Published — August 23, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
After reading “What is the difference between stock and non-stock corporation?”, read also “Voluntary Dissolution of a Corporation Where No Creditors are Affected”
-
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence.
-
A stock corporation is a corporation which has capital stock divided into shares and is authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held.
-
A nonstock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers.
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence. (Section 2, Revised Corporation Code of the Philippines)
What is a stock corporation? The law says:
A stock corporation is a corporation which has capital stock divided into shares and is authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held. (Section 3, RCCP)
A stock corporation has the power to declare dividends. Its board of directors may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them.
The law says:
SEC. 42. Power to Declare Dividends. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholders until their unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose.
Stock corporations are prohibited from retaining surplus profits in excess of one hundred percent (100%) of their paid-in capital stock, except: (a) when justified by definite corporate expansion projects or programs approved by the board of directors; or (b) when the corporation is prohibited under any loan agreement with financial institutions or creditors, whether local or foreign, from declaring dividends without their consent, and such consent has not yet been secured; or (c) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies. (Section 42, RCCP)
The governing body of a stock corporation is usually the Board of Directors. As to the number of directors, it shall not be more than fifteen. (Section 13, RCCP) The Directors shall be elected for a term of one (1) year from among the holders of stocks registered in the corporation’s books. (Section 22, RCCP)
The meetings of the stockholders’, whether regular or special, shall be held in the principal office of the corporation as set forth in the articles of incorporation, or, if not practicable, in the city or municipality where the principal office is located. (Section 50, RCCP)
For a stock corporation, the “quorum” referred to in Section 51 of the Revised Corporation Code is based on the number of outstanding voting stocks. (Paul Lee Tan vs. Paul Sycip and Merritto Lim, G.R. No. 153468, August 17, 2006)
On the other hand, a non-stock corporation is a corporation where no part of the income is distributable as dividends to its members, trustees, or officers. It is not organized for profit.
The law says:
SEC. 86. Definition. – For purposes of this Code and subject to its provisions on dissolution, a nonstock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers: Provided, That any profit which a nonstock corporation may obtain incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this Title. (Section 86, RCCP)
What are the purposes where a non-stock corporation may be formed?
The law says:
SEC. 87. Purposes. – Nonstock 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 nonstock corporations.
Thus, it is not limited to only what is expressly enumerated in the provision but also includes “any combination thereof.”
A non-stock corporation is usually governed by its Board of Trustees. However, it may, through its articles of incorporation or bylaws, designate its governing boards by any name other than as board of trustees. (Section 174, RCCP)
The number of trustees shall be fixed in the articles of incorporation or bylaws which may or may not be more than fifteen (15) with a maximum term of three (3) years. (Section 91, RCCP)
As to the meetings of its members, the bylaws may provide that the members of a nonstock corporation may hold their regular or special meetings at any place even outside the place where the principal office of the corporation is located. (Section 92, RCCP)
Lastly, for a nonstock corporation, only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum during members’ meetings. Dead members shall not be counted. (Paul Lee Tan vs. Paul Sycip and Merritto Lim, G.R. No. 153468, August 17, 2006)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
[email-subscribers-form id=”4″]