The law which governs cooperatives, prior to the recent enactment of Republic Act No. 9520 (“Philippine Cooperative Code of 2008“), is Republic Act No. 6938 (“Cooperative Code of the Philippines”). Here’s a basic discussion on the new law (a more extensive primer will subsequently be released, initially made available to clients).

DEFINITION

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. [Italicized words/phrases are inserted under the new law; See also How to Register a Cooperative in the Philippines]

PURPOSE

The declared purpose of the law, among others, is to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice.

PRINCIPLES OF COOPERATIVISM

The following are the declared principles of cooperativism:

• Voluntary and open membership. Membership in a cooperative is voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.

• Democratic member control. Cooperatives are democratic organizations that are controlled by their members who actively participate in setting their policies and making decisions. In primary cooperatives, members have equal voting rights of one-member, one-vote. Cooperatives at other levels are organized in the same democratic manner.

• 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.

• Autonomy and independence. Cooperatives are autonomous, self-help organizations controlled by their members.

• Cooperation among cooperatives. Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

• Cooperative education. All cooperatives shall make provision for the education of their members, officers and employees and of the general public based on the principles of cooperation.

• Concern for community. Cooperatives work for the sustainable development of their communities through policies approved by their members. This is a new provision.

TYPES OF COOPERATIVES

Cooperatives may fall under any of the following types, in addition to others which may be determined by the Cooperative Development Authority (CDA):

• Credit Cooperative. Promotes and undertakes savings and lending services among its members. It generates a common pool of funds in order to provide financial assistance to its members for productive and provident purposes.

• Consumers Cooperative. The primary purpose is to procure and distribute commodities to members and non-members.

• Producers Cooperative. 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.

• Marketing Cooperative. Engages in the supply of production inputs to members and markets their products.

• Service Cooperative. Engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication, professional and other services.

• Multipurpose Cooperative. Combines two or more of the business activities of these different types of cooperatives.

• Advocacy Cooperative. 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.

• Agrarian Reform Cooperative. 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.

• Cooperative Bank. Organized for the primary purpose of providing a wide range of financial services to cooperatives and their members.

• Dairy Cooperative. One whose members are engaged in the production of fresh milk which may be processed and/or marketed as dairy products.

• Education Cooperative. 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.

• Electric Cooperative. Organized for the primary purposed of undertaking power generations, utilizing renewable energy sources, including hybrid systems, acquisition and operation of subtransmission or distribution to its household members.

• Financial Service Cooperative. One organized for the primary purpose of engaging in savings and credit services and other financial services.

• Fishermen Cooperative. Organized by marginalized fishermen in localities whose products are marketed either as fresh or processed products;

• Health Services Cooperative. Organized for the primary purpose of providing medical, dental and other health services.

• Housing Cooperative. 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.

• Insurance Cooperative. Engaged in the business of insuring life and poverty of cooperatives and their members.

• Transport Cooperative. 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;

• Water Service Cooperative. Organized to own, operate and manage waters systems for the provision and distribution of potable water for its members and their households.

• Workers Cooperative. Organized by workers, including the self-employed, who are at same time the members and owners of the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principles.

CATEGORIES OF COOPERATIVES

On the other hand, cooperatives are categorized according to membership and territorial considerations:

In terms of membership –

1. Primary – Members are natural persons
2. Secondary – Members are primaries
3. Tertiary – Members are secondary cooperatives

In terms of territory, cooperatives are categorized according to areas of operations which may or may not coincide with the political subdivisions of the country.

CAPITAL

The minimum paid-up share capital is now PhP15,000 (the minimum under the old law is only PhP2,000), subject to increase by the CDA upon consultation with the cooperative sector and the NEDA.

The par value of shares of a primary cooperative shall not exceed PhP1,000.

No member of primary cooperative other than cooperative itself shall own or hold more than 10% of the share capital of the cooperative.

MEMBERSHIP

New members may only be admitted to the cooperative after undergoing Pre-Membership Education Seminar. There are two kinds of members:

• 1. Regular members. Entitled to all the rights and privileges of membership, including the right to vote and be voted upon.

• 2. Associate members. Has no right to vote nor be voted upon and shall be entitled only to such rights and privileges as the bylaws may provide. However, an associate member shall be considered a regular member if: (a) he has been a member for 2 continuous years; (b) he patronizes the cooperative as its member; and (c) he signifies his intention of becoming a regular member.

A member shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative.

TAX TREATMENT OF COOPERATIVES

Cooperatives which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and other tax laws. Cooperatives transacting business with both members and non-members shall be subject to another set of rules, but transactions with members shall remain to be non-taxable.

AUDIT

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

PENAL PROVISIONS

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

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

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