As a rule, perpetual existence for corporations.

What is the effect to those corporations nga na-register prior to Revised Corporation Code?
Corporations that are issued with certificates of incorporation prior to effectivity of Revised
Corporation Code and which continue to exist kay wa pa sila ni-expire shall also have the same
perpetual existence. Unless as by way of exception, there is a vote among members of the Corporation
to shorten the period.

In stock corporations, don't forget the terms: AUTHORIZED CAPITAL STOCK vs SUBSCRIBED
CAPITAL vs PAID-UP CAPITAL vs OUTSTANDING CAPITAL STOCK vs CAPITAL

AUTHORIZED CAPITAL STOCK: The amount fixed in the Articles of Incorporation.

(The amount fixed in the Articles of incorporation to be subscribed and paid by the stockholders of the
Corporation. [SEC Opinion, August 11, 1997)

SUBSCRIBED CAPITAL: Capital nga nabayran, not the entire authorized capital stock. That portion
in the authorized capital stock nga naa nay tag-iya/subscription.
(That portion of the authorized capital stock that is covered by subscription agreements whether fully
paid or not)

PAID-UP CAPITAL: The portion of the authorized capital stock that has been subscribed and actually
paid [MSCI-NACUSIP Local Chapter v. National Wages and Productivity Commision, 260 SCRA 173;
1997]

OUTSTANDING CAPITAL STOCK: The total shares of stock issued to subscribers or stockholders,
under binding subscription contracts, whether fully or partially paid except treasury shares so long as
there is a binding subscription agreement. [Sec. 173, RCCP]

CAPITAL: Properties and assets of the corporation that are used for its business or operation.

Q: In the RCCP, is there a minimum capital needed for a corporation?

Under Section 12 of RCCP, no minimum authorized capital stock is needed for corporations.

*In the old CCP, it required the authorized capital stock that 25% of it is already subscribed and apart
from it, it also required that there must also be 25% paid-up capital. In the RCCP however, it has
already been eliminated.

Q: When do you apply the 25% subscribed and 25% paid-up requirement? (25-25 Rule)
It will only apply when there is an increase in capital stock.

AMENDMENTS of ARTICLES OF INCORPORATION

Q: Can the Articles of Incorporation be amended?
As a rule, yes. How? If naa nay certificate of incorporation or registration pwede gyapon na ma-amend
ang AOI. But when you amend it, you will submit ug 'Amended Articles of Incorporation'.

In amendment of Articles of Incorporation, take note of the term: Accomplished Fact Principle. What
is it? It is simply a prohibition of changing the Articles of Incorporation on matters that are already
accomplished. For example, incorporators nga nagtukod gyd sa corporation.
In amendment, familiarize yourself with the codal provisions, 2/3 of members (non-stock corporation).

Q: Suppose there is a change in the corporate name does it necessarily follow that there is a change
of a corporation or that there is a new corporation made?

No. Look into 2013 case- Freight and Cargo System vs National Labor Relations Commission. The
argument of the company in this case was, dili na daw sila ang nag-operate since they changed their
corporate name already. But seeing into it, the same corporation operating ra gyapon, same board,
stocholders, same everything. SC said, changing the corporate name does not automatically mean that
you have a new corporation. As such, it does not extinguish the corporation. The personality of the
corporation will continue to exist despite the change of corporate name.

Q: Can the certificate of registration be canceled or suspended?

Yes, especially if there are certain grounds applicable. KAPA is a very good example.

Q: Who has the power to cancel or suspend certificate of registration?

Securities and Exchange Commission.

Q: What are the grounds to be raised to cancel or suspend a certificate of registration?

The grounds are:
-serious misrepresentation as to objectives of the corporation (KAPA is a great example)
-fraud in procuring registration
-refusal to comply with lawful order of SEC
-failure to commence business within the period of 5 yrs from the date of incorporation
-failure to file reportorial requirements
-failure to file By Laws within the required period (Remember difference between Articles of
Incorporation from By Laws) (Take note: By Laws must be consistent with the RCCP. If a provision of
your By Laws contravenes the provisions of RCCP, that particular provision will be considered null and
void. Check the 1997 case of Grace Christian High School vs CA.)

Q: Does SEC has the power to issue cease and desist orders from using corporate name?
Old and revised CCP concurs in this matter under Section 17 of RCCP. Also, under the same provision,
they can also cause for the removal of all visible signage, labels, prints, advertisements, etc.

