Review of Co-op Laws in Philippines (1997)

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This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
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Part II - Review of Country Laws in the Philippines (1997)

Source: Co-operative Laws in Asia and the Pacific
by G.K. Sharma (pp.132-159)

Philippines
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The co-operative movement in Philippines was sponsored by the civic
and regional groups and were registered under the first corporation law
enacted in April, 1906, followed by the Rural Credit Co-operatives
Associations Act 1915. Co-operatives picked up particularly during the
American occupation. They were registered under the cooperative law
enacted in April, 1906, Agricultural Credit Associations Act, February 5,
1915 and Co-operative Marketing Law, on December 9, 1927 and repealed
in April 1973. These laws continued to be available to co-operatives along
with some other sectoral regulation till all of them were brought under one
law "Co-operative code of Philippines" in 1989.

The New "Co-operative Code of Philippines" became operative on July
24, 1989 and has 130 articles divided into 17 chapters and is one of the
most comprehensive and progressive laws.

Chapter I : General Concepts and Principles
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Article 2 declares the policy of the state as under:

It is the declared policy of the state to foster the creation and growth
of co-operatives as a practical vehicle for promoting self-reliance and
harnessing people power towards the attainment of economic development
and social justice. The state shall encourage the private sector to undertake
the actual formation and organisation of cooperatives and shall create an
atmosphere that is conducive to the growth and development of these
co-operatives.

Towards this end, the Government and all its branches, sub-divisions,
instrumentalities and agencies shall ensure the provision of technical
guidance, financial assistance and other services to enable the said
co-operatives to develop into viable and responsive economic enterprises
and thereby bring about a strong cooperative movement that is free from
any conditions that might fringe upon the autonomy or organisational
integrity of co-operatives.

Further, the state recognises the principle of subsidiary under which
the co-operative sector will initiate and regulate within its own ranks
the promotion and organisation, training and research, audit and support
services relating to co-operatives with government assistance where
necessary. 

Article 3 explains the General concepts as under:

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

Article 4 includes co-operative principles as adopted by the ICA at
that time.

Chapter II : Organisation and Registration
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Under Article 6 minimum number to form a co-operative is 15 and
also includes the purpose for which a cooperative can be organised. 

Article 7 again explains the objectives of the cooperatives.

Article 11 prescribes that an economic survey of the business scope,
membership, area of operation etc. has to be submitted to the
Co-operative Development Authority along with application
for incorporation. 

Article 13 states the maximum life of cooperatives as 50 years which
can be further extended for another maximum of 50 years.

Under the law Article 14 provides subjects to be included in the "Articles
of Co-operation" and article 15 provides subject to be included in the
bye-laws.

Article 16 lays down a limit of 30 days for registration. In case of no
reply the co-operatives will be deemed to be registered. In case of
refusal appeal can be made within 90 days from the date of refusal and
failure of the office of the President to act in 90 days shall deem to be
approval of the said appeal. 

Article 19 regulates the contract made by a co-operative before
registration as legal contract.

Articles 23 and 24 deal with types of primary secondary co-operatives
and their functions.

Chapter III : Membership
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Under article 26 any natural person who is a citizen of Philippines,
a co-operative and a non-profit organisation with juridical personality
is eligible for membership of a co-operative.

Under article 27 there is provision for regular voting members and
non-voting associate members.

Under article 28 employees of CDA, Elected officials of government,
except barangay officials and government officials are disqualified to
be elected or appointed to any position in a co-operative.

Under article 31 along with other provisions non-patronising the
services for an un-reasonable period as may be fixed by the board
of directors as also when a member has continuously failed to comply
with his obligations is disqualification for membership. 

Chapter IV : Administration
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Article 36 prescribes 25% of all the voting members as quorum for
general meetings. 

Under Article 37 for a secondary co-operative a maximum of five votes
are allowed as also only in case of secondary co-operatives proxy is
allowed.

Under Article 38 the board members shall be not less than 5 and not more
than 15. The term of board shall not be more than 2 years and no director
shall serve more than 3 consecutive terms.

Under article 42 interim vacancy can be filled by the board subject to the
condition the Board has the necessary majority strength for the remaining
period.

Under article 47 Board members can be paid only reasonable per diem.
Any extra compensation can be paid only with the approval of the
members meeting specifically called for this purpose.

The chapter also deals with accountability of Board Members.

Chapter V : Responsibilities, Rights, and Privileges of Co-ops
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Article 53 (4) relates the procedure for destroying the records of
the co-operatives.

Under article 54 every co-operative has to prepare an annual report in
the form prescribed by the Co-operative Development Authority and
has to be sent to CDA as also to all the members. 

Under article 57 every director, officer and employee handling funds,
securities and property of the co-operative have to execute and deliver
adequate bonds to the co-operatives as decided by its Board.

The law under article 62 provides a number of tax exemptions and
under article 63 many privileges as under:

Tax and other exemptions: Co-operatives transacting business with
both members and non-members shall not be subject to tax on their
transactions to members. Notwithstanding the provisions of any law or
regulation to the contrary, such cooperatives dealing with non-members
shall enjoy the following tax exemptions: 

i. Co-operatives with accumulated reserves and undivided
net savings shall be of not more than ten million Pesos
(P10,000,000) shall be exempt from all national, city,
provincial, municipal or barangay taxes of whatever name
and nature. Such co-operatives shall be exempt from customs
duties, advance sales or compensating taxes on their importation
of machinery, equipment, and spare parts used by them and which
are not available locally as certified by the Department of Trade
and Industry. All tax free importations shall not be transferred to
any person until five years, otherwise, the cooperative and the
transferee or assignee shall be solitarily liable to pay twice the
amount of the tax and/or duties thereon.

ii. Co-operatives with accumulated reserves and undivided net
savings of more than ten million Pesos (P10,000,000) shall pay
the following taxes at the full rate: 

a. Income Tax - on the amount allocated for interest on capitals:
Provided, that the same tax is not consequently imposed on
interest individually received by the members.

b. Sales Tax - on sales to non-members: Provides, however, that
all co-operatives, regardless of classification, are exempt from
the payment of income and sales taxes for a period of ten years.

For co-operatives whose exemptions were removed by Executive
Order 93, the ten year period shall be reckoned from the affectivity
date of said executive order. Co-operatives created after the
approval of this code shall be granted the same exemptions, the
period of which shall be reckoned from the date of registration
with the Authority: Provided, that at least twenty-five percent
(25%) of the net income of the cooperatives is returned to the
members in the form of interest and/or patronage refunds:

c. All other taxes unless otherwise provided herein; and

d. Donations to charitable, research and educational institutions and
reinvestment in socio-economic projects within the area of
operation of the cooperative may be tax deductible. 

iii. All co-operatives, 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 sale or services rendered
for non-members shall be subject to the applicable percentage
taxes except sales made by producers, marketing, or service
co-operatives: Provided, further, that nothing in this article shall
preclude, the examination of the books of accounts or other
accounting records of the co-operative by duly authorised internal
revenue officers for internal revenue tax purposes only, after
previous authorization by the authority.

iv. Any judge in his capacity as notary public, ex-officio shall render
service, free of charge, to any person or group of person requiring
either the administration of oath or the acknowledgement of
articles of co-operation of a co-operative applicant for registration
and instruments of loan from cooperative not exceeding 50,000
Pesos. 

v. Any register of deeds shall accept for registration, free of charge
any instrument relative to a loan made under this code which does
not exceed 50,000 Pesos or the deeds of title of any property
acquired by the co-operative or any paper or document drawn in
connection with any action brought by the co-operative or with any
court judgement rendered in its favour or any instrument relative to
a bond of any accountable officer of a co-operative for the faithful
performance of his duties and obligation.

vi. Co-operatives shall be exempt from the payment of all court and
Sheriff's fees payable to the Philippine Government for and in
connection with all actions brought under this code, or where such
action is brought by the Co-operative Development Authority
before the court, to enforce the payment of obligations contracted
in favour of the co-operative.

vii. All co-operatives shall be exempt from putting up a bond for
bringing an appeal against the decision of an inferior court or for
seeking to set aside any third party claim; Provided that a
certification of the Authority showing that the net assets of the
co-operative are in excess of the amount of the bond required by
the court in similar cases shall be accepted by the court as a
sufficient bond.

viii. Any security issued by co-operatives shall be exempt from the
provisions of the Securities Act provided such security shall not
be speculative.

Article 63 : Privileges of Co-operatives
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Co-operative registered under this code shall, notwithstanding the
provisions of any law to the contrary, be also accorded the following
privileges:

i. Co-operatives shall enjoy the privilege of depositing their sealed
cash boxes or containers, documents or any valuable papers in the
safes of the municipal or city treasures and other government
offices free of charge, and custodian of such articles shall issue
receipt acknowledging the articles received duly witnessed by
another person;

ii. Co-operatives organised  among government employees,
notwithstanding any law or regulation to the contrary, shall enjoy
the free use of any available space in their agency, whether owned
or rented by the Government;

iii. Co-operatives rendering special types of services and facilities
such as cold storage, ice plant, electricity, transportation and
similar services and facilities shall secure a franchise therefor, and
such co-operatives shall open their membership to all persons
qualified in their areas of operation;

iv. In areas where appropriate co-operatives exist, the preferential
right to supply government institutions and agencies rice, corn
and other grains, fish and other marine products, meat, eggs, milk,
vegetables and tobacco and other agricultural commodities
produced by their members shall be granted to the co-operatives
concerned;

v. Preferential treatment in the allocation of fertilizers and in rice
distribution shall be granted to cooperatives by the appropriate
government agencies;

vi. Preferential and equitable treatment in the allocation or control of
bottomries of commercial shipping vessels in connection with the
shipment of goods and products of co-operatives;

vii. Co-operatives and their federation, such as market vendor
co-operatives, shall have preferential rights in management of
public markets and/or lease of public market facilities, stall or
spaces;

viii. Credit co-operatives and/or federations shall be entitled to loans,
credit lines, rediscounting of their loan notes, and other eligible
papers with the Development Bank of the Philippines, the
Philippine National Bank, the Land Bank of Philippines, and other
financial institutions except the Central Bank of Philippines; 

ix. Co-operatives transacting business with the government of the
Philippines or any of its political sub-divisions or any of its
agencies or instrumentalities, including government-owned and
controlled corporation shall be exempt from pre-qualification
bidding requirements; and 

x. Co-operatives shall enjoy the privilege of being represented by
the provincial or city fiscal or the Office of the Solicitor General,
free of charge, except when the adverse party is the Republic of
the Philippine.

Chapter VI : Insolvency of Co-operatives
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In case a co-operative cannot fulfil obligations to creditors it may apply
and seek remedies under the insolvency law.

Chapter VII : Dissolution
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The chapter deals with dissolution of a co-operative on voluntary basis
as also under orders of CDA under certain circumstances.

Under articles 65 and 66 the notice of the General Meeting for voluntary
dissolution has to be published in a newspaper for 3 consecutive weeks.

Another important provision under article 70 is that even after the
liquidation the co-operative continues to be body corporate for three
years for the purpose of prosecuting and defending suits by or against
it and enabling it to settle and close the affairs etc. After the period of
3 years any asset left after distributing to share holders and creditors
shall be given to the federation, union association to which the