Philippine Cooperative Code Membership, General Assembly, and Board of Directors PDF

# **Membership in a Cooperative** - There are 2 types of members in a cooperative: - **Regular member:** Has complied with all membership requirements and is entitled to all rights and privileges of membership. - **Associate member:** Has no voting rights. - An individual must meet the fo...

# **Membership in a Cooperative** - There are 2 types of members in a cooperative: - **Regular member:** Has complied with all membership requirements and is entitled to all rights and privileges of membership. - **Associate member:** Has no voting rights. - An individual must meet the following requirements to become a member: - Legal age - Filipino citizen - Capable - Willing to perform the responsibilities of a member - Associate members must qualify for regular membership within 2 years. - Members of a cooperative are liable for its debts to the extent of their contribution to the share capital. - **Membership** can be terminated by: - **Withdrawal** of the member - **Death** or **insanity** of member in primary cooperatives - **Insolvency** and **dissolution** of a member in secondary and tertiary representatives - **Termination** by a majority vote of the board of directors for any of the following causes: - Member has not patronized any of the services of the cooperative for an unreasonable period of time - Member has continuously failed to comply with their obligations - Member has acted in violation of the bylaws and the rules of the cooperative - Member has committed an act or omission injurious or prejudicial to the interest or welfare of the cooperative # **General Assembly** - The general assembly is the highest policy-making body of the cooperative. - It is composed of members who are entitled to vote under the articles of cooperation and bylaws of the cooperative. - The general assembly has the power to: - Determine and approve amendments to the articles of cooperation and bylaws - Elect or appoint members of the board of directors and remove them for cause - Approve developmental plans - Regular meetings are held annually. - Special meetings can be called by a majority vote of the board of directors. # **Board of Directors** - The direction and management of the cooperative's affairs is vested in a board of directors. - **Composition:** 5 to 15 members elected by the general assembly for a term of 2 years. - **Disqualifications:** - Hold any other position directly involved in the day-to-day operation and management of the cooperative. - Engage in a business similar to that of the cooperative or have a conflict of interest with it. - **Meetings:** - Held at least once a month. - Special meetings may be called by the chairperson or a majority of the members of the board. - A majority of the members of the board constitute a quorum. - Directors cannot attend or vote by proxy. - **Vacancies:** - Filled by vote of at least a majority of the remaining directors. - General assembly must fill in regular or special meeting if there is no quorum or vacancy is due to expiration of term. # **Committees of the Cooperative** - The bylaws may create committees. - Examples of committees: executive committee, audit committee, election committee, mediation and conciliation committee, ethics committee, etc - **Executive committee:** - Appointed by the board of directors. - Powers and duties are delegated in the bylaws. - **Audit Committee:** - Elected by the general assembly. - Directly accountable and responsible to the general assembly. - Monitors the management control system and audits the performance of the organization and its responsibility centers. - **Other Committees:** - Elected by the general assembly or appointed by the board of directors. # **Liability for Damages and Secret Profits** - Directors, officers, and committee members 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 personal or pecuniary interest in conflict with their duties are liable jointly and severally for any damages or profits resulting therefrom to the cooperative, members, and any other persons. - Directors, officers, and committee members who attempt to acquire or acquire, in violation of their duty, any interest or equity adverse to the cooperative in respect to any matter that has been reposed in them in confidence, are liable as trustees for the cooperative and are accountable for double the profits which otherwise would have accrued to the cooperative. ## **Compensation** - In the absence of provisions fixing compensation in the bylaws, directors shall not receive compensation, except for reasonable per diems. - They shall not be entitled to per diems if the cooperative reported a net loss or had a dividend rate less than the official inflation rate for the same year. - Compensation must be fixed in the bylaws for officers of the cooperative and for the members of its committees that were created pursuant to the Philippine Cooperative Code or the bylaws. - Unless already fixed in the bylaws, compensation of other employees is determined by the board of directors. ## **Self-dealing Directors, Officers, or Committee Members** - A contract entered into by the cooperative with one or more of its directors, officers, and committee members is voidable at the option of the cooperative unless the following conditions are present: - The presence of such director in the board meeting wherein the contract was approved was not necessary to constitute quorum. - The vote of such director was not necessary for the approval of the contract. - The contract is fair and reasonable under the circumstances. - The contract was previously authorized by the general assembly or by the board of directors in the case of an officer or committee member. - If the first two conditions are absent in the case of a contract with a director, the contract may be ratified by a three-fourths vote of all members with voting rights present and constituting a quorum. - Full disclosure of the adverse interest of the directors involved is made. - The contract is fair and reasonable under the circumstances. ## **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. - The director must account for double the profits that otherwise would have accrued to the cooperative by refunding the same, even if he used his own funds in the venture unless his act has been ratified by a three-fourths vote of all the members with voting rights present and constituting a quorum. ## **Illegal Use of Confidential Information** - A director or officer, or an associate of a director or officer, who, for his benefit or advantage of the cooperative, makes use of confidential information that is not generally known, might reasonably be expected to adversely affect the operation and viability of the cooperative and shall compensate the cooperative for the direct losses it suffered as a result of the illegal use of information and shall account to the cooperative any direct benefit or advantage received or yet to be received by him or his associate, as a result of the transaction. ## **Removal of Officers** - Complaints about the removal of an elected officer shall be filed with the board of directors. - The officer shall be given an opportunity to be heard. - The board of directors may place the officer under preventive suspension pending the resolution of the investigation. - Upon finding of a prima facie evidence of guilt, the board of directors shall present a recommendation for removal to the general assembly. - The officer may be removed by three-fourths vote of the regular members present and constituting a quorum. ## **Tax Treatment of Cooperatives** - Cooperatives which do not transact any business with non-members of the general public are not subject to any taxes and fees imposed under the internal revenue laws and other tax laws. - Business transactions of members with the cooperative are not subject to any taxes and fees. Cooperatives transacting business with both members and non-members are subject only to tax on their transactions with non-members, but the cooperatives continue to enjoy certain tax exemptions. ## **Insolvency** - A cooperative, which is unable to fulfill its obligations to creditors due to insolvency, may apply for such remedies under Act No. 1956. ## **Dissolution** - The dissolution of a cooperative may be done in different ways. - If there are no creditors affected, voluntary dissolution may be done by a majority vote of the board of directors and by a resolution duly adopted by the affirmative vote of at least three-fourths of all the members with voting rights, present and constituting a quorum at a meeting to be held upon call of the directors. - If there are creditors affected, the voluntary dissolution may be done through a petition signed by a majority of its board of directors or other officers managing its affairs, verified by its chairperson or board secretary or one of its directors. The petition shall state all claims and demands against it and that its dissolution was resolved upon by the affirmative vote of at least three-fourths of all the members with voting rights, present and constituting a quorum at a meeting called for that purpose. - Involuntary dissolution, on the other hand, is done by order of a competent court after a due hearing on the grounds of violation of any law, regulation, or provisions of its bylaws, or insolvency. Dissolution may also be done by order of the Cooperative Development Authority (CDA). The CDA may suspend or revoke, after due notice and hearing, the certificate of registration of a cooperative on any of the following grounds: - Having obtained its registration by fraud. - Existing for an illegal purpose. - Willful violation, despite notice by the CDA, of the provisions of the Philippine Cooperative Code, or its bylaws. - Willful failure to operate on a cooperative basis. - Failure to meet the required minimum number of members in the cooperative. - A cooperative may be dissolved for its failure to organize and operate within two years after the issuance of its certificate of registration or has not carried on its business for two consecutive years, without justifiable cause. ## **Liquidation of a Cooperative** - Every cooperative whose term has expired or was voluntary dissolved or was dissolved through an appropriate judicial proceeding shall continue to exist for three years after the time it is dissolved for the purpose of prosecuting and defending suits by or against it, settlement and closure of its affairs, and disposition, conveyance, and distribution of its properties and assets. ## **Source of Capital** - Cooperatives may derive their capital from member’s share capital, loans, deposits, revolving capital, and subsidies, donations, and borrowings, including deposits or interest in any local or foreign institution, legacies, grants (aid, and such other assistance from any local or foreign institution). - A member cannot transfer his shares or interest in the cooperative or any part thereof unless he has held such share capital contribution or interest for not less than one year and the assignment is made to the cooperative or to a member of the cooperative, upon approval by the board of directors of such assignment. - The bylaws of every cooperative shall provide a reasonable and realistic member capital build-up program to allow the continuing growth of the members' investment in their cooperative. - It may also prescribe a fine on unpaid subscribed share capital. ## **Investment of Capital ** - A cooperative may invest its capital in shares or debentures or securities of any other cooperative. - It may also invest its capital in any reputable bank in the locality, or any cooperative, and in securities issued or guaranteed by the government. - It may also invest its capital in real estate primarily for the use of the cooperative or its members, or in any other manner authorized in the bylaws. ## **Practice Exercise** - As a juridical entity, a cooperative is similar to a corporation, except that while corporations are registered with and supervised by the SEC, cooperatives are registered with and supervised by the CDA. - Why would you prefer to organize a cooperative instead of a corporation? ## **Relevance of the Lesson** - People organize cooperatives to help improve their quality of life by providing products and services to help members increase their income, savings, investments, productivity, and purchasing power, and assist them in reaping the most favorable social and economic benefits through sound and honest cooperative practices.