MODULE

UNIVERSITY OF NEGROS OCCIDENTAL RECOLETOS

2
9 hours
Course instructor: Atty. Bebelan A. Madera, CPA, MBA, RCA, MICB
Contact details: FB messenger: Bebelan A. Madera | Email: [email protected] | Phone: +63 9179262342
Consultation schedule: MWF 5:30 to 6:30 p.m.

Law on Cooperatives

This module aims to teach the basic principles and laws on Cooperatives.
Cooperatives have their own language of business. It has unique sets of rules and laws
which students need to understand. There are over 27,000 listed cooperatives in the
Philippines and it is a must to have a working knowledge on the laws governing it.
It is the declared policy of the State 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. The State
shall encourage the private sector to undertake the actual formation and organization of
cooperatives and shall create an atmosphere that is conducive to the growth and
development of these cooperatives.1

1. Understand the organization, registration, and administration of cooperatives.

2. Enumerate the responsibilities, rights, and privileges of cooperatives.
3. Understand cooperative membership.
4. Know the capital and Property of Funds of Cooperatives
5. Understand the audit, inquiry, and members’ right to examine
6. Understand the allocation and distribution of funds.
7. Determine the types and categories of cooperatives
8. Understand the merger and consolidation of cooperatives
9. Understand the dissolution of cooperatives

1
Article 2, Declaration of Policy R.A. 9520
REPUBLIC ACT No. 9520

AN ACT AMENDING THE COOPERATIVE CODE OF THE PHILIPPINES TO BE KNOWN AS THE "PHILIPPINE
COOPERATIVE CODE OF 2008"

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.

ORGANIZATION AND REGISTRATION

A cooperative may be organized and registered for any or all of the following purposes:

"(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;

"(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and
retail complexes, insurance and agricultural/industrial processing enterprises, and public
markets;

"(10) To coordinate and facilitate the activities of cooperatives;

"(11) To advocate for the cause of the cooperative movements;

"(12) To ensure the viability of cooperatives through the utilization of new technologies;
 "(13) To encourage and promote self-help or self-employment as an engine for economic
growth and poverty alleviation; and

"(14) To undertake any and all other activities for the effective and efficient
implementation of the provisions of this Code.

Cooperatives Not in Restraint of Trade. – No cooperative or method or act thereof which complies with
this Code shall be deemed a conspiracy or combination in restraint of trade or an illegal monopoly, or an
attempt to lessen competition or fix prices arbitrarily in violation of any laws of the Philippines.

Cooperative Powers and Capacities. – A cooperative registered under this Code shall have the following
powers, rights and capacities:

"(1) To the 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 this 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 this Code;

"(7) To form subsidiary cooperatives and join federations or unions, as provided in this
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 this Code or necessary to carry out its
purpose or purposes as stated in its Articles of cooperation.

Organizing a Primary 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 under this Code: Provided, That a prospective member of
a primary cooperative must have completed a Pre-Membership Education Seminar (PMES).

"Any newly organized primary cooperative may be registered as multipurpose cooperative only after
compliance with the minimum requirements for multipurpose cooperatives to be set by the Authority. A
single-purpose cooperative may transform into a multipurpose or may create subsidiaries only after at
least two (2) years of operations.

Liability. – A cooperative duly registered under this Code shall have limited liability.

Term. – A cooperative shall exist for a period not exceeding fifty (50) years from the date of registration
unless sooner dissolve or unless said period is extended. The cooperative term, as originally stated in the
articles of cooperation, may be extended for periods not exceeding fifty (50) years in any single instance
by an amendment of the articles of cooperation, in accordance with this Code: Provided, That no
extension can be made earlier than five (5) years prior to the original or subsequent expiry date/dates
unless there are justifiable reasons for an earlier extension as may be determined by the Authority.

Articles of Cooperation. – (1) All cooperatives applying for registration shall file with the Authority the
articles of cooperation which shall be signed by each of the organizers and acknowledged by them if
natural persons, and by the chairpersons or secretaries, if juridical persons, before a notary public.

"(2) The articles of cooperation 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 in accordance
with Article 23 hereof.
 "(3) The articles of cooperation may also contain any other provisions not inconsistent with this
Code or any related law.

"(4) Four (4) copies each of the proposed articles of cooperation, bylaws, and the general
statement required under Article 11 of this Code shall be submitted to the Authority.

"(5) No cooperative, other than a cooperative union as described under Article 25 hereof, shall be
registered unless the articles of cooperation is accompanied with the bonds of the accountable
officers and a sworn statements of the treasurer elected by the subscribers showing that at least
twenty-five per centum (25%) of the authorized share capital has been subscribed and at least
twenty-five per centum (25%) of the total subscription has been paid: Provided, That in no case
shall the paid-up share capital be less than Fifteen thousand pesos (P15,000.00).

"The Authority shall periodically assess the required paid-up share capital and may increase it
every five (5) years when necessary upon consultation with the cooperative sector and the
National Economic and Development Authority (NEDA).

Bylaws. – (1) Each cooperative to be registered under this Code shall adopt bylaws not inconsistent with
the provisions of this Code. The bylaws shall be filed at the same time as the articles of cooperation.

"(2) The bylaws of each cooperative shall provide:

"(a) 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;

"(b) The rights and liabilities of membership;

"(c) The circumstances under which membership is acquired, maintained and lost;

"(d) The procedure to be followed in cases of termination of membership;

"(e) The conditions under which the transfer of a share or interest of the members shall
be permitted;

"(f) 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;

"(g) 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;

"(h) The manner in which the capital, may be raised and the purposes for which it can be
utilized;

"(i) The mode of custody and of investment of net surplus;

 "(j) The accounting and auditing systems;

"(k) The manner of loaning and borrowing including the limitations thereof;

"(l) The method of distribution of net surplus;

"(m) The manner of adopting, amending, repealing, and abrogating bylaws;

"(n) A conciliation or mediation mechanism for the amicable settlement of disputes

among members, directors, officers and committee members of the cooperative; and

"(o) Other matters incident to the purposes and activities of the cooperative.

Registration. – A cooperative formed and organized under this Code acquires juridical personality from
the date the Authority issues a certificate of registration under its official seal. All applications for
registration shall be finally disposed of by the Authority within a period of sixty (60) days from the filing
thereof, otherwise the application is deemed approved, unless the cause of the delay is attributable to
the applicant: Provided, That in case of a denial of the application for registration, an appeal shall lie with
the Office of the President within ninety (90) days from receipt of notice of such denial: Provided, further,
That 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.

Certificate of Registration. – A certificate of registration issued by the Authority 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.

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 Authority: Provided, That all the requirements set forth in this Code 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 of Cooperatives. – (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 pursuant to Article 30.

"(3) The Authority shall issue the guidelines governing the procedure of merger or consolidation
of cooperatives. In any case, the merger or consolidation of cooperatives. In any case, the merger
or consolidation shall be effective upon the issuance of the certificate of merger or consolidation
by the Authority.
Effects of Merger and Consolidation. – The merger or consolidation of cooperatives shall have the
following effects:

"(1) The constituent cooperatives shall become a single cooperative which, in case of
merger, shall be the surviving cooperative, and, in case of consolidation, shall be the
consolidated cooperative;

"(2) The separate existence of the constituent cooperatives shall cease, except that of the
surviving or the consolidated cooperative;

"(3) The surviving or the consolidated cooperative shall possess al the assets, rights,
privileges, immunities and franchises of each of the constituent cooperatives;

"(4) The surviving or the consolidated cooperative shall possess all the assets, rights,
privileges, immunities and franchises of each of the constituent cooperatives; and

"(5) The surviving or the consolidated cooperative shall be responsible for all the
liabilities and obligation of each of the constituent cooperatives in the same manner as if
such surviving or consolidated cooperative had itself incurred such liabilities or
obligations. Any claim, action or proceeding pending by or against any such constituent
cooperatives may be prosecuted by or against the surviving or consolidated cooperative,
as the case may be. Neither the rights of creditors nor any lien upon the property of any
such constituent cooperatives shall be impaired by such merger or consolidation.

Type and Categories of Cooperatives. – (1) Types of Cooperatives – Cooperatives may fall under any of the
following types:

"(a) Credit Cooperative is 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;

"(b) Consumers Cooperative is one of the primary purpose of which is to procure and
distribute commodities to members and non-members;

"(c) 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;

"(d) Marketing Cooperative is one which engages in the supply of production inputs to
members and markets their products;
"(e) 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;

"(f) Multipurpose Cooperative is one which combines two (2) or more of the business
activities of these different types of cooperatives;

"(g) 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;

"(h) 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;

"(i) Cooperative Bank is one organized for the primary purpose of providing a wide range
of financial services to cooperatives and their members;

"(j) Dairy Cooperative is one whose members are engaged in the production of fresh milk
which may be processed and/or marketed as dairy products;

"(k) 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;

"(l) Electric Cooperative is 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;

"(m) Financial Service Cooperative is one organized for the primary purpose of engaging
in savings and credit services and other financial services;

"(n) Fishermen Cooperative is one organized by marginalized fishermen in localities

whose products are marketed either as fresh or processed products;

"(o) Health Services Cooperative is one organized for the primary purpose of providing
medical, dental and other health services;

"(p) 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;

"(q) Insurance Cooperative is one engaged in the business of insuring life and poverty of
cooperatives and their members;
 "(r) 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;

"(s) 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
households;

"(t) 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 principles; and

"(u) Other types of cooperative as may be determined by the Authority.

"(2) Categories of Cooperative – Cooperatives shall be categorized according to membership and

territorial considerations as follows:

"(a) In terms of membership, cooperative shall be categorized into:

"(i) Primary – The members of which are natural persons;

"(ii) Secondary – The members of which are primaries; and

"(iii) Tertiary – The members of which are secondary cooperatives; and

"(b) 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.

MEMBERSHIP

Kinds of Membership. – A cooperative may have two (2) kinds of members, to wit: (1) regular members
and (2) associate members.

"A regular member is one who has complied with all the membership requirements and entitled
to all the rights and privileges of membership. 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: Provided, That an associate who meets the minimum requirements of regular
membership, continues to patronize the cooperative for two (2) years, and signifies his/her
intention to remain a member shall be considered a regular member.

"A cooperative organized by minors shall be considered a laboratory cooperative and must be
affiliated with a registered cooperative. A laboratory cooperative shall be governed by special
guidelines to be promulgated by the Authority.
Government Officers and Employees. – (1) Any officer or employee of the Authority 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 Authority.

"(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 is 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.

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

Termination of Membership. – (1) A member of a cooperative may, for any valid reason, withdraw his
membership from the cooperative by giving a sixty (60) day notice to the board of directors. 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: Provided, That such fund 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.

"(2) The death or insanity of a member in a primary cooperative, and the insolvency or dissolution
of a member in a secondary or tertiary cooperative may be considered valid grounds for
termination of membership: 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 bylaws 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.
ADMINISTRATION

Composition of the 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.

Powers of the 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.

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 this Code, in the articles of cooperation and in
the bylaws of the cooperative. The general assembly shall have the following exclusive powers which
cannot be delegate:

"(1) To determine and approve amendments to the articles of cooperation and bylaws;

"(2) 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 this Code,
election of the members of the board shall be held in accordance with its bylaws or
election guideline of such electric cooperative; and

"(3) To approve developmental plans of the cooperative.

"Subject to such other provisions of this Code and only for purposes of prompt and intelligent
decision-making, the general assembly may be 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 bylaws of the cooperative.

Powers of the Board of Directors. – The board of directors shall be responsible for the strategic planning,
direction-setting and policy-formulation activities of the cooperatives.

RESPONSIBILITIES, RIGHTS AND PRIVILEGES OF COOPERATIVE

Address. – Every cooperative shall have an official postal address to which all notices and communications
shall be sent. Such address and every change thereof shall be registered with the Authority.

Books to be Kept Open. – (1) 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) A copy 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..

Reports. – (1) Every cooperative shall draw up regular reports of its program of activities, including those
in pursuance of their socio-civic undertakings, showing their progress and achievements at the end of
every fiscal year. The reports shall be made accessible to its members, and copies thereof shall be
furnished to all its members or record. These reports shall be filed with the Authority within one hundred
twenty (120) days from the end of the calendar year. The form and contents of the reports shall be as
prescribed by the rules of the Authority. Failure to file the required reports shall subject the accountable
officer/s to fines and penalties as may be prescribed by the Authority, and shall be a ground for the
revocation of authority of the cooperative to operate as such. The fiscal year of every cooperative shall be
the calendar year except as may be otherwise provided in the bylaws.

"(2) If a cooperative fails to make, publish and file the reports required herein, or fails to include
therein any matter required by the Code, the Authority 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.

Register of Members as Prima Facie Evidence. – Any register or list of members shares kept by any
registered cooperative shall be prima facie evidence of the following particulars entered therein:

"(1) The date on which the name of any person was entered in such register or list of
member; and

"(2) The date on which any such person ceased to be a member.

DISSOLUTION OF COOPERATIVES

Voluntary Dissolution Where no Creditors are Affected. – If the dissolution of a cooperative does not
prejudice the rights of any creditor having a claim against it, the dissolution may be affected 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 the members with voting rights, present and constituting a quorum at a meeting to be
held upon call of the directors: Provided, 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: Provided, further, 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. A copy of the resolution authorizing the dissolution shall be certified to by a majority of the
board of directors and countersigned by the board secretary. The Authority shall thereupon issue the
certificate of dissolution.
Voluntary Dissolution Where Creditors Are Affected. – Where the dissolution of a cooperative may
prejudice the rights of any creditor, the petition for dissolution shall be filed with the Authority. The
petition shall be signed by a majority of its board or directors or other officers managing its affairs,
verified by its chairperson or board secretary or one of its directors and 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.

"If the petition is sufficient in form and substance, the Authority shall issue an order reciting the purpose
of the petition and shall fix a date which shall not be less than thirty (30) nor more than sixty (60) days
after the entry of the order. 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.

"Upon expiry of the five (5) day notice to file objections, the Authority 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. The order of dissolution shall set forth therein:

"(1) The assets and liabilities of the cooperative;

"(2) The claim of any creditor;

"(3) The number of members; and

"(4) The nature and extend of the interests of the members of the cooperative.

Involuntary Dissolution. – 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.

Dissolution by Order of the Authority. – The Authority 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 Authority, of the provisions of this Code 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 has not commenced business and its
operation within two (2) years after the issuance of its certificate of registration or has not carried on its
business for two (2) consecutive years, the Authority 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 Authority to delete its name from the roster of registered
cooperatives and shall be deemed dissolved.

CAPITAL, PROPERTY, AND FUNDS

Capital. - The capitalization of cooperatives and the accounting procedures shall be governed by the
provisions of this Code and the regulations which shall be issued.

Capital Sources.- Cooperatives registered under this Code may derive their capital from any or all of the
following sources:

"(1) Member’s share capital;

"(2) Loans and barrowings 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
subsides, 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.- No member of primary cooperative other than cooperative itself
shall own or hold more than ten per centum (10%) of the share capital of the cooperative.

"Where a member of cooperative dies, his heir shall be entitled to the shares of the decedent: Provided,
That the total share holding of the heir does not exceed ten per centum (10%) of the share capital of the
cooperative; Provided, further, That the heir qualify and is admitted as members of the cooperative:
Provided finally , That where the heir fails to qualify as a member or where his total share holding exceeds
ten per centum (10%) of the share capital , the share or shares excess will revert to the cooperative upon
payment to the heir of the value of such shares.
Assignment of Share Capital Contribution or Interest.- Subject to the provisions of this Code, 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.- Te bylaws of every cooperative shall be provided 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.

Shares.- The term "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 (P1,000.00). 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 bylaws.

Fines. - The bylaws 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:

"(a) In shares or debentures or securities of any other cooperative;

"(b) In any reputable bank in the locality, or any cooperative;

"(c) In securities issued or guaranteed by the Government;

"(d) In real state primarily for the use of the cooperative or its members; or

"(e) In any other manner authorized in the bylaws.

Revolving Capital. – 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."

Annual Audit. – Cooperatives registered under this Code shall be subject to an annual financial,
performance and social audit. The financial audit shall be conducted by an external auditor who satisfies
all the following qualifications:
"(1) He is independent of the cooperative or any of its subsidiary that he is auditing; and

"(2) He is a member in good standing of the Philippine Institute of Certified Public Accountants (PICPA)
and is accredited by both the Board and Accountancy and the Authority.

"The social audit shall be conducted by an independent social auditor accredited by the Authority.

"Performance and social audit reports which contain the findings and recommendations of the auditor
shall be submitted to the board of directors.

"The Authority, in consultation with the cooperative sector, shall promulgate the rules and standards for
the social audit of cooperatives.

Audit 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 as jointly promulgated by the Philippine Institute of Certified Public Accountants (PICPA) and
the Authority.

"Thereafter, the board of directors shall present the complete audit report to the general assembly in its
next meeting.

Nonliability for Defamations. – 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 this Code.

Right to Examine. – A member shall have the right to examine the records required to be kept by the
cooperative under Article 52 of this Code 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.

"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 Article 140 of this Code: Provided, That if such refusal is pursuant
to a resolution or order of the board of directors, the liability under this article shall be imposed upon the
directors who voted for such refusal: Provided, further, 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.

Safety of Records. – Every cooperative shall, at its principal office, keep and carefully preserve the records
required by this Code to be prepared and maintained. It shall take all necessary precaution to prevent its
loss, destruction or falsification."

ALLOCATION AND DISTRIBUTION OF NET SURPLUS

Net Surplus. – Notwithstanding the provisions of existing laws, the net surplus of cooperatives shall be
determined in accordance with its bylaws. 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.
"Any provision of law to the contrary notwithstanding, 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.

Order of Distribution. – The net surplus of every cooperative shall be distributed as follows:

"(1) An amount for the reserve fund which shall 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:

"(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.

"Any sum recovered on items previously charged to the reserve fund shall be
credited to such fund.

"(b) The reserve fund shall not be utilized for investment, other than those
allowed in this Code. Such sum of the reserve fund in excess of the share capital
may be used at anytime for any project that would expand the operations of the
cooperative upon the resolution of the general assembly.

"(c) Upon the dissolution of the cooperative, the reserve fund shall not be
distributed among the members. The general assembly may resolves:

"(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.

"(2) An amount for the 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. 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
under this subsection 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 Authority 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.

"(3) An amount for the community development fund, which shall not be less than
three per centum (3%) of the net surplus. The community development fund shall be
used for projects or activities that will benefit the community where the cooperative
operates.

"(4) An optional fund, a land and building, and any other necessary fund the total of
which shall not exceed seven per centum (7%).

"(5) The remaining net surplus shall be made available to the members in the form of
interest on share capital not to exceed the normal rate of return our investments and
patronage refunds: Provided, That any amount remaining after the allowable interest and
the patronage refund have been deducted shall be credited to the reserve fund.

"The sum allocated for patronage refunds shall be made available at the same rate to all patrons
of the cooperative in proportion to their individual patronage: Provided, That:

"(a) In the case of a 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;

"(b) In the case of a member patron with unpaid share capital contribution, his
proportionate amount of patronage refund shall be credited to his account until his
account until his share capital contribution has been fully paid;

"(c) 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 and shall be allocated to individual
non-member patrons only upon request and 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. When a sum equal to this amount
has accumulated at any time within a period specified in the bylaws, such patron shall be
deemed and become a member of the cooperative if he so agrees or requests and
complies with the provisions of the bylaws for admission to membership; and
 "(d) If within any period of time specified in the bylaws, any subscriber who has not fully
paid his subscribed share capital or 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, 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, at the option of the cooperative."

For SUPPLEMENTAL STUDY RESOURCES, please WATCH the VIDEOS below:

https://www.youtube.com/watch?v=eL2YwE8lJYI

https://www.youtube.com/watch?v=3tjtRvWa3k4

ACTIVITY TASKS

To check your understanding of the subject matter, please answer the questions below:
1. Can a single purpose cooperative be transformed into a MULTI-purpose cooperative or
may create subsidiaries? Explain. (10 pts.)
2. What is the minimum subscription required for cooperatives? (5pts)
3. Can a cooperative issue preference shares? On what instance? Explain. (5pts)
4. Can the Cooperative Development Authority decrease the required paid-up capital of
cooperatives? Explain. (5pts)
5. Can a division of cooperative possible? Explain. What is its exception? (10pts)

EVALUATION

Rubric in checking the activity Task:

Accomplished 96-100 88-95 81-87 80 Below

quizzes, activities, 80
exam
Area to Assess Excellent Above Average Passing Failure
Average
Raw score vis-à-vis 96%- 88% - 80% – At least Below
perfect score 100% 95% 87% 70%cor 70%
correct correct correct rect correct
 REFERENCES
1. Official Gazette
2. R.A. 9520, Lawphil
3. Youtube videos on cooperatives