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NON-STOCK CORPORATIONS

DEFINITION

One where no part of its income is distributable as dividends to its members, trustees or officers, subject to the provisions of
the Code on dissolution. The profits in a non-stock corporation which it obtains as an incident to its operations shall, be used
in furtherance of the purpose or purposes for which the corporation was organized. (Sec. 87, Corporation Code)sample

A non-stock corporation thus, cannot engage in business activity for profit as it would run counter to its very nature as a non-
profit entity, unless it is necessary to carry out the purpose or purposes to which it is organized. However, it is not prohibited
to make income or profits as an incident to its operations. It is in this sense that a non-stock corporation is considered a non-
profit corporation. (De Leon, H. (2013) The Corporation Code of the Philippines)

PURPOSES OF A NON-STOCK CORPORATION: (Eleemosynary Purposes)

Non-stock corporations may be formed or organized for:

1. Charitable;
2. Religious;
3. Educational;
4. Professional;
5. Cultural;
6. Fraternal;
7. Literary;
8. Scientific;
9. Social;
10. Civic service; or
11. Similar purposes like trade, industry, agricultural and like chambers; or
12. Any combination thereof.

What is determinative of whether a corporation is engaged in business is its object or purpose as stated in
its Articles of Incorporation or By-laws.

- The actual purpose of a corporation is not controlled by the corporate form or the commercial aspect
of the business prosecuted but may be shown by extrinsic evidence.

DISTRIBUTION OF INCOME

No part of its income is distributable as dividends to its members, meaning, no pecuniary benefits shall inure in favor of the
members, although they may avail of, or deprive other forms of, assistance from the corporation. (De Leon, H. (2013).
Corporation Code of the Philippines)

Thus, a board cannot legally pass a resolution giving some benefits to the active members of the corporation, among others,
in the form of grocery items and the like. (SEC Opinion, Dec. 17, 1987)

CONVERSION

A non-stock corporation cannot be converted into a stock corporation by mere amendment of the AOI. It must be dissolved
first under the methods specified in Title XIV, and thereafter, the members may organize as a stock corporation. (SEC Opinion,
Feb. 24,1989)

The conversion by mere amendment of the Articles of Incorporation would be tantamount to distribution of the corporate
assets or income of the corporation to its members inasmuch as thereafter they automatically become stockholders thereof.
This scheme might defraud the public who might have contributed donations or grants to the non-stock, non-profit

REPORT ON NON-STOCK CORPORATIONS

Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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corporation since after its conversion the donated corporate assets would be in effect be treated as paid-in capital or
subscription payments of the stockholders. (SEC Opinion, March 20, 1995)

RULES EXCLUSIVE TO A NON-STOCK CORPORATION

Prohibition against distribution of dividends

Non-profit character It cannot engage in business with the object of making profits. Section 68 of the
Corporation Code provides for the allowable purposes for which such corporation may be organized.

Right to vote This right may be limited, broadened, or even denied in the Articles of Incorporation or the
By-laws. (Sec. 89, Corporation Code) Unless otherwise provided by the Articles of Incorporation or the By-
Laws, a member may vote by proxy in accordance with the provisions of the Corporation Code.

Governing boards Non-stock corporations may, through their Articles of Incorporation or their by-laws,
designate their governing boards by any name other than as board of trustees.

Meetings Meetings of the Board of Trustees may be held anywhere in or outside the Philippines, unless
the By-laws provide otherwise. (Sec. 53, Corporation Code)

Dissolution its assets shall be applied and distributed in accordance with certain specific rules laid down
by law or as may be specified in a plan of distribution adopted by the corporation, provided it is not
inconsistent with such rules.

Conversion into stock corporation- A Non-Stock Corporation must be dissolved first under the methods
specified by law, and thereafter, the members may organize a Stock Corporation. (SEC Opinion, Feb. 24,
1989.)

ARTICLES OF INCORPORATION

The Articles of Incorporation (AOI) of a non-stock corporation does not differ from that of a stock corporations
Articles of Incorporation.

Section 14 of the Corporation Code (Code) states all corporations organized under it shall file with the Securities and
Exchange Commission (SEC) articles of incorporation in any of the official languages duly signed and acknowledged by all of
the incorporator, containing the following matters, except as otherwise provided by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation
has more than one stated purpose, the articles of incorporation shall state which is the primary purpose
and which is/are the secondary purpose or purposes: Provided, That a non-stock corporation may not
include a purpose which would change or contradict its nature as such;
3. The place where the principal office of the corporation is to be located, which must be within the
Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or trustees until the first
regular directors or trustees are duly elected and qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the
number of shares into which it is divided, and in case the share are par value shares, the par value of each,
the names, nationalities and residences of the original subscribers, and the amount subscribed and paid
by each on his subscription, and if some or all of the shares are without par value, such fact must be stated;
REPORT ON NON-STOCK CORPORATIONS
Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
 Page 3 of 10
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences
of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and
convenient.

