Section 2: A corporation is an artificial being created by
law, having the rights of succession, powers, attributes and
properties expressly authorized by law or incidental to its
existence.
ATTRIBUTES OF CORPPORATION:
Zambrano vs. Phil Carpet:
ARTIFICIAL BEING- separate and distinct from the person
composing it as well as from other LEGAL ENTITY to which it
is related.
CREATED BY OPERATION OF LAW: state must give consent
either through special law or general law.
Tayag vs Benguet:
A corporation is a person by process of fiction. It owes its
existence of law.
LIMITATION: Art X11 Sec 16: A congress shall not, except by
general law provide for the formation, organization, or
regulation of private corporation. GOCC may be created by
special law, subject to: (TWIN CONDITION)
1. Interest of common good
2. Subject to test of economic viability
PURPOSE: uniformity and avoidance of corruption.
GOCC- organized as stock or non-stock vested with
functions relating to public needs whether governmental
or proprietary function, owned by government whether
directly or indirectly. In case of stock atleast 51% owned
by government.
GOCC REQUISITES: ATTRIBUTES:
1. Establish by original charter or general corporation law
2. Vested with function relating to public needs whether
governmental or proprietary function
3. Directly owned by government or its instrumentality,
or owned majority of stock
PUBLIC CORPORATION: Provinces, Chartered City, Barangay
CONCESSION THEORY/ FIAT THEORY/ GOVERNMENT
PATERNITY THEORY
- A corporation acquires its existence only when the
State or government through SEC granted an
imprimatur
RIGHTS OF SUCCESSION: Death will not affect the continued
existence of corporation: Continuity of its existence
irrespective of the change of ownership who composed it.
POWERS, ATTRIBUTES AND PROPERTIES: They can exercise
only those that are EXPRESSLY PROVIDED, IMPLIED or
INCIDENTAL TO ITS EXISTENCE, otherwise such act will be
ULTRA VIRES ACT.
DOCTRINE OF LIMITED CAPACITY
No corporation shall exercise any corporate power except
those provided in or conferred by code or by its AOI except
such necessary, incidental to the exercise of the ower so
conferred. (Sec 44)
CLASSES OF CORPORATION:
SECTION 3:
1. Stock Corporation: Which have capital stock, divided
into shares, and authorized to distribute to such shares
DIVIDENDS or ALLOTMENTS of the surplus profits.
2. Non-Stock Coporation: No part of its income is
distributable as dividends
3. PublicCorporation: Created for public purpose and
organized by STATE
4. Private Corp: created for profit making activities or
some benevolent purposes.
5. Domestic Corp
6. Foreign Corp
7. De Jure corporation: those corporation that are
created in a strict and substantial compliance with the
mandatory requirements, and the right of existence
cannot be directly attacked by any party even by the
STATE.
8. De facto Corporation: Formed when there exist a flaw
in its incorporation, but there is colorable compliance
with the requirements of law.
SEC 19: The due execution of the corporation cannot
be inquired collaterally in any private suit. It can be
made by SOLICITOR GENERAL IN QUO WARRANTO
PROCEEDINGS.
 Sevent day Adventist vs Northern Mindanao LIM TOM LIM SUBSTANTIAL OWNERSHIP does not make stockholder the
owner of properties of corporation.
REQUIREMENTS: A person who act without authority `or without principal is
himself regarded as principal, he assumes such privileges Shares of Stock is a personal property but not represent as
1. Existence of a valid law under which it is
incorporated and obligation and becomes personally liable. property of corporation. It only typifies as an aliquot part of
the corporations properties or right to receive proceeds.
2. Attempt in goodfaith to incorporate A person who knows that it is unincorporated and treated
3. Assumption of powers But its owner is not the owner of properties of corporation.
it as corporation and received benefits may be barred from Stockholder is not the co-owner of the corporate property.
4. Filing of AOI and issuance of COI is essential denying its corporate existence. All who benefited may be Shareholder are not th owner of property.
Missionary Sister held liable.
CONSTITUTIONAL RIGHTS:
- If not registered in SEC it cannot be considered as
corporation de facto or corporation 1. NO Rights against unreasonable searches: NO. Officers
CORPORATE JURIDICAL PERSONALITY has cause to assail the validity of search warrant,
9. Parent Corporation
10. Affiliate Corporation Doctrine of Separate Personality/Corporate Personality: because corporation has a separate personality. It can
only be contested by parties whose rights is impaired. It
11. Subsidiary Corporation
- A corporation is a distinct legal entity separate and is purely personal and cannot be availed by parties.
12. Open
apart from individual stockholder, and not affected by 2. NO Right against self incrimination: No application in
13. Close
personal transaction, rights and obligation of juridical person
stockholder or member. Separate from any entity it is 3. DUE PROCESS: YES
related. Property are separate and distinct.
CORPORATION BY ESTOPPEL

-Contemplates a person who hold themselves out as a
corporation and enter into a contract with 3rd person.
- they cannot be permitted to deny existence of
corporation.
- it is neither de jure nor de facto. It cannot deny due to its
agreement, admission or conduct.
- they shall be liable as general partner for all debts,
liabilities and damages and cannot be allowed to use as a
defense lack of pernsonality.
- INTEREST OF STOKHOLDER OVER THE PROPERTIES OF CRIMINAL LIABILITY: incapable of intent, thus cannot
CORPORATION IS MERELY INCHOATE AND SHEER
commit felonies punishable under RPC. It is personal in
EXPECTANCY IN MANAGEMENT OF CORPORATION nature and requiring performance of overt act. Liability may
AND SHARE PROFITS AND IN PROPERTIES UPON fall upon its OFFICERS.
DISSOLUTION. (Magsaysay – Labrador)
Corporation only fine.
- Sulo ng Bayan vs Araneta
A corporation cannot file an action in behalf of its
TORT LIABILITY: Corporation is liable for CIVIL LIABILITIES.
shareholders to recover the latters property. It can be
dismissed due to failure to state cause of action because Principal or master (corporation) shall be liable in the act of
its agent
the corporation is not a REAL PARTY IN INTEREST.
 RECOVERY OF MORAL DAMAGES: as a general rule: NO,
since it cannot experience physical sufferings,
humiliations, serious anxiety. EXCEPTION:
1. when the corporation has a good reputation that is
debased , resulting in humiliation of business realm.
2. Libel or any form of defamation and claim form moral
damages.
DOCTRINE OF PIERCING THE VEIL
- When the veil of the corporate fiction is used as a
shield to perpetuate fraud, justify wrong and defend a
crime, defeat public convenience, this corporate fiction
shall be disregarded and individual causing it shall be
treated identically.
- Where the corporation is a mere alter ego or business
conduit. (CORP-STOCKHOLDER)
- Merely instrumentality, adjunct of another
corporation, then its distinct personality will be
ignored. (CORP-CORP)
A. Done in badfaith just to evade one’s subsidiary
liability for damages in criminal cases
THREE CASES IN PEIRCING CORPORATE VEIL.
1. Fraud Cases- when the legal fiction was used to defeat
public conveneiece, perpetrate fraud, commit a crime
and justify wrong. THERE IS AN INTENT TO COMMIT
WRONG, and use the corporation to accomplish its
purpose.
2. ALTER EGO CASES: FRAUD is not an element in this EQUITABLE OWNER:
case. The corporatoion is merely a farce, or alter ego,
business conduit or instrumentality. Individual who is a non- stockholder who exercises
sufficient control or considerable authority over the
3 pronged test: MUST BE PRESENT corporation, acting as though his assets are his or hers
alone.
1. INSTRUMENTALITY AND CONTROL TEST: There is a
CONTROL, not mere majority but COMPLETE
DOMINATION not only finance but of policy and
business. (PARENT –SUBSIDIARY RELATIONSHIP) TRADITIONAL VEIL:
2. FRAUD TEST: Such control is used to justify wrong,
1. The court disregards the existence of of corporate
perpetrate fraud and defeat public convenience
entity so the claimant can reach the asset of
3. HARM TEST: Such control and breach proximately
stockholder. Liable is the stockholder
cause injury or unjust loss complained off.
REVERSE PIERCING- Liable is corporation
3. EQUITY CASES: Piercing the veil is necessary to achieve
justice and equity.
1. Makes the corporation liable for the debt of
shareholder.
PIRCING THE VEIL SHOULD BE DONE WITH CAUTION: a. Outsider Reverse Piercing
Wrong doing must be clearly and convincingly established, b. Insider Reverse Piercing- in order to take
it cannot be presumed. MERE OWNERSHIP ALONE does not advantage of the benefit available to corporation
provide sufficient justification to pierce the veil.
PIERCING APPLIES ALSO WITH NON-STOCK CORPORATION
EXISTENCE OF INTERLOCKING DIRECTORS: it is not enough
justification to disregard the separate corp personality.
TO PIERCE THE VEIL, the court must first acquire
jurisdiction over the corporation by impleading it and
serving of summons and tried in full blown trial.
EXCEPTION: if there is a clear and convincing proof that
separate and distinct personality of the corporation was
purposely employed to evade legitimate and binding
commitment.

SEC 10:
INCORPORATION AND ORGANIZATION
- FORMAL and procedural requisites of drafting AOI and
preparing necessary documents and filing with SEC
- Person, partnership, associutaion, corporation, singly
or jointly
- Not more than 15 in number
- Except those practice in profession
- Must be legal age
- Must own atleast 1 share
CONTENTS OF AOI
1. CORPORATE NAME
- Must be distinguishable from those reserve and
already registered in SEC and DTI, already protected by
law, or use in contrary to existing law, rules and
regulation
- Non Compliant- summarily order to cease or desist and
require the corporation to register new one.= LIABLE
for contempt and hold administratively, civilly and
criminally liable
- If same, applicant shall add one or more distinctive
words.
- Distinctive words is not allowed if it is COINED or
UNIQUE NAME.
- For already dissolve coporation, its name shall not be
used for 5 years after the date of revocation or 5 years
from approval of dissolution unless allowed by
majority OCS
- If Fanciful, arbitrary and whimsical it is entitled to legal - Chattel mortgage to be registered
protection- thinking that it is affiliate - Corpprate books to be kept
PURPOSE: is to avoid fraud in public. A CORPORATION IN METAPHYSICAL SENSE A RESIDENT OF THE
PLACE WHERE THE PRINCIPAL OFFICE IS LOCATED IN THE AS
CHANGE OF CORPORATE NAME: Debtors are not required to be STATED IN ITS AOI.
formally notified.
3. TERMS OF EXISTENCE
DOCTRINE OF SECONDARY MEANING: A WORD OR PHRASE - PERPETUAL EXISTENCE
WHICH IS ORIGINALLY incapable of of appropriation, has been - UNLESS MAJORITY VOTE OF ITS OCS ELECT TO RETAIN
used exclusively and so long pertaining to one producer in a ITS TERM OF EXISTENCE
market, the word or phrase has come to mean that the article - CAN EXERCISE APRAISAL RIGHT
was his product. - NO EXTENSION SHALL BE MADE EARLIER THAN 3
CHANGE OF NAME: Amend articles of incorporation- it is only YAERS BEFORE THE EXPIRATION UNLESS FOR
change of name and not corporate being. JUSTIFIABLE REASON.
- TERMS EXPIRED MAY ASK FOR REVIVAL
2. PURPOSE CLAUSE
4. INCORPORATORS- are those mentioned in articles of
- defines scope of authority of the corporation or its incorpation
undertaking - It may be natural, juridical, or corporation
- AOI cannot be amended to change the names of the
- It confers and limit actual authority
original incorporator. T is FAIT ACCOMPLI.
- PRIMARY PURPOSE: Main business activity
-SECONDARY PURPOSE: support the corporation primary
5. DIRECTORS AND TRUSTEE
business
- Stock corp- not more than 15
- Non Stock- may be more than 15
2. PRINICIPAL OFFICE: considered as place of resident
- For tax purposes
- Venue for personal action
- Stockholders meeting be held
- Summon will be served
- Correspondences to be send
6. CAPITALIZATION:
Authorized- amount fixed in the AOIto be subscribed
and paid.
Subscribed- portion of authorized capital stock
covered by subscription agreement
OCS- total shares issued whether paid or not except
treasury shares
7. SHARES Of STOCK
a. PAR VALUE- with nominal value in AOI
b. NO PAR- only have stated value in AOI but not
nominal value.
