CORPORATION LAW 3rd EXAM REVIEWER
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SEC. 59. Subscription Contract. – Any contract for the acquisition of
unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a purchase or some
other contract.
SEC. 60. Pre-incorporation Subscription. – A subscription of shares in a
corporation still to be formed shall be irrevocable for a period of at least
six (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.
No pre-incorporation subscription may be revoked after the articles of
incorporation is submitted to the Commission.
SEC. 61. Consideration for Stocks. – Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration for
the issuance of stock may be:
[1] Actual cash paid to the corporation; 
 not in law the equivalent of such ownership. A by-law which prohibits
[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; 
 a corporation?
[5] Amounts transferred from unrestricted retained earnings to stated
capital; 
 corporation that any changes in the stockholding should be reported
[6] Outstanding shares exchanged for stocks in the event of
reclassification or conversion; 
 and transfer Book which is inspected by the SEC.
[7] Shares of stock in another corporation; and/or 

[8] Other generally accepted form of consideration. 
 PRIVACY NOTICE FOR FILERS OF GENERAL INFORMATION
Where the consideration is other than actual cash, or consists of
intangible property such as patents or copyrights:
1. the valuation thereof shall initially be determined by the
stockholders or the board of directors,
2. subject to the approval of the Commission.
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.
The issued price of no-par value shares may be fixed in the articles of
incorporation or by the board of directors pursuant to authority conferred
by the articles of incorporation or the bylaws, or if not so fixed, by the
stockholders representing at least a majority of the outstanding capital
stock at a meeting duly called for the purpose.
SEC. 62. Certificate of Stock and Transfer of Shares.
– The capital
stock of corporations shall be divided into shares for which certificates
shall be issued in accordance with the bylaws provided it is:
1. signed by the president or vice president,
2. countersigned by the secretary or assistant secretary, and
3. sealed with the seal of the corporation
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.
No transfer, however, shall be valid, except as between the parties, until:
1. the transfer is recorded in the books of the corporation
2. showing the names of the parties to the transaction, the date
of the transfer, the number of the certificate or certificates, and
the number of shares transferred.
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.
No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation.
How to validly effect transfer – the following must be given to the Cor
Sec:
1. Certificate authorizing registration issued by BIR
2. Deed of Sale
3. Original copy of the certificate of shares
A CAR must be secured in order to be issued a new certificate of stock
to the transferee of the original stockholder. If the CorSec issues a
Certificate of Stock without CAR and without the evidence of transfer,
he will be guilty of violating the Corporation Code.
Note: When it comes to intra-corporate disputes, the record in the Stock
and Transfer Book really has a bearing.
• TAN V. SEC
Petitioner argues that he was deprived of his shares despite the non-
endorsement or surrender of Stock Certificates 2 and 8 which is contrary
to Section 63.
SC ruled that the cancellation and the transfers of stock were valid. All
the acts required for the transferee to exercise its rights over the
acquired stocks were attendant considering that the said transfer was
earlier recorded or registered in the corporate stock and transfer
book.
A certificate of stock is not necessary to render one a stockholder in a
corporation. The certificate is not stock in the corporation but is
merely evidence of the holder’s interest and status in the
corporation, his ownership of the share represented thereby, but is
a transfer of stock without the consent or approval of all the stockholders
or of the president or board of directors is illegal as constituting undue
limitation on the right of ownership and in restraint of trade.
Q: What is the best evidence to know the current stockholdings of
A: GENERAL INFORMATION SHEET. It is the responsibility of the
within 30 days of any change of stockholdings. It is the GIS not the Stock
SHEET:
SEC collects from incorporators, stockholders, directors, trustees,
officers, beneficial owners, external auditor, notary public, personal
information such as but not limited to full name, signature, nationality,
sex, address, accreditation number, roll of attorney number and
taxpayer information number.
• TENG V. SEC
To compel Ting Ping to deliver to the corporation the certificates as a
condition for the registration of the transfer would amount to a restriction
on the right of Ting Ping to have the stocks transferred to his name,
which is not sanctioned by law.
In a sale of shares of stock, physical delivery of a stock certificate is one
of the essential requisites for the transfer of ownership of the stocks
purchased." The delivery contemplated in Section 63, however, pertains
to the delivery of the certificate of shares by the transferor to the
transferee, that is, from the original stockholder named in the certificate
to the person or entity the stockholder was transferring the shares to,
whether by sale or some other valid form of absolute conveyance of
ownership.
Nevertheless, to be valid against third parties and the corporation, the
transfer must be recorded or registered in the books of corporation.
Upon registration of the transfer in the books of the corporation, the
transferee may now then exercise all the rights of a stockholder, which
include the right to have stocks transferred to his name.
• INSIGNE V. ABRA VALLEY COLLEGES
Transfer of shares of stock not recorded in the stock and transfer book
of the corporation is non-existent as far as the corporation is concerned.
It is only when the transfer has been recorded in the stock and transfer
book that a corporation may rightfully regard the transferee as one of its
stockholders.
However, the STB is not the exclusive evidence of the matters and
things that ordinarily are or should be written therein, for parol evidence
may be admitted to supply omissions from the records, or to explain
ambiguities.
• BITONG V. CA
For a valid transfer of stocks, the requirements are as follows:
a. There must be delivery of the stock certificate; 

b. The certificate must be endorsed by the owner or his attorney-
in-fact or other persons legally authorized to make the
transfer; and, 

c. To be valid against third parties, the transfer must be recorded
in the books of the corporation. 

PRINCIPLE OF INDIVISIBILITY
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A subscription agreement is indivisible because that is an agreement
between the corporation and the original subscriber. Now, it can only be
transferred if it is already DELINQUENT. 
 the balance due on the former‘s subscription, plus accrued
SEC Opinion No. 5- 16:
A subscription is one, entire and indivisible contract. It cannot be divided
into portions so that the stockholder shall not be entitled to a certificate
of stock until he has remitted the full payment of his subscription together
with the interest and expenses if any is due.
The purpose of the prohibition is to prevent the partial disposition of a
subscription which is not fully paid, because if it is permitted, and the
subscriber subsequently becomes delinquent in the payment of his
subscription, the corporation may not be able to sell as many as his
subscribed shares as would be necessary to cover the total amount due
from him
SEC. 63. Issuance of Stock Certificates. – No certificate of stock shall
be issued to a subscriber until the full amount of the subscription
together with interest and expenses (in case of delinquent shares), if any
is due, has been paid.
SEC. 64. Liability of Directors for Watered Stocks. – A director or
officer of a corporation who:
[a] consents to the issuance of stocks for a consideration less than its
par or issued value; 
 be vested in the corporation as treasury shares and may be
[b] consents to the issuance of stocks for a consideration other than
cash, valued in excess of its fair value; or 

[c] having knowledge of the insufficient consideration, does not file a
written objection with the corporate secretary, 
 delinquent stock sold can be sustained upon the ground of:
shall be liable to the corporation or its creditors, solidarily with the
stockholder concerned for the difference between the value received at
the time of issuance of the stock and the par or issued value of the same.
SEC. 65. Interest on Unpaid Subscriptions.
GR: Subscribers to stocks 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.
EXP: If no rate of interest is fixed in the subscription contract, the
prevailing legal rate shall apply.
SEC. 66. Payment of Balance of Subscription. – Subject to the
provisions of the subscription contract, the board of directors may, at
any time:
1. declare due and payable to the corporation unpaid
subscriptions and
2. 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:
1. on the date specified in the subscription contract or
2. on the date stated in the call made by the board.
Failure to pay on such date shall:
1. render the entire balance due and payable and
2. 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.
The interest shall be computed from the date specified, until full payment
of the subscription. If no payment is made within thirty (30) days from
the said date, 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.
SEC. 67. Delinquency Sale. – The board of directors may by
resolution:
1. order the sale of delinquent stock and
2. specifically state the amount due on each subscription plus all
accrued interest, and
3. the date, time and place of the sale which shall not be less
than thirty (30) days nor more than sixty (60) days from the
date the stocks become delinquent.
Notice of the sale, with a copy of the resolution, shall be sent to every
delinquent stockholder either personally, by registered mail, or through
other means provided in the bylaws. The same shall be published
once a week for two (2) consecutive weeks in a newspaper of general
circulation in the province or city where the principal office of the
corporation is located.
Delinquent stock shall be sold at a public auction unless:
1. the delinquent stockholder pays to the corporation, on or
before the date specified for the sale of the delinquent stock,
interest, costs of advertisement and expenses of sale, or
2. unless the board of directors otherwise orders
To whom shall it be awarded?
To such bidder who shall offer to pay the full amount of the balance
on the subscription together with accrued interest, costs of
advertisement and expenses of sale, for the smallest number of
shares or fraction of a share.
Effect of award:
1. The stock so purchased shall be transferred to such
purchaser in the books of the corporation and a certificate for
such stock shall be issued in the purchaser‘s favor.
2. The remaining shares, if any, shall be credited in favor of
the delinquent stockholder who shall likewise be entitled to
the issuance of a certificate of stock covering such shares.
Should there be no bidder at the public auction:
1. The corporation may, subject to the provisions of this
Code, bid for the same, and the total amount due shall be
credited as fully paid in the books of the corporation.
2. Title to all the shares of stock covered by the subscription shall
disposed of by said corporation in accordance with the
provisions of this Code.
SEC. 68. When Sale may be Questioned. – No action to recover
1. irregularity or defect in the notice of sale, or
2. in the sale itself of the delinquent stock,
Unless the party seeking to maintain such action first pays or tenders to
the party holding the stock the sum for which the same was sold, with
interest from the date of sale at the legal rate. No such action shall be
maintained unless a complaint is filed within six (6) months from
the date of sale.
SEC. 69. Court Action to Recover Unpaid Subscription. – Nothing in
this Code shall prevent the corporation from collecting through court
action, the amount due on any unpaid subscription, with accrued
interest, costs and expenses.
SEC. 70. Effect of Delinquency. – No delinquent stock shall be voted
for, be entitled to vote, or be represented at any stockholder‘s meeting,
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
subscription with accrued interest, and the costs and expenses of
advertisement, if any.
Is legal compensation possible between delinquent/unpaid stocks and
dividends?
Delinquent – yes since both debts are due and demandable
Unpaid- Generally, no. Unless, an unpaid is called and becomes
delinquent because it is still unpaid for 30 days. It now becomes due and
demandable, then you can offset.
Sec. 73. Lost or destroyed certificates. - The following procedure shall
be followed for the issuance by a corporation of new certificates of stock
in lieu of those which have been lost, stolen or destroyed:
[1] The registered owner of a certificate of stock in a corporation or his
legal representative shall file with the corporation an affidavit in
triplicate setting forth, if possible, the circumstances as to how the
certificate was lost, stolen or destroyed, the number of shares
represented by such certificate, the serial number of the certificate and
the name of the corporation which issued the same. He shall also submit
such other information and evidence which he may deem necessary; 

[2] After verifying the affidavit and other information and evidence with
the books of the corporation, said corporation shall publish a notice in
a newspaper of general circulation published in the place where
the corporation has its principal office, once a week for three (3)
consecutive weeks at the expense of the registered owner of the
certificate of stock which has been lost, stolen or destroyed.
The notice shall state the name of said corporation, the name of the
registered owner and the serial number of said certificate, and the
number of shares represented by such certificate.
After the expiration of one (1) year from the date of the last
publication, if no contest has been presented to said corporation
regarding said certificate of stock,
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1. the right to make such contest shall be barred and
2. said corporation shall cancel in its books the certificate
of stock which has been lost, stolen or destroyed and
issue in lieu thereof new certificate of stock,
A new certificate may be issued even before the expiration of the one
(1) year period
1. When the registered owner files a bond or other security in
lieu thereof as may be required,
2. effective for a period of one (1) year, for such amount and in
such form and with such sureties as may be satisfactory to the
board of directors
Issuance of the new certificate of stock in lieu thereof shall be
suspended until the final decision by the court regarding the ownership
of said certificate of stock:
1. If a contest has been presented to said corporation or
2. if an action is pending in court regarding the ownership of said
certificate of stock which has been lost, stolen or destroyed,
GR: no action may be brought against any corporation which shall have
issued certificate of stock in lieu of those lost, stolen or destroyed
pursuant to the procedure above-described.
EXP: in case of fraud, bad faith, or negligence on the part of the
corporation and its officers,
SECURITIES REGULATION CODE
SEC. 43. Uncertificated Securities. - Notwithstanding Section 63 of the
Corporation Code of the Philippines:
43.1. A corporation whose securities are registered pursuant to this
Code or listed on a securities Exchange may:
[a] If so resolved by its Board of Directors and agreed by a
shareholder, investor or securities intermediary, issue shares to, or
record the transfer of some or all of its shares into the name of said
shareholders, investors or, securities intermediary in the form of
uncertificated securities. The use of uncertificated securities in these
circumstances shall be without prejudice to the rights of the securities
intermediary subsequently to require the corporation to issue a
certificate in respect of any shares recorded in its name; and
[b] If so provided in its articles of incorporation and by-laws, issue
all of the shares of a particular class in the form of uncertificated
securities and subject to a condition that investors may not require the
corporation to issue a certificate in respect of any shares recorded in
their name.
43.3. Transfers of securities, including an uncertificated securities,
may be validly made and consummated by appropriate book-entries
in the securities accounts maintained by securities intermediaries,
or in the stock and transfer book held by the corporation or the stock
transfer agent and such bookkeeping entries shall be binding on the
parties to the transfer. A transfer under this subsection has the effect of
the delivery of a security in bearer form or duly indorsed in blank
representing the quantity or amount of security or right transferred,
including the unrestricted negotiability of that security by reason of such
delivery. However, transfer of uncertificated shares shall only be
valid, so far as the corporation is concerned, when a transfer is
recorded in the books of the corporation so as to show the names of
the parties to the transfer and the number of shares transferred.
Section 74. Books to be kept; stock transfer agent. – Every
corporation shall keep and carefully preserve at its principal office all
information relative to the corporation including, but not limited to:
[a] the articles of incorporation and by-laws 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 1 trustees and of the executive officers, 

[d] a record of all business transactions, 
 reasonable hours on business days.
[e] a record of the resolutions of the board of directors or trustees and of
the stockholders or members, 
 No stock transfer agent or one engaged principally in the business of
[f] copies of the latest reportorial requirements submitted to the
commission, and 
 allowed to operate in the Philippines unless he secures a license from
[g] the minutes of all meetings of stockholders or members, or of the
board of directors or trustees, such minutes in which shall be set forth in
detail, among others: the time and place of holding the meeting, how
authorized, the notice given, the agenda therefor, whether the meeting
was regular or special, if special its object, those present and absent,
the voting and vote tabulation procedures used and the results of
all voting done, the opportunity given to stockholders or members
to ask questions, as well as a record of the questions they asked
and the answers received, and every act done or ordered done at the
meeting. Upon the demand of any 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 any
director, trustee, stockholder or member on any action or proposed
action must be recorded in full on his demand.
The forgoing records shall be:
1. retained for such periods as the commission may prescribe by
rule and, regardless of the form in which they are stored,
2. shall be open to inspection by any director, trustee,
stockholder or member of the corporation, in person or by
counsel or other representative possessing and exhibiting due
authority, at reasonable hours on business days and he may
demand, in writing, for a copies of such records or excerpts
from said records , at his expense.
The inspecting or reproducing party under this section shall remain
bound by confidentiality under prevailing laws. If a request for
inspection and/or reproduction is denied:
1. the aggrieved party may report the denial to the commission.
2. Within five (5) days from receipt of such report, the
commission shall conduct a summary investigation and issue
an order:
a. either directing the inspection/reproduction
requested or
b. finding that the requesting party, not being a
stockholder or member of record, is not entitled to
the right.
Any officer or agent of the corporation who shall refuse to allow, THE
INSPECTION AND/OR REPRODUCTION OF RECORDS:
1. Shall be liable to such director, trustee, stockholder or
member for damages, and in addition,
2. shall be guilty of an offense which shall be punishable under
Section 144 of this Code:
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.
THE DIRECTOR, TRUSTEE, STOCKHOLDER OR MEMBER WHOSE
RIGHT TO INSPECTION AND/OR REPRODUCTION OF RECORDS
WAS DENIED:
1. May file, before a court of competent jurisdiction, an action to
compel inspection of corporate records
2. Showing that, despite the lapse of five (5) days from receipt
of his written request or demand and despite having been
ordered by the commission to do so, the corporation, or an
officer or agent thereof, refused to allow the inspection and/or
reproduction or failed to reply to the written request or demand
or the order of the commission.
3. The court may, after summary proceedings, order the
corporation to permit the inspection and/or reproduction or
issue any such other or further relief as it may deem just and
proper.
Stock corporations must also keep a book to be known as the stock and
transfer bookǁ, in which must be kept a record:
1. of all stocks in the names of the stockholders alphabetically
arranged;
2. the installments paid and unpaid on all stock 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, and by and to whom made; and such other
entries as the by-laws may prescribe.
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
registering transfers of stocks in behalf of a stock corporation shall be
the Securities and Exchange Commission and pays a fee as may be
fixed by the Commission, which shall be renewable annually: Provided,
That a stock corporation is not precluded from performing or making
transfer 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.; PROVIDED, FURTHER, THAT
THE COMMISSION MAY (not compulsory) REQUIRE AN
INDEPENDENT TRANSFER AGENT IN THE CASE OF STOCK
CORPORATIONS WHICH TRANSFER AND/OR TRADE STOCKS IN
SECONDARY MARKETS.
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Section 75. Right to financial statements. Within ten (10) days from
receipt of a written request of any stockholder or member, the
corporation shall furnish to him its most recent financial statement, IN
THE FORM AND SUBSTANCE OF THE FINANCIAL REPORTING
REQUIRED BY THE COMMISSION.
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 p500,000.00 or such higher amount as may be later set
by the commission, the financial statements may be certified under
oath by the corporation‘s internal auditor, and shall be
accompanied by the further certification by the corporation‘s
officers as required under section 180 of this code.
PRE-EMPTIVE RIGHT
[1] A preemptive right is a privilege that may be extended to certain
shareholders of a corporation that grants them the right to purchase
additional shares in the company prior to shares being made available
for purchase by the general public in the event of a seasoned offering,
which is a secondary issuing of stock shares. 
 "and/or" capacity by the holders thereof, any one of the joint owners can
[2] A preemptive right, also referred to as preemption rights, anti-dilution
provisions, or subscription rights, is written into the contract between the
stock purchaser and the company, although a few states grant
preemptive rights as a matter of law unless specifically negated in a
company's articles of incorporation. 
 •
[3] A preemptive right does not, however, function like a put option that
gives a shareholder the right to sell back their stock at a specified price.


All stockholders have pre-emptive rights, unless there is a specific denial
of this right in the articles of incorporation or an amendment thereto.
They shall have the right to subscribe to the capital stock of the
corporation. The Articles of Incorporation may lay down the specific
rights and powers of shareholders with respect to the particular shares
they hold, all of which are protected by law so long as they are not in
conflict with the Corporation Code.
The preemptive right grants the shareholder an opportunity, but does
not confer an obligation, to buy an amount of shares prior to a seasoned
offering that is proportionate to his existing equity ownership
percentage.
• MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION VS LIM
Pre-emptive right under Sec. 39 of the Corporation Code 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. The right may be restricted or denied under the articles
of incorporation, and subject to certain exceptions and limitations. 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.
Even if the pre-emptive right does not exist, 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
outǁ the minority interest.
• DATU TAGORANAO BENITO, PETITIONER, VS. SEC
Petitioner bewails the fact that in view of the lack of notice to him of such
subsequent issuance, he was not able to exercise his right of pre-
emption over the unissued shares. However, the general rule is that
pre- emptive right is recognized only with respect to new issue of
shares, and not with respect to additional issues of originally
authorized shares.
RIGHT OF FIRST REFUSAL
It provides non-selling shareholders with the right to accept or refuse an
offer by a selling shareholder after the selling shareholder has solicited
an offer for their shares from a third-party buyer.
The non-selling shareholders receive the selling shareholder‘s offer on
the same terms as presented by the third-party buyer. This right allows
non-selling shareholders to control the process of adding a new
shareholder, while preserving liquidity for the selling shareholder.
RIGHT TO VOTE
• Cojuangco vs Roxas
The PCGG cannot perform acts of strict ownership of sequestered
property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The only
conceivable exception is in a case of a takeover of a business belonging
to the government or whose capitalization comes from public funds, but
which landed in private hands.
Sec. 55. Right to vote of pledgors, mortgagors, and administrators.
- In case of pledged or mortgaged shares in stock corporations, the
pledgor or mortgagor shall have the right to attend and vote at
meetings of stockholders, unless the pledgee or mortgagee is
expressly given by the pledgor or mortgagor such right in writing
which is recorded on the appropriate corporate books. (n)
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and vote in
behalf of the stockholders or members without need of any written
proxy.
Sec. 56. Voting in case of joint ownership of stock. - In case of
shares of stock owned jointly by two or more persons, in order to vote
the same, the consent of all the co-owners shall be necessary,
unless there is a written proxy, signed by all the co-owners,
authorizing one or some of them or any other person to vote such
share or shares: Provided, That when the shares are owned in an
vote said shares or appoint a proxy therefor.
DERIVATIVE SUIT
CHUA VS CA
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.
For a derivative suit to prosper, it is required that the minority stockholder
suing for and on behalf of the corporation must allege in his complaint
that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish
to join him in the suit.It is a condition sine qua non that the corporation
be impleaded as a party because not only is the corporation an
indispensable party, but it is also the present rule that it must be served
with process.
• REYES VS. RTC
Requisites of derivative suit:
1. the party bringing suit should be a shareholder during the time
of the act or transaction complained of, the number of shares
not being material;
2. the party has tried to exhaust intra-corporate remedies, i.e.,
has made a demand on the board of directors for the
appropriate relief, but the latter has failed or refused to heed
his plea; and 

3. the cause of action actually devolves on the corporation; the
wrongdoing or harm having been or being caused to the
corporation and not to the particular stockholder bringing the
suit
MERGERS AND ACQUISITIONS
[a] Acquisition refers to the purchase of securities or assets, through
contract or other means, for the purpose of obtaining control by:
[1] One (1) entity of the whole or part of another;
[2] Two (2) or more entities over another; or
[3] One (1) or more entities over one (1) or more entities;
[j] Merger refers to the joining of two (2) or more entities into an existing
entity or to form a new entity;
• BANK OF COMMERCE VS. RADIO PHILIPPINES
NETWORK, INC.,
Merger is a re-organization of two or more corporations that results in
their consolidating into a single corporation, which is one of the
constituent corporations, one disappearing or dissolving and the other
surviving.
The Corporation Code requires the following steps for merger or
consolidation:
[1] The board of each corporation draws up a plan of merger or
consolidation. Such plan must include any amendment, if necessary, to
the articles of incorporation of the surviving corporation, or in case of
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consolidation, all the statements required in the articles of incorporation
of a corporation.
[2] Submission of plan to stockholders or members of each corporation
for approval. A meeting must be called and at least two (2) weeks notice
must be sent to all stockholders or members, personally or by registered
mail. A summary of the plan must be attached to the notice. Vote of two-
thirds of the members or of stockholders representing two thirds of the
outstanding capital stock will be needed. Appraisal rights, when proper,
must be respected.
[3] Execution of the formal agreement, referred to as the articles of
merger o[r] consolidation, by the corporate officers of each constituent
corporation. These take the place of the articles of incorporation of the
consolidated corporation or amend the articles of incorporation of the
surviving corporation.
[4] Submission of said articles of merger or consolidation to the SEC for
approval.
[5] If necessary, the SEC shall set a hearing, notifying all corporations
concerned at least two weeks before.
[6] Issuance of certificate of merger or consolidation.
A 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
Section 77. Stockholder’s or member’s approval. The constituent
corporations of the plan of merger or consolidation:
1. Upon approval by majority vote of each of the board of
directors or trustees
2. 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 stockholders representing at least two-
thirds (2/3) of the outstanding capital stock of each
corporation in the case of stock corporations or at least two-
thirds (2/3) of the members in the case of non-stock
corporations shall be necessary for the approval of such plan.
Notice of such meetings shall be given to all stockholders or members
of the respective corporations IN THE SAME MANNER AS NOTICE OF
REGULAR OR SPECIAL MEETINGS UNDER SECTION 51. Said
notice shall state, IN ADDITION TO THE REQUIREMENTS FOR
NOTICE OF REGULAR OR SPECIAL MEETINGS UNDER SECTION
51, the purpose of the meeting and shall include a copy or a summary
of the plan of merger or consolidation.
Any dissenting stockholder in stock corporations may exercise his
appraisal right in accordance with the Code: Provided, that if after the
approval by the stockholders of such plan, the board of directors decides
to abandon the plan, the appraisal right shall be extinguished.
Section 78. Articles of merger or consolidation. – After the approval
by the stockholders or members as required by the preceding section,
articles of merger or articles of consolidation shall be executed by each
of the constituent corporations, to be signed by the president or vice-
president and certified by the secretary or assistant secretary of each
corporation setting forth:
[1] The plan of the merger or the plan of consolidation; 

[2] As to stock corporations, the number of shares outstanding, or
in the case of non-stock corporations, the number of members; and
[3] As to each corporation, the number of shares or members voting
for and against such plan, respectively. 
 restricting or lessening competition shall also be prohibited.
[4] the carrying amounts and fair values of the assets and liabilities
of the respective companies as of cut-off date agreed by the
parties; 

[5] the method that will be used in the merger or consolidation of
accounts of the companies; 

[6] the provisional or pro-forma values, as merged or consolidated,
using the accounting method; and 
 1. An entity that controls, is controlled by, or is under common
[7] such other information as may be prescribed by the
commission. 
 2. have common economic interests, and are not otherwise able
Section 79. Effectivity of merger or consolidation. – The articles of
merger or of consolidation signed and certified as herein above required,
shall be submitted to the Commission in quadruplicate for its approval:
In the case of merger or consolidation of banks or banking institutions,
building and loan associations, trust companies, insurance companies,
public utilities, educational institutions and other special corporations
governed by special laws, the favorable recommendation of the
appropriate government agency shall first be obtained. ; PROVIDED,
FURTHER, THAT THE SUBMISSION OF ARTICLES OF MERGER OR
CONSOLIDATION, IN THE FORM OF AN ELECTRONIC DOCUMENT,
SHALL BE IN ACCORDANCE WITH THE RULES AND REGULATIONS
OF THE COMMISSION ON THE USE OF ELECTRONIC DATA
MESSAGES.
If the Commission is satisfied that the merger or consolidation of the
corporations concerned is:
1. not inconsistent with the provisions of this Code and existing
laws, it shall issue a certificate of merger or of consolidation,
2. at which time the merger or consolidation shall be effective.
If, upon investigation, the Commission has reason to believe that the
proposed merger or consolidation is contrary to or inconsistent with the
provisions of this Code or existing laws:
1. it shall set a hearing to give the corporations concerned the
opportunity to be heard.
2. Written notice of the date, time and place of hearing shall be
given to each constituent corporation at least two (2) weeks
before said hearing.
3. The Commission shall thereafter proceed as provided in this
Code.
PHILIPPINE COMPETITION ACT
Section 3. Scope and Application. — This Act shall be enforceable:
1. against any person or entity engaged in any trade, industry
and commerce in the Republic of the Philippines
2. to international trade having direct, substantial, and
reasonably foreseeable effects in trade, industry, or
commerce in the Republic of the Philippines, including those
that result from acts done outside the Republic of the
Philippines.
This Act shall not apply to the:
1. combinations or activities of workers or employees
2. agreements or arrangements with their employers when such
combinations, activities, agreements,
3. arrangements are designed solely to facilitate collective
bargaining in respect of conditions of employment.
Section 14. Anti-Competitive Agreements. –
[a] The following agreements, between or among competitors, are per
se prohibited:
[1] Restricting competition as to price, or components thereof, or
other terms of trade; 

[2] Fixing price at an auction or in any form of bidding including cover
bidding, bid suppression, bid rotation and market allocation and
other analogous practices of bid manipulation; 

[b] The following agreements, between or among competitors which
have the object or effect of substantially preventing, restricting or
lessening competition shall be prohibited: 

[1] Setting, Kmiting, or controlling production, markets, technical
development, or investment; 

2] Dividing or sharing the market, whether by volume of sales or
purchases, territory, type of goods or services, buyers or sellers or
any other means;
[c] Agreements other than those specified in (a) and (b) of this section:
i. which have the object or effect of substantially preventing,
Note: the ff may not necessarily be deemed a violation:
i. those which contribute to improving the production or
distribution of goods and services or
ii. to promoting technical or economic progress, while
allowing consumers a fair share of the resulting benefits,
The ff shall not be considered competitors:
control with another entity or entities,
to decide or act independently of each other
Section 15. Abuse of Dominant Position. – It shall be prohibited for one
or more entities to abuse their dominant position by engaging in conduct
that would substantially prevent, restrict or lessen competition:
[a] Selling goods or services below cost with the object of driving
competition out of the relevant market: Provided, That in the
Commission‘s evaluation of this fact, it shall consider whether the entity
or entities have no such object and the price established was in good
faith to meet or compete with the lower price of a competitor in the same
market selling the same or comparable product or service of like quality;
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[b] Imposing barriers to entry or committing acts that prevent competitors
from growing within the market in an anti-competitive manner except
those that develop in the market as a result of or arising from a superior
product or process, business acumen, or legal rights or laws;
[c] Making a transaction subject to acceptance by the other parties of
other obligations which, by their nature or according to commercial
usage, have no connection with the transaction;
[d] Setting prices or other terms or conditions that discriminate
unreasonably between customers or sellers of the same goods or
services, where such customers or sellers are contemporaneously
trading on similar terms and conditions, where the effect may be to
lessen competition substantially: Provided, That the following shall be
considered permissible price differentials:
[1] Socialized pricing for the less fortunate sector of the economy;
[2] Price differential which reasonably or approximately reflect
differences in the cost of manufacture, sale, or delivery resulting
from differing methods, technical conditions, or quantities in which
the goods or services are sold or delivered to the buyers or sellers;
[3] Price differential or terms of sale offered in response to the
competitive price of payments, services or changes in the facilities
furnished by a competitor; and
[4] Price changes in response to changing market conditions,
marketability of goods or services, or volume;
[e] Imposing restrictions on the lease or contract for sale or trade of
goods or services concerning where, to whom, or in what forms goods
or services may be sold or traded, such as fixing prices, giving
preferential discounts or rebate upon such price, or imposing conditions
not to deal with competing entities, where the object or effect of the
restrictions is to prevent, restrict or lessen competition substantially:
Provided, That nothing contained in this Act shall prohibit or render
unlawful:
[1] Permissible franchising, licensing, exclusive merchandising or
exclusive distributorship agreements such as those which give
each party the right to unilaterally terminate the agreement; or
[2] Agreements protecting intellectual property rights, confidential
information, or trade secrets;
[f] Making supply of particular goods or services dependent upon the
purchase of other goods or services from the supplier which have no
direct connection with the main goods or services to be supplied;
[g] Directly or indirectly imposing unfairly low purchase prices for the
goods or services of, among others, marginalized agricultural producers,
fisherfolk, micro-, small-, medium- scale enterprises, and other
marginalized service providers and producers;
[h] Directly or indirectly imposing unfair purchase or selling price on their
competitors, customers, suppliers or consumers, provided that prices
that develop in the market as a result of or due to a superior product or
process, business acumen or legal rights or laws shall not be considered
unfair prices; and
[i] Limiting production, markets or technical development to the prejudice
of consumers, provided that limitations that develop in the market as a
result of or due to a superior product or process, business acumen or
legal rights or laws shall not be a violation of this Act:
Provided, That nothing in this Act shall be construed or interpreted as a
prohibition on having a dominant position in a relevant market or on
acquiring, maintaining and increasing market share through legitimate
means that do not substantially prevent, restrict or lessen competition:
The ff may not necessarily be considered an abuse of dominant position:
1. any conduct which contributes to improving production or
distribution of goods or services within the relevant market, or
2. promoting technical and economic progress while allowing
consumers a fair share of the resulting benefit
Provided, finally, That the foregoing shall not constrain the Commission
or the relevant regulator from pursuing measures that would promote
fair competition or more competition as provided in this Act.
IMPLEMENTING RULES AND REGULATION OF RA 10667
Section 1. Review of mergers and acquisitions.- The Commission, motu
proprio or upon notification as provided under these Rules, shall have
the power to review mergers and acquisitions having a direct substantial
and reasonably foreseeable effect on trade, industry, or commerce in
the Philippines.
SECTION 2. Notifying entities.
[a] Parties to a merger or acquisition that satisfy the thresholds in
Section 3 of this Rule are required to notify the Commission before
the execution of the definitive agreements relating to the
transaction. 

[b] If notice to the Commission is required for a merger or
acquisition, then all acquiring and acquired pre-acquisition ultimate
parent entities or any entity authorized by the ultimate parent entity
to file notification on its behalf must each submit a Notification Form
and comply with the procedure set forth in Section 5 
of this Rule.
The parties shall not consummate the transaction before the
expiration of the relevant periods provided in this Rule.
[c] In the formation of a joint venture (other than in connection with
a merger or consolidation), the contributing entities shall be
deemed acquiring entities, and the joint venture shall be deemed
the acquired entity.
Basis to say that an entity is required to notify the PCC:
1. Size of the party test
2. Size of the transaction test
Base in determining the threshold: Gross revenues or assets.
Deductions: Except for sales discounts, sales returns and allowances,
and value added tax or percentage tax; no other deduction shall be
made against gross revenues from sales.
Guidelines on The Computation Of Merger Notification Thresholds
A. Gross revenues from sales in, into or from the Philippines-

2.5 Thus, in most cases, gross revenues from sales are considered in,
into or from the Philippines if:
[a] Sales in the Philippines – gross revenues from sales in the
Philippines are those revenues from sales by a seller located in the
Philippines to a purchaser located in the Philippines. 

[b] Sales into the Philippines – gross revenues from sales into the
Philippines are those revenues generated by a seller located
outside the Philippines from a purchaser located in the Philippines
(e.g., import). 

[c] Sales from the Philippines – gross revenues from sales from
the Philippines are those revenues generated by a seller located in
the Philippines from a purchaser not located in the Philippines (e.g.,
export). 

SIZE OF THE PARTY TEST:
SECTION 3. Thresholds for compulsory notification.- Parties to a
merger or acquisition are required to provide notification when:
[a] The aggregate annual gross revenues in, into or from the
Philippines, or value of the assets in the Philippines of the ultimate
parent entity of at least one of the acquiring or acquired entities,
including that of all entities that the ultimate parent entity controls,
directly or indirectly, exceeds One Billion Pesos
(PhP1,000,000,000.00).
SIZE OF THE TRANSACTION TEST:
The value of the transaction exceeds One Billion Pesos
(PhP1,000,000,000.00), as determined in subsections (1), (2), (3) or (4),
as the case may be
1. With respect to a proposed merger or acquisition of assets in
the Philippines if either:
a. the aggregate value of the assets in the Philippines
being acquired in the proposed transaction exceeds
One Billion Pesos (PhP1,000,000,000.00); or 

b. the gross revenues generated in the Philippines by
assets acquired in the Philippines exceed One
Billion Pesos (PhP1,000,000,000.00) 

2. With respect to a proposed merger or acquisition of assets
outside the Philippines, if
a. the aggregate value of the assets in the Philippines
of the acquiring entity exceeds One Billion Pesos
(PhP1,000,000,000.00); and 

b. the gross revenues generated in or into the
Philippines by those assets 
acquired outside the
Philippines exceed One Billion Pesos
(PhP1,000,000,000.00).
3. With respect to a proposed merger or acquisition of assets inside
and outside the Philippines, if
a. the aggregate value of the assets in the Philippines
of the acquiring entity exceeds One Billion Pesos
(PhP1,000,000,000.00); and 

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b. the aggregate gross revenues generated in or into
the Philippines by assets acquired in the Philippines
and any assets acquired outside the Philippines
collectively exceed One Billion Pesos
(PhP1,000,000,000.00). 

4. With respect to a proposed acquisition of (i) voting shares of a
corporation or of (ii) an interest in a non-corporate entity
a. If the aggregate value of the assets in the
Philippines that are owned by the corporation or
non-corporate entity or by entities it controls, other
than assets that are shares of any of those
corporations, exceed One Billion Pesos
(PhP1,000,000,000.00); or 
 Is internal restructuring considered under the compulsory
b. The gross revenues from sales in, into, or from the
Philippines of the corporation or non-corporate
entity or by entities it controls, other than assets that
are shares of any of those corporations, exceed
One Billion Pesos (PhP1,000,000,000.00); and
c. If as a result of the proposed acquisition of the
voting shares of a corporation, the entity or entities
acquiring the shares, together with their affiliates,
would own voting shares of the corporation that, in
the aggregate, carry more than the following
percentages of the votes attached to all the
corporation’s outstanding voting shares:
i. Thirty-five percent (35%), or
ii. Fifty percent (50%), if the entity or entities
already own more than the percentage
set out in subsection I above, as the case
may be, before the proposed acquisition;
or
d. as a result of the proposed acquisition of an interest
in a non-corporate entity, the entity or entities
acquiring the interest, together with their affiliates,
would hold an aggregate interest in the non-
corporate entity that entitles the entity or entities to
receive more than the following percentages of the
profits of the noncorporate entity or assets of that
non-corporate entity on its dissolution:
i. Thirty-five percent (35%), or
ii. Fifty percent (50%), if the entity or entities
acquiring the interest are already entitled to
receive more than the percentage set out in
subsection I immediately above before the
proposed acquisition.
e. Where an entity has already exceeded the 35%
threshold for an acquisition of voting shares, or the
35% threshold for an acquisition of an interest in a
non-corporate entity, another notification will be
required if the same entity will exceed 50%
threshold after making a further acquisition of either
voting shares or an interest in a non-corporate
entity.
5. In a notifiable joint venture transaction:
an acquiring entity shall be subject to the notification requirements if
either
(i) the aggregate value of the assets that will be combined in the
Philippines or contributed into the proposed joint venture exceeds
One Billion Pesos (PhP1,000,000,000.00) or
(ii) the gross revenues generated in the Philippines by assets to
be combined in the Philippines or contributed into the proposed
joint venture exceed One Billion Pesos (PhP1,000,000,000.00).
In determining the assets of the joint venture, the following shall be
included:
1. 1) All assets which any entity contributing to the
formation of the joint venture has agreed to transfer,
or for which agreements have been secured for the
joint venture to obtain at any time, whether or not
such entity is subject to the requirements of the act;
and
2. 2) Any amount of credit or any obligations of the
joint venture which any entity contributing to the
formation has agreed to extend or guarantee, at
any time.
6. A merger or acquisition consisting of:
i. successive transactions, or
ii. acquisition of parts of one or more entities,
iii. which shall take place within a one-year period
iv. between the same parties, or any entity they control or are
controlled by or are under common control with another entity
or entities,
v. shall be treated as one transaction.
If a binding preliminary agreement provides for such successive
transactions or acquisition of parts, the entities shall provide notification
on the basis of such preliminary agreement. If there is no binding
preliminary agreement, notification shall be made when the parties
execute the agreement relating to the last transaction which, when taken
together with the preceding transactions, satisfies the thresholds under
this Section.
notification?
Internal restructuring. -
[a] An internal restructuring within a group of companies is
exempt from notification if the acquiring and acquired
entities have the same ultimate parent entity (UPE).
[b] Notwithstanding the foregoing, mergers or acquisitions
are not considered purely internal and, therefore, do not
qualify for the exemption, if the restructuring leads to a
change in control.
The foregoing shall not prevent the Commission from commencing a
motu proprio review of mergers and acquisitions under the IRR.
PRE NOTIFICATION CONSULTATION
(a) Prior to filing a notification pursuant to this Rule, parties to a
proposed merger or acquisition that are required to notify may inform the
Commission of their proposed merger or acquisition and request a pre-
notification consultation with the staff of the Commission.
To request a meeting, the parties must provide the following information
in writing:
1. the names and business contact information of the
entities concerned;
2. the type of transaction; and
3. the markets covered or lines of businesses by the
proposed merger or acquisition.
(b) During such pre-notification consultations, the parties may seek
non- binding advice on the specific information that is required to be in
the notification.
PROCEDURE FOR NOTIFICATION AND REVIEW
(g) The waiting period under this Section shall commence only upon the
Commission’s determination that the notification has been completed in
accordance with applicable rules and guidelines.
In no case shall the total period for review by the Commission of the
subject agreement exceed ninety (90) days from the time the initial
notification by the parties is deemed complete as provided under
paragraph (f) of this Section
Should the parties fail to provide the requested information within fifteen
(15) days from receipt of the said request - the notification shall be
deemed expired and the parties must refile their notification.
CONFIDENTIALITY RULE
SECTION 13. Treatment of confidential information.
(a) Information, including documents, shall not be communicated or
made accessible by the Commission, insofar as it contains trade secrets
or other confidential information, the disclosure of which is not
considered necessary by the Commission for the purpose of the review.
(b) Any entity or party that supplies information, including documents,
to the Commission, shall clearly identify any material that it considers to
be confidential, provide a justification for the request of confidential
treatment of the information supplied and the time period within which
confidentiality is requested, and provide a separate non-confidential
version by the date set by the Commission.
Exemptions from prohibited mergers and acquisitions.
Merger or acquisition agreements prohibited under Section 20 of the Act
and Section 9 of this Rule may, nonetheless, be exempt from prohibition
by the Commission when the parties establish either of the following:
a. The concentration has brought about or is likely to
bring about gains in efficiencies that are greater
than the effects of any limitation on competition that
result or are likely to result from the merger or
acquisition agreement; or
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b. A party to the merger or acquisition agreement is
faced with actual or imminent financial failure, and
the agreement represents the least anti-
competitive arrangement among the known
alternative uses for the failing entity’s assets.
Provided, that an entity shall not be prohibited from continuing to own
and hold the stock or other share capital or assets of another
corporation, which it acquired prior to the approval of the Act, or from
acquiring or maintaining its market share in a relevant market through
such means without violating the provisions of the Act and these Rules;
The ff shall not be prohibited:
a. the acquisition of the stock or other share capital of one or
more corporations
b. solely for investment and not used for voting or exercising
control
c. and not to otherwise bring about, or attempt to bring about the
prevention, restriction or lessening of competition in the
relevant market
SECTION 11. Burden of proof. The burden of proof under Section 10
of this Rule lies with the parties seeking the exemption. A party seeking
to rely on the exemption specified in Section 21(a) of the Act or Section
10(a) of this Rule must demonstrate that if the agreement were not
implemented, significant efficiency gains would not be realized.
SECTION 12. Finality of rulings on mergers and acquisitions.
Merger or acquisition agreements that have received a favorable ruling
from the Commission, except when such ruling was obtained on the
basis of fraud or false material information, may not be challenged under
the Act or these Rules.
CLOSE CORPORATION
One of the most distinctive characteristics of a close corporation is the
identity of stockholders and its corporate management, whereby all, or
most of all, the stockholders are active in the corporate affairs as
directors of the corporation. A family corporation is akin to a close
corporation because there are restrictions as to the transfer of shares.
You cannot just transfer your shares to another person. That‘s why it‘s
referred to as a close corporation.
Section 95. Definition and Applicability of Title.— A close
corporation, within the meaning of this Code, is one whose articles
of incorporation provides that:
[a] 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 twenty
(20);
[b] all the issued stock of all classes shall be subject to one
(1) or more specified restrictions on transfer permitted by
this Title; and
[c] the corporation shall not list in any stock exchange or
make any public offering of its stocks of any class.
A corporation shall not be deemed a close corporation when:
a. at least two-thirds (2⁄3) of its voting stock or voting rights
b. is owned or controlled by another corporation which is not a
close corporation within the meaning of this Code.
Any corporation may be incorporated as a close corporation, except:
1. mining or oil companies,
2. stock exchanges, banks, insurance companies,
3. public utilities, educational institutions and
4. corporations declared to be vested with public interest
The provisions of this Title shall primarily govern close corporations:
Provided, That other Titles in this Code shall apply suppletorily, except
as otherwise provided under this Title.
SECTION 96. Articles of Incorporation.— The articles of incorporation
of a close corporation may provide for:
[a] A classification of shares or rights, the qualifications for
owning or holding the same, and restrictions on their
transfers, subject to the provisions of the following section;
[b] A classification of directors into one (1) or more classes, each
of whom may be voted for and elected solely by a particular
class of stock; and
[c] Greater quorum or voting requirements in meetings of
stockholders or directors than those provided in this Code.
The articles of incorporation of a close corporation may provide that:
1. The business of the corporation shall be managed by the
stockholders of the corporation rather than by a board of
directors.
So long as this provision continues in effect:
a. no meeting of stockholders need be called to elect
directors
b. the stockholders of the corporation shall be
deemed to be directors for the purpose of applying
the provisions of this Code, unless the context
clearly requires otherwise:
c. the stockholders of the corporation shall be
subject to all liabilities of directors.
2. That all officers or employees or that specified officers or
employees shall be elected or appointed by the
stockholders, instead of by the board of directors.
SECTION 97. Validity of Restrictions on Transfer of Shares.—
Restrictions on the right to transfer shares must appear:
1. in the articles of incorporation,
2. in the bylaws,
3. 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.
Note:
The restriction is not really an absolute restriction. It has to be
reasonable, such that it would not impair the concept of ownership under
your property law.
• ANDAYA V. RURAL BANK OF CABADBARAN
before the Court can allow the operation of this section in the case at
bar, there must first be a factual determination that Respondent Rural
bank of Cabadbaran is indeed a close corporation. there needs to be a
presentation of evidence eon the relevant restrictions in the articles of
incorporation and bylaws of the said bank.
SECTION 98. Effects of 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:
i. not eligible to be a holder thereof under any
provision of the articles of incorporation,
ii. and if the certificate for such stock
conspicuously shows the qualifications of the
persons entitled to be holders of record thereof,
iii. 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 twenty (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:
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(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,
Effect: the corporation may, at its option, refuse to register
the transfer in the name of the transferee.
[e] The provisions of subsection (d) shall not be applicable if
the transfer of stock:
i. has been consented to by all the stockholders
of the close corporation, or
ii. if the close corporation has amended its articles
of incorporation in accordance with this Title.
[f] The term “transfer”, as used in this section, is not limited
to a transfer for value.
[g] The provisions of this section shall not impair any right
which the transferee may have to either rescind the
transfer or recover the stock under any express or implied
warranty.
SECTION 99. Agreements by Stockholders.—
[a] Agreements duly signed and executed by and among all
stockholders before the formation and organization of a close
corporation shall survive the incorporation and shall continue
to be valid and binding between such stockholders, if such be
their intent, to the extent that such agreements are consistent
with the articles of incorporation, irrespective of where the
provisions of such agreements are contained, except those
required by this Title to be embodied in said articles of
incorporation.
[b] A written agreement signed by two (2) or more stockholders
may provide that in exercising any voting right, the shares held
by them shall be voted as provided or as agreed, or in
accordance with a procedure agreed upon by them.
[c] No provision in a written agreement signed by the
stockholders, relating to any phase of corporate affairs, shall
be invalidated between the parties on the ground that its effect
is to make them partners among themselves.
[d] A written agreement among some or all of the stockholders
in a close corporation shall not be invalidated on the ground
that it relates to the conduct of the business and affairs of the
corporation as to restrict or interfere with the discretion or
powers of the board of directors: Provided, That such
agreement shall impose on the stockholders who are parties
thereto the liabilities for managerial acts imposed on
directors by this Code.
[e] Stockholders actively engaged in the management or
operation of the business and affairs of a close corporation
shall be held to strict fiduciary duties to each other and
among themselves. The stockholders shall be personally
liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.
SECTION 100. When a Board Meeting is Unnecessary or Improperly
Held.— Unless the bylaws provide otherwise, any action taken by the
directors of a close corporation without a meeting called properly and
with due notice shall nevertheless be deemed valid if:
[a] Before or after such action is taken, a written consent
thereto is signed by all the directors; or
[b] All the stockholders have actual or implied knowledge of
the action and make no prompt objection in writing; or
[c] The directors are accustomed to take informal action with
the express or implied acquiescence of all the
stockholders; or
[d] All the directors have express or implied knowledge of the
action in question and none of them makes a prompt
objection in writing.
An action within the corporate powers taken at a meeting held
without proper call or notice is deemed ratified by a director who
failed to attend, unless after having knowledge thereof, the
director promptly files his written objection with the secretary of
the corporation.
SECTION 101. Preemptive Right in Close Corporations.— The
preemptive right of stockholders in close corporations shall extend:
i. to all stock to be issued,
ii. including reissuance of treasury shares,
iii. whether for money, property or personal services, or in
payment of corporate debts, unless the articles of
incorporation provide otherwise.
SECTION 102. Amendment of Articles of Incorporation.— Any
amendment to the articles of incorporation which seeks:
1. to delete or remove any provision required by this Title or
2. to reduce a quorum or voting requirement stated in said
articles of incorporation
Requirements:
1. the affirmative vote of at least two-thirds (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 103. Deadlocks.— Notwithstanding any contrary provision in
the close corporation’s articles of incorporation, bylaws, or stockholders’
agreement, if the directors or stockholders are so divided on the
management of the corporation’s business and affairs that the
votes required for a corporate action cannot be obtained, with the
consequence that the business and affairs of the corporation can
no longer be conducted to the advantage of the stockholders
generally the Commission, upon written petition by any stockholder,
shall have the power to arbitrate the dispute.
In the exercise of such power, the Commission shall have authority to
make appropriate orders, such as: (a) cancelling or altering any
provision contained in the articles of incorporation, bylaws, or any
stockholders’ agreement; (b) cancelling, altering or enjoining a
resolution or act of the corporation or its board of directors, stockholders,
or officers; (c) directing or prohibiting any act of the corporation or its
board of directors, stockholders, officers, or other persons party to the
action; (d) requiring the purchase at their fair value of shares of any
stockholder, either by the corporation regardless of the availability of
unrestricted retained earnings in its books, or by the other stockholders;
(e) appointing a provisional director; (f) dissolving the corporation; or
(g) granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who:
1. is neither a stockholder nor a creditor of the corporation or any
of its subsidiaries or affiliates, and w
2. hose further qualifications, if any, may be determined by the
Commission
3. is not a receiver of the corporation and does not have the title
and powers of a custodian or receiver
4. shall have all the rights and powers of a duly elected director,
including the right to be notified of and to vote at meetings of
directors until removed by order of the Commission or by all
the stockholders.
The compensation of the provisional director shall be determined by
agreement between such director and the corporation, subject to
approval of the Commission, which may fix the compensation absent an
agreement or in the event of disagreement between the provisional
director and the corporation.
SECTION 104. Withdrawal of Stockholder or Dissolution of
Corporation.— In addition and without prejudice to other rights and
remedies available under this Title, any stockholder of a close
corporation may, for any reason, compel the corporation to
purchase shares held at fair value, which shall not be less than the
par or issued value when the corporation has sufficient assets in its
books to cover its debts and liabilities exclusive of capital stock:
A stockholder of a close corporation may, by written petition to the
Commission, compel the dissolution of such corporation:
1. whenever any acts of the directors, officers, or those in control
of the corporation
2. are illegal, fraudulent, dishonest, oppressive or unfairly
prejudicial to the corporation or any stockholder, or
3. whenever corporate assets are being misapplied or wasted.
SPECIAL CORPORATION
EDUCATIONAL INSTITUTIONS
SECTION 106. Board of Trustees.— Trustees of educational
institutions organized as nonstock corporations shall not be less than
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five (5) nor more than fifteen (15): Provided, That the number of trustees
shall be in multiples of five (5).
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 one-fifth (1⁄5) of their number shall expire every year.
Trustees thereafter elected to fill vacancies, occurring before the
expiration of a particular term, shall hold office only for the unexpired
period. Trustees elected thereafter to fill vacancies caused by expiration
of term shall hold office for five (5) years. A majority of the trustees shall
constitute a quorum for the transaction of business. 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.
RELIGIOUS CORPORATIONS
SECTION 107. Classes of Religious Corporations.— Religious
corporations may be incorporated by one (1) or more persons. Such
corporations may be classified into corporations sole and religious
societies.
Religious corporations shall be governed by this Chapter and by the
general provisions on nonstock corporations insofar as applicable.
SECTION 108. Corporation Sole.— A corporation sole may be formed
by:
1. the chief archbishop, bishop, priest, minister, rabbi, or
2. other presiding elder of such religious denomination, sect or
church.
For the purpose of administering and managing, as trustee, the affairs,
property and temporalities of any religious denomination, sect or church,
SECTION 109. Articles of Incorporation.— In order to become a
corporation sole, the chief archbishop, bishop, priest, minister, rabbi, or
presiding elder of any religious denomination, sect or church must file
with the Commission articles of incorporation setting forth the following:
[a] That the applicant chief archbishop, bishop, priest, minister,
rabbi, or presiding elder represents the religious
denomination, sect or church which desires to become a
corporation sole;
[b] That the rules, regulations and discipline of the religious
denomination, sect or church are consistent with becoming a
corporation sole and do not forbid it;
[c] That such chief archbishop, bishop, priest, minister, rabbi, or
presiding elder is charged with the administration of the
temporalities and the management of the affair’s, estate and
properties of the religious denomination, sect or church
within the territorial jurisdiction, so described succinctly in the
articles of incorporation;
[d] The manner by which any vacancy occurring in the office of
chief archbishop, bishop, priest, minister, rabbi, or presiding
elder is required to be filled, according to the rules,
regulations or discipline of the religious denomination, sect
or church; and
[e] The place where the principal office of the corporation sole
is to be established and located, which place must be within
the territory of the Philippines.
The articles of incorporation may include any other provision not
contrary to law for the regulation of the affairs of the corporation.
SECTION 110. Submission of the Articles of Incorporation.— The
articles of incorporation must be verified, by affidavit or affirmation of
the chief archbishop, bishop, priest, minister, rabbi, or presiding elder,
as the case may be, and accompanied by a copy of the commission,
certificate of election or letter of appointment of such chief
archbishop, bishop, priest, minister, rabbi, or presiding elder, duly
certified to be correct by any notary public.
From and after filing with the Commission of the said articles of
incorporation, verified by affidavit or affirmation, and accompanied by
the documents mentioned in the preceding paragraph, such chief
archbishop, bishop, priest, minister, rabbi, presiding elder shall become
a corporation sole and all temporalities, estate and properties of the
religious denomination, sect or church theretofore administered or
managed as such chief archbishop, bishop, priest, minister, rabbi, or
presiding elder shall be personally held in trust as a corporation sole, for
the use, purpose, exclusive benefit and on behalf of the religious
denomination, sect or church, including hospitals, schools, colleges,
orphan asylums, parsonages, and cemeteries thereof.
SECTION 111. Acquisition and Alienation of Property.— A
corporation sole may:
1. 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
2. sell or mortgage real property held by it by:
a. obtaining an order for that purpose from the
Regional Trial Court of the province where the
property is situated
b. 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 that it is
in the interest of the corporation that leave to sell or
mortgage be granted.
c. 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:
Provided, 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 112. Filling of Vacancies.— The successors in office of any
chief archbishop, bishop, priest, minister, rabbi, or presiding elder in a
corporation sole shall become the corporation sole on their accession to
office and shall be permitted to transact business as such upon filing a
copy of their commission, certificate of election, or letters of
appointment, duly certified by any notary public with the Commission.
During any vacancy in the office of chief archbishop, bishop, priest,
minister, rabbi, or presiding elder of any religious denomination, sect or
church incorporated as a corporation sole, the person or persons
authorized by the rules, regulations or discipline of the religious
denomination, sect or church represented by the corporation sole to
administer the temporalities and manage the affairs, estate, and
properties of the corporation sole shall exercise all the powers and
authority of the corporation sole during such vacancy
SECTION 113. Dissolution.— A corporation sole may be dissolved and
its affairs settled voluntarily by submitting to the Commission a verified
declaration of dissolution, setting forth:
[a] The name of the corporation;
[b] The reason for dissolution and winding up;
[c] The authorization for the dissolution of the corporation by the
particular religious denomination, sect or church; and
[d] The names and addresses of the persons who are to
supervise the winding up of the affairs of the corporation.
Upon approval of such declaration of dissolution by the Commission, the
corporation shall cease to carry on its operations except for the purpose
of winding up its affairs.
SECTION 114. 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, or synod, or district
organization of any religious denomination, sect or church, may, upon
written consent and/or by an affirmative vote at a meeting called
for the purpose of at least two-thirds (2⁄3) of its membership,
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 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, 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
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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.
ONE PESON CORPORATION
SEC. 116. One Person Corporation. – A One Person Corporation is a
corporation with a single stockholder: Provided, That only a natural
person, trust, or an estate may form a One Person Corporation.
The ff may not incorporate as One Person Corporations:
1. Banks and quasi-banks, preneed, trust, insurance,
2. public and publicly-listed companies, and
3. non-chartered government owned and controlled
corporations
4. 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.
SEC. 117. Minimum Capital Stock Not 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.
SEC. 118. Articles of Incorporation. – A One Person Corporation shall
file articles of incorporation in accordance with the requirements under
Section 14 of this Code. It shall likewise substantially contain the
following:
[a] If the single stockholder is a trust or an estate, the name,
nationality, and residence of the trustee, administrator,
executor, guardian, conservator, custodian, or other person
exercising fiduciary duties together with the proof of such
authority to act on behalf of the trust or estate; and
[b] Name, nationality, residence of the nominee and alternate
nominee, and the extent, coverage and limitation of the
authority.
SEC. 119. Bylaws. – The One Person Corporation is not required to
submit and file corporate bylaws.
SEC. 120. Display of Corporate Name. – A One Person Corporation
shall indicate the letters “OPC” either below or at the end of its
corporate name.
SEC. 121. Single Stockholder as Director, President. – The single
stockholder shall be the sole director and president of the One Person
Corporation.
SEC. 122. Treasurer, Corporate Secretary, and Other Officers. –
Within fifteen (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 Commission thereof within five (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:
1. give a bond to the Commission in such a sum as may be
required:
2. the said stockholder/treasurer shall undertake in writing to
faithfully administer the One Person Corporation’s funds to
be received as treasurer, and to disburse and invest the
same according to the articles of incorporation as approved
by the Commission.
3. The bond shall be renewed every two (2) years or as often
as may be required.
SEC. 123. Special Functions of the Corporate Secretary. – In
addition to the functions designated by the One Person Corporation, the
corporate secretary shall:
[a] Be responsible for maintaining the minutes book and/or
records of the corporation;
[b] Notify the nominee or alternate nominee of the death or
incapacity of the single stockholder, which notice shall be
given no later than five (5) days from such occurrence;
[c] Notify the Commission of the death of the single stockholder
within five (5) days from such occurrence and stating in such
notice the names, residence addresses, and contact details
of all known legal heirs; and
[d] Call the nominee or alternate nominee and the known legal
heirs to a meeting and advise the legal heirs with regard to,
among others, the election of a new director, amendment of
the articles of incorporation, and other ancillary and/or
consequential matters.
SEC. 124. Nominee and Alternate Nominee. - The single stockholder
shall designate a nominee and an alternate nominee who shall:
1. in the event of the single stockholder’s death or incapacity,
2. take the place of the single stockholder as director and shall
manage the corporation’s affairs.
The articles of incorporation shall stat:
1. the names, residence addresses and contact details of the
nominee and alternate nominee
2. the extent and limitations of their authority in managing the
affairs of the One Person Corporation.
3. written consent of the nominee and alternate nominee shall
be attached to the application for incorporation.
a. Such consent may be withdrawn in writing any time
before the death or incapacity of the single
stockholder.
SEC. 125. Term of Nominee and Alternate Nominee. – When the
incapacity of the single stockholder is temporary, the nominee shall sit
as director and manage the affairs of the One Person Corporation until
the stockholder, by self-determination, regains the capacity to assume
such duties.
In case of death or permanent incapacity of the single stockholder:
1. the nominee shall sit as director and manage the affairs of the
One Person Corporation
2. until the legal heirs of the single stockholder have been
lawfully determined, and the heirs have designated one of
them or have agreed that the estate shall be the single
stockholder of the One Person Corporation.
The alternate nominee shall sit as director and manage the One Person
Corporation in case of the nominee’s inability, incapacity, death, or
refusal to discharge the functions as director and manager of the
corporation, and only for the same term and under the same conditions
applicable to the nominee.
SEC. 126. Change of Nominee or Alternate Nominee. – The single
stockholder may, at any time, change its nominee and alternate nominee
by submitting to the Commission the names of the new nominees and
their corresponding written consent. For this purpose, the articles of
incorporation need not be amended.
SEC. 127. Minutes Book. – A One Person Corporation shall maintain a
minutes book which shall contain all actions, decisions, and resolutions
taken by the One Person Corporation.
SEC. 128. Records in Lieu of Meetings. – When action is needed on
any matter, it shall be sufficient to prepare a written resolution, signed
and dated by the single stockholder, and recorded in the minutes book
of the One Person Corporation. The date of recording in the minutes
book shall be deemed to be the date of the meeting for all purposes
under this Code.
SEC. 129. Reportorial Requirements. – The One Person Corporation
shall submit the following within such period as the Commission may
prescribe:
[a] Annual financial statements audited by an independent
certified public accountant: Provided, That if the total
assets or total liabilities of the corporation are less than
Six Hundred Thousand Pesos (P600,000.00), the
financial statements shall be certified under oath by the
corporation’s treasurer and president;
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[b] A report containing explanations or comments by the

president on every qualification, reservation, or adverse
remark or disclaimer made by the auditor in the latter’s
report;

[c] A disclosure of all self-dealings and related party

transactions entered into between the One Person
Corporation and the single stockholder; and

[d] Other reports as the Commission may require.

For purposes of this provision, the fiscal year of a One Person

Corporation shall be that set forth in its articles of incorporation or, in the
absence thereof, the calendar year.

The Commission may place the corporation under delinquent status

should the corporation fail to submit the reportorial requirements three
(3) times, consecutively or intermittently, within a period of five (5) years.

SEC. 130. 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 Corporations as with other corporations.

If you would want to seek the defense of limited liability, you have to
prove that:
i. t is adequately financed;
ii. There is no commingling

SEC. 131. 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:
1. succeed the latter and
2. be legally responsible for all the latter’s outstanding liabilities
as of the date of conversion.

SEC. 132. 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 Commission of such fact and of the

circumstances leading to the conversion, and
1. after compliance with all other requirements for stock
corporations under this Code and applicable rules.
2. 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.
3. If all requirements have been complied with, the Commission
shall issue a certificate of filing of amended articles of
incorporation reflecting the conversion.

In case of death of the single stockholder, the nominee or alternate

nominee shall transfer the shares to the duly designated legal heir or
estate within seven (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 notify the
Commission of the transfer. Within sixty (60) days from the transfer of
the shares, the legal heirs shall notify the Commission of their decision
to either wind up and dissolve the One Person Corporation or convert it
into an ordinary stock corporation.

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.

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