Art. 1767.
By the contract of partnership two or be a partner but it may engage in JOINT
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.
CONSENT
 You can’t join a partnership without the
consent of ALL partners.
 Contract by two or more persons bind
themselves.
PURPOSE
 Order to exercise a profession.
CONSIDERATION
 Contribute money, property or industry.
Partnership
 Is a contract whereby 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, or in order to exercise a
profession.
 It is both a contract and a business
organization.
 The purpose of partnership is to gain
income and divide profit.
NOMINATE
 There is a name given by the law
 Contract of Partnership: CONSENSUAL
(meaning it is perfected by both parties)
PERSONS
 Includes not only natural persons but also
JURIDICAL person. A corporation may NOT
VENTURES.
BIND THEMSELVES
 Must be capable and competent, meaning,
the following may are not included:
o Minors
o Emancipated Minors
o Those under civil interdiction –
accessory penalty of being convicted
of crimes.
o Insane persons
o Incompetent persons
 However, if the person is only a SUSPECT,
he may still bind himself into a contract
since there is no final verdict yet.
TO CONTRIBUTE MONEY, PROPERTY OR
INDUSTRY
 Makes the contract onerous since this is
MUTUAL and ALL must give either one of
the above.
 Property contributed may be movable,
immovable or intangible. (Ex: Equipment,
Land, Patents, etc.)
 If the partnership did not contribute money
or property, then industry was contributed.
 Note: Contributions may differ for each of
the partners.
TO A COMMON FUND TO DIVIDE PROFIT
AMONGST EACH OTHER
 The primary objective or partnerships is to
make profits. Sharing profits need not be
equal.
 Sharing ratios are determined by the
partner’s agreement, and if there was no
agreement, then the ratios will be based on
the ratio of the partners’ contributions.
 Sharing ratios for losses will be the same as
the sharing for profits.
  The industrial partner shall NOT share in
losses.
 The industrial partner is exempt only to the
partners but not to 3rd parties without
prejudice to his right.
NATURE
 By its nature, partnership is a consensual
contract as it is perfected by mere consent
or meeting of the minds between parties.
 The consent manifested verbally or orally.
Art. 1768. The partnership has a judicial personality
separate and distinct from that of each of the
partners, even in case of failure to comply with the
requirements of Article 1772, first paragraph.
 It is a juridical entity which has a personality
separate and distinct from that of each of
the partners.
 It begins from the moment of the execution
of the contract, unless it is otherwise
stipulated.
As distinguished from Joint Venture
 As to transaction, JV is ordinarily limited to
a single transaction, whereas Partnership
usually contemplates the undertaking of a
general and continuous business of a
particular kind
o Limited-Single transaction. Different
purposes of business.
 As to property, in both, property
contributed becomes the property of the
business entity
o Only person can be sued not the
corporation.
 As to name, a JV has no firm name, while a
partnership is required to operate under a
specific firm name.
 As to conduct of business, in JV none of the
co-venturers can bind the JV or his co-
venturers, while a partner, when acting in
pursuance of the firm business, binds not
only himself as a principal but as their agent
as well, also the partnership and his co-
partners
As distinguished from Corporation
 As to creation, Partnership is created by
mere consent of the parties, whereas a
Corporation is created by operation of law.
 As to exercise of power, a Corporation can
only exercise such powers and functions
expressly granted to it by law and those
that are necessary or incidental to its
existence. While a partnership can do
anything by agreement of the parties.
o Specifically the purpose.
 As to existence, a Corporation has the right
of succession which presupposes that it
continues to exist despite death,
withdrawal of the stockholders or members
whereas in a Partnership since it is based on
mutual trust, death, withdrawal, incapacity,
and insolvency of one partners would result
in its dissolution
o It will dissolved immediately if a
partner died in a partnership but in
corporation it will still continue.
 As to dissolution, a Corporation needs the
consent of the State for it to cease as a
body corporate while a Partnership can be
dissolved by mere agreement of parties.
o Corporation- dissolved by law with
the consent of the state.
o Partnership- dissolved anytime
without the consent from the state.
As distinguished from Cooperatives
 As to purpose, a Partnership is organized
for profit while a Cooperative is organized
primarily for self-help
  As to personality, both Partnership and
Cooperative have their own separate
juridical personality
 As to creation, Partnership is created by
mere consent of the parties, whereas a
Cooperative is created by operation of law.
ELEMENTS OF PARTNERSHIP
1. CONSENT
2. SUBJECT MATTER
3. CONSIDERATION
LAWFUL OBJECT OR PURPOSE – it must be within
the commerce of man, possible and not contrary to
law, morals, good customs, public order. ( Article
1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good
customs, public order or public policy)
KINDS OF PARTNERS
 General Partner – contributes property
and whose liability extends to his/her
personal property after the assets of the
Partnership have been exhausted.
 Limited Partner – contributes property
and whose liability only extends to
his/her contribution to the partnership
 Industrial Partner – A partner who
contributes services to the partnership
 Managing Partner - A person who takes
active interest in the conduct and
management of the business of the firm
is known as active or managing partner.
 Dormant Partner – A person does not
take active part in the management of
the business. Such a partner only
contributes to the share capital of the
firm, is bound by the activities of other
partners, and shares the profits and
losses of the business.
 Nominal/Ostensible Partner - is one who
does not have any real interest in the
business but lends his name to the firm,
without any capital contributions, and
doesn’t share the profits of the business.
 Partner by estoppel – is a person who
misrepresents himself as a partner and
as a result, incurs liability, is liable as if
he is actually a partner to the
partnership he misrepresented.
-He will never become a partner of the
partnership and he has no rights.
According to Object
a. Universal
▪ With all present property
(COMMON FUND)
- Properties which belongs to the
partners at the time of constitution of the
partnership
- Profits that they may acquire
therewith.
- Except (properties acquired
SUBSEQUENTLY by inheritance, legacy, or
donation EXCEPT fruits thereof)
▪ With all profits (COMMON FUND)
- All profits acquired by industry or
work of the partners becomes common
property
b. Particular
According to Liability
 General – All partners are general partners
whose liability extends to their individual
properties, after the assets of the
partnership have been exhausted.
 Limited – Where at least one of the
partners are liable only up to the extent of
his contribution
 Can a Partnership only compose of Limited
Partners? No. It should have one General
Partner.
As to duration
a. Partnership with Fixed Term
b. Partnership for a particular undertaking
c. Partnership at will
As to Contribution
1. Capitalist – money
2. Industrial – services
FORMALITIES REQUIRED
 As a general rule, a partnership may be
constituted in any form. However, there are
certain exceptions which require a
particular form to make a partnership
enforceable Article 1771 Civil Code
1. When capital contribution total
Php3,000.00 or more - Shall appear in a
public instrument; and
- Recorded in the office of SEC (Article
1772)
Effect of non-compliance: Does not affect
the validity of the partnership. For
enforceability or greater efficacy.
2. When immovable property is contributed
- Must be in a pubic instrument
- Inventory of the property must be made,
signed by the parties and attached to the
public instrument.
Effect of non-compliance: Partnership is
void. (Article 1773)
RULES ON MANAGEMENT
As a GENERAL RULE, every partner has the right to
manage the Partnership.
Except:
1.When there is managing partner
2.When a partner is considered as Dormant Partner
APPOINTMENT OF MANAGING PARTNER
MANAGING PARTNER IN THE ARTICLES OF
PARTNERSHIP
1. May execute all acts of administration, in good
faith, even with opposition from the other
partners;
2.administration can only be revoked if (a)with just
or lawful cause; and (2) by a vote of the partner
representing the controlling interest.
MANAGING PARTNER AFTER PARTNERSHIP HAS
BEEN CONSTITUTED:
1. May execute all acts of administration, in good
faith, even with opposition from the other
partners;
2. The power as manager may be revoked by a vote
of the partners representing the controlling
interest EVEN WITHOUT just or lawful cause
APPOINTMENT OF MULTIPLE MANAGING
PARTNER
1. Each partner may separately execute all
acts of administration;
2. Should one of the managing partners
oppose the act of another, the matter shall
be decided by a majority of the managing
partners per head count; (Any of the
partners may oppose the acts of
administration)
3. Should there be a tie in the votes of the
managing partners, the controlling interest
of ALL the partners shall prevail.
Art. 1781. Articles of universal partnership, entered
into without specification of its nature, only
constitute a universal partnership of profits.
Art. 1782. Persons who are prohibited from giving
each other any donation or advantage cannot
enter into universal partnership.
PERSONS PROHIBITED FROM FORMING A II. Rules on distribution of Losses
UNIVERSAL
PARTNERSHIP:
1. Husband and Wife (Art. 133, Family Code)
2. Those guilty of adultery and concubinage (Art.
739);
3. Those guilty of the same criminal offense, if the
partnership was entered into in consideration of
the same (Art. 739);
 A universal partnership is virtually a
donation to each other of the partner’s
properties (or at least their usufruct).
Therefore, if persons are prohibited by law
to donate to each other, they should not be
allowed to do indirectly what the law
forbids directly (Manresa).
Art. 1783. A particular partnership has for its object
determinate things, their use or fruits, or specific
undertaking, or the exercise of a profession or
vocation.
 Ex. include to construct a building; to buy
and sell real estate; to practice a common
profession.
 A HUSBAND AND WIFE: may enter a
particular partnership.
Distribution of Profits and Losses
I. Rules on distribution of Profits
 In accordance with the agreement;
 If there is no agreement, in proportion to
contribution; the industrial partner shall
receive such hare as may be just and
equitable.
 If the industrial partner contributed capital,
he shall also receive a share in the profits in
proportion to his capital
 In accordance with the agreement;
 If there is a stipulation as to profits only,
sharing of losses shall be based on the same
proportion
 No stipulation or agreement, based on
capital contribution
 Industrial partner shall not be liable for
losses unless he also contributed capital
What if the agreement is not valid?
- As if NO agreement or stipulation. The apply the
rule when there is no agreement
 Designation of losses and profits CANNOT
be entrusted to one of the partners
 A stipulation which excludes one or more
partners from any share in the profits or
losses is void. (in relation to Art. 1797)
Sharing of losses and liabilities
I. Liabilities of a Partner
 Liable for whatever (money, property, or
service) that may have promised to
contribute. (Article 1786)
 Liable in case of eviction with regard to
specific and determinate things which he
may have contributed to the partnership.
(Ibid.)
 Liable for any amount that he may have
taken from the partnership funds which he
converted for his own use. (Article 1788)
  Liable to contribute additional fund in case
of an imminent loss of the business of the
partnership. (Article 1791)
 A new partner is liable for the obligations
already contracted before his admission but
only to the extent of this contribution.
 A new partner is liable to the extent of his
personal property (if general partner) for
subsequent obligations like an original
partner.
 Responsible to the partnership for damages
suffered by it through his fault. (Article
1794 )
 An industrial partner cannot engage in
business for himself, unless the partnership
expressly permits him to do so. (Article
1789)
 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. (Article
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. (Article 1807)
 The capitalist partners cannot engage for
their own account in any operation which is
of the kind of business in which the
partnership is engaged, unless there is a
stipulation to the contrary.
Art. 1797. The losses and profits shall be
distributed in conformity with the agreement. If
only the share of each partner in the profits has
been agreed upon, the share of each in the losses
shall be in the same proportion.
In the absence of stipulation, the share of
each partner in the profits and losses shall be in
proportion to what he may have contributed, but
the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable
under the circumstances. If besides his services he
has contributed capital, he shall also receive a
share in the profits in proportion to his capital.
(XPN’s)
 Industrial Partner, the demand he should
do is to ask the court to share the profits.
ASSOCIATION AND ASSIGNMENT OF
PARTNER’S INTEREST
I. ASSOCIATION OF OTHERS TO PARTNER’S
INTEREST:
 Can be done without the consent of other
partners
 Associate shall not be admitted to the
Partnership without the consent of ALL the
partners
 What happens when a partner associate
someone with his partnership interest?
 What happens when a partner assign or
convey his interest to another?
 Can a partner be forced to assign his
interest to another person?
II. ASSIGNMENT OF PARTNER’S INTEREST :
 Can be done without the consent of the
other partners
 Does not dissolve the partnership, unless
there is an agreement.
  Does not entitle the assignee to interfere in
the management and administration of the
partnership affairs.
 Assignee merely receives his share in profits
in accordance with what the assigning
partner would have received.
 IN CASE OF FRAUD, assignee may ask for
the dissolution of the partnership through a
court decree.
III. ASSIGNMENT OF INTEREST BY COURT DECREE:
 Must be made by a JUDGMENT creditor
upon due application to a competent
court.
 Court may charge the interest of the
debtor partner with payment of
unsatisfied amount of such judgment
debt with interest thereon.
 Court may appoint a receiver of the
debtor partner’s share in profit for the
benefit of the judgment creditor
III. ASSIGNMENT OF INTEREST BY COURT DECREE
(REMEDIES):
 Interest charged may be redeemed at
any time before foreclosure, or in case
of a sale being directed by the court:
o With separate property, by
any one or more of the
partners; or
o Court may appoint a receiver
of the debtor partner’s share
in profit for the benefit of
the judgment creditor
PROPERTY RIGHTS OF A PARTNER
What are the Property Rights of a Partner?
a. His rights in specific partnership property;
b. His interest in the partnership; and
c. His right to participate in the management
I. Rights in a Specific Partnership.
 Partner is considered as a co-owner with
his partners of specific partnership
property
 A partner cannot assign his interest over a
specific partnership property unless all the
partners will assign theirs.
 A partner can possess the property for
partnership purpose.
 A partner cannot possess the partnership
property for any other purpose other than
partnership purpose without the consent of
ALL the partners.
 Not subject to attachment or execution
except on a claim against the partnership.
II. Partner’s Interest in the Partnership.
 Share in Profits and surplus
 Partnership Surplus is equivalent to
Partnership Assets – Partnership Liabilities.
Obligations of the Partners with regard to
Third Persons
• All partners, including industrial ones, are
liable equally with all their property and
after all the partnership assets have been
exhausted, for the contracts which may be
entered into in the name and for the
account of the partnership, under its
signature and by a person authorized to act
for the partnership.
• The partnership is liable for the acts of a
partner who acts within the scope of his
authority
All partners are liable solidarily with the
partnership for everything chargeable to the
partnership as a result of the following:
-Liability incurred due to any wrongful act
or omission of any partner acting in the
ordinary course of the business of the
 partnership or with the authority of his co-
partners
-Liability incurred where one partner acting
within the scope of his apparent authority
receives money or property of a third person
and misapplies it;
- Liability incurred where the partnership in
the course of its business receives money or
property of a third person and the money or
property so received is misapplied by any
partner while it is in the custody of the
partnership.
OBLIGATIONS OF A PARTNER:
1. To give his contribution (Arts. 1786, 1788)
2. Not to convert partnership funds/ property for
his own use (Art. 1788)
3. Not to engage in unfair competition (applicable
to capitalist partner); not to engage in any other
industry at all without the consent of the
partnership (applicable to industrial partner) (Art.
1808)
4. To account for and hold as trustee, unauthorized
personal profits (Art. 1807)
5. Pay for damages caused by his fault (Art. 1794)
6. Credit to the firm the payment made by a debtor
who owes both the partnership and the partner
(Art. 1792)
7. Share with other partners the share of the
partnership credit which he has received from an
insolvent firm debtor (Art. 1743)
SOME RIGHTS OF A PARTNER:
1. Property rights (Art. 1810)
2. To associate with another person in his share
(Art. 1804)
3. To inspect and copy partnership books (Art.
1805)
4. To demand a formal account (Art. 1809)
5. To ask for a dissolution of the firm at the proper
time (Art. 1830-31)
MODES OF RETIREMENT AND REQUIREMENTS
DISSOLUTION
 is the change in the relation of the partners
caused by any partner ceasing to be
associated in the carrying on of business as
distinguished from the winding up of the
business. (Art. 1828)
Art. 1829. On dissolution, the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed.
WINDING UP
 On the other hand, is the process of settling
business affairs after dissolution.
TERMINATION
 is the point where all the partnership affairs
have been wound up.
Until when does a partnership exist as a body
corporate?
 Until termination, but only for purposes of
winding up the affairs only (General Rule)
CAUSES OF DISSOLUTION
I. WITHOUT NEED OF COURT DECREE
a. Dissolution Effected without violation of the
Partnership Agreement:
 By the termination of the definite term or
particular undertaking specified in the
agreement;
  By the express will of any partner, who
must act in good faith, when no definite
term or particular is specified;
 By the express will of all the partners who
have not assigned their interests or suffered
them to be charged for their separate
debts, either before or after the
termination of any specified term or
particular undertaking;
 By the expulsion of any partner from the
business bona fide in accordance with such
a power conferred by the agreement
between the partners;
b. Dissolution Effected in Contravention of
Partnership Agreement:
 By the express will of any partner at any
time
 By 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.
  Loss of the specific thing promised to be
contributed provided that the Partnership is
not yet the owner of the thing at the time
of loss.
 Death, Insolvency, and Civil interdiction of
the any partner
(Civil interdiction is a legal restraint upon a
person incapable of managing his estate, because
of mental incapacity or conviction of a crime, from
signing any deed or doing any act to his own
prejudice, without the consent of his curator or
interdictor.)
II. Dissolution effected through a Court Decree
whenever:
a. A partner has been declared insane in any
judicial proceeding or is shown to be of
unsound mind;
b. A partner becomes in any other way
incapable of performing his part of the
partnership contract;
c. A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on
of the business;
d. A partner willfully or persistently commits a
breach of the partnership agreement, or
otherwise so conducts himself in matters
relating to the partnership business that it is
not reasonably practicable to carry on the
business in partnership with him;
e. The business of the partnership can only be
carried on at a loss;
f. Other circumstances rendering a dissolution
equitable.
EFFECTS OF DISSOLUTION:
Terminates the authority of partners to contract in
behalf of the partnership except:
a. For winding-up; and
b. Contracts already entered into.
WHEN DISSOLUTION IS CAUSED BY THE ACT,
DEATH OR INSOLVENCY OF A PARTNER
Each partner is liable for any liability created by a
partner acting for the partnership as if the
partnership had not been dissolved UNLESS:
a. The partner acting for the partnership had
knowledge of the dissolution
b. The partner acting for the partnership had
knowledge or notice of the death or
insolvency.
After dissolution, a partner can bind the
partnership:
a. By any act appropriate for winding up
partnership affairs or completing
transactions unfinished at dissolution
b. By any transaction which would bind the
partnership if dissolution had not taken
place, provided the other party to the
transaction had no knowledge or notice of
the dissolution of the partnership
The partnership is in no case bound by any act of
a partner after dissolution:
a. Where the partnership is dissolved because
it is unlawful to carry on the business,
unless the act is appropriate for winding up
partnership affairs; or
b. Where the partner has become insolvent;
or
c. Where the partner has no authority to wind
up partnership affairs
When dissolution is caused in contravention of the
partnership agreement the rights of the partners
shall be as follows:
a. Partners who have not caused the dissolution
wrongfully shall have (Innocent Partners):
i. The right to the surplus of the partnership
assets after paying all the partnership
liabilities
ii. The right to damages against the partner
who wrongfully dissolved that partnership
iii. The right to continue the partnership if all
the other partners decide to do so provided
the partnership indemnify the guilty partner
of his share of the partnership assets less
damages.
b. Partner who caused the wrongful dissolution
shall have (GUILTY PARTNER):
1. The right to the surplus of the partnership
assets after paying all the partnership
liabilities subject to liability for damages.
2. If the business is continued, is entitled to
indemnity from the continuing partners.
Art. 1839. Rules in settling accounts between
the partners after dissolution:
1. The assets of the partnership are:
a. The partnership property,
b. The contributions of the partners necessary
for the payment of all the liabilities
specified in No. 2.
2. Order of Liability:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital
and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
Where a partner has become insolvent or his
estate is insolvent, the claims against his separate
property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
LIMITED PARTNERSHIP
A limited partnership is one formed by two or more
persons under the provisions of the following
article, having as members one or more general
partners and one or more limited partners.
CONTRIBUTIONS OF A LIMITED PARTNER
Maybe cash or property but NOT services. (Article
1845)
Can a Limited partner be a general partner at the
same time?
Yes (1) If he so desires provided that this fact shall
be stated in the certificate of partnership (Article
1853) (2) He takes part in the control of the
business (Article 1848)
Without the written consent or ratification of the
specific act by all the limited partners, a general
partner or all of the general partners have no
authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to
carry on the ordinary business of the partnership;
(3)Confess a judgment against the partnership;
(4) Possess partnership property, or assign their
rights in specific partnership property, for other
than a partnership purpose;
(5)Admit a person as a general partner;   limited partner but a substituted limited
(6)Admit a person as a limited partner, unless the
right so to do is 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.
What are the rights of a limited partner?
All the rights of a general partner except the right
to manage the partnership business.
When can a limited partner ask for the
dissolution of the partnership?
(1) When he rightfully but unsuccessfully demands
the return of his contribution, or 
(2) When the other liabilities of the partnership
have not been paid, or the partnership property is
insufficient for their payment as required by the
first paragraph, No. 1, and the limited partner
would otherwise be entitled to the return of his
contribution.
Art. 1858. Liability of a Limited Partner
(1) Liable for the difference between his
contribution as actually made and that stated in
the certificate as having been made, and
(2) Liable 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.
(3) Liable to partnership creditors up to the extent
of his contribution
Who is 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.
 An assignee is not always a substituted
partner is always an assignee
 Assignee becomes a substituted limited
partner if all the members consent thereto
or if the assignor, being thereunto
empowered by the certificate, gives the
assignee that right .
When is a Limited partnership dissolved?
 Upon retirement, death, insolvency,
insanity or civil interdiction of a general
partner dissolves the partnership, unless
the business is continued by the remaining
general partners
Art. 1863. Rules in settling accounts after
dissolution (Order of liability)
(1) Those to creditors, in the order of priority as
provided by law, except those to limited partners
on account of their contributions, and to general
partners;
(2) Those to limited partners in respect to their
share of the profits and other compensation by
way of income on their contributions;
(3) Those to limited partners in respect to the
capital of their contributions;
(4) Those to general partners other than for capital
and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Who has priority over distribution of assets in a
limited partnership?
 Creditors, including limited partners who
have a claim against the partnership.
 Limited partners’ share in profits.
 Limited partners’ return of capital
contribution
 General partners who have claims against
the partnership
 General partners’ share in profits
 General partners’ return of capital
contribution
Art. 1864. The certificate shall be cancelled when
the partnership is dissolved or all limited partners
cease to be such.
A certificate shall be amended when:
(1) There is a change in the name of the
partnership or in the amount or character of the
contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil
interdiction and the business is continued under
Article 1860;
(6) There is a change in the character of the
business of the partnership;
(7) There is a false or erroneous statement in the
certificate;
(8) There is a change in the time as stated in the
certificate for the dissolution of the partnership or
for the return of a contribution;
(9) A time is fixed for the dissolution of the
partnership, or the return of a contribution, no
time having been specified in the certificate, or
(10) The members desire to make a change in any
other statement in the certificate in order that it
shall accurately represent the agreement among
them.
When should a certificate be cancelled?
 Upon Dissolution
 When ALL limited partners cease to be such
When should the certificate be amended?
 In all cases other than those that will cause
the certificate to be cancelled.
Art. 1865. The writing to amend a certificate
shall:
(1) Conform to the requirements of Article 1844 as
far as necessary to set forth clearly the change in
the certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an
amendment substituting a limited partner or
adding a limited or general partner shall be signed
also by the member to be substituted or added,
and when a limited partner is to be substituted, the
amendment shall also be signed by the assigning
limited partner.
The writing to cancel a certificate shall be
signed by all members.
A person desiring the cancellation or
amendment of a certificate, if any person
designated in the first and second paragraphs as a
person who must execute the writing refuses to do
so, may petition the court to order a cancellation
or amendment thereof.
If the court finds that the petitioner has a
right to have the writing executed by a person who
refuses to do so, it shall order the Office of the
Securities and Exchange Commission where the
certificate is recorded, to record the cancellation or
amendment of the certificate; and when the
certificate is to be amended, the court shall also
cause to be filed for record in said office a certified
copy of its decree setting forth the amendment.
A certificate is amended or cancelled when
there is filed for record in the Office of the
Securities and Exchange Commission, where the
certificate is recorded:
(1) A writing in accordance with the provisions of
the first or second paragraph, or
(2) A certified copy of the order of the court in
accordance with the provisions of the fourth
paragraph;
(3) After the certificate is duly amended in
accordance with this article, the amended certified
shall thereafter be for all purposes the certificate
provided for in this Chapter.
What are requisites for certificates to be amended
or cancelled?
 It must be in writing
 It must be signed AND sworn by ALL
concerned parties
 It must be registered with the SEC
Art. 1866. A contributor, unless he is a general
partner, is not a proper party to proceedings by or
against a partnership, except where the object is to
enforce a limited partner's right against or liability
to the partnership.
 A limited partner is a mere contributor,
meaning, he is practically a stranger. This is
because he has no participation in
management and control and is only liable
to the partnership, not to 3rd persons and if
he is filed against as a general partner, he
can file a counterclaim for wrongful
inclusion.
 2 exceptions to this ruler:
(1) To enforce his right against the
partnership
(2) If he refuses to restore his contribution
when the partnership assets are not
sufficient to pay creditors.
Art. 1867. A limited partnership formed under the
law prior to the effectivity of this Code, may
become a limited partnership under this Chapter
by complying with the provisions of Article 1844,
provided the certificate sets forth:
(1) The amount of the original contribution of each
limited partner, and the time when the
contribution was made; and
(2) That the property of the partnership exceeds
the amount sufficient to discharge its liabilities to
persons not claiming as general or limited partners
by an amount greater than the sum of the
contributions of its limited partners.
 A limited partnership formed under the law
prior to the effectivity of this Code, until or unless it
becomes a limited partnership under this Chapter,
shall continue to be governed by the provisions of
the old law.

 This is a transitory law.

 Articles 145 to 150 of the Code of
Commerce used to govern limited
partnerships.

What happens to a limited partnership existing

before the Civil Code?

The partnership must first comply with the

following requirements before they can become a
limited partnership under the Civil Code:

(1) State the amount of contribution and the time it

was contributed

(2) After paying off all liabilities, the total assets of

the partnership must be greater than the
contribution of all limited partners, otherwise, it
will continue to be governed by the Code of
Commerce.

NOTE:

Ratification – act of giving consent after the act.

- by all the limited partner.

If the GP died, the Limited partnership will also be

dissolved.

There is possible to continue it if the LP and GP or

LP agree and it is on the certificate.

If there are two LP and one GP but one GP died it
will not dissolved.
But if there are 2 GP and the other one died it will
dissolved.
REPUBLIC ACT No. 11232
An Act Providing for the Revised Corporation Code
of the Philippines
Be it enacted by the Senate and House of
Representatives of the Philippine Congress
Assembled:

TITLE I
GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Section 1. Title of the Code - This Code shall be
known as the "Revised Corporation Code of the
Philippines".
 The present Revised Corporation Code (R.A.
No. 11232), took effect on February 23,
2019.
What is Corporation?
 A corporation is an artificial being, created
by operation of law, having the right of
succession and the powers, attributes, and
properties expressly authorized by law or
incidental to its existence. (Sec.2, RCC)
CORPORATION IS AN ARTIFICIAL BEING
 A corporation is a juridical entity vested
with a legal personality separate and
distinct from those acting for and in its
behalf and, in general, from the people
comprising it.
 It has a personality separate and distinct
from the persons composing it, as well as
from any other legal entity to which it may
be related.
 It is a basic principle in Corporation Law
that a corporation has a personality
separate and distinct from the officers or
members who compose it. Not every
stockholder or officer can bind the
corporation considering the existence of a
corporate entity separate from those who
compose it.
 Equally well-settled is the principle that the
corporate mask mat be removed or the
corporate veil pierced when the
corporation is just an alter ego of a person
or of another corporation.
ATTRIBUTES
1. Artificial Being – in that it has a personality,
juridical, separate and distinct from the
persons composing it. In effect, it exists
independently from the stockholders or
members.
 It is not a natural person
 Stockholder of the corporation is not
a corporation itself, they have own
juridical personality.
 Stockholder – stock corporation
 Members – Non-stock Corporation.
2. Created by operation of law – Formal
requirement of the State’s consent through
compliance with the requirements imposed
by law is necessary for its creation.
 By complying with the req. of SEC
and law(RCC & Special law)
 Existence of corporation start from
the issuance of certificate of
registration coming from the SEC
 It obtain the consent coming from
the state and at the point in time it
has a juridical personality the
corporation
3. Rights of succession – The incapacity, death
or civil interdiction of the stockholder or
members does no result in its dissolution.
4. Powers attributes and properties expressly
authorized by law or incident to its
existence – Presupposes that it can only
exercise only such powers and can only
hold such properties as are granted to it by
the law.
 Corporation can only exercise
powers which are expressly
provided in the Articles of
Incorporation specifically under the
purpose clause.
 Granted incidental - mere existence
of corporation but not specifically
granted by law
  Can hold properties
Note: The above definition and characteristic refer
to private corporation.
GOCC, for an entity to be considered as this it must
either be organized as a stock or non-stock
corporation. Two requisites must concur before
one may be classified as a stock corporation,
namely:
(1) that it has capital stock dividend into shares,
and
(2) that it is authorized to distribute dividends and
allotments of surplus and profits to its
stockholders.
If only one requisite is present, it cannot be
properly classified as a stock corporation, they
must have members and must not distribute any
part of their income to said members.
What is “Piercing the Veil of Corporate Fiction’ or
“Instrumentality” or “Alter Ego” doctrine?
 It is basic in corporation law that a
corporation is a juridical entity vested with
a legal personality separate and distinct
from those acting for and in its behalf and,
in general, from the people comprising it.
The corporate should not and cannot be
pierced unless it is clearly established that
the separate and distinct personality of the
corporation was used to justify a wrong,
protect fraud, or perpetrate a deception.
POWERS OF CORPORATION
 A corporation has no power except those
expressly conferred on it by the Corporation
Code (or special laws) and those that are
implied or incidental to its existence. In
turn, a corporation exercises said powers
through its board of directors and/or its
duly authorized officers and agents.
CLASSES OF CORPORATION (SEC.3, RCC)
1. As to existence of stocks
a. Stock Corporation – are those 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. 3 RCC)
 Based on the share their holding
b. Non- Stock Corporation – is one where
no part of its income is distributable as
dividends to its member, trustees, or
officers: Provided, that any profit which
a non-stock corporation may obtain
incidental to its operations shall,
whenever necessary or proper, be used
for the furtherance of the purpose or
purposes for which the corporation was
organized, subject to the provisions of
this Title. (Sec. 86 RCC)
 As general rule this established
not to earn profits.
 Most of Non-Stock Corporation
are foundation
 As long as the profits is being
used for the furtherance of such
profit are allowed by the law, as
long as the profits are not to be
distributed to its members or
trustees.
2. As to function
a. Public Corporation – A corporation
created for public purpose and
organized by the State to assist it in the
administration and governance of a
political subdivision or unit. (e.g.
GOCC’s)
 b. Private Corporation – A corporation incorporation are essential for the
created for profit-making activities or existence of a de facto corporation.
some benevolent purpose. Organization not registered with the
3. As to place of incorporation Security of Exchange Commission (SEC)
a. Domestic – A corporation formed, cannot be considered a corporation in
organized or existing under Philippine any concept., not even as a corporation
Law. de facto.
b. Foreign Corporation – A corporation
 It has certificate of registration
formed, organized or existing other than
 There is a flaw or noncompliance
those of the Philippines and whose laws
in an application but merely
allow Filipino citizens and corporation to
technical not substantial.
do business in its own country or state.
 DEFECTIVELY FORMED BY
(Sec. 140 RCC)
BONAFIDE ATTEMPT TO
4. As to legal status
INCORPORATE UNDER THE LAW.
a. De Jure Corporation – A corporation
Bonafide means sincerely;
created in strict or substantial
without intention to deceive.
compliance with the mandatory
 For example, there’s a list of
requirements for incorporation, and
requirements and it has
the right of which to exist as a
substantially complied with that
corporation cannot be successfully
but it missed out on a certain
attacked or questioned by any party
something that is not necessary
even in a direct proceeding for that
for the corporation to exist.
purpose by the state.
 It is organized by honorable
 THEY FOLLOW THE
compliance with the
REQUIREMENTS OF THE LAW
requirement of the law
 THEY CANNOT ATTACKED OR
 You can only question it
QUESTIONED THE EXISTENCE OF
existence in what is known as a
THE CORPORATION.
quo warranto proceeding. Quo
b. De Facto Corporation – A corporation
warranto means a writ or legal
which is formed where there exists a
action requiring a person to
flaw in its incorporation but there is a
show by what warrant an office
colorable compliance with the
or franchise is held, claimed, or
requirements of law.
exercised.
Requirements before one can qualify as
a De Facto Corporation:
1. The existence of a valid law under
which it may be incorporated; 5. Holding, Affiliate, and Subsidiary
2. An attempt in good faith to Corporation
incorporate a. Holding Corporation(ParentCorporation)
3. Assumption of corporate powers.  It is one which controls another
as a subsidiary by the power to
The filing of articles of incorporation elect majority of the latter’s
and the issuance of the certificate if board members. It is one that
 holds stocks in other companies
for purposes of control rather
than for mere investment.
 It is one that hold stock in other
companies for purpose of
control rather than for mere
investment.
b. Affiliate Corporation
 It is one related to another by
owning or being owned by
common management or by a
long-term lease of its properties
or other control device. It may
be the controlled or controlling,
or under common control.
c. Subsidiary Corporation
 It is one which is related to
another corporation that the
majority of its directors can be
elected either directly or
indirectly by such other
corporation.
6. Open and Close corporation
a. Open corporation
 It is authorized and empowered
to list in the stock exchange and
to offer its shares to the public,
such that stock ownership can
be widely dispersed.
b. Close Corporation
 It is whose shares of stocks are
held by limited number of
persons like the family or closely
knit group.
7. Corporation by estoppels
 This contemplates persons who hold
themselves out as a corporation and
enter in to a contract with a third
person on the strength of such
appearance. It is not a de jure nor de
facto corporation, but is considered as a
corporation in relation only to those
who cannot deny its existence, due its
agreement, admission or conduct.
Incorporation and organization of Private
Corporation
The incorporation process includes the
drafting of the Articles of Incorporation,
preparation and submission of additional and
supporting documents, filing with the SEC, and the
subsequent issuance of the Certificate of
Incorporation.
Things to be considered in prior to the drafting of
articles of incorporation:
a. Limitation and restriction as to corporate
name
b. Minimum paid-up capital requirement
imposed by law, rules and regulations for
such undertaking.
c. Qualification and disqualification of
directors; and
d. The limitation or prohibition of having other
purpose or purposes not peculiar to the
primary purpose of the intended
corporation
I. Corporate Name
As to proposed name, there is a prohibition to the
use of a corporate name which is (1) not
distinguishable from a name already reserved or
registered for the use of another corporation; (2)
already protected by law; or (3) contrary to law,
rules and regulations.
The reason for the prohibition is to avoid, fraud
upon the public that will have the occasion to deal
with the entity concerned, the evasion of legal
obligations and duties of the corporation.
SEC guidelines that is to be considered in forming
a Corporate Name:
 1. The law requires the word “Corporation” or
“Incorporated” in full or in abbreviated
form, to be included in its proposed name.
2. To prevent confusion, if the proposed name
contains a word already used as part of the
firm name or style of a registered entity, the
proposed name must contain two(2) other
words different and distinct from the name
of the company already registered or
protected by law;
3. If he name or surname of a person is used
as a part of a corporate name, there must
be a basis for the use of such name such as
it is the name of one of the incorporators or
that of his child.
4. If the name used is that of another person,
the consent of the latter or his heirs, if
already deceased, should be secured and
submitted to SEC
5. If the corporate name contains initials such
as “ABC Corp: the meaning there of must be
indicated in the verification slip
6. The word “State”, “Maharlika”, and
“Barangay” cannot be used as a part of
business name
7. If the corporation being formed is a
subsidiary of a foreign entity, the word
“Philippines” or “Phils” in parenthesis
should be affixed in the corporation name
8. Banking laws prohibit the use of the word
“Banks”, “Banking”, “Bankers”, and
“Building and Loans Associations”, unless
duly licensed as such by the monetary
board of the Banko Sentral ng Pilipinas;
9. Act. No. 6212 disallows the use of
“National” as part of the firm name of
entities doing business as bankers, brokers
or savings institution.
Amendment of Corporate Name
A corporation may validly change it name by
amending its articles of incorporation. Any change
upon a corporate name does not affect the rights
of the incorporation or lessen or add to its
obligation.
II. Purpose Clause
The statement of the objects or purposes or
powers in the charter results practically in defining
the scope of authority of the corporation.
Primary Purpose – which sets out the main
business activity of the corporation. It is the
ordinary course of business of the corporation.
Secondary Purpose – embodies those activities
that may support the corporation’s primary
business and other activities for future expansion.
Must be read in relation to Sec. 44 of the RCC. No
corporation shall possess or exercise corporate
powers other than those conferred by this Code or
by its articles of incorporation and except as
necessary or incidental to the exercise of the
powers conferred.
III. Principal Office
The articles of incorporation must state the city
or municipality where the principal office is to
be established. The principal office of the
corporation is considered the place of
residence.
Why is the place of principal office important?
1. Important for tax purposes.
2. Venue of meetings of stockholders or
members (Sec. 50, RCC)
3. Corporate books and record are to be kept
at its principal office (Sec.73,RCC)
Determinative of venue when filing cases; also
place were subpoenas should be addressed
with.
IV. Term of Existence (Sec. 11, RCC)
 A corporation shall have perpetual existence privileges under its certificate of incorporation
unless its articles of incorporation provides and subject to all of its duties, debts and
otherwise. (Sec 11, RCC) liabilities existing prior to revival.

As to those with certificates of incorporation (File an application for revival)

issued prior to the effectivity of the RCC, they
Upon approval by the Commission, the
shall have perpetual existence
corporation shall be deemed revived and a
Unless the corporation, upon a vote of its certificate of revival of corporation existence
stockholders representing a majority of it shall be issued, giving it perpetual existence,
outstanding capital stock, notifies the unless its application for revival provides
Commission that it elects to retain its specific otherwise.
corporate term pursuant to its articles of
incorporation. V. Incorporators
a. Corporators
So if there is a specific term can it be extended  Are those who compose a corporation,
or shortened? whether as stockholders or
shareholders in a stock corporation or
Yes. A corporate term for a specific period may
as members in a non-stock corporation.
be extended or shortened by amending the
b. Incorporators
articles of incorporation: Provided, That no
 Are those stockholders or members
extension may be made earlier than three
mentioned in the articles of
(3)years prior to the original or subsequent
incorporation as originally forming and
expiry date(s)
composing the corporation and who are
e.g. The Expiration date of the corporate term signatories thereof.
of a corporation is on Jan. 1, 2025
The following are the requirements to establish a
The corporation can only file an extension from corporation as to who shall compose it. (Sec. 10,
Jan. 1, 2022 on wards RCC)

Is there an exception? 1. Who? – Any person, partnership,

Yes, if there are justifiable reasons for an
earlier extension as may be determined by the
Commission
However, such extension of the corporate
term will take effect only on the day following
the original or subsequent expiry date.
association, or corporation, singly or jointly
with other.
2. How many – Not more than 15
3. Must be of legal age
4. Each incorporator of a stock corporation
must own or be a subscriber to at least one
(1) share of capital stock

Revival of Corporate Existence (NEW NOTE:

PROVISIONS) Incorporators is always a corporators

A corporation whose term has expired may, at Corporators is not necessarily incorporators
any time, apply for a revival of its corporate (possible)
existence, together with all the rights and
VI. Directors or Trustees
The Board of Directors is the governing body in a
Stock Corporation while Board of Trustees is the
governing body in a non-stock corporation. The
board exercises the powers of a corporation.
Qualification of a BOD or BOT
Must own at least 1 share of stock and must be a
member of the corporation.
*An Independent director is a person who, apart
from shareholdings and fees received from the
corporation, is independent of management free
from any business or other relationship which
could, or could reasonably be perceived to
materially interfere with the exercise of
independent judgment in carrying out the
responsibilities as a director.
*NOTE: New Provision in Corporation Code before
a BOD can only exercise power of a corporation
with the consent of the other BOD meaning it
cannot act on its own or solely. But now we have
Independent directors it means a corporation or
BOD may solely exercise the power of a
corporation without the need of approval of other
BOD. The requirement that they only need to be
Independent Director is independent of
management and also free from any business or
other relationship.
He is possible to engage in other business?
=Yes, as long as that business would not in any way
interfere in the material exercise of its independent
judgment.
VI. Capitalization (Sec 12, RCC)
Stock Corporations shall not be required to have a
minimum capital stock, except as otherwise
specifically provided by special law.
A stock subscription is a contract by which the
subscriber agrees to take a certain number of
shares of the capital stock of a corporation, paying
for the same or expressly or impliedly promising to
pay for the same.
 Health maintenance Organization –
Required minimum paid-up capital is
10M
 School which is a stock corporation –
required to have a paid-up capital of 1M
Note: Some special laws still requires for a
minimum capital stock of a corporation.
True or False: Under the Corporation Code, there’s
a required capital stock? False. That the
incorporators must subscribe at least 1 share
capital of the corporation. It must have
subscription. So, there is still minimum subscription
required under the law.
If you are 1 man corporation there is a requirement
of at least 1 subscription otherwise if you are an
ordinary corporation you are required to have at
least 2 subscription of your capital stock because if
it is more than 1 it will Ordinary Corporation but
not more than 15 as we discuss before. So it also
have.
Q: How does the corporation manifest its consent
when entering to a contract? Through its BOD,
because the BOD only has the rights to exercise the
power of Corporation.
What are the possible consideration if you want to
buy a shares of stock? What can you pay?
=Section 61, RCC
*What is Authorized Capital Stock?
It is the amount fixed in the AOI to be subscribed
and paid by the stockholders of the Corporation. It
is the amount of capital stock that a corporation
can issue for subscription
*What is Subscribed Capital Stock?
It is that portion of the authorized capital stock
that is covered by subscriptions agreements
whether fully paid or not
NOTE:
It is the maximum amount of capital stock that a
corporation can issue for subscription.
Q: Are Authorized Capital Stock already paid? NO.
It is only the Capital Stock that will be issued and
subscribe by the shareholder. So where that is
appears? In AOI
Q: Can an Authorized Capital Stock can be change
by the corporation? =Yes How? Through an
amendment. It can be change by amending the
AOI.
What is the requirement in order to amend the
AOI for purposes of changing the Authorized
Capital Stock of a Corporation? = Sec 15, RCC (It
may be amended by the vote or written assent of
majority of the trustees and at least 2/3 of the
members.)
Stock subscription it is same with subscription
agreement. Subscribe Capital Stock if it is not in the
problem whether issued or not don’t assume. Not
all subscribes capital stock is issued. It is possible
that it is only just subscribe but it is not issued
unless it is said in the problem that it is issued
don’t assume that it is issued immediately
 It is the total shares of stock issued to
subscribers or stockholders, whether or not
fully or partially paid except treasury shares
so long as there is a binding subscription
agreement.
Total issued stock regardless whether its fully paid
or not. Not total subscribed. Total Issued.
Subscribe is not the same to issued.
EXAMPLE FOR ILLUSTRATION:
ABC CORPORATION:
Authorized Capital Stock – 1,000,000 ordinary
shares of stock to be issued @ P1 par value per
share
Subscribed Share Capital – 500,000 shares
Paid-up Capital Shares – 250,000 shares
Q: How much is the Outstanding Capital Stock?
=The paid-up capital is part of the subscribed share
capital. If the Subscribed Share Capital is issued
500k is the Outstanding Capital Stock. But in this
case it is not indicated that it is issued.
== IT DEPENDS!
Subscribed and Issued Share Capital
Outstanding Capital Stock – 450,000 shares
Q: How much is the total unissued share capital?
=550,000 shares

What is Paid-Up Capital? 500k shares (SSC)

-450k shares (OCS)
 It is that portion of the authorized capital
50k shares
stock which has been subscribed and
+500k shares (The remaining 500k shares of ACS
actually paid.
that is not issued)
* These are the subscribed that is under
What is the consideration for buying shares of
subscription agreement and also paid by
stocks? (Sec61, RCC)
subscriber.
(a) Actual cash paid to the corporation;
What is Outstanding Capital Stock?
(b) 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;
(c) Labor performed for or services actually
rendered to the corporation;
(d) Previously incurred indebtedness of the
corporation;
(e) Amounts transferred from unrestricted retained
earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the
event of reclassification or conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
Q: Among these 8? It is possible with the
combination of this will be your payment for the
issuance of shares of stock?
=Yes.
Consideration may be one, or a combination of two
or more forms provided in Section 61, so long as
they are capable of valuation and, in fact, fairly
valued.
Must be fairly valued using Fair Market Value.
What happen if less than FMV is what you paid for
share of stock?
=The share of stock will become a Watered Shares
meaning it is paid less than its actual value. Its is
not allowed in corporation code if this happen the
value or net worth of a corporation code is
misstated or understated. The public will be
mislead as to how much is the corporation is worth
and the true status of corporation will not correctly
reflected because it is undervalued of what they
need of shares of stock.
VIII. Shares of Stock and their Classification
Shares of Stock
 Represent the interest or right which the
owner, called the stockholders or
shareholders, has in the management of the
corporation, and in the surplus profits and,
in case of dissolution, in all of its assets
remaining after the payment of its debt.
Note: Because the shares of stock is what
the corporation used as a basis in order to
determine the amount of interest that a
shareholder or a stockholder has over a
corporation.
Is shares of stock the same with the Certificate of
Stock?
=NO! A stock certificate is a document or
instruments evidencing the interest of a
stockholder in the corporation.
Certificate of stocks is a mere proof but however
the fact that a person has a shares of stock of a
corporation can still be proof by other evidence
other than certificate of stocks. So it is different.
As to equality of Shares of Stock
Each share, irrespective of classification, are equal
in all respects to every other share unless, of
course, the articles of incorporation and
certificate of stock provide otherwise. (Sec6. P.1,
RCC
 If the shares of stock have no classification
they didn’t give the classification in the AOI
there is no prohibition as to what that
shares can do or cannot do under the law it
is presumed that share is equal in all
respects to all other shares of stock.
For example, Corporation issued Preferred shares
of stock and they also issued Common Stock or
Ordinary shares of stock. What if they have voting
as to a specific acts that the corporation wanted
to do. So the preferred shares of stock and
Ordinary Shares of stock had the right to vote?
YES, because if they didn’t specify it in AOI that a
certain shares of stock deprived of the right to vote
it means it has the right to vote because they are
equal in all respects unless there are provision
otherwise in the AOI or in the certificate of stock.
NOTE: All stocks as a general rule are equal. They
are equal in all respects.
IMPORTANT: SECTION 6
In section 6: May be deprived not necessarily they
are already deprived of the right to vote. In order
to deprive them to right to vote it must be stated in
AOI or in the certificate of Stock.
Classification of Shares of Stocks
1. Common Stocks
 is the most commonly issued shares of
stock of a corporation. It is a type of stock
which entitles the owner to an equal or pro-
rata division of profits without any
preference or advantage in the respect over
any other stockholder or class of stock
holder
 Exclusively rights to vote in any acts of the
corporation which required the
concurrence of any stockholder.
 Frequently exclusive right to vote to those
shareholders who owes a shares of stock
which is ordinary stocks but not always.
2. Preferred Stocks
 is a stock which gives the holder a
preference over the holder of a common
stocks with respect to the payment of
dividends and/or with respect to the
distribution of capital/corporate assets
upon liquidation.
 It may pertain to the distribution of
dividends and or distribution of capital or
corporate assets of the corporation upon
liquidation.
There are 2 limitations as to the issuance of
preferred stocks. There are 2 limitations provided
for under the Corporation Code.
1. They can be issued only with a stated par value
2. The preference must be stated in the AOI or in
the certificate of stock otherwise such share will be
considered as equal in all respect with other
shares. There is no preference if it is not state in
AOI or certificate of stock
Sample Problem:
Preference as to Dividends: The first P100,000.00
shall to go preferred shareholders. The rest to the
common stock holders.
ABC Corp declared – P500,000 cash
Preferred Shareholders = P100,000.00
Common Stockholders = P400,000.00
Q: Does Preferred Shareholder will share in 400k?
No, because it didn’t say that they are
Participating. No one said that As to Participating in
Preferred Stocks.
ONLY PARTICIPATING PREFERRED SHAREHOLDERS
STOCK CAN PARTICIPATE INTO THE DISTRIBUTION
OF PROFITS AS TO COMMON STOCKS.
a. Participating Preferred Shares - the holders
thereof are given the right to participate with the
common stockholders in dividends beyond their
stated preference.
b. Non- Participating Preferred Shares - the holders
thereof entitled to its fixed priority or preference
only.
c. Cumulative Preferred Shares - those that entitle
the owner thereof to payment not only of current
dividends but also back dividends not previously
paid whether or not, during the past years,
dividends were declared or paid.
For Example
In 2018 -Earned P500,000
In 2019- Earned P100,000
In 2020- Declared P300,000
To preferred shareholders - P300,000(P200k
appears/back dividends + current dividends)
• G.R. its upon the discretion of the board of the
directors( the power to declared dividend is large
with BOD, and only then can determined when to
declared dividend)
• If preferred dividends when it has mandatory,
mandatory cumulative or there is statement the
declared dividends during they earned profits.
d. Non- cumulative Preferred Shares - grant the
holders of such shares only to payment of
CURRENT dividends but not back dividends, when
and if dividends are paid, to the extent agreed
upon before any stockholders are paid the same.
e. Preferred as to voting rights - Preferred shares
are usually denied voting rights, in fact, Section
specially mentioned that preferred share may be
denied voting rights.
f. Preference upon liquidation - preference in the
distribution of corporate assets upon liquidation or
termination of the corporation existence.
•Fixed Amount.
Can there be a combination of preference?
YES!
3. Par and Non- Par Value Shares
Par Value Shares - are those value are fixed in the
AOI, its primarily function is to fix minimum
subscription or original issue price of the shares
and indicates the amount which is original
subscribers are supposed to contribute to the
capital as the basis of the privilege of profits
sharing with limited liability.
•Possible to change, they only need to amend.
• Usually they need to change if the net worth of
one corporation is not the same as it was when it is
created.
Non- Par Value shares - are those whose issued
price are not stated in the certificate of stock but
which may be fixed in the AIO, or by the BOD when
so authorized by the said AOI or by the laws, or in
the absence thereof by the stockholders
themselves.
Limitation as to issuance of No Par Value
Shares:
1. Such shares, once fully issued, are deemed fully
paid and thus, non- assessable.
2. The consideration for its issuance should not be
less than P5
3. The entire consideration for its issuance
constitutes capital.
• Why? Because sometimes when they issued a par
value share the subscriber sometimes buy this
above par value so the excess will go usually to the
unrestricted retain earning of the corporation.
However if we are talking about non- par value the
issuance, All of this will go to capital stock of
corporation.
4. They cannot issued as Preferred Stock
5. They cannot be issued by banks, trust
companies, insurance companies, public utilities,
and building and loan associations.
4. VOTING SHARES AND NON-VOTING SHARE
a. Voting Share - give the holders the right to vote
and participate in the management of the
corporation through the exercise of such right,
either at the election of the BOD, or any matter
requiring stockholder approval.
b. Non-voting Share - do not grant the holder
thereof a voice in the election of BOD and some
other matter requiring stockholder approval.
 Only preferred or redeemable share may,
however, be denied the right to vote.
SUBJECT the penultimate paragraph of
section 5.
Treasury Shares vs. Redeemable Shares
 TS - In order to fully acquire there is no
condition or term. The only condition is it
must be issued and fully paid. There is no
condition as to period, as to when.
 RS- If acquiring RS there is a particular
condition or term before you can reacquire
it, it may be in the form of a period for
example if they issue an RS the corporation
their right to redeem it will only appear a
year after the issuance of RS That is a term
of period. Let’s say condition for example
you’re possible to reacquire the RS if the
shareholder fail to pay the full amount of RS
on or before a certain date. That is also a
condition for purposes of reacquisition of a
RS.
 In treasury shares there is no term it is just
needed in TS it must be issued and fully
paid.
As to subscription
 TS- May only be reacquired it must be
issued and fully paid.
 RS- may be acquired even if it’s not yet fully
paid. You can reacquire yang RS even if it’s
not fully paid.
As to when acquired
 TS- it can only be reacquired if the
corporation has a unrestricted retained
earnings
 RS- can be reacquired regardless of the
unrestricted retained earnings.
As to the status of the shares of stock after
reacquisition
 RS- after reacquisition forms part of the
Outstanding Capital Stock of the
corporation and if that happened may be
reissued once again.
 TS- forms part of the asset of the
corporation which may be disposed for a
reasonable price
 Meaning the RS if you will redeem it will go
in Capital portion of corporation while TS if
you redeem it will go in the asset portion of
corporation.
As to Voting Right
 TS - Which remain as Treasury shall have no
voting rights.
 RS- as a rule if there is no restriction or
there is no statement as to prohibition as to
right to vote the RS has a right to vote from
the time of issuance and before the RS has
been reacquired by the corporation
because if you reacquired it there’s no
voting rights because it will be back in
Authorized Capital Stock of the Corporation
and it can be declared.
As to disposition
 RS- possible to dispose through reissuance
 Ts- It is not allowed to reissued because it is
already issued and fully paid. The
corporation can do is to sell it to people.
Founders Share
 There is a certain rights & privilege
 Only shares are given usually to founder at
incorporators.
 There is a exclusive rights in voting.
 They can elect their self. There’s a
limitations that only 5years can use that
benefit.
Redeemable Shares
 Shares issued by a corporation subject to
redemption as may be provided by the
terms of the subscription contract.
  Redeemable shares may be reacquired
regardless of the existence of unrestricted
of retained earnings.
Treasury Shares
 (Section 9) Must be issued and fully paid
before acquisition by the corporation
Founders Share
 Gives certain rights and privileges not
enjoyed by the other stockholders.
 Limitations:
Right to vote and be voted as a BOD it must
be for limited period not to exceed five (5)
years.
IX. Grounds for Disapproval (See Section 16,
RCC)
 Grounds stated therein are not exclusive.
(e.g. corporate name is not legally
permissible)
XI. De Facto Corporations
 It is one that is so defectively created as not
to be a de jure corporation but nevertheless
exists, for all practical purposes, as a
corporate body, by virtue of corporate
powers.
 Has a certificate of registration. Without
that de facto corporation cannot exercised
their powers which is a requirement.
 Its existence can only be attacked by the
State in a direct proceeding (quo warranto).
X. Commencement of Corporate Existence
(Section 18, RCC)
 The determination as to when a corporation
commences to exist is reckoned with at the
time of the issuance of its certificate of
incorporation or registration. (It is not
absolute statement) because it has
exceptions:
 Corporate existence of a corporation
commences from the issuance of its
certificate of registration, except:
1. Corporations created under a special law.
2. Corporation Sole (Sec 108, RCC)
XPNs(110)
XII. Corporation by Estoppel
 A corporation may exist on the ground of
estoppels by virtue of the agreement,
admission, or conduct of parties, such that
they will not be permitted to deny the fact
of the existence of the corporation.
 Applies to person who misrepresents that
there is a corporation.
Does the law on Corporation by estoppels
applies to third parties?
=yes, but only when he tries to escape liability
on a contract from which he has benefited on
the irrelevant ground of defective corporation.
Ex. ABC Corp – DE FACTO
Enter service contract with pedro.
By virtue of that contract ABC will perform a
service for Pedro. In exchange, Pedro will pay for all
of that for 1m.
ABC Corp. rendered a service
ABC Corp wants to collect 1M to Pedro that is
rendered to him. But Pedro says ABC Corp has no
right to charged him because it has no existence.
 Correct if there’s no existence it is
incapable to act a powers.
NON EXISTING the service contract with Pedro.
 Pedro still cannot deny the existence of ABC
Corp.
XIII. Corporate Organization (Section 21)
 Failure of corporation to organize and
commence its business within 5 years
would result in its automatic dissolution
(certificate of registration is deemed
revoked).
What are the activities that are considered as
“organization” activities:
1. The election of officers
2. Providing for subscription and payment of capital
stock;
3. Adoption of by-laws
4. Such other steps as are necessary to endow the
legal entity with the capacity to transact the
legitimate business for which it was created.
There is cash all provision in number 4
Delinquent Corporations
 Corporations that has commenced its
business but subsequently becomes
inoperative for a period of at least (5)
CONSECUTIVE YEARS
REMEDY of a DELINQUENT CORPORATION:
 Within 2 Years:
1. Resume operations; and
2. Comply with the requirement that SEC
prescribed
 Failure to comply with above requirements,
will result to automatic dissolution of the
delinquent corporation.
*So it will start a business in a corporation however
it became inoperative for a period of 5 consecutive
years. So it will revoke immediately the certificate
of registration?
=NO. It will become a delinquent corporation
*So the Delinquent Corporation is given by the law
a chance to operate again and resume business so
that it certificate of registration will not be revoke.
Question: Whose electing a corporate officers in
corporation?
 After the election of BOD there must be
formally organize and elect corporate
officers.
A stockholder has nothing to say in election of
corporate officers?
Is electing corporate officers considered as
corporate act?
As to exercise of certain acts, only BOD or
Trustees can exercise corporate acts? =Yes
Acts of ownership, stockholders can exercise or
BOD can exercise acts of ownership aside
corporate acts?
Who are the owners of corporation?
 Stockholders.
Can a stockholder perform acts of ownership?
 Yes.
BOD they are also called us governing body of a
corporation when it comes to a stock corporation
and BOT if it is a non stock corporation.
 They are only entitled to perform acts or
they can only perform acts which
considered as acts of management. They
cannot perform acts of ownership precisely
because in their capacity as a BOD they are
not owners of the corporation. Since BOD is
also a stockholder of a corporation because
it is required as qualification. They can also
perform acts of ownership but NOT as a
BOD but a Stockholder in their capacity as a
stockholder. But BOD cannot perform acts
