Establishment of an organization
Establishment of a social cooperative
non-profit cooperatives pursuing the public good
1. What is a Social Cooperative?
A social cooperative refers to a cooperative that primarily conducts non-profit public interest projects, such as promoting the rights and welfare of local residents or providing social services or jobs to vulnerable groups.
While general cooperatives operate under a notification system, social cooperatives must obtain approval from the head of the relevant central administrative agency to be established.
It holds the status of a non-profit corporation and is eligible for public interest benefits, such as designation as a donation organization and corporate tax reductions.
2. Practical Overview and Requirements (Including Legal Basis)
1. Legal basis
- Articles 85–111 of the Framework Act on Cooperatives (Establishment and Operation of Social Cooperatives)
- Articles 19 through 28 of the Enforcement Decree of the Framework Act on Cooperatives
- Enforcement Rules of the Framework Act on Cooperatives
2. Establishment Requirements
- 5 or more promoters
- Clarity of public interest purpose (local projects, employment of vulnerable groups, social services, commissioned projects, promotion of public interest)
- The main business must be at least 40% of the total business.
- Drafting of Articles of Incorporation and Resolution of the Inaugural General Meeting
- Authorization by the head of the relevant central administrative agency
- Executive Composition (3 or more directors, 1 or more auditors)
- Statutory reserve of surplus (prohibition of dividends)
3. Duration
- Consultation to Approval: Approximately 2 to 3 months
- Registration of Incorporation: Within 21 days of approval
- Total duration: Average 3–4 months
4. Key Documents to Submit
- Application for Approval of Establishment of Social Cooperative
- Articles of Incorporation
- Minutes of the Founding General Meeting
- Business plan and budget
- Basis for judgment on the main business
- Executive Roster and Resumes
- List of promoters and consenting parties
- A document stating the amount of one share of capital contribution and the number of shares subscribed by each promoter
3. Type (Main Business Type)
Local business type
Projects that contribute to the promotion of the rights and welfare of local residents — processing and sales of local specialties, community care services, etc.
Employment type for vulnerable groups
Providing jobs to vulnerable groups such as the elderly, people with disabilities, and women with career breaks — Employing over 301 TP3T of the total workforce
Social service type for vulnerable groups
Provision of social services (care, education, culture, etc.) to vulnerable groups — 401 TP3T or more of total service beneficiaries
Consignment business type
A form of business that performs projects entrusted by the national or local government as its main business.
Other public interest promotion type
Projects that do not fall under the above types but contribute to the promotion of public interest
Social cooperative
Establishment Procedures
Preliminary consultation and main business design
Determination of primary business type, review of measures to meet 40% criteria for the primary business, verification by relevant central administrative agencies
Preparation of Articles of Incorporation and Business Plan
Establishment of articles of incorporation reflecting the ratio of main business, a detailed revenue and expenditure budget, and a three-year business plan
Recruitment of Promoters and Inaugural General Meeting
Securing at least 5 promoters, holding a founding general meeting, and resolving articles of incorporation, business plan, and officers
Application for authorization by relevant central administrative agency
Submit an application for authorization to the relevant ministry (Ministry of Employment and Labor, Ministry of Health and Welfare, Ministry of Gender Equality and Family, etc.)
Registration of incorporation and commencement of business
Court registration of incorporation within 21 days of approval, and tax filing and commencement of business after completion of corporate establishment.
Key Benefits
Social cooperatives provide public benefits based on their status as non-profit corporations and
You can comprehensively utilize government support programs and preferential treatment in public procurement.
Non-profit status
Unlike general cooperatives, as a non-profit corporation, it is eligible for corporate tax reductions and participation in public interest support projects.
Linkage with designated donation organizations
Establishing a foundation for donor tax credits upon designation as a National Tax Service designated donation organization
Access to government support programs
Priority selection targets for social economy support projects by the Ministry of Employment and Labor and local governments
Public procurement preferential treatment
You can utilize public procurement preferential systems, such as competitive products among SMEs and direct contracting.
Why a Certified Administrative Agent is Needed to Establish a Social Cooperative
If you proceed without the help of an expert, you may encounter the following difficulties:.
1. Design of Main Business 40% Requirements
Whether approval is granted depends on how the criteria for determining the main business (sales, personnel, service beneficiaries, etc.) are set.
2. Select Relevant Central Administrative Agency
The competent ministry varies depending on the nature of the project (e.g., Care → Ministry of Health and Welfare, Jobs → Ministry of Employment and Labor), and incorrect applications will be rejected.
3. Provisions in the Articles of Incorporation prohibiting dividends and accumulating reserves
Since social cooperatives are prohibited from distributing surplus dividends and are required to maintain statutory reserves, approval is only possible if the articles of incorporation include the exact wording.
4. Support for Fulfillment of Post-Disclosure Obligations
Social cooperatives are required to disclose management information annually, and failure to do so may result in the revocation of their license following a hearing.
A social cooperative is an organization that returns to society instead of sharing profits.
A single line of numbers labeled Main Business 40%,
In reality, it determines the operating method of the entire organization.
Seum goes beyond the paperwork of the application stage,
We will design the structure of a public interest organization with a 10-year outlook.
Seum Administrative Attorney Firm
Written by: Sangyoon Kim, Administrative Scrivener
