2bar Review 3 Insurance 022 HO 30 - Commercial Law - Corporation Law

2022 BAR REVIEW COMMERCIAL LAW
Handout No. 30
CORPORATION LAW
GENERAL PRINCIPLES
NATIONALITY OF CORPORATIONS
In Narra Nickel Mining and Development, Corp. v. Redmont Consolidated Mines, Corp., 722
SCRA 382 (2014), the SC held that the “control test” is the prevailing mode of determining
whether or not a corporation is Filipino.
Under the “control test,” shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality. It is
only when based on the attendant facts and circumstances of the case, there is, in the mind of
the Court, doubt in the 60-40 Filipino-equity ownership in the corporation, that it may apply the
“grandfather rule.” Querubin vs. Commission on Elections En Banc, 776 SCRA 715, G.R. No.
218787 December 8, 2015
To arrive at the actual Filipino ownership and control in a corporation, both the direct and
indirect shareholdings in the corporation are determined.
As further defined by Dean Cesar Villanueva, the Grandfather Rule is “the method by which the
percentage of Filipino equity in a corporation engaged in nationalized and/or partly nationalized
areas of activities, provided for under the Constitution and other nationalization laws, is
computed, in cases where corporate shareholders are present, by attributing the nationality of
the second or even subsequent tier of ownership to determine the nationality of the corporate
shareholder.” Thus, to arrive at the actual Filipino ownership and control in a corporation, both
the direct and indirect shareholdings in the corporation are determined.
The method employed in the Grandfather Rule of attributing the shareholdings of a given
corporate shareholder to the second or even the subsequent tier of ownership hews with the
rule that the “beneficial ownership” of corporations engaged in nationalized activities must
reside in the hands of Filipino citizens. Narra Nickel Mining and Development Corp. vs. Redmont
Consolidated Mines Corp., 748 SCRA 455, G.R. No. 195580 January 28, 2015
Beneficial ownership test through the employment of the grandfather rule.
As defined in the SRC-IRR, “beneficial owner or beneficial ownership means any person who,
directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power (which includes the power to vote or direct the voting of
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such security) and/or investment returns or power (which includes the power to dispose of, or
direct the disposition of such security).”
Thus, in Narra Nickel Mining and Development Corp. v. Redmont Consolidated Mines Corp., the
Court stated that if doubt exists as to the extent of control and beneficial ownership in a public
utility, the grandfather rule can be applied to supplement the control test.
The purpose of the test is to make further inquiry on the ownership of the corporate
stock-holders. By satisfying beneficial ownership test through the employment of the
grandfather rule, devious yet imaginative legal strategies used to circumvent the constitutional
and statutory limits on foreign equity participation can be determined. Roy III vs. Herbosa, 810
SCRA 1, G.R. No. 207246 November 22, 2016, J. Caguioa
DOCTRINE OF SEPARATE JURIDICAL PERSONALITY
It is basic in Corporation Law that a corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other corporations to which it
may be connected. Inferred from a corporation’s separate personality is that “consent by a
corporation through its representatives is not consent of the representative, personally.”
The corporate obligations, incurred through official acts of its representatives, are its own.
Corollarily, a stockholder, director, or representative does not become a party to a contract just
because a corporation executed a contract through that stockholder, director, or representative.
Spouses Fernandez vs. Smart Communications, Inc., G.R. No. 212885, July 17, 2019
A subsidiary has an independent and separate juridical personality distinct from that of its
parent company and that any suit against the latter does not bind the former and vice-versa.
We have ruled that a subsidiary has an independent and separate juridical personality distinct
from that of its parent company and that any suit against the latter does not bind the former and
vice-versa. A corporation is an artificial being invested by law with a personality separate and
distinct from that of other corporations to which it may be connected. Hence, SNN, not ABS-CBN,
should have been made respondent in this case. Fortun vs. Quinsayas, 690 SCRA 623, G.R. No.
194578 February 13, 2013

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CORPORATION LAW
DOCTRINE OF PIERCING THE CORPORATE VEIL
There are instances, however, when the distinction between personalities of directors, officers,
and representatives, and of the corporation, are disregarded. This is piercing the veil of
corporate fiction.
The doctrine of piercing the veil of corporate fiction is a legal precept that allows a corporation’s
separate personality to be disregarded under certain circumstances, so that a corporation and its
stockholders or members, or a corporation and another related corporation could be treated as
a single entity. It is meant to apply only in situations where the separate corporate personality of
a corporation is being abused or being used for wrongful purposes.
The piercing of the corporate veil must be done with caution. To justify the piercing of the veil of
corporate fiction, “it must be shown by clear and convincing proof that the separate: and distinct
personality of the corporation was purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings.” Spouses Fernandez vs. Smart
Communications, Inc., G.R. No. 212885, July 17, 2019
Surrounding circumstances to be considered in determining the need to pierce the corporate

veil.
“The corporate mask may be removed or the corporate veil pierced when the corporation is just
an alter ego of a person or of another corporation.” By looking at the circumstances surrounding
the creation, incorporation, management and closure and cessation of business operations of
CCI, it cannot be denied that CCJ’s existence was dependent upon Ty and petitioner. ABS-CBN
Broadcasting Corporation vs. Hilario, G.R. No. 193136, July 10, 2019
Areas on Corporate Piercing
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: (a) defeat
of public convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; (b) fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime; or (c) alter ego cases, where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.

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This principle is basically applied only to determine established liability. However, piercing of the
veil of corporate fiction is frowned upon and must be done with caution. This is because a
corporation is invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. Maricalum
Mining Corporation vs. Florentino, G.R. No. 221813, July 23, 2018
Elements of Alter Ego Theory
The elements of the alter ego theory are:
The first prong is the “instrumentality” or “control” test. This test requires that the subsidiary
be completely under the control and domination of the parent. It examines the parent
corporation’s relationship with the subsidiary. It inquires whether a subsidiary corporation is so
organized and controlled and its affairs are so conducted as to make it a mere instrumentality or
agent of the parent corporation such that its separate existence as a distinct corporate entity will
be ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the
parent corporation, though acting through the subsidiary in form and appearance, “is operating
the business directly for itself.”
The second prong is the “fraud” test. This test requires that the parent corporation’s conduct in
using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship
of the plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a
showing of “an element of injustice or fundamental unfairness.”
The third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendant’s exercise of control and improper use of the
corporate form and, thereby, suffer damages. Maricalum Mining Corporation vs. Florentino,
G.R. No. 221813, July 23, 2018 citing Philippine National Bank v. Hydro Resources Contractors
Corporation, 706 Phil. 297, 310-312 (2013)

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Outsider Reverse Piercing & Insider Reverse Piercing
Outsider reverse piercing occurs when a party with a claim against an individual or corporation
attempts to be repaid with assets of a corporation owned or substantially controlled by the
defendant.
In contrast, in insider reverse piercing, the controlling members will attempt to ignore the
corporate fiction in order to take advantage of a benefit available to the corporation, such as an
interest in a lawsuit or protection of personal assets. International Academy of Management
and Economics (I/AME) vs. Litton and Company, Inc. , 848 SCRA 437, G.R. No. 191525 December
13, 2017
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or one and the same.
While the conditions for the disregard of the juridical entity may vary, the following are some
probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil, as laid down in Concept Builders, Inc. v NLRC, 257 SCRA 149 (1996): (1) Stock
ownership by one or common ownership of both corporations; (2) Identity of directors and
officers; (3) The manner of keeping corporate books and records, and (4) Methods of conducting
the business. Heirs of Fe Tan Uy vs. International Exchange Bank, 690 SCRA 519, G.R. No. 166282
February 13, 2013
DE FACTO CORPORATIONS VERSUS CORPORATIONS BY ESTOPPEL
Jurisprudence settled that “[t]he filing of articles of incorporation AND the issuance of the
certificate of incorporation are essential for the existence of a de facto corporation.” In fine, it
is the act of registration with SEC through the issuance of a certificate of incorporation that
marks the beginning of an entity’s corporate existence.
Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC
issued the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after
Purificacion executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation
was made, the Petitioner cannot be considered a corporation de facto. The Missionary Sisters of
Our Lady of Fatima vs. Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307

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One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.
The doctrine of corporation by estoppel is founded on principles of equity and is designed to

prevent injustice and unfairness. It applies when a non-existent corporation enters into contracts
or dealings with third persons. In which case, the person who has contracted or otherwise dealt
with the non-existent corporation is estopped to deny the latter’s legal existence in any action
leading out of or involving such contract or dealing. While the doctrine is generally applied to
protect the sanctity of dealings with the public, nothing prevents its application in the reverse, in
fact the very wording of the law which sets forth the doctrine of corporation by estoppel permits
such interpretation. Such that a person who has assumed an obligation in favor of a non-existent
corporation, having transacted with the latter as if it was duly incorporated, is prevented from
denying the existence of the latter to avoid the enforcement of the contract. The Missionary
Sisters of Our Lady of Fatima (Peach Sisters of Laguna), represented by Rev. Mother Ma.
Concepcion R. Realon, et al. Vs Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307
The doctrine of corporation by estoppel applies for as long as there is no fraud and when the
existence of the association is attacked for causes attendant at the time the contract or dealing
sought to be enforced was entered into, and not thereafter.
In this controversy, Purificacion dealt with the petitioner as if it were a corporation. x x x The
doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the
existence of an entity which entered into a transaction with a third party, unjust enrichment
would result as some form of benefit have already accrued on the part of one of the parties. Thus,
in that instance, the Court affords upon the unorganized entity corporate fiction and juridical
personality for the sole purpose of upholding the contract or transaction. The Missionary Sisters
of Our Lady of Fatima (Peach Sisters of Laguna), represented by Rev. Mother Ma. Concepcion
R. Realon, et al. Vs Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307

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CORPORATE POWERS
The language of the Corporation Code appears to confine the term ultra vires to an act outside
or beyond express, implied and incidental corporate powers; Ultra vires acts or acts which are
clearly beyond the scope of one’s authority are null and void and cannot be given any effect.
To elucidate, an ultra vires act is defined under BP 68 in the following wise: Section 45. Ultra vires
acts of corporations. – No corporation under [the Corporation Code] shall possess or exercise any
corporate powers except those conferred by [the Corporation Code] or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers so
conferred. The language of the Code appears to confine the term ultra vires to an act outside or
beyond express, implied and incidental corporate powers. Nevertheless, the concept can also
include those acts that may ostensibly be within such powers but are, by general or special laws,
either proscribed or declared illegal. Ultra vires acts or acts which are clearly beyond the scope
of one’s authority are null and void and cannot be given any effect. Querubin vs. Commission on
Elections En Banc, 776 SCRA 715, G.R. No. 218787 December 8, 2015
“Illegal Corporate Acts” and “Ultra Vires Acts,” Distinguished.
A distinction should be made between corporate acts or contracts which are illegal and those
which are merely ultra vires. The former contemplates the doing of an act which are contrary to
law, morals or public policy or public duty, and are, like similar transactions between individuals,
void. They cannot serve as basis of a court action nor acquire validity by performance, ratification
or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab
initio, but are not merely within the scope of the articles of incorporation, are merely voidable
and may become binding and enforceable when ratified by the stockholders. Bernas vs. Cinco,
761 SCRA 104, G.R. Nos. 163368-69 July 1, 2015
Trust Fund Doctrine, defined.
x x x The “Trust Fund” doctrine considers this subscribed capital as a trust fund for the payment
of the debts of the corporation, to which the creditors may look for satisfaction. Until the
liquidation of the corporation, no part of the subscribed capital may be returned or released to

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the stockholder (except in the redemption of redeemable shares) without violating this principle.
Thus, dividends must never impair the subscribed capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its own shares using the subscribed capital
as the consideration therefor. Salido, Jr. v. Aramaywan Metals Development Corp., G.R. No.
233857, March 18, 2021 citing NTC v. CA, G.R. No. 127937, July 28, 1999
Instances when creditor is allowed to maintain an action based on the Trust Fund Doctrine
Based on the Court’s above pronouncements, Halley recognized two instances when the creditor
is allowed to maintain an action upon any unpaid subscriptions based on the trust fund doctrine:
(1) where the debtor corporation released the subscriber to its capital stock from the obligation
of paying for their shares, in whole or in part, without a valuable consideration, or fraudulently,
to the prejudice of creditors; and (2) where the debtor corporation is insolvent or has been
dissolved without providing for the payment of its creditors. Enano-Bote v. Alvarez, G.R. No.
223572, November 10, 2020
BOARD OF DIRECTORS AND TRUSTEES
Corporation’s board of directors; doctrine of centralized management
A corporation’s board of directors is understood to be that body which (1) exercises all powers
provided for under the Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all the property of the corporation. Its members have been characterized as
trustees or directors clothed with fiduciary character. Sec. 22, RCC; Bernas vs. Cinco, 761 SCRA
104, G.R. Nos. 163368-69 July 1, 2015
The social contract in the corporate family to decide the course of the corporate business has
been vested in the board and not with courts.
Xxx the “business judgment rule” xxx states that: xxx xxx xxx (C)ontracts intra vires entered into
by the board of directors are binding upon the corporation and courts will not interfere unless
such contracts are so unconscionable and oppressive as to amount to wanton destruction to the
rights of the minority, as when plaintiffs aver that the defendants (members of the board), have
concluded a transaction among themselves as will result in serious injury to the plaintiffs
stockholders.

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Courts and other tribunals are wont to override the business judgment of the board mainly
because, courts are not in the business of business, and the laissez faire rule or the free enterprise
system prevailing in our social and economic set-up dictates that it is better for the State and its
organs to leave business to the businessmen; especially so, when courts are ill-equipped to make
business decisions. More importantly, the social contract in the corporate family to decide the
course of the corporate business has been vested in the board and not with courts. Ong Yong vs.
Tiu, 401 SCRA 1, G.R. No. 144476, G.R. No. 144629 April 8, 2003
Qualification and Term of Board of Directors or Trustees of a Corporation
Directors shall be elected for a term of one (1) year from among the holders of stocks registered
in the corporation’s books, while trustees shall be elected for a term not exceeding three (3)
years from among the members of the corporation. Each director and trustee shall hold office
until the successor is elected and qualified. A director who ceases to own at least one (1) share
of stock or a trustee who ceases to be a member of the corporation shall cease to be such.
The board of the following corporations vested with public interest shall have independent
directors constituting at least twenty percent (20%) of such board:
(a) Corporations covered by Section 17.2 of the SRC namely those whose securities are
registered with the Commission, corporations listed with an exchange or with assets of at
least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders
of shares, each holding at least one hundred (100) shares of a class of its equity shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service
business, preneed, trust and insurance companies, and other financial intermediaries;
and
(c) Other corporations engaged in businesses vested with public interest similar to the above,
as may be determined by the Commission, after taking into account relevant factors
which are germane to the objective and purpose of requiring the election of an
independent director, such as the extent of minority ownership, type of financial products
or securities issued or offered to investors, public interest involved in the nature of
business operations, and other analogous factors.
An independent director is a person who, apart from shareholdings and fees received from the
corporation, is independent of management and free from any business or other relationship
which could, or could reasonably be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a director.

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Independent directors must be elected by the shareholders present or entitled to vote in absentia
during the election of directors. Independent directors shall be subject to rules and regulations
governing their qualifications, disqualifications, voting requirements, duration of term and term
limit, maximum number of board memberships and other requirements that the Commission will
prescribe to strengthen their independence and align with international best practices. Sec. 22,
RCC
Disqualification of Directors, Trustees or Officers
A person shall be disqualified from being a director, trustee or offi cer of any corporation if, within
five (5) years prior to the election or appointment as such, the person was:
(a) Convicted by final judgment:

(1) Of an offense punishable by imprisonment for a period exceeding six (6)
years;
(2) For violating [the RCC]; and
(3) For violating the SRC;
(b) Found administratively liable for any offense involving fraudulent acts; and
(c) By a foreign court or equivalent foreign regulatory authority for acts, violations or
misconduct similar to those enumerated in paragraphs (a) and (b) above.
The foregoing is without prejudice to qualifications or other disqualifications, which the

Commission, the primary regulatory agency, or the Philippine Competition Commission may
impose in its promotion of good corporate governance or as a sanction in its administrative
proceedings. Sec. 26, RCC
Election of Directors or Trustees

Except when the exclusive right is reserved for holders of founders’ shares under Section 7 of
[the RCC], each stockholder or member shall have the right to nominate any director or trustee
who possesses all of the qualifications and none of the disqualifications set forth in [the RCC].
At all elections of directors or trustees, there must be present, either in person or through a
representative authorized to act by written proxy, the owners of majority of the outstanding
capital stock, or if there be no capital stock, a majority of the members entitled to vote. When so
authorized in the bylaws or by a majority of the board of directors, the stockholders or members
may also vote through remote communication or in absentia: Provided, That the right to vote
through such modes may be exercised in corporations vested with public interest,

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notwithstanding the absence of a provision in the bylaws of such corporations.
A stockholder or member who participates through remote communication or in absentia, shall

be deemed present for purposes of quorum.
The election must be by ballot if requested by any voting stockholder or member.
In stock corporations, stockholders entitled to vote shall have the right to vote the number of
shares of stock standing in their own names in the stock books of the corporation at the time
fixed in the bylaws or where the bylaws are silent, at the time of the election. The said
stockholder may: (a) vote such number of shares for as many persons as there are directors to
be elected; (b) cumulate said shares and give one (1) candidate as many votes as the number of
directors to be elected multiplied by the number of the shares owned; or (c) distribute them on
the same principle among as many candidates as may be seen fit: Provided, That the total number
of votes cast shall not exceed the number of shares owned by the stockholders as shown in the
books of the corporation multiplied by the whole number of directors to be elected: Provided,
however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of
incorporation or in the bylaws, members of nonstock corporations may cast as many votes as
there are trustees to be elected but may not cast more than one (1) vote for one (1) candidate.
Nominees for directors or trustees receiving the highest number of votes shall be declared
elected.
If no election is held, or the owners of majority of the outstanding capital stock or majority of the
members entitled to vote are not present in person, by proxy, or through remote communication
or not voting in absentia at the meeting, such meeting may be adjourned and the corporation
shall proceed in accordance with Section 25 of [the RCC].
The directors or trustees elected shall perform their duties as prescribed by law, rules of good
corporate governance, and bylaws of the corporation. Sec. 23, RCC
Removal of Directors or Trustees
Any director or trustee of a corporation may be removed from offi ce by a vote of the
stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or
in a nonstock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote:
Provided, That such removal shall take place either at a regular meeting of the corporation or at
a special meeting called for the purpose, and in either case, after previous notice to stockholders
or members of the corporation of the intention to propose such removal at the meeting. A special
meeting of the stockholders or members for the purpose of removing any director or trustee

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must be called by the secretary on order of the president, or upon written demand of the
stockholders representing or holding at least a majority of the outstanding capital stock, or a
majority of the members entitled to vote. If there is no secretary, or if the secretary, despite
demand, fails or refuses to call the special meeting or to give notice thereof, the stockholder or
member of the corporation signing the demand may call for the meeting by directly addressing
the stockholders or members. Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or by written notice prescribed
in [the RCC]. 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 Section 23 of [the RCC].
The Commission shall, motu proprio or upon verified complaint, and after due notice and hearing,
order the removal of a director or trustee elected despite the disqualification, or whose
disqualification arose or is discovered subsequent to an election. The removal of a disqualified
director shall be without prejudice to other sanctions that the Commission may impose on the
board of directors or trustees who, with knowledge of the disqualification, failed to remove such
director or trustee. Sec. 27, RCC
Emergency Board
However, when the vacancy prevents the remaining directors from constituting a quorum and
emergency action is required to prevent grave, substantial, and irreparable loss or damage to the
corporation, the vacancy may be temporarily filled from among the officers of the corporation
by unanimous vote of the remaining directors or trustees. The action by the designated director
or trustee shall be limited to the emergency action necessary, and the term shall cease within a
reasonable time form the termination of the emergency or upon election of the replacement
director or trustee, whichever comes earlier. The corporation must notify the Commission within
three (3) days from the creation of the emergency board, stating therein the reason for its
creation. Sec. 28, RCC
Directors and Officers; When personally liable
A corporate director, trustee, or officer is to be held solidarily liable with the corporation in the
following instances:

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(1) When directors and trustees or, in appropriate cases, the officers of a corporation: (a)
vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with
gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to
the prejudice of the corporation, its stockholders or members, and other persons;
(2) When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto;
(3) When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation; or
(4) When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action. Spouses Fernandez vs. Smart Communications, Inc., G.R. No.
212885, July 17, 2019
Doctrine of corporate opportunity
Thus, a claim of damages under Section 34 of the Corporation Code (now Section 33 of the RCC)
arises when a corporate officer or director takes a business opportunity for his own, provided
that it is sufficiently shown by the claimant that:
(a) The corporation is financially able to exploit the opportunity;
(b) The opportunity is within the corporation’s line of business;
(c) The corporation has an interest or expectancy in the opportunity; and
(d) By taking the opportunity for his own, the corporate fiduciary (i.e., corporate director,
trustee or officer) will thereby be placed in a position inimicable to his duties to the
corporation.
In determining paragraph (b), whether the opportunity is within the corporation’s line of
business, the involved corporations must be shown to be in competition with one another. They
must be engaged in related areas of businesses, producing the same products with overlapping
markets.
As pointed out by Associate Justice Marvic M.V.F. Leonen, the test laid down in Gokongwei is
very much relevant to the instant case. In Gokongwei, it was held that “the test must be whether
the business does in fact compete.” It further defined “competition,” as “a struggle for advantage
between two or more forces, each possessing, in substantially similar if not identical degree,
certain characteristics essential to the business sought.” Factors, such as “quantum and place of
business, identity of products and area of competition should be taken into consideration.” The

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Court even pointed out that it is “therefore, necessary to show that [the director’s] business
covers a substantial portion of the same markets for similar products to the extent of not less
than 10% of [petitioner] corporation’s market for competing products.” Consequently, it is not
enough to impute bare acts of transactions in which the claimant subjectively perceives the duty
of loyalty to be breached. Sufficient evidence must be presented to show that the claim of
damages is indeed premised on a concrete corporate opportunity falling under the parameters
above-stated. Only then may actual damages relative to such lost opportunity be awarded. Total
Office Products and Services (TOPROS), Inc. v. Chang, Jr., G.R. Nos. 200070-71, December 7,
2021
STOCKHOLDERS AND MEMBERS
Doctrine of equality of shares
A common stock represents the residual ownership interest in the corporation. It is a basic class
of stock ordinarily and usually issued without extraordinary rights or privileges and entitles the
shareholder to a pro rata division of profits. Preferred stocks are those which entitle the
shareholder to some priority on dividends and asset distribution. Both shares are part of the
corporation’s capital stock. Both stockholders are no different from ordinary investors who take
on the same investment risks. Preferred and common shareholders participate in the same
venture, willing to share in the profits and losses of the enterprise. Moreover, under the doctrine
of equality of shares—all stocks issued by the corporation are presumed equal with the same
privileges and liabilities, provided that the Articles of Incorporation is silent on such differences.
Commissioner of Internal Revenue vs. Court of Appeals, 301 SCRA 152, G.R. No. 108576 January
20, 1999
Proxy
The right to vote of stockholders or members may be exercised in person, through a proxy, or
when so authorized in the bylaws, through remote communication or in absentia, while directors
or trustees cannot attend or vote by proxy at board meetings. Secs. 49 & 52, RCC
Proxies shall be in writing, signed and filed, by the stockholder or member, in any form authorized
in the bylaws and received by the corporate secretary within a reasonable time before the
scheduled meeting. Unless otherwise provided in the proxy form, it shall be valid only for the
meeting for which it is intended. No proxy shall be valid and effective for a period longer than
five (5) years at any one time. Sec. 57, RCC

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Voting trusts
One or more stockholders of a stock corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares
for a period not exceeding five (5) years at any time: Provided, That in the case of a voting trust
specifically required as a condition in a loan agreement, said voting trust may be for a period
exceeding five (5) years but shall automatically expire upon full payment of the loan. A voting
trust agreement must be in writing and notarized, and shall specify the terms and conditions
thereof.
A certified copy of such agreement shall be filed with the corporation and with the Commission;
otherwise, the agreement is ineffective and unenforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled and new ones shall be issued in the
name of the trustee or trustees, stating that they are issued pursuant to said agreement. The
books of the corporation shall state that the transfer in the name of the trustee or trustees is
made pursuant to the voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors, voting trust certificates, which
shall be transferable in the same manner and with the same effect as certificates of stock.
The voting trust agreement filed with the corporation shall be subject to examination by any
stockholder of the corporation in the same manner as any other corporate book or record:
Provided, That both the trustor and the trustee or trustees may exercise the right of inspection
of all corporate books and records in accordance with the provisions of [the RCC].
Any other stockholder may transfer the shares to the same trustee or trustees upon the terms
and conditions stated in the voting trust agreement, and thereupon shall be bound by all the
provisions of said agreement.
No voting trust agreement shall be entered into for purposes of circumventing the laws against
anti-competitive agreements, abuse of dominant position, anti- competitive mergers and
acquisitions, violation of nationality and capital requirements, or for the perpetuation of fraud.
Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire
at the end of the agreed period. The voting trust certificates as well as the certificates of stock in
the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of
stock shall be reissued in the name of the trustors.

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The voting trustee or trustees may vote by proxy or in any manner authorized under the bylaws
unless the agreement provides otherwise. Sec. 58, RCC
Cases when stockholders’ action is required
By a majority vote
Cases when majority vote of stockholders is required

(a) Retention of specific corporate term (Sec. 11, RCC)
(b) Demand to hold a special meeting for the purpose of removing any director or trustee
(Sec. 27, RCC)
(c) Granting of compensation to directors or trustees (Sec. 29, RCC)
(d) Entering into management contracts (Sec. 43, RCC)
(e) Adoption of by-laws and amendments thereto (Sec. 45, RCC)
(f) Fixing of issued price of no-par value shares (Sec. 61, RCC)
(g) Voluntary dissolution where no creditors are affected (Sec. 134, RCC)
By a two-thirds vote
Cases when two-thirds vote of stockholders is required

(a) Amendment of articles of incorporation (Sec. 15, RCC)
(b) Removal of directors/trustees (Sec. 27, RCC)
Ratification of self-dealing directors (Sec. 31, RCC)
(c) Ratification of act of disloyal director (Sec. 33, RCC)
(d) Extension or shortening of corporate term (Sec. 36, RCC)
(e) Increase or decrease of capital stock; incur, create, or increase bonded indebtedness
(Sec. 37, RCC)
(f) Denial of pre-emptive right (Sec. 38, RCC)
(g) Sale of all or substantially of corporation’s properties and assets (Sec. 39, RCC)
(h) Invest corporate funds in another corporation or business or for any other purpose (Sec.
41, RCC)
(i) Declaration of stock dividends (Sec. 42, RCC)
(j) In certain cases, entering into management contract (Sec. 43, RCC)
(k) Delegation of the power to amend, repeal, or adopt new by-laws to BOD (Sec. 47, RCC)
(l) Plan of merger or consolidation and any amendment thereto (Sec. 76, RCC)
(m) Voluntary dissolution where creditors are affected (Sec. 135, RCC)
(n) Incorporation of religious societies (Sec. 114, RCC)
(o) In close corporation, amendment to AOI which seeks to delete or remove any provision
required by the Title on close corporations or to reduce a quorum or voting requirement
stated in said AOI (Sec. 102, RCC)

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By cumulative voting
Case when a cumulative vote of stockholders is required

(a) Election of directors (Sec. 23, RCC)
The term “dividend” in its technical sense and ordinary acceptation is that part or portion of
the profits of the enterprise which the corporation, by its governing agents, sets apart for
ratable division among the holders of the capital stock. It is a payment to the stockholders of a
corporation as a return upon their investment, and the right thereto is an incident of ownership
of stock.
Dividends are payable to the stockholders of record as of the date of the declaration of dividends
or holders of record on a certain future date, as the case may be, unless the parties have agreed
otherwise. And a transfer of shares which is not recorded in the books of the corporation is valid
only as between the parties, hence, the transferor has the right to dividends as against the
corporation without notice of transfer but it serves as trustee of the real owner of the dividends,
subject to the contract between the transferor and transferee as to who is entitled to receive the
dividends. Cojuangco v. Sandiganbayan, G.R. No. 183278, April 24, 2009, 604 PHIL 670-676
Declaration of dividends
Stock corporations are prohibited from retaining surplus profits in excess of one hundred percent
(100%) of their paid-in capital stock, except:
(a) when justified by definite corporate expansion projects or programs approved by the
board of directors; or
(b) when the corporation is prohibited under any loan agreement with financial institutions
or creditors, whether local or foreign, from declaring dividends without their consent, and
such consent has not yet been secured; or
(c) when it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation, such as when there is need for special reserve for probable
contingencies. Sec. 42, RCC

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Right to inspect corporate books
Corporate records, regardless of the form in which they are stored, shall be open to inspection
by any director, trustee, stockholder or member of the corporation in person or by a
representative at reasonable hours on business days, and a demand in writing may be made by
such director, trustee or stockholder at their expense, for copies of such records or excerpts from
said records. The inspecting or reproducing party shall remain bound by confidentiality rules
under prevailing laws, such as the rules on trade secrets or processes under Republic Act No.
8293, otherwise known as the “Intellectual Property Code of the Philippines”, as amended,
Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012” Republic Act No.
8799, otherwise known as “The Securities Regulation Code”, and the Rules of Court.
A requesting party who is not a stockholder or member of record, or is a competitor, director,

officer, controlling stockholder or otherwise represents the interests of a competitor shall have
no right to inspect or demand reproduction of corporate records. Sec. 73, RCC
Section 74 of the Corporation Code provides for the liability for damages of any officer or agent
of the corporation for refusing to allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from its records or minutes.
Section 144 of the same Code further provides for other applicable penalties in case of violation
of any provision of the Corporation Code. Hence, to prove any violation under the
aforementioned provisions, it is necessary that:
(1) a director, trustee, stockholder or member has made a prior demand in writing for a copy
of excerpts from the corporation’s records or minutes;
(2) any officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts;
(3) 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; and
(4) where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporation’s records and minutes
has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or was not acting in
good faith or for a legitimate purpose in making his demand, the contrary must be shown

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or proved. Roque vs. People, 826 SCRA 618, G.R. No. 211108 June 7, 2017
A violation of the right to inspect association books DOES NOT carry the same liability as that
of a violation of the right to inspect corporate books.
While Section 74 of the Implementing Rules and Regulations of R.A. 9904 39 provides for the
suppletory application of the provisions of the Corporation Code, this does not mean that the
provisions of the Corporation Code on the violation of a stockholder’s right to inspect corporate
records may be applied to the right of a homeowners to inspect association books and records.
The Corporation Code is intended merely to supplement whatever may be lacking from the
provisions of R.A. No. 9904. The same does not apply when the provisions sought to be
supplemented adequately addresses the issues that have been raised. Francisco v. Del Castillo,
G.R. No. 236726, September 14, 2021
The revocation of a corporation’s Certificate of Registration does not automatically warrant

the extinction of the corporation itself such that its rights and liabilities are likewise altogether
extinguished.
In the case of Clemente v. Court of Appeals, 242 SCRA 717 (1995), the Court explained that the
termination of the life of a juridical entity does not, by itself, cause the extinction or diminution
of the rights and liabilities of such entity nor those of its owners and creditors. Thus, the
revocation of BMTODA’s registration does not automatically strip off Ongjoco of his right to
examine pertinent documents and records relating to such association. Roque vs. People, 826
SCRA 618, G.R. No. 211108 June 7, 2017
Pre-emptive right
All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective shareholdings, unless such
right is denied by the articles of incorporation or an amendment thereto: Provided, That such
preemptive right shall not extend to shares issued in compliance with laws requiring stock
offerings or minimum stock ownership by the public; or to shares issued in good faith with the
approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in
exchange for property needed for corporate purposes or in payment of a previously contracted
debt. Sec. 38, RCC

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Upon the expiration of said period, any stockholder who has not exercised such right will be
deemed to have waived it. Majority Stockholders of Ruby Industrial Corporation vs. Lim, 650
SCRA 461, G.R. No. 165887 June 6, 2011
Even if the pre-emptive right does not exist, either because the issue comes within the
exceptions in Section [38] or because it is denied or limited in the articles of incorporation, an
issue of shares may still be objectionable if the directors acted in breach of trust and their
primary purpose is to perpetuate or shift control of the corporation, or to “freeze out” the
minority interest.
The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist, either because the
issue comes within the exceptions in Section [38] or because it is denied or limited in the articles
of incorporation, an issue of shares may still be objectionable if the directors acted in breach of
trust and their primary purpose is to perpetuate or shift control of the corporation, or to “freeze
out” the minority interest. Majority Stockholders of Ruby Industrial Corporation vs. Lim, 650
SCRA 461, G.R. No. 165887 June 6, 2011
The right of first refusal has long been recognized, both legally and jurisprudentially, as valid
in our jurisdiction. It is significant to note, however, that in those cases where the right of
refusal is upheld by both law and jurisprudence, the party in whose favor the right is granted
has an interest on the object over which the right of first refusal is to be exercised. In those
instances, the grant of the right of first refusal is a means to protect such interest.
In the case of Republic v. Sandiganbayan, the Presidential Commission on Good Government

(PCGG) sought to exercise its right of first refusal as a stockholder of Eastern Telecommunications
Philippines, Inc. (ETPI), a corporation sequestered by the PCGG, to purchase ETPI shares being
sold by another stockholder to a non-stockholder. While the Court recognized that PCGG had a
right of first refusal with respect to ETPI’s shares, it nevertheless did not sustain such right on the
ground that the same was not seasonably exercised. Power Sector Assets and Liabilities
Management Corp. v. Pozzolanic Philippines, Inc., G.R. No. 183789, August 24, 2011, 671 PHIL
731-770

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To determine whether or not a case involves an intra-corporate dispute, two tests are applied
— the relationship test and the nature of the controversy test.
Under the relationship test, there is an intra-corporate controversy when the conflict is (1)
between the corporation, partnership, or association and the public; (2) between the
corporation, partnership, or association and the State insofar as its franchise, permit, or license
to operate is concerned; (3) between the corporation, partnership, or association and its
stockholders, partners, members, or officers; and (4) among the stockholders, partners, or
associates themselves.
On the other hand, in accordance with the nature of controversy test, an intra-corporate
controversy arises when the controversy is not only rooted in the existence of an intra-corporate
relationship, but also in the enforcement of the parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory rules of the corporation.
Based on the foregoing tests, it is clear that this case involves an intra-corporate dispute. It is a
conflict between a stockholder and the corporation, which satisfies the relationship test, and it
involves the enforcement of the right of Ozamiz, as a stockholder, to inspect the books of PHC
and the obligation of the latter to allow its stockholder to inspect its books. San Jose vs. Ozamiz,
831 SCRA 51, G.R. No. 190590 July 12, 2017
In order that the Securities Exchange Commission (SEC) (now the Regional Trial Court [RTC])
can take cognizance of a case, the controversy must pertain to any of the following
relationships: (a) between the corporation, partnership, or association and the public; (b)
between the corporation, partnership, or association and its stockholders, partners, members,
or officers; (c) between the corporation, partnership, or association and the State as far as its
franchise, permit, or license to operate is concerned; and (d) among the stockholders, partners,
or associates themselves.
However, not every conflict between a corporation and its stockholders involves corporate
matters. Concurrent factors, such as the status or relationship of the parties, or the nature of the
question that is the subject of their controversy, must be considered in determining whether the
SEC (now the RTC) has jurisdiction over the controversy. Tumagan vs. Kairuz, 880 SCRA 93, G.R.
No. 198124 September 12, 2018

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What appears on record as the true nature of the controversy is that of a shareholder seeking
relief from the court to contest the management’s decision to: (1) post guards to secure the
premises of the corporate property; (2) padlock the premises; and (3) deny her access to the
same on May 28, 2007 due to her alleged default on the provisions of the MOA.
Thus, we agree with petitioners that while the case purports to be one for forcible entry filed by
Mariam against BIRI’s employees and contractors in their individual capacities, the true nature
of the controversy is an intra-corporate dispute between BIRI and its shareholder, Mariam,
regarding the management of, and access to, the corporate property subject of the MOA. We
therefore find that the MCTC never acquired jurisdiction over the ejectment case filed by Mariam
Tumagan vs. Kairuz, 880 SCRA 93, G.R. No. 198124 September 12, 2018
Complaints for illegal dismissal filed by a cooperative officer constitute an intra-cooperative

controversy, jurisdiction over which belongs to the regional trial courts (RTCs).
Ellao’s main resistance to the regional trial court’s exercise of jurisdiction over his complaint for
illegal dismissal rests on his theory that BATELEC I, as a cooperative, is not a corporation
registered with the SEC. Registration with the SEC, however, is not the operative factor in
determining whether or not the latter enjoys jurisdiction over a certain dispute or controversy.
Ellao vs. Batangas I Electric Cooperative, Inc. (BATELEC I), 871 SCRA 227, G.R. No. 209166 July
9, 2018
A corporate officer’s dismissal is always a corporate act, or an intra-corporate controversy

which arises between a stockholder and a corporation, and the nature is not altered by the
reason or wisdom with which the Board of Directors may have in taking such action.
The issue of the alleged termination involving a corporate officer, not a mere employee, is not a
simple labor problem but a matter that comes within the area of corporate affairs and
management and is a corporate controversy in contemplation of the Corporation Code.
To emphasize, the determination of the rights of a corporate officer dismissed from his
employment, as well as the corresponding liability of a corporation, if any, is an intra-corporate
dispute subject to the jurisdiction of the regular courts. Wesleyan University-Philippines vs.
Maglaya, Sr., 815 SCRA 171, G.R. No. 212774 January 23, 2017

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Refusal to allow inspection of corporate books involves intra-corporate dispute.
The dispute at hand, which involves the stockholder, Ozamiz, demanding to inspect the books of
Philcomsat Holdings Corporation (PHC) and the consequent refusal of the corporation to show
its books, is simply an intra-corporate dispute. San Jose vs. Ozamiz, 831 SCRA 51, G.R. No. 190590
July 12, 2017
Individual, class, and derivative suits, distinguished.
Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of

directors or other persons may be classified into individual suits, class suits, and derivative suits.
Where a stockholder or member is denied the right of inspection, his suit would be individual
because the wrong is done to him personally and not to the other stockholders or the
corporation. Where the wrong is done to a group of stockholders, as where preferred
stockholders’ rights are violated, a class or representative suit will be proper for the protection
of all stockholders belonging to the same group. But where the acts complained of constitute a
wrong to the corporation itself, a cause of action belongs to the corporation and not to the
individual stockholder or member. Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his interest therein would be impaired,
this fact of itself is not sufficient to give him an individual cause of action since the corporation is
a person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise,
not only would the theory of separate entity be violated, but there would be multiplicity of suits
as well as a violation of the priority rights of creditors. Furthermore, there is the difficulty of
determining the amount of damages that should be paid to each individual stockholder.
However, in cases of mismanagement where the wrongful acts are committed by the directors
or trustees themselves, a stockholder or member may find that he has no redress because the
former are vested by law with the right to decide whether or not the corporation should sue, and
they will never be willing to sue themselves. The corporation would thus be helpless to seek
remedy. Because of the frequent occurrence of such a situation, the common law gradually
recognized the right of a stockholder to sue on behalf of a corporation in what eventually became
known as a “derivative suit.” It has been proven to be an effective remedy of the minority against
the abuses of management. Thus, an individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate
rights, whenever officials of the corporation refuse to sue or are the ones to be sued or hold the
control of the corporation. In such actions, the suing stockholder is regarded as the nominal
party, with the corporation as the party in interest. Ago Realty & Development Corp. v. Ago, G.R.
Nos. 210906 & 211203, October 16, 2019 citing Cua, Jr. v. Tan, G.R. Nos. 181455-56 & 182008,
December 4, 2009, 622 PHIL 661-737

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The legal standing of minority stockholders to bring derivative suits is not a statutory right, there
being no provision in the Corporation Code or related statutes authorizing the same, but is
instead a product of jurisprudence based on equity. Ching vs. Subic Bay Golf and Country Club,
Inc., 734 SCRA 569, G.R. No. 174353 September 10, 2014
Five Requisites for Filing a Derivative Suit.
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim
Rules) provides the five (5) requisites for filing derivative suits: SECTION 1. Derivative action.—A
stockholder or member may bring an action in the name of a corporation or association, as the
case may be, provided, that: (1) He was a stockholder or member at the time the acts or
transactions subject of the action occurred and at the time the action was filed; (2) He exerted
all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation, bylaws, laws or rules governing the
corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for
the act or acts complained of; and (4) The suit is not a nuisance or harassment suit. In case of
nuisance or harassment suit, the court shall forthwith dismiss the case. The fifth requisite for
filing derivative suits, while not included in the enumeration, is implied in the first paragraph of
Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or member must be
“in the name of [the] corporation or association. . . .” This requirement has already been settled
in jurisprudence. Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881 September 24, 2014
CAPITAL STRUCTURE
Nature of shares of stock.
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. Sec. 62, RCC

