Chapter 9: Cooperatives
DEFINITION AND PRINCIPLES
DEFINITION: A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.
COOPERATIVE PRINCIPLES:
ART. 4. Cooperative Principles. - Every cooperative shall conduct its affairs in accordance with Filipino culture, good values and experience and the universally accepted principles of cooperation which include, but are not limited to, the following:
(1) Voluntary and Open Membership - Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, cultural, political or religious discrimination.
(2) Democratic Member Control - Cooperatives are democratic organizations that are controlled by their members who actively participate in setting their policies and making decisions. Men and women serving as elected representatives, directors or officers are accountable to the membership. In primary cooperatives, members have equal voting rights of one-member, one-vote. Cooperatives at other levels are organized in the same democratic manner.
(3) Member Economic Participation - Members contribute equitably to, and democratically control, the capital of their cooperatives. At least part of that capital is the common property of the cooperative. They shall receive limited compensation or limited interest, if any, on capital subscribed and paid as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative by setting up reserves, part of which should at least be indivisible; benefiting members in proportion to their patronage of the cooperative's business; and supporting other activities approved by the membership.
(4) Autonomy and Independence - Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including government, or raise capital from external sources, they shall do so on terms that ensure democratic control of their members and maintain their cooperative autonomy.
(5) Education, Training and Information - Cooperatives shall provide education and training for their members, elected and appointed representatives, managers, and employees, so that they can contribute effectively and efficiently to the development of their cooperatives.
(6) Cooperation Among Cooperatives - Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
(7) Concern for Community - Cooperatives work for the sustainable development of their communities through policies approved by their members.
PURPOSES OF A COOPERATIVE
1. To encourage thrift and savings mobilization among the members;
2. To generate funds and extend credit to the members for productive and provident purposes;
3. To encourage among members systematic production and marketing;
4. To provide goods and services and other requirements to the members;
5. To develop expertise and skills among its members;
6. To acquire lands and provide housing benefits for the members;
7. To insure against losses of the members;
8. To promote and advance the economic, social and educational status of the members;
To establish, own, lease or operate cooperative banks, cooperative wholesale and retail complexes, insurance and agricultural/industrial processing enterprises, and public markets;
To coordinate and facilitate the activities of cooperatives;
To advocate for the cause of the cooperative movements;
To ensure the viability of cooperatives through the utilization of new technologies;
To encourage and promote self-help or self-employment as an engine for economic growth and poverty alleviation; and
To undertake any and all other activities for the effective and efficient implementation of the provisions of the Cooperative Code.
OBJECTIVES AND GOALS OF A COOPERATIVE
1. Provide goods and services to its members to enable them to attain increased income, savings, investments, productivity, and purchasing power, and promote among themselves equitable distribution of net surplus through maximum utilization of economies of scale, cost-sharing and risk-sharing;
2. Provide optimum social and economic benefits to its members;
3. Teach them efficient ways of doing things in a cooperative manner;
4. Propagate cooperative practices and new ideas in business and management;
5. Allow the lower income and less privileged groups to increase their ownership in the wealth of the nation; and
6. Cooperate with the government, other cooperatives and people-oriented organizations to further the attainment of any of the foregoing objectives.
POWERS AND CAPACITIES OF A COOPERATIVE
1. To have exclusive use of its registered name, to sue and be sued;
2. Of succession;
3. To amend its articles of cooperation in accordance with the provisions of this Code;
4. To adopt bylaws not contrary to law, morals or public policy, and to amend and repeal the same in accordance with Cooperative Code;
5. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property as the transaction of the lawful affairs of the cooperative may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
6. To enter into division, merger or consolidation, as provided in Cooperative Code;
7. To form subsidiary cooperatives and join federations or unions, as provided in Cooperative Code;
8. To avail of loans, be entitled to credit and to accept and receive grants, donations and assistance from foreign and domestic sources, subject to the conditions of said loans, credits, grants, donations or assistance that will not undermine the autonomy of the cooperative. The Authority, upon written request, shall provide necessary assistance in the documentary requirements for the loans, credit, grants, donations and other financial support;
9. To avail of preferential rights granted to cooperatives under Republic Act No. 7160, otherwise known as the Local Government Code, and other laws, particularly those in the grant of franchises to establish, construct, operate and maintain ferries, wharves, markets or slaughterhouses and to lease public utilities, including access to extension and on-site research services and facilities related to agriculture and fishery activities;
10. To organize and operate schools in accordance with Republic Act No. 9155, Governance of Basic Education Act of 2001 and other pertinent laws; and
11. To exercise such other powers granted by Cooperative Code or necessary to carry out its purpose or purposes as stated in its Articles of cooperation.
CHARACTERISTICS SIMILAR TO A CORPORATION
1. Liability: A cooperative duly registered shall have limited liability.
2. Separate personality: A cooperative can be likened to a corporation with a personality separate and distinct from its owner-members. (Republic vs. Asiapro, GR 172101, November 23, 2007)
3. Term: for a period not exceeding 50 years from the date of registration may be extended for periods not exceeding 50 years, but no extension shall be made earlier than 5 years prior to the original or subsequent expiry date/dates unless there are justifiable reasons.
Note, however, that this is no longer a similarity since a corporation now generally, has perpetual existence under the Revised Corporation Code.
ORGANIZATION AND REGISTRATION
REQUIREMENTS FOR REGISTRATION:
1. Articles of Cooperation
2. A sworn statement of the treasurer elected by the subscribers
3. Bylaws
4. Bonds of the accountable officers
5. General statement describing the structure which shall include the purposes and purposes of the proposed cooperative
6. Economic Survey
ARTICLES OF COOPERATION: filed with the Cooperative Development Authority (Authority) which shall be signed by the organizers and acknowledged by them if natural persons, and by the chairpersons or secretaries, if juridical persons, before a notary public.
Shall set forth:
a. The name of the cooperative which shall include the word cooperative;
b. The purpose or purposes and scope of business for which the cooperative is to be registered;
c. The term of existence of the cooperative;
d. The area of operation and the postal addresses of its principal office;
e. The names, nationality, and the postal addresses of the registrants;
f. The common bond of membership;
g. The list of names of the directors who shall manage the cooperative; and
h. The amount of its share capital, the names and residences of its contributors and a statement of whether the cooperative is primary, secondary or tertiary
BYLAWS: Each cooperative to be registered under this Code shall adopt bylaws not inconsistent with the provisions of Cooperative Code. The bylaws shall be filed at the same time as the articles of cooperation.
Shall contain:
1. The qualifications for admission to membership and the payment to be made or interest to be acquired as a condition for the exercise of the right of membership;
2. The rights and liabilities of membership;
3. The circumstances under which membership is acquired, maintained and lost;
4. The procedure to be followed in cases of termination of membership;
5. The conditions under which the transfer of a share or interest of members shall be permitted;
6. The rules and procedures on the agenda, time, place and manner of calling, convening, conducting meetings, quorum requirements, voting systems, and other matters relative to the business affairs of the general assembly, board of directors, and committees;
7. The general conduct of the affairs of the cooperative, including the powers and duties of the general assembly, the board of directors, committees and the officers, and their qualifications and disqualifications;
8. The manner in which the capital may be raised and the purposes for which it can be utilized;
9. The mode of custody and of investment of net surplus;
10. The accounting and auditing systems;
11. The manner of loaning and borrowing including the limitations thereof;
12. The method of distribution of net surplus;
13. The manner of adopting, amending, repealing, and abrogating bylaws;
14. A conciliation or mediation mechanism for the amicable settlement of disputes among members, directors, officers and committee members of the cooperative; and
15. Other matters incident to the purposes and activities of the cooperative.
Economic survey: Every group of individuals or cooperatives intending to form a cooperative shall submit to the CDA a general statement describing among other things the structure and purposes of the proposed cooperative, that the structure and actual staffing pattern of the cooperative shall include a bookkeeper; provided further, that they shall not be allowed to operate without the necessary personnel and shall also submit an economic survey, indicating therein:
1. Area of operation;
2. Size of membership; and
3. Other pertinent data in a format provided by the CDA. (Art. 11)
Organizing a primary cooperative: would require 15 or more natural persons who are:
1. Filipino citizens;
2. Of legal age;
3. Having a common bond of interest; and
4. Are actually residing or working in the intended area of operation,
Provided that a prospective member of a primary cooperative must have completed a Pre-Membership Education Seminar (PMES).
Minimum subscription: 25% of authorized share capital
Preferred Share Capital: Under CDA MC 2011-05, this requirement shall apply only to common share capital only.
Should preferred share capital be provided in the by-laws, it shall not exceed 25% of the total authorized share capital of the cooperative. No fractional shares shall be issued for both the common and preferred share capital.
Minimum paid-up share capital: 25% of the total subscription but not less than ₱15,000.00, except for multipurpose cooperatives which should have at least ₱100,000.00 or as required by the feasibility study whichever is higher (Article VIII, Section 2.2 of CDA MC 2015-01)
The CDA shall periodically assess the required paid-up share capital and may increase it every 5 years when necessary upon consultation with the cooperative sector and NEDA.
