REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
INSOLVENCY & CORPORATE REHABILITATION
What questions will be asked from this law?
The following points shall be asked from this topic:
• Definition of Insolvency Law
• Voluntary and involuntary insolvency
• Suspension of payments
• Corporate rehabilitation and definition of terms  Stay
order
• Receiver
• Rehabilitation plan
• Contents of petition
• Other types of rehabilitation
What is the relevant statute for this topic?
Republic Act No. 10142, also known as the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010, governs this topic.
What is the State’s policy on rehabilitation and insolvency?
It is the policy of the State to encourage debtors, both juridical and natural
persons, and their creditors to collectively and realistically resolve and
adjust competing claims and property rights.
How shall rehabilitation or liquidation be facilitated?
The rehabilitation or liquidation shall be made with the following views:
• to ensure or maintain certainly and predictability in commercial
affairs
• to preserve and maximize the value of the assets of these debtors
• to recognize creditor rights and respect priority of claims
• to ensure equitable treatment of creditors who are similarly
situated
What do you mean by insolvent?
Insolvent shall refer to the financial condition of a debtor that is generally
unable to pay its or his liabilities as they fall due in the ordinary course of
business or has liabilities that are greater than its or his assets.
What is the main difference between voluntary and involuntary
proceeding?
Voluntary proceedings shall refer to proceedings initiated by the insolvent
debtor while involuntary proceedings shall refer to proceedings initiated
by creditors.
What is the approval requirement for voluntary proceeding?
An insolvent debtor may initiate voluntary proceeding by filing a petition
for rehabilitation with the court only if with the prior approval of the
following:
• the owner in the case of a sole proprietorship
• the majority of the partners in the case of a partnership
• in the case of a stock corporation, the majority of the vote of the
board of directors or trustees and authorized by the vote of the
stockholders representing at least 2/3 of the outstanding capital
stock, in a stockholder’s meeting duly called for the purpose
• in the case of a non-stock corporation, the vote of at least two-
thirds (2/3) of the members, in a member’s meeting duly called
for the purpose
How is involuntary proceeding initiated?
Any creditor or group of creditors with a claim of, or the aggregate of
whose claims is, at least One Million Pesos (P1,000,000.00) or at least
twenty-five percent (25%) of the subscribed capital stock or partners’
contributions, whichever is higher, may initiate involuntary proceedings
against the debtor by filing a petition for rehabilitation with the court.
What are the requirements before involuntary proceeding petition for
rehabilitation can be filed with the court?
Either of the following must be present:
• There is no genuine issue of fact on law on the claim/s of the
petitioner/s, and that the due and demandable payments thereon
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have not been made for at least sixty (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 its debts as they become due or will render it insolvent
What is suspension of payment?
An individual debtor who, possessing sufficient property to cover all his
debts but foreseeing the impossibility of meeting them when they
respectively fall due, may file a verified petition that he be declared in the What is a stay order or suspension order?
state of suspension of payments by the court of the province or city in
which he has resides for six (6) months prior to the filing of his petition.
What should be attached in the petition for declaration of the
state of suspension of payments? As a minimum, the petition
shall have the following attachments:
• A schedule of assets and liabilities
• An inventory of assets
• A proposed agreement with creditors
What is rehabilitation?
Rehabilitation shall refer to the restoration of the debtor to a condition of What is a receiver?
successful operation and solvency.
When is rehabilitation possible?
Rehabilitation is possible if it is shown that the debtor’s 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 than if it is immediately liquidated.
• reorganization or quasi-reorganization
• dacion en pago
• debt-equity conversion
• sale of the business (or parts of it) as a going concern
• setting-up of new business entity as prescribed in the Act
• other similar arrangements as may be approved by the court or
creditors
A stay or suspension order has the following effects:
• It suspends all actions or proceedings, in court or otherwise, for
the enforcement of claims against the debtor
• It suspends all actions to enforce any judgment, attachment or
other provisional remedies against the debtor
• It prohibits the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the
ordinary course of business
• It prohibits the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be
provided in the Act
Rehabilitation receiver shall refer to the person or persons, natural or
juridical, appointed as such by the court pursuant to the Act and which
shall be entrusted with such powers and duties as set forth therein.

What is a rehabilitation plan?

Rehabilitation Plan shall refer to a plan by which the financial well-
being and viability of an insolvent debtor can be restored using various
means including, but not limited to, the following:  debt
forgiveness
• debt rescheduling
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• Upon presentment for payment, is dishonored by the bank for
insufficiency of funds, and the issuer knows at the time of issue
that he does not have sufficient funds in or credit with the drawee
bank
• Which would have been dishonored for insufficiency of funds, had
the drawer not ordered his bank to stop the payment of the check,
without a valid reason for such order
• When presented for payment within 90 days from issue, is
dishonored by the bank for insufficiency of funds, even if the
issuer has sufficient funds in or credit with the bank at the time of
issue

What does credit mean?

Credit, as used in this Law, shall be construed to mean an arrangement or
understanding with the bank for the payment of such check.

Who shall be liable?

LAW ON BOUNCING CHECKS
What specific points will be asked from this topic?
The following points will be asked:
• Checks without sufficient funds
• Evidence of knowledge of insufficient funds
• Duty of drawee
• Credit construed
What is the relevant law on this topic?
Batas Pambansa Blg. 22 is known as the “Anti-Bouncing Check Law.”
What is a bounced check?
A bounced check is a worthless check.
Any person making, drawing and issuing a check without sufficient fund
is liable.
Who shall be liable in case the check is issued by a corporation?
Where the check is drawn by a corporation, company or entity, the person
or persons who actually signed the check in behalf of such drawer (i.e. the
corporation, company or entity) shall be liable. This means that the
officers signing the check for the corporation will be the ones liable.
What is the punishment?
The punishment shall be either or both of the following:
• Imprisonment of not less than 30 days but not more than 1 year
• Fine of not less than but not more than double the amount of the
check, but shall not exceed P200,000
Given that no person shall be imprisoned for non-payment of debt, is
Batas Pambansa Blg. 22 constitutional?

What does the law say on checks without sufficient funds?

A check without sufficient fund is a check:
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Yes, it is constitutional. What is punished by this law is the act of making
and issuing of a worthless check or a check that is dishonored upon its
presentation for payment, and NOT the non-payment of the obligation.

What is the evidence of knowledge of insufficient funds?

The making, drawing and issuance of a check payment of which is refused
by the drawee because of insufficient funds in or credit with such bank,
when presented within ninety (90) days from the date of the check, shall
be prima facie evidence of knowledge of such insufficiency of funds or
credit.

Is there an exception to the presumption above?

Yes. The presumption does not apply when the maker or drawer pays the
holder of the check the amount due, or makes arrangement for payment in
full by the drawee of such check within 5 banking days after receiving
notice that such check has not been paid by the drawee.

What is the duty of the drawee of a bounced check?

