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Title 1 fiction shall be disregarded and the individuals

GENERAL PROVISIONS composing it will be treated identically.


Definitions and Classifications  Instances where fiction (corporation as a
Section 1 separate entity) disregarded
 This Code shall be known as “The Corporation 1. Where a corporation functions for the benefit of
Code of the Philippines.” a single person who has complete control over
 Historical Background the funds and the said person is the sole owner
Batas Pambansa Bilang 68 – law governing private thereof. (the corporate entity is an alter ego or
corporations in the Philippines (May 1, 1980) the business conduit of the owner and the
- Act. No. 1459, Corporation Law (enacted on property)
March 1, 1906, took effect on April 1, 1906) 2. Where the corporation is a mere instrumentality
 Scope of the Code of the individual stockholders, the latter must
1) Provides for the incorporation, organization, individually answers for corporate obligations.
and regulation of private corporations, both 3. Where a domestic or Philippine corporation is
stock and non-stock, including educational and controlled by aliens,
religious corporations; 4. Where a corporation is organized by an
2) Defines their powers and provides for their insolvent debtor to defraud his creditors and
dissolution; transfers his properties to it in furtherance of
3) Fixes the duties and liabilities of directors or such fraudulent purpose
trustees and other officers thereof; 5. Where a subsidiary company is created by a
4) Declares the rights and liabilities of parent company merely as an agency of the
stockholders or members; latter
5) Prescribes the conditions under which 6. Where a corporation is formed by a person for
corporations including foreign corporations the purpose of evading his individual contract
may transact business; 7. Where a corporation is dissolved and its assets
6) Provides penalties for violations of the Code; are transferred to another corporation to avoid
7) Repeals all laws and parts of laws in conflict and financial liability of the first corporation.
inconsistent with the Code. Nationality of corporations
- Serves as a legal basis for subjecting the
Section 2 enterprise or its activities to the laws, the
Statutory definition of corporation economic and fiscal powers, and various social
 A corporation is an artificial being created by and financial policies of the state to which it is
operation of law, having the right of succession supposed to belong.
and the powers, attributes and properties  Tests:
expressly authorized by law or incident to its 1. Place of Incorporation
existence. - Principal doctrine on the test of the nationality
Attributes of a corporation. of a corporate identity in the Philippines
 It is an artificial being – a juridical person - A corporation is a national of the country under
capable of having rights and obligations with a whose laws has been organized and registered
personality separate and distinct from its 2. Control Test
members/stockholders; - A corporation shall be considered a Filipino
 Created by operation of law - mere consent of corporation if the Filipino ownership of its
the parties to form a corporation is not capital stock is at least 60%, and where the 60-
sufficient. State must give consent through (a) 40 Filipino-Alien equity ownership is NOT in
special law, (b) general enabling act; doubt (SEC opinion dated 6 November 1989;
 With right of succession - existence cannot be DOJ Opinion No. 18, s. 1989).
affected by change in members/stockholders; - Therefore, its shareholdings in another
and corporation shall be considered to be Filipino
 Has the powers, attributes, and properties as nationality when computing the percentage of
expressly authorized by law or incident to its Filipino equity of the second corporation (SEC
existence. Opinion dated 23 November 1993).
Corporation as an artificial personality. 3. Grandfather Rule
 A corporation has a personality separate and - It is a method of determining the nationality of
distinct from the persons composing it. a corporation which in turn is owned in part by
Piercing the veil of corporate entity. another corporation by breaking down the
 When the veil of corporate fiction is used as a equity structure of the shareholder corporation.
shield to perpetuate fraud, to defeat public - It involves the computation of Filipino
convenience, justify wrong or defend crime, this ownership of a corporation in which another
corporation of partly Filipino and partly foreign 10) Term of Any period of May not be
equity owns capital stock. The percentage of existence stipulated time formed in
shares held by the second corporation in the excess of 50 yrs
first is multiplied by the latter’s own Filipino 11) Firm name Ltd May adopt any
equity, and the product of these percentages is name provided
it is unique
determined to be the ultimate Filipino
12) Dissolution Anytime by will Only by the
ownership of the subsidiary corporation (SEC
consent of the
Opinion re: Silahis) state
Note: the application of the test is limited to the 13) Laws which Civil code Corporation
issues of investment. Only when the corporation govern Code
is less than 60% owned shall the grandfather
rule be applied. Private corporation can only be created by
Corporation VS Partnership Corporation Code
Partnership Corporation  Special authority or grant by the State is
1) Manner of by mere by law or by required.
creation agreements of operation of law  The Congress shall not, except by general law,
the parties provide for the formation, organization, or
2) Number of May be Requires at least regulation of private corporations.
incorporators organized by (5) Special law can only create:
only (2) persons incorporators 1. Public Corporation
3) from the Only from the 2. Government-owned or controlled corporations
Commencement moment of the date of the provided:
of juridical execution of issuance of the
a. In the interest of common goods
personality the contract certificate of
b. Subject to test of economic viability
incorporations
by SEC under Section 3
official seal Classification of corporations under the Code.
4) Powers May exercise Exercise only  Stock Corporation
any power the powers - One which has a capital stock divided
provided it is expressly into shares and is authorized to
not contrary to granted by law distribute to the holders of such share’s
law, morals, or implied form dividends or allotments of the surplus
good customs, those granted of profits (Sec. 3).
public order, or incident to its  Non-stock Corporation
public policy existence. - no part of their income is distributable as
5) Management When not Vested upon the
dividends to its members, trustees or
agreed upon, board of
officers subject to the provisions on
every partner is directors or
an agent trustees dissolution.
6) Effect of Partners can The suit must be Other classifications of corporations
mismanagement sue a co- in the name of  As to number of persons who compose them:

partner who the corporation  Corporation Aggregate- more than one


mismanages  Corporation Sole- only one
7) Right of No right Has such right  As to whether they are for religious purpose or
succession not:
8) Extent of Partners a liable Stockholders  Ecclesiastical corporation- religious
liability to third personally and are liable only to  Lay Corporation- other than religious
persons subsidiarily for the extent of  As to whether they are for charitable purpose or
partnership their
not:
debts to third investments as
 Eleemosynary corporation- charitable
persons represented by
the shares  Civil corporation- for business or profit
subscribed by  As to the state or country under by whose laws
them they have been created:
9)Transferability Cannot Has the right to  Domestic corporation- under Philippine law
of interest transfer, or transfer his  Foreign corporation- under foreign law
make shares without  As to their legal right to corporate existence:
transferee a prior consent  De jure corporation- in fact and in law
partner without  De facto corporation- in fact but not in law
consent  As to whether they are open for public or not:
 Close Corporation- limited to selected giving all others the right to obtain the
persons in the same conditions; and
 Open Corporation- open to any person  To prevent bribery and corruption of the
 As to their relation to another corporation legislature.
 Parent or holding corporation- related to Governing law
another corporation that it has the power to  Corporation created by a special law or charter
elect the majority of directors of such other is primarily governed by such law and
corporation. suppletorily, by the provisions of the Code
 Subsidiary Corporation- related to another “insofar as they are applicable.”
corporation that majority of its directors are  Under the constitution, officers and employees
elected by such other corporation. of government-owned or controlled
 As to whether they are corporations in a true corporations with original charter are placed
sense or only in a limited sense: under the Civil Service and thus, subject to Civil
 True corporation- exists by statutory Service Law.
authority  A government-owned or controlled corporation
 Quasi-corporation- exists without legislative may be organized under the provisions of the
grant Corporation Code and not by special law.
o Corporation by prescription- exercised
corporate powers over indefinite period Section 5
without interference from sovereign Components of a corporation
power.  Corporators
o Corporation by estoppel- a corporation - are those who compose a corporation,
only to those only who, by reason of their whether as stockholders or as members.
acts or admissions, are precluded from  Incorporators
asserting that it is not a corporation. - are those stockholders or members
 As to whether they are public or private mentioned in the articles of
 Public Corporation- formed or organized for incorporation as originally forming and
the government or a portion of the state composing the corporation and who are
 Private Corporation- those formed for signatories thereof.
private purposes, benefit, or end  Stockholders
Test of distinction between public and private - Owners of shares of stock in a stock
 Public- those created, formed or organized for corporation, also called shareholders.
political or governmental purposes with political  Members
powers to be exercised for purposes connected - Corporators of a corporation which has
with the public good in the administration of civil no capital stock.
government. Three other classes.
 Private- those formed for some private purpose,  Promoters
benefit, aim or end. - Persons who bring about the formation
Includes: and organization of a corporation by
1. Government-owned or controlled corporations bringing in together the incorporators.
- directly created by special law  Subscribers
2. Quasi-public corporations - Persons who have agreed to take and
- Accepted from the State the grant of pay for original, unissued shares of a
franchise or contract involving the corporation formed or to be formed.
rendition or performance of some public  Underwriter
duties or service, but which are - A person, usually an investment banker,
organized for profit. who has agreed, alone or with others, to
buy at stated terms an entire issue of
Section 4 securities or a substantial part thereof.
Incorporation of a private corporation by a special
act. Section 6
 Subject to constitutional limitation that such Capital Stock and Capital
corporation shall be owned or controlled by the  Capital stock
government or any subdivision or - The amount fixed in the articles of
instrumentality thereof. incorporation, to be subscribed and paid
 Reasons for restriction: in by the shareholders of a corporation,
 To prevent the granting of special either in money or property, labor or
privileges to one body of men without services, at the organization of the
corporation or afterwards and upon Fixed in the Articles of Changes only when
which it is to conduct its operation. Incorporation and is outstanding shares
a) Authorized capital stock unaffected by profits increase or decrease
- Synonymous with capital stock where and losses. in number or amount.
the shares of the corporation have par Limits the maximum Sets the minimum
amount or number of amount of the
value.
shares that may be corporate assets
b) Subscribed capital stock
issued (without which for the
- Amount of capital stock subscribed amendment of the AOI) protection of
whether fully paid or not. corporate creditors
c) Outstanding capital stock
- The total shares of stock issued to Stock or share of stock
subscribers or stockholders, whether - One of the units into which the capital
fully or partially paid except treasury stock is divided.
shares.
d) Paid-up capital stock Certificate of stock
- Portion of the subscribed or outstanding - Written acknowledgement by the
capital stock that is paid. corporation of the interest, right, and
e) Unissued capital stock participation of a person in the
- Portion of the capital stock that is not management, profits, and assets of a
issued or subscribed. corporation.
 Capital Classes of shares
- The entire property or assets of the 1. Par value shares
corporation. - One with specific money value fixed in
1. Legal capital the articles of incorporation and
- The amount equal to the aggregate par appearing in the certificate of stock for
value and/or issued value of the each share of stock of the same issue.
outstanding capital stock. 2. No par value shares
- One without any stated or par value
Capital VS Capital Stock appearing on the face of the certificate
Capital Capital stock of stock.
Actual corporate Merely an amount; Limitation:
property abstract
A. Cannot be issued by the following
Fluctuates or varies Fixed in the Articles of
corporations: (BPI-TB)
from day to day Incorporation and is
1. Bank
accordingly as there unaffected by profits
are profits or losses or and losses. 2. Public Utilities
changes in corporate 3. Insurance Company
assets’ values. 4. Trust Company
5. Building and Loan association
Belongs to the If issued, belongs to B. Preferred shares are not allowed
corporation; real or stockholders; always C. Cannot be issued for a consideration less
personal personal than five peso (P5)
D. Deemed fully paid and non-assessable
Capital VS Legal Capital E. Entire consideration received shall be
Capital Legal Capital treated as capital and not available for
Actual corporate Merely an amount dividend distribution.
property 3. Voting shares
Fluctuates or varies Changes only when - That there shall always be a class or
from day to day outstanding shares series of shares which have complete
accordingly as there are increase or decrease voting rights
profits or losses or in number or amount. - That no share may be deprived of voting
changes in corporate
rights except those classified and issued
assets’ values.
as “preferred” or “redeemable” shares.
