Corporation Code Part VI

Wednesday, October 7, 2020 10:51 AM

Meeting of Directors/ Trustees

SECTION 49. Meetings of the Board of Directors or trustees may be either regular or specials
REGULAR
Held monthly, unless otherwise provided in the by-laws.

SPECIAL
At any time upon call of the president or as provided in the bylaws.

NOTICE
Must be sent at least 1 day prior to the scheduled meeting, unless otherwise provided by the by-
laws.

NOTE: Notice may be waived expressly or implied

WHERE
Anywhere in or outside the Philippines, unless the by-laws provided otherwise.

QUORUM
Generally, a majority of the number of directors or trustees as fixed in the articles of incorporation
shall constitute a quorum for the transaction of corporate business( Sec.25)

EXCEPTIONS:
-If the AOI or by-laws provide for a greater majority;
-if the meeting is for the election of the officers, which requires the votes of a
majority of all(absolute majority) members of the Board.

Can provide increase number or higher number of quorum (1/2 +1)

50%=1
Simple Majority - majority of all PRESENT Directors
meeting=5
Quorum=3
Simple majority=2

President can only be elected by absolute majority

WHO PRESIDES
The President, unless the by-laws provide otherwise. (Sec 54)

CEO OR Chairman of the board

The meeting presides by him.

SECTION 49. Meetings of stockholders or members be either regular or special.

REGULAR
Held annually on a date fixed in the by-laws. If no date is fixed, on any date April of every year as
determined by the board of directors or trustees.
NOTE: TERM OF BOD IS 1 YEAR
ABSENCE: apply only APRIL depend the date of BOD or trustees

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SPECIAL
At any time deemed necessary or as provided in the by-laws.

NOTICE:
REGULAR
Written, and sent to all stockholders or members of record at least 2 weeks prior to the meeting,
unless a different period is required by the by-laws.

SPECIAL
Written, and sent to all stockholders or members of record at least 1 week prior to the meeting ,
unless otherwise provided in the by-laws.
Note: Notice of any meeting may be waived expressly or impliedly by any stockholder
or member.(Sec.50)

WHERE
In the city of municipality where the principal office of the corporation is located, and if
practicable office of the corporation. Metro Manila is considered or municipality.(Sec.51)

WHO PRESIDES
The President, unless the by-laws provide otherwise.(Sec.54)

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Corporation Code Part VII
Wednesday, October 7, 2020 12:28 PM

STOCKS AND STOCKHOLDERS SUBSCRIPTION CONTRACT

TRUST FUND DOCTRINE

-The assets of a corporation of the corporation as represented by its capital stock are "trust funds"
to be maintained unimpaired and to be used to pay corporate creditors.

-There can be no distribution of such assets among the stockholders without provision being first
made for the payment of the corporate debts.

Any such disposition of it is a fraud on the creditors of a corporation who extend credit on good
faith of its outstanding capital stock, and therefore void.

Hindi ka pwede magbayad o hindi ka pwede may distribute ng pera sa stockholders hanggang hindi
nababayaran ang corporate creditors.

Under the trust fund doctrine, the capital stock, property and other assets of a corporation are
regarded as equity in trust for the payment of the corporate creditors (CIR v. CA, 301 SCRA 152)

Subscription Contract
-it is any contract for the acquisition of unissued stock in an existing corporation or a corporation
still to be formed. ( even the corpo unregistered pwede na magbenta ng unissued stock)

-This is notwithstanding the fact that the parties refer to it as a purchase or some other
contract.(Sec.60)

How does one become a shareholder in a corporation?

A Persons becomes a shareholder the moment he:

1. Enters into a subscription contract with an existing corporation ( he is a stockholder upon
acceptance of the of the corporation of hid offer to subscribe whether the consideration is fully
paid or not); sec 13
2. Purchase treasury shares from the corporation; or
3. Acquires shares from the existing shareholders by sale or any othe contract.

KINDS OF THE SUBSCRIPTION CONTRACT

1. Pre-incorporation- (before incorporation)
A corporation still to be formed shall be irrevocable for a period of at least 6 months from
the date of subscription.
UNLESS:
-ALL of the other subscribers consent to the revocation; or
-Incorporation of said corporation fails to materialize within said period or within a longer
period as may be stipulated in the contract of subscription.
PROVIDED:
-No pre-incorporation subscription may be revoked after the submission of the articles of
incorporation to the SEC.

2. Post-Incorporation Subscription-Enter into after incorporation.

WHAT ARE VALID CONSIDERATIONS FOR SUBSCRIPTION AGREEMENTS?

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 1. Cash
2. Property
3. Labor or services actually rendered to the corporation;
4. Prior corporate obligations;
5. Amounts transferred from unrestricted retained earnings to stated capital ( in case of declaration
of stock dividends)
6. Outstanding shares in exchange for stocks in the event of reclassification or conversion.

Consideration for stocks

Promissory notes or future services are not valid considerations. ( cannot use )

SHARES OF STOCK
- Intangible personal property( cannot be touch) of the stockholders
- Which he can contract with as in any other form of property, like assignment by the disposition or
pledge by way of encumbrance.

Do not use of term chattel mortgage or pledge

CHARACTERISTICS OF STOCKHOLDER'S INTEREST IN CORPORATE CONTRACTS

1. It is indirect
2. It is contingent
3. It is remote
4. It is conjectural
5. It is consequential
6. It is collateral
7. It is purely inchoate or in sheer expectancy of a right in the following after payment of the
corporate debts and obligations:
Management of the corporation
Share in the profits and assets thereof on the dissolution.

Shares of stocks is not negotiable instruments.

(because not contain unconditional promise to pay some money.)

WATERED STOCK
Shares issued as fully paid-up when in fact the consideration agreed to and accepted by the
directors of the corporation was something known to be much less than the par value or issued
value of the shares.
(tinubig ang stocks , nagbenta ang corpo ng shares of stocks less than par value or issued value)
(no assets ang corporation or mababa ang assets na nakadeclared)
_illegal in corporation code

LIABILITY OF DIRECTORS FRO WATERED STOCKS

1. Any director or officer of a corporation:
a. Consenting to the issuance of stocks for a consideration less than its par value or issued
value or for a consideration in any form other than cash, valued in excess of its fair value,
b. Who, knowledge thereof,..
c. If you objection of the BOD must be in writing otherwise he will be liable solidarily with
the stockholder concern to the corporation and its creditor.
d. Amount is the difference between the fair value received at the time of issuance of the
stock and the par or issued value of the same. ( Sec.65, corporation code)

SALES OF DELINQUENT SHARES

Section 67 to 70 give the two ways by which a corporation can collect from the stockholders the

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 Section 67 to 70 give the two ways by which a corporation can collect from the stockholders the
balance of their subscriptions: extrajudicially or judicially.

PROCEDURE OF DELINQUENCY SALE (EXTRAJUDICIAL REMEDY)

A. The BOD must make a call by resolution demanding the payment of the balance of the
subscription. The is called the Notice of Call. (demand to pay)
B. It shall be served on each stockholder either personally or by registered mail (There is no need for
publication)
C. If the stockholders do not pay the amount due on the date designated in the notice , the Board
shall issue, by resolution, a Notice of delinquency. (after to failed )

Publication of the notice of call is not necessary.

D. After notice:
i. Publication in a newspaper of general circulation in the province or city where the principal
office of the corporation is located.
Ii. PERIOD FOR PUBLICATION: Once a week for two consecutive weeks.
Iii. CONTENTS OF THE NOTICE OF DELINQUENCY/NOTICE OF SALE:
1. The amount due on each subscription plus accrued interest.
2. The date, time and place of the sale.
Iv. Such notices are jurisdictional
E. In the public auction, the highest bidder is the one who is willing to pay the amount of the balance
of the subscription for the least number of shares.
F. After the bidding, the corporation will give the highest bidder the certificate of stock in the
number of his bid while the remaining number, if any, will be issued a certificate of stock in favor
of the original subscriber as fully paid.
G. On the other hand, if there are no bidders, then the corporation must bid for the whole number of
shares( regardless of how much the stockholder has paid), which shall the pertain to the
corporation as fully-paid treasury stocks.

EFFECT OF DELINQUENCY

Meron ba effect ang delinquency? YES

ON THE HOLDER:
A. It disqualifies the stockholder to be voted for or be entitled to vote or to representation at any
stockholder's meeting.
B. It disqualifies the stockholder to exercise any rights of a stockholder except the right to dividends,
until and unless he pays the amount due on his subscription with accrued interest and the costs
and expenses of advertisement, I any.
a. The CASH DIVIDEND due shall first be applied to the unpaid balance.(balance of
subscription)
b. The STOCK DIVIDEND shall be withheld until the unpaid balance is fully paid.
c. The stockholder shall not be entitled to notice of the regular or special meetings of the
stockholder.
d. The stockholder's delinquent shares be included in the determination of a quorum for
shareholdings' meetings.

AUCTION SALE AND HIGHEST BIDDER

PERIOD OF THE SALE:

It shall not be less than 30 days nor more than 60 days from the date the stocks become
delinquent.

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WHO IS THE HIGHEST BIDDER?
a. Who shall offer to pay the full amount of the balance on the subscription together with accrued
interest, c of advertisement and expense of sale, for the smallest number of shares or fraction of a
share.

b. The stock to 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.

CERTIFICATE OF STOCK
It is a written instrument signed by the proper officer of a corporation stating or acknowledging
that the person named in the document is the owner of a designated number of shares of its
stock.

UNCERTIFIED SHARES
Is a subscription duly recorded in the corporate books but has no corresponding certificate of
stock yet issued.
(unceritifed shares nakarecord na sa stocks and transfer book or STB pero walang certificate
of stocks)

RULE ON UNCERTIFIED SHARES

SECTION 43.1 Under of the Securities regulation code, a corporation whose shares of stock are
registered pursuant to the code or listed on a stock exhange may:

i. Issued shares to, or record the transfer of some or all of its shares into the name of said
shareholders, investors, or securities intermediary in the form of uncertified securities.

ISSUANCE
Payment Pro-Rata
-The corporation is not prohibited from "dividing" the subscription of a subscriber by considering
portion thereof as fully paid and issuing a corresponding certificate over the paid-up shares.
(kahit hindi fully paid pwede mag issue ng certificate of stocks)

-This option is ONLY granted to the corporation.

LOST OR DESTROYED CERTIFICATE

1. The registered owner of certificates of stocks or his legal representative shall file with the
corporation an affidavit setting forth, if possible:
2. The corporation shall publish a notice in a newspaper of general circulation published in the place
where the corporation has its principal office, once a week for 3 consecutive weeks at the expense
of the registered owner.
3. Instead waiting for 1 year , the registered owner may file a bond or other security,

ALLOWABLE RESTRCITIONS ON SALE OF SHARES

SEC has allowed reasonable restrictions on the transfer of shares in the articles of incorporation , if the
restrictions comply with the provisions of section 63 of the corporation code, namely, that:
i. The restriction must appear in the articles of incorporation, by-laws and the certificate of stock,
and
ii. That said restrictions shall not be more onerous than granting the existing stockholders or the
corporation the option to purchase the shares of the transferring stockholder with such
reasonable terms, conditions or period stated therein.

SALE OF PARTIALLY PAID SHARES

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SALE OF PARTIALLY PAID SHARES
-No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation.

-A corporation may refuse to acknowledge and register a sale or assignment of shares which are
not fully paid, and may continue to hold the original subscriber liable on the payment of the
subscription.

DISPOSITION AND ENCUMBRANCE OF SHARES

- stockholder cannot transfer part of his subscription in view of the indivisible nature of a
subscription contract.

Sale of All Shares Not Fully Paid

Pwede I refuse or acknowledge ang transfer of shares
May be transferred to a single transferee who as a result of the transfer must assume the unpaid
balance.

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Corporation Code Part VIII
Thursday, October 8, 2020 7:30 PM

Corporate Books and Records

1. Book for the minutes of SH and Od meetings
2. Record of transactions
3. Stock and transfer book (Sec.74)
a. All stocks in the names of the stockholders alphabetically arranged;
b. The installment paid unpaid on all stocks for which subscription has been made, and the
date of payment of any installment;
c. A statement of every alienation, sale or transfer of stock made; and
d. Such other entries as the by-laws may prescribe.
4. Other books required to be kept

Who May Make Valid Entries?

CORPORATE SECRETARY
Who are the persons given the right to inspect corporate books?
1. Any director, trustee, stockholder or member
2. Voting trust certificate holder (Has the effect making the trustees creditor present stockholder)/
can demand to inspect
3. Stockholder of sequestered company
4. Beneficial owners of shares (naked owner)
i. Declaration of trust
Basic of stockholder's right of inspection
Predicated upon the necessity of self-protection
Limitation on the right to inspection
1. The right must be exercised during reasonable hours on business days
2. The person demanding the right has not improperly used any information obtained through any
previous examination of the books and records of the corporation
3. The demand is made in good faith or for legitimate purpose germane to his interest as a
stockholder
4. It should follow the formalities that may be required in the by-laws.
5. The right does not extend to trade secrets
6. It is subject to limitations under special laws, e.g. Secrecy of Bank Deposits and FCDA or the
Foreign Currency Deposits Act.

The right extends, in compliance with equity, good faith, and fair dealing, to a foreign subsidiary wholly-
owned by the corporation

- Only depositors can inspections to relative bank deposits

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Corporate Code Part IX
Thursday, October 8, 2020 8:52 PM

Merger and Consolidation

Merger Is when a corporation absorbs the other and remains in existing, the others are dissolved.

Consolidation is the union of two or more existing corporations. A ration is created , and consolidating
corporations are extinguished.

PLAN OF MERGER OR CONSOLIDATION

Is a plan created by the representatives of the constituent corporations, providing for the details
of such merger.

What should the plan of merger or consolidation contain?

1. Names of corporations involved (constituent corporations)
2. Terms and mode of carrying it out
3. Statement of change , if any, in the present articles of surviving corporation
4. Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable.

Articles of merger or consolidation

Is a document to be signed by the president or vice-president of the each corporation and signed
by their secretary or assistant secretary setting forth:..

Procedure of Merger or Consolidation

1. Board of each corporation shall draw up a plan of merger or consolidation
2. Approval of plan-majority vote of stockholders of each corporation
3. Right of appraisal of dissenting stockholders
4. Amendment of Plan of Merger or Consolidation- majority vote of Board and ratified by 2/3 of
stockholders
5. Articles of Merger or Consolidation

Effectivity of Merger or Consolidation

When shall the merger or consolidation become effective?
General Rule: Upon issuance by the SEC of the certificate of merger and consolidation.
Exception in general rule:
The favorable recommendation of the appropriate government agency shall first be obtained.

Effects of Merger or Consolidation

1. The constituent corporations shall become a single corporation.
2. The separate existence of the constituents shall cease except that of the surviving corporation (in
merger) or the consolidated corporation ( in consolidation0
3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities,
franchise of each of the constituent corporations.
4. Shall be take and deemed transferred
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 surviving or
consolidated corporation had itself incurred such liabilities or obligations.
The merger or consolidation thus not have effect in the obligations.

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Corporation Code Part X
Thursday, October 8, 2020 9:43 PM

APPRAISAL RIGHT
The right of stockholder

INSTANCES OF APPRAISAL RIGHT

When Right of Appraisal May be Exercised
1. Extend or shorten corporate term;
2. Restriction of rights or privileges of shares through the amendment of the articles of
incorporation;
3. Sale of all or substantially all(HINDI LAHAT) corporate assets;
4. Equity investment in non-primary purpose business enterprise;
5. Merger or consolidation

NOTE:
a. All the above instances require the 2/3 votes of the outstanding capital stocks
b. The appraisal right pertains only to stockholders who have actually dissented from the above-
enumerated transactions

How Right is Exercised

1. Stockholder must have voted against he proposed corporate action
2. Written demand on the corporation for payment of the fair value of his shares
3. Such demand must have been within 30 days after the date of which the vote was taken
4. Surrender of the stock certificate/s representing his shares
5. Unrestricted retained earnings in the books of the corporation to cover such payment
i. Isa lang mawala invalid na agad

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Corporation Code Part X-XV
Thursday, October 8, 2020 10:29 PM

NON-STOCK CORPORATION, CLOSE CORPORATION, SPECIAL CORPORATION

NATIONALITY OF A CORPORATION
-Serves as a legal basis for subjecting the enterprise or its activities to the laws
TESTS
1.Place of Incorporation
-Principal doctrine on the test of the nationality of corporate identity in the Philippines.
-A corporation is a national of the country under whose laws has been formed, organized and
existing.
2. Control Test
- A corporation shall be considered a Filipino corporation if the Filipino ownership of its capital
stock is at least 60%.
- Where 60-40 Filipino-Alien equity ownership is NOT is doubt (SEC opinion dated 6 November
1989; DOJ Opinion NO.18, s. 1989).
- Its shareholdings in another corporation shall be considered to be Filipino nationality when
computing the percentage of Filipino equity of the second corporation (SEC Opinion dated 23
November 1993)

Controt test is applied in the following:

- Exploitation of natural resources ( 60% owned of the Filipinos)
- Public Utilities
- Mass Media (100% Filipino owned)
- Cable Industry (100% Filipino-control test applied)
- Advertising Industry (atleast 70% Filipino owned)
3. Grandfather Rule
-strict rule
-at least 60 % shares of stockholder of Filipino owned/ domestic corpo)
- Breaking down the Equity structure of the shareholder corporation.
- Level of Grandfather rule:
○ From corporation
○ Determine Nationality
○ Shareholder of shareholder corporation
- Percentages shares held by the second corporation in the first is multiplied by the latter's own
Filipino equity
- Example. MV Corporation and AC Corporation have equal interest in XYZ Corporation.
- MV Corporation is 60% owned by Filipinos while AC Corporation is 50% owned by Filipinos.
BY the Grandfather Rule:
- MV Corporation would have a 30% Filipino interest in XYZ Company (60% of 50%), while AC
Corporation would have a 25% Filipino interest in XYZ Company (50% of 50%).
- hence, the total Filipino interest is only 55%.
NOTE:
The application of the test is limited to the issues of investment. Only when the corporation is less
than 60% owned by Filipinos shall the grandfather rule be applied.

NON-STOCK CORPORATIONS
- One where no part of its income is distributable to its members, trustees, officers, subject to the
provisions on dissolution.
PROVIDED:
That any profit which a non-stock corporation may be obtain as an incident to its operations
shall, whenever necessary or proper, be used for the furtherance of the purpose/s for which it

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 shall, whenever necessary or proper, be used for the furtherance of the purpose/s for which it
was organized.

POWER TO MAKE PROFITS AND ENGAGE IN BUSINESS

Non-stock corporation can earn profit but the fact that earn profit only accident its operations
- Non-stock corporation not automatically result in the loss of its exemption from income taxation
as long as no part of its profit inures to the benefit of any stockholder or individual.

ELEEMOSYNARY PURPOSES
1. Charitable
2. Religious
3. Educational
4. Professional
5. Cultural
6. Recreational
7. Fraternal
8. Literary
9. Scientific
10. Social
11. Civic Service
12. Or similar purposes, like trade, industry, agriculture and like chambers
13. Any combination

RULES FOR DISTRIBUTION OF ASSETS UPON DISSOLUTION

1. All liabilities and obligations of the corporation

2. Assets held by corporation upon a condition requiring return, transfer or conveyance and which
condition occurs by reason of the dissolution. (kapag di nasunod ay babalik )
3. Subject to limitations- not held upon a condition requiring return- activities in the Philippines
substantially similar.

CLOSE CORPORATION
A close corporation, within the meaning of this Code is one whose Articles of Incorporation
provide: (REQUIREMENTS)
REQUISITES:
a. Number of stockholders not to exceed 20
b. Restriction on the transfer of issued stocks (right of first refusal in favor of the stockholder or
the corporation);
c. The stocks cannot be listed in the stock exchange nor should they be publicly offered.
SPECIAL RULE ON STOCK OWNERSHIP:
Not deemed close corporation whenever 2/3 of the voting stocks or voting rights is owned or
controlled by another corporation which is not a close corporation.

CHARACTERISTICS
The stockholder themselves can Directly manage

BUSINESS PROHIBITED FROM BEING A CLOSE CORPORATION

a. Mining companies
b. Oil companies
c. Stock Exchange
d. Banks
e. Insurance companies
f. Public Utilities
g. Educational institutions

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 g. Educational institutions
h. Other corporations
They are not allowed to registered close corporation
VALIDITY OF RESTRICTIONS ON TRANSFER OF SHARES

1. The restrictions in the transfer of the stocks must appear:

a. In the AOI
b. In the By-Laws; and
OTHERWISE: They shall not be binding on any purchaser therof in good faith.

PRE-EMPTIVE RIGHT IN CLOSE CORPORATIONS (5 STARS)

Extends to all stock to be issued, including reissuance of treasury shares, whether for money or
for property or personal services or in payment of corporate debts, unless AOI provides
otherwise.

DEADLOCKS
-Business and affairs of the corporation can no longer be conducted to the advantage of the
stockholder in general
- Any stockholder can petition the SEC which is empowered to take the necessary steps to break
the deadlock
- By amending the AOI or by-laws and to the extent of appointing a 3rd party as a provisional
director.
- Impartial persons
- Not receiver or power
- All the rights and power of duly elected
VOLUNTARY DISSOLUTION
1. Where No creditors are affected
a. By an administrative application for dissolution filed with the SEC.
b. ( no creditor affected can only apply)
2. Where Creditors are affected
a. By a formal petition for dissolution filed with the SEC, with due notice, and hearing to be
duly conducted
- After 5 days notice from expiry date, SEC shall hear the petition and the objections
3. BY shortening of corporate term(vote of 2/3)
4. SEC internal rules require the ff: ( 3 consecutive weeks)
INVOLUNTARY DISSOLUTION
4. DISSOLUTION BY THE SEC ON GROUNDS UNDER EXISTING LAWS
a. Failure to organize and commence business within 2 years from incorporation
b. Continuously inoperative for 5 years
c. Failure to file by-laws within 30 days from issue of certificate of incorporation

FOREIGN CORPORATION
-A corporation has legal status only within the state or territory in which it was organized
-no personality to file suits in the philippines
-Acquire a license from the SEC and appoint a agent for service of process.

SUABILITY OF FOREIGN CORPORATIONS

-Doing Business in the Philippines, With a license( May sue and can bbe sued in the Phils.)
- Doing Business in the Philippines, Without a License(cannot sue, may be sued in the Phils.)
- -Not doing Business in the Philippines , on Isolated Transactions( May sue and may be sued.)

DOCTRINE OF DOING BUSINESS

(SEC.3(D) OF FOREIGN INVESTMENTS ACT OF 1991)
a. Soliciting orders

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 a. Soliciting orders
b. Service contracts
c. Opening offices, whether called "liaison" offices or branches
d. Appointing representatives or distributors domiciles in the Philippines or who in any calendar year
stay in the country for period/s totaling 180 days or more

PROVIDED:
Tha phrase "doing business" shall not be deemed to included:

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

do business and / or exercise of rights as such investor
b. Behaving a nomine director or officer
c. Appointing a representive or distributor domiciled in Philppines
CONTRACT TEST
-Perfection and consummation
-Outside Philippine territory
-Even if the products themselves should be manufactured or processed in the Philippines by
locals.

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Corporation Code Part V
Saturday, October 17, 2020 9:05 PM

Nature and Functions

Internal governance pertain some rules

Requisites of Valid-Laws (Sec.46)

-it must not disturb vested rights, impair contracts or property rights of stockholders or member or
create obligations unknown to law.

