Atty. Maria Clara Tankeh-Asuncion

March 20, 1995 Atty. Maria Clara Tankeh-Asuncion Syquia Law Office Sixth Floor, Cattleya Condominium Bldg. Salcedo St. Legaspi Village 1229 Makati, Metro Manila Madam: This refers to your letter of March 1, 1995 requesting opinion on the following queries: cdll 1. Whether a medical and nursing college which is a foundation could be converted to a stock corporation. 2. On the assumption that the foundation could be converted into a stock corporation, the conditions or requirements of the Securities and Exchange Commission for the acquisition of the non-stock participation of the members of the foundation. 3. Whether non-citizens can acquire majority control of the corporation. While an existing "stock corporation" may be converted into a "non-stock corporation" by mere amendment of its articles of incorporation, conversion from non-stock to stock corporation is not legally feasible. As aptly defined in Section 87 of the Corporation Code, a "non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers", that is, that the members of a non-stock corporation are not entitled to any profit or interest in the corporate assets that may be obtained out of the operation or activities of the corporation. Until the corporation is dissolved and unless it is so provided in the articles of incorporation or by-laws, the members are not entitled to any beneficial or vested interest over the assets of a non-stock corporation. In other words, a non-stock, non-profit corporation only holds its funds in trust for carrying out the objectives and purposes expressed in its charter or articles of incorporation. The conversion of an existing "non-stock, non-profit corporation" into a "stock corporation" by mere amendment of the articles of incorporation would be tantamount to distribution of the corporate assets or income of the corporation to its members inasmuch as thereafter they automatically become stockholders thereof. This scheme might defraud the public who may have contributed donations, gifts or grants to the non-stock, non-profit corporation since after its conversion the donated corporate assets would in effect be treated as paid-in capital or subscription payments of the stockholders. Thus, the Commission previously ruled that a non-stock corporation cannot be converted into a stock corporation by mere amendment of the articles of incorporation. For purposes of transformation, it is fundamental that the non-stock corporation must be dissolved first under any of the methods specified in Title XIV of the Corporation Code so that the corporate assets shall be liquidated in accordance with the distribution procedure for non-stock corporations. Thereafter, the members thereof may organize a stock corporation directed to bring profits or pecuniary gains to themselves. ( SEC letter to Mr. Conrado B. Roxas, dated Feb. 24, 1989 ) Thus, although an educational institution can now be incorporated as a stock corporation under Batas Pambansa Blg. 232, as amended by R.A. No. 7798, an existing non-stock, non-profit educational foundation cannot be converted into a stock corporation by mere amendment of its articles of incorporation. The proper procedure would be to dissolve it first and then register a new stock corporation thereafter, subject however to the requirements of the Department of Education, Culture and Sports. Relative to your third query, Art. XIV, Sec. 4(2) of the Philippine Constitution clearly requires that: (2) Educational institutions, other than those established by religious groups and mission boards, shall be owned solely by citizens of the Philippines or corporations or associations at least sixty per centum of the capital of which is owned by such citizens .The Congress may, however, require increased Filipino equity participation in all educational institutions. The control and administration of educational institutions shall be vested in citizens of the Philippines ...." (Emphasis supplied) Accordingly, your third query is answered in the negative. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman