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Part 1- Corporations separate and distinct from the person composing it

as well as from that other entity to which it may be


Advantages of Corporations:
related.
1. The capacity to act as a legal unit;
Sec. 3. Classes of corporations. - Corporations
2. Limitation of or exemption from, individual
formed or organized under this Code may be stock
liability of shareholders;
or non-stock corporations. Corporations which have
3. Continuity of existence;
capital stock divided into shares and are authorized
4. Transferability of shares;
to distribute to the holders of such shares dividends
5. Centralized management of board of
or allotments of the surplus profits on the basis of
directors;
the shares held are stock corporations. All other
6. Professional management;
corporations are non-stock corporations.
7. Standardized method of organization, and
finance; and Sec. 4. Corporations created by special laws or
8. Easy capital generation. charters. - Corporations created by special laws or
charters shall be governed primarily by the
Disadvantages of Corporations:
provisions of the special law or charter creating them
1. It is prone to double taxation; or applicable to them, supplemented by the
2. They are subject to greater governmental provisions of this Code, insofar as they are
regulation and control; applicable.
3. A corporation may be burdened with an
Sec. 5. Corporators and incorporators, stockholders
inefficient management if stockholders
and members. - Corporators are those who
cannot organize to oppose management;
compose a corporation, whether as stockholders or
4. Limited liability of stockholders may at times
as members. Incorporators are those stockholders or
translate into limited ability to raise creditor
members mentioned in the articles of incorporation
capital;
as originally forming and composing the corporation
5. It is harder to organize compared to other
and who are signatories thereof.
business organizations;
6. It is harder or more complicated to Corporators in a stock corporation are called
maintain; and stockholders or shareholders. Corporators in a non-
7. The owners or stockholders do not stock corporation are called members.
participate in the day-to-day management.
Sec. 6. Classification of shares. - The shares of stock
Sec. 2. Corporation defined. - A corporation is an of stock corporations may be divided into classes or
artificial being created by operation of law, having series of shares, or both, any of which classes or
the right of succession and the powers, attributes series of shares may have such rights, privileges or
and properties expressly authorized by law or restrictions as may be stated in the articles of
incident to its existence. incorporation: Provided, That no share may be
deprived of voting rights except those classified and
Attributes of a Corporation:
issued as "preferred" or "redeemable" shares, unless
1. It is an artificial being; otherwise provided in this Code: Provided, further,
2. It is created by operation of law; That there shall always be a class or series of shares
3. It has the right of succession; and which have complete voting rights. Any or all of the
4. It has the powers, attributes expressly shares or series of shares may have a par value or
authorized by law or incident to its have no par value as may be provided for in the
existence. articles of incorporation: Provided, however, That
banks, trust companies, insurance companies, public
Doctrine of Separate Personality
utilities, and building and loan associations shall not
A corporation has a personality separate and be permitted to issue no-par value shares of stock.
distinct from its members. It has a personality
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Preferred shares of stock issued by any corporation 6. Merger or consolidation of the corporation with
may be given preference in the distribution of the another corporation or other corporations;
assets of the corporation in case of liquidation and in
7. Investment of corporate funds in another
the distribution of dividends, or such other
corporation or business in accordance with this
preferences as may be stated in the articles of
Code; and
incorporation which are not violative of the
provisions of this Code: Provided, That preferred 8. Dissolution of the corporation.
shares of stock may be issued only with a stated par
Except as provided in the immediately preceding
value. The board of directors, where authorized in
paragraph, the vote necessary to approve a
the articles of incorporation, may fix the terms and
particular corporate act as provided in this Code shall
conditions of preferred shares of stock or any series
be deemed to refer only to stocks with voting rights.
thereof: Provided, That such terms and conditions
shall be effective upon the filing of a certificate The issuance of non-voting shares is subject to the
thereof with the Securities and Exchange following conditions under Sec 6:
Commission.
1. Only preferred or redeemable shares may be
Shares of capital stock issued without par value shall made non-voting shares
be deemed fully paid and non-assessable and the 2. There must remain other shares with full
holder of such shares shall not be liable to the voting rights
corporation or to its creditors in respect thereto: 3. The non-voting shares may still vote in the
Provided; That shares without par value may not be matters enumerated above.
issued for a consideration less than the value of five
(P5.00) pesos per share: Provided, further, That the  Even if the Articles of Incorporation provides
entire consideration received by the corporation for for classification of shares, certain classes of
its no-par value shares shall be treated as capital and shares are entitled to vote and be voted for
shall not be available for distribution as dividends. as directors or officers if they are not
classified as preferred or redeemable shares.
A corporation may, furthermore, classify its shares
 Thus, common shares cannot be deprived of
for the purpose of insuring compliance with
the right to vote in any corporate meeting,
constitutional or legal requirements.
and any provision in the articles of
Except as otherwise provided in the articles of incorporation restricting the right of
incorporation and stated in the certificate of stock, common shareholders to vote is invalid.
each share shall be equal in all respects to every
Kinds of shares:
other share.
1. Common or preferred shares;
Where the articles of incorporation provide for
2. Voting or non-voting shares;
non-voting shares in the cases allowed by this Code,
3. Par value or no par value shares;
the holders of such shares shall nevertheless be
4. Treasury shares;
entitled to vote on the following matters:
5. Redeemable shares;
1. Amendment of the articles of incorporation; 6. Founder’s shares;
2. Adoption and amendment of by-laws; Preferred shares may be:
3. Sale, lease, exchange, mortgage, pledge or other 1. Cumulative or non-cumulative
disposition of all or substantially all of the corporate 2. Participating or non-participating
property; 3. Preferred as to dividends and/or preferred as
assets upon distribution
4. Incurring, creating or increasing bonded
4. Convertible shares
indebtedness;
Shares That Cannot be No-Par Value Shares:
5. Increase or decrease of capital stock;
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While corporations are allowed to issue no-par value books of the corporation, and upon such other terms
shares, the following cannot be without par value: and conditions as may be stated in the articles of
incorporation, which terms and conditions must also
1. Preferred shares
be stated in the certificate of stock representing said
2. Shares in banks
shares.
3. Shares in trust companies
4. Shares in insurance companies Redeemable shares are shares of stocks issued by a
5. Shares in public utilities corporation which said corporation can purchase or
6. Shares in building and loan associations take up from their holders as expressly provided for
in the articles of incorporation and certificates of
 Escrow Shares are not reflected in the stock representing said shares. Redeemable shares
Articles of incorporation. It results by virtue are usually preferred shares.
of a transaction to place shares in escrow
The issuance of redeemable shares may be likened
until the happening of an event or fulfillment
to temporary borrowings that enables a corporation
of a specified condition like payment of
to adjust its capital structure to meet varying
subscription price to the corporation or
conditions.
purchase price to a shareholder. Shares that
are in escrow may be in common or Mandatory Redemption
preferred shares.
 Redemption must be made within a certain
Sec. 7. Founders' shares. - Founders' shares period; is one that requires the issuing
classified as such in the articles of incorporation may corporation to redeem or repurchase its
be given certain rights and privileges not enjoyed by preferred shares at a fixed date or at the
the owners of other stocks, provided that where the option of the holder thereby giving the
exclusive right to vote and be voted for in the shareholder the right to the return of their
election of directors is granted, it must be for a investment.
limited period not to exceed five (5) years subject to  Not against public policy; anybody is
the approval of the Securities and Exchange forewarned that the redeemable shares may
Commission. The five-year period shall commence be purchased out of capital.
from the date of the aforesaid approval by the  All corporations, which have issued
Securities and Exchange Commission. redeemable shares with mandatory
redeemable features, are required to set up
 Founders’ shares are shares that are given to
and maintain a sinking fund. The fund shall be
those who helped organized the corporation.
deposited with a trustee bank and is not
 The five-year limitation refers only to the
supposed to be invested in risky or
exclusive right to vote and be voted for in the
speculative ventures. The rules define
election of directors, a right normally
“Sinking Fund” as a fund set by the
enjoyed by holders of common shares, the
corporation where cash is gradually set aside
class of shares which are supposed to have
in order to accumulate the amount necessary
complete voting rights. After the expiration
to meet the redemption price of redeemable
of the limitation period, founders’ shares
shares at specified dates in the future.
shall have equal rights with the holders of
common shares. Effect of Redemption
Sec. 8. Redeemable shares. - Redeemable shares a. When the redeemable shares are reacquired,
may be issued by the corporation when expressly so it shall be considered retired and no longer
provided in the articles of incorporation. They may issuable unless provided in Articles of
be purchased or taken up by the corporation upon Incorporation; a deduction in equity; In a
the expiration of a fixed period, regardless of the sense, redemption is a repurchase of the
existence of unrestricted retained earnings in the shares for cancellation.
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b. On the other hand, the redeemed shares will the official acts, certification or records, which give
not be considered retired and will become the corporation its existence.
treasury shares if the Articles of
The creation of a corporation could be taken to
Incorporation expressly provides that once
include all the acts and doings from the enactment
redeemed, it shall be classified as treasury
of the general corporation law by the legislature,
shares.
through the promotion, underwriting, preparation
c. If considered retired, the authorized capital
and execution and filing of the incorporation papers
stock of the corporation is in effect reduced
and obtaining the certificate or charter of the
by the corresponding number of shares
organization and the first meeting and election
because the redeemed shares can no longer
which set the corporation in motion full-fledged.
be re-issued.
Effect if not Incorporated
Sec. 9. Treasury shares. - Treasury shares are shares
of stock which have been issued and fully paid for, It is only through incorporation and registration
but subsequently reacquired by the issuing with SEC that private corporations can acquire
corporation by purchase, redemption, donation or juridical personality under the Corporation Code.
through some other lawful means. Such shares may Under Sec. 19, the life of the corporation will not
again be disposed of for a reasonable price fixed by commence if the SEC will not issue a certificate of
the board of directors. Incorporation with the SEC.
Limitations However, incorporation is not necessary for an
association to function as a group. Also,
Treasury shares, not having been retired by the
incorporation is not necessary for liability to attach
corporation reacquiring it, are subject to the
under the rule on corporation by estoppel.
following rules:
Sec. 10. Number and qualifications of
1. May be re-issued as long as the corporation
incorporators. - Any number of natural persons not
holds them as treasury shares;
less than five (5) but not more than fifteen (15), all
2. Cannot participate in dividends because
of legal age and a majority of whom are residents of
dividends cannot be declared by the
the Philippines, may form a private corporation for
corporation to itself;
any lawful purpose or purposes. Each of the
3. Cannot be represented during stockholder’s
incorporators of s stock corporation must own or be
meetings for otherwise equal distribution of
a subscriber to at least one (1) share of the capital
voting powers among stockholders will be
stock of the corporation.
effectively lost and the directors will be able
to perpetuate their control of the Incorporators. The basic qualifications of
corporation. incorporators under Sec 10:
4. The amount of unrestricted retained
1. They must be natural persons;
earnings equivalent to the cost of treasury
2. There must be not less than five but not more
shares being held shall be restricted from
than 15;
being declared and issued as dividends. It
3. They must be of legal age;
shall be lifted only after the treasury shares
4. The majority must be residents of the
causing the restriction are reissued.
Philippines (There is no requirement that the
Part 2 – Incorporation and Organization of Private majority must be citizens of the Philippines.
Corporations The rule however is subject to pertinent
nationalization laws. For instance, if the law
Incorporation means the performance of
requires all stockholders to be Filipino
conditions, acts, deeds and writings by
citizens, then it follows that all incorporators
incorporators, and writings by incorporators, and
must also be citizens.); and

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5. If the corporation is a stock corporation, each 4. A copy of the amended Articles of
incorporator must own or be subscriber to at Incorporation shall be submitted to the SEC
least one share. for its approval.
An incorporator remains to be an incorporator even Doctrine of Relations
if he will later on cease to be a corporator or
The filing an recording of a certificate of extension
shareholder. Thus, he will still be an incorporator
after the term cannot relate back to the date of the
even if he already transferred all his shares to
passage of the resolution of the stockholders to
another. Being an incorporator is an accomplished
extend the life of the corporation. However, the
fact.
doctrine of relation or relating back doctrine applies
Sec. 11. Corporate term. - A corporation shall exist if the failure to file the application for extension
for a period not exceeding fifty (50) years from the within the term of the corporation is due to the
date of incorporation unless sooner dissolved or neglect of the officer with whom the certificate is
unless said period is extended. The corporate term required to be filed or to a wrongful refusal on his
as originally stated in the articles of incorporation part to receive it.
may be extended for periods not exceeding fifty (50)
Sec. 12. Minimum capital stock required of stock
years in any single instance by an amendment of the
corporations. - Stock corporations incorporated
articles of incorporation, in accordance with this
under this Code shall not be required to have any
Code; Provided, That no extension can be made
minimum authorized capital stock except as
earlier than five (5) years prior to the original or
otherwise specifically provided for by special law,
subsequent expiry date(s) unless there are justifiable
and subject to the provisions of the following
reasons for an earlier extension as may be
section.
determined by the Securities and Exchange
Commission. Sec. 13. Amount of capital stock to be subscribed
and paid for the purposes of incorporation. - At
Extension of Term must be made within the time
least twenty-five percent (25%) of the authorized
and in the manner prescribed by the Corporation
capital stock as stated in the articles of incorporation
Code. Otherwise the term will expire and the
must be subscribed at the time of incorporation, and
corporation’s personality will cease. “Since the
at least twenty-five (25%) per cent of the total
privilege of extension is purely statutory, all of the
subscription must be paid upon subscription, the
statutory conditions precedent must be complied
balance to be payable on a date or dates fixed in the
with in order that the extension may be effectuated.
contract of subscription without need of call, or in
(Sec. 37) Requirements for extension and shortening the absence of a fixed date or dates, upon call for
of the term of the corporation are subject to the payment by the board of directors: Provided,
following requirements: however, That in no case shall the paid-up capital be
less than five Thousand (P5,000.00) pesos.
1. The action must be approved by a majority
vote of the board of directors or trustees; (Important) Definition of Terms:
2. The action must be ratified at least 2/3 of the
1. Authorized Capital Stock is the amount fixed
outstanding capital stock or by at least 2/3 of
in the articles of incorporation to be
the members in case of stock corporations.
subscribed and paid by the stockholders of
3. For purposes of such stockholders’ meeting,
the corporation.
written notice of the proposed action and of
2. Subscribed Capital is that portion of the
the time and place of the meeting shall be
authorized capital stock that is covered by
addressed to each stockholder or member at
subscription agreements whether fully paid
his place of residence as shown on the books
or not.
of the corporation and deposited to the
3. Paid-Up Capital is the amount of outstanding
addressee in the post office with postage
capital stock and additional paid-in capital or
prepaid, or served personally.
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premium paid over the par value of the purpose or purposes: Provided, That a non-stock
shares. corporation may not include a purpose which would
4. Outstanding Capital Stock refers to the total change or contradict its nature as such;
shares of stock issued to subscribers or
3. The place where the principal office of the
stockholders, whether or not fully or partially
corporation is to be located, which must be within
paid except treasury shares so long as there
the Philippines;
is a binding subscription agreement.
5. Capital includes properties and assets of the 4. The term for which the corporation is to exist;
corporation that are used for its business or
5. The names, nationalities and residences of the
operation.
incorporators;
6. Stated Capital is the sum of the par value of
all issued par value shares, the entire amount 6. The number of directors or trustees, which shall
received for no-par value shares and any not be less than five (5) nor more than fifteen (15);
amount transferred by a stock dividend or
7. The names, nationalities and residences of
other corporate action from surplus to stated
persons who shall act as directors or trustees until
capital. Even treasury shares are considered
the first regular directors or trustees are duly elected
part of the Stated Capital under the
and qualified in accordance with this Code;
definition because Stated Capital includes all
shares. 8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the
The requirements of Sec 13 are as follows:
Philippines, the number of shares into which it is
a. Minimum Subscribed Capital – 25% of divided, and in case the share are par value shares,
Authorized Capital; and the par value of each, the names, nationalities and
b. Minimum Paid-up Capital – 25% of residences of the original subscribers, and the
Subscribed Capital but must not less than amount subscribed and paid by each on his
₱5,000.00. subscription, and if some or all of the shares are
without par value, such fact must be stated;
However, the limitation does not prevent
subscribers from paying in full the subscription price. 9. If it be a non-stock corporation, the amount of its
In addition, if the subscription contracts provide for capital, the names, nationalities and residences of
full payment, the contract must be complied. Also, the contributors and the amount contributed by
subscription of non-resident foreigners must be fully each; and
paid.
10. Such other matters as are not inconsistent with
Sec. 14. Contents of the articles of incorporation. - law and which the incorporators may deem
All corporations organized under this code shall file necessary and convenient.
with the Securities and Exchange Commission
The Securities and Exchange Commission shall not
articles of incorporation in any of the official
accept the articles of incorporation of any stock
languages duly signed and acknowledged by all of
corporation unless accompanied by a sworn
the incorporators, containing substantially the
statement of the Treasurer elected by the
following matters, except as otherwise prescribed by
subscribers showing that at least twenty-five (25%)
this Code or by special law:
percent of the authorized capital stock of the
1. The name of the corporation; corporation has been subscribed, and at least
twenty-five (25%) of the total subscription has been
2. The specific purpose or purposes for which the
fully paid to him in actual cash and/or in property the
corporation is being incorporated. Where a
fair valuation of which is equal to at least twenty-five
corporation has more than one stated purpose, the
(25%) percent of the said subscription, such paid-up
articles of incorporation shall state which is the
capital being not less than five thousand (P5,000.00)
primary purpose and which is/are he secondary
pesos.
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Sec. 15. Forms of Articles of Incorporation. - Unless .
otherwise prescribed by special law, articles of
SEVENTH: That the authorized capital stock of the
incorporation of all domestic corporations shall
corporation is__________(P__________) PESOS in
comply substantially with the following form:
lawful money of the Philippines, divided into
________shares with the par value
ARTICLES OF INCORPORATION of_____(P________) Pesos per share.
OF (In case all the share are without par value):
__________________________ That the capital stock of the corporation is
________shares without par value. (In case some
(Name of Corporation)
shares have par value and some are without par
KNOW ALL MEN BY THESE PRESENTS: value): That the capital stock of said corporation
consists of. shares of which ______shares are of the
The undersigned incorporators, all of legal
par value of. (P.) PESOS each, and of which. shares
age and a majority of whom are residents of the
are without par value.
