Corporate Securities Info
Investments on education
By Raul J. Palabrica
Philippine Daily Inquirer
First Posted 03:34:00 08/22/2008
Filed Under: Education, moguls, Schools, Corporate social responsibility
What is it in our colleges and universities that motivates some of the country’s business tycoons to invest in them?
Last week, mall magnate Henry Sy, through a representative, announced his family’s acquisition of control of 108-year-old National University.
He plans to improve the school’s infrastructure and upgrade the quality of its teaching staff. With his vast financial resources, funding those programs will not be a problem.
Sy joins the ranks of Chinese-Filipino tycoons Emilio Yap, Lucio Tan and Alfonso Yuchengco, who either own the majority of the stocks or are the biggest stockholders of Metro Manila-based educational institutions.
These business moguls have a common denominator—they own or control reputable commercial banks. And that translates to easy access to money.
Their entry into the area of private tertiary education has been described as a way of “paying forward” to society after they have made (and continue to make) their pile.
Something like, after feeding their physical being with hard-earned money, it’s time to feed their soul by sharing their wealth, through education, to their less fortunate brethren.
Organization
The benefactors of private college education have sufficient leeway in determining the manner by which they want to perform their chosen form of corporate social responsibility.
Depending on their plans, they can operate and maintain the educational institutions through stock or non-stock corporations.
In either case, the corporation’s stock ownership or membership should be at least 60 percent Filipino citizens or Filipino corporations.
This ownership requirement does not apply if the educational institution is established by religious groups or mission boards. The exemption is in recognition of the significant role they play in the education of our youth.
Religious or secular, the articles of incorporation of an educational institution will not be approved by the Securities and Exchange Commission unless favorably endorsed by the Department of Education.
If the stock corporation route is taken (which means it will be run for profit and dividends will be given to the stockholders), the directors elected should not be less than five but not more than 15, and shall hold office for one year and until their successors are elected and qualified.
Trustees
The “5/15” rule also applies to the board of trustees of educational institutions organized as non-stock corporations, meaning, no part of its income can be distributed as dividends and all its profits, if any, should be used solely to accomplish its objectives.
There is a caveat though in fixing the number of trustees—it should be in multiples of five.
Unless the articles of incorporation provide for a different system, the trustees, as soon as they are organized, have to classify themselves in such a way that the term of office of one-fifth of the members expires every year.
In case a member retires, resigns or dies before his term expires, his replacement can hold office only for the unexpired period of his predecessor.
Whoever is elected trustee after the end of the previous term shall hold office for five years.
The staggered expiration of terms is aimed at ensuring continuity in school management and at the same time allowing infusion of fresh ideas in the board through the election of new trustees.
To underscore the importance of active participation by the trustees, the law requires that the presence of a majority of the trustees for the transaction of business.
The extent of the powers and authority of the trustees in running the affairs of the school is something that the members have to thresh out in their by-laws.
Tax exemption
The plus side for organizing an educational institution as a non-stock corporation is its convertibility to a foundation with its attendant advantages.
To acquire that status, it should be primarily organized for the purpose of extending grants or endowments or raising funds to accomplish its educational objectives.
Among other requirements, the corporation should have a minimum capital of P1 million, which is not really much considering the present cost of living.
Once registered as a foundation, the corporation can apply for accreditation as such with the Bureau of Internal Revenue and, after going through a strict winnowing process, be able to avail itself of certain tax benefits.
The accreditation translates into exemption of donations, contributions or gifts given to it from the donor’s tax. In turn, the donors can claim deductibility from their gross income of the monetary equivalent of their benevolent act.
With this liberality, people and corporations with deep pockets will be encouraged to share part of their wealth with their favorite charities. The gesture is reciprocated with a reduction of the tax obligation.
Plus, whatever income the corporation may earn from its operations will be exempt from payment of corporate income tax.
For skeptics (of which this country has an abundance), these tax breaks are susceptible to abuse. Of course, they are, like all other privileges.
But I’d rather give the benefit of the doubt in favor of the tycoons who have shown interest in our colleges and universities.
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For feedback, please write to rpalabrica@inquirer.com.ph.
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