INTRODUCTION TO PHILIPPINE COOPERATIVE:

A cooperative is a duly registered association of persons with a common bond of interest, who
have voluntarily joined together to achieve a lawful common social or economic end, making
equitable to contribution to the capital required and accepting a fair share of the risks and
benefits of the undertaking in accordance with universally accepted cooperative principle.

The declared purpose of the law governing cooperatives (Republic Act 6938, also known as the
Cooperative Code of the Philippines) 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. The law provides important benefits to the
cooperative and its empowered members, based on our experience in handling client-
cooperatives.

The following are the declared principles of cooperativism:

Open and voluntary membership. Membership in a cooperative is voluntary and available to all
individuals regardless of their social, political, racial or religious background or beliefs.
Democratic control. Cooperatives are democratic organizations. Their affairs are administered
by persons elected or appointed in a manner agreed upon by the members. Members of primary
cooperatives have equal voting rights on a one-member-one-vote principle.
Limited interest in capital. Share capital shall receive a strictly limited rate of interest.
Division of net surplus. Net surplus arising out of the operations of a cooperative belongs to its
members and shall be equitably distributed for cooperative development common services,
indivisible reserve fund, and for limited interest on capital and/or patronage refund in the manner
provided by law.
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.
Cooperation among cooperatives. All cooperatives, in order to best serve the interest of their
members and communities, shall actively cooperate with other cooperatives at local, national,
and international levels.
There are different kinds of cooperatives. In general, these are:
(1) Credit cooperative, which promotes thrift and savings among its members and creates funds
in order to grant loans for productivity;
(2) Consumer cooperative, the primary purpose of which is to procure and distribute commodities
to member and non-members;
(3) Producers cooperative, which undertakes joint production whether agricultural or industrial;
(4) Service cooperative, which engages in medical, and dental care, hospitalization,
transportation, insurance, housing, labor, electric light and power, communication and other
services; and
(5) Multi- purpose cooperative, which combines two or more of the business activities of these
different types of cooperatives.
In terms of membership, cooperatives are classified as:
(1) Primary, wherein the members are natural persons of legal age;
(2) Secondary, the members of which are primaries; and
(3) Tertiary, the member of which are secondaries upward to one or more apex
organizations. Cooperatives whose members are cooperatives are called federations or unions.

COOPERATIVE CODE OF THE PHILIPPINES (2008)

The law which governs cooperatives, prior to the recent enactment of Republic Act No. 9520
(“Philippine Cooperative Code of 2008”), is Republic Act No. 6938 (“Cooperative Code of the
Philippines”). Here’s a basic discussion on the new law (a more extensive primer will
subsequently be released, initially made available to clients).
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.
(Italicized words/phrases are inserted under the new law.)
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 poverty 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 Cooperative. 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 shall be 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 Cooperative. 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.