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The Corporation Code of the Philippines (Batas Pambansa Blg.

68)

Is the Law which governs domestic and foreign corporation Im


referring to private corporation
Take Note: Ang cover lang ng BP. 68 ay private corporations
Public corporation are govern by local government code of 1991
and these are provinces, cities, municipalities and barangays.
Title I
General Provisions
Section 1. Title of the Code. - This Code shall be known as "The
Corporation Code of the Philippines".

Philippine Commission enacted a general law authorizing the


creation of corporation in the Philippines, and this was called
Corporation Law or Act No. 1459 of the Philippine Commission.
This is the 1st corporation law in the Philippines.
The Corporation Code of the Philippines (Batas Pambansa Blg. 68)
which took effect on the date of its approval on May 1, 1980 and
replaces Act. No 1459.
Sec. 2. Corporation defined. - A corporation is an artificial being created
by operation of law, having the right of succession and the powers, attributes
and properties expressly authorized by law or incident to its existence.
Sec 2 gives definition of the corporation which refers only to private
corporations or to corporations organized under the corporation law.
There are 4 attributes of a corporation
1. Artificial Being
A corporation possessed of a personality separate and distinct from
that of a stockholder.
Under Art. 46 of the CC, it is a juridical person who may acquire or
possess property of all kinds, as well as incur obligations and bring
civil or criminal action, in conformity with the laws and regulation of
its organization.
It means that a corporation has a juridical personality separate and
distinct from that of a stockholder.
2. Created by operation of law

A corporation is created and organizes under a general law and is


considered a legal body with rights and powers.
Because a corporation cannot be created by mere consent or
agreement of the parties there must a consent coming from state in
order for a corporation to exist
Take note: A private corporation must be created by a general law (BP.
68) because if it is created under special law then that corporation is
void. Why? Special Law can only create public corporations and
government owned & control corporation
We are following the theory of concession
Theory of Concession
A corporation is an artificial creature without any existence until
it has received the imprimatur of the state acting according to
law, through the SEC (Tayag vs. Benguet Consolidated, Inc., 26
SCRA 242).
It means a corporation exists because the state want it to exist
thats why it cannot be created by mere agreement there must be a
consent coming from state.
o

Exception: Corporation by prescription like Roman Catholic. It has


been recognized as corporation by prescription, without normal legislature
grant.
3. Has the right of succession
The corporation shall continue to exist for the period stated in the
AOI, and the death of any stockholder o director shall not dissolve
the corporation.
By succession does not mean that the corporation is immortal. It
simply means that the corporation has a continuity of existence
independent of that of its member or shareholders.
Meaning if one of the stockholder die. The corporation is not
dissolve because the interest of the stockholder is transferred to
the legal heir unlike in case of partnership there is no right of
succession thats why any change in ownership dissolves a
partnership because a partnership is based on Delectus personae.
While a corporation is not.
4. Has the powers, attributes and properties expressly authorized
by law or indecent to its existent
It means that the power of a corporation is limited because it can
only exercise 3 power and that is:

o Express power
o Implied power
o Incidental power
Take note: If a corporation exercise power beyond express, implied
and incidental power it commits an ultra vires act which is a ground for
dissolution of the erring corporation but if a corporation act within an
express, implied and incidental power that is an intra vires act.
3 Doctrines in the Corporation Code
1. Doctrine of separate juridical entity
A corporation is a legal or juridical person with a personality
separate and apart from its individual stockholders or members and
from any other legal entity to which it may be connected.
Consequences:
o Liability for acts or contracts
The general rule is that obligations incurred by a
corporation, acting through its authorized agents are its
sole liabilities. Similarly, a corporation may not generally,
be made to answer for acts or liabilities of its stockholders
or members or those of the legal entities to which it may
be connected and vice versa (Creese vs. CA, 93 SCRA 483).
o Right to bring actions
It may bring civil and criminal actions in its own name in
the same manner as natural persons (Art. 46, NCC).
o Right to acquire and possess property
Property conveyed to or acquired by the corporation is in
law the property of the corporation itself as a distinct legal
entity and not that of the stockholders or members (Art.
44(3), NCC).
o Acquisition of court of jurisdiction
Service of summons may be made on the president,
general manager, corporate secretary, treasurer or inhouse counsel (Sec. 11, Rule 14, Rules of Court).
o Changes in individual membership
Corporation remains unchanged and unaffected in its
identity by changes in its individual membership (The
Corporation Code of the Philippines Annotated, Hector de
Leon, 2002 ed.).
o Entitlement to constitutional guaranties

Corporations are entitled to certain constitutional rights.