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Shares of stock, private property
This court held that the sequestration of Piedras Petroleum did not automatically change the
nature of the shares of stock from private property to government property. Republic v.
Tatlonghari, G.R. No. 170458, November 23, 2015, 773 PHIL 179-229
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:
(a) Actual cash paid to the corporation;
(b) 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;
(c) Labor performed for or services actually rendered to the corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification or
conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
Where the consideration is other than actual cash, or consists of intangible property such as
patents or copyrights, the valuation thereof shall initially be determined by the stockholders or
the board of directors, subject to the approval of the 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. 61, RCC

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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; (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, 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. 64, RCC
In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation
being domiciled therein. And besides, the certificates of stock have remained in this country up
to the time when the deceased died in California, and they were in possession of one S. McK,
secretary of the Benguet Consolidated Mining Company, to whom they have been delivered
and indorsed in blank.
This indorsement gave S. McK. the right to vote the certificates at the general meetings of the
stockholders, to collect dividends thereon, and dispose of the shares in the manner she may
deem fit, without prejudice to her liability to the owner for violation of instructions. For all
practical purposes, then, S. McK. had the legal title to the certificates of stock held in trust for the
true owner thereof. In other words, the owner residing in California has extended here her
activities with respect to her intangibles so as to avail herself of the protection and benefit of the
Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.
Wells Fargo Bank & Union Trust Co. v. Collector of Internal Revenue, G.R. No. 46720, June 28,
1940, 70 PHIL 325-333
Exception to the doctrine of mobilia secuuntur persona.
It is true, as stated by the Tax Court, that while it may be the general rule that personal property,
like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the
doctrine of mobilia secuuntur persona, nevertheless, when he during his life time, . . . “extended
his activities with respect to his intangibles, so as to avail himself of the protection and benefits
of the laws of the Philippines, in such a way as to bring his person or property within the reach
of the Philippines, the reason for a single place of taxation no longer obtains — protection,
benefit, and power over the subject matter are no longer confined to California, but also to the
Philippines. Collector of Internal Revenue v. Domingo de Lara, G.R. Nos. L-9456 & L-9481,
January 6, 1958, 102 PHIL 813-822

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Classes of Shares
(a) Par value – shares that have a nominal value in the certificate of stock
(b) No par value – shares which do not have nominal value but have issued value stated in
the certificate or AOI
(c) Voting – shares with the right to vote; they have the right to participate in the
management of the corporation through the exercise of such right
(d) Non-voting – shares without the right to vote, subject to the Section 6 of the RCC
(e) Common – most common type of shares with no preference
(f) Preferred – shares which enjoy preference as to assets or dividends; may be participating
or non-participating with common shares in dividends; may be cumulative or non-
cumulative depending on entitlement to dividends in arrears
(g) Redeemable – those which permit the issuing corporation to redeem or purchase its own
shares
(h) Treasury – shares which have been earlier issued as fully paid and have thereafter been
acquired by the corporation; such shares may again be disposed of for a reasonable price
(i) Founders’ – classified as such in the AOI and may be given certain rights and privileges not
enjoyed by the owners of other stocks (e.g., right to vote and be voted for in the election
of directors) Commercial Law Recap Book Two, Villanueva-Castro, 2018, pp. 33-36
Nature of the certificate
A certificate of stock is a written instrument signed by the proper officer of a corporation stating
or acknowledging that the person named in the document is the owner of a designated number
of shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation.
A certificate, however, is merely a tangible evidence of ownership of shares of stock. It is not a
stock in the corporation and merely expresses the contract between the corporation and the
stockholder. Teng v. Securities and Exchange Commission, G.R. No. 184332, February 17, 2016,
781 PHIL 133-148

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Uncertificated shares
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. Sec. 62,
RCC
Quasi-negotiability and non-negotiability of shares of stock.
Although shares of stock are sometimes regarded as quasi-negotiable, in the sense that they may
be transferred endorsement, coupled with delivery, they are non-negotiable, because the holder
thereof takes them without prejudice to such rights or defenses as the registered owner or
creditor may have under the law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel. De los Santos and Astraquillo vs.
Republic, 96 Phil. 577, No. L-4818 February 28, 1955
Certificate of Stock and Transfer of Shares
The capital stock of corporations shall be divided into shares for which certificates signed by the
president or vice president, countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with the bylaws. Sec. 62, RCC
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. 63, RCC
Lost or destroyed certificates
The following procedure shall be followed by a corporation in issuing new certificates of stock in
lieu of those which have been lost, stolen or destroyed:
(a) The registered owner of a certificate of stock in a corporation or such person’s 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

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and the name of the corporation which issued the same. The owner of such certificate
of stock shall also submit such other information and evidence as may be deemed
necessary; and
(b) After verifying the affidavit and other information and evidence with the books of the
corporation, the corporation shall publish a notice in a newspaper of general circulation
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 the
corporation, the name of the registered owner, the serial number of the certificate, the
number of shares represented by such certificate, and shall state that after the
expiration of one (1) year from the date of the last publication, if no contest has been
presented to the corporation regarding the certificate of stock, the right to make such
contest shall be barred and the corporation shall cancel the lost, destroyed or stolen
certificate of stock in its books. In lieu thereof, the corporation shall issue a new
certificate of stock, unless the registered owner files a bond or other security as may be
required, 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, in which case a new
certificate may be issued even before the expiration of the one (1) year period provided
herein. If a contest has been presented to the corporation or if an action is pending in
court regarding the ownership of the certificate of stock which has been lost, stolen or
destroyed, the issuance of the new certificate of stock in lieu thereof shall be suspended
until the court renders a final decision regarding the ownership of the certificate of
stock which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, 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. Sec. 72, RCC
Sale of shares
The shares of stock evidenced by said certificates, meanwhile, are regarded as property and the
owner of such shares may, as a general rule, dispose of them as he sees fit, unless the corporation
has been dissolved, or unless the right to do so is properly restricted, or the owner’s privilege of
disposing of his shares has been hampered by his own action. Teng v. Securities and Exchange
Commission, G.R. No. 184332, February 17, 2016, 781 PHIL 133-148

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Allowable restrictions on the sale of shares
Any restriction on a stockholder’s right to dispose of his shares must be construed strictly; and
any attempt to restrain a transfer of shares is regarded as being in restraint of trade, in the
absence of a valid lien upon its shares, and except to the extent that valid restrictive regulations
and agreements exist and are applicable. Subject only to such restrictions, a stockholder cannot
be controlled in or restrained from exercising his right to transfer by the corporation or its officers
or by other stockholders, even though the sale is to a competitor of the company, or to an
insolvent person, or even though a controlling interest is sold to one purchaser. Padgett v.
Babcock & Templeton, Inc., G.R. No. 38684, December 21, 1933, 59 PHIL 232-235
In case of corporations which will engage in any business or activity reserved for Filipino citizens
No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less than
the required percentage of capital stock as provided by existing laws shall be allowed or
permitted to be recorded in the proper books of the corporation, and this restriction shall be
indicated in all stock certificates issued by the corporation. Sec. 14, RCC
Validity of restriction on transfer of shares of close corporations
Restrictions on the right to transfer shares must appear in the articles of incorporation, in the
bylaws, as well as in the certificate of stock; otherwise, the same shall not be binding on any
purchaser in good faith. Said restrictions shall not be more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of the transferring stockholder
with such reasonable terms, conditions or period stated. If, upon the expiration of said period,
the existing stockholders or the corporation fails to exercise the option to purchase, the
transferring stockholder may sell their shares to any third person. Sec. 97, RCC
Requisites of a valid transfer
No transfer, however, shall be valid, except as between the parties, until the transfer is recorded
in the books of the corporation 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.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation. Sec. 62, RCC

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Minimum requisites for valid transfer of stocks
Under the provision, certain minimum requisites must be complied with for there to be a valid
transfer of stocks, to wit: (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.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly
authorized representative that is the operative act of transfer of shares from the original owner
to the transferee. x x x It is thus clear that Teng’s position — that Ting Ping must first surrender
Chiu’s and Maluto’s respective certificates of stock before the transfer to Ting Ping may be
registered in the books of the corporation — does not have legal basis. The delivery or surrender
adverted to by Teng, i.e., from Ting Ping to TCL, is not a requisite before the conveyance may be
recorded in its books. 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. The only
limitation imposed by Section 63 is when the corporation holds any unpaid claim against the
shares intended to be transferred. Teng v. Securities and Exchange Commission, G.R. No.
184332, February 17, 2016, 781 PHIL 133-148
The registration of a transfer of shares of stock is a ministerial duty on the part of the
corporation.
It is already settled jurisprudence that the registration of a transfer of shares of stock is a

ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy
of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the
transfer or to issue new certificates of stock. Andaya vs. Rural Bank of Cabadbaran, Inc., 799
SCRA 325, G.R. No. 188769 August 3, 2016
Delinquency Sale
The board of directors may, by resolution, order the sale of delinquent stock and shall specifically
state the amount due on each subscription plus all accrued interest, and 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.

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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 offi ce of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on or before the date specified for
the sale of the delinquent stock, the balance due on the former’s subscription, plus accrued
interest, costs of advertisement and expenses of sale, or unless the board of directors otherwise
orders, said delinquent stock shall be sold at a public auction 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. 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. 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 who offers 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, the corporation may, subject to the
provisions of [the RCC], bid for the same, and the total amount due shall be credited as fully paid
in the books of the corporation. Title to all the shares of stock covered by the subscription shall
be vested in the corporation as treasury shares and may be disposed of by said corporation in
accordance with the provisions of [the RCC]. Sec. 67, RCC
DISSOLUTION AND LIQUIDATION
Modes of dissolution
A corporation formed or organized under the provisions of [the RCC] may be dissolved voluntarily
or involuntarily. Sec. 133, RCC. For voluntary dissolution, the procedures and requirements vary
depending on whether there are creditors affected. Secs. 134 and 135, RCC
Dissolution by Shortening Corporate Term.
A voluntary dissolution may be effected by amending the articles of incorporation to shorten the
corporate term pursuant to the provisions of [the RCC]. A copy of the amended articles of

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incorporation shall be submitted to the Commission in accordance with [the RCC].
Upon the expiration of the shortened term, as stated in the approved amended articles of
incorporation, the corporation shall be deemed dissolved without any further proceedings,
subject to the provisions of [the RCC] on liquidation.
In the case of expiration of corporate term, dissolution shall automatically take effect on the day
following the last day of the corporate term stated in the articles of incorporation, without the
need for the issuance by the Commission of a certificate of dissolution. Sec. 136, RCC
The Corporation Code defined and delineated the different modes of dissolving a corporation,
and amendment of the articles of incorporation was not one of such modes.
The unanimous conclusions of the CA, the NLRC and the Labor Arbiter, being in accord with law,
were not tainted with any abuse of discretion, least of all grave, on the part of the NLRC. Verily,
the amendments of the articles of incorporation of Zeta to change the corporate name to Zuellig
Freight and Cargo Systems, Inc. did not produce the dissolution of the former as a corporation.
For sure, the Corporation Code defined and delineated the different modes of dissolving a
corporation, and amendment of the articles of incorporation was not one of such modes. The
effect of the change of name was not a change of the corporate being, for, as well stated in
Philippine First Insurance Co., Inc. v. Hartigan, 34 SCRA 252 (1970): “The changing of the name of
a corporation is no more the creation of a corporation than the changing of the name of a natural
person is begetting of a natural person. The act, in both cases, would seem to be what the
language which we use to designate it imports — a change of name, and not a change of being.”
Zuellig Freight and Cargo Systems vs. National Labor Relations Commission, 701 SCRA 561, G.R.
No. 157900 July 22, 2013
Voluntary Dissolution Where No Creditors Are Affected
If dissolution of a corporation does not prejudice the rights of any creditor having a claim against
it, the dissolution may be effected by majority vote of the board of directors or trustees, and by
a resolution adopted by the affirmative vote of the stockholders owning at least majority of the
outstanding capital stock or majority of the members of a meeting to be held upon the call of the
directors or trustees.
A verified request for dissolution shall be filed with the Commission. The dissolution shall take
effect only upon the issuance by the Commission of a certificate of dissolution.

