CHAPTER VIII

CAPITAL, PROPERTY, AND FUNDS

"ART. 71. Capital. - The capitalization of cooperatives and the accounting procedures shall be governed by
the provisions of this Code and the regulations which shall be issued.

"ART. 72. Capital Sources.- Cooperatives registered under this Code may derive their capital from any or all
of the following sources:

"(1) Member’s share capital;

"(2) Loans and barrowings including deposits;

"(3) Revolving capital which consists of the deferred payment of patronage refunds, or interest on
share capital; and

"(4) Subsidies, donations, legacies, grants, aids and such other assistance from any local or foreign
institution whether public or private: Provided, That capital coming from such subsides, donations,
legacies, grants, aids and other assistance shall not be divided into individual share capital holdings
at any time but shall instead form part of the donated capital or fund of the cooperative.

"Upon dissolution, such donated capital shall be subject to escheat.

"ART. 73. Limitation on Share Capital Holdings.- No member of primary cooperative other than cooperative
itself shall own or hold more than ten per centum (10%) of the share capital of the cooperative.

"Where a member of cooperative dies, his heir shall be entitled to the shares of the decedent: Provided,
That the total share holding of the heir does not exceed ten per centum (10%) of the share capital of the
cooperative; Provided, further, That the heir qualify and is admitted as members of the
cooperative: Providedfinally , That where the heir fails to qualify as a member or where his total share
holding exceeds ten per centum (10%) of the share capital , the share or shares excess will revert to the
cooperative upon payment to the heir of the value of such shares.

"ART. 74. Assignment of Share Capital Contribution or Interest.- Subject to the provisions of this Code, no
member shall transfer his shares or interest in the cooperative or any part thereof unless.

"(1) He has held such share capital contribution or interest for not less than one (1) year.

"(2) The assignment is made to the cooperative or to a member of the cooperative or to a person
who falls within the field of the membership of the cooperative; and

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

"ART.75. Capital Build-Up.- Te bylaws of every cooperative shall be provided for a reasonable and realistic
member capital build-up program to allow the continuing growth of the members’ investment in their
cooperative as their economic conditions continue to improve.

"ART.76. Shares.- The term "share" refers to a unit of capital in a primary cooperative the par value of which
may be fixed to any figure not more than One thousand pesos (P1,000.00). The share of capital of a
cooperative is the money paid or required to be paid for the operations of the cooperative. The method for
the issuance of share certificates shall prescribed in its bylaws.

"ART.77. Fines. - The bylaws of a cooperative may prescribe a fine on unpaid subscribed share capital.
Provided, that such fine is fair and reasonable under the circumstances.
 "ART.78. Investment of Capital. - A cooperative may invest its capital in any of the following:

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

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

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

"(d) In real state primarily for the use of the cooperative or its members; or

"(e) In any other manner authorized in the bylaws.

"ART. 79. Revolving Capital. – The general assembly of any cooperative may authorize the board of
directors to raise a revolving capital to strengthen its capital structure by deferring the payment of patronage
refunds and interest on share capital or by the authorized deduction of a percentage from the proceeds of
products sold or services rendered, or per unit of product or services handled. The board of directors shall
issue revolving capital certificates with serial number, name, amount, and rate of interest to be paid and
shall distinctly set forth the time of retirement of such certificates and the amounts to be returned."

SEC. 9. Articles 81, 82, 83, 84 and 85 of Chapter IX on Audit, Inquiry and Members’ Right to Examine of the same
Code are hereby renumbered and amended to read, as follows:

CHAPTER IX
AUDIT, INQUIRY AND MEMBERS’ RIGHT TO EXAMINE

"ART. 80. Annual Audit. – Cooperatives registered under this Code shall be subject to an annual financial,
performance and social audit. The financial audit shall be conducted by an external auditor who satisfies all
the following qualifications:

"(1) He is independent of the cooperative or any of its subsidiary that he is auditing; and

"(2) He is a member in good standing of the Philippine Institute of Certified Public Accountants
(PICPA) and is accredited by both the Board and Accountancy and the Authority.

"The social audit shall be conducted by an independent social auditor accredited by the Authority.

"Performance and social audit reports which contain the findings and recommendations of the auditor shall
be submitted to the board of directors.

"The Authority, in consultation with the cooperative sector, shall promulgate the rules and standards for the
social audit of cooperatives.

"ART. 81. Audit Report. – The auditor shall submit to the board of directors and to the audit committee the
financial audit report which shall be in accordance with the generally accepted auditing standards for
cooperatives as jointly promulgated by the Philippine Institute of Certified Public Accountants (PICPA) and
the Authority.

"Thereafter, the board of directors shall present the complete audit report to the general assembly in its next
meeting.

"ART. 82. Nonliability for Defamations. – The auditor is not liable to any person in an action for defamation
based on any act, done, or any statement made by him in good faith in connection with any matter he is
authorized or required to do pursuant to this Code.
 "ART. 83. Right to Examine. – A member shall have the right to examine the records required to be kept by
the cooperative under Article 52 of this Code during reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said records without charge except the cost of production.

"Any officer of the cooperative who shall refuse to allow any member of the cooperative to examine and
copy excerpts from its records shall be liable to such member for damages and shall be guilty of an offense
which shall be punishable under Article 140 of this Code: Provided, That if such refusal is pursuant to a
resolution or order of the board of directors, the liability under this article shall be imposed upon the directors
who voted for such refusal: Provided, further, That it shall be a defense to any action under this article that
the member demanding to examine and copy excerpts from the cooperative records has improperly used
any information secured through any prior examination of the records of such cooperative or was not acting
in good faith or for a legitimate purpose in making his demand.

