The Legal Status of Cooperatives as Business Entities in the Philippines (A comprehensive doctrinal overview as of 13 June 2025)
1 | Conceptual Foundations
| Key Element | Core Rule in Philippine Law |
|---|---|
| Statutory Basis | Republic Act No. 9520, the “Philippine Cooperative Code of 2008,” which repealed and replaced most provisions of R.A. 6938 (1990). |
| Definition | A cooperative is a duly registered autonomous and duly recognized association of persons who have voluntarily joined to achieve common economic, social and cultural needs in accordance with universally accepted cooperative principles and duly registered with the Cooperative Development Authority (CDA) (Art. 3, R.A. 9520). |
| Guiding Principles | Adoption of the seven International Cooperative Alliance (ICA) principles is mandatory: 1) voluntary and open membership, 2) democratic member control (one-member-one-vote), 3) member economic participation, 4) autonomy and independence, 5) education, training and information, 6) cooperation among cooperatives, 7) concern for community. |
2 | Juridical Personality and Registration
Creation of the Juridical Entity
- A cooperative acquires a separate juridical personality from its members upon issuance of a Certificate of Registration by the CDA (Art. 14).
- The CDA—not the Securities and Exchange Commission (SEC)—is the sole registering and supervising authority.
Minimum Organizers & Capital
Type of Cooperative Minimum Number of Natural-Person Members Capital Rules* Primary 15 At least 25 % of the authorized share capital must be subscribed and 25 % of that subscription (but not less than ₱15 000 total) must be paid-up. Secondary (co-op of co-ops) 5 primaries Same 25 %-25 % rule, but no minimum peso amount. Tertiary 2 secondaries Same 25 %-25 % rule. *A cooperative may also raise unlimited non-voting preferred shares, member deposits, revolving capital, and external loans.
Articles of Cooperation & By-laws Must state: name, purpose(s), principal address, term, authorized capital, number of directors (5–15), and other data. By-laws cover membership, governance, officers, meetings, surplus allocation, dispute resolution, etc.
3 | Classification of Cooperatives
Cooperatives are classified by economic activity or sector (Arts. 23–24). The most common are:
- Credit, Savings & Credit
- Consumer
- Producers / Marketing
- Service
- Multipurpose (after two years of successful single-purpose ops)
- Worker
- Transport (land, water, air)
- Electric, Water & Communications
- Agrarian Reform / Farmers’ / Fisherfolk
- Cooperative Bank (governed also by R.A. 11364, BSP circulars)
Each type may have supplemental authorities (e.g., BSP for coop banks, ERC for electric cooperatives, DOTr-LTFRB for transport).
4 | Governance Structure
| Organ | Composition & Key Powers |
|---|---|
| General Assembly (GA) | Highest policy-making body; each member has one vote (proxies: only for delegates in cooperative-of-cooperatives); 2/3 quorum for amendments, 3/4 for dissolution or division. |
| Board of Directors (BoD) | 5–15 elected directors, max 2 consecutive 2-year terms (unless by-laws shorten); formulates strategic policies. |
| Statutory Committees | Audit, Election, and Mediation-Conciliation committees are mandatory; others (e.g., Ethics, Education) optional. |
| Officers | Chairperson, Vice-Chair, Treasurer, Secretary, General Manager/CEO, and such other elected or appointed officers as by-laws provide. |
5 | Liability Regime
- Members’ Liability is limited to their share capital contributions and any unpaid subscriptions, unless the by-laws impose additional liabilities (Art. 13).
- Directors/officers may incur personal, joint and several liability for willful, grossly negligent or fraudulent acts (Art. 48).
6 | Tax Treatment and Incentives
| Tax / Fee | General Rule for Cooperatives* |
|---|---|
| Income Tax | Exempt if (a) gross receipts/sales < ₱10 M and (b) net surplus is distributed to members or retained for internal capital; otherwise taxed only on non-operating income. |
| Value-Added Tax (VAT) | Generally exempt on transactions with members; subject on dealings with non-members beyond ₱3 M threshold. |
| Documentary Stamp Tax (DST) | Exempt on transactions connected with cooperative operations. |
| Import Duties | Exempt for capital equipment, raw materials directly used in production/processing. |
| Local Taxes & Fees | Exempt from local business taxes and permits (Sec. 133(n), Local Gov’t Code & R.A. 9520). |
| Franchise, Percentage & Others | Exempt, except on final withholding of certain passive income. |
*Subject to periodic BIR/CDA joint guidelines; electric & telecom coops have specialized rules.
7 | Reporting & Regulatory Compliance
Annual Mandatory Filings to CDA
- Audited Financial Statements (AFS) by a CDA-accredited CPA.
- Performance audit and social audit reports (once every two years for large co-ops).
- List of officers, training certifications.
Books & Records
- Cooperative book of accounts, minutes books, members’ ledgers, share/deposit registers.
Special Ratios
- Credit and multipurpose co-ops must observe net institutional capital and liquidity ratios per CDA Memorandum Circulars.
Failure to comply may lead to fines, suspension, or cancellation of the Certificate of Registration after due process.
8 | Capital Formation & Distribution of Surplus
Net Surplus Allocation (Art. 86):
Use Minimum Allocation Reserve Fund 10 % Cooperative Education & Training Fund 10 % (50 % of which remitted to federations/Unions) Community Development Fund 3 % Optional Fund (e.g., Disaster, Mutual Benefit) ≤7 % Patronage Refund to members Balance Interest on Share Capital is capped at the normal rate of return on investments prevailing in the banking industry and may be paid only if a Reserve Fund of at least 50 % of paid-up capital has been built.
9 | Relations with External Legal Regimes
| Aspect | Cooperative Treatment vs. Regular Corporation | |
|---|---|---|
| Regulator | CDA | SEC |
| Voting | One Member = One Vote | Shares determine votes (except close corporations) |
| Share Transfer | Restricted to members/qualified persons | Freely transferable (unless SMCR) |
| Purpose | Member service & community benefit, limited return on capital | Primarily profit maximization |
| Insolvency | Liquidation by a Cooperative Liquidators Team (Arts. 72–76) | Corporation Code liquidation or FRIA insolvency |
| Dispute Settlement | Mandatory internal conciliation-mediation, and voluntary arbitration under CDA rules; appeal to Office of the President then CA | Arbitration only if agreed; otherwise courts |
10 | Reorganization, Conversion, Dissolution
- Merger & Consolidation require 3/4 GA vote of each merging cooperative plus CDA approval (Arts. 17–19).
- Division (split-up) also needs 3/4 GA vote and results in new certificates.
- Voluntary Dissolution without creditors affected: 3/4 GA vote, 60-day notice, CDA approval.
- Involuntary Dissolution: by CDA for fraud, inactivity for 3 years, or insolvency.
- Liquidation Process: A Liquidation Board (at least 3 members) takes charge; members paid after creditors; any remaining assets go to charitable trusts or federations.
11 | Sector-Specific Nuances
| Sector | Extra Statutes / Agencies |
|---|---|
| Cooperative Banks | R.A. 11364 (2019), BSP regulations—co-op banks now under BSP supervision, with CDA retaining registration duties. |
| Electric Cooperatives | Electric Power Industry Reform Act (EPIRA, R.A. 9136), ERC rules; may opt to register with CDA (not NEA) for full coop incentives. |
| Transport Cooperatives | LTFRB MCs (e.g., MC 2020-066 for PUJ modernization); franchise & route rationalization requirements. |
| Water Service & Sanitation | Local Water Utilities Administration (LWUA) oversight for water districts; DOH for sanitation standards. |
12 | Advantages & Current Policy Issues
| Advantages | Outstanding Policy Questions (2025) |
|---|---|
| Tax incentives, easier capital from members, community trust, democratic control | Rationalizing VAT exemptions; harmonizing CDA & BSP rules for coop banks; encouraging digitalization & ESG reporting; balancing autonomy with stricter anti-money-laundering compliance. |
13 | Conclusion
Under Philippine law, cooperatives stand as full-fledged juridical persons—neither mere associations nor ordinary corporations, but sui generis entities with a social enterprise mandate. Registration with the CDA confers legal personality, limited liability, and a basket of fiscal incentives, but also subjects co-ops to special governance, reporting and surplus-allocation rules designed to preserve their people-centered character.
For practitioners and scholars, mastery of the Cooperative Code of 2008, its implementing rules, and the sector-specific circulars is essential to navigate a regulatory landscape that continues to evolve toward deeper financial inclusion and sustainable development.