By Law is not binding unless those third persons have actual knowledge of provisions of by-laws

Amendment to By-Laws
-Majority vote o the members of the Board and majority vote of the owners of OCS or members, in a
meeting duly called for the purpose

-Delegation to the BOD of power to amend or repeal by-laws by vote of stockholders representing 2/3
of OCS or 2/3 of the members.

-Such delegated power is considered revoked by majority vote only of stockholders representing 2/3
of OCS or 2/3 of the members.

-Internal matters of the Board, then the stockholder can delegate to the board itself.

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Corporation Code Part II
Sunday, October 18, 2020 9:16 PM

Incorporation and Organization of Private Corporations

Incorporators(original stockholders) are stockholders or members mentioned in the articles originally

forming and composing the corporation and who are signatories thereof.
(not all name listed in incorporation)
(not all stockholder are incorporators)
(not all incorporators can be stockholder that the time)
a. Natural persons (not juridica l persons)
b. Of legal age
-Can 16 years old persons purchase of share of stocks under of incorporation? YES

c. Must own or subscribe at least one share of stock of the corporation

d. 5 to 15 incorporators who must sign the articles of incorporation(AOI)
e. Majority of the incoporators must be residents of the Philippines
-The law not required all majority must recite in the philippines (3 foreign and 5 filipino, It's
okay)
-is a japanese citizen can be incorporator? YES

Corporators- whose name not written

Corporate Term
Not more than 50 years from date of incorporation subject to extension for periods not exceeding 50
years extension unless:
Sooner dissolved, or Extended

Minimum Capital Stock and Subscription Requirements

At the time of incorporation:

• At least 25% of authorized capital stock as stated in the AOI must be subscribed
• At least 25% of the total subscription must be paid upon subscription,

CALL- term used when the Board formally asks for payment of the balance of the subscription or a part
thereof.

Minimum Capital Stock and Subscription Requirements

• No minimum authorized capital stock is required except if required by special laws (Sec. 12 and
13)
• Minimum paid-up capital is not less than P5,000.

Articles of Incorporation
• Nature and Function of Articles
▪ The AOI is a basic contract document in Corporation Law that defines the charter of the
corporation.
▪ Section 14 of the corporation code provides that the AOI do not become binding as the
charter of the corporation unless they have been files with the SEC.

CONTENTS
i. Name of corporation

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 i.Name of corporation
ii.Purpose/s, indicating the primary and secondary purposes;
iii. Place of principal office; (must have exact address) (remain unaffected)
iv. Term which shall not be more than 50 years;
v. Names, citizenship and residences of incorporators
vi. Number, names, citizenships and residences of directors;
vii. If stock corporation, amount of authorized capital stock, numbers of shares;
viii. In par value stock corporations, the par value of each share;
ix. Numbers of shares and amounts of subscription of subscribers which shall not be less than 25%
of authorized capital stock;
x. Amount paid by each subscriber on their subscription, which shall not be less than 25% of
subscribed capital and shall not be less than P5,000.00;
xi. Name of treasurer elected by subscribers; and
xii. If the corporation engages in a nationalized industry, a statement that no transfer of stock will
be allowed if it will reduce the stock ownership of Filipinos to a percentage below the required
legal minimum.

Amendment of Articles of Incorporation

Requirements
i. A legitimate purpose for the amendment
ii. By majority vote of the BOD or trustees;
iii. By a vote or written assent of the stockholders representing at least two thirds (2/3) of the
outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of the Corporation Code;
iv. By a vote or written assent of at least two thirds (2/3) of the members if it be a non-stock
corporation.
v. Such articles, as amended, shall be indicated by underscoring the change or changes made, and a
copy thereof duly certified under oath by the corporate secretary and a majority of the directors
or trustees
vi. The amendments shall take effect upon the approval by the SEC, or from the date of filing with
the Sec if not acted upon within six (6) months from the date of filing for a cause not attributable
to the corporation.

Commencement of corporate existence and juridical personality

Upon issuance of certificate of incorporation (Sec.19)

De Facto Corporation (Sec.20)

• A corporation claiming in good faith to be a corporation under the Corporation Code.
• Corporation where there exists a flaw in its incorporation, it falls short of the requirements of law.
• It is the result of an attempt to incorporate under an existing law coupled with the exercise of
corporate powers.
• Under the sec.66 of the Rules of Court, inquiry must be done by the Solicitor General in a quo
warranto proceeding- the main issue is the right to exist as a corporation.
• A de facto corporation will incur the same obligation, have the same powers and rights as a de
jure corporation.

Elements
1. A valid law under which incorporated;
2. Attempt in good faith to incorporate of "colorable compliance,'
3. Assumption of corporate powers;
4. Issuance of certificate of incorporation

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 By-laws not required in article of incorporation

AS TO LEGAL STATUS:
Existence in law-YES
Dealings among parties on a corporate basis - NOT REQUIRED
Effect of lack of requisites-Could be a corporation by estoppel

Corporation by Estoppel
 All persons who assume to act as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof.
 Where a group of persons misrepresent themselves as a corporation (ostensible corporation),
they are subsequently estopped from claiming lack of corporate life in order to avoid liability.

AS TO LEGAL STATUS:
Existence in law -NONE
Dealings among parties on a corporate basis-REQUIRED
Effect of lack of requisites-NOT a corporation in any shape or form

Doctrine of Separate Juridical Personality (MEMORIZE)

 A corporation has personality separate and distinct from that of its stockholders and members and
is not affected by the personal rights, obligations, and transactions of latter.

1. Liability for acts or contracts

2. Right to bring actions
3. Right to acquire and possess property
4. Acquisition of jurisdiction
5. Changes in individual membership

 G.R: Corporation cannot commit a (crime) felonies punishable under RPC

 Exemption: If the crime is committed by a corporation, the directors, officers, employees or other
officers thereof responsible for the offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the penalty thereof.
 Pwede kasuhan yung nagsign sa BOD or contract
 Fine=multa

 G.R: Moral damages cannot be awarded in favor of corporations because they do not have
feelings and mental state. They may not even claim moral damages for besmirched reputation.
 Exemptions: A corporation can recover moral damages under Art.2219 (7) if it was the victim of
defamation
 A corporation with a good reputation, if besmirched, is allowed to recover moral damages upon
proof of existence of factual basis of damage (actual injury) and its causal relation.

Doctrine of Piercing the Corporate Veil

• This doctrine means that the court may disregard the separate and distinct personality of the
corporation from its members of individuals or an aggregation of persons undertaking business as
a group especially when the corporate legal entity is used as a cloak for fraud or illegality.
• It is merely an equitable remedy, and may be granted only in cases when the corporate fiction is
used to defeat public convenience, justify a wrong, protect fraud defend crime or where the

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 used to defeat public convenience, justify a wrong, protect fraud defend crime or where the
corporation is a mere alter ego of business conduit of a person.

Grounds for application of Doctrine (memorize)

1. If done to defraud the government of taxes due it.
2. If done to evade payment of civil liability.
3. If done by a corporation which is merely a conduit or alter ego of another corporation.
4. If done to evade compliance with contractual obligations.
5. If done to evade compliance with financial obligations to its employee.

Test in Determining Applicability

 G.R: The mere fact that a corporation owns all or substantially all of the stocks of another
corporation is NOT sufficient justify their being treated as one entity.
 Exemptions: The subsidiary is a mere instrumentality of the parent corporation.

Circumstance rendering subsidiary an instrumentality (enumeration)

1. The parent corporation owns all or most of the capital of the subsidiary.
2. The parent and subsidiary corporations have common directors and officers.
3. The parent company finances the subsidiary.
4. The parent company subscribed to all the capital stock of the subsidiary or otherwise causes its
incorporation.
5. The subsidiary has grossly inadequate capital.
6. The parent corporation pays the salaries and other expenses or losses of the subsidiary.
7. The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.
8. The papers of the parent corporation or in the statements of its officers, is subsidiary described as
a department or subdivision of the parent corporation, or its business or financial responsibility is
referred to as parent corporation's own.
9. The parent corporation uses the property of the subsidiary as its own.
10. The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary but take their orders from the parents\ formal and legal requirements of the subsidiary
are not observed.

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