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Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines, which
became effective May 1, 1980, is the general law governing registration and operation of private
corporations governing law; this law was amended by R.A. No. 11232 (the Revised Corporation Code)
signed into law by President Duterte on February 20, 2019.

The Securities and Exchange Commission (SEC) has jurisdiction and supervision over private
corporations registered under BP # 68, as amended by RA 11232; it has no jurisdiction over corporation
created by special law[s], which shall be governed by the laws creating them (Sec. 4).

Sec. 2. Corporation defined: [1] an artificial being; [2] created by operation of law; [3]
having the right of succession; and, [4] the powers, attributes and properties expressly authorized by
law, or incident to its existence.

Artificial personality: Corp. is a juridical person with personality separate from its
stockholders or members. Corpo maybe a stockholder of another corporation; it can enter into
partnership with a natural or juridical person (S. 34, Par. h)

Nationality of Corporation:
(1) Incorporation Test: determined by state of incorporation regardless of the nationality of the
stockholders;
(2) Domiciliary Test: determined by the principal place of business of the corporation
(3) Control Test: determined by the nationality of the controlling stockholders/members. This
is applied in times of war;
(4) Grandfather Rule: nationality is attributed to the percentage of equity (voting shares) in the
corporation; used in nationalized or partly nationalized area.
As a rule, corporation is citizen of country of incorporation {incorporation test} except in times
of war where nationality of majority stockholders/members determinative of nationality of corporation
{control test}.

Disregarding fiction of separate personality means piercing veil of corporate fiction

when same is used as a cloak or cover for fraud or illegality, defeat public convenience, justify wrong,
protect fraud or defend crime. When the same is made as a shield to confuse legitimate isues. Where
corp. is adjunct, conduit or alter ego of another corporation. But ownership by single stockholder or
another corp. of all or nearly all of capital stock not sufficient to disregard corporate personality.

Corp. created by operation of law and cannot come into being by mere agreement of parties
unlike partnership. There has to be a law {BP 68, amended by RA 11232} authorizing its creation.

Right of Succession: the life of corporation continuous irrespective of death, withdrawal,

insolvency or incapacity of stockholder or member and regardless of transfer of their interests {Sec. 11}.

PRIVATE CORPORATION CLASSIFIED:

[1] stock = capital stock divided into shares; authorized to distribute dividends or allotment of
surplus profits based on shares held by stockholder;
[2] non-stock = do not issue stock; created not for profit but for public good {Sec. 3}
Note: Roman Catholic Church recognized as corp. by prescription for having acted and
assumed corporate power for long period of time.

Corporators = those who compose a corporation, whether as stockholder (in stock

corporation) or member (in non-stock corporation) {Sec. 5}.
Incorporators = those stockholders/members mentioned in the articles of incorporation as
originally forming and composing the corporation and signatories thereof.
Promoters are person who bring about the formation of a corp.

CAPITAL STOCK:
[1] Capital stock/Authorized capital stock {ACS} = amount fixed in the articles; no
minimum required by law (Secs. 7, 8, 12, 14 & 15)
[2] Subscribed capital stock is part of capital stock subscribed, covered by subscription
agreement whether fully paid or not. Synonymous with outstanding capital stock {Sec. 137}
[3] Paid-up capital stock is part of the subscribed capital stock which were fully paid.
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[4] Unissued capital stock is part of the capital stock or ACS that were unsubscribed {Sec. 6}
[5] Capital is used broadly to indicate entire property or assets of corp.
[6] Certificate of stock is the written acknowledgment by corp of rights, interest and
participation of person in management, profit sharing and assets of corp.

(Sec. 6) CLASSIFICATION OF SHARES. Classification of shares, their rights, privileges and

restrictions and par value, if any, are stated in the Articles of Incorporation. Shares are divided into
classes/series of shares, or both. No share deprived of voting rights except preferred and redeemable
shares unless otherwise provided in the law,
[1] Par are shares with specific money value fixed in the articles of incorporation {Secs. 6 & 61,
last par.}
No-par are shares without specific money value but with issued value fixed in the articles of
incorporation or by the board (but in no case less than P5.00 per share); if issued value not fixed, it
shall be fixed by the majority of OCS (Sec. 62). Cannot be issued by banks, trust and insurance
companies, public utilities, building and loan association. Once issued, deemed fully paid and non-
assessable; entire consideration for no par value treated as capital, not available for dividends {Sec. 6}
[2] Voting shares are those with voting rights; there shall always be voting shares; no share can
be deprived of voting right except preferred and redeemable shares. Court will not deprive stockholder
of voting right except when denied in articles of incorporation or by-laws. The stock and transfer book
is the best evidence to establish the stockholders who are entitled to vote at stockholders meeting,
The vote required to approve a particular corporate act shall refer only to stocks with voting
right except those instances enumeration in par. 3, Sec. 6 of the Code.
Non-voting shares: no voting right except on matters enumerated in par. 3, Sec. 6 of the Code
(8 instances). Non-voting shares cannot participate in the corporate management. Consequently,
they cannot be elected as a member of the board of directors (SEC Opinion dated March 20, 1996
addressed to Rural Bank of Mabalacat)
[4] Common: those that share pro-rata in the division of profits and assets upon dissolution.
Preferred: (always with par value) may be given preference in:
[a] the distribution of assets upon liquidation {preferred without specification preferred
to dividends only}; or,
[b] the distribution of dividends {in the absence of agreement, deemed non-cumulative
and non-participating; Classification: [b.1] cumulative or non-cumulative; [b.2]
participating or non-paticipating; or,
[c] other preferences stated in the articles not violative of the Code.
[5]. Founder’s share (Sec. 7): holders granted exclusive right to vote and be voted for in the
election of directors, such right not to exceed 5 years from the date of incorporation (old law: from
approval by SEC) {Sec. 7}. The period is not subject to renewal. The exclusive right to vote not permitted
if it will violate the “Anti-Dummy Law”, Commonwealth Act No. 108 or the Foreign Investment Act
of 1991 (RA No. 7042)
[6] Redeemable share (Sec. 8) : shares redeemable by corporation at fixed period regardless
of URE; the option to redeem is with corpo; once redeemed, they become treasury shares {Sec. 8};
Capital Stock not to be used to redeem since it would amount to withdrawal of capital. Corporation
may reduce/decrease capital stock to create reduction surplus to be used for redemption.
[7] Treasury share: shares fully paid but reacquired by corporation by purchase, redemption,
donation, or some other lawful means; may be sold for a price fixed by the Board {Sec. 9}; no voting
right while they remain in the treasury {Sec. 56}; do not have status of Outstanding Capital Stock {Sec.
172}. The corporation who re-acquired its shares does not acquire the status of a stockholder.

Sec. 8. Redeemable shares may be issued if allowed in the articles. Purchased back by
corporation upon expiration of period, regardless of existence of URE.

Section 9. Treasury shares have been issued and fully paid for but reacquired by the corporation
either by purchase, redemption, donation or some other lawful means; may be disposed of for
reasonable price fixed by the BOD. Where the corporation reacquires its own stock, it does not become
a subscriber thereof, and therefore, is not entitled to a stock certificate covering the same (Sec Opinion
dated February 20, 1991)

INCORPORATORS

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Sec. 10. Number /qualifications of incorporators: Any person, partnership, association or
corporation, singly or jointly with others not more than 15, may organize a corporation for any lawful
purpose: Provided, natural person licensed to practice profession and partnership or associations
organized to practice profession not allowed to organize as corporation unless allowed by special laws.
Each incorporator must own or be a subscriber to at least 1 share of stock of capital stock.
OPC – One Person Corporation is one with a single stockholder described in Title XIII, Chapter
III of this Code.

Sec. 11. Corporate term: Corp. shall have perpetual existence unless articles of incorporation
provides otherwise.
Existing corporation issued certificate of incorporation prior to effectivity of this Code shall have
perpetual existence unless upon a vote of majority of OCS, it opts to retain its corporate term pursuant
to its articles of incorporation: Provided, change in corporate term is without prejudice to appraisal
right of dissenting stockholders (Sec. 80).
A corporate term for specific period may be extended or shortened by amending articles
provided no extension is made earlier than 3 years prior to original or subsequent expiry dates unless
for justifiable reason as determined by the SEC. The extension takes effect on the day following the
original/subsequent expiry dates.
A corporation whose terms has expired may apply for a revival of its corporate existence subject
to debts, duties and liabilities existing prior to its revival. Upon approval by SEC, a certificate of revival
is issued, giving it perpetual existence unless application for revival provides otherwise.
No application for revival of banks, quasi banking, preneed, insurance and trust companies, non
stock savings and loan assn., pawnshops, financial intermediaries shall be approved unless
accompanied by favorable recommendation of appropriate government agency.

Sec.12. No minimum capital stock required of stock corporation except when provided
otherwise by special law.