Capital Stock VS Legal Capital 4. Non-voting share
Capital stock Legal Capital - Shares without right to vote
Merely an amount; Merely an amount Non-voting shares classified as such may still
abstract vote under the following circumstances:
a. Amendment of the articles of
incorporation;
b. Adoption and amendment of by-laws; fixed period, regardless of the existence
c. Sale, lease, exchange, mortgage, pledge of unrestricted retained earnings.
or other disposition of all or substantially c. Terms and conditions must be stated in
all of the corporate property; the articles of incorporation and
d. Incurring, creating or increasing bonded certificate of stock.
indebtedness; 12. Treasury stock (Section 9)
e. Increase or decrease capital stock; - Shares of stock which has been lawfully
f. Merger or consolidation; issued by the corporation and fully paid
g. Investment of corporate funds in for and later reacquired by it either by
another corporation or business except purchase, redemption, donation,
where the investment by the forfeiture or other lawful means.
corporations reasonably necessary to
accomplish its primary purpose as stated Title II
in the articles of incorporation. INCORPORATION AND ORGANIZATION OF
h. Dissolution of the corporation PRIVATE CORPORATIONS
5. Common stock Section 10
- Stock which entitles the holder thereof  Stages in the life of a corporation:
to pro rata division of the profits, if there 1. Creation
are any, without any preference or 2. Reorganization or quasi-reorganization
advantage in that respect over other 3. Dissolution and winding up
stockholders or class of stockholders.  Steps in creation:
6. Preferred stock 1. Promotional stage
- Stock which entitles the holder thereof 2. Process of incorporation
to certain preferences over the holders 3. Organization and commencement of
of common stock. business
7. Promotion stock  Process of incorporation:
- Share of stock as issued to promoters, or 1. Drafting the articles of incorporation
those in some way interested in the 2. Preparation and submission of additional
company, for incorporating the and supporting documents
company, or for services rendered in 3. Filing with the SEC
launching or promoting the welfare of 4. Subsequent issuance of certificate of
the company incorporation
8. Share in Escrow  Incorporators: number and qualifications
- Share subject to an agreement by virtue - Incorporators are stockholders or
of which the share is deposited by the members mentioned in the articles
grantor or his agent with a third person originally forming and composing the
to be kept by the depository until the corporation and who are signatories
performance of a certain condition or thereof.
the happening of a certain event Qualifications:
contained in the agreement. a) Natural persons
9. Convertible Stock b) Of legal age
- Stock which is changeable by the c) Must own or subscribe at least one share
stockholder from one class to another of stock of the corporation (Genuine
class interest)
10. Founder’s share (Section 7) d) 5 to 15 incorporators who must sign the
- Shares issued to the organizers and articles of incorporation (AOI)
promoters of a corporation in e) Majority of the incorporators must be
consideration for some supposed right residents of the Philippines
or property.
11. Redeemable share (Section 8) Section 11
- Redeemable at a fixed date or at the  Corporate Term
option of either the issuing corporation - Not more than 50 years from date of
or the stockholder or both at a certain incorporation subject to extension for
redemption price. periods not exceeding 50 years per
a. Must be expressly so provided in the extension unless:
articles of incorporation. a. Sooner dissolved, or
b. Purchased or taken up by the b. Extended
corporation upon the expiration of a Extensions:
o Not earlier than 5 years prior to expiry  Minimum paid-up capital is not less than P5,000.
 Unless earlier extension is for
justifiable reasons as determined by Section 14
SEC.  Nature and Function of Articles
o How to extend: amend the AOI during the life of - The Articles Of Incorporation is a basic
the corporation before the expiry of its term. contract document in Corporation Law that
Note: Any dissenting stockholder may exercise defines the charter of the corporation.
his appraisal right (Sec. 37). Section 14 of the Corporation Code provides
that the AOI do not become binding as the
Section 12 charter of the corporation unless they have
 Minimum capital stock required been filed with the SEC.
- Stock corporations incorporated under  Contents
this Code shall not be required to have I. Name of corporation;
any minimum authorized capital stock II. Purpose/s, indicating the primary and
except as otherwise specifically provided secondary purposes;
for by special law, and subject to the III. Place of principal office;
provisions of the following section. IV. Term which shall not be more than 50 years;
 Filipino Percentage ownership requirement V. Names, citizenship and residences of
regarding corporate capital incorporators;
1. Corporations for exploration, VI. Number, names, citizenships and residences
development and utilization of natural of directors;
resources – at least 60% of the capital by VII. If stock corporation, amount of authorized
citizens of the Philippines capital stock, number of shares;
2. Public service corporations – at least 60% VIII. In par value stock corporations, the par value
of the capital by citizens of the of each share;
Philippines IX. Number of shares and amounts of
3. Educational corporations – at least 60% subscription of subscribers which shall not
of the capital by citizens of the be less than 25% of authorized capital stock;
Philippines X. Amount paid by each subscriber on their
4. Banking corporations – at least 60% of subscription, which shall not be less than
the voting stocks by citizens of the 25% of subscribed capital and shall not be
Philippines less than P5,000.00;
5. Corporations engaged in retail trade – XI. Name of treasurer elected by subscribers;
exclusively for Filipino citizens and and
corporations wholly-owned by Filipino XII. If the corporation engages in a nationalized
citizens industry, a statement that no transfer of
6. Rural banks – at least 40% of voting stock will be allowed if it will reduce the
stocks or at least 60% of capital stock ownership of Filipinos to a percentage
7. Corporations engaged in coastwise below the required legal minimum.
shipping – at least 60% of capital
8. Corporations engaged in the pawnshop Section 15
business – at least 70% of voting stocks  Forms of Articles of Incorporation
9. Under the Flag Law – at least 75% of the - Unless otherwise prescribed by special law,
capital articles of incorporation of all domestic
corporations shall comply substantially with
Section 13 the form.
 At the time of incorporation:
Articles of incorporation – document prepared by
o At least 25% of authorized capital stock as
the persons establishing a corporation and filed with
stated in the AOI must be subscribed
SEC containing the matters required by the Code.
o At least 25% of the total subscription must
(corporate charter)
be paid upon subscription, the balance to be
payable on a date or dates fixed in the  Name of corporation
contract of subscription without need of call, 1) Importance – identifies and distinguishes it
or in the absence of a fixed date or dates, from other corporations.
upon call for payment by the BOD. 2) Nature – right to use its corporate and trade
- Call – term used when the Board formally name is a property right, a right in rem.
asks for payment of the balance of the 3) Part of name – “corporation” or “Incorporated”
subscription or a part thereof. or an abbreviation
 Purpose 2) If governed by special laws, amendment shall
1) Must be lawful not be accepted by SEC unless accompanied by
2) Must not be indefinitely stated a favorable recommendation of appropriate
3) Must be stated government agency that such amendment is in
4) Must be capable of being lawfully combined accordance to law
 Reasons for statement of purpose 3) Unless accompanied by sworn statement of the
1) Investors must know where and what kind of treasurer elected
business or activity his money will be invested. Suspension or revocation of the certificate of
2) Know within what scope of business they are registration of corporations
authorized to act 1) Fraud in procuring its certificate of
3) Third person may know whether the incorporation
transaction or dealing he has is within authority 2) Serious misrepresentation as to what the
of the corporation or not. corporation can do or is doing to the great
4) If actions or transactions are authorized or prejudice of, or damage to, the general public;
beyond its powers 3) Refusal to comply with
4) Continuous inoperation for a period of at least
Section 16 five (5) years
Amendment of Articles of Incorporation 5) Failure to file by-laws within required time
 Non-amendable Items period
i. Names of incorporators 6) Failure to file required reports in appropriate
ii. Names of incorporating forms
directors/trustees
iii. Names of original subscribers to capital Section 18
stock and subscribed and paid- up capital Corporate name
iv. Treasurer-in-trust elected by original  A corporation cannot use a name which is:
subscribers o identical or deceptively or confusingly
v. Members who contributed to the initial similar to that of any existing corporation or
capital of non-stock corporation to any other name protected by law; or
vi. Place and date of execution o patently deceptive, confusing or contrary to
vii. Witnesses and acknowledgments (De law.
