Law Topics: Cooperatives (Part 1 of 2)

What specific points will be asked from this topic?

The following points will be considered:

 Organization and registration of cooperatives

 Types and categories of cooperatives
 Administration
 Responsibilities, rights and privileges of cooperatives
 Capital, property of funds
 Audit, inquiry and members’ right to examine
 Allocation and distribution of funds
 Dissolution of cooperatives

This Q&A shall answer the first half of the points enumerated above.

What is the relevant law on this topic?

Republic Act No. 9520 is known as the “Philippine Cooperative Code of 2008”.

What is a cooperative?

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.

What are the essential characteristics of cooperatives?

The following shall characterize a cooperative:

 Autonomy and due registration

 Voluntary membership
 Equitable capital contributions of members
 Patronizing by members of the products and services of the cooperative
 Share in the risks and benefits

On Organization and registration of cooperatives

What is a primary cooperative?

A primary cooperative is a cooperative whose members are natural persons.

As to membership, the other categories are:

 Secondary cooperative – the members of which are primary cooperatives

 Tertiary cooperative – the members of which are secondary cooperatives

Who may organize a primary cooperative?

Fifteen (15) or more natural persons who have the following requisites may organize a
primary cooperative:

 Filipino citizens
 Of legal age
 Have a common bond of interest
 Actually residing or working in the intended area of operation

Can a primary cooperative be registered as a multi-purpose cooperative?

Any newly organized primary cooperative may be registered as multi-purpose cooperative

only after compliance with the minimum requirements for multipurpose cooperatives to be
set by the Cooperative Development Authority (CDA).

Can a single-purpose cooperative become a multi-purpose cooperative?

Yes.

A single-purpose cooperative may transform into a multipurpose or may create subsidiaries

but only after at least 2 years of operations.

What is the extent of the liability of a cooperative?

A duly registered cooperative shall have limited liability.

What is the legal life of a cooperative?

A cooperative shall exist for a period not exceeding 50 years from the date of registration
unless sooner dissolved or unless said period is extended.

What is the rule on extension of cooperative life?

The cooperative term, as originally stated in the articles of cooperation, may be extended
for periods not exceeding 50 years in any single instance by an amendment of the articles
of cooperation.

However, no extension can be made earlier than 5 years prior to the original or subsequent
expiry date unless there are justifiable reasons for an earlier extension.

What is the capital requirement to register a cooperative?

No cooperative, other than a cooperative union, shall be registered unless the Articles of
Cooperation is accompanied with the bonds of the accountable officers and a sworn
statement of the treasurer elected by the subscribers showing that:

 at least 25% of the authorized share capital has been subscribed; and
 at least 25% of the total subscription has been paid

However, the paid-up share capital must be at least P15,000.

When does a cooperative acquire juridical personality?

A cooperative formed and organized under the Code acquires juridical personality from the
date the CDA issues a certificate of registration under its official seal.

What is the legal power of a 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 has been cancelled.

On types of cooperatives

What are the different types of cooperatives?

Cooperatives may fall under any of the following types:

 Credit Cooperative – one that promotes and undertakes savings and lending
services among its members. It generates a common pool of funds in order to
provide financial assistance to its members for productive and provident purposes.
 Consumers Cooperative – one the primary purpose of which is to procure and
distribute commodities to members and non-members.
 Producers Cooperative – 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.
 Marketing Cooperative – one which engages in the supply of production inputs to
members and markets their products.
 Service Cooperative – one which engages in medical and dental care,
hospitalization, transportation, insurance, housing, labor, electric light and power,
communication, professional and other services.
 Multi-purpose Cooperative – one which combines two (2) or more of the business
activities of these different types of cooperatives.
 Advocacy Cooperative – 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.
 Agrarian Reform Cooperative – 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.
 Cooperative Bank – one organized for the primary purpose of providing a wide range
of financial services to cooperatives and their members.
 Dairy Cooperative – one whose members are engaged in the production of fresh
milk which may be processed and/or marketed as dairy products.
 Education Cooperative – 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.
 Electric Cooperative – one organized for the primary purposed of undertaking power
generations, utilizing renewable energy sources, including hybrid systems,
acquisition and operation of subtransmission or distribution to its household
members.
 Financial Service Cooperative – one organized for the primary purpose of engaging
in savings and credit services and other financial services.
 Fishermen Cooperative – one organized by marginalized fishermen in localities
whose products are marketed either as fresh or processed products.
 Health Services Cooperative – one organized for the primary purpose of providing
medical, dental and other health services.
 Housing Cooperative – 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.
 Insurance Cooperative – one engaged in the business of insuring life and poverty of
cooperatives and their members.
 Transport Cooperative – 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 the Code.
 Water Service Cooperative – one organized to own, operate and manage waters
systems for the provision and distribution of potable water for its members and their
households.
 Workers Cooperative – 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 principles.
What is a laboratory cooperative?

A laboratory cooperative is one organized by minors. It shall be governed by special

guidelines to be promulgated by the CDA.

On membership and administration of cooperatives

What are the types of members in a cooperative?

A cooperative may have 2 types of members:

 Regular members
 Associate members

What is a regular member?

A regular member is one who has complied with all the membership requirements and
entitled to all the rights and privileges of membership.

What is an associate member?

An 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 bylaws may provide.

However, an associate who meets the minimum requirements of regular membership, and
continues to patronize the cooperative for 2 years, and signifies his/her intention to remain a
member shall be considered a regular member.

Who are disqualified to become members or elected as officers of a cooperative?

Any officer or employee of the CDA shall be disqualified to be elected or appointed to any
position in a cooperative.

All elective officials of the Government shall be ineligible to become officers and directors of
cooperatives.

What is the extent of a member’s liability?

A member shall be liable for the debts of the cooperative to the extent of his contribution to
the share of the cooperative.

Unlike in partnership, and like in corporations, a member’s personal assets shall not answer
for the debts of the cooperative.

May a member withdraw his membership from the cooperative?

Yes.
A member of a cooperative may, for any valid reason, withdraw his membership from the
cooperative by giving a 60 day notice to the Board of Directors.

Will a withdrawing member receive a refund of his capital contribution?

Yes, with qualifications.

Subject to the bylaws of the cooperative, the withdrawing member shall be entitled to a
refund of his share capital contribution and all other interests in the cooperative.

However, the refund shall not be made if upon such 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.

Can a member be removed from the cooperative?

Yes.

Membership in the cooperative may be terminated by a vote of the majority of all the
members of the BOD for any of the following causes:

 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 BOD
 When a member has continuously failed to comply with his obligations
 When a member has acted in violation of the bylaws and the rules of the cooperative
 For any act or omission injurious or prejudicial to the interest or the welfare of the
cooperative

What is the composition of a cooperative’s General Assembly?

The General Assembly shall be composed of such members who are entitled to vote under
the Articles of Cooperation and bylaws of the cooperative

What are the powers of the General Assembly?

The General Assembly shall be the highest policy-making body of the cooperative and shall
exercise such powers as are stated in the Code.

Specifically, the following powers of the General Assembly cannot be delegated:

 To determine and approve amendments to the articles of cooperation and bylaws

 To elect or appoint the members of the board of directors, and to remove them for
cause. However, in the case of the electric cooperatives registered under the Code,
 election of the members of the board shall be held in accordance with its bylaws or
election guideline of such electric cooperative
 To approve developmental plans of the cooperative

When should general meetings of a cooperative be held?

A regular meeting shall be held annually by the General Assembly on a date fixed in the
bylaws.

What if the bylaws do not fix a period for the regular meeting?

If not fixed in the bylaws, the regular meeting shall be on any date within 90 days after the
close of each fiscal year.

What constitutes a quorum in cooperative meetings?

A quorum shall consist of at least 25% of all the members entitled to vote.

Is the quorum the same for all types of cooperatives?

No, there are exceptions.

In the case of electric cooperatives, a quorum, unless otherwise provided in the bylaws,
shall consist of 5% of all the members entitled to vote.

In the case of cooperative banks, the quorum requirement for General Assembly meetings,
whether special or regular, shall be 1/2 plus one of the number of voting shares of all the
members in good standing.

In the meetings of the BOD, whether special or regular, the quorum requirement shall be
1/2 plus one of all the members of the BOD.

Each director shall only have 1 vote.

What is the voting system in meetings of cooperatives?

The voting system depends upon the category of cooperative.

For primary cooperatives, each member shall have 1 vote.

For secondary or tertiary cooperatives, each member shall have 1 basic vote and as many
incentive votes as provided for in the bylaws but not to exceed 5 votes.

What is the composition of the BOD of cooperatives?

Like regular corporations, the BOD of cooperatives shall be composed of not less than 5 but
not more than 15 members.
Who elects the members of the BOD?

The members of the BOD are elected by the General Assembly.

What is the term of office of the members of the BOD?

BOD members shall be elected for a term of 2 years and shall hold office until their
successors are duly elected and qualified, or until duly removed for cause.

What are the powers and functions of the BOD?

The direction and management of the affairs of the cooperative shall be vested in the BOD.

Also, the BOD shall be responsible for the strategic planning, direction-setting and policy-
formulation activities of the cooperative.

What is the prohibition for BOD members on voting?

Directors cannot attend or vote by proxy at board meetings.

Who shall elect the officers of the cooperative?

The BOD 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 bylaws.

What is the status of dealings of directors and officers with the cooperative?

A contract entered into by the cooperative with 1 or more of its directors, officers, and
committee members is voidable, at the option of the cooperative, unless all the following
conditions are present:

 That the presence of such director in the board meeting wherein contract was
approved was not necessary to constitute a quorum for such meeting
 That the vote of such director was not necessary for the approval of the contract
 That the contract is fair and reasonable under the circumstances
 That in the case of an officer or committee member, the contract with the officer or
committee member has been previously authorized by the General Assembly or by
the BOD

On responsibilities, rights and privileges of cooperatives

What cooperative books shall be kept open for inspection?

Every cooperative shall have the following documents ready and accessible to
its members and representatives of the CDA for inspection during reasonable office hours
at its official address:
  A copy of the Cooperative Code and all other laws pertaining to cooperatives
 A copy of the regulations of the CDA
 A copy of the articles of cooperation and bylaws of the cooperative
 A register of members
 The books of the minutes of the meetings of the General Assembly, BOD and
committee
 Share books, where applicable
 Financial statement
 Such other documents as may be prescribed by laws or the bylaws

The accountant or the bookkeeper of the cooperative shall be responsible for the
maintenance of the cooperative records 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.

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.

For up to what period shall cooperatives keep its records?

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 5 years old except those relating to transactions which are the subject of
civil, criminal and administrative proceedings.

Which cooperative members need to be bonded?

Every director, officer, and employee handling funds, securities or property on behalf of any
cooperative shall be covered by a surety bond to be issued for a duly registered insurance
or bonding company for the faithful performance of their respective duties and obligations.

Are cooperatives required to pay tax?

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.
What if the cooperatives have transaction with both members and non-members?

Cooperatives transacting business with both members and non-members shall not be
subjected to taxon their transactions with members.

What privileges do cooperatives have?

Cooperatives enjoy the following privileges:

 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
 Cooperatives organized among government employees enjoy the free use of any
available space in their agency, whether owned or rented by the Government
 Cooperatives rendering special types of services and facilities such as cold storage,
ice plant, electricity, transportation shall secure a franchise therefore, and such
cooperatives shall open their membership to all persons qualified in their areas of
operation
 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
 Preferential treatment in the allocation of fertilizers, including seeds and other
agricultural inputs and implements, and in rice distribution
 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
 Preferential rights in the management of public markets and/or lease of public
market facilities, stalls or spaces for 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
 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
 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
 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
 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
 Preferential right in the management of the canteen and other services related to the
operation of the educational institution where they are employed for Cooperatives
organized by faculty members and employees of educational institutions
 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