DISCLAIMER: The contents were based on the matters which were given emphasis during the online discussions of

Atty. Villanueva-Castro. You may find empty spaces here – these were not touched extensively or were just a matter
of reading the codal provisions. Empty spaces may be used for adding personal notes. For extensive discussions, it
is further advised to refer to books and cases. Thank you.

CHANGES SALIENT CHANGES UNDER THE RCC:

INTRODUCED
BY THE ISSUANCE OF NO-PAR VALUE SHARES (Sec. 6)
REVISED Prohibition applies to:
CORPORATIO 1. banks
N CODE 2. trust
3. insurance
4. pre-need companies
5. public utilities
6. building and loan association
7. corporations authorized to obtain access funds from the public (listed or not)
- Pre-need companies and corporations authorized to obtain access funds from the
public are now included in the enumeration

FOUNDERS’ SHARES (Sec. 7)

- Old Law (O): Founders’ shares may be (and are, in practice, usually) granted exclusive
voting rights (right to vote and be voted for)
- RCC (R): Such exclusive rights are now subject to Anti-Dummy Law, FIA, and other
pertinent laws

INCORPORATORS (Sec. 10)

- O: Only natural persons are qualified to incorporate; minimum of 5 incorporators
(except for corporations sole)
- R: Persons, partnerships, associations, corporations (singly or jointly with others)
- Singly - One Person Corporation (OPC)
- Not more than 15 incorporators

CORPORATE TERM (Sec. 11)

- O: Only up to 50 years
- R: Perpetual existence, unless Articles of Incorporation (AOI) provides otherwise
- Existing corporations also perpetual existence without necessity of amending their
AOI, unless majority of the Outstanding Capital Stock (OCS) notifies the SEC that it
elects to retain the term provided in their AOI
- Presumption: Perpetual existence

TERM EXTENSION (Sec. 11)

- O: Amendment of AOI as to extension: Must be done within 5 years prior to the date of
expiration of the term sought to be extended
- R: Within 3 years prior to expiration of term (Sec 11)
- If term expired, and there was failure to extend term of existence, the remedy is to
apply for REVIVAL with the SEC
- Revived Term: Enjoys presumption of perpetual existence, unless the application
for revival specifies a term
- As to when the application for revival should be filed: RCC is silent, but according
to Atty. Z, the logical interpretation is that it should be made within 3 years from
the time the term sought to be extended expires considering that within that 3-year
period, the corporation still has residual corporate existence (note that as of
writing, the SEC still has no guidelines on the matter)

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 CAPITAL REQUIREMENT (Sec. 12)
- O: 25% subscribed shares of Authorized Capital Stock - 25% paid up of subscribed
shares is required (25%-25% requirement).
- R: Stock corporations shall not be required to have minimum capital stock, except as
provided for by special laws.
- 25%-25% requirement under the old law was deleted

CONTENTS OF AOI (Sec. 13)

- O: Number of board members cannot exceed 15; Only 5-15 members are allowed
- R:
- For Non-Stock (NS) Corporations: Can now exceed 15 trustees
- NS Religious Society: Only up to 15
- For Stock (S) Corporations: Only up to 15 members
- Inclusion of a provision on arbitration as a means of resolving intra-corporate
disputes is ENCOURAGED (but not required)
- Filing of AOI via electronic means is now allowed

CORPORATE NAME (Sec. 17)

- SEC may now order the immediate cessation of the usage of the name if it is:
(1) not distinguishable from a reserved name;
(2) not distinguishable from one protected by law; or
(3) is contrary to law, rules, etc.

- SEC can also order the removal of signages, marks, advertisements, etc; else,
contempt/civil/criminal/administrative liability against the director or officers of
the corporation
- Unauthorized Use of Corporation Name (Sec. 159): Penalty: Fine of 10k-200k

NON-USE OF CORPORATE CHARTER OR INOPERATION (Sec. 21)

- O: Corporation is deemed inoperative if it fails to organize or commence business
within a period of 2 years
- R: Period is now 5 years before corporation is deemed inoperative; else, COI deemed
revoked
- What if business commenced operation but the corporation became inoperative for
at least 5 years? → It becomes a DELINQUENT corporation
- Delinquent corporation has 2 years to resume operations, and comply with
requirements (such as reportorial requirements, submission of financial statements,
etc.); else, COI is deemed revoked

TERM OF OFFICE (BOARD) (Sec. 22)

- O: 1 year for BOTH directors and trustees
- R: Trustees are now elected for a term NOT EXCEEDING 3 YEARS, whereas directors
are STILL elected for a term of 1 YEAR
- No clear rule as to EXISTING NS corporations with different term of office of
trustees in the by-laws (BL)
- According to Atty. Z, however, it may be argued that considering that the RCC is
prospective in nature, these NS corporations may still use the terms of office
specified in their BL.

INDEPENDENT DIRECTOR/S (Sec. 22)

- Board to have independent directors (20% of the Board)
1. Public companies (SRC [RA 8799], Sec. 17.2)
a. securities listed with an exchange; OR
- In PH, the stock exchange is the Philippine Stock Exchange (PSE).

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 b. 50M assets and with 200 or more shareholders, each holding at least 100
shares.
2. Banks, quasi-banks, NSSLAs, pawnshops, those engaged in money service business,
preneed, trust and insurance and other financial intermediaries
- NSSLAs: Being operated like a cooperative but with banking/quasi-banking
functions which are available only to a well-defined group, and usually is
composed of the employees.
3. Companies vested with public interest (SEC to determine)
- E.g. Public utilities, distribution, water, telecommunications
- Do not equate independent director with minority director, here we can expect
impartiality and lack of bias.

- Independent Director: An independent director is a person who, apart from

shareholdings and fees received from the corporation, is independent of management
and free from any business or other relationship which could, or could reasonably be
perceived to materially interfere with the exercise of independent judgment in carrying
out the responsibilities as a director.
- Independent director is not equal to minority director because latter represents a
group, i.e., the minority
- Rationale: Objectivity and impartiality when making business or commercial
decisions.

ELECTION OF BOARD MEMBERS (Sec. 23)

- R: Voting via remote communication or voting in absentia now allowed.
- Must be authorized: (1) in the By Laws OR (2) by majority of board of
directors.
- Right to vote thru such modes may be exercised in corporations vested
with PUBLIC INTEREST, even if NOT in the BL (otherwise stated, right to
vote thru such modes is automatic without need of authorizing the same
in the BL).

CORPORATE OFFICERS (Sec. 24)

- O: No specific requirement for the treasurer to be a resident
- R: The treasurer must be a resident of the Philippines
- Subject to qualifications as provided for under the AOI.
- If the corporation is vested with public interest, the board shall also elect a
compliance officer (usually a lawyer).

NON-HOLDING OF ELECTION (Sec. 25)

- R: Non-holding of elections and reasons therefor shall be reported by the CORSEC to
the SEC within 30 days from the date of the scheduled election.
- The report shall specify the NEW DATE of the election, which shall not be later than
60 days from the ORIGINAL scheduled date of the election.
- If there is no new date/rescheduled election not held: Upon application of
stockholder/member/D/T, SEC can summarily order the conduct of election.

DISQUALIFICATIONS (Sec. 26)

- O: The following may not qualify as director, trustee or officer of any corporation:
1. Conviction by final judgment of an offense punishable by imprisonment for a period
exceeding 6 years
2. Violation of the Code committed within 5 years prior to the date of his election or
appointment
- R: Additional grounds for disqualification:
3. Violation of R.A. No. 8799 (SRC).

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 4. Found administratively liable for any offense involving fraudulent acts
5. Judgment by a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated above.
- According to Atty. Z, with respect to violation of the RCC or the SRC under
this number, it refers to the equivalent law of the RCC or the SRC in that
foreign jurisdiction).

SEC POWER TO REMOVE A DIRECTOR OR TRUSTEE (Sec. 27)

- O: Power to remove solely on Shareholders
- R: SEC can now, motu proprio or upon verified complaint, and after due notice and
hearing, order the removal of a director or trustee elected despite the disqualification,
or whose disqualification arose or is discovered subsequent to an election.
- The removal of a disqualified director shall be without prejudice to other sanctions
that the SEC may impose on the board of directors or trustees who, with knowledge
of the disqualification, failed to remove such director or trustee.
- Note that not only the disqualified director or trustee, who, despite having the
knowledge of the existence of a ground for disqualification willfully holds office, is
liable (Sec. 160; offense likewise applies to officers), but also OTHER director,
trustee, or officer, who, despite having the knowledge of the existence of a ground
for disqualification, WILLFULLY CONCEALS SUCH DISQUALIFICATION. (Sec. 160)
- Penalty for such includes both
(1) fine ranging from P10,000 to P200,000 or P20,000 to P400,000 if the violation
is injurious or detrimental to the public. at the discretion of the Court; AND
(2) permanent disqualification from being a director, trustee or officer of ANY
corporation

BOARD VACANCY (Sec. 28)

1. Vacancy due to reasons other than removal or expiration: May be filled by the vote of
at least a majority of the remaining directors or trustees, if still constituting a quorum.
Example of other reasons: resignation, amendment increasing the number of board
members, etc.
- Otherwise, said vacancies must be filled by the stockholders or members in a
regular or special meeting called for that purpose. The election must be held no
later than 45 days from the time the vacancy arose
2. Vacancy due to term expiration: Election shall be held no later than the day of such
expiration at a meeting called for that purpose
Rationale: To ensure the continuity of the board
3. Vacancy due to removal: Election may be held on the same day of the meeting
authorizing the removal and this fact must be so stated in the agenda and notice of
said meeting
(Kasi para maka hold ng meeting to remove ng board. Dapat ilagay ni corporate
secretary sa agenda. ang weird dito ay pinapalagay din dito sa agenda yung
"election of replacement" kahit wala pang removal; lagyan na lang ng "If so
removed..." para hindi masyadong offensive haha.)
- A director or trustee elected to fill a vacancy shall be referred to as replacement
director or trustee and shall serve only for the unexpired term of the predecessor in
office.

- Emergency Board: When the vacancy (1) prevents the remaining directors from
constituting a quorum and (2) emergency action is required to prevent grave,
substantial, and irreparable loss or damage to the corporation: Vacancy may be
temporarily filled from among the officers of the corporation by UNANIMOUS VOTE of
the remaining directors or trustees. (Sec. 28)

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 BOARD COMPENSATION (Sec. 29)
- O: The law is silent as to who has the power to decide compensation for board
members. Directors or trustees shall not participate in the determination for their
own per diems or compensation
- RCC: Corporations vested with public interest shall submit to their shareholders
and the Commission, an annual report of the total compensation of each of their
directors or trustees (Sec 29, RCC)
- The solution under the RCC: The board of directors may create special committees
of temporary the or permanent nature and determine the members' term,
composition, compensation, powers, and responsibilities (Sec. 34, RCC)

SELF DEALING CONTRACTS (Sec. 31)

- A contract of the corporation with one or more of its directors or trustees or
officers, or their spouses and relative within the 4th civil degree of consanguinity
is voidable (Sec. 31 RCC)
- Additional requirement to validate SDC: In case of corporations vested with public
interest, material contracts are approved by at least 2/3 of the entire membership
of the board with at least a majority of the independent directors voting to approve
the material contract.

CORPORATE POWERS (Sec. 35)

- Corporations are now legally authorized to enter into partnerships, joint venture,
merger, consolidation, or any other commercial agreement with other commercial
agreement with natural and juridical persons.
- To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no
foreign corporation shall give donations in aid of any political party or candidate
or for purposes of partisan political activity; (Sec. 35, RCC)
- Under the CC, prohibition also applies to domestic corporations.

PLACE/TIME OF SH MEETINGS
O: Only Metro Manila was specified as a city/municipality.
R: Sec 50; Metro Manila, Metro Cebu, Metro Davao, and other Metropolitan areas shall be
considered as a city/municipality.

BOARD MEETINGS
Regular and special meetings of stockholders or members.
O: Regular meetings of stockholders or members shall be held annually on a date fixed in
the by-laws, or if not so fixed, on any date in April of every year as determined by the board
of directors or trustees

R: Regular meetings of stockholders or members shall be held annually on a date fixed in

the bylaws, or if not so fixed in the bylaws, or if not so fixed, on any date After April 15 of
every year as determined by the board of directors or trustees.

Place and time of meetings of stockholders or members. -

O: Stockholders' or members' meetings, whether regular or special, shall be held in the city
or municipality where the principal office of the corporation is located, and if practicable in
the principal office of the corporation: Provided, That Metro Manila shall, for purposes of
this section, be considered a city or municipality.
N: That any city of municipality in Metro Manila, Metro Cebu, Metro Davao, and other
Metropolitan areas shall, for purposes of this section, be considered a city or municipality.

Notice of Regular/Special Meeting - 2 days. (no longer 1 day)

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 Remote communication such as videoconferencing, teleconferencing, or other alternative
modes of communication is now allowed so as the director/trustees can participate even if
they cannot physically attend or vote at board meetings.

PRESIDING OFFICER
Who Shall Preside at Meetings. –
O: The president shall preside at all meetings of the directors or trustee as well as of the
stockholders or members, unless the by-laws provide otherwise
N: The chairman or, in his absence, the president shall preside at all meetings of the
directors or trustees as well as of the stockholders or members, unless the bylaws provide
otherwise.

VOTING TRUST
O: No voting trust agreement shall be entered into for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade or used for purposes of
fraud.

N: No voting trust agreement shall be entered into for purposes of circumventing the laws
against anti-competitive agreements, abuse of dominant position, anti-competitive mergers
and acquisitions, violation of nationality and capital requirements, or for the perpetuation
of fraud.

