REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

RFBT2-Partnership and Corporation

LECTURE NOTES

PARTNERSHIP The partnership has a judicial personality separate and

PARTNERSHIP
 By the contract of partnership two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of
a profession. (1767).
Note: Since a partnership is a contract, all agreement
between the parties has the force of law between the
contracting parties (1159) provided it is not contrary to
law, moral, good custom, public order and public policy.
(1306)
distinct from that of each of the partners, even in case
of failure to comply with the requirements of article
1772, first paragraph (1768). However, Associations
and societies, whose articles are kept secret among the
members, and wherein any one of the members may
contract in his own name with third persons, shall have
no juridical personality. (1775)
A partnership begins from the moment of the execution
of the contract, unless it is otherwise stipulated. (1784)
2. Lawful object or purpose (1770). Any event which
makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in
partnership caused for automatic dissolution of the
partnership. (1830)

Distinction between partnership and Co- ownership EFFECTS OF UNLAWFUL PARTNERSHIP

1. Creation 1. The contract is void ab initio and the partnership
2. Juridical personality never existed in the eyes of the law
3. Purpose 2. The profits shall be confiscated in favor of the
4. Duration government
5. Disposal of interest 3. The instruments or tools and proceeds of the crime
6. Power to act with third person shall also be forfeited in favor of the government
7. Effect of death 4. The contributions of the partners shall not be
confiscated unless they fall under no. 3
Distinction between Partnership and conjugal partnership of
gain 3. Contribution of money, property or industry to a
1. Parties common fund.
2. Laws which govern
3. Juridical personality Obligations with respect to contribution to
4. Commencement partnership capital
5. Purpose
6. Distribution of profits 1. Partners must contribute equal shares to the capital
7. Management of the partnership unless there is stipulation to
8. Disposition of shares contrary. (Art 1790).
2. Partners (capitalist) must contribute additional
Distinction between partnership and voluntary association capital In case of imminent loss to the business of
1. Juridical personality the partnership and there is no stipulation
2. Purpose otherwise; refusal to do so shall create an
3. Contribution of members obligation on his part to sell his interest to the
4. Liability of members other partners. (Art. 1791)
Requisites:
Characteristics a. There is an imminent loss of the business of the
1. Consensual partnership
2. Nominate b. The majority of the capitalist partners are of the
3. Bilateral opinion that an additional contribution to the
4. Onerous common fund would save the business
5. Commutative c. The capitalist partner refuses deliberately to
6. Principal contribute (not due to financial inability)
7. Preparatory d. There is no agreement to the contrary
RISK OF LOSS OF THINGS CONTRIBUTED
 A partnership may be constituted in any form, except Contributed property Loss to be borne by
where immovable property or real rights are Partnership Partner
contributed thereto, in which case a public Specific and determinate √
instrument shall be necessary. (1771) things which are not fungible
 A contract of partnership is void, whenever immovable where only the use is
property is contributed thereto, if an inventory of said contributed
property is not made, signed by the parties, and Specific and determinate √
attached to the public instrument. (1773) things the ownership of which
 Every contract of partnership having a capital of three is transferred to the
thousand pesos or more, in money or property, shall
partnership
appear in a public instrument, which must be recorded
in the Office of the Securities and Exchange
Fungible things (consumable) √
Commission.
 Failure to comply with the requirements of the Cannot be kept without √
preceding paragraph shall not affect the liability of the deteriorating
partnership and the members thereof to third persons. Things contributed to be sold √
(1772) Things brought and appraised √
in the inventory (limited to
Requisites value appraised)
1. Valid Contract  If one of the Partners refused to give contribution,

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the other partner may compel him to deliver person is concerned. But the stipulation is valid among the
(Specific performance) what he has promised. partners. (1817)
 The partnership is dissolved when a specific thing
which a partner had promised to contribute to the 5. Established for the common benefit or interest of the
partnership, perishes before the delivery. (1830,4) partners. (1770) Hence, A stipulation which excludes
one or more partners from any share in the profits or
4. Intent to divide the profit among the partners. losses is void. (1799).
(1767). Note: Only the agreement as to profit and loss is void
RULES FOR DISTRIBUTION OF PROFITS AND not the partnership itself. In such case, as if there is no
LOSSES agreement as to profit and loss and the profit and loss
DISTRIBUTION OF DISTRIBUTION OF are distributed in accordance with capital contribution.
PROFITS LOSSES
Test to determine whether partnership exists:
With According to According to 1. Persons who are not partners as to each other are not
agreement partners as to third persons; except estoppels (1825).
agreement agreement
2. Co-ownership or co-possession does not of itself
establish a partnership, whether such-co-owners or co-
Without 1. Share of 1. If sharing of
possessors do or do not share any profits made by the
agreement capitalist partner profits is
use of the property;
is in proportion stipulated -
3. The sharing of gross returns does not of itself establish
to his capital apply to sharing
a partnership, whether or not the persons sharing them
contribution of losses
have a joint or common right or interest in any
2. Share of 2. If no profit
property from which the returns are derived;
industrial partner sharing
4. The receipt by a person of a share of the profits of a
is not fixed - as stipulated -
business is prima facie evidence that he is a partner in
may be just and losses shall be
the business, but no such inference shall be drawn if
equitable under borne according
such profits were received in payment: (DRAWInG)
the to capital
a. Debt by installments or otherwise;
circumstances contribution
b. As Rent to a landlord or
3. Purely industrial
c. As an Annuity to a widow or representative of a
partner not liable
deceased partner;
for losses
d. Wages of an employee
e. As Interest on a loan, though the amount of
Distribution of profit and losses: (1797) payment vary with the profits of the business;
a. Profit or losses shall be distributed in conformity f. As the consideration for the sale of a Goodwill of a
with the agreement; business or other property by installments or
b. If only the share of each partner in the profits has otherwise.
been agreed upon, the share of each in the losses
shall be in the same proportion. Note that industrial Reason: It s not merely the sharing of profits, but rather
partner is not liable for the loss unless there is the sharing of them as a co-owner of the business that
express stipulation to the contrary. makes one a partner. Hence, the test is “Does the recipient
c. In the absence of stipulation, the share of each of profit received it as co-owner/proprietor of the
partner in the profits and losses shall be in business”, if the answer is in affirmative a partnership
proportion to what he may have contributed, but exists.
the industrial partner shall not be liable for the
losses. Classifications of Partnership
d. As for the profits, the industrial partner shall As to liability of partners
receive such share as may be just and equitable 1. General partnership - consists of general partners who
under the circumstances. If besides his services he are liable pro rata and subsidiarily and sometimes
has contributed capital, he shall also receive a solidarily with their separate property for partnership
share in the profits in proportion to his capital. debts
2. Limited partnership - one formed by 2 or more persons
Designation of profit and losses having as members one or more general partners and
1. The designation of losses and profits cannot be one or more limited partners, the latter not being
intrusted to one of the partners. personally liable for the obligations of the partnership
2. If the partners have agreed to intrust to a third person As to duration
the designation of the share of each one in the profits 1. Partnership at will - one in which no time is specified
and losses, such designation may be impugned only and is not formed for a particular undertaking or
when it is manifestly inequitable. In no case may a venture which may be terminated anytime by mutual
partner who has begun to execute the decision of the agreement
third person, or who has not impugned the same within 2. Partnership with a fixed term or particular undertaking
a period of three months from the time he had - the term for which the partnership is to exist is fixed
knowledge thereof, complain of such decision. (1798) or agreed upon or one formed for a particular
undertaking
Nota Bene: As to extent of its subject matter
All partners, including industrial ones, shall be liable pro 1. Universal partnership is either
rata with all their property and after all the a. Universal partnership of all present property - the
partnership assets have been exhausted, for the property which belongs to each of the partners at
contracts which may be entered into in the name and for the time of the constitution of the partnership,
the account of the partnership, under its signature and by a becomes the common property of all the partners,
person authorized to act for the partnership. However, any as well as all the profits which they may acquire
partner may enter into a separate obligation to perform a therewith.(1779) A stipulation for the common
partnership contract. (1816) Any stipulation exempting any enjoyment of any other profits may also be made
partner against the liability shall be void as far as 3 rd (There must be a stipulation. e.g. salary that may

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be earn by the partner); but the property which the
partners may acquire subsequently by inheritance,
legacy, or donation cannot be included in such
stipulation, except the fruits thereof. Articles of
universal partnership, entered into without
specification of its nature, only constitute a
universal partnership of profits. (1781)
b. Universal partnership of all profits - all that the
partners may acquire by their industry or work
during the existence of the partnership. Movable or
immovable property which each of the partners
may possess at the time of the celebration of the
contract shall continue to pertain exclusively to
each, only the usufruct passing to the partnership.
(1780)
Note: Persons who are prohibited from giving each
other any donation or advantage cannot enter into
universal partnership
The following cannot enter in a universal partnership:
a. Between those who were guilty of adultery or
concubinage;
b. Between those persons found guilty of the same
criminal offense (adultery or concubinage), in
consideration thereof;
c. Between a person and Public officer or his wife,
descedants and ascendants, by reason of his office.
(739)
2. Particular partnership – object determinate things, their
use or fruits, or specific undertaking, or the exercise of
a profession or vocation (1783)
As to representation to others
1. Ordinary or real partnership - one which actually exists
among the partners and also as to 3rd persons
2. Ostensible or partnership by estoppel - one which in
reality is not a partnership but is considered a
partnership only in relation to those who, by their
conduct or omission, are precluded to deny or disprove
its existence
As to legality of existence
1. De jure partnership – comply all requirement of the law
2. De facto partnership – do not comply all requirement of
the law
As to publicity
1. Secret partnership - one wherein the existence of
certain persons as partners is not avowed or made
known to the public by any of the partners
2. Open or notorious partnership - one whose existence is
avowed or made known to the public by the members
of the firm
As to purpose
1. Commercial or trading partnership - one formed for the
transaction of business
2. Professional or non trading partnership - one formed
for the exercise of a profession
Kinds of partners
1. Capitalist partner – One who contribute money or
property
2. Industrial partner – One contribute industry. He is not
liable for loss as between the partners but liable pro
rata as to 3rd person.
3. Capitalist-industrial partner – One who contribute
money, property or industry.
4. General partner – liable to the extent of his separate
property
5. Limited partner – liable only to the extent of his capital
contribution. Not allowed to contribute industry.
6. Silent partner – do not participate in the management.
7. Continuing Partner - one who continues the business of
a partnership after it has been dissolved by reason of
the admission of a new partner, retirement, death or
expulsion of one of the partners
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8. Surviving Partner - one who remains after a
partnership has been dissolved by death of any partner
9. Subpartner - one who is not a member of the
partnership who contracts with a partner with reference
to the latter's share in the partnership
10. Secret partner – not known by third person
11. Dormant partner – silent and secret
12. Ostensible partner – participate in the management
and known by third person
13. Partners by estoppels or nominal partner – not really
partners but only as a result of misrepresentation to 3rd
person
14. Managing partner – one manage the partnership
15. Liquidating partner – one who wind-up the affair of the
partnership
16. Retiring partner – one who retire in the partnership
17. Incoming partner – One who is admitted to the
partnership
RELATIONS CREATED BY A CONTRACT OF
PARTNERSHIP
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with 3rd persons with
whom it contracts
4. Relations of the partners with such 3rd persons
OBLIGATIONS OF PARTNERS
 A partnership begins from the moment of the execution
of the contract, unless it is otherwise stipulated. (1784)
 When a partnership for a fixed term or particular
undertaking is continued after the termination of such
term or particular undertaking without any express
agreement, the rights and duties of the partners
remain the same as they were at such termination, so
far as is consistent with a partnership at will.
A continuation of the business by the partners or such
of them as habitually acted therein during the term,
without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the
partnership. (1785)
Obligations with respect to contribution of
property:
1. To contribute at the beginning of the partnership or
at the stipulated time the money, property or
industry which he may have promised to contribute
2. To answer for eviction in case the partnership is
deprived of the determinate property contributed
3. To answer to the partnership for the fruits of the
property the contribution of which he delayed, from
the date they should have been contributed up to
the time of actual delivery
4. To preserve said property with the diligence of a
good father of a family pending delivery to
partnership
5. To indemnify partnership for any damage caused to
it by the retention of the same or by the delay in its
contribution
 Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction
with regard to specific and determinate things which he
may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound
with respect to the vendee. He shall also be liable for
the fruits thereof from the time they should have been
delivered, without the need of any demand. (1786)
Effect of Failure to contribute property promised:
1. Partners becomes ipso jure a debtor of the
partnership even in the absence of any demand
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2. Remedy of the other partner is not rescission but
specific performance with damages from defaulting
partner
Obligations with respect to contribution of money
and money converted to personal use
1. To contribute on the date fixed the amount he has
undertaken to contribute to the partnership
2. To reimburse any amount he may have taken from
the partnership coffers and converted to his own
use
3. To pay for the agreed or legal interest, if he fails to
pay his contribution on time or in case he takes any
amount from the common fund and converts it to
his own use
4. To indemnify the partnership for the damages
caused to it by delay in the contribution or
conversion of any sum for his personal benefits
 A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation. (1788)
The same rule applies to any amount he may have
taken from the partnership coffers, and his liability
shall begin from the time he converted the amount to
his own use.
 Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of
the partnership. (1790)
 Art. 1791 - If there is no agreement to the contrary, in
case of an imminent loss of the business of the
partnership, any partner who refuses to contribute an
additional share to the capital, except an industrial
partner, to save the venture, shall he obliged to sell
his interest to the other partners.
 Art. 1792 - If a partner authorized to manage collects a
demandable sum which was owed to him in his own
name, from a person who owed the partnership
another sum also demandable, the sum thus collected
shall be applied to the two credits in proportion to their
amounts, even though he may have given a receipt for
his own credit only; but should he have given it for the
account of the partnership credit, the amount shall be
fully applied to the latter.
The provisions of this article are understood to be
without prejudice to the right granted to the other
debtor by article 1252 (Application for payment), but
only if the personal credit of the partner should be
more onerous to him.
Obligation of managing partners who collects
debt from person who also owed the partnership
1. Apply sum collected to 2 credits in proportion to
their amounts
2. If he received it for the account of partnership, the
whole sum shall be applied to partnership credit
Requisites:
1. The partner who collects is authorized to manage
and actually manages the partnership
2. The person owed him and the partnership
3. The partner issues a receipt in his own name only.
4. The claim of the partnership and the partner are
both due and demandable.
 Art. 1793 - A partner who has received, in whole or in
part, his share of a partnership credit, when the other
partners have not collected theirs, shall be obliged, if
the debtor should thereafter become insolvent, to bring
to the partnership capital what he received even
though he may have given receipt for his share only.
Obligation of partner who receives share of
partnership credit
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1. Obliged to bring to the partnership capital what he
has received even though he may have given
receipt for his share only
Requisites:
a. A partner has received in whole or in part, his
share of the partnership credit
b. The other partners have not collected their shares
c. The partnership debtor has become insolvent
 Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which
he may have earned for the partnership by his
industry. However, the courts may equitably lessen this
responsibility if through the partner's extraordinary
efforts in other activities of the partnership, unusual
profits have been realized. (1794)
 The risk of specific and determinate things, which are
not fungible, contributed to the partnership so that only
their use and fruits may be for the common benefit,
shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept
without deteriorating, or if they were contributed to be
sold, the risk shall be borne by the partnership. In the
absence of stipulation, the risk of the things brought
and appraised in the inventory, shall also be borne by
the partnership, and in such case the claim shall be
limited to the value at which they were appraised.
(1795)
 The partnership shall be responsible to every partner
for the amounts he may have disbursed on behalf of
the partnership and for the corresponding interest,
from the time the expense are made; it shall also
answer to each partner for the obligations he may have
contracted in good faith in the interest of the
partnership business, and for risks in consequence of
its Management. (1796)
 Every partner may associate another person with him
in his share, but the associate shall not be admitted
into the partnership without the consent of all the other
partners, even if the partner having an associate
should be a manager. (1804)
 The partnership books shall be kept, subject to any
agreement between the partners, at the principal place
of business of the partnership, and every partner shall
at any reasonable hour have access to and may inspect
and copy any of them. (1805)
 Partners shall render on demand true and full
information of all things affecting the partnership to
any partner or the legal representative of any deceased
partner or of any partner under legal disability. (1806)
 Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by
him without the consent of the other partners from any
transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of
its property. (1807)
 Any partner shall have the right to a formal account as
to partnership affairs: (1809)
a. If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
b. If the right exists under the terms of any
agreement;
c. When any partner must account to the partnership
fro profit derived by him without the consent of
other partners (1807);
d. Whenever other circumstances render it just and
reasonable.
MANAGEMENT OF THE PARTNERSHIP
RIGHTS AND OBLIGATIONS WITH RESPECT TO
MANAGEMENT
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Partner is Power of managing Vote of partners others, the concurrence of all shall be necessary for the
appointed partner is representing validity of the acts, and the absence or disability of any
manager in the irrevocable without controlling one of them cannot be alleged, unless there is
imminent danger of grave or irreparable injury to the
articles of just/lawful cause; interest
partnership. (1802)
partnership Revocable only necessary to  When the manner of management has not been agreed
when in bad faith revoke power upon, the following rules shall be observed: (1803)
a. All the partners shall be considered agents and
Partner is Power is revocable whatever any one of them may do alone shall bind
appointed any time for any the partnership, without prejudice to the provisions
manager after cause of article 1801.
constitution of b. None of the partners may, without the consent of
the others, make any important alteration in the
partnership
immovable property of the partnership, even if it
may be useful to the partnership. But if the refusal
2 or more Each may execute In case of of consent by the other partners is manifestly
persons all acts of opposition, prejudicial to the interest of the partnership, the
entrusted with administration decision of court's intervention may be sought.
management of majority shall
partnership prevail; In case General Rule:
without of tie, decision When the manner of management has not been agreed
upon, all the partners shall be considered agents and
specification of of partners
whatever any one of them may do alone shall bind the
duties/stipulation owning partnership, without prejudice to the provisions of article
that each shall controlling 1801. However, none of the partners may, without the
not act w/o the interest shall consent of the others, make any important alteration in the
other's consent prevail immovable property of the partnership, even if it may be
useful to the partnership. But if the refusal of consent by
Stipulated that Concurrence of all Absence or the other partners is manifestly prejudicial to the interest
none of the necessary for the disability of any of the partnership, the court's intervention may be sought.
(1803)
managing validity of acts one cannot be
An act of a partner which is not apparently for the carrying
partners shall act alleged unless on of business of the partnership in the usual way does not
w/o the consent there is bind the partnership unless authorized by the other
of others imminent partners.
danger of grave Except when authorized by the other partners or unless
or irreparable they have abandoned the business, one or more but less
than all the partners have no authority to (GARCI CA)
injury to
1. Assign the partnership property in trust for
partnership
creditors or on the assignee's promise to pay the
debts of the partnership;
Manner of 1. All partners are If refusal of 2. Dispose of the goodwill of the business;
management not agents of the partner is 3. Do any other act which would make it impossible
agreed upon partnership manifestly to carry on the ordinary business of a partnership;
2. Unanimous 4. Confess a judgment;
prejudicial to
consent 5. Enter into a compromise concerning a partnership
interest of
required for claim or liability;
alteration of partnership,
6. Submit a partnership claim or liability to arbitration;
immovable court's
7. Renounce a claim of the partnership.
property intervention No act of a partner in contravention of a restriction on
may be sought authority shall bind the partnership to persons having
knowledge of the restriction. (1818)

 The partner who has been appointed manager in the
articles of partnership may execute all acts of
administration despite the opposition of his partners,
unless he should act in bad faith; and his power is
irrevocable without just or lawful cause. The vote of the
partners representing the controlling interest shall be
necessary for such revocation of power.
A power granted after the partnership has been
constituted may be revoked at any time. (1800)
 If two or more partners have been intrusted with the
management of the partnership without specification of
their respective duties, or without a stipulation that one
of them shall not act without the consent of all the
others, each one may separately execute all acts of
administration, but if any of them should oppose the
acts of the others, the decision of the majority shall
prevail. In case of a tie, the matter shall be decided by
the partners owning the controlling interest. (1801)
 In case it should have been stipulated that none of the
managing partners shall act without the consent of the
Appointment of managing partner
1. Appointment in the article of incorporation (1800)
a. Execute all act of administration despite opposition
of his partners except he acted in bad faith.
b. His power is irrevocable without just or lawful
cause.
c. Partners representing controlling interest shall be
necessary for revocation of power.
2. Other appointment
a. Revocable at any time, with or without just or
lawful cause.
Two or more partners have been intrusted with the
management
Art. 1801 Article 1802
Without specification of their
respective duties
Without a stipulation that one There is stipulated that
of them shall not act without none of the managing

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the consent of all the others partners shall act without of the partnership business or affairs;
the consent of the others b. To require any information or account of
Rule: Rule: partnership transactions,
a. Each one may separately a. The concurrence of all c. To inspect the partnership books;
execute all acts of shall be necessary for  In case of fraud in the management of the
administration. the validity of the partnership, the assignee may avail himself of the
b. But if any of them should acts. usual remedies.
oppose the acts of the b. The absence or  In case of a dissolution of the partnership, the
others, the decision of the disability of any one assignee is entitled to receive his assignor's
majority shall prevail. of them cannot be interest and may require an account from the date
c. In case of a tie, the alleged, unless there only of the last account agreed to by all the
matter shall be decided is imminent danger partners. (1813)
by the partners owning of grave or 3. His right to participate in the management (n)
the controlling interest. irreparable injury to
the partnership. Right of partner’s creditor (1814)
Without prejudice to the preferred rights of partnership
Prohibition against engaging in business creditors, on due application to a competent court by any
judgment creditor of a partner, the court may charge the
Capitalist partner (1808) Industrial partner interest of the debtor partner with payment of the
(1789) unsatisfied amount of such judgment debt with interest
thereon; and may then or later appoint a receiver of his
Cannot engage in same kind Industrial partner cannot
share of the profits, and of any other money due or to fall
of business in which the engage in business for
due to him in respect of the partnership, and make all
partnership is engaged himself (any business)
other orders, directions, accounts and inquiries which the
except if there is stipulation except if there is stipulation
debtor partner might have made, or which the
Reason: To avoid conflict of Reason: Industrial partners
circumstances of the case may require.
interest must devote his entire
The interest charged may be redeemed at any time before
industry to the partnership
foreclosure, or in case of a sale being directed by the court,
Violation Violation:
may be purchased without thereby causing a dissolution:
1. Bring to the common 1. Exclude him from the
1. With separate property, by any one or more of the
funds any profits firm
partners; or
accruing to him from his 2. Avail themselves of the
2. With partnership property, by any one or more of
transactions benefits which he may
the partners with the consent of all the partners
2. Shall personally bear all have obtained
whose interests are not so charged or sold.
the losses 3. Damages, in either
case.
Rule on conveyance of real property (by any partner
or all partners)
Note: It is believed that
Conveye Title of Exec Passing of title/Right
industrial partners are
d by real uted of the partnership
also entitled to the
propert in the
remedy granted since
y name
they are equally
of
prejudiced
Any Partners Partne Title passes to the buyer
partner hip rship but the Partnership may
Property Rights of a Partner (1810)
recover
The property rights of a partner are:
Exception:
1. His rights in specific partnership property
1. Conveyance was in
A partner is co-owner with his partners of specific
the usual way of
partnership property. (1811)
business, except
 Equal right with his partners to possess specific
when the buyer has
partnership property for partnership purposes but
knowledge of the
not for any other purpose without the consent of
partner lack of
his partners.
authority.
 Not assignable except in connection with the
2. Real property was
assignment of rights of all the partners in the same
transferred to 3rd
property
person in good faith.
 Not subject to attachment or execution, except on
Any Partners Partne Passes the equitable
a claim against the partnership. But partnership
partner hip r interest of the
property can be attached for partnership debt.
partnership provided the
 Not subject to legal support
conveyance was in the
2. His interest in the partnership - A partner's interest in
usual way of business.
the partnership is his share of the profits and surplus.
(1812) By One or One Title passes to the buyer
 A conveyance by a partner of his whole interest in partners more but or but the Partnership may
the partnership does not of itself dissolve the whose not all more recover
partnership, or, as against the other partners in the name partner but Exception:
absence of agreement. title (no right not all 1. Conveyance was in
Right of the assignee: Entitles the assignee to stands of partne the usual way of
receive in accordance with his contract the profits to partners rs business, except
which the assigning partner would otherwise be hip when the buyer has
entitled. disclose) knowledge of the
partner lack of
Assignee has no right: authority.
a. To interfere in the management or administration 2. Real property was
transferred to 3rd