The Securities and Exchange Commission shall not accept the articles of incorporation of any stock corporation unless
accompanied by a sworn statement of the Treasurer elected by the subscribers showing that at least twenty-five (25%)
percent of the authorized capital stock of the corporation has been subscribed, and at least twenty-five (25%) of the total
subscription has been fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least twenty-
five (25%) percent of the said subscription, such paid-up capital being not less than five thousand (P5,000.00) pesos.
(Emphasis supplied)

A perusal of the provision would show that both classes of corporations must state in the Articles of Incorporation
the above contents. However, there are some statements that will only specifically apply or limit the contents of a non-stock
corporations AOI.

Section 88 of the Code limits the Purpose Clause of a non-stock corporations AOI. The same provides that a non-stock
corporation can be organized only for the following purposes:

1. Charitable;
2. Religious;
3. Educational;
4. Professional;
5. Cultural;
6. Fraternal;
7. Literary;
8. Scientific;
9. Social;
10. Civic service; or
11. Similar purposes like trade, industry, agricultural and like chambers; or
12. Any combination thereof.

This means that non-stock corporations cannot engage in business activities that generate profit as a general rule. Venturing
into profitable business activities will negate violate the limitation set forth in Section 88.1

However, by way of exception, the corporation may, as incident to its purpose(s), engage in business activities which
are reasonably necessary to carry out the purpose(s) for which the corporation was organized.2 Any such power which is
reasonably necessary to enable a corporation to carry out express powers granted and the purposes of its creation is deemed
implied or incidental purpose by virtue of Section 363.

Accordingly, the determination of whether a non-stock corporation can engage in business activities for profit would
depend on the purpose clause provision in the AOI. If the business activity is not incidental, necessary or essential to carry

1
SEC Opinion dated March 9, 2011
2
Ibid.
3
Section 36. Corporate powers and capacity. Every corporation under this Code has the power and capacity:

xxx

11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles
of incorporation.

REPORT ON NON-STOCK CORPORATIONS

Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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out the express objectives of the corporation as appearing in its AOI, the same cannot be undertaken by a non-stock
corporation.4

Finally, a non-stock corporations Articles of Incorporation must substantially comply with the form set forth in
Section 15 of the Code. What would be different in the AOI of a non-stock corporation is the Seventh Article that should be
in this format:

SEVENTH: That the total contribution of the corporations is

________________________________________________________________________
_____________________.5

The same AOI may also contain this provision:

NINTH: That no part of its income is distributable as dividends to its members, trustees
or officers subject to the provisions of the Corporation Code of the Philippines on
dissolution. Provided, That any profit obtained by the association as an incident to its
operation shall, whenever necessary or proper shall be used for the furtherance of the
purposes enumerated in Article II, subject to the provision of Title XI of the Corporation
Code of the Philippines.6

CAPITAL

The amount of the non-stock corporations capital must be stated in the Articles of Incorporation. The names,
nationalities and residences of the contributors as well the respective amounts contributed by each must be included in
compliance with the requirement under Section 14(9) of the Code.

The capital involved is to be used for the operation of the corporation and may be increased if there will be additional
contributions.

MEMBERSHIP

Members are those corporators who compose a non-stock corporation. If such member is mentioned in the AOI as
one who is originally forming and composing such non-stock corporation and who is a signatory thereof, such member is
referred to as an incorporator. (Section 5, Corporation code)

NATURE OF MEMBERSHIP RIGHTS

Membership and all rights arising therefrom, personal and non-transferable, unless otherwise provided in the AOI
or the by-laws. (sec.90)

4
SEC Opinion dated September 19, 1995; SEC Opinion dated December 27, 1993; SEC Opinion dated July 29, 1993; SEC
Opinion dated February 18, 1993; and SEC Opinion dated September 18, 1990.
5
Sample Articles of Incorporation and By-Laws of a Non Stock Corporation, retrieved at http://www.sec.gov.ph, last accessed
April 20, 2017.
6
Ibid.
REPORT ON NON-STOCK CORPORATIONS
Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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MANNER OR MODE OF ACQUISITION

Acquired in the particular manner or mode of acquiring the same, as provided for in the by-laws of such
non-stock corporation.

