Non-Stock

Corporations
Arvin Antonio V. Ortiz

Definition
A non-stock corporation is one
where no part of its income is
distributable as dividends to its
members, trustees, or officers
(Sec. 87, Corporation Code)

 The non-existence of capital stock is not determinative under

the codal definition on whether the entity is a non-stock
corporation, and it is legally possible for a corporation having
capital stock to still be considered a non-stock corporation
(e.g. proprietary membership in leisure/golf clubs)
The non-incurring of profit is not determinative for an entity
to be classified as non-profit corporation. Non-stock and nonprofit corporations may earn profit as an incident to their
primary operations and so long as the profits are devoted for
their purpose

Purpose
Professional
Cultural
Religious
Charitable
Educational
Social

Literary
Civic Service
Fraternal
Scientific
Similar purpose like
trade, industry,
chambers, or any
combination thereof

 Political purposes are not specifically

included in the enumeration of the
purposes. Hence, the SEC may reject the
Articles of Incorporation if the purpose of
the corporation is to engage in election
campaign or partisan political activity
(SEC Opinion, April 10, 1985)

Rules on Conversion

Stock to non-stock
Conversion may be made by mere
amendment of the articles of
incorporation

 Non-stock to stock
A non-stock corporation cannot be converted into a stock
corporation by mere amendment of the articles of
incorporation because the conversion would be
tantamount to distribution of its assets or income to its
members inasmuch as after its conversion, the asset of
the non-stock corporation would now be treated as
payment to the subscriptions of the members who will
now become stockholders of the corporation

Stock and Non-Stock Corporation

Distinguished
Stock

Non-Stock
Nature

Has capital stock divided into shares Does not have any shares and may
and with authority to distribute
not distribute profits to its members
dividends to its stockholders
Meeting/voting of members/stockholders
Stockholders and directors must act
in a meeting, except where a mere
written assent is sufficient or a
formal meeting unnecessary

Members may be allowed by the bylaws to vote by mail or other similar

means

Manner of voting
Cumulative voting is always
available in the election of directors

Cumulative voting is not available

unless otherwise provided in the
AOI or By-Laws

Stock

Non-Stock
Proxy

Stockholders may vote by proxy

Members may be deprived of the right to

vote by proxy in the AOI or By-Laws

Non-transferability of Membership
Stockholders may transfer their
shares

Members cannot transfer their

membership unless allowed by the AOI or
By-Laws

Directors/ Trustees
Directors cannot exceed 15 in
number

Trustees may exceed 15 in number

Term of director/ trustee

The term of a director is one year

The term of a trustee is three years; 1/3

of the Board shall be elected annually

Election of officers
Officers are elected by the Board of
Directors

Officers may be directly elected by the

members unless otherwise provided in
the AOI

Stock

Non-Stock
Place of meeting

Stockholders meetings shall be

held in the city or municipality
where principal office of
corporation is located, and if
practicable in the principal office

The by-laws may provide that

members of a non-stock
corporation may hold their
meetings at any place within the
Philippines

Board of Directors meeting may

be held in or outside the
Philippines, unless the by-laws
otherwise provides

Trustees place of meetings may

also be held in or outside the
Philippines unless the by-laws
otherwise provides. Reason: the
provisions governing stock
corporations apply suppletorily to
non-stock corporations, except as
may be covered by specific
provisions of the Code pertaining
to non-stock corporations.

Rules applicable only to Non-stock

Corporations
1. Prohibition against distribution of dividends. No pecuniary benefits
shall inure in favor of the members although they may avail of, or
derive other forms of, assistance from the corporation.
2. Non-profit character of non-stock corporations. It cannot engage in
business with the object of making profits.
3. The right to vote of members may be limited, broadened, or even
denied in the AOI or the By-Laws. It is possible that none of the
members have voting rights.
4. Non-stock corporations may, through their AOI or By-Laws, designate
their governing boards by any name other than as board of trustees
(Sec. 138).

5.The number of trustees who must be members of the

corporation may be more than 15. But the number of
incorporating trustees shall not be more than 15.
6.The terms of office of the trustees first elected are
staggered with a one year interval. While the terms are
staggered, the members of the board should always be
elected in accordance with Sec. 24 and any vacancy
thereof shall be filled as provided under Sec. 29.
7.Trustees subsequently elected shall have a term of three
consecutive years.

8. The rule on founders shares (Sec. 7) also applies to non-stock

corporations since the provisions governing stock corporations, when
pertinent, shall be applicable to non-stock corporations.
9. Only members can be elected to sit in the board of trustees.
10.A corporation is not qualified to occupy the position of a trustee (Sec. 25).
11.Officers other than members may be directly elected by the members
(not by the board) unless otherwise provided in the AOI (Sec. 92).
12.In case of dissolution, its assets shall be applied and distributed in
accordance with certain specific rules laid down by law (Sec. 94) or as
may be specified in a plan of distribution adopted by the corporation
provided it is not inconsistent without such rules.

Termination of Membership (Sec. 91)

Membership shall be terminated in the
manner and for causes provided in the
AOI or By-Laws.
Effect: Extinguish all rights of a member
in the corporation or in its property
unless otherwise provided in the AOI or
the By-Laws.

Requirements for validity of

termination:
1.Reasonable notice to the member
concerned; and
2.Fair opportunity to be heard (Calatagan
Golf Club v. Clemente, Jr., G.R. No.
165443, Apr. 16, 2009).

Rules on Distribution of Assets of

Non-Stock Corporations
1. All liabilities and obligations of the corporation shall be paid, satisfied, and
discharged, or adequate provision shall be made therefor;
2. Assets held by the corporation upon a condition requiring return, transfer or
conveyance, and which condition occurs by reason of the dissolution, shall
be returned, transferred or conveyed in accordance with such requirements;
3. 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 the dissolution, shall be transferred or conveyed to
one or more corporations, societies or organizations engaged in activities in
the Philippines substantially similar to those of the dissolving corporation
according to a plan of distribution adopted pursuant to this Chapter;

4.Assets other than those mentioned in the preceding

paragraphs, if any, shall be distributed in accordance with
the provisions of the articles of incorporation or the by-laws,
to the extent that the articles of incorporation or the bylaws, determine the distributive rights of members, or any
class or classes of members, or provide for distribution; and
5.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 this Chapter.

 The plan of distribution of assets may be

adopted by a majority vote of the Board
of Trustees and approved by 2/3 of the
members having voting rights present or
represented by proxy at the meeting
during which said plan is adopted (Sec.
95)