INTRODUCTION TO COOPERATIVE

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.

PURPOSE

The declared purpose of the law, among others, is to foster the creation and

growth of cooperatives as a practical vehicle for promoting self-reliance and

harnessing people power towards the attainment of economic development and

social justice.

PRINCIPLES OF COOPERATIVISM

The following are the declared principles of cooperativism:

Voluntary and open membership. Membership in a cooperative is voluntary

and available to all individuals regardless of their social, political, racial or religious

background or beliefs.
Democratic member control. Cooperatives are democratic organizations that

are controlled by their members who actively participate in setting their policies

and making decisions. In primary cooperatives, members have equal voting rights

of one-member, one-vote. Cooperatives at other levels are organized in the same

democratic manner.

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.

Autonomy and independence. Cooperatives are autonomous, self-help

organizations controlled by their members.

Cooperation among cooperatives. Cooperatives serve their members most

effectively and strengthen the cooperative movement by working together

through local, national, regional and international structures.

Cooperative education. All cooperatives shall make provision for the education

of their members, officers and employees and of the general public based on the

principles of cooperation.
Concern for community. Cooperatives work for the sustainable development of

their communities through policies approved by their members. This is a new

provision.

TYPES OF COOPERATIVES

Cooperatives may fall under any of the following types, in addition to others

which may be determined by the Cooperative Development Authority (CDA):

Credit Cooperative. 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. The primary purpose is to procure and distribute

commodities to members and non-members.

Producers Cooperative. 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. Engages in the supply of production inputs to members

and markets their products.

Service Cooperative. Engages in medical and dental care, hospitalization,

transportation, insurance, housing, labor, electric light and power,

communication, professional and other services.

Multipurpose Cooperative. Combines two 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. 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. 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. 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. 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. Organized by marginalized fishermen in localities

whose products are marketed either as fresh or processed products;

Health Services Cooperative. Organized for the primary purpose of providing

medical, dental and other health services.

Housing Cooperative. 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. Engaged in the business of insuring life and property of

cooperatives and their members.

Transport Cooperative. 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;

Water Service Cooperative. Organized to own, operate and manage waters

systems for the provision and distribution of potable water for its members and

their households.

Workers Cooperative. 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.

CATEGORIES OF COOPERATIVES

On the other hand, cooperatives are categorized according to membership

and territorial considerations:

In terms of membership –

1.Primary – Members are natural persons

2.Secondary – Members are primaries

3.Tertiary – Members are secondary cooperatives

In terms of territory, cooperatives are categorized according to areas of

operations which may or may not coincide with the political subdivisions of the

country.

CAPITAL

The minimum paid-up share capital is now PhP15,000 (the minimum under

the old law is only PhP2,000), subject to increase by the CDA upon consultation

with the cooperative sector and the NEDA.

The par value of shares of a primary cooperative shall not exceed PhP1,000.

No member of primary cooperative other than cooperative itself shall own or hold

more than 10% of the share capital of the cooperative.

MEMBERSHIP

New members may only be admitted to the cooperative after undergoing Pre-

Membership Education Seminar. There are two kinds of members:

1. Regular members. Entitled to all the rights and privileges of membership,

including the right to vote and be voted upon.

2. Associate members. 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 member shall be considered a regular member if: (a) he has been a

member for 2 continuous years; (b) he patronizes the cooperative as its member;

and (c) he signifies his intention of becoming a regular member.

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

contribution to the share capital of the cooperative.

TAX TREATMENT OF COOPERATIVES

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. Cooperatives transacting business with
both members and non-members shall be subject to another set of rules, but

transactions with members shall remain to be non-taxable.

AUDIT

Audit shall be conducted by an external auditor, who must be a member of good

standing of the Philippine Institute of Certified Public Accountants, accredited by

the CDA and the Board of Accountancy.

PENAL PROVISIONS

Anyone who uses the word “Cooperative” without being registered with the CDA is

punishable by imprisonment (5 years) and a fine (PhP20,000). Electric cooperatives

registered with the National Electrification Administration (NEA) are exempt and

may not register with the CDA.

Any person who willfully attempt in any manner to evade or defeat tax in

violation of the tax treatment/privileges provided under the Code is punishable by

imprisonment (2 years but not more than 4 years) and a fine (not less than

PhP30,000 but not exceeding PhP100,000), without prejudice to a separate action

to collect the taxes.

There are other penalties provided, including violations of the reportorial

requirements of cooperatives.

How to start/register a cooperative?

 As a juridical entity, a cooperative is similar to a corporation. However, while
corporations are registered and supervised by the Securities and Exchange
Commission (SEC), cooperatives are registered and supervised by the Cooperative
Development Authority (CDA). This is pursuant to the Philippine Cooperative
Code of 2008 (Republic Act No. 9520).

ORGANIZING A COOPERATIVE

Fifteen (15) or more natural persons who are Filipino citizens, of legal age,

having a common bond of interest and are actually residing or working in the

intended area of operation, may organize a primary cooperative. A prospective

member of a primary cooperative must have completed a Pre-Membership

Education Seminar (PMES).

ARTICLES OF COOPERATION

Corporations which seek to register must file its Articles of Incorporation, while

cooperatives file its Articles of Cooperation, which must be signed by each of the

organizers and acknowledged before a notary public. The Articles of Cooperation

shall contain:

1. The name of the cooperative. The name must include the word “cooperative”.

2. The purpose or purposes and scope of business for which the cooperative is to

be registered. [See Types of Cooperatives]

3. The term of existence of the cooperative. A cooperative shall exist for a period

not exceeding 50 years from the date of registration unless sooner dissolve or

unless said period is extended.

4. The area of operation and the postal addresses of its principal office.

5. The names, nationality, and the postal addresses of the registrants.

6. The common bond of membership.

7. The list of names of the directors who shall manage the cooperative. The

Board of Directors is entrusted with the management of the affairs of the

cooperative under its articles of cooperation and bylaws.

8. 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. At

least 25% of the authorized share capital must be subscribed, and at least 25% of

the total subscription has been paid. In no case shall the paid-up share capital be

less than P15,000.00. (EXAMPLE: P1,000,000.00 CAPITALIZATION: AT LEAST

P250,000.00 is subscribed; and at least P62,600.00 is PAID)

BYLAWS OF THE COOPERATIVE

The bylaws, which is filed at the same time as the Articles of Cooperation, shall

provide the following:

1. The qualifications for admission to membership and the payment to be made

or interest to be acquired as a conditions 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 the 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.
TREASURER CERTIFICATION

Certification under oath by the treasurer, showing that at least 25% of the

authorized share capital must be subscribed, and at least 25% of the total

subscription has been paid.

OFFICERS’ BOND

The Articles of Cooperation must be accompanied with the bonds of the

accountable officers.

GENERAL STATEMENT

An applicant must prepare and submit a general statement describing,

among others the structure and purposes of the proposed cooperative. The

structure and actual staffing pattern of the cooperative shall include a

bookkeeper. The applicant shall not be allowed to operate without the necessary

personnel and shall also submit an economic survey, indicating therein the area of

operation, the size of membership, and other pertinent data in a format provided

by the CDA.

FILING WITH THE CDA

 Prospective cooperatives must submit their application to the CDA

Extension Office where the principal office of the cooperative is located.

All applications for registration shall processed within 60 days from filing.

The application is deemed approved in case the CDA fails to act within the 60-day

period.

In case of denial of the application, an appeal may be filed with the Office of

the President within 90 days from receipt of notice of such denial. If the President

fails to act within 90 days, the application is deemed approved.

CERTIFICATE OF REGISTRATION

A cooperative acquires juridical personality from the date the CDA issues a

Certificate of Registration.