Documentary requirements can be submitted online to the SEC

The initial requirements for incorporation as a non-stock and non-profit are similar to those for other corporations registered with the SEC. We have discussed this process in our article on incorporation.

An important difference, of course, is that the Articles of Incorporation must make it clear that this is a non-stock and non-profit corporation. The Articles must be drafted with care since they define not only the purposes of the organization, but also the manner of its operation.

The initial requirements are:

1. Name Verification Slip
2. Articles of Incorporation (AI) and By-laws (BL)
3. Joint affidavit of two incorporators to change corporate name (not required if already stated in AI)
4. List of members certified by the corporate secretary, unless already stated in the Articles of Incorporation; and
5. List of the names of contributors or donors and the amounts contributed or donated certified by the treasurer. There is no fixed amount of contribution required but only such reasonable amount as the incorporators and trustees consider enough to enable the corporation to start operation. An exception is foundations which must have a minimum contribution of at least P1,000,000.00.

Nonstock corporations that engage in educational activities must secure an endorsement from the appropriate government office.

As with other corporations, the non-stock must register with the Securities and Exchange Commission.

Non-stock corporations which will operate for educational purposes must also obtain an endorsement from the Department of Education, the Commission on Higher Education (CHED), or the Technical Education Skills and Development Authority (TESDA).

Any private non-stock or non-profit that intends to engage in social welfare and development programs and services in the Philippines also has to register with the Department of Social Welfare and Development (DSWD).

Nonstock corporations must be completely nonprofit

Participation in a non-stock stock corporation is not through ownership of shares of stock, but through membership as provided by the Articles of Incorporation and By-laws. The Articles and Bylaws will also provide the rules for and rights of the Members.

The Board of Trustees is the counterpart of the board of directors in a stock corporation.

The corporate powers, conduct of business, and control all properties of the non-stock corporation are exercised by its Board of Trustees.

The trustees are elected from among the members of the corporation for a term not more than three (3) years. Each trustee holds office until his or her successor is elected and qualified. A trustee must be a member of the corporation or else he shall cease to be a trustee.

Nonstock corporations must also be registered with the BIR

Aside from the SEC and accrediting agencies, the organization must also be registered with the BIR as non-stock / non-profit or NGO.

There are several NGOs that also work side by side with the government for better promotion of their advocacies

For the purposes of the BIR, a Non-government Organization (NGO) is a non-stock, non-profit domestic corporation or organization organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which inures to the benefit of any private individual.

Its administrative expenses must not exceed thirty percent (30%) of the total expenses for the taxable year.

It must demonstrate that it is effectively using its resources to accomplish the purposes for which it was created. There should be clearly defined policies, priorities, and guidelines for implementing its programs and projects.

The resources of a nonstock corporation should be for the purposes stated in the AOI and By-laws

It is subject to evaluation by the BIR and accrediting agencies. The evaluation shall consider programs and projects implemented; description of how its programs are managed; how the following are carried out: record keeping, monitoring, evaluating and contingency planning; programs/projects vis-a-vis the needs and priorities of its beneficiaries; the present documentation or results of evaluation and provisions for adequate training, people participation, development of leaders and eventual self-sufficiency.

Accredited NGOs have favorable tax privileges beyond what other non-stocks enjoy. Whereas donations to other non-stocks are deductible up to 5% of corporate donors’ taxable income and 10% for individual donors, donations to qualified NGOs can be fully deductible.[1]

[1] Section 3, Revenue Regulations NO. 13-98.

As a nonprofit organization, foundations are also exempt from income tax

Non-stock corporations can avail of income tax exemption for themselves provided they serve a public rather than a private purpose.^[1] For this, they must not be organized or operated for the benefit of private interests such as specific individuals, incorporators or his family, shareholders of the organization, or persons controlled directly or indirectly by such private interests.

