I. Introduction

In the Philippines, the word “foundation” is commonly used to describe a nonprofit, charitable, philanthropic, educational, religious, scientific, cultural, civic, social welfare, or development-oriented organization. However, in legal terms, a foundation is not created merely by calling an organization a foundation. It must be properly organized, registered, governed, and operated under Philippine law.

An existing organization that wishes to become a foundation must therefore determine what it currently is, what it wants to become, and whether Philippine law allows a direct conversion or requires the creation of a new juridical entity.

In most cases, “converting” an organization into a foundation means one of several things: amending the organization’s name and purposes, changing its corporate structure into a non-stock nonprofit corporation, registering a new foundation and transferring activities or assets to it, or restructuring an existing entity so that it operates exclusively for nonprofit purposes. The correct approach depends on the organization’s current legal form.

This article discusses the Philippine legal framework for converting an organization into a foundation, including corporate registration, governance, taxation, asset transfer, regulatory compliance, labor and contract issues, and practical steps.

II. What Is a Foundation Under Philippine Law?

Philippine law does not treat every “foundation” as a separate category of legal entity in the same way it treats corporations, partnerships, cooperatives, or associations. A foundation is usually organized as a non-stock, nonprofit corporation registered with the Securities and Exchange Commission.

A non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers. It may generate income, receive donations, own property, hire employees, and enter into contracts, but its income and assets must be used for its stated nonprofit purposes.

A foundation is typically distinguished from an ordinary association by its charitable, educational, religious, scientific, cultural, civic, social welfare, or philanthropic purposes, and by the fact that it often receives grants, donations, endowments, or public contributions.

Common purposes of Philippine foundations include:

charitable assistance;
education and scholarships;
poverty alleviation;
religious or missionary work;
health, medical, and disaster relief programs;
environmental protection;
community development;
cultural preservation;
scientific research;
social welfare and livelihood projects;
policy advocacy; and
grants to other qualified nonprofit institutions.

The essential legal point is that a foundation must be organized and operated for nonprofit purposes. It cannot be used as a vehicle for private profit, disguised business distributions, tax avoidance, political laundering, or personal enrichment.

III. Legal Forms That May Want to Become a Foundation

Before any conversion can be planned, the organization must identify its present legal form. In the Philippines, an organization may currently be one of the following:

an unincorporated association;
a sole proprietorship;
a partnership;
a stock corporation;
a non-stock corporation;
a cooperative;
a church or religious organization;
a school, hospital, or charitable institution;
a homeowners’ association;
a people’s organization or NGO;
a branch or affiliate of a foreign organization; or
a government-created or government-linked entity.

Each form has different rules. Not all can be directly converted into a foundation. Some may only be able to create a separate foundation, amend their registration, dissolve and transfer assets, or reorganize operations.

IV. Can an Existing Organization Be Directly Converted Into a Foundation?

The answer depends on the existing organization.

A. Existing Non-Stock Corporation

If the organization is already a non-stock corporation registered with the SEC, the process may be relatively straightforward. It may amend its articles of incorporation and bylaws to reflect foundation purposes, rename itself as a foundation, revise membership or trustee rules, and align its purposes with nonprofit activities.

However, it must ensure that the amended purposes are lawful, nonprofit, and not inconsistent with its existing obligations. It must also comply with SEC rules on amendments, board and member approval, filing of amended articles and bylaws, and, where applicable, endorsements from government agencies.

B. Existing Stock Corporation

A stock corporation cannot simply become a foundation by changing its name. A stock corporation is organized for profit and has shareholders who own shares and may receive dividends. A foundation, by contrast, is generally organized as a non-stock, nonprofit corporation.

A stock corporation that wants to become a foundation may consider:

incorporating a new non-stock foundation;
donating assets to the new foundation, subject to tax and corporate rules;
spinning off its corporate social responsibility programs into a foundation;
dissolving or liquidating the corporation and transferring remaining assets where legally allowed;
converting its activities but not necessarily its legal identity; or
undertaking a restructuring if permitted by corporate law and approved by regulators.

Direct conversion from stock to non-stock status is legally sensitive because it affects shareholder rights, capital structure, retained earnings, creditors, tax treatment, and corporate purpose. A stock corporation’s assets belong to the corporation for the benefit of its shareholders and creditors. Transferring those assets to a foundation without proper authority, valuation, tax treatment, and creditor protection may expose directors and officers to liability.

C. Partnership

A partnership does not become a foundation by amendment alone. Since a foundation is usually a non-stock corporation, the partners would generally need to register a new non-stock corporation with the SEC and transfer appropriate assets, programs, contracts, and personnel, subject to the partnership agreement, tax rules, and creditor rights.

D. Sole Proprietorship

A sole proprietorship has no juridical personality separate from the owner. It cannot be converted into a foundation as the same entity. The owner may establish a new non-stock foundation and donate or assign assets to it, subject to taxes, permits, contractual restrictions, and regulatory approvals.

E. Unincorporated Association

An unincorporated association may register as a non-stock corporation if its members decide to formalize it. The incorporators may file articles of incorporation and bylaws with the SEC. Assets held informally by officers, trustees, or members must be transferred properly to the registered foundation.

F. Cooperative

A cooperative is governed by cooperative law and supervised by the Cooperative Development Authority. It cannot normally become an SEC-registered foundation through a mere change of name. It may establish a foundation separately, donate funds subject to cooperative rules, or create a social development arm, but its legal identity as a cooperative is distinct.

G. Foreign Nonprofit or NGO

A foreign nonprofit organization that wants to operate as a foundation in the Philippines may register as a branch, representative office, regional headquarters, or incorporate a Philippine non-stock corporation, depending on its intended activities. If it will solicit donations, own property, employ personnel, or operate programs locally, additional registrations and permits may be required.

V. The Main Legal Framework

Several laws and regulations may be relevant when converting an organization into a foundation in the Philippines.

A. Revised Corporation Code

The Revised Corporation Code governs corporations, including non-stock corporations. It provides rules on incorporation, corporate powers, trustees, membership, bylaws, amendments, dissolution, mergers, corporate records, reporting obligations, and fiduciary duties.

For foundations, the key points are:

the foundation is usually organized as a non-stock corporation;
no part of its income may be distributed as dividends;
trustees must manage the corporation according to its nonprofit purposes;
assets must be used for corporate purposes;
amendments require proper corporate approval and SEC filing;
dissolution and asset distribution must comply with law and the articles of incorporation; and
directors, trustees, and officers owe duties of diligence, loyalty, and obedience to the corporation’s purposes.

B. SEC Regulations

The SEC regulates corporate registration and reporting. Foundations and non-stock corporations must comply with registration requirements, annual reports, audited financial statements where applicable, beneficial ownership disclosures, and other compliance obligations.

Foundations are also subject to stricter scrutiny because they may receive donations, grants, or public funds. The SEC may require specific clauses in the articles of incorporation, such as nonprofit clauses, non-distribution clauses, asset dedication clauses, and dissolution clauses.

C. Tax Code and BIR Regulations

The National Internal Revenue Code and Bureau of Internal Revenue regulations govern tax registration, income taxation, donor’s tax, withholding taxes, VAT or percentage tax issues, documentary stamp tax, and tax exemption requirements.

A nonprofit corporation is not automatically tax-exempt merely because it is registered as a foundation. Tax exemption depends on the organization’s nature, purposes, operations, income sources, and compliance with BIR requirements.

D. Civil Code

The Civil Code may apply to donations, trusts, contracts, property transfers, agency relationships, obligations, and liabilities. Donations to a foundation must comply with formalities and tax rules.

E. Labor Code

If employees are transferred from an existing organization to the foundation, labor law issues may arise. These include continuity of employment, separation pay, assumption of employment contracts, employee consent, benefits, seniority, and social legislation compliance.

F. Local Government Code

Foundations may need local permits, barangay clearances, mayor’s permits, zoning clearances, and local tax registrations, depending on where they operate and what activities they conduct.

G. Anti-Money Laundering and Counter-Terrorism Financing Rules

Nonprofit organizations may be subject to scrutiny under anti-money laundering and counter-terrorism financing rules, especially if they receive foreign donations, move funds internationally, work in high-risk areas, or engage in humanitarian activities vulnerable to abuse.

Foundations must maintain transparent records, know their donors and beneficiaries where appropriate, document fund use, and avoid being used as conduits for unlawful financing.

H. Special Regulatory Laws

Depending on the foundation’s activities, additional agencies may be involved, such as:

Department of Social Welfare and Development for social welfare and development agencies;
Department of Education for educational programs;
Commission on Higher Education for higher education-related activities;
Department of Health for health facilities or medical missions;
Philippine Council for NGO Certification for donee institution accreditation;
Department of Environment and Natural Resources for environmental projects;
National Commission for Culture and the Arts for cultural activities;
local government units for community-based operations;
Bangko Sentral ng Pilipinas if financial or payment-related activities are involved; and
other specialized agencies depending on the foundation’s programs.

VI. Choosing the Proper Conversion Method

There is no single conversion method that fits all organizations. The most common approaches are the following.

VII. Method One: Amend an Existing Non-Stock Corporation

If the organization is already a non-stock corporation, it may be possible to amend its corporate documents.

A. Matters Usually Amended

The organization may amend:

corporate name;
primary purpose;
secondary purposes;
membership structure;
number and qualifications of trustees;
governance provisions;
fiscal year;
principal office;
dissolution clause;
nonprofit and non-distribution clause;
asset dedication clause;
conflict-of-interest rules; and
bylaws.

B. Corporate Approvals

The board of trustees and members, if any, must approve the amendments according to the Revised Corporation Code, the articles, and the bylaws. The vote required depends on the type of amendment and the corporation’s governing documents.

C. SEC Filing

After approval, the corporation files amended articles of incorporation and amended bylaws with the SEC. The SEC may require supporting documents, certifications, affidavits, endorsements, name verification, and payment of fees.

D. When This Method Is Appropriate

This method is usually appropriate when:

the organization is already nonprofit;
its existing purposes are compatible with foundation work;
there are no shareholders;
there are no major creditor issues;
assets are already dedicated to nonprofit purposes; and
the organization simply wants to formalize or expand its foundation character.

VIII. Method Two: Create a New Foundation and Transfer Programs

This is often the cleanest method when the existing organization is not already a non-stock nonprofit corporation.

A. Incorporation of a New Foundation

The founders incorporate a new non-stock corporation with the SEC. The articles of incorporation should clearly state nonprofit purposes and include appropriate restrictions on distribution of income and assets.

B. Transfer of Programs

The existing organization may transfer programs to the new foundation through:

donation;
assignment;
memorandum of agreement;
asset transfer agreement;
grant agreement;
service agreement;
intellectual property license;
secondment of employees;
novation of contracts; or
board-approved corporate social responsibility arrangement.

C. Advantages

This method allows a clean separation between profit and nonprofit activities. It also helps protect the foundation’s integrity, simplifies governance, and avoids confusing shareholders’ interests with charitable assets.

