CORPORATION LAW Legislate either special incorporation law or
general incorporation law. (note: corporations by
Definition: Artificial being created by operation of law,
having the right of succession and the powers,
attributes, and properties expressly authorized
by law or incidental to its existence.
- The statutory definition refers only to
private corporations or to corporations
organized under the corporation law.
Consequences of the legal concept:
1. It may acquire and possess property of all kinds, as
well as incur obligations, and bring civil and
criminal actions in the same manner as natural
person (Arts. 44, 46 Civil Code).
2. Property conveyed to or acquired by the
corporation is, in law, the property of the
corporation itself as a distinct legal entity and not
that of the members or incorporators as such.
3. All contracts entered into in its name by its regular
appointed officers and agents are the contracts of
the corporation and not those of the members or
stockholders. (Smith and Co. Inc. vs Ford, 63 Phil.
786) A corporation cannot be held liable for the
personal indebtedness or obligation of a
stockholder even if he should be its president.
Neither is the latter liable for the indebtedness of
the former.
4. A tax exemption granted to a corporation cannot be
extended to include the dividends paid by such
corporation to its stockholders (Manila Gas Corp.
vs. Collector of Revenue, 71 Phil. 513) if such
dividends are not exempted from tax.
5. A corporation has no personality to bring an action
for and in behalf of its stockholders or members for
the purpose of recovering the property which
belongs to said stockholders or members in their
personal capacities (Sulo ng Bayan, Inc vs. G.
Araneta, Inc., 72 SCRA 347).
6. As an entity distinct from its members or
stockholders, a corporation remains unchanged and
unaffected in its identity by changes in its
individual membership.
As a creation of law or by operation of law:
Corporations cannot come into existence by mere
agreement of the parties as in the case of business
partnerships. They require special authority or grant
from the State.
prescription: Roman Catholic Church).
General law – B.P. 68 (Corporation Code of
the Philippines) now RA No. 11232, (Revised
Corporation Code of the Philippines) effective 23
February 2019
Special law: (Art. XII, Sec. 16, Constitution)
Private corporations owned or controlled by the
government or any subdivision or instrumentality
thereof are created by special laws.
Right of succession: Capacity of continuous existence,
irrespective of the death, withdrawal, insolvency, or
incapacity of the individual members or stockholders
and regardless of their transfer of interest or shares of
stocks.
- Sec 11 (RCCP): The life of the corporation
is perpetual (default period) Articles of
Incorporation provides otherwise.
- Corporate term for a specific period may be
extended or shortened by amending the
articles of incorporation.
- Corporations created by special laws have
the right of succession for the term
provided in the laws creating them.
Powers, attributes and properties of a corporation:
A corporation being a mere creation of law, may
exercise only such powers as are granted by the law of
its creation. An express grant, however is not necessary.
All powers which may be implied from those expressly
provided by law and those which are incidental or
essential to the corporation’s existence may also be
exercised.
Examples:
1. Railroad corp. has the power to build railroads
because such power is necessary for the
accomplishment of the purpose for which the corp.
is created.
2. A corp. expressly authorized to engage in
agriculture has implied authority to buy agricultural
lands (reasonably appropriate to carry out its
express authority).
3. Engaged in the manufacture of cement could
operate and maintain electric plant (necessarily
connected in the manufacture of cement).
Note: Corporation organized for the purpose of
supplying electricity to the public has no power to
buy and sell agricultural lands.

Partnership vs. Corporation
A. Distinctions
1. Manner of creation: P – mere agreement of the
parties. C – created by law or by operation of law.
2. Number of incorporators: P – may be organized by
only two persons. C – (corp. sole) OPC.
3. Commencement of juridical personality : P – from
the moment of the execution of the contract of
partnership. C – from the date of the issuance of the
certificate of incorporation by the SEC under its
official seal.
4. Powers: P – may exercise any power authorized by
the partners provided it is not contrary to law,
morals, good customs, public order, or public
policy (Art. 1306,cc). C - Can exercise only the
powers expressly granted by law or implied from
those granted or incident to its existence.
5. Management: P – when the management is not
agreed upon, every partner is an agent of
partnership. C – the power to do business and
manage its affairs is vested in the board of directors
or trustees.
6. Effect of mismanagement: P – a partner can sue a
co-partner who mismanages. C – the suit against a
member of the board of directors or trustees must
be in the name of the corporation.
7. Right of succession: P has no right of succession
while C has.
8. Extent of liability to third persons: P – the partners
(except limited partners) are liable personally and
subsidiarily (sometimes solidarily) for partnership
debts to third persons. C – the stockholders are
liable only to the extent of the shares subscribed by
them.
9. Transferability of interest: P - deletus personarum
or delectus personae, cannot transfer interest
without the consent of the other partners. In stock
corporation, stockholder has the right to transfer his
shares without the prior consent.
10. Term of existence: P – may be established for any
period of time stipulated by the partners. C –
perpetual.
11. Firm name: Limited P is required to add “Ltd.” C –
may adopt any firm name provided it is not
identical or deceptively similar to any registered
form name, or contrary to existing laws
(distinguishability test).
12. Dissolution: P – may be dissolved at any time by
the will of any or all of the partners. C - can only be
dissolved with the consent of the State.
13. Laws which govern: P – Civil Code; C – Revised
Corporation Code.
B. Similarities
1. Both has juridical personality separate and distinct
from that of the individuals composing it.
2. They could act only through agents.
3. Except corporation sole, they are composed of
aggregate of individuals.
4. They distribute profits to those who contribute
capital.
5. They can be organized only where there is a law
authorizing their organization.
6. Subject to income tax payment.
Disregarding corporate entity:
- The corporate fiction (of independent
personality) may be disregarded under the
doctrine of “piercing the veil of corporate
entity” if the notion of separate entity is
used to defeat public convenience, justify a
wrong, protect fraud or defend crime.
Other features:
- A corporation is not entitled to moral
damages except for besmirched reputation
for a corporation may enjoy goodwill.
- One of the core features, Limited Liability
Rule.
- The Congress may not, by special law,
create any private corporation except
corporations owned or controlled by the
government which may be created or
established by special charters for the
common good and subject to the test of
economic viability.
- Under the incorporation theory, the
nationality of the private corporation is that
of the state under whose laws such
 corporation was organized. (In times of
war) under the control test, the nationality
of the private corporation is determined by
the citizenship of the controlling
stockholders.
Section 3. Classes of corporations – Corporations formed or
organized under this Code may be stock or non-
stock corporations. Corporations which have
capital stock divided into shares and are
authorized to distribute to the holders of such
shares dividends or allotments of the surplus
profits on the basis of the shares held are stock
corporations. All other corporations are non-
stock corporations.
- A stock corporation is the ordinary
business corporation created and operated
for the purpose of making a profits which
may be distributed in the form of dividends
to stockholders on the basis of their
invested capital.
- Non-stock corporations do not issue stock
and are created not for profit but for the
public good and welfare. (religious, social,
literary, scientific, civic, cultural and
political organizations and societies).
Other classifications:
A. As to number of persons who compose them:
Corporation Aggregate, Corporation Sole, OPC
B. Whether for religious purpose or not: Ecclesiastical,
Lay – Eleemosynary or Civil
C. Whether for charitable purposes or not: Eleemosynary
or Civil – profit
D. As to state under whose law they are created:
Domestic, Foreign
E. As to their legal right to corporate existence: De jure,
De facto
F. Whether they are open to the public or not: Open or
Close – limited to selected persons or members of a
family (Secs. 96-105)
Conditions of Close corporation:
1. All stocks exclusive of treasury shares are held of
record by not more than a specified number of
persons, not exceeding 20 (Sec.95);
2. Stocks are subject to one or more restrictions in
Section 98; and
3. The stocks are not listed in any stock exchange or
made available for public offering.
G. As to their relation to another corporation: Parent or
Holding - one which is so related to another corporation
that it has the power, either directly or indirectly, to
elect the majority of the directors of such other
corporation. Subsidiary.
H. Whether they are in a true sense or limited sense: True
– exists by statutory authority. Quasi – one which exists
without formal legislative grant. (exception to the rule
that corp. may exists only by authority of law)
a. Corporation by Prescription – one which
exercised corporate powers for an indefinite
period without interference on the part of the
sovereign power and which, by fiction law, is
given the status of a corporation.
b. Corporation by estoppel – one which is, in
reality, not a corporation. Neither de jure nor
de facto because it is so defectively formed.
But it is considered a corporation in relation to
those only who, by reason of their acts or
admissions, are precluded from asserting that it
is not a corporation.
When persons assume to act as a
corporation knowing they have to
authority to do so, there is corporation
by estoppel.
Legal implications:
1. All such persons are liable
as general partners;
2. The ostensible corporation,
when sued on any of its
transaction or on tort,
cannot raise the defense of
lack of corporate
personality; and
3. One who assumes an
obligation to an ostensible
corporation cannot raise
the defense that there was,
in fact, no corporation.
I. Whether they are for government or private purpose:
Public, Private
Section 4. Corporation created by special laws or charters. –
Corporations created by special laws or charters
shall be governed by special laws or charters
shall be governed primarily by the provisions of
the special law or charter creating them or
 applicable to them, supplemented by the
provisions of this Code, insofar as they are
applicable.
Section 5. Corporators and incorporators, stockholders and
members. – Corporators are those who
compose a corporation, whether as stockholders
or members. Incorporators are those
stockholders or members mentioned in the
articles of incorporation as originally forming
and composing the corporation and who are
signatories thereof.
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a
non-stock corporation are called members.
Three other classes:
1. Promoters – persons who bring about or cause to
bring about the formation or organization of a
corporation by bringing together the incorporators
or the persons interested in the enterprise, procuring
subscriptions or capital for the corporation and
setting in motion the machinery which leads to the
incorporation of the corporation itself.
2. Subscribers – persons who have agreed to take and
pay for original, unissued shares of a corporation
formed or to be formed. Subscribers may not be
stockholders. They become stockholders from the
time their subscriptions are accepted by the
corporation.
3. Underwriter – a person, usually an investment
banker, who:
a. Has agreed, alone or with others, to buy at
stated terms an entire issue of securities or
a substantial part thereof; or
b. Has guaranteed the sale of an issue by
agreement to buy from the issuing party
any unsold portion at a stated price; or
c. Has agreed to use his “best efforts” to
market all or part of an issue; or
d. Has offered for sale stock he has purchased
from the controlling stockholder.
Section 6. Classification of shares. – The classification of
shares, their corresponding rights, privileges, or
restrictions, and their stated par value, if any,
must be indicated in the articles of incorporation.
Each share shall be equal in all respects to every
other share, except as otherwise provided in the
articles of incorporation and in the certificate of
stock
The shares in stock corporations may be
divided into classes or series of shares, or both.
No share may be deprived of voting rights except
those classified and issued as “preferred” or
“redeemable” shares, unless otherwise provided
in this Code: Provided, That there shall always be
a class or series of shares wth complete voting
rights.
Holders of nonvoting shares shall
nevertheless be entitled to vote on the following
matters:
(a) Amendment of the articles of
incorporation;
(b) Adoption and amendment of by-laws;
(c) Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all
of the corporate property;
(d) Incurring, creating or increasing bonded
indebtedness;
(e) Increase or decrease of capital stock;
(f) Merger or consolidation of the corporation
with another corporation or other
corporations;
(g) Investment of corporate funds in another
corporations or business in accordance with
this Code; and
(h) Dissolution of the corporation.
Except as provided in the immediately
preceding paragraph, the vote necessary to
approve a particular corporate act, as provided in
this Code, shall be deemed to refer only to stocks
with voting rights.
The shares or series of shares may or
may not have par value: Provided, That banks,
trust, insurance, and preneed companies, public
utilities, and building and loan associations and
other corporations authorized to access funds
from the public, whether publicly listed or not,
shall not be permitted to issue “no par value”
shares of stock.
Preferred shares of stock issued by
any corporation may be given preference in the
distribution of dividends and in the distribution of
corporate assets, or such other preferences:
Provided, That preferred shares of stock may be
issued only with a stated par value. The Board of
Directors, where authorized in the articles of
incorporation, may fix the terms and conditions
of preferred shares of stock or any series thereof;
Provided further, That such terms and conditions
shall be effective upon the filing of a certificate
thereof with the Securities and Exchange
Commission, hereinafter referred to as the
“Commission.”
Shares of capital stock issued without
par value shall be deemed fully paid and non-
 assessable and the holder of such shares shall not
be liable to the corporation or to its creditors in
respect thereto; Provided, That no-par value
shares must be issued for a consideration of at
least Five pesos (P5.00) per share: Provided
further, That the entire consideration received by
the corporation for its no-par value shares shall
be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore,
classify its shares for the purpose of insuring
compliance with constitutional or legal
requirements.
The primary classification of shares is common and
preferred each of which may be divided into other classes.
Thus, shares of stock usually differ with respect to voting
rights, dividend rights, and, in case of liquidation, rights to
corporate assets.
Capital stock and capital
1. Capital stock – the amount fixed in the articles of
incorporation, to be subscribed and paid in by the
shareholders of a corporation, either in money or
property, labor or services, at the organization of
the corporation or afterwards and upon which its is
to conduct its operation.
- It limits the maximum amount or number
of shares that may be issued by the
corporation without formal amendment to
the articles of incorporation. It remains the
same even though the actual value of the
shares as determined by the assets of the
corporation is diminished or increased.
a. Authorized capital stock – synonymous
with capital stock where the shares of the
corporation have par value. If the shares of
stock have no par value, the corporation
has no authorized capital stock. But it has
capital stock the amount of which is not
specified in the articles of incorporation as
it cannot be determined until all the shares
have been issued.
b. Subscribed capital stock – amount of the
capital stock subscribed whether fully paid
or not.
c. Outstanding capital stock – portion of the
capital stock which is issued and held by
persons other than the corporation itself.
Total shares of stock issued to subscribers
or stockholders, whether fully or partially
paid, except treasury shares.
d. Paid-up capital – portion of the subscribed
or outstanding capital stock that is paid.
e. Unissued capital stock – portion of the
capital stock that is not issued or
subscribed. It does not vote and draws no
dividend.
f. Legal capital – amount equal to the
aggregate par value and/or issued value of
the outstanding capital stock.
2. Capital – used broadly to indicate the entire
property or assets of the corporation. It includes the
amount invested by the stockholders plus the
undistributed earning less losses and expenses.
Distinctions:
1. Capital – actual corporate property. Capital stock –
is an amount.
2. Capital fluctuates or varies from day to day
accordingly as there are profits or losses,
appreciation or depreciation of corporate assets.
Capital stock is an amount fixed in the articles of
incorporation and is unaffected by profits or losses.
3. Capital belongs to the corporation and capital stock
when issued belongs to the stockholders.
Capital stock and share of stock
Share of stock is commonly used in a
distributive sense. Capital stock, in a collective sense.
Nature of share of stock
1. Represents a distinct undivided share or interest in
the common property of the corporation
2. Constitutes property distinct from the capital or
tangible property of the corporation and belong to
the different owners. Incorporeal in nature, the
shares are personal property.
3. Does not constitute an indebtedness of the
corporation to the shareholder and are, therefore,
not credits.
4. A share of stock only represents an undivided part
of the corporation’s property, or the right to share
in its proceeds to that extent when distributed
according to law.
Certificate of stock – a written acknowledgement by
the corporation of the interest, right, and participation
 of a person in the management, profits, and assets of the
corporation. Documentary evidence of the holder’s
ownership of shares and is a convenient instrument for
the transfer of title.
Classes of shares
1. Par value share – one with a specific money value
fixed in the articles of incorporation and appearing
in its certificate of stock.
2. No par value share – one without any stated par
value appearing on the face of certificate of stock.
No statement as to how much money it represents.
While it has no par value it has always and “issued
value” – the consideration fixed by the corporation
for its issuance.
3. Voting share – share with a right to vote (for
common stocks).
4. Non-voting share – share without right to vote.
5. Common share of stock – one which entitles the
holder to an equal pro rata division of the profits, if
there are any.
6. Preferred share – entitles the holder thereof certain
preferences over the holders of the common stock.
7. Promotion stock – issued to promoters or those in
some way interested in the company, for
incorporating the company, or for services rendered
in launching or promoting welfare of the company.
8. Share in escrow – subject to agreement by virtue of
which the share is deposited by the grantor or his
agent with the third person to be kept by the
depositary until the performance of certain
conditions (suspensive).
9. Convertible stock – one which is convertible or
changeable by the stockholder from one class to
another class such as from preferred to common.
Par value, book value, market value
The par value indicated in the certificate of
stock represents the amount of money or property
contributed by the shareholder to the capital stock of
the corporation. Book value is determined by dividing
the net value of the total corporate assets (capita and
surplus, if any) by the number of shares issued or
outstanding. Market value is the price a willing seller
would sell and a willing buyer would buy neither being
under abnormal pressure to sell or to buy (therefore,
may be more or less than the par or book value).
Par value shares
Advantages:
1. They are easily sold as the public is more
attracted to buy it;
2. Greater protection to creditors;
3. Unlikelihood of sale of subsequently issued
shares at a lower price; and
4. Unlikelihood of distribution of dividends
that are only ostensible profits.
Disadvantages:
1. Subscribers are liable to corporate creditors
for their unpaid subscription; and
2. The stated face value of the share is not an
accurate criterion of its true value.
No par value shares
Advantages:
1. Issued as fully paid and non-assessable;
2. Price is flexible;
3. Low-priced stocks (most are low priced)
enjoy wider distribution;
4. Shows true value of stockholder’s
contribution; and
5. Stock dividends are more easily issued
thereby simplifying accounting procedure.
Disadvantages:
1. They legalize large issues of stock for
property;
2. They conceal the money or property
represented by the shares;
3. They promote the issuance of watered
stocks; and
4. There is lesser protection to creditors.
Statutory restrictions regarding issuance of “no par
value” shares
1. Banks, trust companies, insurance companies and
building and loan associations shall not be
permitted to issue no par value shares of stocks;
2. Preferred shares of stock may be issued only with a
stated par value.
3. Shares issued without par value shall be deemed
fully paid and non-assessable and the holder of
such share shall not be liable to the corporation or
to its creditors in respect thereto. This means that
the holder shall not be liable beyond the issued
price.
4. Shares without par value may not be issued for a
consideration less than the value of P5.00 per share.
5. The entire consideration received by the
corporation for its no par value shares shall be
treated as capital and shall not be available for
distribution as dividends.
Consideration for “no par value” shares
Due to fluctuation in the value of corporate
stocks, corporations are authorized to issue no par value
shares:
1. While it has no par value, it always has
“issued value” based on the consideration
for which it is issued.
2. While all par value stocks must be issued at
a uniform value or price, no par value
 stocks may be issued from time to time at
different prices or values although the
holders of all these shares.
Preferred shares
Kinds:
1. As to assets – gives the holder preference in
the distribution of the assets of the
corporation in case of liquidation.
2. As to dividends – the holder of which is
entitled to receive dividends on said share
to the extent agreed upon before any
dividends at all are paid to the holders of
common stocks. There is to guarantee
however that it will receive any dividend.
Preference among preferred shares
- A corporation may issue more than one
class of preferred stock as to assets or as to
dividends. Thus, certain preferred shares
may be given first preference or second
preference on earnings. Unless a
classification is provided in the articles of
incorporation, the rule is that preferred
shares of stock enjoy the same preferences
or privileges.
Section 7. Founders’ Shares. – Founders’ shares may be given
certain rights and privileges not enjoyed by the
owners of other stocks. Where the exclusive right
to vote and be voted for in the election of
directors is granted, it must be for a limited
period not to exceed five (5) years from the date
of incorporation. Provided, That such exclusive
right shall not be allowed if its exercise will
violate Commonwealth Act No. 108, otherwise
known as “Anti-Dummy Law”; Republic Act
7042, otherwise known as Foreign Investments
Act of 1991”; and other pertinent laws.
Section 8. Redeemable Shares. – Redeemable shares may be
issued by the corporation when expressly
provided in the articles of incorporation. They are
shares which may be purchased by the
corporation from the holders of such shares
which may be purchased by the corporation from
the holders of such shares upon the expiration of
a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the
corporation, and upon such other terms and
conditions stated in the articles of incorporation
and the certificate of stock representing the
shares, subject to rules and regulations issued by
the Commission.
Section 9. Treasury Shares. – Treasury shares are shares of
stock which have been issued and fully paid for,
but subsequently reacquired by the issuing
corporation through purchase, redemption,
donation, or some other lawful means. Such
shares may again be disposed of for a
reasonAable price fixed by the board of directors.
Section 10. Number and Qualifications of Incorporators. – Any
person, partnership, association or corporation,
singly or jointly with others but not more than 15
in number, may organize a corporation for any
lawful purpose or purposes: Provided, That
natural persons who are licensed to practice a
profession, and partnerships or associations
organized for the purpose of practicing a
profession, shall not be allowed to organize as a
corporation unless otherwise provided under
special laws. Incorporators who are natural
persons must be of legal age.
Each incorporator of a stock
corporation must own or be a subscriber to at
least one (1) share of the capital stock.
A corporation with a single stockholder
is considered a One Person Corporation as
described in Title XIII, Chapter III of this Code.
Section 11. Corporate Term. – A corporation shall have a
perpetual existence unless its articles of
incorporation provides otherwise.
Corporations with certificates of
incorporation issued prior to the effectivity of this
Code, and which continue to exist, shall have
perpetual existence, unless the corporation, upon
a vote of its stockholders representing a majority
of its outstanding capital stock, notifies the
Commission that it elects to retain its specific
corporate term pursuant to its articles of
incorporation: Provided, That any change in the
corporate term under this section is without
prejudice to the appraisal right of dissenting
stockholders in accordance with the provision of
this Code.
A corporate term for a specific period
may be extended or shortened by amending the
articles of incorporation: Provided, That no
extension may be made earlier than 3 years prior
to the original or subsequent expiry date(s) unless
there are justifiable reasons for an earlier
extension as may be determined by the
Commission: Provided further, That such
extension of the corporate term shall take effect
only on the day following the original or
subsequent expiry date(s).
A corporation whose term has expired
may apply for a revival of its corporate 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 its revival. Upon approval by the Commission,
the corporation shall be deemed revived and a
certificate of revival of corporate existence shall
be issued, giving it perpetual existence, unless its
application for revival provides otherwise.
No application for revival of certificate
of incorporation of banks, banking and quasi-
banking institutions, preneed, insurance and trust
companies, non-stock savings and loan
associations, pawnshops, corporations engaged in
money service business, and other financial
intermediaries shall be approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency.

Section 12. Minimum Capital Stock Not Required of Stock

Corporations, - Stock corporations shall not be
required to have a minimum capital stock, except
as otherwise specifically provided by special law.