GENERAL PROVISIONS

DEFINITIONS & CLASSIFICATIONS

REPUBLIC ACT NO. 11232

AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE

PHILIPPINES

TITLE I
General Provisions, Definitions, and Classifications

SECTION 1. Title of the Code. - This Code shall be known as the “Revised
Corporation Code of the Philippines.”
This law repeals Batas Pambansa Blg. 68, also known as the Corporation Code
of the Philippines, which in turn repealed Act No.1459 (The Corporation Law) insofar
as the latter is inconsistent with the former, Republic Act No. 11232, or the Revised
Code as it is referred to in most of this book, is now the main law governing private
corporations in the Philippines, including their creation, operations, dissolution, and
related matters. This law is supplemented by Presidential Decree No. 902-A or the
"SEC Reorganization Act” (issued on March 11, 1976), other laws such as Republic
Act No. 386 or the “Civil Code of the Philippines" (enacted on June 18, 1949), and
Republic Act No. 8799 or “The Securities Regulation Code" (approved on July 19,
2000), which also expressly amended Presidential Decree No. 902-A
SECTION 2. Corporation Defined. - A corporation is an artificial created by
operation of law, having the right of succession and the powers, attributes, and
properties express authorized by law or incidental to its existence.
Based on the definition, there are four essential attributes of a corpo namely that:
1. It is an artificial being,
2. It is created by operation of law;
3. It has the right of succession; and raw
4. It possesses powers and attributes that are express, implied, and/ or incidental.
Attributes of a corporation
1. Artificial being
A corporation is an artificial being, i.e., a corporation is considered as a
person by law. This fundamental principle of corporation law means that "a
corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected
 In the words of Chief Justice Marshall, a corporation is a mere legal
entity or "mere creature of the law, invisible, intangible, and incorporeal.
One way of viewing this concept of an artificial person is by analogy
for example, a human being who has a physical and biological existence
decides to play a video game and creates his/her own avatar. Such avatar is
created in cyberspace and has no physical existence. It can only move and act
through the human being's commands. So too, does a corporation exist only in
the legal realm; it has no physical or biological existence.

only exists because the law says so. Even if it is not a natural person or human
being, a corporation is given rights and duties, but because it is a legal fiction,
a corporation may only act through its board, officers, and agents or persons
authorized to act on the corporation's behalf.
The corporation's separate and distinct personality, i.e., the legal fiction, was
created by law for convenience and to promote justice. A consequence of the
legal fiction is the corporation's business being unaffected by or separated
from the personal rights, obligations, and transactions of its stockholders.
Likewise, a corporation should alone be liable for acts duly authorized by its
directors or officers. Stockholders cannot be held liable for corporate acts
unless such acts are prohibited by the Code and other laws and were made by
the stockholders concerned in their capacity as directors, officers, or agents of
the corporation, or unless the corporate entity is being used merely as an alter
ego for the stockholders' sole benefit.
If the corporation's separate juridical personality is misused, i.e., "used to
defeat public convenience, justify wrong, protect fraud, defend crime, or is
used as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded" by piercing the veil of corporate fiction."
Illustrative example
ABC Inc. borrowed Php 250 million from Banco de Globo for a big project that
proves unsuccessful. As a result, ABC Inc. is unable to pay the loan. Despite the bank
going after the collateral, a big amount remains unpaid, and there is no way to collect
further from the rower. In this situation Banco de Globo cannot run after the
stockholders of ABC Inc. even if they are rich because ABC Inc.'s juridical
personality is separate and distinct from those of its stockholders. and the debt of the
corporation is that of the corporation alone. The grounds to pierce the corporate veil
are not present in this situation
Piercing the veil of corporate fiction
In Land Bank of the Philippines vs. CA, the Court explained the concept of the
corporation's separate juridical personality and when this personality could be set
aside, thus:
 A corporation, upon coming into existence, is invested by law with a
personality separate and distinct from those persons composing it as well as
from any other legal entity to which it may be related. By this attribute, a
stockholder may not, generally, be made to answer for acts or liabilities of the
said corporation, and vice versa." This separate and distinct personality is,
however, merely a fiction created by law for convenience and to promote the
ends of justice. For this reason, it may not be used or invoked for ends
subversive to the policy and purpose behind its creation or which could not
have been intended by law to which it owes its being." This is particularly true
when the fiction is used to defeat public convenience, justify wrong, protect
fraud, defend crime, confuse legitimate legal or judicial issues." perpetrate
deception or otherwise circumvent the law.20 This is likewise true where the
corporate entity is being used as an alter ego, adjunct, or business conduit for
the sole benefit of the stock holders or of another corporate entity." In all these
cases, the notion of corporate entity will be pierced or disregarded with
reference to the particular transaction involved.
The doctrine of piercing the veil of corporate fiction was elaborated on by the Court
in PNB vs. Andrada Electric and Engineering Company in this way:
Equally well-settled is the principle that 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. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
Hence, any application of the doctrine of piercing the corporate veil should be
done with caution.25 A court should be mindful of the milieu where it is to be
applied.It must be certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in disregard of its rights.
The wrongdoing must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended (sic) may result from an erroneous
application.
The question of whether a corporation is a mere alter ego is on fact. Piercing the veil
of corporate fiction may be allowed only the following elements concur: (1) control -
not mere stock control but complete domination - not only of finances, but of policy a
business practice in respect to the transaction attacked, must have been such that the
corporate entity as to this transaction had at the time no separate mind, will or
existence of its own; (2) such control must have been used by the defendant to
commit a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty or a dishonest and an unjust act in contravention of plaintiff's legal right;
and (3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of.
Illustrative example
ABC Inc. borrowed Php 250 million from Banco de Globo supposedly for a
big corporate project. However, instead of putting the money in the project,
 directors of the Board, who are the majority stockholders of ABC Inc., divided
the loan proceeds among themselves for personal use and closed down ABC
Inc. Subsequently, the same directors opened CBA Corp. to engage in the
business previously pursued by ABC Inc. The bank can file a suit against CBA
Corp. despite the latter's separate juridical personality, and ask the court to
pierce the corporate veil and make the directors behind the corporation
personally liable for the debt of ABC Inc.
By way of summary, if a corporation is used to justify wrong, defeat public
convenience, protect fraud, defend crime, then the corporate veil will be pierced,
which means that the legal fiction of a corporation's separate personality will be
disregarded so that those who are responsible for wrongdoing may be made to answer
for their violation(s). by law, shall be penalized with a fine ranging from one hundred
thousand pesos (P100,000.00) to five million pesos (P5,000,000.00
When there is a finding that any of the corporation's directors, officers, employees,
agents, or representatives are engaged in graft and corrupt practices, the corporation's
failure to install: (a) safeguards for the transparent and lawful delivery of services;
and (b) policies, code of ethics, and procedures against graft and corruption shall be
prima facie evidence of corporate liability under this section.
2. Created by operation of law
A natural person is created biologically, acquires rights from the moment of
conception, and is given birth to by a mother while a corporation is created and
comes into existence by operation of law, specifically by complying with legal
requirements. Private corporations in the Philippines like JG Summit Holdings,
Inc., San Miguel Corporation, and Jollibee Foods Corporation are governed by the
Corporation Code. The corporation will begin to exist as a juridical personality
only from the time the Securities and Exchange Commission (SEC) issues a
certificate of incorporation. The certificate of incorporation is analogous to a
person's birth certificate.
Thus, corporations cannot be created, nor can they exist or exercise corporate
powers by mere contractor agreement among stockholders, and without the SEC's
issuance of a certificate of incorporation. An exception to this general rule is the
case of corporations created and operating under a special law or charter, which
do not have to register with the SEC in order to acquire a legal personality. The
SEC therefore has jurisdiction and supervision over all corporations...who are the
grantees of primary franchises and/or a license or permit issued by the
Government.*** The SEC's power and authority come not only from the
Corporation Code but also other laws such as RA 8799 and PD 902-A.

3. Right of succession
A corporation's right of succession is typically explained as to continue
existing even if the corporation's shares of change ownership. Thus, if the
majority of the shares of stock of ABC C belongs to Mr. X, a fiery and ogre-
like businessman, and Mr shares to Ms. Y, a prim and proper astute
 businesswoman, the corporation will remain the same. Its personality is not
affected by the change in ownership or the change in the personality of its
shareholders.

Such corporate right of succession can also be explained in some using the
concept of inheritance. When a person dies, her heirs will inherit her
properties. A corporation is different from a biological person. however, in
that it can "inherit" from itself. Prior to the Revised Code. the maximum term
or "life span" that a private corporation can have was fifty (50) years. In other
words, it is sure to die after 50 years unless the corporation extends its life by
applying with the SEC for a renewal of its corporate term for a 50-year term
and so on. Nonetheless, under Section 11 of the Revised Code, corporations
have a perpetual term. A corporation that chooses not to avail of a perpetual
term can still opt to exercise the power to extend or shorten its corporate term
granted by Section 36. In a manner of speaking, the corporation's first self
continues its existence in its second-generation self. The second-generation
self "inherits" all the assets and liabilities that its first-generation self owns.
The corporation's right of succession explains why there are corporations-such
as some controlled by the Aboitiz and Ayala families-that are now in their
fifth and fourth generations, respectively, despite the passing on of their
founders.

4. Powers and attributes expressed by law or incident to its existence Because

a corporation is a creation of law, the law has also provided whe powers and
characteristics it would have. A corporation has no except those expressly
conferred on it by the Revised Code and those are implied from or incidental
to their express powers, and also that are inherent to the corporation's
existence. Title IV of the Code of the Philippines, specifically Sections 35 to
44, lists do express powers of a corporation.

SECTION 3. Classes of Corporations. Corporations formed or organized under

this Code may be stock or nonstock corporations. Stock corporations are those
which have capital stock divided into shares and are authorized to distribute to
the holders of such shares, dividends, or allotments of the surplus profits on the
basis of the shares held. All other corporations are nonstock corporations.
Although Section 3 refers to only two kinds of corporations, we submit that there are
in fact four possible classifications of corporations based on the other provisions of
the Revised Code and depending on the criterion used. They are as follows and are
discussed under the pertinent sections.
1. Stock and non-stock corporations (Section 3)
2. Private and public corporations (Section 4)
3. Open, publicly listed and close corporations (Section 5)
4. De jure, de facto, and by estoppel (Sections 18, 19, and 20)
Stock and Non-Stock corporations
A corporation is either stock or non-stock, and the differences between the two kinds
are basic. Since Section 3 says that a corporation is considered non-stock if it does not
fall under the category of stock corporations, it is important to first determine what a
stock corporation is.
1. Stock corporations
For a corporation to be considered "stock" "two requisites must concur: (1)
that it has capital stock divided into shares, and (2) that it is authorized to
distribute dividends and allotments of surplus and profits to its stockholders."
Since both requisites are needed, the absence of one will, by definition, mean
that the corporation is non-stock.

Stock corporations are organized for profit. They raise their capital through the
infusion of funds by investors who become stockholders and

are issued shares of stock. A stockholder who invests money in a corporation can earn
from said investment if the corporation m surplus profits that may be distributed or
paid to the stockholder in form of dividends.
Funds for a prospective or still-to-be registered corporation may be raison through
promoters or founders of the corporation who can persuade investors the contribute to
the capital stock. Existing and/or additional investors can contribute more funds even
after the corporation registration with the SEC so long as the corporation can still
issue new shares. Or the corporation may later on be publicly listed in the stock
exchange, thereby increasing the possibility of more investors coming in as
stockholders.

In Stockholders of F. Guanzon and Sons, Inc. vs. Register of Deeds of Manila the
Court explained the meaning of a "share"; viz.:
A share of stock only typifies an aliquot part of the corporation's property, or
the right to share in its proceeds to that extent when distributed according to
law and equity (Hall & Faley vs. Alabama Terminal, 173 Ala., 398, 56 So.,
235), but its holder is not the owner of any part of the capital of the
corporation (Bradley vs. Bauder, 36 Ohio St., 28). Nor is he entitled to the
possession of any definite portion of its property or assets (Gottfried vs.
Miller, 104 U.S., 521; Jones vs. Davis, 35 Ohio St., 474). The stockholder is
not a co-owner or tenant in common of the corporate property (Harton vs.
Johnston, 166 Ala., 317, 51 So., 992).
A stock corporation may issue different kinds of shares of stock, depending on its
purposes and as authorized by its articles of incorporation (AI), which also determines
the respective rights of the shares, including voting rights." In the absence of such
differentiation, all stocks, as the Court has stated in C.I.R. vs. C.T.A, are presumed
equal based on the doctrine equality of shares, i.e., they possess the same privileges
and liabilities.

The Revised Code provides in Section 6 the different kinds of shares that a
corporation may issue in favor of its stockholders.
2. Non-stock corporations
In contrast to stock corporations, non-stock corporations do not have capital stock,
but what they have is capital. Title XI of the Revised Code lays down specific
rules for non-stock corporations, although many of the provisions that apply to
stock corporations are similarly applicable to non-stock corporations. Draw Non-
stock corporations are organized mainly for non-profit purposes. This
notwithstanding, they are legally allowed to earn income. However, no part of
their income may be distributed as dividends to their members. Associations and
foundations are examples of non-stock corporations.

SECTION 4. Corporations Created by Special Laws or Charters. - Corporations

created by special laws or charters shall be governed primarily by the provisions
of the special law or charter creating them or applicable to them, supplemented
by the provisions of this Code, insofar as they are applicable.

This section refers to corporations formed through special laws or charters. These
corporations are primarily governed by the law or charter that created them, and the
Revised Code supplements such special law or charter when applicable. Examples of
such corporations are government owned or -controlled corporations (GOCCs)
created by special laws. As mentioned earlier, a corporation created under a special
law or its own charter need not register with the SEC in order to acquire legal
personality.

Private and public corporations

From the foregoing provision, another classification for corporations may be inferred:
private and public.
1. Private corporations
These are corporations formed mainly by complying with the provisions the
Revised Code, and they can be either stock or non-stock corporation

2. Public corporations
The old Corporation Law defined public corporations as "those former or
organized for the government of a portion of the state" and "have for their
purpose the general good and welfare." It must be pointed out however, that
 the classification of corporations into private and public is not provided for by
the Revised Code, nor by BP 68. This notwithstanding the phrase "public
corporation" was used in a 2011 case involving the Bo Scouts of the
Philippines that was created through a special law."

The "GOCC Governance Act of 2011" provides the following definition in Section 3:
Government-Owned or -Controlled Corporation (GOCC) refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government of the Republic of the Philippines directly or through its
instrumentalities either wholly or, where applicable as in the case of stock
corporations, to the extent of at least a majority of its outstanding capital
stock: Provided, however, That for purposes of this Act, the term "GOCC"
shall include GICP/GCE and GFI as defined herein
In one case, the Court also held that:
GOCCs are "stock or non-stock" corporations "vested with functions relating
to public needs" that are owned by the Government directly or through its
instrumentalities." By definition, three attributes thus make an entity a GOCC:
first, its organization as stock or non-stock Philippines, And To Define Its
Powers And Purposes" corporation; second, the public character of its
function, and third, government ownership over the same.
Government ownership in corporations does not necessarily exist from the moment of
the corporation's creation as there are cases of 'acquired corporations, i.e., "where a
majority of stocks are taken over by the government in the settlement of corporate
debt with a government financial institution (GFI).
The foregoing shows that not all government-owned or -controlled corporations are
created through special laws or charters as there are those created through the
Corporation Code.

A."Private" GOCCs
GOCCs created under the Corporation Code are treated as "private"
corporations, and are governed by Republic Act No. 11232 and other laws
applicable to private corporations such as the Labor Code. As such, GOCCs of
this nature can be sued in court. Their treatment as private corporations
notwithstanding, "private" GOCCs still have to comply with the Commission
on Audit (COA) laws and rules and the "Gove Procurement Reform Act", thus
showing not only their uniqu. status but also the hybrid of laws that governs
them. Examples corporations are Bliss Development Corporation, Food
Terminal and the Philippine Tuberculosis Society, Inc. (PTSI).57 nd the
"Government v their unique legal hem. Examples of such ration, Food
Terminal, Inc., x A Highlight raw
B."Public" GOCCS
On the other hand, GOCCs created by special law or charter are governed the
law creating them and are considered public corporations. Emplove of such
GOCCs like the Boy Scouts of the Philippiness and the National Housing
Authority are governed by civil service rules (not the Labor Code Their public
corporation status notwithstanding, such GOCCs, we submit can also be sued
in court. Other examples of GOCCs with their respective special charters are
Cultural Center of the Philippines, Government Service Insurance System
(GSIS), Land Bank of the Philippines, Lung Center of the Philippines,
National Food Authority, Philippine Charity Sweepstakes Office," and local
water districts formed under Presidential Decree No. 198.

Commonalities
Both public and private" GOCCs fall under the jurisdiction of the Governance
Commission for Government-Owned or -Controlled Corporations (GCG), "a
central advisory, monitoring, and oversight body" that has the power to
"(e)valuate the performance and determine the relevance of the GOCC, to
ascertain whether such GOCC should be reorganized, merged, streamlined,
abolished or privatized..."? Also, both kinds of GOCCs are covered by COA
laws and rules, and by the "Government Procurement Reform Act."
SECTION 5. Corporators and Incorporators, Stockholders, and Members.
Corporators are those who compose a corporation, whether as stockholders or
shareholders in a stock corporation or as members in a nonstock corporation.
Incorporators are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof.
The term "corporators” refers to those who compose a corporation, whether as
stockholders or shareholders in the case of stock corporations or as members in
the case of non-stock corporations. Incorporators, on the other hand are those
stockholders/shareholders or member names appear in the articles of
incorporation as originally form composing the corporation, and who are
signatories thereof differentiate the corporator from the incorporator, one just
remember the following an incorporator is necessarily a corporate corporator is
not necessarily an incorporator.
Open, publicly listed, and close corporations
Based on Section 5 and the foregoing discussion, another classificatio corporations
may be had based on ownership of the corporations, w may be close or not close; i.e.,
open
1. A close corporation
is defined under Section 95 of the Revised Code as essentially one whose
stock is owned by at most twenty (20) persons. In addition, the transfer of its
 shares of stock is subject or may be subjected to restrictions that should appear
in the articles of incorporation, in the bylaws, as well as in the certificate of
stock in order to bind purchasers in good faith. Finally, close corporations
cannot be listed in the stock exchange and cannot offer any of their shares to
the public. However, even if a corporation has only 20 stockholders or fewer,
it will not be considered a close corporation when at least two-thirds (2/3) of
its voting stock or shares is owned and controlled by another corporation that
is not a close corporation.

A close corporation may be formed by families or some family members, or a

tightly knit group of friends or associates who wish to engage in a venture that
they themselves will manage. Some commentators have mentioned that a
close corporation is a de facto partnership with a corporate shell.

2. Not close corporations or widely held corporations

The last sentence of the first paragraph of Section 95 of the Revised cour
mentions corporations that are not close. It does not use the word “open” but
instead uses the phrase "not close." By inference, we can say that a
corporation is not close if it does not fall under Section 95 of the Revised
Code. A corporation that is not close may or may not be publicly listed.

3. Publicly listed corporations

These corporations are definitely not close and are listed in the Philippine
Stock Exchange (PSE) as they offer their shares to the public. Examples of
these corporations are PLDT, Inc., Jollibee Foods Corporation, and JG
Summit Holdings, Inc. Not all corporations that are open can be publicly listed
in the PSE because there are certain criteria to be complied with for listing
such as track record, minimum capital requirements, minimum number of
stockholders, among others."

SECTION 6. Classification of Shares. - The classification of shares, their

corresponding rights, privileges, or restrictions, and their stated par value, if
any, must be indicated in the articles of incorporation. Each share shall be equal
in all respects to every other share, except as otherwise provided in the articles of
incorporation and in the certificate of stock
The shares in stock corporations may be divided into classes or series of shares,
or both. No share may be deprived of voting rights except those classified and
issued as "preferred" or "redeemable" shares, unless otherwise provided in this
Code: Provided, that there shall always be a class or series of shares with
complete voting rights.
Holders of nonvoting shares shall nevertheless be entitled to vote on the
following matters:
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or ot disposition of all or
substantially all of the con property;
(d) Incurring, creating, indebtedness;
(e) Increase or decrease of authorized capital stock
(f) Merger or consolidation of the corporation with another corporation or other
corporations; Investment of corporate funds in another corporation or business
in accordance with this Code; and
(h) Dissolution of the corporation
Except as provided in the immediately preceding paragraph, the vote
required under this Code to approve a particular corporate act shall be
deemed to refer only to stocks with voting rights.
The shares or series of shares may or may not have a par value: Provided,
That banks, trust, insurance, and preneed companies, public utilities,
building and loan associations, and other corporations authorized to
obtain or access funds from the public, whether publicly listed or not,
shall not be permitted to issue no-par value shares of stock
Preferred shares of stock issued by a corporation may be given preference
in the distribution of dividends and in the distribution of corporate assets
in case of liquidation, or such other preferences: Provided, That preferred
share of stock may be issued only with a stated par value.. board of
directors, where authorized in the artic of incorporation, may fix the
terms and condition preferred shares of stock or any series thereot:
further, That such terms and conditions shall be upon filing of a
certificate thereof with the Securities and Exchange Commission,
hereinafter referred to as the "Commission":

Shares of capital stock issued without par value shall be deemed fully
paid and nonassessable and the holder of such shares shall not be liable to
the corporation or to its creditors in respect thereto: Provided, That no-
par value shares must be issued for a consideration of at least Five pesos
(P5.00) per share: Provided, further, that the entire consideration
received by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements

All shares are equal in all respects unless the contrary is provided for in the articles of
incorporation and stated in the certificate of stock because a corporation may classify
its shares for different reasons, e.g., to ensure compliance with constitutional and
other legal requirements. For example, certain shares may be issued only to Filipino
citizens where the business of the corporation belongs to a partially nationalized
industry, with a different kind of shares issued to foreign nationals. The shares of
stock of stock corporations may also be divided into classes or series of shares, or
both, which have their respective rights, privileges, or restrictions as provided for by
the articles of incorporation. In any case, there must always be a class or series of
shares or both with complete voting shares. Since only preferred and redeemable
shares may be deprived of voting rights, this necessarily means that common shares
will always have voting rights.
Preferred shares
Based on Section 6, preferred shares are called as such because they may be given
preference in the distribution of dividends, in the distribution of the assets of the
corporation in case of liquidation, and such other preferences as may be stated in the
articles of incorporation that are not contrary to the provisions of the Revised Code.
The preferences granted ration and cannot the articles must be clearly spelled out in
the articles of incorporation and be presumed." The board of directors, if authorized
by incorporation, may also determine the terms and conditions of pr shares or any
series thereof, and such terms and condition effective only upon the filing of a
certificate thereof with the important legal requirement is that preferred shares may be
issuu with a stated par value.

