Article 28 of the Saudi Cooperative Societies Law
المادة 28 من نظام الجمعيات التعاونية · الباب الرابع: توزيع الأرباح
The article sets the distribution of a society's profits: 20% to the statutory reserve until it equals capital, up to 20% of the remainder as profit on shares, up to 10% for social services, and the rest as patronage returns.
Official text (Arabic)
This article has not been amended since the law was issued.
توزع أرباح الجمعية على النحو الآتي:
1 - (٪20) من الأرباح لتكوين احتياطي نظامي للجمعية إلى أن يتساوى رصيد الاحتياطي النظامي مع رأس المال ، وعندها يتم تحويل النسبة إلى الاحتياطي العام .
2 - مبلغ لا يزيد على (20٪) من باقي الأرباح يُصرف كرِبح بنِسبة المُساهمة في رأس المال .
3 - مبلغ لا يزيد عن (10٪) من الباقي الأرباح للخدمات الاجتِماعية.
4 - مع مراعاة ماقد تقرره الجمعية العمومية من مكافأة لأعضاء مجلس الإدارة وفق مانصت عليه المادة ( الرابعة عشرة) من هذا النظام ، تُخصَّص باقي الأرباح للعائد على المعاملات وفق ما تحدده اللائحة .
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 28 explained in plain English
This article sets a binding order for distributing the profits of the cooperative society, in four stages:
1- The statutory reserve
20% of the profits is allocated to form a statutory reserve until its balance equals the capital; at that point this percentage is transferred to the general reserve.
2- Profit on shares
An amount of no more than 20% of the remaining profits is paid out as profit in proportion to contribution to capital.
3- Social services
An amount of no more than 10% of the remainder goes to social services.
4- Patronage returns
Subject to any bonus for board members the general assembly may decide under Article 14, the remaining profits are allocated to patronage returns as the Regulations specify.
The bonus in Article 14 is optional, granted by the general assembly at no more than 10% of the annual profits achieved after the statutory deductions, although board members receive no pay for their work.
The key idea here is that profit on shares is limited by a ceiling, while the larger part of the remainder goes to patronage returns, meaning a member benefits according to his dealings with the society and not only according to his capital. How patronage returns are calculated is set by the Regulations.
It is linked to Article 27, which sets the society's resources, and Article 29, which provides for a council of societies whose composition and powers the Regulations set. Anyone who wants to verify the distribution of profits in their society can consult a lawyer who specializes in commercial and corporate cases.
Practical example
A consumer cooperative society in Dammam made profits of SAR 100,000, and its statutory reserve balance is less than its capital. Under this article, SAR 20,000 is allocated to the statutory reserve, then an amount of no more than 20% of the remainder (SAR 16,000) as profit on shares, then an amount of no more than 10% of the remainder for social services, and what remains, after taking into account any bonus for the board the general assembly may decide, is allocated to patronage returns under the Regulations.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 28 of the Saudi Cooperative Societies Law
How are a cooperative society's profits distributed?
20% to the statutory reserve until it equals capital, then no more than 20% of the remainder as profit in proportion to contribution, no more than 10% of the remainder for social services, and the rest as patronage returns under the Regulations.
When does deduction for the statutory reserve stop?
When the balance of the statutory reserve equals the capital, at which point the percentage is transferred to the general reserve.
What are patronage returns?
What the remaining profits are allocated to after the earlier percentages and taking into account the board's bonus, with the Regulations setting how.
Articles this article refers to
More articles on Society Resources and Profit Distribution
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.