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TITLE 11: Non-Stock Corporation
Guide Questions:
1. How is a foundation different from other nonstock corporations such as
associations?
A foundation refers to a non-stock, non-profit corporation established for
the purpose of extending grants or endowments to support its goals
and/or raising funds to accomplish charitable, religious, educational,
athletic, cultural, literary, scientific, social welfare or other similar
objectives. Even though foundations are usually set up for collective
purposes, these are not ‘profit-making activities. Foundations  are
usually charitable in nature.
Another specie of a nonstock corporation is a Homeowners’ association
which is governed by the Magna Carta for Homeowners’ Associations.
They are formed through registration with and regulated by the Housing
and Land Use Regulatory Board.
Condominium Corporation is another specie of a nonstock corporation
governed by the Condominium Act.
On the other hand, associations are a type of organization that has a
common interest or activity or any group of people who have joined
together for a particular purpose, ranging from social to business, and
usually meant to be a continuing organization. It can be formal, with
rules and/or bylaws, membership requirements and other trappings of
an organization, or it can be a collection of people without structure. An
association is not a legally established corporation or a partnership.
Associations are a group of people joining for a particular purpose of
social to business. It may be formal with by-laws and membership
requirements or it may be a group of persons without structure.
2. What is the term of trustees of a nonstock corporation?
According to Section 91 of the Code, the trustees of a nonstock
corporation may serve for a longer term, but not to exceed three years.
The law does not anymore fix their term to three years, nor mandate a
classified board.
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In a non-stock corporation, the number of trustees may exceed 15 and
there is no prescribed minimum number of trustees.
3. Can the articles or bylaws limit voting rights by allowing only the
incumbent trustees to vote for their successors?
Yes. According to Section 88 of the Code, the right of the members if
any class or classes to vote may be limited, broadened, or denied to the
extent specified in the articles of incorporation or the bylaws.
4. Can members designate one of them to be the sole trustee during his
lifetime?
It is true that members may designate one of them to be a trustee but
not for a lifetime. According to SEC-OGC Opinion No. 16-07 dated April
4, 2016, the bylaws may not provide for a lifetime membership to the
board because it prevents members from indirectly participating in the
management of the corporation. Also, the Code only permits bylaws of
non-stock corporations to fix the term of trustees to less than or not
more than three years.
5. How is quorum determined at a general members meeting of a nonstock
corporation?
According to the case of Tan, et al. v. Sycip and Lim, for the purposes of
determining a quorum for a meeting, only those who are actual
members with voting rights should be counted. The majority of the
members representing the actual number of voting rights, not the
number or numerical constant that may originally be specified in the
articles of incorporation, constitutes the quorum.
According to the case of Lim v. Moldex, Inc., a quorum is determined by
the majority of its actual, living members with voting rights. Members
without voting rights shall not be considered for purposes of quorum,
although they may attend the meeting.
6. Can the articles or bylaws of a nonstock corporation provide that
whatever net assets it has upon dissolution be liquidated and the
proceeds equally distributed among the members?
No. The assets other than those mentioned in Section 93 (a), (b) and
(c), if any, are the only ones distributed in accordance with the articles of
incorporation or bylaws, to the extent that the articles or bylaws
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determine the distributive rights of members, or any class or classes of
members, or provide for distribution.

