Mayor Wilfredo M. Quiat

October 22, 2002 SEC OPINION Mayor Wilfredo M. Quiat Office of the Mayor Pila, Laguna S i r : This refers to your letter dated October 8, 2002 requesting opinion on the queries posed therein. Firstly, the SEC has already ruled that a non-stock corporation is also considered as a non-profit corporation in the sense that its income is not distributable to its members. (SEC Opinion dated October 23, 1990) A corporation organized as a non-stock corporation may, however, in the pursuit of its purposes, obtain profits in the course of its operation, but unlike in stock corporations, such profits cannot be distributed among its members, trustees or officers, but are used for the furtherance of its purposes. That means, no pecuniary benefit shall inure in favor of the members although they may avail of, or derive other forms of assistance from the corporation. (SEC Opinion dated April 10, 1985) The fact that there is no distribution by an organization of earnings or profits by way of dividends or otherwise to its members is not conclusive as to its non-profit character. Thus, where the members of an association . . . do not receive dividends in the form of cash, but they receive benefits in the form of commissary privileges, . . . and return or refund of capital at the end of membership or upon dissolution of the corporation, its constitution likewise providing that profits of the association will be kept at minimum and at the end of each fiscal period 10% of the net earnings will be put into a Reserve Fund . . . to be used at the discretion of the Board of Directors for capital improvements and to absorb operating deficits or any kind of loss, such an entity is one created and operated for profit. (De Leon, Corporation C od e of the Philippines, p. 590 citing U.S. Employees Association, 107 SCRA 87) Secondly, in case of dissolution, its assets shall be applied and distributed in accordance with certain specific rules laid down under Section 94 of the Corporation Code, or as may be specified in a plan of distribution adopted by the corporation provided it is not inconsistent with such rules, ( supra , p. 593) It is not allowed to distribute any of the assets of the corporation or any incidental income or profit made by the corporation during its existence. Section 94 of the Corporation Code provides, thus: "Sec. 94. Rules for distribution . In case of 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; IHCSTE 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 pursuant to a plan of distribution adopted as provided in 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 as provided in this Chapter. We hope we have satisfied your query. Very truly yours, (SGD.) BENITO A. CATARAN Director Company Registration and Monitoring Department