In the Philippine legal landscape, non-stock, non-profit associations (NSNPs)—ranging from charitable foundations and educational institutions to homeowners' associations and professional organizations—often manage significant financial resources. The authority to maintain "trust funds" (funds restricted for specific purposes) is rooted in the intersection of corporate law, the Law on Trusts, and specific regulatory frameworks.
I. Statutory Basis of Corporate Power
The primary source of authority for any non-stock corporation is the Revised Corporation Code (RCC) of the Philippines (Republic Act No. 11232).
- Section 35 (Corporate Powers and Capacity): Every corporation has the power to purchase, receive, take, or grant real or personal property, and to "exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation."
- Incidental Powers: For an NSNP, the maintenance of a trust fund is often considered an incidental power necessary to achieve its primary purpose (e.g., a scholarship fund for a school or a building fund for a church).
- The Articles of Incorporation & By-Laws: The association’s governing documents must explicitly or implicitly allow for the creation of restricted funds. If the Articles of Incorporation state the goal is "to provide medical assistance," the establishment of a trust fund dedicated solely to medical bills is legally supported.
II. The Concept of "Trust" in NSNPs
Under the Civil Code of the Philippines (Arts. 1440-1457), a trust is a fiduciary relationship with respect to property, subjecting the person holding the property to equitable duties to deal with it for the benefit of another.
- Express Trusts: Created by the intention of the trustor. When a donor gives money to an association with the condition that only the interest be spent (an endowment), an express trust is created.
- Charitable Trusts: Public or charitable trusts are generally favored by the law. NSNPs act as trustees for the public or a specific segment of it.
- Fiduciary Duty of Trustees: The Board of Trustees of the association owes a high degree of diligence. They are not mere managers; they are fiduciaries. Any diversion of trust funds for purposes other than those specified constitutes a breach of trust and may lead to Ultra Vires acts.
III. Regulatory Oversight and Restrictions
While associations have the authority to maintain these funds, they are subject to strict oversight by several government bodies:
1. Securities and Exchange Commission (SEC)
The SEC monitors NSNPs to ensure they do not operate for profit.
- Non-Diversion of Earnings: Under Section 86 of the RCC, no part of the income of a non-stock corporation shall be distributable as dividends to its members, trustees, or officers. Trust funds must be utilized strictly for the objectives of the association.
- Reporting: Associations must disclose significant funds in their Audited Financial Statements (AFS) and General Information Sheets (GIS).
2. Bureau of Internal Revenue (BIR)
To maintain tax-exempt status under Section 30 of the National Internal Revenue Code (NIRC), an NSNP must prove that its "trust funds" are actually used for the purpose for which the exemption was granted.
- Revenue Memorandum Order (RMO) No. 38-2019: Requires associations to submit a Certificate of Tax Exemption and prove that "no part of its net income or asset shall inure to the benefit of any member or individual." If a trust fund is used for private gain, the association loses its tax-exempt status.
3. Anti-Money Laundering Council (AMLC)
Under the Anti-Money Laundering Act (AMLA), certain non-profit organizations are considered "covered persons" or are subject to "enhanced due diligence" if they are used as vehicles for money laundering or terrorist financing. Maintaining large trust funds requires strict "Know Your Donor" protocols and record-keeping.
IV. Specialized Trust Funds
| Type of Association | Legal Authority / Specific Regulation |
|---|---|
| Homeowners' Associations (HOAs) | R.A. 9904 (Magna Carta for HOAs): Authorizes the collection of dues and the maintenance of funds for community maintenance and safety. |
| Condominium Corporations | R.A. 4726 (The Condominium Act): Authorizes the creation of "common funds" or "reserve funds" for repairs and emergencies. |
| Foundations | SEC MC No. 8 (Series of 2006): Defines a foundation as an NSNP with an endowment fund. It requires a minimum initial contribution and specific annual reporting on the use of funds. |
V. Limitations and Liability
The authority to maintain trust funds is not absolute. Legal risks include:
- Commingling of Funds: Trustees must avoid commingling the association’s general operating funds with specific trust funds. This is a common ground for litigation and regulatory penalties.
- The Business Judgment Rule: While courts generally do not interfere with the business decisions of a Board, the Board must demonstrate that they acted in good faith and with the care an "ordinarily prudent person" would exercise.
- Dissolution: Upon dissolution of the association, Section 93 of the RCC dictates that assets held upon a condition requiring return or transfer (i.e., trust funds) must be returned to the donor or transferred to a similar organization engaged in substantially the same activities.
Conclusion
Non-profit associations in the Philippines possess the legal authority to maintain trust funds as a necessary extension of their corporate existence and charitable missions. This power is protected by the Revised Corporation Code and the Civil Code, provided that the association adheres to the strict fiduciary standards of transparency, non-distribution of profits, and adherence to the specific purposes defined in their constitutive documents. Failure to manage these funds with the highest degree of diligence can lead to the revocation of corporate registration, loss of tax-exempt status, and personal liability for the Board of Trustees.