When refusing to pay the check to its holder upon presentment, it is the
drawee’s (e.g. bank) duty to cause to be written, printed, or stamped on
the check, in plain language, or attached thereto, the reason for its
dishonor or refusal to pay. Where there are no sufficient funds in or credit
with such drawee bank, such fact shall always be explicitly stated in the
notice of dishonor or refusal.
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GENERAL BANKING LAWS
How shall domestic banks be organized?
What specific topics will be asked from this law? Domestic banking institutions, except building and loan associations, shall
The following topics are of primary concern: be organized in the form of stock corporations.
• Definition of banks
• Loans What type of stocks may be issued by banks?
• DOSRI No banking institution shall issue no par value stock.
• SBL
Can banks advertise the amount of their authorized or subscribed
What is the relevant statute on this topic? capital stock?
Republic Act No. 337 is known as “The General Banking Act.” No, unless they also indicate, at the same time and with equal prominence,
the amount of their capital actually paid up.
What is the ownership requirement for banks’ stocks?
What is a bank or a banking institution?
At least 60% of the capital stock of any banking institution shall be owned
A bank or a banking institution is a person or entity duly authorized to
by citizens of the Philippines.
engage in the lending of funds obtained from the public through the
receipt of deposits or the sale of bonds, securities, or obligations of any
kind, and any entity regularly conducting such operations.
What is the directorship requirement for banks?
What does the term bank or banking institution include? At least 2/3 of the members of the Board of Directors of any bank or
The following are considered banks or banking institutions: banking institution shall be citizens of the Philippines.
• Commercial banks
• Savings banks What is a commercial banking corporation?
• Mortgage banks A commercial banking corporation shall be any corporation which accepts
• Trust companies or creates demand deposits subject to withdrawal by check.
• Building and loan associations
• Branches and agencies in the Philippines of foreign banks What is a savings and mortgage banks?
• All other corporations, companies, partnerships, and associations A savings and mortgage banks shall be any corporation organized
performing banking functions in the primarily for the purpose of accumulating the small savings of depositors
and investing them, together with its capital, in bonds or in loans secured
Philippines
by bonds, real estate mortgages, and other forms of security provided in
the Act.
What are specifically excluded from the provisions of Republic Act
No. 337?
What are building and loan associations?
Persons and entities which receive deposits only occasionally
Building and loan associations are all corporations whose capital stock is
shall not be considered as banks. Also, insurance companies
required or is permitted to be paid in by the stockholders in regular,
are exempted from the provisions of RA No. 337.
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equal periodical payments and with the following purposes:  to
accumulate the savings of its stockholders
• to repay to said stockholders their accumulated savings and profits Yes.
upon surrender of their shares
• to encourage industry, frugality, and home building among its
stockholders
• to loan its funds, and funds borrowed for the purpose, to
stockholders of the security of unencumbered real estate and with
the pledge of shares of the capital stock owned by such
stockholders as collateral security
What loan is prohibited for a building and loan association?
It shall be unlawful for any building and loan association to make any
loan upon property that is suitable for only as the following:
• theater
• public hall
• church
• convent
• school
• club
• hotel
• garage
• other public building
What is a trust corporation?
A trust corporation is any corporation formed or organized for the purpose
of acting as trustee or administering any trust or holding property in trust
or on deposit for the use, benefit, or behoof (advantage) of others.
Can a trust corporation engage in commercial banking?
Yes.
A trust company may, with the approval of the Monetary Board, do a
commercial banking business but such business must be kept separate
and distinct from its trust business.
Can a commercial bank engage in the business of a trust company?
A commercial banking corporation may, with the approval of the
Monetary Board, be authorized to engage in the business of a trust
company, but shall be subject to the provisions related to the trust
corporations as regards its trust business.
What specific business cannot be entered
into by banking institutions? Banking
institutions shall not engage in insurance
business as the insurer.
What is DOSRI?
DOSRI stands for Dealings of a bank with any of its Directors, Officers,
Stockholders and their Related Interests.
What is the general policy for DOSRI?
DOSRI should meet both of the following requisites:
• Dealings should be in the regular course of business
• Dealings should be upon terms not less favorable to the bank than
those offered to others
What is the DOSRI rule?
The DOSRI rule limits the loans and guarantees that can be granted by a
bank to a single director, officer, stockholder or related interest to an
amount equivalent to his unencumbered deposits or the book value of his
paid-in capital contribution to the bank.
What is a substantial stockholder?
Substantial stockholder shall mean a person, or group of persons whether
natural or juridical, owning such number of shares that will allow such
person or group to elect at least one (1) member of the board of directors
of a bank or who is directly or indirectly the registered or beneficial
owner of more than ten percent (10%) of any class of its equity security.
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What is SBL? Legal tender power means that when the currency is offered in payment of
SBL stands for Single Borrower’s Limit. a debt, public or private, the same must be accepted.
What is the single borrower’s limit?
Per Bangko Sentral ng Pilipinas Circular No. 425, series of 2004,
consistent with national interest, the total amount of loans, credit
accommodations and guarantees that may be extended by a bank to any
person, partnership, association, corporation or other entity shall at no
time exceed twenty five percent (25%) of the net worth of such bank.
Can the single borrower’s limit be increased?
Yes. It can be increased by an additional 10%; Provided, That the
additional liabilities are adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar documents transferring or
securing title covering readily marketable, non-perishable goods which
must be fully covered by insurance.
NEW CENTRAL BANK ACT
What specific points will be asked from this topic?
The following are of primary concern:
• Legal tender power over coins and notes
• Conservatorship
• Receivership and closures
What is the relevant law on this topic?
Republic Act No. 7653 is known as “The New Central Bank Act”.
What is the legal tender power of the Bangko Sentral ng Pilipinas?
All notes and coins issued by the Bangko Sentral shall be fully guaranteed
by the Government of the Republic of the Philippines and shall be legal
tender in the Philippines for all debts, both public and private.
What does the “legal tender power” of a currency mean?
Is there a limit to the legal tender power of Philippine currency notes
and coins?
Philippine currency notes have no limit to their legal tender power. This
means that bills, in any denomination (P20, P50, P100, P200, P500,
P1,000) must be accepted up to any amount.
In the case of coins, their legal tender power shall have the following
limits:
• 25-centavo coins and above – acceptable up to P50
• 10-centavo coins or less – acceptable up to P20
However, pursuant to BSP Circular No. 537, series of 2006, the new
limits to the legal tender power of coins are: o P1, P5 and P10 –
acceptable up to P1,000
o All centavo (sentimo) coins – acceptable up to P100
Under what authority does the BSP issue currency?
Per RA No. 7653, the Bangko Sentral ng Pilipinas is the sole government
institution mandated by law to issue notes and coins for circulation in the
Philippines.
What is conservatorship?
Broadly defined, conservatorship is an attempt to save the bank from
bankruptcy and eventual liquidation. Doing so entails appointment of a
conservator who will take steps such as management reforms and infusion
of additional capital.
What is a conservator?
A conservator is person appointed by the Monetary Board to perform the
following functions:
• Take charge of the assets, liabilities and management of a bank or
quasi-bank  Reorganize the management
• Collect all monies and debts due to it
• Exercise all powers necessary to restore the bank or quasi-bank’s
viability
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When is a conservator needed?
A conservator is appointed whenever a bank or a quasi-bank is in a state
of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and
creditors.
Who appoints the conservator?
The Monetary Board appoints the conservator.
For under what
duration shall the
conservatorship
be? The
conservatorship
shall not exceed 1
year.
What is receivership?
Receivership is the summary closure of the bank by the Bangko Sentral ng
Pilipinas without the need of prior notice and hearing.
When is a bank or quasi-bank placed under receivership?
Receivership happens upon finding by the Monetary Board that
continuance in business of the bank or quasibank will involve probable
loss to its depositors and creditors.
What specific findings of the Monetary Board serve as bases for
receivership?
The banking institution is placed under receivership upon finding of
the Monetary Board of the following:  Inability to pay
liabilities
• Insufficiency of realizable assets to meet its liabilities
• Inability to continue business without involving probable loss to
depositors and creditors
• Willful violation of cease and desist order under Sec. 37 of RA
No. 7653 that has become final involving acts or transactions
which amount to fraud or dissipation of assets of the institution
Who shall function as the receiver?
For banks, the Monetary Board designates the Philippine Deposit
Insurance Corporation as the receiver.
For quasi-banks, any person of recognized competence in banking or
finance may be designated as the receiver.
What are the functions of the receiver?
Once appointed, the receiver shall perform the following functions:
• Immediately gather and take charge of all the assets and liabilities
of the institution
• Administer the assets and liabilities for the benefit of its creditors
• Exercise the general powers of a receiver under the Revised Rules
of Court
Is the receiver tasked to pay the claims of creditors and other
liabilities?
No.
With the exception of administrative expenditures, the receiver shall not
pay or commit any act that will involve the transfer or disposition of any
asset of the institution.
However, the receiver may deposit or place the funds of the institution in
non-speculative investments.
For under
what duration
shall the
receivership
be? The
receivership
shall not exceed
90 days.
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What happens during or after the 90 days of receivership?
The receiver shall determine as soon as possible, but not later than 90 days What is the relevant law on this topic?
from takeover, whether the institution may be rehabilitated or otherwise
placed in such a condition so that it may be permitted to resume business
with safety to its depositors and creditors and the general public.
What if the receiver determines that the bank or quasi-bank can no
longer be rehabilitated?
If the receiver determines that the institution cannot be rehabilitated or
permitted to resume business, the Monetary Board shall notify in writing
the Board of Directors of its findings and direct the receiver to proceed
with the liquidation of the institution.
What happens during liquidation of a bank or quasi-bank?
In liquidation, the claims of the bank’s creditors are determined and paid,
as the bank can no longer be rehabilitated.
When does liquidation take place?
Liquidation may be voluntary, pursuant to Sec. 68 of the General Banking
Law, or, as earlier answered, upon determination by the receiver that the
bank or quasi-bank can no longer be rehabilitated and cannot continue
business after the 90-day receivership period.
For under what duration shall the liquidation be?
The law does not state a specified period. Since this involves payments of
liabilities, it may take as much time as needed to determine and pay all
claims of creditors.
ANTI-MONEY LAUNDERING ACT
What specific points will be asked from this topic?
The following are of primary concern:
• Covered transactions
• Suspicious transactions
• Reportorial requirement
Republic Act No. 9160 is known as the “Anti-Money Laundering Act of
2001.”
What is the State’s policy regarding this law?
It is the policy of the State to protect and preserve the integrity and
confidentiality of bank accounts and to ensure that the Philippines shall
not be used as a money laundering site for the proceeds of any unlawful
activity.
What is money laundering?
Money laundering is a crime whereby the proceeds of an unlawful activity
are transacted; thereby making them appear to have originated from
legitimate sources.
How is money laundering committed?
Money laundering is committed by the following:
• Any person knowing that any monetary instrument or property
represents, involves, or relates to, the proceeds of any unlawful
activity, transacts or attempts to transact said monetary instrument
or property.
• Any person knowing that any monetary instrument or property
involves the proceeds of any unlawful activity, performs or fails to
perform any act as a result of which he facilitates the offense of
money laundering referred to in paragraph above.
• Any person knowing that any monetary instrument or property is
required under this Act to be disclosed and filed with the Anti-
Money Laundering Council (AMLC), fails to do so.
What is a covered transaction?
A covered transaction is a single, series, or combination of transactions of
more than P4,000,000 or an equivalent amount in foreign currency based
on the prevailing exchange rate within 5 consecutive banking days. It
likewise refers to a single, series or combination or pattern of unusually
large and complex transactions of more than P4,000,000 especially cash
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deposits and investments having no credible purpose or origin, underlying
trade obligation or contract.
Are there changes to the definition of covered transactions?
Yes.
Republic Act No. 9194 amends the definition of a covered transaction as
follows:
A covered transaction is a transaction in cash or other equivalent
monetary instrument involving a total amount of more than P500,000
within 1 banking day.
This is now the new definition of covered transaction.
What are suspicious transactions?
RA No. 9194 further amends RA No. 9160 to define what a suspicious
transaction is.
Suspicious transactions are transactions with covered institutions,
regardless of the amounts involved, where any of the following
circumstances exist:
• there is no underlying legal or trade obligation, purpose or
economic justification  the client is not properly
identified
• the amount involved is not commensurate with the business or
financial capacity of the client
• taking into account all known circumstances, it may be perceived
that the client’s transaction is structured in order to avoid being
the subject of reporting requirements under the Act
• any circumstances relating to the transaction which is observed to
deviate from the profile of the client and/or the client’s past
transactions with the covered institution
• the transaction is in a way related to an unlawful activity or
offense under this Act that is about to be, is being or has been
committed
• any transactions that is similar or analogous to any of the
foregoing
Who shall report suspicious transactions?
Suspicious transactions shall be reported by covered persons.
Who are covered persons?
Covered persons, natural or juridical, refer to:
• banks, non-banks, quasi-banks, trust entities, foreign exchange
dealers, pawnshops, money changers, remittance and transfer
companies and other similar entities and all other persons and
their subsidiaries and affiliates supervised or regulated by the
Bangko Sentral ng Pilipinas
• insurance companies, pre-need companies and all other persons
supervised or regulated by the Insurance Commission
• (i) securities dealers, brokers, salesmen, investment houses and
other similar persons managing securities or rendering services as
investment agent, advisor, or consultant, (ii) mutual funds, close-
end investment companies, common trust funds, and other similar
persons, and (iii) other entities administering or otherwise dealing
in currency, commodities or financial derivatives based thereon,
valuable objects, cash substitutes and other similar monetary
instruments or property supervised or regulated by the Securities
and Exchange Commission
• jewelry dealers in precious metals, who, as a business, trade in
precious metals, for transactions of more than P1,000,000
• jewelry dealers in precious stones, who, as a business, trade in
precious stones, for transactions of more than P1,000,000
• company service providers which, as a business, provide any of
the following services to third parties: o acting as a
formation agent of juridical persons
o acting as (or arranging for another person to act as) a
director or corporate secretary of a company, a partner of
a partnership, or a similar position in relation to other
juridical persons
o providing a registered office, business address or
accommodation, correspondence or administrative
address for a company, a partnership or any other legal
person or arrangement
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o acting as (or arranging for another person to act as) a
nominee shareholder for another person  persons
who provide any of the following services: o
managing of client money, securities or other
assets o management of bank, savings or
securities accounts
o organization of contributions for the creation, operation or
management of companies
o Creation, operation or management of juridical persons or
arrangements, and buying and selling business entities.

Are there exceptions to the definitions of covered persons?

Yes.
Notwithstanding the definitions above, covered persons shall not include
lawyers and accountants acting as independent legal professionals in
relation to information concerning their clients or where disclosure of
information would compromise client confidences or the attorney-client
relationship.

When should covered persons report suspicious transactions?

Per Republic Act No. 9160
Covered institutions shall report to the AMLC all covered transactions
within 5 working days from occurrence thereof, unless the Supervising
Authority concerned prescribes a longer period not exceeding 10 working
days.
Per Republic Act No. 10365 (amending RA No. 9160)
Covered persons shall report to the AMLC all covered transactions and
suspicious transactions within 5 working days from occurrence thereof,
unless the AMLC prescribes a different period not exceeding 15 working
days.
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PHILIPPINE DEPOSIT INSURANCE ACT (PDIC) • Savings and mortgage banks
• Private development banks
What specific points will be asked from this topic? • Cooperative banks
The following are of primary concern: • Savings and loan associations
• Insurable deposits • Branches and agencies in the Philippines of foreign banks
• Maximum liability • Other corporations authorized to perform banking functions in the
• Requirements for claims Philippines

What is the relevant law on this topic? Are deposits in Philippine banks with branches outside the Philippines
Republic Act No. 3591 established the Philippine Deposit Insurance insured by the PDIC?
Corporation, and defined its powers and duties. Subject to the approval of the Board of Directors, any insured bank with
branch outside the Philippines may elect to include for insurance its
deposit obligations payable at such branch.
What is the main function of the PDIC?
PDIC is created to insure the deposits of all banks which are entitled to the
benefits of insurance. Are deposits in foreign currency insured?
Yes, foreign currency deposits are insured.
This is pursuant to Republic Act No. 6426 (An act instituting a foreign
What are the specific functions of the PDIC?
currency deposit system in the Philippines, and for other purposes), and
The PDIC serve the following functions: Central Bank Circular No. 1389.
• Deposit insurer Depositors may receive payment in the same currency in which the
• Co-regulator of banks insured deposit is denominated.
• Receiver and liquidator of closed banks
Which accounts or deposits will not have deposit insurance?
What is an insured deposit? Republic Act No. 9576, amending Republic Act No. 3591, enumerates
The term insured deposit means the amount due to any bona fide that the following accounts or transactions on which the PDIC will not
depositor for legitimate deposits in an insured bank net of any obligation pay deposit insurance:
of the depositor to the insured bank as of date of closure, but not to exceed • Investment products such as bonds, securities and trust accounts
P500,000. • Deposit accounts which are unfunded, fictitious or fraudulent
• Deposit products constituting or emanating from unsafe and
How shall joint accounts be insured? unsound banking practices
A joint account shall be insured separately from any individually-owned • Deposits that are determined to be proceeds of an unlawful
deposit account. activity as defined under the Anti-Money Laundering Law

What types of deposits are insured by the PDIC? What is the maximum liability of the PDIC for insured deposits?
Deposits in the following banks are insured by the PDIC: Effective June 1, 2009, the maximum deposit insurance coverage is
• Commercial banks P500,000 per depositor.
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Depositors with valid deposit accounts with balances of P100,000 and
What if the depositor has more than one account in one bank? below are not required to file claims, provided they:
All deposit accounts by a depositor in a closed bank maintained in the • have no obligations with the closed bank, or have not acted as co-
same right and capacity shall be added together. makers of these obligations, or are not spouses of the borrowers
Deposit insurance coverage is not determined on a per-account basis. The • have complete mailing address found in the bank records or have
type of account (whether checking, savings, time or other form of deposit) updated their addresses through the Mailing Address Update Form
has no bearing on the amount of insurance coverage. (MAUF) of PDIC before the start of the onsite claims settlement
operation
• have not maintained the account under the name of business
What if the depositor has more than one entities
account but in different banks? Deposits in
different banking institutions are insured
separately. What happens to uninsured deposit in excess of P500,000?
The claim for the uninsured portion of the deposit is a claim against the
What if the depositor has more than one account but in different assets of the closed bank.
branches of the same bank?
If a bank has one or more branches, the main office and all branch offices
are considered as one bank. Thus, if you have deposits at the main office
and at one or more branch offices of the same bank, the deposits are added
together when determining deposit insurance coverage, the total of which
shall not exceed P500,000.

What are the requirements for claiming the insurance?

The following are the requirements in filing claims:
• Original evidence of deposits such as savings passbook, certificate
of deposit, bank statement, used or unused checks, or ATM card
• 1 valid original photo-bearing ID with clear signature of
depositor/claimant (bringing 2 valid IDs is recommended in case
of discrepancies)
• For depositor below 18 years old, photocopy of birth certificate
and valid ID of the parent
• Original copy of a notarized Special Power of Attorney (SPA) for
claimants who are not signatories in the bank records (SPA
executed by the parent, if minor)  Claim form

Who are not required to file deposit insurance claims?

REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
SECRECY OF BANK DEPOSITS ACT
What is the relevant law on this topic?
Republic Act No. 1405 is entitled “An Act Prohibiting Disclosure Of or
Inquiry Into, Deposits with Any Banking Institution and Providing
Penalty Therefore”.
What are the purposes of the Bank Secrecy Deposit Act?
The Bank Deposit Secrecy Law was created for the following purposes:
• To encourage people to deposit their money in banking
institutions
• To discourage private hoarding of money so that the same may be
utilized by banks in authorized loans
What is covered by the law on bank secrecy?
The law states that all deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by
the Government of the Philippines, its political subdivisions and its
instrumentalities are considered absolutely confidential.
Does the law on secrecy also apply to foreign currency deposits?
Yes.
Republic Act No. 6426, known as the “Foreign Currency Deposit Act of
the Philippines”, Sec. 8 states that all foreign currency deposits are also
considered of an absolutely confidential nature.
Are there exceptions to the confidentiality rule on deposits?
Yes.
In the following cases, the deposits may be examined, inquired or looked
into by any person, government official, bureau or office:
• With written permission of the depositor
• In cases of impeachment
• Upon order of a competent court in cases of bribery or
dereliction of duty of public officials
• In cases where the money deposited or invested is the
subject matter of litigation
• During special or general examination of a bank, as
authorized by the Monetary Board to investigate bank fraud or a
serious irregularity
On the part of the auditor on the audit of bank’s financial statements,
does it mean that the auditor can no longer inquire into or examine
bank deposits because of the law on secrecy?
Not necessarily.
Presidential Decree No. 1792, amending Republic Act No. 1405 states
that, during a regular audit of a bank by an independent auditor, the
auditor may inquire, examine or look into deposits, provided that the
following conditions are satisfied:
• The examination is for audit purposes only
• The results of the examination shall be for the exclusive
use of the bank
What are the sanctions for violations of the Bank Secrecy Law?
Any violation of this law will subject offender upon conviction, to either
or both of the following (upon the discretion of the court):
• Imprisonment of not more than 5 years
• Fine of not more than P20,000
UNCLAIMED BALANCES LAW
What is the relevant law on this topic?
Act No. 3936, as amended by Presidential Decree No. 679, requires
banks, trust corporations, and building and loans associations, to transfer
unclaimed balances held by them to the Treasurer of the Philippines and
for other purposes.
What is the meaning of “unclaimed balances”?
Unclaimed balances shall include credits or deposits of the following:
• money
• bullion
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
• security
• other evidence of indebtedness of any kind, and interest
thereon with banks, buildings and loan associations, and trust
corporations, in favor of the following:  any person known to be
dead
• any person who has not made further deposits or
withdrawals during the preceding 10 years or more Note: the credit or
deposit must be in covered institutions (i.e. banks, buildings and loan
associations or trust corporations).
What will happen to unclaimed balances?
Unclaimed balances, together with the increase and proceeds thereof, shall
be deposited with the Treasurer of the Philippines to the credit of the
Government of the Republic of the Philippines to be used as the National
Assembly may direct after reclassification and procedures provided by
law.
What is an escheat proceeding?
Escheat proceedings refer to the judicial process in which the state, by
virtue of its sovereignty, steps in and claims abandoned, left vacant, or
unclaimed property, without there being an interested person having a
legal claim thereto.
In the case of dormant accounts, the state inquires into the status, custody,
and ownership of the unclaimed balance to determine whether the
inactivity was brought about by the fact of death or absence of or
abandonment by the depositor.
If after the proceedings the property remains without a lawful owner
interested to claim it, the property shall be reverted to the state to forestall It shall be the duty of the Treasurer of the Philippines to inform the
an open invitation to self-service by the first comers.
What happens if interested parties have come forward and lain
claim to the unclaimed balance? If interested parties have come
forward and lain claim to the property, the courts shall determine
whether the credit or deposit should pass to the claimants or be
forfeited in favor of the state.
What is the duty of the covered institution on unclaimed balances?
Immediately after the taking effect of the Act and within the month of
January of every odd year, all banks, building and loan associations, and
trust corporations shall forward to the Treasurer of the Philippines a
statement, under oath, of their respective managing officers, of all credits
and deposits held by them in favor of persons known to be dead, or who
have not made further deposits or withdrawals during the preceding ten
years or more, arranged in alphabetical order according to the names of
creditors and depositors, and showing:
• The names and last known place of residence or post office
addresses of the persons in whose favor such unclaimed balances
stand
• The amount and the date of the outstanding unclaimed balance
and whether the same is in money or in security, and if the latter,
the nature of the same
• The date when the person in whose favor the unclaimed balance
stands died, if known, or the date when he made his last deposit or
withdrawal
• The interest due on such unclaimed balance, if any, and the
amount thereof
A copy of the above sworn statement shall be posted in a conspicuous
place in the premises of the bank, building and loan association, or trust
corporation concerned for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the above sworn
statement, the bank, building and loan association, and trust corporation
shall communicate with the person in whose favor the unclaimed balance
stands at his last known place of residence or post office address.
What is the duty of the Treasurer of the Philippines?
Solicitor General from time to time the existence of unclaimed balances
held by banks, building and loan associations, and trust corporations.
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
INTELLECTUAL PROPERTY LAW • Anything which is contrary to public order or morality.
What is the relevant law on this topic?
Republic Act No. 8923 is known as the Intellectual Property Code of the
Philippines.
What specific items will be asked in the exam?
The following points are of primary concern:
• Patents
• Trademark, service marks, trade names
• Copyright
Which inventions are patentable?
Any technical solution of a
problem in any field of
human activity which: 
is new;
• involves an inventive step; and
• is industrially applicable shall be patentable.
It may be, or may relate to, a product, or process, or an improvement of
any of the foregoing.
Which items shall be excluded from patent protection?
The following shall be excluded from patent protection:
• Discoveries, scientific theories and mathematical methods
• Schemes, rules and methods of performing mental acts, playing
games or doing business, and programs for computers
• Methods for treatment of the human or animal body by surgery or
therapy and diagnostic methods practiced on the human or animal
body (except products and composition for use in any of these
methods)
• Plant varieties or animal breeds or essentially biological process
for the production of plants or animals (except micro-organisms
and non-biological and microbiological processes) 
Aesthetic creations
To whom does the right to a patent belong?
The right to a patent belongs to the inventor, his heirs, or assigns.
When two (2) or more persons have jointly made an invention, the right to
a patent shall belong to them jointly. If the patent is created pursuant to a
commission, the person who commissions the work shall own the patent,
unless otherwise provided in the contract.
Who owns the patent for an invention made by the employee in the
course of his employment contract? In case the employee made the
invention in the course of his employment contract, the patent shall
belong to:
A. The EMPLOYEE – if the inventive activity is not a part of his
regular duties even if the employee uses the time, facilities and materials
of the employer.
B. The EMPLOYER – if the invention is the result of the
performance of his regularly-assigned duties, unless there is an agreement,
express or implied, to the contrary.
What is the “first to file rule”?
If 2 or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to the
person who filed an application for such invention.
Where two or more applications are filed for the same invention, to the
applicant who has the earliest filing date or, the earliest priority date.
When does a patent take effect?
A patent shall take effect on the date of the publication of the grant of the
patent in the IPO (Intellectual Property Office) Gazette.
What is the legal life of a patent?
The term of a patent shall be 20 years from the filing date of the
application.
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
