MODULE 3 o Explained the o Case digest/research

difference of (Supreme Court

CORPORATIONS
TITLE OF THE General provisions of
MODULE corporations
LEANING o To describe corporate
OBJECTIVES firm;
o To explain the
difference of
corporation and
partnership;
o To illustrate a
corporate principle in
law;
o To summarize the
incorporation process
; o
o To explain the need
of being registered;
o To analyze the
organization of
corporation;
o To explain the
composition of
corporate officers;
o To compare board of
directors and board
of trustees
LEARNING o described corporate
OUTCOMES firm;
corporation and decisions relevant to
partnership; topics)
o Illustrated a o Drafting of articles of
corporate principle in incorporation
law;
o Outlined the
incorporation process ASSESSMENT
; o Formative evaluation
o Explained the need of through quiz via
being registered; goggle classroom
o Analyzed the o Major examination
organization of TIME NEEDED Five (5) hours
corporation;
o Explained the
composition of
corporate officers;
Compared board of
directors and board
of trustees
STRUCTURE o General provisions;
MODULE 3
o Incorporation and
organization of REVISED CORPORATION CODE
private corporations;
R. A NO. 11232
o Board of
directors/trustees
and officers TITLE I
GENERAL PROVISIONS
DEFINITION AND CLASSIFICATIONS
EXERCISES/ACTIVITIE o Lecture/interactive
S discussion via zoom
Section 1. Title of the Code. - This Code shall be
known as the "Revised Corporation Code of the
Philippines".
The present Revised Corporation Code (r. a. 11232),
took effect on February 23, 2019.
Section 2. Corporation Defined. - A corporation is an
artificial being created by operation of law, having
the right of succession and the powers, attributes,
and properties expressly authorized by law or
incidental to its existence.
ATTRIBUTES OF A CORPORATION
1. It is an artificial being;
2. It is created by operation of law;
3. It has the right of succession; and
4. It has only the powers, attributes, and
properties expressly authorized by law or
incident to its existence.
CORPORATION as an ARTIFICIAL BEING
A corporation is a juridical entity vested with
legal personality SEPARATE and DISTINCT from its
stockholders (Stock Corporation) or individual
members (non-stock corporations) who, as natural
persons, are merged in the corporate body. It is not,
in fact, and in reality, a person but the law treats it as
though it is a person. The stockholders or members
compose the corporation but they are not the
corporation, nor is the debt or credit of the latter
that of the former.
It has a personality separate and distinct from
the persons composing it, as well as from any other
legal entity to which it may be related.
As a consequence of this legal concept of separate
personality of a corporation:
1. LIABILITY FOR DEBT/ OWNERSHIP OF
CREDIT – the corporation is not liable for the
debts of its stockholders and vice versa.
2. RIGHT TO BRING ACTIONS – A corp. may
incur obligations and bring civil or criminal
actions in its own name in the same manner
as a natural person.
3. RIGHT TO ACQUIRE AND POSSESS PROPERTY
– property conveyed to or acquired by the
corporation is in law the property of the
corporation itself as a distinct legal entity and
not that of the stockholders or members as
such.
4. LIABILITY FOR CONTRACTS – All contracts
entered into in its name by its regular
appointed officers and agents are the
contract of the corporation and not those of
the stockholders or members.
5. TAX EXEMPTION /LIABILITY – Tax exemption
granted to corporation cannot be extended
to include its stockholders.
What is meant by “Piercing the Veil of Corporate
Entity”?
That the separate juridical personality of the
corporation may be disregarded, where such
separate personality is availed:
a. To defeat public convenience;
b. To justify wrong;
c. To protect fraud;
d. To defend crime, in which case or cases, the
law would regard the corporation a mere
association of persons thus hold the latter
jointly liable.
CORPORATION as a CREATION OF LAW or BY
OPERATION OF LAW
1. Special authority or grant by the State
required – a corporation is created by law or
by operation of law. This means that
corporation cannot come into existence by
mere agreement of the parties as in the case
of business partnership. They require special
authority or grant from the State. This power
exercise by the State through the legislative
department either by a special incorporation
law which directly creates the corporation or
by means of a general incorporation law
under which, by operation of said law, person
 desiring to be and act as a corporation may
incorporate.
2. Governing general law/special laws – in the
Philippines, the general law which govern the
creation of PRIVATE CORPORATIONS is Batas
Pambansa Blg. 68, NOW R. A 11232 REVISED
CORPORATION CODE OF THE PHILIPPINES.
Private corporations owned and
controlled by the government or any
subdivision or instrumentality thereof are
created by SPECIAL LAWS. (Constitution of
the Philippines, Art. XII, Sec. 16.)
3. EXCEPTION – Legislative grant or authority is
not necessary – corporation by prescription.
Ex. Roman Catholic Church
RIGHT OF SUCCESSION OF A CORPORATION
A corporation has a capacity of continuous
existence irrespective of the:
a. DEATH, WITHDRAWAL, INSOLVENCY, or
INCAPACITY of the individual members or
stockholders; and
b. Regardless of the TRANSFER of their interest
or shares of stock. But the corporation is by
no means immortal
1. Under B. P. 68 – the life of the corporation is
limited to up to 50 years but NOW under R.
A. NO. 11232 – REVISED Corporation Code -
The life is now “ PERPETUAL EXISTENCE”.
2. Corporation created by special laws have the
right of succession for the term provided in
the laws creating them.
POWERS OF A CORPORATION
A corporation has no power EXCEPT those
a. EXPRESSLY conferred on it by the:
1. Corporation Code
2. or special laws
b. and those that are IMPLIED or INCIDENTAL
to its existence.
In turn, a corporation exercise said powers
through its:
1. BOARD OF DIRECTORS
2. Duly authorized officers and agents
RIGHT OF A CORPORATION TO OWN PROPERTY
Property acquire by the corporation is the
property of the corporation and not the property of
stockholders or members, being a separate legal
personality or entity from persons composing it
Section 3. Classes of Corporations. - Corporations
formed or organized under this Code may be stock
or non-stock corporations. Stock corporations are
those which have capital stock divided into shares
and are authorized to distribute to the holders of
such shares, dividends, or allotments of the surplus
profits on the basis of the shares held. All other
corporations are non-stock corporations.
CLASSIFICATION OF PRIVATE CORPORATIONS
1. STOCK CORPORATION - are those which
have capital stock divided into shares and are
authorized to distribute to the holders of
such shares, dividends, or allotments of the
surplus profits on the basis of the shares
held.
2. NON-STOCK CORPORATION – Do not issue
stock and are created not for profit but for
the public good and welfare. Non-stock
corporation:
a. have no capital stock which can be
subscribed by their members;
b. their capital are sourced from
contributions and donations.
Example:
Religious, social, literary, scientific, civic
and political organizations and societies.
OTHER CLASSES OF CORPORATION
AS TO PURPOSE
Public Corporation Private Corporation
A corporation for the A corporation
government of a portion formed for some private
of the State for the purpose, benefit or end.
general good and welfare.
Government-owned and Quasi-public
controlled corporation corporation
(GOCC) A private
A corporation owned corporation which has
by the Government accepted from the
directly or through its
instrumentalities either
wholly, or; where
applicable as in the case
of stock corporations, to
the extent at least 51 % of
its capita stock.
AS TO LEGAL RIGHT TO CORPORATE EXISTENCE
De Jure Corporation
A corporation created
in strict or substantial existing in in fact but not
conformity with the in law (Sec. 21)
mandatory statutory
requirements for
incorporation and the
right of which to exist as a
corporation cannot be
successfully attacked or
questioned by any party
even in a direct
proceeding for that
purpose by the State.
(Corporation existing in
fact and in law)
Corporation by Estoppel
One which in reality is
not a corporation, either
De Jure or De Facto,
because it is so
defectively formed, but is
considered a corporation
STATE the grant of in relation to those only the sovereign power
franchise or contract who, by reason of their and which by fiction of As to Number of Persons who Compose them
involving the acts or admissions are law, is given the status Corporation Aggregate Corporation Sole
performance of public precluded from asserting of a corporation. A corporation of more A corporation
duties but which is that it is not a Ex. Roman Catholic than one member consisting of only one
organized for profit. corporation. Church member for the purpose
Ex.: electric, water, and (Barlin v. Ramirez, 7 Phil. administering and
transportation 41) managing, as trustee,
companies. the affairs, property and
temporalities of any
De Facto Corporation As To Laws of Incorporation religious denomination,
A corporation Domestic Corporation Foreign Corporation sect or church.
A corporation One formed,
incorporated under organized, or existing As to whether They are for Charitable or Not
Philippine laws under any laws other Ecclesiastical Corporation Lay Corporation
than those of the A corporation A corporation
Philippines. organized for religious organized for a purpose
purposes other than for religion.
As to whether they are open to the public or not
Open Corporation Close Corporation As to whether They are for Charitable Purposes or
Open to any person Limited to selected Not
who may wish to become persons or members of Eleemosynary Civil Corporation
a stockholder or member a family. Corporation A corporation
thereto. A corporation organized for business
As to Relationship of Management and Control organized for charitable purposes.
Parent or Holding Subsidiary Corporation purposes.
Corporation A corporation more
Corporation by A corporation that than 50 % of the voting
Prescription hold stocks in another stock of which is Section 4. Corporations Created by Special Laws or
One which has corporation for purposes controlled directly or
exercised corporate Charters. - Corporations created by special laws or
of control. indirectly by another
powers for an indefinite corporation, which charters shall be governed primarily by the
period without thereby becomes its provisions of the special law or charter creating
inference on the part of parent corporation. them or applicable to them, supplemented by the
provisions of this Code, insofar as they are
applicable.
INCORPORATION OF PRIVATE CORPORATION BY A
SPECIAL ACT
SECTION 4 authorizes the creation of PRIVATE
CORPORATION by SPECIAL LAWS or CHARTERS. The
enactment of a special act creating a private
corporation is subject to constitutional limitation that
such corporation shall be OWNED and CONTROLLED
by the:
1. Government; or
2. Any subdivision or instrumentality thereof.
(Art. XII, Sec. 16, 1987 Constitution)
Reason for the limitation:
1. To prevent the granting of special privileges
to one body of men without giving all others
the right to obtain them in the same
conditions;
2. Partly to prevent bribery and corruptions of
the legislature. (Clark on Corporations, p. 45)
Example of corporation created by special act
1. DBP, 2. Land Bank, 3. Veterans Bank
Section 5. Corporators and Incorporators,
Stockholders and Members. - Corporators are those
who compose a corporation, whether as
stockholders or shareholders in a stock corporation
or as members in non-stock corporations.
Incorporators are those stockholders or members
mentioned in the articles of incorporation as
originally forming and composing the corporation
and who are signatories thereof.
COMPONENTS OF A CORPORATION
1. Corporators – those who compose the
corporation, whether as stockholders or
members.
2. Incorporators – the stockholders or
members mentioned in the Articles of
Incorporation as originally forming and
composing the corporation and who are
signatories in the Articles of Incorporation.
3. Stockholders (Shareholders) – the owners of
shares of stock in a stock corporation.
4. Members – the corporators of a non-stock
corporation.
Three other classes
1. Subscribers – persons who agreed to take
and pay for original, unissued shares of a
corporation formed or to be formed.
2. Underwriter- a person who guarantees on a
firm commitment and/or declared best effort
basis the distribution and sale of securities of
any kind by another company.
- A person or entity, especially an
investment banker, who guarantees the
sale of newly issued securities by
purchasing all or part of the shares for
resale to the public.
3. Promoter – A person who brings about or
cause to bring about the formation and
organization of a corporation by;
1. Bringing together the incorporators or
the persons interested in the enterprise;
2. Procuring subscriptions or capital for the
corporation;
3. Setting in motion the machinery which
leads to the incorporation of the
corporation itself.
A founder or organizer of a corporation
or business venture; one who takes the
entrepreneurial initiative in funding or
organizing a business enterprise.
Section 6. Classification of Shares. - The
classification of shares, their corresponding rights,
privileges, restrictions, and their stated par value, if
any, must be indicated in the articles of
incorporations. Each share shall be equal in all
respects to every other share, except as otherwise
provided in the articles of incorporation. Each share
shall be equal in all respects to every other share,
except as otherwise provided in the articles of
incorporation and in the certificate of stock.
The share stock corporations may be divided into
classes or series of shares, or both. No share may be
deprived of voting rights except those classified and
issued as "preferred" or "redeemable" shares,
unless otherwise provided in this Code: Provided
that there shall be a class or series of shares with
complete voting rights.
Holders of nonvoting shares shall nevertheless be
entitled to vote on the following matters;
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or other
disposition of all or substantially all of the corporate
property;
(d) Incurring, creating, or increasing bonded
indebtedness;
(e) Increase or decrease of authorized capital stock;
(f) Merger or consolidation of the corporation with
another corporation or other corporations;
(g) Investment of corporate funds in another
corporation or business in accordance with this
Code; and
(h) Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote required under this Code to
approve a particular corporate act shall be deemed
to refer only to stocks with voting rights.
The shares or series of shares may or may not have
a par value: Provided, That banks, trust, insurance,
and preneed companies, public utilities, building
and loan associations, and other corporations
authorized to obtain or access funds from the public
whether publicly listed or not, shall not be
permitted to issue no-par value shares of stock.
Preferred shares of stock issued by a corporation
may be given preference in the distribution of
dividends and in the distribution of corporate assets
in case of liquidation, or such other preferences:
Provided, That preferred shares of stock may be
issued only with a stated par value. The board of
directors, where authorized in the articles of
incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof:
Provided, further, That such terms and conditions
shall be effective upon filing of a certificate thereof
with the Securities and Exchange Commission,
hereinafter referred to as the "Commission".
Shares of capital stock issued without par value
shall be deemed fully paid and non-assessable and
the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
Provided, That no-par value shares must be issued
for a consideration of at least Five pesos (₱5.00) per
share: Provided, further, That the entire
consideration received by the corporation for its no-
par value shares shall be treated as capital and shall
not be available for distribution as dividends.
A corporation may further classify its shares for the
purpose of ensuring compliance with constitutional
or legal requirements. (Change in corporations not
permitted to no par shares)
 A corporation may further classify its shares
for the purpose of ensuring compliance with
constitutional or legal requirements.
DOCTRINE OF EQUALITY OF SHARES
Each share shall be equal in all respects
(rights and liabilities) to every other share
except as otherwise provided in the articles
of incorporation stated in the certificate of
stock.
WHO MAY CLASSIFY SHARES?
1. Incorporators
It is to be determined by the
incorporators by stating it in their articles of
Incorporation which will be filed in the S. E.
C.
2. Board of Directors and stockholders
 The original classification of shares made
by the incorporators which was stated in the
articles of incorporation can be amended by
a majority vote of the BOD and the vote or
written assent of the stockholders
representing at least 2/3 of the outstanding
capital stock.
WHAT ARE VOTING SHARES?
Shares with a right to vote. There shall always be
a class or series of shares which have complete
voting rights.
WHAT ARE NON-VOTING SHARES?
Shares without right to vote.
The law provides that shares classified and issued as
preferred or redeemable shares may be deprived of
voting right.
WHAT IS A COMMON SHARE OF STOCK?
A class of stock entitling the holder to vote on
corporate matters, to receive dividends after other
claims and dividends have been paid (specially to
preferred shareholders), and to share in the assets
upon liquidation. Common stock is often called
capital stock IF it is the corporation’s only class of
stock outstanding. Also termed ordinary shares.
WHAT IS PREFERRED SHARE OF STOCK?
A preferred share of stock is one which entitles
the holder thereof to certain preferences over the
holders of common stock. The preferences are
designed to INDUCE persons to subscribe for shares
of a corporation.
CLASSES OF PREFERRED SHARE OF STOCK:
1. Preferred share as to assets – a share which
gives the holder thereof preference in the
distribution of the assets of the corporation
in case of liquidation.
2. Preferred share as to dividends – a share the
of which is entitled to receive dividend on
said share to the extent agreed upon before
any dividends at all are paid to the holders of
common stock.
WHAT ARE REDEEMABLE SHARES?
REDEEMABLE SHARES may be issued by the
corporation when expressly so provided in the
articles of Incorporation. They may be purchased or
taken up by the corporation upon the expiration of a
fixed period, regardless of the existence of
unrestricted retained earnings in the books of the
corporation, and upon such other terms and
conditions as may be stated in the articles of
incorporation, which terms and conditions must also
be stated in the certificate of stock representing said
shares.
INSTANCES WHEN HOLDERS OF NON-VOTING
SHARES ARE ALLOWED
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all of
the corporate property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of authorized capital
stock;
6. Merger or consolidation of the corporation
with another corporation or other
corporations;
7. Investment of corporate funds in another
corporation or business in accordance with
this Code; and
8. Dissolution of the corporation.
Note: shares classified both as voting and
non-voting shares are entitled to vote in 8
instances above.
WHAT ARE PAR VALUE SHARES?
Shares with a value fixed in the articles of
incorporation and the certificates of stock.
WHAT ARE NO PAR VALUE SHARES?
Share with no par value
 Note: Stocks shall not be issued for a
consideration less than the par or issued price
thereof.
LIMITATION ON NO PAR VALUE SHARES
1. It cannot have an issued price of less than
P5.00
2. It is deemed fully paid and non-assessable
3. The entire consideration for its issuance
constitutes capital so that no part of it should
be distributed as dividends;
4. It cannot issued as preferred shares
5. It cannot be issued by banks, trust,
insurance, and preneed companies, public
utilities, building and loan associations, and
other corporations authorized to obtain or
access funds from the public whether
publicly listed or not;
6. The articles of incorporation must state the
fact that it is issued no par value shares as
well as the number of said shares.
WHAT IS PROMOTION SHARE?
A share issued to promoter or those in some way
interested in the company, for incorporating the
company, or for services rendered in launching or
promoting the welfare of the company.
WHAT IS SHARE IN ESCROW?
A share subject to an agreement by virtue of otherwise known as "Foreign Investments Act of
which the share is deposited by the grantor or his 1991"; and other pertinent laws. (New rules under
agent with a third person to be kept by the RCC)
depositary until the performance of certain condition
or the happening of a certain event contained in the
FOUNDER’S SHARES
agreement.
Shares classified as such in the articles of
WHAT IS FRACTIONAL SHARE? incorporation which may be given certain rights and
A share that is less than one full share. privileges (e.g. dividend payment) not enjoyed by the
owners of other stocks.
WHAT IS OVER-ISSUED STOCK?
It is a stock or share issued in excess of the
LIMITATION ON FOUNDER’S SHARES
authorized capital stock. Such issuance is null and
void. The exclusive right to vote and be voted for in the
election of directors, if granted, it must be for a
WHAT IS CONVERTIBLE SHARE? limited period not to exceed 5 years from the date of
A share that is convertible by the stockholder incorporation.
from one class to another class at a certain price and
within a certain period.
Section 8. Redeemable Shares. - Redeemable shares
may be issued by the corporation when expressly
Section 7. Founders' Shares. - Founders' shares may
provided in the articles of incorporation. They are
be given certain rights and privileges not enjoyed by
shares which may be purchased by the corporation.
the owners of other stock. Where the exclusive right
They are shares which may be purchased by the
to vote and be voted for in the election of directors
corporation from the holders of such shares upon
is granted, it must be for a limited period not to
the expiration of a fixed period, regardless of the
exceed five (5) years from the date of incorporation:
existence of unrestricted retained earnings in the
Provided, That such exclusive right shall not be
books of the corporation, and upon such other
allowed if its exercise will violate Commonwealth
terms and conditions stated in the articles of
Act No. 108, otherwise known as the "Anti-Dummy
incorporation and the certificate of stock
Law"; Republic Act No. 7042, otherwise known as
representing the shares, subject to rules and
the "Foreign Investments Act of 1991"; and
regulations issued by the Commission.

WHAT ARE THE REDEEMABLE SHARES?
REDEEMABLE SHARES are shares usually
preferred, which by their terms are redeemable at a
fixed date, or at the option of either issuing
corporation, or the stockholder, or both at a certain
redemption price. A redemption by the corporation
of its stocks is, in a sense, a repurchase of it for
cancellation.
The present Code allows redemption of shares
even if there are no unrestricted retained earnings
on the books of the corporation. This is a new
provision which in effect qualifies the general rule
that the corporation cannot purchase its own shares
except out of current retained earnings. However,
while redeemable shares may be redeemed
regardless of the existence of unrestricted retained
earnings, this is subject to the condition that the
corporation has, after such redemption, assets in its
books to cover debts and liabilities inclusive of capital
stock. Redemption, therefore, may not be made
where the corporation is insolvent or if such
redemption will cause insolvency or inability of the
corporation to meet its debts as they mature.
LIMITATIONS ON REDEEMABLE SHARES
1. It must be expressly provided in the articles
of incorporation;
2. The terms and conditions affecting said
shares must be stated both in the articles of
incorporation and in the certificate of stock;
3. It may be deprived of voting rights in the
article of incorporation;
4. Redemption cannot be made if it will cause
insolvency of the corporation.
What is RETAINED EARNINGS?
A corporation’s accumulated income after
dividends have been distributed. Also termed earned
surplus; undistributed profit.
KINDS OF REDEEMABLE SHARES
1. Compulsory – The Corporation is required to
redeem the shares.
2. Optional – The Corporation is not mandated
to redeem the shares.
CAN REDEEMABLE SHARES BE REISSUED?
Redeemable shares, once redeemed are retired
unless reissuance is expressly allowed in the articles
of incorporation.
WHAT IS TRUST FUND DOCTRINE?
The Trust Fund Doctrine provides that
subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right
to look for the satisfaction of their claims.
This doctrine is the underlying principle in the
procedure for the distribution of capital assets,
embodied in the Corporation Code, which allows the
distribution of corporate capital only in the three
instances:
1. Amendment of the Articles of Incorporation
to reduce the authorized capital stock;
2. Purchase of redeemable shares by the
corporation, regardless of of the existence of
unrestricted retained earnings;
3. Dissolution and eventual liquidation of the
corporation.
Section 9. Treasury Shares. - Treasury shares are
shares of stock which have been issued and fully
paid for, but subsequently reacquired by the issuing
corporation through purchase, redemption,
donation, or some other lawful means. Such shares
may again be disposed of for a reasonable price
fixed by the board of directors.
WHAT ARE TREASURY SHARES?
Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently
reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful
means.
RIGHTS THAT ARE DENIED TO THE TREASURY
SHARES
1. Voting rights
2. Right to dividends
Note:
Treasury shares sold below par value are not
watered stock because watered stock contemplates
an original issuance of shares.
WHAT ARE WATERED STOCKS?
Stocks issued for a consideration less than the
par or issued price therof or in any other than cash
valued in excess of its fair value.
Note:
Watered stock refers only to original issue of
shares but not to a subsequent transfer of such
shares by the corporation. Thus, treasury shares may
be sold for less than par or issued value for they have
already been issued and paid for.
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE
CORPORATIONS
Section 10. Number and Qualifications of
Incorporators. - Any person, partnership,
association or corporation, singly or jointly with
others but not more than fifteen (15) in number,
may organize a corporation for any lawful purpose
or purposes: Provided, That natural persons who
are licensed to practice a profession, and
partnerships or associations organized for the
purpose of practicing a profession, shall not be
allowed to organize as a corporation unless
otherwise provided under special laws.
Incorporators who are natural persons must be of
legal age.
Each incorporator of a stock corporation must own
or be a subscriber to at least one (1) share of the
capital stock.
A corporation with a single stockholder is
considered a One Person Corporation as described
in Title XIII, Chapter III of this Code.
(Note: ONE PERSON CORPORATION – is a
corporation with single stockholder.
NOTE: Only a natural person, trust or an estate
may form a One Person Corporation (OPC)
WHO MAY INCORPORATE OPC?
1. Any person (Natural Person) must be of legal
age;
2. Partnership, association or corporation,
singly or jointly with others.
WHO MAY NOT INCORPORATE AS OPC
1. Banks and quasi-banks, Preneed, trust,
insurance, public and publicly-listed
companies, and non- chartered GOCC
2. Natural person who is licensed to exercise a
profession for the purpose of exercising such
profession except as otherwise provided
under special laws.
QUALIFICATION OF INCORPORATORS
1. Those stockholders or members mentioned
in the Articles of Incorporation;
2. A signatory of the Articles of Incorporation;
3. Must own or be a subscriber to at least one
(1) share of capital stock
4. Not more than 15 in numbers
5. Does not cease to be an incorporator upon
sale of his shares;
STEPS IN THE CREATION OF A CORPORATION
1. Promotion
The formation or organization
corporations are brought about at the
instance and under supervision of one or
more promoters.
2. Incorporation
Steps of incorporation
a. Drafting and execution of the Articles of
Incorporation and other documents
 required for registration of a corporation
by the incorporators.
b. Filing of the Articles of Incorporation
with the Securities and Exchange
Commission together with the:
1. Treasurer’s Affidavit
2. In case the corporation is governed
by special law (e.g. educational
institution), a favorable
recommendation of the appropriate
government agency (e.g. CHED or
DepEd) that such articles of
incorporation and by-laws is in
accordance with law.
3. Formal organization and commencement of
business transactions
Examples:
1. adoption of by-laws and filing the
same with the SEC
2. election of Board of Directors or
Board of Trustees and officers
3. payment of shares
Section 11. Corporate Term. - A corporation shall
have perpetual existence unless its articles of
incorporation provides otherwise.
Corporations with certificates of incorporation
issued prior to the effectivity of this Code and which
continue to exist shall have perpetual existence,
unless the corporation, upon a vote of its
stockholders representing a majority of its articles
of incorporation: Provided, That any change in the
corporate right of dissenting stockholders in
accordance with the provisions of this Code.
A corporate term for a specific period may be
extended or shortened by amending the articles of
incorporation: Provided, That no extension may be
made earlier than three (3) years prior to the
original or subsequent expiry date(s) unless there
are justifiable reasons for an earlier extension as
may be determined by the Commission: Provided,
further, That such extension of the corporate term
shall take effect only on the day following the
original or subsequent expiry date(s).
A corporation whose term has expired may apply
for revival of its corporate existence, together with
all the rights and privileges under its certificate of
incorporation and subject to all of its duties, debts
and liabilities existing prior to its revival. Upon
approval by the Commission, the corporation shall
be deemed revived and a certificate of revival of
corporate existence shall be issued, giving it
perpetual existence, unless its application for
revival provides otherwise.
No application for revival of certificate of
incorporation of banks, banking and quasi-banking
institutions, preneed, insurance and trust
companies, non-stock savings and loan associations
(NSSLAs), pawnshops, corporations engaged in
money service business, and other financial
intermediaries shall be approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency. (Note: Perpetual existence substantial
changes)
CORPORATE TERM
GENERAL RULE:
A corporation shall have perpetual existence.
EXCEPTION:
If the articles of incorporation provides
otherwise or if it provides for a specific period.
Note: A corporate term for a specific period may be
extended or shortened by amending the articles of
incorporation.
Note: a corporation for a specific period ceases to
exist and is dissolved ipso facto upon the expiration
of the period fixed in the original articles of
incorporation in the absence of compliance with the
legal requisites of extension of period.
REVIVAL OF CORPORATE EXISTENCE
A corporation whose term has expired may apply
for a revival of its corporate existence.
GENERAL RULE:
Upon approval by the SEC, the corporation shall
be deemed revived and a certificate of revival of
corporate existence shall be issued, giving it
perpetual existence.
EXCEPTION: if its application for revival provides
otherwise or provides for specific period.
Section 12. Minimum Capital Stock Not Required of
Stock Corporations. - Stock corporations shall not be
required to have minimum capital stock, except as
otherwise specially provided by special law.
GENERAL RULE:
NO Minimum Authorized Capital Stock.
EXCEPTION:
If provided by special law.
Section 13. Contents of the Articles of
Incorporation. - All corporations shall file with the
Commission articles of incorporation in any of the
official languages, duly signed and acknowledged or
authenticated, in such form and manner as may be
allowed by the Commission, containing substantially
the following matters, except as otherwise
prescribed by this Code or by special law:
(a) The name of corporation;
(b) The specific purpose or purposes for which the
corporation is being formed. Where a corporation
has more than one stated purpose, the articles of
incorporation shall indicate the primary purpose
and the secondary purpose or purposes: Provided,
That a nonstock corporation may not include a
purpose which would change or contradict its
nature as such;
(c) The place where the principal office of the
corporation is to be located, which must be within
the Philippines;
(d) The term for which the corporation is to exist, if
the corporation has not elected perpetual existence;
(e) The names, nationalities, and residence
addresses of the incorporators;
(f) The number of directors, which shall not be more
than fifteen (15) or the number of trustees which
may be more than fifteen (15);
(g) The names, nationalities, and residence
addresses of persons who shall act as directors or
trustees until the first regular directors or trustees
are duly elected and qualified in accordance with
this Code;
(h) If it be a stock corporation, the amount of its
authorized capital stock, number of shares into
which it is divided, the par value of each, names,
nationalities, and subscribers, amount subscribed
and paid by each on the subscription, and a
statement that some or all of the shares are without
par value, if applicable;
(i) If it be a nonstock corporation, the amount of its
capital, the names, nationalities, and residence
addresses of the contributors, and amount
contributed by each; and
(j) Such other matters consistent with law and
which the incorporators may deem necessary and
convenient.
An arbitration agreement may be provided in the
articles of incorporation pursuant to Section 181 of
this Code.1âwphi1
The Articles of incorporation and applications for
amendments thereto may be filed with the
Commission in the form of an electronic document,
in accordance with the Commission's rule and
regulations on electronic filing.
Section 14. Form of Articles of Incorporation. -
Unless otherwise prescribed by special law, the
articles of incorporation of all domestic corporations
shall comply substantially with the following form:
Articles of Incorporation
Of
 _____________________ ________________________ ________________________
(Name of Corporation) ________________________ ________________________
________________________ ________________________
The undersigned incorporators, all of legal age, have ________________________
voluntarily agreed to form a (stock) (non-stock) ________________________ Seventh: That the authorized capital stock of the
corporation under the laws of the Republic of the ________________________ corporation is ____________________ PESOS
Philippines and certify the following: ________________________ (₱______), divided into ____ shares with the par
________________________ value of ___________________ PESOS
First: That the name of said corporation shall be ________________________ (₱_____________) per share. (In case all the shares
"_________________", Inc. Corporation or OPC"; ________________________ are without par value): That the capital stock of the
________________________ corporation is __________________ shares without
Second: That the purpose or purposes for which ________________________ par value.
such corporation is incorporated are: (If there is ________________________
more than one purpose, indicate primary and ________________________ (In case some shares have par value and some are
secondary purposes); ________________________ without par value): That the capital stock of said
Sixth: That the number if directors or trustees of the corporation consists of
Third: That the principal office of the corporation is corporation shall be ___________________; and the ________________________________ shares, of
located in the City/Municipality of names, nationalities, and residence addresses of the which _______________________ shares have a par
_______________, Province of first directors or trustees of the corporation are as value of ___________________________PESOS
______________________, Philippines; follows: (₱_______) each, and of which
1âwphi1 ____________________ shares are without par
Fourth: That the corporation shall have perpetual Name Nationality Residence value.
existence or a term of ___________ years from the ________________________
date of issuance of the certificate of incorporation; ________________________ Eight: That the number of shares of the authorized
________________________ capital stock-stated has been subscribed as follows:
Fifth: That the names, nationalities, and residence ________________________ Name of Subscriber Nationality No. of
addresses of the incorporators of the corporation ________________________ Shares Subscribed Amount Subscribed
are as follows: ________________________ Amount Paid
Name Nationality Residence
(Modify No. 8 if shares are with no-par value. In
case the corporation is nonstock, Nos. 7 and 8 of the
above articles may be modified accordingly, and it is
sufficient if the articles may be modified
accordingly, and it is sufficient if the articles state
the amount of capital or money contributed or
donated by specified persons, stating the names,
nationalities, and residence addresses of the
contributors or donors and the respective amount
given by each.)
Ninth: That _______________________ has been
elected by the subscribers as Treasurer of the
Corporation to act as such until after the successor
is duly elected and qualified in accordance with the
bylaws, that as Treasurer, authority has been given
to receive in the name and for the benefit of the
corporation, all subscriptions, contributions or
donations paid or given by the subscribers or
members, who certifies the information set forth in
the seventh and eighth clauses above, and that the
paid-up portion of the subscription in cash and/or
property for the benefit and credit of the
corporation has been duly received.
Tenth: That the incorporators undertake to change
the name of the corporation immediately upon
receipt of notice from the Commission that another
corporation, partnership or person has acquired a
prior right to the use of such name, that the name
has been declared not distinguishable from a
corporation, or that it is contrary to law, public
morals, good customs or public policy.
Eleventh: (Corporations which will engage in any
business or activity reserved for Filipino citizens
shall provide the following):
"No transfer of stock or interest which shall reduce
the ownership of Filipino citizens to less than the
required percentage of capital stock as provided by
existing laws shall be allowed or permitted to be
recorder in the proper books of the corporation, and
this restriction shall be indicated in all stock
certificates issued by the corporation."
IN WITNESS WHEREOF, we have hereunto signed
these Articles of Incorporation, this ______ day of
_____, 20___ in the City/Municipality of
_________________, Province of
________________, Republic of the Philippines.
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
(Names and signatures of the incorporators)
____________________________
(Name and signature of Treasurer)
Meaning of Articles of Incorporation
ARTICLES OF INCORPORATION is a document
prepared by the persons establishing a corporation
and filed with the Securities and Exchange
Commission containing the matters required by the
Code.
THREE-FOLD NATURE OF THE ARTICLES OF
INCORPORATION
1. a contract between the State and the
corporation
2. a contract between the corporation and its
stockholders;
3. a contract between stockholders inter se.
SUBSCRIPTION
A written contract to purchase newly issued
shares of stock or bonds. Also termed stock
subscription.
WHAT IS PAID-UP CAPITAL?
PAID-UP CAPITAL is that portion of the
authorized capital stock which has been both
subscribed and paid. Such must form part of the
authorized capital stock of the corporation,
subscribed and then actually paid.
CONTENTS AND FORM OF ARTICLES OF
INCORPORATION
1. Name of the corporation
 The corporation acquires juridical
personality under the name stated in
the certificate of incorporation.
 A corporation has the power of
succession by its corporate name.
 It is the name of the corporation
which identifies and distinguishes it
from other corporations, firms or
entities.
 By that name it is authorized to
transact business.
 The name of a corporation is,
therefore, peculiarly essential to its
existence.
2. Purpose or purposes of the corporation
 Purpose or purposes must be lawful
 It must be stated with sufficient
clarity
 Primary purpose must be stated,
where it has more one stated
purposes, shall state which is primary
or main purpose and which is/are
secondary purpose or purposes.
 Purpose must be lawfully combined.
 Main reason in stating the purpose of
the corporation is to determine
whether the acts performed by the
corporation are authorized (intra
vires acts) or beyond its power- ultra
vires acts.
3. Principal office of the corporation
Purpose:
 To fix the residence of the
corporation in a definite place;
 To determine the venue of court
cases involving corporation;
 For purposes of stockholders or
members meeting;
 To determine the place where the
books and records of the corporation
are ordinarily kept.
4. Term of existence
 A corporation shall have PERPETUAL
EXISTENCE unless its Articles of
Incorporation provides otherwise.
5. Number of Board of Directors or Trustees
 The number of Directors shall not be
more than fifteen (15). – Stock
corporation
 The number of Trustees may be
more than fifteen (15). – Non-stock
corporation
6. Authorized Capital stock
 The maximum amount fixed in the
articles of incorporation that must
be:
a. SUBSCRIBED CAPITAL– 25 % of
the Authorized Capital must be
subscribed;
b. PAID UP CAPITAL – 25 %
subscribed capital must be paid
in.
Section 15. Amendment of Articles of Incorporation.
- Unless otherwise prescribed by this Code or by
special law, and for legitimate purposes, any
provision or matter stated in the articles of
incorporation may be amended by a majority vote
of the board of directors or trustees and the vote or
written assent of the stockholders representing at
least two-thirds (2/3) of the outstanding capital
stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the
provisions of this Code. The articles of incorporation
of a nonstock corporation may be amended by the
vote or written assent of majority of the trustees
and at least two-thirds (2/3) of the members.
The original and amended articles together shall
contain all provisions required by law to be set out
in the articles of incorporation. Amendments to the
articles shall be indicated by underscoring the
change or changes made, and a copy thereof duly
certified under oath by the corporate secretary and
a majority of the directors or trustees, with a
statement that the amendments have been duly
approved by the required vote of the stockholders
or members, shall be submitted to the Commission.
The amendments shall take effect upon their
approval by the Commission or from the date of
filing with the said Commission if not acted upon
within six (6) months from the date of filing for a
cause not attributable to the corporation.
LIMITATIONS IN THE AMENDMENT OF THE ARTICLES
OF INCORPORATION
1. The amendment must be for legitimate
purposes and must not be contrary to
Corporation Code and special laws;
2. The amendment must be approved by a
majority of the board of directors or board of
trustees
3. The amendment requires the vote or written
assent of stockholders representing 2/3 of
the outstanding capital stock or 2/3
members if it be a non-stock corporation;
4. The original and amended articles of
incorporation together shall contain all
provisions required by law to be set out in
the articles of incorporation. Such articles, as
amended, shall be indicated by underscoring
the changes made;
5. Certification under oath by the corporate
secretary and a majority of the board of
directors or board of trustees stating the fact
that said amendments have been duly
approved by the required vote of the
stockholders or members or members, shall
be submitted to SEC;
6. The amendment must be approved by the
SEC;
7. 7.The amendment must be accompanied by
a favorable recommendation of the
appropriate government agency in cases of:
a. Banks;
b. Banking and quasi-banking institution;
c. Preneed;
d. Insurance and trust companies;
e. Non-stock saving and loan association;
f. Pawnshops; and
g. Other financial intermediaries.
Section 16. Grounds When Articles of Incorporation
or Amendment May be disapproved. The
Commission may disapprove the articles of
incorporation or any amendment thereto if the
same is not compliant with the requirements of this
Code: Provided, That the Commission shall give the
incorporators, directors, trustees, or officers as
reasonable time from receipt of the disapproval
within which to modify the objectionable portions
of the articles or amendment. The following are
ground for such disapproval:
(a) The articles of incorporation or any amendment
thereto is not substantially in accordance with the
form prescribed herein;
(b) The purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral or
contrary to government rules and regulations;
(c) The certification concerning the amount of
capital stock subscribed and/or paid is false; and
(d) The required percentage of Filipino ownership of
the capital stock under existing laws or the
Constitution has not been complied with.
No articles of incorporation or amendment to
articles of incorporation of banks, banking and
quasi-banking institutions, preneed, insurance and
trust companies, NSSLAs, pawnshops and other
financial intermediaries shall be approved by the
Commission unless accompanied by a favorable
recommendation of the appropriate government
agency to the effect that such articles or
amendment is in accordance with law.
This enumerates GROUNDS when articles of
incorporation or its amendment may be disapproved
Note: before disapproving the AOI or its
amendments, the SEC should give the incorporators,
directors, trustees, or officers, a reasonable time
within which to correct or modify the objectionable
portions of the AOI or its amendment.
Section 17. Corporation Name. - No corporate name
shall be allowed by the Commission if it is not
distinguishable from that already reserved or
registered for the use if another corporation, or if
such name is already protected by law, rules and
regulations.
A name is not distinguishable even if it contains one
or more of the following:
(a) The word "corporation", "company",
incorporated", "limited", "limited liability", or an
abbreviation of one if such words; and
(b) Punctuations, articles, conjunctions,
contractions, prepositions, abbreviations, different
tenses, spacing, or number of the same word or
phrase.
The Commission upon determination that the
corporate name is: (1) not distinguishable from a
name already reserved or registered for the use of
another corporation; (2) already protected by law;
or (3) contrary to law, rules and regulations, may
summarily order the corporation to immediately
cease and desist from using such name and require
the corporation to register a new one. The
Commission shall also cause the removal of all
visible signages, marks, advertisements, labels
prints and other effects bearing such corporate
name. Upon the approval of the new corporate
name, the Commission shall issue a certificate of
incorporation under the amended name.
If the corporation fails to comply with the
Commission's order, the Commission may hold the
corporation and its responsible directors or officers
in contempt and/or hold them administratively,
civilly and/or criminally liable under this Code and
other applicable laws and/or revoke the registration
of the corporation.
NOTE:
No corporate name shall be allowed by the
Commission if it is not distinguishable from that
already reserved or registered for the use if another
corporation, or if such name is already protected by
law, rules and regulations.
Section 18. Registration, Incorporation and
Commencement of Corporation Existence. - A
person or group of persons desiring to incorporate
shall submit the intended corporate name to the
Commission for verification. If the Commission finds
that the name is distinguishable from a name
already reserved or registered for the use of
another corporation, not protected by law and is
not contrary to law, rules and regulation, the name
shall be reserved in favor of the incorporators. The
incorporators shall then submit their articles of
incorporation and bylaws to the Commission.
If the Commission finds that the submitted
documents and information are fully compliant with
the requirements of this Code, other relevant laws,
rules and regulations, the Commission shall issue
the certificate of incorporation.
A private corporation organized under this Code
commences its corporate existence and juridical
personality from the date the Commission issues
the certificate of incorporation under its official seal
thereupon the incorporators,
stockholders/members and their successors shall
constitute a body corporate under the name stated
in the articles of incorporation for the period of time
mentioned therein, unless said period is extended
or the corporation is sooner dissolved in accordance
with law.
REQUIREMENTS FOR REGISTRATION AND
INCORPORATION OF A CORPORATION
1. Submission of intended CORPORATE NAME
to SEC for verification;
2. If the Commission finds that the name is
distinguishable from a name already
reserved or registered for the use of another
corporation, not protected by law and is not
contrary to law, rules and regulation, the
name shall be reserved in favor of the
incorporators.
3. The incorporators shall then submit their
Articles of Incorporation and By-laws to the
Commission.
4. The Commission shall issue the Certificate of
Incorporation, if the submitted documents or
information are fully compliant with the
requirements of this Code, other relevant
laws, rules and regulations.
WHEN A CORPORATION DOES COMMENCE TO HAVE
CORPORATE EXISTENCE AND JURIDICAL
PERSONALITY?
A corporation commences its corporate
existence and juridical personality and is deemed
incorporated from the DATE the Securities and
Exchange Commission issues CERTIFICATE OF
INCORPORATION under its official seal.
Section 19. De facto Corporations. - The due
incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its
right to exercise corporate powers, shall not be
required into collaterally in any private suit to which
such corporation may be a party. Such inquiry may
be made by the Solicitor General in a quo warranto
proceeding.
DEFINITION:
DE JURE CORPORATION – is one created in strict
or substantial conformity with the statutory
requirements for incorporation and the right of
which to exist as a corporation cannot be successfully
attacked even in a direct proceeding for that purpose
by the State.
DE FACTO CORPORATION – is one actually exist
for all practical purposes as a corporation but which
has no legal right to corporate existence as against
the State. It is a corporation from the fact of its acting
as such, though not in law or right a corporation.
It is one which had not complied with all the
requirements necessary to be a de jure corporation
BUT has complied sufficiently to be accorded
corporate status as against third parties although not
against the State.
REQUISITES OF A DE FACTO CORPORATION
1. The existence of a valid law under which it
may be incorporated;
2. An attempt in good faith incorporate under
such law; and
3. Actual use in good faith of corporate powers.
Section 20. Corporation by Estoppel. - All persons
who assume to act as a corporation knowing it to be
without the authority to do so shall be liable as
general partners for all debts, liabilities and
damages incurred or arising as a result thereof:
Provided, however, That when any such ostensible
corporation is sued on any transaction entered by
its as a corporation or on any tort committed by it
as such, it shall not be allowed to use on any its lack
of corporate personality as a defense. Anyone who
assumes an obligation to an ostensible corporation
as such cannot resist performance thereof on the
ground that there was in fact no corporation.
ESTOPPEL TO DENY CORPORATE EXISTENCE
 The stockholders or members of a
pretended or ostensible corporation who
participated in holding it as a corporation
 are generally estopped or precluded to deny
its existence against creditors for the
purpose of escaping liability for corporate
debts or for unpaid part of a subscription to
stock.
 Third persons, who deal with such a
corporation recognizing it as such and
pretended corporation itself , estopped from
denying its corporate existence and raising
the defense of its lack of corporate
personality for the purpose of defeating a
liability growing out of a contract between
them and such entity.
 Persons not stockholders or members who
assume to act as a corporation knowing it to
be without authority to do so shall be
solidarily liable as general partners with all
their property with all debts, liabilities and
damages incurred or arising as a result
thereof.
CORPORATION BY ESTOPPEL WITHOUT DE FACTO
EXISTENCE
A Corporation by Estoppel has no real existence
in law. It is neither De Jure nor De Facto Corporation,
but a mere “fiction existing for a particular case”
where the element of estoppel present.
It exists only between the persons who
misrepresented their status and the parties who
relied on the misrepresentation.
Section 21. Effects of Non-Use of Corporate Charter
and Continuous Inoperation. - If a corporation does
not formally organize and commence its business
within five (5) year from the date of its
incorporation, its certificate of incorporation shall
be deemed revoked as of the day following the end
of the five (5)-year period.
However, if a corporation has commenced its
business but subsequently becomes inoperative for
a period of at least five (5) consecutive years, the
Commission may, after due notice and hearing,
place the corporation under delinquent status.
A delinquent corporation shall have a period of two
(2) years to resume operations and comply with all
requirements that the Commission shall prescribed.
Upon the compliance by the corporation, the
Commission shall issue an order lifting the
delinquent status. Failure to comply with the
requirements and resume operations within the
period given by the Commission shall cause the
revocation of the corporation's certificate of
incorporation.
The Commission shall give reasonable notice to, and
coordinate with the appropriate regulatory agency
prior to the suspension or revocation of the
certificate of incorporation of companies under
their special regulatory jurisdiction.
1. FAILURE TO FORMALLY ORGANIZE AND
COMMENCE ITS BUSINESS WITHIN 5 YEARS
FROM THE DATE OF ITS INCORPORATION
 The certificate of incorporation shall
be deemed revoked as of the day
following the end of the five (5) years
period.
Example of acts constituting formal
organization
1. Adoption of by-laws and filing of the
same with the SEC.
2. Election of board of directors or
board of trustees as well as officers
like the president, secretary,
treasurer and other officers as
stated in its by-laws.
3. Establishment of the principal office.
4. Providing for the subscription and
payment of its shares of stock.
5. Other acts necessary to enable the
corporation to transact business or
accomplish the purpose for which it
was created.

2. CONTINUOUS INOPERATION FOR AT LEAST
5 CONSECUTIVE YEARS
 The SEC may, after due notice and
hearing, place the corporation
delinquent status.
 A delinquent corporation shall have a
period of two (2) years to resume
operations and comply with all
requirements that the Commission
shall prescribed.
 Upon the compliance by the
corporation, the Commission shall
issue an order lifting the delinquent
status.
 Failure to comply with the
requirements and resume operations
within the period given by the
Commission shall cause the
revocation of the corporation's
certificate of incorporation.
 The Commission shall give
reasonable notice to, and coordinate
with the appropriate regulatory
agency prior to the suspension or
revocation of the certificate of
incorporation of companies under
their special regulatory jurisdiction.
TITLE III
BOARD OF DIRECTORS/TRUSTEE AND OFFICERS
CORRELATION OF THE BOARD OF
DIRECTORS/TRUSTEES, OFFICERS AND
STOCKHOLDERS UNDER THE CODE:
 The Stockholders Or Members periodically
elect the board of board of
directors/trustees;
 The Board Of Directors Or Trustees are
charged with the management of the
corporation;
 The Board Of Directors/Trustees, in turn,
periodically elects officers to carry out
management functions on day - to- day basis;
 The Stockholders or Members, as owners,
have residual powers over the fundamental
and major corporate changes.
WHAT ARE ACTS OF MANAGEMENT (ACTS OF
ADMINISTRATION) AND ACTS OF OWNERSHIP?
 While stockholders and members (in some
instances) are entitled to received profits, the
management and direction of the
corporation are lodge with their
representatives and agents – BOARD OF
DIRECTORS/TRUSTESS – ACTS OF
MANAGEMENT pertains to the Board;
 Those of OWNERSHIP, to the Stockholders or
Members. The board cannot act alone, but
must seek approval of the stockholders or
members.
WHERE DO CORPORATE POWERS RESIDE?
 One of the most important rights of a
1. Qualified shareholder or member:
o Right to vote – either personally
or by proxy.
2. Board of Directors/Trustees:
o To manage the corporate affairs
 Once the board of directors or trustees is
elected, the stockholders or members
relinquish corporate powers to the board in
accordance with law.
WHAT IS BUSINESS JUDGMENT RULE?
Contracts Intra Vires entered into by the Board
of Directors are binding upon the corporation and
courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to
wanton destruction to the rights of the minority, as
when plaintiffs aver that defendants (members of the
board), have concluded a transaction among
themselves as will result in serious injury to the
plaintiffs stockholders.
Section 22. The Board of Directors or Trustees of a
Corporation; Qualification and Term. - Unless
otherwise provided in this Code, the board of
directors or trustees shall exercise the corporate
powers, conduct all business, and control all
properties of the corporation.
Directors shall be elected for a term of one (10 Year
from among the holders of stocks registered in the
corporation's book while trustees shall be elected
for a term not exceeding three (3) years from
among the members of the corporation. Each
director and trustee shall hold office until the
successor is elected and qualified. A director who
ceases to own at least one (1) share of stock or a
trustee who ceases to be a member of the
corporation shall cease to be such.
The board of the following corporations vested with
public interest shall have independent directors
constituting at least twenty percent (20%) of such
board:
(a) Corporations covered by Section 17.2 of Republic
Act No. 8799, otherwise known as "The Securities
Regulation Code", namely those whose securities
are registered with the Commission, corporations
listed with an exchange or with assets of at least
Fifty million pesos (50,000,000.00) and having two
hundred (200) or more holders of shares, each
holding at least one hundred (100) shares of a class
of its equity shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops,
corporations engaged in money service business,
preneed, trust and insurance companies and other
financial intermediaries; and
(c) Other corporations engaged in businesses vested
with public interest similar to the above, as may be
determined by the Commission, after taking into
account relevant factors which are germane to the
objective and purpose of requiring the election of
an independent director, such as the extent of
minority ownership, type of financial products or
securities issued or offered to investors, public
interest involved in the nature of business
operations, and other analogous factors.
An independent director is a person who apart from
shareholdings and fees received from any business
or other relationship which could, or could
reasonable be received to materially interfere with
the exercise of independent judgment in carrying
out the responsibilities as a director.
Independent directors must be elected by the
shareholders present or entitled to vote in absentia
during the election of directors. Independent
directors shall be subject to rules and regulations
governing their qualifications, disqualifications,
voting requirements, duration of term and term
limit, maximum number of board membership and
other requirements that the Commission will
prescribed to strengthen their independence and
align with international best practices.
GOVERNING BODY OF A CORPORATION
 Board of Directors – The governing body of a
corporation – a creation of the stockholders.
 The board of directors or the majority
thereof, controls and directs the affairs of the
corporation.
 It occupies a position of trusteeship in
relation to the minority of the stock.
 The board shall exercise good faith, care, and
diligence in the administration of the affairs
of the corporation, and protect not only the
interest of the majority but also that of the
minority of the stock.
AUTHORITY OF THE BOARD OF DIRECTORS OR
TRUSTEES
With the exception only of some powers
expressly granted by law to Stockholders or
members:
 The board of directors or trustees has
the sole authority to determine policies,
enter into contracts, and conduct the
ordinary business of the corporation
within the scope of its charter, i.e.
 articles of incorporation, by-laws and
relevant provision of law.
 The authority of the board of directors is
restricted to the management of the
regular business affairs of the
corporation, UNLESS, more extensive
power is expressly conferred.
CORPORATION EXERCISES ITS POWERS THROUGH
ITS BOARD OF DIRECTORS
 A corporation exercises its powers through
its Board of Directors and/or its duly
authorized officers and agents, EXCEPT in
instances where the Corporation Code
requires stockholders’ approval for certain
specifics acts.
 A corporation’s Board of Directors is
understood to be that BODY which:
1. Exercise all powers provided for under
the Corporation Code
2. Conducts all business of the corporation;
and
3. Controls and holds all property of the
corporation.
 Its members have been characterized as
trustees or directors clothed with FIDUCIARY
CHARACTER.
 The directors may appoint officers and
agents and as incident to this power of
appointment, they may discharge those
appointed.
 The property of the corporation is not the
property of its stockholders or members and
may not be sold by the stockholders or
members WITHOUT EXPRESS
AUTHORIZATION from the Board.
 Unless duly authorized, a Treasurer, whose
powers are limited, cannot bind the
corporation in a sale of its assets.
THREE LEVELS OF CONTROL
1. The board of directors
 They are responsible for corporate
policies and the general
management of the business affairs
of the corporation;
 Just as a natural person may
authorize another to do certain acts
in his behalf, so may the board of
directors of a corporation validly
delegate some of its functions to
individual officers or agents
appointed by it.
2. The officers
 They, in theory, execute the policies
laid down by the board, but in
practice often have wide latitude in
determining the course of business
operations.
3. The stockholders
 They have the residual power over
fundamental corporate changes, like
amendments of articles of
incorporation.
NOTE: As a general rule, all corporate
powers are to be exercised by the Board of Directors,
exceptions are made where the Code
provides otherwise.
QUALIFICATIONS OF A BOARD OF DIRECTORS
OR TRUSTEES
1. For stock corporation:
 Ownership of at least 1 share of the
capital stock of the corporation in his
own name.
For non-stock corporation:
 Only members of the corporation can
be elected.
2. The director or trustee must be capacitated.
3. The director or trustee must be of legal age.
4. Other qualifications as may be prescribed in
the by-laws of the corporation
INDEPENDENT DIRECTOR
An independent Director is a person who, apart
from shareholdings and fees received from the
corporation, is independent of management and free
from any business or other relationship which could,
or could reasonably be perceived to materially
interfere with the exercise of independent judgment
in carrying out the responsibilities as a director.
 Independent director must be elected by the
shareholders present or entitled to vote in
absentia during the election.
 The Board of the following corporations
vested with PUBLIC INTEREST shall have
INDEPENDENT DIRECTORS constituting at
least 20 % of such board:
1. Corporation covered by Section 17.2, The
Securities Regulation Code;
2. Banks and quasi-banks, non-stock savings
and loan associations, pawnshop,
corporations engage in money service
business, preneed, trust and insurance
companies, and other financial
intermediaries; and
3. Other corporations engaged in business
vested with public interest similar to the
above, as may be determined by the
commission (SEC).
Section 23. Election of Directors or Trustees. -
Except when the exclusive right is reserved for
holders of founders' shares under Section 7 of this
Code, each stockholder or member shall have the
right to nominate any director or trustee who
possesses all of the qualifications and none of the
disqualifications and none of the disqualifications
set forth in this Code.
At all elections of directors or trustees, there must
be present, either in person or through a
representative authorized to act by written proxy,
the owners of majority of the outstanding capital
stock, or if there be no capital stock, a majority of
the members entitled to vote. When so authorized
in the bylaws or by a majority of the board of
directors, the stockholders or members may also
vote through remote communication or in absentia:
Provided, That the right to vote through such modes
may be exercised in corporations vested with public
interest, notwithstanding the absence of a provision
in the bylaws of such corporations.
A stockholder or member, who participates through
remote communication or in absentia, shall be
deemed present for purposes of quorum.
The election must be by ballot if requested by any
voting stockholder or member.
In stock corporations, stockholders entitled to vote
shall have the right to vote the number of shares of
stock standing in their own names in the stock
books of the corporation at the time fixed in the
bylaws or where the bylaws are silent at the time of
the election. The said stockholder may: (a) vote
such number of shares for as many persons as there
are directors to be elected; (b) cumulate said shares
and give one (1) candidate as many votes as the
number of directors to be elected multiplied by the
number of shares owned; or (c) distribute them on
the same principle among as many candidates as
may be seen fit: Provided, That the total number of
votes cast shall not exceed the number of shares
owned by the stockholders as shown in the books of
the corporation multiplied by the whole number of
directors to be elected: Provided, however, That no
delinquent stock shall be voted. Unless otherwise
provided in the articles of incorporation or in the
bylaws, members of non-stock corporations may
cast as many votes as there are trustees to be
elected by may not cast more than one (1) vote for
one (1) candidate. Nominees for directors or
trustees receiving the highest number of votes shall
be declared elected.
If no election is held, or the owners of majority of
the outstanding capital stock or majority of the
members entitled to vote are not present in person,
by proxy, or through remote communication or not
voting in absentia at the meeting, such meeting may
be adjourned and the corporation shall proceed in
accordance with Section 25 of this Code.
The directors or trustees elected shall perform their may not cast more than one (1) vote for one corporation. But when these officers exceed their
duties as prescribed by law, rules of good corporate (1) candidate. authority, their actions “cannot bind the corporation,
governance, and bylaws of the corporation. 6. Nominees for directors or trustees receiving unless it has ratified such acts or is estopped from
the highest number of votes shall be disclaiming them”
declared elected.
WHAT ARE THE REQUIREMENTS FOR THE ELECTION CORPORATE OFFICERS AND AGENTS
OF DIRECTORS OR TRUSTEES? Officer Requiremen Citizenshi Residency
1. the owners of majority of the outstanding Section 24. Corporate Officers. - Immediately after t p
capital stock, or if there be no capital stock, a their election, the directors of a corporation must President Must be a Need not Need not
majority of the members entitled to vote of formally organize an elect: (a) a president, who director; be a be a
Must be a Filipino resident
the corporation must be present, either in must be a director; (b) a treasurer, who must be a
stockholder citizen of the
person or through a representative resident of the Philippines; and (d) such other on record of Philippine
authorized to act by written proxy. officers as may be provided in the bylaws. If the at least 1 s
2. When so authorized in the bylaws or by a corporation is vested with public interest, the board share
majority of the board of directors, the shall also elect compliance officer. The same person Secretary May or may Must be a Must be a
stockholders or members may also vote may hold two (2) or more positions concurrently, not be a Filipino resident
through remote communication or in except that no one shall act as president and director citizen of the
Philippine
absentia. secretary or as president and treasurer at the same
s
3. The election must be by ballot if requested time, unless otherwise allowed in this Code. Treasurer May or may Need not Must be a
by any voting stockholder or member. not be a be a resident
4. In Stock Corporation the total number of The officers shall manage the corporation and director Filipino of the
votes cast shall not exceed the number of perform such duties as may be provided in the citizen Philippine
shares owned by the stockholder as shown in bylaws and/or as resolved by the board of directors. s
the books of the corporation multiplied by
Complianc If the corporation is vested with public
the whole number of directors to be elected. CORPORATE OFFICER
e officer interest.
Provided, that no delinquent sock shall be The position must be expressly mentioned in the
voted. by-laws in order be considered as a corporate office. Other Qualification may be provided for in
5. In non-stock corporations, the members of officers the by-laws.
non-stock corporations may cast as many GENERAL RULE: The acts of corporate officers
votes as there are trustees to be elected but within the scope of their authority are binding on the NOTE:
 Any two (2) or more positions may be held
concurrently by the same person, except, that no
one shall act as president and secretary or as
president and treasurer at the same time.
 Corporate Officer – the position is provided
under the Corporation Code or in the By-laws
of the corporation.
 Corporate employee – employed by the
action of the managing officer of the
corporation.
QUORUM
Quorum is such number of the membership of a
collective body as is competent to transact its
business or do any other corporate act. Majority
means fifty per cent plus one (50 %+1)
Section 25. Report of Election of Directors,
Trustees and Officers, Non-holding of Election and
Cessation from Office. - Within thirty (30) days after
the election of the directors, trustees and officers of
the corporation, the secretary, or any other officer
of the corporation, the secretary, shall submit to the
Commission, the names, nationalities,
shareholdings, and residence addresses of the
directors, trustees and officers elected.
The non-holding of elections and the reasons
therefor shall be reported to the Commission within
thirty (30) days from the date of the scheduled
election. The report shall specify a new date for the
election, which shall not be later than sixty (60) days
from the scheduled date.
If no new date has been designated, or if the
rescheduled election is likewise not held, the
Commission may, upon the application of a
stockholder, member, director or trustee, and after
verification of the unjustifiable non-holding of the
election, summarily order that an election be held.
The Commission shall have the power to issue such
orders as may be appropriate, including other
directing the issuance of a notice stating the time
and place of the election, designated presiding
officer, and the record date or dates for the
determination of stockholders or members entitled
to vote.
Notwithstanding any provision of the articles of
incorporation or by laws to the contrary, the shares
of stock or membership represented at such
meeting and entitled to vote shall constitute a
quorum for purposes of conducting an election
under this section.
Should a director, trustee or officer die, resign or in
any manner case to hold office, the secretary or the
director, trustee or officer of the corporation, shall,
within seven (7) days form knowledge thereof,
report in writing such fact to the Commission.
WHO HAS THE RESPONSIBILITY TO REPORT THE
ELECTION AND VACANCY?
The SECRETARY, or ANY OTHER OFFICER of the
corporation, shall submit to the Commission, the
names, nationalities, shareholdings, and residence
addresses of the directors, trustees and officers
elected within thirty (30) days after the election of
the directors, trustees and officers of the
corporation.
Should a director, trustee or officer die, resign or
in any manner case to hold office, the secretary or
the director, trustee or officer of the corporation,
shall, within seven (7) days form knowledge thereof,
report in writing such fact to the Commission.
WHAT IS THE OBJECTIVE OF THE REPORT OF
ELECTION?
To give the public information under sanction of
oath of responsible officers, of the nature of
business, financial condition and operational status
of the company together with information on its key
officers or manager so that those dealing with it and
those who intend to do business with it may know or
have the means of knowing facts concerning the
corporation’s financial resources and business
responsibility.
Section 26. Disqualification of Directors, Trustees or
Officers. - A person shall be disqualified from being
a director, trustee or officer of any corporation if,
within five (5) years prior to the election or
appointment as such, the person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by imprisonment
for a period exceeding six (6) years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799,
otherwise known as "The Securities Regulation
Code";
(b) Found administratively liable for any offense
involving fraudulent acts; and
(c) By a foreign court or equivalent foreign
regulatory authority for acts, violations or
misconduct similar to those enumerated in
paragraphs (a) and (b) above.
The foregoing is without prejudice to qualifications
or other disqualifications, which the Commission,
the primary regulatory agency, or Philippine
Competition Commission may impose in its
promotion of good corporate governance or as a
sanction in its administrative proceedings.
DISQUALIFICATION OF DIRECTORS, TRUSTEES OR
OFFICERS
If, within five (5) years prior to the election or
appointment as such, the person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by imprisonment for
a period exceeding six (6) years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise
known as "The Securities Regulation Code";
(b) Found administratively liable for any offense
involving fraudulent acts; and
(c) By a foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct similar to
those enumerated in paragraphs (a) and (b) above.
Section 27. Removal of Director or Trustees. - Any
director or trustee of a corporation may be removed
from office by vote of the stockholders holding or
representing at least two-thirds (2/3) of the
outstanding capital stock, or in a non-stock
corporation, by a vote of at least two-thirds (2/3) of
the member entitled to vote: Provided, That such
removal shall take place either at a regular meeting
of the corporation or at a special meeting called for
the purpose, and in either case, after previous
notice to stockholders or members of the
corporation of the intention to propose such
removal at the meeting. A special meeting of the
stockholders or members for the purpose of
removing any director or trustee must be called by
the secretary on order of the president, or upon
written demand of stockholders representing or
holding at least a majority of the outstanding capital
stock, or a majority of the members entitled to
vote. If there is no secretary, or the secretary,
despite demand, fails or refuses to call the special
meeting or to give notice thereof, the stockholder or
member of the corporation signing the demand may
call the special meeting or to give notice thereof,
the stockholder or member of the corporation
signing the demand may call for the meeting by
directly addressing the stockholders or members.
Notice of the time and place of such meeting, as
well as of the intention to propose such removal,
must be given by publication or by written notice
prescribed in this Code. Removal may be with or
without cause: Provided, That removal without
cause may not be used to deprive minority
stockholders or members of the right
representation to which they may be entitled under
Section 23 of this Code.
The Commission shall, motu propio or upon verified
complaint, and after due notice and hearing, order
the removal of a director or trustee elected despite
the disqualification, or whose disqualification arose
or is discovered subsequent to an election. The
removal of a disqualified director shall be without
prejudice to other sanctions that the Commission
may impose on the board of directors or trustees
who, with knowledge of the disqualification, failed
to remove such director or trustee.
REMOVAL OF DIRECTORS OR TRUSTEES
 STOCKHOLDERS OR MEMBERS – Has the
power to remove directors or trustees;
 The SEC shall, motu propio or upon verified
complaint, and after due notice and hearing,
order the removal of a director or trustee
elected despite the disqualification, or
whose disqualification arose or is discovered
subsequent to an election.
 GENERAL RULE:
Removal of directors or trustees may be
with cause or without cause.
 EXCEPTION:
Removal without cause may not be used
to deprive minority stockholders or members of
the right of representation to which they
may be entitled under Section 23 of this Code.
REQUISITES OF REMOVAL
1. That such removal shall take place either at a
regular meeting of the corporation or at a
special meeting called for the purpose;
2. Any director or trustee of a corporation may
be removed from office by vote of the
stockholders holding or representing at least
two-thirds (2/3) of the outstanding capital
stock, or in a non-stock corporation, by a
vote of at least two-thirds (2/3) of the
member entitled to vote;
3. After previous notice to stockholders or
members of the corporation of the intention
to propose such removal at the meeting;
4. A special meeting of the stockholders or
members for the purpose of removing any
director or trustee must be called by the
secretary on order of the president, or upon
written demand of stockholders representing
or holding at least a majority of the
outstanding capital stock, or a majority of the
members entitled to vote.
Section 28. Vacancies in the Office of Director or
Trustee; Emergency Board. - Any vacancy occurring
in the board of directors or trustees other that by
removal or expiration of term may be filled by the
vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise,
said vacancies must be filled by the stockholders or
members in a regular or special meeting called for
that purpose.
When the vacancy is due to term expiration, the
election shall be held no later than the day of such
expiration at a meeting called for that purpose.
When the vacancy arises as a result of removal by
the stockholders or members, the election may be
held on the same day of the meeting authorizing the
removal and this fact must be so stated in the
agenda and notice of said meeting. In all other
cases, the election must be held no later than forty-
five (45) days from the time the vacancy arose. A
director or trustee elected to fill vacancy shall be
referred to as replacement director or trustee
elected to fill a vacancy shall be referred to as
replacement director or trustee and shall serve only
for the unexpired term of the predecessor in office.
However, when the vacancy prevents the remaining
directors from constituting a quorum and
emergency action is required to prevent grave,
substantial, and irreparable loss or damage to the
corporation, the vacancy may be temporarily filled
from among the officers of the corporation by
unanimous vote of the remaining directors or
trustees. The action by the designated director or
trustee shall be limited to the emergency action
necessary, and the term shall cease within a
reasonable time form the termination of the
emergency or upon election of the replacement
director or trustee, whichever comes earlier. The
corporation must notify the Commission within
three (3) days from the creation of the emergency
board, stating therein the reason for its creation.

Any directorship or trusteeship to be filled by a
reason of an increase in the number of directors or
trustees shall be filled only by an election at a
regular or at a special meeting of stockholders or
members duly called for the purpose, or in the same
meeting authorizing the increase of directors or
trustees if so stated in the notice of the meeting.
In all elections to fill vacancies under this section,
the procedure set forth in Section 23 and 25 of this
Code shall apply.
FILLING OF VACANCIES IN THE OFFICE OF THE
DIRECTOR OR TRUSTEES
1. By the Stockholders or Members - Any
vacancy occurring in the board of directors or
trustees:
a. Removal by the stockholders or trustees;
b. Expiration of term;
c. Increase in the number of directors or
trustees due to amendment of the
articles of incorporation;
d. Other than the removal or expiration of
term, like death, resignation,
abandonment, or disqualification, if the
remaining directors or trustees DONOT
CONSTITTE A QOURUM for the purpose
of filling the vacancy.
2. By The Members Of The Board Of Directors
Or Trustees
a. If still constituting a quorum, at least
majority of them are empowered to fill
the vacancy occurring in the board:
1. other than by removal by the
stockholders or members; or
2. By expiration of term.
EXAMPLE:
If four (4) of nine (9) directors died
or resigned, the remaining five (5)
directors still constituting a quorum,
and a majority of three (3) may fill the
four (4) vacancies. But if five (5) of the
directors died or resigned, the vacancies
will have to be filled by the stockholders
in a regular or special meeting called for
the purpose.
