Educational Corporations under Philippine Law

In the Philippines, educational corporations are a distinct category within the broader classification of private corporations. These are organizations established and regulated under the Revised Corporation Code (RCC) and the Education Act of 1982 (Batas Pambansa Blg. 232), among other related laws. This type of corporation is characterized by its purpose to operate educational institutions and is subject to specific rules regarding formation, governance, and taxation due to its unique social role.

1. Definition and Purpose of Educational Corporations

Educational corporations are private, non-profit, or for-profit corporations created to operate schools, colleges, universities, or similar educational institutions. They must align with the public policy of promoting and enhancing quality education as provided under Section 5(2) of Article XIV of the 1987 Philippine Constitution. The Constitution emphasizes the role of education in fostering civic consciousness, national unity, and development.

2. Formation and Structure

The incorporation and registration of educational corporations are governed by both the Revised Corporation Code (R.A. No. 11232) and additional regulations from the Department of Education (DepEd), Commission on Higher Education (CHED), or Technical Education and Skills Development Authority (TESDA) depending on the level of education provided.

Key steps and requirements include:

Articles of Incorporation: Educational corporations are required to include specific purposes in their Articles of Incorporation, detailing their educational objectives.
Board Composition: Unlike typical corporations, which have flexibility in board membership, educational corporations often have governing boards that include representatives from faculty, administration, and occasionally, student bodies, ensuring that educational policies align with institutional goals.
Approval from Educational Authorities: After incorporation, these corporations must secure permits and licenses from DepEd, CHED, or TESDA before they can legally operate. These permits ensure that educational standards are met.

3. Types of Educational Corporations

Educational corporations can generally be classified as follows:

Non-Stock, Non-Profit Educational Corporations: These are the most common type and are set up with a non-profit purpose. They are dedicated solely to educational purposes without intent for profit distribution among members.
Stock Educational Corporations: Though less common, some educational institutions are organized as stock corporations, meaning they operate with a profit motive. Stock educational corporations are often limited to private entities offering specialized, non-formal education, such as tutorial centers or technical training institutions.

4. Governance and Operation

Board of Trustees or Directors: Governance of educational corporations follows either a Board of Trustees (non-stock) or Board of Directors (stock). In both cases, board members must act in the institution's best interests, prioritizing educational objectives over personal profit.
Special Requirements for University Status: For educational corporations desiring to operate as universities, they must meet CHED's stringent requirements regarding academic programs, faculty qualifications, and research facilities.
Corporate Life and Perpetual Succession: Educational corporations often receive a perpetual life under the RCC, meaning they continue to exist regardless of changes in membership or ownership, provided they comply with regulatory requirements.

5. Taxation of Educational Corporations

Income Tax Exemption for Non-Profit Educational Corporations: Article XIV, Section 4(3) of the 1987 Constitution provides that non-stock, non-profit educational institutions are exempt from taxes on income used directly, actually, and exclusively for educational purposes. Additionally, they are exempt from property taxes on assets utilized in their educational mission.
Application for Exemption: To avail of these exemptions, educational corporations must register with the Bureau of Internal Revenue (BIR) as non-profit educational entities and submit proof of income application towards educational purposes.
For-Profit Educational Corporations: Educational corporations that operate as for-profit entities are subject to the standard corporate income tax rates and must comply with other BIR regulations concerning tax liabilities.

6. Accreditation and Quality Control

Educational corporations are subject to rigorous accreditation standards by the Philippine Accrediting Association of Schools, Colleges, and Universities (PAASCU) and other accrediting bodies. Accreditation, while not mandatory, provides credibility, financial aid eligibility, and often affects licensing and permits from government bodies.

7. Supervision and Regulation

The regulatory framework involves several agencies:

DepEd oversees primary and secondary educational institutions.
CHED regulates higher education institutions (colleges and universities).
TESDA manages technical and vocational education.

Educational corporations must submit annual reports to these regulatory bodies, including updates on faculty, curricula, and facilities, to ensure compliance with standards.

8. Compliance with Labor and Other Laws

Educational corporations must comply with labor laws, including the Labor Code and regulations regarding faculty tenure, wages, and benefits. They must also adhere to safety standards, student welfare laws, and laws regarding intellectual property, especially concerning curricula and research output.

Key Cases and Jurisprudence

Several cases have shaped the jurisprudence surrounding educational corporations:

Non-Stock Non-Profit Educational Institutions Tax Exemption (Lladoc v. Commissioner of Internal Revenue): The Supreme Court upheld that educational institutions exempted from income tax must apply all income toward educational purposes.
Religious Affiliation and Educational Corporations (DECS v. San Beda College): Institutions with religious affiliation were found to retain their tax exemptions, provided their educational operations remained non-profit and religious doctrine was not the primary function.

Conclusion

Educational corporations in the Philippines play a critical role in the country’s educational landscape, and they are afforded unique benefits and responsibilities under Philippine law. From specific incorporation requirements to strict tax exemptions and regulatory oversight, these entities are structured to prioritize educational objectives over profit.