Conversion to Multi-Purpose Cooperative: Any newly organized primary cooperative may be registered as multi-purpose cooperative only after compliance with the minimum requirements for multi-purpose cooperatives to be set by the CDA.
A single-purpose cooperative may transform into a multi-purpose or may create subsidiaries only after at least 2 years of operations.
Under Article VI of CDA MC 2015-07, except for agriculture cooperatives and agrarian reform cooperatives, only those cooperatives with a minimum paid-up capital of ₱100,000.00 or as required in the feasibility study, whichever is higher, may be allowed to transform into a multi-purpose cooperative.
Beginning of personality; Registration: A cooperative formed and organized under the Cooperative Code acquires juridical personality from the date the Authority issues a certificate of registration under its official seal.
Approval of applications for registration: All applications for registration shall be finally disposed of by the Authority within a period of sixty (60) days from the filing, otherwise the application is deemed approved, unless the cause of the delay is attributable to the applicant.
Appeal in case of denial: In case of a denial of the application for registration, an appeal can be made to the Office of the President within ninety (90) days from receipt of notice of such denial.
Failure of the Office of the President to act on the appeal within ninety (90) days from the filing thereof shall mean approval of said application.
Rules on Cooperative Name (Article VIII, Section 3 of CDA MC 2015-01):
1. Required: The word “Cooperative”, “Kooperatiba”, or “Cooperativa” shall be included in the name of the cooperative, which name shall likewise specify the type of cooperative.
2. Discouraged: The use of the words “development” and “integrated” shall be discouraged.
3. Not allowed:
a. Cooperative name that is identical or deceptively or confusingly similar to that of any existing cooperative, contrary to public policy, morals, and existing laws.
b. Use of “Incorporated”, “Corporation”, “Company”, “Incorporation”, “Partnership”, or other similar connotation and abbreviation.
c. Use of the “Federation” and “Union” in the name of the proposed primary cooperative is prohibited except if it is part of the registered name of association or institution where the members of the proposed cooperative come from.
d. Written in all capital letters except if it is an acronym. Acronyms shall be written after the full name of cooperative.
Registration of Secondary and Tertiary Cooperatives (Section IX of CDA MC 2015-01):
The minimum number of members and minimum paid-up share capital:
For Secondary Categories:
• Federation: Minimum of 10 primary cooperatives; Minimum paid-up capital of ₱500,000.00
• Union: Minimum of 15 primary cooperatives; Minimum paid-up capital is Not applicable
For Tertiary Categories:
• Federation: Minimum of 10 secondary cooperatives; Minimum paid-up capital of ₱5,000,000.00 or feasibility study requirement whichever is higher
• Union: Minimum of 15 secondary cooperatives; Minimum paid-up capital is Not applicable
Registration Fee: to be paid by the proposed federation shall be 1/10 (or 10%) of the 1% of the authorized share capital or the amount prescribed in the CDA schedule of fees, whichever is higher.
Certificate of registration: A certificate of registration issued by the CDA under its official seal shall be conclusive evidence that the cooperative therein mentioned is duly registered unless it is proved that the registration thereof has been cancelled.
Amendment of articles of cooperation and by-laws: can only be made by 2/3 vote of all the members with voting rights without prejudice to the right of the dissenting members to exercise their right to withdraw their membership
DIVISION
Division of cooperatives: Any registered cooperative may, by a resolution approved by a vote of three-fourths (3/4) of all the members with voting rights, present and constituting a quorum, resolve to divide itself into the two (2) or more cooperatives.
The procedure for such division shall be prescribed in the regulations of the CDA: Provided, That all the requirements have been complied with by the new cooperatives: Provided, further, That no division of a cooperative in fraud of creditors shall be valid.
MERGER AND CONSOLIDATION
1. Two (2) or more cooperatives may merge into a single cooperative which shall either be one of the constituent cooperatives or the consolidated cooperative.
2. No merger or consolidation shall be valid unless approved by a three fourths (3/4) vote of all the members with voting rights, present and constituting a quorum of each of the constituent cooperatives at separate general assembly meetings. The dissenting members shall have the right to exercise their right to withdraw their membership.
3. In any case, the merger or consolidation shall be effective upon the issuance of the certificate of merger or consolidation by the CDA.
TYPES OF COOPERATIVES
With descriptive definitions:
1. Advocacy Cooperative is a primary cooperative which promotes and advocates cooperativism among its members and the public through socially oriented projects, education and training, research and communication, and other similar activities to reach out to its intended beneficiaries;
2. Dairy Cooperative is one whose members are engaged in the production of fresh milk which may be processed and/or marketed as dairy products;
3. Fishermen Cooperative is one organized by marginalized fishermen in localities whose products are marketed either as fresh or processed products;
4. Multipurpose Cooperative is one which combines two (2) or more of the business activities of these different types of cooperatives;
5. Workers Cooperative is one organized by workers, including the self-employed, who are at same time the members and owners of the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principle.
Closely related definitions
Agriculture Cooperative refers to a primary cooperative which or whose members are involved/engaged in raising/culture of plants, animals, and other living organism for productive and economic purpose and related activities that lead to the reduction of cost and/or value addition of outputs (Article V(a), CDA MC 2015-07);
Agrarian Reform Cooperative is one organized by marginal farmers majority of which are agrarian reform beneficiaries for the purpose of developing an appropriate system of land tenure, land development, land consolidation or land management in areas covered by agrarian reform;
Consumers Cooperative is one of the primary purposes of which is to procure and distribute commodities to members and non-members;
Marketing Cooperative is one which engages in the supply of production inputs to members and markets their products;
Producers Cooperative is one that undertakes joint production whether agricultural or industrial. It is formed and operated by its members to undertake the production and processing of raw materials or goods produced by its members into finished or processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative and its members;
Cooperative Bank offers a wide range of financial services; clients are cooperatives and their members
Credit Cooperative offers savings and lending services; clients are its members
Financial Service Cooperative offers savings, credit and other financial services; clients are None specified in the definition
Service Cooperative is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication, professional and other services.
Specific service-type cooperatives:
1. Electric Cooperative is one organized for the primary purpose of undertaking power generations, utilizing renewable energy sources including hybrid systems, acquisition and operation of subtransmission or distribution to its household members;
2. Health Services Cooperative is one organized for the primary purpose of providing medical, dental and other health services;
3. Housing Cooperative is one organized to assist or provide access to housing for the benefit of its regular members who actively participate in the savings program for housing. It is co-owned and controlled by its members;
4. Insurance Cooperative is one engaged in the business of insuring life and property of cooperatives and their members;
5. Transport Cooperative is one which includes land and sea transportation, limited to small vessels, as defined or classified under the Philippine maritime laws, organized under the provisions of this Code;
(1) to (5) above are already included in the definition of a service cooperative.
6. Education Cooperative is one organized for the primary purpose of owning and operating licensed educational institutions notwithstanding the provisions of Republic Act No. 9155, otherwise known as the Governance of Basic Education Act of 2001;
7. Water Service Cooperative is one organized to own, operate and manage waters systems for the provision and distribution of potable water for its members and their household;
The list is not exclusive since under Article 23(1)(u) of RA 9520, CDA may determine other types of cooperative.
CATEGORIES OF COOPERATIVES:
In terms of membership:
1. Primary – The members of which are natural persons except electric cooperative, water service cooperative and other cooperatives which the implementing rules and the Authority may allow;
2. Secondary – The members of which are primaries; and
3. Tertiary – The members of which are secondary cooperatives;
A group of cooperatives can either be:
a. Union – which shall refer to a cooperative the members of which are registered cooperatives and/or federations organized purposely to represent the interest and welfare of all types of cooperatives at the provincial, city, regional and national levels.
b. Federation – which refers to a cooperative the members of which are primary cooperatives doing the same line of business.
In terms of territory, cooperatives shall be categorized according to areas of operations which may or may not coincide with the political subdivisions of the country.
Functions of a Federation of Cooperatives:
1. To carry on any cooperative enterprise authorized under Article 6 that complements augments, or supplements but does not conflict, complete nor, nor supplant the business or economic activities of its members;
2. To carry on, encourage, and assist educational and advisory work relating to its member cooperatives;
3. To render services designed to encourage simplicity, efficiency, and economy in the conduct of the business of its member cooperatives and to facilitate the implementation of their bookkeeping, accounting, and other systems and procedures;
4. To print, publish, and circulate any newspaper or other publication in the interest of its member cooperatives and enterprises;
5. To coordinate and facilitate the activities of its member cooperatives;
6. To enter into joint ventures with national or international cooperatives of other countries in the manufacture and sale of products and/or services in the Philippines and abroad; and
7. To perform such other functions as may be necessary to attain its objectives.
A federation of cooperatives may be registered by carrying out the formalities for registration of a cooperative.
Registered cooperatives may organize a federation according to the type of business activity engaged in by the cooperatives.
Cooperative Unions: Registered cooperatives and federations at the appropriate levels may organize or join cooperative unions to represent the interest and welfare of all types of cooperatives at the provincial, city, regional, and national levels. Cooperative unions may have the following purposes:
1. To represent its member organizations;
2. To acquire, analyze, and disseminate, economic, statistical, and other information relating to its members and to all types of cooperatives within its area of operation;
3. To sponsor studies in the economic, legal, financial, social and other phases of cooperation, and publish the results thereof;
4. To promote the knowledge of cooperative principles and practices;
5. To develop the cooperative movement in their respective jurisdictions;
6. To advise the appropriate authorities on all questions relating to cooperatives;
7. To raise funds through membership fees, dues and contributions, donations, and subsidies from local and foreign sources whether private or government; and
8. To do and perform such other non-business activities as may be necessary to attain the foregoing objectives.
Cooperative unions may assist the national and local governments in the latter's development activities in their respective jurisdictions.
LABORATORY COOPERATIVE
A cooperative organized by minors shall be considered a laboratory cooperative and must be affiliated with a registered cooperative.
Purposes (Section 7 of CDA MC 2015-03):
1. To serve as training ground for its members to prepare them for membership in regular cooperatives;
2. To teach the values of thrift and saving mobilization among its members;
3. To instill cooperative values, principles, financial discipline, business skills, and leadership skills among its members; or
4. To promote and advocate Filipino social and cultural values, financial education, ecological awareness and sustainable development
Affiliation (Section 8 of CDA MC 2015-03):
1. A laboratory cooperative shall be affiliated with a duly registered cooperative, to be known as the Guardian Cooperative.
2. A laboratory cooperative primarily composed of students from a particular school may affiliate with the school's cooperative, if any, or select a cooperative of its choice within its area of operation.
3. If the laboratory cooperative is composed primarily of out-of-school minors, it shall be affiliated with a cooperative of its own choice within or nearest its area of operation.
Name (Section 11 of CDA MC 2015-03): It shall include in it name the words "Laboratory Cooperative of (Name of Guardian Cooperative)".
Rules Applicable:
1. A certificate of registration issued to a laboratory cooperative does not bestow upon a laboratory cooperative juridical personality
2. The dissolution of the Guardian Cooperative shall result in the revocation of the Certificate of Recognition.
3. It is the Guardian Cooperative that shall be liable for any violations committed in the operation of the laboratory cooperative.
4. Any member who reaches the age of majority has option to join the Guardian Cooperative by signifying his/her intention to become a member upon compliance with all the requirements for membership.
5. A Guardian Cooperative may supervise more than one laboratory cooperative.
Cases of Termination of Membership (Section 16 of CDA MC 2015-03):
1. Upon reaching the age of majority (18 years of age); and
2. Such other causes as may be provided for in the by-laws of the Guardian Cooperative and in the Manual of Operations for the Laboratory Cooperative
MEMBERSHIP
Kinds of Membership
1. Regular member is one who has complied with all the membership requirements and entitled to all the rights and privileges of membership.
2. Associate member is one who has no right to vote nor be voted upon and shall be entitled only to such rights and privileges as the by-laws may provide.
Requisites to be a regular member:
a. Meets the minimum requirements of regular membership
b. Continues to patronize the cooperative for two (2) years; and
c. signifies his/her intention to remain a member.
Rules on Government Officers and Employees:
1. Any officer or employee of the CDA shall be disqualified to be elected or appointed to any position in a cooperative: Provided, That the disqualification does not extend to a cooperative organized by the officers or employees of the CDA.
2. All elective officials of the Government shall be ineligible to become officers and directors of cooperatives: Provided, That the disqualification does not extend to a party list representative being an officer of a cooperative he or she represents; and
3. Any government employee or official may, in the discharge of his duties as a member in the cooperative, be allowed by the end of office concerned to use official time for attendance at the general assembly, board and committee meetings of cooperatives as well as cooperative seminars, conferences, workshops, technical meetings, and training courses locally or abroad: Provided, That the operations of the office concerned are not adversely affected.
TERMINATION OF MEMBERSHIP
1. Withdrawal for a valid reason and giving of a sixty (60) day notice to the board of directors.
Subject to the by-laws of the cooperative, the withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative: Provided, That such fund shall not be made upon payment the value of the assets of the cooperative would be less than the aggregate amount of its debts and liabilities exclusive of his share capital contribution.
Valid grounds for termination:
a. The death or insanity of a member in a primary cooperative
b. The insolvency or dissolution of a member in a secondary or tertiary cooperative
Provided, That in case of death or insanity of an agrarian reform beneficiary-member of a cooperative, the next-of-kin may assume the duties and responsibilities of the original member
3. Membership in the cooperative may be terminated by a vote of the majority of all the members of the board of directors for any of the following causes:
a. When a member has not patronized any of the services of the cooperative for an unreasonable period of time as may be previously determined by the board of directors;
b. When a member has continuously failed to comply with his obligations;
c. When a member has acted in violation of the by-laws and the rules of the cooperative; and
d. For any act or omission injurious or prejudicial to the interest or the welfare of the cooperative.
A member whose membership the board of directors may wish to terminate shall be (1) informed of such intended action in writing and (2) shall be given an opportunity to be heard before the said board makes its decision. (3) The decision of the board shall be in writing and shall be communicated in person or by registered mail to said member and shall be appealable within thirty (30) days from receipt thereof to the general assembly whose decision shall be final.
The general assembly may create an appeal and grievance committee whose members shall serve for a period of one (1) year and shall decide appeals on membership termination.
The committee is given thirty (30) days from receipt thereof to decide on the appeal. Failure to decide within the prescribed period, the appeal is deemed approved in favor of the member. Pending a decision by the general assembly, the membership remains in force.
Refund of Interest: All sums computed in accordance with the by-laws be due from a cooperative to a former member shall be paid to the member whose membership has been terminated either by the cooperative or by the approved transferee, as the case may be.
GENERAL ASSEMBLY
The General Assembly refers to the full membership of the cooperative duly assembled for the purpose of exercising the rights and performing all the obligations pertaining to cooperatives and is considered the highest policy making body of the cooperative.
Composition: all members who are entitled to vote under the articles of cooperation and by-laws.
Delegation of powers of the GA: only for purposes of prompt and intelligent decision-making, the general assembly may by a three-fourths (3/4) vote of all its members with voting rights, present and constituting a quorum, delegate some of its powers to a smaller body of the cooperative; these powers shall be enumerated under the by-laws of the cooperative.
Exclusive powers which cannot be delegated:
1. To determine and approve amendments to the articles of cooperation and by-laws;
2. To elect or appoint the members of the board of directors, and to remove them for cause. However, in the case of the registered electric cooperatives, election of the members of the board shall be held in accordance with its by-laws or election guidelines of such electric cooperative; and
3. To approve developmental plans of the cooperative.
MEETINGS
Regular meeting: shall be held annually on a date fixed in the by-laws, or if not fixed, any date within 90 days after the close of each fiscal year.
Special meeting: whenever necessary, a special meeting of the general assembly may be called at any time by a majority vote of the board of directors as provided for in the by-laws. A notice in writing shall be sent one (1) week prior to the meeting to all members who are entitled to vote.
Other ways of calling a special meeting:
1. A special meeting shall be called by the board of directors after compliance with the required notice within 1 month after receipt of a request in writing from at least ten per centum (10%) of the total members who are entitled to vote to transact specific business covered by the call.
2. If the board fails to call a regular or a special meeting within the given period, the Authority, upon petition of ten per centum (10%) of all the members of the cooperative who are entitled to vote, and for good cause shown, shall issue an order to the petitioners directing them to call a meeting of the general assembly by giving proper notice as required by the Code or in the by-laws.
3. In the case of a newly approved cooperative, a special general assembly shall be called, as far as practicable, within ninety (90) days from such approval;
4. The Authority may call a special meeting of the cooperative for the purpose of reporting to the members the result of any examination or other investigation of the cooperative affairs;
Notice: may be done in writing, by posting or publication or through electronic means. Note, however, that notice of any meeting may be waived, expressly or impliedly, by any member.
QUORUM: consists of at least 25% of all the members entitled to vote.
Except:
1. Cooperative banks: ½ plus 1 (EXCEPT: to amend the Articles and the By-laws which require ¾ (Art.99))
2. Electric cooperatives: 5% of all members entitled to vote, unless the by-laws provide otherwise
ILLUSTRATION: ABC Transport Cooperative has 20 members. Four of them are A, B, C and D who holds 10% share capital each. The other 60% of the share capital are equally shared by the remaining 16 members, who hold 3.75% each. In a meeting, only A, B, C and D are present. In this case, is there a quorum?
ANSWER: None. Since the cooperative is a transport cooperative and not a cooperative bank or an electric cooperative, the generic quorum requirement of at least 25% shall be applicable.
Since A, B, C and D (4 members) represent only 20% (4/20) of the entire membership, then there is no quorum. In determining the quorum, the basis shall be the number of members and not their respective share capital.
VOTING SYSTEM
Each member of a primary cooperative shall have only one vote.
In case of members of secondary or tertiary cooperatives, they shall have one basic vote and as many incentive votes as provided for in the by-laws but not to exceed 5 votes.
Delegates: the votes cast by the delegates shall be deemed as votes cast by members thereof.
Voting by proxy may be allowed by the by-laws of a cooperative other than primary cooperative.
SUMMARY OF VOTING REQUIREMENTS:
Merger or Consolidation of Cooperatives
• Voting by Board of Directors: Not Required
• Voting by Members: ¾ of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: Yes
Amendment of articles of cooperation
• Voting by Board of Directors: Not Required
• Voting by Members: 2/3 of all members with voting rights
• Presence of Appraisal Right or Right to Withdraw: Yes
Amendment of by-laws
• Voting by Board of Directors: Not Required
• Voting by Members: 2/3 of all members with voting rights
• Presence of Appraisal Right or Right to Withdraw: Yes
Division of cooperatives into two or more cooperatives
• Voting by Board of Directors: Not Required
• Voting by Members: ¾ of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Voluntary dissolution where creditors are not affected
• Voting by Board of Directors: Majority of all members (Mere submission of board resolution together with ratification by General Assembly)
• Voting by Members: Majority of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Voluntary dissolution where creditors are affected
• Voting by Board of Directors: Majority of all members (Filing of Formal Petition with notice and hearing)
• Voting by Members: ¾ of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Filling up of vacancy in the board of directors due to expiration
• Voting by Board of Directors: Not Allowed
• Voting by Members: Majority of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Filling up of vacancy in the board of directors
• Voting by Board of Directors: Majority of the Remaining
• Voting by Members: Majority of all members with voting rights
• Presence of Appraisal Right or Right to Withdraw: No
Directors if vacancy is not due to expiration of term (death, removal or resignation)
• Voting by Board of Directors: Directors if they still present constitute quorum; or
• Voting by Members: Majority of all members present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Allocation of interest on share capital
• Voting by Board of Directors: Majority of all members present and constituting a quorum
• Voting by Members: Not Required
• Presence of Appraisal Right or Right to Withdraw: No
Deferment of payment of interest on share capital
• Voting by Board of Directors: Upon recommendation by Majority of all members present and constituting a quorum
• Voting by Members: Approval by Majority of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Removal of a member of cooperative for valid cause
• Voting by Board of Directors: Majority of all members
• Voting by Members: Not Required
• Presence of Appraisal Right or Right to Withdraw: No
Delegation of power of board of directors to an executive committee
• Voting by Board of Directors: Majority of all members
• Voting by Members: Not Required
• Presence of Appraisal Right or Right to Withdraw: No
Placing an elected cooperative officer under preventive suspension pending resolution by the investigating committee over his removal
• Voting by Board of Directors: Majority of all members
• Voting by Members: Not Required
• Presence of Appraisal Right or Right to Withdraw: No
Filling up of vacancy in committees
• Voting by Board of Directors: Majority of all members present and constituting a quorum
• Voting by Members: Not Required
• Presence of Appraisal Right or Right to Withdraw: No
Recommending to the General Assembly the removal of elected officer of the cooperative
• Voting by Board of Directors: Majority of all members present and constituting a quorum
• Voting by Members: Not Required (But approval of General Assembly is necessary for the decision regarding the removal)
• Presence of Appraisal Right or Right to Withdraw: No
Delegation of the powers of General Assembly to the Board of Directors
• Voting by Board of Directors: Not Required
• Voting by Members: ¾ of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Ratification of contracts with self-dealing directors, officers or executive committee members of the cooperative
• Voting by Board of Directors: Not Required
• Voting by Members: ¾ of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Ratification of the election of director of a cooperative
• Voting by Board of Directors: Not Required
• Voting by Members: ¾ of all members with voting rights, present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
Removal of an elected officer upon recommendation of the board
• Voting by Board of Directors: Not Required (But recommendation by the board)
• Voting by Members: ¾ of all members with voting rights
• Presence of Appraisal Right or Right to Withdraw: No
the Board of Directors
• Voting by Board of Directors: necessary prior to the voting for the removal
• Voting by Members: present and constituting a quorum
• Presence of Appraisal Right or Right to Withdraw: No
BOARD OF DIRECTORS
The direction and management of the affairs of the cooperatives shall be vested in a Board of Directors, unless the by-laws provide otherwise.
Composition: not less than 5 but not more than 15 elected by the general assembly.
Term: 2 years (maximum term allowed as per CDA MC 2012-20)
Powers:
1. Strategic planning;
2. Direction-setting; and
3. Policy formulation
Directors: Any member of a cooperative who under the by-laws of the cooperative, has the right to vote and who possesses all the qualifications and none of the disqualifications provided in the laws or by-laws shall be eligible for election as director.
Special director for technical knowledge: The cooperative may, by resolution of its board of directors, admit as directors, or committee member appointed by any financing institution from which the cooperative received financial assistance solely to provide technical knowledge not available within its membership. Such director or committee member need not be a member of the cooperative and shall have no powers, rights, nor responsibilities except to provide technical assistance as required by the cooperative.
Prohibitions:
1. The members of the board of directors shall not hold any position directly involved in the day-to-day operation and management of the cooperative.
2. Any person engaged in a business similar to that of the cooperative or who in any way has a conflict of interest with it, is disqualified from election as a director of said cooperative.
Meeting of the board and quorum requirement:
Regular meetings: In the case of primary cooperatives, regular meetings of the board of directors shall be held at least once a month.
Special meetings: meetings of the board of directors may be held at any time upon the call of the chairperson or a majority of the members of the board: Provided, That written notices of the meeting specifying the agenda of the special meeting shall be given to all members of the board at least one (1) week before the said meeting.
Quorum: A majority of the members of the Board shall constitute a quorum for the conduct of business, unless the by-laws provide otherwise.
Prohibition on proxies: Directors cannot attend or vote by proxy at board meetings.
Vacancy:
• Expiration of the term: General Assembly, in a general or special meeting called for the purpose
• Other causes: Board of Directors, if they still constitute a quorum
Note that for corporations, removals are filled-up only by the stockholders in the same meeting where the director was removed.
OFFICERS OF THE COOPERATIVES
1. The board of directors shall elect from among themselves the chairperson and vice-chairperson, and elect or appoint other officers of the cooperative from outside of the board in accordance with their by-laws.
2. All officers shall serve during good behavior and shall not be removed except for cause after due hearing.
3. Loss of confidence shall not be a valid ground for removal unless evidenced by acts or omission causing loss of confidence in the honesty and integrity of such officer.
4. No two (2) or more persons with relationships up to the third degree of consanguinity or affinity nor shall any person engaged in a business similar to that of the cooperative nor who in any other manner has interests in conflict with the cooperative shall serve as an appointive officer.
COMMITTEES
Executive committee: may be created under the by-laws and appointed by the board of directors with such powers and duties as may be delegated to it by the by-laws or by a majority vote of all the members of the board of directors.
Those required to be provided under the by-laws:
1. Audit
2. Election
3. Mediation and conciliation
4. Ethics
5. Such other committees as may be necessary
Committees whose members are elected by the GA:
1. Audit
2. Election
Committees whose members are appointed by the board of directors: all other committees
COMPENSATION OF DIRECTORS:
General Rule: directors are not to receive any compensation
Exceptions:
1. If there is a provision in the by-laws fixing their compensation;
2. Reasonable per diems, except;
a. if in the preceding calendar year, the cooperative reported a net loss
b. had a dividend rate less than the official inflation rate for the same year.
No additional compensation other than per diems shall be paid during the first year of existence of any cooperative.
Under Section 6, resumption of grant of per diem after a period of suspension shall not be compounded. No recovery of per diem during the period of suspension shall be allowed.
3. By a majority vote of the members with voting rights at a regular or special general assembly meeting specifically called for the purpose
Under Section 5 of CDA MC 2013-17, the grant of compensation other than per diem to the directors shall be made only after the adoption of a General Assembly Resolution approving such compensation.
COMPENSATION OF OFFICERS, COMMITTEE MEMBERS AND EMPLOYEES:
The compensation of officers of the cooperative as well as the members of the committee as well as the members of the committees may be fixed in the by-laws.
Unless already fixed in the by-laws, the compensation of all other employees shall be determined by the board of directors.
DEALINGS OF DIRECTORS, OFFICERS, OR COMMITTEE MEMBERS WITH COOPERATIVES
SELF-DEALING DIRECTORS: A contract entered into by the cooperative with one (1) or more of its directors is voidable, at the option of the cooperative, unless all the following conditions are present:
1. That the presence of such director in the board meeting wherein contract was approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director, such contract may be ratified by a three-fourths (3/4) vote of all the members with voting rights, present and constituting a quorum in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors involved is made at such meeting, and that the contract is fair and reasonable under the circumstances.
Self-Dealing Officers and Committee Members: the same rule above shall apply, except if it has been previously authorized by the general assembly or by the board of directors.
DISLOYALTY OF A DIRECTOR
A director who, by virtue of his office, acquires for himself an opportunity which should belong to the cooperative shall be liable for:
1. Damages and
2. Must account for double the profits that otherwise would have accrued to the cooperative by refunding the same.
Except: if his act has been ratified by a three-fourths (3/4) vote of all the members with voting rights, present and constituting a quorum. This provision shall be applicable, notwithstanding the fact that the director used his own funds in the venture.
USE OF CONFIDENTIAL INFORMATION: A director or officer, or an associate of a director or officer, who, for his benefit or advantage or that of an associate, makes use of confidential information that, if generally known, might reasonably be expected to adversely affect the operation and viability of the cooperative, shall be held:
1. Liable to compensate the cooperative for the direct losses suffered by the cooperative as a result of the illegal use of information; and
2. Accountable to the cooperative for any direct benefit or advantage received or yet to be received by him or his associate, as a result of the transaction.
REMOVAL OF OFFICERS:
1. All complaints for the removal of any elected officer shall be filed with the board of directors.
2. Such officer shall be given the opportunity to be heard.
3. Majority vote of the board of directors may place the officer concerned under preventive suspension pending the resolution of the investigation.
4. Upon finding of a prima facie evidence of guilt, the board shall present its recommendation for removal to the general assembly.
5. An elected officer may be removed by three fourths (3/4) votes of the regular members present and constituting a quorum, in a regular or special general assembly meeting called for the purpose.
6. The officer concerned shall be given an opportunity to be heard at said assembly.
OTHER OFFICERS
Accountant: The accountant or the bookkeeper of the cooperative shall be responsible for the maintenance of the cooperative in accordance with generally accepted accounting practices. He shall also be responsible for the production of the same at the time of audit or inspection.
Audit Committee: The audit committee shall be responsible for the continuous and periodic review of the books and records of account to ensure that these are in accordance with generally accepted accounting practices. He shall also be responsible for the production of the same at the time of audit or inspection.
OTHER MATTERS ON COOPERATIVES
KEEPING OF RECORDS
Each cooperative shall maintain records of accounts such that the true and correct condition and the results of the operation of the cooperative may be ascertained therefrom at any time. The financial statements, audited according to generally accepted auditing standards, principles and practices, shall be published annually and shall be kept posted in a conspicuous place in the principal office of the cooperative.
Preservation:
General Rule: A Cooperative may dispose by way of burning or other method of complete destruction any document, record or book pertaining to its financial and nonfinancial operations which are already more than five (5) years old.
Except:
1. As provided under the Tax Code; and
2. Those relating to transactions which are the subject of civil, criminal and administrative proceedings.
REPORTS
1. Every cooperative shall draw up regular reports of its program and activities, including those in pursuance of their socio-civic undertakings, showing their progress and achievements at the end of every fiscal year.
2. The reports shall be made accessible to its members, and copies thereof shall be furnished to all its members or record.
3. These reports shall be filed with the CDA within one hundred twenty (120) days from the end of the calendar year.
4. Failure to file the required reports shall subject the accountable officers to fines and penalties as may be prescribed by the CDA and shall be a ground for the revocation of authority of the cooperative to operate as such.
5. The fiscal year of every cooperative shall be the calendar year except as may be otherwise provided in the by-laws.
6. If a cooperative fails to make, publish and file the reports required herein, or fails to include therein any matter required, the CDA shall, within fifteen (15) days from the expiration of the prescribed period, send such cooperative a written notice, stating its non-compliance and the commensurate fines and penalties that will be imposed until such time that the cooperative has complied with the requirements.
TAX EXEMPTION OF COOPERATIVES
1. Duly registered cooperatives which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and other tax laws.
2. Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including but not limited to final taxes on members' deposits and documentary tax.
Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following tax exemptions:
Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (₱10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature.
Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the department of trade and industry (DTI). All tax-free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and / or duties.
Cooperatives with accumulated reserves and divided net savings of more than Ten million pesos (₱10,000,000.00) shall pay the following taxes at the full rate:
i. Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members: EXCEPT: That cooperatives, regardless of classification, are exempt from income tax from the date of registration with the CDA;
ii. Value-Added Tax - On transactions with non-members: Provided, however, That cooperatives duly registered with the Authority are exempt from the payment of value-added tax subject to exemptions under Section 109 of the Tax Code.
iii. All other taxes unless otherwise provided herein (EXCEPT: 3% Other Percentage Tax under the TRAIN Law);
iv. Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible.
c. All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives.
OTHER EXEMPTIONS
1. In areas where there are no available notaries public, the judge, exercising his ex officio capacity as notary public, shall render service, free of charge, to any person or group of persons requiring the administration of oath or the acknowledgment of articles of cooperation and instruments of loan from cooperatives not exceeding Five Hundred Thousand Pesos (₱500,000.00).
2. Any register of deeds shall accept for registration, free of charge, any instrument relative to a loan made under the Code which does not exceed Two Hundred Fifty Thousand Pesos (₱250,000.00) or the deeds of title of any property acquired by the cooperative or any paper or document drawn in connection with any action brought by the cooperative or with any court judgment rendered in its favor or any instrument relative to bond of any accountable officer of a cooperative for the faithful performance of his duties and obligations.
3. Cooperatives shall be exempt from the payment of all court and sheriff's fees payable to the Philippine Government for and in connection with all actions brought under RA 9520, or where such action is brought by the CDA before the court, to enforce the payment of obligations contracted in favor of the cooperative.
4. All cooperatives shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or for seeking to set aside any third-party claim: Provided, That a certification of the CDA showing that the net assets of the cooperative are in excess of the amount of the bond required by the court in similar cases shall be accepted by the court as a sufficient bond.
5. Any security issued by cooperatives shall be exempt from the provisions of the Securities Act provided such security shall not be speculative.
PRIVILEGES OF COOPERATIVES
Cooperatives registered, notwithstanding the provisions of any law to the contrary, be also accorded the following privileges:
1. Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or containers, documents or any valuable papers in the safes of the municipal or city treasurers and other government offices free of charge, and the custodian of such articles shall issue a receipt acknowledging the articles received duly witnessed by another person;
2. Cooperatives organized among government employees, notwithstanding any law or regulation to the contrary, shall enjoy the free use of any available space in their agency, whether owned or rented by the Government;
3. Cooperatives rendering special types of services and facilities such as cold storage, plant, electricity, transportation, and similar services and facilities shall secure a franchise therefore, and such cooperatives shall open their membership to all persons qualified in their areas of operation;
4. In areas where appropriate cooperatives exist, the preferential right to supply government institutions and agencies rice, corn and other grains, fish and other marine products, meat, eggs, milk, vegetables, tobacco and other agricultural commodities produced by their members shall be granted to the cooperatives concerned;
5. Preferential treatment in the allocation of fertilizers, including seeds and other agricultural inputs and implements, and in rice distribution shall be granted to cooperatives by the appropriate government agencies;
6. Preferential and equitable treatment in the allocation or control of bottomries of commercial shipping vessels in connection with the shipment of goods and products of cooperatives;
7. Cooperatives and their federations, such as farm and fishery producers and suppliers, market vendors and such other cooperatives, which have for their primary purpose the production and/or the marketing of products from agriculture, fisheries and small entrepreneurial industries and federations thereof, shall have preferential rights in the management of public markets and/or lease of public market facilities, stalls or spaces: Provided, That these rights shall only be utilized exclusively by cooperatives: Provided further, That no cooperative forming a joint venture, partnership or any other similar arrangement with a non-cooperative entity can utilize these rights;
8. Cooperatives engaged in credit services and/or federations shall be entitled to loans credit lines, rediscounting of their loan notes, and other eligible papers with the Development Bank of the Philippines, the Land Bank of the Philippines and other financial institutions except the Bangko Sentral ng Pilipinas (BSP);
9. The Philippine Deposit Insurance Corporation (PDIC) and other government agencies, government-owned and controlled corporations and government financial institutions shall provide technical assistance to registered national federations and unions of cooperatives which have significant engagement in savings and credit operations in order for these federations and unions to establish and/or strengthen their own autonomous cooperative deposit insurance systems;
10. A public transport service cooperative may be entitled to financing support for the acquisition and/or maintenance of land and sea transport equipment, facilities and parts through the program of the government financial institutions. It shall have the preferential right to the management and operation of public terminals and ports whether land or sea transport where the cooperative operates and on securing a franchise for active or potential routes for the public transport;
11. Cooperatives transacting business with the Government of the Philippines or any of its political subdivisions or any of its agencies or instrumentalities, including government-owned and controlled corporations shall be exempt from prequalification bidding requirements notwithstanding the provisions of Republic Act No.9184, otherwise known as, the Government Procurement Act;
12. Cooperative shall enjoy the privilege of being represented by the provincial or city fiscal or the Office of the Solicitor General, free of charge, except when the adverse party is the Republic of the Philippines;
13. Cooperatives organized by faculty members and employees of educational institutions shall have the preferential right in the management of the canteen and other services related to the operation of the educational institution where they are employed: Provided, That such services are operated within the premises of the said educational institution; and
14. The appropriate housing agencies and government financial institutions shall create a special window for financing housing projects undertaken by cooperatives, with interest rates and terms equal to, or better than those given for socialized housing projects. This financing shall be in the form of blanket loans or long-term wholesale loans to qualified cooperatives, without need for individual processing
CAPITAL, PROPERTY AND FUNDS
Sources of Capital
1. Member's share capital;
2. Loans and borrowings including deposits;
3. Revolving capital which consists of the deferred payment of patronage refunds, or interest on share capital; and
4. Subsidies, donations, legacies, grants, aids and such other assistance from any local or foreign institution whether public or private: Provided, That capital coming from such subsidies, donations, legacies, grants, aids, and other assistance shall not be divided into individual share capital holdings at any time but shall instead form part of the donated capital or fund of the cooperative.
Upon dissolution, such donated capital shall be subject to escheat.
Limitation on Share Capital Holdings
1. No member of primary cooperative other than cooperative itself shall own or hold more than ten per centum (10%) of the share capital (total subscribed share capital as per CDA MC 2011-05) of the cooperative.
2. Where a member of cooperative dies, his heir shall be entitled to the shares of the decedent: Provided;
a. the total shareholding of the heir does not exceed ten per centum (10%) of the share capital of the cooperative;
b. the heir qualifies and is admitted as members of the cooperative; and
c. where the heir fails to qualify as a member or where his total shareholding exceeds ten per centum (10%) of the share capital, the share or shares in excess will revert to the cooperative upon payment to the heir of the value of such shares.
Assignment of Share Capital Contribution or Interest: No member shall transfer his shares or interest in the cooperative or any part thereof unless:
1. He has held such share capital contribution or interest for not less than one (1) year.
2. The assignment is made to the cooperative or to a member of the cooperative or to a person who falls within the field of the membership of the cooperative; and
3. The board of directors has approved such assignment.
Capital Build-Up: The by-laws of every cooperative shall provide for a reasonable and realistic member capital build-up program to allow the continuing growth of the members' investment in their cooperative as their economic conditions continue to improve.
Continuing Subscription: cooperatives are required
1. To adopt a policy of continuing subscription on share capital up to full payment of the initial subscription.
2. To execute subscription agreement upon admission of members and whenever additional subscription shall be made by members upon full payment of their initial subscription.
3. Unless otherwise provided for in their by-laws, cooperatives shall issue Share Certificates at least every end of the calendar year based on the number of shares fully paid for the said period.
a. Cooperatives are prohibited from issuing multiple types of common shares and different par value per share.
b. It is likewise prohibited for any cooperative increase/decrease the value of the share capital by way of amending their Articles of Cooperation and Bylaws.
Share: refers to a unit of capital in a primary cooperative the par value of which may be fixed to any figure not more than One thousand pesos (₱1,000.00). The share of capital of a cooperative is the money paid or required to be paid for the operations of the cooperative. The method for the issuance of share certificates shall prescribed in its by-laws.
Fines: The by-laws of a cooperative may prescribe a fine on unpaid subscribed share capital. Provided, that such fine is fair and reasonable under the circumstances.
Investment of Capital: A cooperative may invest its capital in any of the following:
1. In shares or debentures or securities of any other cooperative;
2. In any reputable bank in the locality, or any cooperative;
3. In securities issued or guaranteed by the Government;
4. In real estate primarily for the use of the cooperative or its members; or
5. In any other manner authorized in the by-laws.
Revolving Capital: The General Assembly may authorize the board of directors to raise a revolving capital to strengthen its capital structure by:
1. Deferring the payment of patronage refunds and interest on share capital; or
2. The authorized deduction of a percentage from the proceeds of products sold or services rendered, or per unit of product or services handled.
The board of directors shall issue revolving capital certificates with serial number, name, amount, and rate of interest to be paid and shall distinctly set forth the time of retirement of such certificates and the amounts to be retired.
AUDIT, INQUIRY AND MEMBERS' RIGHT TO EXAMINE
ANNUAL AUDIT:
1. Cooperatives shall be subject to an annual financial, performance and social audit.
2. The financial audit shall be conducted by an external auditor who satisfies all the following qualifications:
a. He is independent of the cooperative or any of its subsidiary that he is auditing; and
b. He is a member in good standing of the Philippine Institute of Certified Public Accountants (PICPA) and is accredited by both the Board of Accountancy and the CDA.
3. The social audit shall be conducted by an independent social auditor accredited by the CDA.
4. Performance and social audit reports which contain the findings and recommendations of the auditor shall be submitted to the board of directors.
5. The CDA, in consultation with the cooperative sector, shall promulgate the rules and standards for the social audit of cooperatives.
Social Audit is a procedure wherein the cooperative assesses its social impact and ethical performance vis-à-vis its stated mission, vision, goals and code of social responsibility for cooperatives to be established by the Authority in consultation with the cooperative sector. It enables the cooperative to develop a process whereby it can account for its social performance and evaluate its impact in the community and be accountable for its decisions and actions to its regular members.
Performance Audit shall refer to an audit on the efficiency and effectiveness of the cooperative as a whole; its management and officers; and its various responsibility centers as basis for improving individual team or overall performance and for objectively informing the general membership on such performance.
Audit Report:
1. The auditor shall submit to the board of directors and to the audit committee the financial audit report which shall be in accordance with the generally accepted auditing standards for cooperatives as jointly promulgated by the Philippine Institute of Certified Public Accountants (PICPA) and the CDA.
2. Thereafter, the board of directors shall present the complete audit report to the general assembly in its next meeting.
No liability for defamation: The auditor is not liable to any person in an action for defamation based on any act, done, or any statement made by him in good faith in connection with any matter he is authorized or required to do pursuant to RA 9520.
Limitation on auditor as to familiarity: the external auditor, whether on his/her individual capacity or as partner of a firm, may undertake the external audit of the concerned cooperative for not more than 5 consecutive years provided that the external auditor may be allowed to audit the same client after a gap of 2 years.
CDA MC 2014-02 further clarifies that the 5-consecutive-year limit shall apply to the accredited cooperative external auditor, either as individual CPA or partnership/auditing firm. For partnership/auditing firm, accreditation is an authority vested to them as an organization per se and that all the partners and associates are part of the organization.
MEMBERS' RIGHT TO EXAMINE:
1. A member shall have the right to examine the records required to be kept by the cooperative during reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records without charge except the cost of production.
2. Any officer of the cooperative who shall refuse to allow any member of the cooperative to examine and copy excerpts from its records shall be liable to such member for damages and shall be guilty of an offense which shall be punishable under RA 9520: Provided,
a. That if such refusal is pursuant to a resolution or order of the board of directors, the liability shall be imposed upon the directors who voted for such refusal; and
b. That it shall be a defense to any action under this article that the member demanding to examine and copy excerpts from the cooperative records has improperly used any information secured through any prior examination of the records of such cooperative or was not acting in good faith or for a legitimate purpose in making his demand.
Not included in such right to examine:
1. Subsidiary ledgers and
2. Records of natural or juridical members other than their own personal records.
Every cooperative shall have the following documents ready and accessible to its members and representatives of the Authority for inspection during reasonable office hours at its official address:
a. A copy of this Code and all other laws pertaining to cooperatives;
b. Copies of the regulations of the Authority;
c. A copy of the articles of cooperation and bylaws of the cooperative;
d. A register of members;
e. The books of the minutes of the meetings of the general assembly, board of directors and committee;
f. Share books, where applicable;
g. Financial statement; and
h. Such other documents as may be prescribed by laws or the bylaws
Safety of Records: Every cooperative shall, at its principal office, keep and carefully preserve the records required to be prepared and maintained. It shall take all necessary precaution to prevent its loss, destruction or falsification.
NET SURPLUS
1. Every cooperative shall determine its net surplus at the close of every fiscal year and at such other times as may be prescribed by the bylaws.
2. It shall not be construed as profit but as:
a. An excess of payments made by the members
i. for the loans borrowed; or
ii. the goods and services availed by them from the cooperative.
b. The difference of the rightful amount due to the members for their products sold or services rendered to the cooperative,
c. Including other inflows of assets resulting from its other operating activities and which shall be deemed to have been returned to them if the same is distributed as prescribed under the Cooperative Code.
