Corpo and Partnership - Mercantile Law

CORPO AND PARTNERSHIP– MERCANTILE LAW
CONSTITUTIONAL BASIS OF A PRIVATE CORPORATON OR GOVERNMENT-OWNED OR

CONTROLLED CORPORATION
The Congress shall NOT, except by general law, provide for the formation, organization, or regulation of
private corporations.
Government-owned or controlled corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (1987 CONSTITUTION ARTICLE XII, SECTION
16)
THEORY OF CORPORATE ENTERPRISE

It is not legal fiction alone that creates a corporate entity. Any State-grant presupposes the existence of consent
or common venture among those who will form the corporation. The corporate fiction cannot be created
unless there is an enterprise or group whom it would be conferred. (G.R.NO. 125469)
FRANCHISES OF CORPORATION
PRIMARY / -- the right to exist and act as a corporation after its incorporation.
CORPORATE /
GENERAL FRANCHISE
SECONDARY / SPECIAL -- refers to the right or privileges conferred upon an existing corporation such as
FRANCHISE the right to use the streets of a municipality to lay pipes of tracks, erect poles or
string wires.
(G.R. NO. 149110)
PRIMARY FRANCHISE SECONDARY FRANCHISE

AS TO WHOM VESTED
Vested in the individuals who compose the corporation; Vested in the corporation afters its incorporation and not
upon the individuals who compose the corporation.
AS TO ALIENABILITY
Cannot be sold, or transferred, or conveyed; May be sold or transferred under a general power
granted to a corporation to dispose of its properties,
without prejudice to special limitations.
(G.R. NO. 149110)
ADVANTAGES OF CORPORATE MEDIUMM OF DOING BUSINESS: (SCLF)

1) Strong Juridical Personality
2) Centralized Management
3) Limited Liability to investors
4) Free Transferability of Units of Investment
Strong Juridical Personality -- it has legal capacity to act and to contract as a distinct person in its own
name, and it has continuity of existence.
(G.R. NO. L-67626)
Centralized Management -- its management is centralized in the Board of Directors to who also are
granted all corporate under Section 22 of the Revised Corporation Code.
(G.R. NO. 105774)
Limited Liability to investors -- liability of investors is limited to their shares, subject to certain exceptions.
(G.R. NO. 129459)
Free Transferability of Units -- as a general rule, shares of stock can be transferred without the consent of
of Investment other stockholders.
By: Caffeinated Wisdom

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(G.R. NO. L-67626)
ADVANTAGES OR PURPOSES OF THE REVISED CORPORATION CODE (UPAMI)

1) Use of technology for more ease of doing business;
2) Protection of minority stockholders’ rights;
3) Adoption of international best practices on corporate governance;
4) Management and reduction of corporate risks; and
5) Inclusion of specific and effective enforcement provisions to enhance compliance and avoid regulatory power.
GOVERNMENT AS A CORPORATOR OF A CORPORATION

As a member of a corporation organized under the Corporatin Code, the government never exercises its
sovereignty. It merely acts as a corporator. The mere fact that the government happens to be the majority
stockholder of a corporation does NOT make it a public corporation.
As a private corporation , it has no greater rights, powers or privileges than any other corporation organized for the
same purpose under the Corporation Code. (G.R. NO. L-22619)
STATE IMMUNITY FROM SUIT

The State may NOT be sued without its consent. (1987 CONSTITUTION, ARTICLE XVI, SECTION 3)
GOVERNMENT – OWNED AND CONTROLLED CORPORATION

if the Government conducts a business through either a government-owned and controlled corporation or a
non- corporate agency set up primarily for a business purpose, the entity enjoys no immunity from suit even
if there is no express grant of authority to "sue or be sued."
Having a juridical personality separate and distinct from the government, the funds of such government-owned and
controlled corporation and non-corporate agency, although considered public in character, are not exempt from
garnishment. (G.R. NO. 84992)
CORPORATION PARTNERSHIP SOLE PROPRIETORSHIP

Separate juridical personality hence Separate juridical personality but all No separate juridical personality
doctrine of limited liability applies; partners, including industrial ones, hence unlimited liability.
shall be liable pro rata with all their
property and after all the partnership
assets have been exhausted, for the
contracts which maybe entered in
the name and for the account of the
partnership, under its signature and
by a person authorized to act for the
partnership;
Death of stockholder has no effect Death of partner dissolves Death of sole proprietor dissolves
on the corporation, having the right partnership. the sole proprietorship.
of succession hence more stable as
an entity;
Formalities are required to create a Simpler as it is created by mere One-man team.

corporation hence expensive; agreement of the parties;
Management is centralized with the Partners participate in the One-man team.

Board hence professionalized but management;
cumbersome. Stockholders can vote
only on certain corporate actions;
The income of the corporation is Only the partner’s distributive share Not applicable as there is no separate

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taxed, as well as the dividends in the net income of a general entity to speak of.
distributed to the stockholders; professional partnership is taxed.
JOINT VENTURE -- an association of persons or companies jointly undertaking some commercial

enterprise.
Generally, all contribute assets and shares risks. It requires a community of interest in the
performance of the subject matter, a right to direct and govern the policy in connection
therewith, and a duty which may be altered by agreement to share both in profits and
losses.
GOVERING LAW OF JOINT VENTURE

A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or
the exercise of a profession or vocation. (1678) (CIVIL CODE, ARTICLE 1783)
RELEVANCE OF A BRANCH
A branch is not separate entity from the corporation
REPUBLIC ACT No. 11232 REVISED CORPORATION CODE OF THE PHILIPPINES
(2014) CORPORATION -- is an artificial being created by operation of law, having the right of:
1) succession and the powers, attributes, and
2) properties expressly authorized by law or incidental to its existence.
(SECTION 2)
ATTRIBUTES OF A CORPORATION
The attributes of a corporation are: (PASO)
1) it Possesses the powers, attributes, and properties expressly authorized by law or incidental to its existence.
2) it is Artificial being;
3) it the right of Succession; and
4) it is created by Operation of law; (SECTION 2)
CORPORATION’S RIGHT OF SUCCESSION

Pursuant to the separate juridical entity concept, the life of a corporation is not affected by the death of the
stockholders comprising it. It can continue to exist perpetually.
DOCTRINE OF CORPORATE ENTITY (DOCTRINE OF SEPARATE PERSONALITY)

Corporations are juridical persons to which the law grants a juridical personality, separate and distinct from
that of each shareholder. (35a) (NEW CIVIL CODE, ARTICLE 44)
NATURE OF SEPARATE PERSONALITY

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from stockholders
and from other corporations to which may be connected.
But this separate and distinct personality of a corporation is merely a fiction created by law for convenience
and to promote justice. (G.R. NO. 108734)
INSTANCES WHEN SHAREHOLDERS MAY ANSWER FOR CORPORATE CREDITORS (P – UBAN)

1) A court may Pierce the corporate veil under certain conditions. (G.R. NO. 167530)
2) A creditor may require a shareholder to pay his Unpaid subscription, which represents a claim or receivable of the
corporation. (G.R. NO. L-39681)
3) A rehabilitation or insolvency court may order the commingling of assets or related corporations, when deemed
Beneficial to all concerned parties in a rehabilitation or insolvency proceedings. (FRIA, SECTION 7)
4) A creditor may hold the concerned directors or trustees Accountable for breach of their fiduciary duties.

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The same is true in a close corporation when its shareholders assume the functions of management. (SECTION 99)
(SECTION 30)
5) A rehabilitation or insolvency court may Nullify any unreasonable or unusual transfer of funds or assets to the
shareholders during the 90-day pre-zone of insolvency. (SECTION 58)
INCHOATE RIGHT OF THE OWNERS

As the corporation is considered separate from the stockholders, the stockholders merely possess inchoate
interest over the corporate assets, and therefore does not entitle them to intervene in litigation involving
corporate property. (180 SCRA 266)
CORPORATE LIABILITY
The obligations of a corporation, acting through its directors, officers, and employees, are its own sole
liabilities.
The corporation’s directors, officers, or employees are generally NOT personally liable for the obligations of the
corporation. (G.R. NO. 211535)
CRIMINAL LIABILITY OF CORPORATIONS

1) When a penal statute does NOT expressly apply to corporations, it does NOT create an offense for which a
corporation may be punished. (G.R. NO. 164317)
2) When a penal statute defines a crime that may be committed by a corporation but prescribes the penalty therefor
to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the
offense, only such individuals will suffer such penalty as they are deemed to be individually guilty of the crime
causing the corporation to commit the crime. (G.R. NO. 164317)
3) When a penal statute designates an act of a corporation as crime and prescribes punishment therefor, it
creates a criminal offense which, otherwise, would not exist and such can be committed only by the
LIABILITY FOR CORPORATE TORTS

A corporations is liable whenever a tortious act committed by an officer or agent under the express direction or
authority of the stockholders or members acting as a body, or generally, from the directors as the governing
body. (G.R. NO. L-27155)
LIABILITY FOR CORPORATE TORTS IS WITHOUT PREJUDICE TO DERIVATIVE SUIT

The tort liability of the corporation is without prejudice to a derivative suit being filed by the stockholders to
recover from the responsible board members and officers the damages suffered by the corporation.
(VILLANUEVA, PHILIPPINE CORPORATION LAW (2013) PAGE 41)
DOCTRINE OF CORPORATE NEGLIGENCE

Regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for its
own negligence or failure to follow established standard of conduct to which the hospital should conform as a
NATURE OF THE CORPORATE LIABILITY

The corporation is held directly and primarily liable for its own negligence under the principle bonum pater
familias not merely subsidiarily under the concept of respondeat superior.
CORPORATION HAS THE RIGHT TO RECOVER MORAL DAMAGES

GENERAL RULE:
The doctrinal rule is that the award of moral damages CANNOT be granted in favor of a corporation because
being an artificial person and having existence only in legal contemplation it has no feelings, no emotions, no
senses. (G.R. NO. 178042)
EXCEPTION:
Moral damages include besmirched reputation.

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Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate
result of the defendant's wrongful act for omission. (NEW CIVIL CODE, ARTICLE 2217)
CAVEAT ON THE RIGHT OF THE CORPORATION TO RECOVER MORAL DAMAGES

The award of moral damges to corporations is not a hard and fast rule.
Indeed, while the Court may allow the grant of moral damages to corporations, it is NOT automatically
granted. There must still be proof of the existence of the factual basis of the damage and its causal relation to
the defendant’s acts. (G.R. NO. 172428)
DOCTRINE OF PIERCING THE CORPORATE VEIL

Corporations for private interest or purpose to which the law grants a juridical personality, separate and distinct
from that of each shareholder. (NEW CIVIL CODE, ARTICLE 44)
A corporation has a separate and distinct personality from its stockholders, and from other corporations it
may be connected with.
EXCEPTIONS:
However, such personality may be disregarded, or the veil of corporate fiction may be pierced attaching personal
liability against responsible person if the corporation's personality "is used to: (DJ – PD)
1) Defeat public convenience,
2) Justify wrong,
3) Protect fraud or defend crime, or
4) is used as a Device to defeat the labor laws.
Also, piercing the veil of corporate fiction is allowed where a corporation is a mere alter ego or a conduit of a
person, or another corporation. (G.R. No. 210032)
REVERSE PIERCING PRINCIPLE

In a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can
reach the assets of a corporate insider.
In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation to satisfy claims against
a corporate insider.
Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the
corporation liable for the debt of the shareholders. (G.R. No. 191525)
TWO TYPES OF REVERSE PIERCING

1) OUTSIDE REVERSE PIERCING
2) INSIDER REVERSE PIERCING
OUTSIDE REVERSE -- occurs when a party with a claim against an individual or corporation
PIERCING attempts to be repaid with assets of a corporation owned or substantially
controlled by the defendant.
INSIDER REVERSE -- the controlling members will attempt to ignore the corporate fiction in order
PIERCING to take advantage of a benefit available to the corporation, such as an interest
in a lawsuit or protection of personal assets.
(G.R. No. 191525)
TRADITIONAL PIERCING REVERSE PIERCING

PURPOSE
To make the underlying shareholder liable for debts and To make corporate assets liable for the debts and
damages which would normally be considered corporate damages which a shareholder of such corporation is
debts; personally liable for.
OBJECT OF THE PIERCING

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Reaches for the underlying shareholder to make his Reaches for the corporate assets of the pierced
personal properties liable; corporation.
GROUNDS TO PIERCE THE VEIL (FAP)

1) FRAUD PIERCING
2) ALTER-EGO PIERCING
3) PUBLIC CONVENIENCE PIERCING
FRAUD PIERCING -- The veil of separate corporate personality may be lifted when such
personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime.
(G.R. No. 149237)
ALTER-EGO PIERCING -- Where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where one corporation is so organized and
controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of
the "instrumentality" may be disregarded.
(G.R. No. 154975)
PUBLIC CONVENIENCE -- when the corporate fiction is used as vehicle for the evasion of an existing
PIERCING obligation (GENERAL CREDIT CORPORATION vs. ALSONS
DEVELOPMENT and INVESTMENT CORPORATION, G.R. No. 154975
January 29, 2007)
When two business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect the rights
of third parties, disregard the legal fiction that these two entities are distinct
and treat them as identical or as one and the same.
(G.R. No. 154975) (G.R. No. 185280)
GROUNDS TO PIERCE NOT PRESUMED

To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly and
convincingly. (G.R. No. 149237)
A REMEDY IN EQUITY
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and
may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person.
(G.R. No. 93397)
APPLICATION OF PIERCING THE VEIL OF CORPORATE ENTITY

Piercing the veil of corporate entity applies to determination of liability NOT of jurisdiction.
This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the
case after the court has already acquired jurisdiction over the corporation.
Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first
have jurisdiction over the corporation. (G.R. No. 182729)
JURISDICTIONAL TWO-FOLD REQUISITES FOR PIERCING

TWO FOLD JURISDICTIONAL REQUISITES FOR PIERCING (AF)
1) the court must first Acquire jurisdiction over the corporation or corporations involved before its or their separate
personalities are disregarded; and

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2) the doctrine of piercing the veil of corporate entity can only be raised during a Full-blown trial over a cause of
action duly commenced involving parties duly brought under the authority of the court by way of service of
summons or what passes as such service. (G.R. No. 182729)
SHERIFF CANNOT PIERCE THE VEIL OF CORPORATE FICTION

To pierce the veil of corporate fiction, being a power belonging to the courts, a sheriff who has ministerial duty
to enforce a final and executor decision cannot pierce the veil of corporate fiction by enforcing the decision
against the stockholders who are not parties to the action. (A.M. R-181-P)
NATURE OF FRAUD AND BAD FAITH IN PIERCING CASES

Fraud refers to all kinds of deception -- whether through insidious machination, manipulation, concealment
or misrepresentation -- that would lead an ordinarily prudent person into error after taking the
circumstances into account.
Fraud must be established by clear and convincing evidence; mere preponderance of evidence is not
adequate. (G.R. No. 153535)
ELEMENTS OF FRAUD PIERCING: (FUP)

1) There must have been Fraud or evil motive in the affected transaction and the mere proof of control of the
corporation by itself would not authorize piercing.
2) The corporate entity has been Used in the perpetration of the fraud or in justification of wrong, or to defend
crime; and
3)The main action should seek for the enforcement of Pecuniary claims pertaining to the corporation against
corporate officers or stockholders, or vice-versa (G.R. No. 108734)
ELEMENTS OF ALTER-EGO PIERCING (THREE-PRONGED TEST)

1) CONTROL TEST
2) FRAUD TEST
3) HARM TEST
CONTROL TEST Control, not mere majority or complete stock control, but complete domination, not only
of finances but of policy and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
FRAUD TEST Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust
act in contravention of plaintiff's legal rights; and
HARM TEST The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
(G.R. No. 108734)
PROBATIVE FACTORS TO BE CONSIDERED IN ALTER-EGO CASES: (MIMS)

1) Methods of conducting the business
2) Identity of directors and officers.
3) Manner of keeping corporate books and records.
4) Stock ownership by one or common ownership of both corporations. (G.R. No. 108734)
INDICIA THAT A SUBSIDIARY COMPANY IS MERELY ALTER-EGO OF ITS PARENT

CORPORATION
A COMBINATION OF TWO OR MORE of the following circumstances, TAKEN TOGETHER, may be
INDICIA that subsidiary corporation is but a mere instrumentality or alter ego of its parent corporation: (PAINS –
C – FLOOD)

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1) The parent corporation Pays the salaries and other expenses or losses of the subsidiary.
2) The parent corporation owns All or most of the capital stock of the subsidiary.
3) The subsidiary has grossly Inadequate capital.
4) The subsidiary has substantially No business except with the parent corporation or no assets except those
conveyed to or by the parent corporation.
5) The parent corporation Subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.
6) The parent and subsidiary corporations have Common directors or officers.
7) The parent corporation Finances the subsidiary.
8) The formal Legal requirements of the subsidiary are not observed.
9) The parent corporation uses the property of the subsidiary as its Own.
10) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take
their Orders from the parent corporation.
11) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a
Department or division of the parent corporation, or its business or financial responsibility is referred to as the parent
corporation's own.
LEGITIMATE BUSINESS MAY BE RESPECTED

The general rule is still to the effect that if used for legitimate functions, a subsidiary’s separate existence shall
be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those
arising in their respective business. (G.R. No. 153478)
MERE OWNERSHIP BY A SINGLE STOCKHOLDER OR BY ANOTHER CORPORATION

While ownership by one corporation of all or a great majority of stocks of another corporation and their
interlocking directorates may serve as indicia of control, by themselves, these circumstances are insufficient
to establish an alter ego relationship that will justify the puncturing of corporate cover. (G.R. NO. 167530)
PIERCING DOES NOT HAVE THE EFFECT OF RES JUDICATA

The corporate mask may be removed and the corporate veil pierced when a corporation is the mere alter ego of
another. When that happens, the corporate character is NOT necessarily abrogated. It continues for other
legitimate objectives. (G.R. NO. 159121)
CLASS OF CORPORATIONS
1) STOCK
2) NONSTOCK
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.
(SECTION 3)
NONSTOCK -- are those which have NO capital stock divided into shares and are NOT
CORPORATION authorized to distribute to the holders of such shares, dividends, or allotments
of the surplus profits on the basis of the shares held.
(SECTION 3)
CORPORATIONS CREATED BY SPECIAL LAWS OR CHARTERS (2011)

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. (SECTION 4)
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.
(SECTION 5)

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INCORPORATORS -- are those stockholders or members mentioned in the articles of incorporation as

originally forming and composing the corporation and who are signatories thereof.
(SECTION 5)
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. (SECTION 6)
EQUALITY OF SHARES
GENERAL RULE
Each share shall be equal in all respects to every other share,
EXCEPTIONS:
except as otherwise provided in the:
1) articles of incorporation and
2) certificate of stock. (SECTION 6)
SHARES IN STOCK CORPORATIONS

The shares in stock corporations may be divided into classes or series of shares, or both. (SECTION 6)
VOTING RIGHTS OF SHARES

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. (SECTION 6)
NONVOTING SHARES ENTITLED TO VOTE

Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters: (I – MAID – ASI)
1) Incurring, creating, or increasing bonded indebtedness;
2) Merger or consolidation of the corporation with another corporation or other corporations;
3) Adoption and amendment of bylaws;
4) Increase or decrease of authorized capital stock;
5) Dissolution of the corporation.
6) Amendment of the articles of incorporation;
7) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate property;
and
8) Investment of corporate funds in another corporation or business in accordance with this Code; (SECTION 6)
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. (SECTION 6)
PAR OR PAR VALUE SHARES

The shares or series of shares may or may not have a par value.
PROVIDED: (BIT – P– BOP)

1) Banks,
2) Insurance,
3) Trust, and
4) Preneed companies,
5) Building and loan associations,
6) Other corporations authorized to obtain or access funds from the public whether publicly listed or NOT, and
7) Public utilities,
shall NOT be permitted to issue no-par value shares of stock. (SECTION 5)

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RIGHT OF PREFERRED SHARES

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:
1) 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.
2) That such terms and conditions shall be effective upon filing of a certificate thereof with the SECURITIES
AND EXCHANGE COMMISSION. (SECTION 5)
SHARES OF CAPITAL STOCK ISSUED WITHOUT PAR VALUE

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:
1) That no-par value shares must be issued for a consideration of at least ₱5.00 per share.
2) 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. (SECTION 5)
FOUNDER’S 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 to FOUNDER’S
SHARES, it must be for a limited period NOT to exceed 5 years from the date of incorporation.
PROVIDED:
That such exclusive right shall NOT be allowed if its exercise will violate the:
1) ANTI – DUMMY LAW;
2) FOREIGN INVESTMENT ACT OF 1991; and
3) other pertinent laws. (SECTION 7)
ISSUANCE OF REDEEMABLE SHARES (2013)

Redeemable shares may be issued by the corporation when expressly provided in the articles of incorporation.
(SECTION 8)
REDEEMABLE SHARES (2013)

1) They are shares which may be purchased by the corporation.
2) 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 SECURITIES AND
EXCHANGE COMMISSION. (SECTION 8)
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.
(SECTION 9)
Such shares may again be disposed of for a reasonable price fixed by the board of directors. (SECTION 9)
VOTING RIGHT FOR TREASURY SHARES

Treasury shares shall have NO voting right as long as such shares remain in the Treasury. (SECTION 56)
TITLE II INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS

(2014) NUMBER OF INCORPORATORS

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Any person, partnership, association or corporation, singly or jointly with others but NOT more than 15 in
number, may organize a corporation for any lawful purpose or purposes. (SECTION 10)
PARTNERSHIPS OR ASSOCIATIONS ORGANIZED FOR THE PURPOSE OF PRACTICING A

PROFESSION
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. (SECTION 10)
QUALIFICATION OF INCORPORATOR
1) Incorporators who are natural persons must be of legal age.
2) Each incorporator of a stock corporation must own or be a subscriber to at least 1 share of the capital stock.
(SECTION 10)
CORPORATE TERM (2011) (2012)

A corporation shall have perpetual existence unless its articles of incorporation provides otherwise.
(SECTION 11)
CORPORATIONS WITH CERTIFICATE OF INCORPORATION ISSUED PRIOR TO THE

EFFECTIVITY OF THE REVISED CORPORATION CODE
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 term under this section is without prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of this Code. (SECTION 11)
CORPORATE TERM MAY BE EXTENDED OR SHORTENED

A corporate term for a specific period may be extended or shortened by amending the articles of incorporation.
PROVIDED:
1) That NO extension may be made earlier than 3 years prior to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier extension as may be determined by the SECURITIES AND
EXCHANGE COMMISSION.
2) That such extension of the corporate term shall take effect only on the day following the original or
subsequent expiry date(s). (SECTION 11)
REVIVAL OF CORPORATE EXISTENCE

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 SECURITIES AND EXCHANGE 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. (SECTION 11)
PROVIDED:
NO application for revival of certificate of incorporation of: (BOC – PIN – PB)
1) Banks,
2) Other financial intermediaries,
3) Corporations engaged in money service business,
4) Preneed,
5) Insurance and trust companies,
6) Non-stock savings and loan associations (NSSLAs),
7) Pawnshops, and
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8) Banking and quasi-banking institutions,

shall be approved by the SECURITIES AND EXCHANGE COMMISSION unless accompanied by a
favorable recommendation of the appropriate government agency. (SECTION 11)
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 12)
CONTENTS OF THE ARTICLES OF INCORPORATION (2013)(2010)(2014)

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:
(TONS - INDONS)
1) The Term for which the corporation is to exist, if the corporation has not elected perpetual existence;
2) The place where the principal Office of the corporation is to be located, which must be within the Philippines;
3) The Name of corporation;
4) 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;
5) The names, nationalities, and residence addresses of the Incorporators;
6) The Number of directors, which shall NOT be more than 15 or the number of trustees which may be more than
15;
7) 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;
8) Such Other matters consistent with law and which the incorporators may deem necessary and convenient.
9) 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
10) 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;
(SECTION 13)
An arbitration agreement may be provided in the articles of incorporation pursuant to Section 181 of this Code.
(SECTION 13)
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 13)
AMENDMENT OF ARTICLES OF INCORPORATION

1) STOCK CORPORATION
GENERAL RULE:
any provision or matter stated in the articles of incorporation may be amended by:
i. a majority vote of the board of directors or trustees and
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ii. the vote or written assent of the stockholders representing at least 2/3 of the outstanding capital
stock,
iii. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions
of this Code.
EXCEPTION:
Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, (SECTION 15)
2) NONSTOCK CORPORATION
GENERAL RULE:
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 2/3 of the members.
EXCEPTION:
Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, (SECTION 15)
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. (SECTION 15)
EFFECTIVITY OF THE AMENDMENT OF ARTICLES OF INCORPORATION

1The amendments shall take effect upon:
1) their approval by the SECURITIES AND EXCHANGE COMMISSION or
2) from the date of filing with the SECURITIES AND EXCHANGE COMMISSION if NOT acted upon
within 6 months from the date of filing for a cause NOT attributable to the corporation. (SECTION 15)
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 SECURITIES AND EXCHANGE 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. (SECTION 16)
GROUND FOR DISAPPROVAL OF ARTICLES OF INCORPORATION OR AMENDMENT

The following are ground for such disapproval: (PAFO)
1) The Purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to
government rules and regulations;
2) The certification concerning the Amount of capital stock subscribed and/or paid is false;
3) The articles of incorporation or any amendment thereto is NOT substantially in accordance with the Form
prescribed herein; and
4) The required percentage of Filipino Ownership of the capital stock under existing laws or the Constitution has not
been complied with. (SECTION 16)
No articles of incorporation or amendment to articles of incorporation of: (BOC – PIN – PB)

1) Banks,
2) Other financial intermediaries,
3) Corporations engaged in money service business,
4) Preneed,
5) Insurance and trust companies,
6) Non-stock savings and loan associations (NSSLAs),
7) Pawnshops, and
8) Banking and quasi-banking institutions,
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favorable recommendation of the appropriate government agency to the effect that such articles or
amendment is in accordance with the law. (SECTION 16)
CORPORATE NAME
No corporate name shall be allowed by the SECURITIES AND EXCHANGE COMMISSION if: (DAP)
1) it is NOT Distinguishable from that already reserved or
2) registered for the use of Another corporation, or
3) such name is already Protected by law, rules and regulations. (SECTION 17)
STILL NOT DISTINGUISHABLE

A name is not distinguishable even if it contains one or more of the following:
1) The word "corporation", "company", incorporated", "limited", "limited liability", or an abbreviation of one if such
words; and
2) Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses, spacing, or number
of the same word or phrase. (SECTION 17)
EFFECT OF NON COMPLIANCE OF THE PROPER CORPORATE NAME

1) The SECURITIES AND EXCHANGE COMMISSION upon determination that the corporate name is: (DACA)
i. NOT Distinguishable from that already reserved; or
ii. registered for the use of Another corporation;
iii. Contrary to law, rules and regulations; or
iv. Already protected by law,
may summarily order the corporation to immediately cease and desist from using such name and require the
corporation to register a new one.
2) The SECURITIES AND EXCHANGE COMMISSION shall also cause the removal of all visible signages,
marks, advertisements, labels prints and other effects bearing such coroporate name. (SECTION 17)
3) If the corporation fails to comply with the SECURITIES AND EXCHANGE 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. (SECTION 17)
ISSUANCE OF CERTIFICATE OF INCORPORATION UNDER THE AMENDED NAME

Upon the approval of the new corporate name, the Commission shall issue a certificate of incorporation under the
amended name. (SECTION 17)
REGISTRATION AND INCORPORATION

A person or group of persons desiring to incorporate shall submit the intended corporate name to the Commission
for verification.
If the SECURITIES AND EXCHANGE 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. (SECTION 18)
ISSUANCE OF CERTIFICATE OF INCORPORATION

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 SECURITIES AND EXCHANGE
COMMISSION shall issue the certificate of incorporation. (SECTION 18)
COMMENCEMENT OF CORPORATE EXISTENCE (2014)

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1) A private corporation organized under the REVISED CORPORATION CODE commences its corporate
existence and juridical personality from the date the SECURITIES AND EXCHANGE COMMISSION issues
the certificate of incorporation under its official seal
2) 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. (SECTION 18)
CONCESSION THEORY / FIAT THEORY / GOVERNMENT PATERNITY THEORY / FRANCHISE

THEORY
A corporation is an artificial creature without any existence until it has received the imprimatur of the State
acting according to law, through the SECURITIES EXHANGE COMMISSION. (G.R. NO. L23145)
Mere consent of the parties to form a corporation is insufficient; before a corporation can be formed, the state must
give its consent either in the form of a special law or a general law. (THE CORPORATION CODE, VOLUME I,
CAMPOS AND CAMPOS, AT 2)
DE FACTO -- The due incorporation of any corporation claiming in good faith to be a

CORPORATION (2013) corporation under the REVISED CORPORATION CODE.
(SECTION 19)
NOT SUBJECT TO COLLATERAL ATTACK

its right to exercise corporate powers, shall NOT be required into collaterally in any private suit to which such
corporation may be a party. (SECTION 19)
AUTHORITY TO INQUIRE THE CORPORATE EXISTENCE OF A DE FACTO CORPORATION

Such inquiry may be made by the Solicitor General in a quo warranto proceeding. (SECTION 19)
(2013) CORPORATION BY ESTOPPEL

LIABILITY IN 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:
That when any such ostensible corporation is sued on any transaction entered by it 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. (SECTION 20)
ASSUMPTION OF THE OBLIGATION OF THE CORPORATION BY ESTOPPEL

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. (SECTION 20)
EFFECT OF NON – USE OF CORPORATE CHARTER

If a corporation does NOT formally organize and commence its business within 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
5-year period. (SECTION 21)
EFFECT OF CONTINOUS INOPERATION

if a corporation has commence its business but subsequently becomes inoperative for a period of at least 5
consecutive years, the SECURITIES AND EXCHANGE COMMISSION may, after due notice and hearing,
place the corporation under delinquent status. (SECTION 21)
RESUME OPERATIONS

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A delinquent corporation shall have a period of 2 years to resume operations and comply with all requirements
that the SECURITIES AND EXCHANGE COMMISSION shall prescribed.
Upon the compliance by the corporation, the SECURITIES AND EXCHANGE COMMISSION shall issue an
order lifting the delinquent status. (SECTION 21)
FAILURE TO COMPLY WITH REQUIREMENTS AND RESUME OPERATIONS

Failure to comply with the requirements and resume operations within the period given by the SECURITIES
AND EXCHANGE COMMISSION shall cause the revocation of the corporation's certificate of
incorporation. (SECTION 21)
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.
(SECTION 21)
DERIVATIVE ACTION / -- is a suit by a shareholder which seeks to recover for the benefit of the
DERIVATIVE SUIT corporation and its whole body of shareholders when injury is caused to the
corporation that may not otherwise be redressed because of failure of the
corporation to act.
But an individual stockholder may be permitted to institute a derivative suit on

behalf of the corporation in order to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or are the ones to be
sued, or hold control of the corporation.
(G.R. No. 168863) (G.R. No. 174353)
TITLE III BOARD OF DIRECTORS/TRUSTEE AND OFFICERS

(2016) BUSINESS JUDGMENT RULE / DOCTRINE OF CENTRALIZED MANAGEMENT
Unless otherwise provided in REVISED CORPORATION CODE, the board of directors or trustees shall
exercise the corporate powers, conduct all business, and control all properties of the corporation. (SECTION
22)
Questions of policy or management left solely to the honest decisions of officers and directors of a corporation,
and so long as they act in good faith, their orders are not reviewable by the courts. (G.R. NO. 132981)
RATIONALE:
The concentration in the board of the powers of control of corporate business and of appointment of
corporate officers and managers is necessary for efficiency in any large organization.
Stockholders are too numerous, scattered, and unfamiliar with the business of a corporation to conduct its
business directly. (G.R. No. 161886)
INTERIM RULES OF PROCEDURE FOR INTRA – CORPORATE CONTROVERSIES

DERIVATIVE ACTION
A stockholder or member may bring an action in the name of a corporation or association, as the case may be,
provided, that: (TENA)
1) He was a stockholder or member at the Time the acts or transactions subject of the action occurred and at the time
the action was filed;
2) He Exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to
obtain the relief he desires;
3) The suit is NOT a Nuisance or harassment suit; and
4) NO Appraisal rights are available for the act or acts complained of.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case. (RULE 8, SECTION1)

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PROHIBITED PLEADINGS (P – BEND)

1) Motion for Postponement and other motions of similar intent, except those filed due to early compelling reasons.
Such motion must be verified and under oath.
2) Motion for a Bill of particulars;
3) Motion for Extension of time to file pleadings, affidavits or any other paper, except those filed due to clearly
compelling reasons. Such motion must be verified and under oath;
4) Motion for (NRR) New trial, or for Reconsideration of judgment or order, or for Re – opening of trial; (N) and
5) Motion to Dismiss; (SECTION 8)
RATIONALE
The general rule is that where a corporation is an injured party, its power to sue is lodged with its board of directors
or trustees.
Nonetheless, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation.
In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party
in interest. (G.R. No. 177549)
CLASS OR REPRESENTATIVE SUIT VS. DERIVATIVE SUIT

Where a stockholder or member is denied the right of inspection, his suit would be individual because the wrong is
done to him personally and not to the other stockholders or the corporation.
Where the wrong is done to a group of stockholders, as where preferred stockholders' rights are violated,
a class or representative suit will be proper for the protection of all stockholders belonging to the same group.
However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has no redress because the former are vested by law
with the right to decide whether or not the corporation should sue, and they will never be willing to sue
themselves.
Thus, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein
he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse to
sue or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is
regarded as the nominal party, with the corporation as the party-in- interest. (G.R. No. 170783)
TERM OF DIRECTORS AND TRUSTEES

Directors shall be elected for a term of 1 year from among the holders of stocks registered in the
corporation's book while trustees shall be elected for a term not exceeding 3 years from among the members
of the corporation. (SECTION 22)
Each director and trustee shall hold office until the successor is elected and qualified. (SECTION 22)
MANDATORY QUALIFICATION OF A DIRECTOR AND TRUSTEE

A director who ceases to own at least 1 share of stock or
a trustee who ceases to be a member of the corporation
shall cease to be such. (SECTION 22)
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.
(SECTION 22)

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CORPORATIONS VESTED WITH PUBLIC INTEREST

The board of the following corporations vested with public interest shall have independent directors constituting
at least 20% of such board:
1) 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 SECURITIES AND EXCHANGE
COMMISSION, corporations listed with an exchange or with assets of:
i. at least PHP.50,000,000.00 and
ii. having 200 or more holders of shares,
iii. each holding at least 100 shares of a class of its equity shares;
2) (BOC – PIN – PB)

i. Banks,
ii. Other financial intermediaries,
iii. Corporations engaged in money service business,
iv. Preneed,
v. Insurance and trust companies,
vi. Non-stock savings and loan associations (NSSLAs),
vii. Pawnshops, and
viii. Banking and quasi-banking institutions,
3) 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. (SECTION 22)
ELECTION OF INDEPENDENT DIRECTORS

Independent directors must be elected by the shareholders present or entitled to vote in absentia during the
election of directors. (SECTION 22)
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. (SECTION 22)
RELATIONSHIP BETWEEN STOCKHOLDERS AND DIRECTORS OR TRUSTEES

While stockholders and members are entitled to received profits, the management and direction of the corporation
are lodged with their representatives and agents – the board of directors or trustees. (G.R. No. 153468)
WHEN DOCTRINE OF CENTRALIZED MANAGEMENT NOT APPLICABLE (ECS)

1) If the bylaws so provide, the board may create an EXECUTIVE COMMITTEE composed of at least 3
directors. Said committee may act, by majority vote of all its members, on such specific matters within the
competence of the BOARD OF DIRECTORS, as may be delegated to it in the bylaws or by majority vote of the
board (SECTION 34)
2) The CORPORATE OFFICERS shall manage the corporation and perform such duties as may be provided
in the bylaws and/or as resolved by the board of directors. (SECTION 24)
3) The articles of incorporation of a close corporation may provide that the business of the corporation shall be
managed by the Stockholders of the corporation rather than by a board of directors. (SECTION 96)
ROLE AND RIGHT OF CORPORATORS IN THE MANAGEMENT OF THE CORPORATION

Due to the DOCTRINE OF CENTRALIZED MANAGEMENT, the only way shareholders and members can
participate in the management of the corporation is by:
1) Electing the Directors and Trustees; or
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2) Approving or ratifying the acts and transactions of the Board, Corporate Officers, and Agents.
ELECTION OF DIRECTORS OR TRUSTEES (2011) (2013)

GENERAL RULE:
Each stockholder or member shall have the right to nominate any director or trustee who posseses all of the
qualifications and none of the disqualifications set forth in the REVISED CORPORATION CODE.
(SECTION 23)
EXCEPTION:
Except when the exclusive right is reserved for holders of founders' shares: (SECTION 23)
FOUNDER’S SHARES
Where the exclusive right to vote and be voted for in the election of directors is granted to FOUNDER’S
SHARES, it must be for a limited period NOT to exceed 5 years from the date of incorporation.
PROVIDED:
That such exclusive right shall NOT be allowed if its exercise will violate the:
1) ANTI – DUMMY LAW;
2) FOREIGN INVESTMENT ACT OF 1991; and
3) other pertinent laws. (SECTION 7)
PRESENCE DURING ELECTION OF DIRECTORS OR TRUSTEES

At all elections of directors or trustees:
1) there must be present, either in person or through a representative authorized to act by written proxy:
i. the owners of majority of the outstanding capital stock, or
ii. if there be no capital stock, a majority of the members entitled to vote.
2) 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. (SECTION 23)
EFFECT OF A STOCKHOLDER OR MEMBER WHO PARTICIPATES THROUGH REMOTE

COMMUNICATION OR IN ABSENTIA
A stockholder or member who participates through remote communication or in absentia, shall be deemed present
for purposes of quorum. (SECTION 23)
The election must be by ballot if requested by any voting stockholder or member. (SECTION 23)
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:
1) vote such number of shares for as many persons as there are directors to be elected;
2) cumulate said shares and give 1 candidate as many votes as the number of directors to be elected multiplied by
the number of shares owned; or
3) distribute them on the same principle among as many candidates as may be seen fit:
PROVIDED:
1) 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.
2) That NO delinquent stock shall be voted.

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Unless otherwise provided in the articles of incorporation or in the bylaws, members of nonstock 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. (SECTION 23)
The directors or trustees elected shall perform their duties as prescribed by law, rules of good corporate governance,
and bylaws of the corporation.
CORPORATE OFFICERS (2010) (2014)

Immediately after their election, the directors of a corporation must formally organize and elect:
1) PRESIDENT
2) TREASURER
3) SUCH OTHER OFFICER AS MAY BE PROVIDED IN THE BYLAWS
1) PRESIDENT
2) TREASURER
3) SUCH OTHER OFFICER AS MAY BE PROVIDED IN THE BYLAWS
PRESIDENT -- who must be a director;

(SECTION 24)
TREASURER -- who must be a resident of the Philippines;

(SECTION 24)
CORPORATION VESTED WITH PUBLIC INTEREST

If the corporation is vested with public interest, the board shall also elect compliance officer. (SECTION 24)
2 OR MORE POSITIONS CONCURRENTLY

The same person may hold 2 or more positions concurrently,
EXCEPTIONS:
except that NO one shall act as:
1) president and secretary or
2) president and treasurer at the same time,
unless otherwise allowed in the REVISED CORPORATION CODE. (SECTION 24)
DUTIES OF THE CORPORATE OFFICERS

The officers shall manage the corporation and perform such duties as may be provided in the bylaws and/or
as resolved by the board of directors. (SECTION 24)
CORPORATE OFFICERS IN THE BY LAWS

An office must be expressly mentioned in the BY-LAWS in order to be considered as a corporate office.
Where an office is created by virtue of a general power granted to the BOARD OF DIRECTORS in the
ARTICLES OF INCORPORATION or BY – LAWS, that office cannot be deemed a corporate office. (G.R.
NO. 157802)
an enabling clause in a corporation’s by-laws empowering its board of directors to create additional officers,
even with the subsequent passage of a board resolution to that effect, CANNOT make such position a
corporate office.

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The board of directors has no power to create other corporate offices without first amending the corporate
by-laws so as to include therein the newly created corporate office.
"To allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an
enabling clause empowering the board of directors to do so can result in the circumvention of that
constitutionally well-protected right of every employee to security of tenure." (G.R. NO. 2011298)
DISMISSAL OF CORPORATE OFFICER

A corporate officer’s dismissal is always a corporate act, or an intra-corporate controversy which arises
between a stockholder and corporation. (G.R. NO. 160146)
OFFICE VS. EMPLOYEE

"office" is created by the charter of the corporation and the officer is elected by the directors and
stockholders.
On the other hand, an "employee" usually occupies no office and generally is employed NOT by action of the
directors or stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee. (G.R. NO. 2011298)
DOCTRINE OF APPARENT AUTHORITY

GENERAL RULE:
If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent’s authority. (G.R. NO. 126006)
EXCEPTION:
When officers of a corporation exceeded their authority, their actions are NOT binding upon the corporation
unless ratified by the corporation or the latter is estopped from disclaiming them. (G.R. NO. L – 146535)
DISQUALIFICATION OF DIRECTORS, TRUSTEES OR OFFICERS

A person shall be disqualified from being a director, trustee or officer of any corporation if, within 5 years prior to
the election or appointment as such, the person was:
1) Convicted by final judgment: (ORS)
i. Of an Offense punishable by imprisonment for a period exceeding 6 years;
ii. For violating the REVISED CORPORATION CODE; and
iii. For violating the SECURITIES AND REGULATIONS CODE;
2) Found administratively liable for any offense involving fraudulent acts; and
3) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to
those enumerated in paragraphs (1) and (2) above. (SECTION 26)
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. (SECTION 26)
REMOVAL OF DIRECTOR OR TRUSTEES (2016)

Any director or trustee of a corporation may be removed from office by vote of the:
1) stockholders holding or representing at least 2/3 of the outstanding capital stock, or
2) in a nonstock corporation, by a vote of at least 2/3 of the member entitled to vote.
PROVIDED:
That such removal shall take place either at:
1) a regular meeting of the corporation or
2) 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. (SECTION 27)
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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.
(SECTION 27)
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. (SECTION 27)
VACANCIES IN THE OFFICE OF DIRECTOR OR TRUSTEE (2011)

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. (SECTION 28)
When the vacancy is due to term expiration, the election shall be held no later that 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 consituting 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. (SECTION 28)
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:

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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. (SECTION 29)
LIMITATIONS:
1) In NO case shall the total yearly compensation of directors exceed 10% of the net income before income tax
of the corporation during the preceding year.
2) Directors or trustees shall NOT participate in the determination of their own per diems or compensation.
3) Corporations vested with public interest shall submit to their shareholders and the SECURITIES AND
EXCHANGE COMMISSION, an annual report of the total compensation of each of their directors or
trustees. (SECTION 29)
LIABILITY OF DIRECTORS, TRUSTEES OR OFFICERS (2012)

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. (SECTION 30)
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. (SECTION 30)
DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE CORPORATION

A contract of the corporation with 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: (N – CAIN)
1) 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;
2) The Contract is fair and reasonable under the circumstances;
3) In case of an officer, the contract has been previously Authorized by the board of directors.
4) 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
5) The VOTE of such director or trustee was NOT Necessary for the approval of the contract; (SECTION 31)
REMEDY
Where any of the conditions:
necessary to constitute a quorum for such meeting;
2) The VOTE of such director or trustee was NOT necessary for the approval of the contract;
3) The contract is fair and reasonable under the circumstances;
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 2/3 of the outstanding capital stock or of at least 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. (SECTION 31)
CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS (2011)

GENERAL RULE:
A contract between 2 or more corporations having interlocking directors shall not be invalidated on that
ground alone.

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EXCEPTION:
Except in cases of fraud.
PROVIDED:
the contract is fair and reasonable under the circumstances. (SECTION 32)
SUBSTATIAL INTEREST OF -- Stockholding exceeding 20% of the outstanding capital stock.

INTERLOCKING DIRECTOR
(SECTION 32)
INTERLOCKING DIRECTOR HAS SUBSTANTIAL INTEREST IN ONE CORPORATION AND THE

INTEREST IN THE OTHER CORPORATION IS MERELY NOMINAL
That if the interest of the interlocking director in one corporation is substantial and the interest in the other
corporation or corporations is merely nominal, the contract shall be subject to the following provisions insofar as the
latter corporation or corporations are concerned:
DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE CORPORATION

A contract of the corporation with 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: (N – CAIN)
Necessary to constitute a quorum for such meeting;
2) The Contract is fair and reasonable under the circumstances;
3) In case of an officer, the contract has been previously Authorized by the board of directors.
4) 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
5) The VOTE of such director or trustee was NOT Necessary for the approval of the contract; (SECTION 31)
REMEDY
Where any of the conditions:
necessary to constitute a quorum for such meeting;
2) The VOTE of such director or trustee was NOT necessary for the approval of the contract;
3) The contract is fair and reasonable under the circumstances;
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 2/3 of the outstanding capital stock or of at least 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. (SECTION 31) (SECTION 32)
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 2/3 of the
outstanding capital stock. (SECTION 33)
DIRECTOR’S OWN FUNDS

This provision shall be applicable, nothwithstanding the fact that the director risked one's own funds in the
venture. (SECTION 33)
EXECUTIVE MANAGEMENT (2014)

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If the bylaws so provide, the board may create an executive committee composed of at least 3 directors.
(SECTION 34)
FUNCTIONS OF THE EXECUTIVE MANAGEMENT

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: (ADAFA)
1) Approval of any action for which shareholders' approval is also required;
2) Distribution of cash divendends to the shareholders.
3) Amendment or repeal of bylaws or the adoption of new bylaws;
4) Filling of vacancies in the board; and
5) Amendment or term is NOT amendable or repealable; (SECTION 34)
OTHER SPECIAL COMMITTEES (2014)

The board of directors may create special committees of temporary or permanent nature and determine the
members' term, composition, compensation, powers, and responsibilities. (SECTION 34)
TITLE IV POWERS OF THE CORPORATIONS
CORPORATE POWERS AND CAPACITY (2013)

Every corporation incorporated under this Code has the power and capacity: (APASAS – BOPED)
1) To Adopt and use a corporate seal;
2) To have Perpetual existence unless the certificate of incorporation provides otherwise;
3) To Amend its articles of incorporation in accordance with the provisions of this Code;
4) To Sue and be sued in its corporate name;
5) To Adopt bylaws, NOT contrary to law, morals or public policy, and to amend or repeal the same in accordance
with this Code;
6) In case of Stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with
the provisions of this Code; and to admit members to the corporation if it be a nonstock corporation;
7) To establish pension, retirement, and other plans for the Benefit of its directors, trustees, officers, and employees;
8) To exercise such Other powers as may be essential or necessary to carry out its purpose or purposes as stated in
the articles of incorporation.
9) To Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real
and personal property, including securities and bonds of other corporations, as the transaction of the lawful business
of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the
constitution;
10) To Enter into a partnership, joint venture, merger, consolidation, or any other commercial agreement with
natural and juridical persons; and
11) To make reasonable Donations, including those for the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes.
PROVIDED:
That NO foreign corporation shall give donations in aid of any political party or candidate or for purposes of
partisan political activity; (SECTION 35)
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POWER TO EXTEND OR SHORTEN CORPORATER TERM

A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by:
1) a majority vote of the board of directors or trustees, and
2) ratified at a meeting by the stockholders or members representing at least 2/3 of the outstanding capital
stock or of its members. (SECTION 36)
Written notice of the proposed action and the time and place of the meeting shall be sent to the stockholders or
members at their respective place of residence as shown in the books of the corporation, and must be deposited to
the addressee in the post office with postage prepaid, served personally, or when allowed in the bylaws or done with
the consent of the stockholder, sent electronically in accordance with the rules and regulations of the Commission on
the use of electronic data messages. In case of extension of corporate term, a dissenting stockholder may exercise
the right of appraisal under the conditions provided in this Code. (SECTION 36)
POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR, CREATE OR INCREASE

BONDED INDEBTEDNESS (2011)
NO corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness
unless approved by:
1) a majority vote of the board of directors and
2) by 2/3 of the outstanding capital stock
3) at a stockholders' meeting duly called for the purpose. (SECTION 37)
Written notice of the time and place of the stockholders' meeting and the purpose for said meeting must be sent to
the stockholders at their places of residence as shown in the books of the corporation served on the stockholders
personally, or through electronic means recognized in the corporation's bylaws and/or the Commission's rules as a
valid mode for service of notices. (SECTION 37)
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness
shall require prior approval of the Commission and where appropriate, of the Philippine Competition Commission.
The application with the Commission shall be made within six (6) months from the date of approval of the board of
directors and stockholders, which period may be extended for justifiable reasons. (SECTION 37)
PREEMPTIVE RIGHT -- refers to the right of a stockholder of a stock corporation to subscribe to all
issues or disposition of shares of any class, in proportion to their respective
shareholdings.
(G.R. No. 165887)
POWER TO DENY PREEMPTIVE RIGHT (2019)

All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of
shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles
of incorporation or an amendment thereto.
PROVIDED:
That such preemptive right shall NOT extend to:
1) shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or
2) to shares issued in good faith with the approval of the stockholders representing 2/3 of the outstanding
capital stock in exchange for property needed for corporate purposes or in payment of previously contracted
debt. (SECTION 38)
LIMITATION OF THE PREEMPTIVE RIGHT

The right may be restricted or denied under the articles of incorporation, and subject to certain exceptions
and limitations.

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The stockholder must be given a reasonable time within which to exercise their preemptive rights. Upon the
expiration of said period, any stockholder who has NOT exercised such right will be deemed to have waived
it. (G.R. No. 165887)
PROVIDED:
The validity of issuance of additional shares may be questioned if done in breach of trust by the controlling
stockholders.
Thus, even if the pre-emptive right does NOT exist, either because the issue comes within the exceptions in Section
39 or because it is denied or limited in the articles of incorporation, an issue of shares may still be objectionable if
the directors acted in breach of trust and their primary purpose is to perpetuate or shift control of the
corporation, or to "freeze out" the minority interest. (G.R. No. 165887)
SALE OR OTHER DISPOSITION OF ASSETS

Subject to the provisions of Republic Act No. 10667, otherwise known as the "Philippine Competition Act", and
other related laws a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge, or otherwise dispose of its property and assets, upon such terms and conditions and for such
consideration, which may be money, stock, bonds, or other instruments for the payment of money or other property
or consideration, as its board of directors or trustees may deem expedient. (SECTION 39)
SALE OF ALL OR SUBSTANTIALLY ALL OF THE CORPORATION’S PROPERTIES AND ASSETS

A sale of all or substantially all of the corporation's properties and assets, including its goodwill, must be authorized
by the:
1) vote of stockholders representing at least 2/3 of the outstanding capital stock, or
2) at least 2/3 of the members,
3) in a stockholders’ or members meeting duly called for the purpose. (SECTION 39)
NONSTOCK CORPORATIONS WHERE THERE ARE NO MEMBERS WITH VOTING RIGHTS

In nonstock corporations where there are no members with voting rights, the vote of at least a majority of the
trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by
this section. (SECTION 39)
DETERMINATION OF ALL OR SUBSTANTIALLY ALL OF THE CORPORATIONS PROPERTIES

AND ASSETS
The determination of whether or not the sale involves all or substantially all of the corporation's properties and
assets must be computed based on its net asset value, as shown in its latest financial statements. (SECTION
39)
DEEMED SUBSTANTIALLY ALL THE CORPORATE PROPERTY AND ASSETS

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose of which it
was incorporated. (SECTION 39)
Written notice of the proposed action and of the time and place for the meeting shall be addressed to stockholders or
members at their places of residence as shown in the books of the corporation and deposited to the addressee in the
post office with postage prepaid, served personally, or when allowed by the bylaws or done with the consent of the
stockholder, sent electronically: Provided, That any dissenting stockholder may exercise the right of appraisal under
the conditions provided in this Code. (SECTION 39)
After such authorization or approval by the stockholders or members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge, or other disposition of property
and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval
by the stockholders or members. (SECTION 39)
Nothing in this section is intended to restrict the power of any corporation, without the authorization by the
stockholders or members, to sell, lease, exchange, mortgage, pledge, or otherwise dispose of any of its property and
Page 27
assets if the same is necessary in the usual and regular course of business of the corporation or if the proceeds of the
sale or other disposition of such property and assets shall be appropriated for the conduct of its remaining business.
(SECTION 39)
NELL DOCTRINE
GENERAL RULE:
Where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is NOT
liable for the debts and liabilities of the transferor,
EXCEPTIONS:
except: (CACE)
1) Where the transaction amounts to a Consolidation or merger of the corporations;
2) Where the purchaser expressly or impliedly Agrees to assume such debts;
3) Where the purchasing corporation is merely a Continuation of the selling corporation; and
4) Where the transaction is entered into fraudulently in order to Escape liability for such debts. (G.R. No. 207161)
POWER TO ACQUIRE OWN SHARES

The corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired, a
stock corporation shall have the power to purchased or acquired, a stock corporation shall have the power to
purchase or acquire its own shares for a legitimate corporate purpose or purposes, including the following
cases: (DUE)
1) To pay Dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this
Code.
2) To collect or compromise an indebtedness to the corporation, arising out of Unpaid subscription, in a delinquency
sale, and to purchase delinquent shares sold during said sale; and
3) To Eliminate fractional shares arising out of stock dividends; (SECTION 40)
POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR BUSINESS OR FOR

ANY OTHER PURPOSE (2018)
Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation, business,
or for any purpose other than the primary purpose for which it was organized, when approved by: (M – R2/3 – M)
1) a Majority of the board of directors or trustees and
2) Ratified by the:
i. stockholders representing at least 2/3 of the outstanding capital stock, or
ii. by at least 2/3 of the members in the case of nonstock corporations
3) at a Meeting duly called for the purpose.
PROVIDED:
1) That any dissenting stockholder shall have appraisal right as provided in this Code.
2) That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as
stated in the articles of incorporation, the approval of the stockholders or members shall NOT be necessary.
(SECTION 41)
Notice of the proposed investment and the time place of residence as shown in the books of the corporation and
deposited to the addressee in the post office with the postage prepaid. Served personally, or sent electronically in
accordance with the rules and regulations of the Commission on the use of electronic data message, when allowed
by the bylaws or done with the consent of the stockholders. (SECTION 41)
POWER TO DECLARE DIVIDENDS (2011) (2015) (2018) (2019)

The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings
which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held
by them.
PROVIDED: (WAM)
1) That NO stock dividend shall be issued Without the approval of stockholders representing at least 2/3 of the
outstanding capital stock.
Page 28
2) That any cash dividends due on delinquent stock shall be first be Applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholders until
their unpaid subscription is fully paid.
3) at a regular or special Meeting duly called for the purpose. (SECTION 42)
RETAINING SURPLUS PROFITS

Stock corporations are prohibited from restraining surplus profits in excess of 100% of their paid-in capital
stock,
EXCEPTIONS:
except: (PER)
1) when the corporation is Prohibited under any loan agreement with financial institutions or creditors, whether local
or foreign, from declaring dividends without their consent, and such consent has not yet been secured; or
2) when justified by the definite corporate Expansion projects or programs approved by the board of directors; or
3) when it can be clearly shown that such Retention is necessary under special circumstances obtaining in the
corporation, such as when there is need for special reserve for probable contingencies. (SECTION 42)
POWER TO ENTER INTO MANAGEMENT CONTRACT

No corporation shall conclude a management contract with another corporation unless such contract is approved by:
(BSM – BM)
1) the Board of directors and by the Stockholders owning at least the majority of the outstanding capital stock, or
2) by at least a majority of the Members in the case of a nonstock corporation, or
3) Both the managing and the managed corporation,
4) at a Meeting duly called for the purpose.
PROVIDED:
1) where a stockholder or stockholders representing the same interest of both the managing and the managed
corporations own or control more than 1/3 of the total outstanding capital stock entitled to vote of the
managing corporation; or
2) where a majority if the members of the board of directors of the managing corporation also constitute a
majority of the members of the board of directors of the managed corporation,
3) then the management contract must be approved by the stockholders of the managed corporation owning:
i. at least 2/3 of the total outstanding capital stock entitled to vote, or
ii. by at least 2/3 of the members in the case of a nonstock corporation. (SECTION 43)
These shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of
the called services contracts, operating agreements or otherwise:
PROVIDED:
That such service contracts or operating agreements which relate to the exploration, development exploitation or
utilization of natural resources may entered into such periods as may be provided by the pertinent laws or
regulations.
PERIOD OF MANAGEMENT CONTRACTS

NO management contracts shall be entered into for period longer that 5 years for any one term. (SECTION 43)
CORPORATION CANNOT ENTER INTO PARTNERSHIP

GENERAL RULE:
CORPORATION CANNOT ENTER INTO PARTNERSHIP with other corporations or with individuals.
EXCEPTION:
A corporation may validly enter into a joint venture agreement, provided that the nature of that venture is in line
with the business authorized by the corporation’s charter. (G.R. NO. L – 4935)
ULTRA VIRES ACTS OF THE CORPORATIONS (2012)

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No corporation shall possess or exercise corporate powers other than those conferred by the REVISED
CORPORATION CODE or by its articles of incorporation and except as necessary or incidental to the
exercise of the powers conferred. (SECTION 44)
TYPE OF ULTRA VIRES ACT

1) ILLEGAL ACTS
2) BEYOND THE EXPRESS, IMPLIED OR NECESSARY POWERS OF THE CORPORATION
3) WANT OR LACK OF AUTHORITY
ILLEGAL ACTS -- null and void regardless of the performer. It cannot be ratified.
(NEW CIVIL CODE, ARTICLES 5 AND 1409)
BEYOND THE EXPRESS, IMPLIED -- null and void regardless of the performer. It cannot be ratified.
OR NECESSARY POWERS OF THE
CORPORATION
(SECTION 44)
WANT OR LACK OF AUTHORITY Performed by the BOARD OF It can be ratified by the

DIRECTORS stockholders in a meeting called
for such purpose.
Performed by the CORPORATE 1) It can be ratified by the

OFFICER OR CORPORATE BOARD OF DIRECTORS,
AGENT either expressly or impliedly; or
2) It can be ratified by the

stockholders in a meeting called
for such purpose.
(SECTION 44)
DOCTRINE OF NECESSARY IMPLICATION

Reference must be made to a corporation’s articles of incorporation unless the power to carry a particular
business is either expressly or impliedly conferred thereby, it does not exist. (SEC OPINION NO. 05 – 18,
DECEMBER 5, 2005)
THEORY OF GENERAL CAPACITIES

A corporation is empowered to exercise any act which is in direct and immediate furtherance of its business,
fairly incident to the express powers, and reasonably necessary to their exercise, even if said is NOT expressly
granted in the REVISED CORPORATION CODE.
TITLE V BYLAWS
ADOPTION OF BYLAWS (2011)
For the adoption of bylaws by the corporation, the affirmative vote of the:
1) stockholders representing at least a majority of the outstanding capital stock, or
2) of at least a majority of the members in case on nonstock corporations, shall be necessary. (SECTION 45)
The bylaws shall be signed by the stockholders or members voting for them and shall be kept in the principal office
of the corporation, subject to the inspection of the stockholders or members during office hours. A copy thereof,
duly certified by a majority of the directors or trustees and countersigned by the secretary of the corporation, shall be
filed with the Commission and attached to the original articles of incorporation. (SECTION 45)
Notwithstanding the provisions of the preceding paragraph, bylaws maybe adopted and filed prior to incorporation;
in such case, such bylaws shall be approved and signed by all incorporators and submitted to the Commission,
together with the articles of incorporation. (SECTION 45)

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EFFECTIVITY OF THE BY LAWS

In all cases, bylaws shall be effective only upon the issuance by the Commission of a certification that the
bylaws are in accordance with the REVISED CORPORATION CODE. (SECTION 45)
PROVIDED:
The SECURITIES AND EXCHANGE COMMISSION shall NOT accept for filing the bylaws or any amendment
thereto of any: (BIT – PP – BOM)
1) Banks,
2) Insurance,
3) Trust, and
4) Preneed companies,
6) Building and loan associations, and
7) Other financial intermediaries
8) corporations engaged in Money service business.
unless accompanied by a favorable recommendation of the appropriate government agency to the effect that
such by laws or amendments are in accordance with law. (SECTION 45)
AMENDMENT TO BYLAWS (BOMP)

1) A majority of the Board of directors or trustees, and
2) the Owners of at least a majority of the outstanding capital stock, or
3) at least a majority of the Members of a nonstock corporation,
4) at a regular or special meeting duly called for the Purpose,
may amend or repeal the bylaws or adopt new bylaws.
MAY DELEGATE TO THE BOARD OF DIRECTORS OR TRUSTEES

1) The owner of 2/3 of the outstanding capital stock or
2) 2/3 of the members in a nonstock corporation
may delegate to the board of directors or trustees the power to amend or repeal the bylaws or adopt new
bylaws.
PROVIDED:
That any power delegated to the board of directors or trustee to amend or repeal the bylaws or adopt new bylaws
shall be considered as revoke whenever stockholders owning or representing a majority of the outstanding
capital stock or majority of the members shall so vote at a regular or special meeting. (SECTION 47)
Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file with the Commission such
amended or new bylaws and, if applicable, the stockholders' or members' resolution authorizing the delegation of the
power to amend and/or adopt new bylaws, duly certified under oath by the corporate secretary and majority of the
directors or trustees. (SECTION 47)
EFFECTIVITY OF THE AMENDED OR NEW BYLAWS

The amended or new bylaws shall only be effective upon the issuance by the SECURITIES OF EXCHANGE
COMMISSION of certification that the same is in accordance with the REVISED CORPORATION CODE and
other relevant laws. (SECTION 47)
TITLE VI MEETINGS
KINDS OF MEETINGS
Meeting of the directors, trustees, stockholders, or members may be regular or special. (SECTION 48)
REGULAR AND SPECIAL MEETINGS OF STOCKHOLDERS OR MEMBERS

Regular meetings of stockholders or members shall be held:
1) annually on a date fixed in the bylaws, or
2) if not so fixed in the bylaws, or
3) if not so fixed, on any date After April 15 of every year as determined by the board of directors or trustees.

Page 31
PROVIDED:
That written notice of regular meetings may be sent to all stockholders or members of record through
electronic mail or such other manner as the SECURITIES AND EXCHANGE COMMISSION shall allow
under its guidelines. (SECTION 49)
At each regular meeting of stockholders or members, the board of directors or trustees shall endeavor to present to
stockholders or members the following:
(a) The minutes of the most recent regular meeting which shall include, among others:
(1) A description of the voting and the vote tabulation procedures used in the previous meetings;
(2) A description of the opportunity given to stockholders or members to ask questions and record of the
question s asked and answers given;
(3) The matters discussed and resolutions reached;
(4) A record of the voting results for each agenda item;
(5) A list of the director or trustees, officers and stockholders or members who attended the meeting; and
(6) Such other items that the Commission may require in the interest of good corporate governance and
protection of minority stockholders;
(b) A members' list for nonstock corporations and, for stock corporations, material information on the current
stockholders, and their voting rights;
(c) A detailed, descriptive, balanced and comprehensible assessment of the corporation's performance, which shall
include information on any material change in the corporation's business strategy, and other affairs;
(d) A financial report for the preceding year, which shall include financial statements duly signed and certified in
accordance wit this Code and the rules and the Commission may prescribe, a statement on the adequacy of the
corporation's internal controls or risk management systems, and a statement of all external audit and non-audit fees;
(e) An explanation of the dividend policy and the fact of payment of dividends or the reasons for nonpayment
thereof;
(f) Director or trustee profiles which shall include, among others, their qualifications and relevant experience, length
of service in the corporation, trainings and continuing education attended, and their board representation in other
corporations;
(g) A director or trustee attendance report, indicating the attendance of each of the meetings of the board and its
committees and in regular or special stockholder meetings;
(h) Appraisals and performance reports for the board and the criteria and procedure for assessment;
(i) A director or trustee compensation report prepared in accordance with this Code and the rules the Commission
may prescribe;
(j) Director disclosures on self-dealings and related party transactions; and/or
(k) The profiles of directors nominated ir seeking election or reelection.
A director, trustee, stockholder, or member may propose any other matter for inclusion in the agenda at may regular
meeting of stockholders or members.
Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the
bylaws: Provided, however, That at least one (1) week written notice shall be sent to all stockholders or members,
unless a different period is provided in the bylaws, law or regulation.
A stockholder or member may propose the holding of a special meeting and items to be included in the agenda.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member: Provided, That
general waivers of notice in the articles of incorporation or the bylaws shall not be allowed: Provided, further, That
attendance at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully
called or convened.
Whenever for any cause, there is no person authorized or the person authorized unjustly refuses to call a meeting,
the Commission, upon petition of a stockholder or member on a showing of good cause therefor, may issue an order,
directing the petitioning stockholder or member to call a meeting of he corporation by giving proper notice required
by this Code or the bylaws. The petitioning stockholder or member shall preside thereat until at least a majority of
the stockholders or members present have chosen from among themselves, a presiding officer.
Unless the bylaws provide for a longer period, the stock and transfer book or membership book shall be closed at
least twenty (20) days for regular meetings and seven (7) days for special meetings before the scheduled sate of the
meeting.

