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Section 2. Declaration of Policy. - It is the declared policy of the State 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. The State shall encourage the private sector to undertake the actual formation and organization of cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.

Toward this end, the Government and all its branches, subdivisions, instrumentalities and agencies shall ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives.

Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to cooperatives with government assistance where necessary.

Section 3. General Concepts. - A cooperative is a 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 cooperative principles.

Section 4. Cooperative Principles. - Every cooperative shall conduct its affairs in accordance with Filipino culture and experience and the universally accepted principles of cooperation which include the following:

(1) "Open and Voluntary Membership": Membership in a cooperative shall be voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.

(2) "Democratic Control": Cooperatives are democratic organizations. Their affairs shall be administered by persons elected or appointed in a manner agreed upon by the members. Members of primary cooperatives shall have equal voting rights on a one-member-one-vote principle: Provided however, That in the case of secondary and tertiary cooperatives, the provisions of section 37 of this Code shall apply.

(3) "Limited Interest in Capital": Share capital shall receive a strictly limited rate of interest.

(4) "Division of Net Surplus": Net surplus arising out of the operations of a cooperative belongs to its members and shall be equitably distributed for cooperative development common services, indivisible reserve fund, and for limited interest on capital and/or patronage refund in the manner provided in this Code and in the articles of cooperation and by-laws.

(5) "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.

(6) "Cooperation Among Cooperatives": All cooperatives, in order to best serve the interest of their members and communities, shall actively cooperate with other cooperatives at local, national, and international levels.

(1) "Member" includes a person either natural or juridical who, adhering to the principles set forth in this Code and in the articles of cooperation, has been admitted by the cooperative as member;

(2) "General Assembly" shall mean the full membership of the cooperative duly assembled for the purpose of exercising all the rights and performing all the obligations pertaining to cooperatives, as provided by this Code, its articles of cooperation and by-laws;

(3) "Board of Directors" shall mean that body entrusted with the management of the affairs of the cooperative under its articles of cooperation and by-laws;

(4) "Committee" shall refer to any body entrusted with specific functions and responsibilities under the by-laws or resolution of the general assembly or the board of directors;

(5) "Articles of Cooperation" means the articles of cooperation registered under this Code and includes a registered amendment thereof;

(6) "By-laws" means the by-laws registered under this Code and includes any registered amendment thereof;

(7) "Registration" means the operative act granting juridical personality to a proposed cooperative and is evidenced by a certificate of registration;

(8) "Cooperative Development Authority" means the government agency in charge of registration and regulation of cooperatives as such, hereinafter referred to as the Authority; and

(9) "Universally Accepted Principles" means that body of cooperative principles adhered to worldwide by cooperatives in other jurisdictions.

(1) To encourage thrift and savings mobilization among the members;

(2) To generate funds and extend credit to the members for productive and provident purposes;

(3) To encourage among members systematic production and marketing;

(4) To provide goods and services and other requirements to the members;

(5) To develop expertise and skills among its members;

(6) To acquire lands and provide housing benefits for the members;

(7) To insure against losses of the members;

(8) To promote and advance the economic, social and educational status of the members;

(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail complexes, insurance and agricultural/industrial processing enterprises, and public markets;

(10) To coordinate and facilitate the activities of cooperatives; and

(11) To undertake any and all other activities for the effective and efficient implementation of the provisions of this Code.

A cooperative shall provide maximum economic benefits to its members, teach them efficient ways of doing things in a cooperative manner, and propagate cooperative practices and new ideas in business and management and allow the lower income groups to increase their ownership in the wealth of this nation.

Section 8. Cooperative Not in Restraint of Trade. - No cooperative or method or act hereof which complies with this Code shall be deemed a conspiracy or combination in restraint of trade or an illegal monopoly, or an attempt to lessen competition or fix prices arbitrarily in violation of any of the laws of the Philippines.

Section 9. Cooperative Powers and Capacities. - A cooperative registered under this Code shall have the following powers and capacities:

(1) To sue and be sued in its cooperative name;

(2) Of succession;

(3) To amend its articles of cooperation in accordance with the provisions of this code;

(4) To adopt by-laws not contrary to law, morals or public policy, and to amend and repeal the same in accordance with this Code;

(5) To purchase, receive, take or grant, hold, 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;

(6) To enter into division, merger or consolidation, as provided in this Code;

(7) To join federations or unions, as provided in this Code;

(8) To accept and receive grants, donations and assistance from foreign and domestic sources; and

(9) To exercise such other powers granted in this Code or necessary to carry out its purpose or purposes as stated in its articles of cooperation.