The BIR recognizes the income tax exemption of the following types of organizations.[2] (Note that they must not only be organized for these purposes, but their actual operations and activities must them bear out):

• Labor, agricultural or horticultural organization not organized principally for profit.
• Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit;
• A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or non-stock corporation or their dependents;
• Cemetery company owned and operated exclusively for the benefit of its members;
• Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset belongs to or inures to the benefit of any member, organizer, officer or any specific person;
• Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder, or individual
• Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
• Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses;
• Farmers’, fruit growers’, or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them.

Farmer’s associations that have passed the organizational and operational tests are tax exempted

For these to avail of the income tax exemption, they must meet the BIR’s organizational and operational tests for such organizations:

Organizational Test: The organization’s constitutive documents (SEC Registration, Articles of Incorporation and By-Laws) must show that its primary purpose/s of incorporation fall under Section 30 of the NIRC.

Operational Test: The regular activities of the organization are exclusively devoted to the accomplishment of the purposes specified in Section 30 of the NIRC. A corporation or association fails to meet this test if the corporation has no activities conducted in furtherance of the purpose for which it was organized, or if a substantial part of its operations constitutes “activities conducted for profit”.

Non-stock corporations are also subject to mandatory disclosures to the SEC as safeguards against money laundering and terrorist financing abuse.[3]

[1] Revenue Memorandum Circular No. 64-2016.

[2] Revenue Memorandum Order No. 38-2019.

[3] SEC Memorandum Circular 25, Series of 2019.

An example of a religious foundation is Caritas Manila in the Philippines.

A foundation is a particular kind of non-stock, non-profit corporation. It is established for the purpose of extending grants or endowments to support its goals or raising funds to accomplish charitable, religious, educational, athletic, cultural, literary, scientific, social welfare or other similar objectives.[1]

[1] Section 1, SEC Memorandum Circular 8, Series of 2006.

Aside from selling small items for a cause, foundations also receive donations from wealthy sponsors

A domestic foundation is incorporated as a non-stock, non-profit corporation under Philippine law. Its corporate name shall contain the word “Foundation”.[1]

The amount of its capital, the names, nationalities, and residence addresses of the contributors, and amount contributed by each should be stated in the Articles of Incorporation.[2]

As additional requirements, a foundation is also required to submit:

1. Notarized Certification of Bank deposit in the amount of not less that P1,000,000; and
2. Statement of willingness to allow the SEC to conduct an audit.[3]

The minimum deposit is meant for the protection of the institutions and the public, to ensure that the foundation has the capacity to carry out its purposes.

The minimum deposit is meant for the protection of the institutions and the public, to ensure that the foundation has the capacity to carry out its purposes

After it is registered or incorporated with the SEC, a foundation should also register with the Department of Social Welfare and Development. The DSWD will assess the organization’s capacity to administratively, technically, and financially operate its social welfare and development programs and services in the Philippines.

DSWD registration is itself a pre-requisite for accreditation with the Philippine Council for NGO Certification (PCNC).

The PCNC will certify whether the non-profit organization meet established minimum criteria for financial management and accountability in the service to underprivileged Filipinos. It has a Memorandum of Agreement with the Department of Finance which designates it as the certifying organization for NGOs seeking donee institution status from the Bureau of Internal Revenue. The BIR will issue donee institution status only to those NGOs endorsed by the PCNC.

Donations made to NGOs with donee status are exempted from donor’s tax and are deductible from the taxable income of donors.

[1] Section 3, SEC Memorandum Circular 8, Series of 2006.

[2] Section 13, R.A. No. 11232.

[3] Section 2, SEC Memorandum Circular 8, Series of 2006.

According to the Revised Corporation Code, nonstock corporations can now operate as long as they can without expiration

The old law used to limit corporate existence to a term of 50 years that could be renewed. The Revised Corporation Code has given registered corporations, including non-stocks, an unlimited term and removed the necessity to apply for the renewal of their existence every 50 years.

Provided they are sustainable and well-run, they may endure and carry out their work for a very long time.