Presented Date

A Presentation for

Basic Cooperative Course

Part 2, Mod.3 – Legal Provisions
Abel C. Dawey
RA 9520 – 19 Chapters

I. General Concepts & Principles Special Coops and

II. Organization & Registration Miscellaneous
III. Membership XI. Agrarian Reform
IV. Administration XII. Cooperative Banks
V. Responsibilities, Rights and XIII. Insurance
Privileges of Cooperatives XIV. Public Service
VI. Insolvency of Cooperatives XV. Credit
VII. Dissolution of Cooperatives XVI. Financial Service
VIII. Capital, Property & Funds XVII. Electric
IX. Audit and Right to Examine XVIII.Miscellaneous
X. Distribution of Net Surplus XIX. Final Provisions
RA 9520

 Capital, Property and Funds

 Audit and Right to Examine
 Distribution of Net Surplus
 Miscellaneous Provisions
 •Retentions from the proceeds of services acquired /goods procured by members; and
•Other sources of funds as may be authorized by law.

Capital Sources
Art. 72, 76, IRR. By-Laws

1. Member’s share capital - 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 bylaws.
2. Loans and barrowings including deposits;
3. Revolving capital - deferred payment of patronage refunds and
interest on share capital or percentage deduction from the proceeds of
products sold or services rendered, or per unit of product or services
handled as maybe authorized by the GA.
4. Subsidies, donations, legacies, grants, aids and such other
assistance from any local or foreign institution whether public or
private: It form part of the donated capital or fund of the cooperative.
Upon dissolution, such donated capital shall be subject to escheat
 Retentions from the proceeds of services acquired /goods procured by
members;
 Other sources of funds as may be authorized by law.
Share Capital
Rule 10 IRR

Share capital contribution of the members shall be considered as equity. It shall not
be withdrawn and should not be used in offsetting obligations whether past due
or current while the membership subsists.

Share Capital may consist of

A. Common Share - shall be issued only to regular members. Its holders shall
be entitled to vote and be voted upon and shall receive interest, the rate of
which should not exceed the normal rate of return on investment.
B. Preferred Share - if provided for under the coop's Articles of Cooperation
and By-laws. It may be issued to regular or associate members . Associate
Members shall not be eligible to vote nor be voted upon on account of such
shareholdings but shall be entitled to, among others to the following:
1. Preference in the payment of interest as provided for in the By-laws
2. Upon liquidation, priority in the distribution of net assets of the coop.
 Shares
Art. 76, By-laws

Shares.- a unit of By-Laws.

capital in a primary  The Board of directors shall issue a Share Capital Certificate
cooperative the par only to a member who has fully paid his subscription.
value of which may  The Certificate shall be serially numbered and contain the
be fixed to any share holder’s name, the number of shares owned, the par
figure not more value, and duly signed by the Chairman and the Secretary,
than One thousand and bearing the official seal of the cooperative.
pesos (P1,000.00).  All certificates issued and/or transferred shall be registered
The method for the in the cooperative’s Share and Transfer Book.
issuance of share  The shares may be purchased, owned or held only by
certificates shall persons who are eligible for membership.
prescribed in its  interests shall be paid only to paid-up shares which may be
bylaws. in cash; or credited as payment of unpaid subscriptions,
outstanding accounts, or additional shares or to the
revolving fund of the cooperative.
Share Capital Holdings - Limit
Art. 73, Rule10IRR

Where a member of cooperative dies, his

 No member of primary heir shall be entitled to the shares of the
cooperative other than decedent, provided that:
cooperative itself shall own 1. the total share holding of the heir does
or hold more than ten per not exceed ten per centum (10%) of the
centum (10%) of the share share capital of the cooperative;
capital of the cooperative. 2. the heir qualify and is admitted as
members of the cooperative:
3. where the heir fails to qualify as a
 Issuance and limitation on
member or where his total share
Preferred Share Capital holding exceeds ten per centum (10%)
shall be prescribed in the of the share capital, the share or shares
By-laws of the cooperative. in excess will revert to the cooperative
upon payment to the heir of the value
of such shares.
Revolving Capital
Art. 79

 The general assembly of any cooperative may authorize

the board of directors to raise a revolving capital to
strengthen its capital structure by deferring the
payment of patronage refunds and interest on share
capital or by 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 returned.
Assignment of Shares
Art. 74, Rule 10IRR

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.
Investment of Capital
Art. 78

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 state primarily for the use of the cooperative or its
members; or
5. In any other manner authorized in the bylaws.