SUBSCRIPTION CONSIDERATION (Sec. 61)

N: Shares of stock in another corporation is now included as an acceptable consideration
for share subscription

SUBSCRIPTION INTEREST (Sec. 65)

O: Interest should be indicated in the BL
N: The amount of the interest shall be that fixed in the subscription contract.
The consideration is payable within a certain timeline. Generally, it does not earn
interest, unless there is an interest requirement expressly stated in the
subscription contract (previously in the BL); otherwise, no interest.

RIGHT OF INSPECTION (Sec. 73)R:

Right to inspect/reproduce subject to confidentiality rules under the IPC, SRC, and DPA.
- A requesting party who is not a stockholder or member of record, or is a
competitor, director, officer, controlling stockholder or otherwise represents the
interests of a competitor shall have NO RIGHT to inspect or demand reproduction
of corporate records.
- Otherwise stated, even if you are a Stockholder or member, if you are also a
stockholder or member of a competitor corporation, such stockholder or
member does not have the right to inspect the books of the corporation.
- If the corporation does not act on demand for inspection, the aggrieved party may
report such denial/inaction to the SEC. The SEC shall act on the report within 5
days.
- Violation of Duty to Maintain Records, to Allow Their Inspection or Reproduction:
The unjustified failure or refusal by the corporation, or by those responsible for
keeping and maintaining corporate records, to comply with Secs. 45, 73, 92, 128,
177 and other pertinent rules and provisions of this Code on inspection and
reproduction of records shall be punished with a fine ranging from ₱10K to ₱200K,
taking into consideration the seriousness of the violation and its implication.
Penalties imposed under this section shall be without prejudice to the SEC’s
exercise of its contempt powers under Sec. 157 hereof. (Sec. 161)

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 NON-STOCK MEMBERS’ RIGHT TO VOTE (Sec. 88)
The BL may likewise authorize voting through remote communication and/or in absentia.

TRUSTEES (Sec. 91)

- The staggered term of trustees has been deleted.
- With respect to independent trustees of NS corporations vested with public
interest, said trustees NEED NOT BE A MEMBER.

ONE PERSON CORPORATION (OPC)

- Definition: A corporation with a single stockholder (Sec. 116)
- May be a stock or non-stock corporation.
- Who May and May Not Incorporate as an OPC (Sec. 116):
- ONLY a natural person, trust, or an estate may form an OPC.
- The following MAY NOT INCORPORATE AS AN OPC:
1. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed
companies, and non-chartered GOCCs may not incorporate as OPC.
2. A natural person who is licensed to exercise a profession may not organize as
an OPC for the purpose of exercising such profession except as otherwise
provided under special laws.
3.

- Submission of BL: NOT required to submit and file corporate BL (Sec. 119)
Rationale: BL are intended to regulate relationship inter se of directors or trustees
and officers; no such necessity in an OPC since it is the single stockholder who shall
act for the corporation, and because there are a limited number of officers in an
OPC.

- Corporate Name: Shall indicate the letters “OPC” either below or at the end of its
corporate name (Sec. 120)

- Officers:
- The single stockholder shall be the sole director and president of the OPC (Sec. 121)
- Within 15 days from the issuance of its COI, the OPC shall appoint a treasurer,
corporate secretary, and other officers as it may deem necessary (Sec. 122)
- The single stockholder may NOT be appointed as the corporate secretary (Sec. 122)
- Rationale: This is a safeguard against possible abuse because resolutions and
record-keeping should be made by an individual different from the owner.
- If the single stockholder is also the self-appointed treasurer: BOND requirement,
which shall be renewed every 2 years or as often as may be required (Sec. 122)
- Purpose: To cover potential liabilities to third parties who deal or transact with
OPC

- Transactions: Must wait for COI before transacting business, otherwise, transactions
shall be covered by the rule on corporation by estoppel.

- Nominee and Alternate Nominee: The single stockholder shall designate a nominee and
an alternate nominee who shall, in the event of the single stockholder’s death or
incapacity, take the place of the single stockholder as director and shall manage the
corporation’s affairs. (Sec. 124)
- The AOI shall state the (1) names, (2) residence addresses and (3) contact details
of the nominee and alternate nominee, as well as the (4) extent and limitations of
their authority in managing the affairs of the OPC. (Sec. 124)
- For succession purposes; to ensure continuity of the business of the OPC despite
the death or incapacity of the single stockholder

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 - Records in Lieu of Meetings: When action is needed on any matter, it shall be sufficient
to: (1) prepare a written resolution (2) signed and dated by the single stockholder, and
(3) recorded by the corporate secretary in the minutes book of the OPC. (Sec. 128)
- The date of recording in the minutes book shall be deemed to be the date of the
meeting for all purposes under this Code. (Sec. 128)
- This is why the single stockholder cannot be the corporate secretary: to ensure
reliability, credibility, integrity, and authenticity of resolutions

- Liability of the Single Shareholder:

- A sole shareholder claiming limited liability has the burden of affirmatively
showing that the corporation was adequately financed. (Sec. 130)
- One of the attractive features of a private corporation is that the owners
thereof enjoy limited liability as far as third persons are concerned, i.e., only up
to the extent of his contribution to the business. Same applies to OPCs.
- Purpose: To prevent using the corporation to avoid personal liability; to avoid
piercing of the corporate veil
- Where the single stockholder cannot prove that the property of the OPC is
independent of the stockholder’s personal property, the stockholder shall be jointly
and severally liable for the debts and other liabilities of the OPC. (Sec. 130)
- Similar to the extent of liability of a general partner for the debts of the
partnership
- The principles of piercing the corporate veil applies with equal force to OPCs as
with other corporations. (Sec. 130)

- Conversion
1. Ordinary Stock Corporation to OPC
- When a single stockholder acquires all the stocks of an ordinary stock
corporation, the latter may apply for conversion to OPC, subject to the
submission of such documents as the SEC may require (Sec. 131)
- The OPC converted from an ordinary stock corporation shall succeed the latter
and be legally responsible for all the latter’s outstanding liabilities as of the
date of conversion (Sec. 131).

2. OPC to Ordinary Stock Corporation

- An OPC may be converted into an ordinary stock corporation after due notice
to the SEC of such fact and of the circumstances leading to the conversion. (Sec.
132)
- The ordinary stock corporation converted from an OPC shall succeed the latter
and be legally responsible for all the latter’s outstanding liabilities as of the
date of conversion. (Sec. 132)
- IF DUE TO DEATH OF SINGLE STOCKHOLDER:
(1) Nominee or alternate nominee shall transfer the shares to the duly designated
legal heir or estate within 7 days from receipt of either an affidavit of heirship or
self-adjudication executed by a sole heir, or any other legal document declaring the
legal heirs of the single stockholder and notify the SEC of the transfer.

(2) Within 60 days from the transfer of the shares, the legal heirs shall notify the
SEC of their decision to either wind up and dissolve the OPC or convert it into an
ordinary stock corporation. (Sec. 132)
- Nothing compels the heirs to continue the OPC.

DISSOLUTION
O: Period to wind up affairs is 3 years from the time the corporation would have been
dissolved

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 R: Sec 139; Period to wind up affairs is still 3 years;
- But for banking institutions, it shall be subject to relevant laws on banks (New
Centralized Banking Act, General Banking Act, PDIC, etc.)
- Winding up period ALSO APPLIES to involuntary dissolution cases.

INVOLUNTARY DISSOLUTION
O: A corporation may be dissolved by the SEC upon filing of a verified complaint and after
proper notice and hearing on the grounds provided by existing laws, rules and regulations.
R: Additional grounds for involuntary dissolution: (Sec. 138)

- Non-use of corporate charter as provided under Section 21 of this Code;

- Continuous inoperation of a corporation as provided under Section 21 of this Code;
- Upon receipt of a lawful court order dissolving the corporation;
- Upon finding by final judgment that the corporation procured its incorporation
through fraud;
- Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the
commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities violations, smuggling,
tax evasion, money laundering, or graft and corrupt practices, and its
stockholders knew; and
c. Repeatedly and knowingly tolerated the commission of graft and corrupt
practices or other fraudulent or illegal acts by its directors, trustees,
officers, or employees.

ADMINISTRATIVE SANCTIONS (Sec. 158)

- If, after due notice and hearing, the SEC finds that any provision of this Code, rules or
regulations, or any of the SEC’s orders has been VIOLATED, the SEC may impose ANY
OR ALL of the following sanctions, TAKING INTO CONSIDERATION the extent of
participation, nature, effects, frequency and seriousness of the violation:
1. Imposition of a fine ranging from ₱5K to ₱2M, and not more than ₱1K for each day
of continuing violation but in no case to exceed ₱2M;
2. Issuance of a permanent cease and desist order;
3. Suspension or revocation of the certificate of incorporation; and
4. Dissolution of the corporation and forfeiture of its assets under the conditions in
Title XIV of this Code

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 Title I
GENERAL PROVISIONS

Sec. 1. Title of Revised Corporation Code of the Philippines

the Code

Sec. 2. PRIVATE CORPORATION

Corporation A corporation is an artificial being created by operation of law, having the right of
Defined succession and the powers, attributes and properties expressly authorized by law or
incidental to its existence.

ATTRIBUTES OF A PRIVATE CORPORATION

1. Artificial Being: That is, as contradistinguished from natural persons, it has no physical
manifestation or existence (see discussion on Corporate Personality Rule)
2. Creature of Law (1987 Constitution, Art. XII, Sec. 16; Concession Theory) (Note that 1
& 2 are related since a corporation exists because there is a law that allows it to be
recognized as a person and permits it to act as though it is an individual)
3. Right of Succession
4. Limited Capacity

CONSTITUTIONAL LIMITATIONS
1. General Law (Revised Corporation Code)
2. Special Law if:
a. GOCC; and
b. Economically viable and for common good
- Economically viable: The corporation should be one that has capability of
sustaining itself in the market, of generating revenue to sustain its apex
capitalization requirements and its operating requirements
- For common good: It would generate jobs and would be good for the economy

General Rule: As a matter of policy, the Constitution does not allow creation of private
corporations through special law
- Rationale: This would minimize graft and corruption on the part of the lawmakers and
would avoid the case where corporations suffer inequality in terms of rights,
concessions, exemptions, privileges, requirements (such as that for incorporation), and
the like.

Exception: Special law is only allowed for purposes of creating a GOCC. It is still a private
corporation, but the ownership of capital is with the State.
- Usual title of such special laws: “An Act Creating XYZ Corporation”

CONCESSION THEORY
- Corporate existence is granted by the state where the corporation is incorporated.
- It is the State that creates a corporation as a legal fiction.
- Existence of a private corporation requires the imprimatur of the State. The consent of
the incorporators will not be sufficient without the State giving its confirmation or
consent through the latter’s issuance of the COI.
- COI is the evidence of the State’s confirmation of the corporation’s existence

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 LIMITED CAPACITY
No corporation shall possess or exercise corporate powers other than those conferred by
this Code or by its articles of incorporation and except as necessary or incidental to the
exercise of the powers conferred. (Sec. 44)
- The powers of a corporation should be carried out in conjunction with the business or
activity provided for in its AOI.
- Investments that corporations shall carry out should all be germane or justifiable under
its AOI, otherwise, it can be subject to attack by the State due to commission of an ultra
vires act.

NATIONALITY OF CORPORATIONS
1. Place of Incorporation Test
- The state where the corporation is incorporated is determinative of the
corporation’s citizenship.
- If the entity is registered in the Philippines, it is a domestic corporation.

2. Control Test
- If the percentage of Filipino ownership is at least 60%, the corporation is
considered a Philippine national for investment purposes. The citizenship of the
stockholders is controlling.
- These rules are, however, subject to the Gamboa and Herbosa rulings.
- Determination of citizenship of the corporation will depend on the
outstanding shares, specifically voting shares and beneficial ownership
pertaining to Filipino citizens.
- Even the TOTAL outstanding shares of the corporation are considered.

3. Grandfather Rule
- The method by which the percentage of Filipino equity in a corporation engaged in
nationalized and/or partly nationalized areas of activities, provided for under the
Constitution and other nationalization laws, is computed, in cases where corporate
shareholders are present, by attributing the nationality of the second or even
subsequent tier of ownership to determine the nationality of the corporate
shareholder; thus, to arrive at the actual Filipino ownership and control in a
corporation,both the direct and indirect shareholdings in the corporation are
determined (Narra Nickel Mining and Development Corp. v. Redmont Consolidated
Mines Corp., G.R. No. 195580, January 28, 2015).

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 Note: Grandfather Rule will only apply if Control Test was met but there appears to be a
contravention of the nationality requirement.
- Applies only when the 60-40 Filipino-foreign ownership is in doubt or
where there is reason to believe that there is non-compliance with the
provisions of the Constitution on the nationality restriction.
- The determination of the actual Filipino ownership and control in a
corporation is made by tracing both the direct and indirect
shareholdings in the corporation
- Purpose: To look into citizenship of those who ultimately own and
control the shares of stock corporation for determining
compliance with the constitutional requirement of Filipino
ownership.
- If sa unang tingin palang, kita na na below 60% ang Filipino
ownership, there is no need to resort to Grandfather Rule; the
corporation is immediately considered foreign-owned.
- If pasado sa control test pero may doubt pa rin, Grandfather rule
will be applied by the Courts.

Doubt refers to various indicia that the beneficial ownership and control of the corporation
do not in fact reside in Filipino shareholders but in foreign stakeholders.

