PHILIPPINE COOPERATIVES

Unit XVII: General Concept, Principles and

Practices

Introduction Unit Learning

Objectives
By the end of this unit you should
“Cooperation is not a sentiment – it is an economic necessity.” be able to:
- Charles Steinmetz
 Describe the nature,
This unit introduces you to a type of business association
bases, and types of
that lends primacy to an aggrupation of persons who share
cooperatives in a True or
a common bond of interest, under the principle of self-help
False Quiz
by pooling resources together to achieve social, economic
 Demonstrate learning of
and cultural needs and aspirations, through patronage of
cooperative principles and
their products and services and takes judicious
practices through a
responsibility in the fair outcome of the undertaking,
Multiple Choice item
guided by the universally accepted cooperative principles
espoused by the co-operators of Rochdale, England.

In modern day Philippines, the governing law is Republic Act No. 9520 otherwise known as the
“The Philippine Cooperative Code of 2008,” Article 2 of the said law states that 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, in fact, encourages the private sector to undertake the
actual formation and organization to cooperatives and endeavour to create an atmosphere that is
conducive to growth and development of these cooperatives.

Timing
The unit will run for one and a half days only. You can devote three hours per day on the subject.
Don’t worry, the content is simplified, which means it only include the most salient points you
need to know relative to our module learning outcome. Since this is the last week of Block 3, stay
focused and persevere so you can smoothly sail through the course.

Warm Up!

Before you proceed to the actual cognitive feat, try this brain teaser so you can get those neurons
working! 

Instructions:
1. The goal is to find all the hidden words in the puzzle*.
2. To find the hidden words, search up, down, forward, backward, and diagonally.
3. To make the game more interesting, try to solve the puzzle in the shortest time possible.
4. You may also choose to compete against another player to finish the puzzle first.
5. Once you have finished, you may check with the answers provided at the end of the module.
How to score: Within the time frame of 5 minutes
15 out of 15 : Outstanding
12-14 : Excellent
7-11 : Good
6 and below : Average

BUSINESS LAW TERMS

N H H E D C T N R R E A H P M
O C N L Z Z I O E E E G N M O
I A L T D O U I S M N E P E T
T E E R Z F B T T I G N H X W
A R E T I F J A I S I T A Z V
R B T R Y E E C T S S U V E N
E I N A C R C O U I S C N O Y
D K A P N T N V T O A W I I T
I S R P E V A E I N T T L H I
S Q A E V X T R O K A H I F D
N S U A L B P I N V P P R X I
O S G L O C E V O R W L R T L
C B P D S W C N N B M V E A A
A C S P N F C A N L W V J Q V
O B R R I R A Y T E R U S M T
*WORD SEARCH 2019 edition for WS PACIFIC PUBLICATION, INC., Manila, Philippines

1. OFFER 6. ACCEPTANCE 11. NOVATION

2. REMISSION 7. BREACH 12. RESTITUTION
3. GUARANTEE 8. SURETY 13. INSOLVENCY
4. VALIDITY 9. REVOCATION 14. CONSIDERATION
5. AGENT 10. APPEAL 15. ASSIGNEE

Getting Started!

This Act shall be known as the “Philippine Cooperative Code of 2008.” (Art. 1, R.A. No.
9520), in answer to world-wide clamour for a people-organization who take the course of
their lives into their own hands, and provide for themselves the essentials of quality living
by their pooled resources and industry. With least interference from the State, but with set
rules and regulations to only guide co-operators conduct activities within the bounds of
legality as well as equity, and as an assurance of government’s treatment of it as a viable
solution to economic and social ills.

17.1 Declaration of Policy of the State (Art. 2)

The State has great belief in the power of voluntary association of people to achieve a
common end through formation of a democratically controlled organization to provide for
themselves under a plan that eliminates entrepreneur profit, and in the course of which provide
for substantial equality in ownership and control. As such, this kind of beneficial association
deserves support, hence the following policy declarations enshrined under R.A. 9520 as amended
was signed on February 17, 2009, thus:
 1. 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.
2. 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.
3. The Government and all its branches, subdivisions, instrumentalities and agencies shall ensure
the provision of technical guidance, financial assistance and other services to enable said
cooperatives to develop into viable and responsive economic enterprises and thereby bring
about a strong cooperative movement that is free from any conditions that might infringe
upon the autonomy or organizational integrity of cooperatives.
4. The State recognizes the principle of subsidiarity under which the cooperative sector will
initiate and regulate within its own ranks the promotion and organization, training and
research, audit and support services relative to cooperatives with government assistance
where necessary.

17.2 The COOPERATIVE DEVELOPMENT AUTHORITY (CDA)

The government agency tasked to carry out the provision of the Cooperative Code of the
Philippines is the Cooperative Development Authority created by Republic Act No. 6939. It was
created to promote the validity and growth of cooperatives as instruments of equity, social justice
and economic development, defining its powers, functions and responsibilities, rationalizing
government policies and agencies with cooperative functions, supporting cooperative
development, transferring the registration and regulation functions of existing government
agencies on cooperatives and consolidating the same with the Authority, appropriating funds
therefor, and for other purposes.

Tip: RA 6939 is a consolidation of House Bill No. 10787 and Senate Bill No. 485 passed
by the House of Representatives and the Senate on February 22, 1990 and March 2, 1990,
respectively. It was approved by President Corazon C. Aquino on March 10, 1990 and took effect
on April 1, 1990.

17.3 What is a Cooperative? (Art. 3, PCC)

Cooperative is defined as 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.

Tip: Cooperative as a system which seeks to harness the limited resources of people of
small means and opportunities for more produced economic and social needs was first introduced
in the Philippines in the late 1800’s by Dr. Jose Rizal who is said to have been inspired by the
cooperative idea during his travels in Europe, thus organized in 1898 a marketing cooperative
among the farmers of Dapitan during his exile. (Cooperatives in the Philippines: History,
Organization and Management by Abasolo, Ruiz and Bertol (1996) Manila: GIC ENTERPRISES &
CO., INC.)
 Note: While cooperative members derive several benefits from the operation of their
cooperative, the main benefit is economic, since members get a share of the cooperative’s net
surplus by patronizing its services. A certain percentage of the cooperative’s net surplus is
returned to the members after a period of one year usually during their annual general assembly.
It is called a patronage refund.

17.4. Theoretical Bases of Cooperative Enterprise

Cooperative as a business organization is founded on certain bases which makes it unique

and distinct from other types of business organization.
a. Cooperative Organization is a Business Enterprise or a Firm. – As a firm, cooperative is a
decision-making unit. The agreement to form a cooperative involves commitment on
the part of the participants to submit certain activities to group decisions although each
participant remains as individual producer or separate economic unit.
b. Cooperative is a risk-bearing unit. – a new risk-bearing unit emerges as cooperative is
formed since risk-bearing is a consequence of decision-making.
c. Cooperative is a Non-Profit (Loss) Organization. – this is so because cooperative
represents an extension of the entrepreneurial activity of the participants. It is a non-
profit (loss) organization when it refunds to patron the net surplus of operation and
collects from members the deficits of operation.
d. Patronage on Obligation. – participants are normally obliged to fulfill an agreement,
which at times may lead to a liability for damages in the event of a breach of agreement.
e. Service At Cost. – members may “earn” or “save” in the conduct of business on what they
would otherwise have to pay someone else to perform the service to them.
f. Patronage Dividend. – It is not dividend in the sense that it represents a distribution of
profit rather it represents an overcharge of expenses in a full settlement of sales. But
when used as a profit sharing device such as to attract patronage then it becomes a
method of distributing profit.
g. Capital of Cooperative. – Capital is not contributed for the purpose of deriving anticipated
profit but as a condition of receiving cooperative services.
h. Interest or Dividend on Capital. – Contributors of capital in a cooperative is not entitled
to return on capital in the nature of profit as a reward for assuming risks because
participant in a true cooperative assume responsibility for costs and risks on a
patronage basis. In effect, those who contribute capital in excess of their proportionate
share loan out capital to those who contributed less, and the interest on capital takes
the form of payment of interest and not a form of distribution of residual income.
i. Basis of Control. – In the economic point of view, control is apportioned according to risk
assumed. In a corporation, control is identified with capital contribution because it is
capital that bears the major risk. In a cooperative, control is based on patronage and not
on capital, because it is the patronage that shoulders the risk. Control in cooperative
stems from the idea that cooperative is an association of persons and not of impersonal
organization of capital.

17.5 Objectives and Goals of Cooperatives (Art. 7, PCC)

The primary objective of every cooperative is to help improve the quality of life of its
members, towards this end, the cooperative shall aim to:

 Provide goods and services to its members to enable them to attain increased income,
savings, investments, productivity, and purchasing power, and promote among themselves
equitable distribution of net surplus through maximum utilization of economies of scale,
cost-sharing and risk-sharing;
 Provide optimum social and economic benefits to its members;
 Teach them efficient ways of doing things in a cooperative manner;
 Propagate cooperative practices and new ideas in business and management;
  Allow the lower income and less privileged groups to increase their ownership in the
wealth of the nation;
 Cooperate with the government, other cooperatives and people-oriented organizations to
further the attainment of any of the foregoing objectives.

17.6 Categories of Cooperatives

Cooperatives are categorized according to membership and territorial consideration. In

terms of membership, cooperatives shall be categorized into:

 Primary - the members of which are natural persons of legal age.

 Secondary - the members of which are primaries.
 Tertiary - the members are secondaries upward to one (1) or more apex organizations.

Note: Those with cooperative memberships are considered federations or unions as the
case may be. Thus, in terms of territory, cooperatives shall be categorized according to areas
of operation which may or may not coincide with the political subdivisions of the country but,
those organized by minors shall be considered a laboratory cooperative and must be affiliated with
a registered cooperative. It is governed by special guidelines promulgated by the CDA.

17.7 TYPES OF COOPERATIVES

 These are the types of cooperatives under Republic Act 9520:

a. Credit Cooperative is one that promotes and undertakes savings and lending services
among members. It generates a common pool of funds in order to provide financial assistance and
other related financial services to its members for productive and provident purposes;

b. Consumer 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 of and for the account 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. Multi-Purpose Cooperative 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 the 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 purpose of undertaking power
generation, utilizing renewable sources, including hybrid systems, acquisition and operation of sub
transmission 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 property 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 Philippines maritime laws, organized under the
provisions of RA 9520;

s. Water Service Cooperative is one organized to own, operate and manage water
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 the 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 Cooperatives as may be determined by the Authority (CDA).

17.8 COOPERATIVE PRINCIPLES

Every cooperative shall conduct its affairs in accordance with Filipino culture, good values
and experience and the universally accepted principles* of cooperation which include, but not
limited to the following:
 1. Voluntary and Open Membership – cooperatives are voluntary organizations that are
open to all persons who are able to use their services and willing to accept the responsibilities of
membership, without gender, social, racial, cultural, political or religious discrimination.

2. Democratic Member Control – Cooperatives are democratic organizations that are

controlled by their members who actively participate in settling their policies and making
decisions. Men and women serving as elected representatives, directors or officers who are
accountable to the membership. In primary cooperatives, members have equal voting rights of
one-member, one- vote.

3. Member Economic Participation – Members contribute equitably to, and democratically

control, the capital of their cooperatives. It is said that 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. Members allocate surpluses for any or
all of the following purposes:
 Developing the cooperative by setting up reserves, part of which should at least
be indivisible;
 Benefiting members in proportion to their patronage of the cooperative’s
business; and
 Supporting other activities approved by the membership

4. Autonomy and Independence – Cooperatives are autonomous, self-help organizations

controlled by their members. If they enter into agreements with other organizations, including
government, or raise capital from external sources, they shall do so on terms that ensure
democratic control of their members and maintain their cooperative autonomy.

5. Education, Training and Information – Cooperatives shall provide education and

training for their members, elected and appointed representatives, managers, and employees, so
that they can contribute effectively and efficiently to the development of their cooperatives.

6. Cooperation Among Cooperatives – Cooperative serve their members most effectively

and strengthen the cooperative movement by working together through local, regional, national
and international structures.

Universally Accepted Principles* means that body of cooperative principles adhered to worldwide
by cooperatives.

17.9 Cooperative Practices

Cooperatives follow certain operational guidelines which are practical response to local
needs, all these are intended at perfecting cooperative operations. They are:

1. Capital Formation. – best source of additional funds other than from equity is from the
members in the form of membership fee or purchase of stock; agreement to withhold
portion of net earnings profits; by assessment based on units of products sold or
purchased.
2. Cash Trading. – this is business done on a cash and carry basis. It promotes equality since
anybody with cash can enjoy the service patronage, and can thus, train members to
observe the habit of balanced spending.
3. Selling at market price. – Cooperatives offer goods and services at prevailing market
prices and this promotes stability.
4. Cooperative can avoid destructive competition. – Fostering constructive competition
will safeguard the interest of consumers since they cooperate to get a better deal from
manufacturers and suppliers.
5. Constant expansion. – As an organization, cooperatives have to grow for community
service, since expansion is a must.
 6. Quality standardized goods. – Cooperatives are intended to develop communities
through the production of high quality goods and provision of better services.
7. Cooperative wholesale business or interlending. – Cooperative can be organized with
enough people and capital. They can respond to the needs of the community. Needs arise
when there are people, and the expansion of membership may result in wholesale
business.
8. The benefits from the wholesale are considerable. – Members can market and acquire
the goods and services at the right price and quality. They can even lower and raise
savings. They can also influence the production of badly needed goods and services.

9. Minimize expenditures. – A significant factor favoring the growth of cooperative is its

being a community project. It is allowed exemption from government; officers do not
receive remuneration, if they do it is only in a form of allowance, per diems, or honoraria;
laws may allow exemption from income and sales taxes. Minimizing expenses should not
be taken as a dole-out but a motivation to make the movement stand on its own and attain
its objectives. Once this is done, the movement can take its rightful place in the
development of the country.

17.10 PRINCIPAL/MAIN OFFICE

It refers to the registered head office as indicated in the articles of cooperation and
bylaws of the cooperative where the business and cooperative activities are conducted and central
records and main books of accounts are kept. It is also the place where the officers and key
management staff of the cooperative direct, control, coordinate and manage its entire operation.
As such, every cooperative is mandated to establish an office where it is expected to carry
out the main activities anent the purpose for which it is created.

17.10.1 BRANCH OFFICE

It refers to a business office outside the principal office where cooperative activities and
business operation are undertaken as per approved cooperative development plan. A cooperative
applying for a branch when approved by the Cooperative Development Authority (“Authority” for
brevity) upon compliance with all the documentary requirements and payment of processing fee,
shall be issued an official document termed as Certificate of Authority, authorizing the
establishment and operation of a cooperative branch.

Note: For the purpose of the definition given on what a branch office is, cooperative
activities shall refer to, but not limited to: acceptance and processing of membership, conduct of
Pre-Membership Education Seminar (PMES) and other trainings. While business operation
means conduct of business activities as stated in the objective and purposes of the cooperative.

Note: In relation to paragraph 1 of the State’s policy declaration, all cooperatives can set
up branch office and cooperative satellite office.

17.10.2 Pre-qualification Requirements

 Prior to the Authority’s approval, a cooperative may establish a branch subject to the
following pre-qualification requirements, to wit:
1. That the proposed establishment of a branch in another place but within the area of
operation of the applicant cooperatives is necessitated by the existence of members in the
said place desiring to avail of the services of the cooperative within their reach. Provided,
 that the number of members to be served by the branch office will be enough for its viable
operation as shown in the business plan.
2. The principal office must have a minimum paid-up capital, as provided for in the Articles of
Cooperation, to wit:

Paid-up Capital Category of Cooperative

Php 10 Million Primary
Php 15 Million Secondary
Php 20 Million Tertiary

3. Each branch must have an available operating capital as provided for in the Business Plan,
to wit:

Operating Capital Category of Cooperative

Php 5 Million Primary
Php 10 Million Secondary
Php 15 Million Tertiary

4. The cooperative did not incur net loss for the last three consecutive years and its net worth
is progressive for the last three years from the date of application.
5. Documentary Requirements includes:
 Letter request for authority to establish a cooperative branch signed by Chairman of
the cooperative or General Manager as authorized by the Board
 Business Plan – refers to a business study showing the marketability of the
products/services, and also the financial, technical, legal and organizational aspects
of the proposed business establishment, including projections for the first three
years of operations showing sustained viability. Due consideration shall be given to
allocation of resources to the proposed branch.
 General Assembly resolution authorizing the establishment of such branch and
commitment of investment or allocation of resources in its operation
 Certification by the Chairman/General Manager of the following:
a. Presence of a Manual of Operations for Branch;
b. Address of the proposed branch
c. Audited Financial Statement for the last 3 years

17.10.3 SATELLITE OFFICE

It refers to an office established by a cooperative outside of its principal/main office but

within its area of operation to provide limited services to its members but which does not however
maintain books of accounts as it is done by the principal/main office. The term shall include an
extension office or other terms of similar import. An applicant cooperative when authorized to
establish and operate a satellite office, shall be issued an official document called a Letter of
Authority by the CDA.

 Documentary Requirements for the application for a Letter of Authority to establish a

cooperative satellite office are the following:
 Certificate of Compliance for the preceding year;
 Oath of Undertaking signed by the Chairperson of the cooperative for the specific
services/activities to be undertaken by the proposed satellite office;
 Certification as to available space and manpower to manage the office; and
 Official Receipt showing payment of the processing fee.

 Conditions for Cooperative Satellite Office Operations

1. Presence of a signage as a cooperative satellite office;
 2. List of specific transactions that may only be undertaken as approved by the cooperative’s
Board of Directors;
3. Presence of Operational Structure;
4. Submission of summary reports to the head office;
5. Presence of a Barangay Permit and a Mayor’s Permit that should be posted in the office at
all times;
6. Maintenance of Accountable Forms (e.g. Cash Acknowledgment/Provisional/Official
Receipts, vouchers, etc.);
7. Maintenance of record of daily transactions to be submitted to the principal/main office;
8. Official Receipts showing payments of processing fees;
9. Availability of appropriate logistics
10. Presence of a minimum number of personnel as determined by the principal/main office to
effectively discharge the functions of the satellite office;
11. Turn-over or deposit of all collections within the day to the account of the principal/main
office or imprest system of handling cash; and
12. Other conditions as may be determined by the Authority

Unit Summary
_________________________________________________________________________________________________________

 The State affirms the impact created by Cooperatives in the lives of people via
enactment of RA 9520 otherwise known as the “Philippine Cooperative Code of 2008”,
thus strengthening the cooperative movement in the country.

 Cooperative way of life is an effective means to improve quality of living, by not

depending on government dole-outs but by peoples concerted effort through
voluntary act of making equitable contributions to the capital required, patronizing
their products and services and accepting a fair share of risks and benefits.

 In support of varying felt need of the people, different types of cooperatives are
allowed to be formed depending on the intended objective, thus, a credit cooperative,
consumer cooperative, utilities cooperative, even a multi-purpose one. What is
important is the willingness to form an organization with persons who have a shared
bond of interest to pull together towards a common desired end – optimum social and
economic benefits to its members.

 Philippine cooperatives adhere to the universally accepted cooperative principles of:

 Open and voluntary membership
 Democratic Member Control
 Member Economic Participation
 Autonomy and Independence
 Education, Training and Information
 Cooperation among Cooperatives
 Concern for Community

 Cooperatives follow certain operational guidelines as a practical response to local

needs. These cooperative practices are its way of perfecting cooperative operations.

 To have wider coverage of operation, and to allow more membership recruitment to

further the ends of its primary objectives, cooperatives other than the mandate to
maintain a
Principal or main office, are allowed to establish either a branch office or a satellite
office by complying with the documentary requirements in order to secure a
Certificate of Authority or a Letter of Authority, as the case maybe.
 Unit XVIII: Organization and Registration

Introduction Unit Learning Objective

“If each individual uses his imagination in search for By the end of this unit you should be
improvements, we will draw on vast resources that will able to:
bring fresh water to the well of progress.” - JFK  Recognize the power of CDA
in the observance of legal
Essential to any person, natural or juridical is the formalities to constitute a
acquisition of a legal personality upon which rests the type of cooperative through
capacity to exercise certain rights and privileges preparation of the Articles of
granted by law. Cooperatives, while recognized by the Cooperation sufficient in form
State as a vehicle for social justice and economic and substance required by
development cannot be allowed to simply mushroom Philippine Cooperative Code
without having to go through the rudiments of formal
organization and registration. After all, the law only
protects organizations and associations that have received full blessing from the government
through the issuance of an authority to operate based upon compliance of statutory requirements.
For this purpose, cooperatives are not exempt. The unit tackles the how of organizing and
registering a cooperative under RA 9520.

Timing

The unit will run for two days only. You can devote 3 hours per day on the subject. Don’t worry,
the content is simplified, which means it only include the most salient points you need to know
relative to our module learning outcome. Since this is the last week of Block 3 stay focused and
persevere so you can sail smoothly through the course. The Articles of Cooperation as a
deliverable should be done a day before the end of the week.

Warm Up!

Before you proceed to the actual cognitive feat, try this brain teaser so you can get those neurons
working! 

Police hire a detective to find an escaped prisoner. The detective narrows his search to one of
three different houses. After taking a closer look at an aerial photo of the three houses, the
detective instantly knew which house the prisoner was in.
Do you already know the answer?
 Getting Started!

18.1 Power to Register Cooperatives

Earlier, it was cited that Republic Act No. 6939, created the Cooperative Development
Authority tasked to promote the viability and growth of cooperatives as instruments of equity,
social justice and economic development. The registration and regulation functions of existing
government agencies on cooperatives was transferred to the Cooperative Development Authority.
As such, the power to register cooperatives is now vested solely in the CDA. It is the only government
agency mandated to register all types of cooperatives.

To facilitate the flow of its services, extension offices had been set up. These are located
in (a) Dagupan City; (b) Tuguegarao, Cagayan; (c) Baguio City; (d) San Fernando, Pampanga; (e)
NCR-Quezon City; (f) Calamba, Laguna; (g) Naga City; (h) Iloilo City; (i) Cebu City; (j) Kidapawan,
Cotabato; (k) Tacloban City; (l) Davao City; (m) Zamboanga City; (n) Butuan City.

CDA Memorandum Circular No. 02-03, Series of 2002 thereby amending

Memorandum Circular No. 92-004, Series of 1992 provides the schedule of fees as follows:

TYPES OF COOPERATIVES PAID-UP CAPITAL FEES

 Laboratory Cooperative No registration fees

 Primary Cooperatives P2,000.00-P500,000 P500.00**1/10 of 1%

P500,001.00-up of the paid-up share capital

 Secondary Cooperatives P2,000.00-P500,000 P1,000.00**1/10 of 1% of

P500,001.00-up of the paid-up share capital

 Tertiary Cooperatives P3,000

18.2 Purposes of Organizing a Cooperative (Art. 6, PCC)

A cooperative may be organized and registered by at least fifteen (15) persons for any or
all of the following purposes:
1.) To encourage thrift and savings mobilization among 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 land 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 a 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 the cooperatives through the utilization of new
technologies;
13.) To encourage and promote self-help or self-employment as 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 the Philippine Cooperative Code.
 Note: Cooperatives Not in Restraint of Trade
No cooperative or method or act thereof which complies with the Philippine Cooperative
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.

18.3 General Steps in Forming a Cooperative

1. Get organized. At least 15 members is required. At once determine the common problems
to be solved and the basic needs to be provided for by the cooperative such as increasing
production, marketing produce, credit assistance, power generation, banking or insurance
and other similar needs. Determining the problems and needs will facilitate in classification
of cooperative to be organized.

2. Prepare a general statement called an economic survey. An economic survey is a general

statement describing the structure, purpose, economic feasibility of the proposed
cooperative, area of operation, size of membership and other pertinent data. In short, it is a
feasibility study.

3. Draft the Bylaws of the cooperative. It is the set of rules that defines and determines how a
cooperative is to be run without confusion. In general, bylaws should be consistent with the
provisions of the Philippine Cooperative Code of 2008.

4. Draft the articles of cooperation. It is a duly notarized document that legally binds all the
signatories in the formation of a cooperative.

5. Register the cooperative with CDA. Submit four (4) copies of the Economic Survey, Bylaws,
and Articles of Cooperation to CDA.

18.3.1 Organizing a Primary Cooperative.

Among the frequently formed category of cooperatives are the so-called primary
cooperatives. It cannot be gainsaid that the reason for its popularity stems from its membership,
that it is composed of natural persons who, by felt need are bound by a common bond of interest.
Often, it is also from this classification that other cooperatives that are composed of juridical
persons may arise.
The following are the requisites of organizing a primary cooperative:
1. Fifteen (15) or more natural persons who are Filipino citizens;
2. Of legal age;
3. Having a common bond of interest*; and
4. Residing or working in the intended area of operation*

Bond of Membership* – refers to the condition where members associate themselves to attain their
common goals and objectives which may either be residential, occupational, associational, and
institutional.

Area of Operation* – refers to the area where the cooperative members come from as provided for
in the articles of cooperation and by-laws.
Inter-regional* – it refers to the cooperative’s area of operation covering two or more adjacent
regions.

Note: A prospective member of a primary cooperative must have completed a Pre-

Membership Education Seminar (PMES)
 Note: Any newly organized primary cooperative may be registered as a Multipurpose
cooperative only after compliance with the minimum requirements for multipurpose
cooperatives. A single purpose cooperative may transform into a multipurpose or may create
subsidiaries only after at least two (2) years of operations. (Art. 10, PCC)

18.4 What is REGISTRATION?

It refers to the operative act of the Cooperative Development Authority granting judicial
personality to a proposed cooperative and is evidence by a certificate of registration.

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

Note: A certificate of registration issued by the Cooperative Development 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.

18.4.1 Revised Guidelines for the Registration of Primary Cooperative. (MC2011-15)

Under the aforesaid guidelines the following documents shall be submitted to the
Authority in four (4) copies except for item (1) below:
1.) Cooperative Name Reservation Notice (CNRN);
2.) Economic Survey
3.) Articles of Cooperation and the approved Bylaws
a. All original;
b. The Articles of Cooperation shall be signed by all the cooperators on each and every
page;
c. The By-laws shall be signed by all the members on the adoption page.

Note 1: The Articles of Cooperation should 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, which must be accompanied by the following: (a) Bonds of
the accountable officers. BOD determines the amount required based on the initial net worth
which shall include the paid-up capital, membership fees and other assets of the cooperative at
the time of registration; (b) Sworn statement of the treasurer duly elected by the subscribers,
duly notarized showing that at least 25% of the authorized capital has been subscribed and at
least 25% of the total subscription has been paid. (This requirement shall apply to a common
share only)
 All primary cooperatives shall be organized with share capital. The authorized
share capital of a cooperative shall be provided for in its Articles of Cooperation
 The paid-up capital must not be less than P15,000
 No member may own more than 10% of the total subscribed share capital and
that each share must not be less than P1,000.
 Should preferred share capital be provided in their by-laws, it shall not exceed
25% of the total authorized share capital of the cooperative.
 For both common and preferred share capital, no fractional share shall be issued.
 Note 2: Common and Preferred Share*: Rules on Capital Requirement
1. The share capital of a cooperative may consist of common share and preferred share capital if
the latter is provided for under the cooperatives AOC and by laws. Should the cooperative wish to
have common and preferred shares, statements to that effect should appear in the AOC specifying
the amount of shares to be offered for common shares and for preferred shares. However, it is
recommended that only the common share be offered.
2. Should preferred share capital be offered, the rights and privileges of their holders shall be
provided for in the By-laws of the cooperative.
3. Preferred share capital shall not exceed twenty-five-percent (25%) or one-fourth (1/4) of the
total authorized share capital of the cooperative.
4. The paid up and subscription of the common share capital contribution should strictly adhere
to the twenty-five-percent (25%) requirement based on the authorized capital share.
5. No member shall own more than ten percent (10%) of the subscribed share capital of the
cooperative.

Note 3: Each cooperative to be registered under the Philippine Cooperative Code

shall adopt bylaws not inconsistent with its provisions. The By-laws shall be filed at the
same time as the articles of cooperation.

4.) Treasurer’s Affidavit*;

5.) Surety Bonds of accountable officers;
6.) Certificate of Pre-Membership Seminar (PMES) signed by the cooperative Interim
Chairman, as validated by the Cooperative Development Authority;
7.) Undertaking to change name:
8.) Undertaking to comply with the auditing and accounting standards prescribed by CDA;
9.) Undertaking to comply with other requirements prescribed by other regulatory agency,
when applicable;
10.) Favorable endorsement/written verification/authority/pre-feasibility study, if applicable;
and
11.) Registration fee. (See CDA Memorandum Circular No. 02-03, Series of 2002 above)

Share* – It refers to a unit of capital in primary cooperative the par value of which is fixed at any
figure not more than One Thousand Pesos (P1,000.00) and should be divisible by one peso may be
divided into common share capital and preferred share capital.

Treasurer’s Affidavit* – a duly notarized document attached to the Articles of Cooperation stating
the total amount received from the members share capital contribution, membership fee, donations
or subsidies.

Note: A cooperative duly registered under the Philippine Cooperative Code shall
have a limited liability. (Art. 12)
A cooperative shall exist for a period not exceeding fifty (50) years from the date of
registration unless sooner dissolve or unless the period is extended. The cooperative term,
originally stated in the articles of cooperation, may be extended for periods not exceeding
fifty (50) years in a single instance by an amendment of the AOC. However, no extension can
be made earlier than five (5) years prior to the original or subsequent expiry date unless
there are justifiable reasons for an earlier extension as may be determined by the Authority.
(Art. 13)
 18.4.2 Contents of the Articles of Cooperation

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 directors who shall manage the cooperative;
(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 Art. 23 of the Philippine Cooperative Code.
Note: The AOC may also contain any other provisions not inconsistent with the PCC or
any related laws.

Note: Cooperative Name and Prohibition

The word “Cooperative” “Kooperatiba” or “Cooperativa” shall be
included in the name of the cooperative, which name shall likewise specify the type of
cooperative.
 No cooperative name shall be allowed if the proposed name is identical or
deceptively or confusingly similar to that of any existing cooperative,
contrary to public policy, moral and existing law.
 Use of the words “development” and “integrated” in the cooperative
name shall be discouraged.
 Use of “Incorporated”, “Corporation”, “Company”, “Incorporation”,
“Partnership” or other similar connotation and abbreviation shall not be
allowed.
 Use of the word “Federation” and “Union” in the name of a proposed
primary cooperative is prohibited, as a rule.
 Name shall not be written in all capital letters except if it is an acronym.
Acronym shall be written after the full name of the cooperative.

18.4.3 Contents of the Cooperative Bylaws

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 condition 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 procedures to be followed in cases of termination of membership;
(e) The conditions under which the transfer of a share or interest of the member 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 power 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 other committee members of the cooperative;
(o) Other matters incident to the purposes and activities of the cooperative.

18.5 Cooperative Powers and Capacities. (Art.9)

Once a cooperative is registered under the PCC it shall possess the following powers,
rights and capacities which it can continuously exercise until expiration of its term, or unless
sooner dissolved or its term extended upon the approval of CDA:

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 the Philippine
Cooperative Code;
4.) To adopt bylaws not contrary to law, morals or public policy, and to amend and repeal the
same in accordance with the Philippine Cooperative Code;
5.) To purchase, receive, take of 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 the PCC;
7.) To form subsidiary cooperatives and join federations or unions, as provided in the PCC;
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 RA 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 the Philippine Cooperative Code or necessary to
carry out its purpose or purposes as stated in its Articles of Cooperation.

Unit Summary
________________________________________________________________________________________________________

 Cooperatives, regardless of type, can only acquire juridical personality by strictly following
the legal formalities prescribed under RA No. 9520, otherwise known as the Philippine
Cooperative Code of 2008”, the lead implementing government agency of which is the
Cooperative Development Authority created by RA No. 6939.

 The power to register cooperatives is now vested solely in the CDA. It is the only
government agency mandated to register all types of cooperatives.

 The Legal formalities that must be strictly observed by an applicant primary cooperative
includes the following:
a. Organization
  15 or more natural persons who are Filipino citizens;
 All of legal ages;
 Having a common bond of interest; and
 Residing or working in the intended area of operation.
 Prepare an Economic Survey, draft the Articles of Cooperation and By-Laws
b. Registration (submit in 4 copies)
 Cooperative Name Reservation Notice; Economic Survey; Articles of
Cooperation
and the approved By-Laws; Treasurer’s Affidavit; Surety bond of
accountable officers; Certificates of Pre-Membership Seminars as validated;
the undertakings to change name, to comply with audit and accounting
standards prescribed by PCC, to comply with other regulatory agency;
Favourable endorsement, written verification/pre-feasibility study, if
applicable; and Registration fee.

 Once registered, the cooperative acquires a judicial personality for a term of 50 years or as
provided in its AOC unless sooner dissolved or extended, and are entitled to certain
powers, rights and capacities prescribed by law.
 Unit XIX: Responsibilities, Rights & Privileges

Introduction
Unit Learning Objectives
“No man was ever endowed with a right without being at
the same time saddled with responsibility.” By the end of this unit you should be
able to:
The unit discusses the responsibilities which the law
imposes upon a duly registered cooperative as well as  Determine the Responsibilities
the rights and privileges it can enjoy. Since the grant of imposed upon and the
an authority to operate and conduct legitimate business privileges enjoyed by duly
to cooperative members it wishes to serve, as well as the registered Cooperatives
community where it is situated, is but a privilege, hence, through Identification
cooperatives must stand ready at all times to act in a Questions
manner that is expected by the Authority in order to
continue enjoying its powers, rights and privileges,
instead of being disenfranchise.

Timing

The unit will run for one day only. You can devote 3 hours of your day on the subject. Don’t worry,
the content is simplified, which means it only include the most salient points you need to know
relative to our module learning outcome. Since this is the last week of Block 3 stay focused and
persevere so you can sail smoothly through the course.

Warm Up!

Before you proceed to the actual cognitive feat, try this brain teaser so you can get those neurons
working! 

Did you get it? Not yet? It’s alright,

take your time. You can always ask
help from your siblings.

I bet you can do it on your own. Just

keep thinking.

Just be patient, you can be a Word-

Master soon enough! 

Getting Started!

The Philippine Cooperative Code provides the responsibilities, rights and privileges of duly
registered cooperatives.
19.1 Cooperative Responsibilities (Art. 51, PCC)

The following are the responsibilities imposed on cooperatives which must be strictly
adhered to:
1. Address. Every cooperative shall have an official postal address to which all notices and
communications shall be sent. Such address and every change thereto must be registered with the
Authority. Anent this requirement, a registered cooperative must put up and maintain a signage at
the entrance of the principal and all branch or satellite office, which must be visible, legible and
shall contain the following:
a. Name of the Cooperative;
b. Address
b.1 Address of the principal office, if it is a principal office;
b.2 Address of the branch office, if it is a branch office; and/or
b.3 Address of the satellite office, if it is a satellite office.
c. Registration Number of the Cooperative;
d. Tax Identification Number (TIN) of the Cooperative;
e. The words “Principal, Satellite and/or Branch Office”, if applicable; and
f. The phrase “Registered with Cooperative Development Authority - Extension
Office”. (Note: where the principal office is registered)

Additional Information for Branches and Satellites:

g. Certificate of Authority No. – if branch
h. Letter of Authority No. – if satellite (MC 2017-03)

2. Books to be Kept Open. 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 the Philippine Cooperative 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 committees;
f. Share books, where applicable;
g. Financial statements; and
h. Such other documents as may be prescribed by laws or the bylaws.

Note: Inspection. A function exercised by the CDA to ensure that cooperatives comply
with regulatory requirements imposed by the cooperative laws, rules and regulations, related
laws and other administrative issuances. (MC 2015-02)
The inspection of cooperatives shall be undertaken at least once a year.

The accountant or the bookkeeper of the cooperative shall be responsible for the
maintenance and safekeeping of the books and records of account of the cooperative in
accordance with generally accepted accounting practices. He shall also be responsible for the
production of the same at the time of audit or inspection.

The audit committee shall be responsible for the continuous and periodic review of
the books and records of account to ensure that these are in accordance with the cooperative
principles and generally accepted accounting practices. To ascertain as well that the records of
account reflects the true and correct condition and the results of cooperative operations can be
easily determined at any time.
 The financial statements, audited according to generally accepted auditing standards,
principles and practices, shall be published annually and shall be kept posted in a conspicuous
place in the principal office of the cooperative.

3. Registry of Members. It refers to the directory of membership of a cooperative,

containing basic information pertaining to members. The register or list of members or shares
kept by any registered cooperative shall be prima facie evidence of the following particulars
entered therein: the date on which the name of any person was entered in such registry or list as
member; and the date which any such person ceased to be a member. Entries in the member’s
registry shall be updated regularly in accordance with the policy as promulgated by the Board of
Directors.

Note: Member. It refers to a person either natural or juridical who, adhering to the
principles set forth in the Philippine Cooperative Code of 2008 and in the articles of cooperation,
has been admitted by the cooperative as member.

Setting-up, maintenance and up-keep of the registry of members shall entail the
gathering of basic information pertaining to the members of the cooperative. For this purpose, all
cooperatives are required to incorporate in their registry the following information:
a. Name of Member
b. Membership Number
c. TIN (Tax Identification Number)
Information on Membership:
a. Date Accepted
b. BOD Resolution number
c. Type/Kind of Membership
d. Initial capital subscription
Termination of Membership:
a. BOD resolution number
b. Date

4. Reports. Every cooperative shall draw up regular reports of its program of activities,
including those in pursuance of their socio-civic undertaking, showing their progress and
achievements at the end of every fiscal year, which reports must be made accessible to its
members, and copies shall be furnished to all its members of record. These reports shall be filed
with the Authority within one hundred twenty (120) days from the end of the calendar year
following the forms and content as prescribed by the rules of the Authority. Failure to submit such
reports subjects the accountable officer to fines and penalties, and shall be a ground for the
revocation of authority of the cooperative to operate. The fiscal year of every cooperative shall be
the calendar year except as may otherwise be provided in the bylaws.
4.1 Required Reports for Primary Cooperatives.
Cooperative Annual Progress Report (CAPR) with the following attachments:
1. Social Audit Report including its program of activities pursuant to its socio-
civicgoals of the cooperative;
2. Performance Audit Report, including copies of the semi-annual Report on
Mediation and conciliation as received by the Authority pursuant to EO 97;
3. Audited Financial Statements;
4. List of Officers and Trainings Undertaken/Completed.
 Note: Effect of Partial Compliance of Required Reports
Partial compliance shall be considered non-compliance and the cooperative shall be
in delay until such time that the filing of the required reports had been fully complied with. Delay
shall commence on the day following the last day prescribed for the filing of the reports.
However, should the last day of filing fall on a Saturday or non-working holiday, the last day for
filing shall be the next working day. If the delay is due to fortuitous event, or a declared national
emergency or public disorder including strikes and lockouts, the period for such delay may be
excused provided due notice is given to the Authority within fifteen (15) days from cessation of
the cause of the delay. Thereafter, the cooperative shall be given another thirty (30) days to file
the required report, the lapse of which shall consider the cooperative in delay.

5. Bonding of Accountable Officers. Every director, officer, and employee handling

funds, securities or properties on behalf of any cooperative shall be covered by a surety bond to be
issued for a duly registered insurance or bonding company for the faithful performance of their
respective duties and obligations. The board of directors shall determine the adequacy of such
bonds. Recall that upon the filing of the application for registration of a cooperative, the bonds of
the accountable officers shall be required by the Authority. Such bonds shall be renewed annually
and the Authority shall accordingly be informed of such renewal.

Note: Surety Bond. It is a promise to pay one party (obligee) a certain amount if a
second party (the principal) fails to meet some obligations, such as fulfilling the terms of the
contract. The surety bond protects the obligee against losses resulting from the principal’s failure to
meet the obligation. It is a contract at least among three parties:
1. The obligee - the party who is the recipient of an obligation;
2. The principal - the primary party who will be performing the contractual obligations; and
3. The surety – who assures the oblige that the principal can perform the task.
It is a guarantee insurance. (MC 2011-13)

19.2 Rights of Cooperatives (Art. 57, PCC)

Following are the rights enjoyed by a duly registered cooperative:

1. Preference of Claims.
a. Subject to the prior claim of the Authority, any debt due to the cooperative
from the member shall constitute a first lien upon any raw materials, production, inputs, and
products produced; or any land, building, facilities, equipment, goods or services acquired and
held, by such member through the proceeds of the loan or credit granted by the cooperative to
him for as long as the same is not fully paid, notwithstanding the provisions of existing laws, rules
and regulations to the contrary.
b. No property or interest on property which is subject to a lien under the
preceding paragraph shall be sold nor conveyed to third parties without the prior permission of
the cooperative. The lien on the property or interest shall continue to exist even after the sale or
conveyance until such lien has been duly extinguished.
c. Any sale or conveyance made in contravention of the second paragraph hereof
shall be void, notwithstanding the provisions of any law to the contrary.

2. Instrument for Salary or Wage Deduction. A member of a cooperative may,

notwithstanding the provisions of existing laws to the contrary, execute an instrument in favor of
the cooperative authorizing his employer to deduct from his/her salary or wages, commutation of
leave credits and any other monetary benefits payable to him by the employer and remit such
amount as may be specified in satisfaction of a debt or other demand due from the member to the
cooperative. Upon receipt of such written request from the cooperative, the employer shall make
the deduction in accordance with the agreement and remit forthwith the amount deducted within
ten (10) days after the end of the payroll month to the cooperative. The employer shall make such
deduction for as long as such debt or other demand remains unpaid by the employee.

Note: “Employer” as used herein shall include all private firms and the national and
local government-owned and controlled corporations who have under their employ a member of
a cooperative and have agreed to carry out the terms of the instrument mentioned in the
provision.

Note: The responsibilities of the employer herein mentioned shall be mandatory,

provided that in the case of a private employer, the actual and reasonable cost of deducting and
remitting may be collected.

3. Primary Lien. A cooperative shall have a primary lien upon the capital, deposits or
interest of a member for any debt due to the cooperative from such a member, notwithstanding
the provision of any law to the contrary.

4. Tax Treatment of Cooperatives. Duly registered cooperative under the Code 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.

5. Tax and Other Exemptions. Cooperatives transacting business with both members
and non-members shall not be subjected to tax on their transactions with members. In relation to
this, the transactions of members with the cooperative shall not be subject to any taxes and fees,
including but not limited to final taxes on member’s deposits and documentary tax.

19.3 Privileges of Cooperatives (Art. 62, PCC)

Cooperatives under the Code, notwithstanding the provisions of any law to the contrary,
be also accorded the following privileges:
1. Enjoy the privilege of depositing sealed cash boxes or containers, documents or any
valuable papers in the safes of municipal or city treasurer and other government offices free of
charge;
2. Cooperatives organized among government employees, shall enjoy the free use of any
available space in their agency, whether owned or rented by the Government;
3. Cooperatives that render special types of services and facilities such as cold storage,
ice plant, electricity, transportation and similar services and facilities shall secure a franchise, and
such cooperative shall open their membership to all persons qualified in their area of operation;
4. In areas where appropriate cooperative exists, the preferential right to supply
government institutions and agencies rice, corn and other grains, fish and other marine products,
meat, eggs, milk, vegetables, tobacco and other agricultural commodities produced by their
members shall be granted to cooperatives concerned.
5. Preferential treatment in the allocation of fertilizers, including seeds and other
agricultural inputs and implements, and in rice distribution shall be granted to cooperatives by the
appropriate government agencies;
6. Preferential and equitable treatment in the allocation or control of bottomries of
commercial shipping vessels in connection with the shipment of goods and products of
cooperatives;
7. Cooperative and their federations, such as farm and fishery producers and suppliers,
market vendors and such other cooperatives, which have for their primary purpose the
production and /or the marketing of products from agricultural, fisheries and small
entrepreneurial industries and federations thereof, shall have preferential rights in the
management of public markets and/or lease of public market facilities, stalls or spaces; Provided,
that these rights shall only be utilized exclusively by cooperatives; Provided, further, that no
 cooperative forming a joint venture, partnership or any other similar arrangement with a non-
cooperative entity can utilize these rights;
8. Cooperatives engaged in credit services and /or federations shall be entitled to loan
credit lines, rediscounting of their loan notes, and other eligible papers with the Development
Bank of the Philippines, the Land Bank of the Philippines and other financial institutions except
the Bangko Sentral ng Pilipinas (BSP);
9. A public transport cooperative may be entitled to financing support for the acquisition
and/or maintenance of land and sea transport equipment, facilities and parts through the program
of the government financial institutions. It shall have the preferential right to the management and
operation of public terminals and ports whether land or sea transport where the cooperative
operates and in securing a franchise for active or potential routes for the public transport;
10. Cooperatives transacting business with the Government of the Philippines or any of
its political subdivisions or any of its agencies or instrumentalities, including government-owned
and controlled corporation shall be exempt from pre-qualification bidding requirements
notwithstanding provisions of R.A. 9184, otherwise known as the Government Procurement Act;
11. Cooperative shall enjoy the privilege of being represented by the provincial, cityfiscal
or the Office of the Solicitor General, free of charge, except when the adverse party is the Republic
of the Philippines;
12. Cooperatives organized by faculty and employees of educational institutions shall
have the preferential right in the management of the canteen and other services related to the
operation of the educational institution where they are employed; Provided, that such services are
operated within the premises of said educational institution; and
13. The appropriate housing agencies and government financial institutions shall create
a special window for financing housing projects undertaken by cooperatives, with interest rates
and terms equal to, or better than those given for socialized housing projects. This financing shall
be in the form of blanket loans or long-term wholesale loans to qualified cooperatives, without
need for individual processing.