Section. 13. Contents of Articles of Incorporation (in any official language); name;
purpose; principal office; term; names of incorporators; names and number (not more than 15) of
directors; if stock corp., the ACS; number of shares; par value; if non-stock, names of contributors and
amount.
Arbitration agreement may be provided in the articles pursuant to Section 181 of this Code.
The articles and amendment thereto may be filed in the form of electronic document.

Section. 14. Form of Articles of Incorporation

Section. 15. Amendment of articles: majority vote of the board and the vote/written assent of 2/3
of the OCS [including non-voting shares, Sec. 6, Par. 3] {with appraisal right of dissenting
stockholders}; or, if non-stock, may be amended by vote of 2/3 of members.
The amendment is effective: (1) upon approval of SEC; or, (b) if unacted by SEC without fault of
corporation, within 6 months from the date of filing of amendment.

Eight (8) instances when non-voting shares may vote (Sec. 6, Par. 3):
(1) Amendment of articles of incorporation (Sec. 15)
(2) Adoption/Amendment of by laws
(3) Sale, lease, exchange, mortgage, etc., or other disposition of all, or substantially all the assets
of the corporation (Sec. 39)
(4) Incurring, creating, or increasing bonded indebtedness
(5) Increase or decrease of capital stock
(6) Merger or consolidation (Sec. 75; 76)
(7) Invest funds in another corporation (Sec. 41)
(8) Dissolution

INSTANCES OF APRAISAL RIGHTS OF DISSENTING STOCKHOLDER {S. 80}:

S. 15. amendment of articles change/restrict rights of, or gives preference e to stockholder; or,
extending/shortening corporate term;
S. 39. Sale, lease, exchange transfer or disposal of all or substantially all of the corporate assets
S. 42. Invest funds in another corporation
S. 75; 76. Merger or consolidation.
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S. 11 . Change in corporate term.

Section 16. Articles/amendment may be rejected: not in compliance with the law; articles not in
the prescribed form; purpose illegal; treasurer’s affidavit false; Filipino ownership not complied with.
SEC gives corp reasonable time to modify the objectionable portions of articles or amendment

Section. 17. Corporate Name. Corporate name disallowed if not distinguishable from
that already reserved or registered for use by another corporation; or name protected by law; or when
use thereof illegal; if so, SEC orders corp to cease and desist use of name. In case of non compliance,
SEC will hold corp and responsible directors/officers in contempt, administratively, civilly and
criminally liable.

Section 18. Registration, Incorporation and Commencement of Corporate existence. Submit

intended name to SEC for verification; if name ok, it is reserved; after incorporators submit articles of
incorporation & bylaws to SEC then a certificate of incorporation is issued by SEC; from then on,
corporate existence commences.

Section. 19. De Facto corporation: actually exists for practical purposes as a corporation but
which has no legal right to corporate existence as against the State.
Requisites:
[a] a valid law; [b] bona fide attempt to organize a corporation under the law; and, [c] actual user
or exercise in GF of corporate powers.
No collateral attack on the existence of corporation except quo warranto proceedings initiated
by the Solicitor General. Quo warranto is a proceeding where the right of corporation to exercise
corporate powers is challenged by the State
De jure corporation – created in strict/substantial conformity with legal requirements

Section 20. Corporation by estoppel. Persons who assume to act as a corporation without
authority are liable for all debts, liabilities and damages as general partners;
If sued, lack of corporate personality cannot be used as a defense.
One who assumes obligation to an ostensible corporation cannot resist performance on the
ground that there is in fact no corporation.

Section 21. Effect of non-use of corporate charter; continuous inoperation.

If corporation does not formally organize and commence transaction of its business within 5
years from date of incorporation (by electing the BOD/BOT), its certificate of incorporation is deemed
{automatically?} revoked.
But if it commenced operation but thereafter becomes inoperative for a continuous period of at
least 5 years, the SEC, after due process, place corp under delinquent status; and, corp given 2 years to
resume operations; thereafter SEC issue order lifting delinquent status; otherwise SEC will cause
revocation of certificate of incorporation.

Section. 22. BOD/BOT. Corporate powers exercised; business conducted; and, all property
controlled by BOD/BOT to be elected from among the S/M.
Directors elected for a term of 1 year from among SH; trustees elected from among members
for a term not exceeding 3 years; they shall hold office until successor is elected and qualified (holdover
permitted); holdover capacity applies for valid reasons; hold over tenure not equal to election.
Corp vested with public interest shall have independent directors constituting 20% of the board.
(1) Corp covered by Sec. 17.2 of RA 8799, Securities Regulation Code, namely: those whose securities
(bonds or commercial papers) are registered with SEC; corporations listed with an exchange; or with
assets at least P50M and having 200 or more stockholders, each holding at least 100 shares of a class;
(2) Banks and quasi banks; (3) others whose business vested with public interest like banks, pawnshops,
lending business, etc..
Every director must own at least 1 share of capital stock in his name; trustees must be a member.
Majority of directors/trustees must be residents (physical presence) of the Phil.
Independent director is a person who, apart from shareholdings and fees received from corp, is
independent and free from any business/relationship that could interfere with the exercise of
independent judgment; may be elected in absentia.

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Sec. 23. Election of Directors/Trustees: Except exclusive right reserved to founders share,
each S/M have right to nominate any D/T qualified/not disqualified.
At elections of D/T, majority of OCS/members, must be present in person or proxy.
Voting may be by remote communication or in absentia, if authorized by the by-laws or majority
of the BOD; in corp vested with public interest, such method of voting allowed even if not provided in
the by laws.
S/M participating in remote communication or in absentia deemed present for purposes of
quorum.
Election by ballot, if requested by any S/M.
Method of voting:
- In stock corp., SH may vote the numbers of shares stock in his name in the stock books of
corp; (a) vote number of shares multiplied by the number of directors to be elected; (b) cumulative
voting by giving all the votes to one candidate; or, (c) by cumulative voting by distribution. Provided:
total number of votes cast does not exceed the number of shares owned multiplied by the total number
of directors to be elected; Provided however, that no delinquent stock shall be voted.
- In non-stock corp., members may cast as many votes as there are trustees to be elected but
may not cast more than 1 vote for 1 candidate unless cumulative voting is allowed in the articles or by-
laws.
If no elections held because: (a) owners of majority OCS/members not present in person or
proxy; (b) not present through remote communication; (c) not voting in absentia, meeting adjourned
and corp proceed in accordance with Sec. 25.

Sec. 24. Corporate officers. Directors elected must formally organize and immediately elect
(a) President, who must be a director; (b) Treasurer, who must be a resident; (c) Secretary, who must
be a citizen and resident of Phil.; (d) such other officers provided in the by-laws; and, [e] Compliance
Officer, if corp vested with public interest.
Concurrent positions allowed except President & Treasurer; and, President & Secretary unless
allowed by the Code.

Sec. 25. Report of election, and submit names of elected D/T/O to SEC, including nationalities
and residences, etc., within 30 days after election.
In non-holding of elections, report same to SEC within 30 days, specifying new date of election,
which shall not be later than 60 days from sked date; or else, SEC orders election be held.
In case of death, resignation or termination of relation, report such fact to SEC within 7 days
from knowledge thereof.

Sec. 26. Disqualification of D/T/O. – Person DQ from being D/T/O if within 5 years before
election/appointment, he was:
[a] Convicted by final judgment:
[1] of offense punishable by imprisonment exceeding 6 years; or,
[2] Violation of Code; and,
[3] Violation of RA 8799, the Securities Regulation Code
[b] Found administratively liable for any offense involving fraudulent acts; and,
[c] Found liable by foreign court of [a] and [b] above.
Concealment of grounds for DQ by D/T/O and he willfully holds office – fined 10k to 200k and
permanently DQ to become D/T/O. When violation injurious or detrimental to public, fine 20k to 400k.

Sec. 27. Removal of D/T – by vote of 2/3 OCS {non voting shares excluded} or 2/3 of members
entitled to vote; in a regular/special meeting, with notice to S/M.
Special meeting for removal called by Secretary, on order of President; or, by the written demand
of majority of OCS/Members entitled to vote; vacancy may be filled up in the same meeting without
notice; or, at any regular/special meeting, with notice.
Removal may be with or without cause; provided, that removal without cause may not be
used to deprive minority stockholders or members of the right of representation to which they may be
entitled under Sec. 23 {not applicable where the removal is initiated by the minority themselves}.
The incumbent cannot be removed by mere election of a new set of D/T because removal
requires vote of 2/3 OCS/members {and in a meeting called for the purpose with notice} while vacancy
can be filled by mere majority {Sec. 28}.

Sec. 28. Vacancy in D/T; Filling of vacancy.

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[1] By D/T: If vacancy due to death, resignation, abandonment or disqualification and the
remaining D/T still constitute a quorum, majority of them may fill vacancy;
[2] by the S/M:
[2.a] If vacancy due to death, resignation, abandonment or disqualification – and remaining
D/T do not constitute a quorum;
[2.b] Vacancy due to term expiration, election held not later than the day of expiration
[2.c] Vacancy due to removal, election of replacement done on same day of meeting approving
removal;
[2.d] Vacancy caused by increase in the number of D/T.
In all other cases, election held not later than 45 days from vacancy;
D/T elected to fill vacancy called replacement D/T; shall serve only the unexpired term of
predecessor;
When vacancy results to no quorum and emergency action required, vacancy temporarily filled
by any officer upon unanimous vote of remaining director; term cease upon termination of emergency
or upon election of replacement D/T, whichever comes first.

Sec. 29. Compensation of D/T. No salary except for reasonable per diem. Salary may be
granted, aside from per diem, provided: [a] salary fixed in the by-laws; or [b] by the vote of the majority
of the OCS/M in a regular or special meeting.
In no case shall the total yearly compensation of directors exceed 10% of net income before tax
during the preceding year {so as not to reduce the taxable income of corporation; to protect the interest
of SH and the corporate creditors}.
D/T shall not participate in the determination of their own per diem or compensation
Corp vested with public interest submit annual report to SH/SEC of the amount of total salary
of each D/T.

Sec. 30. Liability of D/T/O.

D/T who vote to unlawful acts of corp; or, guilty of gross negligence/bad faith in directing affairs
of corporation; or, acquire personal/pecuniary interest in conflict with duty as D/T, are solidarily liable
for damages suffered by corpo/SH/MB.
D/T/O barred from acquiring interest adverse to corp on any matter reposed in confidence;
otherwise liable as trustee of corp and must account for the profits which would have accrued to corp.

Sec. 31. Dealings of D/T/O with corp.

Contracts b/w corp with one or more of its D/T/O or their spouses or relatives within 4th civil
degree of consanguinity or affinity VOIDABLE at the option of the corp unless ff. conditions present:
[1] presence of such D/T in meeting where contract approved not necessary to constitute a
quorum;
[2] vote of such D/T not necessary for approval of the contract;
[3] K fair and reasonable under the circumstances;
[4] In case of corp vested with public interest, K approved by 2/3 of entire membership of BOD
with majority of the independent directors voting to approve K;
[5] In case of K with officer, it was previously authorized by the board
Where any of the first 3 conditions above is absent, in case of K with D/T, same may be ratified
by vote of 2/3 OCS/M in a meeting provided full disclosure of adverse interest of D/T is made at such
meeting and provided K is fair and reasonable under the circumstances.

G.R. – Contracts b/w corp. & D/T/O voidable at option of corp. Not necessary for corp. to suffer
damages
Exceptions:
[1] all conditions in S. 31 present;
[2] Not all conditions present but board elects not to question validity of K without prejudice to
liability of consenting D/T for damages under S. 30;
[3] In case of K with D/T, only 3rd condition in S. 31 is present, K may be ratified by 2/3 vote of
OCS/M. If K with officer, authorized by the board.
Question: Will the vote of the self-dealing D/T be counted in the meeting for the ratification of
K?

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Section 32. K between corporations with interlocking directors. Except in case of fraud
and provided K is fair and reasonable, a K between 2 or more corporations having interlocking directors
shall not be invalidated.
But if the interest of interlocking director in 1 corp substantial and nominal in the other corp,
he shall be subject to Sec. 31 insofar as the corp where he has nominal interest is concerned.
Stockholdings exceeding 20% of OCS shall be considered substantial.

Validity of by-laws prohibiting interlocking directorates in competing corporation held valid

{Gokongwei vs. SEC, 89 SCRA 336}

Sec. 33. Disloyalty of director. Where director acquires for himself business opportunity
belonging to corpo thereby obtaining profit for himself, he must account such profits by refunding same
even if he risked his own funds in the venture unless the act is ratified by vote of 2/3 OCS.
Question: Will the vote of disloyal director counted in the determination of 2/3 OCS?

Sec. 34. Executive, Management & other Committees. If BL so provides, the board may create
executive committee of 3 directors and act, by majority vote, on matters within competence of the
board except:
[1] approval of action where shareholders’ approval required;
[2] filling of vacancy in the board;
[3] amendment/repeal of by-laws or adoption of new by-laws;
[4] amendment/repeal of board reso which by its terms is not amendable or repealable;
[5] distribution of cash dividends to shareholders.

Section 35. Powers of corporation

[a] to sue and be sued in its corporate name;
[b] to have perpetual existence unless cert of incur provides otherwise;
[c] Adopt/use seal;
[d] Amend articles of incorporation {non-voting votes};
[e] Adopt, amend or repeal by-laws {non-voting votes};
[f] In case of stock corp., to issue/sell stocks; sell treasury shares; admit members;
[g] Deal with real and personal properties;
[h] To enter into partnership, joint venture, merger, consolidation or any other commercial
agreement with natural and juridical person;
[i] To make donations provided no foreign corp shall give donation for partisan political activity;
[j] to establish pension, retirement and other plans
[k] to exercise such essential/necessary powers.

Section 36. Power to extend/shorten corporate term: majority vote of BOD/BOT and
ratified by 2/3 OCS/M. Notice served by mail, personally or electronically.
In case of extension, dissenting stockholders exercise appraisal rights.
In Sec. 80 [a], shortening of term also recognized ground for exercise of appraisal right

Section 37. Power to increase/decrease CS; incur, create or increase bonded

indebtedness.
[1] approved by majority vote of BOD and 2/3 of OCS, with notice of time/place of meeting
to each stockholders, either served personally or by electronic mail;
[2] Certificate signed by majority of D, countersigned by the Chairman and Secretary setting
forth: (a) requirement of this section complied with; (b) amount of increase/decrease of capital stock;
{c} In case of increase, amount of CS/no-par value shares subscribed; names of subscriber,
nationalities, etc.; (d) bonded indebtedness incurred, created or increased; (e) amount of stock
represented in meeting; and, (f) vote authorizing such increase/decrease.
[3] Approved by the SEC or Phil. Competition Commission, where appropriate;
[4] Certificate filed with SEC accompanied by SS of Treasurer that at least 25% of
increase is subscribed and that 25% of subscribed has been paid either in cash or
property equal to 25% of subscription. No decrease is approved if prejudicial to the interest of
corporate creditors.
[5] Bonds are evidence of a corporation’s debt. If amount of loan small, secured from few
persons, for a short time, usually notes are given; but if the amount is large, obtained from a number
of persons and extends over period of years, then bonds are issued.
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Non - stock corporation may incur, create or increase bonded indebtedness if approved by
majority of the BOT and 2/3 of M;
[6] Ways of increasing/decreasing CS: By increasing/decreasing number of shares;
par value; or, both. It may also declare stock dividends from its retained earnings.

Sec. 38. Power to deny pre-emptive right:

[1] All SH enjoy pre-emptive right to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings unless such right is denied by the articles or an
amendment thereto. The right may be exercised only on newly issued shares.
[2] Right shall not cover: [a] shares in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or, [b] shares issued in good faith with the approval of 2/3
OCS, in exchange for property needed for corporate purpose or in payment of a previously contracted
debt;
[3] When CS of corporation is increased and new shares issued, the new issue is offered first to
the SH in proportion to their existing shareholdings – to preserve his proportionate interest in the
corporation and the value of his holdings, to prevent dilution of his voting rights, dividend payments;
and, share in the net assets of the corporation.

Example:
X Corp has a total capital stock of 1,000 shares;
X Corp. offered for subscription 500 shares only; all of which were subscribed
X Corp. has remaining 500 shares unsubscribed;
Mr. A, a stockholder of X Corp holds 100 of the 500 shares subscribed
Mr. A’s voting power is 20% (100 divided by 500 = 0.20)
Question: If X Corp sells the remaining 500 unsubscribed shares, is Mr. A entitled to right of
pre emption to 100 shares in order to maintain his proportionate holdings of
20%?
Question: At the beginning of its corporate existence, X Corp offered for sale the total 1,000
shares but only 500 were subscribed, with Mr. A opting to buy only 100 of the
1,000 shares offered for sale. If X Corp. offers for sale the remaining 500 unsubscribed
shares, is the right of pre emption available to Mr. A to subscribe to the new disposition
of shares?

The pre-emptive right does not apply to:

[i] shares issued to comply with law requiring minimum stock ownership by the public;
[ii] shares issued in GF and approved by 2/3 OCS for property needed for corporate
purposes;
[iii] shares issued in GF and approved by 2/3 OCS for payment of previously contracted
debt; and,
[iv] when all the OCS were initially offered for sale, subsequent sale of
unissued/unsubscribed stocks will not be covered by right of pre-emption except when number of
shares initially offered is specified and limited, in which case right of pre-emption available in
case the remaining unsubscribed/unissued are offered for sale;
[4] close corp. – pre-emptive rights extends to all stock to be issued, including re-issuance of
treasury shares;
[5] in widely held corp., pre-emptive rights extends also to re-issuance of treasury shares in view
of the use of the phrase “disposition of shares” in Sec. 38.

Sec. 39. Sale or disposition of all the corporate assets

[1] Subject to RA # 10667, the Phil. Competition Act, corp may, by majority vote of board and
2/3 OCS/members, dispose all or substantially all its property/assets {thus incapable of continuing its
business} for money, stocks, bonds, instruments, property;
[2] Written notice to SH by mail, personal service or sent electronically;
[3] Dissenting stockholders may exercise appraisal rights;
[4] But plan may be abandoned by the board, without further approval by the S/M;

Sec. 40. Power to acquire own shares.

Stock corp. Have power to purchase/acquire own shares for legitimate corporate purposes, to
wit:
[1] to eliminate fractional shares arising out of stock dividends;
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[2] To collect/compromise indebtedness to corp arising out of unpaid subscription, in a
delinquency sale, and to buy delinquent shares sold during said sale; shares become treasury; and,
[3] To pay dissenting or withdrawing stockholders (S.80);
provided it has URE to cover purchase/acquisition except redeemable shares {S. 8} -- which may be
purchased by corporation upon the expiration of fixed period regardless of existence of URE

Sec. 41. Power to invest funds in another corporation or business or for any other
purpose, other than the primary purpose for which it was organized.
= If investment of corporate funds for secondary purpose of corp, the approval by majority
board and 2/3 of OCS/M; provided approval of s/m not necessary if investment is to accomplish
primary purpose;
= Dissenting Sh may exercise appraisal right (S.80);

Sec. 42. Power to declare dividends

= Majority vote of BOD required;
= Dividends declared out of the URE, payable in CASH, PROPERTY or STOCK;
= CASH DIVIDEND due on delinquent stock applied to unpaid balance + costs + expenses; while
stock {or property} dividend withheld from delinquent stockholder until unpaid subscription paid;
= Stock dividend is to be approved by 2/3 OCS;
= Stock corp prohibited from retaining surplus profits in excess of 100% of their paid in capital
stock except: [1] for corporate expansion projects/programs; [2] when it is prohibited to declare
dividends under a loan agreement without consent of creditors; [3] special reserve for probable
contingencies;
= Retained earnings = assets less liabilities and legal capital
Assets = Liabilities + Capital
Capital SE (PS/CS/Pd up Capital) and the RE
100M 110M
Pointers:
Cash dividend = majority of BOD; if stocks delinquent, dividend applied to the delinquency
Property dividend = majority vote of BOD; if stocks delinquent, withheld
Stock dividend = majority of BOD and 2/3 OCS; if stocks delinquent, withheld

Sec. 43. Power to enter into management contract

Approved by board and majority of OCS/M in both managed and managing corp. but:
[a] if a Sh in both corporations own/control more than 1/3 of OCS in managing corp.; or,
[b] majority of the board in managing also majority of board in managed,
then mgt K approved by 2/3 OCS/M of managed corp.
Mgt K shall not exceed 5 years for any one term

X Corp (managing) ……….. to manage ………… Y Corp (managed).

Majority of board Majority of board

Majority of OCS/M Majority of OCS/M

Sh Jose owns > 1/3 OCS Sh Jose owns minimal stock

Majority of board Majority of board

Majority of board & OCS Majority of board & 2/3 OCS

Section 44. Ultra vires acts. - No corp shall possess/exercise corporate powers other than
those conferred by law or by its articles of incorporation and except as necessary/incidental to the
exercise of the power conferred;
Ultra vires act is one not within the express, implied or incidental power conferred in the articles
or by the law; impliedly forbidden because not expressly or impliedly authorized.
Effects: (1) executed contracts: court not interfere; (2) executory contracts: unenforceable; (3)
part executory and part executed: unjust enrichment applies.
Intra vires = Acts/transactions within the legitimate powers of a corpo or are related to its
purposes.

Section 45. Adoption of by-laws

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BL defined – rules of action adopted by corporation for its internal government and for the
government of its S/M;
Adoption of BL:
(a) After incorporation:
Vote required is majority of OCS/M.
BL signed by S/M voting for them; kept in principal office; subject to inspection during office
hours.
A copy, certified by majority of board, countersigned by Secretary, filed with SEC and attached
to original articles of incorporation;
(b) Before incorporation:
BL may also be adopted and filed prior to incorporation, signed by all incorporators, submitted
to SEC together with art of incorporation;
BL effective once SEC issues cert that they are in accord with law.
By-laws of corporation created under special laws accompanied by certification of gov’t agency
that they are in accordance with law.

Section 46. Contents of by-laws;

The modes S/M/D/T attend and vote in meetings
Arbitration agreement may be provided pursuant to S. 181.

Section 47. Amendment to, Repeal or Adopt New BL:

Vote required to MAJ BOARD/MAJORITY of OCS/M;
Delegation of power = 2/3 OCS/M may delegate to board the power to amend, repeal or adopt
New BL;
Revocation of delegated power = MAJ of OCS/M
New or amended BL effective upon issuance of cert by SEC that they are compliant with law.

Section 48. Kinds of meetings of D/T/S/M may be REGULAR or SPECIAL

Section 49 R/S meetings of S/M

= Regular meetings: held annually on date fixed in the by-laws, or any date after April 15 of every
year, as determined by the board; notice (may be electronic mail) sent 21 days prior to meeting unless
different period required in BL, law or regulation.
= Special meeting: Anytime as necessary; 1 week notice
= S/M may propose holding of special meeting and the agenda therefor;
= Notice may be waived by S/M, expressly or impliedly; but no general waiver of notice allowed
in articles or BL;
= The attendance in meeting of S/M without notice deemed waiver of notice of such meeting
except when attendance is for the purpose of objecting because meeting not lawfully called;
= If no person authorized to call meeting, any S/M may petition the SEC, and upon good cause
shown, SEC issue order for petitioning S/M to call/preside meeting until the majority present select a
presiding officer;
= Unless BL provide longer period, the stock and transfer book/membership book closed before
20 days for regular meeting and 7 days for special meeting;
= Postponement of regular meeting, notice and reason therefor sent to S/M 2 weeks before
meeting
= The right to vote of S/M exercised: [a] in person; [b] by proxy; [c] remote communication;
or, [d] in absentia

Section 50. Place and time of meetings of S/M

Venue of S/M meeting whether regular or special = At the principal office of corp or, if not
practicable, in the city or municipality where principal office located;
All transaction in S/M meeting valid even if improperly held/called provided all S/M are
present/represented and not one objected at the beginning of meeting that his attendance is for the
purpose of objecting to the transaction

Section 51. Quorum: Majority of the OCS/M

Section 52. R/S meeting of BOARD

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Quorum: majority of D/T; decision of MAJORITY of the quorum valid corporate act EXCEPT
election of officers which shall require vote of MAJORITY OF ALL D/T;
Example:
If there are 9 members of board; quorum is 5;
In the election of President, 7 members of board present while 2 are absent; Of the present,
4 voted for Pedro and 3 voted for Juan. Was Pedro validly elected as Pres.?
To win election of officers, vote needed is majority of all members of the board, not merely
majority of the quorum.

Regular meeting = monthly

Special meeting = anytime upon call of Pres or as provided in the by-laws
Venue = Anywhere, unless by laws provide otherwise
Notice required = 2 days, maybe waived, expressly or impliedly
D/T absent can participate and vote through remote communication;
D/T cannot attend/vote by proxy.
If D/T has potential interest in corporate transaction, he must recuse from voting without
prejudice to S. 31 regarding self-dealing D/T/O;

Sec. 53. Presiding Officer at all meetings = Chairman or, in his absence, President

Sec. 54. Right to vote of secured creditor/administrator. If Sh grants security interest, the Sh
grantor shall have right to attend/vote at meetings of Shs unless such right is given by Sh-grantor to
secured creditor.
Executor, administrator, receivers appointed by court may attend/vote without need of proxy.
Old law: Pledged/mortgaged stocks, the pledgor/mortgagor have right to attend and vote in
meetings unless such right given to pledgee/mortgagee in writing by pledger/mortgagor and recorded
in the corporate books.

Sec. 55. Voting in joint ownership. Consent of all required unless proxy signed by all owners
authorizing one, or some, or any other person, to vote.
If shares owned in an “and/or” capacity, any owner can vote and appoint proxy.

Sec. 56. Treasury shares (S.9) have no voting right as long as it remains in the treasury.

Sec. 57. Manner of Voting; Proxies. S/M may vote: [a] in PERSON, [b] PROXY, [c] REMOTE
COMMUNICATION, or [d] IN ABSENTIA provided vote received before end of tally of votes. Can vote
be received by Corsec before the start of the meeting?
The S/M voting by remote communication or in absentia considered present for purposes of
determining quorum.
Proxy: [1] in writing; [2] signed by S/M, filed and received by Corsec before meeting;
Valid only for meeting intended unless otherwise provided in the proxy but in no case effective
longer than 5 years at any one time.

Sec. 58. One or more Sh may create a voting trust to confer on trustee right to vote and other
rights for period not exceeding 5 years at any one time. In writing, notarized and specify terms thereof.
If required as loan condition, may be for period more than 5 years, but automatically expires
upon full payment of loan
Certified copy filed with corp. and SEC; otherwise unenforceable
Original certificates of stock cancelled and new ones issued in name of trustee. Trustee executes
to transferor voting trust certificates, which shall be transferable like certificate of stock.
VTA may be inspected by any stockholder. Transferor and trustee may exercise right of
inspection.
No VTA valid if purpose are to circumvent law against anti-competitive agreement; abuse of
dominant position; anti-competitive merger or acquisition; violation of nationality and capital
requirement; or, for perpetuation of fraud

Sec. 59. Subscription contract – acquisition of unissued stock in an existing corporation, or

one still to be formed.

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Sec. 60. Pre-incorporation subscription irrevocable for at least 6 months from date of
subscription unless all subscribers consent to the revocation or unless the incorporation fails to
materialize within said period. Pre-incorporation subscription cannot be revoked after submission of
articles to the SEC.

Sec. 61. Consideration for stocks. Not to be issued for less than par value or issued price
thereof.
[1] actual cash paid to corp.
[2] property, tangible or intangible, actually received, necessary/convenient and valuation
thereof equal to par/issued value.
[3] labor performed, services actually rendered
[4] previously incurred debt of corp.
[5] amounts transferred from URE to stated capital
[6] outstanding shares exchanged for stocks in event of reclassification or conversion
[7] Shares of stock in another corporation; and/or
[8] Other generally accepted form of consideration.
If consideration intangible property such as patents/copyrights, valuation determined by Shs
(old law: incorporators)/board of directors, subject to SEC approval.
Stocks not issued for PN or future services.
Issued price of no par value shares fixed in the articles, or BL; otherwise, fixed by Shs
representing majority of the OCS

Sec. 62. Certificate of stock and transfer of shares. CS divided into shares for which
certificates signed by Pres or VP, countersigned by Secretary or Asst. Sec., sealed, issued in accordance
with by-laws
Shares of stock personal property and transferable by delivery + indorsement.
Transfer valid b/w the parties. Binding on corp. only when transfer recorded in the
stock and transfer book of the corp.
Shares that are delinquent cannot be transferred in the corporate books.
SEC may require corp whose securities are traded in trading markets to issue their securities or
shares of stocks in UNCERTIFIED OR SCRIPLESS FORM.
Scripless Trading is a method of securities trading in which the settlement of transactions
take place via book entry (shares traded in electronic forms) instead of physical exchange and delivery
of securities certificates. The shares traded being adjusted by accounting by an organization known as
depositary

Sec. 63. Issuance of stock certificates – only after full amount of subscription together with
interest and expenses {for delinquent shares} fully paid.
In the absence of prohibition in the BL, corp may apply partial payments to subscription either
as: (a) full payment for the corresponding number of shares, with the par value covered by such
payment (Baltazar vs. Lingayen Gulf Electric Co., 14 SCRA 522 [1965]}; or, (b) as payment pro rata to
all the shares subscribed.

X subscribed to 10 shares of stock in Baltic Corp. with par value of P50 per share
Total amount of subscription is P500
He partially paid P200
Application of partial payment:
(a) Full payment for 4 shares; or,
(b) Each of the 10 shares is partially paid with P20

Two alternatives cannot be availed of at the same time. Once an alternative is chosen, it is to be
applied uniformly to all Sh similarly situated; cannot be changed sans conformity of Sh who will be
affected thereby;
It is believed by authorities that the rule in Baltazar case is effectively revoked by the Revised
Corporation Code

Sec. 64. Watered stock = Stock with artificially inflated value; usually as part of a scheme to
defraud investors
Director/Officer who:
(a) consents to issuance of stocks for less than its par/issued value;
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(b) consents to issuance of stock for consideration other than cash, valued in excess of its fair
value;
(c) are aware of insufficient consideration , but made no written objection with Corsec,
are liable solidarily to the corp. and its creditors, with the SH concerned for the value difference.
Applies only to original issue of stocks.

Sec. 65. Interest on Unpaid Subscription. Subscriber liable for interest on unpaid
subscriptions from date of subscription if required by, and at the rate fixed in the subscription contract.
(old law: by-laws); if no rate fixed, then legal rate prevails.

Sec. 66. Payment of the balance of subscriptions on: [a] date specified in the contract; [b]
upon call by board, at any time.
Failure to pay, renders entire balance due plus interest at legal rate on balance.
If no payment within 30 days from said due date, all stocks covered by said subscription shall
become delinquent and subject to sale unless BOD orders otherwise.
Notice of sale + board reso sent to every DS + publication for 2 consecutive weeks in a
newspaper where principal office located.

Sec. 67. Delinquency Sale. Not less than 30 days nor more than 60 days from delinquency,
BOD sell delinquent stock + accrued interest.
Highest bidder offer to pay full balance of subscription + accrued interest + cost of
advertisement + expenses of sale, in exchange for the smallest number of shares.
The remaining shares, if any, credited to DS.
If no bidder, corp may bid and shares become treasury shares

Sec. 68. Grounds to question sale: [a] irregularity/defect in the notice of sale; [b]
irregularity/defect in the sale.
Party questioning tenders amount to winning bidder; and, commences action within 6 months
from sale.

Sec. 69. Court action to recover unpaid subscription; filed within 10 years from time right of
action accrues

Sec. 70. Effects of delinquency:

Cannot vote; or be voted upon; or be represented in SH meeting; or have rights of SH except
dividends; unless DS pays delinquency

Sec. 71. If not yet declared delinquent, stockholder has all the rights

Sec. 72. Lost or destroyed certificate

[a] Affidavit of Loss;
[b] Publication in newspaper of place where principal office located, once a week for 3
consecutive weeks;
[c] After one year from publication, if no contest filed, contest barred; corp then cancel lost cert;
and, issue new cert; cert may be issued before 1 year if applicant SH files a bond;
[d] if a contest is commenced or a court action is filed, no issuance of cert until final decision;
[e] Except in cases of fraud, bad faith or negligence, no court action shall be filed against corp
for having issued a certificate pursuant to this procedure
CORPORATE BOOKS AND RECORDS

Sec. 73. Books; stock and transfer agent

Sec. 74. Rights to financial statements

Sec. 75. Merger & Consolidation; 2 corporations merged, result constituent corp; 2
corporations consolidate, result consolidated corp.

The majority of the board shall approve plan of merger and consolidation;

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Sec. 76 (Sec. 49). Notice of S/M meeting sent 21 days for regular meeting and 1 week for special
meeting; the notice should state purpose of meeting and include copy of plan of M/C;
Vote required: 2/3 OCS/M;
Appraisal Right: 1/3 dissenting exercise appraisal right (AR); no AR if board abandoned plan of
M/C after approval by S/M;
Amendment to plan of M/C, needs approval of majority of Board and 2/3 OCS/M;
Sec. 77. Execution of articles of M/C containing details enumerated in the section;
Sec. 78. Approval by the SEC; SEC issues Certificate of M/C; from them on, plan of M/C becomes
effective.
If SEC has reason to believe that the plan of M/C contrary to law, SEC set hearing with 2 week
notice

Sec. 79. Effects of M/C

[1] The constituents shall become single corp – either Surviving Corp. (for merger) or
Consolidated Corp. (in case of a consolidation);
[2] separate existence of constituents cease except that of the S/C;
[3] S/C possess rights, privileges and powers, duties and liabilities of a corporation organized
under the Code;
[4] S/C possess all rights, privileges, immunities and franchises of the constituents; property,
receivables, etc., of constitutents transferred to S/C;
[5] The S/C assumes liabilities and obligations of constituents

Sec. 80. Appraisal Rights: fair value of shares

[1] Amendment to the articles of incorporation by changing rights of Sh or authorizing
preferences superior to outstanding share, including extending/shortening corporate term resulting to
change in the corporate term [S. 15; S. 36; S.11]
[2] Sale, lease, exchange, transfer, mortgage of all or substantially all the assets [S. 40]
[3] Merger and consolidation [S. 75];
[4] Invest corporate funds for any purpose other than the primary purpose [S. 41];

Sec. 81. How right exercised

[1] Written demand within 30 days from date vote taken; otherwise, deemed waiver
[2] If proposed corporate action implemented, pay dissenting SH upon surrender of certificates;
[3] DS paid fair value on the day prior to the date vote taken, excluding any
appreciation/depreciation of shares in anticipation thereof.
[4] If within 60 days from approval of corporate action, parties cannot agree on the fair value =
same is appraised by 3 disinterested persons named by stockholder, corporation and both, whose
majority findings is final; and, findings on value paid by corporation within 30 days after award made.
[5] Payment made from URE.