Significant indicators of the dummy status:

1. That the foreign investors provide practically all the FUNDS for the joint
investment undertaken by these Filipino businessmen and their foreign partner
- One may be considered a subscriber although no payment of said
subscription was made yet. So, if only the foreigner-subscribers have
actually paid their subscriptions (wherein such funds are to be used for
the project) and such funds are already enough to pursue the project, there
arises doubt as to who controls the corporation.

2. That the foreign investors undertake to provide practically all the

TECHNOLOGICAL SUPPORT of the joint venture; and

3. That the foreign investors, while being minority stockholders, MANAGE the
company and prepare all economic viability studies.
- Nonpayment by some subscribers of their shares in the partly nationalized
company gives rise to doubt as to the nationality of the corporation.

Exhibit A:

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 Exhibit B:

- Note: A company with more than 40% foreign equity may hold long-term leasehold
rights and may operate as a landholding business. The constitutional prohibition only
refers to ownership of land, not to other real rights. There should be recognized a
distinction between a shareholder owning shares in a corporation and a corporation
owning land, resulting from the separate juridical personalities of the corporation and
the shareholders. (J.G. Summit Holdings, Inc. v. CA, G.R. No. 12493, January 31, 2005)

SEPARATE JURIDICAL PERSONALITY OF CORPORATIONS

- Corporation alone has the right to pursue legal action against those that infringe its
rights., because shareholders do not have material interest on the subject matter of
the case. The most exposure that they have is the extent of their contribution in the
capital of the corporation. If a corporation has a right, it also has liability.
- Recovery of damages is available to the corporation, although there is a different
take with regard to moral damages.

1. While a share of stock represents a proportionate or aliquot interest in the

property of the corporation, it does not vest the owner thereof any legal right or
title to any of the property, his interest in the corporate property being equitable
of beneficial in nature. Shareholders are in no legal sense the owners of the
corporate property, which is owned by the corporation as a distinct legal person.
The interest which entitles a person to intervene in a suit between other parties
must be in the matter of litigation and of such direct and immediate character that
the intervenor will either gain or lose by direct legal operation and the effect of
judgment. Here, the interest, if it exists at all, of the petitioners-movant is indirect,
contingent, remote, conjectural, consequential, and collateral. At the very least,
their interest is purely inchoate or in a sheer expectancy of a right in the
management of the corporation (Magsaysay-Labrador vs. CA and Adelaida
Magsaysay, G.R. No. 58168; December 19, 1989).
- Facts: Adelaida alleged that in 1958, she and her husband acquired a land
and that she discovered that this land was purportedly transferred in favor
of Subic Corp; that a mortgage was registered by Subic in favor of FILMAN
Bank; and that the foregoing acts were void and done in attempt to defraud
the conjugal partnership. Petitioners, sisters of the husband, intervened
contending that their brother conveyed to them 41% of the total
outstanding shares of stocks of Subic Corp. Hence, they have a substantial
and legal interest in the success of the suit. The court denied the motion
and ruled it does not legally entitle them to intervene because Subic Corp.
has a personality separate and distinct from its stockholders.

PIERCING THE CORPORATE VEIL

- Whether one corporation is merely an alter ego of another, a sham or subterfuge,
and whether the requisite quantum of evidence has been adduced to warrant the

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 puncturing of the corporate veil are questions of fact. However, any piercing of the
corporate veil has to be done with caution. The doctrine of piercing the corporate
veil applies only in three basic areas:
A. To defeat of public convenience when corporate fiction is used as vehicle
for evasion of existing obligation;
B. Fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime;
C. alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation.

The instrumentality or control test of the alter ego doctrine requires not
mere majority or complete stock control, but complete domination of
finances, policy and business practice with respect to the transaction in
question. The corporate entity must be shown to have no separate mind,
will, or existence of its own at the time of the transaction (California
Manufacturing Company, Inc. vs. Advanced Technology System, Inc., G.R. No.
202454, April 25, 2017).

- Other cases of Piercing:

- Confuse relation of employer and employee
- Tax Evasion
- Forum Shopping
- IP Rights

- Legal Consequences of Piercing:

- When the corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one
person, such that when the corporation is adjudged liable, these persons,
too, become liable as if they were the corporation.

1. Where the main purpose in forming the corporation was to evade one’s subsidiary
liability for damages in a criminal case, the corporation may not be heard to say
that it has a personality separate and distinct from its members. This is what the
third party claimant wants to do including the defendant in this case, to use the
separate and distinct personality of the two corporation as a shield to further an
end subversive of justice by avoiding the execution of a final judgment of the court.
Petitioner and Travel and Tours Advisers, Inc. were one and the same entity,
specifically: (a) documents showing that the operator of Travel and Tours Advisers,
Inc. was also the President/Manager and an incorporator of the petitioner; and (b)
Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline. Moreover,
Goldline buses are used in the operations of defendant company. We see no reason
why defendant company would be using Goldline buses in its operations unless the
two companies are actually one and the same. Hence, the levy of the bus in question
was proper (Gold Line Tours, Inc. vs. Heirs of Maria Concepcion Lacsa, G.R. No.
159108, June 18, 2012).

2. The three-pronged test to determine the application of the alter ego theory
(instrumentality theory) namely:

(1) Instrumentality or Control Test: Control, not mere majority or complete

stock control, but complete domination, not only of finances but of policy and

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 business practice in respect to the transaction attacked so that the corporate entity
as to this transaction had at the time no separate mind, will or existence of its own;
It inquires whether a subsidiary corporation is so organized and controlled and its
affairs are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be
ignored. It seeks to establish whether the subsidiary corporation has no autonomy
and the parent corporation, though acting through the subsidiary in form and
appearance, "is operating the business directly for itself."

(2) Fraud Test: Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff's legal right; It
examines the relationship of the plaintiff to the corporation and requires that the
parent corporation's conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful. It is appropriate only if the parent corporation uses the
subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing
of an element of injustice or fundamental unfairness; and

(3) Harm Test: The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of. It requires the plaintiff to show that
the defendant's control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. A causal connection between the fraudulent
conduct committed through the instrumentality of the subsidiary and the injury
suffered or the damage incurred by the plaintiff should be established.

None of the tests has been satisfactorily met in this case. Although ownership by
one corporation of all or a great majority of stocks of another corporation and their
interlocking directorates may serve as indicia of control, by themselves and
without more, these circumstances are insufficient to establish an alter ego
relationship or connection between Phil Carpet and Pacific Carpet, that will justify
the puncturing of the latter's corporate cover. The "existence of interlocking
directors, corporate officers and shareholders is not enough justification to pierce
the veil of corporate fiction in the absence of fraud or other public policy
considerations. As to the transfer of Phil Carpet's machines to Pacific Carpet, settled
is the rule that "where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts
and liabilities of the transferor" (Rommel Zambrano v. Philippine Carpet
Manufacturing Corporation, G.R. No. 224099, June 21, 2017).

3. Piercing the veil of corporate entity applies to determination of liability, not

of jurisdiction. The doctrine comes to play only during the trial of the case after
the court already acquired jurisdiction over the corporation. A corporation not
impleaded in a suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction. If no jurisdiction is acquired, any proceedings taken
against that corporation and its property would infringe on its right to due process.
Hence, (1) the court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate personalities are disregarded;
and (2) the doctrine can only be raised during a full-blown trial over a cause of
action duly commenced involving parties duly brought under the authority of the
court by way of service of summons or what passes as such service. Here, KIC was
not impleaded. It was dragged to the case after it reacted to the improper execution
of its properties and veritably hauled to court, not thru the usual process of service
of summons, but by mere motion of a party with whom it has no privity of contract
and after the decision in the main case had already become final and executory.

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 Moreover, Morales’ adverted motion to pierce the veil of corporate fiction stated a
new cause of action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne
by KIC on the alleged identity of the two corporations. This new cause of action
should be properly ventilated in another complaint and subsequent trial
where the doctrine can, if appropriate, be applied, based on the evidence
adduced.

The doctrine of piercing the veil of corporate fiction is also applied where a
corporation is dissolved and its assets are transferred to another to avoid a
financial liability of the first corporation with the result that the second
corporation should be considered a continuation and successor of the first
entity. There is a confluence of the following factors: (a) a first corporation is
dissolved; (b) the assets of the first corporation is transferred to a second
corporation to avoid a financial liability of the first corporation; and (c) both
corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first
corporation. Here, the second and third factors are absent. There is no showing that
the incorporation, and the separate and distinct personality, of KIC was used to
defeat Morales’ right to recover from Kukan, Inc. The fact that Kukan, Inc. entered
into a PhP 3.3M contract when it only had a paid-up capital of PhP 5,000 is not an
indication of the intent on the part of its management to defraud creditors for it
merely represented the capitalization upon incorporation. Moreover, Michael Chan
merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc.,
not even a majority of it. These circumstances are insufficient to establish the
identity of KIC as the alter ego or successor of Kukan, Inc. (Kukan International
Corporation vs. Hon. Amor Reyes, G.R. No. 182729, September 29, 2010).

4. A party whose corporation is vulnerable to piercing of its corporate veil

cannot argue violation of due process. Generally, piercing of the corporate veil
is premised on the fact that the corporation must have been properly served with
summons or properly subjected to the jurisdiction of the court. It cannot be
subjected to a writ of execution meant for another in violation of its right to due
process, except if it is shown "by clear and convincing proof that the separate and
distinct personality of the corporation was purposefully employed to evade a
legitimate commitment and perpetuate a fraud." The resistance of the Court to
offend the right to due process of a corporation that is a nonparty in a main case,
may disintegrate not only when its director, officer, shareholder, trustee or
member is a party to the main case, but when it finds facts which show that piercing
of the corporate veil is merited. Here, Santos had an existing obligation based on a
court judgment that he owed monthly rentals and unpaid realty taxes. He used
I/AME as a means to defeat judicial processes and to evade his obligation to Litton.
Thus, even while I/AME was not impleaded in the main case and yet was so named
in a writ of execution to satisfy a court judgment against Santos, it is vulnerable to
the piercing of its corporate veil.

Since the law does not make a distinction between a stock and non-stock
corporation, neither should there be a distinction in case the doctrine of
piercing the veil of corporate fiction has to be applied. While it may appear to
be impossible for a person to exercise ownership control over a non-stock, not-for-
profit corporation, a person can be held personally liable under the alter ego theory
if the evidence shows that the person controlling the corporation did in fact
exercise control, even though there was no stock ownership. Here, I/AME, an
educational institution, is still a registered corporation conducting its affairs as
such.

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 Piercing the corporate veil may apply to natural persons as (1) when the
corporation is the alter ego of a natural person, and (2) in case of reverse
piercing of the corporate veil. In traditional veil-piercing action, the court
disregards the existence of a corporate entity so a claimant may claim against the
assets of the corporate insider. In a reverse piercing action, the plaintiff seeks to
reach the assets of a corporation to satisfy claims against a corporate insider. It
makes the corporation liable for the debt of the shareholders. It permits the
creditor to pierce the veil to satisfy the debts of an individual out of corporation’s
assets. It has two types:
(a) Outsider reverse piercing occurs when a party with a claim against an
individual or corporation attempts to be repaid with assets of a corporation owned
or substantially controlled by the defendant.
(b) Insider reverse piercing occurs when the controlling members attempts to
ignore the corporate fiction to take advantage of a benefit available to the
corporation, such as an interest in a lawsuit or protection of personal assets.

Outsider reverse veil-piercing is applicable. Litton, as judgment creditor, seeks the

Court's intervention to pierce the corporate veil of I/AME in order to make its
Makati real property answer for a judgment against Santos, who formerly owned
and still substantially controls I/AME. It may be possible for this Court to
recommend that Litton run after the other properties of Santos that could satisfy
the money judgment - first personal, then other real properties other than that of
the school. However, if allowed, we frustrate the valid MeTC judgment which levied
on the real property now titled under the name of the school. Thus, the reverse
piercing of the corporate veil of I/AME to enforce the levy on execution of the
Makati real property where the school now stands is applied (International
Academy of Management and Economics, G.R. No. 191525, December 13, 2017).

Sec. 3. Classes CLASSES OF CORPORATION

of 1. Stock vs. Non-Stock
Corporations - Stock Corporation: For profit making purposes; can expect dividends in the form of
stock, cash, etc.
- Non-Stock: For some benevolent purpose; no return of capital or investment since
it is prohibited from distributing profits save when the corporation is already
dissolved
- The structure or corporate form does not make an organization a stock
corporation, but its nature or purpose does. Hence, in one case, the Court held that
a corporation may not be treated as a stock corporation organized for business
simply because it divided its capital stock into shares and it operated a bar and
restaurant for profit. If the corporation is clearly established for the mutual
enjoyment of sports as a recreational activity by its members and its profits are
used for the maintenance of its facilities, then clearly, it is not a stock corporation
engaged in business and may not be taxed as such. (CIR v. Club Filipino, Inc. de Cebu,
G.R. No. L-12719, May 31, 1962)

2. Domestic vs. Foreign

- Domestic: Registered in the PH or organized under the PH laws
- Foreign: One formed, organized or existing under laws other than those of the
Philippines’ and whose laws allow Filipino citizens and corporations to do business
in its own country or State (Sec. 140)

3. De Jure vs. De Facto

- In both classes, they have been issued a COI
- De Jure: All of the legal requirements are strictly complied with

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 - De Facto: There is merely a colorable compliance; can act as though they are de jure
corporations (e.g. can hold meetings, declare dividends, sign contracts, be party to
partnerships, can open its own bank accounts, can hire employees, can do whatever
a legitimate corporation can do); the difference is that it cannot resist an attack by
the State against its existence, which attack could lead to its disenfranchisement.
- Only the State, through the Solicitor General, can attack a corporation’s
existence because it is the State that is the grantor of corporate existence, and,
therefore, the real party in interest in such an action is the State.
- A de facto corporation’s existence is akin to a voidable contract.

