Legal reforms – updated by the people they impact – could soon unlock cooperative potential across multiple sectors. Laura Bonnici speaks to Malta Cooperative Federation’s president, John Mallia, to find out how new cooperative law makes this ‘third option’ both relevant to today and ready for tomorrow.
Cooperatives are already a lifeblood in Malta, keeping many of the nation’s essential services operational. Today, the sector stands on the brink of significant legal reform – representing values-driven, democratic businesses that should become an economic pillar in its own right.
The cooperative model developed in the 1800s, when workers sought a ‘third option’ beyond traditional, ‘hired hands’ employment and passive service users, to one where the wealth they generated went to their families and towards their own community.
Following Malta’s first coop laws in 1947 and 1978, new legal reforms came about in 2001 – but this time with the sector’s various stakeholders co-writing the legislation. Nearly 25 years later, much of this legislation is still applicable. Yet Malta, in the interim, has changed.
“Malta’s business landscape looks completely different today,” points out John Mallia, President of the Malta Co-operative Federation, who is spearheading efforts, together with other stakeholders, to modernise cooperative law.
“Malta has since joined the EU, creating different realities for coops. Much like in 2001, we are setting a standard in the way legislation should be written, with the people updating it again from a social, economic and legal perspective. This gives everyone ownership of the process – in keeping with the core principles of cooperatives themselves.”
Cooperative membership revolves around seven core principles: voluntary membership that is open to all; democratic member control in which members enjoy ‘one person, one vote’; member economic participation, whereby members contribute to, and democratically control, the coop’s capital, and benefit directly from its surpluses; coop autonomy and independence; education, training and information availability for members; cooperation among cooperatives; and concern for community, in which coops work for the sustainable development of communities.
There’s never been a better time to recognise and incentivise the cooperative model – legislation is just a facilitator; it’s about people knowing the huge potential in working together- John Mallia
Meanwhile, Malta’s constitution recognises the social benefit of cooperatives. Cooperative tax regime recognises this social benefit through a five per cent contribution to the Central Cooperative Fund upon surplus declaration, with a final withholding tax of 15 per cent upon distribution. Undistributed surpluses remain tax free, to incentivise further investment in the cooperative.
Of the many proposed reforms, Mallia advocates reducing the minimum membership for a cooperative from five to three people, allowing associations to become cooperative members and enabling companies to form cooperatives while maintaining democratic principles. “For example, you could have different media houses coming together as a cooperative, sharing information and jointly selling their services, while still respecting the ‘one entity, one vote’ principle,” he illustrates.
Updated cooperative law could also help safeguard Malta against future economic threats, with the sector already having proven its resilience through COVID-19 and financial crises, Mallia notes: “The beauty of cooperatives is that you’re sharing risk. Instead of individual mechanics each buying separate machinery and facing individual bankruptcy risk, three could collaborate and have an equal say, with shared equipment and expertise.”
The legislation aims to reduce barriers for entrepreneurs and facilitate emerging business models – particularly platform cooperatives, where members make use of online platforms and apps ensuring fair working conditions and a share in the surpluses they generate.
Mallia envisions community-owned renewable energy projects becoming easier to establish, with simplified membership processes replacing current bureaucratic barriers. “Right now, if you want membership changes, the Co-operatives Board needs to know exactly who each person is and conduct background checks. Imagine having to do that for 15,000 people – we need to make it easy for people to buy into cooperatives.”
The reforms also target worker buyouts, where employees could purchase their workplace to avoid closure, he explains: “Companies have approached us to transition to cooperatives because their investors are uninterested in continuing the business, while the workers themselves want to keep on working the business and sharing in its success.”
Social cooperatives represent another innovation, where surplus profits benefit communities rather than individual members. “In one case, educators work to provide employment for people with intellectual disabilities, reinvesting any surplus into expanding that programme instead of distributing profits.”
Other legal barriers continue hindering growth. For example, Banking law precludes the formation of cooperative banks. “Sometimes we fall through the cracks because policymakers don’t know whether cooperatives are voluntary organisations, charities or companies,” he observes. “We’re none of these. We’re democratic businesses, organised according to cooperative principles and values.”
However, Mallia notes a cultural shift, with growing awareness among young people seeking alternatives to traditional employment structures. “Our educational system prepares you for employment, not entrepreneurship. But no matter which path you choose, there’s always risk – the beauty of cooperatives is sharing that risk together – it’s an intelligent option.”
International developments support Malta’s timing, as it shapes its Vision 2050. Last year, the UK Labour Party pledged to double the country’s mutual and cooperative sector, while Germany digitises cooperative registration and Dubai creates cooperative incentives, reflecting global recognition of the model’s value.
“There’s never been a better time to recognise and incentivise the cooperative model,” Mallia concludes. “Legislation is just a facilitator. It’s about people knowing there’s huge potential in working together rather than remaining individual hired hands or passive consumers. People and communities can become protagonists in the social and economic wealth they generate.”
For more information about cooperative formation and legal support, visit www.mcf.coop.
This contribution is part of a Central Cooperative Fund initiative aimed at raising awareness about the cooperative model in the context of the UN International Year of Cooperatives.