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person in good faith Liabilities in estoppel
Partner One or Partne Passes the equitable All partners consented to Partnership is liable
more or rship/ interest of the representation
all the partne partnership, provided
partners, r own the act is one within the No existing partnership & all Person who represented
or in a name authority of the partner. those represented consented; himself & all those who
third (usual way of business) Not all partners of existing made representation
person in partnership consents to liable pro-rata/jointly
trust for representation
the
partners No existing partnership & not all Person who represented
hip represented consented; himself liable & those
All All All Passes all their rights in None of partners in existing who made/consented to
partner partner partne such property partnership consented representation
rs separately liable

Obligation of the partners with regards to third  A person admitted as a partner into an existing
person partnership is liable for all the obligations of the
 An admission or representation made by any partner partnership arising before his admission as though
concerning partnership affairs within the scope of his he had been a partner when such obligations were
authority is evidence against the partnership. (1820) incurred, except that this liability shall be satisfied
 Notice to any partner of any matter relating to only out of partnership property, unless there is a
partnership affairs, and the knowledge of the partner stipulation to the contrary. (1826)
acting in the particular matter, acquired while a partner  The creditors of the partnership shall be preferred
or then present to his mind, and the knowledge of any to those of each partner as regards the partnership
other partner who reasonably could and should have property. Without prejudice to this right, the private
communicated it to the acting partner, operate as creditors of each partner may ask the attachment and
notice to or knowledge of the partnership. (1821) public sale of the share of the latter in the partnership
Exception: In case of fraud on the partnership, assets. (1827)
committed by or with the consent of that partner.
 All partners and the partnership are solidary liability DISSSOLUTION
for everything chargeable to the partnership. (1824) Dissolution is change in the relation of the partners
a. Any wrongful act or omission of any partner acting caused by any partner ceasing to be associated in the
in the ordinary course of the business of the carrying on as distinguished from the winding up of the
partnership or with the authority of co- business. (1828) On dissolution the partnership is not
partners, loss or injury is caused to any person, terminated, but continues until the winding up of
not being a partner in the partnership, or any partnership affairs is completed. (1829)
penalty is incurred, the partnership is liable
therefor to the same extent as the partner so Automatic dissolution Judicial dissolution
acting or omitting to act. (1822) (1830) (1831)
b. Where one partner acting within the scope of his 1. Without violation of the 1. A partner has been
apparent authority receives money or property of a agreement between the declared insane in
third person and misapplies it; (1823, 1) partners: any judicial
c. Where the partnership in the course of its business a. By the termination of proceeding or is
receives money or property of a third person and the definite term or shown to be of
the money or property so received is misapplied by particular undertaking unsound mind;
any partner while it is in the custody of the specified in the 2. A partner becomes
partnership. (1823,2) agreement; incapable of
 Partnership by estoppels b. By the express will of performing his part
When a person represents himself or consent to any partner, who must of the partnership
another to another representing him to anyone act in good faith, when contract;
(he is an agent of the persons consenting to such no definite term or 3. A partner has been
representation) as a partner in an existing partnership, particular is specified; guilty of such
he is liable to c. By the express will of conduct as tends to
a. Any such persons to whom such representation has all the partners who affect prejudicially
been made. have not assigned the carrying on of
b. The representation was made in a public manner, their interests or the business;
he is liable to such person, whether the suffered them to be 4. A partner willfully or
representation has or has not been made or charged for their persistently
communicated to such person. separate debts, either commits a breach of
Partnership liability result before or after the the partnership
1. When all the members of the existing termination of any agreement, or
partnership consent to the representation. specified term or otherwise so
2. Liable as though he were an actual member of the particular undertaking; conducts himself in
partnership d. By the expulsion of matters relating to
any partner from the the partnership
business bona fide in business that it is
No partnership liability result accordance with such a not reasonably
1. He is liable pro rata with the other persons, if power conferred by the practicable to carry
any, so consenting to the contract or agreement between on the business in
representation as to incur liability, otherwise the partners partnership with
separately. 2. In contravention of the him;
agreement between the 5. The business of the
partners, where the partnership can

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circumstances do not only be carried on partner acting for the partnership as if the
permit a dissolution under at a loss; partnership had not been dissolved unless: (1833)
any other provision of this 6. Other 1. The dissolution being by act of any partner, the
article, by the express will circumstances partner acting for the partnership had
of any partner at any time; render a dissolution knowledge of the dissolution; or
3. Any event which makes it equitable. 2. The dissolution being by the death or
unlawful for the business On the application of insolvency of a partner, the partner acting for
of the partnership to be the purchaser of a the partnership had knowledge or notice of the
carried on or for the partner's interest under death or insolvency.
members to carry it on in article 1813 or 1814: 2. With respect to persons not partners, the partnership is
partnership 1. After the in no case bound by any act of a partner after
4. When a specific thing termination of the dissolution:
which a partner had specified term or a. Where the partnership is dissolved because it is
promised to contribute to particular unlawful to carry on the business, unless the act is
the partnership, perishes undertaking; appropriate for winding up partnership affairs; or
before the delivery; in any 2. At any time if the b. Where the partner has become insolvent; or
case by the loss of the partnership was a c. Where the partner has no authority to wind up
thing, when the partner partnership at will partnership affairs; except by a transaction with
who contributed it having when the interest one who -
reserved the ownership was assigned or 1. Had extended credit to the partnership prior to
thereof, has only when the charging dissolution and had no knowledge or notice of
transferred to the order was issued. his want of authority; or
partnership the use or 2. Had not extended credit to the partnership
enjoyment of the same; prior to dissolution, and, having no knowledge
but the partnership shall or notice of his want of authority, the fact of his
not be dissolved by the want of authority has not been advertised in
loss of the thing when it the manner provided for advertising the fact of
occurs after the dissolution.
partnership has acquired
the ownership thereof;  The dissolution of the partnership does not of itself
5. Death of any partner; discharge the existing liability of any partner (1835)
6. Insolvency of any partner Exception:
or of the partnership; A partner is discharged from any existing liability upon
7. Civil interdiction of any dissolution of the partnership by an agreement to that
partner; effect between himself, the partnership creditor and the
person or partnership continuing the business; and
Effect of dissolution such agreement may be inferred from the course of
General Rule: Dissolution terminates all authority of any dealing between the creditor having knowledge of the
partner to act for the partnership: (1832) dissolution and the person or partnership continuing
Exception: the business.
1. By any act appropriate for winding up partnership  The individual property of a deceased partner shall be
affairs or completing transactions unfinished at liable for all obligations of the partnership incurred
dissolution; while he was a partner, but subject to the prior
2. By any transaction which would bind the partnership if payment of his separate debts. (Ibid)
dissolution had not taken place, provided the other  Where a partnership contract is rescinded on the
party to the transaction: ground of the fraud or misrepresentation of one of the
a. Had extended credit to the partnership prior to parties thereto, the party entitled to rescind is, without
dissolution and had no knowledge or notice of the prejudice to any other right, entitled: (1838)
dissolution; or 1. To a lien on, or right of retention of, the surplus of
b. Though he had not so extended credit, had the partnership property after satisfying the
nevertheless known of the partnership prior to partnership liabilities to third persons for any sum
dissolution, and, having no knowledge or notice of of money paid by him for the purchase of an
dissolution, the fact of dissolution had not been interest in the partnership and for any capital or
advertised in a newspaper of general circulation in advances contributed by him;
the place (or in each place if more than one) at 2. To stand, after all liabilities to third persons have
which the partnership business was regularly been satisfied, in the place of the creditors of the
carried on. partnership for any payments made by him in
Liability of a partner shall be satisfied out of respect of the partnership liabilities; and
partnership assets alone when such partner had been 3. To be indemnified by the person guilty of the fraud
prior to dissolution or making the representation against all debts and
1. Unknown as a partner to the person with whom the liabilities of the partnership.
contract is made; and
2. So far unknown and inactive in partnership affairs
that the business reputation of the partnership
could not be said to have been in any degree due
to his connection with it.

1. With respect to the partners, LIMITED PARTNERSHIP

a. When the dissolution is not by the act, insolvency Members one or more general partners and one or more
or death of a partner; or limited partners.
b. When the dissolution is by such act, insolvency or
death of a partner, each partner is liable to his co- General Limited
partners for his share of any liability created by any Partner/partnership partner/partnership

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1. General partner is 1. Limited partner’s business. (1848)
personally liable for the liability extend only to
partnership obligation his capita contribution Right of General partner Right of limited
2. When management has 2. Limited partner has partner (Art. 1851)
not been agreed upon, no share in the 1. The partnership books shall A limited partner shall
all general partner have management of a be kept, subject to any have the same rights
equal right in the limited partnership agreement between the as a general partner
management of the partners, at the principal to:
partnership. place of business of the (1) Have the
3. General partner may 3. Limited partner must partnership, and every partnership books
contribute money, contribute money or partner shall at any kept at the principal
property or industry property but not reasonable hour have place of business of
industry access to and may inspect the partnership, and
4. General partner is a 4. Limited partner is not and copy any of them. at a reasonable hour
proper party to a proper party to (1805) to inspect and copy
proceeding by or against proceedings by or 2. Partners shall render on any of them;
a partnership against a partnership. demand true and full (2) Have on
5. General partner may 5. Limited partner name information of all things demand true and full
appear in the firm name must not appear in affecting the partnership to information of all
the firm name any partner or the legal things affecting the
6. General partner cannot 6. No prohibition in case representative of any partnership, and a
engage in a business of Limited partner deceased partner or of any formal account of
which is of the kind of partner under legal partnership affairs
business in which the disability. (1806) whenever
partnership is engage. 3. Any partner shall have the circumstances render
7. Retirement, death, 7. Do not the same right to a formal account as it just and
insanity or insolvency of effect, executor or to partnership affairs: reasonable; and
general partner dissolves administrator shall a. If he is wrongfully (3) Have
the partnership have all the rights of excluded from the dissolution and
a limited partner for partnership business or winding up by decree
the purpose of setting possession of its of court.
his estate. property by his co- A limited partner shall
8. Can be constituted in 8. Must follow all the partners; have the right to
whatever form requirement of the b. If the right exists under receive a share of the
law for limited the terms of any profits or other
partnership agreement; compensation by way
9. Composed of all general 9. Composed of at least c. As provided by article of income, and to the
partner one general partner 1807; return of his
and at least one d. Whenever other contribution, (1851)
limited partner circumstances render it provided that after
10. No need to include in the 10. Must include in the just and reasonable. such payment is
partnership name the partnership name the A general partner shall have all made, whether from
word “LTD” word “LIMITED” or the rights and powers and be property of the
“LTD” subject to all the restrictions partnership or that of
11. When the interest of one 11. When the interest of and liabilities of a partner in a a general partner, the
of the general partner is the limited partner is partnership without limited partnership assets are
charged, his interest charged, the interest partners. However, without the in excess of all
may be redeemed with may be redeemed written consent or ratification of liabilities of the
separate property of one with the separate the specific act by all the partnership except
or more partners or; property of any limited partners, a general liabilities to limited
partnership property general partner, but partner or all of the general partners on account
with the consent of all may not be redeemed partners have no authority to: of their contributions
partners whose interest with partnership (1) Do any act in and to general
is not so charged or property. (1862) contravention of the partners (1856).
sold. (1814) certificate;
(2) Do any act which would
General Rule: make it impossible to
The limited partners as such shall not be bound by the carry on the ordinary
obligations of the partnership.(1843) business of the
partnership;
Exception: (3) Confess a judgment
 The name of the partnership failed to add the word against the partnership;
”Limited” or “Ltd”. (4) Possess partnership
 Failure to file the article of co-partnership to the SEC. property, or assign their
 The contributions of a limited partner may be cash or rights in specific
property, but not services. (1845) partnership property,
 The surname of a limited partner appear in the for other than a
partnership name unless: partnership purpose;
(1) It is also the surname of a general partner, or (5) Admit a person as a
(2) Prior to the time when the limited partner became general partner;
such, the business has been carried on under a name (6) Admit a person as a
in which his surname appeared. (1846) limited partner, unless
 A limited partner takes part in the control of the the right so to do is