19.4 Certificate of Good Standing

It is a certificate issued by the Cooperative Development Authority to the operating

cooperatives that have complied with the mandatory requirements as provided in R.A. 9520, IRR
and other administrative issuances which entitle cooperatives to avail incentives and privileges
accorded to them.

Note: Operating Cooperative. Refers to cooperative that has been performing cooperative
activities with business operations whether realizing gains or losses in the conduct of business. The
business requirement can be waived only to the newly registered existing for not more than one (1)
year from the date of its registration.

Cooperative Activities. It refers to the membership, governance, and institutional

undertaking of the cooperative.

Note: Business Operation. It refers to the economic undertaking of providing product

and services to members in accord with the cooperative registered objectives.

19.4.1 Purpose of Issuing a Certificate of Good Standing (CGS) now termed Certificate of
Compliance

The following are the two (2) purposes for issuance of a CGS
1. Regular Purpose – when the application for CGS is for compliance with the
mandatory requirements as prescribed by RA 9520 and to avail the incentives and privileges
under CDA-BIR Joint Rules and Regulations Implementing Articles 60 and 61 of R.A. 9520 in
relation to R.A. 8424 and the requirements of Local Government Units (LGUs) permits and
licenses.
2. Special Purpose – application is for other legitimate purposes, such as, but not
limited to application for financial assistance from other financial institutions, importation of
machineries, equipment and spare parts, or rice importation program or accreditation as training
provided regardless of type or category.

19.4.2 Cooperatives Qualified to Avail of CGS

A CGS may be issued to operating cooperatives. In case of importation purposes,

application shall be subject to further evaluation by the CDA to determine the capability of the
cooperative to avail the privileges granted to cooperatives.

Note: Certificate of Good Standing (CGS) issued for regular purpose shall be valid and
effective until April 30 of the succeeding year. However, CGS issued for Special Purpose shall be
valid for six (6) months only from date of issuance.
In consideration of the foregoing limitations, no CGS with retroactivity effectivity
shall be issued to a cooperative.

19.4.3 Grounds for Non-Issuance of Certificate of Good Standing (CGS)

Notwithstanding with the provisions of this guidelines set forth by CDA, any of the
following conditions shall warrant the non-issuance of the CGS:
1. Non-submission of statutory reports for two (2) or more consecutive years;
2. Delayed submission of the Statutory Reports for more than six (6) months for at least two
(2) consecutive years;
3. Non-compliance with CDA guidelines (violation of laws, guidelines, circulars and their by-
laws; and
4. The existence of the question on legitimacy of leadership.

Unit Summary
________________________________________________________________________________________________________

 The Code imposes certain responsibilities upon a duly registered cooperative, the
consequence of such failure to comply puts the cooperative in a condition of delay, for
which an extended period of compliance may be given. Despite the extended period, and
where the cooperative through its accountable officers totally fail to perform such
responsibilities it can result in either be meted with fines and penalties or the gravest of
which is an order for dissolution from the Authority.

 Rights and Privileges accorded to registered cooperatives allow it to perform its

responsibilities to the benefit and advantage of its members and the community it serves.
To forestall abuse, these are to be exercised under the watchful eye of the Cooperative
Development Authority.

 For a cooperative to be able to operate as such, it must be issued a Certificate of Good

Standing (CGS) as a stamp by CDA that the operating cooperative have complied with the
mandatory requirements provided in R.A. 9520.
 Unit XX: Membership and Administration

Introduction Unit Learning Objectives

“What you are today is the result of what you have By the end of this unit you should be
thought up to this moment. What you will be able to:
tomorrow
depends upon the thoughts you think from now on.”
 Determine the rules
Cooperatives is one effective means to improve the governing cooperative
income and productivity of people, to generate membership through
employment, to attain equitable distribution of Matching Type item
wealth, and help the Philippine Government attain  Discuss the rules followed
its economic goals. However, as a socio-economic in the administration of
instrument of change, cooperatives should be cooperatives by Essay
primarily concerned with human betterment and Questions
advancement of people and not just concerned with
dividends and related economic and financial
returns. The role then played by cooperatives will depend largely on the proper understanding
and management of what cooperatives are organized for.

As is required of all well-managed organizations, the right external and internal environment with
the right people in it is required for a cooperative organization to accomplish its objectives. This
unit helps you appreciate the importance of committed membership in a cooperative and the
quality of administration it must establish and maintain.

Timing

The unit will run for one day only. You can devote 3 hours of your day on the subject. Don’t worry,
the content is simplified, which means it only include the most salient points you need to know
relative to our module learning outcome. Since this is the last week of Block 3 stay focused and
persevere so you can sail smoothly through the course.

Warm Up!

Before you proceed to the actual cognitive feat, try this brain teaser so you can get those neurons
working! 

Did you get it? Not yet? It’s alright,

take your time. You can always ask
help from your siblings.

I bet you can do it on your own. Just

keep thinking.

Just be patient, you can be a Math

Wizard soon enough! 
 Getting Started!

20.1 What is Membership?

Membership is the body of members of an organization or group. These are actually the
people who consists an organization, therefore, it is important in a cooperative.

20.2 Who may be members of a Cooperative?

Any natural person who is a citizen of the Philippines, cooperative, or non-profit

organization with juridical personality shall be eligible for membership in a cooperative if the
applicant meets the qualifications prescribed in the by-laws; Provided, that only natural persons
may be admitted as members of a primary cooperative.

20.3 What are the qualifications of a Member?

For primary cooperatives:

 Natural persons who are Filipino citizens
 Of legal age may qualify for membership

If minors organize a cooperative, it is considered as a “laboratory cooperative”*, an

experimental one and must be affiliated with a registered cooperative. It shall be governed by
special guidelines to be promulgated by the Cooperative Development Authority.

A non-profit organization which has a juridical personality may qualify for membership if it
meets the qualification prescribed in the by-laws.

Laboratory Cooperative* - it refers to a cooperative duly recognized by the Cooperative

Development Authority formed and managed primarily by minors*, and is affiliated* with another
registered cooperative which is called the Guardian Cooperative*. (MC 2015-03)
Guardian Cooperative* - it refers to a duly registered cooperative to which a Laboratory
Cooperative is affiliated with.
Minor* - it refers to an individual below eighteen (18) years of age.
Affiliation* - it refers to the act of being formally connected or joined by a Laboratory Cooperative
to a Guardian Cooperative.

Note: A cooperative may assist in the organization of a laboratory cooperative of

fifteen (15) or more individuals who are minors, who may be students or out of school minors,
Filipino citizens and are actually studying or residing within the nearest area of operation of the
intended guardian cooperative.

20.4 What are the kinds of Membership?

A cooperative may have two (2) kinds of members:

a. Regular members - it is one who has complied with all the membership requirements
and entitled to all the rights and privileges of membership as stated in the Cooperative Code and
the cooperative’s by-laws;
b. Associate members - it 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.
 Note: Government Officers and Employees: Rules to observe
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
cooperative organized by officer and employees of the Cooperative Development
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
representative being an officer of a cooperative he or she represents.
3.) Any government employee or official may, in the discharge of his duties as member in the
cooperative, be allowed by the head 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 operation of the office concerned are not adversely
affected. (Art. 27, PCC)

Elective officials* for this purpose includes the National, Local and Barangay elective officials
except party list representatives being an officer of a cooperative he or she represents.

20.5 Application for Membership (Art. 28, PCC)

An applicant for membership shall be deemed a member after approval of his membership
by the board of directors and shall exercise the rights of member after having made such payments
to the cooperative in respect to membership or acquired interest in the cooperative as may be
prescribed in the bylaws.
In case membership is denied or refused by the BOD, an appeal may be made to the general
assembly and the latter’s decision shall be final. For this purpose, the general assembly may opt to
create an appeal and grievance committee, the members of which, shall serve for a period of one
(1) year and shall decide appeals on membership application within thirty (30) days upon receipt
thereof. If the committee fails to decide within the prescribed period, the appeal is deemed
approved in favor of the applicant. (Art. 28, PCC)

20.6 Liability of Members (Art. 29, PCC)

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

20.7 Termination of Membership (Art. 30, PCC)

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 cooperative
bylaws, the withdrawing member shall be entitled to a refund of his share capital contribution and
all other interests in the cooperative. However, such refund shall not be made if upon such
payment of the value the assets of the cooperative would be less than the aggregate amount of its
debts and liabilities exclusive of his share capital contribution.

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.

A member may be terminated by a vote of the majority of all the members of the Board of
Directors for any of the following causes:
 When a member has not patronized the services of the cooperative for an
unreasonable period of time as may be fixed by the Board of Directors;
 When a member has continuously failed to comply with his obligations;
  When a member has acted in violation of the bylaws and rules of the cooperative;
 For any act or omission injurious or prejudicial to the interest or the welfare of
the cooperative.

Note: Refund Interests

These are all sums computed in accordance with the bylaws to be due from a
cooperative to a former member, and shall be paid to him either by the cooperative or by the
approved transferee as the case may be, in accordance with the Philippine Cooperative Code.

20.8 Administration and Management of Cooperatives.

An important factor in the success of a cooperative is the presence of capable and

dedicated leaders these are the people who are expected to provide guidance and support to the
cooperative. Leaders are the people who promote more active membership participation.

The management of cooperatives must be made the responsibility of qualified,

competent, honest and dedicated officers and members of its Board of Directors, Committees, and
Management Staff. However, at the helm of cooperatives is its General Assembly, which shall be
composed of such members who are entitled to vote under the articles of cooperation and bylaws of
the cooperative.

20.8.1 Powers of the General Assembly (Art. 33, PCC)

The general assembly shall be the highest policy-making body of the cooperative and
exercise such powers as stated in the Code, in the articles of cooperation and in the bylaws of the
cooperative. It has exclusive powers which cannot be delegated which includes:
1. To determine and approve amendments to the articles of cooperation and bylaws;
2. To elect or appoint the members of the BOD, and to remove them for cause;
3. To approve developmental plans of the cooperative.

Note: Subject to such other provisions of the Code and only for purposes of prompt and
intelligent decision-making the general assembly may by a three-fourths (3/4) vote of its
members with voting rights, present and constituting a quorum, delegate some of its powers to a
smaller body of the cooperative, which are enumerated in the cooperative’s bylaws.

20.8.2 Meetings, Quorum and Voting System

Meetings of the general assembly could either be regular or special. When held annually
on a date fixed in the bylaws, or if not so fixed, on any date within ninety (90) days after the close
of each fiscal year, it is a regular meeting, which requires sending out of a notice in writing, by
posting or publication, or through other electronic means to all members of record.

On the other hand, whenever necessary, a special meeting of the general assembly may
be called at any time by a majority vote of the BOD or as provided for in the bylaws. Requisite
notice in writing sent out at least one (1) week prior to the meeting to all members entitled to
vote. The BOD may likewise call a special meeting by complying with the required notice within
one (1) month after receipt of a request in writing from at least 10% of the total members who are
entitled to vote to transact specific business covered by the call.

In any type of meetings in a cooperative, a quorum is necessary to validate the

proceedings. A quorum shall consist of at least twenty-five per centum (25%) of all the members
entitled to vote.

Each member of a primary cooperative shall have only one (1) vote. In the case of
secondary or tertiary cooperatives they shall have one (1) basic vote and as many incentive votes
as provided for in the bylaws but not to exceed five (5) votes. The vote cast by the delegates shall
be deemed as votes cast by the members thereof.

However, the bylaws of a cooperative other than a primary may provide for voting by
proxy, which means allowing a delegate of a cooperative to represent or vote in behalf of another
delegate of the same cooperative.

20.9 Composition and Term of the Board of Directors (Art. 37, PCC)

The direction and management of the affairs of a cooperative is vested in a board of

directors which shall be composed of not less than five (5) nor more than fifteen (15) members
elected by the general assembly for a term of two (2) years and shall hold office until their
successors are duly elected and qualified, or until duly removed for cause.

20.9.1 Powers of the Board of Directors (Art. 38, PCC)

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

20.9.2 Qualifications of Directors (Art. 39, PCC)

The following are the rules pertaining to the directors of a cooperative:

1. Any member of a cooperative who under the bylaws of the cooperative, has the right to
vote and possesses all the qualifications and none of the disqualifications provided in the
laws or bylaws shall be eligible for election as director.
2. The members of the board of directors shall not hold any other position directly involved
in the day to day operation and management of the cooperative.
3. Any person engaged in a business similar to that of the cooperative or who in any way has
a conflict of interest with it, is disqualified from election as a director of said cooperative.

20.9.3 Meeting of the Board and Quorum Requirement (Art. 40, PCC)

1. In the case of primary cooperatives, regular meetings of the BOD shall be held at least once
a month.
2. Special meetings of the BOD may be held at any time upon the call of the chairperson or a
majority of the members of the board. Written notices specifying the agenda shall be given
to all members of the board of directors at least one (1) week before the said meeting.
3. A majority of the members of the board of directors shall constitute a quorum for the
conduct of business, unless the bylaws provide otherwise.
4. Directors cannot attend or vote by proxy at board meetings.

20.9.4 Vacancy in the Board of Directors (Art. 40, PCC)

Any vacancy in the board of directors, other than by expiration of term, may be filled by
the vote of at least a majority of the remaining directors, if still constituting a quorum; otherwise,
the vacancy must be filled by the general assembly in a regular or special meeting called for the
purpose. A director elected to fill a vacancy shall serve only the unexpired term of his predecessor
in office.

20.10 Officers of the Cooperative (Art. 42, PCC)

The board of directors shall elect from among themselves the chairperson and vice-
chairperson, and elect or appoint other officers of the cooperative from outside of the board in
accordance with their bylaws. All officers shall serve during good behavior and shall not be
removed except for cause after due hearing. Loss of confidence shall not be a valid ground for
removal unless evidenced by acts or omissions causing loss of confidence in the honesty and
integrity of such officer. No two (2) or more persons with relationships up to the third civil degree
of consanguinity or affinity nor shall any person engaged in a business similar to that of the
cooperative nor who in any manner has interests in conflict with the cooperative shall serve as an
appointive officer.

In like manner, no two (2) or more persons with relationship up to third civil degree of
consanguinity or affinity shall serve as an appointive officer.

20.11 Committees of Cooperatives (Art. 43, PCC)

The bylaws may create an executive committee to be appointed by the board of directors
with such powers and duties as may be delegated to it in the bylaws or by a majority vote of all the
members of the board of directors.

The bylaws shall provide for the creation of an audit, election, mediation and
conciliation, ethics and such other committees as may be necessary for the conduct of the
affairs of the cooperative. The members of both the audit and election committee shall be elected
by the general assembly and the rest shall be appointed by the board. The audit committee shall
be directly accountable and responsible to the general assembly. It shall have the power and duty
to continuously monitor the adequacy and effectiveness of the cooperative management control
system and audit the performance of the cooperative and its various responsibility center.

Unless otherwise provided in the bylaws, the board, in case of a vacancy in the
committees, may call an election to fill the vacancy or appoint a person to fill the same subject to
the provision that the person elected or appointed shall serve only for the unexpired portion of the
term.

20.12 Functions and Responsibilities of Directors, Officers and Committee Members

The functions and responsibilities of directors, officers and committee members shall be
those prescribed in the bylaws of the cooperative.

20.13 Liability of Directors, Officers and Committee Members (Art. 45, PCC)

Directors, officers and committee member who willfully and knowingly vote for or assent
to patently unlawful acts or who are guilty of gross negligence or bad faith in directing the affairs
of the cooperative or acquire any personal or pecuniary interest in conflict with their duty as such
directors, officers or committee members shall be liable jointly and severally for all damages or
profits resulting therefrom to the cooperative, members, and other persons.

Note: Self-dealing Directors, Officers, or Committee Members

A contract entered into by the cooperative with one (1) or more of its directors,
officers, and committee member is voidable, unless the conditions set forth by law are present:
a) presence of such director in the board meeting wherein the contract was approved
was not necessary to constitute a quorum;
b) that the vote of such director was not necessary for the approval of the contract;
c) that the contract is fair and reasonable under the circumstances; and
d) that in case of an officer or committee member, the contract with the officer or
committee member has been previously authorized by the general assembly or by
the board of directors.
 Note: Disloyalty of a Director
A director who, by virtue of his office, acquires for himself an opportunity which should
belong to the cooperative shall be liable for damages and must account for double the profits that
otherwise would have accrued to the cooperative by refunding the same, unless his act has been
ratified by a three-fourths (3/4) vote of all the members with voting rights, present and
constituting a quorum. Provision applies notwithstanding the fact that the director used his own
funds in the venture.

20.14 Removal of any Elected Officer (Art. 50, PCC)

All complaints for the removal of any elected officer shall be filed with the board of
directors. Such officer shall be given the opportunity to be heard. Majority of the board of
directors may place the officer concerned under preventive suspension pending the resolution of
the investigation. Upon finding of a prima facie evidence of guilt, the board shall present its
recommendation for removal to the general assembly.
An elective officer may be removed by three-fourth (3/4) votes of the regular members
present and constituting a quorum, in a regular or special meeting general assembly meeting
called for the purpose. The officer concerned shall be given an opportunity to be heard at such
assembly.

Unit Summary

___________________________________________________________________________________________________________

 Membership in a cooperative refer to that body of persons that comprises an

organization. For a cooperative, this constitute its very existence. However, only those
that possess the qualifications can be admitted as member subject to the approval of
the board of directors.

 In our jurisdiction, members of cooperatives can be natural persons who must be

Filipino citizens and of legal age; cooperatives; and non-profit organizations provided
they possess juridical personality. As members, they acquire rights and at the same
time responsibilities and liabilities which are prescribed by the Code and of related
laws.

 The highest policy-making body of the cooperative is the General Assembly, which is
composed of such members who are entitled to vote under the articles of cooperation
and bylaws of the cooperative. It exercises exclusive powers which cannot be
delegated.

 Since the administration and management of the affairs of the cooperative cannot be
done by the general assembly due to its sheer size, hence, these functions are
delegated to a Board of Directors, Officers and Committee Members, each of whom
have respective responsibilities and task to perform, which is expected to be carried
out for the best interest of the cooperative and its members. In violation of which,
directors, officers and committee members can be held liable for damages, jointly and
severally, and ground enough for their removal from office.
 Unit XXI: Capital, Property, Funds and
Members’ Right to examine
cooperative books

Introduction Unit Learning Objective

By the end of this unit you should be
“How you spend your time is far more important than
how you spend your money. With money mistakes can
able to:
be corrected but time is gone forever.”
 Determine the rules governing
Fundamental to the survival of any organization is its cooperative’s capital sourcing,
ability to mobilize necessary resources to forward its manner of auditing, and member’s
own purposes. Cooperatives, like any organization right to examine records through
requires capital to finance its operational and Matching of Legal Terms
organizational needs in order to pursue and realize
the goals it had set. The challenge lies in how it can
maintain a volume of transaction within its ability to source funds. This unit discusses the sources
from where cooperative capital is derived, the impact of members’ patronage to capital-build up
efforts of the cooperative, the extent to which a member may own in terms of the allowable share
capital holdings in a cooperative, and the breadth of cooperative’s use of its capital in external
investments.

Included in the unit, are the provisions that serve as a safety net and protection to the capital
contributions of members and other sums collected, received and disbursed, by assuring
transparency through appropriate audit, inquiry and member’s right to examine cooperative
books and records.

Timing

The unit will run for one day only. You can devote 3 hours of your day on the subject. Don’t
worry, the content is simplified, which means it only include the most salient points you need to
know relative to our module learning outcome. Since this is the last week of Block 3 stay focused
and persevere so you can sail smoothly through the course.

Warm Up!

Before you proceed to the actual cognitive feat, try

this brain teaser so you can get those neurons
working! 

Did you get it? Not yet? It’s alright,

take your time. You can always ask
help from your siblings.

I bet you can do it on your own. Just

keep thinking.
 Getting Started!

People join cooperatives primarily for economic benefits – services and increased income.
Most people want to be shown the advantages of cooperative membership. If those benefits are
not evident, few prospects will join and even if they do, they probably will not regularly patronize
the cooperative.

Membership responsibilities start with the conception of the cooperative and remain
throughout its life to assure successful organization, sound management, and operation.

When members are involved and informed about the cooperative, they measure their
needs in terms of pesos and are more willing to invest in and patronize the cooperative.
Cooperative members must be intimately familiar with it and assume a positive, broad role in its
management and direction, understand its purpose, objectives, benefits, limitations, operations,
finances, and long term plans, read and understand the articles of cooperation and bylaws, know
what laws limit their rights or powers and those of their board of directors. Understand that
bylaws or policies of the elected directors further limit their operations by establishing member
obligations, regulations and quality controls exceeding those prescribed by legal statutes and
provide equity/risk for the cooperative business.

Most cooperatives have small beginnings and find it necessary to borrow. Later, as it
become established and business services expand, they generally find it neither necessary nor
wise to rely only on member capital to meet all financial needs. The member or equity capital is
used as a base to apply for a loan.

In sum, member’s participation in the affairs of the cooperative increases their feeling of
ownership and responsibility for its success.

21.1 What is Capital?

For cooperatives, as well as in the case of any typical business organization, it is the amount of
and source of money to start and to operate a cooperative. In its strict sense, it is the capitalization
required to allow the cooperative to organize itself into a viable economic driver and get the nod
of the Authority to register and commence operation for the purpose which it has been establish.
Recommendations for planning capitalization may include:
1) To determine whether the capital structure is to be stock or nonstock;
2) To estimate the amount of member investment (risk capital); and
3) To estimate the amount and source of borrowed money needed (debt capital)

Note: Stock or Nonstock Capital Structure

A new cooperative may choose either Stock or Nonstock method for
structuring risk capital. In a stock cooperative, members are issued stock certificates as
evidence of their membership and capital investment. While in nonstock cooperatives, a
capital or membership certificate is issued which is the equivalent of preferred stock
issued by a stock corporation, sold in various denominations, may bear interest, may not
have a due date, and have no voting privileges and may be owned by nonmembers.

21.2 Sources of Cooperative Capital (Art.72, PCC)

Starting a new cooperative and sustaining it can create a need for substantial capital. A
problem may develop when trying to operate with limited membership equity capital and sizable
total capital requirements. Therefore, additional sources for funds are needed.
 Cooperatives registered under the Code may derive their capital from any or all of the
following sources:
1. Member’s share capital contribution, common and/or preferred;
2. Loans and borrowings including deposits;
3. Revolving capital build-up which consists of the deferred payment of patronage refunds, or
Interest in share capital;
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
subsidies, 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. (Note: Upon dissolution, such donated capital shall be
subject to escheat);
5. Retention from the proceed of services or goods procured by members; and
6. Capital Reserve Fund.

21.3 Member Share Capital Contribution

The best source of financing for a cooperative is from members. The more financing
members provide, the less the cooperative business will need to borrow from other sources.
Usually, cooperatives sell common or preferred stocks to members to raise capital. Accordingly, it
is said that amount of capital raised from preferred stock sales should be more conservative
because it carries less risk than common stock.

The share capital of a cooperative is the money paid or required to be paid for the conduct of
its operation. The methods of issuing the share certificates may be prescribed in the bylaws of the
cooperative.
a) Common Share Capital. Issued only to regular members, and shall receive interest, the rate of
which should not exceed the rate allowed by the Authority.

b) Preferred Share Capital. Its holder shall not be eligible to vote nor be voted upon, account of
such shareholdings but shall be entitled to among other, the following:
1) Preference in interest payment as provided for in the cooperative’s bylaws;
2) In the case of liquidation, priority in the distribution of the net assets of the cooperative.

Preferred shares are offered to non-members; provided, however, that the total amount of
preferred share capital offered to these non-members shall not exceed the total amount of
preferred share capital offered to or held by members. Its issuance shall be prescribed in the By-
laws and shall not exceed twenty five (25%) percent of the total authorized capital of the
cooperative.

Note: Shares
It 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) for which a member is allowed
to subscribe.

21.3.1 Limitation on Share Capital Holdings (Art.73, PCC)

The Code provides that no member of a primary cooperative other than cooperative itself
shall own or hold more than ten per centum (10%) of the share capital of the cooperative.
In case a cooperative member dies, his heir shall be entitled to the shares of the decedent,
provided that the total shareholding of the heir does not exceed ten per centum (10%) of the
share capital of the cooperative. However, it is further required that the heir qualify and be
admitted as member of the cooperative. On the other hand, where the heir fails to qualify as a
member or where his total shareholding exceeds ten per centum (10%) of the share capital, the
share or shares in excess will revert to the cooperative upon payment to the heir of the value of
such shares.

21.3.2 Withdrawal of Share Capital

A member of a cooperative may, for ant reason, withdraw his membership in the cooperative
by giving a sixty (60) day notice to the board of directors. The withdrawing member shall be
entitled to a refund of his share capital contribution and all other interests in the cooperative
provided, that such refund shall not be made upon such payment, the value of the assets of the
cooperative would be less than aggregate amount of its debts and liabilities exclusive of his share
capital contribution.

21.3.3 Fines

The by-laws may impose fines on unpaid subscribed share capital subject to the guidelines of
the Cooperative Development Authority. The following are the rules on the imposition of fines:
1) The Board of Directors may issue a reminder for payment of the due
and unpaid subscribed share capital and all amounts accruing thereto,
in accordance with their membership subscription agreement.
2) In the absence of such provision, the board of directors shall determine the
percentage of what is due, the terms and conditions, and unpaid subscription
to be paid as the needs of the cooperative may require.
3) If within the period the member failed to comply, the board of directors may
declare such members as not in good standing or withdraw the privileges
granted to said member or both until compliance with the reminder or call.

21.3.4 Assignment of Share Capital Contribution or Interest (Art. 74, PCC)

Since the shares owned by a member of a cooperative is, under the law considered a
personal property, hence, can be subject to one’s disposition. However, where the law provides a
limitation to the right of disposal the same shall be upheld, provided it is fair and reasonable.
Under the Code, a member’s share capital contribution or interest being one such property can be
subject of an assignment.
Subject to the provision of the 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.

21.4 Revolving Capital Build-Up (Art. 75, PCC)

The bylaws of every cooperative shall provide for a reasonable and realistic member capital
build-up program to allow the continuing growth of the members’ investment in their cooperative
as their own economic conditions continue to improve.

When the cooperative’s equity is sufficient to meet its need, a portion of each year’s income
should be used to redeem the oldest patronage-based equity. This equity is replaced from funds
retained from the current one (1) year’s patrons. The schedule for revolving equity is set by the
Board of Directors. A systematic equity redemption program keeps the cooperative financed by
current users in proportion to their use.
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 that the time of retirement by
such certificate and the amounts to be returned are at the discretion of the BODS.

Conditions for raising such capital:

 a) The capital sourcing must be approved by the members in a general assembly meeting;

b) The capital shall come from a deferment of the payment of patronage refunds and interests
on capital or retention of a portion from the proceeds of products sold or services
rendered, or per unit of product or services handled.

Note: Interest on Share Capital. Interest shall not exceed the normal rate of return
on investments as determined by the Authority and such interest shall be non-cumulative. As a
rule, a member is not entitled to receive dividends or interest on capital unless such right is
declared by the BOD or by the general assembly. Neither is the right to receive dividends or
interest dependent upon the income of the cooperative.

Rate of Interest shall be computed as follows:

Rate of Interest = X (Net Surplus - Statutory Reserves)

Total Average share per Month

Where: X shall be the percentage to be determined by the BOD allocated for interest on share
capital. Amount allocated shall not be less than thirty percent (30%) of the net surplus after
deducting the statutory reserves based on the principle of equity. Rate of patronage shall no more
than twice the rate of interest on share capital and no allocation of interest on share capital shall
be made without the approval of the general assembly which may increase or decrease either or
both.

Payment of a member’s interest on paid share capital must be made on such date as may be
determined by the BOD’s. The general assembly may defer payment of such interest including
patronage refund to raise revolving capital in accordance with Art. 80 and 87 of the Code.

21.5 Loans and Borrowings

Local area banks are good possibilities, as well as commercial banks particularly those in the
area where the cooperative will operate. Are an important source for loans. These banks will also
offer a variety of banking services that the cooperative once it begins operations. New
cooperatives often can get loans with the help of National Government Agencies on the other
guarantees.

21.6. Capital Reserve Fund

Like other businesses, cooperatives must build financial reserves. At least ten percent (10%)
of the cooperative net surplus is set aside as reserve fund, which shall be used for the following:
1) Stability of the cooperative and to meet net loss in its operations.
2) The sum of the reserves in excess of share capital may be used any time for any project that
would expand the operations of the cooperative upon the resolution of the general
assembly.
Accumulated reserves relieve the pressure on the cooperative to borrow money or reduce
important services through tough times. They also lessen the likelihood that the cooperative will
ask the members for a direct investment of additional risk capital to meet unexpected needs.

21.7 Investment of Capital

A cooperative may invest its capital in any of the following, subject to rules laid down in the
bylaws as well as the Code:
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 estate primarily for the use of the cooperative or its members; or
5) In any other manner authorized in the bylaws.

21.8 Annual Audit (Art. 80, PCC)

To safeguard the cooperative and its members from scrupulous, anomalous or fraudulent*
practices of persons entrusted with its operation and management, therefore the need to undergo
annual audit.

Accordingly, cooperatives registered under the 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 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,

21.8.1 Social Audit

Note: Social Audit. It refers to the procedure where the cooperative assesses its
social impact and ethical performance vis-à-vis its stated vision, goals and social missions. As a
tool to measure effectiveness of the cooperative’s social development services, the Social Audit
of cooperatives consists of two (2) phases, namely:
1. Social Performance Assessment – refers to the review of the performance of the Cooperative
vis-à-vis its social development plans and budget.
2. Social Impact Assessment - refers to the process of monitoring, analyzing and evaluating the
intended and unintended social outcome/result, both positive and negative as well as the
planned interventions and social change process involved in said interventions.

21.8.1a Objectives of Social Audit

1. To guide the cooperative in the assessment of its social performance;

2. To require the cooperative to use the prescribed tools and format in the preparation and
Submission of social audit report; and
3. To provide the manner and period of submitting social audit report* to the CDA.

Social Audit Report*- it refers to the certified report prepared by the auditor as a result of the
social audit conducted which is usually in narrative form detailing the comments/observations,
including recommendations, and the accomplished Social Audit Working Document which shall be
attached to the Cooperative Annual Progress Report. (CAPR)

21.8.1b Key Areas of Social Audit

 Level of participation of the Members and Officers in the operations of the

cooperative
 Impact of the Cooperative Programs and Policies to the Community
 Uses of Community Development Fund
 21.8.2 Financial Audit Report (Art. 81, PCC)

The auditor shall submit to the board of directors and to the audit committee the financial 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 the next meeting the cooperative is going to hold.

21.9 Members Right to Examine Cooperative Records (Art. 83, PCC)

As an exercise of democracy and transparency, cooperative members shall have the right to
examine the records required to be kept by the cooperative under Article 52 of the Code but only
during reasonable hours on business days and at the same time may demand, in writing, for a copy
of excerpts from said records without charge except the cost of reproduction.

Any officer of the cooperative who shall refuse to allow any member of the cooperative to
examine and copy excepts from its records shall be liable to such member for damages and shall
be guilty of an offense punishable under Art. 140 of the Code. However, it provides that where
such refusal is pursuant to a resolution or order of the board of directors, the liability in said
article shall be imposed upon the directors who voted for such refusal. It is further stated, that it
shall be a defense to any action under said 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.

21.9.1 Safety of Records (Art. 84, PCC)

The Authority mandates every cooperative, that at its principal office, to keep and carefully
preserve the records required by the Code to be prepared and maintained. It shall take all
necessary precaution to prevent its loss, destruction or falsification.

Unit Summary
__________________________________________________________________________________________________________

 Since the lifeblood of any cooperative rests in share capital contributed by its
members, the Code hereby enjoins all cooperatives to adopt a policy of continuing
subscription on share capital, which shall include, but is not limited to, requiring
members to subscribe an additional capital upon full payment of the initial
subscription.

 CDA requires cooperatives to execute subscription agreement upon admission of

members and whenever additional subscription shall be made by member/s full
payment of their initial subscription. Anent this, cooperatives shall issue Share
Certificates at least every end of the calendar year based on the number of shares
fully paid for the said period.

 Cooperatives are prohibited from issuing multiple types of Common shares and
different par value per share. It is likewise prohibited for any cooperative to
increase/decrease the par value of the share capital by way of amending their Articles
of Cooperation and By-Laws.

 To prevent fraud or other forms of misrepresentations of financial statements,

cooperatives are required to undertake an Annual Audit which includes financial,
 performance and social audit. As an assurance of the integrity of all financial
recordings, such audit shall be performed by duly accredited and independent
auditors who must not in any way be connected to the cooperative, and are members
in good standing of PICPA and the Authority.