Due process (Albert v. University Publishing, Inc. 13
SCRA 84 [1965])
Equal Protection of the law (Smith, Bell & Co. v.
Natividad, 40 Phil. 136 [1919]) c.
Protection against unreasonable searches and
seizures (Stonehill v. Diokno, 20 SCRA 383 [1967])
However, it is not entitled to certain constitutional
rights such as political rights or purely personal
rights not only because it is an artificial being but
also because it is a mere creature of law (Reviewer in
Commercial Law, Jose R. Sundiang & Timoteo Aquino,
2005 ed.)
o Right against self-incrimination (Bataan
Shipyard v. PCGG, 150 SCRA [1987])
o Moral Damages
A corporation is not entitled to moral damages because it
has no feelings, no emotions, no senses (ABS-CBN vs.
Court of Appeals, G.R. No. 128690, Jan. 21, 1999
Take Note: General Rule: A corporation cannot claim for
moral damages because they are created by fiction of law
therefore it cannot suffer mental or physical suffering
Exception: A corporation may claim for moral damages
under Art. 2219 (7) of the Civil Code in cases of libel,
slander or any form of defamation.
o Liability for torts
A corporation is liable whenever a tortuous act is
committed by an officer or agent under the express
direction or authority of the stockholders or members
acting as a body, or, generally, from the directors as the
governing body (PNB vs. CA, 83 SCRA 237 [1978]).
o Liability for Crimes
Since a corporation is a mere legal fiction, it cannot be held
liable for a crime committed by its officers since it does not
have the essential element of malice, except if by express
provision of law, the corporation is held criminally liable; In
such case the responsible officers would be criminally
liable (People vs. Tan Boon Kong, 54 Phil. 607 [1930]).

In order to make a long story short it simply means that an act of a


corporation is not an act of a BOD and vice versa. An asset and

obligation of a corporation is not an asset and obligation of a


stockholder and vice versa. They are separate from one another.
Take Note: A corporation has a separate juridical entity for the purpose
of convenient at pag ginamit sa masama ididisregard ang corporate
fiction and that is piercing the veil of corporate entity
2. Doctrine of piercing the veil of corporate entity or doctrine of
alter ego
The doctrine that a corporation is a legal entity distinct from the
persons composing is a theory introduced for purposes of
convenience and to serve the ends of justice. But when the veil of
corporate fiction is used as a shield to defeat public convenience,
justify wrong, protect fraud, or defend a crime, this fiction shall be
disregarded and the individuals composing it will be treated
identically.
However if the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime in that
case the doctrine of separate juridical entity will be disregarded and
the two corporation will regard as merged into one and if that
happens the obligation of a corporation is now the obligation of
stockholder and vice versa
Example: Corp. X which has pending suit, now to avoid the pending
suit. Corp. X has been dissolve and then they create another
corporation which is Corp. Y with the same business having the
same BOD and stockholder in short having the same set-up now if
proven that Corp. Y is created only to defraud pending suit, in that
case doctrine of piercing the veil will be applied. If that happens the
obligation of Corp X is now the obligation of Corp Y and vice versa.
Classification:
o Fraud Cases
When the corporate identity is used to justify wrong, to
commit fraud, or to defend a crime. There is always an
element of malice or evil motive in fraud cases.
o Alter Ego Cases (or Conduit Cases)
Fraud is not an element in these cases but that the
stockholders or those who compose the corporation did not
treat the corporation as a separate entity but only as part
of the property or business of an individual or group of
individuals or another corporation
o Instrumentality or Alter Ego Rule

When one corporation is so organized and controlled and


its affairs are conducted so that it is in fact a mere
instrumentality or adjunct of the other, the fiction of the
corporate entity to the instrumentality may be disregarded
o Equity cases
When piercing the corporate fiction is necessary to achieve
justice or equity.
3. Doctrine of limited capacity
No corporation under the code shall possess or exercise any
corporate power, except those conferred by law, its Articles of
Incorporation, those implied from express powers and those as are
necessary or incidental to the exercise of the powers so conferred.
The corporations capacity is limited to such express, implied and
incidental powers (Reviewer in Commercial Law, Jose R. Sundiang &
Timoteo Aquino, 2005 ed.).
The power of corporation is limited and that is Implied, express and
incidental power unlike in partnership because the only limitation
regarding partnership is Art .1306 of the civil code. The contracting
parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.

Advantages of a corporation
1. Capacity to act as a legal entity
2. Continuity of life
3. The liability of the stockholders for the debts of the corporation is
limited to their fully paid investment in the corporation
4. There is better management as the best service may be extracted from
the bigger membership of a corporation
5. There is a greater source of capital
Similarities between Partnership and Corporation
1. Both are composed of group of person with exception to corporation
sole
2. Both are artificial person
3. Both are devoid of physical bodily existence and as such can only act
through their respective agent
4. Both have juridical personalities separate and distinct from the
member or stockholder
Distinction between Partnership and Corporation

1. Matter of creation
A partnership is created by mere agreement
A corporation is created by operation of law
2. Number of incorporators
A partnership can be formed by 2 or more person (No limit
regarding number of partner)
A corporation req. at least 5 but not more than 15 incorporator or
BOD (except corporation sole)
Note: After it is duly organized the corporation can add stockholders
or corporator depending on the number of authorized capital stock

3. Power
A partnership may by agreement do any lawful act. Meaning it can
exercise ANY power authorized by the partner provided it is not
contrary to law, morals, good customs, public order or public policy.
A corporation may only exercise power within express, implied and
incidental power.
4. Extent of Liability as to 3rd person
In partnership all general partners (except limited partners) are
liable to the extent of their separate property for partnerships
debts.
In corporation a member/ stockholder is liable only to the extent of
their shareholding except when the doctrine of piercing the veil of
corporate entity applied.
5. Dissolution
A partnership may be dissolve at any time (Delectus Personae)
A corporation cannot be dissolve without the consent and authority
of state.
A partnership has so many grounds for dissolution like automatic
and judicial dissolution while a corporation has few grounds
because remember that a corporation is created by consent of state
and therefore it must have a consent coming from state to dissolve
6. Term of existence
A partnership may exist indefinitely.
A corporation shall exist for a period not exceeding 50 years but
subject to renewal. I a-amend lang yung articles of incorporation
for the proposed extension of corporate term
7. Transferability of interest
A partner cannot transfer his interest without the consent of the
other

A stockholder can transfer his interest to another without the


consent of the other
8. Formalities required
In partnership there is no particular form required it can be oral or
written except when there is immovable property because in that
case there must be inventory of the real property signed by the
partner and attached to the public instrument
In corporation it must complied with the form stated under sec. 15
of B.P 68
9. Mismanagement
In a partnership a partner can sue the one who mismanage the
business
In a corporation a stockholder cannot sue the BOD in their own
name it must be in corp. name
10.
Firm name
A partnership can input LTD or any names in the partnership name.
A corporation name can extend only by CORP. OR INCORP.
11.
Law w/c govern
A partnership is govern by civil code(agreement)
A corporation is govern by corporation code (BP. 68)
12.
Commencement of juridical personality
A partnership begins from the moment of execution of the contract
of a partnership unless otherwise stipulated
A corporation begins from the date of the issuance of the certificate
of incorporation by the SEC
13.
Right of succession
A partnership has no succession (DELECTUS PERSONAE).
A corporation has a right of succession
14.
Management
In a partnership all are general partners unless otherwise agreed,
agents of the firm
In a corporation acts through its BOD
Take note: Stockholder cannot bind the corporation also a single
BOD cannot bind the corporation
Sec. 3. Classes of corporations. - Corporations formed or organized under
this Code may be stock or non-stock corporations. Corporations which have
capital stock divided into shares and are authorized to distribute to the
holders of such shares dividends or allotments of the surplus profits on the
basis of the shares held are stock corporations. All other corporations are
non-stock corporations.
Classes of corporations:

1. Stock corporation
A corporation which has capital stock divided into shares and is
authorized to distribute to holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held
Requisites to be classified as a stock corporation:
o That they have a capital stock divided into shares; and
o That they are authorized to distribute dividends or allotments as
surplus profits to its stockholders on the basis of the shares held
by them
Take Note: If one of the requisite is absent then it is a non-stock
corporation
2. Non-stock
All other corporations are non-stock corporations.
A corporation which does not issue stocks nor distribute dividends
to their members (Sec. 87).
Other classes of corporations:
3. Aggregate and Sole(As to number of persons who compose
them)
Aggregate corporations those composed of a 2 or more
corporator
Corporation sole those that consist of one member or 1
corporator; a special form of corporation usually associated with the
clergy.
o Example: Roman Catholic Church
4. Ecclesiastical and Lay (As to whether they are for religious
purposes or not)
Ecclesiastical or religious corporations those composed
exclusively of ecclesiastics organized for spiritual purposes or for
administering properties held for religious ones. They are further
classified as religious societies or corporation sole.
Lay corporations those established for the purposes other than
religion. They are further classified as eleemosynary or civil
(Whether charitable or not)
o Eleemosynary corporations are created for charitable and
benevolent purposes.
o Civil corporations are organized not for the purpose of public
charity but for the benefit, pecuniary or otherwise, of its
members in short for profit.
5. De jure corporations and De facto corporations (As to legal
right)

De jure corporations juridical entities created or organized in


strict or substantial compliance with the statutory requirements of
incorporation and whose right to exist as such cannot be
successfully attacked even by the State in a quo warrant o
proceeding.
These are the corporation who comply with all or substantially all
the requirements of the law. It is a corporation that exists in fact as
well as in law.

De facto corporations those which exist by virtue of an


irregularity or defect in the organization or constitution or from
some other omission to comply with the conditions precedent by
which corporations de jure are created, but there was colorable
compliance with the requirements of the law under which they
might be lawfully incorporated for the purposes and powers
assumed, and user of the rights claimed to be conferred by law.
Corporation who did not comply with all or substantially all the
requirements. It is a corporation that exists in fact but not in law.

o Requirement of De Facto
There is a valid law
There is an attempt with good faith
Actual exercise of corporate power
6. Close and Open (As to whether they are open to public or not)
Close corporations those whose shares of stock are held by
limited number of persons or members of family. Limited to 20
persons.
Open corporations those formed to openly accept outsiders as
stockholders or investors. Open to anyone.
Concept of going public or private
A corporation is deemed to be going public when it decides to list
its shares in the stock exchange. These include corporations that
will make initial public offering of its shares. A corporation is said to
be going private when it would restrict the shareholders to a
certain group. In a sense, these also include closed and closely held
corporation.
7. Parent or Holding Companies and Subsidiaries and Affiliates
(Relation to another corporation)