 of ownership. They can only perform
corporate acts. That's what stockholders
relinquish when they elect BOD. The act of
management pertains to BOD but the act of
ownership pertains to the shareholders.
From 36-41 of Corporation Code it is required that
concurrence or acquiescence of the stockholders in
performing certain an act which is under the
Revised Corporation code is considered acts of
ownership.
 So a stockholder has a say when it comes to
certain acts of corporation. However, if
management a stockholder has nothing to
say. Only the BOD can perform acts of
management and they do not require the
vote of stockholders.
Q: What are the requirements in order for a
stockholder to be elected or to be voted as a BOD?
 In Sec 23. A director or trustee must
possess all the qualification and none of the
disqualification provided under the revised
corporation code. Those are the
requirement in order for a person to be
voted or elected as BOD.
1. He must possess all the qualification
2. He must not possess all the disqualification set
forth in the RCC
 Must possess all the qualification and none
of the disqualification.
 So the one who says that he is the only
holder of shares of stock pertains only to
qualification.
 It is not a requirement. That is not only the
requirement for a person or stockholder to
be elected as BOD.
Q: What are the qualifications in order for a
person or stockholder to be elected as BOD?
1. Must own at least 1 share of stock or must be a
member of the corporation.
2. Must be capacitated to act
3. Must be of legal age
Ex. We have a corporation named Tahimik
Corporation. Tahimik Corporation has a
stockholder that is A. Stockholder A owns a shares
of stock of Tahimik Corporation. Now Stockholder
A decided to sell his shares of stock all of shares of
stock to stockholder B. The transaction was not
recorded in the books of corporation but the sale is
valid. The owner of the shares was transferred to
stockholder B. Tahimik Corporation call a meeting
stockholder C arrive. And that meeting is for the
purpose of electing BOD.
The stockholder C nominated stockholder A for the
possession of BOD. Now here comes stockholder D,
he oppose the nomination of stockholder A. He
said Stockholder A is not qualify to be a BOD
because he already sold his shares of stock to
Stockholder B.
Q: Was stockholder D was correct in saying that
Stockholder A is not qualify to be a BOD?
 No
What’s with A which qualify him to be a BOD?
 He has legal title because the shares are still
named with him in shares of stock in the
books of corporation.
So in our scenario Stockholder A possess the legal
title of the shares of stock while the beneficial
ownership of the shares of stock belong to
stockholder B. B is only beneficial owner. So B only
pay to get the shares of stock. So He is the
beneficial owner of the shares of stock previously
owned by A.
 When we are talking about qualification of
BOD pertaining to owning a shares of stock
 we are talking about ownership which is
legal and not beneficial. He need to be a
legal owner or the legal title must be
possessed by that stockholder and he is
qualified to be a BOD.
 A is still the legal owner of the shares of
stock.
Q: What are the corporate powers that a BOD can
exercise.
1. Implied Powers
2. Incidental Powers
3. Express Powers
Q: When are the instances where a stockholder
considered as present during a corporate
meeting?
 It must be with the approval written in the
bylaws or by the majority of the BOD.
Q: What is quorum?
 It is the required minimum number of
persons in a meeting.
Q: Why quorum is important?
 Because without a quorum there can be no
valid meeting. It applies not only under the
corporation code but in any kind of meeting
when there is a requirement to vote.
 If it has a requirement to vote also requires
that there must be a quorum. Meaning the
majority of those persons who should be in
the meeting must be represented during
the vote. So it is needed to have a quorum
usually in a meeting.
Q: under the revised corporation code? What is
the required quorum in a meeting?
 stockholders representing a majority of the
outstanding capital stock or a majority of
the members in the case of non stock
corporation. (Sec.51)
Q: what are the disqualifications of a BOD?
 sec. 26
One corporate officer can hold 2 position
concurrently. As long as he cannot be Pres-Sec.and
Pres- Treasurer. So he can be Sec-Treasurer?
 Pres-Treasurer. (Sec.122) In one man
corporation it is allowed by law. The single
stockholder who is also the president can
also be a treasurer at the same time. That is
the exception.
 The prohibition is absolute. That a president
cannot be a secretary at the same time.
BOARD OF DIRECTORS /TRUSTEES AND
OFFICERS
POWERS OF THE BOARD
 The Revised Corporation Code vests unto
the BOD or BOT the authority to exercise
corporate powers, conduct all business and
control and hold the properties of the
corporation.
 Based from the foregoing, the BOD or BOT
is considered as the supreme authority in
matters of management of the business
affairs of the corporation.
 The equitable principle therefore is that the
stockholders may have all the profits but
shall turn over the management of the
enterprise to the BOD.
DELEGATION OF POWER OF THE BOD/BOT
 Although Corporate Powers are exercised
by the Board, such powers however, may
be delegated to either an executive
 committee or corporate officers of the
Corporation.
 The general rule is that a corporation is
bound by the acts of its corporate officers if
they act within the scope of an apparent
authority.
REQUIREMENTS TO BE A BOD/BOT
 In order to be elected and qualified as a
BOD/BOT, a person must possess all the
Qualification and none of the
Disqualification provided for under the
Revised Corporation Code.
QUALIFICATIONS (RCC)
 1. Must be a holder of at least one (1)
shares of stock of the corporation in their
own name (meaning it must be recorded in
the books of the corporation)
 2. Such other qualification which is provided
in the by laws of the corporation provided
that such corporation cannot do away with
first requirement stated above.
DISQUALIFICATIONS:
 See Section 26 of the Revised Corporation
Code.
ELECTION AND VOTING
 In order to have a valid election the
Quorum required for the said election must
be obtained.
 Quorum is the required minimum number
of persons that should appear to have a
valid meeting
 Under Section 51, of the RCC:
 Quorum in Meetings. – Unless otherwise
provided in this Code or in the bylaws, a
quorum shall consist of the stockholders
representing a majority of the outstanding
capital stock or a majority of the members
in the case of non stock corporations.
When a person is considered present during a
meeting for the Election of BOD/BOT?
1. When he appears personally
2. When he appears by proxy provided that the
proxy has a written authority coming from person
whom he represents.
3. When he appears through remote
communication or in absentia provided it is
authorized by the bylaws or by a majority of the
BOD of the corporation.
REQUIRED FORM IN VOTING DURING
ELECTION
 No required form unless a stockholder or
member requests that the voting be made
through ballot
CUMULATIVE VOTING
 In a stock corporation cumulative voting is a
matter of right that can be exercised by the
stockholders. However, in a non-stock
corporation it is not since it is generally not
available.
 It gives the stockholder entitled to vote the
right to give a candidate as many votes as
the number of directors to be elected
multiplied by the number of his shares.
Being a right, a stockholder may cast all
votes in favor of one candidate or distribute
it among the candidates as he may see fit.
 It is a voting in a matter of right in a stock
corporation. When it said a matter of right
meaning the fact that they are stockholders
gives them such right to vote via cumulative
voting.
  It is not a matter of right when it comes to
member in a non stock corporation because
as a general rule the cumulative voting is
not available in a non stock corporation
 As a general rule if there is no provision
under the articles of incorporation or by
laws.
 Again In a stock corporation cumulative
voting is a matter of right.
 Being a right the law also gives a
stockholder the opportunity to cast all his
votes in all particular candidate or
distributed among the candidates as he
may see fit.
Later on we will know what is important is that
stockholder not exceeding in maximum amount of
votes that he can cast. He can vote less than the
amount of votes he has but he cannot vote in
excess of maximum amount of votes that is
granted to him by law.
Illustration:
A – 100,000 shares of stocks
Number of candidates for BOD – 5
Total Votes that “A” may cast = 500,000 (100,000
shares x 5)
 In provision in order to compute the total
amount of votes that a stockholder may
cast during election he has to multiply the
number of candidates for BOD which is 5
against the shares of he owns. So here
100k×5 we can get the maximum votes that
he may cast which is 500k. That 500k hr can
cast it in one candidate he can also
distribute it in 5 candidates.
 Now in shares of stock to have a right to
cumulative voting that one stockholder the
shares of stock must be registered under his
or her name. For the voting of a BOD that is
need the shares of stock must stand in the
name of that stockholder.
Note:
In voting in relation to non stock corporation voting
of a BOT as a general rule there is no cumulative
voting so how is voting in non stock corporation. In
one non stock corporation every member who is
entitled to vote is given a vote. The right to vote is
a trustee based on the number of trustee to be
elected. Meaning if 5 of BOT that will elect there is
also 5 that one member will vote. However, even if
5 vote he is not allowed to cast it in one candidate
only. 1 vote 1 candidate that is the maximum
amount that should vote in one candidate.
So is that always the thing in a non stock
corporation? No. because Non stock corporation
can also adopt cumulative voting as long as it is
provided for in the articles of incorporation or by
laws of a non stock corporation. So they can also
have cumulative voting. Because the cumulative
voting you can cast your entire vote in one
candidate. It is not happen generally in non Stock
Corporation.
NON ELECTION
 There is Non Election of BOD/BOT when:
1. No election is actually held.
2. The owners of majority of the
outstanding capital stock or majority of the
members entitled to vote are not present in
person, by proxy, or through remote
communication or not voting in absentia at
the meeting,
What will happen if there is Non Election?
 Non-Election happens sometimes without
an election of the board of directors.
 So when are those instances? That there is
no election.
 1. If there is no election held. There is no
actual election.
2. They didn’t meet the required quorum
for the meeting. That will result to non
election.
Owners of majority of the outstanding capital
stock. When we are talking about voting of BOD.
Only those shares of stock which are entitled to
vote can vote. If it’s not entitled to vote cannot
vote. Remember the statement under section 6.
Those are the only times that a shares of stock
which is not entitled to vote can vote those are the
only instances other than that if there’s a
requirement of vote of one stockholder the law
presumes or the law states that it only pertains to
those stockholders or shares of stock which are
entitled to vote.
 The fact of Non Election shall be reported to
the SEC within 30 days from the date of the
scheduled election.
 The fact of Non Election shall be reported to
the commission and please take note the
word SHALL because it means it is a
mandatory requirement. So what will
happen if it’s not reported? That will
constitute a violation of the RCC and to
remind you the authority to report such
thing is latch with the corporate secretary
however the responsibilities can be given to
any other corporate officer. So if it’s not
reported there is a violation in RCC and any
person who is responsible to report such
matter maybe held civilly. Civilly liable
meaning you can pay for damages and he
may also be criminally liable.
 Yung violation of RCC is a criminal act. Can
be imprisoned because it is special law.
 It is shall be reported to the SEC within 30
days from the date of the scheduled
election.
The report shall specify a NEW date for the election
which shall not be later than 60 days from the
scheduled date.
 The 60 days is from the time that the
election is not continued that’s the
computation non same with the 30 days
requirement of report it.
If no new date is assigned, or the rescheduled
election, the SEC shall take control of the election.
 The election nothing happened despite the
rescheduling what will happen to that is
that the SEC will take over the election of
BOD. They are the one who will start the
election.
If the Election is controlled by the SEC,
notwithstanding any provision of the articles of
incorporation or bylaws to the contrary, the shares
of stock or membership represented at such
meeting and entitled to vote shall constitute a
quorum for purposes of conducting an election
under this section.
 If the SEC controlled those stockholder or
members which are entitled to vote who
appears in the meeting for purposes of
electing a BOD will now constitute a
quorum. The stockholders representing the
majority of the outstanding capital stock
and the majority of members entitled to
vote must be present that’s the
requirement for quorum. However if SEC
controlled there is no quorum it is possible
less than the majority that will appear and it
will still constitute as a quorum.
 For example 3 stockholders that are
represented are 15%. Regardless there will
be quorum at they can elect of BOD.
Q: It is possible to elect a BOD that is not present in
a meeting? Let’s say you didn’t present you didn’t
attend by proxy by through remote.
  Possible because there is no law about that.
The requirement only is that it must be with
the consent of BOD to be elected or to be
voted to. The nomination must be with his
consent. Because the nomination of BOD it
is a personal matter it needs your consent.
So possible.
CORPORATE OFFICERS
 In a stock corporation, the RCC requires the
BOD to elect the said officers.
Exception:
1. In a close corporation other corporate officers
may be elected directly by the stockholders.
2. In a non-stock corporation, if provided for in the
articles of incorporation or the bylaws the
corporate officers may be elected by the members
(Section 91, RCC)
 In a stock corporation the RCC requires that
it must be the BOD who must elect. It is a
mandatory upon them to elect a corporate
officer. However that only pertains to Stock
Corporation. In non Stock Corporation
although it is a general rule that BOT may
elect the corporate officers it is not
mandatory. Meaning they can delegate a
member of non stock corporation. As long
as it is written in the AOI and by laws of the
corporation.
Exception that is not a BOD can elect a
corporate officer
1. in a close corporation
2. (Sec 91, RCC)
The following are the officers to be elected.
1. The President who must be a Director
2. Treasurer who must be a resident
3. Secretary who must be a citizen and resident of
the Philippines
4. Other officers provided in the bylaws.
 Any two or more position maybe held at the
same time, except President and Secretary,
and President and Treasurer subject to the
provision under One Person Corporation.
 Any two or more position maybe held at the
same time, except Pres-Secretary as to that
it’s an absolute rule there is no instance
under the RCC that the position of Pres and
Sec maybe held at the same time. Also Pres-
Treasurer cannot be held simultaneously
subject to the exception provided under the
provision of One Man Corporation.
Q: If electing a Corporate Officer it is possible there
is no secretary?
 No. This is the minimum requirement of
corporate officer Pres, Sec at Treasurer. The
corporation cannot do away with this
minimum requirement. They cannot
disregard otherwise they will be violating
the RCC. That is the Minimum you can add
but you cannot lessen.
VALIDITY AND BINDING EFFECT OF ACTIONS
OF CORPORATE OFFICERS
To have a valid corporate act, the decision of at
least a majority of the directors or the trustees
present at a meeting at which there is a quorum is
required.
 Meaning to have a corporate act first is
quorum second there must be a vote of
majority of the BOD present in such
meeting where there is a quorum.
 The rule is not absolute because when you
are trying to elect corporate officer the
other requirement aside from quorum it is
 required that the vote of the majority of all
the BOD or BOT.
 Sec 25,. Before there is one paragraph
which states the required quorum in order
for a BOD to execute or perform a valid
corporate act. But it is not there anymore.
That is the required quorum that is in Old
corporation code.
So there is no required quorum to have a
corporate acts?
 Sec 52 of RCC. In regular meetings and
special meetings there is a required
quorums to perform a valid corporate acts.
 Except for the election of corporate officers
which shall require the vote of the majority
of ALL the members of the board.
Quorum required during board meeting – Unless
the AIO or bylaws provides for a greater majority, a
majority of the directors or trustees stated in the
AIO shall constitute a quorum.
The quorum for board meeting is majority unless
there is a greater majority provided under the AOI
or by laws.
Illustration:
ABC Corp has 10 Board of Directors:
AIO or bylaws is silent as to quorum
Quorum for board meeting = at least 6 must be
present
To have a valid corporate act = if 6 is present, 4
(majority) votes
Election of corporate officers = if 6 is present, all
shall vote in favor of electing a corporate officer;
If 7 are present, only 6, Majority of 10.
 Base on the stock alone, how many should
constitute a quorum? =6. The number
divided by 2 plus 1
If 11 the majority is 7. Because 6 is not the
majority because the required is 6.5 so it is
7.
If the AOI is silent at by laws. The number
divided by 2 plus 1.
 Quorum for board meeting= at least 6 must
be present.
 Election= all because out of 10 the majority
is always 6 that is the required minimum
majority.
 7 is majority? Yes 8 is a majority? Yes and 9
but 6 is the minimum majority.
What will happen if the required vote and
quorum is not obtained?
Any corporate acts performed by the BOD will not
bind the Corporation unless the corporate act is
subsequently ratified, expressly or impliedly.
 The corporate act will not bind the
Corporation that is the general rule because
it is subsequently ratified by the
stockholders will bind in corporation.
Subject to ratification.
How do you ratify?
 Either expressly or impliedly.
 Expressly can be verbal or written. It is
difficult when it is to implied ratification. So
it happens if there is already knowledge of
the invalid corporate act and the
stockholders despite knowledge still ignores
the invalid corporate act. And in fact, they
benefited from such invalid act. During that
instance the corporate act will be or for
purposes will be considered as invalid or
ratified. That is invalid.
REMOVAL AND FILLING UP OF VACANCIES
 The Revised Corporation Code, as well
jurisprudence, authorizes the stockholders
or members to remove or oust a corporate
director with or without just cause, subject
only to the limitation that removal without
cause may not be used to deprive minority
stockholders or members of the right of
representation.
REQUIREMENT FOR THE REMOVAL OF A
DIRECTOR
1. The removal should take place at a Regular or
Special meeting duly called for that purpose.
 Meaning the meeting must be for the
removal. That is the purpose of the meeting
it is for the removal.
2. The removal must be by the vote of the
stockholder representing 2/3 of the outstanding
capital stock or the member entitled to vote in case
of a non-stock corporation.
 The voting 2/3 or the majority.
3. There must be a previous notice to the
stockholders or members of the intention to
propose such removal at the meeting either by
publication or on written notice to the SH or
members
 The notice is only for the intention not for
the schedule of the meeting. It must have a
notice. (SEC27)
OTHER REQUIREMENTS:
The meeting must be called by the Secretary on
order of the President or on the written demand of
the SH representing majority of the outstanding
capital stock or majority of the members entitled
to vote
 If the secretary refused and there is no
other person authorized to make a call, the
same may be addressed directly to the SH’s
or members by any SH or member signing
the demand.
NEW PROVISION
Gives the SEC the right to remove or oust a
director, Motu proprio (in his own discretion) or
upon verified complaint of a director or trustee
who is:
1. Disqualified to be a director or trustee but was
elected; or
2. Discovered to be disqualified subsequent to
election
VACANCIES IN THE OFFICE DIRECTOR OR
TRUSTEE
Vacancies in the board occur:
1. When there is a removal of Director or Trustee
under Section 27
2. By expiration of the term
3. Increase in the number of Director or Trustee
4. Other ways of removal (death, incapacity, etc.)
 They have other way to remove.
 For example is he will possess the
disqualification of proving under the Section
26 if he possesses any of disqualification
automatic he will be removed.
1. WHEN THERE IS REMOVAL OF DIRECTOR
UNDER SECTION 27.
 Vacancy may only be filled by the SH’s or
members in a Regular or Special Meeting
 So the power to fill up the vacancies is
lodge with the stockholders or members of
 the corporation. It may be held in regular or
special meeting
 The meeting maybe held on the same day
of the meeting authorizing the removal,
provided that this fact must be stated in the
agenda and notice of said meeting
otherwise it may be held any other day.
2. BY EXPIRATION OF THE TERM
 Vacancy may only be filled by the SH’s or
members in a Regular or Special Meeting
 The meeting election shall be held no later
than the day of such expiration at a meeting
called for that purpose
 At the time of the expiration of the term of
the board of director he should elect a new
board of director.
For example
 A is a board of director. The expiration of
his term is on Oct, 31, 2020. So it is
tomorrow. So the stockholders or members
must already call for a meeting. Either
today or much earlier but not later than
tomorrow because that’s the expiration of
his term.
So what is a board of directors in a hold over
capacity?
 If the term of such BOD has already expired
but there is no other person or no other
nominee who have been elected or
qualified for the position of BOD.
 Meaning the successor in interest of the
BOD term that is expired has been elected
and qualified
Note: IT MUST BE ELECTED OR QUALIFIED
 Not only that the stockholder must elect
such board of directors he needs to be
qualify.
 There are times that by-laws will provide for
a additional qualification appoint of a BOD.
 Only one requirement to be a BOD under
RCC and that is He must own at least one
share of stock under his name in the
corporate books
 We can say he must be of legal age or legal
capacity. But the requirement in RCC is only
one and that is he must own at least one
share of stocks.
Q: There is a possible to add some
qualifications?
 The answer is YES.
In order to fill up the vacancies he must
elected and qualify.
How long was the term of a BOD “A”?
 If his term expired.
 1 year or 3 year or it depend if how long is
his term not include his term or period in
which the BOD held the position in hold
over capacity.
3. INCREASE IN THE NUMBER OF DIRECTOR
OR TRUSTEE
 Vacancy may only be filled by the SH’s or
members in a Regular or Special Meeting
 The meeting maybe held on the same day
of the meeting authorizing the increase,
provided that this fact must be stated in the
notice of said meeting otherwise it shall be
held not later than 45 days from the time
the vacancy arose
 The difference with number 1 the number
one has no period. Anytime he can fill up a
 vacancy which has been created by removal
of board of directors.
4. OTHER WAYS OF REMOVAL (DEATH,
INCAPACITY, ETC.)
 Maybe filled by the vote of at least majority
of the remaining directors or trustees, if still
constituting a quorum, otherwise it shall
be filled up the SHs or members in a
regular or special meeting
 Remember if the 3 had a vacancies and the
cause was not the 3 mention awhile ago
no.4 will enter. And the requirement here is
the remaining directors must still constitute
a quorum, and if that will happen they can
fill up vacancies. They need the majority
votes of board of Directors.
 Otherwise stockholders or members will fill
up that vacancy.
 The meeting be held not later than 45 days
from the time the vacancy arose
Replacement DIRECTOR/TRUSTEE
is a director or trustee elected to fill a vacancy
which shall serve only for the unexpired term of
the predecessor in office.
 May replace director, it has one director
that his term is not finished.
How long is the term of BOD? 1 year
If Non-stock corporation? 3 years
Can it be delayed? No, it is mandatory.
EMERGENCY BOARD
 Constituted when the vacancy prevents the
remaining directors from constituting a
quorum and emergency action is required
to prevent grave, substantial, and
irreparable loss or damage to the
corporation.
 Vacancy may temporarily fill from among
the officers of the corporation by
unanimous vote of the remaining directors
or trustees.
 The way to fill up the vacancies of one BOD
is that it must be constituted by quorum in
order to them to fill up a certain vacancy. If
there is no quorum the stockholder will
constitute.
 There is one exemption in that rule. That
wherein even without getting the required
quorum you can still fill up a vacancy for
BOD. If there is a emergency and such
emergency will cause irreparable loss or
damage to a corporation the RCC allows the
BOD or the remaining BOD which that's not
constitute a quorum to elect another BOD.
Note:
THE REQUIREMENT IN RCC IS THE DIRECTOR MUST
COME FROM THE OFFICERS OF THE CORPORATION
AND ALSO IS THAT IN ORDER TO FILL UP SUCH
VACANCY THE REMAINING BOD OR MEMBERS
MUST UNANIMOUS VOTE.
 All of them must ascend that this corporate
officer shall be elected as a BOD.
There are three instances that a stockholders can
only elect? Now, in those instances the
emergency boards apply? It applies. In that 3 it
applies
 Here what the law wants to protect is that
the corporation shall not suffer losses. That
during emergency there is a vacancy they
need to decide a BOD, they need to fill up
that vacancy in order to perform a valid
corporate act. This provision applies to
those 3. The ground for that vacancy is
material in this case.
  What is material? There is an emergency
that a certain act needs to be performed
and it can only be performed if there are
members of BOD who can perform it
validly.
If the emergency is done what will happen?
 The emergency of BOD will now cease to be
a BOD. Because he is only a BOD for that
emergency. Once that emergency is already
gone, or the act pertaining to that
emergency has been already performed
he/she will ceased to be a BOD.
 This is the only instances that the
emergency will remove BOD? The answer
is No.
 The other instance is wherein during if the
time of emergency the corporation was
able to elect another BOD for such
vacancies. It will happen when emergency
BOD will cease also to be a BOD.
 The EMERGENCY will expire OR THE ACT
PERTAINING TO THE EMERGENCY HAS BEEN
ALREADY HAPPEN OR IF IT HAD ELECTED
How to fill up a vacancy?
 By cumulative voting.
 It is a matter of right if you are electing a
director. So the stockholders they need to
vote to elect one BOD. And if you’re filing
up a vacancy you are electing a BOD.
 Since it is a matter of right it cannot be
denied. In Stock Corporation, that’s the only
way to fill up a vacancy the exception is the
number 4 which is the other ways of
removal wherein the BOD or remaining
BOD may fill up the vacancy on their own as
long as they constitute a quorum. But the
rest 1,2,3 are filing up and the stockholders
through voting.
 If a stock corporation, by using cumulative
voting. And non stock corporation there is
no cumulative voting but they can also
adopt it.
 The Emergency Director or Trustee shall
cease to be a director or trustee within a
reasonable time from the termination of
the emergency or upon election of the
replacement director or trustee, whichever
comes earlier.
COMPENSATION OF DIRECTORS (SEC. 29)
Directors are not generally entitled to receive any
compensation, except for reasonable per diems
unless the by-laws so provide.
 Directors are not generally entitled to
receive any compensation, except for
reasonable per diems unless the by-laws so
provide.
 The BOD is also a stockholder of
corporation. And most of the time the BOD
are considered as the majority stockholders
of a corporation. Basically they only manage
their business.
 However, the law provides that a director
can received reasonable per diem as
provided for by-laws.
Compensation and per diems
 Maybe granted to directors by SH
representing at least majority of the
outstanding capital at a regular or special
meeting.
 In the determination of per diems or
compensation, the Director SHALL NOT
Participate.
Note: A DIRECTOR IS ALSO A STOCKHOLDER.
If there is a voting that is required a vote of
stockholder or concurrence of stockholders. THEY
ALSO VOTE.
 Don’t think that a BOD is different to
stockholder or their right as a stockholder is
cannot act as BOD. BECAUSE THEY ARE
ALSO CONSIDERED AS STOCKHOLDERS.
As regards to the compensation to be given to the
BOD such compensation shall not exceed 10% of
the net income before income tax of the
corporation the basis is net income before income
tax in the preceding year.
When we say reasonable it is subjective so what is
reasonable for you might not be reasonable for
me.
 So, who will determine if such is
reasonable? If there has a question about
that and one will do with the other the
stockholders or directors they will go to
court. And the court will determine what is
reasonable and what is not.
 Usually the meaning of per diems is for
each day. So the reasonable for diems is
equivalent to the expenses that a director
incurred by virtue of his position.
 SO if you are BOD and you have a deal or
transaction to other clients and by doing
that you are incurring obligation or
expenses. So the per diem should cover up
for those expenses. Usually reimbursement
it reimburses the expenses of BOD like
hotels, meals or transportation expenses
because it is in relation to the work of BOD.
However, he is not allowed to charge it in
corporation of his personal expenses
LIABILITY OF DIRECTORS / TRUSTEES /
OFFICERS
1. For willingly and knowingly voting or assenting
to patently unlawful acts of the corporation
 In order for a director to incur liability in
this situation he needs a breach of trust.
2. Liable for gross negligence or bad faith in
directing the affairs of the corporation
 Gross Negligence - Failure to observe
required diligence in a certain transaction
 Example. If you are a BOD, and you are
trying to enter into a contract with another
person or corporation or other entity. It is
your responsibility to make diligence. And if
this BOD enter to a transaction without
doing the required due diligence before
entering such transactions is liable for gross
negligence.
 Bad faith- there is an intent to deceived or
defraud. There was an intention
3. Liable when he/she acquires any personal or
pecuniary interest in conflict with his/her duty as a
director
 For example, BOD is a business man he is
open to any kind of transaction. Now there
is one corporation it is B Corporation.
Pedro/BOD is a director in A corporation. B
Corporation has a business opportunity for
BOD.
Is he not allowed to have that business
opportunity?
 THE ANSWER IS NO. There is no prohibition
so it is not prohibited. Unless the by-laws
will require you that your services shall be
full time and you shall not engage in any
other kind of business. So as a general rule
it is not prohibited.
 However a thing is A Corporation is
competitor of B Corporation, Now if Pedro
accepts the job offer or this opportunity
from B Corporation indirectly competent to
 A corporation. And that's what we called
conflict with interest.
 Liability is jointly and severally (solidary) for
all damages resulting there from.
PROHIBITION AGAINST DIRECTORS /
TRUSTEES / OFFICERS
Shall not acquire interest adverse to the
corporation in respect of any matter:
1. Which has been reposed to the D/T/O in
confidence by the Corporation.
2. Upon which equity imposes a disability upon
them to deal in their own behalf.
 In case violated, D/T/O shall account for the
profits which otherwise would have accrued
to the corporation
SELF-DEALING DIRECTORS (SEC. 31)
Contracts of directors, his spouse, relatives within
the fourth civil degree of consanguinity or affinity
with his own corporation are voidable at the option
of the corporation unless the following conditions
are present:
As a rule the contract into by the director and to
his relatives which provided in this section is valid.
Although it is voidable. Remember that the
voidable contracts are valid until annul. However,
it can be annul because the law says it is voidable.
(a) 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;
But can he vote? Can the director vote? The
answer is YES. Provided that his vote is not a swing
vote. The swing vote is whether an act should be
done or not be done. If that is the vote of BOD, the