DISTRIBUTION
The net surplus of every cooperative shall be distributed as follows:
Reserve Fund
• Purpose:
a. The reserve fund shall be used for the stability of the cooperative and to meet net losses in its operations. The General Assembly may decrease the amount allocated to the reserve fund when the reserve fund already exceeds the share capital.
b. Any sum recovered on items previously charged to the reserve fund shall be credited to such fund.
c. The reserve fund shall not be utilized for investment, other than those allowed in RA 9520. Such sum of the reserve fund in excess of the share capital may be used at any time for any project that would expand the operations of the cooperative upon the resolution of the general assembly.
d. Upon the dissolution of the cooperative, the reserve fund shall not be distributed among the members. The GA may resolve:
i. To establish a usufructuary trust fund for the benefit of any federation or union to which the cooperative is affiliated; and
ii. To donate, contribute, or otherwise dispose of the amount for the benefit of the community where the cooperative operates. If the members cannot decide upon the disposal of the reserve fund, the same shall go to the federation or union to which the cooperative is affiliated.
• Amount: Minimum 10% of the net surplus; Provided, that in the first 5 years of operation after registration, it shall not be less than 50% of the net surplus.
Education and Training Fund
• Purpose: The bylaws may provide that certain fees or a portion thereof be credited to such fund. The fund shall provide for the training, development and similar other cooperative activities geared towards the growth of the cooperative movement:
a. Half of the amounts transferred to the education and training fund annually shall be spent by the cooperative for education and training purposes; while the other half may be remitted to a union or federation chosen by the cooperative or of which it is a member. The said union or federation shall submit to the CDA and to its contributing cooperatives the following schedules:
i. List of cooperatives which have remitted their respective Cooperative Education and Training Funds (CETF);
ii. Business consultancy assistance to include the nature and cost; and
iii. Other training activities undertaken specifying therein the nature, participants and cost of each activity.
b. Upon the dissolution of the cooperative, the unexpended balance of the education and training fund appertaining to the cooperative shall be credited to the cooperative education and training fund of the chosen union or federation.
• Amount: Maximum 10% of the net surplus
Community Development Fund
• Purpose: The community development fund shall be used for projects or activities that will benefit the community where the cooperative operates.
• Amount: Minimum 3% of the net surplus
Optional Fund
• Purpose: A land and building and other necessary fund
• Amount: Maximum 7% of the net surplus
Remaining surplus
• Purpose: Interest on share capital, investments and patronage refunds. Any amounts after allowing the interest and patronage refund shall be credited to the reserve fund.
• Amount: Not to exceed the normal rate of return on investments and patronage. Any amounts after allowing the interest and patronage refund shall be credited to the reserve fund.
ILLUSTRATION: The following data are provided by Dracula Agricultural Cooperative, a cooperative already existing for at least five years:
Sales revenue: ₱1,450,000
Membership fee revenue: 50,000
Operating expenses: (500,000)
What is the amount that is available for interest on share capital and patronage refunds?
ANSWER: ₱700,000.
1. The net surplus is computed in the same manner as net income, as follows:
Sales revenue: ₱1,450,000
Membership fee revenue: 50,000
Operating expenses: (500,000)
Net surplus: ₱1,000,000
2. Since nothing in the problem suggests a different rate of distribution, the statutory rates shall apply in our computation, as follows:
Reserve Fund: 10%
Education and Training Fund: 10%
Community Development Fund: 3%
Optional Fund: 7%
Total: 30%
The rate is 10% since the Cooperative has already been existing for at least 5 years.
3. Accordingly, 30% of the Net Surplus, or ₱300,000 would be allocated for the 4 Funds above.
4. The ₱700,000 balance shall be the excess from which the interest on share capital and patronage refund may be paid out of.
INTEREST ON SHARE CAPITAL: Rate of Interest = X (Net Surplus less Statutory Reserves)/Total Average Share Month Where: X shall be a percentage to be determined by the Board of Directors allocated for interest on share capital.
1. Required vote for allocation of interest on share capital: No allocation of interest on share capital shall be made without the approval of the Board of Directors which may increase or decrease any or both. The required vote for allocation of interest on share capital is at least majority of all members of the board of directors present and constituting a quorum.
2. Requirement vote for deferment of payment of interest on share capital: Payment of interest, unless otherwise provided for in the By-laws, must be made on such date as may be determined by the Board of Directors. The General/Representative Assembly may defer the payment of such interest including Patronage Refund to raise Revolving Capital. No cumulative interest shall be allowed for any kind or class of share issued by the cooperative. Share Capital shall receive a strictly limited Rate of Interest. The required vote for deferment of payment of interest on share capital is at least majority of all members of General Assembly present and constituting a quorum but only upon the recommendation of the Board of Directors with a required vote of at least majority of all members of the board of directors present and constituting a quorum.
PATRONAGE REFUNDS: the sum allocated to "patrons" or those who availed of the goods/services of the cooperative.
Member-patrons:
1. With paid-up share capital contribution, his proportionate amount of patronage refund shall be paid to him unless he agrees to credit amount to his account as additional share capital contribution;
2. With unpaid share capital contribution, his proportionate amount of patronage refund shall be credited to his account until his account and his share capital contribution has been fully paid;
Non-Member patrons:
1. In the case of a non-member patron, his proportionate amount of patronage refund shall be set aside in a general fund for such patrons.
2. It shall be allocated to individual non-member patrons only (a) upon request and (b) presentation of evidence of the amount of his patronage.
The amount so allocated shall be credited to such patron toward payment of the minimum capital contribution for membership.
The non-member patron shall be deemed and become a member if the following concur:
i. When a sum equal to the minimum capital contribution has accumulated
ii. at any time within a period specified in the bylaws of the cooperative
iii. if he so agrees or requests and complies with the provisions of the bylaws for admission to membership;
The amount so accumulated or credited to the non-member patrons' account together with any part of the general fund for nonmember patrons shall be credited to the reserve fund or to the education and training fund of the cooperative, at the option of the cooperative, in any of the following cases:
i. If within any period of time specified in the bylaws, any subscriber who has not fully paid his subscribed share capital or
ii. any non-member patron who has accumulated the sum necessary for membership but who does not request nor agree to become a member or fails to comply with the provisions of the bylaws for admission to membership.
DISSOLUTION
Dissolution is the termination of the juridical personality of the cooperative through appropriate judicial proceedings, or by order of the CDA, or through its own initiative (Section 2, CDA MC 2012-21)
Modes:
1. Voluntary: initiated through the voluntary decision of the members of cooperatives
2. Involuntary: if ordered by the CDA or a competent court having jurisdiction over the cooperatives on grounds as specified by law, after due process
Effect: terminates the right of the cooperative to continue the business purposes for which it was established and is bound to wind up its affairs within the period as specified by law
Voluntary Dissolution Where no Creditors are Affected:
1. By a majority vote of the board of directors, and by a resolution duly adopted by the affirmative vote of at least three-fourths (3/4) of all members with voting rights, present and constituting a quorum at a meeting to be held upon call of the directors
2. That the notice of time, place and object of the meeting shall be published for three (3) consecutive weeks in a newspaper published in the place where the principal office of said cooperative is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines
3. That the notice of such meeting is sent to each member of record either by registered mail or by personal delivery at least thirty (30) days prior to said meeting.
4. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors and countersigned by the board secretary.
5. The CDA shall thereupon issue the certificate of dissolution.
Voluntary Dissolution Where Creditors Are Affected:
1. The petition for dissolution shall be filed with the CDA.
2. The petition shall be:
a. signed by a majority of its board of directors or other officers managing its affairs;
b. verified by its chairperson or board secretary or one of its directors; and
c. shall set forth all claims and demands against it and that its dissolution was resolved upon by the affirmative vote of at least three-fourths (3/4) of all the members with voting rights, present and constituting a quorum at a meeting called for that purpose.
3. If the petition is sufficient in form and substance, the CDA shall issue an order directing the purpose of the petition that shall fix a date which shall not be less than thirty (30) nor more than sixty (60) days after the entry of the order.
4. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the cooperative is situated or in the absence of such local newspaper, in a newspaper of general circulation in the Philippines, and a copy shall likewise be posted for three (3) consecutive weeks in three (3) public places in the municipality or city where the cooperative's office is located.
5. Upon expiry of the five (5) day notice to file objections, the CDA shall proceed to hear the petition and try any issue raised in the objection filed; and if the objection is sufficient and the material allegations of the petition are proven, it shall issue an order to dissolve the cooperative and direct the disposition of its assets in accordance with existing rules and regulations.
6. The order of dissolution shall set forth therein:
a. The assets and liabilities of the cooperative;
b. The claim of any creditor;
c. The number of members; and
d. The nature and extend of the interests of the members of the cooperative.