7. What is the difference, if any, between a foundation and an association?

Both associations  and  foundations  are not allowed to make a profit or

pursue profit-making activities. 
Lecture Notes:
A foundation refers to a non-stock, non-profit corporation established for
the purpose of extending grants or endowments to support its goals NON-STOCK CORPORATION
and/or raising funds to accomplish charitable, religious, educational,
athletic, cultural, literary, scientific, social welfare or other similar  Sec. 86 Definition
objectives. Even though foundations are usually set up for collective  Sec. 87 Purposes
purposes, these are not ‘profit-making activities. Foundations  are
usually charitable in nature. CHAPTER I MEMBERS
 Sec. 88 Right to Vote
On the other hand, associations are a type of organization that has a  Sec. 89 Non-transferability of Membership
common interest or activity or any group of people who have joined  Sec. 90 Termination of Membership
together for a particular purpose, ranging from social to business, and
usually meant to be a continuing organization. It can be formal, with CHAPTER II TRUSTEES AND OFFICERS
rules and/or bylaws, membership requirements and other trappings of  Sec. 91 Election and Term of Trustees
an organization, or it can be a collection of people without structure. An
 Sec. 92 List of Members and Proxies, Place of Meetings
association is not a legally established corporation or a partnership.
Associations are a group of people joining for a particular purpose of
CHAPTER III DISTRIBUTION OF ASSETS IN NONSTOCK CORPORATION
social to business. It may be formal with by-laws and membership
 Sec. 93 Rules of Distribution
requirements or it may be a group of persons without structure.
 Sec.94 Plan of Distribution of Assets
8. Can a LGU impel a condominium corporation to pay business taxes?
BASICS
Yes. In the case of Yamane v. BA Lepanto Condominium Corporation, it
was clarified that if the unit owners of a condominium would band 1. A nonstock corporation is always nonprofit.
together to engage in activities for profit under the shelter of the 2. It has no capital stock.
condominium corporation, the condominium corporation may be made 3. Its capital consist of members’ contribution
liable by the LGU for business taxes. 4. Regardless of the amount of a member’s contribution, he is only entitled
to one vote
5. Some nonstock (nonprofit) entities are not under the SEC, for example:
• Homeowners associations – HLURB
• Party list organizations – COMELEC
• Cooperatives – CDA
6. Examples of nonstock corporations under the SEC are:
• Foundations
• Associations (alumni, tricycle drivers or TODA)
• Federations, professional organizations, etc.

DEFINITION
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TAX CODE PROVISIONS GOVERNING NONSTOCK CORPORATIONS
1. One where no part of its income is distributable as dividends to its
members, trustees, or officers; TAX CODE
• Absolute rule – no dividends to all members 1. Nonstock corporations are exempted from payment of income tax
• Akin to a special purpose trust to accomplish the non-profit 2. Members’ contributions are treated as tax deductions
objective of all members 3. Contributors are exempted from paying donor’s tax subject to following
2. Any profit which it may obtain incidental to its operations shall, whenever requirements on the nonstock corporation:
necessary or proper, be used for furtherance of the purpose or purposes • It is engaged in any of the sanctioned activities
for which it was organized • No part of its net income or asset belong to or inure to the
• Profits, if any, are merely incidental to its non-for-profit activities benefit of any member or trustee or officer
• Incidental profits can only be used to accomplish its non-profit • It does not pay dividends, its trustees do not receive
objective compensation, and it devotes all its income to its purposes as
• Incidental profits may not be distributed as dividends nor stated in the Articles of Incorporation
disbursed for phantom expenses or unreasonable expenditures, • Its level of administrative expense, on an annual basis must not
or payments to members exceed 30% of its total expense and not more than 30% of the
tax-exempt gifts shall be used for administrative purposes
3. Provisions governing stock corporations when pertinent shall be • Its assets in event of dissolution must be distributed to another
applicable to nonstock corporation, except as ay be covered by the nonstock corporation organized for similar purpose or to the
specific provisions of Title 11 state for public purpose or must be distributed by a court to
another organization to be used in such manner as in the
OTHER PROVISIONS OF THE CODE GOVERNING NONSTOCK judgment of said court shall best accomplish the general
CORPORATIONS purpose for which the dissolved corporation was organized.

