In the Philippines, the formation of a non-stock corporation is governed primarily by the Revised Corporation Code (RCC) or Republic Act No. 11232. Unlike stock corporations, which are organized for profit and distribute dividends, non-stock corporations are established for charitable, religious, educational, professional, cultural, or social purposes.
The Articles of Incorporation (AOI) serve as the fundamental charter of the entity. For a non-stock corporation, the AOI must reflect its unique nature, particularly regarding how it is funded and how it is governed.
1. The Nature of Member Contributions
In a stock corporation, capital is divided into shares. In a non-stock corporation, there are no shares. Instead, the "capital" or operating fund is derived from member contributions.
- Initial Contribution: The AOI must state the amount of money, property, or services contributed by the incorporators and members.
- No Dividends: A defining legal characteristic is that no part of the corporation's income is distributable as dividends to its members, trustees, or officers.
- Incidental Profits: While a non-stock corporation can earn "profit" (e.g., through coffee shop sales in a museum or tuition fees in a school), these funds must be used solely to further the purpose for which the corporation was organized.
2. Essential Clauses in the Articles of Incorporation
To be valid and registrable with the Securities and Exchange Commission (SEC), the AOI of a non-stock corporation must contain specific mandatory clauses:
A. The Name Clause
The name must be distinguishable from existing corporations. For non-stock entities, it often includes terms like "Foundation," "Association," "Club," or "Mission."
B. The Purpose Clause
This is the most critical section. It must clearly state that the corporation is organized for a specific non-profit purpose (e.g., "To provide free legal clinics to indigent communities"). The SEC will reject applications with overly vague or purely commercial purposes.
C. The Principal Office Clause
It must specify the exact address of the principal office within the Philippines. This determines the venue for court cases and where official records are kept.
D. The Term of Existence
Under the Revised Corporation Code, corporations now have perpetual existence unless their AOI provides otherwise.
E. Incorporators and Trustees
- Incorporators: Any person, partnership, association, or corporation, singly or jointly with others (but not more than 15), may form a corporation.
- Trustees: In non-stock corporations, the governing body is called the Board of Trustees. The AOI must list the names, nationalities, and residences of the initial trustees.
- Term Limits: Trustees usually serve for a term of three years, with one-third of their number elected annually, unless the AOI or Bylaws provide otherwise.
3. Mandatory Restrictive Clauses
For a non-stock corporation to maintain its tax-exempt status or its "non-profit" standing, the SEC and the Bureau of Internal Revenue (BIR) usually require the following "boiler-plate" clauses:
- Non-Profit Clause: A statement that no part of the corporation’s net income shall inure to the benefit of any private individual or member.
- Dissolution/Distribution Clause: A provision stating that in the event of dissolution, the remaining assets shall be given to another non-stock corporation with similar purposes, or to the Philippine government, rather than being distributed to the members.
4. Specific Requirements for Foundations
If the non-stock corporation is a Foundation (a specific subtype), the SEC requires:
- An initial contribution of at least P1,000,000.00 (as of current SEC guidelines).
- A notarized Certificate of Bank Deposit or a Letter of Undertaking to change the corporate name if it is already used.
- A Modus Operandi, detailing how the foundation intends to accomplish its goals.
Summary Table: Stock vs. Non-Stock AOI
| Feature | Stock Corporation | Non-Stock Corporation |
|---|---|---|
| Ownership Unit | Shares of Stock | Membership |
| Governing Body | Board of Directors | Board of Trustees |
| Profit Distribution | Dividends to Stockholders | Reinvested into the Purpose |
| Asset Distribution at End | Pro-rata to Stockholders | To similar NGOs or the State |
Legal Note: All non-stock corporations must also file Bylaws within 30 days of incorporation (or simultaneously with the AOI) to define the internal rules for membership admission, voting rights, and meeting procedures.
Would you like me to draft a sample template for the Purpose Clause or the Dissolution Clause based on a specific type of organization (e.g., a homeowners' association or a charitable foundation)?