Holding corporations (Parent) corporations that confine their


activities to owning stock in, and supervising management of other
companies. Stockownership of more than 50% of other capital
meaning you obtains control of another corporation.
Subsidiary corporations One which is so related to another
corporation that the majority of its directors can be elected either
directly or indirectly by such other corporation. Another corporation
owns at least a majority of the shares, and thus have control.
Affiliated corporation one related to another by owning or being
owned by common management or by a long-term lease of its
properties or other control device. It may be the controlled or
controlling corporation, or under common control. Those
corporations which are subject to common control and operated as
part of a system.
8. True or Quasi-Corporation (As to whether they are corporations
in true sense or not)
True Corporation One which exists by statutory authority. These
are corporation that really exist.
Quasi-corporation One which exists without formal legislative
grant. It exists without corporation grant it is an exception to the
rule that a corporation can exist only by authority of law. In here
kasi wala naman talagang corporation kaya nga Quasi e it means
As-If, as if corporation. And these are corporation by prescription
and corporation by estoppel
o Corporation by prescription Did not comply the req. of
law but they exercise corporate power for a long period of
time. Like Catholic Church
o Corporations by estoppel One which in reality is not really
a corporation but the individual member can be held liable as
general partner
9. Public and Private (As to whether they are for public/
government or private purposes)
Public corporations those created, formed or organized for
political or governmental purposes with political powers to be
exercised for purposes connected with the public good in the
administration of civil government.
Private corporations those formed for some private purpose,
benefit, aim or end. I
Take Note: Restrict stock ownership to certain individual
As to organizers:

public by State only; or


private by private persons alone or with the State.
As to functions:
public - government of a portion of the State; or
private usually for profit-making functions.
As to governing law:
public Special Laws and Local Government Code;
private Law on Private Corporations.
10.
Domestic and Foreign (As to state or country under)
Domestic corporations Duly organized under the Phil Law.
Note: issues of intra-corporate nature are governed by Philippine law.
Foreign corporations Duly organized other than those of the Phil.
Law. Pero bago kayo maging corporation under Corporation Code
kailangan ina allow din ng other foreign country na magtayo
corporation dun (RECIPROCITY)
How can you determine the Nationality or citizenship of a
corporation?
1. Incorporation Test determined by the state of incorporation,
regardless of the nationality of its stockholders.
2. 2. Domicile Test determined by the state where it is domiciled. The
domicile of a corporation is the place fixed by the law creating or
recognizing it; in the absence thereof, it shall be understood to be the
place where its legal representation is established or where it exercise
its principal functions (Art. 51, NCC).
3. 3. Control Test determined by the nationality of the controlling
stockholders or members. This test is applied in times of war. Also
known as the WARTIME TEST.
General Rule: We use incorporation test and under the incorporation test
the nationality of corporation is determined by the law creating them.
Meaning if crineate siya under BP. 68 then it is a domestic corporation if not
edi foreign yun in so far as the Philippine Law is concerned
Exception to the rule is the Control Test. Take Note that control test is used
only in case of war and under control test we determine the nationality of a
corporation by determining the CONTROLLING INTEREST. Halimbawa if
controlling interest is Filipino edi domestic corporation yun, pa gang

controlling interest naman ay foreigner it is a foreign corporation even


though it is duly organized under Philippine Law.
Sec. 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.
Private Corporation are created by following the procedure set by the law of
their incorporation. BP. 68. However, Sec. 4 of BP 68 authorize the creation of
private corporations by special law or charters but the same is subject to the
restriction imposed by the constitution that such corporation are owned or
control by government or any subdivision or instrumentality thereof.
Corporation created by special law or charter shall be govern by
1. Provision of the special law
2. Supplemented by the provisions of the Corporation Code.
Sec. 5. Corporators and incorporators, stockholders and members. Corporator are those who compose a corporation, whether as stockholders or
as members. Incorporators are those stockholders or members mentioned in
the articles of incorporation as originally forming and composing the
corporation and who are signatories thereof.
Corporator in a stock corporation is called stockholders or shareholders.
Corporator in a non-stock corporation is called members.
TAKE NOTE: INCORPORATOR AND CORPORATOR ARE DIFF.
Components of a Corporation
1. Corporators Those who compose a corporation, whether as
stockholders or members. Numbers of corporators are depending on
the number of authorized capital stock and also they are not
signatories in the AOI. When the moment they dispose their share of
stock they ceased to be a corporator
2. Incorporators Those mentioned in the Articles of Incorporation as
originally forming and composing the corporation, having signed the
Articles and acknowledged the same before a notary public. They have
no powers beyond those vested in them by the statute. There is only
one set of incorporators; hence, they will remain to be such
incorporators up to the termination of the life of the corporation.

So incorporators are the one who originally form the corporation and
are mention in the AOI who are signatories. Limited to not less than
but not more than 15
TAKE NOTE: requisites to being an incorporator that he be a signatory
of AOI because if he is not a signatory of the articles then he is not n
incorporator though he is mention in the AOI. Once a corporation is
duly organize even though he sells his share of stock he ceased to be a
corporator but not an incorporator why because it is recorded in the
SEC
Qualifications:

Natural person;
Not less than 5 but not more than 15;
Of legal age;
Majority must be residents of the Philippines; and
Each must own or subscribe to at least one share (Sec. 10).

General Rule: Only natural persons can be incorporators.


Exception: When otherwise allowed by law, e.g., Rural Banks Act of 1992,
where incorporated cooperatives are allowed to be incorporators of rural
banks.
Note: However, it is undeniable that corporations can be corporators.
3. Stockholders Owners of shares of stock in a stock corporation/which
has capital stock
4. Members Corporators of a corporation which has no capital stock
Other Components of Corporation
1. Promoter - A person who, acting alone or with others, takes
initiative in founding and organizing the business or enterprise of the issuer
and receives consideration therefor (Sec. 3, R.A. 8799). He is an agent of
the incorporators but not of the corporation. Contracts by the promoter for
and in behalf of a proposed corporation generally bind only him, subject to
and to the extent of his representations, and not the corporation, unless and
until after these contracts are ratified, expressly or impliedly, by its Board of
Directors/Trustees (Cagayan Fishing Development Co., Inc. v. Sandiko, 65
Phil. 223). Who brings information.
2. Subscriber A person who has agreed to take and pay for original
and unissued shares of a corporation formed or to be formed.

3. Underwriter A person who guarantees on a firm commitment


and/ or declared best effort basis the distribution and sale of securities of any
kind by another company (Sec. 3, R.A. 8799). Who agreed to buy or sell the
securities or stock of the corporation.
Sec. 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 "preferred" or "redeemable" shares, unless otherwise provided in this
Code: Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series of
shares may have a par value or have no par value as may be provided for in
the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference
in the distribution of the assets of the corporation in case of liquidation and
in the distribution of dividends, or such other preferences as may be stated
in the articles of incorporation which are not violative of the provisions of this
Code: Provided, That preferred shares of stock may be issued only with a
stated par value. The board of directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock
or any series thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid
and non-assessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value
of five (P5.00) pesos per share: Provided, further, That the entire
consideration received by the corporation for its no-par value shares shall be
treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in


the certificate of stock, each share shall be equal in all respects to every
other share.
Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be
entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or
other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this Code shall
be deemed to refer only to stocks with voting rights.
Capital Stock and Capital Defined
1. Capital Stock or Legal Stock or Stated Capital - The amount fixed
in the corporate charter to be subscribed and paid in cash, kind or
property at the organization of the corporation or afterwards and upon
which the corporation is to conduct its operation.
Authorized Capital Stock - The capital stock divided into shares.
Subscribed Capital Stock- The total amount of the capital stock
subscribed whether fully paid or not.
Outstanding Capital Stock - The portion of the capital stock
issued to subscribers, whether fully paid or partially paid (as long as
there is a binding subscription contract) except treasury stocks
(Sec. 137).

Unissued Capital Stock The portion of the capital stock that is


not issued or subscribed. It does not vote and draws no dividends.
Legal Capital - The amount equal to the aggregate par value
and/or issued value of the outstanding capital stock.
Stated Capital The capital stock divided into no par value shares.
Paid-up Capital The amount paid by the stockholders on
subscriptions from unissued shares of the corporation
2. Capital The value of the actual property or estate of the corporation
whether in money or property. Its net worth (or stockholders equity) is
its assets less its liabilities.

Stock or share of Stock


It is one of the units into which the capital stock is divided. It
represents the interest or right which the owner has.
It may also constitute property distinct from capital or tangible
property of the corporation and belong to different owners.
Certificate of stock
It is a written acknowledgement by the corporation of the interest,
right and participation of the person in the management, profits,
and assets of corporation
Formal written evidence of the holders ownership of one more
shares and is a convenient instrument for the transfer of title
When Classification of Share May Be Made
1. By the incorporators The classes and number of shares which a corporation
shall issue are first determined by the incorporators as stated in the articles of
incorporation filed with the SEC.
2. By the Board of Directors and the Stockholders After the corporation
comes into existence, they may be altered by the board of directors and the
stockholders by amending the articles of incorporation pursuant to Sec. 16
DOCTRINE OF EQUALITY OF SHARES -Where the articles of incorporation do not
provide for any distinction of the shares of stock, all shares issued by the
corporation are presumed to be equal and enjoy the same rights and privileges and
are also subject to the same liabilities

Classes of Share of Stock


1. Par Value and No-Par Value
Par-value stock- Shares with a value fixed in the articles of
incorporation and the certificates of stock. Class of stock with
stated value appearing on the face of the certificate stock. Pag
sinabing par value meron tayong nominal value na nakastate on
AOI as well as in the certificate of stock
No-Par value stock-Shares having no par value but have issued
value stated in the certificate or articles of incorporation. Class of
stock without any nominal value or par value. Samantalang ang nopar value stock walang naka indicate na nominal value na
nakastate sa AOI as well as in the certificate of stock
Take Note: Even though thats a no-par value share meron siyang
stated value and it can either be determined by BOD (pursuant to the
power conferred by the AOI or the by law) and Shareholders (Majority
ng outstanding capital stock ng stockholder)
Limitations:
No par value shares cannot have an issued price of less than P5.00;
The entire consideration for its issuance constitutes capital so that
no part of it should be distributed as dividends;
They cannot be issued as preferred stocks;
They cannot be issued by banks, trust companies, insurance
companies, public utilities and building and loan association (BPITB);
The articles of incorporation must state the fact that it issued no par
value shares as well as the number of said shares;
Once issued, they are deemed fully paid and non-assessable (Sec.
6).
Distinction between Par and No-Par value Share
Par Value
-All corporation are allowed to issue no par-value share
No-Par Value
-Some corporation are prohibited to Issue no par value share and that is (BPI
TB) Banks, Public Utilities, Insurance companies, Trust companies and
building and loan associations. These are prohibited to issue no par value
share

Par Value
-It is always with Par Value
No-Par Value
-Preferred share cannot be issue with no par value
Par Value
-Can be issue at any amount
No-Par Value
-The minimum stated value is not less than 5 pesos because if it is issue at
less than 5 edi watered stock yan
Par Value
-Are NOT deemed fully paid and therefore assessable meaning pwedeng
habulin ng corporate creditor yung stockholder ng par value share kasi hindi
naman siya deemed fully paid at assessable siya
No-Par Value
-Once issued it is DEEMED fully paid and therefore non-assessable kaya ang
lumalabas ang corporate creditor hindi na pwedeng habulin ang mga
stockholder ng no-par value share kasi deemed fully paid na and nonassessable siya
Par Value
-Part of legal capital is only to the extent of par value the share premium is
not part of legal capital
No-Par Value
-Entire consideration receive is becomes part of legal capital and therefore
not available for dividend distribution
2. Voting stock and Non-voting Stock
Voting Stock- Shares with a right to vote. Under the code,
whenever a vote is necessary to approve a particular corporate act,
such vote refers only to stocks with voting rights except in certain
cases when even non-voting shares may also vote (Sec. 6, par. 6

and last par.) A class of stock which entitles the holder to vote in
the meeting of the corporation
Non-Voting Stock- Shares without right to vote. The law only
authorizes the denial of voting rights in the case of redeemable
shares and preferred shares, provided that there shall always be a
class or series of shares which have complete voting rights. These
redeemable and preferred shares, when such voting rights are
denied, shall nevertheless be entitled to vote on the following
fundamental matters: A class of stock which the holder cannot vote
in the meeting of the corporation.
Take Note: ONLY those classified as PREFERRED OR REDEEMABLE share may
be deny of voting power in the AOI BUT EVEN THOUGH Preferred and
Redeemable share as classified as NON-VOTING STOCK they can still vote
under 8 instances and that is FUNDAMENTAL CHANGES OF THE
CORPORATION.
Key: (A2 SI2 MID)The vote is necessary to approve a particular corporate
act shall be deemed to refer only to voting share. However, non-voting share
are not absolutely disqualified from voting. The holders of non-voting shares
shall nevertheless be entitled to vote on the following matters:
Number 1 and 3 to 8 parehas lang yan ng voting requirements and that is
majority of BOD plus 2/3 of outstanding capital stock with regular or special
meeting
1. Amendments of the AOI
Voting requirement- Majority of BOD +2/3 of Outstanding Capital
Stock
TAKE NOTE: (SEC 19) Majority of BOD + assent of at least 2/3 of
Outstanding Capital Stock meaning meeting is not required.
EXCEPT: when there is specific provision in corporation code
requiring regular or special meeting.
Example: Amendment of AOI for the propose extension or
shortening corporate term the voting req. should be majority of BOD
+2/3 of Outstanding capital stock WITH regular or special meeting.
Question: The number of BOD that is stated in AOI are 7 and you
want to make it 9, kaialngan pa ban g regular or special meeting
called for that purpose or pwede na ang written vote or assent ng
2/3 of OCS?
Answer: Written vote or assent will suffice because that is the
general rule

