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CORPORATION CODE

Professor: Dean Nilo T. Divina
Sources: Aquino, Timoteo B. (2006). PHILIPPINE CORPORATE LAW COMPENDIUM. Quezon City: Rex Printing Company, Inc.; Marx Notes
BATAS PAMBANSA BLG. 68
THE CORPORATION CODE OF THE PHILIPPINES

TITLE I - GENERAL PROVISIONS DEFINITIONS AND
CLASSIFICATIONS

Section 1. Title of the Code. - This Code shall be known as
"The Corporation Code of the Philippines." (n)

Section 2. Corporation defined. –
A corporation is
1) an artificial being
2) created by operation of law,
3) having the right of succession and
4) the powers, attributes and properties expressly
authorized by law or incident to its existence. (2)
ARTIFICIAL BEING – it exist in contemplation of law. It derives
its existence to the law that created it either by a general or
special law. It is not a natural person but the law considers the
corporation not just a group of persons but as a person. A legal
person and therefore it has a personality that is separate and
distinct from the person composing it. (DOCTRINE OF LEGAL
ENTITY)

can acquire properties, enter into contracts

can have a cause of action, can incur liabilities

principal-agent relationship applies

can be held liable for torts or quasi-delict

can be entitled to constitutional protections like
unreasonable search and seizure

can be held liable for a crime if the penalty is fine or
forfeiture of license or franchise but not if the penalty
is imprisonment

can be entitled to moral damages
o GR: A corporation is not entitled to moral
damages because, not being a natural
person it cannot experience physical
suffering or sentiments.
o XPN: When the corporation has a
reputation that is debased, resulting to
humiliation in the business realm
o Case: Tortuous act should have directly
resulted to the destruction or impairment
of the reputation or good will of the
corporation
(MERALCO
v.
TEAM
ELECTRONICS)
o Case: Under the NCC, in case of libel, oral
defamation or slander, the aggrieved
person is entitled to moral damages.
(FILIPINAS
BROADCASTING
v.
AGO
MEDICAL)
CREATED BY OPERATION OF LAW – the corporation owes its
existence to the State thru a law enacted by Congress
(CONCESSION THEORY)

A private corporation can only be organized in
accordance with the Corporation Code.

A GOCC that may have a charted on its own, are not
organized under the Corporation Code.

Congress cannot enact a special law to create a
private corporation to compete with another private
corporation (See Sec. 4)
Congress can only enact a special law creating a
corporation only if such corporation is owned and
controlled by the Government (at least 51%) and is
organized for a governmental purpose. Otherwise,
such law is unconstitutional and it cannot even create
a de facto corporation (See Sec. 20)
2 kinds of franchise:
1. Primary franchise – the authority to act as a
corporation. All corporation registered in
SEC has primary franchise
2. Secondary franchise – a special authority
given to a corporation to engage in a
specialized business. (banks, insurance
companies, etc.)

RIGHT OF SUCCESSION – A corporation is not immortal but is
capable of continued existence because any change of
ownership or in the composition of the stockholders will not
result to the dissolution of the Corporation. It will continue to
exist for as long as there is an extension of corporate term (See
Sec. 11)

in case of death, ownership of shares is transmitted
to the heirs by operation of law
POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE – these
powers are found in the Corporation Code, AOI, By-laws. It also
includes powers incidental to its express powers of
incorporation.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION –
1. a doctrine
2. that allows the State (judicial function)
3. to disregard for certain justifiable reasons the notion
that a corporation has a personality separate and
distinct from the person composing it

Objective: To make the stockholders liable for the
debts and obligations of the corporation and not the
other way around.

Rules:
a.

b.

The obligation of the corporation is not the
liability of the stockholders, officers or
directors
The properties of the Corporation are not
properties of the stockholders, officers or
directors
i.
a stockholder is not a tenant, not
an owner nor a co-possessor or
usufructuary

Factors not enough to disregard the separate legal
personality of the corporation:
a. controlling ownership or ownership over
the controlling shares
b. common directors

c.

substantial identity of the incorporators and
similarity of business

Various test adopted by the SC:
a. Fraud test – when the corporate identity is
used to defeat public convenience, justify
wrong, protect fraud, or defend crime;
when the corporation is being used to
accomplish an intent to commit a wrong
b. Alter Ego or Instrumentality test – when the
corporation is a mere alter ego or business
conduit of a person, or when the
corporation is so organized and controlled
and its affairs are so conducted as to make
it merely an instrumentality, agency,
conduit or adjunct of another persons.
Fraud is not an element
c.

d.

Control test –
i.
control, not mere majority or
complete stock control, but
complete domination not only of
finances but of policy and
business practice 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 f
its own;
ii.
such control must have been used
by the defendant to commit fraud
or wrong, to perpetuate the
violation of a statutory or other
positive legal duty, or dishonest
and unjust act in contravention of
plaintiff's legal right; and
iii.
the aforesaid control and breach
of duty must proximately cause
the injury or loss complained of
Objective test – the end result is to make
the stockholders liable for the debts and
obligations of the Corporation and not the
other way around.

Corporations formed or organized under this Code may be
1) stock or
2) non-stock corporations.
Corporations which have
a) capital stock divided into shares and
b) are authorized to distribute to the holders of such
shares dividends or allotments of the surplus profits
c) on the basis of the shares held are stock corporations.
All other corporations are non-stock corporations. (3a)
Classification of Corporations:
A. Function
1. Public – organized for the government to
govern a portion of a State; governed by the
special law creating it
2. Private – organized for a private purpose;
governed by the Corporation Code and its
AOI and By-laws
B. Existence of shares
1. Stock – See Sec. 3
2. Non-stock – defined by exclusion (See also
Secs. 87 and 88)
Capital stock – the absolute amount specified in the AOI and is
available for subscription
Capital – represents the assets of the Corporation. It fluctuates,
maybe more or less, depending on the results of operation
Stock – an integral unit of the capital stock
C.

As a general rule, the buyer of corporate assets are not bound
to honor or assume the obligation of the seller except:
1. merger or consolidation
2. if the buyer us only an extension or continuation of
the corporate personality of the seller
3. if the sale of assets is made in bad faith
4. if the buyer assumes the obligation of the seller
There are only 6 cases where a director or officer may be held
solidarily liable with the corporation:
1. gross negligence or bad faith in directing the affair of
the corporation
2. assenting or consenting to a patently unlawful act
3. acquiring interest in conflict of his duty as a director
or officer
4. if he agrees to make himself solidarily liable with the
corporation
5. if by express provision of law he is made liable
6. issuance of watered stocks

D.

Legal status
1. De jure – a corporation that fully conforms
with the requirements for incorporation
under the law. A corporation in law and in
fact.
2. De facto – a corporation with a colorable
imitation or substantial compliance with the
requirements prescribed by law. A
corporation in fact but not in law.
3. By estoppel – if a group of person assumes
to be or represents themselves to be a
corporation when they have no legal
authority to do so and as such they are
precluded from denying their corporate
existence as regards to the 3rd persons who
relied on the representation.
4. By prescription – a corporation since time
immemorial have all the attributes and
powers of a corporation (e.g. Roman
Catholic Church)
Relationship of management and control
1. Parent – a corporation that owns shares in
another corporation. It has the power to
elect the board of directors of a subsidiary
or affiliate thru the ownership of shares
2. Holding – a corp that owns shares in various
companies for investment purposes
3. Subsidiary – if the parent owns shares in
another corp, if the investee is 50% or more
owned by the other corp

Section 3. Classes of corporations. –
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LATON

4.

E.

F.

G.

Affiliate – if the parent owns shares in
another corp, if the investee is less than
50% owned by the other corp
Place of Incorporation
1. Domestic – a corp formed organized and
existing under Philippine laws
2. Foreign – a corp formed organized and
existing under foreign laws AND whose
government allows Filipino citizens to do
business in their own country
Composition
1. Sole – a corp with only 1 corporator
2. Aggregate – at least 5 incorporators
Other classification
1. Open – shares are made available to the
public
2. Close – a corp whose AOI provides that (1)
the shares should be held by specified
number of persons not exceeding 20 and (2)
subject to certain restrictions on transfer of
shares and (3) whose shares are not
available for listing in the stock exchange
3. Religious
4. Educational

Corporation going public – the shares will be listed in the stock
exchange
Corporation going private – it will limit the number of shares to
a certain number of stockholders

Must be a natural person
except in case of a registered
cooperative or a rural bank
Majority must be Philippine
resident

May be a natural or juridical
person
No such requirement

Names in the AOI can never be amended!
Tri-level hierarchy
1. Stockholders – elect the BOD
2. BOD – appoints the corporate officers; exercises
corporate powers
3. Corporate officers – appoint employees of the
corporation; implements the policies laid down by the
BOD
Promoter – person who brings about the formation of the
corporation; he may or may not be an incorporator

Is the corporation bound by the contract entered into
by promoters? No, there is no corporation yet.
Subscriber/ stockholder – one who owns shares in the
corporation
Underwriter – one who sells security or shares in the
corporation
1. Firm commitment – shares acquired by the
underwriter are considered sold
2. Best effort – acts as an agent, shares not sold will be
returned to the corporation

Section 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or
charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable. (n)
Discussion:

GOCC with charter – Civil Service; not subject to SEC
except only to determine whether or not GOCC

Corporation organized under the Corporation Code –
RTC as special commercial court (corporate officers)
or Labor court (ordinary officers)

Government-acquired corporations – not subject to
rules of GOCC

Nationality of the corporation, how determined
1. Incorporation test – place of incorporation
2. Domiciliary test – where the corporation is located
3. Control test – the nationality of the stockholders
determines the nationality of the corporation, e.g.
60% of the capital

Case: "Capital" – all types of shares, in terms of
voting, management, finance, etc. (GAMBOA v.
TEVES, on MR)
Nationalized activities:

Section 5. Corporators and incorporators, stockholders and

100%
1.
2.

members. –
Corporators are those who compose a corporation, whether as
stockholders or as members.

3.
4.

Mass media
Retail and trade – if capital of the corporation
exceeds $2.5M, foreigners may be stockholders
Rice and corn
Security, watchman and detective agency

5.

Recruitment

6.

Advertising

7.
8.
9.
10.
11.
12.

Exploration of natural resources/mining
Public utility/transport service
Educational
Banks
Realty
Investment house

Incorporators are those stockholders or members mentioned in
the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called
members. (4a)
Incorporator
Signatory of the AOI
Always a corporator
Not less than 5 but not more
than 15 except in case of
corporation sole (1 only)

Corporator
x
Not always an incorporator
There is no limit except for a
close corporation (20 only)

75%

70%

60%

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LATON

Foreigners cannot occupy any executive position in any
corporation engaged in a nationalized activity, whether wholly
or partly nationalized
GRANDFATHER RULE – a method to determine the nationality
of the corporation by making reference to the nationality of the
stockholders of the investor corporation
DOUBLE 60% RULE – in case of registered enterprise
corporations under the Foreign Investments Act of 1991, 60%
of the stockholders must be Filipinos and 60% of the BOD must
be Filipinos

Section 6. Classification of shares. –
The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or
series of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except
those classified and issued as
1) "preferred" or
2) "redeemable" shares, unless otherwise provided in
this Code:
Provided, further, That there shall always be a class or series of
shares which have complete voting rights. (COMMON SHARES)
Any or all of the shares or series of shares may
1) have a par value or
2) have no par value as may be provided for in the
articles of incorporation:
Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be
given preference
1) in the distribution of the assets of the corporation in
case of liquidation and
2) in the distribution of dividends, or
3) such other preferences as may be stated in the
articles of incorporation which are not violative of
the provisions of this Code:
Provided, That preferred shares of stock may be issued only
with a stated par value.
The board of directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof:

Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with
the Securities and Exchange Commission.
Shares of capital stock issued without par value
1) shall be deemed fully paid and non-assessable and
the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
2) Provided; That shares without par value may not be
issued for a consideration less than the value of five
(P5.00) pesos per share:
3) Provided, further, That the entire consideration
received by the corporation for its no-par value

shares shall be treated as capital and shall not be
available for distribution as dividends.
A corporation may, furthermore, classify its shares for the
purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of incorporation
and stated in the certificate of stock, each share shall be equal
in all respects to every other share.
Where the articles of incorporation provide for non-voting
shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following
matters:
1) Amendment of the articles of incorporation;
2) Adoption and amendment of by-laws;
3) Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4) Incurring,
creating
or
increasing
bonded
indebtedness;
5) Increase or decrease of capital stock;
6) Merger or consolidation of the corporation with
another corporation or other corporations;
7) Investment of corporate funds in another corporation
or business in accordance with this Code; and
8) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph,
the vote necessary to approve a particular corporate act as
provided in this Code shall be deemed to refer only to stocks
with voting rights. (5a)

Section 7. Founders' shares. –
Founders' shares classified as such in the articles of
incorporation may be given certain rights and privileges not
enjoyed by the owners of other stocks,
1) provided that where the exclusive right to vote and
be voted for in the election of directors is granted, it
must be for a limited period not to exceed five (5)
years
2) subject to the approval of the Securities and
Exchange Commission.
The five-year period shall commence from the date of the
aforesaid approval by the Securities and Exchange Commission.
(n)

Section 8. Redeemable shares. –
Redeemable shares may be issued by the corporation when
expressly so provided in the articles of incorporation.
1) They may be purchased or taken up by the
corporation upon the expiration of a fixed period,
2) regardless of the existence of unrestricted retained
earnings in the books of the corporation, and
3) upon such other terms and conditions as may be
stated in the articles of incorporation,
4) which terms and conditions must also be stated in the
certificate of stock representing said shares. (n)

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LATON

Section 9. Treasury shares. –
Treasury shares are shares of stock
1) which have been issued and fully paid for,
2) but subsequently reacquired by the
corporation by
a. purchase,
b. redemption,
c. donation or
d. through some other lawful means.

issuing

Such shares may again be disposed of for a reasonable price
fixed by the board of directors. (n)
Classification of shares
1. Common and Preferred
2. Par Value and No Par Value
3. Voting and Non Voting
4. Founder's
5. Redeemable
6. Treasury
7. Watered
8. Other Classifications as may be provided for in the
AOI
Street Certificate
a. indorsed in blank by the stockholder (quasinegotiable instrument)
b. held by a stock broker for the benefit of a client
Common – shares not accorded with any special privileges,
rights, except that they always have the right to vote and be
voted
Preferred –
1. As to assets – in case of dissolution and liquidation,
they get the assets of the corporation ahead of the
common shares; they are given priority or preference
with respect to distribution of assets
2. As to dividends – they have to be paid ahead of the
holders of common shares; they are not absolutely
entitled, it depends on the availability of surplus
profits; they are not creditors
a. Cumulative – the right to receive dividends
are carried over to the succeeding year
(accrued)
b. Non-cumulative – the right to receive
dividends only in the year the dividends
were declared; if no declaration made,
extinguished
c. Participating – can participate in the
residual dividends with the holders of the
common shares
d. Non-participating – not allowed to
participate in the residual dividends
Preferred shares are not bonds or borrowing instruments. The
relationship between the holders of the preferred shares to the
corporation is different from the relationship of the corporation
with the bond holders or creditors
Par Value – the assigned value for the share determined by the
BOD indicated in the stock certificate and in the AOI

Book Value – actual value of share based on the
finances and capital of the corporation (Formula:
Capital or Net worth / # of outstanding shares)

FMV – the value in which the seller is willing to sell
and a buyer is willing to buy without any compulsion

Par value is a limitation on the amount of the shares
to be issued by a corporation, not to the shares sold
or transferred by the stockholder to another
Par value is the minimum amount for which the
corporation may issue shares
Corporation cannot issue value below par; otherwise,
watered shares
Stockholder can sell his share below par



No Par Value –

a corporation cannot issue a No Par value share
below P5.00; in Par Value shares, the minimum is 1
centavo

Limitations on the issuance of No Par Value shares
1. shall be deemed fully paid and nonassessable and the holder of such shares
shall not be liable to the corporation or to
its creditors in respect thereto:
2. That shares without par value may not be
issued for a consideration less than the
value of five (P5.00) pesos per share:
3. That the entire consideration received by
the corporation for its no-par value shares
shall be treated as capital and shall not be
available for distribution as dividends.
4. That banks, trust companies, insurance
companies, public utilities, and building and
loan associations shall not be permitted to
issue no-par value shares of stock.
5. That preferred shares of stock may be
issued only with a stated par value.
Voting/ Non-Voting –

Common shares cannot be denied the right to vote or
be voted

Treasury shares, by their nature, cannot vote or be
voted

Shares that may be deprived the right to vote:
1. Preferred
2. Redeemable

In computing, exclude the non-voting shares when
the law requires at least 2/3 of the outstanding
capital stock
Founder's –

accorded certain rights and privileges that are not
given to ordinary shares IF AUTHORIZED BY AOI

must be classified as such IN THE AOI

The 5-year limitation, with regard the exclusive right
to vote and be voted subject to the approval of the
SEC, is reckoned from the date of said approval
Redeemable –
1. Compulsory – if the corporation has no choice but to
redeem the shares UNLESS it will result in the
insolvency of the corporation
2. Optional – there is no mandatory obligation on the
part of the corporation to redeem the shares
SEC issued a regulation that any corporation issuing
redeemable shares must set up a savings fund. Savings fund in
the sense that every year until the term arise, the corporation
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LATON

Instances when a corporation may reacquire shares even without U.INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS Section 10. apply Section 9: shares can be reissued. Corporate term. 6|P LATON . when shares are redeemable 2. arising out of unpaid subscription. they form part of the treasury shares. – Stock corporations incorporated under this Code SHALL NOT BE REQUIRED TO HAVE ANY MINIMUM AUTHORIZED CAPITAL STOCK except 1) as otherwise specifically provided for by special law. – The corporation has to have money on top of the legal capital. in accordance with this Code. and 2) subject to the provisions of the following section. apply Section 8: shares are retired by redemption.E 1. TITLE II . they can no longer declare dividends. Once redeemed. and to purchase delinquent shares sold during said sale. can no longer be reissued unless reissuance is expressly authorized by the AOI  If the shares are reacquired other than redemption. a corporation may acquire its own shares ONLY IF it has unrestricted retained earnings  no need for a provision in the AOI to acquire its own shares. Appraisal right – the right of the stockholder to dissent from a proposed corporate act and demand the payment of the fair value of the shares (See Sec. such is called surplus profits. A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. – Any number of 1) natural persons 2) not less than five (5) but not more than fifteen (15). The corporate term as originally stated in the articles of incorporation may be extended for periods 1) not exceeding fifty (50) years 2) in any single instance 3) by an amendment of the articles of incorporation. Minimum capital stock required of stock corporations. To collect or compromise an indebtedness to the corporation. Mere board approval suffices  may be reissued by the Corporation upon approval of the BOD. Number and qualifications of incorporators. they are no longer outstanding. when it is a close corporation Each of the incorporators of a stock corporation  must own or be a subscriber to at least one (1) share of the capital stock of the corporation. approval of the BOD by at least majority vote and by the vote of the stockholders representing at least 2/3 of the outstanding capital stock or in case of a non-stock. To eliminate fractional shares arising out of stock dividends. (6) No limit as to number of extensions Extension of corporate term entails an amendment in the AOI thus. and 3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code. 2. in a delinquency sale. thus. unless there are justifiable reasons for an earlier extension b. 41) 1. "Other lawful means" (See Sec. (6a) Once reverted to the corporation. Qualifications 1) natural persons – except in case of a cooperative as regards rural banks (but still through a representative) 2) not less than five (5) but not more than fifteen (15) – except in case of a corporation sole 3) a majority of whom are residents of the Philippines – except when engaged in a nationalized activity 4) all of legal age Citizenship is NOT a requirement except if the corporation is engaged in a nationalized activity SEC & DOJ: GRANDFATHER RULE will only apply if the percentage of share ownership of Filipinos is less than 60% of the investor corporation Trust Fund Doctrine – the legal capital of the corporation which cannot be touched or impaired because it is intended for the benefit of the creditors.must allocate or earmark or segregate certain funds to be able to meet the cost of redemption 3) 4) all of legal age and a majority of whom are residents of the Philippines. Thus. 2/3 of the members Section 12. The law says there is no need to have surplus profit or retained earnings to effect the redemption may form a private corporation for any lawful purpose or purposes. 81) POINT OF CLARIFICATION:  If the shares are redeemed.R. as may be determined by the Securities and Exchange Commission. That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) a. 4) Provided. This cannot be used to acquire treasury shares Section 11. they are retired (cease to exist) unless reissuance is expressly authorized by the AOI Treasury –  as distinguished from redeemable shares.

at least twenty-five (25%) of the total subscription has been fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least twenty-five (25%) percent of the said subscription. Insurance company 5. there are certain corporations that are required to have a minimum capital. the amount of its capital. 5) The names. and b.4B 3.000. there is no minimum authorized capital stock Under the 25-25 Rule. except as otherwise prescribed by this Code or by special law: 1) The name of the corporation. and d. it is not always required to pay up the subscription  GR: Partial payment is allowed for as long as the first tranche represent at least 25% of the total subscription  XPN: Must be fully paid a. Contents of the articles of incorporation." xxx 7|P LATON . such fact must be stated. Provided. No Par Value shares b. Forms of Articles of Incorporation.00) pesos. and c. c. b.3) The place where the principal office of the corporation is to be located. if some or all of the shares are without par value. That in no case shall the paid-up capital be less than five Thousand (P5. 8) If it be a stock corporation. 4) The term for which the corporation is to exist. and the amount subscribed and paid by each on his subscription.000. Commercial bank 2. upon call for payment by the board of directors: Provided. nationalities and residences of the original subscribers. 2) The specific purpose or purposes for which the corporation is being incorporated. Amount of capital stock to be subscribed and paid for the purposes of incorporation. the balance to be payable 1) on a date or dates fixed in the contract of subscription without need of call. nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code. and 10) Such other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient. which must be within the Philippines. – All corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and acknowledged by ALL OF THE INCORPORATORS. 9) If it be a non-stock corporation.00) pesos.95B 2. such paid-up capital being not less than five thousand (P5. xxx ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino citizens shall provide the following): "No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws shall be allowed or permitted to be recorded in the proper books of the corporation and this restriction shall be indicated in all stock certificates issued by the corporation. the number of shares into which it is divided. Section 15. e. 42) b. Non-Resident Foreign Subscriber unless it is secured by a surety undertaking made by a Filipino resident The corporation cannot declare dividends out of the subscribed capital stock Section 14. which shall not be less than five (5) nor more than fifteen (15). a. Investment company If there is no special law. and 2) at least twenty-five (25%) per cent of the total subscription must be paid upon subscription. the articles of incorporation shall state which is the primary purpose and which is/are the secondary purpose or 1 purposes: (See Sec. 1 Investment of corporate funds in the secondary purpose requires stockholders' approval by 2/3 of the outstanding capital stock The Securities and Exchange Commission shall not accept the articles of incorporation of any stock corporation  unless accompanied by a sworn statement of the Treasurer elected by the subscribers showing that a. at least twenty-five (25%) percent of the authorized capital stock of the corporation has been subscribed. or (Demand is not necessary to put the obligor in default) 2) in the absence of a fixed date or dates. Where a corporation has more than one stated purpose. 7) The names. however. the amount of its authorized capital stock in lawful money of the Philippines. in case the share are par value shares. b. a. the names. the par value of each. nationalities and residences of the contributors and c. – 1) At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation.: 1. Thrift bank 325M/52. Section 13. nationalities and residences of the incorporators. Universal bank 4. (n) Under certain special laws.5M 4. 6) The number of directors or trustees. the amount contributed by each. the names. containing substantially the following matters. a. That a non-stock corporation may not include a purpose which would change or contradict its nature as such.g.

(include when it was approved) 3) shall be submitted to the Securities and Exchange Commission. Treasurer's Affidavit – proof of compliance. amending the AOI that concerns the increase of capital stock 4. (CERTIFICATE OF AMENDMENTS) 1) Such articles. 6) educational institutions. Bank Certification – showing money is in the hands of the treasurer. upon incorporation b. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. within 1 month from approval of incorporation 3. and 7) other corporations governed by special laws shall be accepted or approved by the Commission UNLESS accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law. With respect to the board approval. Section 17. 19) The following are grounds for such rejection or disapproval: 1) That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein. fraud or misrepresentation in filing the AOI or in procuring certificate of registration/incorporation 2. Corporate name. an endorsement from the appropriate government agency 8.. and 2) a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members. 4) That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. any provision or matter stated in the articles of incorporation may be amended 1) by a majority vote of the board of directors or trustees and (ENTIRE BOARD) 2) the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. Grounds when articles of incorporation or amendment may be rejected or disapproved. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. 3) That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid is false. and for legitimate purposes. confusing or contrary to existing laws. banking and quasi-banking institutions. Provided. 8|P LATON . (n) Section 17 is not exclusive.  it would be easy on the part of the corporation to evade service of process. 4) insurance companies. illegal. Payment of Fees The amendments shall take effect 1) upon their approval by the Securities and Exchange Commission or 2) from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. – Unless otherwise prescribed by this Code or by special law. Name Verification Slip – an undertaking to change the name if it is identical or similar to an existing corporate name (See Sec. 5) public utilities. non-filing of by-laws within one month from incorporation Section 18. Company data maintenance sheet 7. By-laws (See Sec. Other possible grounds: 1. deposit in the name of the "treasurer in trust for the corporation" 5. immoral. No articles of incorporation or amendment to articles of incorporation of 1) banks. Place where the principal office of the corporation is to be located – Test: the place where the books are kept and where the meeting is held must be consistent with what appears in the AOI  for purposes of venue in filing an action (the principal place in the AOI. to be with the AOI b. – No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is 1) identical or deceptively or confusingly similar to that of any existing corporation or 2) (identical or deceptively or confusingly similar) to any other name already protected by law or 3) is patently deceptive. 46) a. – The Securities and Exchange Commission may 1) reject the articles of incorporation or 2) disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: a. as amended shall be indicated by underscoring the change or changes made. 2) That the purpose or purposes of the corporation are patently unconstitutional. 2 situations when needed: a. 2) building and loan associations. 18) 6. In case of special corporation. That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. 3) trust companies and other financial intermediaries. Amendment of Articles of Incorporation. 3) or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. a. it is indispensable that there be a board meeting.Documents needed: 1. SEC will issue a certificate of registration which is the operative date by which a corporation acquires legal personality (See Sec. or contrary to government rules and regulations. Articles of Incorporation 2. it will just keep on changing the principal office of the corporation Section 16.

its corporate powers cease and the corporation shall be deemed dissolved. (n) DOCTRINE OF SECONDARY MEANING – if the generic word has become distinctive such that it is associated with the mind of the public as it has been sourced or manufactured by a person or a corporation then it is entitled to protection under the law Requisites: 1. violation of Code 3. it is deemed organized Other grounds to suspend or revoke corporate franchise: 1. cannot resist performance thereof on the ground that there was in fact no corporation. Non-submission of reports 4. Obligations of a corporation under the old name will be absorbed by the same corporation under the new corporate name Section 19. – 1) If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation. it shall not be allowed to use as a defense its lack of corporate personality. Corporation by estoppel. – A private corporation formed or organized under this Code commences to have corporate existence and juridical personality and is deemed incorporated  from the date the Securities and Exchange Commission issues a certificate of incorporation under its official seal. (n) There is NO de facto corporation unless there is a certificate of incorporation issued by the SEC which presupposes the filing of AOI Stockholders of such corporation have the same rights and subject to the same obligations of stockholders of a de jure corporation Section 21. majority of the residences of the incorporators 2. failure to submit by-laws 2. the one who opposes the use of the corporate name must have acquired a prior right over such corporate name (through registration from filing with the SEC 2.When a change in the corporate name is approved.  Such inquiry may be made by the Solicitor General in a quo warranto proceeding. 2) However. unless said period is extended or the corporation is sooner dissolved in accordance with law. (n) Section 20. if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years. treasurer's affidavit is false 3. non-submission of by-laws Section 23. and its right to exercise corporate powers. (n) Only those who made representations! So. all business conducted and all property of such corporations controlled and held by the board of directors or trustees 2 certain powers are reserved for the stockholders solely. however. or jointly with the BOD 9|P LATON . (19a) This provision shall not apply if the failure to organize. the Commission shall issue an amended certificate of incorporation under the amended name. – 1) 2) 3) The due incorporation of any corporation (VALID LAW) claiming in good faith to be a corporation under this Code. information indicated in the AOI inaccurate 4. Commencement of corporate existence. is a de jure corporation except that the State reserves the right to question its corporate existence through a quo warranto proceeding Other examples of infirmities resulting to de facto existence: 1. Effects on non-use of corporate charter and continuous inoperation of a corporation. fraud or misrepresentation TITLE III . De facto corporations. commence the transaction of its businesses or the construction of its works. 18. the corporate powers of all corporations formed under this Code shall be exercised. The board of directors or trustees. – 1) 2) 3) 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. 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. and thereupon the incorporators. – 2 Unless otherwise provided in this Code . That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such. or to continuously operate is due to  causes beyond the control of the corporation as may be determined by the Securities and Exchange Commission. liabilities and damages incurred or arising as a result thereof: Provided. See Enumerations under Sec. On who assumes an obligation to an ostensible corporation as such. the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. When the corporation appoints the board and the board appoints the corporate officers within 2 years.BOARD OF DIRECTORS/TRUSTEES AND OFFICERS A de facto corporation for all intents and purposes. anyone who benefited from the transaction The doctrine cannot be invoked when there is no 3rd party involved Section 22. shall not be inquired into collaterally in any private suit to which such corporation may be a party.

merger or consolidation 8. power to increase or decrease capital stock. (questions of policy)  remedy: removal with or without cause. upon assumption of office *acquisition is not a mode for the election or appointment of a director *when legal title is lost then the director automatically losses his seat *a trustee can qualify as a director even if he is not a full owner because it is the legal title that counts not the beneficial title 4. b. as indicated in the by-laws. in his own name on the stock books of the corporation. ownership of at least 1 share registered in his name in the books. Any transaction not authorized by the board is ultra vires or beyond the authority of the corporation. The officer concerned is duly authorized by the board for that purpose Powers of the BOD in a hold over period: Same as regular BOD BUSINESS JUDGMENT RULE – stockholders or the courts cannot interfere with the BOD on how to run the affairs of the corporation. which share shall stand in his name on the books of the corporation. power to extend or shorten corporate term 4. (Relevant to Sec. majority must be Philippine residents except when engaged in nationalized activity (if 100%) Disqualifications: See Sec. as well as under the By-laws 4 Qualifications under the Code: 1. 2) A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines.1) 2) to be elected from among the holders of stocks. it will be considered as expiration of term NOT resignation. dissolution Majority of the board of directors (quorum) + Majority of stockholders (outstanding shares) 1. (generally viva voce) In stock corporations. at the time fixed in the by-laws. a. natural person except cooperative 2. e. or where there is no stock. – At all elections of directors or trustees. not less than 5 nor more than 15 except in case of corporation sole (only 1) or in case of merger or consolidation (up to 21) or non-stock (more than 15) except educational (up to 15) 5. if there be no capital stock. unenforceable. create or increase bonded indebtedness 5. as well as under the By-laws 2. derivative suit. incur. thus. or b. either in person or by representative authorized to act by written proxy. power to enter into management contract Note: See Section 44 Section 24. or he may distribute them on the same principle among as many candidates as he shall see fit: (apportion) d. 1) every stockholder entitled to vote shall have the right to vote in person or by proxy 2) the number of shares of stock standing. who shall hold office for one (1) year until their successors are elected and qualified. from among the members of the corporation. All the qualifications under the Code. Henry Sy) . Board resolution that the transaction has been approved by the board 3 Not a fresh term! In case the director resigns. *Trustees of non-stock corporations must be members thereof. such number of shares for as many persons as there are directors to be elected (spread) b. 2) The election must be by ballot if requested by any voting stockholder or member.g. The following must be required: 1. sale or other dispositions of substantially all or all assets 6. or a. Qualifications of a BOD: 1. That the total number of votes cast by him shall not exceed the number of 5 If meeting will deal on other matters. don't elect next time Majority of the entire board + 2/3 stockholders 1. at the time of the election. not necessarily paid up! 10 | P LATON . you need a higher number of those present if the Code requires such 6 Subscribed. or c. None of the disqualifications under the Code. 27. Provided. a. and 3) said stockholder may vote 6 a. 2. legal age 3. c. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. where the by-laws are silent. power to invest corporate funds in another corporation or for any other (secondary) purpose 7. (28a) (HOLD 3 OVER CAPACITY) Every director 1) must own at least one (1) share of the capital stock of the corporation of which he is a director. 29) 4 By laws may expand the qualifications as long as it is not intended to deprive minority representation. a majority of the members entitled to vote. 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. b. the owners of a majority of the outstanding capital stock 5 (may only be 1. adoption or amendment of by-laws 3. amendment of AOI 2. (continuing qualification) When required to own? a. Election of directors or trustees. 1) there must be present.

C. stock and other securities exchange/s Must not be: 1. (non-voting shares shall also be excluded) Unless otherwise provided in the articles of incorporation or in the by-laws. No foreigner will be allowed to occupy an executive position  SEC: President cannot be chairman  Foreigner can be a chairman if such position is nonexecutive  Secretary must be a Filipino. 8 2) a treasurer who may or may not be a director. broker and dealers of securities 6. Candidates receiving the highest number of votes shall be declared elected. of shares x 15 Section 25. power to increase or decrease capital stock. investment co 7.shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided. acting as a nominee or representative of a subs SH 4. Directors or trustees cannot attend or vote by proxy at board meetings.O. 7 He must have all the qualifications and none of the disqualifications of a director 8 SEC: must be a resident 3) 4) a secretary who shall be a resident and citizen of the Philippines. See also other qualifications according to the SEC  Treasurer need not be a citizen but must be a resident  Treasurer can be a secretary  General counsel may be a secretary  Vice president not required to be a stockholder unless it takes the place of the president  Other positions: controller Importance in determining whether one is a corporate officer or an ordinary officer: 1) jurisdiction: a. investment houses 5.: required by the by-laws b. public companies or those with assets of at least 50M and having 200 or more holders each holding at least 100 shares 3. o. create or increase bonded indebtedness (+ SH 2/3) 11 | P LATON . except that no one shall act 1) as president and secretary or 2) as president and treasurer at the same time. members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. or if there be no capital stock. Computation is still no. Unless the articles of incorporation or the by-laws provide for a greater majority. (33a) Points to remember:  The president is required to be a Filipino citizen if the corporation is engaged in a nationalized activity. wholly or partly. The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. retained as professional adviser 6.: Labor dispute = Labor court 2) manner of creation: a.  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. That no delinquent stock shall be voted. O. subs SH 3.O: created by the BOD Majority "of the entire board" or "of the board" 1. – Immediately after their election. incur. engaged in any transaction with the corporation or with any of its company or with any of its subs SH The law does not mandate the stockholders to vote for independent directors There will still be only one election held. for any reason. at the meeting. a majority of the member entitled to vote. 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. a director or officer or substantial stockholder 2. adoption or amendment of by-laws (+ SH majority) 3. (31a) INDEPENDENT DIRECTORS – requirement of at least 2 independent directors for 1. 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. who shall be a director. amendment of AOI (+ SH 2/3) 2. however.  except for the election of officers which shall require the vote of a majority of all the members of the board. no election is held. Corporate officers. O. subsidiaries or branches of foreign corporations which operate in the Philippines and are listed in the PSE 9.: Intra-corporate controversy = RTC as special commercial court b. power to extend or shorten corporate term (+ SH 2/3) 4. issuers of registered securities to the public whether or not listed in the PSE 2. and such other officers as may be provided for in the bylaws. C.O. quorum. pre-need co 8. or if there are not present or represented by proxy. finance co 4. a relative of any d.O. Any two (2) or more positions may be held concurrently by the same person. employed in any exec capacity 5. the owners of a majority of the outstanding capital stock. under the Anti-Dummy Law. the directors of a corporation must formally organize by the election of 7 1) a president.

delegation of powers to the executive committee "Majority of the directors" (quorum) 1. power to invest corporate funds in another corporation or for any other (secondary) purpose (+ SH 2/3) 7. by a vote of at least two-thirds (2/3) of the members entitled to vote: 2) Provided. dissolution 9. the secretary. 2) shall submit to the Securities and Exchange Commission. trustees and officers of the corporation. and in either case. 12 | P LATON . or. power to enter into management contract (+ SH majority) 4. if it be a non-stock corporation. shall qualify as a director. resign or in any manner cease to hold office. or  if there is no secretary. a. expiration or increase in number of directors 5. or any of them.Within thirty (30) days after the election of the directors. appointment or removal of corporate officers 10. trustees or officers. Removal may be with or without cause: Provided. and officers elected. declaring stock dividends (+ SH 2/3) 3. 3) 4) after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. 1) the secretary. or the director. the names. sale or other dispositions of substantially all or all assets (+ SH 2/3) 6. trustee or officer die. merger or consolidation 8. declaring cash dividends 2. trustees and officers. may be filled by the vote of at least a majority of the remaining directors or trustees. Should a director. or if the corporation be a non-stock corporation. Report of election of directors.5. Vacancies in the office of director or trustee. election. b. his heirs in case of his death. sale mortgage or other dispositions in ordinary course of business Section 26. That such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose. 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. as well as of the intention to propose such removal. nationalities and residences of the directors. trustees. a. said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. 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. trustee or officer of any corporation. on the written demand of a majority of the members entitled to vote. A director or trustee so elected to fill a vacancy shall be elected only or the unexpired term of his predecessor in office. shall immediately report such fact to the Securities and Exchange Commission. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees. (n) Section 28. (n) General Information Sheet – controlling as to the names of directors elected Section 27. – No person 1) convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code. investment for primary purpose 6. – Any director or trustee of a corporation may be removed from office 1) by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock. otherwise. a. Disqualification of directors. Removal of directors or trustees. or any other officer of the corporation. if still constituting a quorum. b. – Any vacancy occurring in the board of directors or trustees OTHER THAN 1) by removal by the stockholders or members or 2) by expiration of term. or any other officer of the corporation. Should the secretary  fail or refuse to call the special meeting upon such demand or  fail or refuse to give the notice. b. trustee or officer himself. must be given 1) by publication or 2) by written notice prescribed in this Code. . There must be notice of the intention to remove!  The replacement may be appointed by the stockholders in the same meeting where the removal was effected or in a meeting called for the purpose of electing a replacement Section 29. (n) Important points:  The provisions in the by-laws contrary to this Section will not justify the acts of the BOD in removing a director  the power to remove belongs solely to the stockholders  Removal of a director cannot included as other matters. or 2) a violation of this Code committed within five (5) years prior to the date of his election or appointment. filling up vacancies not due to removal. Notice of the time and place of such meeting.

g.  any interest adverse to the corporation  in respect of any matter which has been reposed in him in confidence. 13 | P LATON . or in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting. – In the absence of any provision in the by-laws fixing their compensation. however. shall be filled only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose. did not forthwith file with the corporate secretary his written objection thereto (Sec. acting as such corporate agents. 65) 5) When a director. Trust Receipts Law) 6) When a director. 1-3: 4) When a director has consented to the issuance of watered stocks or who. stockholders representing at least majority of the outstanding capital stock at a regular or special stockholders' meeting 3.g. having knowledge thereof. its stockholders or members and other persons. When a director. 31. (n)  In a broad sense. removal and increase in the number of board seats 2. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. (n) The stockholders in these cases has the power to fill up vacancies: 1. (b) diligence. as such directors. Term of the replacement director: unexpired portion Section 30. trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation (e. personal liability may be incurred by directors and officers: In no case shall the total yearly compensation of directors.3) Any directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees a. 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 LIMITATION: Must not exceed 10% of the net income before income tax of the corporation during the preceding year The limitation does not apply to payment of compensation for other services meaning it was rendered in a capacity other than as a director Section 31. (n) In addition to Sec. 1 and the remaining directors constitute a quorum the directors but they decided to delegate the matter or responsibility to the stockholders The board is NOT obligated to fill up the vacancy. Example: director as president Per diem –  allowance for the attendance during the meetings  must be reasonable  Enumeration is EXCLUSIVE. trustee or officer  attempts to acquire or acquires. due to expiration of term. as such directors.  the directors shall not receive any compensation. – Directors or trustees 1) who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation or 2) who are guilty of gross negligence or bad faith in directing the affairs of the corporation or 3) 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. by-laws 2. trustee or officer is made. are not theirs but the direct accountabilities of the corporation they represent XPN: In the following cases. by specific provisions of law. surety or guarantor) Compensation – any form of remuneration GR: No compensation because of the presumption that the return of their investment is enough compensation. Liability of directors. personally liable for his corporate actions (e. 1 but the remaining directors do not constitute a quorum 3. he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.  Conflict of interest per se is not a ground for liability: Doctrine of Corporate Opportunity – The duty of loyalty mandates that directors should not give preference to their own personal amelioration by taking the opportunity belonging to the corporation. directors and officers are not solidarily liable with the corporation.  except for reasonable per diems: Provided. management has threefold duties namely.  as to which equity imposes a disability upon him to deal in his own behalf. b. and (c) loyalty  GR: As a rule. Compensation of directors. OR when they render services to the corporation other than as director a.  in violation of his duty. Not due to No. (a) obedience. Not due to No. XPN: provided that it has been authorized by the 1. Obligations incurred by them. trustees or officers.

That in case of an officer. at the option of such corporation. That the contract is fair and reasonable under the circumstances. That the contract is fair and reasonable under the circumstances. Contracts between corporations with interlocking corporation. 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. even if not all the requirements are met. (n)  Self-dealing directors. Disloyalty of a director. – Where a director. and 3) is one in which the corporation has an interest or a reasonable expectancy  The burden of proof on the questions of good faith. the contract is valid if the requirements for its validity under Section 32 are present  However. o he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. 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. However. 2. (n) 14 | P LATON . This provision shall be applicable. trustee or officer may still be ratified by a vote of stockholders representing at least 2/3 of the Outstanding Capital Stock or by the vote of at least 2/3 of the members in a meeting called for the purpose provided the following conditions are met: 1) There must be full disclosure of the adverse interest of the directors or trustees involved is made at such meeting 2) the contract is fair and reasonable under the circumstances   The corporation may choose to ratify the acts of the director  Property or business opportunity ceases to be a corporate opportunity and is transformed into personal opportunity where the corporation is definitely no longer able to avail itself of the opportunity Discussion: When may a corporate officer bind the corporation? 1) Authorized by the By-Laws 2) Authorized by the Board of Directors 3) If not authorized by By-Laws nor the Board. trustees or officers o It is discouraged because the directors. the contract has been previously authorized by the board of directors. unless all the following conditions are present: 1. There is an obligation on the part of the director or officer to hold the profit in trust for the benefit of the corporation (Sec. Where any of the first two conditions set forth in the preceding paragraph is absent. – 1) Except in cases of fraud. If there is an interest that belongs to the corporation. however. it must not be seized or taken advantage of by the director or officer. the act can be ratified by the Board 4) Doctrine of Apparent Authority (must be related to his function) Section 32. That the vote of such director or trustee was not necessary for the approval of the contract. or officers are those who personally contract with the corporation in which they are directors. income or profit earned by that venture or undertaking must be fully accounted for and remitted to the corporation. Dealings of directors. trustees or officers with the Section 33. fair dealing and loyalty of the officer to the corporation should rest upon the officer who appropriated the business opportunity for his own advantage  The theory is that profits made and advantage gained by an agent belongs to the principal such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: 1) Provided. and 2) provided the contract is fair and reasonable under the circumstances. and 4. notwithstanding the fact that the director risked his own funds in the venture. trustees and officers have fiduciary relationship with the corporation and there can be no real bargaining where the same is acting on both sides of the trade  The contract between the corporation and the self-dealing director. 2) from its nature. otherwise any interest. directors. That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: 2) Provided. – A contract of the corporation with one or more of its directors or trustees or officers is VOIDABLE. 1) acquires for himself a business opportunity which should belong to the corporation. the contract with the self-dealing director. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. (n)  Section 34 applies if the corporate/business opportunity: 1) is one which the corporation is financially able to undertake.  UNLESS his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. by virtue of his office. he must account to the latter for all such profits by refunding the same. in the case of a contract with a director or trustee. a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone:  Provided. 34)  Section 34. 3. 2) thereby obtaining profits to the prejudice of such corporation. is in line with corporation's business and is of practical advantage to it. trustee or officer is voidable. trustees.

 Section 35 provides that an executive committee must be composed of not less than three members of the board. said contracts must be fair and reasonable under the circumstances o If the contract is fair and reasonable.   Interlocking directorship by itself is not prohibited under the Corporation Code. the filing of vacancies in the board. except if there is a contrary provision (e. There is an interlocking director in a corporation when one (or some or all) of the directors in one corporation is (or are) a director(s) in another corporation 5. by majority vote of all its members. on such specific matters within the competence of the board. Said committee may act. a contract between the two corporations shall be valid. This rule does not apply if the corporation allegedly prejudiced is a third party.B. the BOD can create such by mere board approval. not one of the corporations with interlocking directors o The option to nullify the contract belongs to the parties to the contract (stockholders. o How about in non-banks? Allowed. to be appointed by the board. They cannot vote. o SEC Opinion. provided their function is merely recommendatory or advisory in nature. the by-laws may contain provisions that disallow interlocking directorship in certain cases. 3. Executive committee. cannot create an executive committee if nothing is stated in the by-laws o GR: The board alone or the board per se cannot create a mini board or a committee that will function as BOD o XPN: 1) the by-laws may authorize the creation of the executive committee 2) the BOD pursuant to an authority under the by-laws may likewise create an executive committee  TEST: Will that committee perform board functions? Will that committee act on matters according to the board competence? If yes. then it requires authority in the by-laws. approval of any action for which shareholders' approval is also required. If it does not perform the functions of the board and is for administrative purposes only. the amendment or repeal of by-laws or the adoption of new by-laws. by itself. – The by-laws of a corporation may create an executive committee. if the conditions under Section 32 are present  The Corporation Code allows the creation of an executive committee because the board may not readily face the contingency of confronting urgent matters which requires its attention  Contract between corporations with interlocking directors/trustees must always meet the third condition. corporations) only and not to a third party The executive committee can only be created by virtue of a provision in the by-laws. as may be delegated to it in the by-laws or on a majority vote of the board. the absence of either the first or second condition makes the contract voidable and capable of ratification   Section 33 which provides for rules regarding transactions between corporations with interlocking directors applies if the contract results in prejudice to one of the corporations. Distribution of stock dividends falls under the first exception  If the interest of the interlocking director in one of the corporations is nominal in one and substantial in the other. The resolutions passed and approved by the executive committee are as valid as the resolutions of the   Interlocking directors are not allowed between banks. directors. November 5. quasi-banks. that is. to be appointed by the board. the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable. 4. However.  composed of not less than three members of the board. EXCEPT with respect to: (Limitations) 15 | P LATON . insurance companies without prior BSP approval.g. 1984: The required majority vote requirement for an executive committee shall be interpreted to mean majority of all the committee members regardless of the classification of the membership into director/members or non-director/members  A foreigner can be a member of the executive committee in proportion to the foreign shareholdings in the corporation  The executive committee has all the authority of the board to the extent provided in the resolution of the board or in the by-laws. The board. N. A contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone 2. investment houses. Gokongwei) SUMMARY – For a contract between 2 corporations with interlocking directors to be valid: 1) there is no fraud 2) the contract if fair and reasonable 3) the interest of the interlocking director in one corporation is substantial and his interest in the other corporation is merely nominal 4) compliance with the requirements in Section 32 in so far as the nominal corporation is concerned Section 35.1. and a distribution of cash dividends to the shareholders. This means that there can be members of the executive committee who are not directors provided that at least three members are directors o Can non-board directors be members? Yes.

one instance when a seal is necessary is with respect to the certificate of stock as provided for under Section 63 (merely directory not mandatory. Right to have a corporate name c.  The general powers under Section 36 and ii. trustees. That no corporation. and to admit members to the corporation if it be a non-stock corporation. civic. It includes: a.board provided the resolutions have been made at the time the committee is constituted  i. or similar purposes: Provided. take or grant. Right to sue and be sued e. 8. The Corporation Code. However. 3. Administrative regulations. lease. 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. device adopted by the corporation to distinguish it from other corporations Under the Corporation Code. (13a)  A corporation may exercise 1) Express powers – the powers expressly provided by the a. scientific. thus. 9. the members thereof may be considered de facto officers Read CASE OUTLINE in Marx. To adopt and use a corporate seal. the Supreme Court now requires corporations to attach a copy of the Board Resolution authorizing the filing of the complaint or petition The suit must be in the name of the corporation. cultural. The Articles of Incorporation and bylaws of the corporation Implied powers – all powers that are reasonably necessary or proper for the execution of the powers expressly granted and are not expressly or impliedly excluded Incidental powers – powers that are deemed conferred on the corporation because they are incidental to the existence of the corporation. Right to acquire and hold properties for the purposes authorized by the charter To sue and be sued in its corporate name This power is exercised by the corporation through the board. hold. It can be abdicated by the board of directors o SEC Opinion. and d. – Every corporation incorporated under this Code has the power and capacity: 1. the absence of such will not invalidate the certificate)  To amend its articles of incorporation in accordance with the provisions of this Code (not to adopt because AOI is required at the outset) Section 16  To adopt by-laws. 4. 7. and 11. To amend its articles of incorporation in accordance with the provisions of this Code. including securities and bonds of other corporations. 6. convey. 5. including those for the public welfare or for hospital. not contrary to law. Decisions of executive committee are not absolute. Hence. 16 and 37 to 44 b. To adopt by-laws. morals. However. domestic or foreign. mortgage and otherwise deal with such real and personal property. Right to make by-laws for its government d. Applicable special laws. CA)  Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation Section 11  To adopt and use a corporate seal A corporate seal is a sign. officers and employees. A document may be considered valid and binding even in the absence of a seal. In case of stock corporations. pledge. pages 57-70 TITLE IV . receive. shall give donations in aid of any political party or candidate or for purposes of partisan political activity. c. To enter into merger or consolidation with other corporations as provided in this Code. 1995: The decision of the executive committee is not subject to appeal to the board. sell. To purchase. Right to succession b. and to amend or repeal the same in accordance with this Code. charitable. To sue and be sued in its corporate name. not contrary to law. and other plans for the benefit of its directors. a seal is not indispensable for the transactions or contracts of the corporation. subject to the limitations prescribed by law and the Constitution. to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code. emblem.POWERS OF CORPORATIONS Section 36. and to amend or repeal the same in accordance with this Code Section 46 and 48 16 | P LATON . To establish pension. or public policy. The specific powers under Section 11. or public policy. 2. July 29. They are valid and unappealable. retirement. Corporate powers and capacity. To make reasonable donations. 10. as the transaction of the lawful business of the corporation may reasonably and necessarily require. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation. morals. It should use the complete name and not an acronym (LIDECO v. if the resolution of the executive committee is invalid (as for instance it is not one of the powers conferred thereto) it may be ratified by the board 2) 3)  If the executive committee was not validly constituted.

and (2) it will not prejudice third persons. take or grant. bonding company. Corporation cannot acquire alienable lands of public domain c. civic. civic. Foreign corporations are not allowed to acquire private lands in the Philippines unless 60% of its capital stock is owned by Filipinos b. etc. pledge. the corporation would be bound by the acts of the persons who are not its duly appointed and authorized agents and officers. law and b. to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code.  In case of stock corporations. By way of exception. cultural. 2) The donation must be for valid purposes including public welfare or for hospital. receive. trustees. shall give donations in aid of any political party or candidate or for purposes of partisan political activity Factors to determine reasonableness: 1) Income of the corporation 2) Capital/Assets of the corporation 3) Operations 4) Volume or magnitude of the donation  To establish pension. if such is contrary to the corporation’s purpose. you get ½ month salary for every year of service A corporation can act as a collection agent as long as it will not earn any commission or remuneration from that arrangement  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 ALL ENCOMPASSING A corporation cannot enter into a contract of partnership. Domestic corporation owned by Filipinos can lease a public land d. a corporation cannot act as an accommodation party in a negotiable instrument 17 | P LATON . In case of donations. 2) subject to the limitations prescribed by a. lease. or similar purposes:  Provided. and other plans for the benefit of its directors. e. Remedy: They assign the right to their lawyers. This limitation is based on public policy since in a partnership. or similar purposes. charitable. and the nature of the business venture to be undertaken by the partnership is in line with the business authorized by the charter or articles of incorporation of the corporation involved 2) The partnership must be a limited partnership and the corporation must be a limited partner 3) If it is a foreign corporation. such guaranty may be given in the accomplishment of any object for which the corporation was created. Bulk Sales Law   The Corporation Code now allows corporations to make donation so long as the following are complied with: 1) The donation must be reasonable. amend the AOI first before accepting. cultural. including securities and bonds of other corporations. including those for the public welfare or for hospital. and to admit members to the corporation if it be a non-stock corporation Sections 60-72 To purchase. hold. domestic or foreign. or when the particular transaction is reasonably necessary or proper in the conduct of its business Consistently. It can mortgage its properties to secure its obligations b. it must obtain a license to transact business in the country A corporation can enter into a joint venture agreement The general rule is that a corporation may not ordinarily be bound by a contract of guarantee or surety for the benefit of third persons. d. the SEC allows a corporation to be a partner if the following conditions are present: 1) The authority to enter into a partnership relation is expressly conferred by the charter or Articles of Incorporation of the corporation. 1) as the transaction of the lawful business of the corporation may reasonably and necessarily require. Parent can mortgage its properties to secure its subsidiary’s obligation IF (1) the latter is wholly-owned by the former. mortgage and otherwise deal with such real and personal property. scientific. That no corporation. the Constitution The power under this provision can be exercised by the Board without concurrence of the stockholders. charitable. It can act as an accommodation mortgagor IF it is engaged in the business of a surety. retirement. What are the basic requirements/limitations? 1) It must be reasonably and necessarily required by the transaction of the lawful business of the corporation a. officers and employees superior than what the law provides Article 27 of the Labor Code provides a default retirement plan: If 60 years of age and at least 5 years in service. which would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively. 3) The donation must not be in aid of any political party or candidate or for purposes of partisan political activity To enter into merger or consolidation with other corporations as provided in this Code Section 76 To make reasonable donations. Foreign banks can be a mortgagee but cannot foreclose properties. convey. Stockholder’s approval is necessary only in cases covered by Sections 40 and 42. 2) It is subject to limitations prescribed by law and the Constitution a. c. scientific. sell. However.

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. public utilities. 3) 4) 5) 6)  2) corresponding increase in capital stock– board approval suffices at a stockholder's meeting duly called for the purpose. The actual indebtedness of the corporation on the day of the meeting. and The vote authorizing the increase or diminution of the capital stock. there is nothing more to extend. if shortening will result in the corporation’s dissolution. setting forth: That the requirements of this section have been complied with. Power to increase or decrease capital stock. 2. c. or the amount of capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of making effective stock dividend therefor authorized. create or increase any bonded indebtedness unless 1) approved by a majority vote of the board of directors and. (n)  3) 4) Limitations on the power: 1) Done during the lifetime of the corporation a. nationalities and residences of the persons subscribing. countersigned by the chairman and the secretary of the stockholders' meeting. That in case of extension of corporate term. incur. created or increased. creating.g. 8.  One of the duplicate certificates shall be kept on file in the office of the corporation and 18 | P LATON . etc) Section 37. bonding company. If an increase of the capital stock. 5. two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock.A private corporation may extend or shorten its term as stated in the articles of incorporation 1) when approved by a majority vote of the board of directors or trustees and 2) ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. . create or increase bonded indebtedness. the names. or served personally Must not exceed 50 years at any given time Cannot be done earlier than 5 years or prior to the original or subsequent expiry date unless there are justifiable reasons for an earlier extension as may be determined by the SEC In case of banks. Appraisal right is available in extension AND shortening of corporate term (see Sec. surety. signed by a majority of the directors of the corporation and b. Entails amendment of the AOI therefore approval by the stockholders representing at least 2/3 of the OCS is required at a meeting b. However. 3) 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.o UNLESS it is engaged in such nature of business (e. . 6. or the incurring. or served personally: Provided. Power to extend or shorten corporate term. X expiration of term. For purposes of such stockholder’s meeting.  Consent of creditors not required The amount of stock represented at the meeting. 3. A certificate (of amendment) in duplicate must be a. The corporation is already dissolved. 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 residences as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. or the incurring. Written notice of the proposed increase or diminution of the capital stock or of the incurring.  But when you issue shares from the unissued portion of the capital stock without the 5) Any increase or decrease in the capital stock or the incurring. or served personally. and the amount paid by each on his subscription in cash or property. creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission. 7. The amount of the increase or diminution of the capital stock. the favorable endorsement of the appropriate government agency A copy of the amended articles of incorporation shall be submitted to the SEC for its approval 4. Any bonded indebtedness to be incurred. the right is no longer practical. 81). or increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered. 2) Approved by at least majority of the board a. insurance companies. Remedy if term already expired: Reincorporation. creating or increasing of any bonded indebtedness. liquidation or winding up. the amount of capital stock or number of shares of no-par stock thereof actually subscribed. creating or increasing of any bonded indebtedness. (the original articles of incorporation and the amended articles of incorporation with the amendments duly underscored) Section 38. 1. any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. the amount of capital stock or number of no-par stock subscribed by each.No corporation shall increase or decrease its capital stock or incur.

which shall have the authority to determine the sufficiency of the terms thereof. a share is divided or converted into two or more shares but the amount of the outstanding capital remains the same because the par value is also divided in as many shares Increase in the capital stock of the corporation is necessary when additional funds are required by the operation and the corporation opted to raise funds through additional investments. (17a)   Tools to obtain funds: 1) Increase capital stock 2) Issuance of primary shares (Quorum of BOD’s approval suffices) 3) Loans granted by stockholders to the corporation (creditor-debtor relationship. creating or increasing of any bonded indebtedness authorized. 1) From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing. stockholder can insist on payment and interest) 4) Deposit for future subscription (converted to equity) What are the requirements for reduction of capital stock? 1) Same requirements except the treasurer’s affidavit 2) The reduction of capital stock must not prejudice creditors Ways of methods allowed by law where properties of the corporation may be distributed back to the stockholders: 1) Dissolution 2) Redemption of redeemable shares 3) Reduction of capital stock  INCUR. further. the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. All borrowings are not subject to stockholder’s approval Only in cases of bonded indebtedness – if the obligation is burdened with or encumbered by corporate assets. That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors. SH approval is required What are the ways by which the corporation may increase or decrease its capital stock? 19 | P LATON . or increase the same. Increase in the subscribed capital need not go through the process provided for under Section 38 and mere approval of the board is sufficient o However. Additional investment may be infused initially by increasing the subscribed capital. as the certificate of filing may declare: 3) 6) (Treasurer’s affidavit required in increase) Provided. That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate. with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose. Bonds issued by a corporation shall be registered with the Securities and Exchange Commission. In stock split. o This should be distinguished from mere increase of subscribed capital stock or paid-up capital which does not necessarily require amendment of the Articles of Incorporation A corporation may increase its capital stock even though the original authorized capital stocks are not yet fully subscribed Different situations: 1) Ordinary borrowing – board approval suffices if only against the general credit of the corporation 2) Loan secured by mortgage – SH approval if it includes all or substantially all (See Sec. an increase in the authorized capital stock is required if the additional subscription cannot be covered by the original authorized capital or if the original authorized capital is already exhausted See Section 38 for requirements for increase in capital stock Provided. INCREASE OR DECREASE IN CAPITAL STOCK The exercise of the power to increase or decrease the authorized capital stock of the corporation results in the amendment of the articles of incorporation. It cannot be done holistically. thus. 40) 3) Obligations in a form of a bond – SH approval not required if not secured by mortgage BUT if registered with SEC and encumbered or secured by the assets of the corporation regardless of volume or magnitude. showing that at least twenty-five (25%) percent of such increased capital stock (of the increase not as increased) has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: 2) By increasing (reducing) the number of shares and retaining the par value Increasing (reducing) the par value without changing the number of shares Increasing (reducing) the number of shares and increasing (reducing) the par value There will be no increase or decrease of capital in case of stock split. the capital stock shall stand increased or decreased and the incurring. Non-stock corporations may incur or create bonded indebtedness. CREATE OR INCREASE BONDED INDEBTEDNESS To incur and to increase requires two board and stockholders’ approvals. You cannot in one approval incur and increase. then there is a need for stockholder’s approval.

in payment of a previously contracted debt. 1988: The pre-emptive right is not available when shares are issued in exchange for shares in another corporation if the same is the result of a merger to which the corporation are parties  SEC Opinion.000 common shares. Unless there is an express restriction in the Articles of Incorporation. 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 (all listed companies: 10% of the capital stock must be owned by the public). the bonds are simply loan obligations on the part of the corporation and the owner thereof are not entitled to vote nor to the assets of the corporation upon dissolution (?) Section 39. Section 40. they have the right to participate in the management and to vote Can a bond be converted into shares? It depends if the bonds are convertible in nature. Corporation will issue common and preferred shares. lease. 8.  SEC Opinion. One stockholder invoked violation of his preemptive right. they have no right to participate in the management of the corporation ORDINARY BORROWING Board approval suffices if the value is against the general credit of the corporation Short term and usually involves one lender Based only on the capacity of the debtor or the borrower of the corporation to pay based on the perception or judgment of the lender without charging the properties SHARES OF STOCK/ DIVIDENDS Equity investment/ Fruits thereof Earns dividends/ Dividends are available only if there are surplus profits Sec. Remedy: Appraisal right. July 28. or 3) to shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock. corporation is bound to redeem despite lack of surplus profits so long as it would not result to insolvency Stockholders are risk takers of the corporation. By-Laws. as its board of directors or trustees may deem expedient. exchange. 20 | P LATON . a. in proportion to their respective shareholdings. pledge or otherwise dispose of all or substantially all of its property and assets. Approval of the stockholders to increase the capital stock is independent to the approval to issue shares in exchange for property. stocks. 1990: The right to subscribe to new issues and disposition may be transferred by the shareholder. 1 – 3: 4) Waiver of preemptive right.All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class. sell. Will it prosper? Yes. upon such terms and conditions and for such consideration. Power to deny pre-emptive right. mortgage. bonds or other instruments for the payment of money or other property or consideration.  This is a limitation on the power to issue shares  Preemptive right – the right of the stockholder to subscribe to all issues or disposition of shares of any class (preferred. October 9. Bar Exam Question Seller of property wants to be paid in shares of stock in exchange of property to be purchased by the corporation. Is preemptive right available to both issuances? No. – Subject to the provisions of existing laws on illegal combinations and monopolies. Board approved the issuance of shares in exchange of the property. treasury. express or implied. then it is deemed waived. in exchange for property needed for corporate purposes or b. Cases where pre-emptive right of stockholders does not apply: In addition to Sec. or issuance from increase of capital stock or from original or unissued portion of capital stocks) in proportion to their shareholdings PREEMPTIVE RIGHT Section 39 The right of the stockholder to subscribe to all issues or disposition of shares of any class by the corporation in proportion to their respective shareholdings RIGHT OF FIRST REFUSAL Not in the Corporation Code The right of a stockholder to buy the shares of a selling stockholder before they are offered to third parties before such shares can be offered to third parties Available even if AOI is silent  Not available if AOI. 1) by a majority vote of its board of directors or trustees. which may be money. Nos. including its goodwill. a corporation may.BONDED INDEBTEDNESS Requires stockholder’s approval Long term and involve large number of investors Bonded indebtedness is a form of a bond secured by a mortgage or a charge of corporate assets Bonds must be registered with the SEC BONDS Borrowing Bond holder must be paid and is entitled to the payment of interest on the bond regardless of whether or not there is surplus profit Bond holders are creditors of the corporation. a proposal to increase capital stock to accommodate shares to be issued in exchange of property was approved by stockholders representing 2/3 of the outstanding capital stock. UNLESS 1) such right is denied by the articles of incorporation or an amendment thereto: 2) Provided. It is available only in common shares because he has no basis in the proportionate sharing of the preferred shares. 39. Unless there is such feature. Sale or other disposition of assets. . the pre-emptive right is transferable  Preemptive right is not absolute. In a stockholders meeting. If there’s a period indicated in a board resolution to exercise such right and if not exercised by the stockholder within said period. Certificates of Stock is silent Purpose: To maintain the stockholder’s proportionate influence or interest in the corporation o To maintain the relative and proportionate voting strength and control of existing shareholders. It is aimed to maintain the existing ratio of the shareholder’s interest and voting power in the corporation A owns 100.

in its discretion. mortgage. or substantially all. wares. or assignor. and to purchase delinquent shares sold during said sale. lease. of the fixtures and equipment used in and about the business of the vendor. or assignor. pledge or otherwise dispose of any of its property and assets  if the same is necessary in the usual and regular course of business of said corporation or  if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business.  Non-compliance – proceeds of the sale are held in trust for the benefit of the creditors. The sale is void with respect to the creditors but not with respect to the buyer and seller. merchandise. abandon such sale. due dates and amount owing to the creditors. 3) 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. 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. by the vote of at least to two-thirds (2/3) of the members. the provisions of this section shall not apply. 2. After such authorization or approval by the stockholders or members. without further action or approval by the stockholders or members. or assignor. 3. mortgagor. pledge or disposition a. exchange. To collect or compromise an indebtedness to the corporation. Nothing in this section is intended to restrict the power of any corporation. and in that case. the buyer has the right to reimbursement and damages against the seller. produces and delivers a written waiver of the provisions of this Act from his creditors as shown by verified statements. That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. of all or substantially all of the assets. Sale and transfer in bulk. the transfereecorporation is liable: 1) If there is an express or implied assumption of liabilities. mortgage. mortgagor. or sale. pledge or other disposition of property and assets. 3952 THE BULK SALES LAW (as amended) Sec. or c. Section 41. however. In non-stock corporations where there are no members with voting rights. provisions. and To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code. mortgage or assignment of all. in a stockholder's or member's meeting duly called for the purpose. of the business or trade theretofore conducted by the vendor. which contains the names. – A stock corporation shall have the power to purchase or acquire its own shares  for a legitimate corporate purpose or purposes. not in the ordinary course of business. or materials otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor. — Any sale. The transferee-corporation of all or substantially all of the assets (or even shares) of the transferor-corporation will not be liable for the debts of said transferor-corporation However. mortgage. 2) There is a consolidation or merger or a de facto merger. without the authorization by the stockholders or members. mortgage. cost price. or b. (a) Enumeration is NOT EXCLUSIVE 21 | P LATON . or substantially all. transferor. then. by way of exception. exchange. and 4) If the purchaser becomes a continuation of the seller ACT No. it requires: 1) A verified list of creditors under oath given by the seller to the buyer 10 days before the sale. addresses. or of all. 3) If the purchase was in fraud of creditors. transferor or assignor.  To eliminate fractional shares arising out of stock dividends. to sell. transferor. transfer. Power to acquire own shares. or served personally: Provided.   2 kinds of sale contemplated in Section 40: 1) Sale. or in case of non-stock corporation. mortgage or assignment of a stock of goods. lease. including but not limited to the following cases:  Provided.  Under the Bulk Sales Law. That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. mortgagor. That if such vendor. nevertheless. 2. in a delinquency sale. transfer.o 2) when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. monopoly or restraint of trade and the Bulk Sales Law. of all or substantially all of the business of the corporation – majority of entire board and stockholders representing at least 2/3 of OCS’ approval are required and subject to laws against illegal combination. arising out of unpaid subscription. Once the creditor has been paid. mortgagor. pledge or disposition of properties in the ordinary course of business – board approval suffices (quorum) 2) Sale. 2) Inventory of goods or properties to be sold. the board of directors or trustees  may. acquisition price and the amount for which it has been sold 3) The list of inventory and notice filed with the DTI. the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section. shall be deemed to be a sale and transfer in bulk.  subject to the rights of third parties under any contract relating thereto. transferor. in contemplation of this Act: Provided.

2) A legitimate and proper corporate objective is advanced. or 3) in stock to all stockholders on the basis of outstanding stock held by them: Provided. when the corporation is prohibited under any loan agreement with any financial institution or creditor. from declaring dividends without its/his consent. Philippine Corporate Law Compendium) Section 43. That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation. the decision of the Board is subject to the approval of the stockholders representing at least 2/3 of the Outstanding Capital Stock of the corporation o Nevertheless. 3) The condition of corporate affairs warrants it. (n)  Board of Directors has the discretion to declare dividends. or increase of capital stock. in order to avoid the dangers that accompany the exercise of this express power. 1994: Lease of property is included in the term “investment of funds. further. However. November 9.. It is still up to the board to declare stock dividends  Kinds of dividends: 1) Cash – requires board approval only (quorum) 2) Property – considered as cash. the SEC has always imposed the following conditions on its exercise: 1) The capital of the corporation must not be impaired. URE not required) 4) In case of redeemable shares (Sec. or served personally: Provided. such as when there is need for special reserve for probable contingencies. whether local or foreign. 9) 5) In case of close corporations 6) Dacion en pago or shares conveyed in payment of a debt  According to foreign laws. (16a) Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock. thus requires both board and stockholders’ approval Provided. EXCEPT: 1. 2) 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. It should be noted that the decision of the board alone is necessary to declare cash or property dividends o In the case of stock dividends. or by at least two thirds (2/3) of the members in the case of non-stock corporations. the directors’ discretion is maintained even if the dividends to be declared are stock dividends. (17 1/2a)  Investment of a corporation in a business which is in line with its primary purpose requires only the approval of the board  Investment of funds includes not only investment of money but also investment of property of the corporation  SEC Opinion. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable 1) in cash. thus requires board approval only (e. treasury shares) 3) Stocks – taken from the original. Power to declare dividends. Other cases: (N.g. at a stockholder's or member's meeting duly called for the purpose. the approval of the stockholders or members shall not be necessary. and such consent has not yet been secured. and 4) The transaction is designed and carried out in good faith Section 42. 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 1) when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. when justified by definite corporate expansion projects or programs approved by the board of directors. or 2. 2) in property. the 22 | P LATON .” However. Power to invest corporate funds in another corporation or business or for any other purpose. That any dissenting stockholder shall have appraisal right as provided in this Code: SEC imposes the following requirements: (See Page 242.  That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses. surplus profit is only required when there is cash out on the part of the corporation in acquiring its own shares  SEC Opinion.B.  while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided. unissued portion. That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. October 12. – Subject to the provisions of this Code. or 3. however. 1992: the power to acquire its own shares is now an express power. when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation.

otherwise. Paid-in surplus is the difference between the par value and the issued value or selling price of the shares and are not therefore considered profits earned in the conduct of the business of the corporation 23 | P LATON . It involves the conversion of surplus or undivided profits into capital  Dividends cannot be declared out of the capital. it can be a basis of dividend declaration 2) Revaluation (Reappraisal) surplus – if there is an increase in the value of assets. of the property distributed  When stock dividends are declared. if by corporation. only that portion not impaired by subsequent losses is available for dividend Discussion: If not sold for an amount higher than the acquisition cost. The exception is with respect to “wasting assets corporations” which are corporations solely or principally engaged in the exploitation of “wasting assets. contractual. it shall be withheld until full payment of the subscription No cash outlay. the corporation will use it to subscribe to shares at par value9 May be revoked even after actual declaration but before actual issuance to the SH Not subject to tax whether received by a natural person or a corporation Basic conditions to enable the corporation to declare dividends: 1) Unrestricted retained earnings (surplus profits) 2) Resolution of the board 3) If stock dividends are declared. They are by nature subject to fluctuations Exception: The SEC allows distribution of the portion of the increase in the value of fixed assets as a result of revaluation thereof after the assets are depreciated and the depreciation is charged against the operation provided the following conditions are complied with: 1) The company has sufficient income from the operations from which the depreciation on the appraisal increase is charged. not subject to tax   STOCK Approved by the BOD by majority of the quorum and by the SH representing at least 2/3 of the OCS Payable in shares If there is unpaid subscription. the earnings are distributed to the stockholders in the form of shares of stock. It can only be taken from the excess of liabilities and total subscription Formula: Assets -Liabilities -Total Subscription Unrestricted Retained Earnings  SEC Opinion. The declaration creates a creditor-debtor relationship If received by a natural. without allowance or deduction for depletion  9 The trust fund doctrine will be violated if dividends are declared out of capital except only in two instances: (1) liquidating dividends and (2) dividends from investments in Wasting Assets Corporation If the unissued portion of the capital stock is not enough to accommodate the shares brought about by the stock dividend declaration.” They are allowed to distribute the net proceeds derived from exploitation of their holdings such as mines. September 23. 1986: Retained earnings mean the accumulated profits realized out of normal and continuous operations of the business after deducting therefrom distribution of stockholders or transfers to capital stock or other accounts. Surplus profits is transferred to capital. or legal purposes and which are free for distribution to the stockholders as dividends o Unrestricted means there must be no encumbrance. there must be resolution of the board with the concurrence of the stockholders representing at least 2/3 of the outstanding capital stock SEC rules provide that the property to be distributed as dividends shall consist only of property which are no longer intended to be used in the operation of the business of the corporation and which are practicable to be distributed as dividends o In addition. the corporation will increase the capital stock to be able to accommodate the issuance of shares  Dividends cannot be declared outside the total subscription of the corporation because it will violate the trust fund doctrine. it cannot be a basis for dividend declaration because it is only a paper gain 3) Paid-in surplus – cannot be declared as dividends because they are part of capital. subject to tax. Generally they cannot be declared as dividends because they cannot be considered earnings of the corporation. limitation. it is no longer available for dividend distribution Two step process: Declare cash dividends but instead of distributing. oil wells.CASH Approved by the BOD by majority of the quorum Payable in cash Applied against subscription price unpaid There is cash outlay Determined by the number of outstanding shares Cannot be revoked once declared. if any. 2) The company has no deficit at the time the depreciation on the reappraisal increase was charged to operations.  Unrestricted retained earnings is defined as the undistributed earnings of the corporation which have not been allocated for any managerial. restriction in the declaration of dividends  What is included in retained earnings? Kinds of surpluses: 1) Operation/Profit surplus – earned in the course of operation. and 3) Such depreciation on the appraisal increase previously charged to operations is not erased or impaired by subsequent losses. the issuance of the property dividends shall not result in an inequitable distribution of property to the stockholders in terms of the book value and market value. patents and leaseholds. once reclassified.

June 19. fixed by the board 3) If both are silent. operating agreements or otherwise: Provided. exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. b. whoever is the stockholder of record at the time of declaration (Record date)  SEC Opinion. or by at least a majority of the members in the case of a non-stock corporation. Section 44. then the management contract must be approved by the stockholders of the managed corporation owning at least twothirds (2/3) of the total outstanding capital stock entitled to vote. where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation. 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. That such service contracts or operating agreements which relate to the exploration. They are declared as stock dividends. Power to enter into management contract. There is no resulting impairment of capital after declaration of dividends Discussion: It is brought about by the reduction of capital stock. any management contract between them shall not be subject to the requirements thereof  Interlocking directors – if 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  Interlocking stockholders .a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than onethird (1/3) of the total outstanding capital stock entitled to vote of the managing corporation XPN: Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in (not subscribed) capital stock XPN to XPN: Section 43. or by at least two-thirds (2/3) of the members in the case of a non-stock corporation.  Even unpaid subscribers are entitled to dividends (see Sections 71 and 72. 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. or 2. – No corporation shall conclude a management contract with another corporation unless such contract shall have been 1) approved by the board of directors (quorum) and 2) by stockholders owning at least the majority of the outstanding capital stock. and c. Not creditor shall be prejudiced therefrom. It does not normally apply to a contract with natural person who will be appointed as manager because the same is covered by general powers of the corporation. 1974: A record date is the future date specified in the resolution declaring dividend that the dividend shall be payable to those who are stockholders of record on such specified future date or as of the date of the meeting declaring said dividends. subject to Section 43)  Can a corporation be compelled by way of mandamus to declare dividends? GR: No because it is discretionary on the part of the corporation Provided. operating agreements or otherwise  Section 44 applies to situations where the contract is between two corporations. No management contract shall be entered into for a period longer than five years for any one term. of BOTH the managing and the managed corporation. however. (3)  Subscription agreement may provide that also nondelinquent stocks may be subject to Section 43. That 1. (n)  A management contract is an agreement whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation. The contract with the natural person is more appropriately called employment contract rather than management contract o Since partnership and private individuals are not mentioned in Section 44. That they be declared only as stock dividends and not as cash dividends. There is no resulting impairment of capital 4) Reduction Surplus – where surplus arises from the reduction of the par value of the issued shares of stocks. and c.Exception: The SEC allows the distribution of paid-in surplus in exceptional cases when the following are present: a. whether such contracts are called service contracts. last paragraph. They are available for dividend declaration provided the following are met: a. b. 1990 & June 5. August 6. whether such contracts are called service contracts. 1991. It will be distributed to the stockholders with the consent of the creditors  Who is entitled to dividends? Stockholders are entitled to dividends pro rata based on the total number of shares and not on the amount paid for the shares 1) Stockholders as of the date fixed by the by-laws 2) If the by-laws is silent. at a meeting duly called for the purpose: 24 | P LATON . No creditor is prejudiced. development.

Ultra vires acts of corporations. (n)  Ultra vires acts are those powers that are not conferred to the corporation by law. 3) A copy thereof. the party who has received benefits from the performance is estopped in claiming that the contract is ultra vires 4) When both contracts are wholly executory on both sides. shall be filed with the Securities and Exchange Commission a. neither party can maintain an action. duly certified to by a majority of the directors or trustees countersigned by the secretary of the corporation.BY LAWS Section 46.1) 2) 3) 4) Section 45. i. The rule is justified since the only injustice that will be caused is loss of prospective profits but the protection of the stockholders may be sufficient ground to enjoin the performance of the act   Discussion: If an act has been performed by one party or both parties then the doctrine of ultra vires will not apply because the other party is now estopped from invoking it. insurance company. by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code. – Every corporation formed under this Code must. the doctrine applies only to purely executory contracts. such by-laws shall be approved and signed by all the incorporators and o submitted to the Securities and Exchange Commission. public utility. trust company.e. by its articles of incorporation and those that are not implied or necessary or incidental to the exercise of the powers so conferred o It is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law o The concept can also include those acts that may ostensibly be within such powers but are. Thus. – No corporation under this Code shall possess or exercise any corporate powers except those conferred 1) by this Code or 2) by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. implied or incidental to the express powers of the corporation Can be ratified by estoppel ILLEGAL ACT An act that is contrary to law. building and loan association. subject to the inspection of the stockholders or members during office hours. o in such case. shall be necessary. adopt a code of by-laws for its government not inconsistent with this Code. 2) 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. public morals and public policy Cannot be ratified  Remedy: INJUNCTION to stop the corporation from performing an ultra vires act  Effects of ultra vires acts: 1) A corporation that is engaged in ultra vires business is liable for torts committed by its agents within their authority in the course of that business 2) Where the contract is fully executed on both sides.B. by-laws may be adopted and filed prior to incorporation.  Notwithstanding the provisions of the preceding paragraph. the corporation is bound by the act of the officer TITLE V . apparent authority. which shall be attached to the original articles of incorporation. either proscribed or declared illegal o Discussion: They are not binding or enforceable against the corporation o Discussion: An ultra vires act is not necessarily an illegal act but an illegal act is necessarily an ultra vires act ULTRA VIRES ACT Simply an act not consistent with the express. If any of the following are present. educational institution or other special corporations governed by special laws.  within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission. or of at least a majority of the members in case of non-stock corporations. Remedy: Derivative suit in behalf of the corporation to set aside the act  No authority under the by-laws No authority under the board His acts were not ratified by the corporation Doctrine of Apparent Authority N. ratification. the contract is effective and will stand as a foundation of rights acquired under it 3) When the contract is executory on one side and has been fully performed in the other. For the adoption of by-laws by the corporation 1) the affirmative vote of the stockholders representing AT LEAST A MAJORITY OF THE OUTSTANDING CAPITAL STOCK. o together with the articles of incorporation. Adoption of by-laws. (20a) Ultra vires act of an officer of the corporation: 25 | P LATON . The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any 1) 2) 3) 4) 5) 6) 7) 8) bank. unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. banking institution. by general or special laws. authority from the board. In all cases. authority under the by-laws.

(21a)  By-laws must contain the corporate seal of the corporation. (Carag v. Certificate of filling of AOI b. may amend or repeal any by-laws or adopt new by-laws. the manner of issuing stock certificates. Submit to the SEC within 1 month from approval or issuance by the SEC of a certificate of incorporation (must be signed by stockholders representing at least majority of the OCS and certified by majority of the board and the corporate secretary)  4. affairs and concerns and of its stockholders or members and directors and officers in relation thereto and among themselves in their relation to it o By-laws are 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.  If the corporation fails to submit the by-laws within one month from incorporation.  8. officers and employees. The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation may delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws: 26 | P LATON .  6. duties and term of office of officers other than the directors because it will determine which committee has jurisdiction in case of issues surrounding the appointment. The time. – Subject to the provisions of  the Constitution. the by-laws provisions are also not binding unless there is actual knowledge the articles of incorporation. It must also contain the principal place of corporation Section 48. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. Exclude the non-voting shares in determining the majority of the outstanding capital stock Quorum is determined not by the number of persons present but by the number of shares represented The form for proxies of stockholders and members and the manner of voting them. The basic qualifications are spelled out in Section 23 The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof.  3. by a majority vote thereof. Modes of adopting the by-laws of the corporation: 1) Pre-Incorporation. The qualifications. other pertinent laws and regulations. The provisions of the by-laws are binding not only upon the corporation but also on its stockholders. 2) and the owners of AT LEAST A MAJORITY OF THE OUTSTANDING CAPITAL STOCK. the provisions of the by-laws are not binding on subordinate employees having no actual knowledge of the provisions thereof o As to third persons.      Articles of incorporation – constitution of the corporation By-Laws – the rules and regulations or private laws enacted by the corporation to regulate. or at least a majority of the members of a non-stock corporation. members and those having direction. 5. removal or termination (RTC or Labor Court?) The penalties for violation of the by-laws. and 10. Important to include the qualifications. management and control. Amendments to by-laws. and The board of directors or trustees. govern and control its own actions. Requisites: 1) It must be consistent with the Corporation Code. The time and manner of calling and conducting regular or special meetings of the stockholders or members. Certificate of filling of by-laws 2) Post-Incorporation. Why is there no “place”? Because Section 51 provides the place: In the city or municipality where the principal office is located or in the latter if practicable The required quorum in meetings of stockholders or members and the manner of voting therein. duties and compensation of directors or trustees. management and control of its affairs o However. of its affairs and activities  a private corporation may provide in its by-laws for: 1. in whole or in part. In the case of stock corporations. Contents of by-laws. it does not result in the automatic dissolution of the corporation. it is a de facto corporation. 3) It must not be contrary to morals or public policy. 2. Valle Verde Golf and Country Club) Section 47.  7.  Must be consistent with the law 9. Submit together with the articles of incorporation (all incorporators must sign) thus you get two approvals: a. At the very least. 2) It must be consistent with the Articles of Incorporation.  this Code. 3) at a regular or special meeting duly called for the purpose. place and manner of calling and conducting regular or special meetings of the directors or trustees. – 1) A provision in the by-laws that the corporation has a first lien on the share for the unpaid dues and assessments is not complete unless complemented by an accessory contract like a pledge or chattel mortgage agreement where the shares will stand as security for the payment of the dues and assessment.  other special laws. 4) It must not disturb vested rights. impair contract or property rights of stockholders or members or create obligations not sanctioned by law The best manner or mode of giving notice is by publication (Affidavit of publisher as proof of compliance) The manner of election or appointment and the term of office of all officers other than directors or trustees.

held annually i. or members may be 1) regular or 2) special. whether regular or special. Notice of any meeting may be waived. According to Dean Divina. 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. on a date fixed in the by-laws. – Unless otherwise provided for 1) in this Code or 2) in the by-laws. That written notice of regular meetings shall be sent to all stockholders or members of record at least two (2) weeks members. a separate stockholders’ resolution is not necessary because the by-laws is more compelling and more persuasive than a stockholders’ resolution. there is no person authorized to call a meeting. unless otherwise provided in the by-laws. . Regular and special meetings of directors or trustees.  provided all the stockholders or members of the corporation are present or duly represented at the meeting. 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. the Securities and Exchange Commission. shall so vote at a regular or special meeting. (SEC. (24. held at any time deemed necessary or as provided in the by-laws: b. 2004 regulation) Notice of meetings shall be in writing. delegation must be contained in a separate stockholders’ resolution. such amendment or new by-laws shall be  attached to the original by-laws in the office of the corporation. (22a and 23a) The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have chosen one of their number as presiding officer. (n) Section 53. (24 and 25) Section 52. All proceedings had and any business transacted at any meeting of the stockholders or members. 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 o whenever stockholders owning or representing a majority of the outstanding capital stock or a majority of the members in non-stock corporations. and the time and place thereof stated therein. Regular and special meetings of stockholders or members. prior to the meeting. by any stockholder or member. shall be valid even if the meeting be improperly held or called. held monthly. Place and time of meetings of stockholders of  How do you amend the by-laws of the corporation? 1) Approval of the board of directors by a majority vote AND stockholders representing at least majority of the outstanding capital stock may amend 2) Approval of stockholders representing at least 2/3 of the outstanding capital stock delegating to the board the power to amend a. 2) Special meetings of stockholders or members shall be a. Whenever. 27 | P LATON . if within the powers or authority of the corporation. unless a different period is required by the by-laws. – Stockholder's or member's meetings. The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange Commission of a certification that the same are not inconsistent with this Code. 26)  Section 51. (n) Section 50. Provided. – 1) Regular meetings of the board of directors or trustees of every corporation shall be a. trustees. for any cause. May be revoked by stockholders representing a majority of the outstanding capital stock Discussion: Open issue: According to the SEC. and  if practicable in the principal office of the corporation:  Provided. for purposes of this section. Quorum in meetings. Whenever any amendment or new by-laws are adopted. 1) upon petition of a stockholder or member 2) on a showing of good cause therefor. or ii. o shall be filed with the Securities and Exchange Commission the o same to be attached to the original articles of incorporation and original by-laws. expressly or impliedly. unless the by-laws provide otherwise. duly certified under oath by the corporate secretary and a majority of the directors or trustees. and  a copy thereof. That at least one (1) week written notice shall be sent to all stockholders or members. if not so fixed. on any date (SEC: must be specific) in April of every year as determined by the board of directors or trustees: b. however. be considered a city or municipality. – 1) Regular meetings of stockholders or members shall be a. Provided. Provided. Kinds of meetings. By-laws are more permanent TITLE VI – MEETINGS Section 49.  shall be held in the city or municipality where the principal office of the corporation is located. That Metro Manila shall.Meetings of directors. stockholders.

So the board has authorized you to assist the board during deliberation (?)  Once the corporate secretary has certified that there is a quorum. only board of directors can attend the directors’ meeting. (n)  The quorum is the same even if there is a vacancy in the board. Given in accordance with the requirements of the by-laws b. Must contain the date. It takes precedence over all other motions.  any one of the joint owners can vote said shares or appoint a proxy therefor. time and place 2) There must be a quorum a. held at any time upon the call of the president or as provided in the by-laws.  the consent of all the co-owners shall be necessary. SH: stockholders representing a majority of the outstanding capital stock unless the law or by-laws provide otherwise b. unless one is authorized by the other(s) “AND/OR” – one of them can vote “OR” – then with more reason one of them can vote  Requisites for a valid meeting: 1) Proper notice must be given to the stockholders or to the board as the case may be a. they are just encumbered. an executor or administrator may attend and vote Meetings of directors or trustees of corporations  may be held anywhere in or outside of the Philippines. Issued. BOD: majority of the number of directors as fixed in the AOI unless the law or by-laws provide otherwise c. unless the by-laws provide otherwise. o signed by all the co-owners. time and place of the meeting must be sent to every director or trustee at least one (1) day prior to the scheduled meeting. (27a) 28 | P LATON . receivers. – The president (in practice: Chairman) shall preside at all meetings of the directors or trustee as well as of the stockholders or members. and administrators. except motion to declare you out of order. o authorizing one or some of them or any other person to vote such share or shares: Provided. A director or trustee may waive this requirement. (n) Section 55. if silent any day of April 2 weeks 1 week Board meeting Regular Special Once a Anytime month Anywhere 1 day Anywhere Section 56. Voting in case of joint ownership of stock. – In case of shares of stock owned jointly by two or more persons. but without the right to vote? No.  unless there is a written proxy. 1 day Why April? Because by that time. So if some stockholders walked out and some stockholders are still present. if the board of directors meets because they are hostile directors. unless otherwise provided by the by-laws. unless the pledge or mortgage agreement provides otherwise  Is the corporation bound by the agreement? If it is registered. If the required quorum cannot be satisfied because of the vacancy. the meeting can continue. the remedy is for the stockholders to fill the vacancy How often Purpose Where When convened Notice  Stockholders meeting Regular Special Once a year Anytime Voting the directors in the city or municipality where the principal office of the corporation is located. – In case of pledged or mortgaged shares in stock corporations.  The pledgor or mortgagor does not part with the ownership of the shares. That when the shares are owned in an "and/or" capacity by the holders thereof. all that the pledgee/mortgagee has to do is to give a copy of the agreement to the corporate secretary  If approved by the court. unless the by-laws provide otherwise. (n)  “AND” – both or all of them must consent. either expressly or impliedly. administrators. 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. Notice of regular or special meetings (need not be in writing unless the by-laws provides otherwise) stating the date. called. it continues all throughout the proceedings. Proxy voting is allowed in stockholders meeting but never in board meeting  Can a representative of the director attend. and if practicable in the principal office of the corporation On the date Any date stated in the by-laws. and presided by the one specified in the by-laws c. (n) Executors. Remedy: Motion to adjourn. Right to vote of pledgors. Who shall preside at meetings.2) Special meetings of the board of directors or trustees may be a. However. the pledgor or mortgagor 1) shall have the right to attend and vote at meetings of stockholders. the corporation shall have known already the results of its corporation or the audited financial statements Section 54. and other legal representatives duly appointed by the court 1) may attend and vote in behalf of the stockholders or members 2) without need of any written proxy. in order to vote the same. mortgagors. then you need to get approval from the board.

1995: The by-laws may impose restrictions as to the person who can be proxies and the manner of voting them.Treasury shares  SEC Opinion. September 9. Proxies. March 12.Section 57. the SEC requires that the proxy forms be submitted at least five days before the stockholders meeting. 29 | P LATON . September 8. A voting trust agreement must be 1) in writing and 2) notarized.Stockholders and members may vote 1) in person or 2) by proxy in all meetings of stockholders or members. they become outstanding again and. a proxy must have been given by the person who is the legal owner of the stock and is entitled to vote  Discussion: Can a proxy appoint a proxy (sub-proxy)? Yes. . 2002: A proxy can be given to two or more persons jointly o SEC Opinion. No proxy shall be valid and effective for a period longer than five (5) years at any one time. In the absence of such provision. said agreement is ineffective and unenforceable. Voting right for treasury shares. If it is general and continuing in nature. – One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees 1) the right to vote 2) and other rights pertaining to the shares 3) for a period not exceeding five (5) years at any time: Provided. So that the aggrieved party can take the appropriate remedy in case the proxy forms are rejected o For public companies. That in the case of a voting trust specifically required as a condition in a loan agreement. Unless otherwise provided in the proxy. death of the stockholder terminates the proxy (instrument)  When does SEC/RTC acquire jurisdiction when it comes to violation of proxies? If it involves an election contest or intra-corporate dispute. 1991: The power to appoint a proxy is purely personal. can vote Section 58. October 28. 2) signed by the stockholder or member and 3) filed before the scheduled meeting with the corporate secretary. The right to vote is inseparable from the right of ownership of stock. thus. 1991: When two or more persons are given separate proxies but they are not intended to be joint proxies. . When it deals with administrative supervision. Voting trusts. it may be extended but not to exceed 5 years  It need not be notarized. and 3) shall specify the terms and conditions thereof. Documentary stamp need not be affixed. (n)  Treasury shares are not part of the outstanding capital  But once they are resold by the corporation. the law requires that at least majority of the members of the SEC commission must sign shall have no voting right as long as such shares remain in the Treasury. Thus. Therefore. 4) A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission. Proxies shall 1) in writing. it is valid only for the meeting intended a. the giving of the last proxy is to be deemed a revocation of all former proxies  A proxy is governed by the law on agency. 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. unless otherwise prohibited by the proxy form  SEC Opinion. (n)  The right to vote at a stockholder’s meeting depends upon the ownership of the stock as disclosed by the stock and transfer book of the corporation and a registered stockholder must be allowed to vote irrespective of any question of bona fides o Importance: Proxy is a way by which a stockholder may participate and exercise the right of management even though he may not be physically present during the stockholders meeting  Proxy refers either to the instrument evidencing the authority to vote or it may refer to the proxy holder  Formalities of a proxy under the law: 1) In writing 2) Signed by the stockholder 3) Filed with the corporate secretary before the meeting 4) If it is a specific proxy. to be valid. it shall be valid only for the meeting for which it is intended. it is the RTC that has jurisdiction. said voting trust 1) may be for a period exceeding five (5) years 2) but shall automatically expire upon full payment of the loan. otherwise. anybody can be appointed as proxy without limitation as to the number of members to be represented o SEC Opinion. although it will not be admissible in evidence o SRC: A proxy statement must be submitted with the SEC  The corporation has to fix a period to validate proxies. The by-laws may provide for a longer period but not shorter Section 59. it is the SEC  Discussion: Cease and Desist Order 1) Can it be issued ex parte? Yes 2) Can it be signed by only one commissioner? No.

and 4) When properties are disposed or undue preference is given to some creditors even if the corporation is insolvent  With respect to subscribed capital. while the latter gets the stock certificate. all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period. Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust agreement. must be in writing if the amount is in excess of P500. unless otherwise stipulated under the terms of the VTA The stockholder gets a voting trust certificate from the trustee. and thereupon shall be bound by all the provisions of said agreement. (36a) As to form As to period As regards title conveyed As to rights acquired As to law governing it Effect of presence of SH  PROXY In writing. unless it is made pursuant to a loan agreement in which case the VTA is coterminus with the loan Legal title is transferred. 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. thus. 2) When there is payment of dividends without unrestricted retained earnings. it is unenforceable Limited to acquisition of shares of a corporation already formed Buyer cannot exercise all the rights pertaining to the shares unless he as complied with the terms and conditions of the purchase Corporate creditors cannot enforce payment on the purchase price because there is no privity of contract  Treasury shares. he is qualified to be elected as director    Once the VTA expires. the shares issued to the trustee will be cancelled and a new one issued again in favor of the stockholder-trustor TITLE VII . – 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. Acquisition of the share can be by (1) purchase or (2) through subscription. notwithstanding the fact that the parties refer to it as a purchase or some other contract. Subscription contract.STOCKS AND STOCKHOLDERS Section 60. (n)  A person may become a stockholder in a corporation by acquiring a share. Purchase may be from the corporation itself or from the shareholders SUBSCRIPTION Not governed by the Statute of Frauds Applies to corporation to be formed or already in existence Subscriber acquires and can exercise all the rights pertaining to his shares even though not fully paid Corporate creditor can enforce payment of the subscription if the assets of the corporation are not enough. signed by the stockholder. 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 same can be increased by the corporation 1) By issuing the remaining balance of the authorized capital stock or Not only the right to vote but also all other rights pertaining to the shares (e.In the books of 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. even though they have no privity of contract PURCHASE Governed by the Statute of Frauds. to obtain copies. unless it is general and continuing in nature but not to exceed 5 years No legal title is transferred to the proxy holder. to inspect. otherwise. and filed with the corporate secretary Valid only for the meeting intended. The trustee or trustees shall execute and deliver to the transferors voting trust certificates. notarized. Both can be assigned 30 | P LATON . 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. 3) When properties are transferred in fraud of creditors. thus. it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. being existing shares. and filed with the corporate secretary and the SEC Valid for all meetings but not to exceed 5 years. he has no right to vote and be voted Only the right to vote Law on Agency Proxy loses authority VTA In writing. The voting trustee or trustees may vote by proxy unless the agreement provides otherwise.g.  which shall be transferable in the same manner and with the same effect as certificates of stock. thus. are purchased not subscribed  A subscriber cannot be released from his obligation to pay the balance of the subscription – as it will violate the trust fund doctrine o XPN: if all the stockholders consent & no creditors prejudiced  The Trust Fund Doctrine is violated in the following instances: 1) When the corporation releases or condones payment of the unpaid subscription and the stockholder has no right to demand the refund of his investment. Unless expressly renewed. etc) Law on Trust and Corporation Code Presence does not revoke authority The stockholder has beneficial title while the trustee has legal title Who has the right to receive dividends? Stockholder.

1) unless all of the other subscribers consent to the revocation. violation of preemptive right. Actual cash paid to the corporation. 5. Consideration for stocks. Outstanding shares exchanged for stocks in the event of reclassification or conversion. Issuance of stock certificates (63. Shares of stock shall not be issued in exchange for promissory notes or future service. Appraisal right (81) d. in which the requirement of exhaustion may be waived 4) Appraisal right is not available Must be filed with the RTC in the city where the principal office is located.  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 o Initial valuation determined by the incorporators or by the board o Subject to the approval of the SEC. or 3) in the absence thereof. tangible or intangible. otherwise. Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. To file a derivative suit (not in the Code) Requisites of a derivative suit (must be alleged) 1) Can only be filed by a stockholder a. Labor performed for or services actually rendered to the corporation. Preemptive right (39) b. and 6. 31 | P LATON . – A subscription for shares of stock of a corporation still to be formed  shall be irrevocable for a period of at least six (6) months from the date of subscription. or 2) 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. What is necessary is only a resolution of the Board of Directors approving the same   What are the rights of a stockholder? 1) Proprietary a. it must be initiated in the city where the principal office is located not in the city where the property is situated.g. To obtain copies of the financial statements (75) e. (n)  If the corporation did not materialize. 2. may be used for the issuance of bonds by the corporation. tangible or intangible. Pre-incorporation subscription. issuance of stock certificate) 3) Must exhaust all administrative and intracorporate remedies except if the ones who are guilty are the BOD themselves. the valuation thereof shall initially be determined by the incorporators or the board of directors. insofar as they may be applicable. To assets in case of dissolution and liquidation (122) 2) Management a. additional capital in the form of shareholder’s investments is likewise infused to the corporation through postincorporation subscription. The same considerations provided for in this section. CASE: The action for annulment of mortgage is only incidental to the principal cause of action filed which is the derivative suit. it will defeat the purpose of such suit Section 61. To inspect (74) d. That no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission. Must be a stockholder at the time the cause of action accrued b. he is liable for estafa Section 62. Approval of the board is not necessary. The issued price of no-par value shares may be fixed 1) in the articles of incorporation or 2) by the board of directors pursuant to authority conferred upon it by the articles of incorporation or the by-laws. Reason: To insure non-issuance of watered shares. To receive dividends (43) b. Where the consideration is other than actual cash. To approve stock dividends (43) c. 3. thus. CA) N. or consists of intangible property such as patents of copyrights. (5 and 16)  Actual cash paid to the corporation  Property. 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. by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose. Property. Amounts transferred from unrestricted retained earnings to stated capital. To vote on certain corporate acts (84) 3) Remedial a. subject to approval by the Securities and Exchange Commission.2) By increasing the authorized capital stock which necessarily involves additional subscription In both cases. the treasurer must remit or return everything to the subscribers otherwise. (High Yield Realty v. 4. 64) c. Cause of action must not be personal to the stockholder (e. Usually filed the minority because the majority refuses to take action 2) Must be suing in behalf of the corporation a.B. It should be noted in this connection that issuance of shares out of the unsubscribed shares of the authorized capital stock does not need stockholder’s approval. – Stocks shall not be issued for a consideration less than the par or issued price thereof. Previously incurred indebtedness of the corporation.

not yet fully paid and not evidenced by a stock certificate? Deed of assignment – consent of the corporation is required because it will result to novation (change in the person of the debtor) (?) There must be a special power of attorney executed by the registered owner of the share authorizing the transferee to demand the transfer in the stock and transfer books. not binding against the corporation. except as between the parties. 3) No transfer. the number of shares transferred. Also. no promise or order to pay money. – Shares of stock so issued are personal property and may be transferred (requisites) 1) by delivery of the certificate or certificates 2) indorsed by a. SHARES OF STOCK Intangible property  Amounts transferred from unrestricted retained earnings to stated capital (stock dividends)   Outstanding shares exchanged for stocks in the event of reclassification or conversion SITUATION: A contract where the subscription will be paid by the dividends declared.B. Compare with: Transfer of shares. the corporate secretary may go to jail by virtue of Revenue Regulation 2-82. It is believed however that this authority may be included in the deed of assignment or document of transfer itself SEC: If the corporation is insolvent or is in imminent danger of insolvency. payment of taxes and recording in the books – consent of the corporation no longer necessary Section 63. the transferee may file an action to compel the transferor to make such indorsement. there must be an 32 | P LATON . If not recorded. delivery to the transferee. other person legally authorized to make the transfer. Hon. Florendo. However. The buyer-transferee has no right or standing in so far as the corporation is concerned. The requirements of Section 1 of the Negotiable Instruments Law are not How do you sell shares. in the first place. (35)  Stock certificates are non-negotiable instruments under the Negotiable Instruments Law. subscribed and paid up) or increase in capital stock (the increase. the same cannot be considered as an intra-corporate controversy because the transferee is not yet a shareholder (Aquilino Rivera v. fully paid and evidenced with a stock certificate? Endorsement by the stockholder. subscribed and paid up) The capital stock of stock corporations shall be divided into shares for which certificates 1) signed by the president or vice president. Certificate of stock and transfer of shares. 98 – the corporation cannot impose a condition more onerous than the right of first refusal  If the requirements under Section 63 with respect to transfers of shares are not complied with. the number of the certificate or certificates and d. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. the names of the parties to the transaction. the corporation is not bound to recognize the right of the buyer. and 3) sealed with the seal of the corporation shall be 4) issued in accordance with the by-laws. c. the owner or b. his attorney-in-fact or c. CA)  If there is no indorsement in favor of the transferee. however. Valid? Contract is valid but condition is void because dividends may or may not be declared. 2) countersigned by the secretary or assistant secretary. until the transfer is recorded in the books of the corporation showing a. (Tan v. it has been said that stock certificates are quasi-negotiable because they can be transferred by indorsement coupled with delivery Labor performed for or services actually rendered to the corporation Case: See Nielson v Lepanto (not subject to preemptive right)  Previously incurred indebtedness of the corporation. If paid in full STOCK CERTIFICATE Evidence of ownership of the shares See also Sec. o Only XPN: If under the circumstances. a. taxes must also be paid before the recording of such transfer otherwise. it is considered endorsed by reason of equitable considerations. However. 25% of the subscription must be paid Distinguish with the 25%-25% requirement upon incorporation (the authorized capital stock. shall be valid. 657)  Who can file a petition for mandamus if the requirements are not complied with? The seller-transferor. unless the buyer-transferee is authorized by the former to cause the transfer of shares in the latter’s name in the books of the corporation See GARCIA v ____  UNPAID CLAIM – refers to unpaid subscription and not to any other obligation by the stockholder to the corporation The provisions in the by-laws are not binding against third persons because by-laws are binding only against stockholders except when the third person has actual knowledge of the contents thereof o For shares to be considered as security for the payment of an obligation. b. 144 SCRA 643. present because there is. the date of the transfer. N.

1) shall be sent to every delinquent stockholder either personally or by registered mail. (37)   Requisites for the issuance of the stock certificate 1) The certificate must be signed by the president or vice president. has been paid. if any. for a consideration in any form other than cash.  ALL STOCKS COVERED by said subscription o shall thereupon become delinquent o and shall be subject to sale as hereinafter provided. 6. Liability of directors for watered stocks. with a copy of the resolution. – Subscribers for stock shall pay to the corporation  interest on all unpaid subscriptions  from the date of subscription. as it may deem necessary. shall be solidarily. if any. Issuance of stock certificates. unless the board of directors orders otherwise. not just a provision in the by-laws authorizing the corporation to sell the shares for nonpayment of dues and assessments (CLEMENTE v CA & CHINABANK v CA & CARAG v VALLEY GOLF) Section 64. by resolution. See Sec.  plus accrued interest. (37) Section 67. – Subject to the provisions of the contract of subscription.  shall be made on the date specified in the contract of subscription  or on the date stated in the call made by the board. Delinquency sale. if so required by. 3) The certificate must be delivered. valued in excess of its fair value. having knowledge thereof. Section 65. countersigned by the secretary or assistant secretary. (38) Section 68. (n)  The issued price of no-par value shares may be fixed 1) in the articles of incorporation or 2) 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. o computed from such date until full payment. time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent. Interest on unpaid subscriptions. as to par value shares or full subscription as to no par value shares must first be fully paid. If within thirty (30) days from the said date no payment is made. o unless a different rate of interest is provided in the by-laws. in either case with accrued interest. liable with the stockholder concerned to the corporation and its creditors for the difference  between the fair value received at the time of issuance of the stock and the par or issued value of the same. 2) or who. on or before the date specified for the sale of the delinquent stock. in writing and b. file the same with the corporate secretary. if any is due.  the balance due on his subscription.B. Payment of any unpaid subscription or any percentage thereof. by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose. 4) The par value. not for the stockholder.  and at the rate of interest fixed in the by-laws. Unless the delinquent stockholder pays to the corporation. Notice of said sale. the former can waive it. it must not be less than P5. – The board of directors may. 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. – No certificate of stock shall be issued to a subscriber 1) until the full amount of his subscription 2) together with interest and expenses (in case of delinquent shares). Payment of balance of subscription. o If no rate of interest is fixed in the by-laws. (Section 62) N. – Any director or officer of a corporation 1) consenting to the issuance of stocks a.  the board of directors of any stock corporation o may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and o may collect the same or such percentage thereof.o actual chattel mortgage or pledge agreement. and 5) The original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder Can the corporation issue stock certificates even if the subscription price is not fully paid? Is the requirement waivable? Yes. or 3) in the absence thereof.  order the sale of delinquent stock and  shall specifically state 1) the amount due on each subscription plus all accrued interest. 2) The certificate must be sealed with the seal of the corporation.00 Section 66. 33 | P LATON . The provision is for the benefit of the corporation. thus. such rate shall be deemed to be the legal rate. does not forthwith express his objection a. 2) The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located. and 2) the date. for a consideration less than its par (for par) or issued value (for no-par)or b.

costs of advertisement and expenses of sale. costs of advertisement and expenses of sale. (39a-46a)   The steps to be taken in a delinquency sale may be outlined in this wise: 1) Resolution. shall be credited in favor of the erstwhile delinquent stockholder  If there is no participant in the bidding. for the smallest number of shares or fraction of a share. 3) Publication. 5) Transfer. or unless the board of directors otherwise orders. all the rights may be exercised  From delinquency date until the auction sale. if any. Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription together with accrued interest. and the total amount due shall be credited as paid in full in the books of the corporation. 2) Notice. the BOD will pass a resolution to order the sale of the delinquent shares which should be not earlier than 30 days but not more than 60 days from delinquency date o Notice will be given to the stockholder o Published for once a week for two consecutive weeks in a newspaper of general circulation  In the sale of delinquent shares. 802)  A corporation cannot deduct from any amount due to an employee. There can be no set-off if there is no notice or call for the payment of unpaid subscription. shall be sent to every delinquent stockholder either personally or by registered mail. it shall be withheld until full payment of the subscription 34 | P LATON . The delinquent stock shall be sold at public auction to be held not less than 30 days nor more than 60 days from the date the stocks become delinquent. it should be applied against the unpaid subscription o If stock dividends are declared. bid for the same. the corporation can bid and acquire the shares if the corporation has surplus profit o The shares so acquired will be considered treasury shares and will be disposed of again upon the approval of the board  From the day of subscription up to the day before delinquency sale. The notice shall furthermore be published once a week for two consecutive weeks in a newspaper of general circulation in the province or city where the principal officer of the corporation is located. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. The remaining shares. all rights are suspended except the right to receive dividends in accordance with law o If cash dividends are declared. Notice of said sale. the latter’s unpaid subscription of shares. Poizat. the subscription price is not demandable (APOCADA V NLRC)  Non-payment of the subscription price on the due date does not make the shares delinquent o It becomes delinquent if payment has not been made within the 30-day grace period o The entire subscription becomes delinquent because the contract of subscription is indivisible  If the shares become delinquent. costs of advertisement and  expenses of sale.  Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code. shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares. if there is no due date specified o An exception to the rule that a call is necessary to make the unpaid subscription price due and payable is in case of insolvency (Velasco v. 37 Phil. with a copy of the resolution. 4) Sale. if any. the winning bidder offers the full amount of subscription for the smallest number of shares or fraction of a share o The bid price is the full amount of the balance on the subscription + accrued interest + cost of advertisement and expenses of sale o The shares so bidded shall be issued in favor of the winning bidder and the remaining shares. shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering the same Remedies of the corporation to enforce payment of the subscription o Extrajudicial – to cause the sale of the delinquent shares based on the procedures and formalities provided Judicial – file an action for collection to recover the subscription Due date o The date indicated in the contract of subscription OR o Call on the part of the directors. and 6) Credit of Remainder. In the absence of a notice or call for payment.  the corporation may. o  said delinquent stock shall be sold at public auction to such bidder who shall offer to pay  the full amount of the balance on the subscription together with accrued interest. subject to the provisions of this Code. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. if any. The board of directors shall issue resolution ordering the sale of delinquent stock. for the smallest number of shares or fraction of a share.  The remaining shares.

The period will be base on the grounds provided for in the By-Laws (?) Section 70. c. ii. – Nothing in this Code shall prevent the corporation from collecting  by action in a court of proper jurisdiction o the amount due on any unpaid subscription. When sale may be questioned. the circumstances as to how the certificate was lost. for such amount and c. The notice shall state i. plus accrued interest. 35 | P LATON . After verifying the affidavit and other information and evidence with the books of the corporation. the right to make such contest shall be barred and ii. stolen or destroyed. the name of said corporation. 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. UNLESS the registered owner files a bond or other security in lieu thereof as may be required. shall publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office. (47a)  The 6-month period does not apply to sale of shares of a non-stock corporation. He shall also submit such other information and evidence which he may deem necessary. if any. – No action to recover delinquent stock sold can be sustained upon the ground of  irregularity or defect 1) in the notice of sale. stolen or destroyed: 1. c. o costs and o expenses. nor shall the holder thereof be entitled 4) to any of the rights of a stockholder a. stolen or destroyed. with such sureties as may be satisfactory to the board of directors. i.  with interest from the date of sale at the legal rate. Rights of unpaid shares. on or before the date specified for the sale of the delinquent stock.  The delinquent stockholder may actually stop the delinquent sale if he pays to the corporation. it is the legal rate (6%) o Compensatory – interest from the delinquency date  Under Sections 67 & 68  By reason of default. and iv. Lost or destroyed certificates. once a week for three (3) consecutive weeks b. and d. – 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. – No delinquent stock shall 1) be voted for or 2) be entitled to vote or 3) to representation at any stockholder's meeting. b. except the right to dividends in accordance with the provisions of this Code. said corporation shall cancel in its books the certificate of stock which has been lost. 2. a. the name of the registered owner and iii. (n) Section 73. Effect of delinquency. stolen or destroyed and issue in lieu thereof new certificate of stock. Payment made by the delinquent shareholder automatically stops the sale o However. in such form and d. unless the party seeking to maintain such action  first pays or tenders to the party holding the stock the sum for which the same was sold. the number of shares represented by such certificate. thus due with or without a stipulation Section 69. effective for a period of one (1) year. if no contest has been presented to said corporation regarding said certificate of stock. costs of advertisement and expenses of sale. until and unless he pays the amount due on his subscription with accrued interest. that after the expiration of one (1) year from the date of the last publication. b. o with accrued interest. a. or 2) n the sale itself of the delinquent stock. the serial number of said certificate. the serial number of the certificate and d. the sale may also be stayed upon the order of the board of directors 2 kinds of INTEREST contemplated: o Moratory – interest from the subscription date  Under Section 66  There must be a stipulation  If the rate is silent. and the costs and expenses of advertisement. the number of shares represented by such certificate. if possible. and no such action shall be maintained  unless it is commenced by the filing of a complaint within six (6) months from the date of sale. – Holders of subscribed shares not fully paid which are not delinquent shall have  ALL the rights of a stockholder. the name of the corporation which issued the same. the balance due on his subscription. said corporation a. Court action to recover unpaid subscription. (50a) Section 72. (49a) Section 71. at the expense of the registered owner of the certificate of stock which has been lost.

or of the board of directors or trustees. and 6) Replacement. whether the meeting was regular or special. d. Except in case of 1. i.A. ii. the yeas and nays must be taken on any motion or proposition. The corporation shall publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office. 2) Verification. 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. stockholder or member entered or left the meeting must be noted in the minutes. The protest of any director. no action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost. the notice given. 3) Publication. if special i. bad faith. 201a)   The procedure under Section 73 may be summarized in this wise: 1) Affidavit. trustee. 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. in which shall be set forth in detail a. a record of all business transactions and 2. minutes of all meetings of stockholders or members. it is not liable for the issuance of replacement if made after the expiration of the 1 year period and if there is no fraud. ii. 4) One Year Waiting Period. negligence on the part of the corporation and its officers. and iii. the time and place of holding the meeting. stolen or destroyed. stockholder or member on any action or proposed action must be recorded in full on his demand. – Every corporation  shall keep and carefully preserve  at its principal office 1. stolen or destroyed. i. 5) Contest. The registered owner shall execute and file an affidavit regarding the share and the circumstances regarding its loss. bad faith or negligence on its part o The stockholder who misrepresented shall be the one liable – estafa  Who has better rights? (see Marx Notes for Dean’s example) o If the pledge or mortgage on the original certificate is not in a public instrument.in which case a new certificate may be issued even before the expiration of the one (1) year period provided herein: e. (R. the corporation shall then replace the certificate. its object. 36 | P LATON . 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. c. once a week for three (3) consecutive weeks at the expense of the registered owner of the certificate of stock which has been lost. stockholder or member. then the transferee of the replacement stock certificate has a better right because such certificate should be given same faith and credit as the original stock certificate o If the pledge or mortgage on the original certificate is in a public instrument which binds the whole world. 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.CORPORATE BOOKS AND RECORDS Section 74. every act done or ordered done at the meeting. on a similar demand. then the transferee of the original stock certificate has a better right TITLE VIII . Books to be kept. trustee. b. and a record thereof carefully made. how authorized. i. stolen or destroyed pursuant to the procedure above-described. stolen or destroyed. fraud. There shall be a waiting period of 1 year from the date of the last publication during which a contest can be interposed. e. those present and absent. If there is no contest within the 1 year period. stolen or destroyed. trustee. 2. Upon the demand of any director. or 3. The replacement of shares can only be made before the expiration of the 1 year period if a bond is posted If there is a claim within the 1 year period o The issuance of the replacement should be deemed suspended and o The corporation may file an action for interpleader to compel two conflicting claimants to litigate and prove who has the better right over the shares  If the claim is presented only after the expiration of the 1 year period and a replacement was already issued o Insofar as the corporation is concerned. the time when any director. stock transfer agent. and f. stolen or destroyed. Provided. The corporation shall verify the affidavit and other information and evidence with the books of the corporation.

