NON-STOCK

CORPORATIONS
Chapter 14
Definition
Definition
Sec. 87. Definition. - For the purposes of this Code, a non-stock corporation is one
where no part of its income is distributable as dividends to its members, trustees,
or officers, subject to the provisions of this Code on dissolution: Provided, That
any profit which a non-stock corporation may obtain as an incident to its
operations shall, whenever necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was organized, subject to the
provisions of this Title.

The provisions governing stock corporations, when pertinent, shall be applicable

to non-stock corporations, except as may be covered by specific provisions of this
Title.
Capital Stock
Capital Stock
The old notion is that a non-stock corporation is one which has no capital stock
divided into shares - this may no longer hold true under the definition provided by
Sec. 87. Thus, even if it may have capital stock divided into shares, proprietary or
otherwise, a corporation is considered non-stock so long as it does not distribute
dividends to its members and officers. We have, for instance, Club shares issued
to the members, the totality of which may rightfully represent capital of the
corporation but whose income (if there be any) is not distributed by way of
dividends during its corporate existence. The corporation, in such a case, is legally
non-stock.
Profits
Profits
A non-stock corporation is generally not allowed to engage in any business undertaking or activity for
profit as it would run counter to its very nature as a non-profit entity. However, as may be allowed and
specified in its AOI or incidental to the objects and purposes indicated therein, it may engage in money
making ventures or economic activities provided that any profits derived therefrom shall be used for the
furtherance of the purposes for which the corporation was organized or to defray the operating expenses
of the entity. It has thus been said that the fact that a non-profit corporation earns a profit, gain or income
for the corporation ro members does not make it a profit-making corporation where such profit or income
is used for the purpose set forth in the AOI and is not distributable to its incorporators, members or
officers, since mere intangible or pecuniary benefits to the members do not change the nature of the
corporation.

The determination of whether or not a non-stock corporation can engage in profit-making business or
activity depends largely on the purpose or purposes indicated in the AOI. If the business activity is
authorized in the said articles, necessary, incidental or essential thereto, the same may be undertaken by
the corporation, otherwise, not, as it would be an ultra vires act under Sec. 45.
Purpose
S. 8. P. - N-s c m b f o o f c, r, e, p, c, f, l, s, s, c s, o s p, l t, i, a a l c, o a c t, s t t s
p o t T g p c o n-s c.
Purpose
Sec. 88. Purposes. - Non-stock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal, literary, scientific,
social, civic service, or similar purposes, like trade, industry, agricultural and like
chambers, or any combination thereof, subject to the special provisions of this
Title governing particular classes of non-stock corporations.
Purpose
Non-stock corporations may be organized or formed for any purpose or purposes
allowed or indicated in the above provision. The enumeration, however, is not
exclusive as the law itself recognizes similar or allied purpose or purposes for
which non-stock corporations may be organized. Recreational, sports club, athletic
or allied activities of similar import, for instance, may likewise be lawful purpose of
a non-stock corporation.
Membership and Voting Rights
S. 8. R t v. - T r o t m o a c o c t v m b l, b o d t t e s i t a o i o t b-l. U s l, b o d, e m,
r o c, s b e t o v.

U o p i t a o i o t B-l, a m m v b p i a w t p o t C.

V b m o o s m b m o n-s c m b a b t b-l o n-s c w t a o, a u s c w m b p b, t S a E C.

Membership and Voting Rights
Sec. 89. Right to vote. - The right of the members of any class or classes to vote
may be limited, broadened or denied to the extent specified in the articles of
incorporation or the by-laws. Unless so limited, broadened or denied, each
member, regardless of class, shall be entitled to one vote.

Unless otherwise provided in the articles of incorporation or the By-laws, a

member may vote by proxy in accordance with the provisions of this Code.

Voting by mail or other similar means by members of non-stock corporations may

be authorized by the by-laws of non-stock corporations with the approval of, and
under such conditions which may be prescribed by, the Securities and Exchange
Commission.
Cumulative voting (General Rule)
Cumulative voting (General Rule)
Cumulative voting is not allowed, accordingly, even if the members may cast as
many votes are there as trustees to be elected, he may not cast more than one
vote for one candidate,

UNLESS, allowed in the AOI or the by-laws.

Classification (voting and non-voting)
Classification (voting and non-voting)
The by-laws or the AOI may provide for classification as to members with voting or
non-voting rights, since it is provided that the right of the members of any class or
classes to vote may be limited, broadened or denied.
Proxy Voting
Proxy Voting
Generally, allowed unless disallowed by the AOI or the by-laws.
Voting other than in person
Voting other than in person
Voting other than in person may also be allowed by the AOI or by-laws. Contrary
to a stock corporation, a stockholder has to vote in the meeting called for the
purpose except in case of a general amendment where written assent is allowed.
Non-transferability of membership
Non-transferability of membership
Sec. 90. Non-transferability of membership. - Membership in a non-stock
corporation and all rights arising therefrom are personal and non-transferable,
unless the articles of incorporation or the by-laws otherwise provide.
Termination of membership
Termination of membership
Sec. 91. Termination of membership. - Membership shall be terminated in the
manner and for the causes provided in the articles of incorporation or the by-laws.
Termination of membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise provided in the
articles of incorporation or the by-laws.
Membership
Membership
Non-stock corporations have the right to adopt rules prescribing the mode and manner in which
membership thereat can be obtained or maintained. This includes the right to limit membership. In
other words, membership in non-stock corporations may be acquired by complying with the
provisions of its rules prescribed in the by-laws. This is in consonance with the express power
granted by law under Sec. 36, par. 6 of the Code, authorizing them to admit members thereof and
that authority carries with it the power to prescribe rules on membership.

It has thus been stated that in the absence of charter or statutory restrictions, non-stock
corporations may determine who shall be admitted to membership and how they shall be admitted.
It may exclude any person whom it deems unfit for membership. Indeed, in the absence of
restrictions, it may act arbitrarily and exclude any persons it may see fit, and the courts have no
power to interfere. In other words, it is free to fix qualifications for membership and to provide for
termination of membership.
Authority to admit members
Authority to admit members
The provisions in the by-laws, if any, shall govern. Absent any provision to the
contrary, it must be necessarily be lodged with the BOT since it is the body that
exercises all corporate powers as enunciated in Sec. 23 the Code.
Special Cases
Special Cases
The law itself may provide certain limitations or even perhaps proscription on
transfer of membership. Thus, RA 4726, otherwise known as the Condominium
Act requires that membership therein shall not be transferred separately from the
condominium unit of which it is appurtenant and that when a member ceases to
own a unit, he shall automatically cease to be a member.
Termination of membership
Termination of membership
Membership may be terminated in the manner and for causes provided in the AOI or by-laws and when a member is so
terminated it shall extinguish all his rights in the corporation or in its property unless otherwise provided in the said articles
or by-laws.

The power or authority to terminate members in non-stock corporations is said to be inherent but strict compliance with the
manner and procedure laid down in the by-laws must be observed, otherwise it may render the expulsion ineffective and
invalid.

In the absence of any provisions in the AOI or by las relative to the manner and causes of termination or expulsion of
member, the decided weight of authority is to the effect that the power is inherent and may be exercised in certain
situations, namely:

1. When an offense is committed which, although it has no immediate relation to a members duty as such, it is so
infamous as to render him unfit for society of honest men, and which is indictable at common law;
2. When the offense is a violation of his duty as member of the corporation; and
3. When the offense is of a mixed nature, being both against his duty as a member fo the corporation, and also
indictable at common law.

As to whether or not a member should be expelled or maintained is the established right of the corporation to determine and
the courts are without authority to strip a member of his membership with cause.
Chinese Young Mens v. Victor Ching
Chinese Young Mens v. Victor Ching
Facts: Respondent Ching, a member of the BOD of petitioner Chinese YMCA, filed an action in the CFI, alleging
that on the Membership Campaign of the Chinese YMCA held from Sept. 27, 1965, only 175 applicants were
submitted, canvassed and accepted on the last day of the membership campaign, which was Nov. 26, 1965, NOT
more than 240, as reported in the Nov. 28, 1965 issue of the Chinese Commercial News.

The trial court rendered a decision in favor herein respondent declaring that only 174 applicants constitute the
present active membership of the association.

Issue: WON the trial court is justified in stripping members of their membership in a non-stock corporation?

Held: No. The documentary evidence itself as cited by the trial court, consisting of the applications and the
receipts for payment of the membership fees show that they are filed and paid not later than the Nov. 26, 1965
deadline, and this was supported by the bank statement of the petitioner YMCA deposit account with the China
Banking Corporation and the checks paid by certain members to the YMCA which show that the application fees
corresponding to the questioned 74 applications (that raised the total to 249 from 175) were already paid to
petitioner YMCA as the time of the said deadline.

...the courts cannot strip a member of a non-stock non-profit corporation of his membership therein without cause.
Otherwise, that would be an unwarranted and undue interference with the well-established right of a corporation to
determine its membership...
Cebu Country Club v. Elizagaque
Cebu Country Club v. Elizagaque
Facts: Cebu Country Club, Inc., petitioner, is a domestic corporation operating as a non-profit and non stock private
membership club, having its principal place of business in Banilad, Cebu City. Petitioners are member of its board.

Sometime in 1987, SMC, a special company proprietary member of CCCI, designated Ricardo Elizagaque, its Senior Vice
President and Operations Manager for the Visayas and Mindanao, as a special non-proprietary member. The designation
was approved by CCCIs BOD.

In 1996, Elizagaque, filed with CCCI an application for proprietary membership. The Application was indorsed by two
proprietary members of CCCI.

As the price of a proprietary share was around 5M pesos, Benito Uchuan, then president of CCCI, offered to sell
respondent a share of only 3.5M pesos. Elizagaque, however, purchased the share of a certain Dr. Butalid for only 3M php.
CCCI issued proprietary ownership certificate.

SEE PAGE 100 OF LADIA NOTES

Trustees and Officers
Trustees and Officers
The word trustees as used in Sec. 92 makes reference to the governing board or
body in a non-stock corporation.
Election and term of trustees
S. 9. E a t o t. - U o p i t a o i o t b-l, t b o t o n-s c, w m b m t f (1) i n a m b f i t a o i
o b-l, s, a s a o, s c t t t t o o o o-t () o t n s e e y; a s e o t c o-t () o b o t s b h a
a t s e s h a t o t (3) y. T t e t f v o b t e o a p t s h o o f t u p.

N p s b e a t u h i a m o t c.

U o p i t a o i o b t b-l, o o a n-s c m b d e b t m.
Election and term of trustees
Sec. 92. Election and term of trustees. - Unless otherwise provided in the articles
of incorporation or the by-laws, the board of trustees of non-stock corporations,
which may be more than fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify themselves that
the term of office of one-third () of their number shall expire every year; and
subsequent elections of trustees comprising one-third () of board of trustees
shall be held annually and trustees so elected shall have a term of three (3) years.
Trustees thereafter elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period.

No person shall be elected as trustee unless he is a member of the corporation.

Unless otherwise provided in the articles of incorporation or by the by-laws,

officers of a non-stock corporation may be directly elected by the members.
Qualifications of Trustees
1. H i a m o t a;

2. M t m b r o t P; a

3. O q a m b p f i t b-l.
Qualifications of Trustees
1. He is a member of the association;
2. Majority thereof must be residents of the Philippines; and
3. Other qualifications as may be provided for in the by-laws.
Number of trustees
Number of trustees
May exceed 15 as may be fixed in the AOI or by-laws, contrary to a stock
corporation whose BOD must not exceed 15 members.
Staggered Term
Staggered Term
The term of office may also be staggered unless the AOI or by-laws otherwise
provide. If such be the case, the board shall classify themselves in order the of
their number shall expire every year and subsequent elections of trustees
comprising shall be held annually. The trustees so elected to fill up any vacancy
occurring before the expiration of a particular term shall hold office only for the
unexpired portion of his predecessor.
Governing Boards
Governing Boards
While the Code speaks of the BOT as the governing board or body in a non-stock
corporation the same law allows a non-stock corporation or any other special
corporation to designate their governing board by any other name other than
BOD/T. The Rotary Club for instance, designates it as Board of Governors while
the Evangelica Independence Metodista En Las Islas Filipinas calls it as the
Consistory of Elders.
Election by members of officers
Election by members of officers
One of the significant features of a non-stock corporation is that it allows the AOI
or by-laws to provide that the officers thereof shall be directly elected by the
members. Unlike in stock corporation where corporate officers are elected by the
BOD.
Designation of governing boards
Designation of governing boards
Section 138. Designation of governing boards. - The provisions of specific
provisions of this Code to the contrary notwithstanding, non-stock or special
corporations may, through their articles of incorporation or their by-laws, designate
their governing boards by any name other than as board of trustees.
Lions Club International v. Hon Augusto Amores
Lions Club International v. Hon Augusto Amores
Issue: WON the dispute between petitioners and Josefa is a justiciable issue cognizable by the
courts?

Held: No. We adopt the general rule that ...the courts will not interfere with the internal affairs of an
unincorporated association so as to settle disputes between the members, or questions of policy,
discipline, or internal government, so long as the government of the society is fairly and honestly
administered in conformity with it slaws and the law of the land, and no property or civil rights are
invaded. Under such circumstances, the decision of the governing body or established private
tribunal of the association is binding and conclusive and not subject to review or collateral attack in
the courts.