Philippines, have this day voluntarily agreed to form
a (stock) (non-stock) corporation under the laws of EIGHTH: That at least twenty five (25%) per cent of
the Republic of the Philippines; the authorized capital stock above stated has been
subscribed as follows:
AND WE HEREBY CERTIFY:
Name of Subscriber Nationality No of Shares
FIRST: That the name of said corporation shall be
Subscribed Amount Subscribed
", INC. or CORPORATION";
-
SECOND: That the purpose or purposes for which
-
such corporation is incorporated are: (If there is
more than one purpose, indicate primary and NINTH: That the above-named subscribers have
secondary purposes); paid at least twenty-five (25%) percent of the total
subscription as follows:
THIRD: That the principal office of the corporation is
located in the City/Municipality of, Province of., Name of Subscriber Amount Subscribed Total
Philippines; Paid-In

FOURTH: That the term for which said corporation -


is to exist is. years from and after the date of
-
issuance of the certificate of incorporation;
(Modify Nos. 8 and 9 if shares are with no par value.
FIFTH: That the names, nationalities and residences
In case the corporation is non-stock, Nos. 7, 8 and 9
of the incorporators of the corporation are as
of the above articles may be modified accordingly,
follows:
and it is sufficient if the articles state the amount of
NAME NATIONALITY RESIDENCE capital or money contributed or donated by
specified persons, stating the names, nationalities
.
and residences of the contributors or donors and
. the respective amount given by each.)

SIXTH: That the number of directors or trustees of TENTH: That _________has been elected by the
the corporation shall be; and the names, subscribers as Treasurer of the Corporation to act
nationalities and residences of the first directors or as such until his successor is duly elected and
trustees of the corporation are as follows: qualified in accordance with the by-laws, and that
as such Treasurer, he has been authorized to
NAME NATIONALITY RESIDENCE
receive for and in the name and for the benefit of
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the corporation, all subscription (or fees) or SUBSCRIBED AND SWORN to before me, a Notary
contributions or donations paid or given by the Public, for and in the City/Municipality of. Province
subscribers or members. of., this ___day of.............., 19.......;
by........................................... with Res. Cert.
ELEVENTH: (Corporations which will engage in any
No..................... issued at................ on.....................,
business or activity reserved for Filipino citizens
19.........
shall provide the following):
"No transfer of stock or interest which shall reduce
NOTARY PUBLIC
the ownership of Filipino citizens to less than the
required percentage of the capital stock as provided My commission expires on.........................., 19.......
by existing laws shall be allowed or permitted to
Doc. No...............;
recorded in the proper books of the corporation
and this restriction shall be indicated in all stock Page No...............;
certificates issued by the corporation."
Book No..............;
IN WITNESS WHEREOF, we have hereunto signed
Series of 19..... (7a)
these Articles of Incorporation, this ______day of.,
19in the City/Municipality of., Province of, Republic  The Treasurer’s Affidavit that accompanies
of the Philippines. the Article of Incorporation relates to the
minimum subscribed capital and minimum
(Names and signatures of the incorporators)
paid-up capital. Thus, the treasurer may be
SIGNED IN THE PRESENCE OF: made liable if the corporation does not
comply with the requirements of the law, he
(Notarial Acknowledgment)
may even be prosecuted for perjury.
Purpose Clause
TREASURER'S AFFIDAVIT
The purpose clause is included in the Articles of
REPUBLIC OF THE PHILIPPINES______ )
Incorporation in order that:
CITY/MUNICIPALITY OF____________) S.S.
1. The person who intends to invest his money
PROVINCE OF____________________) in the business will know where and in what
kind of business or activity his money will be
I, _________________, being duly sworn, depose
invested;
and say:
2. The directors and officers will be informed
That I have been elected by the subscribers of the regarding the scope of business they are
corporation as Treasurer thereof, to act as such authorized to act; and
until my successor has been duly elected and 3. A third person will be aware if the transaction
qualified in accordance with the by-laws of the he has with the corporation is within the
corporation, and that as such Treasurer, I hereby authority of the corporation.
certify under oath that at least 25% of the
The general limitations imposed on the purpose
authorized capital stock of the corporation has
clause are:
been subscribed and at least 25% of the total
subscription has been paid, and received by me, in 1. It cannot be created or formed for a purpose
cash or property, in the amount of not less than or function of which a corporate body is
P5,000.00, in accordance with the Corporation incapable.
Code. 2. It cannot be created for a purpose that is
contrary to law, morals, or public policy.
3. It cannot be organized for two or more
(Signature of Treasurer) incompatible purposes. There may be non-
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allied purposes but they must not be amendment thereto if the same is not in compliance
incompatible. with the requirements of this Code: Provided, That
4. The corporation may not be organized for a the Commission shall give the incorporators a
purpose that is contrary to its nature. reasonable time within which to correct or modify
the objectionable portions of the articles or
Sec. 16. Amendment of Articles of Incorporation. -
amendment. The following are grounds for such
Unless otherwise prescribed by this Code or by
rejection or disapproval:
special law, and for legitimate purposes, any
provision or matter stated in the articles of 1. That the articles of incorporation or any
incorporation may be amended by a majority vote of amendment thereto is not substantially in
the board of directors or trustees and the vote or accordance with the form prescribed herein;
written assent of the stockholders representing at
2. That the purpose or purposes of the corporation
least two-thirds (2/3) of the outstanding capital
are patently unconstitutional, illegal, immoral, or
stock, without prejudice to the appraisal right of
contrary to government rules and regulations;
dissenting stockholders in accordance with the
provisions of this Code, or the vote or written assent 3. That the Treasurer's Affidavit concerning the
of at least two-thirds (2/3) of the members if it be a amount of capital stock subscribed and/or paid if
non-stock corporation. false;
The original and amended articles together shall 4. That the percentage of ownership of the capital
contain all provisions required by law to be set out in stock to be owned by citizens of the Philippines has
the articles of incorporation. Such articles, as not been complied with as required by existing laws
amended shall be indicated by underscoring the or the Constitution.
change or changes made, and a copy thereof duly
No articles of incorporation or amendment to
certified under oath by the corporate secretary and
articles of incorporation of banks, banking and quasi-
a majority of the directors or trustees stating the fact
banking institutions, building and loan associations,
that said amendment or amendments have been
trust companies and other financial intermediaries,
duly approved by the required vote of the
insurance companies, public utilities, educational
stockholders or members, shall be submitted to the
institutions, and other corporations governed by
Securities and Exchange Commission.
special laws shall be accepted or approved by the
The amendments shall take effect upon their Commission unless accompanied by a favorable
approval by the Securities and Exchange Commission recommendation of the appropriate government
or from the date of filing with the said Commission if agency to the effect that such articles or amendment
not acted upon within six (6) months from the date is in accordance with law.
of filing for a cause not attributable to the
Sec. 18. Corporate name. - No corporate name may
corporation.
be allowed by the Securities and Exchange
Provisions to be Amended Commission if the proposed name is identical or
deceptively or confusingly similar to that of any
The amendment may involve corporate name,
existing corporation or to any other name already
increase in the authorized capital stock, and other
protected by law or is patently deceptive, confusing
similar changes. However, accomplished facts such
or contrary to existing laws. When a change in the
as the names of incorporators and nature of the
corporate name is approved, the Commission shall
corporation cannot be amended. It is contrary to the
issue an amended certificate of incorporation under
provisions of Corporation Code.
the amended name.
Sec. 17. Grounds when articles of incorporation or
SEC Rules: SEC Memorandum Circular No. 21, S
amendment may be rejected or disapproved. - The
2013
Securities and Exchange Commission may reject the
articles of incorporation or disapprove any
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xxx 14. Notwithstanding the foregoing, the Defective Corporations.
Commission shall for the protection of public
Certain basic rules to determine if the corporation is
interest and other justifiable causes, disallow the use
de jure or defective:
of names that in its judgment, are misleading,
deceptive, confusingly similar to a registered name, 1. Non-compliance with directory provisions of
or contrary to public morals, good customs or public law or regulations will not affect the de jure
policy. existence of a corporation.
2. Non-compliance with mandatory provisions
Doctrine of Secondary Meaning
will affect the de jure existence of the
A word or phrase, which is originally incapable of corporation. However, only substantial
exclusive appropriation because the word or phrase compliance is required and mere colorable
is geographic or otherwise descriptive, has been compliance may result in a de facto
used for so long and exclusively by one producer corporation.
with reference to an article and the purchasing 3. Non-compliance with conditions precedent
public has considered the word or phrase as to incorporation may affect the de jure
associated to his product. Thus, if a corporate name, existence of the corporation. For example,
though descriptive, has been used for so long and issuance of a certificate of Incorporation is a
exclusively by one corporation and has become condition precedent and there can be no de
associated with that corporation alone in the mind jure corporation without it.
of the public, another corporation cannot register 4. Non-compliance with condition subsequent
said name as a corporate name. to incorporation may not affect the existence
of a corporation but may be a ground for
Sec. 19. Commencement of corporate existence. - A
revocation of the certificate of incorporation.
private corporation formed or organized under this
5. Condition precedent to carry on the business
Code commences to have corporate existence and
will not affect the corporation’s de jure status
juridical personality and is deemed incorporated
but compliance may be a ground to revoke
from the date the Securities and Exchange
the certificate of incorporation.
Commission issues a certificate of incorporation
under its official seal; and thereupon the To constitute a corporation de facto under Sec 20,
incorporators, stockholders/members and their the weight of authority is that there must be:
successors shall constitute a body politic and
1. A valid law under which the corporation is
corporate under the name stated in the articles of
organized (No de facto corporation will result
incorporation for the period of time mentioned
if ther is no law under which the corporation
therein, unless said period is extended or the
is organized even if the components thereof
corporation is sooner dissolved in accordance with
assume corporate powers);
law.
2. An attempt in good faith to incorporate (+
 The certificate of incorporation is an there must be colorable compliance with the
indispensable requirement before corporate law; there has been evident attempt to
life can ensue. comply with the law); and
3. An assumption of corporate powers (A
Sec. 20. De facto corporations. - The due
corporation must have exercised its franchise
incorporation of any corporation claiming in good
to be a corporation by doing business under
faith to be a corporation under this Code, and its
it).
right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which Distinguished from De Jure Corporations
such corporation may be a party. Such inquiry may
A de jure corporation has a right to corporate
be made by the Solicitor General in a quo warranto
existence even against the State. In the case of a de
proceeding.
facto corporation, it has a right to corporate
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 10
existence even against the State if the attack is businesses or the construction of its works, or to
collateral but not if the attack is direct. Nevertheless, continuously operate is due to causes beyond the
“the State, which alone, has the power to control of the corporation as may be determined by
incorporate, may waive irregularities in the the Securities and Exchange Commission.
organization of the corporation; and, so long as the
Conditions Subsequent
State remains inactive in the premises, individuals
must acquiesce. Sec.22 involves conditions subsequent to
incorporation. It involves these two violations of
Nature and Status of De Facto Corporations
conditions subsequent:
The personality of a de facto corporation is subject
1. Failure to organize and commence business
to attack by the State in a proper proceeding.
within two years from incorporation.
However, so long as it exists, a de facto corporation
2. Becoming continuously inoperative for a
is a reality and has substantial, legal existence and
period of at least five years.
independent status recognized by the law as distinct
from that of its members or shareholders. It enjoys Part 3 – Board of Directors/ Trustees/ Officers
the attributes of a corporation until the State
Sec. 23. The board of directors or trustees. - Unless
questions its existence.
otherwise provided in this Code, the corporate
Sec. 21. Corporation by estoppel. - All persons who powers of all corporations formed under this Code
assume to act as a corporation knowing it to be shall be exercised, all business conducted and all
without authority to do so shall be liable as general property of such corporations controlled and held by
partners for all debts, liabilities and damages the board of directors or trustees to be elected from
incurred or arising as a result thereof: Provided, among the holders of stocks, or where there is no
however, That when any such ostensible corporation stock, from among the members of the corporation,
is sued on any transaction entered by it as a who shall hold office for one (1) year until their
corporation or on any tort committed by it as such, successors are elected and qualified.
it shall not be allowed to use as a defense its lack of
Every director must own at least one (1) share of the
corporate personality.
capital stock of the corporation of which he is a
On who assumes an obligation to an ostensible director, which share shall stand in his name on the
corporation as such, cannot resist performance books of the corporation. Any director who ceases to
thereof on the ground that there was in fact no be the owner of at least one (1) share of the capital
corporation. stock of the corporation of which he is a director
shall thereby cease to be a director. Trustees of non-
Sec. 22. Effects on non-use of corporate charter and
stock corporations must be members thereof. a
continuous inoperation of a corporation.- If a
majority of the directors or trustees of all
corporation does not formally organize and
corporations organized under this Code must be
commence the transaction of its business or the
residents of the Philippines.
construction of its works within two (2) years from
the date of its incorporation, its corporate powers  The Board is the body which:
cease and the corporation shall be deemed 1. Exercises all powers provided for under
dissolved. However, if a corporation has commenced the Corporation Code;
the transaction of its business but subsequently 2. Conducts all the business of the
becomes continuously inoperative for a period of at corporation;
least five (5) years, the same shall be a ground for 3. Controls and holds all property of the
the suspension or revocation of its corporate corporation.
franchise or certificate of incorporation.
Business Judgment Rule
This provision shall not apply if the failure to
Under this rule, the will of the majority controls in
organize, commence the transaction of its
corporate affairs, and contracts intra vires entered
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 11
by the board of directors are binding on the him as shown in the books of the corporation
corporation and courts will not interfere unless such multiplied by the whole number of directors to be
contracts are so unconscionable and oppressive as elected: Provided, however, That no delinquent
to amount to a wanton destruction of rights of the stock shall be voted. Unless otherwise provided in
minority. the articles of incorporation or in the by-laws,
members of corporations which have no capital
Code of Corporate Governance
stock may cast as many votes as there are trustees
The 2009 Code of Corporate Governance defines to be elected but may not cast more than one vote
“Corporate Governance” as the framework of rules, for one candidate. Candidates receiving the highest
systems and processes in the corporation that number of votes shall be declared elected. Any
governs the performance by the Board of Directors meeting of the stockholders or members called for
and Management of their respective duties and an election may adjourn from day to day or from
responsibilities to the stockholders and other time to time but not sine die or indefinitely if, for any
stakeholders which include, among others reason, no election is held, or if there not present or
customers, employees, suppliers, financiers, represented by proxy, at the meeting, the owners of
government and community it operates. a majority of the outstanding capital stock, or if there
be no capital stock, a majority of the member
Independent Director
entitled to vote.
A person who, apart from his fees and shareholdings,
Sec. 25. Corporate officers, quorum. - Immediately
is independent management and free from any
after their election, the directors of a corporation
business or other relationship which could, or could
must formally organize by the election of a
reasonably be perceived to materially interfere with
president, who shall be a director, a treasurer who
his exercise of independent judgment in carrying out
may or may not be a director, a secretary who shall
his responsibilities as a director in any corporation
be a resident and citizen of the Philippines, and such
that meets the requirements under the law.
other officers as may be provided for in the by-laws.
Sec. 24. Election of directors or trustees. - At all Any two (2) or more positions may be held
elections of directors or trustees, there must be concurrently by the same person, except that no one
present, either in person or by representative shall act as president and secretary or as president
authorized to act by written proxy, the owners of a and treasurer at the same time.
majority of the outstanding capital stock, or if there
The directors or trustees and officers to be elected
be no capital stock, a majority of the members
shall perform the duties enjoined on them by law
entitled to vote. The election must be by ballot if
and the by-laws of the corporation. Unless the
requested by any voting stockholder or member. In
articles of incorporation or the by-laws provide for a
stock corporations, every stockholder entitled to
greater majority, a majority of the number of
vote shall have the right to vote in person or by proxy
directors or trustees as fixed in the articles of
the number of shares of stock standing, at the time
incorporation shall constitute a quorum for the
fixed in the by-laws, in his own name on the stock
transaction of corporate business, and every
books of the corporation, or where the by-laws are
decision of at least a majority of the directors or
silent, at the time of the election; and said
trustees present at a meeting at which there is a
stockholder may vote such number of shares for as
quorum shall be valid as a corporate act, except for
many persons as there are directors to be elected or
the election of officers which shall require the vote
he may cumulate said shares and give one candidate
of a majority of all the members of the board.
as many votes as the number of directors to be
elected multiplied by the number of his shares shall Directors or trustees cannot attend or vote by proxy
equal, or he may distribute them on the same at board meetings.
principle among as many candidates as he shall see
Sec. 26. Report of election of directors, trustees and
fit: Provided, That the total number of votes cast by
officers. - Within thirty (30) days after the election of
him shall not exceed the number of shares owned by
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 12
the directors, trustees and officers of the non-stock corporation, by a vote of at least two-
corporation, the secretary, or any other officer of the thirds (2/3) of the members entitled to vote:
corporation, shall submit to the Securities and Provided, That such removal shall take place either
Exchange Commission, the names, nationalities and at a regular meeting of the corporation or at a special
residences of the directors, trustees, and officers meeting called for the purpose, and in either case,
elected. Should a director, trustee or officer die, after previous notice to stockholders or members of
resign or in any manner cease to hold office, his heirs the corporation of the intention to propose such
in case of his death, the secretary, or any other removal at the meeting. A special meeting of the
officer of the corporation, or the director, trustee or stockholders or members of a corporation for the
officer himself, shall immediately report such fact to purpose of removal of directors or trustees, or any
the Securities and Exchange Commission. of them, must be called by the secretary on order of
the president or on the written demand of the
 To give public information, under sanction of
stockholders representing or holding at least a
oath of responsible officers, of the nature of
majority of the outstanding capital stock, or, if it be
business, financial condition and operational
a non-stock corporation, on the written demand of a
status of the company together with
majority of the members entitled to vote. Should the
information on its key officers so that dealing
secretary fail or refuse to call the special meeting
with it and those who intend to do business
upon such demand or fail or refuse to give the
with it may know or have the means of
notice, or if there is no secretary, the call for the
knowing facts concerning the corporation’s
meeting may be addressed directly to the
financial resources and business
stockholders or members by any stockholder or
responsibility.
member of the corporation signing the demand.
 A corporation is mandated to inform the SEC
Notice of the time and place of such meeting, as well
of the names and the change in the
as of the intention to propose such removal, must be
composition of its officers and board of
given by publication or by written notice prescribed
directors within 30 days after election if one
in this Code. Removal may be with or without cause:
was held, or 15 days after the death,
Provided, That removal without cause may not be
resignation or cessation of office of office of
used to deprive minority stockholders or members
any of its director, trustee or officer if any of
of the right of representation to which they may be
them died, resigned or in any manner, ceased
entitled under Section 24 of this Code.
to hold office.
 The authority to remove directors is the
Sec. 27. Disqualification of directors, trustees or
prerogative of the stockholders or members
officers. - No person convicted by final judgment of
of the corporation. Hence, the directors
an offense punishable by imprisonment for a period
cannot indirectly usurp or disregard the said
exceeding six (6) years, or a violation of this Code
power of the stockholders.
committed within five (5) years prior to the date of
 The requirements for a valid removal are:
his election or appointment, shall qualify as a
1. It must take place either at a regular
director, trustee or officer of any corporation.
meeting or special meeting of the
 The position of director in a corporation is a stockholders or members called for the
position of trust. A director in a corporation purpose;
has the personality of managing the funds 2. There must be previous notice to the
belonging to other persons or individuals. stockholders or members of the intention
to remove a director;
Sec. 28. Removal of directors or trustees. - Any
3. The removal must be by a vote of the
director or trustee of a corporation may be removed
stockholders representing 2/3 of the
from office by a vote of the stockholders holding or
Outstanding Capital Stock or 2/3 of
representing at least two-thirds (2/3) of the
members;
outstanding capital stock, or if the corporation be a
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 13
4. A director who was elected by the compensation, the directors shall not receive any
minority must be removed only for just compensation, as such directors, except for
cause. reasonable pre diems: Provided, however, That any
 The removal of the director does not result in such compensation other than per diems may be
the transfer of his shares; the removed granted to directors by the vote of the stockholders
director remains a shareholder. representing at least a majority of the outstanding
capital stock at a regular or special stockholders'
Sec. 29. Vacancies in the office of director or
meeting. In no case shall the total yearly
trustee. - Any vacancy occurring in the board of
compensation of directors, as such directors, exceed
directors or trustees other than by removal by the
ten (10%) percent of the net income before income
stockholders or members or by expiration of term,
tax of the corporation during the preceding year.
may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a Sec. 31. Liability of directors, trustees or officers. -
quorum; otherwise, said vacancies must be filled by Directors or trustees who willfully and knowingly
the stockholders in a regular or special meeting vote for or assent to patently unlawful acts of the
called for that purpose. A director or trustee so corporation or who are guilty of gross negligence or
elected to fill a vacancy shall be elected only or the bad faith in directing the affairs of the corporation
unexpired term of his predecessor in office. or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees
A directorship or trusteeship to be filled by reason of
shall be liable jointly and severally for all damages
an increase in the number of directors or trustees
resulting therefrom suffered by the corporation, its
shall be filled only by an election at a regular or at a
stockholders or members and other persons.
special meeting of stockholders or members duly
called for the purpose, or in the same meeting When a director, trustee or officer attempts to
authorizing the increase of directors or trustees if so acquire or acquires, in violation of his duty, any
stated in the notice of the meeting. interest adverse to the corporation in respect of any
matter which has been reposed in him in confidence,
 Vacancy is an operative fact that justifies the
as to which equity imposes a disability upon him to
election or appointment of the replacement.
deal in his own behalf, he shall be liable as a trustee
 The stockholders or members shall
for the corporation and must account for the profits
replace/elect the director if the vacancy is
which otherwise would have accrued to the
due to:
corporation.
1. Removal,
2. Expiration of term,  As a rule, directors and officers are not
3. A ground other than removal or solidarily liable with the corporation.
expiration of term (e.g., death, Obligations incurred by them, acting as such
resignation, abandonment) where the corporate agents, are not theirs but the
remaining directors do not constitute direct accountabilities of the corporation
quorum, or they represent.
4. Increase the number of directors.  Sec 31 are instances where the directors and
 If vacancy is due to causes other than those officers are solidary liable.
specified above, the board (w/o the  Patently unlawful act is one declared
concurrence of stockholders or members) unlawful by law that imposes penalties for
can fill the vacancy, if remaining directors commission of such lawful acts. There must
constitute a quorum. This presupposes that be a law declaring the act unlawful and
the vacancy occurred within the director’s providing the corresponding penalty.
term.  Watered stocks are stocks of a corporation
issued for less than their par or issued value
Sec. 30. Compensation of directors. - In the absence
or in any other form other than the cash
of any provision in the by-laws fixing their
valued in excess of its fair value. Sec. 65
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provides that a director or officer who the contract is fair and reasonable under the
consents to the issuance of watered stocks circumstances.
shall be solidarily liable with the stockholder
 Self-dealing directors, trustees, or officers
concerned to the corporation and to
are those who personally contract with the
corporate creditors for the difference
corporation in which they are directors,
between the fair value received at the time
trustees or officers. It is discouraged because
of the issuance of the stock and the par or
the directors, trustees, and officers have
issued value of the same.
fiduciary relationship with the corporation,
 Doctrine of piercing the veil of corporate
and there can be no real bargaining where
entity. A corporation is a legal entity distinct
the same is acting on both sides of the trade.
from the persons composing it. It is a theory
 However, even if not all requirements in Sec
introduced for the purpose of convenience
32 are met, the contract with the self-dealing
and to serve the ends of justice. But when the
director, trustee or officer may still be
veil of corporate fiction is used as a shield to
ratified by a vote of stockholders
perpetuate fraud, to defeat public
representing at least 2/3 of Outstanding
convenience, justify wrong or defend crime,
Capital Stock or by the vote of at least 2/3 of
this fiction shall be disregarded and the
the members called for the purpose. In order
individuals composing it will be treated
that ratification may be considered valid and
identically. This is a judicial function.
effective, it is however necessary that the
Sec. 32. Dealings of directors, trustees or officers following conditions are present:
with the corporation.- A contract of the corporation 1. There must be full disclosure of the
with one or more of its directors or trustees or adverse interest of the directors/trustees
officers is voidable, at the option of such involved that is made at such meeting;
corporation, unless all the following conditions are and
present: 2. The contract is fair and reasonable under
the circumstances.
1. That the presence of such director or trustee in the
board meeting in which the contract was approved Sec. 33. Contracts between corporations with
was not necessary to constitute a quorum for such interlocking directors. - Except in cases of fraud, and
meeting; provided the contract is fair and reasonable under
the circumstances, a contract between two or more
2. That the vote of such director or trustee was nor
corporations having interlocking directors shall not
necessary for the approval of the contract;
be invalidated on that ground alone: Provided, That
3. That the contract is fair and reasonable under the if the interest of the interlocking director in one
circumstances; and corporation is substantial and his interest in the
other corporation or corporations is merely nominal,
4. That in case of an officer, the contract has been
he shall be subject to the provisions of the preceding
previously authorized by the board of directors.
section insofar as the latter corporation or
Where any of the first two conditions set forth in the corporations are concerned.
preceding paragraph is absent, in the case of a
Stockholdings exceeding twenty (20%) percent of
contract with a director or trustee, such contract
the outstanding capital stock shall be considered
may be ratified by the vote of the stockholders
substantial for purposes of interlocking directors.
representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds  There is an interlocking director when one (or
(2/3) of the members in a meeting called for the some or all) of the directors in one
purpose: Provided, That full disclosure of the corporation is (or are) a director/s in another
adverse interest of the directors or trustees involved corporation.
is made at such meeting: Provided, however, That
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 15
 Substantial – interest of Interlocking Director express terms is not so amendable or repealable;
of stockholding exceeds 20% of the and (5) a distribution of cash dividends to the
outstanding capital stock shareholders.
 Nominal - interest of Interlocking Director of
 The board cannot delegate the entire
stockholding is 20% or less of the outstanding
supervision and control of the corporation
capital stock
to an executive committee for this is
Sec. 34. Disloyalty of a director. - Where a director, contrary to the charter and the law that
by virtue of his office, acquires for himself a business requires that the directors shall have
opportunity which should belong to the corporation, general supervision and control of the
thereby obtaining profits to the prejudice of such corporation.
corporation, he must account to the latter for all
Part 4 - Powers of Corporations
such profits by refunding the same, unless his act has
been ratified by a vote of the stockholders owning or Sec. 36. Corporate powers and capacity. - Every
representing at least two-thirds (2/3) of the corporation incorporated under this Code has the
outstanding capital stock. This provision shall be power and capacity:
applicable, notwithstanding the fact that the
1. To sue and be sued in its corporate name;
director risked his own funds in the venture.
2. Of succession by its corporate name for the period
Doctrine of Corporate Opportunity
of time stated in the articles of incorporation and the
 If there is presented to a corporate director a certificate of incorporation;
business opportunity which:
3. To adopt and use a corporate seal;
1. Corporation is financially able to
undertake; 4. To amend its articles of incorporation in
2. From its nature, is in line with the accordance with the provisions of this Code;
corporation’s business and is of practical
5. To adopt by-laws, not contrary to law, morals, or
advantage to it; and
public policy, and to amend or repeal the same in
3. One in which the corporation has an
accordance with this Code;
interest or a reasonable expectancy.
 By embracing the opportunity, the self- 6. In case of stock corporations, to issue or sell stocks
interest of the director will be brought into to subscribers and to sell stocks to subscribers and
conflict with that of his corporation. Hence, to sell treasury stocks in accordance with the
the law does not permit him to seize the provisions of this Code; and to admit members to the
opportunity even if he will use his own funds corporation if it be a non-stock corporation;
in the venture.
7. To purchase, receive, take or grant, hold, convey,
Sec. 35. Executive committee. - The by-laws of a sell, lease, pledge, mortgage and otherwise deal with
corporation may create an executive committee, such real and personal property, including securities
composed of not less than three members of the and bonds of other corporations, as the transaction
board, to be appointed by the board. Said committee of the lawful business of the corporation may
may act, by majority vote of all its members, on such reasonably and necessarily require, subject to the
specific matters within the competence of the board, limitations prescribed by law and the Constitution;
as may be delegated to it in the by-laws or on a
8. To enter into merger or consolidation with other
majority vote of the board, except with respect to:
corporations as provided in this Code;
(1) approval of any action for which shareholders'
approval is also required; (2) the filing of vacancies in 9. To make reasonable donations, including those for
the board; (3) the amendment or repeal of by-laws the public welfare or for hospital, charitable,
or the adoption of new by-laws; (4) the amendment cultural, scientific, civic, or similar purposes:
or repeal of any resolution of the board which by its Provided, That no corporation, domestic or foreign,
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 16
shall give donations in aid of any political party or stockholders representing at least two-thirds (2/3) of
candidate or for purposes of partisan political the outstanding capital stock or by at least two-
activity; thirds (2/3) of the members in case of non-stock
corporations. Written notice of the proposed action
10. To establish pension, retirement, and other plans
and of the time and place of the meeting shall be
for the benefit of its directors, trustees, officers and
addressed to each stockholder or member at his
employees; and
place of residence as shown on the books of the
11. To exercise such other powers as may be corporation and deposited to the addressee in the
essential or necessary to carry out its purpose or post office with postage prepaid, or served
purposes as stated in the articles of incorporation. personally: Provided, That in case of extension of
corporate term, any dissenting stockholder may
 As a creature of law, the power and
exercise his appraisal right under the conditions
attributes of a corporation are those set out,
provided in this code. (n)
expressly or impliedly, in the law.
 Kinds of Powers. A corporation may exercise: Sec. 38. Power to increase or decrease capital
(1) express (2) implied and (3) incidental stock; incur, create or increase bonded
powers. indebtedness. - No corporation shall increase or
 Incidental power includes: right to decrease its capital stock or incur, create or increase
succession, right to have a corporate name, any bonded indebtedness unless approved by a
right to make by-laws for its government, majority vote of the board of directors and, at a
right to sue and be sued and right to acquire stockholder's meeting duly called for the purpose,
and hold properties for the purposes two-thirds (2/3) of the outstanding capital stock shall
authorized by the charter. favor the increase or diminution of the capital stock,
 Generally, a corporation cannot enter into or the incurring, creating or increasing of any bonded
contract of partnership. indebtedness. Written notice of the proposed
 By way of Exception, the SEC allows a increase or diminution of the capital stock or of the
corporation to be a partner if the following incurring, creating, or increasing of any bonded
conditions are present: indebtedness and of the time and place of the
1. The authority to enter partnership stockholder's meeting at which the proposed
relation is expressly conferred by the increase or diminution of the capital stock or the
charter or Articles of Incorporation of the incurring or increasing of any bonded indebtedness
corporation, the nature of the business is to be considered, must be addressed to each
venture to be undertaken by the stockholder at his place of residence as shown on the
partnership is in line with the business books of the corporation and deposited to the
authorized by the charter or articles of addressee in the post office with postage prepaid, or
incorporation of the corporation served personally.
involved.
A certificate in duplicate must be signed by a
2. The partnership must be a limited
majority of the directors of the corporation and
partnership and the corporation is a
countersigned by the chairman and the secretary of
limited partner;
the stockholders' meeting, setting forth:
3. If it is a foreign corporation, it must
obtain a license to transact business in (1) That the requirements of this section have been
the country. complied with;
Sec. 37. Power to extend or shorten corporate (2) The amount of the increase or diminution of the
term. - A private corporation may extend or shorten capital stock;
its term as stated in the articles of incorporation
(3) If an increase of the capital stock, the amount of
when approved by a majority vote of the board of
capital stock or number of shares of no-par stock
directors or trustees and ratified at a meeting by the
thereof actually subscribed, the names, nationalities
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 17
and residences of the persons subscribing, the stock shall be approved by the Commission if its
amount of capital stock or number of no-par stock effect shall prejudice the rights of corporate
subscribed by each, and the amount paid by each on creditors.
his subscription in cash or property, or the amount
Non-stock corporations may incur or create bonded
of capital stock or number of shares of no-par stock
indebtedness, or increase the same, with the
allotted to each stock-holder if such increase is for
approval by a majority vote of the board of trustees
the purpose of making effective stock dividend
and of at least two-thirds (2/3) of the members in a
therefor authorized;
meeting duly called for the purpose.
(4) Any bonded indebtedness to be incurred, created
Bonds issued by a corporation shall be registered
or increased;
with the Securities and Exchange Commission, which
(5) The actual indebtedness of the corporation on shall have the authority to determine the sufficiency
the day of the meeting; of the terms thereof. (17a)
(6) The amount of stock represented at the meeting; Sec. 39. Power to deny pre-emptive right. - All
and stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition
(7) The vote authorizing the increase or diminution
of shares of any class, in proportion to their
of the capital stock, or the incurring, creating or
respective shareholdings, unless such right is denied
increasing of any bonded indebtedness.
by the articles of incorporation or an amendment
Any increase or decrease in the capital stock or the thereto: Provided, That such pre-emptive right shall
incurring, creating or increasing of any bonded not extend to shares to be issued in compliance with
indebtedness shall require prior approval of the laws requiring stock offerings or minimum stock
Securities and Exchange Commission. ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders
One of the duplicate certificates shall be kept on file
representing two-thirds (2/3) of the outstanding
in the office of the corporation and the other shall be
capital stock, in exchange for property needed for
filed with the Securities and Exchange Commission
corporate purposes or in payment of a previously
and attached to the original articles of incorporation.
contracted debt.
From and after approval by the Securities and
Exchange Commission and the issuance by the  Pre-emptive right is the right of shareholders
Commission of its certificate of filing, the capital to subscribe to all issues or disposition of
stock shall stand increased or decreased and the shares of any class in proportion to their
incurring, creating or increasing of any bonded shareholdings.
indebtedness authorized, as the certificate of filing  The underlying basis of this right is to
may declare: Provided, That the Securities and maintain the relative and proportionate
Exchange Commission shall not accept for filing any voting strength and control of existing
certificate of increase of capital stock unless shareholders. It is aimed to maintain the
accompanied by the sworn statement of the existing ration of the shareholder’s interest
treasurer of the corporation lawfully holding office and voting power.
at the time of the filing of the certificate, showing  Stockholders must be given reasonable time
that at least twenty-five (25%) percent of such to exercise such right. Upon its expiration,
increased capital stock has been subscribed and that any stockholder who has not exercised such
at least twenty-five (25%) percent of the amount right shall be deemed to have waived it.
subscribed has been paid either in actual cash to the  It is not available when shares are issued in
corporation or that there has been transferred to the exchange for shares in another corporation if
corporation property the valuation of which is equal the same is the result of a merger to which
to twenty-five (25%) percent of the subscription: the corporations are parties.
Provided, further, That no decrease of the capital
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 18
 Pre-emptive right is not available in the accomplishing the purpose for which it was
following instances even if there is an incorporated.
issuance or disposition of shares:
After such authorization or approval by the
1. When the right is denied in the Articles of
stockholders or members, the board of directors or
Incorporation;
trustees may, nevertheless, in its discretion,
2. When shares are issued in compliance
abandon such sale, lease, exchange, mortgage,
with laws requiring stock offerings or
pledge or other disposition of property and assets,
minimum stock ownership by the public;
subject to the rights of third parties under any
and
contract relating thereto, without further action or
3. When shares are issued in good faith with
approval by the stockholders or members.
the approval of the stockholders
representing 2/3 of the Outstanding Nothing in this section is intended to restrict the
Capital Stock, in exchange for property power of any corporation, without the authorization
needed for corporate purposes or in by the stockholders or members, to sell, lease,
payment of a previously contracted debt. exchange, mortgage, pledge or otherwise dispose of
any of its property and assets if the same is necessary
Sec. 40. Sale or other disposition of assets. - Subject
in the usual and regular course of business of said
to the provisions of existing laws on illegal
corporation or if the proceeds of the sale or other
combinations and monopolies, a corporation may,
disposition of such property and assets be
by a majority vote of its board of directors or
appropriated for the conduct of its remaining
trustees, sell, lease, exchange, mortgage, pledge or
business.
otherwise dispose of all or substantially all of its
property and assets, including its goodwill, upon In non-stock corporations where there are no
such terms and conditions and for such members with voting rights, the vote of at least a
consideration, which may be money, stocks, bonds majority of the trustees in office will be sufficient
or other instruments for the payment of money or authorization for the corporation to enter into any
other property or consideration, as its board of transaction authorized by this section. (28 1/2a)
directors or trustees may deem expedient, when
 Requisites: A sale, lease, exchange,
authorized by the vote of the stockholders
mortgage, pledge or other disposition of all
representing at least two-thirds (2/3) of the
or substantially all of the properties and
outstanding capital stock, or in case of non-stock
assets of the corporation, including its
corporation, by the vote of at least to two-thirds
goodwill, requires the following:
(2/3) of the members, in a stockholder's or
1. It must be approved by the majority of
member's meeting duly called for the purpose.
the directors or trustees
Written notice of the proposed action and of the
2. There must be assent of stockholders
time and place of the meeting shall be addressed to
representing 2/3 of the outstanding
each stockholder or member at his place of
capital stock or 2/3 of members in a
residence as shown on the books of the corporation
meeting duly called for the purpose after
and deposited to the addressee in the post office
written notice.
with postage prepaid, or served personally:
Provided, That any dissenting stockholder may The sale is void if these requirements are not
exercise his appraisal right under the conditions complied with.
provided in this Code.
