Scope of samahang nayon
- Regulation 2 defines samahang nayon as a body corporate composed primarily of small farmers residing and/or farming within the geographical limits of a barrio for the purpose of improving the quality of life of barrio people.
- Regulation 2 defines “farming” to include culture and production of grains, livestock and dairy, poultry and eggs, vegetables including mushrooms, fruits, fiber, forest and forest products, pasture land, sugar, palm and oil trees, and the activities of fishing and other marine products, horticulture, and apian culture.
- Regulation 2 defines “small farmer” as an actual tiller (full-owner, amortizing owner, or lessee) of not more than seven (7) hectares of rice or corn land or their equivalent in other crops, as determined by the Department of Local Government and Community Development (the Department).
How samahang nayon forms and registers
- Regulation 3 authorizes organization by twenty-five or more persons who are primarily small farmers, Filipino citizens, residing and/or farming in the proposed area of operation.
- For registration, at least fifteen incorporators must sign the articles of incorporation (Regulation 3).
- Regulation 4 requires the articles of incorporation to be duly signed and acknowledged by incorporators before a Notary Public or other officers authorized to take acknowledgments.
- Regulation 4 prohibits registration unless the articles conform substantially with the model articles of incorporation prescribed by the Bureau of Cooperatives Development (the Bureau).
- Regulation 5 requires every samahang nayon to adopt a code of by-laws for management.
- Regulation 5 prohibits registration of by-laws unless they conform substantially with the model by-laws prescribed by the Bureau (as stated in the regulation).
Corporate powers and membership rules
- Regulation 6 provides that upon registration and issuance of a certificate, a samahang nayon becomes a body corporate with powers to:
- own and dispose of property;
- enter into contracts;
- sue and be sued; and
- do and perform other acts necessary in pursuit of its objectives.
- Regulation 7 allows membership application by persons fifteen years of age or over, or who are heads of a household residing and/or farming within the barrio’s geographical boundaries.
- Regulation 7 requires, before acceptance as a member, completion of a prescribed pre-membership training course, pledges to adopt improved farming practices, comply with a savings program, pay the required membership fees, and agree to comply with the membership agreement stipulations, which must conform substantially with the model membership agreement prescribed by the Bureau.
- Regulation 7 prohibits any person from being a member of more than one (1) samahang nayon.
Member discipline in samahang nayon
- Regulation 8 authorizes suspension/expulsion for:
- failure to pay membership fees and dues for contributions;
- failure to comply with any duties of membership;
- failure to comply with the terms and conditions of the membership agreement;
- act or omission injurious or prejudicial to the samahang nayon; and
- other grounds provided by the Department.
Samahang nayon guarantee and savings funds
- Regulation 9 requires every samahang nayon to adopt and implement the barrio guarantee fund and barrio savings fund programs as prescribed by the Department through the Bureau.
- Regulation 9 constitutes a Barrio Guarantee Fund for the samahang nayon for purposes to:
- guarantee payment of land amortizations of members within the purview of Presidential Decree No. 27;
- capitalize full-fledged cooperatives;
- purchase shares of stock of and/or capitalize rural banks and development banks; and
- be used for other purposes authorized by the Department through the Bureau.
- Regulation 9 requires members to contribute a minimum of one cavan of palay per hectare harvest or its equivalent to the Barrio Guarantee Fund.
- Regulation 9 directs that to implement the barrio savings fund program, production loan institutions must automatically deduct an amount equivalent to five percent (5%) of members’ production loans at the time the loan is released and hold the amount in a special time deposit account in the name of the samahang nayon for the account of the member.
- Regulation 9 requires members who do not obtain production loans to contribute a minimum of PHP 5.00 per month.
- Regulation 9 provides that the mechanics for administration, utilization, and disposition of funds under both programs are prescribed by the Department through the Bureau.
Suspension, cancellation, and dissolution of samahang nayon
- Regulation 10 allows the Secretary of the Department to suspend samahang nayon operations or cancel its certificate of registration after hearing in cases including:
- failure to function within six months from the date of registration;
- failure to exercise any powers or discharge duties and responsibilities under the membership agreement;
- where the percentage of amortizing owners in default exceeds 20%; and
- violation of any rules or regulations promulgated by the Department through the Bureau.
- Regulation 10 provides that the Secretary’s decision is final and conclusive.
- Regulation 11 allows dissolution of a samahang nayon voluntarily or involuntarily.