D. Risks

The transfer must not prejudice creditors, evade taxes, defeat shareholder rights, or disguise private benefit. Transfers must be properly documented and valued. If assets are donated, donor’s tax, documentary stamp tax, VAT, income tax, and deductibility issues must be reviewed.

IX. Method Three: Establish a Corporate Foundation

A business corporation may establish a foundation as its corporate social responsibility arm. This is common among banks, conglomerates, universities, hospitals, media companies, family businesses, and professional groups.

A. Separate Legal Personality

The foundation should be separately incorporated. It should have its own board, bank accounts, books, tax registration, programs, records, and compliance filings.

B. Relationship With the Parent Company

The parent company may fund the foundation through donations, grants, service agreements, or program support. However, the foundation should not be treated as a mere department if it is represented to the public as a separate nonprofit entity.

C. Governance Concerns

Common risks include excessive control by the parent company, use of the foundation for marketing rather than public benefit, related-party transactions, conflicts of interest, improper use of donations, and diversion of charitable assets.

D. Best Practice

The foundation should have written policies on conflicts of interest, related-party transactions, grants, procurement, donations, fund management, whistleblowing, document retention, and program evaluation.

X. Method Four: Dissolution and Reincorporation

In some cases, the existing organization may need to dissolve and reincorporate as a foundation.

A. When Dissolution May Be Needed

Dissolution may be considered when:

the existing entity cannot legally amend into a foundation;
its structure is incompatible with nonprofit operations;
its members or owners want to end the old entity;
liabilities must be settled first;
there is a need for a new governance structure; or
the existing entity has regulatory or tax issues that should not be carried over.

B. Liquidation

Upon dissolution, assets must be liquidated according to law. Creditors must be paid first. Remaining assets are distributed according to the entity’s governing documents and applicable law.

For stock corporations, remaining assets generally belong to shareholders after creditors are paid. They cannot simply be transferred to a foundation unless properly authorized and legally documented.

For non-stock corporations, the articles and bylaws may require remaining assets to be transferred to another nonprofit institution with similar purposes.

C. Risk of Improper Asset Transfers

Improper transfers may be attacked as fraudulent conveyances, tax avoidance schemes, breach of fiduciary duty, or unlawful distribution of corporate assets.

XI. Incorporating a Foundation in the Philippines

A foundation is typically incorporated as a non-stock corporation with the SEC.

A. Name

The proposed name must be available and not misleading. The use of the word “Foundation” may be allowed if the purposes and structure support it. The SEC may reject names that are deceptive, confusingly similar to existing entities, contrary to law, or suggest government affiliation without authority.

B. Incorporators

The incorporators must meet legal qualifications. They may be natural persons, partnerships, associations, or corporations, subject to the Revised Corporation Code and SEC rules.

C. Trustees

A non-stock corporation is governed by a board of trustees. The articles and bylaws should specify the number, qualifications, term, election or appointment method, powers, duties, and removal of trustees.

D. Members

Some foundations have members; others are non-membership corporations governed primarily by a board of trustees. The choice affects voting rights, control, amendments, election of trustees, and accountability.

E. Articles of Incorporation

The articles should include:

corporate name;
specific nonprofit purposes;
principal office;
term of existence, if not perpetual;
names and details of incorporators;
names of trustees;
membership provisions, if any;
statement that the corporation is non-stock and nonprofit;
prohibition on distribution of income or assets to private persons;
asset dedication clause;
dissolution clause; and
other SEC-required provisions.

F. Bylaws

The bylaws should regulate:

membership, if any;
board meetings;
trustee qualifications;
trustee election or appointment;
officers;
committees;
quorum and voting;
fiscal management;
conflicts of interest;
compensation and reimbursement;
donations and grants;
internal controls;
records and inspection rights;
amendment procedures; and
dissolution procedures.

G. Treasurer’s Affidavit and Financial Undertakings

Depending on SEC requirements, a foundation may need to submit a treasurer’s affidavit or similar undertaking regarding contributions, funds, or assets. The SEC may also require proof that the foundation has sufficient resources for its stated purposes.

H. Endorsements

Certain purposes may require prior endorsement from a government agency. For example, schools, hospitals, social welfare agencies, religious entities, and other regulated institutions may need approvals or endorsements before or after SEC registration.

XII. Drafting the Purposes of the Foundation

The purpose clause is one of the most important parts of the foundation’s articles.

A. It Must Be Specific Enough

A vague purpose such as “to help people” may be insufficient. The purpose should identify the foundation’s intended public benefit, such as education, health, social welfare, disaster relief, environmental protection, cultural development, or scientific research.

B. It Must Be Nonprofit

The purpose should not authorize profit distribution, commercial trading as the main object, or private benefit.

C. It May Include Incidental Powers

A foundation may include powers necessary or incidental to its purposes, such as receiving donations, owning property, hiring employees, conducting training, publishing materials, partnering with institutions, and establishing programs.

D. It Should Avoid Unauthorized Regulated Activities

If the foundation wants to operate a school, hospital, lending program, insurance scheme, investment fund, payment system, or financial assistance program, special laws may apply. The purpose clause should be reviewed carefully.

XIII. Governance of a Foundation

Good governance is essential because a foundation holds assets for nonprofit purposes.

A. Board of Trustees

The board is responsible for policy, oversight, fiduciary control, approval of major transactions, financial supervision, and compliance.

B. Officers

Common officers include president, secretary, treasurer, executive director, and compliance officer. The bylaws should define their powers and duties.

C. Fiduciary Duties

Trustees and officers must act in good faith, with diligence, loyalty, and obedience to the foundation’s purposes. They must avoid conflicts of interest, self-dealing, misuse of funds, and private inurement.

D. Compensation

Trustees may generally be reimbursed for reasonable expenses, but compensation must be carefully handled. Excessive compensation may indicate private benefit and jeopardize nonprofit status.

E. Conflict-of-Interest Policy

A foundation should adopt a conflict-of-interest policy requiring disclosure, abstention, independent approval, documentation, and fair-market terms for related-party transactions.

F. Internal Controls

Internal controls should include:

dual signatories;
budget approval;
procurement rules;
liquidation of cash advances;
donation acknowledgment procedures;
grant monitoring;
segregation of duties;
bank reconciliation;
inventory controls;
documentation of beneficiaries;
audit procedures; and
board financial reporting.

XIV. Tax Treatment of Foundations

One of the most misunderstood issues is taxation. A foundation is not automatically exempt from all taxes.

A. Income Tax Exemption

Certain nonprofit entities may be exempt from income tax on income received as such, depending on their nature and operations. However, income from properties, activities, or businesses conducted for profit may be taxable.

The key distinction is whether the income is used directly and exclusively for nonprofit purposes and whether the organization is operated for private benefit.

B. BIR Registration

A foundation must register with the BIR, obtain a Taxpayer Identification Number, register books of accounts, issue appropriate receipts or invoices, file tax returns, and comply with withholding obligations.

C. Donations

Donations to a foundation may have donor’s tax consequences unless exempt under applicable law. Deductibility for donors is a separate issue and may require accreditation as a qualified donee institution.

D. Donee Institution Status

A foundation that wants donors to claim tax deductions may need accreditation or certification as a qualified donee institution. This is usually associated with stricter requirements on use of funds, administrative expenses, reporting, and non-distribution of assets.

E. VAT and Percentage Tax

Nonprofit status does not automatically eliminate VAT or percentage tax issues. If the foundation sells goods or services, leases property, or conducts taxable transactions, indirect tax rules must be reviewed.

F. Withholding Taxes

Foundations may be withholding agents. They may need to withhold taxes on compensation, professional fees, rentals, contractors, and other payments.

G. Real Property Tax

Real properties actually, directly, and exclusively used for religious, charitable, or educational purposes may receive preferential treatment under constitutional and statutory rules. However, use matters. Property leased commercially or not directly used for exempt purposes may be taxable.

H. Documentary Stamp Tax

Asset transfers, leases, deeds of donation, assignments, loan documents, and other instruments may attract documentary stamp tax.

XV. Donations, Endowments, and Fundraising

Foundations commonly rely on donations, grants, endowments, sponsorships, and fundraising activities.

A. Donation Agreements

Major donations should be covered by written agreements specifying:

donor identity;
amount or property donated;
purpose restrictions;
reporting requirements;
return or reversion clauses, if any;
naming rights;
tax obligations;
anti-corruption undertakings;
data privacy provisions;
conditions for use; and
dispute resolution.

B. Restricted Funds

If a donation is restricted to a specific purpose, the foundation must use it only for that purpose. Misuse of restricted funds can create civil, tax, regulatory, and reputational liability.

C. Endowment Funds

An endowment is a fund intended to generate income for long-term use. The foundation should adopt an investment policy, spending policy, risk policy, and board oversight mechanism.

D. Public Solicitation

If the foundation solicits donations from the public, it may need permits or authority from relevant agencies, especially for charitable fundraising, social welfare activities, or disaster relief drives.

E. Foreign Donations

Foreign donations may require enhanced documentation, banking compliance, AML review, and sometimes reporting to government agencies. Foundations should identify donors, document fund sources, and ensure funds are not tied to unlawful activities.

XVI. Transfer of Assets From the Old Organization to the Foundation

Asset transfer is often the most legally sensitive part of conversion.

A. Types of Assets

Assets may include:

cash;
bank deposits;
land;
buildings;
vehicles;
equipment;
inventory;
intellectual property;
websites and domains;
donor databases;
contracts;
grants;
receivables;
licenses;
books and records; and
goodwill.

B. Legal Method of Transfer

Assets may be transferred by:

deed of donation;
deed of assignment;
sale;
lease;
usufruct;
trust arrangement;
memorandum of agreement;
corporate spin-off;
merger, if legally appropriate;
liquidation distribution; or
program transfer agreement.

C. Required Approvals

Depending on the entity, approvals may be needed from:

board of directors or trustees;
shareholders;
members;
partners;
creditors;
donors;
grantors;
government agencies;
lessors;
counterparties; and
courts, in special cases.

D. Creditor Protection

An organization cannot transfer assets to a foundation to evade creditors. Transfers made in fraud of creditors may be challenged.

E. Tax Review

Every transfer must be reviewed for donor’s tax, income tax, VAT, capital gains tax, documentary stamp tax, local transfer tax, registration fees, and deductibility.

F. Land Transfers

Transfers of land require special care. The foundation must be qualified to own land, and the transfer must comply with constitutional restrictions, land registration rules, tax clearance requirements, and registry of deeds procedures.

XVII. Contracts and Obligations

Existing contracts do not automatically transfer to the foundation unless the contract allows assignment or the other party consents.

A. Review Existing Contracts

The organization should review:

leases;
supplier contracts;
employment contracts;
donor agreements;
grant agreements;
memoranda of agreement;
bank loans;
insurance policies;
intellectual property licenses;
service contracts; and
government contracts.

B. Assignment and Novation

Some contracts may be assigned. Others require novation, meaning the other party must agree to substitute the foundation as the new contracting party.

C. Grants

Grant agreements often restrict transfer, subcontracting, regranting, or change of control. Written approval from the grantor may be required.

D. Licenses and Permits

Licenses and permits are often personal to the registered entity and may not be transferable. The foundation may need to apply for new permits.

XVIII. Employees and Labor Issues

If the existing organization has employees, conversion must be handled carefully.

A. No Automatic Transfer

Employees do not automatically become employees of the foundation unless there is a valid transfer, assumption, or new employment arrangement.

B. Options

The organization may:

retain employees in the old entity;
second employees to the foundation;
terminate employment with lawful cause and pay benefits;
transfer employees with consent;
have the foundation hire employees directly; or
execute tripartite agreements among the old entity, foundation, and employees.

C. Security of Tenure

Employees have security of tenure. A restructuring cannot be used to avoid labor obligations.

D. Benefits and Seniority

The parties should clarify whether seniority, accrued leave, retirement benefits, bonuses, and other benefits will be carried over.

E. Mandatory Contributions

The foundation must register with and comply with SSS, PhilHealth, Pag-IBIG, and applicable labor standards.

XIX. Intellectual Property and Branding

A foundation may need rights to use names, logos, publications, training materials, software, research, photographs, videos, and databases.

A. Name and Logo

If the old organization owns the name or logo, it must authorize the foundation’s use or transfer ownership.

B. Copyright

Training materials, manuals, reports, and media content may be protected by copyright. The foundation should secure assignment or license agreements.

C. Trademarks

If the foundation will use a brand, it should consider trademark registration or assignment.

D. Donor and Beneficiary Databases

Databases may involve data privacy issues. Transfer of personal data must comply with the Data Privacy Act and the organization’s privacy notices, consent mechanisms, and data-sharing agreements.

XX. Data Privacy

Foundations often handle sensitive personal information, including data about beneficiaries, children, patients, disaster victims, scholars, employees, donors, and volunteers.

A. Data Privacy Compliance

The foundation should:

identify personal data collected;
adopt privacy notices;
determine lawful basis for processing;
implement consent procedures where needed;
enter into data-sharing agreements;
secure donor and beneficiary databases;
appoint a data protection officer if required;
establish breach response procedures;
train staff and volunteers; and
observe retention and disposal rules.

B. Sensitive Personal Information

Health data, educational records, social welfare records, financial data, and information about minors require heightened protection.

XXI. Regulatory Registrations After SEC Incorporation

After SEC registration, a foundation may need to complete several post-registration steps.

A. BIR

The foundation must register with the BIR, obtain or update its tax identification details, register books of accounts, secure authority to print or use invoices or receipts where applicable, and comply with tax filing obligations.

B. Local Government Unit

The foundation may need barangay clearance, mayor’s permit, zoning clearance, sanitary permit, fire safety inspection certificate, and local tax registration depending on its activities and office location.

C. Employer Registrations

If it has employees, the foundation must register with SSS, PhilHealth, Pag-IBIG, and DOLE where applicable.

D. Special Agency Registration

Depending on the activity, additional registration may be required with DSWD, DepEd, CHED, DOH, CDA, DENR, NCCA, or other agencies.

E. Banking

The foundation should open bank accounts in its own name and adopt clear signing authorities.

XXII. Reporting and Continuing Compliance

A foundation must maintain good standing.

A. SEC Reports

The foundation may be required to file annual reports, financial statements, general information sheets, beneficial ownership information, and other SEC forms.

B. BIR Filings

It must file applicable tax returns, withholding tax returns, annual information returns, and audited financial statements when required.

C. Books and Records

The foundation should maintain:

minutes of board and member meetings;
articles and bylaws;
SEC registration documents;
tax records;
audited financial statements;
donation records;
grant agreements;
beneficiary records;
payroll records;
asset registers;
bank statements;
procurement records;
contracts; and
compliance reports.

D. Audit

Foundations that receive significant donations or public funds should undergo regular independent audits even when not strictly required, as a matter of governance and credibility.

XXIII. Prohibition Against Private Inurement

A foundation must not allow its income or assets to benefit private persons beyond reasonable compensation or legitimate reimbursement.

A. Examples of Private Inurement

Private inurement may include:

excessive salaries to founders or relatives;
personal use of foundation vehicles or property;
sweetheart contracts with related parties;
payment of personal expenses;
grants to insiders without valid program basis;
below-market sale of foundation assets to trustees;
diversion of donations;
use of foundation funds for political patronage; and
loans to officers without proper authority.

B. Consequences

Consequences may include tax assessments, SEC sanctions, loss of accreditation, civil liability, criminal exposure, donor claims, and reputational harm.

XXIV. Political and Lobbying Activities

A foundation must be careful with political activities.

It may engage in policy research, civic education, public interest advocacy, and lawful participation in public discourse if consistent with its purposes. However, using foundation funds for partisan political activity, vote-buying, campaign finance violations, or unlawful lobbying can create serious liability.

If the foundation receives foreign funding, additional caution is required, especially for activities touching elections, public policy, national security, or political advocacy.

XXV. Religious Foundations

Religious organizations may establish foundations for charitable, educational, missionary, or social welfare purposes.

A religious foundation should clearly distinguish religious ministry funds from foundation funds where necessary, comply with donation rules, and observe regulatory requirements if it operates schools, orphanages, shelters, hospitals, or welfare programs.

XXVI. Family Foundations

A family may establish a foundation for philanthropy, scholarships, medical aid, community development, or legacy giving.

A. Governance Risks

Family foundations should avoid:

treating foundation assets as family property;
appointing only relatives without independent oversight;
paying family members excessive compensation;
funding personal expenses;
using the foundation as an estate planning device without charitable substance; and
failing to document grants and beneficiaries.

B. Best Practices

A family foundation should have independent trustees or advisers, clear grant policies, audited accounts, conflict rules, and succession planning.

XXVII. Corporate Foundations

Corporate foundations are common in the Philippines, but they require careful separation from the parent company.

A. Proper Uses

A corporate foundation may support:

scholarships;
disaster relief;
employee volunteerism;
livelihood programs;
health programs;
environmental projects;
community development;
research; and
social innovation.

B. Improper Uses

It should not be used to:

hide marketing expenses as charitable donations;
channel funds to favored officials;
evade taxes;
pay expenses of the parent company;
subsidize private business operations; or
create false public-interest branding.

XXVIII. Foundations Connected With Schools or Hospitals

Educational and medical foundations may face additional rules.

A. School Foundations

A foundation supporting scholarships or schools may need coordination with DepEd, CHED, TESDA, or the relevant educational institution. If it operates a school, it must comply with education laws and permits.

B. Hospital or Medical Foundations

A foundation conducting medical missions, operating clinics, or supporting hospitals may need DOH coordination, professional licensing compliance, and health data privacy safeguards.

XXIX. Social Welfare and Development Foundations

Foundations operating shelters, child-care programs, orphanages, crisis centers, relief operations, community development programs, or other social welfare services may need DSWD registration, licensing, or accreditation.

They should adopt safeguarding policies, child protection rules, beneficiary intake procedures, case management protocols, and financial accountability systems.

XXX. Foreign Participation in Philippine Foundations

Foreign individuals or entities may participate in Philippine nonprofit work, but certain legal limits must be considered.

A. Land Ownership

A Philippine corporation may own land only if it satisfies constitutional nationality requirements. Foundations with foreign trustees, members, donors, or controlling persons must be careful when acquiring land.

B. Nationalized Activities

Some activities are restricted to Filipino citizens or Philippine nationals. A foundation should review nationality restrictions before engaging in education, landholding, mass media, advertising, security services, or other regulated areas.

C. Foreign Donations

Foreign grants and donations should be documented, banked properly, and screened for AML and sanctions risks.

XXXI. Due Diligence Before Conversion

Before converting an organization into a foundation, the board or founders should conduct due diligence.

A. Corporate Due Diligence

Review:

articles of incorporation;
bylaws;
SEC registration;
general information sheets;
board minutes;
member approvals;
ownership or membership records;
pending amendments;
compliance status; and
pending disputes.

B. Tax Due Diligence

Review:

BIR registration;
open tax years;
tax returns;
assessments;
withholding tax compliance;
VAT or percentage tax exposure;
donor’s tax issues;
tax exemption status;
deductibility claims; and
books of accounts.

C. Asset Due Diligence

Review:

title to land;
vehicles;
equipment;
bank accounts;
investments;
intellectual property;
restricted donations;
encumbrances;
liens; and
insurance.

D. Liability Due Diligence

Review:

loans;
unpaid taxes;
employee claims;
supplier claims;
lawsuits;
regulatory violations;
warranty obligations;
grant obligations;
donor restrictions; and
environmental or community liabilities.

XXXII. Step-by-Step Process

The following is a practical roadmap.

Step 1: Identify the Existing Legal Form

Determine whether the organization is a stock corporation, non-stock corporation, partnership, sole proprietorship, cooperative, unincorporated association, or foreign entity.

Step 2: Define the Intended Foundation Purpose

Clarify whether the foundation will be charitable, educational, religious, scientific, cultural, social welfare, environmental, health-related, or advocacy-oriented.

Step 3: Choose the Legal Strategy

Decide whether to amend the existing entity, incorporate a new foundation, transfer programs, dissolve and reincorporate, or operate a separate foundation alongside the existing organization.

Step 4: Conduct Due Diligence

Review corporate records, taxes, assets, contracts, employees, debts, permits, donor restrictions, and pending obligations.

Step 5: Draft Corporate Documents

Prepare articles of incorporation, bylaws, board resolutions, member approvals, transfer documents, policies, and compliance forms.

Step 6: Secure Name Approval

Check whether the proposed foundation name is available and acceptable.

Step 7: File With the SEC

Submit required documents and pay filing fees. Respond to SEC comments or requirements.

Step 8: Register With the BIR

Step 9: Obtain Local and Special Permits

Secure local permits and any special agency approvals required by the foundation’s activities.

Step 10: Transfer Assets and Programs

Execute deeds of donation, assignments, contracts, novations, or program transfer agreements as needed.

Step 11: Handle Employees

Prepare employment transfers, new contracts, secondment agreements, or lawful separation arrangements.

Step 12: Open Bank Accounts

Open accounts in the foundation’s name and adopt signing authorities.

Step 13: Adopt Governance Policies

Approve conflict-of-interest, procurement, donation, grantmaking, finance, data privacy, whistleblower, safeguarding, and document retention policies.

Step 14: Begin Operations

Launch programs only after registrations, permits, banking, tax, and governance systems are in place.

Step 15: Maintain Compliance

File reports, hold meetings, keep records, audit finances, renew permits, and monitor tax and regulatory obligations.