stockholder or member 1) for damages. stockholder or member of the corporation  at reasonable hours  on business days and he may demand.  the corporation shall furnish to him its most recent financial statement. at his expense. Right to financial statements. o except the payment of a license fee herein provided. sale or transfer of stock made. not conveyances. It is prima facie proof of what transpired during the meeting. in which must be kept a record of 1) all stocks in the names of the stockholders alphabetically arranged. trustees. donation. 2) the installments paid and unpaid on all stock for which subscription has been made. 268. 3) a statement of every alienation. (51a and 32a. o which shall be renewable annually: Provided. trustee. officer or agent o BOD who voted for the adoption a board resolution disallowing such right  File a petition for declaratory relief to pre-empt the filing of a criminal complaint for violation of Section 74 Section 75.  in accordance with the provisions of this Code. and by and to whom made. in good faith b. Provided it is not tantamount to a denial of the right to inspection 3) Must not extend to trade secrets 4) Must be exercised for a purpose germane to his interest as a stockholder 5) May be denied if the stockholder improperly used the information secured in the previous examination or examination was made in bad faith 6) Subject to special laws  SEC has “visitorial rights” – right to inspect books and documents of a corporation (regulatory power)  Liability for refusal to allow inspection – damages and penalty provided for under Section 144 (criminal offense) o Corporate secretary. – 1) Within ten (10) days from receipt of a written request of any stockholder or member. (not conclusive) PEOPLE v DUMLAO  Under Section 63. trustee. in writing. therefore not required to be recorded in the books of the corporation  Right to inspection. shall be liable to such director. Any officer or agent of the corporation who shall refuse to allow any director. the date thereof. The book referred to is the Stock and Transfer Book o Conveyances or transfers such as sale. No. in which case  all the rules and regulations imposed on stock transfer agents. which shall include 37 | P LATON . and succession must be recorded o Note: Pledge and chattel mortgage are not transfers.  the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided. That if such refusal is made pursuant to a resolution or order of the board of directors or trustees. P. shall be applicable. and the date of payment of any installment. No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless  he secures a license from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission. The records of all business transactions of the corporation and the minutes of any meetings  shall be open to inspection by any director. Limitations: 1) Must be exercised any time during reasonable hours on business day 2) Must be exercised in a manner or in the procedure provided for by the by-laws a. or for a legitimate purpose in making his demand. and 2) in addition. Stock corporations must also keep a book to be known as the "stock and transfer book". and 4) such other entries as the by-laws may prescribe. stockholder or member of the corporation  to examine and copy excerpts from its records or minutes. shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided. That it shall be a defense to any action under this section 1) 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 2) or was not acting a. further.)  “Record of all business transactions and minutes of all meeting” – is there a retention period? None in the Philippines  The minutes have persuasive effect once certified by the corporate secretary. That a stock corporation is not precluded from performing or making transfer of its own stocks. for a copy of excerpts from said records or minutes. the transfers must be recorded in the “books” of the corporation to make the transfer binding to the corporation.B. 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 o at reasonable hours o on business days.

shall approve a plan of merger or consolidation setting forth the following: 1. Section 77. if any. Said notice shall state the purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation. The names of the corporations proposing to merge or consolidate. the merged or absorbed corporation ceases to exist and its rights. Such plan. Any amendment to the plan of merger or consolidation may be made. with respect to the consolidated corporation in case of consolidation. shall be considered as the agreement of merger or consolidation. pages 120-124 TITLE IX . a. which shall include o financial statements. at least two (2) weeks prior to the date of the meeting. the result of its operations. hereinafter referred to as the constituent corporations. all the statements required to be set forth in the articles of incorporation for corporations organized under this Code. The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be necessary for the approval of such plan. Articles of merger or consolidation. duly signed and certified by an independent certified public accountant. there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights.000. (n) Section 78. o to be signed by the president or vice-president and o certified by the secretary or assistant secretary of each corporation setting forth: 38 | P LATON . in the articles of incorporation of the surviving corporation in case of merger. Upon the effectivity date. A statement of the changes. At the regular meeting of stockholders or members. showing in reasonable detail its a. assets and b. provided such amendment is 1) approved by majority vote of the respective boards of directors or trustees of all the constituent corporations and 2) ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent corporations. The terms of the merger or consolidation and the mode of carrying the same into effect.  articles of merger or articles of consolidation shall be executed by each of the constituent corporations. and Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable. if the paid-up capital of the corporation is less than P50. – After the approval by the stockholders or members as required by the preceding section. Provided. and. 4.00. a.MERGER AND CONSOLIDATION    A buyer does not assume the obligations of the seller unless: 1) The buyer is a continuation of the personality of the seller 2) The legal personality is supposed to be pierced 3) In cases of merger 4) In cases of consolidation Merger is one where a corporation absorbs another corporation and remains in existence while the other is dissolved o Although there is dissolution of the absorbed corporations.  the board of directors or trustees shall present to such stockholders or members  a financial report of the operations of the corporation for the preceding year. the financial statements may be certified under oath by the a) treasurer b) or any responsible officer of the corporation. together with any amendment. and consolidating corporations are extinguished Section 76. (n) 4) Upon approval by majority vote of each of the board of directors or trustees of the constituent corporations of the plan of merger or consolidation. That if after the approval by the stockholders of such plan. properties as well as liabilities pass on to the surviving corporation (ASSOCIATED BANK V CA) Consolidation is one where a new corporation is created. The board of directors or trustees of each corporation. However. Notice of such meetings shall be given to all stockholders or members of the respective corporations. party to the merger or consolidation.a) b) 2) a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable year. privileges. the appraisal right shall be extinguished. the board of directors decides to abandon the plan. – 1) 2) 3) Read CASE OUTLINE in Marx. the same shall be submitted for approval by the stockholders or members of each of such corporations at separate corporate meetings duly called for the purpose. Stockholder's or member's approval. (n) 2. liabilities and c. privileges and powers as well as their liabilities. Plan or merger of consolidation. either personally or by registered mail. Any dissenting stockholder in stock corporations may exercise his appraisal right in accordance with the Code: b. – 1) 2) Two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. 3.

and. and As to each corporation. privileges. respectively. the Securities and Exchange Commission has reason to believe that the proposed merger or consolidation is contrary to or inconsistent with the provisions of this Code or existing laws. (n) PROCEDURE: 1) Preparation (not in the Corporation Code) of plan of merger or consolidation. the favorable recommendation of the appropriate government agency shall first be obtained Issuance of a certificate of merger or of consolidation if not inconsistent with the provisions of this Code and existing laws a. privileges. include a copy or a summary of the plan Affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock Execution of the Articles of Merger or Consolidation by each of the constituent corporations a. or belonging to. educational institutions and other special corporations governed by special laws. shall be the consolidated corporation designated in the plan of consolidation.1. it shall set a hearing to give the corporations concerned the opportunity to be heard. If contrary to or inconsistent. be signed by their respective presidents or vice-presidents and b. time and place of hearing shall be given to each constituent corporation at least two (2) weeks before said hearing. and all and every other interest of. the effectivity of the merger or consolidation commences upon the approval of the SEC not upon approval of the BSP. it shall issue a certificate of merger or of consolidation. (n) a. b. – The articles of merger or of consolidation. the favorable recommendation of the appropriate government agency shall first be obtained. In case of merger. Effects of merger or consolidation. 2. except that of the surviving or the consolidated corporation. like Banks. 4. – The merger or consolidation shall have the following effects: 1. shall be the surviving corporation designated in the plan of merger. trust companies. ratified by the affirmative vote of stockholders representing at least twothirds (2/3) of the outstanding capital stock of each of the constituent corporations In the cases of special corporations governed by special laws. The Commission shall thereafter proceed as provided in this Code. Other matters 2) Submission of the plan for approval by majority vote of each of the board of directors or trustees a. the number of shares outstanding. Exchange & Swap Ratio c. Terms of merger or consolidation and mode of carrying the same into effect i. The plan of the merger or the plan of consolidation. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights. or due to each constituent corporation. The surviving or the consolidated corporation shall possess all the rights. immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code. building and loan associations. statement of the changes in the articles of incorporation of the surviving corporation. real or personal. Written notice of the date. upon investigation. in case of consolidation. The constituent corporations shall become a single corporation which. a. public utilities. SEC will set a hearing to give the corporations concerned the opportunity to be heard CASE: 2010 Decision: In cases of special corporations governed by special laws. 3. insurance companies. 2. and 39 | P LATON . signed and certified as herein above required. 3. That in the case of merger or consolidation of banks or banking institutions. If. Who will be the surviving corporation? ii. 1) 2)  If the Commission is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the provisions of this Code and existing laws. Section 80. shall be deemed transferred to and vested in such surviving or consolidated corporation WITHOUT FURTHER ACT OR DEED. c. Effectivity of merger or consolidation. in separate meetings 3) Notice to stockholders 6) 7) 8) at least two (2) weeks prior to the date of the meeting. either personally or by registered mail b. Names of the constituent corporations b. in case of consolidation. including subscriptions to shares and other choses in action. the number of shares or members voting for and against such plan. of each constituent corporations b. at which time the merger or consolidation shall be effective. the number of members. approved by majority vote of the respective boards of directors of all the constituent corporations and b. stating the purpose of the meeting c. and. immunities and franchises of each of the constituent corporations. certified by their respective secretary or assistant secretary c. See Section 78 for contents Amendment to the plan of merger or consolidation may still be made before filing with the SEC provided a. all the statements required to be set forth in the articles of incorporation d. in case of merger. a. The separate existence of the constituent corporations shall cease. shall be submitted to the Securities and Exchange Commission in quadruplicate for its approval:  Provided. 4) 5) Section 79. and all receivables due on whatever account. or in the case of non-stock corporations. As to stock corporations. Contents of the plan: a. and all property.

(n) 40 | P LATON . properties and liabilities are acquired by the surviving corporation Consent of creditors not necessary because they are protected by express provision of law. See last paragraph of Section 80 CASE: ASSOCIATED BANK v CA: Receivables. o and the third by the two thus chosen. the surviving corporation is not bound to absorb the employees of the absorbed corporation. The law refers to all assets and liabilities without qualifications  Transfers of property from the absorbed corporation to the surviving corporation are not subject to tax. investment of corporate funds in another business or secondary purpose c. or b. of changing or restricting the rights of any stockholder or class of shares. mortgage.  The findings of the majority of the appraisers shall be final.  it shall be determined and appraised by three (3) disinterested persons. In case any amendment to the articles of incorporation has the effect a. Section 81 b. exchange.   Novation is not a valid defense because it is settled that in the merger or consolidation of two existing corporations. o excluding any appreciation or depreciation in anticipation of such corporate action. transfer. one of the corporations survives and continues the business. Section 105. (n)  The surviving corporation is bound to honor the Collective Bargaining Agreement of the absorbed corporation. Instances of appraisal right. pledge or other disposition a.APPRAISAL RIGHT Section 82.5. the corporation  shall pay to such stockholder. If the proposed corporate action is implemented or affected. action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. and their award shall be paid by the corporation within thirty (30) days after such award is made: Provided. (n)  Appraisal right is the right of the stockholder to demand payment of the fair value of his share after dissenting from a proposed corporate act involving fundamental changes in the corporation in the case specified by law o Statutory right o Proprietary right of a stockholder o Limited by law  REQUISITES: 1) The right can only be exercise in the cases provided by law a. in a close corporation. – The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action. In case of merger or consolidation. 2010: Human beings are not corporate assets. and (See test under Section 40) 3. o This means that there will be 2 CBAs CASE: BPI DAVAO UNION v. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations.  the fair value thereof as of the day prior to the date on which the vote was taken. lease. In case of sale. or c. How right is exercised. That upon payment by the corporation of the agreed or awarded price. BPI. the withdrawing stockholder and the corporation cannot agree on the fair value of the shares. during or after execution of the merger or effectivity thereof. while the other corporation is dissolved and all its rights. the stockholder shall forthwith transfer his shares to the corporation. Section 42. TITLE X . 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. If within a period of sixty (60) days from the date the corporate action was approved by the stockholders. further. o another by the corporation. o one of whom shall be named by the stockholder. and any pending claim. of extending or shortening the term of corporate existence. 2. for any reason 2) The stockholder must have been present during the stockholders’ meeting and he must dissent to the proposed corporate act 3) Written demand within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares Section 81. o upon surrender of the certificate or certificates of stock representing his shares. That failure to make the demand within such period shall be deemed a waiver of the appraisal right. of authorizing preferences in any respect superior to those of outstanding shares of any class. The law refers to property rights. are deemed acquired by the surviving corporation. Therefore. of all or substantially all of the corporate property and assets as provided in the Code.  by making a written demand on the corporation  within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares: o Provided. – 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.

o in which case they shall be borne by the latter. Effect of demand and termination of right. mortgage. Fair value is determined and appraised by three (3) disinterested persons (appraiser) ii. 4) 5) 6) 7)  The fair value thereof as of the day prior to the date on which the vote was taken i. 3) or if the Securities and Exchange Commission determines that such stockholder is not entitled to the appraisal right. In an action to recover the cost of appraisal in case the refusal by the stockholder is justified 2) Stockholder bears the cost if a. or if the proposed corporate action is a. and all dividend distributions which would have accrued on his shares shall be paid to him.  EXCEPT the right of such stockholder to receive payment of the fair value thereof: Provided. Price that the corporation is willing to pay is lower than the value as determined by the appraisers b. including voting and dividend rights. then the right of said stockholder to be paid the fair value of his shares shall cease. 2001: If the corporation unjustifiably refuses to pay the dissenting stockholder despite full compliance with all the requirements for the valid exercise of appraisal right and despite the fact that the corporation has sufficient unrestricted retained earnings. (n) Section 84. lease. however. Price that the corporation is willing to pay is approximately the same as determined by the appraisers b. pledge or other disposition… 2) Investment of corporate funds in another business or secondary purpose  A transferee cannot demand the payment of the fair value of the shares because once the shares are sold then it ceases to be subject to appraisal right. The award shall be paid by the corporation within thirty (30) days after such award is made Submit the certificates of stock representing his shares to the corporation for notation thereon that such shares are dissenting shares within ten (10) days after demand The corporation has unrestricted retained earnings in its books to cover such payment Upon payment by the corporation of the agreed or awarded price. In an action to recover the cost of appraisal in case the refusal by the stockholder is unjustified Section 86. his status as a stockholder shall thereupon be restored. abandoned or rescinded by the corporation or b. transfer. shall be suspended in accordance with the provisions of this Code. – The costs and expenses of appraisal shall be borne by the corporation. Section 85. i. a dissenting stockholder shall 41 | P LATON . So the buyer acquires all the rights of a regular stockholder. all costs and expenses shall be assessed against the corporation. the stockholder shall forthwith transfer his shares to the corporation (shares shall become treasury shares) Implementation of the proposed corporate act SEC Opinion. (n)  Corporate actions where approval of SEC is necessary 1) In case any amendment to the articles of incorporation… 2) In case of merger or consolidation  Corporate actions where approval of SEC is not necessary 1) In case of sale. If the withdrawing stockholder and the corporation cannot agree within a period of sixty (60) days from the date the corporate action was approved by the stockholders. Notation on certificates. 1) 2) If.a. the aggrieved stockholder may file the appropriate action before the proper Regional Trial Court to compel the corporation to allow him to exercise his appraisal right Section 83.  unless the refusal of the stockholder to receive payment was unjustified. October 1. rights of transferee. – No demand for payment under this Title may be withdrawn unless the corporation consents thereto. excluding any appreciation or depreciation in anticipation of such corporate action b. The law even says that the right to receive dividends which would have accrued from the shares had there been no appraisal right would likewise inure to the benefit of the buyer. his voting and dividend rights shall immediately be restored. That if the dissenting stockholder is not paid the value of his shares within 30 days after the award. such demand for payment is withdrawn with the consent of the corporation. exchange. – Within ten (10) days after demanding payment for his shares. In the case of an action to recover such fair value. all rights accruing to such shares.  UNLESS the fair value ascertained by the appraisers is approximately the same as the price which the corporation may have offered to pay the stockholder. (n)  Summary: 1) Corporation bears the cost if a. disapproved by the Securities and Exchange Commission where such approval is necessary. Who bears costs of appraisal. – From the time of demand for payment of the fair value of a stockholder's shares until either 1) the abandonment of the corporate action involved or 2) the purchase of the said shares by the corporation. When right to payment ceases.

– Non-stock corporations may be formed or organized for 1) charitable. or in case of corporation sole Note: Distribution is allowed if it is by reason of dissolution The right to vote may be broaden. a non-stock corporation is one where no part of its income is distributable as dividends to its members. at the option of the corporation. terminate his rights under this Title. a. like chambers. (n) TITLE XI . or 12) any combination thereof. o subject to the provisions of this Title. 9) social. or 11) similar purposes. If shares represented by the certificates bearing such notation are transferred. agricultural and d. preferably in the principal office itself Sections 117-122 Members may directly elect their corporate officers See Section 92 Anywhere for as long as it is within the Philippines Sections 94-95 The nationality of a non-stock corporation is computed on the basis of the nationality of its members and not premised on the membership contribution Section 87. denied. voting by district is a form of limitation Personal and nontransferable. the board elects or appoints the corporate officers (trilevel hierarchy) see Section 25 Conducted in the city or municipality where the principal office is located. subject to the provisions of this Code on dissolution:  Provided. 8) scientific. o and all dividend distributions which would have accrued on such shares shall be paid to the transferee. Definition.NON-STOCK CORPORATIONS Existence of capital stock Profit Distribution of profits Right to vote for Term limit Number directors NON-STOCK Has no authorized capital stock Increase in capital stock requires approval of board and stockholders Increase in the capital of non-stock corporation does not require consent of the members Not organized for profit Not distributable thus. o whenever necessary or proper. they can sell freely and voluntarily unless there is a right of restriction in the AOI A stockholder cannot forfeit his share.  the rights of the transferor as a dissenting stockholder under this Title shall cease and  the transferee shall have all the rights of a regular stockholder. The provisions governing stock corporation. otherwise it will amount to confiscation without due process 1 year until successor is elected or qualified Not less than 5 not more than 15 XPN: in case of merger or consolidation. like a. when pertinent. or limited as provided in the AOI. 4) professional. trustees. it cannot be denied in the AOI Membership Grounds expulsion STOCK Has capital stock divided into shares of Not personal. 7) literary. industry. b. must be used in furtherance of the purpose for which it is organized Organized for profit Distributed thru dividends to the stockholders Cumulative method of voting is a statutory right. the corporation cannot forfeit his shares because such shares are owned by the stockholder even in case of violation of the AOI or by-laws. no dividends. 2) broadened or 3) denied to the extent specified in 42 | P LATON .  except as may be covered by specific provisions of this Title. hence transferable. unless the AOI or by-laws otherwise provide The grounds for expulsion or termination may be provided for in the AOI or by-laws Staggered term In case of vacancy. – For the purposes of this Code. 3) educational. apply Section 29 Not less than 5 may be more than 15 XPN: in case of nonstock educational corporation. shall be applicable to non-stock corporations. (n) CHAPTER I MEMBERS Section 89. consent of the corporation is not required. 2) religious. Right to vote. c. 6) fraternal. not more than 15 Election or appointment of corporate officers Meetings Dissolution  Stockholders elect the board. subject to the special provisions of this Title governing particular classes of non-stock corporations. (n) Section 88. Purposes. That any profit which a non-stock corporation may obtain as an incident to its operations shall. up to 21. 5) cultural. or officers. and the certificates consequently cancelled. o His failure to do so shall. – The right of the members of any class or classes to vote may be 1) limited. submit the certificates of stock representing his shares to the corporation for notation thereon that such shares are dissenting shares. o be used for the furtherance of the purpose or purposes for which the corporation was organized. trade. 10) civic service.

Unless otherwise provided in the articles of incorporation or the by-laws. organizations or corporations. Place of meetings. the Securities and Exchange Commission. or provide for distribution. and which condition occurs by reason of the dissolution. That the place of meeting shall be within the Philippines. religious. a member may vote by proxy in accordance with the provisions of this Code. the by-laws. assets may be distributed to such persons. as soon as organized. time and place of such meeting shall be given to each member entitled to vote. shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws. Assets other than those mentioned in the preceding paragraphs. o and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually o and trustees so elected shall have a term of three (3) years. Termination of membership. as may be specified in a plan of distribution adopted pursuant to this Chapter. Section 90.  the board of trustees of non-stock corporations. so classify themselves that the term of office of one-third (1/3) of their number shall expire every year. (n) CHAPTER III DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS Section 94. and 5. transfer or conveyance by reason of the dissolution. (n) Section 93. educational or similar purposes. (n) Section 91. satisfied and discharged. 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. All liabilities and obligations of the corporation shall be paid. Assets received and held by the corporation subject to limitations permitting their use only for charitable. but not held upon a condition requiring return. broadened or denied. In any other case. shall be entitled to one vote.a. No person shall be elected as trustee unless he is a member of the corporation. (n) Section 95. 2. Non-transferability of membership. 4.  shall. (n) Voting by mail or other similar means by members of nonstock corporations 1) may be authorized by the by-laws of non-stock corporations 2) with the approval of. (n) CHAPTER II TRUSTEES AND OFFICES Section 92. 2) Written notice setting forth the proposed plan of distribution or a summary thereof and the date. or any class or classes of members. whether or not organized for profit. – A plan providing for the distribution of assets. may be adopted by a non-stock corporation in the process of dissolution in the following manner: 1) The board of trustees shall. each member. by majority vote. o which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws. its assets shall be applied and distributed as follows: 1. transfer or conveyance. – In case dissolution of a non-stock corporation in accordance with the provisions of this Code. Plan of distribution of assets. if any.  Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. 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. transferred or conveyed in accordance with such requirements. shall be transferred or conveyed to one or more corporations. regardless of class. Unless otherwise provided in the articles of incorporation or the by-laws. – Unless otherwise provided in the articles of incorporation or the by-laws. UNLESS the articles of incorporation or the by-laws otherwise provide. shall be returned. or adequate provision shall be made therefore. That proper notice is sent to all members indicating the date. – The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings  at any place even outside the place where the principal office of the corporation is located: o Provided. to the extent that the articles of incorporation or the by-laws. – Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. societies.  Termination of membership shall have the effect of EXTINGUISHING all rights of a member in the corporation or in its property. Rules of distribution. not inconsistent with the provisions of this Title. UNLESS so limited. officers of a non-stock corporation may be directly elected by the members. Assets held by the corporation upon a condition requiring return. 3. – Membership in a non-stock corporation and all rights arising therefrom are 1) personal and 2) non-transferable. the articles of incorporation or b. o unless otherwise provided in the articles of incorporation or the by-laws. determine the distributive rights of members. benevolent. and under such conditions which may be prescribed by. further. within the time and in the 43 | P LATON . time and place of the meeting: and o Provided. Election and term of trustees.

o Remedy: Dissolution   Can we merge a stock corporation with a non-stock corporation? Yes Appraisal right The provisions for stock corporations can be applied to non-stock corporations suppletorily. All the corporation's issued stock of all classes. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. an action may be implemented by the corporation sans prior or after board meeting for as long as the stockholders are accustomed in doing it in such manner or no objection from them or the directors consent before or after the meeting Absolute! Extends to any or all SEC interference Business Judgment Rule. within the meaning of this Code. (n)  A stock corporation may be converted to a non-stock corporation by mere amendment of the AOI  A non-stock corporation cannot be converted to a stock corporation by mere amendment of the AOI. approval majority of board stockholders representing least 2/3 of outstanding capital stock of the of the and at the It can be exercised for any reason or for no reason at all Can be exercised regardless of existence of unrestricted retained earnings for as long as it will not result to the insolvency of the corporation In case of deadlock in the management of the corporation. shall be held of record by not more than a specified number of persons. all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title. exclusive of treasury shares. Definition and applicability of Title. not exceeding twenty (20). SEC may intervene and can do certain acts See Section 105 Any stockholder who thinks there is mismanagement or fraud in the corporation may petition with the SEC to dissolve the corporation A stockholder may file a Derivative Suit Section 96. o In case of conflict. TITLE XII . 44 | P LATON . Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the members having voting rights present or represented by proxy at such meeting. the provisions of non-stock corporation shall prevail. and 3. SEC cannot interfere Dissolution In case voluntary dissolution. Can be exercised if there is unrestricted retained earnings Extends to treasury shares by explicit provision of law Cannot be listed They can be made liable for corporate tort unless the corporation obtain adequate liability insurance coverage Formalities are dispensed with. 2.CLOSE CORPORATIONS Number of stockholders Stocks listed in the stock exchange Management by stockholders Meetings Preemptive right OPEN No limit on the number May be listed CLOSE Not exceeding 20 BOD exercises corporate powers and performs acts of management Stockholders may actively participate in the management of the corporation Stockholders – no management powers (those reserved to them do not pertain to the management of the corporation) Thus. – A close corporation. they should be subject to the same liabilities as members of the BOD There is a meeting in which the resolution is taken up and adopted by the BOD Does not extend to issuance of shares in payment of a debt or in exchange of property unless ratified by the stockholders representing at least 2/3 of the outstanding capital stock issuance of shares whether for payment of a debt or exchange of property Extends to treasury shares by way of SEC Opinion Can only be exercised in cases provided for by law.3) manner provided in this Code for the giving of notice of meetings to members. is one whose articles of incorporation provide that: 1.

that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation. and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons. The provisions of this Title shall primarily govern close corporations:  Provided. who are entitled to be holders of record of its stock. 4. refuse to register the transfer of stock in the name of the transferee.  If upon the expiration of said period.The articles of incorporation of a close corporation may provide: 1. Section 98. at its option. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the corporation. Unless the context clearly requires otherwise. 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. the corporation may. 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. Effects of issuance or transfer of stock in breach of qualifying conditions. notice either a. that the transfer of stock is in violation of a restriction on transfer of stock. The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. a. 3) stock exchanges. 5) insurance companies. and 3. Any corporation may be incorporated as a close corporation. the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. subject to the provisions of the following section. February 14. and if the certificate for such stock conspicuously states such number. not exceeding twenty (20). the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code.Notwithstanding the foregoing. or b. 6) public utilities. the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction. – 1.  In case of death of one of the shareholders. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. such person is conclusively presumed to have notice of the fact of his ineligibility to be a stockholder. – Restrictions on the right to transfer shares must appear 1) in the articles of incorporation and 2) in the by-laws as well as 3) in the certificate of stock. If the articles of incorporation of a close corporation states the number of persons. otherwise. or c. a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders. 2. In which case. The stockholders of the corporation shall be subject to all liabilities of directors. the transferring stockholder may sell his shares to any third person. the close corporation is still subject to the same restriction even if the deceased has two or more heirs whose presence will result in the presence of more than 20 shareholders. Whenever any person to whom stock of a close corporation has been issued or transferred has. 2. EXCEPT 1) mining or 2) oil companies. or is conclusively presumed under this section to have. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of incorporation to be a holder of record of its stock. 45 | P LATON . Articles of incorporation. Section 99. instead of by the board of directors. 1980) Section 97. 4) banks. that he is a person not eligible to be a holder of stock of the corporation. the existing stockholders or the corporation fails to exercise the option to purchase. Validity of restrictions on transfer of shares. and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof. . That the provisions of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides. 2. and 3. each of whom may be voted for and elected solely by a particular class of stock. 3. 7) educational institutions and 8) corporations declared to be vested with public interest in accordance with the provisions of this Code. the heirs have two options. For a classification of directors into one or more classes. the same shall not be binding on any purchaser thereof in good faith. No meeting of stockholders need be called to elect directors. namely: 1) The shares of the deceased may be placed in the name of one of the heirs who will be the nominee or representative of the heirs. or 2) A corporation can be organized to hold all the shares (Proceedings Batasan Pambansa. So long as this provision continues in effect: 1. if such acquisition violates the restriction. conditions or period stated therein.

except those required by this Title to be embodied in said articles of incorporation. any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. an action taken therein within the corporate powers is deemed ratified by a director who failed to attend. Section 101. express or implied. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders. may provide that in exercising any voting rights. i. including reissuance of treasury shares. a.  unless the articles of incorporation provide otherwise. property or personal services. or 2. 4. Section 103. whether with or without voting rights. – Any amendment to the articles of incorporation which seeks 1) to delete or remove any provision required by this Title to be contained in the articles of incorporation or 2) to reduce a quorum or voting requirement stated in said articles of incorporation shall not be valid or effective UNLESS approved by the affirmative vote  of at least two-thirds (2/3) of the outstanding capital stock.5. or 4. 3. Section 102. Good faith is not a defense Section 100. if a. 2. If a director's meeting is held without proper call or notice. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. a. is not limited to a transfer for value. the stockholders shall be held to strict fiduciary duties to each other and among themselves. iii. on the ground that its effect is to make them partners among themselves. irrespective of where the provisions of such agreements are contained. shall survive the incorporation of such corporation and ii. unless the corporation has obtained reasonably adequate liability insurance. 5. signed by all stockholders. 3. written consent thereto is signed by all the directors. on the ground that it so relates to the conduct of the business and affairs of the corporation i. Amendment of articles of incorporation. 2. the shares held by them shall be voted as therein provided. b. 6. – The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued. – Unless the by-laws provide otherwise. Before or after such action is taken. That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed by this Code on directors. or 3. relating to any phase of the corporate affairs. – 1. to recover under any applicable warranty. Said stockholders shall be personally liable for corporate torts i. or as determined in accordance with a procedure agreed upon by them. as to restrict or interfere with the discretion or powers of the board of directors: Provided. Pre-emptive right in close corporations. in writing and b. deleting or removing any of the 46 | P LATON . shall be invalidated as between the parties a. as used in this section. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation. No provision in any written agreement signed by the stockholders. The term "transfer". An agreement between two or more stockholders. When board meeting is unnecessary or improperly held. ii.  The provisions of subsection (4) SHALL NOT BE APPLICABLE IF the transfer of stock.  or of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending. signed by the parties thereto. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing. or b. has been consented to by all the stockholders of the close corporation. 7. Agreements by stockholders. if the close corporation has amended its articles of incorporation in accordance with this Title. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated a. to rescind the transfer or b. shall continue to be valid and binding between and among such stockholders. The provisions of this section shall not impair any right which the transferee may have a.  unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. a. 4. or as they may agree. to the extent that such agreements are not inconsistent with the articles of incorporation. i. whether for money. 1. or in payment of corporate debts. (2) or (3). though contrary to subsections (1). if such be their intent. Agreements by and among stockholders executed before the formation and organization of a close corporation.

– Educational corporations shall be governed 1) by special laws and 2) by the general provisions of this Code. requiring the purchase at their fair value of shares of any stockholder. or any stockholder's agreement. (n) Section 107. if any. or 2) fraudulent. not a receiver of the corporation and b. Pre-requisites to incorporation. or by the other stockholders. of any subsidiary or affiliate of the corporation. 47 | P LATON . – Notwithstanding any contrary provision in the articles of incorporation or by-laws or agreement of stockholders of a close corporation.  with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally. or 7. of the corporation or ii. – Except upon favorable recommendation of the Ministry of Education and Culture. or 6) whenever corporate assets are being misapplied or wasted. In the exercise of such power. That any stockholder of a close corporation may. cancelling. when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock:  Provided. 4) Section 104. stockholders. 6. by-laws. stockholders. all the rights and powers of a duly elected director of the corporation. o compel the said corporation to purchase his shares at their fair value. ii. nor a creditor i. officers or those in control of the corporation is 1) illegal.  Some of the provisions under close corporation are applicable to open corporations: 1) Restriction on transfers 2) Classification of shares 3) Qualifications of directors 4) Pulling of shares and manner of voting TITLE XIII . i. the Commission shall have authority to make such order as it deems appropriate. or officers. by all the stockholders. which may fix his compensation i. may be determined by the Commission.  any stockholder of a close corporation may. at a meeting duly called for the purpose. altering or enjoining any resolution or act of the corporation or its board of directors. upon written petition by any stockholder. 2) A provisional director is a. A provisional director shall be 1) an impartial person who is a.SPECIAL CORPORATIONS CHAPTER I EDUCATIONAL CORPORATIONS Section 106. shall have the power to arbitrate the dispute. for any reason. if the directors or stockholders are so divided  respecting the management of the corporation's business and affairs  that the votes required for any corporate action cannot be obtained. in the event of disagreement between the provisional director and the corporation.  His compensation shall be determined by agreement between him and the corporation a. by order of the Commission or 2. which shall not be less than their par or issued value. 3. This covers not only cases where the votes of two contending groups are equal but also cases when the required vote cannot be obtained because of the division in the corporation Section 105. dissolving the corporation. including an order: 1. o compel the dissolution of such corporation whenever any of acts of the directors. neither a stockholder b. 2. the Securities and Exchange Commission.aforesaid provisions. or other persons party to the action. and whose further qualifications. including the right to notice of and to vote at meetings of directors. Withdrawal of stockholder or dissolution of corporation. 4. c. Deadlocks. directing or prohibiting any act of the corporation or its board of directors. 5. – In addition and without prejudice to other rights and remedies available to a stockholder under this Title. or 3) dishonest. or 4) oppressive or 5) unfairly prejudicial to the corporation or any stockholder. in the absence of agreement or ii. granting such other relief as the circumstances may warrant. by written petition to the Securities and Exchange Commission. 3) A provisional director shall have a. officers. either by the corporation regardless of the availability of unrestricted retained earnings in its books. until such time as he shall be removed 1. Incorporation. does not have the title and powers of a custodian or receiver. subject to approval of the Commission. appointing a provisional director. cancelling or altering any provision contained in the articles of incorporation.

5) rabbi or 6) other presiding elder of such religious denomination. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years. – Religious corporations may be incorporated by one or more persons. minister. corporations sole and religious societies. 2) bishop. Governed by the rules. so classify themselves that the term of office of one-fifth (1/5) of their number shall expire every year. regulations and discipline of his religious denomination. sect or church a. sect or church d. Unless otherwise provided in the articles of incorporation on the by-laws. a. Trustees thereafter elected to fill vacancies. Religious corporations shall be governed by this Chapter and by the general provisions on non-stock corporations insofar as they may be applicable. as trustee. rabbi or presiding elder. 4) minister. sect or church  must file with the Securities and Exchange Commission articles of incorporation setting forth the following: 1. – Trustees of educational institutions organized as non-stock corporations shall not be less than five (5) nor more than fifteen (15):  Provided. Ordinary non-stock religious corporation under Section 88 Section 110. b. – For institutions organized as stock corporations. regulations and discipline of its religious denomination. the chief archbishop. and that he desires to become a corporation sole. the number and term of directors shall be governed by the provisions on stock corporations. 1/5 will be replaced every year  Whether stock or non-stock educational corporation. He is not acting in his personal capacity 3. Articles of incorporation. May be allowed to exist perpetually i. 2. the affairs. priest. (169a) For the purpose of administering and managing. priest. colleges. a. That as such chief archbishop. Classes of religious corporations. Not required to file by-laws c. 3) priest. Board of trustees. Corporation sole. it cannot be organized without the favorable endorsement of the appropriate government agency o CHED o DEPED CHAPTER II RELIGIOUS CORPORATIONS Section 111. property and temporalities of any religious denomination. – In order to become a corporation sole. 1) the board of trustees of incorporated schools. bishop. (168a) Section 108. bishop. a corporation sole may be formed by the 1) chief archbishop. That the rules. minister. o o the Securities and Exchange Commission shall not accept or approve the articles of incorporation and by-laws of any educational institution. or other institutions of learning shall. sect or church. Consists of one person only b. o They are governed by the “Education Act of 1982” and the provisions of the Corporation Code in a suppletory basis   An educational corporation may be organized as a o Educational stock corporation  Number of directors – not less than 5 not more than 15  Term of office – 1 year until the successors are elected and qualified o Educational non-stock corporation  Number of directors – not less than 5 not more than 15 (multiples of 5)  Term of office – staggered. sect or church are not inconsistent with his becoming a corporation sole and do not forbid it. (n)  Kinds: 1) 2) 3) Corporation sole under Sections 110. the corporation sole regardless of the nationality of the presiding elder or bishop may acquire private lands in he Philippines o He is only acting as trustee for his religious sect or denomination. however.  Such corporations may be classified into It is very important to make a fine distinction between the natural character and juridical character in terms of capacity to acquire private lands in the Philippines o If at least 60% of the members of the religious sect or denomination are Filipinos. Section 109. That he is the chief archbishop. 3) The powers and authority of trustees shall be defined in the by-laws. bishop. rabbi or presiding elder of any religious denomination. occurring before the expiration of a particular term. (154a)  Educational corporations – organized for the purpose of providing facilities for instruction and learning. shall hold office only for the unexpired period. 2) A majority of the trustees shall constitute a quorum for the transaction of business. as soon as organized. That the number of trustees shall be in multiples of five (5). priest. 48 | P LATON . AOI may however fix a term Corporation aggregate/religious society under Section 116. rabbi or presiding elder of his religious denomination. sect or church. minister.

orphan asylums. and accompanied by a copy of the commission. Filling of vacancies. priest. The application for leave to sell or mortgage must be made by petition. rabbi or presiding elder. sect or church to which he belongs. that it is to the interest of the corporation that leave to sell or mortgage should be granted. sect or church. i. according to the rules. duly certified by any notary public. such rules. regulations and discipline shall control. as the case may be. pledge or mortgage properties o With court intervention – by filing a petition for leave of court upon proof of compliance with the requirements under Section 113 o Without court intervention – where the rules. That in cases where the rules. religious society or order concerned represented by such corporation sole regulate the method of acquiring.a. Submission of the articles of incorporation. rabbi or presiding elder shall become a corporation sole and all temporalities. without court intervention  A corporation sole may sell. minister. duly verified. upon proof made to the satisfaction of the court c. parsonages and cemeteries thereof. charitable. convey. and ii. behalf and sole benefit of his religious denomination. and The place where the principal office of the corporation sole is to be established and located. bishop. rabbi or presiding elder acting as corporation sole. a. donation and other lawful means. sect or church. religious society or order concerned represented by such corporation sole regulate the method of acquiring. and 3) accompanied by the documents mentioned in the preceding paragraph. by obtaining an order for that purpose from the Court of First Instance of the province where the property is situated b. for the use. and the intervention of the courts shall not be necessary. sect or church theretofore administered or managed by him as such chief archbishop. certificate of election. that notice of the application for leave to sell or mortgage has been given by publication or otherwise in such manner and for such time as said court may have directed. purpose. 2. including hospitals. encumber. (159a)  A corporation sole may acquire properties. bishop. by affidavit or affirmation of the chief archbishop. and may receive bequests or gifts for such purposes. rabbi or presiding elder shall be held in trust by him as a corporation sole. 4. or letters of appointment. minister. (n) Section 112. colleges. bishop. regulations or discipline of the religious denomination. sect or church within his territorial jurisdiction. estate and properties of the religious denomination. through purchase. b. rabbi of presiding elder is required to be filled. holding. The manner in which any vacancy occurring in the office of chief archbishop. before filing. 1. estate and properties of his religious denomination. schools. minister. rabbi or presiding elder. From and after the filing with the Securities and Exchange Commission of the said 1) articles of incorporation. 2) verified by affidavit or affirmation. (n)  From the very moment the articles of incorporation are filed with the SEC he is transformed into a corporation sole o It does not require the issuance by the SEC of the certificate of incorporation Section 113. a. certificate of election or letter of appointment of such chief archbishop. – 1) 2) Any corporation sole may purchase and hold real estate and personal property for its church. priest. bishop. duly certified to be correct by any notary public. priest. selling and mortgaging real estate and personal property Section 114. he is charged with the administration of the temporalities and the management of the affairs. benevolent or educational purposes. minister. such chief archbishop. selling and mortgaging real estate and personal property. and may be opposed by any member of the religious denomination. priest. regulations and discipline of the religious denomination. minister. which place must be within the Philippines. holding. bishop. minister. priest. The articles of incorporation may include any other provision not contrary to law for the regulation of the affairs of the corporation. minister. regulations and discipline of the religious denomination. describing such territorial jurisdiction. sect or church represented by the corporation sole: Provided. Such corporation may sell or mortgage real property held by it a. 49 | P LATON . 5. Acquisition and alienation of property. priest. – 1) 2) The articles of incorporation must be verified. rabbi or presiding elder in a corporation sole  shall become the corporation sole on their accession to office  and shall be permitted to transact business as such o on the filing with the Securities and Exchange Commission of a copy of their commission. sect or church. – The successors in office of any chief archbishop. priest. bishop. bishop. by the chief archbishop.

sect or church. properties and estate. – A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the Securities and Exchange Commission a verified declaration of dissolution. (160a) TITLE XIV – DISSOLUTION  Dissolution is the extinguishment of corporate franchise of a corporation and the termination of its corporate existence  If a corporation is dissolved then it ceases to exist and cannot continue with its business. 1998: However. synod. regulations or discipline of the religious denomination. or discipline of the religious denomination. The name of the corporation. synod. not the organization may be sued and be held personally liable for their acts  The religious society can be converted/transformed into a corporation and therefore can acquire properties and therefore have all the powers of a corporation as long as there is approval of at least 2/3 of the total members and the rules and regulations of the religious society do not forbid creation/formation of a religious corporation Section 116. which place must be within the Philippines. rules. and how the dissolution shall be carried out  Does the corporation sole have a term? o None. synod. sect or church incorporated as a corporation sole. minister. That the religious society or religious order. or district organization of the religious denomination. sect or church. Upon approval of such declaration of dissolution by the Securities and Exchange Commission. a. at a duly convened meeting of the body. or diocese. For instance. sect or church of which it is a part. or district organization is a religious organization of a religious denomination. regulations or discipline of the religious denomination. 2. synod. (158a) or diocese. his commission. and The names. The declaration of dissolution shall set forth: 1. 2. synod. sect or church. (n)  How do you dissolve a corporation sole? o By filing a verified affidavit of dissolution of the corporation sole. 2) or by competent authority. The successor of the presiding elder will have to simply submit to the SEC his proof of appointment. 4. synod. regulations. since the status of an unincorporated religious group is merely an organization which has no legal personality.  the person or persons authorized and empowered by the rules. – Any religious society or religious order. a. or district organization desiring to incorporate is not forbidden a. estate and properties of the corporation sole during the vacancy shall exercise all the powers and authority of the corporation sole during such vacancy. sect or church represented by the corporation sole to administer the temporalities and manage the affairs. the corporation shall cease to carry on its operations except for the purpose of winding up its affairs. sect or church. by competent authority or b. or district organization of any religious denomination. That the religious society or religious order. for the administration of its affairs. 5. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation. 4. the board of trustees to be not less than five (5) nor more than fifteen (15). bishop. or district organization to serve for the first year or such other period as may be prescribed by the laws of the religious society or religious order. or the diocese.During any vacancy in the office of chief archbishop. a. Section 115. priest. 3. nationalities. It can exist forever. The reason for dissolution and winding up. or district organization desires to incorporate a. may. and residences of the trustees elected by the religious society or religious order. Dissolution. upon written consent and/or by an affirmative vote at a meeting called for the purpose of at least two-thirds (2/3) of its membership. incorporate for the administration of its temporalities or for the management of its affairs. That at least two-thirds (2/3) of its membership have given their written consent or have voted to incorporate. or diocese. the members themselves. June 15. or diocese. 6. rabbi or presiding elder of any religious denomination. Religious societies. The authorization for the dissolution of the corporation by the particular religious denomination. or of the diocese. or any diocese. by the constitution. That the incorporation of the religious society or religious order. synod. 3. or district organization. etc. o articles of incorporation o verified by the affidavit of the presiding elder. secretary. The place where the principal office of the corporation is to be established and located. the reason why the corporation is being dissolved. an unregistered religious group does not acquire all the rights and attributes of a juridical person if not registered.  Registration not mandatory o SEC Opinion. or clerk or other member of such religious society or religious order. or church of which it forms a part. sect. properties and estate  by filing with the Securities and Exchange Commission. rules. setting forth the following: 1. unless forbidden 1) by the constitution. it cannot enter into new 50 | P LATON .

the Commission shall. fix a date on or before which objections thereto may be filed by any person. – A corporation formed or organized under the provisions of this Code may be dissolved 1) voluntarily or 2) involuntarily. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution. o or if there be no such newspaper. a copy of the order shall be published at least once a week for three (3) consecutive weeks o in a newspaper of general circulation published in the municipality or city where the principal office of the corporation is situated. the dissolution may be effected 1) by majority vote of the board of directors or trustees. or any other modes). – Where the dissolution of a corporation may prejudice the rights of any creditor. by an order reciting the purpose of the petition. and  a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city. Upon five (5) day's notice. and the material allegations of the petition are true. it cannot undertake any activity meant to promote the purpose for which it was organized  If a corporation is dissolved. 51 | P LATON .  Before such date. place and object of the meeting for three (3) consecutive weeks i. The petition 1) shall be signed by a majority of its board of directors or trustees or other officers having the management of its affairs. If the petition is sufficient in form and substance. after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. and 3) 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 a. verified by its president or secretary or one of its directors or trustees. the PETITION FOR DISSOLUTION shall be filed with the Securities and Exchange Commission.  and if no newspaper is published in such place.business. goes into liquidation still retaining its primary franchise to be a corporation Section 118. after publication of the notice of time. and 2) by a resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock or of at least twothirds (2/3) of the members of 3) a meeting to be held a. upon call of the directors or trustees b. Methods of dissolution. Voluntary dissolution where no creditors are affected. In case of corporation sole – by filing an affidavit of dissolution e. or brought about by an act of or with the consent of the sovereign power. 4) 5) Section 117. Voluntary dissolution where creditors are affected. or which results from expiration of the charter period of corporate life De facto dissolution is one which takes place in substance and in fact when the corporation by reason of insolvency. the corporation exists only for one thing – to liquidate and wind up its corporate affairs  Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency ii. the Commission shall proceed to hear the petition and try any issue made by the objections filed. whether voluntarily or involuntarily (expiration of term. in a newspaper published in the place where the principal office of said corporation is located. and  if no such objection is sufficient. then in a newspaper of general circulation in the Philippines. By petition of the corporation where creditors are not affected b. given after the date on which the right to file objections as fixed in the order has expired. By petition of the corporation where creditors are affected c. at a meeting of its stockholders or members called for that purpose. Merger and consolidation 2) Involuntary 3) By court order through a quo warranto proceeding De jure dissolution is one that is “adjudged and determined by judicial sentence. – If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it. cessation of business or otherwise. suspends all operations and. (n)    Modes of dissolution 1) Voluntary a. it is still subject to the approval of the SEC Section 119. it may be. 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. then in a newspaper of general circulation in the Philippines. (62a) Even if creditors are not affected. Shortening the corporate term d.  which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order. and 2) shall set forth all claims and demands against it. annulment or forfeiture of its franchise.

RCa)  If the creditors are affected the SEC must conduct a hearing to determine the claims of the various creditors  Is the consent of the creditors necessary to dissolve the corporation? No because there is a proceeding where their interest will be protected (liquidation of corporate properties) a. (n)  Shortening of corporate term entails amendment of the articles of incorporation o approval of majority of the board o approval of stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of the members o favorable endorsement of the public agency concerned if the corporation is a bank. and may appoint a receiver to collect such assets and pay the debts of the corporation.  for the purpose of prosecuting and defending suits by or against it  and enabling it to settle and close its affairs. members. creditors. b. this requires the approval of the SEC b. 3) or whose corporate existence for other purposes is terminated in any other manner. 1) A copy of the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code. all interest which the corporation had in the property terminates. Corporate liquidation. and other persons in interest.  BUT NOT for the purpose of continuing the business for which it was established. insurance company. rules and regulation implemented by the SEC Failure to submit reports required by law and the SEC a. rules and regulations. public utility. shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved. it is required o If involuntary.o o it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires. General Information Sheet ii. as the case may be. At any time during said three (3) years. educational. (n)  Involuntary modes 1) Failure to commence business within 2 years from incorporation (Section 22) 6) Not automatic. – Every corporation whose charter 1) expires by its own limitation 2) or is annulled by forfeiture or otherwise. members.  to dispose of and convey its property and  to distribute its assets. there is no liquidation procedure because the properties or assets of the absorbed corporation are transferred to or assumed by operation of law by the surviving corporation or the new corporation Section 121. – A corporation may be dissolved by the Securities and Exchange Commission 1) upon filing of A VERIFIED COMPLAINT and 2) after proper notice and hearing on the grounds provided by existing laws. 2) Upon approval of the amended articles of incorporation of the expiration of the shortened term. For ordinary corporations i. and the beneficial interest in the stockholders. the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders. Dissolution by shortening corporate term. “Not organized” means no officers are elected or not a single business activity is transacted Continuous inoperation for a period of 5 years (Section 22) Fraud or misrepresentation in procuring the articles of incorporation Refusal to comply or violation of laws. For public company – many requirements Failure to submit by-laws within one month from incorporation  BIR clearance (payment of taxes) o If voluntary. Involuntary dissolution. (Rule 104. any asset distributable to any creditor or stockholder or member who is unknown or cannot be found 52 | P LATON . creditors and others in interest. the corporation shall be deemed dissolved without any further proceedings. members. 2) 3) 4) 5) Section 120. Audited financial statements every year b. or other corporations governed by special laws  Resolution must show the provisions sought to be amended in the AOI (corporate term)  This is akin to filing of petition where creditors are affected o Thus SEC will conduct a hearing to determine the claims against the corporation  In merger or consolidation. it is not required  Quo Warranto Proceeding o It is the government through the OSG that can initiate quo warranto proceedings o A stockholder cannot file a petition with the SEC to dissolve a corporation except in cases of close corporations Section 122. – A voluntary dissolution may be effected by AMENDING THE ARTICLES OF INCORPORATION to shorten the corporate term pursuant to the provisions of this Code.  From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. creditors or other persons in interest. a. subject to the provisions of this Code on liquidation. the legal interest vests in the trustees. Upon the winding up of the corporate affairs.

(n)  It is possible that a foreign corporation be composed of Filipinos for as long as it is formed. Application for a license. (principle of reciprocity) It shall have the right to transact business in the Philippines after it shall have obtained 1) a license to transact business in this country in accordance with this Code and 2) a certificate of authority from the appropriate government agency. and o their translation to an official language of the Philippines. of the principal office of the corporation in the country or state of incorporation. 5. The place in the Philippines where the corporation intends to operate. 16a)  Modes of liquidation. (77a. if necessary. and series. o subject to the provisions of this Code and other special laws. including the street number. 8. 7. 89a. no rights of the corporation shall be impaired on account of the subsequent dissolution of the corporation. if any. shares without par value. organized or existing under any laws other than those of the Philippines and (incorporation test) 2) whose laws allow Filipino citizens and corporations to do business in its own country or state. and 10. all notices affecting the corporation. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange Commission a. shall specifically set forth the following: 1. – For the purposes of this Code. pending the establishment of a local office. The address. The date and term of incorporation. and b. itemized by classes. – Every foreign corporation which on the date of the effectivity of this Code is authorized to do business in the Philippines under a license therefore issued to it. 4. Definition and rights of foreign corporations. unless already stated in its articles of incorporation. itemized by classes. o certified in accordance with law. and existing under foreign laws Section 124. shall be escheated to the city or municipality where such assets are located. 3. shares without par value. 9. Except by decrease of capital stock and as otherwise allowed by this Code. 53 | P LATON . Operates to suspend the authority of a corporation and its directors and officers over its properties and effects 2) Trustee a. It is only for the purpose of liquidating and winding up the corporate affairs TITLE XV . A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued. Appointed by the court upon petition of the corporation b.FOREIGN CORPORATIONS Section 123. 2. 6. Appointed by the corporation b. par value of shares.  shall continue to have such authority under the terms and condition of its license. and series. Attached to the application for license shall be a duly executed certificate under oath by the authorized official or officials of the jurisdiction of its incorporation. to determine whether such corporation is entitled to a license to transact business in the Philippines. because under Section 145 of the Corporation Code. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority to issue.  The application shall be under oath and. The names and addresses of the present directors and officers of the corporation. to determine and assess the fees payable. 2) and that the applicant is an existing corporation in good standing. a foreign corporation is one 1) formed. (n) Section 125. impair rights belonging to the corporation (KNECHT V UNITED CIGARETTE CORP)  Take note: No new business during the 3-year liquidation period. Liquidation may be done by – 1) Receiver a.  no corporation shall distribute any of its assets or property except o upon lawful dissolution and o after payment of all its debts and liabilities. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: a. GILLANO V CA 3) Board of Directors  3 YEARS o If a suit is filed during the lifetime of the corporation (before dissolution) there is no reason why it cannot proceed and continue even beyond the 3-year liquidation period. Provided. That said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency. – A foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission  a copy of its articles of incorporation and by-laws. par value of shares. A statement of the amount actually paid in. The trustee will be the one who shall have the legal title over the properties and assets of the corporation c. organized. attesting to the fact 1) that the laws of the country or state of the applicant allow Filipino citizens and corporations to do business therein. if any. Application to existing foreign corporations. So dissolution cannot extinguish.

the Securities and Exchange Commission shall require the licensee to deposit additional securities  equivalent in actual market value to two (2%) percent of the amount by which the licensee's gross income for that fiscal year exceeds five million (P5. Articles of Incorporation b. except foreign banking or insurance corporation.  the securities deposited as aforesaid shall be returned. comply with the provisions of existing laws applicable to them. from time to time. The application for a license to transact business in the Philippines shall likewise be accompanied by a statement under oath of the president or any other person authorized by the corporation.000.  Upon issuance of the license. o unless such license is sooner surrendered. or 5) any combination of these kinds of securities. a translation thereof in English under oath of the translator shall be attached thereto. They have been updated by the SEC 54 | P LATON . o upon the licensee's application therefor and o upon proof to the satisfaction of the Securities and Exchange Commission that the licensee has no liability to Philippine residents. Such licensee shall be entitled to collect the interest or dividends on the securities deposited. and conditions to be imposed by the SEC ii. Deposit securities with the SEC i. financial and insurance corporations shall. no application for license to transact business in the Philippines shall be accepted by the Securities and Exchange Commission  without previous authority from the appropriate government agency. in addition to the above requirements. 2) and setting forth the assets and liabilities of the corporation as of the date not exceeding one (1) year immediately prior to the filing of the application. the licensee. however. suspended or annulled in accordance with this Code or other special laws. with an actual market value of at least one hundred thousand (P100. The Securities and Exchange Commission may at its discretion release part of the additional securities deposited with it 1) if the gross income of the licensee has decreased. its political subdivisions and instrumentalities. or of government-owned or controlled corporations and entities. – If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws. In the event the licensee ceases to do business in the Philippines. Within sixty (60) days after the issuance of the license to transact business in the Philippines. or shares of stock in domestic insurance companies and banks. revoked. 3) shares of stock in domestic corporations registered in the stock exchange.000. That within six (6) months after each fiscal year of the licensee. rules and regulations. Provided. securities  satisfactory to the Securities and Exchange Commission. Issuance of a license.4) If such certificate is in a foreign language. shall deposit with the Securities and Exchange Commission for the benefit of present and future creditors of the licensee in the Philippines. 2) shares of stock in "registered enterprises" as this term is defined in Republic Act No.000. it has to submit a. by more than ten (10%) percent of the actual market value of the securities at the time they were deposited. Foreign banking. Intended to answer for any possible violation of laws. including the Government of the Republic of the Philippines. such foreign corporation o may commence to transact business in the Philippines o and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation. the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. In the case of all other foreign corporations. The Securities and Exchange Commission may. 2) or if the actual market value of the total securities on deposit has increased. (68a) Section 126. The amounts indicated under the Corporation Code are no longer relevant. (n)  BASIC RULES 1) It must obtain a license from the SEC 2) To obtain a license. allow the licensee to substitute other securities for those already on deposit as long as the licensee is solvent. showing to the satisfaction of the Securities and Exchange Commission and other governmental agency in the proper cases 1) that the applicant is solvent and in sound financial condition. 5186. rules and regulations. consisting of 1) bonds or other evidence of indebtedness of the Government of the Philippines.00) pesos. The Securities and Exchange Commission shall also require deposit of additional securities if the actual market value of the securities on deposit has decreased by at least ten (10%) percent of their actual market value at the time they were deposited. By-Laws as approved by the country where it was incorporated c.00) pesos. whenever required by law.

PHILIP MORRIS V CA b. then it can avoid service and thereby impugn the jurisdiction of local courts  Consequences if a foreign corporation transact within the Philippines without license 1) It cannot intervene or maintain any action or suit in any court or administrative agencies 2) It can be sued for any cause of action recognized under Philippine laws a. Resident agent. reinsurance LORENZO SHIPPING V CHUBB AND SONS) 2) If the foreign corporation had no license at the time of the transaction was consummated but subsequently obtains a license to engage in business before filing the case in the Philippines a. in consideration of its being granted by the Securities and Exchange Commission a license to transact business in the Philippines. – A resident agent may be either 1) an individual residing in the Philippines or 2) a domestic corporation lawfully transacting business in the Philippines: Provided. b. that if at any time said corporation shall cease to transact business in the Philippines. and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office. and n)  A resident agent is one on whom any summons and other legal processes may be served in all actions or other legal  Who can be a resident agent? 1) An individual who is a. (n) Section 128. unless it obtains a license to do business here  Cases where a foreign corporation may sue in the Philippines despite lack of license to do business in the Philippines 1) Isolated or casual transaction (e. (72a. Lack of license is not a bar to the filing of a case against a foreign corporation but it is a bar for a foreign corporation to file a case in the Philippines. in form and substance as follows: "The (name of foreign corporation) does hereby stipulate and agree. because it has no legal capacity. To avoid multiplicity of suits 55 | P LATON .  All expenses incurred by the Commission for such service shall be paid in advance by the party at whose instance the service is made. then in any action or proceeding arising out of any business or transaction which occurred in the Philippines. service of any summons or other legal process may be made upon the Securities and Exchange Commission and that such service shall have the same force and effect as if made upon the duly-authorized officers of the corporation at its home office.  The sending of such copy by the Commission shall be necessary part of and shall complete such service. or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served. for and in behalf of the corporation. Of good moral character and c. on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation. he must be of good moral character and of sound financial standing. Thus. He is not the attorney-in-fact of the corporation. unloading of cargo in the Philippines. transmit by mail a copy of such summons or other legal process to the corporation at its home or principal office. – The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission 1) a written power of attorney designating some person who must be a resident of the Philippines. COLUMBIA PICTURES V CA 4) If the foreign corporation is a co-plaintiff with a domestic corporation and latter filed a suit here in the Philippines a. services and other legal processes in all actions and other legal proceedings against the foreign corporation. a resident agent cannot eve sign the certificate on non-forum shopping that is a requirement in filing an initiatory pleading in court o Discussion: The resident agent may be authorized to certify against non-forum shopping through a separate authority from the foreign corporation Section 127. the Commission shall. Who may be a resident agent." Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission. Residing in the Philippines b. a. service of process. Of sound financial standing 2) A domestic corporation lawfully transacting business in the Philippines  If there is no one authorized to receive summons for the corporation. it shall be his or its duty to immediately notify in writing the Securities and Exchange Commission of the new address. In case of a change of address of the resident agent. The act of obtaining license subsequent to the action retroacts to the date of the transaction and confers upon the corporation the legal capacity to sue in the Philippines (HOME INSURANCE V EASTERN SHIPPING LINES) 3) An action to enforce intellectual property rights a. That in the case of an individual. within ten (10) days thereafter. 2) Any such foreign corporation shall likewise execute and file with the Securities and Exchange Commission an agreement or stipulation.proceedings against the foreign corporation doing business in the Philippines o The power of a resident agent is limited to receive. executed by the proper authorities of said corporation.g.

 favorably endorsed by the appropriate government agency in the proper cases. responsibilities. members. or officers of corporations to each other or to the corporation.  BUT such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. if there is no continuity of activity or undertaking.  duly certified by the authorized official or officials of the country or state of incorporation. and in proper cases with the appropriate government agency. rules and regulations applicable to domestic corporations of the same class. or duties of stockholders. 2) and in the proper cases with the appropriate government agency. a. or its successors or assigns. –   “Doing business” includes any act or acts that imply a continuity of commercial dealings or arrangements. then it is an isolated or casual transaction  Mere participation in a public bidding is tantamount to doing business (HUTCHISON V SBMA)  Other cases wherein a foreign corporation is doing business in the Philippines When a foreign corporation – 1) Appoints a local representative in the Philippines 2) Appoints a distributor 3) Has headquarters in the Philippines 4) Extends credit (ERIK PTE V CA) Take note: The act of not obtaining a license or failure to obtain a license to do business in the Philippines is a criminal offense under Section 144 of the Corporation Code Section 129. Merger or consolidation involving a foreign corporation licensed in the Philippines.  except such only as provide for the creation. or the exercise of some of the functions normally incident to. a. – No foreign corporation transacting business in the Philippines without a license. Amendments to articles of incorporation or bylaws of foreign corporations. formation. (73a) Section 130. – One or more foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation:  Provided. such foreign corporation shall. (69a) 56 | P LATON . within sixty (60) days after the amendment becomes effective. Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or consolidation in its home country or state as permitted by the law of its incorporation. the latter shall at the same time file a petition for withdrawal of its license in accordance with this Title. That the requirements on merger or consolidation as provided in this Code are followed. A foreign corporation authorized to transact business in the Philippines shall obtain an amended license in the event it changes its corporate name. suit or proceeding in any court or administrative agency of the Philippines. 2) file with the Securities and Exchange Commission. That if the absorbed corporation is the foreign corporation doing business in the Philippines. as amended. Doing business without a license. such foreign corporation shall. Amended license. a copy of the articles of merger or consolidation b. MERRIL LYNCH FEATURES V CA b. 1) within sixty (60) days after such merger or consolidation becomes effective. (n) Section 133. 1) file with the Securities and Exchange Commission. – Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws. (n)  Each case must be judged in the light of its own peculiar environmental circumstances Section 131. and contemplate to that extent the performance of acts or works. (n) Section 132. indicating clearly in capital letters or by underscoring the change or changes made. liabilities. Law applicable. duly authenticated by the proper official or officials of the country or state under the laws of which merger or consolidation was effected: 3) Provided. or desires to pursue in the Philippines other or additional purposes. COMART V CA a duly authenticated copy of the articles of incorporation or by-laws.5) 6) If by stipulation the venue shall be laid in the Philippine courts In case of estoppel a.  by submitting an application therefor to the Securities and Exchange Commission. and in the progressive prosecution of commercial gain or of the purpose and object of the business organization o Discussion: Continuity of dealings or transactions with the end view of achieving the purpose for which the corporation was organized. organization or dissolution of corporations or those which fix the relations. however. – Whenever the articles of incorporation or by-laws of a foreign corporation authorized to transact business in the Philippines are amended.  shall be permitted to maintain or intervene in any action.  Twin Characterization Test: 1) Substance Test 2) Continuity Test The filing thereof shall not of itself enlarge or alter the purpose or purposes for which such corporation is authorized to transact business in the Philippines.

furnishing a copy thereof to the appropriate government agency in the proper cases. the Securities and Exchange Commission  shall issue a corresponding certificate of revocation. Section 141. imposts. Pursuant to the duties specified by Article XIV of the Constitution. belonging to individuals or groups of individuals related to each other by consanguinity or affinity or by close business interests. lawfully due to the Philippine Government or any of its agencies or political subdivisions. 2. Revocation of license. 2. Failure to appoint and maintain a resident agent in the Philippines as required by this Title. as well as other factors which are germane to the realization and promotion of business and industry. TITLE XVI . imposts. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized under its license. A misrepresentation of any material matter in any application. whenever deemed necessary. or 9. after change of its resident agent or of his address. Annual report or corporations. to submit to the Securities and Exchange Commission a statement of such change as required by this Title. .The Securities and Exchange Commission is hereby authorized to collect and receive fees as authorized by law or by rules and regulations promulgated by the Commission.The provisions of specific provisions of this Code to the contrary notwithstanding. lawfully doing business in the Philippines shall submit to the Securities and Exchange Commission an annual report of its operations. Failure to pay any and all taxes. if any. the export potential. Withdrawal of foreign corporations. assessments or penalties. (n) Section 140. non-stock or special corporations may. 6. the size of the enterprise. the National Economic and Development Authority shall. . the license of a foreign corporation to transact business in the Philippines may be revoked or suspended by the Securities and Exchange Commission upon any of the following grounds: 1. .MISCELLANEOUS PROVISIONS Section 137. (n)  Basically a violation of the conditions imposed by the SEC for the issuance of the license Section 135. (n) Section 139. – Upon the revocation of any such license to transact business in the Philippines.Section 134. if any. affidavit or other document submitted by such corporation pursuant to this Title. Issuance of certificate of revocation. including recommendations for their prevention or correction. whether or not fully or partially paid. (n) Section 138. Failure to file its annual report or pay any fees as required by this Code. Failure to submit to the Securities and Exchange Commission 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 this Title. domestic or foreign. Stock ownership in certain corporations. means the total shares of stock issued under binding subscription agreements to subscribers or stockholders. Incorporation and other fees. Outstanding capital stock defined. through their articles of incorporation or their by-laws. prevent illegal monopolies or combinations in restraint or trade.Every corporation. (n) Section 136. Designation of governing boards. In recommending to the Batasang Pambansa corporations. 7. and shall submit to the Batasang Pambansa. rules and regulations designed to promote the general welfare and foster economic development. make a determination of whether the corporate vehicle has been used by any corporation or by business or industry to frustrate the provisions thereof or of applicable laws. except treasury shares. Failure. or to implement national economic policies declared in laws. 1. or whenever it is necessary to achieve national objectives. the labor intensity of the activity. together with a financial statement of its assets and liabilities. a foreign corporation licensed to transact business in the Philippines may be allowed to withdraw from the Philippines by filing a PETITION FOR WITHDRAWAL OF LICENSE. 57 | P LATON . and The petition for withdrawal of license has been published once a week for three (3) consecutive weeks in a newspaper of general circulation in the Philippines. 5. the economies of scale. – Without prejudice to other grounds provided by special laws. a report of its findings. Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations declared by it to be vested with a public interest pursuant to the provisions of this section. the extent of Filipino ownership. . 3.The term "outstanding capital stock". report. certified by any independent certified public accountant in appropriate cases. 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. as used in this Code. and penalties. All taxes. assessments. All claims which have accrued in the Philippines have been paid. 8. designate their governing boards by any name other than as board of trustees. Any other ground as would render it unfit to transact business in the Philippines. businesses or industries to be declared vested with a public interest and in formulating proposals for limitations on stock ownership. compromised or settled. the National Economic and Development Authority shall consider the type and nature of the industry. from time to time. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless all the following requirements are met. lawfully due to the Philippine Government or any of 3. the geographic location. 4.  The Securities and Exchange Commission shall also mail to the corporation at its registered office in the Philippines a notice of such revocation o accompanied by a copy of the certificate of revocation. its agencies or political subdivisions have been paid. – Subject to existing laws and regulations.

covering the preceding fiscal year and such other requirements as the Securities and Exchange Commission may require.All corporations lawfully existing and doing business in the Philippines on the date of the effectivity of this Code and heretofore authorized.All interrogatories propounded by the Securities and Exchange Commission and the answers thereto. answers or results are necessary to be presented as evidence before any court. Separability of provisions. so far as they are separable. shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. . directors. shall be deemed to have been authorized. (n) Section 149. (n) Section 142. as well as the results of any examination made by the Commission or by any other official authorized by law to make an examination of the operations. (n) Section 148. the other provisions. . members. trustee or officer of the corporation responsible for said violation: Provided. after notice and hearing. its stockholders. That such dissolution shall not preclude the institution of appropriate action against the director. particularly in the prevention of fraud and abuses on the part of the controlling stockholders.The Securities and Exchange Commission shall have the power and authority to implement the provisions of this Code.000. and to promulgate rules and regulations reasonably necessary to enable it to perform its duties hereunder. (n) Section 146. Such report shall be submitted within such period as may be prescribed by the Securities and Exchange Commission. Violations of the Code. Repealing clause. in the discretion of the court.Should any provision of this Code or any part thereof be declared invalid or unconstitutional. . 1980 Section 143. unless otherwise herein provided. . all laws or parts thereof inconsistent with any provision of this Code shall be deemed repealed. (190 1/2 a) Section 145. (n) Section 147. shall remain in force. stockholders. shall be kept strictly confidential. members. directors. be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided. (n) and Exchange Commission. trustees. Effectivity. . or officers. (n) Section 144. nor any liability incurred by any such corporation. . subject to the terms and conditions of its license. Rule-making power of the Securities and Exchange Commission. Confidential nature of examination results. . That if any such corporation is affected by the new requirements of this Code. directors. the same may. That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code. books and records of any corporation. or officers. trustees. . May 1. Approved.00) pesos but not more than ten thousand (P10. licensed or registered by the Securities 58 | P LATON . If the violation is committed by a corporation. further.This Code shall take effect immediately upon its approval.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years.Except as expressly provided by this Code.Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1. members. Amendment or repeal.No right or remedy in favor of or against any corporation. except insofar as the law may require the same to be made public or where such interrogatories.000. said corporation shall. licensed or registered under the provisions of this Code. Applicability to existing corporations. be given a period of not more than two (2) years from the effectivity of this Code within which to comply with the same. trustees or officers. or both. and shall be governed by the provisions hereof: Provided.