Kinds of preferred shares

The Court expounded on the concept of preferred shares in this wise:
A preferred share of stock ... is one which entitles the holder there to certain
preferences over the holders of common stock. The pro erences are designed
to induce persons to subscribe for shares of a corporation. Preferred shares
take a multiplicity of forms. The most common forms may be classified into
two: (1) preferred shares as to assets; and (2) preferred shares as to dividends.
The former is a share which gives the holder thereof preference in the
distribution of the assets of the corporation in case of liquidation; the latter is a
share the holder of which is entitled to receive dividends on said share to the
extent agreed upon before any dividends at all are paid to the holders of
common stock. There is no guaranty, however, that the share will receive any
dividends. ...(T)he declaration of dividends is dependent upon the availability
of surplus profit or unrestricted retained earnings, as the case may be.
Preferences granted to preferred stockholders, moreover, do not give them a
lien upon the property of the corporation nor make them creditors of the
corporation, the right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits earned by the
corporation and as a general rule, even if there are existing profits, the board
of directors has the discretion to determine whether or not dividends are to be
declared. Shareholders, both common and preferred, are considered risk takers
 who invest capital in the business and we can look only to what is left after
corporate debts and liabilities are fully paid.

Based on the foregoing, a preferred stockholder is not considered a creditor of the

corporation, and the rights of such stockholder, like that of the common stockholder,
are secondary to that of corporate creditors whose rights take precedence based on the
trust fund doctrine. Despite the preferences given, preferred stockholders cannot
override the board of directors' discretion to declare dividends.

In exchange for their preferred status, preferred shares, as Section 6 provides, may be
deprived of their voting rights. Despite the nonvoting status, preferred shares are
granted by the Code the right to vote in cases involving fundamental and major
changes in the corporate structure, as follows: (a) amendment of the articles of
incorporation; (b) adoption and amendment of the bylaws; (c) sale, lease, exchange,
mortgage, pledge, or disposition of all or substantially all the corporate property; (d)
incurring, creating, or increasing bonded indebtedness; (e) increase or decrease of
capital stock; (f) mergers or consolidations with another corporation; (g) investment
of corporate funds in another corporation or business, and (h) dissolution of the
corporation.

Common shares
"Common shares" or "common stock", on the other hand, are terms or phrases not
used in the Revised Code; but it is widely aceepted knowledge that they are so named
because they are the most commonly issued shares by corporations. These shares do
not get any preference in the distribution of dividends or in the distribution of assets
in case of liquidation. A common share entitles the owner to pro-rated dividends after
dividends are paid first to preferred shareholders. The common shareholder also does
not have any priority or preference over any other shareholder or class of shareholders
but is treated equally with all other stockholders except preferred stockholders.
Since common shares always have voting rights, shareholders thereof have the
capability of controlling or determining the direction of the corporation to a certain
degree.

Par shares
The par value of a share is stated in the articles of incor value represents the minimum
price that these shares can corporation, i.e., they cannot be issued by the corporation
than the par value stated in the articles of incorporation or certificate. There is no
prohibition against issuing or sellingt at higher than the stated par value. Section 6
also provides trust, insurance, and preneed companies, public utilities, bu loan
associations, and other corporations authorized to obtain funds from the public,
whether publicly listed or not, are allowed to only par value shares of stock. les of
incorporation and this hares can be issued by the rporation for a value less ration or on
the stock or selling these shares provides that banks, utilities, building and d to obtain
or access funds from the public,whether publicly listed or not,are allowed to issue
only par value shares of stock
No-par shares
No-par shares, on the other hand, do not have issue price. A perusal of the articles of
incorporation will reveal how the value of these shares is fixed. Typically, it is the
board of directors or the stockholders who are tasked to fix the issue price. Shares
without par value may not be issued for a consideration less than five (P5.00) pesos
per share and are deemed fully paid and non-assessable. Therefore, the holder of such
shares shall not be liable to the corporation or to its creditors for any balance on the
price. The entire consideration received by the corporation for its no-par value shares
shall be treated as capital and cannot be distributed as dividends.

SECTION 7. Founders' Shares. -Founders' shares may be given certain rights

and privileges not enjoyed by the owners of other stocks. Where the exclusive
right to vote and be voted for in the election of directors is granted, it must be for
a limited period not to exceed five (5) years from the of incorporation: Provided,
That such exclusive right shan not be allowed if its exercise will violate
Commonwean Act No. 108, otherwise known as the "Anti-Dummy La Republic
Act No. 7042, otherwise known as the Investments Act of 1991"; and other
pertinent law
Holders of founders' shares are given certain rights and prix enjoyed by the other
stockholders. However, the exclusive right be voted for in the election of directors
given to the holders of shares is subject to a limited period, which should not excee TI
SEC + nts and privileges not clusive right to vote and holders of founders' ot exceed
five (5)years and is subject to the approval of the SEC. In the deliberation of the
Batasang Pauhbansa on the founders' shares provision of the Old Code, it was the
consensus of the lawmakers that the SEC will have to take into account whether those
persons to whom the prerogative or right is given have contributed substantially in the
organization of the corporation on whether the business of the corporation is of a
character that is necessary for its control to be given to a certain group of individuals
for a period of time." As the provision states, the five-year period is counted from the
time SEC gives its approval. And the exclusive right to vote and be voted for in the
election of directors is not subject to renewal.
The provision or condition that the exclusive right of voting and being voted for the
board of directors cannot be granted if it will violate the FIRL "Anti-Dummy Law",
Foreign Investments Act of 1991", and related laws is Fores new. The proviso can be
presumed to be connected to the proscription or on or limiting of foreign nationals'
control or management of nationalized '401 businesses such as the exploitation of
natural resources, e.g, mining companies.
SECTION 8. Redeemable Shares. - Redeemable shares may be issued by .,' the
corporation when expressly provided in the articles of Contains incorporation.
They are shares which may be purchased by the corporation from the holders of
such shares upon the expiration of a fixed period, regardless of the existence to
forally of unrestricted retained earnings in the books of the vedeem the Shaler on
corporation, and upon such other terms and conditions Or appera stated in the
articles of incorporation and the certificate of stock representing the shares,
subject to rules and und regulations issued by the Commission.

Redeemable shares are so named because they can be redeemed or bought back by the
corporation under certain conditions. Redeemable shares may be issued by a
corporation when the articles of incorporation so provide. These shares can be
redeemed or bought back by the corporation from the stockholder after the expiration
of a fixed period, even if the corporation does not have unrestricted retained earnings
and upon such ot and conditions that are stated in both the articles of incorpor the
certificate of stock representing said shares
In Republic Planters Bank vs Agana, Sr." the Supreme Court explain essence of
redeemable shares, thus:
Redeemable shares ... are shares usually preferred, which by the terms are
redeemable at a fixed date, or at the option of either is ing corporation, or the
stockholder, or both at a certain redem price. A redemption by the corporation
of its stock is, in a sense repurchase of it for cancellation.. The present Code
allows redemption of shares even if there are no unrestricted retained earnings
on the books of the corporation. This is a new provision which in effect
qualifies the general rule that the corporation cannot purchase its own shares
except out of current retained earnings. However, while redeemable shares
may be redeemed regardless of the existence of unrestricted retained earnings,
this is subject to the condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of capital stock.
Redemption, therefore, may not be made where the corporation is insolvent or
if such redemption will cause insolvency or inability of the corporation to
meet its debts as they mature. (emphasis supplied) Read aloud | DAdd text In
the same case, the Court also said that the right of the holder of redeemable
shares to demand redemption of said shares is subject to prescriptive period
and laches.

SECTION 9. Treasury Shares. - Treasury shares are shares of stock which have
been issued and fully paid for, but subsequency reacquired by the issuing
corporation through purchase. redemption, donation, or some other lawful
means. Su s may again be disposed of for a reasonable price fixed by the board of
directors.
Treasury shares are shares of stock that have been previously Issued by the
corporation and fully paid for by the stockholder but are subsequently reacquired by
the issuing corporation through any legal peans. The corporation may hold the
treasury shares indefinitely, (retire them, use them for "stock bonus plan for
management and employets or for acquiring another company", or sell them for a
reasonable price

The Code does not delineate what a "reasonable price" is, and we submit that the
selling price of the treasury share can be below the par value (in case of par shares)
and below Php 5.00 (for no par shares) as the prohibition against selling below par or
below Php 5.00 refers specifically to the first issue of shares, and not their sale after
issue. Lo original issuane & prinsesale Treasury shares do not form part of the
corporation's outstanding capital stock, which refers to shares of stock that have been
issued to subscribers or stockholders, whether or not they are fully or partially paid.
The Court explained further what treasury shares are in Commissioner of Internal
Revenue vs. Manning, viz:

(T)reasury shares are stocks issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or other means. Treasury shares
are therefore issued shares, but being in the treasury they do not have the status of
outstanding - shares. Consequently, although a treasury share, not having been retired
by the corporation re-acquiring it, may be re-issued or sold agatí, such share, as long
as it is held by the corporation as a treasury share, participates neither in dividends,
because dividends cannot be declared by the corporation to itself, nor in the meetings
of the corporation as voting stock, for otherwise equal distribution of voting
powers among stockholders will be effectively lost and the directe will be able to
perpetuate their control of the corporation, thoi still represents a paid for interest in
the property of the corporation
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATION

SECTION 10. Number and Qualifications of Incorporators. - Any person,

partnership, association or corporation, singly or jointly with others but
not more than fifteen (15) in number, may organize a corporation for any
lawful purpose or purposes: Provided, That natural persons who are
licensed to practice a profession, and partnerships or associations
Postredp organized for the purpose of practicing a profession, shall not be
allowed to organize as a corporation unless otherwise provided under
special laws. Incorporators who are natural persons must be of legal age.
Each incorporator of a stock corporation must own or be a subscriber to
at least one (1) share of the capital stock.
A corporation with a single stockholder is considered a One Person
Corporation as described in Title XIII, Chapter III of this Code.

The rule on incorporators was substantially changed by the Revised Code. Firstly, it
allows natural persons, partnerships, associations, and corporations to form
corporations either by themselves or with others. The provision can be interpreted to
mean that a natural person, a partnership, an association, and an existing stock
corporation together can form a new stock corporation so long as they do not exceed
fifteen (15) in all, with each incorporator owning or subscribing to at least one share
in the new corporation. Under the old Code, only natural persons of legal age can
form corporations, and the majority of the incorporators Promoters must be residents
of the Philippines. Interestingly, the Revised does not mention any residency
requirements for incorporators. U. the Old Code, the majority of the incorporators
must be residents of Pippines. Thirdly, the Revised Code also remased the requiremen
having a minimum of five shareholders to establish a corporation

One-person corporations
Another significant change is the introduction of the one-person corporation concept
ie. a corporation having only a single stockholder Sec. 116 provides that only a
natural person, trust, or an estate may form one person corporations, and that "banks
and quasi-banks, preneed trust, insurance, public and publicly listed companies, and
non-chartered government-owned and controlled corporations cannot be organized as
one person corporations. Moreover, in Sec. 131, ordinary stock corporations can
apply for conversion to a one-person corporation when a single stockholder acquires
all the stocks of the corporation applying for conversion

SECTION 11 Corporate Term. - A corporation shall have perpetual nt. existence

unless its articles of incorporation provides any otherwise
Corporations with certificates of incorporation issued prior to the
effectivity of this Code, and which continue to exist, shall have perpetual
existence, unless the corporation, upon a vote of its stockholders
representing a majority of its outstanding capital stock, notifies the
Commission that it elects to retain its specific corporate term pursuant to
its articles of incorporation: Provided, That any change in the corporate
term under this section is without prejudice to the appraisal right of
dissenting stockholders in accordance with the provisions of this Code.
A corporate term for a specific period may be extend or shortened by
amending the articles of incorporation
Provided, That no extension may be made earlier than three (3) years
prior to the original or subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may be determined by the
Commission: Provided, further, That such extension of the corporate
term shall take effect only on the day following the original or subsequent
expiry date(s).
A corporation whose term has expired may apply for a revival of its
corporate existence, together with all the is rights and privileges under its
certificate of incorporation ton and subject to all of its duties, debts and
liabilities existing co prior to its revival. Upon approval by the
Commission, the corporation shall be deemed revived and a certificate of
revival of corporate existence shall be issued, giving it perpetual existence,
unless its application for revival provides otherwise.
No application for revival of certificate of incorporation of banks,
banking and quasi-banking institutions, preneed, insurance and trust
companies, non-stock savings and loan associations (NSSLAs),
pawnshops, corporations engaged in money service business, and other
financial intermediaries shall be approved by the Commission unless
accompanied by a favorable recommendation of the appropriate
government agency.
Unlike the Old Code that limited a corporation's single term to a maximum of fifty
(50) years, although renewable for periods of 50 years with each renewal, the Revised
Code provides for a perpetual period unless the corporation itself chooses to have a
limited period of existence, subject to extension (or cutting short) of its lifespan as
decided by the stockholders. Applications for extension of term cannot be made
earlier than three (3) years prior to expiry of original term, unless an earlier
application for extension can be justified by the corporation concerned. The Revised
Code makes it clear that the extension of the corporate term

approved by the SEC takes effect only on the day following the expiry date of the
original term that is sought to be extended. A corporation's te still subject, though, to
the SEC's power to cut it short by dissolvi corporation for reasons mentioned in Sec.
138, e.g. use of the con for illegal purposes.

With respect to the 50-year term, the Court explained in Ben Consolidated Mining Co
vs. Pineda that limiting the corporate te done with the public interest in mind ,

The State and its officers also have an obvious interest in the term She l ife of
associations, since the conferment of juridical capacity man ng them during
such period is a privilege that is derived from statute. lt 2. 'is obvious that no
agreement between associates can result in giving rise to a new and distinct
personality, possessing independent rights Juridical Land obligations, unless
the law itself shall decree such result. And the p m State is naturally interested
that this privilege be enjoyed only under the conditions and not beyond the
period that it sees fit to grant; and, particularty, that it be not abused in fraud
and to the detriment of other parties, and for this reason it has been ruled that
"the limitation of corporate existence) to a definite period is an exercise of
control in the interest of the public

Revival of expired juridical personality

A significant change introduced by the Revised Code is the right of a corporation

whose term has expired to apply for revival of its corporate existence. Revival of
expired juridical personality is subject to certain conditions especially for businesses
like banks, corporations engaged in money service-related transactions, and other
financial intermediaries that need to obtain a favorable recommendation issued by the
pertinent, government agency, such as the Bangko Sentral ng Pilipinas in the case
banks.

Under the Old Code, a corporation whose term has expired cannot a for a renewal of
its license and is limited to the winding up of its activities within a period of three (3)
years for the liquidation of the company

liquidation is essentially "the process of settling the affairs of said poration, consisting
of adjusting the debts and claims, i.e., of collecting all that is due the corporation, the
settlement and adjustment of claims against it and the payment of its just debts."

Appraisal right of dissenting stockholder

Any change in the corporate term, whether extension, cutting short, or revival gives
rise to the right of a stockholder who dissents from the decision of the stockholders
approving such change to invoke his or her appraisal right, i.e., the right to make a
demand on the corporation for the payment of the fair value of shares owned by the
dissenting stockholder who wants to withdraw from the corporation.
SECTION 12. Minimum Capital Stock Not Required of Stock Corporations. -
Stock corporations shall not be required to have a minimum capital stock, except
as otherwise specifically provided by special law.

Unless required by specific laws for certain businesses like banking and quasi-
banking, and lending, no minimum capital stock is required for corporations in
general.

The Revised Code also does not impose a specific percentage of the authorized capital
stock to be subscribed (25%) or paid-up (25% of subscribed capital); neither does it
require a minimum paid-up capital stock of Php 5,000, in contrast to the Old Code.

In any case, the Al should indicate the corporation's authorized capital stock, the
number of shares into which it is divided, the par value of each share, the names,
nationalities, and residence addresses of the original

subscribers, amount subscribed and paid by each on the subscripti and a statement that
some or all of the shares are without par value ! applicable.

On the other hand, non-stock corporations' Al should include the amour of its capital,
the names, nationalities, and residence addresses of the contributors, and amount
contributed by each

Nature of capital stock

Strictly speaking, the capital stock of a corporation is the sum total fixed by the Al as
the amount paid in, or to be paid in, and is the capital on which the corporation is to
do business D This is differentiated from the shares representing the separate interest
of individual stockholders, and which shares make up the authorized capital stock

The capital stock of a corporation is essentially a trust fund to be used only in its
interests and for corporate purposes,100 and more particularly it is a trust fund for the
security of creditors of the corporation, who presumably deal with it on the credit of
its capital stock, so that it cannot be withdrawn or diverted to their prejudice

Outstanding capital stock

Section 173 of the Code defines "outstanding capital stock" as "the total shares of
stock issued to subscribers or stockholders, whether or not fully or partially paid (as
long as there is a binding subscription contract), except treasury shares.

Differentiating capital stock from capital

Capital and capital stock are sometimes used interchangeably but a distinction in
some instances has been made.102 The Capital stock" of the corporation represents
the amount of money or property contributed Shareholders to be used as the financial
foundation from which the usiness of the corporation is to be carried on while the
term "capital" is used broadly to refer to all the assets of a corporation that are used
for the purpose of deriving profit in the conduct of its business.
Also, non-stock corporations do not have capital stock, but they are required to
indicate the amount of their capital or money and the names, nationalities, and
residences of the contributors to the capital, and the amount contributed by each. This
would show potential donors how much more funding the corporation needs, as well
as the persons behind the non-stock corporation

Nationalized businesses

There are businesses that have nationality requirement as mandated by the 1987
Philippine Constitution.105 This means that there is a specific percentage of the
corporation's capital stock that should be owned by Filipino citizens. Examples are
mass media whose "ownership and management (are) limited to citizens of the
Philippines, or to corporations, cooperatives or associations, wholly-owned and
managed by such citizens" (100%),106 "exploration, development, and utilization of
natural resources" (60%),107 operation of a public utility (60%),108 and
"(e)ducational institutions, other than those established by religious groups and
mission boards" which "shall be owned solely by citizens of the Philippines or
corporations or associations at least sixty per centum of the capital of which is owned
by such citizens"
SECTION 13. Contents of the Articles of Incorporation. - All corporations shall file
with the Commission articles of incorporation in any of the official languages, duly
signed and acknowledged or authenticated, in such form and manner as may be
allowed by the Commission, containing substantially the following matters, except as
otherwise prescribed by this Code or by special law:
(a) The name of the corporation;
(b) The specific purpose or purposes for which the corporation is being formed.
Where a corporation has more than one stated purpose, the articles of incorporation
shall indicate the primary purpose and the secondary purpose or purposes: Provided,
That a nonstock corporation may not include a purpose which would change or
contradict its nature as such;
(c) The place where the principal office of the corporation is to be located, which
must be within the Philippines;
(d) The term for which the corporation is to exist, if the corporation has not elected
perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators; Stock Com
(1) The number of directors, which shall not be more than fifteen (15) or the number
of trustees which may, be more than fifteen (15); Y o rim shoul (8) The names,
nationalities, and residence addresses or persons who shall act as directors or trustees
until the first regular directors or trustees are duly elected and qualified in accordance
with this Code;
(h) If it be a stock corporation, the amount of its authorized capital stock, number of
shares into which it is divided,
the par value of each, names, nationalities, and residence addresses of the
original subscribers, amount subscribed and paid by each on the subscription,
 and a statement that some or all of the shares are without par value, if
applicable;
(i) If it be a nonstock corporation, the amount of its capital, the names, nationalities,
and residence addresses of the contributors, and amount contributed by each;
(j) Such other matters consistent with law and which the incorporators may deem
necessary and convenient.

An arbitration agreement may be provided in the articles of incorporation pursuant to

Section 181 of this Code.
The articles of incorporation, and applications for amendments thereto may be filed
with the Commission in the form of an electronic document, in accordance with the
Commission's rules and regulations on electronic filing.

SECTION 14. Form of Articles of Incorporation. - Unless otherwise prescribed by

special law, the articles of incorporation of all domestic corporations shall comply
substantially with the following form:
Articles of Incorporation
Of

(Name of Corporation)
The undersigned incorporators, all of legal age, have voluntarily sreca to form a
(stock) (nonstock) corporation under the laws of the Republic of the Philippines and
certify the following:
First: shall be That the name of said corporation shall be ____________, Inc.,
Corporation or OPC";
Second: That the purpose or purposes for which such corr is incorporated are: (If there
is more than one purpose, indicate and secondary purposes): ch such corporation se,
indicate primary
Third: That the principal office of the corporation is located in City/Municipality of
__________ Province of____________ Philippines:
Fourth: That the corporation shall have perpetual existence or term of ________ years
from the date of issuance of the certificate incorporation;
Fifth: That the names, nationalities, and residence addresses of the incorporators of
the corporation are as follows:
Name Nationality Residence
Sixth: That the number of directors or trustees of the corporation shall be ________
and the names, nationalities, and residence addresses of the first directors or trustees
of the corporation are as follows:
Name Nationality Residence

Seventh: That the authorized capital stock of the corporation________ PESOS

(P__________ ), divided into __________ shares with the par –
value of_____ PESOS (P_________) per share. (In case all the shares are without par
value): That the capital stock of the corporation is __________ shares without par
value.
(In case some shares have par value and some are without par value): That the capital
stock of said corporation consists of _________shares, of which
______________shares have a par value of ___________ PESOS ( P________) each,
and of which _______ shares are without par value.
Eighth: That the number of shares of the authorized capital stock above-stated has
been subscribed as follows:
Name of Nationality No. of Shares Amount Amount
Subscriber Sub scribed Subscribed Paid

(Modify No. 8 if shares are with no-par value. In case the corporation is nonstock,
Nos. 7 and 8 of the above articles may be modified accordingly, and it is sufficient if
the articles state the amount of capital or money contributed or donated by specified
persons, stating the names, nationalities, and residence addresses of the contributors
or donors and the respective amount given by each.)
Ninth: That _________________ has been elected by the subscribers as Treasurer of
the Corporation to act as such until after the successor is duly elected and qualified in
accordance with the bylaws, that as Treasurer, authority has been given to receive in
the name and for the benefit of the corporation, all subscriptions, contributions or
donations paid or given by the subscribers or members, who certifies the information
set forth in the seventh and eighth clauses above, and that the paid-up portion of the
subscription in cash and/or property for the benefit and credit of the corporation has
been duly received.
Tenth: That the incorporators undertake to change the nan the corporation
immediately upon receipt of notice from the Commission that another corporation,
partnership or person has acquired prior right to the use of such name, that the name
has been der not distinguishable from a name already registered or reserved for (use
of another corporation, or that it is contrary to law, public morale good customs or
public policy.
Eleventh: (Corporations which will engage in any business or activity reserved for
Filipino citizens shall provide the following):
"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."

IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation,

this ____day of _________, 20__in the City/ Municipality of ___________ Province
of _________ Republic of the Philippines.

(Names and signatures of the incorporators)

(Name and signature of Treasurer)

Articles of incorporation
The articles of incorporation (AI) is the basic document for incorporation the charter-
and its hon-submission prevents the SEC from issuing certificate of incorporation that
gives rise to the corporation's juridical personality. The Al constitutes a contract
between three sets of parties: (a)state and the corporation to which the certificate of
incorporation is granted: (b) the stockholders and the state, and (c) the corporation and
its stockholders. The SEC will only approve the application for incorporation if the
submitted Al substantially complies with the Corporation Code. In addition to the
foregoing sections, Sections 16, 17, and 18 are also pertinent to the preparation of the
Al
Content and forms of the Articles of Incorporation
As earlier mentioned, the Al is the most important document in the incorporation
process, and Sections 10 to 13 provide what should be contained in the Al, whose
basic form is prescribed by Sec. 14. And incorporation is now done through the SEC
online system.

In brief, the articles of incorporation must contain the following:

(a) The name of the corporation;
(b) The specific purpose or purposes for which the corporation is kasi kung, being
formed, and if the corporation has more than one stated win purpose, the Al shall
indicate the primary purpose and the secondary purpose or purposes: (a non-stock
corporation may not include a purpose which would change or contradict its ciany
nature as such)
(c) The place where the principal office of the corporation is to be located, which
must be within the Philippines;
(d) The term for which the corporation is to exist, if the corporation decides not to
have perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
(f) The number of directors, which shall not be more than fi (15), or the number of
trustees, which may be more than fifteen (15);
(g) The names, nationalities, and residence addresses of who shall act as directors or
trustees until the first res directors or trustees are duly elected and qualified in
accordance with this Code;
(h) If it is a stock corporation, the amount of its authorized capital stock, number of
shares into which it is divided, the par value of each, names, nationalities, and
residence addresses of the original subscribers, amount subscribed and paid by each
on the subscription, and a statement that some or all of the shares are without par
value, if applicable;
(i) If it is a non-stock corporation, the amount of its capital, the names, nationalities,
and residence addresses of the contributors, and amount contributed by each; and
(j) Such other matters consistent with law and which the incorporators may deem
necessary and convenient.
The Revised Code's required contents for the Al are essentially the same as those in
the Old Code, although the Revised Code provides additionally that: 1) an arbitration
agreement may be included in the Al pursuant to Section 181, and 2) Als and
amendments thereto can be electronically filed.2 The Revised Code also did away
with the residency requirement for the majority of the incorporators.
There are other requirements in certain situations:
•Endorsement/clearance from the pertinent agencics applicable
Clearance from other SEC departments
Application form for registration under the Foreign Investments Act of 1991
(Republic Act No. 7042) for corporations with more than 40% foreign equity
Endorsement/clearance from: 1) the Philippine Economic Zone Authority (PEZA) for
applicants under Republic Act No. 7916; 2) Subic Bay Metropolitan Authority
(SBMA) or Clark Development Corporation (CDC) for applicants under Republic Act
No. 7227, or 3) Cagayan Economic Zone Authority (CEZA) for applicants under
Republic Act No. 7922.

There are more requirements when subscription payment is not in cash; i.e., in kind
such as: property in the form of titled land and/or building or condominium unit,
untitled land, inventories/furniture/personal properties, heavy equipment and
machinery, shares of stock, motor vehicle sea vessel/aircraft, intangible assets
(software, intellectual property rights, mining permit for mining claims or rights), net
assets arising from conversion of single proprietorship/partnership into corporation."
One important element among the additional requirements is the need by the
stockholders or by the board of directors to determine the valuation of the non-cash
payments for stock subscription, subject to the SEC's approval, because shares cannot
be issued below their par value.

SECTION 15. Amendment of Articles of Incorporation. -Unless otherwise

prescribed by this Code or by special law, and for legitimate purposes, any
provision or matter stated in the articles of incorporation may be amended by a
majority vote of the board of directors or trustees and the vote or written assent
of the stockholders representing at least two-thirds (2/3 of the outstanding
capital stock, without prejudice to the appraisal right of dissenting stockholders
in accordance with the provisions of this Code. The articles of incorporation of a
nonstock corporation may be amended
by the vote or written assent of majority of the to and at least two-thirds (2/3) of
the members.
The original and amended articles together shall com all provisions required by
law to be set out in the article of incorporation. Amendments to the articles shall
indicated by underscoring the change or changes made a copy thereof duly
certified under oath by the corporate secretary and a majority of the directors or
trustees, with a statement that the amendments have been duly approved by the
required vote of the stockholders or members, shall be submitted to the
Commission
The amendments shall take effect upon their approval by Hurrche Commission
or from the date of filing with the said Commission if not acted upon within six
(6) months from the date of filing for a cause not

SECTION 16. Grounds When Articles of Incorporation or Amendment May be

Disapproved. - The Commission may disapprove the articles of incorporation or
any amendment thereto if the same is not compliant with the requirements of
this Code: Provided, that the Commission shall give the incorporators, directors,
trustees, or officers a reasonable time from receipt of the disapproval within
which to modify the objectionable portions of the articles or amendment. The
gers following are grounds for such disapproval:
(a) The articles of incorporation or any amendment thereto is not substantially
in accordance with the form prescribed herein;
(b) The purpose or purposes of the corporation art patently unconstitutional,
illegal, immoral or contrary to government rules and regulations;
(c) The certification concerning the amount of cap stock subscribed and/or paid
is false; and
(d) The required percentage of Filipino ownership of the capital stock under
existing laws or the Constitution has not been complied with.
No articles of incorporation or amendment to articles of incorporation 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 to the effect that such articles or amendment is
in accordance with law.

There are only two basic requirements for the amendment of the articles of
incorporation: 1) the amendment is in accord with the provisions or requirements of
the Revised Code and 2) the amendment is for a legitimate purpose.

The following, which could be subsumed under the two foregoing criteria, are
grounds for rejection or disapproval by the SEC:
a. The Al or any amendments thereto does not substantially comply with the form
prescribed by Sec. 14; |
b. The purpose/s of the corporation is/are patently unconstitutional, illegal, immoral,
or contrary to government rules and regulations;
c. The certification concerning the amount of capital stock old codo subscribed and/or
paid is false;
d. The required percentage of Filipino ownership of the capital stock under the
Constitution and pertinent laws is not complied with
e. Specifically in the case of banks, banking, and quasi banking institutions, preneed,
insurance and in companies, non-stock savings and loan associatic (NSSLAs).
pawnshops, and other financial intermediar no favorable recommendation of the
appropriate government agency accompanies the articles of incorporation or
amendment to articles of incorporation to the effect that such articles or amendments
thereto is in accord with law.
Sections 175 of the Revised Code expressly allows the SEC to collect registration and
other fees, and the specific rates are found in the SEC's website.
The purpose clause in the Al indicates what acts the corporation may or may not
legally do. Therefore, in phrasing the purpose clause, it is prudent that all the
corporation's business ventures be expressed in the purpose clause. The purpose
clause may also help apprise potential investors and help them decide whether or not
to invest money in a corporation.

If there is more than one purpose, the AI should state the primary purpose and
indicate the secondary purpose/s.

The board of directors must be fully aware of the purpose clause so that it will stay
within the limits of its business sphere. Third parties who wish to enter into
transactions with the corporation may also take a look at the corporation's purpose/s to
help in their decision-making
A corporation may only be formed for a legitimate business concern or any purpose
not contrary to law, morals, public policy, or good customs." an illegal purpose may
not be included in the purpose clause; although non-inclusion of an illegal purpose in
the clause is not a guarantee the corporation will not be used for illegal or immoral
purposes suc money laundering and others.
Time for rectification
The SEC shall give the incorporatory a reasonable time within which to mct or
modify the objectionable portions of the articles or the proposed amendment/s. The
amendment/s shall take effect either: 1) upon its approval by the SEC, or 2) from the
date of filing with the SEC if the amendments abmitted are not acted upon within six
(6) months from the date of filing for reasons not attributable to the corporation
SECTION 17. Corporate Name. No corporate name shall be allowed by the
Commission if it is not distinguishable from that already reserved or registered
for the use of another corporation, or if such name is already protected by law,
or when its use is contrary to existing law, rules and regulations.
A name is not distinguishable even if it contains one or Similar more of the
following:
(a) The word "corporation", "company", "incorporated", "limited",
"limited liability", or an abbreviation of one of India such words
 (b) Punctuations, articles, conjunctions, contractions, prepositions,
abbreviations, different tenses, spacing, or number of the same word or
phrase.
The Commission, upon determination that the corporate name is: (1) not
distinguishable from a name already reserved or registered for the use of
another corporation; (2) already protected by law: or (3) contrary to law, rules
and regulations, may summarily order the corporation to immediately cease and
desist from using such name and require the corporation to register a new one.
The . Commission shall also cause the removal of all visible signages, marks,
advertisements, labels, prints and other effects bearing such corporate name.
Upon the approval of the new corporate name, the Commission shall issue a
certificate of incorporation under the amended name.
If the corporation fails to comply with the Commission's order, the Commission
may hold the corporation and responsible directors or officers in contempt
and/or them administratively, civilly and/or criminally Under this Code and
other applicable laws and/or rei the registration of the corporation.
Under this section, the SEC will not allow the use of a corporate nam that is:
a. not distinguishable from that already reserved or registered for the use of another
corporation, or if such name is already protected by law, or
b. when its use is contrary to existing law, rules, and regulations.
The same Section also provides that a name is not considered distinguishable even if
it contains one or more of the following:
a. The word "corporation","company", "incorporated", "limited", "limited liability, or
an abbreviation of one of such words;
b. Punctuations, articles, conjunctions, contractions, preposi tions, abbreviations,
different tenses, spacing, or number of the same word or phrase.

Prior to the Revised Code's enactment, the SEC also issued Memorandum Circular
No. 14, series of 2017, on the use of corporate and partnership names. This SEC
issuance provides that:
a. The corporate name shall have the word "Corporation of "Incorporated" or
their respective abbreviations (Corp. and Inc.) attached to it, e.g., JG Summit
Holdings, Inc.,
b. The corporate name of a foundation shall use the "Foundation, e.g., Jesuit
Volunteers Philippines Foundation Revised-Corporation-Code-of-th x
c. A term that describes the business of a corporation should refer to its primary
purpose, and if there are tw terms, the first should refer to its primary purpose.
corporation in its name e are two such "pose, and the second to the secondary
purpose, e.g., OMG! Upholstery and Trading, Inc.;
 d. The name shall not be identical, misleading, or confusingly similar to a
corporate name registered with the SEC, or with the Department of Industry
(DTI), which regulates sole proprietorships;
e. If the name applied for is similar to that of a registered corporation, one or
more distinctive words should be added to the proposed name to remove the
similarity or differentiate it from the registered name; but punctuation marks,
spaces, signs, symbols, and other similar characters are not acceptable as
distinguishing words for purposes of differentiating a proposed name, e.g.,
Jollibee Foods Corporation!!!
f. A name that consists solely of special symbols, punctuation marks, or
specially designed characters will not be accepted for registration, e.g.,
!@#@!!!, Corp.;
g. Business or trade name that is different from the corporate name shall be
included in the articles of incorporation;
h. A trade name or trademark registered with the Intellectual Property Office
may be used as part of a corporate name of a party other than its owner if the
latter gives consent to its use;
i. The full name or Surname of a person may be used as a corporate name if:
i he/she is a stockholder or member of the corporation, and ii. has
consented to such use; and if the person concerned is deceased, the
consent shall be given by his/her estate
iii. the name of an internationally known foreign corporation, or
something similar to it, cannot be used by a domestic corporation
unless:
a) it is its subsidiary, and
b) the parent corporation has consented to such use;
j. A name written in a foreign language, even if registere another country, shall
not be registered if the name viol: good morals, public policy, or has an offensive or
indeco meaning in any of the Philippines' languages or major diale or dialects,
k. The name of a local geographical unit, site, or locatie cannot be used as a
corporate name unless accompanied by descriptive word or phrase, e.g., Manila,
Manila! Corp.

It is possible to verify the availability of a proposed corporate name through the SEC's
website. If the desired name is available, said name can be reserved for a specific
period of time by paying the appropriate fee. Read aloud
Considering the import of Section 17, the addition of the word "Corporation" or "Inc.
to a corporate name as required by MC 14, series of 2017, is not to distinguish the
corporation concerned from other corporations but to distinguish it from other
business vehicles like partnerships and single proprietorships. Similarly, under
Section 120, a one-person corporation is required to put the letters OPC either below
or at the end of its corporate name to indicate its nature as such
Importance of corporate name
A corporate name identifies the corporation and it is through its name that a
corporation may do legal acts, sue, and be sued.18 The name of a corporation is a
necessary element for its existence and designates the corporation in the same manner
as the name of an individual designates the person. It must not be identical or
deceptively or confusingly similar to that of any existing corporation or to any other
name protected by law, and not patently deceptive, confusing or contrary to existing
law.
In Laceum of the Philippines vs. CA.121
the Supreme Court explained the policy behind the prohibition against the registration
of identical or confusingly similar names in this way:
The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that of
any existing corporation or which is "patently deceptive" or "patently confusing" or
"contrary to existing laws." is the avoidance of fraud upon the public which would
have occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over
corporations.
We do not consider that the corporate names of private respondent institutions are
"identical with, or deceptively or confusingly similar" to that of the petitioner
institution. True enough, the corporate names of private respondent entities all carry
the word "Lyceum" but confusion and deception are effectively precluded by the
appending of geographic names to the word "Lyceum." Thus, we do not believe that
the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the
Philippines, or that the "Lyceum of Camalaniugan" would be confused with the
Lyceum of the Philippines
To determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to ascertain
the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate
names in their entirety and when the name of petitioner is juxtaposed with the names
of private respondents, they are not reasonably regarded as identical" or "confusingly
or deceptively similar" with each other.
The test used in determining if there is confusing similarit corporate names is whether
the similanty is such as to misleada using ordinary care and discrimination.
Disallowed corporate names
a Industrial Refractories Corporation of the Philippines was declared as Heceptively
and confusingly similar Refractories Corporation the Philippines, that was register
nine (9) years earlier, thus acquiring the right to use the word Refractories as part of
its corporate name" by virtue of the priority of adoption rule.24 The Court said that
the only distinguishing word between the two corporate names is "industrial which
only indicates the corporation's "general field of activities or operations." It also did
not help that both corporations target the same market: the steel industry, and some
clients in fact have been misled
b. In Philips Export B.V. vs. Court of Appeals, the Court ruled that Standard Philips
Corporation cannot use the word "Philips" in its corporate name because “Philips” is a
trademark or tradename that was already registered as early as 1922.25 And "(a)
corporation has an exclusive right to the use of its name, which may be protected by
injunction upon a principle similar to that upon which persons are protected in the use
of trademarks and tradenames."26 The Court also stated that evidence of actual
confusion caused by the similarity in names on third parties like clients need not be
introduced as " suffices that confusion is probably or likely to occur.
Name change
Corporations may change their corporate name by amending their Al and following
the requirements set out in Section 15 of the Corporation Code.
In Republic Planters Bank vs CA,129 the Supreme Court stated the following:
The corporation, upon such change in its name, is in no sense a new corporation, nor
the successor of the original corporation. It is the same corporation with a different
name, and its character is in no respect changed.
A change in the corporate name does not make a new corporation, and whether
effected by special act or under a general law, has no effect on the identity of the
corporation, or on its property, rights, or liabilities.
The corporation continues, as before, responsible in its new name for all debts or
other liabilities which it had previously contracted or incurred.
The Revised Code lays down the legal consequence of using names that do not
comply with Section 17, and these are:
1. The SEC can summarily order the corporation concerned to immediately cease and
desist from using such name and require the corporation to register a new one.
2. The SEC shall also cause the removal of all visible signages, marks,
advertisements, labels, prints, and other effects bearing such corporate name.
3. Failure of the corporation to comply with the Commission's order may lead to the
holding of the corporation and its responsible directors or officers in contempt by the
SEC, and or make them administratively, civilly, and/or criminally under the Code
and other applicable laws.
4. The corporation's registration may also be revoked by the SEC
Section 159 of the Revised Code also provides that "the unauthoriza use of a
corporate name shall be punished with a fine ranging Ten thousand pesos
(P10,000.00) to Two hundred thousand (P200,000.00)."
SECTION 18. Registration, Incorporation, and Commencement of Corporate
Existence. - A person or group of persons desiring to incorporate shall submit
the intended corporate name to the Commission for verification. If the
Commission finds that the name is distinguishable from a name already reserved
or registered for the use of another corporation, not protected by law and is not
contrary to law, rules, and regulations, the name shall be reserved in favor of the
incorporators. The incorporators shall then submit their articles of
incorporation and bylaws to the Commission.
If the Commission finds that the submitted documents and information are fully
compliant with the requirements of this Code, other relevant laws, rules and
regulations, the Commission shall issue the certificate of incorporation.
A private corporation organized under this Code commences its corporate
existence and juridical personality from the date the Commission issues the
certificate of incorporation under its official seal and thereupon the
incorporators, stockholders/members and their successors shall constitute a body
corporate under the name stated in the articles of incorporan for the period of
time mentioned therein, unless sa period is extended or the corporation is sooner
disson in accordance with law.

The Certificate of Incorporation issued by the SEC is analogous to the birth certificate
of a natural person. It signifies the birth of an artificial ing that will have a furidical
personality separate and distinct from those of its corporators, stockholders, or
members, and possessing legal rights obligations of its own.Issuance of said
certificate also signals the existence of a new body politic and corporate under its
name.
Section 184 of the Revised Code provides that no right or remedy in favor of or
against any corporation, its stockholders, members, directors, trustees, or officers, nor
any liability incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent dissolution
of said corporation or by any subsequent amendment or repeal of this Code or of any
part thereof."
The Revised Code also gives lawfully existing corporations that are doing business in
the Philippines and are affected by the new requirements of the Code a period of not
more than two (2) years from the effectivity of the Code within which to comply.
De jure, de facto, and by estoppel corporations
Section 18, together with Sections 19 and 20, provides another classification of
corporations; i.e., based on their compliance with registration requirements. A
corporation may be de jure as spelled out in Section 18, de facto based on Section 19,
or by estoppel as described in Section 20.
De jure corporation
De jure corporations are organized in full compliance with the Revised Code's
requirements. The SEC, through its legal officers, examines the Incorporation papers
submitted to it, and if these are in order, the SEC will approve the incorporation
papers and shall issue the corporation's certificate of incorporation. As previously
written, the certificate of incorporation marks the beginning of the corporation's legal
existence with its own juridical personality.
Sanctions
Section 164 penalizes those responsible for the formation of a cor through Iraud, or
who assist directly or indirectly therein. w ranging from two hundred thousand pesos
(P200,000.00) to tu pesos (P2,000,000,00). Further, when the violation is in
detrimental to the public, the fine ranges from four hundred pesos (P400,000.00) to
five million pesos (P5,000,000.00).
SECTION 19. De Facto Corporations - The due incorporation corporation
claiming in good faith to be a a corporation ed under this Code, and its right to
exercise corporate power shall not be inquired into collaterally in any private
suit to which such corporation may be a party. Such inquiry but may be made by
the Solicitor General in a quo warrant proceeding
De facto corporations exist as a matter of fact. In good faith, they claim to be a
corporation but in reality, there is a defect in their incorporation. To be a de facto
corporation, the following requisites have to be satisfied: 11 existence of a valid law
that allows the formation of corporations good faith compliance with the legal
requirements for the formation of a corporation, and 3) exercise of corporate powers
by the de facto corporation
Although there is a defect in its incorporation, the existence of a de facto corporation
may not be challenged collaterally in a private suit. A collateral challenge is"(a)n
attempt to impeach or overturn a judgment rendered in a judicial proceeding but such
attempt is made in a different judicial proceeding, i.e., not in the proceeding that gave
rise to the judgment attacked. It is the Solicitor General who has the power question
the legal existence of a de facto corporation by way of a warranto proceeding that is
specifically filed for the purpose; thu important that the position of Solicitor General
be occupied by a ica man who possesses morals and integrity as the power to file quo
warran to proceedings could be misused for purposes not intended by the law like
persecuting innocent parties.
Illustrative example
xyz, Inc. entered into a contract with Kina Rogers Corp. wherein the Iatter would do
catering for the parties of XYZ, Inc. for a year. When kina Rogers Corp. collects after
performing its obligation, the latter Files is unable to pay, forcing the aggrieved party
to sue in court. Subquently the court decides in favor of Kina Rogers Corp., and XYZ,
COJ-thic, appeals the judgment, and one of its defenses for non-payment is the fact
that Kina Rogers Corp is a de facto corporation as shown by a SEC decision in
another case to invalidate its registration due to some reasons
Xyz's act of questioning Kina Rogers/Corp.'s legal personality in the collection case is
a collateral attack as it is made in a proceeding that is distinct and separate from that
where Kina Rogers Corp's registration has been invalidated. Only the Solicitor
General can raise the issue of Kina Rogers Corp.'s legal status as a de facto
corporation in a quo warranto proceeding, which refers to "(a)n action for the
usurpation of a public office, position or franchise (that) may be commenced by a
verified petition brought in the name of the Republic of the Philippines against:
...(against) an association which acts as a corporation within the Philippines without
being legally incorporated or without lawful authority so to act."135 Ofenbic Copa
afron

SECTION 20. Corporation by Estoppel. - All persons who assume to act as a

corporation knowing it to be without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, that when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort committed by it as
such, it shall not be allowed to use its lack of corporate personality as a defense.
Anyone who assumes an obligation to an ostensible corporation as such cannot
resist performance thereof on the ground that there was in fact no corporation
In the case of a corporation by estoppel there is in fact no con a group of persons
who pretend to act as a corporation knowing that they do not have corporate
existence. There is not even to incorporate under the Revised Code. Persons
behind a corporation estoppel are therefore estopped or prevented from denying
any that may arise from the transactions entered into by the corporation by
estoppel. Because there is no corporation existing, any liability of corporation by
estoppel shall be the personal liability of the individual who pretend to act for the
corporation by estoppel. These individual shall be liable as general partners for the
debts, damages, and liabilities incurred or arising from the transactions of the
corporation by estoppel.
If a case is filed against the corporation by estoppel, the corporation by estoppel
likewise cannot assert that it does not have corporate personality in order to evade
its legal obligation.
On the other hand, persons who have obligations in favor of the corporation by
estoppel cannot also evade their obligation by claiming that the corporation by
estoppel does not exist. Estoppel applies to a third person only when she has
benefited from the corporation by estoppel and is trying to escape from her
liability. Estoppel does not apply to the third person if she is enforcing her claim
against the corporation by estoppel
The concept of corporation by estoppel is “founded on principles of equity and is
designed to prevent injustice and unfairness" and applies only when persons
assume to form a corporation and exercise corporate function and enter into
business relations with third persons.
Illustrative examples
a. Luzvimin Airways (LA), a literally fly-by-night domestic air lines, entered
into a contract with We Are the Benchmark Corp. wherein the latter would
supply the sports shirts and shorts of LA's flight attendants. It turns out LA,
which is owned equally by Steven Rogers, Bruce Bummer, Natasha Romano,
Thor Robinson, and Toni Spark, is not registered with the SEC. If We Are the
Benchmark Corp. collects from LA, and the latter is unable to pay, and the
supplier company files a case in court, the five shareholders cannot move for
 the dismissal of the case on the ground that there is no LA corporation that
exists. Moreover, Steven Rogers, Bruce Bummer, Natasha Romano, Thor
Robinson, and Toni Spark will be personally liable to the complainant.
b. Luzvimin Airways (LA), a literally fly-by-night domestic air line, entered into
a contract with We Are the Benchmark Corp. wherein the latter would supply
the sports shirts and shorts of LA's flight attendants. It turns out LA, which is
owned equally by Steven Rogers, Bruce Bummer, Natasha Romano, Thor
Robinson, and Toni Spark, is not registered with the SEC. If LA pays a
downpayment to the supplier corporation and the latter is unable to deliver as
agreed upon the supplier company cannot raise as defense for its non-
fulfillment of its obligation that there is in fact(no corporation to supply to. 40
SECTION 21. Effects of Non-Use of Corporate Charter and Continuous
Inoperation. - If a corporation does not formally organize and commence its
business within five (5) years from the date of its incorporation, its certificate of
incorporation shall be deemed revoked as of the day following the end of the five
(5)-year period.
However, if a corporation has commenced its business but subsequently becomes
inoperative for a period of at least five (5) consecutive years, the Commission
may, after due notice and hearing, place the corporation under delinquent
status.

A delinquent corporation shall have a period of two to resume operations and

comply with all requis that the Commission shall prescribe. Upon com by the
corporation, the Commission shall issue a lifting the delinquent status.
Failure to comply wit requirements and resume operations within the given
by the Commission shall cause the revocation corporation's certificate of
incorporation.
The Commission shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the suspension or revocation of the
certificate of incorporation of companies under their special regulatory
jurisdiction

As for the corporation's failure to formally organize and commence business (after
its incorporation) as a ground for automatic revocation of its certificate of
incorporation (not automatic dissolution as provided in the Old Code), the Revised
Code lengthened the period from two (2) years to five (5) years.

On the other hand, the inoperation of the corporation for at least five (5) years
after it had commenced business is no longer a ground for the suspension or
revocation of its certificate of incorporation as was mandated by the Old Code.
Instead, the legal consequence of such inoperation is the possibility of the SEC's
placing the corporation under a delinquent status, Failure of the corporation under
a delinquent status to resume business within two (2) years and comply with the
SEC's requirements (including a specified period within which to resume
operations) will lead to revocation of the corporation's certificate of incorporation

Unlike the Old Code that categorically excused a corporations formally organize
or operate continuously for five (5) years for " beyond the corporation's control,
the Revised Code is silento. matter. However, the possibility of invoking
fortuitous event are situations beyond the corporation's control as a reason for its
inok for five (5) years exists as the SEC is mandated to conduct a hearing placing
a corporation under a delinquent status. Thus, we humbis Is silent on such event
and other for its inoperation a hearing before We humbly suggest
the hearing may lead to at least two possible results: 1) non-declaration the
corporation as delinquent or 2) declaration of the corporation as delinquent but
allowing it to resume operations within a certain period that may be shorter or
longer than two (2) years, but not the revocation of its registration.

Section 21 does not provide for a hearing prior to the revocation of the certificate
of incorporation of a corporation that fails to formally organize and commence
business after the issuance of its certificate of registration. However, the
possibility of invoking uncontrollable situations that prevent a corporation from
formally organizing also exists, and much would depend on the guidelines or
circulars that will be issued by the SEC. Also, a corporation whose certificate of
incorporation is revoked has the right to appeal the SEC's decision to the Court of
Appeals according to Section 179 of the Revised Code, thus providing the
opportunity to defend its failure to formally organize due to fortuitous events
Completing the registration process Required permits and compulsory
registrations with other government agencies

In addition to the registration of the corporation with the SEC, there are other
registrations that the corporation has to do before it can embark on a business
legally:
1. Barangay clearance
No entity may conduct any business or activity unless a clearance is first
obtained from the barangay where such business or activity is located or
conducted. For such clearance, the barangay may impose a reasonable fee. The
application for clearance shall be acted upon within seven (7) working days
from the filing thereof
2. Community Tax Certificates
Every corporation no matter how created or organized, whether domestic
 or resident foreign, engaged in or doing business in the Philippine pay an annual
community tax to the city or municipality wher principal office of the corporation
is located.
The community tax shall accrue on the first day of January of each which shall be
paid not later than the last day of February of each ve Corporations established
and organized on or before the last d June shall be liable for the community tax for
that year. But corporation established and organized on or before the last day of
March shall ha twenty (20) days within which to pay the community tax without
becon delinquent. Corporations established and organized on or after the fire day
of July shall not be subject to the community tax for that year.
If the tax is not paid within the time prescribed above, there shall be added to the
unpaid amount an interest of twenty-four percent (24%) per annum from the due
date until it is paid.
3.Business Permit to Operate (Mayor's Permit)
A Mayor's Permit (or Business Permit) is a document issued to any person
who shall establish, operate, or conduct any business, trade, or activity within
the city or municipality. The cost of a Mayor's Permit or the license depends
upon the type of business to be registered.

All local taxes, fees, and charges shall be paid within the first twenty (20) days
of January or of each subsequent quarter, as the case may be. The city or
municipality may impose a surcharge not exceeding twenty five percent (25%)
of the amount of taxes, fees, or charges not paid on tim and an interest at the
rate not exceeding two percent (2%) per mon the unpaid taxes, fees, or
charges, including surcharges, until such a is fully paid but in no case shall the
total interest on the unpaid amou portion thereof exceed thirty-six (36)
months. ges, until such amount

4. BIR Registration
40 After SEC registration, a business entity must go to the BIR 10 following

a. Apply for a Certificate of Registration (COR) and a Tax Identifica tion

Number:
b. b. Register its books of accounts:

c. Apply for authority to print official receipts;

d. Pay the documentary stamp tax (DST) on the original issuance of the shares.
5. SSS Registration
All companies must be registered with the SSS and must secure an employer
number which will be used as reference for the remittance of monthly
contributions of the employees. Effectivity of coverage as an SSS employer-
member starts on the first day the employer hires its first employee/s.
The employer is given 30 days from the date of employment of employee to report
the person for coverage to the SSS.
6. Philhealth Registration
All private sector employers are required to register with the Philippine Health
Insurance Corporation and each employer shall be issued a permanent and
unique PhilHealth Employer Number (PEN). All private employers are
required to:
a. Register their employees and their qualified dependents by sub mitting a
list of their employees, complete with their salary base and other
documents as may be required
b. Report to the Philhealth its newly hired employees within thirty (30)
calendar days from assumption to office;
c. Give notice to the Philhealth of an employee's separation within thirty
(30) calendar days from separation;
d. Keep true and accurate work records for such period an taining such
information as the Philhealth may prescribe:
e. Allow the inspection of its premises, including its books and other pertinent
records.
7. Pag-ibig Registration
All new employers shall first register with the Pag-IBIG (or ha Development
Mutual Fund) branch with jurisdiction over them prior the start of their business
operation. Employers shall submit to HDMF all data and information that may be
required in relation to their respective businesses and employees within thirty (30)
days from the start of their business operations. In addition, said employers shall
ensure that their newly hired employees are registered with HDMF within thirty
(30) days from the start of their employment
8. DOLE Registration'
All businesses registered in the Philippines hiring five or more employees
must register with the Department of Labor and Employment (DOLE). New
establishments shall register within thirty (30) days before operation. Registration
shall be free of charge and valid for the lifetime of the establishment except when
any of the following conditions exists, in which case re-registration as if it were a
new establishment is required:
a. change in business name;
b. change in location;
C. change in ownership;
 d. re-opening after previous closing.
1. The Barangay Micro Business Enterprise (BMBE)

EMBE law aims for and promotes the creation and expansion of all businesses by
providing benefits and incentives that will help BMBE enterprises to grow and
succeed. BMBE/is defined as any business enterprise engaged in production,
processing, or manufacturing of products, including agro-processing, as well as
trading and services, with total assets of not more than P3 million. These assets
include those arising from loans but not the land on which the plant and
equipment are located.
To qualify as a BMBE, the business should be engaged in sale of services and
products and its total assets is not more than P3,000,000.00 However, for purposes
of the BMBE Act, the benefits and incentives provided will exclude the following,
even if they have assets not more than P3,000,000.00
Service provided by PRC-licensed individuals in the practice of profession,
such as doctors, accountants, lawyers, engineers, etc;
d. An enterprise involved with or connected to large-scale enter prises such
as franchises. Read aloud
Both new and existing qualified enterprises can apply for a BMBE Certificate
of Authority. A registered BMBE shall be issued a Certificate of Authority as
proof of registration, effective for a period of two years. The application is
renewable every two years.
One only needs to go to the nearest Negosyo Center, accomplish and submit a
BMBE application form together with a copy of the SEC Registration
Certificate.
Benefits and Incentives for BMBES
a. Exemption from income tax
This, however, does not include exemption from transaction taxes such as
value-added tax (VAT) and other percentage taxes, among others.
b. Exemption from Minimum Wage Law coverage (BMBE emplove will still
receive the same social security and health care benefit as other employees)
c. Credit priority i.e., financing and special credit facility from such
institutions as Land Bank of the Philippines, Development Bank of the
Philippines, etc.
d. Growth assistance such as assistance in technology, training, and marketing
from government agencies such as DTI Negosyo Centers, UP Institute for
Small Scale Industries (UP-ISSI), and the Department of Science and
Technology (DOST).
2. Intellectual Property Registration
 To protect its tradename, trademark, and patents, a corporation must register
them with the Intellectual Property Office. Copyright, however, is vested from
the moment of creation, so there is no need to register it.".
SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation.
– If a corporation does not formally organize and commence its business within
five (5) years from the date of its incorporation, its certificate of incorporation
shall be deemed revoked as of the day following the end of the five (5)-year
period.
However, if a corporation has commenced its business but subsequently
becomes inoperative for a period of at least five (5) consecutive years, the
Commission may, after due notice and hearing, place the corporation under
delinquent status.
A delinquent corporation shall have a period of two (2) years to resume
operations and comply with all requirements that the Commission shall prescribe.
Upon compliance by the corporation, the Commission shall issue an order lifting the
delinquent status. Failure to comply with the requirements and resume operations
within the period given by the Commission shall cause the revocation of the
corporation’s certificate of incorporation.
The Commission shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the suspension or revocation of the certificate
of incorporation of companies under their special regulatory jurisdiction.

SEC. 22. The Board of Directors or Trustees of a Corporation;

Qualification and Term. – Unless otherwise provided in this Code, the board of
directors or trustees shall exercise the corporate powers, conduct all business,
and control all properties of the 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 Republic Act No. 8799,
otherwise known as “The Securities Regulation Code”, 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, pre-need, trust and insurance companies, and other
financial intermediaries; and
c) Other corporations engaged in business 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.
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. 23. Election of Directors or Trustees. – Except when the exclusive
right is reserved for holders of founders’ shares under Section 7 of this Code,
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 this Code.
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, 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 this Code.
The directors or trustees elected shall perform their duties as prescribed
by law, rules of good corporate governance, and bylaws of the corporation.
SEC. 24. Corporate Officers. – Immediately after their election, the
directors of a corporation must formally organize and elect: (a) a president, who
must be a director; (b) a treasurer, who must be a resident; (c) a secretary, who
must be a citizen and resident of the Philippines; and (d) such other officers as
may be provided in the bylaws. If the corporation is vested with public interest,
the board shall also elect a compliance officer. The same person may hold two (2)
or more positions concurrently, except that no one shall act as president and
secretary or as president and treasurer at the same time, unless otherwise
allowed in this Code.
The officers shall manage the corporation and perform such duties as
may be provided in the bylaws and/or as resolved by the board of directors.
SEC. 25. Report of Election of Directors, Trustees and Officers, Non-
holding of Election and Cessation from Office. – Within thirty (30) days after the
election of the directors, trustees and officers of the corporation, the secretary, or
any other officer of the corporation, shall submit to the Commission, the names,
nationalities, shareholdings, and residence addresses of the directors, trustees,
and officers elected.
The non-holding of elections and the reasons therefor shall be reported to
the Commission within thirty (30) days from the date of the scheduled election.
The report shall specify a new date for the election, which shall not be later than
sixty (60) days from the scheduled date.
 If no new date has been designated, or if the rescheduled election is
likewise not held, the Commission may, upon the application of a stockholder,
member, director or trustee, and after verification of the unjustified non-holding
of the election, summarily order that an election be held. The Commission shall
have the power to issue such orders as may be appropriate, including orders
directing the issuance of a notice stating the time and place of the election,
designated presiding officer, and the record date or dates for the determination
of stockholders or members entitled to vote.
Notwithstanding any provision of the articles of incorporation or bylaws
to the contrary, the shares of stock or membership represented at such meeting
and entitled to vote shall constitute a quorum for purposes of conducting an
election under this section.
Should a director, trustee or officer die, resign or in any manner cease to
hold office, the secretary, or the director, trustee or officer of the corporation,
shall, within seven (7) days from knowledge thereof, report in writing such fact
to the Commission.
SEC. 26. Disqualification of Directors, Trustees or Officers. – A person
shall be disqualified from being a director, trustee or officer 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 this Code; and
(3) For violating Republic Act No. 8799, otherwise known as “The
Securities Regulation Code”;
(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. 27. Removal of Directors or Trustees. – Any director or trustee of a
corporation may be removed from office 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
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 this Code. Removal may be with or without
cause: Provided, That removal without cause may not be used to deprive
minority stockholders or members of the right of representation to which they
may be entitled under Section 23 of this Code.
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.
SECTION 28. Vacancies in the Office of Director or Trustee; Emergency
Board - Any vacancy occurring in the board of directors died or trustees other
than by removal or by expiration of a term may be filled by the vote of at least a
majority of the remaining directors or trustees, if still constituting a quorum;
otherwise, said vacancies must be filled by the stockholders or members in a
regular or special meeting called for that purpose.
When the vacancy is due to term expiration, the election shall be held no later
than the day of such expiration at a meeting called for that purpose. When the
vacancy arises as a result of removal by the stockholders or members, the
election may be held on the same day of the meeting authorizing the removal and
this fact must be so stated in the agenda and notice of said meeting. In all other
cases, the election must be held no later than forty-five (45) days from the time
the vacancy arises. A director or trustee elected to fill a vacancy shall be referred
to as a replacement director or trustee and shall serve only for the unexpired
term of the predecessor in office.
However, when the vacancy prevents the remaining directors from 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 from the termination of the emergency or upon the
election of the replacement director or trustee, whichever comes earlier. The
corporation must notify the Commission within three (3) days from the creation
of the emergency board, stating therein the reason for its creation.

Any directorship or trusteeship to be filled because of an increase in the number

of directors or trustees shall be filled only by an election at a regular or at a
special meeting of stockholders or members duly called for the purpose, or in the
same meeting authorizing the increase of directors or trustees if so stated in the
notice of the meeting.
In all elections to fill vacancies under this section, the procedure outlined in
Sections 23 and 25 of this Code shall apply.

The manner of filling up vacancies in the Board depends on the cause of the reason
creating the vacancy.
1. Vacancies arising from a director's death or resignation may be filled by the vote of
at least a majority of the remaining directors or trustees provided that they still
constitute a quorum. And the vacancy must be filed no later than forty-five-(45) days
from the time the vacancy arose.
However, if there is no longer a quorum, the vacancies must be filled by the
stockholders or members at a regular or special meeting called for that purpose. And
the election must be filed no later than forty-five (45) days from the time the vacancy
arose.

2. In cases where the vacancy arises because of the expiration of a director's term, the
election shall be held no later than the day of such expiration at a meeting called for
that purpose.

3. When the vacancy arises as a result of removal by the stockholders or members, the
election may be held on the same days as the meeting authorizing the removal.

A director or trustee who fills up a vacancy shall be referred to as a replacement

director or trustee and shall serve only for the unexpired

Vacancies created by the increase in the number of directors or trustees shall be filled
only by stockholders or members either in 1) the same meeting authorizing the
increase in the number of directors or trustees, 2) in a regular stockholders' or
members' meeting, or 3) special stockholders' or members' meeting specifically called
for such purpose.
Emergency board
The Revised code introduced a significant change in this section; that is when the
vacancy prevents the remaining directors from constituting a quorum and emergency
action is required to prevent grave, substantial. temporarily filled from among the
officers of the corporation by unanimous irreparable loss or damage to the
corporation, the vacancy may be a vote of the remaining director's director or trustee
shall be limited to the emergency action necessary, and the term shall cease within a
reasonable time from the termination of the the trustees. The action by the designated
the emergency or upon the 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.”
Illustrative examples

1. KalingaHeights Corp. has a five-person Board of Directors. Director "A" resigns,

and the remaining directors, who still constitute a quorum, can fill up the resulting
vacancy by electing a new director from among the stockholders within 45 days of the
vacancy's occurrence. The required number of votes in favor of the elected director is
three (3)

2. KalingaHeights Corp. has a five-person Board of Directors. Directors "A" and "B"
resign, and Director "C" dies, all events happening within a day. The remaining
directors no longer constitute a quo rum, so the resulting vacancies should be filled up
by the stock holders by electing new directors from among themselves within 45 days
of the vacancy's occurrence.

3. KalingaHeights Corp. has a five-person Board of Directors. Director "A" is

removed because of dishonesty, and the term of Director "B" ends shortly thereafter.
The resulting vacancies should be filled up by the stockholders by electing new
directors from among themselves.

4. KalingaHeights Corp. has a five-person Board of Directors. The articles of

incorporation are subsequently amended to increase the number of Board directors to
nine (9). The resulting four (4) vacancies should be filled up by the stockholders by
electing new directors from among themselves.

5. KalingaHeights Corp. has a five-person Board of Directors. Directors "A" and "B"
resign and Director "C" dies, all events happening within a day. The remaining
directors no longer constitute a quorum, so the resulting vacancies should be filled up
by the stockholders by electing new directors from among themselves within 45 days
of the vacancies' occurence. However, the board's approval of a pending contract has
to be done; otherwise the corporation could go bankrupt. In this case, the two
remaining directors need to agree on a temporary director, who could either be the
treasurer or secretary, neither of whom is presently a director. After the approval of
the contract and other matters relating to its execution, the temporary director ceases
to be a director. The election of a new director by the stockholders will also lead to
the cessation of the temporary director's stay in the position.

In connection with the foregoing, we also humbly opine that the emergency board
cannot fill up the other vacancies as this matter cannot be considered as possibly
causing grave, substantial, and irreparable loss or damage to the corporation. And
technically, the remaining two regular directors still do not constitute a quorum.

SECTION 29. Compensation of Directors or Trustees. - In the absence of any

provision in the bylaws fixing their compensation, the directors or trustees shall
not receive any compensation in their capacity as such, except for reasonable per
diems: Provided, however, That the stockholders representing at least a majority
of the outstanding capital stock or majority of the members may grant directors
or trustees with compensation and approve the amount thereof at a regular or
special meeting.
In no case shall the total yearly compensation of directors exceed ten percent
(10%) of the net income before income tax of the corporation during the
preceding year.
Directors or trustees shall not participate in the determination of their own per
diems or compensation.
Corporations vested with public interest shall submit to their shareholders and
the Commission, an annual report of the total compensation of each of their
directors or trustees.

The Revised Code now requires corporations vested with public interest shall submit
to their shareholders and the SEC an annual report of the total compensation of each
of their directors or trustees.

Per diem
In the absence of any grant of compensation, directors are entitled to reasonable per
diems. Reasonability of per diems is on a case to case bas as there is no specific
number or mathematical formula provided by the Code, whether Revised or Old
Under the Revised Code, however, directors or trustees shall not participate in the
determination of their own per diems or compensation. This is unlike the counterpart
provision in the Old Code that did not prohibit directors or trustees from determining
their own per diems so long as they were reasonable. Thus, one inference is that grant
of per diems to directors or trustees is possible only if provided for by the bylaws,
which need not necessarily specify an amount but may lay down a method of
determining per diems. The second way for directors or trustees to be entitled to per
diems is through a decision of stockholders or members, thereby putting per diems in
the same. category as compensation.

In the absence of any pertinent provision in the bylaws or grant of compensation by

the stockholders or members, directors or trustees may decide to grant per diems to
themselves subject to the condition that any director or trustee whose per diem is
under consideration should not participate in the meeting where said director's or
trustee's per diem is under consideration. Thus, successive discussions on the per
diem of each director or trustee will need to be conducted without the participation of
the director or trustee whose per diem is discussed and decided upon.

In Western Institute of Technology vs. Salas, which involved the grant of

compensation of corporate officers through the bylaws, the Court stated the following:
There is no argument that directors or trustees, as the case may be, are not entitled to
salary or other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their shares
adequate ly furnishes the motives for service, without compensation Under the
foregoing section, there are only two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems: (1) when there is a provision
in the by-laws fixing their com pensation; and (2) when the stockholders representing
a majority of the outstanding capital stock at a regular or special stockholders'
meeting agree to give it to them.

This proscription, however, against granting compensation to director/trustees of a

corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section
30 which state:... [The directors shall not receive any compensation, as such
directors.... The phrase as such directors is not without significance for it delimits the
scope of the prohibition to compensation given to them for services performed purely
in their capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to reasonable per diems,
when they render services to the corporation in a capacity other than as directors/
trustees 199
SECTION 30. Liability of Directors, Trustees or Officers. - Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

A director, trustee or officer shall not attempt to acquire, or acquire any interest
adverse to the corporation in respect of any matter which has been reposed in
them in confidence, and upon which, equity imposes upon themselves to deal in
their own behalf; otherwise, the said director, trustee or officer shall be liable as
a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation.

Personal liabilities
Sections 30 to 33 provide the instances when directors, trustees, and corporate officers
incur personal liabilities. The Revised Code retained the rule in the Old Code.

In Ingersoll vs. Malabon Sugar Company, the Court declared:

The general rule is that in corporate affairs the will of the majority controls,
and that contracts intra vires entered into by the board of directors are binding
upon the corporation and that the courts will not interfere unless such contracts
are so unconscionable and oppressive as to amount to a wanton destruction of
the rights of the minority.

It cannot be emphasized more that directors, trustees, and officers have a fiduciary
relationship with the corporation. They are expected to decide and act with the best
interest of the corporation in mind. Directors and officers should exercise corporate
powers reposed in them in good faith, and they must not be negligent in their dealings
with the corporation. And they cannot willfully and knowingly vote for patently
unlawful acts of the corporation.

