PECBE 003 – COOPERATIVE MANAGEMENT

MODULE 1 – GENERAL CONCEPTS AND PRINCIPLES OF COOPERATIVES

Introduction

Groups of individuals around the world and throughout time have worked together in pursuit of
common goals. Cooperative can be traced back to our prehistoric predecessors, who recognized the
advantages of hunting, gathering, and living in groups rather than on their own. Today, the
cooperative has helped foster the economic development of an individual. For this module, we shall
discuss a cooperative's general concepts and principles.

Intended Learning Outcomes

At the end of the modules, you are expected to:

1. discuss the general concept of the cooperative;

2. synthesize the cooperative values of a successful cooperative member;
3. analyze the general concepts and principles of the cooperative; and
4. identify the types of cooperatives.

Topics

1. Definition of Cooperative
2. Cooperative Principles
3. Cooperative Values
4. Cooperative Advantages
5. Cooperative Enterprise vs. Other Forms of Business Enterprises

Cooperative Defined

In accordance with Republic Act 9520 – Philippine Cooperative Code of 2008, cooperative is defined
as follows:

A cooperative is an autonomous and duly registered association of persons with a common bond of
interest who have voluntarily joined together to achieve their social, economic, and cultural needs and
aspirations by making equitable contributions to the capital required, patronizing their products and
services, and accepting a fair share of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles. (Article 3, Chapter 1, RA 9520)

In the definition, the following points highlight the unique characteristics required of an enterprise
to be classified as a cooperative enterprise. These characteristics are manifested in the Filipino
culture, good values and experiences, and the universally accepted principles of the cooperative.
These are reflected as coopera tive principles.

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Cooperative Principles (Art. 4, Chapter 1, RA 9520)

1. Voluntary and Open Membership – Cooperatives are voluntary organizations, open to all
persons 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 controlled by their

members who actively participate in setting their policies and making decisions. Men and
women serving as elected representatives, directors, or officers are accountable to the
membership. In primary cooperatives, members have equal voting rights of one member, one
vote. Cooperatives at other levels are organized in the same democratic manner.

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

the capital of their cooperatives. At least part of that capital is the common property of the
cooperative. They shall receive limited compensation or limited interest, if any, on capital
subscribed and paid as a condition of membership. 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; benefitting 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. Suppose they enter into agreements with other organizations, including the
government, or raise capital from external sources. In that case, 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 – Cooperatives serve their members most effectively and
strengthen the cooperative movement by working together through local, national, regional, and
international structures.

7. Concern for Community – Cooperatives work for the sustainable development of their
communities through policies approved by their members.

Cooperative Values

Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity,
and solidarity. In the tradition of their founders, cooperative members believe in the ethical values
of honesty, openness, social responsibility, and caring for others.

1. SELF HELP This value encourages the cooperative to satisfy its own collective needs and
obligations through
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2. SELF RESPONSIBILITY The person is obligated and encouraged by this value to be responsible
for her/his well-being and to take responsibility for any consequences that flow from whatever
they do in pursuit of personal need satisfaction.

3. DEMOCRACY is a philosophy of governance in which the people are collectively the repository of
authority. The exercise of that authority is democratically legitimate only if the people who will
be affected by that exercise are consulted openly and freely.

4. EQUALITY as a value flows from the traditional wisdom that each person possesses an intrinsic
value, irrespective of talent, skill, or appearance. Thus, humans are of no greater or lesser value
than anyone else. Each person is intrinsically valuable, without the attachment of inferiority or
superiority.

5. EQUITY as an end refers to fairness in the relationships between and among individuals and
how authority is exercised over persons. Equity as a MEANS refers to the ownership of assets
with which persons can protect themselves against exploitation by others.

6. SOLIDARITY as a value refers to the respect and dignity with which the individual people in a
community relate to one another. It is a relationship that grows out of each person seeing the
other as valuable as the self.

7. HONESTY is an important prerequisite to continuing good relations among persons and

cooperatives. Honesty is the sine qua non for the individual and the cooperation of individuals
experiencing and benefiting from the truth.

8. OPENNESS This value refers to the structured and reasonable availability to the membership of
information and knowledge relevant to the successful life of the organization. The need to
maintain transparency and strengthen information dissemination is under this particular value.

9. SOCIAL RESPONSIBILITY refers to the cooperative’s acceptance of the responsibility to work

towards the betterment of society and the amelioration of oppressive societal conditions.

10.CARING FOR OTHERS This value refers to the obligation that each cooperator, each cooperative,
and the cooperative movement as a whole must act in such a way as not to cause harm or
difficulty

Cooperative Advantages

Reflecting on the principles and values of a cooperative, it denotes that a cooperative can impact
lives, revitalize communities and transform local economics. These advantages can be summarized
as follows:

1. Economies of scale
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Cooperatives
posting onlinecan be oran
in any form effective
by any means withoutsystem for developing
the written permission of the University isthe
strictlyskills
prohibited.and resources of relatively
unskilled or disadvantaged people. The members can learn how to pool their resources and help

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one another set up a commonly-owned business to address needs they otherwise could not
meet as individuals because it would be too difficult or expensive. Cooperatives can also
promote personal development and create wealth while sharing and strengthening diverse
skills.

2. Contributing to poverty reduction

Cooperatives can be effective in reducing poverty because:

• they provide common services which would have been costly if carried out by individual
members,
• if they operate efficiently, they provide goods and services at competitive prices, thus saving
the member some money,
• some cooperatives provide credit to members, which enables them to improve productivity
and increase their incomes, and
• the returns accruing from the cooperative business revert to members either in cash or in
kind

3. Employment creation

Cooperatives help create employment by employing millions of people around the world.
Producers, Consumers, or Worker cooperatives have demonstrated capacity for creating jobs in
their respective economies. Consider, for example, the number of jobs created and saved by
credit unions with over 50% of their portfolio in productive sector loans; and jobs retained
along the value chain by buoyant fisher and fruit processing cooperatives. This demonstrated
capacity for employment creation is crucial for poverty reduction strategies and, therefore, the
social safety net. In addition to creating employment for their members and members’ workers,
cooperatives also employ people directly as managers, accountants, technicians, administrators,
lawyers, auditors, and business consultants.

4. Gender equality

Cooperatives provide a voice and a vehicle for economic opportunities for women otherwise
disenfranchised and provided few opportunities to break the cycle of poverty. Cooperatives are
sometimes the only avenue for women to gain education and training to create employment
opportunities and raise the standard of living for themselves and their families.

5. Youth empowerment

Cooperatives provide essential life skills by teaching young people about money management,
the importance of savings, and the power of compound interest. They also learn about
important values and principles, including democracy, inclusion, honesty, and fairness.
Cooperatives help shape and prepare global leaders of tomorrow.
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6. Business development
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Cooperatives provide opportunities for ordinary people to engage in business activities – people
who, as individuals, would never have been able to do so due to real economic costs.
Participation in the cooperative pool enables them to reap economic benefits and to acquire
new knowledge and skills in marketing, production, understanding financial statements,
organization, and leadership, which they can apply in their private and other business lives.

Cooperative Enterprise vs. Other Forms of Business Enterprises

In determining whether the cooperative is the right structure, it is important to understand the
advantages and disadvantages of the various forms of business structures. It is recommended that a
review of the local business and taxation laws and regulations be done when comparing
cooperatives with other forms of business structures.

This module will highlight the advantages and disadvantages of the following three forms of
business structures with cooperatives:

• Sole proprietor (single owner);

• Partnership (several single owners joining together); and
• Corporation (either a private company owned by a group of people, such as a family, or a public
corporation where public members can buy shares and become part-owners).

1. Sole proprietorship

In this type of business organization, a person is the sole owner and fully responsible for all
debts and obligations related to that person’s business. All profits are the owners’ to keep.
Because the owner is personally liable, a creditor can make a claim against the owner’s personal
and business assets to satisfy any debts.

Advantages Disadvantages
 Easy and inexpensive to register;  Unlimited liability (if the owner has
• The regulatory burden is generally business debts, claims can be made
light; against their personal assets to pay
• The owner has direct control of them off);
decision-making; • Income is taxable at the owner’s
• Minimal working capital required for personal rate, and if the business is
start-up; profitable, this could put the owner in a
• Subject to local tax laws, there may be higher tax bracket;
tax advantages if the business is not • Lack of continuity for the business if the
doing well (for example, deducting owner is unavailable;
losses from the owner’s personal  • Can be difficult to raise capital as an
income and a lower tax bracket when individual owner.
profits are low);
 • All profits go to the owner directly.
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2. Partnership

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A partnership is a non-incorporated business between two or more people. In a partnership, the

financial resources of the business partners are combined and put into the business. The partners
would then share in the profits of the business according to any legal agreement drawn up.

In a general partnership, each partner is jointly liable for the partnership's debts. In a limited
partnership, a person can contribute to the business without being involved in its operations. A
limited liability partnership is usually only available to a group of professionals, such as lawyers,
accountants, or doctors.

When establishing a partnership, a partnership agreement should be put in place. This is important
because it establishes the terms of the partnership and can help avoid disputes later on. Hiring a
lawyer or other legal professional to help draw up a partnership agreement will save time and
protect each partner’s interests.

Advantages Disadvantages
 Fairly easy and inexpensive to form a  There is no legal difference between the
partnership; owner and their business;
• Start-up costs are shared equally • Unlimited liability (if the owner has
between partners; business debts, personal assets can be
• Equal share in the management, profits, used to pay off the debt);
and assets; • It cannot be easy to find a suitable
 Tax advantage — if income from the partner(s);
partnership is low or loses money (the • Possible development of conflict
partners include their partnership between partners;
shares in their individual tax returns).  • Each partner is held financially
responsible for business decisions
made by the other partner(s), such as
broken contracts.

3. Corporation

Another type of business structure is a corporation. Incorporation can be done at the national or
territorial level. When a business is incorporated, it is considered a legal entity separate from its
shareholders. As a corporation shareholder, the owner will not be personally liable for the
corporation's debts, obligations, or acts. It is always wise to seek legal advice before incorporating.

Advantages Disadvantages
 Limited liability;  A corporation is closely regulated;
 Ownership is transferable;  More expensive to set up a corporation
 Continuous existence; than other business forms;
 Separate legal entity;  Extensive corporate records required,
 Easier to raise capital than it might be including documentation, filed annually
with other business structures; with the government;
 Possible tax advantage as taxes may be  Possible
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Any form of reproduction, between
distribution,
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shareholders
uploading, or

lower for an incorporated business. and directors;

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 Proof of residency or citizenship of

directors may be required.

In reviewing the different forms of business enterprise, we can compare their business structures in
the following areas of concern:

AREA OF SOLE PARTNERSHIP CORPORATION COOPERATIVE

CONCERN PROPRIETORSHIP
Number of Only one person At least two or At least five At least 15
persons more persons natural persons
required for the (natural and
formation juridical
persons can be
stockholders at
the same time)
Grant of No separate A mere Must be Cooperative
Juridical juridical agreement of registered with Development
Personality personality from partners can be SEC Authority
the owner, but the a partnership. (CDA)
business name However, it is
should be better if
registered with register under
the Department of the Securities
Trade and and Exchange
Industry (DTI) Commission
(SEC)
Registration Application Form Contract of Articles of Articles of
Requirements Partnership Incorporation, Cooperation,
for By-Laws, and By-Laws, and
Documentation Bank Statement Economic
Survey
Capitalization Only the owner Partners Stockholders Member
contributions contributes contribute cash pay for the contribution
capital or services amount of
share he wants
to buy
Management Only one person Partners make The Board of General
Structure decides a collective Directors Assembly
decision makes the final makes the final
decision decision
Voting Rights No voting rights Vote Vote One member
The module is foras it useconcerns
the exclusive proportional
of the University of toof reproduction,
La Salette, Inc. Any form proportional to one
distribution, uploading, or vote; no
posting online in any form or by any means without the written permission of the University is strictly prohibited.
only one person interest interest; proxy proxy voting
voting allowed

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Liability Unlimited to Unlimited as to Limited until Limited to

owner partner except authorized subscribed
for limited capital share capital
partnership
Taxability Income tax of Partners pay Profit is Profit is not
owner tax on shares as taxable; taxable, but
partners stockholders members pay
pay tax on tax on
dividends dividends
received received
Effect of Death End of business Partnership The Cooperative
of Owner, operations unless automatically corporation continues; heirs
Partner, heirs can take dissolves continues; heirs inherit shares if
Stockholder, or over the business inherit shares qualified as a
Member member

Summary

In this module, we have scrutinized the distinct characteristics of a cooperative as embodied in its
definition. The definition of a cooperative also exemplified the principles and values generally
accepted in the Philippines and as prescribed by the International Cooperative Alliance. To better
appreciate cooperative as a business enterprise, we have compared its structure with sole
proprietorship, partnership, and corporation. For Module 2, we shall cover the history of the
cooperative movement in the world in general and the Philippines in particular.

References

Cooperative Development Authority. Republic Act No. 9520 is also knowns as the Cooperative Code
of 2008. Available at https://cda.gov.ph/issuances/republic-act-9520/

International Cooperative Alliance. Cooperative Identity, Principles, and Values. Available at

https://www.ica.coop/en/cooperatives/cooperative-identity

US Small Business Organization. Choose a Business Structure. Available at

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

The module is for the exclusive use of the University of La Salette, Inc. Any form of reproduction, distribution, uploading, or
posting online in any form or by any means without the written permission of the University is strictly prohibited.