 Members proprietary interest in the cooperative is further assured by the provision

on the right to examine the records that are required to be kept at the principal office
of the cooperative as well as obtain a copy of excerpts from said record. As long as the
exercise of the right is not inappropriate, nor improper, then any officer who so refuse
to allow any member to examine and copy excerpts from its records shall be liable for
damages and held guilty of an offense which Art. 140 of the Code punishes.
 Unit XXII: Dissolution, Liquidation, Allocation
and Distribution of Net Surplus

Introduction Unit Learning Objective

“The way to wealth is as plain as the way to market. It By the end of this unit you should be
depends chiefly on two words, industry and frugality; able to:
that is, waste neither time nor money, but make the
 Apply legal principles in the
best use of both.”
dissolution, liquidation and
As in the case of any organization, cooperative distribution of net surplus of
existence is never perpetual. There comes a time when cooperative through Case
it loses its so-called juridical personality. For whatever Questions
may be the reason, be it voluntary or involuntary,
cooperative dissolution is as much a reality as its conception and birth. This unit discusses the
modes of dissolution and liquidation, its effect upon the rights of the cooperative, and the
allocation and distribution of net surplus at the time when it is still a going-concern.

Timing

The unit will run for one day only. You can devote 3 hours of your day on the subject. Don’t worry,
the content is simplified, which means it only include the most salient points you need to know
relative to our module learning outcome. Since this is the last week of Block 3 stay focused and
persevere so you can sail smoothly through the course.

Warm Up!

Before you proceed to the actual cognitive feat, try this brain teaser so you can get those neurons
working! 

Did you get it? Not yet? It’s alright,

take your time. You can always ask
help from your siblings.

I bet you can do it on your own. Just

keep thinking.

I know how smart you can be! 

Getting Started!

22.1 Cooperative Dissolution

Dissolution refers to the termination of the juridical personality of the cooperative

through appropriate judicial proceedings, or by an order of the Authority, or through its own
initiative. Dissolution of a cooperative may either be voluntary or involuntary.
 Dissolution is voluntary if it is initiated through the voluntary decision of the members of
cooperatives. There are two (2) manners of voluntary dissolution, namely:
a) Where creditors are affected; and
b) Where creditors are not affected.

Dissolution is involuntary if it is ordered by the Authority or a competent court having

jurisdiction over the cooperatives on grounds as specified by law, and after due process.

Note: Effect of Dissolution

The dissolution of a cooperative, whether voluntary or involuntary terminates the right of the
cooperative to continue the business or purposes for which it has been established and is bound
to wind up its affairs within the period specified by law.

22.1.1 Voluntary Dissolution

Voluntary dissolution shall be done by the members themselves, provided that when
creditors are affected the interest of the third party shall be protected. The approval of the General
Assembly of the voluntary dissolution shall not restrict or preclude the cooperative to continue
the business for which it was established, except for the following:
a. Refunding of member’s share capital contributions, including the offsetting against any
receivable from the members;
b. Making investments of any kind;
c. Acceptance of share capital and deposit from members;
d. Acceptance of new members;
e. Entering into a contract of whatever nature;
f. Securing of new loans;
g. Payment of liabilities which have not matured;
h. Payment of per diems, honorarium or allowances of the officers unless approve by the
General Assembly; and
i. Other acts as may be determined by the Authority

22.1.1a The Code prescribes certain guidelines in the voluntary dissolution of a cooperative
subject to, if: 1) there are no creditors who are affected; 2) where there are creditors affected.
For this purpose, Art. 64 and Art. 65 of RA No. 9520 are highly instructive of the processes to
be followed. These procedural guidelines must be strictly observed by the cooperative
intending to dissolve so they can eventually be issued the Certificate of Dissolution by the
Authority.

22.1.2 Involuntary Dissolution

The termination of the existence of a cooperative shall be initiated either by the regular
courts of law or by the Authority. In the course of such proceedings, the respondent shall be the
cooperative, represented by the Board of Directors.

Following are the grounds for the involuntary dissolution of a cooperative:

1.) By order of a competent court after due hearing (Art. 66, PCC)
a. Violation of any laws, regulation or provisions of its bylaws; or
b. Insolvency

Note: Upon receipt of final and executory decision of the court, the CDA shall issue an Order
to proceed with the winding up of the affairs of the cooperative as provided in the procedural
guidelines of the Code.
 2.) By order of the Cooperative Development Authority after due notice and hearing, may
suspend or revoke the certificate of registration of a cooperative based on (Art. 67, PCC)
a. Having obtained its registration by fraud;
b. Existing for an illegal purpose;
c. Willful violation, despite notoce by the Authority, of the provisions of this Code or its
bylaws;
d. Willful failure to operate on a cooperative basis; and
e. Failure to meet the required minimum number of members in the cooperative.

Note: 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 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.

22.2 Cooperative Liquidation (Art. 69, PCC)

Every cooperative whose charter expires by its own limitation or whose existence is
terminated by voluntary dissolution or through an appropriate judicial proceeding shall
nevertheless continue to exist for three (3) years after the time it is dissolved; not to continue for
the business for which it was established but for the purpose of prosecuting and defending suits
by or against it; settlement and closure of its affairs; disposition, conveyance and distribution of its
properties and assets.

At any time during the said three (3) years, the cooperative is authorized and
empowered to convey all of its properties to trustees for the benefit of its members, creditors and
other persons in interest. From and after such conveyance, all interest which the cooperative had
in the properties are terminated.

Upon the winding up of the cooperative affairs, any asset distributable to any creditor,
shareholder or member who is unknown or cannot be found shall be given to the federation or
union to which the cooperative is affiliated with.

A cooperative shall only distribute its assets or properties upon lawful dissolution and
after payment of all its debts and liabilities, except in the case of decrease of share capital of the
cooperative and as allowed by the Code.

Liquidation, as to its nature, refers to the various activities undertaken by a dissolved

cooperative through its duly constituted Board of Liquidators. Where the manner of dissolution is
voluntary, the members of the cooperative entitled to vote shall elect from among themselves the
Board of Liquidator, or may choose to convey all cooperative assets to Trustee or Trustees who
will take charge of the winding up activities. In the case of involuntary dissolution, the winding up
of activities shall be carried out by a Liquidator to be appointed by the Authority or the Competent
Court.

Note: The Board of Liquidators shall not be less than three (3) but not
more than five (5), who must have the time and willingness to undertake the activities
concerned; must not have any conflicting interest with the cooperative aside from his
membership; who possess the technical competence to undertake the winding up
activities; not found guilty of any crime involving moral turpitude, gross negligence, or
gross misconduct in the performance of his duties, nor found culpable in any
administrative case involving such offenses; must not be facing charges as defendant in
 any civil, criminal or administrative proceedings involving financial or property
accountability, or both; and must not have been a party to any past cooperative anomaly.
Their compensation shall be fixed and borne by the cooperative. But for those
appointed by the CDA, compensation shall be fixed by the Authority but paid from the
funds of the cooperative.
They should, likewise, be covered by adequate bonds posted from the cooperative’s
funds.

Note: Payment of Obligations. Payments to creditors, members and other parties, and
releases of funds for expenses shall be made only through checks addressed to specific persons and
supported by proper documents.

22.2.1 Prohibition during Liquidation

During the winding up period, the cooperative can no longer continue doing its
business other than those necessary to carry out the winding up of its activities. These
transactions can be generally classified as those involving the conversion of assets to cash,
payment of liabilities, disposition of reserve funds, and return to the members of any remaining
assets.

22.2.2 Effects of Liquidation

The winding up of the affairs of a cooperative results in the following:

a. All debts are realized and assets are converted into cash;
b. Debts are settled in accordance with the provisions of the New Civil Code in the
Preference and Concurrence of Credits or with the following claim of priorities:
i. Government taxes, duties and fees due;
ii. Third Party Creditors;
iii. Employees Compensation;
iv. Deposit Liabilities;
v. Preferred Shares; and
vi. Common Shares;
c. Reserves are disposed of in accordance with the existing laws, rules and regulations,
and the by-laws of the cooperative; and
d. Remaining assets are returned to the members in proportion to their investment.

22.3 Cancellation of Certificate of Registration and its Effect

Upon the expiration of the winding up period of three (3) years and the submission of
the Board of Liquidators/Trustees of the Liquidation’s Final Report, the Cooperative Development
Authority shall order the cancellation of the Certificate of Registration.

The cancellation of the Certificate of Registration of a cooperative will result in the

delisting of the name of the cooperative in the Cooperative Registry and cessation of the existence
of the cooperative as a cooperative body for all intents and purposes. Thus, claims for or against
the cooperative will no longer be enforceable.

Note: Delisting. It shall refer to the act of striking out or deleting the registered
cooperative name from the Registry of Existing Cooperatives after its Certificate of Registration
has been ordered cancelled.
22.4 Determination and Order of Distribution of Net Surplus (Art. 85)

It is provided in the Code that 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 each fiscal year and at such other times as may be
prescribed by the bylaws. Accordingly, the net surplus shall not to 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 by the Code,

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.
However, 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.
 Reserve fund is used for the stability of the cooperative and meet net losses in its
operation.
 Reserve fund shall not be utilized for investment, other than those allowed in the
Code.
 Upon dissolution, the reserve fund shall not be distributed among the members.

2. An amount for the education and training fund, which shall not be more than ten per
Centum (10%) of the net surplus. Fund shall provide for the training, development and
similar other cooperative activities geared towards growth of the cooperative movement.
 Half of the amount transferred to this fund annually shall be spent by the
cooperative for education and training purposes, the other half may be remitted to
a federation or Union chosen by the cooperative or of which it is a member.
 Upon dissolution of the cooperative, the unexpended balance of the fund shall be
credited to the 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. It 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 on 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.

Unit Summary
________________________________________________________________________________________________________

 Dissolution of a cooperative pertains to the termination of its juridical personality

occasioned by the appropriate judicial proceeding or by an order of the Authority when it is
involuntary in character; or through its own initiative when voluntary in nature.

 The Code prescribes procedural guidelines in the dissolution of a cooperative which must
be strictly adhered to base upon valid grounds cited in the Code. The dissolve cooperative
shall continue to exist for three (3) years from the issuance of Order of Dissolution but only
for the purpose of liquidation.
 Liquidation usually follows the dissolution of a cooperative. This refers to the various
activities undertaken by the dissolved cooperative which must be performed by a Board of
Liquidator, the composition of which shall not be less than three (3) but not more than five
(5), who are elected by the members of the cooperative from among themselves if
dissolution is voluntary, otherwise appointed by the Authority or the Competent Court, if
involuntary dissolution. Upon the election or appointment of Liquidator/s the power of the
BOD and other committees as stated in the by-laws of the cooperative shall terminate.

 While the liquidation process is being done, the cooperative can no longer continue doing
its business other than those necessary to carry out the winding up of its activities.
Generally, these transactions are classified as conversion of assets to cash, payment of
liabilities, disposition of reserve funds, and return to the members of any remaining assets.

 At the conclusion of its winding up period of three (3) years and the submission of the
Liquidation Final Report by the Liquidators to the CDA, it shall subsequently order the
cancellation of the Certificate of Registration, the effect of which will result in the delisting
of the name of the cooperative in the Cooperative Registry and cessation of its existence as
a cooperative body for all intents and purposes. Thus, claims for or against the cooperative
will no longer be enforceable.

 In the course of its being a going concern, it can result to having a net surplus but is not to
be construed as profit but as an excess of payments made by members based on legitimate
transactions made with the cooperative, the determination of which shall be in accordance
with its bylaws, notwithstanding the provisions of existing laws.

 The net surplus of the cooperative shall be distributed according to the precepts of the
Code, which include provisions for a Reserve Fund (at least 10% of NS); an Education and
Training Fund (not more than 10% of the NS); amount for Community Development Fund
(not less than 3% of the NS); an Optional Fund (not to exceed 7%); and the remaining
surplus made available to the members in the form of interest on share capital (not to
exceed normal rate of ROI and Patronage refunds).