Corporation by Estoppel – No corporation to begin with, as it has not been issued a COI

4. Open vs. Close

- Close: As contradistinguished from an open corporation - limited number of
shareholders; cannot list their shares or securities in the Philippine stock market;
limitations on the transfer or sale of shareholdings

5. Parent vs. Subsidiary vs. Affiliate

- Parent: Can control election of board members of another corporation or has entire
control of another corporation in terms of capitalization manifested through
policies, election of board members, and the like
- Subsidiary: That which is controlled by the parent corporation, i.e., majority or
entire capital is held by a parent corporation
- Affiliate: Used to describe the relationship between the parent and subsidiary and
among subsidiaries of the same parent

ATTY. Z’S ANSWERS TO QUESTIONS FROM FIRST LECTURE:

1. Are actions or contracts of a de facto corporation subject to challenge on the
ground that said corporation’s existence is defective before the institution of
a quo warranto petition? (Kindly rephrase the question you have notes on
this)
- The existence of a de facto corporation is voidable, and the intention of the law is to
protect the people or third persons dealing with said corporations. Thus, the contracts
entered into between a de facto corporation and said third persons remain valid until
annulled for all intents and purposes; They are voidable contracts/actions.

2. In a corporation by estoppel, prescinding from the Lim Tong Lim case, what
if one partner did not in fact benefit from the subject matter of the claim? May
he also be made liable?
- Estoppel is a question of fact; there must always be a factual basis when answering
questions on estoppel. Thus, if there is no participation, no proof that such party
participated, then he may be exonerated.
- However, if such party is part of a company, there arises a presumption that he has
knowledge of the acts; Thus, it is a matter of presenting evidence to show that the
party had no knowledge of said acts in order to exonerate himself from the said
charges.

3. Comparison of Seventh Day Adventists case and Peach Sisters case; How are
these cases different as estoppel was applied in Peach Sisters but not in
Seventh Day?
- The facts of these two cases are totally different.
- In Peach Sisters: Ratification was made since the corporation was subsequently
registered. The donor executed AGAIN a deed of donation, which was the act
pertained to as “the subsequent act of Purificacion”. This served as the ratification of

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 what would otherwise be a defective donation. If not for the said ratification, it would
have the same effect as the case in Seventh Day.
- Purificacion could not repudiate the donation since the person with whom she dealt
believed in good faith that she (Purificacion) wanted to genuinely transfer the
property.
- The registration of the property was also considered, which led the Court to rule in
favor of the donation.

DE FACTO CORPORATION
- De facto existence requires COI. The filing of AOIs and the issuance of the COI are
essential for the existence of a de facto corporation. An organization not registered with
the SEC cannot be considered a corporation in any concept, not even as a corporation
de facto (Seventh Day Adventist Conference Church of Southern Philippines, Inc., v.
Northeastern Mindanao Mission of Seventh Day Adventist, Inc., G.R. No. 150416, July 21,
2006).
- There were requirements that were not actually complied with but which are not
obvious in the AOI (e.g. one of the incorporators is not of legal age). SEC may rely upon
what appears on the face of the AOI, since, in the first place, it is duly notarized, and,
second, we cannot expect the SEC to check line by line and validate in the field the
matters stated thereon.
- The de facto existence is really more for the protection of the people who transact with
a de facto corporation.
- Nevertheless, acts done in good faith and with belief that a statute validly created a
municipal corporation, are upheld and are not reversed by the subsequent invalidity of
the statute creating it. Still, the municipal corporation cannot, however, be considered
a de facto corporation even during the time when the statute for its creation had not
yet been invalidated as there is no other valid statute to give color of authority to its
creation. (Municipality of Manabang, Lanao Del Sur v. Pangandapun Benito, G.R. No. L-
28113, March 28, 1969)

CORPORATION BY ESTOPPEL
- The doctrine or provision does not create a corporation. Strictly speaking, there really
is no corporation - whether de jure or de facto. There are merely persons who pretend
that there is a corporation when in truth and in fact, there is none (i.e., no COI has been
issued). But they made representations to the public that there is a corporation and that
they are acting in representation of that corporation.
- When someone in good faith relies on such representations and deals with the
pretended corporation, and the latter incurs liability, a problem arises when it comes
to enforcing that liability. Under our procedures, one cannot sue an inexistent person
(this is the general rule). Under our Code, insofar as liability is concerned, there are
people that can be charged with - those persons who represented. They become
personally liable for the transactions they carried out in representation of the
pretended corporation. They cannot then repudiate the existence of the corporation by
virtue of estoppel.
- In dealing with issues regarding estoppel, one must not forget the factual basis thereof.
Estoppel is based on the facts of the case. Cite in the answer (or complaint or other
initiatory pleading) the factual basis of estoppel, e.g. the representations, the benefit
received, etc.
- Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly,
under the law on estoppel, those acting on behalf of a corporation and those benefited
by it, knowing it to be without valid existence, are held liable as general partners (Lim
Tong Lim v. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November 3, 1999)

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 - The doctrine of corporation by estoppel applies for as long as there is no fraud and
when the existence of the association is attacked for causes (liberality) attendant at the
time the contractor dealing sought to be enforced was entered into, and not thereafter.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation (The
Missionary Sisters of Our Lady of Fatima v. Alzona, August 6, 2018, G.R. No. 224307).
- The Court remarked in one case that the nature of a company as a juridical entity has
no significant effect to the charge of libel against it. Nevertheless, it is a corporation by
estoppel by virtue of its representations to the public despite being unincorporated.
(Allen Macasaet v. Fransisco Co., Jr., G.R. No. 156759, June 5, 2013)
- Estoppel applies not only to domestic corporations, but also in favor of foreign
corporations. Those who transact with foreign corporations are barred by estoppel
from questioning its corporate personality, especially in cases where a party does so to
attempt evading liability. (Merrill Lynch Futures, Inc. v. CA, G.R. No. 97816, July 24, 1992)

DOCTRINE OF CORPORATION BY ESTOPPEL, WHEN NOT APPLIED

- Where there is no third person involved and the conflict arises only among those
assuming the form of a corporation, who therefore know that it has not been registered,
there is no corporation by estoppel. (Reynaldo Lozano v. Hon. Eliezer Delos Santos, G.R.
No. 125221, June 19, 1997)
- The Court held that the doctrine may only be used by a third party against an
unregistered entity representing itself to be a corporation. The president of such an
entity may not use the doctrine as a defense to escape personal liability. (International
Express Travel & Tour, Inc. v. CA. G.R. No. 119002, October 19, 2000)

Sec. 4. Pres. Decree No. 1717 ordered the rehabilitation of the Agrix Group of Companies to be
Corporations administered mainly by the National Development Company and created New Agrix, Inc.,
Created by thereby also extinguishing the dissolved corporations’ liabilities. The Court held that as the
Special Laws creation of New Agrix, Inc. was not for public interest and only benefited a small group of
or Charters investors, and was not even owned or controlled by the government, it should have been
incorporated under general law, not by a special law or decree. (National Development
Company v. Philippine Veterans Bank, G.R. Nos. 84132-33, Dec 10, 1990)

Sec. 5.
Corporators
and
Incorporators,
Stockholders
and Members

Sec. 6. DOCTRINE OF EQUALITY OF SHARES (Sec. 6, RCC)

Classification “Each share shall be equal in all respects to every other share, except as otherwise provided
of Shares in the articles of incorporation and in the certificate of stock.”
GR: presumption is that all shares are equal in any aspect
Exception: inequal as stated in the AOI and must be indicated in the stock
certificate.

CLASSIFICATION OF SHARES (Sec. 6, RCC)

The classification of shares, their corresponding rights, privileges, restrictions, and their
stated par value, if any, must be indicated in the articles of incorporations.

1. Preferred Shares- with par value shares which enjoy preference in the distribution of
corporate assets in case of liquidation, or such other preferences as stated in AOI.
2. Common- common type and does enjoy no preference

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 3. Voting- No share may be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise provided in this Code
4. Non-voting- only preferred or redeemable shares may be non-voting;
“The issued price of no-par value shares may be fixed in the articles of incorporation or by
the board of directors pursuant to authority conferred by the articles of incorporation or
the bylaws, or if not so fixed, by the stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the purpose” (Sec. 61, RCC).
5. Founder’s share- Given certain rights and privileges not enjoyed by the owners of other
stock. 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 from the date of
incorporation (Sec. 7, RCC)
6. Redeemable share- may be issued by the corporation when expressly provided in the
articles of incorporation. They are shares which may be purchased by the corporation. They
are shares which may be purchased by the corporation from the holders of such shares
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 stated
in the articles of incorporation and the certificate of stock representing the shares, subject
to rules and regulations issued by the Commission (Sec. 8, RCC)
7. Treasury Share- shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption,
donation, or some other lawful means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors; not included in outstanding capital stock
(Sec. 9, RCC)

Par value and No-Par Value Shares (Sec. 6, RCC)

The shares or series of shares may or may not have a par value.
The following hall not be permitted to issue no-par value shares of stock:
1. banks
2. trust
3. insurance
4. preneed companies
5. public utilities
6. building and loan associations
7. other corporations authorized to obtain or access funds from the public whether publicly
listed or not
-to calculate its capitalization because imbued with public interest
-always with par value

VOTING RIGHT
There should always be a class or series of shares with complete voting rights. Only
preferred or redeemable shares may be deprived of voting rights and in case stated in RCC
-Common shares cannot vote or voting rights are suspended in case of:
a. delinquent shares
b. founder’s share (limited time only)
- with complete voting rights in:
a. can only vote election of directors
b. declaration of stock dividends
c. removal of directors

NON-VOTING SHARES
Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters;
(Can vote on)
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;

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 (c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or
substantially all of the corporate property;
(d) Incurring, creating, or increasing bonded indebtedness;
(e) Increase or decrease of authorized capital stock;
(f) Merger or consolidation of the corporation with another corporation or other
corporations;
(g) Investment of corporate funds in another corporation or business in accordance
with this Code; and
(h) Dissolution of the corporation.

Sec. 7. Where the exclusive right to vote and be voted for in the election of directors is granted, it
Founders’ must be for a limited period not to exceed five (5) years from the date of incorporation
Shares subject to "Anti-Dummy Law, Foreign Investments Act of 1991 and other pertinent laws.

Sec. 8. May be issued by the corporation when expressly provided in the articles of incorporation.
Redeemable They are shares which may be purchased by the corporation. They are shares which may
Shares be purchased by the corporation from the holders of such shares 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 stated in the articles of
incorporation and the certificate of stock representing the shares, subject to rules and
regulations issued by the Commission

Sec. 9. Shares of stock which have been issued and fully paid for, but subsequently reacquired by
Treasury the issuing corporation through purchase, redemption, donation, or some other lawful
Shares means. Such shares may again be disposed of for a reasonable price fixed by the board of
directors; not included in outstanding capital stock

Title II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS

Sec. 10. Notes: incorporators are no longer limited to natural persons. Juridical persons such as
Number and partnerships, associations or corporations can now be incorporators.
Qualifications Natural persons who are licensed to practice a profession, and partnerships or associations
of organized for the purpose of practicing a profession, shall not be allowed to organize as a
Incorporators corporation unless otherwise provided under special laws.

Sec. 11. Term of Existence

Corporate A corporation shall have perpetual existence unless its articles of incorporation provides
Term otherwise.
General Rule: Corporations with certificates of incorporation issued prior to the effectivity
of this Code and which continue to exist shall have perpetual existence,
Exception: unless the corporation, upon a vote of its stockholders representing a majority
of its articles of incorporation: Provided, That any change in the corporate right of dissenting
stockholders in accordance with the provisions of this Code.

Term Extension
A corporate term for a specific period may be extended or shortened by amending the
articles of incorporation: Provided, That no extension may be made earlier than three (3)
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 Commission.

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 Revival
No extension can be made after the expiration of the term. The remedy is revival. If the SEC
approves of the revival, Sec 11, of the RCCP tells us that the corporation shall be deemed
revived and a certificate of revival of corporate existence shall be issued, giving it perpetual
existence, unless its application for revival provides otherwise.
For banks, banking institutions, preneed, insurance and trust companies, non-stock savings
and loan associations, pawnshops, corporations engaged in money service business and
other financial intermediaries, no application for revival of certification of incorporation
shall be allowed by the SEC unless the same is accompanied by a favorable
recommendation of appropriate government agency.

Sec. 12.
Minimum
Capital Stock
Not Required
of Stock
Corporations

Sec. 13.
Contents of the
AOI

Sec. 14. Form

of AOI

Sec. 15.
Amendment of
AOI

Sec. 16.
Grounds When
AOI or
Amendment
May be
Disapproved

Sec. 17. Corporate Name

Corporate No corporate name shall be allowed by the Commission if:
Name (i) it is not distinguishable from that already reserved or registered for
the use if another corporation,
(ii) if such name is already protected by law
(iii) its use is contrary to existing rules and regulations (Sec. 17, RCCP).

Power of the SEC under Section 17

If a name cannot be used by a corporation, the SEC can:
(i) reject the articles of incorporation;
(ii) summarily order the corporation to cease and desist from using such name;
(iii) summarily order the corporation to register a new name and amend its Articles
of Incorporation bearing the new name;
(iv) cause the removal of all visible signages, marks, advertisements, labels, prints
and other effects bearing such corporate name.

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Sec. 18. There can be no automatic corporate dissolution simply because the incorporators failed to
Registration, abide by the required filing of by-laws embodied in the Corporation Code. Proper notice and
Incorporation hearing should be accorded to the incorporators, who are then given the chance to explain
and their neglect or omission and remedy the same. (Loyola Grand Villas Homeowners (South)
Commenceme Association, Inc. v. CA, G.R. No. 117188, August 7, 1997)
nt of
Corporate
Existence

Sec. 19. De
Facto
Corporations

Sec. 20. See discussion under Sec. 3

Corporation
by Estoppel

Sec. 21. Effects

of Non-Use of
Corporate
Charter and
Continuous
Inoperation

Title III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

Sec. 22. The Levels of Corporate Control

Board of Shareholders, Directors, and Officers
Directors or
Trustees of a BASIC RULES
Corporation A. Centralized Management Rules
-Exercise of corporate powers, conduct of business and control of assets and
properties except for acts reserved to shareholders (Sec. 22, RCC)
-entrusted to a body (Board or Trustees)
-however there are acts which are left to Board of Directors and shareholders
B. Business Judgment Rule
-respect the decision of Board because of presumption that they acted in good faith
-necessary that there is absence of bad faith, gross negligence and ill-motivated
It is a well-known rule of law that questions of policy or of management are left
solely to the honest decisions of officers and directors of a corporation, and so long as they
act in good faith, their orders are not reviewable by the courts (Saber v. Court of Appeals,
G.R. No. 132981, August 31, 2004)

The courts are without authority to substitute their judgment for judgment of the
board of directors. The board is the business manager of the corporation and so long as it
acts in good faith its orders are not reviewable by the courts or the SEC

TERM OF OFFICE:
Directors shall be elected for a term of one year from among the holders of stocks registered
in the corporation's book while trustees shall be elected for a term not exceeding three (3)
years from among the members of the corporation. Each director and trustee shall hold
office until the successor is elected and qualified. A director who ceases to own at least one

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 (1) share of stock or a trustee who ceases to be a member of the corporation shall cease to
be such.
Stock corp- 1 year
Non-stock corp- 3 years
Can be re-elected.

INDEPENDENT DIRECTORS
An independent director is a person who apart from shareholdings and fees received from
any business or other relationship which could, or could reasonable be received to
materially interfere with the exercise of independent judgment in carrying out the
responsibilities as a director (Sec. 22, RCC).
-they reassess the matters without bias
For non-stock corporations, independent trustee of a company need not be a member (Sec.
91, RCC).

Sec. 23. HOW BOARD MEMBERS ARE CHOSEN

Election of All Board of Directors and trustees must be elected.
Directors or Who can participate in election? For stock corporation, shareholders. For non-stock,
Trustees members.
At all elections of directors or trustees, there must be present, either in person or through
a representative authorized to act by written proxy, the owners of majority of the
outstanding capital stock, or if there be no capital stock, a majority of the members entitled
to vote. When so authorized in the bylaws or by a majority of the board of directors, the
stockholders or members may also vote through remote communication or in absentia:
Provided, That the right to vote through such modes may be exercised in corporations
vested with public interest, notwithstanding the absence of a provision in the bylaws of such
corporations (Sec. 23, RCC)
Rule on counting of votes: in the AOI, the number of directors/trustees must be provided.

CUMULATIVE VOTING:
a. Stock Corporations
In stock corporations, stockholders entitled to vote shall have the right to vote the number
of shares of stock standing in their own names in the stock books of the corporation at the
time fixed in the bylaws or where the bylaws are silent at the time of the election.
for example: A has 10 shares and 5 directors are to be elected. 10x5=50. So, A has 50 votes
b. Non-stock
Unless otherwise provided in the articles of incorporation or in the bylaws, members of
nonstock corporations may cast as many votes as there are trustees to be elected by
may not cast more than one (1) vote for one (1) candidate.

METHODS OF VOTING FOR ELECTION OF BOD

A. Straight Voting- may vote such number of shares for as many persons as there are to be
elected. Spread; distribute
B. Cumulative Voting for One Candidate- a stockholder is allowed to concentrate his votes
and give one candidate as many votes as the number of directors to be elected multiplied
by the number of his shares equal.
-used by minority group. All votes to 1 candidate. In earlier example, A, who has 50
votes, all her votes goes to X
C. Cumulative Voting by Distribution- a stockholder may cumulate his shares by multiplying
also the number of his shares by the number of directors to be elected and distribute the
same among as many candidates as he shall see fit.
-distribute but in favor of as he sees fit. A, who has 50 votes, gives B 25 votes and C
25 votes.

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 ATTY Z: What if 5 seats for Director to be voted but 5 candidates. Can A distribute all his
votes to the 7 candidates or 5 only? YES, the law allows it. As many candidates as he sees fit.
Provided, That the total number of votes cast shall not exceed the number of shares owned
by the stockholders as shown in the books of the corporation multiplied by the whole
number of directors to be elected

VOTING VIA REMOTE MEANS

A stockholder or member who participates through remote communication or in absentia,
shall be deemed present for purposes of quorum.
However, that the right to vote through such modes may be exercised in corporations vested
with public interest, notwithstanding the absence of a provision in the bylaws of such
corporations (Sec. 23, RCC).

ELECTION OF BOD MEMBERS

There must be a quorum. At all elections of directors or trustees, there must be present,
either in person or through a representative authorized to act by written proxy, the owners
of majority of the outstanding capital stock, or if there be no capital stock, a majority of
the members entitled to vote.
-cam be one person for One Person Corporation
The election must be by ballot if requested by any voting stockholder or member.
-ballot voting is impracticable. However, any stockholder may demand ballot
voting.
Plurality rule- duly elected highest count of votes is the winner. No need majority votes.

BOARD MEMBER QUALIFICATIONS

-elected from among stockholders/members
-delinquent shareholder are not qualified

ANTI-DUMMY LAW
The election of foreigners as members of the BOD or governing body of corporations or
associations engaging in partially nationalized activities shall be allowed in proportion to
their allowable participation or share in the capital of such entities (Sec. 2-A, Anti-dummy
Law)
Example: 40% foreigners only

DIRECTORS ELECTED FROM STOCKHOLDERS

Whether or not a provision in By-laws allocating 1 seat to GCHS is allowed? NO for 1 trustee
who did not undergo election.
“The board of directors of corporations must be elected from among the stockholders or
members. There may be corporations in which there are unelected members in the board
but it is clear that in the examples cited by petitioner the unelected members sit as ex officio
members, i.e., by virtue of and for as long as they hold a particular office. But in the case of
petitioner, there is no reason at all for its representative to be given a seat in the board. Nor
does petitioner claim a right to such seat by virtue of an office held. In fact it was not given
such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one” (Grace Christian High School v. Court of Appeals, G.R. No. 108905
October 23, 1997).

ANOTHER ARGUMENT is it is their practice for longest time. SC held that all trustees are to
be elected. Practice however long cannot remedy defect
ATTY Z: however, they can have a right to nominate only but must undergo election.

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Sec. 24.
Corporate
Officers

Sec. 25. Report NON-HOLDING OF ELECTION

of Election of The non-holding of elections and the reasons therefor shall be reported to the Commission
Directors, within thirty (30) days from the date of the scheduled election. The report shall specify a
Trustees and new date for the election, which shall not be later than sixty (60) days from the scheduled
Officers, Non- date.
Holding of If no new date has been designated, or if the rescheduled election is likewise not held, the
Election and Commission may, upon the application of a stockholder, member, director or trustee, and
Cessation from after verification of the unjustifiable non-holding of the election, summarily order that an
Office election be held. The Commission shall have the power to issue such orders as may be
appropriate, including other directing the issuance of a notice stating the time and place of
the election, designated presiding officer, and the record date or dates for the determination
of stockholders or members entitled to vote.

Sec. 26. A person shall be disqualified from being a director, trustee or officer of any corporation if,
Disqualificatio within five (5) years prior to the election or appointment as such, the person was:
n of Directors, (a) Convicted by final judgment:
Trustees or (1) Of an offense punishable by imprisonment for a period exceeding six
Officers (6) years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise known as "The
Securities Regulation Code";
(b) Found administratively liable for any offense involving fraudulent acts; and
(c) By a foreign court or equivalent foreign regulatory authority for acts, violations
or misconduct similar to those enumerated in paragraphs (a) and (b) above.
NOTE THAT THE DISQUALIFICATIONS APPLY ALSO TO OFFICERS

Sec. 27. Any director or trustee of a corporation may be removed from office by vote of the
Removal of stockholders holding or representing at least two-thirds (2/3) of the outstanding capital
Directors or stock, or in a nonstock corporation, by a vote of at least two-thirds (2/3) of the member
Trustees entitled to vote: Provided, That such removal shall take place either at a regular meeting of
the corporation or at a special meeting called for the purpose, and in either case, after
previous notice to stockholders or members of the corporation of the intention to propose
such removal at the meeting.
-must be 2/3 votes; not majority; in By-laws, it can be provide more than 2/3 votes
but cannot be lesser than 2/3 votes
-1 share is 1 vote only

SEC HAS A POWER TO REMOVE A DIRECTOR

The Commission shall, motu proprio or upon verified complaint, and after due notice and
hearing, order the removal of a director or trustee elected despite the disqualification, or
whose disqualification arose or is discovered subsequent to an election. The removal of a
disqualified director shall be without prejudice to other sanctions that the Commission may
impose on the board of directors or trustees who, with knowledge of the disqualification,
failed to remove such director or trustee.

Sec. 28. When the vacancy is due to term expiration, the election shall be held no later that the day
Vacancies in of such expiration at a meeting called for that purpose.
the Office of When the vacancy arises as a result of removal by the stockholders or members, the
Director or election may be held on the same day of the meeting authorizing the removal and this fact
Trustee; must be so stated in the agenda and notice of said meeting.

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Emergency In all other cases, the election must be held no later than forty-five (45) days from the time
Board the vacancy arose.

EMERGENCY BOARD
However, when the vacancy prevents the remaining directors from constituting a quorum
and emergency action is required to prevent grave, substantial, and irreparable loss or
damage to the corporation, the vacancy may be temporarily filled from among the officers
of the corporation by unanimous vote of the remaining directors or trustees. The action by
the designated director or trustee shall be limited to the emergency action necessary, and
the term shall cease within a reasonable time form the termination of the emergency or
upon election of the replacement director or trustee, whichever comes earlier. The
corporation must notify the Commission within three (3) days from the creation of the
emergency board, stating therein the reason for its creation.
-no more quorum
-emergency action is required to prevent grave, substantial and irreparable loss or damage
to the corporation.
Any directorship or trusteeship to be filled by a reason of an increase in the number of
directors or trustees shall be filled only by an election at a regular or at a special meeting
of stockholders or members duly called for the purpose, or in the same meeting authorizing
the increase of directors or trustees if so stated in the notice of the meeting.

Sec. 29. WHEN IS COMPENSATION ALLOWED

Compensation a. provided in By-laws
of Directors or b. Stockholders resolution (majority vote)
Trustees c. total yearly compensation of directors exceed ten percent (10%) of the net income before
income tax of the corporation during the preceding year.

Pension may not be deemed a compensation scheme within the scope of authority given to
corporations as such authority to provide compensation may only be for future services.
Compensation to particular directors after employment has been terminated for past
services is not in any way authorized or sanctioned by law governing corporations.
(Barretto v. La Previsora Filipina, G.R. No. L-34719, December 8, 1932)

Sec. 30. Cases Where D/T/O May Be Held Personally Liable:

Liability of 1. Patently unlawful act
Directors, 2. Gross negligence or bad faith
Trustees or 3. Conflict of interest
Officers 4. Watered stocks
5. Stipulation (stating solidary liability)
6. Statute

Basic Requirements:
1. It must be alleged in the complaint that the D/O assented to patently unlawful acts of
the corporation or that the officer was guilty of gross negligence or bad faith; and
2. There must be proof that the D/O acted in bad faith. (Dimson v. Chua, G.R. No. 192318,
December 5, 2016)

Specific Instances:
1. Liability for Employee’s Dismissal
a. The lack of authorized or just cause to terminate one’s employment and the failure
to observe due process do not ipso facto mean that the corporate officer acted with
malice or bad faith. Malice or bad faith on the part of Lim as a corporate officer was
not sufficiently proven to justify a ruling holding him solidarily liable with the

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 corporation. (Lambert Pawnbrokers and Jewelry Corp. v. Binamira, G.R. No. 170464,
July 12, 2010)
- Facts: Employee, who was dismissed on the ground of retrenchment due to
business losses, sued the corporate officer.
b. To hold a director or officer personally liable for corporate obligations, two
requisites must concur: (1) it must be alleged in the complaint that the director or
officer assented to patently unlawful acts of the corporation or that the officer was
guilty of gross negligence or bad faith; and (2) there must be proof that the officer
acted in bad faith. (Ico v. STI, G.R. No. 185100, July 9, 2014)
- Facts: Employee claimed that during her stint as COO and up to her transfer
and appointment as compliance manager, she was discriminated against and
unfairly treated. She then filed a case against, among others, the president of
the corporation. The court found no bad faith or negligence on the part of the
president. Instead, the principal character that figures prominently in the case
is the SVP, who caused the employee’s hardships and suffering, whose actions
were not sanctioned by STI and were committed outside the authority given to
him (i.e., personal attack). The president may have been, for the most part,
clueless of what the SVP was doing to the employee.
c. They argued that they were not part of DMI and were not privy to its dealings; yet,
they, along with DMI, collectively raised arguments on the illegal dismissal case
against them. The officers denied having any participation in the management and
operation of DMI, but they were aware of and disclosed the circumstances
surrounding respondents’ employment, and propounded arguments refuting that
the workers were illegally dismissed. They could have revealed who operated it,
and from whom they derived the information emmodied in their pleadings. (Dutch
Movers, Inc. v. Lequin, G.R. No. 210032, April 25, 2017)
- Facts: DMI is engaged in the business of hauling LPG. Lequin is one of their
truck drivers. DMI, without filing for a notice of business closure, ceased its
hauling operation for no reason, prompting Lequin and his co-workers to file a
case for illegal dismissal against DMI and its president and general manager.
d. Evidence shows that the officer being held liable is the person responsible in the
actual running of the company and for the malicious and illegal dismissal of the
complainant; he, likewise, was shown to have a role in dissolving the original
obligor company in an obvious scheme to avoid liability. (Guillermo v. Uson, G.R. No.
198967, March 7, 2016)
e. None [of the instances where personal liability of a director or officer attaches]
were shown to be present in this case; hence, there is no reason for the officers to
be held liable for Montallana’s backwages. (Montallana v. La Consolacion College
Manila, G.R. No. 208890, December 8, 2014)
- Facts: Montallana was dismissed from work due to serious misconduct when
he made derogatory and insulting remarks about his superior, in a loud voice,
purposely to make the assistant dean hear his remarks. This case also
enumerated the cases where a director or officer may be held personally liable,
as enumerated above under “Cases Where D/T/O May Be Held Personally
Liable.”
f. Tompar (president)’s assent to patently unlawful acts of the MRII or that his acts
were tainted by gross negligence or bad faith was not alleged in the complaint,
much less proven in the course of trial. Therefore, the deletion of Tompar’s solidary
liability with MRII is in order. (Mactan Rock Industries, Inc. v. Germo, G.R. No.
228799, January 10, 2018)
- Facts: Germo is a marketing consultant for MRII on a commission basis. After
closing a deal, he was not paid his commission. Hence, this action against both
MRII and its president, Tompar. This case also enumerated the requisites for

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 holding a director or officer personally liable, as enumerated above under
“Basic Requirements.”
g. There is no evidence to support the fact that Abbott’s officers acted in bad faith or
were motivated by ill will in terminating Alcaraz. That Alcaraz was made to resign
and not allowed to enter the workplace does not necessarily indicate bad faith on
their part since a sufficient ground existed for them to actually proceed with her
termination. (Abbott Laboratories, Philippines v. Alcaraz, G.R. No. 192571, July 23,
2013)
- Facts: Employee was dismissed due to low performance. The employee also
attributed the alleged loss of her personal belongings to the officers, to which
the Court held that records are bereft of any showing that the allegations are
with merit. Bad faith cannot be presumed and he who alleges bad faith has the
onus of proving it.
2. Liability for Damages
a. In the absence of malice and bad faith, as in this case, officers of the corporation
cannot be made personally liable for liabilities of the corporation which, by legal
fiction, has a personality separate and distinct from its officers, stockholders, and
members. There is no basis to hold the directors solidarily liable with petitioner
GPI for the payment of damages in favor of Sps. Fajardo since it was not shown that
they acted maliciously or dealt with the latter in bad faith. (Gotesco Properties, Inc.
v. Fajardo, G.R. No. 201167, February 27, 2013)
- Facts: GPI failed to execute the deed and to deliver the title and physical
possession of the subject lot, prompting Sps. Fajardo, the buyer, to file with the
HLURB a complaint for specific performance or rescission of contract with
damages against GPI and its directors.
3. Liability under BP 33 (Prohibited Acts Involving Petroleum Products)
a. A member of the board of directors of a corporation cannot, by mere reason of such
membership, be held liable for the corporation’s probable violation of BP 33. If one
is not the president, general manager or managing partner, it is imperative that it
first be shown that he/she falls under the catch-all “such other officer charged with
the management of the business affairs,” before he/she can be prosecuted.” The
complaint-affidavit merely states that respondents were members of the board of
directors of ACCS. No allegation whatsoever that they were in-charge of the
management of the corporation’s business affairs. Nothing in the by-laws suggests
that respondents were directly involved in the day-to-day operations of the
corporation. Respondents, who were mere board members, were thus correctly
dropped as respondents in the complaints. (Federated LPG Dealers Association v.
Del Rosario, G.R. No. 202639, November 9, 2016)
- Facts: The case involves an action for illegal trading of petroleum products
under BP 33 and underfilling of LPG cylinders against the general manager and
directors of the corporation. Under the by-laws of the corporation, the
president appears to be the officer charged with the management of the
business affairs. Since there was no allegation or showing that one of the
respondents was the President of the corporation, none of them, therefore, can
be considered as an officer charged with the management of the business
affairs even insofar as the by-laws of the subject corporation is concerned. It is
only the general manager, which position was among those expressly
mentioned as criminally liable under paragraph 4, Sec. 3 of BP 33, as amended,
can be prosecuted for the corporation’s perceived violations of the said law.
4. Liability under BP 22 (Bouncing Checks Law)
a. The civil liability of the corporate officer for the issuance of a bouncing corporate
check attaches only if he is convicted. Conversely, therefore, it will follow that once
acquitted of the offense violating BP 22, a corporate officer is discharged from any
civil liability arising from the issuance of the worthless check in the name of the

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 corporation he represents. This is without regard as to whether his acquittal was
based on reasonable doubt or that there was a pronouncement by the trial court
that the act or omission from which the civil liability might arise did not exist.
(Pilipinas Shell Petroleum Corp. v. Duque, G.R. No. 216467, February 15, 2017)
- Facts: PSPC, a lessee of a building in Makati City, subleased a portion of the 2nd
floor of said building to TFC. The latter encountered problems in its business
operations. With the consent of PSPC, TFC assigned to FCI all its rights and
obligations under the contract of sublease. FCI failed to pay its rentals to PSPC.
FCI then issued a check, with its President and Treasurer as signatories, which
would supposedly cover FCI’s obligations to PSPC. The check was dishonored.
Consequently, a criminal action was instituted against the signatories to the
check - the President and the Treasurer - for violation of BP 22. They were
acquitted, but at the same time, ordered to pay PSPC civil indemnity in an
amount equivalent to the value of the check which bounced.
5. Liability for Illegal Trading of Securities
a. Here, there was no sufficient evidence to substantiate SEC’s allegations that
respondents acted as broker, salesman or associated person without prior
registration with the SEC. The evidence merely proves that the respondents were
not licensed to act as broker, salesman or associated person. No further proof,
however, was presented showing that they have indeed acted as such in trading
securities. While the SEC presented several confirmation of trade receipts and
documents intended to establish illegal activities, the said documents, standing
alone, could not warrant the indictment of the respondents for the offense charged.
(SEC v. Price Richardson Corp., G.R. No. 197032, July 26, 2017)
- Facts: Price Richardson Corp. and its officers and directors were charged for a
violation of the SRC, particularly, of buying and selling of securities without
SEC license.

Sec. 31. Although not all contracts with self-dealing directors are necessarily void or voidable, there
Dealings of are instances acknowledged in the principles of Corporation Law wherein such contracts
Directors, are void if they are not fair or reasonable. For instance, if there is a breach of duty of loyalty
Trustees or of a director, the contract may not be said to be fair or reasonable. (Prime White Cement
Officers with Corp. v. Intermediate Appellate Court, G.R. No. 68555, March 19, 1993)
the
Corporation

Sec. 32.
Contracts
between
Corporations
with
Interlocking
Directors

Sec. 33. Corporate Opportunity Rule: A director of a corporation is prohibited from competing
Disloyalty of a with the business in which his corporation is engaged in as otherwise he would be guilty of
Director disloyalty where profits that he may realize will have to go to the corporate funds except if
the disloyal act is ratified.
- The SC, in not sustaining a strict construction of Secs. 31 (now 30) and 34 (now 33) as
penal offenses in relation to Sec. 144 (now 158) absent unambiguous statutory
language and legislative intent to that effect, held that: “No legislative intent to
criminalize Secs. 31 and 34 was manifested in the deliberations on the [Corporation]
Code. The Code was intended as a regulatory measure, not primarily as a penal statute.
Secs. 31 to 34 in particular were intended to impose exacting standards of fidelity on

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 corporate officers and directors but without unduly impeding them in the discharge of
their work with concerns of litigation. The policy of the Code is to encourage the use of
corporate entity as a vehicle for economic growth. The penalties under Sec. 144 apply
only when the other provisions of the Code do not yet provide penalties for non-
compliance therewith.” (Ient v. Tullett Prebon [Phils.], G.R. Nos. 189158 & 189530,
January 11, 2017)
- Facts: Tradition Group (TG) and Tullett are competitors in the inter-dealer broking
business (IDB). IDBs purportedly “utilize the secondary fixed income and foreign
exchange markets to execute their banks and their bank customers’ orders, trade
for a profit and manage their exposure to risk, including credit, interest rate and
exchange rate risks.” Tullett was first to establish its presence in the PH, followed
by TG. Tullett then filed a complaint with the City Prosecutor’s Office against the
officers/employees of TG, alleging that they orchestrated mass resignation of
Tullett’s brokering staff so these employees can join TG. Tullett claims that their
violation of Secs. 31 and 34 of the Corporation Code made them criminally liable
under Sec. 144.

Sec. 34.
Executive,
Management,
and Other
Special
Committees

Title IV
POWERS OF CORPORATIONS

Sec. 35.
Corporate
Powers and
Capacity

Sec. 36. Power

to Extend or
Shorten
Corporate
Term

Sec. 37. Power

to Increase or
Decrease
Capital Stock;
Incur, Create
or Increase
Bonded
Indebtedness

Sec. 38. Power

to Deny
Preemptive
Right

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Sec. 39. Sale or
Other
Disposition of
Assets

Sec. 40. Power

to Acquire
Own Shares

Sec. 41. Power

to invest
Corporate
Funds in
Another
Corporation or
Business or for
Any Other
Purpose

Sec. 42. Power

to Declare
Dividends

Sec. 43. Power

to Enter into
Management
Contract

Sec. 44. Ultra While ordinarily, acts pertaining to matters outside the primary purpose of the corporation
Vires Acts of may be seen as ultra vires, this does not preclude the corporation from pursuing actions
Corporations that may incidentally be beneficial to the purpose the institution serves. (Republic of the
Philippines v. Acoje Mining Company, Inc., G.R. No. L-18062, February 28, 1963)

Securing the loan of another entity is outside of the purposes for which an educational
institution has been established. It may be considered ultra vires, especially as it has no
incidental benefit for the corporation whatsoever. (University of Mindanao, Inc. v. Bangko
Sentral ng Pilipinas, G.R. No. 194964, January 11, 2016)

Title V
BY-LAWS

Sec. 45.
Adoption of
By-laws

Sec. 46.
Contents of By-
laws

Sec. 47.
Amendment of
By-laws

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 Title VI
MEETINGS

Sec. 48. Kinds

of Meetings

Sec. 49.
Regular and
Special
Meetings of
Stockholders
or Members

Sec. 50. Place

and Time of
Meetings of
Stockholders
or Members

Sec. 51.
Quorum in
Meetings

Sec. 52.
Regular and
Special
Meetings of
Directors or
Trustees;
Quorum

Sec. 53. Who

Shall Preside
at Meetings

Sec. 54. Right

to Vote of
Secured
Creditors and
Administrator
s

Sec. 55. Voting

in Case of Joint
Ownership of
Stock

Sec. 56. Voting

Right for
Treasury
Shares

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Sec. 57.
Manner of
Voting;
Proxies

Sec. 58. Voting

Trusts

Title VII
STOCKS AND STOCKHOLDERS

Sec. 59.
Subscription
Contract

Sec. 60. Pre-

Incorporation
Subscription

Sec. 61.
Consideration
for Stocks

Sec. 62. In transferring stock, the secretary of a corporation acts in a purely ministerial capacity and
Certificate of does not try to decide the questions of ownership; hence, mandamus may be deemed the
Stock and appropriate remedy to compel registration of the transfer of shares. (Rural Bank of Salinas
Transfer of v. Court of Appeals, G.R. No. 96674, June 26, 1992)
Shares

Sec. 63. An innocent third party may be deemed to be in good faith in relying upon a “street
Issuance of certificate” in ascertaining the title of a person over shares of stock. A “street certificate” is
Stock one representing shares of stock that upon its face may deem the holder thereof entitled to
Certificates demand its transfer into his name from the issuing corporation. (Josefa Santamaria v. Hong
Kong and Shanghai Banking Corp., G.R. No. L-2808, August 31, 1951)

Note: At the time the Court decided upon the aforementioned case, it remarked that it was
a well-known practice that a certificate of stock, indorsed in blank is deemed quasi-
negotiable and as such the transferee thereof is justified in believing that it belongs to the
holder and transferor.

Sec. 64.
Liability of
Directors for
Watered
Stocks

Sec. 65.
Interest on
Unpaid
Subscriptions

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Sec. 66.
Payment of
Balance of
Subscription

Sec. 67.
Delinquency
Sale

Sec. 68. When

Sale May be
Questioned

Sec. 69. Court

Action to
Recover
Unpaid
Subscription

Sec. 70. Effect

of Delinquency

Sec. 71. Rights

of Unpaid
Shares, Non-
delinquent

Sec. 72. Lost or

Destroyed
Certificates

Title VIII
CORPORATE BOOKS AND RECORDS

Sec. 73. Books Regardless of a private arrangement between a stockholder transferor and a transferee, as
to be Kept; far as the corporation is concerned, it is the transferee who is the stockholder on record and
Stock Transfer in name. (Nautica Canning Corp. v. Roberto Yumul, G.R. No. 164588, October 19, 2005)
Agent
From the point of view of the corporation, it is the stockholder named on record who owns
the shares. One who alleges ownership over the shares as a purchaser thereof, should show
that requirements for effective transfer of shares in accordance with the corporation by-
laws, if any, have been complied with. (Enrique Razon v. Intermediate Appellate Court, G.R.
No. 74306, March 16, 1992)

RIGHT TO INSPECT RECORDS

It is in accord with equity, good faith and fair dealing to construe that the right to inspect
records of a stockholder may extend to the books and records of a wholly-owned subsidiary
of the corporation, which is under the possession and control of the latter. (John Gokongwei,
Jr. v. Securities and Exchange Commission, G.R. No. L-45911, April 11, 1979)

The law limits the right to inspect records to stockholders acting in good faith and for a
legitimate purpose in making his demand. Where the petitioner asks for records pertaining

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 to information he intends to use the same as leverage against the corporation, may not be
said to have been done in good faith. (Gonzales v. Philippine National Bank, G.R. No. L-33320,
May 30, 1983)

The law provides that the right to inspection may be exercised at reasonable hours on
business days throughout the year and not merely during some arbitrary period of a few
days chosen by the directors. (Pardo v. The Hercules Lumber Co., Inc., G.R. No. L-22442,
August 1, 1924)

NO RIGHT TO INSPECT RECORDS

There is a lack of probable cause when only the mere proprietary right as newly elected
directors to the documents in question is asserted and there is failure to assert right to
inspect records as stockholders. (Yujuico v. Quiambao, G.R. No. 180416, June 2, 2014)

Sec. 74. Right

to Financial
Statements

Title IX
MERGER AND CONSOLIDATION

Sec. 75. Plan of

Merger or
Consolidation

Sec. 76.
Stockholders’
or Members’
Approval

Sec. 77.
Articles of
Merger or
Consolidation

Sec. 78.
Effectivity of
Merger or
Consolidation

Sec. 79. Effects

of Merger or
Consolidation

Title X
APPRAISAL RIGHT

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Sec. 80. When
the Right of
Appraisal May
Be Exercised

Sec. 81. How It is required that a corporation possess unrestricted retained earnings at the time a
Right Is stockholder exercises his appraisal right. Otherwise, if he files a complaint in connection
Exercised therewith, he will be deemed to have no cause of action at the time of filing, even if the
corporation gains unrestricted retained earnings during the pendency of the case. (Turner
v. Lorenzo Shipping Corp., G.R. No. 157479; November 24, 2010)

Note: The Court remarked in the aforementioned case that the trust fund doctrine
backstops the requirement of unrestricted retained earnings to fund the payment of the
shares of stocks of the withdrawing stockholders. Under the doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the payment
of corporate creditors, who are preferred in the distribution of corporate assets.

The Court also correlated the rules on appraisal right to the power of a corporation to
acquire its own shares (Sec. 40, RCC).

Sec. 82. Effect

of Demand
and
Termination of
Right

Sec. 83. When

Right to
Payment
Ceases

Sec. 84. Who

Bears Costs of
Appraisal

Sec. 85.
Notation on
Certificates,
Rights of
Transferee

Title XI
NON-STOCK CORPORATION

Sec. 86. No part of its income is distributable as dividends.

Definition

Sec. 87.
Purposes

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 Chapter I
MEMBERS

Sec. 88. Right The right to vote may also be limited or denied.
to Vote Proxy attendance is generally allowed.

Sec. 89. Non-

transferability
of Membership

Sec. 90.
Termination of
Membership

Chapter II
TRUSTEES AND OFFICERS

Sec. 91. Count of trustees: not to exceed 15

Election and Term of Office of Trustees: not to exceed 3 years.
Term of
Trustees

Sec. 92. List of

Members and
Proxies, Place
of Meetings

Chapter III
DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS

Sec. 93. Rules 1. Debts

of Distribution 2. Donated properties subject to reversion
- Donation with a reversion clause.
3. Donated properties subject to transfer or similar institutions
4. Remaining assets: Members
- There is opportunity on the part of members to share in the assets but only
upon legal dissolution of the non-stock corporation.
- This is the exception to the general rule that no part of its income is
distributable as dividends.
5. Plan of distribution

Sec. 94. Plan of A non-stock corporation cannot be converted into a stock corporation by mere amendment
Distribution of of its AOI. There would then be distribution of assets of NS to its members which will make
Assets them stockholder.

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 Title XII
CLOSE CORPORATIONS

Sec. 95.
Definition and
Applicability
of Title

Sec. 96. AOI

Sec. 97.
Validity of
Restrictions on
Transfer of
Shares

Sec. 98. Effects

of Issuance or
Transfer of
Stock in
Breach of
Qualifying
Conditions

Sec. 99.
Agreements by
Stockholders

Sec. 100.
When a Board
Meeting Is
Unnecessary
or Improperly
Held

Sec. 101. Pre-

emptive Right
in Close
Corporations

Sec. 102.
Amendment of
AOI

Sec. 103.
Deadlocks

Sec. 104.
Withdrawal of
Stockholder or
Dissolution of
Corporation

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 Title XIII
SPECIAL CORPORATIONS

Chapter I
EDUCATIONAL CORPORATIONS

Sec. 105.
Incorporation

Sec. 106.
Board of
Trustees

Chapter II
RELIGIOUS CORPORATIONS

Sec. 107.
Classes of
Religious
Corporations

Sec. 108.
Corporation
Sole

Sec. 109. AOI

Sec. 110.
Submission of
AOI

Sec. 111.
Acquisition
and Alienation
of Property

Sec. 112.
Filling of
Vacancies

Sec. 113.
Dissolution

Sec. 114.
Religious
Societies

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 Chapter III
ONE PERSON CORPORATIONS

Sec. 115. The OPC used to be limited to religious corporations where the chief archbishop, rabbi, or
Applicability presiding elder of the religious denomination, sect or church can apply for and become a
of Provisions sole corporation.
to OPCs
Anyone (even those with non-profit endeavor) may be a single proprietor.

No need for 4 other incorporators. No need for a board of directors.

Sec. 116. OPC Definition: A corporation with a single stockholder (Sec. 116)
- May be a stock or non-stock corporation.
- Who May and May Not Incorporate as an OPC (Sec. 116):
- ONLY a natural person, trust, or an estate may form an OPC.
- The trust, administrator, executor, guardian must have proof of authority.
- The trust refers to the subject matter being managed by the trustee.
- The term of the OPC is perpetual.
But for trust or estate - it is coterminous with the existence of the trust or
estate. Hence, it is dissolved upon proof of the termination of the trust.
- Check SEC MC 7, 2019
- The following MAY NOT INCORPORATE AS AN OPC:
1. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-
listed companies, and non-chartered GOCCs may not incorporate as OPC.
2. A natural person who is licensed to exercise a profession may not organize
as an OPC for the purpose of exercising such profession except as
otherwise provided under special laws.

- May a foreign national own an OPC? Yes, but subject to applicable capital
requirement/constitutional and statutory restriction on foreign participation. (Sec.
15, SEC MC 7, 2019)

- Transactions: Must wait for COI before transacting business, otherwise,

transactions shall be covered by the rule on corporation by estoppel.

ADVANTAGES OPC OVER SOLE PROPRIETORSHIP

Sole Proprietorship One Person Corporation

Personal liability for the risks of the Single stockholder enjoys limited liability
business as corporate assets treated separately.

When the single proprietor dies, the assets If the heirs would like to continue
of his business as well as liabilities are business, succession and business
passed on to his children/heirs - but not continuity is assured. The license
the license over the business, which previously owned may still be used by the
expires along with the individual heirs because it has separate personality.
businessman. This perpetuity is preserved even if the
OPC owner is mortal.

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 If a sole proprietorship gets bigger and Without changing its registration or
would later wish to change its form of disturbing continuity of life, an OPC can
business to a corporation, cessation of change into a regular corporation where it
business as a single proprietorship or to can receive investors or admit strategic
transfer assets to a regular corporation partners. All the OPC needs to do is to
can have tax costs. amend its AOI to follow required
governance for regular corporation.
1

Sec. 117.
Minimum
Capital Stock
Not Required
for OPC

Sec. 118. AOI Only the Articles of Incorporation is required.

Sec. 119. By- Submission of BL: NOT required to submit and file corporate BL (Sec. 119)
Laws
Rationale: BL are intended to regulate relationship inter se of directors or trustees and
officers; no such necessity in an OPC since it is the single stockholder who shall act for the
corporation, and because there are a limited number of officers in an OPC.

Sec. 120. Shall indicate the letters “OPC” either below or at the end of its corporate name (Sec. 120)
Display of
Corporate
Name

Sec. 121. The single stockholder shall be the sole director and president of the OPC (Sec. 121)
Single
Stockholder as
Director,
President

Sec. 122. Officers:

Treasurer, - Within 15 days from the issuance of its COI, the OPC shall appoint a treasurer,
Corporate corporate secretary, and other officers as it may deem necessary (Sec. 122)
Secretary, and - The single stockholder may NOT be appointed as the corporate secretary (Sec. 122)
Other Officers - Rationale: This is a safeguard against possible abuse because resolutions and
record-keeping should be made by an individual different from the owner.
- If the single stockholder is also the self-appointed treasurer: BOND requirement,
which shall be renewed every 2 years or as often as may be required (Sec. 122).
Purpose: To cover potential liabilities to third parties who deal or transact with
OPC
- See Sec. 10 of SEC MC 7, 2019 for the schedule of bond - depends upon ACS.

Sec. 123.
Special
Functions of
the Corporate
Secretary

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Sec. 124. The single stockholder shall designate a nominee and an alternate nominee who shall, in
Nominee and the event of the single stockholder’s death or incapacity, take the place of the single
Alternate stockholder as director and shall manage the corporation’s affairs. (Sec. 124)
Nominee - The AOI shall state the (1) names, (2) residence addresses and (3) contact details
of the nominee and alternate nominee, as well as the (4) extent and limitations of
their authority in managing the affairs of the OPC. (Sec. 124)
- Purpose: for succession; to ensure continuity of the business of the OPC despite the
death or incapacity of the single stockholder
- It needs written consent of the nominee and alternate nominee, and must be
attached to the application for incorporation.
- Consent may be withdrawn in writing any time before the death or incapacity of
the single stockholder.

Sec. 125. Term

of Nominee
and Alternate
Nominee

Sec. 126. IF DUE TO DEATH OF SINGLE STOCKHOLDER:

Change of
Nominee or (1) Nominee or alternate nominee shall transfer the shares to the duly designated legal heir
Alternate or estate within 7 days from receipt of either an affidavit of heirship or self-adjudication
Nominee executed by a sole heir, or any other legal document declaring the legal heirs of the single
stockholder and notify the SEC of the transfer.
- The Corporate Secretary has the duty to notify the nominee/SEC within 5 days from
occurrence of death or incapacity.

(2) Within 60 days from the transfer of the shares, the legal heirs shall notify the SEC of their
decision to either wind up and dissolve the OPC or convert it into an ordinary stock
corporation. (Sec. 132)
- Nothing compels the heirs to continue the OPC.

Sec. 127.
Minutes Book

Sec. 128. Records in Lieu of Meetings: When action is needed on any matter, it shall be sufficient to:
Records in (1) prepare a written resolution (2) signed and dated by the single stockholder, and (3)
Lieu of recorded by the corporate secretary in the minutes book of the OPC. (Sec. 128)
Meetings - The date of recording in the minutes book shall be deemed to be the date of the
meeting for all purposes under this Code. (Sec. 128)
This is why the single stockholder cannot be the corporate secretary: to ensure
reliability, credibility, integrity, and authenticity of resolutions

Sec. 129.
Reportorial
Requirements

Sec. 130. Liability of the Single Shareholder:

Liability of - A sole shareholder claiming limited liability has the burden of affirmatively
Single showing that the corporation was adequately financed. (Sec. 130)
Shareholder - One of the attractive features of a private corporation is that the owners
thereof enjoy limited liability as far as third persons are concerned, i.e., only up
to the extent of his contribution to the business. Same applies to OPCs.
- Purpose: To prevent using the corporation to avoid personal liability; to avoid
piercing of the corporate veil

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 - Where the single stockholder cannot prove that the property of the OPC is
independent of the stockholder’s personal property, the stockholder shall be jointly
and severally liable for the debts and other liabilities of the OPC. (Sec. 130)
- Similar to the extent of liability of a general partner for the debts of the
partnership
- The principles of piercing the corporate veil applies with equal force to OPCs as
with other corporations. (Sec. 130)

Sec. 131. Ordinary Stock Corporation to OPC (Example: Buy out by Mr. Ogad of the shares of other SHs.)
Conversion - When a single stockholder acquires all the stocks of an ordinary stock corporation,
from an the latter may apply for conversion to OPC, subject to the submission of such
Ordinary documents as the SEC may require (Sec. 131)
Corporation to - The OPC converted from an ordinary stock corporation shall succeed the latter and
an OPC be legally responsible for all the latter’s outstanding liabilities as of the date of
conversion (Sec. 131).

