RFBT-07 Law on Cooperatives PDF

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 48  October 2024 CPA Licensure Examination RFBT-07 REGULATORY FRAMEWORK for BUSINESS TRANSACTIONS...

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 48  October 2024 CPA Licensure Examination RFBT-07 REGULATORY FRAMEWORK for BUSINESS TRANSACTIONS J. DOMINGO  N. SORIANO LAW ON COOPERATIVES DEFINITION AND PRINCIPLES 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. COOPERATIVE PRINCIPLES: ART. 4. 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 are not limited to, the following: (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) Democrative Member Control - Cooperatives are democratic organizations that are 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. 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 - 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. CHARACTERISTICS SIMILAR TO A CORPORATION Liability: A cooperative duly registered shall have limited liability. Separate personality: A cooperative can be likened to a corporation with a personality separate and distinct from its owner- members. Right of Succession: A cooperative likewise has a right of succession in the sense that heirs may inherit share capital subject to the requirement that they are qualified to be members and signify intent to become a member. Term: for a period not exceeding 50 years from the date of registration; may be extended for periods not exceeding 50 years, but no extension can be made earlier than 5 years prior to the original or subsequent expiry date/dates unless there are justifiable reasons. Note, however, that this is no longer a similarity since a corporation now, generally, has perpetual existence under the Revised Corporation Code. ORGANIZATION AND REGISTRATION ARTICLES OF COOPERATION: filed with the Cooperative Development Authority (Authority) which shall be signed by the organizers and acknowledged by them if natural persons, and by the chairpersons or secretaries, if juridical persons, before a notary public. It 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 the directors who shall manage the cooperative; and 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 Economic survey: Every group of individuals or cooperatives intending to form a cooperative shall submit to the CDA a general statement describing among other the structure and purposes of the proposed cooperative; provided, that the structure and actual staffing pattern of the cooperative shall include a bookkeeper; provided further, that they shall not be allowed to operate without the necessary personnel and shall also submit an economic survey, indicating therein: 1. Area of operation; 2. Size of membership; and 3. Other pertinent data in a format provided by the CDA. Page 1 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 Organizing a primary cooperative: would require 15 or more natural persons who are: 1. Filipino citizens; 2. Of legal age; 3. Having a common bond of interest; and 4. Are actually residing or working in the intended area of operation, Provided that a prospective member of a primary cooperative must have complete a Pre-Membership Education Seminar (PMES). Any newly organized primary cooperative may be registered as multi-purpose cooperative only after compliance with the minimum requirements for multi-purpose cooperatives to be set by the CDA. → A single-purpose cooperative may transform into a multi-purpose or may create subsidiaries only after at least 2 years of operations. Under Article VI of CDA MC 2015-07, except for agriculture cooperatives and agrarian reform cooperatives, only those cooperatives with a minimum paid-up capital of P100,000.00 or as required in the feasibility study, whichever is higher, may be allowed to transform into a multi-purpose cooperative. Minimum subscription: 25% of authorized share capital Under CDA MC 2011-05, this requirement shall apply to common share capital only. Should preferred share capital be provided in the by-laws, it shall not exceed 25% of the total authorized share capital of the cooperative. No fractional shares shall be issued for both the common and preferred share capital. Minimum paid-up share capital: 25% of the total subscription but not less than P15,000.00 except for multipurpose cooperatives which should have at least P100,000.00 or as required by the feasibility study whichever is higher. CDA shall periodically assess the required paid-up share capital and may increase it every 5 years when necessary upon consultation with the cooperative sector and NEDA. Registration: A cooperative formed and organized under The Cooperative Code acquires juridical personality from the date the Authority issues a certificate of registration under its official seal. → Approval of applications for registration: All applications for registration shall be finally disposed of by the Authority within a period of sixty (60) days from the filing, otherwise the application is deemed approved, unless the cause of the delay is attributable to the applicant. 60 90 90 - - Appeal in case of denial: in case of a denial of the application for registration, an appeal can be made to the Office of the President within ninety (90) days from receipt of notice of such denial. Failure of the Office of the President to act on the appeal within ninety (90) days from the filing thereof shall mean approval of said application. Rules on Cooperative Name: 1. The word “Cooperative”, “Kooperatiba”, or “Cooperativa” shall be included in the name of the cooperative, which name shall likewise specify the type of cooperative. 2. No cooperative name shall be allowed by the CDA if the proposed name is identical or deceptively or confusingly similar to that of any existing cooperative, contrary to public policy, morals, and existing laws. 3. The use of the words “development” and “integrated” shall be discouraged. 4. The use of “Incorporated”, “Corporation”, “Company”, “Incorporation”, “Partnership”, or other similar connotation and abbreviation shall not be allowed. 5. The use of the “Federation” and “Union” in the name of the proposed primary cooperative is prohibited except if it is part of the registered name of association or institution where the members of the proposed cooperative come from. 6. Name shall not be written in all capital letters except if it is an acronym. Acronym shall be written after the full name of cooperative. Registration of Secondary and Tertiary Cooperatives: The minimum number of members and minimum paid-up share capital for the Secondary Category: Minimum number of members Minimum paid-up capital Federation 10 (now 3 or more) primary P500,000 (now P1,000,000 or the cooperatives amount required in the feasibility study, whichever is higher) Union 15 (now 10 or more) primary Not applicable cooperatives For Tertiary Categories: Minimum number of members Minimum paid-up capital Federation 10 (now 3 or more) secondary P5,000,000 or feasibility study requirement whichever cooperatives is higher Union 15 (now 10 or more) secondary Not applicable cooperatives Registration Fee: to be paid by the proposed federation shall be 1/10 (or 10%) of the 1% of the authorized share capital or the amount prescribed in the CDA schedule of fees, whichever is- higher. Page 2 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 Certificate of registration: A certificate of registration issued by the CDA 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. Amendment of articles of cooperation and by-laws: can only be made by 2/3 vote of all the members with voting rights without prejudice to the right of the dissenting members to exercise their right to withdraw their membership DIVISION Division of cooperatives: Any registered cooperative may, by a resolution approved by a vote of three-fourths (3/4) of all the members with voting rights, present and constituting a quorum, resolve to divide itself into the two (2) or more cooperatives. The procedure for such division shall be prescribed in the regulations of the CDA: Provided, That all the requirements have been complied with by the new cooperatives: Provided, further, That no division of a cooperative in fraud of creditors shall be valid. MERGER AND CONSOLIDATION Merger and Consolidation: 1. Two (2) or more cooperatives may merge into a single cooperative which shall either be one of the constituent cooperatives or the consolidated cooperative. 2. No merger or consolidation shall be valid unless approved by a three-fourths (3/4) vote of all the members with voting rights, present and constituting a quorum of each of the constituent cooperatives at separate general assembly meetings. The dissenting members shall have the right to exercise their right to withdraw their membership. 3. In any case, the merger or consolidation of cooperatives. In any case, the merger or consolidation shall be effective upon the issuance of the certificate of merger or consolidation by the CDA. - - TYPES OF COOPERATIVES With descriptive definitions: 1. 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; 2. Dairy Cooperative is one whose members are engaged in the production of fresh milk which may be processed and/or marketed as dairy products; 3. Fishermen Cooperative is one organized by marginalized fishermen in localities whose products are marketed either as fresh or processed products; 4. Multipurpose Cooperative is one which combines two (2) or more of the business activities of these different types of cooperatives; 5. Workers Cooperative is one organized by workers, including the self-employed, who are at 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 principle. Closely-related definitions Agriculture Cooperative refers to a primary cooperative which or whose members are involved/engaged in raising/culture of plants, animals, fungi, and other living organism for productive and economic purpose and in related activities that lead to the reduction of cost and/or value addition of outputs (Article V(a), CDA MC 2015-07); 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 agrarian reform; Consumers Cooperative is one of the primary purpose of which is to procure and distribute commodities to members and non-members; Marketing Cooperative is one which engages in the supply of production inputs to members and markets their products; 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 and for the account of the cooperative, shall be deemed a product of the cooperative and its members; What they offer? Clients Cooperative Bank A wide range of financial services Cooperatives and their members Credit Cooperative Savings and lending services Its members Financial Service Cooperative Savings, credit and other financial None specified in the definition services 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. Specific service-type cooperatives: 1. Electric Cooperative is one organized for the primary purpose of undertaking power generations, utilizing renewable energy sources, including hybrid systems, acquisition and operation of subtransmission or distribution to its household members; 2. Health Services Cooperative is one organized for the primary purpose of providing medical, dental and other health services; Page 3 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 3. 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; 4. Insurance Cooperative is one engaged in the business of insuring life and property of cooperatives and their members; 5. Transport Cooperative is one which includes land and sea transportation, limited to small vessels, as defined or classified under the Philippine maritime laws, organized under the provisions of this Code; (1) to (5) above are already included in the definition of a service cooperative. 6. 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; 7. Water Service Cooperative is one organized to own, operate and manage waters systems for the provision and distribution of potable water for its members and their households; The list is not exclusive since under Article 23(1)(u) of RA 9520, CDA may determine other types of cooperative. CATEGORIES OF COOPERATIVES: 1. In terms of membership: a. Primary – The members of which are natural persons except electric cooperative, water service cooperative and other cooperatives which the implementing rules and the Authority may allow; b. Secondary – The members of which are primaries; and c. Tertiary – The members of which are secondary cooperatives; and 2. A group of cooperatives can either be a: a. Union – which shall refer to a cooperative the members of which are registered cooperatives and/or federations organized purposely to represent the interest and welfare of all types of cooperatives at the provincial, city, regional and national levels. b. Federation – which refers to a cooperative the members of which are primary or secondary cooperatives doing the same line of business. 3. 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. LABORATORY COOPERATIVE A cooperative organized by minors shall be considered a laboratory cooperative and must be affiliated with a registered cooperative. Purposes (Section 7 of CDA MC 2015-03): 1. To serve as a training ground for its members to prepare them for membership in regular cooperatives; 2. To teach the values of thrift and saving mobilization among its members; 3. To instill cooperative values, principles, financial discipline, business skills, and leadership skills among its members; or 4. To promote and advocate Filipino social and cultural values, financial education, ecological awareness and sustainable development Affiliation (Section 8 of CDA MC 2015-03): 1. A laboratory cooperative shall be affiliated with a duly registered cooperative, to be known as the Guardian Cooperative. 2. A laboratory cooperative primarily composed of students from a particular school may affiliate with the school’s cooperative, if any, or select a cooperative of its choice within its area of operation. 3. If the laboratory cooperative is composed primarily of out-of-school minors, it shall be affiliated with a cooperative of its own choice within or nearest its area of operation. Name (Section 11 of CDA MC 2015-03): It shall include in it name the words “Laboratory Cooperative of (Name of Guardian Cooperative)”. Rules Applicable: 1. A certificate of registration issued to a laboratory cooperative does not bestow upon a laboratory cooperative a juridical personality 2. The dissolution of the Guardian Cooperative shall result in the revocation of the Certificate of Recognition. 3. It is the Guardian Cooperative that shall be liable for any violations committed in the operation of the laboratory cooperative. 4. Any member who reaches the age of majority has option to join the Guardian Cooperative by signifying his/her intention to become a member upon compliance with all the requirements for membership. 5. A Guardian Cooperative may supervise more than one laboratory cooperative. Causes of Termination of Membership (Section 16 of CDA MC 2015-03): 1. Upon reaching the age of majority (18 years of age); and 2. Such other causes as may be provided for in the by-laws of the Guardian Cooperative and in the Manual of Operations for the Laboratory Cooperative MEMBERSHIP Kinds of Membership 1. A regular member is one who has complied with all the membership requirements and entitled to all the rights and privileges of membership. 2. An associate member is one who has no right to vote nor be voted upon and shall be entitled only to such rights and privileges as the by-laws may provide. Requisites to be a regular member: a. Meets the minimum requirements of regular membership b. Continues to patronize the cooperative for two (2) years, and c. signifies his/her intention to remain a member. Page 4 of 14 0915-2303213  [email protected]  ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 Rules on Government Officers and Employees: 1. Any officer or employee of the CDA shall be disqualified to be elected or appointed to any position in a cooperative: Provided, That the disqualification does not extend to a cooperative organized by the officers or employees of the CDA. 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 list representative being an officer of a cooperative he or she represents; and 3. Any government employee or official may, in the discharge of his duties as a member in the cooperative, be allowed by the end 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 operations of the office concerned are not adversely affected. Termination of Membership 1. Withdrawal for a valid reason and giving of a sixty (60) day notice to the board of directors. Subject to the by-laws of the cooperative, the withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative: Provided, That such fund shall not be made if upon such payment the value of the assets of the cooperative would be less than the aggregate amount of its debts and liabilities exclusive of his share capital contribution. 2. 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: Provided, That in case of death or insanity of an agrarian reform beneficiary-member of a cooperative, the next-of-kin may assume the duties and responsibilities of the original member. 3. Membership in the cooperative may be terminated by a vote of the majority of all the members of the board of directors → for any of the following causes: a. When a member has not patronized any of the services of the cooperative for an unreasonable period of time as may be previously determined by the board of directors; b. When a member has continuously failed to comply with his obligations; c. When a member has acted in violation of the by-laws and the rules of the cooperative; and d. For any act or omission injurious or prejudicial to the interest or the welfare of the cooperative. A member whose membership the board of directors may wish to terminate shall be informed of such intended action in Appeal 30 days writing and shall be given an opportunity to be heard before the said board makes its decision. The decision of the board - Decide - 30 days shall be in writing and shall be communicated in person or by registered mail to said member and shall be appealable within Failure to thirty (30) days from receipt thereof to the general assembly whose decision shall be final. - approved decide The general assembly may create an appeal and grievance committee whose members shall serve for a period of one (1) year and shall decide appeals on membership termination. The committee is given thirty (30) days from receipt thereof to decide on the appeal. Failure to decide within the prescribed period, the appeal is deemed approved in favor of the member. Pending a decision by the general assembly, the membership remains in force. Refund of Interest: All sums computed in accordance with the bylaws to be due from a cooperative to a former member shall be paid to the member whose membership has been terminated either by the cooperative or by the approved transferee, as the case may be. GENERAL ASSEMBLY The General Assembly refers to the full membership of the cooperative duly assembled for