The By-laws provides in any other manner approved by the general

assembly
Annual Audit and Report
Art. 80, 81

Annual Audit - Cooperatives shall be subject to an annual financial performance

and social audit.
1. The financial audit shall be conducted by an external auditor who satisfies
the following requirements:
 is independent of the cooperative or any of its subsidiary …; and
 is a member in good standing of the PICPA and is accredited by both
the Board and Accountancy and the Authority.
2. The social audit shall be conducted by an independent social auditor
accredited by the Authority.

Annual Report - 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
Right to Examine
Art.83

A member shall have the right to examine the it shall be a defense to any
records required to be kept by the cooperative under action under this article
Article 52 of this Code during reasonable hours on  that the member
business days and he may demand, in writing, for a demanding to examine
copy of excerpts from said records without charge and copy excerpts from
except the cost of production . the records has improperly
 Any officer who shall refuse to allow any member used any information
to examine and copy excerpts from its records secured through prior
shall be liable to such member for damages and examination of the
shall be guilty of an offense which shall be records of such coop or
punishable under Article 140 of this Code:  was not acting in good
 if such refusal is pursuant to an order of the board faith or for a legitimate
of directors, the liability under this article shall be purpose in making his
imposed upon the directors who voted for such demand.
refusal.
Books to be kept open
Art.52

 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 copy of this Code and all other laws pertaining to cooperatives;
 A copy of the regulations of the Authority;
 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,
board of directors and committee;
 Share books, where applicable;
 Financial statement; and
 Such other documents as may be prescribed by laws or the bylaws.
Net Surplus (Art 85, RA9520)
 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.
 the net surplus shall not be construed as profit but as an
excess of payments made by the members for the loans
borrowed, or the goods and services availed by them from the
cooperative or the difference of the rightful amount due to
the members for their products sold or services rendered to
the cooperative 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 herein.
Prescribed Order of Distribution (Art
86)
1. General Reserve Fund - be at least ten per centum (10%) of net
surplus: Provided, That, in the first five (5) years of operation after
registration, this amount shall not be less than fifty per centum (50%)
of the net surplus:
2. Education and Training Fund - , shall not be more than ten per
centum (10%) of the net surplus. The bylaws may provide that certain
fees or a portion thereof be credited to such fund.
3. Community Development Fund - shall not be less than three per
centum (3%) of the net surplus
4. Optional Fund - shall not exceed seven per centum (7%) of the net
surplus
5. Interest on Capital and Patronage Refund – Net excess of payments
after required reserves to be returned to the shareholders patrons.
 General Reserve Fund
 used for the stability of the cooperative and to meet net
losses in its operations.
 shall not be utilized for investment, other than those allowed
in this Code.
 Upon dissolution, it shall not be distributed among the
members. The general assembly may resolves:
 To establish a trust fund for the benefit of any federation
or union to which the cooperative is affiliated;
 To dispose of the amount for the benefit of the community
where the cooperative operates. If the members cannot
decide upon its disposal, it shall go to the federation or
union to which the cooperative is affiliated.
 Education and Training Fund

 for the training, development and similar other activities

geared towards the growth of the coop movement:
 Half of the amounts transferred to the fund annually
shall be spent 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.
 Upon dissolution, the unexpended balance of the fund
appertaining to the cooperative shall be credited to the
cooperative education and training fund of the chosen
union or federation.
 Community Development
and Optional Fund
 The community development fund shall be used
for projects or activities that will benefit the
community where the cooperative operates.

