Conversion of Schools to Non-Profit Foundations

Conditions for shareholder approval and SEC filings

Section 1(a) requires stockholders, by a two-thirds vote in a stockholders’ meeting called for that purpose, to agree to convey their shares to the corporation, which is authorized to acquire the shares at a price fixed by them.
Section 1(a) grants dissenting stockholders who did not vote in favor the right provided in Section twenty-eight and one half of Act No. 1459, as amended.
Section 1(a) provides that a stockholder who did not vote in favor is deemed to have consented to be bound by the resolution unless the dissenting right under Section twenty-eight and one half of Act No. 1459, as amended is exercised.
Section 1(b) requires that the stockholders elect the board of trustees for the foundation upon conveyance of the shares.
Section 1(c) requires filing with the Securities and Exchange Commission (SEC) a certified copy of the stockholders’ resolution containing the matters above, certified by the governing board.
Section 1(d) requires amending the articles of incorporation and by-laws so they conform to the foundation status of the educational institution.

Effective timing of conversion and share restrictions

Section 1(d) provides that the amendments to the articles of incorporation and by-laws become effective upon the conveyance of all the shares of the stockholders to the corporation.
Section 1(d) requires that the fact of such conveyance and conversion be certified by the board of trustees of the foundation.
Section 1(d) requires the certification to be filed with the Securities and Exchange Commission (SEC).
Section 1 forbids the shares conveyed to the corporation from being re-issued.

Government financing assistance and loan eligibility

Section 2 authorizes and directs the Government Service Insurance System (GSIS) and the Social Security System (SSS) to grant loans to educational stock corporations desiring to convert into foundations.
Section 2 authorizes and directs the Development Bank of the Philippines (DBP) to guarantee loans that such corporations may obtain from other sources, whether domestic or foreign.
Section 2 conditions GSIS/SSS loan grants and DBP guarantees on compliance with the stockholder and document-conforming requirements in Section 1 (including the amendments to articles and by-laws).
Section 2(b) requires that the educational institution be of good standing from the standpoint of academic standards, plant and equipment, faculty, performance of graduates, and other capability-related aspects to give a high quality of education, as certified by the Secretary of Education.
Section 2(c) requires that loan proceeds be used exclusively to pay for the shares of stockholders conveyed to the corporation.
Section 2(d) requires transfer of corporate assets to the foundation and provides that such assets may be given as collateral for the loan.
Section 2(e) requires that the foundation assume the liabilities of the corporation.

Loan terms, duration, and interest

Section 3 requires the loan (to be given or guaranteed) to be of long duration ranging from ten to thirty years.
Section 3 requires the loan to be properly secured by the property of the school in accordance with the financing institution’s credit policy.
Section 3 requires the loan to earn interest at the rate of three per centum (3%) per annum.
Section 3 requires the loan to be subject to yearly amortizations, covering principal and interest, until the loan is paid in full.

Foundation governance and trustees composition

Section 4 vests management of the foundation in a board of trustees known as the “Board of Trustees of the Foundation.”
Section 4 requires the board to be composed of ten elective members with a term of five years, and to include the head of the highest student organization as an ex-officio member.
Section 4 requires the first ten elected members to hold office in a staggered manner, with two expiring every year, beginning with members who received the lowest number of votes, and continuing in order of ascending vote totals.
Section 4 provides that the board elects subsequent members for a full term, and fills vacancies for the unexpired term.
Section 4 requires elective board members to be composed of businessmen, financiers, and well-known educators.
Section 4 requires a representative of the government financial institution granting or guaranteeing the loan to sit with the board as an ex-officio member until the loan is fully paid.
Section 4 provides that trustees serve without compensation except for reasonable per diems for actual attendance and actual and necessary expenses incurred on authorized official business.
Section 4 makes unwarranted and excessive salaries, allowances or expenses authorized by the Board a ground for forfeiture of the privilege under Section 8.

Board powers and specific duties

Section 5 vests the board with additional powers and duties in governance, instruction quality, regulation-making, fundraising, staffing, academic administration, and fee-setting.
Section 5(a) requires the board to keep the standard of instruction at the highest level possible compatible with its finances.
Section 5(b) requires the board to issue rules and regulations for conduct of the foundation’s business, with emphasis on improving the standard of instruction.
Section 5(c) authorizes the board to receive and appropriate sums endowed by the Government for specified ends, and to receive in trust legacies, gifts, and donations of real and personal property, administering them for the foundation’s benefit according to donor direction or, if none, as the board determines in discretion.
Section 5(d) requires the board to appoint professors, instructors, lecturers, and other employees on recommendation of the President of the Foundation, to fix compensation, hours, service duties, and other conditions, and to remove them for cause only after investigation and hearing.
Section 5(e) empowers the board to prescribe courses of study, rules of discipline, and requirements for admission, graduation, and receiving a degree.
Section 5(f) empowers the board to fix tuition fees, matriculation fees, graduation fees, laboratory course fees, and all other fees, with amounts regulated by the Secretary of the Department of Education.
Section 5(g) requires the board to prescribe rules for its own government and enact ordinances and regulations for the foundation’s government consistent with law and aligned with foundation purposes in Section 5(a).

Perpetuity, dissolution consequences, and asset escheat

Section 6 provides that the foundation exists in perpetuity.
Section 6 provides that the foundation remains a private institution and not a state institution, regardless of full repayment of the loan.
Section 7 requires that if the foundation is dissolved or its corporate existence ceases for any reason, all its assets shall escheat to the State, subject to liabilities to third persons.

Tax exemptions for education-related use and conversion income

Section 8 exempts the foundation from payment of all taxes, import duties, assessments, and other charges imposed by the Government on all income derived from or property (real or personal) used exclusively for the foundation’s educational activities.
Section 9 exempts any income realized from conversion of the stockholders’ equity or interest in the school, college, or university from income tax, applying even if contrary provisions exist in the National Internal Revenue Code, as amended.

Repeals, inconsistency rule, and effectivity

Section 10 repeals or modifies acts, administrative rules and regulations, and executive orders, or parts thereof, that are inconsistent with the Act.
Section 11 provides that the Act takes effect upon approval.
The Act was approved on August 4, 1969.