BATAS PAMBANSA BLG.

68
THE CORPORATION CODE OF THE PHILIPPINES
TITLE I - GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATIONS
Section 1. Title of the Code. - This Code shall be known as "The Corporation Code of
the Philippines." (n)

Section 2. Corporation defined. - A corporation is an artificial being created by

operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence. (2)

Section 3. Classes of corporations. - Corporations formed or organized under this

Code may be stock or non-stock corporations. Corporations which have capital stock
divided into shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the shares held are stock
corporations. All other corporations are non-stock corporations. (3a)

Section 4. Corporations created by special laws or charters. - Corporations created by

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

Section 5. Corporators and incorporators, stockholders and members. - Corporators

are those who compose a corporation, whether as stockholders or as members.
Incorporators are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof. Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called members. (4a)

Section 6. Classification of shares. - The shares of stock of stock corporations may be

divided into classes or series of shares, or both, any of which classes or series of
shares may have such rights, privileges or restrictions as may be stated in the articles
of incorporation: Provided, That no share may be deprived of voting rights except
those classified and issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, further, That there shall always be a class or series
of shares which have complete voting rights. Any or all of the shares or series of
shares may have a par value or have no par value as may be provided for in the
articles of incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations shall not be permitted
to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the
distribution of dividends, or such other preferences as may be stated in the articles of
incorporation which are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The board of
directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a certificate thereof with the
Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided; That shares without par value may not be
issued for a consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the corporation for its
no-par value shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the
certificate of stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled to vote
on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to
approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights. (5a)

Power to classify shares

1. Shares of stock corporations may be divided into:

a. Classes
b. Series of shares
c. Or both
*May have rights, privileges, or restrictions as stated in he articles of
incorporation.
2. Corporation has unrestricted freedom
3. Primary classification of shares
4. There must be at least one class of stock.
a. There must be at least one stock with voting rights

Classification to comply with constitutional or legal requirements

Shares presumed to be equal in all respects

Capital stock and capital explained

Capital stock and capital explained

Capital stock and legal capital distinguished

Stock or share of stock defined

Capital stock and share of stock distinguished

Nature of share of stock

Certificate of Stock define

Share of stock and certificate of stock distinguished

Situs of shares of stock for certain purposes

Classes of shares in general

 A corporation may issue such classes or series of shares as the prospects and need
of its business require and for purpose of insuring compliance with the
constitutional or legal requirements

Shares of stock may be:

1. Par Value  One with a specific money value fixed in the articles of
incorporation and certificate of stock
 Primary purpose: fix the minimum subscription or issue
price of shares (assuring creditors that corp. would
receive minimum amount for its stock.)
 Corp. may issue shares with different Par Values
 Watered stock – issued less than the par value
 Remains the same regardless of market value or book
value of the stock.
 Exception: stock split
2. No Par Value  One without any stated value appearing on the face of the
certificate of stock.
 A stock which does not state how much it
represents.
 No par value but always has issued value. (Ex.
Consideration fixed by the corp.)
 Does not purport to represent any stated proportionate
interest in the capital stock measured by value. (only an
aliquot part)
 Corp. may issue no par value only or with par value
shares. They have same rights as holders of par value
stock.
 Expressed to be divided into a stated number of shares.
 By removing the par value of the shares, the attention of
parties interested in the financial condition of the corp. is
focused upon the value of the assets and the amount of
its debts.
3. Voting  Share with a right to vote
 Common stock
 1. Each common share is equal to every other common
share
 Corps are prohibited from issuing multiple voting
and nonvoting commonshares or limit the
maximum number of votes per stock holder
2. Only preferred and redeemable are deprived of voting
rights
3. STOCK WITH VOTING RIGHTS
 Exception when nonvoting shares may also vote
 ONE SHARE ONE VOTE – representation in a
corporation is commensurate to extent of ownership
4. Non-voting  Share without right to vote
1. If stock is originally issued as voting stock, may not be
deprived of the right to vote without consent of the
holder
2. Preferred and redeemable unless provided in the code
 Nonvoting stock shall never be entitled to vote
3. There must always be a class or series of shares with
complete voting rights
4. Only preferred or redeemable shares may be denied
right to vote
5. If AOI changes or restricts the rights of any stockholder –
he may have right to dissent and demand payment of fair
market value of his shares
5. Common  Entitles the holder of a pro rata division of profits and
assets upon dissolution without any preference or
advantage in that respect over other stock holders or
class of stockholders but equally with other stockholders
except preferred stockholders
6. Preferred  One with stated par value which entitles the holder
certain previleges over the holders of common stock
 May be issued only with par value
 More than one class of preferred – designated “first
preferred” “second preferred”
 Designed to induce persons to subscribe for shares of a
corp.
 Preferences:
 payment of dividends,
 distribution of assets in case of dissolution
 others not violative of provisions of this code
 Exception: unless otherwise provided
 Also called guaranteed stock – payment of dividend is
guaranteed. Entitled to arrears in dividends
 Interest bearing stock – corporation agrees to pay
interest before dividends are paid to common stock
holders – legal only when construed as requiring
payment of interest as dividends from net earning plus
surplus only
 Kinds: Preferred shares as to assets, preferred shares as