 A sale or other disposition shall be deemed
A sale or other disposition shall be deemed to cover to cover “substantially all” corporate
substantially all the corporate property and assets if property and assets if the corporation would
thereby the corporation would be rendered thereby be rendered incapable of continuing
incapable of continuing the business or the business or accomplishing the purpose
for which it was incorporated.
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Sec. 41. Power to acquire own shares. - A stock because the stockholder will be exposed to a
corporation shall have the power to purchase or line of business that is not being pursued
acquire its own shares for a legitimate corporate when he invested in the company. His
purpose or purposes, including but not limited to the investment will be exposed to additional risks
following cases: Provided, That the corporation has which was not contemplated.
unrestricted retained earnings in its books to cover
Sec. 43. Power to declare dividends. - The board of
the shares to be purchased or acquired:
directors of a stock corporation may declare
1. To eliminate fractional shares arising out of stock dividends out of the unrestricted retained earnings
dividends; which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding
2. To collect or compromise an indebtedness to the
stock held by them: Provided, That any cash
corporation, arising out of unpaid subscription, in a
dividends due on delinquent stock shall first be
delinquency sale, and to purchase delinquent shares
applied to the unpaid balance on the subscription
sold during said sale; and
plus costs and expenses, while stock dividends shall
3. To pay dissenting or withdrawing stockholders be withheld from the delinquent stockholder until
entitled to payment for their shares under the his unpaid subscription is fully paid: Provided,
provisions of this Code. (n) further, That no stock dividend shall be issued
without the approval of stockholders representing
Sec. 42. Power to invest corporate funds in another
not less than two-thirds (2/3) of the outstanding
corporation or business or for any other purpose. -
capital stock at a regular or special meeting duly
Subject to the provisions of this Code, a private
called for the purpose. (16a)
corporation may invest its funds in any other
corporation or business or for any purpose other Stock corporations are prohibited from retaining
than the primary purpose for which it was organized surplus profits in excess of one hundred (100%)
when approved by a majority of the board of percent of their paid-in capital stock, except: (1)
directors or trustees and ratified by the stockholders when justified by definite corporate expansion
representing at least two-thirds (2/3) of the projects or programs approved by the board of
outstanding capital stock, or by at least two thirds directors; or (2) when the corporation is prohibited
(2/3) of the members in the case of non-stock under any loan agreement with any financial
corporations, at a stockholder's or member's institution or creditor, whether local or foreign, from
meeting duly called for the purpose. Written notice declaring dividends without its/his consent, and such
of the proposed investment and the time and place consent has not yet been secured; or (3) when it can
of the meeting shall be addressed to each be clearly shown that such retention is necessary
stockholder or member at his place of residence as under special circumstances obtaining in the
shown on the books of the corporation and corporation, such as when there is need for special
deposited to the addressee in the post office with reserve for probable contingencies. (n)
postage prepaid, or served personally: Provided,
 Requirements. The following are required for
That any dissenting stockholder shall have appraisal
dividend declaration:
right as provided in this Code: Provided, however,
1. Unrestricted retained earnings;
That where the investment by the corporation is
2. Resolution of the board;
reasonably necessary to accomplish its primary
3. If stock dividends are declared, there
purpose as stated in the articles of incorporation, the
must be a resolution of the board with
approval of the stockholders or members shall not
the concurrence of 2/3 of outstanding
be necessary. (17 1/2a)
capital.
 Appraisal Right. The dissenting stockholder  Retained earnings is the accumulated profits
is given the right of appraisal whenever the realized out of normal and continuous
corporation decides to pursue its secondary operations of the business after deducting
corporate business. Appraisal right is granted
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 20
therefrom distribution of stockholders or least the majority of the outstanding capital stock, or
transfers to capital stock or other accounts. by at least a majority of the members in the case of
 Unrestricted retained earnings as defined by a non-stock corporation, of both the managing and
SEC is the amount of the accumulated profits the managed corporation, at a meeting duly called
and gains realized out of the normal and for the purpose: Provided, That (1) where a
continuous operations of the company after stockholder or stockholders representing the same
deducting therefrom distributions of interest of both the managing and the managed
stockholders and transfers to capital stock or corporations own or control more than one-third
other accounts, and which is: (1/3) of the total outstanding capital stock entitled
1. Not appropriated by its Board of to vote of the managing corporation; or (2) where a
Directors for corporate expansion majority of the members of the board of directors of
projects or programs; the managing corporation also constitute a majority
2. Not covered by a restriction for dividend of the members of the board of directors of the
declaration under loan agreement; and managed corporation, then the management
3. Not required to be retained under special contract must be approved by the stockholders of
circumstances obtaining in the the managed corporation owning at least two-thirds
corporation such as there is need for (2/3) of the total outstanding capital stock entitled
special reserve for probable to vote, or by at least two-thirds (2/3) of the
contingencies. members in the case of a non-stock corporation. No
 Treasury shares cannot be declared as stock management contract shall be entered into for a
dividends or cash dividends because they are period longer than five years for any one term.
not considered part of the earned or surplus
The provisions of the next preceding paragraph shall
profits. If the distribution of cash or stock
apply to any contract whereby a corporation
dividends out of treasury shares is allowed,
undertakes to manage or operate all or substantially
the corporation would be converted into
all of the business of another corporation, whether
both a debtor and creditor for the same
such contracts are called service contracts, operating
amount at the same time. It will lead to the
agreements or otherwise: Provided, however, That
absurd situation where it will take money or
such service contracts or operating agreements
stock from one of its pockets and to put it in
which relate to the exploration, development,
another.
exploitation or utilization of natural resources may
 Even unpaid subscribers are entitled to
be entered into for such periods as may be provided
dividends. Sec 72 provides that holders of
by the pertinent laws or regulations. (n)
shares not fully paid which are not
delinquent shall have the rights of a  Management Contract is an agreement
stockholder. As a matter of fact, under Sec whereby one undertakes to manage or
71, even if the shares are delinquent, the operate all or substantially all of the business
delinquent shareholders shall also be of another, whether such contracts are called
entitled to dividends. However, under Sec 43, service contracts, operating agreements or
any cash dividends shall first be applied to otherwise.
the unpaid balance on the subscription plus  It applies to situation where the contract is
cost and expenses while stock dividends shall between two corporations.
be withheld from the delinquent shareholder  The maximum term is 5 years, subject to
until his unpaid subscription is fully paid. renewal.
Sec. 44. Power to enter into management Sec. 45. Ultra vires acts of corporations. - No
contract. - No corporation shall conclude a corporation under this Code shall possess or exercise
management contract with another corporation any corporate powers except those conferred by this
unless such contract shall have been approved by Code or by its articles of incorporation and except
the board of directors and by stockholders owning at
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 21
such as are necessary or incidental to the exercise of The Securities and Exchange Commission shall not
the powers so conferred. (n) accept for filing the by-laws or any amendment
thereto of any bank, banking institution, building
 An ultra vires act is one committed outside
and loan association, trust company, insurance
the object for which a corporation is created
company, public utility, educational institution or
as defined by the law of its organization and
other special corporations governed by special laws,
therefore beyond the powers conferred
unless accompanied by a certificate of the
upon it by law.
appropriate government agency to the effect that
 The concept can also include those acts that
such by-laws or amendments are in accordance with
may ostensibly be within such powers but
law. (20a)
are, by general or special laws, either
proscribed or declared illegal. Sec. 47. Contents of by-laws. - Subject to the
 Performance of an ultra vires act is a violation provisions of the Constitution, this Code, other
of the contract between the State and the special laws, and the articles of incorporation, a
Corporation. private corporation may provide in its by-laws for:
Part 5 - By Laws 1. The time, place and manner of calling and
conducting regular or special meetings of the
Sec. 46. Adoption of by-laws. - Every corporation
directors or trustees;
formed under this Code must, within one (1) month
after receipt of official notice of the issuance of its 2. The time and manner of calling and conducting
certificate of incorporation by the Securities and regular or special meetings of the stockholders or
Exchange Commission, adopt a code of by-laws for members;
its government not inconsistent with this Code. For
3. The required quorum in meetings of stockholders
the adoption of by-laws by the corporation the
or members and the manner of voting therein;
affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or 4. The form for proxies of stockholders and members
of at least a majority of the members in case of non- and the manner of voting them;
stock corporations, shall be necessary. The by-laws
5. The qualifications, duties and compensation of
shall be signed by the stockholders or members
directors or trustees, officers and employees;
voting for them and shall be kept in the principal
office of the corporation, subject to the inspection of 6. The time for holding the annual election of
the stockholders or members during office hours. A directors of trustees and the mode or manner of
copy thereof, duly certified to by a majority of the giving notice thereof;
directors or trustees countersigned by the secretary
7. The manner of election or appointment and the
of the corporation, shall be filed with the Securities
term of office of all officers other than directors or
and Exchange Commission which shall be attached
trustees;
to the original articles of incorporation.
8. The penalties for violation of the by-laws;
Notwithstanding the provisions of the preceding
paragraph, by-laws may be adopted and filed prior 9. In the case of stock corporations, the manner of
to incorporation; in such case, such by-laws shall be issuing stock certificates; and
approved and signed by all the incorporators and
10. Such other matters as may be necessary for the
submitted to the Securities and Exchange
proper or convenient transaction of its corporate
Commission, together with the articles of
business and affairs. (21a)
incorporation.
Sec. 48. Amendments to by-laws. - The board of
In all cases, by-laws shall be effective only upon the
directors or trustees, by a majority vote thereof, and
issuance by the Securities and Exchange Commission
the owners of at least a majority of the outstanding
of a certification that the by-laws are not
capital stock, or at least a majority of the members
inconsistent with this Code.
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 22
of a non-stock corporation, at a regular or special (1) week written notice shall be sent to all
meeting duly called for the purpose, may amend or stockholders or members, unless otherwise
repeal any by-laws or adopt new by-laws. The provided in the by-laws.
owners of two-thirds (2/3) of the outstanding capital
Notice of any meeting may be waived, expressly or
stock or two-thirds (2/3) of the members in a non-
impliedly, by any stockholder or member.
stock corporation may delegate to the board of
directors or trustees the power to amend or repeal Whenever, for any cause, there is no person
any by-laws or adopt new by-laws: Provided, That authorized to call a meeting, the Secretaries and
any power delegated to the board of directors or Exchange Commission, upon petition of a
trustees to amend or repeal any by-laws or adopt stockholder or member on a showing of good cause
new by-laws shall be considered as revoked therefor, may issue an order to the petitioning
whenever stockholders owning or representing a stockholder or member directing him to call a
majority of the outstanding capital stock or a meeting of the corporation by giving proper notice
majority of the members in non-stock corporations, required by this Code or by the by-laws. The
shall so vote at a regular or special meeting. petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders
Whenever any amendment or new by-laws are
or members present have been chosen one of their
adopted, such amendment or new by-laws shall be
number as presiding officer. (24, 26)
attached to the original by-laws in the office of the
corporation, and a copy thereof, duly certified under Sec. 51. Place and time of meetings of stockholders
oath by the corporate secretary and a majority of the or members. - Stockholders' or members' meetings,
directors or trustees, shall be filed with the Securities whether regular or special, shall be held in the city or
and Exchange Commission the same to be attached municipality where the principal office of the
to the original articles of incorporation and original corporation is located, and if practicable in the
by-laws. principal office of the corporation: Provided, That
Metro Manila shall, for purposes of this section, be
The amended or new by-laws shall only be effective
considered a city or municipality.
upon the issuance by the Securities and Exchange
Commission of a certification that the same are not Notice of meetings shall be in writing, and the time
inconsistent with this Code. (22a and 23a) and place thereof stated therein.
Part VI - MEETINGS All proceedings had and any business transacted at
any meeting of the stockholders or members, if
Sec. 49. Kinds of meetings. - Meetings of directors,
within the powers or authority of the corporation,
trustees, stockholders, or members may be regular
shall be valid even if the meeting be improperly held
or special. (n)
or called, provided all the stockholders or members
Sec. 50. Regular and special meetings of of the corporation are present or duly represented
stockholders or members. - Regular meetings of at the meeting. (24 and 25)
stockholders or members shall be held annually on a
Sec. 52. Quorum in meetings. - Unless otherwise
date fixed in the by-laws, or if not so fixed, on any
provided for in this Code or in the by-laws, a quorum
date in April of every year as determined by the
shall consist of the stockholders representing a
board of directors or trustees: Provided, That written
majority of the outstanding capital stock or a
notice of regular meetings shall be sent to all
majority of the members in the case of non-stock
stockholders or members of record at least two (2)
corporations. (n)
weeks prior to the meeting, unless a different period
is required by the by-laws. Sec. 53. Regular and special meetings of directors or
trustees. - Regular meetings of the board of
Special meetings of stockholders or members shall
directors or trustees of every corporation shall be
be held at any time deemed necessary or as provided
held monthly, unless the by-laws provide otherwise.
in the by-laws: Provided, however, That at least one
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 23
Special meetings of the board of directors or trustees before the scheduled meeting with the corporate
may be held at any time upon the call of the secretary. Unless otherwise provided in the proxy, it
president or as provided in the by-laws. shall be valid only for the meeting for which it is
intended. No proxy shall be valid and effective for a
Meetings of directors or trustees of corporations
period longer than five (5) years at any one time. (n)
may be held anywhere in or outside of the
Philippines, unless the by-laws provide otherwise. Sec. 59. Voting trusts. - One or more stockholders of
Notice of regular or special meetings stating the a stock corporation may create a voting trust for the
date, time and place of the meeting must be sent to purpose of conferring upon a trustee or trustees the
every director or trustee at least one (1) day prior to right to vote and other rights pertaining to the shares
the scheduled meeting, unless otherwise provided for a period not exceeding five (5) years at any time:
by the by-laws. A director or trustee may waive this Provided, That in the case of a voting trust
requirement, either expressly or impliedly. (n) specifically required as a condition in a loan
agreement, said voting trust may be for a period
Sec. 54. Who shall preside at meetings. - The
exceeding five (5) years but shall automatically
president shall preside at all meetings of the
expire upon full payment of the loan. A voting trust
directors or trustee as well as of the stockholders or
agreement must be in writing and notarized, and
members, unless the by-laws provide otherwise. (n)
shall specify the terms and conditions thereof. A
Sec. 55. Right to vote of pledgors, mortgagors, and certified copy of such agreement shall be filed with
administrators. - In case of pledged or mortgaged the corporation and with the Securities and
shares in stock corporations, the pledgor or Exchange Commission; otherwise, said agreement is
mortgagor shall have the right to attend and vote at ineffective and unenforceable. The certificate or
meetings of stockholders, unless the pledgee or certificates of stock covered by the voting trust
mortgagee is expressly given by the pledgor or agreement shall be canceled and new ones shall be
mortgagor such right in writing which is recorded on issued in the name of the trustee or trustees stating
the appropriate corporate books. (n) that they are issued pursuant to said agreement. In
the books of the corporation, it shall be noted that
Executors, administrators, receivers, and other legal
the transfer in the name of the trustee or trustees is
representatives duly appointed by the court may
made pursuant to said voting trust agreement.
attend and vote in behalf of the stockholders or
members without need of any written proxy. (27a) The trustee or trustees shall execute and deliver to
the transferors voting trust certificates, which shall
Sec. 56. Voting in case of joint ownership of stock. -
be transferable in the same manner and with the
In case of shares of stock owned jointly by two or
same effect as certificates of stock.
more persons, in order to vote the same, the consent
of all the co-owners shall be necessary, unless there The voting trust agreement filed with the
is a written proxy, signed by all the co-owners, corporation shall be subject to examination by any
authorizing one or some of them or any other person stockholder of the corporation in the same manner
to vote such share or shares: Provided, That when as any other corporate book or record: Provided,
the shares are owned in an "and/or" capacity by the That both the transferor and the trustee or trustees
holders thereof, any one of the joint owners can vote may exercise the right of inspection of all corporate
said shares or appoint a proxy therefor. (n) books and records in accordance with the provisions
of this Code.
Sec. 57. Voting right for treasury shares. - Treasury
shares shall have no voting right as long as such Any other stockholder may transfer his shares to the
shares remain in the Treasury. (n) same trustee or trustees upon the terms and
conditions stated in the voting trust agreement, and
Sec. 58. Proxies. - Stockholders and members may
thereupon shall be bound by all the provisions of
vote in person or by proxy in all meetings of
said agreement.
stockholders or members. Proxies shall in writing,
signed by the stockholder or member and filed
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 24
No voting trust agreement shall be entered into for Sec. 60. Subscription contract. - Any contract for the
the purpose of circumventing the law against acquisition of unissued stock in an existing
monopolies and illegal combinations in restraint of corporation or a corporation still to be formed shall
trade or used for purposes of fraud. be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer
Unless expressly renewed, all rights granted in a
to it as a purchase or some other contract. (n)
voting trust agreement shall automatically expire at
the end of the agreed period, and the voting trust  Trust Fund Doctrine. The capital stock,
certificates as well as the certificates of stock in the property and other assets of the corporation
name of the trustee or trustees shall thereby be are regarded as equity in trust for the
deemed canceled and new certificates of stock shall payment of the corporate creditors. The
be reissued in the name of the transferors. subscribed capital stock of the corporation is
a trust fund for the payment of debts of the
The voting trustee or trustees may vote by proxy
corporation which the creditors have the
unless the agreement provides otherwise. (36a)
right to look up to satisfy their credits. The
 Voting Trust is a written agreement duly corporation may not dissipate this and the
notarized whereby the stockholders transfer creditors may sue stockholders directly for
their shares of stock to a trustee for the the unpaid subscription.
purpose of vesting into the trustee the right  The trust fund doctrine is violated in the
to vote and other rights pertaining to the following instances:
shares, for a period not exceeding five years 1. When the corporation releases or
at any one time. condones payment of the unpaid
subscription and the stockholder has no
VOTING TRUST PROXY
right to demand the refund of his
AGREEMENT
investment;
Irrevocable Generally revocable
2. When there is payment of dividends
Legal title is transferred No transfer of title
to the trustee without unrestricted retained earnings;
The share certificate No cancellation of the 3. When properties are transferred in fraud
shall be cancelled and certificate made. of creditors;
transferred to the 4. When properties are disposed or undue
trustee. preference is given to some creditors
It must be notarized. It need not be notarized even if the corporation is insolvent; and
The trustor-shareholder The shareholder retains 5. When the capital stock id decreased
cannot vote. his right to vote. which has the effect of relieving the
It cannot be for specificIt can be for specific stockholders of the obligation to pay
meeting. meeting. their respective subscription.
