Rod Tupaz

July 24, 2002 SEC OPINION Rod Tupaz c/o LTO Public Information Office Diliman, East Avenue Quezon City S i r : This refers to your letter dated 05 July 2002 requesting opinion on the queries posed therein relative to the LTO Press Corps, an organization formed by a group of newsmen at the Land Transportation Office. The election held last July 4, 2002 by the aforementioned association is valid and binding as far as the members of the organization are concerned but not as legally contemplated under the Corporation Code of the Philippines. Section 8, Article III of the 1987 Constitution states; "The right of the people, including those employed in the public and private sectors, to form unions, associations or societies for purposes not contrary to law shall not be abridged." Registration with the Securities and Exchange Commission is not essential to the valid exercise of their right to form associations. However, the Commission, through its Opinions, made a distinction between a registered corporation and an unincorporated one: ...However, an association, unlike a corporation is not a juridical person and hence, denied the rights and privileges which are incident only to incorporation. The principal distinction lies in the fact that a corporation is a legal entry deriving its existence from franchise, whereas, an association in the narrower sense of the term, is a creature of contract without legal personality separate from the individuals composing it. ( Rosario N. Lopez The Corporation C od e of the Philippines, Annotated, p. 24 citing SEC opinion dtd March 24, 1972, Rompal Mining Company citing 7 C.J.S. p. 21 ) Thus an unincorporated association cannot perform corporate acts. It "cannot sue and be sued, it cannot enter into contracts in the name of the association and neither can it acquire properties under its common name. Contracts entered into in its behalf make the person signing or executing them liable to the other contracting party ( Ibid. citing Fletcher Cyc. Corp.,Sec 21, p. 64 ).It has also been held that it is not competent to act or create agents or confer upon another authority to act in its behalf, and those who act or purport to act as its representatives or agents do so at their own risk".( Ibid. citing SEC opinion dtd March 24, 1972, Rompal Mining Company citing Martin, p. 14764 citing VDA. de Salvatierra vs. Carlitos et al.,L-11442, May 23, 1958 ).SEC opinion dtd May 17, 1985, Mr. Felix Miano and Ms. Perlita Lumibao; December 21, 1981, Mr. Leonardo Robles and April 6, 1984, Mr. Consorcio Yusiong) Moreover an unregistered corporation cannot maintain a bank account under its name, since banking practice requires the submission of articles of incorporation duly approved by the SEC. While it can keep books of account and records as a measure of expediency and convenience, it cannot issue official receipts without registering the same with the BIR. It would not be exempted from taxation from donations, since Section 112 of the Internal Revenue Code specifically provides that a non-stock entity must be duly incorporated to claim exemption. ( Ibid. citing SEC opinion dtd November 9, 1982, Mr. Juan Ona and March 5, 1986, Asian Association Convention and Visitors Bureau ) However, an unregistered association may, "by agreement of its members, perform acts not contrary to law, morals, good customs, public order or public policy including disbursements of fund for legitimate purposes." ( Ibid. citing SEC opinion June 22, 1971, Mr. Emmanuel Mangubat ) Registering the association with the Commission in order to form a corporation has numerous advantages that should be considered by the members. The Corporation Code of the Philippines provides inter alia the following advantages to a non-stock corporation: a.) A corporation may sue and be sued, enter into contracts and acquire properties in its own name and in its own right. This is a consequence of having a legal personality or juridical capacity. b.) The members of the corporation are not liable for the debts and obligations of the corporation beyond their unpaid contributions. It is given by law a personality separate and distinct from its members. c.) A corporation continues to exist despite changes in membership in the corporation or even when its members should die. It has a right of succession which means that the corporation continues to exist despite the death of its members or changes among the membership. d.) Management is clearly defined in a corporation and centralized through its board of trustees. Please be guided accordingly. Very truly yours, (SGD.) BENITO A. CATARAN Director