Part II - Review of Co-op Laws in Korea (1997)

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This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
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Part II - Review of Country Laws in Republic of Korea (South) (1997)

Source: Co-operative Laws in Asia and the Pacific
by G.K. Sharma (pp.100-111)

Republic of Korea (South)
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With the advent of capitalism in Korea during the late 19th and early
20th century particularly during the colonial rule of Japan, absentee
land-lordism developed and most farmers became agricultural labourers.
After the Kanghwa Island Agreement in February, 1876, Korea was
forced to open the ports of Pusan, Wonsan and Inchon and the local
Korean economy was severely destroyed. Farmers left their land and
moved towards ports particularly due to heavy burden of share rent.
Thus the Japanese Governor-General to reduce resentment in the people,
began to establish the Financial Associations, Industrial Associations
and Farmers Associations. 

The first Kwangju local financial association was set up in 1907. In
1914 the local Financial Associations Regulations was abolished and
local Financial Association ordinance was enacted and was revised in
1918. Similarly the first Chosum Industrial Association ordinance was
enacted in January 1926. While enacting this law the Japanese Governor
General had observed "In Korea, from time immemorial, there has been
the Kye system handed down with the purpose of meeting the individual
needs through co-operative work  and the people have a precious heritage
of tending to improve individual moralism and to promote public morals."
However, the efforts of the colonial government did not  bear much fruits.
Along with government efforts civilian people's effort to organise
co-operative also continued side by side. These efforts included
co-operative movement led by Christianity since 1923 and co-operative
movement led by Cheondoism (Korean Native Religion) in 1925.

After liberation efforts were made to re-organise agricultural co-operatives
and in October 1948, the Ministry of Agriculture and Forestries prepared
a draft law followed by many other drafts till on February 1, 1957 it was
approved by the Congress. This was replaced on July 29, 1961 by a new
Agricultural Co-operative Law which is operative presently and  has been
amended several times. 

Korean co-operative laws have been influenced by Japanese and have
sectoral laws like Japan. At present, the following laws are in operation:

1.	The Agricultural Co-operative Law 1961.
2.	Forestry Co-operative Law 
3.	Credit Union Law 1972 
4.	Community Credit Co-operative Law 
5.	Live Stock Co-operative Law 
6.	Fisheries Co-operative Law 

The agricultural co-operative law is not only the first co-operative law
in the present era of co-operative legislation but also provides broad
framework for most other co-operatives and National Agricultural
Co-operative Marketing Federation which commands the agricultural
co-operative movement in South Korea. This law which was first
enacted in July 1961 has been amended number of times has
8 chapters and 176 articles.

Chapter I - General Provisions
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Article 1 states "the purpose of this law shall be to secure the balanced
development of the national economy by increasing agricultural
productivity and enhancing the economic and social status of farmers
through the independent co-operative organisations of farmers."

Article 5 states "the objective of the Co-operative and the Federation,
in their business operations, shall be to provide non-discriminatory and
maximum service to their component members and they shall refrain
from operating their business to benefit only a part of their members".

No co-operative or federation shall be allowed to engage in profit
making or speculative activities. 

Article 6, prohibits co-operatives to perform any act connected with
politics.

Under article 7, no officer or personnel of a cooperative shall hold the
concurrent posts of Government officials (with the exception of posts
of elected Government officials).

Under article 8 the business and the property of the co-operatives and
the federation shall be exempted from taxes and other public assessment
of the State or local autonomous entities except in case of custom duties
and commodity tax. 

Article 11 states policy of the government towards co-operatives as:

1. All the Ministers of Government shall actively support the
business of the Co-operatives and the Federations, and shall
provide preferential facilities of the Government or public
organisations for their use.

2. The government may grant subsidies necessary for the business
operation of the co-operatives and the federation within the
scope of its annual budget. 

3. The President of the federation may present to the Government
his recommendations regarding development of the co-operatives
and the federation. 

Chapter II - Primary Agricultural Co-operatives
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Section 1: Purpose and Operational Area

Under article 15 (2) not more than one co-operative can be established
within the same operational area

Section 2 : Establishment

It deals with the procedure and requirements for establishing a
co-operative.

Section 3  :  Membership 

Article 22 states that only a farmer can be a member of co-operative
under article 22(2). Any person or juridical person within the area of
operation can make use of the services of a co-operative and be a non-
shareholder associate member of a co-operative.

In addition to subscribe shares under article 24 members can be asked
to invest their patronage rebate as a revolving investment. 

Under article 29 proxy is allowed through another member or member
of the family but no member can represent more than one proxy.

Article 33 deals with expulsion which include "when a member has
failed to utilise the co-operative for a period of more than one year".

Section 4 : Organisation

Under article 41 quorum for General Meeting is majority membership
and in case of a co-operative where membership is more than 200
representative General Body is provided. The tenure of representatives
is 2 years (Article 44) .

Under article 46 "The officers of a co-operative shall include the
President, six to ten Directors and two Auditors, as provided in the
Articles of Incorporation. The President shall be elected by and
from among members of a co-operative.

The position of the officers of a co-operative shall be honorary;
provided that they may receive compensation for their actual expenses
in accordance with the provisions of the Articles of Incorporation. 

Article 47 "The President of a Co-operative shall represent the
Co-operative and execute the operations thereof in accordance with
the provisions of the Articles of Incorporation. 

Under Article 50 "The term of the President and Directors shall be
4 years and of auditors 3 years. Article 50.11 and 12 provides
specific qualification for election of President as under:

1. Person who has not consecutively held the membership of
a co-operative concerned for more than two years at the time
of the election announcement, or who has not consecutively
possessed for more than the shares as an investment (hereinafter
called as `standard investment') of which number is no less than
average number of shares invested by each member as of the day
of election announcement for the co-operative concerned.

2. Person who has in arrears for the debt payable to the Co-operative
in question exceeding the amount and the period determined by the
Articles of Incorporation during one year prior to the
announcement of election. 

Article 51 provides restrictions on election campaign as under:

i. No one shall be permitted to furnish money, goods, entertainment
or other benefits concerning property, or to offer, solicit or promise
public or private positions to voters in order to make success or
defeat in the election of a specific person or persons to the post of
officers of a co-operative.

ii. Candidates for the office shall not make a door to door visit to the
members of a co-operative, or invite them to a particular place for
the election campaign during the period commencing from election
announcement until election day.

Under article 56 Board members can be removed by the General Meeting
by two-thirds members' voting.

Article 57 (2) provides appointment of executive staff (General Manager
and Managers) by the President with the approval of Board persons who
have passed an aptitude examination provided by the order of the
President of the Federation.

Section 5 : Business

Article 58 gives a comprehensive list of business which a primary
co-operative can undertake which include lending, marketing, processing
etc. also insurance and business by proxy for the state, public
organisations or banking institutions on consignment basis. A co-operative
under article 58 (6) "may invest in other companies within the limit of the
authorised capital to achieve its business purposes".

For undertaking insurance business approval of the Minister is required
under article 58 (2). Under article 59 limit of business with non-members
has to be included in the Articles of Association. However, business with
members of another co-operative or family of a member co-operative is to
be treated as members business [article 59 (2)].

Section 6 : Accounting

This section prescribes that accounts are to be kept for credit and non
credit business separately. It also provides for various types of funds,
fulfillment of certain conditions in case of loss as also reduction of per
value of shares.

Audit is the responsibility of the auditors elected by the General Body. 

Section 7 : Amalgamation, Division, and Dissolution 

Article 74-78  deal with procedure and requirement for amalgamation
and division. Article 79 provides reasons for dissolution and under article
81 the President has to act as a liquidator except when the General Body
decides to appoint someone else as a liquidator. However, where
liquidation of a co-operative is to be done under article 172 on the
recommendation of the president of the  federation, the minister is
to appoint the liquidator.

The surplus after liquidation has to be disposed of according to the
articles of incorporation.

Section 8 : Registration

Under article 87 registration has to be done within two weeks. The
section provides procedure for registration of amendment and other
changes as also registration of dissolution and liquidation. 

Chapter IV - Special Agricultural Co-operatives
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Article 118 defines "The purpose of a specialised co-operative shall
be to promote the common interest of its members engaged in the
specialised field of agriculture." The other provisions are by and large
similar to primary cooperatives in Chapter II.

Chapter V - National Agricultural Co-operative Federation
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Article 128  states that "the purpose of the federation shall be to promote
the common interest of  its member co-operatives and their sound
development."

Under Article 134, 15 or more cooperatives can promote the Federation.

Under Article 136 (2):

i. In case the Federation has membership of more than 500, it
shall have a representative meeting to substitute for General
Meeting. 

ii. The number of representatives shall be 100 to 200, and they
shall be elected from among the Presidents of member primaries
and special co-operatives. 

Article 148 provides that:

1. The Federation shall have as its officers one President, two
senior executives, vice-presidents, more than 19 directors and
two auditors. 

2. Eight directors among directors and one auditor shall be of
standing position. 

3. The President shall represent the federation administrator and
direct the business operations. Further article 149 provides election
and term of office:
i. President and the standing auditor shall be elected at the
General Meeting 
	ii..	Senior Executives, vice-presidents and standing directors
shall be appointed by the President subject to the
concurrence of the General Meeting. Non-standing
Directors and Auditor shall be elected from among the
presidents of member cooperatives at the General Meeting. 
ii. The term of office of the President, the Senior Executive
Vice-Presidents and the Directors shall be four years and
that of Auditors shall be for three years. 
iii. In case a President of a member co-operatives is elected as
the President of the Federation he shall resign from the post
of the president of the concerned co-operative prior to his
inauguration.

Under article 150 (1) the personnel shall be appointed or dismissed by
the President of the Federation.

Under article 153 (2) the federation may allow non-member co-operative
to utilise its business within the limits that it does not interfere with the
utilisation by the members. According to Articles of Incorporation the
federation can be authorised to issue Agricultural Finance Bonds and
under article 157 full payment of both principal and interest shall be
guaranteed by the government. 

While the federation is free to have its own business plan approved by
the General Meeting in case of business undertaken with the funds of
the government Minister's approval is needed a month before the
commencement of such business.

Under article 161 the annual accounts within two months of the closing
of the accounts have to be submitted to the Minister and also to be
given public notice.

Article 162 regulates the use of unemployed funds.

Chapter VI - Supervision
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Article 164 authorises the Minister to supervise the co-operative and
issue orders in this regard and can also ask Director-General of Board
of Bank supervision and examination to do so. 

Under article 164 (3) the Minister can delegate in part or in whole
his supervisory authority over the co-operatives to the President of
the Federation.

Under article 165 "In case a co-operative or federation has received
subsidies from the government, it shall be subject to audit, in so far as
the subsidised business are concerned by the board of audit and
inspection".

Under article 166, "The President of the Federation may guide its
member co-operatives in accordance with the provisions of this law
and may issue necessary regulations and instructions for the purpose."
Further he can also have his subordinate personnel examine its member
co-operatives. 

Article 169 gives powers to Minister to order for suspension of the
whole or part of its business within a certain period of time, the reshuffle
of officers concerned, or supervision of their directors in case of violation
of law and/or bye-laws by the co-operative. 

Under article 170, the President of the Federation can request for
necessary action against a member co-operative for change in the
articles or suspension of business or disposal of assets and deposits.

Under article 171, the federation is to submit its balance sheet and annual
report outlining the important agricultural policies of the Government and
analysing the business operations of the federation.

Article 172 details the conditions under which the Minister may order
the dissolution of a cooperative on the advice of the President of the
Federation.

Chapter VII - Penalties
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Severe penalties have been provided for certain officers under the
chapter as under:

Under article 173 "In case of any officer of a co-operative or the
federation made such actions spending or lending funds for purposes
other than the authorised business purpose of the co-operative or the
federation as disposing or utilising any property of the co-operative
or the federation for the sake of speculation, or as incurring damages
to a co-operative or the Federation in violation of the provisions of
this law or the Articles of Incorporation, he shall be punished either
by imprisonment with hard labour for a term not more than ten years
or by a fine not more than 10,000,000 Won, or both."

Under article 174, in case the President, Senior Executive, Vice-president,
directors, auditors, general manager,  or liquidator of a cooperative or the
federation has committed any of the following he shall be sentenced to
penal servitude for not more than three years, or be fined not more than
5,000,000 Won:

1. In case a permission or an approval has not been obtained
concerning matters requiring such permission or approval from
the supervisory agency. 

2. In case a record has been neglected or false registration has
been made.

3. In case false statements have been made to, or facts have
been concealed before the competent institutions, the General
Meeting, Representatives Meeting, or Board of Directors. 

4. In case matters requiring the resolution of the General Meeting,
Representatives Meeting or Board of Directors have been
implemented without such resolution. 

5. In case the provisions of articles 65 including mutatis mutandis
application of the provisions of Article 127 through 71, 77 and
162 have been violated.

6. In case the provisions of Articles 82, 84  and 85 have been
violated. 

7. In case the public notice has been neglected, or unjust public
notice has been made. 

8. In case the inspection of the competent institutions has been
refused, obstructed or evaded, or false statements have been
made to the questions of competent inspectors.

Under 174-2 regarding Penalty:

1. Any violation of the provision of Paragraph 1 of Article 51 shall
be punishable with prison term of not more than two years, or
with a fine of less than 1,000,000 Won.

2. Any violation of the provision of Paragraph 2 of the Article 51
shall be punishable with a prison of not more than one year, or
with a fine of less than 500,000 Won.