The trustee can vote by The proxy cannot  Treasury shares are not subject to
proxy. further delegate his subscription contracts because Sec 60 covers
authority to vote in
only acquisition of unissued shares.
person.
However, when treasury shares are re-
The trustee votes in his The proxy is an agent of
issued, the shareholders are entitled to
own right as holder of the shareholder.
legal title. exercise their pre-emptive right.
The trustee can be The proxy, as such, Sec. 61. Pre-incorporation subscription. - A
elected as a director. cannot be elected as subscription for shares of stock of a corporation still
director. to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription,
PART VII - STOCKS AND STOCKHOLDERS unless all of the other subscribers consent to the
revocation, or unless the incorporation of said
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 25
corporation fails to materialize within said period or directors pursuant to authority conferred upon it by
within a longer period as may be stipulated in the the articles of incorporation or the by-laws, or in the
contract of subscription: Provided, That no pre- absence thereof, by the stockholders representing at
incorporation subscription may be revoked after the least a majority of the outstanding capital stock at a
submission of the articles of incorporation to the meeting duly called for the purpose. (5 and 16)
Securities and Exchange Commission. (n)
Sec. 63. Certificate of stock and transfer of shares. -
 It can be revoked in the following cases: The capital stock of stock corporations shall be
1. When all the other subscribers agree; divided into shares for which certificates signed by
and the president or vice president, countersigned by the
2. When the registration of the Articles did secretary or assistant secretary, and sealed with the
not materialize. seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are
Sec. 62. Considering for stocks. - Stocks shall not be
personal property and may be transferred by
issued for a consideration less than the par or issued
delivery of the certificate or certificates endorsed by
price thereof. Consideration for the issuance of stock
the owner or his attorney-in-fact or other person
may be any or a combination of any two or more of
legally authorized to make the transfer. No transfer,
the following:
however, shall be valid, except as between the
1. Actual cash paid to the corporation; parties, until the transfer is recorded in the books of
the corporation showing the names of the parties to
2. Property, tangible or intangible, actually received
the transaction, the date of the transfer, the number
by the corporation and necessary or convenient for
of the certificate or certificates and the number of
its use and lawful purposes at a fair valuation equal
shares transferred.
to the par or issued value of the stock issued;
No shares of stock against which the corporation
3. Labor performed for or services actually rendered
holds any unpaid claim shall be transferable in the
to the corporation;
books of the corporation. (35)
4. Previously incurred indebtedness of the
Sec. 64. Issuance of stock certificates. - No
corporation;
certificate of stock shall be issued to a subscriber
5. Amounts transferred from unrestricted retained until the full amount of his subscription together
earnings to stated capital; and with interest and expenses (in case of delinquent
shares), if any is due, has been paid. (37)
6. Outstanding shares exchanged for stocks in the
event of reclassification or conversion.  Requirements for issuance. The stock
certificate is not validly issued if it does not
Where the consideration is other than actual cash,
comply with the prescribed form and other
or consists of intangible property such as patents of
conditions imposed by Sec 63 and 64. Thus,
copyrights, the valuation thereof shall initially be
a certificate of stock can be issued only upon
determined by the incorporators or the board of
compliance with these requisites:
directors, subject to approval by the Securities and
1. The certificate must be signed by the
Exchange Commission.
President or VP, countersigned by the
Shares of stock shall not be issued in exchange for secretary or assistant secretary;
promissory notes or future service. 2. The certificate must be sealed with seal
of the corporation;
The same considerations provided for in this section,
3. The certificate must be delivered;
insofar as they may be applicable, may be used for
4. The par values as to par value shares or
the issuance of bonds by the corporation.
full subscription as to no par value
The issued price of no-par value shares may be fixed shares, must first be fully paid; and
in the articles of incorporation or by the board of
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 26
5. The original certificate must be in the call made by the board. Failure to pay on such
surrendered where the person date shall render the entire balance due and payable
requesting the issuance of a certificate is and shall make the stockholder liable for interest at
a transferee from a stockholder. the legal rate on such balance, unless a different rate
 Subscription Contract is one, entire and of interest is provided in the by-laws, computed from
indivisible whole contract. such date until full payment. If within thirty (30) days
 Remedies for Non-issuance: from the said date no payment is made, all stocks
1. Action for specific performance; covered by said subscription shall thereupon
2. Action for damages if specific become delinquent and shall be subject to sale as
performance is not available; hereinafter provided, unless the board of directors
3. Petition for mandamus for the issuance orders otherwise. (38)
of the certificate; and
 Call. The BOD of any stock corporation may
4. Rescind the subscription agreement with
at any time declare due and payable to the
the consent mutual restitution.
corporation unpaid subscriptions to the
Sec. 65. Liability of directors for watered stocks. - capital stock and may collect the same or
Any director or officer of a corporation consenting to such percentage thereof, in either case with
the issuance of stocks for a consideration less than accrued interest, if any, as it may deem
its par or issued value or for a consideration in any necessary.
form other than cash, valued in excess of its fair
Sec. 68. Delinquency sale. - The board of directors
value, or who, having knowledge thereof, does not
may, by resolution, order the sale of delinquent
forthwith express his objection in writing and file the
stock and shall specifically state the amount due on
same with the corporate secretary, shall be
each subscription plus all accrued interest, and the
solidarily, liable with the stockholder concerned to
date, time and place of the sale which shall not be
the corporation and its creditors for the difference
less than thirty (30) days nor more than sixty (60)
between the fair value received at the time of
days from the date the stocks become delinquent.
issuance of the stock and the par or issued value of
the same. (n) Notice of said sale, with a copy of the resolution,
shall be sent to every delinquent stockholder either
Sec. 66. Interest on unpaid subscriptions. -
personally or by registered mail. The same shall
Subscribers for stock shall pay to the corporation
furthermore be published once a week for two (2)
interest on all unpaid subscriptions from the date of
consecutive weeks in a newspaper of general
subscription, if so required by, and at the rate of
circulation in the province or city where the principal
interest fixed in the by-laws. If no rate of interest is
office of the corporation is located.
fixed in the by-laws, such rate shall be deemed to be
the legal rate. (37) Unless the delinquent stockholder pays to the
corporation, on or before the date specified for the
Sec. 67. Payment of balance of subscription. -
sale of the delinquent stock, the balance due on his
Subject to the provisions of the contract of
subscription, plus accrued interest, costs of
subscription, the board of directors of any stock
advertisement and expenses of sale, or unless the
corporation may at any time declare due and
board of directors otherwise orders, said delinquent
payable to the corporation unpaid subscriptions to
stock shall be sold at public auction to such bidder
the capital stock and may collect the same or such
who shall offer to pay the full amount of the balance
percentage thereof, in either case with accrued
on the subscription together with accrued interest,
interest, if any, as it may deem necessary.
costs of advertisement and expenses of sale, for the
Payment of any unpaid subscription or any smallest number of shares or fraction of a share. The
percentage thereof, together with the interest stock so purchased shall be transferred to such
accrued, if any, shall be made on the date specified purchaser in the books of the corporation and a
in the contract of subscription or on the date stated certificate for such stock shall be issued in his favor.
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 27
The remaining shares, if any, shall be credited in delinquent shall have all the rights of a stockholder.
favor of the delinquent stockholder who shall (n)
likewise be entitled to the issuance of a certificate of
Sec. 73. Lost or destroyed certificates. - The
stock covering such shares.
following procedure shall be followed for the
Should there be no bidder at the public auction who issuance by a corporation of new certificates of stock
offers to pay the full amount of the balance on the in lieu of those which have been lost, stolen or
subscription together with accrued interest, costs of destroyed:
advertisement and expenses of sale, for the smallest
1. The registered owner of a certificate of stock in a
number of shares or fraction of a share, the
corporation or his legal representative shall file with
corporation may, subject to the provisions of this
the corporation an affidavit in triplicate setting forth,
Code, bid for the same, and the total amount due
if possible, the circumstances as to how the
shall be credited as paid in full in the books of the
certificate was lost, stolen or destroyed, the number
corporation. Title to all the shares of stock covered
of shares represented by such certificate, the serial
by the subscription shall be vested in the corporation
number of the certificate and the name of the
as treasury shares and may be disposed of by said
corporation which issued the same. He shall also
corporation in accordance with the provisions of this
submit such other information and evidence which
Code.
he may deem necessary;
Sec. 69. When sale may be questioned. - No action
2. After verifying the affidavit and other information
to recover delinquent stock sold can be sustained
and evidence with the books of the corporation, said
upon the ground of irregularity or defect in the
corporation shall publish a notice in a newspaper of
notice of sale, or in the sale itself of the delinquent
general circulation published in the place where the
stock, unless the party seeking to maintain such
corporation has its principal office, once a week for
action first pays or tenders to the party holding the
three (3) consecutive weeks at the expense of the
stock the sum for which the same was sold, with
registered owner of the certificate of stock which has
interest from the date of sale at the legal rate; and
been lost, stolen or destroyed. The notice shall state
no such action shall be maintained unless it is
the name of said corporation, the name of the
commenced by the filing of a complaint within six (6)
registered owner and the serial number of said
months from the date of sale. (47a)
certificate, and the number of shares represented by
Sec. 70. Court action to recover unpaid such certificate, and that after the expiration of one
subscription. - Nothing in this Code shall prevent the (1) year from the date of the last publication, if no
corporation from collecting by action in a court of contest has been presented to said corporation
proper jurisdiction the amount due on any unpaid regarding said certificate of stock, the right to make
subscription, with accrued interest, costs and such contest shall be barred and said corporation
expenses. (49a) shall cancel in its books the certificate of stock which
has been lost, stolen or destroyed and issue in lieu
Sec. 71. Effect of delinquency. - No delinquent stock
thereof new certificate of stock, unless the
shall be voted for be entitled to vote or to
registered owner files a bond or other security in lieu
representation at any stockholder's meeting, nor
thereof as may be required, effective for a period of
shall the holder thereof be entitled to any of the
one (1) year, for such amount and in such form and
rights of a stockholder except the right to dividends
with such sureties as may be satisfactory to the
in accordance with the provisions of this Code, until
board of directors, in which case a new certificate
and unless he pays the amount due on his
may be issued even before the expiration of the one
subscription with accrued interest, and the costs and
(1) year period provided herein: Provided, That if a
expenses of advertisement, if any. (50a)
contest has been presented to said corporation or if
Sec. 72. Rights of unpaid shares. - Holders of an action is pending in court regarding the
subscribed shares not fully paid which are not ownership of said certificate of stock which has been
lost, stolen or destroyed, the issuance of the new
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 28
certificate of stock in lieu thereof shall be suspended of this Code: Provided, That if such refusal is made
until the final decision by the court regarding the pursuant to a resolution or order of the board of
ownership of said certificate of stock which has been directors or trustees, the liability under this section
lost, stolen or destroyed. for such action shall be imposed upon the directors
or trustees who voted for such refusal: and Provided,
Except in case of fraud, bad faith, or negligence on
further, That it shall be a defense to any action under
the part of the corporation and its officers, no action
this section that the person demanding to examine
may be brought against any corporation which shall
and copy excerpts from the corporation's records
have issued certificate of stock in lieu of those lost,
and minutes has improperly used any information
stolen or destroyed pursuant to the procedure
secured through any prior examination of the
above-described. (R. A. 201a)
records or minutes of such corporation or of any
Part VIII - CORPORATE BOOKS AND RECORDS other corporation, or was not acting in good faith or
for a legitimate purpose in making his demand.
Sec. 74. Books to be kept; stock transfer agent. -
Every corporation shall keep and carefully preserve Stock corporations must also keep a book to be
at its principal office a record of all business known as the "stock and transfer book", in which
transactions and minutes of all meetings of must be kept a record of all stocks in the names of
stockholders or members, or of the board of the stockholders alphabetically arranged; the
directors or trustees, in which shall be set forth in installments paid and unpaid on all stock for which
detail the time and place of holding the meeting, subscription has been made, and the date of
how authorized, the notice given, whether the payment of any installment; a statement of every
meeting was regular or special, if special its object, alienation, sale or transfer of stock made, the date
those present and absent, and every act done or thereof, and by and to whom made; and such other
ordered done at the meeting. Upon the demand of entries as the by-laws may prescribe. The stock and
any director, trustee, stockholder or member, the transfer book shall be kept in the principal office of
time when any director, trustee, stockholder or the corporation or in the office of its stock transfer
member entered or left the meeting must be noted agent and shall be open for inspection by any
in the minutes; and on a similar demand, the yeas director or stockholder of the corporation at
and nays must be taken on any motion or reasonable hours on business days.
proposition, and a record thereof carefully made.
No stock transfer agent or one engaged principally in
The protest of any director, trustee, stockholder or
the business of registering transfers of stocks in
member on any action or proposed action must be
behalf of a stock corporation shall be allowed to
recorded in full on his demand.
operate in the Philippines unless he secures a license
The records of all business transactions of the from the Securities and Exchange Commission and
corporation and the minutes of any meetings shall pays a fee as may be fixed by the Commission, which
be open to inspection by any director, trustee, shall be renewable annually: Provided, That a stock
stockholder or member of the corporation at corporation is not precluded from performing or
reasonable hours on business days and he may making transfer of its own stocks, in which case all
demand, writing, for a copy of excerpts from said the rules and regulations imposed on stock transfer
records or minutes, at his expense. agents, except the payment of a license fee herein
provided, shall be applicable. (51a and 32a; B. P. No.
Any officer or agent of the corporation who shall
268.)
refuse to allow any director, trustees, stockholder or
member of the corporation to examine and copy Sec. 75. Right to financial statements. - Within ten
excerpts from its records or minutes, in accordance (10) days from receipt of a written request of any
with the provisions of this Code, shall be liable to stockholder or member, the corporation shall
such director, trustee, stockholder or member for furnish to him its most recent financial statement,
damages, and in addition, shall be guilty of an which shall include a balance sheet as of the end of
offense which shall be punishable under Section 144 the last taxable year and a profit or loss statement
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 29
for said taxable year, showing in reasonable detail its corporation is created, and consolidating
assets and liabilities and the result of its operations. corporations are extinguished.
 Merger and consolidation does not become
At the regular meeting of stockholders or members,
effective by mere agreement of the
the board of directors or trustees shall present to
constituent corporations. The approval of the
such stockholders or members a financial report of
SEC is required.
the operations of the corporation for the preceding
year, which shall include financial statements, duly Sec. 77. Stockholder's or member's approval. -
signed and certified by an independent certified Upon approval by majority vote of each of the board
public accountant. of directors or trustees of the constituent
corporations of the plan of merger or consolidation,
However, if the paid-up capital of the corporation is
the same shall be submitted for approval by the
less than P50,000.00, the financial statements may
stockholders or members of each of such
be certified under oath by the treasurer or any
corporations at separate corporate meetings duly
responsible officer of the corporation. (n)
called for the purpose. Notice of such meetings shall
PART IX - MERGER AND CONSOLIDATION be given to all stockholders or members of the
respective corporations, at least two (2) weeks prior
Sec. 76. Plan or merger of consolidation. - Two or
to the date of the meeting, either personally or by
more corporations may merge into a single
registered mail. Said notice shall state the purpose of
corporation which shall be one of the constituent
the meeting and shall include a copy or a summary
corporations or may consolidate into a new single
of the plan of merger or consolidation. The
corporation which shall be the consolidated
affirmative vote of stockholders representing at
corporation.
least two-thirds (2/3) of the outstanding capital
The board of directors or trustees of each stock of each corporation in the case of stock
corporation, party to the merger or consolidation, corporations or at least two-thirds (2/3) of the
shall approve a plan of merger or consolidation members in the case of non-stock corporations shall
setting forth the following: be necessary for the approval of such plan. Any
dissenting stockholder in stock corporations may
1. The names of the corporations proposing to
exercise his appraisal right in accordance with the
merge or consolidate, hereinafter referred to as the
Code: Provided, That if after the approval by the
constituent corporations;
stockholders of such plan, the board of directors
2. The terms of the merger or consolidation and the decides to abandon the plan, the appraisal right shall
mode of carrying the same into effect; be extinguished.

3. A statement of the changes, if any, in the articles Any amendment to the plan of merger or
of incorporation of the surviving corporation in case consolidation may be made, provided such
of merger; and, with respect to the consolidated amendment is approved by majority vote of the
corporation in case of consolidation, all the respective boards of directors or trustees of all the
statements required to be set forth in the articles of constituent corporations and ratified by the
incorporation for corporations organized under this affirmative vote of stockholders representing at
Code; and least two-thirds (2/3) of the outstanding capital
stock or of two-thirds (2/3) of the members of each
4. Such other provisions with respect to the
of the constituent corporations. Such plan, together
proposed merger or consolidation as are deemed
with any amendment, shall be considered as the
necessary or desirable. (n)
agreement of merger or consolidation. (n)
 Merger is one where a corporation absorbs
Sec. 78. Articles of merger or consolidation. - After
the other and remains in existence while the
the approval by the stockholders or members as
others are dissolved. On the other hand,
required by the preceding section, articles of merger
Consolidation is one where a new
or articles of consolidation shall be executed by each
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 30
of the constituent corporations, to be signed by the 1. The constituent corporations shall become a
president or vice-president and certified by the single corporation which, in case of merger, shall be
secretary or assistant secretary of each corporation the surviving corporation designated in the plan of
setting forth: merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of
1. The plan of the merger or the plan of
consolidation;
consolidation;
2. The separate existence of the constituent
2. As to stock corporations, the number of shares
corporations shall cease, except that of the surviving
outstanding, or in the case of non-stock
or the consolidated corporation;
corporations, the number of members; and
3. The surviving or the consolidated corporation shall
3. As to each corporation, the number of shares or
possess all the rights, privileges, immunities and
members voting for and against such plan,
powers and shall be subject to all the duties and
respectively. (n)
liabilities of a corporation organized under this Code;
Sec. 79. Effectivity of merger or consolidation. - The
4. The surviving or the consolidated corporation shall
articles of merger or of consolidation, signed and
thereupon and thereafter possess all the rights,
certified as herein above required, shall be
privileges, immunities and franchises of each of the
submitted to the Securities and Exchange
constituent corporations; and all property, real or
Commission in quadruplicate for its approval:
personal, and all receivables due on whatever
Provided, That in the case of merger or consolidation
account, including subscriptions to shares and other
of banks or banking institutions, building and loan
choses in action, and all and every other interest of,
associations, trust companies, insurance companies,
or belonging to, or due to each constituent
public utilities, educational institutions and other
corporation, shall be deemed transferred to and
special corporations governed by special laws, the
vested in such surviving or consolidated corporation
favorable recommendation of the appropriate
without further act or deed; and
government agency shall first be obtained. If the
Commission is satisfied that the merger or 5. The surviving or consolidated corporation shall be
consolidation of the corporations concerned is not responsible and liable for all the liabilities and
inconsistent with the provisions of this Code and obligations of each of the constituent corporations
existing laws, it shall issue a certificate of merger or in the same manner as if such surviving or
of consolidation, at which time the merger or consolidated corporation had itself incurred such
consolidation shall be effective. liabilities or obligations; and any pending claim,
action or proceeding brought by or against any of
If, upon investigation, the Securities and Exchange
such constituent corporations may be prosecuted by
Commission has reason to believe that the proposed
or against the surviving or consolidated corporation.
merger or consolidation is contrary to or
The rights of creditors or liens upon the property of
inconsistent with the provisions of this Code or
any of such constituent corporations shall not be
existing laws, it shall set a hearing to give the
impaired by such merger or consolidation. (n)
corporations concerned the opportunity to be
heard. Written notice of the date, time and place of PART X - APPRAISAL RIGHT
hearing shall be given to each constituent
Sec. 81. Instances of appraisal right.- Any
corporation at least two (2) weeks before said
stockholder of a corporation shall have the right to
hearing. The Commission shall thereafter proceed as
dissent and demand payment of the fair value of his
provided in this Code. (n)
shares in the following instances:
Sec. 80. Effects or merger or consolidation. - The
1. In case any amendment to the articles of
merger or consolidation shall have the following
incorporation has the effect of changing or
effects:
restricting the rights of any stockholder or class of
shares, or of authorizing preferences in any respect
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 31
superior to those of outstanding shares of any class, taken for payment of the fair value of his shares:
or of extending or shortening the term of corporate Provided, That failure to make the demand within
existence; such period shall be deemed a waiver of the
appraisal right. If the proposed corporate action is
2. In case of sale, lease, exchange, transfer,
implemented or affected, the corporation shall pay
mortgage, pledge or other disposition of all or
to such stockholder, upon surrender of the
substantially all of the corporate property and assets
certificate or certificates of stock representing his
as provided in the Code; and
shares, the fair value thereof as of the day prior to
3. In case of merger or consolidation. (n) the date on which the vote was taken, excluding any
appreciation or depreciation in anticipation of such
 Appraisal right is a right of a shareholder to
corporate action.
dissent and demand payment of the fair
value of his shares in the instances provided If within a period of sixty (60) days from the date the
for under the Corporation Code. corporate action was approved by the stockholders,
 Appraisal right is available in the following the withdrawing stockholder and the corporation
instances: cannot agree on the fair value of the shares, it shall
1. In case any amendment to the be determined and appraised by three (3)
Articles of Incorporation has the disinterested persons, one of whom shall be named
effect of changing or restricting the by the stockholder, another by the corporation, and
rights of any stockholder or class of the third by the two thus chosen. The findings of the
shares; majority of the appraisers shall be final, and their
2. In case of any amendment to the award shall be paid by the corporation within thirty
Articles of Incorporation authorizing (30) days after such award is made: Provided, That
preferences in any respect superior to no payment shall be made to any dissenting
those of outstanding shares of any stockholder unless the corporation has unrestricted
class; retained earnings in its books to cover such
3. In case of amendment to the Articles payment: and Provided, further, That upon payment
of Incorporation extending the by the corporation of the agreed or awarded price,
corporate term; the stockholder shall forthwith transfer his shares to
4. In case of amendment to the Articles the corporation. (n)
of Incorporation;
Sec. 83. Effect of demand and termination of right. -
5. In case of sale, lease, exchange,
From the time of demand for payment of the fair
transfer, mortgage, pledge or other
value of a stockholder's shares until either the
disposition of all or substantially all of
abandonment of the corporate action involved or
the corporate property and assets as
the purchase of the said shares by the corporation,
provided in the Code;
all rights accruing to such shares, including voting
6. In case of merger or consolidation,
and dividend rights, shall be suspended in
7. If the corporation will invest its funds
accordance with the provisions of this Code, except
in another corporation or business or
the right of such stockholder to receive payment of
for any purpose other than its
the fair value thereof: Provided, That if the
primary purpose;
dissenting stockholder is not paid the value of his
8. In a close corporation under Sec.105
shares within 30 days after the award, his voting and
of the Corporation Code.
dividend rights shall immediately be restored. (n)
Sec. 82. How right is exercised. - The appraisal right
Sec. 84. When right to payment ceases. - No
may be exercised by any stockholder who shall have
demand for payment under this Title may be
voted against the proposed corporate action, by
withdrawn unless the corporation consents thereto.
making a written demand on the corporation within
If, however, such demand for payment is withdrawn
thirty (30) days after the date on which the vote was
with the consent of the corporation, or if the
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 32
proposed corporate action is abandoned or purposes for which the corporation was organized,
rescinded by the corporation or disapproved by the subject to the provisions of this Title.
Securities and Exchange Commission where such
The provisions governing stock corporation, when
approval is necessary, or if the Securities and
pertinent, shall be applicable to non-stock
Exchange Commission determines that such
corporations, except as may be covered by specific
stockholder is not entitled to the appraisal right,
provisions of this Title. (n)
then the right of said stockholder to be paid the fair
value of his shares shall cease, his status as a Sec. 88. Purposes. - Non-stock corporations may be
stockholder shall thereupon be restored, and all formed or organized for charitable, religious,
dividend distributions which would have accrued on educational, professional, cultural, fraternal,
his shares shall be paid to him. (n) literary, scientific, social, civic service, or similar
purposes, like trade, industry, agricultural and like
Sec. 85. Who bears costs of appraisal. - The costs
chambers, or any combination thereof, subject to
and expenses of appraisal shall be borne by the
the special provisions of this Title governing
corporation, unless the fair value ascertained by the
particular classes of non-stock corporations. (n)
appraisers is approximately the same as the price
which the corporation may have offered to pay the Chapter I - MEMBERS
stockholder, in which case they shall be borne by the
Sec. 89. Right to vote. - The right of the members of
latter. In the case of an action to recover such fair
any class or classes to vote may be limited,
value, all costs and expenses shall be assessed
broadened or denied to the extent specified in the
against the corporation, unless the refusal of the
articles of incorporation or the by-laws. Unless so
stockholder to receive payment was unjustified. (n)
limited, broadened or denied, each member,
Sec. 86. Notation on certificates; rights of regardless of class, shall be entitled to one vote.
transferee. - Within ten (10) days after demanding
Unless otherwise provided in the articles of
payment for his shares, a dissenting stockholder
incorporation or the by-laws, a member may vote by
shall submit the certificates of stock representing his
proxy in accordance with the provisions of this Code.
shares to the corporation for notation thereon that
(n)
such shares are dissenting shares. His failure to do so
shall, at the option of the corporation, terminate his Voting by mail or other similar means by members of
rights under this Title. If shares represented by the non-stock corporations may be authorized by the by-
certificates bearing such notation are transferred, laws of non-stock corporations with the approval of,
and the certificates consequently canceled, the and under such conditions which may be prescribed
rights of the transferor as a dissenting stockholder by, the Securities and Exchange Commission.
under this Title shall cease and the transferee shall
Sec. 90. Non-transferability of membership. -
have all the rights of a regular stockholder; and all
Membership in a non-stock corporation and all rights
dividend distributions which would have accrued on
arising therefrom are personal and non-transferable,
such shares shall be paid to the transferee. (n)
unless the articles of incorporation or the by-laws
PART XI - NON-STOCK CORPORATIONS otherwise provide. (n)
Sec. 87. Definition. - For the purposes of this Code, Sec. 91. Termination of membership. - Membership
a non-stock corporation is one where no part of its shall be terminated in the manner and for the causes
income is distributable as dividends to its members, provided in the articles of incorporation or the by-
trustees, or officers, subject to the provisions of this laws. Termination of membership shall have the
Code on dissolution: Provided, That any profit which effect of extinguishing all rights of a member in the
a non-stock corporation may obtain as an incident to corporation or in its property, unless otherwise
its operations shall, whenever necessary or proper, provided in the articles of incorporation or the by-
be used for the furtherance of the purpose or laws. (n)
Chapter II - TRUSTEES AND OFFICERS
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 33
Sec. 92. Election and term of trustees. - Unless be returned, transferred or conveyed in accordance
otherwise provided in the articles of incorporation or with such requirements;
the by-laws, the board of trustees of non-stock
3. Assets received and held by the corporation
corporations, which may be more than fifteen (15) in
subject to limitations permitting their use only for
number as may be fixed in their articles of
charitable, religious, benevolent, educational or
incorporation or by-laws, shall, as soon as organized,
similar purposes, but not held upon a condition
so classify themselves that the term of office of one-
requiring return, transfer or conveyance by reason of
third (1/3) of their number shall expire every year;
the dissolution, shall be transferred or conveyed to
and subsequent elections of trustees comprising
one or more corporations, societies or organizations
one-third (1/3) of the board of trustees shall be held
engaged in activities in the Philippines substantially
annually and trustees so elected shall have a term of
similar to those of the dissolving corporation
three (3) years. Trustees thereafter elected to fill
according to a plan of distribution adopted pursuant
vacancies occurring before the expiration of a
to this Chapter;
particular term shall hold office only for the
unexpired period. 4. Assets other than those mentioned in the
preceding paragraphs, if any, shall be distributed in
No person shall be elected as trustee unless he is a
accordance with the provisions of the articles of
member of the corporation.
incorporation or the by-laws, to the extent that the
Unless otherwise provided in the articles of articles of incorporation or the by-laws, determine
incorporation or the by-laws, officers of a non-stock the distributive rights of members, or any class or
corporation may be directly elected by the classes of members, or provide for distribution; and
members. (n)
5. In any other case, assets may be distributed to
Sec. 93. Place of meetings. - The by-laws may such persons, societies, organizations or
provide that the members of a non-stock corporations, whether or not organized for profit, as
corporation may hold their regular or special may be specified in a plan of distribution adopted
meetings at any place even outside the place where pursuant to this Chapter. (n)
the principal office of the corporation is located:
Sec. 95. Plan of distribution of assets. - A plan
Provided, That proper notice is sent to all members
providing for the distribution of assets, not
indicating the date, time and place of the meeting:
inconsistent with the provisions of this Title, may be
and Provided, further, That the place of meeting
adopted by a non-stock corporation in the process of
shall be within the Philippines. (n)
dissolution in the following manner:

Chapter III - DISTRIBUTION OF ASSETS IN


The board of trustees shall, by majority vote, adopt
NON-STOCK CORPORATIONS
a resolution recommending a plan of distribution
Sec. 94. Rules of distribution. - In case dissolution of and directing the submission thereof to a vote at a
a non-stock corporation in accordance with the regular or special meeting of members having voting
provisions of this Code, its assets shall be applied and rights. Written notice setting forth the proposed
distributed as follows: plan of distribution or a summary thereof and the
date, time and place of such meeting shall be given
1. All liabilities and obligations of the corporation
to each member entitled to vote, within the time and
shall be paid, satisfied and discharged, or adequate
in the manner provided in this Code for the giving of
provision shall be made therefore;
notice of meetings to members. Such plan of
2. Assets held by the corporation upon a condition distribution shall be adopted upon approval of at
requiring return, transfer or conveyance, and which least two-thirds (2/3) of the members having voting
condition occurs by reason of the dissolution, shall rights present or represented by proxy at such
meeting. (n)
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 34
PART XII - CLOSE CORPORATIONS corporation rather than by a board of directors. So
long as this provision continues in effect:
Sec. 96. Definition and applicability of Title. - A
close corporation, within the meaning of this Code, 1. No meeting of stockholders need be called to elect
is one whose articles of incorporation provide that: directors;
(1) All the corporation's issued stock of all classes,
2. Unless the context clearly requires otherwise, the
exclusive of treasury shares, shall be held of record
stockholders of the corporation shall be deemed to
by not more than a specified number of persons, not
be directors for the purpose of applying the
exceeding twenty (20); (2) all the issued stock of all
provisions of this Code; and
classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and 3. The stockholders of the corporation shall be
(3) The corporation shall not list in any stock subject to all liabilities of directors.
exchange or make any public offering of any of its
The articles of incorporation may likewise provide
stock of any class. Notwithstanding the foregoing, a
that all officers or employees or that specified
corporation shall not be deemed a close corporation
officers or employees shall be elected or appointed
when at least two-thirds (2/3) of its voting stock or
by the stockholders, instead of by the board of
voting rights is owned or controlled by another
directors.
corporation which is not a close corporation within
the meaning of this Code. Sec. 98. Validity of restrictions on transfer of
shares. - Restrictions on the right to transfer shares
Any corporation may be incorporated as a close
must appear in the articles of incorporation and in
corporation, except mining or oil companies, stock
the by-laws as well as in the certificate of stock;
exchanges, banks, insurance companies, public
otherwise, the same shall not be binding on any
utilities, educational institutions and corporations
purchaser thereof in good faith. Said restrictions
declared to be vested with public interest in
shall not be more onerous than granting the existing
accordance with the provisions of this Code.
stockholders or the corporation the option to
The provisions of this Title shall primarily govern purchase the shares of the transferring stockholder
close corporations: Provided, That the provisions of with such reasonable terms, conditions or period
other Titles of this Code shall apply suppletorily stated therein. If upon the expiration of said period,
except insofar as this Title otherwise provides. the existing stockholders or the corporation fails to
exercise the option to purchase, the transferring
Sec. 97. Articles of incorporation. - The articles of
stockholder may sell his shares to any third person.
incorporation of a close corporation may provide:
Sec. 99. Effects of issuance or transfer of stock in
1. For a classification of shares or rights and the
breach of qualifying conditions. -
qualifications for owning or holding the same and
restrictions on their transfers as may be stated 1. If stock of a close corporation is issued or
therein, subject to the provisions of the following transferred to any person who is not entitled under
section; any provision of the articles of incorporation to be a
holder of record of its stock, and if the certificate for
2. For a classification of directors into one or more
such stock conspicuously shows the qualifications of
classes, each of whom may be voted for and elected
the persons entitled to be holders of record thereof,
solely by a particular class of stock; and
such person is conclusively presumed to have notice
3. For a greater quorum or voting requirements in of the fact of his ineligibility to be a stockholder.
meetings of stockholders or directors than those
2. If the articles of incorporation of a close
provided in this Code.
corporation states the number of persons, not
The articles of incorporation of a close corporation exceeding twenty (20), who are entitled to be
may provide that the business of the corporation holders of record of its stock, and if the certificate for
shall be managed by the stockholders of the such stock conspicuously states such number, and if
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 35
the issuance or transfer of stock to any person would with the articles of incorporation, irrespective of
cause the stock to be held by more than such where the provisions of such agreements are
number of persons, the person to whom such stock contained, except those required by this Title to be
is issued or transferred is conclusively presumed to embodied in said articles of incorporation.
have notice of this fact.
2. An agreement between two or more stockholders,
3. If a stock certificate of any close corporation if in writing and signed by the parties thereto, may
conspicuously shows a restriction on transfer of provide that in exercising any voting rights, the
stock of the corporation, the transferee of the stock shares held by them shall be voted as therein
is conclusively presumed to have notice of the fact provided, or as they may agree, or as determined in
that he has acquired stock in violation of the accordance with a procedure agreed upon by them.
restriction, if such acquisition violates the
3. No provision in any written agreement signed by
restriction.
the stockholders, relating to any phase of the
4. Whenever any person to whom stock of a close corporate affairs, shall be invalidated as between the
corporation has been issued or transferred has, or is parties on the ground that its effect is to make them
conclusively presumed under this section to have, partners among themselves.
notice either (a) that he is a person not eligible to be
4. A written agreement among some or all of the
a holder of stock of the corporation, or (b) that
stockholders in a close corporation shall not be
transfer of stock to him would cause the stock of the
invalidated on the ground that it so relates to the
corporation to be held by more than the number of
conduct of the business and affairs of the
persons permitted by its articles of incorporation to
corporation as to restrict or interfere with the
hold stock of the corporation, or (c) that the transfer
discretion or powers of the board of directors:
of stock is in violation of a restriction on transfer of
Provided, That such agreement shall impose on the
stock, the corporation may, at its option, refuse to
stockholders who are parties thereto the liabilities
register the transfer of stock in the name of the
for managerial acts imposed by this Code on
transferee.
directors.
5. The provisions of subsection (4) shall not
5. To the extent that the stockholders are actively
applicable if the transfer of stock, though contrary to
engaged in the management or operation of the
subsections (1), (2) of (3), has been consented to by
business and affairs of a close corporation, the
all the stockholders of the close corporation, or if the
stockholders shall be held to strict fiduciary duties to
close corporation has amended its articles of
each other and among themselves. Said
incorporation in accordance with this Title.
stockholders shall be personally liable for corporate
6. The term "transfer", as used in this section, is not torts unless the corporation has obtained reasonably
limited to a transfer for value. adequate liability insurance.