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No application for dissolution of banks, banking and quasi-banking institutions, preneed,

insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries shall be
approved by the Commission unless accompanied by a favorable recommendation of the
appropriate government agency. Sec. 134, RCC
Voluntary Dissolution Where Creditors Are Affected
Where the dissolution of a corporation may prejudice the rights of any creditor, a verified petition
for dissolution shall be filed with the Commission. The petition shall be signed by a majority of
the corporation’s board of directors or trustees, verified by its president or secretary or one of
its directors or trustees, and shall set forth all claims and demands against it, and that its
dissolution was resolved upon by the affi rmative vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the members at a
meeting of its stockholders or members called for that purpose.
The dissolution shall take effect only upon the issuance by the Commission of a certificate of
dissolution. Sec. 135, RCC
Involuntary Dissolution
A corporation may be dissolved by the Commission motu proprio or upon filing of a verified
complaint by any interested party. The following may be grounds for dissolution of the
corporation:
(a) Non-use of corporate charter as provided under Section 21 of [the RCC];
(b) Continuous inoperation of a corporation as provided under Section 21 of [the RCC];
(c) Upon receipt of a lawful court order dissolving the corporation;
(d) Upon finding by final judgment that the corporation procured its incorporation through
fraud;
(e) Upon finding by final judgment that the corporation:
(1) Was created for the purpose of committing, concealing or aiding the commission of
securities violations, smuggling, tax evasion, money laundering, or graft and corrupt
practices;
(2) Committed or aided in the commission of securities violations, smuggling, tax
evasion, money laundering, or graft and corrupt practices, and its stockholders knew
of the same; and
(3) Repeatedly and knowingly tolerated the commission of graft and corrupt practices
or other fraudulent or illegal acts by its directors, trustees, officers, or employees.

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If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in
subparagraph (e) hereof, its assets, after payment of its liabilities, shall, upon petition of the
Commission with the appropriate court, be forfeited in favor of the national government. Such
forfeiture shall be without prejudice to the rights of innocent stockholders and employees for
services rendered, and to the application of other penalty or sanction under [the RCC] or other
laws.
The Commission shall give reasonable notice to, and coordinate with, the appropriate regulatory
agency prior to the involuntary dissolution of companies under their special regulatory
jurisdiction. Sec. 138, RCC
Methods of Liquidation or Winding Up
(a) By the corporation itself through its board of directors/trustees;

(b) By a trustee to whom the corporate assets have been conveyed; and
(c) By a management committee or rehabilitation receiver appointed by the RTC.
Note: The three-year period does not apply to cases 2 and 3 mentioned above. Commercial Law
Recap Book Two, Villanueva-Castro, 2018, p. 147.
Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its
business, but allows it to continue with a limited personality in order to settle and close its
affairs, including its complete liquidation.
Section 122 of the Corporation Code prohibits a dissolved corporation from continuing its
business, but allows it to continue with a limited personality in order to settle and close its affairs,
including its complete liquidation, thus: Sec. 122. Corporate liquidation.—Every corporation
whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose
corporate existence for other purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to
settle and close its affairs, to dispose of and convey its property and to distribute its assets, but
not for the purpose of continuing the business for which it was established. Aguirre II vs. FQB+7,
Inc., 688 SCRA 242, G.R. No. 170770 January 9, 2013

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A corporation’s board of directors is not rendered functus officio by its dissolution. Since Section
122 allows a corporation to continue its existence for a limited purpose, necessarily there must
be a board that will continue acting for and on behalf of the dissolved corporation for that
purpose.
Neither are these issues mooted by the dissolution of the corporation. A corporation’s board of
directors is not rendered functus officio by its dissolution. Since Section 122 allows a corporation
to continue its existence for a limited purpose, necessarily there must be a board that will
continue acting for and on behalf of the dissolved corporation for that purpose. In fact, Section
122 authorizes the dissolved corporation’s board of directors to conduct its liquidation within
three years from its dissolution. Jurisprudence has even recognized the board’s authority to act
as trustee for persons in interest beyond the said three-year period. Thus, the determination of
which group is the bona fide or rightful board of the dissolved corporation will still provide
practical relief to the parties involved. Aguirre II vs. FQB+7, Inc., 688 SCRA 242, G.R. No. 170770
January 9, 2013
The trustee (of a dissolved corporation) may commence a suit which can proceed to final
judgment even beyond the three-year period (of liquidation).
Petitioners’ basis in filing these multiple petitions is the expiration of UCC’s corporate existence.
There is no doubt that the judgment in Civil Case No. 9165 became final and executory on March
23, 1977. That this judgment is still enforceable was decided with finality by this Court in G.R. No.
109385. In Reburiano vs. Court of Appeals, a case with similar facts, this Court held: “the trustee
(of a dissolved corporation) may commence a suit which can proceed to final judgment even
beyond the three-year period (of liquidation) x x x, no reason can be conceived why a suit already
commenced by the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation, should not be accorded
similar treatment—to proceed to final judgment and execution thereof.” Knecht vs. United
Cigarette Corp., 384 SCRA 45, G.R. No. 139370 July 4, 2002
OTHER CORPORATIONS
Close Corporation
A close corporation, within the meaning of [the RCC], is one whose articles of incorporation
provide that:
(1) All the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held

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of record by not more than a specified number of persons, not exceeding twenty (20);
(2) All the issued stock of all classes shall be subject to one or more specified restrictions on
transfer permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of
its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed
a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is
owned or controlled by another corporation which is not a close corporation within the
meaning of [the RCC]. Bustos vs. Millians Shoe, Inc., 824 SCRA 67, G.R. No. 185024 April
24, 2017
When board meeting is unnecessary for close corporations
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 prompt objection in writing. Sec. 100, RCC
Section 97 of the Corporation Code only specifies that “the stockholders of the corporation shall
be subject to all liabilities of directors.” Nowhere in that provision do we find any inference that
stockholders of a close corporation are automatically liable for corporate debts and obligations.
Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for
personal liability of stockholders of close corporation, viz.: Sec. 100. Agreements by
stockholders.—x x x x 5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close corporation, the stockholders
shall be held to strict fiduciary duties to each other and among themselves. Said stockholders
shall be personally liable for corporate torts unless the corporation has obtained reasonably
adequate liability insurance.
As can be read in that provision, several requisites must be present for its applicability. None of

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these were alleged in the case of Spouses Cruz. Neither did the RTC or the CA explain the factual
circumstances for this Court to discuss the personally liability of respondents to their creditors
because of “corporate torts.” We thus apply the general doctrine of separate juridical
personality, which provides that a corporation has a legal personality separate and distinct from
that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of the stockholder. Thus, being an
officer or a stockholder of a corporation does not make one’s property the property also of the
corporation. Bustos vs. Millians Shoe, Inc., 824 SCRA 67, G.R. No. 185024 April 24, 2017
Membership in a non-stock corporation is generally non-transferrable.
Section 90 of the Corporation Code states that membership in a nonstock corporation and all
rights arising therefrom are personal and nontransferable, unless the articles of incorporation or
the bylaws otherwise provide. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038 January
25, 2017
Quorum in non-stock corporations for members meeting
For stock corporations, the quorum is based on the number of outstanding voting stocks while
for nonstock corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R.
No. 206038 January 25, 2017
The basis in determining the presence of quorum in nonstock corporations is the numerical
equivalent of all members who are entitled to vote, unless some other basis is provided by the
By-Laws of the corporation.
To be clear, the basis in determining the presence of quorum in nonstock corporations is the
numerical equivalent of all members who are entitled to vote, unless some other basis is provided
by the By-Laws of the corporation. The qualification “with voting rights” simply recognizes the
power of a nonstock corporation to limit or deny the right to vote of any of its members. To
include these members without voting rights in the total number of members for purposes of
quorum would be superfluous for although they may attend a particular meeting, they cannot
cast their vote on any matter discussed therein. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R.
No. 206038 January 25, 2017

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Membership in a condominium corporation is limited only to the unit owners of the

condominium project.
Matters involving a condominium are governed by Republic Act No. 4726 (Condominium Act).
Said law sanctions the creation of a condominium corporation which is especially formed for the
purpose of holding title to the common areas, including the land, or the appurtenant interests in
such areas, in which the holders of separate interest shall automatically be members or
shareholders, to the exclusion of others, in proportion to the appurtenant interest of their
respective units in the common areas. In relation thereto, Section 10 of the same law clearly
provides that the condominium corporation shall constitute the management body of the
project. Membership in a condominium corporation is limited only to the unit owners of the
condominium project. This is provided in Section 10 of the Condominium Act. Lim vs. Moldex
Land, Inc., 815 SCRA 619, G.R. No. 206038 January 25, 2017
There is no provision in P.D. No. 957 which states that an owner-developer of a condominium
project cannot be a member of a condominium corporation. Section 30 of P.D. No. 957
determines the purposes of a homeowners association — to promote and protect the mutual
interest of the buyers and residents, and to assist in their community development.
A condominium corporation, however, is not just a management body of the condominium

project. It also holds title to the common areas, including the land, or the appurtenant interests
in such areas. Hence, it is especially governed by the Condominium Act. Clearly, a homeowners
association is different from a condominium corporation. P.D. No. 957 does not regulate
condominium corporations and, thus, cannot be applied in this case. Lim vs. Moldex Land, Inc.,
815 SCRA 619, G.R. No. 206038 January 25, 2017
Meaning of “doing” or “engaging in” or “transacting” business.
No general rule or governing principles can “be laid down as to what constitutes “doing” or
“engaging in” or “transacting” business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another. (Traction
Cos. vs. Collectors of Int. Revenue [C. C. A. Ohio], 223 F., 984, 987.) The term implies a continuity
of commercial dealings and arrangements, and contemplates. to that extent, the performance of

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acts or works or the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization. Mentholatum Co. vs. Mangaliman et
al., 72 Phil. 524, No. 47701 June 27, 1941
Tests of “doing business”
In Mentholatum, this Court discoursed on the two general tests to determine whether or not a
foreign corporation can be considered as “doing business” in the Philippines. The first of these is
the substance test, thus: The true test [for doing business], however, seems to be whether the
foreign corporation is continuing the body of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another.
The second test is the continuity test, expressed thus: The term [doing business] implies a
continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions normally incident to, and
in the progressive prosecution of, the purpose and object of its organization. Agilent
Technologies Singapore (Pte.) Ltd. vs. Integrated Silicon Technology Philippines Corporation,
427 SCRA 593, G.R. No. 154618 April 14, 2004
Under the Foreign Investment Act
The phrase “doing business” is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign
Investments Act of 1991), to wit: d) The phrase “doing business” shall include soliciting orders,
service contracts, opening offices, whether called “liaison” offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods totalling one hundred eighty (180) days or more; participating
in the management, supervision or control of any domestic business, firm, entity or corporation
in the Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization: Provided, however, That the phrase
“doing business” shall not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the exercise of rights as
such investor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account. Steelcase, Inc. vs. Design
International Selections, Inc., 670 SCRA 64, G.R. No. 171995 April 18, 2012

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Mere investment as a shareholder by a foreign corporation in a duly registered domestic

corporation shall not be deemed “doing business” in the Philippines.
It is clear then that the IGC’s act of subscribing shares of stocks from McCann, a duly registered
domestic corporation, maintaining investments therein, and deriving dividend income
therefrom, does not qualify as “doing business” contemplated under R.A. No. 7042. Hence, the
IGC is not required to secure a license before it can file a claim for tax refund. Commissioner of
Internal Revenue vs. Interpublic Group of Companies, Inc., G.R. No. 207039, August 14, 2019
The Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 7042 clarifies that
“doing business” includes “appointing representatives or distributors, operating under full
control of the foreign corporation, domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totaling one hundred eighty (180) days or more.”
Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides guidance with its
definition of “doing business” with regard to foreign corporations. Section 3(d) of the law
enumerates the activities that constitute doing business: xxx While Section 3(d) xxx states that
“appointing a representative or distributor domiciled in the Philippines which transacts business
in its own name and for its own account” is not considered as “doing business,” the Implementing
Rules and Regulations of Republic Act No. 7042 clarifies that “doing business” includes
“appointing representatives or distributors, operating under full control of the foreign
corporation, domiciled in the Philippines or who in any calendar year stay in the country for a
period or periods totaling one hundred eighty (180) days or more[.]” Air Canada vs.
Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
It should be kept in mind that the determination of whether a foreign corporation is doing
business in the Philippines must be judged in light of the attendant circumstances.
[I]f the distributor is an independent entity which buys and distributes products, other than those
of the foreign corporation, for its own name and its own account, the latter cannot be considered
to be doing business in the Philippines. It should be kept in mind that the determination of
whether a foreign corporation is doing business in the Philippines must be judged in light of the
attendant circumstances. Steelcase, Inc. vs. Design International Selections, Inc., 670 SCRA 64,
G.R. No. 171995 April 18, 2012

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Definition and Rights of Foreign Corporations.
For purposes of [the RCC], a foreign corporation is one formed, organized or existing under laws
other than those of the Philippines' and whose laws allow Filipino citizens and corporations to
do business in its own country or State. It shall have the right to transact business in the
Philippines after obtaining a license for that purpose in accordance with [the RCC] and a
certificate of authority from the appropriate government agency. Sec. 140, RCC
Application to Existing Foreign Corporations.
Every foreign corporation which, on the date of the effectivity of [the RCC], is authorized to do
business in the Philippines under a license issued to it shall continue to have such authority
under the terms and conditions of its license, subject to the provisions of [the RCC] and other
special laws. Sec. 141, RCC
Application for a License
A foreign corporation applying for a license to transact business in the Philippines shall submit to
the Commission a copy of its articles of incorporation and bylaws, certified in accordance with
law, and their translation to an official language of the Philippines, if necessary. The application
shall be under oath and, unless already stated in its articles of incorporation, shall specifically set
the details listed in Section 142 of the RCC.
Attached to the application for license shall be a certificate under oath duly executed by the
authorized official or officials of the jurisdiction of its incorporation, attesting to the fact that the
laws of the country or State of the applicant allow Filipino citizens and corporations to do
business therein, and that the applicant is an existing corporation in good standing. If the
certificate is in a foreign language, a translation thereof in English under oath of the translator
shall be attached to the application.
The application for a license to transact business in the Philippines shall likewise be accompanied
by a statement under oath of the president or any other person authorized by the corporation,
showing to the satisfaction of the Commission and when appropriate, other governmental
agencies that the applicant is solvent and in sound financial condition, setting forth the assets
and liabilities of the corporation as of the date not exceeding one (1) year immediately prior to
the filing of the application.

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Foreign banking, financial, and insurance corporations shall, in addition to the above
requirements, comply with the provisions of existing laws applicable to them. In the case of all
other foreign corporations, no application for license to transact business in the Philippines shall
be accepted by the Commission without previous authority from the appropriate government
agency, whenever required by law. Sec. 142, RCC
Issuance of a License
If the Commission is satisfied that the applicant has complied with all the requirements of [the
RCC] and other special laws, rules and regulations, the Commission shall issue a license to
transact business in the Philippines to the applicant for the purpose or purposes specified in such
license. Upon issuance of the license, such foreign corporation may commence to transact
business in the Philippines and continue to do so for as long as it retains its authority to act as a
corporation under the laws of the country or State of its incorporation, unless such license is
sooner surrendered, revoked, suspended, or annulled in accordance with [the RCC] or other
special laws. Within sixty (60) days after the issuance of the license to transact business in the
Philippines, the licensee, except foreign banking or insurance corporations, shall deposit with
the Commission for the benefit of present and future creditors of the licensee in the Philippines,
securities satisfactory to the Commission, consisting of bonds or other evidence of indebtedness
of the Government of the Philippines, its political subdivisions and instrumentalities, or of
government-owned or -controlled corporations and entities, shares of stock or debt securities
that are registered under Republic Act No. 8799, otherwise known as “The Securities Regulation
Code,” shares of stock in domestic corporations listed in the stock exchange, shares of stock in
domestic insurance companies and banks, any financial instrument determined suitable by the
Commission, or any combination thereof with an actual market value of at least Five hundred
thousand pesos (P500,000.00) or such other amount that may be set by the Commission:
Provided, however, That within six (6) months after each fiscal year of the licensee, the
Commission shall require the licensee to deposit additional securities or financial instruments
equivalent in actual market value to two percent (2%) of the amount by which the licensee's
gross income for that fiscal year exceeds Ten million pesos (P10,000,000.00). The Commission
shall also require the deposit of additional securities or financial instruments if the actual market

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value of the deposited securities or financial instruments has decreased by at least ten percent
(10%) of their actual market value at the time they were deposited. The Commission may, at its
discretion, release part of the additional deposit if the gross income of the licensee has
decreased, or if the actual market value of the total deposit has increased, by more than ten
percent (10%) of their actual market value at the time they were deposited. The Commission
may, from time to time, allow the licensee to make substitute deposits for those already on
deposit as long as the licensee is solvent. Such licensee shall be entitled to collect the interest or
dividends on such deposits. In the event the licensee ceases to do business in the Philippines, its
deposits shall be returned, upon the licensee's application and upon proof to the satisfaction of
the Commission that the licensee has no liability to Philippine residents, including the
Government of the Republic of the Philippines. For purposes of computing the securities deposit,
the composition of gross income and allowable deductions therefrom shall be in accordance with
the rules of the Commission. Sec. 143, RCC
Resident Agent; Service of Process
As a condition to the issuance of the license for a foreign corporation to transact business in the
Philippines, such corporation shall file with the Commission a written power of attorney
designating a person who must be a resident of the Philippines, on whom summons and other
legal processes may be served in all actions or other legal proceedings against such corporation,
and consenting that service upon such resident agent shall be admitted and held as valid as if
served upon the duly authorized officers of the foreign corporation at its home office. Such
foreign corporation shall likewise execute and file with the Commission an agreement or
stipulation, executed by the proper authorities of said corporation, in form and substance as
follows: “The (name of foreign corporation) hereby stipulates and agrees, in consideration of
being granted a license to transact business in the Philippines, that if the corporation shall cease
to transact business in the Philippines, or shall be without any resident agent in the Philippines
on whom any summons or other legal process may be served, then service of any summons or
other legal process may be made upon the Commission in any action or proceeding arising out
of any business or transaction which occurred in the Philippines and such service shall have the
same force and effect as if made upon the duly authorized officers of the corporation at its home
office.” Sec. 145, RCC

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Who May be a Resident Agent
A resident agent may be either an individual residing in the Philippines or a domestic corporation
lawfully transacting business in the Philippines: Provided, That an individual resident agent must
be of good moral character and of sound financial standing: Provided, further, That in case of a
domestic corporation who will act as a resident agent, it must likewise be of sound financial
standing and must show proof that it is in good standing as certified by the Commission. Sec.
144, RCC
It shall be the duty of the resident agent to immediately notify the Commission in writing of any
change in the resident agent's address. Sec. 145, RCC
Doing business without a license
No foreign corporation transacting business in the Philippines without a license, or its successors
or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws. Sec. 150, RCC
Foreign corporations doing business without license
[Section 150 of the RCC] bars a foreign corporation “transacting business” in the Philippines
without a license access to our courts. Thus, in order for a foreign corporation to sue in Philippine
courts, a license is necessary only if it is “transacting or doing business” in the country.
Conversely, if an unlicensed foreign corporation is not transacting or doing business in the
Philippines, it can be permitted to bring an action even without such license.
Apparently, it is not the absence of the prescribed license, but the “doing of business” in the
Philippines without such license which debars the foreign corporation from access to our courts.
The operative phrase is “transacting or doing business.” Commissioner of Internal Revenue vs.
Interpublic Group of Companies, Inc., G.R. No. 207039, August 14, 2019

