SEC En Banc Case No. 03-17-424 FAIRWAYS & BLUEWATER RESORT GOLF & COUNTRY CLUB, INC., Appellant, -versus- CORPORATE GOVERNANCE AND FINANCE DEPARTMENT, Appellee.

PICC Secretariat Building, PICC Complex, Pasay City Securities and Exchange Commission Republic of the Philippines Department of Finance

FAIRWAYS RESORT GOLF CLUB, INC., & ANDCOUNTRY BLUEWATER

Appellant,

-- versus - SEC En Banc Case No.03-17-424

CORPORATE GOVERNANCE AND FINANCE DEPARTMENT, Appellee.

M

DECISION

articles of incorporation as being contrary to the Corporation Code, specifically as to voting rights in a stock corporation. by Appellant FAIRWAYS & BLUEWATER RESORT GOLF AND the Letter-Orders of the Commission's CORPORATE GOVERNANCE December 2016, where the CGFD disregarded a provision in FAIRWAYS COUNTRY CLUB, INC. (FAIRWAYS), praying that the En Banc reverse AND FINANCE DEPARTMENT (CGFD) dated 1 August 2016 and 19 This resolves the Memorandum on Appeal filed on 23 March 2017

should be regulated as a stock corporation or as a non-stock corporation. At the heart of the controversy is whether a golf/country club

RELEVANT FACTS

Commission1 as a "non-profit stock corporation," viz. On 26 March 1996, FAIRWAYS was registered with the

ARTICLES OF INCORPORATION OF FAIRWAYS&BLUEWATER RESORT GOLF AND COUNTRY CLUB, INC.

1 SEC Reg. No. AS096-003418.

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KNOW ALL MEN BY THESE PRESENTS:

whom are residents of the Philippines, have this day voluntarily associated ourselves together for the purpose of forming a non-profit stock corporation under the laws of the Republic of the Philippines (Emphasis supplied) THAT WE, who are of legal age, and a majority of

The primary purpose of FAIRWAYS is:

maintenance of a vacation resort, golf course, and lodging facilities. To promote the social, recreational and athletic activities on a non-profit basis among its members, the main objective of which will be the construction and

for capital stock divided into shares, viz. The Articles of Incorporation of FAIRWAYS specifically provide

THOUSAND NINE HUNDRED TWENTY (25,920) no par SEVENTH - That the total authorized capital stock of the Corporation shall consist of TWENTY-FIVE value common shares, divided into:

Founders' Shares Class "A-1" Common Shares 232 Class "A-3" Common Shares 268; *including Five Class "A-2" Common Shares 429

Class "B-3" Common Shares 286; Class "B-1" Common Shares 547 Class "B-2" Common Shares 596

Class "C-1" Common Shares 1302; Class "C-3" Common Shares 384; Class "C-2" Common Shares 956;

Class "D" Common Shares 20.920

(Emphasis supplied)

specifically provide that no dividends shall be distributed to its members, viz. However, the Articles of Incorporation of FAIRWAYS also

That the ownership of the foregoing shares of stock of the Club is subject to the following restrictive conditions:

XXX XXX XXX

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member. Hence, no dividend shall at any time be declared and/or paid. Members shall be entitled only to a pro-rata share of the assets of the Corporation at the time of its dissolution or liquidation. (Emphasis 4. xxx No profit shall inure to the benefit of any

supplied).

Originally, the Articles of Incorporation contained a provision

Shares "for a period of five (5) years from and after the formal turnover of the project by the developer to [FAIRWAYS],"viz. restricting the voting rights to the holders of the five (5) Founders

1. Except for the Five (5) Founders' Shares, voting rights vote and be voted for in the election of directors for from and after the formal turnover of the project by the developer to the Corporation. xxx (Emphasis supplied) of all the other classes of the shares are suspended. The Founders' Shares shall have the exclusive right to a period of five (5) years for a period of five (5 years

As amended on 31 May 2013, the Articles of Incorporation contains a provision restricting the voting rights to the holders of the five (5) Founders' Shares "for a period of five (5) years after the date of approval of the [Commission] of this Amended Articles of Incorporation," viz.

by the Securities and Exchange Commission of this Amended Articles of Incorporation. xxx (Emphasis Founders' Shares shall have the exclusive right to 7. Except for the Five (5) Founders' Shares, voting rights vote and be voted for in the election of directors for a period of five (5) years from the date of approval of all the other classes of the shares are suspended. The

supplied)

On 15 June 2016, FAIRWAYS filed with the CGFD, as the

Statement (PIS) for the 2016 Annual Meeting of Members Entitled to department in charge of golf/country clubs, its Preliminary Information Vote.

On 17 June 2016, the CGFD sent a letter stating that FAIRWAYS PIS was not fully compliant with the Implementing Rules and

FAIRWAYS' Amended Articles of Incorporation, granting exclusive Regulations of the Securities Regulation Code. The provision in voting rights of Founders' Shares "for a period of five (5) years from the date of approval by the Securities and Exchange Commission of this Amended Articles of Incorporation,"was cited as a violation of Section

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7 of the Corporation Code,2 i.e. the period is beyond 5 years from incorporation,3 viz.

Section 7. Founders' shares. -- Founders' shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange supplied Commission.(Emphasis

Maintaining that the Founders' Shares no longer have exclusive voting rights, the CGFD directed FAIRWAYS to revise its Information Statement to indicate that all outstanding shares are entitled to vote. Notices of the Annual Meeting would then be sent to all the shareholders listed by FAIRWAYS.

On 28 June 2016, FAIRWAYS filed with the CGFD its Definitive

Information Statement (DIS) for the 2016 Annual Meeting of Members

Entitled to Vote, without complying with the CGFD's directive. It argued that the Commission duly-approved the 2013 amendments and thus the reckoning point of the 5 years is the approval of the amended, and not the original, articles of incorporation.

The CGFD informed FAIRWAYS that it would not issue clearance

unless FAIRWAYS complies.

On 13 July 2016, FAIRWAYS re-submitted its DIS, while

reiterating its reasons for not complying with the CGFD's directive. It

maintained that it has capital stock but does not distribute dividends. thus it should be treated as a non-stock corporation. The distinction is

relevant because the Corporation Code has a separate, more liberal

2 Reenacted as Section 7 of the Revised Corporation Code, viz. SEC. 7. Founders' Shares. - Founders' shares may be given certain rights and privileges not enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years from the date of incorporation. Provided, That such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the Anti-Dummy Law, Republic Act No. 7042 otherwise known as the Foreign Investments Act of 1991, and other pertinent laws. 3 Even prior to the 2013 Amended Articles of Incorporation, the exclusive voting rights of the Founders' Shares were_extended beyond_5 years from_its incorporation by the provision in the original Articles of Incorporation granting exclusive rights "for a period of five (5) years from and after the formal turnover of the project by the developer to [FAIRWAYS].

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Section 89,4 viz. provision for restriction of voting rights in a non-stock corporation

of any class or classes to vote may be limited, of class, shall be entitled to vote. (Emphasis supplied) broadened or denied to the extent specified in the Section 89. Right to Vote. -- The right of the members articles of incorporation or the by-laws. Unless so limited, broadened or defined, each member, regardless

FAIRWAYS is a stock corporation. (See citation below) On 1 August 2016, the CGFD sent a letter,essentially stating that

reconsideration. On 25 November 2016, FAIRWAYS filed a request for

reconsideration of FAIRWAYS On 19 December 2016, the CGFD denied the request for

FAIRWAYS as a stock corporation; and (2) the CGFD committed an error provision in its articles of incorporation which grants exclusive voting rights to the Founders' Shares, beyond 5 years from incorporation, of law when it applied Section 7 of the Corporation Code to FAIRWAYS, instead of Section 89. Appeal, praying that the En Banc reverse the CGFD and validate the because: (1) the CGFD committed an error of law when it considered On 23 March 2017, FAIRWAYS filed its Memorandum on

Internal Revenue v. Club Filipino, G.R. No. L-12719, 31 May 1962 Paranaque,G.R. No.191109, 18 July 2012 (City of Paranaque case) (Club Filipino case) and Republic of the Philippines v. City of FAIRWAYS cited the Supreme Court cases of Collector of

entity must not just have capital stock, but must also distribute as legal basis that, in order to be considered a stock corporation, an dividends.

Shares is valid because Section 89 of the Corporation Code allows a non-stock, non-profit corporation to limit, broaden, or deny voting rights of its members. Moreover, FAIRWAYS argued that the provision on Founders

Memorandum, citing verbatim its arguments in its Letter dated 1 August 2016, viz. On 6 April 2017, the CGFD filed its Comment on the Appeal

limited, broadened, or denied, each member, regardless of class, shall be entitled to one vote. 4 Reenacted as Paragraph 1 of Section 88 of the Revised Corporation Code, viz. SEC. 88. Right to Vote. broadened, or denied to the extent specified in the articles of incorporation or the bylaws. Unless so -- The right of the members of any class or classes to vote may be limited,

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First, its AAOI readily shows that it is a stock corporation, among others:

XXX XXX XX

b. The Seventh Article provides an no par value common shares xxx corporation consisting of Twenty-Five Thousand Nine Hundred Twenty (25,920) authorized capital stock of the

XXX XXX XXX

Second, despite the fact that its AAOI states that it is a distribute dividends xxx it remains to be a stock non-profit stock corporation, and as such does not corporation.xxx

XXXXXXXXX

which is supported by a Certificate of Incorporation Indeed, when the Club was formed as a corporation in 1996, it organized itself as a stock corporation and was issued by the SEC. registered as such pursuant to the Corporation Code,

Third, after being registered as a stock corporation for representation to the public, especially to its stockholders, all lead to the fact that it is a stock corporation. xxx more than twenty (20) years, the Club cannot just lightly declare that it is a non-stock corporation when the records on file with the Commission, and its

The CGFD argued Section 7 of the Corporation Code, applicable to all stock corporations including FAIRWAYS,mandates that the exclusive

from incorporation, viz. voting right granted to Founders' Shares can only extend up to 5 years

There should be no issue as to which provision is

Section 7 of the Corporation Code. provision is applicable in the instant case, since being a stock corporation, appellant is clearly governed by

dated 1 August 2016,"xxx the exclusive right of the holders of the Founders' Shares ended on 26 March 2001,or 5 years after the SEC approved its registration as a stock corporation."5 As clearly pointed out by the Department in its Letter

5 Page 14 of CGFD's Comment.

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DISCUSSION

was self-described and incorporated as a "stock non-profit" may be provisions of Section 89 will apply considered as a non-stock corporation. If so, the more liberal The only genuine issue here is whether or not FAIRWAYS, which

either stock or non-stock, and non-stock corporations are those excluded from the definition of a stock corporation in Section 3, viz. The Corporation Code expressly provides that corporations are

TITLE I -GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATIONS

XXX XXX XXX

allotments of the surplus _profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations. (Emphasis supplied) formed or organized under this Code may be stock or non-stock corporations. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or Section 3. Classes of corporations. - Corporations

The Corporation Code further defines a non-stock corporation in Section 877 as one where no income is distributed as dividends to its members, viz.

TITLE XI - NON-STOCK CORPORATIONS

Section 87.Definition. -For the purposes of this Code a non-stock corporation is one where no part of its income is distributable as dividends to its members. Code on dissolution: Provided, That any profit which a trustees,or officers,subject to the provisions of this

non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for

or nonstock corporations. Stock corporations are those which have capital stock divided into shares 7 Reenacted as Section 86 of the Revised Corporation Code, viz. to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or Reenacted as Section 3 of the Revised Corporation Code,viz. SEC. 86. Definition. - For purposes of this Code and subject to its provisions on dissolution, a trustees, or officers: Provided, That any profit which a non-stock corporation may obtain incidental purposes for which the corporation was organized, subject to the provisions of this Title. The provisions governing stock corporations, when pertinent, shall be applicable to non-stock corporations, except as may be covered by specific provisions of this Title. SEC. 3. Classes of Corporations. - Corporations formed or organized under this Code may be stock and are authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held. All other corporations are nonstock corporations. nonstock corporation is one where no part of its income is distributable as dividends to its members

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which the corporation was organized, subject to the provisions of this Title.

The provisions governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except as may be covered by specific provisions of this Title. (Emphasis supplied)

UNLESS A CORPORATION CAN BE CONSIDERED A STOCK,IT IS A

NON-STOCK

non-stock corporation is to first eliminate the possibility that it is a stock corporation. Prevailing jurisprudence suggests that the key to identifying a

In the 1962 Club Filipino case, the Supreme Court held that:

be complied with, to wit: (1) a capital stock divided into of such shares, dividends or allotments of the surplus profits on the basis of the shares held. In the case at bar. nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, contemplation of the corporation law. (Emphasis supplied) [Flor a stock corporation to exist, two requisites must shares and (2) an authority to distribute to the holders therefore, be considered a stock corporation, within the

In the 2012 City of Paranaque case, the Supreme Court held that:

stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their income to said members (Emphasis supplied) Two requisites must concur before one may be authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a classified as a stock corporation namely: (1) that it has capital stock divided into shares: and (2] that it is

A NON-STOCK CANNOT HAVE "PROFITABLE BUSINESS" AS ITS

PURPOSE

stock corporation must be organized for a specific "eleemosynary purpose,9 viz. The Corporation Code also mandates in Section 88* that a non-

Reenacted as Section 87 of the Revised Corporation Code, viz.

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Sec. 88. Purposes. - Non-stock corporations may be formed or organized for charitable, religious, educational,professional, literary, scientific, social, civic service, or similar cultural, fraternal,

classes of non-stock corporations. (Emphasis supplied) special provisions of this Title governing particular purposes,like trade, industry, agricultural and like chambers,or any combination thereof, subject to the

inconsistent with the character of a non-stock corporation, viz. The articles of incorporation must not include any purpose

Sec. 14. Contents of the articles of incorporation. - All containing substantially the following matters, except as otherwise prescribed by this Code or by special law: incorporation in any of the official languages duly signed and acknowledged by all of the incorporators, corporations organized under this code shall file with the Securities and Exchange Commission articles of

XXX XXX XXX

and which is/are the secondary purpose or purposes: include a purpose which would change or contradict its nature as such[.] (Emphasis supplied) 2. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation incorporation shall state which is the primary purpose Provided, That a non-stock corporation may not has more than one stated purpose, the articles of

The meaning of "a purpose which would change or contradict its nature as such" in Section 14(2) was clarified as "profitable business"in

Feliciano, viz. SEC Opinion dated 11 September 1995 addressed to Lawrence D.

it is necessary to carry out the purpose(s) for which the rule, are not empowered to venture on profitable object of making income or profits directly or indirectly. It may be allowed to engage in business activities only if business. A corporation organized as a non-profit concern is not permitted to engage in business with the [I]t is clear that non-stock corporations, as a general

SEC. 87. Purposes. - Nonstock corporations may be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar 9 Cesar L. Villanueva and Teresa Villanueva-Tiansay, Philippine Corporate Law (2018) at 760,viz. "By definition, therefore, the essence of a non-stock non-profit corporation is not the non-existence of shares of stock to cover its capital, but that: (a) its primary purpose should be eleemosynary in nature; and (b) there is a prohibition in purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes of non-stock corporations. its articles of incorporation and by-laws that no part of the income or any form of dividend is distributable to the members, trustees and officers of the corporation, even though the corporation may incidentally earn profits from its operations." (Emphasis supplied)

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corporate purposes. (Emphasis supplied) any profit that may be derived from such business activities are not distributable to the directors. officers or members, but are used for the furtherance of corporation is organized, but unlike stock corporations.

Exporters Association of the Philippines, Inc. clarifies that: Further, SEC Opinion dated 18 June 1990 addressed to Coffee

undertaken by a non-stock corporation. (Emphasis supplied) to the benefit of any of the members, if the business activity would run counter to its very nature as a non- profit association, such business activity cannot be incorporation that any profit which may be derived from the_proposed business venture shall not redound Even if there is a manifestation in the articles of

stock corporation must be not-for-profit. Hence the term, "non-stock non-profit. Since "profitable business" is contrary to its very character, a non-

SOME GOLF/COUNTRY CLUBS HAVE BEEN REGISTERED AS"STOCK NON-PROFIT"BECAUSE THEY ISSUE PROPRIETARY MEMBERSHIP

CERTIFICATES

The Commission does not dictate whether a golf/country club

The economic reality. however. is that membership in golf/country must register itself as a stock corporation or a non-stock corporation

representing a proprietary interest in the club facilities.10 The moment clubs are often coupled with the issuance of a share of stock

that a corporation, even a non-stock non-profit, offers for sale proprietary membership certificates to the public for the use of its

Commission.11 facilities, it must comply with the registration requirements of the

clubs in SEC Opinion dated 28 April 1997 addressed to Patrick T. The Commission recognized the unique nature of golf/country

Lugue, viz.

able to avail of the facilities of the club, the purchase of the certificate represents a form of investment in 11 See Lucila M. Decasa, Handbook on Private Corporations (2009) at 565, citing SEC Opinion dated 27 June the membership involves property rights (like membership in a club) where the purchase of a share is a [condition] sine qua non." See also Villanueva, supra at 763, viz. "Proprietary Membership -- There are many 1991 addressed to Federacion of Small and Medium Scale Enterprises, Inc. 10 See Timoteo B. Aquino, Philippine Corporate Law Compendium (2014) at 580, viz. "There are instances when a share of stock representing a proprietary interest in the facilities of the club. In most cases, apart from being anticipation of the value of the share in the future and its disposition at a profit. nsfan especially in leisure clubs, s nac a golf club,that membe nip is granted coupled with the issuance o

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color of a "non-stock corporation" being a non-profit corporation, it has the character more of a stock Code governing stock corporations, when pertinent, may be applied. (Emphasis supplied) terms of proprietary shares, ownership of which is evidenced by certificates of proprietary share or membership, and the corresponding market value of which can be easily determined or fixed. While it has the individual pecuniary interest in the club represented in corporation. Hence the provisions of the Corporation Unlike an ordinary corporation, the members of a "proprietary membership club corporation" have

were seen as inconsistent with the "non-profit" purpose of a non-stock corporation. Recall that a non-stock corporation may not have a purpose inconsistent with its character as such. considered an investment which may be bought and sold at a profit, Shares in a proprietary membership club, because they may be

used in this Opinion, did not create a third class of corporation. In other incorporated as either stock or non-stock. describing the structure of a corporation which has to necessarily be words, "proprietary membership club" should be read as merely However,the term"proprietary membership club corporation."as

3.1(f) of the Securities Regulation Code,12 which expressly includes offered by a golf/country club to the public, consistent with Section "proprietary membership certificates in the definition of "securities." As Also, the term "proprietary membership"describes the securities

already pointed-out, while a "stock corporation"issues stock, it does not

Thus. the fact that_a non-stock issues proprietary membership certificates does not turn it into a "proprietary membership corporation." necessarily follow that a "non-stock corporation" does not issue stock.

CONCLUSION: FAIRWAYS IS A STOCK CORPORATION

the incorporation of golf/country clubs as "stock, non-profit' corporations. the many years that followed its issuance, the Commission has allowed The unintended consequence of this SEC Opinion is that during

legal principle and common sense. As one author succinctly put it: "A However, the perpetuation of such stock, non-profits goes against

written or electronic in character. It includes: xxx (f) Proprietary or nonproprietary membership certificates in corporations; xxx (Emphasis supplied) 12 Section 3. Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether

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corporation is a for-profit corporation."13 non-stock corporation is a non-profit corporation, while a stock

and was incorporated as a "stock non-profit" corporation, it should be considered a "non-stock" and thus be entitled to the more liberal In this case,FAIRWAYS argues that,even though it described itself

provisions of Section 89.

corporation. On the contrary, we rule that FAIRWAYS is a stock

a non-stock. Here, there is ample support that FAIRWAYS, by its own admission and actuations is a stock corporation. We stated that unless a corporation can be considered a stock, it is

Articles of Incorporation. First, FAIRWAYS identified itself as a stock corporation in its

membership" but plain and simple common shares, defined by the Commission thus: Second, FAIRWAYS issuesstock. Not just"proprietary

any preference or advantage whatsoever.14 7.5 Common shares refer to the basic class of stock whose owners are entitled to pro-rata share in the profits of the corporation and its assets upon liquidation, and in the management of its affairs without

Features of common shares may be altered in the articles of incorporation, such as adding a right of first refusal, but the authority to declare dividends is inherent in a common share. Of course, the

be declared and/or paid." corporation may choose to stipulate that "no dividends will at any time

the very existence of common shares, although it has chosen to withhold or waive the declaration of dividends. In other words, FAIRWAYS is authorized to distribute profit by.

Section 3 of the Corporation Code provides:

corporations. such shares dividends or allotments of the surplus profits on the basis of the shares held are stock Corporations which have capital stock divided into shares and are authorized to distribute to the holders of

13 De Leon and De Leon, Jr., The Corporation Code of the Philippines Annotated (2013) at 664. 14 Primer on the Corporation Code of the Philippines, published by the Securities and Exchange Commission (2010) at 5.

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conclusive factor in determining whether it should be regarded as a non-stock. We assert that the determining factor is Third, FAIRWAYS' choice not to declare dividends is not a "non-profit" purpose.

dividends was not held conclusive as to "non-profit" purpose, viz. The Supreme Court ruled in USEAEA v. USEA,15 the absence of

there is no distribution of earnings or profits by way of dividends or otherwise and the members do not receive any interest in the net funds and assets resulting from liquidation. Specifically, private respondent USEA asserts that its non-profit character is discernible from the fact that

We find the foregoing contention of private respondent USEA untenable.

receive benefits in the form of commissary A close examination of the contribution of respondent dividends in the form of cash, nevertheless, they do privileges xxx (Emphasis supplied) association will show that while it is true that the members of the association do not receive

In this case, the shareholders of FAIRWAYS receive not just (1) access to the club facilities, but also (2) an ownership interest in the club's assets.

Fourth, FAIRWAYS' shares are subject to market forces, they appreciate and depreciate in value. They are an investment. Such a 'profitable business" purpose cannot co-exist with non-profit purposes.

While the law does exempt "incidental" business activities, the investment in golf/country club shares are not incidental because it is

monetary value and property rights attached to a golf/country club the very means by which membership is acquired. In other words, the share are fundamental to the existence of the corporation.

that have increased in value translates to a claim over such profits via Moreover, the accumulated profit from golf/country club shares

the common shares as discussed above. The shareholders of a golf/country can look forward, in most cases, to a return that far exceeds their initial investment.

assets of the corporation, viz. Fifth, FAIRWAYS' shareholders have an inchoate right to the

15 G.R. No. L-36896, 31 August 1981.

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the Club is subject to the following restrictive That the ownership of the foregoing shares of stock of conditions:

XXXXXX XXX

the time of its dissolution or liquidation.16 (Emphasis declared and/or paid. Members shall be entitled only to a pro-rata share of the assets of the Corporation at member. Hence, no dividend shall at any time be supplied). 4. xxx No profit shall inure to the benefit of any

ownership of the club's assets. Thus, FAIRWAYS' members can look forward to acquiring

evidence of an inchoate right to the assets of the non-stock, non-profit is not provided for. members' share in the assets of a non-stock, non-profit are determined either by the Articles of Incorporation (Section 94) or a Distribution Plan (Section 95). It should come as no surprise that common stock as "Distribution of Assets in Non-Stock Corporations," provide that the Sections 94 and 95 of the Corporation Code,17 pertaining to the

"stock, non-profit" and is not on all fours with this case. Sixth, the Supreme Court's ruling in Club Filipino does not cover a

FAIRWAYS' very structure is a circumvention of law---it is a stock corporation with investment value claiming the more flexible voting rights of a non-stock corporation, the best of both worlds.

The easiest way to spot a counterfeit non-stock, non-profit is to compare it with a legitimate non-stock, non-profit. When the Supreme Court ruled that Club Filipino is a non-stock, non-profit, they were dealing with a corporation that declared itself as non-stock, non-profit. Viz.

ARTICLES OF INCORPORATION OF THE CLUB FILIPINO,INC.DE CEBU

KNOW ALL MEN BY THESE PRESENTS:

That we the majority of whom are residents of the Philippines. (Emphasis supplied) Philippines have this day voluntarilyassociated ourselves together for the purpose of forming a non- stock and non-profit corporation under the laws of the

17 Reenacted as Sections 93 and 94 of the Revised Corporation Code, respectively. 16 Articles of Incorporation of FAIRWAYS.

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shares anywhere in its articles of incorporation. It does not issue common shares. Moreover, Club Filipino does not have a provision for issuance of

CONCLUSION

avoid further confusion. FAIRWAYS is a stock corporation. It needs to amend its articles of incorporation to reflect that it is a plain and simple stock corporation to There is no such thing as a "stock, non-profit" corporation

is hereby DENIED.The Letter-Orders of the CGFD dated 1 August 2016 and 19 December 2016 are hereby AFFIRMED. WHEREFORE, premises considered, the Memorandum on Appeal

indicate that it is a stock corporation, within a period not exceeding one (1) year from receipt of this Decision. FAIRWAYS is directed to amend its Articles of Incorporation to

and Monitoring Department for information and appropriate action. Let a copy of this Decision be furnished the Company Registration

SO ORDERED.

Pasay City, Philippines; 23 July 2019

EM B.AQUINO

Cha fperson

cKo ANTONIETA F.IBE Commissioner EPHYRO LUIS B.AMATONG Commissioner

JAVEY(PAUL D. FRANCISCO Commissioner CKELVINLESTERK.LEE Commissioner