MODULE 2

MODULE 2
LESSON 1. MEMBERSHIP
Objectives
 To identify and distinguish the different types of persons
 To recognize the ramifications of the different types of memberships

MEMBERSHIP

Who can be members of Cooperatives

The category of the cooperative involved determines who can be members of that cooperative. Primary
cooperatives can only admit natural persons who are citizens of the Philippines. A secondary or tertiary cooperative
can admit only registered cooperatives or nonprofit organizations with juridical personality.

Kinds of Membership
Members in a cooperative may be classified as either regular of associate. A regular member is entitled to all
rights and privileges. An associate member is not entitled to vote or be voted upon; his rights and privileges are
defined in the by-laws. Generally, the distinction in the by-laws between a regular member and an associate member
lies in the enjoyment of political rights.

Membership of Government Officers and Employees in Cooperatives

Government officers and employees can be members of cooperatives. There are, however, certain
prohibitions on their eligibility to hold appointive or elective positions, Thus, officers and employees of the Cooperative
Development Authority (CDA) are disqualified from being elected or appointed to any position in a cooperative.
Elective officials of the government other than barangay officials are ineligible to become officers and directors of
cooperatives.

Laboratory Cooperatives
Minors can organize a cooperative but such a cooperative is considered a laboratory cooperative and must be
affiliated with a registered cooperative. The rules and guidelines promulgated by the CDA governs the operations of a
laboratory cooperative. Students taking up cooperatives should take advantage of this opportunity to hone their skills
at cooperative maangement and operations.

INCIDENTS OF MEMBERSHIP

Application for Membership

A prospective member shall fill up an application form which will be submitted to the board of directors for
approval. An applicant is deemed to be a member after the approval of his membership by the board. After payment
of the membership fee and an amount equal to the value of at least one share capital – the member’s acquired
interest in the cooperative – he shall exercise the rights and privileges of a member.

Liability of Members
The liability of an individual member for the debts of the cooperative is limited to the extent of his total
subscribed capital contribution to the share capital of the cooperative. A member may be asked by creditors to pay his
unpaid subscribed share capital and unpaid loans to the cooperative.

Termination of Membership
Membership in a cooperative may be terminated through resignation, automatic termination or expulsion. Any
member, for any reason, may resign or withdraw his membership form the cooperative by giving a sixty-day notice to
the board of directors. The resgning member shall be entitled to a refund of his share capital contribution and all
interests in the cooperative so long as the liabilities of the co-op do not exceed the assets after the refund.

REFUND OF INTERESTS
All refund from the cooperative to be made to a former member shall be paid to the member either by the
cooperative itself or by the approved transferee. The approved transferee can be an existing member who is willing
bo build up his share capital and savings/time deposits, or a non-member who is qualified to be a member and is
coming in for the first time and is able to pay for the entire refund to be made to the leaving member.

Review Questions: Explain the following statement below.

1. What are the different genre of juridical personality? Identify and explain each.
2. Why are associate members allowed to buy only preferred shares of the co-op?
3. What determines and grants the rights of a regular member? How about the associate member? Explain.
4. Among government officials and employees, who are qualified to hold elective and apointive positions in a
cooperative?
5. Cite the instances when membership is automatically terminated; involuntary terminated.

GEC – Cooperative Management | Module 2

1|Page
 6. How will students proceed about in organizing a laboratory credit co-op?
7. Can a minor be a member in a cooperative other than a laboratory co-op? Explain.
8. At what point in time does an applicant become a member of the co-op after submission of his application for
membership?
9. At what point in time, after the board accpets an application for membership, does a member enjoy the rights
of such membership?
10. What should a member do to profit the most form his membership in a cooperative?

LESSON 2. ADMINISTRATION
Objectives
 To identify and distinguish the structural elements of a cooperative.
 To recognize and contrast the different powers, rights, duties, and responsibilities of a member, the general
assembly, board of directors, officers, and committee members

GENERAL ASSEMBLY

Composition of the General Assembly

The general assembly consists of regular members whoa re entitled to vote under the articles of cooperation
and by-laws of the cooperative. A regular member, however, may be disenfranchised if he is not a member in good
standing in accordance with the by-laws.

Powers of the General Assembly

The general assembly is the highest policy-making body of the cooperative. This means thath although the
board of directors can initiate the adoption of a policy during its regular or special meetings, the general membership,
during the general assembly meeting, can pass a motion amending or doing away altogether with the board’s policy,
and if the motion is debated upon and approved by the body, the general assembly’s resolution becomes the policy of
the cooperative.