Section 11. Economic Survey. - Every group of individuals or cooperatives intending to form a cooperative under this Code shall submit to the Cooperative Development Authority a general statement describing the structure, purposes and economic feasibility of the proposed cooperative, indicating therein the area of operation, the size of membership and other pertinent data.

Section 12. Liability. - A cooperative shall be registered under this Code, with limited liability.

Section 13. Term. - A cooperative shall exist for a period not exceeding fifty (50) years from the date of registration unless sooner dissolved or unless said period is extended. The cooperative term, as originally stated in the articles of cooperation, may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of cooperation, in accordance with this Code: Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date/dates unless there are justifiable reasons for an earlier extension as may be determined by the Cooperative Development Authority.

Section 14. Articles of Cooperation. - (1) All cooperatives applying for registration shall file with the Cooperative Development Authority the articles of cooperation which shall be signed by each of the organizers and acknowledged by them if natural persons, and by the presidents or secretaries, if juridical persons, before a notary public.

(2) The articles of cooperation 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 address 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 in accordance with Section 23 hereof.

(4) Four (4) copies each of the proposed articles of cooperation, by-laws, and the general statement required under Section 11 of this Code shall be submitted to the Cooperative Development Authority.

(5) No cooperative shall be registered unless the articles of cooperation are accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least twenty-five per cent (25%) of the authorized share capital has been subscribed and at least twenty-five per cent (25%) of the total subscription has been paid: Provided, That in no case shall the paid-up share capital shall be less than two thousand pesos (P2,000.00).

Section 15. By-laws. - (1) Each cooperative to be registered under this Code shall adopt by-laws not inconsistent with the provisions of this Code. The by-laws shall be filed at the same time as the articles of cooperation.

(2) The by-laws of each cooperative shall provide:

(a) The qualifications for admission to membership and the payment to be made or interest to be acquired as a condition for the exercise of the right of membership;

(b) The rights and liabilities of membership;

(c) The circumstances under which membership is acquired, maintained and lost;

(d) The procedure to be followed in case of termination of membership;

(e) The conditions under which the transfer of a share or interest of the members shall be permitted;

(f) The rules and procedures on the agenda, time, place and manner of calling, convening, conducting meetings, quorum requirements, voting systems, and other matters related to the business affairs of the general assembly, board of directors, and committees;

(g) The general conduct of the affairs of the cooperative, including the powers and duties of the general assembly, the board of directors, committees and the officers, and their qualifications and disqualifications;

(h) The manner in which the capital may be raised and the purposes for which it can be utilized;

(i) The mode of custody and of investment of net surplus;

(j) The accounting and auditing systems;

(k) The manner of loaning and borrowing, including limitations thereof;

(l) The method of distribution of net surplus;

(m) The manner of adopting, amending, repealing and abrogating by-laws;

(n) A conciliation or mediation mechanism for the amicable settlement of disputes among members, directors, officers and committee members of the cooperative; and

(o) Other matters incident to the purposes and activities of the cooperative.

Section 17. Certificate of Registration. - A certificate of registration issued by the Cooperative Development Authority 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.

Section 18. Amendment of Articles of Cooperation and By-laws. - Unless otherwise prescribed by this Code and for legitimate purposes, any provision or matter stated in the articles of cooperation may be amended by two-thirds (2/3) vote of all the member with voting rights, without prejudice to the right of the dissenting members to exercise their right to withdraw their membership under Sections 31 and 32.

The original and amended sections together shall contain all provisions required by law to be set out in the articles of cooperation. Amendments shall be indicated by underscoring or otherwise appropriately indicating the change or changes made and a copy thereof duly certified under oath by the cooperative secretary and a majority of the directors stating the fact that said amendment or amendments have been duly approved by the required vote of the members. All amendments to the articles of cooperation shall be submitted to the Cooperative Development Authority. The amendments shall take effect upon its approval by the Cooperative Development Authority or within thirty (30) days from the date of filing thereof if not acted upon by the Authority for a cause not attributable to the cooperative.