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In case of postponement of stockholders' or members' regular meetings, written notice thereof and the reason
therefor shall be sent to all stockholders or members of record at least two (2) weeks prior to the date of the meeting,
unless a different period is required under the bylaws, law or regulation.
The right to vote of stockholders or members may be exercised in person, through remote communication or in
absentia. The Commission shall issue the rules and regulations governing participation and voting through remote
communication or in absentia, taking into account the company’s scale, number of stockholders or members,
structure, and other factors consistent with the protection and promotion of shareholders' or members' meetings.
(SECTION 49)
QUORUM IN MEETINGS (2013)

Unless otherwise provided in this Code or in the bylaws, a quorum shall consist of the stockholders representing:
1) a majority of the outstanding capital stock or
2) a majority of the members in the case of nonstock corporations. (SECTION 51)
WHO SHALL PRESIDET AT MEETINGS

GENERAL RULE:
The chairman or, in his absence, the president shall preside at all meetings of the directors or trustees as well as
of the stockholders or members,
EXCEPTION:
unless the bylaws provide otherwise. (SECTION 53)
VOTING IN CASE OF JOINT OWNERSHIP OF STOCK

The consent of all the co-owners shall be necessary in voting shares of stock owned jointly by 2 or more
persons, unless there is a written proxy, signed by all the co-owners, authorizing 1 or some of them or any other
person to vote such share or shares:
PROVIDED:
That when the shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners
can vote said shares or appoint a proxy therefor. (SECTION 55)
MANNER OF VOTING
GENERAL RULE:
Stockholders and members may vote in person or proxy in all meetings of stockholders or members.
(SECTION 57)
EXCEPTIONS:
When so authorized in the bylaws or by a majority of the board of directors, the stockholders or members of
corporations may also vote through remote communication or in absentia.
PROVIDED:
That the votes are received before the corporation finishes the tally of votes. (SECTION 57)
EFFECT OF PARTICIPATION THROUGHT REMOTE COMMUNICATION IN ABSENTIA

A stockholder or member who participates through remote communication or in absentia shall be deemed present
for purposes of quorum. (SECTION 57)
The corporation shall establish the appropriate requirements and procedures for voting through remote
communication and in absentia, taking into account the company's scale, number of shareholders or members,
structure and other factors consistent with the basic right of corporate suffrage.
Proxies shall be in writing, signed and filed, by the stockholder or member, in any form authorized in the bylaws and
received by the corporate secretary within a reasonable time before the scheduled meeting. Unless otherwise
provided in the proxy form, it shall be valid only for the meeting for which it is intended. No proxy shall be valid
and effective for a period longer than five (5) years at any one time. (SECTION 57)
TITLE VII STOCKS AND STOCKHOLDERS

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SUBSCRIPTION CONTRACT -- Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed notwithstanding the fact
that the parties refer to it as a purchase or some other contract.
(SECTION 59)
PRE – INCORPORATION SUBSCRIPTION

A subscription of shares in a corporation till to be formed shall be irrevocable for a period of at least 6 months
from the date of subscription,
Unless:
1) all of the other subscribers consent to the revocation, or
2) the corporation fails to incorporate within the same period or within a longer period stipulated in the
contract of subscription.
PROVIDED:
NO pre-incorporation may be revoked after the articles of incorporation are submitted to the SECURITIES
AND EXCHANGE COMMISSION. (SECTION 60)
CONSIDERATION FOR STOCKS (2013)

Stocks shall NOT be issued for a consideration less than the par or issued price thereof. (SECTION 61)
Shares of stock shall NOT be issued in exchange for promissory notes or future service.
The same considerations provided in this section, insofar as applicable, may be used for the issuance of bonds by the
corporation. (SECTION 61)
CONSIDERATION FOR THE ISSUANCE OF STOCK

Consideration for the issuance of stock may be:
1) Actual cash paid to the corporation;
2) Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and
lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
3) Labor performed for or services actually rendered to the corporation;
4) Previously incurred indebtedness of the corporation;
5) Amounts transferred from unrestricted retained earnings to stated capital;
6) Outstanding shares exchanged for stocks in the event of reclassification or conversion;
7) Shares of stock in another corporation; and/or
8) Other generally accepted form of consideration. (SECTION 61)
CONSIDERATION THROUGH PATENTS OR COPYRIGHTS

Where the consideration is other than actual cash, or consists of intangible property such as patents or copyrights,
the valuation thereof shall initially be determined by the stockholders or the board of directors, subject to the
approval of the SECURITIES AND EXCHANGE COMMISSION. (SECTION 61)
The issued price of no-par value shares may be fixed:

1) in the articles of incorporation or
2) by the board of directors pursuant to authority conferred by the articles of incorporation or the bylaws, or
3) if not so fixed, by the stockholders representing at least a majority of the outstanding capital stock
4) at a meeting duly called for the purpose.
(SECTION 61)
CERTIFICATE OF STOCK (2013) (2018)

The capital stock of corporations shall be divided into shares for which certificates signed by the president or
vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the bylaws. (SECTION 62)
TRANSFER OF SHARES OF STOCK

GENERAL RULE:

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Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner, his attorney-in-fact, or any other person legally authorized to make the
transfer.
EXCEPTION:
No transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation showing the:
1) names of the parties to the transaction,
2) date of the transfer,
3) number of the certificate or certificates, and
4) number of shares transferred.
PROVIDED:
NO shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of
the corporation. (SECTION 62)
The Commission may require corporations whose securities are traded in trading markets and which can reasonably
demonstrate their capability to do so to issue their securities or shares of stocks in uncertificated or scripless form in
accordance with the rules of the Commission. (SECTION 62)
RIGHT OF THE TRANSFEREE

Clearly, the right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing
from his ownership of the stocks. The corporation's obligation to register is ministerial. (G.R. No. 188769)
ISSUANCE OF STOCK CERTIFICATES (2010) (2018)

No certificate of stock shall be issued to a subscriber until the full amount of subscription together with
interest and expenses (in case of delinquent shares), if any is due, has been paid. (SECTION 63)
NOVATION -- which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the ORIGINAL DEBTOR, but not without
the consent of the creditor.
(NEW CIVIL CODE, ARTICLE 1293)
PRESCRIPTION
"The right to have the transfer registered exists from the time of the transfers and it is to the transferee's benefit that
the right be exercised early. However, since the law does not prescribed (sic) any period within which
the registration should be effected the action to be enforced the right does not accrue until here has been a
demand and a refusal to record the transfer." (11 Campus 310, 1990 ed.)
LIABILITY OF DIRECTORS FOR WATERED STOCKS (2015)

A director or officer of a corporation who:
1) consents to the if issuance of stocks for a consideration less than its par or issued value;
2) consents to the issuance of stocks for the consideration other than cash, valued in excess of its fair value; or
3) having knowledge of the insufficient consideration, does not file written objection with the corporate
secretary,
shall be liable to the corporation or its creditors, solidarily with the stockholder concerned for the difference
between the value receive at the time of issuance of the stock and the par or issued value of the same.
(SECTION 64)
INTEREST ON UNPAID SUBSCRIPTION

Subscribers to stock shall be liable to the corporation for interest on all unpaid subscriptions from the date of
subscription, if so required by and at the rate of interest fixed in the subscription contract.
If NO rate of interest is fixed in the subscription contract, the prevailing legal rate shall apply. (SECTION 65)
PAYMENT OF BALANCE OF SUBSCRIPTION

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Subject to the provisions of the subscription contract, the board of directors may, at any time, declare due and
payable to the corporation unpaid subscription and may collect the same or such percentage thereof, in either
case, with accrued interest, if any, as it may deem necessary.
Payment of unpaid subscription or any percentage thereof, together with any interest accrued, shall be made on the
date specified in the subscription contract or on the date stated in the call made by the board.
EFFECT OF FAILURE OF PAYMENT OF BALANCE OF SUBSCRIPTION

1) Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder
liable for interest at the legal rate on such balance, unless a different interest rate is provided in the
subscription contract.
2) The interest shall be computed from the date specified, until full payment of the subscription.
3) If NO payment is made within 30 days from the said sate, all stocks covered by the subscription shall
thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of
directors orders otherwise. (SECTION 66)
EFFECT OF DELINQUENCY (2013)

No delinquent stock shall:
1) be voted for,
2) be entitled to vote, or
3) be represented at any stockholder's meeting,
4) nor shall the holder thereof be entitled to any of the rights of a stockholder except the right to dividends in
accordance with the provisions of this Code,
until and unless payment is made by the holder of such delinquent stock for the amount due on the
distribution with accrued interest, and the costs and expenses of advertisement, if any. (SECTION 70)
RIGHTS OF UNPAID SHARES, NONDELINQUENT

Holders of subscribed shares NOT fully paid which are NOT delinquent shall have all the rights of a
stockholder. (SECTION 71)
TITLE VIII CORPORATE BOOKS AND RECORDS

BOOKS TO BE KEPT (2012)
Every corporation shall keep and carefully preserve at its principal office all information relating to the
corporation including, but not limited to:
a) The articles of incorporation and bylaws of the corporation and all their amendments;
b) The current ownership structure and voting rights of the corporation, including lists of stockholders or members
group structures, intra-group relations, ownership data, and beneficial ownership.
c) The names and addresses of all the members of the board of directors or trustees and the executive officers;
d) A record of all business transactions;
e) A record of the resolutions of the board of directors or trustees and of the stockholders or members;
f) Copies of the latest reportorial requirements submitted to the Commission; and
g) The minutes of all meetings of stockholders or members, or of the board of directors or trsutees. Such minutes
shall set forth in detail among others; the time and the place of the meeting held, how it was authorized, the notice
given, the agenda therefor, whether the meeting was regular or special, its object if special, those present and absent,
and every act done or ordered done at the meeting. Upon the demand of a director trustee, stockholder or member,
the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes;
and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof
carefully made. The protest of a director, trustee, stock holder or member on any action or proposed action must be
recorded in full upon their demand. (SECTION 73)
RIGHT TO INSPECT (2017)

1) Corporate records, regardless of the form in which they are stored, shall be open to inspection by any
director, trustee, stockholder or member of the corporation in person or by a representative
2) at reasonable hours on business days, and
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3) a demand in writing may be made by such director, trustee or stockholder

4) at their expense, for copies of such records or excerpts from said records. (SECTION 73)
The inspecting or reproducing party shall remain bound by confidentiality rules under prevailing laws, such as the
rules on trade secrets or processes under Republic Act No. 8293, otherwise known as the "Intellectual Property Code
of the Philippines", as amended, Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012"
Republic Act No. 8799, otherwise known as "The Securities Regulation Code", and the Rules of Court. (SECTION
73)
REQUESTING PARTY WHO IS NOT A STOCKHOLDER OR MEMBER OF RECORD

A requesting party who is NOT a stockholder or member of record, or is a competitor, director, officer,
controlling stockholder or otherwise represents the interests of a competitor shall have NO right to inspect or
demand reproduction of corporate records. (SECTION 73)
Any stockholder who shall abuse the rights granted under this section shall be penalized under Section 158 of this
Code, without prejudice to the provisions of Republic Act No. 8293, otherwise known as the "Intellectual Property
Code of the Philippines", as amended, and Republic Act No. 10173, otherwise known as the "Data Privacy Act of
2012".(SECTION 73)
LIABILITY FOR REFUSAL TO ALLOW INSPECTION AND/OR REPRODUCTION OF RECORDS

Any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in
accordance with the provisions of the REVISED CORPORATION CODE shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of an offense.
PROVIDED:
That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under
this section for such action shall be imposed upon the directors or trustees who voted for such
refusal. (SECTION 73)
DEFENSE FOR DENIAL THE RIGHT TO INSPECT

Any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in
accordance with the provisions of the REVISED CORPORATION CODE shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of an offense.
PROVIDED:
That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability
under this section for such action shall be imposed upon the directors or trustees who voted for such
refusal. (SECTION 73)
DEFENSE FOR RIGHT TO INSPECTION

That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts
from the corporation’s records and minutes has:
1) improperly used any information secured through any prior examination of the records or minutes of such
corporation or of any other corporation, or
2) was not acting in good faith or
3) for a legitimate purpose in making the demand to examine or reproduce corporate records, or
4) is a competitor, director, officer, controlling stockholder or otherwise represents the interests of a
competitor. (SECTION 73)
If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may
report such denial or inaction to the Commission Within five (5) days from receipt of such report, the Commission
shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested
records.
STOCK AND TRANSFER BOOK

Stock corporations must also keep a stock and transfer book, which shall contain:
1) a record of all stocks in the names of the stockholders alphabetically arranged;
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2) the installments paid and unpaid on all stocks for which subscription has been made, and the date of
payment of any installment;
3) a statement of every alienation, sale or transfer of stock made, the date thereof, by and to whom made; and
4) such other entries as the bylaws may prescribe. (SECTION 73)
RIGHT TO INSPECT THE STOCK AND TRANSFER BOOK

The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock
transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable
hours on business days. (SECTION 73)
STOCK TRANSFER AGENT

A stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a
stock corporation shall be allowed to operate in the Philippines upon securing a license from the
SECURITIES AND EXCHANGE COMMISSION and the payment of a fee to be fixed by the SECURITIES
AND EXCHANGE COMMISSION, which shall be renewable annually.
PROVIDED:
1) That a stock corporation is NOT precluded from performing or making transfers of its own stocks, in which
case all the rules and regulations imposed on stock transfer agents, except the payment of a license fee herein
provided, shall be applicable.
2) That the SECURITIES AND EXCHANGE COMMISSION may require stock corporations which transfer
and/or trade stocks in secondary markets to have an independent transfer agent. (SECTION 73)
RIGHT TO FINANCIAL STATEMENTS (2017)

A corporation shall furnish a stockholder or member, within 10 days from receipt of their written request, its
most recent financial statement, in the form and substance of the financial reporting required by the
Commission. (SECTION 74)
PRESENTATION OF FINANCIAL STATEMENTS TO STOCKHOLDERS OR MEMBER

At the regular meeting of stockholders or members, the board of directors or trustees shall present to such
stockholders or members a financial report of the operations of the corporation for the preceding year, which
shall include financial statements, duly signed and certified in accordance with this Code, and the rules the
Commission may prescribe.
However, if the total assets or total liabilities of the corporation are less than ₱600,000.00, or such other
amount as may be determined appropriate by the Department of Finance, the financial statements may be
certified under oath by the treasurer and the president. (SECTION 74)
TITLE IX MERGER AND CONSOLIDATION

PLAN OF MERGER OR CONSOLIDATION (2016)
Two or more corporations may merge into a single corporation which shall be one of the constituent
corporations or may consolidate into a new single corporation which shall be the consolidated corporation.
(SECTION 75)
The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of
merger or consolidation setting forth the following:
(a) The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent
corporations;
(b) The terms of the merger or consolidation and the mode of carrying the same into effect;
(c) A statement of the changes, if any, in the articles of incorporation of the surviving corporation in case of merger;
and, in case of consolidation, all the statements required to be set forth in the articles of incorporation for
corporations organized under this Code; and
(d) Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable.
(SECTION 75)
STOCKHOLDERS’ OR MEMBERS’ APPROVAL

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1) Upon approval by a majority vote of each of the board of directors or trustees of the constituent
corporations of the plan of merger or consolidation,
2) the same shall be submitted for approval by the stockholders or members of each of such corporations at
separate corporate meetings duly called for the purpose.
3) The affirmative vote of:
i. stockholders representing at least 2/3 of the outstanding capital stock of each corporation in the case
of stock corporations or
ii. at least 2/3 of the members in the case of nonstock corporations
shall be necessary for the approval of such plan. (SECTION 76)
EXERCISE OF RIGHT OF APPRAISAL

Any dissenting stockholder may exercise the right of appraisal in accordance with the REVISED
CORPORATION CODE:
PROVIDED:
That if after the approval by the stockholders of such plan, the board of directors decides to abandon the
plan, the right of appraisal shall be extinguished. (SECTION 76)
Notice of such meetings shall be given to all stockholders or members of the respective corporations in the same
manner as giving notice of regular or special meetings under Section 49 of this Code. The notice shall state the
purpose of the meeting and include a copy or a summary of the plan of merger or consolidation. (SECTION 76)
AMENDMENT TO THE PLAN OF MERGER OR CONSOLIDATION

Any amendment to the plan of merger or consolidation may be made:
PROVIDED:
1) That such amendment is approved by a majority vote of the respective boards of directors or trustees of all
the constituents corporations and
2) ratified by the affirmative vote of:
i. stockholders representing at least 2/3 of the outstanding capital stock or
ii. of 2/3 of the members of each of the constituents corporations.
Such plan, together with any amendment, shall be considered as the agreement of merger or consolidation.
(SECTION 76)
MERGER -- is a union whereby one or more existing corporations are absorbed by another
corporation that survives and continues the combined business.
CONSOLIDATION -- is the union of two or more existing entities to form a new entity called the consolidated
corporation.
(G.R. No. 142936)
EFFECT OF MERGER OR CONSOLIDATION

The merger or consolidation shall have the following effects:
1) The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated
corporation designated in the plan of consolidation;
2) The separate existence of the constituent corporations shall cease, except that of the surviving or the
consolidated corporation;
3) The surviving or the consolidated corporation shall possess all the rights, privileges, immunities, and
powers and shall be subject to all the duties and liabilities of a corporation organized under the REVISED
CORPORATION CODE;
4) The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and
franchises of each constituent corporation; and all real or personal property, all receivables due on whatever

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account, including subscriptions to shares and other choses in action, and every other interest of, belonging to, or
due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
5) The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of each
constituent corporation as though such surviving or consolidated corporation had itself incurred such
liabilities or obligations; and any pending claim, action or proceeding brought by or against any constituent
corporation may be prosecuted by or against the surviving or consolidated corporation.
The rights of creditors or liens upon the property of such constituent corporations shall not be impaired by
the merger or consolidation. (SECTION 79)
TYPES OF ACQUISITIONS
1) ASSET – ONLY LEVEL
2) BUSINESS – ENTERPRISE LEVEL
3) EQUITY LEVEL (PURCHASE OF SHARES)
1) ASSET – ONLY LEVEL

The purchaser is only interested only in the raw assets and properties of the business.
EFFECT OF DEBTS:
The transferee would NOT be liable for the debts and liabilities of his transferor since there is no privity of contract
over debt obligations between the transfere and the transferor’s creditor unless:
EXCEPTIONS:
except:
1) Where the purchaser expressly or impliedly agrees to assume such debts;
2) Where the transaction amounts to a consolidation or merger of the corporations;
3) Where the purchasing corporation is merely a continuation of the selling corporation; and
4) Where the transaction is entered into fraudulently in order to escape liability for such debts. (G.R. No.
207161)
2) BUSINESS – ENTERPRISE LEVEL

The transferee merely continues the same business of the transferor since he obtains the earning capability of the
venture.
EFFECT OF DEBTS
The transferee is liable for the debts and liabilities of the transferor.
3) EQUITY LEVEL (PURCHASE OF SHARES)

The purchaser takes control and ownership of the business by purchasing the shareholdings of the corporate
owner.
(PHILIPPINE CORPORATE LAW, VILLANUEVA, PAGES 646 – 660)
DE FACTO MERGER -- can be pursued by one corporation acquiring all or substantially all of the
properties of another corporation in exchange of shares of stock of the acquiring
corporation.
The acquiring corporation would end up with the business enterprise of the target
corporation; whereas, the target corporation would end up with basically its only
remaining assets being the shares of stock of the acquiring corporation."
(PHILIPPINE CORPORATE LAW, VILLANUEVA) (G.R. No. 195615)
EFFECT OF DE FACTO MERGER

No such thing as a DE FACTO MERGER. Since the selling corporation continues to exist, it cannot be said to
have been merged into the acquiring corporation.

