REVISED CORPORATION CODE (RCC) As to place of incorporation:

Domestic corporation - incorporated under

Corporation - A corporation is an artificial being philipphine law
created by operation of law, having the right of Foreign corporation – incorporated,organized
succession and the powers, attributes, and or existing under any laws other than those of
properties expressly authorized by law or the Philippines and whose laws allow Filipino
incidental to its existence. citizens and corporations to do business in its
Artificial being – has personality and distinct own country or state.
from its owners. As to legal status:
- cannot act on its own De jure corporation - corporation created in
- has personall jurdical personality strict or substantial compliance with the
As to Existence: has a right of sucession mandatory requirements for incorporation
Right of succession- a corporation continous to De facto corporation – created by means
exist for a period for which it has been formed colorable compliance with the requirements of
regardless of the changes in the ownership. law
Created by operation of law – only state Requirements:
through the SEC can grant a business license to - The existence of a valid law under which it
operate a corporation may be incorporated
Powers attributes and properties expressly - An attempt in good faith to incorporate
authorized by law or incident to its existence – - Assumption of corporate powers
Presupposes that it can only exercise only such Holding,Affiliate and subsidiary corporation:
powers and can only hold such properties as are Holding corporation (parent corporation) –
granted to it by the law power to elect board members
Attributes of corporation- it means that the Affiliate corporation – same management with
corporation can only exercise power which are that of another (1 board of directors)
granted or expressly granted by the law. It can Subsidiary corporation – different management,
also have properties or can own property which the management control by parent corporation
are exprosit for provided by the law. It can also Open and close corporation:
have attributes which are also expressly granted Open corporations – shares of stock is open for
by law. public.
- purpose claw Close corporation – shares of stocks held for
Classes of corporation limited members only . (family corporation)
[Link] the tradition of corporation
As to existence of stock: 2. To maintain control of the family corporation
Stock corporation – organized for profit Corporation by estoppel:
Non-stock corporation – not organized for profit -misinterpretation
[Link] - no certificate of registration
As to function: Recognition: for the sake of third person
Public corporation – special law Principal Office – the articles of incorporation
[Link] must state the city or municipality when the
Private corporation – general law (RCC) principal office is to be established . the
principal office of the corporation is considered
the place of residence.
place of principal office important Upon aprroval of revival
-Important for tax purposes. - Upon approval by the Commission, the
-Venue of meetings of stockholders or members corporation shall be deemed revived and a
(Section 50, RCC) certificate of revival of corporate existence shall
- Corporate books and record are to be kept at be issued giving it perpetual existence, unless
its principal office (Section 73,RCC) its application for revival provides otherwise.
Determinative of venue when filing Incorporators
- also place were subpoenas should be Corporators - are those who compose a
addressed with. corporation, whether as stockholders or
Term of Existence (Section 11, RCC) shareholders in a stock corporation or as
- A corporation shall have perpetual existence members in a non-stock corporation.
unless its articles of incorporation provides Incorporators - are those stockholders or
otherwise. members mentioned in the articles of
As to those with certificates of incorporation incorporation as originally forming and
issued prior to the effectivity of the RCC composing the corporation and who are
GR: they shall have perpetual existence signatories thereof.
XPN: the corporation, upon a vote of its - incorporators can be a corporators, but
stockholders representing a majority of its corporators cannot be incorporators
outstanding capital stock, notifies the The following are the requirements to establish
Commission that it elects to retain its specific a corporation as to who shall compose it.
corporate term pursuant to its articles of (Section 10, RCC)
incorporation. Who? – Any person, partnership, association, or
So if there is a specific term can it be extended corporation, singly or jointly with other
or shortened? How many – Not more than 15
GR: Yes. A corporate term for a specific period - Must be of legal age
may be extended or shortened by amending the - Each incorporator of a stock corporation must
articles of incorporation: Provided own or be a subscriber to atleast one (1) share
XPN: That no extension may be made earlier of the capital stock.
than three (3) years prior to the original or Directors or Trustees
subsequent expiry date(s) - The Board of Directors is the governing body
XPN to the XPN: Yes. if there are justifiable in a stock corporation while Board of Trustees is
reasons for an earlier extension as may be the governing body in a non-stock corporation.
determined by the Commission The board exercises the powers of a
However, such extension of the corporate term corporation.
will take effect only on the day following the - the board exercise the powers of a
original or subsequent expiry date. corporation.
Revival of Corporate Existence Qualification of a BOD or BOT
- A corporation whose term has expired may, at - Must own at least 1 share of stock or must be
any time, apply for a revival of its corporate a member of the corporation
existence, together with all the rights and
privileges under its certificate of incorporation
and subject to all of its duties, debts and
liabilities existing prior to revival
- File an application for revival
 - can change through amendment (SEC15,RCC)
independent director Subscribed Capital Stock
- is a person who, apart from shareholdings and It is that portion of the authorized capital stock
fees received from the corporation, is that is covered by subscription agreements
independent of management and free from whether fully paid or not.
any business or other relationship which could, Paid-up capital
or could reasonably be perceived to materially - It is that portion of the authorized capital stock
interfere with the exercise of independent which has been subscribed and actually paid.
judgment in carrying out the responsibilities as Outstanding Capital Stock
a director. - It is the total shares of stock issued to
Before: BOD can exercise power of corporations subscribers or stockholders, whether or not
with the consent of the other BOD. fully or partially paid except treasury shares so
- cannot act solely long as there is a binding subscription
Now: BOD may solely exercised without the agreement.
need of approval of other BOD. the consideration for buying shares of stocks
Requirements: (Section 61 of the RCC)
- independent of management - Actual cash paid to the corporation;
- free from any business - Property, tangible or intangible, actually
Capitalization (Section 12, RCC) received by the corporation and necessary or
convenient for its use and lawful purposes at a
Stock corporations
fair valuation equal to the par or issued value of
- shall not be required to have a minimum
the stock issued;
capital stock
- Labor performed for or services actually
XPN: as otherwise specifically provided by
rendered to the corporation;
special law.
- Previously incurred indebtedness of the
stock subscription
corporation;
- is a contract by which the subscriber agrees
- Amounts transferred from unrestricted
to take a certain number of shares of the capital
retained earnings to stated capital;
stock of a corporation, paying for the same or
- Outstanding shares exchanged for stocks in
expressly or impliedly promising to pay for the
the event of reclassification or conversion;
same.
- Shares of stock in another corporation; and/or
- manifested by BOD
- Other generally accepted form of
Health maintenance organization – Required consideration.
minimum paid-up capital is 10M
School which is a stock-corporation – required - Consideration may be one, or a combination of
to have a paid-up capital of 1M two or more forms provided in Section 61, so
Authorized Capital Stock long as they are capable of valuation and, in
- It is the amount fixed in the Articles of fact, fairly valued.
Incorporation to be subscribed and paid by the Less than fair market value – it will become a
stockholders of the Corporation. It is the watered shares.
amount of capital stock that a corporation can Watered shares – paid less than its actual value
issue for subscription
- maximum amount can issued for subscription
- amount can issued subscription
 of corporations or in the certificate of stock.
Shares of Stock and their Classification Otherwise such share must be considered as
equal in all respect on other share.
Shares of stock Subscription agreement
– Represents the interest or right which the - is a contract between corporation and investor
owner, called the stockholders or shareholders, - not all agreement is a contract
has in the management of the corporation, and - contact is always a agreement
in the surplus profits and, in case of dissolution, Outstanding capital stock
in all of its assets remaining after the payment - it is already part of thos authorized capital
of its debts. stock which has beed already been subscribed.
Is Shares of Stocks the same with Certificate of - total shares which have been issued whether
Stocks? fully paid or not.
- NO! A stock certificate is a document or Participating preferred shares
instrument evidencing the interest of a – the holders thereof are given the right to
stockholder in the corporation. participate with the common stockholders in
- mere proof dividends beyond their stated preference
Equality of shares preference as to dividends
- measured as fixe rate or fixed amount
As to equality of stock: under sec 6, paragraph 1 if no preference:
- Each share, irrespective of classification, are - basis is number of shares of preferred
equal in all respects to every other share shareholder
unless, of course, the articles of incorporation Non-participating preferred shares
and the certificate of stock provide otherwise. – the holders thereof are entitled to its fixed
Classification of Shares of Stocks priority or preference only.
Common Stocks
Cumulative preferred shares
– is the most commonly issued shares of stock
– those that entitle the owner thereof to
of a corporation. It is a type of stock which
payment not only of current dividends but also
entitles the owner to an equal or pro-rata
back dividends not previously paid whether or
division of profits without any preference or
not, during the past years, dividends were
advantage in that respect over any other
declared or paid.
stockholder or class of stockholders.
Non-cumulative preferred shares
- carries right to vote
– grant the holders of such shares only to
- frequently exclusive right to vote
payment of CURRENT dividends but not back
Preferred Stocks
dividends, when and if dividends are paid, to
– is a stock which gives the holder a preference
the extent agreed upon before any stockholders
over the holder of a common stocks with
are paid the same.
respect to the payment of dividends and/or
- if silent it is non-cumulative
with respect to the distribution of
Preferred as to voting rights
capital/corporate assets upon liquidation.
– Preferred shares are usually denied voting
Distribution of dividends,capital or corporate
[Link] fact, Section 6 specifically mentioned
assets upo liquidation
that preferred shares may be denied voting
Limitation:
rights.
- the can issued only with a stated par value
Preference upon liquidation
- the preference must be stated in the articles
– preference in the distribution of corporate
assets upon liquidation or termination of the - shares can redeem
corporate existence. - no condition or terms as to period
Par Value Shares - it must be issued and fully paid
– are those whose value are fixed in the AOI. Terms of reacquired: asset portion
Its primary function is to fix a minimum - no voting rights
subscription or original issue price of the shares Redeemable shares
and indicates the amount which the original - can buy back
subscribers are suppose to contribute to the XPN: existence of unrestricted retained
capital as the basis of the privilege of profit earnings
sharing with limited liability. - may acquired even if it is not fully paid
Non par value shares - forms part of a capital stock
– are those whose issued price are not stated - can be issued once again
in the certificate of stock but which may be - has right to vote
fixed in the AIO, or by the BOD when so XPN: deprived
authorized by the said AOI or by the by-laws, Founders Share
or in the absence thereof, by the stockholders - Gives certain rights and privileges not enjoyed
themselves. by the other stockholders.
Limitation as to issuance of No par value shares: Limitation:
-Such shares, once fully issued, are deemed fully - Right to vote and be voted as a BOD it must be
paid and thus, non assessable. for limited period not to exceed five (5) years.
- The consideration for its issuance should not GROUNDS FOR DISAPPROVAL (See Section 16,
be less than P5 of the RCC)
- The entire consideration for its issuance - Grounds stated therein are not exclusive. (e.g.
constitutes capital corporate name is not legally permissible)
- They cannot be issued as preferred stock DE FACTO CORPORATIONS
- They cannot be issued by banks, trust - It is one that is so defectively created as not to
companies, insurance companies, public utilities be a de jure corporation but nevertheless exists,
and building and loan associations for all practical purposes, as a corporate body,
Voting Shares by virtue of corporate powers.
- Its existence can only be attacked by the State
– gives the holder the right to vote and
in a direct proceeding (quo warranto).
participate in the management of the
COMMENCEMENT OF CORPORATE EXISTENCE
corporation through the exercise of such right,
(Section 18, RCC)
either at the election of the board of directors,
-The determination as to when a corporation
or any matter requiring stockholders approval.
commences to exist is reckoned with at the
Non-voting shares
time of the issuance of its certificate of
– do not grant the holder thereof a voice in the incorporation or registration.
election of directors and some other matter - Corporate existence of a corporation
requiring stockholders vote. commences from the issuance of its certificate
- Only preferred or redeemable share may, of registration
however, be denied the right to vote. XPN:
Treasury shares - Corporations created under a special law
- shares of stock which have been issued and - Corporation Sole (Section 108, RCC)
fully paid
 stockholders. However, in a non-stock
CORPORATION BY ESTOPPEL corporation it is not since it is generally not
- A corporation may exist on the ground of available.
estoppel by virtue of the agreement, admission, GR: not available in non-stock corporation
or conduct of parties, such that they will not be - It gives the stockholder entitled to vote the
permitted to deny the fact of the existence of right to give a candidate as many votes as the
the corporation. number of directors to be elected multiplied by
- Applies to persons who misrepresents that the number of his shares. Being a right, a
there is a corporation stockholder may cast all votes in favor of one
Does the law on Corporation by estoppel candidate or distribute it among the
applies to third parties? candidates as he may see fit.
- Yes, but only when he tries to escape liability Shares of stock ( right to have cumulative
on a contract from which he has benefited on voting)
the irrelevant ground of defective corporation. - shares of stocks must be registered through
CORPORATE ORGANIZATION (Section 21) his/under his name.
- Failure of the corporation to organize and Non-stock corporation:
commence its business within 5 years would - every member given to vote based on the
result in its automatic dissolution (certificate of number of trustees to be elected.
registration is deemed revoked). - non-stock corporation can adopt cumulative
What are the activities that are considered as voting as long as it is provided in the AOI or by
“organization” activities: laws of a corporation
- The election of officers Non – election
- Providing for subscription and payment of There is Non Election of BOD/BOT when:
capital stock; - No election is actually held.
- Adoption of by-laws -The owners of majority of the outstanding
- Such other steps as are necessary to endow capital stock or majority of the members
the legal entity with the capacity to transact the entitled to vote are not present in person, by
legitimate business for which it was created. proxy, or through remote communication or
Delinquent Corporations not voting in absentia at the meeting,
- Corporations that has commenced its business What will happen if there is Non Election?
but subsequently becomes inoperative for a - The fact of Non Election shall be reported to
period of at least (5) CONSECUTIVE years. the SEC within 30 days from the date of the
scheduled election.
Remedy of a Delinquent Corporation:
- The report shall specify a NEW date for the
- Within 2 years:
election which shall not be later than 60 days
- Resume operations; and Comply with the
from the scheduled date.
requirement that SEC prescribed
- If no new date is assigned, or the rescheduled
- Failure to comply with above requirements,
election, the SEC shall take control of the
will result to automatic dissolution of the
election
delinquent corporation
- If the Election is controlled by the SEC,
Board of directors/truestees and officers
Notwithstanding any provision of the articles of
incorporation or bylaws to the contrary, the
Cumulative voting
shares of stock or membership represented at
-In a stock corporation cumulative voting is a
such meeting and entitled to vote shall
matter of right that can be exercised by the
constitute a quorum for purposes of conducting trustees stated in the AIO shall constitute a
an election under this section. quorum.
Can elect BOD not present in a meeting? Quorum for board meetings
- yes,because law no say it no - atleast 6 must be present
Requirements: - N/2 + 1 = minimum majority quorum
- it must be with the consent of the BOD to be - AOI/ bylaws is silent as to quorum
elected or to be voted to To have a valid corporate act
Voting of BOD - if 6 is present, 4 (majority) votes
- only those shares of stocks who entitled to Election of corporate officers
vote can vote - if 6 is present, all shall vote in favor of electing
- paragraph (section 6) a corporate officer;
CORPORATE OFFICERS - If 7 is present, only 6, Majority of 10.
- In a stock corporation, the RCC requires the What will happen if the required vote and
BOD to elect the said officers. quorum is not obtained?
XPN: GR: Any corporate acts performed by the BOD
- In a close corporation other corporate officers will not bind the Corporation unless the
may be elected directly by the stockholders. corporate act is subsequently ratified,
- In a non-stock corporation, if provided for in expressly or impliedly.
the articles of incorporation or the bylaws the Express – written/ verbal
corporate officers may be elected by the implied – if there is already acknowledge of a
members (Section 91, RCC) invalid corporate act and the stockholders
The following are the officers to be elected. despite knowledge still ignores the invalid
- The President who must be a Director corporate.
