SEC En Banc Case No. 02-10-195 SHERWOOD HILLS GOLF CLUB, INC., Petioner, -versus- ATTY. JUSTINA F. CALLANGAN, in her capacity as the Director of the CORPORATION FINANCE DEPARTMENT OF THE SECURITIES AND EXCHANGE COMMISSION, Respondent.

Republic of the Philippines Department of Finance

PICC Secretariat Building, PICC Complex, Pasay City Securities and Exchange Commission

INC. SHERWOOD HILLS GOLF CLUB, Petitioner,

- versus - SEC En Banc Case No. 02-10-195

in her capacity as the Director of SECURITIES ATTY. JUSTINA F. CALLANGAN, the DEPARTMENT CORPORATION AND OF FINANCE EXCHANGE THE

COMMISSION,

Respondent. X

DECISION

HILLS), praying that the En Banc reverse the Letter-Order of the Commission's CORPORATION FINANCE DEPARTMENT (CFD) dated 2010 by Petitioner SHERWOOD HILLS GOLF CLUB,INC. (SHERWOOD This resolves the Verified Petition for Review filed on 15 February

its articles of incorporation for being contrary to the Corporation Code, specifically as to voting rights in a stock corporation. 20 January 2010, where the CFD directed SHERW00D HILLS to amend

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

On 13 March 1996, SHERWOOD HILLS was registered with the Commission1 as a "non-profit stock corporation," viz.

SHERWOOD HILLS GOLF CLUB, INC. ARTICLES OF INCORPORATION OF

1 SEC Reg. No. AS096-002859.

SEC EB Case No. 02-10-195 SHERWOOD HILLS v.CFD Page 2 of 15

KNOW ALL MEN BY THESE PRESENTS:

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

The primary purpose of SHERWOOD HILLS is:

recreational facilities. pools, and other indoor and outdoor related sports and activities on a non-profit basis among its members, the main objective of which will be the construction and maintenance of a golf course, tennis courts, swimming To promote the social, recreational and athletic

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

Common Shares, inclusive of NINE (9) Founders Common shares. (Emphasis supplied) into 1,156 Class "A" Common Shares, 500 Class "B" Shares, 300 Class "C" Common shares, and 544 Class "D" SEVENTH - That the total authorized capital stock of the Corporation shall consist of Two Thousand Five Hundred (2,500) no par value common shares, divided

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

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

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

formal turnover of the project from the developer to SHERWOOD HILLS," viz. provision restricting the voting rights to the holders of the nine (9) Founders' Shares "for a period of five (5) years from and after the Significantly, the Articles of Incorporation contains

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to the Corporation. (Emphasis supplied) Founders' Shares may vote at any meeting of the members and be elected to the Board of Directors of the Corporation for a period of five (5) years from and after the formal turnover of the project by the developer Class "B" Common Share. In addition, only holders of The Founders' Shares shall have all the features of a

Statement (PIS) for the 2009 Annual Meeting of Members Entitled to department in charge of golf/country clubs, its Preliminary Information Vote. On 21 July 2009, SHERWOOD HILLS filed with the CFD, as the

HILLS' PIS was not fully compliant with the Implementing Rules and Regulations of the Securities Regulation Code, along with the CFD's comments. On 23 July 2009, the CFD sent a letter stating that SHERW00D

amend its articles of incorporation, specifically the provision on from and after the formal turnover of the project from the developer to exclusive voting rights of Founders' Shares "for a period of five (5) years In the same letter, the CFD directed SHERWOOD HILLS to

SHERWOOD HILLS," as this provision violates Section 7 of the Corporation Code,2 viz.

Section 7. Founders' shares. - Founders' shares

Securities and Exchange Commission.(Emphasis 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 owners of other stocks, provided that where the exclusive right to vote and be voted for in the classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the

supplied)

On 29 July 2009, SHERWOOD HILLS filed with the CFD its Definitive Information Statement (DIS) for the 2009 Annual Meeting of Members Entitled to Vote, which incorporated most of the CFD's comments. However, SHERWOOD HILLS informed the CFD that it would not amend the provision on Founders' Shares because Section 89 of the

by the owners of other stocks. Where the exclusive right to vote and be voted for in the election of SEC. 7. Founders' Shares. 2 Reen ed as Section 7 of the Revised Corporation Code, viz. -- Founders' shares may be given certain rights and privileges not enjoyed

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.

SEC EB Case No. 02-10-195 SHERWOOD HILLS v. CFD Page 4 of 15

broaden, or deny voting rights of its members. Corporation Code allows a non-stock, non-profit corporation to limit,

Columbus Fraternal Association of the Philippines, Inc. (KCFAPI), viz. 7, citing SEC Opinion dated 6 July 2001 addressed to the Knights of SHERWOOD HILLS argued that Section 89 applies and not Section

Iaws and there is a specific provision under Title XI of the Code governing non-stock corporations. of the Founder Member as found in KCFAPI's by- founders' shares have no bearing with the features corporations. In the instant query, the surrounding circumstances indicate that the cited definitions of Furthermore, it should be stressed that Section 7 of the Code shall be applicable to non-stock corporations only when the same may be pertinent and in the absence of any specific provisions governing non-stock

the articles of incorporation or by-laws. (Emphasis supplied) laws. Instead, Section 89 of the Code in which the rights limited, broadened or denied to the extent specified in It can therefore be concluded that Sec. 7 of the of members of any class or classes to vote may be Corporation Code finds no application to the Founder Members' rights under Sec. 2 of the association's by-

SEC Opinion dated 28 April 1997 addressed to Calatagan Golf Club, cannot be considered a non-stock, non-profit corporation. The CFD cited Inc., viz. On 14 September 2009, the CFD wrote that SHERWOOD HILLS

of corporation is called "proprietary membership corporation" being non-profit, it has the character more of a "stock corporation." (Emphasis supplied) corporation." While it has the color of a "non-stock stockholders thereof have individual pecuniary interest in the Club represented in terms of evidenced by certificates of proprietary share or membership, and the corresponding market value of which can be easily determined or fixed. This kind While the Club is a "non-profit" corporation, it has the character of a "stock corporation." Unlike an ordinary non-profit, non-stock corporation, the member "proprietary shares," ownership of which is

which grant unique rights to its nine (9) incorporators--falls precisely not applicable because, in that case, the so-called "Founder Member" did Corporation Code, whereas SHERWOOD HILLS' Founders' Shares- not have the features of the Founders' Shares under Section 7 of the The CFD further argued that the SEC Opinion issued to KCFAPI is

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provision, Section 7, should apply and not Section 89. within the statutory definition. The CFD argued that the more specific

relevant because the Corporation Code has a separate, more liberal provision for restriction of voting rights in a non-stock corporation, Section 89,3 viz. thus it should be treated as a non-stock corporation. The distinction is reiterated that it would not amend its articles of incorporation. It maintained that it has capital stock but does not distribute dividends. On 2 December 2009, SHERW00D HILLS sent a letter where it

of class, shall be entitled to one (1) vote. (Emphasis of any class or classes to vote may be limited, articles of incorporation or the by-laws. Unless so limited, broadened or defined, each member, regardless supplied) Section 89. Right to Vote. -- The right of the members broadened or denied to the extent specified in the

Vi On 20 January 2010, the CFD issued the assailed Letter-Order,

years from incorporation, is not applicable to it. voting privileges of Founders' Shareholders to five (5) that Section 7 of the Corporation Code, which limits This refers to your letter dated December 2, 2009 filed on behalf of Sherwood Hills Golf Club, Inc. reiterating the Club's position that it is a non-stock corporation and

the color of a 'non-stock corporation' being non- profit, it has the character more of a 'stock corporation. corporation. As stated in the earlier Opinion of the Commission, which was also cited in our September 'proprietary membership corporation.' While it has Five Hundred (2,500) no par value common shares, Shares, 300 Class 'C' Common Shares, and 544 Class 'D' Common Shares." Per its Articles of Incorporation, the Club was formed and registered as a stock, non-profit 14, 2009 letter, this kind of corporation is called a find no cogent reason to disturb our earlier Incorporation states that "[t]he total authorized capital stock of the Corporation shall consist of Two Thousand divided into 1,156 Class 'A' Common Shares, 500 Class 'B' Common Shares, inclusive of Nine (9) Founders' position. Article Seventh of the Club's Articles of After careful consideration of your arguments, we

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

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requirement of Section 7 of the Corporation Code. (Emphasis supplied) Incorporation particularly on the exclusive voting rights of Founders' Shares in order to comply with the The Club is henceforth directed to amend its Articles of

considered SHERWOOD HILLS as a stock corporation; and (2) the CFD committed an error of law when it applied Section 7 of the Corporation Code to SHERWOOD HILLS, instead of Section 89. Verified Petition for Review, praying that the En Banc reverse the CFD and validate the provision in its articles of incorporation which grants exclusive voting rights to the Founders' Shares, beyond 5 years from incorporation, because: (1) the CFD committed an error of law when it On 15 February 2010, SHERWOOD HILLS filed the instant

Y. Court of Appeals, G.R. No. 169836, 31 July 2007 (Philippine corporation, an entity must not just have capital stock, but must also distribute dividends. Fisheries case), as legal basis that, in order to be considered a stock Internal Revenue y. Club Filipino, G.R. No. L-12719, 31 May 1962 (Club Filipino case) and Philippine Fisheries Development Authority SHERWOOD HILLS cited the Supreme Court cases of Collector of

DISCUSSION

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

excluded from the definition of a stock corporation in Section 3,4 viz. either stock or non-stock, and non-stock corporations are those The Corporation Code expressly provides that corporations are

DEFINITIONS AND CLASSIFICATIONS TITLE I - GENERAL PROVISIONS

XXX XXXXXX

non-stock corporations. Corporations which have formed or organized under this Code may be stock or Section 3. Classes of corporations. - Corporations

Reenacted as Section 3 of the Revised Corporation Code, viz. 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. or nonstock corporations. Stock corporations are those which have capital stock divided into shares

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shares held are stock corporations. All other supplied) corporations are non-stock corporations. (Emphasis allotments of the surplus profits on the basis of the capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or non-stock corporations. Corporations which have

Section 875 as one where no income is distributed as dividends to its members, viz. The Corporation Code further defines a non-stock corporation in

TITLE XI - NON-STOCK CORPORATIONS

which the corporation was organized, subject to the provisions of this Title. operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for non-stock corporation may obtain as an incident to its income is distributable as dividends to its members. trustees, or officers, subject to the provisions of this Code on dissolution: Provided, that any profit which a a non-stock corporation is one where no part of its Section 87. Definition. - For the purposes of this Code,

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

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:

profits on the basis of the shares held. In the case at bar, of such shares. dividends or allotments of the surplus be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders [F]or a stock corporation to exist, two requisites must

The provisions governing stock corporations, when pertinent, shall be applicable to non-stock 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 non-stock 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. corporations, except as may be covered by specific provisions of this Title. 5 Reenacted as Section 86 of the Revised Corporation Code, viz.

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be found an authority for the distribution of its contemplation of the corporation law. (Emphasis dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the supplied) nowhere in its articles of incorporation or by-laws could

In the 2007 Philippine Fisheries case, the Supreme Court held that:

such shares dividends xxx. Section 3 of the Corporation Code defines a stock corporation as one whose capital stock is divided into shares and xxx authorized to distribute to the holders of

XXX XXX XXX

have members. (Emphasis supplied) xxx Section 87 of the Corporation Code defines a non is distributable as dividends to its members trustees or officers.A non-stock corporation must stock corporation as one where no part of its income

of Paranaque case) which reiterated the two requisites in Club Filipino, Philippines v. City of Paranaque, G.R. No. 191109, 18 July 2012 (City viz. In 2012, the Supreme Court decided the case of Republic of the

Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has surplus and profits to its stockholders. If only one capital stock divided into shares: and (2) that it is authorized to distribute dividends and allotments of

requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations any part of their income to said members (Emphasis they must have members and must not distribute supplied)

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

PURPOSE

stock corporation must be organized for a specific "eleemosynary purpose,7 viz. The Corporation Code also mandates in Section 88 that a non-

6 Reenacted as Section 87 of the Revised Corporation Code, viz. SEC. 87. Purposes. -- Nonstock corporations may be formed or organized for charitable, religious. purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar the special provisions of this Title governing particular classes of non-stock corporations 7 Cesar L. Villanueva and Teresa Villanueva-Tiansay, Philippine Corporate Law (2018) at 760, viz. "By

shares of stock to cover its capital, but that: (a) its primary purpose should be eleemosynary in definition, therefore, the essence of a non-stock non-profit corporation is not the non-existence of

SEC EB Case No. 02-10-195 SHERWOOD HILLS v. CFD Page 9 of 15

classes of non-stock corporations. (Emphasis supplied) special provisions of this Title governing particular formed or organized for charitable, religious, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers, or any combination thereof, subject to the educational, professional, Sec. 88. Purposes. - Non-stock corporations may be cultural,fraternal,

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

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, containing substantially the following matters, except as the Securities and Exchange Commission articles of Sec. 14. Contents of the articles of incorporation. - All corporations organized under this code shall file with

XXX XXX XXX

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

SEC Opinion dated 11 September 1995 addressed to Lawrence D. Feliciano, viz. nature as such" in Section 14(2) was clarified as "profitable business" in The meaning of "a purpose which would change or contradict its

it is necessary to carry out the purpose(s) for which the any profit that may be derived from such business or members, but are used for the furtherance of corporate purposes. (Emphasis supplied) concern is not permitted to engage in business with the It may be allowed to engage in business activities only if corporation is organized, but unlike stock corporations. activities are not distributable to the directors, officers. rule, are not empowered to venture on profitable business. A corporation organized as a non-profit object of making income or profits directly or indirectly. [I]t is clear that non-stock corporations, as a general

nature; and (b) there is a prohibition in 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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Exporters Association of the Philippines, Inc. clarifies that: Further, SEC 0pinion dated 18 June 1990 addressed to Coffee

undertaken by a non-stock corporation. (Emphasis supplied) 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 to the benefit of any of the members, if the business 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

proprietary membership certificates to the public for the use of its facilities, it must comply with the registration requirements of the that a corporation, even a non-stock non-profit, offers for sale must register itself as a stock corporation or a non-stock corporation. The economic reality. however. is that membership in golf/country representing a proprietary interest in the club facilities.8 The moment Commission.9 clubs are often coupled with the issuance of a share of stock. The Commission does not dictate whether a golf/country club

the nature of such corporations as [SHERWOOD HILLS]"10 is based on SEC Opinion dated 28 April 1997 addressed to Patrick T. Lugue, viz. The CFD's argument that "The Commission has long determined

terms of proprietary shares, ownership of which is individual pecuniary interest in the club represented in Unlike an ordinary corporation, the members of a "proprietary membership club corporation" have

See Timoteo B. Aquino, Philippine Corporate Law Compendium (2014) at 580, viz. "There are 27 June 1991 addressed to Federacion of Small and Medium Scale Enterprises, Inc. 10 Page 3 of Comment filed 30 March 2010. instances when the membership involves property rights (like membership in a club) where the Membership - There are many instances, especially in leisure clubs, such as a golf club, that membership is granted coupled with the issuance of a share of stock representing a proprietary interest in the facilities of the club. In most cases, apart from being able to avail of the facilities of the share in the future and its disposition at a profit." 9 See Lucila M. Decasa, Handbook on Private Corporations (2009) at 565, citing SEC Opinion dated purchase of a share is a [condition] sine qua non." See also Villanueva, supra at 763, viz. "Proprietary club, the purchase of the certificate represents a form of investment in anticipation of the value of the

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may be applied. (Emphasis supplied) corporation. Hence the provisions of the Corporation Code governing stock corporations, when pertinent, color of a "non-stock corporation" being a non-profit corporation, it has the character more of a stock membership, and the corresponding market value of which can be easily determined or fixed. While it has the evidenced by certificates of proprietary share or

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

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

Thus, the fact that a non-stock issues proprietary membership certificates does not turn it into a "proprietary membership corporation." offered by a golf/country club to the public, consistent with Section 3.1(f) of the Securities Regulation Code,11 which expressly includes already pointed-out, while a "stock corporation" issues stock, it does not necessarily follow that a "non-stock corporation" does not issue stock. "proprietary membership certificates in the definition of "securities." As Also, the term "proprietary membership" describes the securities

CONCLUSION: SHERWOOD HILLS IS A STOCK CORPORATION

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

legal principle and common sense. As one author succinctly put it: "A non-stock corporation is a non-profit corporation, while a stock corporation is a for-profit corporation."12 However, the perpetuation of such stock, non-profits goes against

corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate. nonproprietary membership certificates in corporations; xxx (Emphasis supplied) contract, instruments, whether written or electronic in character. It includes: xxx (f) Proprietary or 12 De Leon and De Leon, Jr., The Corporation Code of the Philippines Annotated (2013) at 664. 11 Section 3. Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a

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corporation, it should be considered a "non-stock" and thus be entitled to the more liberal provisions of Section 89. described itself and was incorporated as a "stock non-profit" In this case, SHERWOOD HILLS argues that, even though it

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

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

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

membership" but plain and simple common shares, defined by the Commission thus: Second, SHERWOOD HILLS issues stock. Not just "proprietary

any preference or advantage whatsoever.13 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 7.5 Common shares refer to the basic class of stock

be declared and/or paid." incorporation, such as adding a right of first refusal, but the authority to declare dividends is inherent in a common share. Of course, the corporation may choose to stipulate that "no dividends will at any time Features of common shares may be altered in the articles of

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

Section 3 of the Corporation Code provides:

Corporations which have capital stock divided into shares 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 are stock corporations.

conclusive factor in determining whether it should be regarded as a Third, SHERWOOD HILLS' choice not to declare dividends is not a

13 Primer on the Corporation Code of the Philippines, published by the Securities and Exchange Commission (2010) at 5.

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non-stock. We assert that the determining factor is "non-profit" purpose.

dividends was not held conclusive as to "non-profit" purpose, viz. The Supreme Court ruled in USEAEA v. USEA,14 the absence of

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

We find the foregoing contention of private respondent USEA untenable.

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

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

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

monetary value and property rights attached to a golf/country club share are fundamental to the existence of the corporation. investment in golf/country club shares are not incidental because it is the very means by which membership is acquired. In other words, the While the law does exempt "incidental" business activities, the

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

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

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

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

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XXX XXX XXX

the time of its dissolution or liquidation.15 (Emphasis a pro-rata share of the assets of the Corporation at supplied). member. Hence, no dividend shall at any time be declared and/or paid. Members shall be entitled only to 4. No profit shall inure to the benefit of any

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

not provided for. evidence of an inchoate right to the assets of the non-stock, non-profit is 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,16 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

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

dealing with a corporation that declared itself as non-stock, non-profit, 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 Viz. The easiest way to spot a counterfeit non-stock, non-profit is to

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

KNOW ALL MEN BY THESE PRESENTS:

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

16 Reenacted as Sections 93 and 94 of the Revised Corporation Code, respectively. 15 Articles of Incorporation of SHERWOOD HILLS.

SHERWOOD HILLS v.CFD SEC EB Case No. 02-10-195 Page 15 of 15

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

CONCLUSION

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

January 2010 is hereby AFFIRMED. Review is hereby DENIED. The Letter-Order of the then CFD dated 20 WHEREFORE, premises considered, the Verified Petition for

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

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.

EMILIOJ W Chairperson BAQUINO

Me aaadna ANTONIETAF. IBE Commissioner EPHYRO LUIS B. AMATONG Commissioner

JAVEY PAUL D. FRANCISCO Commissioner ELVIN LESTER K.LEE Commissioner