Meetings of the General Assembly

Regular Meeting. The general assembly holds its regular meeting annually on a fixed date stated in the by-
laws. If the by-laws are silent on the date of the meetin, then the general assembly shall hold it on any date
within 90 days after the close of each fiscal year.

Special Meeting. If it is necessary that a special meeting of the general assembly be convened, at least one
week written notice shall be sent to all members. The board of directors may call such special meeting of the
general assembly by a majority vote.

Special meeting to regularize operations. In the case of a newly approved cooperative, a special general
assembly shall be called within 90 days from such approval. This is for the purpose of electing the regular
board and committee members that will run the cooperative.

CDA-iniated special meetings. The CDA may call, motu propio, a special meeting of the cooperative to
report to the members the result of any autid, examination, or other investigation of the cooperative affairs
ordered or made by the Authority.

Waiver of Notice. Notice of any meeting, whether regular or special, may be waived, expressly or impliedly,
by any member.

Qourum
The general norm regarding quorums is provided in the by-laws. If there is nothing stated in the by-laws, the
Code provision – that a quorum shall consit of 25 percent of al the members entitled to vote – shall govern.

Voting System
In primary cooperatives each member shall have only one vote and no voting agreement or other device to
evade the one-member-one-vote provision shall be valid. No member shall be permitted to vote by proxy, unless
provided for specifically in the by-laws o the cooperative.
In secondary or tertiary cooperatives, the rules on voting vary slightly. A secondary or tertiary cooperative
shall have voting rights as delegate of member-coperatives, by such secondary or tertiary cooperative, as delegate,
shall have on ly five votes even if the co-op has more than five member-cooperatives.

BOARD OF DIRECTORS

GEC – Cooperative Management | Module 2

2|Page
Composition of the Board of Directors
The board of directors conduts and manages the affairs of the cooperative. The scope of this function if best
seen when the functions and responsibilities of the directors are examined. The board of directors, as a body, has
general suprvision and control of the affairs of the cooperative.

Powers of the Board of Directors

The board of directors directs and supervises the business of the cooperative. It also manages the property of
the cooperative. By or through a resolution, it exercises all cooperative powers that are not reserved for the general
asembly under the Code or the by-laws.

Who Can Be Directors?

Any regular member of the cooperative who has the right to vote under the by-laws, and possesses all the
qualifications and none of the disqualifications provided in the laws or the by-laws, may be nominated and elected
director.

Meeting of the Board, Quorum

Regular meetings of the board shall be held every month. This is true every cooperative established, unless a
different schedule is provided for in the by-laws. The president/chairman may call for special meetings of the board of
directors at any time, unless special provisions in the by-laws determine the occurrence of such special meetings.

Vacancy in the Board of Directors

When a vacancy in the board is caused by the expriation of the term of office, the due recourse is to hold
elections. However, if the vacancy is due to any reason other than the expiration of term of office, and the reamining
members still constitute a quorum, then the board can fill up the vacancy by the vote of at least a majority of the
reamining directors.

Officers of the Cooperative

The general assembly elects the board of directors bu this election deals only with the required number or the
board members. At the first meeting of the board after their election, they vote for the chairman and the vice-chairman
from among themselves.

Review Questions: Explain the following statement below.

1. The Code states that quorum is generally set at 25 percent of all members entitled to vote; however, ABC Co-
op’s by –laws states that quorum should be 1/3 of all members entitled to vote. Which provision will prevail: the
by-laws’ or the Code’s?
2. What are the different structural elements of a cooperative? How does each structural element complement
each other?
3. What electoral practices safeguard the principle of democratic members’ control of the cooperative? Explain
why.
4. What should the developmental plans of a cooperative contain? Is it the same as strategic plans?
5. What is the role or function of the board in relation to the exclusive powers of the general assembly?
6. Compare and contrast the general assembly and the board of directors insofar as their policy making powers
are concerned.
7. Who among the elective and appointive officers can have double positions and functions? Why?
8. In cooperatives, who are the persons holding positions of higher responsibility that are elected by the general
assembly? Indicate the votes required to validate the election of person to such positions.
9. Why is loss of confidence on directors defined restrictively in cooperatives? What may happen if the concept
is defined as is ordinarily used in management and human resources in relation to managers and top
management?
10. What may happen to the operations of a cooperative if there are board members who are related within the 3 rd
civil degree by consaquinity or affinity?