XXXIII. Documents Commonly Needed

Depending on the method, the following documents may be required:

board resolutions;
member or shareholder approvals;
amended articles of incorporation;
amended bylaws;
new articles of incorporation;
new bylaws;
treasurer’s affidavit;
secretary’s certificate;
name verification confirmation;
list of trustees and officers;
consent to act as trustee;
proof of principal office;
endorsements from agencies;
deeds of donation;
deeds of assignment;
asset transfer agreements;
novation agreements;
employee transfer agreements;
donor consent letters;
grantor approvals;
BIR registration documents;
LGU permits;
bank account documents;
data sharing agreements;
privacy notices;
conflict-of-interest policy;
financial management policy;
procurement policy;
grantmaking policy; and
dissolution or liquidation documents if applicable.

XXXIV. Common Mistakes

Organizations converting into foundations often make the following mistakes:

assuming that adding “Foundation” to the name is enough;
failing to register with the SEC;
assuming automatic tax exemption;
transferring assets without tax review;
ignoring creditors;
failing to obtain donor consent for restricted funds;
transferring employees without labor compliance;
using foundation funds for private expenses;
failing to maintain books and records;
operating regulated activities without permits;
commingling funds with the founder or parent company;
appointing trustees without clear duties;
neglecting annual SEC and BIR filings;
using foreign donations without proper documentation;
conducting public fundraising without authority where required;
failing to protect personal data;
using the foundation for political purposes;
paying excessive compensation to insiders;
failing to document beneficiaries and grants; and
ignoring dissolution and asset dedication rules.

XXXV. Tax Exemption Is Not the Same as Nonprofit Status

A nonprofit foundation may still have tax obligations. SEC registration as a non-stock corporation does not by itself grant full tax exemption. The BIR looks at the foundation’s actual operations, income sources, and use of funds.

A foundation may be nonprofit but taxable on certain income. It may also be exempt from income tax on certain receipts but still liable for withholding taxes, documentary stamp tax, VAT, local taxes, or other taxes.

The foundation should obtain written tax advice before assuming that donations, grants, sales, leases, or program fees are tax-free.

XXXVI. Asset Dedication and Dissolution

A genuine foundation should include an asset dedication clause stating that its assets are dedicated to nonprofit purposes. Upon dissolution, remaining assets should not be distributed to trustees, officers, members, founders, or private persons. They should be transferred to another qualified nonprofit organization or used for similar purposes, subject to law and regulatory approval.

This clause is important for nonprofit integrity, donor confidence, tax treatment, and regulatory compliance.

XXXVII. Liability of Trustees and Officers

Trustees and officers may be held liable if they act in bad faith, with gross negligence, fraud, conflict of interest, or beyond authority.

Potential liabilities include:

civil liability to the foundation;
tax liability for responsible officers;
labor liability in certain cases;
criminal liability for fraud, falsification, estafa, corruption, or money laundering;
SEC penalties;
disqualification from trusteeship; and
reputational harm.

Trustees should insist on proper documentation, board approvals, audits, and conflict disclosures.

XXXVIII. Relationship With Donors

A foundation must maintain donor trust.

A. Donation Receipts

Receipts and acknowledgments must be issued properly and consistently with BIR rules.

B. Donor Restrictions

Restrictions must be tracked in accounting records.

C. Reporting

Foundations should provide donors with project reports, financial reports, and impact reports where agreed.

D. Ethical Fundraising

Fundraising materials should be truthful, not misleading, and should accurately describe how funds will be used.

XXXIX. Relationship With Beneficiaries

A foundation exists for its beneficiaries or public-interest purpose, not for its founders.

It should adopt fair eligibility criteria, avoid favoritism, document assistance, protect vulnerable persons, and ensure programs are delivered ethically.

For programs involving children, patients, disaster victims, indigenous peoples, persons with disabilities, or marginalized communities, additional safeguards should be adopted.

XL. Accounting for Foundations

A foundation should maintain clear accounting records separating:

unrestricted funds;
restricted funds;
endowment funds;
program expenses;
administrative expenses;
fundraising expenses;
grants received;
grants disbursed;
donations in kind;
donated services; and
related-party transactions.

Good accounting is essential for donor confidence, tax compliance, audit readiness, and regulatory reporting.

XLI. Can a Foundation Earn Income?

Yes, a foundation may earn income, but the income must be used for nonprofit purposes. It may receive program service fees, rental income, interest income, grants, donations, sponsorships, publication sales, training fees, or other revenue.

However, if income-generating activities become the primary purpose or are conducted like a commercial business for private benefit, tax and regulatory issues may arise.

The issue is not merely whether the foundation earns income, but whether income is distributed privately or used for the foundation’s nonprofit purposes.

XLII. Can Founders Control the Foundation?

Founders may serve as trustees or officers if allowed by law and the bylaws. However, a foundation should not be controlled in a way that allows founders to treat its assets as personal property.

Founder control should be balanced by fiduciary duties, board oversight, conflict rules, financial controls, and transparency.

XLIII. Can a Foundation Pay Salaries?

Yes. A foundation may pay reasonable compensation to employees, officers, consultants, and service providers for actual services rendered. The compensation must be reasonable, documented, approved, and not a disguised distribution of profits.

Excessive or unjustified compensation may be treated as private inurement.

XLIV. Can a Foundation Own Property?

Yes, subject to Philippine law. A foundation may own personal property and, if qualified, real property. Land ownership must comply with constitutional nationality restrictions and other property laws.

If the foundation has foreign participation, landholding must be reviewed carefully.