SEE PAGE 102 OF LADIA NOTES FOR FACTS.

Lions Club International v. Hon Augusto Amores
Exceptions to the general rule of non-interference:

The courts have and will exercise power to interfere in the internal affairs of an association where:

1. The law and justice so require;

2. The proceedings of the association are subject to judicial review where there is fraud, oppression, or
bad faith, or
3. Where the action complained of is capricious, arbitrary, or unjustly discriminatory.

Also, the courts will usually entertain jurisdiction to grant relief:

1. In case property or civil right are invaded, although it has also been held that the involvement of
property right does not necessarily authorize judicial intervention, in the absence of arbitrariness,
fraud or collusion;
2. Where the proceedings in question are violative of the laws of the society, or the law of the land, as
by depriving a person of due process of law;
3. Where there is lack of jurisdiction on the part of the tribunal conducting the proceedings, where the
organization exceeds it powers, or where the proceedings are otherwise illegal.
Place of meetings
Place of meetings
Sec. 93. Place of meetings. - The by-laws may provide that the members of a
non-stock corporation may hold their regular or special meetings at any place
even outside the place where the principal office of the corporation is located:
Provided, That proper notice is sent to all members indicating the date, time and
place of the meeting: Provided, further, That the place of meeting shall be within
the Philippines.
Place of meetings
Another distinctive feature of a non-stock corporation is that membership meeting
may be held anywhere in the Philippines whereas in a stock corporation, the
stockholders meeting is mandated to be held or conducted within the city or
municipality where the principal office is located, and as far as practicable within
the principal office of the corporation.
Distribution of assets upon dissolution
Distribution of assets upon dissolution
Corporations, stock and non-stock, may be dissolved in accordance and pursuant
to the provisions of Sections 118 to 121 of the Corporation Code ad the pertinetn
provisions of P.D. 902-A, as amended. If such be the case, the assets of the
corporation are to be distributed in accordance with law and established
jurisprudence.
Rules of Distribution
Rules of distribution
Sec. 94. Rules of distribution. - In case dissolution of a non-stock corporation in accordance with the provisions of
this Code, its assets shall be applied and distributed as follows

1. All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provision
shall be made therefore;
2. Assets held by the corporation upon a condition requiring return, transfer or conveyance, and which
condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in accordance with
such requirements;
3. Assets received and held by the corporation subject to limitations permitting their use only for charitable,
religious, benevolent, educational or similar purposes, but not held upon a condition requiring return,
transfer or conveyance by reason of the dissolution, shall be transferred or conveyed to one or more
corporations, societies or organizations engaged in activities in the Philippines substantially similar to those
of the dissolving corporation according to a plan of distribution adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding paragraphs, if any, shall be distributed in accordance
with the provisions of the articles of incorporation or the by-laws, to the extent that the articles of
incorporation or the by-laws, determine the distributive rights of members, or any class or classes of
members, or provide for distribution; and
5. In any other case, assets may be distributed to such persons, societies, organizations or corporations,
whether or not organized for profit, as may be specified in a plan of distribution adopted pursuant to this
Chapter.
Plan of distribution of assets
Plan of distribution of assets
Sec. 95. Plan of distribution of assets. - A plan providing for the distribution of
assets, not inconsistent with the provisions of this Title, may be adopted by a
non-stock corporation in the process of dissolution in the following manner:

The board of trustees shall, by majority vote, adopt a resolution recommending a

plan of distribution and directing the submission thereof to a vote at a regular or
special meeting of members having voting rights. Written notice setting forth the
proposed plan of distribution or a summary thereof and the date, time and place of
such meeting shall be given to each member entitled to vote, within the time and
in the manner provided in this Code for the giving of notice of meetings to
members. Such plan of distribution shall be adopted upon approval of at least
two-thirds () of the members having voting rights present or represented by
proxy at such meeting.
Plan of distribution of assets
Culled from the law is that non-stock corporations ma provide in the AOI or
by-laws, for the distribution of its assets among its members subject to the
provisions of Sec. 94 and 95. That is the exception relative to assets which it holds
upon some trust. In which event, the claims of the state, beneficiaries, rightful
owners or donors will have to be considered. Thus, assets not subject to the
provisions of number 2-4 of Sec. 94 may be distributed in accordance with a plan
of distribution thereof in accordance with the rule established in Sec. 95 of the
Code.