COMMITTEES OF COOPERATIVES

Executive Committee
The board of directors meets at least once a month; in between meetings, have are some problems that need
to be acted upon immediately, bu the board cannot be summoned always, to a special meeting. To address such
situations, the board may create an executive committee, or execom for short, that addresses problems that crop up
in the daily operations of the cooperative.

Audit Committee
Created by the by-laws, the audit committee is elected to keep an eye on the operation of the cooperative in
behalf of the membership. Its job is to protect members against loss due to poor operation, and at the same time to
protect other elected co-op official s against unfair or unfounded accusations.

Other committees

GEC – Cooperative Management | Module 2

3|Page
 Under the direction of the board, the education and membership committee (edcom) has these important
duties: a) attracting new members (the co-op serves people only if they are members); b) encouraging savings
(saving is hard work; so, people need prodding); c) offering loan service (the service is better and costs less than
other lending agencies’ debt charges, service fees, fines and surcharges).

MISCELLANEOUS PROVISIONS

The board should consider its responsibilities in relation to the following organizational units i the co-op:

a. The Credit Committee. The Credit Committee handles loan management. It is, therefore, the job of the
board to set up reasonable rules for the credit committee, so it may make good decisions. Credit policies
should not be restrictive that practically nobody qualifies to borrow money.

b. The Audit Committee. The Audit Committee guards the financial integrity of the cooperative. It is the
responsibility of the board to insist on good performance from the audit committe. The board must provide the
committee with funds, supplies, materials, and help, as needed.

c. The Treasurer. It is board’s duty to provide the treasurer with ample space (on that will secure the
documents, checks, and cash), equipment (cash box, safe, etc), help (bonded cashiers, collectors), and
enthusiastic support (training seminars, etc.).

d. The Members. The board is guardian not only of the cooperative and its service but also of the co-op’s
principles and ideals. Members elect the board expecting the directors to lead in the fight against usury,
poverty, hopelessness, adulterated goods, poor quality products, oppressive debt, and the other money
troubles that saddle the lives of ordinary people.

Liability of Directors, Officers and Committee Members

Directors, officers and committee members are liable for the following acts: a) willfully and knowingly voting
for or assenting to patently unlawful acts; b) gross negligence in running the affairs of the cooperative; c) bad faith in
directing the affairs of the cooperative; d) acquisition of any personal or pecuniary interest in conflict with their duty as
directors, officers or committee members. These acts are serious offenses and constitute valid grounds for removal
from office.

Compensation
The general rule is that directors and officers are not paid for services rendered because of the voluntary
nature of the work in the cooperative. It is love for neighbors and the desire to help one another that motivates
members in rendering services.

Dealings of Directors, Officers or Committee Members

Conflict of interest dictates that directors, officers or committee members refrain from entering into any contrat
with the cooperative. In Filipino culture, conflict of interest is a sense of delicadeza.

Disloyalty of a Director
In the course of discharging his responsibilities, a director comes into contact with business offers to the
cooperative, which might temptingly present some entrepreneurial opportunities for himself. Some directors may
appropriate for themselves transactions that should have been entered into for the cooperative.

Illegal Use of Confidential Information

Running a cooperative involves, at one time or another, keeping confidential information. Personnel records
are confidential. Insofar as non-members are concerned, books of accounts are confidential information. However,
confidential information, according to Art. 50 of the Code, is deemed illegally used when the confidential information is
such that, if generally known, it might reasonably be expected to affect materially the value of the share or debt
obligation of the coperative.

Removal
Any elective official (such as a director, officer, or committee member) of the cooperative may be removed
from office by a vote of two-thirds of the voting members constituting a quorum in a regular or special general
assembly. The special assembly must be called of the purpose of deciding on the issue of removal.

Review Questions: Explain the following statement below.

1. How would you differentiate the board from the execom?
2. Aside from training and development, what other important function does the edcom carry out? Why?
3. Why should spot audits be conducted?
4. What are the consequences of a contract, entered into by the board with Mr. X, the only son of a board
member who is a partneer ofhis son in the business, as to validity, rights, obligations, and sanctions?
5. What is ratification? What are its consequences?
6. How does “loss of confidence” in a director vary from a disloyal vary from a disloyal act of a director?
7. What is due process of law?

