NON-STOCK CORPORATION

Would the provisions governing stock corporations also apply to non-stock

corporation?
Yes, the provisions governing stock corporation, when pertinent, shall be applicable to non-
stock corporations, except as may be covered by specific provisions of Title XI of the Code
(Sec. 87, second par.)

May a member in a non-stock corporation vote cumulatively?

General rule: No
Exception: Unless otherwise provided in the articles of incorporation or by-laws

May the right to cumulative voting be denied in a stock corporation?

No, since it is a matter of right granted by law in stock corporation (Sec. 24) corporations can
only do such things as given to its by law (Doctrine of Limited Capacity)

May members vote by proxy?

Yes, as provided for by Sec. 89

May the right to vote by proxy be denied in a stock corporation?

No, it is a matter of right granted to all stockholders in a stock corporation (Sec. 24)

May members cast their votes thru text?

Yes, as long as authorized by the by-law with the approval and conditions of SEC

How about in stock corporation?

General rule: Votes must be cast at a duly constituted meeting
Exception: In case of ordinary amendment where written assent is sufficient (Sec. 16)

How many members does a governing board of a non-stock has?

May exceed 15 unless the articles of incorporation or the by-laws otherwise provides

What are the qualifications?

1. Must be members of the association;
2. Majority thereof must be residents of the Philippines; and
3. Other qualifications as may be provided for in the by-laws

What is the name of the governing board?

The articles of incorporation or by-laws may designate a name other than a Board of Trustees
(Sec. 138)

Who elects the other officers?

General members unless provided otherwise in the articles of incorporation or by-laws (Sec.
92, last par.)

In stock corporation, who elects officers?

For directors:
a. General rule: Members of the Board
b. Exception: Stockholders, in case of close corporation (Sec. 97)
A holds membership certificate. B goes to the corporation and compels the corporation to
record the transfer in his name.

Is B correct?
General rule: Yes, if he complied with the rules in the by-laws
Exception: In the absence of such rules, the corporation may determine who shall be admitted

What are the instances when power to terminate may be exercised?

a. When an offense is committed which, although it has no immediate relation to a
member's duty as such, it is so infamous as to render him unfit for society of honest
men, and which is indictable at common law;
b. When the offense is a violation of his duty as member of the corporation; and
c. When the offense is of a mixed nature, being both against his duty as a member of the
corporation, and also indictable at common law

May the courts interfere?

General rule: No
Exceptions: (Lions Club International v. CA)
a. Where there is fraud, oppression, or bad faith, or where the action complained of is
capricious, arbitrary, or unjustly discriminatory;
b. Where property or civil rights are invaded, provided that in case of property rights,
there must be arbitrariness, fraud or collusion;
c. Where the proceedings in question are violative of the laws of the society, or the law
of the land, as by depriving a person of due process of law; or
d. Where there is a lack of jurisdiction on the part of the tribunal conducting the
proceedings, where the organization exceeds its powers, or where the proceedings are
otherwise illegal.

Non-stock corporation with P4B funds

May it be distributed for and among its members?

General rule: No, it can only 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 (Sec. 94[3])
Exception: If there is no distributive agreement, then the corporation may do so thru a
plan of distribution in accordance with the procedures laid down in Sec. 95

Place of meeting:
General rule: In the city or municipality where its PO is located (Sec. 93; Sec. 51)
Exception: The by-law may provide that meetings be held anywhere in the Philippines,
provided proper notice is sent to all members (Sec. 93)

Why is Sec. 51 applicable to non-stock corporation with regard to the place of its
meetings?
Because the provisions governing stock corporation, when pertinent, shall be applicable to
non-stock corporations, except as may be covered by specific provisions of Title XI of the
Code (Sec. 87, second par.). There is no provision in the same title regarding place of
meeting of non-stock corporation. Sec. 93 only speaks of the exception, not the general rule.
Hence, Sec. 51 applies.
How is membership acquired?
By complying with the rules of the corporation as set forth in its by-laws

Why are shares transferrable?

Because they have proprietary rights

B transferred his share to A, his driver for 25 years, as a token of gratitude.

Will A (as transferee) have the right to compel the recording of the transfer in the books
of the corporation?
Yes, in the absence of specific provisions of Title XI, rules on stock corporation applies (Sec.
87, last par.). Thus, Sec. 63 requires that for a transfer to be valid to the corporation, it must
be recorded in the books of the corporation. It is a ministerial duty of the corporate secretary
to record the transfer in such books (Rural Bank of Salinas v. CA).

Is A now a member?
Not yet, he must first comply the rules in the by-laws of the corporation regarding
membership. Being a member and a shareholder is different from each other. A shareholder is
not necessarily a member because there are rules regarding membership.

REMINDERS:
1. The designation and manner of removal in a stock corporation also applies to non-
stock corporation (Secs. 27 and 29)
2. The decision of an unincorporated association on the question of an election to office
is a matter peculiarly and exclusively to be determined by the association, and, in the
absence of fraud, is final and binding on the courts (Lions Club International v. CA)
3. Membership is personal and non-transferrable, unless the articles of incorporation and
by-laws otherwise provide

TRUE OR FALSE:
1. A transferee has the same power, right and privilege to compel the corporation to
record it in the books of the corporation.
2. Cumulative voting is generally not allowed in non-stock corporations.

ANSWERS:
1. True (Sec. 87, last par.)
2. True, members are only entitled to only one vote, unless allowed by the articles of
incorporation or by-laws (Sec. 89)

Objective:
Distinguish between voting rights of stock holders in a stock corporation and members in a
non-stock corporation.

ANSWER:
Except as provided for in the Code, the voting right of stockholders is inherent and they may
vote the way they please. Thus, stockholders may vote personally, or by representative or
proxy or by voting trust agreement, executor, administrator, receiver or other legal
representative appointed by the court (Secs. 55, 58 and 59). On the other hand, in non-stock
corporation, the voting rights of members may be limited, broadened, or denied by the by-
laws (Sec. 89, first par.).

Explain:
Distribution of assets upon dissolution of non-stock corporations

ANSWER:
In case 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;
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 according to a plan of distribution adopted pursuant to 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 adopted pursuant to this Chapter. (Sec. 94)