Section 19. Contracts Executed Prior to Registration and Effect Thereof. - Contracts executed between private persons and cooperatives prior to the registration of the cooperative shall remain valid and binding between the parties and upon registration of the cooperative. A formal written contract shall be adopted and made in the cooperative's name or on its behalf prior to its registration.

Section 20. Division of Cooperatives. - Any registered cooperative may, by a resolution approved by a vote of two-thirds (2/3) of the members eligible to vote at a general assembly meeting, resolve to divide itself into two (2) or more cooperatives. The procedure for such division shall be prescribed in the regulations of the Cooperative Development Authority. The new cooperatives shall be come legally established upon registration with the Authority: Provided, That all the requirements set forth in this Code have been complied by the new cooperatives: Provided further, That no division of a cooperative in fraud of creditors shall be valid.

Section 21. Merger and Consolidation of Cooperatives. - (1) Two (2) or more cooperatives may merge into a single cooperative which shall be the consolidated cooperative.

(2) No merger or consolidation shall be valid unless approved by two-thirds (2/3) of all the members eligible to vote 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 pursuant to Sections 31 and 32.

(3) The Cooperative Development Authority shall issue the guidelines governing the procedure of 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 Cooperative Development Authority.

Section 22. Effects of Merger and Consolidation. - The merger or consolidation of cooperatives shall have the following effects:

(1) The constituent cooperatives shall become a single cooperative which, in case of merger, shall be the surviving cooperative, and, in case of consolidation, shall be the consolidated cooperative;

(2) The separate existence of the constituent cooperatives shall cease, except that of the surviving or the consolidated cooperative;

(3) The surviving or the consolidated cooperative shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a cooperative organized under this Code;

(4) The surviving or the consolidated cooperative shall possess all the assets, rights, privileges, immunities and franchises of each of the constituent cooperatives; and

(5) The surviving or the consolidated cooperative shall be responsible for all the liabilities and obligations of each of the constituent cooperatives in the same manner as if such surviving or consolidated cooperative had itself incurred such liabilities or obligations. Any claim, action or proceeding pending by or against any such constituent cooperatives may be prosecuted by or against the surviving or consolidated cooperative, as the case may be. Neither the rights of creditors nor any lien upon the property of any of such constituent cooperative shall be impaired by such merger or consolidation.

(a) "Credit Cooperative" is one which promotes thrift among its members and creates funds in order to grant loan for productive and provident purposes;

(b) "Consumers Cooperative" is one the primary purpose of which is to procure and distribute commodities to members and non-members;

(c) "Producers Cooperative" is one that undertakes joint product whether agricultural or industrial;

(d) "Marketing Cooperative" is one which engages in the supply of production inputs to members and markets their products;

(e) "Service Cooperative" is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services; and

(f) "Multipurpose Cooperative" is one which combines (2) or more of the business activities of these different types of cooperatives.

(a) In terms of membership, cooperative shall be categorized into:
 
(i) Primary: The members of which are natural persons;

(ii) Secondary: The members of which are primaries; and

(iii) Tertiary: The members of which are secondaries upward to one (1) or more apex organizations.

Those cooperative the members of which are cooperatives shall be known as federations or unions, as the case may be; and

(b) 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.

(a) Primary Purpose: To carry on any cooperative enterprise authorized under Section 6;

(b) Secondary Purpose:
 

(i) To carry on, encourage, and assist educational and advisory work relating to its member cooperatives;

(ii) 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 book-keeping, accounting, and other system and procedures;

(iii) To print, publish, and circulate any newspaper or other publication in the interest of its member cooperatives and enterprises;

(iv) To coordinate and facilitate the activities of its member cooperatives;

(v) To enter into joint ventures with national or International cooperatives of other countries in the manufacture and sale of products and/or services in the Philippines and abroad; and

(vi) To perform such other functions as may be necessary to attain its objectives.

A federation of cooperatives may be registered by carrying out the formalities for registration of a cooperative.

Section 25. Cooperative Unions. - Registered cooperatives and federations at the appropriate levels may organize or join cooperative 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:

(a) To represent its member organizations;

(b) To acquire, analyze, and disseminate economic, statistical, and other information relating to its members and to all types of cooperatives within its area of operation;

(c) To sponsor studies in the economic, legal, financial, social and other phases of cooperation, and publish the results thereof;

(d) To promote the knowledge of cooperative principles and practices;

(e) To develop the cooperative movement in their respective jurisdictions;

(f) To advise the appropriate authorities on all questions relating to cooperatives;

(g) To raise funds through membership fees, dues and contributions, donations, and subsidies from local and foreign sources whether private or government; and

(h) To do and perform such other activities as may be necessary to attain the foregoing objectives.

Section 27. Kinds of Membership. - A cooperative may have two (2) kinds of members, to wit: (1) regular members and (2) associate members. A regular member is one who is entitled to all the rights and privileges of membership. An associate member is one who has no rights to vote nor be voted upon and shall be entitled only to such rights and privileges as the by-laws may provide.

A cooperative organized by minors shall be considered a laboratory cooperative and must be affiliated with a registered cooperative. A laboratory cooperative shall be governed by special guidelines to be promulgated by the Cooperative Development Authority.

Section 28. Government Officers and Employees. - (1) Any officer or employee of the Cooperative Development Authority shall be disqualified to be elected or appointed to any position in a cooperative;

(2) Elective officials of the Government, except barangay officials, shall be ineligible to become officers and directors of cooperatives; and

(3) Any government employee may, in the discharge of his duties as member in the cooperative, be allowed by the head 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.

Section 29. Application. - An applicant for membership shall be deemed a member after approval of his membership by the board of directors and shall exercise the rights of member after having made such payments to the cooperative in respect to membership or acquired interest in the cooperatives as may be prescribed in the by-laws. In case membership is refused or denied by the board of directors, an appeal may be made to the general assembly and the latter's decision shall be final.

Section 30. Liability of Members. - A member shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative.

Section 31. Termination of Membership.-  (1) A member of a cooperative may, for any reason, withdraw his membership from the cooperative by giving a sixty (60) day notice to the board of directors. The withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative: Provided, That such refund 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, insanity, insolvency or dissolution of a member shall be considered an automatic termination of membership.

(3) A member 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 the services of the cooperative for an unreasonable period of time as may be fixed 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.

Section 32. Refund of Interests. - All sums computed in accordance with the by-laws to be due from a cooperative to a former member shall be paid to him either by the cooperative or by the approved transferee as the case may be, in accordance with Code.

Section 34. Powers of the General Assembly. - The general assembly shall be the highest policy-making body of the cooperative and shall exercise such powers as are stated in this Code, in the articles of cooperation and in the by-laws of the cooperative. The general assembly shall have the following exclusive powers which cannot be delegated:

(1) To determine and approve amendments to the articles of cooperation and by-laws;

(2) To elect or appoint the members of the board of directors, and to remove them for cause;

(3) To approve developmental plans of the cooperative; and

(4) Such other matters requiring a two-thirds (2/3) vote of all members of the general assembly, as provided in this Code.

(2) Whenever necessary, a special meeting of the general assembly may be called at any time by a majority of the board of directors or in the cases specified in the by-laws: Provided, That at least one (1) week written notice shall be sent to all members. However, a special meeting shall be called by the board of directors after compliance with the required notice within one (1) month after receipt of a request in writing from at least ten per cent (10%) of the total members to transact specific business covered by the call.

If the board fails to call a regular meeting or a special meeting within the given period, the Cooperative Development Authority, upon petition of ten per cent (10%) of all the members of the cooperative, and for good cause shown, may issue an order to the petitioners directing them to call a meeting of the general assembly by giving proper notice required by this Code or by the by-laws.

(3) In the case of a newly approved cooperative, a special general assembly shall be called within ninety (90) days from such approval;

(4) The Authority may call a special meeting of the cooperative:

(a) For the purpose of reporting to the members the result of any audit, examination, or other investigation of the cooperative affairs ordered or made by him; or

(b) When the cooperative fails to hold an annual general assembly during the period required for the purpose of enabling the members to secure any information regarding the affairs of the cooperative and benefits that they are entitled to receive pursuant to this Code.

Section 36. Quorum. - Unless otherwise provided in the by-laws, a quorum shall consist of twenty-five per cent (25%) of all the members entitled to vote.

Section 37. Voting System. - (1) Each member of a primary cooperative shall have only one (1) vote. A secondary or tertiary cooperative shall have voting rights as delegate of members-cooperatives, but such cooperatives shall have only five (5) votes. The votes cast by the delegates shall be deemed as votes cast by the members thereof.

(2) No voting agreement or other device to evade the one-member-one-vote provision except as provided under subsection (1) hereof shall be valid.

