LAW ON CORPORATION NOTES

Sec. 1 OLD​ - ​Act 1459​ (April 1, 1906) - Corporation LAW of the Philippines

NEW​ - ​Batas Pambansa 68​ (May 1, 1980) - Corporation CODE of the Philippines

REVISED​ -​ Republic Act 11232​ (Feb. 23, 2019) - REVISED Corporation Code of
the Philippines

IMPORTANT ITEMS:
1. Doctrine/ Principles/ Theories
2. Voting Requirements
3. Period (Sec. 11)
4. Percentage requirement 10% / 20% / 25%
5. Limitations/ Prohibitions
6. Requisites/ Requirements

Sec. 2 Corporation (defined)

- Artificial being​ - JURIDICAL person

- Created by LAW
- It has the right of succession
- It has powers, attributes, and properties expressly authorized by law or incidental
to its existence

Corporation by Prescription
General Rule - NO
Exemption - Lapse of Time (before law was created)
Ex. Roman Catholic (1521)

Disadvantages:
1. Board of Directors decides
2. Right of succession
3. Shareholders NOT liable

Right of Succession​- Continues to EXIST even if there is death/ Right of

Shareholders

TRUST FUND DOCTRINE:

Liable up to their unpaid subscription
Applicable to par value
Are Shareholders liable?
Separate property - NO
Unpaid Subscription- YES
(1) Doctrine of Corporate Fiction

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 - separate and distinct personality

EXAMPLE:
ABC Corp XYZ Corp
-X -X
-Y -Y
-Z -Z
-M -M
-N -N

Exemption - ​(2) Doctrine of PIERCING, REMOVING, DISREGARDING the

veil of corporate entity or corporate fiction

TEST​ - Alter Ego Doctrine (alternate personality)

- Instrumentality Rule

Why?​ Corporation used for ILLEGAL purposes

We will consider them as ONE and the SAME

- It has powers, attributes, and properties expressly authorized by law or

incidental to its existence
(3) Doctrine of LIMITED Capacity
- Express, Implied, Inherent

Test to determine Nationality of Corporation:

1. Incorporation​ ​test​ - ​where it was created​ ABC → SEC (PH)
2. Control Test​ - ​majority of Shareholders​ ABC (Japanese SHs) → SEC (PH)
3. Business Domicile or Center of Management Rule ​- where corporation
conducts its business ABC → SEC
→ US
4. Grandfather Rule
Determine the nationality of the parent corporation of the subsidiary
corporation.

Sec. 3 Classes:
- Stock​ ​(goal is to gain profit which may be distributed in the form of
dividends; usually private corporation)
- Non-stock​ ​(goal is for public good and welfare; do not issue stock; usually
public corporation)

Corporation:
- Public​ (Provinces, City, Municipality, Barangay)
- Private​ (RA 11232/ BP 68, GOCC-Government Owned Controlled
Corporation, Quasi Public Corporation) (Profit)

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 Private:
Government-owned ​- controlled by government
Quasi Public Corporation​- ​sometimes referred to as a public service corporation,
is a private corporation that is backed by a government agency that has a public
requirement to provide certain services.​ (different from quasi-corporation)

Kinds/ Classes of Corporation:

Corporate Aggregate​ ​(one person vs Corporation Sole ​(religious
corporation) corporation with one member or
corporator)

Ecclesiastical ​(​religious purposes​) vs Lay​ (​other than religious purposes;

eleemosynary or civil)​

Eleemosynary ​(​established for vs Civil ​(​established for business or

charitable purposes​) profit​)

Domestic ​(​under Philippines) vs Foreign ​(​other than Philippines)

De Jure ​(​comply with vs De Facto​ (​does not comply with

requirements​) requirements)

Open​ (​open to any person​) vs Close​ (​limited to selected people or

family​)

Parent​ (​SM corporation​) vs Subsidiary​ (​BDO​)

True​ (​exists by statutory authority​) vs Quasi Corporation​ (​one which exist

without formal legislative grant)

Sec. 4 Corporation created by SPECIAL LAW

What Governs them?
​Primarily​ - Law creating it (special law)
​Suppletorily​ - RA 11232
Special Incorporation Law ​(franchise is given by Congress; have their own law -
special law / charter)
General Incorporation Law​ (RA 11232)

Sec. 5 Components of Corporation

Corporations​ - Shareholders/Members
Incorporators​ - originally creating/forming the corporation
Stockholders/Shareholders​ - Stock Corporation (Board of Directors)

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 Members​ - Non-Stock corporation (Board of Trustees)
Promoters ​- organizes corporation; encourages to make corporation
Subscriber​ - buys shares
Underwriter​ - ​responsible for deciding whether or not to accept applications for
insurance cover

Sec. 6 CLASSIFICATION OF SHARES​:

(1) Doctrine of Equality of shares ​- shares are presumed equal

- Capital stock​ - amount fixed in the Articles of Incorporation

- Authorized capital stock​ - approved by the Securities and Exchange
Commission
- Capital stock divided into shares with par value
- Subscribed Capital Stock​ - amount subscribed whether full paid or not
(25% of ACS - minimum) (Old law)
- Paid-up capital stock​ - 25% of Subscribed Capital Stock - minimum (old
law)
- Unissued Capital Stock​ - not yet issued (hindi pa nabebenta) (old law)
- Outstanding Capital Stock​ - (sec. 136) total shares of stock whether paid
or no; basis of voting rights
- Legal Capital ​vs ​Stated Capital ​(no par shares)

Ex:
1,000 shares / Par value - 100 (100 x 1000)

100,000 - ​Capital Stock ​(not yet approved)

100,000 - ​Authorized Capital Stock​ (if approved by SEC)
25,000 - ​Subscribed Share Capital​ (25% of the authorized Capital Stock)
6,250 - ​Paid-up Capital Stock ​(25% of Subscribed Capital Stock)
75,000 - ​Unissued Capital Stock ​(not yet issued)

​ Capital vs Capital Stock

- Actual Property - abstract
- Fluctuate - Amount fixed in the Articles of
Incorporation
- Belongs to corporation - when issued - Shareholders
- Real/Personal property - Personal Property
Share of Stock-​ (​M/P/A​) (​Management​ (vote) / ​Profit​ (dividend) / ​Assets​)
1. Personal property
2. Intangible property
3. Does not constitute an indebtedness on the part of corporation

Share of Stock vs Certificate of Stock

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 Interest of Shareholder Written evidence of ownership
(proof)

Intangible of property Tangible property (paper)

Can be issued even if not fully paid Cannot be issued unless fully paid
(sec. 63/64)

Classes of Shares:
1.
Par Values vs No Par Value

- specific money value (​capital - No specific money value; with

share and Articles of issued value
Incorporation​)

2.
Voting share​ vs ​Non-Voting share
- can vote - General Rule - not allowed
- Exemption - 8 instances (ASIMID)

Non-voting share can vote if:

A ​- ​Amendment of the articles of incorporation
A ​- ​Adoption and Amendment of by-laws
S ​- ​Sale, lease, mortgage,pledge or other disposition of all or substantially all
of the corporate property
I ​- ​Incurring, creating, or increasing bonded indebtedness
I ​- ​Increase or decrease in the capital stock
M ​- ​Merger or consolidation​ of the corporation with another corporation or other
corporations
I ​- ​Investment of corporate funds in another corporation​ or business in
accordance with this code
D ​- ​Dissolution​ of the corporation
3.
Common vs Preferred

Ordinary stock Payment/preference of dividends

Payment/preference of assets

Such other preferences

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 4. Promotion Stock ​(promoter)​ vs ​Founders Shares ​(incorporation)
5. Share in Escrow​ or Escrow (trust) Stock ​(held by a third person; intrust)
6. Convertible Stock ​(preferred to common or vice versa)
7. Redeemable Share​ (sec 8)
8. Treasury shares​ (sec 9)
9. Watered Stock​ ​(walang bayad or kulang) (sec 65) (void)
10. Over-issued or Spurious Stock​ - in excess of authorized Capital Stock
(void)
11. Original/Formative Stock ​-
12. Increased Stock

All shares can be → Voting -/

→ Non-voting - x

all shares can be partly voting or non-voting

Dividends shall be deemed non-cumulative and non-participating

Doctrine of ​Individuality of Subscription - (64)

A subscription is one entire and indivisible whole contract. It cannot be divided into
portions.

STATUTORY RESTRICTIONS regarding issuance of NO PAR SHARES

1. Entities NOT allowed to ISSUE - no par shares​ ​(OLD-5 Revised-7)
2. Preferred shares are issued with a stated par value​ ​(why? It can’t be
computed)
3. No par shares are deemed ​fully paid​ and non-assessable and the holders
thereof are not liable to the corporation or creditors thereto
4. No par shares - ​minimum amount is 5pesos
5. Entire consideration for ​no par shares shall be trusted as capital and not
distributable as dividends

Entities not allowed to issue NO PAR SHARES:

1. Banks
2. Trust companies
3. Insurance companies
4. Public utilities
5. Building andLoan association
6. Pre-need companies
7. Other corporations authorized to obtain or access funds from the public
whether publicly listed or not

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 Advantages vs Disadvantages
Par Value vs No Par Value

Limitation regarding issuance of preferred shares

1. Can vote on matters specified in Sec. 6 (E)
2. Issued of a stated par value
3. Board of Directors fixes the consideration

Depaired of Voting Rights

1. Redeemable
2. Treasury
3. Preferred

Sec. 7 Founders Share

Right to vote and right to become a BOD
- Exclusive right to vote and he voted for
- 5 year Period limitation (maximum)
- Approval of Securities and Exchange Commission is required
Redeemable ​(Can vs Treasury
be bought again)

Stipulation / x

Unrestricted Retained x /
Earnings

Sec 8 Redeemable shares​ (can be bought again even if there is no URE)

- Deprived of voting rights
- Can be redeemed even if there is no unrestricted retained earnings (URE)
1. No voting right
2. Can be bought even if there is no URE

Sec. 9 TREASURY SHARES (HOW?)

Issued and fully paid but subsequently bought again by the corporation

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 PRINCIPLES:
- No voting rights / not entitled to dividends
- Not outstanding shares / do not revert to unissued shares
- It may be resold at a lower price​ (it is an exemption to watered stock)
- NOT distributable as dividends (GR)
Exemption - Property Dividend
- The moment it is resold - entitled to all rights and dividends

Sec. 10 No and Qualification of Incorporators

OLD REVISED

Only natural persons Person, Partnership,association,

Exc. corporations in a Rural Bank corporation or ​any person

5 qualifications
1. Natural Persons
2. Capacity to contract
3. Residents of the Philippines
4. Citizens of the Philippines
5. Owners of or subscriber to at
least 1 share

5 -15 persons 1 (one person corporation) - 15

person

Corporators Incorporators

Shareholders / Members​ of Signatory​ in Articles of Incorporation

Corporation (temporary) (permanent)

Ceases to be as such Do not cease to be such ​(permanent)

No minimum number required OLD: 5 -15

NEW: 1 -15 not necessarily

Contractual capacity is ​not required Contractual Capacity (OLD)

Primary Franchise - Right to EXIST

Secondary Franchise - Right to OPERATE

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Sec. 11 Corporate Terms
NOT APPLICABLE
OLD- ​Minimum - none
Maximum - 50 years
General Rule ​- Extension - 5 Years (50 years max.)
Exemption ​- justifiable reason for earlier extension

APPLICABLE
NEW - ​PROSPECTIVE
General Rule - ​Perpetual
Exemption - ​Fixed (vote of majority of Outstanding Capital Stock) (3 year
extension)
Exemption exemption - ​Extend earlier than 3 years if there isJustifiable Reason
(Approval of SEC is required)

NEW - ​RETROACTIVE
General Rule: ​Perpetual
Exemption: ​Fixed
Period to decide: ​2 years
Extension period: ​3 years

NEW - ​REVIVAL of Corporation (Dissolved already)

General Rule: ​Perpetual
Exemption: ​Fixed

*Certificate of Revival of Corporate Existence (for revival of corporation)

*Favorable Recommendation (bukod sa SEC, may ibang government agency na
mag-iissue ng certificate to operate)

Sec. 12 Minimum Capital Stock - none

Minimum Paid-up - none
NOT required of Stock Corporations
General Rule: ​Not Required
Exemption: ​If required by SPECIAL LAW (Percentage requirement -- Nationality
of the share of stock)

Sec. 13 Amount of Capital Stock to be subscribed and paid for purposes of

incorporation

NOT APPLICABLE (OLD SEC. 13)

25% of Authorized Capital Stock must be subscribed
25% of Subscribed Capital Stock must be subscribed
Minimum Paid-Up Capital Stock - 5000
REPLACED
TEST- De Facto Corporation

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 NOW
Content of ACTS of Incorporation- ​Mandatory but can add others
a. Name​ of Corporation
b. Purposes:
Primary Purpose - Express Powers of Corporation
Secondary Purposes - Express Powers of Corporation

If with the power - ​INTRA VIRES​ (can be ratified/valid - within the power)
If outside the power - ​ULTRA VIRES​ (outside the power)

Remedy - ⅔ of Outstanding Capital Stock ratification

c. Place value principal office is located
- Management of Shareholders
- Where corporate books are kept
d. TERM:​ General Rule: perpetual
Exemption: Fixed
e. Nationalities, residence addresses, names of the incorporators
f. Number of directors
g. Incorporating Directors (temporary/tentative)
h. Stock Corporation
i. Non - stock Corporation
j. Arbitration:​ 3rd person who can decide except SEC

*​Electronic Filing​ (Articles of Incorporation) is allowed

Certificate of Incorporation ​(issued by SEC)​ / Corporate Charter

Sec. 14 Forms of Articles of Incorporation

*Banks are prohibited from engaging in non-banking activities such as insurance
(vice-versa) - ​NOT ALLOWED

*Incorporating Directors
FIRST - Incorporation, Corporation or OPC
NINTH - Treasurer (submit certification of treasurer)
TENTH - Undertaking to change the name

Treasurer’s Affidavit → REMOVED - Certification

VOTING REQUIREMENTS:
Shareholders - Majority of Outstanding Capital Stock
- ⅔ of Outstanding Capital Stock

Board of Directors - Majority of Board of Directors

- Majority of the Quorum of Board of Directors

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Sec. 15 AMENDMENT OF ARTICLES OF INCORPORATION
Non amendable provisions ​- hindi pwedeng baguhin/fixed (name, address, place
date, place, signature, witnesses)

Amenable Provisions
VOTE

Articles of Incorporations M of BOD + ⅔ of OCS

By-laws M of BOD + M of BOD

⅔ of OCS

Cooperative ⅔ of Members

M/C M of BOD + ⅔ + M of BOD + ⅔

EFFECTIVITY:
File to SEC​: Amended AOI
Original AOI
Issue by SEC​: Amended COI
Date of Approval/Effectivity:​ when COI issued
If after 6 mos. Not yet issued: date of filing
*​Appraisal right​ - SHs can WITHDRAW- Concur - YES
Dissent - NO (will withdraw)
*Written assent (SHs can withdraw)
*Favorable recommendation of appropriate government agency
*Foreign Corporation- 60 days
*BOD decides then OCS ratifies

Sec. 16 Ground when Articles of Incorporation or Amendment thereto may be

disapproved (5)
a. NOT in the prescribed form (sec 14)
b. Illegal Purpose
c. Certification is False
d. Percentage requirement NOT complied
e. No favorable government recommendation (8)

PD 902-A​ Grounds for Suspension or Revocation of Certificate of Registration-

LAW CREATED SEC
FRA ​- FRAUD
SE ​- SERIOUS MISREPRESENTATION
RE​ - REFUSAL TO COMPLY
CO​ - CONTINUOS INOPERATION
FA​ - FAILURE TO FILE BYLAWS
FA ​- FAILURE TO FILE REQUIRED REPORTS IN APPROPRIATE FORMS

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Sec. 17 Corporate NAME “Not Distinguishable”

OLD - ​Identical or deceptive or Confusingly Similar

*​Vote requirement to replace name of corporation ​- Majority + ⅔
*​Effect of change of name​ - same corporation under a different names

GROUNDS TO CHANGE NAME (3)

1. NOT DISTINGUISHABLE
2. ALREADY PROTECTED/RESERVED BY LAW
3. CONTRARY TO EXISTING LAW

Effects of Violation: (CRCAR)

1. Cease and Desist
2. Removal
3. Contempt
4. Administratively, civilly or criminally liable
5. Revoke

Sec. 18 Registration, Incorporation and commencement of Corporate Existence

BEFORE​ - Corporation: ​file AOI

SEC: ​issue COI
NOW​ - Name verification is required
If there are no similar name, COI will be issued
Effectivity​ - existence of COI and start of Juridical Personality

It has the right to EXIST but not the right to OPERATE (election of BOD,
election of Officers, filing of by-laws is required before operation)
____________________________________________________________

Registration, Incorporation and commencement of Corporate Existence

*Name Verification First

General Rule​: Issuance of COI- starts the corporate existence
Exemption​: 1. Cooperatives (no need for COI)
2. Religious Corporation (no need for COI)
Remedy: ​MANDAMUS​ - ayaw magissue ng SEC ng COI; to compel issuance of
COI (Discretionary; Ministerial duty)

Discretionary - optional
Ministerial - Mandatory

*It has the RIGHT TO EXIST

But not the right to operate or the authority to do business

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 Cooperative Development Authority - issues for Cooperative

Sec. 19 DE FACTO​ (same as DE JURE because it has violated a rule)​ C

​ orporation

Requisites to be a De Facto
1. RA 11232
2. Bona fide - legitimate ​(Filed AOI; attempt to incorporate)
3. OPERATED
4. Issuance of Certificate of Incorporation despite non-compliance with legal
requirements

Examples of DE FACTO:​ Corporate Name resembles

Forgery in Articles of Incorporation
Percentage Requirement

Remedy​ - QUO WARRANTO - question the legal existence of corporation

*Only ​Solicitor General​ can file Quo Warranto

Direct Attack vs Collateral Attack

Quo Warranto Not Quo Warranto

A de facto Corporation, THEN

1. Has Article of Incorporation
2. Filed the Article of Incorporation
3. Given the COI
Direct Attack Collateral

DE FACTO / x

DE JURE x x

ESTOPPEL / /

Direct Attack​ - Quo Warranto (legal requirement not complied)

Collateral Attack​ - not the main issue; a person uses the legality of the corporation
as an attack to different issue.
Quo Warranto​ - Questioning legal existence of the corporation

Sec. 20 Corporation by Estoppel ​(not de jure, not de facto ; nagpapanggap lang na

corporation)

Liable as General Partners to the extent of their separate property

Liability - General Partners NOT allowed to use (2)

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 ____________________________________________________________

- Not De Jure, Not De Facto

- No Articles of Incorporation, No COI
- Liable as General Partners
- Not allowed to use as a defense its lack of corporate personality to evade
liability

Sec. 21 Non Use of Corporate Charter and Continuous Inoperation

NON USE CONTINUOUS INOPERATION

OLD 2 5

NEW 5 5

Corporation 2 2

OLD REVISED CORPORATION

Non Use 2 years 5 years 2 years

Continuous 5 years 5 years 2 years

NONUSE - Did not operate

CONTINUOUS INOPERATION - Operated but subsequently stopped

Effect of Nonuse​ - deemed REVOKED

Effect of Continuous inoperation
- Placed under DELINQUENT STATUS
Delinquent status​ - 2 years
​ If compliant (operated)​ - order is lifted
If not compliant ​- revocation of COI

1. Mandamus​ (to compel the act) vs ​Quo warranto​ (to question the existence
of corporation)
2. Non use​ vs ​Continuous Inoperation
3. De Jure​ vs ​De Facto​ vs ​Estoppel ​(illegal)
4. Section 16​ vs ​PD 902-A
Corporators Incorporators

Shareholders / Members Signatory in Articles of Incorporation

Ceases to be such Permanent

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 No minimum number of persons OLD VS NEW
required 5-15 1-15

Contractual capacity not required In some instances required (OLD)

Sec. 22 Board of Directors ​- exercise of corporate powers, conduct all business, control all
properties of the corporation
Shareholder​ → ​ Board of Directors ​→ ​Officers
- indirect control

General Rule:​ Board of Directors decide & layouts policies

Exemption:​ ​1. Shareholders​ → close
​2. Executive Committee
​3. Management Contract
​4. Authorized by Board of Directors/Ratification/Decision of SC

Officers​ - Execute the policies

TERM OF OFFICE
​Board of Directors​ - 1 year
​Board of Trustees​ - 3 years
​ Board of Trustees of Non-Stock Educational​ - 5 years

NUMBER OF DIRECTORS
General Rule:​ 1-15 (OLD 5-15)
Exemption:​ ​1. Sale Corporation -​ (1)
​2. OPC​ - (1)
​3. Non-stock​ - more than 15
​4. Close​ - not exceeding 20 Shareholders
5. Non-Stock Educational ​- 5-15, multiples of 5, ⅕ expiration

Qualifications of Board of Directors

1. College education​ or equivalent academic degree
​ nderstanding of the business of the corporation
2. Practical​ u
3. Membership in good standing in relevant industry​,​ business or
professional organizations
4. Previous ​business experience.​

Requirement for Corporations vested with public interest ​(At least 20% of the
board)
- Securities Regulation code​ (200 or more holders of shares with at least 100
shares)
- Banks,​ ​Quasi-banks​, ​NSSLAs​, ​Pawnshops,​ ​ Corporations engaged in

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 money service business,​ ​pre-need, trust and insurance companies​ and
other financial intermediaries
- Other corporation​ engaged in business vested with public interest similar to
above

Sec. 23 Election of Directors/ Trustees

Doctrine held Over

Limitations/Condition for Elections
1. Presence in person​ or by ​written proxy​ or ​remote communication​ or ​in
absentia
2. Education by ballot​, if requested
3. No delinquent stock​ shall be voted
4. Candidate who receive highest numbers of votes
a. Plurality VS Majority of Votes
5. Required notice must be given
6. Quorum​ -
a. Stock​ - Majority of Outstanding Capital Stock
b. Non Stock​ - Majority of Members
7. Only ​voting shares can vote.​ Unpaid shares can vote provided not
delinquent

METHODS OF VOTING​ (Number of shares multiplied by the number of

directors to be elected)
1. Straight voting
2. Cumulative Voting for one candidate
3. Cumulative voting by Distribution

VOTING IN NON STOCK

- May act as many voters but may not act more than 1 vote for a candidate
General Rule:​ No Cumulative Voting is allowed
Exemption:​ Unless allowed in the Articles of Incorporation or the By-laws

CORPORATE OFFICIALS
General Rule:​ Elected by Board of Directors
Exemption:
Term - May be fixed in By-laws or removed anytime by Board of Directors

No prohibition ​- Shareholders/Board of Directors/Offices

Exemption​ - Prohibited by By-laws
Example Case - Gokongwei vs. SEC

Sec. 24 Corporate Officers

General Rule:​ Elected by Board of Directors
Exemption:​ 1. Non-Stock

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 2. Close Corporation

TERM of officers​ - may be fixed in By-Laws or removed anytime by Board of

Directors
General Rule:​ ​Shareholders/Board of Directors/Officers in a​ nother Corporation
is also ​allowed.​
Exemption:​ if ​prohibited By-laws​ (Ex. CASE- Gokongwei vs SEC)

Prohibition​ - General Rule: President and Secretary - NO

President and Treasurer- NO
Exemption​ - OPC President and Secretary- NO
President and Treasurer- YES (NEW)

COMPLIANCE OFFICER
Directors must elect:
1. President​ - Director
2. Secretary​ - Resident and Citizen
3. Treasurer​ - Resident (NEW)
4. Other officers provided in by-laws

Requisites for Board Meeting

1. Meeting of directors/Board of Trustees duly assembled
2. Presence of Quorum
3. Decision​ (Majority of Quorum) (Majority of Board of Directors)
4. Meeting at the time, place, manner provided in By-Laws

Quorum
Majority of Quorum
PROXY VOTING​: Shareholders - /
Board of Directors - x

Telecom/Video confiring​: Shareholders - /

Board of Directors - /

Valid Corporate Act ​- if made in

Sec 25 Report of Election of Directors, Trustees and Officers, non-holding of Election

and Cessation from Office

Reporting of Election​ - within 30 days AFTER the election

NON-HOLDING of Election​ - within 30 days from the date of the scheduled
election
NEW DATE OF ELECTION​ - not later than 60days from the scheduled date

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 Effect if no election is made:
- SEC can summarily order that an election be held
IF Directors / Trustees / Officers dies / resigns / etc.
(NEW) - report within 7days from knowledge thereof (OLD - immediately report)

Sec 26 DISQUALIFICATION of Directors, Trustees or Officers

OLD​ : if other Laws- if more than 6 years

: if other code(corporation code) - within 5 years

REVISED:
If ​within 5 years PRIOR to election of appointment
A. Convicted by Final Judgement​ (Final Judgement)
a. Offense​ ​punishable by period exceeding 6 years​ (PRISION
MAYOR)
b. Violating the Corporation code
c. Violating Republic Act 8779​ (securities)
B. Found ​Administratively liable for any offense involving fraudulent
(Fraudulent act)
C. By a foreign Court​/A and B(Foreign court)

EVIDENCE:
Criminal​ - Proof beyond reasonable doubt
Civil​ - Preponderance of Evidence
Administrative ​- Substantial Evidence

*​SEC and PCC (Philippine Competition Commission)​ can impose other

qualifications/disqualifications

Sec 27 REMOVAL OF DIRECTORS OR TRUSTEES

Election ​- Majority of Outstanding Capital Stock

Meeting to Remove ​- Majority of Outstanding Capital Stock
Vote to Remove​ - ⅔ of Outstanding Capital Stock

Shareholder → Board of Directors → Officers

NOW - ​SEC can now remove Board of Directors

General Rule:​ Inherent Power of AMODON BOD removable (​Member of the
BOD can be removed with or without a valid reason)​
Exemption: ​if elected by minority through cumulative voting -​ there must be a
VALID GROUND

Director cannot remove another Board of Director

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Sec 28 Vacancy in Board of Director

(Term of Officers: depend on By-laws)

(Term of BOD: 1 year)
(Terms of Stockholders: 1 year)
Shareholders ​1. Expiration of Term- 1 year
2. Removal by Shareholders
3. Increase in Number of Board of Directors 10-15
4. No of Quorum - 15
5. Quorum + No Delegation- BOD fill out

When will the vacancy be filled?​ VARIES (pwedeng stockholders or BOD)

Who elects Board of Directors? ​- Majority of Board of Directors

Who removes Board of Directors? ​- ⅔ of Outstanding Capital Stock
Who fills out vacancy:​ Shareholders (5)
Board of Directors (1)

(NEW) EMERGENCY BOARD

- Ground
- No quorum
- From officers (filling out) magiging temporary BOD
- Limited to the emergency action
Vote - UNANIMOUS consent of ALL remaining directors/ trustees
- Notification (period to report) - within 3days
- Emergency Board shall cease within a reasonable time

Sec 29 COMPENSATION OF DIRECTORS

General Rule:​ Not entitled

Exemption:​ By-laws provides or vote of Shareholders

*Vote to GREAT Compensation

Vote: ​Majority of Outstanding Capital Stock (Compensation-majority of OCS &
Dividend - majority of Quorum or Board of Directors)

Directors cannot grant compensation to themselves

Limitation - 10% rule

Annual Report for corporation listed with Public Interest - SEC

Sec 30 LIABILITY OF DIRECTORS/ TRUSTEES/ OFFICERS

3 - Fold duty of Director (OLD):

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 -Obedient
-Loyal
-Diligent

General Rule:​ Business Judgment Rule- board of directors are not liable for
decisions made in good faith
Exemption:​ if OLD is violated- (Solidarily liable)

1st paragraph -Violation of OLD: Effect: Solidarily Liable

1. Obedient - willfully or knowingly votes
2. Diligent - Guilty of grow negligence
3. Loyal - Acquires any personal or pecuniary interest

2nd Paragraph: SPECIAL FACT DOCTRINE- Director, Trustees, Officers

-Directors takes advantage of any information acquired by virtue of his office to the
disadvantage of the corporation

Effects: 1. Liable as trustee

2. Must account for the profits
SEE article 1807- Partnership (Secret Profit)

Sec 31 Dealings of Directors, Trustees or Officers with the corporation

Self-Dealing(makikipag business sa corporation) Directors/ Trustees/ Officers

Who are covered by the law ? Directors/ Trustees/ Officers

NOW- Spouses and relatives within the 4th civil degree of consanguinity or affinity
General Rule: Dealing is valid if all the 5 requisites are present:
1. Personae was not necessary to have QUORUM
2. Vote of Director/ Trustees was not necessary for the approval of the act
3. Contract if fair and reasonable
4. In case of Corporations vested of Public Interest
5. In case of an affair, the contracts has been previously authorized by Board
of Directors

Example:

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 Exemption: If any of the first 3 conditions are absent- VOIDABLE at the option of
the corporation (NEW)
(OLD)- 2 conditions only

Remedy if VOIDABLE- ratification by ⅔ of OutstandingCapital Stock

-Full disclosure of the advertisement of directors is required 10/15

-Corporations vested with Public Interest

VOTE REQUIRED:
-Approved by ⅔ of the entire membership of the Board with at least MAJORITY of
the Independent directors approving the contract

Sec 32 Contracts between corporations with INTERLOCKING Directors

Interlocking- when one, some or all of the directors in one corporation are the same

General Rule: valid- void if one company is minimal and the other one is
substantial. If they are both substantial mas malala ang effect.

Exemption: It can be invalidated if:

1. In case of fraud
2. Contract is not fair & Reasonable
HOWEVER- if interest of the interlocking director is substantial and in the other
corporation is MINIMAL- VOIDABLE

When is it SUBSTANTIAL- Stockholdings exceeding 20%

Sec 33 Disloyalty of Director

SEIZING CORPORATE OPPORTUNITY

Section 30 Section 33

Covers directors, trustees or officers Directors only

21
 Any INTEREST Business Opportunity

No vote to ratify Ratification is allowed

⅔ of Outstanding Capital Stock

Effect of Section 33:
- Director must account for and refund the profits
- Rule is applicable even if director used/ risked his own funds

Sec 34 EXECUTE COMMITTEE

Shareholder → Board of Directors → Officers

(EXCOM-smaller BOD) (BOD)
-minimum of 3
Requisites:
1. By-laws must be provided
2. Composed of NOT less than 3months of Board of Directors
3. Must be directors of Corporation
4. Board of Directors creates EXCOM
Vote to create- Majority of Board of Directors
Vote to EXCOM- Majority of ALL its members

5 instances when EXCOM cannot divide

BOD can create special committees

Sec 35 Powers of Corporation

Corporate Powers and Capacity

Doctrine of Limited Capacity

3 Kinds/Classes of Powers
1) ​Express - stated in AOI and/or RA11232
2) Implied - reasonably necessary to carry on the express power
3) Incidental/ Inherent - automatically given (e.q. Succession, sue and be sued,
By Laws, seal, acquire properties)
POWERS
a) Sue and be sued
➔ not registered
➔ Moral Damages - GR: No; E: Yes
➔ Foreign Corp.
b) Power to acquire property
➔ Private lands - Yes
➔ Public lands - No; E: Lease
c) Acquire shares
➔ Own share - URE, Purpose

22
 ➔ Shares of Another Corp.
d) Contribute to Charity/ Political Party
➔ Domestic - Yes
➔ Foreign - No
e) Such other powers as may be necessary -​ IMPLIED

Doctrine of Corporate Immunity -​ ​it protects a person acting for and on behalf of
the Corp. from being personally liable for his authorized actions

Sec 36 Power to Extend or Shorten Corporate Term (Fixed)

● Electronic sending of notice
● Vote - M + ⅔
● Appraisal Rt - in case of exclusion of corporate term

Sec 37 Power to Increase or Decrease CS

Power to Incur Bonded Indebtedness
Limitations:
a) Increase - Own-issued Stock
b) Decrease - Trust Fund Doctrine
How incurred?
1) By increasing Par Value
2) By increasing number of shares
3) By increasing BOTH
Prior approval of
1) SEC / Commission (6 mons application)
2) Philippine Competition Commission (PCC)
Vote required - M + ⅔
Bonded Indebtedness - M + ⅔ (Non-stock)
Bond must be registered with SEC

Sec 38 Power to DENY - ​Pre-emptive right

Right to Pre-emption
General Rule: Pre-emptive right is given
Exemption: Denied
1) AOI - start
2) Vote - M + ⅔
E-E: No need to Deny (LCD)
1) In compliance with ​Laws​ requiring
2) Property needed for ​Corporate​ purposes
3) Payment of a previously contracted ​Debt
Remaining unsubscribed shares
1) If all shares are sold
2) Shares sold are specified

Sec 39 Sale or Disposition of Assets

23
 General Rule:
If necessary in the (7th) regular and usual course of business - M of BOD
- must comply with RA 10667
Exemption: If not - M + ⅔
When is it a sale of ​one​ or ​substantially all​ (4th par)
- If corporation would be rendered incapable of continuing the business or
accomplishing the purpose for which it was incorporated
APPRAISAL RIGHT
E-E: Vote to ABANDON - M of BOD

Sec 40 Power to Acquire Own Shares

Requisites
1) Legitimate Corporate purpose
2) Unrestricted Retained Earnings (URE)
Grounds/Instances (3)
Other instances:
- Redeemable
- Treasury
- Sec 103

Sec 41 Power to INVEST Corporate

Funds in Another Corporation or Business or for any other purpose

General Rule: if primary purpose - M of BOD (express)

E: Other than primary purpose - M + ⅔
E-E: If reasonably necessary to accomplish its PP - M of BOD (implied)

Sec 42 Power to Declare Dividend

Requisites
1) Board Resolution
2) Presence of URE
Classes of Dividends (9)
Vote required
GR: M of Q of BOD
E: Stock Dividend - M of Q of BOD + ⅔ of OSC

Declaration of Dividends
GR: Not mandatory (prerogative of BOD)
E: In excess of 100% of Paid-In CS
E-E: Not mandatory own if in excess (ELS)
1) Justified by necessary corporate Expansion
2) Prohibited by Loan agreement
3) Retention is necessary under Special circumstances
Effect of Delinquency

24
 1) Cash Dividends - applied to delinquent stock
2) Stock Dividends - withhold giving

Distinction Cash Dividends Stock Dividends

Ownership Issued - SHS Corporation

Vote M of Q of BOD M of Q of BOD + ⅔

Effect No debt Creates a debt

Does not Increase corp capital

Sec 43 Power to Enter into a Management Contract

Whh enter?

ABC Corp. XYZ Corp

Vote required M+M M+M

General Rule Managing Managed

Exemption M+M M+⅔

Why?
1) SHS control more than ⅓ of OCS of Managing Corporation
2) Interlocking Directors - M of BOD same
Period:
GR: 5 years
E: Exploration of Natural Resources

Sec 44 Ultra Vires

Acts of Corporation
● If Intra Vires - within the power
● If Ultra Vires- outside the power
● If illegal act - prohibited by law
Presumption - within corporate powers
Vote to Ratify - ⅔ of OCS
● Ultra - yes
● Illegal - no
By-Laws
AOI By-Laws

25
 Cond. Preculent Cond. Subsequet

Filed start Filed start/after

TPs SHs

Fundamental law Internal rules

Superior Inferior

Sec 45 Adoption of By-Laws

When Made
● Prior to Inc - filed with AOI
● After Incorporation - no period
When effective?
● If filed prior - issuance of COI
● If filed after - approved with SEC
Vote required
● Prior - all incorporators
● After - M of OCS
*Certificate of Appropriate Government Agency

Sec 46 Contents of By-Laws - ​Specific

Sec 47 Amendment of By-Laws

GR: M +M
E: Delegation - ⅔ of OCS
E-E: Revocation of delegation - M of OCS

When effective? Upon issuance by SEC of Certification that it is in accordance of

RA 11232

Sec 48 Kinds of Meetings

1. Shareholders
A. Regular ​(at least 21 days notice)
A.1 ​GR ​Annual ​(Fixed in by-laws)
A.2 ​Exc.​ After April 15
B. Special ​- Anytime (1 week notice)
2. Board of Directors
A. Regular ​(2 days notice)
A.1 ​GR ​Monthly
A.2 ​Exc.​ by-laws Provided
B. Special ​- Anytime (2 days notice)

26
 Requisites for Valid Meeting

1. Proper place
A. Stockholders
B. Members ​(sec 92)
C. BOD/BOT ​(even outside PH)
2. Stated date and time
3. Called by proper person ​(Secretary)
4. Quorum
5. Notice ​*electronic sending of notice*

Sec 49 Regular and Special Meetings of Shareholders

General Rule: ​Meeting is Mandatory

Exception: ​Not necessary
1. Sec 15 ​(Amendment of AOI)
2. Sec 100 ​(Close Corporation)

Matters (?) tp be presented in the meeting (A-K)

Important matters - See PPT

D/T/S - proposal for inclusion in any regular meeting

S/M - proposal for special meeting
General Waivers not allowed
If no person is authorized to call a meeting - Petition of Shareholder
Stock or Transfer book shall be CLOSED

Regular Meeting ​- at least 20 days

Special Meeting ​- at least 7 days

Postponement of meeting - atleast 2 weeks notice

Shareholders attendance and vote

1. Person/Direct - /
2. Through Proxy - /
3. Remote Communication or in Absentia - /

Sec 50 Place and Time of Meetings

General Rule: ​Principal office of Corporation

Exception: ​If not practicable, in the CITY or MUNICIPALITY where corporation
is located
PROVIDED​ - Metro Manila, Metro Cebu and Metro Davao, etc. shall be
considered a city or municipality

27
 Persons to call meeting
1. Person Designated - Secretary
2. Director/Trustee
3. Petition of Shareholder - SEC

General Rule: ​All meetings shall be VALID eved improperly HELD or CALLED
PROVIDED -​
1. ALL SHs/Ms are present
2. No objection from SHs/Ms
3. Within the power of Corporation

Sec 51 Quorum

General Rule
1. Shareholders ​- Majority of OCS
2. Members ​- Majority of Members
Exception
Corporation can provide higher quorum

When is quorum required? ​-- START

Effect of Walk - out ​ --

Sec 52 Who Shall Preside

General Rule: ​Chairman

Exception: ​President
Exception to Exception: ​By-Laws

Sec 53 Regular and Special Meetings of DITs; Quorum

Sec 54 Right to vote of Secured Creditors and Administrators

Manner of Voting
1. Direct ​- PERSON
2. Indirect
a. Proxy
b. VTA
c. Executor, Administrator, Etc.
d. Secured Creditor

Methods of Voting

28
 General Rule: ​SH is the Grantor Attends or votes (SH of Record)
Exception: ​Secured creditor if the ff. Requisites are present:
1. Expressly given the right to vote
2. In WRITING
3. Recorded in the books of Corporation (Stock and Transfer book)

Sec 55 Voting in case of Joint Ownership of Stock

General Rule: ​Consent of ALL co-owners

Exception: ​One of them is Allowed
1. And/or
2. Written Proxy

Sec 56 Voting for Treasury Shares

General Rule ​- No right to vote for as long as they remain in treasury

Exception ​- If Resold

Sec 57 Manner of Voting (PROXY)

If by REMOTE COMMUNICATION - ​Allowed

Provided ​- vote is received before corporation finisges the tally of votes

Deemed present for purposes of Quorum

Requisites of Proxy
1. Waiting
2. Signed by Shareholders
3. Filed within a reasonable time
Before the meeting - Secretary of Corporation

General Rule ​- Revocable

Exception ​- Proxy compelled with interest

General Rule ​- Good for 1 management only

Exception ​- Continuing Proxy - 5 years

DITs cannot attend/vote by proxy

Sec 58 Voting trust Agreement (VTA)

General Rule ​- 5 years

Exception ​- Common Agreement
LONGER THAN 5 years

29
 PROXY VTA

No legal title Acquire legal title

Revocable Irrevocable

Vote only ONCE Not limited

Vote in absence of Shareholder No limitation

Writing Notarized

No right of Inspection YES

Sec 59 Subscription Contract

How does one become a Shareholder

1. Subscription contract
a. Pre SC
b. Post SC
2. Treasury shares
3. From an existing shareholder

Rights of Shareholders
1. Managerial Right ​- Election/Removal of BOD
2. Proprietary Right ​- Dividend Derivative
3. Remedial Right
4. Appraisal Right
5. Right of Inspection

Sec 60 Pre-Incorporation SC

General Rule ​- Irrevocable for 6 months

Exception ​ - Revocable if
1. Consent of ALL SUBSCRIBERS
2. Fails to materialize in 6 months
Exception to Exception ​- After AOI is filed in SEC

Sec 61 Consideration for stocks

1st par.​ Watered Stock

a. Actual Cash ​- PN/Checks -- x (not allowed)
b. Property ​- Tangible or Intangible

30
 - Actually received by Corporation
- Necessary Test
- Convenience Test
c. Labor performed or actually renders
- Future services not received
d. Previously incurred indebtedness of the corporation
e. Amount transferred from unrestricted retained earnings to stated capital
f. Outstanding shares exchanged for stocks in the event of reclassification or
conversion
g. Shares of stock in another corporation or
h. Other generally accepted form of consideration

Exception ​ - H--
Vote for fixing of no par shares

Valuation of Property​—-> Stockholders OR Board of Directors

Fixing of Issued Price of no-par shares

1. Fixed in the Articles of Incorporation
2. Fixed in Board of Directors
3. If not fixed- Majority of Outstanding Capital Stock (VOTE)

Sec 62 Certificate of Stock and Transfer

Kind of Transfer:
1. Absolute​- Sale (/)
2. Limited​- Pledge/Mortgage (sanla)(x)

Purpose of Certificate of Stock- ​Written Proof

Requisites of Certificate of Stock:

General Rule- ​Transferrable. Why? Personal property
Exemption- ​Non-transferrable:
1. Close Corporation
2. Widely-held Corporation
3. Scripless stock

Regulate vs Prohibit Transfer

How transfer? Indorsement plus Delivery (other way: Deed of Sale)
Effect: ​Valid only to parties
To be Valid to Third Person/ Corporation: ​must be registered in Corporation
In case of denial of issuance of Certificate of Stock
​REMEDY- Mandamus (Compel the Act)

Sec 63 Issuance of Stock Certificate

31
 D of Individuality of Subscription
- One, whole, indivisible contract
- Full payment is required

REMEDIAL RIGHT
General Rule- ​Board of Directors file the suit for corporation
Exception- ​Stockholders will file (Why?Derivative suit)
DERIVATIVE SUIT

Who Files Name Benefit

1) Derivative Stockholder Corporation Corporation

2) Individual Stockholder Stockholder Stockholder

3) Clan/ Stockholders Stockholders Stockholders

Representative

Sec 64 Liability of Directors for Watered Stock

Watered Stock (defined) INSTANCES:

- Less than the par or issued price
- No consideration
- Other than cash
- Valued in excess of its fair value
Who are liable? (Directors, Officers, Stockholders)
NOT applicable to Treasury Shares
Nature of Liability- ​SOLIDARY
Agreement to issue is VOID

Sec 65 Interest on Unpaid Subscription

General Rule: ​No Interest

Exception: ​If required to pay interest

How much is the interest?

General Rule: ​Rate in Subscription Contract
Exception: ​If no rate is fixed- LEGAL RATE

Sec 66 Payment of Balance

Remedies on unpaid subscription

1. Extra-judicial sale at Public Auction

32
 2. Judicial Action
3. SEC 43 - Cash- Applied
- Stock- withheld

When is unpaid subscription payable?

1. Date specified in SC
2. If no date is specified- CALL by BOD

When is the stock delinquent? ​Within 30 days from the date fixed

Effects of Failure to Pay

1. Renders entire balance due and payable
2. Liable to pay interest
3. It becomes delinquent stock

Instances when call by BOD is not required:

1. Date specified
2. Corporation is insolvent

Sec 67 Delinquency Sale

Procedure for Sale of Delinquency Sale

1. BOD Resolution- CALL
2. Notice to Stockholders
3. BOD Resolution- SALE
4. Public Auction

Period for Delinquency Sale

-​not less than 30 days, not more than 60 days from the date the stock became
delinquent

Notice- ​personally
- Registered Mail
- Publication
Publication- ​2 consecutive weeks

Highest Bidder? ​Can pay all the full amount of the balance and the smallest
number of shares or fractions of shares.

Can Corporation bid? ​If there is no bidder that's the time that corporation can bid
Effect: ​it becomes Treasury Shares

Sec 68 When sale may be questioned?

Period- ​Within 6months

33
 Grounds:
1. 1 or D in the notice of sale
2. 1 or D in the actual sale
*pays or Tenders to pay (/)

Sec 69 Court Action to Recover Unpaid Subscription

1. Judicial Action
2. Collection of Sum of Money

Sec 70 Effect of Delinquency

ALL Rights are SUSPENDED- no right to vote or be voted for

Exception- ​right to receive DIVIDEND (sec 43)

Sec 71 Rights of Unpaid Shares, Nondelinquent

-​All rights are available

Sec 72 Lost Destroyed Certificates

Procedure
1. Stockholder files Affidavit of Loss 3times
2. Verification by Sec. of Corporation
3. Publication for 3 consecutive weeks in a newspaper of general corporation
4. One year waiting period (why?)
a. General Rule: 1 year
b. Exception: Bond- less than 1 year
5. Issuance of New Certificate of Stock
If Procedure followed- NO LIABILITY

Sec 73 Corporate books and Records

Where kept? Principal office of Corporation

What must be kept?
a. The articles of incorporation and bylaws of the corporation and all their
amendments
b. The current ownership structure and voting rights of the corporation,
including lists of stockholders or members, group structures, intra-group
relations, ownership data, and beneficial ownership
c. The names and addresses of all the members of the board of directors or
trustees and the executive officers
d. A record of all business transactions
e. A record of resolutions of the board of directors or trustees and of the
stockholders or members
f. Copies of the latest reportorial requirements submitted to the commission
and

34
 g. The minutes of all meetings of stockholders or members, or of the board of
directors or trustees. (See revised code- mahaba)
-Stock and transfer book

RIGHT OF INSPECTION- allowed

Instances when NOT allowed
1. Unreasonable hour/ day
2. Foreign Books
3. Trademarks/ Trade Names
4. Trade S……
5. NOT a stockholder or M of record (REVISED)
6. Improperly use of information (REVISED)
7. Not acting in GF or legitimate purpose (REVISED)
8. Competition Directors/ Officers/ Stockholder (REVISED)

Remedy if denied- ​Mandamus (compel the act)

Confidentiality Principle- ​bound

Secretary liable/ BOD liable if Report of Denial to SEC

- SEC conducts investigation within 5 days

Stock and Transfer book kept-

1. Principal Office of Corporation OR
2. Office of Stock transfer Agent

Stock Transfer Agent- ​one engaged principally in the business of registering

transfers of stocks on behalf of a stock corporation shall be allowed to operate in
the Philippines upon securing a license from the Commission and the payment of a
fee to be fixed by the Commission, which shall be renewable annually.

Independent Transfer Agent- (definition)

Sec 74 Right to Financial Statements

-Furnished within 10days from receipt of written request

When Presented?
General Rule: ​Independent CPA required
Exception: ​Certified by the Treasurer and President of total assets or liabilities is
less than 600,000pesos

MERGER and CONSOLIDATION

Merger- ​A + B = A or B
Consolidation- ​A + B = C

35
 Procedure for Merger or Consolidation
1. Approval of Plan of merger or consolidation
2. Submission to stockholder for approval
3. Execution of the articles of Merger or Consolidation
4. Submission to SEC
5. Hearing by SEC
6. Issuance of SEC of Certificate of Merger or Consolidation

Sec 75 Plan of Merger and Consolidation

-​BOD of both absorbing and absorbed corporation (CONSTITUENT)

Sec 76 Stockholders or Member Approval

-​Approval of Stockholder/ Members

Vote Requirement- ​Majority + ⅔ Majority + ⅔

Abandon Plan of M/C- ​BOD only
Amendment of Plan of M/C- ​M + ⅔ M + ⅔

Sec 77 Articles of Merger and Consolidation

-​Execution + signing

Sec 78 Effectivity of Merger or Consolidation

-​Issuance of certificate of Merger or Consolidation

Favorable Recommendation of appropriate government Agency required (sec 8)

Sec 79 Effects of Merger of Consolidation

1. Becomes a SINGLE corporation
2. Separate existence shall CEASE except the surviving corporation
3. Surviving Corporation shall POSSESS all rights, privileges and immunities
4. Doctrine of automatic assumption of liabilities (magbabayad ang surviving
corporation)

Sec 80 Appraisal Right (defined)

When right may be exercised (5)

Sec. 15 Amendment of AOI
Sec. 36 Extending/Shortening Corporate term
Sec. 39 Sale, Lease, Exchange, etc.
Sec. 76 Merger or Consolidation
Sec. 41 Instrument of Corporate funds

Sec 81 How Right is exercised?

Period:

36
 30 days - from vote of Shareholders
10 days from exercise of Appraisal Right - notation
Effect if not exercised within 30 days - WAIVER
- 30 days - demand
- 10 days - notation
- 60 days - appointment of 3 disinterested persons
- 30 days - mandatory for corporation to pay

How much is the fair value of the stock?

- Day before vote was taken

SH must surrender the Certificate of Stock for payment - if corporate action is

implemented

2nd par.
If within 60 days cannot agree on fair value, appointment of 3 disinterested persons
(Corp, SH, or BOTH)
Determination shall be final and corporation must PAY within 30 days.
If not, Unrestricted Retained Earnings will be required for payment.

Sec 82 Effect of Demand and Termination of Right

Effect of Appraisal Right:

General Rule: ​All rights are SUSPENDED
Exception: ​Right to receive Fair value

Effect of Failure to pay after fair value is filed

- All rights are RESTORED

Sec 83 When right to payment ceases

General Rule: ​Appraisal Right is IRREVOCABLE

Exception: ​REVOCABLE
1. Withdrawn with consent of Corporation
2. Proposed action is Abandoned/Rescinded
3. Disapproves by commission/SEC
4. SEC determined SH not entitled to appraisal right
Effect of Revocation
1. Right to receive FV CEASES
2. All rights are RESTORED
3. All divided declarations which have accrued shall be paid to SHs

Sec 84 Who bears the cost of appraisal

37
 General Rule​ - Corporation pays
Exception
1. Fair value is approximately the same or what Corporation is offering
2. Refusal of SH ro receive payment was unjustified

Sec 85 Notation on Certificate

Submit the Certificate of Stock ​- within 10 days from exercise of right

Effect if not submitted ​- Corporation can TERMINATE the rights
Effect if Dissenting SHs transfers the Certificate of Stock after exercising
Appraisal Right ​- Appraisal right shall CEASE and transferee become SH and
entitled to all dividends

Sec 86 NONSTOCK CORPORATIONS (defined)

No part of its income is distributable on dividends

Any profit shall be INCIDENTAL only

Sec 87 Purposes

Charitable, Religious, Educational, Professional, Cultural, Fraternal, Literary,

Scientific, Social, Civic Service or similar purposes like (Trade, Industry,
Agriculture, Like chambers)

Sec 88 Right to vote

May be limited, denied, broadened in AOI or By-laws

Only ONE VOTE/Cumulative voting
HOW?
1. Personal/Direct
2. By Proxy
3. Remote Communication or Absentia

Sec 89 Non--Tranferability of Membership

General Rule: ​Personal and Non-Transferable

Exception: ​AOI/By-laws provide otherwise

Sec 90 Termination of Membership

Depends on AOI or By-Laws

Sec 91 Election and Term of BOT

No. of Trustees - maybe more than 15
Term - 3 years (1,2,3,4,5)

*No more staggered term ⅓

38
 Independent Trustees of Non-Stock Corporation rested with public interest - only
member becomes BOT

Memebers ----> BOT & Officers

Election
Qualification of BOT - memeber

Sec 92 List of Members XXX

List of members and proxies - 20 days prior to election
SEE for Stock Corporation - 20/7 (closed)
Place of Meeting - anywhere but within PH

Sec 93 Rules of Distribution

a) Creditors
b) Assets held with condition for RETURN
c) Assets with NO condition for return - Similar Institution
d) Other Assets - depends on AOI and By-Laws
e) Other Case - Plan Distribution of Assets

Sec 94 Plan of Distribution of Assetes

Vote - M of BOT + ⅔ of Ms

Sec 95 CLOSE CORPORATIONS

Definition and Applicability
Features of Close Corporation
1) Ownership Stock
2) Classification of Dorectors
3) Management by SHs (not by BOD)
4) Appointment of Officers/Employees
5) Pre-emptive Right
6) Appraisal Right
7) Arbitration/Dissolution
Close Corporation (defined)
CHARACTERISTIC
1) NOT more than 20 SHs
2) Restriction on transfer of shares
3) NOT listed in Stock Exchange
GR - If all 3 are present - OPEN
E - ⅔ of voting shares is owned by OPEN Corp - OPEN

Entities not allowed to be CLOSE (8)

Sec 96 Articles of Incorporation

a) Classification of Shares or Rights
b) Classification of Directors into one or more classes

39
 c) Greater quorum/voting requirements

SHs BOD Officers Employees

Deemed direstors

Subject to liabilities

Sec 97 Validity of restrictions on transfer of shares

1) Must appear in AOI/By-Laws/CS
2) Restrictions should not be more onerous to existing SHs

Sec 98 Effects of Issuance or Transfer of Stock of a Close Corp in Breach of

Qualifying Conditions
If a stock of Close in transferred to a TP in break of the 3 conditions -
CONCLUSIVELY PRESUMED to have notice
Effect - Corp can refuse to REGISTER the transfer
E- will register if:
1) Consent of all SHs
2) Amendment of AOI to Open

Sec 99 Agreement by SHs

Agreements executed by and among SHs before formation shall SURVIVE the
incorporation and shall continue to be valid
Effect - SHs in strict fiduciary duties
GR - Shs liable to Corporate TORTS
E - Corp obtains adequate liability insurance

Sec 100 When Board Meeting is Unnecessary (4)

*Without a meeting properly called
a) Written consent of ALL SHs
b) ALL SHs have knowledge and no objection
c) Accustomed
d) ALL Directors have express/implied knowledge
GR - Valid - ratified
E - Objection filed by director

Sec 101 Pre-emptive Right - includes Treasury Shares

Sec 102 Amendment of AOI - ⅔ of OCS w/ or w/out voting tights

Sec 103 DEADLOCKS - ​dividend in management

Remedy - SH files petition in SEC

40
 SEC can arbitrate and issue 7 orders
If earning - appoint a provisional director
If losing - dissolve the Corp.
Who is a provisional director? Shall be an impartial person who is neither a
stockholder nor a creditor of the corp or of any subsidiary or affiliate of the corp,
qualifications may be determined by the Commission

Sec 104 Withdrawal/Dissolution

Withdrawal
a) For any reason
b) Sufficient assets of corp
Dissolution - SH files
Ground - Mismanagement of CLOSE
- Corp Assets WASTED

Sec 105 SPECIAL CORPORATIONS

Special Corporations:

A. Educational Corporation

a. Stock

b. Non-Stock

B. Religious Corporation

a. Corporation Sale

b. Business Societies

EDUCATIONAL CORPORATIONS

SEC 105- Incorporation

-Educational corporation governed by Special Laws and general provision of

RA11232

Sec 106 - Bond of Trustees

a.​ B
​ OT of Stock- governed by stock corporations

b.​ B
​ OT of Non-stock educational corporations

41
 BOT- ​not less than 5 not more than 15

-​ is multiples of 5
​

-​ 1/5 expiration (staggered basis)

​

-​ 5 year term
​

*No staggered in Non-stock

Sec 107 RELIGIOUS CORPORATIONS- ​governed by this chapter Non-stock

Corporations

Sec 107- ​Classes of Religious Corporations

a.​ C
​ orporation Sale

b.​ R
​ eligious Societies

Sec 108 -Corporation Sole

Who may incorporate?

Purpose? Administering and managing an TRUSTEE the affairs, property and

temporalities of any religious denomination

Sec 109 Articles of Incorporation (See contents)

Required to file? YES

Requires Approval? NO

Sec 110 Submission of Articles of Incorporation

-Verified by affidavit or affirmation by … and accompanied by the commission….

Sec 111 - Acquisition and Alienation of Property

Corporation Sale can:

-​ Purchase real and personal property

​

42
 -​ Sell or mortgage said real property
​

-​ General Rule: obtaining RTC approval of the province where property is

​

located

-​ Exception: Specific procedure regulating it in their religious

​

demonstration

Sec 112 -Filling of Vacancies

-​ ​​Succession in office fill the vacancy upon filing of commission of SEC

-​ Vacancy in Office- according to their own procedure

​

Sec 113 Dissolution

-​ File a verified declaration of Dissolution

​

-​ Approval of SEC is required

​

Sec 114 Religious Societies

-​ ​ Vote to create- 2/3 of OCS

​

-​ Filing of Articles of Incorporation is required verified by affidavit

​

-​ Principal office is located in Philippines

​

-​ BOT- not less than 5 not more than 15

​

Sec 115 ONE PERSON CORPORATION (OPC)

Applicability….

General Rule: Provisions of this chapter

Exception: other provisions apply suppletarily

Sec 116 One Person Corporation

OPC (defined)- only ONE STOCKHOLDER

-​ Only Natural Person, trust, estate

​

43
 -​ Entities not allowed to be OPC (one person corporation)
​

Sec 117 - Minimum Capital Stock for OPC (one Person Corporation)

-​ Not required
​

Sec 118 Articles of Incorporation (AOI)

Contents- follow sec 14

Sec 119 By Laws

-​ Not required (why?)

​

Sec 120 -Display of Corporate Name

OPC either below or at the end of its corporate name

Effect if not complied-

Sec 121 -​Single Stockholder as President/ Director

Sec 122 -- Treasurer, Corporate Secretary and other officers

Ordinary Vs. OPC

Period to Elect Within 15 days

Notify/Report to SEC 30 days Within 5 days

Single Stockholder as President -/

Single Stockholder as Treasurer -/

Single Stockholder as Corporate Sec- x

If single Stockholder is the Treasurer, he must:

44
 1.​ G
​ ive a Bond (renewed every 2 years)

2.​ U
​ ndertake in writing to faithfully administer the funds

Sec 123 -Special Function of Corporate Secretary (4)

a.​ ​ M
​ aintaining the minutes book/records

b.​ ​Notify the nominee or Alternate Nominee (Not later than 5 days from
occurrence)

c.​ N
​ otify the SEC within 5 days from the occurrence

d.​ C
​ all the Nominee or Alternate Nominee and heirs to a management

Sec 124 Nominee and Alternate Nominee

Duty- take the place and manage

Single Stockholder→ Nominee→ Alternate Nominee

Death Incapacity

Written consent of Nominee/ Alternate Nominee is attached in Articles of

Incorporation but they can withdraw it before death/ Incapacity of Single
Stockholder

Sec 125 Term of Nominee and Alternate Nominee

1​st​ paragraph- Temporary Incapacity

2​nd​ Paragraph- Death/ Permanent Incapacity

Sec 126 Change of Nominee or Alternate Nominee

Single Stockholder can change them by:

-​ Submitting the new names to SEC

​

- Articles of Incorporation need not be amended

Sec 127 -Minute Book

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Sec 128 - Records in Lien of Meetings

Requirements:

- 1.​ W​ ritten resolution, signed and dated by the single Stockholder

- 2.​ ​Recorded in the minutes book

*Date of Recording DEEMED date of Management

Sec 129 Reportorial Requirements

a.​ ​ ​Annual Financial statements must be Audited (General Rule). (Exception- )

b.​ ​ → (a) others

General Rule: Fiscal Year (360 days) is based on Articles of Incorporation

Exception: Calendar year (365 days)

Delinquent status- Failure to submit the reportorial requirements

-​ 3x whether intermittently or consecutive within 5 years

​

Sec 130 Liability of Single Stockholder

General Rule: Single Stockholder must prove that he is adegreatly financed for
doctrine to apply

Exception: Failure to prove- solidarily liable of One Person Corporation

-​ Doctrine of Piercing the veil of corporate Fiction applies

​

Sec 131 -Conversion from Ordinary Corporation to One Person Corporation

Ordinary→ OPC

How? Acquires all stocks

-​ Apply for conversion to OPC→ SEC

​

-​ SEC will issue Certificate of Conversion

​

Sec 132 -Conversion of OPC to Ordinary Corporation

46
 Sec 123

-​ ​​Within 5 days notify Nominee or Alternate Nominee

-​ Within 5 days notify SEC

​

Sec 132

-​Notice to Sec within 60 days from occurrence of circumstances leading to

conversion

-​SEC issues certificate of Filing at amended Articles of Incorporation reflecting

the conversion

-​WITHIN 7 days, transfer the shares the legal heir/ estate

-​Within 60 days from transfer of shares, legal heirs shall NOTIFY SEC

a. Wind up and Dissolve One Person Corporation or

b. Convert it to Ordinary Corporation

Sec 133 DISSOLUTION

Method of Dissolution

Dissolution

A. Voluntary (4) (134/135/136/113)

B. Involuntary (5) (sec. 138)

Sec 134 -Voluntary Dissolution where NO creditors are affected

Vote- Majority + Majority

Notice- At least 20 days prior to the meeting

*Notice of the meeting shall also be published ONCE prior to meeting (see sec 67-
2x / Sec 72-3x)

*Verified Request for Dissolution:

Documents to Submit (3)

47
 Issuance of Certificate of Dissolution- within 15 days from receipt of the verified
REQUEST

*Favourable Recommendation required

Sec 135 -Voluntary Dissolution where creditors are affected

Verified PETITION for Dissolution (list of ALL creditors)

Vote- Majority + 2/3

Order of SEC- shall be published once a week for 3

- shall be POSTED for 3 consecutive weeks in public places

- 5 days’ notice Judgment dissolving it by SEC | Certificate of

Dissolution

Sec 136 Dissolution by shortening the corporate Term – ​Vote= Majority + 2/3

Effectivity of Dissolution- paragraphs 2 and 3 (day following the last day)

Sec 137 -Withdrawal of Request and Petition for Dissolution

Form- in writing and VERIFIED, SIGNED by I/ D/ T/ S/ M and in MOTION

Date to submit or Period to File- not later than 15 days from receipt of request for
dissolution (within 15 days from filing of request for dissolution)

Possible decisions by SEC (3)

Sec 138 Involuntary Dissolution

How? By the Commission either by

1. MOTU PROPRIO - on its own initiative
2. Verified complaint filed by a party

GROUNDS:
a. Non-use of Corporate Charter
b. Continuous Inoperation
c. Receipt of LAwful order of court - Quo warranto

48
 d. Final judgment that the corporation procured its COI by FRAUD (PD
902-A)
e. Final judgment that:
1. Xxx purpose of committing xxx
2. Committed or AIDED xxx
3. Repeatedly and knowingly tolerated xxx