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APPRAISAL RIGHT -- it is the right to demand payment of the fair value of his shares after dissenting
from a proposed corporate action involving fundamental change in the corporation
in the cases provided by law.
(DE LEON, CORPORATION CODE, supra at 653)
TITLE X APPRAISAL RIGHT

WHEN THE RIGHT OF APPRAISAL MAY BE EXERCISED (2011) (2018)
Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of the shares
in the following instances: (RAT – SIM)
1) In case an amendment to the articles of incorporation has the effect of: (RAT)
i. changing or restricting the Rights of any stockholder or class of shares, or
ii. Authorizing preferences in any respect superior to those of outstanding shares of any class, or
iii. extending or shortening the Term of corporate existence;
2) In case of Sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the
corporate property and assets as provided in the REVISED CORPORATION CODE;
3) In case of Investment of corporate funds for any purpose other than the primary purpose of the corporation.
and
4) In case of Merger or consolidation; (SECTION 80)
HOW RIGHT IS EXERCISED (2018)

The dissenting stockholder who votes against a proposed corporate action may exercise the right of appraisal by
making a written demand on the corporation for the payment of the fair value of shares held within 30 days
from the date on which the vote was taken.
PROVIDED: (FUT)
1) That Failure to make the demand within such period shall be deemed a waiver of the appraisal right.
2) That NO payment shall be made to any dissenting stockholder unless the corporation has Unrestricted retained
earnings in its books to cover such payment.
3) That upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith Transfer the
shares to the corporation. (SECTION 81)
SUBSEQUENT EXISTENCE OF UNRESTRICTED RETAINED EARNINGS

Although at the time of the dissent, the corporation has a deficit subsequent existence of unrestricted retained
earnings would entitle the dissenting stockholder of his appraisal right. (G.R. NO. 157479)
EFFECT IF THE PROPOSED CORPORATE ACTION IS IMPLEMENTED

If the proposed corporate action is implemented, the corporation shall pay the stockholder, upon surrender of
the certificate or certificates of stock representing the stockholder’s shares, the fair value thereof as of the day
before the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.
(SECTION 81)
If, within sixty (60) days from the approval of the corporate action by the stockholders, the withdrawing stockholder
and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three (3)
disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by
the two (2) thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by
the corporation within thirty (30) days after such award is made: (SECTION 81)
EFFECT OF DEMAND AND TERMINATION OF RIGHT (2018)

From the time of demand for payment of the fair value of a stockholder’s shares until either the abandonment of the
corporate action involved or the purchase of the said shares by the corporation, all rights accruing to such shares,

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including voting and dividend rights, shall be suspended in accordance with the provisions of the REVISED
CORPORATION CODE, except the right of such stockholder to receive payment of the fair value thereof.
PROVIDED:
That if the dissenting stockholder is NOT paid the value of the said shares within 30 days after the award, the
voting and dividend rights shall immediately be restored. (SECTION 82)
WHEN RIGHT TO PAYMENT CEASES (2018)

GENERAL RULE:
NO demand for payment under RIGHT OF APPRAISAL may be withdrawn unless the corporation consents
thereto.
EXCEPTION:
1) If, such demand for payment is withdrawn with the consent of the corporation, or
2) if the proposed corporate action is abandoned or rescinded by the corporation or
3) if the proposed corporate action disapproved by the SECURITIES AND EXCHANGE COMMISSION
where such approval is necessary, or
3) if the SECURITIES AND EXCHANGE COMMISSION determines that such stockholder is not entitled to
the appraisal right,
then the right of the stockholder to be paid the fair value of the shares shall cease, the status as the stockholder
shall be restored, and all dividend distributions which would have accrued on the shares shall be paid to the
stockholder. (SECTION 83)
WHO BEARS COSTS OF APPRAISAL (2018)

The costs and expenses of appraisal shall be borne by the corporation, unless the fair value ascertained by
appraisers is approximately the same as the price which the corporation may have offered to pay the
stockholder, in which the corporation may have offered to pay the stockholder, in which case they shall be
borne by the latter.
In the case of an action to recover such fair value, all costs and expenses shall be assessed against the
corporation, unless the refusal of the stockholder or receive payment was unjustified. (SECTION 84)
TITLE XI NONSTOCK CORPORATION

NONSTOCK CORPORATION -- is one where NO part of its income is distributable as dividends to its
members, trustees, or officers.
(SECTION 86)
EFFECT OF ANY PROFIT EARNED BY A NONSTOCK CORPORATION

That any profit which a nonstock corporation may obtain incidental to its operations shall, whenever necessary
or proper, be used for the furtherance of the purpose of purposes for which the corporation was organized,
subject to the provisions of this Title. (SECTION 86)
PURPOSES OF NONSTOCK CORPORATIONS

Nonstock corporations may be formed or organized for charitable, religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service, or similar purposes like trade industry, agricultural and like
chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes
of nonstock corporations. (SECTION 87)
CHAPTER I MEMBERS
RIGHT TO VOTE
The right of the members of any class or classes to vote may be limited, broadened, or denied to the extent specified
in the articles of incorporation or the bylaws. Unless so limited, broadened, or denied, each member, regardless
of class, shall be entitled to 1 vote.

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Unless otherwise provided in the articles of incorporation or the bylaws, a member may vote by proxy, in
accordance with the provisions of the REVISED CORPORATION CODE.
The bylaws may likewise authorize voting through remote communication and/or in absentia. (SECTION 88)
NONTRANSFERABILITY OF MEMBERSHIP
Membership in a nonstock corporation and all rights arising therefrom are personal and nontransferable, unless
the articles of incorporation or the bylaws otherwise provide. (SECTION 89)
TERMINATION OF MEMBERSHIP
Membership shall be terminated in the manner and for the cause provided in the articles of incorporation or the
bylaws.
Termination of membership shall extinguish all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the bylaws. (SECTION 90)
CHAPTER II TRUSTEES AND OFFICERS

ELECTION AND TERM OF TRUSTEES
The number of trustees shall be fixed in the articles of incorporation or bylaws which may or may not be more
than 15.
They shall hold office for NOT more than 3 years until their successors are elected and qualified.
Trustees elected to fill vacancies occurring before the expiration of a particular term shall hold office only for
the unexpired period.
Except with respect to independent trustees of nonstock corporations vested with public interest, only a
member of the corporation shall be elected as trustee.
Unless otherwise provided in the articles of incorporation or the bylaws, the members may directly elect officers
of a nonstock corporation. (SECTION 91)
TITLE XIIV CLOSE CORPORATIONS

CLOSE CORPORATION, is one whose articles of incorporation provides that:
1) all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not
more than a specified number of persons, not exceeding 20;
2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by
this Title; and
3) the corporation shall NOT list in any stock exchange or make any public offering of its stocks of any class.
(SECTION 95)
CORPORATION MAY BE INCORPORATED AS A CLOSE CORPORATION

GENERAL RULE:
Any corporation may be incorporated as a close corporation,
EXCEPTIONS:
Except: (BM – PIES – V)
1) Banks,
2) Mining or oil companies,
4) Insurance companies,
5) Educational institutions
6) Stock exchanges,and
7) corporations declared to be Vested with public interest in accordance with the provisions of the REVISED
CORPORATION CODE. (SECTION 95)
NOT DEEMED CLOSED CORPORATION

Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least 2/3 of its
voting stock or voting rights is owned or controlled by another corporation which is not a close corporation
within the meaning of the REVISED CORPORATION CODE. (SECTION 95)
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VALIDITY OF RESTRICTION ON TRANSFER OF SHARES

Restrictions on the right to transfer shares must appear in the articles of incorporation, in the bylaws, as well as
in the certificate of stock; otherwise, the same shall not be binding on any purchaser in good faith.
Said restrictions shall NOT be more onerous than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or
period stated.
If, upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option
to purchase, the transferring stockholder may sell their shares to any third person. (SECTION 97)
APPLIES ONLY TO CLOSE CORPORATIONS

It must be noted that Section 98 (SECTION 97) applies only to close corporations. (G.R. NO. 188769)
registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. (G.R. NO.
188769)
NOVATION -- which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the ORIGINAL DEBTOR, but NOT
without the consent of the creditor.
(NEW CIVIL CODE, ARTICLE 1293)
NOVATION IS NEVER PRESUMED

Novation will NOT be allowed unless it is clearly shown by express agreement, or by acts of equal import.
Thus, to effect an objective novation it is imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on every point incompatible with the new
one. (G.R. NO. 118585)
EFFECTS IF ISSUANCE OR TRANSFER OF STOCK IN BREACH OF QUALIFYING CONDITIONS

a) If a stock of a close corporation is issued or transferred to any person who is not eligible to be a holder
thereof under any provision of the articles of incorporation, and if the certificate for such stock conspicuously
shows the qualifications of the persons entitled to be holders of record thereof, such person is conclusively
presumed to have notice of the fact of the ineligibility to be a stockholder.
b) If the articles of incorporation of a close corporation states the number of persons, NOT exceeding 20, who are
entitled to be stockholders of record, and if the certificate for such stock conspicuously states such number,
and the issuance or transfer of stock to any person would cause the stock to be held by more than such
number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have
notice of this fact.
c) If a stock certificate of a close corporation conspicuously shows a restriction on transfer of the corporation’s
stock and the transferee acquires the stock in violation of such restriction, the transferee is conclusively
presumed to have notice of the fact that the stock was acquired in violation of the restriction.
d) Whenever a person to whom stock of a close corporation has been issued or transferred has or is conclusively
presumed under this section to have notice of:
1) the person’s ineligibility to be a stockholder of the corporation; or
2) that the transfer of stock would cause the stock of the corporation to be held by more than the
number of persons permitted under its articles of incorporation; or
3) that the transfer violates a restriction on transfer of stock, and
the corporation may, at its option, refuse to register the transfer in the name of the transferee.
EXCEPTION:

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The provisions of subsection (d) shall not be applicable if the transfer of stock, though contrary to subsections (a),
(b) or (c), has been consented to by all the stockholders of the close corporation, or if the close corporation has
amended its articles of incorporation in accordance with this Title. (SECTION 98)
PREEMPTIVE RIGHT IN CLOSE CORPORATIONS

The preemptive right of stockholders in close corporations shall extend to all stock to be issued, including
reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate
debts, unless the articles of incorporation provide otherwise. (SECTION 101)
AMENDMENT OF ARTICLES OF INCORPORATION

Any amendment to the articles of incorporation which seeks to delete or remove any provision required by this Title
or to reduce a quorum or voting requirement stated in said articles of incorporation shall require the:
1) affirmative vote of at least 2/3 of the outstanding capital stock, whether with or without voting rights, or
2) of such greater proportion of shares as may be specifically provided in the articles of incorporation for
amending, deleting or removing any of the aforesaid provisions,
3) at a meeting duly called for the purpose. (SECTION 102)
TITLE XIII SPECIAL CORPORATIONS

CHAPTER I EDUCATIONAL CORPORATIONS
COMPOSITION OF BOARD OF TRUSTEES
Trustees of educational institutions organized as nonstock corporations shall NOT be less than 5 nor more than
15, provided, that the number of trustees shall be in multiples of 5. (SECTION 106)
TERM OF OFFICE
Unless otherwise provided in the articles of incorporation or bylaws, the board of trustees of incorporated schools,
colleges, or other institutions of learning shall, as soon as organized, so classify themselves that the term of office
of 1/5 of their number shall expire every year. (SECTION 106)
FILLING OF VACANCIES
Trustees thereafter elected to fill vacancies, occurring before the expiration of a particular term, shall hold
office only for the unexpired period. (SECTION 106)
Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for 5 years.
(SECTION 106)
QUORUM REQUIRED
A majority of the trustees shall constitute a quorum for the transaction of business. (SECTION 106)
The powers and authority of trustees shall be defined in the bylaws.
For institutions organized as stock corporations, the number and term of directors shall be governed by the
provisions on stock corporations. (SECTION 106)
CHAPTER II RELIGIOUS CORPORATIONS

CLASSES OF RELIGIOUS CORPORTIONS
Religious corporations may be incorporated by 1 or more persons.
Such corporations may be classified into corporations sole and religious societies. (SECTION 107)
CORPORATION SOLE (2010)

For the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious
denomination, sect or church, a corporation sole may be formed by the chief archbishop, bishop, priest,
minister, rabbi, or other presiding elder of such religious denomination, sect or church. (SECTION 108)
ACQUISITION AND ALIENATION OF PROPERTY

A corporation sole may purchase and hold real estate and personal property for its church, charitable,
benevolent, or educational purposes, and may receive bequests or gifts for such purposes.
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PROVIDED:
1) A corporation sole may sell or mortgage real property held by it by:
i. obtaining an order for that purpose from the Regional Trial Court of the province where the
property is situated
ii. upon proof that the notice of the application for leave to sell or mortgage has been made through
publication or as directed by the Court, and
iii. that it is in the interest of the corporation that leave to sell or mortgage be granted.
2) That in cases where the rules, regulations, and discipline of the religious denomination, sect or church, religious
society, or order concerned represented by such corporation sole regulate the method of acquiring, holding,
selling, and mortgaging real estate and personal property, such rules, regulations and discipline shall govern,
and the intervention of the courts shall NOT be necessary. (SECTION 111)
The application for leave to sell or mortgage must be made by petition, duly verified, by the chief archbishop,
bishop, priest, minister, rabbi, or presiding elder acting as corporation sole, and may be opposed by any member of
the religious denomination, sect or church represented by the corporation sole:
(SECTION 111)
RELIGIOUS SOCIETIES
Unless forbidden by competent authority, the Constitution, pertinent rules, regulations, or discipline of the
religious denomination, sect or church of which it is a part, any religious society, religious order, diocese, synod, or
district organization of any religious denomination, sect or church, may:
1) upon written consent and/or by an affirmative vote
2) at a meeting called for the purpose
3) of at least 2/3 of its membership,
4) incorporate for the administration of its temporalities or for the management of its affairs, properties, and
estate by filing with the Commission, articles of incorporation
5) verified by the affidavit of the presiding elder, secretary, or clerk or other member of such religious society
or religious order, or diocese, synod, or district organization of the religious denomination, sect or church,
(SECTION 114)
CONTENTS OF ARTICLES OF INCORPORATION OF RELIGIOUS SOCIETIES

setting forth the following:
a) That the religious society or religious order, or diocese, synod, or district organization is a religious organization
of a religious denomination, sect or church;
b) That at least two-thirds (2/3) of its membership has given written consent or has voted to incorporate, at a duly
convened meeting of the body;
c) That the incorporation of the religious society or religious order, or diocese, synod, or district organization is not
forbidden by competent authority or by the Constitution, rules, regulations or discipline of the religious
denomination, sect or church of which it forms part;
d) That the religious society or religious order, or diocese, synod, or district organization desires to incorporate for
the administration of its affairs, properties and estate;
e) The place within the Philippines where the principal office of the corporation is to be established and located; and
f) The names, nationalities, and residence addresses of the trustees, not less than five (5) nor more than fifteen (15),
elected by the religious society or religious order, or the diocese, synod, or district organization to serve for the first
year or such other period as may be prescribed by the laws of the religious society or religious order, or of the
diocese, synod, or district organization. (SECTION 114)
CHAPTER III ONE PERSON CORPORATION

ONE PERSON CORPORATION -- is a corporation with a single stockholder.
(SECTION 116)
PROVIDED:
1) That only a natural person, trust, or an estate may form a ONE PERSON CORPORATION.
2) That a natural person who is licensed to exercise a profession may NOT organize as a One Person
Corporation for the purpose of exercising such profession except as otherwise provided under special laws.

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3) Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-
chartered government-owned and -controlled corporations may NOT incorporate as ONE PERSON
CORPORATION. (SECTION 116)
MINIMUM CAPITAL STOCK REQUIRED FOR ONE PERSON CORPORATION

A ONE PERSON CORPORATION shall NOT be required to have a minimum authorized capital stock
except as otherwise provided by special law. (SECTION 117)
BYLAWS
The ONE PERSON CORPORATION is NOT required to submit and file corporate bylaws. (SECTION 119)
DISPLAY OF CORPORATE NAME

A ONE PERSON CORPORATION shall indicate the letters “OPC” either below or at the end of its
corporate name. (SECTION 120)
SINGLE STOCKHOLDER AS DIRECTOR, PRESIDENT

The single stockholder shall be the sole director and president of the ONE PERSON CORPORATION.
(SECTION 121)
TREASURER, CORPORATE SECRETARY, AND OTHER OFFICERS

Within 15 days from the issuance of its certificate of incorporation, the ONE PERSON CORPORATION shall
appoint a treasurer, corporate secretary, and other officers as it may deem necessary, and notify the
SECURITIES AND EXCHANGE COMMISSION thereof within 5 days from appointment.
The single stockholder may not be appointed as the corporate secretary.
A single stockholder who is likewise the self-appointed treasurer of the corporation shall give a bond to the
Commission in such a sum as may be required:
PROVIDED:
That the said stockholder/treasurer shall undertake in writing:
1) to faithfully administer the ONE PERSON CORPORATION’s funds to be received as treasurer, and
2) to disburse and invest the same according to the articles of incorporation as approved by the SECURITIES
AND EXCHANGE COMMISSION.
The bond shall be renewed every 2 years or as often as may be required. (SECTION 122)
LIABILITY OF SINGLE SHAREHOLDER

A sole shareholder claiming limited liability has the burden of affirmatively showing that the corporation was
adequately financed.
Where the single stockholder cannot prove that the property of the ONE PERSON CORPORATION is
independent of the stockholder’s personal property, the stockholder shall be jointly and severally liable for the
debts and other liabilities of the ONE PERSON CORPORATION.
The principles of piercing the corporate veil applies with equal force to ONE PERSON CORPORATION as
with other corporations. (SECTION 130)
CONVERSION FROM AN ORDINARY CORPORATION TO A ONE PERSON CORPORATION

When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for
conversion into a One Person Corporation, subject to the submission of such documents as the Commission may
require.
If the application for conversion is approved, the Commission shall issue a certificate of filing of amended articles of
incorporation reflecting the conversion.
The One Person Corporation converted from an ordinary stock corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as of the date of conversion. (SECTION 131)
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CONVERSION FROM A ONE PERSON CORPORATION TO AN ORDINARY STOCK CORPORATION

A One Person Corporation may be converted into an ordinary stock corporation after due notice to the
SECURITIES AND EXCHANGE COMMISSION of such fact and of the circumstances leading to the
conversion, and after compliance with all other requirements for stock corporations under this Code and
applicable rules.
Such notice shall be filed with the Commission within sixty (60) days from the occurrence of the circumstances
leading to the conversion into an ordinary stock corporation. If all requirements have been complied with, the
Commission shall issue a certificate of filing of amended articles of incorporation reflecting the conversion.
The ordinary stock corporation converted from a One Person Corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as of the date of conversion. (SECTION 132)
PROCEDURE IN CASE OF DEATH OF THE SINGLE STOCKHOLDER

In case of death of the single stockholder:
1) the nominee or alternate nominee shall transfer the shares to the duly designated legal heir or estate
2) within 7 days from receipt of either an affidavit of heirship or self-adjudication executed by a sole heir, or any
other legal document declaring the legal heirs of the single stockholder and
3) notify the SECURITIES AND EXCHANGE COMMISSION of the transfer.
4) Within 60 days from the transfer of the shares, the legal heirs shall notify the SECURITIES AND
EXCHANGE COMMISSION of their decision to either:
i. wind up and dissolve the One Person Corporation or
ii. convert it into an ordinary stock corporation. (SECTION 132)
TITLE XIV DISSOLUTION

METHODS OF DISSOLUTION
A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or
involuntarily. (SECTION 133)
VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE AFFECTED (2012)

If dissolution of a corporation does NOT prejudice the rights of any creditor having a claim against it, the
dissolution may be effected by:
1) majority vote of the board of directors or trustees, and
2) a resolution adopted by the affirmative vote of the stockholders owning at least:
i. majority of the outstanding capital stock or
ii. majority of the members
3) of a meeting to be held upon the call of the directors or trustees. (SECTION 134)
At least twenty (20) days prior to the meeting, notice shall be given to each shareholder or member of record
personally, by registered mail, or by any means authorized under its bylaws whether or not entitled to vote at the
meeting, in the manner provided in Section 50 of this Code and shall state that the purpose of the meeting is to vote
on the dissolution of the corporation. Notice of the time, place, and object of the meeting shall be published once
prior to the date of the meeting in a newspaper published in the place where the principal office of said corporation
is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines.
A verified request for dissolution shall be filed with the Commission stating: (a) the reason for the dissolution; (b)
the form, manner, and time when the notices were given; (c) names of the stockholders and directors or members
and trustees who approved the dissolution; (d) the date, place, and time of the meeting in which the vote was made;
and (e) details of publication.
The corporation shall submit the following to the Commission: (1) a copy of the resolution authorizing the
dissolution, certified by a majority of the board of directors or trustees and countersigned by the secretary of the
corporation; (2) proof of publication; and (3) favorable recommendation from the appropriate regulatory agency,
when necessary.
Within fifteen (15) days from receipt of the verified request for dissolution, and in the absence of any withdrawal
within said period, the Commission shall approve the request and issue the certificate of dissolution. The dissolution
shall take effect only upon the issuance by the Commission of a certificate of dissolution. (SECTION 134)
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No application for of:

1) banks,
2) banking and quasi-banking institutions,
3) preneed,
4) insurance and trust companies,
5) non-stock savings and loan associations (NSSLAs),
6) pawnshops,
7) corporations engaged in money service business, and
8) other financial intermediaries
favorable recommendation of the appropriate government agency. (SECTION 134)
VOLUTANTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED (2012)

Where the dissolution of a corporation may prejudice the rights of any creditor:
1) a verified petition for dissolution shall be filed with the SECURITIES AND EXCHANGE COMMISSION.
2) The petition shall be signed by a majority of the corporation's board of directors or trustees,
3) verified by its president or secretary or one of its director or trustees, and
4) shall set forth all claims and demands against it, and
5) that its dissolution was resolved upon by the affirmative vote of:
i. the stockholders representing at least 2/3 of the outstanding capital stock or
ii. at least 2/3 of the member
6) at a meeting of its stockholder or members called for that purpose. (SECTION 135)
CONTENTS OF PETITION
The petition shall likewise state: (a) the reason for the dissolution; (b) the form, manner, and time when the notices
where given; and (c) the date, place and time of the meeting in which vote was made. The corporation shall submit
to the Commission the following: (1) a copy of the resolution authorizing the dissolution, certified by a majority of
the board of directors or trustees and countersigned by the secretary of the corporation; and (2) a list of all its
creditors.
If the petition is sufficient in form and substance, the Commission shall by an order reciting the purpose of the
petition, fix a deadline for filing objections to the petition which date shall not be less than thirty (30) days nor more
than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at lease one
week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city
where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of
general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3)
public places in such municipality or city.
Upon five (5) days' notice given after the date on which the right to file objections as fixed in the order has expired,
the Commission shall proceed to hear the petition and try any issue raised in the objections filed; and if no such
obejection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the
corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such
assets and pay the debts of the corporation. (SECTION 135)
EFFECTIVITY OF DISSOLUTION
The dissolution shall take effect only upon the issuance by the SECURITIES AND EXCHANGE
COMMISSION of a certificate of dissolution. (SECTION 135)
DISSOLUTION BY SHORTENING CORPORATE TERM (2012)

A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term
pursuant to the provisions of this Code. A copy of the amended articles of incorporation shall be submitted to the
Commission in accordance with this Code. (SECTION 136)
Upon the expiration of the shortened term, as stated in the approved amended articles of incorporation, the
corporation shall be deemed dissolved without any further proceedings, subject to the provisions of the
REVISED CORPORATION CODE on liquidation. (SECTION 136)

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In the case of expiration of corporate term, dissolution shall automatically take effect on the day following the
last day of the corporate term stated in the articles of incorporation, without the need for the issuance by the
SECURITIES AND EXCHANGE COMMISSION of a certificate of dissolution. (SECTION 136)
INVOLUNTARY DISSOLUTIONS (2012)

A corporation may be dissolved by the SECURITIES AND EXCHANGE COMMISSION motu proprio or
upon filing of a verified complaint by any interested party.
The following may be grounds for dissolution of the corporation:

1) Continuous inoperation of a corporation as provided under Section 21 of this Code;
2) Upon receipt of a Lawful court order dissolving the corporation;
3) Upon finding by final judgment that the corporation procured its Incorporation through fraud;
4) Non-use of corporate charter as provided under Section 21 of this Code;
5) Upon finding by final judgment that the corporation:
i. Was created for the purpose of committing, concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
ii. Committed or aided in the commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its stockholders knew; and
iii. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees. (SECTION 138)
If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in subparagraph (e)
hereof, its assets, after payment of its liabilities, shall, upon petition of the Commission with the appropriate court,
be forfeited in favor of the national government. Such forfeiture shall be without prejudice to the rights of innocent
stockholders and employees for services rendered, and to the application of other penalty or sanction under this
Code or other laws.
The Commission shall give reasonable notice to, and coordinate with, the appropriate regulatory agency prior to the
involuntary dissolution of companies under their special regulatory jurisdiction. (SECTION 138)
CORPORATE LIQUIDATION
Except for banks, which shall be covered by the NEW CENTRAL BANK ACT AND PHILIPPINE DEPOSIT
INSURANCE CORPORATION CHARTER,
every corporation whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture, or whose
corporate existence is terminated in any other manner, shall nevertheless remain as a body corporate for 3 years
after the effective date of dissolution, for the purpose of:
1) prosecuting and defending suits by or against it and enabling it to settle and close its affairs,
2) dispose of and convey its property, and distribute its assets,
but not for the purpose of continuing the business for which it was established. (SECTION 139)
At any time during said 3 years, the corporation is authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors and other persons in interest.
After any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest
vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons-in-interest.
(SECTION 139)
Except as otherwise provided for in Sections 93 and 94 of this Code, upon the winding up of corporate affairs, any
asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated
in favor of the national government. (SECTION 139)
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any
of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
(SECTION 139)

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A corporation’s board of directors is not rendered functus officio by its dissolution. Since Section 122 allows a
corporation to continue its existence for a limited purpose, necessarily there must be a board that will
continue acting for and on behalf of the dissolved corporation for that purpose. In fact, Section 122 authorizes
the dissolved corporation’s board of directors to conduct its liquidation within three years from its dissolution.
Jurisprudence has even recognized the board’s authority to act as trustee for persons in interest beyond the said
three-year period.43 Thus, the determination of which group is the bona fide or rightful board of the dissolved
corporation will still provide practical relief to the parties involved. (G.R. No. 170770)
The import of this Court's ruling in the cases cited by petitioner is that the trustee of a corporation may continue to
prosecute a case commenced by the corporation within three years from its dissolution until rendition of the final
judgment, even if such judgment is rendered beyond the three-year period allowed by Section 122 of the
Corporation Code. However, there is nothing in the said cases which allows an already defunct corporation to
initiate a suit after the lapse of the said three-year period. On the contrary, the factual circumstances in the
abovecited cases would show that the corporations involved therein did not initiate any complaint after the
lapse of the three-year period. In fact, as stated above, the actions were already pending at the time that they lost
their corporate existence. (G.R. No. 187456)
TITLE XV FOREIGN CORPORATIONS

FOREIGN CORPORATION (2012) -- is one formed, organized or existing under laws other than those of
the Philippines’ and whose laws allow Filipino citizens and
corporations to do business in its own country or State.
(SECTION 140)
RIGHTS OF FOREIGN CORPORATION

It shall have the right to transact business in the Philippines after obtaining a license for that purpose in
accordance with REVISED CORPORATION CODE and a certificate of authority from the appropriate
government agency. (SECTION 140)
FILIPINO OR -- by necessary implication, under the Revised Corporation Code of the Philippines is a
DOMESTIC corporation that is formed, organized, and existing under the laws of the Philippines.
CORPORATION
RIGHT TO TRANSACT BUSINESS

It shall have the right to transact business in the Philippines after obtaining a license for that purpose in accordance
with this Code and certificate of authority from the appropriate government agency. (REPUBLIC ACT No. 11232
Revised Corporation Code of the Philippines, Section 140)
NATIONALITY OF A PRIVATE CORPORATION

TESTS TO DETERMINE THE NATIONALITY OF CORPORATIONS:
INCORPORATION TEST -- the corporation is a national of a country under whose laws it is organized or
incorporated
CONTROL TEST -- determined by the nationality of the controlling stockholders or members

(SEC-OGC OPINION 16-15, JUNE 1, 2016)
GRANDFATHER RULE -- is a special rule used to determining the nationality of a parent corporation
which owns stocks in another corporation for purposes of determining the
percentage of foreign shareholding.
It is applied when the 60-40 Filipino-foreign equity ownership is in doubt as a

result of various indicia that beneficial ownership and voting control of a
subject corporation does not in fact reside in Filipino shareholders but in
foreign stakeholders through medium or practice of corporate layering.
(G.R. NO. 195580)

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CONTROL TEST IN WAR TIME

China Banking Corporation came within the meaning of the word enemy not only because it was incorporated under
the laws of an enemy country but because it was controlled by enemies. (G.R. NO. L-2294)
A simple majority control (50% + 1) by citizens and agents of a public enemy is sufficient to make a corporation an
enemy corporation. It follows that even during war-time, where a corporation is owned by foreigners who are not
citizens of a public enemy, the war-time control test will not apply. The rule under the Corporation Code is not
affected by war in so far as civil law is not affected by war.
STATEMENT OF GRANDFATHER RULE:

1) Shares belonging to parent corporations or partnerships at least 60% of the capital of which are owned by Filipino
citizens shall be considered as having 100% Philippine nationality
2) But if the percentage of Filipino ownership in the parent-corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine nationality. (G.R. NO. 195580)
CORPORATE LAYERING -- means of structuring companies where by a parent-corporation hold shares

in other corporations.
Unless used to circumvent the law, corporate layering is a valid legal practice.
It is the use of corporations as stockholders of other corporations in different stages
of organization.
(G.R. NO. 195580)
RESULTS FROM VARIOUS INDICIA THAT THE BENEFICIAL OWNERSHIP AND CONTROL OF
THE CORPORATION DO NOT IN FACT RESIDE IN FILIPINO SHAREHOLDERS BUT IN FOREIGN
STAKEHOLDERS
The following are the indicators of doubt:
1) The foreign investors provide practically all the funds for the joint investment undertaken by these Filipino
businessmen and their foreign partner;
2) The foreign investors undertake to provide practically all the technological support for the joint venture; and
3) The foreign investors, while being minority stockholders, manage the company and prepare all economic viability
studies. (G.R. NO. 195580)
HARMONIZING CONTROL TEST AND GRANDFATHER RULE

The control test is still the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Section 2, Article XII of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the natural resources of the Philippines.
When there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino equity
ownership in the corporation, then the grandfather rule may be applied.
The Grandfather rule, standing alone, should not be used to determine the Filipino ownership and control in
a corporation, as it could result in an otherwise foreign corporation rendered qualified to perform nationalize
or partly nationalized activities.
Hence, it is only when the control test is first applied with that of the grandfather rule may be applied. (G.R. NO.
195580)
NATURE OF FILIPINO OWNERSHIP FOR PURPOSES OF DETERMINING NATIONALITY AND

COMPLIANCE WITH FOREIGN EQUITY RESTRICTIONS
For purposes of determining compliance with the constitutional or statutory ownership requirements, the control test
must be two-tiered test:
Philippine national shall mean a corporation organized under the laws of the Philippines of which at least 60% of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. (Republic Act
No. 7042," as amended by R.A. 8179, Section 3a)
IN ORDER TO FULLY COMPLY WITH THE FOREIGN EQUITY RESTRICTIONS, THE FOLLOWING

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TIERS MUST CONCUR:
BENEFICIAL OWNERSHIP TEST Full legal and beneficial ownership of 60% of the outstanding
capital stock must rest in the hands of Filipinos.
Mere legal title is insufficient to meet the 60% Filipino-owned
“capital” required in the Constitution.
(G.R. NO. 176579)
VOTING CONTROL TEST 60% of the outstanding capital stock entitled to vote must rest in the
hands of Filipinos, regardless of the denomination of such shares.
(G.R. NO. 207246)
PURPOSE OF BENEFICIAL OWNERSHIP TEST

It contemplates a possible circumvention of the constitutional restrictions whereby Filipinos, although legally
owning 60% of the shares, do not actually have beneficial ownership thereof as when the beneficial ownership is
assigned by a contract of usurfruct in favour of foreigners, or where the Filipino merely acts as trustee in a voting
trust agreement for foreign beneficiaries.
WHO MAY BE A RESIDENT AGENT (2012)

A resident agent may be either an individual residing in the Philippines or a domestic corporation lawfully
transacting business in the Philippines.
PROVIDED:
1) That an individual resident agent must be of good moral character and of sound financial standing.
2) That in case of a domestic corporation who will act as a resident agent, it must be likewise be of:
i. sound financial standing and
ii. must show proof that it is in good standing as certified by the Commission.
RESIDENT AGENT OF FOREIGN CORPORATION (2012)

As a condition to the issuance of the license for a foreign corporation to transact business in the Philippines, such
corporation shall file with the SECURITIES AND EXCHANGE COMMISSION a written power of attorney
designating a person who must be a resident of the Philippines,
1) on whom summons and other legal processes may be served in all actions or other legal proceedings against
such corporation, and
2) consenting that service upon such resident agent shall be admitted and held as valid as if served upon the
duly authorized officers of the foreign corporation at its home office. (SECTION 145)
LAW APPLICABLE (2018)

GENERAL RULE:
A foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations
applicable to domestic corporations of the same class,
EXCEPTIONS:
except those which provide for:
1) the creation, formation, organization or dissolution of corporations or
2) those which fix the relations, liabilities, responsibilities, or duties of stockholders, members or officers of
corporations to each other or to the corporation. (SECTION 146)
DOING BUSINESS WITHOUT A LICENSE

No foreign corporation transacting business in the Philippines without a license, or its successor or assigns,
shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines.

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PROVIDED:
such corporation may be sued or proceeded against before the Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws. (SECTION 150)
OUTSTANDING -- shall mean the total shares of stock issued under binding subscription
CAPITAL STOCK contracts to subscribers or stockholders, whether fully or partially paid, except
treasury shares.
(SECTION 173)
JURISDICTION OVER PARTY – LIST ORGANIZATIONS

The powers, authorities, and responsibilities of the Commission involving party-list organizations are transferred
to the Commission on Elections (COMELEC). (SECTION 182)
EFFECT OF AMENDMENT OR REPEAL OF THE CORPORTION CODE OR THE DISSOLUTION OF

A CORPORATION (2015)
1) No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or
officers,
2) nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers,
shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent
amendment or repeal of the REVISED CORPORATION CODE or of any part thereof. (SECTION 184)
A party’s stockholdings in a corporation, whether existing or dissolved, is a property right 44 which he may vindicate
against another party who has deprived him thereof. The corporation’s dissolution does not extinguish such property
right. Section 145 of the Corporation Code ensures the protection of this right, thus:
Sec. 145. Amendment or repeal. – No right or remedy in favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members,
directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation
or by any subsequent amendment or repeal of this Code or of any part thereof. (Emphases supplied.)
Intra-corporate disputes remain even when the corporation is dissolved. (G.R. No. 170770)
PARTNERSHIP -- 2 or more persons bind themselves; (COC - CD)

1) through a Contract of partnership;
2) where at least One general partner;
3) Contribute money, property, or industry;
4) to a Common fund; and
5) with the intention of Dividing the profits among themselves. (ARTICLE 1767)
GENERAL Two or more persons may also form a partnership for the exercise of a profession. (1665a)
PROFESSIONAL (ARTICLE 1767)
PARTNERSHIP /
PARTICULAR
PARTNERSHIP
ABSENCE OF CONTRIBUTION
A partnership may be deemed to exist among the parties who agree to borrow money to pursue a business and to
divide the profits or losses that may arise therefrom, even if it is shown that they have NOT contributed any
capital of their own to a common, as their contribution to such fund could be intangible like credit or
industry. (G.R. No. 136448)
CHARACTERISTICS OF CONTRACT OF PARTNERSHIP (CP – COB – NPC)

COMMUTATIVE Undertaking of each one is considered equal with the others.
PRINCIPAL Does not depend for its existence on other contracts.
CONSENSUAL Perfected by mere consent.

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ONEROUS Certain contribution have to be made.
BILATERAL Entered by two or more persons and the rights and obligation arising therefrom are always
reciprocal.
NOMINATE Has a special designation in law
PROFIT – Purpose is for profit and not just common enjoyment.

ORIENTED
CAPABLE OF Endowed with legal personality, unless it is an unlawful partnership. It can sue and be sued.
SUIT
(DE LEON, supra at 11 - 12)
CONTRACT OF PARTNERSHIP AS A CONTRACT OF AGENCY / DELECTUS PERSONAE

GENERAL RULE:
Every partner is an agent of the partnership for the purpose of its business, and the act of every partner,
including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the
business of the partnership of which he is a member binds the partnership,
EXCEPTION:
Unless: (AK)
1) the partner so acting has in fact no Authority to act for the partnership in the particular matter; and
2) the person with whom he is dealing has Knowledge of the fact that he has no such authority. (ARTICLE 1818)
EFFECT OF DELECTUS PERSONAE (CHOICE OF PERSONS)

Every partner may associate another person with him in his share, but the associate shall not be admitted into
the partnership without the consent of all the other partners, even if the partner having an associate should be a
manager. (1696) (ARTICLE 1804)
PARTNERSHIP AS SEPARATE PERSONALITY

The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of
failure to comply with the requirements: (n) (ARTICLE 1767) (3P)
1) Every contract of partnership having a capital of (3) three thousand pesos or more, in money or property;
2) shall appear in a Public instrument,
which must be recorded in the Office of the Securities and Exchange Commission. (ARTICLE 1772)
EFFECT FAILURE TO COMPLY WITH REGISTRATION REQUIREMENT

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership
and the members thereof to third persons. (n) (ARTICLE 1772)
GENERAL RULE:
Persons who are not partners as to each other are not partners as to third persons; (ARTICLE 1769(1))
EXCEPTION:
PARTNERSHIP BY ESTOPPEL
a) EXISTING PARTNERSHIP
When a person, by:
i. words spoken; or
ii. written or by conduct, represents himself; or
iii. consents to another representing him to anyone,
as a partner in an existing partnership or with one or more persons not actual partners is liable to any such persons
to whom such representation has been made, who has, on the faith of such representation, give credit to the
actual or apparent partnership; (ARTICLE 1825)

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b) PARTNERSHIP BY ESTOPPEL AFTER DISSOLUTION

AFTER DISSOLUTION OF PARTNERSHIP
Any person who after dissolution represents himself or consents to another representing him as a partner in a
partnership engaged in carrying on business is liable to any such persons to whom such representation has been
made, who has, on the faith of such representation, give credit to the actual or apparent partnership;
(ARTICLES 1825 AND 1834)
NATURE OF PARTNERSHIP BY ESTOPPEL

Article 1825 does not create a partnership as between the alleged partners.
The law only considers them as partners and the association as a partnership insofar as it is favorable to third
persons.
However, a partnership liability is created only in favor of persons who on the faith of such representation
given credit to the partnership. (DE LEON, supra at 199 - 200)
PARTNERSHIP LIABILITY WHICH CONTINUES FOR LACK OF PROPER TERMINATION

PARTNERSHIP IS BOUND TO THIRD PERSONS AFTER DISSOLUTION
After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article:
1) By any act appropriate for winding up partnership affairs;
2) By any act for completing transactions unfinished at dissolution;
3) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party
to the transaction: (CK)
a) Had extended Credit to the partnership prior to dissolution and had no knowledge or notice of the
dissolution; or
b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution,
and, having no Knowledge or notice of dissolution, the fact of dissolution had not been advertised in a
newspaper of general circulation in the place or in each place if more than one at which the partnership
business was regularly carried on.
SATISFY ANY TRANSACTION WHICH WOULD BIND THE ARTNERSHIP IF DISSOLUTION HAD
NOT TAKEN PLACE
The liability of a partner shall be satisfied out of partnership assets alone when such partner had been prior to
dissolution:
1) Unknown as a partner to the person with whom the contract is made; and
2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said
to have been in any degree due to his connection with it. (ARTICLE 1834)
PARTNERSHIP IS NOT BOUND TO THIRD PERSONS AFTER DISSOLUTION

The partnership is in no case bound by any act of a partner after dissolution: (U – I – NCA)
1) Where the partnership is dissolved because it is Unlawful to carry on the business, unless the act is appropriate for
winding up partnership affairs; or
2) Where the partner has become Insolvent; or
3) Where the partner has No authority to wind up partnership affairs; except by a transaction with one who -
a) Had extended Credit to the partnership prior to dissolution and had no knowledge or notice of his want
of authority; or
b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority has not been Advertised in a newspaper of general
circulation in the place, or in each place if more than one, at which the partnership business was regularly
carried on.
SHARING OF PROFITS
GENERAL RULE
PACTUM LEONINA
A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691)
(ARTICLE 1799)
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EXCEPTIONS:
1) AGREEMENT WITH LOSSES AND PROFITS
PRESENCE OF STIPULATION
The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
ABSENCE OF STIPULATION
GENERAL RULE:
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he
may have contributed,
EXCEPTIONS:
INDUSTRIAL PARTNER
1) shall not be liable for the losses;
2) shall receive share in the profits as may be just and equitable under the circumstances;
3) If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to
his capital. (1689a) (ARTICLE 1797)
DESIGNATION OF PROFITS AND LOSSES

GENERAL RULE:
If the partners have agreed to intrust to a third person the designation of the share of each one in the profits
and losses, such designation may be impugned only when it is manifestly inequitable. (ARTICLE 1798)
EXCEPTION:
The designation of losses and profits cannot be intrusted to one of the partners. (1690) (1798)
ESTOPPEL SETS – IN (E3)

1) In no case may a partner who has begun to Execute the decision of the third person; or
2) who has not impugned the same within a period of (3) three months from the time he had knowledge thereof,
complain of such decision. (ARTICLE 1798)
LIABILITY OF PARTNERSHIP BY ESTOPPEL

If he has made such representation or consented to its being made in a public manner he is liable to such
person whether:
a) the representation has or has not been made or communicated to such person so giving credit by; or
b) with the knowledge of the apparent partner making the representation or consenting to its being made:
1) When a partnership liability results, he is liable as though he were an actual member of the
partnership;
2) When no partnership liability results, he is liable pro rata with the other persons, if any, so
consenting to the contract or representation as to incur liability, otherwise separately. (ARTICLE 1825)
NATURE OF PARTNERSHIP BY ESTOPPEL

1) EXISTENCE OF AGENT OF PARTNERSHIP BY ESTOPPEL
When a person has been thus represented to be a partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the
same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the
representation.
2) EXISTENCE OF PARTNERSHIP BY ESTOPPEL

When all the members of the existing partnership consent to the representation, a partnership act or obligation
results.
3) In all other cases it is the joint act or obligation of the person acting and the persons consenting to the
representation. (n) (ARTICLE 1825)

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CO – OWNERSHIP IN RELATION TO PARTNERSHIP

Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-
possessors do or do not share any profits made by the use of the property; (ARTICLE 1769(2))
CO – OWNERSHIP CONVERTED INTO PARTNERSHIP

For tax purposes, the co – ownership of inherited properties is automatically converted into an unregistered
partnership the moment said properties and/or income derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a
project partition.
Co – ownership can be converted into a partnership in case where the heirs, agreed that said common properties
and/or the income derived therefrom are used as a common fund. (G.R. No. L-19342)
GROSS RETURNS ALONE

The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the returns are derived; (ARTICLE 1769(2))
ABSENCE OF MANIFESTATION OF UNREGISTERED PARTNERSHIP

There must be a clear intent to form a partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross
profits as co –owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby.
(G.R. No. 78133)
Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution,
are not thereby rendered partners. They have no common stock or capital, and not community of interest. (G.R.
No. 154486)
PRIMA FACIE EVIDENCE OF PARTNERSHIP

GENERAL RULE:
The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the
business,
EXCEPTION:
but no such inference shall be drawn if such profits were received in payment: (C - WAID)
a) As the Consideration for the sale of a goodwill of a business or other property by installments or otherwise.
b) As Wages of an employee or rent to a landlord;
c) As an Annuity to a widow or representative of a deceased partner;
d) As Interest on a loan, though the amount of payment vary with the profits of the business;
e) As a Debt by installments or otherwise. (n) (ARTICLE 1769(4))
LAWFUL OBJECT OR PURPOSE

A partnership must have a lawful object or purpose, and must be established for the common benefit or
interest of the partners. (ARTICLE 1770)
EFFECT OF UNLAWFUL PARTNERSHIP

When an unlawful partnership is dissolved by a judicial decree: (PVP)
1) the Profits shall be confiscated in favor of the State, (ARTICLE 1770)
2) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy are
inexistent and Void from the beginning; (ARTICLE 1409(1))
3) The Proceeds of the crime and instruments or tools with which it was committed shall be confiscated and
forfeited in favor of the Government, unless they be property of a third person not liable for the offense, but those
articles which are not subject of lawful commerce shall be destroyed. (REVISED PENAL CODE, ARTICLE 45)
BASIS FOR DISSOLUTION OF UNLAWFUL PARTNERSHIP

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A partnership is dissolved by operation of law by any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in partnership; (ARTICLE 1830(3))
FORMAL REQUIREMENTS IN CONTRACT OF PARTNERSHIP

GENERAL RULE:
A partnership may be constituted in any form,
EXCEPTION:
1) except where immovable property or real rights are contributed thereto, in which case a public instrument
shall be necessary. (1667a) (ARTICLE 1771)
2) Two or more persons desiring to form a limited partnership shall:
i. Sign and swear to a certificate
ii. File for record the certificate in the Office of the Securities and Exchange Commission. (ARTICLE
1844)
EFFECT OF ABSENCE OF INVENTORY OF IMMOVABLE PROPERTY CONTRIBUTED

A contract of partnership is void, whenever immovable property is contributed thereto, if: (ISP)
1) an Inventory of said property is not made;
2) Signed by the parties; and
3) attached to the Public instrument. (1668a) (ARTICLE 1773)
IMMOVABLE PROPERTY OWNERSHIP

Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be
conveyed only in the partnership name. (n) (ARTICLE 1774)
TRANSPARENCY OF ARTICLES OF PARTNERSHIP

Associations and societies: (SO)
1) whose articles are kept Secret among the members; and
2) wherein any one of the members may contract in his Own name with third persons, shall have no juridical
personality, and shall be governed by the provisions relating to co-ownership. (1669) (ARTICLE 1775)
CORPORATION PARTNERSHIP SOLE PROPRIETORSHIP

AS TO JURIDICAL PERSONALITY
Separate juridical personality hence Separate juridical personality but all No separate juridical personality
doctrine of limited liability applies; partners, including industrial ones, hence unlimited liability.
shall be liable pro rata with all their
property and after all the partnership
assets have been exhausted, for the
contracts which maybe entered in
the name and for the account of the
partnership, under its signature and
by a person authorized to act for the
partnership;
AS TO RIGHT OF SUCCESSION
Death of stockholder has no effect Death of partner dissolves Death of sole proprietor dissolves
on the corporation, having the right partnership. the sole proprietorship.
of succession hence more stable as
an entity;
AS TO CREATION
Created by law or operation of law Simpler as it is created by mere One-man team.
agreement of the parties;
AS TO MANAGEMENT

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Management is centralized with the When management is not agreed One-man team.
Board hence professionalized but upon, every partner participate in the
cumbersome. Stockholders can vote management;
only on certain corporate actions;
AS TO TAXABLE INCOME
The income of the corporation is Only the partner’s distributive share Not applicable as there is no separate
taxed, as well as the dividends in the net income of a general entity to speak of.
distributed to the stockholders; professional partnership is taxed.
PARTNERSHIP CORPORATION
Has juridical personality Has no juridical personality.
AS TO PURPOSE
Always for profit. Not always for profit.
AS TO CONTRIBUTION OF MEMBERS
There is contribution of capital. There is no contribution of capital although fees are
usually collected from the members to maintain the
organization.
AS TO LIABILITY OF MEMBERS
The partnership is the one liable. Members are individually liable for the debts of the
corporation.
(DE LEON, supra at 52)
PARTNERSHIP CO-OWNERSHIP
AS TO CREATION
Always created by a contract; Generally, created by law, but may exist even without a
contract.
Has a juridical personality separate and distinct from Has no juridical personality.
that of each partner.
AS TO PURPOSE
Realization of profits. Common enjoyment of a thing or right.
AS TO POWER TO ACT WITH THIRD PERSONS

In general, a partner may bind the partnership. A co-owner cannot represent the co-ownership
.
AS TO PROFITS
May be stipulated upon. Must always depend upon proportionate shares and any
stipulation to the contrary is void.
AS TO DURATION
No limitation upon the duration is set by law. An agreement to keep the thing undivided for more than
10 years is not allowed.
AS TO DISSOLUTION
Death ort incapacity of a partner dissolves the Death incapacity of co-owner does not necessarily
partnership. dissolve the co-ownership.
AS TO AGENCY OR REPRESENTATION

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Generally, there is mutual agency. As a rule, there is no mutual representation.
AS TO FORM
In general, there is no required form. No public instrument is needed even if real property is
the object of the co-ownership.
AS TO TRANSFER OF INTERESTS
A partner may not dispose of his individual interest in A co-owner can dispose of his share without the consent
the partnership so as to make the assignee a partner of the others.
without unanimous consent.
PARTNERSHIP AGENCY
AS TO CONTROL
Partners are mutual agents of one another. However, a The agent is merely a legal extension of the principal
partner’s power to bind his co-partner is not subject to and thereby under the complete control of the principal.
the co-partner’s right to control, unless there is an
agreement to that contract.
AS TO REPRESENTATION
Partner binds not only the other partners and partnership, The agent who acts within the scope of authority does
but also himself in the pursuit of the partnership not bind himself to the contract or transaction he enters
enterprise. into.
AS TO LIABILITY
When a partner enters into a contract in his own name The agent must enter into contracts and transactions in
but in the pursuit of partnership business, the other the name of the principal for the latter to be bound
partners and the partnership would still be bound thereby.
thereby.
PARTNERSHIP JOINT VENTURE

AS TO COVERAGE
Contemplates the undertaking of a general and Ordinarily limited to a single transaction and not
continuous business of a particular kind. intended to pursue a continuous business.
AS TO FIRM NAME
Required to operate under a firm name. Has no firm name.
AS TO TRANSFER OF PROPERTY.
The property used becomes the property of the business The property used remains undivided property of its
entity and hence all the partners. contributor.
AS TO POWER
A partner acting in pursuance of the firm business binds None of the co-venturers can bind the joint venture or
not only himself as a principal, but as their agent as well, his co-venturers..
also the partnership and his co-partners.
(VILLANUEVA, supra at 429 - 430)
JOINT VENTURE -- an association of persons or companies jointly undertaking some commercial

enterprise.
Generally, all contribute assets and shares risks. It requires a community of interest in the
performance of the subject matter, a right to direct and govern the policy in connection
therewith, and a duty which may be altered by agreement to share both in profits and

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losses.
GOVERING LAW OF JOINT VENTURE

A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation. (1678) (CIVIL CODE, ARTICLE 1783)
PARTNERSHIP CONJUGAL PARTNERSHIP OF GAINS

AS TO PARTNERS
Created by voluntary agreement of two or more persons Only between a man and a woman.
belonging to either sex.
AS TO PURPOSE
To obtain profits. To regulate property relations.
According to agreement of partners or in proportion to Shares of spouses are divided equally.
their respective capital contribution.
AS TO DISTRIBUTION OF SHARES
The whole interest of a partner may be disposed of The share of each spouse cannot be disposed of during
without the consent of other partners. the marriage even with the consent of the other.
AS TO MANAGEMENT
It is shared equally by all partners unless one or more of Although the administration beloings to both spouses
them are appointed managers in the articles of jointly, the husband’s decision shall prevail in case of
partnership. disagreement.
AS TO GOVERNING LAW
Governed by the stipulations of the parties. Governed by law.
AS TO COMMENCEMENT.
Partnership begins from the moment of the execution of Commences precisely on the date of celebration of the
the contract, unless otherwise stipulated. marriage. Any stipulation to the contrary is void.
COMMENCEMENT OF PARTNERSHIP
A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)
(ARTICLE 1784)
EFFECT OF CONTINUATION OF FIXED TERM PARTNERSHIP OR PARTICULAR UNDERTAKING

When a partnership for a fixed term or particular undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights and duties of the partners remain the same as
they were at such termination, so far as is consistent with a partnership at will. (ARTICLE 1784)
PRIMA FACIE EVIDENCE OF CONTINUATION OF FIXED TERM PARTNERSHIP

A continuation of the business by the partners or such of them as habitually acted therein during the term, without
any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the
partnership. (n) (ARTICLE 1784)
PARTNERSHIP AT WILL
A partnership that does NOT fix its term is a partnership at will. The birth and life of a partnership at will is
predicated on the mutual desire and consent of the partners.
Verily, any one of the partner may, at his ole pleasure, dictate the dissolution of the partnership at will. He must,
however,, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that
it can result in a liability for damages. (G.R. No. 109248)

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MUTUAL CONTRIBUTION TO A COMMON FUND

Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. (ARTICLE
1784)
AMOUNT OF CONTRIBUTION
GENERAL RULE:
The partners shall contribute equal shares to the capital of the partnership. (n) (ARTICLE 1790)
EXCEPTION:
Unless there is a stipulation to the contrary.
EFFECT OF FAILURE TO CONTRIBUTE PROPERTY

GENERAL RULE:
In case of a failure, the remedy is NOT rescission but an action for specific performance with damages and
interest. (G.R. No. L-33580)
EXCEPTION:
1) If the defaulting partner is already dead, rescission may prosper. (G.R. No. L-5953)
2) CANNOT be compelled to render his personal service by specific performance because that is tantamount
to involuntary servitude. (PINEDA, supra at 53)
OBLIGATION OF THE PARTNER IN PROPERTY CONTRIBUTED

1) BOUND FOR WARRANTY
He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he
may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with
respect to the vendee.
2) INCLUDE THE FRUITS

He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of
any demand. (1681a) (ARTICLE 1784)
OBLIGATION WITH RESPECT TO CONTRIBUTION OF MONEY

A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest
and damages from the time he should have complied with his obligation. (ARTICLE 1788)
OBLIGATION WITH RESPECT TO ANY AMOUNT TAKEN FROM THE PARTNERSHIP COFFERS
A partner becomes debtor for the interest and damages to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (1682)
(ARTICLE 1788)
ADDITIONAL CONTRIBUTION BY ANY PARTNER

If there is no agreement to the contrary,
GENERAL RULE:
In case of an imminent loss of the business of the partnership, a partner must contribute an additional share to the
capital in order to save the venture.
EXCEPTION:
except an industrial partner. (ARTICLE 1790)
EFFECT OF REFUSAL TO CONTRIBUTE ADDITIONAL SHARE

Any partner who refuses to contribute an additional share to the capital, shall be obliged to sell his interest to the
other partners. (n) (ARTICLE 1791)
PARTNER ENGAGING IN OTHER BUSINESS

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1) INDUSTRIAL PARTNER
An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do
so.
EFFECT IF INDUSTRIAL PARTNER ENGAGED IN BUSINESS FOR HIMSELF

If an industrial partner engage in business for himself the capitalist partners may either:
i. Exclude him from the firm; or
ii. avail themselves of the Benefits
which he may have obtained in violation of this provision, with a right to damages in either case. (n)
(ARTICLE 1789)
2) CAPITALIST PARTNER
The capitalist partners cannot engage for their own account in any operation which is of the kind of business in
which the partnership is engaged, unless there is a stipulation to the contrary. (ARTICLE 1808)
EFFECT IF CAPITALIST PARTNER ENGAGE IN SAME KIND OF BUSINESS

Any capitalist partner engaging for their own account in any operation which is of the kind of business in
which the partnership is engaged, shall: (PL)
1) bring to the common funds any Profits accruing to him from his transactions; and
2) shall personally bear all the Losses. (n) (ARTICLE 1808)
MANAGEMENT OF PARTNERSHP
GENERAL RULE:
The partner who has been appointed manager in the articles of partnership may: (EI)
1) Execute all acts of administration despite the opposition of his partners; and
2) his power is Irrevocable without just or lawful cause.
EXCEPTION: (BC)
1) Unless he should act in Bad faith; and
2) The vote of the partners representing the Controlling interest shall be necessary for such revocation of power.
(ARTICLE 1800)
PERIOD OF REVOCATION
A power granted after the partnership has been constituted may be revoked at any time. (1692a) (ARTICLE
1800)
TWO OR MORE MANAGING PARTNERS

GENERAL RULE:
If two or more partners have been intrusted with the management of the partnership: (DC)
1) without specification of their respective Duties; or
2) without a stipulation that one of them shall not act without the Consent of all the others,
each one may separately execute all acts of administration,
EXCEPTIONS:
1) but if any of them should oppose the acts of the others, the decision of the majority shall prevail.
2) In case of a tie, the matter shall be decided by the partners owning the controlling interest. (1693a)
(ARTICLE 1801)
STIPULATED THAT CANNOT ACT WITHOUT THE CONSENT OF THE OTHERS.

GENERAL RULE:
In case it should have been stipulated that none of the managing partners shall act without the consent of the
others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any
one of them cannot be alleged,
EXCEPTION:
Unless there is imminent danger of grave or irreparable injury to the partnership. (1694) (ARTICLE 1802)
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ABSENCE OF MANNER OF MANAGEMENT

When the manner of management has not been agreed upon, the following rules shall be observed:
1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the
partnership, without prejudice to the following:
TWO OR MORE MANAGING PARTNERS

GENERAL RULE:
If two or more partners have been intrusted with the management of the partnership: (DC)
i. without specification of their respective Duties; or
ii. without a stipulation that one of them shall not act without the Consent of all the others, each one may
separately execute all acts of administration,
EXCEPTIONS:
i. but if any of them should oppose the acts of the others, the decision of the majority shall prevail.
ii. In case of a tie, the matter shall be decided by the partners owning the controlling interest. (1693a)
(ARTICLE 1801)
2) None of the partners may, without the consent of the others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the partnership.
But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the
court's intervention may be sought. (1695a) (ARTICLE 1803)
ACCESS AND INSPECTION OF PARTNERSHIP BOOKS

The partnership books: (PR)
1) shall be kept, subject to any agreement between the partners, at the Principal place of business of the partnership;
and
2) every partner shall at any Reasonable hour have access to and may inspect and copy any of them. (n) (ARTICLE
1805)
COVERAGE OF PARTNER’S INTEREST

A partner's interest in the partnership is his share of the profits and surplus. (n) (ARTICLE 1812)
EFFECT OF ASSIGNMENT OF PARTNER’S WHOLE INTEREST IN THE PARTNERSHIP

GENERAL RULE:
A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the assignee, during the continuance of the
partnership: (IRI)
1) to Interfere in the management or administration of the partnership business or affairs; or
2) to Require any information or account of partnership transactions; or
3) to Inspect the partnership books.
But it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning
partner would otherwise be entitled.
EXCEPTION:
However,
1) in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.
(ARTICLE 1813)
2) In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may
require an account from the date only of the last account agreed to by all the partners. (n) (ARTICLE 1813)
REMEDIES OF SEPARATE JUDGMENT CREDITOR OF A PARTNER

1) PREFERENTIAL RIGHT OF PARTNERSHP CREDITORS

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The creditors of the partnership shall be preferred to those of each partner as regards the partnership
property. Without prejudice to this right, the private creditors of each partner may ask the attachment and
public sale of the share of the latter in the partnership assets. (n) (ARTICLE 1827)
2) APPLICATION FOR A CHARGING ORDER AFTER SECURING JUDGMENT ON HIS CREDIT

Without prejudice to the preferred rights of partnership creditors under article 1827, on due application to a
competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court:
i. may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment
debt with interest thereon; and may then or later appoint a receiver of his share of the profits; and
ii. of any other money due or to fall due to him in respect of the partnership; and
iii. make all other orders, directions, accounts and inquiries which the debtor partner might have made, or
which the circumstances of the case may require. (ARTICLE 1814)
3) REDEMPTION OF INTEREST CHARGED

GENERAL PARTNERSHIP
i. The interest charged may be redeemed at any time before foreclosure; or
ii. after foreclosure, in case of a sale being directed by the court, may be purchased without thereby causing
a dissolution: (SP)
a) With Separate property, by any one or more of the partners; or
b) With Partnership property, by any one or more of the partners with the consent of all the
partners whose interests are not so charged or sold.
LIMITED PARTNERSHIP
The interest may be redeemed with the separate property of any general partner, but may not be redeemed with
partnership property. (ARTICLE 1862)
4) EXEMPTION LAWS
Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his
interest in the partnership. (n) (ARTICLE 1814)
ON THE APPLICATION OF A PARTNER’S INTEREST

On the application of the purchaser of a partner's interest:
1) After the termination of the specified term or particular undertaking;
2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order
was issued. (n) (ARTICLES 1813 or 1814 and 1831)
SIGNIFICANCE OF FIRM NAME

Every partnership shall operate under a firm name, which may or may not include the name of one or more of the
partners. (ARTICLE 1815)
UNAUTHORIZED USE OF FIRM NAME

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the
liability of a partner. (n) (ARTICLE 1815)
LIABILITY FOR CONTRACTUAL RELATIONS

All partners, including industrial ones, shall: (PE)
1) be liable Pro rata with all their property; and
2) after all the partnership assets have been Exhausted,
for the contracts which may be entered into in the name and for the account of the partnership, under its signature
and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership contract. (n) (ARTICLE
1816)
NATURE OF LIABILITY OF INDUSTRIAL PARTNER

GENERAL RULE:

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In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may
have contributed, but the industrial partner shall not be liable for the losses. (ARTICLE 1797)
EXCEPTION:
All partners, including industrial ones, shall be liable for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person authorized to act for the partnership.
(ARTICLE 1816)
SUBSIDIARY LIABILITY OF A PARTNER

The partners’ obligation with respect to the partnership liabilities is subsidiary in nature. It provides that the
partners shall only be liable with their property after all the partnership assets have been exhausted.
Thus, it is non sequitur that a suit against the partnership is necessarily a suit impleading each and every partner. A
partner must first be impleaded before he could be prejudiced by the judgment against the partnership. (G.R. No.
206147)
PRESENCE OF STIPULATION
Any stipulation against the liability for contracts entered into in the name and for the account of the partnership,
under its signature and by a person authorized to act for the partnership shall be void, except as among the
partners. (n) (ARTICLE 1817)
LIABILITY OF PARTNERSHIP FOR ACTS OF PARTNERS

GENERAL RULE:
Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including
the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business
of the partnership of which he is a member binds the partnership,
EXCEPTION:
Unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the
person with whom he is dealing has knowledge of the fact that he has no such authority. (ARTICLE 1818)
SIGNIFICANCE OF APPARENT AUTHORITY

An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way
does not bind the partnership unless authorized by the other partners. (ARTICLE 1818)
LIMITATION OF THE ACTS OF A PARTNER

GENERAL RULE:
One or more but less than all the partners have no authority to: (DAD - CARE)
1) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
2) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the
partnership;
3) Dispose of the good-will of the business;
4) Confess a judgment;
5) Submit a partnership claim or liability to Arbitration;
6) Renounce a claim of the partnership.
7) Enter into a compromise concerning a partnership claim or liability;
EXCEPTION: (AA)
Except when Authorized by the other partners or unless they have abandoned the business. (ARTICLE 1818)
EFFECT OF KNOWLEDGE OF NO AUTHORITY

No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having
knowledge of the restriction. (n) (ARTICLE 1818)
CONVEYANCE OF REAL PROPERTY OF THE PARTNERSHIP

GENERAL RULE:
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Where title to real property is in the partnership name, any partner may convey title to such property by a
conveyance executed in the partnership name but the partnership may recover such property.
EXCEPTION: (BK)
Unless:
i. the partner's act Binds the partnership; or
ii. such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value
without Knowledge that the partner, in making the conveyance, has exceeded his authority. (ARTICLE 1819)
CONVEYANCE OF REAL PROPERTY UNDER PARTNER’S NAME

Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own
name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner.
(ARTICLE 1819)
REAL PROPERTY IN THE NAME OF A PARTNER

GENERAL RULE:
Where title to real property is in the name of one or more but not all the partners, and the record does not
disclose the right of the partnership, the partners in whose name the title stands may convey title to such property,
but the partnership may recover such property if the partners' act does not bind the partnership.
EXCEPTION:
Unless the purchaser or his assignee, is a holder for value, without knowledge. (ARTICLE 1819)
REAL PROPERTY IN THE NAME OF A PARTNER OR A THIRD PERSON IN TRUST

Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for
the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the
equitable interest of the partnership, provided the act is one within the authority of the partner. (ARTICLE 1819)
CONVEYANCE OF REAL PROPERTY UNDER THE NAME OF ALL THE PARTNERS

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all
their rights in such property. (n) (ARTICLE 1819)
EFFECT OF ADMISSION BY ANY PARTNER

An admission or representation made by any partner concerning partnership affairs within the scope of his
authority is evidence against the partnership. (n) (ARTICLE 1820)
LIABILITY ARISING FROM PARTNER’S TORT, WRONGFUL ACT OR OMISSION

Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so
acting or omitting to act. (n) (ARTICLE 1822)
LIABILITY ARISING FROM PARTNER’S BREACH OF TRUST

The partnership is bound to make good the loss:
1) Where one partner acting within the scope of his apparent authority receives money or property of a third
person and misapplies it; and
2) Where the partnership in the course of its business receives money or property of a third person and the
money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)
(ARTICLE 1823)
LIABILITY OF ALL PARTNERS IN TORT OR BREACH OF TRUST

All partners are liable solidarily with the partnership for everything chargeable to the partnership for
misapplication of money or property received and wrongful act or omission of one partner. (n) (ARTICLE 1824)
LIABILITY OF PERSON ADMITTED INTO AN EXISTING PARTNERSHIP

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A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership
arising before his admission as though he had been a partner when such obligations were incurred, except that his
liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. (n)
(ARTICLE 1826)
DISSOLUTION OF A -- is the change in the relation of the partners caused by any partner ceasing to be
PARTNERSHIP associated in the carrying on as distinguished from the winding up of the business.
(ARTICLE 1828)
EFFECT OF THE PARTNERSHIP DURING DISSOLUTION

On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is
completed. (n) (ARTICLE 1829)
TYPES OF DISSOLUTION:
1) EXTRA – JUDICIAL DISSOLUTION
CAUSES OF EXTRA – JUDICIAL DISSOLUTION: (D – VETEE – CUP – DIC)
a) By Decree of court
b) Without Violation of the agreement between the partners: (VETEE)
i By the Express will of any partner, who must act in good faith, when no definite term or particular is
specified;
ii. By the Termination of the definite term or particular undertaking specified in the agreement;
iii. By the Express will of all the partners who have not assigned their interests or suffered them to be
charged for their separate debts, either before or after the termination of any specified term or particular
undertaking;
iv. By the Expulsion of any partner from the business bona fide in accordance with such a power conferred
by the agreement between the partners;
c) In Contravention of the agreement between the partners, where the circumstances do not permit a dissolution
under any other provision of this article, by the express will of any partner at any time;
d) By any event which makes it Unlawful for the business of the partnership to be carried on or for the members to
carry it on in partnership;
e) When a specific thing which a partner had Promised to contribute to the partnership, perishes before the delivery;
in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has
only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the
loss of the thing when it occurs after the partnership has acquired the ownership thereof;
f) By the Death of any partner;
g) By the Insolvency of any partner or of the partnership;
h) By the Civil interdiction of any partner. (1700a and 1701a) (ARTICLE 1830)
2) JUDICIAL DISSOLUTION
CAUSES OF JUDICIAL DISSOLUTION: (JIGBLE)
a) A partner has been declared insane in any Judicial proceeding or is shown to be of unsound mind;
b) A partner becomes in any other way Incapable of performing his part of the partnership contract;
c) A partner has been Guilty of such conduct as tends to affect prejudicially the carrying on of the business;
d) A partner wilfully or persistently commits a Breach of the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in
partnership with him;
e) The business of the partnership can only be carried on at a Loss;
f) Other circumstances render a dissolution Equitable. (ARTICLE 1831)
EFFECTS OF DISSOLUTION
1) AS TO PARTNER’S AUTHORITY
GENERAL RULE:
Dissolution terminates all authority of any partner to act for the partnership.
EXCEPTION: (WC)

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1) Acts necessary to Wind up partnership affairs; or

2) Acts necessary to Complete transactions begun but not then finished.
QUALIFICATIONS TO THE GENERAL RULE:

1) WITH RESPECT TO THE PARTNERS
a) When the dissolution is not by the act, insolvency or death of a partner Dissolution terminates all
authority of any partner to act for the partnership; or
b) When the dissolution is by such act, insolvency or death of a partner:
DISSOLUTION CAUSED BY THE ACT, DEATH OR INSOLVENCY OF A PARTNER

GENERAL RULE:
Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his
co-partners for his share of any liability created by any partner acting for the partnership as if the
partnership had not been dissolved.
EXCEPTIONS:
Unless:
i. The dissolution being by act of any partner, the partner acting for the partnership had knowledge of
the dissolution; or
ii. The dissolution being by the death or insolvency of a partner, the partner acting for the
partnership had knowledge or notice of the death or insolvency. (ARTICLE 1833)
2) WITH RESPECT TO PERSONS NOT PARTNERS

Any person who after dissolution represents himself or consents to another representing him as a partner in
a partnership engaged in carrying on business is liable to any such persons to whom such representation
has been made, who has, on the faith of such representation, give credit to the actual or apparent
partnership; (ARTICLES 1825, 1832 AND 1834)
2) AS TO PARTNER’S EXISTING LIABILITY

GENERAL RULE:
The dissolution of the partnership does not of itself discharge the existing liability of any partner.
EXCEPTION:
A partner is discharged from any existing liability upon dissolution of the partnership by an agreement
to that effect between:
i. himself;
ii. the partnership creditor; and
iii. the person or partnership continuing the business. (ARTICLE 1835)
such agreement may be inferred from the course of dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing the business. (ARTICLE 1835)
EFFECT OF DEATH OF A PARTNER:

The individual property of a deceased partner shall be liable for all obligations of the partnership
incurred while he was a partner, but subject to the prior payment of his separate debts. (n) (ARTICLE
1835)
PERSON AUTHORIZED TO WIND UP

Unless otherwise agreed, (WRI)
1) the partners who have not Wrongfully dissolved the partnership; or
2) the legal Representative of the last surviving partner, not Insolvent,
has the right to wind up the partnership affairs,
provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain
winding up by the court. (n) (ARTICLE 1836)
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INSTANCES WHEN THE CREDITORS OF THE DISSOLVED PARTNERSHIP ARE ALSO CREDITORS
OF THE PERSON OR PARTNERSHIP CONTINUING THE BUSINESS (N – A1 – R – 3RD - WE)
In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing
the business:
1) When any New partner is admitted into an existing partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to
one or more of the partners and one or more third persons, if the business is continued without liquidation of the
partnership affairs;
2) When All but (1) one partner retire and assign (or the representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the business without liquidation of partnership affairs,
either alone or with others;
3) When any partner Retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1
and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without
any assignment of his right in partnership property;
4) When all the partners or their representatives assign their rights in partnership property to one or more (3rd) third
persons who promise to pay the debts and who continue the business of the dissolved partnership;
5) When any partner Wrongfully causes a dissolution and the remaining partners continue the business under the
provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
6) When a partner is Expelled and the remaining partners continue the business either alone or with others without
liquidation of the partnership affairs. (ARTICLE 1840)
LIABILITY OF THIRD PERSON BECOMING A PARTNER

The liability of a third person becoming a partner in the partnership continuing the business, to the creditors of the
dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the
contrary. (ARTICLE 1840)
RIGHT OF THE CREDITORS OF THE DISSOLVED PARTNERSHIP

When the business of a partnership after dissolution is continued the creditors of the dissolved partnership, as
against the separate creditors of the retiring or deceased partner or the representative of the deceased partner,
have a prior right to any claim of the retired partner or the representative of the deceased partner against the
person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest or for his right in partnership property.
(ARTICLE 1840)
Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of
fraud. (ARTICLE 1840)
EFFECT OF THE USE OF THE DISSOLVE PARTNERSHIP NAMME

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased
partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any
debts contracted by such person or partnership. (n) (ARTICLE 1840)
RIGHTS OF RETIRING, OR OF ESTATE OF DECEASED PARTNER WHEN BUSINESS IS

CONTINUED
When any partner retires or dies, and the business is continued without any settlement of accounts as between him or
his estate and the person or partnership continuing the business, unless otherwise agreed,
1) he or his legal representative as against such person or partnership may have the value of his interest at the date of
dissolution ascertained; and
2) shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with
interest; or,
3) at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his
right in the property of the dissolved partnership;

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provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of
the retired or deceased partner, shall have priority on any claim arising from person or partnership continuing the
business of the partnership. (n) (ARTICLE 1841)
RIGHT TO DEMAND ACCOUNTING OF PARTNER’S INTEREST

The right to an account of his interest shall accrue to any partner, or his legal representative as against the
winding up partners or the surviving partners or the person or partnership continuing the business, at the
date of dissolution, in the absence of any agreement to the contrary. (n) (ARTICLE 1842)
LIMITED -- is one formed by two or more persons having as members one or more general partners
PARTNERSHIP and one or more limited partners. The limited partners as such shall not be bound by the
obligations of the partnership.
(ARTICLE 1843)
CHARACTERISTICS OF A LIMITED PARTNERSHIP: (3Co – LDR)

1) Formed by substantial Compliance in good faith with the statutory requirements;
2) One or more general partners Control the businesses and are personally liable to the creditors;
3) One or more limited partners Contribute money or property to the capital and share in the profits but do not
participate in the management of the business;
4) Limited partners are personally Liable for partnership obligations beyond the amount of their capital
contributions;
5) The partnership Debts are paid out of the common fund and the individual properties of the general partners; and
6) The limited partners may ask for the Return of their capital contributions under the conditions prescribed by law.
(PINEDA, supra at 205 - 206)
ADVANTAGES OF A LIMITED PARTNERSHIP

1) ON THE PART OF THE GENERAL PARTNER -- they can secure capital from others for purposes of
their business while retaining control and supervision of
the partnership business.
2) ON THE PART OF THE LIMITED PARTNER -- the limited partner shares in the profits without risk of
personal liability.
(PINEDA, supra at 205 - 206)
FORMAL REQUIREMENTS OF LIMITED PARTNERSHIP

Two or more persons desiring to form a limited partnership shall:
1) Sign and swear to a certificate;
2) File for record the certificate in the Office of the Securities and Exchange Commission. (ARTICLE 1844)
A limited partnership is formed if there has been substantial compliance in good faith with the foregoing
requirements.
CONTRIBUTIONS OF LIMITED PARTNER

The contributions of a limited partner may be:
1) cash; or
2) property,
but not services. (ARTICLE 1845)
EFFECT IF LIMITED PARTNER RENDERS SERVICES

GENERAL RULE:
A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and
powers as a limited partner,
EXCEPTION:

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he takes part in the control of the business. (ARTICLE 1848)
LIABILIT OF LIMITED PARTNERS

The limited partners as such shall not be bound by the obligations of the partnership. (ARTICLE 1843)
NAME OF LIMITED PARTNER

GENERAL RULE:
The surname of a limited partner shall not appear in the partnership name
EXCEPTION:
Unless: (SP)
1) It is also the Surname of a general partner, or
2) Prior to the time when the limited partner became such, the business has been carried on under a name in which
his surname appeared. (ARTICLE 1846)
EFFECT IF NAME OF LIMITED PARTNER APPEAR IN THE PARTNERSHIP NAME

A limited partner whose surname appears in a partnership name is liable as a general partner to partnership
creditors who extend credit to the partnership without actual knowledge that he is not a general partner.
(ARTICLE 1846)
ADMISSION OF ADDITIONAL LIMITED PARTNERS

After the formation of a lifted partnership, additional limited partners may be admitted upon filing an
amendment to the original certificate. (ARTICLE 1849)
PREFERRED LIMITED PARTNER

Where there are several limited partners the members may agree that one or more of the limited partners shall have a
priority over other limited partners as to the: (RCO)
1) Return of their contributions;
2) their Compensation by way of income; or
3) any Other matter. (ARTICLE 1855)
If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the
limited partners shall stand upon equal footing. (ARTICLE 1855)
LIMITED PARTNER SHARE IN THE PROFITS

A limited partner may receive from the partnership the share of the profits or the compensation by way of income
stipulated for in the certificate.
Provided, that after such payment is made, whether from property of the partnership or that of a general partner, the
partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on
account of their contributions and to general partners. (ARTICLE 1856)
RULE FOR LIMITED TO RECEIVE ANY PART OF HIS CONTRIBUTIONS

A limited partner shall not receive from a general partner or out of partnership property any part of his contributions
until: (PCC)
1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their
contributions, have been Paid or there remains property of the partnership sufficient to pay them;
2) The Consent of all members is had, unless the return of the contribution may be rightfully demanded under the
provisions of the second paragraph; and
3) The Certificate is cancelled or so amended as to set forth the withdrawal or reduction. (ARTICLE 1857)
RIGHT TO DEMAND OF THE LIMITED PARTNER

Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his
contribution: (DA – 6)
1) On the Dissolution of a partnership; or
2) When the date specified in the certificate for its return has Arrived, or

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3) After he has (6) six months' notice in writing to all other members, if no time is specified in the certificate, either
for the return of the contribution or for the dissolution of the partnership. (ARTICLE 1857)
LIMITATION TO RIGHT TO DEMAND OF THE LIMITED PARTNER

In the absence of any statement in the certificate to the contrary or the consent of all members, a limited
partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for
his contribution. (ARTICLE 1857)
RIGHT OF THE LIMITED PARTNER TO DISSOLVED PARTNERSHIP

A limited partner may have the partnership dissolved and its affairs wound up when: (U - PI)
1) He rightfully but Unsuccessfully demands the return of his contribution, or
2) The other liabilities of the partnership have not been Paid, or the partnership property is Insufficient for their
payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of
his contribution.
LIABILITY OF THE LIMITED PARTNER TO UNPAID CONTRIBUTION

A limited partner is liable to the partnership: (DU)
1) For the Difference between his contribution as actually made and that stated in the certificate as having been
made, and
2) For any Unpaid contribution which he agreed in the certificate to make in the future at the time and on the
conditions stated in the certificate. (ARTICLE 1858)
LIMITED PARTNERS AS TRUSTEE FOR THE PARTNERSHIP

A limited partner holds as trustee for the partnership: (SW)
1) Specific property Stated in the certificate as contributed by him, but which was not contributed or which has been
wrongfully returned, and
2) Money or other property Wrongfully paid or conveyed to him on account of his contribution. (ARTICLE 1858)
EXTINCTION OF THE LIABILITY OF THE LIMITED PARTNER

GENERAL RULE:
The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of
all members;
EXCEPTION:
but a waiver or compromise shall not affect the right of a creditor of a partnership who:
1) extended credit; or
2) whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such
liabilities. (ARTICLE 1858)
LIABILITY TO NOT IN EXCESS RECEIVE

When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is
nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to
discharge its liabilities to all creditors who extended credit or whose claims arose before such return. (ARTICLE
1858)
HEIR OF DECEASE PARTNERS AS LIMITED PARTNER

An heir of a deceased partner ordinarily becomes a limited partner for his own protection, but he may later
on elect to become a general partner. (G.R. No. L-11840)
ASSIGNABLE INTEREST
A limited partner's interest is assignable. (ARTICLE 1859)
SUBSTITUTED -- is a person admitted to all the rights of a limited partner who has died or has assigned
LIMITED his interest in a partnership.
PARTNER

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(ARTICLE 1859)
LIMITED RIGHT OF A MERE ASSIGNEE

An assignee, who does not become a substituted limited partner, has no right: (TB)
1) to require any information or account of the partnership Transactions; or
2) to inspect the partnership Books.
He is only entitled to receive the share of the profits or other compensation by way of income, or the return of his
contribution, to which his assignor would otherwise be entitled. (ARTICLE 1859)
PROCEDURE FOR ASSIGNEE TO BECOME A SUBSTITUTED LIMITED PARTNER

1) An assignee shall have the right to become a substituted limited partner if all the members consent thereto
or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.
2) An assignee becomes a substituted limited partner when the certificate is appropriately amended in
accordance with article 1865. (ARTICLE 1859)
RIGHTS AND OBLIGATIONS OF A SUBSTITUTED LIMITED PARTNER

The substituted limited partner has:
1) all the rights and powers; and
2) is subject to all the restrictions and liabilities of his assignor,
except those liabilities of which he was ignorant at the time he became a limited partner and which could not be
ascertained from the certificate. (ARTICLE 1859)
LIABILITY OF THE ASSIGNOR

The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership
under articles 1847 and 1858. (ARTICLE 1859)
EFFECT OF RETIREMENT, DEATH, INSOLVENCY, INSANITY OR CIVIL INTERDICTION OF A

GENERAL PARTNER
The (RIDIC) Retirement, Insolvency, Death, Insanity or Civil interdiction, of a general partner dissolves the
partnership,
EXCEPTION: RC
Unless the business is continued by the remaining general partners:
1) Under a Right so to do stated in the certificate, or
2) With the Consent of all members. (ARTICLE 1860)
LIMTED PARTNER / PARTNERSHIP GENERAL PARTNER / PARTNERSHIP

AS TO CREATION
Composed of one or more general partners and one or Composed only of general partners.
more limited partners.
AS TO CONTRIBUTION
Limited partner may only contribute cash or property to General partner may contribute money, property or
the partnership but not services. industry to the partnership.
AS TO ORGANIZATIONAL REQUIREMENTS
A limited partnership must be executed in a certificate of As a rule, general partnership may be constituted in any
limited partnership, duly signed and sworn to by all the form by contract or conduct of the partnership, unless
partners and recorded in the SEC. immovable property is contributed.
AS TO RULES GOVERNING DISSOLUTIONAND WINDING UP

Insanity of general partner automatically dissolves the Insanity of a general partner being a judicial ground for
partnership. dissolution. It will not automatically dissolve the
partnership.

Page 75
AS TO RIGHT TO PARTICIPATE IN THE MANAGEMENT OF PARTNERSHIP

Limited partner has no share in the management of a General partners have an equal right in the management
limited partnership and renders himself liable to of the business.
partnership creditors as a general partner if he takes part
in the control of the business.
AS TO BUSINESS NAME
Generally, the name of a limited partner must not appear Name of a general partner may appear in the firm name.
in the firm name.
AS TO PROPER PARTY TO PROCEEDINGS BY OR AGAINST THE PARTNERSHIP

Limited partner is not a proper party to proceedings by General partner is the proper party to proceedings by or
or against a partnership, unless: against a partnership.
1) He is also a general partner;
2) Where the object of the proceeding is to enforce a
limited partner’s right against the liability to the
partnership.
AS TO PROHIBITION TO ENGAGE IN OTHER BUSINESS

No such prohibition in the case of a limited partner for CAPITALIST -- prohibited from engaging in a
he is considered a mere contributor to the partnership. PARTNER business which is of the same kind of
business in which the partnership is
engaged; or
INDUSTRIAL -- in any business for himself

PARTNER
AS TO EFFECT OF RETIREMENT, DEATH, INSANITY, OR INSOLVENCY

Retirement, death, insanity or insolvency of a limited Retirement, death, insanity or insolvency of a general
partner does not dissolve the partnership for his executor partner dissolves the partnership.
or administrator shall have the rights of a limited partner
for the purpose of selling his estate.
AS TO ASSIGNABILITY OF INTEREST
Freely assignable, with assignee acquiring all the rights Not assignable without the consent of the other partners,
of the limited partner subject to certain qualifications. although he may associate a third person with him in his
share.
AS TO EXTENT OF LIABILITY
Limited partner’s liability extends only to his capital General partner is personally liable for partnership
contribution. obligations after exhaustion of partnership assets.

Page 76

Corpo and Partnership - Mercantile Law

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Corpo and Partnership - Mercantile Law

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CORPO AND PARTNERSHIP– MERCANTILE LAW

CONSTITUTIONAL BASIS OF A PRIVATE CORPORATON OR GOVERNMENT-OWNED OR

THEORY OF CORPORATE ENTERPRISE

PRIMARY FRANCHISE SECONDARY FRANCHISE

ADVANTAGES OF CORPORATE MEDIUMM OF DOING BUSINESS: (SCLF)

By: Caffeinated Wisdom

(G.R. NO. L-67626)

ADVANTAGES OR PURPOSES OF THE REVISED CORPORATION CODE (UPAMI)

GOVERNMENT AS A CORPORATOR OF A CORPORATION

STATE IMMUNITY FROM SUIT

GOVERNMENT – OWNED AND CONTROLLED CORPORATION

CORPORATION PARTNERSHIP SOLE PROPRIETORSHIP

Formalities are required to create a Simpler as it is created by mere One-man team.

Management is centralized with the Partners participate in the One-man team.

By: Caffeinated Wisdom

JOINT VENTURE -- an association of persons or companies jointly undertaking some commercial

GOVERING LAW OF JOINT VENTURE

REPUBLIC ACT No. 11232 REVISED CORPORATION CODE OF THE PHILIPPINES

CORPORATION’S RIGHT OF SUCCESSION

DOCTRINE OF CORPORATE ENTITY (DOCTRINE OF SEPARATE PERSONALITY)

NATURE OF SEPARATE PERSONALITY

INSTANCES WHEN SHAREHOLDERS MAY ANSWER FOR CORPORATE CREDITORS (P – UBAN)

By: Caffeinated Wisdom

INCHOATE RIGHT OF THE OWNERS

CRIMINAL LIABILITY OF CORPORATIONS

LIABILITY FOR CORPORATE TORTS

LIABILITY FOR CORPORATE TORTS IS WITHOUT PREJUDICE TO DERIVATIVE SUIT

DOCTRINE OF CORPORATE NEGLIGENCE

NATURE OF THE CORPORATE LIABILITY

CORPORATION HAS THE RIGHT TO RECOVER MORAL DAMAGES

By: Caffeinated Wisdom

CAVEAT ON THE RIGHT OF THE CORPORATION TO RECOVER MORAL DAMAGES

DOCTRINE OF PIERCING THE CORPORATE VEIL

REVERSE PIERCING PRINCIPLE

TWO TYPES OF REVERSE PIERCING

TRADITIONAL PIERCING REVERSE PIERCING

OBJECT OF THE PIERCING

By: Caffeinated Wisdom

GROUNDS TO PIERCE THE VEIL (FAP)

GROUNDS TO PIERCE NOT PRESUMED

APPLICATION OF PIERCING THE VEIL OF CORPORATE ENTITY

JURISDICTIONAL TWO-FOLD REQUISITES FOR PIERCING

By: Caffeinated Wisdom

SHERIFF CANNOT PIERCE THE VEIL OF CORPORATE FICTION

NATURE OF FRAUD AND BAD FAITH IN PIERCING CASES

ELEMENTS OF FRAUD PIERCING: (FUP)

ELEMENTS OF ALTER-EGO PIERCING (THREE-PRONGED TEST)

PROBATIVE FACTORS TO BE CONSIDERED IN ALTER-EGO CASES: (MIMS)

INDICIA THAT A SUBSIDIARY COMPANY IS MERELY ALTER-EGO OF ITS PARENT

By: Caffeinated Wisdom

LEGITIMATE BUSINESS MAY BE RESPECTED

MERE OWNERSHIP BY A SINGLE STOCKHOLDER OR BY ANOTHER CORPORATION

PIERCING DOES NOT HAVE THE EFFECT OF RES JUDICATA

CORPORATIONS CREATED BY SPECIAL LAWS OR CHARTERS (2011)

CORPORATORS AND INCORPORATORS, STOCKHOLDERS AND MEMBERS

By: Caffeinated Wisdom

INCORPORATORS -- are those stockholders or members mentioned in the articles of incorporation as

SHARES IN STOCK CORPORATIONS

VOTING RIGHTS OF SHARES

NONVOTING SHARES ENTITLED TO VOTE

PAR OR PAR VALUE SHARES

PROVIDED: (BIT – P– BOP)