(3) No member of a primary cooperative shall be permitted to vote by proxy unless provided for specifically in the by-laws of the cooperative. However, the by-laws of a cooperative other than a primary may provide for voting by proxy. Voting by proxy means allowing a delegate of a cooperative to represent or vote in the behalf of another delegate of the same cooperative.

Section 38. Composition of the Board of Directors. - The conduct and management of the affairs of the cooperative shall be vested in a board of directors which shall be composed of not less than five (5) nor more than fifteen (15) members elected by the general assembly for a term fixed in the by-laws but not exceeding a term of two (2) years and shall hold office until their successors are duly elected and qualified, or until duly removed. However, no director shall serve for more than three (3) consecutive terms.

Section 39. Powers of the Board of Directors. - The board of directors shall direct and supervise the business, manage the property of the cooperative and may, by resolution, exercise all such powers of the cooperative as are not reserved for the general assembly under this Code and the by-laws.

Section 40. Directors. - (1) Any member of a cooperative who, under the by-laws of the cooperative, has the right to vote and who possesses all the qualifications and none of the disqualifications provided in the laws or the by-laws shall be eligible for election as director.

(2) The cooperative may, by resolution of its board of directors, admit as director, 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.

Section 41. Meeting of the Board, Quorum. - (1) Regular meetings of the board of directors of every cooperative shall be held monthly, unless the by-laws provide otherwise.

(2) Special meetings of the board of directors may be held at any time upon the call of the President or as provided in the by-laws.

(3) A majority of the members of the board shall constitute a quorum for the conduct of business, unless the by-laws provide otherwise.

(4) Directors cannot attend or vote by proxy at board meetings.

Section 42. Vacancy in the Board of Directors. - Any vacancy in the board of directors, other than by expiration of term, may be filled by the vote of at least a majority of the remaining directors, if still constituting a quorum, otherwise, the vacancy must be filled by general assembly in a regular or special meeting called for the purpose. A director so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office.

Section 43. Officers of the Cooperative. - The board of directors shall elect from among themselves only the chairman and vice-chairman, and elect or appoint other officer of the cooperative from outside of the board in accordance with their by-laws. All officers shall serve during good behavior and shall not be removed except for cause after due hearing. 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. No two (2) or more persons with relationships up to the third civil degree of consanguinity or affinity shall serve as elective or appointive officers in the same board.

Section 44. Committee of Cooperatives. - (1) The by-laws may create an executive committee to be 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.

(2) The by-laws shall provide for the creation of an audit committee and such other committees as may be necessary for the proper conduct of the affairs of the cooperative.

Unless otherwise provided in the by-laws, the board, in case of vacancy in said committees, may cause an election to fill the vacancy or appoint a person to fill the same subject to the provision that the person elected or appointed shall serve only for the unexpired portion of the term.

Section 45. Functions and Responsibilities of Directors, Officers and Committee Members. - The functions and responsibilities of the directors, officers and committee members shall be as prescribed in detail in the by-laws of a cooperative.

Section 46. Liability of Directors, Officers and Committee Members. - Directors, officers and committee members, who willfully and knowingly vote for or assent to patently unlawful acts or who are guilty of gross negligence or bad faith in directing the affairs of the cooperative or acquire any personal or pecuniary interest in conflict with their duty as such directors, officers or committee member shall be liable jointly and severally for all damages or profits resulting therefrom to the cooperative, members and other persons.

When a director, officer or committee member attempts to acquire or acquires, in violation of his duty, any interest or equity adverse to the cooperative in respect to any matter which has been reposed in him in confidence, he shall, as a trustee for the cooperative, be liable for damages and for double the profits which otherwise would have accrued to the cooperative.

Section 47. Compensation. - (1) In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation except for reasonable per diem: Provided, That any compensation other than per diems may be granted to directors by a majority vote of the members with voting rights at a regular or special general assembly meeting specifically called for the purpose: Provided further, that no additional compensation other than per diems shall be paid during the first year of existence of any cooperative.

(2) The compensation of officers of the cooperative as well as the members of the committees created pursuant to this Code or its by-laws may be fixed in the by-laws.

(3) Unless already fixed in the by-laws, the compensation of all other employees shall be determined by the board of directors.

Section 48. Dealings of Directors, Officers and Committee Members. - A contract of the cooperative with one (1) or more of its directors, officers, committee members is voidable, at the option of such cooperative, unless all the following conditions are present:

(1) That the presence of such director in the board meeting in which the 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

(4) That in the case of an officer or committee member, the contract with the officer or committee member has been previously authorized by the general assembly or by the board of directors.