APPROVAL OF ADMISSION OF NEW MEMBERS

One of the corporate powers expressly granted under Section 36(6) of the Code.

General Rule: Such approval is lodged with the Board of Trustees as it is the Board which exercises the
corporate powers of all corporations under the Corporation Code and the approval of the members of the
corporation shall not be necessary. (sec. 23).

Exception: Unless there is an express provision in the by-laws as to what body the admission of corporate
members is lodged (e.g. Committee on Membership). Once adopted, such mode of admitting new members must
be observed until a new procedure is adopted by the corporation through an amendment of the by-laws. (SEC
opinion, Sept. 26, 1969)

QUALIFICATIONS FOR MEMBERSHIP

Corporations may validly prescribe certain qualifications necessary for membership and the mode. The
equal protection guarantee under the Constitution will not be violated as long as there reasonable grounds for so
doing and it is not arbitrary or capricious, as said guarantee does not require that persons different in fact be treated
in law as they are the same. (SEC opinion, Oct. 4, 1993)

o Cebu Country Club, Inc. v. Elizagaque (542 SCRA 65, 2008) the exercise by the
Board of Directors of a non-profit and non-stock membership club, in a despotic and
arbitrary manner of their power to disapprove the application for proprietary
membership may make them personally liable for damages under the concept of
abuse of right.

o Calatagan Golf Club, Inc. v. Clemente Jr. (585 SCRA 300, 2009) every
corporation has an obligation to treat every person honestly and in good faith and such
duty extends to its members, and the utter bad faith of its Board of Directors brings into
operation articles 19, 20 and 21 under the chapter on Human Relations and makes the
corporation liable for moral damages under article 2217 of the Civil Code.

TERMINATION OF MEMBERSHIP

Membership shall be terminated in the manner and for the causes provided in the articles of incorporation
or the by-laws. Termination of membership shall have the effect of extinguishing all rights of a member in the
corporation or in its property unless otherwise provided in the articles of incorporation or the by-law. (sec.91)

NOTE: In cases where termination of membership in a non-stock corporation also entails loss of property rights, the manner
of termination must be in accordance with substantial justice.

o Valley Golf & Country Club, Inc. v. Vda. De Caram (585 SCRA 218, 2009)
membership in Valley Golf require the purchase of ownership share as a condition
sine qua non. Thus such membership entails the acquisition of property rights. In such
case, the manner of deprivation if such property rights should also be in accordance
with the provisions of the Civil Code including Articles 19, 20 and 21 under the Chapter
on Human Relations
REPORT ON NON-STOCK CORPORATIONS
Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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QUORUM

The principle under stock corporation in terms of quorum are applied by analogy, thus only those who are
actual members with voting rights shall be counted. In Tan vs. Sycip, the Supreme Court has held that the
basis of quorum are those actual living members and not the number appearing in the articles of
incorporation. If the legislature's intent was to base the quorum on this number, then they would have
expressly done so, otherwise then the basis is the number of actual living memebers.

VOTING RIGHTS

Under the Corporation Code, the voting rights of memebers are personal, such that members vote as
persons and not as number of stocks as in stock corporations. However, this right may be limited,
broadened or denied in the articles of incorporation or by-laws, thus the law gives the corporation the
freedom to determine who may vote and who may not vote, even how to vote as the general rule in electing
trustees that each member may only give one vote for each candidate is subject to contrary stipulations in
the by-laws or articles of incorporation.

RIGHTS OF MEMBERS SIMILAR TO STOCKHOLDER AND HOW THER ARE EXERCISED

The right to vote for trustees and other corporate acts expressly authorized by the Corporation Code. The
members, as a general rule, will only have 1 vote each regardless of class and when it comes to voting for
trustees, they may only cast 1 vote per candidate. However, this may be limited, broadened or denied in
the articles of incorporation or the by-laws.

The right to receive corporate peoperties upon liquidation of the non-stock corporation. Sec 94 (4) of the
Corporation Code says that the assets of the corporation may be distributed to the members and in such
proportions as stated by the articles of incorporation.

The right to be elected as a member of the board of trustees as provided by sec. 92 of the Corporation
Code which states the no person shall be lected as a trustee unless he is a member of the corporation.

The right to vote by proxies as stated in sec. 89 of the Corporation Code which states that members may
vote by proxies in accordance with the provisions of the code. Thus, the rules for voting by peoxies of
stockholders shall apply to members voting by proxies.

