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  1. 1. Cooperatives in thePhilippines: AnIntroductionPublished by Atty. Fred October 16th,2008 in Cooperatives and Corporate andInvestments. 1 Comment(Please see updated Introduction to the Philippine CooperativeCode of 2008, taking into consideration the enactment of thenew law, Republic Act No. 9520.)A cooperative is a duly registered association of persons with acommon bond of interest, who have voluntarily joined togetherto achieve a lawful common social or economic end, makingequitable to contribution to the capital required and accepting afair share of the risks and benefits of the undertaking inaccordance with universally accepted cooperative principle.The declared purpose of the law governing cooperatives(Republic Act 6938, also known as the Cooperative Code of thePhilippines) is to foster the creation and growth of cooperativesas a practical vehicle for promoting self-reliance and harnessingpeople power towards the attainment of economic developmentand social justice. The law provides important benefits to thecooperative and its empowered members, based on ourexperience in handling client-cooperatives.
  2. 2. The following are the declared principles of cooperativism:Open and voluntary membership. Membership in acooperative is voluntary and available to all individualsregardless of their social, political, racial or religiousbackground or beliefs.Democratic control. Cooperatives are democraticorganizations. Their affairs are administered by persons electedor appointed in a manner agreed upon by the members.Members of primary cooperatives have equal voting rights on aone-member-one-vote principle.Limited interest in capital. Share capital shall receive astrictly limited rate of interest.Division of net surplus. Net surplus arising out of theoperations of a cooperative belongs to its members and shallbe equitably distributed for cooperative development commonservices, indivisible reserve fund, and for limited interest oncapital and/or patronage refund in the manner provided by law.Cooperative education. All cooperatives shall make provisionfor the education of their members, officers and employees andof the general public based on the principles of cooperation.Cooperation among cooperatives. All cooperatives, in orderto best serve the interest of their members and communities,shall actively cooperate with other cooperatives at local,national, and international levels.There are different kinds of cooperatives. In general,these are: (1) Credit cooperative, which promotes thrift andsavings among its members and creates funds in order to grantloans for productivity; (2) Consumer cooperative, the primary
  3. 3. purpose of which is to procure and distribute commodities tomember and non-members; (3) Producers cooperative, whichundertakes joint production whether agricultural or industrial;(4) Service cooperative, which engages in medical, and dentalcare, hospitalization, transportation, insurance, housing, labor,electric light and power, communication and other services;and (5) Multi- purpose cooperative, which combines two ormore of the business activities of these different types ofcooperatives. In terms of membership, cooperatives areclassified as: (a) Primary, wherein the members are naturalpersons of legal age; (2) Secondary, the members of which areprimaries; and (3) Tertiary, the member of which aresecondaries upward to one or more apex organizations.Cooperatives whose members are cooperatives are calledfederations or unions.(Please refer to updates brought about by amendmentsintroduced by Republic Act No. 9520, also known as the“Philippine Cooperative Code of 2008“.)
  4. 4. Introduction to thePhilippineCooperative Code of2008Published by Atty. Fred March 9th, 2009in Cooperatives and Corporate andInvestments. 3 CommentsThe law which governs cooperatives, prior to the recentenactment of Republic Act No. 9520 (“Philippine CooperativeCode of 2008″), is Republic Act No. 6938(“Cooperative Code ofthe Philippines”). Here’s a basic discussion on the new law (amore extensive primer will subsequently be released, initiallymade available to clients).Definition. A cooperative is an autonomous and dulyregistered association of persons, with a common bond of
  5. 5. interest, who have voluntarily joined together to achieve theirsocial, economic, and cultural needs and aspirations by makingequitable contributions to the capital required, patronizing theirproducts and services and accepting a fair share of the risksand benefits of the undertaking in accordance with universallyaccepted cooperative principles. (Italicized words/phrases areinserted under the new law.)Purpose. The declared purpose of the law, among others, is tofoster the creation and growth of cooperatives as a practicalvehicle for promoting self-reliance and harnessing peoplepower towards the attainment of economic development andsocial justice.Principles of Cooperativism. The following are the declaredprinciples of cooperativism:Voluntary and open membership. Membership in a cooperativeis voluntary and available to all individuals regardless of theirsocial, political, racial or religious background or beliefs.Democratic member control. Cooperatives are democraticorganizations that are controlled by their members whoactively participate in setting their policies and makingdecisions. In primary cooperatives, members have equal votingrights of one-member, one-vote. Cooperatives at other levelsare organized in the same democratic manner.Member economic participation. Members contribute equitablyto, and democratically control, the capital of their cooperatives.At least part of that capital is the common property of thecooperative. They shall receive limited compensation or limitedinterest, if any, on capital subscribed and paid as a condition ofmembership.
  6. 6. Autonomy and independence. Cooperatives are autonomous,self-help organizations controlled by their members.Cooperation among cooperatives. Cooperatives serve theirmembers most effectively and strengthen the cooperativemovement by working together through local, national,regional and international structures.Cooperative education. All cooperatives shall make provisionfor the education of their members, officers and employees andof the general public based on the principles of cooperation.Concern for community. Cooperatives work for the sustainabledevelopment of their communities through policies approved bytheir members. This is a new provision.Types of Cooperatives. Cooperatives may fall under any ofthe following types, in addition to others which may bedetermined by the Cooperative Development Authority (CDA):Credit Cooperative. Promotes and undertakes savings andlending services among its members. It generates a commonpool of funds in order to provide financial assistance to itsmembers for productive and provident purposes.Consumers Cooperative. The primary purpose is to procure anddistribute commodities to members and non-members.Producers Cooperative. Undertakes joint production whetheragricultural or industrial. It is formed and operated by itsmembers to undertake the production and processing of rawmaterials or goods produced by its members into finished orprocessed products for sale by the cooperative to its membersand non-members. Any end product or its derivative arisingfrom the raw materials produced by its members, sold in the
  7. 7. name and for the account of the cooperative, shall be deemeda product of the cooperative and its members.Marketing Cooperative. Engages in the supply of productioninputs to members and markets their products.Service Cooperative. Engages in medical and dental care,hospitalization, transportation, insurance, housing, labor,electric light and power, communication, professional and otherservices.Multipurpose Cooperative. Combines two or more of thebusiness activities of these different types of cooperatives.Advocacy Cooperative. A primary cooperative which promotesand advocates cooperativism among its members and thepublic through socially-oriented projects, education andtraining, research and communication, and other similaractivities to reach out to its intended beneficiaries.Agrarian Reform Cooperative. Organized by marginal farmersmajority of which are agrarian reform beneficiaries for thepurpose of developing an appropriate system of land tenure,land development, land consolidation or land management inareas covered by agrarian reform.Cooperative Bank. Organized for the primary purpose ofproviding a wide range of financial services to cooperatives andtheir members.Dairy Cooperative. One whose members are engaged in theproduction of fresh milk which may be processed and/ormarketed as dairy products.Education Cooperative. Organized for the primary purpose ofowning and operating licensed educational institutionsnotwithstanding the provisions of Republic Act No. 9155,
  8. 8. otherwise known as the Governance of Basic Education Act of2001.Electric Cooperative. Organized for the primary purposed ofundertaking power generations, utilizing renewable energysources, including hybrid systems, acquisition and operation ofsubtransmission or distribution to its household members.Financial Service Cooperative. One organized for the primarypurpose of engaging in savings and credit services and otherfinancial services.Fishermen Cooperative. Organized by marginalized fishermenin localities whose products are marketed either as fresh orprocessed products;Health Services Cooperative. Organized for the primarypurpose of providing medical, dental and other health services.Housing Cooperative. Organized to assist or provide access tohousing for the benefit of its regular members who activelyparticipate in the savings program for housing. It is co-ownedand controlled by its members.Insurance Cooperative. Engaged in the business of insuring lifeand poverty of cooperatives and their members.Transport Cooperative. Includes land and sea transportation,limited to small vessels, as defined or classified under thePhilippine maritime laws, organized under the provisions of thisCode;Water Service Cooperative. Organized to own, operate andmanage waters systems for the provision and distribution ofpotable water for its members and their households.Workers Cooperative. Organized by workers, including the self-employed, who are at same time the members and owners of
  9. 9. the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principles. Categories of Cooperative. On the other hand, cooperatives are categorized according to membership and territorial considerations: In terms of membership -1. Primary – Members are natural persons2. Secondary – Members are primaries3. Tertiary – Members are secondary cooperatives In terms of territory, cooperatives shall be categorized according to areas of operations which may or may not coincide with the political subdivisions of the country. Capital. The minimum paid-up share capital is now PhP15,000 (the minimum under the old law is only PhP2,000), subject to increase by the CDA upon consultation with the cooperative sector and the NEDA. The par value of shares of a primary cooperative shall not exceed PhP1,000. No member of primary cooperative other than cooperative itself shall own or hold more than 10% of the share capital of the cooperative.
  10. 10. Membership. New members may only be admitted to thecooperative after undergoing Pre-Membership EducationSeminar. There are two kinds of members:1. Regular members. Entitled to all the rights and privileges ofmembership, including the right to vote and be voted upon.2. Associate members. Has no right to vote nor be voted uponand shall be entitled only to such rights and privileges as thebylaws may provide. However, an associate member shall beconsidered a regular member if: (a) he has been a member for2 continuous years; (b) he patronizes the cooperative as itsmember; and (c) he signifies his intention of becoming aregular member.A member shall be liable for the debts of the cooperative to theextent of his contribution to the share capital of thecooperative.Tax Treatment of Cooperative. Cooperatives which do nottransact any business with non-members or the general publicshall not be subject to any taxes and fees imposed under theinternal revenue laws and other tax laws. Cooperativestransacting business with both members and non-membersshall be subject to another set of rules, but transactions withmembers shall remain to be non-taxable.Audit. Audit shall be conducted by an external auditor, whomust be a member of good standing of the Philippine Instituteof Certified Public Accountants, accredited by the CDA and theBoard of Accountancy.Penal Provisions. Anyone who uses the word “Cooperative”without being registered with the CDA is punishable byimprisonment (5 years) and a fine (PhP20,000). Electric
  11. 11. cooperatives registered with the National ElectrificationAdministration (NEA) are exempt and may not register with theCDA.Any person who willfully attempt in any manner to evade ordefeat tax in violation of the tax treatment/privileges providedunder the Code is punishable by imprisonment (2 years but notmore than 4 years) and a fine (not less than PhP30,000 but notexceeding PhP100,000), without prejudice to a separate actionto collect the taxes.There are other penalties provided, including violations of thereportorial requirements of cooperatives.Here’s the full text of Republic Act No. 9520, the “PhilippineCooperative Code of 2008″.