Section 49. 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 two-thirds (2/3) vote of all the members with voting rights. This provision shall be applicable, notwithstanding the fact that the director used his own funds in the venture.

Section 50. Illegal Use of Confidential Information. - (1) A director or officer, or an associate of a director or officer, who, in connection with a transaction relating to shares of a cooperative or a debt obligation of a cooperative and for his benefit or advantage or that of an associate, makes use of confidential information that, if generally known, might reasonably be expected to affect materially the value of the share or the debt obligation shall be held:

(a) Liable to compensate any person for a direct loss suffered by that person as a result of the transaction, unless the information was known or reasonably should have been known to the person at the time of the transaction; and

(b) 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.

Section 51. Removal. - An elective officer, director or committee member may be removed by a vote of two-thirds (2/3) of the voting members present and constituting a quorum, in a regular or special general meeting called for the purpose. The person involved shall be given an opportunity to be heard at said assembly.

Section 53. Books to be Kept Open. - (1) Every cooperative shall have the following open to its members and representatives of the Authority for inspection during reasonable office hours at its official address:

(a) A copy of this Code and all other laws pertaining to cooperative;

(b) A copy of the regulations of the Cooperative Development Authority;

(c) A copy of the articles of cooperation and by-laws of the cooperative;

(d) A register of members;

(e) The books of the minutes of the meetings of the general assembly , board of directors and committees;

(f) Share books, where applicable;

(g) Financial statements; and

(h) Such other documents as may be prescribed by laws or the by-laws.

(3) 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 anytime. The financial statements, audited according to generally accepted auditing standards, principles and practices, shall be published annually.

(4) 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 non-financial operations which are already more than five (5) years old except those relating to transactions which are 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 cooperative secretary and the chairman of the audit committee of the cooperative and presented to the board of directors which may be thereupon approve the disposition of said records.

Section 54. Annual Reports. - (1) Every cooperative shall draw up an annual report of its affairs as of the end of every fiscal year, and publish the same furnishing copies to all its members of record. A copy thereof shall be filed with the Cooperative Development Authority within sixty (60) days from the end of every fiscal year. The form and contents shall be a ground for revocation of authority of the cooperative to operate as such. The fiscal year of every cooperative shall be the calendar year except as may be otherwise provided in by the by-laws.

(2) If any cooperative fails to make, publish and file the report required herein, or fails to include therein any matter required by this Code, the Cooperative Development Authority shall, within fifteen (15) days from the date of expiration of the prescribed period, send such cooperative a registered notice, directed to its official and postal address stating the delinquency and its consequences. If the cooperative fails to make, publish or file a copy of the report within thirty (30) days from receipt of such notice, any member of the cooperative or the Government may petition the court for mandamus to compel the cooperative and its officers to make, publish and file such report, as the case may be, and require the cooperative or the officers at fault to pay all the expenses of the proceeding, including counsel fees when the filing is made by a member.

Section 55. Register of Members as Prima Facie Evidence. - Any register or list of members or shares kept by any registered cooperative shall be prima facie evidence of the following particulars entered therein:

(1) The date on which the name of any person was entered in such register or list as member; and

(2) The date on which any such person ceased to be a member.

(2) No person or cooperative in possession of the books of such cooperative shall, in any legal proceedings to which the cooperative is not a party, be compelled to produce any of the books of the cooperative, the contents of which can be proved and the matters, transactions and accounts therein recorded, unless by order of a competent court.

Section 57. Bonding of Accountable Officers. - Every director, officer and employee handling funds, securities or property on behalf of any cooperative shall execute and deliver adequate bonds for the faithful performance of his duties and obligations. The board of directors shall determine the adequacy of such bonds.

Section 58. Preference of Claims. - (1) Notwithstanding the provisions of existing laws, rules and regulations to the contrary, but subject to the prior claim of the Cooperative Development Authority, any debt due a cooperative from a member shall be first lien upon any raw materials, production inputs, and products produced; or any land, building, facilities, equipment, goods or services acquired and held, by such member through the proceeds of the loan or credit granted by the cooperative to him for as long as the same is not fully paid.