Leon, 2010)  Change of Corporate Name
 Limitations on power of corporation to amend - Requires amendment of the Articles Of
1) Not allowed when it will be contrary to any Incorporation: majority vote of the board
provision or requirement prescribed by and the vote or written assent of
the code or by special law stockholders holding 2/3 of the outstanding
2) Must be for legitimate purposes capital stock (Sec 16).
3) Must be approved by required vote of BOD
and stockholders Section 19
4) Shall contain all provisions required by law Commencement of corporate existence
to be set out in the articles of - upon issuance of certificate of incorporation
incorporation under SEC’s official seal.
5) Shall be indicated by underscoring the Acquisition of juridical personality
change/s made; copy of duly certified oath 1) Issuance of certificate of incorporation – under
by corporate secretary and a majority of its official seal.
BOD or trustees stating that the - Final determination of the corporation’s
amendment has been duly approved by right to do business
required vote shall be submitted to SEC - Certificate becomes charter or corporate
6) Shall take effect only upon their approval franchise
by SEC (6 months from said date) - Issuance calls the corporation into being but
7) If governed by special law, amendments is not ready to do business until organized.
must be accompanied by a favorable 2) Filing of articles of incorporation –
recommendation of appropriate 3) Registration cooperative – requires juridical
government agency. personality upon registration with the
Cooperatives Development Authority and SEC
Section 17
Grounds for rejection of articles of incorporation or Section 20
amendment thereto De jure corporation
1) Non-compliance with the requirements - created in strict or substantial conformity with
the mandatory statutory requirements for
incorporation and whose right to exist as a - Organization – the election of officers, providing
corporation cannot be successfully questioned for the subscription and payment of capital stock,
by any party even in a direct proceeding for the adoption of by-laws, and such other steps as
that purpose by the State. are necessary to endow the legal entity with the
De facto corporation capacity to transact the legitimate business for
- actually exists for all practical purposes as a which it was created.
corporation but which has no legal right to - Failure of the corporation to organize within the
corporate existence as against the State. prescribed period (2 years) would result in its
Requisites of a de facto corporation automatic dissolution, unless its failure to do so is
1) Valid law under which a corporation with due to causes beyond its control.
powers assumed might be incorporated - Substantial compliance is sufficient.
2) A bona fide attempt to organize a corporation - Subsequent inoperation (5 years) is merely a
under such law ground for suspension or revocation of corporate
3) Actual user or exercise in good faith of franchise. Dissolution is not automatic.
corporate powers conferred upon it by law.
Rules on collateral and direct attack against Title III
corporate existence: BOARD OF DIRECTORS/
1. The corporate existence of a de jure TRUSTEES/ OFFICERS
corporation cannot be directly attacked either Section 23
directly or collaterally, even by the State. Corporate powers exercised by BOD or trustees
2. The corporate existence of a de facto 1) Governing body of the corporation
corporation can be directly attacked on a quo 2) Binding effect of stockholders’ action –
warranto proceeding. directors have sole authority to determine
3. The corporate existence of a de facto policy and conduct the ordinary business of the
corporation is not subject to collateral attack corporation
by any party. 3) Extent of juridical review
 The authority of the board of directors does not
Section 21 extend to the fundamental changes in the corporate
Corporation by Estoppel charter.
 All persons who assume to act as a corporation  The board may delegate the exercise of
knowing it to be without authority to do so shall corporate powers.
be liable as general partners for all debts,  A corporation is bound by the acts of its
liabilities and damages incurred or arising as a corporate officers if they act within the scope of
result thereof. the 5 classifications of powers of corporate
 Where a group of persons misrepresent agents:
themselves as a corporation (ostensible
1. Those expressly conferred or those granted by
corporation), they are subsequently estopped
the articles of incorporation, the corporate by-
from claiming lack of corporate life in order to
laws or by the official act of the board of
avoid liability.
directors.
 A third party who assumes an obligation to an
ostensible corporation cannot resist 2. Those that are incidental or those acts as are
performance by alleging the ostensible naturally and ordinarily done which are
corporation’s lack of personality. reasonable and necessary to carry out the
corporate purpose or purposes.
De facto By estoppel 3. Those that are inherent or acts that go with
Existence in Yes None the office.
Law
Dealings Not required Required 4. Those that are apparent or those acts which
among parties although not actually granted, the principal
on a corporate knowingly allows or permits it to be done.
basis 5. Powers arising out of customs, usage or
Effect of lack Could be a Not a emergency.
of requisites corporation corporation Limitations on powers of BOD
by estoppel in any shape 1) It must be observed that limitations or
or restrictions imposed by the Constitution,
statutes, rules and regulations having the force
Section 22 of law on the corporation including its articles
of incorporation and by-laws
2) Cannot perform constituent acts, that is, acts 6) Failure to hold election, meeting may be
involving fundamental or major changes in the adjourned from day to day from time to but
corporation cannot be adjourned sine die or indefinitely
3) Cannot exercise powers not possessed by the 7) Requisite notice must be given
corporation
BOD or trustees must not be less than 5 nor Methods
more than 15, except provided by special law 1) Straight voting – every stockholder may vote
Tenure, Qualifications and Disqualifications of such number of shares for as many persons as
Directors or Trustees there are directors
 Tenure: Under section 23, the board of directors 2) Cumulative voting for one candidate – a
and trustees shall hold office for one (1) year and stockholder is allowed to concentrate his votes
until their successors are elected and qualified. 3) Cumulative voting by distribution – may
As a general rule, the directors or trustees of a cumulate his shares and distribute
corporation shall serve for a term as fixed in the
by-laws. Section 25
 Hold-over: Upon failure of a quorum at any Officers to be elected
meeting of the stockholders or members called
for an election, the directorate naturally holds 1. President, who shall be a director
over and continues to function until another 2. Treasurer, who may or may not be a director
directorate is chosen and qualified.
3. Secretary, who shall be a resident and citizen of
 Qualifications:
the Philippines
Stock Corporations:
a. Own at least one (1) share; 4. Such other officers as may be provided for in the
b. Share of stock must be registered in his name; by-laws.
c. Must continually own such share during his - Any two (2) or more positions may be held
term; otherwise he automatically ceases to be a concurrently by the same person, except that no
director; one shall act as president and secretary or as
d. Majority must be residents of the Philippines; president and treasurer at the same time.
Non-stock Corporation: - The directors or officers shall hold office for one
a. He must be a member in good standing (1) year until their successors are elected and
thereof; qualified.
b. a majority of them must be residents of the 1) President – only officer required by law to be
Philippines; a member of the BOD
2) Vice-President – to act in the absence of, or in
- Only a natural person may be elected as case of vacancy in the office of the president.
directors or trustees. However, a corporation 3) Secretary – must be resident and citizen.
which owns shares of stocks or is a member in Need not be a director unless required by the
another corporation can designate by board by-laws
resolution its officer or representative to sit in 4) Treasurer – proper officer entrusted with the
the latter’s board and thus qualifying him to be authority to receive and keep the money of
elected as director or trustee. (De Leon, 2010) the corporation and to disburse them as he
- A trustee in a voting trust may be elected as may be authorized.
director/trustee. (Villanueva, 2009) 5) General manager – has the power to bind
the corporation by acts within the scope of his
Section 24 apparent authority.
Election Validity and binding effect of actions of corporate
1) There must be present in person or by officers
representative authorized to act by written - General rule: the quorum requirement for a
proxy, a majority of the members entitled to valid board meeting is the majority of the
vote number of the directors or trustees as fixed in
2) Must be by ballot if requested. Hence, viva the articles of incorporation.
voces or roll call is valid - Exception: The articles of incorporation or the
3) A stockholder may be deprived of his statutory by-laws may provide for a greater majority.
right to use any methods of voting - General rule: To have a valid corporate act, the
4) No delinquent stock shall be voted decision of at least a majority of the directors or
5) If quorum is present, candidates receiving the trustees present at a meeting at which there is a
highest number of votes shall be elected. quorum is required.
- Exception: The election of corporate officers a. By a vote of the stockholders representing 2/3
requires the vote of a majority of all the of the outstanding capital stock, or 2/3 vote of
members. the members.
- General rule: Individual directors cannot bind b. At a regular meeting of the corporation or at a
the corporation by their individual acts. special meeting called for such purpose,
- Exceptions: c. Previous notice to stockholders or members
1. By delegation of authority; d. May be without just cause, except when it
2. Where expressly conferred; or operates to deprive minority stockholders or
3. Where the officer or agent is clothed with members the right of representation (requires
actual or apparent authority. just cause).
- The board of directors has no power to remove
Requisites for board meeting one of its members as director or trustee.
1) Duly assembled as a board, as a body in a lawful Requisites for removal of BOD
meeting - General rule: Directors or trustees may be
2) Presence of a quorum removed with or without just cause.
3) A majority of the entire board - Exception: Removal without just cause may not
4) Meeting at the place, time and in the manner be used to deprive minority stockholders or
provided in the by-laws members of the right of representation to which
Quorum – such number of the membership of a they may be entitled under Sec. 24.
collective body as is competent to transact its 1) The removal must take place either at a regular
business or do any other corporate act. meeting of the corporation or at a special
- Directors or trustees cannot validly act by proxy meeting called for the purpose
because they are required to exercise his 2) There must be previous notice to the
personal judgment and cannot delegate his stockholders or members of the corporation of
duties or assign powers to another. the intention to propose such removal at the
meeting
Section 26 3) The removal must be by a vote of the
 Report of election of directors, trustees and stockholders holding or representing (2/3) of the
officers. outstanding capital stock
- Within thirty (30) days after the election of the
directors, trustees and officers of the Section 29
corporation, the secretary, or any other officer Generally, if still constituting a quorum, at least a
of the corporation, shall submit to the Securities majority of the members are empowered to fill any
and Exchange Commission, the names, vacancy occurring in the board other than by
nationalities and residences of the directors, removal by the stockholders or members or by
trustees, and officers elected. Should a director, expiration of term.
trustee or officer die, resign or in any manner  Stockholders or members may fill the vacancy in
cease to hold office, his heirs in case of his death, the following cases:
the secretary, or any other officer of the a. Vacancy results from removal by the
corporation, or the director, trustee or officer stockholders or members, or the expiration
himself, shall immediately report such fact to of term;
the Securities and Exchange Commission. b. Vacancy occurs other than by removal or
expiration of term, such as death,
Section 27 resignation, abandonment, or
 Disqualifications of directors, trustees, or disqualification; provided that the
officers: remaining directors do not constitute a
- No stockholder or member can be elected as quorum;
director or trustee if he has been convicted by c. When the board refers the matter to the
final judgment of an offense carrying an stockholders;
imprisonment exceeding 6 years, or an offense d. Increase in the number of the board;
constituting a violation of the Code, 5 years prior
to his election or appointment. - A director or trustee so elected to fill a vacancy
shall only be for the unexpired term of his
Section 28 predecessor in office.
 Any director or trustee of a corporation may be
removed from office: Section 30
COMPENSATION OF DIRECTORS
General rule: Directors shall not receive any
compensation, as such directors, except for
reasonable per diems.
Exceptions:
1. When there is a provision in the by-laws
fixing their compensation;
2. When the stockholders, by a majority vote
the outstanding capital stock grant the same;
and
3. If the director renders extra-ordinary or
unusual service.
- In no case shall the total yearly compensation of
directors, as such directors, exceed 10% of the
net income before income tax of the
corporation during the preceding year.
- If there is wastage of corporate assets, the
courts may be justified to look into the
reasonableness and fairness of the
compensation despite the fact that the grant
thereof is authorized pursuant to the by-laws
and by the vote of the majority of the holders
of the outstanding capital stock of the
corporation.