 An optional fund, a land and building, and any

other necessary fund.
Mode of Distribution
-Patronage Refund
 Member patron with paid-up share capital contribution - his proportionate amount
of patronage refund shall be paid to him unless he agrees to credit the amount to his
account as additional share capital contribution;
 Member patron with unpaid share capital contribution - his proportionate amount
of patronage refund shall be credited to his account until his share capital contribution
has been fully paid;
 Non-member patron - his proportionate amount of patronage refund shall be set
aside in a general fund for such patrons and shall be allocated upon request and
presentation of evidence of the amount of his patronage. The amount shall be
credited toward payment of the minimum capital contribution for membership, if he
so agrees or requests ,and complies with the provisions of the bylaws for admission to
membership; and
 Subscriber who has not fully paid his subscribed share capital or non-member 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 - the amount so accumulated or credited to their 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
Settlement of disputes -mediation

 Disputes among members, officers, directors, and

committee members, and intra-coop, inter-coop, intra-
federation or inter-federation disputes shall be settled
amicably in accordance with the conciliation or mediation
mechanisms embodied in the bylaws of cooperatives and in
such other applicable laws.
 The conciliation and mediation committee shall facilitate
the amicable settlement of intra-coop disputes and disputes
among members, officers, directors, and committee
members.
Settlement of disputes -arbitration

 Should such proceeding fail, the matter shall be settled through

voluntary arbitration: Provided, that before any party can validly
file a complaint with the Authority for voluntary arbitration, it
must first secure a certification from its conciliation and mediation
committee and from the cooperative union or federation to which
it belongs that despite all efforts to settle the issues, the same
have failed.
 The jurisdiction of the voluntary arbitrators shall be exclusive and
original and their decisions shall be appealable to the Office of the
President. The Authority shall issue and adopt the proper rules of
procedure in accordance with the Alternative Dispute Resolution
Act of 2004.
 For this purpose, the Authority shall constitute a list of qualified
voluntary arbitrators.
Penal Provisions
 A director, officer or committee member who
violated the provisions of Article 45 on the Liability of
Directors, Officers and Committee Members, Article
48 on the Disloyalty of a Director, and Article 49 on
the Illegal Use of Confidential Information shall upon
conviction suffer a fine of not less than Five hundred
thousand pesos (P500,000.00) nor more than Five
hundred thousand pesos (P500,000.00) or
imprisonment of not less than five (5) years but not
more than ten (10) years or both at the court’s
discretion;
Penal Provisions
 The following are considered offenses punishable by a penalty of imprisonment of not less
than one (1) year nor more than five (5) years or a fine of not more than Fifty thousand
pesos (P50,000.00) or both at the discretion of the court:
 Omission or refusal to furnish any information, report or other document that is required
under this Code;
 Providing information, reports or other documents to the Authority that are required under
this Code which the person knows to be false or misleading;
 Omission or refusal to keep a book or register under this Code or to make the required
entry therein;
 Making an entry required under this Code in a book or register, which the person knows to
be false or misleading;
 Hindering an authorized person from making an inspection, audit, examination or
investigation required under this Code;
 Failure to comply with an order or written instructions issued or given by the Authority;
 Violation of the provisions regarding transactions with a restricted party; and
 Abetting, counseling, allowing, authorizing or commanding another person to commit an
offense punishable by this Code: Provided, That in case the violator is a cooperative or
juridical person, the penalty shall be imposed on its directors and officers.

Penal Provisions
 Any violation of any provision of this Code for which no penalty is
imposed shall be punished by imprisonment of not less than six (6)
months nor more than one (1) year and a fine of not less than One
thousand pesos (P1,000.00), or both at the discretion of the court.

 In case of violation of any provision of this Code, the individual or
individuals, and in the case of organizations or government
agencies, its officers, and directors shall, upon conviction by a
Court, each suffer a penalty of not less than two (2) years but not
more than five (5) years imprisonment or a fine in the amount of not
less than Twenty thousand pesos (P20,000.00), or both at the
discretion of the court. In the case of a public official or employee,
the offender shall upon conviction, suffer the accessory penalty of
temporary absolute disqualification
Thank You

That is all