7. The provisions of this section shall not impair any Sec. 101. When board meeting is unnecessary or
right which the transferee may have to rescind the improperly held. - Unless the by-laws provide
transfer or to recover under any applicable warranty, otherwise, any action by the directors of a close
express or implied. corporation without a meeting shall nevertheless be
deemed valid if:
Sec. 100. Agreements by stockholders. -
1. Before or after such action is taken, written
1. Agreements by and among stockholders executed
consent thereto is signed by all the directors; or
before the formation and organization of a close
corporation, signed by all stockholders, shall survive 2. All the stockholders have actual or implied
the incorporation of such corporation and shall knowledge of the action and make no prompt
continue to be valid and binding between and objection thereto in writing; or
among such stockholders, if such be their intent, to
the extent that such agreements are not inconsistent
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 36
3. The directors are accustomed to take informal the Commission shall have authority to make such
action with the express or implied acquiescence of order as it deems appropriate, including an order: (1)
all the stockholders; or canceling or altering any provision contained in the
articles of incorporation, by-laws, or any
4. All the directors have express or implied
stockholder's agreement; (2) canceling, altering or
knowledge of the action in question and none of
enjoining any resolution or act of the corporation or
them makes prompt objection thereto in writing.
its board of directors, stockholders, or officers; (3)
If a director's meeting is held without proper call or directing or prohibiting any act of the corporation or
notice, an action taken therein within the corporate its board of directors, stockholders, officers, or other
powers is deemed ratified by a director who failed to persons party to the action; (4) requiring the
attend, unless he promptly files his written objection purchase at their fair value of shares of any
with the secretary of the corporation after having stockholder, either by the corporation regardless of
knowledge thereof. the availability of unrestricted retained earnings in
its books, or by the other stockholders; (5)
Sec. 102. Pre-emptive right in close corporations. -
appointing a provisional director; (6) dissolving the
The pre-emptive right of stockholders in close
corporation; or (7) granting such other relief as the
corporations shall extend to all stock to be issued,
circumstances may warrant.
including reissuance of treasury shares, whether for
money, property or personal services, or in payment A provisional director shall be an impartial person
of corporate debts, unless the articles of who is neither a stockholder nor a creditor of the
incorporation provide otherwise. corporation or of any subsidiary or affiliate of the
corporation, and whose further qualifications, if any,
Sec. 103. Amendment of articles of incorporation. -
may be determined by the Commission. A
Any amendment to the articles of incorporation
provisional director is not a receiver of the
which seeks to delete or remove any provision
corporation and does not have the title and powers
required by this Title to be contained in the articles
of a custodian or receiver. A provisional director shall
of incorporation or to reduce a quorum or voting
have all the rights and powers of a duly elected
requirement stated in said articles of incorporation
director of the corporation, including the right to
shall not be valid or effective unless approved by the
notice of and to vote at meetings of directors, until
affirmative vote of at least two-thirds (2/3) of the
such time as he shall be removed by order of the
outstanding capital stock, whether with or without
Commission or by all the stockholders. His
voting rights, or of such greater proportion of shares
compensation shall be determined by agreement
as may be specifically provided in the articles of
between him and the corporation subject to
incorporation for amending, deleting or removing
approval of the Commission, which may fix his
any of the aforesaid provisions, at a meeting duly
compensation in the absence of agreement or in the
called for the purpose.
event of disagreement between the provisional
Sec. 104. Deadlocks. - Notwithstanding any contrary director and the corporation.
provision in the articles of incorporation or by-laws
Sec. 105. Withdrawal of stockholder or dissolution
or agreement of stockholders of a close corporation,
of corporation. - In addition and without prejudice
if the directors or stockholders are so divided
to other rights and remedies available to a
respecting the management of the corporation's
stockholder under this Title, any stockholder of a
business and affairs that the votes required for any
close corporation may, for any reason, compel the
corporate action cannot be obtained, with the
said corporation to purchase his shares at their fair
consequence that the business and affairs of the
value, which shall not be less than their par or issued
corporation can no longer be conducted to the
value, when the corporation has sufficient assets in
advantage of the stockholders generally, the
its books to cover its debts and liabilities exclusive of
Securities and Exchange Commission, upon written
capital stock: Provided, That any stockholder of a
petition by any stockholder, shall have the power to
close corporation may, by written petition to the
arbitrate the dispute. In the exercise of such power,
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 37
Securities and Exchange Commission, compel the Sec. 109. Classes of religious corporations. -
dissolution of such corporation whenever any of acts Religious corporations may be incorporated by one
of the directors, officers or those in control of the or more persons. Such corporations may be
corporation is illegal, or fraudulent, or dishonest, or classified into corporation sole and religious
oppressive or unfairly prejudicial to the corporation societies.
or any stockholder, or whenever corporate assets
Religious corporations shall be governed by this
are being misapplied or wasted.
Chapter and by the general provisions on non-stock
PART XIII - SPECIAL CORPORATIONS corporations insofar as they may be applicable. (n)
Chapter I - Educational Corporations Sec. 110. Corporation sole. - For the purpose of
administering and managing, as trustee, the affairs,
Sec. 106. Incorporation. - Educational corporations
property and temporalities of any religious
shall be governed by special laws and by the general
denomination, sect or church, a corporation sole
provisions of this Code. (n)
may be formed by the chief archbishop, bishop,
Sec. 107. Pre-requisites to incorporation. - Except priest, minister, rabbi or other presiding elder of
upon favorable recommendation of the Ministry of such religious denomination, sect or church. (154a)
Education and Culture, the Securities and Exchange
Sec. 111. Articles of incorporation. - In order to
Commission shall not accept or approve the articles
become a corporation sole, the chief archbishop,
of incorporation and by-laws of any educational
bishop, priest, minister, rabbi or presiding elder of
institution. (168a)
any religious denomination, sect or church must file
Sec. 108. Board of trustees. - Trustees of with the Securities and Exchange Commission
educational institutions organized as non-stock articles of incorporation setting forth the following:
corporations shall not be less than five (5) nor more
1. That he is the chief archbishop, bishop, priest,
than fifteen (15): Provided, however, That the
minister, rabbi or presiding elder of his religious
number of trustees shall be in multiples of five (5).
denomination, sect or church and that he desires to
Unless otherwise provided in the articles of become a corporation sole;
incorporation on the by-laws, the board of trustees
2. That the rules, regulations and discipline of his
of incorporated schools, colleges, or other
religious denomination, sect or church are not
institutions of learning shall, as soon as organized, so
inconsistent with his becoming a corporation sole
classify themselves that the term of office of one-
and do not forbid it;
fifth (1/5) of their number shall expire every year.
Trustees thereafter elected to fill vacancies, 3. That as such chief archbishop, bishop, priest,
occurring before the expiration of a particular term, minister, rabbi or presiding elder, he is charged with
shall hold office only for the unexpired period. the administration of the temporalities and the
Trustees elected thereafter to fill vacancies caused management of the affairs, estate and properties of
by expiration of term shall hold office for five (5) his religious denomination, sect or church within his
years. A majority of the trustees shall constitute a territorial jurisdiction, describing such territorial
quorum for the transaction of business. The powers jurisdiction;
and authority of trustees shall be defined in the by-
4. The manner in which any vacancy occurring in the
laws.
office of chief archbishop, bishop, priest, minister,
For institutions organized as stock corporations, the rabbi of presiding elder is required to be filled,
number and term of directors shall be governed by according to the rules, regulations or discipline of the
the provisions on stock corporations. (169a) religious denomination, sect or church to which he
belongs; and
Chapter II - RELIGIOUS CORPORATIONS

Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 38
5. The place where the principal office of the leave to sell or mortgage should be granted. The
corporation sole is to be established and located, application for leave to sell or mortgage must be
which place must be within the Philippines. made by petition, duly verified, by the chief
archbishop, bishop, priest, minister, rabbi or
The articles of incorporation may include any other
presiding elder acting as corporation sole, and may
provision not contrary to law for the regulation of
be opposed by any member of the religious
the affairs of the corporation. (n)
denomination, sect or church represented by the
Sec. 112. Submission of the articles of corporation sole: Provided, That in cases where the
incorporation. - The articles of incorporation must rules, regulations and discipline of the religious
be verified, before filing, by affidavit or affirmation denomination, sect or church, religious society or
of the chief archbishop, bishop, priest, minister, order concerned represented by such corporation
rabbi or presiding elder, as the case may be, and sole regulate the method of acquiring, holding,
accompanied by a copy of the commission, selling and mortgaging real estate and personal
certificate of election or letter of appointment of property, such rules, regulations and discipline shall
such chief archbishop, bishop, priest, minister, rabbi control, and the intervention of the courts shall not
or presiding elder, duly certified to be correct by any be necessary. (159a)
notary public.
Sec. 114. Filling of vacancies. - The successors in
From and after the filing with the Securities and office of any chief archbishop, bishop, priest,
Exchange Commission of the said articles of minister, rabbi or presiding elder in a corporation
incorporation, verified by affidavit or affirmation, sole shall become the corporation sole on their
and accompanied by the documents mentioned in accession to office and shall be permitted to transact
the preceding paragraph, such chief archbishop, business as such on the filing with the Securities and
bishop, priest, minister, rabbi or presiding elder shall Exchange Commission of a copy of their commission,
become a corporation sole and all temporalities, certificate of election, or letters of appointment,
estate and properties of the religious denomination, duly certified by any notary public.
sect or church theretofore administered or managed
During any vacancy in the office of chief archbishop,
by him as such chief archbishop, bishop, priest,
bishop, priest, minister, rabbi or presiding elder of
minister, rabbi or presiding elder shall be held in
any religious denomination, sect or church
trust by him as a corporation sole, for the use,
incorporated as a corporation sole, the person or
purpose, behalf and sole benefit of his religious
persons authorized and empowered by the rules,
denomination, sect or church, including hospitals,
regulations or discipline of the religious
schools, colleges, orphan asylums, parsonages and
denomination, sect or church represented by the
cemeteries thereof. (n)
corporation sole to administer the temporalities and
Sec. 113. Acquisition and alienation of property. - manage the affairs, estate and properties of the
Any corporation sole may purchase and hold real corporation sole during the vacancy shall exercise all
estate and personal property for its church, the powers and authority of the corporation sole
charitable, benevolent or educational purposes, and during such vacancy. (158a)
may receive bequests or gifts for such purposes.
Sec. 115. Dissolution. - A corporation sole may be
Such corporation may sell or mortgage real property
dissolved and its affairs settled voluntarily by
held by it by obtaining an order for that purpose
submitting to the Securities and Exchange
from the Court of First Instance of the province
Commission a verified declaration of dissolution.
where the property is situated upon proof made to
the satisfaction of the court that notice of the The declaration of dissolution shall set forth:
application for leave to sell or mortgage has been
1. The name of the corporation;
given by publication or otherwise in such manner
and for such time as said court may have directed, 2. The reason for dissolution and winding up;
and that it is to the interest of the corporation that
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 39
3. The authorization for the dissolution of the incorporate for the administration of its affairs,
corporation by the particular religious properties and estate;
denomination, sect or church;
5. The place where the principal office of the
4. The names and addresses of the persons who are corporation is to be established and located, which
to supervise the winding up of the affairs of the place must be within the Philippines; and
corporation.
6. The names, nationalities, and residences of the
Upon approval of such declaration of dissolution by trustees elected by the religious society or religious
the Securities and Exchange Commission, the order, or the diocese, synod, or district organization
corporation shall cease to carry on its operations to serve for the first year or such other period as may
except for the purpose of winding up its affairs. (n) be prescribed by the laws of the religious society or
religious order, or of the diocese, synod, or district
Sec. 116. Religious societies. - Any religious society
organization, the board of trustees to be not less
or religious order, or any diocese, synod, or district
than five (5) nor more than fifteen (15). (160a)
organization of any religious denomination, sect or
church, unless forbidden by the constitution, rules, PART XIV - DISSOLUTION
regulations, or discipline of the religious
Sec. 117. Methods of dissolution. - A corporation
denomination, sect or church of which it is a part, or
formed or organized under the provisions of this
by competent authority, may, upon written consent
Code may be dissolved voluntarily or involuntarily.
and/or by an affirmative vote at a meeting called for
(n)
the purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration of  Dissolution may be made through:
its temporalities or for the management of its affairs, 1. Voluntary dissolution,
properties and estate by filing with the Securities 2. Involuntary dissolution,
and Exchange Commission, articles of incorporation 3. Shortening of term,
verified by the affidavit of the presiding elder, 4. Expiration of term, and
secretary, or clerk or other member of such religious 5. Revocation of the Certificate of
society or religious order, or diocese, synod, or Incorporation by the SEC;
district organization of the religious denomination,  Cram Down Rule. The Rehabilitation Plan
sect or church, setting forth the following: shall be binding upon the debtor and all
persons who may be affected by it, including
1. That the religious society or religious order, or
creditors, whether or not such persons have
diocese, synod, or district organization is a religious
participated in the proceedings, or opposed
organization of a religious denomination, sect or
the Plan, or whether or not their claims have
church;
been scheduled.
2. That at least two-thirds (2/3) of its membership
Sec. 118. Voluntary dissolution where no creditors
have given their written consent or have voted to
are affected. - If dissolution of a corporation does
incorporate, at a duly convened meeting of the
not prejudice the rights of any creditor having a
body;
claim against it, the dissolution may be effected by
3. That the incorporation of the religious society or majority vote of the board of directors or trustees,
religious order, or diocese, synod, or district and by a resolution duly adopted by the affirmative
organization desiring to incorporate is not forbidden vote of the stockholders owning at least two-thirds
by competent authority or by the constitution, rules, (2/3) of the outstanding capital stock or of at least
regulations or discipline of the religious two-thirds (2/3) of the members of a meeting to be
denomination, sect, or church of which it forms a held upon call of the directors or trustees after
part; publication of the notice of time, place and object of
the meeting for three (3) consecutive weeks in a
4. That the religious society or religious order, or
newspaper published in the place where the
diocese, synod, or district organization desires to
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 40
principal office of said corporation is located; and if filed; and if no such objection is sufficient, and the
no newspaper is published in such place, then in a material allegations of the petition are true, it shall
newspaper of general circulation in the Philippines, render judgment dissolving the corporation and
after sending such notice to each stockholder or directing such disposition of its assets as justice
member either by registered mail or by personal requires, and may appoint a receiver to collect such
delivery at least thirty (30) days prior to said assets and pay the debts of the corporation. (Rule
meeting. A copy of the resolution authorizing the 104, RCa)
dissolution shall be certified by a majority of the
Sec. 120. Dissolution by shortening corporate
board of directors or trustees and countersigned by
term. - A voluntary dissolution may be effected by
the secretary of the corporation. The Securities and
amending the articles of incorporation to shorten
Exchange Commission shall thereupon issue the
the corporate term pursuant to the provisions of this
certificate of dissolution. (62a)
Code. A copy of the amended articles of
Sec. 119. Voluntary dissolution where creditors are incorporation shall be submitted to the Securities
affected. - Where the dissolution of a corporation and Exchange Commission in accordance with this
may prejudice the rights of any creditor, the petition Code. Upon approval of the amended articles of
for dissolution shall be filed with the Securities and incorporation of the expiration of the shortened
Exchange Commission. The petition shall be signed term, as the case may be, the corporation shall be
by a majority of its board of directors or trustees or deemed dissolved without any further proceedings,
other officers having the management of its affairs, subject to the provisions of this Code on liquidation.
verified by its president or secretary or one of its (n)
directors or trustees, and shall set forth all claims
Sec. 121. Involuntary dissolution. - A corporation
and demands against it, and that its dissolution was
may be dissolved by the Securities and Exchange
resolved upon by the affirmative vote of the
Commission upon filing of a verified complaint and
stockholders representing at least two-thirds (2/3) of
after proper notice and hearing on the grounds
the outstanding capital stock or by at least two-
provided by existing laws, rules and regulations. (n)
thirds (2/3) of the members at a meeting of its
stockholders or members called for that purpose. Sec. 122. Corporate liquidation. - Every corporation
whose charter expires by its own limitation or is
If the petition is sufficient in form and substance, the
annulled by forfeiture or otherwise, or whose
Commission shall, by an order reciting the purpose
corporate existence for other purposes is terminated
of the petition, fix a date on or before which
in any other manner, shall nevertheless be
objections thereto may be filed by any person, which
continued as a body corporate for three (3) years
date shall not be less than thirty (30) days nor more
after the time when it would have been so dissolved,
than sixty (60) days after the entry of the order.
for the purpose of prosecuting and defending suits
Before such date, a copy of the order shall be
by or against it and enabling it to settle and close its
published at least once a week for three (3)
affairs, to dispose of and convey its property and to
consecutive weeks in a newspaper of general
distribute its assets, but not for the purpose of
circulation published in the municipality or city
continuing the business for which it was established.
where the principal office of the corporation is
situated, or if there be no such newspaper, then in a At any time during said three (3) years, the
newspaper of general circulation in the Philippines, corporation is authorized and empowered to convey
and a similar copy shall be posted for three (3) all of its property to trustees for the benefit of
consecutive weeks in three (3) public places in such stockholders, members, creditors, and other
municipality or city. persons in interest. From and after any such
conveyance by the corporation of its property in
Upon five (5) day's notice, given after the date on
trust for the benefit of its stockholders, members,
which the right to file objections as fixed in the order
creditors and others in interest, all interest which the
has expired, the Commission shall proceed to hear
corporation had in the property terminates, the legal
the petition and try any issue made by the objections
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 41
interest vests in the trustees, and the beneficial 2. The address, including the street number, of the
interest in the stockholders, members, creditors or principal office of the corporation in the country or
other persons in interest. state of incorporation;
Upon the winding up of the corporate affairs, any 3. The name and address of its resident agent
asset distributable to any creditor or stockholder or authorized to accept summons and process in all
member who is unknown or cannot be found shall legal proceedings and, pending the establishment of
be escheated to the city or municipality where such a local office, all notices affecting the corporation;
assets are located.
4. The place in the Philippines where the corporation
Except by decrease of capital stock and as otherwise intends to operate;
allowed by this Code, no corporation shall distribute
5. The specific purpose or purposes which the
any of its assets or property except upon lawful
corporation intends to pursue in the transaction of
dissolution and after payment of all its debts and
its business in the Philippines: Provided, That said
liabilities. (77a, 89a, 16a)
purpose or purposes are those specifically stated in
PART XV - FOREIGN CORPORATIONS the certificate of authority issued by the appropriate
government agency;
Sec. 123. Definition and rights of foreign
corporations. - For the purposes of this Code, a 6. The names and addresses of the present directors
foreign corporation is one formed, organized or and officers of the corporation;
existing under any laws other than those of the
7. A statement of its authorized capital stock and the
Philippines and whose laws allow Filipino citizens
aggregate number of shares which the corporation
and corporations to do business in its own country
has authority to issue, itemized by classes, par value
or state. It shall have the right to transact business in
of shares, shares without par value, and series, if
the Philippines after it shall have obtained a license
any;
to transact business in this country in accordance
with this Code and a certificate of authority from the 8. A statement of its outstanding capital stock and
appropriate government agency. (n) the aggregate number of shares which the
corporation has issued, itemized by classes, par
Sec. 124. Application to existing foreign
value of shares, shares without par value, and series,
corporations. - Every foreign corporation which on
if any;
the date of the effectivity of this Code is authorized
to do business in the Philippines under a license 9. A statement of the amount actually paid in; and
therefore issued to it, shall continue to have such
10. Such additional information as may be necessary
authority under the terms and condition of its
or appropriate in order to enable the Securities and
license, subject to the provisions of this Code and
Exchange Commission to determine whether such
other special laws. (n)
corporation is entitled to a license to transact
Sec. 125. Application for a license. - A foreign business in the Philippines, and to determine and
corporation applying for a license to transact assess the fees payable.
business in the Philippines shall submit to the
Attached to the application for license shall be a duly
Securities and Exchange Commission a copy of its
executed certificate under oath by the authorized
articles of incorporation and by-laws, certified in
official or officials of the jurisdiction of its
accordance with law, and their translation to an
incorporation, attesting to the fact that the laws of
official language of the Philippines, if necessary. The
the country or state of the applicant allow Filipino
application shall be under oath and, unless already
citizens and corporations to do business therein, and
stated in its articles of incorporation, shall
that the applicant is an existing corporation in good
specifically set forth the following:
standing. If such certificate is in a foreign language, a
1. The date and term of incorporation; translation thereof in English under oath of the
translator shall be attached thereto.