the purpose of exercising the rights and performing all the obligations pertaining to cooperatives, and is considered the highest policy-making body of the cooperative. Composition: all members who are entitled to vote under the articles of cooperation and by-laws. Delegation of powers of the GA: only for purposes of prompt and intelligent decision-making, the general assembly may by a three-fourths (3/4) vote of all its members with voting rights, present and constituting a quorum, delegate some of its powers - to a smaller body of the cooperative; these powers shall be enumerated under the by-laws of the cooperative. Exclusive powers which cannot be delegated: 1. To determine and approve amendments to the articles of cooperation and bylaws; 2. To elect or appoint the members of the board of directors, and to remove them for cause. However, in the case of the registered electric cooperatives, election of the members of the board shall be held in accordance with its bylaws or election guidelines of such electric cooperative; and 3. To approve developmental plans of the cooperative. Meetings Regular meeting: shall be held annually on a date fixed in the by-laws, or if so not fixed, any date within 90 days after the close of each fiscal year. Special meeting: whenever necessary, a special meeting of the general assembly may be called at any time by a majority vote of the board of directors or as provided for in the by-laws. A notice in writing shall be sent one (1) week prior to the meeting to all members who are entitled to vote. Other ways of calling a special meeting: 1. A special meeting shall be called by the board of directors after compliance with the required notice within 1 month after receipt of a request in writing from at least ten per centum (10%) of the total members who are entitled to vote to transact specific business covered by the call. 2. If the board fails to call a regular or a special meeting within the given period, the Authority, upon petition of ten per centum (10%) of all the members of the cooperative who are entitled to vote, and for good cause shown, shall issue an order to the petitioners directing them to call a meeting of the general assembly by giving proper notice as required by the Code or in the by-laws Page 5 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 3. In the case of a newly approved cooperative, a special general assembly shall be called, as far as practicable, within ninety (90) days from such approval; 4. The Authority may call a special meeting of the cooperative for the purpose of reporting to the members the result of any examination or other investigation of the cooperative affairs; Notice: may be done in writing, by posting or publication or through electronic means. Note, however, that notice of any meeting may be waived, expressly or impliedly, by any member. Quorum: consist of at least 25% of all the members entitled to vote. Except: - 2. Electric cooperatives: 5% of all members entitled to vote, unless the by-laws provides otherwise. 1. Cooperative banks: ½ plus 1 (EXCEPT: to amend the Articles and the By-Laws, which will require ¾ [Art. 99]) Voting system: Each member of a primary cooperative shall have only one vote. In case of members of secondary or tertiary cooperatives, they shall have one basic vote and as many incentive votes as provided for in the bylaws but not to exceed 5 votes. - Delegates: the votes cast by the delegates shall be deemed as votes cast by the members thereof. Voting by proxy may be allowed by the by-laws of a cooperative other than a primary cooperative. BOARD OF DIRECTORS, COOPERATIVE OFFICERS and COMMITTEES BOARD OF DIRECTORS The direction and management of the affairs of the cooperatives shall be vested in a Board of Directors, unless the by-laws provide otherwise. Composition: not less than 5 but not more than 15 elected by the general assembly. Term: 2 years (maximum term allowed as per CDA MC 2012-20) Powers: 1. Strategic planning; 2. Direction-setting; and 3. Policy formulation Directors: Any member of a cooperative who under the bylaws of the cooperative, has the right to vote and who possesses all the qualifications and none of the disqualifications provided in the laws or bylaws shall be eligible for election as director. Special director for technical knowledge: The cooperative may, by resolution of its board of directors, admit as directors, or committee member one appointed by any financing institution from which the cooperative received financial assistance solely to provide technical knowledge not available within its membership. Such director or committee member need not be a member of the cooperative and shall have no powers, rights, nor responsibilities except to provide technical assistance as required by the cooperative. Prohibitions: 1. 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. 2. 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. Meeting of the board and quorum requirement: Regular meetings: In the case of primary cooperatives, regular meetings of the board of directors shall be held at least once a month. Special meetings of the board of directors may be held at any time upon the call of the chairperson or a majority of the members of the board: Provided, That written notices of the meeting specifying the agenda of the special meeting shall be given to all members of the board at least one (1) week before the said meeting. Quorum: A majority of the members of the Board shall constitute a quorum for the conduct of business, unless the bylaws provide otherwise. Prohibition on proxies: Directors cannot attend or vote by proxy at board meetings. Vacancy: Cause of the vacancy Who will fill-up the vacancy Expiration of the term General Assembly, in a general or special meeting called for the purpose Other causes Board of Directors, if they still constitute a quorum Note that for corporations, removals are filled-up only by the stockholders in the same meeting where the director was removed. OFFICERS OF THE COOPERATIVES: Rules Applicable: 1. 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 by-laws. 2. All officers shall serve during good behavior and shall not be removed except for cause after due hearing. Page 6 of 14 0915-2303213  [email protected]  ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 3. Loss of confidence shall not be a valid ground for removal unless evidenced by acts or omission causing loss of confidence in the honesty and integrity of such officer. 4. 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 other manner has interests in conflict with the cooperative shall serve as an appointive officer. COMMITTEES Executive committee: may be created under the by-laws and appointed by the board of directors with such powers and duties as may be delegated to it in the by-laws or by a majority vote of all the members of the board of directors. - Those required to be provided under the by-laws: GA [ 1. 2. Audit Election 3. Mediation and conciliation BOD ( 4. Ethics 5. Such other committees as may be necessary Committees whose members are elected by the GA: 1. Audit 2. Election Committees whose members are appointed by the board of directors: all other committees COMPENSATION OF DIRECTORS: General Rule: directors are not to receive any compensation Exceptions: 1. If there is a provision in the by-laws fixing their compensation; 2. Reasonable per diems, except a. if in the preceding calendar year, the cooperative reported a net loss or b. had a dividend rate less than the official inflation rate for the same year. No additional compensation other than per diems shall be paid during the first year of existence of any cooperative. Under Section 6, resumption of grant of per diem after a period of suspension shall not be compounded. No recovery of per diem during the period of suspension shall be allowed. 3. By a majority vote of the members with voting rights at a regular or special general assembly meeting specifically called = for the purpose Compensation of Officers, Committee Members and employees: The compensation of officers of the cooperative as well as the members of the committee as well as the members of the committees may be fixed in the by-laws. Unless already fixed in the by-laws, the compensation of all other employees shall be determined by the board of directors. DEALINGS OF DIRECTORS, OFFICERS, OR COMMITTEE MEMBERS WITH COOPERATIVES SELF-DEALING DIRECTORS: A contract entered into by the cooperative with one (1) or more of its directors is voidable, at the option of the cooperative, unless all the following conditions are present: 1. That the presence of such director in the board meeting wherein contract was approved was not necessary to constitute a quorum for such meeting; 2. That the vote of such director was not necessary for the approval of the contract; 3. That the contract is fair and reasonable under the circumstances; and Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director, such contract may be ratified by a three-fourths (3/4) vote of all the members with voting rights, present and constituting a quorum in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors involved is made at such meeting, and that the contract is fair and reasonable under the circumstances. Self-Dealing Officers and Committee Members: the same rule above shall apply, except in the case of an officer or committee member, the contract shall be valid if it has been previously authorized by the general assembly or by the board of directors. 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. This provision shall be applicable, notwithstanding the fact that the director used his own funds in the venture. USE OF CONFIDENTIAL INFORMATION: A director or officer, or an associate of a director or officer, who, for his benefit or advantage or that of an associate, makes use of confidential information that, if generally known, might reasonably be expected to adversely affect the operation and viability of the cooperative, shall be held: 1. Liable to compensate the cooperative for the direct losses suffered by the cooperative as a result of the illegal use of information; and 2. Accountable to the cooperative for 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: 1. All complaints for the removal of any elected officer shall be filed with the board of directors. 2. Such officer shall be given the opportunity to be heard. 3. Majority of the board of directors may place the officer concerned under preventive suspension pending the resolution of the investigation. Page 7 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 4. Upon finding of a prima facie evidence of guilt, the board shall present its recommendation for removal to the general assembly. 5. An elected officer may be removed by three fourths (3/4) votes of the regular members present and constituting a quorum, in a regular or special general assembly meeting called for the purpose. 6. The officer concerned shall be given an opportunity to be heard at said assembly. OTHER OFFICERS Accountant: The accountant or the bookkeeper of the cooperative shall be responsible for the maintenance 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. Audit Committee: 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 generally accepted accounting practices. He shall also be responsible for the production of the same at the time of audit or inspection. RECORDS AND REPORTS KEEPING OF RECORDS Each cooperative shall maintain records of accounts such that the true and correct condition and the results of the operation of the cooperative may be ascertained therefrom 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. Subject to the pertinent provisions of the National Internal Revenue Code and other laws, a cooperative may dispose by way of burning or other method of complete destruction any document, record or book pertaining to its financial and nonfinancial operations which are already more than five (5) years old except those relating to transactions which are the subject of civil, criminal and administrative proceedings. An inventory of the audited documents, records and books to be disposed of shall be drawn up and certified to by the board secretary and the chairman of the audit committee and presented to the board of directors which may thereupon approve the disposition of said records. REPORTS 1. Every cooperative shall draw up regular reports of its program of activities, including those in pursuance of their socio-civic undertakings, showing their progress and achievements at the end of every fiscal year. 2. The reports shall be made accessible to its members, and copies thereof shall be furnished to all its members or record. 3. These reports shall be filed with the CDA within one hundred twenty (120) days from the end of the calendar year. 4. Failure to file the required reports shall subject the accountable officer/s to fines and penalties as may be prescribed by the CDA, and shall be a ground for the revocation of authority of the cooperative to operate as such. 5. The fiscal year of every cooperative shall be the calendar year except as may be otherwise provided in the by-laws. 6. If a cooperative fails to make, publish and file the reports required herein, or fails to include therein any matter required, the CDA shall, within fifteen (15) days from the expiration of the prescribed period, send such cooperative a written notice, stating its non-compliance and the commensurate fines and penalties that will be imposed until such time that the cooperative has complied with the requirements. ANNUAL AUDIT: 1. Cooperatives shall be subject to an annual financial, performance and social audit. 2. The financial audit shall be conducted by an external auditor who satisfies all the following qualifications: a. He is independent of the cooperative or any of its subsidiary that he is auditing; and b. He is a member in good standing of the Philippine Institute of Certified Public Accountants (PICPA) and is accredited by both the Board of Accountancy and the CDA. 3. The social audit shall be conducted by an independent social auditor accredited by the CDA. 4. Performance and social audit reports which contain the findings and recommendations of the auditor shall be submitted to the board of directors. 5. The CDA, in consultation with the cooperative sector, shall promulgate the rules and standards for the social audit of cooperatives. Audit Report: 1. The auditor shall submit to the board of directors and to the audit committee the financial audit 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 CDA. 2. Thereafter, the board of directors shall present the complete audit report to the general assembly in its next meeting. No liability for defamation: The auditor is not liable to any person in an action for defamation based on any act, done, or any statement made by him in good faith in connection with any matter he is authorized or required to do pursuant to RA 9520. Limitation on auditor as to familiarity: the external auditor, whether on his/her individual capacity or as partner of a firm, may undertake the external audit of the concerned cooperative for not more than 5 consecutive years, provided that the external auditor may be allowed to audit the same client after a gap of 2 years. CDA MC 2014-02 further clarifies that the 5-consecutive-year limit shall apply to the accredited cooperative external auditor, either as individual CPA or as partnership/auditing firm. For partnership/auditing firm, accreditation is an authority vested to them as an organization per se and that all the partners and associates are part of the organization. MEMBERS’ RIGHT TO EXAMINE: 1. A member shall have the right to examine the records required to be kept by the cooperative during reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records without charge except the cost of production. Page 8 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 2. Any officer of the cooperative who shall refuse to allow any member of the cooperative to examine and copy excerpts from its records shall be liable to such member for damages and shall be guilty of an offense which shall be punishable under RA 9520: Provided, a. That if such refusal is pursuant to a resolution or order of the board of directors, the liability shall be imposed upon the directors who voted for such refusal; and b. That it shall be a defense to any action under this 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. Not included in such right to examine: 1. Subsidiary ledgers and 2. Records of natural or juridical members other than their own personal records. Safety of Records: Every cooperative shall, at its principal office, keep and carefully preserve the records required to be prepared and maintained. It shall take all necessary precaution to prevent its loss, destruction or falsification. TAX EXEMPTION TAX EXEMPTION OF COOPERATIVES 1. Duly registered 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. 2. 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 not limited to final taxes on members’ deposits and documentary tax. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following tax exemptions: a. Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally a certified by the department of trade and industry (DTI). All tax free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and / or duties. b. Cooperatives with accumulated reserves and undivided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate: i. Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members: Provided, further, That cooperatives regardless of classification, are exempt from income tax from the date of registration with the CDA; ii. Value-Added Tax – On transactions with non-members: Provided, however, That cooperatives duly registered with the Authority are exempt from the payment of value-added tax subject to exemptions under Section 109 of the Tax Code. iii. All other taxes; and iv. Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible. c. All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives. CAPITAL, PROPERTY AND FUNDS Sources of Capital 1. Member’s share capital; 2. Loans and borrowings including deposits; 3. Revolving capital which consists of the deferred payment of patronage refunds, or interest on share capital; and 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 subsides, 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. Upon dissolution, such donated capital shall be subject to escheat. Limitation on Share Capital Holdings: 1. No member of primary cooperative other than cooperative itself shall own or hold more than ten per centum (10%) of the share capital (total subscribed share capital as per CDA MC 2011-05) of the cooperative. 2. Where a member of cooperative dies, his heir shall be entitled to the shares of the decedent: Provided, a. the total shareholding of the heir does not exceed ten per centum (10%) of the share capital of the cooperative; b. the heir qualifies and is admitted as members of the cooperative; and c. 