Non-stock corporations, often overlooked in the corporate world, play a vital role in shaping the world we live in. Unlike for-profit entities, non-stock corporations are mission-driven organizations focused on achieving specific charitable, educational, or social objectives.
What is a non-stock corporation?
A non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers.
What are the purposes for which stock corporations may be formed?
Non-stock corporations may be formed or organized for charitable, religious, educational. professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to the special provisions governing particular classes of non-stock corporations.
What is the rule regarding profits generated by a non-stock corporation?
Any profit which a non-stock corporation may obtain incidental to its operations shall, whenever necessary or proper, may be used for the furtherance of the purpose or purposes for which the corporation was organized.
Note: The only limitation on a non-stock corporation is that any profit derived by it from any authorized activity cannot be distributed as dividends to its members.
What are the rules on the voting rights of members of a non-stock corporation?
The following are the rules on the voting rights of members:
- The right to vote of members may be limited broadened, or even denied in the Article of Incorporation (AOl) or the by-law.
- Unless so limited, broadened, or denied, each member, regardless of class, shall be entitled to 1 vote.
- Unless otherwise provided in the articles of incorporation or in the bylaws, members of nonstock corporations may cast as many voles as there are trustees to be elected but may not cast more than 1 vote for 1 candidate.
- Unless otherwise provided by the AOI or by-laws, a member may vote by proxy in accordance with the provisions of the law; and
- The by-laws may likewise authorize voting through remote communication and/or in absentia.
When does membership in a non-stock corporation terminate?
Membership shall be terminated in the manner and for the causes provided in the AOI or by-laws. The right of a non-stock corporation to expel a member may be established in the by-laws alone. It need not be provided in the AOl.[1]
What is the effect of the termination of membership in a non-stock corporation?
It extinguishes all rights of a member in the corporation or in its property unless otherwise provided in the AOl or by-laws.
What are the requirements for validity of termination of membership?
The following are required for there to have a valid termination of membership:
- Reasonable notice to the member concerned; and
- Fair opportunity to be heard.[2]
Can a stock corporation be converted to a non-stock corporation?
Conversion may be made by mere amendment of the purpose clause in the AOI, among others. In effect, the shares subscriptions constitute the capital contributions of the shareholders, and they are converted into members who divest themselves of any right to receive dividends of any profits of the corporation.[3]
Can a non-stock corporation be converted to a stock corporation?
Non-stock corporations may not be converted to stock corporations. Conversion, whether by amendment or other-methods, would be, inconsistent with the nature of the non-slack corporation because the Renewal have the effect of distributing the assets of the non-stock corporation to its members so that the latter can become its shareholders. This scheme would effectively defraud persons who may have contributed donations, gift, or grants to the corporation for the pursuit of its corporate purposes.[4]
Note: For purposes of transformation, it is. fundamental that the non-stock corporation must be dissolved and thereafter, the members may organize to a stock corporation directed to bring profits or pecuniary gains to themselves.[5]
Source:
The Revised Corporation Code
[1] Valley Golf and Country Club v. Vda de Caram, G.R. No. 158805, April 16, 2.009
[2] Calatagan Golf Club v. Clemente, Jr., G.R. No. 165443, April 16, 2009
[3] SEC Opinion dated July 19. 1999
[4] SEC Opinion dated February 24, 1989
[5] Id.