XLV. Can a Foundation Engage in Business?

A foundation may conduct activities incidental to its nonprofit purpose, including revenue-generating activities, but it should not be organized primarily for profit. Business activities may create tax obligations and regulatory issues.

For example, a foundation may sell publications to support educational programs, charge training fees, or operate a livelihood project. But if the activity is essentially a commercial enterprise benefiting private persons, it may undermine nonprofit status.

XLVI. Can a Foundation Give Grants?

Yes. A foundation may give grants if grantmaking is within its purposes. It should adopt a grantmaking policy, eligibility criteria, documentation requirements, monitoring procedures, and liquidation rules.

Grants to trustees, officers, relatives, or related entities should be avoided unless clearly justified, independently approved, and legally permissible.

XLVII. Can a Foundation Receive Government Funds?

Yes, but government-funded projects require strict compliance with procurement, audit, liquidation, reporting, anti-corruption, and conflict-of-interest rules. The foundation must ensure it has authority to receive and implement the funds.

Improper use of government funds may create criminal, civil, administrative, and audit liability.

XLVIII. Special Concerns for NGOs and Civil Society Organizations

Many Philippine NGOs operate as non-stock corporations and may later want to become foundations. The conversion may be mostly documentary if they are already nonprofit. However, NGOs should review whether their purposes, governance, funding sources, and programs align with foundation status.

NGOs involved in advocacy, community organizing, foreign-funded projects, or politically sensitive work should carefully document funding, program independence, and compliance.

XLIX. Checklist for Converting Into a Foundation

A practical checklist includes:

identify current legal form;
review articles, bylaws, permits, and contracts;
determine whether amendment or new incorporation is better;
define foundation purposes;
choose membership or non-membership structure;
identify trustees and officers;
draft articles and bylaws;
include nonprofit, non-distribution, and dissolution clauses;
secure board, member, shareholder, or partner approvals;
review tax consequences;
review asset transfers;
review labor implications;
review donor and grant restrictions;
obtain SEC approval;
register with BIR;
secure LGU permits;
obtain special agency approvals;
open bank accounts;
transfer assets properly;
adopt governance policies;
set up accounting systems;
protect personal data;
document donations and beneficiaries;
file annual reports; and
conduct regular audits.

L. Model Governance Policies for a Foundation

A well-run foundation should adopt at least the following policies:

conflict-of-interest policy;
code of ethics;
whistleblower policy;
anti-corruption policy;
financial management policy;
procurement policy;
donation acceptance policy;
grantmaking policy;
investment policy;
document retention policy;
data privacy policy;
safeguarding policy;
volunteer policy;
related-party transaction policy;
expense reimbursement policy;
travel policy;
anti-money laundering policy;
risk management policy;
communications policy; and
crisis response policy.

LI. Practical Example: Stock Corporation Creating a Foundation

Suppose a family-owned corporation operates a profitable business and wants to convert its charity arm into a foundation. It should not simply rename the corporation as a foundation. Instead, it may incorporate a new non-stock foundation, appoint trustees, define charitable purposes, fund the foundation through donations, and enter into agreements for CSR programs.

The corporation must approve donations properly, record them in its books, review tax deductibility, and avoid using the foundation to pay personal or business expenses. The foundation must maintain separate accounts and comply with SEC, BIR, and local requirements.

LII. Practical Example: Unregistered Volunteer Group Becoming a Foundation

Suppose a volunteer group has been giving scholarships and disaster relief but has no SEC registration. It may incorporate as a non-stock foundation. The founders should document existing funds, transfer them to the foundation’s bank account, adopt bylaws, register with the BIR, obtain permits, and establish policies for scholarships and relief operations.

The group should also identify whether funds previously collected were restricted by donors and ensure they are used accordingly.

LIII. Practical Example: Existing NGO Rebranding as a Foundation

Suppose an SEC-registered non-stock NGO wants to become a foundation to receive grants and donations. It may amend its articles and bylaws, change its name, refine its purposes, adopt stronger governance policies, and apply for donee institution accreditation if needed.

This is often simpler than creating a new entity, provided the NGO has no serious compliance, tax, or governance issues.

LIV. When Legal Counsel Is Especially Necessary

Legal counsel is strongly recommended when:

the organization is a stock corporation;
land or major assets will be transferred;
foreign donors or foreign trustees are involved;
employees will be transferred or terminated;
government funds are involved;
the organization has debts or pending cases;
tax exemption or donee status is sought;
public fundraising will be conducted;
the foundation will operate a school, hospital, shelter, or regulated facility;
restricted donations will be transferred;
the foundation will engage in advocacy or political-adjacent work;
there are related-party transactions;
dissolution is contemplated; or
the organization has past compliance deficiencies.

LV. Conclusion

Converting an organization into a foundation in the Philippines is not merely a branding exercise. It is a legal, tax, governance, and operational restructuring.

If the organization is already a non-stock corporation, conversion may be possible through amendments to its articles, bylaws, purposes, and governance structure. If it is a stock corporation, partnership, sole proprietorship, cooperative, or unincorporated group, the better approach may be to incorporate a new non-stock foundation and transfer programs or assets through proper legal instruments.

A foundation must be organized and operated for nonprofit purposes. Its income and assets must not benefit private persons except through reasonable compensation or legitimate program implementation. It must comply with SEC, BIR, local government, labor, data privacy, anti-money laundering, and special agency requirements.

The key to a successful conversion is planning: determine the proper legal method, document approvals, review taxes, protect employees and creditors, respect donor restrictions, adopt strong governance policies, and maintain transparent records. A foundation exists not for its founders, trustees, or donors, but for its public or charitable purpose.