As previously mentioned, directors or trustees may exercise their business judgment

and are not liable for mistakes or errors as long as they acted in good faith, with due
care and prudence. Thus they may not acquire any personal or pecuniary interest that
will result in conflict with their duty as director or trustee. They will be liable jointly
and severally for all damages suffered by the corporation, its stockholders or members
and other persons for these infractions.
If a director, trustee, or officer violates his fiduciary duty by acquiring or attempting
to acquire an interest adverse to the corporation, she shall be liable as a trustee for the
corporation and must account for the profits that should have accrued to the
corporation,

The Court in Tramat Mercantile vs. CAs laid down instances when personal liability
of a director, trustee, or officer may arise, viz: 1 He assents (a) to a patently unlawful
act of the corporation, or (b) for bad faith, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons

2. He consents to the issuance of watered stocks or if, having knowledge thereof, he

does not forthwith file with the corporate secretary his written objection thereto;20

3. He agrees to hold himself personally and solidarily liable with the corporation; or

4. He is made, by a specific provision of law, to personally answer for his corporate

action.

Other sanctions
1. Section 170 provides that a corporation's dissolution resulting from its violations of
the Revised Code is not a hindrance to the filing of appropriate action against the
director, trustee, or officer of the corporation responsible for said violation.

2. Section 171 also grants discretion to the court to impose the appropriate penalty on
the corporation and/or upon its directors, trustees, stockholders, members, officers, or
employees responsible for a violation of said Section or indispensable to its
commission.

SECTION 31. Dealings of Directors, Trustees or Officers with the Corporation. -

A contract of the corporation with one (1) or more of its directors, trustees,
officers or their spouses and, relatives within the fourth civil degree of
consanguinity or affinity is voidable, at the option of such corporation, unless all
the following conditions are present:
(a) The presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting.

(b) The vote of such director or trustee was not necessary for the approval of the
contract;

(c) The contract is fair and reasonable under the circumstances;

(d) In case of corporations vested with public interest, material contracts are
approved by at least two-thirds (2/3) of the entire membership of the board, with
at least a majority of the independent directors voting to approve the material
contract; and

(e) In case of an officer, the contract has been previously authorized by the board
of directors.

Where any of the first three (3) conditions set forth in the preceding paragraph is
absent, in the case of contract with a director or trustee, such contract may be
ratified by the vote of the stockholders representing at least two thirds (2/3) of
the outstanding capital stock or of at least two-thirds (2/3) of the members in a
meeting called for the purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at such meeting and the
contract is fair and reasonable under the circumstances.

This section is usually referred to as the case of the self-dealing director (although it
may also involve a trustee or officer of the corporation. The Revised Code has
expanded the definition of the self-dealing director, which now includes the director's,
trustee's, or officer's spouse and relatives within the fourth civil degree of
consanguinity (i.e., by blood, such as children, parents, siblings, and first cousins), or
affinity (by marriage, such as the spouse's parents, children, and siblings).

Status of the self-dealing director's contract

Generally, a contract entered into by a corporation with one of its directors, trustees,
or officers is voidable at the corporation's option, i.e.,the corporation may choose to
have it annulled by the courts. An exception to the rule is the confluence of the
following conditions that will make the Contract valid-therefore, not annullable or
subject to ratification:
1. The presences of the director or trustee in the board meeting approving the contract
was not necessary to constitute quorum for the meeting.
2. The vote of the director or trustee was not necessary for the approval of the
contract;
3. The contract is fair and reasonable under the circumstances; and
4. In case of an officer, the contract has been previously authorized by the board of
directors.

Under the Old Code, if any of the first two conditions above is not present, the
contract of a self-dealing director is subject to ratification by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or
of at least two-thirds (2/3) of the members in a meeting called for the purpose. In the
case of an officer's contract with the corporation, an additional condition is that the
contract has been previously authorized by the board of directors.

It is also necessary that full disclosure of the adverse interest of the director/s or
trustee/s concerned is made in the same meeting.

Furthermore, the contract should be fair and reasonable under the circumstances. The
question therefore is what does "fair and reasonable" mean? This question was
answered in the illustrative case below,

Illustrative case
Prime White Cement (PWC) entered into a contract with its Director
Mindanao. Because of the Te wherein the latter would act as executive dealer
and/or distributor of the company's cement products contract Te started his
marketing campaign thru print media, among others. Te also entered into
contracts with hardware stores that he would supply their cement needs.
However, PWC, instead of complying with the original terms of the contract
with Te, imposed addition al conditions on the latter. Unable to convince PWC
to abide by the original contract, Te was forced to cancel his contracts with his
buyers, and therefore sued PWC for damages. The issue is whether the
dealership agreement between PWC and Te is a valid and enforceable
contract. The Court ruled that the case is one of a self-dealing director, Te
being a director of PWC; and the dealership agreement is not fair and
reasonable because it is one-sided in favor of Te at PWC's expense. The
contract is therefore not valid and cannot be ratified moreover, Te was found
to be guilty of disloyalty to the company.
However, under the Revised Code, even the absence of fairness and reasonability is
not a ground for invalidating a self-dealing director's contract, which means it may
still be ratified. At the same time, though, ratification of the contract concerned is
subject to two provisos or conditions: 1) that full disclosure of the adverse interest of
the directors or trustees involved is made at the ratification meeting, and 2) the
contract is fair and reasonable under the circumstances. The last condition gives the
impression that a self-dealing director's contract that is not fair and reasonable may
after all be not ratifiable. There is a need, we humbly propose, for SEC to clarify
Section 31.

Corporations vested with public interest

The Revised Code also provides that in case of corporations vested with public
interest, material contracts need to be approved by at least two thirds (2/3) of the
entire membership of the board, with at least a majority of the independent directors
voting to approve the material contract. What constitutes a material contract is not
provided for by the Code, thus, it is subject to the SEC's definition.

SECTION 32. Contracts Between Corporations with Interlocking Directors. Cop

-Except in cases of fraud, and provided the contract is fair and reasonable under
the circumstances, a contract between two (2) or more corporations having
interlocking a by directors shall not be invalidated on that ground alone:
Provided, That if the interest of the interlocking director in one (1) corporation is
substantial and the interest in the other corporation or corporations is merely
nominal, the contract shall be subject to the provisions of the preceding section
insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty percent (20%) of the, outstanding capital stock

shall be considered substantial for purposes of interlocking directors.

A fair and reasonable contract between two or more corporations with interlocking
directors shall not be invalidated simply because they have interlocking directors,
except in cases of fraud.

However, if the interest of the interlocking director à one corporation is substantial,

i.e., exceeding twenty (20%) percent of the outstanding capital stock, and her interest
in the other corporation(s) is minimal, she shall be subject to the provisions of Section
32 the Revised Code.

SECTION 33. Disloyalty of a Director. - Where a director, by virtue of such

office, acquires a business opportunity which should belong to the corporation,
thereby obtaining profits to the prejudice of such corporation, the director must
account for and refund to the latter all such profits, unless the act has been
ratified by a vote of the stockholders owning or representing at least two-thirds
(2/3) of the outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked one's own funds in the venture.

To reiterate, directors have a fiduciary relationship with the corporation If a director,

by virtue of her office, acquires a business opportunity that should belong to the
corporation, she must account for the profits and refund them to the prejudiced
corporation, unless her act has been ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the outstanding capital stock. This holds true
even if the director risked her own funds in the venture.

Again in the Gokongwei vs. SEC case, the Court elaborated on the concept of
disloyalty by holding that:

Although in the strict and technical sense, directors of a private corporation

are not regarded as trustees, there cannot be any doubt that their character is
that of a fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation for the
collective benefit of the stockholders, they occupy a fiduciary relation, and in
this sense the relation is one of trust. The ordinary trust relationship of di
rectors of a corporation and stockholders, according to Ashaman v Miller, "is
not a matter of statutory or technical law. It springs from the fact that directors
have the control and guidance of corporate affairs and property and hence of
the property interests of the stock holders. Equity recognizes that stockholders
are the proprietors of the corporate interests and are ultimately the only
beneficiaries thereof..”

Justice Douglas, in Pepper v. Litton, emphatically restated the standard of fiduciary

obligation of the directors of corporations, thus:

"A director is a fiduciary...Their powers are powers in trust....He who is in such

fiduciary position cannot serve himself first and his cestuis second....He cannot
manipulate the affairs of his corporation to their detriment and in disregard of the
standards of common decency. He cannot by the intervention of a corporate entity
violate the ancient precept against serving two masters. He cannot utilize his inside
information and strategic position for his own preferment. He cannot violate rules of
fair play by doing indirectly through the corporation what he could not do so directly.
He cannot violate rules of fair play by doing indirectly through the corporation what
he could not do so directly. He cannot use his power for his personal advantage and to
the detriment of the stockholders and creditors no matter how absolute in terms that
power may be and no matter how meticulous he is to satisfy technical requirements.
For that power is at all times subject to the equitable limitation that it may not be
exercised for the aggrandizement, preference, or advantage of the fiduciary to the
exclusion or detriment of the cestuis."

And in Cross u. West Virginia Cent, & P. R. R. Co.," it was said:

“…A person cannot serve two hostile and adverse masters without detriment to one of
them. A judge cannot be impartial if personally interested in the cause. No more can a
director. Human nature is too weak for this. Take whatever statute provision you
please giving power to stockholders to choose directors, and in none will you find any
express prohibition against a discretion to select directors having the company's
interest at heart, and it would simply be going far to deny by mere implication the
existence of such a salutary power.

“…If the by-law is to be held reasonable in disqualifying a stockholder in a competing

company from being a director, the same reasoning would apply to disqualify the wife
and immediate member of the fam ily of such stockholder, on account of the supposed
interest of the wife in her husband's affairs, and his supposed influence over her. It is
perhaps true that such stockholders ought not to be condemned as selfish and
dangerous to the best interest of the corporation until tried and tested. So it is also true
that we cannot condemn as selfish and dangerous and unreasonable the action of the
board in passing the by-law. The strife over the matter of control in this corporation as
in many others is perhaps carried on not altogether in the spirit of brotherly love and
affection. The only test that we can apply is as to whether or not the action of the
Board is authorized and sanctioned by law….”

Illustrative example
A director of TripleXYZ, Inc. is approached by a real estate broker who offers to sell
a piece of property to the corporation for a really good price. The director chooses to
withhold the information from the corporation and instead buys said property.
Because of this in discretion, director concerned will be liable r the potential profits
that the corporation may have earned from the property, and she will hold the
property in trust for the corporation.
SECTION 34. Executive, Management, and Other Special Committees - the
bylaws so provide, the board may create an executive committee composed of at
least three (3) directors. Said committee may act, by majority vote of all its
members, on such specific matters within the competence of the board, as may
be delegated to it in the bylaws or by majority vote of the board except with
respect to the: (a) approval of any action for which shareholders' approval is also
required; (b) filling of vacancies in the board; (c) amendment or repeal of bylaws
or the adoption of new bylaws; (d) amendment or repeal of any resolution of the
board which by its express terms is not amendable or repealable; and (e)
distribution of cash dividends to the shareholders.

The board of directors may create special committees of temporary or

permanent nature and determine the members' term, composition,
compensation, powers, and responsibilities.
The Revised Code changed this Section by providing that the Corporation's bylaws
may allow the Board to create not only an executive committee, the Old Code stated,
but also a management committee, and other special committees

The Executive Committee's composition shall include not fewer than three (3)
members of the Board, and it may act on matters within the competence of the Board
and duly delegated to them by the Board or the bylaws, except on the following
matters:
1. approval of any action that also requires the stockholders' approval
2. filling up vacancies in the board
3. amendment, repeal, or adoption of new bylaws
4. amendment or repeal of any Board resolution that by its express terms is not so
amendable or repealable by the committee
5. distribution of cash dividends to shareholders.

Additional amendment made by the Revised Code is the power given to the Board to
create special committees of temporary or permanent nature and determine the
committee's composition, powers, and responsibilities, and the committee members'
term and compensation.
SECTION 35. Corporate Powers and Capacity. Every corporation incorporated
under this Code has the power and capacity.

(a) To sue and be sued in its corporate name;

(b) To have perpetual existence unless the certificate of incorporation provides

otherwise;

(c) To adopt and use a corporate seal;

(d) To amend its articles of incorporation in accordance with the provisions of

this Code;

(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend
or repeal the same in accordance with this Code;

(f) In case of stock corporations, to issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and to admit
members to the corporation if it be a nonstock corporation;

(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage, and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful
business of the corporation may reasonably and necessarily require, subject to
the limitations prescribed by law and the Constitution;

(h) To enter into a partnership, joint venture, merger, consolidation, or any

other commercial agreement with natural and juridical persons;

(i) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural scientific, civic, or similar purposes: Provided, That
no foreign corporation shall give donations in aid of any political party or
candidate or for purposes of partisan political activity:

(j) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and
(k) To exercise such other powers as may be essential or necessary to carry out
its purpose or purposes as stated in the articles of incorporation.

Title IV of the Revised Code enumerates the express powers granted to corporations.
In addition to those expressly granted by the Code, corporations also possess powers
implied from or incidental to their express powers as well as powers that are inherent
to their nature as corporations with juridical personality.

Express powers

Corporate powers are limited to what is stated as its purpose or purposes in the
articles of incorporation and what the law provides. Actions taken by the Board or its
authorized agents that are within the aforementioned limitations are referred to as
intra-vires acts, and those which go over and beyond are deemed ultra vires.

A corporation may also exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in its articles of incorporation. One such
essential or necessary power is to enter into contracts with other persons, whether
natural or juridical. An example of such contracts is a loan agreement in order to raise
funds for corporate projects that cannot be solely financed by existing retained
earnings or surplus of the corporation.

Changes

1. Section 35, par. h grants corporations the power to enter into mergers and
consolidations, which are specifically governed by Sections 75 to 79 under Title IX of
the Revised Code. In addition to mergers and consolidations, the Revised Code also
grants corporations the express power to enter into partnerships, joint ventures, or any
other commercial agreement with natural and juridical persons.

2. Under the Revised Code, only foreign corporations are prohibited from giving
donations in aid of any political party or candidate-or for purposes of partisan political
activity; this unlike in the Old Code wherein all corporations, domestic and foreign,
were not allowed to make such donations.
SECTION 36. Power to Extend or Shorten Corporate Term. - A private
corporation may extend or shorten its term as stated in the articles of
incorporation when approved by a majority vote of the board of directors or
trustees, and ratified at trusted a meeting by the stockholders or members
representing at least two-thirds (2/3) of the outstanding capital stock or of its
members. Written notice of the proposed action and the time and place of the
meeting shall be sent to stockholders or members at the at their respective place
of residence as shown in the books of the corporation, and must be deposited to
the addressee in the post office with postage prepaid, served personally, or when
allowed in the bylaws or done with the consent of the stockholder, sent
electronically in accordance with the rules and regulations of the Commission on
the use of electronic data messages. In case of extension of corporate term, a
dissenting stockholder may exercise the right of appraisal under the conditions
provided in this Code.

Although Section 11 of the Revised Code grants perpetual existence to corporations,

whether existing at the time of the Revised Code's enactment, or yet to be formed, the
corporation, by a majority vote of the board of directors or trustees and the vote of its
stockholders representing a majority of its outstanding capital stock or majority of its
members, may choose to retain or opt for a specific or limited corporate term in
accordance with its articles of incorporation. The corporate term may nonetheless be
extended or shortened when approved by a majority vote of the board directors or
trustees and ratified at a meeting by the stockholders or members representing at least
two-thirds (2/3) of the outstanding capital stock or of its members.

Much like in other instances when notice is to be sent to stockholders, this provision
also now allows notification to be sent electronically in accordance with the rules and
regulations of the Commission on the use of electronic data messages, and on the
condition that this mode is allowed in the bylaws or done with the consent of the
stockholder.

A stockholder who disagrees with the decision to extend the corporate terms may
invoke her appraisal rights, but not in the case of a decision to shorten the corporate
term.

SECTION 37. Power to Increase or Decrease Capital Stock; Incur, Create or

Increase Bonded Indebtedness. No corporation shall increase or decrease its
capital stock or incur, create or bunch increase any bonded indebtedness (unless
approved by a majority vote of the board of directors and by two-thirds (2/3) of
the outstanding capital stock at a stockholders' meeting duly called for the
purpose. Written notice of the time and place of the stockholders' meeting and
the purpose for said meeting must be sent to the stockholders at their places of
residence as shown in the books of the corporation and served on the
stockholders personally, or through electronic means recognized in the
corporation's bylaws and/or the Commission's rules as a valid mode for service
of notices.

A certificate must be signed by a majority of the directors of the corporation and

countersigned by the chairperson and secretary of the stockholders' meeting,
setting forth:

(a) That the requirements of this section have been complied with;
(b) The amount of the increase or decrease of the capital stock
(c) In case of an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the names,
nationalities and addresses of the persons subscribing, the amount of capital
stock or number of no-par stock subscribed by each, and the amount paid by
each on the subscription in cash or property, or the amount of capital stock or
number of shares of no-par stock allotted to each stockholder if such increase is
for the purpose of making effective stock dividend therefor authorized;
(d) Any bonded indebtedness to be incurred, created or increased;
(e) The amount of stock represented at the meeting; and
(f) The vote authorizing the increase or decrease of the capital stock, or the
incurring, creating or increasing of any bonded indebtedness.

Any increase or decrease in the capital stock or the incurring, creating or

increasing of any bonded indebtedness shall require prior approval of the
Commission, and where appropriate, of the Philippine Competition-
Commission. The application with the Commission shall be made within six (6)
months from the date of approval of the board of directors and stockholders,
which period may be extended for justifiable reasons.

Copies of the certificate shall be kept on file in the office of the corporation and
filed with the Commission and attached to the original articles of incorporation.
After approval by the Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall be deemed increased or decreased and
the incurring, creating or increasing of any bonded indebtedness authorized, as
the certificate of filing may declare: Provided, That the Commission shall not
accept for filing any certificate of increase of capital stock unless accompanied by
a sworn statement of the treasurer of the corporation lawfully holding office at
the time of the filing of the certificate, showing that at least twenty-five percent
(25%) of the increase in capital stock has been subscribed and that at least
twenty-five percent (25%) of the amount subscribed has been paid actual cash to
the corporation or that property, the valuation of which is equal to twenty-five
percent (25%) of the subscription, has been transferred to the corporation:
Provided, further, That no decrease in capital stock shall be approved by the
Commission if its effect shall prejudice the rights of corporate creditors.
Nonstock corporations may incur, create or increase bonded indebtedness when
approved by a majority of the board of trustees and of at least two-thirds (2/3) of
the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Commission, which
shall have the authority to determine the sufficiency of the terms thereof.

The foregoing provision refers to two powers:

a. Increase or decrease capital stock
b. Incur, create or increase bonded indebtedness

The exercise of both powers requires the approval of the majority of the Board and
that of the stockholders in a meeting wherein the stockholders represent 2/3 of the
outstanding capital stock. The corporate secretary shall send the proper written notices
about the meeting to the Board, and to stockholders. For non-stock corporations, the
approval required for decisions to incur, create, or increase bonded indebtedness is the
same as that in stock corporations.

Bonded indebtedness, as the name implies, requires the issuance of bonds or debt
instruments as security for the debt. It is one way by which the corporation raises
funds necessary to undertake big projects. One other way to raise financing for the
corporation is through loan agreements with a single lender or a group of lenders,
wherein the loan is secured by property and other corporate assets. A basic difference
between raising funds through bonded indebtedness and through loan agreements is
that in the former SEC approval is required. Another difference is that the bonds
issued need to be registered with the SEC while loan agreements are not normally so
registered.

The corporate secretary shall prepare a certificate in duplicate and have it signed by
the majority of the directors of the corporation and countersigned by the chairman and
the secretary herself of the stockholders' meeting stating the complete and pertinent
details as enumerated under Section 38 of the Corporation Code. One copy shall be
for the SEC while the other copy shall be kept on file by the corporation.

The secretary's certificate of increase of capital stock must be accompanied by the

sworn statement of the treasurer of the corporation showing that at least twenty-five
percent (25%) of the increase in capital stock has been subscribed and that at least
twenty-five percent (25%) of the amount subscribed has been paid in actual cash to
the corporation or that property, the valuation of which is equal to twenty-five percent
(25%) of the subscription. Unlike the Old Code, which required that subscription and
payment be on the increased capital stock, i.e., the entire capital stock, the Revised
Code requires such only with respect to the increase in or additional capital stock.

The Revised Code also requires that the increase or decrease in the capital stock or the
incurring, creating, or increasing of any bonded indebtedness be subject not only to
the SEC's approval but also to that of the Philippine Competition Commission when
applicable.

In light of the trust fund doctrine, the SEC will not approve any decrease of the capital
stock if the decrease has prejudicial effects to corporate creditors' rights.

The power to increase capital stock must also be exercised in good faith and not
fraudulently or in violation of the rights of particular stockholders. One such
prejudicial effect is the dilution of certain stockholdings arising from the increase in
the capital stock with the shares of some stockholders remaining the same, i.e., no
corresponding increase in their stock participation in the corporation.

SECTION 38. Power to Deny Preemptive 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 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.

Generally, stockholders have the pre-emptive right to subscribe to all issues or

disposition of primary shares of any class proportional to their respective
shareholding. This means that a preferred stockholder has a versa unless pre-emptive
right is not allowed, or the right is limited to the pre-emptive right to subscribe to the
issue of common shares, and vice same kinds of shares presently owned by the
shareholder invoking the right. Pre-emptive right ensures that stockholders
proportional control over the corporation will remain intact whenever new shares are
issued or disposed of by the corporation. And all stockholders possess such pre-
emptive right unless the right is denied by the articles of incorporation.

A stockholder may waive her right to share in the distribution of unissued or new
stock, or by her conduct may be deemed to have ratified an issue to an outsider.
Stockholders who are unable or unwilling to take the unissued or new shares cannot
afterward object to the sale thereof to others. Also, a stockholder who does not take
her pro rata share of an increase of stock cannot compel other stockholders who have
exercised their pre-emptive right to pay her the amount of the resulting depreciation in
the value of her stock.

When pre-emptive right cannot be exercised

There are three instances when pre-emptive right cannot be invoked by a stockholder:
a. Issue of shares in compliance with laws requiring stock offerings or minimum stock
ownership by the public;
b. Issue of shares in good faith and duly approved by stockholders representing two-
thirds (2/3) of the outstanding capital stock in exchange for property needed for
corporate purposes; and
c. Issue of shares in payment of a previously contracted debt.

