BA Lepanto Condominium Corporation

November 27, 1985 BA Lepanto Condominium Corporation BA Lepanto Condominium 8747 Paseo de Roxas Makati, Metro Manila Attention : Mr . Henry T . Pelaez Chairman Building Management Committee Sir : This has reference to your letter dated May 17, 1985, requesting for the opinion of this Commission on whether or not the unused contributions from its members could be validly offset against the balance of the receivable from the members on the sale of condominium units to them. cdlex It appears that BA Lepanto Condominium Corporation, formerly BA Lepanto Building Corporation was registered with this Commission as a stock corporation on October 30, 1974, with the following primary purpose: "To acquire, own, manage, occupy, lease, maintain, and operate a multi-storey office building and its appurtenances ...". At the time of incorporation, it has an authorized capital stock of Twenty-Six Million Pesos (P26,000,000.00),divided into 26,000 shares with a par value of P100.00 each, and a paid-up of P300,000.00. On January 7, 1982, said corporation filed its amended articles of incorporation and by-laws which provide for the change of its corporate name to BA Lepanto Condominium Corporation and convert the same into a non-stock corporation. The purposes enumerated provide among others, "to own and hold title to the common and limited common areas in the condominium project to the land on which the same has been erected, and to manage the project for the owners of the condominium unit." Pursuant to Article 8 of the articles, the capital of the corporation shall be converted into membership participation in the corporation evidenced by membership certificate with the character of proprietary shares. The owner of one unit will be issued one certificate of membership. The Commission en banc approved in its September 17, 1982 meeting said conversion, it appearing per financial evaluation that no creditors will be prejudiced and that all legal requirements of the Corporation Code and Republic Act 4726 (Condominium Act) have been complied with. A Certificate of Filing of Amended Articles of Incorporation was issued by this Commission on September 21, 1982. On May 17, 1985, said corporation is requesting for the opinion of this Commission on whether or not the unused contributions from its members could be validly offset against the balance of the receivables from the members on the sale of condominium units to them. It appears that the members contributed money to enable the corporation to facilitate the construction of the condominium building which the members own through the purchase of certificate of membership. The contributions made by each member were in proportion to their percentage of ownership in the building. These contributions which were considered as members' equity were later used for the completion of the building. It appears further that the members still have unpaid balances amounting to a total of P3,783,666.58 on their condominium units. The corporation is asking whether or not part of the members' equity account of P26,000,000.00 could be used to offset the total receivables from the members. prcd From the examiner's report, it is shown that although said transaction will decrease the members' equity, the same will not adversely affect the creditors' interest since the amount of liabilities of the corporation as of December 31, 1984 was only P46,640.00 compared to the members' equity of P26,000,000.00. Anent thereto, the following precedents are appropriate: "In many states, statutes provide specially for the formation of charitable, educational, social, religious, recreational, cemetery, cooperative and other non-profit corporations, which, as contrasted to business corporations, do not contemplate the distribution of gains, profits or dividends to their members on invested capital ." (Ballantine on Corporation, p. 28) (Emphasis supplied). "A corporation organized as a non-profit concern is not permitted to engage in business with the object of making income or profits directly or indirectly when the profits are to be devoted to its main purposes for the common benefit and not for distribution to its members ." (Ballantine on Corporation, p. 29) (Emphasis supplied) The distribution of its assets to the members on dissolution is not forbidden to a non-profit corporation, unless it holds its assets upon some trust, public or private, in which case the claims of the state, the beneficiaries or of the founder and his successors may have to be considered. (supra.,p. 29) From the above-quoted precedents, therefore, it can be deduced that properties of non-stock corporation cannot be distributed and members cannot reduce the corporate capital unless the corporation is dissolved. It must be noted that receivables from the members are considered assets of the corporation and may not likewise be distributed. Considering the same, no part of the members' equity can be used to offset the total receivables from the members. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman