How To Organize A Cooperative

How To Organize A Cooperative Organizing a cooperative can both be complex and simple. It requires, first of all an understanding of the basic needs of the perspectives cooperative members. It demands patience from the co-organizer who must take the cooperative goal and objectives, its visions and long term goals a real part of the members lives. But it can be also easy because the Cooperative Code of the Philippines (RA 6938) has devised very clean cut steps for the coop-organizer and members. This question and answer form should make organizing cooperatives a little more understandable to the cooperative organizer. What Is A Cooperative? 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 to contribution to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principle. By forming a cooperative you pool money, human resources and talent to build capital and work together to produce more goods and raise incomes. Through cooperatives, you can look for the other sources of loans at low interest rates of borrowing form informal lenders or users. The cooperative can also be a mechanism for marketing your produce. What are the Principles of Cooperativism? The cooperative principles were reformulated by the International Cooperative Alliance in Vienna in 1966 during its 23 Congress. The first principle is anchored on voluntarism. This means that each member of a cooperative becomes a member voluntarily and is not restricted by social , political or religious discrimination . In fact anyone who meets the qualifications set by a cooperative's bylaws can be a member if he willingly shoulders their responsibility. The second principle is democracy. Coops are democratic organizations with officers and managers elected or appointed in a manner agreed on by members. Each member, no matter the amount of his share, is entitled to one vote. The third principle is the limitation of share capital interest. In the context of cooperativism, interest on a member share capital is limited so that no person- especially those with moneycan have an overwhelming equity in the coop. This prevents the domination of the coop's affairs by wealthy members at the expense of poorer members and the organization as whole. The fourth principle, essentially a manifestation of the third principle, revolves on the sharing all location of cooperatives surplus or savings. At bottom, it mandates distribution of surplus equitably so that no member, gains at the expense of another. Surplus are, by decision of the member, used for developing the coop's business interests, providing common services to members in proportion to their transactions with the cooperatives. The fifth principle, makes provision for the education and training of cooperatives members, officers and employees, and of the general public in the principles and techniques of cooperation. The sixth principle harps on the promotion of cooperation between cooperatives at local, national and international levels. The seventh principle is the concern for community by working for its sustainable development through policies approved by the cooperative members.

What Are The Kinds Of Cooperative? • • • • •

Credit Cooperative- promotes thrift and savings among its members and creates funds in order to grant loans for productivity Consumer Cooperative- the primary purpose is to procure and distribute commodities to member and non-members; Producers Cooperative - undertakes joint production whether agricultural or industrial; Service Cooperative- engages in medical, and dental care, hospitalization, transportation, insurance, housing , labor, electric light and power, communication and other services; and Multi- Purpose Cooperative - combines two (2) or more of the business activities of these different types of cooperatives;

According to membership and territory, the following are the categories of cooperatives: In terms of membership: I .Primary -The members of which are natural persons of legal age; II .Secondary- The members of which are primaries; III. Tertiary - The member of which are secondaries upward to one or more apex organizations. Cooperatives whose members are cooperatives are called federations or unions. In terms of territory, cooperatives are categorized according to areas of operation which may not be coincide with the political subdivisions of the country. What are the General Steps in Forming a Cooperative? Basically, there six steps in setting up a cooperative. First, get organized. You must have at least 15 members to do that. At once determine the common problems you would want solved and the basic needs you would want provided for through a cooperative. You may want to include increasing of your production, marketing of your produce, credit assistance, power generation, banking or insurance and other similar needs. Determining your problems and needs will also help you classify the kind of a cooperative you will be organizing. Even before coop is set up, a dedicated core group of people will do all the organizational and paper works is a must. From this core group, working commodities may be formed to set things moving. These committees may include membership, finance, executives, secretariat to name a few. Second, prepare a general statement called an economic survey. This statement will help you measure your cooperatives chances of success. Third, draft the cooperatives by-laws. The by-laws contain the rules and regulation governing the operation of the cooperative. Fourth, draft the articles of cooperation. Here you indicate the name of the cooperative, its members, terms of existence and other pertinent description about your cooperative. Fifth, secure bond of your accountable officers, normally the treasurer, or the treasurer and the manager. The amount of the bond is to be decided upon by the Board of Directors, based

on the initial network of the cooperatives which includes the paid-up capital, membership fees and other assets of the cooperatives at time of registration. Sixth, register your cooperative with the Cooperative Development Authority (CDA), you must submit four copies each of the Economic Survey, By- Laws , and Articles of Cooperation and Bond of Accountable Officer(s). In every step, you may consult the CDA. The CDA emphasizes education as a key to the success of cooperatives. Who May Become Members of a Primary Cooperative? If you are a Filipino of legal age, you can be a coop member if you meet the qualifications prescribed by the coop's by laws. The board of directors act on application for membership. A member may exercise his rights only after having paid the fees for membership and acquired shares in the cooperative, What are the Kinds of Membership in the Cooperative? A cooperative has two kinds of members; regular members and associate members. A regular member is entitled to all the rights and privileged of membership as stated in the Cooperative Code and the coops by- laws. An associate member has no right to vote and to be voted upon and is entitled to such rights and privileged provided by the cooperatives by laws. What is the Minimum Number of Members in a Cooperative? Fifteen (15) natural persons of legal age who are citizens of the Philippines. Can Government Officers and Employees Join a Cooperative? Yes, provided that: •

Any officer of the government of the CDA shall be disqualified to be elected or appointed to any position in a cooperative;

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Elected officials of the government, except barangay officials, shall be ineligible to become officers and directors of cooperatives; and

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Any government employee may, in the discharge of his duties as member in the cooperative, use official time provided that the operations of the office where he works are not adversely affected.

What is an Economic Survey? An economic survey is a general statement describing the structure, purpose, economic feasibility of the proposed cooperative, area of operation, size of membership and other pertinent data. It, in fact a project feasibility study. The structure describes the kind of cooperative being set, up whether it is primary, secondary or tertiary and whether it is a credit, consumer transport or any other type of coop. The purpose defines the primary, secondary and other objectives of the cooperative. The area of operation merely indicates the general merely indicates the geographical or sectoral of the coop. For example, a cooperative may operate in, say Caloocan City; or it may operate in a certain sector like farmers. Size of membership is important so as to set limits to the coop's scope of operation. This is closely related to cooperative structure.

The most important part of the survey is the economic feasibility. Here, the prospective coop members estimate the income and expenses of the cooperative. It makes a projection of the possible growth pattern of the cooperative certain period, probably three (3 ) years, and how this growth generates income and incurs expenses. It tries to anticipate obstacles and constraints and make allowance for them.

What Are Cooperative By-Laws? By- laws should are the set of rules that determines how a cooperatives is to be run without confusion. In general, by-laws should be consistent with the provisions of the Cooperative Code of the Philippines (RA 6938). The by-laws include: •

The qualifications for membership; how they are acquired, maintained and lost;

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The rights and obligations of members;

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The condition for transfer of a share of interest;

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The rules and procedures covering agenda, time, place, and manner of calling, covering , conduct meeting, quorum requirements, voting system, and other, matters related to the business affairs of the general assembly, board of directors, and committees;

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

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The manner in which capital may be raise and purpose for which it can be utilized;

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The mode of custody and investment of net surplus;

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The accounting and auditing systems.

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The manner and limitations of loaning and barrowing, including limitations;

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The methods of distribution of net surplus;

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

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A conciliation or mediation mechanism for the amicable settlement of disputes among members, directors, officers and committees; and

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Other matter pertaining to the purpose and activities of the cooperative.

What does The Article of Cooperation contain? The Article of Cooperation is a duly notarized document that legally binds all the signatories in the formation of a cooperative. It should contain: •

The name of the cooperative which shall include the word " cooperative, " e.g. Sta. Maria Multi-Purpose Cooperative;

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The purpose of the cooperative and scope of business;

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The term of existence of the cooperative (not more than 50 years);

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The area of operation and the postal address of the registrants;

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The common bond of membership;

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The list of names of the directors who shall manage the cooperative; and

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The amount of its share capital, the names, and residences of its contributors and a statement of whether the cooperative is primary, secondary of tertiary in accordance with Article 23 of R.A 6938.

How To Manage Your Cooperative By organizing and registering a cooperative, you have taken the first steps toward helping prospective cooperative member make fuller use of their resources. The next steps requires a certain knowledge of management, of the provisions of laws affecting cooperatives, and most importantly, husbanding and channeling the coop's assets into productive investments so that they will grow. Here are some basic facts you have to know about managing and running cooperatives profitably. Does A Cooperative Follow A Basic Organizational Structure? Yes. Your cooperative will need at least the following for its day to day operation. •

General Assembly

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Board of Directors

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Set of Officers

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Committee System

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Hired management/ paid employees

What Is The General Assembly? The General Assembly is the highest policy-making body of the cooperative and is the final authority in the management and administration of the affairs of the cooperative. It is composed of members who are entitled to vote, duly assembled and constituting quorum. The general assembly holds at least one meeting a year; the date of the meeting is fixed in the by laws, or within 90 days after the close of each fiscal year. For newly registered cooperatives a special general assembly meeting must be called within 90 days from the date of approval. What Are The Powers Of The General Assembly? The General has the following exclusive powers which cannot be delegated: •

To determine and approve amendments to the articles of cooperation and by laws;

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

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To approve developmental plans of the cooperative; and

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Other matters requiring a 2/3 vote of all the members of the general assembly

What Is The Board Of Directors? The Board of Directors is the body that formulates policies, directs, supervises and manage the business of the cooperative. It is composed of five (5) to fifteen (15) members elected by the general assembly. Their term of office is determined by the laws of the cooperative. A term of office must not exceed two years. Also no director can serve for more than three (3) consecutive terms. The board of directors must hold monthly meetings, unless the by laws say otherwise. Special meetings may be called any time by the chairman.

Directors cannot attend or vote by proxy at board meetings. Who Can Be Members Of The Board Of Directors? All regular members who meet the qualification and none of the disqualification set by the laws of the cooperative can be elected to the board of directors. How Are The Officers Of The Cooperative Chosen? The board of directors elect among themselves only the chairman and vice- chairman. Then they either elect or appoint the other officers needed by the cooperative, such as the treasurer who takes custody of all the moneys, securities and papers and maintains complete records of its cash transactions and secretary who keeps the records of the cooperative. What Are The Committees Needed By A Cooperative? Through the bylaws, a cooperative may be form any committee it thinks necessary for its operation. An executive committee may also be formed. The board of directors appoints its members and may, through a majority vote, delegate powers to it. As a reminder an audit committee must be provided for in the bylaws of the cooperative. What Constitutes A Quorum? Unless the by laws define it otherwise, a quorum consist of 25% of all the regular members entitled to vote. For the board of directors a simple majority of its member makes a quorum. What Books Should Be Maintained And Kept Open? Books to be maintained and kept open to the members of the cooperative and the CDA are : •

A copy of the Cooperative Code of the Philippines and all other laws about cooperatives;

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A copy of the regulations of the CDA;

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A register of member;

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Minutes of the meetings of the general assembly, board of directors and committees; Share books;

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Financial statements; and

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Other documents as may be prescribed by laws or the by-laws.

Are Cooperatives Required To Be Audited Annually? Yes, Cooperatives are subject to an annual audit by an auditor who is independent of the cooperative being audited and of any subsidiary of the cooperative and is a member of any recognized professional accounting or cooperative auditor's association with similar qualifications. Is There A Needed For An Annual Report? Yes. An annual report about the affairs of the cooperative must be given to each member and to the federation/union to which it is affiliated and the CDA every fiscal year. Failure to file the annual report may result in cancellation of the certificate of registration.

Can The CDA Intercede In Behalf Of The Coops Member? If the board of directors does not call regular or special meetings of the general assembly, the CDA can, through a petition of 10% of all the members, issue an order directing the board to call for such meetings. The CDA may also call special meetings for the purpose of reporting to the members the results of audit, examination, or other investigation of the cooperative ordered or made by it. What Privileges Does A Cooperative Have Under The New Cooperative Code? The coop manager must know the many benefits accruing to cooperatives under the new law. By knowing these privileges, the manager can save the cooperative a lot of money. Cooperative privileges include tax exemption, general privileges accorded to all cooperatives, and special privileges granted to specific types of cooperatives. For instance, a cooperative which does not transact business with non-members or the general public are exempted from government taxes or fees imposed under the Internal Revenue Laws and other laws. If a cooperative transacts business with both the general public and its members, it is nevertheless exempted from paying taxes on the transaction made with its members. Even then, coops which transact business with the general public still enjoy very liberal tax exemptions. Coops with accumulated reserves and undivided net savings of not more than P10 million are exempt from national, city, provincial, municipal or barangay taxes. They are exempt from customs duties , advance sales or compensating taxes on importation of machineries and spare parts which are not available locally as long as the Department of Trade and Industry certifies it so. Even coops with more than P10 million accumulated reserves and undivided net savings are exempt from paying income and sales taxes on sales to members for a period of at least 10 years from registration. Donations to charitable, research and educational institutions and reinvestment in socioeconomic projects are also tax deductible. Transactions with banks and insurance companies are exempted from paying local taxes. Judges who are ex-officio notaries public will give free service to coops related to registration and instrument of loan not exceeding P50,000.00. Register of deeds will register for free any instrument of a coop relative to loan not exceeding P50,000.00. Coops are exempt from paying court and sheriffs fees. Coops are exempt from putting up a bond when it makes a court appeal. Securities issued by coops are exempt from the provisions of the Securities Act as long as these securities are not speculative.

What Are The General Privileges Enjoyed By Cooperatives? These privileges are: •

Three right to deposit their valuable in government offices free of charge with the government official acting as custodian of such valuables.

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Free use of space, when the cooperative members are government employees, in the same government office.

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Special types of coops like cold storage, electricity, transport and similar services can open their membership to all persons qualified in their areas of operation.

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The preferential right to supply government offices with their produce, in the allocation of fertilizer and rice distribution, use of butteries for shipment of their goods, and in the management of public markets.

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Entitlement to loans, credit line, and rediscounting of notes with government financial institution like PNB, Land Bank and DBP.

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Exemption from prequalification requirements when bidding for a government project.

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The right to be represented by the provincial or city fiscal or the Office of the Solicitor general, free of charge in legal suits.

How Is The Net Surplus Of A Cooperative Allocated And Distributed? Generally, the distribution of a cooperatives surplus is determined by-laws. Surplus is determined at the close of a coops fiscal year or as prescribe by its by-laws. A cooperatives surplus is not profit in the usual sense of the word. Surplus is considered excess payment by the members or the loans they borrowed or the goods and services they bought from the cooperative. As far as the coop is concerned, this excess payment or surplus is considered as having been returned to the members if the surplus is distributed in the following manner. First priority goes to the reserve fund at least 10 percent of the net surplus. The reserve funds is meant or stabilize coop operations and may be used only for investments allowed by the code. Second priority goes to the Education and Training fund which is not more than 10 percent of net surplus. Fees and fines may also be credited of such funds. Normally, this fund is shared equally between the coop and is apex organization. Third priority is an optional fund, a land and building fund, community development fund and any other necessary funds. After all these have been allocated, the remainder is available to the general membership in the form of interest on his investment and patronage refund. Nevertheless, interest in share capital should exceed normal rate of return on investment.

How To Register Your Cooperative Once you have organized your cooperative, your work does not end there. The cooperative now needs a legal personality, so that a cooperative is supposed to perform. With a legal, personality, the cooperative can borrow money, sell its goods, and services, deliver goods, and enter into all sorts of business transactions. So that your cooperative can do all these, you must register your cooperative . Here is how you do it. Where Do You Register a Cooperative? The Cooperative Development Authority is the only government agency empowered to register all types of cooperatives. Its main office at 5th and 6th floors BEN-LOR Building, 1184 Quezon Avenue, Quezon City. To facilitate the flow of its services, extension offices have been set-up. These are located in (1) Dagupan City; (2) Tuguegarao, Cagayan; (3) Baguio City; (4) Sto. Tomas Pampanga; ( 5) Manila Extension Office (MEO), Quezon Avenue, Quezon City; (6) Calamba Laguna; (7) Naga City; (8) Iloilo City; (9) Cebu City; (10) Tacloban City; (11) Pagadian City; (12) Cagayan De Oro; (13) Davao City; (14) Kidapawan, Cotabato; and (15) Butuan City. What Are The General Requirements In Registering A Cooperative? You will need four copies each of the Economic Survey, By -Laws and Articles of Cooperation. The Articles of Cooperation should be duly notarized and accompanied by there following. •

Bonds of the accountable officers (any director, officer and employee handling funds, securities offices and employee handling funds, securities or properties on behalf of the cooperative. The board of directors determine the amount of bonds required based on the initial network which shall include the paid-up capital, membership fees and other assets of the cooperative at the time of registration); and

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Sworn statement of the treasurer showing that at least 25% of the authorized share has been subscribed and at least 25% of the total subscription has been paid. The paid-up capital must not be less than P2,000. It must be noted that no member may own more than 20% of the subscribed capital; and that each share must not be less than P1.00

