Philippine Cooperative Code of 2008 (RA 9520)
●No extension can be made earlier than five (5) years prior to the original or
1. Concepts and Rules General Provisions
Definition of Cooperative
- An autonomous and duly registered association of persons, with a
common bond of interest, who have voluntary joined together to
achieve their social, economic, and cultural needs and aspirations
by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share
of the risks and benefits of the undertaking in accordance with
universally accepted cooperative principles
Cooperative Principles
a. Voluntary and Open Membership
- Membership is open to all person without discrimination.
b. Democratic Member Control
- “One member, one vote” principle.
c. Member Economic Participation
- Members receive limited compensation or limited interest, if any, on capital
subscribed and paid as a condition of membership.
d. Autonomy and Independence
- Cooperative is a self-help organization controlled by the members.
e. Education, Training, and Information
- The purpose is to contribute for the development of the cooperative.
f. Cooperation Among Cooperatives
- Working together through local, national, regional, and international
structures.
g. Concern for Community
- Sustainable development of the cooperative’s community
Main Objective of Cooperative
- To improve the quality of life of its members.
2. Organization and Registration
Cooperative Powers, Rights and Capacities
a. To the Exclusive use of its registered name, to sue and be sued;
b. Of succession;
c. To amend its articles cooperation;
d. To adopt by-laws, amend and repeal the same;
e. To purchase, receive, take or grant, hold, convey, sell, lease, pledge and
mortgage, and otherwise deal with
such real or personal property;
f. To enter into division, merger or consolidation;
g. To form subsidiary cooperatives and join federation or unions;
h. To avail of loans, be entitled to credit and to accept and receive grants,
donations, and assistance from foreign and domestic sources subject to the
conditions that these will not undermine the autonomy of the cooperative.
i. To avail of preferential rights under the Local Government Code and other
laws;
j. To organize and operate school in accordance with RA 9155;
k. Other powers as provided by the Code and those necessary to carry out its
purpose as stated in the Articles of cooperation.
Organization of Primary Cooperative
● It must be formed by fifteen (15) or more natural persons who are Filipino
citizens, of legal age, have a common bond of interest, and actually residing
or working in the intended area of operation.
● A prospective member must have completed a Pre-Membership Education
Seminar (PMES)
Liability of the Cooperative
- Registered cooperative has limited liability.
Term of Cooperative
● Cooperative shall exist for fifty (50) years from the date of registration
unless sooner dissolve or unless said period is extended;
●The term may be extended for not exceeding fifty (50) years by amending
the cooperative articles of
cooperation;
subsequent expiry date unless there are justifiable reasons for an earlier
extension as may be determined by the Authority.
Articles of Cooperation
●Signed by each of the organizers and submitted to
the Authority;
● The articles of corporation must be accompanied by a BONDs of the
accountable officers and TREASURER’s affidavit showing that 25% of the
authorized capital have been subscribed and 25% of the subscribed have
been paid
By-Laws
● The cooperative shall adopt by-laws not inconsistent with the Code and it
shall be filed at the same time as articles of cooperation;
● It provides... (o) other matters incident to the purposes and activities of the
cooperative.
Registration
● Cooperative acquires its juridical personality from the date the Authority
issues a certificate of registration under its official seal;
● Certificate of registration shall be conclusive evidence that it is registered
unless it is proved that the registration has been cancelled.
● All application shall be finally disposed of by the Authority within 60 days
from the filing thereof, otherwise the application is deemed approve, unless
the cause of the delay is attributable to the applicant;
● That in case of denial of the application, an appeal shall lie with the Office
of the President within 90 days from the receipt of such denial;
● Failure of the President to act within 90 days from the filing thereof shall
mean approval
● of said application.
Capitalization
● For primary cooperative, the paid-up capital shall not be less than fifteen
thousand pesos (P15,000);
● For multi-purpose cooperative, the minimum paid up capital is one
hundred thousand pesos (P 100,000) or the amount stated in the feasibility
study whichever is higher.
Cooperative Name
● The word “cooperative” shall be included in the name of the cooperative,
which name shall likewise specify the type of cooperative.
● No Cooperative name shall be allowed by the Cooperative Development
Authority (CDA) if the proposed name is identical or deceptively or
confusingly similar to that of any existing cooperative, contrary to public
policy, moral and existing laws.
● The use of the word “development”,“integrated”, “Federation and Union”
in the cooperative name shall be discouraged.
Amendment of Articles if Cooperation and By-laws
● It requires 2/3 votes of all the members with voting rights, without
prejudice to the right of the dissenting members to exercise their right to
withdraw their membership.
● The amendments shall take effect upon its approval by the authority or
within 30 days from the date of filing thereof if not acted upon by the
Authority for a cause not attributable to the cooperative.
Definition of Terms in Cooperative Code:
1. Members – includes a person either natural or juridical who
adhering to the principles set forth in this Code and in the Articles
of Cooperative, has been admitted by the cooperative as member
Corporation General Provisions
Corporation defined (Sec. 2 of RCC).
- An artificial being created by operation of law, having the right of
successions and powers, attributes, and properties expressly
authorized by law or incidental to its existence.
Features of Corporation
- Doctrine of Distinct and Separate Juridical Personality.
• It is regarded as a person.
- Doctrine of Limited Liability
• The liability of a corporation is not the liability of the
stockholders.
Exception to the Doctrines UCNPB
• Unpaid subscription;
•Commingling of assets during rehabilitation or insolvency proceedings;
• Nullification of unusual or unreasonable transfer of funds or
assets to the shareholders; during the 90-day pre-zone of insolvency;
• Breach of fiduciary duties by the directors or trustees;
• Piercing the corporate veil.
Piercing the Corporate Veil FDATD
• Fraud cases;
• To defraud third persons
• Alter ego cases or business conduit of a person;
• Tax avoidance
• Defeat public convenience, justify wrong, protect fraud, or defend crime.
Note, It should be:
• Done with caution;
• Clear and convincing evidence (cannot be presumed);
• The mere ownership by one person is not sufficient ground.
Case: Donnina Halley vs. Printwell, Inc.
– The Court ruled stockholders of a corporation are liable to the debts of the
corporation up to the extent of their unpaid subscription. They cannot invoke
the veil of the corporate identity as a shield from liability, because the veil
mat be lifted to avoid defrauding corporate creditors.
General Classes of Corporation (Sec. 3 of RCC)
1. Stock Corporation
– Capital stock divided into shares
– Authorized to distribute dividends from unrestricted retained
earnings or capital gains upon disposition.
2. Non – stock Corporation
– established for other purposes; without monetary benefits to
person comprising it.
Classes of Corporations
1. Close Corporation (e.g. family)
– Nature of incorporated partnership;
– Composed of 2 to 20 shareholders;
– Do business as partners but with limited liability as stockholders.
2. One Person Corporation
– One natural person, estate or trust
3.Religious Corporation and Educational Corporation
Governing Laws of Corporation (Sec. 4 of RCC)
1. Private Corporations – General law (Revised Corporation Code)
2. GOCC – Special Charter created by CONGRESS;
– Economic viability test;
– No private corporation under special charter;
3. Cooperatives – Cooperative Code;
4. Religious Corporation – General law (RCC);
5. Educational Corporation – special law and General law (RCC);
Composition of Corporation (Sec. 5 of RCC)
Corporators – those who compose the corporation.
– Incorporators are the one who originally formed the corporation.
– Stockholders are the investors of stock corporation.
– Members are the corporators of non stock corporation.
– Board of directors (BOD)/ Trustees are the managers of the corporation.
Classification of Shares (Sec. 6 of RCC)
• Preference Shares
– Preference as to dividends
– Cumulative or non-cumulative
– Participating or non – participating
– Mixed of those
– Preference as to assets
– With limited voting rights
Preference Shares Voting Rights (Sec. 6 of RCC)
• They shall vote under the following situations:
– Amendment of the articles of incorporation and by laws; Adoption of by
laws;
– Disposal (in any form) of all or substantially of corporate property;
– Creating, increasing or decreasing bonded indebtedness;
– Increase or decrease of authorized capital stock;
– Merger or consolidation;
– Investment of corporate funds to another corporation;
– Dissolution
• Right of Appraisal (out of unrestricted earnings)
– Redeemable preference shares (quasi-debt instrument)
– Fixed period or date;
– Put option (holder) or Call option (issuer);
– No need for unrestricted retained earnings provided the corporation is
not insolvent or it will not result to insolvency.
– Convertible preference shares
– Required to have unissued shares available without shareholder’s
approval;
– No pre-emptive right.
– Common Shares (must have in the corporation)
– No preference;
– Assumes all the risks but reap all the benefits;
– Has full voting rights; has equal rights except as provided by law or
charter.
– “One share, one vote policy”;
– Each share shall be equal in all respects to every other common share.
– They have the same rights, privileges, and restrictions except for series
shares (seldom permitted).
Par Value Shares (Sec. 6 of RCC)
– Par value shares may be issued for consideration equal to or more than the
nominal value.
– If less than the nominal value, it creates “Watered Stocks”.
– If it is more than the nominal value, it creates “Share Premium”.
– Subscribed capital stock are assets or funds available to creditors and
further losses.
– Authorized capital stock is the minimum amount of capital that the
corporation may raise from its subscribers without further approval from its
existing shareholders.
Par Value or No Par Value (Sec. 6 of RCC)
– Banks, trust, insurance and preneed companies, public utilities, building
and loan association, and other corporations authorized to obtain or access
funds from the public, whether publicly listed or not are not authorized to
issue no par shares.
– Preference shares may only be issued with stated par value.
No Par Value Shares (Sec. 6 of RCC)
– NO par value shares are without nominal value.
– The shares may be issued at a lower amount but must not be
lower than P 5.
– It is deemed fully paid and non – assessable and the holder
of such shares shall not be liable to the corporation or to
 its creditors in respect thereto.
– The entire consideration is the capital under the trust fund
doctrine.
Trust Fund Doctrine
• allows the distribution of corporate capital when:
– Amendment of the Articles of Incorporation to reduce
authorized capital stock;
– Purchase of redeemable shares by the corporation regardless of
the existence of unrestricted retained earnings;
– Dissolution and eventual liquidation of the corporation.
• Without prejudice to the protection given by special laws and
contracts.
APIC (Sec. 6 of RCC)
• Additional Paid in Capital (APIC) or share premium is the
excess of the consideration over the par value.
• May be used in capital restructuring;
• Premium is part of paid-in capital; but not under IAET;
• The aforementioned provisions do not possess by no
par shares.
Classification of Shares (Sec. 6 of RCC)
– The classification of shares, their corresponding rights, privileges, or
restrictions and their stated par value, if any must be indicated in the articles
of the incorporation;
– Each share shall be equal, except as otherwise provided
in the articles of incorporation and in the certificate of
stock.
Founder’s Share (Sec. 7 of RCC)
– Rights and privileges granted to the INCORPORATORS, which do not
possessed by other shareholders;
– It must be clearly expressed in the corporate charter, and consistent
with the Code;
– The exclusive right to vote and be voted for in the election of directors,
it must be for a limited period of not to exceed five (5) years from the
date of incorporation; provided not against Anti-Dummy Law and
Foreign Investment Act.
– The other rights and privileges are not subject to 5 year period
limitation, provided consistent with this Code.
Redeemable Shares (Sec. 8 of RCC)
– With fixed period or date of redemption;
– Put option (holder) or Call option (issuer);
– No need for unrestricted retained earnings provided will not
result to insolvency.
– Must be expressly provided in the articles of incorporation;
– Subject to rules and regulations of the Commission;
– May set up a sinking fund.
Treasury Shares (Sec. 9 of RCC)
– Shares which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation
through purchase, redemption, donation, or some other
lawful means.
– It requires unrestricted retained earnings.
– Such shares may again be disposed of for a reasonable
price fixed by the BOD.
– It arises in two ways:
1. contract (redeemable, convertible, fractional shares);
2. Law (close corporation to break the deadlock);
– It does not require unrestricted retained earnings;
– Must be expressly provided in the articles of
incorporation.
– The redemption of redeemable shares does not necessarily make them as
treasury shares. Approval by the stockholders and the Commission is
necessary. Articles need to be amended.
– Treasury shares are asset of the corporation. It may be sold more than its
acquisition cost; excess is part of APIC.
– The gain from the sale of treasury shares is taxable.
– It may be issued as property dividends.
– It has no voting rights. It is not part of outstanding capital stock.
– Shareholders has pre-emptive right over the shares.
Important terms
❑ Outstanding capital stock (shares) – total shares of stock issued under
binding subscription agreement to subscribers or stockholders, whether or
not fully or partially paid, except treasury shares.
❑ Legal capital – reserved for the creditors in relation to trust fund
doctrine;
▪ In case of par, it comprise of subscribed capital at par value;
▪ In case of no par, the entire consideration shall be part of the capital.
Incorporation and Organization of Private Corporation
Sec. 10 – Number and Qualification of Incorporators
– Corporation may be organized by: NLC
– Any person (for natural person, must be of legal age and
capacitated);
– One (1) to fifteen (15) persons (be a BOD);
– For lawful and legal purposes;
– Except to practice profession unless provided by special laws;
– Each incorporator must own at least one share of stock.
Sec. 11 – Corporate term (Old CC: 50 years life)
– It has perpetual term unless otherwise provided in the articles of
incorporation;
– Extending or shortening corporate term
– amend the articles of incorporation;
– No extension earlier than 3 years prior to its expiry date of term
unless with justifiable reason;
– Revival of corporate existence for expired term
– Subject to approval of the Commission.
– Not allowed to corporation engaged in money business and other
financial intermediaries unless with recommendation from appropriate
government
agency.
– Change in corporate term, with right of appraisal.
Sec. 12 – Minimum Capital Stock (not required)
– No minimum capital stock except specifically provided by special law.
– Authorized capital stock
– Minimum amount of capital from all the issuance of it shares.
– Subscribed capital stock
– Committed amount of capital from subscribers;
– Paid up capital (paid portion) and subscription receivable (unpaid);
– Trust fund doctrine
– Subscribed capital stock
– Pre – incorporation subscription is irrevocable except
– All other subscribers consent to the revocation; or
– Fails to incorporate within six month from the date of subscription or
within a period stipulated in the contract of subscription, whichever is longer.
– No revocation after the articles of incorporation is submitted to the
SEC.
– Paid up capital
– Paid portion of the capital subscribed
– APIC
– Received or paid in excess of the par;
– Donation
– Gains from other share capital transactions.
– Status of paid up; part of the trust fund, not available unless for
restructuring;
Sec. 13 – Contents of Articles of Incorporation
– Articles of incorporation serves as a contract;
– May stipulate terms and conditions subject to minimum requirement of the
Code; consistent with the objective of the law;
– Minimum contents:
– Corporate name
– “OPC” must written after or below the corporate name.
– Trade name (may be more than one)
– Purpose/s (primary and secondary)
– May adopt as many secondary purposes except if the business
activities in the primary and secondary are prohibited.
– Proposed action in relation to secondary purposes requires
approval of the shareholders or members.
– For non – stock, it cannot include secondary purpose that would
change its character.
– Place of principal office
– Basic records are kept; stockholder’s meeting is held;
– Local tax purposes;
– Insolvency proceedings, proper place is the RTC.
– Corporate term
– Perpetual, except otherwise provided.
– Incorporators, directors, or trustees;
– Must not exceed 15 directors except trustees which may be more than
15.
– Directors or trustees must be a natural persons; incorporators
may not be a natural person;
– Majority of the incorporators, directors or trustees may not
be residents of the Philippines.
– Capital (Authorized capital, subscribed and paid in capital)
– Paid in any lawful currency
– Pre-incorporation subscription is irrevocable for at least six months
from the date of subscription, unless
– All consent to the revocation;
– Failure to incorporate within the stipulated period;
– No revocation after submission of the articles of
incorporation.
– Shareholder’s agreement;
– Stipulations is not binding to the corporation and third parties; only
between the parties unless in the form of close corporation.
– Arbitration agreement;
– Intra corporate controversies
– Electronic form in accordance with the rules;
– Attestation as to the receipt of initial subscription is
incorporated in the articles of incorporation.
Sec. 14 – Form of Articles of Incorporation
Sec. 15 – Amendment of Articles of Incorporation
– Majority vote of the BOD and at least 2/3 vote of the outstanding
capital stock of stockholders, without prejudicial to the appraisal right of the
dissenting stockholder;
– For non-stock, majority vote of the trustees and at least 2/3 vote of the
members;
– Amendment shall take effect upon approval of the SEC; or not acted within
six months from the date of filing of the amended articles.
