TITLE I – GENERAL PROVISIONS (DEFINITIONS AND CLASSIFICATIONS) 

 
SEC. 1. Title of the Code. – This Code shall be known as the “Revised Corporation Code of the
Philippines”. 
 
SEC. 2. Corporation Defined. – A corporation is  
1. an artificial being  
2. created by operation of law,  
3. having the right of succession and  
4. the powers, attributes, and properties expressly authorized by law or incidental to its
existence.  
 
SEC. 3. Classes of Corporations. – Corporations formed or organized under this Code may be stock or
nonstock corporations.  
 
Stock corporations 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. All other corporations are nonstock corporations. 
 
See pp. 192-193 for other classes of corporations. 
 
SEC. 4. Corporations Created by Special Laws or Charters. – shall be governed primarily by the provisions
of the special law or charter creating them or applicable to them, supplemented by the provisions of this
Code, insofar as they are applicable. 
 General law – Corporation Code, which a private corporation may formed 
 Special law – a government corporation is created by a special law/charter 

SEC.5. Corporators and Incorporators, Stockholders and Members.

Components of a corporation

1. Corporators – compose a corporation, whether as stockholders/members

2. Incorporators – stockholders/members mentioned in the articles of incorporation as originally
forming the corporation and are signatories thereof
3. Stockholders – owners of shares of stock in a stock corporation
4. Members – corporators of a non-stock corporation
5. Board of Directors/Board of Trustees – BOD is the governing body in a stock corporation; BOT is
the governing body in a non-stock corporation
6. Corporate officers – president (director), treasurer (may or may not be a director), secretary
(resident citizen of the Philippines), and other officers provided for in the by-laws. If the
corporation is vested with public interest, the board shall also elect a compliance officer.
7. Subscriber – agreed to take and pay for original, unissued shares of a corporation formed/to be
formed
8. Underwriter – guarantees on a firm commitment and/or declared best effort basis the
distribution and sale of securities of any kind by another company; person/entity/investment
 banker who guarantees the sale of newly issued securities by purchasing all or part of the shares
for resale to the public
9. Promoter – cause to bring about the formation and organization of a corporation by:
1. Bringing together incorporators
2. Procuring subscriptions/capital for the corporation
3. Setting in motion the machinery which leads to the incorporation of the corporation
itself.

SEC. 6. Classification of Shares. – The classification of shares, their rights, privileges, or restrictions, and
stated par value must be indicated in the articles of incorporation. Each share shall be equal to every
other share, except as otherwise provided in the articles of incorporation and in the certificate of stock.
(Doctrine of equality of shares)

The shares in stock corporations may be divided into classes or series of shares, or both. No share may
be deprived of voting rights except those classified and issued as “preferred” or “redeemable” shares,
unless otherwise provided in this Code: Provided, that there shall always be a class or series of shares
with complete voting rights.

Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters:

(a)Amendment of the articles of incorporation;

(b)Adoption and amendment of bylaws;

(c)Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate
property;

(d)Incurring, creating, or increasing bonded indebtedness;

(e)Increase or decrease of authorized capital stock;

(f)Merger or consolidation of the corporation with another corporation or other corporations;

(g)Investment of corporate funds in another corporation or business in accordance with this Code; and

(h)Dissolution of the corporation

Except as provided in the immediately preceding paragraph, the vote required under this Code to
approve a particular corporate act shall be deemed to refer only to stocks with voting rights.

The shares or series of shares may or may not have a par value. Provided, corporations authorized to
obtain or access funds from the public, whether publicly listed or not, shall not be permitted to issue
no par value shares of stock.

Preferred shares of stock are given preference in the distribution of dividends and corporate assets in
case of liquidation. Provided, that preferred shares of stock may be issued only with a stated par value.
The BOD may fix the terms and conditions of preferred shares of stock and shall be effective upon
filing of a certificate with the Securities and Exchange Commission, hereinafter referred to as
“Commission”.
No-par value shares issued shall be deemed fully paid and non-assessable and the holder of such shares
shall not be liable to the corporation or to its creditors in respect thereto: Provided, That no-par value
shares must be issued for a consideration of at least Five pesos (P5.00) per share: Provided, further,
That the entire consideration received shall be treated as capital and shall not be available for
distribution as dividends. A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.

 Who may classify shares? Incorporators and BOD and stockholders

 Only stock actually issued and outstanding may be voted.
 In non-stock corporations, the voting rights attach to membership.
 Redeemable shares may be purchased or taken up by the corporation upon the expiration of a
fixed period.
 Promotional share is a share issued to promoters/those interested in the company, for
incorporating the company, or for services rendered in launching/promoting the welfare of the
company.
 Share in escrow is a share subject to an agreement by virtue of which the share is deposited by
the grantor/his agent to be kept by the depositary until the performance of certain condition
contained in the agreement.
 Fractional share is a share that is less than one full share.
 Over-issued stock is a share issued in excess of the authorized capital stock. Such issuance is null
and void.
 Convertible share is a share that is convertible from one class to another class at a certain price
and within a certain period.

SEC. 7. Founders’ Shares. – Founders’ shares may be given certain rights and privileges not enjoyed by
the owners of other stocks. Where the exclusive right to vote and be voted for in the election of
directors is granted, it must be for a limited period not to exceed five (5) years from the date of
incorporation: Provided, That such exclusive right shall not be allowed if its exercise will violate
Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”; Republic Act No. 7042,
otherwise known as the “Foreign Investments Act of 1991”; and other pertinent laws.

SEC. 8. Redeemable Shares. – Redeemable shares may be issued by the corporation when expressly
provided in the articles of incorporation. They are shares which may be purchased by the corporation
from the holders of such shares upon the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation and upon such other terms and
conditions stated in the articles of incorporation and the certificate of stock representing the shares,
subject to rules and regulations issued by the Commission.

 Redemption may not be made where the corporation is insolvent or if such redemption will
cause insolvency/inability of the corporation to meet its debts as they mature.
 It may be deprived of voting rights in the articles of incorporation.
 Retained earnings – accumulated income after dividends have been distributed. Also termed
earned surplus; undistributed profit.
 Kinds of redeemable shares:
1. Compulsory
2. Optional
  Once redeemed are retired unless reissuance is allowed in the articles of incorporation.

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

 Rights that are denied to the treasury shares

1. Voting rights
2. Right to dividends
 Treasury shares sold below par value are not watered stock because watered stock
contemplates original issuance of shares.
 Watered stocks – stocks issued for a consideration less than the par/issued price; refers only to
original issue of shares but not a subsequent transfer