- Bank, trust, pre need, loan association, public utilities
and ther corporation authorized to get funds from
public shall have PAR VALUE.
c. VOTING SHARES
d. NON VOTING SHARES- but they can vote other acts
in Sec 6 par 3:
- Amendment of AOI
- Adoption and amendment of by-laws
- SLEMP or dispose of all or substantiall all corp asset
- Increase or decrease authorized capital stock
- Increase, create, incur bond indebtedness
- Merger or consolidation of corp with another corp
- Investment of corporate funds in another corp
- Dissolution of corp
e. Common
f. Preferred- preferred as to asset, dividends,
participating, non participating, cumulative, non
cumulative.
g. Redemable
h. Treasury
i. Founders share- can be voted and voted for for a
limited period of 5years with SEC approval.
Commence from approval of SEC but will not be
allowed if its exercise will violate ANTI DUMMY
LAW and FOREIGN INVESTMENT ACT of 1991
EQUALITY OF SHARES: except as provided in AOI, each
shares shall have an equal rights in all respect, when
AOI do not provide any distinction. SEC 6
GROUNDS OF REJECTION OF AOI:
1. Not substantially in accordance with formalities
required.
2. Purpose or purpose is patently illegal,
unconstitutional
3. The certification concerning the subscribed capital
stock and paid for is FALSE
4. Required percentage of ownership has not been
complied with
DUAL FRANCHISE REQUIREMENT- need
recommendation from Government agency such as
banks, quasi banks, pre need, trust, insurance, NSSLAs,
pawshop and other financial intermediaries.
AMENDMENT OF AOI
-majority vote of BOD/Tand 2/3 of OCS/ Members
- with right of appraisal
- take effect upon approval of SEC, if not acted within 6
months, from the date submitted or filing.
NON USE OF CORPORATE CHARTER:
1. If the corporation has not commenced its
operation for a period of 5 years from the date of
the issuance of Certificate of Incorporation, the
said certificate shall be considered as revoke.
2. If commenced its business but become inoperative
for a consecutive period of 5 years, it shall be
considered as DELIQUENT and has a period of 2
years to resume and comply with all requirement,
failure shall cause its revocation.
BY-LAWS
-rules and regulation which govern and control actions
of the corporation.
- it regulates internal affairs
- it is a matter of practical and not legal necessity
- failure to file does not lose its power
-No automatic revocation for failure to file, PD 902A
provides for due notice and hearing.
-MAJORITY of NCS for adoption
-if ADOPTED PRIOR to incorporation- all incorporator
must sign
- effective only upon issuance of certification by SEC
-endorsement of government agency for those
required
REQUISITED FOR VALIDITY OF BY LAWS
1. Not contrary to revised corp code
2. Not contrary to AOI
3. Reasonable
4. Will not impair vested rights
5. Not contrary to law, morals, or public policy
AMENDMENT OF BY LAWS
-Majority of BOD and MOJORITY of OCS
-if assigned to BOD to Amend- 2/3 votes of OCS is
required
-to revoke assignment- majority of OCS
1. file with SEC
2. certified under oath by Corp SEC
3. Majority of directors or trustee
4. Issuance of SEC by certification
CONTROL AND MANAGEMENT OF CORPORATION:
Levels of Corporate Control:
1. By Stockholders- they vote the BOD to govern the
corporation and vote on important matters
Requires 2/3 vote
a. Power to extend corporate terms
b. Power to amend articles of inc
c. Increase Cap Stock
d. Bond indebtedness
e. Premeptive rights
f. Issue Stock Dividends
g. SLEMP all or substantially all
h. Invest corporate funds
i. Power to delegate to BOD to amend by-
laws
Majority VOTES
a. Enter management contract
b. Adopt, amend repeal by laws
c. Revoke power of BOD to amend by laws
d. Fix issued value of price per share
2. CORPORATE OFFICERS
- In charge of day to day operations
3. DIRECTORS AND TRUSTEES
- Collegial body ho has the control over the business and
affairs of a company
- Exercise the power of corporation
POWERS:
1. Exercise all corporate powers
2. Conduct all business
3. Control properties
ACTIONS: Thru Board Resolution
BUSINESS JUDGMENT RULE: the decisions made by the
BOARD of DIRECTORS are considered be questioned by
court. The board is the business manager of the
corporation as long as their action is done in goodfaith,
it is not reviewable by the court or SEC.
TERMS OF OFFICE:
BOD- 1 year
TRUSTEE- not exceeding 3 years
QUALIFICATION OF BOD
1. Must have atleast 1 share of stock
DISQUALIFICATION:
1. Convicted by final judgment of an offense punishable
by 6 yrs imprisonment
2. For violating the code
3. For violating security regulation code
4. Found administratively liable for an offense involving
fraudulent act
5. By a foreign court of foreign regulatory authority for
acts, violation or misconduct
INDEPENDENT DIRECTORS:
Corporation vested with public interest, shall have at;east 20%
of such board.
a. Whose security are listed with SEC, corporation listed
with an exchange, or with assets about 50M and
having 200 stockholder with atleast 100 shaers each.
b. BVanks, quasi banks, NSSLAS pawnshop, corp engage
in money service business, preneed, trust,
insuranceand other financial intermediaries
c. Other corpo vested with public interest
 LECTURE:
SEC 41: INVESTMENT OF FUNDS
- Board and 2/3 OCS/members
- Investment in any secondary undertaking
- If not primary or secondary= ultra vires
- Dissenting has appraisal rights
SEC42: DECLARATION OF DIVIDENDS:
- Out of unrestricted funds payable in cash property
or in stock on the basis of outstanding stocks held
ISSUANCE OF SHARES
by them
- If delinquent, it will be applied first to unpaid
subscription if cash dividends. If stock dividend
certificate shall be withheld.
- Stockdividend shall only be issued if with approval
of 2/3 of OCS approved at regular or special
meeting
IMPROPERLY ACCUMULATED:
SEC 78: MERGER AND CONSOLIDATION
1. When justified by expansion program
2. When there is financial loan prohibited for declaration
of dividend
3. When such is necessary for probable contingencies
Requisites:
CASH DIVIDENDS- only board of directors
STOCK DIVIDENDS= 2/3 votes
SEC43 MANAGEMENT CONTRACT:
PROCEDURE:
- Must be approved by majority of BOD and
majority of OCS/ Members of both managing and
managed corporation. Provided that:
- A. When stockholder/s representing interest of
both managing and managed corporation, own
and control morethan 1/3 of the total ocs entitled
to both of the managing corp.
- B. when majority of the members of the board of
the managing corp also constitutes majority of the
bod of managed corp, then management contract
must be approved by 2/3 of ocs/ members
- Only for 5 years for any one term.
- Vested in board of directors alone and no
stockholders meeting is required
- If to increase capital would need amendment and
subject to stockholders approval and subject to
SEC approval. Only requirement is BOARD
RESOLUTION
- Merger- one is absorbs and the other remains in
existence while others is dissolved
- Consolidation- new corporation is created and
consolidating corporation are extinguished
1. Approval of Mojority vote of BOD
2. Approval of the Stockholders of each corp
representing 2/3
3. SEC Approval
1. Draw a plan of merger or consolidation of each
corporation.
2. Approval of Both BOD in separate meeting
3. Approval by 2/3 vote of OCS/ Member
4. Articles of Merger or Consolidation shall be executed
by each constituent corporation
5. Articles shall be submitted to SEC for approval
6. SEC issue certificate approving the articles and plan of
merger, the date is effectivity dtae
7. If SEC belived it is contrary, a hearing shall be
conducted, notice shall be ginven atleast 2 weeks
before said hearing.
BOUND BY EMPLOYMENT CONTRACT, ALL ASSETS AND
LIABILITIES are transferred.
ISSUANCE OF CERTIFICATE OF MERGER
- It marks the moment when the consequences of a
merger takes place. It does not become effective
by mere approval
EFFECTS OF MERGER:
1. Constituent corporation became single corporation
2. Constituent corporation’s separate existence shall
cease except that of surviving corporation or
consolidated corporation
3. Surviving and consolidated corporation shall possess
all the rights, provilieges, immunities and powers
4. Shall possess all the rights, properties, real and
personal, all receivables
5. Shall be responsible for all the liabilities and obligation
THERE IS NO WINDING UP OR LIQUIDATION
RIGHTS OF STOCKHOLDERS AND MEMBERS:
1. RIGHT TO ATTEND MEETING
a. Held on the date fixed in by laws or in accordance with
law
b. Prior written notice must be sent= 20 days if regular
meeting and 7 days if special meeting, sending or
mailing of notice
c. Called by proper party- a. authorized under by laws, b.
president c. secretary upon order of president in
removal, d. stockholder upon refusal e. SEC
d. Held in proper place
e. Qourum
WAIVER OF NOTICE OF MEETING: express or implied.
GENERAL WAIVER NOT ALLOWED
POSTPONEMENT= notice shall be given 2 weeks prior to
the date of meeting
REMOTE COMMUNICATION= when authorized by by laws
or by majority of the BOD.
2. RIGHT TO VOTE
- Maybe exercise in person or in proxy or when
authorized in by laws, thru remote communication
or in absentia
VOTING RIGHTS NOT AVAILABLE
1. When AOI provides for NON-VOTINg SHARES
2. Preferred or reddemable may be deprived
unless provide otherwise
3. Fractional shares cannot vote unless otherwise
provided
4. Treasury shares
5. Deliquent shares 1. Said shares is ill gotten wealth
6. A transferee of stock but not recorded in stock 2. Imminent danger of dissipation
and transfer book
2 tiered test not apply if the shares is public in character:
7. If mortgage or pledge and authorized creditor
to vote
1. These are government shares taken over by individual
8. Holder of escrow sequestered shares 2. Acquired through public funds
NON-VOTING SHARES CAN VOTE under SEC 6 (EXCLUSIVE LIST) As a general rule, Sequestered funds are owned by the
registered owner and it does not divest the title or right to vote
1. Amendment of AOI
2. Amendment, Adoption of By law over such shares. The Government thru PCGG is only considered
as Conservator and the act of sequestering, freezing of the said
3. Sale of all or substantially all of corporate
4. Bond indebtedness fund does not divest to them the title of ownership of such
fund.
5. Increase Cap stock
6. Merger/Consolidation However, PCGG shall have the right to vote thru the application
7. Investment of corporate funds of two tiered test:
8. Dissolution
1. When there is a prima facie indication that the said
DELIQUENT SHARES- cannot vote, be voted or be represented, shares are ill gotten-wealth which pertains to the State.
not included in determination of quorum 2. There is an imminent danger of dissipation, thus
necessitating the continued sequestration.
SHARES IN ESCROW- not entitled to vote before fulfillment of
condition Such 2 tiered test does not apply, if the there is a finding that
that such shares is a public funds.
UNPAID SHARES- has right to vote
SEQUESTERED SHARES- has the right to vote if public funds or 1. That these are government shares which are taken over
by the individual and registered in their own name.
under 2 tier test.
2. That the funds used to acquire such shares are public
funds and somehow landed to the hands of private
person.
SEC 54: . Right to Vote of Secured Creditors and
Administrators. – In case a stockholder grants security interest
in his or her shares in stock corporations, the stockholder-
GR: PCGG cannot vote, or exercise acts of dominion over
grantor shall have the right to attend and vote at meetings of
property sequestered. Except 2 tiered test:
stockholders, unless the secured creditor is expressly given by
the stockholder-grantor such right in writing which is recorded
in the appropriate corporate books.
PLEDGE OR MORTGAGE SHARES- STILL GRANTOR HAS RIGHT TO
VOTE AND ATEND MEETING unless expressly given in writing
and recorded in corporate books
DECEASED SHAREHOLDERS –Executors, administrators,
receivers, and other legal representatives duly appointed by the
court may attend and vote in behalf of the stockholders or
members without need of any written proxy.
TRANSFER THRU FORECLOSURE- since no right to redeem,
ownership is vested to purchaser
SEC. 55. Voting in Case of Joint Ownership of Stock. – The
consent of all the co-owners shall be necessary in voting
shares of stock owned jointly by two (2) or more persons,
unless there is a written proxy, signed by all the co-owners,
authorizing one (1) or some of them or any other person to
vote such share or shares: Provided, That when the shares are
owned in an “and/or” capacity by the holders thereof, any one
of the joint owners can vote said shares or appoint a proxy
therefor
SHARES JOINTLY OWNED= consent of both by 2 or more person,
if and /or anyone can vote
SEC. 56. Voting Right for Treasury Shares. – Treasury shares
shall have no voting right as long as such shares remain in the
Treasury.
TREASURY SHARES= no voting right if remain in treasury
They are not part pof outstanding capital.
SEC. 57. Manner of Voting; Proxies. – Stockholders and
members may vote in person or by proxy in all meetings of
stockholders or members. When so authorized in the bylaws
or by a majority of the board of directors, the stockholders or
members of corporations may also vote through remote
communication or in absentia: Provided, That the votes are
received before the corporation finishes the tally of votes. A
stockholder or member who participates through remote
communication or in absentia, shall be deemed present for
purposes of quorum. Page 29 of 73 The corporation shall
establish the appropriate requirements and procedures for
voting through remote communication and in absentia, taking
into account the company’s scale, number of shareholders or
members, structure and other factors consistent with the basic
right of corporate suffrage. Proxies shall be in writing, signed
and filed, by the stockholder or member, in any form
authorized in the bylaws and received by the corporate
secretary within a reasonable time before the scheduled
meeting. Unless otherwise provided in the proxy form, it shall
be valid only for the meeting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5)
years at any one time.
3. RIGHT TO APPOINT PROXY
- Written authorization given to represent him and
vote his shares at shareholders meeting/.
- Stockholders may vote and present in person or in
proxy during meeting
REQUIREMENTS:
1. Must be in writing
2. Signed by Stockholder
3. Filed before meeting
4. Received by Corp Sec
5. Valid only for the meeting it is intended
6. Should not be valid longer for 5 years
SEC. 58. Voting Trusts. – One or more stockholders of a stock
corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and
other rights pertaining to the shares for a period not exceeding
five (5) years at any time: Provided, That in the case of a voting
trust specifically required as a condition in a loan agreement,
said voting trust may be for a period exceeding five (5) years
but shall automatically expire upon full payment of the loan. A
voting trust agreement must be in writing and notarized, and
shall specify the terms and conditions thereof. A certified copy
of such agreement shall be filed with the corporation and with
the Commission; otherwise, the agreement is ineffective and
unenforceable. The certificate or certificates of stock covered
by the voting trust agreement shall be cancelled and new ones
shall be issued in the name of the trustee or trustees, stating
that they are issued pursuant to said agreement. The books of
the corporation shall state that the transfer in the name of the
trustee or trustees is made pursuant to the voting trust
agreement. The trustee or trustees shall execute and deliver to
the transferors, voting trust certificates, which shall be
transferable in the same manner and with the same effect as
certificates of stock. The voting trust agreement filed with the
corporation shall be subject to examination by any stockholder
of the corporation in the same manner as any other corporate
book or record: Provided, That both the trustor and the
trustee or trustees may exercise the right of inspection of all
corporate books and records in accordance with the provisions
of this Code. Any other stockholder may transfer the shares to
the same trustee or trustees upon the terms and conditions
stated in the voting trust agreement, and thereupon shall be
bound by all the provisions of said agreement. No voting trust
agreement shall be entered into for purposes of circumventing
the laws against anti-competitive agreements, abuse of
dominant position, anti-competitive mergers and acquisitions,
violation of nationality and capital requirements, or for the
perpetuation of fraud. Unless expressly renewed, all rights
granted in a voting trust agreement shall automatically expire
at the end of the agreed period. The voting trust certificates as
well as the certificates of stock in the name of the trustee or
trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the
trustors. Page 30 of 73 The voting trustee or trustees may vote
by proxy or in any manner authorized under the bylaws unless
the agreement provides otherwise.
VOTING TRUST AGREEMENT
It is an agreement whereby one or more stockholders transfer
their shares of stock to a trustee who acquired voting right
and/or any other rights over such shares, trust certificate are
given to the stockholders, which are transferable like stock
certificates, subject to TRUST AGREEMENT. Stock holder
became equitable or beneficial owner.
If with condition on a loan, it shall be for 5 years renewable until
payment of loan.
Requirements:
1. Must be in writing
2. Notarized
3. Certified True copy shall be filed with the Corporation
and SEC
4. Certifiate of stock shall be cancelled and issued new one
5. Must be recorded in stock transfer book
6. Trusr must deliver VOTING TRUST CERTIFICATE
TRUSTEE May also vote in proxy
_ Effectt of Voting Trust Agreement:
1. Separation of voting rights from other rights which
includes rights to dividends
2. From Legal title to Beneficial Owner
PREEMPTIVE RIGHT
Right to subscribed to all issues and disposition of shares of
any class in proportion to their shareholdings.
= TO MAINTAIN THE RELATIVE PROPORTIONATE VOTING
STRENGHTAND CONTROL OF EXISTING SHAREHOLDERS
PREEMPTIVE RIGHT IS NOT AVAILABLE WHEN:
1. When right is denied in articles of incorporation
2. When shares are issued in compliance with law
requiring stock offering or minimum ownership
3. When shares are issued in goodfaith with 2/3 approval
in exchange of property needed by corporation.
APPRAISAL RIGHT:
CORPO MODULE 4:
SEC 59: SUBSCRIPTION CONTRACT: Any contract for the
acquisition of unissued stocks in EXISTING CORPORATION or
CORPORATION still to be FORMED shall be deemed
subscription.
How to become stockholder:
1. Purchase from corporation itself- made only after
incorporation, must be fully paid upon transfer, there
must be deed of sale., seler may condone payment,
statute of fraud applies
2. Subscription- made before or after incorporation, need
not pay immediately but mst pay when there is a call,
cannot be released from obligation to pay, statute of
fraud does not apply.
ZARAH:
1. Subscribing the unsubscribed and unissued capital stock
of the corporation from the original or increased capital
shares.
2. Purchasing the Tresury stocks of the corporation
3. Purchasing socks from the stockholders
25% Pre incorporation subscription has been removed.
GR: only person whose name/ OWNERSHIP are registered in
the stock and transfer book are considered as stockholder of
record. GIS is not sufficient to prove ownership.
MODE OF ACQUIRING OWNERSHIP: Succession and Donation.
There must be delivery.
Perfection: there must be an acceptance of offer or terms for
the subscription contract be perfected.
>>>> A contract whereby the parties agrees to take certain
number of shares of capital stock promising to pay the same
WAYS TO BECOME A STOCKHOLDER:
 1. By subscribing shares from unsubscribed and unissued
shares from original capital stock or additional capital
stock dueto increase capitalization.
2. By purchasing Treasury stock of te corporation
3. By purchasing shares of another stockholders of the
same corporation
KINDS OF SUBSCRIPTION:
1. PRE INCORPORATION- irrevocable within 6 months
unless all consent with revocation, or unless the
corporation fails to materialize within such period or
longer period in the contract. Cannot be revoke if AOI is
submitted to SEC.
2. POST INCORPORATION
TRUST FUND DOCTRINE:
That the subscribed capital stock is a trust fund for the payment
of creditors of corporation, wherein the latter has the right to
look into to satisfy their credits. Creditors may sue stockholders
directly for unpaid subscription. CAPITAL STOCK, PROPERTY
AND OTHER ASSETS are considered as EQUITY in TRUST.
- Donina impleaded in sum of money, she is unpaid
subscribers, debtor of a corporation, liable up to the
extent of their unpaid subscription. She claimed that
she paid, issuance of check does not amount to
payment unless encashed.
LEGAL BASES:
LEGAL BASES OF TRUSTFUND:
1. Dividend Declaration without RE
2. Acquisition of Shares
3. Appraisal Right
4. Dissolution
It is violated when:
1. The corporation condones payment of unpaid
subscription.
2. Payment of dividend without unrestricted RE.
(DIVIDEND DECLARATION)
3. Sale of Property and proceeds given with undue
preference to creditors.
4. Transfer of property in fraud of creditors.
5. When capital stock is decreased, relieving stockholder
to pay their obligation
SEC 60: PRE INCORPORATION SUBSCRIPTION: a SUBSCRIPTION
of shares from corporation still to be formed shall be
irrevocable for 6 months from date of subscription, UNLESS
there is consent from other subscriber or corporation fails to
incorporate within the period stipulated. However when the
Articles of Incorporation has already been submitted to
Commission, No Pre-incorporation subscription shall be
revoked.
SEC 61: CONSIDERATION OF STOCK, LIMITATION Shall not be
issued at less than par. Consideration may be:
a. Cash paid to Corporation
b. Property, Tangible or Intangible for use and lawful
purpose of corporation, FAIR VALUATION, DETERMIND
BY SH, BOD AND APPROVED BY SEC- necessary to
prevent watering of stocks
c. Labor performed for or services actually rendered
(PAST SERVICES NOT FUTURE)
d. Previously incurred indebtedness of corp
e. Amounts transferred from unrestricted RE to capital
f. Outstanding shares in exchange of stock in the event
of classification or conversion= Includes conversion
from Sole to Corporation, consideration is the net asset
g. Shares of stock in another corporation
h. Other accepted form
- Intellectual Property, such as patents or
copyrights, value determine by stockholder or BOD
subject to approval of SEC
Shares cannot be issued in exchange of PROMISORY NOTE or
FUTURE SERVICES.
Issued price for NO PAR must be issued in a price fixed in the
AOI, or if none, be fixed by atleast majority of the OCS.
SEC62: CERTIFICATE OF STOCK AND TRANSFER OF SHARES:
FORMALITIES:
1. Signed by Pres or Vice Pres
2. Countersigned by Sec or Asst. Sec
3. Sealed with seal of Corporation
4. Issued in accordance with by laws
SHARES OF STOCK- is a personal property and transferred thru
delivery by certificate, indorsed by owner, atty-in-fact, legally
authorized.
NO TRANSFER is valid until it is recorded in the books of
corporation showing the name of parties to the transaction,
showing names of the parties, date transfer, certificate
number and nos of shares transferred.
For Securities traded in trading market= issue securities in
uncertificated or scripless form.
STOCK CERTIFICATE= non- negotiable instrument, it is quasi-
negotiable since it can be transferred through installment
coupled with delivery.
If indorsed in blank, considered as STREET CERTIFICATE.
- Serve to secure payment of subscription specially If no bidder, Corporation may bid the same and treated as
for delinquent shares treasury sharesand may be disposed of by corporation in
- Price cannot be watered= violation of trust fund accordance with provision of this code.
doctrine

TRANSFER IS MADE BY:- not apply in subscription
1. Thorugh delivery
2. Indorsed by the owner
3. Transfer must be recorded in books
PONCE VS ALSON: Transfer not recorded in stock transfer book
of the corporation is non existent and the transferee is not
recognize as stockholder. Corporation has no duty to issue stock
certificate. Registered owner must execute SPA or included in
deed of assignment.
ANDAYA VS RURAL: Transferee has been able to justify the
transfer thru deed of sale, DST and CGT payment and duly
endorsed stock cert.
UNPAID CLAIM= no unpaid claim shall be transferrable in the
books of the corporation until full payment of subscription price
SEC 64: LIABILITY OF DIRECTORS IN WATERED STOCK:
1. Director who consent the issuance of stock less than
par
2. Consent issuance for a consideration other than cash
valued in excess of its fair value
3. Having knowledge of insufficient consideration
4. Does not file written objection with corporate
secretary
5. Solidarily liable with stockholder for the difference
SEC65: INETERST on UNPAID SUBSCRIPTION: if so required at
rate of interest in subscription contract, if no interest rate,
prevailing rate. = depends on the rate of interest fixed in the
subscription contract.
SEC 66: Payment of BALANCE of SUBSCRIPTION: BOD may
declare at any time unpaid subscription due and payable with
accrued interest (CALL)
SEC 68 When sale may be questioned: No action to recover
delinquent stock sold can be sustained upon in the ground of
irregularity or defect in NOTICE OF SALE unless the PARTY
seeking nullification FIRST PAY or tender to purchaser the sum
for which the same is sold with interest. IT MUST BE FILED
WITHIN 6 MONTHS from sale.
