SEC tightens rules on non-profit organizations

In line with efforts to curb fly-by-night foundations, the Securities and Exchange Commission (SEC) has tightened the registration requirements for non-stock, non-profit organizations.

In a circular issued yesterday, the SEC cited the need to ensure that donations are utilized according to the foundations’ purposes as stated in their articles of incorporation.

A foundation is defined by the SEC as a non-stock, non-profit corporation with funds established to maintain and aid charitable, religious, educational, athletic, cultural, literary, scientific, social welfare or similar activities primarily through extending grants or endowments.

In addition to requirements for ordinary non-stock, non-profit corporations, foundations applying for registration with the SEC are required to submit their plan of operations, executed under oath, by the president of such foundation, specifying their mode of operations and source of funds.

Applicants are also required to submit a certificate of bank deposit in the amount of not less than P1 million, representing the funds to be used for extending grants or endowments.

Moreover, the SEC said the corporate name should contain the word "Foundation."

Apart from this, foundations shall submit to the SEC, together with the financial statements, a statement of funds application, detailing the funds established, the names of beneficiaries and the corresponding amounts of funds granted or endowed.

The proliferation of foundations in the Philippines in the last few years have put into serious question their true motives. Some foundations are allegedly being put up to accept bribes from political leaders and businessmen.

From a little over 110,000 in December 2001, the number of active non-stock corporations which include foundations and other non-government organizations increased to 149,290 as of end-June last year, data from the SEC show.

Benito Cataran, head of the SEC’s Company Registration Department, earlier said the commission receives applications for the establishment of a non-stock corporation every week. A foundation applying for a registration license with the SEC must have an initial authorized capital of P100,000.

He attributed the rise in number of foundations to the latter’s growing popularity as an alternative source of income for unscrupulous individuals. He was quick to admit though that not all foundations are illegal.

"Some are using it to source money from other people. They are using their SEC registration license to legalize their solicitation activities. But there are also foundations that are for humanitarian projects or are not for business — those who only want to help," Cataran said.

Cataran, however, added it is difficult to distinguish which among the foundations are legitimate because the SEC does not know where these organizations channel their money.

The SEC official said the commission though requires non-stock corporations to submit annual financial statements and general information sheets.

Financial statements, he said, are essential in determining whether funds of a company are sourced from an unlawful activity.

Cataran said another reason why foundations have mushroomed in the country is because of the tax incentives given them.