Sec. 82. From demand of appraisal right, until either abandonment of corporate action o or
purchase of shares by corp., all rights, voting and dividend, suspended except the right to be paid. If
DS not paid within 30 days after award, his voting and dividend rights restored.

Sec. 83. Demand for payment cannot be withdrawn unless with consent of corp. If demand for
payment [a] withdrawn with consent of corp.; [b] action abandoned/rescinded by corp.; [c] action
disapproved by SEC; [d] if DS is found not entitled to such right, right to be paid cease and his status
as stockholder restored and accrued dividend paid to DS;

Sec. 84. Cost and expenses of appraisal shall be paid by:

[a] Corporation; unless the fair value fixed by appraisers is approximately the same price which
corp offered to pay DS, in which case, it shall be borne by DS;
[b] In case action is filed by DS to recover fair value, cost/expenses assessed against the corp.,
unless the refusal of DS to receive is unjustified.

Sec. 85. Within 10 days from demand, DS submit cert for notation that they are dissenting
shares; failure to do so, at the option of corp., terminates the rights of DS;
If shares bearing notation transferred, and the cert cancelled, the rights of transferor as DS shall
cease and transferee shall have all rights of regular SH, with all accrued dividends paid to transferee

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NON-STOCK CORP.

Sec. 86. Definition: no part of its income is distributable as dividends. Profit acquired as
incident to operation used for the purpose for which the corp was organized.
Unless provided otherwise in the articles/BL, members may vote by proxy.
The BL may also authorize voting by remote communication and/or in absentia;

In non-stock corporation, money is contributed/donated for membership; in stock corporation,

money is invested hence the expectation of profit sharing. Business ventures not incidental or necessary
to carry out its objectives cannot be undertaken.

Non-stock corp. cannot be converted to stock by mere amendment of the articles; it must be
dissolved first and members thereafter organized a stock corporation. Rationale: virtual distribution
of corporate assets to members without proper dissolution procedure.

Stock corp may be converted to non-stock corp by simply amending articles. Reason: upon
conversion, stockholders will not have any interest in corporate assets and losses right to profits.

The right to form association is a basic constitutional right. Unincorporated association: cannot
act as a legal unit; has no separate legal personality; cannot acquire shares of stocks and be a
stockholder; cannot be a member of registered non-stock corporation;

Sec. 87. Purposes. Charitable; Religious; Educational; Professional; Cultural; Recreational;

Fraternal; Literary; Scientific; Social; Civic Service; etc.

Sec. 88 {S. 23} Right to Vote. Member entitled to 1 vote unless right to vote broadened, denied
or limited in the articles/BL;
Member may vote by proxy; remote communication; or, in absentia.

Sec. 89. Non transferability = Membership in non-stock corp personal and non-transferable
unless otherwise provided by the articles or by-laws

Sec. 90. Termination of membership = As provided in the articles or BL; extinguish rights
of member in corp or its assets;

Sec. 91. Trustees; Officers; Election; Term:

Number = fixed in the articles/BL which may or may not be more than 15;
Term: not more than 3 years until successors elected and qualified;
Trustees elected to fill vacancy hold office for the unexpired period;

Members may directly elect officers of NS corp

Except with independent trustee of NS corp vested with public interest, only member shall be
elected as trustee;

Sec. 92. List of Members and Proxies: Corp. keep list of members/proxies. List updated to reflect
members/proxies 20 days before any sked election.
Place of Meetings: BL may provide meetings held any place in the Phil. provided notice sent to
members indicating date, time and place of meeting;

Sec. 93. Distribution of Assets of Non-stock Corp in case of Dissolution (except Sec.
139):
[1] Pay liabilities
[2] Assets held requiring return, shall be returned
[3] Asset held for a particular purpose, but not held to be returned, shall be transferred to 1 or
more corp whose purpose is similar to the purpose of the dissolved corp;
[4] Other assets distributed according to the articles/BL;
[5] In any other case, according to the plan of distribution

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Sec. 94. Plan of Distribution: Adopted by majority vote of BOT & 2/3 vote of members, after
giving notice to the members.

CLOSE CORPORATION

Sec. 95. Definition:

[1] all issued stock shall be held by not more than 20 persons;
[2] All issued stock of all classes subject to restriction on transfer;
[3] No public offering of stocks
Corp not deemed close corp if at least 2/3 of voting stock owned/controlled by another corp
which is not a close corp
Mining or oil companies; stock exchanges; banks; insurance companies; public utilities;
educational; or those vested with public interest cannot be organized as a close corporation

Sec. 96 Articles of incorporation may provide for:

[a] classification of shares/rights; qualification to own; restriction on transfer;
[b] classification of directors into 1 or more classes, who may be voted/elected solely by a
particular class;
[c] greater quorum or voting requirement in meetings of SH or director;

The articles may provide that business shall be managed by stockholders, and not by BOD; hence
[a] no meeting of SH be called to elect directors; [b] SH deemed directors; and, [c] SH subject to
liabilities of directors;
The articles may also provide that officers/employees shall be elected/appointed by SH, instead
by BOD;

Sec. 97. Validity of restrictions on transfer of shares:

[1] Must appear in the articles; in the by-laws; and, in the cert of stock; or else, not binding on
purchaser in good faith.
The restriction may grant stockholder/corp the right to buy within a certain period; and, if not
exercised, shares may be sold to 3rd persons;

Sec. 98: Effect of transfer of shares in violation of restriction:

[a] If stocks transferred to unqualified person even if the cert. shows qualification for
transfer, transferee conclusively presumed to have notice of his ineligibility to be a Sh;
[b] If articles states Sh not to exceed 20; and, that the cert shows such limitation, and transfer
is made exceeding the max number of Sh, transferee is conclusively presumed to have notice
of this fact;
[c] If stock cert shows restriction on transfer and transferee acquires stock in violation of
restriction, transferee conclusively presumed to have notice that stock acquired violates restriction;
[d] In cases of pars. [a], [b] and [c] above, the close corp., at its option, may refuse to register
transfer;
[e] Subsection [d] above shall not apply, even if contrary to [a], [b] and [c], if: [i] consented
to by all Sh; and, [ii] if corp amended its articles;
[f] Transfer not limited to transfer for value; transfer by gratuitous title covered;
[g] Transferee may rescind transfer or recover stock under express/implied warranty.

Sec. 99. Agreements by Shs:

[a] Agreements by Shs before formation of close corp will survive the incorporation and valid
and binding, if such was the intent, to the extent consistent with the articles;
[b] Agreement by 2 or more Shs on how to exercise voting rights over shares held by them;
[c] Agreement by Shs that would make them partners shall not be invalidated between the
parties;
[d] Agreement by Shs relating to conduct of the business that would restrict the powers of the
board shall not be invalidated; but it shall impose on Shs the liabilities for managerial acts imposed on
directors;
[e] SHs actively engaged in mgt/operation shall be held to strict fiduciary duties to each other
and they shall be personally liable for corporate torts unless corp has adequate liability insurance;

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Sec. 100. Action taken by directors without meeting valid if:
[1] Before/after such action taken, written consent is signed by all directors;
[2] All stockholders have knowledge thereto and did not object;
[3] Directors used to take informal actions with consent of all Shs;
[4] All directors have knowledge and none objected in writing;
The action taken in exercise of corporate powers at a meeting without proper call/notice is
deemed ratified by director absent unless objected in writing after gaining knowledge thereof.

S. 101. Pre-emptive rights in close corp = shall extend to all stocks issued or reissued treasury
shares unless articles provide otherwise;

S. 102. Amendment of articles which:

[a] seek to delete/remove provision required herein;
[b] reduce a quorum or voting requirement in the articles;
Shall require 2/3 vote of OCS, including non-voting shares; or, such greater proportion of
shares provided in the articles for amending, deleting or removing any of said provisions;

S. 103. Deadlock in mgt. = SEC shall arbitrate, upon petition by any Sh.
SEC can then issue appropriate order including:
[a] cancel/alter any provision in the articles, BL or Sh agreement;
[b] cancel, alter or enjoin act of corp or board, Sh, officers;
[c] prohibiting any act of corp., board, officer or Sh;
[d] requiring the purchase of shares of Sh by corp even without URE or by other Sh;
[e] appointing a provisional director;
[f] dissolving corp; or,
[g] grant such other equitable relief.
A provisional director {PD} is an impartial person, neither a Sh or a creditor. Further
qualification may be determined by SEC; PD is not a receiver of the corp and does not have title/power
of a custodian/receiver.
PD shall have all the rights/powers of a duly elected director.
PDs compensation shall be agreed by corp and PD subject to approval of SEC.
If no agreement is reached or in case of disagreement, SEC will fix compensation;

S. 104. Stockholder of close corp. may exercise appraisal rights for any reason; and, may
petition SEC for dissolution of corp for any illegal act of officers or those in control or when corporate
assets are wasted.