contract will remain voidable.
(b) The vote of such director or trustee was not
necessary for the approval of the contract;
(c) The contract is fair and reasonable under the
circumstances;
(d) In case of corporations vested with public
interest, material contracts are approved by at
least two-thirds (2/3) of the entire membership of
the board, with at least a majority of the
independent directors voting to approve the
material contract; and
(e) In case of an officer, the contract has been
previously authorized by the board of directors.
 Now, if they are all present the contract is
absolutely valid. It is not voidable.
Therefore, it cannot be annulled anymore.
 If any of the condition’s from (a) to (c) is not
present the contract may be ratified by the
vote of the stockholders representing at
least 2/3 of the outstanding capital stock or
of at least 2/3 of the members in a meeting
called for the purpose
 if any of the conditions from a to c is not
present the contract is voidable. So you
need to ratify to be absolutely valid. If you
need to ratify you need a vote at least 2/3
of the outstanding capital stock.
 Adverse Interest by the director or trustee
must be fully disclosed in the meeting.
INTER-LOCKING DIRECTORS (SEC. 32)
A director in one corporation who deals or transact
business with another corporation of which he is
also a director.
 There is no prohibition in one director to
engage to other business. In fact they can
be a BOD of another corporation. As long
as there is no prohibition under the by
laws
  As a rule contract is valid unless there is
fraud, or the contract is not fair and
reasonable.
 If a director holds substantial interest in one
corporation and nominal interest in the
other corporation/corporations, the
requirement under Section 31 of the RCC
shall apply insofar as the latter
corporation/s are concerned.
SUBSTANTIAL INTEREST
 Stockholding exceeding 20% of the
Outstanding capital stock is considered
substantial
DISLOYALTY OF A DIRECTOR (SEC. 33)
Duty of loyalty is violated in the following
instances:
1. When a director or trustee acquires personal or
pecuniary interest in conflict with his duty as such
director.
2. When he attempts to acquire or acquires in
violation of his duty, any interest adverse to the
corporation in respect to any matter which has
been reposed in him in confidence, as to which
equity imposes a disability upon to deal in his own
behalf.
3. When he by virtue of his office, acquires for
himself a business opportunity which should
belong to the corporation, thereby obtaining profit
to the prejudice of such corporation.
 Director must account and refund to the
corporation such profits.
EXECUTIVE COMMITTEE (SEC. 34)
How created?
1. By a provision in the by law to be appointed by
the Board.
2. Must consist of at least three (3) members of the
Board.
3. Only board members are allowed to be
appointed
Powers, functions and authority of the executive
committee are those that may be delegated to it by
the BOD or those specific matters within the
competence of the board except:
1. Approval of any action which shareholders
approval is also required.
2. The filing up of vacancies in the Board
3. The amendment or repeal of by laws or the
adoption of new one
4. The amendment or repeal of any resolution of
the Board which by its express terms is not so
amenable
5. Distribution of Cash Dividends to the
shareholders
NEW PROVISION:
 The board of directors may create special
committees of temporary or permanent
nature and to determine the members’
term, composition, compensation, powers,
and responsibilities.
POWERS OF CORPORATION
CORPORATE POWERS AND AUTHORITY
Classified or Divided into 3 classes.
1. Those expressly granted or authorized by
law.
2. Those impliedly granted as are essential or
reasonably necessary to the carrying out of
the express powers; and
3. Those that are incidental to its existence
POWER OF CORPORATION
1. Those expressly granted or authorized by law.
Powers that are stated under Section 35 of the RCC
except paragraph (k)
(a) POWERS TO SUE AND BE SUED
Applies to case which is civil in nature. Corporation
is usually represented by its corporate officers who
are responsible for the transaction in issue.
(b) To have perpetual existence unless the
certificate of incorporation provides
otherwise; (POWER OF SUCCESSION)
The corporation persist to exist despite the death,
incapability, civil interdiction, or withdrawal of the
stockholders or members thereof.
(c) To adopt and use a corporate seal;
(d) POWER TO AMEND ARTICLES OF
INCORPORATION
A matter right granted to corporation (in relation to
Section 15, 36, and 37 of the RCC).
However, it might not be a matter of right in case
of a corporation created under special law.
(e) POWER TO ADOBPT BY-LAWS (in relation
to Section 45)
 Must not be contrary to law, morals, or
public policy.
When adopted?
 May be adopted and filed prior or
subsequent to corporation.
Requirement of filed prior to incorporation:
1. Must be approved and signed by all the
incorporators and submitted to the
commission, together with the AOI
Requirements if filed subsequent to
incorporation:
1. Affirmative vote of the stockholders
representing at least a majority of the
outstanding capital stock, or at least
majority of the members in case of non
stock corporations.
2. By laws shall be signed by the stockholder’s
or members voting foe them
3. A copy must be made duly certified by a
majority of the directors or trustees and
countersigned by the Secretary of the
corporation and must be filed with
commission and attached to the original
AOI.
4. For banks, banking institution, building and
loan association. Trust company, insurance
company, public utility, educational
institution, or other special corporations
governed by special laws certificate coming
from the appropriate agency must be
obtained.
When is by law effective?
 Effective upon the issuance by the
commission of a certification that the
bylaws are in accordance with this code.
(f) POWER TO ISSUE AND SELL STOCKS
The power of a corporation to issue or sell its
stocks is an inherent right if any stock corporation
pursuant to the Code except only as it may be
regulated by law or the AOI
(g) POWER TO ACQUIRE OR ALINATE REAL OR
PERSONAL PROPERTIES
LIMITATION: It must be acquired, held, or
conveyed “as the transaction of the lawful business
of the corporation may reasonably and necessarily
require”
Whether or not the acquisition or alienation of a
property is within the corporate powers may
reasonably be determined for the purpose
indicated in the AOI
(h) To enter into a partnership, joint venture,
merger, consolidation, or any other
commercial agreement with natural and
juridical persons;
(i) POWER TO MAKE REASONABLE
DONATION:
Limitation:
1. The donation must be reasonable;
2. It must be for public, welfare, or hospitals,
charitable, scientific, cultural or similar
purpose
3. It shall not be in aid of Political Party
(j) To establish pension, retirement, and
other plans for the benefit of its directors,
trustees, officers, and employees; and
(k) POWER TO EXERCISE SUCH OTHER
POWERS NECESSARY TO CARRY OUT ITS
PURPOSE(IMPLIED POWERS)
The test to be applied is whether the act in
question is indirect and immediate furtherance of
the corporation’s business fairly incident to the
express powers and reasonably necessary to their
exercise.
The following are the implied powers which a
corporation may exercise:
1. Acts in the usual course of business
2. Acts to protect debts owing to the
corporation
3. Embarking a different business(must be
part of the regular business of the
corporation)
4. Acts in part or wholly to protect or aid
employees; and
5. Acts to increase business
Incidental Powers (Sec 44, and Sec 35 (k))
Powers “incident” are those that attach to the
corporation from the date of its incorporation
which may likewise be said to be “inherent” to
corporate existence.
These powers are:
1. The privilege of having the right of
succession.
2. The capacity to sue and be sued
3. The capacity to purchase, hold, and convey
real and personal properties
4. The authority to adopt a corporate seal; and
5. The authority to adopt and amend by-laws.
Section 36.  Power to Extend or Shorten
Corporate Term
Requirements:
1. Approval by a majority vote of the board of
directors or trustees: and
2. Ratification by the stockholder representing at
least 2/3 of the outstanding capital stock or by at
least 2/3 of the members in case of non Stock
Corporation.
What is Appraisal Right?
Appraisal Right means that a stockholder, who
dissented and voted against the proposed
corporate action, may choose to get out of the
corporation by demanding payment of the fair
value of his shares.
How right is Exercised? (SEC 81)
Three instance of distribution of corporate capital.
1. Amendment of the Articles of Incorporation to
reduce authorized capital stock.
2. Purchase of redeemable shares by the
corporation regardless of the existence
unrestricted retains earnings.
3. Dissolution and eventual liquidation of the
corporation.
Section 37. Power to increase or Decrease
Capital Stock; Incur, Create or Increase
Bonded Indebtedness.  Assets
Requirements:
1. Majority vote of the BOD.
2. Ratification of stockholders representing 2/3 of
outstanding capital stock.
3. Written notice of the proposed increase or
diminution of the capital stock and of the time and
place of the stockholder’s at which the proposed
increase or diminution of the capital stock is to be
considered, must be addressed to each stockholder
or member at his place of residence as shown on
the books of the corporation and deposited to
addressee with postage prepaid or served
personally
4. The Certificate must be signed by a majority of
the directors of the Corporation and countersigned
by chairperson and the Secretary of the
stockholder’s meeting.
5. Approval of the SEC thereof;
6. Showing at least 25% of such increased capital
stock has been subscribed and that at least 25% of
the amount subscribed has been paid.
7. No decrease of the capital stock shall be
approved if its effect shall prejudice the right of the
corporate creditors.
Section 38.  Power to Deny Preemptive Right
 It is the preferential right of all stockholders
of a stock corporation to subscribe to all
issues or disposition of shares of any class,
in proportion to their respective
shareholdings.
PURPOSE
 The purpose of pre-emptive right is to
enable the shareholder to retain his
proportionate control in the corporation.
Section 39. Sale or Other Disposition of
 A sale or other disposition shall be
deemed to cover substantially all the
corporate property and assets if thereby
the corporation would be rendered
incapable of continuing the business or
accomplishing the purpose for which it
was not incorporated.
What are fractional shares?
Are shares which are less than one share.
General Rules:
The corporation may only acquire its own
stocks in the presence of unrestricted retained
earnings.
Exceptions:
1. Redeemable shares may be acquired even
without surplus profit for as long as it will not
result to insolvency of the Incorporation; and
2. In a Close Corporation
Section 40. Power to Acquire Own Shares. 
Stock corporations are called such primarily
because it has capital stock divided into shares. The
holders of such shares are authorized to receive
dividends, or allotments of the surplus profits on
the basis of the shares held. Once shares are issued
by the stock corporation, may those shares issued
be subject to eventual acquisition by the issuing
corporation?
  Yes. Among the explicit powers of a stock
corporation is the Power to Acquire Own
Shares as provided for under Section 40 of
the Revised Corporation Code? However, as
a general rule, such power is anchored on
the twin conditions of legitimate corporate
purpose and unrestricted retained earnings.
 In other words, before a stock corporation
can acquire its own shares, it must have
unrestricted retained earnings in its books
to cover said shares to be purchased or
acquired plus a purpose of such intended
acquisition.
What is unrestricted retained earnings?
 It simply pertains to the accumulated
surplus earnings of profits arising from the
business of a stock corporation. The
requirement of unrestricted retained
earnings to cover the shares is based on the
“Trust Fund Doctrine.”
What is the purpose of acquiring or purchasing
the stock corporation’s own shares?
 To eliminate fractional shares arising out of
stock dividends;
 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
 To pay dissenting or withdrawing
stockholders entitled to payment for their
shares under the Revised Corporation Code.
Is there an exception to the above-stated general
rule?
 Redeemable shares are those which may be
purchased by the corporation from the
holders of such shares upon the expiration
of a fixed period regardless of the existence
of unrestricted retained earnings in the
books of the corporation.
 However, the purchase must be upon such
terms and conditions stated in the articles
of incorporation and the certificate of stock
representing such shares subject to the
rules and regulations issued by the
Securities and Exchange Commission.
Invest in another corporation or business (SEC
41)
Requisites:
I. To accomplish its primary purpose.
1. Approval of the majority of the board of
directors or trustees; and
2. The approval of the stockholders or members
shall not be necessary
3. Any dissenting stockholders will have appraisal
right.
II. To accomplish a purpose other than the
primary purpose
1. Approval of the majority of the board of
directors or trustees; and
2. Ratification by the stockholders representing at
least 2/3 of the outstanding capital stock, or by at
least 2/3 of the members in case of non-stock
corporations, at a stockholder or members meeting
duly called for the purpose.
3. Written notice of the proposed investment and
the time and place of meeting shall be addressed
to each stockholders or members by email or
served personally, or sent electronically in
accordance with the rules and regulations of the
Commission on the use of electronic data message,
when allowed by the bylaws or done with the
consent of the stockholders.
4. The ratification must be made at a stockholders
or members meeting duly called for the purpose.
Section 42.  Power to Declare Dividends
A corporation needs to comply with the following
requirements which provides that:
  The Board of Directors of a stock
corporation may declare dividends out of
the unrestricted retained earnings which
shall be payable in cash, property, or in
stock to all stockholders on the basis of
outstanding stock held by them:
 Provided, That 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
stockholders until their unpaid subscription
is fully paid:
 Provided, further, That no stock dividend
shall be issued without the prior approval of
stockholders representing at least two-
thirds (2/3) of the outstanding capital stock
at a regular or special meeting duly called
for the purpose.
Based on the aforementioned provision, it is not
mandatory for a corporation to seek prior
approval/advice from the Commission to declare
cash and stock dividend provided the following
requirements are complied with:
1) For cash dividend declaration, the board of
directors’ approval of the cash dividend declaration
and sufficient unrestricted retained earnings as of
the last fiscal or calendar year; and
2) For stock dividend declaration, there is a need
for the approval of the board of directors of the
stock dividend declaration and prior stockholders’
approval representing at least two-thirds (2/3) of
the outstanding capital and sufficient portion of the
present authorized capital.
In addition, in the case of a stock dividend
declaration, there should be sufficient unrestricted
retained earnings as of the last fiscal or calendar
year.
Section 43.  Power to Enter into Management
Contract
Requisites:
1. Majority of the members of the Board of
Directors, trustees of both the managing and
manage corporations must have approved the
management contract.
2. The stockholders owning at least the majority of
outstanding capital stock or majority of the
members in case of a non stock corporation of both
the managing and managed corporations must
have likewise approved the said contract.
3. Management contract must not be longer than 5
years for any one term except service contracts or
operating agreements.
Section 44.  Ultra Vires Acts of the
Corporations
Ultra Vires act is one not within the express or
implied powers of a corporation as fixed by its
charter or the statutes.
 It may also refer to acts done by the
directors or officers of a corporation in
excess of the powers conferred upon them.
 However, an Ultra Vires act which is not
illegal but beyond the powers of the
corporation to perform is merely voidable
and may be ratified expressly or impliedly.
The term includes not only contracts, but also:
1. Entirely beyond the scope of the charter and not
pertaining to the objects for which the corporation
was chartered, and also
2. Contracts beyond the limitations of the powers
conferred by the charter, although within the
purpose contemplated by the Articles of
Incorporation.
TITLE V: BYLAWS
By laws- signify the rules and regulations or private
laws enacted by the corporation to regulate,
govern and control its own actions, affairs and
concerns and its stockholders or members and
directors and officers with relation thereto, and
among themselves in their relation to it.
Requisites of valid by-laws:
1. It must not be contrary to law, morals, public
order or public policy.
2. It must not impair the obligations of contracts or
rights.
3. It must be general and uniform in their operation
and effect.
4. It must be reasonable and not arbitrary or
oppressive.
5. It must be consistent with the charter or Articles
of Incorporation.
In other words, by laws are relatively permanent
and continuing rules of action adopted by the
corporation for its own government and that of the
individuals composing it and control of its affairs, in
whole or in part, in the management and control of
its affairs and activities.
Section 46. Contents of Bylaws.  only upon the issuance by the SEC of a certification
1. The time, place and manner of calling and
conducting regular or special meetings of the
directors or trustees;
2. The time and manner of calling and conducting
regular or special meetings of the stockholders or
members;
3. The required quorum in meetings of
stockholders or members and the manner of voting
therein;
4. The form for proxies of stockholders and
members and the manner of voting them;
5. The qualification, duties and compensation of
directors or trustees, officers and employees;
6. The time for holding the annual election of
directors or trustees and the mode or manner of
giving notice thereof;
7. The manner of election or appointment and the
term of office of all officers other than directors
and trustees;
8. The penalties for violation of the by-laws.
9. In case of stock corporations, the manner of
issuing stock certificate; and
10.Such other matters as may be necessary for the
proper or convenient transaction of its corporate
business and affairs.
Section 47.  Amendment to Bylaws
 The by-laws may be amended or repealed
or new by-laws may be adopted by (1) a
majority vote of the Board of Directors or
trustees, and (2) vote of the owners at least
a majority of the outstanding capital stock,
or at least a majority of the members of a
non stock corporation.
Effectivity of by-laws. The by-laws shall be effective
that the by- laws are not inconsistent with this
code.
TITLE VI MEETINGS
Necessity of meetings
 A majority of the stockholders or members
can bind the corporation only at a meeting
regularly held and conducted. To constitute
a legal meeting, so as to render the acts and
vote of the majority binding the meeting
must be regularly called by one having
authority. In the absence of provision to the
 contrary such authority exists in the
directors or managing agents.
Meeting of the directors, trustees, stockholders, or
members may be regular or special. (Sec. 48,RCC)
Section 49. Regular and Special Meetings of
Stockholders or Members
 Regular meetings of stockholders or
members shall be held annually on a date
fixed in the bylaws, or if not so fixed in the
bylaws, or if not so fixed, on any date After
April 15 of every year as determined by the
board of directors or trustees: Provided,
further, That written notice of regular
meetings may be sent to all stockholders or
members of record through electronic mail
or such other manner as the Commission
shall allow under its guidelines.
o A director, trustee,
stockholder, or member may
propose any other matter for
inclusion in the agenda at
may regular meeting of
stockholders or members.
 Special meetings of stockholders or
members shall be held at any time deemed
necessary or as provided in the
bylaws: Provided, however, That at least
one (1) week written notice shall be sent to
all stockholders or members, unless a
different period is provided in the bylaws,
law or regulation.
o A stockholder or member
may propose the holding of a
special meeting and items to
be included in the agenda.
Where the meetings of Stockholders or
Members held? (Sec. 50, RCC)
 The Meeting held at the principal office of
the corporation as set forth in the articles of
incorporation, or if not practicable, in the
city or municipality where the principal
office of the corporation is located:
Provided, That any city of municipality in
Metro Manila, Metro Cebu, Metro Davao,
and other Metropolitan areas shall, for
purposes of this section, be considered a
city or municipality.
 Notice of meetings shall be sent through
the means of communication provided in
the bylaws, which notice shall state the
time, place and purpose of the meetings.
Requisites to consider the meeting improperly held
or called be valid.
 The act done was within the powers of the
corporation
 all the stockholders or members were
present or duly represented.
A quorum shall consist of the stockholders
representing a majority of the outstanding capital
stock or a majority of the members in the case of
non-stock corporations. (Sec. 51, RCC)
Section 52. Regular and Special Meetings of
Directors or Trustees; Quorum
 Meetings of directors or trustees. May be
held outside of the Philippines, unless
otherwise provided in the by-laws. Notice of
regular or special meetings of directors or
trustees must be sent to them at least two
(2) day prior to the scheduled meeting,
unless the by-laws provided otherwise.
Who Shall Preside at Meetings?
 The chairman or, in his absence, the
president shall preside at all meetings of
the directors or trustees as well as of the
stockholders or members, unless the bylaws
provide otherwise.
In case a stockholder grants security interest in his
or her shares in stock corporations, the
stockholder-grantor shall have the right to attend
and vote at meetings of stockholders, unless the
secured creditor is expressly given by the
stockholder-grantor such right in writing which is
recorded in the appropriate corporate books.
Executors, administrators, receivers, and other
legal representatives duly appointed by the court
may attend and vote on behalf of the stockholders
or members without need of any written proxy.
(Sec. 54, RCC)
The consent of all the co-owners shall be necessary
in voting shares of stock owned jointly by two (2)
or more persons, unless there is a written proxy,
signed by all the co-owners, authorizing one (1) or
some of them or any other person to vote such
share or shares: Provided, That when the shares
are owned in an "and/or" capacity by the holders
thereof, any one of the joint owners can vote said
shares or appoint a proxy therefore. (Sec. 55, RCC)
Treasury shares shall have no voting right as long as
such shares remain in the Treasury.
Stockholders and members may vote in person or
proxy in all meetings of stockholders or members.
When so authorized in the bylaws or by a majority
of the board of directors, the stockholders or
members of corporations may also vote through
remote communication or in absentia: Provided,
that the votes are received before the corporation
finishes the tally of votes. A stockholder or member
who participates through remote communication
or in absentia shall be deemed present for
purposes of quorum.
Proxies shall be in writing, signed and filed, by the
stockholder or member, in any form authorized in
the bylaws and received by the corporate secretary
within a reasonable time before the scheduled
meeting. Unless otherwise provided in the proxy
form, it shall be valid only for the meeting for
which it is intended. No proxy shall be valid and
effective for a period longer than five (5) years at
any one time. (Sec. 57, RCC)
One or more stockholders of stock corporation may
create a voting trust for the purpose of conferring
upon a trustee or trustees the right to vote and
other rights pertaining to the shares for a period
not exceeding five (5) years at any
time: Provided, That in the case of a voting trust
specially required as a condition in a loan
agreement, said voting trust may be for a period
exceeding five (5) years but shall automatically
expire upon full payment of the load. A voting trust
agreement must be in writing and notarized, and
shall specify the terms and conditions thereof.
(Sec. 58, RCC)
 The voting trust agreement filed with the
corporation shall be subject to examination
by any stockholder of the corporation in the
same manner as any other corporate book
or record: Provided, That both the trustor
and the trustee or trustees may exercise
the right of inspection of all corporate
books and records in accordance with the
provisions of this Code.
 No voting trust agreement shall be entered
into for purposes of circumventing the laws
against anti-competitive agreements, abuse
of dominant position, anti-competitive
mergers and acquisitions, violation of
nationality and capital requirements, or for
the perpetuation of fraud.
MERGER AND CONSOLIDATION
Corporations may decide to merge or consolidate
because of various reasons. It could be because
corporations want to increase their value that they
normally cannot do alone or they want to diversify
their businesses or acquire assets or many other
motivations.
What is Merger?
  If two or more corporations merge into a
single corporation which shall be one of the
constituent corporations then there is a
Merger.
What is Consolidation?
 If two or more corporations consolidate
into a new single corporation which shall be
the consolidated corporation.
When does mergers and consolidations take
effect?
 If two or more corporations decide to
merge or consolidate, they must seek the
approval of the Securities and Exchange
Commission (SEC) before they can complete
the same. The time that the SEC issues a
certificate of merger or consolidation is the
time of its effectivity.
 It is to be noted however, that if the
corporations that are parties to a merger or
consolidation includes banks or banking
institutions, building and loan associations,
trust companies, insurance companies,
public utilities, educational institutions and
other special corporations governed by
special laws, the favorable recommendation
of the appropriate government agency shall
first be obtained.
What are the effects of a mergers or
consolidations?
According to (Section 79, RCC) these are the effects
of a merger or consolidation
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 chooses 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.
APPRAISAL RIGHT OF A DISSENTING
STOCKHOLDER TO A MERGER OR CONSOLIDATION
A stockholder of a corporation who dissents to its
merger or consolidation has an appraisal right
under (Section 80 of the RCC). Meaning, a
stockholder who does not agree to a merger or
consolidation can demand the corporation to pay
him or her the fair value of his or her shares.
NONSTOCK CORPORATION
 A non stock corporation 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 incidental to its
operations shall, whenever necessary or
proper, be used for the furtherance of the
purpose of purposes for which the
corporation was organized, subject to the
provisions of this Title.
 The provisions governing the stock
corporations, when pertinent, shall be
applicable to non stock corporations except
as may be covered by specific provisions of
this Title.
Purpose
 Non stock corporations may be formed or
organized for charitable, religious,
educational, professional, cultural,
fraternal, literary, scientific, social, civic
service, or similar purposes. Like trade
industry, agricultural and like chambers, or
any combination thereof, subject to the
special provisions of this Title governing
particular classes of non stock corporations.
How is the right to vote exercised in a non-stock
corporation compared to a stock corporation
May a member in a non-stock corporation vote
cumulatively?
 General rule is NO
May it be granted or allowed by the by-laws?
 Yes
May the right to cumulative voting be denied in a
stock corporation?
 No, Doctrine of Limited Capacity
May members in a non-stock corporation vote by
proxy?
 Yes, section 89 provides that:
“Unless otherwise provided in the articles of
incorporation or the by-laws, a member may vote
by proxy in accordance with the provisions of this
Code. (n) “
May the right to vote by proxy be validly denied in
a stock corporation?
 No, it is a matter of right in a stock
corporation
May member of a non-stock corporation cast their
vote by text?
 Yes, subject to the approval and terms and
conditions of the SEC <sec. 89>
“Voting by mail or other similar means by members
of non-stock corporations may be authorized by
the by-laws of non-stock corporations with the
approval of, and under such conditions which may
be prescribed by, the Securities and Exchange
Commission. “
How is the governing board constituted in a non-
stock corporation? How many members?
 It may exceed 15 in a non-stock corporation
unless the AOI or by-laws provide
otherwise, as provided for by section 92 of
the RCC.
DISSOLUTION
What is dissolution?
 Extinguishment of the corporate franchise
and the termination of corporate existence
3 modes of dissolution
1. By expiration of its term;
2. By voluntary surrender of its primary
franchise (voluntary dissolution);
3. By revocation of its corporate franchise
(involuntary dissolution)
What are the 3 modes of voluntary dissolution?
1. Voluntary dissolution where no creditors are
affected; <sec. 134>
2. Voluntary dissolution where creditors are
affected; <sec. 135>
3. Shortening of corporate term. <sec. 136>
Voluntary dissolution where no creditors are
affected <sec.134>
Will dissolution be effective and valid by a mere
resolution of the BOD and stockholders?
 No, a mere resolution by the stockholders
or the BOD of a corporation to dissolve the
same does not affect the dissolution but
that some other steps, administrative or
judicial is necessary.
 Since it is the State which grants its right to
exist, it is only through the State which can
allow the termination of its existence;
without consent of the State, it will not be
dissolved.
Dissolution by Shortening Corporation Term.
 A voluntary dissolution may be effected by
amending the articles of incorporation to
shorten the corporate term pursuant to the
provisions of this Code. A copy of the
amended articles of incorporation shall be
submitted to the Commission.
 Upon the expiration of the shortened term,
as stated in the approved amended articles
of incorporation, the corporation shall be
deemed dissolve without any further
proceedings, subject to the provisions of
this Code on liquidation.
 In the case of expiration of corporate term,
dissolution shall automatically take effect
on the day of the following the last day of
the corporate term stated in the articles of
incorporation without the need for the
issuance by the Commission of a certificate
of dissolution.
Sec. 137 Provides that Corporations who requested
for Dissolution may request for its withdrawal
provided all the necessary requirements are
complied with.
 The withdrawal shall be submitted no later
than fifteen (15) days from receipt by the
Commission of the request for dissolution,
the Commission shall withhold action on
the request for dissolution and shall, after
investigation:
(a) make a pronouncement that the request
for dissolution is deemed withdrawn;
(b) direct joint meeting of the board of
directors or trustees and the stockholders
or members for the purpose of ascertaining
whether to proceed with dissolution; or
(c) issue such other orders as it may deem
appropriate.
 A withdrawal of the petition for dissolution
shall be in the form of a motion and similar
in substance to a withdrawal of request for
dissolution but shall be verified and filed
prior to publication of the order setting the
deadline for filing objections to the petition.
Corporate Liquidation (Sec.139)
Except for banks, which shall be covered by the
applicable provisions of Republic Act No. 7653,
otherwise known as "The New Central Bank Act",
as amended, and Republic Act No. 3591, otherwise
known as the Philippine Deposit Insurance
Corporation Charter, as amended, every
corporation whose charter expires pursuant to its
article of incorporation is annulled by forfeiture, or
whose corporate existence is terminated in any
other manner, shall nevertheless remain as a body
corporate for three (3) years after the effective
date of dissolution, for the purpose of prosecuting
and defending suits by or against it and enabling it
to settle and close its affairs, dispose of and convey
its property, and distribute its assets, but not for
the purpose of continuing the business for which it
was established.