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given in the certificate;
(7) Continue the business
with partnership
property on the death,
retirement, insanity,
civil interdiction or
insolvency of a general
partner, unless the right
so to do is given in the
certificate. (1850)
 A person may be a general partner and a limited
partner in the same partnership at the same time,
provided that this fact shall be stated in the certificate.
 A person who is a general, and also at the same time a
limited partner, shall have all the rights and powers
and be subject to all the restrictions of a general
partner; except that, in respect to his contribution, he
shall have the rights against the other members which
he would have had if he were not also a general
partner. (1853)
 Allowable transaction of limited partner (not also
general partner)
a. Loan money to the partnership
b. Transact other business with the partnership,
c. Received a pro rata share of the assets with the
general creditors (if he is not also a general
partner)
 Prohibited transactions
a. Receive or hold as collateral security and
partnership property, or
b. Receive from a general partner or the partnership
any payment, conveyance, or release from liability
if at the time the assets of the partnership are not
sufficient to discharge partnership liabilities to
persons not claiming as general or limited partners
The receiving of collateral security, or payment,
conveyance, or release in violation of the foregoing
prohibition is a fraud on the creditors of the
partnership. (Reason 3rd persons enjoy preferential
rights insofar as a partnership assets are concerned)
(1854)
 A limited partner may receive from the partnership the
share of the profits or the compensation by way of
income stipulated for in the certificate. (provided that
Partnership assets > All outside liabilities) (1856)
 Where there are several limited partners the members
may agree that one or more of the limited partners
shall have a priority over other limited partners as to
the return of their contributions, as to their
compensation by way of income, or as to any other
matter. If such an agreement is made it shall be stated
in the certificate, and in the absence of such a
statement all the limited partners shall stand upon
equal footing. (1855)
 Requisites for return of contribution of limited partner.
(1857)
a. All liabilities of the partnership, except liabilities to
general partners and to limited partners on account
of their contributions, have been paid or there
remains property of the partnership sufficient to
pay them;
b. The consent of all members is had, unless the
return of the contribution may be rightfully
demanded under the provisions of the second
paragraph; and
c. The certificate is cancelled or so amended as to set
forth the withdrawal or reduction.
 Return of contribution of limited partner as a
matter of right - Limited partner may rightfully
demand the return of his contribution: (1857)
a. On the dissolution of a partnership; or
b. Arrival of the date specified in the certificate for its
return;
Page 10 of 24
c. After he has six months' notice in writing to all
other members, if no time is specified in the
certificate, either for the return of the contribution
or for the dissolution of the partnership.
 Liability of limited partner to the partnership (1858)
a. For the difference between his contribution as
actually made and that stated in the certificate as
having been made, and
b. For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on
the conditions stated in the certificate
Liability limited partner as trustee – A limited partner is
considered as trustee for the partnership.
a. Specific property stated in the certificate as
contributed by him, but which was not
contributed or which has been wrongfully
returned, and
b. Money or other property wrongfully paid or
conveyed to him on account of his
contribution.
Requisites for waiver or compromise
a. Consent of all members;
b. It does not affect the right of a creditor of a
partnership who extended credit or whose claim
arose after the filing and before a cancellation
or amendment of the certificate, to enforce
such liabilities.
 A limited partner's interest is assignable. (1859)
 An assignee, who does not become a substituted
limited partner, has no right to require any information
or account of the partnership transactions or to inspect
the partnership books; he is only entitled to receive the
share of the profits or other compensation by way of
income, or the return of his contribution, to which his
assignor would otherwise be entitled. (Right are similar
to those of a person to whom a partner conveyed his
whole interest in the partnership)
A substituted limited partner - is a person admitted to
all the rights of a limited partner who has died or has
assigned his interest in a partnership
Requisites when assignee become substituted limited
partner
a. All the members consent thereto or if the assignor,
being thereunto empowered by the certificate,
gives the assignee that right.
b. An assignee becomes a substituted limited partner
when the certificate is appropriately amended in
accordance with article 1865.
c. The certificate as amended must be registered in
the SEC.
 The retirement, death, insolvency, insanity or civil
interdiction of a general partner dissolves the
partnership, unless the business is continued by the
remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members. (1860)
 On the death of a limited partner his executor or
administrator shall have all the rights of a limited
partner for the purpose of setting his estate, and such
power as the deceased had to constitute his assignee a
substituted limited partner.
 The estate of a deceased limited partner shall be liable
for all his liabilities as a limited partner. (1861)
Liabilities of the partnership shall rank in order of
payment
General partnership Limited partnership
(1839) (1863)
a. Those owing to creditors a. Those to creditors, in
other than partners; the order of priority as
b. Those owing to partners provided by law, except
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RFBT2-Partnership and Corporation
other than for capital those to limited partners provided:
and profits; on account of their a. In the interest of common goods
c. Those owing to partners contributions, and to b. Subject to test of economic viability.
in respect of capital; general partners;
d. Those owing to partners b. Those to limited Corporation not entitled to moral damages
in respect of profits. partners in respect to A corporation, being an artificial person and having
their share of the profits existence only in legal contemplation, has no feeling, no
and other compensation emotions, no senses; therefore, it cannot experience
by way of income on physical suffering, mental anguish, fright, serious anxiety,
their contributions; wounded feelings, etc.
c. Those to limited
partners in respect to Distinction between partnership And Corporation
the capital of their 1. Manner of creation
contributions; 2. Number of incorporators
d. Those to general 3. Commencement of juridical personality
partners other than for 4. Powers
capital and profits; 5. Management
e. Those to general 6. Effect of mismanagement
partners in respect to 7. Right of succession
profits; 8. Transferability of interest
f. Those to general 9. Term of existence
partners in respect to 10. Firm name
capital. 11. Dissolution
12. Laws which govern

Note: In general partnership, the payment of capital is Classification of corporation

preferred than with respect to profits. In limited
partnership, the payment of profit has preference over
capital.
CORPORATION
Element of Corporation
1. It is an artificial being
2. Created by operation of law
3. Having the right of succession
4. The powers, attributes and properties expressly
authorized by law or incident to its existence.
Doctrine of separate juridical personality
Corporation has juridical personality separate and distinct
from the stockholders composing the corporation.
Piercing the veil of corporate entity
When the veil of corporate fiction is used as a shield to
perpetuate fraud, to defeat public convenience, justify
wrong or defend crime, this fiction shall be disregarded and
the individuals composing it will be treated identically.
Doctrine of limited capacity
Corporation may exercise only powers expressly authorized
by law or incident to its existence.
Theory of Corporation
1. Theory of concession – Exist by grant of the state
(Philippine Setting)
2. Gennosenshaft theory – It exist because the parties
want it to exist
Private Corporation can only be created by
corporation code (B.P. 68)
Under Art. XII, Sec 16 of the 1987 Constitution which
provides as follows:
“The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations
may be created or established by special charters in the
interest of the common good and subject to the test of
economic viability.”
Special law can create only
1. Public corporation
2. Government owned or controlled corporations
1. Stock corporation - Corporations which have capital
stock divided into shares and are authorized to
distribute to the holders of such shares dividends or
allotments of the surplus profits on the basis of the
shares held. (Sec 4, BP 68)
2. Non-stock corporation – All other corporations are non-
stock corporations.
Other classification of Corporations
1. Number of persons
a. Corporation aggregate – more than one member
b. Corporation sole – one member or corporator
2. Religious purpose or not
a. Ecclesiastical corporation - Religious
b. Lay corporation – other than religious purpose.
(Either eleemosynary or civil)
3. Charitable or not
a. Eleemosynary corporation - Charitable
b. Civil corporation – Business of profit
4. Country of creation
a. Domestic corporation – incorporated under
Philippine law
b. Foreign corporation – Incorporated under foreign
law
5. Legal right to corporate existence
a. De jure corporation – exist in fact and in law
b. De facto corporation – exist in fact but not in law
6. Public or not
a. Close corporation – limited to selected persons
b. Open corporation – open to any person
7. Relation to other corporation
a. Parent corporation – Owner of more than 50% of
another corporation
b. Subsidiary corporation – acquire of parent company
8. True or limited sense
a. True corporation
b. Quasi corporation
1. Corporation by prescription – exercise power
for indefinite period without interference from
sovereign power. (Roman Catholic Church)
2. Corporation by estoppels
9. Public or private purpose
a. Public corporation
b. Private corporation
10. Going public or not
a. Going public – Decide to list its share in the stock
exchange

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b. Going private – Restrict the share to certain group
Classes of shares
1. Par value share
2. No par value share
Limitation:
a. Cannot be issued by the following corporation:
(BPI-TB)
1. Bank
2. Public utilities
3. Insurance company
4. Trust company
5. Building and loan association
b. Preferred shares not allowed
c. Cannot be issued for a consideration less than five
peso (P5)
d. Deemed fully paid and non assessable
e. Entire consideration received shall be treated as
capital and not available for dividend distribution.
3. Voting share
 That there shall always be a class or series of
shares which have complete voting rights.
 That no share may be deprived of voting rights
except those classified and issued as "preferred" or
"redeemable" shares.
4. Non voting share- shares without right to vote
Non voting shares classified as such may still vote
under the following circumstances:
a. Amendment of the articles of incorporation;
b. Adoption and amendment of by-laws;
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 capital stock;
f. Merger or consolidation
g. Investment of corporate funds in another
corporation or business except where the
investment by the corporation is reasonably
necessary to accomplish its primary purpose as
stated in the articles of incorporation
h. Dissolution of the corporation.
5. Common stock – equal right. Except as otherwise
provided in the articles of incorporation and stated in
the certificate of stock, each share shall be equal in all
respects to every other share. (6)
6. Preferred stock – Preferred shares of stock issued by
any corporation may be given preference in the
distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such
other preferences as may be stated in the articles of
incorporation.
7. Promotion stock – issued to promoter
8. Share in escrow – Subject to agreement where the
stock is deposited to third and kept by the depositary
until the condition contained in agreement happened.
9. Convertible stock – Convertible to other shares
10. Founder share – issued to founder or organizer having
a right granted . (Sec 7)
11. Redeemable share (Sec 8)
a. Must be expressly so provided in the articles of
incorporation
b. Purchased or taken up by the corporation upon the
expiration of a fixed period, regardless of the
existence of unrestricted retained earnings.
c. Terms and conditions must be stated in the articles
of incorporation and certificate of stock
12. Treasury stock – shares of stock which have been
issued and fully paid but subsequently reacquired by
the issuing corporation by purchase, redemption,
donation or other lawful means. (Sec 9)
Corporate term – 50 years may be extended for periods
not exceeding fifty (50) years in any single instance by an
Page 12 of 24
amendment of the articles of incorporation. No extension
can be made earlier than five (5) years prior to the original
or subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension. (Sec 11)
Contents of the articles of Incorporation (Sec 14)
All corporations organized under this code shall file with the
Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed
and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is being incorporated. Where a corporation
has more than one stated purpose, the articles of
incorporation shall state which is the primary purpose
and which is/are he secondary purpose or purposes:
Provided, That a non-stock corporation may not include
a purpose which would change or contradict its nature
as such;
3. The place where the principal office of the corporation
is to be located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not be
less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who
shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the
Philippines, the number of shares into which it is
divided, and in case the share are par value shares, the
par value of each, the names, nationalities and
residences of the original subscribers, and the amount
subscribed and paid by each on his subscription, and if
some or all of the shares are without par value, such
fact must be stated;
9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of the
contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and
which the incorporators may deem necessary and
convenient.
Minimum Capital requirement
General Rule: No minimum authorized capital stock (Sec
12)
Exception:
1. Sec 13
 25% of the authorized capital stock must be
subscribed.
 25% of the total subscription be paid.
 In no case the paid up capital be less than P5,000
2. Special Law
Percentage of Filipino ownership (Nationalize Corporation)
1. 100% Filipino
a. Mass media except recording
b. Retail trade corporation
c. Private security agencies
d. Small scale mining
e. Utilization of natural resources
f. Cockpits
g. Manufacture, repair, stockpiling and/or distribution
of nuclear weapon
2. 80% Filipino
a. Private radio communications network
3. 75%
a. Private recruitment, whether for local or overseas
employment
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b. Construction and repair of locally funded works
c. Construction of defense related structures
Not applicable if due to causes beyond the
d. Under the flag law
4. 70%
a. Pawnshop business
5. 60%
a. Corporation for exploration, development and
utilization of natural resources – 60%
b. Realty companies and other corporations that own
public lands
c. Public utilities corporations Deemed dissolve
d. Educational Institution
e. Banking corporation
f. Rural bank
g. Culture, production milling, processing, trading
except retail of rice and corn and by products. Date of 1. Not formally organize, and
h. Coastwise shipping
Incorporation 2. Commence transaction of its
i. Sauna and steam bath bathhouse, massage clinics
and similar activities business
j. Adjustment companies
6. 40%
a. Financing companies
b. Investment house

Corporate Name not allowed (Sec 18)

2 years
1. Identical
2. Deceptive
3. Confusingly similar to that existing corporation
4. Any name already protected by law
5. Patently deceptive, confusing or contrary to existing Distinction between corporators and incorporators
laws. Corporators (Sec 5) Incorporators (Sec 10)
Note: When approved – Commission issue amended Limited depending on the Limit only to not less than
certificate of incorporation under amended name. available authorized capital five but not more than 15.
stock.
Commencement of corporate existence – Issuance of
certificate of incorporation. (Sec 19) Not signatories in the Originally formed and
article of incorporation. signatories of the article of
DeFacto corporation(Sec 20) incorporation
1.Valid law They cease to be Remain as incorporators
2.Bonafide intent to incorporate under such valid law corporators when they are even no longer a holder of
3.Actual exercise in good faith of such corporate power.
no longer a holder of shares of stock
 i.e. Majority of incorporators are not resident of the
Philippines; defect in form; acknowledged before a shares of stock.
person without authority.
 Only direct proceeding of quo warranto is allowed. Corporator
Collateral attack not allowed. a. Stockholder or shareholder – Stock corporation
 Instituted by solicitor general b. Member – non stock corporation

Corporation by estoppels (Sec 21)

Number and Qualifications of Incorporators
 liable as general partner for all debts, liabilities and
1. Not less than 5 but not more than 15
damages.
2. Must be a natural person
3. All must be of legal age
Effects on non-use of corporate charter and continuous
4. Majority must be resident of the Philippines
inoperation of a corporation (Sec. 22)
5. Must be an owner or subscriber of at least one (1)
share of capital stock

Number and Qualifications of Director (Sec 23)

1. Not less than five but not more than 15 (Sec 14)
2. Owner of at least one share
3. The ownership (Legal not beneficial ownership, e.g.
pledgor, mortgagor) must be stand in the name of the
director in the book of the corporation.
4. Majority must be residence of the Philippines
5. Not convicted by final judgment for an offense
punishable by imprisonment of more than 6 years
6. Do not commit a violation of the corporation code
within 5 years prior to the date of his election or
appointment.

Qualification of Corporate officer (Sec 25)

1. President – Must be director
2. Secretary – Resident and citizen of the Philippines
3. Treasurer – May or may not be a director

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RFBT2-Partnership and Corporation
Apply to all:
a. Not convicted by final judgment for an offense
punishable by imprisonment of more than 6 years
b. Do not commit a violation of the corporation code
within 5 years prior to the date of his election or
appointment. (Sec 27)
Concurrent position of corporate officer (Sec 25)
1. President + secretary – Not allowed
2. President + treasurer – Not allowed
3. Secretary + treasure – Allowed
By Laws
 May provide for the qualification of the director
a. At least 25 years of age
b. Have some experience in business, finance or law
c. Disqualify anyone who is competing with the
corporation
As long as the qualification imposed are reasonable and
not meant to unjustly or unfairly deprive the minority
of their rightful representation in the Board of
Directors, it is valid.
Report of election
Submit to the SEC within 30 days by the secretary or any
other officer of the corporation the result of the election
containing the following:
1. Names
2. Nationalities
3. Residence of the director, trustee or officer elected.
In case of:
a. Death – heir, secretary, or any officer, or director
or trustee himself
b. Resign – secretary, or any officer, or director or
trustee himself
c. Any manner cease to hold office - secretary, or any
officer, or director or trustee himself report such
fact to the SEC
Removal of directors or trustees (Sec. 28)
Any director or trustee of a corporation may be removed
from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding
capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the
members entitled to vote. 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.
Vacancies in the office of director (Sec 29)
1. Other than removal by the stockholders or members or
expiration of term – Majority of the remaining directors
or trustees if still constituting quorum.
2. Removal by stockholder or members or expiration of
term or increase in the number of director or other
than (Removal, expiration or increase) but was referred
by the BOD to the stockholders – Stockholder in a
regular or special meeting called for that purpose. (Sec
29)
Director or trustee elected - served only the
unexpired term of his predecessor in office.
Compensation of director (Sec 30)
General rule: No compensation except for reasonable per
diems
Exception: Provided for in by laws
1. Vote of the stockholders representing at least a
majority of the outstanding capital stock at regular
or special meeting
Page 14 of 24
2. Total yearly compensation shall not exceed 10% of
the net income before income tax of the preceding
year.
Liability of Corporate officers (Sec 31)
Liability: Jointly and severally for all damages suffered by
the corporation, stockholders or members and other person
when such director or trustee:
1. Knowingly vote for or assent to patently unlawful acts
of the corporation;
2. Guilty of gross negligence or bad faith in directing the
affairs of the corporation;
3. Acquire any personal or pecuniary interest in conflict
with their duty as director or trustee
Liable as trustee for the corporation + account for the
profit (otherwise accrued to the corporation) when the
director, trustee or officer attempts to acquire/acquires in
violation of his duty:
1. Any interest adverse to the corporation which has
reposed to him in confidence
2. Where equity imposes a disability upon him to deal in
his own behalf
Self dealing director (Sec 32)
Rule: A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of
such corporation
Exception: Valid when all the requisites are present
1. That the presence of such director or trustee in the
board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was nor
necessary for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances;
4. That in case of an officer, the contract has been
previously authorized by the board of directors.
5. Full disclosure of the adverse interest of the directors
or trustees involved is made at such meeting.
Absence of requisites 1 or 2 – Can be ratified by 2/3 of the
outstanding capital stock or 2/3 of the members.
Absence of requisite 3 – Cannot be ratified
Interlocking director (Sec 33)
Rule: Except in cases of fraud, and provided the contract is
fair and reasonable under the circumstances, a contract
between two or more corporations having interlocking
directors shall not be invalidated on that ground alone.
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4. To amend its articles of incorporation in
Director
accordance with the provisions of this Yes
Code;
5. To adopt by-laws, not contrary to law,
morals, or public policy, and to amend or Yes
repeal the same in accordance with this
Code;
6. In case of stock corporations, to issue or
sell stocks to subscribers and to sell stocks
to subscribers and to sell treasury stocks
in accordance with the provisions of this No
Code; and to admit members to the
corporation if it be a non-stock
Substantial Interest corporation;
Nominal Interest
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
Corporation 1 property, including securities and bonds of
Corporation 2
other corporations, as the transaction of
the lawful business of the corporation may Yes
reasonably and necessarily require, subject
1. Presence
to the limitations of such director
prescribed by laworand
trustee not
Yesnecessar
constitute a quorum for such meeting;
the Constitution;
8. To enter2.intoVotemerger or director
of such consolidation with was nor necessar
or trustee
other corporations
the approval of the contract;this
as provided in
Code;
9. To make3. reasonable
Contract isdonations,
fair and reasonable
includingunder the
circumstances;
those for the public welfare or for hospital,
charitable, cultural,
4. Full scientific,
disclosure civic, or
of the adverse interest No
of the dire
similar purposes:
or trusteesProvided,
involved isThat
made at nosuch meeting.
corporation, domestic or foreign, shall give
Disloyalty of a director (Sec 34) donations in aid of any political party or No
Where a director, by virtue of his office, acquires for candidate or for purposes of partisan
himself a business opportunity which should belong to the political activity;
corporation, thereby obtaining profits to the prejudice of 10. To establish pension, retirement, and other
such corporation, he must account to the latter for all plans for the benefit of its directors, No
such profits by refunding the same, unless his act has trustees, officers and employees; and
been ratified by a vote of the stockholders owning or 11. To exercise such other powers as may be
representing at least two-thirds (2/3) of the outstanding essential or necessary to carry out its
capital stock. This provision shall be applicable, purpose or purposes as stated in the
notwithstanding the fact that the director risked his own articles of incorporation. (Implied power)
funds in the venture.
Express power – (Par 1 -10)
Executive committee (Sec 35) Implied power – Reasonably necessary to exercise the
1. The by-laws of a corporation may create an executive express power to accomplish or carry out the purpose for
committee, composed of not less than three members which the corporation was formed.
of the board, to be appointed by the board. Incidental power – Indispensably necessary to carry out
2. Said committee may act, by majority vote of all its the purpose
members, on such specific matters within the Note: Cororation can exercise only power conferred by
competence of the board, as may be delegated to it in corporation code or by its article of incorporation except
the by-laws or on a majority vote of the board. such as are necessary or incidental to the exercise of the
Executive committees have no power to: powers so conferred (Intra vires act). Otherwise the act of
a. Approval of any action for which shareholders' approval the corporation is ultravires act (Sec 45)
is also required;
b. The filing of vacancies in the board; Power to extend or shorten corporate term (Sec 37)
c. The amendment or repeal of by-laws or the adoption of 1. Majority vote of the BOD + 2/3 of the outstanding
new by-laws; capital stock or 2/3 of the embers.
d. The amendment or repeal of any resolution of the 2. Written notice of the proposed action and of the time
board which by its express terms is not so amendable and place of the meeting shall be addressed to each
or repealable; stockholder or member at his place of residence as
e. Distribution of cash dividends to the shareholders. shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid,
Corporate powers and capacity (Sec 36) or served personally.
Every corporation incorporated under this Code has the 3. Extension of corporate term (sec 37) or shortening the
power and capacity: term of corporate existence (Sec 81), any dissenting
Express Power Stockhold stockholder may exercise his appraisal right.
ers vote
Power to increase/decrease capital stock; Increase bond
1. To sue and be sued in its corporate name; No indebtedness (Sec 38)
2. Of succession by its corporate name for 1. Written notice of the proposed Increase/decrease
the period of time stated in the articles of of stock or increase in bonded indebtedness
incorporation and the certificate of 2. State the time and place of the stockholders
incorporation; No meeting
3. To adopt and use a corporate seal; No

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3. Addressed to each stockholder at his place of
residence as shown in the books of the corporation
4. Deposit in the post office or served personally
5. Approval of the SEC
6. Certificate in Duplicate signed by majority of the
directors and countersigned by the chairman and
secretary stating the following:
a. Compliance with the requirement
b. Amount of increase/decrease capital stock
c. Names/nationalities/residence of the persons
subscribing, the amount of capital stock
subscribe or # of no par shares subscribed. If
stock dividend - allotted to each stockholder.
d. Bond incurred, created or increased
e. Actual indebtedness on the day of the meeting
f. Amount of stock represented at the meeting
g. Vote authorizing the increase/decrease of stock
or increase in bond indebtedness.
7. Duplicate certificate – one kept in the office of the
corporation and one filed with the SEC
8. For increase in stock – sworn statement of the
treasure (lawfully at the time of filing) of the
corporation showing 25% of such increased capital
stock has been subscribed and 25% of amount
subscribed has been paid.
9. Decrease in stock – Not approved if it effect
prejudice the right of corporate creditor (Trust fund
doctrine)
10. Bond – Registered with the SEC
11. Non stock corporation – Majority of the board of
trustee + 2/3 of the member
Types of Bond
1. Mortgage bonds – Bonds secured by mortgage on real
properties.
2. Collateral trust bonds – Bonds secured by stocks and
bonds of other corporation.
3. Debenture bonds – Bonds without collateral security.
4. Registered bonds – Requires the registration of the
name of the bondholders on the books of the
corporation.
5. Coupon or bearer bonds – are unregistered bonds in
the sense that the name of the bondholder is not
recorded on the company books.
6. Convertible bonds – are those which give the holders
thereof the right to convert their bondholdings into
share capital or other securities of the issuing company
within a specified period of time.
7. Callable bonds – are bonds issued whereby another
party promises to make payment if the borrowing
company fails to do so.
8. Junk bonds – are high risk, high yield bonds issued by
enterprises that are heavily indebted or otherwise in
weak financial condition.
9. Treasury bonds – are company’s own bonds originally
issued and reacquired but not cancelled.
10. Term bonds – are bonds with a single date of maturity.
11. Serial bonds – are those with a series of maturity
dates.
Power to deny pre-emptive right (Sec 39)
Rule: All stockholders of a stock corporation shall enjoy
pre-emptive right to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
shareholdings.
Exception:
1. Denied in the articles of incorporation or an
amendment thereto
2. Shares to be issued in compliance with laws requiring
stock offerings or minimum stock ownership by the
public;
3. Shares to be issued in good faith with the approval of
the stockholders representing two-thirds (2/3) of the
outstanding capital stock, in exchange for property
Page 16 of 24
needed for corporate purposes or in payment of a
previously contracted debt.
Sale or disposition of assets (Sec 40)
Sale of all or substantially all including goodwill - if thereby
the corporation would be rendered incapable of continuing
the business or accomplishing the purpose for which it was
incorporated
1. Subject to existing laws on illegal combinations and
monopolies
2. Majority of the BOD or trustees + 2/3 of outstanding
capital stock (2/3 of the members)
3. Written notice of the proposed action and of the time
and place of the meeting shall be addressed to each
stockholder or member at his place of residence as
shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid,
or served personally.
4. Exercise of appraisal right
5. After approval of the stockholder – BOD may abandon
such sale subject to the right of 3rd person without
further approval by the stockholder or member.
Note:
No vote of stockholders is required
1. Sale of assets which is necessary in the usual and
regular course of business, or
2. If the proceeds of the sale or other disposition of such
property and assets be appropriated for the conduct of
its remaining business.
Power to acquire own shares (Sec 41)
1. Legitimate corporate purpose or purposes, including
but not limited to the following cases:
a. To eliminate fractional shares arising out of stock
dividends
b. To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent
shares sold during said sale; and
c. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code.
2. Corporation has unrestricted retained earnings in its
books to cover the shares to be purchased or acquired.
Investment of Fund in another corporation (Sec 42)
Other than primary purpose
1. Majority of the board of directors or trustees and
ratified by the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock or
members stockholder's or member's meeting duly
called for the purpose.
2. Written notice of the proposed investment and the time
and place of the meeting shall be addressed to each
stockholder or member at his place of residence as
shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid,
or served personally.
Investment of fund which is reasonably necessary to
accomplishment its primary purpose as stated in the article
of incorporation.
1. Approval of the stockholders or members shall not be
necessary
Power to declare dividend (Sec 43)
Rule: BOD can declare only dividend out of the unrestricted
retained earnings
Cash/property Stock dividend
dividend
Delinquent 1st applied to Withheld until his
unpaid balance on unpaid
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REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
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the subscription subscription is Quor orit 3
plus cost and fully paid um of y
expense the
Approval of Without approval 2/3 of the BOD
the of stockholders. outstanding
Amendment of Article of √ √
stockholder capital stock
(Regular/special Incorporation (Sec 16)
meeting) Election of Directors or √
trustees (Sec 24 & 29)
Rule: Corporation prohibited to retain surplus profit Removal of Director or √
(unappropriated retained earnings) in excess of 100% of trustees (Sec 28)
their paid in capital
Calling for special meeting √
Exception:
1. Definite corporate expansion projects or programs for removal of director or
(appropriation for expansion project) trustee (Sec 28)
2. Prohibition under any loan agreement with any financial Filing of vacancy other than √
institution or creditor without its/his consent, and such removal or expiration of
consent has not yet been secured; or (Appropriation for term (Sec 29)
bond redemption)
Compensation of directors √
3. Retention is necessary under special circumstances
obtaining in the corporation, such as when there is (Sec 30)
need for special reserve for probable contingencies. Self dealing director (Sec √
(Appropriation for contingency) 32)
4. Addition: provided by law. (appropriation for treasury Interlocking director (Sec √
stock) 33)
Power to enter into management contract (Sec. 44) Disloyalty of a director (Sec √
No corporation shall conclude a management contract with 34)
another corporation (also apply to any contract whereby a Delegation of power to √
corporation undertakes to manage or operate all or executive committee (Sec
substantially all of the business of another corporation, 35)
whether such contracts are called service contracts,
Extension or shortening √ √
operating agreements or otherwise) unless such contract
shall have been approved by the board of directors and of corporate term (Sec
by stockholders owning at least the majority of the 37)
outstanding capital stock, or by at least a majority of Increase or decrease √ √
the members in the case of a non-stock corporation, of capital stock (Sec 38)
both the managing and the managed corporation, at a Incur, create or increase √ √
meeting duly called for the purpose:
bond indebtedness (Sec
Exception: Then the management contract must be
approved by the stockholders of the managed corporation 38)
owning at least two-thirds (2/3) of the total outstanding Denial of pre emptive √ √
capital stock entitled to vote, or by at least two-thirds (2/3) right (Sec 39)
of the members in the case of a non-stock corporation Sale or disposition of all √ √
under the following: or substantially all of
(1) Where a stockholder or stockholders representing the
corporate property (Sec
same interest of both the managing and the managed
40)
corporations own or control more than one-third (1/3)
of the total outstanding capital stock entitled to vote of Investment of corporate √ √
the managing corporation; or fund in another
(2) Where a majority of the members of the board of corporation other than
directors of the managing corporation also constitute a for primary purpose (Sec
majority of the members of the board of directors of 42)
the managed corporation
Declaration of stock √ √
General Rule: No management contract shall be entered dividend (Sec 43)
into for a period longer than five years for any one term. Management contract √ √
Exception: That such service contracts or operating (Sec 44)*
agreements which relate to the exploration, Adoption of by-laws after √
development, exploitation or utilization of natural
incorporation (Sec 46)
resources may be entered into for such periods as may be
provided by the pertinent laws or regulations. Amendment of by-laws √ √
(Sec 48)
Ultra vires acts of corporations. Delegation of power to the √
No corporation under this Code shall possess or exercise Board to amend the by-laws
any corporate powers except those conferred by this Code (Sec 48)
or by its articles of incorporation and except such as are
To revoke the delegated √
necessary or incidental to the exercise of the powers so
conferred. (Sec. 45) power given to the Board to
amend the by-laws (Sec
Summary of vote Major Major Stockhol 48)
required for corporate ity of ity of der Fixing the issuance price of √
act BOD the Maj 2/ no par value share by the

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RFBT2-Partnership and Corporation
BOD when authorized by (preferred at
the Article of Incorporation the principal
(Sec 62) office of the
corporation).
Fixing the issuance price of √
 Improperly
no par value share in the held or called
absence of price fixed in the – valid if
articles of incorporation or within the
authority given to the BOD power or
to fixed the issuance price authority of
(Sec 62) the
corporation
Merger or consolidation √ √
and provided
(Sec 77) all
Adopt a plan of √ √ stockholders
distribution of assets of or members
a non stock corporation are present or
duly
Corporate dissolution √ √
represented.
(Sec 118)
 Quorum  Majority of the  Majority of the
Adoption of by-laws prior to Approved and signed by all BOD/trustee as outstanding
incorporation (Sec 46) the incorporators fixed in the article capital stock or
Nota Bene: Letter in bold letter are required to be of incorporation majority of the
approved by both the BOD and stockholders or unless the article members.
members. or by law (Sec 52)
* However, in case (1) where a stockholder or stockholders provides a
representing the same interest of both the managing and greater majority.
the managed corporations own or control more than one- (Sec 25)
third (1/3) of the total outstanding capital stock entitled to  Preside  President shall preside unless the by
vote of the managing corporation; or (2) where a majority the law provide otherwise
of the members of the board of directors of the managing meetin
corporation also constitute a majority of the members of g
the board of directors of the managed corporation then the
management contract must be approved by the
stockholders of the managed corporation owning at least Proper person to call meeting
two-thirds (2/3) of the total outstanding capital stock 1. Person designated in the by laws have authority to call
entitled to vote, or by at least two-thirds (2/3) of the stockholder’s or members meetings.
members in the case of a non-stock corporation. (Sec 44) 2. In the absence of such provision in the by laws, the
meeting may be called by a director or trustee or by
Director meeting Stockholder officer entrusted with the management of the
meeting corporation.
 Proxy  Proxy vote not  Proxy vote 3. When there is no person authorized to call a meeting,
allowed (Sec 25) allowed the Secretaries and Exchange Commission, upon
 Date of  Regular meeting  Regular petition of a stockholder or member on a showing of
meetin – monthly unless meeting – good cause therefor, may issue an order to the
g the By law annually as petitioning stockholder or member directing him to call
provide fixed by the by a meeting of the corporation by giving proper notice
otherwise. (Sec law if not (any required by this Code or by the by-laws. (Sec 50)
53) date in April) 4. A special meeting of the stockholders or members of a
 Special meeting – + written corporation for the purpose of removal of directors or
At anytime upon notice 2 weeks trustees, or any of them, must be called by the
call of the prior to secretary on order of the president or on the written
president or meeting. demand of the stockholders representing or holding at
provided in the  Special least a majority of the outstanding capital stock, or, if it
by laws. (Sec 53) meeting – at be a non-stock corporation, on the written demand of a
 Regular and any time majority of the members entitled to vote. (Sec 28)
special meeting deemed 5. Special meetings of the board of directors or trustees
required a notice necessary + may be held at any time upon the call of the president
of at least 1 day written notice or as provided in the by-laws. (Sec 53)
prior to scheduled 1 week prior to
meeting unless meeting or Voting power
the by law stated in by 1. Pledgor/mortgagor – Right to vote is expressly given by
provide. law. the pledgor or mortgagor such right in writing which is
 Notice can be recorded on the appropriate corporate books. (Sec 55)
waived express of 2. Executor/administrator/receiver and other legal
implied. representative appointed by the court without any
 Place of  Anywhere in or  City or written proxy. (Sec 56)
meetin out side of the municipality 3. Treasury shares no right to vote as long as remain in
g Philippines where the treasury. (Sec 57)
unless the by law principal office 4. Proxies (Sec 58)
provide of the a. In writing
otherwise. (Sec corporation is b. Signed by stockholder or member
53) located c. Filed before the scheduled meeting with the
corporate secretary

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d. Valid only for the meeting which it is intended 10. Such other matters as may be necessary for the proper
e. If provided a period, it has a limit for a period of 5 or convenient transaction of its corporate business and
years. affairs.
5. Voting trusts
a. Must be in writing and notarized Stock Non stock corporation
b. Specify the term and condition corporation
c. Filed with the corporation and the SEC Number of Not less May be more than fifteen
d. Period of agreement not to exceed 5 years except director than 5 but (15) in number as may be
voting trust specifically required as a condition in a not more fixed in their articles of
loan agreement (automatically expire upon than 15 incorporation or by-laws
payment of the loan) Term of One (1) year Term of office of one-third
e. Certificate of stock covered by voting trust office of until their (1/3) of their number shall
agreement shall be cancelled and a new one shall the successors expire every year; and
be issued in the name of the trustee. director/ are elected subsequent elections of
f. The book of corporation shall noted the transfer trustees and qualified. trustees comprising one-
g. Not valid if the purpose is circumventing the law (Sec 23) third (1/3) of the board of
against monopolies and illegal combinations in trustees shall be held
restraint of trade or used for purposes of fraud. annually and trustees so
h. Automatically expire at the end of the agreed elected shall have a term of
period unless renewed. three (3) years. (Sec 92)
May be voted by proxy unless the agreement prohibit it. Purpose For profit. Organized for charitable,
religious, educational,
Adoption of by-laws (Sec. 46) professional, cultural,
Every corporation formed must, within one (1) month after fraternal, literary, scientific,
receipt of official notice of the issuance of its certificate of social, civic service, or
incorporation by the Securities and Exchange Commission, similar purposes, like trade,
adopt a code of by-laws for its government not inconsistent industry, agricultural and
with the corporation Code. like chambers, or any
The Securities and Exchange Commission shall not accept combination thereof. (Sec
for filing the by-laws or any amendment thereto of any 88)
bank, banking institution, building and loan association, Voting Cumulative Non cumulative (entitled to
trust company, insurance company, public utility, 1 vote) unless authorized
educational institution or other special corporations under the article of
governed by special laws, unless accompanied by a incorporation or by laws.
certificate of the appropriate government agency to the (Sec 89)
effect that such by-laws or amendments are in accordance Manner of Voting either Voting by mail or other
with law. voting in person or similar means by members
by of non-stock corporations
Amendments to by-laws (Sec. 48) representative may be authorized by the
Whenever any amendment or new by-laws are adopted, authorized to by-laws of non-stock
such amendment or new by-laws shall be attached to the act by written corporations. (Sec 89)
original by-laws in the office of the corporation, and a copy proxy (Sec
thereof, duly certified under oath by the corporate 24)
secretary and a majority of the directors or trustees, shall Distributio Authorized to Not authorized to distribute
be filed with the Securities and Exchange Commission the n of distribute dividends to its members,
same to be attached to the original articles of incorporation dividend dividends to trustees or officers. (Sec
and original by-laws. stockholders 87)
The amended or new by-laws shall only be effective upon Transferab Transferrable Membership in a non-stock
the issuance by the Securities and Exchange Commission of ility of corporation and all rights
a certification that the same are not inconsistent with this interest arising therefrom are
Code. personal and non-
Contents of by-laws (Sec 47) transferable, unless the
Subject to the provisions of the Constitution, this Code, articles of incorporation or
other special laws, and the articles of incorporation, a the by-laws otherwise
private corporation may provide in its by-laws for: provide. (Sec 90)
1. The time, place and manner of calling and conducting Ownership At least owner Member of the corporation.
regular or special meetings of the directors or trustees;
of director of one share (Sec 92)
2. The time and manner of calling and conducting regular
of stock
or special meetings of the stockholders or members;
Stockholde City or Any place in the Philippines
3. The required quorum in meetings of stockholders or
r/member municipality even outside the place
members and the manner of voting therein;
Place of where the where the principal office of
4. The form for proxies of stockholders and members and
meeting principal place the corporation is located.
the manner of voting them;
(Regular office of the (Sec 93)
5. The qualifications, duties and compensation of
and corporation is
directors or trustees, officers and employees;
special) located, and if
6. The time for holding the annual election of directors of
practicable in
trustees and the mode or manner of giving notice
the principal
thereof;
place of the
7. The manner of election or appointment and the term of
corporation.
office of all officers other than directors or trustees;
(Sec 51)
8. The penalties for violation of the by-laws;
Metro manila
9. In the case of stock corporations, the manner of
is considered
issuing stock certificates; and
city or

Page 19 of 24 RFBT2
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municipality.
STOCK AND STOCKHOLDERS
 Any contract for the acquisition of unissued stock in an
existing corporation or a corporation still to be formed
shall be deemed a subscription notwithstanding the fact
that the parties refer to it as a purchase or some other
contract. (Sec 60) Holders of subscribed shares not
fully paid which are not delinquent shall have all the
rights of a stockholder. (Sec. 72)
 A subscription for shares of stock of a corporation still
to be formed (Sec 61)
BEFORE submission of articles of incorporation to the
SEC
a. Irrevocable for a period of at least six (6) months
from the date of subscription
Exception:
1. All of the other subscribers consent to the
revocation,
2. The incorporation of said corporation fails to
materialize within said period or within a longer
period as may be stipulated in the contract of
subscription:
AFTER submission of articles of incorporation to the
SEC
No pre-incorporation subscription may be revoked
 Consideration for stocks - Stocks shall not be issued for
a consideration less than the par or issued price thereof
otherwise it is watered stock. (Sec 62)
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received
by the corporation and necessary or convenient for
its use and lawful purposes at a fair valuation equal
to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered
to the corporation;
4. Previously incurred indebtedness of the
corporation;
5. Amounts transferred from unrestricted retained
earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the
event of reclassification or conversion.
a. When consideration is other than actual cash, or
consists of intangible property such as patents
of copyrights, the valuation thereof shall initially be
determined by the incorporators or the board of
directors, subject to approval by the Securities and
Exchange Commission.
b. Shares of stock shall not be issued in exchange for
promissory notes or future service.
No par value share
1. Fixed in the article of incorporation
2. Board of directors pursuant to authority conferred
upon it by the articles of incorporation or the by-
laws
3. Stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called
for the purpose.
 Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the
transfer. (Sec 63)
 No transfer, however, shall be valid, except as between
the parties, until the transfer is recorded in the books
of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares
transferred. (Ibid)
 No certificate of stock shall be issued to a subscriber
until the full amount of his subscription together with
Page 20 of 24
interest and expenses (in case of delinquent shares), if
any is due, has been paid. (Sec 64)
 Liability of directors for watered stocks (Sec 65)
Any director or officer of a corporation shall be
solidarily, liable with the stockholder concerned to the
corporation and its creditors for the difference between
the fair value received at the time of issuance of the
stock and the par or issued value of the same.
a. Consenting to the issuance of stocks for a
consideration less than its par or issued value or for
a consideration in any form other than cash, valued
in excess of its fair value,
b. Having knowledge thereof, does not forthwith
express his objection in writing and file the same
with the corporate secretary.
 Subscribers for stock shall pay to the corporation
interest on all unpaid subscriptions from the date of
subscription, if so required by, and at the rate of
interest fixed in the by-laws. If no rate of interest is
fixed in the by-laws, such rate shall be deemed to be
the legal rate. (Sec 66)
 Right of stockholders to bring suits
1. Derivative suit – One brought by one or more
stockholders or members in the name and on
behalf of the corporation to redress wrongs
committed against it or to protect or vindicate
corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be
sued or hold control of the corporation.
2. Individual suit – Action brought by a stockholder
against the corporation for direct violation of his
contractual rights as such individual stockholders.
Any recovery by the stockholder belongs to him.
3. Representative suit – When a wrong is committed
against a group of stockholders, a stockholder may
bring suit in behalf of himself and all other
stockholders who are similarly situated.
 Remedies for payment of stock subscription
a. Extra judicial sale at public auction (Sec 67-69)
1. Payment of any unpaid subscription or any
percentage thereof, together with the interest
accrued, if any, shall be made on the date
specified in the contract of subscription or on
the date stated in the call made by the board.
2. Failure to pay on such date shall render the
entire balance due and payable and shall make
the stockholder liable for interest at the legal
rate on such balance, unless a different rate of
interest is provided in the by-laws, computed
from such date until full payment.
3. If within thirty (30) days from the said date no
payment is made, all stocks covered by said
subscription shall thereupon become
delinquent and shall be subject to sale as,
unless the board of directors orders otherwise.
4. Board resolution ordering the sale of delinquent
stock and shall specifically state the amount
due on each subscription plus all accrued
interest, and the date, time and place of the
sale which shall not be less than thirty (30)
days nor more than sixty (60) days from the
date the stocks become delinquent.
5. Copy of the resolution, shall be sent to every
delinquent stockholder either personally or by
registered mail
6. Published once a week for two (2) consecutive
weeks in a newspaper of general circulation in
the province or city where the principal office of
the corporation is located.
7. Delinquent stock shall be sold at public auction
to such bidder who shall offer to pay the full
amount of the balance on the subscription
together with accrued interest, costs of
advertisement and expenses of sale, for the
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smallest number of shares or fraction of a
share.
8. Stock purchased shall be transferred to such
purchaser in the books of the corporation and a
certificate for such stock shall be issued in his
favor.
9. Should there be no bidder at the public auction
the corporation may bid for the same, and the
total amount due shall be credited as paid in
full in the books of the corporation. The shares
acquired by the corporation shall be held as
treasury shares.
b. Judicial Action - collecting by action in a court of
proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and
expenses. (Sec 70)
c. Collection from cash dividends and withholding of
stock dividends - Any cash dividends due on
delinquent stock shall first be applied to the unpaid
balance on the subscription plus costs and
expenses, while stock dividends shall be withheld
from the delinquent stockholder until his unpaid
subscription is fully paid (Sec 43)
d. To deny delinquent shares the right to vote -No
delinquent stock shall be voted for be entitled to
vote or to representation at any stockholder's
meeting, nor shall the holder thereof be entitled to
any of the rights of a stockholder. (Sec 71)
 No delinquent stock shall be voted for be entitled to
vote or to representation at any stockholder's meeting,
nor shall the holder thereof be entitled to any of the
rights of a stockholder except the right to dividends in
accordance with the provisions of this Code, until and
unless he pays the amount due on his subscription with
accrued interest, and the costs and expenses of
advertisement, if any. (Sec 71)
CORPORATE BOOKS AND RECORDS
 Every corporation shall keep and carefully preserve at
its principal office a record of all business transactions
and minutes of all meetings of stockholders or
members, or of the board of directors or trustees (Sec
74) including stock and transfer book (Ibid)
 The records of all business transactions of the
corporation and the minutes of any meetings shall be
open to inspection by any director, trustee, stockholder
or member of the corporation at reasonable hours on
business days and he may demand, writing, for a copy
of excerpts from said records or minutes, at his
expense. (Ibid)
 Liability of the officer or agent of the corporation for
refusing any director, trustees, stockholder or member
of the corporation to examine and copy excerpts from
its records or minutes
a. Shall be liable to such director, trustee, stockholder
or member for damages, and in addition, shall be
guilty of an offense which shall be punishable under
Section 144 of this Code:
b. That if such refusal is made pursuant to a
resolution or order of the board of directors or
trustees, the liability under this section for such
action shall be imposed upon the directors or
trustees who voted for such refusal:
Defenses under the code in refusing the person
demanding to examine and copy excerpts from the
corporation's records and minutes:
a. Improperly used any information secured through
any prior examination of the records or minutes of
such corporation or of any other corporation,
b. Was not acting in good faith or
c. Not for a legitimate purpose in making his demand.
 Stock and transfer book- in which must be kept a
record of all stocks in the names of the stockholders
alphabetically arranged; the installments paid and
Page 21 of 24
unpaid on all stock for which subscription has been
made, and the date of payment of any installment; a
statement of every alienation, sale or transfer of stock
made, the date thereof, and by and to whom made;
and such other entries as the by-laws may prescribe.
Right to Financial Statement
1. Within ten (10) days from receipt of a written request
of any stockholder or member, the corporation shall
furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of the
last taxable year and a profit or loss statement for said
taxable year, showing in reasonable detail its assets
and liabilities and the result of its operations.
2. At the regular meeting of stockholders or members, the
board of directors or trustees shall present to such
stockholders or members a financial report of the
operations of the corporation for the preceding year,
which shall include financial statements, duly signed
and certified by an independent certified public
accountant.
3. However, if the paid-up capital of the corporation is
less than P50,000.00, the financial statements may be
certified under oath by the treasurer or any responsible
officer of the corporation.
MERGER AND CONSOLIDATION
 Two or more corporations may merge into a single
corporation which shall be one of the constituent
corporations or may consolidate into a new single
corporation which shall be the consolidated corporation.
(Sec 76)
 The merger or consolidation shall have the following
effects:
1. The constituent corporations shall become a single
corporation which, in case of merger, shall be the
surviving corporation designated in the plan of
merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of
consolidation;
2. The separate existence of the constituent
corporations shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall
possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and
liabilities of a corporation organized under this
Code;
4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the
constituent corporations; and all property, real or
personal, and all receivables due on whatever
account, including subscriptions to shares and
other choses in action, and all and every other
interest of, or belonging to, or due to each
constituent corporation, shall be deemed
transferred to and vested in such surviving or
consolidated corporation without further act or
deed; and
5. The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and
obligations of each of the constituent corporations
in the same manner as if such surviving or
consolidated corporation had itself incurred such
liabilities or obligations; and any pending claim,
action or proceeding brought by or against any of
such constituent corporations may be prosecuted
by or against the surviving or consolidated
corporation. The rights of creditors or liens upon
the property of any of such constituent
corporations shall not be impaired by such merger
or consolidation. (Sec 80)
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Appraisal Right
Any stockholder of a corporation shall have the right to
dissent and demand payment of the fair value of his shares
in the following instances: (Sec 81)
1. In case any amendment to the articles of incorporation
has the effect of
a. Changing or restricting the rights of any
stockholder or class of shares;
b. Authorizing preferences in any respect superior to
those of outstanding shares of any class;
c. Extending or shortening the term of corporate
existence;
2. Sale, lease, exchange, transfer, mortgage, pledge or
other disposition of all or substantially all of the
corporate property and assets.
3. Merger or consolidation.
4. Investment of corporate funds in another corporation
or business or for any other purpose. (Sec 42)
 Exercise of appraisal right (Sec 82)
a. Any stockholder who shall have voted against
the proposed corporate action
b. Written demand on the corporation within thirty
(30) days after the date on which the vote was
taken for payment of the fair value of his
shares, failure to make the demand within such
period shall be deemed a waiver of the
appraisal right.
c. Surrender of the certificate or certificates of
stock representing his shares.
d. If within 60 days from the date the corporate
action was approved by the stockholders, the
withdrawing stockholder and the corporation
cannot agree on the fair value of the shares,
the Fair value of the shares shall be determined
and appraised by three (3) disinterested
persons, one of whom shall be named by the
stockholder, another by the corporation, and the third
by the two thus chosen and the same shall be paid
within 30 days after such awards.
e. The corporation has unrestricted retained earnings in
its books to cover such payment.
f. Upon payment by the corporation of the agreed or
awarded price, the stockholder shall forthwith
transfer his shares to the corporation.
 From the time of demand for payment of the fair value of a
stockholder's shares until either the abandonment of the
corporate action involved or the purchase of the said shares
by the corporation, all rights accruing to such shares,
including voting and dividend rights, shall be suspended,
except the right of such stockholder to receive payment of the
fair value thereof: Provided, That if the dissenting stockholder
is not paid the value of his shares within 30 days after the
award, his voting and dividend rights shall immediately be
restored. (Sec 83)
 No demand for payment may be withdrawn unless the
corporation consents thereto. If, however, such demand for
payment is withdrawn with the consent of the corporation, or
if the proposed corporate action is abandoned or rescinded by
the corporation or disapproved by the Securities and Exchange
Commission where such approval is necessary, or if the
Securities and Exchange Commission determines that such
stockholder is not entitled to the appraisal right, then the right
of said stockholder to be paid the fair value of his shares shall
cease, his status as a stockholder shall thereupon be restored,
and all dividend distributions which would have accrued on his
shares shall be paid to him. (Sec 84)
 The costs and expenses of appraisal shall be borne by the
corporation, unless the fair value ascertained by the
appraisers is approximately the same as the price which the
corporation may have offered to pay the stockholder, in which
case they shall be borne by the latter. (Sec 85)
NON-STOCK CORPORATIONS
Is one where no part of its income is distributable as dividends to
its members, trustees, or officers. Provided that any profit which a
non-stock corporation may obtain as an incident to its operations
shall, whenever necessary or proper, be used for the furtherance
Page 22 of 24
of the purpose or purposes for which the corporation was
organized. (Sec 87) It may be formed or organized for:
1. Charitable
2. Religious
3. Educational
4. Professional
5. Cultural
6. Fraternal
7. Literary
8. Scientific
9. Social
10. Civic service
11. Similar purposes like trade, industry, agricultural and like
chambers, or any combination thereof.
 The right of the members of any class or classes to vote may
be limited, broadened or denied to the extent specified in the
articles of incorporation or the by-laws. Unless so limited,
broadened or denied, each member, regardless of class, shall
be entitled to one vote. (Sec 89)
 Membership in a non-stock corporation and all rights arising
therefrom are personal and non-transferable, unless the
articles of incorporation or the by-laws otherwise provide. (Sec
90)
 Unless otherwise provided in the articles of incorporation or
the by-laws, the board of trustees of non-stock corporations,
which may be more than fifteen (15) in number as may be
fixed in their articles of incorporation or by-laws, shall, as
soon as organized, so classify themselves that the term of
office of one-third (1/3) of their number shall expire every
year; and subsequent elections of trustees comprising one-
third (1/3) of the board of trustees shall be held annually and
trustees so elected shall have a term of three (3) years.
Trustees thereafter elected to fill vacancies occurring before
the expiration of a particular term shall hold office only for the
unexpired period. (Sec 92)
 No person shall be elected as trustee unless he is a member of
the corporation. (Ibid)
 Unless otherwise provided in the articles of incorporation or
the by-laws, officers of a non-stock corporation may be
directly elected by the members. (Ibid)
 The by-laws may provide that the members of a non-stock
corporation may hold their regular or special meetings at any
place even outside the place where the principal office of the
corporation is located: Provided, That proper notice is sent to
all members indicating the date, time and place of the
meeting: and Provided, further, That the place of meeting
shall be within the Philippines. (Sec 93)
CLOSE CORPORATION
 All corporation’s issued shares are not owned by not more
than twenty (20) person
 Issued stock are subject to specified restriction on transfer
 Cannot be listed in any stock exchange or make any public
offering of any of its stock of any class.
 A corporation is not a close corporation when at least two-
thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close
corporation.
 Cannot incorporate
a. Mining or oil companies
b. Stock exchanges
c. Banks
d. Insurance companies
e. Public utilities
f. Educational institutions
g. Corporation vested with public interest
 The articles of incorporation may provide that the business of
the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors. So long as this
provision continues in effect:
1. No meeting of stockholders need be called to elect
directors;
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed to be
directors for the purpose of applying the provisions of this
Code; and
3. The stockholders of the corporation shall be subject to all
liabilities of directors
 The articles of incorporation may likewise provide that all
officers or employees or that specified officers or employees
shall be elected or appointed by the stockholders, instead of
by the board of directors.
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SPECIAL CORPORATIONS
EDUCATIONAL CORPORATIONS
 Trustees of educational institutions organized as non-stock
corporations shall not be less than five (5) nor more than
fifteen (15): Provided, however, That the number of trustees
shall be in multiples of five (5) (Sec 108)
 Unless otherwise provided in the articles of incorporation on
the by-laws, the board of trustees of incorporated schools,
colleges, or other institutions of learning shall, as soon as
organized, so classify themselves that the term of office of
one-fifth (1/5) of their number shall expire every year.
Trustees thereafter elected to fill vacancies, occurring before
the expiration of a particular term, shall hold office only for
the unexpired period. Trustees elected thereafter to fill
vacancies caused by expiration of term shall hold office for
five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and
authority of trustees shall be defined in the by-laws.
 For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on
stock corporations
RELIGIOUS CORPORATIONS
 Religious corporations may be incorporated by one or more
persons. Such corporations may be classified into: (Sec 109)
a. Corporations sole - as trustee, the affairs, property and
temporalities of any religious denomination, sect or
church, a corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi or other
presiding elder of such religious denomination, sect or
church. (Sec 110)
1. From and after the filing with the Securities and
Exchange Commission of the said articles of
incorporation, such chief archbishop, bishop, priest,
minister, rabbi or presiding elder shall become a
corporation sole.
2. Any corporation sole may purchase and hold real
estate and personal property for its church,
charitable, benevolent or educational purposes, and
may receive bequests or gifts for such purposes. (Sec
113)
b. Religious societies. - Any religious society or religious
order, or any diocese, synod, or district organization of
any religious denomination, sect or church, unless
forbidden by the constitution, rules, regulations, or
discipline of the religious denomination, sect or church of
which it is a part, or by competent authority, may, upon
written consent and/or by an affirmative vote at a
meeting called for the purpose of at least two-thirds (2/3)
of its membership, incorporate for the administration of
its temporalities or for the management of its affairs,
properties and estate by filing with the Securities and
Exchange Commission, articles of incorporation verified by
the affidavit of the presiding elder, secretary, or clerk or
other member of such religious society or religious order,
or diocese, synod, or district organization of the religious
denomination, sect or church. (Sec 116)
DISSOLUTION
 Methods of dissolution (Sec 117)
a. Voluntary dissolution where no creditors are affected (Sec
118)
1. Majority vote of the board of directors or trustees,
2. Affirmative vote of the stockholders owning at least
two-thirds (2/3) of the outstanding capital stock or
members
3. Publication of the notice of time, place and object of
the meeting for three (3) consecutive weeks in a
newspaper published in the place where the principal
office of said corporation is located; and if no
newspaper is published in such place, then in a
newspaper of general circulation in the Philippines,
after sending such notice to each stockholder or
member either by registered mail or by personal
delivery at least thirty (30) days prior to said
meeting.
4. A copy of the resolution authorizing the dissolution
shall be certified by a majority of the board of
directors or trustees and countersigned by the
secretary of the corporation.
5. The Securities and Exchange Commission shall
thereupon issue the certificate of dissolution.
Page 23 of 24
b. Voluntary dissolution where creditors are affected (Sec
119)
1. Petition signed by a majority of its board of directors
or trustees or other officers having the management
of its affairs for dissolution shall be filed with the SEC
2. Affirmative vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock
or members.
3. SEC shall issue an order reciting the purpose of the
petition, fix a date on or before which objections
thereto may be filed by any person, which date shall
not be less than thirty (30) days nor more than sixty
(60) days after the entry of the order.
4. Copy of the order shall be published at least once a
week for three (3) consecutive weeks in a newspaper
of general circulation published in the municipality or
city where the principal office of the corporation is
situated or if no such newspaper, posted for three (3)
consecutive weeks in three (3) public places in such
municipality or city.
5. Upon five (5) day's notice, given after the date on
which the right to file objections as fixed in the order
has expired, the Commission shall proceed to hear
the petition and try any issue made by the objections
filed; and if no such objection is sufficient, and the
material allegations of the petition are true, it shall
render judgment dissolving the corporation.
c. Dissolution by shortening corporate term (Sec 120)
1. Amendment of articles of incorporation to shorten the
corporate term
2. Submission to the SEC
3. Approval by the SEC
d. Involuntarily (Sec 121)
1. Verified complaint
2. After proper notice and hearing on the grounds
provided by existing laws, rules and regulations
Foreign Corporation
 One formed, organized or existing under any laws other than
those of the Philippines and whose laws allow Filipino citizens
and corporations to do business in its own country or state. It
shall have the right to transact business in the Philippines
after it shall have obtained a license to transact business and
a certificate of authority from the appropriate government
agency. (Sec 123)
 A resident agent may be either an individual (must be of good
moral character and of sound financial standing ) residing in
the Philippines or a domestic corporation lawfully transacting
business in the Philippines. (Sec 127)
 Any foreign corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and regulations
applicable to domestic corporations of the same class, except
such only as provide for the creation, formation, organization
or dissolution of corporations or those which fix the relations,
liabilities, responsibilities, or duties of stockholders, members,
or officers of corporations to each other or to the corporation.
(Sec 129)
 No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
(Sec 133)
 Grounds for the revocation of license
1. Failure to file its annual report or pay any fees as
required;
2. Failure to appoint and maintain a resident agent in the
Philippines
3. Failure, after change of its resident agent or of his
address, to submit to the Securities and Exchange
Commission a statement of such change.
4. Failure to submit to the Securities and Exchange
Commission an authenticated copy of any amendment to
its articles of incorporation or by-laws or of any articles of
merger or consolidation within the time prescribed
5. A misrepresentation of any material matter in any
application, report, affidavit or other document submitted
by such corporation
6. Failure to pay any and all taxes, imposts, assessments or
penalties, if any, lawfully due to the Philippine
RFBT2
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS
RFBT2-Partnership and Corporation
Government or any of its agencies or political
subdivisions;
7. Transacting business in the Philippines outside of the
purpose or purposes for which such corporation is
authorized under its license;
8. Transacting business in the Philippines as agent of or
acting for and in behalf of any foreign corporation or
entity not duly licensed to do business in the Philippines;
or
9. Any other ground as would render it unfit to transact
business in the Philippines.

Page 24 of 24 RFBT2