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CORPORATION LAW
A foreign corporation doing business in the Philippines without a license may still sue before
the Philippine courts a Filipino or a Philippine entity that had derived some benefit from their
contractual arrangement because the latter is considered to be estopped from challenging the
personality of a corporation after it had acknowledged the said corporation by entering into a
contract with it.
This Court has time and again upheld the principle that a foreign corporation doing business in
the Philippines without a license may still sue before the Philippine courts a Filipino or a Philippine
entity that had derived some benefit from their contractual arrangement because the latter is
considered to be estopped from challenging the personality of a corporation after it had
acknowledged the said corporation by entering into a contract with it. In Antam Consolidated,
Inc. v. Court of Appeals, 143 SCRA 288 (1986), this Court had the occasion to draw attention to
the common ploy of invoking the incapacity to sue of an unlicensed foreign corporation utilized
by defaulting domestic companies which seek to avoid the suit by the former. The Court cannot
allow this to continue by always ruling in favor of local companies, despite the injustice to the
overseas corporation which is left with no available remedy. Steelcase, Inc. vs. Design
International Selections, Inc., 670 SCRA 64, G.R. No. 171995 April 18, 2012
One Person Corporations
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. Sec. 116, RCC
Companies not allowed to register as One Person Corporation
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and
nonchartered government-owned and -controlled corporations may not incorporate as One
Person Corporations: Provided, further, That a natural person who is licensed to exercise a
profession may not organize as a One Person Corporation for the purpose of exercising such
profession except as otherwise provided under special laws. Sec. 116, RCC

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Officers of One Person Corporation
The single stockholder shall be the sole director and president of the One Person Corporation.
Sec. 121, RCC
Within fifteen (15) days from the issuance of its certificate or 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. Sec. 122,
RCC
The single stockholder may not be appointed as the corporate secretary. Sec. 122, RCC
Nominee and Alternate Nominee
The single stockholder shall designate a nominee and an alternate nominee who shall, in the
event of the single stockholder’s death or incapacity, take the place of the single stockholder as
director and shall manage the corporation’s affairs.
The articles of incorporation shall state the names, residence addresses and contact details of
the nominee and alternate nominee, as well as the extent and limitations of their authority in
managing the affairs of the One Person Corporation.
The written consent of the nominee and alternate nominee shall be attached to the application
for incorporation. Such consent may be withdrawn in writing any time before the death or
incapacity of the single stockholder. Sec. 124, RCC
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, the nominee shall sit as
director and manage the affairs of the One Person Corporation 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. 125, RCC

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CORPORATION LAW
Liability of the 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. Sec. 130, RCC
MERGERS AND CONSOLIDATIONS
“Consolidation,” and “Merger,” Defined; The parties to a merger or consolidation are called
constituent corporations; The surviving or consolidated corporation assumes automatically the
liabilities of the dissolved corporations, regardless of whether the creditors have consented or
not to such merger or consolidation.
Consolidation is the union of two or more existing corporations to form a new corporation called
the consolidated corporation. It is a combination by agreement between two or more
corporations by which their rights, franchises, and property are united and become those of a
single, new corporation, composed generally, although not necessarily, of the stockholders of the
original corporations. Merger, on the other hand, is a union whereby one corporation absorbs
one or more existing corporations, and the absorbing corporation survives and continues the
combined business. The parties to a merger or consolidation are called constituent corporations.
In consolidation, all the constituents are dissolved and absorbed by the new consolidated
enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both
cases, however, there is no liquidation of the assets of the dissolved corporations, and the
surviving or consolidated corporation acquires all their properties, rights and franchises and their
stockholders usually become its stockholders. The surviving or consolidated corporation assumes
automatically the liabilities of the dissolved corporations, regardless of whether the creditors
have consented or not to such merger or consolidation. McLeod vs. National Labor Relations
Commission, 512 SCRA 222, G.R. No. 146667 January 23, 2007

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Required approvals.
The merger does not become effective upon the mere agreement of the constituent
corporations, but upon the approval of the articles of merger by the Securities and Exchange
Commission issuing the certificate of merger as required by Section 79 of the Corporation Code.
Should any party in the merger be a special corporation governed by its own charter, the
Corporation Code particularly mandates that a favorable recommendation of the appropriate
government agency should first be obtained. Bank of Commerce vs. Heirs of Rodolfo Dela Cruz,
837 SCRA 112, G.R. No. 211519 August 14, 2017
Effects of Merger or Consolidation
The merger of consolidation shall have the following effects:
(a) The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger; and in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
(b) The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
(c) The surviving or the consolidated corporation shall possess all the right, privileges,
immunities and franchises of each constituent corporation; and all real or personal
property, all receivables due on whatever account, including subscriptions to shares
and other choses in action, and every other interest of, belonging to, or due to each
constituents corporation, shall be deemed transferred to and vested in such surviving
or consolidated corporation as though such surviving or consolidated corporation had
itself incurred such liabilities or obligations; and any pending claim, action or
proceeding brought by or against any constituent corporation may be prosecuted by
or against the surviving or consolidated corporation. The rights of creditors or liens
upon the property of such constituent corporations shall not be impaired by the
merger or consolidation. Sec. 79, RCC

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Nell Doctrine
The same issue was resolved in Y-I Leisure Phils., Inc., et al. v. Yu where this Court applied the
“Nell Doctrine” regarding the transfer of all the assets of one corporation to another. It was
discussed in that case that as a general rule that where one corporation sells or otherwise
transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities
of the transferor, except:
(1) Where the purchaser expressly or impliedly agrees to assume such debts;
(2) Where the transaction amounts to a consolidation or merger of the corporations;
(3) Where the purchasing corporation is merely a continuation of the selling corporation; and
(4) Where the transaction is entered into fraudulently in order to escape liability for such
debts.
If any of the above-cited exceptions are present, then the transferee corporation shall assume
the liabilities of the transferor. Maricalum Mining Corp. v. Florentino, G.R. Nos. 221813 &
222723, July 23, 2018
Control or ownership of substantially all of a subsidiary’s assets is not by itself an indication of

a holding company’s fraudulent intent to alienate these assets in evading labor-related claims
or liabilities.
Settled is the rule that where one corporation sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the
transferor. In other words, control or ownership of substantially all of a subsidiary’s assets is not
by itself an indication of a holding company’s fraudulent intent to alienate these assets in evading
labor-related claims or liabilities. Maricalum Mining Corporation vs. Florentino, G.R. No.
221813, July 23, 2018
Section 80 of the Corporation Code of the Philippines clearly states that one of the effects of a
merger is that the surviving company shall inherit not only the assets, but also the liabilities of
the corporation it merged with.
Sumifru’s contention that it should only be held liable for the period when Baya stayed with DFC
as it only merged with the latter and not with AMSFC is untenable. Section 80 of the Corporation
Code of the Philippines clearly states that one of the effects of a merger is that the surviving
company shall inherit not only the assets, but also the liabilities of the corporation it merged

0917 – 894 53 56
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CORPORATION LAW
with. In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive of
constructive dismissal performed against Baya. As such, they should be deemed as solidarily
liable for the monetary awards in favor of Baya. Meanwhile, Sumifru, as the surviving entity in its
merger with DFC, must be held answerable for the latter’s liabilities, including its solidary liability
with AMSFC arising herein. Verily, jurisprudence states that “in the merger of two existing
corporations, one of the corporations survives and continues the business, while the other is
dissolved and all its rights, properties and liabilities are acquired by the surviving corporation,”
as in this case. Sumifru (Philippines) Corporation vs. Baya, 822 SCRA 564, G.R. No. 188269 April
17, 2017

0917 – 894 53 56
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2022 BAR REVIEW COMMERCIAL LAW

Beneficial ownership test through the employment of the grandfather rule.

Legal Edge Bar Review 0942 – 949 91 76

DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

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DOCTRINE OF PIERCING THE CORPORATE VEIL

Surrounding circumstances to be considered in determining the need to pierce the corporate

Areas on Corporate Piercing

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Elements of Alter Ego Theory

The elements of the alter ego theory are:

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Outsider Reverse Piercing & Insider Reverse Piercing

DE FACTO CORPORATIONS VERSUS CORPORATIONS BY ESTOPPEL

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The doctrine of corporation by estoppel is founded on principles of equity and is designed to

Legal Edge Bar Review 0942 – 949 91 76

“Illegal Corporate Acts” and “Ultra Vires Acts,” Distinguished.

Trust Fund Doctrine, defined.

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BOARD OF DIRECTORS AND TRUSTEES

Corporation’s board of directors; doctrine of centralized management

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Qualification and Term of Board of Directors or Trustees of a Corporation

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Disqualification of Directors, Trustees or Officers

(a) Convicted by final judgment:

The foregoing is without prejudice to qualifications or other disqualifications, which the

Election of Directors or Trustees

Legal Edge Bar Review 0942 – 949 91 76

notwithstanding the absence of a provision in the bylaws of such corporations.

A stockholder or member who participates through remote communication or in absentia, shall

The election must be by ballot if requested by any voting stockholder or member.

Removal of Directors or Trustees

Legal Edge Bar Review 0942 – 949 91 76

Directors and Officers; When personally liable

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Doctrine of corporate opportunity

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STOCKHOLDERS AND MEMBERS

Doctrine of equality of shares

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Legal Edge Bar Review 0942 – 949 91 76

Cases when stockholders’ action is required

Cases when majority vote of stockholders is required

Cases when two-thirds vote of stockholders is required

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Case when a cumulative vote of stockholders is required

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Right to inspect corporate books

A requesting party who is not a stockholder or member of record, or is a competitor, director,

Legal Edge Bar Review 0942 – 949 91 76

The revocation of a corporation’s Certificate of Registration does not automatically warrant

Legal Edge Bar Review 0942 – 949 91 76

In the case of Republic v. Sandiganbayan, the Presidential Commission on Good Government

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Complaints for illegal dismissal filed by a cooperative officer constitute an intra-cooperative

A corporate officer’s dismissal is always a corporate act, or an intra-corporate controversy

Legal Edge Bar Review 0942 – 949 91 76

Refusal to allow inspection of corporate books involves intra-corporate dispute.

Individual, class, and derivative suits, distinguished.

Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of