Involuntary Dissolution by the Court: A cooperative may be dissolved by order of a competent court after due hearing on the grounds of:
1. Violation of any law, regulation or provisions of its bylaws; or
2. Insolvency.
Upon receipt of final and executory decision of the court, the CDA shall issue an order to proceed with the winding up of the affairs of the cooperative (Section 7(A)(2) of CDA MC 2012-21).
Involuntary Dissolution by Order of the CDA: The CDA may suspend or revoke, after due notice and hearing, the certificate of registration of a cooperative on any of the following grounds:
1. Having obtained its registration by fraud;
2. Existing for an illegal purpose;
3. Willful violation, despite notice by the CDA, of the provisions of RA 9520 or its bylaws;
4. Willful failure to operate on a cooperative basis; and
5. Failure to meet the required minimum number of members in the cooperative.
Dissolution by Failure to Organize and Operate: If a cooperative:
1. has not commenced business and its operation within two (2) years after the issuance of its certificate of registration; or
2. has not carried on its business for two (2) consecutive years,
The CDA shall send a formal notice to the said cooperative to show cause as to its failure to operate. Failure of the cooperative to promptly provide justifiable cause for its failure to operate shall warrant the CDA to delete its name from the roster of registered cooperatives and shall be deemed dissolved.
LIQUIDATION
1. Every cooperative whose charter expires by its own limitation or whose existence is terminated by voluntary dissolution or through appropriate judicial proceeding shall nevertheless continue to exist for three (3) years after the time it is dissolved; not to continue the business for which it was established but for the purpose of prosecuting and defending suits by or against it; settlement and closure of its affairs; disposition, conveyance and distribution of its properties and assets.
2. At any time during the said three (3) years, the cooperative is authorized and empowered to convey all of its properties to trustees for the benefit of its members, creditors and other persons in interest.
3. From and after any such conveyance, all interests which the cooperative had in the properties are terminated.
4. Upon the winding up of the cooperative affairs, any asset distributable to any creditor, shareholder or member who is unknown or cannot be found shall be given to the federation or union to which the cooperative is affiliated with.
5. A cooperative shall only distribute its assets or properties upon lawful dissolution and after payment of all its debts and liabilities, except in the case of decrease of share capital of the cooperative and as otherwise allowed by this Code.
MULTIPLE CHOICE QUESTIONS
1. Statement 1: A cooperative has the right of succession
Statement 2: A cooperative can sue and be sued.
a. Only Statement 1 is true
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
2. Which of the following is correct in relation to the characteristics of cooperatives?
a. Members of a cooperative have unlimited liability
b. The cooperative is a person separate and distinct from its members
c. A cooperative has an indefinite life.
d. A cooperative cannot enter into a merger or consolidation
3. What is the governing body for cooperatives?
a. Cooperative Development Authority
b. Securities and Exchange Commission
c. Cooperative Regulatory Commission
d. Cooperative Registration Board
4. Which of the following is not contained in the Articles of Cooperation?
a. Name of the cooperative
b. Common bond of membership
c. Area of operation
d. Qualifications for admission to membership
5. Statement 1: A cooperative may or may not adopt bylaws
Statement 2: The minimum subscription requirement for cooperatives is equivalent to 25% of the authorized share capital.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
6. Generally, the minimum paid-up share capital of a cooperative should be 25% of the total subscription but:
a. Not less than ₱5,000
b. Not less than ₱10,000
c. Not less than ₱15,000
d. Not less than ₱20,000
7. In organizing a primary cooperative, how many persons are required?
a. At least five
b. At least seven
c. At least ten
d. At least fifteen
8. A single-purpose cooperative may transform into a multi-purpose or may create subsidiaries only after:
a. At least one year of operations
b. At least two years of operations
c. At least three years of operations
d. At least four years of operations
9. Where should an appeal be filed in case an appellant wants to question the denial of the application for registration of a cooperative?
a. Court of Appeals
b. Securities and Exchange Commission
c. Cooperative Development Authority
d. Office of the President
10. All applications for registration shall be finally disposed of by the Cooperative Development Authority within a period of sixty (60) days from the filing. Upon the lapse of 60 days, and there is inaction on the part of the CDA, then:
a. The period to decide is deemed extended for 60 days.
b. The period to decide is deemed extended indefinitely.
c. The application is deemed denied.
d. The application is deemed approved.
11. It refers to the full membership of the cooperative duly assembled for the purpose of exercising the rights and performing all the obligations pertaining to cooperatives and is considered the highest policy-making body of the cooperative.
a. Outstanding members
b. Full assembly
c. General assembly
d. Members' congress
12. A special meeting may be called through a written request by:
a. At least 10% of the total members
b. At least 25% of the total members
c. At least 1/3 of the total members
d. A majority of the total members
13. In order to constitute a quorum, a meeting shall be attended by:
a. At least 10% of the total members entitled to vote.
b. At least 25% of the total members entitled to vote.
c. At least 1/3 of the total members entitled to vote.
d. A majority of the total members entitled to vote.
14. What is the maximum term allowed for members of the Board of Directors of a cooperative?
a. One year
b. Two years
c. Three years
d. Four years
15. Which of the following causes of vacancy will require a general assembly to be filled up?
a. Resignation of the member of the Board
b. Civil interdiction
c. Death of a member of the Board
d. Expiration of the term
16. Is one who has no right to vote nor be voted upon and shall be entitled only to such rights and privileges as the by-laws may provide.
a. A regular member
b. An associate member
c. Outstanding member
d. A provisional member
17. Statement 1: Any officer or employee of the Cooperative Development Authority shall be disqualified to be elected or appointed to any position in a cooperative.
Statement 2: All elective officials of the Government shall be ineligible to become officers and directors of cooperatives.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
18. Joe is a member of X Cooperative. X Cooperative had assets of ₱100 million and liabilities of ₱60,000,000. As a member, Joe's contribution to the cooperative is ₱150,000. Joe withdraws from the cooperative. Assuming the by-laws of the cooperative is silent on the matter, can Joe withdraw his ₱150,000 contribution?
a. Yes, considering that there is no express prohibition on the by-laws on the matter.
b. Yes, but only 40% may be given to Joe. The remaining portion shall be retained by the cooperative in payment of liabilities.
c. No, it will violate the trust fund doctrine.
d. No, the entire portion shall be retained by the cooperative in payment of liabilities.
19. Which of the following causes of termination of membership requires a vote of the majority of all the members of the cooperative?
a. Death of a member in a primary cooperative
b. Member not patronizing any of the services of the primary cooperative he is a member of
c. Insanity of a member in a primary cooperative
d. Dissolution of a member in a secondary cooperative
20. The notice of withdrawal must be given by a member to the Board of Directors within:
a. 15 days from effectivity date of withdrawal
b. 30 days from effectivity date of withdrawal
c. 45 days from effectivity date of withdrawal
d. 60 days from effectivity date of withdrawal
21. What is the limit of ownership that a member in a primary cooperative may own?
a. Not more than 10%
b. Not more than 20%
c. Not more than 30%
d. Not more than 50%
22. Statement 1: Members may transfer their shares or interest even without the approval of the Board of Directors
Statement 2: Generally, where a member of cooperative dies, his heir shall be entitled to the shares of the decedent.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
23. Under the Cooperative Code, how long should documents or books pertaining to financial and nonfinancial operations be kept for:
a. Three (3) years
b. Five (5) years
c. Seven (7) years
d. Ten (10) years
24. Every cooperative shall draw up regular reports of its program and activities, including those in pursuance of their socio-civic undertakings, showing their progress and achievements at the end of every fiscal year. These reports shall be:
a. Filed with the CDA within 90 days from the end of the calendar year.
b. Filed with the CDA within 120 days from the end of the calendar year
c. Filed with the CDA and SEC within 90 days from the end of the calendar year
d. Filed with the CDA and SEC within 120 days from the end of the calendar year
25. In this kind of cooperative, membership is terminated upon reaching the age of 18.
a. Service cooperative
b. Laboratory cooperative
c. School cooperative
d. Youth cooperative
26. A cooperative whose members are secondary cooperatives is called a/n:
a. Tertiary cooperative
b. Union
c. Federation
d. Multicooperative
27. In case of a federation, what is the minimum number of members?
a. 5 primary cooperatives
b. 10 primary cooperatives
c. 15 primary cooperatives
d. 20 primary cooperatives
28. In order for a merger or consolidation to be valid, it must be approved by:
a. A majority of all members with voting rights
b. 1/3 of all members with voting rights
c. 2/3 of all members with voting rights
d. 3/4 of all members with voting rights
29. Statement 1: Dissenting members to a merger or consolidation are required to be members of the merged or consolidated cooperative in case the required vote was secured.
Statement 2: Mergers and consolidations of cooperatives require the approval of the Cooperative Development Authority.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.
30. Any registered cooperative may resolve to divide itself into two (2) or more cooperatives upon securing the approval of:
a. A majority of all members with voting rights
b. 1/3 of all members with voting rights
c. 2/3 of all members with voting rights
d. ¾ of all members with voting rights