- Treasurer who must be a resident REMOVAL AND FILLING UP OF VACANCIES
- Secretary who must be a citizen and resident - The Revised Corporation Code, as well
of the Philippines jurisprudence, authorizes the stockholders or
- Other officers provided in the bylaws. members to remove or oust a corporate
- Any two or more position maybe held at the director with or without just cause, subject
same time, except President and Secretary, and only to the limitation that removal without
President and Treasurer subject to the cause may not be used to deprive minority
provision under One Person Corporation. stockholders or members of the right of
VALIDITY AND BINDING EFFECT OF ACTIONS OF representation.
CORPORATE OFFICERS Jurisprudence – decision of supreme court
- To have a valid corporate act, the decision of REQUIREMENT FOR THE REMOVAL OF A
at least a majority of the directors or the DIRECTOR
trustees present at a meeting at which there is a - The removal should take place at a Regular or
quorum is required. Special meeting duly called for that purpose.
XPN: - The removal must be by the vote of the
- for the election of corporate officers which stockholder representing 2/3 of the
shall require the vote of the majority of ALL the outstanding capital stock or the member
members of the board. entitled to vote in case of a non-stock
Quorum required during board meeting corporation.
– Unless the AIO or bylaws provides for a - There must be a previous notice to the
greater majority, a majority of the directors or stockholders or members of the intention to
propose such removal at the meeting either by - when he appears by proxy provided that proxy
publication or on written notice to the has a written authority coming from person
Stockholder or members whom he represents
OTHER REQUIREMENTS: - when he appears through remote
- The meeting must be called by the Secretary communication or in absentia provided it is
on order of the President or on the written authorized by the bylaws or by a majority of the
demand of the Stockholder representing BOD of the corporations.
majority of the outstanding capital stock or VACANCIES IN THE OFFICE DIRECTOR OR
majority of the members entitled to vote TRUSTEE
- If the secretary refused and there is no other Vacancies in the board a occurs:
person authorized to make a call, the same may - When there is a removal of Director or Trustee
be addressed directly to the Stockholders or under Section 27
members by any Stockholders or member - By expiration of the term
signing the demand. - Increase in the number of Director or Trustee
NEW PROVISION - Other ways of removal (death, incapacity, etc.)
- Gives the SEC the right to remove or oust a WHEN THERE IS REMOVAL OF DIRECTOR UNDER
director SECTION 27.
Motu proprio (in his own discretion) or upon - Vacancy may only be filled by the
verified complaint of a director or trustee who Stockholders or members in a Regular or
is: Special Meeting
1. Disqualified to be a director or trustee but - The meeting maybe held on the same day of
was elected the meeting authorizing the removal, provided
2. Discovered to be disqualified subsequent to that this fact must be stated in the agenda and
election notice of said meeting otherwise it maybe held
Stockholders – can perform acts of ownership any other day.
Directors – can perform act of management BY EXPIRATION OF THE TERM
- can perform acts of ownership as a - Vacancy may only be filled by the
stockholder Stockholders or members in a Regular or
Requirement to become BOD Special Meeting
- must possesss all of the qualification and none - The meeting election shall be held no later
of disqualification set forth in this code than the day of such expiration at a meeting
Qualification: called for that purpose
- must owner of atleast 1 share of stocks or INCREASE IN THE NUMBER OF DIRECTOR OR
must be member of corporation TRUSTEE
Disqualification: under sec 26 RCC - Vacancy may only be filled by the
Quorum – required minimum numbers of Stockholders or members in a Regular or
person in a meeting Special Meeting
- if there is no quorum , theres no valid meeting - The meeting maybe held on the same day of
Quorum in a meeting – stockholders the meeting authorizing the increase, provided
representing a majority of the outstandig capital that this fact must be stated in the notice of
stock or a majority of the members in the case said meeting otherwise it shall be held not later
of non-stock corporations than 45 days form the time the vacancy arose
Person considered present in a meeting
- when he appears personally
 obtained by the corporation by the preceeding
OTHER WAYS OF REMOVAL (DEATH, year.
INCAPACITY, ETC.) LIABILITY OF DIRECTORS/TRUSTEES/OFFICERS
- Maybe filled by the vote of at least majority of - Liable for willingly and knowingly voting or
the remaining directors or trustees ,if still assenting to patently unlawful acts of the
constituting a quorum, otherwise it shall be corporation
filled up the Stockholders or members in a - Liable for gross negligence or bad faith in
regular or special meeting directing the affairs of the corporation
- The meeting be held not later than 45 days - Liable when he/she acquires any personal or
form the time the vacancy arose pecuniary interest in conflict with his/her duty
Replacement DIRECTOR/TRUSTEE as a director
– is a director or trustee elected to fill a - in order to a director to incur liability there is a
vacancy which shall serve only for the breach of trust
unexpired term of the predecessor in office. gross negligence – failure to observe the
required diligence
EMERGENCY BOARD
bad faith – there is a intent to deceived or
- constituted when the vacancy prevents the
defraud
remaining directors from constituting a quorum
- Liability is jointly and severally (solidary) for all
and emergency action is required to prevent
damages resulting therefrom.
grave, substantial, and irreparable loss or
PROHIBITION AGAINST
damage to the corporation.
DIRECTORS/TRUSTEES/OFFICERS
- Vacancy may temporarily filled from among
the officers of the corporation by unanimous
Shall not acquire interest adverse to the
vote of the remaining directors or trustees.
corporation in respect of any matter:
- The Emergency Director or Trustee shall cease
- Which has been reposed to the D/T/O in
to be a director or trustee within a reasonable
confidence by the corporation
time from the termination of the emergency or
- Upon which equity imposes a disability upon
upon election of the replacement director or
themselves to deal in their own behalf.
trustee, whichever comes earlier.
- In case violated, D/T/O shall account for the
COMPENSATION OF DIRECTORS (SEC. 29)
profits which otherwise would have accrued to
- Directors are not generally entitled to receive
the corporation
any compensation
SELF-DEALING DIRECTORS (SEC. 32)
XPN: for reasonable per diems unless the by-
- Contracts of directors, his spouse, relatives
laws so provide.
within the fourth civil degree of consanguinity
Compensation and per diems
or affinity with his own corporation are voidable
- Maybe granted to directors by SH
at the option of the corporation unless the
representing at least majority of the
following conditions are present:
outstanding capital at a regular or special
(a) The presence of such director or trustee in
meeting.
the board meeting in which the contract was
- In the determination of per diems or
approved was not necessary to constitute a
compensation, the Director SHALL NOT
quorum for such meeting;
Participate.
(b) The vote of such director or trustee was not
- As regard to the compensation to be given to
necessary for the approval of the contract;
the BOD such compensation shall not exceed
Voidable – valid until annul
10% of the net income before income tax
Swing vote – act should be done or not
(c) The contract is fair and reasonable under the
2. When he attempts to acquire or acquires in
circumstances;
violation of his duty, any interest adverse to the
(d) In case of corporations vested with public
corporation in respect to any matter which has
interest, material contracts are approved by at
been reposed in him in confidence, as to which
least two-thirds (2/3) of the entire
equity imposes a disability upon to deal in his
membership of the board, with at least a
own behalf.
majority of the independent directors voting to
3. When he by virtue of his office, acquires for
approve the materialcontract; and
himself a business opportunity which should
(e) In case of an officer, the contract has been
belong to the corporation, thereby obtaining
previously authorized by the board of
profit to the prejudice of such corporation.
directors.
When 3 is occurred :
- If any of the condition’s from (a) to (c) is not
- Director must account and refund to the
present the contract may be ratified by the
corporation such profits.
vote of the stockholders representing at least
EXECUTIVE COMMITTEE (SEC. 34)
2/3 of the outstanding capital stock or of at
least 2/3 of the members in a meeting called How created?
for the purpose - By a provision in the by law to be appointed
- Adverse Interest by the director or trustee by the Board.
must be fully disclosed in the meeting. - Must consist of at least three (3) members of
INTER-LOCKING DIRECTORS (SEC. 32) the Board.
- A director in one corporation who deals or - Only board members are allowed to be
transact business with another corporation of appointed
which he is also a director. - Powers, functions and authority of the
- As a rule contract is valid unless there is executive committee are those that maybe
fraud, or the contract is not fair and and delegated to it by the BOD or those specific
reasonable. matters within the competence of the board
- Director in different corporation XPN:
- If a director holds substantial interest in one - Approval of any action which shareholders
corporation and nominal interest in the other approval is also requred.
corporation/corporations, the requirement - The filing up of vacancies in the Board
under Section 31 of the RCC shall apply insofar - The amendment or repeal of by laws or the
as the latter corporation/s are concerned. adoption of new one
SUBSTANTIAL INTEREST - The amendment or repeal of any resolution of
- Stockholding exceeding 20% of the the Board which by its express terms is not so
Outstanding capital stock is considered amenable
substantial - Distribution of Cash Dividends to the
DISLOYALTY OF A DIRECTOR (SEC. 33) shareholders
NEW PROVISION:
Duty of loyalty is violated in the following
- The board of directors may create special
instances:
committees of temporary or permanent nature
1. When a director or trustee acquires personal
and to determine the members’ term,
or pecuniary interest in conflict with his duty as
composition, compensation, powers, and
such director.
responsibilities.
Powers of corporation subsequently to in corporation
- corporation can exercise power which are Requirement if filed subsequent incorporation
expressly granted in a bylaw also those are [Link] vote of the stockholders
impliedly granted to it and incedental to the representing atleast majority of the
existence or a corporation outsatnding capita stock,or of a atleast a
Corporate powers and authority majority of the members in case of a non-stock
corporations
classified or divided into 3 classes [Link] shall signed by the stockholders or
[Link] expressly granted or authorized bylaw members voting for them
[Link] impliedly granted as are essential or 3.a copy must be made duly certified by a
reasonably necessary to the carrying out of the majority of the directors or trustees and
express powers countersigned by the secretary of the
[Link] that are incidental to its existence corporation and must be filed with commission
and attached to the original AOI.
[Link] expressly granted or authorized bylaw [Link] bank,banking instituion ,building and loan
- powers that are stated under sec.35 assocoation,trust company insurance
XPN: paragraph K company,public utility educational institution or
(a) powers to sue and be sued –applies to case other special corporations governed by special
which are civil in naturecorporation are usually laws certificate coming from the appropriate
reprsented by its corporate officers who are agency must be obtained.
responsible for the transaction isue Requirement filed prior to incorporation
- corporation cannot be held liable because a - must be approved and signed by all the
corporation is just fiction created by law incorporators and submitted to the
- gives corporation legal capacity to enforced commission,together with the AOI.
the right granted to it by law When is bylaw effective? – effective upon the
(b) To have perpetual existence unless the issuance by the commission of a certification
certificate of incorporation provides otherwise that the bylaw are in accordance with this code
( powers of succesion ) (f)power to issue and sell stocks – the power
- the corporation persist to exist despite the of a corporation to issue and sell its stock is an
death,incapacity,civil interdicton, or withdrawal inherent right of any stock corporations
of the stockholder or members thereof. pursuant to the [Link] only as it maybe
(c) To adopt and use a corporate seal regulated bylaw or in the AOI.
(d) Power to amend its articles of (g) power to acquire or alienate real or
incorporation in accordance with the personal properties
provisions of this Code – a matter of right to Limitation: property acquired held or conveyed
corporation in relation to sec15,36 and 37 of as the transaction of the lawful business of the
the RCC. corporation may reasonably and necessarily
- it cannot be denied require
(e) Powers to adopt bylaws, not contrary to - corporation has a capacity to own a properties
law, morals or public policy, and to amend or in its own name
repeal the same in accordance with this Code – -otherwise it becomes ultravires acts
must not contrary to law,morals or public - those powers are not concurred to the power
policy. of corporation, they cannot exercie it
When adopted? – may adopt prior to or - whether or not the acquisition or alienation to
a property is within the corporate powers may Specific Powers
reasonably be determined for the purpose or
purpose indicated on the AOI. Power to extend or shorten corporate term
h) To enter into a partnership, joint venture, - the power is an act of amending the articles of
merger, consolidation, or any other incorporation but it is considered as an special
commercial agreement with natural and [Link] the controlling provision is
juridical persons section 36 but section 15 stills apply in so far as
(i) To make reasonable donations submission to amendments and approval
Limitation: thereof by SEC.
[Link] donation must be reasonable - in order to shorten or extend the term of
2. It must be for public purpose welfare or for corporation the AOI of the corporation must be
hospital charitable,scientific cultural or similar amended.
purpose - Section 15 still apply but in supplement
[Link] shall not in aid of political party - special amendment under the law
(j) To establish pension, retirement, and other Requirements and procedure for extending or
plans for the benefit of its directors, trustees, shortening the corporate term:
officers, and employees [Link] by the majority of the vote of BOD
(k) To exercise such other powers as may be or BOT
essential or necessary to carry out its purpose [Link] by the stockholders representing
(Implied powers) – the test to be applied is atleast 2/3 of the outstanding capital stock or
whether the act in question is indirect and 2/3 of the members incase of a non-stock
immediate furtherance of the corporation corporation
business fairly incident to the express powers [Link] ratification must be at a meeting duly
and reasonably necessary to their exercise called for that purpose
The following are implied powers which a [Link] written notice of the proposal to extend
corporation may exercise: or shorten the corporate term must be made
1. Act in the usual course of business stating the time and place of meeting addressed
[Link] to protect debts owing to the corporation to each stockholder or members at this place of
[Link] different business ( must be part of his residence either by mail (registered or
the regular business of the corporation) electronic if allowed by the by-laws or done
[Link] in a part wholly to protect or aid with the consent of stockholders) or personal
employee service.
[Link] to increase business - Before: the notice maybe done only by mail
Incidental powers – powers incident are those through registered mail
attach to the corporation from the date of its -Now: can be done electronically or via email
incorporation which may likewise be said to be Requirements:
“inherent” to the corporate existence - must allowed by by-laws or done with the
These powers are: consent of the stockholders or personal sevice.
[Link] privialage of having the right of succession [Link] of etension,the same cannot be made
[Link] capacity to sue and to be sued earlier than three (3) years prior to the original
[Link] capacity to purchase,hold and conveyreal or subsequent expiry dates unless there are
and personal properties justifiable reason for an earlier extension as
[Link] authority to adopt corporate seal maybe determined by the commission.
[Link] authority to adopt and earned bylaws [Link] of extension, any dissenting
stockholders may exercise his appraisal right. - creditors are interested in the capital balance
[Link] of the amended AOI with the SEC of a corporation
[Link] thereof by SEC [Link] with the commission shall be
Appraisal right – the right of a stockholder to made within 6 months from the date of
dissent and demand payment of the fair value approval of the BOD and stockholders which
of his shares subject to the condition provided period maybe extended for justifiable reason.
for under section 80 of the RCC. [Link] of the certificate of increase and
Power to increase or decrease capital amended AOI within SEC
stock;incur,create or increase bonded [Link] thereof by SEC
indebtedness -the capital stock of the corporation will
- the power requires the amendment of the effectively be increased or decreased only upon
AOI. It is a special amendment and is governed approval by the SEC.
by the provision of the SEC.37 of the RCC. Requirements and procedure in creating or
- the controlling provision is not section 15 but increasing bonded of indebtedness:
section 37 - same requirements with the increase or
- incase of increase or decrease of capital stock decrease in capital stock.
the certificate of increase or decrease along XPN:
with the amended AOI are simultaneously filed 1. Incase of decrease in capital stock, the same
and processed by the SEC. not prejudice the right of the creditors
The following are the requires and procedure in [Link] subsection A and B of Section
increasing or decreasing corporate capital: 37.
[Link] by the majority of the vote of BOD Power to deny Pre-emptive Right (XPN)
- pertains to stock corporation GR: Each stockholder has this pre-emptive right
[Link] by the stockholders representing Pre-Emptive Right – it is a right granted by law
atleast 2/3 of the outstanding capital stock to all existing stockholders of a stock
[Link] ratification must be at a meeting called corporation to subscribed to all issues or
for that purpose disposition of shares of any class in proportion
[Link] written notice of the proposal to inrease to their respective [Link] only to
or decrease capital stock stating the time and the limitations imposed under section 38.
place of meeting addressed to each stockholder -The coverage of the pre-emptive right includes
or members at the place of his residence by not only new shares to be issued pursuant to an
mail (registered or electronic if allowed by the increase in capital stock, but also from unissued
by-laws or the commission ) or personal service. shares which form part of the original
5. A certificate in duplicate must signed by the authorized capital stock as well as treasury
majority of the BOD counter signed by the shares.
chairman and the secretary,setting forth the
When management contract entered into by
matters contained in subsection a to f of section
37. a corporation may be devided:
[Link] of increase of the capital stock 25% of 1. When denied by the AOI or amendment
such increased capital stock must be subscribed thereto
and that atleast 25% of the amount subscribed 2. When the shares to be issued are
must be paid either in cash or property. incompliance with laws requiring stock offering
[Link] of decrease in capital stock, the same or minimum stock ownership by the public
not prejudice the right of the creditors [Link] shares are issued in good faith with the
approval of the stockholders representing two-
third 2/3 of the outstanding capital stock in stockholders of record either by mail
exchange for property needed for corporate (registered or if allowed by the by-laws
purposes or in payment of a previously or done with the consent of the
contracted debt. stockholders, electronically) or personal
Is there a voting requirement to exercise this service.
pre-imptive right? 4. The ratification of the stockholders or
- No, because each stockholder has that right. members must be made at a meeting
- it is exclusive to the stockhers of a corporation duly called for that purpose.
- In a close corporation pre-emptive right may 5. They shall be subject to the provision of
be denied when such denial is stated AOI RA No. 10667 otherwise known as the
- the right of pre-emption maybe lost by waiver Philippine competition and other
of stockholders, expressly or impliedly by his related law.
inability or failure to exercise it after having 6. Any dissenting stockholder shall have
been notified of the proposed issuance or the option to exercise his appraisal
disposition of shares. right.

Express- there was an offer

- Despite authorization for the
- stockholders refuse or declined the offer of a
stockholders, the RCC allows the BOD to
corporation
abandon the sale or dis position subject
Implied – There is an offer coming from a
only to the rights of the parties under
corporation
the contract without any further action
- There was a period given in order to exercise
or approval of the stockholders or
such pre-emptive right
members.
- After the lapse of that period/after the
expiration of that period the stockholders failed
Power to acquire own shares
to exercise his right of pre-emption.
– when a corporation acquires its own
Power to sell or dispose of asset
shares, the shares are not there by
- In order for sec 39 to apply, the sale or
extinguished unless it is acquired the
disposition must involve all or substantially all
corporation with the intention to
the assets of the corporation as to render it
extinguish it. They are while in the
incapable of continuing the business or
possession of the corporation
accomplishing the purpose for which it was
considered as treasury shares and
incorporated
while they remain so they have no
The following are the condition for the valid voting and divided rights.
exercise of power under sec.39
GR: Provided that it is for a legitimate
1. Resolution by the majority vote of the corporation purpose and that the
BOD and BOT coporation has unrestricted retained
2. Authorization from stockholders earnings, a corporation may acquire its
representing at least 2/3 of the own shares in atleast the following
outstanding capital stock or 2/3 of the instances:
members. 1. To eliminate fractional shares
3. Prior written notice of the proposed arising out of stock dividends
action and of the time and place of
meeting must be addressed to all
2. To collect or compromise an authorized in the secondary purpose or
indebtedness to the corporation, purposes of the corporation, the
arising out of unpaid subscription provision of sec 41 must be complied
an a delinquency sale and to with before the corporation may pursue
purchase deliuquent shares sold the same.
during said sale. - primary purpose: allowed to invest
3. To pay dissenting or wit drawing
stockholders entitled to payment of
XPN
their shares (exercise of appraisal
- Requirements in sec 41 does not apply
right under sec. 80)
4. To redeem redeemable shares
- BOD can invest those funds without
- not exclusive
the approval of the stockholders
-regardless of the existence of the
restricted retained earning can
the following are the requirements for
redeem redeemable shares
a valid investment of corporate funds
Limitations as to existence of under sec 41
unrestricted retained earnings. 1. Resolution by the majority of the
- the phrase is used in the sense that BOD or BOT
the corporation cannot use its capital 2. Ratification by the stockholders
stock to purchase its own shares that is representing atleast 2/3 of the
corporate assets below the legal or outstanding capital stock or 2/3 of the
stated capital but only from surplus members incase of non stock
profit corporation
3. The ratification must be made at a
XPN.
meeting duly called for that purpose
1. Redemption of redeemable shares
2. Existence of right to compel a close [Link] written notice of the proposed
corporation to purchases its shares in investment and the time and place of
case of withdrawal or stockholder or the meeting shall be made, addressed
dissolution of close corporation under to each stockholders or members by
section104 mail (registered or electronically in
3. During deadlocks under sec 103 accordance with the rules and
Power to invest funds - the power to regulation of the commission or by
invest funds means an investment in personal service
the form of money, stock bonds and 5. Any stockholder shall have the option
other liquid assets and does not include to exercise his appraisal right.
real properties or other fixed assets - where the investment is reasonably
- Section 41 does not apply if the necessary to accomplish it’s primary
investment is real properties / fixed purpose, the approval of the
assets stockholder members is not required
- the phrase for any purpose other than Sec 41
the primary purpose for which it was - primary purpose
organized signifies that even if the - same purpose
business or undertaking is allowed or Req: majority of directors
- the power to invest in a corporation as Three types of dividends that may be
stated under sec 39 which is not related distributed to the stockholders these
to primary purpose of the corporation are:
- the BOD can invest or act on their Cash dividend – those that are payable
own without the approval of the in lawful money or currency
corporation/ Stockholders Property dividend – are those that are
Power to declare dividends paid in the form of property instead of
Dividends – are money or profits cash
earned by the corporation, set aside Stock dividend – refer to the
from the general rules of the corporation shares of stock itself
corporation and distributed among the - the amount which each stockholder
stockholders in proportion to their receives as his share in the dividends is
shares or interests in the corporation based on the stock held by him
- the law requires that dividends are to regardless of whether he has paid his
be declared out of the unrestricted subscription in full.
retained earnings of the corporation. - delliquent stock does not receives
(absolute rule) dividends
- ordinary stock can receives dividends

Unrestricted retained earnings – is

defined as the undistributed earnings of Authority to declare dividends – the
the corporation which have not been power or authority to declare
allocated for any managerial, dividends is vested in BOD. The
contractual or legal purpose and which authority is usually absolute as long as
are free for the distribution to the they act in the exercise of an honest
stockholders as dividends and impartial judgement
- a corporation has no power to declare - it cannot be contracted, cannot
dividends if it’s paid up capital is not questions by the stockholders as long as
maintained or impaired they act in exercise of honest and
impartial judgement
Trust fund doctrine – the capital
- as regards to declaration of dividends
inclusive of unpaid portion of the
the judgements of the Bod in such
subscribed capital, represents a
matter is conclusive except when they
trustfund which at all times must be
act in bad faith
maintained for the protection of
creditors who have the right to rely on
such subscription and the paid up As to decleration of dividend: the
capital for the satisfaction of their power to declare maybe compelled
claims. - the board cannot unreasonably
- once the trustfund doctrine violate accumulate profits on the excuse that
there become false of actions of such earnings are needed for business
stockholders expansion or reserves. If such profits
- false of action – this is the right to file accumulate in excess of 100% of the
a case against the corporation corporations paid in capital stock, the
board maybe compelled to distribute
dividends dividends which have been declared but
not yet paid

Cummulative and mandatory – the Close corporation require not to sell

stockholders compelled to declare its your shares of stock to any person
share to have profits its corporation Power to declare Dividence
- BOD
- the power to declare divided must be
Exception to the prohibition of
excercising the BOD honest ang
retaining surplus profits in excess of
impartial judgement
100%
- the corporation can only held be liable
1. When justified by definite corporate
for the divided declaration at the time /
expansion projects or programs
after the corporation declared that the
approved by the board of director
dividend has communicated it to
2. When the corporation is prohibited
stockholders. (insolvent)
under any loan agreement with
Power to enter into a management
financial institutions
contract
3. When it can be clearly shown that
the requirements for an valid
such retention is necessary under
management contract are as follows:
special circumstances obtaining in the
1. Resolution of the BOD
corporation such us when there is need
2. Approval of the stockholders
for special reserve for probable
representing majority of the
contingencies
outstanding capital stock or majority of
When dividend right vest – it vests as the members in case of a non stock
soon as the have been lawfully and corporation of both the managed and
finally declared by the BOD from that managing corporation
time the corporation becomes indebted 3. Approval of the stockholders or
to each stockholders who may recover members must be made at the meeting
the deb, as an ordinary unsecured called for the purpose
creditor may do against the corporation 4. The contract shall not be for a period
longer than five (5) years for any one
term except those which relate the
can the declaration of dividend be exploration development of natural
revoked – YES resources
Requirements: - Not only a majority but 2/3 of the
-there is a declaration and that outstanding capital stock or 2/3 of the
declaration must be communicated to member in a non-stock corporation
the stockholders of the corporation would be required for the apptoval of
- any dividend already declared when the managements contract in the
shares are transferred belongs to the following instances:
registered owner of the shares at the
1. Where the stockholder representing the
time of the declaration a subsequent
same interest of both the managing and
transfer of such stock would as a rule
the managed corporation own or
not carry with it the right to the
 control more than 1/3 of the total OCS mispresentation of what the corporation
of the managing corporation. can do

2. Where a majority of the members of 2. on the rights of the stockholders – a

the BOD of the managing corporation stockholder may bring a suit to enjoin a
also constitutes a majority of the threatened ultravires acts or contracts if the act
managed corporation has been performed a case damages against the
director be filed.
3. Where the contract would constitute
the management or operation whether 3. on the immediate parties:
such contracts are called service A. if the contract is fully executed on both sides
contracts the contract is effective and the courts will not
Ultravives acts– ultravives acts those interfere
that can not be executed or performed B. if the contract is not yet executed (executory)
by a corporation because they are not on bothside neither party can bring a case for
within its express implied or inherents its non-performance
power as defined by its charter or AOI C. where the contract is executory on one side
GR : a corporation can only exercise only and has been fully performed on the other,
power which are granted to it by law the party who has received benefits form the
- despite the statement under sec 44, performance cannot set up as a defense that
acts which more clearly beneficial to the tha contract is ultra vires acts to defeat an
company or necessary to promote the action on the contract
interest or welfare of the corporation Ultravires acts
its employee and their families or in the – a corporation cannot exercise power beyond
legitimate furtherance of its business its corporate power such vitravires acts are not
are considered as acts within the illegal
corporation powers. - there are certain ultra vires acts are although
- ultravires acts may not necessarily be not absolutely valid they maybe voidable/
illegal but merely beyond the power of voidable act such acts can still be an absolutely
the corporation to perform valid by ratification of stockholders
- ultravires acts which are not illegal - if the acts is lawful under the law meaning
may become binding and enforseable does not violate any laws it is not contrary to
either by ratification, estoppel or an law public morals, public policy and public order
equitable ground unless the public or then such contract is not illegal
third parties are therby prejudiced - will be voidable, valid until annul
- the stockholders can move or the annulment
Consquence of ultra vires acts
of that contract since it is executive beyond the
1. On the corporation itself – the proper
power of the corporation
authority may suspend or revoke after
- ratified either expressly or impliedly
proper notice and hearing the franchise or
- Expressly: approved by all stockholders
certificate of registration of the corporation
for serious mispresentation as to what the
By-laws – by laws are rule and ordinances made
corporation can do or is doing to the
by a corporation for its own government to
prejudice of the general public
regulate the conduct and define the duties of
- that act may cause of serious
the stockholders or members towards the
corporation and among themselves joining the corporation on a later date however,
- By laws are internal laws which regulates the the provision under the by-laws cannot bind
relationship between stockholders among affect or prejudice third persons unless they
themselves and stockholders to the corporation have knowledge of its existence and contents
- under the RCC, it is an express power granted
Element of a valid by-laws
to all corporations registered under the RCC
1. It must not be contrary to law, public policy
specifically stated under sec 45 of the RCC
or morals
- By-laws are necessary for the governments of
2. It must be inconsistent with the AOI
the corporation but they are subordinate to the
3. It must be general and uniform in the effect
articles of incorporation as well as RCC and
or applicable to all take alike or those semilarly
other statutes that forms part of the corporate
situated
charter.
4. It must not impair obligations and contracts
Subordinate - they are not controlling against or vested rights
the AOI 5. It must be reasonable
- By-laws are merely subordinate
Modes of amending or repealing by-laws or
- incase of discrepancy between the AOI and a
adopting a new one
by-law provision the former governs
1. By a majority of the directors or trustees and
When does the by-laws become effective – the majority vote of the outstanding capital
upon the approval of the SEC stock or members in a non-stock corporation
at a regular or special meeting called for that
Adoption prior to incorporation
purpose
- Done prior to our subsequent to the
2. By the BOD alone when delegated by 2/3 of
incorporation of the corporation
the outstanding capital stock or 2/3 of the
Requirements: members in a non-stock corporation this
1. Must be approved and signed all the delegated power however is considered
incorporations revoked whenever a majority of the
2. Must be filed and submitted to the SEC outstanding capital stock or members shall
together with the AOI vote at a regular or special meeting
- Incase of amendment or adoption of new by-
After incorporation laws a copy thereof duly certified under oath by
1. Affirmative vote of the stockholders the corporate secretary and majority of the
representing majority of the outstanding capital directors or structures shall be filed with the
stock or of atleast majority of the members in securities and exchange commissions the same
case on non-stock corporations. to be attached to the original articles of
2. The by-laws must be a signed by the incorporation and original by-laws
stockholders or members voting for them
- there must be a copy of by-laws will be Requirements to revoked by law
sybmitted to the SEC due certified by the - there must be a meeting first
majority of the BOD and the stockholder at the -stock holders representing majority of the
meeting called for that purpose. outstanding capital stock or majority of a
members in a non-stock corporations must vote
Is the adoption of by law mandatory – No, for the revocation
once effective by-laws are binding upon all the Meetings
stockholders or members whether existing or
Types of Meetings stockholder attended the meeting is deemed as
[Link] Meeting an implied waiver of the notice requirement
[Link] Meeting unless the purpose of his attendance is to
question the validity of the meeting.
Place of Meeting
-According to the RCC,the meetings of the
stockholders must be held at all times in the
principal office of the corporation if practicable
otherwise if shall be held in the city or
municipality where the principal office is
Stockholders Meetings located.
-in addition any municipality in metro
Regular Meeting – which shall be held anually manila,metrocebu,metrodavao and other
on a date fixed in the by-laws if not so fixed on metropolitan areas are considered as a city or
any date before april 15 of every year as municipality for purposes of meeting.
determined by the BOD or BOT. Who shall call the meeting – the person
Special Meeting – are those held by the authorized inder the by-laws of the
corporation at any time deemed necessary or corporation otherwise the authority rests with
as provided for in the by-laws. the BOD
Requirements to have a valid stockholders - under sec 52 of the RCC the chairman or his
meeting absence the president shall preside at all
[Link] must held on the dated fixed in the by-laws meetings of the stockholder or members
or in accordance with law unless the by-laws provides otherwise.
- in accordance with the RCC or other statues Subscription contract
that affects corporation - subscription is the mutual agreement of the
[Link] notice to be given – for regular meeting subscriber to take and pay for the stock of a
sec 49 provides that prior written notice shall be corporation
sent to all stockholders or members twenty-one - subscription contract may occur either prior to
(21) days prior to the meeting unless a incorporation or after incorporation
different period is required in the [Link] -subscription contract need not be in writing
or regulation on the otherhand,special such that an oral contract of subscription is
meetings requires a prior written notice of binding and enforceable.
atleast one (1) week unless a different period Subscription contract (Sec 59.) – any contract
is provided in the by-laws,law or regulation for the acquisition of unissued stock in an
[Link] must be held a proper place existing corporation or a corporation still to be
[Link] must be called by the proper party formed.
Notice Requirement Pre-incorporation subscription
- failure to give notice in accordance with the -subscription contract either be those made or
RCC would render the resolution there under executed prior to incorporation or after
voidable at the option of the stockholder or incorporation.
member who was not notified - pre-incorporation subscription may reference
-notice of any meeting may however be waived to subscription for shares of stocks of a
either expressly or impliedly by any corporation still to be formed while post-
stockholder or member and the fact that a incorporation subscription are those made or
executed after the formation of the [Link] must be seated with the corporate seal and
corporation. the entire value thereof( together with the
Irrevocability of pre-incorporation subscription interest or expense) should have been paid
- sec 60 of the RCC states that pre-incorporation -although it appears that a subscriber to shares
sbscription are considered to be irrevocable fo a of stock cannot be entitled to the issuance of a
specified period of time thus: certificate of stock until the full amount of his
[Link] shall be irrevocable for a period of 6 subscription is paid such subscriber is
months from the date of subscription nevertheless entitled to exercise all the rights of
XPN: a stockholder and the corresponding liability
- all the subscriber consent to the revocation that attached there under even if his
- the incorporation of said corporation fails to subscription is fully paid or not.
materialized within said period or longer period Transfer of shares of stock
as may be stipulated in the contract of - under sec.62 of the RCC, shares of stock
subscription maybe transferred by delivery of the certificate
[Link] are irrevocable after submission of the indorsed by the owner or his attorney in fact.
AOI to the SEC. And to be valid as to the corporation and other
Certificate of stocks and their transfer third-person ,it must be recorded in the books
- a share of stock may rightfully be described as of the corporation
a profit sharing contract a series of units of Requirements:
interests and participation in a corporation in [Link] must be an indorsment coming from
consideration of a proportionate right to the owner
participate in dividend and other distribution Indorsment- giving the certificate of stock to
Shares of Stock the transferee by the way of signing certificate
- is a right to a shareholder to participate in the of stock
distribution of dividend in a corporation. [Link] must deliver the actual certificate of stock
- shares of stocks are personal properties and - its non-registration wil not, however tha
the owner thereof have the right to transfer the validity of the transfer atleast in so far as the
same to anyone they please only to reasonable contracting parties are concerned.
charter provision - as regards the corporation the transferee will
- they are owned bu the stockholders whose not be recognized as such stockholder and
name appear in that shares of stock who are could not exercise his rights until the transfer
subject to the subscription contract. has been duly recorded in the stocks and
Certificate of Stocks transfer book.
- is the piece of paper or document which Modes of transfering shares of stock
evidences the ownership of shares and [Link] indorsement of stock certificate coupled
convinient instrument for the transfer of title. with delivery thereof
- the right to transfer to convey or to dispose [Link] a duly notarized deed
the shares of stock belong to the owners and -maybe formed of deed of sale,assignment or
such right cannot be restricted unreasonably or any kinds of deeds.
even prohibited. Requirements: it must be notarized
Requisites for issuance of certificate of stocks -transfer by notarized deed is only available if
[Link] must be signed by the president or vice- no certificate of stock has been issued.
president and counter signed by the secretary - when a corporationhas already issued stock
or assistant secretary. certificate any transfer of shares can only be
effectively made by indorsement and delivery [Link] the guise of stock dividends where there
of the stock certificate. are no surplus profits of the corporation
Right to transfer Effects of issuance of watered stock
- as a general rule, the right to transfer may not [Link] to the corporation – when a corporation is
be unreasonably restricted or prohibited guilty of the ultra-vires acts which constitutes
however the right to transfer maybe fraud upon the public,the certificate of
“regulated” to give the corporation protection registration or license to do business of the
against fraudulent transfer enable it to know corporation maybe revoked.
who is stockholders are [Link] between the corporation and the
Regulated - there must a certain rule before a subscriber – the subscription is void such being
transfer can be done or made the case, the subscriber is liable to pay the full
Restriction on the right to transfer shares: par or issued value thereof to render it valid and
[Link] is not valid effective.
XPN: between parties until recorded in the [Link] to consenting stockholders – they are
books of the corporation estopped from raising any objection
[Link] of stock against which the corporation [Link] to disenting stockholders- they may
holds any unpaid claim shall not be compel the payment of the water in the stock
transferrable in the books of the corporation solidarily against the responsible and
unpaid claims - refer to claims arising from consenting directors and officers inclusive of
unpaid subscribers the holder of the watered stocks.
[Link] required to be indicated in the [Link] to creditors – they may enforce payment
AOI,by-laws and stock certificates of a close of the difference in the price or the water in the
corporation stock, solidarily against the responsible officers
[Link] imposed by special law or directors and the stockholders concerned.
[Link] to aliens in violation of maximum Delinquent shares
ownership of shares under the nationalization - shares of stock which are unpaid and it was
laws subject already of a call [Link] the unpaid
[Link] cover by reasonable agreement of the subscription should be paid in a certain date if
parties after the call and the expiration of such certain
NOTE: number 2 specific provison in the RCC date cannot paid the unpaid shares of stocks of
Watered stock ( fictitously paid-up stock) the stockholders will become delinquent.
- watered stock may be defined as one which is VOTING TRUST
issued by the corporation as fully paid-up shares - An agreement whereby one or more
when in fact the whole amount of the value stockholders transfer their shares of stocks to a
thereof has not been paid. trustee, who thereby acquires for a period of
Watered stock maybe issued either of the time the voting rights (and/or any other rights)
following: over such shares; and in return, trust
[Link] a monetary consideration less than its par certificates are given to the stockholder/s,
or issued value which are transferable like stock certificates,
[Link] a consideration,property,tangible or subject, however, to the trust agreement.
intangible valued in excess of its fair market Limitations:
value a. Cannot be entered into for a period
[Link] or under agreement that noting exceeding 5 years at any one time except when
shall be paid at all it is a condition in a loan agreement or for the
purpose of circumventing the law against B. Upon the director owning delinquent shares
monopolies and illegal combinations 1. He can continue serving in that capacity
b. The agreement must not be used for unless and until said shares are totally bidded
purposes of fraud away, he continues to be the owner thereof and
c. It must be in writing and notarized and in the interim he is not disqualified.
specify the terms and conditions thereof 2. A delinquent stockholder seeking to be
d. A certified copy of the agreement must be elected as director may not be a candidate for,
filed with the corporation and with the SEC nor be duly elected to, the board.
e. The agreement shall be subject to - No delinquency stock shall be voted for or be
examination by any stockholder of the entitled to vote or representation at any
corporation stockholders meeting, nor shall the holder be
f. Unless expressly renewed, all rights granted entitled to any of the rights of a stockholder
in the agreement shall automatically expire at except the right to dividends in accordance with
the end of the agreed period the provisions of this Code until and unless he
DELINQUENCY pays the amount due on his subscription with
1. If the subscription contract fixes the date for accrued interest, and the cost and expenses of
payment, failure to pay on such date shall advertisement, if any. (Sec. 71) PROCEDURE
render the entire balance due and payable with FOR THE SALE OF DELINQUENT STOCKS
interest. Thirty days therefrom, if still unpaid, 1. Call by resolution demanding payment of the
the shares become delinquent, as of the due balance. However, if the contract of
date, and subject to sale, unless the board subscription prescribes the date of payment, no
declares otherwise. call is necessary.
2. If no date is fixed in the subscription contract, 2. Notice of the board resolution given to the
the board of directors can make the call for stockholders by the corporate secretary, either
payment, and specify the due date. The notice personally or by registered mail. Publication of
of call is mandatory. The failure to pay on such notice of call is not required.
date shall render the entire balance due and 3. Failure of the stockholder to pay within a
payable with interest. Thirty days therefrom, if grace period of 30 days from the date specified
still unpaid, the shares become delinquent, as in the contract of subscription or in the call, the
of the date of call, and subject to sale, unless stocks shall be declared delinquent and shall be
the board declares otherwise. (Sec. 67) subject to sale.
Effect: 4. Notice of delinquency served on the
A. Upon the stockholder subscribers either personally or registered mail
1. Accelerates the entire amount of the unpaid and publication in a newspaper of general
subscription; circulation in the province or the city where
2. Subjects the shares to interest, expenses and principal office is located for once a week for 2
costs; consecutive weeks. Notice shall state the
3. Disenfranchises the shares from any right amount due on each subscription plus accrued
that inheres to a shareholder, except the right interest, and the date, time and place of the
to dividends (but which shall be applied to any sale which shall not be less than 30 days nor
amount due on said shares or, in the case of more than 60 days from the date the stocks
stock dividends, to be withheld by the become delinquent.
corporation until full payment of the delinquent 5. Sale of the delinquent shares at public
shares. (Sec. 43) auction.
 HIGHEST BIDDER IN A DELINQUENCY SALE purpose, and no part of whose income is, during
a. The person participating in the delinquency its existence, distributable as dividends to its
sale who offers to pay the full amount of the members, trustees, or officers, subject to the
balance of the subscription together with the provisions of the Corporation Code on
accrued interest, costsof advertisement and dissolution. (Sec. 87)
expenses of sale, for the smallest number of - Any profit which it may obtain as an incident
shares. In other words, the amount of the bid to its operations shall, whenever necessary or
does not vary but only the number of shares to proper, be used for the furtherance of the
be bought changes and determines the highest purpose or purposes for which it was organized.
bidder.
b. If there is no bidder as mentioned above, the Eleemosynary purposes: charitable, religious,
corporation may bid for the same, and the total educational, professional, cultural, recreational,
amount due shall be credited as paid in full in fraternal, literary, scientific, social, civic service,
the books of the corporation. Such shares shall or similar purposes, like trade, industry,
be considered as treasury shares. agricultural. (Sec. 88) - They are governed by
CORPORATE BOOKS AND RECORDS INSPECTION the same rules established for stock
RIGHTS corporations, whenever pertinent, subject,
Limitations: however, to a number of special features.
a. The right must be exercised during RULES ON CONVERSION
reasonable hours on business days; 1. Stock to non-stock corporation - Conversion
b. The person demanding the right has not may be made by mere amendment of the
improperly used nay information obtained articles of incorporation.
through any previous examination of the books 2. Non-stock to stock corporation - The
and records of the corporation; and corporation must first be dissolved; mere
c. The demand is made in good faith or for a amendment of the articles of incorporation
legitimate purpose. (Sec. 74) would not suffice because the conversion would
The right extends, in consonance with equity, change the corporate nature from nonprofit to
good faith, and fair dealing, to a foreign monetary gain.
subsidiary wholly-owned by the corporation. - The conversion without dissolving it first
Books required to be kept by the corporation: would be tantamount to distribution of its
1. Book of Minutes assets or income to its members inasmuch as
a. minutes of stockholder or members after its conversion, the asset of the non-stock
meetings; and corporation would now be treated as payment
b. minutes of board meetings. to the subscriptions of the members who will
2. Book of all business transactions now become stockholders of the corporation.
3. Stock and transfer book, in case of stock RIGHTS OF MEMBERS
corporations. Corporate records required by 1. To be entitled to 1 vote unless otherwise
the SEC to be kept and/or registered: provided in the articles or by-laws
1. Books of Account; 2. To vote by proxy unless otherwise provided
2. List of Stockholders or Members; and in the articles or by-laws
3. Financial Records. 3. To transfer membership if allowed by the
articles or bylaws 4. To be elected as trustee
NON-STOCK CORPORATION RULES FOR DISTRIBUTION OF ASSETS IN CASE
- A corporation organized for an eleemosynary OF DISSOLUTION
 1. All liabilities and obligations of the 2. Involuntary
corporation shall be paid, satisfied and a) Expiration of the corporate term;
discharged or adequate provision shall be made b) Failure to organize and commence business
therefo within 2 years from the date of issuance of the
2. Assets held by the corporation upon a certificate of incorporation
condition requiring return, transfer or Note: However, the SEC has opined that the
conveyance, and which condition occurs by dissolution in this case is not automatic. The
reason of dissolution, shall be returned, corporation continues to exist as such,
transferred or conveyed in accordance with notwithstanding its non-operational status until
such requirements the SEC orders its dissolution after notice and
3. Assets received and held by the corporation hearing.
subject to limitations permitting their use only c) Legislative dissolution
for charitable, religious, benevolent, d) Quo warranto suit against a de facto
educational or similar purposes but not held corporation;
upon a condition requiring return, transfer or e) Minority stockholders’ suit for dissolution on
conveyance by reason of dissolution, shall be justifiable grounds; or
transferred or conveyed to one or more f) SEC dissolution, upon complaint and after
corporations, societies or organizations engaged notice and hearing, on the following grounds:
in activities in the Philippines substantially i. The corporation was illegally organized;
similar to those of the dissolving corporation ii. Continuous inactivity (subsequent to
pursuant to a plan of distribution incorporation, organization and
4. Other assets, if any, shall be distributed in commencement of business) for at least 5
accordance with the provisions of the articles of years;
incorporation or the by-laws iii. Serious dissension in the corporation; or
5. In any other case, assets may be distributed iv. Commission by the corporation of illegal or
to such persons, societies, organizations or ultra vires acts or violations of the Code.
corporations, whether or not organized for EFFECTS OF DISSOLUTION
profit, as may be specified in a plan of a. Transfer of legal title to corporate property
distribution. The plan of distribution shall be to the stockholders who become co-owners
approved by a majority vote of the board of thereof
trustees and by 2/3 of the members having b. Continuation of corporate business merely as
voting rights at a meeting an association without juridical personality
DISSOLUTION AND WINDING UP c. Conveyance by the stockholders of their
(LIQUIDATION) respective shareholdings toward the creation of
DISSOLUTION - Extinguishment of the a new corporation to continue the business of
franchise of a corporation and the termination the old
of its corporate existence. d. Reincorporation of the dissolved corporation
Modes: by refilling new articles of incorporation and by-
1. Voluntary laws
a) Application for dissolution with the SEC e. The corporation continues as a body
i. Where no creditors are affected corporate for 3 years for purposes of winding
ii. Where creditors are affected up
b) Shortening of the corporate term by f. Cessation of corporate existence for all
amending the articles of incorporation. purposes upon the expiration of the winding up
period of 3 years.
LIQUIDATION
- The process by which all the assets of the
corporation are converted into liquid assets
(cash) in order to facilitate the payment of
obligations to creditors, and the remaining
balance, if any, is to bedistributed to the
stockholders or members.
Methods:
1. By the corporation itself through its board of
directors/trustees;
2. By a trustee to whom the corporate assets
have been conveyed; and
3. By a management committee or
rehabilitation receiver appointed by the SEC.
Note: The 3-year period of liquidation does not
apply to Methods 2 and 3 as long as the trustee
or the receiver is appointed within the said
period.
- The termination of the life of a juridical entity
does not by itself cause the extinction or
diminution of the rights and liabilities of such
entity nor those of its owners and creditors
alike (see Sec. 145).
- The word “trustee” as sued in the corporation
statute must be understood in its general
concept which could include the counsel to
whom was entrusted the prosecution of the suit
filed by the corporation.
FOREIGN CORPORATION
- A corporation formed, organized or existing
under any law other than those of the
Philippines, and whose laws allow Filipino
citizens and corporations to do business in its
own country or state. (Sec. 123) - The definition
espouses the incorporation test and the
reciprocity rule and is significant for licensing
purposes.
- It is not permitted to “transact or do business
in the Philippines” until it has secured a license
for that purpose from the SEC and a certificate
of authority
from the appropriate government agency.