7. Promotion
8. Share in escrow
9. Convertible Shares
10. Founders’ Share Sec 7.
11. Redeemable Share Sec 8
12. Treasury Share Sec 9
Nature of par value/book value/market value
PAR
 Represents the
amount of money or
property contributed
to dividends (cumulative, noncumulative, participating,
nonparticipating, cumulative participating
 Shares issued to promoters or those in some way
interested in the company, incorporating the company,
or services rendered in launching or promoting the
welfare of the company
 Shares issued to those who may originally own the
mining or valuable rights connected therewith in
consideration of their deeding the same to the mining
company when the company is incorporated.
 Subject to an agreement by virtue of which the share is
deposited by the grantor or his agent or third person to
be kept by the depository until the performance of a
certain condition usually the payment of the full
subscription price or the happening or a certain event
contained in the agreement
 Depositary – trustee under an express trust
 Legal title retains with the grantor until condition is
fulfilled
 Issuance is subject to suspensive condition
 Grantee is not yet the owner of the shares and
consiequently he is not entitled to the rights of an
individual stock holder
 Convertible ot changeable by stockholder from one class
to anotherex. Preferred to common at a certain price
within a certain period
 Exception: as restricted by the AOI
 Not automatic
 Amendment of the AOI is required
 Convertibility of shares
 Preferred to common – preferred shares cannot
be converted in the absence of any express provision in
the articles
 No par value to par value – allowed provided
there would be no change in the stockholders’
percentage interest in the total assests of the
corporation.
 Average issue value
BOOK MARKET
 Par value does not  Par or book may be
always refeclt its less than market
book value or its value
 by the shareholder to actual or true value  Price at which a
the capital stock of which may be willing seller would
the corp. determined by the sell and a willing
 Assets cannot always total stockholders buyer would buy
be equal to par value equity or the net assuming both have
value of the total reasonable
corporate assets by knowledge of the
the number if shares facts and neither
issued or under abnormal
outstanding. pressure.
 Included in
computation –
unpaid subscription

Presumption as to value of corporate stock

Corp stock – at par when it is worth its face value

Above par or at premium – when worth more than face value
In absence of supporting evidence, corporate stock is worth its par or face value.

Statutory restrictions regarding the issuance of no par value stock

1. Banks, trust companies, insurance companies, building, and loan associations – not
permitted to issue no par value shares of stock
2. Preferred shares of stock – issued only with stated par value
3. Shares without par value are deemed fully paid and non assessable and the holder
shall not be liable to the corporation or its creditors in respect thereto. (Holder shall
not be liable beyond the issued price not withstanding their change in value
4. May not be issued for a consideration less that the value of 5 pesos per share
5. Entire consideration received by a corporation of its no par value shares shall be
treated as capital and shall not be available for distribution as dividends.

Consideration of no par value shares

 Aid the investor to understand the factors that determine the stock value
 Make it easier for corporation to sell stock under circumstances which may militate
against the interest of the investor
 Has no par value but has an issued value based on the consideration for which it is
issued.
 No par value share may not be issued for less than 5.00 pesos per share

Advantages and disadvantages of Par Value Shares

Advantages of par value shares Disadvantages of par value shares

1. Easily sold as public is more 1. subscribers are liable to corporate

attracted to this. creditors.
2. Greater protection to creditors 2. Stated face value of the share is not
3. Unlikelihood of sale of subsequently accurate criterion of its true value.
 used shares at lower price
4. Unlikelihood of distribution of
dividends that are only ostensible
profits

Advantages and disadvantages of No Par Value Shares

Advantages of No Par Value Shares Disadvantages of No Par Value Shares

1. Issued as fully paid and non 1. legalize large issues of stock for
assessable property
2. Price is flexible 2. conceal the value of the property
3. Lowpriced stocks and enjoy wider represented by the shares
distribution 3. promote issuance of watered stock
4. Tell no truth concerning the value of 4. lesser protection to creditors
stock holder’s constribution
5. Stock dividends are more easily
issued simplifying accounting
procedure

Kinds of preferred shares

1. Preferred shares as to assets – share which gives the holder preference in the
distribution of the assets of the corporation in case of liqudation
a. Standing alone – creates preference only as to the dividends.
2. Preferred shares as to dividends – entitled to receive dividends on the said share to
the extent agreed upon before any dividends at all are paid to the holders of
common stock.
a. No guarantee that it will receive any dividends – corp. is not bound unless
authorized by board of directors declare them.
i. Holders of commonstock may receive dividends only after the
satisfaction of the prior claims on dividends of preferred stock
holders

Preference among preferred shares

 Corporations may issue more than one class of preferred stock as to assets or as to
dividends
 Unless classification is provided, preferred stocks enjoy the same privileges or
preferences.
Preferred stockholders – not creditors of the corporation
 Preferred shares are part of corporation’s stock
1. lien
2. issued with a fixed interest
3. stock issued with dividends payable in the nature of interests
4. stock issued with dividends payable guaranteed
5. stock issued to creditors

Limitations regarding issuance of preferred shares

1. Preferred shares are deprived of voting rights in the AOI but entitled to Sec 6 par 6.
 2. Their preferences must not be violative of the code
3. May be issued only with stated par value
4. BOD may fix terms and conditions only when authorized in the AOI

Authority of BOD to fix terms and conditions of preferred shares

 Sec 6 par 2 – empowers BOD
1. Benefits
o to tailor its securities to meet the changes in market conditions which
cannot be foreseen at the time of the incorporation or later amendment of
the articles of incorporation
2. Concurrence of stockholders not required
o Otherwise, it would defeat the purpose for which the authority was granted
which is to allow the corporation to respond
3. Blanket authority not contemplated
o Privileges, preferences, restricitons, or rights of preferred shares must be
stated. If not stated it is such a dangerous power
o SEC does not allow a provision giving BOD a blanket authority to fix the
terms of preferred shares unless such guidleines are followed in the
determination thereof.

Kinds of preferred shares as to dividends

Cumulative – one which entitles he owner thereof to payment not only of current dividends
but also back dividends not previously paid whether or not during the
past years dividends were declared or paid.

Non-cumulative – one which grants the holders of such shares only to the payment of
current dividends but not back dividends when and if dividends are paid to the extent
agreed upon before any other stockholders are paid the same.

Participating - one which entitles the shareholder to participate with the common shares in
excess distribution at some predetermined or at a fixed ratio as may be determined.

Non-participating – one which entitles the shareholder thereof to receive the stipulated
preferred dividends and no more.

Cumulative participating – share which is a combination of the cumulative share and

participating share.

Section 7. Founders' shares. - Founders' shares classified as such in the articles of

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

Founders’ share
  Issued to ORGANIZERS OR PROOMOTERS in consideration of supposed right or
property
 Usually share in profits only after a certain percentage has been paid upon a
common stock
 Often given special privileges over the stock (voting and division of profits in excess
of minimum dividend on the common stock.
 Special rights and privileges no enjoyed by owners of other stocks including
common stocks
o Preference in payment of dividends
o Distribution of assets
o Right to convert shares into other shares
o Right to cumulative dividends
Purpose: to encourage them to make large investments
 Exclusive right to vote and be voted
o In the election of directors
o Limitation:/Exception: Limited period not exceeding 5 years subject to the
approval of SEC Commencing from date of approval of SEC
 To protect the interest of the other stockholders against possible
abuse
 Not extendible
 SEC may approve or reject
 Another exception to Sec par. 1.
 Refers only to the election of directors
 After expiration of limited period, founders shall have equal rights
with holders of common share.
 Preferred shares are not affected by Sec 7.

Section 8. Redeemable shares. - Redeemable shares may be issued by the corporation

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

Redeemable shares
 Usually preferred which by their terms are redeemable
 at a fixed date or at the option of the issuing corp or stockholder or both
 at a certain redemption price
1. Meaning of Redemption
a. repurchase, reacquisition of stock by a corporation which issued a stock in
exchange for cash or property whether or not acquire stock is cancelled,
retired, or held in treasury.
b. Corp. gets back some of its stock distributes cash or property to the
shareholder and continues business as before.
c. Veil for constructive distribution of cash dividends
2. When redeemable shares may be issued
a. Upon the expiration of term of a fixed period
 b. Upon such terms expressly provided in its articles of incorporation and
certificates of stock
i. May be issued only when expressly provided in the AOI
ii. Common shares – never redeemed
3. Redemption regardless of existence of unrestricted retained earnings

Section 9. Treasury shares. - Treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful means. Such shares
may again be disposed of for a reasonable price fixed by the board of directors. (n)

Treasury Shares
 Shares lawfully issued by the corporation and fully paod for and later reacquired by
it either by purchase, redemption, donation, forfeiture, or other lawful means
1. Status
2. When Acquisition from stockholders
3. Dividend restriction from retained earning
4. Declaration as property dividends
5. Voting Rights

TITLE II - INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS

Section 10. Number and qualifications of incorporators. - Any number of natural
persons not less than five (5) but not more than fifteen (15), all of legal age and a
majority of whom are residents of the Philippines, may form a private corporation for
any lawful purpose or purposes. Each of the incorporators of s stock corporation
must own or be a subscriber to at least one (1) share of the capital stock of the
corporation. (6a)

Incorporation of a Private Corporation, a mere privilege

 Generated by mere agreements of the group of persons – likened to contracts
individuals enter into.
 Legislative authority must be obtained to put a stamp on state intervention. In the
creation of corporations such power being one of the attributes of sovereignty.
 The right to be and act as a corporation is not a personal and civil right. It is a
SPECIAL PRIVILEGE conferred upon a group of persons by a sovereign state.
 Matter of right and it cannot be restrained.
 Can be dissolved anytime by legislative enactment subject to certain limitations.

Advantages of the corporate form

1. Any number of persons may unite in a single enterprise without using their own
names – without difficulty or inconvenience, with valuable right to contract, to sue
and be sued, hold or convey property in the corporate name, and to act as a legal
unit.
2. Individual stockholder may invest in the corporate enterprise as much or little as he
sees fit without risking liability
3. Rights and obligations of a corporation are not affected by the death or change of
individual members. Corporate entity continues.
4. Makes great undertakings feasible – enables individuals to cooperate
Corporations and associations distinguished

Concept of franchise
 Special privilege or right affected with public interest conferred by the state n
corporations or persons
Primary Franchise and Secondary Franchise defined and distinguished

Transferability of franchise

Steps in the creation of the corporation

Section 11. Corporate term. - A corporation shall exist for a period not exceeding fifty
(50) years from the date of incorporation unless sooner dissolved or unless said
period is extended. The corporate term as originally stated in the articles of
incorporation may be extended for periods not exceeding fifty (50) years in any
single instance by an amendment of the articles of incorporation, in accordance with
this Code; Provided, That no extension can be made earlier than five (5) years prior
to the original or subsequent expiry date(s) unless there are justifiable reasons for
an earlier extension as may be determined by the Securities and Exchange
Commission. (6)

Terms of corporate existence

Extension of corporate term.

Section 12. Minimum capital stock required of stock corporations. - Stock
corporations incorporated under this Code shall not be required to have any
minimum authorized capital stock except as otherwise specifically provided for by
special law, and subject to the provisions of the following section.

Section 13. Amount of capital stock to be subscribed and paid for the purposes of
incorporation. - At least twenty-five percent (25%) of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) percent of the total subscription must
be paid upon subscription, the balance to be payable on a date or dates fixed in the
contract of subscription without need of call, or in the absence of a fixed date or
dates, upon call for payment by the board of directors: Provided, however, That in no
case shall the paid-up capital be less than five Thousand (P5,000.00) pesos. (n)

Section 14. Contents of the articles of incorporation. - All corporations organized

under this code shall file with the Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed and acknowledged by all of
the incorporators, containing substantially the following matters, except as
otherwise prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being incorporated.
Where a corporation has more than one stated purpose, the articles of incorporation
shall state which is the primary purpose and which is/are the secondary purpose or
purposes: Provided, That a non-stock corporation may not include a purpose which
would change or contradict its nature as such;
3. The place where the principal office of the corporation is to be located, which must
be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more
than fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful
money of the Philippines, the number of shares into which it is divided, and in case
the share are par value shares, the par value of each, the names, nationalities and
residences of the original subscribers, and the amount subscribed and paid by each
on his subscription, and if some or all of the shares are without par value, such fact
must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities
and residences of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators
may deem necessary and convenient.