MODULE 1

BUSINESS LAWS AND REGULATIONS

SESSION TOPIC 1: CORPORATION CODE OF THE PHILIPPINES

LEARNING OUTCOMES:
The following specific learning objectives are expected to be realized at the end of the session:
1. The Students will be able to define Corporation according to the corporation code of the Philippines
2. The Students will be able to know the historical origin of Corporation
3. The Students will be able to understand the advantages and disadvantages of Corporation
4. The Students will be able to differentiate classes of corporation
5. The Students will be able to distinguish Incorporators from Stockholders and Members
6. The Students will be able to understand different classes of shares
7. The Students will be able to understand the corporate terms and minimum stock requirements
8. The Students will be able to understand the necessary information contain in an Articles of Incorporation
KEY POINTS

Corporation Stockholders/Members Articles of Incorporation

Classes of Corporation Classes of Shares Corporate Term

Incorporators Common Stock/Preferred Stock Stock Requirements

CORE CONTENT
Introduction:
This module covers the discussion of the provisions under the revised corporation code that tackles everything
about Corporation which includes but not limited to the following
1. Historical Origin of the Corporation
2. Definition of Corporation
a. Attributes of a corporation
b. Advantages and disadvantages of Corporation
3. Classes of Corporation
4. Components of Corporation
a. Corporators
i. Incorporators
ii. Stockholders
iii. Members
5. Classification of Shares
6. Corporate Terms
7. Stock Requirements
8. Articles of Incorporation
a. Forms of Articles of Incorporation

IN-TEXT ACTIVITY
GENERAL PROVISIONS

DEFINITION

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.
An analysis of the definition in Section 2 reveals the following attributes of a corporation:

(1) It is an artificial being;

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a corporation is a legal or juridical person with a personality separate and apart from its individual stockholders or
members and from any other legal entity to which it may be connected

As a consequence of this legal concept of a corporation:

A. Liability for acts or contracts. — The general rule is that obligations incurred by a corporation, acting through
its authorized agents, are its sole liabilities. Similarly, a corporation may not, generally, be made to answer for
acts or liabilities of its stockholders (or members) or those of the legal entities to which it may be connected
and vice versa
a. A suit against certain stockholders of a corporation cannot ipso facto be a suit against the unpleaded
corporation itself without violating the fundamental principle that a corporation has a legal personality
distinct and separate from its stockholders
b. A corporate officer is not personally and solidarily liable with the corporation for the money claims of
discharged or retrenched employees unless he acted with evident malice or bad faith in terminating
their employment
c. All contracts entered into in its name by its regular appointed officers and agents are the contracts of
the corporation and not those of the stockholders or members. A corporation cannot be held liable for
the personal indebtedness of a stockholder even if he should be its president
d. For the same reason, the President and manager of a corporation who entered into and signed a
contract in his official capacity, cannot be made liable thereunder in his individual capacity in the
absence of stipulation to that effect.
e. A corporation is vested by law with a personality separate and distinct from its stockholders, including
its officers as well as from that of any other legal entity to which it may be related. Thus, a company
manager acting in good faith within the scope of his authority in terminating the services of certain
employees cannot be held liable for damages
f. The property of the corporation is not the property of the stockholders or members and may not be
sold by the stockholders or members without express authorization of its board of directors or
trustees

B. Liability when exceptional circumstances warrant. — Personal or solidary liability may be incurred by
corporate agents acting in behalf of the corporation only when exceptional circumstances warrant. Thus, it
may validly attach when the director/trustee or officer acted maliciously or in bad faith, or with gross
negligence (see Sees. 31, 65.), or agreed to hold himself personally and solidarily liable with the corporation,
or made, by specific provision of law, personally liable for corporate action, or it is proven that the officer has
used the fiction of separate corporate personality to defraud a third party or for wrongful ends.

C. Right to bring actions. — It may incur obligations and bring civil and criminal actions (Art. 46, Civil Code.) in its
own name in the same manner as a natural person, although it may not perform certain actions that can be
done only by natural persons, such as the practice of law or medicine.

D. Right to acquire and possess property. — It may acquire and possess property of all kinds. (Art. 46, Civil
Code.) Property conveyed to or acquired by the corporation is in law the property of the corporation itself as a
distinct legal entity (Art. 44[3], ibid.) and not that of the stockholders or members as such and viceversa.
E. Acquisition by court of jurisdiction. — Where the appearance in court of the president of a corporation was in
the capacity of counsel of another corporation and not as representative or counsel of the first corporation,
such appearance cannot be construed as a voluntary submission of said corporation to the court's jurisdiction
F. Changes in individual membership. — Likewise, as an entity distinct from its members or stockholders, a
corporation remains unchanged and unaffected in its identity by changes in its individual membership.

Other Important Matter

a. Corporation as a person, resident, or citizen.

b. Corporation as a collection of individuals.
i. Doctrine of piercing the veil of corporate entity. The doctrine that a corporation is a legal entity
or a person in law, distinct from the persons composing it or any other corporation to which it
may be related, is merely a legal fiction for purposes of convenience and to subserve the

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 ends of justice. This fiction, therefore, cannot be extended to a point beyond its reason and
policy
ii. Application of the "instrumentality" or "alter ego" rule. The question of whether a corporation
is a mere instrumentality or alter ego, a mere sheet or paper corporation, a sham or a
subterfuge, is purely one of fact.

(2) It is created by operation of law;

It is well-established that no corporation can exist without the consent or grant of the sovereign, and that the
power to create corporations is one of the attributes of sovereignty
A. Special authority or grant by the State required. — A corporation is created by law or by operation of law. This
means that corporations cannot come into existence by mere agreement of the parties as in the case of
business partnerships.
B. Compliance with conditions prescribed by law required. — Corporations can only come into existence in the
manner prescribed by law.

(3) It has the right of succession; and

A corporation has a capacity of continuous existence irrespective of the death, withdrawal, insolvency, or
incapacity of the individual stockholders or members and regardless of the transfer of their interest or shares of
stock. Thus, it is frequently said that one of the attributes of a corporation aggregate is immortality or perpetual
succession. But the corporation is by no means immortal.

(4) It has only the powers, attributes and properties expressly authorized by law or incident to its existence.
A corporation, being purely a creation of law,10 may exercise only such powers as are granted by the law of its
creation. An express grant, however, is not necessary. All powers which may be implied from those expressly
provided by law and those which are incidental or essential to the corporation's existence may also be exercised

Advantages of corporate form of business:

A. Capacity to act as a single unit;
B. Limited shareholder‟s liability;
C. Continuity in existence;
D. Feasibility of greater undertaking;
E. Transferability of shares;
F. Centralized management; and
G. Standardized method of organization, management and finance

Disadvantage of corporate form of business:

A. To have valid and binding corporate act, formal proceedings, such as board meetings are required.
B. The business transactions of a corporation is limited to the State of its incorporation and may not act as such
corporation in other jurisdiction unless it has obtained a license or authority from the foreign state.
C. The shareholders‟ limited liability tends to limit the credit available to the corporation as a separate legal entity.
D. By the very nature of shares of stock which are personal properties, transferable at will by the owners thereof,
transfers of share may result to uniting incompatible and conflicting interests.
E. The minority shareholders have practically no say in the conduct of corporate affairs.
F. In large scale enterprises, stockholders‟ voting rights may become merely fictitious and theoretical because of
disinterest in management, wide-scale ownership and inaccessible place of meeting.
G. Double taxation may be imposed on corporate income.
H. Corporations are subject to governmental regulations supervision and control including submission of reportorial
requirements not otherwise imposed in other business form.

Section 3. Classes of Corporations. - Corporations formed or organized under this Code may be stock or nonstock
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 nonstock corporations.

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Section 4. Corporations Create by Special Laws or Charters. - Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable.

The Corporation Code classifies private corporations into stock and non-stock corporations, according to whether their
membership is represented by shares of stock or not.

A. A stock corporation is the ordinary business corporation created and operated for the purpose of making a profit
which may be distributed in the form of dividends to stockholders on the basis of their invested capital. The two (2)
elements mentioned in Section 3 must be present to make a private corporation fall under the definition of a stock
corporation.
B. Unlike stock corporations, non-stock corporations do not issue stock and distribute dividends to their members;
they are created not for profit but for the public good and welfare. Of this character are most of the charitable,
religious, social, literary, scientific, civic, and political organizations and societies. Nonstock corporations are
primarily governed by Title XI (Sees. 87- 95.) of the Code.

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 a members in a nonstock 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.

Other classifications of corporations.

There are other classifications of corporations, such as those enumerated below.
A. As to number of persons who compose them:
a. Corporation aggregate or a corporation consisting of more than one member or corporator;
i. Ordinary Corporation with not less than 5 Incorporators
ii. Two to Four Incorporators
b. Corporation sole or a special form of corporation usually associated with the clergy. Under the Code, it is
a religious corporation which consists of one member or corporator only and his successors, such as a
bishop.
c. One Person Corporation
B. As to whether they are for religious purposes or not:
a. Ecclesiastical corporation or one organized for religious purposes. Under the Code, religious
corporations are classified into corporations sole and religious societies (Sec. 109, par. 2.);
b. Lay corporation or one organized for a purpose other than for religion. Lay corporations, in turn, may be
either eleemosynary or civil.
C. As to whether they are for charitable purposes or not:
a. Eleemosynary corporation or one established for or devoted to charitable purposes or those supported by
charity; or
b. Civil corporation or one established for business or profit, i.e., with a view toward realizing gains to be
distributed among its members.
D. As to State under or by whose laws they have been created:
a. Domestic corporation or one incorporated under the laws of the Philippines; or
b. Foreign corporation or one formed, organized, or existing under any laws other than those of the
Philippines. It includes multinational corporations created under the laws of another State,
E. As to their legal right to corporate existence:
a. Dejure corporation or a corporation existing in fact and in law; or
b. De facto corporation or a corporation existing in fact but not in law. (see Sec. 21.)
F. As to whether they are open to the public or not:
a. Close corporation or one which is limited to selected persons or members of a family (see Sees. 96-105.);
or
b. Open corporation or one which is open to any person who may wish to become a stockholder or member
thereto.
G. As to their relation to another corporation:
a. Parent or holding corporation or one which is so related to another corporation that it has the power,
either directly or indirectly, to elect the majority of the directors of such other corporation;

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 b. Subsidiary corporation or one which is so related to another corporation that the majority of its directors
can be elected either directly or indirectly by such other corporation. It is one in which another
corporation17 owns at least a majority of the shares and thus has control; or
c. Affiliated corporation or one related to another by owning or being owned by common management or by
a longterm lease of its properties or other control device. An affiliation exists between a holding or parent
company and its subsidiary, or between two corporations owned or controlled by third

H. As to whether they are for public (government) or private purpose:

a. Public corporations or those formed or organized for the government of a portion of the State for the
general good and welfare; or
b. Private corporations or those formed for some private purpose, benefit, or end; it may be either a stock or
non-stock corporation, government-owned or -controlled corporation or quasi-public corporation.

Section 4 authorizes the creation of private corporations by special laws or charters.

The enactment of special act creating a private corporation is subject to the constitutional limitation that such corporation
shall be owned or controlled by the government. (Constitution of the Philippines, Art. XII, Sec. 16.) The reason for the
restriction is obvious:
a. It is chiefly 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; and
b. Perhaps, it is partly to prevent bribery and corruption of the legislature.

Components of a corporation.
The four classes of persons composing a corporation are the following:
A. Corporators or those who compose the corporation, whether stockholders or members. Hence, the term includes
incorporators and stockholders or members who become as such after incorporation of the corporation;
B. Incorporators or those corporators mentioned in the articles of incorporation as originally forming and composing
the corporation and who executed and signed the articles of incorporation and acknowledged the same before a
notary public
C. Stockholders or the owners of shares of stock in a stock corporation. They are the owners of the corporation.
They are also called shareholders. They are the corporators in a stock corporation. Stockholders may be natural
or juridical persons but only natural persons can be incorporators.
D. Members or corporators of a corporation which has no capital stocks. All incorporators in a stock corporation must
now own or at least be a subscriber to at least one (1) share of the capital stock of such corporation.

Section 6. Classification of Shares. - The classification of shares, their corresponding rights, priviledges, 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, echange, 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;

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 (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 nonassessable 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.

Section 7. Founders' Shares. - Founders' shares may be given certain rights and privileges not enjoyed by the owners of
other stock. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a
limited period not to exceed five (5) years from the date of incorporation: Provided, That such exclusive right shall not be
allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law"; Republic Act
No. 7042, otherwise known as the "Foreign Investments Act of 1991"; and otherwise known as "Foreign Investments Act
of 1991"; and other pertinent laws.

Section 8. Redeemable Shares. - Redeemable shares may be issued by the corporation when expressly provided in the
articles of incorporation. They are shares which may be purchased by the corporation. They are shares which may be
purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions
stated in the articles of incorporation and the certificate of stock representing the shares, subject to rules and regulations
issued by the Commission.

Section 9. Treasury Shares. - Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means.
Such shares may again be disposed of for a reasonable price fixed by the board of directors.

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

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organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise
provided under special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.

A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of
this Code.

Section 11. Corporate Term. - A corporation shall have 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.

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.

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 hsall 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;

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 (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.

SESSION SUMMARY
The Revised Corporation Code of the Philippines fully discussed the provision of Batas Pambansa Blg 68 and all other
provisions repealed by R.A 11232 from its definition, classification, registration requirements, manner of operation, rights
of the sotckholers and all other provisions

SELF-ASSESSMENT
Prepare an Articles of Incorporation in accordance with the Provision of the Law.
Summarize the content of Title XI Section 86, all sections in Title XII and XIII

REFERENCES
Refer to the references listed in the syllabus of the subject.