2. Adoption and Amendments of by-laws


Voting requirements-ADOPTION: If BEFORE all of incorporators if AFTER
Majority of Outstanding Capital Stock; AMENDMENTS of corporate bylaw: Majority of BOD +Majority of Outstanding Capital Stock
Question: Can a stockholder dedicate to BOD the amendment of
corporate by-law?
Answer: Yes and the voting requirement in order for the stockholder to
dedicate to the BOD the amendment of corporate by-law 2/3 of
Outstanding Capital Stock.
Question: In order to revoke the power delegated to the BOD Majority
ng OCS
While number 2 the voting requirement in adoption. First you should know if
kalian nagkaroon ng adoption by law is it before or after incorporation? If
before incorporation (during submission of AOI the corporate by law is
attached) in that case it should be approved by all of incorporators. If after
incorporation (the sec already issued the certificate of Incorporation) in that
case the corporation has already a separate juridical entity and under
corporation code it is required to submit the adoption of corporate by-law
within 30 days or 1 month from the date of notif of the issuance the
certificate of incorporation by the SEC and the voting requirement is majority
of outstanding capital stock
Pag nag amend naman ng corporate by law ang voting req. ay Major major
Majority Majority- Majority ng BOD + Majority ng OCS
3. Sales, Lease, Exchange, Mortgage, Pledge or other
disposition of all or substantially all of the corporate
property
Voting requirement- Majority of BOD +2/3 of Outstanding Capital Stock
with a regular or special meeting
4. Incurring, creating or increasing bond indebtedness
Voting requirement- Majority of BOD +2/3 of Outstanding Capital Stock
with a regular or special meeting
5. Increase or decrease of capital stock
Voting requirement- Majority of BOD +2/3 of Outstanding Capital Stock
with a regular or special meeting
6. Merger or Consolidation
Voting requirement- Majority of BOD +2/3 of Outstanding Capital Stock
with a regular or special meeting
7. Investment of corporate funds in another corporation or
business

Voting requirement- Majority of BOD +2/3 of Outstanding Capital Stock


with a regular or special meeting
8. Dissolution of corporation
Voting requirement- Majority of BOD +2/3 of Outstanding Capital Stock
with a regular or special meeting
3. Common Stock and Preferred Stock

Common Stock- The basic class of stock ordinarily and usually


issued without extraordinary rights and privileges, and the owners
thereof are entitled to a pro rata share in the profits of the
corporation and in its assets upon dissolution and, likewise, in the
management of its affairs without preference or advantage
whatsoever. Common shares or stocks represent the residual
ownership interest in the corporation. Common shares have
complete voting rights. They cannot be deprived of said rights
except as provided by law. A stock which entitles its owner to an
equal pro-rata division of profits, if there be any, but without any
preference or advantage in that respect over any other stockholder
or class of stockholders.
Meaning if there is still no preference stated in the articles of
incorporation then all share has an equal rights
Preferred Stock- Shares with a stated par value which entitle the
holder thereof to certain preferences over the holders of common
stock.
Purpose: To induce more persons to subscribe for shares of a
corporation. Preferred shareholders are not creditors of the
corporation. Yet all preferred stock contracts are, fundamentally
attempts to endow certain owners with rights analogous to creditor
rights and statutes and court decisions on this matter have been
concerned, primarily, with the length to which the preferred stock
contract can go in extending creditor rights to stockholder. The reason
why there is an effort to extend such right is to make preferred shares
attractive to investors for they can remain as such and at the same
time enjoy certain advantages that are available to creditors
(Philippine Corporate Law Compedium, Timoteo Aquino, 2006 ed.).
Entitled to certain preferences over common stock

o Preferred stock as to asset- A class of stock which is


entitled to preference in the distribution of asset in case of
liquidation over common stock
Meaning upon liq. Ang unang babayaran ay preferred
stockholder bago common stockholder.
o Preferred stock as to dividend- A class of stock which
entitles the holder, before any dividends whatever are paid to
the holders of the common stock, to a dividend measured not
only by the contract amount for the current dividend period,
but also by any deficiency or arrears in the payment of
dividends accrued in former dividend periods.
It means that if there is a declaration of dividend ang unang
babayaran ang preferred stockholder bago ang common
stockholder.
Types of preferred stock as to dividend

Participating preferred shares the holders thereof


are still given the right to participate with the common
stockholders in dividends beyond their stated
preference.
Non- Participating those that entitle the holder to
receive no more than stipulated dividend.
Preferred shares are presumed to be nonparticipating
Cumulative preferred share those that entitle the
owner thereof to payment not only of current dividends
but also back dividends not previously paid whether or
not, during the past years, dividends were declared or
paid.
Non-cumulative preferred shares those which
grant the holders of such shares only to the payment of
current dividends but not back dividends, when and if
dividends are paid, to the extent agreed upon before
any other stockholders are paid the same.
In absence of express stipulation, preferred
shares are presumed to be non-cumulative

Limitations:
If deprived of voting rights, it shall still be entitled to vote on
matters enumerated in Section 6, par. 6.
May be issued only with a stated par value.
The board of directors may fix the terms and conditions only when
so authorized by the articles of incorporation and such terms and
conditions shall be effective upon filing a certificate thereof with the
SEC.
4. Promotion Stock- Share of stock that are issued to the promoters

Share in Escrow- Share of stock that are subject to an agreement


under which the share are deposited by the grantor or his agent with a
3rd person, to be delivered by the depositary to the buyer or subscribe
upon the happening of certain conditions. Share of stock na
nakadeposit sa 3rd person at marerelease lang yan after complying
certain conditions
5. Convertible Stock-Stock which may be converted by the stockholder
from one class to another class, at a certain price within a certain
period
6. Over-issued stock-Stock issued in excess of the authorized capital
stock. It is also known as spurious stock. Its issuance is considered null
and void.
7. Watered stock- A stock issued not in exchange for its equivalent
value either in cash, property, share, stock dividends, or services.
Water in the stock represents the difference between the fair market
value at the time of the issuance of the stock and the par or issued
value of said stock. Issued at 5 pesos
It includes stocks:
Issued without consideration (bonus share).
Issued as fully paid when the corporation has received a lesser sum
of money than its par or issued value (discount share).
Issued for a consideration other than actual cash such as property
or services, the fair valuation of which is less than its par or issued
value.
Issued as stock dividend when there are no sufficient retained
earnings to justify it.