1. Sec. 13 a nonstock corporation may not include a purpose which would SPECIAL LAWS ON NONSTOCK CORPORATIONS
change or contradict its nature as such;
1. MICROFINANCE NGOS ACT (RA 10693)
2. Sec. 93 its assets upon liquidation will be distributed in accordance with • Covers microfinance nonstock corporations registered with and
the terms for which such assets are contributed, or in the absence of any accredited by the SEC (MFEs)
other condition, to corporations in the Philippines having the same • MFEs are given a preferential tax treatment of 2% tax based on
purpose. its gross receipts from microfinance operations in lieu of all
national taxes
3. Its trustees are governed by provisions that are likewise applicable to • The Articles of MFEs must state that, among others, its primary
directors of stock corporations, among others: purpose is to implement a microenterprise development
• Sec. 30 on fiduciary duties strategy and provide microfinance programs, products and
• Sec 39 on prohibition from determining own per diems or services for the poor
compensation
• Sec. 44 on ultra vires acts 2. FOUNDATION LAW (RA 6055)
• Sec. 31 on self-dealing • Covers former stock corporations engaged in education that
convert into nonstock educational foundations
4. SEC Opinion • They are exempt from payment of all taxes, import duties,
• While a stock corporation may be converted into a nonstock assessments and other charges imposed by Government on all
corporation, a nonstock corporation may not be converted into a income derived from or property, real or personal, used
stock corporation. exclusively for educational activities

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• Any income realized from conversion of equity in the school,
college or university is exempt from income tax
3. CONDOMINIUM ACT (RA 4726)
• The condominium corporation may be a stock or nonstock
corporation; the following are applicable to nonstock
condominium corporations:
• Condominium unit owners automatically become members of
the condominium corporation in proportion to the appurtenant
interest of their units in the common areas;
• The condominium corporation is a special purpose company;
• Its corporation powers are limited to holding of the common
areas, management of the project and such others necessary,
incidental or convenient to the accomplishment of said
purposes;
• It may collect association dues from its members; non-payment
of which may lead to a lien upon the unit
• Membership in the corporation shall not be transferable
separately from the condominium unit
• When the member ceases to own a unit, he automatically
ceases to be a member
• A transfer of a member’s unit carries with it transfer of his
membership
• Its corporate term is co-terminus with the duration of the
condominium project
Yamone v BA Lepanto Condominium Corporation
GR 154993 Oct 25, 2005
Can a LGU impel a condominium corporation to pay business taxes?
“The Condominium Act imposes several limitations on the condominium
corporation that prove crucial to the disposition of this case. Under Section 10 of
the law, the corporate purposes of a condominium corporation are limited to the
holding of the common areas, either in ownership or any other interest in real
property recognized by law; to the management of the project; and to such other
purposes as may be necessary, incidental or convenient to the accomplishment
of such purpose.  Further, the same provision prohibits the articles of
incorporation or by-laws of the condominium corporation from containing any
provisions which are contrary to the provisions of the  Condominium Act, the
enabling or master deed, or the declaration of restrictions of the condominium
project.  entitled to 20 votes and the remaining member (known as B) is entitled to 15
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“We can elicit from the Condominium Act that a condominium corporation is
precluded by statute from engaging in corporate activities other than the holding
of the common areas, the administration of the condominium project, and other
acts necessary, incidental or convenient to the accomplishment of such
purposes. Neither the maintenance of livelihood, nor the procurement of profit,
fall within the scope of permissible corporate purposes of a condominium
corporation under the Condominium Act.”
Lim v. Moldex Land, Inc.
GR 206038, Jan 25, 2017
“Was the Annual General Membership Meeting and Organizational Meeting of
Condocor valid considering that members of its BOD are not unit owners?
In corporate parlance, the term "meeting" applies to every duly convened
assembly either of stockholders, members, directors, trustees, or managers for
any legal purpose, or the transaction of business of a common interest. Under
Philippine corporate laws, meetings may either be regular or special. A
stockholders' or members' meeting must comply with the following requisites to
be valid:
1. The meeting must be held on the date fixed in the By-Laws or in
accordance with law; 
2. Prior written notice of such meeting must be sent to all
stockholders/members of record; 
3. It must be called by the proper party; 
4. It must be held at the proper place;   and
5. Quorum and voting requirements must be met. 
Of these five (5) requirements, the existence of a quorum is crucial. Any act or
transaction made during a meeting without quorum is rendered of no force and
effect, thus, not binding on the corporation or parties concerned.”
 
“It must be emphasized that insofar as Condocor is concerned, quorum is
different from voting rights. Applying the law and Condocor's By-Laws, if there
are 100 members in a non-stock corporation, 60 of which are members in good
standing, then the presence of 50% plus 1 of those members in good standing
will constitute a quorum. Thus, 31 members in good standing will suffice in order
to consider a meeting valid as regards the presence of quorum. The 31 members
will naturally have to exercise their voting rights. It is in this instance when the
number of voting rights each member is entitled to become significant. If 29 out
of the 31 members are entitled to 1 vote each, another member (known as A) is
votes, then the total number of voting rights of all 31 members is 64. Thus,
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majority of the 64 total voting rights, which is 33 (50% plus 1), is necessary to
pass a valid act. Assuming that only A and B concurred in approving a specific • The right of members of any class or classes to vote may be limited,
undertaking, then their 35 combined votes are more than sufficient to authorize broadened or denied as may be specified in the articles of incorporation
such act. or by laws
• Unless so limited, broadened or denied, each member, regardless of
The By-Laws of Condocor has no rule different from that provided in class, shall be entitled to one vote
the  Corporation Code with respect the determination of the existence of a • Unless otherwise provided in the articles or bylaws, a member may vote
quorum. The quorum during the July 21, 2012 meeting should have been by proxy
majority of Condocor's members in good standing. Accordingly, there was no • The bylaws may authorize voting through remote communication and/or
quorum during the July 21, 2012 meeting considering that only 29 of the 108 unit in absentia
buyers were present.”
Tan, et al v Sycip and Lim GR 153468, Aug 17, 2006 – only those who are actual
PURPOSE members with voting rights should be counted. x x x (T)he majority of the
members representing the actual number of voting rights, not the number or
1. Nonstock corporations may be formed or organized for: numerical constant that may originally be specified in the articles of
• Charitable incorporation, constitutes the quorum.
• Religious
• Educational ELECTION AND TERM OF TRUSTEES
• Professional
• Cultural • The number of trustees shall be fixed in the articles of incorporation or
• Fraternal bylaws
• Literary • Trustees may be more than 15
• Scientific • Trustees shall hold office for not more than 3 years until their successors
• Social are elected and qualified
• Civic service • Trustees elected to fill vacancies occurring before the expiration of a
• Similar purposes like trade, industry, agricultural and particular term shall hold office only for the unexpired period.
like chambers, or combination • Only a member shall be elected as trustee, except an independent
trustee of a nonstock corporation vested with public interest (e.g.
SEC MC 10-16 “Guidelines on the Issuance of Certification Microfinance NGO)
on the Nationality of Non-stock Corporations” • Unless otherwise provided in the articles or bylaws, the members may
directly elect officers of a nonstock corporation.
1. If all its members are citizens of the Philippines; or • Per SEC-OGC Opinion No. 16-07 dated Apr 4, 2016, the bylaws may not
2. If at least 60% of its members entitled to vote are citizens of the provide for a lifetime membership to the board since it prevents
Philippines; or members from indirectly participating in the management of the
3. If at least 60% of its members’ total number of votes as broadened in the corporation.
Bylaws are held by citizens of the Philippines; or
4. If all members of a foreign non-stock corporation licensed to do business LIST OF MEMBERS AND PROXIES, PLACE OF MEETING
by SEC are citizens of the Philippines.
5. Further, 1. The nonstock corporation shall at all times keep a list of its members and
• At least 60% of the trustees must be Filipinos; and their proxies
• Non-Filipinos may not intervene as officers in the operations of • In the form the SEC may require
the corporation • List shall be updated to reflect the members and proxies of
record 20 days prior to any scheduled election
RIGHT TO VOTE