Section 29. Compensation of Directors or Trustees. -
In the absence of any provision in the bylaws fixing
their compensation, the directors or trustees shall
not received any compensation in their capacity as
such, except for reasonable per diems: Provided,
however, That the stockholders representing at
least a majority of the outstanding capital stock or
majority of the members may grant directors or
trustees with compensation and approve the
amount thereof at a regular or special meeting.
In no case shall the total yearly compensation of
directors exceed ten percent (10%) of the net
income before income tax of the corporation during
the preceding year.
Directors or trustees shall not participate in the
determination of their own per diems or
compensation.
Corporations vested with public interest shall
submit to their shareholders and the Commission,
an annual report of the total compensation of each
of their directors or trustees.
COMPENSATION OF DIRECTORS OR TRUSTEES
General RULE:
 Directors or Trustees shall not receive any
compensation in their capacity as such,
except for reasonable per diems.
EXCEPTION:
 When fixed by the corporation by-laws;
 When the stockholders, representing at least
a majority of the outstanding capital stock, or
majority of the members, vote to grant the
same
LIMIT TO COMPENSATION
  In no case shall the total yearly
compensation of directors exceed ten
percent (10%) of the net income before
income tax of the corporation during the
preceding year.
 Directors or trustees shall not participate in
the determination of their own per diems or
compensation.
NOTE:
Provision on compensation to directors does not
apply to corporate officers who are not directors.
Section 30. Liability of Directors, Trustees or
Officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the
corporation, its stockholders or members and other
persons.
A director, trustee or officer shall not attempt to
acquire, or any interest adverse to the corporation
in respect of any matter which has been reposed in
them in confidence, and upon which, equity
imposes a disability upon themselves to deal in their
own behalf; otherwise, the said director, trustee or
officer shall be liable as a trustee for the corporation
and must account for the profits which otherwise
would
have accrued to the corporation.
NATURE OF DIRECTORS’ OR TRUSTEES’ POSITION
 The directors of a corporation are its agents.
 They also occupy a fiduciary relation to the
corporation. They have been called
“Trustees”.
 In the performance of their official duties,
they are under obligation of:
a. TRUST & CONFIDENCE to the corporation
and its stockholders; and
b. must act in good faith and;
c. for the interest of the corporation and
its stockholders
d. With due care and diligence; and
e. Within the scope of their authority.
DOCTRINE OF CORPORATE OPPORTUNITY
 This section lays down the “Doctrine of
Corporate Opportunity” and holds
personally liable corporate directors found
guilty of Gross Negligence or Bad Faith in
directing the affairs of the corporation, which
results in damage or injury to the
corporation, its stockholders or members,
and other persons.
LIABILITY OF THE DIRECTORS OR TRUSTEES FOR
DAMAGES
 Willfully and knowingly vote for or assent to
patently unlawful acts of the corporation;
 Guilty of gross negligence or bad faith in
directing the affairs of the corporation;
 or Acquire any personal or pecuniary interest
in conflict with their duty as such directors or
trustees
the erring directors shall be liable jointly and
severally for all damages resulting therefrom
suffered by the corporation, its stockholders
or members and other persons (corporate
creditors)
LIABILITY OF DIRECTORS OR TRUSTEES OR OFFICERS
FOR SECRET PROFITS
 A director, trustee or officer shall not
attempt to acquire, or acquire any interest
adverse to the corporation in respect of any
matter which has been reposed in them in
confidence, and upon which, equity imposes
a disability upon themselves to deal in their
own behalf; otherwise, the said director,
trustee or officer shall be:
1. liable as a TRUSTEE for the
corporation and
 2. must account for the profits which
otherwise would have accrued to the
corporation
Section 31. Dealings of Directors, Trustees or
Officers with the Corporation. - A contract of the
corporation with one (1) or more of its directors,
trustees, officers or their spouses and relatives
within the fourth civil degree of consanguinity or
affinity is voidable, at the option of such
corporation, unless all the following conditions are
present:
(a) The presence of such director or trustee in the
board meeting in which the contract was approved
was not necessary to constitute a quorum for such
meeting;
(b) The vote of such director or trustee was not
necessary for the approval of the contract;
(c) The contract is fair and reasonable under the
circumstances;
(d) In case of corporations vested with public
interest, material contracts are approved by at least
a majority of the independent directors voting to
approved the material contract; and
(e) In case of an officer, the contract has been
previously authorized by the board of directors.
Where any of the first three (3) conditions set forth
in the preceding paragraph is absent, in the case of
a contract with a director or trustee, such contract
may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the
adverse interest of the directors or trustees
involved is made at such meeting and the contract is
fair and reasonable under the circumstances.
SELF-DEALING DIRECTORS/TRUSTEES OR OFFICERS
GENERAL RULE:
 A contract of the corporation with one (1) or
more of its directors, trustees, officers or
their spouses and relatives within the fourth
civil degree of consanguinity or affinity is
voidable, at the option of such corporation,
unless all the following conditions are
present:
EXCEPTIONS:
a. The presence of such director or trustee in
the board meeting in which the contract was
approved was not necessary to constitute a
quorum for such meeting;
b. The vote of such director or trustee was not
necessary for the approval of the contract;
c. The contract is fair and reasonable under the
circumstances;
d. In case of corporations vested with public
interest, material contracts are approved by
at least a majority of the independent
directors voting to approved the material
contract; and
e. In case of an officer, the contract has been
previously authorized by the board of
directors.
RATIFICATION BY THE STOCKHOLDERS ON THE SELF-
DEALING DIRECTORS/TRUSTEES OR OFFICERS
 A contract with a director or trustee, such
contract may be ratified by the vote of the
stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or of at
least two-thirds (2/3) of the members in a
meeting called for the purpose.
 REQUISITES
 Any of the first three conditions set
forth in the first paragraph of Section
31 is absent;
  Full disclosure of the adverse interest
of the directors or trustees involved
is made at such meeting; and
 The contract is fair and reasonable
under the circumstances.
Section 32. Contracts between Corporations with
Interlocking Directors. - Except in cases of fraud, and
provided the contract is fair and reasonable under
the circumstances a contract between two (2) or
more corporations having interlocking directors
shall not be invalidated on that ground alone:
Provided, That if the interest of the interlocking
director in one (1) corporation is substantial and the
interest in the other corporation or corporations is
merely nominal, the contract shall be subject to the
provisions of the preceding section insofar as the
latter corporation or corporations are concerned.
Stockholding exceeding twenty percent (20%) of the
outstanding capital stock shall be considered
substantial for purposes of interlocking directors.
INTERLOCKING DIRECTORS
 These are the members of the board of
directors in a certain corporation who are
also directors in another corporation.
GENERAL RULE:
 A contract between two or more
corporations having interlocking directors
shall not invalidate on that ground alone.
(valid)
 Requisites:
a. The contract is not fraudulent;
b. The contract is fair and reasonable.
EXCEPTION:
 If the interest of the interlocking director in
one corporation is substantial and his
interest in the other corporation or
corporations is merely nominal, the contract
shall be subject to the provisions of the
preceding section 31 insofar as the latter
corporation or corporations are concerned.
SUBSTANTIAL INTEREST
 Stockholding exceeding twenty percent
(20%) of the outstanding capital stock shall
be considered substantial for purposes of
interlocking directors.
Section 33. Disloyalty of a Director. - Where a
director, by virtue of such office, acquires a business
opportunity which should belong to the
corporation, thereby obtaining profits to the
prejudice of such corporation, the director must
account for and refund to the latter all such profits,
unless the act has been ratified by a vote of the
stockholders owning or representing at least two-
thirds (2/3) of the outstanding capital stock. This
provision shall be applicable, notwithstanding the
fact that the director risked one's own funds in the
venture.
DOCTRINE OF CORPORATE OPPORTUNITY
 A director, by virtue of his office, acquires for
himself a business opportunity which should
belong to the corporation, thereby obtaining
profits to the prejudice of such corporation,
he must account to the latter for all such
profits by refunding the same.
 The doctrine shall be applicable,
notwithstanding the fact that the director
risked his own funds in the venture.
RATIFICATION BY THE STOCKHOLDERS
 The act has been ratified by a vote of the
stockholders owning or representing at least
two-thirds (2/3) of the outstanding capital
stock.
Section 34. Executive Management and Other
Special Committees. - If the bylaws so provide, the
board may create an executive committee
composed of at least three (3) directors. Said
committee may act, by majority of vote of all its
members, on such specific matters within the
competence of the board, as may be delegated to it
in the bylaws or by majority vote of the board,
except with respect to the: (a) approval of any
action for which shareholders' approval is also
required; (b) filing of vacancies in the board; (c)
amendment or repeal of bylaws or the adoption of
new bylaws; (d) amendment or repeal of any
resolution of the board which by its express term is
not amendable or repealable; and (e) distribution of
cash dividends to the shareholders.
The board of directors may create special
committees of temporary or permanent nature and
determine the members' term, composition,
compensation, powers, and responsibilities.
EXECUTIVE COMMITTEE
 It is a body created by the by-laws and
composed of not less than three members of
the board which, subject to the statutory
limitations, has all the authority of the board
of directors to the extent provided in the by-
laws.
d. Amendment or repeal of any resolution of
the board which by its express term is not
amendable or repealable; and
e. Distribution of cash dividends to the
shareholders.
QUORUM REQUIRED OF THE EXECUTIVE
COMMITTEE
 The committee may act, by majority of vote
of all its members, on such specific matters
within the competence of the board.
OTHER SPECIAL COMMITTEE
 The board of directors may create special
committees of temporary or permanent
nature and determine the members' term,
composition, compensation, powers, and
responsibilities.

LIMITATIONS ON THE POWERS OF THE EXECUTIVE

COMMITTEE
a. Approval of any action for which
shareholders' approval is also required;
b. Filing of vacancies in the board;
c. Amendment or repeal of bylaws or the
adoption of new bylaws;