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 42
The application for a license to transact business in controlled corporations and entities, shares of stock
the Philippines shall likewise be accompanied by a in "registered enterprises" as this term is defined in
statement under oath of the president or any other Republic Act No. 5186, shares of stock in domestic
person authorized by the corporation, showing to corporations registered in the stock exchange, or
the satisfaction of the Securities and Exchange shares of stock in domestic insurance companies and
Commission and other governmental agency in the banks, or any combination of these kinds of
proper cases that the applicant is solvent and in securities, with an actual market value of at least one
sound financial condition, and setting forth the hundred thousand (P100,000.) pesos; Provided,
assets and liabilities of the corporation as of the date however, That within six (6) months after each fiscal
not exceeding one (1) year immediately prior to the year of the licensee, the Securities and Exchange
filing of the application. Commission shall require the licensee to deposit
additional securities equivalent in actual market
Foreign banking, financial and insurance
value to two (2%) percent of the amount by which
corporations shall, in addition to the above
the licensee's gross income for that fiscal year
requirements, comply with the provisions of existing
exceeds five million (P5,000,000.00) pesos. The
laws applicable to them. In the case of all other
Securities and Exchange Commission shall also
foreign corporations, no application for license to
require deposit of additional securities if the actual
transact business in the Philippines shall be accepted
market value of the securities on deposit has
by the Securities and Exchange Commission without
decreased by at least ten (10%) percent of their
previous authority from the appropriate
actual market value at the time they were deposited.
government agency, whenever required by law.
The Securities and Exchange Commission may at its
(68a)
discretion release part of the additional securities
Sec. 126. Issuance of a license. - If the Securities and deposited with it if the gross income of the licensee
Exchange Commission is satisfied that the applicant has decreased, or if the actual market value of the
has complied with all the requirements of this Code total securities on deposit has increased, by more
and other special laws, rules and regulations, the than ten (10%) percent of the actual market value of
Commission shall issue a license to the applicant to the securities at the time they were deposited. The
transact business in the Philippines for the purpose Securities and Exchange Commission may, from time
or purposes specified in such license. Upon issuance to time, allow the licensee to substitute other
of the license, such foreign corporation may securities for those already on deposit as long as the
commence to transact business in the Philippines licensee is solvent. Such licensee shall be entitled to
and continue to do so for as long as it retains its collect the interest or dividends on the securities
authority to act as a corporation under the laws of deposited. In the event the licensee ceases to do
the country or state of its incorporation, unless such business in the Philippines, the securities deposited
license is sooner surrendered, revoked, suspended as aforesaid shall be returned, upon the licensee's
or annulled in accordance with this Code or other application therefor and upon proof to the
special laws. satisfaction of the Securities and Exchange
Commission that the licensee has no liability to
Within sixty (60) days after the issuance of the
Philippine residents, including the Government of
license to transact business in the Philippines, the
the Republic of the Philippines. (n)
license, except foreign banking or insurance
corporation, shall deposit with the Securities and  Doing Business. Any acts or acts that simply
Exchange Commission for the benefit of present and imply a continuity of commercial dealings or
future creditors of the licensee in the Philippines, arrangements, and contemplate to that
securities satisfactory to the Securities and Exchange extent the performance of acts or works, or
Commission, consisting of bonds or other evidence the exercise of some of the functions
of indebtedness of the Government of the normally incident to, and in the progressive
Philippines, its political subdivisions and prosecution of commercial gain or of the
instrumentalities, or of government-owned or
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 43
purpose of object of the business are not on a continuing basis, such as
organization. installing in the Philippines machinery it
 These acts include but are not limited to the has manufactured or exported to the
following: Philippines machinery it has
1. Soliciting orders; manufactured or exported to the
2. Entering into service contracts; Philippines, serving the same training
3. Opening offices, whether called “liaison” domestic workers to operate it, and
offices or branches; similar incidental services.
4. Appointing representatives or
Sec. 127. Who may be a resident agent. - A resident
distributors who in any calendar year stay
agent may be either an individual residing in the
in the country for a period or periods
Philippines or a domestic corporation lawfully
totaling one hundred eighty (180) days or
transacting business in the Philippines: Provided,
more; and
That in the case of an individual, he must be of good
5. Participating in the management,
moral character and of sound financial standing. (n)
supervision, or control of any domestic
business, firm, entity, or corporation in  The appointment of a resident agent is a
the Philippines. requirement for the issuance of license to
 Not doing business. Sec 1 of the IRR of the do business.
Foreign Investment Act of 1991 provides  A resident agent is one on whom any
that the following shall not be deemed summons and other legal processes may be
“doing business”: served in all actions or other legal
1. Mere investment as a shareholder by a proceedings against the foreign corporation
foreign entity in domestic corporations doing business in the Philippines.
duly registered to do business, and/or
Sec. 28. Resident agent; service of process. - The
the exercise of rights as such investor;
Securities and Exchange Commission shall require as
2. Having a nominee director or officer to
a condition precedent to the issuance of the license
represent the interest in such
to transact business in the Philippines by any foreign
corporation;
corporation that such corporation file with the
3. Appointing a representative or
Securities and Exchange Commission a written
distributor domiciled in the Philippines
power of attorney designating some person who
that transact business in the
must be a resident of the Philippines, on whom any
representative’s or distributor’s own
summons and other legal processes may be served
name and account;
in all actions or other legal proceedings against such
4. The publication of a general
corporation, and consenting that service upon such
advertisement through any print or
resident agent shall be admitted and held as valid as
broadcast media;
if served upon the duly authorized officers of the
5. Maintaining a stock of goods in the
foreign corporation at its home office. Any such
Philippines solely for the purpose of
foreign corporation shall likewise execute and file
having the same processed by another
with the Securities and Exchange Commission an
entity in the Philippines;
agreement or stipulation, executed by the proper
6. Consignment by a foreign entity of
authorities of said corporation, in form and
equipment with the local company to be
substance as follows:
used in the processing of products for
export; "The (name of foreign corporation) does hereby
7. Collecting information in the stipulate and agree, in consideration of its being
Philippines; granted by the Securities and Exchange Commission
8. Performing services auxiliary to an a license to transact business in the Philippines, that
existing isolated contract of sale which if at any time said corporation shall cease to transact
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 44
business in the Philippines, or shall be without any by-laws, as amended, indicating clearly in capital
resident agent in the Philippines on whom any letters or by underscoring the change or changes
summons or other legal processes may be served, made, duly certified by the authorized official or
then in any action or proceeding arising out of any officials of the country or state of incorporation. The
business or transaction which occurred in the filing thereof shall not of itself enlarge or alter the
Philippines, service of any summons or other legal purpose or purposes for which such corporation is
process may be made upon the Securities and authorized to transact business in the Philippines. (n)
Exchange Commission and that such service shall
Sec. 131. Amended license. - A foreign corporation
have the same force and effect as if made upon the
authorized to transact business in the Philippines
duly-authorized officers of the corporation at its
shall obtain an amended license in the event it
home office."
changes its corporate name, or desires to pursue in
Whenever such service of summons or other process the Philippines other or additional purposes, by
shall be made upon the Securities and Exchange submitting an application therefor to the Securities
Commission, the Commission shall, within ten (10) and Exchange Commission, favorably endorsed by
days thereafter, transmit by mail a copy of such the appropriate government agency in the proper
summons or other legal process to the corporation cases. (n)
at its home or principal office. The sending of such
Sec. 132. Merger or consolidation involving a foreign
copy by the Commission shall be necessary part of
corporation licensed in the Philippines. - One or
and shall complete such service. All expenses
more foreign corporations authorized to transact
incurred by the Commission for such service shall be
business in the Philippines may merge or consolidate
paid in advance by the party at whose instance the
with any domestic corporation or corporations if
service is made.
such is permitted under Philippine laws and by the
In case of a change of address of the resident agent, law of its incorporation: Provided, That the
it shall be his or its duty to immediately notify in requirements on merger or consolidation as
writing the Securities and Exchange Commission of provided in this Code are followed.
the new address. (72a; and n)
Whenever a foreign corporation authorized to
Sec. 129. Law applicable. - Any foreign corporation transact business in the Philippines shall be a party
lawfully doing business in the Philippines shall be to a merger or consolidation in its home country or
bound by all laws, rules and regulations applicable to state as permitted by the law of its incorporation,
domestic corporations of the same class, except such such foreign corporation shall, within sixty (60) days
only as provide for the creation, formation, after such merger or consolidation becomes
organization or dissolution of corporations or those effective, file with the Securities and Exchange
which fix the relations, liabilities, responsibilities, or Commission, and in proper cases with the
duties of stockholders, members, or officers of appropriate government agency, a copy of the
corporations to each other or to the corporation. articles of merger or consolidation duly
(73a) authenticated by the proper official or officials of the
country or state under the laws of which merger or
Sec. 130. Amendments to articles of incorporation
consolidation was effected: Provided, however, That
or by-laws of foreign corporations. - Whenever the
if the absorbed corporation is the foreign
articles of incorporation or by-laws of a foreign
corporation doing business in the Philippines, the
corporation authorized to transact business in the
latter shall at the same time file a petition for
Philippines are amended, such foreign corporation
withdrawal of it license in accordance with this Title.
shall, within sixty (60) days after the amendment
(n)
becomes effective, file with the Securities and
Exchange Commission, and in the proper cases with Sec. 133. Doing business without a license. - No
the appropriate government agency, a duly foreign corporation transacting business in the
authenticated copy of the articles of incorporation or Philippines without a license, or its successors or
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 45
assigns, shall be permitted to maintain or intervene Sec. 135. Issuance of certificate of revocation. -
in any action, suit or proceeding in any court or Upon the revocation of any such license to transact
administrative agency of the Philippines; but such business in the Philippines, the Securities and
corporation may be sued or proceeded against Exchange Commission shall issue a corresponding
before Philippine courts or administrative tribunals certificate of revocation, furnishing a copy thereof to
on any valid cause of action recognized under the appropriate government agency in the proper
Philippine laws. (69a) cases.
Sec. 134. Revocation of license. - Without prejudice The Securities and Exchange Commission shall also
to other grounds provided by special laws, the mail to the corporation at its registered office in the
license of a foreign corporation to transact business Philippines a notice of such revocation accompanied
in the Philippines may be revoked or suspended by by a copy of the certificate of revocation. (n)
the Securities and Exchange Commission upon any of
Sec. 136. Withdrawal of foreign corporations. -
the following grounds:
Subject to existing laws and regulations, a foreign
1. Failure to file its annual report or pay any fees as corporation licensed to transact business in the
required by this Code; Philippines may be allowed to withdraw from the
Philippines by filing a petition for withdrawal of
2. Failure to appoint and maintain a resident agent
license. No certificate of withdrawal shall be issued
in the Philippines as required by this Title;
by the Securities and Exchange Commission unless
3. Failure, after change of its resident agent or of his all the following requirements are met;
address, to submit to the Securities and Exchange
1. All claims which have accrued in the Philippines
Commission a statement of such change as required
have been paid, compromised or settled;
by this Title;
2. All taxes, imposts, assessments, and penalties, if
4. Failure to submit to the Securities and Exchange
any, lawfully due to the Philippine Government or
Commission an authenticated copy of any
any of its agencies or political subdivisions have been
amendment to its articles of incorporation or by-
paid; and
laws or of any articles of merger or consolidation
within the time prescribed by this Title; 3. The petition for withdrawal of license has been
published once a week for three (3) consecutive
5. A misrepresentation of any material matter in any
weeks in a newspaper of general circulation in the
application, report, affidavit or other document
Philippines.
submitted by such corporation pursuant to this Title;
PART XVI - MISCELLANEOUS PROVISIONS
6. Failure to pay any and all taxes, imposts,
assessments or penalties, if any, lawfully due to the Sec. 137. Outstanding capital stock defined. - The
Philippine Government or any of its agencies or term "outstanding capital stock", as used in this
political subdivisions; Code, means the total shares of stock issued under
binding subscription agreements to subscribers or
7. Transacting business in the Philippines outside of
stockholders, whether or not fully or partially paid,
the purpose or purposes for which such corporation
except treasury shares. (n)
is authorized under its license;
Sec. 138. Designation of governing boards. - The
8. Transacting business in the Philippines as agent of
provisions of specific provisions of this Code to the
or acting for and in behalf of any foreign corporation
contrary notwithstanding, non-stock or special
or entity not duly licensed to do business in the
corporations may, through their articles of
Philippines; or
incorporation or their by-laws, designate their
9. Any other ground as would render it unfit to governing boards by any name other than as board
transact business in the Philippines. (n) of trustees. (n)

Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 46
Sec. 139. Incorporation and other fees. - The independent certified public accountant in
Securities and Exchange Commission is hereby appropriate cases, covering the preceding fiscal year
authorized to collect and receive fees as authorized and such other requirements as the Securities and
by law or by rules and regulations promulgated by Exchange Commission may require. Such report shall
the Commission. (n) be submitted within such period as may be
prescribed by the Securities and Exchange
Sec. 140. Stock ownership in certain corporations. -
Commission. (n)
Pursuant to the duties specified by Article XIV of the
Constitution, the National Economic and Sec. 142. Confidential nature of examination
Development Authority shall, from time to time, results. - All interrogatories propounded by the
make a determination of whether the corporate Securities and Exchange Commission and the
vehicle has been used by any corporation or by answers thereto, as well as the results of any
business or industry to frustrate the provisions examination made by the Commission or by any
thereof or of applicable laws, and shall submit to the other official authorized by law to make an
Batasang Pambansa, whenever deemed necessary, a examination of the operations, books and records of
report of its findings, including recommendations for any corporation, shall be kept strictly confidential,
their prevention or correction. except insofar as the law may require the same to be
made public or where such interrogatories, answers
Maximum limits may be set by the Batasang
or results are necessary to be presented as evidence
Pambansa for stockholdings in corporations
before any court. (n)
declared by it to be vested with a public interest
pursuant to the provisions of this section, belonging Sec. 143. Rule-making power of the Securities and
to individuals or groups of individuals related to each Exchange Commission. - The Securities and
other by consanguinity or affinity or by close Exchange Commission shall have the power and
business interests, or whenever it is necessary to authority to implement the provisions of this Code,
achieve national objectives, prevent illegal and to promulgate rules and regulations reasonably
monopolies or combinations in restraint or trade, or necessary to enable it to perform its duties
to implement national economic policies declared in hereunder, particularly in the prevention of fraud
laws, rules and regulations designed to promote the and abuses on the part of the controlling
general welfare and foster economic development. stockholders, members, directors, trustees or
officers. (n)
In recommending to the Batasang Pambansa
corporations, business or industries to be declared Sec. 144. Violations of the Code. - Violations of any
vested with a public interest and in formulating of the provisions of this Code or its amendments not
proposals for limitations on stock ownership, the otherwise specifically penalized therein shall be
National Economic and Development Authority shall punished by a fine of not less than one thousand
consider the type and nature of the industry, the size (P1,000.00) pesos but not more than ten thousand
of the enterprise, the economies of scale, the (P10,000.00) pesos or by imprisonment for not less
geographic location, the extent of Filipino than thirty (30) days but not more than five (5) years,
ownership, the labor intensity of the activity, the or both, in the discretion of the court. If the violation
export potential, as well as other factors which are is committed by a corporation, the same may, after
germane to the realization and promotion of notice and hearing, be dissolved in appropriate
business and industry. proceedings before the Securities and Exchange
Commission: Provided, That such dissolution shall
Sec. 141. Annual report or corporations. - Every
not preclude the institution of appropriate action
corporation, domestic or foreign, lawfully doing
against the director, trustee or officer of the
business in the Philippines shall submit to the
corporation responsible for said violation: Provided,
Securities and Exchange Commission an annual
further, That nothing in this section shall be
report of its operations, together with a financial
construed to repeal the other causes for dissolution
statement of its assets and liabilities, certified by any
of a corporation provided in this Code. (190 1/2 a)
Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 47
Sec. 145. Amendment or repeal. - No right or  The percentage of Filipino equity in the
remedy in favor of or against any corporation, its corporation is computed by attributing the
stockholders, members, directors, trustees, or nationality of the second or even
officers, nor any liability incurred by any such subsequent tier of ownership to determine
corporation, stockholders, members, directors, the nationality of the corporate shareholder.
trustees, or officers, shall be removed or impaired It involves the computation of Filipino
either by the subsequent dissolution of said ownership of a corporation in which
corporation or by any subsequent amendment or corporation of partly Filipino and partly
repeal of this Code or of any part thereof. (n) foreign equity owns capital stock. The
percentage of shares held by the second
Sec. 146. Repealing clause. - Except as expressly
corporation in the first is multiplied by the
provided by this Code, all laws or parts thereof
latter’s own Filipino equity, and the product
inconsistent with any provision of this Code shall be
of these percentages is determined to be
deemed repealed. (n)
the ultimate Filipino ownership.
Sec. 147. Separability of provisions. - Should any
provision of this Code or any part thereof be
declared invalid or unconstitutional, the other
provisions, so far as they are separable, shall remain
in force. (n)
Sec. 148. Applicability to existing corporations. - All
corporations lawfully existing and doing business in
the Philippines on the date of the effectivity of this
Code and heretofore authorized, licensed or
registered by the Securities and Exchange
Commission, shall be deemed to have been
authorized, licensed or registered under the
provisions of this Code, subject to the terms and
conditions of its license, and shall be governed by the
provisions hereof: Provided, That if any such
corporation is affected by the new requirements of
this Code, said corporation shall, unless otherwise
herein provided, be given a period of not more than
two (2) years from the effectivity of this Code within
which to comply with the same. (n)
Sec. 149. Effectivity. - This Code shall take effect
immediately upon its approval.
PEQ:
 Explain the Grandfather Rule and give
illustration.
 Grandfather rule (aka Investment Test) is a
method of determining the nationality of
corporation which in turn is owned by
another corporation by breaking down the
equity structure of the shareholders of the
corporation.

Corpo Law Review (Codal and Notes from Aquino) by Ruth Cepe| 48