GEC – Cooperative Management | Module 2

4|Page
 8. Should the audit committee review the performance of the board of directors? Why? How about the credit
committee? Explain.
9. Who audits the audit committee? Explain.
10. Why does ratification by the general assembly of a defective contract cure the defects of the agreement?
11. Can the general assembly of ZXY Cooperative ratify a contract where its Director A sold to the said co-op 10
computer units at twice the prevailing market price? Explain your answer.
12. Draw up a one-year program for the edcom of a co-op that received its certificate of registration on December
28.
13. When cooperatives do not compensate the directors and officers for their work in the cooperative, are they
not guilty of some sort of slavery? Explain.
14. Distinguish a void contract from a voidable contract.
15. What dynamics exist between and among the different committees of a cooperative?
16. What would be the impact on the cooperative movement if loyalty of directors can be inculcated amon co-op
leaders?
17. If cooperatives are strategies for socio-economic development and therefore their members generally are
those with less in life and are always in need, how can integrity in cooperatives be insured and safeguarded?
18. How much of a factor is the audit committee in securing integrity in cooperatives?

LESSON 3. RESPONSIBILITIES, RIGHTS, AND PRIVILEGES OF COOPERATIVES

Objectives
 To identify and discuss the responsibilities, rights, and privileges of cooperatives
 To analyze the effects of the ramifications of the responsibilities and rights of a cooperative

RESPONSIBILITIES OF COOPERATIVES

Annual Reports
All cooperatives are required to publish an annual report that should showcase its affairs within a fiscal year
period. They by-laws generally define the fiscal year of every cooperative; however, if the by-laws are silent the
calendar year is the fiscal year.

Register of Members and Shares

One of the books required to be kept by cooperatives is the register of members. The other is the register of
shares or, as stated in Article 53, share books, where applicable. The register of members contains the names of
current members of the cooperative.

Bonding of Accountable Officers

All member-officers and non-member employees handling funds, securities, or property for a cooperative
must execute and deliver adequate bonds for the faithful pefoarmance of their duties and obligations. The persons in
the cooperative who handle funds and securities for investments are the cashier, collector, treasurer, financ officer,
tellers, or new-account clerks.

RIGHTS TO COOPERATIVES

Preference of Claims
When a member borrows money or obtains credit from the cooperative to procure raw materials, production
inputs, products produced, land, building, facilities, equipment, goods or services, who has the preferential right to
claim the amount of their loans over the porcured goods and services if the member has several creditors.

Instrument for Salary or Wage Deduction

Salary deduction from an employees’ payroll in favor of the cooperative is one strategy that ensures the
growth and stability of a cooperative. This is more than enough security that the co-op will collect what is due to it.
Labor Code prohibits employers from making, unilaterally, any deductions from employees’ payroll unless there is an
authorization from the employee to make such deductions.

Primary Lien
Art. 60 o fhte Code reads: “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.”

Taxation and Cooperatives

The main determination of the tax status of a cooperative depends on whether the cooperative transacts
business solely with members or extends its business even to nonmembers. For those transacting business with
nonmembers, the consideration is whether the accumulation of reserves and undividednet savings has reached
P10,000,000.00 or not.

GEC – Cooperative Management | Module 2

5|Page
PRIVILEGES OF COOPERATIVES
Cooperatives registered with the CDA, notwithstanding the provisions of any law o the contrary, enjoy the
following privileges:
a. Free-of-charge safekeeping of cash boxes and documents in government safes
b. Use of available space in government offices
c. Franchise for special services
d. Preferential right to supply certain commodities
e. Priority in allocation of fertilizers and rice distribution
f. Preferential right in allocation and control of bottomries
g. Preferential right in management of public markets
h. Entitlement to loans and credit lines with DBP and LandBank
i. Exemption in prequalification for transactions with government offices and agencies
j. Free representation by government legal officers

Review Questions: Explain the following statement below.

1. If the cooperative moves to a new main office, what are the consequences of this move?
2. Until when should the cooperative keep and maintain the books of accounts and registers that the law
requires it to keep? Distinguish if necessary.
3. Can a co-op dispense with the making and distribution of its annual report? Why?
4. What are the contents of the register of members? How about the register of shares?
5. What is the evidentiary value of waht is written in the books and registers of the co-op? Explain.
6. If the cashier deposits the day’s collection with a nearby bank at 2:50 p.m., should the co-op still secure a
bond for its accountable personnel? Why?
7. Who has a better right to the property procured from the proceeds of a loan secured from the co-op, the co-op
or the CDA? Expalin your reasons?
8. Which one constitutes a lien: the mortgaged property, the mortgage contract, or the loan? Explain.
9. What must be done so an employer may honor a salary deduction request from an employee in favor of the
cooperative? List down the steps sequentially.
10. What tax rights do co-ops transacting business with nonmembers have?
11. Is it safe to say that there are co-ops that may never be taxed at all under the present Code? Explain.
12. Do all of the privileges extended under Art. 63 enjoyed by cooperatives. What do you think?
13. When the law speaks of “lien,” there are how many contracts involved? Explain.
14. Other than the fact that the requirement is a legal mandate, what reasons exist to motivate a co-op to
maintain its boks of accounts?
15. If a member has a loan that is fully covered by his deposits in the co-op, may he be allowed to withdraw his
deposits in the co-op?
16. As laid down in the Code, will the rights, responsibilities and priviledges of cooperatives secure the upliftment
of the living conditions of people in depressed areas if the setting up of cooperatives is the main strategy for
development?
17. How doable or implementable are the priviledges extended to cooperatives?