RIGHTS OF MEMBERS NOT APPLICABLE TO STOCKHOLDERS

The right to vote by mail as provided under sec. 89 of the Corporation Code which says that memer may
vote by mail or other simmilar means if it is authorized by the by-laws and under the conditions set by the
SEC. This right is not available to stockholders as it is not expressly provided by law. Also, this right may
only be exercised if the SEC has approved the by-law provision authorizing the same.

TRUSTEES AND OFFICERS

NUMBER OF TRUSTEES

A non-stock corporation may have more than 15 trustees as provided under section 92. It should be noted
that the number of incorporating trustees shall not be more than 15 following section 14.

o Rationale

The reason for allowing non-stock corporations to have more than 15 trustees is to give more
representation to the Board of Trustees of nationwide membership associations.
REPORT ON NON-STOCK CORPORATIONS
Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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o Principle of delegation of corporate management

The board is supposed to be small in number so that it may easily muster a quorum to act on
urgent matters.

There is no maximum limit under the code but according to an SEC Opinion (21 August 1997), the number
of trustees should not exceed the number of members of the non-stock corporation.

The same Opinion ruled that the SEC may question the propriety of a large number if it feels that the number
is unreasonable under the surrounding circumstances.

The SEC has adopted a policy of requiring registrant corporations to submit an explanation/justification if
its AOI provide for more than 15 trustees.

QUALIFICATIONS

Section 92 provides for only one qualification of a trustee which is membership in the corporation.

o Membership is a continuing qualification.

o Hence, if a trustee ceases to be a member of the corporation, he can no longer act as a trustee.

The Code and SEC also prescribe the following qualifications for trustees:

o He must be of legal age (SEC Opinion, 2 February 1981);

o He must not be convicted by final judgment of an offense punishable by more than 6 years of imprisonment, or a
violation of the corporation code committed within 5 years prior to the date of his election (sec. 27);

o A majority of the trustees must be residents of the Philippines. (sec. 23)

Other qualifications may be prescribed by the corporations by-laws.

A juridical person (i.e. corporation) is not qualified to be a trustee. (sec. 25)

o The SEC ruled in an Opinion (2 Sept 1991) that if the by-laws of the corporation expressly provides
that authorized representatives of juridical persons are to be considered as members for the purpose
of qualifications, then they may be elected as trustees.

TERM

Section 23 provides that trustees shall hold office for 1 year until their successors are elected and
qualified.

Trustees first elected

o Section 92 states that unless otherwise provided in the AOI or the by-laws, the terms of office of the
trustees first elected are staggered with a 1-year interval.

o Thus, the term of office may vary as the AOI or by-laws may provide. It may be staggered or fixed.

o Lifetime or unlimited term of the trustees is not allowed as it will deprive other members of the
opportunity to participate in the management of the corporation.

o If there is no such provision, the trustees shall classify themselves that the term of office of
1/3 of their number shall expire every year. (sec. 92)

Trustees subsequently elected

REPORT ON NON-STOCK CORPORATIONS

Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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o Trustees subsequently elected comprising 1/3 of the trustees shall have a term of 3 consecutive years.
(sec. 92)

o But their terms of office also vary under the AOI or by-laws.

MODE OF ELECTION

The right to vote may be limited, broadened, or denied by the AOI or by-laws. (See section 89 voting
rights)

The by-laws may provide for the election.

Election by district

o A form of limitation on the voting rights of the members of a non-stock corporation as recognized under
section 89.

Election by proxy

o Generally allowed, unless denied by the AOI or by-laws.

Election by mail

o This may be authorized by the by-laws, especially where a non-stock corporation has numerous
members who are located in various parts of the country.

Election of officers

o Under section 92, the AOI or by-laws may provide for election of officers of a non-stock corporation.
Thus, it may authorize the board to elect the officers.

o If there is no provision, officers shall be directly elected by the members.

VACANCY

Under section 29, trustees may fill vacancies in the board, provided that those remaining still constitute a
quorum.
o This is merely permissive and not mandatory.
o But if there is no quorum, the vacancies must be filled by the members in a regular or special meeting
called for the purpose.
The by-laws may prescribe the specific mode of filling up vacancies in the board, either:

By the remaining trustees constituting quorum or,

By the members in a meeting called for the purpose.

o This specific mode provided in the by-laws should be followed.

MEETINGS

Meetings of the board of trustees of a stock corporation may be held anywhere in or outside the Philippines, unless as the
by-laws provide otherwise.

a. The by-laws may provide that the members may hold their meetings at any place even outside the place outside the
place where the principal office of the corporation is located, provided that such place is within the Philippines. Thus
meetings may coincide with coventions of the non-stock corporation in any place of the country.
REPORT ON NON-STOCK CORPORATIONS
Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
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b. Where the by-laws expressly provide for the holding of members meeting at the principal office of a non-stock
corporation conformably with the general rule in sec. 51 meetings may not take place anywhere else without first
amending said by-laws.

c. In case the by-laws do not indicate the place of meeting, the members cannot hold their meetings outside the place
where the principal office of the corporation is located. The authority to transfer the place of members meetings outside
the place where the principal office of the corporation is located must be expressly granted by the by-laws.

DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATION

DISSOLUTION
It is the extinguishment of the franchise of a corporation and the termination of its corporate existence.

*Remember: A corporation is a legal fiction created by law. If a corporation is likened to a natural person, dissolution is the
equivalent of death of a human being. Dissolution removes the capacity of the corporation to perform acts which produce
legal effect except those need to wind up its affairs.

MODES
1. Voluntary
2. Involuntary
3. Shortening of the term
4. Expiration of the term
5. Revocation of Certificate by Securities Exchange Commission

DISTRIBUTION OF ASSETS
Non-stock corporations do not contemplate distribution of gains, profits or dividends to their members on invested capital.
It is not in the nature of a non-stock corporation. However, the distribution of assets of a non-stock corporation is not
prohibited.

Two Basic Principles

1. Distribution of assets upon dissolution is allowed IF EXPRESSLY PROVIDED for the in the Articles of
Incorporation or By-laws.
a. If the distribution is expressly provided for, then the distribution must be in accordance with the
plan.
2. Not all assets of non-stock corporations are allowed to be distributed.

LIQUIDATION
It is the process by which all the assets of the corporation are converted into liquid assets (cash) in order to facilitate the
payment of obligations to creditors and the remaining balance if any is to be distributed to the stockholders.

This only applies to Stock corporations.

DISTRIBUTION OF INCOME
Distribution of Income is not the same with distribution of assets contemplated in Section 94 and 95. In section 94-95, the
corporation must be in the process of dissolution. Furthermore, distribution of income is counterintuitive to the nature of a
non-stock corporation. Under Section 3, a non-stock corporation is defined in the negative. A non-stock corporation is a
corporation which is not a stock corporation. A stock corporation is defined therein as a corporation which a) which have
capital stock divided into shares and b) are authorized to distribute to the holders of such shares dividends or allotments of
surplus profits. Therefore, the distribution of income violates the definition of a non-stock corporation as defined by the
Corporation Code.

It is worth remembering that distribution of income does not necessarily mean giving cash to the members. Income may
come into any form of remuneration or benefit.

RULES OF DISTRIBUTION

REPORT ON NON-STOCK CORPORATIONS

Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera
 Page 10 of 10
The Assets that should be distributed to the members DO NOT INCLUDE the assets that are included or will answer
for the following:

1. All liabilities and obligations of the corporation;

2. Assets held by the corporation upon a condition requiring return, transfer, or conveyance, and the condition
occurs by reason of the dissolution.
3. Assets received and held by the corporation subject to limitation permitting the use only for charitable, religious,
benevolent, educational, or similar purposes, BUT NOT held upon a condition requiring return, transfer, or
conveyance by reason of the dissolution.

Other assets shall be distributed in accordance with the provisions of the articles of incorporation or the by-
laws.
In any other cases, assets may be distributed to such persons, societies, organisations, or corporations,
whether or not organized for profit, as may be specified in a plan of distribution adopted pursuant to Chapter 3,
Title 11 of the Corporation code.

PLAN OF DISTRIBUTION OF ASSETS

A plan providing for the distribution of assets, not inconsistent with the provisions of this Title, may be adopted by
a non-stock corporation in the process of dissolution in the following manner:

1. The BOD shall, by majority vote, adopt a resolution recommending a plan of distribution and directing the
submission thereof to a vote at a regular or special meeting of members having voting rights
2. Written notice setting forth the proposed plan of distribution or a summary thereof and the date, time and place
of such meeting shall be given to each member entitled to vote, within the time and in the manner provided in
this Code for the giving of notice of meetings to members.
3. The plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the members having voting
rights present or represented by proxy at such meeting.

REPORT ON NON-STOCK CORPORATIONS

Members: Quincy Interino, Arif Kadatuan, Jamaica Manaligod, Chareloa Marcial, Roger Montero, Gianna Pealosa, Fawn Reynon, Joseph Rivera