S. 105. EDUCATIONAL CORP. = Governed by special laws and the Code.

S. 106. BOT of non-stock educational corporation:

[1] Not less than 5 nor more than 15; multiples of 5;
[2] term of office of 1/5 of BOT shall expire every year; Trustees thereafter elected to fill vacancy
before expiration of term holds office for the unexpired period;
[3] trustees subsequently elected shall have a term of office of 5 years;
[4] Majority of trustees shall constitute quorum; powers/authority of trustees defined in BL;
[5] If stock corp., governed by rules on stock corp

S. 107. RELIGIOUS CORP.: may be incorporateed by one or more persons; may be classified
into: [1] Corporation sole; or, [2] Religious societies.
Incoprporated in furtherance of a particular religion or to manage its property

S. 108. Corporation Sole. Purpose is to manage, as trustee, the affairs and property of church

S. 109. Articles of Incorporation: filed with SEC containing:

[a] The applicant priest represents church;
[b] the rules of church consistent with a corporation sole;
[c] the priest is charged with the mgt of affairs and properties within the territorial jurisdiction;
[d] how to fill vacancy;
[e] location of principal office;

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S. 110. Articles verified by affidavit by chief priest and accompanied by notarized copy of
election/appointment;

S. 111. Buy/Sell Property: May buy or sell real or personal property; In case of sale/mortgage,
file verified petition with RTC and secure RTC order upon proof of publication; petition may be opposed
by any member;

S. 112. Successor shall become the corporation sole; In case of vacancy, person authorized by
church rules shall exercise powers of corporation sole.

S. 113. Submit verified declaration of dissolution containing:

Name of corporation; reason for dissolution; authorization to dissolve; and, name of those who
will wind up corporate affairs.

S. 114. Religious societies

S. 115. ONE PERSON CORPORATION (OPC):

s. 116. OPC is corporation with a single stockholder (SSH); only natural person, trust (Art. 1440
to Art. 1457) or an estate may form OPC; a natural person may not form OPC to exercise a profession

S. 117. No minimum authorized capital stock of OPC;

S. 118. Articles of Incorporation of OPC: must comply with S. 14 (Form of Articles of

Incorporation) and must contain:
[a] If OPC is trust or estate, personal circumstances of trustee/administrator;
[b] Personal circumstances of a Nominee (NOM) and Alternate Nominee (ALTNOM);

S. 119. OPC not required to submit BL;

S. 120. Name of OPC shall indicate that it is OPC;

S. 121. SSH shall be the sole director and President of OPC;

S. 122. Within 15 days from issuance of cert of incorporation, OPC appoints Treasurer, Cororate
Secrertary (Corsec) and other officers deemed necessary; and, notify SEC within 5 days from
appointment;
SSH cannot be the Corsec; hence Pres & Corsec can’t be held concurrently by one person

SSH can be the self-appointed Treasurer (Pres and Treasurer can be held concurrently); post
bond, to be renewed every 2 years;

S. 123. Special functions of Corsec:

[a] maintain corporate records;
[b] notify nominee (NOM) or alternate (ALTNOM) of death/incapacity of SSH;
[c] notify SEC of death of SSH within 5 days and the personal circumstances of legal heirs of
SSH;
[d] Call and meet NOM or ALTNOM and legal heirs and advise them of election of new director;
amendment of the articles, etc.

S. 124. NOM and ALTNOM: The SSH shall designate a NOM and ALTNOM who shall act as
director and manage corporate affairs in case of death of SSH;
The articles of incorporation shall state personal circumstances of NOM and ALTNOM and
extent of their authority in managing corp.;
The written consent of NOM and ALTNOM attached to application for incorporation of OPC; it
may be withdrawn in writing before death/incapacity of SSH;

S. 125. Term of NOM and ALTNOM:

When incapacity of SSH temp, NOM sits as director and manager of OPC until SSH regains
capacity;
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In case of DEATH or PERMANENT INCAPACITY of SSH, NOM sits as director and manager
of OPC until legal heirs of SSH are determined and they designate one of them as SSH; or, heirs have
agreed that the estate shall be the SSH of OPC;
The ALTNOM sits as director and manager of OPC in case of NOM’s incapacity or death or
refusal to discharge functions only for same term/condition applicable to NOM;

S. 126. Change of NOM or ALTNOM: SSH may, at any time, change NOM or ALTNOM by
submitting to SEC names of NOMINEES and their written consent. For this purpose, articles of
incorporation need not be amended.

S. 127. OPC maintain minutes book containing all matters related to OPC;

S. 128. Records in Lieu of Meetings: When action needed, a signed written reso by the SSH and
recorded in the minutes book of OPC shall be sufficient; date of recording deemed the date of meeting;

S. 129. Reportorial Requirement: OPC shall submit to SEC the ff:

[a] Annual financial statement audited by CPA; in case assets/liabilities less than P600k,
financial statements certified by Treasurer and President;
[b] Explanation of Pres on every adverse remark by auditor in his report;
[c] Disclosure of self dealing between OPC and the SSH;
[d] etc.
The fiscal year of OPC is that stated in the articles; or, in the absence thereof, the calendar year;
OPC in delinquent status for failure to submit reportorial requirements 3 times, whether
consecutive or broken, within a period of 5 years;

S. 130. Liability of SSH

The burden is on SSH to show his limited liability by proving that OPC is adequately financed;
If SSH cannot prove (burden is on SSH) that property of OPC is independent of his personal
property, SSH solidarily liable (w/out piercing the veil of corporate fiction) for debts of OPC;
Principle of piercing the veil of corporate fiction applies to OPC;

S. 131. Conversion from ordinary corp to OPC: When SSH acquires all the shares of
ordinary corp., he may apply for conversion to OPC; if application for conversion approved, SEC issues
certificate of filing of amended articles of incorporation showing conversion. The OPC succeeds the
ordinary corp and assumes latter’s debts as of the date of conversion;

S. 132. Conversion from OPC to ordinary corp upon notice to SEC and compliance with
requirements for stock corp.
Notice filed with SEC 60 days from conversion; SEC then issues amended certificate of
incorporation showing conversion;
In case of death of SSH, NOM or ALTNOM shall transfer shares to designated heir or estate
within 7 days from receipt of affidavit of heirship or self adjudication by sole heir, with notice to SEC;
Within 60 days from transfer of shares, heirs notify SEC of decision to wind up or dissolve OPC
or convert it into ordinary corp;
The ordinary corp converted from OPC shall assume all liabilities of OPC as of date of
conversion;

DISSOLUTION

S. 133. Methods: VOLUNTARY OR INVOLUNTARY

S. 134. VOLUNTARY; NO CREDITORS

[1] Vote of majority of the board;
[2] Vote of the majority of OCS/M
[3] Personal notice or by registered mail given 20 days prior to the meeting to each SH/member,
whether voting or non voting, in the manner provided in S. 50;
[4] Publication of notice once prior to meeting;
[5] Verified Request for Dissolution filed with SEC stating: the reason(s) therefor; how
notice given; names of approving D/T and SH/M; date, place and time of meeting where vote made;

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and, details of publication; Corpo submit to SEC the ff: resolution authorizing dissolution; proof of
publication; and, favorable recommendation of govt regulatory agency, when necessary;
[6] Within 15 days from receipt of request, SEC issues certificate of dissolution;

S. 135. VOLUNTARY DISSOLUTION w/ CREDITORS

[1] Verfied Petition filed with SEC signed by majority of the board; listing the names of
creditors;
[2] Vote of 2/3 OCS/M at a meeting;
[3] SEC issue order fixing deadline for objections – not less than 30 days nor more than 60 days
after entry of order; order published 1x/week for 3 consecutive weeks; and, posting of order in 3
public places;
[4] Hearing; then judgment directing disposition of assets; SEC then issues certificate of
dissolution;

S. 136. DISSOLUTION BY SHORTENING TERM: Amend articles to shorten term;

Amended articles submitted to SEC; upon expiration of term, corp deemed dissolved on the day
following last day of corporate term without need of certificate of dissolution;

S. 137. Withdrawal of Request for Dissolution (No Creditors) and Petition for
Dissolution (With Creditors).
[1] In writing, verified by an incorporator, D, T, SH or M; signed by: [a] majority of the board
and majority of OCS/M, if no creditors; or, [b] majority of the board and 2/3 OCS/M, if with creditors

S. 138. INVOLUNTARY DISSOLUTION: Upon verified complaint by any interested party

based on the ff grounds:
[a] non use of corporate charter (within 5 years from incorporation) under S. 21;
[b] continuous inoperation of corp (for at least 5 consecutive years) under S. 21;
[c] court order dissolving corp.;
[d] final judgment that incorporation procured through fraud;
[e] final judgment that corp: [i] created to commit securities violation; [ii] smuggling, tax
evasion, money laundering, graft and corruption; [iii] tolerated graft.
Its assets, upon petition by SEC, forfeited in favor of gov’t. without prejudice to rights of innocent
SH and employees for services rendered.

