Executive summary

When a Philippine stock corporation converts into a non-stock corporation, its continuing juridical personality typically means the same legal entity lives on but without capital stock. Unless the plan and amended Articles/bylaws say otherwise—and subject to dissenters’ appraisal rights—the stockholders of record on the effectivity date ordinarily become the initial “members” of the converted non-stock corporation automatically, i.e., without each person signing separate membership applications. This automatic carry-over preserves continuity of governance and stakeholders while aligning the entity’s structure with an altruistic, mutual-benefit, or non-profit purpose.

Below is a practitioner-oriented guide to the legal bases, mechanics, governance, accounting, filings, and drafting choices that determine how automatic membership works in practice.

1) Legal frame at a glance

Revised Corporation Code (RCC) governs both stock and non-stock corporations.
Conversion (stock ↔ non-stock) is accomplished through amendments to the Articles of Incorporation (and usually the bylaws), duly approved by the board and the requisite stockholder vote, and Accepted by the SEC.
The corporation’s separate juridical personality continues post-conversion; what changes is its capital structure and constituency (from stockholders to members).
Appraisal right: Stockholders who dissent from the conversion may demand payment of the fair value of their shares, in lieu of becoming members.
Membership in non-stock corporations is generally personal and non-transferable, unless the Articles/bylaws expressly allow transfer or assignment under limited conditions.

Practical effect: If a stockholder neither dissents nor exits under appraisal, they are typically swept in as a member by operation of the approved conversion, on the effective date set by the SEC’s approval of the amendments (or a later date specified in the plan).

2) What “automatic membership” actually means

Automatic membership refers to the default carry-over of equity holders into members upon conversion, without requiring fresh individual acts (e.g., signing application forms), because:

The same entity survives;
The Articles are amended to state it is a non-stock corporation, define its purpose(s), and establish membership; and
The conversion plan/bylaws specify that all stockholders of record as of the effective date (less dissenters who perfected appraisal) constitute the initial membership roll.

Key boundaries and conditions

Qualifications: If the converted non-stock adopts membership qualifications, make sure the plan addresses what happens to incumbents who do not meet them (e.g., transitional non-voting status for a period, or cash-out via appraisal before effectivity).
Classes of members: You may create voting and non-voting classes (e.g., “regular” vs “associate”) with clear criteria.
Minors/juridical persons: If pre-conversion stockholders included minors or entities, decide whether they can be members under the new regime and state this expressly.
Transferability: Post-conversion membership is not a security and, by default, cannot be sold or traded like shares.
Financial rights: Members do not receive dividends. Surpluses are reinvested in furtherance of corporate purpose; distributions are restricted (e.g., upon dissolution, net assets go to beneficiaries in the manner the Articles specify, not to members as profits).

3) Approvals and stakeholder rights

Corporate approvals

Board: Approves the plan of conversion and the amended Articles/bylaws.
Stockholders: Typically at least two-thirds (2/3) of the outstanding capital stock voting in favor (best practice: record votes class-by-class if there are series with preferences).

Dissent and appraisal

Notice: Stockholders must receive proper notice describing the conversion and appraisal right.
Fair value: Dissenting stockholders are paid fair value as of the date immediately before the vote approving the conversion (excluding any appreciation/depreciation due to the conversion).
Funding: The corporation must have unrestricted retained earnings or other lawful sources to pay appraisal demands; otherwise, the conversion might need contingencies or staging.

Creditors and contracts

Continuity: Conversion does not extinguish debts or contracts. The same juridical person remains bound.
Consents: Check loan covenants, major contracts, and regulatory permits that may require prior consent or notice upon a change in capital structure or distribution constraints.

4) Designing the membership regime during conversion

To make automatic membership clean and defensible, address the following in the plan and documents:

Definition of initial members

“All stockholders of record as of the Effective Time who did not perfect appraisal rights shall, without further act, be admitted as members and entered in the Membership Book.”
Membership qualifications & classes
- Set objective qualifications (e.g., alignment with the new non-profit purpose, residency, profession, beneficiary status).
- Create classes (voting/non-voting) if needed to accommodate legacy holders who don’t fit the long-term membership vision.
Voting rights & quorum
- For non-stock, voting is typically one-member-one-vote, unless the Articles allocate otherwise (e.g., class voting, or weighted voting if permitted).
- Define quorum based on members in good standing.
Good standing & dues
- Provide for reasonable dues/assessments, consequences for delinquency, and reinstatement rules.
- Clarify that non-payment may suspend voting but should not be used to disenfranchise unreasonably.
Admission/termination post-conversion
- Post-conversion admissions require board or membership committee action under written criteria.
- Provide fair discipline/expulsion procedures respecting due process (notice, hearing, appeal).
Transfer and substitution
- State that membership is non-transferable, except for institutional seats if intentionally provided (e.g., a university seat occupied by a named representative).
Membership evidence
- Replace stock certificates with membership certificates or digital credentials; maintain a Membership Book/Registry.

5) Governance transition roadmap

Board composition: Stockholder-elected directors transition to trustees elected by members. Consider staggered terms and skill matrices aligned with the non-profit mission.
Officers: Re-elect officers under the non-stock bylaws (chair, president, treasurer, corporate secretary, compliance officer).
Committees: Establish audit, governance, finance/fundraising, nomination and membership committees with written charters.
Conflict-of-interest: Tighten COI rules for non-profits; require annual disclosures and recusal mechanisms.
Reporting: Continue statutory books and records; members have inspection rights similar in spirit to stockholders.

6) Accounting & balance-sheet effects (high-level)

Capital stock and additional paid-in capital are reclassified within equity (e.g., to “contributed capital” / “fund balance” / “net assets”).
Treasury shares are typically retired upon conversion.
Retained earnings become part of accumulated surplus of a non-profit; future “surpluses” are not distributable as dividends.
Restricted funds: If donors impose restrictions, track as with donor restrictions vs without donor restrictions in financial statements.
Appraisal payouts reduce assets/equity; build liquidity plans accordingly.

(Coordinate closely with your external auditor for precise Philippine GAAP/ PFRS presentation and any regulatory footnotes.)

7) SEC and allied regulatory touchpoints

SEC filings:
- Amended Articles of Incorporation (changing to non-stock; revising name to drop “Inc.” only if desired, though many non-stocks keep “Inc.”), amended purposes, no-dividend clause type language, and asset disposition upon dissolution clause.
- Amended bylaws (membership regime, trustee elections, meetings).
- Board and stockholder approvals, secretary’s certificates, and plan of conversion.
- Membership roster at effectivity (initial roll).
Post-approval updates:
- BIR registration updates, books, receipts;
- LGU permits as applicable;
- Banks (KYC due to change in capital structure/signatories);
- Regulated activities (e.g., schools, hospitals, charities) notify the relevant agencies.
Name and purpose checks: Ensure name availability and purpose compliance for non-stock entities.

8) Data privacy and member communications

Lawful basis: Automatic membership entails processing personal data of legacy stockholders; rely on legitimate interests/fulfillment of corporate obligations (and consent where appropriate).
Notices: Issue a privacy notice tailored to members; update data sharing agreements with processors (e.g., registrars, mailing vendors).
Communications: Provide clear notice of conversion, appraisal timelines, and member onboarding packets (bylaws, dues, meeting calendar, grievance channels).

9) Special sectors & edge cases

Mutualization (e.g., insurers, hospitals, schools): Conversions that create member-beneficiaries require sectoral fit-for-purpose bylaws, including eligibility, benefit allocation, and actuarial/financial prudence rules.
Foundations/charities: Consider whether founder control persists (e.g., reserved seats) and how independent trustees are inserted to meet best-practice governance.
Public-interest entities: If your non-stock will seek donations or grants, adopt transparency practices (impact reports, related-party disclosures).

10) Common pitfalls (and how to avoid them)

Silent plan about who becomes a member → Fix: Add an express automatic-admission clause for all non-dissenting stockholders of record.
Qualification mismatch excluding legacy holders → Fix: Use transition classes (e.g., associate, non-voting) with a path to full membership or provide a clean appraisal exit.
Underfunded appraisal → Fix: Stage conversion or secure bridge financing; align with unrestricted earnings availability.
Contractual tripwires (loans, permits) → Fix: Do a pre-conversion consent sweep with counsel.
Unclear voting/quorum after conversion → Fix: Redraft bylaws for member-centric mechanics and remote/ hybrid meetings.
Accounting surprises → Fix: Engage auditors early; map reclassifications and treasury share retirement.

11) Model clauses you can adapt

Automatic Admission of Initial Members

“Effective as of the Conversion Effective Time, each holder of the Corporation’s outstanding shares of capital stock immediately prior thereto, who did not perfect appraisal rights, shall automatically and without further act be admitted as a Member of the Corporation and entered in the Membership Book. Such admission shall not require the execution of an application form.”

Initial Membership Roll

“The Corporate Secretary shall compile and certify the Initial Membership Roll as of the Conversion Effective Time, based on the Stock and Transfer Book, net of dissenters who timely perfected appraisal rights.”

Membership Classes and Standing

“Members shall be classified as Regular (voting) and Associate (non-voting) as defined herein. Only Members in good standing—those current on dues and not under suspension—may vote or be elected as Trustee.”

Non-Transferability

“Membership is personal and non-transferable and shall not constitute a security. Any attempted assignment or transfer is void, unless expressly allowed for institutional Members as provided herein.”

Dues and Sanctions

“The Board may impose reasonable dues and assessments. Failure to pay within the prescribed period may result in suspension of rights, after notice and opportunity to be heard.”

Asset Distribution on Dissolution

“Upon dissolution, the Corporation’s remaining assets shall be devoted to purposes consistent with its non-profit objectives or transferred to qualified donee institutions, and not distributed to Members.”

12) Implementation checklist

Draft Plan of Conversion with automatic-membership and appraisal provisions
Board approval; 2/3 stockholder vote with proper notice
Amend Articles (purpose, non-stock status, dissolution clause)
Amend Bylaws (membership regime, trustees, meetings, quorum, COI)
Prepare membership registry template and certificates
Budget for appraisal payouts and filing fees
SEC submission; secure approval; calendar effective date
Send conversion + onboarding notices to new Members
Update BIR/LGU/banks/regulators and key counterparties
Align audit and privacy documentation

13) FAQs

Q: Are former stockholders forced to become members? No one is forced: those who dissent may exercise appraisal rights and exit. Those who do not dissent are admitted automatically under the conversion plan.

Q: Do members get dividends? No. Non-stock corporations do not distribute profits to members; surpluses are reinvested to advance corporate purposes.

Q: Can membership be sold or pledged? Generally no. Membership is non-transferable unless the Articles/bylaws provide narrow exceptions.

Q: Do creditors need to consent? Not as a rule, because the entity continues. But contracts may require notice/consent. Always review covenants.

Q: Can we keep the same name? Often yes, but ensure name compliance and consider adding descriptors (e.g., “Foundation,” “Association”) to reflect the non-stock nature.

Closing note

“Automatic membership” is fundamentally a governance and documentation problem, not just a filing exercise. If the plan of conversion, Articles, and bylaws speak clearly, transition from stockholders to members can be seamless—preserving continuity, honoring dissenters’ rights, and positioning the organization for a mission-first future.