Q: Can By Laws be amended?

Yes. Familiarize yourself to the required number of votes to be made by the stockholders or members
with the Board in amending the By Laws.

POWERS of CORPORATIONS
-Express Powers (powers provided under the Corporation Code)
• General Powers, Sec. 35 of RCCP (right of succession, adopt and use of corporate seal, amend
AOI, amend By Laws, for stock corporations, can sell stocks to subscribers, for non-stock, to
admit members)
• Specific Powers, Sec. 36-43 of RCCP(extend or shorten corporate term, increase or decrease
capital stock, incur, create or increase bonded indebtedness, deny pre-emptive right, purchase or
acquire own shares, enter into management contract and service agreements)
-Implied Powers under the Doctrine of Necessary Implication (powers not expressly stipulated but are
deemed to be included in the powers of the corporation)
-Incidental Powers (powers that coexist once there is a certificate of registration)
Q: What is the ultra-vires doctrine?
An ultra vires act is one committed outside the object for which a corporation is created as defined by
the law of its organization and therefore beyond the power conferred upon it by law. (Atrium
Management Corporation vs. CA, GR 109491, Feb. 28, 2001)

Q: How do you distinguish ultra vires act from illegal act?

Ultra vires act is an act which is exercised by the corporation not considered among its specific
purposes. However, this can be ratified. Unlike illegal act, such act is contrary to law e.g. selling
children.

Q: Who exercises the powers of the corporation?

The powers of the corporation can be exercised by the Board of Directors in so far as stock
corporations are concerned. If non-stock na sha, it can be operated by the Board of Trustees.

Q: In what instances is concurrence (or ratification) of the stockholders/members necessary for the
exercise of powers of the corporation?
1. Approval by majority of the Board and concurrence (or ratification) of the stockholders
representing at least 2/3 of the outstanding capital (or 2/3 of the members whenever applicable)
is necessary in the exercise of the following powers:
-extend or shorten corporate term
-increase/decrease corporate stock
-incur, create, or increase bonded indebtedness
-deny pre-emptive right after incorporation
-sell, dispose, lease, encumber all or substantially all of corporate assets
-invest in another corporation, business other than the primary purpose like the secondary
purpose
-declare stock dividends
-enter into mgmt contracts
-amend AOI
-voluntary dissolution where creditors are affected

2. Approval at a meeting duly called for the purpose by the stockholders representing majority of
the outstanding capital, or majority of the members, is necessary together with Board approval,
in the following instances:
-enter into mgmt contract under circumstances not covered in Sec.43, RCCP
-adopt, amend, or repeal the By-laws
-voluntary dissolution where no creditor is affected

3. Without Board resolution, the stockholders/members may by:

-2/3 of outstanding capital or of the members- delegate to the Board the power to amend By-
laws
-Majority of outstanding capital or of the members- revoke the power of the Board to amend the
By-laws, which was previously delegated

Q: Who may declare dividends in a corporation? [TAKE NOTE]

Under Sec. 42, RCCP; if cash or property dividends, BOD alone. For stock dividends, BOD with the
approval of stockholders representing not less than 2/3 of Outstanding Capital in a meeting called for
the purpose.
Q: What are the requisites that must be present to declare dividends?
-Unrestricted retained earnings (earnings na wala pa naka-earmark)
-Resolution/Approval of the Board except if it is a stock dividend which needs Approval of the Board
with the concurrence of 2/3 of outstanding capital.

Q: The Board did not declare dividends. What is the recourse of the stockholders? Can they compel
by way of mandamus or other available legal remedy to declare dividends?

The stockholders cannot compel the BOD to declare dividends. Declaration of dividends is
discretionary upon the Board; it is part of the Board's business judgment. Dividends are payable only
when there are profits earned by the corporation and as a general rule, even if there are existing profits,
the Board of Directors has the discretion to determine whether or not dividends are declared. This is in
the case of Republic Planters Bank vs. Agana, 269 SCRA 1. Except if it is a stock corporation as they
are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock.