Effect of Dissolution - Assets FORFEITED in favor of the State/government

Sec 139 Corporate Liquidation

RA 11232 does not apply to BANKS (PDIC and NCBA)

Methods of Liquidation
1. Corporation itself
2. Duly appointed Receiver
3. Trustee

3 year winding up period

ESCHEAT - if SHs or Ms cannot be found or unknown

Corporation distribute its assets

1. Dissolution
2. Decrease of Capital Stock

Priority of Application of Assets (Trust Fund Doctrine)

1. Creditors
2. Shareholder Creditor
3. Shareholder

Sec 140 Definition and Rights of Foreign Corporations

2 Conditions
1. Incorporation test
2. Reciprocity rule

2 Documents
1. License from SEC
2. Certificate of Authority from appropriate Government Agency

Sec 141 Application to Existing Foreign Vorporations

- Transitory provision
- Allexisting foreign corporsitons authorized to do so shall CONTINUE tto
function

Sec 142 Application for a LICENSE Requirements

49
 1. Copy of its Foreing AOI and by-laws
2. Proof of Reciprocity
3. Proof that the applicant is SOLVENT and with sound financial standing
4. Certification from appropriate Government Agency
5. Resident Agent

OTHERS
1. Place of operation in PH
2. Name of Resident Agent
3. Specific purposes

Sec 143 Issuance of License

SEC issues License to operate/transact business in the PH
Submission of deposit of Securities
- Within 60 days after issuance of the license to transact business

Deposit of Additional Securities of Financial Statements

Substitute deposits

Sec 144 Who may be a Resident Agent

EITHER
1. Individual residing in PH
2. Domestic Corporation transacting business in the PH

QUALIFICATIONS
1. Individual
a. GMC
b. SFS
2. Domestic Corporation
a. SFS
b. Proof of GS

Sec 145 Resident Agent - Condition Precedent

Why?
On whom summons and other legal processes may be scrued (Jurisdiction)

Sec 146 Law Applicable

Law of State of Creation​ - creation, formation, organization, dissolution SH
liabilities, responsibilities, wtc.

Philippine Law​ - operation

Sec 147 Amendments to AOI or By-laws of Foreign Corporation

50
 Vote - ​depends on its own country

Submit copy within 60 days after the amendment becomes effective to the
Commission

Sec 148 Amended License

When? ​Change of name or additional purposes
How? ​Apply for Amended License - SEC

Sec 149 Merger or Consolidation

2 instances
1. Merger or Consolidation with Domestic Corporation
- follow Philippine Law
2. Merger or Consolidation with Home country
a. If it is the ABSORBING Corporation
- File copy of the Articles of M or C within 60 days after its
effectivity to SEC
b. If it is the ABSORBED Corporation
- Petition for Withdrawal of License

Sec 150 Doing Business without License

General Rule: ​must be licensed to OPERATE

Effect: ​not allowed to sue in PH but it can be sued in PH

What is doing business in PH?

Eq.
- Soliciting orders, purchases
- Opening offices
- Participating in Management
- Appointing representations
- Other functions
Exception: ​Even if not licensed allowed if

1. Isolated Business transactions

2. Protection of Trademarks or Tradenames
3. Principle of Estoppel
4. Stipulation that the Philippines is the venue of the action

Sec 151 Revocation of License

Revocation or Suspension of License (9)

Sec 152 Issuance of Certificate of Revocation

Sec 153 Withdrawal of License

51
 Requirements:
1. All PH claims PAID
2. All taxes PAID
3. Published once a week for 3 consecutive weeks

Sec 154 INVESTIGATIONS, OFFENSES, AND PENALTIES

Investigation and Prosecution of Offenses
- Investigate
- Prosecute
- Publish

Sec 155 Administrations of Oaths, Subpoena of Witnesses and Documents

Ad testificandum
Duces Tecum

Sec 156 Cease and Desist Order

When? A person has violated or in abort to violate the Code - ​DESIST
EX PARTE​ - order to enjoin the act which in FRAUDULENT or can reasonably
cause significant, imminent and irreparable damage or injury to public
safety/welfare
Validity - maximum of 20 days (permanent cease & desist)

Sec 157 Contempt

Fails or refuses to compile of a lawful order
Cited for contempt and FINES - maximum of ​₱30k
Daily fine of ₱1k until it is complied

Sec 158 Administrative Sanctions

1) Imposition of Fine - ​₱5k-₱2M
Continuing fine ₱1k (not to exceed 2m)
2) Issuance of permanent cease and desist order
3) COI suspension or revocation
4) Dissolution of the corporation and forfeiture of its assets

Sec 159 OFFENSES 159-170 (144-Old)

Unauthorized use of Corporation Name

Sec 160 Violation of Disqualification (26)

DIT/O willfully holds office or willfully conceals such disqualification despite
knowledge of it
PENALTY i Fine + Permanent Disqualification

Sec 161 Violation of Duty to Maintain

Records or Allow inspection or Reproduction
45/73/92/128/177
Unjustified Failure or refusal

52
 Who is liable? Person keeping and maintaining records

Sec 162 Willful Certification of Incomplete, Inaccurate, False or misleading

Statements or Reports

Sec 163 Independent Auditor Collusion

Certifies the corporation’s financial statements despite its incompleteness or

inaccuracy

Sec 164 Obtaining Corporate Registration Through Fraud

PD 902-A FRASERECOFAFA

Sec 165 Fraudulent Conduct of Business

Sec 166 Acting as INTERMEDIARIES for Graft and Corrupt Practices

Prima Facie (di ko maintindihan kasunod na word) of Corporate

Sec 167 Engaging Intermediaries for Graft and Corrupt Practices

Sec 168 Tolerating Graft and Corrupt Practices

Sec 169 Retaliation against Whistleblowers

Whistleblower - person who provides truthful information relating to the
commission of any offense

Sec 170 Other Violations of the Code; Separate Liability

Dissolution + Separate institution of action
Liability herein shall be separated from any administrations, civil or criminal
liability

Sec 171 Liability of Directors, Trustees, Officers, or Other Employees

If the offender is a corporation - penalty may be imposed - D/T/O/E/Sh/M

Sec 172 Liability of Aiders and Abettors and Other Secondary Liability
MISCELLANEOUS PROVISIONS

Sec 173 Outstanding Capital Stock Defined

- Total shares of stock issued under binding subscription contracts by
subscribers or stockholders
Before - 137

Sec 174 Designation of Governing Boards

Non-stock/Special Corporations may designate governing boards by any name
other than as BOT

Sec 175 Collection and Use of Registration, Incorporation and Other Fees

53
 SEC authorized to collect, retain, and use fines, fees, and other charges

Sec 176 Stock Ownership in Corporations

- NEDA determines for correction or prevention
- Congress can set maximum limit for stock ownership of individuals
- Philippine Competition Act applicable
● No Foreign Equity - 100% FU - owned
1) Mass Media (12)
2) Services involving the practice of licensed professions:
Engineering, Medicine, Accountancy, Architecture, Criminology,
Chemistry, Custom Brokerage, Environmental Planning, Forestry
etc. Lw
● Up to 40% Foreign Equity - 60/40 (Fil/Alien)
1) Exploration of Natural Resources
2) Ownership of Private Lands
3) Public Utilities
4) Educational Institutions
5) Rice and Corn Industry
Supreme Court -> CA -> RTC (SEC) -> MTC

Sec 177 Reportorial Requirements of Corporations

1) Annual financial statements audited by independent CPA
( See 74-Aud, 129 - Aud)
E - if fee than ​ ₱600k (OR)
2) General Information Sheet
Corporations vested with public interest (2_
Failure to submit - Delinquent Status
- 3x within a period of 5 years
REDACT ​- Confidential Information

Sec 178 Visitorial Power and Confidential Nature of Examination Results

Effect of refusal/failure - COI Revocation
Right of Inspection - SH

Sec 179 Powers, Functions and Jurisdiction of SEC (a-j) ​16

● Intra corporate disputes - writ of E & A
● Promote corporate governance
Only SC and CA have jurisdiction to SEC to issue orders, injunctions etc.

Sec 180 Development of Electronic Filing and Monitoring System

Sec 181 Arbitration for Corporations

Arbitration for Unlisted Corporation Jurisdiction of provided
1) Implementation of AOI and By-Laws
2) Intra-corporate relations

54
 NON-ARBITRATE if​:
1) Criminal offenses
2) Interests of Third Parties
To be enforceable - no. of arbitrators and procedure for their appointment and
accredited
HOW?
1) Independent Third Party
2) If not - COMMISSION appoints
Final Arbitral Award - Executory after lapse of 15 days from receipt of parties
(Stayed? BOND or Writ)

Sec 182 Jurisdiction Over Party-List Organization -> ​COMELEC

Sec 183 Applicability of Code

- Provisions of Special Laws for Special Corporations such as Banks NOT
amended
- BSP and Insurance Commission shall continue to have primary authority
over Special Corporations
SEC - Secondary only

Sec 184 Effect of Amendment or Repeal of This Code, or the Dissolution of a

Corporation

Sec 185 Applicability of Existing Corporation

- 2 years to comply from effectivity

Sec 186 Separability Clause

Sec 187 BP 68 repealed

Sec 188 Effectivity - February 23, 2019

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