What rights are given to a patent owner?
A patent shall confer on its owner the following exclusive rights:
• Where the subject matter of a patent is a product, to restrain,
prohibit and prevent any unauthorized person or entity from
making, using, offering for sale, selling or importing that product
• Where the subject matter of a patent is a process, to restrain,
prevent or prohibit any unauthorized person or entity from using
the process, and from manufacturing, dealing in, using, selling or
offering for sale, or importing any product obtained directly or
indirectly from such process
• The right to assign, or transfer by succession the patent, and to
conclude licensing contracts for the same
What is a trademark or service mark?
A “mark” means any visible sign capable of distinguishing the goods or
service of an enterprise and shall include a stamped or marked container
of goods.
What is the difference between a
trademark and service mark?
Trademark refers to goods while
service mark refers to service.
What is a trade name?
“Trade name” means the name or designation identifying or
distinguishing an enterprise.
How are rights to a trademark or service mark acquired?
The rights in a mark shall be acquired through registration made validly
in accordance with the provisions of this law.
In what cases is the registration of a trademark or service mark not
allowed?
A mark cannot be registered if it:
• Consists of immoral, deceptive or scandalous matter, or matter
which may disparage or falsely suggest a connection with persons,
living or dead, institutions, beliefs, or national symbols, or bring
them into contempt or disrepute
• Consists of the flag or coat of arms or other insignia of the
Philippines or any of its political subdivisions, or of any foreign
nation, or any simulation thereof
• Consists of a name, portrait or signature identifying a particular
living individual except by his written consent, or the name,
signature, or portrait of a deceased President of the Philippines,
during the life of his widow, if any, except by written consent of
the widow
• Is identical with a registered mark belonging to a different
proprietor or a mark with an earlier filing or priority date, in
respect of o The same goods or services, or o Closely
related goods or services, or
o If it nearly resembles such a mark as to be likely to deceive
or cause confusion
• Is identical with, or confusingly similar to, or constitutes a
translation of a mark which is considered by the competent
authority of the Philippines to be well-known internationally and
in the Philippines, whether or not it is registered here, as being
already the mark of a person other than the applicant for
registration, and used for identical or similar goods or services
• Is identical with, or confusingly similar to, or constitutes a
translation of a mark considered well-known in accordance with
the preceding paragraph, which is registered in the Philippines
with respect to goods or services which are not similar to those
with respect to which registration is applied for
• Is likely to mislead the public, particularly as to the nature,
quality, characteristics or geographical origin of the goods or
services
• Consists exclusively of signs that are generic for the goods or
services that they seek to identify
• Consists exclusively of signs or of indications that have become
customary or usual to designate the goods or services in everyday
language or in bona fide and established trade practice
• Consists exclusively of signs or of indications that may serve in
trade to designate the kind, quality, quantity, intended purpose,
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
value, geographical origin, time or production of the goods or
rendering of the services, or other characteristics of the goods or
services
• Consists of shapes that may be necessitated by technical factors or
by the nature of the goods themselves or factors that affect their
intrinsic value
• Consists of color alone, unless defined by a given form 
Is contrary to public order or morality
What is the legal life of a trademark or service mark?
A certificate of registration shall remain in force for 10 years.
What rights does the owner of a registered trademark or service mark
have?
The owner of a registered mark shall have the exclusive right to prevent
all third parties not having the owner’s consent from using in the course of
trade identical or similar signs or containers for goods or services which
are identical or similar to those in respect of which the trademark is
registered where such use would result in a likelihood of confusion.
In case of the use of an identical sign for identical goods or services, a
likelihood of confusion shall be presumed.
What are the rules on assignment and transfer of application and
registration of trademark and service mark?
The following rules are observed:
1. An application for registration of a mark, or its registration, may
be assigned or transferred with or without the transfer of the
business using the mark.
2. The assignment of the application for registration of a mark, or of
its registration, shall be in writing and require the signatures of the
contracting parties. Transfers by mergers or other forms of
succession may be made by any document supporting such
transfer.
3. Assignments and transfers shall have no effect against third
parties until they are recorded at the Office.
What is the prohibition on the use of trade names?
A name or designation may not be used as a trade name if by its nature or
the use to which such name or designation may be put:
• it is contrary to public order or morals
• if, in particular, it is liable to deceive trade circles or the public as
to the nature of the enterprise identified by that name
What is a copyright or economic right?
Copyright or economic rights shall consist of the exclusive right to carry
out, authorize or prevent the following acts:
• Reproduction of the work or substantial portion of the work
• Dramatization, translation, adaptation, abridgment, arrangement
or other transformation of the work
• The first public distribution of the original and each copy of the
work by sale or other forms of transfer of ownership
• Rental of the original or a copy of an audiovisual or
cinematographic work, a work embodied in a sound recording, a
computer program, a compilation of data and other materials or a
musical work in graphic form, irrespective of the ownership of the
original or the copy which is the subject of the rental  Public
display of the original or a copy of the work
• Public performance of the work
• Other communication to the public of the work
Which works are not protected by copyright?
No protection shall extend, under this law, to:
• any idea, procedure, system, method or operation, concept,
principle, discovery or mere data as such, even if they are
expressed, explained, illustrated or embodied in a work
• news of the day and other miscellaneous facts having the
character of mere items of press information
• any official text of a legislative, administrative or legal nature, as
well as any official translation thereof
Who owns the rights to a copyright if:
The work is literary and artistic?
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
In the case of original literary and artistic works, copyright shall belong to Letters and other private communications in writing are owned by the
the author of the work.
There is joint authorship?
In the case of works of joint authorship, the co-authors shall be the
original owners of the copyright and in the absence of agreement, their
rights shall be governed by the rules on co-ownership.
If, a work of joint authorship consists of parts that can be used separately
and the author of each part can be identified, the author of each part shall
be the original owner of the copyright in the part that he has created.
Pursuant to a commission?
In the case of a work commissioned by a person other than an employer of
the author and who pays for it and the work is made in pursuance of the
commission, the person who so commissioned the work shall have
ownership of the work, but the copyright thereto shall remain with the
creator, unless there is a written stipulation to the contrary.
The work is an audiovisual like movies?
In the case of audiovisual work, the copyright shall belong to the
producer, the author of the scenario, the composer of the music, the film
director, and the author of the work so adapted.
The author is an employee?
In the case of work created by an author during and in the course of his
employment, the rules stated on patent above apply.
Who owns the rights to a letter sent to someone?
In respect of letters, the copyright shall belong to the writer subject to the
provisions of Article 723 of the Civil Code.
What does Article 723 of the Civil Code say on letters?
person to whom they are addressed and delivered, but they cannot be
published or disseminated without the consent of the writer or his heirs.
However, the court may authorize their publication or dissemination if the
public good or the interest of justice so requires.
What is the legal duration of copyright?
Copyright protection for artistic, literary and derivative works lasts for the
life of the author plus 50 years after the author’s death.
LAW ON COOPERATIVES
What specific points will be asked from this topic?
The following points will be considered:
• Organization and registration of cooperatives
• Types and categories of cooperatives
• Administration
• Responsibilities, rights and privileges of cooperatives
• Capital, property of funds
• Audit, inquiry and members’ right to examine
• Allocation and distribution of funds
• Dissolution of cooperatives
What is the relevant law on this topic?
Republic Act No. 9520 is known as the “Philippine Cooperative Code of
2008”.
What is a cooperative?
A cooperative is an autonomous and duly registered association of
persons, with a common bond of interest, who have voluntarily 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
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
risks and benefits of the undertaking in accordance with universally requirements for multipurpose cooperatives to be set by the Cooperative
accepted cooperative principles. Development Authority (CDA).
What are the essential characteristics of cooperatives?
The following shall characterize a cooperative:
• Autonomy and due registration
• Voluntary membership
• Equitable capital contributions of members
• Patronizing by members of the products and services of the
cooperative  Share in the risks and benefits
What is a primary cooperative?
A primary cooperative is a cooperative whose members are natural
persons.
As to membership, the other categories are:
• Secondary cooperative – the members of which are primary
cooperatives  Tertiary cooperative – the members of which are
secondary cooperatives
Who may organize a primary cooperative?
Fifteen (15) or more natural persons who have the following requisites
may organize a primary cooperative:  Filipino citizens
• Of legal age
• Have a common bond of interest
• Actually residing or working in the intended area of operation
Can a primary cooperative be registered as a multi-purpose
cooperative?
Any newly organized primary cooperative may be registered as multi-
purpose cooperative only after compliance with the minimum
Can a single-purpose cooperative become a multi-purpose
cooperative?
Yes.
A single-purpose cooperative may transform into a multipurpose or may
create subsidiaries but only after at least 2 years of operations.
What is the extent of the liability of a cooperative?
A duly registered cooperative shall have limited liability.
What is the legal life of a cooperative?
A cooperative shall exist for a period not exceeding 50 years from the date
of registration unless sooner dissolved or unless said period is extended.
What is the rule on extension of cooperative life?
The cooperative term, as originally stated in the articles of cooperation,
may be extended for periods not exceeding 50 years in any single instance
by an amendment of the articles of cooperation.
However, no extension can be made earlier than 5 years prior to the
original or subsequent expiry date unless there are justifiable reasons for
an earlier extension.
What is the capital requirement to register a cooperative?
No cooperative, other than a cooperative union, shall be registered unless
the Articles of Cooperation is accompanied with the bonds of the
accountable officers and a sworn statement of the treasurer elected by the
subscribers showing that:
• at least
25% of the authorized
share capital has been
subscribed; and
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
• at least
25% of the total
subscription has been
paid However, the
paid-up share capital
must be at least
P15,000.
When does a cooperative acquire juridical personality?
A cooperative formed and organized under the Code acquires juridical
personality from the date the CDA issues a certificate of registration
under its official seal.
What is the legal power of a certificate of registration?
A certificate of registration issued by the CDA under its official seal shall
be conclusive evidence that the cooperative therein mentioned is duly
registered, unless it is proved that the registration has been cancelled.
On types of cooperatives
What are the different types of cooperatives?
Cooperatives may fall under any of the following types:
• Credit Cooperative – one that promotes and undertakes savings
and lending services among its members. It generates a common
pool of funds in order to provide financial assistance to its
members for productive and provident purposes.
• Consumers Cooperative – one the primary purpose of which is to
procure and distribute commodities to members and non-
members.
• Producers Cooperative – one that undertakes joint production
whether agricultural or industrial. It is formed and operated by its
members to undertake the production and processing of raw
materials or goods produced by its members into finished or
processed products for sale by the cooperative to its members and
non-members. Any end product or its derivative arising from the
raw materials produced by its members, sold in the name and for
the account of the cooperative, shall be deemed a product of the
cooperative and its members.
• Marketing Cooperative – one which engages in the supply of
production inputs to members and markets their products.
• Service Cooperative – one which engages in medical and dental
care, hospitalization, transportation, insurance, housing, labor,
electric light and power, communication, professional and other
services.
• Multi-purpose Cooperative – one which combines two (2) or more
of the business activities of these different types of cooperatives.
• Advocacy Cooperative – a primary cooperative which promotes
and advocates cooperativism among its members and the public
through socially-oriented projects, education and training,
research and communication, and other similar activities to reach
out to its intended beneficiaries.
• Agrarian Reform Cooperative – one organized by marginal
farmers majority of which are agrarian reform beneficiaries for the
purpose of developing an appropriate system of land tenure, land
development, land consolidation or land management in areas
covered by agrarian reform.
• Cooperative Bank – one organized for the primary purpose of
providing a wide range of financial services to cooperatives and
their members.
• Dairy Cooperative – one whose members are engaged in the
production of fresh milk which may be processed and/or marketed
as dairy products.
• Education Cooperative – one organized for the primary purpose
of owning and operating licensed educational institutions
notwithstanding the provisions of Republic Act No. 9155,
otherwise known as the Governance of Basic Education Act of
2001.
• Electric Cooperative – one organized for the primary purposed of
undertaking power generations, utilizing renewable energy
sources, including hybrid systems, acquisition and operation of
subtransmission or distribution to its household members.
• Financial Service Cooperative – one organized for the primary
purpose of engaging in savings and credit services and other
financial services.
• Fishermen Cooperative – one organized by marginalized
fishermen in localities whose products are marketed either as fresh
or processed products.
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
• Health Services Cooperative – one organized for the primary
purpose of providing medical, dental and other health services.
• Housing Cooperative – one organized to assist or provide access
to housing for the benefit of its regular members who actively
participate in the savings program for housing. It is co-owned and
controlled by its members.
• Insurance Cooperative – one engaged in the business of insuring
life and poverty of cooperatives and their members. What is an associate member?
• Transport Cooperative – one which includes land and sea An associate member is one who has no right to vote nor be voted upon
transportation, limited to small vessels, as defined or classified and shall be entitled only to such rights and privileges as the bylaws may
under the Philippine maritime laws, organized under the provide.
provisions of the Code. However, an associate who meets the minimum requirements of regular
• Water Service Cooperative – one organized to own, operate and membership, and continues to patronize the cooperative for 2 years, and
manage waters systems for the provision and distribution of signifies his/her intention to remain a member shall be considered a
potable water for its members and their households. regular member.
• Workers Cooperative – one organized by workers, including the
self-employed, who are at same time the members and owners of Who are disqualified to become members or elected as officers of a
the enterprise. Its principal purpose is to provide employment and cooperative?
business opportunities to its members and manage it in accordance
Any officer or employee of the CDA shall be disqualified to be elected or
with cooperative principles.
appointed to any position in a cooperative.
All elective officials of the Government shall be ineligible to become
What is a laboratory cooperative? officers and directors of cooperatives.
A laboratory cooperative is one organized by minors. It shall be governed
by special guidelines to be promulgated by the CDA.
What is the extent of a member’s liability?
On membership and administration of cooperatives, A member shall be liable for the debts of the cooperative to the extent of
his contribution to the share of the cooperative.
What are the Unlike in partnership, and like in corporations, a member’s personal assets
types of members shall not answer for the debts of the cooperative.
in a cooperative?
A cooperative may have 2 types of members:
May a member withdraw his membership from the cooperative?
• Regular members
Yes.
• Associate members
A member of a cooperative may, for any valid reason, withdraw his
membership from the cooperative by giving a 60 day notice to the Board
What is a regular member? of Directors.
A regular member is one who has complied with all the membership
requirements and entitled to all the rights and privileges of membership. Will a withdrawing member receive a refund of his capital
contribution?
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
Yes, with qualifications.
Subject to the bylaws of the cooperative, the withdrawing member shall
be entitled to a refund of his share capital contribution and all other
interests in the cooperative.
However, the refund shall not be made if upon such payment the value of
the assets of the cooperative would be less than the aggregate amount of
its debts and liabilities exclusive of his share capital contribution.
Can be a member be removed from the cooperative?
Yes.
Membership in the cooperative may be terminated by a vote of the
majority of all the members of the BOD for any of the following causes:
• When a member has not patronized any of the services of the
cooperative for an unreasonable period of time as may be
previously determined by the BOD
• When a member has continuously failed to comply with his
obligations
• When a member has acted in violation of the bylaws and the rules
of the cooperative
• For any act or omission injurious or prejudicial to the interest or
the welfare of the cooperative
What is the composition of a cooperative’s General Assembly?
The General Assembly shall be composed of such members who are
entitled to vote under the Articles of Cooperation and bylaws of the
cooperative
What are the powers of the General Assembly?
The General Assembly shall be the highest policy-making body of the
cooperative and shall exercise such powers as are stated in the Code.
Specifically, the following powers of the General Assembly cannot be
delegated:
• To determine and approve amendments to the articles of
cooperation and bylaws
• To elect or appoint the members of the board of directors, and to
remove them for cause. However, in the case of the electric
cooperatives registered under the Code, election of the members
of the board shall be held in accordance with its bylaws or
election guideline of such electric cooperative  To approve
developmental plans of the cooperative
When should general meetings of a cooperative be held?
A regular meeting shall be held annually by the General Assembly on a
date fixed in the bylaws.
What if the bylaws do not fix a period for the regular meeting?
If not fixed in the bylaws, the regular meeting shall be on any date within
90 days after the close of each fiscal year.
What constitutes a quorum in cooperative meetings?
A quorum shall consist of at least 25% of all the members entitled to vote.
Is the quorum
the same for all
types of
cooperatives?
No, there are
exceptions.
In the case of electric cooperatives, a quorum, unless otherwise provided
in the bylaws, shall consist of 5% of all the members entitled to vote.
In the case of cooperative banks, the quorum requirement for General
Assembly meetings, whether special or regular, shall be 1/2 plus one of
the number of voting shares of all the members in good standing. In the
meetings of the BOD, whether special or regular, the quorum requirement
shall be 1/2 plus one of all the members of the BOD.
Each director shall only have 1 vote.
What is the voting system in meetings of cooperatives?
The voting system
depends upon the
category of
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
cooperative. For
primary cooperatives,
each member shall
have 1 vote.
For secondary or tertiary cooperatives, each member shall have 1 basic
vote and as many incentive votes as provided for in the bylaws but not to
exceed 5 votes.
What is the composition of the BOD of cooperatives?
Like regular corporations, the BOD of cooperatives shall be composed of
not less than 5 but not more than 15 members.
Who elects the members of the BOD?
The members of the BOD are elected by the General Assembly.
What is the term of office of the members of the BOD?
BOD members shall be elected for a term of 2 years and shall hold office
until their successors are duly elected and qualified, or until duly removed
for cause.
What are the powers and functions of the BOD?
The direction and management of the affairs of the cooperative shall be
vested in the BOD.
Also, the BOD shall be responsible for the strategic planning, direction-
setting and policy-formulation activities of the cooperative.
What is the prohibition for BOD members on voting?
Directors cannot attend or vote by proxy at board meetings.
Who shall elect the officers of the cooperative?
The BOD shall elect from among themselves the chairperson and vice-
chairperson, and elect or appoint other officers of the cooperative from
outside of the board in accordance with their bylaws.
What is the status of dealings of directors and officers with the
cooperative?
A contract entered into by the cooperative with 1 or more of its directors,
officers, and committee members is voidable, at the option of the
cooperative, unless all the following conditions are present:
• That the presence of such director in the board meeting wherein
contract was approved was not necessary to constitute a quorum
for such meeting
• That the vote of such director was not necessary for the approval
of the contract
• That the contract is fair and reasonable under the circumstances
• That in the case of an officer or committee member, the contract
with the officer or committee member has been previously
authorized by the General Assembly or by the BOD
On responsibilities,
rights and privileges of
cooperatives
What cooperative
books shall be kept
open for inspection?
Every cooperative shall have the following documents ready and
accessible to its members and representatives of the CDA for inspection
during reasonable office hours at its official address:
• A copy of the Cooperative Code and all other laws pertaining to
cooperatives  A copy of the regulations of the CDA
• A copy of the articles of cooperation and bylaws of the
cooperative
• A register of members
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES
• The books of the minutes of the meetings of the General
Assembly, BOD and committee  Share books, where
applicable
• Financial statement
• Such other documents as may be prescribed by laws or the bylaws
The accountant or the bookkeeper of the cooperative shall be responsible
for the maintenance of the cooperative records in accordance with
generally accepted accounting practices.
He shall also be responsible for the production of the same at the time of
audit or inspection.
The audit committee shall be responsible for the continuous and
periodic review of the books and records of account to ensure that
these are in accordance with generally accepted accounting practices.
He shall also be responsible for the production of the same at the time
of audit or inspection.
For up to what period shall cooperatives keep its records?
A cooperative may dispose by way of burning or other method of
complete destruction any document, record or book pertaining to its
financial and nonfinancial operations which are already more than 5 years
old except those relating to transactions which are the subject of civil,
criminal and administrative proceedings.
Which cooperative members need to be bonded?
Every director, officer, and employee handling funds, securities or
property on behalf of any cooperative shall be covered by a surety bond to
be issued for a duly registered insurance or bonding company for the
faithful performance of their respective duties and obligations.
Are cooperatives required to pay tax?
Duly registered cooperatives which do not transact any business with non-
members or the general public shall not be subject to any taxes and fees
imposed under the internal revenue laws and other tax laws.
What if the cooperatives have transaction with both members and
non-members?
Cooperatives transacting business with both members and non-members
shall not be subjected to tax on their transactions with members.
What privileges do cooperatives have?
Cooperatives enjoy the following privileges:
• The privilege of depositing their sealed cash boxes or containers,
documents or any valuable papers in the safes of the municipal or
city treasurers and other government offices free of charge
• Cooperatives organized among government employees enjoy the
free use of any available space in their agency, whether owned or
rented by the Government
• Cooperatives rendering special types of services and facilities
such as cold storage, ice plant, electricity, transportation shall
secure a franchise therefore, and such cooperatives shall open
their membership to all persons qualified in their areas of
operation
• In areas where appropriate cooperatives exist, the preferential
right to supply government institutions and agencies rice, corn and
other grains, fish and other marine products, meat, eggs, milk,
vegetables, tobacco and other agricultural commodities produced
by their members shall be granted to the cooperatives concerned
• Preferential treatment in the allocation of fertilizers, including
seeds and other agricultural inputs and implements, and in rice
distribution
• Preferential and equitable treatment in the allocation or control of
bottomries of commercial shipping vessels in connection with the
shipment of goods and products of cooperatives
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS SPECIAL LAWS Q & A NOTES