XPN: Even if there are retained surplus profits in excess of 100% of the paid-in capital stocks, the
Board may still refuse to declare dividends if:
-justified by definite corporate expansion projects/programs
-corporation is prohibited under any loan agreement from declaring dividends
-it can be shown that such retention is necessary under special circumstances obtaining in the
corporation

Remember:
GR: Dividends cannot be declared out of the capital as it will violate the trust fund doctrine.
XPN:
(1)Wasting Assets Corporation- corporations solely or principally engaged in the exploitation of
wasting assets to distribute the net proceeds derived from exploitation of their holdings such as mines,
oil wells, patents, and leaseholds, without allowance or deduction for depletion.
(2) Liquidating dividends

Citizenship requirement for Directors? None.

Q: What is the business judgment rule?

If the corporation will act, it will act through its Board of Directors. Questions of policy or
management are left solely onto the honest decision of officers or directors of the corporation and the
courts, as a rule, should not interfere with business judgment. (See: Montelibano v. Bacolod-Murcia
Milling Co. 5 SCRA 36)

Q: Can you hold a corporation criminally liable?

As a general rule, no but by way of exemption, if the penalty to be imposed is only a fine. (Take note:
fine and civil liability are different. Fine is the imposable penalty for a criminal act while civil liability
is for civil damages cost.)

Familiarize election of directors as well as removal and filling up of vacancies.

Now, let's talk about doctrine of corporate opportunity.

Q: What is the doctrine of corporate opportunity? What are its requisites?

This doctrine covers cases when a director takes a business opportunity that belongs to a corporation.
So supposedly, the activity should be for the corporation but he takes it as personal to himself. Its
requisites are: (1)Corporation is financially able to undertake; (2)From its nature, it is in line with the
corporation's business; and (3)It is one in which the corporation has an interest or a reasonable
expectancy.

So when those requisites concur and if that's the case, there is now a thing we call: CONFLICT OF
INTEREST in the corporation. For example, if the corporation is engaged in the business of automotive
industry such as an auto repair shop and one of the directors nagtukod sad ug iyahang auto repair shop.
Is such kind of set-up allowed? Actually, the law does not permit the director to seize the opportunity
even if he use his own funds in the venture.

Q: What is now the governing rule when it comes to conflict of interest situations?
As a general rule, if a director by virtue of such office, seizes a business opportunity which should
belong to the corporation thereby obtaining profits to the prejudice of the corporation, he must account
and refund to the corporation all the profits. An exception would be if the contract or act may be
ratified by a vote of the stockholders owning or representing at least 2/3 of the outstanding capital
stock.

Q: Who are self-dealing directors? (Sec.31, RCCP)

Section 31 of the RCCP covers contracts between the corporation and (1) a director or trustee or (2)
officer or (3) their spouses or (4) relatives w/in the 4th civil degree of consanguinity or affinity (first
cousin). Contract with self-dealing director, trustee, officer or their covered relatives is voidable (valid
until annulled) at the option of the corporation.

Now, let's go to interlocking directorship. How is it different with self-dealing directors? Ang self-
dealing directors kato ratong sa corporation ug sa director, corporation ug sa officer of the court,
corporation of their covered relatives.

Q: Who is an interlocking director?

An interlocking director is someone who is a director of one corporation and at the same time a director
of another corporation. What is now the rule when there is an interlocking director? So, if a contract is
entered into, it is perfectly valid. An exception would be, the contract entered into by an interlocking
director will be subject for annulment if there is existence of fraud or not fair and reasonable.

Q: Are corporate agents such as directors, trustees, or officers of a corporation solidarily liable with
the corporation they represent?
As a general rule, NO. These directors, trustees, or officers are not solidarily liable with the
corporation. Obligations incurred by them, acting as such corporate agents, are not theirs, but the direct
accountabilities of the corporation they represent. The fact that they approved the contract or signed the
document evidencing the contract will not make them liable. These corporate agents are covered by the
corporate fiction.

However, there are times when personal and solidary liability exists. This type of liability may be
incurred in the following cases:
• when officers of corporation:
◦ vote or assent to patently unlawful acts of the corporation
◦ act in bad faith or with gross negligence in directing affairs of corporation
◦ guilty of conflicts of interest to the prejudice of corporation, its stockholders or members,
and other persons
 • when a director has consented to the issuance of a watered stocks or who, having knowledge,
did not file with the corporate secretary his written objection thereto;
• when the director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; and
• when a director, trustee, or officer is made, by specific provisions of law, personally liable for
his corporate actions.

Q: Who are corporate officers?

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