- Voluntary dissolution under Regulation 11 requires a resolution adopted by at least two-thirds (2/3) of all members at an annual or special membership assembly, with the signed resolution submitted to the Provincial Development Officer of the Department and accompanied by a sworn statement of the board of directors certifying the resolution is genuine and authentic and that dissolution will not prejudice the interest of third persons.
- Involuntary dissolution under Regulation 11 is ordered by the Secretary for repeated failure to meet obligations or for causes enumerated under Regulation 10.
Pre-cooperative organizations and effects
- Regulation 12 allows existing cooperative organizations and organizations to be formed that do not meet the minimum requirements for kilusang bayan to be registered as pre-cooperative organizations.
- Regulation 12 classifies pre-cooperative organizations into:
- Producer’s associations;
- Credit unions;
- Co Buying clubs;
- Consumers’ associations; and
- Service associations.
- Regulation 13 provides that registration confers provisional cooperative status, making the organization entitled to benefits and obligations under Presidential Decree No. 175 and these regulations.
- Regulation 13 grants provisional cooperatives two (2) years to qualify for registration as kilusang bayan; failure to qualify is a ground for cancellation of registration.
- Regulation 14 authorizes provisional cooperatives to merge or amalgamate to qualify for registration or re-registration as kilusang bayan, following the procedures in Regulations 25 and 26.
Kilusang bayan: organization, governance, and registration
- Regulation 15 defines kilusang bayan as organizations that have complied with the requirements of Presidential Decree No. 175, these rules and regulations, and requirements of the Department through the Bureau, and states that for purposes of Section 9 of Presidential Decree No. 175, kilusang bayan is the equivalent of “cooperative” in the vernacular.
- Regulation 16 authorizes registration for the mutual benefit of members for lawful common objectives, including encouraging scientific production and marketing; providing goods, services, and other requirements; encouraging thrift; creating funds and extending credit for productive and provident purposes; building houses or acquiring lands; insuring against members’ losses; promoting members’ economic, social, and educational conditions; undertaking cooperative-basis activities; coordinating and facilitating cooperative activities; and establishing, owning, or operating rural banks, cooperative banks, development banks, cooperative insurance, and cooperative wholesale and retail complexes.
- Regulation 17 deems registered kilusang bayan not to be a conspiracy or combination in restraint of trade, illegal monopoly, or attempt to lessen competition or fix prices arbitrarily, and deems marketing contracts and agreements between kilusang bayan and members not illegal nor in restraint of trade contrary to pooling or combination laws.
- Regulation 18 allows any group of small producers and consumers, Filipino citizens, of legal age, residing/working in the proposed area of operation to organize a kilusang bayan, subject to Department-through-Bureau rules; it also allows a group of samahang nayon or other pre-cooperative organizations to organize a kilusang bayan.
- Regulation 19 requires articles of incorporation to be signed by:
- at least fifteen (15) incorporators if membership consists of natural persons; or
- at least ten (10) incorporators represented by their presidents if membership consists of samahang nayon or other pre-cooperative organizations;
- and to be acknowledged before a notary public or authorized acknowledgment officer.
- Regulation 19 prohibits registration unless articles conform substantially with the model prescribed by the Bureau.
- Regulation 20 prohibits Bureau registration unless accompanied by a sworn statement of the treasurer elected/appointed by incorporators showing:
- for stock cooperatives: at least 20% of authorized capital stock shares subscribed and at least 20% of subscription paid in cash to the treasurer; or
- for non-stock cooperatives: number of members and the amount of their capital contribution paid in cash to the treasurer;
- and the Director must satisfy himself that capital contributions are sufficient for initial operation.
- Regulation 21 requires each kilusang bayan to adopt by-laws filed with the Director at the time of filing of articles of incorporation, and prohibits registration of by-laws unless they conform substantially with the model prescribed by the Bureau.
- Regulation 23 makes the certificate of registration signed by the Director of the Bureau conclusive evidence of registration unless cancelled.
- Regulation 24 provides that upon registration, the kilusang bayan becomes a body corporate.
Liability options and internal discipline
- Regulation 22 allows a kilusang bayan whose purposes include one or more purposes in Regulation 16 to be registered with limited or unlimited liability, provided that if a kilusang bayan is a member of another, the member-kilusang bayan’s liability is limited.
- Under Regulation 22, limited-liability members are liable for debts only to the extent of the unpaid amount of their subscription to capital stock or membership capital.
- Under Regulation 22, unlimited-liability members become jointly and severally liable for debts upon liquidation.
- Regulation 29 qualifies membership in kilusang bayan for:
- natural persons who are Philippine citizens, of legal age and with capacity to contract or head of a family, and small producers or consumers in the area of operation;
- any member of a samahang nayon;
- a registered samahang nayon or other pre-cooperative organization;
- any registered kilusang bayan.
- Regulation 30 allows persons of at least 13 years of age with visible means of income through independent work and who can comply with membership qualifications to qualify for membership.
- Regulation 31 vests final authority in every kilusang bayan in the general assembly of members.
- Regulation 32 requires management by a board of directors of not less than five (5) nor more than fifteen (15) directors elected by the general assembly for a term fixed in the by-laws but not exceeding two years, holding office until successors elected and qualified or removed; by-laws may provide committees; officials of the Department and Bureau may serve on the board upon authorization of the Secretary.
- Regulation 33 disqualifies a person to vote for director or committee positions or to continue in those positions if the person:
- holds elective government position except barrio councilmen;
- has conflicting interest with cooperative business;
- is absent for three (3) consecutive board or committee meetings without being excused;
- was removed by general assembly; or
- is a full-time employee of the kilusang bayan concerned.
- Regulation 34 allows removal by a majority of members entitled to vote at an annual or special general assembly, with the person removed given an opportunity to be heard.
- Regulation 35 prohibits directors, officers, committee members, or employees, during their term, from being directly or indirectly a party to a contract for profit of the kilusang bayan.
- Regulation 36 holds directors, committee members, officers, and employees jointly and severally liable to the extent of damage or prejudice for willful and deliberate violation of the Decree, regulations, by-laws, and general assembly resolutions.
Transfers, mergers, divisions, and creditor protection
- Regulation 25 allows two or more kilusang bayan to consolidate into a single kilusang bayan by resolution of each, approved by a vote of two-thirds (2/3) of all members entitled to vote at a membership meeting; resolutions must state reasons and be certified by the secretary and attested by the board of each kilusang bayan.
- Regulation 25 requires consolidation to include physical inventory and valuation of total assets and a statement of total liabilities, and states the totals constitute the assets and liabilities of the new kilusang bayan; it cancels the certificates of registration of consolidating kilusang bayan and issues a certificate to the new entity; it provides that membership contribution evidence is surrendered and new membership contribution forms issued.
- Regulation 26 requires a kilusang bayan transferring assets and liabilities to another to conduct physical inventory and valuation certified by the treasurer/manager and attested by the board, with written acknowledgment and board concurrence by the transferee.
- Regulation 26 requires both the transfer-resolution and the acceptance-resolution to be separately approved by a vote of two-thirds (2/3) of members entitled to vote at separate general assemblies, transmitted to the Regional Director for processing and recommendation to the Director of the Bureau.
- Regulation 26 provides that if the Director approves the transfer, he cancels the transferring kilusang bayan’s registration and orders the transferee to prepare a financial statement with its schedule.
- Regulation 27 permits division of a kilusang bayan into two or more when business exigencies require it and viability is assured, approved by a vote of two-thirds (2/3) of members entitled to vote at a general assembly called for that purpose.
- Regulation 27 requires the board to submit for approval a plan covering membership, business, assets, liabilities, and claims; the approved resolution must be submitted to the Regional Director, who must transmit within ten (10) days to the Director of the Bureau with comments and recommendation.
- Regulation 27 provides that if the Director is satisfied of the need and fair chances of success, he approves the division; each resulting entity must submit new articles and by-laws and required registration papers to the Regional Director for processing and recommendation to the Director of the Bureau, after which each new kilusang bayan becomes a body corporate upon issuance of certificates by the Director of the Bureau, and the Director cancels the old kilusang bayan’s registration.
- Regulation 28 prohibits approval of any division unless a resolution binds the new kilusang bayan to be jointly and severally liable for valid creditors’ claims; for mergers, the new kilusang bayan binds itself to be liable for valid creditor claims.
Management training and advisory board
- Regulation 54 vests the Cooperative Development Loan Fund created under Section 6 of Presidential Decree No. 175 with corporate personality and powers to contract, own and dispose of property, sue and be sued, and do other acts necessary to carry out objectives of the Fund.
- Regulation 54 creates a Management Committee to represent the Fund with powers to contract, receive grants/donations and funds from sources identified in Section 6, Item (a) of Presidential Decree No. 175, obtain loans from local and foreign agencies, administer funds and disburse within Section 6, Item (b) limitations, adopt and promulgate standards for development loans (as loan fund, cooperative guarantees, or advances to kilusang bayan for purchase of equity of rural banks), invest idle funds, and do all acts necessary.
- Regulation 54 requires the Management Committee to meet as soon as constituted to promulgate rules of procedure governing its workings.
- Regulation 55 transfers the Rural Cooperative Fund appropriated under Republic Act No. 6551 in the amount of PHP 50M to the Cooperative Development Loan Fund.
- Regulation 56 fixes Management Committee terms for members from the cooperative sector at two years, with the first two appointees serving one year (one determined by drawing lots) and thereafter two years; it allows re-appointment.
- Regulation 57 assigns the Advisory Board under the management and training assistance program powers, duties, and responsibilities including contracting with educational institutions, disbursing funds for professional managers, training programs and training materials, identifying and selecting kilusang bayan and participating educational institutions, building a corps of professional managers, assisting the cooperative movement in developing a movement-wide career system, administering the Cooperative Education and Training Fund under Regulations 44 and 45, and doing other acts necessary for the program.
- Regulation 57 requires the Advisory Board to promulgate rules of procedure governing its workings upon constitution.
- Regulation 58 authorizes the Advisory Board to adopt personnel policies for its managers, including security of tenure, financial incentives, leave, retirement, and other benefits.
- Regulation 59 allows the Secretary of the Department, upon recommendation of the Advisory Board, to exempt kilusang bayan under the management and training assistance program from these regulations.
- Regulation 60 sets Advisory Board terms for cooperative sector members at two years, with the first two appointees serving one year (one determined by drawing lots) and thereafter two years, and allows re-appointment.
- Regulation 61 exempts contracts entered into by the Advisory Board within Regulation 57 from bidding requirements.
Cooperative education and training fund
- Regulation 45 creates a Cooperative Education and Training Fund.
- Regulation 45 provides that the fund’s assets and properties of whatever name or nature of the defunct Central Cooperative Educational Board form part of the fund.
- Regulation 45 includes in the fund proceeds from sale of printed materials provided by the Bureau to samahang nayon, registration fees, and audit fees.
- Regulation 45 directs transfer of the Fund to a pambansang katipunan ng mga kilusang bayan (national cooperative union) as soon as one is organized and registered; during the interim, the Advisory Board created under Presidential Decree No. 175 administers the Fund.
Net income computation and distribution
- Regulation 43 computes net income of every kilusang bayan as the amount remaining after deducting from gross income the cost of operations and other expenses provided for in the approved budget.
- Regulation 44 mandates net income allocation unless the Bureau prescribes a different percentage:
- at least ten percent (10%) to the General Reserve Fund;
- ten percent (10%) to cooperative education and training, treated as part of operating expense, where one-half is utilized by the kilusang bayan for education and training of its officers and members and one-half is remitted to the Cooperative Education and Training Fund administered by the Advisory Board created under Presidential Decree No. 175;
- the remainder for interest on capital and/or patronage refunds as determined by the board of directors.
- Regulation 44 includes that existing reserve funds of cooperatives established under previous cooperative laws form part of the General Reserve Fund.
Types of kilusang bayan
- Regulation 47 classifies kilusang bayan as:
- Producers;
- Marketing;
- Credit;
- Consumers; and
- Service.
- Regulation 47 defines categories for producers, marketing, credit (receiving deposits and granting loans), consumers (procuring and distributing foods to members and non-members for mutual benefit), and service (rendering services such as housing, labor, and insurance cooperatives).
Capital, loans, grants, and income exemptions
- Regulation 41 sets sources of capital for kilusang bayan, including members’ capital contribution (shares of stock for stock cooperatives or members’ contribution for non-stock cooperatives), authorized capital stock (common and preferred where provided in by-laws), loan capital including deposits of any kind, retains on a percentage or per unit basis, revolving capital by deferment of patronage refunds, and fees/dues/levies/subsidies/grants/donations/fines and other sources agreed upon by members or authorized by the Department.
- Regulation 41 provides that preferred stocks do not entitle to vote, but have preference as to assets in liquidation/dissolution and receive higher interest rates than common stocks; preferred stock may be issued to members and non-members.
- Regulation 41 restricts common stock to members only and sets that the interest rate for common stock shall not exceed the rate established by the Department.
- Regulation 42 empowers the Philippine Government or any political subdivision to give loans to kilusang bayan and grants/donations in any form to duly registered samahang nayon and/or kilusang bayan, and permits samahang nayon and kilusang bayan to receive grants or donations in any form from any source, local or foreign.
- Regulation 42 exempts grants, donations, gifts, and bequests under it from any and all forms of donor and donee’s taxes, including gift taxes.
- Regulation 42 provides that such grants, donations, gifts, bequests are allowable deductions under the National Internal Revenue Code for income tax purposes.
Rural banks and stock purchase powers
- Regulation 38 authorizes samahang nayon and/or kilusang bayan to establish rural banks in any province/locality and operate branches as needed, and allows credit cooperatives to register as rural bank or private development bank.
- Regulation 38 confines rural banks’ business within the area of operation of the samahang nayon(s) and/or kilusang bayan(s).
- Regulation 38 permits rural banks to receive deposits from the general public, provided that deposits from the general public shall in no case exceed deposits of members.
- Regulation 38 limits lending to members and to members of the samahang nayon(s) and kilusang bayan(s).
- Regulation 37 authorizes samahang nayon and kilusang bayan to purchase government-held preferred shares of rural banks and common stocks therein.
- Regulation 37 authorizes samahang nayon to utilize sums existing under their barrio guarantee fund and barrio savings fund for this purpose.
- Regulation 37 requires that government-held preferred shares purchased are converted to voting stocks.
- Regulation 37 requires allotment of membership in the rural bank’s board of directors in proportion to equity held, and requires at least one board member to be a duly authorized representative of the samahang nayon(s) and/or kilusang bayan(s).
Salary deduction agreements
- Regulation 39(a) allows a kilusang bayan member to execute an agreement authorizing the employer to deduct from the salary/wages payable by the employer an amount specified in the agreement and to pay it to the kilusang bayan in satisfaction of the member’s debt or other demand.
- Regulation 39(b) requires the employer, upon written request by the kilusang bayan and while the debt/demand (or any part) remains unpaid, to make the deduction in accordance with the agreement and remit promptly to the kilusang bayan.
- Regulation 39(c) defines “employer” to include the Government of the Philippines, any local authority, and any other person (natural or juridical) employing a kilusang bayan member.
Government transactions and bidding exemptions
- Regulation 40 exempts kilusang bayan from bidding requirements when transacting business with the Government of the Philippines or any political subdivision or its agencies/instrumentalities, including government-owned or-controlled corporations, upon approval of the contract by the Bureau.
Liquidation and dissolution of kilusang bayan
- Regulation 46 provides that liquidation occurs upon dissolution of a kilusang bayan, voluntarily or involuntarily.
- Voluntary dissolution under Regulation 46 requires the dissolving resolution adopted and signed by two-thirds (2/3) of all members entitled to vote at a general or special assembly, submitted to the Director of the Bureau through the Regional Director for approval, accompanied by a sworn statement of the board certifying genuineness and authenticity, non-prejudice to members or any person, and return of members’ investments including equities, if any.
- Involuntary dissolution under Regulation 46 is ordered in writing by the Director of the Bureau through the Regional Director for causes including:
- the audit or inquiry report shows inoperability;
- failure to commence business within one year from registration without just cause;
- cessation of work for one year;
- failure to provide financial and other reports to members;
- failure to send annual reports required by the Department through the Bureau;
- doing business liable to cause injury to the public;
- persistently violating Presidential Decree No. 175, Department and Bureau orders, these regulations, or by-laws;
- no longer found in the area of operation;
- fraud or misrepresentation during registration; or
- grave abuse of charter or privileges authorized under the Decree.
- Regulation 46 provides that when the appointment of a liquidator is unnecessary, the Director of the Bureau after hearing issues an order cancelling the certificate of registration; upon cancellation, the kilusang bayan ceases to be a body corporate.
Federation, union, and related income rules
- Regulation 48 allows two or more kilusang bayan to form a katipunan (federation).
- Regulation 49 limits membership in the katipunan to kilusang bayan; registered kilusang bayan may unite to form katipunan at provincial, regional, and/or national levels.
- Regulation 50 applies Regulations 43 and 44 to katipunan computation and distribution of net income, except that the general reserve fund must be at least twenty percent (20%) of net income.
- Regulation 51 allows two or more kilusang bayan to form a kalipunan.
- Regulation 52 mandates registration of only one pambansang kalipunan (national