law. The table below summarises the main deadlines in the text.

Action	Period	Article
Registration of the cooperative once the application is complete	Sixty days from the application date	16
Postponement of a general assembly meeting for lack of quorum	Fifteen days	17 and 21
Remedying a violation and its effects after the Ministry’s request	No more than thirty days from discovery of the violation	40
Objection to the summary of the liquidation account	Thirty days from publication	45
Ministry decision on the objection	Thirty days from its submission	45
Issuance of the Implementing Regulations	Ninety days from approval of the law	47
Entry into force of the law	Ninety days after publication in the Official Gazette	49

What Should Be Done Now

We advise existing cooperatives to review their bylaws against the items required by Article 14. The text contains no express transitional provisions for bringing existing cooperatives into compliance, so it is advisable to follow what the Implementing Regulations will provide on this point.

Boards of directors should review their composition with regard to the minimum number of members, the share of members from outside the general assembly and the length of the term. They should also review their profit distribution policy so that it complies with the percentages in Article 34 before approving any upcoming distribution.

Those wishing to establish a new cooperative should bring together at least twelve founders and prepare the memorandum of association and bylaws with care. They should also keep records of formation expenses, because the founders are jointly liable for them until they are repaid after registration and public announcement.

We advise members and heirs to keep evidence of share ownership, share value and the date the shares were acquired. This makes it easier to recover the value or to take the place of a deceased member when needed under Article 7.

Frequently Asked Questions

Can a cooperative be established with fewer than twelve members?

Yes, in exceptional cases. Under Article 3, the Minister may approve formation with at least five members. This depends on the cases and conditions for this exception that the Implementing Regulations will set out.

Does a member’s vote in the general assembly increase with the number of shares held?

No. Article 18 provides that each member has one vote regardless of the number of shares held. This differs from the member’s share of profits, which is linked to his or her contribution to capital under Article 34.

Can two cooperatives merge or an existing cooperative be divided?

Article 41 allows two or more cooperatives to merge into a single cooperative with the approval of the general assembly and the Ministry. Article 42 allows division on the same conditions, subject to the formation rules, with the detailed procedures to be set out in the Implementing Regulations.

How are liquidation proceeds distributed after a cooperative is dissolved?

Under Article 44, the Ministry appoints one or more liquidators to collect the cooperative’s receivables and settle its debts and obligations. A summary of the liquidation account is then published, and any member may object to it before the Ministry within thirty days of publication. Under Article 46, the proceeds are distributed to members in proportion to each member’s contribution, while grants, donations and endowments are dealt with as set out in the Implementing Regulations.

The Corporate and Investment team at Perfect Solution Lawyers and Consultants helps founders and boards of directors review memoranda of association and bylaws and align them with the new law. We would be pleased if you request a meeting to discuss your cooperative’s position and the right steps to take before the law comes into force.

The official source for this article is the text of the Cooperatives Law published in Umm Al-Qura in the Regulations and Laws section.

This article is for general awareness only. It is not legal advice and does not replace consulting a qualified lawyer about your situation.