A Primer on Setting-Up a Cooperative in the Philippines, Part 2

As a reminder an audit committee must be provided for in the bylaws of the cooperative.

What Constitutes A Quorum?

Unless the by laws define it otherwise, a quorum consist of 25% of all the regular members entitled to vote. For the board of directors a simple majority of its member makes a quorum.

What Books Should Be Maintained And Kept Open?

Books to be maintained and kept open to the members of the cooperative and the CDA are :

  • A copy of the Cooperative Code of the Philippines and all other laws about cooperatives;
  • A copy of the regulations of the CDA;
  • A register of member;
  • Minutes of the meetings of the general assembly, board of directors and committees; Share books;
  • Financial statements; and
  • Other documents as may be prescribed by laws or the by-laws.

Are Cooperatives Required To Be Audited Annually?

Yes, Cooperatives are subject to an annual audit by an auditor who is independent of the cooperative being audited and of any subsidiary of the cooperative and is a member of any recognized professional accounting or cooperative auditor’s association with similar qualifications.

Is There A Needed For An Annual Report?

Yes.

An annual report about the affairs of the cooperative must be given to each member and to the federation/union to which it is affiliated and the CDA every fiscal year.

Failure to file the annual report may result in cancellation of the certificate of registration.

Can The CDA Intercede In Behalf Of The Coops Member?

If the board of directors does not call regular or special meetings of the general assembly, the CDA can, through a petition of 10% of all the members, issue an order directing the board to call for such meetings.

The CDA may also call special meetings for the purpose of reporting to the members the results of audit, examination, or other investigation of the cooperative ordered or made by it.

What Privileges Does A Cooperative Have Under The New Cooperative Code?

The coop manager must know the many benefits accruing to cooperatives under the new law. By knowing these privileges, the manager can save the cooperative a lot of money. Cooperative privileges include tax exemption, general privileges accorded to all cooperatives, and special privileges granted to specific types of cooperatives.

For instance, a cooperative which does not transact business with non-members or the general public are exempted from government taxes or fees imposed under the Internal Revenue Laws and other laws.

If a cooperative transacts business with both the general public and its members, it is nevertheless exempted from paying taxes on the transaction made with its members.

Even then, coops which transact business with the general public still enjoy very liberal tax exemptions.

Coops with accumulated reserves and undivided net savings of not more than P10 million are exempt from national, city, provincial, municipal or barangay taxes. They are exempt from customs duties , advance sales or compensating taxes on importation of machineries and spare parts which are not available locally as long as the Department of Trade and Industry certifies it so.

Even coops with more than P10 million accumulated reserves and undivided net savings are exempt from paying income and sales taxes on sales to members for a period of at least 10 years from registration.

Donations to charitable, research and educational institutions and reinvestment in socio-economic projects are also tax deductible.

Transactions with banks and insurance companies are exempted from paying local taxes.

Judges who are ex-officio notaries public will give free service to coops related to registration and instrument of loan not exceeding P50,000.00.

Register of deeds will register for free any instrument of a coop relative to loan not exceeding P50,000.00.

Coops are exempt from paying court and sheriffs fees. Coops are exempt from putting up a bond when it makes a court appeal.

Securities issued by coops are exempt from the provisions of the Securities Act as long as these securities are not speculative.

What Are The General Privileges Enjoyed By Cooperatives?

These privileges are:

  • Three right to deposit their valuable in government offices free of charge with the government official acting as custodian of such valuables.
  • Free use of space, when the cooperative members are government employees, in the same government office.
  • Special types of coops like cold storage, electricity, transport and similar services can open their membership to all persons qualified in their areas of operation.
  • The preferential right to supply government offices with their produce, in the allocation of fertilizer and rice distribution, use of butteries for shipment of their goods, and in the management of public markets.
  • Entitlement to loans, credit line, and rediscounting of notes with government financial institution like PNB, Land Bank and DBP.
  • Exemption from pre-qualification requirements when bidding for a government project.
  • The right to be represented by the provincial or city fiscal or the Office of the Solicitor general, free of charge in legal suits.

How Is The Net Surplus Of A Cooperative Allocated And Distributed?

Generally, the distribution of a cooperatives surplus is determined by-laws. Surplus is determined at the close of a coops fiscal year or as prescribe by its by-laws. A cooperatives surplus is not profit in the usual sense of the word. Surplus is considered excess payment by the members or the loans they borrowed or the goods and services they bought from the cooperative.

As far as the coop is concerned, this excess payment or surplus is considered as having been returned to the members if the surplus is distributed in the following manner. First priority goes to the reserve fund at least 10 percent of the net surplus. The reserve funds is meant or stabilize coop operations and may be used only for investments allowed by the code.

Second priority goes to the Education and Training fund which is not more than 10 percent of net surplus. Fees and fines may also be credited of such funds. Normally, this fund is shared equally between the coop and is apex organization.

Third priority is an optional fund, a land and building fund, community development fund and any other necessary funds. After all these have been allocated, the remainder is available to the general membership in the form of interest on his investment and patronage refund. Nevertheless, interest in share capital should exceed normal rate of return on investment .

How To Register Your Cooperative

Once you have organized your cooperative, your work does not end there. The cooperative now needs a legal personality, so that a cooperative is supposed to perform. With a legal, personality, the cooperative can borrow money, sell its goods, and services, deliver goods, and enter into all sorts of business transactions. So that your cooperative can do all these, you must register your cooperative . Here is how you do it.

Where Do You Register a Cooperative?

The Cooperative Development Authority is the only government agency empowered to register all types of cooperatives.

Its main office at 5th and 6th floors BEN-LOR Building, 1184 Quezon Avenue, Quezon City. To facilitate the flow of its services, extension offices have been set-up. These are located in (1) Dagupan City; (2) Tuguegarao, Cagayan; (3) Baguio City; (4) Sto. Tomas Pampanga; ( 5) Manila Extension Office (MEO), Quezon Avenue, Quezon City; (6) Calamba Laguna; (7) Naga City; (8) Iloilo City; (9) Cebu City; (10) Tacloban City; (11) Pagadian City; (12) Cagayan De Oro; (13) Davao City; (14) Kidapawan, Cotabato; and (15) Butuan City.

What Are The General Requirements In Registering A Cooperative?

You will need four copies each of the Economic Survey, By -Laws and Articles of Cooperation. The Articles of Cooperation should be duly notarized and accompanied by there following.

  • Bonds of the accountable officers (any director, officer and employee handling funds, securities offices and employee handling funds, securities or properties on behalf of the cooperative. The board of directors determine the amount of bonds required based on the initial network which shall include the paid-up capital, membership fees and other assets of the cooperative at the time of registration); and
  • Sworn statement of the treasurer showing that at least 25% of the authorized share has been subscribed and at least 25% of the total subscription has been paid. The paid-up capital must not be less than P2,000. It must be noted that no member may own more than 20% of the subscribed capital; and that each share must not be less than P1.00

How Much Is The Registration Fee?

CDA Memorandum Circular No. 92-004, effective 01 May 1992 provides that provides that registration fee shall be one tenth (1/10) of one percent of the paid- up share capital with the minimum of P250 for new primary cooperative; P500 for secondary cooperative, P2,000.00 for tertiary cooperative while laboratory cooperative is free of charge.

What Are The Types And Registration Fee?

The following are the types of cooperatives:

Credit Cooperative promotes thrift and savings among its member and creates funds in order to grant loans for productive and provident purposes;

  • Consumer Cooperative- the primary purpose is to procure and distribute commodities to member and non- member;
  • Producer Cooperative- undertake joint production whether agricultural or industrial;
  • 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 and other services; and
  • Multi-Purpose Cooperative- combines two(2) or mores of the business activities of these different types of cooperative.

According to membership and territory, the following are the categories of cooperative:

In terms of membership:

  • Primary – The members of which are natural persons of legal age;
  • Secondary – The member of which are primaries;
  • Tertiary- The members of which are secondaries upward to one or more apex organizations. Cooperative whose member are cooperatives are called federation or unions. In terms of territory, cooperatives are categorized according to areas of operation which may or may not coincide with the political subdivision of the country.

For What Purpose May A Federation May Of Cooperatives Be Registered?

A federation of Cooperatives whose members are primary and /or secondary cooperatives with a single line or multi- purpose business activities may be registered for any or all of the following purposes:

  • Primary Purpose- To carry on, encourage on any cooperative enterprise authorized under Article 6 of R.A. 6938;
  • Secondary Purposes- To carry on, any encourage and assist educational and advisory work relating to its member cooperatives;
  • To render services designed to encourage simplicity, efficiency, and economy in the conduct of the business of its member cooperatives and to facilitate the implementation of their bookkeeping , accounting and other systems and procedures;
  • To coordinate and facilitate the activities of its member cooperatives;
  • To print, publish, and circulate any newspaper of other publication in the interest of its member cooperatives and enterprises;
  • To enter into joint ventures with national or international cooperative of other countries in the manufacture and sale of products and/ or services in the Philippines and abroad; and.
  • To perform such other function as nay be necessary to attain its objectives.

A federation of Cooperatives may be registered by carrying out the formalities of registration of a cooperative. Registered cooperatives may organize a federation at the provincial, city, regional, and national levels according to the types of business carried on.

What About Cooperative Unions?

Registered cooperatives and federations may organize a federation or join cooperatives unions to represent the interest and welfare of all types of cooperatives at the provincial, city, regional, and national levels.

Cooperative unions may have the following purposes :

  • To represent its member organization;
  • To acquire, analyze, and disseminate economic, statistical, and other phases of cooperatives within its area of operation;
  • To sponsor studies in the economic, legal ,financial, social, and other phases of cooperation, and publish their results;
  • To promote the knowledge of cooperative principles and practices;
  • To develop the cooperative movement in their respective areas of operation;
  • To advice the appropriate authorities on all question relating to cooperatives;
  • To raise funds through membership fees and contribution , donations, and subsidies from local and foreign sources whether private or government; and
  • To do and perform such other activities as may be necessary to attain these objectives.

Cooperatives unions may assist the national and local government in the letters of development activities in their respective areas of operation.

How Soon Should The CDA Act On Your Application For Registration?

The CDA 30 days, after failing to act on applications for registration. If there is no action within 30 days, the application is considered approved, unless the application himself causes the delay.

What Should You Do if Application Is Denied?

If the application is denied, you may appeal to the Office of the President. If the Office of the President fails to act within 90 days from the filing of appeal, the application is considered approved.

What Evidence Confirms The Approval Of Your Registration?

If your application has been approved, the CDA will give you a Certificate of Registration. The certificate confirms that your cooperative has been duly registered.

What Are The Powers And Capacities Of A Registered Cooperative?

Once your cooperative is registered under the Cooperative Code Of the Philippine (R.A. 6938) it will have the following powers and capabilities:

  • To sue and be sued in its cooperative name;
  • Of succession;
  • To amend its Articles of Cooperative in accordance with the provisions of R.A. 6938;
  • To adopt by laws not contrary to law ,morals or public policy, and to amend and repeal the same in accordance with R.A. 6938;
  • To purchase, receive, take of grant, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property as the transaction of the lawful affairs of the cooperative may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
  • To enter into division, merger or consolidated , as provided in R. A. 6938;
  • To join federations federation or unions, as provided in R.A. 6938;
  • To accept and receive grants, donations and assistance from foreign and domestic sources; and
  • To exercise such other powers granted by R.A. 6938 necessary to carry out its purpose as stated in its Article of Cooperation.

source: www.gov.ph, photo from freedigitalphotos.net

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