Sec. 7. Founders' shares. - Founders' shares classified as such in the


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

Limitations:
Limited to 5 years. Maximum period of founders share for exclusive
right to vote and be voted is 5 years and are subject to approval by
SEC and the 5 years shall commence upon approval by the SEC
Take note that if it is other right then it has no limit of period the
only limit stated here is for the right to vote and be voted
Sec. 8. Redeemable shares. - Redeemable shares may be issued by the
corporation when expressly so provided in the articles of incorporation. They
may be purchased or taken up by the corporation upon the expiration of a
fixed period, regardless of the existence of unrestricted retained earnings in
the books of the corporation, and upon such other terms and conditions as
may be stated in the articles of incorporation, which terms and conditions
must also be stated in the certificate of stock representing said shares.
Limitations:
Redeemable shares may be issued only when expressly provided for
in the articles of incorporation;
The terms and conditions affecting said shares must be stated both
in the articles of incorporation and in the certificates of stock
representing such shares;
Redeemable shares may be deprived of voting rights in the articles
of incorporation, unless otherwise provided in the Code.
Redeemable shares may be redeemed, regardless of the existence
of unrestricted retained earnings (Sec. 8), provided that the
corporation has, after such redemption, sufficient assets in its books
to cover debts and liabilities inclusive of capital stock. Redemption
may not be made where the corporation is insolvent or if such

redemption would cause insolvency or inability of the corporation to


meet its debts as they mature.
Such limitation is based on the principle that corporate
assets are a trust fund for creditors. When redeemable
shares are reacquired, the same shall be considered retired and no
longer issuable unless otherwise provided for in the Articles of
Incorporation.
Note: For tax purposes, there are cases when redemption of shares
is considered a scheme to evade the tax consequences of cash
dividends. Hence, the amounts received by the shareholders shall
be treated as cash dividends because proceeds of redemption in
such a case is additional wealth and not merely a return of the
capital

These are shares of stocks issued by the corporation which said


corporation can purchase or take up from their holders as expressly
provided for in the articles of incorporation and certificate of stock
representing said shares at a fixed date or at the option of the
issuing corporation or the stockholder or both at a certain
redemption price
Share of stock wherein a corporation can acquire its own share on
the date fixed in the AOI
General Rule: These are stock which are expressly stated in the AOI as well
as in the certificate of stock and can be redeemed at the fixed date in the
AOI even in the absence of unrestricted retained earnings
Exception: Except when the corporation is already insolvent or will be
insolvent after redemption redeemable share
Sec. 9. Treasury shares. - Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently reacquired by the issuing
corporation by purchase, redemption, and donation or through some other
lawful means. Such shares may again be disposed of for a reasonable price
fixed by the board of directors.
Treasury shares are not retired shares. They do not form return to
the unissued shares of the corporation but are regarded as property
acquired by the corporation which may be reissued or resold at a
price to be fixed by the Board of Directors (SEC Rules Governing
Redeemable and Treasury Shares, CCP No. 1-1982).

If purchased from stockholders: The transaction in effect is a


return to the stockholders of the value of their investment in the
company and a reversion of the shares to the corporation. The
corporation must have surplus profits with which to buy the shares
so that the transaction will not cause an impairment of the capital.
If acquired by donation from the stockholders: The act would
amount to a surrender of their stock without getting back their
investments that are instead, voluntarily given to the corporation.
Treasury shares need not be sold at par or issued value but may be
sold at the best price obtainable, provided it is reasonable. When
treasury shares are sold below its par or issued value, there can be
no watering of stock because such watering contemplates an
original issuance of shares.
Treasury shares have no voting rights as long as they remain in
treasury (uncalled and subject to reissue) (Sec. 57).
Because a corporation cannot in any proper sense be a stockholder
in itself and equal distribution of voting rights will be effectively
lost.
Neither are treasury shares entitled to dividends or assets because
dividends cannot be declared by a corporation to itself.
Treasury shares may be declared as property dividend to be issued
out of the retained earnings previously used to support their
acquisition provided that the amount of the retained earnings has
not been subsequently impaired by losses.
Take Note: It cannot be acquired when there is no stock of
unrestricted retained earnings also treasury share have no voting
rights as long as they remain in the treasury
Treasury share are not entitled to participate in the distribution of
dividend. It is not part of the OCS
Title II
Incorporation and Organization of Private Corporation