Title XI

Question 1

Define What is a nonstock corporation.

Answer 1

It is a corporation where no part of its income is distributable as dividends to its members.

Question 2

Enumerate the essential requisites of a nonstock corporation.

Answer 2

• It does not have a capital stock divided into shares.
• No part of its income is distributable as dividends to its members; and
• Nonstock corporations must 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.

Question 3

As to component, what is the distinction of a nonstock and stock corporation?

Answer 3

Nonstock corporations has members while stock corporations has shareholders.

Question 4

As to board members, what is the distinction of a nonstock and stock corporation?

Answer 4

Nonstock corporations has trustees while stock corporations has directors.

Question 5

As to existence of shares, what is the distinction of a nonstock and stock corporation?

Answer 5

Nonstock corporations, has no capital stock divided into shares while stock corporations has capital stock divided into shares.

Question 6

As to dividends, what is the distinction of a nonstock and stock corporation?

Answer 6

No dividends are declared in nonstock corporations while dividends are declared in stock corporations.

Question 7

As to purpose, what is the distinction of a nonstock and stock corporation?

Answer 7

The primary purpose of nonstock corporations is non-profit; it is limited to those specified under Section 87 of the RCCP while the purpose of stock corporations are primarily for business.

Question 8

As to business activities, what is the distinction of a nonstock and stock corporation?

Answer 8

Nonstock corporations can conduct business but only if it is incidental to the primary purpose while the business purpose of a stock corporation is its primary purpose.

Question 9

As to voting rights, what is the distinction of a nonstock and stock corporation?

Answer 9

The voting rights can be modified, limited or broadened in nonstock corporations but in stock corporations, one share – one vote.

Question 10

As to transferability of interest, what is the distinction of a nonstock and stock corporation?

Answer 10

In nonstock corporations, membership is generally non-transferable but in stock corporations shares are transferable.

Question 11

As to termination, what is the distinction of a nonstock and stock corporation?

Answer 11

Membership can be terminated in nonstock corporations but in stock corporations, ownership of shareholder cannot be terminated until the transfer of the shares or upon liquidation.

Question 12

As to effect of death, what is the distinction of a nonstock and stock corporation?

Answer 12

Death of a member terminates that membership; Generally, membership is not transferred in nonstock corporations but in stock corporations, shares can be acquired through succession.

Question 13

As to dues, what is the distinction of a nonstock and stock corporation?

Answer 13

Payment of dues can be required in nonstock corporation but in stock corporation, no dues are paid.

Question 14

As to board, what is the distinction of a nonstock and stock corporation?

Answer 14

There can be more than 15 trustees in nonstock corporations but in stock corporations, there should not be more than 15 directors.

Question 15

As to term of board members, what is the distinction of a nonstock and stock corporation?

Answer 15

The term is three years in nonstock corporations but in stock corporations the term is one year.

Question 16

As to voting, what is the distinction of a nonstock and stock corporation?

Answer 16

Cumulative voting is not allowed in nonstock corporation unless provided for in the Articles of By-laws; The general rules in Section 23 of the RCCP is that the members of a nonstock corporation may not cast more than one vote for one candidate but in stock corporations cumulative voting is expressly allowed.

Question 17

As to liquidation, what is the distinction of a nonstock and stock corporation?

Answer 17

Generally, the members will not get a share in the assets unless provided for in the Articles and Bylaws in nonstock corporations but in stock corporations, shareholders will get their share in the net assets knows as liquidated dividends.

Question 18

As to election of officers, what is the distinction of a nonstock and stock corporation?

Answer 18

The members may directly elect the officers of the nonstock corporation unless otherwise provided in the Articles of Incorporation and Bylaws but in stock corporations, officers are elected by the Board of directors.

Question 19

What is a foundation?

Answer 19

A foundation is a nonstock, nonprofit corporation established for the purpose of extending grants and endowments to support its goal or raising funds to accomplish charitable, religious, educational, athletic, cultural, literary, scientific, social welfare or similar objectives.

Question 20

Is there a need to amend the Articles of Incorporation when its capital is increased?

Answer 20

No, there is no need to amend the Articles of Incorporation.

Question 21

What is a nonprofit corporation?

Answer 21

A corporation is a nonprofit corporation if it does not distribute any part of its income to stockholders or members.

Question 22

What is the basis of the nationality of a nonstock corporation?

Answer 22

It is computed on the basis of the nationality of its members and not premised on the membership contribution.

Question 23

What rules does the SEC provide that a nonstock corporation is considered Philippine National?

Answer 23

• If all of its member are Filipino citizens; or
• if at least sixty percent of its member entitled to vote are citizens of the Philippines; or
• If all the members of a foreign nonstock corporation licensed to do business by the SEC are citizens of the Philippines

Question 24

What are the purposes that a nonstock corporation be organized?

Answer 24

• Charitable
• Religious
• Educational
• Professional
• Cultural
• Fraternal
• Literary
• Scientific
• Social
• Civic service
• Similar activities like trade, industry, agricultural and like chambers of any combination thereof.

Question 25

Can a nonstock corporation have a purpose to do profitable business?

Answer 25

No. Section 87 of the RCCP limits the purposes for which a nonstock corporation may be organized.

Question 26

Can a nonstock corporation be converted into a stock corporation?

Answer 26

No. The amendment would be inconsistent with the nature of a nonstock corporation because the same will have the effect of distributing the assets of the nonstock to its members so that the latter can become its shareholders. This scheme might defraud the public who may have contributed gifts, donations or grants to the corporation , the donated corporate assets would in effect be treated as paid-in capital or subscription payments.

Question 27

What would a non stock corporation do to convert to a stock corporation legally?

Answer 27

The nonstock corporation should do is to dissolve itself and the members may thereafter decide to organize a stock corporation.

Question 28

Can a stock corporation be converted to a nonstock corporation?

Answer 28

Yes. It can be changed by the mere amendment of the articles of incorporation. The effect of this is that after the conversion, the stockholders who now become the members of the nonstock corporation will no longer have any pecuniary interest in the corporate assets. Neither are they entitled to any share in any profit.