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. Assignment of Share Capital Contribution or Interest: 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. Page 9 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 Capital Build-Up: The by-laws 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 economic conditions continue to improve. Continuing Subscription: cooperatives are required 1. To adopt a policy of continuing subscription on share capital upon full payment of the initial subscription. 2. To execute subscription agreement upon admission of members and whenever additional subscription shall be made by members upon full payment of their initial subscription. 3. Unless otherwise provided for in their bylaws, 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. a. Cooperatives are prohibited from issuing multiple types of common shares and different par value per share. b. It is likewise prohibited for any cooperative increase/decrease the par value of the share capital by way of amending their Articles of Cooperation and Bylaws. Share: 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 (P1,000.00). The share of capital of a cooperative is the money paid or required to be paid for the operations of the cooperative. The method for the issuance of share certificates shall prescribed in its by-laws. Fines: The by-laws of a cooperative may prescribe a fine on unpaid subscribed share capital. Provided, that such fine is fair and reasonable under the circumstances. Investment of Capital: A cooperative may invest its capital in any of the following: 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 state primarily for the use of the cooperative or its members; or 5. In any other manner authorized in the bylaws. Revolving Capital: The General Assembly may authorize the board of directors to raise a revolving capital to strengthen its capital structure by deferring the payment of patronage refunds and interest on share capital or by the authorized deduction of a percentage from the proceeds of products sold or services rendered, or per unit of product or services handled. 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 the time of retirement of such certificates and the amounts to be returned. NET SURPLUS AND DISTRIBUTION NET SURPLUS: 1. Every cooperative shall determine its net surplus at the close of every fiscal year and at such other times as may be prescribed by the bylaws. 2. It shall not 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 herein. DISTRIBUTION The net surplus of every cooperative shall be distributed as follows: Purpose Amount Reserve Fund a. The reserve fund shall be used for the stability of Minimum 10% of the net surplus; the cooperative and to meet net losses in its Provided, that in the first 5 years of operations. The General Assembly may decrease operation after registration, it shall not the amount allocated to the reserve fund when the be less than 50% of the net surplus. reserve fund already exceeds the share capital. b. Any sum recovered on items previously charged to the reserve fund shall be credited to such fund. c. The reserve fund shall not be utilized for investment, other than those allowed in RA 9520. Such sum of the reserve fund in excess of the share capital may be used at any time for any project that would expand the operations of the cooperative upon the resolution of the general assembly. d. Upon the dissolution of the cooperative, the reserve fund shall not be distributed among the members. The GA may resolve: i. To establish a usufructuary trust fund for the benefit of any federation or union to which the cooperative is affiliated; and ii. To donate, contribute, or otherwise dispose of the amount for the benefit of the community where the cooperative operates. If the members cannot decide upon the disposal of the reserve fund, the same shall go to the federation or union to which the cooperative is affiliated. Education and The bylaws may provide that certain fees or a portion Maximum 10% of the net surplus Training Fund thereof be credited to such fund. The fund shall provide for the training, development and similar other cooperative activities geared towards the growth of the cooperative movement: Page 10 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 a. Half of the amounts transferred to the education and training fund annually shall be spent by the cooperative for education and training purposes; while the other half may be remitted to a union or federation chosen by the cooperative or of which it is a member. The said union or federation shall submit to the CDA and to its contributing cooperatives the following schedules: i. List of cooperatives which have remitted their respective Cooperative Education and Training Funds (CETF); ii. Business consultancy assistance to include the nature and cost; and iii. Other training activities undertaken specifying therein the nature, participants and cost of each activity. b. Upon the dissolution of the cooperative, the unexpended balance of the education and training fund appertaining to the cooperative shall be credited to the cooperative education and training fund of the chosen union or federation. Community The community development fund shall be used for Minimum 3% of the net surplus Development Fund projects or activities that will benefit the community where the cooperative operates. Optional Fund A land and building and other necessary fund Maximum 7% of the net surplus Remaining surplus Interest on share capital Not to exceed the normal rate of return on investments and patronage funds. Any amounts remaining after the allowable interest and patronage refund shall be credited to the reserve fund. PATRONAGE REFUNDS: the sum allocated to “patrons” or those who availed of the goods/services of the cooperative. Member-patrons: 1. With paid-up share capital contribution, his proportionate amount of patronage refund shall be paid to him unless he agrees to credit the amount to his account as additional share capital contribution; 2. With unpaid share capital contribution, his proportionate amount of patronage refund shall be credited to his account until his account until his share capital contribution has been fully paid; Non-Member patrons: 1. In the case of a non-member patron, his proportionate amount of patronage refund shall be set aside in a general fund for such patrons. 