• Preferential rights in the management of public markets and/or
lease of public market facilities, stalls or spaces for cooperatives
and their federations, such as farm and fishery producers and
suppliers, market vendors and such other cooperatives, which
have for their primary purpose the production and/or the
marketing of products from agriculture, fisheries and small
entrepreneurial industries and federations thereof
• Cooperatives engaged in credit services and/or federations shall
be entitled to loans credit lines, rediscounting of their loan notes,
and other eligible papers with the Development Bank of the
Philippines, the Land Bank of the Philippines and other financial
institutions except the Bangko Sentral ng Pilipinas
• The privilege of being represented by the provincial or city fiscal
or the Office of the Solicitor General, free of charge, except when
the adverse party is the Republic of the Philippines
• Preferential right in the management of the canteen and other
services related to the operation of the educational institution
where they are employed for Cooperatives organized by faculty
members and employees of educational institutions
• The appropriate housing agencies and government financial
institutions shall create a special window for financing housing
projects undertaken by cooperatives, with interest rates and terms
equal to, or better than those given for socialized housing projects.
This financing shall be in the form of blanket loans or long-term
wholesale loans to qualified cooperatives, without need for
individual processing

• A public transport service cooperative may be entitled to

financing support for the acquisition and/or maintenance of land
and sea transport equipment, facilities and parts through the
program of the government financial institutions. It shall have the
preferential right to the management and operation of public
terminals and ports whether land or sea transport where the
cooperative operates and on securing a franchise for active or
potential routes for the public transport
• Cooperatives transacting business with the Government of the
Philippines or any of its political subdivisions or any of its
agencies or instrumentalities, including government-owned and
controlled corporations shall be exempt from prequalification
bidding requirements