S. 139. CORPORATE LIQUIDATION:

Upon dissolution, corporate life continues for 3 years for winding up but not for the purpose
of continuing business
Within winding up, corp may convey assets to trustee;
Assets distributable to unknown creditor or stockholders shall be escheated in favour of the
state;
Distribution of assets of non-stok corporation:
(1) Pay liabilities and obligations;
(2) assets held requiring return shall be returned;
(3) assets held subject to limitation on its use, but not required to be returned, shall be
transferred to another non-stock corporation engaged in similar activities;
(4) remaining assets distributed according to the articles of incorporation and by laws; and,
(5) in any other case, assets distributed in accordance with a plan of distribution, if any was
adopted upon majority vote of trustees and 2/3 vote of members;

S. 140. FOREIGN CORPORATION (FC):

[1] Incorporated under foreign law; and,
[2] The foreign law of its incorporation allows Filipinos and Phil corporations to do business in
its home country (reciprocity clause);
[3] May transact/do business after obtaining license {so that it will be under the jurisdiction of
Phil. courts} + certificate of authority from appropriate government agency

S. 141. Application to Existing Foreign Corporation. - When issued already a license upon
effectivity of this law, it shall continue to have such authority;

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S. 142. Application (under oath) for a License: Submit to SEC: [a] copy of articles of
incorporation and BL; [b] and state date/term of incorporation; address of principal office;
name/address of resident agent (RA); place where corp intends to operate; specific purpose; names
of director and officers; ACS, number of shares; OCS; paid up CS;
Reciprocity and Solvency

S. 143. Issuance of license; commence to do business; and, shall deposit with SEC:
[a] bonds/securities w0rth 500k for the benefit of creditors;
[b] within 6 mos after each fiscal year, deposit with SEC add’l securities of 2% of amount
exceeding gross income of Php 10Million;
[c] submit additional securities if deposited securities decreased in value by 10%
[d] SEC release part of deposited securities if gross income decreased or value of total deposit
increased by 10%

S. 144. Who may be a RESIDENT AGENT (RA) = (1) an individual who is a resident of
Phil; of good moral character; and, sound financial standing; or, (2) domestic corporation, of sound
financial standing and in good standing, as certified by SEC;

S. 145. FC file with SEC SPA that summons to RA shall be considered summons served on FC.
SEC also mail copy of summons to corp at its home address.

S. 146. Laws applicable: FC corp bound by Phil laws except: laws for its CREATION,
FORMATION, ORGANIZATION, DISSOLUTION or the RELATION of S/M/OFC to each other or to
the corp.

s. 147. Amendment of Art of Incor or BL of FC: File with SEC copy of amended art of
incorporation or BL within 60 days after amendment became effective;

S. 148. Amended License. Change corporate name; or, when FC pursue other purpose;

S. 149. Merger/Consolidation of FC: May merge with domestic corp. if permitted by Phil laws
and laws of its incorporation;
If party to M/C home country – file with SEC copy of articles of M/C; but if FC is the absorbed
corp., file petition for withdrawal of license;

S. 150. Doing Business Without a License. Cannot sue; but may be sued

S. 151. Revocation of License:

[a] Failure to file annual report;
[b] Failure to appoint/maintain RA;
[c] Failure to notify change RA;
[d] Failure to submit amended art of incor or BL;
[e] Misrepresentation;
[f] Failure to pay taxes;
[g] Doing business outside its purpose(s);
[h] acting agent of FC not licensed to do business;
[i] etc., unfit;

S. 152. Issuance of Certificate of Revocation. –

S. 153. Withdrawal of License of FC; File petition with SEC for withdrawal of license subject to:
[a] payment of all claims; [b] Payment of all taxes; and, [c] Publication of petition 1x week for 3
consecutive weeks.
S. 154-172…. OFFENSES & PENALTIES

S. 173. OUTSTANDING CAPITAL STOCK (OCS) – Total shares of stock issued under a binding
subscription agreement , whether fully or partially paid, except treasury shares.

SECURITIES REGULATION CODE (The Blue Sky Law), R.A. No. 8799
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Nature & Purpose of the Law: The SRC is termed as a “Blue Sky Law” enacted to protect the
public from unscrupulous promoters, who stake business or venture clims which have no real basis,
and sell shares or interesys therein to investor, who are then left holding certificates representing
nothing more than a claim to a square of the blue sky.

The SRC is administered by the SEC.

To prevent exploitation of investors, the SRC requires the: (1) registration of securities and their
regulation except exempt securities (S. 9) and exempt transactions (S. 10); (2) registration of market
participants such as brokers and dealers of securities and their regulation; and, (3) prohibition against
manipulations and practices detrimental to the investing public;

Securities defined: Shares, participation or interest in a corporation or in a commercial

enterprise or profit making venture and evidenced by a certificate, contract, instrument, whether
written or electronic in character;

Distinction between “broker” and “dealer” of securities: Dealer is a person engaged in the
business of buying or selling securities for his own account; while a broker is a person engaged in the
business of buying and selling securities for the account of others

A “clearing agency” is a person who acts as intermediary in making deliveries upon payment to
effect settlement in securities transactions;

An “exchange” is an organized marketplace or facility that brings together buyers and seller and
executes trades of securities and/or commodities;

A “salesman” is a natural person employed as such or as an agent, by a dealer, issuer or broker

to buy and sell securities;

An “issuer” is the originator, maker, obligor or creator of the security;

An “underwriter” is a person who has purchased from an issuer with a view to, offer or sell or
offers or sells for an issuer in connection with the distribution of any security; or, participates in any
such undertaking;

A “promoter” is a person who, acting alone or with others, takes initiative in founding and
organizing the business or enterprise of the issuer and receives consideration therefor;

Proxy Solicitations: Proxies must be in writing, signed by Sh and filed with Corsec before the
metting; unless otherwise provided in the proxy, it shall be valid only for the meeting intended; but in
no case valid for longer than 5 years at one time;

Manipulative Practices & Insider Trading:

a. To engage in Wash Sales by creating false/misleading appearance of active trading;

b. To effect a series of transactions for the purpose of inducing the sale or purchase of any
security;
c. To circulate information that the price of security will likely rise or fall because of market
operations;
d. To make false/misleading statement regarding security registered in an exchange with
respect to any material fact, which statement is known to be false/misleading;
e. To effect series of transactions to peg, fix or stabilize the price of security traded in an
exchange;
f. “Short Sale” is a contract for sale of shares of stock which the seller does not own, or
certificstes which sre not within the control, so as to be available for delivery at the time
delivery must be made; it is selling shares that a person does not own and borrows the same
number of shares in order to make delivery to the purchase. Then he will buy the stocks later
to return to the lender, in the hope that he would do so at a lower price thus making a profit;

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g. “Stop-loss Order” is the direction by a customer to his broker that if the commodity touches
the price named, the broker shall close the trade at the best available price. This is an order
placed to protect a recognized gain in the price of securities against potential loss. The
opportunity for manipulation arises because the offer does not reflect the current market
price. The order is a hedge against market decline;
h. To engage in “Option Trading”. Example: A gives B option to buy shares within 30 days for a
consideration of P5,000. There arew 2 contracts here: the option to sell and possible contract
of sale. With the option, B can control the shares for 30 days without buying them. B can
abuse the option by controlling a large number of shares for a certain period and thus
manipulate the market;
i. “Insider Trading”, the trading of a public company’s stocks or securities based on material,
non-public information about the company. The sale of security made by an insider, his
spouse or relatives within the 2nd degree, legitimate or otherwise, while in possession of
material non-public information, if transacted after such information came into existence,
but prior to the public dissemination of such information and lapse of reasonable time for
the market to absorb such information which can influence a person’s decision to retain, sell
or buy securities;

“Stock Exchange” is the regulated and organized financial market where the buying and
selling of securities occur. Prices are set by supply and demand. It should be registered as
such with the SEC;

“Independent Director” (or outside director) is a person who, apart from shareholdings
and fees received from the corporation, is independent of management and free from any
business or other relationship which could, or could reasonably be perceived to materially
interfere with the exercise of independent judgment in carrying out the responsibilities as
director (S. 22, RA 11232). Under the Revised Corporation Code, the board of corporations
vested with public interest shall have independent directors constituting at least 20% of such
board.

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