2. It shall be allocated to individual non-member patrons only (a) upon request and (b) presentation of evidence of the amount of his patronage. The amount so allocated shall be credited to such patron toward payment of the minimum capital contribution for membership. a. The non-member patron shall be deemed and become a member if the following concur: i. When a sum equal to the minimum capital contribution has accumulated ii. at any time within a period specified in the bylaws of the cooperative iii. if he so agrees or requests and complies with the provisions of the bylaws for admission to membership; b. The amount so accumulated or credited to the non-member patrons’ account together with any part of the general fund for nonmember patrons shall be credited to the reserve fund or to the education and training fund of the cooperative, at the option of the cooperative, in any of the following cases: i. If within any period of time specified in the bylaws, any subscriber who has not fully paid his subscribed share capital or ii. any non-member patron who has accumulated the sum necessary for membership but who does not request nor agree to become a member or fails to comply with the provisions of the bylaws for admission to membership. DISSOLUTION Dissolution is the termination of the juridical personality of the cooperative through appropriate judicial proceedings, or by an order of the CDA, or through its own initiative. Modes: 1. Voluntary: if initiated through the voluntary decision of the members of cooperatives 2. Involuntary: if ordered by the CDA or a competent court having jurisdiction over the cooperatives on grounds as specified by law, and after due process Effect: terminates the right of the cooperative to continue the business or purposes for which it was established and is bound to wind up its affairs within the period as specified by law Voluntary Dissolution Where no Creditors are Affected: 1. By a majority vote of the board of directors, and by a resolution duly adopted by the affirmative vote of at least three- fourths (3/4) of all the members with voting rights, present and constituting a quorum at a meeting to be held upon call of the directors Page 11 of 14 0915-2303213  [email protected] ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY LAW on COOPERATIVES RFBT-07 2. That the notice of time, place and object of the meeting shall be published for three (3) consecutive weeks in a newspaper published in the place where the principal office of said cooperative is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines 3. That the notice of such meeting is sent to each member of record either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. 4. A copy of the resolution authorizing the dissolution shall be certified to by a majority of the board of directors and countersigned by the board secretary. 5. The CDA shall thereupon issue the certificate of dissolution. Voluntary Dissolution Where Creditors Are Affected: 1. The petition for dissolution shall be filed with the CDA. 2. The petition shall be: a. signed by a majority of its board of directors or other officers managing its affairs; b. verified by its chairperson or board secretary or one of its directors; and c. shall set forth all claims and demands against it and that its dissolution was resolved upon by the affirmative vote of at least three-fourths (3/4) of all the members with voting rights, present and constituting a quorum at a meeting called for that purpose. 3. If the petition is sufficient in form and substance, the CDA shall issue an order reciting the purpose of the petition and shall fix a date which shall not be less than thirty (30) nor more than sixty (60) days after the entry of the order. 4. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the cooperative is situated or in the absence of such local newspaper, in a newspaper of general circulation in the Philippines, and a copy shall likewise be posted for three (3) consecutive weeks in three (3) public places in the municipality or city where the cooperative’s office is located. 5. Upon expiry of the five (5) day notice to file objections, the CDA shall proceed to hear the petition and try any issue raised in the objection filed; and if the objection is sufficient and the material allegations of the petition are proven, it shall issue an order to dissolve the cooperative and direct the disposition of its assets in accordance with existing rules and regulations. 6. The order of dissolution shall set forth therein: a. The assets and liabilities of the cooperative; b. The claim of any creditor; c. The number of members; and d. The nature and extend of the interests of the members of the cooperative. Involuntary Dissolution by the Court: A cooperative may be dissolved by order of a competent court after due hearing on the grounds of: 1. Violation of any law, regulation or provisions of its bylaws; or 2. Insolvency. 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. Involuntary Dissolution by Order of the 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: 1. Having obtained its registration by fraud; 2. Existing for an illegal purpose; 3. Willful violation, despite notice by the CDA, of the provisions of RA 9520 or its bylaws; 4. Willful failure to operate on a cooperative basis; and 5. Failure to meet the required minimum number of members in the cooperative. Dissolution by Failure to Organize and Operate: If a cooperative: 1. has not commenced business and its operation within two (2) years after the issuance of its certificate of registration; or 2. has not carried on its business for two (2) consecutive years, The CDA shall send a formal notice to the said cooperative to show cause as to its failure to operate. Failure of the cooperative to promptly provide justifiable cause for its failure to operate shall warrant the CDA to delete its name from the roster of registered cooperatives and shall be deemed dissolved. LIQUIDATION 1. 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 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. 2. 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. 3. From and after any such conveyance, all interests which the cooperative had in the properties are terminated. 4. 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. 5. 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 otherwise allowed by this Code. Page 12 of 14 0915-2303213  [email protected]