SEC 69: COURT ACTION TO RECOVER UNPAID SUBSCRIPTION:
Corporation may file action in court for unpaid subscription.
REQUIREMENTS FOR SALE OF DELIQUENT STOCKS.
1. Board Resolution
2. Notice shall be sent to every delinquent stockholders
3. Publication in 2 consecutive weeks
4. Sale
5. Transfer
6. Credit of remainder to delinquent holder

DELIQUENT SHARES
If no payment made within 30days all stock become
delinquent and subject to sale. SEC 70: EFFECT OF DELIQUENCY
DOCTRINE OF INDIVISIVILITY OF SUBSCRIPTION CONTRACT 1. Cannot be voted
SEC 63: ISSUANCE OF STOCK CERTIFICATE: No certificate of SEC 67 DELIQUENCY SALE: BOD may by resolution order sale of 2. Not entitled to vote
stock shall be issued until the full amount of the subscription 3. Be represented in stockholders meeting
delinquent stock, shall state amount due and all accrued
together with interest and expenses has been paid. interest and time and place of sale which shall not be less than 4. Nor any entitled to rights except dividends
30-60 days from date stock become delinquent.
- Indivisible
HE has right to dividend, however when declared it shall be DERIVATIVE ACTIONS: Suits brought by one or more SEC 72: LOST OR DESTROYED CERTIFICATE
used to pay the unpaid subscription. stocholders in the name and on behalf of corporation
to redress wrong committed against it or to vindicate Procedure:
They shall not be included in the determination of the corporate rightswhenever the official refuse to sue or 1. Affidavit
quorum, since they are not entitled to vote. THE ONES TO BE SUED or have controlled the 2. Verification by corporation
corporation. The suing stockholder is nominal party, 3. Publication once a week for 3 consecutive weeks
while corporation is a real party interest 4. One year waiting period
RIGHTS OF UNPAID SHARES 5. Contest
REQUISITES:
6. Replacement
1. He was a stockholder
Unpaid Shares shall have all the rights unless the subscription 2. Action is brought in the name of corporation
contract provides the condition or requires full payment 3. It is not a nuisance or harassment suit STOCKHOLDERS RIGHT
before they can have the right to vote. 4. He exert reasonable effort and exhaust all remedies
5. No Appraisal right is available for acts complained 1. Right to Attend Meeting= Sec49
SEC 71: RIGHTS OF UNPAID SHARES, NON DELIQUENT
of. Regular Meeting- annual (date fixed by law, if none
1. Shall have all the rights of stockholders such as: any date after April 15)

a. Voting Rights - Notice shall be sent- 21 days regular and 1 wk

INDIVIDUAL ACTION:
b. Right to remove directors special
c. Right to dividends Actions brought by stockholder in behalf of himself, or in his - Notice may be waived – but general waiver in
d. Appraisal right own name against corporation when a wrong is directly inflicted AOI/By Laws- NO WAY
e. Right to issuance of certificate for fully paid shares against himself - Attendance at the meeting is generally a waiver
f. Proportionate participation in distribution of unless not lawfully called.
assets - Power to call: 1. By laws identify those authorized
g. Right to transfer stock in corporate books REPRESENTATIVE ACTION to call, if none or if president refused to call,
h. Pre emptive right shareholder has the authorized to file petition in
i. Right to inspect books and record An action brought by stockholder or to represent group of SEC.
stockholders similarly situated when a wrong is committed
j. Right to see FS Content of Notice
k. Right to recover delinquent stocks sold unlawfully against the group of stockholders
l. Right to file individual suit, representative suit, 1. Agenda
derivative suits 2. Proxy Submission
3. Requirement for remote participation
4. If agenda includes election, process for nomination
and election
Remote Participation requirements: specify the process for Whether there is quorum: All shares including disputed LIMITATION ON RIGHT TO INSPECT:
nomination shares. It should be based on all OUTSTANDING SHARES.
1. Reasonable Hours on Business days
NOTICE OF MEETING: DISPUTED SHARES: is not provided or excepted by law. 2. Not improperly used any information he secured
3. Must be in goodfaith and for legitimate purpose (CAN
1. Sending/ mailing of notice of a stockholders meeting. UNISSUED SHARES are not include BE RAISED AS AFIRMATIVE DEFENSE)
MATTERS TO BE PRESENTED REMEDIES ON RIGHT TO INSPECT
1. Minutes of recent stockholders meeting MODULE 4 PART 2 1. Action for specific performance
a. Description of the voting and the vote tabulation
CORPORATE BOOKS AND RECORDS: 2. Petition for Mandamus
procedures used in the previous meeting 3. Damages
b. Opportunity to ask question and record thereof SEC73: Corporation shall keep and carefully preserve at its 4. Criminal Suit
c. Voting results\resolutions adopted\list of principal office the ff:
attendees DEFENSES:
2. Performance of company for past years a. AOI, By laws and all its amendment
3. Financial Report b. Ownership structure and voting rights, list of 1. Person demand improperly used any information thru
sholder,intra group, ownership data and beneficial any prior examination of the record
4. Dividend Policy
5. Directors profile/ attendance in meeting ownership 2. The one requesting is not in acting in goodfaith or
c. Names and address of BOD, BOT Executive Officer demand is not legitimate purpose.
6. Performance appraisal of directors
7. Compensation of directors d. Record of all business transaction RIGHT TO INSPECT:
8. Disclosure of self dealing and related party contracts e. Record of Board Resolution
f. Reportorial Requirements submitted to SEC - The code does not require any specific amount of
g. MOM interest to exercise this right.
h. Stock and Transfer Book
PLACE OF MEETING VIOLATION OF RIGHT TO INSPECT
1. Principal office in AOI, if no, in the city or municipality 1. A written demand is made by the stockholders,
where principal office of corp is located Records are subject for inspection, bound under directors, officers
2. Any city of municipality in Metro Manila, Metro Cebu, confidentiality rules under the rules on Intelletual Property 2. Refusal of the officer to to allow such to inspect the
Metro Davao Code, Data Privacy Act of 2012, SRC. records or excerpt of corporate documents
3. If such refusal is done in compliance with the
Inspection can only be made by stockholders, directors, resolution, board or officers who who voted for such
officers, demand in writing.
PRESIDING OFFICER: Chairman refusal shall be liable
Shall be penalized if violated. Those refused to provide 4. The defense of any impropriety or lack of goodfaith or
QUORUM: Majority Except RCC or By laws provide
shall be liable for damages and penalized under sec 161 legal purpose must be prove.
different quorum requirement

LIABILITY OF STOCKHOLDER WHO ABUSE- Sec 154 (Fine of 5K
to 2M)
LIABILITY OF REFUSAL –Sec 161
PREEMPTIVE RIGHT
SEC 38> PREEMPTIVE right is the right of the shareholders to
subscribe to all issues or disposition of shares in proportion to
their shareholding.
PURPOSE: Is to maintain the shareholding and voting strength
and control of existing shareholder.
PREEMPTIVE RIGHT IS NOT AVAILABLE When:
1. When it is denied by the Articles of incorporation
2. In compliance with the law of minimum stock offering
to the public
3. When there is an approival by 2/3 votes of OCS
regarding the issuance of Capital stock in exchange of
property needed by corporation and or payment of
previously contracted debt.
RIGHT OF APPRAISAL
SEC 80: Right of stockholders who dissented to corporate acts
by demanding payment equivalent to the fair value of its
share.
Instances of exercise:
1. When there is an amendment to the articles of
incorporation which:
a. Changing or restricting the rights of any
stockholder.
b. Authorizing preference on some classes of shares
c. Extending the terms corporate existence
d. Shortening the terms of corporate existence
2. In case when the corporation SLEMP or dispose all or
substantially all
3. Investment of Corporate funds into another
corporation for any purpose other than its primary
purpose
4. In case of merger or consolidation
5. For any reason in case of close corporation
SEC. 81. How Right is Exercised. – The dissenting stockholder
who votes against a proposed corporate action may exercise
the right of appraisal by making a written demand on the
corporation for the payment of the fair value of shares held
within thirty (30) days from the date on which the vote was
taken: Provided, That failure to make the demand within such
period shall be deemed a waiver of the appraisal right. If the
proposed corporate action is implemented, the corporation
shall pay the stockholder, upon surrender of the certificate or
certificates of stock representing the stockholder’s shares, the
fair value thereof as of the day before the vote was taken,
excluding any appreciation or depreciation in anticipation of
such corporate action. If, within sixty (60) days from the
approval of the corporate action by the stockholders, the
withdrawing stockholder and the corporation cannot agree on
the fair value of the shares, it shall be determined and
appraised by three (3) disinterested persons, one of whom
shall be named by the stockholder, another by the
corporation, and the third by the two (2) thus chosen. The
findings of the majority of the appraisers shall be final, and
their award shall be paid by the corporation within thirty (30)
days after such award is made: Provided, That no payment
shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to
cover such payment: Provided, further, That upon payment by
the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer the shares to the
corporation.
REQUIREMENTS:
1. Written demand from payment of FMV of shares 30
days from the date the vote is taken. (Failure to file
written demand=WAIVER)
2. Surrender of Certificates of stock representing
stockholders shares.
3. Based on Fair value at the time vote was taken
excluding appreciation and depreciation in anticipation
of corporate action
4. If disagreed, by the 3 disinterested person (1 named by
stockholder, 1 by corporation, 1 by those 2 chosen)
5. THERE MUST BE UNRESTRICTED RETAINED EARNINGS
SEC. 82. Effect of Demand and Termination of Right. – From
the time of demand for payment of the fair value of a
stockholder’s shares until either the abandonment of the
corporate action involved or the purchase of the said shares by
the corporation, all rights accruing to such shares, including
voting and dividend rights, shall be suspended in accordance
with the provisions of this Code, except the right of such
stockholder to receive payment of the fair value thereof:
Provided, That if the dissenting stockholder is not paid the
value of the said shares within thirty (30) days after the award,
the voting and dividend rights shall immediately be restored.
If no available Unrestricted Retained Earnings, his
voting rights and dividends is immediately restored.
Neither the subsequentexistence of RE after filing of
complaint cure the lack of cause of action
DERIVATIVE SUITS:
1. An action brought by the minority stockholders in
behalf of corporation
2. To redress the wrong committed against them (by the
majority stockholders)
3. When the directors refused to sue
4. No Express provision in RCC or in SRC
5. Making corporate directors liable for damages suffered
by the corporation for violating FUDICIARY DUTIES
6. INDIVIDUAL STOCKHOLDERS may institute derivative
suit inorder to protect or vindicate corporate right
7. CORPORATION is the party in interest, while
Stockholder is NOMINAL Party
8. EFFECTIVE TOOL for the protection of MINORITY
STOCKHOLDERs
REQUIREMENTS:
1. The party bringing the suit is the stockholder as of the
time the of the act complained of
2. He must EXHAUST CORPORATE Remedies but the BOD
refused to heed.
3. The cause of action must be done as against the b. Between the coporation and state in so far as the
corporation and not to the stockholders bringing the licence , permit is concerned
suit. c. Between corporation and stockholders, members,
4. No Appraisal Rights are available officers
5. It is not a nuisance or harassment suits= dismissed d. Among the stockholders, partners, associates
MOTO PROPIO themselves.
INDIVIDUAL SUIT
To determine whether it is derivative, individual or class
suit, THE OBJECT OR WRONG DONE MUST BE DETERMINE. - An action filed by the stockholders in his own
name against the corporation when wrong is
1. If pertains to individual specific shareholder= directly inflicted against him.
individual suit
2. If pertains to definite CLASS of shareholders= Class REPRESENTATIVE
SuIT
- Actions in behalf of himself and other stockholders
3. If corporation itself = derivative suit
similarly situated when it is committed against the
group of stockholders.
INTRA-CORPORATE DISPUTE:
REQUISITE:
NATURE OF CONTROVERSY TEST
1. Must arise in intra-corporate or partnership relation
2. The nature must be intrinsically connected with the
regulation of corporation or enforcement of parties
right and obligation under Corp Code or internal
regulatory rules
-RTC has the jurisdiction
RELATIONSHIP TEST
a. Between the corporation, association, partnership and
the public