Sec. 132. OPC to Ordinary Stock Corporation (Example: Mr. Ogad sells out his shares to various
Conversion investors)
from an OPC to - An OPC may be converted into an ordinary stock corporation after due notice to
an Ordinary the SEC of such fact and of the circumstances leading to the conversion. (Sec. 132)
Stock - Amendment of AOI will suffice. No necessity of undergoing dissolution or
Corporation distribution of assets.
- Assumption of Liabilities: The ordinary stock corporation converted from an OPC
shall succeed the latter and be legally responsible for all the latter’s outstanding
liabilities as of the date of conversion. (Sec. 132)

Title XIV
DISSOLUTION

Sec. 133. Mere change in the corporate name does not result in dissolution of a corporation nor does
Methods of it indicate creation of a new corporation. Such a renamed corporation may still be held liable
Dissolution for obligations incurred under its old name. (Zuellig Freight and Cargo Systems, Inc. v.
National Labor Relations Commission, G.R. No. 157900, July 22, 2013)

Sec. 134.
Voluntary
Dissolution
Where No
Creditors Are
Affected

Sec. 135.
Voluntary
Dissolution
Where
Creditors Are
Affected

Sec. 136.
Dissolution by
Shortening

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Corporate
Term

Sec. 137.
Withdrawal of
Request and
Petition for
Dissolution

Sec. 138.
Involuntary
Dissolution

Sec. 139.
Corporate
Liquidation

Title XV
FOREIGN CORPORATIONS

Sec. 140. If a foreign corporation is doing business in the Philippines with the required license, it
Definition and can sue before the Philippine courts on any transactions.
Rights of
Foreign If a foreign corporation is doing business in the Philippines without the required license, it
Corporations cannot sue before the Philippine courts on any transactions.
Exception:
- ESTOPPEL: A foreign corporation doing business in the Philippines may be sued in
Philippine courts although not authorized to do business here against a Philippine
citizen who had contracted with and had been benefited by the said corporation.
Here the business relations spanned for 7 years and the parties evidently found
those relations to be of such profitability as warranted their maintaining them for
that significant period of time (Merrill Lynch Futures, Inc. vs. Court of Appeals, 211
SCRA 824, GR. No. 97816, July 24, 1992).

The case is not isolated since the contract was for a period of 20 years. But the
license requirement is dispensed with. Global is estopped from challenging
Surecomp’s capacity to sue. A party estopped from challenging the personality of a
corporation after having acknowledged the same by entering into contract with it.
The principle is applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract (Global Business
Holdings, Inc. vs. Surecomp Software, B.V., GR. No. 173463, October 13, 2010).
- Atty. Z: In this case, discussion of estoppel is on the effect of merger
wherein Global will assume all debts of Surecomp. Kulang yung discussion.
But there is estoppel, accdg. to SC.

However, it may be sued.

If a foreign corporation is not doing business in the Philippines, it needs no license to sue
before Philippine courts on an isolated transaction or on a cause of action entirely
independent of any business transaction.

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 DOING BUSINESS

TESTS ON DOING BUSINESS:

1. Substance Test - whether the foreign corporation is continuing the body of the
business or enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another.
2. Continuity Test - continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of
some of the functions normally incident to and in the progressive prosecution of,
the purpose and object
3. Foreign Investment Act (RA 7042):
- soliciting orders, service contracts, opening offices, whether called
"liaison" offices or branches;
- appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods
totalling one hundred eighty (180) days or more;
- participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and
- CATCH ALL: any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident
to, and in progressive prosecution of, commercial gain or of the purpose
and object of the business organization:
CASES:
1. An offline carrier is "any foreign air carrier not certificated by the [Civil
Aeronautics] Board, but who maintains office or who has designated or appointed
agents or employees in the Philippines, who sells or offers for sale any air
transportation in behalf of said foreign air carrier and/or others, or negotiate for,
or holds itself out by solicitation, advertisement, or otherwise sells, provides,
furnishes, contracts, or arranges for such transportation.

There is no specific criterion as to what constitutes "doing" or "engaging in" or

"transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance
of acts or works or the exercise of some of the functions normally incident to,
and in progressive prosecution of commercial gain or for the purpose and
object of the business organization. "In order that a foreign corporation may be
regarded as doing business within a State, there must be continuity of conduct and
intention to establish a continuous business, such as the appointment of a local
agent, and not one of a temporary character.

Sale of tickets in the Philippines through an agent partakes doing business. The acts
of the agent brought profits to the corporation. There is no evidence that Aerotel
sold the tickets for its own accounts. Aerotel cannot even enter into contracts
without permission of Air Canada. The authority to operate by Aerotel lasted for 5
years, hence, there is continuity of operations (Air Canada vs. Commissioner of
Internal Revenue, GR. 169507, January 11, 2016).

2. Transactions were not isolated or causal. The issuance of 12 marine insurance

manifested continuity of operations of corporation and its intent to establish
business (General Corporation and Mayon Investment vs. Union Insurance Society of
Canton Ltd. G.R. No. 2684, September 14, 1950).

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 3. The act of negotiating to employ a Filipino national to run a foreign company’s pre-
mixed concrete operations in the Philippines are managerial and operational acts
in directing and establishing commercial operations in the Philippines. These are
not mere acts of a passive investor. Evidence shows extent of PIL’s participation in
engaging Todaro to carry out such managerial acts. Hence, it is considered doing
business (Pioneer International v. Guadiz, GR. No. 156848, October 11, 2007).

4. Sale of Eriks of the items covered by the receipts, which are part and parcel of its
main product line, was actually carried out in the progressive prosecution of
commercial gain and the pursuit of the purpose and object of its business. The fact
that the corporation offered a 90-day credit term shows the intent to establish a
good relationship with customers. This is an indication of intent to continue doing
business in the Philippines (Eriks PTE Ltd. vs. Court of Appeals, G.R. No. 118843,
February 6, 1997).

5. Mere participation in the bidding process constitutes doing business because it

shows the foreign corporations intention to engage in business. The bidding for the
concession contract is but an exercise of the corporation’s reason for its existence.
Hence, a license is needed for it to sue (Hutchinson Ports Philippines Limited v.
SBMA, G.R. No. 131367, August 31, 2000).

NOT DOING BUSINESS

1. Mere investment as a shareholder by a foreign entity in domestic corporations duly

registered to do business, and/or the exercise of rights as such investor;
2. Nor having a nominee director or officer to represent its interests in such
corporation;
3. Nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;
4. Publication of a general advertisement through nay print or broadcast media.
5. Maintenance of stock of goods in the Philippines solely for the purpose of having
the same processed by another entity in the Philippines
6. Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export.
7. Collecting information in the Philippines;
8. Performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training domestic
workers to operate it, and similar incidental service. (IRR of RA 7042)

- The appointment of a distributor in the Philippines is not sufficient to constitute

doing business unless it is under the full control of the foreign corporation. On the
other hand, if the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines.

CASES:
1. The transaction does not bring direct receipts or profits to Cargill. It was NMC
which derived income from the transaction and not Cargill. To constitute doing
business, the activity undertaken in the Philippines should involve profit-making.
Cargill is a foreign company merely importing molasses from a Philippines
exporter. A foreign company that merely imports goods from a Philippine exporter,
without opening an office or appointing an agent in the Philippines, is not doing
business in the Philippines. Intra had no legitimate reason to refuse payment under

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 the performance and surety bonds when NMC failed to perform its part under its
contract with Cargill (Cargill Inc. vs. Intra Strate Assurance, GR. No. 168266, March
15, 2010).

The series of transactions between petitioner and respondent transpired and were
consummated in Hong Kong. We also find no single activity which petitioner
performed here in the Philippines pursuant to its purpose and object as a business
organization. Moreover, petitioner's desire to do business within the Philippines is
not discernible from the allegations of the complaint or from its attachments.
Therefore, there is no basis for ruling that petitioner is doing business in the
Philippines. The mere act of exporting from one's own country, without doing any
specific commercial act within the territory of the importing country, cannot be
deemed as doing business in the importing country. The importing country does
not acquire jurisdiction over the foreign exporter who has not performed any
specific commercial act within the territory of the importing country. Otherwise,
this will require Philippine exporters to secure a business license in every foreign
country where they usually export their products, even if they do not perform any
specific commercial act within the territory of such importing countries. Such a
legal concept will have a deleterious effect not only on Philippine exports, but also
on global trade.

To be doing or "transacting business in the Philippines" for purposes of Section 133

of the Corporation Code, the foreign corporation must actually transact business
in the Philippines, that is, perform specific business transactions within the
Philippine territory on a continuing basis in its own name and for its own account.
Actual transaction of business within the Philippine territory is an essential
requisite for the Philippines to acquire jurisdiction over a foreign corporation and
thus require the foreign corporation to secure a Philippine business license. If a
foreign corporation does not transact such kind of business in the Philippines, even
if it exports its products to the Philippines, the Philippines has no jurisdiction to
require such foreign corporation to secure a Philippine business license.
Considering that petitioner is not doing business in the Philippines, it does not need
a license in order to initiate and maintain a collection suit against respondent for
the unpaid balance of respondent's purchases (B. Van Zuiden Bros Ltd. vs. GTVL
Manufacturing Industries, G.R. No. 147905, May 28, 2007).

2. By the clear terms of the VAASA, Agilent’s activities in the Philippines were
confined to (1) maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by Integrated Silicon; and (2) consignment
of equipment with Integrated Silicon to be used in the processing of products for
export. Agilent cannot be deemed to be "doing business" in the Philippines.
Respondents’ contention that Agilent lacks the legal capacity to file suit is therefore
devoid of merit. As a foreign corporation not doing business in the Philippines, it
needed no license before it can sue before our courts (Agilent Technologies
Singapore vs. Integrated Silicon Technology Philippines, GR. No. 154618, April 14,
2004)

3. The complaint for damages was dismissed on the ground that plaintiff, being “a
foreign corporation or partnership not doing business in the Philippines, it cannot
exercise the right to maintain suits before our courts.” A foreign corporation not
engaged in business in the Philippines can filed an action before Philippine courts
for isolated transactions (Bulakhidas v. Navarro, G.R. No. L-49695, April 7, 1986).

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 4. Absence of license can be cured. The prohibition against doing business without
first securing a license is now given penal sanction which is also applicable to other
violations of the Corporation Code under the general provisions of Section 144 of
the Code. It is, therefore, not necessary to declare the contract nun and void even
as against the erring foreign corporation. The penal sanction for the violation and
the denial of access to our courts and administrative bodies are sufficient from the
viewpoint of legislative policy. The lack of capacity at the time of the execution of
the contracts was cured by the subsequent registration. There is no res judicata
here. As long as when the case was filed, there is already license, the impairment of
capacity is now cured and the relief may now be granted (Home Insurance Company
vs. Eastern Shipping Lines, GR. L-34382, July 20, 1983).

Sec. 141.
Application to
Existing
Foreign
Corporations

Sec. 142.
Application for
a License

Sec. 143.
Issuance of a
License

Sec. 144. Who

May be a
Resident Agent

Sec. 145.
Resident
Agent; Service
of Process

Sec. 146. Law

Applicable

Sec. 147.
Amendments
to AOI or By-
Laws of
Foreign
Corporations

Sec. 148.
Amended
License

Sec. 149.
Merger or
Consolidation
Involving a

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Foreign
Corporation

Sec. 150.
Doing Business
without a
License

Sec. 151.
Revocation of
License

Sec. 152.
Issuance of
Certificate of
Revocation

Sec. 153.
Withdrawal of
Foreign
Corporations

Title XVI
INVESTIGATIONS, OFFENSES, AND PENALTIES

Sec. 154.
Investigation
and
Prosecution of
Offenses

Sec. 155.
Administratio
n of Oaths,
Subpoena of
Witnesses and
Documents

Sec. 156. Cease

and Desist
Orders

Sec. 157.
Contempt

Sec. 158.
Administrative
Sanctions

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Sec. 159.
Unauthorized
Use of
Corporate
Name

Sec. 160.
Violation of
Disqualificatio
n Provision

Sec. 161.
Violation of
Duty to
Maintain
Records, to
Allow Their
Inspection or
Reproduction

Sec. 162.
Willful
Certification of
Incomplete,
Inaccurate,
False, or
Misleading
Statements or
Reports

Sec. 163.
Independent
Auditor
Collusion

Sec. 164.
Obtaining
Corporate
Registration
Through
Fraud

Sec. 165.
Fraudulent
Conduct of
Business

Sec. 166.
Acting as
Intermediaries
for Graft and
Corrupt
Practices

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Sec. 167.
Engaging
Intermediaries
for Graft and
Corrupt
Practices

Sec. 168.
Tolerating
Graft and
Corrupt
Practices

Sec. 169.
Retaliation
Against
Whistleblower
s

Sec. 170. Other

Violations of
the Code

Sec. 171.
Liability of
Directors,
Trustees,
Officers, or
Other
Employees

Sec. 172.
Liability of
Aiders and
Abettors and
Other
Secondary
Liability

Title XVII
MISCELLANEOUS PROVISIONS

Sec. 173.
Outstanding
Capital Stock
Defined

Sec. 174.
Designation of
Governing
Boards

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Sec. 175.
Collection and
Use of
Registration,
Incorporation
and Other Fees

Sec. 176. Stock

Ownership in
Corporations

Sec. 177.
Reportorial
Requirements
of
Corporations

Sec. 178.
Visitorial
Power and
Confidential
Nature of
Examination
Results

Sec. 179.
Powers,
Functions, and
Jurisdiction of
the SEC

Sec. 180.
Development
and
Implementatio
n of Electronic
Filing and
Monitoring
System

Sec. 181.
Arbitration for
Corporations

Sec. 182.
Jurisdiction
over Party-List
Organizations

Sec. 183.
Applicability
of the Code

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Sec. 184.
Effect of
Amendment or
Repeal of this
Code, or the
Dissolution of
a Corporation

Sec. 185.
Applicability
to Existing
Corporations

Sec. 186.
Separability
Clause

Sec. 187.
Repealing
Clause

Sec. 188.
Effectivity

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