"ART. 84. Safety of Records. – Every cooperative shall, at its principal office, keep and carefully preserve
the records required by this Code to be prepared and maintained. It shall take all necessary precaution to
prevent its loss, destruction or falsification."

SEC. 10. Articles 86 and 87 of Chapter X on Allocation and Distribution of Net Surplus of the same Code are hereby
renumbered and amended to read, as follows:

CHAPTER X
ALLOCATION AND DISTRIBUTION OF NET SURPLUS

"ART. 85. Net Surplus. – Notwithstanding the provisions of existing laws, the net surplus of cooperatives
shall be determined in accordance with its bylaws. Every cooperative shall determine its net surplus at the
close of every fiscal year and at such other times as may be prescribed by the bylaws.

"Any provision of law to the contrary notwithstanding, the net surplus shall not be construed as profit but as
an excess of payments made by the members for the loans borrowed, or the goods and services availed by
them from the cooperative or the difference of the rightful amount due to the members for their products sold
or services rendered to the cooperative including other inflows of assets resulting from its other operating
activities and which shall be deemed to have been returned to them if the same is distributed as prescribed
herein.

"ART. 86. Order of Distribution. – The net surplus of every cooperative shall be distributed as follows:

"(1) An amount for the reserve fund which shall be at least ten per centum (10%) of net
surplus: Provided, That, in the first five (5) years of operation after registration, this amount shall not
be less than fifty per centum (50%) of the net surplus:

"(a) The reserve fund shall be used for the stability of the cooperative and to meet net losses
in its operations. The general assembly may decrease the amount allocated to the reserve
fund when the reserve fund already exceeds the share capital.

"Any sum recovered on items previously charged to the reserve fund shall be credited to
such fund.

"(b) The reserve fund shall not be utilized for investment, other than those allowed in this
Code. Such sum of the reserve fund in excess of the share capital may be used at anytime
for any project that would expand the operations of the cooperative upon the resolution of the
general assembly.

"(c) Upon the dissolution of the cooperative, the reserve fund shall not be distributed among
the members. The general assembly may resolves:

"(i) To establish a usufructuary trust fund for the benefit of any federation or union to
which the cooperative is affiliated; and
 "(ii) To donate, contribute, or otherwise dispose of the amount for the benefit of the
community where the cooperative operates. If the members cannot decide upon the
disposal of the reserve fund, the same shall go to the federation or union to which the
cooperative is affiliated.

"(2) An amount for the education and training fund, shall not be more than ten per centum (10%) of
the net surplus. The bylaws may provide that certain fees or a portion thereof be credited to such
fund. The fund shall provide for the training, development and similar other cooperative activities
geared towards the growth of the cooperative movement:

"(a) Half of the amounts transferred to the education and training fund annually under this
subsection shall be spent by the cooperative for education and training purposes; while the
other half may be remitted to a union or federation chosen by the cooperative or of which it is
a member. The said union or federation shall submit to the Authority and to its contributing
cooperatives the following schedules:

"(i) List of cooperatives which have remitted their respective Cooperative Education
and Training Funds (CETF);

"(ii) Business consultancy assistance to include the nature and cost; and

"(iii) Other training activities undertaken specifying therein the nature, participants
and cost of each activity.

"(b) Upon the dissolution of the cooperative, the unexpended balance of the education and
training fund appertaining to the cooperative shall be credited to the cooperative education
and training fund of the chosen union or federation.

"(3) An amount for the community development fund, which shall not be less than three per
centum(3%) of the net surplus. The community development fund shall be used for projects or
activities that will benefit the community where the cooperative operates.

"(4) An optional fund, a land and building, and any other necessary fund the total of which shall not
exceed seven per centum (7%).

"(5) The remaining net surplus shall be made available to the members in the form of interest on
share capital not to exceed the normal rate of return our investments and patronage
refunds: Provided, That any amount remaining after the allowable interest and the patronage refund
have been deducted shall be credited to the reserve fund.

"The sum allocated for patronage refunds shall be made available at the same rate to all patrons of the
cooperative in proportion to their individual patronage: Provided, That:

"(a) In the case of a member patron with paid-up share capital contribution, his proportionate amount
of patronage refund shall be paid to him unless he agrees to credit the amount to his account as
additional share capital contribution;

"(b) In the case of a member patron with unpaid share capital contribution, his proportionate amount
of patronage refund shall be credited to his account until his account until his share capital
contribution has been fully paid;

"(c) In the case of a non-member patron, his proportionate amount of patronage refund shall be set
aside in a general fund for such patrons and shall be allocated to individual non-member patrons
only upon request and presentation of evidence of the amount of his patronage. The amount so
allocated shall be credited to such patron toward payment of the minimum capital contribution for
membership. When a sum equal to this amount has accumulated at any time within a period
specified in the bylaws, such patron shall be deemed and become a member of the cooperative if he
 so agrees or requests and complies with the provisions of the bylaws for admission to membership;
and

"(d) If within any period of time specified in the bylaws, any subscriber who has not fully paid his
subscribed share capital or any non-member patron who has accumulated the sum necessary for
membership but who does not request nor agree to become a member or fails to comply with the
provisions of the bylaws for admission to membership, the amount so accumulated or credited to
their account together with any part of the general fund for nonmember patrons shall be credited to
the reserve fund or to the education and training fund of the cooperative, at the option of the
cooperative."

SEC. 11. Articles 88, 89, 90, 91, 92, 93, 94 and 95 of Chapter XI on the Special Provisions Relating to Agrarian
Reform Cooperatives of the same Code are hereby renumbered retitled and amended to read, as follows: