INTRODUCTION TO LAW ON COOPERATIVES

INTRODUCTION
A cooperative can be defined in various ways; but we can derive it from the
word cooperation. The term cooperation is derived from the Latin word cooperari,
where the word co means “with” and operari means, “to work”. Thus, cooperation
means working together. Therefore, those who want to work together with some Page | 1
common goals of building a business or organization can be called as
“cooperatives”. It works on the principle of self-help as well as mutual help.

According to Cooperative Development Authority (CDA), a cooperative is a

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

PRINCIPLES
✓ Open and voluntary membership. Membership in a cooperative is voluntary and
available to all individuals regardless of their social, political, racial or religious
background or beliefs.
✓ Democratic control. Cooperatives are democratic organizations. Persons elected or
appointed in a manner agreed upon by the members administer their affairs. Members of
primary cooperatives have equal voting rights on a one-member-one-vote principle.
✓ Limited interest in capital. Share capital shall receive a strictly limited rate of interest.
✓ Division of net surplus. Net surplus arising out of the operations of a cooperative belongs
to its members and shall be equitably distributed for cooperative development common
services, indivisible reserve fund, and for limited interest on capital and/or patronage
refund in the manner provided by law.
✓ Cooperative education. All cooperatives shall make provision for the education of their
members, officers and employees and of the general public based on the principles of
cooperation.
✓ Cooperation among cooperatives. All cooperatives, in order to best serve the interest of
their members and communities, shall actively cooperate with other cooperatives at local,
national, and international levels.

GOVERNING LAWS
Republic Act 9520, also known as the “Philippine Cooperative Code of 2008”, defines a
cooperative 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.”
INTRODUCTION TO LAW ON COOPERATIVES

The Cooperative Development Authority (CDA) is a government agency which registers

all types of cooperatives in the Philippines. In order to qualify, you must have at-least 15 members
in your proposed cooperative. The proposed business name, which should include the word
“cooperative”, must be submitted to the CDA office, and all other necessary requirements such as
the economic survey, articles of cooperation and its by-laws and the names of the cooperative’s
directors. Page | 2

In response to the Constitutional mandate, Congress of the Philippines (legislature) passed

the Cooperative Code (Republic Act 6938) and Cooperative Development Authority (CDA)
Charter (RA 6939) on March 10, 1990. The Cooperative Code provides for the general concepts
and principles; organization and registration; membership; administration; dissolution; capital;
recovery and funds; audit, inquiry and members right to examine; allocation and distribution of
net surplus; and special provisions relating to agrarian reform cooperatives, public cooperatives,
cooperative banks, credit cooperative and cooperative insurance societies, among others.

The RA 6939 created the CDA, the agency that promotes the viability and growth of
cooperatives as instruments of equity, social justice and economic development. The law provides
its powers, functions, and responsibilities; the governing body; budget and funds; and rule-making
power, among others.

In 2008, RA 6938 was amended by RA 9520, with the inclusion of provision on

representative assembly, subsidiary cooperative, financial service cooperative, to cite a few
amendments, while keeping the provisions of RA 6938 basically intact.

The policy of the state, as far as cooperative is concerned, is well-amplified in the

Cooperative Code which states, “ to foster the creation and growth of cooperatives as practical
vehicle for promoting self-reliance and harnessing people power towards the attainment of
economic development and social justice. The State shall encourage the private sector to
undertake the actual formation and organization of cooperatives and shall create an atmosphere
that is conducive to the growth and development of these cooperatives.”

To operationalize the policy, the government including all its branches, subdivisions,
instrumentalities, and agencies are all called to “ensure the provision of technical guidance,
financial assistance and other services to enable said cooperatives to develop into viable movement
that is free from any conditions that may infringe upon the autonomy or organizational integrity
of cooperatives.”

Purposes of Cooperatives. A cooperative may be organized and registered for any or all of the
following purposes:
 "(1) To encourage thrift and savings mobilization among the members;
 "(2) To generate funds and extend credit to the members for productive and provident
purposes;
 "(3) To encourage among members systematic production and marketing;
 "(4) To provide goods and services and other requirements to the members;
 "(5) To develop expertise and skills among its members;
 "(6) To acquire lands and provide housing benefits for the members;
INTRODUCTION TO LAW ON COOPERATIVES

 "(7) To insure against losses of the members;

 "(8) To promote and advance the economic, social and educational status of the members;
 "(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail
complexes, insurance and agricultural/industrial processing enterprises, and public
markets;
 "(10) To coordinate and facilitate the activities of cooperatives; Page | 3
 "(11) To advocate for the cause of the cooperative movements;
 "(12) To ensure the viability of cooperatives through the utilization of new technologies;
 "(13) To encourage and promote self-help or self-employment as an engine for economic
growth and poverty alleviation; and
 "(14) To undertake any and all other activities for the effective and efficient
implementation of the provisions of this Code.

CATEGORIES OF COOPERATIVE
On the other hand, cooperatives are categorized according to membership and territorial
considerations:
In terms of membership –
 Primary – Members are natural persons
 Secondary – Members are primaries
 Tertiary – Members are secondary cooperatives
In terms of territory, cooperatives shall be categorized according to areas of operations
which may or may not coincide with the political subdivisions of the country.

Capital. The minimum paid-up share capital is now PhP15,000 (the minimum under the old law
is only PhP2,000), subject to increase by the CDA upon consultation with the cooperative sector
and the NEDA.
The par value of shares of a primary cooperative shall not exceed PhP1,000.
No member of primary cooperative other than cooperative itself shall own or hold more than 10%
of the share capital of the cooperative.

Membership. New members may only be admitted to the cooperative after undergoing Pre-
Membership Education Seminar. There are two kinds of members:
 Regular members. Entitled to all the rights and privileges of membership, including the
right to vote and be voted upon.
 Associate members. Has no right to vote nor be voted upon and shall be entitled only to
such rights and privileges as the bylaws may provide. However, an associate member shall
be considered a regular member if: (a) he has been a member for 2 continuous years; (b)
he patronizes the cooperative as its member; and (c) he signifies his intention of becoming
a regular member.
A member shall be liable for the debts of the cooperative to the extent of his contribution
to the share capital of the cooperative.

Tax Treatment of Cooperative. Cooperatives which do not transact any business with non-
members or the general public shall not be subject to any taxes and fees imposed under the internal
revenue laws and other tax laws. Cooperatives transacting business with both members and non-
INTRODUCTION TO LAW ON COOPERATIVES

members shall be subject to another set of rules, but transactions with members shall remain to be
non-taxable.

Audit. Audit shall be conducted by an external auditor, who must be a member of good standing
of the Philippine Institute of Certified Public Accountants, accredited by the CDA and the Board
of Accountancy. Page | 4

Penal Provisions. Anyone who uses the word “Cooperative” without being registered with the
CDA is punishable by imprisonment (5 years) and a fine (PhP20,000). Electric cooperatives
registered with the National Electrification Administration (NEA) are exempt and may not register
with the CDA.

Any person who willfully attempt in any manner to evade or defeat tax in violation of the
tax treatment/privileges provided under the Code is punishable by imprisonment (2 years but not
more than 4 years) and a fine (not less than PhP30,000 but not exceeding PhP100,000), without
prejudice to a separate action to collect the taxes.

There are other penalties provided, including violations of the reportorial requirements of
cooperatives.

FUNCTIONS OF COOPERATIVES
Functions of a Federation of Cooperatives. A federation of cooperatives shall undertake the
following functions:
✓ "(a) To carry on any cooperative enterprise authorized under Article 6 that complements
augments, or supplements but does not conflict, complete with, nor supplant the business
or economic activities of its members;
✓ "(b) To carry on, encourage, and assist educational and advisory work relating to its
member cooperatives;
✓ "(c) To render services designed to encourage simplicity, efficiency, and economy in the
conduct of the business of its member cooperatives and to facilitate the implementation of
their bookkeeping, accounting, and other systems and procedures;
✓ "(d) To print, publish, and circulate any newspaper or other publication in the interest of
its member cooperatives and enterprises;
✓ "(e) To coordinate and facilitate the activities of its member cooperatives;
✓ "(f) To enter into joint ventures with national or international cooperatives of other
countries in the manufacture and sale of products and/or services in the Philippines and
abroad; and
✓ "(g) To perform such other functions as may be necessary to attain its objectives.

"A federation of cooperatives may be registered by carrying out the formalities for registration of
a cooperative.

"Registered cooperatives may organize a federation according to the type of business activity
engaged in by the cooperatives.