Sec. 16 – Grounds for Disapproval of Amendments
– Not substantially in accordance with the Code;
– The purpose/s are patently unconstitutional, illegal, immoral or contrary to
government rules and regulations;
– The certification concerning the amount of capital stock subscribed and/ or
paid is false;
– The required percentage of Filipino ownership of the capital stock under
existing laws or Constitution has not been complied with;
– For financial intermediaries, it will not be approved unless accompanied by
favorable recommendation of appropriate government agencies.
– The Commission shall give the incorporators, directors, trustees or officers
a reasonable time to modify the objectionable portions of the articles or
amendment.
Sec. 17 – Corporate Name
– No corporate name is allowed under the ff:
– Not distinguishable;
– Protected by law;
– Contrary to existing law, rules, and regulations.
– Penalized unauthorized used of corporate name; revoke the registration,
remove materials attached to the name.
Sec. 18 – Registration, Incorporation, and Commencement of Corporate
Existence
– Verification and reservation; submit articles of incorporation and by laws;
– The issuance of certificate of incorporation signals the grant of corporate
charter.
– It acquires juridical personality and corporate existence.
Sec. 19 – De facto Corporations
– The due incorporation of any corporation claiming in good faith to be a
corporation under this Code;
– Its right to exercise corporate powers, shall not be inquired collaterally in
any private suit;
– Such inquiry may be made by the Solicitor General in “quo warranto”
proceedings.
– Principle of estoppel applies to a person who dealt with de facto
corporations.
Sec. 20 – Corporations by Estoppel (Ostensible)
– Persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners (solidary);
– It cannot use the defense of lack of corporate personality.
– De facto corporation.
Sec. 21 – Effect of Non-Use of Corporate Charter and Continuous Inoperation
– Within 5 years from the date of incorporation – certificate of incorporation
is deemed revoked;
– Commence but become inoperative for at least 5 consecutive years,
corporation be placed under delinquent status; the operation can be
resumed within 2 years, otherwise, certificate will be revoked.
– Reasonable notice is required.
Financial Rehabilitation and Insolvency Act of 2010 (FRIA)
- A proceeding in rem (involves real properties
- Conducted in a summary and non-adversarial manner
- More systematic framework for insolvency proceedings
- Equitable treatment to all parties involved in a financial
restructuring or rehabilitation
- Maximize chances of survival by providing the ailing enterprise of
four (4) remedies namely fast track rehabilitation, court-
supervised rehabilitation, negotiated rehabilitation and
dissolution-liquidation.
Persons Involved
1. Insolvent debtors which includes: (1) sole proprietorship, (2)
partnership, (3) corporation, and (4) individual debtor
But excludes (1) banks, (2) pre-need companies, (3) insurance
companies, and (4) Government.
2. Creditors which includes natural or juridical person which has a
claim against the debtor that arose on or before the
commencement date.
- Commencement date refers to the date on which the court issues
the commencement order, which shall be retroactive to date of
filing the petition for voluntary or involuntary proceedings.
- Creditors are either general unsecured creditors or secured
creditors.
Liability for Unlawful Disposition of Property Under Proceedings
 - Double the value of the property sold, embezzled or disposed of
or double the amount of the transaction involved, whichever is
higher to be recovered for the benefit of the debtor or creditors.
Rehabilitation
- Refers to the restoration of the debtor to a condition of successful
operation and insolvency; if it is shown that its continuance of
operation is economically feasible and its creditors can recover by
way of the present value of payments projected in the plan, more
if the debtor continues as a going concern that if it is immediately
liquidated.
Kinds of Rehabilitation
1. With court supervision;
2. Agreed upon out of court
3. Pre-negotiated rehabilitation
Rehabilitation with Court Supervision
- Voluntary Rehabilitation – verified Petition for Rehabilitation is
filed by the debtor and must prove (a) the insolvency of the
debtor; (2) viability of rehabilitation
- Involuntary Rehabilitation – Petition of Rehabilitation is filed by
the creditor or group of creditors with claim if, or the aggregate of
whose claims is, at least 1M peso or at least 25% of the subscribed
capital stock or partner’s contribution, whichever is higher, and if:
 No genuine issue of fact or law on the claim/s of the
petitioner\s, and that due or demandable payments thereon
have not been made for at least 60 days or that the debtor
has failed generally to meet its liabilities as they fall due; or
 A creditor, other than the petitioner\s has initiated
foreclosure proceedings against the debtor that will prevent
the debtor from paying as they become due or will render it
insolvent
Pre-Negotiated Rehabilitation
- Petition for approval of pre-negotiated rehabilitation plan is filed
by the insolvent debtor and the Rehabilitation Plan is endorsed or
approved by creditors holding at least 2/3 of the total liabilities
including secured creditors holding more than 50% of the total
secured claim and unsecured creditors holding more than 50% of
the unsecured claims.
Rehabilitation Plan
- Required attachment in the Petition for Rehabilitation
- It refers to a plan by which the financial well-being and viability of
an insolvent debtors can be restored using various means as may
be approved by the court or creditors.
- It may also be pre-negotiated rehabilitation plan or out-of-court
informal rehabilitation
Cram Down Rule
- Under this rule, the Rehabilitation Plan confirmed by the court
shall be binding upon the debtors and all persons who may be
affected by it, including creditors, whether or not such persons
have participated in the proceedings, opposed the Plan or
whether or not their claims have been scheduled.
Stay Order (Equality is Equity)
- This order included in the Commencement Order issued by the
Court having jurisdiction over the rehabilitation case of the
debtor. It shall:
a. Suspend all the actions or proceedings, in court or
otherwise, for the enforcement of claims against the debtor;
b. Suspend all actions to enforce any judgment, attachment, or
other provisional remedied against the debtor
c. Prohibit the debtor from selling, encumbering, transferring
or disposing in any manner of its properties except for in the
ordinary course of business, and
d. Prohibit the debtor from making any payment of its
liabilities outstanding of the commencement date except as
may be provided herein.
Management of the Business
- Generally, the board of directors or management of the debtor
shall continue to function while the Petition for Rehabilitation is
pending
- However, upon motion the court may appoint either the
Rehabilitation Receiver or a Management Committee to
undertake the management of the debtor when there is:
1. Actual or eminent danger’s asset or properties
2. Paralyzation of the business operations of the debtor
3. Gross mismanagement of the debtor, or fraud, or other
wrongful conduct on the part, or gross or willful violation of
the FRIA by existing management of the debtor, owner,
partner, director, officer, or representative in the
management of the debtor
Disposition of the Case
1. Give due course to the Petition;
2. Dismiss the Petition
3. Convert the Proceedings to Liquidation Proceedings
Out-of-Court-Rehabilitation
Minimum Requirements
1. The debtor must agree to the out-of-control or informal
restructuring/workout agreement or Rehabilitation Plan
2. It must be approved by the creditors representing at least 67% of
the secured obligations of the debtor
3. It must be approved by creditors representing at least 75% of the
unsecured obligations of the debtor and
4. It must be approved by creditors holding at least 85% of the total
liabilities, secured and unsecured, of the debtor
Standstill Period
- An agreement on standstill period may be binding if the following
requisites are present:
1. Agreement is approved by creditors representing more than
50% of the total liabilities of the debtor
2. Notice thereof is published in a newspaper of general
circulation in the Philippines once a week for two
consecutive weeks.
3. Then standstill period does not exceed 120 days from the
date of effectivity
Liquidation
- It is the winding up, that is the comprehensive process of settling
accounts, ascertaining and adjusting debts, collecting assets and
paying off claims.
- It is a declaration by the trial court of the corporation’s insolvency
so that its creditors may be able to file their claims in the
settlement of the corporation’s debts and obligations
Suspension of Payment
- It shall be filed by an individual debtor who has assets that exceed
his liabilities but foresees the impossibility by paying his debts as
they fall due (palugit)
Liquidation Order
- Order issued by the court in liquidation proceedings involving
individual and juridical debtors
- It does not affect the rights of the secured creditor to enforce his
lien in accordance with the applicable contract or law, unless he
 waives his right. He may elect to enforce or maintain his right
under that security or lien at his option.
- As a minimum, it shall enumerate all the assets of the debtor not
exempt from execution, a list of all creditors and their claims
which have been duly approved as shown in the final registry of
claims, and a proposed mode and schedule of liquidation of the
assets and payment of the claims.