Atty. Cela Magdalen B. Alviedo

July 29, 1993 Atty. Cela Magdalen B. Alviedo 2546 Rubi Street San Andres, Manila M a d a m : This refers to your letter of July 10, 1993 requesting an investigation and inquiring whether Saint Louis University, Baguio City, a non-profit educational institution, is empowered to engage in business or income generating activity, other than providing education for students. llcd Section 87 of the Corporation Code defines a non-stock corporation as follows: "SECTION 87. Definition . For the purpose 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." (Emphasis supplied) The Corporation Code likewise provides: "SECTION 14. Contents of the articles of incorporation ... (2) ...:Provided, That a non-stock, non-profit corporation may not include a purpose which would change or contradict its nature as such :" (Emphasis supplied) Under the foregoing provisions, non-stock, non-profit corporations, as a general rule, are not empowered to venture on economic business activities . However, as incident to its purpose(s). it may engage in such activities which are reasonably necessary to carry out the purpose(s) for which the corporation was organized. Any such powers as reasonably necessary to enable corporations to carry out the express powers granted and the purposes of the creation are to be implied as are to be deemed incidental. (SEC Opinion dated February 18, 1993, addressed to Erlinda B. Ahorro, citing previous SEC opinion and Am. Jur., sec 740) However, activities merely convenient or useful are not implied, if they are not essential, having in view the nature and object of incorporation . (Ibid., citing Planters Bank v. Sharp, 6 How (VS) 301, 121, ED. 447) Thus, while non-stock corporations are not empowered to venture on economic business activities, they may, as incident to their purpose(s), engage in economic business activities which are reasonably necessary or essential to carry out the purpose(s) for which they were organized, but unlike stock corporations, any profit that may be derived from such business activities are not distributable to the members, but are used for the furtherance of corporate purposes, and in case of dissolution shall be distributed in accordance with Sections 94 & 95 of the Corporation Code. Therefore, in determining whether a corporation can engage in an income generating business activity, much would depend on the purpose clause provision in its articles of incorporation. If the business activity is not expressly authorized in the articles of incorporation or is neither incidental nor necessary or essential to carry out the express objectives of the corporation as appearing in the articles of incorporation, the same cannot be legally undertaken by a non-stock corporation. Please be advised that anyone who may be prejudiced or adversely affected by an act of a corporation may file formally a verified complaint against it with the Securities Investigation Clearing Department of this Commission pursuant to the provisions of P.D. 902-A, as amended and the Revised Rules of Procedure in the Securities and Exchange Commission . Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman