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Commercial Law Review

Corporation Code Maria Zarah Villanueva - Castro CORPORATION CODE (BP BLG 68) *Corporation Code is the general law on Private Corporation regarding to its creation, formation and powers. INTRODUCTION: A. Historical Background Effectivity: May 1, 1980 Article XII Section 16 of the 1987 Constitution: “The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.” *Congress has limited powers in the formation, creation and regulation of a private corporation. Purposes: 1. Uniformity 2. To avoid corruption General Rule: Congress is prohibited to enact a law directly forming a private corporation. Exception: GOCC may be created by special charter. *GOCC is a private corporation with regard to function and in the meantime a public corporation with regard to ownership. Twin Conditions must be present in forming a GOCC: 1. Interest in the common good 2. Subject to the test of economic viability - Means can survive alone in the market; can generate income which they can use for their operating expenses CONCEPT AND ATTRIBUTES OF A CORPORATION: A. Statutory definition of a Corporation Section 2 of the Corporation Code: “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.” B. Attributes of a Corporation  Artificial Being - It exist by fiction of law only, hence it is subject to limitations that are inherent because of its nature - A corporation is a juridical person which exists by process of legal fiction Doctrine of Corporate Entity/Doctrine of Separate Personality - A corporation is a legal or juridical person with a personality separate and apart from its individual stockholders or members and from any other legal entities to which it may be connected Consequences/Implications of Separate Personality: 1. It is entitled to own properties in its own name and its properties are not the properties of its stockholders, directors and officers. Cases: Magsaysay-Labrador v CA; Sulo ng Bayan v Araneta *The interest of the stockholders over the properties of the corporation is merely inchoate. *Merely inchoate because there are still condition precedents before the shareholders get their share, viz, in Asset, there are dissolution and satisfaction of claims; in profitsharing, there are unrestricted retained earnings and declaration by the Board of Directors. 2. It can incur obligations and its obligations are not the obligations of its stockholders, directors and officers. Case: Francisco v CA 3. The rights belonging to the corporation cannot be invoked by the stockholders, directors and officers and vice versa. 4. Corporations are entitled to certain constitutional rights, i.e., right against unreasonable searches and seizure, due process clause. *It is not entitled to certain constitutional right, i.e., right 1

Commercial Law Review
Corporation Code Maria Zarah Villanueva - Castro against self-incrimination particularly production of corporate documents. *Right against self-incrimination is applicable only to natural persons. General Rule: Constitutional guarantees are applicable to corporations. Exceptions: 1. Right against self-incrimination 2. Freedom to travel Case: Bataan Shipyard v PCGG It is liable for tort. It is liable when the act was committed by the officer or agent under express direction or authority from the stockholders or members acting as a body or generally from the directors as the governing body. Generally, the corporation is considered a national of the country where it was incorporated (Place of incorporation test) *Exceptions: 1. In times of war, the nationality of a corporation is determined by the nationality of the controlling stockholders; 2. Under the Foreign Investment Act of 1991 Corporations are incapable of intent, hence, they cannot commit felonies that are punishable under the RPC. They cannot commit crimes that are punishable under special laws because crimes are personal in nature requiring personal performance of overt acts. In addition, the penalty of imprisonment cannot be imposed. *Criminal liability falls upon to responsible officers. *Responsible officers cannot invoke the doctrine of separate personality. *Corporations cannot be incarcerated. Moral damages cannot be awarded in favor of corporations because they do not have feelings and mental state. *Corporations can claim damages such as actual, compensatory, exemplary, loss of earning capacity. General Rule: Corporation cannot claim moral damages. Exception: If the corporation has a good reputation and such reputation was destroyed. Case: Coastal Pacific Trading v Southern Rolling Mills, Co. *In Filipinas Broadcasting Network Inc. v. Ago Medical and Educational Center, the SC ruled that a corporation can recover moral damages under Article 2219(7) if it was the victim of defamation. Doctrine of Piercing the Veil of Corporate Entity – The doctrine that a corporation is a legal entity distinct from the persons composing it. It is a theory introduced for the purposes of convenience and to serve the ends of justice. But when the veil of corporate fiction is used as a shield to perpetuate fraud, to defeat public convenience, justify wrong, or defend crime, this fiction shall be disregarded and the individuals composing it will be treated identically. Cases: Times Transportation Co. v Santos Sotelo; Concept Builders v NLRC *The doctrine of piercing the veil of corporate entity is the exception to the doctrine of corporate entity. *The users of this doctrine are: 1. Stockholder; 2. Group of stockholders; 3. Another corporation. Effects: 1. Stockholders, officers and corporation are in effect jointly liable; 2. In case of two corporations, they will be treated as one wherein they will be both solidarily liable. (Instrumentality rule) *There is no effect on the existence of each corporation as long as their separate entity is used for legitimate purposes. Instrumentality Rule – When one corporation is so organized and controlled and its affairs are conducted so that it is in fact a mere instrumentality or adjunct of the other, the fiction of the corporate entity to the instrumentality may be disregarded. *The user is another corporation. Keyword: CONTROL 2

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Commercial Law Review
Corporation Code Maria Zarah Villanueva - Castro Requisites: 1. Control, not mere majority or complete stock control, but complete dominion, not only of finances but of policy and business in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong in contravention of plaintiff’s legal rights; 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Three cases of piercing the veil: 1. Fraud Cases – when a corporation is used as a cloak to cover fraud, or to do wrong; 2. Alter Ego Cases – when the corporate entity is merely a farce since the corporation is an alter ego, business conduit or instrumentality of a person or another corporation; 3. Equity cases – when piercing the corporate fiction is necessary to achieve justice or equity. Probative Factors of Identity: 1. Identical shareholders; 2. Same set of officers, directors, or trustees; 3. Use of same premises, properties, tools and equipments; 4. Engage practically in the same business; 5. The same manner of keeping books and records. *The probative factors of identity are not conclusive but may be considered as strong evidence.  Creature of Law Article XII Section 16 of the 1987 Constitution: “The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.” Concession Theory – It is a principle in the creation of corporations, under which a corporation is an artificial creature without any existence until it has received the imprimatur of the State acting according to law, through the SEC. The life of the corporation is a concession made by the State.  Right of Succession - Capacity to have continuity of existence despite the changes on the persons who compose it. Thus, the personality continues despite the change of stockholders, members, board members or officers; death or disability. - Also known as Principle of Perpetual Succession Reason: To make the corporation more stable  Creature of enumerated powers, attributes and properties Doctrine of Limited Capacity – No corporation under the Corporation Code, shall possess or exercise any corporate powers, except those conferred by law, its Articles of Incorporation, those implied from express powers and those as are necessary or incidental to the exercise of the powers so conferred. The corporation’s capacity is limited to such express, implied and incidental powers. *Corporation may be restrained from engaging a particular transaction because it is beyond their powers. *General Capacity – a corporation can perform any act for as long as it is lawful, moral and not contrary to public policy or order. Ultra Vires Doctrine – Even if the act is lawful, moral and not contrary to public order or policy but such act is not within the express, implied and incidental powers of the corporation such act shall be void for being ultra vires. *These doctrines are based on Section 2 and Section 45 of the Corporation Code.

C. Classification of Private Corporations: 1. As to existence of Stocks: Stock Corporation – 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. (Sec. 3) 3

Commercial Law Review
Corporation Code Maria Zarah Villanueva - Castro Non-stock Corporation – A corporation 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. (Sec. 87) Q: Is it correct to say that a Non-stock corporation cannot generate income on their own? A: NO 2. As to function/organizers: Public Corporation – for public purpose and organized by the State. Private Corporation – for profit making functions and organized by private persons alone or with the State 3. As to laws of Incorporation (Place of Incorporation) : Domestic Corporation – corporation formed, organized or existing under the Philippine Laws. Foreign Corporation – corporation 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. (Sec. 123) *License is necessary for; 1. Regulation purposes and 2. Access to local courts. 4. As to legal status: De Jure Corporation – corporation created in strict or substantial compliance with the mandatory requirements for incorporation and the right of which to exist as a corporation cannot be successfully attacked or questioned by any party even in a direct proceeding for that purpose by the state. De Facto Corporation – the due incorporation of any corporation claiming in good faith to be a corporation under the Corporation 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 Solicitor General in a quo warranto proceeding. (Sec. 20) - organized with a colourable compliance with the requirements of a valid law and its existence cannot be inquired collaterally. - There is an irregularity or defect in the constitution or organization. Can be compared to a voidable contract, i.e., valid until annulled. *Can be challenged by the State later on. Cases: Hall v Piccio; Seventh Adventist v Northeastern Mindanao Mission *The filing of the Articles of Incorporation and the issuance of the certificate of registration are the essential requisites for the existence of a de facto corporation. Requisites: 1. The existence of a valid law under which it may be incorporated; 2. An attempt in good faith to incorporate; 3. Use of corporate powers; 4. Filing of the Articles of Incorporation; 5. Subsequent compliance with the requirement of law. *In both corporations, there must be a certificate of registration issued. Doctrine of 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 an result thereof: Provided, however, that when any such ostensible corporation is sued on any transaction entered into 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 or corporate personality. (Sec. 21) - Group of persons which holds itself out as a corporation and enters into a contract with a third person on the strength of such appearance cannot be permitted to deny its existence in an action under said contract. Case: Lim Tong Lim v CA *Lim is stopped because he benefited from the transaction. Remedy: To ran after those persons responsible for the representations Essence: They are precluded from denying their existence by their previous act or conduct Holding Corporation – it is one which controls another as a subsidiary by the power to elect management. It is one that holds stocks in other companies for purposes of control rather than for mere investment. 4

contractual significance *The life of a corporation commences from the issuance of the Certificate of Registration by the SEC upon filing of the Articles of Incorporation and other documents. if the proposed name contains a word already use as a part of the firm name or style of a registered entity. 7. Corporate Name. Submission of Articles of Incorporation. SEC Guideline ”x x x b. Subsidiary Corporation – one which is so related to another corporation that the majority of its directors can be elected either directly or indirectly by such other corporation. B. generic name or descriptive word may be used as a corporate name. Principal office. even a de facto one.Castro Affiliate – one related to another by owning or being owned by common management or by a long-term lease of its properties or other control device. Contents and Form of the Articles Incorporation (Secs. 2. Treasurer’s Affidavit.K. can be used by anyone. of 8. 14 and 15) Contents of Articles of Incorporation: 1. 2. 18 of the Corporation Code which provides that: “No corporate name may be allowed by the SEC 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.. the stockholder and the State. Exception: Doctrine of Secondary Meaning – a word or phrase originally incapable of exclusive appropriation with reference to an article on the market. 96) FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION: A.S. 9. As a rule. viz. Reason: public domain. Term of existence. (Sec. confusing or contrary to existing laws. x x x” Case: Ang Mga Kaanib Ni Jesus Cristo *The phrase “Ang Mga Kaanib” are words merely descriptive of membership while the phrase “Sa Bansang Pilipinas” are merely descriptive of the place. and between the corporation and its stockholders.Commercial Law Review Corporation Code Maria Zarah Villanueva . In order to prevent confusion and difficulties of administration. Contractual Significance: 1. 3. Purpose Clause. the Commission shall issue an amended certificate of incorporation under the amended name. might nevertheless have been used so long and so exclusively by one producer with reference to his article that in that trade 5 .  Corporate Name Purpose: Identification *Corporation can not adopt any name or group of words at its pleasure because of statutory limitation. or under common control. It may be the controlled or controlling corporation. and the contractual relationships between the State and the corporation. Close Corporation – those whose shares of stock are held by limited number of persons like the family or other closely knit group. Directors or trustees. Shares of stock. *Both parties are religious institutions *Both use the acronym H. When a change in the corporate name is approved. the proposed name must contain two other words different and distinct from the name of the company already registered or protected by law. It is an essential requirement for the existence of a corporation. Open Corporation – one which is open to any person who may wish to become a stockholder or member thereto. because geographically or otherwise descriptive. public use. The issuance of a certificate of incorporation signals the birth of the corporation’s juridical personality. 6. Capitalization. Incorporators. It is always controlled. Sec. supervision and control. 5. 4. Article of Incorporation – is the charter of the corporation.

Reason: To compel the stockholders to meet the corporation’s term. earlier extension will be allowed. Reason: No more period to extend. Term of Existence *A corporation has a maximum term of 50 years.Commercial Law Review Corporation Code Maria Zarah Villanueva . There is no limit on the secondary purpose. *Change of name can be done by amending the Articles of Incorporation. However. *In case the primary purpose is not viable then secondary purpose may be used. 2. *It is the residence of the corporation. Keywords: 1. Primary purpose defines the business activities of the corporation. It may be extended for a period not exceeding 50 years in any single instance. Case: Lyceum of the Philippines *The exclusivity requirement was not satisfied by Lyceum of the Philippines. after the term has expired. *During the three year winding up period. no extension can be made earlier than 5 years prior to the expiration of the term. The use must be exclusive. the word or phrase has come to mean that the article was his product. the corporation is not dissolve nor create a new corporation. 2. Exception: Doctrine of Relation – The filing and recording of a certificate of extension after the term cannot relate back to the date of the passage of the resolution of the stockholders to extend the life of the corporation. Obtain approval of majority of the Board and 2/3 stockholders. As a rule. the corporation still has personality but activities are limited to the liquidation of the corporation affairs and not to transact further business.Castro and to that branch of the purchasing public. Period of use. Purpose Clause *Only one primary purpose. *No limitations regarding number of extension can apply. *Secondary Purpose is for future expansion. It is where the corporation maintains its books and records and where normally the bulk of its business is being conducted or undertaken. *They are originally forming the corporation Q: What is the reason behind the phrase that an incorporator is not always a corporator? A: To be an incorporator it is not necessary to own a share unlike as a corporator. *For personal action. *The SEC requires the exact address to be indicated in the Articles of Incorporation. *The delay in submitting the application for extension is justifiable. (Fait accompli – an accomplished fact which cannot be altered) *They are the signatories to the Articles of Incorporation. Exception: If for compelling reasons. Excusable delay. It is also important for tax purposes (local taxation). no more extensions be allowed or entertained by the SEC. It may also determine if service of summons and notices was properly made. It is the ordinary course of business of the corporation. Procedure: 1. Submission to the SEC for approval. *In case of change of name. Beyond the control of the corporation (insuperable intervening causes) Incorporators *Once an incorporator always an incorporator. As a rule. it also does not extinguish the corporate liability. Requisites: 1. Principal Office *The principal place of business may determine the venue of court cases involving corporations. the doctrine of relations applies if the failure to file the application for existence within the term of the corporation is due to neglect of the officer with whom the certificate is required to be filed or to wrongful refusal on is part to receive it. venue is the residence. 6     . 2.

and if some or all of the shares are without par value. each share shall be equal in all respects to every other share. *Juridical person cannot create another juridical person. Paid-Up Capital – the portion of the authorized capital stock which has been subscribed and actually paid.000. Doctrine of Equality of Shares – “Except as otherwise provided in the articles of incorporation and stated in the certificate of stock. all shares issued by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities. Authorized Capital Stock – the amount fixed in the articles of incorporation to be subscribed and paid by the stockholders of the corporation. Capitalization Section 14(8) states that: “If it be a stock corporation. and the amount subscribed and paid by each on his subscription. *Initial directors/trustees shall hold office for one year until their successors are elected and qualified. *They must have a contractual capacity. *Any director who ceases to be the owner of at least one share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. the par value of each. *Majority must be a resident of the Philippines. *There is no citizen requirement but special laws may require otherwise. Classes of Shares: 1. 2. vote 2. Economic Value: 1. Par Value Share – shares that have a nominal value in the certificate of stock. Political Value: 1. expectancy on the share of assets in case of dissolution/liquidation.Commercial Law Review Corporation Code Maria Zarah Villanueva . Majority of the directors or trustees must be residents of the Philippines.Castro *Number is limited to 5 to 15. the number of shares into which it is divided. *They exercise the powers of the corporation. Outstanding Capital Stock – the total shares of stock issued to subscribers or stockholders.” . Contractual Significance: The minimum price at which the shares are to be issued. expectancy on the share in the profits 2. the amount of its authorized capital stock in lawful money of the Philippines. control in the management of the corporation. Shares of stock Q: Why shares of stock? A: Because there is a share on the capitalization. It is stated in the Articles of Incorporation. 7    . *Shows the total number of shares Subscribed Capital – that portion of the authorized capital stock that is covered by subscription agreements whether fully paid or not. such fact must be stated.” *It is required that at least 25% of the subscribed capital must be paid and in no case may be paid-up capital be less than P5. nationalities and residences of the original subscribers. *Trustees of non-stock corporations must be members thereof. and in case the share are par value shares. Directors and trustees *The Board of Directors is the governing body in a stock corporation while Board of Trustees is the governing body in a nonstock corporation. Qualifications: 1. whether or not fully or partially paid except treasury shares so long as there is a binding subscription agreement. Every director must own at least one (1) share of the capital stock.Provides that where the Article of Incorporation do not provide for any distinction of the shares of stock. *The price is fixed. the names.

*The price is determined by the Board. *Has only a limited right to vote. Common Shares – the most common type of shares which enjoy no preference. Preferred Shares. public utilities and building and loan association (Reason: imbued with public interest). mortgage. 6. Preferred shares as to assets – share which gives the holder thereof 8 .shares which enjoy preference as to dividends or assets upon dissolution as stated in the Articles of Incorporation. 2. 6. *The basic class of stock ordinarily and usually issued without extraordinary rights and privileges. *There is flexibility in the price. Amendment of the articles of incorporation. *Characterized as redeemable shares. The articles of incorporation must state the fact that it issued no par value shares as well as the number of said shares. Exceptions: 1. No Par Value Share – those shares which do not have nominal value. If there was a founder’s share where it was given the right to vote exclusively for 5 years (Sec. 3. 4. Voting Shares – shares with the right to vote. 8. 3. No par value shares cannot have an issued price of less than P5. Dissolution of the corporation.Commercial Law Review Corporation Code Maria Zarah Villanueva . Adoption and amendment of bylaws. The entire consideration for its issuance constitutes capital so that no part of it should be distributed as dividends. Limitations: 1. 6. 7. 6 of the Corporation Code *The corporation cannot provide for shares with no voting right General Rule: Only redeemable and preferred shares are deprived of voting right. 3. Exception: Common shares may be denied of its voting right in the following instances: 1.Castro 2. Merger or consolidation of the corporation with another corporation or other corporations. They cannot be used as preferred stocks. lease. exchange. Reason: To attract investors. likewise. Incurring. 4. General Rule: Shareholder owning nonvoting shares has no right to vote. they have issued value stated in the certificate or articles of incorporation. They have the right to participate in the management of the corporation through the exercise of such right. trust companies. *The exceptions are exclusive. *Preference does not give them a lien upon the property nor make them creditors of the corporation. 4. However. 5. Non-voting Shares – shares without the right to vote. They cannot be issued by banks. insurance companies. 5. Delinquent in paying the subscription. the list is a closed list Statutory Constraint: Sec. 5. Once issued. pledge or other disposition of all or substantially all of the corporate property. 7). Kinds: 1. in the management of its affairs without preference or advantage whatsoever. Increase or decrease of capital stock. 2. creating or increasing bonded indebtedness. Investment of corporate funds in another corporation or business in accordance with the Corporation Code. Sale. 2.00. they are deemed fully paid and non-assessable. and the owners thereof are entitled to a pro rata share in the profits of the corporation and in its assets upon dissolution and.

Castro preference in the distribution of the assets of the corporation in case of liquidation. Redeemable Shares – are those which permit the issuing corporation to redeem or purchase its own shares. 3. 7. The redeemable shares are deemed retired upon redemption unless otherwise provided in the Articles of Incorporation. *Retired thus can no longer be reissued. 4. Rationale: to prevent abuse by the management. 2. provided that where the exclusive right to vote and be voted for in the election of directors is granted. The terms and conditions affecting said shares must be stated both in the certificate of stock representing such share. unless otherwise provided in the Corporation Code. Redeemable shares may be issued only when expressly provided for in the Articles of Incorporation. Redeemable shares may be deprived of voting rights in the Articles of Incorporation. *They are not entitled to voting rights. Treasurer’s affidavit *The SEC 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 25% of the authorized capital stock of the corporation has been subscribed. 9. 8. 5.Shares which are previously issued by the corporation but subsequently reacquired by the corporation. redemption or through some lawful means. Cumulative preferred shares – the shareholder is entitled to recover dividends in arrears. The 5 year period shall commence from the date of the approval by the SEC. Limitations: 1. *They are not entitled to dividends. 5. Non-participating preferred shares – where there is no such participation. donation. Participating preferred shares – the holders thereof are still given the right to participate with the common stockholders in dividends beyond their stated preference. it must be for the limited period not to exceed 5 years subject to the approval of the SEC. Preferred shares as to dividends – share which gives the holder thereof preference in the distribution of the dividends to the extent agreed upon before any dividends at all are paid to the holders of common shares.000. the shareholder is entitled to the said arrears.Commercial Law Review Corporation Code Maria Zarah Villanueva . 3. *These shares may again be disposed of for a reasonable price fixed by the Board of Directors. such paid up capital being not less than P5. The corporation is required to maintain a sinking fund to answer for redemption price if the corporation is required to redeem. While dividend declaration may not be compelled. Non-cumulative preferred shares – not entitled to arrears only to present dividends. 2.  9 . 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. and at least 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 25% of the said subscription. once it is declared. Treasury Shares – shares which have been earlier issued as fully paid and have thereafter been acquired by the corporation by purchase. 6. 6. 4. Unrestricted retained earnings is not necessary before shares can be redeemed but there must be sufficient assets to pay the creditors and to answer for operations. .

F. educational institutions. illegal. and for legitimate purposes. E. building and loan associations. and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favourable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law. 2. and thereupon the incorporators. 22 of the Corporation Code states that: “If a corporation does not formally organize and commence the transaction of its business or the construction of its work within 2 years from the date of its incorporation. *There may be an amendment by inaction. 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. special laws. unless said period is extended or the corporation is sooner dissolved in accordance with law.” *For purposes of determining whether a corporation enjoys the status of a de facto corporation.Castro *If the Treasurer’s affidavit is false such act is tantamount to fraud. D. i. The purpose or purposes of the corporation are patently unconstitutional.e. (PD 902-A) *Fraud on the part of the corporation is a ground for revocation or suspension of license depending upon the extent of the violation committed. 3. Commencement of Corporate Existence Sec. i. The Treasurer’s Affidavit concerning the amount of capital stock subscribed and/or paid is false... 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.Commercial Law Review Corporation Code Maria Zarah Villanueva . trust companies and other financial intermediaries. Effects of Non-Use of Corporate Charter Sec.” *It is effective upon the approval of the SEC. noncompliance with the minimum requirement. The articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein. General Rule: 25% must be subscribed and 25% must be paid. C. 16 of the Corporation Code states that: “Unless otherwise prescribed by this Code or by special law. Amendment of the Articles of Incorporation Sec. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. 19 of the Corporation Code states that “ 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 SEC issues a certificate of incorporation under its official seal. Exception: If the law provides otherwise. public utilities. banking and quasibanking institutions. it must have been at least issued a certificate of registration. or the vote or written assent of at least 2/3 of the members if it be a non-stock corporation. insurance companies. or contrary to government rules and regulations. its corporate powers cease and the corporation shall be deemed 10 . *If there’s no Treasurer’s Affidavit. Amendment by Inaction – Upon filing with the SEC of the amendment and the Commission failed to act on it within 6 months from the date of filing for a cause not attributable to the corporation. Dual Franchise Requirement: No articles of incorporation or amendment to articles of incorporation of banks. e. 4. the first ground shall apply. immoral. Grounds for rejection of the Articles of Incorporation 1. 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 2/3 of the outstanding capital stock.

Levels of Corporate Control 1. By Stockholders/Shareholders. 23 of the Corporation Code states that: “Unless otherwise provided in this Code. or to continuously operate is due to causes beyond the control of the corporation as may be determined by the SEC. General Rule: All corporate powers emanate from the Board of Directors/Trustees. commence the transaction of its businesses or the construction of its works. and 3. the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. By Corporate Officers. *The directors are not liable to the stockholders in performing such acts. and generally the courts have no authority to review the same and substitute their own judgment. (SEC Opinion).” Powers of the Board of Directors: 1. Corporate Powers. who shall hold office for one year until their successors are elected and qualified. *Board of Directors/Trustees is the statutory representative of the corporation. *Section 22 must be read in conjunction with Sec 6(1) of PD 902-A which requires that the corporation must be given the opportunity to be heard in compliance with the requirement of due process before the revocation of its license. or where there is no stock. Board of Directors/Trustees  General Powers of the Board Sec. if the corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least 5 years. Manage the Corporation. *Automatic dissolution is not contemplated under Section 22. By Directors/Trustees B.Commercial Law Review Corporation Code Maria Zarah Villanueva . from among the members of the corporation. However.” *The period must be counted from the issuance of the Certificate of Incorporation. 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. Qualifications of the Board Members Sec. (Limiting Clause) The limiting clause means that there are certain corporate matters that cannot be done by the Board by reason that such matters fall upon the shareholders. .Castro dissolved. 3.e. 23 of the Corporation Code states that: “Every director must have at least one share of the capital stock of the corporation of which he is a director. Any director who ceases to be the owner of at least one share of the capital stock of the corporation of which he 11  CONTROL AND MANAGEMENT OF A CORPORATION: A. or corporate matters that cannot be resolved by the Board alone. 2. 2. the corporate powers of all corporations formed under this Code shall be exercised. Control over and hold the properties of the Corporation.. *Great respect is accorded to the decisions of the Board of Directors/Trustees. is valid and binding.  . This provision shall not apply if the failure to organize. which share shall stand in his name on the books of the corporation. i. even when the exercise of such power may cause losses to the corporation or decrease the profits of a department. it must be done with the approval of the shareholders.A resolution or transaction pursued within the corporate powers and business operations of the corporation. and passed in good faith by the board of directors/trustee. Business Judgment Rule Business Judgment Rule – questions of policy or management are left solely to the honest decision of officers and directors of a corporation and the courts are without authority to substitute their judgment for the judgment of the board of directors. Exception: Unless otherwise provided in this Code. the board is the business manager of the corporation and so long as it acts in good faith its orders are not reviewable by the courts or the SEC.

” *In order to be eligible as director. shall qualify as a director. trustee or officer of any corporation. *No citizenship requirement. members of the 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. 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. there must be present. A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines. what is material is the legal title to and not beneficial title or ownership of the stocks appearing on the books of the corporation. *Under Sec. *He must possess other qualifications as may be prescribed in the by-laws of the corporation. 12  . the owners of a majority of the outstanding capital stock. the owners of a majority of the outstanding capital stock. *It is not required that the candidate received the majority vote. 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 if there be no capital stock. *A stockholder cannot be deprived in the articles of incorporation or in the by-laws of his statutory right to use any of the methods of voting in the election of directors. In stock corporations. Candidates receiving the highest number of votes shall be declared elected. or he may distribute them on the same principle among as many candidates as he shall see fit: Provided. 24 of the Corporation Code provides that: “At all elections of directors or trustees.Castro is a director shall thereby cease to be a director. or where the by-laws are silent at the time of the election. every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing. *They must also be of legal age. a majority of the member entitled to vote. what the law provides is only plurality of votes. *The only procedure required by the Code is through Election. however. *The election must be by ballot if requested by any voting member or stockholder. at the meeting. that no delinquent stock shall be voted. for any reason.Commercial Law Review Corporation Code Maria Zarah Villanueva . 27 of the Corporation Code: “No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding 6 years. The election must be by ballot if requested by any voting stockholder or member. a majority of the members entitled to vote. *The By-Laws may provide additional qualifications/disqualifications. in his own name on the stock books of the corporation. either in person or by representative authorized to act by written proxy.” Reason: The position is based on trust and confidence. *The directors/trustees must be natural persons. or a violation of this Code committed within 5 years prior to the date of his election or appointment. no election is held. Trustees of non-stock corporations must be members thereof. at the time fixed in the by-laws.” *It is the stockholders or corporators who elect members of the Board of Directors. or if there be no capital stock. or if there not present or represented by proxy. *No delinquent stock shall be voted. There can be no other modes. 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. Unless otherwise provided in the articles of incorporation or in the by-laws. Election of the Board Members Sec.

there are 5 numbers of directors to be elected. cumulative voting is a statutory right whereas in a non-stock corporation. X may opt to concentrate all his 50 votes to a particular candidate. cumulative voting is applicable if it is provided in the Article of Incorporation. except for the election of officers which shall require the vote of a majority of all the members of the board. shall submit to the SEC. trustees and officers elected. Cumulative Voting by Distribution – a stockholder may cumulate his shares by multiplying also the number of his shares by the number of directors to be elected and distribute the same among as many candidates as he shall see fit. however. Non-voting stocks. 25 of the Corporation Code states that: “Unless the articles of incorporation or the by-laws provide for a greater majority. *Quorum requirement should always be computed based on the number specified in the Articles of Incorporation regardless of ensuing vacancies. Should a director. X has 50 votes (10x5) available to him. *Example: X has 10 shares in his name. 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.. trustees and officers of the corporation. 3. the secretary.” Term of Office *The directors or trustees shall hold office for one (1) year subject to the “hold over” principle. or any other officer of the corporation. 2. Methods of Voting: 1. they continue in office until their successors are elected and qualified. 3. *The corporation can modify the number by providing a different provision in the articles of incorporation. 26 of the Corporation Code provides that: Within 30 days after the election of the directors. nationalities and residences of the directors. Purpose of cumulative voting: To protect the minority stockholders. Not included in outstanding capital stocks: 1.Commercial Law Review Corporation Code Maria Zarah Villanueva . Reason: Because of their personal qualifications. the names. It cannot provide for a number less than the general requirement of the code. Straight Voting – every stockholder may vote such number of shares for as many persons as there are directors to be elected. 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. trustee or officer die. Sec. X has 50 votes available to him. *In a stock corporation. or the director. *The one year period does not apply to directors initially elected for purposes of incorporation. Treasury Shares. X may opt to distribute the votes to as many candidates as there are provided that the total number of votes does not exceed 50. Unissued stocks. trustee or officer himself. Quorum Requirement in Board Meetings Sec. the law provides that the modification must be for a number greater than that provided in the law. his heirs in case of his death. shall immediately report such fact to the SEC.” Q: Is the director allowed to let a proxy attend a board meeting in behalf for himself? A: NO. *Example: X has 10 shares in his name. there are 5 numbers of directors to be elected. *The elected officer must act as a body. Cumulative Voting for One Candidate – a stockholder is allowed to concentrate his votes and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. the secretary.Castro *Majority number is required only for the existence of a quorum. resign or in any manner cease to hold office. or any other officer of the corporation. 2. *The basis is always the number specified in the Articles of Incorporation. i. Proxy prohibition.e. 13   .

and in either case. 3. 29 of the Corporation Code provides that: “Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term.Castro *For voting purposes. Removal of Board Members Sec. or if the corporation be a non-stock corporation. 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. A director or trustee so elected to fill a vacancy shall be elected only or the unexpired term of his predecessor in office. Requisites for the removal of minority directors are: 1.” Requisites: 1. 24 of this Code.. or. 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. Justifiable cause. 2. Removal may be with or without cause: Provided. The removal must be by a vote of the stockholders representing 2/3 outstanding capital stock or 2/3 of members.e. may be filled by the vote of at least a majority of the remaining directors or trustees. if it be a non-stock corporation. majority of the member present constituting a quorum. or any of them. The director may be removed with or without cause unless he was elected by the minority. Notice of the time and place of such meeting. otherwise. A 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. *It is the secretary of the corporation upon order of the president or in case there is no secretary. after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. 28 of the Corporation Code states that: “Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least 2/3 of the outstanding capital stock. it is required that there is cause for removal. stockholder representing majority of the outstanding capital stocks or member signing the demand who may call a meeting for the purpose of removal. 2. There must be previous notice to the stockholders or member of the intention to remove.Commercial Law Review Corporation Code Maria Zarah Villanueva . must be given by publication or by written notice prescribed in this Code. as well as of the intention to propose such removal. Vacancies in the Board Sec. said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. Except: election of directors. if still constituting a quorum. i. It must take place either at a regular meeting or special meeting of the stockholders or members called for the purpose. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees. 2/3 of OCS or members. 4. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice. 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 Sec. by a vote of at least 2/3 of the members entitled to vote: Provided. Satisfaction of the voting requirements. or if there is no secretary. on the written demand of a majority of the members entitled to vote. in which case. that such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose. or in the same meeting authorizing the increase of 14   . Reason: The functions of directors are fiduciary in nature.

as against anyone who has in good faith dealt with it through such agent. even corporate officers can bind the corporation. In no case shall the total yearly compensation of directors. As provided by the By-Laws – must be clearly stated in the By-Laws that such office is a corporate office. 2. except for reasonable per diems: Provided.” General Rule: Power to elect directors is vested in the stockholders Exception: 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. or any other agent. knowingly permits one of its officers.Commercial Law Review Corporation Code Maria Zarah Villanueva . Secretary (must be a resident and citizen of the Philippines).    C. Liability of Directors. Reason: In order to avoid temptation on the part of directors to abuse powers by appropriating compensation packages since they are in control of corporate assets. Inter-Asia. Those designated by the Board of Directors provided the Board of Directors is authorized to do so by the By-Laws.” General Rule: Directors are not entitled to receive compensation Exceptions: 1. Exceptions: 1. LapuLapu *Requires good faith on the part of third person. Cases: People’s Aircargo. Validity and Binding Effect of Acts of Corporate Officers General Rule: No one. Compensation of Board Members Sec. be stopped from denying the agent’s authority. 31 of the Corporation Code provides that: “Directors or trustees who wilfully and 15 . to act within the scope of an apparent authority. 3. Limitation: In no case shall the total yearly compensation of directors exceed 10% of the net income before income tax of the corporation during the preceding year. as such directors. the directors shall not receive any compensation. exceed 10% of the net income before income tax of the corporation during the preceding year. Implementation of rules/policy lies on the corporate officers Categories: 1.Castro directors or trustees if so stated in the notice of the meeting. Corporate Officers D. Treasurer (must be a resident and citizen of the Philippines). as such directors. When their compensation is fixed in the by-laws. decision/policymaking resides on them. If the By-Laws provides that such act is part of the function of such office. and thus. If authorized by the Board of Directors Doctrine of Apparent Authority Doctrine of Apparent Authority/Doctrine of Estoppel –If a corporation. 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. 2. Statutory Corporate Officers – President (must be a stockholder).  Concept of Corporate Officers *Corporate powers reside on the Board of Directors. 30 of the Corporation Code provides that: “In the absence of any provision in the by-laws fixing their compensation. however. 2. If compensation is 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. it holds him out to the public as possessing the power to do those acts. It is only the Board of Directors who has the authority to bind the corporation. Trustees and Officers  Instances when Corporate Officers/Directors are held Solidarily Liable Sec. the corporation will.

Castro knowingly vote for or assent to patently unlawful acts 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. such contract may be ratified by the vote of the stockholders representing at least 2/3 of the outstanding capital stock or of at least 2/3 of the members in a meeting called for the purpose: Provided. 6. and 4. at the option of such corporation. That the vote of such director or trustee was not necessary for the approval of the contract. unless all of the following conditions are present: 1.  Self-Dealing Directors/Officers Sec. 4. A is a director. By virtue of a specific provision of law such as BP 22. in violation of his duty. Consent to the issuance of watered stocks or having knowledge thereof. XYZ Corporation and A entered into a lease contract. Acquire any personal or pecuniary interest in conflict of their duty (Sec. fails to file objections with the secretary (Sec. Case: Carag v NLRC 2.” Example: In XYZ Corporation. 5. as to which equity imposes a disability upon him to deal in his own behalf. in the case of a contract with a director or trustee. Securities Regulation Code *In Carag v NLRC. 2. 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. however.” General Rule: Directors/Trustees/Officers are not solidarily liable with the corporation. the Supreme Court held that not any violative of law. That in case of an officer. The contract was approved by the Board of Directors. the Code means that violation must have a corresponding penalty. any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. A as the lessor and XYZ Corporation as lessee. 16 . Q: What is the status of the contract? General Rule: The contract is voidable. The corporation acts through the Board of Directors. trustee or officer attempts to acquire or acquires. Wilfully and knowingly vote for and assent to patently unlawful acts of the corporation (Sec. Where any of the first two conditions set forth in the preceding paragraph is absent.Commercial Law Review Corporation Code Maria Zarah Villanueva . Guilty of gross negligence or bad faith in directing the affairs of the corporation (Sec. 31). That the contract is fair and reasonable under the circumstances. 65). 31). When a director. Exceptions: 1. the contract has been previously authorized by the board of directors. 32 of the Corporation Code states that: “A contract of the corporation with one or more of its directors or trustees or officers is voidable. that the contract is fair and reasonable under the circumstances.31). Agree or stipulate in a contract to hold himself personally liable with the corporation. Trust receipts Law. That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided. he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. Patently unlawful act means that a law declares an act unlawful and that such law provides penalty for that unlawful act. RA 7832 (Anti-Electricity Pilferage Act of 1997). 3. Case: David v Construction Industry 3.

Contracts are void if contracts are fraudulent or if contracts are unfair and unreasonable. a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided. Q: What is the status of the contract? A: General Rule: Contracts between two or more corporations having interlocking directors are valid.May be prohibited by the By-Laws (Gokongwei case). . 32 are present. 34 of the Corporation Code states that: “Where a director. 33 of the Corporation Code provides that: “Except in cases of fraud. 17   .” Example: A is a director of two corporation. 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. Contracts involving Inter-locking Directors Sec. Stockholdings exceeding 20% of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. 4. he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. 2. The interest is substantial if his interest is more than 20% of the outstanding capital stock. Interlocking Directors – those who have been elected as directors in 2 or more different corporations. XYZ Corporation and ABC Corporation entered into a lease contract where ABC Corporation is the lessor and XYZ Corporation is the lessee. The contract is fair and reasonable under the circumstances. 32 on selfdealing directors. v SEC *The interest is nominal if his interest is 20% or less of the outstanding capital stock. Exceptions: 1. 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. The vote of such director or trustee was not necessary for the approval of the contract. ABC Corporation and XYZ Corporation.Commercial Law Review Corporation Code Maria Zarah Villanueva . 3.Castro Exception: If the requisites provided in Sec. Doctrine of Corporate Opportunity Sec. the contract has been previously authorized by the board of directors. the director must comply with the requisites provided in Sec. If the By-Laws prohibits interlocking director. 2. -Not prohibited by law however there are consequences. Reason: The case is analogous to that of transactions involving self-dealing directors because such director holds substantial interest with the other company. Case: Gokongwei. . by virtue of his office. Self-Dealing Directors/Officers – directors/officers who transact business with their own corporation. In case of an officer. Q: Can this contract be invalidated on the ground that there is an interlocking director? A: NO. acquires for himself a business opportunity which should belong to the corporation. Exception to the Exception: If requirement number 1 or 2 is absent. in the case of a contract with a director or trustee. Reason: A’s presence in the board meeting might affect the status of the contract. *If the interlocking director has a substantial interest in one corporation and has a nominal interest in the other corporation. such contract may be considered valid by the ratification of at least 2/3 of the outstanding capital stock or 2/3 of the members. and provided the contract is fair and reasonable under the circumstances. Jr.This is not prohibited by law. Requisites: 1.

on such specific matters within the competence of the board. This provision shall be applicable notwithstanding the fact that the director risked his own funds in the venture. Exception: His act has been ratified by a vote of the stockholders owning or representing at least 2/3 of the outstanding capital stock. if the resolution of the Executive Committee is invalid it may be ratified by the Board. as may be delegated to it in the by-laws or on a majority vote of the board. General Rule: The executive committee may act on specific matters within the competence of the board as may be delegated to it in the bylaws or on a majority vote of the board.” Ultra Vires Acts – an act committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law. Doctrine of Limited Capacity. A distribution of cash dividends to the shareholders. 35 of the Corporation Code states that: “The by-laws of a corporation may create an executive committee composed of not less than 3 members of the board to be appointed by the board. Concept of Ultra Vires Act Sec. Effects of Ultra Vires Acts: 18 . 45 of the Corporation Code states that: “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 powers so conferred. (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable. Inc. unless his act has been ratified by a vote of the stockholders owning or representing at least 2/3 of the outstanding capital stock. Exceptions: 1.” General Rule: A director shall refund to the corporation all the profits he realizes on a business opportunity which: 1. there is a statutory restriction on members whereas in other committee there is no such restriction. *The decision of the executive committee needs no confirmation from the Board. and 3. 4. Case: Filipinas Port. he must account to the latter for all such profits by refunding the same. *The corporation may create other committees. is in line with corporations business and is of practical advantage to it. (2) the filing of vacancies in the board. *The decision of the executive committee is not subject to appeal to the board.” Keyword: BY-LAWS *It must be stated in the By-Laws. *The decision of the executive committee is considered a Board Resolution. Executive Committee Sec. 2. and (5) a distribution of cash dividends to the shareholders. Distinction: In executive committee. 5. *Board Resolution is not sufficient if there is no provision in the By-Laws. (3) the amendment or repeal of by-laws or the adoption of new bylaws. the corporation has an interest or a reasonable expectancy. The amendment or repeal of by-laws or the adoption of new by-laws. However. Said committee may act. The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable.Castro thereby obtaining profits to the prejudice of such corporation. Approval of any action for which shareholders’ approval is also required. 3. The filing of vacancies in the board. except with respect to: (1) approval of any action for which shareholders’ approval is also required. 2. the corporation is financially able to undertake. from its nature. CORPORATE POWERS: A. by majority vote of all its members. *A business opportunity ceases to be corporate opportunity and transforms to personal opportunity where the corporation refuses or is definitely no longer able to avail itself of the opportunity. E.Commercial Law Review Corporation Code Maria Zarah Villanueva .

scientific. and to admit members to the corporation if it be a non-stock corporation. Partly executed and Partly executory contract – principle against unjust enrichment shall apply. Call for a meeting. 5. and other plans for the benefit of its directors. Executory Contract – no enforcement even at the suit of either party. 36 of the Corporation Code states that: “Every corporation incorporated under this Code has the power and capacity: 1. convey. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation. as the transaction of the lawful business of the corporation may reasonably and necessarily require. 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. cultural. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. and 11. Treasury stock. 9. pledge. the approval of the SEC is necessary for the amendment of the AOI. charitable. Executed Contract – courts will not set aside or interfere with such contracts. 7. *There is an implied approval of the SEC. Implied 3. i.  Implied – those that can be inferred from or necessary for the exercise of the express powers. 3. To establish pension. B. 8. take or grant.” *The following are excluded in counting the outstanding capital stock: 1. 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 2/3 of the outstanding capital stock. To purchase. To amend its articles of incorporation in accordance with the provisions of this Code. To sue and be sued in its corporate name. 2. trustees. That no corporation. Unissued shares. and to amend or repeal the same in accordance with this Code. mortgage and otherwise deal with such real and personal property. or similar purposes: Provided. sell. shall give donations in aid of any political party or candidate or for purposes of partisan political activity. and for legitimate purposes. To adopt by-laws. 16 of the Corporation Code states that: “Unless otherwise prescribed by this Code or by special law. 4.e. subject to the limitations prescribed by law and the Constitution. 2. 10. Express 2. retirement. 6.  Incidental – those that are incidental to the existence of the corporation. C. or public policy.”  Amendment of Articles of Incorporation Sec. To enter into merger or consolidation with other corporations as provided in this Code. Classes of Corporate Powers 1. Incidental  Express – those expressly authorized by the Corporation Code and other laws. 19 . officers and employees. morals. lease. 2. including those for the public welfare or for hospital. Doctrine of Necessary Implication – those which can be reasonably inferred from the express powers given since they are necessary for the corporation to perform a particular act are deemed part of such powers. *Aside from the votes of majority of the board and assent of the 2/3 of the OCS.Castro 1. receive. failure to act on the application filed by the corporation within 6 mos. Statutory Powers of a Corporation and the Limitations on their Exercise Sec. 2. 3. and its Articles of Incorporation or Charter. civic. Q: How to get the approval of the stockholders? A: 1. To adopt and use a corporate seal. Obtain the written assent of the stockholders.Commercial Law Review Corporation Code Maria Zarah Villanueva . including securities and bonds of other corporations.. to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code. hold. not contrary to law. In case of stock corporations. To make reasonable donations. domestic or foreign. or the vote or written assent of at least 2/3 of the members if it be a non-stock corporation.

1. 39 of the Corporation Code states that: “All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class.Commercial Law Review Corporation Code Maria Zarah Villanueva .Castro *In Tan v Sycip. creating or increasing of any bonded indebtedness. Shortening of corporate term. *Approval of Stockholders is necessary in these changes because they are necessary for the corporation’s existence. membership is personal and nontransferrable unless the by-laws provides otherwise. Increase or Decrease of Capital Stock. The SEC ruled that the 25% applies to the increase amount. 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. 2/3 of the outstanding capital stock shall favor the increase or diminution of the capital stock. Four changes in Articles of Incorporation that require the approval of the stockholders. xxx. unless such right is denied by the articles of incorporation or an amendment thereto: Provided. in proportion to their respective shareholdings. or the incurring.” Q: When the corporation increases its capital stock. create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and. involves the important assets of the corporation.  Extension/Shortening of Corporate Term Sec. is the 25% requirement necessary? How can it be computed? A: YES. Q: What does bonded indebtedness mean? A: Requires longer time of payment. 37 of the Corporation Code states that: “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 2/3 of the outstanding capital stock or by at least 2/3 of the members in case of non-stock corporation. *The corporation is required to maintain a sinking fund. The deceased member is not entitled to vote. 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. creating. 3. or served personally. Extension of corporate term. 38 of the Corporation Code states that: “No corporation shall increase or decrease its capital stock or incur. 2. That in case of extension of corporate term. or increasing of any bonded indebtedness and of the time and place of the stockholders’ 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 . in exchange for property needed for corporate purposes or in payment of a previously contracted debt. Written notice of the proposed increase or diminution of the capital stock or of the incurring.” Increase or Decrease of Capital Stock/ Incurrence. Denial of Pre-emptive Right Sec. or served personally: Provided. the Supreme Court held that in case of a non-stock corporation. Creation or Increase of Bonded Indebtedness Sec. special burden on the corporation. 20   . or to shares to be issued in good faith with the approval of the stockholders representing 2/3 of the outstanding capital stock. at a stockholders’ meeting duly called for the purpose.” *Coming from the increased authorized capital stock. 4. Increase or Decrease of Bonded indebtedness. 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. any dissenting stockholder may exercise his appraisal right under the conditions provided in this code.

Vote of the Stockholders representing 2/3 of the OCS. Sale or Disposition of Assets Sec. Shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public. 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. stocks. a corporation may. Majority vote of the Board. Mortgage. Q: With the sale of all the assets of the corporation. or in case of non-stock corporation by the vote of at least 2/3 of the members. Sell. Exception: if it is denied in the Articles of Incorporation or through amendment. as its board of directors or trustees may deem expedient.” Q: What makes the disposition peculiar? A: The disposition is of all or substantially all of the corporation’s properties and assets. Tests: 1. General Rule: Pre-emptive right is available to stockholders. xxx.Castro * Similar to Right of First Refusal *It is not a matter of right. mortgage. and 3. 3. will the same result to its dissolution? A: NO. Quantitative Test – no statutory test. Requirements: 1. To avoid dilution of their proportionate voting and control in the corporation. 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. pertains to the disposition of all assets 2. The sale does not bring about the illegal combinations and monopolies. 5. Lease. by a majority vote of its board of directors or trustees. pertains to the disposition of substantially all of its assets. 4. bonds or other instruments for the payment of money or other property or consideration. pledge or otherwise dispose of all or substantially all of its property and assets. That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. *Pre-emptive right is satisfied as long as the corporation gives the stockholder the opportunity to buy the shares. 2. in exchange for property needed for corporate purposes. Exception to the Exception: Pre-emptive right shall not extend to: 1. Pledge. Shares to be issued in good faith with the approval of the stockholders representing 2/3 of the outstanding capital stock. Purposes: 1. or served personally: Provided. upon such terms and conditions and for such consideration. exchange. It can be denied by the corporation through denial of such right in the articles of incorporation. In order that the stockholder may be able to maintain their relative proportional voting trend and control in the corporation. including its goodwill. Exchange. 3. sell. 2. 2. when authorized by the vote of the stockholders representing at least 2/3 of the outstanding capital stock.Commercial Law Review Corporation Code Maria Zarah Villanueva . which may be money. 2. *No need for the approval of the SEC. lease. 40 of the Corporation Code states that: “ Subject to the provisions of existing laws on illegal combinations and monopolies. Possession or continued possession of corporate properties is not a condition 21  . Qualitative Test – there is a statutory test. Q: What kind of disposition involve? A: 1. *The offer must first be made to the stockholders. In payment of a previously contracted debt. in a stockholders’ or members’ meeting duly called for the purpose. *The provision is so strict because the law wants the corporation will reach its expiration term.

If sale amounts to merger or consolidation. property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. 2. arising out of unpaid subscription. Q: What happens to reacquired shares? A: General Rule: They are automatically deemed retired. and 3. Sale was done in violation of the Bulk Sales Law. 2. 41 of the Corporation Code states that: “A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.” Requisites: 1. or served personally: Provided. Exception: The AOI provides otherwise. The acquisition must be for legitimate purpose Q: What is an unrestricted retained earnings? A: Earnings not allocated for any other purpose. Trust Fund Doctrine – The capital stock. 3. Corporation still exists despite the disposition of all its properties and assets. Corporation may not dissipate this and the creditors may sue stockholders directly for the unpaid subscription. 5. General Rule: The sale of all or substantially all of the assets of the corporation does not make the buyer answerable for the obligations of the seller. 4. That where the investment by the corporation is reasonably necessary to 22  . That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. 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 2/3 of the outstanding capital stock. or by at least 2/3 of the members in the case of non-stock corporations. Case: PNB v Andrada Acquisition of Corporate Shares Sec. and to purchase delinquent shares sold during said sale. If and when application of piercing the veil of corporate entity doctrine is warranted. Q: Will the buying corporation be made answerable for the liabilities of the selling corporation? A: NO. To collect or compromise an indebtedness to the corporation. That any dissenting stockholder shall have appraisal right as provided in this Code: Provided. however. in a delinquency sale.Commercial Law Review Corporation Code Maria Zarah Villanueva . The two corporations are two separate personalities thus they are separate and distinct from each other hence the buying corporation cannot be held liable to the obligations of the selling corporation. at a stockholders’ or members’ meeting duly called for the purpose. 42 of the Corporation Code states that: “Subject to the provisions of this Code. Unrestricted Retained Earnings 2. The subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. including but not limited to the following cases: Provided. 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. To eliminate fractional shares arising out of stock dividends. If the purchaser becomes a continuation of the seller.Castro for the existence of a corporation. If the buyer expressly agrees to assume the obligations of the seller. Exceptions: 1.  Investment of Corporate Funds Sec.

Exceptions to the Exception: 1. from declaring dividends without its/his consent. 43 of the Corporation Code states that: “The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash. Board approval 2.” Requisites: 1. or 2. When justified by definite corporate expansion projects or programs approved by the board of directors.Castro accomplish its primary purpose as stated in the articles of incorporation. That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses. CASH DIVIDENDS does not require stockholders’ approval The stockholders receive cash Creditor-debtor relationship STOCK DIVIDENDS Requires stockholders’ approval The stockholders receive stocks No creditor-debtor relationship  Requisites for declaration of cash/property dividends: 1. 3. Majority vote of the Board 2. *The board may opt to restrict its earnings. That no stock dividend shall be issued without the approval of stockholders representing not less than 2/3 of the outstanding capital stock at a regular or special meeting duly called for the purpose. further. as the earnings may be allocated to legitimate business purpose. Q: May the board be compelled to declare dividends? A: General Rule: NO. while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided. the approval of the stockholders or members shall not be necessary. Declaration of Dividends Sec. Board approval. Ratification by the stockholders. Special circumstances/contingent liabilities 23 . or in stock to all stockholders on the basis of outstanding stock held by them: Provided. Unrestricted Retained Earnings. *The fact that the corporation has surplus earning does not mean that it is mandated to declare dividends. it is still upon the sound discretion of the board of directors.Commercial Law Review Corporation Code Maria Zarah Villanueva . Q: Why stockholders’ ratification is necessary in the declaration of stock dividends? A: Because the earnings are capitalized. and such consent has not yet been secured. When the corporation is prohibited under any loan agreement with any financial institution or creditor. 2. It is considered to be a corporate assets. When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation. in property.” *This section is exclusive to stock corporations. Pursuant to loan agreement 3. Unrestricted Retained Earnings Requisites for declaration of stock dividends: 1. whether local or foreign. such as when there is need for special reserve for probable contingencies. Reason: Trust Fund Doctrine *There must be a unrestricted retained earnings before dividends may be declared. Corporate expansion 2. or 3. Exception: Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock. Vote of the stockholders representing 2/3 OCS. Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock. Dividends – represents part of the earnings of the corporation which the board has decided to distribute among the stockholders. except: 1.

No management contract shall be entered into for a period longer than 5 years for any one term. to be managed by a company who has been experienced in a particular kind of business if the managed corporation needs the 24  .” Requisite: General Rule: Majority vote of the OCS Exception: 2/3 of the OCS *SEC’s approval is not necessary *When the corporation enters into a management contract. operating agreements or otherwise: Provided. *The source of payment is the unrestricted retained earnings.Commercial Law Review Corporation Code Maria Zarah Villanueva . That 1. Q: Who are entitled to receive dividends? A: Stockholders *In Nielson case. Stock dividends will not bring about a creditor-debtor relationship. *If there is date of record – Dividends may be received by those persons who are holders of stocks as of date of record. at the inception of its operation. development. *If there is no date of record – dividends may be received by those persons who are holders of stocks as of the declaration. Where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than 1/3 of the total outstanding capital stock entitled to vote of the managing corporation. appraisal right is NOT AVAILABLE to any dissenting stockholder.Castro Q: Are the stock dividends considered as watered stocks because the stockholder concerned does not pay anything therefor? A: NO. whether such contracts are called service contracts. 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. Q: Will legal compensation possible to occur? A: NO. The unrestricted retained earnings are considered to be a consideration thus dividends received through stocks are not watered stocks. or 2. however. But only in terms of cash dividends. 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. Reason: Sound business policy dictates that it would be better for the corporation. exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. at a meeting duly called for the purpose: Provided. or by at least a majority of the members in the case of a non-stock corporation. or by at least 2/3 of the members in the case of a non-stock corporation. Q: Are delinquent stockholders entitled to receive dividends? A: YES. Q: When the corporation declares stock dividends. That such service contracts or operating agreements which relate to the exploration. 44 of the Corporation Code states that: “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. of both the managing and the managed corporation. Management Contract Sec. The requisites under the Civil Code on legal compensation are not present. the SC held that dividends cannot be given to non-stockholders. then the management contract must be approved by the stockholders of the managed corporation owning at least 2/3 of the total outstanding capital stock entitled to vote. risktakers. When it comes to shareholdings. the one holding the shares are considered investors. would it likewise create a creditor-debtor relationship between the corporation and the stockholder? A: NO. The parties are not mutually creditor-debtor of each other.

Nature: Regulates internal affairs of the corporation. 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. shall be necessary. B. For the adoption of By-Laws by the corporation the affirmative vote of the stockholders representing at least a majority of . experiences. such By-Laws shall be approved and signed by all the incorporators and submitted to the SEC. 46 of the Corporation Code states that: “Every corporation formed under this Code must. the SC held that failure to adopt a set of By-Laws within the prescribed period. banking institution. Essential for corporate existence. By-Laws in relation to Articles of Incorporation Distinction between By-Laws and Articles of Incorporation: By-Laws –is a condition subsequent. CORPORATE BY-LAWS: A. however. for the corporation to be able to continue its corporate existence.Castro technical expertise. Use and Nature of By-Laws By-Laws – relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and those having the direction. unless accompanied by a certificate of the appropriate government agency to the effect that such By-Laws or amendments are in accordance with law. building and loan association. By-Laws may be adopted and filed prior to incorporation. trust company. educational institution or other special corporations governed by special laws. By-Laws shall be effective only upon the issuance by the SEC of a certification that the By-Laws are not inconsistent with this Code. *In Loyola Grandvillas Homeowners Association v CA. The SEC shall not accept for filing the By-Laws or any amendment thereto of any bank. Effect of Non-Filing within the prescribed period Sec. insurance companies. by itself. management and control of its affairs. Articles of Incorporation – is a condition precedent. within 1 month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. the corporation is required to submit the corporate By-Law. skills. in the management and control of its affairs and activities. together with the articles of incorporation. or of at least a majority of the members in case of non-stock corporations. notwithstanding the word used in the Code. Concept. background of another entity. the same would not result to automatic dissolution of the corporation. The failure to file by-laws would not. duly certified to by a majority of the directors or trustees countersigned by the secretary of the corporation. in such case. 25 Internal Affairs Does not affect the status of the existence but has impact on the existence. subject to the inspection of the stockholders or members during office hours.” *Submission of By-Law is not a requirement for acquisition of corporate existence. In all cases. Adoption of By-Laws. Notwithstanding the provisions of the preceding paragraph. public utility. amount to dissolution or extinguishment of the corporate existence. ARTICLES OF INCORPORATION External affairs Affects the status of existence of the corporation BY-LAWS the outstanding capital stock. in whole or in part. shall be filed with the SEC which shall be attached to the original articles of incorporation. *Non-submission of the By-Laws within the prescribed period allowed by law is a ground for the dissolution of the corporation. A copy thereof. adopt a code of ByLaws for its government not inconsistent with this Code.Commercial Law Review Corporation Code Maria Zarah Villanueva . failure to submit is a ground for disenfranchisement Joint decision of the General Rule: joint board and decision stockholders Exception: Delegates the power to amend the By-Laws to the Board C.

impair contract or property rights of stockholders or members or create obligations unknown to law.” Requisites: 1. duties and compensation of directors or trustees. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. the manner of issuing stock certificates. 2. other special laws. Amendment to By-Laws Sec. The time. and a copy thereof.” F. may be considered as a De Facto Corporation and therefore. shall be filed with the SEC the same to be attached to the original articles of incorporation and original By-Laws. Contents of By-Laws. In the case of stock corporations. The form for proxies of stockholders and members and the manner of voting them. The time and manner of calling and conducting regular or special meetings of the stockholders or members. a private corporation may provide in its By-Laws for: 1. such amendment or new By-Laws shall be attached to the original By-Laws in the office of the corporation. and the owners of at least a majority of the outstanding capital stock. on the ground of its non-submission of By-Laws. It must not disturb vested rights. by a majority vote thereof. Requisites of a Valid ByLaw Provision Sec. and the articles of incorporation. shall so vote at a regular or special meeting. duly certified under oath by the corporate secretary and a majority of the directors or trustees. the corporation. The manner of election or appointment and the term of office of all officers other than directors or trustees. 9. 4. officers and employees. 48 of the Corporation Code provides that: “The board of directors or trustees. The required quorum in meetings of stockholders or members and the manner of voting therein. The penalties for violation of the By-Laws. D. The qualifications. other pertinent laws and regulations. It is for the State to initiate a proceeding questioning the existence.Castro *Section 46 of the Corporation Code must be read in conjunction with PD 902-A which outlines the procedure to be followed before the franchise/license of a private corporation may be suspended or revoked. this Code. The owners of 2/3 of the outstanding capital stock or 2/3 of the members in a nonstock 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. The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof. 3. at a regular or special meeting duly called for the purpose. 7. and the very least. 8. 6. place and manner of calling and conducting regular or special meetings of the directors or trustees. The amended or new By-Laws shall only be effective upon the issuance by the SEC of a certification that the same are not inconsistent with this Code. E. It must be consistent with the Articles of Incorporation. the SC held that meanwhile when the By-Laws is not yet submitted. 47 of the Corporation Code states that: “Subject to the provisions of the Constitution. It must be reasonable and not arbitrary or oppressive. *In Sawadjaan v CA. 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. 2. 5. 3. within the prescribed period. its right to exist as such cannot be inquired into or cannot be collaterally attacked in a private suit. By-Laws in relation to Third Parties 26 .Commercial Law Review Corporation Code Maria Zarah Villanueva . or at least a majority of the members of a nonstock corporation. Whenever any amendment or new By-Laws are adopted. It must be consistent with Corporation Code. 4. at that time. may amend or repeal any By-Laws or adopt new ByLaws. and 10. *Observance of Due Process is necessary.

the SC held that in the absence of evidence that China Bank is aware of the provisions of the By-Laws. ** Special meeting of stockholders/members shall be held at any time deemed necessary or as provided in the by-laws. Directors/Trustees: 1. Notice of any meeting may be waived. 49 of the Corporation Code provides that: “Meetings of directors. unless otherwise provided by the bylaws.Castro *In China Banking Corporation v CA. Whenever. Notice of regular or special meetings stating the date. or if not so fixed. Hence. 53 of the Corporation Code provides that: “Regular meetings of the board of directors or trustees of every corporation shall be held monthly. Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided. unless a different period is required by the by-laws. trustees. either expressly or impliedly. Sec. Stockholders/Members: 1. unless otherwise provided in the by-laws.Commercial Law Review Corporation Code Maria Zarah Villanueva . Regular meeting 2. however.” *Regular meeting of stockholders/members shall be held annually on a date fixed in the bylaws or if not so fixed. by any stockholder or member. Special meeting b. Special meeting Sec. *Notice of regular or special meetings stating the date. stockholders. unless the by-laws provide otherwise. on any date in April of every year. Exception: If the third party has actual knowledge of the provisions of the By-Laws. Regular meeting 2.” *Regular meetings of directors/trustees 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. expressly or impliedly. Kinds of Corporate Meetings Sec. Written notice of regular meetings shall be sent 2 weeks prior to the meeting unless a different period is required by the bylaws. That at least 1 week written notice shall be sent to all stockholders or members. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer. A director or trustee may waive this requirement. Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines. time and place of the meeting must be sent to every director or trustee at least 1 day prior to the scheduled meeting. China Bank must be allowed to register the shares in its name. Written notice shall be sent to all stockholders or members at least one week or unless otherwise provided in the by-laws. *Special meetings of directors/trustees may be held at any time upon the call of the president or as provided in the by-laws. 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. or members may be regular or special.” Kinds: a. for any cause. the SEC. *Meetings of directors or trustees may be held anywhere in or outside of the Philippines unless the by-laws provide otherwise. 50 of the Corporation Code provides that: “Regular meetings of stockholders or members shall be held annually on a date fixed in the bylaws. there is no person authorized to call a meeting. on any date in April of every year as determined by the board of directors or trustees: Provided. upon petition of a stockholder or member on a showing of good cause therefor. CORPORATE MEETINGS: A. General Rule: Third parties are not affected by the By-Laws. time and place of the meeting must be sent to every director or trustee at least 1 27 . unless the by-laws provide otherwise. That written notice of regular meetings shall be sent to all stockholders or members of record at least 2 weeks prior to the meeting. China Bank is not bound to observe the provisions of the By-Laws.

Delinquent Shares Sec. *A casual reading of section 51 would say that a corporation cannot provide any other place for the meeting of stockholders. 54 of the Corporation Code provides that: “The president shall preside at all meetings of the directors or trustees as well as of the stockholders or members. It must be called by the proper person. the By-Laws may provide different venue for their meeting. provided all the stockholders or members of the corporation are present or duly represented at the meeting. That Metro Manila shall. 2. Notice of meetings shall be in writing. There must be a quorum. deceased member is not entitled to vote Sec. 3. 93 on non-stock corporations. Delinquent shares 2. if the by-laws is silent of the place of the 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. Sec. Right to Vote of Stockholders  Instances when voting right not available Sec. All proceedings had and any business transacted at any meeting of the stockholders or members. for purposes of this section. Fractional shares 4. shall be held in the city or municipality where the principal office of the corporation is located. 4. 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.” *Applies to both stock and non-stock corporations. 6 of the Corporation Code provides that: “Except as provided in the immediately preceding paragraph. Escrow shares  Rules on: 1. As an exception. shall be valid even if the meeting be improperly held or called. section 51 applies. 51 of the Corporation Code provides that: “Stockholders’ or members’ meetings. Q: Is there a conflict between Section 51 and Section 93? A: YES. 5. if within the powers or authority of the corporation. 52 of the Corporation Code provides that: “Unless otherwise provided for in this Code or in the by-laws. the by-laws may provide a different place of meeting provided that it is within the Philippines and notice has been given. General Rule: The meeting must be held in the city or municipality where the principal office is located. But in case of a non-stock corporation.” General Rule: Majority of the OCS or Majority of the members Exception: Unless otherwise provided by the Code or by the By-Laws. Exception: Sec. There must be a previous notice. Treasury shares 3. 71 of the Corporation Code provides that: “No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders’ meeting. *In Tan v Sycip. be considered a city or municipality.” C. 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. unless the by-laws provide otherwise. Section 93 of the Corporation provides that the by-laws could provide any place for the meeting of its members provided that it is within the Philippines and proper notice has been given.Castro day prior to the scheduled meeting unless otherwise provided by the by-laws. until and unless he pays the amount due on his 28 . whether regular or special. It must be held at the proper place. As a rule. Requirements of a Meeting 1. B. and if practicable in the principal office of the corporation: Provided.Commercial Law Review Corporation Code Maria Zarah Villanueva . It must be held at the stated date and at the appointed time or at a reasonable time thereafter. Sec.” Instances when voting right is not available: 1. and the time and place thereof stated therein. There is conflict but this conflict may be reconciled.

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. Case: Calapatia 29 . Exception: If there is an agreement that the pledgee/mortgagee can exercise the right to vote. Executors. it is the pledgor/mortgagor that can exercise it. Q: Shares not yet fully paid but not yet delinquent. Mortgagor or Administrator of Shares Sec. 55 of the Corporation Code provides that: “In case of pledged or mortgaged shares in stock corporations. Escrow Shares *Escrow shares are not entitled to vote before the fulfillment of the condition imposed thereon. receivers. 5. 3.” Q: Can the pledgee/mortgagee exercise the right to vote? A: General Rule: No. Pledgor.Commercial Law Review Corporation Code Maria Zarah Villanueva .Castro subscription with accrued interest. *In Republic of the Philippines v COCOFED. The right to vote remains to the owner thus. Exception: If there is a strong evidence that indeed the shares have been purchased through public funds. Q: Who can vote them? A: General Rule: Stockholder of record. Case: Transmiddle East v CA Q: During the pendency of sequestration process.” General Rule: The holder of unpaid shares can exercise the right to vote. To avoid wastage dissipation of assets. 72 of the Corporation Code provides that: “Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. are they entitled to vote? A: YES. and the costs and expenses of advertisement. it should only perform acts of administration and not acts of ownership. *Delinquent stock is not entitled to vote and his presence would not be taken for purposes of quorum. PCGG cannot vote for the sequestered shares because being a conservator/administrator. Exception: If it is provided in the subscription contract that such right cannot be exercised until the subscription is fully paid. Q: Is PCGG authorized to vote for the sequestered shares? A: General Rule: No. Unpaid Shares Sec. 4. 2. 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. Strong evidence or prima facie evidence that the shares are illgotten. 2. if any.” *Delinquency arises upon default in payment of subscription. the SC held that there is a prima facie evidence that the shares are purchased with the use of public funds. the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders. administrators. are the sequestered shares included for quorum purposes? A: General Rule: YES. Sequestered Shares Q: What is the reason for sequestration process? A: For investigative purposes. Requisites: 1. Q: Are they included for quorum and voting purposes? A: NO. *The only right remain is the right to receive dividends subject to the provision of Section 43. Q: Even if there are proxies? A: YES. There is an imminent danger that the shares will be dissipated.

the consent of all the co-owners shall be necessary. No proxy shall be valid and effective for a period longer than 5 years at any one time. 25 of the Corporation Code). signed by all the co-owners. under the SEC rule. who thereby acquires for a period of time the voting rights (and/or any other rights) over such shares. proxy is not allowed (Sec. If the stockholder concerned would appear in the scheduled meeting. That when the shares are owned in an “and/or” capacity by the holders thereof. 59 of the Corporation Code provides that: “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 5 years at any time: Provided. *Relationship: Principal-Agent. Voting Trust Agreement is an agreement whereby one or more stockholders transfer their shares of stocks to a trustee. Proxies shall be in writing. authorizing one or some of them or any other person to vote such share or shares: Provided. 6. Exception: If proxy is coupled with interest. Sec. Sec. Concept of Proxy and Voting Trust Agreement Proxy is a written authorization given by one person to another so that the second person can act for the first. to the trust agreement. A certified copy of such agreement shall be filed with the corporation and with the SEC. signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. otherwise. *Proxy is a representative. Shares Jointly Owned Sec. said voting trust may be for a period exceeding 5 years but shall automatically expire upon full payment of the loan.Commercial Law Review Corporation Code Maria Zarah Villanueva . in order to vote the same. said 30 PROXY . But the SEC requires them to submit letters of appointment or documents showing that he has been duly instituted as executor/administrator of the deceased.” D.Castro *Administrator/executor/heirs have the right to vote even without prior proxy. A voting trust agreement must be in writing and notarized. unless there is a written proxy. it shall be valid only for the meeting for which it is intended. VOTING TRUST AGREEMENT The stockholder The stockholder remains the ceases to be a stockholder of record stockholder of record Revocable Irrevocable General Rule: 5 years Exception: If coupled with interest *The transfer includes the transfer of legal title. Functions: For quorum purposes. 10 days before the scheduled meeting *Proxy ensures presence of a quorum and also approval of corporate acts. and shall specify the terms and conditions thereof. Filed before the scheduled meeting. which are transferable like stock certificates. 58 of the Corporation Code provides that: “Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. By execution of subsequent proxy.” Requisites: 1. That in the case of a voting trust specifically required as a condition in a loan agreement. Ways to revoke proxy: 1. for voting purposes. Must be in writing 2. any one of the joint owners can vote said shares or appoint a proxy therefor. General Rule: Proxy is revocable. trust certificates are given to the stockholders. and in return. *Proxy is authorized to vote and also authorized to be present in a meeting. Unless otherwise provided in the proxy. *In Board meeting. subject however. 2. 56 of the Corporation Code provides that: “In case of shares of stock owned jointly by two or more persons.

the SC held that the corporation must be impleaded since it is the real party in interest. *The stockholder must implead the real party in interest. 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. *This is expressly mandated by Sec. and thereupon shall be bound by all the provisions of said agreement. Derivative Suit. The stockholder bringing the suit must be one of record as of the time the cause of action accrues as well as of the time the action is brought unless the cause of action is a continuing offer. 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. The one bringing the suit derives the cause of action from the corporation. the corporation. Exception: If the very person to be sued is the responsible officers themselves. 31 of the Corporation Code. Q: Why derivative? A: From the word derive. *In Chua v CA. Compelling Reason: Inaction of the officers. Because the power to sue lies on the board thus when the board refuses to take action in order to protect the corporation derivative suit may be allowed.Castro agreement is ineffective and unenforceable. *In case of Lee v CA. Q: Are we in violation of the Code? A: No. i. The trustee or trustees shall execute and deliver to the transferors voting trust certificates. to redress a wrong committed against the corporation whenever the responsible officers refuse to take any action thereon or are the very person to be sued.Commercial Law Review Corporation Code Maria Zarah Villanueva . it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. General Rule: The stockholder bringing the suit must have exhausted intra-corporate remedies within the corporation. 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. all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period. Requisites: 1. In the books of the corporation. Q: Whose cause of action? A: It is the corporation’s cause of action. E. usually a minority shareholder. which shall be transferable in the same manner and with the same effect as certificates of stock. 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. not beneficial title to at least one share. Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust agreement. automatically he is disqualified to continue performing the duties of a director because the law requires each and every director to have legal.” Consequence: The stockholder entering into a voting trust agreement ceases to be a stockholder of record. Concept and Requisites Derivative Suit is a suit brought by any stockholder. 31 . *This prerogative is developed through jurisprudence.e. The action must be named under the corporation’s name 3. 2. a director of the corporation. Unless expressly renewed. The voting trustee or trustees may vote by proxy unless the agreement provides otherwise. Q: Who brings the suit? A: Any stockholder/member usually minority stockholder. Failure to discharge their responsibilities. 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. at the same time. the SC held that the stockholder concerned loses his legal title to the shares so that if the stockholder is.

4. 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. Outstanding shares exchanged for stocks in the event of reclassification of conversion. The suit is not intended to harass the defendant. C. 2 Fold Characteristics: a. That no preincorporation subscription may be revoked after the submission of the articles of incorporation to the SEC. Post incorporation subscription – one entered into after the incorporation for the acquisition of unissued stock. May be regarded as continuing offer on the part of the subscriber concerned which the corporation may accept upon acquisition of juridical personality. *Contracts between the subscribers and the corporation. Pre-incorporation subscription – one entered into before incorporation. Actual cash paid to the corporation.Commercial Law Review Corporation Code Maria Zarah Villanueva . 5. *Creates a creditor-debtor relationship. Shares of stock shall not be issued in 32 . D. Representative suit is a suit filed by a group of stockholders that suffered common injury. The party injured is the stockholder himself. 62 of the Corporation Code provides that: “Stocks shall not be issued for a consideration less than the par or issued price thereof.Castro **This is a condition precedent. notwithstanding the fact that the parties refer to it as a purchase or some other contract. Individual suit is a suit filed by the stockholder because his personal right has been violated. Reason: The corporation is not yet in existence. and 6. or consists of intangible property such as patents of copyrights. Amounts transferred from unrestricted retained earnings to stated capital. not a nuisance or harassment suit. “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. 5. 3. Consideration for the Issuance of Shares Sec. 2. unless all of the other subscribers consent to the revocation. subject to the approval by the SEC.” *Contracts between the subscribers. 3. Labor performed for or services actually rendered to the corporation. 2. Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. b. the valuation thereof shall initially be determined by the incorporators or the board of directors. Purchase of treasury shares from the corporation.” *This is strictly regulated by the Corporation Code. tangible or intangible. Sec. Previously incurred indebtedness of the corporation. B. *Subscription is unique because it involves unissued shares. Appraisal right must not be an available remedy. *All of them involve shareholdings. 2. 4. 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. Subscription contract with the corporation. The cause of action is personal to the stockholder. It is a contract between subscribers. 60 of the Corporation Code. SUBSCRIPTION CONTRACT: A. Purchase or acquisition of shares from existing stockholders. Concept of Subscription Contract Subscription Contract is. Where the consideration is other than actual cash. Ways to become a Stockholder of a Corporation 1. Property. Kinds of Subscription 1. under Sec. 61 of the Corporation Code provides that: “A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least 6 months from the date of subscription.

or in the absence thereof. Q: When certificate of stock may be issued? A: Sec. If within 30 days from the said date no payment is made.” 33 . has been paid. unless a different rate of interest is provided in the by-laws. in either case with accrued interest. Certificate of Stock Certificate of Stock is a written evidence of the shares of stock but it is not the share itself. Cash 2.Commercial Law Review Corporation Code Maria Zarah Villanueva . Failure to pay within 30 days from the said date. Collection from cash dividends and withholding of stock dividends. unless the board of directors orders otherwise. shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board.” Valid considerations for the subscription agreements: 1. Property 3. as it may deem necessary. F. The same considerations provided for in this section. Prior corporate obligations 5. if any. By Extra-judicial sale at public auction. Amounts transferred from unrestricted retained earnings to stated capital 6. Labor or services actually rendered to the corporation 4. 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. together with the interest accrued. countersigned by the secretary or assistant secretary. 3. Outstanding shares in exchange for stocks in the event of reclassification or conversion. If subscription agreement is silent as to when the amount of subscription to be paid. Payment of Subscription Q:When payment of the subscription is made? A: Look into the subscription agreement. 2. Q: Who issue stock certificate? A: Stock certificates must be signed by the president or vice-president. if any is due. 67 of the Corporation Code provides that: “Subject to the provisions of the contract of subscription. the board of directors may call on all the unpaid subscribers to pay the remaining balance of their subscription. the board may call on all the unpaid subscribers to pay the remaining balance of their subscription. insofar as they may be applicable.  Remedies to enforce payment of subscription 1. *Does not represent credit. Q: How important is a stock certificate? A: It is an evidence of ownership of stocks. all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale unless the board of directors orders otherwise. 64 of the Corporation Code states that: “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). By judicial action. computed from such date until full payment.Castro exchange for promissory notes or future service.” *If there was no date as to payment of subscription stated in the subscription agreement. 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. Payment of any unpaid subscription or any percentage thereof. may be used for the issuance of bonds by the corporation. by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose.  When shares are considered delinquent Sec. if any. E. all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided. 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.

Example: P10 per share. Q: What will happen to the payment already made by the subscriber? A: The payment partially made shall be applied proportionately to all the shares covered by the subscription. and that after the expiration of 1 year from the date of the last publication. *No certificate of stock shall be issued until the full payment of the subscription. *Due course holding is not applicable. The P6000 shall be allocated equally to all shares. if possible. He shall also submit such other information and evidence which he may deem necessary. Transfer of Shares If represented by a certificate.Commercial Law Review Corporation Code Maria Zarah Villanueva . Certificate of Stock. 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. the circumstances as to how the certificate was lost. 2. H.Castro  Doctrine of Indivisibility of Subscription Contract Doctrine of Indivisibility of Subscription Contract: Failure to pay any of the installments due would necessarily affect all the other installments because the subscription is to be treated as one. transferred by indorsement and delivery. To be valid to third parties. if no contest has been presented to said corporation regarding said certificate of stock. whole. the transfer must be recorded in the books of the corporation. *The Certificate of Stock cannot be divided into portions. stolen or destroyed. *The title over the share can be assigned. the transfer must be recorded in the stock and transfer book of the corporation. The requisites are not complied with. quasi-negotiable Q: can the stock certificate be treated as negotiable instrument under NIL? A: No. . and the number of shares represented by such certificate. 2. 34  G. P6 per share has been paid. the shares may be transferred by means of a deed of assignment and such is duly recorded in the books of the corporation. That is why they are quasi-negotiable. 3. *The corporation has an automatic lien over the shares. entire. *To make the transfer binding to the corporation and third person. Indorsement by the owner or his agent. once a week for 3 consecutive weeks at the expense of the registered owner of the certificate of stock which has been lost. the name of the registered owner and the serial number of said certificate. Q: Who is the owner of the share? A: The stockholder of record. payment made is P6000 covering 1000 shares. the number of shares represented by such certificate. stolen or destroyed and issue in lieu thereof new certificate of stock. The notice shall state the name of said corporation. Q: Are certificates of stock negotiable? A: They are negotiable in certain extent. Delivery of the certificate. P4 per share is the liability. *Negotiable instrument represents credit. stolen or destroyed: 1. Upon default of payment on any of the installment results to entire subscription due and demandable. There is no engagement to pay in sum certain in money. Lost and Destroyed Certificate of Stock Sec. 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. 73 of the Corporation Code provides that: “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. *If not represented by the certificate. 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. the serial number of the certificate and the name of the corporation which issued the same. the following must be strictly complied with: 1. Creditor-debtor relationship arises. stolen or destroyed. indivisible contract.

stockholder or member for damages. Any officer or agent of the corporation who shall refuse to allow any director. stockholder or member of the corporation at reasonable hours on business days and he may demand. the notice given. trustee. a statement of every alienation. the yeas and nays must be taken on any motion or proposition. in accordance with the provisions of this Code. or of the board of directors or trustees. trustee. stolen or destroyed. shall be liable to such director. and on a similar demand. 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. trustee. in which case a new certificate may be issued even before the expiration of the 1 year period provided herein: Provided. trustee. or negligence on the part of the corporation and its officers. That if such refusal is made pursuant to a resolution or order of the board of directors or trustees. 74 of the Corporation Code provides that: “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. Books required to be kept by a Corporation Sec. 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. for a copy of excerpts from said records or minutes. and in addition. at his expense. trustee. further. trustee. or was not acting in good faith or for a legitimate purpose in making his demand.Castro unless the registered owner files a bond or other security in lieu thereof as may be required. and such other entries as the bylaws may prescribe. the date thereof. effective for a period of 1 year. No stock transfer agent or one engaged principally in the business of registering transfers of stocks in 35 . if special its object. Upon the demand of any director. Except in case of fraud. stolen or destroyed pursuant to the procedure abovedescribed. the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided. shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided. in which shall be set forth in detail the time and place of holding the meeting. sale or transfer of stock made.” CORPORATE BOOKS AND RECORDS: A. 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. and the date of payment of any installment. 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. and by and to whom made. and every act done or ordered done at the meeting.Commercial Law Review Corporation Code Maria Zarah Villanueva . the installments paid and unpaid on all stock for which subscription has been made. stolen or destroyed. writing. whether the meeting was regular or special. bad faith. The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director. stockholder or member on any action or proposed action must be recorded in full on his demand. The protest of any director.” in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged. how authorized. those present and absent. for such amount and in such form and with such sureties as may be satisfactory to the board of directors. stockholder or member of the corporation to examine and copy excerpts from its records or minutes. no action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost. stockholder or member. stockholder or member entered or left the meeting must be noted in the minutes. the time when any director. Stock corporations must also keep a book to be known as the “stock and transfer book. and a record thereof carefully made.

2. Approval by majority vote of the Board of Directors of each corporation. Concept of Merger and Consolidation Merger is one where a corporation absorbs the other and remains in existence while the others are dissolved. Approval of SEC Cases: Associated Bank v CA. and consolidating corporations are extinguished. *There is a continuous flow of juridical personality. 4.” *Keeping of books and records are mandatory. Record of all business transactions 3. Books of Proceedings B. 2. Approval of the stockholders of each corporation representing 2/3 of the outstanding capital stock. Book of minutes – reflects the decisions and actions of the Board of Directors/Stockholders. The plan of merger or consolidation shall be approved by majority vote of each board of the concerned corporations at separate meetings. The plan of merger/consolidation shall be approved by the majority vote of the 2/3 of the shareholders of the outstanding capital stock or members in case of a non-stock corporation. 2. Section 144 of the Corporation Code provides penalty for any violation of the provision of the Code. which shall be renewable annually: Provided. 5. The stockholder’s demand must be in good faith or for a legitimate purpose. the stockholder concerned may file an action for mandamus before the RTC. Four copies of the Articles of Merger or Consolidation together with favorable . Books required to be kept: 1. 3. The Board of each corporation shall draw up a plan of merger/consolidation. That a stock corporation is not precluded from performing or making transfer of its own stocks. Stock and Transfer Book/Membership Book 4.  Remedies to Enforce Right of Inspection *In case of refusal to exercise the right of inspection. Articles of Merger/Consolidation shall be executed by each of the constituent corporators.  Limitations on the Right of Inspection 1.Castro behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the SEC and pays a fee as may be fixed by the Commission. Requisites of and Procedure for Merger and Consolidation 1. in which case all the rules and regulations imposed on stock transfer agents. shall be applicable. signed by the President or Vice-President and certified by the secretary or assistant secretary. 2. The books and records shall be open to inspection at reasonable hours on business days. Examples: A+B=B A+B+C=C A+B+C=A A+B+C=B Consolidation is one where a new corporation is created. Examples: A+B=C A+B+C=D A + B + C = ABC A + B + C = XYZ B. 3.Commercial Law Review Corporation Code Maria Zarah Villanueva . Right to Inspect Corporate Books  Basis and Extent of the Right of Inspection Q: Is the keeping of these books mandatory? A: YES. Rationale: Right of inspection would be futile. The books and records shall not be improperly used any information secured through any prior examination of the books or records. *Inspection can be done personally or through agent. Polyan v CA Procedure: 1. 3. Right of inspection would not be exercised. MERGER AND CONSOLIDATION: 36 A. *Can also claim damages. except the payment of a license fee herein provided.

If the proposed corporate action is implemented or affected. Requisites: 1. 3. 4. mortgage.” C. pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code. *Any changes that concern the corporation’s existence. *Stockholders cannot exercise this right at his pleasure. In case of merger or consolidation. Instances of Appraisal Right Sec. Corporate change must have been approved by the SEC. There must have an unrestricted retained earnings. The rights of the creditors or lien upon the property of any of each constituent corporation shall not be impaired by such merger or consolidation. Concept of Appraisal Right Appraisal Right is the right to withdraw from the corporation and demand payment of the fair value of his shares after dissenting from certain corporate acts involving fundamental changes in corporate structure. B. and 3. All property. 5. RIGHT OF APPRAISAL: A. Dissolution of other corporation leaving the surviving or consolidated corporation exists. Remedy of the dissenting stockholder: The dissenting stockholder may exercise his appraisal right. C. 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. exchange. In case of sale. 81 of the Corporation Code provides that: “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. transfer. The Stockholder has dissented 2. Reason: If it is a matter of right it shall lead to the diminution or depletion of corporate assets which is violative of the Trust Fund Doctrine. lease. 2. or of authorizing preferences in any respect superior to those of outstanding shares of any class. and all receivables due to. Any claim. action or proceeding pending by or against any of the constituent corporations may be prosecuted by or against the surviving or consolidated corporations. *It is not a matter of right. 3. and all other interest of each constituent corporation. *Demanding for the reasonable return of investment.Commercial Law Review Corporation Code Maria Zarah Villanueva . 82 of the Corporation Code provides that: “The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action. Requirements for a Valid Exercise of Appraisal Right Sec. *Any changes that affect the stockholders’ right. Effects of Merger or Consolidation 1. or of extending or shortening the term of corporate existence. That failure to make the demand within such period shall be deemed a waiver of the appraisal right. 6. the corporation shall pay to such stockholder.Castro recommendation of a pertinent government agency in certain cases shall be submitted to the SEC for approval. The SEC shall issue a certificate or merger if it is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the provisions of this Code and existing laws. shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed. The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of each of the constituent corporations. by making a written demand on the corporation within 30 days after the date on which the vote was taken for payment of the fair value of his shares: Provided. real or personal. *Corporate changes that appraisal right can be availed of. upon surrender of the certificate or certificates of 37 . 2.

a non-stock is one where no part of its income is distributable as dividends to its members.Commercial Law Review Corporation Code Maria Zarah Villanueva . trustees. all rights accruing to such shares. If within a period of 60 days from the date the corporate action was approved by the stockholders. his voting and dividend rights shall immediately be restored. 87 of the Corporation Code states that: “For the purposes of this Code. 4. one of whom shall be named by the stockholder. That if the dissenting stockholder is not paid the value of his shares within 30 days after the award. *Abstaining stockholder cannot claim or exercise his appraisal right. further. the withdrawing stockholder and the corporation cannot agree on the fair value of the shares.” Requisites: 1. excluding any appreciation or depreciation in anticipation of such corporate action. or officers. subject to the provisions of this Title.Castro stock representing his shares. The dissenting stockholder shall be entitled to receive payment of the fair value of his shares as agreed upon between him and the corporation or as determined by the appraisers chosen by them. and the third by the two thus chosen. Any of the instances set forth by law must be present. That any profit which a non-stock corporation may obtain as an incident to its operations shall. Payment must be made only when the corporation has unrestricted retained earnings in its books. Remedy in case appraisal right cannot be exercised: Dispose the shareholdings. NON-STOCK CORPORATIONS: A. and their award shall be paid by the corporation within 30 days after such award is made: Provided. shall be suspended in accordance with the provisions of this Code. Failure to make demand shall be deemed a waiver. Stockholder must transfer his shares to the corporation upon payment by the corporation. Definition and Purposes of a Non-Stock Corporation Sec. 6. 7. 2. except the right of such stockholder to receive payment of the fair value thereof: Provided. it shall be determined and appraised by 3 disinterested persons. D. The provisions governing stock corporations. Demand for payment must be made within 30 days from the date vote is taken thereon. 83 of the Corporation Code provides that: “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. another by the corporation. The findings of the majority of the appraisers shall be final. Effects of Exercising Appraisal Right Sec. shall be applicable to non-stock corporations. the fair value thereof as of the day prior to the date on which the vote was taken. 2. Submission by withdrawing stockholder of his shares to the corporation for notation of being a dissenting stockholder within 10 days from written demand. be used for the furtherance of the purpose or purposes for which the corporation was organized. *Sec. 86. whenever necessary or proper. Dissenting stockholder must have voted against the proposed action. Price must be based on fair value as of day prior to date on which vote was taken 5. All rights accruing to such shares shall be suspended from the time of demand for payment of the fair value of the shares until either the abandonment of the corporate action. 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. when pertinent. That upon payment by the corporation of the agreed or awarded price. the stockholder shall forthwith transfer his shares to the corporation. 38 . 3. including voting and dividend rights. subject to the provisions of this Code on dissolution: Provided. The dissenting stock can be sold during the pendency of its payment.” Effects: 1.

broadened or denied. 87 should be read in harmony with Sec. unity and familiarity. 90 of the Corporation Code provides that: “Membership in a non-stock corporation and all rights arising therefrom are personal and nontransferable.” General Rule: Membership is non-transferable. unity and familiarity. fraternal.” *Sec.” General Rule: Sec. Sec. However. social.Castro except as may be covered by specific provisions of this Title. and under such conditions which may be prescribed by. Except unless Directors AOI provides otherwise. regardless of class. 88 of the Corporation Code provides that: “Non-stock corporations may be formed or organized for charitable. Sec. 94. or similar purposes. shall be entitled to one vote. agricultural and like chambers. unless the articles of incorporation or the by-laws otherwise provide. broadened or denied to the extent specified in the articles of incorporation or the by-laws. 89. broadened or denied in the Articles of Incorporation or By-Laws. Rule on Distribution of Assets 39 C. each member. such right may be limited. the SEC. 91 of the Corporation Code provides that: “Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. Distinguished from Stock Corporation Non. *A member is entitled to 1 vote. Unless so limited. Generally. Unless otherwise provided in the articles of incorporation of the by-laws. Thus. members Election is vested could directly elect upon Board of officers. like trade. This provision allows denial of proxy. the term of 1 year subject to holdoffice of trustees is 3 over principle years By-laws can provide City or municipality for a different venue where the principal as long as it is within office is located the Philippines Member may be Proxy is allowed deprived of their right to designate proxies by provisions in the articles of incorporation or bylaws Reason: To promote camaraderie. cultural. B. scientific. the By-laws of a non-stock corporation may provide for the desired voting rights of members including the number of votes. 89 of the Corporation Code provides that: “The right of the membership of any class or classes to vote may be limited. a member may vote by proxy in accordance with the provisions of this Code. Reason: To promote camaraderie. Sec. 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. 93 D. unless otherwise 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.Commercial Law Review Corporation Code Maria Zarah Villanueva . religious. 58 Exception: Sec. Exception: If the Articles of Incorporation or the By-laws provide otherwise. Membership in a Non-Stock Corporation . or any combination thereof.” *The purpose of a non-stock corporation is related to public welfare. togetherness.” Rules on Place of Meeting: General Rule: Sec. professional. *A Non-stock corporation is not precluded from engaging in profit-business related. literary. civic service. 51 Exception: Sec. togetherness.stock Stock Corporation Corporation Public welfare For profit Board of Trustees Board of directors Generally. educational. industry. subject to the special provisions of this Title governing particular classes of non-stock corporations. Sec.

Such plan of distribution shall be adopted upon approval of at least 2/3 of the members having voting rights present or represented by proxy at such meeting. not inconsistent with the provisions of this Title. within the time and in the manner provided in this Code for the giving of notice of meetings to members. and 4. Sec. Written notice setting forth the proposed plan of distribution or a summary thereof and the date. *Appraisal right is available. All liabilities and obligations of the corporation shall be paid. or provide for distribution. 4. satisfied and discharged. shall be delivered back to their givers. shall be transferred or conveyed to one or more corporations. determine the distributive rights of members. or any class or classes of members. Approval of the SEC Q: What was relinquished? A: Proprietary rights. benevolent. 96 of the Corporation Code states that: “A corporation. its assets shall be applied and distributed as follows: 1. time and place of such meeting shall be given to each member entitled to vote. transfer or conveyance by reason of the dissolution. religious purposes. transferred or conveyed in accordance with such requirements. or adequate provision shall be made therefor. 2. Assets held for charitable. as may be specified in a plan of distribution adopted pursuant to this Chapter. 3. assets may be distributed to such persons. by majority vote. shall be conveyed to one or more organizations engaged in similar activities as dissolved corporation. CLOSE CORPORATIONS: A. All other assets shall be distributed to members. is one whose articles of incorporation provide 40 . whether or not organized for profit. societies or organizations engaged in activities in the Philippines substantially similar to those of the dissolving corporation according to a plan of distribution adopted pursuant to this Chapter.. to the extent that the articles of incorporation or the by-laws. Assets held subject to return on dissolution. Assets received and held by the corporation subject to limitations permitting their use only for charitable. 2. without a condition for their return on dissolution. 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. transfer or conveyance. Approval of 2/3 of the members 2.” Q: Would it be possible for a non-stock corporation to be converted into a stock corporation by mere amendment of the Articles of Incorporation? A: NO. Assets other than those mentioned in the preceding paragraphs. 3. and which condition occurs by reason of the dissolution. All its creditors shall be paid. religious. if any. shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws. but not held upon a condition requiring return.Castro Sec. within the meaning of this Code. 94 of the Corporation Code provides that: “In case dissolution of a non-stock corporation in accordance with the provisions of this Code. organizations or corporations.” Order of distribution: 1. Concept. shall be returned.Commercial Law Review Corporation Code Maria Zarah Villanueva . Distinguished from Open Corporations Sec. 95 of the Corporation Code provides that: “A plan providing for the distribution of assets. as provided for in the Articles or By-Laws. Reason: Fraudulent to donors Q: Can a stock corporation be converted to a non-stock corporation by mere amendment of the Articles of Incorporation? A: YES. Because it would violate Section 87 of the Corporation Code which prohibits distribution of income as dividends to members. etc. In any other case. may be adopted by a non-stock corporation in the process of dissolution in the following manner: The board of trustees shall. Assets held by the corporation upon a condition requiring return. educational or similar purposes. societies. and 5. Requirements: 1.

insurance companies. the purchase by the corporation of its own stock must always be made from the unrestricted retained earnings . the corporation may be ordered to purchase its own shares from the stockholders regardless of the availability of 41 Its status as an ordinary stock corporation is not affected by the ownership of its voting stock or voting rights Its articles cannot classify its directors Business of the corporation is managed by the board of directors The corporate officers and employees are elected by a majority vote of all the members of the board of directors The pre-emptive right is subject to the exceptions found in Section 39 of the Corporation Code The appraisal right may be exercised by a stockholder only in the cases provided in Sections 81 and 42 of the Corporation Code Except as regards redeemable shares. Exceptions: 1. exclusive of treasury shares. Corporations declared to be vested with public interest Distinctions from Open Corporations: Open Corporation Its articles of incorporation need only contain the general matters enumerated in Section 14 of the Corporation Code Close Corporation Its articles must contain the special matters prescribed by Section 97 aside from the general matters in Section 14.” *Whether open or close corporation depends on its charter. public utilities. Transfer or disposition of shares is subject to specified restrictions 3. Educational institutions 7. 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. Stock exchanges 3. Prohibition against offering to the public of the shares or listing in the stock exchange. Any corporation may be incorporated as a close corporation. Case: San Juan Structural The following must be stated in the Articles of Incorporation: 1. shall be held of record by not more than a specified number of persons. (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title. That the provisions of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides. and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Failure to do so precludes a de jure close corporation status 2/3 of its voting stock or voting rights must not be owned or controlled by another corporation which is not a close corporation Its articles may classify its directors Business of the corporation may be managed by the stockholders if the articles so provide. but they are liable as directors Its articles may provide that any or all of the corporate officers or employees may be elected or appointed by the stockholders The pre-emptive right is subject to no exceptions unless denied in the articles The appraisal right may be exercised and compelled against the corporation by a stockholder for any reason In case of an arbitration of an intracorporate deadlock by the SEC. a corporation shall not be deemed a close corporation when at least 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. except mining or oil companies. banks. not exceeding 20.Castro that: (1) All the corporation’s issued stock of all classes. Insurance companies 5. Notwithstanding the foregoing.Commercial Law Review Corporation Code Maria Zarah Villanueva . Membership is limited to 20 2. Mining or oil companies 2. Banks 4. stock exchanges. Public utilities 6. General Rule: Any corporation may be incorporated as close corporation.

So long as this provision continues in effect: 1. Restrictions on Transfer of Shares Sec. the existing stockholders or the corporation fails to exercise the option to purchase. No meeting of stockholders need be called to elect directors. The articles of incorporation of a close corporation may provide that the business of the 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. 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. *Pre-emptive right is exercisable or available. and 3. 97 of the Corporation Code provides that: “The articles of incorporation of a close corporation may provide: 1. instead of by the board of directors. the SC held that the circumstance that around 99. Permissive Provisions in the Articles of Incorporation Sec. conditions or period stated therein. 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. otherwise. Reason: It is more onerous and burdensome. 98 of the Corporation Code provides that: “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. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. Unless the context clearly requires otherwise. *Restriction derogates private rights. each of whom may be voted for and elected solely by a particular class of stock. the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code. Modes of Dissolution: 1.Commercial Law Review Corporation Code Maria Zarah Villanueva . Methods of Voluntary Corporate Dissolution and the Requirements therefor Dissolution refers to the extinguishment of franchise or termination of corporate existence. subject to the provisions of the following section.Castro unrestricted retained earnings Arbitration of intracorporate deadlock by the SEC is an available remedy in case the directors or stockholders are so divided respecting the management of the corporation. *In San Juan Structural Steel Fabricators v CA. The articles of incorporation may likewise provide that all officers or employees or that specified officers . The stockholders of the corporation shall be subject to all liabilities of directors. the same shall not be binding on any purchaser thereof in good faith.” C. Voluntary dissolution where no creditors are affected 2. *This restriction is valid and allowed. and 3. CORPORATE DISSOLUTION/LIQUIDATION: A. 2. *This restriction is not valid. If upon the expiration of said period.” Option Restriction – this restriction provides that no disposition of shares will be made unless the shares are offered first to the corporation or the stockholders. Involuntary dissolution Methods of Voluntary Dissolution: 1. Voluntary dissolution where creditors are affected 42 Arbitration of intracorporate deadlock by the SEC is not a remedy in case the directors or stockholders are so divided respecting the management of the corporation. For a classification of directors into one or more classes. B. the transferring stockholder may sell his shares to any third person. Reason: it is the one contemplated by law. or employees shall be elected or appointed by the stockholders. 2.86% of the total share holding of petitioner belongs to respondent would not justify classification of the corporation as close. Consent Restriction – this restriction provides that no disposition of shares will be made without the consent of directors. Voluntary dissolution 2.

If the petition is sufficient in form and substance. 118 of the Corporation Code provides that: “If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it. The petition shall be signed by a majority of its board of directors or trustees or other officers having the management of its affairs. 6. and by a resolution duly adopted by the affirmative vote of the stockholders owning at least 2/3 of the outstanding capital stock or of at least 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. the dissolution may be effected by majority vote of the board of directors or trustees. Shortening of the corporate term by amending the articles of incorporation *Dissolution takes effect upon the coming of the shortened term.Commercial Law Review Corporation Code Maria Zarah Villanueva . 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 notice of meeting should also be published for 3 consecutive weeks in a newspaper published in the place. 2. 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 30 days prior to said meeting. 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. fix a date on or before which objections thereto may be filed by any person. Notice of the meeting should be given to the stockholders by personal delivery or registered mail at least 30 days prior to the meeting. Before such date.Castro 3. Upon five (5) day's notice. 4. verified by its president or secretary or one of its directors or trustees. and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city. the petition for dissolution shall be filed with the Securities and Exchange Commission. the Commission shall. 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. 43 . The signed and countersigned copy will be filed with the SEC and the latter will issue the certificate of dissolution  Voluntary dissolution where creditors are affected Sec. Expiration of corporate term  Voluntary dissolution where no creditors are affected Sec. 3. The SEC shall thereupon issue the certificate of dissolution. and if no newspaper is published in such place. by an order reciting the purpose of the petition. The resolution to dissolve must be approved by the majority of the directors/trustees and approved by the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of members. given after the date on which the right to file objections as fixed in the order has expired. place and object of the meeting for 3 consecutive weeks in a newspaper published in the place where the principal office of said corporation is located. A meeting must be held on the call of the directors or trustees. 119 of the Corporation Code provides that: “Where the dissolution of a corporation may prejudice the rights of any creditor. 4. then in a newspaper of general circulation in the Philippines. or if there be no such newspaper.” Requisites: 1. 5. and shall set forth all claims and demands against it. A copy of the resolution shall be certified by the majority of the directors or trustees and countersigned by the secretary. which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order.

Corporate Liquidation Liquidation is a process by which all the assets of the corporation are converted into liquid assets in order to facilitate the payment of obligations to creditors. rules and regulations. A copy of the Order shall be published at least once a week for 3 consecutive weeks in a newspaper of general circulation or if there is no newspaper in the municipality or city of the principal office. 4. Grounds: 1. and may appoint a receiver to collect such assets and pay the debts of the corporation.Commercial Law Review Corporation Code Maria Zarah Villanueva . Judgment shall be rendered dissolving the corporation and directing the disposition of assets.  Shortening of term of existence Sec. it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires. 2. and if no such objection is sufficient. performance of ultra vires act since it is a violation to the franchise but depending on the seriousness or gravity of the offense 8. De facto status 10. 3. Fraud in the procurement of Certificate of Registration 3. After the expiration of the time to file objections. as the case may be. Failure to commence business transactions within 2 years from issuance of certificate of registration 7. the corporation shall be deemed dissolved without any further proceedings. Misrepresentation as to the activities that the corporation will undertake 4. 121 of the Corporation Code provides that: “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. 44 . Failure to submit by-laws within the prescribed period 2. Failure to keep corporate books and records depending on the gravity or seriousness of the offense 11.Castro the Commission shall proceed to hear the petition and try any issue made by the objections filed.” Requisites: 1. subject to the provisions of this Code on liquidation. Filing of a Petition with the SEC signed by majority of directors or trustees or other officers having the management of its affairs verified by President or Secretary or Director. 7. Objections must be filed no less than 30 days nor more than 60 days after the entry of the order.” *This must be done with substantive and procedural due process. and the remaining balance if any is to be distributed to the stockholders. Concept of Involuntary Dissolution and the Grounds therefor Sec. 120 of the Corporation Code provides that: “A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. 5. 6. To some cases. Violation of its charter C.” B. Approval of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of members in a meeting called for that purpose. posting for 3 consecutive weeks in 3 public places is sufficient. If petition is sufficient in form and substance. Upon approval of the amended articles of incorporation of the expiration of the shortened term. Claims and demands must be stated in the petition. Issuance of watered stocks 9. Continued inoperation for 5 years 6. and the material allegations of the petition are true. Treasurer’s affidavit is false 5. A copy of the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code. the SEC shall issue an Order fixing a hearing date for objections. the judgment may include appointment of a receiver. a hearing shall be conducted upon prior 5 day notice to hear the objections.

the legal interest vests in the trustees. Concept of Rehabilitation.” *Appointment of trustee can be inferred from the conduct of the corporation. E. members. creditors or other persons in interest. 122 of the Corporation Code provides that: “Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise.Commercial Law Review Corporation Code Maria Zarah Villanueva . he is not bound by the 3 year period. for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. Reason: Beyond the 3 year period. does the corporation enjoy corporate existence? A: YES. the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders.e. and the beneficial interest in the stockholders. 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. But for limited purpose only. there is no corporate existence for all purposes subject to doctrine of relation.Castro *Liquidation takes place after dissolution. Through a trustee to whom the properties are conveyed 3. Upon the winding up of the corporate affairs. This is by Implication. Contemplates a continuance of corporate existence in an effort to restore the corporation to its former successful operation.” D. But only when the subject matter is related to liquidation and winding up of its remaining affairs. members. but not for the purpose of continuing the business for which it was established. Purpose: To make the corporation financially viable again. or whose corporate existence for other purposes is terminated in any other manner. Methods of Liquidation or Winding Up 1. By Board of Directors 2. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. Q: During the 3 year period. shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved.. Effects of Appointment of Management Committee or Receiver Rehabilitation connotes a reopening or reorganization. *If the corporation is the creditor appoint a trustee. to dispose of and convey its property and to distribute its assets. A lawyer falls within the ambit of the word “trustee. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. Anyone who has been designated by the corporation to act on its behalf could be considered as trustee for purposes of pursuing a claim for and on behalf of the corporation. appoint a trustee/receiver. Substantive Grounds: 45 . i. for liquidation purposes only. all interest which the corporation had in the property terminates. and other persons in interest. Except by decrease of capital stock and as otherwise allowed by this Code. The term trustee must be considered in its generic sense. *In case trustee/receiver is appointed. Sec. *In Gelano v CA. By management committee or rehabilitation receiver Q: Can the 3 year period be extended? A: NO. (Limited existence) Q: May such corporation sue during the 3 year period? A: YES. creditors. the SC held that the lawyer of the corporation can be considered as trustee. At any time during said three (3) years. *This is a remedy expressly allowed under Section 6 of PD 902-A. creditors and others in interest. Q: What if the corporate properties have already been distributed among the shareholders without trustee/receiver? A: Remedy: Run after the erring directors and officers. Remedy: Before the expiration of the 3 year period. members. If the corporation is the debtor appoint a receiver.

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.stops or suspends the enforcement of all claims for money or otherwise whether enforcement is by court or not. and whose laws allow Filipino citizens and corporations to do business in its own country or state. *Foreign Corporation is required to obtain license from the SEC to enable them to do business in the Philippines. *In RCBC v IAC. 123 of the Corporation Code provides that: “For the purposes of this Code. the SC held that stay order suspends all enforcement in all stages of the proceedings. 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. 46 . *License is for regulatory purposes.” Reciprocity Clause provides that the foreign laws allow Filipino citizens and corporations to do business in its own country or state. The preference still remains it is just the enforcement that is suspended. Serious paralyzation of business which would work to the prejudice of the stockholders and creditors of the corporation *Mere misconduct of an officer is not a ground for corporate rehabilitation. Tests to Determine Nationality of a Corporation 1. the citizenship of a particular corporation is to be determined by the citizenship of the controlling stockholders. and contemplates to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of. C. Effect: Stay Order . Incorporation Test – when the corporation is incorporated. the SC held that whether creditors are secured or not. Continuity Test provides that: doing business implies a continuity of commercial dealings and arrangements. Cases: PAL v Garcia. *License requirement does not prevent performance of acts that are isolated from the main business of the corporation and there is no intent to continue the same in the Philippines. Concept of “Doing Business” and the License Requirement therefor Substance Test provides that: a foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized. FOREIGN CORPORATIONS: A. stay order will still affect them. *With the passage of RA8799. *In Lingkod Manggagawa sa Rubberworld v Rubberworld Philippines. until rehabilitation proceedings are terminated. the purpose and object of its organization. Lingkod Manggagawa ng Rubberworld v Rubberworld Philippines. B. organized under the law of other country. a foreign corporation is one formed.Commercial Law Review Corporation Code Maria Zarah Villanueva . Control Test – for purposes of investment. 2. Sobrejuanite. the SC held that labor claims are likewise affected by the Stop order. Sec.Castro 1. organized or existing under any law other than those of the Philippines. When there is imminent danger of dissipation or wastage of corporate assets 2. Concept of Foreign Corporation Foreign Corporation is a corporation formed. *The foreign corporation must appoint a resident agent so that court may acquire jurisdiction over the foreign corporation *License is essential if there is an intention to maintain main or substance of the business in the Philippines or to continue the same. *A corporation cannot ask for corporate rehabilitation and at the same time dissolution. RCBC v IAC *In PAL v Garcia. *Lack of license does not affect the validity of the transaction. the remedy could now be instituted with the proper RTC.

Infringement of trademark *International offense can be sued anywhere. imposts. they found out that the foreign corporation has the intent to continue business in the Philippines. *In Ericks v CA. D. *In Home Insurance v Eastern Shipping Lines. Any other ground as would render it unfit to transact business in the Philippines. the SC held that the selling of tickets though there is no aircraft landing in the Philippines constitute doing business in the Philippines. the court considered the continuity test. General Rule: they have no access in Philippine Courts Exceptions: 1. after change of its resident agent or his address. Cases: Expert Travel Tours v CA. Failure. Failure to pay any and all taxes. to submit to the SEC a statement of such change as required by the Corporation Code 4. the suing foreign entity already have license to do business in the Philippines. 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 9. the remedial defect is cured. Failure to file its annual report or pay any fees as required by the Corporation Code 47 2. Isolated transactions 2. *Credit is obtained to maintain longer transactions.Castro *If the foreign corporation is not licensed to do business in the Philippines. lawfully due to the Philippine Government or any of its agencies or political subdivision 7. the SC held that resident agent is not with authority to execute a certification of Forum shopping following Sec. Effects of Being Issued a License 1. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized under its license 8. the SC held that if at the time the suit was brought. if any. The public is protected in dealing with foreign corporations. Cases: Japan Airlines v CA *In Japan Airlines v CA. Revocation and Withdrawal of License Grounds for Revocation: 1. E.Commercial Law Review Corporation Code Maria Zarah Villanueva . In this case. A misrepresentation of any material matter in any application. assessments or penalties. Failure to appoint and maintain a resident agent in the Philippines as required by the Corporation Code 3. They are placed under the jurisdiction of the Philippine courts 2. . the suit will be allowed although at the time the transaction was made it does not have the requisite of a license to do so. Failure to submit to the SEC an authenticated copy of any amendment to its articles of incorporation or by-laws or of any articles of merger or consolidation within the time prescribed by the Corporation Code 5. Home Insurance v Eastern Shipping Lines *In Expert Travel Tours v CA. report affidavit or other document submitted by such corporation pursuant to the provisions of the Corporation Code 6. They are placed under the same footing as domestic corporations 3. 23 of the Corporation Code. the SC held that license is necessary in order the foreign corporation may sue.