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• The bylaws may provide that the members may hold their
regular or special meetings at any place even outside the place
where the principal office of the corporation is located within
Philippine territory
• Proper notice is sent to all members indicate the date, time and
place of meeting
FEATURES OF MEMBERSHIP IN NONSTOCK CORPORATIONS
1. NONTRANSFERABILITY
• Membership and all rights arising therefrom are personal and
nontransferable, unless the articles of incorporation or the
bylaws otherwise provide
2. TERMINATION
• Membership shall terminate in the manner and for the causes
provided in the articles of incorporation and bylaws
• Termination shall extinguish all rights of a member in a
corporation or in its property, unless otherwise provided in the
articles of incorporation or the bylaws
RULES OF DISTRIBUTION
1. Upon dissolution, assets of the nonstock corporation shall be distributed
as follows:
• All liabilities and obligations shall be paid, satisfied and
discharged, or adequate provisions shall be made;
• Assets requiring return, transfer or conveyance, which occurs
upon dissolution shall be so returned, transferred or conveyed
accordingly;
• Assets received and held by the corporation subject to
limitations permitting their use only for charitable, religious,
benevolent, educational or similar purposes, but not held upon a
condition requiring return, transfer or conveyance by reason of
dissolution shall be transferred or conveyed in one or more
corporations, societies or organization; engaged in activities in
the Philippines substantially similar to those of the dissolving
corporation according to a plan of distribution adopted pursuant
to Sec 94;
• Assets other than those mentioned above if any shall be
distributed in accordance with the articles of incorporation or the
bylaws, to the extent that the articles or bylaws determine the
distributive rights of members, or any class or classes of
member or provide for distribution; and
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• In any other case, assets may be distributed to such persons,
societies, organizations or corporations, whether or not
organized for profit, as may be specified in a plan of distribution
adopted pursuant to the Code.
PLAN OF DISTRIBUTION OF ASSETS
1. A plan providing for the distribution of assets consistent with Title IX may
be adopted by a nonstock corporation in the process of distribution in the
following manner:
• The board of trustees 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;
• Each member entitled to vote shall be given a written notice
setting forth the proposed plan of distribution or a summary
thereof and the date, time and place of such meeting within the
tie and in the manner provided in the code for giving notice of
meetings; and
• Such plan of distribution shall be adopted upon approval of at
least 2/3 of the members having voting rights present or
represented by proxy at such meeting.
GUIDELINES FOR THE PROTECTION OF SEC REGISTERED NON-PROFIT
ORGANIZATIONS FROM MONEY LAUNDERING AND TERRORIST
FINANCING ABUSE
SEC MEMORANDUM CIRCULAR NO. 15-2018
1. Guidelines are intended to
• Protect NPOs from ML/TF
• Enhance their reporting and monitoring system for information
gathering toward regulatory and risk assessment purposes
• Provide additional measures under the Code, SRC and other
pertinent laws.
2. NPOs are SEC registered nonstock corporations that primarily engage in
raising or disbursing funds for purposes such as charitable, religious,
cultural, educational, social or fraternal purposes, or for carrying out of
other types of good works, including foundations.
3. NPOs are classified according to risk, medium or high, based on
assessment of risk factors
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4. NPOs at risk are subject to enhanced monitoring and supervision
measures by the SEC:
• Submission of sworn statement by the president and treasurer
of the sources, amount and application of funds, and of their
program or activity (whether planned, ongoing or
accomplished).
• Submission of duly accomplished “Mandatory Disclosures for
SEC Registered Non=Stock Corporations with Self-Assessment
Questionnaire”

5. Other requirements for NPOs under the Guidelines:

• Put in place a good governance system
• Establish an audit committee
• Require officers to attend SEC annual outreach/consultation
programs, awareness training and workshops on ML/TF
• Record true and full identity of donors and sources of funds
particularly from PEPs
• Adopt preventive measures such as:
1. Establish a system to know who are their donors and
where funds are coming from
2. Ensure they know their beneficiaries and geographic
location
3. Ensure that funds actually reach their beneficiaries and
used for purpose intended
4. Report to the SE any fact within their knowledge that
gives rise to suspicion that NPOs are being exploited
for ML/TF