LESSON 4. DISSOLUTION OF COOPERATIVES

Objectives
 To distinguish and relate the causes for dissolution
 To determine situations that give rise to liquidation

DISSOLUTION OF COOPERATIVES

Voluntary Dissolution
Voluntary dissolution comes about when the cooperative itself, through resolution of the board of directors
and the general assembly, seeks termination of its business.

Voluntary Dissolution Where No Creditors Are Affected. Where no creditors’ rights are affected by the
dissolution of the cooperative, i.e., there are enough assets to pay the debts owed to creditors, the rules to be
followed are:
1. Resolution from the board
2. Resolution from the general assembly
3. Notice of Meeting

Voluntary Dissolution Where Creditors Are Affected. If the dissolution will prejudice the rights of creditors
to collect payment from the cooperative because the assets of the cooperative are not sufficient anymore to
pay all obligations, the proper recourse is to file a petition for dissolution with the CDA.

Involuntary Dissolution. A cooperative may be dissolved by order of a competent court such as the
Regional Trial Court (RTC), after due hearing on the grounds of violation of any law, regulation, or provisions
of its by-laws; or insolvency. (Art. 67)

GEC – Cooperative Management | Module 2

6|Page
 Proceedings upon Insolvency. Under the Insolvency Law, a bankrupt cooperative can be permitted to either
suspend payments or be discharged from its debts and liabilities. Suspension of payments is allowed when
the assets of the cooperative are sufficient to pay all its debts but at present it cannot muster enough cash to
pay all its maturing obligations.

Dissolution by Order of the CDA

CDA can with due process, suspend or revoke the certificate of registration of a cooperative on any of the
following grounds:
a. The cooperative obtained its registration by fraud
b. The cooperative exists for an illegal purpose
c. The cooperative has willfully violated, despite notice by the Authority, the provision of the Code or its by-laws
d. The cooperative has willfully failed to operate on a cooperative basis
e. The cooperative has failed to meet the required minimum number of members.

Dissolution due to failure to Organize and Operate

Upon receipt of its certificate of registration, a cooperative as a matter of procedure, shall organize itself for
the purpose of commencing operations. The initial act of the cooperative in commencing business is for the elected
members of the board to meet and constitute themselves as a body politic for the purpose of transacting business.

Dissoluation Due to Failure to Operate for Two Consecutive Years

If a cooperative has not carried on business for two consecutive year, the CDA will send a formal inquiry to
the concerned cooperative as to the status of its operation. The scenario here concerns a cooperative that has
organized and started operating its business but somehow, after years or even a few years of operation, ceased
oprations.

LIQUIDATION
Liquidation takes place within a three-year period after the dissolution of the cooperative wherein all assets
are collected and all debts are paid off. In this period the cooperative continues to exist and exercise its powers but
solely for the purpose of collecting all assets and paying off all creditors.
Liquidation comes about as a result of any of the following:
a. Expiration of charter
b. Voluntary dissolution
c. Dissolution by judicial proceedings

Review Questions: Explain the following statement below.

1. Distinguish dissolution where there are no creditors affected from one where creditors are affected. Give
reasons for the differences.
2. How do you distinguish voluntary dissolution from involuntary dissolution? Give examples of each type.
3. What is your comment on the following: All cases resulting in dissolution are also proper cases for liquidation.
Why? Show relationships if necessary.
4. What are the differences, if any exists, between judicial dissolution and a CDA-declared dissolution. Answer
exhaustively.
5. Distinguish between dissolution by failure to organize and operate within two years and dissolution by failure
to operate for two consecutive years.
6. What is the distinction, if any exists, between liquidation and winding up?
7. What are the CDA initiated dissolutions? Explain each.
8. What benefit(s) do cooperatives derive through dissolution?

Prepared by:

TESSIL JOY LOREN-SOTONIEL

Instructor 1

GEC – Cooperative Management | Module 2

7|Page