A Legal Examination within the Philippine Context

In the Philippines, professional associations—typically organized as non-stock, non-profit (NSNP) corporations—often face the challenge of ensuring long-term financial viability. As membership dues fluctuate, the establishment of trust funds and the subsequent investment of those funds become vital strategic considerations. From a legal standpoint, the answer is yes, but such activities are strictly governed by the Revised Corporation Code, tax regulations, and the association’s own foundational documents.

1. Corporate Power to Invest

Under Section 35 of the Revised Corporation Code (RCC), every corporation has the power to purchase, receive, take, or otherwise acquire, own, hold, use, and otherwise deal in and with real or personal property.

More specifically, Section 41 allows a corporation to invest its funds in any other corporation, business, or for any purpose other than the primary purpose for which it was organized, provided that:

The Board of Trustees approves the investment.
It is ratified by at least two-thirds (2/3) of the members in a meeting called for that purpose (unless the investment is reasonably necessary to accomplish the association's primary purpose).

For most professional associations, maintaining a trust fund for "organizational stability" or "member benefits" is considered germane to its secondary purposes, but strict adherence to board resolutions is mandatory.

2. The Concept of "Trust Funds" in NSNP Entities

A professional association may maintain "Trust Funds"—monies set aside for a specific purpose, such as a scholarship fund, a building fund, or a retirement fund for staff.

Fiduciary Duty: The Board of Trustees acts as fiduciaries. They are legally obligated to manage these funds with the "diligence of a good father of a family."
Restricted vs. Unrestricted: Legal disputes often arise when "restricted" funds (donated for a specific cause) are used for general operations. To maintain the legal integrity of a trust fund, the association must keep it accounting-distinct from the general operating fund.

3. Restrictions on the Use of Profits

The defining characteristic of an NSNP association is found in Section 86 of the RCC:

"No part of its income shall be distributable as dividends to its members, trustees, or officers."

While an association can make a "profit" from its investments (e.g., interest, dividends from stocks, or rental income), that profit must be plowed back into the association to carry out its purposes. If the SEC or the BIR finds that investment returns are being used to provide disguised financial benefits to members, the association risks losing its non-profit status.

4. Tax Implications (BIR Regulations)

Under Section 30 of the National Internal Revenue Code (NIRC), professional organizations (like the Integrated Bar of the Philippines or the Philippine Institute of Certified Public Accountants) are generally exempt from income tax on assessments and dues collected from members.

However, the "Last Paragraph" rule of Section 30 is critical:

Income derived from any of their properties (real or personal) or from any activity conducted for profit, regardless of the disposition of such income, is subject to tax.
Therefore, interest from trust funds, gains from the sale of assets, or dividends from equity investments are generally taxable at the prevailing corporate rate (or subject to final withholding taxes).

5. Investment Limitations and Prudence

While the law allows investment, professional associations are often restricted by their own By-Laws. Common legal best practices include:

Low-Risk Instruments: To avoid "waste of corporate assets," trustees often limit investments to government securities (T-bills), time deposits, or blue-chip stocks.
The Business Judgment Rule: Trustees are generally not liable for investment losses if they acted in good faith and with administrative care. However, speculative "high-risk" investing could lead to derivative suits from members for "gross negligence" or "breach of trust."

6. Dissolution and the Asset Distribution Plan

A unique legal constraint for trust funds in non-profits appears during dissolution (Section 93, RCC). Assets held upon a condition requiring return or transfer (such as a trust fund donated by a specific benefactor) must be returned. Remaining assets must generally be transferred to another non-profit involved in similar activities, rather than being distributed to the professional members.

Summary of Requirements for Legal Compliance

Requirement	Action Needed
Board Approval	Formal resolution authorizing the creation of the trust and specific investment vehicles.
Membership Ratification	Required if the investment is outside the "primary purpose" or involves substantial corporate assets.
Segregated Accounting	Trust funds should not be co-mingled with general operating funds to prevent "ultra vires" acts.
Tax Filing	Ensure that investment income is declared and the appropriate taxes (passive or income) are paid to the BIR.
By-Law Consistency	Ensure the association’s By-Laws explicitly allow for the "accumulation of reserves" or "investment of funds."