How Much Is The Registration Fee? CDA Memorandum Circular No. 92-004, effective 01 May 1992 provides that provides that registration fee shall be one tenth (1/10) of one percent of the paid- up share capital with the minimum of P250 for new primary cooperative; P500 for secondary cooperative, P2,000.00 for tertiary cooperative while laboratory cooperative is free of charge. What Are The Types And Registration Fee? The following are the types of cooperatives: Credit Cooperative promotes thrift and savings among its member and creates funds in order to grant loans for productive and provident purposes; •

Consumer Cooperative- the primary purpose is to procure and distribute commodities to member and non- member;

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Producer Cooperative- undertake joint production whether agricultural or industrial;

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Marketing Cooperative- engages in the supply of production inputs to members, and markets their products;

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Service Cooperative - engages in medical and dental care, hospitalization, transportation, insurance , housing, labor, electric light and power, communication and other services; and

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Multi-Purpose Cooperative- combines two(2) or mores of the business activities of these different types of cooperative.

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

Primary - The members of which are natural persons of legal age;

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Secondary - The member of which are primaries;

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Tertiary- The members of which are secondaries upward to one or more apex organizations. Cooperative whose member are cooperatives are called federation or unions. In terms of territory, cooperatives are categorized according to areas of operation which may or may not coincide with the political subdivision of the country.

For What Purpose May A Federation May Of Cooperatives Be Registered? A federation of Cooperatives whose members are primary and /or secondary cooperatives with a single line or multi- purpose business activities may be registered for any or all of the following purposes: •

Primary Purpose- To carry on, encourage on any cooperative enterprise authorized under Article 6 of R.A. 6938;

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Secondary Purposes- To carry on, any encourage and assist educational and advisory work relating to its member cooperatives;

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To render services designed to encourage simplicity, efficiency, and economy in the conduct of the business of its member cooperatives and to facilitate the implementation of their bookkeeping , accounting and other systems and procedures;

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To coordinate and facilitate the activities of its member cooperatives;

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

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To enter into joint ventures with national or international cooperative of other countries in the manufacture and sale of products and/ or services in the Philippines and abroad; and.

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To perform such other function as nay be necessary to attain its objectives.

A federation of Cooperatives may be registered by carrying out the formalities of registration of a cooperative. Registered cooperatives may organize a federation at the provincial, city, regional, and national levels according to the types of business carried on. What About Cooperative Unions? Registered cooperatives and federations may organize a federation or join cooperatives unions to represent the interest and welfare of all types of cooperatives at the provincial, city, regional, and national levels. Cooperative unions may have the following purposes : •

To represent its member organization;

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To acquire, analyze, and disseminate economic, statistical, and other phases of cooperatives within its area of operation;

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To sponsor studies in the economic, legal ,financial, social, and other phases of cooperation, and publish their results;

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To promote the knowledge of cooperative principles and practices;

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To develop the cooperative movement in their respective areas of operation;

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To advice the appropriate authorities on all question relating to cooperatives;

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To raise funds through membership fees and contribution , donations, and subsidies from local and foreign sources whether private or government; and

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To do and perform such other activities as may be necessary to attain these objectives.

Cooperatives unions may assist the national and local government in the letters of development activities in their respective areas of operation. How Soon Should The CDA Act On Your Application For Registration? The CDA 30 days, after failing to act on applications for registration. If there is no action within 30 days, the application is considered approved, unless the application himself causes the delay. What Should You Do if Application Is Denied? If the application is denied, you may appeal to the Office of the President. If the Office of the President fails to act within 90 days from the filing of appeal, the application is considered approved. What Evidence Confirms The Approval Of Your Registration? If your application has been approved, the CDA will give you a Certificate of Registration. The certificate confirms that your cooperative has been duly registered. What Are The Powers And Capacities Of A Registered Cooperative? Once your cooperative is registered under the Cooperative Code Of the Philippine (R.A. 6938) it will have the following powers and capabilities: •

To sue and be sued in its cooperative name;

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Of succession;

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To amend its Articles of Cooperative in accordance with the provisions of R.A. 6938;

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To adopt by laws not contrary to law ,morals or public policy, and to amend and repeal the same in accordance with R.A. 6938;

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To purchase, receive, take of grant, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property as the transaction of the lawful affairs of the cooperative may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;

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To enter into division, merger or consolidated , as provided in R. A. 6938;

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To join federations federation or unions, as provided in R.A. 6938;

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

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To exercise such other powers granted by R.A. 6938 necessary to carry out its purpose as stated in its Article of Cooperation.