(2) No property or interest on property which is subject to a lien under paragraph (1) shall be sold nor conveyed to third parties without prior permission of the cooperative. The lien upon the property or interest shall continue to exist even after the sale or conveyance thereof until such lien has been duly extinguished.

(3) Notwithstanding the provisions of any law to the contrary, any sale or conveyance made in contravention of paragraph (2) hereof shall be void.

Section 59. Instrument for Salary or Wage Deduction. - (1) A member of a cooperative may, notwithstanding the provisions of existing laws to the contrary, execute an instrument in favor of the cooperative authorizing his employer to deduct from the salary or wages payable to him by the employer and pay to the cooperative such amount as may be specified in satisfaction of any debt or other demand due from the member to the cooperative.

(2) Upon the execution of such instrument and as may be required by the cooperative contained in a written request, the employer shall make the deduction in accordance with the agreement and remit forthwith the amount so deducted to the cooperative. The employer shall make the deduction for as long as such debt or other demand or any part of it remains unpaid by the employee.

(3) The term "employer" as used in this article shall include all private firms and the national and local governments and government-owned or controlled corporations who have under their employ a member of a cooperative and have agreed to carry out the terms of the instrument mentioned in paragraphs (1) and (2) of this article.

(4) The provision of this section shall also apply to all such agreements of the nature referred to in paragraph (1) as were in force on the date of the approval of this Code.

Section 60. Primary Lien. - Notwithstanding the provisions of any law to the contrary, a cooperative shall have a primary lien upon the capital, deposits or interest of a member for any debt due to the cooperative from such a member.

Section 61. Tax Treatment of Cooperatives. - Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.

Section 62. Tax and Other Exemptions. - Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions to members. Notwithstanding the provisions of the law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following tax exemptions:

(1) 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 as certified by the Department of Trade and Industry. All tax-free importations shall not 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 tax and/or duties thereon.

(2) 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:
 

(a) Income Tax: On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually receive by members;

(b) Sales Tax: On sales to non members: Provided, however, That all cooperatives, regardless of classification, are exempt from the payment of income and sales taxes for a period of ten (10) years.

For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year period shall be reckoned from the effectivity date of said Executive Order. Cooperatives 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 per cent (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 to socio-economic projects within the are of operation of the cooperative may be tax deductible.

(3) All cooperative, 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 except sales made by producers, marketing or service cooperatives: Provided further, That nothing in this article shall preclude examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority.

(4) Any judge in his capacity as notary public, ex officio, shall render service, free of charge, to any person or group of persons requiring either the administration of oath or acknowledgment of articles of cooperation of a cooperative applicant for registration and instruments of loan from cooperative not exceeding Fifty thousand pesos (50,000.00).

(5) 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 Fifty thousand pesos (50,000.00) or the deeds of title of any property acquired by the cooperative or any paper or document drawn in connection with any action brought by the cooperative or with any court judgment rendered in its favor or any instrument relative to a bond of any accountable officer of a cooperative for the faithful performance of his duties and obligations.

(6) Cooperatives 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 actions is brought by the Cooperative Development Authority before the court, to enforce the payment of obligations contracted in favor of the cooperative.

(7) All cooperatives shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or seeking to set aside any third party claim: Provided, That a certification of the authority showing that the net assets of the cooperative are in excess of the amount of the bond required by the court in similar cases shall be accepted by the court as sufficient bond.

(8) Any security issued by a cooperative, shall be exempt from provisions of the Securities Act provided such security shall not be speculative.

(1) Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or containers, documents or any valuables papers in the sale of the municipal or city treasurers and other government offices free of charge, and the custodian of such articles shall issue a receipt acknowledging the articles received duly witnessed by another person;

(2) Cooperatives organized 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.

(3) Cooperatives rendering special types of services and facilities such as cold storage, ice plant, electricity, transportation, and similar services and facilities shall secure a franchise therefore, and such cooperatives shall open their membership to all persons qualified in their areas of operation;

(4) In areas where appropriate cooperatives exist, the preferential right to supply government institutions and agencies rice, corn and other grains, fish and other marine products, meat, eggs, milk, vegetables, tobacco and other agricultural commodities produced by their own members shall be granted to the cooperatives concerned;

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

(6) Preferential and equitable treatment in the allocation or control of bottomries of commercial shipping vessels in connections with the shipment of goods and products of cooperatives;

(7) Cooperatives and their federations, such as market vendor cooperatives, shall have preferential rights in management of public markets and/or lease of public market facilities, stall or spaces;

(8) Credit cooperatives and/or federations shall be entitled to loans, credit liens, rediscounting of their loan notes, and other eligible papers with the Development Bank of the Philippines, the Philippine National Bank, the Land Bank of the Philippines, and other financial institutions except the Central Bank of the Philippines;

(9) Cooperatives transacting business with the Government of the Philippines or any of its political subdivisions or any of its agencies or instrumentalities, including government-owned and controlled corporations shall be exempt from pre-qualification bidding requirements; and

(10) Cooperatives 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 Philippines.

Nothing in this section, however, precludes creditors from seeking protection from said insolvency law.

Section 66. Voluntary Dissolution Where Creditors Are Affected. - Where the dissolution of a cooperative may prejudice the rights of any creditor, the petition for dissolution shall be filed with the Cooperative Development Authority. The petition shall be signed by a majority of its board of directors or other officers managing its affairs, shall be verified by its president or secretary or one of its directors and shall set forth all claims and demands against it and that its dissolution was resolved upon by the affirmative vote of at least two-thirds (2/3) of all the members with voting rights, at a meeting called for that purpose.

If the petition is sufficient in form and substance, the Cooperative Development Authority shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filled by any person, which date shall not be less than thirty (30) nor more than sixty (60) days after the entry of the order. 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 newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in the municipality or city.

Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has expired, the Cooperative Development Authority shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall issue an order dissolving the cooperative and directing such disposition of its assets as justice requires. The order of dissolution shall set forth therein:

(1) The assets and liabilities of the cooperative;

(2) The claim of any creditor;

(3) The number of members; and

(4) The nature and extent of the interests of the members of the cooperative.

(1) violation of any law, regulation or provisions of its by-laws; or

(2) insolvency.

(1) Having obtained its registration by fraud;

(2) Existing for an illegal purpose;

(3) Willful violation, despite notice by the Authority, of the provisions of this Code or its by-laws;

(4) Willful failure to operate on a cooperative basis; and

(5) Failure to meet the required minimum number of members in the cooperative.

Section 70. Cooperative Liquidation. - Every cooperative whose charter expires by its own limitation or whose cooperative existence is terminated by voluntary dissolution or is terminated by appropriate judicial proceedings shall nevertheless be continued as a body cooperative for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

At anytime during said three (3) years, said cooperative is authorized and empowered to convey all of its property to trustees for the benefit of members, creditors and other persons in interest. From and after any such conveyance by the cooperative of its property in trust for the benefit of its members, creditors and others in interest, all interest which the cooperative had in the property terminates the legal interest vests in the trustees and the beneficial interest vests in the members, creditors or other persons in interest.

Upon the winding up of the cooperative affairs, any asset distributable to any creditor or shareholder or member who is unknown or cannot be found shall be given to the federation, union or association to which the cooperative is affiliated or to the movement.

Except by decrease of share capital and as otherwise allowed in this Code, no cooperative shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

Section 71. Rules and Regulations on Liquidation. The Authority shall issue the appropriated implementing guidelines for the liquidation of cooperatives.

Section 73. Capital Sources. - Cooperatives registered under this Code may derive their capital from any or all of the following sources:

(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.

Section 75. Assignment of Share Capital Contribution or Interest. - Subject to the provisions of this Code, no member shall transfer his shares or interest in the cooperative or any part thereof unless:

(1) He has held such share 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 membership of the cooperative; and

(3) The board of directors has approved such assignment.

Section 77. Shares. - The term "share" refers to a unit of capital the par value of which may be fixed at any figure but not less than One peso (Pl.00). The share capital of a cooperative is the money paid or required to be paid for to conduct its operations. The method of issuing the share certificates may be prescribed in the by-laws of a cooperative.

Section 78. Fines. - The by-laws of a cooperative may prescribe a fine on unpaid subscribed share capital subject to the guidelines which the Cooperative Development Authority may issue.

Section 79. Investment of Capital. - (1) A cooperative may invest its capital in any of the following:

(a) In shares or debentures or securities of any other cooperative;

(b) In any reputable bank in the locality, or any cooperative;

(c) In securities issued or guaranteed by the Government;

(d) In real estate primarily for the use of the cooperative or its member; or

(e) In any other manner authorized in the by-laws.

(1) He is independent of the cooperative being audited and of any subsidiary of the co