Mr. Oliver B. Butalid

September 7, 1992 Mr. Oliver B. Butalid Regional Director, Region III Department of Trade and Industry Capitol Compound San Fernando, Pampanga S i r : This refers to your letter of July 16, 1992 requesting clarification whether or not NGOs are allowed to engage in relending and borrowing activities. As stated, one area of concern of the Department of Trade and Industry in Region III is the speedy rehabilitation of micro-enterprises in the Pinatubo affected areas. A key program that you are presently undertaking is the Livelihood Onlending Programs for Mt. Pinatubo Eruption Victims. The program aims to provide soft loans to DTI-accredited NGO's for relending to affected micro-entrepreneurs and to livelihood-generation projects. One of your requirements to NGOs that want to avail of your Financing Programs is their SEC registration and By-Laws where you can look for a provision stating that they are allowed to engage in borrowing and relending activities. However, according to some NGOs, the SEC prohibits the inclusion of relending and borrowing activities in the primary purpose of their articles of incorporation. The Corporation Code provides: "SECTION 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 corporation." (Emphasis supplied) Thus, 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 of 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, to be used for the furtherance of the purpose or purposes for which the corporation was organized ,subject to the provisions of this titles." (Emphasis supplied) The Corporation Code further provides: "SECTION 14. Contents of the articles of incorporation . ... xxx xxx xxx 2. ...:Provided, That a non-stock corporation may not include a purpose which would change or contradict its nature as such ;...(Emphasis supplied) In line with the foregoing provisions, non-stock, non-profit corporations 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 are 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 January 25, 1988 citing Am. Jur., sec. 740). Powers 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, 12L, 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 business activities which are reasonably necessary to carry out the purpose[s] for which they are organized, but unlike stock corporations, any profit that may be derived from such business activities are not distributable to their members, but are used for the furtherance of corporate purposes, and in case of dissolution, the corporate assets of non-stock corporations shall be distributed in accordance with Sections 94 & 95 of the Corporation Code. The exercise of implied powers by a corporation is expressly recognized by law, particularly, under Section 36 (11) of the Corporation Code quoted hereunder: "SECTION 36. Corporate powers and capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx 11. To exercise such other powers as may be essential or necessary to carry out its purpose or purpose[s] as stated in the articles of incorporation." (Emphasis supplied) Therefore, a distinction should be made whether or not a non-stock corporation would undertake the business activity of "relending and borrowing" with the end in view of making profits for distribution to the members If said business activity is to be pursued purely for the purpose of carrying out the intended purpose[s] for which it was organized which may be any of the purposes enumerated under Section 88 of the Corporation Code, and without the end of making profits to be distributed to the members, officers or directors thereof, the same may be undertaken by a non-stock corporation. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman