Batas Pambansa Bilang 68
– The shares of
THE CORPORATION CODE OF THE
PHILIPPINES
Be it enacted by the Batasang Pambansa in session
assembled:
TITLE I
GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Section 1. Title of the Code. – This Code shall be
known as "The Corporation Code of the Philippines."
(n)
Section 2. Corporation defined. – A corporation is an
artificial being created by operation of law, having
the right of succession and the powers, attributes and
properties expressly authorized by law or incident to
its existence. (2)
Section 3. Classes of corporations. – Corporations
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
allotments of the surplus profits on the basis of the
shares held are stock corporations. All other
corporations are non-stock corporations. (3a)
Section 4. Corporations created by special laws or
charters. – Corporations created by special laws or
charters shall be governed primarily by the provisions
of the special law or charter creating them or
applicable to them, supplemented by the provisions
of this Code, insofar as they are applicable. (n)
Section 5. Corporators and incorporators,
stockholders and members. – Corporators are those
who compose a corporation, whether as stockholders
or as members. Incorporators are those stockholders
or members mentioned in the articles of incorporation
as originally forming and composing the corporation
and who are signatories thereof.
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a non-
stock corporation are called members. (4a)
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Section 6. Classification of shares.
stock of stock corporations may be divided into
classes or series of shares, or both, any of which
classes or series of shares may have such rights,
privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share
may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class
or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a
par value or have no par value as may be provided for
in the articles of incorporation: Provided, however,
That banks, trust companies, insurance companies,
public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any corporation
may be given preference in the distribution of the
assets of the corporation in case of liquidation and in
the distribution of dividends, or such other
preferences as may be stated in the articles of
incorporation which are not violative of the
provisions of this Code: Provided, That preferred
shares of stock may be issued only with a stated par
value. The board of directors, where authorized in the
articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions
shall be effective upon the filing of a certificate
thereof with the Securities and Exchange
Commission.
Shares of capital stock issued without par value shall
be deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
Provided; That shares without par value may not be
issued for a consideration less than the value of five
(P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for
its no-par value shares shall be treated as capital and
shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares
for the purpose of insuring compliance with
constitutional or legal requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock,
each share shall be equal in all respects to every other
share.
Where the articles of incorporation provide for non-
voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled
to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation
with another corporation or other corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be
deemed to refer only to stocks with voting rights. (5a)
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
Commission. (n)
Section 8. Redeemable shares. – Redeemable shares
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may be issued by the corporation when expressly so
provided in the articles of incorporation. They may
be purchased or taken up by the corporation upon the
expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the
books of the corporation, and upon such other terms
and conditions as may be stated in the articles of
incorporation, which terms and conditions must also
be stated in the certificate of stock representing said
shares. (n)
Section 9. Treasury shares. – Treasury shares are
shares of stock which have been issued and fully paid
for, but subsequently reacquired by the issuing
corporation by purchase, redemption, donation or
through some other lawful means. Such shares may
again be disposed of for a reasonable price fixed by
the board of directors. (n)
TITLE II
INCORPORATION AND ORGANIZATION OF
PRIVATE CORPORATIONS
Section 10. Number and qualifications of
incorporators. – Any number of natural persons not
less than five (5) but not more than fifteen (15), all of
legal age and a majority of whom are residents of the
Philippines, may form a private corporation for any
lawful purpose or purposes. Each of the incorporators
of s stock corporation must own or be a subscriber to
at least one (1) share of the capital stock of the
corporation. (6a)
Section 11. Corporate term. – A corporation shall
exist for a period not exceeding fifty (50) years from
the date of incorporation unless sooner dissolved or
unless said period is extended. The corporate term as
originally stated in the articles of incorporation may
be extended for periods not exceeding fifty (50) years
in any single instance by an amendment of the
articles of incorporation, in accordance with this
Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or
subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined
by the Securities and Exchange Commission. (6)
Section 12. Minimum capital stock required of stock
corporations. – Stock corporations incorporated
under this Code shall not be required to have any
minimum authorized capital stock except as
otherwise specifically provided for by special law,
and subject to the provisions of the following section.
Section 13. Amount of capital stock to be subscribed
and paid for the purposes of incorporation. – At least
twenty-five percent (25%) of the authorized capital
stock as stated in the articles of incorporation must be
subscribed at the time of incorporation, and at least
twenty-five (25%) per cent of the total subscription
must be paid upon subscription, the balance to be
payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of
a fixed date or dates, upon call for payment by the
board of directors: Provided, however, That in no
case shall the paid-up capital be less than five
Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation.
– All corporations organized under this code shall file
with the Securities and Exchange Commission
articles of incorporation in any of the official
languages duly signed and acknowledged by all of
the incorporators, containing substantially the
following matters, except as otherwise prescribed by
this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is being incorporated. Where a
corporation 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 include a purpose
which would change or contradict its nature as
such;
3. The place where the principal office of the
corporation is to be located, which must be
within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which
shall not be less than five (5) nor more than
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fifteen (15);
7. The names, nationalities and residences of
persons who shall act as directors or trustees
until the first regular directors or trustees are
duly elected and qualified in accordance with this
Code;
8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the
Philippines, the number of shares into which it is
divided, and in case the share are par value
shares, the par value of each, the names,
nationalities and residences of the original
subscribers, and the amount subscribed and paid
by each on his subscription, and if some or all of
the shares are without par value, such fact must
be stated;
9. If it be a non-stock corporation, the amount of
its capital, the names, nationalities and
residences of the contributors and the amount
contributed by each; and
10. Such other matters as are not inconsistent
with law and which the incorporators may deem
necessary and convenient.
The Securities and Exchange Commission shall not
accept the articles of incorporation of any stock
corporation unless accompanied by a sworn statement
of the Treasurer elected by the subscribers showing
that at least twenty-five (25%) percent of the
authorized capital stock of the corporation has been
subscribed, and at least twenty-five (25%) of the total
subscription has been fully paid to him in actual cash
and/or in property the fair valuation of which is equal
to at least twenty-five (25%) percent of the said
subscription, such paid-up capital being not less than
five thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. –
Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall
comply substantially with the following form:
ARTICLES OF INCORPORATION
OF
__________________________
 (Name of Corporation) ___________________ ___________________ _______________
___________________
KNOW ALL MEN BY THESE PRESENTS: ___________________ _______________
___________________ ___________________ _______________
The undersigned incorporators, all of legal age and a
___________________
majority of whom are residents of the Philippines, ___________________ _______________
have this day voluntarily agreed to form___________________
a (stock) ___________________ _______________
(non-stock) corporation under the laws of the
Republic of the Philippines;
SEVENTH: That the authorized capital stock of the
AND WE HEREBY CERTIFY: corporation is ______________________
(P___________) PESOS in lawful money of the
FIRST: That the name of said corporation shall be Philippines, divided into __________ shares with the
"_____________________, INC. or par value of ____________________
CORPORATION"; (P_____________) Pesos per share.

SECOND: That the purpose or purposes for which
such corporation is incorporated are: (If there is more
than one purpose, indicate primary and secondary
purposes);
THIRD: That the principal office of the corporation is
located in the City/Municipality of
________________________, Province of
_______________________, Philippines;
FOURTH: That the term for which said corporation is
to exist is _____________ years from and after the
date of issuance of the certificate of incorporation;
FIFTH: That the names, nationalities and residences
of the incorporators of the corporation are as follows:
NATIONALITY RESIDENCE
(In case all the share are without par value):
That the capital stock of the corporation is
______________ shares without par value. (In case
some shares have par value and some are without par
value): That the capital stock of said corporation
consists of _____________ shares of which
______________ shares are of the par value of
_________________ (P____________) PESOS each,
and of which _________________ shares are without
par value.
EIGHTH: That at least twenty five (25%) per cent of
the authorized capital stock above stated has been
subscribed as follows:
No. of Shares Amount
Nationality
Subscribed Subscribed

__________ ___________________ _________________ _________________

___________________ _________________ _________
__ __ __
__________ ___________________ ___________________
_________________ _________________ _________________ _________
__________ ___________________ ___________________
__ __ __
__________ ___________________ ___________________
_________________ _________________ _________________ _________
__________ ___________________ __
___________________ __ __
_________________ _________________ _________________ _________
SIXTH: That the number of directors or trustees of __ __ __
the corporation shall be _______; and the names,
_________________ _________________ _________________ _________
nationalities and residences of the first directors or __ __ __
trustees of the corporation are as follows:
_________________ _________________ _________________ _________
NATIONALITY RESIDENCE __ __ __

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 NINTH: That the above-named subscribers have paid Province of ________________________, Republic
at least twenty-five (25%) percent of the total of the Philippines.
subscription as follows:
___________________ ___________________
Total
Amount Subscribed ___________________ ___________________
Paid-In
__________ ___________________ ___________________
________________________________
__________ ___________________ ___________________
(Names and signatures of the incorporators)
__________ ___________________ ___________________
__________ ___________________ SIGNED IN THE PRESENCE OF:
___________________
__________ ___________________ ___________________
___________________ ___________________

(Modify Nos. 8 and 9 if shares are with no par value. (Notarial Acknowledgment)
In case the corporation is non-stock, Nos. 7, 8 and 9
of the above articles may be modified accordingly,
TREASURER’S AFFIDAVIT
and it is sufficient if the articles state the amount of
capital or money contributed or donated by specified
REPUBLIC OF THE PHILIPPINES)
persons, stating the names, nationalities and
residences of the contributors or donors and the
CITY/MUNICIPALITY OF ) S.S.
respective amount given by each.)
PROVINCE OF )
TENTH: That _____________________ has been
elected by the subscribers as Treasurer of the
I, ____________________, being duly sworn, depose
Corporation to act as such until his successor is duly
and say:
elected and qualified in accordance with the by-laws,
and that as such Treasurer, he has been authorized to
That I have been elected by the subscribers of the
receive for and in the name and for the benefit of the
corporation as Treasurer thereof, to act as such until
corporation, all subscription (or fees) or contributions
my successor has been duly elected and qualified in
or donations paid or given by the subscribers or
accordance with the by-laws of the corporation, and
members.
that as such Treasurer, I hereby certify under oath that
at least 25% of the authorized capital stock of the
ELEVENTH: (Corporations which will engage in any
corporation has been subscribed and at least 25% of
business or activity reserved for Filipino citizens
the total subscription has been paid, and received by
shall provide the following):
me, in cash or property, in the amount of not less than
P5,000.00, in accordance with the Corporation Code.
"No transfer of stock or interest which shall reduce
the ownership of Filipino citizens to less than the
____________________
required percentage of the capital stock as provided
by existing laws shall be allowed or permitted to be
(Signature of Treasurer)
recorded in the proper books of the corporation and
this restriction shall be indicated in all stock
SUBSCRIBED AND SWORN to before me, a
certificates issued by the corporation."
Notary Public, for and in the City/Municipality
of___________________Province of
IN WITNESS WHEREOF, we have hereunto signed
_____________________, this _______ day of
these Articles of Incorporation, this __________ day
___________, 19 _____; by __________________
of ________________, 19 ______ in the
with Res. Cert. No. ___________ issued at
City/Municipality of ____________________,
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_______________________ on ____________, 19
______
NOTARY PUBLIC
My commission expires on _________, 19 _____
Doc. No. _________;
Page No. _________;
Book No. ________;
Series of 19____ (7a)
Section 16. Amendment of Articles of Incorporation.
– Unless otherwise prescribed by this Code or by
special law, and for legitimate purposes, any
provision or matter stated in the articles of
incorporation may be amended by a majority vote of
the board of directors or trustees and the vote or
written assent of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock,
without prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of this
Code, or the vote or written assent of at least two-
thirds (2/3) of the members if it be a non-stock
corporation.
The original and amended articles together shall
contain all provisions required by law to be set out in
the articles of incorporation. Such articles, as
amended shall be indicated by underscoring the
change or changes made, and a copy thereof duly
certified under oath by the corporate secretary and a
majority of the directors or trustees stating the fact
that said amendment or amendments have been duly
approved by the required vote of the stockholders or
members, shall be submitted to the Securities and
Exchange Commission.
The amendments shall take effect upon their approval
by the Securities and Exchange Commission or from
the date of filing with the said Commission if not
acted upon within six (6) months from the date of
filing for a cause not attributable to the corporation.
Section 17. Grounds when articles of incorporation
or amendment may be rejected or disapproved. – The
Securities and Exchange Commission may reject the
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articles of incorporation or disapprove any
amendment thereto if the same is not in compliance
with the requirements of this Code: Provided, That
the Commission shall give the incorporators a
reasonable time within which to correct or modify the
objectionable portions of the articles or amendment.
The following are grounds for such rejection or
disapproval:
1. That the articles of incorporation or any
amendment thereto is not substantially in
accordance with the form prescribed herein;
2. That the purpose or purposes of the
corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and
regulations;
3. That the Treasurer’s Affidavit concerning the
amount of capital stock subscribed and/or paid is
false;
4. That the percentage of ownership of the capital
stock to be owned by citizens of the Philippines
has not been complied with as required by
existing laws or the Constitution.
No articles of incorporation or amendment to articles
of incorporation of banks, banking and quasi-banking
institutions, building and loan associations, trust
companies and other financial intermediaries,
insurance companies, public utilities, educational
institutions, and other corporations governed by
special laws shall be accepted or approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency to the effect that such articles or amendment
is in accordance with law. (n)
Section 18. Corporate name. – No corporate name
may be allowed by the Securities and Exchange
Commission if the proposed name is identical or
deceptively or confusingly similar to that of any
existing corporation or to any other name already
protected by law or is patently deceptive, confusing
or contrary to existing laws. When a change in the
corporate name is approved, the Commission shall
issue an amended certificate of incorporation under
the amended name. (n)
Section 19. Commencement of corporate existence. –
A private corporation formed or organized under this
Code commences to have corporate existence and
juridical personality and is deemed incorporated from
the date the Securities and Exchange Commission
issues a certificate of incorporation under its official
seal; and thereupon the incorporators,
stockholders/members and their successors shall
constitute a body politic and corporate under the
name stated in the articles of incorporation for the
period of time mentioned therein, unless said period
is extended or the corporation is sooner dissolved in
accordance with law. (n)
Section 20. De facto corporations. – The due
incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its right
to exercise corporate powers, shall not be inquired
into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be
made by the Solicitor General in a quo warranto
proceeding. (n)
Section 21. Corporation by estoppel. – All persons
who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided, however, That
when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible
corporation as such, cannot resist performance
thereof on the ground that there was in fact no
corporation. (n)
Section 22. Effects on non-use of corporate charter
and continuous inoperation of a corporation. – If a
corporation does not formally organize and
commence the transaction of its business or the
construction of its works within two (2) years from
the date of its incorporation, its corporate powers
cease and the corporation shall be deemed dissolved.
However, if a corporation has commenced the
transaction of its business but subsequently becomes
continuously inoperative for a period of at least five
(5) years, the same shall be a ground for the
suspension or revocation of its corporate franchise or
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certificate of incorporation. (19a)
This provision shall not apply if the failure to
organize, commence the transaction of its businesses
or the construction of its works, or to continuously
operate is due to causes beyond the control of the
corporation as may be determined by the Securities
and Exchange Commission.
TITLE III
BOARD OF DIRECTORS/TRUSTEES AND
OFFICERS
Section 23. The board of directors or trustees. –
Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code
shall be exercised, all business conducted and all
property of such corporations controlled and held by
the board of directors or trustees to be elected from
among the holders of stocks, or where there is no
stock, from among the members of the corporation,
who shall hold office for one (1) year until their
successors are elected and qualified. (28a)
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a
director, which share shall stand in his name on the
books of the corporation. Any director who ceases to
be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall
thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of
the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
Section 24. Election of directors or trustees. – At all
elections of directors or trustees, there must be
present, either in person or by representative
authorized to act by written proxy, the owners of a
majority of the outstanding capital stock, or if there
be no capital stock, a majority of the members
entitled to vote. The election must be by ballot if
requested by any voting stockholder or member. In
stock corporations, every stockholder entitled to vote
shall have the right to vote in person or by proxy the
number of shares of stock standing, at the time fixed
in the by-laws, in his own name on the stock books of
the corporation, or where the by-laws are silent, at the
time of the election; and said stockholder may vote
such number of shares for as many persons as there
are directors to be elected or he may cumulate said
shares and give one candidate as many votes as the
number of directors to be elected multiplied by the
number of his shares shall equal, or he may distribute
them on the same principle among as many
candidates as he shall see fit: Provided, That the total
number of votes cast by him shall not exceed the
number of shares owned by him as shown in the
books of the corporation multiplied by the whole
number of directors to be elected: Provided, however,
That no delinquent stock shall be voted. Unless
otherwise provided in the articles of incorporation or
in the by-laws, members of corporations which have
no capital stock may cast as many votes as there are
trustees to be elected but may not cast more than one
vote for one candidate. Candidates receiving the
highest number of votes shall be declared elected.
Any meeting of the stockholders or members called
for an election may adjourn from day to day or from
time to time but not sine die or indefinitely if, for any
reason, no election is held, or if there are not present
or represented by proxy, at the meeting, the owners of
a majority of the outstanding capital stock, or if there
be no capital stock, a majority of the members
entitled to vote. (31a)
Section 25. Corporate officers, quorum. –
Immediately after their election, the directors of a
corporation must formally organize by the election of
a president, who shall be a director, a treasurer who
may or may not be a director, a secretary who shall be
a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws.
Any two (2) or more positions may be held
concurrently by the same person, except that no one
shall act as president and secretary or as president and
treasurer at the same time.
The directors or trustees and officers to be elected
shall perform the duties enjoined on them by law and
the by-laws of the corporation. Unless the articles of
incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or
trustees as fixed in the articles of incorporation shall
constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of
the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act,
except for the election of officers which shall require
the vote of a majority of all the members of the
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board.
Directors or trustees cannot attend or vote by proxy at
board meetings. (33a)
Section 26. Report of election of directors, trustees
and officers. – Within thirty (30) days after the
election of the directors, trustees and officers of the
corporation, the secretary, or any other officer of the
corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and
residences of the directors, trustees, and officers
elected. Should a director, trustee or officer die,
resign or in any manner cease to hold office, his heirs
in case of his death, the secretary, or any other officer
of the corporation, or the director, trustee or officer
himself, shall immediately report such fact to the
Securities and Exchange Commission. (n)
Section 27. Disqualification of directors, trustees or
officers. – No person convicted by final judgment of
an offense punishable by imprisonment for a period
exceeding six (6) years, or a violation of this Code
committed within five (5) years prior to the date of
his election or appointment, shall qualify as a
director, trustee or officer of any corporation. (n)
Section 28. Removal of directors or trustees. – Any
director or trustee of a corporation may be removed
from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the
outstanding capital stock, or if the corporation be a
non-stock corporation, by a vote of at least two-thirds
(2/3) of the members entitled to vote: Provided, That
such removal shall take place either at a regular
meeting of the corporation or at a special meeting
called for the purpose, and in either case, after
previous notice to stockholders or members of the
corporation of the intention to propose such removal
at the meeting. A special meeting of the stockholders
or members of a corporation for the purpose of
removal of directors or trustees, or any of them, must
be called by the secretary on order of the president or
on the written demand of the stockholders
representing or holding at least a majority of the
outstanding capital stock, or, if it be a non-stock
corporation, on the written demand of a majority of
the members entitled to vote. Should the secretary
fail or refuse to call the special meeting upon such
demand or fail or refuse to give the notice, or if there
is no secretary, the call for the meeting may be
addressed directly to the stockholders or members by
any stockholder or member of the corporation signing
the demand. Notice of the time and place of such
meeting, as well as of the intention to propose such
removal, must be given by publication or by written
notice prescribed in this Code. Removal may be with
or without cause: Provided, That removal without
cause may not be used to deprive minority
stockholders or members of the right of
representation to which they may be entitled under
Section 24 of this Code. (n)
Section 29. Vacancies in the office of director or
trustee. – Any vacancy occurring in the board of
directors or trustees other than by removal by the
stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by
the stockholders in a regular or special meeting called
for that purpose. A director or trustee so elected to fill
a vacancy shall be elected only or the unexpired term
of his predecessor in office.
Any directorship or trusteeship to be filled by reason
of an increase in the number of directors or trustees
shall be filled only by an election at a regular or at a
special meeting of stockholders or members duly
called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so
stated in the notice of the meeting. (n)
Section 30. Compensation of directors. – In the
absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any
compensation, as such directors, except for
reasonable per diems: Provided, however, That any
such compensation other than per diems may be
granted to directors by the vote of the stockholders
representing at least a majority of the outstanding
capital stock at a regular or special stockholders’
meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income
tax of the corporation during the preceding year. (n)
Section 31. Liability of directors, trustees or
officers.- Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts
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of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons.
When a director, trustee or officer attempts to acquire
or acquire, in violation of his duty, any interest
adverse to the corporation in respect of any matter
which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in
his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which
otherwise would have accrued to the corporation. (n)
Section 32. Dealings of directors, trustees or officers
with the corporation. – A contract of the corporation
with one or more of its directors or trustees or
officers is voidable, at the option of such corporation,
unless all the following conditions are present:
1. That the presence of such director or trustee in
the board meeting in which the contract was
approved was not necessary to constitute a
quorum for such meeting;
2. That the vote of such director or trustee was
not necessary for the approval of the contract;
3. That the contract is fair and reasonable under
the circumstances; and
4. That in case of an officer, the contract has
been previously authorized by the board of
directors.
Where any of the first two conditions set forth in
the preceding paragraph is absent, in the case of
a contract with a director or trustee, such contract
may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the
adverse interest of the directors or trustees
involved is made at such meeting: Provided,
however, That the contract is fair and reasonable
 under the circumstances. (n)
Section 33. Contracts between corporations with
interlocking directors. – Except in cases of fraud, and
provided the contract is fair and reasonable under the
circumstances, a contract between two or more
corporations having interlocking directors shall not
be invalidated on that ground alone: Provided, That if
the interest of the interlocking director in one
corporation is substantial and his interest in the other
corporation or corporations is merely nominal, he
shall be subject to the provisions of the preceding
section insofar as the latter corporation or
corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the
outstanding capital stock shall be considered
substantial for purposes of interlocking directors. (n)
Section 34. Disloyalty of a director. – Where a
director, by virtue of his office, acquires for himself a
business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice
of such corporation, he must account to the latter for
all such profits by refunding the same, unless his act
has been ratified by a vote of the stockholders
owning or representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be
applicable, notwithstanding the fact that the director
risked his own funds in the venture. (n)
Section 35. Executive committee. – The by-laws of a
corporation may create an executive committee,
composed of not less than three members of the
board, to be appointed by the board. Said committee
may act, by majority vote of all its members, on such
specific matters within the competence of the board,
as may be delegated to it in the by-laws or on a
majority vote of the board, except with respect to: (1)
approval of any action for which shareholders’
approval is also required; (2) the filing of vacancies
in the board; (3) the amendment or repeal of by-laws
or the adoption of new by-laws; (4) the amendment
or repeal of any resolution of the board which by its
express terms is not so amendable or repealable; and
(5) a distribution of cash dividends to the
shareholders.
TITLE IV
POWERS OF CORPORATIONS
10
Section 36. Corporate powers and capacity. – Every
corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals,
or public policy, and to amend or repeal the same
in accordance with this Code;
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell stocks to
subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and
to admit members to the corporation if it be a
non-stock corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
property, including securities and bonds of other
corporations, as the transaction of the lawful
business of the corporation may reasonably and
necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with
other corporations as provided in this Code;
9. To make reasonable donations, including those
for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes:
Provided, That no corporation, domestic or
foreign, shall give donations in aid of any
political party or candidate or for purposes of
partisan political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees; and
 11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.
(13a)
Section 37. Power to extend or shorten corporate
term. – A private corporation may extend or shorten
its term as stated in the articles of incorporation when
approved by a majority vote of the board of directors
or trustees and ratified at a meeting by the
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or by at least two-thirds
(2/3) of the members in case of non-stock
corporations. Written notice of the proposed action
and of the time and place of the meeting shall be
addressed to each stockholder or member at his place
of residence as shown on the books of the corporation
and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That
in case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right under the
conditions provided in this code. (n)
Section 38. Power to increase or decrease capital
stock; incur, create or increase bonded indebtedness.
– No corporation shall increase or decrease its capital
stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of
the board of directors and, at a stockholder’s meeting
duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.
Written notice of the proposed increase or diminution
of the capital stock or of the incurring, creating, or
increasing of any bonded indebtedness and of the
time and place of the stockholder’s meeting at which
the proposed increase or diminution of the capital
stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be addressed
to each stockholder at his place of residence as shown
on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or
served personally.
A certificate in duplicate must be signed by a
majority of the directors of the corporation and
countersigned by the chairman and the secretary of
the stockholders’ meeting, setting forth:
11
(1) That the requirements of this section have
been complied with;
(2) The amount of the increase or diminution of
the capital stock;
(3) If an increase of the capital stock, the amount
of capital stock or number of shares of no-par
stock thereof actually subscribed, the names,
nationalities and residences of the persons
subscribing, the amount of capital stock or
number of no-par stock subscribed by each, and
the amount paid by each on his subscription in
cash or property, or the amount of capital stock
or number of shares of no-par stock allotted to
each stock-holder if such increase is for the
purpose of making effective stock dividend
therefor authorized;
(4) Any bonded indebtedness to be incurred,
created or increased;
(5) The actual indebtedness of the corporation on
the day of the meeting;
(6) The amount of stock represented at the
meeting; and
(7) The vote authorizing the increase or
diminution of the capital stock, or the incurring,
creating or increasing of any bonded
indebtedness.
Any increase or decrease in the capital stock or
the incurring, creating or increasing of any
bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on
file in the office of the corporation and the other
shall be filed with the Securities and Exchange
Commission and attached to the original articles
of incorporation. From and after approval by the
Securities and Exchange Commission and the
issuance by the Commission of its certificate of
filing, the capital stock shall stand increased or
decreased and the incurring, creating or
increasing of any bonded indebtedness
authorized, as the certificate of filing may
declare: Provided, That the Securities and
 Exchange Commission shall not accept for filing
any certificate of increase of capital stock unless
accompanied by the sworn statement of the
treasurer of the corporation lawfully holding
office at the time of the filing of the certificate,
showing that at least twenty-five (25%) percent
of such increased capital stock has been
subscribed and that at least twenty-five (25%)
percent of the amount subscribed has been paid
either in actual cash to the corporation or that
there has been transferred to the corporation
property the valuation of which is equal to
twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital
stock shall be approved by the Commission if its
effect shall prejudice the rights of corporate
creditors.
Non-stock corporations may incur or create
bonded indebtedness, or increase the same, with
the approval by a majority vote of the board of
trustees and of at least two-thirds (2/3) of the
members in a meeting duly called for the
purpose.
Bonds issued by a corporation shall be registered
with the Securities and Exchange Commission,
which shall have the authority to determine the
sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. – All
stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition
of shares of any class, in proportion to their
respective shareholdings, unless such right is denied
by the articles of incorporation or an amendment
thereto: Provided, That such pre-emptive right shall
not extend to shares to be issued in compliance with
laws requiring stock offerings or minimum stock
ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders
representing two-thirds (2/3) of the outstanding
capital stock, in exchange for property needed for
corporate purposes or in payment of a previously
contracted debt.
Section 40. Sale or other disposition of assets. –
Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by
a majority vote of its board of directors or trustees,
12
sell, lease, exchange, mortgage, pledge or otherwise
dispose of all or substantially all of its property and
assets, including its goodwill, upon such terms and
conditions and for such consideration, which may be
money, stocks, bonds or other instruments for the
payment of money or other property or consideration,
as its board of directors or trustees may deem
expedient, when authorized by the vote of the
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, or in case of non-stock
corporation, by the vote of at least to two-thirds (2/3)
of the members, in a stockholder’s or member’s
meeting duly called for the purpose. Written notice of
the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or
member at his place of residence as shown on the
books of the corporation and deposited to the
addressee in the post office with postage prepaid, or
served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the
conditions provided in this Code.
A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if
thereby the corporation would be rendered incapable
of continuing the business or accomplishing the
purpose for which it was incorporated.
After such authorization or approval by the
stockholders or members, the board of directors or
trustees may, nevertheless, in its discretion, abandon
such sale, lease, exchange, mortgage, pledge or other
disposition of property and assets, subject to the
rights of third parties under any contract relating
thereto, without further action or approval by the
stockholders or members.
Nothing in this section is intended to restrict the
power of any corporation, without the authorization
by the stockholders or members, to sell, lease,
exchange, mortgage, pledge or otherwise dispose of
any of its property and assets if the same is necessary
in the usual and regular course of business of said
corporation or if the proceeds of the sale or other
disposition of such property and assets be
appropriated for the conduct of its remaining
business.
In non-stock corporations where there are no
members with voting rights, the vote of at least a
majority of the trustees in office will be sufficient
authorization for the corporation to enter into any
transaction authorized by this section.
Section 41. Power to acquire own shares. – A stock
corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover
the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of
stock dividends;
2. To collect or compromise an indebtedness to
the corporation, arising out of unpaid
subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale;
and
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code. (a)
Section 42. Power to invest corporate funds in
another corporation or business or for any other
purpose. – Subject to the provisions of this Code, a
private corporation may invest its funds in any other
corporation or business or for any purpose other than
the primary purpose for which it was organized when
approved by a majority of the board of directors or
trustees and ratified by the stockholders representing
at least two-thirds (2/3) of the outstanding capital
stock, or by at least two thirds (2/3) of the members
in the case of non-stock corporations, at a
stockholder’s or member’s meeting duly called for
the purpose. Written notice of the proposed
investment and the time and place of the meeting
shall be addressed to each stockholder or member at
his place of residence as shown on the books of the
corporation and deposited to the addressee in the post
office with postage prepaid, or served personally:
Provided, That any dissenting stockholder shall have
appraisal right as provided in this Code: Provided,
however, That where the investment by the
corporation is reasonably necessary to accomplish its
primary purpose as stated in the articles of
incorporation, the approval of the stockholders or
members shall not be necessary. (17 1/2a)
13
Section 43. Power to declare dividends.- The board
of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings
which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding
stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be
applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be
withheld from the delinquent stockholder until his
unpaid subscription is fully paid: Provided, further,
That no stock dividend shall be issued without the
approval of stockholders representing not less than
two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the
purpose. (16a)
Stock corporations are prohibited from retaining
surplus profits in excess of one hundred (100%)
percent of their paid-in capital stock, except: (1)
when justified by definite corporate expansion
projects or programs approved by the board of
directors; or (2) when the corporation is prohibited
under any loan agreement with any financial
institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such
consent has not yet been secured; or (3) when it can
be clearly shown that such retention is necessary
under special circumstances obtaining in the
corporation, such as when there is need for special
reserve for probable contingencies. (n)
Section 44. Power to enter into management
contract. – No corporation shall conclude a
management contract with another corporation unless
such contract shall have been approved by the board
of directors and by stockholders owning at least the
majority of the outstanding capital stock, or by at
least a majority of the members in the case of a non-
stock corporation, of both the managing and the
managed corporation, at a meeting duly called for the
purpose: Provided, That (1) where a stockholder or
stockholders representing the same interest of both
the managing and the managed corporations own or
control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the
managing corporation; or (2) where a majority of the
members of the board of directors of the managing
corporation also constitute a majority of the members
of the board of directors of the managed corporation,
then the management contract must be approved by
the stockholders of the managed corporation owning
at least two-thirds (2/3) of the total outstanding
capital stock entitled to vote, or by at least two-thirds
(2/3) of the members in the case of a non-stock
corporation. No management contract shall be
entered into for a period longer than five years for
any one term.
The provisions of the next preceding paragraph shall
apply to any contract whereby a corporation
undertakes to manage or operate all or substantially
all of the business of another corporation, whether
such contracts are called service contracts, operating
agreements or otherwise: Provided, however, That
such service contracts or operating agreements which
relate to the exploration, development, exploitation or
utilization of natural resources may be entered into
for such periods as may be provided by the pertinent
laws or regulations. (n)
Section 45. Ultra vires acts of corporations. – No
corporation under this Code shall possess or exercise
any corporate powers except those conferred by this
Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of
the powers so conferred. (n)
TITLE V
BY LAWS
Section 46. Adoption of by-laws. – Every corporation
formed under this Code must, within one (1) month
after receipt of official notice of the issuance of its
certificate of incorporation by the Securities and
Exchange Commission, adopt a code of by-laws for
its government not inconsistent with this Code. For
the adoption of by-laws by the corporation the
affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or of
at least a majority of the members in case of non-
stock corporations, shall be necessary. The by-laws
shall be signed by the stockholders or members
voting for them and shall be kept in the principal
office of the corporation, subject to the inspection of
the stockholders or members during office hours. A
copy thereof, duly certified to by a majority of the
directors or trustees countersigned by the secretary of
the corporation, shall be filed with the Securities and
Exchange Commission which shall be attached to the
14
original articles of incorporation.
Notwithstanding the provisions of the preceding
paragraph, by-laws may be adopted and filed prior to
incorporation; in such case, such by-laws shall be
approved and signed by all the incorporators and
submitted to the Securities and Exchange
Commission, together with the articles of
incorporation.
In all cases, by-laws shall be effective only upon the
issuance by the Securities and Exchange Commission
of a certification that the by-laws are not inconsistent
with this Code.
The Securities and Exchange Commission shall not
accept for filing the by-laws or any amendment
thereto of any bank, banking institution, building and
loan association, trust company, insurance company,
public utility, educational institution or other special
corporations governed by special laws, unless
accompanied by a certificate of the appropriate
government agency to the effect that such by-laws or
amendments are in accordance with law. (20a)
Section 47. Contents of by-laws. – Subject to the
provisions of the Constitution, this Code, other
special laws, and the articles of incorporation, a
private corporation may provide in its by-laws for:
1. The time, place and manner of calling and
conducting regular or special meetings of the
directors or trustees;
2. The time and manner of calling and
conducting regular or special meetings of the
stockholders or members;
3. The required quorum in meetings of
stockholders or members and the manner of
voting therein;
4. The form for proxies of stockholders and
members and the manner of voting them;
5. The qualifications, duties and compensation of
directors or trustees, officers and employees;
6. The time for holding the annual election of
directors of trustees and the mode or manner of
 giving notice thereof;
7. The manner of election or appointment and the
term of office of all officers other than directors
or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner
of issuing stock certificates; and
10. Such other matters as may be necessary for
the proper or convenient transaction of its
corporate business and affairs. (21a)
Section 48. Amendments to by-laws. – The board of
directors or trustees, by a majority vote thereof, and
the owners of at least a majority of the outstanding
capital stock, or at least a majority of the members of
a non-stock corporation, at a regular or special
meeting duly called for the purpose, may amend or
repeal any by-laws or adopt new by-laws. The owners
of two-thirds (2/3) of the outstanding capital stock or
two-thirds (2/3) of the members in a non-stock
corporation may delegate to the board of directors or
trustees the power to amend or repeal any by-laws or
adopt new by-laws: Provided, That any power
delegated to the board of directors or trustees to
amend or repeal any by-laws or adopt new by-laws
shall be considered as revoked whenever
stockholders owning or representing a majority of the
outstanding capital stock or a majority of the
members in non-stock corporations, shall so vote at a
regular or special meeting.
Whenever any amendment or new by-laws are
adopted, such amendment or new by-laws shall be
attached to the original by-laws in the office of the
corporation, and a copy thereof, duly certified under
oath by the corporate secretary and a majority of the
directors or trustees, shall be filed with the Securities
and Exchange Commission the same to be attached to
the original articles of incorporation and original by-
laws.
The amended or new by-laws shall only be effective
upon the issuance by the Securities and Exchange
Commission of a certification that the same are not
inconsistent with this Code. (22a and 23a)
15
TITLE VI
MEETINGS
Section 49. Kinds of meetings. – Meetings of
directors, trustees, stockholders, or members may be
regular or special. (n)
Section 50. Regular and special meetings of
stockholders or members.- Regular meetings of
stockholders or members shall be held annually on a
date fixed in the by-laws, or if not so fixed, on any
date in April of every year as determined by the board
of directors or trustees: Provided, That written notice
of regular meetings shall be sent to all stockholders
or members of record at least two (2) weeks prior to
the meeting, unless a different period is required by
the by-laws.
Special meetings of stockholders or members shall be
held at any time deemed necessary or as provided in
the by-laws: Provided, however, That at least one (1)
week written notice shall be sent to all stockholders
or members, unless otherwise provided in the by-
laws.
Notice of any meeting may be waived, expressly or
impliedly, by any stockholder or member.
Whenever, for any cause, there is no person
authorized to call a meeting, the Securities and
Exchange Commission, upon petition of a
stockholder or member on a showing of good cause
therefor, may issue an order to the petitioning
stockholder or member directing him to call a
meeting of the corporation by giving proper notice
required by this Code or by the by-laws. The
petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders or
members present have chosen one of their number as
presiding officer. (24, 26)
Section 51. Place and time of meetings of
stockholders of members. – Stockholder’s or
member’s meetings, whether regular or special, shall
be held in the city or municipality where the principal
office of the corporation is located, and if practicable
in the principal office of the corporation: Provided,
That Metro Manila shall, for purposes of this section,
be considered a city or municipality.
Notice of meetings shall be in writing, and the time
and place thereof stated therein.
All proceedings had and any business transacted at
any meeting of the stockholders or members, if
within the powers or authority of the corporation,
shall be valid even if the meeting be improperly held
or called, provided all the stockholders or members
of the corporation are present or duly represented at
the meeting. (24 and 25)
Section 52. Quorum in meetings. – Unless otherwise
provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a
majority of the outstanding capital stock or a majority
of the members in the case of non-stock corporations.
(n)
Section 53. Regular and special meetings of
directors or trustees. – Regular meetings of the board
of directors or trustees of every corporation shall be
held monthly, unless the by-laws provide otherwise.
Special meetings of the board of directors or trustees
may be held at any time upon the call of the president
or as provided in the by-laws.
Meetings of directors or trustees of corporations may
be held anywhere in or outside of the Philippines,
unless the by-laws provide otherwise. Notice of
regular or special meetings stating the date, time and
place of the meeting must be sent to every director or
trustee at least one (1) day prior to the scheduled
meeting, unless otherwise provided by the by-laws. A
director or trustee may waive this requirement, either
expressly or impliedly. (n)
Section 54. Who shall preside at meetings. – The
president shall preside at all meetings of the directors
or trustee as well as of the stockholders or members,
unless the by-laws provide otherwise. (n)
Section 55. Right to vote of pledgors, mortgagors,
and administrators. – In case of pledged or
mortgaged shares in stock corporations, the pledgor
or mortgagor shall have the right to attend and vote at
meetings of stockholders, unless the pledgee or
mortgagee is expressly given by the pledgor or
mortgagor such right in writing which is recorded on
the appropriate corporate books. (n)
16
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may
attend and vote in behalf of the stockholders or
members without need of any written proxy. (27a)
Section 56. Voting in case of joint ownership of
stock. – In case of shares of stock owned jointly by
two or more persons, in order to vote the same, the
consent of all the co-owners shall be necessary,
unless there is a written proxy, signed by all the co-
owners, authorizing one or some of them or any other
person to vote such share or shares: Provided, That
when the shares are owned in an "and/or" capacity by
the holders thereof, any one of the joint owners can
vote said shares or appoint a proxy therefor. (n)
Section 57. Voting right for treasury shares. –
Treasury shares shall have no voting right as long as
such shares remain in the Treasury. (n)
Section 58. Proxies. – Stockholders and members
may vote in person or by proxy in all meetings of
stockholders or members. Proxies shall in writing,
signed by the stockholder or member and filed before
the scheduled meeting with the corporate secretary.
Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended.
No proxy shall be valid and effective for a period
longer than five (5) years at any one time. (n)
Section 59. Voting trusts. – One or more stockholders
of a stock corporation may create a voting trust for
the purpose of conferring upon a trustee or trustees
the right to vote and other rights pertaining to the
shares for a period not exceeding five (5) years at any
time: Provided, That in the case of a voting trust
specifically required as a condition in a loan
agreement, said voting trust may be for a period
exceeding five (5) years but shall automatically
expire upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified
copy of such agreement shall be filed with the
corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective
and unenforceable. The certificate or certificates of
stock covered by the voting trust agreement shall be
cancelled and new ones shall be issued in the name of
the trustee or trustees stating that they are issued
pursuant to said agreement. In the books of the
corporation, it shall be noted that the transfer in the
name of the trustee or trustees is made pursuant to
said voting trust agreement.
The trustee or trustees shall execute and deliver to the
transferors voting trust certificates, which shall be
transferable in the same manner and with the same
effect as certificates of stock.
The voting trust agreement filed with the corporation
shall be subject to examination by any stockholder of
the corporation in the same manner as any other
corporate book or record: Provided, That both the
transferor and the trustee or trustees may exercise the
right of inspection of all corporate books and records
in accordance with the provisions of this Code.
Any other stockholder may transfer his shares to the
same trustee or trustees upon the terms and
conditions stated in the voting trust agreement, and
thereupon shall be bound by all the provisions of said
agreement.
No voting trust agreement shall be entered into for
the purpose of circumventing the law against
monopolies and illegal combinations in restraint of
trade or used for purposes of fraud.
Unless expressly renewed, all rights granted in a
voting trust agreement shall automatically expire at
the end of the agreed period, and the voting trust
certificates as well as the certificates of stock in the
name of the trustee or trustees shall thereby be
deemed cancelled and new certificates of stock shall
be reissued in the name of the transferors.
The voting trustee or trustees may vote by proxy
unless the agreement provides otherwise. (36a)
TITLE VII
STOCKS AND STOCKHOLDERS
Section 60. Subscription contract. – Any contract for
the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall
be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to
it as a purchase or some other contract. (n)
Section 61. Pre-incorporation subscription. – A
17
subscription for shares of stock of a corporation still
to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription,
unless all of the other subscribers consent to the
revocation, or unless the incorporation of said
corporation fails to materialize within said period or
within a longer period as may be stipulated in the
contract of subscription: Provided, That no pre-
incorporation subscription may be revoked after the
submission of the articles of incorporation to the
Securities and Exchange Commission. (n)
Section 62. Consideration for stocks. – Stocks shall
not be issued for a consideration less than the par or
issued price thereof. Consideration for the issuance of
stock may be any or a combination of any two or
more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually
received by the corporation and necessary or
convenient for its use and lawful purposes at a
fair valuation equal to the par or issued value of
the stock issued;
3. Labor performed for or services actually
rendered to the corporation;
4. Previously incurred indebtedness of the
corporation;
5. Amounts transferred from unrestricted retained
earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the
event of reclassification or conversion.
Where the consideration is other than actual
cash, or consists of intangible property such as
patents of copyrights, the valuation thereof shall
initially be determined by the incorporators or
the board of directors, subject to approval by the
Securities and Exchange Commission.
Shares of stock shall not be issued in exchange
for promissory notes or future service.
The same considerations provided for in this
section, insofar as they may be applicable, may
 be used for the issuance of bonds by the
corporation.
The issued price of no-par value shares may be
fixed in the articles of incorporation or by the
board of directors pursuant to authority conferred
upon it by the articles of incorporation or the by-
laws, or in the absence thereof, by the
stockholders representing at least a majority of
the outstanding capital stock at a meeting duly
called for the purpose. (5 and 16)
Section 63. Certificate of stock and transfer of
shares. – The capital stock of stock corporations shall
be divided into shares for which certificates signed by
the president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery
of the certificate or certificates indorsed by the owner
or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation
showing the names of the parties to the transaction,
the date of the transfer, the number of the certificate
or certificates and the number of shares transferred.
No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the
books of the corporation. (35)
Section 64. Issuance of stock certificates. – No
certificate of stock shall be issued to a subscriber
until the full amount of his subscription together with
interest and expenses (in case of delinquent shares), if
any is due, has been paid. (37)
Section 65. Liability of directors for watered stocks.
– Any director or officer of a corporation consenting
to the issuance of stocks for a consideration less than
its par or issued value or for a consideration in any
form other than cash, valued in excess of its fair
value, or who, having knowledge thereof, does not
forthwith express his objection in writing and file the
same with the corporate secretary, shall be solidarily,
liable with the stockholder concerned to the
corporation and its creditors for the difference
between the fair value received at the time of
18
issuance of the stock and the par or issued value of
the same. (n)
Section 66. Interest on unpaid subscriptions. –
Subscribers for stock shall pay to the corporation
interest on all unpaid subscriptions from the date of
subscription, if so required by, and at the rate of
interest fixed in the by-laws. If no rate of interest is
fixed in the by-laws, such rate shall be deemed to be
the legal rate. (37)
Section 67. Payment of balance of subscription. –
Subject to the provisions of the contract of
subscription, the board of directors of any stock
corporation may at any time declare due and payable
to the corporation unpaid subscriptions to the capital
stock and may collect the same or such percentage
thereof, in either case with accrued interest, if any, as
it may deem necessary.
Payment of any unpaid subscription or any
percentage thereof, together with the interest accrued,
if any, shall be made on the date specified in the
contract of subscription or on the date stated in the
call made by the board. Failure to pay on such date
shall render the entire balance due and payable and
shall make the stockholder liable for interest at the
legal rate on such balance, unless a different rate of
interest is provided in the by-laws, computed from
such date until full payment. If within thirty (30) days
from the said date no payment is made, all stocks
covered by said subscription shall thereupon become
delinquent and shall be subject to sale as hereinafter
provided, unless the board of directors orders
otherwise. (38)
Section 68. Delinquency sale. – The board of
directors may, by resolution, order the sale of
delinquent stock and shall specifically state the
amount due on each subscription plus all accrued
interest, and the date, time and place of the sale
which shall not be less than thirty (30) days nor more
than sixty (60) days from the date the stocks become
delinquent.
Notice of said sale, with a copy of the resolution,
shall be sent to every delinquent stockholder either
personally or by registered mail. The same shall
furthermore be published once a week for two (2)
consecutive weeks in a newspaper of general
circulation in the province or city where the principal
office of the corporation is located.
Unless the delinquent stockholder pays to the
corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on his
subscription, plus accrued interest, costs of
advertisement and expenses of sale, or unless the
board of directors otherwise orders, said delinquent
stock shall be sold at public auction to such bidder
who shall offer to pay the full amount of the balance
on the subscription together with accrued interest,
costs of advertisement and expenses of sale, for the
smallest number of shares or fraction of a share. The
stock so purchased shall be transferred to such
purchaser in the books of the corporation and a
certificate for such stock shall be issued in his favor.
The remaining shares, if any, shall be credited in
favor of the delinquent stockholder who shall
likewise be entitled to the issuance of a certificate of
stock covering such shares.
Should there be no bidder at the public auction who
offers to pay the full amount of the balance on the
subscription together with accrued interest, costs of
advertisement and expenses of sale, for the smallest
number of shares or fraction of a share, the
corporation may, subject to the provisions of this
Code, bid for the same, and the total amount due shall
be credited as paid in full in the books of the
corporation. Title to all the shares of stock covered by
the subscription shall be vested in the corporation as
treasury shares and may be disposed of by said
corporation in accordance with the provisions of this
Code. (39a-46a)
Section 69. When sale may be questioned. – No
action to recover delinquent stock sold can be
sustained upon the ground of irregularity or defect in
the notice of sale, or in the sale itself of the
delinquent stock, unless the party seeking to maintain
such action first pays or tenders to the party holding
the stock the sum for which the same was sold, with
interest from the date of sale at the legal rate; and no
such action shall be maintained unless it is
commenced by the filing of a complaint within six
(6) months from the date of sale. (47a)
Section 70. Court action to recover unpaid
subscription. – Nothing in this Code shall prevent the
19
corporation from collecting by action in a court of
proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and
expenses. (49a)
Section 71. Effect of delinquency. – No delinquent
stock shall be voted for or be entitled to vote or to
representation at any stockholder’s meeting, nor shall
the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in
accordance with the provisions of this Code, until and
unless he pays the amount due on his subscription
with accrued interest, and the costs and expenses of
advertisement, if any. (50a)
Section 72. Rights of unpaid shares. – Holders of
subscribed shares not fully paid which are not
delinquent shall have all the rights of a stockholder.
(n)
Section 73. Lost or destroyed certificates. – The
following procedure shall be followed for the
issuance by a corporation of new certificates of stock
in lieu of those which have been lost, stolen or
destroyed:
1. The registered owner of a certificate of stock
in a corporation or his legal representative shall
file with the corporation an affidavit in triplicate
setting forth, if possible, the circumstances as to
how the certificate was lost, stolen or destroyed,
the number of shares represented by such
certificate, the serial number of the certificate
and the name of the corporation which issued the
same. He shall also submit such other
information and evidence which he may deem
necessary;
2. After verifying the affidavit and other
information and evidence with the books of the
corporation, said corporation shall publish a
notice in a newspaper of general circulation
published in the place where the corporation has
its principal office, once a week for three (3)
consecutive weeks at the expense of the
registered owner of the certificate of stock which
has been lost, stolen or destroyed. The notice
shall state the name of said corporation, the name
of the registered owner and the serial number of
said certificate, and the number of shares
 represented by such certificate, and that after the
expiration of one (1) year from the date of the
last publication, if no contest has been presented
to said corporation regarding said certificate of
stock, the right to make such contest shall be
barred and said corporation shall cancel in its
books the certificate of stock which has been
lost, stolen or destroyed and issue in lieu thereof
new certificate of stock, unless the registered
owner files a bond or other security in lieu
thereof as may be required, effective for a period
of one (1) year, for such amount and in such form
and with such sureties as may be satisfactory to
the board of directors, in which case a new
certificate may be issued even before the
expiration of the one (1) year period provided
herein: Provided, That if a contest has been
presented to said corporation or if an action is
pending in court regarding the ownership of said
certificate of stock which has been lost, stolen or
destroyed, the issuance of the new certificate of
stock in lieu thereof shall be suspended until the
final decision by the court regarding the
ownership of said certificate of stock which has
been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence
on the part of the corporation and its officers, no
action may be brought against any corporation
which shall have issued certificate of stock in
lieu of those lost, stolen or destroyed pursuant to
the procedure above-described. (R.A. 201a)
TITLE VIII
CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer agent. –
Every corporation shall keep and carefully preserve at
its principal office a record of all business
transactions and minutes of all meetings of
stockholders or members, or of the board of directors
or trustees, in which shall be set forth in detail the
time and place of holding the meeting, how
authorized, the notice given, whether the meeting was
regular or special, if special its object, those present
and absent, and every act done or ordered done at the
meeting. Upon the demand of any director, trustee,
stockholder or member, the time when any director,
trustee, stockholder or member entered or left the
meeting must be noted in the minutes; and on a
20
similar demand, the yeas and nays must be taken on
any motion or proposition, and a record thereof
carefully made. The protest of any director, trustee,
stockholder or member on any action or proposed
action must be recorded in full on his demand.
The records of all business transactions of the
corporation and the minutes of any meetings shall be
open to inspection by any director, trustee,
stockholder or member of the corporation at
reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said
records or minutes, at his expense.
Any officer or agent of the corporation who shall
refuse to allow any director, trustees, stockholder or
member of the corporation to examine and copy
excerpts from its records or minutes, in accordance
with the provisions of this Code, shall be liable to
such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an
offense which shall be punishable under Section 144
of this Code: Provided, That if such refusal is made
pursuant to a resolution or order of the board of
directors or trustees, the liability under this section
for such action shall be imposed upon the directors or
trustees who voted for such refusal: and Provided,
further, That it shall be a defense to any action under
this section that the person demanding to examine
and copy excerpts from the corporation’s records and
minutes has improperly used any information secured
through any prior examination of the records or
minutes of such corporation or of any other
corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.
Stock corporations must also keep a book to be
known as the "stock and transfer book", in which
must be kept a record of all stocks in the names of the
stockholders alphabetically arranged; the installments
paid and unpaid on all stock for which subscription
has been made, and the date of payment of any
installment; a statement of every alienation, sale or
transfer of stock made, the date thereof, and by and to
whom made; and such other entries as the by-laws
may prescribe. The stock and transfer book shall be
kept in the principal office of the corporation or in the
office of its stock transfer agent and shall be open for
inspection by any director or stockholder of the
corporation at reasonable hours on business days.
No stock transfer agent or one engaged principally in
the business of registering transfers of stocks in
behalf of a stock corporation shall be allowed to
operate in the Philippines unless he secures a license
from the Securities and Exchange Commission and
pays a fee as may be fixed by the Commission, which
shall be renewable annually: Provided, That a stock
corporation is not precluded from performing or
making transfer of its own stocks, in which case all
the rules and regulations imposed on stock transfer
agents, except the payment of a license fee herein
provided, shall be applicable. (51a and 32a; P.B. No.
268.)
Section 75. Right to financial statements. – Within
ten (10) days from receipt of a written request of any
stockholder or member, the corporation shall furnish
to him its most recent financial statement, which shall
include a balance sheet as of the end of the last
taxable year and a profit or loss statement for said
taxable year, showing in reasonable detail its assets
and liabilities and the result of its operations.
At the regular meeting of stockholders or members,
the board of directors or trustees shall present to such
stockholders or members a financial report of the
operations of the corporation for the preceding year,
which shall include financial statements, duly signed
and certified by an independent certified public
accountant.
However, if the paid-up capital of the corporation is
less than P50,000.00, the financial statements may be
certified under oath by the treasurer or any
responsible officer of the corporation. (n)
TITLE IX
MERGER AND CONSOLIDATION
Section 76. Plan or merger of consolidation. – Two
or more corporations may merge into a single
corporation which shall be one of the constituent
corporations or may consolidate into a new single
corporation which shall be the consolidated
corporation.
The board of directors or trustees of each corporation,
party to the merger or consolidation, shall approve a
plan of merger or consolidation setting forth the
following:
21
1. The names of the corporations proposing to
merge or consolidate, hereinafter referred to as
the constituent corporations;
2. The terms of the merger or consolidation and
the mode of carrying the same into effect;
3. A statement of the changes, if any, in the
articles of incorporation of the surviving
corporation in case of merger; and, with respect
to the consolidated corporation in case of
consolidation, all the statements required to be
set forth in the articles of incorporation for
corporations organized under this Code; and
4. Such other provisions with respect to the
proposed merger or consolidation as are deemed
necessary or desirable. (n)
Section 77. Stockholder’s or member’s approval. –
Upon approval by majority vote of each of the board
of directors or trustees of the constituent corporations
of the plan of merger or consolidation, the same shall
be submitted for approval by the stockholders or
members of each of such corporations at separate
corporate meetings duly called for the purpose.
Notice of such meetings shall be given to all
stockholders or members of the respective
corporations, at least two (2) weeks prior to the date
of the meeting, either personally or by registered
mail. Said notice shall state the purpose of the
meeting and shall include a copy or a summary of the
plan of merger or consolidation. The affirmative vote
of stockholders representing at least two-thirds (2/3)
of the outstanding capital stock of each corporation in
the case of stock corporations or at least two-thirds
(2/3) of the members in the case of non-stock
corporations shall be necessary for the approval of
such plan. Any dissenting stockholder in stock
corporations may exercise his appraisal right in
accordance with the Code: Provided, That if after the
approval by the stockholders of such plan, the board
of directors decides to abandon the plan, the appraisal
right shall be extinguished.
Any amendment to the plan of merger or
consolidation may be made, provided such
amendment is approved by majority vote of the
respective boards of directors or trustees of all the
constituent corporations and ratified by the
affirmative vote of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or of
two-thirds (2/3) of the members of each of the
constituent corporations. Such plan, together with any
amendment, shall be considered as the agreement of
merger or consolidation. (n)
Section 78. Articles of merger or consolidation. –
After the approval by the stockholders or members as
required by the preceding section, articles of merger
or articles of consolidation shall be executed by each
of the constituent corporations, to be signed by the
president or vice-president and certified by the
secretary or assistant secretary of each corporation
setting forth:
1. The plan of the merger or the plan of
consolidation;
2. As to stock corporations, the number of shares
outstanding, or in the case of non-stock
corporations, the number of members; and
3. As to each corporation, the number of shares
or members voting for and against such plan,
respectively. (n)
Section 79. Effectivity of merger or consolidation. –
The articles of merger or of consolidation, signed and
certified as herein above required, shall be submitted
to the Securities and Exchange Commission in
quadruplicate for its approval: Provided, That in the
case of merger or consolidation of banks or banking
institutions, building and loan associations, trust
companies, insurance companies, public utilities,
educational institutions and other special corporations
governed by special laws, the favorable
recommendation of the appropriate government
agency shall first be obtained. If the Commission is
satisfied that the merger or consolidation of the
corporations concerned is not inconsistent with the
provisions of this Code and existing laws, it shall
issue a certificate of merger or of consolidation, at
which time the merger or consolidation shall be
effective.
If, upon investigation, the Securities and Exchange
Commission has reason to believe that the proposed
merger or consolidation is contrary to or inconsistent
with the provisions of this Code or existing laws, it
22
shall set a hearing to give the corporations concerned
the opportunity to be heard. Written notice of the
date, time and place of hearing shall be given to each
constituent corporation at least two (2) weeks before
said hearing. The Commission shall thereafter
proceed as provided in this Code. (n)
Section 80. Effects of merger or consolidation. – The
merger or consolidation shall have the following
effects:
1. The constituent corporations shall become a
single corporation which, in case of merger, shall
be the surviving corporation designated in the
plan of merger; and, in case of consolidation,
shall be the consolidated corporation designated
in the plan of consolidation;
2. The separate existence of the constituent
corporations shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated corporation
shall possess all the rights, privileges, immunities
and powers and shall be subject to all the duties
and liabilities of a corporation organized under
this Code;
4. The surviving or the consolidated corporation
shall thereupon and thereafter possess all the
rights, privileges, immunities and franchises of
each of the constituent corporations; and all
property, real or personal, and all receivables due
on whatever account, including subscriptions to
shares and other choses in action, and all and
every other interest of, or belonging to, or due to
each constituent corporation, shall be deemed
transferred to and vested in such surviving or
consolidated corporation without further act or
deed; and
5. The surviving or consolidated corporation
shall be responsible and liable for all the
liabilities and obligations of each of the
constituent corporations in the same manner as if
such surviving or consolidated corporation had
itself incurred such liabilities or obligations; and
any pending claim, action or proceeding brought
by or against any of such constituent
corporations may be prosecuted by or against the
 surviving or consolidated corporation. The rights
of creditors or liens upon the property of any of
such constituent corporations shall not be
impaired by such merger or consolidation. (n)
TITLE X
APPRAISAL RIGHT
Section 81. Instances of appraisal right. – Any
stockholder of a corporation shall have the right to
dissent and demand payment of the fair value of his
shares in the following instances:
1. In case any amendment to the articles of
incorporation has the effect of changing or
restricting the rights of any stockholder or class
of shares, or of authorizing preferences in any
respect superior to those of outstanding shares of
any class, or of extending or shortening the term
of corporate existence;
2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of all or
substantially all of the corporate property and
assets as provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. – The appraisal
right may be exercised by any stockholder who shall
have voted against the proposed corporate action, by
making a written demand on the corporation within
thirty (30) days after the date on which the vote was
taken for payment of the fair value of his shares:
Provided, That failure to make the demand within
such period shall be deemed a waiver of the appraisal
right. If the proposed corporate action is implemented
or affected, the corporation shall pay to such
stockholder, upon surrender of the certificate or
certificates of stock representing his shares, the fair
value thereof as of the day prior to the date on which
the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.
If within a period of sixty (60) days from the date the
corporate action was approved by the stockholders,
the withdrawing stockholder and the corporation
cannot agree on the fair value of the shares, it shall be
determined and appraised by three (3) disinterested
persons, one of whom shall be named by the
23
stockholder, another by the corporation, and the third
by the two thus chosen. The findings of the majority
of the appraisers shall be final, and their award shall
be paid by the corporation within thirty (30) days
after such award is made: Provided, That no payment
shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in
its books to cover such payment: and Provided,
further, That upon payment by the corporation of the
agreed or awarded price, the stockholder shall
forthwith transfer his shares to the corporation. (n)
Section 83. Effect of demand and termination of
right. – From the time of demand for payment of the
fair value of a stockholder’s shares until either the
abandonment of the corporate action involved or the
purchase of the said shares by the corporation, all
rights accruing to such shares, including voting and
dividend rights, shall be suspended in accordance
with the provisions of this Code, except the right of
such stockholder to receive payment of the fair value
thereof: Provided, That if the dissenting stockholder
is not paid the value of his shares within 30 days after
the award, his voting and dividend rights shall
immediately be restored. (n)
Section 84. When right to payment ceases. – No
demand for payment under this Title may be
withdrawn unless the corporation consents thereto. If,
however, such demand for payment is withdrawn
with the consent of the corporation, or if the proposed
corporate action is abandoned or rescinded by the
corporation or disapproved by the Securities and
Exchange Commission where such approval is
necessary, or if the Securities and Exchange
Commission determines that such stockholder is not
entitled to the appraisal right, then the right of said
stockholder to be paid the fair value of his shares
shall cease, his status as a stockholder shall thereupon
be restored, and all dividend distributions which
would have accrued on his shares shall be paid to
him. (n)
Section 85. Who bears costs of appraisal. – The costs
and expenses of appraisal shall be borne by the
corporation, unless the fair value ascertained by the
appraisers is approximately the same as the price
which the corporation may have offered to pay the
stockholder, in which case they shall be borne by the
latter. In the case of an action to recover such fair
value, all costs and expenses shall be assessed against
the corporation, unless the refusal of the stockholder
to receive payment was unjustified. (n)
Section 86. Notation on certificates; rights of
transferee. – Within ten (10) days after demanding
payment for his shares, a dissenting stockholder shall
submit the certificates of stock representing his
shares to the corporation for notation thereon that
such shares are dissenting shares. His failure to do so
shall, at the option of the corporation, terminate his
rights under this Title. If shares represented by the
certificates bearing such notation are transferred, and
the certificates consequently cancelled, the rights of
the transferor as a dissenting stockholder under this
Title shall cease and the transferee shall have all the
rights of a regular stockholder; and all dividend
distributions which would have accrued on such
shares shall be paid to the transferee. (n)
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, trustees, or officers, subject to the
provisions of this Code on dissolution: Provided,
That any profit which a 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 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. (n)
Section 88. Purposes. – Non-stock corporations may
be formed or organized for charitable, religious,
educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar 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. (n)
CHAPTER I
MEMBERS
24
Section 89. 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 by-laws. Unless so
limited, broadened or denied, each member,
regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of
incorporation or the by-laws, a member may vote by
proxy in accordance with the provisions of this Code.
(n)
Voting by mail or other similar means by members of
non-stock corporations may be authorized by the by-
laws of non-stock corporations with the approval of,
and under such conditions which may be prescribed
by, the Securities and Exchange Commission.
Section 90. Non-transferability of membership. –
Membership in a non-stock corporation and all rights
arising therefrom are personal and non-transferable,
unless the articles of incorporation or the by-laws
otherwise provide. (n)
Section 91. Termination of membership. –
Membership shall be terminated in the manner and
for the causes provided in the articles of
incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all
rights of a member in the corporation or in its
property, unless otherwise provided in the articles of
incorporation or the by-laws. (n)
CHAPTER II
TRUSTEES AND OFFICES
Section 92. Election and term of trustees. – Unless
otherwise provided in the articles of incorporation or
the by-laws, the board of trustees of non-stock
corporations, which may be more than fifteen (15) in
number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized,
so classify themselves that the term of office of one-
third (1/3) of their number shall expire every year;
and subsequent elections of trustees comprising one-
third (1/3) of the board of trustees shall be held
annually and trustees so elected shall have a term of
three (3) years. Trustees thereafter elected to fill
vacancies occurring before the expiration of a
particular term shall hold office only for the
unexpired period.
No person shall be elected as trustee unless he is a
member of the corporation.
Unless otherwise provided in the articles of
incorporation or the by-laws, officers of a non-stock
corporation may be directly elected by the members.
(n)
Section 93. Place of meetings. – The by-laws may
provide that the members of a non-stock corporation
may hold their regular or special meetings at any
place even outside the place where the principal
office of the corporation is located: Provided, That
proper notice is sent to all members indicating the
date, time and place of the meeting: and Provided,
further, That the place of meeting shall be within the
Philippines. (n)
CHAPTER III
DISTRIBUTION OF ASSETS IN NON-STOCK
CORPORATIONS
Section 94. Rules of distribution. – In case
dissolution of a non-stock corporation in accordance
with the provisions of this Code, its assets shall be
applied and distributed as follows:
1. All liabilities and obligations of the
corporation shall be paid, satisfied and
discharged, or adequate provision shall be made
therefore;
2. Assets held by the corporation upon a
condition requiring return, transfer or
conveyance, and which condition occurs by
reason of the dissolution, shall be returned,
transferred or conveyed in accordance with such
requirements;
3. Assets received and held by the corporation
subject to limitations permitting their use only
for charitable, religious, benevolent, educational
or similar purposes, but not held upon a
condition requiring return, transfer or
conveyance by reason of the dissolution, shall be
transferred or conveyed to one or more
corporations, societies or organizations engaged
in activities in the Philippines substantially
25
similar to those of the dissolving corporation
according to a plan of distribution adopted
pursuant to this Chapter;
4. Assets other than those mentioned in the
preceding paragraphs, if any, shall be distributed
in accordance with the provisions of the articles
of incorporation or the by-laws, to the extent that
the articles of incorporation or the by-laws,
determine the distributive rights of members, or
any class or classes of members, or provide for
distribution; and
5. In any other case, assets may be distributed to
such persons, societies, organizations or
corporations, whether or not organized for profit,
as may be specified in a plan of distribution
adopted pursuant to this Chapter. (n)
Section 95. Plan of distribution of assets. – A plan
providing for the distribution of assets, not
inconsistent with the provisions of this Title, may be
adopted by a non-stock corporation in the process of
dissolution in the following manner:
The board of trustees shall, by majority vote, adopt a
resolution recommending a plan of distribution and
directing the submission thereof to a vote at a regular
or special meeting of members having voting rights.
Written notice setting forth the proposed plan of
distribution or a summary thereof and the date, time
and place of such meeting shall be given to each
member entitled to vote, within the time and in the
manner provided in this Code for the giving of notice
of meetings to members. Such plan of distribution
shall be adopted upon approval of at least two-thirds
(2/3) of the members having voting rights present or
represented by proxy at such meeting. (n)
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title.- A
close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1)
All the corporation’s issued stock of all classes,
exclusive of treasury shares, shall be held of record
by not more than a specified number of persons, not
exceeding twenty (20); (2) all the issued stock of all
classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3)
The corporation shall not list in any stock exchange
or make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a corporation
shall not be deemed a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is
owned or controlled by another corporation which is
not a close corporation within the meaning of this
Code.
Any corporation may be incorporated as a close
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public
utilities, educational institutions and corporations
declared to be vested with public interest in
accordance with the provisions of this Code.
The provisions of this Title shall primarily govern
close corporations: Provided, That the provisions of
other Titles of this Code shall apply suppletorily
except insofar as this Title otherwise provides.
Section 97. Articles of incorporation. – The articles
of incorporation of a close corporation may provide:
1. For a classification of shares or rights and the
qualifications for owning or holding the same
and restrictions on their transfers as may be
stated therein, subject to the provisions of the
following section;
2. For a classification of directors into one or
more classes, each of whom may be voted for
and elected solely by a particular class of stock;
and
3. For a greater quorum or voting requirements in
meetings of stockholders or directors than those
provided in this Code.
The articles of incorporation of a close corporation
may provide that the business of the corporation shall
be managed by the stockholders of the corporation
rather than by a board of directors. So long as this
provision continues in effect:
1. No meeting of stockholders need be called to
elect directors;
2. Unless the context clearly requires otherwise,
26
the stockholders of the corporation shall be
deemed to be directors for the purpose of
applying the provisions of this Code; and
3. The stockholders of the corporation shall be
subject to all liabilities of directors.
The articles of incorporation may likewise provide
that all officers or employees or that specified
officers or employees shall be elected or appointed by
the stockholders, instead of by the board of directors.
Section 98. Validity of restrictions on transfer of
shares. – Restrictions on the right to transfer shares
must appear in the articles of incorporation and in the
by-laws as well as in the certificate of stock;
otherwise, the same shall not be binding on any
purchaser thereof in good faith. Said restrictions shall
not be more onerous than granting the existing
stockholders or the corporation the option to purchase
the shares of the transferring stockholder with such
reasonable terms, conditions or period stated therein.
If upon the expiration of said period, the existing
stockholders or the corporation fails to exercise the
option to purchase, the transferring stockholder may
sell his shares to any third person.
Section 99. Effects of issuance or transfer of stock in
breach of qualifying conditions. -
1. If stock of a close corporation is issued or
transferred to any person who is not entitled
under any provision of the articles of
incorporation to be a holder of record of its
stock, and if the certificate for such stock
conspicuously shows the qualifications of the
persons entitled to be holders of record thereof,
such person is conclusively presumed to have
notice of the fact of his ineligibility to be a
stockholder.
2. If the articles of incorporation of a close
corporation states the number of persons, not
exceeding twenty (20), who are entitled to be
holders of record of its stock, and if the
certificate for such stock conspicuously states
such number, and if the issuance or transfer of
stock to any person would cause the stock to be
held by more than such number of persons, the
person to whom such stock is issued or
 transferred is conclusively presumed to have
notice of this fact.
3. If a stock certificate of any close corporation
conspicuously shows a restriction on transfer of
stock of the corporation, the transferee of the
stock is conclusively presumed to have notice of
the fact that he has acquired stock in violation of
the restriction, if such acquisition violates the
restriction.
4. Whenever any person to whom stock of a
close corporation has been issued or transferred
has, or is conclusively presumed under this
section to have, notice either (a) that he is a
person not eligible to be a holder of stock of the
corporation, or (b) that transfer of stock to him
would cause the stock of the corporation to be
held by more than the number of persons
permitted by its articles of incorporation to hold
stock of the corporation, or (c) that the transfer of
stock is in violation of a restriction on transfer of
stock, the corporation may, at its option, refuse to
register the transfer of stock in the name of the
transferee.
5. The provisions of subsection (4) shall not be
applicable if the transfer of stock, though
contrary to subsections (1), (2) or (3), has been
consented to by all the stockholders of the close
corporation, or if the close corporation has
amended its articles of incorporation in
accordance with this Title.
6. The term "transfer", as used in this section, is
not limited to a transfer for value.
7. The provisions of this section shall not impair
any right which the transferee may have to
rescind the transfer or to recover under any
applicable warranty, express or implied.
Section 100. Agreements by stockholders. -
1. Agreements by and among stockholders
executed before the formation and organization
of a close corporation, signed by all stockholders,
shall survive the incorporation of such
corporation and shall continue to be valid and
binding between and among such stockholders, if
27
such be their intent, to the extent that such
agreements are not inconsistent with the articles
of incorporation, irrespective of where the
provisions of such agreements are contained,
except those required by this Title to be
embodied in said articles of incorporation.
2. An agreement between two or more
stockholders, if in writing and signed by the
parties thereto, may provide that in exercising
any voting rights, the shares held by them shall
be voted as therein provided, or as they may
agree, or as determined in accordance with a
procedure agreed upon by them.
3. No provision in any written agreement signed
by the stockholders, relating to any phase of the
corporate affairs, shall be invalidated as between
the parties on the ground that its effect is to make
them partners among themselves.
4. A written agreement among some or all of the
stockholders in a close corporation shall not be
invalidated on the ground that it so relates to the
conduct of the business and affairs of the
corporation as to restrict or interfere with the
discretion or powers of the board of directors:
Provided, That such agreement shall impose on
the stockholders who are parties thereto the
liabilities for managerial acts imposed by this
Code on directors.
5. To the extent that the stockholders are actively
engaged in the management or operation of the
business and affairs of a close corporation, the
stockholders shall be held to strict fiduciary
duties to each other and among themselves. Said
stockholders shall be personally liable for
corporate torts unless the corporation has
obtained reasonably adequate liability insurance.
Section 101. When board meeting is unnecessary or
improperly held.- Unless the by-laws provide
otherwise, any action by the directors of a close
corporation without a meeting shall nevertheless be
deemed valid if:
1. Before or after such action is taken, written
consent thereto is signed by all the directors; or
 2. All the stockholders have actual or implied
knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal
action with the express or implied acquiescence
of all the stockholders; or
4. All the directors have express or implied
knowledge of the action in question and none of
them makes prompt objection thereto in writing.
If a director’s meeting is held without proper call or
notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to
attend, unless he promptly files his written objection
with the secretary of the corporation after having
knowledge thereof.
Section 102. Pre-emptive right in close corporations.
– The pre-emptive right of stockholders in close
corporations shall extend to all stock to be issued,
including reissuance of treasury shares, whether for
money, property or personal services, or in payment
of corporate debts, unless the articles of incorporation
provide otherwise.
Section 103. Amendment of articles of incorporation.
– Any amendment to the articles of incorporation
which seeks to delete or remove any provision
required by this Title to be contained in the articles of
incorporation or to reduce a quorum or voting
requirement stated in said articles of incorporation
shall not be valid or effective unless approved by the
affirmative vote of at least two-thirds (2/3) of the
outstanding capital stock, whether with or without
voting rights, or of such greater proportion of shares
as may be specifically provided in the articles of
incorporation for amending, deleting or removing any
of the aforesaid provisions, at a meeting duly called
for the purpose.
Section 104. Deadlocks. – Notwithstanding any
contrary provision in the articles of incorporation or
by-laws or agreement of stockholders of a close
corporation, if the directors or stockholders are so
divided respecting the management of the
corporation’s business and affairs that the votes
required for any corporate action cannot be obtained,
with the consequence that the business and affairs of
28
the corporation can no longer be conducted to the
advantage of the stockholders generally, the
Securities and Exchange Commission, upon written
petition by any stockholder, shall have the power to
arbitrate the dispute. In the exercise of such power,
the Commission shall have authority to make such
order as it deems appropriate, including an order: (1)
cancelling or altering any provision contained in the
articles of incorporation, by-laws, or any
stockholder’s agreement; (2) cancelling, altering or
enjoining any resolution or act of the corporation or
its board of directors, stockholders, or officers; (3)
directing or prohibiting any act of the corporation or
its board of directors, stockholders, officers, or other
persons party to the action; (4) requiring the purchase
at their fair value of shares of any stockholder, either
by the corporation regardless of the availability of
unrestricted retained earnings in its books, or by the
other stockholders; (5) appointing a provisional
director; (6) dissolving the corporation; or (7)
granting such other relief as the circumstances may
warrant.
A provisional director shall be an impartial person
who is neither a stockholder nor a creditor of the
corporation or of any subsidiary or affiliate of the
corporation, and whose further qualifications, if any,
may be determined by the Commission. A provisional
director is not a receiver of the corporation and does
not have the title and powers of a custodian or
receiver. A provisional director shall have all the
rights and powers of a duly elected director of the
corporation, including the right to notice of and to
vote at meetings of directors, until such time as he
shall be removed by order of the Commission or by
all the stockholders. His compensation shall be
determined by agreement between him and the
corporation subject to approval of the Commission,
which may fix his compensation in the absence of
agreement or in the event of disagreement between
the provisional director and the corporation.
Section 105. Withdrawal of stockholder or
dissolution of corporation. – In addition and without
prejudice to other rights and remedies available to a
stockholder under this Title, any stockholder of a
close corporation may, for any reason, compel the
said corporation to purchase his shares at their fair
value, which shall not be less than their par or issued
value, when the corporation has sufficient assets in its
books to cover its debts and liabilities exclusive of
capital stock: Provided, That any stockholder of a
close corporation may, by written petition to the
Securities and Exchange Commission, compel the
dissolution of such corporation whenever any of acts
of the directors, officers or those in control of the
corporation is illegal, or fraudulent, or dishonest, or
oppressive or unfairly prejudicial to the corporation
or any stockholder, or whenever corporate assets are
being misapplied or wasted.
TITLE XIII
SPECIAL CORPORATIONS
CHAPTER I - EDUCATIONAL
CORPORATIONS
Section 106. Incorporation. – Educational
corporations shall be governed by special laws and by
the general provisions of this Code. (n)
Section 107. Pre-requisites to incorporation. –
Except upon favorable recommendation of the
Ministry of Education and Culture, the Securities and
Exchange Commission shall not accept or approve
the articles of incorporation and by-laws of any
educational institution. (168a)
Section 108. Board of trustees. – Trustees of
educational institutions organized as non-stock
corporations shall not be less than five (5) nor more
than fifteen (15): Provided, however, That the
number of trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of
incorporation on the by-laws, the board of trustees of
incorporated schools, colleges, or other institutions of
learning shall, as soon as organized, so classify
themselves that the term of office of one-fifth (1/5) of
their number shall expire every year. Trustees
thereafter elected to fill vacancies, occurring before
the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected
thereafter to fill vacancies caused by expiration of
term shall hold office for five (5) years. A majority of
the trustees shall constitute a quorum for the
transaction of business. The powers and authority of
trustees shall be defined in the by-laws.
For institutions organized as stock corporations, the
number and term of directors shall be governed by
29
the provisions on stock corporations. (169a)
CHAPTER II
RELIGIOUS CORPORATIONS
Section 109. Classes of religious corporations. –
Religious corporations may be incorporated by one or
more persons. Such corporations may be classified
into corporations sole and religious societies.
Religious corporations shall be governed by this
Chapter and by the general provisions on non-stock
corporations insofar as they may be applicable. (n)
Section 110. Corporation sole. – For the purpose of
administering and managing, as trustee, the affairs,
property and temporalities of any religious
denomination, sect or church, a corporation sole may
be formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of such
religious denomination, sect or church. (154a)
Section 111. Articles of incorporation. – In order to
become a corporation sole, the chief archbishop,
bishop, priest, minister, rabbi or presiding elder of
any religious denomination, sect or church must file
with the Securities and Exchange Commission
articles of incorporation setting forth the following:
1. That he is the chief archbishop, bishop, priest,
minister, rabbi or presiding elder of his religious
denomination, sect or church and that he desires
to become a corporation sole;
2. That the rules, regulations and discipline of his
religious denomination, sect or church are not
inconsistent with his becoming a corporation sole
and do not forbid it;
3. That as such chief archbishop, bishop, priest,
minister, rabbi or presiding elder, he is charged
with the administration of the temporalities and
the management of the affairs, estate and
properties of his religious denomination, sect or
church within his territorial jurisdiction,
describing such territorial jurisdiction;
4. The manner in which any vacancy occurring in
the office of chief archbishop, bishop, priest,
minister, rabbi of presiding elder is required to be
 filled, according to the rules, regulations or
discipline of the religious denomination, sect or
church to which he belongs; and
5. The place where the principal office of the
corporation sole is to be established and located,
which place must be within the Philippines.
The articles of incorporation may include any
other provision not contrary to law for the
regulation of the affairs of the corporation. (n)
Section 112. Submission of the articles of
incorporation. – The articles of incorporation must be
verified, before filing, by affidavit or affirmation of
the chief archbishop, bishop, priest, minister, rabbi or
presiding elder, as the case may be, and accompanied
by a copy of the commission, certificate of election or
letter of appointment of such chief archbishop,
bishop, priest, minister, rabbi or presiding elder, duly
certified to be correct by any notary public.
From and after the filing with the Securities and
Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation, and
accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop,
priest, minister, rabbi or presiding elder shall become
a corporation sole and all temporalities, estate and
properties of the religious denomination, sect or
church theretofore administered or managed by him
as such chief archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in trust by him
as a corporation sole, for the use, purpose, behalf and
sole benefit of his religious denomination, sect or
church, including hospitals, schools, colleges, orphan
asylums, parsonages and cemeteries thereof. (n)
Section 113. Acquisition and alienation of property. –
Any corporation sole may purchase and hold real
estate and personal property for its church, charitable,
benevolent or educational purposes, and may receive
bequests or gifts for such purposes. Such corporation
may sell or mortgage real property held by it by
obtaining an order for that purpose from the Court of
First Instance of the province where the property is
situated upon proof made to the satisfaction of the
court that notice of the application for leave to sell or
mortgage has been given by publication or otherwise
in such manner and for such time as said court may
30
have directed, and that it is to the interest of the
corporation that leave to sell or mortgage should be
granted. The application for leave to sell or mortgage
must be made by petition, duly verified, by the chief
archbishop, bishop, priest, minister, rabbi or
presiding elder acting as corporation sole, and may be
opposed by any member of the religious
denomination, sect or church represented by the
corporation sole: Provided, That in cases where the
rules, regulations and discipline of the religious
denomination, sect or church, religious society or
order concerned represented by such corporation sole
regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such
rules, regulations and discipline shall control, and the
intervention of the courts shall not be necessary.
(159a)
Section 114. Filling of vacancies. – The successors in
office of any chief archbishop, bishop, priest,
minister, rabbi or presiding elder in a corporation sole
shall become the corporation sole on their accession
to office and shall be permitted to transact business as
such on the filing with the Securities and Exchange
Commission of a copy of their commission,
certificate of election, or letters of appointment, duly
certified by any notary public.
During any vacancy in the office of chief archbishop,
bishop, priest, minister, rabbi or presiding elder of
any religious denomination, sect or church
incorporated as a corporation sole, the person or
persons authorized and empowered by the rules,
regulations or discipline of the religious
denomination, sect or church represented by the
corporation sole to administer the temporalities and
manage the affairs, estate and properties of the
corporation sole during the vacancy shall exercise all
the powers and authority of the corporation sole
during such vacancy. (158a)
Section 115. Dissolution. – A corporation sole may
be dissolved and its affairs settled voluntarily by
submitting to the Securities and Exchange
Commission a verified declaration of dissolution.
The declaration of dissolution shall set forth:
1. The name of the corporation;
 2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the
corporation by the particular religious
denomination, sect or church;
4. The names and addresses of the persons who
are to supervise the winding up of the affairs of
the corporation.
Upon approval of such declaration of dissolution
by the Securities and Exchange Commission, the
corporation shall cease to carry on its operations
except for the purpose of winding up its affairs.
(n)
Section 116. Religious societies. – Any religious
society or religious order, or any diocese, synod, or
district organization of any religious denomination,
sect or church, unless forbidden by the constitution,
rules, regulations, or discipline of the religious
denomination, sect or church of which it is a part, or
by competent authority, may, upon written consent
and/or by an affirmative vote at a meeting called for
the purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration of its
temporalities or for the management of its affairs,
properties and estate by filing with the Securities and
Exchange Commission, articles of incorporation
verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious
society or religious order, or diocese, synod, or
district organization of the religious denomination,
sect or church, setting forth the following:
1. That the religious society or religious order, or
diocese, synod, or district organization is a
religious organization of a religious
denomination, sect or church;
2. That at least two-thirds (2/3) of its
membership have given their written consent or
have voted to incorporate, at a duly convened
meeting of the body;
3. That the incorporation of the religious society
or religious order, or diocese, synod, or district
organization desiring to incorporate is not
forbidden by competent authority or by the
constitution, rules, regulations or discipline of
31
the religious denomination, sect, or church of
which it forms a part;
4. That the religious society or religious order, or
diocese, synod, or district organization desires to
incorporate for the administration of its affairs,
properties and estate;
5. The place where the principal office of the
corporation is to be established and located,
which place must be within the Philippines; and
6. The names, nationalities, and residences of the
trustees elected by the religious society or
religious order, or the diocese, synod, or district
organization to serve for the first year or such
other period as may be prescribed by the laws of
the religious society or religious order, or of the
diocese, synod, or district organization, the board
of trustees to be not less than five (5) nor more
than fifteen (15). (160a)
TITLE XIV
DISSOLUTION
Section 117. Methods of dissolution. – A corporation
formed or organized under the provisions of this
Code may be dissolved voluntarily or involuntarily.
(n)
Section 118. Voluntary dissolution where no creditors
are affected. – If dissolution of a corporation does not
prejudice the rights of any creditor having a claim
against it, the dissolution may be effected by majority
vote of the board of directors or trustees, and by a
resolution duly adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds
(2/3) of the members of a meeting to be held upon
call of the directors or trustees after publication of the
notice of time, place and object of the meeting for
three (3) consecutive weeks in a newspaper published
in the place where the principal office of said
corporation is located; and if no newspaper is
published in such place, then in a newspaper of
general circulation in the Philippines, after sending
such notice to each stockholder or member either by
registered mail or by personal delivery at least thirty
(30) days prior to said meeting. A copy of the
resolution authorizing the dissolution shall be
certified by a majority of the board of directors or
trustees and countersigned by the secretary of the
corporation. The Securities and Exchange
Commission shall thereupon issue the certificate of
dissolution. (62a)
Section 119. Voluntary dissolution where creditors
are affected. – Where the dissolution of a corporation
may prejudice the rights of any creditor, the petition
for dissolution shall be filed with the Securities and
Exchange Commission. The petition shall be signed
by a majority of its board of directors or trustees or
other officers having the management of its affairs,
verified by its president or secretary or one of its
directors or trustees, and shall set forth all claims and
demands against it, and that its dissolution was
resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or by at least two-thirds
(2/3) of the members at a meeting of its stockholders
or members called for that purpose.
If the petition is sufficient in form and substance, the
Commission shall, by an order reciting the purpose of
the petition, fix a date on or before which objections
thereto may be filed by any person, which date shall
not be less than thirty (30) days nor more than sixty
(60) days after the entry of the order. Before such
date, a copy of the order shall be published at least
once a week for three (3) consecutive weeks in a
newspaper of general circulation published in the
municipality or city where the principal office of the
corporation is situated, or if there be no such
newspaper, then in a newspaper of general circulation
in the Philippines, and a similar copy shall be posted
for three (3) consecutive weeks in three (3) public
places in such municipality or city.
Upon five (5) day’s notice, given after the date on
which the right to file objections as fixed in the order
has expired, the Commission shall proceed to hear
the petition and try any issue made by the objections
filed; and if no such objection is sufficient, and the
material allegations of the petition are true, it shall
render judgment dissolving the corporation and
directing such disposition of its assets as justice
requires, and may appoint a receiver to collect such
assets and pay the debts of the corporation. (Rule
104, RCa)
32
Section 120. Dissolution by shortening corporate
term. – A voluntary dissolution may be effected by
amending the articles of incorporation to shorten the
corporate term pursuant to the provisions of this
Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and
Exchange Commission in accordance with this Code.
Upon approval of the amended articles of
incorporation of the expiration of the shortened term,
as the case may be, the corporation shall be deemed
dissolved without any further proceedings, subject to
the provisions of this Code on liquidation. (n)
Section 121. Involuntary dissolution. – A corporation
may be dissolved by the Securities and Exchange
Commission upon filing of a verified complaint and
after proper notice and hearing on the grounds
provided by existing laws, rules and regulations. (n)
Section 122. Corporate liquidation. – Every
corporation whose charter expires by its own
limitation or is annulled by forfeiture or otherwise, or
whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after
the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs,
to dispose of and convey its property and to distribute
its assets, but not for the purpose of continuing the
business for which it was established.
At any time during said three (3) years, the
corporation is authorized and empowered to convey
all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons
in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit
of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the
property terminates, the legal interest vests in the
trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in
interest.
Upon the winding up of the corporate affairs, any
asset distributable to any creditor or stockholder or
member who is unknown or cannot be found shall be
escheated to the city or municipality where such
assets are located.
Except by decrease of capital stock and as otherwise
allowed by this Code, no corporation shall distribute
any of its assets or property except upon lawful
dissolution and after payment of all its debts and
liabilities. (77a, 89a, 16a)
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign
corporations. – For the purposes of this Code, a
foreign corporation is one formed, organized or
existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens
and corporations to do business in its own country or
state. It shall have the right to transact business in the
Philippines after it shall have obtained a license to
transact business in this country in accordance with
this Code and a certificate of authority from the
appropriate government agency. (n)
Section 124. Application to existing foreign
corporations. – Every foreign corporation which on
the date of the effectivity of this Code is authorized to
do business in the Philippines under a license
therefore issued to it, shall continue to have such
authority under the terms and condition of its license,
subject to the provisions of this Code and other
special laws. (n)
Section 125. Application for a license. – A foreign
corporation applying for a license to transact business
in the Philippines shall submit to the Securities and
Exchange Commission a copy of its articles of
incorporation and by-laws, certified in accordance
with law, and their translation to an official language
of the Philippines, if necessary. The application shall
be under oath and, unless already stated in its articles
of incorporation, shall specifically set forth the
following:
1. The date and term of incorporation;
2. The address, including the street number, of
the principal office of the corporation in the
country or state of incorporation;
3. The name and address of its resident agent
authorized to accept summons and process in all
legal proceedings and, pending the establishment
33
of a local office, all notices affecting the
corporation;
4. The place in the Philippines where the
corporation intends to operate;
5. The specific purpose or purposes which the
corporation intends to pursue in the transaction
of its business in the Philippines: Provided, That
said purpose or purposes are those specifically
stated in the certificate of authority issued by the
appropriate government agency;
6. The names and addresses of the present
directors and officers of the corporation;
7. A statement of its authorized capital stock and
the aggregate number of shares which the
corporation has authority to issue, itemized by
classes, par value of shares, shares without par
value, and series, if any;
8. A statement of its outstanding capital stock
and the aggregate number of shares which the
corporation has issued, itemized by classes, par
value of shares, shares without par value, and
series, if any;
9. A statement of the amount actually paid in;
and
10. Such additional information as may be
necessary or appropriate in order to enable the
Securities and Exchange Commission to
determine whether such corporation is entitled to
a license to transact business in the Philippines,
and to determine and assess the fees payable.
Attached to the application for license shall be a
duly executed certificate under oath by the
authorized official or officials of the jurisdiction
of its incorporation, attesting to the fact that the
laws of the country or state of the applicant allow
Filipino citizens and corporations to do business
therein, and that the applicant is an existing
corporation in good standing. If such certificate
is in a foreign language, a translation thereof in
English under oath of the translator shall be
attached thereto.
 The application for a license to transact business
in the Philippines shall likewise be accompanied
by a statement under oath of the president or any
other person authorized by the corporation,
showing to the satisfaction of the Securities and
Exchange Commission and other governmental
agency in the proper cases that the applicant is
solvent and in sound financial condition, and
setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1)
year immediately prior to the filing of the
application.
Foreign banking, financial and insurance
corporations shall, in addition to the above
requirements, comply with the provisions of
existing laws applicable to them. In the case of
all other foreign corporations, no application for
license to transact business in the Philippines
shall be accepted by the Securities and Exchange
Commission without previous authority from the
appropriate government agency, whenever
required by law. (68a)
Section 126. Issuance of a license. – If the Securities
and Exchange Commission is satisfied that the
applicant has complied with all the requirements of
this Code and other special laws, rules and
regulations, the Commission shall issue a license to
the applicant to transact business in the Philippines
for the purpose or purposes specified in such license.
Upon issuance of the license, such foreign
corporation may commence to transact business in
the Philippines and continue to do so for as long as it
retains its authority to act as a corporation under the
laws of the country or state of its incorporation,
unless such license is sooner surrendered, revoked,
suspended or annulled in accordance with this Code
or other special laws.
Within sixty (60) days after the issuance of the
license to transact business in the Philippines, the
license, except foreign banking or insurance
corporation, shall deposit with the Securities and
Exchange Commission for the benefit of present and
future creditors of the licensee in the Philippines,
securities satisfactory to the Securities and Exchange
Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines,
its political subdivisions and instrumentalities, or of
34
government-owned or controlled corporations and
entities, shares of stock in "registered enterprises" as
this term is defined in Republic Act No. 5186, shares
of stock in domestic corporations registered in the
stock exchange, or shares of stock in domestic
insurance companies and banks, or any combination
of these kinds of securities, with an actual market
value of at least one hundred thousand (P100,000.)
pesos; Provided, however, That within six (6) months
after each fiscal year of the licensee, the Securities
and Exchange Commission shall require the licensee
to deposit additional securities equivalent in actual
market value to two (2%) percent of the amount by
which the licensee’s gross income for that fiscal year
exceeds five million (P5,000,000.00) pesos. The
Securities and Exchange Commission shall also
require deposit of additional securities if the actual
market value of the securities on deposit has
decreased by at least ten (10%) percent of their actual
market value at the time they were deposited. The
Securities and Exchange Commission may at its
discretion release part of the additional securities
deposited with it if the gross income of the licensee
has decreased, or if the actual market value of the
total securities on deposit has increased, by more than
ten (10%) percent of the actual market value of the
securities at the time they were deposited. The
Securities and Exchange Commission may, from time
to time, allow the licensee to substitute other
securities for those already on deposit as long as the
licensee is solvent. Such licensee shall be entitled to
collect the interest or dividends on the securities
deposited. In the event the licensee ceases to do
business in the Philippines, the securities deposited as
aforesaid shall be returned, upon the licensee’s
application therefor and upon proof to the satisfaction
of the Securities and Exchange Commission that the
licensee has no liability to Philippine residents,
including the Government of the Republic of the
Philippines. (n)
Section 127. Who may be a resident agent. – A
resident agent may be either an individual residing in
the Philippines or a domestic corporation lawfully
transacting business in the Philippines: Provided,
That in the case of an individual, he must be of good
moral character and of sound financial standing. (n)
Section 128. Resident agent; service of process. –
The Securities and Exchange Commission shall
require as a condition precedent to the issuance of the
license to transact business in the Philippines by any
foreign corporation that such corporation file with the
Securities and Exchange Commission a written
power of attorney designating some person who must
be a resident of the Philippines, on whom any
summons and other legal processes may be served in
all actions or other legal proceedings against such
corporation, and consenting that service upon such
resident agent shall be admitted and held as valid as if
served upon the duly authorized officers of the
foreign corporation at its home office. Any such
foreign corporation shall likewise execute and file
with the Securities and Exchange Commission an
agreement or stipulation, executed by the proper
authorities of said corporation, in form and substance
as follows:
"The (name of foreign corporation) does hereby
stipulate and agree, in consideration of its being
granted by the Securities and Exchange Commission
a license to transact business in the Philippines, that if
at any time said corporation shall cease to transact
business in the Philippines, or shall be without any
resident agent in the Philippines on whom any
summons or other legal processes may be served,
then in any action or proceeding arising out of any
business or transaction which occurred in the
Philippines, service of any summons or other legal
process may be made upon the Securities and
Exchange Commission and that such service shall
have the same force and effect as if made upon the
duly-authorized officers of the corporation at its
home office."
Whenever such service of summons or other process
shall be made upon the Securities and Exchange
Commission, the Commission shall, within ten (10)
days thereafter, transmit by mail a copy of such
summons or other legal process to the corporation at
its home or principal office. The sending of such copy
by the Commission shall be necessary part of and
shall complete such service. All expenses incurred by
the Commission for such service shall be paid in
advance by the party at whose instance the service is
made.
In case of a change of address of the resident agent, it
shall be his or its duty to immediately notify in
writing the Securities and Exchange Commission of
35
the new address. (72a; and n)
Section 129. Law applicable. – Any foreign
corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and
regulations applicable to domestic corporations of the
same class, except such only as provide for the
creation, formation, organization or dissolution of
corporations or those which fix the relations,
liabilities, responsibilities, or duties of stockholders,
members, or officers of corporations to each other or
to the corporation. (73a)
Section 130. Amendments to articles of
incorporation or by-laws of foreign corporations. –
Whenever the articles of incorporation or by-laws of
a foreign corporation authorized to transact business
in the Philippines are amended, such foreign
corporation shall, within sixty (60) days after the
amendment becomes effective, file with the
Securities and Exchange Commission, and in the
proper cases with the appropriate government agency,
a duly authenticated copy of the articles of
incorporation or by-laws, as amended, indicating
clearly in capital letters or by underscoring the
change or changes made, duly certified by the
authorized official or officials of the country or state
of incorporation. The filing thereof shall not of itself
enlarge or alter the purpose or purposes for which
such corporation is authorized to transact business in
the Philippines. (n)
Section 131. Amended license. – A foreign
corporation authorized to transact business in the
Philippines shall obtain an amended license in the
event it changes its corporate name, or desires to
pursue in the Philippines other or additional
purposes, by submitting an application therefor to the
Securities and Exchange Commission, favorably
endorsed by the appropriate government agency in
the proper cases. (n)
Section 132. Merger or consolidation involving a
foreign corporation licensed in the Philippines. –
One or more foreign corporations authorized to
transact business in the Philippines may merge or
consolidate with any domestic corporation or
corporations if such is permitted under Philippine
laws and by the law of its incorporation: Provided,
That the requirements on merger or consolidation as
provided in this Code are followed.
Whenever a foreign corporation authorized to
transact business in the Philippines shall be a party to
a merger or consolidation in its home country or state
as permitted by the law of its incorporation, such
foreign corporation shall, within sixty (60) days after
such merger or consolidation becomes effective, file
with the Securities and Exchange Commission, and in
proper cases with the appropriate government agency,
a copy of the articles of merger or consolidation duly
authenticated by the proper official or officials of the
country or state under the laws of which merger or
consolidation was effected: Provided, however, That
if the absorbed corporation is the foreign corporation
doing business in the Philippines, the latter shall at
the same time file a petition for withdrawal of its
license in accordance with this Title. (n)
Section 133. Doing business without a license. – No
foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or
administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine
laws. (69a)
Section 134. Revocation of license. – Without
prejudice to other grounds provided by special laws,
the license of a foreign corporation to transact
business in the Philippines may be revoked or
suspended by the Securities and Exchange
Commission upon any of the following grounds:
1. Failure to file its annual report or pay any fees
as required by this Code;
2. Failure to appoint and maintain a resident
agent in the Philippines as required by this Title;
3. Failure, after change of its resident agent or of
his address, to submit to the Securities and
Exchange Commission a statement of such
change as required by this Title;
4. Failure to submit to the Securities and
Exchange Commission an authenticated copy of
36
any amendment to its articles of incorporation or
by-laws or of any articles of merger or
consolidation within the time prescribed by this
Title;
5. A misrepresentation of any material matter in
any application, report, affidavit or other
document submitted by such corporation
pursuant to this Title;
6. Failure to pay any and all taxes, imposts,
assessments or penalties, if any, lawfully due to
the Philippine Government or any of its agencies
or political subdivisions;
7. Transacting business in the Philippines outside
of the purpose or purposes for which such
corporation is authorized under its license;
8. Transacting business in the Philippines as
agent of or acting for and in behalf of any foreign
corporation or entity not duly licensed to do
business in the Philippines; or
9. Any other ground as would render it unfit to
transact business in the Philippines. (n)
Section 135. Issuance of certificate of revocation. –
Upon the revocation of any such license to transact
business in the Philippines, the Securities and
Exchange Commission shall issue a corresponding
certificate of revocation, furnishing a copy thereof to
the appropriate government agency in the proper
cases.
The Securities and Exchange Commission shall also
mail to the corporation at its registered office in the
Philippines a notice of such revocation accompanied
by a copy of the certificate of revocation. (n)
Section 136. Withdrawal of foreign corporations. –
Subject to existing laws and regulations, a foreign
corporation licensed to transact business in the
Philippines may be allowed to withdraw from the
Philippines by filing a petition for withdrawal of
license. No certificate of withdrawal shall be issued
by the Securities and Exchange Commission unless
all the following requirements are met;
1. All claims which have accrued in the
 Philippines have been paid, compromised or
settled;
2. All taxes, imposts, assessments, and penalties,
if any, lawfully due to the Philippine Government
or any of its agencies or political subdivisions
have been paid; and
3. The petition for withdrawal of license has been
published once a week for three (3) consecutive
weeks in a newspaper of general circulation in
the Philippines.
TITLE XVI
MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined. – The
term "outstanding capital stock", as used in this Code,
means the total shares of stock issued under binding
subscription agreements to subscribers or
stockholders, whether or not fully or partially paid,
except treasury shares. (n)
Section 138. Designation of governing boards. – The
provisions of specific provisions of this Code to the
contrary notwithstanding, non-stock or special
corporations may, through their articles of
incorporation or their by-laws, designate their
governing boards by any name other than as board of
trustees. (n)
Section 139. Incorporation and other fees. – The
Securities and Exchange Commission is hereby
authorized to collect and receive fees as authorized
by law or by rules and regulations promulgated by
the Commission.1âwphi1 (n)
Section 140. Stock ownership in certain
corporations. – Pursuant to the duties specified by
Article XIV of the Constitution, the National
Economic and Development Authority shall, from
time to time, make a determination of whether the
corporate vehicle has been used by any corporation or
by business or industry to frustrate the provisions
thereof or of applicable laws, and shall submit to the
Batasang Pambansa, whenever deemed necessary, a
report of its findings, including recommendations for
their prevention or correction.
Maximum limits may be set by the Batasang
37
Pambansa for stockholdings in corporations declared
by it to be vested with a public interest pursuant to
the provisions of this section, belonging to
individuals or groups of individuals related to each
other by consanguinity or affinity or by close
business interests, or whenever it is necessary to
achieve national objectives, prevent illegal
monopolies or combinations in restraint or trade, or
to implement national economic policies declared in
laws, rules and regulations designed to promote the
general welfare and foster economic development.
In recommending to the Batasang Pambansa
corporations, businesses or industries to be declared
vested with a public interest and in formulating
proposals for limitations on stock ownership, the
National Economic and Development Authority shall
consider the type and nature of the industry, the size
of the enterprise, the economies of scale, the
geographic location, the extent of Filipino ownership,
the labor intensity of the activity, the export potential,
as well as other factors which are germane to the
realization and promotion of business and industry.
Section 141. Annual report or corporations. – Every
corporation, domestic or foreign, lawfully doing
business in the Philippines shall submit to the
Securities and Exchange Commission an annual
report of its operations, together with a financial
statement of its assets and liabilities, certified by any
independent certified public accountant in
appropriate cases, covering the preceding fiscal year
and such other requirements as the Securities and
Exchange Commission may require. Such report shall
be submitted within such period as may be prescribed
by the Securities and Exchange Commission. (n)
Section 142. Confidential nature of examination
results. – All interrogatories propounded by the
Securities and Exchange Commission and the
answers thereto, as well as the results of any
examination made by the Commission or by any
other official authorized by law to make an
examination of the operations, books and records of
any corporation, shall be kept strictly confidential,
except insofar as the law may require the same to be
made public or where such interrogatories, answers
or results are necessary to be presented as evidence
before any court. (n)
Section 143. Rule-making power of the Securities
and Exchange Commission. – The Securities and
Exchange Commission shall have the power and
authority to implement the provisions of this Code,
and to promulgate rules and regulations reasonably
necessary to enable it to perform its duties hereunder,
particularly in the prevention of fraud and abuses on
the part of the controlling stockholders, members,
directors, trustees or officers. (n)
Section 144. Violations of the Code. – Violations of
any of the provisions of this Code or its amendments
not otherwise specifically penalized therein shall be
punished by a fine of not less than one thousand
(P1,000.00) pesos but not more than ten thousand
(P10,000.00) pesos or by imprisonment for not less
than thirty (30) days but not more than five (5) years,
or both, in the discretion of the court. If the violation
is committed by a corporation, the same may, after
notice and hearing, be dissolved in appropriate
proceedings before the Securities and Exchange
Commission: Provided, That such dissolution shall
not preclude the institution of appropriate action
against the director, trustee or officer of the
corporation responsible for said violation: Provided,
further, That nothing in this section shall be construed
to repeal the other causes for dissolution of a
corporation provided in this Code. (190 1/2 a)
Section 145. Amendment or repeal. – No right or
remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such
corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired
either by the subsequent dissolution of said
corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. (n)
Section 146. Repealing clause. – Except as expressly
provided by this Code, all laws or parts thereof
inconsistent with any provision of this Code shall be
deemed repealed. (n)
Section 147. Separability of provisions. – Should any
provision of this Code or any part thereof be declared
invalid or unconstitutional, the other provisions, so
far as they are separable, shall remain in force. (n)
Section 148. Applicability to existing corporations. –
38
All corporations lawfully existing and doing business
in the Philippines on the date of the effectivity of this
Code and heretofore authorized, licensed or
registered by the Securities and Exchange
Commission, shall be deemed to have been
authorized, licensed or registered under the
provisions of this Code, subject to the terms and
conditions of its license, and shall be governed by the
provisions hereof: Provided, That if any such
corporation is affected by the new requirements of
this Code, said corporation shall, unless otherwise
herein provided, be given a period of not more than
two (2) years from the effectivity of this Code within
which to comply with the same. (n)
Section 149. Effectivity. – This Code shall take effect
immediately upon its approval.
Approved, May 1, 1980
INTERIM RULES OF PROCEDURE FOR
INTRA-CORPORATE CONTROVERSIES
Rule I
GENERAL PROVISIONS
Section 1. (a) Cases covered. - These Rules shall
govern the procedure to be observed in civil cases
involving the following:
(1) Devices or schemes employed by, or any act
of, the board of directors, business associates,
officers or partners, amounting to fraud or
misrepresentation which may be detrimental to
the interest of the public and/or of the
stockholders, partners, or members of any
corporation, partnership, or association;
(2) Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members, or associates; and
between, any or all of them and the corporation,
partnership, or association of which they are
 stockholders, members, or associates,
respectively;
(3) Controversies in the election or appointment
of directors, trustees, officers, or managers of
corporations, partnerships, or associations;
(4) Derivative suits; and cralaw
(5) Inspection of corporate books.cralaw
(b) Prohibition against nuisance and harassment
suits. - Nuisance and harassment suits are prohibited.
In determining whether a suit is a nuisance or
harassment suit, the court shall consider, among
others, the following:chanroblesvirtuallawlibrary
(1) The extent of the shareholding or interest of
the initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or
acts complained of; and cralaw
(5) Prejudice or damage to the corporation,
partnership, or association in relation to the relief
sought.cralaw
In case of nuisance or harassment suits, the court
may, motu proprio or upon motion, forthwith dismiss
the case.
Sec. 2. Suppletory application of the Rules of Court.
- The Rules of Court, in so far as they may be
applicable and are not inconsistent with these Rules,
are hereby adopted to form an integral part of these
Rules.
Sec. 3. Construction. - These Rules shall be liberally
construed in order to promote their objective of
securing a just, summary, speedy and inexpensive
determination of every action or proceeding.
Sec. 4. Executory nature of decisions and orders. -
All decisions and orders issued under these Rules
shall immediately be executory. No appeal or petition
taken therefrom shall stay the enforcement or
39
implementation of the decision or order, unless
restrained by an appellate court. Interlocutory orders
shall not be subject to appeal.
Sec. 5. Venue. - All actions covered by these Rules
shall be commenced and tried in the Regional Trial
Court which has jurisdiction over the principal office
of the corporation, partnership, or association
concerned. Where the principal office of the
corporation, partnership or association is registered in
the Securities and Exchange Commission as Metro
Manila, the action must be filed in the city or
municipality where the head office is located.
Sec. 6. Service of pleadings. - When so authorized
by the court, any pleading and/or document required
by these Rules may be filed with the court and/or
served upon the other parties by facsimile
transmission (fax) or electronic mail (e-mail). In such
cases, the date of transmission shall be deemed to be
prima facie the date of service.cralaw
Sec. 7. Signing of pleadings, motions and other
papers. - Every pleading, motion, and other paper of
a party represented by an attorney shall be signed by
at least one attorney of record in the attorney's
individual name, whose address shall be stated. A
party who is not represented by an attorney shall sign
the pleading, motion, or other paper and state his
address.cralaw
The signature of an attorney or party constitutes a
certification by the signer that he ha read the
pleading, motion, or other paper; that to the best of
his knowledge, information, and belief formed after
reasonable inquiry, it is well grounded in fact and is
warranted by existing law or a good faith argument
for the extension, modification, or reversal of existing
jurisprudence; and that it is not interposed for any
improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of
litigation.cralaw
If a pleading, motion, or other paper is not signed, it
shall be stricken off the record unless it is promptly
signed by the pleader or movant, after he is notified
of the omission.cralaw
Sec. 8. Prohibited pleadings. - The following
pleadings are prohibited:chanroblesvirtuallawlibrary
 (1) Motion to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial, or for reconsideration
of judgment or order, or for re-opening of trial;
(4) Motion for extension of time to file
pleadings, affidavits or any other paper, except
those filed due to clearly compelling reasons.
Such motion must be verified and under oath;
and cralaw
(5) Motion for postponement and other motions
of similar intent, except those filed due to clearly
compelling reasons. Such motion must be
verified and under oath.cralaw
Sec. 9. Assignment of cases. - All cases filed under
these Rules shall be tried by judges designated by the
Supreme Court to hear and decide cases transferred
from the Securities and Exchange Commission to the
Regional Trial Courts and filed directly with said
courts pursuant to Republic Act No. 8799, otherwise
known as the Securities Regulation Code.
Rule 2
COMMENCEMENT OF ACTION AND
PLEADINGS
Section 1. Commencement of action. - An action
under these Rules is commenced by the filing of a
verified complaint with the proper Regional Trial
Court.
Sec. 2. Pleadings allowed. - The only pleadings
allowed to be filed under these Rules are the
complaint, answer, compulsory counterclaims or
cross-claims pleaded in the answer, and the answer to
the counterclaims or cross-claims.cralaw
Sec. 3. Verification. - The complaint and the answer
shall be verified by an affidavit stating that the affiant
has read the pleading and the allegations therein are
true and correct based on his own personal
knowledge or on authentic records.cralaw
40
Sec. 4. Complaint. - The complaint shall state or
contain:chanroblesvirtuallawlibrary
(1) the names, addresses, and other relevant
personal or judicial circumstances of the parties;
(2) all facts material and relevant to the
plaintiff's cause or causes of action, which shall
be supported by affidavits of the plaintiff or his
witnesses and copies of documentary and other
evidence supportive of such cause or causes of
action;
(3) the law, rule, or regulation relied upon,
violated, or sought to be enforced;
(4) a certification that (a) the plaintiff has not
therefore commenced any action or filed any
claim involving the same issues in any court,
tribunal or quasi-judicial agency, and, to the best
of his knowledge, no such other action or claim
is pending therein; (b) if there is such other
action or claim, a complete statement of the
present status thereof; and (c) if he should
thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report
that fact within five (5) days therefrom to the
court; and cralaw
(5) the relief sought.cralaw
Sec. 5. Summons. - The summons and the complaint
shall be served together not later than five (5) days
from the date of filing of the complaint.
(a) Service upon domestic private juridical
entities. - If the defendant is a domestic
corporation, service shall be deemed adequate is
made upon any of the statutory or corporate
officers as fixed by the by-laws or their
respective secretaries. If the defendant is a
partnership, service shall be deemed adequate if
made upon any of the managing or general
partners or upon their respective secretaries. If
the defendant is an association service shall be
deemed adequate if made upon any of its officers
or their respective secretaries.
(b) Service upon foreign private juridical entity.
- When the defendant is a foreign private
 juridical entity which is transacting or has
transacted business in the Philippines, service
may be made on its resident agent designated in
accordance with law for that purpose, or, if there
be no such agent, on the government official
designated by law to that effect, or on any of its
officers or agents within the Philippines.cralaw
Sec. 6. Answer. - The defendant shall file his answer
to the complaint, serving a copy thereof on the
plaintiff, within fifteen (15) days from service of
summons.
In the answer, the defendant
shall:chanroblesvirtuallawlibrary
(1) Specify each material allegation of fact the
truth of which he admits;
(2) Specify each material allegation of fact the
truth of which he does not admit. Where the
defendant desires to deny only a part of an
averment, he shall specify so much of it as true
and material and shall deny only the remainder;
(3) Specify each material allegation of facts as to
which truth he has no knowledge or information
sufficient to form a belief, and this shall have the
effect of a denial;
(4) State the defenses, including grounds for a
motion to dismiss under the Rules of Court;
(5) State the law, rule, or regulation relied upon;
(6) Address each of the causes of action stated in
the complaint;
(7) State the facts upon which he relied for his
defense, including affidavits of witnesses and
copies of documentary and other evidence
supportive of such cause or causes of action;
(8) State any compulsory counterclaim/s and
cross-claim/s; and cralaw
(9) State the relief sought.cralaw
The answer to counterclaims or cross-claims shall be
filed within ten (10) days from service of the answer
in which they are pleaded.
41
Sec. 7. Effect of failure to answer. - If the defendant
fails to answer within the period above provided, he
shall be considered in default. Upon motion or motu
proprio, the court shall render judgment either
dismissing the complaint or granting the relief prayed
for as the records may warrant. In no case shall the
court award a relief beyond or different from that
prayed for.cralaw
Sec. 8. Affidavits, documentary and other evidence. -
Affidavits shall be based on personal knowledge,
shall set forth such facts as would be admissible in
evidence, and shall show affirmatively that the affiant
is competent to testify on the matters stated therein.
The affidavits shall be in question and answer form,
and shall comply with the rules on admissibility of
evidence.cralaw
Affidavits of witnesses as well as documentary and
other evidence shall be attached to the appropriate
pleading: Provided, however, that affidavits,
documentary and other evidence not so submitted
may be attached to the pre-trial brief required under
these Rules. Affidavits and other evidence not so
submitted shall not be admitted in evidence, except in
the following cases:chanroblesvirtuallawlibrary
(1) Testimony of unwilling, hostile, or adverse
party witnesses. A witness is presumed prima
facie hostile if he fails or refuses to execute an
affidavit after a written request therefor;
(2) If the failure to submit the evidence is for
meritorious and compelling reasons; and cralaw
(3) Newly discovered evidence.cralaw
In case of (2) and (3) above, the affidavit and
evidence must be submitted not later than five (5)
days prior to its introduction in evidence.
Rule 3
MODES OF DISCOVERY
Section 1.In general. - A party can only avail of any
of the modes of discovery not later than fifteen (15)
days from the joinder of issues.
 Sec. 2. Objections. - Any mode of discovery such as
interrogatories, request for admission, production or
inspection of documents or things, may be objected
to within ten (10) days from receipt of the discovery
device and only on the ground that the matter
requested is patently incompetent, immaterial,
irrelevant or privileged in nature. The court shall rule
on the objections not later than fifteen (15) days from
the filing thereof.cralaw
Sec. 3. Compliance. - Compliance with any mode of
discovery shall be made within ten (10) days from
receipt of the discovery device, or if there are
objections, from receipt of the ruling of the
court.cralaw
Sec. 4. Sanctions. - The sanctions prescribed in the
Rules of Court for failure to avail of, or refusal to
comply with, the modes of discovery shall apply. In
addition, the court may, upon motion, declare a party
non-suited or as in default, as the case may be, if the
refusal to comply with a mode of discovery is
patently unjustified.
Rule 4
PRE-TRIAL
Section 1. Pre-trial conference; mandatory nature. -
Within five (5) days after the period for availment of,
and compliance with, the modes of discovery
prescribed in Rule 3 hereof, whichever comes later,
the court shall issue and serve an order immediately
setting the case for pre-trial conference and directing
the parties to submit their respective pre-trial briefs.
The parties shall file with the court and furnish each
other copies of their respective pre-trial brief in such
manner as to ensure its receipt by the court and the
other party at least five (5) days before the date set
for the pre-trial.
The parties shall set forth in their pre-trial briefs,
among other matters, the
following:chanroblesvirtuallawlibrary
(1) Brief statement of the nature of the case,
which shall summarize the theory or theories of
the party in clear and concise language;
42
(2) Allegations expressly admitted by either or
both parties;
(3) Allegations deemed admittedly by either or
both parties;
(4) Documents not specifically denied under
oath by either or both parties;
(5) Amendments to the pleadings;
(6) Statement of the issues, which shall
separately summarize the factual and legal issues
involved in the case;
(7) Names of witnesses to be presented and the
summary of their testimony as contained in their
affidavits supporting their positions on each of
the issues;
(8) All other pieces of evidence, whether
documentary of otherwise and their respective
purposes;
(9) Specific proposals for an amicable
settlement;
(10) Possibility of referral to mediation or other
alternative modes of dispute resolution;
(11) Proposed schedule of hearings; and cralaw
(12) Such other matters as may aid in the just
and speedy disposition of the case.cralaw
Sec. 2. Nature and purpose of pre-trial conference. -
During the pre-trial conference, the court shall, with
its active participation, ensure that the parties
consider in detail all of the
following:chanroblesvirtuallawlibrary
(1) The possibility of an amicable settlement;
(2) Referral of the dispute to mediation or other
forms of dispute resolution;
(3) Facts that need not be proven, either because
they are matters of judicial notice or expressly or
deemed admitted;
 (4) Amendments to the pleadings;
(5) The possibility of obtaining stipulations and
admission of facts and documents;
(6) Objections to the admissibility of
testimonial, documentary and other evidence;
(7) Objections to the form or substance of any
affidavit, or part thereof;
(8) Simplification of the issues;
(9) The possibility of submitting the case for
decision on the basis of position papers,
affidavits, documentary and real evidence;
(10) A complete schedule of hearing dates; and
cralaw
(11) Such other matters as may aid in the speedy
and summary disposition of the case.cralaw
Sec. 3. Termination. - The preliminary conference
shall be terminated not later than ten (10) days after
its commencement, whether or not the parties have
agreed to settle amicably.
Sec. 4. Judgment before pre-trial. - If, after
submission of the pre-trial briefs, the court
determines that, upon consideration of the pleadings,
the affidavits and other evidence submitted by the
parties, a judgment may be rendered, the court may
order the parties to file simultaneously their
respective memoranda within a non-extendible period
of twenty (20) days from receipt of the order.
Thereafter, the court shall render judgment, either full
or otherwise, not later than ninety (90) days from the
expiration of the period to file the memoranda.cralaw
Sec. 5. Pre-trial order; judgment after pre-trial. -
The proceedings in the pre-trial shall be recorded.
Within ten (10) days after the termination of the pre-
trial, the court shall issue an order which shall recite
in detail the matters taken up in the conference, the
actions taken thereon, the amendments allowed in the
pleadings, and the agreements or admissions made by
the parties as to any of the matters considered. The
court shall rule on all objections to or comments on
the admissibility of any documentary or other
43
evidence, including any affidavit or any part thereof.
Should the action proceed to trial, the order shall
explicit define and limit the issues to be tried and
shall strictly follow the form set forth in Annex
"A"of these Rules.cralaw
The contents of the order shall control the
subsequent course of the action, unless modified
before trial to prevent manifest injustice.cralaw
After the pre-trial, the court may render judgment,
either full or partial, as the evidence presented during
the pre-trial may warrant.
Rule 5
TRIAL
Section 1. Witnesses. - If the court deems necessary
to hold hearings to determine specific factual matters
before rendering judgment, it shall, in the pre-trial
order set the case for trial on the dates agreed upon
by the parties.
Only persons whose affidavits were submitted may
be presented as witnesses, except in cases specified in
Section 8, Rule 2 of these Rules. The affidavits of the
witnesses shall serve as their direct testimonies,
subject to cross-examination in accordance with
existing rules on evidence.cralaw
Sec. 2. Trial schedule. - Unless judgment is rendered
pursuant to Rule 4 of these Rules, the initial hearing
shall be held not later than thirty (30) days from the
date of the pre-trial order. The hearings shall be
completed not later than sixty (60) days from the date
of the initial hearing, thirty (30) days of which shall
be allotted to the plaintiffs and thirty (30) days to the
defendants in the manner prescribed in the pre-trial
order. The failure of a party to present a witness on a
scheduled hearing date shall be deemed a waiver of
such hearing date. However, a party may present such
witness or witnesses within his remaining allotted
hearing dates.cralaw
Sec. 3. Written offer of evidence. - Evidence not
otherwise admitted by the parties or ruled upon by
the court during the pre-trial conference shall be
offered in writing not later than five (5) days from the
completion of the presentation of evidence of the
party concerned. The opposing party shall have five
(5) days from receipt of the offer to file his comments
or objections. The court shall make its ruling on the
offer within five (5) days from the expiration of the
period to file comments or objections.cralaw
Sec. 4. Memoranda. - Immediately after ruling on
the last offer of evidence, the court shall order the
parties to simultaneously file, within thirty (30) days
from receipt of the order, their respective
memoranda. The memoranda shall contain the
following:chanroblesvirtuallawlibrary
(1) A "Statement of the Case," which is a clear
and concise statement of the nature of the action
and a summary of the proceedings;
(2) A "Statement of the Facts," which is a clear
and concise statement in narrative form of the
established facts, with reference to the
testimonial, documentary or other evidence in
support thereof;
(3) A "Statement of the Issues,"which is a clear
and concise statement of the issues presented to
the court for resolution;
(4) The "Arguments," which is a clear and
concise presentation of the argument in support
of each issue; and cralaw
(5) The "Relief," which is a specification of the
order or judgment which the party seeks to
obtain.cralaw
No reply memorandum shall be allowed.
Sec. 5. Decision after trial. - The court shall render a
decision not later than (90) days from the lapse of the
period to file the memoranda, with or without said
pleading having been filed.
Rule 6
ELECTION CONTESTS
44
Section 1. Cases covered. - The provisions of this
rule shall apply to election contests in stock and non-
stock corporations.
Sec. 2. Definition. - An election contests refers to
any controversy or dispute involving title or claim to
any elective office in a stock or non-stock
corporation, the validation of proxies, the manner and
validity of elections, and the qualifications of
candidates, including the proclamation of winners, to
the office of director, trustee or other officer directly
elected by the stockholders in a close corporation or
by members of a non-stock corporation where the
article of incorporation or by-laws so provide.cralaw
Sec. 3. Complaint. - In addition to the requirements
in Section 4, Rule 2 of these Rules, the complaint in
an election contests must state the
following:chanroblesvirtuallawlibrary
(1) The case was filed fifteen (15) days from the
date of the election if the by-laws of the
corporation do not provide for a procedure for
resolution of the controversy, or within fifteen
(15) days from the resolution of the controversy
by the corporation as provided in its by-laws; and
(2) The plaintiff has exhausted all intra-
corporate remedies in election cases as provided
for in the by-laws of the corporation.cralaw
Sec. 4. Duty of the court upon the filing of the
complaint. - Within two (2) days from the filing of
the complaint, the court, upon a consideration of the
allegations thereof, may dismiss the complaint
outright if it is not sufficient in form and substance,
or, if it is sufficient, order the issuance of summons
which shall be served, together with a copy of the
complaint, on the defendant within two (2) days from
its issuance.
Sec. 5. Answer. - The defendant shall file his answer
to the complaint, serving a copy thereof on the
plaintiff, within ten (10) days from service of
summons and the complaint. The answer shall
contain the matters required in Section 6, Rule 2 of
these Rules.cralaw
Sec. 6. Affidavits, documentary and other evidence. -
The parties shall attach to the complaint and answer
the affidavits of witnesses, documentary and other
evidence in support thereof, if any.cralaw
Sec. 7. Effect of failure to answer. - If the defendants
fails to file an answer within the period above, the
court shall, within ten (10) days from the lapse of
said period, motu proprio or on motion, render
judgments as may be warranted by the allegations of
the complaint, as well as the affidavits, documentary
and other evidence on record. In no case shall the
court award a relief beyond or different from that
prayed for.cralaw
Sec. 8. Trial. - If the court deems it necessary to hold
a hearing to clarify specific factual matters before
rendering judgment, it shall, within ten (10) days
from the filling of the last pleading, issue an order
setting the case for hearing for the purpose. The order
shall, in clear and concise terms, specify the factual
matters the court desires to be clarified and the
witnesses, whose affidavits have been submitted, who
will give the necessary clarification.cralaw
The hearing shall be set on a date not later than ten
(10) days from the date of the order, and shall be
completed not later than fifteen (15) days from the
date of the first hearing. The affidavit of a witness
who fails to appear for clarificatory questions of the
court shall be ordered stricken off the record.cralaw
Sec. 9. Decision. - The Court shall render a decision
with fifteen (15) days from receipt of the last
pleading, or from the date of the last hearing as the
case may be. The decision shall be based on the
pleadings, affidavits, documentary and other evidence
attached thereto and the answers of the witnesses to
the clarificatory questions of the court given during
the hearings.
Rule 7
INSPECTION OF CORPORATE BOOKS AND
RECORDS
Section 1. Cases covered. - The provisions of this
Rule shall apply to disputes exclusively involving the
rights of stockholders or members to inspect the
books and records and/or to be furnished with the
45
financial statements of a corporation, under Sections
74 and 75 of Batas Pambansa Blg. 68, otherwise
known as the Corporation Code of the Philippines.
Sec. 2. Complaint. - In addition to the requirements
in section 4, Rule 2 of these Rules, the complaint
must state the following:chanroblesvirtuallawlibrary
(1) The case is for the enforcement of plaintiff's
right of inspection of corporate orders or records
and/or to be furnished with financial statements
under Sections 74 and 75 of the Corporation
Code of the Philippines;
(2) A demand for inspection and copying of
books and records and/or to be furnished with
financial statements made by the plaintiff upon
defendant;
(3) The refusal of defendant to grant the
demands of the plaintiff and the reasons given
for such refusals, if any; and cralaw
(4) The reasons why the refusal of defendant to
grant the demands of the plaintiff is unjustified
and illegal, stating the law and jurisprudence in
support thereof.cralaw
Sec. 3. Duty of the court upon the filing of the
complaint. - Within two (2) days from the filing of
the complaint, the court, upon a consideration of the
allegations thereof, may dismiss the complaint
outright if it is not sufficient in form and substance,
or, if it is sufficient, order the issuance of summons
which shall be served, together with a copy of the
complaint, on the defendant within two (2) days from
its issuance.
Sec. 4. Answer. - The defendant shall file his answer
to the complaint, serving a copy thereof on the
plaintiff, within ten (10) days from the service of
summons and the complaint. In addition to the
requirements in Section 6, Rule 2 of these Rules, the
answer must state the
following:chanroblesvirtuallawlibrary
(1) The grounds for the refusal of defendant to
grant the demands of the plaintiff, stating the law
and jurisprudence in support thereof;
 (2) The conditions or limitations on the exercise
of the right to inspect which should be imposed
by the court; and cralaw
(3) The cost of inspection, including manpower
and photocopying expenses, if the right to
inspect is granted.cralaw
Sec. 5. Affidavits, documentary and other evidence. -
The parties shall attach to the complaint and answer
the affidavits of witnesses, documentary and other
evidence in support thereof, if any.
Sec. 6. Effect of failure to answer. - If the defendants
fails to file an answer within the period above
provided, the court, within ten (10) days from the
lapse of the said period, motu proprio or upon
motion, shall render judgment as warranted by the
allegations of the complaint, as well as the affidavits,
documentary and other evidence on record. In no case
shall the court award a relief beyond or different from
that prayed for.cralaw
Sec. 7. Decision. - The court shall render a decision
based on the pleadings, affidavits and documentary
and other evidence attached thereto within fifteen
(15) days from receipt of the last pleading. A decision
ordering defendants to allow the inspection of books
and records and/or to furnish copies thereof shall also
order the plaintiff to deposit the estimated cost of the
manpower necessary to produce the books and
records and the cost of copying, and state, in clear
and categorical terms, the limitations and conditions
to the exercise of the right allowed or enforced.
Rule 8
DERIVATIVE SUITS
Section 1. Derivative action. — A stockholder or
member may bring an action in the name of a
corporation or association, as the case may be,
provided, that:chanroblesvirtuallawlibrary
(1) He was a stockholder or member at the time
the acts or transactions subject of the action
occurred and the time the action was filed;
46
(2) He exerted all reasonable efforts, and alleges
the same with particularity in the complaint, to
exhaust all remedies available under the articles
of incorporation, by-laws, laws or rules
governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the acts
or acts complained of; and cralaw
(4) The suits is not a nuisance or harassment
suit.cralaw
In case of nuisance of harassment suit, the court shall
forthwith dismiss the case.
Sec. 2. Discontinuance. - A derivative action shall
not be discontinued, compromised or settled without
approval of the court. During the pendency of the
action, any sale of shares of the complaining
stockholders shall be approved by the court. If the
court determines that the interest of the stockholders
or members will be substantially affected by the
discontinuance, compromise or settlement, the court
may direct that notice, by publication or otherwise, be
given to the stockholders or members whose interest
it determines will be so affected.
Rule 9
MANAGEMENT COMMITTEE
Section 1. Creation of a management committee. -
As an incident to any of the cases filed under these
Rules or the Interim Rules Corporate Rehabilitation,
a party may apply for the appointment of a
management committee for the corporation,
partnership or association, when there is imminent
danger of:chanroblesvirtuallawlibrary
(1) Dissipation, loss, wastage or destruction of
assets or other properties; and
(2) Paralyzation of its business operations which
may be prejudicial to the interest of the minority
stockholders, parties-litigants or the general
public.cralaw
 Sec. 2. Receiver. -- In the event the court finds the
application to be sufficient in form and substance, the
court shall issue an order; (a) appointing a receiver of
known probity, integrity and competence and without
any conflict of interest as hereunder defined to
immediately take over the corporation, partnership or
association, specifying such powers as it may deem
appropriate under the circumstances, including any of
the powers specified in Section 5 of this Rule; (b)
fixing the bond of the receiver; (c) directing the
receiver to make a report as to the affairs of the entity
under receivership and on other relevant matters
within sixty (60) days from the time he assumes
office; (d) prohibiting the incumbent management of
the company, partnership or association from selling,
encumbering, transferring or disposing in any manner
any of its properties except in the ordinary course of
business; and (e) directing the payment in full of all
administrative expenses incurred after the issuance of
the order.
Sec. 3. Receiver and management committee as
officers of the court. - The receiver and the members
of the management committee in the exercise of their
powers and performance of their duties are
considered officers of the court and shall be under its
control and supervision.cralaw
Sec. 4. Composition of the management committee. -
After due notice and hearing, the court may appoint a
management committee composed of three (3)
members chosen by the court. In the appointment of
the members of the management committee, the
following qualifications shall be taken into
consideration by the court.cralaw
(1) Expertise and acumen to manage and operate
a business similar in size and completely as that
the corporation, association or partnership sought
to be put under management committee;
(2) Knowledge in management and finance;
(3) Good moral character, independence and
integrity;
(4) A lack of a conflict of interest as defined in
these Rules; and cralaw
(5) Willingness and ability to file a bond in such
47
amount as may be determined by the
court.cralaw
Without limiting the generality of the following, a
member of a management committee may be deemed
to have a conflict of interest
if:chanroblesvirtuallawlibrary
(1) He is engaged in a line of business which
completes with the corporation, association or
partnership sought to be placed under
management;
(2) He is a director, officer or stockholder
charged with mismanagement, dissipation or
wastage of the properties of the entity under
management; or
(3) He is related by consanguinity or affinity
within the fourth civil degree to any director,
officer or stockholder charged with
mismanagement, dissipation or wastage of the
properties of the entity under
management.cralaw
Sec. 5. Powers and functions of the management
committee. - Upon assumption to office of the
management committee, the receiver shall
immediately render a report and turn over the
management and control of the entity under his
receivership to the management committee.
The management committee shall have the power to
take custody of and control all assets and properties
owned or possessed by the entity under management.
It shall take the place of the management and board
of directors of the entity under management, assume
their rights and responsibilities, and preserve the
entity's assets and properties in its possession.
Without limiting the generality of the foregoing, the
management committee shall exercise the following
powers and functions:chanroblesvirtuallawlibrary
(1) To investigate the acts, conduct, properties,
liabilities, and financial condition of the
corporation, association or partnership under
management;
(2) To examine under oath the directors and
offices of the entity and any other witnesses that
it may deem appropriate;
(3) To report to the court any fact ascertained by
it pertaining to the causes of the problems, fraud,
misconduct, mismanagement and irregularities
committed by the stockholders, directors,
management or any other person;
(4) To employ such person or persons such as
lawyers, accountants, auditors, appraisers and
staff as are necessary in performing its functions
and duties as management committee;
(5) To report to the court any material adverse
change in the business of the corporation,
association or partnership under management;
(6) To evaluate the existing assets and liabilities,
earnings and operations of the corporation,
association or partnership under management;
(7) To determine and recommended to the court
the best way to salvage and protect the interest of
the creditors, stockholders and the general
public, including the rehabilitation of the
corporation, association or partnership under
management;
(8) To prohibit and report to the court any
encumbrance, transfer, or disposition of the
debtor's property outside of the ordinary course
of business or what is allowed by the court;
(9) To prohibit and report to the court any
payments made outside of the ordinary course of
business;
(10) To have unlimited access to the employees,
premises, books, records and financial
documents during business hours;
(11) To inspect, copy, photocopy or photograph
any document, paper, book, account or letter,
whether in the possession of the corporation,
association or partnership or other persons;
(12) To gain entry into any property for the
purposes of inspecting, measuring, surveying, or
photographing it or any designated relevant
48
object or operation thereon;
(13) To bring to the attention of the court any
material change affecting the entity's ability to
meet its obligations;
(14) To revoke resolutions passed by the
Executive Committee or Board of
Directors/Trustees or any governing body of the
entity under management and pass resolution in
substitution of the same to enable it to more
effectively exercise its powers and functions;
(15) To modify, nullify or revoke transactions
coming to its knowledge which it deems
detrimental or prejudicial to the interest of the
entity under management;
(16) To recommend the termination of the
proceedings and the dissolution of the entity if
determines that the continuance in business of
such entry is no longer feasible or profitable or
no longer works to the best interest of the
stockholders, parties-litigants, creditors or the
general public;
(17) To apply to the court for any order or
directive that it may deem necessary or desirable
to aid it in the exercise of its powers and
performance of its duties and functions; and
cralaw
(18) To exercise such other powers as may, from
time to time, be conferred upon it by the
court.cralaw
Sec. 6. Action by management committee. - A
majority of its members shall be necessary for the
management committee to act or make a decision.
The chairman of the management committee shall be
chosen by the members from among themselves. The
committee may delegate its management functions as
may be necessary to operate the business of the entity
under management and preserve its assets.
Sec. 7. Transactions deemed to be in bad faith. - All
transactions made by the previous management and
directors shall be deemed fraudulent and are
rescissible if made within thirty (30) days prior to the
appointment of the receiver or management
committee or during their incumbency as receiver or
management committee.cralaw
Sec. 8. Fees and expenses. - The receiver or the
management committee and the persons hired by it
shall be entitled to reasonable professionals fees
reimbursement of expenses which shall be considered
as administrative expenses.cralaw
Sec. 9. Immunity from suit. - The receiver and
members of the management committee and the
persons employed by them shall not be subject to any
action, claim or demand in connection with any act
done or omitted by them in good faith in the exercise
of their functions and powers. All official acts and
transactions of the receiver or management
committee duly approved or ratified by the court shall
render them immune from any suit in connection with
such act or transaction.cralaw
Sec. 10. Reports. - Within a period of sixty (60) days
from the appointment of its members, the
management committee shall make a report to the
court on the state of the corporation, partnership or
association under management. Thereafter, the
management committee shall report every three (3)
months to the court or as often as the court may
require on the general condition of the entity under
management.cralaw
Sec. 11. Removal and replacement of a member of
the management committee. - A member of the
management is deemed removed upon appointment
by the court of his replacement chosen in accordance
with Section 4 of this Rule.cralaw
Sec. 12. Discharge of the management committee. -
The management committee shall be discharged and
dissolved under the following
circumstances:chanroblesvirtuallawlibrary
(1) Whenever the court, on motion of motu
proprio, has determined that the necessity for the
management committee no longer exist;
(2) By agreement of the parties; and cralaw
(3) Upon termination of the proceedings.cralaw
Upon its discharge and dissolution, the management
49
committee shall submit its final report and render
accounting of its management within such reasonable
time as the court may allow.
Rule 10
PROVISIONAL REMEDIES
Section 1. Provisional remedies. - A party may apply
for any of the provisional remedies provided in the
Rules of Court as may be available for the purposes.
However, no temporary restraining order or status
quo order shall be issued save in exceptional cases
and only after hearing the parties and the posting of
bond.
Rule 11
SANCTIONS
Section 1. Sanctions of the parties or counsel. - In
any of the following cases, the court may, upon
motion motu proprio, impose appropriate
sanctions:chanroblesvirtuallawlibrary
(1) In case the court determines in the course of
the proceeding that the action is a nuisance or
harassment suit;
(2) In case a pleading, motion or other paper is
filed in violation of Section 7, Rule 1 of these
Rules;
(3) In case a party omits or violates the
certification required under Section 4, Rule 2 of
these Rules;
(4) In case or unwarranted denials in the answer
to the complaint;
(5) In case of willful concealment or non-
disclosure of material facts or evidence;
The sanctions may include an order to pay the other
party of parties the amount of the reasonable
expenses incurred because of the act complained of,
including reasonable attorney's fees.

Sec. 2. Disciplinary sanctions on the judge. - The

presiding judge may, upon a verified complaint filed
with the Office of the Court Administrator, be subject
to disciplinary action under any of the following
cases;

(1) Failure to observe this special summary

procedures prescribed in these Rules; or

(2) Failure to issue a pre-trial order in form

prescribed in these Rules.cralaw

Rule 12

FINAL PROVISIONS

Section. 1. Severability. - If any provision or section

of these Rules is held invalid, the remaining
provisions or sections shall not be affected thereby.

Sec. 2. Effectivity. - These Rules shall take effect on

1 April 2001 following its publication in two (2) REPUBLIC ACT NO. 8799
newspapers of general circulation in the Philippines.
THE SECURITIES REGULATION CODE

Be it enacted by the Senate and the House of Representative of

the Philippines in the Congress assembled:

CHAPTER I
TITLE AND DEFINITIONS

Section 1. Title. - This shall be known as "The Securities

Regulation Code"

Section 2. Declaration of State Policy. – The State shall

establish a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in enterprises,
enhance the democratization of wealth, promote the
development of the capital market, protect investors, ensure full
and fair disclosure about securities, minimize if not totally
eliminate insider trading and other fraudulent or manipulative
devices and practices which create distortions in the free market.
To achieve these ends, this Securities Regulation Code is hereby
enacted.

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 written or electronic
50
in character. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences of
indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certifies of
deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other
mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation,
trust certificates, voting trust certificates or similar
instruments
(f) Proprietary or nonproprietary membership certificates
in corporations; and
(g) Other instruments as may in the future be determined
by the Commission.
3.2. "Issuer" is the originator, maker, obligor, or creator of the
security.
3.3. "Broker" is a person engaged in the business of buying and
selling securities for the account of others.
3.4. "Dealer" means many person who buys sells securities for
his/her own account in the ordinary course of business.
3.5. "Associated person of a broker or dealer" is an employee
therefor whom, directly exercises control of supervisory
authority, but does not include a salesman, or an agent or a
person whose functions are solely clerical or ministerial.
3.6. "Clearing Agency" is any person who acts as intermediary
in making deliveries upon payment effect settlement in
securities transactions.
3.7. "Exchange" is an organized market place or facility that
brings together buyers and sellers and executes trade of
securities and/or commodities.
3.8. "Insider" means (a) the issuer; (b) a director or officer (or
any person performing similar functions) of, or a person
controlling the issuer; gives or gave him access to material
information about the issuer or the security that is not generally
available to the public; (d) A government employee, director, or
officer of an exchange, clearing agency and/or self-regulatory
organization who has access to material information about an
issuer or a security that is not generally available to the public;
or (e) a person who learns such information by a communication
from any forgoing insiders.
51
3.9. "Pre-need plans" are contracts which provide for the
performance of future services of or the payment of future
monetary considerations at the time actual need, for which plan
holders pay in cash or installment at stated prices, with or
without interest or insurance coverage and includes life,
pension, education, interment, and other plans which the
Commission may from time to time approve.
3.10. "Promoter" is a person who, acting alone or with others,
takes initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor.
3.11. "Prospectus" is the document made by or an behalf of an
issuer, underwriter or dealer to sell or offer securities for sale to
the public through registration statement filed with the
Commission.
3.12. "Registration statement" is the application for the
registration of securities required to be filed with the
Commission.
3.13. "Salesman" is a natural person, employed as such as an
agent, by a dealer, issuer or broker to buy and sell securities.
3.14. "Uncertificated security" is a security evidenced by
electronic or similar records.
3.15. "Underwriter" is a person who guarantees on a firm
commitment and/or declared best effort basis the distribution
and sale of securities of any kind by another company.
CHAPTER II
SECURITIES AND EXCHANGE COMMISSION
Section 4. Administrative Agency. – 4.1. This Code shall be
administered by the Security and Exchange Commission
(hereinafter referred to as the "Commission") as a Collegial
body, composed of a chairperson and (4) Commissioners,
appointed by the President for a term of (7) seven years each
and who shall serves as such until their successor shall have
been appointed and qualified. A Commissioner appointed to fill
a vacancy occurring prior to the expiration of the term for which
his/her predecessor was appointed, shall serve only for the
unexpired portion of their terms under Presidential Decree No.
902-A. Unless the context indicates otherwise, the term
"Commissioner" includes the Chairperson.
4.2. The Commissioners must be natural-born citizens of the
Philippines, at least forty (40) years of age for the Chairperson
and at least thirty-five (35) years of age for the Commissioners,
of good moral character, or unquestionable integrity, of known
probity and patriotism, and with recognized competence in
social and economic disciplines: Provided, That the majority of
Commissioners, including the Chairperson, shall be members of
the Philippine Bar.
4.3. The chairperson is chief executive officer of the
Commission. The Chairperson shall execute and administer the
policies, decisions, orders and resolutions approved by the
Commission and shall have the general executive direction and
supervision of the work and operation of the Commission and
it’s members, bodies, boards, offices, personnel and all its
administrative business.
4.4. The salary of the Chairperson and the Commissioners shall
be fixed by the President of the Philippines based on the
objective classification system, at a sum comparable to the
members of the Monetary Board and commensurate importance
and responsibilities attached to the position.
4.5. The Commission shall hold meetings at least once a week
for the conduct of business or as often as may be necessary upon
the call of the Chairperson or upon the request of (3)
Commissioners. The notice of the meeting shall be given to all
Commissioners and the presence of three (3) Commissioners
shall constitute a quorum. In the absence of the Chairperson, the
most senior Commissioner shall act as presiding officer of the
meeting.
4.6. The Commission may, for purposes of efficiency, delegate
any of its functions to any department of office of the
Commission, an individual Commissioner or staff member of
the Commission except its review or appellate authority and its
power to adopt, alter and supplement any rule or regulation.
The commission may review upon its own initiative or upon the
petition of any interested party any action of any department or
office, individual Commissioner, or staff member of the
Commission.
Section 5. Powers and Functions of the Commission.– 5.1. The
commission shall act with transparency and shall have the
powers and functions provided by this code, Presidential Decree
No. 902-A, the Corporation Code, the Investment Houses law,
the Financing Company Act and other existing laws. Pursuant
thereto the Commission shall have, among others, the following
powers and functions:
(a) Have jurisdiction and supervision over all corporations,
partnership or associations who are the grantees of primary
franchises and/or a license or a permit issued by the
Government;
(b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and
other government agencies on all aspect of the securities
market and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require
amendments to registration statements, and registration and
licensing applications;
(d) Regulate, investigate or supervise the activities of
persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities
52
of exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and rules,
regulations and orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations
and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulation and
orders;
(h) Enlist the aid and support of and/or deputized any and
all enforcement agencies of the Government, civil or
military as well as any private institution, corporation,
firm, association or person in the implementation of its
powers and function under its Code;
(i) Issue cease and desist orders to prevent fraud or injury
to the investing public;
(j) Punish for the contempt of the Commission, both direct
and indirect, in accordance with the pertinent provisions of
and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or
association to call meetings of stockholders or members
thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to
appear in any proceedings of the Commission and in
appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax
returns and books of accounts of any entity or person under
investigation as may be necessary for the proper
disposition of the cases before it, subject to the provisions
of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnership or associations, upon any of the grounds
provided by law; and
(n) Exercise such other powers as may be provided by law
as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives
and purposes of these laws.
5.2. The Commission’s jurisdiction over all cases enumerated
under section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over the
cases. The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from
the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payment/rehabilitation
cases filed as of 30 June 2000 until finally disposed.
Section 6. Indemnification and Responsibilities of
Commissioners.– 6.1. The Commission shall indemnify each
Commissioner and other officials of the Commission, including
personnel performing supervision and examination functions for
all cost and expenses reasonably incurred by such persons in
connection with any civil or criminal actions, suits or
proceedings to be liable for gross negligence or misconduct. In
the event of settlement or compromise, indemnification shall be
provided only in connection with such matters covered by the
settlement as to which the Commission is advised by external
counsel that the persons to be indemnified did not commit any
gross negligence or misconduct. The costs and expenses
incurred in defending the aforementioned action, suit or
proceeding may be paid by the Commission in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Commissioner, officer
or employee to repay the amount advanced should it ultimately
be determined by the Commission that he/she is not entitled to
be indemnified as provided in this subsection.
6.2. The Commissioners, officers and employees of the
Commission who willfully violate this Code or who are guilty of
negligence, abuse or acts of malfeasance or fail to exercise
extraordinary diligence in the performance of their duties shall
be held liable for any loss or injury suffered by the Commission
or other institutions such as a result of such violation,
negligence, abuse, or malfeasance, or failure to exercise
extraordinary diligence. Similar responsibility shall apply to the
Commissioners, officers and employees of the Commission for
(1) the disclosure of any information, discussion or resolution of
the Commission of a confidential nature, or about the
confidential operations of the Commission unless the disclosure
is in connection with the performance of official functions with
the Commission or prior authorization of the Commissioners; or
(2) the use of such information for personal gain or to the
detriment of the government, the Commission or third parties:
Provided, however, That any data or information required to be
submitted to the President and/or Congress or its appropriate
committee, or to be published under the provisions of this Code
shall not be considered confidential.
Section 7. Reorganization. – 7.1. To achieve the goals of this
Code, consistent with the Civil Service laws, the Commission is
hereby authorized to provide for its reorganization, to streamline
its structure and operations, upgrade its human resource
component and enable it to more efficiently and effectively
perform its functions and exercise its power under this Code.
7.2. All positions of the Commissions shall be governed by a
compensation and position classification system and
qualification standards approved by the Commission based on
comprehensive job analysis and audit of actual duties and
personal responsibilities. The compensation plan shall be
comparable with the prevailing compensation plan in the
Bangko Sentral ng Pilipinas and other government financial
institutions and shall be subject to periodic review by the
Commission no more than once every two (2) years without
53
prejudice to yearly merit review or increases based on
productivity and efficiency. The Commission shall, therefore, be
exempt from laws, rules, and regulations on compensation,
position classification and qualifications standards. The
Commission shall, however, endeavor to make its system
conform as closely as possible with the principles under the
Compensation and Position Classification Act of 1989 (Republic
Act. 6758, as amended).
CHAPTER III
REGISTRATION OF SECURITIES
Section 8. Requirement of Registration of Securities.– 8.1.
Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly
filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such
substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
8.2. The Commission may conditionally approve the registration
statement under such terms as it may deem necessary.
8.3. The Commission may specify the terms and conditions
under which any written communication, including any
summary prospectus, shall be deemed not to constitute an offer
for sale under this Section.
8.4. A record of the registration of securities shall be kept in
Register Securities in which shall be recorded orders entered by
the Commission with respect such securities. Such register and
all documents or information with the respect to the securities
registered therein shall be open to public inspection at
reasonable hours on business days.
8.5. The Commission may audit the financial statements, assets
and other information of firm applying for registration of its
securities whenever it deems the same necessary to insure full
disclosure or to protect the interest of the investors and the
public in general.
Section 9. Exempt Securities. – 9.1. The requirement of
registration under Subsection 8.1 shall not as a general rule
apply to any of the following classes of securities:
(a) Any security issued or guaranteed by the Government
of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled or supervised
by, and acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of
any country with which the Philippines maintains
diplomatic relations, or by any state, province or political
subdivision thereof on the basis of reciprocity: Provided,
That the Commission may require compliance with the
form and content for disclosures the Commission may
prescribe.
 (c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of
which, by law, is under the supervision and regulation of
the Office of the Insurance Commission, Housing and
Land Use Rule Regulatory Board, or the Bureau of Internal
Revenue.
(e) Any security issued by a bank except its own shares of
stock.
9.2. The Commission may, by rule or regulation after public
hearing, add to the foregoing any class of securities if it finds
that the enforcement of this Code with respect to such securities
is not necessary in the public interest and for the protection of
investors.
Section 10. Exempt Transactions. – 10.1. The requirement of
registration under Subsection 8.1 shall not apply to the sale of
any security in any of the following transactions:
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in insolvency
or bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee
or any of a pledge lien holder selling of offering for sale or
delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate
a bonafide debt, a security pledged in good faith as security
for such debt.
(c) An isolated transaction in which any security is sold,
offered for sale, subscription or delivery by the owner
therefore, or by his representative for the owner’s account,
such sale or offer for sale or offer for sale, subscription or
delivery not being made in the course of repeated and
successive transaction of a like character by such owner, or
on his account by such representative and such owner or
representative not being the underwriter of such security.
(d) The distribution by a corporation actively engaged in
the business authorized by its articles of incorporation, of
securities to its stockholders or other security holders as a
stock dividend or other distribution out of surplus.
(e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other
remuneration is paid or given directly or indirectly in
connection with the sale of such capital stock.
(f) The issuance of bonds or notes secured by mortgage
upon real estate or tangible personal property, when the
entire mortgage together with all the bonds or notes
secured thereby are sold to a single purchaser at a single
sale.
54
(g) The issue and delivery of any security in exchange for
any other security of the same issuer pursuant to a right of
conversion entitling the holder of the security surrendered
in exchange to make such conversion: Provided, That the
security so surrendered has been registered under this Code
or was, when sold, exempt from the provision of this Code,
and that the security issued and delivered in exchange, if
sold at the conversion price, would at the time of such
conversion fall within the class of securities entitled to
registration under this Code. Upon such conversion the par
value of the security surrendered in such exchange shall be
deemed the price at which the securities issued and
delivered in such exchange are sold.
(h) Broker’s transaction, executed upon customer’s orders,
on any registered Exchange or other trading market.
(i) Subscriptions for shares of the capitals stocks of a
corporation prior to the incorporation thereof or in
pursuance of an increase in its authorized capital stocks
under the Corporation Code, when no expense is incurred,
or no commission, compensation or remuneration is paid
or given in connection with the sale or disposition of such
securities, and only when the purpose for soliciting, giving
or taking of such subscription is to comply with the
requirements of such law as to the percentage of the capital
stock of a corporation which should be subscribed before it
can be registered and duly incorporated, or its authorized,
capital increase.
(j) The exchange of securities by the issuer with the
existing security holders exclusively, where no commission
or other remuneration is paid or given directly or indirectly
for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty
(20) persons in the Philippines during any twelve-month
period.
(l) The sale of securities to any number of the following
qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by
the Government of the Philippines or any political
subdivision thereof or manage by a bank or other
persons authorized by the Bangko Sentral to engage
in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule
by determine as qualified buyers, on the basis of such
 factors as financial sophistication, net worth,
knowledge, and experience in financial and business
matters, or amount of assets under management.
10.2. The Commission may exempt other transactions, if it finds
that the requirements of registration under this Code is not
necessary in the public interest or for the protection of the
investors such as by the reason of the small amount involved or
the limited character of the public offering.
10.3. Any person applying for an exemption under this Section,
shall file with the Commission a notice identifying the
exemption relied upon on such form and at such time as the
Commission by the rule may prescribe and with such notice
shall pay to the Commission fee equivalent to one-tenth (1/10)
of one percent (1%) of the maximum value aggregate price or
issued value of the securities.
Section 11. Commodity Futures Contracts. - No person shall
offer, sell or enter into commodity futures contracts except in
accordance with the rules, regulations and orders the
Commission may prescribe in the public interest. The
Commission shall promulgate rules and regulations involving
commodity futures contracts to protect investors to ensure the
development of a fair and transparent commodities market.
Section 12. Procedure of Registration Securities. - 12.1. All
securities required to be registered under Subsection 8. I shall be
registered through the filing by the issuer in the main office of
the Commission, of a sworn registration statement with the
respect to such securities, in such form and containing such
information and document as the Commission prescribe. The
registration statement shall include any prospectus required or
permitted to be delivered under Subsections 8.2, 8.3, and 8.4.
12.2. In promulgating rules governing the content of any
registration statement (including any prospectus made a part
thereof or annex thereto), the Commission may require the
registration statement to contain such information or documents
as it may, by rule, prescribe. It may dispense with any such
requirements, or may require additional information or
documents, including written information from an expert,
depending on the necessity thereof or their applicability to the
class of securities sought to be registered.
12.3. The information required for the registration of any kind,
and all securities, shall include, among others, the effect of the
securities issue on ownership, on the mix of ownership,
especially foreign and local ownership.
12.4. The registration statement shall be signed by the issuer’s
executive officer, its principal operating officer, its principal
financial officer, its comptroller, its principal accounting officer,
its corporate secretary, or persons performing similar functions
accompanied by a duly verified resolution of the board of
directors of the issuer corporation. The written consent of the
expert named as having certified any part of the registration
statement or any document used in connection therewith shall
also be filed. Where the registration statement shares to be sold
55
by selling shareholders, a written certification by such selling
shareholders as to the accuracy of any part of the registration
statement contributed to by such selling shareholders shall be
filed.
12.5. (a) Upon filing of the registration statement, the issuer
shall pay to the Commission a fee of not more than one-tenth
(1/10) of one per centum (1%) of the maximum aggregate price
at which such securities are proposed to be offered. The
Commission shall prescribe by the rule diminishing fees in
inverse proportion the value of the aggregate price of the
offering.
(b) Notice of the filing of the registration statement shall
be immediately published by the issuer, at its own expense,
in two (2) newspapers of general circulation in the
Philippines, once a week for two (2) consecutive weeks, or
in such other manner as the Commission by the rule shall
prescribe, reciting that a registration statement for the sale
of such securities has been filed, and that aforesaid
registration statement, as well as the papers attached
thereto are open to inspection at the Commission during
business hours, and copies thereof, photostatic or
otherwise, shall be furnished to interested parties at such
reasonable charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the
registration statement, or by such later date to which the issuer
has consented, the Commission shall declare the registration
statement effective or rejected, unless the applicant is allowed to
amend the registration statement as provided in Section 14
hereof. The Commission shall enter an order declaring the
registration statement to be effective if it finds that the
registration statement together with all the other papers and
documents attached thereto, is on its face complete and that the
requirements have been complied with. The Commission may
impose such terms and conditions as may be necessary or
appropriate for the protection of the investors.
12.7. Upon affectivity of the registration statement, the issuer
shall state under oath in every prospectus that all registration
requirements have been met and that all information are true and
correct as represented by the issuer or the one making the
statement. Any untrue statement of fact or omission to state a
material fact required to be stated herein or necessary to make
the statement therein not misleading shall constitute fraud.
Section 13. Rejection and Revocation of Registration of
Securities. – 13.1. The Commission may reject a registration
statement and refuse registration of the security there-under, or
revoke the affectivity of a registration statement and the
registration of the security there-under after the due notice and
hearing by issuing an order to such effect, setting forth its
finding in respect thereto, if it finds that:
(a) The issuer:
(i) Has been judicially declared insolvent;
 (ii) Has violated any of the provision of this Code, the
rules promulgate pursuant thereto, or any order of the
Commission of which the issuer has notice in
connection with the offering for which a registration
statement has been filed
(iii) Has been or is engaged or is about to engage in
fraudulent transactions;
(iv) Has made any false or misleading representation
of material facts in any prospectus concerning the
issuer or its securities;
(v) Has failed to comply with any requirements that
the Commission may impose as a condition for
registration of the security for which the registration
statement has been filed; or
(b) The registration statement is on its face incomplete or
inaccurate in any material respect or includes any untrue
statements of a material fact required to be stated therein or
necessary to make the statement therein not misleading; or
(c) The issuer, any officer, director or controlling person
performing similar functions, or any under writer has been
convicted, by a competent judicial or administrative body,
upon plea of guilty, or otherwise, of an offense involving
moral turpitude and /or fraud or is enjoined or restrained by
the Commission or other competent or administrative body
for violations of securities, commodities, and other related
laws.
For the purposes of this subsection, the term "competent judicial
or administrative body" shall include a foreign court of
competent jurisdiction as provided for under Rules of Court.
13.2. The Commission may compel the production of all the
books and papers of such issuer, and may administer oaths to,
and examine the officers of such the issuer or any other person
connected therewith as to its business and affairs.
13.3. If any issuer shall refuse to permit an examination to be
made by the Commission, its refusal shall be ground for the
refusal or revocation of the registration of its securities.
13.4. If the Commission deems its necessary, it may issue an
order suspending the offer and sale of the securities pending any
investigation. The order shall state the grounds for taking such
action, but such order of suspension although binding upon the
persons notified thereof, shall be deemed confidential, and shall
not be published. Upon the issuance of the suspension order, no
further offer or sale of such security shall be made until the
same is lifted or set aside by the Commission. Otherwise, such
sale shall be void.
13.5. Notice of issuance of such order shall be given to the
issuer and every dealer and broker who shall have notified the
Commission of an intention to sell such security.
56
13.6. A registration statement may be withdrawn by the issuer
only with the consent of the Commission.
Section 14. Amendment to the Registration Statement. – 14.1. If
a registration statement is on its face incomplete or inaccurate in
any material respect, the Commission shall issue an order
directing the amendment of the registration statement. Upon
compliance with such order, the amended registration statement
shall become effective in accordance with the procedure
mentioned in Subsection 12.6 hereof.
14.2. An amendment filed prior to the effective date of the
registration statement shall recommence the forty-five (45) day
period within which the Commission shall act on a registration
statement. An amendment filed after the effective date of the
registration statement shall become effective only upon such
date as determined by the Commission.
14.3. If any change occurs in the facts set forth in a registration
statement, the issuer shall file an amendment thereto setting
forth the change.
14.4. If, at any time, the Commission finds that the registration
statement contains any false statement or omits to state any fact
required to be stated therein or necessary to make the statements
therein not misleading, the Commission may conduct an
examination, and, after due notice and hearing, issue an order
suspending the affectivity registration statement. If the statement
is duly amended, the suspension order may be lifted.
14.5. In making such examination the Commission or any
officer or officers designated by it may administer oaths and
affirmations and shall have access to, and may demand the
production of, any books, records or documents relevant to the
examination. Failure of the issuer, underwriter, or any other
person to cooperate, or his obstruction or refusal to undergo an
examination, shall be a ground for the issuance of a suspension
order.
Section 15. Suspension of Registration.- 15.1. If at any time, the
information contained in the registration statement filed is or has
become misleading, incorrect, inadequate or incomplete in any
material respect, or the sale or offering for sale of the security
registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further
information as may in its judgement be necessary to enable the
Commission to ascertain whether the registration of such
security should be revoked on any ground specified in this
Code. The Commission may also suspend the right to sell and
offer for the sale such security pending further investigation, by
entering an order specifying the grounds for such action, and by
notifying the issuer, underwriter, dealer or broker known as
participating in such offering.
15.2. The refusal to furnish information required by the
Commission may be a ground for the issuance of an order of
suspension pursuant to Subsection 15.1. Upon the issuance of
any such order and notification to the issuer, underwriter, dealer
or broken know as participating in such offering, no further
offer or sale of any such security shall be made until the same is
lifted or set aside by the Commission. Otherwise such sale shall
be void.
15.3. Upon issuance of an order of suspension, the Commission
shall conduct a hearing. If the Commission determines that the
sale of any security should be revoked is shall issue an order
prohibiting sale of such security.
15.4. Until the issuance of a final order, the suspension of the
right to sell, though binding upon the persons notified there of,
shall be deemed confidential, and shall not be published, unless
it shall appear that the order of suspension has been violated
after notice. If, however, the Commission finds that the sale of
the security will neither be fraudulent nor result in fraud, it shall
forthwith issue an order revoking the order of suspension, and
such security shall be restored to its status as a registered
security as of the date of such order of suspension.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans.– No person shall sell or offer for
sale to the public any pre-need plan except in accordance with
rules and regulations which the Commission shall prescribe.
Such rules shall regulate the sale of pre-need plans by, among
other things, requiring the registration of pre-need plans,
licensing persons involved in the sale of pre- need plans,
requiring disclosures to prospective plan holders, prescribing
advertising guidelines, providing for uniform accounting
system, reports and recording keeping with respect to such
plans, imposing capital, bonding and other financial
responsibility, and establishing trust funds for the payment of
benefits under such plans.
CHAPTER V
REPORTORIAL REQUIREMENTS
Section 17. Periodic and Other Reports of Issuer. 17.1. Every
issuer satisfying the requirements in Subsection 17.2 hereof
shall file with the Commission:
(a) Within one hundred thirty-five (135) days, after the end
of the issuer’s fiscal year, or such other time as the
Commission may prescribe, an annual report which shall
include, among others, a balance sheet, profit and loss
statement and statement of cash flows, for such last fiscal
year, certified public accountant, an a management
discussion and analysis of results of operation; and
(b) Such other periodical reports for interim fiscal periods
and current reports on significant developments of the
issuer as the Commission may prescribe as necessary to
keep current information on the operation of the business
and financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall
apply to the following:
57
(a) An issuer which has sold a class of its securities
pursuant to a registration under section 12 hereof:
Provided however,That the obligation of such issuer to file
reports shall be suspended for any fiscal year after the year
such registration became effective if such issuer, as of the
first day of any such fiscal year, has less than one hundred
(100) holder of such class securities or such other number
as the Commission shall prescribe and it notifies the
Commission of such;
(b) An issuer with a class of securities listed for trading on
an Exchange; and
(c) An issuer with assets of at least Fifty million pesos
(50,000,000.00) or such other amount as the Commission
shall prescribe, and having two hundred (200) or more
holder each holding at least one hundred (100) share of a
class of its equity securities: Provided, however, That the
obligation of such issuer to file report shall be terminate
ninety (90) days after notification to the Commission by
the issuer that the number of its holders holding at least
one hundred (100) share reduced to less than one hundred
(100).
17.3. Every issuer of a security listed for trading on an
Exchange a copy of any report filed with the Commission under
Subsection 17.1. hereof.
17.4. All reports (including financial statements) required to be
filed with the Commission pursuant to Subsection 17.1 hereof
shall be in such form, contain such information and be filed at
such times as the Commission shall prescribe, and shall be in
lieu of any periodical or current reports or financial statements
otherwise required to be filed under the Commission shall
prescribe.
17.5. Every issuer which has a class of equity securities
satisfying any of the requirements in Subsection 17.2 shall
furnish to each holder of such equity security an annual report in
such form and containing such information as the Commission
shall prescribe.
17.6. Within such period as the Commission may prescribe
preceding the annual meeting of the holders of any equity
security of a class entitled to vote at such meeting , the issuer
shall transmit to such holders an annual report in conformity
with subsection 17.5.
Section 18. Reports by five per centum (5%) Holders of Equity
Securities.– 18.1. In every case in which an issuer satisfies the
requirements of Subsection 17.2 hereof any person who acquires
directly or indirectly the beneficial ownership of more than five
of per centum (5%) of such class or in excess of such lesser per
centum as the Commission by rule may prescribe, shall, within
ten (10) days after such acquisition or such reasonable time as
fixed by the Commission, submit to the issuer of the securities,
to the Exchange where the security is traded, and to the
Commission a sworn statement containing the following
information and such order information as the Commission may
require in the public interest or for the protection of investors.
(a) The personal background, identity, residence, and
citizenship of, and the nature of such beneficial ownership
by, such person and all other person by whom or on whose
behalf the purchases are effected; in the event the
beneficial owner is a juridical person, the of business of the
beneficial owner shall also be reported;
(b) If the purpose of the purchases or prospective
purchases is to acquire control of the business of the issuer
of the securities, any plans or proposals which such
persons may have that will effect a major change in its
business or corporate structure;
(c) The number of shares of such security which are
beneficially owned, and the number of shares concerning
which there is a right to acquire, directly or indirectly, by;
(i) such person, and (ii) each associate of such person,
giving the background, identity, residence, and citizenship
of each such associate; and
(d) Information as to any contracts, arrangements, or
understanding with any person with respect to any
securities of the issuer including but not limited to transfer,
joint ventures, loan or option arrangements, puts or call
guarantees or division of losses or profits, or proxies
naming the persons with whom such contracts,
arrangements, or understanding have been entered into,
and giving the details thereof.
18.2. If any change occurs in the facts set forth in the
statements, an amendment shall be transmitted to the issuer, the
Exchange and the Commission.
18.3. The Commission, may permit any person to file in lieu of
the statement required by subsection 17.1 hereof, a notice
stating the name of such person, the shares of any equity
securities subject to Subsection 17.1 which are owned by him,
the date of their acquisition and such other information as the
commission may specify, if it appears to the commission that
such securities were acquired by such person in the ordinary
course of his business and were not acquired for the purpose of
and do not have the effect of changing or influencing the control
of the issuer nor in connection with any transaction having such
purpose or effect.
CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS
Section 19. Tender Offers. – Any person or group of persons
acting in concert who intends to acquire at least 15% of any
class of any equity security of a listed corporation of any class
of any equity security of a corporation with assets of at least
fifty million pesos (50,000,000.00) and having two
hundred(200) or more stockholders at least one hundred shares
each or who intends to acquire at least thirty percent(30%) of
such equity over a period of twelve months(12) shall make a
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tender offer to stockholders by filling with the Commission a
declaration to that effect; and furnish the issuer, a statement
containing such of the information required in Section 17 of this
Code as the Commission may prescribe. Such person or group
of persons shall publish all request or invitations or tender offer
or requesting such tender offers subsequent to the initial
solicitation or request shall contain such information as the
Commission may prescribe, and shall be filed with the
Commission and sent to the issuer not alter than the time copies
of such materials are first published or sent or given to security
holders.
(a) Any solicitation or recommendation to the holders of
such a security to accept or reject a tender offer or request
or invitation for tenders shall be made in accordance with
such rules and regulations as may be prescribe.
(b) Securities deposited pursuant to a tender offer or
request or invitation for tenders may be withdrawn by or
on behalf of the depositor at any time throughout the
period that tender offer remains open and if the securities
deposited have not been previously accepted for payment,
and at any time after sixty (60) days from the date of the
original tender offer to request or invitation, except as the
Commission may otherwise prescribe.
(c) Where the securities offered exceed that which person
or group of persons is bound or willing to take up and pay
for, the securities that are subject of the tender offers shall
be taken up us nearly as may be pro data, disregarding
fractions, according to the number of securities deposited
to each depositor. The provision of this subject shall also
apply to securities deposited within ten (10) days after
notice of increase in the consideration offered to security
holders, as described in paragraph (e) of this subsection, is
first published or sent or given to security holders.
(d) Where any person varies the terms of a tender offer or
request or invitation for tenders before the expiration
thereof by increasing the consideration offered to holders
of such securities, such person shall pay the increased
consideration to each security holder whose securities are
taken up and paid for whether or not such securities have
been taken up by such person before the variation of the
tender offer or request or invitation.
19.2. It shall be lawful for any person to make any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made in the light of
the circumstances under which they are made, not mis-leading,
or to engaged to any fraudulent, deceptive or manipulative acts
or practices, in connection with any tender offer or request or
invitation for tenders, or any solicitation for any security holders
in opposition to or in favor of any such favor of any such offer,
request, or invitation. The Commission shall, for the purposes of
this subsection, define and prescribe means reasonably designed
to prevent, such acts and practices as are fraudulent, deceptive
and manipulative.
Section 20. Proxy solicitations. - 20.1. Proxies must be issued
and proxy solicitation must be made in accordance with rules
and regulations to be issued by the Commission;
20.2. Proxies must be in writing, signed by the stockholder or
his duly authorized representative and file before the scheduled
meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it shall be valid
only for the meeting for which it is intended. No proxy shall be
valid only for the meting for which it is intended. No proxy shall
be valid and effective for a period longer than five (5) years at
one time.
20.4. No broker or dealer shall give any proxy, consent or any
authorization, in respect of any security carried for the account
of the customer, to a person other than the customer, without
written authorization of such customer.
20.5. A broker or dealer who holds or acquire the proxy for at
least ten percent (10%) or such percentage as the commission
may prescribe of the outstanding share of such issuer, shall
submit a report identifying the beneficial owner of ten days after
such acquisition, for its own account or customer, to the issuer
of security, to the exchange where the security is traded and to
the Commission.
Section 21. Fees of Tender Offers and Certain Proxy
Solicitations. – At the time of filling with the Commission of
any statement required under Section 19 for any tender offer or
Section 72.2 for issuer purchases, or Section 20 for proxy or
consent solicitation, The Commission may require that the
person making such filing pay a fee of not more than one-tenth
(1/10)(1%) of;
21.1. The propose aggregate purchase price in the case of a
transaction under Section 20 or 72.2; or
21.2. The proposed payment in cash, and ion value of any
securities or property to be transferred in the acquisition, merger
or consolidating, or the cash and value of any securities
proposed to be received upon the sale disposition of such assets
in the case of a solicitation under Section 20. The Commission
shall prescribe by rule diminishing fees in inverse proportion to
the value of the aggregate price of the offering.
Section 22. Internal Record Keeping and Accounting Control. -
Every issuer which has a class of securities that satisfies the
requirements of Subsection 17.2 shall:
22.1. Device and maintain a system of internal accounting
controls sufficient to provide reasonable assurance that: (a)
Transactions and access to assets are pursuant to management
authorization; (b) Financial statements are provided in
conformity with generally accepted accounting principles that
are adopted by the Accounting standards council and the rules
promulgated by the Commission with the regard to the
preparation of the financial statements; and (c) Recorded assets
59
are compared with existing assets at reasonable intervals and
differences are reconciled.
Section 23. Transactions of Directors officers and Principal
Stockholders. – 23.1. Every person who is directly or indirectly
the beneficial owner of more than ten per centum (10%) of any
class of any equity security which satisfies the requirements of
subsection 17.2, or who is a director or an officer of the issuer of
such security, shall file, at the time either such requirement is
first satisfied or after ten days after he becomes such a beneficial
owner, director, or officer, a statement form the Commission
and, if such security is listed for trading on an exchange, also
with the exchange of the amount of all the equity security of
such issuer of which he is the beneficial owner, and within ten
days after the close of each calendar month thereafter, if there
has been a change in such ownership at the close of the calendar
month and such changes in his ownership as have occurred
during such calendar month.
23.2. For the purpose of preventing the unfair use of information
which may have been obtained by such beneficial owner,
director or officer by reason of his relationship to the issuer, any
profit realized by him from any purchase or sale, or any sale or
purchase, of any equity security of such issuer within any period
of less than (6) months unless such security was acquired in
good faith in connection with a debt previously contracted, shall
inure to and be recoverable by the issuer, irrespective of any
intention of holding the security purchased or of not
repurchasing the security sold for a period exceeding six (6)
months. Suit to recover such profit may be instituted before the
Regional Trial Court by the issuer, or by the owner of any
security of the issuer in the name and in behalf of the issuer if
the issuer shall fail or refuse to bring such suit within sixty (60)
days after request or shall fail diligently to prosecute the same
thereafter, but not such shall be brought more than two years
after the date such profit was realized. This Subsection shall not
be construed to cover any transaction were such beneficial
owner was not such both time of the owner or the sale, or the
sale of purchase, of the security involved, or any transaction or
transactions which the Commission by rules and regulations
may exempt as not comprehended within the purpose of this
subsection.
23.3. It shall be unlawful for any such beneficial owner, director
or officer, directly or indirectly, to sell any equity security of
such issuer if the person selling the principal: (a) Does not own
the security sold: or (b) If owning the security, does not deliver
not deliver it against such sale within 20 days thereafter, or does
not within five days after such sale deposit in the mails or the
unusual channels of transportation; but no person shall be
deemed to have violated this subsection if he proves not
withstanding the exercise of good faith he was unable to make
such delivery in such time, or that to do so would cause undue
inconvenience or expense.
23.4. The provisions of subsection 23.2 shall not apply to any
purchase and sale, or sale and purchase, and the provisions of
Subsection 23.3 shall not apply to any sale, of an equity security
not then or thereafter held by him and an investment account, by
a dealer in the ordinary course of his business and incident to the
establishment or maintenance by him of a primary or secondary
market, otherwise than on an Exchange, for such security. The
Commission may, by such rules and regulations as it deems
necessary or appropriate in the public interest, define and
prescribe terms and conditions with respect to securities held in
an investment account and transactions made in the ordinary
course of business and incident to the establishment or
maintenance of a primary or secondary market.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION AND
INSIDER TRADING
Section 24. Manipulation of Security Prices; Devices and
Practices. – 24.1 It shall be unlawful for any person acting for
himself or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of active
trading in any listed security traded in an Exchange of any
other trading market (hereafter referred to purposes of this
Chapter as "Exchange"):
(i) By effecting any transaction in such security which
involves no change in the beneficial ownership
thereof;
(ii) By entering an order or orders for the purchase or
sale of such security with the knowledge that a
simultaneous order or orders of substantially the same
size, time and price, for the sale or purchase of any
such security, has or will be entered by or for the
same or different parties; or
(iii) By performing similar act where there is no
change in beneficial ownership.
(b) To affect, alone or with others, a securities or
transactions in securities that: (I) Raises their price to
induce the purchase of a security, whether of the same or a
different class of the same issuer or of controlling,
controlled, or commonly controlled company by others; or
(iii) Creates active trading to induce such a purchase or
sale through manipulative devices such as marking the
close, painting the tape, squeezing the float, hype and
dump, boiler room operations and such other similar
devices.
(c) To circulate or disseminate information that the price of
any security listed in an Exchange will or is likely to rise or
fall because of manipulative market operations of any one
or more persons conducted for the purpose of raising or
depressing the price of the security for the purpose of
inducing the purpose of sale of such security.
(d) To make false or misleading statement with respect to
any material fact, which he knew or had reasonable ground
to believe was so false or misleading, for the purpose of
60
inducing the purchase or sale of any security listed or
traded in an Exchange.
(e) To effect, either alone or others, any series of
transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging, fixing or
stabilizing the price of such security; unless otherwise
allowed by this Code or by rules of the Commission.
24.2. No person shall use or employ, in connection with the
purchase or sale of any security any manipulative or deceptive
device or contrivance. Neither shall any short sale be effected
nor any stop-loss order be executed in connection with the
purchase or sale of any security except in accordance with such
rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest for the protection
of investors.
24.3. The foregoing provisions notwithstanding, the
Commission, having due regard to the public interest and the
protection of investors, may, by rules and regulations, allow
certain acts or transactions that may otherwise be prohibited
under this Section.
Section 25. Regulation of Option Trading.– No member of an
Exchange shall, directly or indirectly endorse or guarantee the
performance of any put, call, straddle, option or privilege in
relation to any security registered on a securities exchange. The
terms "put", "call", "straddle", "option", or "privilege" shall not
include any registered warrant, right or convertible security.
Section 26. Fraudulent Transactions. – It shall be unlawful for
any person, directly or indirectly, in connection with the
purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue
statement of a material fact of any omission to state a material
fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not
misleading; or
26.3. Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or deceit
upon any person.
Section 27. Insider’s Duty to Disclose When Trading. – 27.1. It
shall be unlawful for an insider to sell or buy a security of the
issuer, while in possession of material information with respect
to the issuer or the security that is not generally available to the
public, unless: (a) The insider proves that the information was
not gained from such relationship; or (b) If the other party
selling to or buying from the insider (or his agent) is identified,
the insider proves: (I) that he disclosed the information to the
other party, or (ii) that he had reason to believe that the other
party otherwise is also in possession of the information. A
purchase or sale of a security of the issuer made by an insider
defined in Subsection 3.8, or such insider’s spouse or relatives
by affinity or consanguinity within the second degree, legitimate
or common-law, shall be presumed to have been effected while
in possession of material nonpublic information if transacted
after such information came into existence but prior to
dissemination of such information to the public and the lapse of
a reasonable time for market to absorb such information:
Provided, however, That this presumption shall be rebutted upon
a showing by the purchaser or seller that he was aware of the
material nonpublic information at the time of the purchase or
sale.
27.2. For purposes of this Section, information is "material
nonpublic" if: (a) It has not been generally disclosed to the
public and would likely affect the market price of the security
after being disseminated to the public and the lapse of a
reasonable time for the market to absorb the information; or (b)
would be considered by a reasonable person important under the
circumstances in determining his course of action whether to
buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate
material nonpublic information about the issuer or the security
to any person who, by virtue of the communication, becomes an
insider as defined in Subsection 3.8, where the insider
communicating the information knows or has reason to believe
that such person will likely buy or sell a security of the issuer
whole in possession of such information.
27.4. (a) It shall be unlawful where a tender offer has
commenced or is about to commence for:
(i) Any person (other than the tender offeror) who is in
possession of material nonpublic information relating to
such tender offer, to buy or sell the securities of the issuer
that are sought or to be sought by such tender offer if such
person knows or has reason to believe that the information
is nonpublic and has been acquired directly or indirectly
from the tender offeror, those acting on its behalf, the
issuer of the securities sought or to be sought by such
tender offer, or any insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer
of the securities sought or to be sought by such tender
offer, and any insider of such issuer to communicate
material nonpublic information relating to the tender offer
to any other person where such communication is likely to
result in a violation of Subsection 27.4 (a)(I).
(b) For purposes of this subsection the term "securities of the
issuer sought or to be sought by such tender offer" shall include
any securities convertible or exchangeable into such securities
or any options or rights in any of the foregoing securities.
CHAPTER VIII
REGULATION OF SECURITIES MARKET
PROFESSIONALS
61
Section 28. Registration of Brokers, Dealers, Salesmen and
Associated Persons. – 28.1. No person shall engage in the
business of buying or selling securities in the Philippine as a
broker or dealer, or act as a salesman, or an associated person of
any broker or dealer unless registered as such with the
Commission.
28.2. No registered broker or dealer shall employ any salesman
or any associated person, and no issuer shall employ any
salesman, who is not registered as such with the Commission.
28.3. The Commission, by rule or order, may conditionally or
unconditionally exempt from subsection 28.1 and 28.2 any
broker, dealer, salesman, associated person of any broker or
dealer, or any class of the foregoing, as it deems consistent with
the public interest and the protection of investors.
28.4. The Commission shall promulgate rules and regulation
prescribing the qualifications for registration of each category of
applicant, which shall, among other things, require as a
condition for registration that:
(a) If a natural person, the applicant satisfactorily pass a
written examination as to his proficiency and knowledge in
the area of activity for which registration is sought;
(b) In the case of a broker or dealer, the applicant satisfy a
minimum net capital as prescribed by the Commission, and
provide a bond or other security as the Commission may
prescribe to secure compliance with the provisions of this
Code; and
(c) If located outside of the Philippines, the applicant files
a written consent to service of process upon the
Commission pursuant to Section 65 hereof.
28.5. A broker or dealer may apply for registration by filing with
the Commission a written application in such forms and
containing such information and documents concerning such
broker or dealer as the Commission by rule shall prescribe.
28.6. Registration of a salesman or of an associated person of a
registered broker or dealer may be made upon written
application filed with the Commission by such salesman or
associated person. The application shall be separately signed
and certified by the registered broker or dealer to which such
salesman or associated person is to become affiliated, or by the
issuer in the case of a salesman employed appointed or
authorized solely by such issuer. The application shall be in such
form and contain such information and documents concerning
the salesman or associated person as the Commission by rule
shall prescribe. For purposes of this Section, a salesman shall
not include any employee of an issuer whose compensation is
not determined directly or indirectly on sales of securities if the
issuer.
28.7. Applications filed pursuant to Subsections 28.5 and 28.6
shall be accompanied by a registration fee in such reasonable
amount prescribed by the Commission.
28.8. Within thirty (30) days after the filing of any application
under this Section, the Commission shall by order: (a) Grant
registrations if it determines that the requirements of this
Section and the qualifications for registrations set forth in its
rules and regulations have been satisfied ; or (b) Deny said
registration.
28.9. The names and addresses of all persons approved for the
registration as brokers, dealers, associated persons or salesman
and all orders of the Commission with respect thereto shall be
recorded in a Register of Securities Market Professionals kept in
the office of the Commission which shall be open to public
inspection.
28.10. Every person registered pursuant to this Section shall file
with the Commission, in such form as the Commission shall
prescribe, information necessary to keep the application for
registration current and accurate, including in the case of a
broker or dealer changes in salesmen, associated persons and
owners thereof.
28.11. Every person registered pursuant to this Selection shall
pay to the Commission an annual fee at such time and in such
reasonable amount as the Commission shall prescribe. Upon
notice by the Commission that such annual fee has not been paid
as required, the registration of such person shall be suspended
until payment has been made.
28.12. The registration of a salesman or associated person shall
be automatically terminated upon the cessation of his affiliation
with said registered broker or dealer or with an issuer in the case
of a salesman employed, appointed or authorized by such issuer.
Promptly following any such cessation of affiliation, the
registered broker or dealer, issuer as the case may be, shall file
with the Commission a notice of separation of such salesman or
associated person.
Section 29. Revocation, Refusal or Suspension of Registration
of Brokers, Dealers, Salesmen and Associated Persons. – 29.1.
Registration under Section 28 of this Code may be refused , or
any registration granted thereunder may be revoked, suspended,
or limitations placed thereon, by the Commission if, after due
notice and hearing the Commission determines the application
or registrant.
(a) Has willfully violated any provision of this Code, any
rule, regulation or order made hereunder, or any other law
administered by the Commission, or in the case of a
registered broker, dealer or associated persons has failed to
supervise, with a view to preventing such violation,
another person who commits such violation;
(b) Has willfully made or caused to be made a materially
false or misleading statement in any application for
registration or report filed with the Commission or a self-
regulatory organization, or has willfully omitted to state
62
any material fact that is required to be stated therein;
(c) Has failed to satisfy the qualifications or requirements
for registration prescribed under Section 28 and the rules
and regulations of the Commission promulgated
thereunder;
(d) Has been convicted, by a competent judicial or
administrative body of an offense involving moral
turpitude, fraud, embezzlement, counterfeiting, theft,
estafa, misappropriation, forgery, bribery, false oath, or
perjury, or of a violation of securities, commodities,
banking, real state or insurance laws;
(e) Is enjoined or restrained by a competent judicial or
administrative body from engaging in securities,
commodities, banking, real state or insurance activities or
from willfully violating laws governing such activities;
(f) Is subject to an order of a competent judicial or
administrative body refusing, revoking or suspending any
registration, licensed or other permit under this Code, the
rules and regulations promulgated thereunder, any other
law administered by the Commission;
(g) Is subject to an order of a self-regulatory organization
suspending or expelling him from membership or
participating therein or from association with a member or
participant thereof;
(h) Has been found by a competent judicial or
administrative body to have willfully violated any
provisions of securities, commodities, banking, real state
or insurance laws, or has willfully aided, abetted,
counseled, commanded, induced or procured such
violation; or
(i) Has been judicially declared insolvent.
For purposes of this subsection, the term "competent judicial or
administrative body" shall include a foreign court of competent
jurisdiction and a foreign financial regulator.
29.2. (a) In case of charges against a salesman or associated
person, notice thereof shall also be given the broker, dealer or
issuer employing such salesman or associated person.
(b) Pending the hearing, the Commission shall have the
power to order the suspensions of such broker’s, dealers,
associated person’s or salesman’s registration: Provided,
That such order shall state the cause for such suspension.
Until the entry of a final order, the suspension of such
registration, though binding upon the persons notified
thereof, shall be deemed confidential, and shall not be
published, unless it shall appear that the order of
suspension has been violated after notice.
29.3. The orders of the Commission refusing, revoking,
suspending or placing limitations on a registration as herein
above provided, together with its findings, shall be entered in
the Register of Securities Market Professionals. The suspension
or revocation of the registration of a dealer or broker shall also
automatically suspend the registration of all salesmen and
associated persons affiliated with such broker or dealer. The
order of the Commission refusing, revoking, suspending or
placing limitations on a registration as herein above provided,
together with its findings, shall be entered in the Register of
Securities Market Professionals. The suspension or revocation
of the registration of a dealer or broker shall also automatically
suspend the registration of a dealer or broker shall also
automatically suspend the registration of all salesmen and
associated persons affiliated with such broker or dealer.
29.4. It shall be sufficient cause for refusal, revocation or
suspension of a broker’s or dealer’s registrations, if any
associated person thereof or any juridical entity controlled by
such associated person has committed any act or omission or is
subject to any disability enumerated in paragraphs (a) through
(i) of Subsection 29. I hereof.
Section 30. Transactions and Responsibility of Brokers and
Dealers. – 30.1 No brokers or dealer shall deal in or otherwise
buy or sell, for its own account or for its own account or for the
account of customers, securities listed on an Exchange issued by
any corporation where any stockholders, director, associated
person or salesman, or authorized clerk of said broker or dealer
and all the relatives of the foregoing within the fourth civil
degree of consanguinity or affinity, is at the same time holding
office in said issuer corporation as a director, president, vice-
president, manager, treasurer, comptroller, secretary or any
office trust and responsibility, or is a controlling of the issuer.
30.2. No broker or dealer shall effect any transaction in
securities or induce or attempt to induce the purchase or sale of
any security except in compliance with such rules and
regulations as the Commission shall prescribe to ensure fair and
honest dealings in securities and provide financial safeguards
and other standards for the operations of brokers and dealers,
including the establishments of minimum net capital
requirements, the acceptance of custody and use of securities of
customers, and the carrying and use of deposits and credit
balances of customers.
Section 31. Development of Securities Market Professionals. –
The Commission in joint undertaking with self regulatory
organizations, organizations and associations of finance
professionals as well as private educational and research
institute shall undertake or facilitate/organize continuing
training, conferences/seminars, updating programs, research and
developments as well as technology transfer at the latest and
advance trends in issuance and trading of securities, derivatives,
commodity trades and other financial instruments, as well as
securities markets of other countries.
CHAPTER IX
EXCHANGES AND OTHER SECURITIES TRADING
MARKETS
63
Section 32. Prohibition on Use of Unregistered Exchange;
Regulation of Over-the-Counter Markets.–32.1. No broker,
dealer, salesman, associated person of a broker or dealer, or
Exchange, directly or indirectly shall make use of any facility of
an Exchange in the Philippines to effect any transaction in a
security, or to report such transaction, unless such Exchange is
registered as such under Section 33 of this Code.
32.2. (a) No broker, dealer, salesman or associated person of a
broker or dealer, singly or in concert with any other person,
shall make, create or operate, or enable another to make, create
or operate, any trading market, otherwise than on a registered
Exchange, for the buying and selling of any security, except in
accordance with rules and regulations the Commission may
prescribe.
(b) The Commission may promulgate rules and regulations
governing transactions by brokers, dealers, salesmen or
associated persons of a broker or dealer, over any facilities
of such trading market and may require such market to be
administered by a self-regulatory organization determined
by the Commission as capable of insuring the protection of
investors comparable to that provided in the case of a
registered Exchange. Such self-regulatory organization
must provide a centralized marketplace for trading and
must satisfy requirements comparable to those prescribed
for registration of Exchanges in Section 33 of this Code.
Section 33. Registration of Exchanges. – 33.1. Any Exchange
may be registered as such with the Commission under the terms
and conditions hereinafter provided in this Section and Section
40 hereof, by filing an application for registration in such form
and containing such information and supporting documents as
the Commission by rule shall prescribe, including the following:
(a) An undertaking to comply and enforce by its members
with the provisions of this Code, its implementing rules
and regulations and the rules of the Exchange;
(b) The organizational charts of the Exchange, rules of
procedure, and a list of its officers and members;
(c) Copies of the rules of the Exchange; and
(d) An undertaking that in the event a member firm
becomes insolvent or when the Exchange shall have found
that the financial condition of its member firm has so
deteriorated that it cannot readily meet the demands of its
customers for the delivery of securities and/or payment of
sales proceeds, the Exchange shall, upon order of the
Commission, take over the operation of the insolvent
member firm and immediately proceed to settle the
member firm’s liabilities to its customers.
33.2. Registrations of an Exchange shall be granted upon
compliance with the following provisions:
(a) That the applicant is organized as a stock corporation:
Provided, That any registered Exchange existing prior to
the effectivity of this Code shall within one (1) year
reorganize as a stock corporation pursuant to a
demutualization plan approved by the Commission;
(b) That the applicant is engaged solely in the business of
operating an exchange: Provided, however, That the
Commission may adopt rules, regulations or issue an order,
upon application, exempting an Exchange organized as a
stock corporation and owned and controlled by another
juridical person from the restriction.
(c) Where the Exchange is organized as a stock
corporation, that no person may beneficially own or
control, directly or indirectly, more than five percent (5%)
of the voting rights of the Exchange and no industry or
business group may beneficially own or control, directly or
indirectly, more than twenty percent (20%) of the voting
rights of the Exchange: Provided, however, That the
Commission may adopt rules, regulations or issue an order,
upon application from this prohibition where it finds that
such ownership or control will not negatively impact on
the exchange’s ability to effectively operate in the public
interest.
(d) The expulsion, suspension, or disciplining of a member
and persons associated with a member for conduct or
proceeding inconsistent with just and equitable principles
of fair trade, and for violations of provisions of this Code,
or any other Act administered by the Commission, the
rules, regulations and orders thereunder, or the rules of the
Exchange;’
(e) A fair procedure for the disciplining of members and
persons associated with members, the denial of
membership to any person seeking to be a member, the
barring of any person from association with a member, and
the prohibition or limitation of any person from association
with member, and the prohibition or limitation of any
person from access to services offered by the Exchange;
(f) That the brokers in the board of the Exchange shall
comprise of not more than forty-nine percent (49%) of
such board and shall proportionately represent the
Exchange membership in terms of volume/value or trade
and paid up capital, and that any natural person associated
with a juridical entity that is a member for this purpose;
Provide,That any registered Exchange existing prior to the
affectivity of this Code shall immediately comply with this
requirement;
(g) For the board of the Exchange to include in its
composition (1) the president of the Exchange, and (ii) no
less than fifty one percent (51%) of the remaining
members of the board to be comprised of three (3)
independent directors and persons who represent the
interests of issuers, investors, and other market
participants, who are not associated with any broker or
dealer or member of the Exchange for a period of two (2)
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years prior to his/her appointment. No officer or employee
of a member, its subsidiaries or affiliates or related
interests shall become an independent director: Provided,
however,That the Commission may by rule, regulation, or
order upon application, permit the exchange organized as a
stock corporation to use a different governance structure:
Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to
effectively operate as a self-regulatory organization under
this Code: Provided, finally, That any registered exchange
existing prior to the affectivity of this Code shall
immediately comply with this requirement.
(h) The president and other management of the Exchange
to consist only of persons who are not members and are not
associated in any capacity, directly or indirectly with any
broker or dealer or member or listed company of the
Exchange: Provided, That the Exchange may only appoint,
and a person may only serve, as an officer of the exchange
if such person has not been a member or affiliated with any
broker, dealer, or member of the Exchange for a period of
at least two (2) years prior to such appointment;
(i) The transparency of transactions on the Exchange;
(j) The equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other
persons using any facility or system which the Exchange
operates or controls;
(k) Prevention of fraudulent and manipulative acts and
practices, promotion of just and equitable principles of
trade, and, in general, protection of investors and the
public interest; and
(l) The transparent, prompt and accurate clearance and
settlement of transactions effected on the Exchange.
33.3. If the Commission finds that the applicant Exchange is
capable of complying and enforcing compliance by its members,
and persons associated with such members, with the provisions
of this Code, and the rules of the Exchange, and that the rules of
Exchange are fair, just and adequate, the Commission shall
cause such Exchange to be registered. If, after notice due and
hearing, the Commission finds otherwise, the application shall
be denied.
33.4. Within ninety (90) days after the filing of the application
the Commission may issue an order either granting or denying
registration as an Exchange, unless the Exchange applying for
registration shall withdraw its application or shall consent to the
Commission’s deferring action on its application for a stated
longer period after the date of filing. The filing with the
Commission of an application for registration by an Exchange
shall be deemed to have taken place upon the receipt thereof.
Amendments to an application may be made upon such terms as
the Commission may prescribe.
33.5. Upon the registration of an Exchange, it is shall pay a fee
in such amount and within such period as the Commission may
fix.
33.6. Upon appropriate application in accordance with the rules
and regulations of the Commission and upon such terms as the
Commission may deemed necessary for the protection of
investors, an exchange may withdraw its registration or suspend
its operations or resume the same.
Section 34. Segregation and Limitation of functions of
Members, Broker and Dealers. -34.1. It shall be unlawful for
any member-broker of an Exchange to effect any transaction on
such Exchange for its own account, the account of an associated
person, or an account with the respect to which it or an
associated person thereof exercises the investment discretion:
Provided, however,That this Section shall not make unlawful-
(a) Any transaction by a member-broker acting in the
capacity of a market maker;
(b) Any transaction reasonably necessary to carry on an
odd-lot transactions;
(c) Any transaction to offset a transaction made in error;
and
(d) Any other transaction of a similar nature as may be
defined by the Commission.
34.2. In all instances where the member-broker effects a
transaction on an Exchange for its own account or the account
of an associated person or an account with the respect to which
it exercises investment discretion, it shall disclose to such
customer at or before the completion of the transaction it is
acting for its own account: Provided, further,That this fact shall
be reflected in the order ticket and the confirmation slip.
34.3. Any member-broker who violates the provisions of this
Section shall be subject to the administrative sanctions provided
in Section 54 of this Code.
Section 35. Additional Fees of Exchanges. – In addition to the
registration fee prescribed in Section 33 of this Code, every
Exchange shall pay to the Commission, on a semestral basis on
or before the tenth day of the end of the end of every semester of
the calendar year, a fee in such an amount as the Commission
shall prescribe, but not more than one-hundredth of one per
centum (1%) of the aggregate amount of the sales of securities
transacted on such Exchange during the preceding calendar year
for the privilege of doing business, during the preceding
calendar year or any part thereof.
Section 36. Powers with Respect to Exchanges and Other
Trading Market. – 36.1. The Commission is authorized, if in its
opinion such action is necessary or appropriate for the
protection of investors and the public interest so requires,
summarily to suspend trading in any listed security on any
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Exchange or other trading market for a period not exceeding
thirty (30) days but not exceeding ninety (90) days: Provided,
however, That the Commission promptly following the issuance
of the order of suspension, shall notify the affected issuer of the
reasons for such suspension and provide such issuer with an
opportunity for hearing to determine whether the suspension
should be lifted.
36.2. Wherever two (2) or more Exchanges or other trading
markets exist, the Commission may require and enforce
uniformity of trading regulations in and/or between or among
said Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock Exchange, the
Commission shall have the authority to determine the number,
size and location of stock Exchanges, other trading markets and
commodity Exchanges and other similar organizations in the
light of national or regional requirements for such activities with
the view to promote, enhance, protect, conserve or rationalize
investment.
36.4. The Commission, having due regard to the public interest,
the protection of investors, the safeguarding of securities and
funds, and maintenance of fair competition among brokers,
dealers, clearing agencies, and transfer agents, shall promulgate
rules and regulations for the prompt and accurate clearance and
settlement of securities transactions.
36.5. (a) The Commission may establish or facilitate the
establishment of trust funds which shall be contributed by
Exchanges, brokers, dealers, underwriters, transfer agents,
salesmen and other persons transacting in securities, as the
Commission may require, for the purpose of compensating
investors for the extraordinary losses or damage they may suffer
due to business failure or fraud or mismanagement of the
persons with whom they transact, under such rules and
regulations as the Commission may from time to time prescribe
or approve in the public interest.
(b) The Commission may, having due regard to the public
interest or the protection of investors, regulate, supervise,
examine, suspend or otherwise discontinue such and other
similar funds under such rules and regulations which the
Commission may promulgate, and which may include
taking custody and management of the fund itself as well
as investments in and disbursements from the funds under
such forms of control and supervision by the Commission
as it may from time to time require. The authority granted
to the Commission under this subsection shall also apply to
all funds established for the protection of investors,
whether established by the Commission or otherwise.
Section 37. Registration of Innovative and Other Trading
Markets. – The Commission, having due regard for national
economic development, shall encourage competitiveness in the
market by promulgating within six (6) months upon the
enactment of this Code, rules for the registration and licensing
of innovative and other trading markets or Exchanges covering,
but not limited to, the issuance and trading of innovative
securities, securities of small, medium, growth and venture
enterprises, and technology-based ventures pursuant to Section
33 of this Code.
Section 38. Independent Directors. – Any corporation with a
class of equity securities listed for trading on an Exchange or
with assets in excess of Fifty million pesos (P50,000,000.00)
and having two hundred (200) or more holders, at least of two
hundred (200) of which are holding at least one hundred (100)
shares of a class of its equity securities or which has sold a class
of equity securities to the public pursuant to an effective
registration statement in compliance with Section 12 hereof
shall have at least two (2) independent directors or such
independent directors shall constitute at least twenty percent
(20%) of the members of such board whichever is the lesser. For
this purpose, an "independent director" shall mean a person
other than an officer or employee of the corporation, its parent
or subsidiaries, or any other individual having a relationship
with the corporation, which would interfere with the exercise of
independent judgement in carrying out the responsibilities of a
director.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
Section 39. Associations of Securities Brokers, and Dealers,
and Other Securities Related Organizations. – 39.1. The
Commission shall have the power to register as a self-regulatory
organization, or otherwise grant licenses, and to regulate,
supervise, examine, suspend or otherwise discontinue, as a
condition for the operation of organizations whose operations
are related to or connected with the securities market such as but
not limited to associations of brokers and dealers, transfer
agents, custodians, fiscal and paying agents, computer services,
news disseminating services, proxy solicitors, statistical
agencies, securities rating agencies, and securities information
processor which are engaged in business of: (a) Collecting,
processing, or preparing for distribution or publication, or
assisting, participating in, or coordinating the distribution or
publication of, information with respect to transactions in or
quotations for any security; or (b) Distributing or publishing,
whether by means of a ticker tape, a communications network, a
terminal display device, or otherwise, on a current and
continuing basis, information with respect to such transactions
or quotations. The Commission may prescribe rules and
regulations which are necessary or appropriate in the public
interest or for the protection of investors to govern self-
regulatory organizations and other organizations licensed or
regulated pursuant to the authority granted in Subsection 39.1
including the requirement of cooperation within and among, and
electronic integration of the records of, all participants in the
securities market to ensure transparency and facilitate exchange
of information.
39.2. An association of brokers and dealers may be registered as
a securities association pursuant to Subsection 39.3 by filing
with the Commission an application for registration in such
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form as the Commission, by rule, may prescribe containing the
rules of the association and such other information and
documents as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the
protection of investors.
39.3. An association of brokers and dealers shall not be
registered as a securities association unless the Commission
determines that:
(a) The association is so organized and has the capacity to
be able to carry out the purposes of this Code and to
comply with, and to enforce compliance by its members
and persons associated with its members, with the
provisions of this Code, the rules and regulations
thereunder, and the rules of the association.
(b) The rules of the association, notwithstanding anything
in the Corporation Code to the contrary, provide that:
(i) Any registered broker or dealer may become a
member of the association;
(ii) There exist a fair representation of its members to
serve on the Board of Directors of the association and
in the administration of its affairs, and that may any
natural person associated with a juridical entity that is
a member shall himself be deemed to be a member
for this purpose;
(iii) The Board of Directors of the association
includes in its composition:
(a) The president of the association and
(b) Person who represent the interests of the
issuer and public investors and are not
associated with any broker or dealer or member
of the association; that the president and other
management of the association not be a member
or associated with any broker, dealer or member
of the association;
(iv) For the equitable allocation of reasonable dues,
fees, and other charges among member and issuers
and other persons using any facility or system which
the association operates or controls;
(v) For the prevention of fraudulent and manipulative
acts and practices, the promotion of just and equitable
principles of trade, and, in general, the protection of
investors and the public interest;
(vi) That its members and persons associated with its
members shall be appropriately disciplined for
violation of any provision of this Code, the rules and
regulations thereunder, or the rules of the association;
 (vii) That a fair procedure for the disciplining of
members and persons associated with members, the
denial of membership to any person seeking
membership therein, the barring of any person from
becoming associated with a member thereof, and the
prohibition or limitation by the association of any
person with respect to access to services offered by
the association or a member thereof.
39.4. (a) A registered securities association shall deny
membership to any person who is not a registered broker or
dealer.
(b) A registered securities association may deny
membership to, or condition the membership of, a
registered broker or dealer if such broker or dealer:
(i) Does not meet the standards of financial
responsibility, operational capability, training,
experience or competence that are prescribe by the
rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood
it will again engage, in acts or practices inconsistent
with just and equitable principles of fair trade.
(c) A registered securities association may deny
membership to a registered broker or dealer not engage in a
type of business in which the rules of the association
require members to be engaged: Provided, however, That
no registered securities association may deny membership
to a registered broker or dealer by reason of the amount of
business done by the broker or dealer.
A registered securities association may examine and verify
the qualifications of an applicant to become a member in
accordance with procedure established by the rules of the
association.
(d) A registered securities association may bar a salesman
or person associated with a broker or dealer from being
employed by a member or set conditions for the
employment of a salesman or associated if such person:
(i) Does not meet the standards of training,
experience, or competence that are prescribe by the
rules of the association; or
(ii) Has engage, and there is a reasonable likelihood
he will again engage, in acts or practices inconsistent
with just and equitable principles of fair trade.
A registered securities association may examine and verify the
qualifications of an applicant to become a salesman or
associated person employed by a member in accordance with
the procedures establish by the rules of the association. A
registered association also may require a salesman or associated
person employed by a member to be registered with the
67
association in accordance with the procedures prescribed in the
rules of the association.
39.5. In any proceeding by a registered securities association to
determine whether a person shall be denied membership, or
barred from association with a member, the association shall
provide notice to the person under review of the specific
grounds being considered for denial, afford him an opportunity
to defend against the allegations, and keep a record of the
proceedings. A determination by the association to deny
membership shall be supported by a statement setting forth the
specific grounds on which the denial is based.
Section 40. Powers with Respect to Self-Regulatory
Organizations. - 40.1. Upon the filing of an application for
registration as an Exchange under Section 33, a registered
securities association under Section 39, a registered clearing
agency under Section 42, or other self-regulatory organization
under this Section, the Commission shall have ninety (90) days
within which to either grant registration should be denied. In the
event proceedings are instituted, the Commission shall have two
hundred seventy (270) days within which to conclude such
proceedings at which time it shall, by order, grant or deny such
registration.
40.2. Every self-regulatory organization shall comply with the
provision of this Code, the rules and regulations thereunder, and
its own rules, and enforce compliance therewith,
notwithstanding any provisions of the Corporation Code to the
contrary, by its members, persons associated with its members
of its participants.
40.3. (a) Each self-regulatory organization shall submit to the
Commission for prior approval any proposed rule or amendment
thereto, together with a concise statement of the reason and
effect of the proposed amendment
(b) Within sixty (60) days after submission of a proposed
amendment, the Commission shall, by order, approve the
proposed amendment. Otherwise, the same may be made
effective by the self-regulatory organization.
(c) In the event of an emergency requiring action for the
protection of investors, the maintenance of fair and orderly
markets, or the safeguarding of securities and funds, a self-
regulatory organization may put a proposed amendment
into effect summarily; Provided however,That the copy of
the same shall be immediately submitted to the
Commission.
40.4. The Commission is further authorized, if after making
appropriate request in writing to a self-regulatory organization
that such organization effect on its own behalf specified changes
in its rules and practices and, after due to notice and hearing it
determines that such changes have not been effected, and that
such changes are not necessary, by the rule or regulation or by
order, may alter, abrogate or supplement the rules of such self-
regulatory organization in so far as necessary or appropriate to
effect such changes in respect of such matters as:
 (a) Safeguards in respect of the financial responsibility of
members and adequate provision against the evasion of
financial responsibility through the use of corporate forms
or special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of any security;
(d) Hours of trading;
(e) The manner, methods, and place of soliciting business;
(f) Fictitious accounts;
(g) The time and method of making settlements, payments,
and deliveries, and of closing accounts;
(h) The transparency of securities transactions and prices;
(i) The fixing of reasonable rates of fees, interest, listing
and other charges, but not rates of commission;
(j) Minimum units of trading;
(k) Odd-lot purchases and sales;
(l) Minimum deposits on margin accounts; and
(m) The supervision, auditing and disciplining of members
or participants.
40.5. The Commission, after due notice and hearing, is
authorized, in the public interest and to protect investors:
(a) To suspend for a period not exceeding twelve (12)
months or to revoke the registration of a self-regulatory
organization, or to censure or impose limitations on the
activities, functions, and operations of such self-
organization, if the Commission finds that such a self-
regulatory organization has willfully violated or is unable
to comply with any provision of this Code or of the rules
and regulations thereunder, or its own or has failed to
enforce compliance therewith by a member of, person
associated with a member, or a participant in such self-
regulatory organization;
(b) To expel from a self-regulatory organization any
member thereof or any participant therein who is subject to
an order of the Commission under Section 29 of this Code
or is found to have willfully violated any provision of this
Code or suspend for a period not exceeding twelve (12)
months for violation of any provision of this Code or any
other laws administered by the Commission, or rules and
regulations thereunder, or effected, directly or indirectly,
any transaction for any person who, such member or
participant had reason to believe, was violating in respect
68
of such transaction any of such provisions; and
(c) To remove from the office or censure any officer or
director of a self-regulatory organization if it finds that
such officer or director has violated any provision of this
Code, any other law administered by the Commission, the
rules or regulations thereunder, or the rules of such self-
regulatory organization, abused his authority, without
reasonable justification or excuse has failed to enforce
compliance with any of such provisions.
40.6. (a) A self-regulatory organization is authorized to
discipline a member of or participant in such self-regulatory
organization, or any person associated with a member, including
the suspension or expulsion of such member or participant, and
the suspension or bar from being associated with a member, if
such person has engage in acts or practices inconsistent with just
and equitable principles of fair trade or in willful violation of
any provision of the Code, any other law administered by the
Commission, the rules or regulations thereunder, or the rules of
the self-regulatory organization. In any disciplinary proceeding
by a self-regulatory organization (other than a summary
proceeding pursuant to paragraph (b) of this subsection) the self-
regulatory organization shall bring specific charges, provide
notice to the person charged, afford the person charged with an
opportunity to defend against the charges, and keep a record of
the proceedings. A determination to impose a disciplinary
sanction shall be supported by a written statement of the
offenses, a summary of the evidence presented and a statement
of the sanction imposed.
(b) A self-regulatory organization may summarily: (I)
Suspend a member, participant or person associated with a
member who has been or is expelled or suspended from
any other self-regulatory organization; or (ii) Suspend a
member who the self-regulatory organization finds to be in
such financial or operating difficulty that the member or
participant cannot be permitted to continue to do business
as a member with safety to investors, creditors, other
members, participants or the self-regulatory organization:
Provided,That the self-regulatory organization immediately
notifies the Commission of the action taken. Any person
aggrieved by a summary action pursuant to this paragraph
shall be promptly afforded an opportunity for a hearing by
the association in accordance with the provisions of
paragraph (a) of this subsection. The Commission, by
order, may stay a summary action on its own motion or
upon application by any person aggrieved thereby, if the
Commission determines summarily or after due notice and
hearing (which hearing may consist solely of the
submission of affidavits or presentation of oral arguments)
that a stay is consistent with the public interest and the
protection of investors.
40.7. A self-regulatory organization shall promptly notify the
Commission of any disciplinary sanction on any member
thereof or participant therein, any denial of membership or
participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member or a
bar of such person from becoming so associated. Within thirty
(30) days after such notice, any aggrieved person may appeal to
the Commission from, or the Commission from, or the
Commission on its own motion within such period, may institute
review of, the decision of the self-regulatory organization, at the
conclusion of which, after due notice and hearing (which may
consist solely of review of the record before the self-regulatory
organization), the Commission shall affirm, modify or set aside
the sanction. In such proceeding the Commission shall
determine whether the aggrieved person has engaged or omitted
to engage in the acts and practices as found by the self-
regulatory organization, whether such acts and practices
constitute willful violations of this Code, any other law
administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization as
specified by such organization, whether such provisions were
applied in a manner consistent with the purposes of this Code,
and whether, with due regard for the public interest and the
protection of investors the sanction is excessive or oppressive.
40.8. The powers of the Commission under this Section shall
apply to organized exchanges and registered clearing agencies.
CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND
SETTLEMENT OF TRANSACTION IN SECURITIES
Section 41. Prohibition on Use of Unregistered Clearing
Agency. – It shall be unlawful for any broker, dealer, salesman,
associated person of a broker or dealer, or clearing agency,
directly or indirectly, to make use of any facility of a clearing
agency in Philippines to make deliveries in connection with
transaction in securities or to reduce the number of settlements
of securities transactions or to allocate securities settlement
responsibilities or to provide for the central handling of
securities so that transfers, loans and pledges and similar
transaction can be made by bookkeeping entry or otherwise to
facilitate the settlement of securities transactions without
physical delivery of securities certificates, unless such clearing
agency is registered as such under Section 42 of this Code or is
exempted from such registration upon application by the
clearing agency because, in the opinion of the Commission, by
reason of the limited volume of transactions which are settled
using the clearing agency, it is not practicable and not necessary
or appropriate in the public interest or for the protection of
investors to require such registration.
Section 42. Registration of Clearing Agencies.- 42.1. Any
clearing agency may be registered as such with the Commission
under the terms and conditions hereinafter provided in this
Section, by filing an application for registration in such form
and containing such information and supporting documents as
the Commission by rule shall prescribe, including the following:
(a) An undertaking to comply and enforce compliance by
its participants with the provisions of this Code, and any
amendments thereto, and the implementing rules or
regulations made or to be made thereunder, and the
clearing agency’s rules;
69
(b) The organizational charts of the Exchange, its rules of
procedure, and list of its officers and participants;
(c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be granted
unless the rules of the clearing agency include provision for:
(a) The expulsions, suspension, or disciplining of a
participant for violations of this Code, or any other Act
administered by the Commission, the rules, regulations,
and orders thereunder, or the clearing agency’s rules;
(b) A fair procedure for the disciplining of participants, the
denial of participation rights to any person seeking to be a
participant, and the prohibition or limitation of any person
from access to services offered by the clearing agency;
(c) The equitable allocation of reasonable dues, fees, and
other charges among participants;
(d) Prevention of fraudulent and manipulative acts and
practices, promotion of just and equitable principles of
trade, and, in general, protection of investors and the
public interest;
(e) The transparent, prompt and accurate clearance and
settlement of transactions in securities handled by the
clearing agency; and
(f) The establishment and oversight of a fund to guarantee
the prompt and accurate clearance and settlement of
transaction executed on an exchange, including a
requirement that members each contribute an amount
based on their and a relevant percentage of the daily
exposure of the (4) largest trading brokers which
adequately reflects trading risks undertaken or pursuant to
another formula set forth in Commission rules or
regulations or order, upon application: Provided, however,
That a clearing agency engaged in the business of
securities depository shall be exempt from this
requirement.
42.3. In the case of an application filed pursuant to this section,
the Commission shall grant registration if it is finds That the
requirements of this code and the rules and regulations
thereunder with respect to the applicant have been satisfied, and
shall deny registration if it does not make such finding.
42.4. Upon appropriate application in accordance with the rules
and regulations of the Commission and upon such terms as the
Commission may deem necessary for the protection of
investors, a clearing agency may withdraw its registration or
suspend its operation or resume the same.
Section 43. Uncertificated Securities. – Notwithstanding
Section 63 of the Corporation Code of the Philippines: 43.1. A
corporation whose securities are registered pursuant to this Code
or listed on securities exchange may:
(a) If so resolved by its Board of Directors and agreed by a
shareholder, investor or securities intermediary, issue
shares to, or record the transfer of some or all its shares
into the name of said shareholders, investors or, securities
intermediary in the form of uncertified securities. The use
of uncertified securities in these circumstances shall be
without prejudice to the rights of the securities
intermediary subsequently to require the corporation to
issue a certificate in respect of any shares recorded in its
name; and
(b) If so provided in its articles of incorporation and by-
laws, issue all of the shares of a particular class in the form
of Uncertificated securities and subject to a condition that
investors may not require the corporation to issue a
certificate in respect of any shares recorded in their name.
43.2. The Commission by rule may allow other corporations to
provide in their articles of incorporation and by-laws for the use
of uncertificated securities.
43.3. Transfers of securities, including an uncertificated
securities, may be validly made and consummated by
appropriate book-entries in the securities intermediaries, or in
the stock and transfer book held by the corporation or the stock
transfer agent and such bookkeeping entries shall be binding on
the parties to the transfer. A transfer under this subsection has
the effect of the delivery of a security in bearer form or duly
indorsed in blank representing the quantity or amount of
security or right transferred, including the unrestricted
negotiability of that security by reason of such delivery.
However, transfer of uncertificated shares shall only be valid, so
far as the corporation is concerned, when a transfer is recorded
in the books of the corporation so as to show the names of the
parties to the transfer and the number of shares transferred.
However, nothing in this Code shall compliance by banking and
other institutions under the supervision of the Bangko Sentral ng
Pilipinas and their stockholders with the applicable ceilings on
shareholding prescribed under pertinent banking laws and
regulations.
Section 44. Evidentiary Value of Clearing Agency Record. – The
official records and book entries of a clearing agency shall
constitute the best evidence of such transactions between
clearing agency shall constitute the best between clearing
agency and its participants’ or members’ clients to prove their
rights, title and entitlement with respect to the book-entry
security holdings of the participants or members held on behalf
of the clients. However, the corporation shall not be bound by
the foregoing transactions unless the corporate secretary is duly
notified in such manner as the Commission may provide.
Section 45. Pledging a Security or Interest Therein. – In
addition to other methods recognized by law, a pledge of,
including an uncertificated security, is properly constituted and
the instrument proving the right pledged shall be considered
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delivered to the creditor under Articles 2093 and 2095 of the
Civil Code if a securities intermediary indicates by book entry
that such security has been credited to a specially designated
pledge account in favor of the pledgee. A pledge under this
subsection has the effect of the delivery of a security in bearer
form or duly indorsed in blank representing the quantity or
amount of such security or right pledged. In the case of a
registered clearing agency, the procedures by which, and the
exact time at which, such book-entries are created shall be
governed by the registered clearing agency’s rules. However, the
corporation shall not be bound by the foregoing transactions
unless the corporate secretary is duly notified in such manner as
the Commission may provide.
Section 46. Issuer’s Responsibility for Wrongful Transfer to
Registered Clearing Agency. - The registration of a transfer of a
security into the name of and by a registered clearing agency or
its name of or by a registered clearing agency or its nominee
shall be final and conclusive unless the clearing agency had
notice of an adverse claim before the registration was made. The
above provisions which the claimant may have against the issuer
for wrongful registration in such circumstances.
Section 47. Power of the Commission With Respect to Securities
Ownership. – The Commission is authorize, having due regard
to the public interest and the protection of investors, to
promulgate rules and regulations which:
47.1. Validate the transfer of securities by book-entries rather
than the delivery of physical certificates;
47.2. Establish when a person acquires a security or an interest
therein and when delivery of a security to a purchaser occurs;
47.3. Establish which records constitute the best evidence of a
person’s interests in a security and the effect of any errors in
electronic records of ownership;
47.4. Codify the rights of investors who choose to hold their
securities indirectly through a registered clearing agency and/ or
other securities intermediaries;
47.5. Codify the duties of securities intermediaries (including
clearing agencies) who hold securities on behalf of investors;
and
47.6 Give first priority to any claims of a registered clearing
agency against a participant arising from a failure by the
participant to meet its obligations under the clearing agency’s
rules in respect of the clearing and settlement of transactions in
securities, in a dissolution of the participant, and any such rules
and regulation shall bind the issuers of the securities, investors
in the securities, any third parties with interests in the securities,
and the creditors of a participant of a registered clearing agency.
CHAPTER XII
MARGIN AND CREDIT
Section 48. Margin Requirements. – 48.1. For the purpose of
preventing the excessive use of credit for the purchase or
carrying of securities, the Commission, in accordance with the
credit and monetary policies that may be promulgated from time
to time by the Monetary Board of the Bangko Sentral ng
Pilipinas, shall prescribed rules and regulations with respect to
the amount of credit that may be extended on any security. For
the extension of credit, such rules and regulations shall be based
upon the following standard:
An amount not greater than the whichever is the higher of –
(a) Sixty-five per centum (65%) of the current market price
of the security, or
(b) One hundred per centum (100%) of the lowest market
price of the security during the preceding thirty-six (36)
calendar months, but not more than seventy-five per
centum (75%) of the current market price.
However, the Monetary Board may increase or decrease the
above percentages, in order to achieve the objectives of the
Government with due regard for promotion of the economy and
prevention of the use of excessive credit.
Such rules and regulations may make appropriate provision with
respect to the carrying of undermargined accounts for limited
periods and under specified conditions; the withdrawal of funds
or securities; the transfer of accounts from one lender to another;
special or different margin requirements for delayed deliveries,
short sales, arbitrage transactions, and securities to which letter
(b) of the second paragraph of this subsection does not apply;
the methods to be used in calculating loans, and margins and
market prices; and similar administrative adjustments and
details.
48.2. No member of an Exchange or broker or dealer shall,
directly or indirectly, extend or maintain credit is extended and
maintain credit or arrange for the extension or maintenance of
credit to or for any customer:
(a) On any security unless such credit is extended and
maintained in accordance with the rules and regulations
which the Commission shall prescribe under this Section
including rules setting credit in relation to net capital of
such member, broker or dealer; and
(b) Without collateral or any collateral other than
securities, except (I) to maintain a credit initially extended
in conformity with rules and regulations of the
Commission and (ii) in cases where the extension or
maintenance of credit is not for the purpose of purchasing
or carrying securities or of evading or circumventing the
provisions of paragraph (a) of this subsection.
48.3 Any person not subject to Subsection 48.2 hereof shall
extend or maintain credit or arrange for the extension or
maintenance of credit for the purpose of purchasing or carrying
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any security, only in accordance with such rules and regulations
as the Commission shall prescribe to prevent the excessive use
of credit for the purchasing or carrying of or trading in securities
in circumvention of the other provisions of this Section.. Such
rules and regulations may impose upon all loans made for the
purpose of purchasing or carrying securities limitations similar
to those imposed upon members, brokers, or dealers by
Subsection 48.2 and the rules and regulations thereunder. This
subsection and the rules and regulations thereunder shall not
apply:
(a) To a credit extension made by a person not in the
ordinary course of business; (b) to a loan to a dealer to aid
in the financing of the distribution of securities to
customers not through the medium of an Exchange; or (c)
To such other credit extension as the Commission shall
exempt from the operation of this subsection and the rules
and regulations thereunder upon specified terms and
conditions for stated period.
Section 49. Restrictions on Borrowings by Members, Brokers,
and Dealers. – It shall be unlawful for any registered broker or
dealer, or member of an Exchange, directly or indirectly;
49.1. To permit in the ordinary course of business as a broker or
dealer his aggregate indebtedness including customers’ credit
balances, to exceed such percentage of the net capital (exclusive
of fixed assets and value of Exchange membership) employed in
the business, but not exceeding in any case to thousand
percentum (2,000%), as the Commission may be rules and
regulations prescribe as necessary or appropriate in the public
interest or for the protection of investors.
49.2. To pledge, mortgage, or otherwise encumber or arrange for
the pledge, mortgage, or encumbrance of any security carried
for the account of any customer under circumstances: (a) That
will permit the commingling of his securities, without his
written consent, with the securities of any customer; (b) That
will permit such securities to be commingled with the securities
of any person other than a bona fide customer; or (c) that will
permit such securities to be pledged, mortgaged or encumbered,
or subjected to any lien or claim of the pledgee, for a sum in
excess of the aggregate indebtedness of such customers in
respect of such securities. However, the Commission, having
due regard to the protection of investors, may, by rules and
regulations, allow certain transactions that may otherwise be
prohibited under this subsection.
49.3. To lend or arrange for the lending of any security carried
for the account of any customer without the written consent of
such customer or in contravention of such rules and regulations
as the Commission shall prescribe.
Section 50. Enforcement of Margin Requirement and
Restrictions on Borrowing. – To prevent indirect violations of
the margin requirements under Section 48, the broker or dealer
shall require the customer in non-margin transactions to pay the
price of the security purchased for his account within such
period as the Commission may prescribe, which shall in no case
exceed the prescribed settlement date. Otherwise, the broker
shall sell the security purchased starting on the next trading day
but not beyond ten (10) trading days following the last day for
the customer to pay such purchase price, unless such sale cannot
be effected within said period for justifiable reasons. The sale
shall be without prejudice to the right of the broker or dealer to
recover any deficiency from the customer. To prevent indirect
violation of the restrictions on borrowing under Section 49, the
broker shall, unless otherwise directed by the customer, pay the
net sales price of the securities sold for a customer within the
same period as above prescribed by the Commission: Provided,
That the customer shall be required to deliver the instruments
evidencing the securities as a condition for such payment upon
demand by the broker.
CHAPTER XIII
GENERAL PROVISIONS
Section 51. Liabilities of Controlling Persons, Aider and
Abettor and Other Secondary Liability. 51.1. Every person who,
by or through stock ownership, agency, or otherwise, or in
connection with an agreement or understanding with one or
more other persons, controls any person liable under this Code
or the rules or regulations of the Commission thereunder, shall
also be liable jointly and severally with and to the same extent
as such controlled persons to any person to whom such
controlled person is liable, unless the controlling person proves
that, despite the exercise of due diligence on his part, he has no
knowledge of the existence of the facts by reason of which the
liability of the controlled person is alleged to exist.
51.2. It shall be unlawful for any person, directly, or indirectly,
to do any act or thing which it would be unlawful for such
person to do under the provisions of this Code or any rule or
regulation thereunder.
51.2. It shall be unlawful for any director or officer of, or any
owner of any securities issued by, any issuer required to file any
document, report or other information under this Code or any
rule or regulation of the Commission thereunder, without just
cause, to hinder, delay or obstruct the making or filing of any
such document, report, or information.
51.3. It shall be unlawful for any person to aid, abet, counsel,
command, induce or procure any violation of this Code, or any
rule, regulation or order of the Commission thereunder.
52.4. Every person who substantially assists the act or omission
of any person primarily liable under Sections 57, 58, 59 and 60
of this Code, with knowledge or in reckless disregard that such
act or omission is wrongful, shall be jointly and severally liable
as an aider and abettor for damages resulting from the conduct
of the person primarily liable: Provided, however, That an aider
and abettor shall be liable only to the extent of his relative
contribution in causing such damages in comparison to that of
the person primarily liable, or the extent to which the aider and
abettor was unjustly enriched thereby, whichever is greater.
Section 52. Accounts and Records, Reports, Examination of
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Exchanges, members, and Others. – 52.1. Every registered
Exchange, broker or dealer, transfer agent, clearing agency,
securities association, and other self-regulatory organization,
and every other person required to register under this Code,
shall make, keep and preserve for such periods, records, furnish
such copies thereof, and make such reports, as the Commission
by its rules and regulations may prescribe. Such accounts,
correspondence, memoranda, papers, books, and other records
shall be subject at any time to such reasonable periodic, special
or other examinations by representatives of the Commission as
the Commission may deem necessary or appropriate in the
public interest of for the protection of investors.
52.2. Any brother, dealer or other person extending credit, who
is subject to the rules and regulations prescribed by the
Commission pursuant to this Code, shall make such reports to
the Commission as may be necessary or appropriate to enable it
to perform the functions conferred upon it by this Code.
52.3. For purposes of this Section, the term "records refers to
accounts, correspondence, memoranda, tapes, discs, papers,
books and other documents or transcribed information of any
type, whether written or electronic in character.
Section 53. Investigations, Injunctions and Prosecution of
Offenses. 53.1. The Commission may, in its discretion, make
such investigations as it deems necessary to determine whether
any person has violated or is about to violate any provision of
this Code, any rule, regulation or order thereunder, or any rule
of an Exchange, registered securities association, clearing
agency, other self-regulatory organization, and may require or
permit any person to file with it a statement in writing, under
oath or otherwise, as the Commission shall determine, as to all
facts and circumstances concerning the matter to be
investigated. The Commission may publish information
concerning any such violations, and to investigate any fact,
condition, practice or matter which it may deem necessary or
proper to aid in the enforcement of the provisions of this Code,
in the prescribing of rules and regulations thereunder, or in
securing information to serve as a basis for recommending
further legislation concerning the matters to which this Code
relates: Provided, however, That any person requested or
subpoenaed to produce documents or testify in any investigation
shall simultaneously be notified in writing of the purpose of
such investigation: Provided, further, That all criminal
complaints for violations of this Code, and the implementing
rules and regulations enforced or administered by the
Commission shall be referred to the Department of Justice for
preliminary investigation and prosecution before the proper
court: Provided, furthermore, That in instances where the law
allows independent civil or criminal proceedings of violations
arising from the same act, the Commission shall take
appropriate action to implement the same: provided, finally,
That the investigation, prosecution, and trial of such cases shall
be given priority.
53.2. For the purpose of any such investigation, or any other
proceeding under this Code, the Commission or any officer
designated by it is empowered to administer oaths and
affirmations, subpoena witnesses, compel attendance, take
evidence, require the production of any book, paper,
correspondence, memorandum, or other record which the
Commission deems relevant or material to the inquiry, and to
perform such other acts necessary in the conduct of such
investigation or proceedings.
53.3. Whenever it shall appear to the Commission that any
person has engaged or is about to engage in any act or practice
constituting a violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency or other self-
regulatory organization, it may issue an order to such person to
desist from committing such act or practice: Provided, however,
That the Commission shall not charge any person with violation
of the rules of an Exchange or other self-regulatory organization
unless it appears to the Commission that such Exchange or other
self-regulatory organization is unable or unwilling to take action
against such person. After finding that such person has engaged
in any such act or practice and that there is a reasonable
likelihood of continuing, further or future violations by such
person, the Commission may issue ex-parte a cease and desist
order for a maximum period of ten (10) days, enjoining the
violation and compelling compliance with such provision. The
Commission may transmit such evidence as may be available
concerning any violation of any provision of this Code, or any
rule, regulation or order thereunder, to the Department of
Justice, which may institute the appropriate criminal
proceedings under this Code.
53.4. Any person who, within his power but without cause, fails
or refuses to comply with any lawful order, decision or
subpoena issued by the Commission under Subsection 53.2 or
Subsection 53.3 or Section 64 of this Code, shall after due
notice and hearing, be guilty of contempt of the Commission.
Such person shall be fined in such reasonable amount as the
Commission may determine, or when such failure or refusal is a
clear and open defiance of the Commission’s order, decision or
subpoena,shall be detained under an arrest order issued by the
Commission, until such order, decision or subpoena is complied
with.
Section 54. Administrative Sanctions. – 54.1. If, after due notice
and hearing, the Commission finds that: (a) There is a violation
of this Code, its rule, or its orders; (b) Any registered broker or
dealer, associated person thereof has failed reasonably to
supervise, with a view to preventing violations, another person
subject to supervision who commits any such violation; (c) Any
registrant or other person has, in a registration statement or in
other reports, applications, accounts, records or documents
required by law or rules to be filed with the Commission, made
any untrue statement of a material fact, or omitted to state any
material fact required to be stated their or necessary to make the
statements therein not misleading; or, in the case of an
underwriter, has failed to conduct an inquiry with reasonable
diligence to insure that a registration statement is accurate and
complete in all material respects; or (d) Any person has refused
to permit any lawful examinations into its affairs, it shall, in its
discretion, and subject only to the limitations hereinafter
73
prescribed, impose any or all of the following sanctions as may
be appropriate in light of the facts and circumstances:
(i) Suspension, or revocation of any registration for the
offering of securities;
(ii) A fine of no less than Ten thousand pesos (P10,000.00)
nor more than One million pesos (P1,000,000.00) plus not
more than Two thousand pesos (P2,000.00) for each day of
continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26
and 27, disqualification from being an officer, member of
the Board of Directors, or person performing similar
functions, of an issuer required to file reports under
Section 17 of this Code or any other act, rule or regulation
administered by the Commission;
(iv) In the case of a violation of Section 34, a fine of no
more than three (3) times the profit gained or loss avoided
as result of the purchase, sale or communication proscribed
by such Section, and
(v) Other penalties within the power of the Commission to
impose.
54.2. The imposition of the foregoing administrative sanctions
shall be without prejudice to the filing of criminal charges
against the individuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of
execution to enforce the provisions of the Section and to enforce
payment of the fees and other dues collectible under this Code.
Section 55. Settlement Offers. – 55.1. At any time, during an
investigation or proceeding under this Code, parties being
investigated and/or charged may propose in writing an offer of
settlement with the Commission.
55.2. Upon receipt of such offer of settlement, the Commission
may consider the offer based on timing, the nature of the
investigation or proceeding, and the public interest.
55.3. The Commission may only agree to a settlement offer
based on its findings that such settlement is in the public
interest. Any agreement to settle shall have no legal effect until
publicly disclosed. Such decision may be made without a
determination of guilt on the part of the person making the offer.
55.4. The Commission shall adopt rules and procedures
governing the filing, review, withdrawal, form of rejection and
acceptance of such offers.
Section 56. Civil Liabilities on Account of False Registration
Statement. 56.1. Any person acquiring a security, the registration
statement of which or any part thereof contains on its effectivity
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make such
statements not misleading, and who suffers damage, may sue
and recover damages from the following enumerated persons,
unless it is proved that at the time of such acquisition he knew
of such untrue statement or omission:
(a) The issuer and every person who signed the registration
statement:
(b) Every person who was a director of, or any other
person performing similar functions, or a partner in, the
issuer at the time of the filing of the registration statement
or any part, supplement or amendment thereof with respect
to which his liability is asserted;
(c) Every person who is named in the registration
statement as being or about to become a director of, or a
person performing similar functions, or a partner in, the
issuer and whose written consent thereto is filed with the
registration statement;
(d) Every auditor or auditing firm named as having
certified any financial statements used in connection with
the registration statement or prospectus.
(e) Every person who, with his written consent, which shall
be filed with the registration statement, has been named as
having prepared or certified any part of the registration
statement, or as having prepared or certified any report or
valuation which is used in connection with the registration
statement, with respect to the statement, report, or
valuation, which purports to have been prepared or
certified by him.
(f) Every selling shareholder who contributed to and
certified as to the accuracy of a portion of the registration
statement, with respect to that portion of the registration
statement which purports to have been contributed by him.
(g) Every underwriter with respect to such security.
56.2. If the person who acquired the security did so after the
issuer has made generally available to its security holders an
income statement covering a period of at least twelve (12)
months beginning from the effective date of the registration
statement, then the right of recovery under this subsection shall
be conditioned on proof that such person acquired the security
relying upon such untrue statement in the registration statement
or relying upon the registration statement and not knowing of
such income statement, but such reliance may be established
without proof of the reading of the registration statement by
such person.
Section 57. Civil Liabilities Arising in Connection With
Prospectus, Communications and Reports. 57.1. Any person
who:
(a) Offers to sell or sells a security in violation of Chapter
III, or
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(b) Offers to sell or sells a security, whether or not
exempted by the provisions of this Code, by the use of any
means or instruments of transportation or communication,
by means of a prospectus or other written or oral
communication, which includes an untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements, in the light of the
circumstances under which they were made, not
misleading (the purchaser not knowing of such untruth or
omission), and who shall fail in the burden of proof that he
did not know, and in the exercise of reasonable care could
not have known, of such untruth or omission, shall be
liable to the person purchasing such security from him,
who may sue to recover the consideration paid for such
security with interest thereon, less the amount of any
income received thereon, upon the tender of such security,
or for damages if he no longer owns the security.
57.2. Any person who shall make or cause to be made any
statement in any report, or document filed pursuant to this Code
or any rule or regulation thereunder, which statement as at the
time and in the light of the circumstances under which it was
made false or misleading with respect to any material fact, shall
be liable to any person who, not knowing that such statement
was false or misleading, and relying upon such statement shall
have purchased or sold a security at a price which was affected
by such statement, for damages caused by such reliance, unless
the person sued shall prove that he acted in good faith and had
no knowledge that such statement was false or misleading.
Section 58. Civil Liability of Fraud in Connection with
Securities Transactions. – Any person who engages in any act or
transaction in violation of Sections 19.2, 20 or 26, or any rule or
regulation of the Commission thereunder, shall be liable to any
other person who purchases or sells any security, grants or
refuses to grant any proxy, consent or authorization, or accepts
or declines an invitation for tender of a security, as the case may
be, for the damages sustained by such other person as a result of
such act or transaction.
Section 59. Civil Liability for Manipulation of Security Prices. –
Any person who willfully participates in any act or transaction
in violation of Section 24 shall be liable to any person who shall
purchase or sell any security at a price which was affected by
such act or transaction, and the person so injured may sue to
recover the damages sustained as a result of such act or
transaction.
Section 60. Civil Liability with Respect to Commodity Futures
Contracts and Pre-need Plans. – 60.1. Any person who engages
in any act or transactions in willful violation of any rule or
regulation promulgated by the Commission under Section 11 or
16, which the Commission denominates at the time of issuance
as intended to prohibit fraud in the offer and sale of pre-need
plans or to prohibit fraud, manipulation, fictitious transactions,
undue speculation, or other unfair or abusive practices with
respect to commodity future contracts, shall be liable to any
other person sustaining damages as a result of such act or
transaction.
60.2. As to each such rule or regulation so denominated, the
Commission by rule shall prescribe the elements of proof
required for recovery and any limitations on the amount of
damages that may be imposed.
Section 61. Civil Liability on Account of Insider Trading. –
61.1. Any insider who violates Subsection 27.1 and any person
in the case of a tender offer who violates Subsection 27.4 (a)(I),
or any rule or regulation thereunder, by purchasing or selling a
security while in possession of material information not
generally available to the public, shall be liable in a suit brought
by any investor who, contemporaneously with the purchase or
sale of securities that is the subject of the violation, purchased or
sold securities of the same class unless such insider, or such
person in the case of a tender offer, proves that such investor
knew the information or would have purchased or sold at the
same price regardless of disclosure of the information to him.
61.2. An insider who violates Subsection 27.3 or any person in
the case of a tender offer who violates Subsection 27.4 (a), or
any rule or regulation thereunder, by communicating material
nonpublic information, shall be jointly and severally liable
under Subsection 61.1 with, and to the same extent as, the
insider, or person in the case of a tender offer, to whom the
communication was directed and who is liable under Subsection
61.1 by reason of his purchase or sale of a security.
Section 62. Limitation of Actions. – 62.1. No action shall be
maintained to enforce any liability created under Section 56 or
57 of this Code unless brought within two (2) years after the
discovery of the untrue statement or the omission, or, if the
action is to enforce a liability created under Subsection 57.1 (a),
unless, brought within two (2) yeas after the violation upon
which it is based. In no event shall an such action be brought to
enforce a liability created under Section 56 or Subsection 57.1
(a) more than five (5) years after the security was bona fide
offered to the public, or under Subsection 57.1 (b0 more than
five (5) years after the sale.
62.2. No action shall be maintained to enforce any liability
created under any other provision of this Code unless brought
within two (20 years after the discovery of the facts constituting
the cause of action and within five (5) years after such cause of
action accrued.
Section 63. Amount of Damages to be Awarded. – 63.1. All suits
to recover damages pursuant to Sections 56, 57, 58, 59, 60 and
61 shall be brought before the Regional Trial Court, which shall
have exclusive jurisdiction to hear and decide such suits. The
Court is hereby authorized to award damages in an amount not
exceeding triple the amount of the transaction plus actual
damages.
Exemplary damages may also be awarded in cases of bad faith,
fraud, malevolence or wantonness in the violation of this Code
or the rules and regulations promulgated thereunder.
The Court is also authorized to award attorney’s fees not
exceeding thirty percentum (30%) of the award.
75
63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61
hereof shall be jointly and severally liable for the payment of
damages. However, any person who becomes liable for the
payment of such damages may recover contribution from any
other person who, if sued separately, would have been liable to
make the same payment, unless the former was guilty of
fraudulent representation and the latter was not.
63.3. Notwithstanding any provision of law to the contrary, all
persons, including the issuer, held liable under the provisions of
Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the
total liability adjudged herein. In no case shall the principal
stockholders, directors and other officers of the issuer or persons
occupying similar positions therein, recover their contribution to
the liability from the issuer. However, the right of the issuer to
recover from the guilty parties the amount it has contributed
under this Section shall not be prejudiced.
Section 64. Cease and Desist Order. – 64.1. The Commission,
after proper investigation or verification, motu proprio or upon
verified complaint by any aggrieved party, may issue a cease
and desist order without the necessity of a prior hearing if in its
judgment the act or practice, unless restrained, will operate as a
fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.
64.2. Until the Commission issue a cease and desist order, the
fact that an investigation has been initiated or that a complaint
has been filed, including the contents of the complaint, shall be
confidential. Upon issuance of a cease and desist order, the
Commission shall make public such order and a copy thereof
shall be immediately furnished to each person subject to the
order.
64.3. Any person against whom a cease and desist order was
issued may, within five (5) days from receipt of the order, file a
formal request for a lifting thereof. Said request shall be set for
hearing by the Commission not later than fifteen (15) days from
its filing and the resolution thereof shall be made not later than
ten (10) days from the termination of the hearing. If the
Commission fails to resolve the request within the time herein
prescribed, the cease and desist order shall automatically be
lifted.
Section 65. Substituted Service Upon the Commission. – Service
of summons or other process shall be made upon the
Commission in actions or legal proceedings against an issuer or
any person liable under this Code who is not domiciled in the
Philippines. Upon receipt by the Commission of such summons,
the Commission shall within ten (10) days thereafter, transmit
by registered mail a copy of such summons and the complaint or
other legal process to such issuer or person at his last known
address or principal office. The sending thereof by the
Commission, the expenses for which shall be advanced by the
party at whose instance it is made, shall complete such service.
Section 66. Revelation of Information Filed with the
Commission. – 66.1. All information filed with the commission
in compliance with the requirements of this Code shall be made
available to any member of the general public, upon request, in
the premises and during regular office hours of the Commission,
except as set forth in this Section.
66.2. Nothing in this Code shall be construed to require, or to
authorize the Commission to require, the revealing of trade
secrets or processes in any application, report, or document filed
with the Commission.
66.3. Any person filing any such application, report or document
may make written objection to the public disclosure of
information contained therein, stating the grounds for such
objection, and the Commission may hear objections as it deems
necessary. The Commission may, in such cases, make available
to the public the information contained in any such application,
report, or document only when a disclosure of such information
is required in the public interest or for the protection of
investors; and copies of information so made available may be
furnished to any person having a legitimate interest therein at
such reasonable charge and under such reasonable limitations as
the Commission may prescribe.
66.4. It shall be unlawful for any member, officer, or employee
of the Commission to disclose to any person other than a
member, officer or employee of the Commission or to use for
personal benefit, any information contained in any application,
report, or document filed with the Commission which is not
made available to the public pursuant to Subsection 66.3.
66.5. Notwithstanding anything in Subsection 66.4 to the
contrary, on request from a foreign enforcement authority of any
country whose laws grant reciprocal assistance as herein
provided, the Commission may provide assistance in accordance
with this subsection, including the disclosure of any information
filed with or transmitted to the Commission. If the requesting
authority states that it is conducting an investigation which it
deems necessary to determine whether any person has violated,
is violating, or is about to violate any laws relating to securities
or commodities matters that the requesting authority administers
or enforces. Such assistance may be provided without regard to
whether the facts stated in the request would also constitute a
violation of law of the Philippines.
Section 67. Effect of action of Commission and Unlawful
Representations with Respect Thereto. – 67.1. No action or
failure to act by the Commission in the administration of this
Code shall be construed to mean that the Commission has in any
way passed upon the merits of or given approval to any security
or any transactions or transactions therein, nor shall such action
or failure to act with regard to any statement or report filed with
or examined by the Commission pursuant to this Code or the
rules and regulations thereunder to be deemed a finding by the
Commission that such statements or report is true and accurate
on its face or that it is not false or misleading. It shall be
unlawful to make, or cause to be made, to any prospective
purchaser or seller or a security any representation that any such
action or failure to act by the Commission is to be so construed
or has such effect.
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67.2. Nothing contained in Subsection 67.1 shall, however, be
construed as an exemption from liability of an employee or
officer of the Commission for any nonfeasance, misfeasance or
malfeasance in the discharge of his official duties.
Section 68. Special Accounting Rules. – The Commission shall
have the authority to make, amend, and rescind such accounting
rules and regulations as may be necessary to carry out the
provisions of this Code, including rules and regulations as may
be necessary to carry out the provisions of this Code, including
rules and regulations governing registration statements and
prospectuses for various classes of securities and issuers, and
defining accounting, technical and trade terms used in this Code.
Among other things, the Commission may prescribe the form or
forms in which required information shall be set forth, the items
or details to be shown in the balance sheet and income
statement, and the methods to be followed in the preparation of
accounts, appraisal or valuation of assets and liabilities,
determination of depreciation and depletion, differentiation of
recurring and non-recurring income, differentiation of
investment and operating income, and in the preparation, where
the Commission deems it necessary or desirable of consolidated
balance sheets or income accounts of any person directly or
indirectly controlling or controlled by the issuer, or any person
under direct or indirect common control with the issuer.
Section 69. Effect on Existing Law. – The rights and remedies
provided by this Code shall be in addition to any and all order
rights and remedies that may now exist. However, except as
provided in Section 56 and 63 hereof, no person permitted to
maintain a suit for damages under the provisions of this Code
shall recover, through satisfaction of judgment in one or more
actions, a total amount in excess of his actual damages on
account of the act complained of: Provided, That exemplary
damages may be awarded in cases of bad faith, fraud,
malevolence or wantonness in the violation of this Code or the
rules and regulations promulgated thereunder.
Section 70. Judicial Review of Commission Orders. – Any
person aggrieved by an order of the Commission may appeal the
order to the Court of Appeals by petition for review in
accordance with the pertinent provisions of the Rules of Court.
Section 71. Validity of Contracts. – 71.1. Any condition,
stipulation, provision binding any person to waive compliance
with any provision of this Code or of any rule or regulation
thereunder, or of any rule of an Exchange required thereby, as
well as the waiver itself, shall be void.
71.2. Every contract made in violation of any provision of this
Code or of any rule or regulation thereunder, and every contract,
including any contract for listing a security or an Exchange
heretofore or hereafter made, the performance of which involves
the violation of, or the continuance of any relationship or
practice in violation of, any provision of this Code, or any rule
or regulation thereunder, shall be void:
(a) As regards the rights of any person who, in violation of
any such provision, rule or regulation, shall have made or
 engaged in the performance of any such contract, and
(b) As regards the rights of any person who, not being a
party to such contract, shall have acquired any right
thereunder with actual knowledge of the facts by reason of
which the making or performance of such contract was in
violation of any such provision, rule or regulation.
71.3. Nothing in this Code shall be construed:
(a) To affect the validity of any loan or extension of credit
made or of any lien created prior or subsequent to the
effectivity of this Code, unless at the time of the making of
such loan or extension of credit or the creating of such lien,
the person making such loan or extension of credit or
acquiring such lien shall have actual knowledge of the facts
by reason of which the making of such loan or extension of
credit or the acquisition of such lien is a violation of the
provisions of this Code or any rules or regulations
thereunder, or
(b) To afford a defense to the collection of any debt,
obligation or the enforcement of any lien by any person
who shall have acquired such debt, obligation or lien in
good faith for value and without actual knowledge of the
violation of any provision of this Code or any rule or
regulation thereunder affecting the legality of such debt,
obligation or lien.
Section 72. Rules and Regulations; Effectivity. – 72.1. This
Code shall be self-executory. To effect the provisions and
purposes of this Code, the Commission may issue, amend, and
rescind such rules and regulations and orders necessary or
appropriate, including rules and regulations defining accounting,
technical, and trade terms used in this Code, and prescribing the
form or forms in which information required in registration
statements, applications, and reports to the Commission shall be
set forth. For purposes of its rules or regulations, the
Commission may classify persons, securities, and other matters
within its jurisdiction, prescribe different requirements for
different classes of persons, securities, or matters, and by rule or
order, conditionally or unconditionally exempt any person,
security, or transaction, or class or classes of persons, securities
or transactions, from any or all provisions of this Code.
Failure on the part of the Commission to issue rules and
regulations shall not in any manner affect the self-executory
nature of this Code.
72.2. The Commission shall promulgate rules and regulations
providing for reporting, disclosure and the prevention of
fraudulent, deceptive or manipulative practices in connection
with the purchase by an issuer, by tender offer or otherwise, of
and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2. such rules and regulations may
require such issuer to provide holders of equity securities of
such dates with such information relating to the reasons for such
purchase, the source of funds, the number of shares to be
purchased, the price to be paid for such securities, the method of
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purchase and such additional information as the Commission
deems necessary or appropriate in the public interest or for the
protection of investors, or which the Commission deems to be
material to a determination by holders whether such security
should be sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for
the issuer or any person controlling, controlled by, or under
common control with the issuer, or a purchase subject to the
control of the issuer or any such person, shall be deemed to be a
purchased by the issuer. The commission shall have the power
to make rules and regulations implementing this subsection,
including exemptive rules and regulations covering situations in
which the Commission deems it unnecessary or inappropriate
that a purchase of the type described in this subsection shall be
deemed to be a purchase by the issuer for the purpose of some
or all of the provisions of Subsection 72.2.
72.4. The rules and regulations promulgated by the Commission
shall be published in two (20 newspapers or general circulation
in the Philippines, and unless otherwise prescribed by the
Commission, the same shall be effective fifteen (15) days after
the date of the last publication.
Section 73. Penalties. – Any person who violates any of the
provisions of this Code, or the rules and regulations
promulgated by the Commission under authority thereof, or any
person who, in a registration statement filed under this Code,
makes any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading, shall, upon
conviction, suffer a fine of not less than Fifty thousand pesos
(P50,000.00) nor more than Five million pesos (P5,000,000.00)
or imprisonment of not less than seven (7) years nor more than
twenty-one (21) years, or both in the discretion of the court. If
the offender is a corporation, partnership or association or other
juridical entity, the penalty may in the discretion of the court be
imposed upon such juridical entity and upon the officer or
officers of the corporation, partnership, association or entity
responsible for the violation, and if such officer is an alien, he
shall in addition to the penalties prescribed, be deported without
further proceedings after service of sentence.
Section 74. Transitory Provisions. – The Commission, as
organized under existing laws, shall continue to exist and
exercise its powers, functions and duties under such laws and
this Code: Provided, That until otherwise mandated by a
subsequent law, the Commission shall continue to regulate and
supervise commodity futures contracts as provided in Section 11
and pre-need plans and the pre-need industry as provided in
Section 16 of this Code.
All further requirements herein shall be complied with upon
approval of this Code: Provided, however, That compliance may
be deferred for such reasonable time as the Commission may
determine but not to exceed one (1) year from approval of this
Code: Provided, further, That securities which are being offered
at the time of effectivity of this Code pursuant to an effective
registration and permit, may continue to be offered and sold in
accordance with the provisions of the Revised Securities Act in
effect immediately prior to approval of this Code.

All unexpended funds for the calendar year, properties,

equipment and records of the Securities and Exchange
Commission are hereby retained by the Commission as
reorganized under this Code and the amount of Two hundred
million pesos (P200,000,000.00) or such amount necessary to
carry out the reorganization provided in this Code is hereby
appropriated.

All employees of the Commission who voluntarily retire or are

separated from the service with the Commission and whose
retirement or separation has been approved by the Commission,
shall be paid retirement or separation benefits and other
entitlement granted under existing laws.

Section 75. Partial Use of Income. – To carry out the purposes

of this Code, the Commission is hereby authorized, in addition
to its annual budget, to retain and utilize an amount equal to One
hundred million pesos (P100,000,000.00) from its income.

The use of such additional amount shall be subject to the

auditing requirements, standards and procedures under existing
laws.

Section 76. Repealing Clause. – The Revised Securities Act

(Batas Pambansa Blg. 178), as amended, are hereby repealed.
All other laws, orders, rules and regulations, or parts thereof,
inconsistent with any provision of this Code are hereby repealed
or modified accordingly.

Section 77. Separability Clause. – if any portion or provision of

this Code is declared unconstitutional or invalid, the other
portions or provisions hereof, which are not affected thereby
shall continue in full force and effect.

Section 78. Effectivity. – This Code shall take effect fifteen (15)
days after its publication in the Official Gazette or in two (2)
newspapers of general circulation.

Approved: July 19, 2000

(Sgd.)JOSEPH E. ESTRADA
President of the Philippines

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