SECTION 39. Sale or Other Disposition of Assets. - Subject to the provisions of

Republic Act No. 10667, otherwise known as the "Philippine Competition Act,"
and other related laws, a corporation may, by a majority vote of its board of
directors or trustees, sell, lease, exchange, mortgage, pledge, of otherwise dispose
of its property and assets, upon such terms and conditions and for such
consideration, which may be money, stocks, bonds, or other instruments for the
payment of money or other property or consideration, as its board of directors
or trustees may deem expedient.
A sale of all or substantially all of the corporation's properties and assets,
including its goodwill, must be authorized by the 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, in a stockholders' or members' meeting duly
called for the purpose.
In nonstock corporations where there are no members with voting rights, the
vote of at least a majority of the trustees in office will be sufficient authorization
for the corporation to enter into any transaction authorized by this section.
The determination of whether or not the sale involves all or substantially all of
the corporation's properties and assets must be computed based on its net asset
value, ds shown in its latest financial statements. A sale or other disposition shall
be deemed to cover substantially all the corporate property and assets if thereby
the corporation would be rendered incapable of continuing the business or
accomplishing the purpose for which it was incorporated.

Written notice of the proposed action and of the time and place for the meeting
shall be addressed to stockholders or members at their places of residence as
shown in the books of the corporation and deposited to the addressee in the post
office with postage prepaid, served personally, or when allowed by the bylaws or
done with the consent of the stockholder, sent electronically: Provided, That any
dissenting stockholder may exercise the right of appraisal under the conditions
provided in this Code.
After such authorization or approval by the stockholders or members, the board
of directors or trustees may, nevertheless, in its discretion, abandon such sale,
lease, exchange, mortgage, pledge, or other disposition of property and assets,
subject to the rights of third parties under any contract relating thereto, without
further action or approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation,
without the authorization by the stockholders or members, to sell, lease,
exchange, and regular course of business of the corporation or if the proceeds of
the sale or other disposition of such property and assets shall be appropriated for
the conduct of its remaining business.

A corporation may sell, lease, exchange, mortgage, pledge or otherwise dispose of all
or substantially all of its property and assets, including its goodwill as its board of
directors or trustees may deem expedient. This would require a majority vote of its
board of directors or trustees and the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation,
by the vote of at least two-thirds (2/3) of the members, in a stockholders' or members'
meeting duly called for the purpose. In situations where the members of a non-stock
corporation have no voting rights, the vote of at least the majority of the trustees is
sufficient to authorize the exercise of this power.
Again, the corporate secretary must send the proper written notice of the proposed
action and of the time and place of the meetings shall be addressed to each director or
trustee and stockholder or member at his place of residence as shown on the books of
the corporation, or by electronic means if allowed by the bylaws or has the
stockholder's consent.

The general guideline by the Old Code on the applicability of this section is when the
sale or disposal covers all or substantially all corporate properties and assets that
render the corporation incapable of continuing its business after said sale or
disposition. Occasional sales therefore of company assets like old computers because
of an upgrade in its operations system that will make the conduct of business more
efficient do not require the approval referred to above.

The Revised Code has made two important additions:

1. Determining whether or not the sale involves all or substantially all of the
corporation's properties and assets must be computed based on its net asset value, as
shown in its latest financial statements.

2. Philippine Competition Law will apply when a prospective sale has implications
for market competition; for instance, substantially preventing, restricting, or lessening
competition in the relevant market; thus the need for the Philippine Competition
Commission to examine the sale and determine whether it complies with the law or
not.

Affected sectors
Sale or disposal of assets covered by this section may have implications not only for
market competition that could adversely affect the interest of consumers-the intended
beneficiaries of a well-enforced competition policy and law,

In Caltex (Philippines) Inc. vs. PNOC Shipping and Transport Corp., the Court
underscored that transfer of all or substantially all the properties and assets of a
corporation should not also prejudice creditors of the corporation, viz:

While the Corporation Code allows the transfer of all or substantially all the
properties and assets of a corporation, the transfer should not prejudice the
creditors of the assignor. The only way the transfer can proceed without
 prejudice to the creditors is to hold the assignee liable for the obligations of
the assignor. The acquisition by the assignee of all or substantially all of the
assets of the assignor necessarily includes the assumption of the assignor's
liabilities, unless the creditors who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. To allow an assignor to transfer all
its business, properties, and assets without the consent of its creditors and
without requiring the assignee to assume the assignors obligations will defraud
the creditors. The assignment will place the assignor's assets beyond the reach
of its creditors.

A dissenting stockholder may exercise her appraisal right under the conditions
provided in the Corporation Code.

SECTION 40. Power to Acquire Own Shares Provided that the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to purchase or acquire its
own shares for a legitimate corporate purpose or purposes, including the
following cases:

(a) To eliminate fractional shares arising out of stock dividends;

(b) To collect or compromise an indebtedness to the corporation, arising out of

unpaid subscription, in a delinquency sale, and to purchase delinquent shares
sold during said sale; and

(c) To pay dissenting or withdrawing stockholders entitled to payment for their

shares under the provisions of this Code.

A corporation may acquire its own shares when it has unrestricted retained earnings in
order to eliminate fractional shares; collect or compromise an indebtedness to the
corporation arising out of unpaid subscription in a delinquency sale; and to purchase
delinquent shares sold during the said sale; and pay dissenting or withdrawing
stockholders entitled to payment. However, in the case of redeemable shares, the
existence of unrestricted earnings is not required before the corporation can buy back
such shares.
Fractional shares are shares that are not whole, They typically arise when the
corporation issues stock dividends that are not whole.
Illustrative example

The Board approves the distribution of 1/10 stock dividend. Each stockholder
in good standing will receive 1/10 of a stock for every share that she owns.
Thus, if a stockholder owns one share of stock, at the end of the day, she will
have 1.10 shares. If a stockholder has 10 shares, she will have 11 shares at the
end of the day. The corporation can buy the .10 share from the stockholder
concerned.

The purchase of delinquent shares is discussed in Section 67, and the payment of
dissenting or withdrawing stockholders under the provisions on Appraisal Right (Title
X).

SECTION 41. Power to Invest Corporate Funds in Another Corporation or

Business or for Any Other Purpose. Subject to the provisions of this Code, a
private corporation may invest its funds in any other corporation, business, or
for any purpose other than the primary purpose for which it was organized,
when approved by a majority of the board of directors or trustees and ratified by
the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock, or by at least two-thirds (2/3) of the members in the case of nonstock
corporations, at a meeting duly called for the purpose. Notice of the proposed
investment and the time and place of the meeting shall be addressed to each
stockholder or member at the place of residence as shown in the books of the
corporation and deposited to the addressee in the post office with postage
prepaid, served personally, or sent electronically in accordance with the rules
and regulations of the Commission on the use of electronic data message, when
allowed by the bylaws or done with the consent of the stockholders: Provided,
That any dissenting stockholder shall have appraisal right as provided in this
Code: Provided, however, That where the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in the articles
of incorporation, the approval of the stockholders members shall not be
necessary.

Corporations may invest their funds in 1) another corporation or 2 business, or 3) for

any other purpose other than its primary purpose when it is approved by the majority
of the board and ratified by stockholders representing at least 2/3 of the outstanding
capital stock or by at lea 2/3 of its members in case of a non-stock corporation in a
meeting duly called for such a purpose.

The corporate secretary shall send the proper notices of the meeting to stockholders
and members, either personally, by mail, or electronically.
A dissenting stockholder may exercise her appraisal right under the conditions
provided in the Revised Code.

When stockholders or members' approval is not necessary

If the investment is reasonably necessary to accomplish the corporation's primary

purpose or incidental to its primary purpose, the approval of the stockholders or
members, as the case may be, shall not be necessary. This was explained in the case
of De la Rama vs Ma-ao Sugar Central Co. where the Court stated the following

In his work entitled "The Philippine Corporation Law," now in its 5th edition,
Professor Sulpicio S. Guevara of the University of the Philippines, College
Law, well-known authority in commercial law, reconciled these two
apparently conflicting legal provisions, as follows:

"Power to acquire or dispose of shares or securities. - A private corporation, in order

to accomplish its purpose as stated in its articles of incorporation, and subject to the
limitations imposed by the Corporation Law; has the power to acquire, hold,
mortgage, pledge or dispose of shares, bonds, securities, and other evidences of
indebtedness of any domestic or foreign corporation. Such c act, if done. in pursuance
of the corporate purpose, does not need the approval of the stockholders; but when the
purchase of shares of another corporation is done solely for investment and not to ac
complish the purpose of its incorporation, the vote of approval of the stockholders is
necessary. In any case, the purchase of such shares or securities must be subject to the
limitations established by the Corporation Law; namely, (a) that no agricultural or
mining corporation shall in anywise be interested in any other agricultural or mining
corporation; or (b) that a non-agricultural or non-mining corporation shall be
restricted to own not more than 15% of the voting stock of any agricultural or mining
corporation; and (c) that such holdings shall be solely for investment and not for the
purpose of bringing about a monopoly in any line of commerce or combination in
restraint of trade." (The Philippine Corporation Law by Sulpicio S. Guevara, 1967
Ed., p. 89.) (emphasis supplied)

*40. Power to invest corporate funds. - A private corporation has the power to invest
its corporate funds 'in any other corporation or business, or for any purpose other than
the main purpose for which it was organized, provided that its board of directors has
been so authorized in a resolution by the affirmative vote of stockholders holding
shares in the corporation entitling them to exercise at least two-thirds of the voting
power on such a proposal at a stockholders' meeting called for that purpose, and
provided further, that no agricultural or mining corporation shall in anywise be
interested in any other agricultural or mining corporation. When the investment is
necessary to accomplish its purpose or purposes as stated in its articles of
incorporation, the approval of the stockholders is not necessary (Id., p. 108.)
(emphasis supplied)

SECTION 42. Power to Declare Dividends, The board of directors of a stock

corporation may declare dividends out of the unrestricted retained earnings
which shall be payable in cash, property, or in stock to all stockholders on the
basis of outstanding stock held by them: Provided. That any cash dividends due
on delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld
from the delinquent stockholders until their unpaid subscription is fully paid:
Provided, further, That no stock dividend shall be issued without the approval of
stockholders representing at least two-thirds (2/3) of the outstanding capital
stock at a regular or special meeting duly called: r the purpose.

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.

The concept of dividends

The term "dividend" as applied to corporate stock may be defined portion of the
profits and surplus funds of a corporation that has been that actually set apart by the
board of directors for distribution among the stockholders in proportion to their
respective shareholdings, and thus from being the corporation's property becomes that
of the stockholders. Dividends therefore are the returns to the stockholder's
investment in the corporation, and the right thereto arises from stock ownership.

Shareholder's right to dividends

All persons who own shares of stock at the time dividends are declared have the right
to receive dividends in proportion to the amount of their shareholdings. The right to
share in the dividend applies regardless of the time when the shareholder acquired the
shares, without regard to the time during which the dividends were earned. In other
words, it is the stockholder of record who receives the dividend. And the declaration
of dividends creates a debt against the corporation in favor of each stockholder to the
amount due her.

Moreover, all shareholders of the same class are entitled to participate in dividends on
a pro-rated basis, i.e., in proportion to their shareholdings. Even delinquent
shareholders have a right to dividends, as no stockholder may be excluded from
participation, but said right is subject to what the law provides as earlier mentioned.

The shareholders' right to dividends notwithstanding, there must be a declaration of

dividends by the Board before the surplus profits become dividends; otherwise the
profits remain part of corporate assets.

Board's discretion to declare dividends

As a general rule, the declaration of dividends rests on the Board's discretion, and if
so declared, its amount rests on the directors' discretion and decision. Thus, the mere
fact that a corporation has funds from which dividends could legally be paid, even if
the funds were huge, does not oblige its directors to declare dividends. Corporations
are prohibited by the Code, however, from retaining surplus profits in excess of one
hundred percent (100 %) of their paid-in capital stock, thus implying an obligation for
the distribution of their profits to the stockholders in the form of dividends. The
distribution of stock dividends, however, requires the prior approval of stockholders
representing no less than two-thirds (2/3) of the outstanding capital stock at a regular
or special meeting duly called for the purpose.

If there are stockholders with delinquent stocks or shares, cash dividends due them
shall first be applied to the unpaid balance of their subscription (including costs and
expenses) and the remainder, if any, will be given to said stockholders. On the other
hand, if stock dividends are issued, said dividends will be withheld until the
delinquent stockholder's unpaid subscription is fully paid.

The fact that a corporation earns profit in a particular year will not justify payment of
dividends if capital impairment or deficit from losses incurred in previous years
exists. Dividends may be paid, however, from surplus accumulated out of profits of
previous years, even though there is no actual profit for the year in which dividends
are declared and paid.
Form of dividends

Dividends may be distributed in the forms of cash, stock, and property.

Stock dividends are in fact shares of stock, "the consideration for which is the amount
of unrestricted retained earnings converted into equity in the corporation's books.
Among the three forms, it is only the declaration of stock dividends that requires
approval by stockholders.

In Nielson and Co. vs. Lepanto Consolidated Mining, where the Court said that a
corporation may legally issue shares of stock in consideration of services rendered,
the Court elaborated on the concept of stock dividends, and said:

A corporation may legally issue shares of stock in consideration of services rendered

to it by a person not a stockholder, or in payment of its indebtedness A share of stock
issued to pay for services rendered is equivalent to a stock issued in exchange of
property, because services is equivalent to property. Likewise a share of stock sued in
payment of indebtedness is equivalent to issuing a stock in exchange for cash. But a
share of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the increase of the
capitalization of a corporation is properly authorized. In other words, it is the shares
of stock that are originally issued by the cooration and forming part of the capital that
can be exchanged for cash or services rendered, or property; that is, if the corporation
has original shares of stock un sold or unsubscribed, either coming from the original
capitalization or from the increased capitalization. Those shares of stock may be
issued to a person who is not a stockholder, or to a person already a stockholder in
exchange for services rendered or for cash or proper ty. But a share of stock coming
from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.

A "stock dividend" is any dividend payable in shares of stock of the corporation

declaring or authorizing such dividend. It is, what the term itself implies, a
distribution of the shares of stock of the cor poration among the stockholders as
dividends. A stock dividend of a corporation is a dividend paid in shares of stock
instead of cash. and is properly payable only out of surplus profits. So, a stock
dividend actually two things: a dividend, and (2) the enforced use of the dividend
money to purchase additional shares of stock at par. When a corporation issues stock
dividends, it shows that the corporation's accumulated profits have been capitalized
instead of distributed to the stockholders or retained as surplus available for
distribution, in money or kind, should opportunity offer. Far from being a realization
of profits for the stockholder, it tends rather to postpone said realization, in that the
fund represented by the new stock has been transferred from surplus to assets and no
longer available for actual distribution. Thus, it is apparent that stock dividends are
issued only to stockholders. This is so because only stockholders are entitled to
dividends. They are the only ones who have a right to a proportional share in that part
of the surplus which is declared as dividends. A stock dividend really adds nothing to
e interest of the stockholder, the proportional interest of each stockholder remains the
same. If a stockholder is deprived of his stock dividends and this happens if the shares
of stock forming part of the stock dividends are issued to a non-stockholder - then the
proportion of the stockholder's interest changes radically. Stock dividends are civil
fruits of the original investment, and to the owners of the shares belong the civil
fruits,

The term "dividend" both in the technical sense and its 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.. t means
the fund actually set aside, and declared by the directors of the corporation as a
dividends, and duly ordered by the director, or by the stockholders at a corporate
meeting, to be divided or distributed among the stock holders according to their
respective interests.

When dividends need not be declared

There are three instances, however, when a corporation may retain surplus profits
beyond one hundred percent (100 %) of their paid-in capital stock, and these are:

1. Justified by corporate expansion projects or programs approved by the Board;

2 when the corporation is prohibited under a loan agreement with a financial
institution or creditor from declaring dividends without its consent and such
consent has not yet been secured;
3 when it is clearly shown that such retention is necessary under special
circumstances such as the need for a special reserve for probable
contingencies.

SEC. 43. Power to Enter into Management Contract. – No corporation shall conclude a
management contract with another corporation unless such contract is approved by the
board of directors and by stockholders owning at least the majority of the outstanding
capital stock, or by at least a majority of the members in the case of a nonstock corporation,
of both the managing and the managed corporation, at a meeting duly called for the
purpose: Provided, That (a) where a stockholder or stockholders representing the same
interest of both the managing and the managed corporations own or control more than one-
third (1/3) of the total outstanding capital stock entitled to vote of the managing
corporation; or (b) where a majority of the members of the board of directors of the
managing corporation also constitute a majority of the members of the board of directors of
the managed corporation, then the management contract must be approved by the
stockholders of the managed corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in
the case of a nonstock corporation. These shall apply to any contract whereby a corporation
undertakes to manage or operate all or substantially all of the business of another
corporation, whether such contracts are called service contracts, operating agreements or
otherwise: Provided, however, That such service contracts or operating agreements which
relate to the exploration, development, exploitation or utilization of natural resources may
be entered into for such periods as may be provided by the pertinent laws or regulations. No
management contract shall be entered into for a period longer than five (5) years for any
one (1) term.

SEC. 44. Ultra Vires Acts of Corporations. – No corporation shall possess or exercise
corporate powers other than those conferred by this Code or by its articles of incorporation
and except as necessary or incidental to the exercise of the powers conferred.

TITLE V BYLAWS

SEC. 45. Adoption of Bylaws. – For the adoption of bylaws by the corporation, the affirmative
vote of the stockholders representing at least a majority of the outstanding capital stock, or
of at least a majority of the members in case of nonstock corporations, shall be necessary.
The bylaws shall be signed by the stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to the inspection of the stockholders
or members during office hours. A copy thereof, duly certified by a majority of the directors
or trustees and countersigned by the secretary of the corporation, shall be filed with the
Commission and attached to the original articles of incorporation. Notwithstanding the
provisions of the preceding paragraph, bylaws may be adopted and filed prior to
incorporation; in such case, such bylaws shall be approved and signed by all the
incorporators and submitted to the Commission, together with the articles of incorporation.

In all cases, bylaws shall be effective only upon the issuance by the Commission of a
certification that the bylaws are in accordance with this Code. The Commission shall not
accept for filing the bylaws or any amendment thereto of any bank, banking institution,
building and loan association, trust company, insurance company, public utility, educational
institution, or other special corporations governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the effect that such bylaws or
amendments are in accordance with law.

SEC. 46. Contents of Bylaws. – A private corporation may provide the following in its bylaws:
(a) The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees; (b) The time and manner of calling and conducting regular or special
meetings and mode of notifying the stockholders or members thereof; (c) The required
quorum in meetings of stockholders or members and the manner of voting therein; (d) The
modes by which a stockholder, member, director, or trustee may attend meetings and cast
their votes; (e) The form for proxies of stockholders and members and the manner of voting
them; (f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines
for setting the compensation of directors or trustees and officers, and the maximum number
of other board representations that an independent director or trustee may have which
shall, in no case, be more than the number prescribed by the Commission; (g) The time for
holding the annual election of directors or trustees and the mode or manner of giving notice
thereof; (h) The manner of election or appointment and the term of office of all officers
other than directors or trustees; (i) The penalties for violation of the bylaws; (j) In the case of
stock corporations, the manner of issuing stock certificates; and (k) Such other matters as
may be necessary for the proper or convenient transaction of its corporate affairs for the
promotion of good governance and anti-graft and corruption measures. An arbitration
agreement may be provided in the bylaws pursuant to Section 181 of this Code.

SEC. 47. Amendment to Bylaws. – A majority of the board of directors or trustees, and the
owners of at least a majority of the outstanding capital stock, or at least a majority of the
members of a nonstock corporation, at a regular or special meeting duly called for the
purpose, may amend or repeal the bylaws or adopt new bylaws. The owners of two-thirds
(2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a nonstock
corporation may delegate to the board of directors or trustees the power to amend or
repeal the bylaws or adopt new bylaws: Provided, That any power delegated to the board of
directors or trustees to amend or repeal the bylaws or adopt new bylaws shall be considered
as revoked whenever stockholders owning or representing a majority of the outstanding
capital stock or majority of the members shall so vote at a regular or special meeting.
Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file
with the Commission such amended or new bylaws and, if applicable, the stockholders’ or
members’ resolution authorizing the delegation of the power to amend and/or adopt new
bylaws, duly certified under oath by the corporate secretary and a majority of the directors
or trustees. The amended or new bylaws shall only be effective upon the issuance by the
Commission of a certification that the same is in accordance with this Code and other
relevant laws.

TITLE VI MEETINGS

SEC. 48. Kinds of Meetings. – Meetings of directors, trustees, stockholders, or members may
be regular or special.

SECTION 48. Kinds of Meetings. – Meetings of directors, stockholders, or

members may be regular or of directors, trustees s may be regular or special.
holders or Members - embers shall be held

SECTION 49. Regular and Special Meetings of Stockholders or Meme

Regular meetings of stockholders or members shall annually on a date fixed in
the bylaws, or if not so fixed any date after April 15 of every year as determined
bu board of directors or trustees: Provided, That written of regular meetings
shall be sent to all stockholders or members of record at least twenty-one (21)
days prior to the meeting, unless a different period is required in the bylaws. law,
or regulation: Provided, further, That written notice of regular meetings may be
sent to all stockholders or members of record through electronic mail or such
other manner as the Commission shall allow under its guidelines.
At each regular meeting of stockholders or members, the board of directors or trustees
shall endeavor to present to stockholders or members the following:
(a) The minutes of the most recent regular meeting which
shall include, among others:
(1) A description of the voting and vote tabulation
procedures used in the previous meeting;
(2) A description ofthe opportunity given to stockho
or members to ask questions and a record questions asked and answers given;
(3) The Matters discussed and resolutions reached;
(4) A record of the voting results for each agenda item;
(5) A list of the directors or trustees, officers and stockholders or members who
attended the meeting and
(6) Such other items that the Commission may require in the interest of good
corporate governance and the protection of minority stockholders;
(b) A members' list members' list for nonstock corporations and, for tock
corporations, material information on the current stockholders, and their voting rights;
(c ) a detailed, descriptive, balanced and comprehensible assessment of the
corporation's performance, which shall include information on any material change in
the corporation's business, strategy, and other affairs;
(d) A financial report for the preceding year, which shall include
financial statements duly signed and certified in accordance with this Code and the
rules the Commission may prescribe, a statement on the adequacy of the corporation's
internal controls or risk management systems, and a statement of all external audit and
non-audit fees;
(e) An explanation of the dividend policy and the fact of payment
of dividends or the reasons for nonpayment thereof;
(f) Director or trustee profiles which shall include, among
others, their qualifications and relevant experience, length of service in the
corporation, trainings and continuing education attended, and their board
representations in other corporations;
(g) A director or trustee attendance report, indicating the
attendance of each director or trustee at each of the
Meetings of the board and its committees and in regular or special stockholder
meetings

(h) appraisal and performance reports for the ance reports for the board and criteria
and procedure for assessment
(i ) A director or trustee compensation report prepared in accordance with this Code
and the rules the may prescribe;
(j) Director disclosures on self-dealings and related party transactions; and/or
(k) The profiles of directors nominated or seeking election or reelection.

A director, trustee, stockholder, or member may propose any other matter for
inclusion in the agenda at any regular meeting of stockholders or members.

Special meetings of stockholders or members shall be held at any time deemed

necessary or as provided in the bylaws: Provided, however, That at least one (1) week
written notice shall be sent to all stockholders or members, unless a different period is
provided in the bylaws, law or regulation.

A stockholder or member may propose the holding of a special meeting and items to
be included in the agenda.

Notice of any meeting may be waived, expressly impliedly, by any stockholder or

member: Provided, a general waivers of notice in the articles of incorporation or the
bylaws shall not be allowed; Provided, further," attendance at a meeting shall
constitute a waiver of no of such meeting, except when the person attends a med
or the express purpose of objecting to the transaction of any business because the
meeting is not lawfully can convened.

Whenever for any cause, there is no person authorized or the person authorized
unjustly refuses to call a meeting Commission, upon petition of a stockholder or
member on a showing of good cause therefor may an order, directing the petitioning
stockholder or member shall preside thereat until at least a majority of the stockholder
or members present have sen from among themselves, a presiding officer.

In case of pestponement of stockholder or members regular meeting, written notice

thereof and the reason therfor shall be sent to all stockholder or members of record at
least 2 weeks prior to the date of meeting, unless a different period is required under
bylaws, law of regulation

The right to vote stockholder or members may be exercised in person through a

proxy, or when so authorized in the bylaws through remote communication or in
abesntia. The commsission shall issue the rules and regulations governing
participation and viting through remote communication or in absentia taking into
account the company’s scale, number of shareholders or members, structure and other
factors consistent with the protection and promotion of shareholdes or members
meetings

Kind of meetings
The regular meeting of stockholders or members are held annually on a date stated
in the bylaws of the corporation. If there is nothing indicated in the by laws, then the
board of directors or trusteess shall call for a meeting

meeting of the stockholders or members on any date is also the deadline for the filing
of income tax return of individuals
Regular
The Revised Code has also introduced the follow to stockholders' or members'
regular meeting:
1. There should at least be a twenty-one (21) day-notice prior to a regular
stockholders' meeting, if no specific period the bylaws, law, or regulation.
2. If the stockholders' or members' regular meeting is postponed
written notice of such postponement and the reason shall be sent to all stockholders or
members of record two (2) weeks prior to the scheduled date of the the bylaws, law,
or regulation require a different period.
3. Written notice of regular meetings may be sent to all stockholders or members of
record through electronic mail or such other manner allowed by the SEC.
4. Stockholders' or members' right to vote may be exercised in per
son, through a proxy, or by remote communication or in absentia when so authorized
by the bylaws.
5. The Board should endeavor to present to stockholders or members the following:
a. the minutes of the most recent regular meeting, which shall
include the items listed in Section 49;
b. in the case of stock corporations, material information on the
current stockholders, and their voting rights, or a member list for non-stock
corporations;
c.a detailed, descriptive, balance and comprehensive assesment of the corporation's
performance and information on any material change in the corporation business
strategy and other affairs, if any:
D. A financial report for the preceeding year
E. an explanation of the dividend policy and the fact of payment inds or the reasons
for non-payment thereof;
f. director or trustee profiles, including their qualifications. among others;
G. a director or trustee attendance report;
H. appraisals and performance reports for the board and the criteria and procedure for
assessment;
I a director or trustee compensation report;
J. director disclosures on self-dealings and related party transactions;;
k. profiles of directors nominated or seeking election or reelection
1. any other matter for inclusion in the agenda that is proposed
by a director, trustee, stockholder, or member.

Special
Special meetings are called when the need arises or as provided in the bylaws or
as proposed by a stockholder or member. A one (1)-week prior written notice should
be sent to the stockholders or members, unless a different period is provided in the
bylaws, law, or regulation.
SEC intervention
In case no person is authorized to call a meeting who is able to show good cause
may petition the SEO directing the petitioning stockholder or member corporation and
give the proper notice for the me the Revised Code or the bylaws. The petitioning st
shall preside at the meeting until at least a majority of the members present have
chosen a presiding officer from or members present.

Notice
Notice for any meeting, whether regular or special, may be expressly or impliedly
by a stockholder or member. Attendance meeting constitutes a waiver of notice of
such meeting the person attends a meeting for the express purpose of objecting
transaction of any business because the meeting is not lawfully or convened.
However, provisions in the articles of incorporation bylaws that allow general or
blanket waivers of notice are not allowed member

Additional changes
The Revised Code mandates that the stock and transfer book or membership book
shall be closed at least twenty (20) days for regular meetings and seven (7) days for
special meetings before the scheduled date of the meeting unless the bylaws provide
for a longer period.

SECTION 50. Place and Time of Meetings of Stockholders or Members. -

Stockholders' or members' meetings, whether regular or special, shall be held in the
principal office of the corporation as set forth in the articles of incorporation, or, if not
practicable, in the city or municipality where the principal office of the corporation is
located: Provided, That any city or municipality in Metro Manila, Metro Cebu, Metro
Davao, and other Metropolitan areas shall for purposes of this section, be considered a
city of municipality.

Notice of meetings shall be sent through the means of communication provided in the
bylaw which notice shall state the time place and purpose of the meeting

Each notice of meeting shall further be accompanied by the following:

(a) The agenda for the meeting:
(b) A proxy form which shall be submitted to the corporate secretary within a
reasonable time prior to the meeting:
(c ) When attendance, participation, and voting are allowed by remote communication
or in absentia, the requirements and procedures to be followed when a stockholder or
member elects either option; and
(d) When the meeting is for the election of directors
or trustees, the requirements and procedure for nomination and election.

All proceedings and any business transacted at a meeting of the stockholders or

members, if within the powers or authority of the corporation, shall be valid even if
the meeting is improperly held or called: Provided, That all the stockholders or
members of the corporation are present or duly represented at the meeting and not one
of them expressly states at the beginning of the meeting that the purpose of their
attendance is to object to the transaction of any business because the meeting is not
lawfully called or convened.

Place
The Revised Code that stockholders' or members' meeting, whether regular or special,
shall be held in the principal office of the that is indicated in the articles of
incorporation, or, if not practicable, in the city or municipality where then
corporation is located. This is different from th that stockholders' or members'
meetings should be municipality where the principal office of the if feasible at the
principal office of the corporation.

The corporation's principal office is where the kept, particularly its stock and
transfer book, accounting be documents in the custody of the corporate secretary who
agenda and minutes of the meetings of the Board. Indicating th office of the
corporation should make it easier for third parties the corporation. Summons,
subpoenas, and other legal process be sent to the corporation's principal office, which
therefore specific address. The address of the corporation may also serve as in
determining the venue of a suit or action that the corporation against another party or
may be filed against the corporation, a where a chattel mortgage of shares should be
registered.
The importance of the corporate address is highlighted in the case of
Hyatt Elevators vs. Goldstar where the Supreme Court said:
Indeed, it is a legal truism that the rules on the venue of personal actions are fixed
for the convenience of the plaintiffs and their witnesses. Equally settled, however, is
the principle that choosing the venue of an action is not left to a plaintiff's caprice; the
matter is regulated by the Rules of Court.257 Allowing petitioner's arguments may
lead precisely to what this Court was trying to avoid in Young Auto Supply Company
v. CA:258 the creation of confusion and untold inconveniences to party litigants. Thus
enunciated the CA:
".... To insist that the proper venue is the actual principal office and not that stated in
its Articles of Incorporation would indeed create confusion and work untold
inconvenience. Enterprising litigants may, out of some ulterior motives, easily
circumvent the rules on venue by the simple expedient of closing old officers and
opening new ones in another plan. We find it necessary litigants, especially
corporations, as follows:

The rules on venue. Like the other one procedural rules, are designed to ensure a
just and orderly administration of justice or the impartial and evenhanded
determination or every action and proceeding. Obviously, this objective will not be
attained if the plaintiff is given unrestricted freedom to chooice the court where he
may file his complain or petition

“The choice of venues should not be left to the plaintiff’s whim or caprice. He may
be impelled by some ulterior motivation in choosing to file case in a particular court
even if not allowed by the rules on venue

The Revised Code has also expanded the definition of city or municipality only Metro
Manila, but also Metro Cebu, Metro Davao, and other metropolitan areas in the
Philippines.

Notice
Notice of meetings, which should be sent through the means of communication
provided in the bylaws (that can include electronic means as introduced by the
Revised Code), shall indicate the time, place, and purpose of the meetings. The
Revised Code further requires that the following be attached to the notice:

1. the agenda for the meeting;

2. a proxy form that shall be submitted to the corporate secretary
within a reasonable time prior to the meeting;
3. the requirements and procedures to be followed or member opts to attend,
participate a communication or in absentia if such modes are allowed; and
4. if the meeting is for the election of directors or trustees the requirements and
procedure for nominating and electing stock holders or member to the position
All proceedings and any business taking place in a stock meeting, if within the powers
or authority of the corp valid even if the meeting is improperly held or called on the
all the stockholders or members of the corporation are represented at the meeting and
not one of them expres meeting for being unlawfully or improperly called or
convened.

SECTION 51. Quorum in Meetings. - Unless otherwise provided in this Code or in

the bylaws, a quorum shall consist of the stockholders representing a majority of the
outstanding, capital stock or a majority of the members in the case of non stock
corporations.

A valid stockholders' or members' meeting requires reiterate, quorum is the required

number for the stockholder and directors/trustees to arrive at a valid decision. Quorum
in a stock corporation shall be the stockholders representing a majority of the
outstanding capital stock while in a non-stock corporation it shall be the majority of
the members, unless otherwise provided for in the Revised Code or in the bylaws.

SECTION 52. Regular and Special Meetings of Directors or Trustees; Quorum.

- Unless the articles of incorporation or the bylaws provides for a greater majority, a
majority of the directors or trustees as stated in the articles of incorporation shall
constitute quorum to transact corporate business, and every decision reached by at
least a majority of the directors or trustees constituting a quorum, except for the
election of officers shall require the vote of a majority of all the members of the
board, shall be valid as a corporate act.

Regular meetings of the board of directors or trustees of every corporation shall be

held monthly, unless the bylaws provide otherwise

Special meetings of the board of directors or trustees may be held at any time upon
the call of the president or as provided in the bylaws

Meetings of directors or trustees of corporations may where in or outside of the

Philippines, unless provide otherwise. Notice of regular or special stating the date,
time and place of the meeting be sent to every director or trustee at least two (2) prior
to the scheduled meeting, unless a longer time Is provided in the bylaws. A director or
trustee may waive this requirement, either expressly or impliedly.
Directors or trustees who cannot physically attend or vote at board meetings can
participate and vote through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them
reasonable opportunities to participate. Directors or trustees cannot attend or vote by
proxy at board meetings.

A director or trustee who has a potential interest in any related party transaction must
recuse from voting on the approval of the related party transaction without prejudice
to compliance with the requirements of Section 31 of this Code.

Kinds of meetings
1. Regular meetings that shall be held monthly unless the bylaws
provide otherwise.
2. Special meetings that may be held at any time upon the call of the president or as
provided in the bylaws.

Notice
Notice of regular or special meetings stating the date, time, and place of the meeting
must be sent to every director or trustee at least two (2) days261 prior to the scheduled
meeting, unless a longer time is provided in the bylaws. A director or trustee may
waive this requirement, either expressly or impliedly.

A special meeting conducted in the absence of some of the directors and without
notice to them is illegal, and the action at such a meeting although by a majority of the
directors is invalid, unless subsequently ratified 262 However, a special meeting held
where all the directors were present although no formal notice was sent to them is
considered valid.

Place
Similar to what the Old Code provided, meetings of directors or trustees, whether
regular or special, may be held anywhere in or outside of the Philippines-the world-
unless the bylaws provide otherwise.

Attendance in meetings Directors or trustees cannot attend or vote by proxy at board

meetings; but those who cannot physically attend or vote at board meetings can
participate and vote through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them
reasonable opportunities to participate.
Prior to the Revised Code, teleconferencing and videoconferencing have been
acknowledged by the Court as a reality, and said in the case of Expertravel and Tours,
Inc. vs CA, 264 the following:

In the Philippines, teleconferencing and videoconferencing members of board of

directors of private corporations is a reality
in light of Republic Commission issued s ber 30, 2001, ed to such confere
that persons in th group of persons in republic Act No. 8792. The Securities
and Exchange n issued SEC Memorandum Circular No. 15, on Novem2001,
providing the guidelines to be complied with related conferences. Thus, the
Court agrees with the RTC ons in the Philippines may have a teleconference
with a persons in South Korea relating to business transactions or corporate
governance.

Conflict of interest
Revised Code also requires that a director or trustee who has a otential
interest in any related party transaction (such as a contract) must recuse or
abstain from voting on the approval of said transaction without prejudice to
compliance with the requirements of Section 31 (self dealing director) of this
Code.

SECTION 53. Who Shall Preside at Meetings. - The chairman or, in his
absence, the president shall preside at all meetings of the directors or trustees
as well as of the stockholders or members, unless the bylaws provide
otherwise.

Unlike the Old Code which provided that the president of the corporation w
preside at all meetings of the directors, trustees, stockholders or CIS, unless
the bylaws provide otherwise, the Revised Code provides Chairperson of the
board of directors or trustees shall preside meetings. It is only when the
chairperson is absent that the presides over the meetings mentioned.

SECTION 54. Right to Vote of Secured Creditors and Administrators. – In

case a stockholder grants security interest in his or her shares in stock
corporations, the stockholder-grantor shall have the right to attend and vote
at meetings of stockholders, unless the secured creditor is expressly given by
the stockholder-grantor such right in writing which is recorded in the
appropriate corporate books.
Executors, administrators, receivers, and other legal representatives duly
appointed by the court may attend and vote in behalf of the stockholders or
members without need of any written proxy.

Right of pledgors/mortgagors
Although the revised title refers to the right to vote of secured creditors, in
truth paragraph one of this section retains the old rule: in cases of pledged or
mortgaged shares in stock corporations, the pledgor or mortgagor (the
stockholder-grantor) keeps the right to attend and vote at meetings of
stockholders, unless the pledgee or mortgagee (the secured creditor) is
expressly given such right by the pledgor or mortgagor in writing, which is
recorded in the appropriate corporate books.

In SEC Opinion dated 7 April 1987, the SEC stated that the stockholders
whose stock certificates are used as collaterals for a loan have the right to
vote the pledged or mortgaged shares unless the pledgee or mortgagee is
expressly given such right in writing, which is recorded by the pledgor or
mortgagor on the corporate books.

Right of executors, administrators, receivers, and other legal representatives

If the estate of a deceased stockholder is still undivided and there is no
administrator duly appointed by the court or an executor designated in a will
to administer said estate, no person can represent or vote the shares of the
deceased since nobody can legally represent her estate considering the
second paragraph of Section 54 of the Revised Code.266

SECTION 55. Voting in Case of Joint Ownership of Stock. - The consent

of all the co-owners shall be necessary in voting shares of stock owned
jointly by two (2) or more persons, unless there is a written proxy, signed by
all the co-owners, authorizing one (1) or some of them or any other person to
vote such share or shares: Provided, That when the shares are owned in an
“and/or" capacity by the holders thereof, any one of the joint owners can
vote said shares or appoint a proxy therefor.

In order to vote co-owned stocks, the consent of all the co-owners 1

necessary; however, the consent of all the co-owners is not required the
following instances:
1. There is a written proxy, signed by all the co-owners, authorizing one or
some of them or any other person to vote such share or shares.
2. When the shares are owned in an "and/or” capacity by the holders thereof,
any one of the joint owners can vote said shares or appoint a proxy therefor.

SECTION 56. Voting Right for Treasury Shares. - Treasury shares shall
have no voting right as long as such shares remain in the Treasury.
Treasury shares shall have no voting right as long as such stock remains in
the treasury. Once reissued or sold, whatever rights to which treasury shares
are originally entitled are restored.267

SECTION 57. Manner of Voting; Proxies. – Stockholders and members

may vote in person or by proxy in all meetings of stockholders or members.

When so authorized in the bylaws or by a majority of the board of directors,

the stockholders or members of corporations may also vote through remote
communication or in absentia: Provided, That the votes are received before
the corporation finishes the tally of votes.

A stockholder or member who participates through remote communication

or in absentia shall be deemed present for purposes of quorum.
The corporation shall establish the appropriate requirements and procedures
for voting through remote communication and in absentia, taking into
account the company's
Scale, number of shareholders or members, structure and other factors
consistent with the basic right of corporate suffrage.

Proxies shall be in writing) signed and filed, by the locknolder 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.

Requisites of a proxy
1. It must be in writing and signed by the stockholder or member in
any form authorized by the bylaws;
2. It must be filed with and received by the corporate secretary
within a reasonable time before the scheduled meeting; and
3. It shall be valid only for the meeting for which it is intended un
less otherwise provided in the proxy form; but in no case shall the proxy be
valid and effective for a period longer than five (5) years at any one time.

Proxy voting cannot be denied in case of stock corporations. A resolution

passed by the stockholders disallowing voting by proxy is contrary to law
and therefore void and of no effect.268
New modes of voting
In addition to voting in person or by proxy, stockholders can now choose to
vote through remote communication or in absentia, this subject to certain
conditions; viz:
1. authorized in the bylaws or by a majority of the board of directors; and
2. the votes are received before the corporation finishes the tally
of votes.
The Corporation shall establish the appropriate requirements and procedures
for voting through remote communication and in absentia, so into account
the following: 1) the company's scale, 2) number of oreholders or members,
3) structure, and 4) other factors consistent with the basic right of corporate
suffrage.

A stockholder or member who participates through remote communication

or in absentia shall be deemed present for purposes of quorum.

SECTION 58. 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 and with the same effect as certificates of
stock.
 The voting trust agreement filed with the shall be subject to examination
by anys corporation in the same manner as any other book or record:
Provided, That both the trustor trustee or trustees may exercise the right o of
all corporate books and records in accordance provisions of this Code.

Any other stockholder may transfer the shares to the com 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
trus shall thereby be deemed cancelled and new certificate stock shall be
reissued in the name of the trustors.
The voting trustee or trustees may vote by pro manner authorized under
the bylaws un provides otherwise Explained the importance of the deletion
of the phrase "in his own right”

Both under the old and the new Corporation Codes there is no dispute as
to the most immediate effect of a voting trust agreement on the status of a
stockholder who is a party to its execution - from legal title-holder or owner
of the shares subject of the voting trust agreement, he becomes the equitable
or beneficial owner. (Salonga, Philippine Law on Private Corporations, 1958
ed., p. 268; Pineda and Carlos, the Law on Private Corporations and
Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The
Corporation Code; Comments, Notes & Selected Cases, 1981 ed., p. 386;
Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is
whether the change in his status deprives the stockholder of the right to
qualify as a director under section 23 of the present Corporation Code which
deletes the phrase "in his own right.” Section 30 of the old Code states that:

“Every director must own in his own right at least one share of the capital
stock of the stock corporation of which he is a director, which stock shall
stand in his name on the books of the corporation. A director who ceases to
be the owner of at least one share of the capital stock of a stock corporation
of which is a director shall thereby cease to be a director ..." (Underlining
supplied)

Under the old Corporation Code, the eligibility of a director, strictly

speaking, cannot be adversely affected by the simple act of such director
being a party to a voting trust agreement inasmuch as he remains owner
(although beneficial or equitable only) of the shares subject of the voting
trust agreement pursuant to which a transfer of the stockholder's shares in
favor of the trustee is required (Section 36 of the old Corporation Code). No
disqualification arises by virtue of the phrase "in his own right” provided
under the old Corporation Code.

With the omission of the phrase "in his own righ trustees and other
persons who in fact are not the of the shares registered in their names on the
books of the corporation becomes formally legalized (see Campos and
Lopezpra, p. 296). Hence, this is a clear indication as a director, what is
material is the legal title to not be partnership of the stock as appearing on
the books of the Fletcher, Cyclopedia of the Law of Private Corporations,
section p. 92 (1969] citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051)

Requirements of a voting trust agreement

1. A certified copy of the voting trust agreement must be filed with
the corporation and with the SEC; otherwise said agreement is ineffective
and unenforceable.
 2. 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/s stating that they are issued pursuant to said agreement. In the
books of the corporation, it shall be noted that the transfer in the name of the
trustee or trustees is made pursuant to said voting trust agreement.
3. The voting trust agreement shall be for a period not exceeding
five (5) years at any one time. Unless expressly renewed, all 118 granted
in a voting trust agreement shall automatically exp . the end of the agreed
period. The voting trust certificates 4 as the certificates of stock in the name
of the trustee of shall thereby be deemed canceled and new certificates shall
be reissued in the name of the trustors.

However, in the case of a voting trust specifically requ.. condition in a

loan agreement, said voting trust may be for a period exceeding five (5)
years but shall automatically expired upon full payment of the loan.
4. No voting trust agreement shall be entered into
circumventing the laws against anti-co abuse of dominant position, anti-
competitive agreement abuse of dominant position, anti-competitive mergers
and acquisition violation of nationality and capital requirements, or the
perpetuation of fraud.
The trustee or trustees shall execute and deliver to the transfer or voting
trust certificates, which shall be transferable in the same manner and with the
same effect as certificates of stock. Moreover, the voting trustee or trustees
may vote by proxy or in any manner authorized under the bylaws such as
remote communication or in absentia unless the agreement provides
otherwise.

+ TITLE VII Stocks and Stockholders

SECTION 59. Subscription Contract. — Any contract for the acquisiti
unissued stock in an existing corporation or a corporati still to be formed
shall be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a purchase or some
other contract.

The relationship of stockholders to the corporation whose stock they own

constitutes a contract; and the rights, obligations, and liabilities of both
parties are provided for by the contract, express or implied, in a subscription
for or purchase of stock.
Subscribers to the capital stock of the corporation are those who agree to
take and pay for the unissued shares of the corporation's capital sou even if
the corporation is yet to be formed or after its formation transaction is what
Section 59 refers to. On the other hand, a purchase a person, natural or
juridical, who purchases shares of stock that previously issued,272 and the
shares may be acquired from the itself, i.e., treasury shares, or existing
stockholders of the Shares of stock that have been dired from the corporation
Corporation.

In the absence of any restrictions under the law or in the corporations

articles of incorporation or its bylaws, any person w capacity of entering into
a contract may become a stock subscribe
SECTION 60. Pre-incorporation Subscription. - A subscription of shares
in a corporation still to be formed shall be irrevocable for a period of at least
six (6) months from the date of subscription, unless all of the other
subscribers consent to the revocation, or the corporation fails to incorporate
within the same period or within a longer period stipulated in the contract of
subscription. No pre-incorporation subscription may be revoked after the
articles of incorporation is submitted to the Commission.
Promoters are tasked to market the corporation to potential investors.
Republic Act No. 8799 or The Securities Regulation Code defines a
promoter as “a person who, acting alone or with others, takes initiative in
founding and organizing the business or enterprise of the issuer and receives
consideration therefor.
" The Court explained that a promoter cannot be an agent of a corporation
that is yet to be formed because the corporation has no legal existence at that
point. Corporations may, however, ratify the contracts entered into by
promoters. In Cagayan Fishing Development Company, Inc. vs. Sandiko,275
the Court said:
For reasons that are self-evident, these promoters could not have acted as
agents for a projected corporation since that which had no legal existence
could have no agent. A corporation, until organized, has no life and therefore
no faculties. It is, as it were, a child in ventre sa mere. This is not saying that
under no circumstances may the acts of promoters of a corporation be
ratified by the corporation if and when subsequently organized.
Capital for a corporation that is in the process of incorporation may be
sourced from interested investors. To ensure that the funds exist at the time
the corporation is born, Section 60 provides a lock-in period of 6 months
from the date of subscription. An investor may not withdraw his money from
the corporation that is in the process of incorporation during said period. The
subscription may only be revoked: 1) if all the subscribers consent to the
withdrawal of the subscriber or 2) if the corporation does materialize after
the given time. The subscription contract may pr longer lock-in period. After
the submission of the articles of incorporation the SEC, the subscription
contract may no longer be revoked.
The relationship of capital subscription to the trust fund doctrin
emphasized in the case of Philippine Trust Company vs. Marciano Ripomo
in the following manner:
It is established doctrine that subscriptions to the capital of corporation
constitute a fund to which creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realized assets for the payment of
its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to
release an original subscriber to its capital stock from the obligation of
paying for his shares, without a valuable consideration for such release; and
as against creditors a reduction of the capital stock can take place only in the
manner and under the conditions prescribed by the statute or the charter or
the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary (14 C. J., 198, 620).
SECTION 61. Consideration for Stocks. - Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration for the
issuance of stock may be:
(a) Actual cash paid to the corporation;
(b) Property, tangible or intangible, actually receive the corporation and
necessary or convenient use and lawful purposes at a fair valuation equal
par or issued value of the stock issued;
(c) Labor performed for or services actually rendered the corporation;
(d) Previously incurred indebtedness of the corporation,
(e) Amounts transferred from 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.

Generally, corporations cannot issue stock without receiving payment

in money or money's equivalent or a valid obligation to pay.277 The
purpose of defining the types of consideration that may be given in
exchange for corporate stock is to eliminate the opportunities for and
the likelihood
fraud, specifically, to protect creditors, other stockholders, and good
 faith future stockholders from a watering down of stock value
subsequent issuance of stock for less than a Unlike the Old Code, the
Revised Code does not categorically of o any two or more of the types
of payments in the liset means the combining the different types of
payment is also valid

Par shares should be issued for at least at par value, and they may be
issued for less than par value. As mentioned earlier, directors who
allow the issuance of stocks for less than par value are liable for
watered stocks. The consideration for the issuance may be in any or a
combination of the following: cash, property, labor or services
rendered, previously incurred indebtedness of the corporation,
amounts transferred from the unrestricted retained earnings to stated
capital, and outstanding shares exchanged for stocks in the event of re-
classification or conversion.

Cash
Cash has to be actually paid to the corporation. It is not required that a
shareholder pay for the shares with her own money or property;279
and the shareholder becomes as such even if payment is not complete.

Other forms of payment

Property
Property may be tangible or intangible (such as intellectual propery
copyright), and actually received by the corporation and nec convenient for
its use and lawful purposes at a fair valuation par or issued price of the stock
issued. If the consideration actual cash, the incorporators or the board of
directors sh of the contribution subject to the SEC's approval.

Services rendered Promissory notes or future services280 are not valid

consideration for the purchase of shares of stock because the Corporation
Code requires that only labor or services already rendered to the company
may be accepted in exchange for shares. Additionally, a mere executory and
unperformed contract to convey property or render services to a corporation
or do other acts in the future is not sufficient consideration as against
creditors for the issue of paid-up stock.281 However, a contractual provision
on future rendition of services and payment in shares of stock for said
services after the latter's completion is valid.
If the corporation decides to issue bonds, it may accept consideration in the
same forms as listed in the enumeration under Section 61.
Additional types of payment

The Revised Code adds two more types of payment:

1.Shares of stock in another corporation; and/or
2. Other generally accepted form of consideration.

Price of no par shares

The issue price of no par value shares may be fixed in the articles of
incorporation. Alternatively, the articles of incorporation or bylaws may
authorize the board of directors to fix the issue price of no par value
shares. In the absence of a provision in the articles of incorporation or
bylaws, the issue price of no par value shares shall be fixed by the
stockholders representing at least a majority of the outstanding capital
stock at a meeting duly called for the purpose.

SECTION 62. 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 assistants sealed with the seal of the corporation shall be accordance
with the bylaws. Shares of stock so issue personal property and may be
transferred by a the certificate or certificates indorsed by the attorney-in-
fact, or any other person legally aut to make the transfer. No transfer,
however sh valid, except as between the parties, until the tranet 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. The
Commission may require corporations whose securities are traded in
trading markets and which can reasonably demonstrate their capability to
do so to issue their securities or shares of stocks in uncertificated or
scripless form in accordance with the rules of the Commission.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation.

The Court described the concept of certificate of stock in the following

manner:

A certificate of stock is the paper representative or tango of the stock

itself and of the various interests therein. 10 is not a stock in the
corporation but is merely evidence interest and status in the corporation,
his ownership of the resented thereby. It is not in law the equivalent of
such expresses the contract between the corporation but is not essential
to the existence of a share of SLO of the relation of shareholder to the
corporation.
A stock certificate is prima facie evidence that the holder is a
shareholder
corporation, but the possession of the certificate is not the sole
determining tacto termining factor of one's stock ownership"284
Reiterating the foregoing,
art said in Tan v. Securities and Exchange Commission:285

A certificate of stock is the paper representative or tangible evidence of

the stock itself and of the various interests therein. The certificate is not
stock in the corporation but is merely evidence of the holder's interest
and status in the corporation, his ownership of the share represented
thereby, but is not in law the equivalent of such ownership. It expresses
the contract between the corporation and the stockholder, but it is not
essential to the existence of a share in stock or the creation of the relation
of shareholder to the corporation. (13 Am. Jur. 2d, 769).
 Certificates of stock shall be issued by the corporation in accordance
with its bylaws, and signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation in accordance with the bylaws of the corporation.

Other pieces of evidence

There are other pieces of evidence of share ownership in corporations:
1) official receipts of payments for subscriptions of the shares, 2) copies
duly certified by the Securities and Exchange Commission (SEC) stating
that the corporation had issued shares in favor of the stockholder
concerned, and 3) Minutes of the Annual Meeting of Directors na
Stockholders of the corporation showing that the corporation had
allowed the stockholder concerned to become a member of the Board of
Directors.286
Conversely, mere inclusion of a person's name in the corporation's
General information Sheet (GIS) that is annually submitted to the SEC is
insufficient roof of said person's shareholdings in the corporation,
especially where
said person does not possess a certificate of stock pertaining to his al
shares and said person's name does not appear in the stock and transfer
book 287 which has been described in the following manner:
A stock and transfer book is the book which records the names and
addresses of all stockholders arranged alphabetically, the installments
paid and unpaid on all stock for which subscription has been made, and
the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and
such other entries as may be prescribed by law.288 A stock and transfer
book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of
establishing the various corporate acts and transactions and of showing
the ownership of stock and like matters.289
Transfer of shares
 Shares of stock are considered property, and as a general rule, owners
of shares of stock may dispose of, convey, or transfer them to others as
they deem fit290 Generally, a director, officer, or stockholder may freely
negotiate sale or transfer of her corporate shares even at a premium
price.291
The transfer of corporate stock by sale passes title to the trail but an
unregistered transfer grants the transferee only an equitable and confers
on her, as against the corporation, no other rights have the stock properly
transferred to her in the books of the com or of suing to establish and
protect her rights in the corporate Property.

A transfer of shares of stock not recorded in the stock and transfer book of
the corporation is non-existent as far as the corporation is concerned.296 As
between the corporation on the one hand, and its shareholders and third
persons on the other, the corporation looks only to its books for the purpose
of determining who its shareholders are.297 It is only when the transfer has
been recorded in the stock and transfer book that a corporation may
rightfully regard the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize such rights
as it is mandated by law to recognize arises.

However, in the more recent case of Lanuza v. Court of Appeals,298

the Court underscores that the stock and transfer book is not the
exclusive evidence of the matters and things that ordinarily are or should
be written therein, for parol evidence may be admitted to supply
omissions from the records, or to explain ambiguities, or to contradict
such records.

Requirements
For a valid transfer of stocks, the requirements are as follows: (a)
there must be delivery of the stock certificate; (b) the certificate must be
endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and (c) to be valid against third parties,
the transfer must be recorded in the books of the corporation.299
 Delivery of the stock certificate duly endorsed is the operative act that
transfers the share of stock. 300 This was emphasized in The Rural Bank
of Lipa vs. CA,301 wherein the Supreme Court stated:

The rule is that the delivery of the stock certificate duly the owner is the
operative act of transfer of shares from owner to the transferee.302 Thus,
title may be vested in the the only by delivery of the duly indorsed
certificate of stock 303
In another case - Tuazon vs. La Previsora Filipina304 - the Court hoy
said that "delivery is not essential where it appears that the transfer are
officers of the corporation, and have the custody of the stock books.

Endorsement simply means that the appropriate signature of the

transferor appears on the certificate of stock at the appropriate space.
The endorsement or signature would signify the consent of the owner to
transfer his share of stock to the person so named or indicated in the
certificate of stock. A stockholder may choose to endorse his certificate
of stock in blank by endorsing or signing the certificate of stock without
naming a transferee.

Illustrative case Mr. Tan owned 400 shares in the corporation, which
was evidence by Stock Certificate No. 2. He subsequently sold some of
his shares to his brother, and because of this Stock Certificate No. 2 was
canct and replaced by Stock Certificate Nos. 6 and 8. Mr. Tan delivered
2 to the corporation prior to its cancellation and replace ment. After its
cancellation, the same certificate was relu Tan because although it was
delivered, there was no endorsen Mr. Tan. Due to corporate issues, Mr.
Tan subsequently the cancellation of Certificate No. 2 despite non-
endorsement by him.
The Court said that endorsement by Mr. Tan was as there was delivery
of Stock Certificate No. 2, which and the transfer was duly recorded in
the stock and transferred book
Duty of the corporation in transfer of shares
 The owner and holder of corporate stock,306 or a bona fide307
purchaser or transferee thereof,308 is entitled to have it transferred to his
name on the corporate books. It is the duty of the proper officers of a
corporation to ascertain whether its stock is being transferred in
accordance with its bylaws, and in accordance with law, before issuing
new certificates.309 It is the duty of the corporate secretary to register
valid transfers of stocks. This was reiterated in Torres vs. CA,310 which
provides that "it is the corporate secretary's duty and obligation to
register valid transfers of stocks and if said corporate officer refuses to
comply, the transferorstockholder may rightfully bring suit to compel
performance." Similarly it is a duty of the corporation to issue new stock
certificates to persons entitled thereto on proper demand.311
Transfers of shares of stock must be recorded in the books of the
corporation so that it will also bind the corporation, otherwise, it will
only be binding on the contracting parties. The transfer should show the
names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares
transferred.

The remedy of mandamus is available to a bona fide transferee who is

able to establish a clear legal right to the registration of the transfer in
cases of wrongful or unjustifiable refusal by the corporate secretary to
record the transfer or to issue new certificates of stock.312 This legal
right inherently flows from the transferee's established ownership of
compel registration of paid claim against the
stocks..."313 The only limitation to the right to compel registr the
transfer is “when the corporation holds any unpaid claim a shares
intended to be transferred."
In Andaya vs. Rural Bank of Cabadbaran, Inc.,315 the Court enumer
examples of evidence proving bona fide transfer or sale of shares (1)
"notarized Sale of Shares of Stocks showing... sale of shares to the
vendee/transferee; (2) a Documentary Stamp Tax Declaration / Return;
(3) a Capital Gains Tax Return; and (4) stock certificates covering the
subject shares duly endorsed by the vendor/transferee.
The requirement of recording transfers of shares of stock in the books
of the corporation is intended for the protection of the corporation, its
 stockholders and creditors.316 A transfer of stock which is otherwise
proper and sufficient, is valid and binding, as between the parties even if
unrecorded in the corporate books being recorded.317 Stated differently,
I the transfer is done in a private document, it will be binding on the
parties only. Recording of transfers is necessary mainly to affect third
parties including the corporation concerned.
.
In order to transfer ownership of shares of stock, it is necessary a
Certificate Authorizing Registration (CAR) from the Bureau o
Revenue.318 The receipts of the payment of the taxes should with and
recorded by the Corporate Secretary.
Any corporate secretary or the stockbroker who cause of transfer of
ownership or title on any share of stock aforementioned requirements
shall be punished provisions of Title X, Chapters I and II of the Tax
Code, as amended
Grounds for the corporation to refuse recording of transfer

1. Absence of the Certificate Authorizing Registration (CAR) as discussed

above;
2 Breach of a restriction clause as stated in the Articles of Incorporation of
the corporation concerned,321
3. Conflict in title or doubt as to the rights of the parties to the
transfer;322
4. Violation of Constitutional and statutory limitations on foreign
ownership.323
New provision
The SEC, added the Revised Code, 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.
In all, a corporation is in a sense a trustee for its stockholders for the purpose
of protecting their shares from unauthorized transfers, and to this end it is
bound to use reasonable care and diligence, and consequently shall be liable
to a stockholder for loss or injuries sustained through the negligence or
misconduct of its officers and agents in this regard

Section 63. Issuance of Stock Certificates. - No certificate of stock

shall be issued to a subscriber until the full amount of the subscription
together with interest and expenses (in case of delinquent shares), if any is
due, has been paid.

The right of a subscriber to the shares of a corporation, or contracting to

purchase shares from the corporation, to a evidencing her title depends upon
her performance of the subse or purchase contract's terms and conditions.325
The Code also that subscription for shares of stock should be fully paid
before certificate can be issued to the shareholder; and in case of de shares,
interest and expenses should also be paid prior to such issuto The Board
therefore cannot approve the issuance of a stock certificate for partially-paid
shares, i.e., leaving the balance of the subscription unpaid.326 The fact,
however, that a third person paid for the subscription of a shareholder does
not affect the latter's right or those of her heirs to demand issuance of the
stock certificate by the corporation.

It must be clarified nonetheless that the issuance of certificate of stock is not

a condition precedent to the right of a stockholder to exercise all his/ her
rights as such under the law. For as long as the assignment or transfer of
shares is recorded in the stock and transfer book of the corporation, the
recorded transferee is considered a stockholder of record and is entitled to all
the rights of a stockholder.

In the case of treasury shares, i.e., shares of stock subsequently reacquire by

the issuing corporation, they are no longer considered outstands capital
stock. Thus, where the corporation reacquires its own stock, corporation does
not become a subscriber thereof, and therefore i entitled to a stock certificate.
Remedies
If a corporation wrongfully refuses to issue a certificate stockholder may
avail of any of the following remedies:
1.A suit for specific performance of an express or implied contract;
2. An alternative relief by way of damages in cases where specific
performance cannot be granted;
3. Petition for mandamus to compel the issuance of a certificate
where the conditions, facts, and circumstances of the particular case bring it
within legal rules which govern the granting of that writ;
4. Rescission of the subscription contract if the corporation wrong
fully refuses to deliver a certificate, and recovery of what the subscriber has
paid; and in addition, demand for damages if the stockholder so desires.

SECTION 64. Liability of Directors for Watered Stocks. - A director or

officer of a corporation who: (a) consents to the issuance of stocks for a
consideration less than its par or issued value; (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.

Watered stock is stock that has been issued by a corporation as fully paid up
when in fact it is not, because it has been issued as a bonus or otherwise
without any consideration at all, or for less than par, or for overvalued
property, labor, or services.

Ordinarily, the directors of a corporation are required to place a value on

of done or property acquired in payment of the corporation's stock. 332 A
sector or officer of a corporation who either 1) consents to the issuance of
stocks for a consideration less than its par or issued value, 2) con the
issuance of stocks in exchange for non-cash consideration which in excess of
its fair value, or 3) has knowledge of the insufficient con and does not file a
written objection with the corporate secret solidarily liable with the
stockholder concerned to the corpora creditors for the difference between the
fair value received at the issuance of the stock and the par or issued value of
the same.
In SPI Technologies, Inc. and Lea Villanueva vs. Victoria K. Mapua 333
the Court explained the principles of personal liability of corporate directors
trustees, or officers, thus:
[i] t is hornbook principle that personal liability of corporate directors,
trustees or officers attaches only when: (a) they assent to a patently unlawful
act of the corporation, or when they are guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (b)
they consent to the issuance of watered down stocks or when, having
knowledge of such issuance, do not forthwith file with the corporate
secretary their written objection; (c) they agree to hold themselves personally
and solidarily liable with the corporation; or (d) they are made by specific
provision of law personally answerable for their corporate action.

Unpaid subscription
Shares that are subscribed to but remain unpaid, whether total partially, are
subject to certain consequences like interest and others.

SECTION 65. Interest on Unpaid Subscriptions. - Subscribers to s

shall be liable to the corporation for interest on all subscriptions from the
date of subscription, if so required by and at the rate of interest fixed in the
subscr. contract. If no rate of interest is fixed in the subscribed contract, the
prevailing legal rate shall apply.
 subcribers are obliged to pay for interest on all unpaid subscriptions from e
date of subscription if this is required by the bylaws. Said interest shall he
rate fixed in the subscription contract. If there is no such premined interest
rate, the prevailing legal rate will be applied.

SECTION 66. Payment of Balance of Subscription. - Subject to the

provisions of the subscription contract, the board of directors may, at any
time, declare due and payable to the corporation unpaid subscriptions and
may collect the same or such percentage thereof, in either case, with accrued
interest, if any, as it may deem necessary.

Payment of unpaid subscription or any percentage thereof, together with any

interest accrued, shall be made on the date specified in the subscription
contract or on the date stated in the call made by the board. Failure to pay on
such date shall render the entire balance due and payable and shall make the
stockholder liable for interest at the legal rate on such balance, unless a
different interest rate is provided in the subscription contract. The interest
shall be computed from the date specified, until full payment of the
subscription. If no payment is made within thirty (30) days from the said
date, all stocks covered by the subscription shall thereupon become
delinquent and shall be subject to sale as hereinafter provided, unless the
board of directors orders otherwise.

Payment of balance
At any time, the board of directors of any stock corporation may declare
unpaid subscriptions due and payable to the corporation, subject to the
provisions of the subscription contract. The call for payment may be for the
full amount or a percentage of the full amount; in either case, the corporation
may collect any accrued any interest as it may deem necessary. The manner
of giving notice is prescribed by law and every condition precedent must be
strictly and literally complied with.
 Unpaid subscriptions or any percentage of it, together with inte accrued,
shall be paid on the date specified in the subscription contre on the date
stated in the call made by the board. Should the stock fail to pay on such
date, the entire balance shall be due and payable the stockholder shall be
liable for interest at the legal rate on such balan unless a different rate of
interest is provided in the bylaws, computed from such date until full
payment. If no payment is made within thirty (30) dave all stocks covered
shall become delinquent and shall be subject to sale unless the board of
directors orders otherwise.

Court action to recover unpaid subscription

Besides the sale of delinquent stocks, which is discussed below, the Revised
Code provides in Section 69 that the corporation may also file a case in court
to collect on unpaid subscription.

Delinquent stocks
Unpaid stocks are not necessarily delinquent because delinquent stocks are
those that remain unpaid within thirty (30) days from the date when payment
for subscription is due and payable.

SECTION 67. 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 o the sale which shall not be less than thirty (30) days more than
sixty (60) days from the date the stocks DECO delinquent.

Notice of the sale, with a copy of the resolution, shall sent to every
delinquent stockholder either person her personally, by registered mail, or
through other means provided bylaws. The same shall be published once a
week 10 consecutive weeks in a newspaper of general in the province or city
where the principal om 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
this Code, 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 this Code.

Sale of delinquent stock

the board of directors may issue a resolution ordering the sale of
delinquent stock, which should specify the amount due on each subscription
plus all accrued interest including the date, time, and place of the sale. The
sale would be conducted not less than thirty (30) days nor more than sixty
(60) days from the date the stocks become delinquent.
 The notice of sale must include a copy of the pertinent board resolution
must be sent to every delinquent stockholder either personally, by registered
mail or through other means p notice of sale must also be published once a w
weeks in the province or city where the principa is located.
If the delinquent stockholder fails to pay the balance due plu
ts of advertisement and expenses of sale to the corporation on or before
the date specified for the sale of the delinquent stock shall be sol unless the
Board decides otherwise, the delinquent st public auction to such bidder who
shall offer to pay the full the balance on the subscription together with
accrued interest advertisement and expenses of sale, for the smallest number
of share fraction of a share. The stock so purchased shall be transferred in for
of the purchaser and shall be recorded in the books of the corporation
certificate of stock shall be issued in favor of the purchaser. If there are any
remaining shares, these shall be credited in favor of the delinquent
stockholder who shall be entitled to the issuance of a certificate of stock
corresponding to such shares.
If there is no bidder who offers to pay the full amount of the balance,
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 Revised Code, bid for the same, and the total
amount due shall be credited as paid in full in the books of the corporation.
The 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 the said
corporation in accordance with provisions of the Revised Code.
SECTION 68. When Sale May be Questioned. - No action to recover
delinquent stock sold can be sustained upon the ground of irregularity or
defect in the notice of sale, or in the sale itself of the delinquent stock, unless
the party sec maintain such action first pays or tender to the party holding the
stock the sum for which the same was with interest from the date of sale at
the legal such action shall be maintained unless a compla. within six (6)
months from the date of sale.

Questioning the sale

Persons filing a case to recover delinquent stock sold on the ground of
rity or defect in the notice of sale, or defect in the sale itself of the
nt stock, should pay first or tender to the party holding the stock
m for which the same was sold, with interest from the date of sale at e legal
rate. Non-compliance with the condition precedent will hinder
tion to recover said stock. Cases to recover delinquent stocks must o be filed
within six (6) months from the date of sale.

One ground by which a shareholder can question a sale of her shares is when
notice of an impending sale is sent by the corporation to an address of the
shareholder that no longer exists, and such fact is known to the corporation,
and the corporation has other means by which to reach the shareholder
concerned such as her residential address and by telephone. 336

SECTION 69. Court Action to Recover Unpaid Subscription. - Nothing in

this Code shall prevent the corporation from collecting through court action,
the amount due on any unpaid subscription, with accrued interest, costs and
expenses.
Besides the sale of delinquent stocks, the corporations concerned may opt to
file an appropriate case in court for the collection of the amount due on any
unpaid subscription, with accrued interest, costs and expenses.

SECTION 70. Effect of Delinquency. – No delinquent stock shall be voted

for, be entitled to vote, or be represented at any stockholder's meeting, nor
shall the holder thereof be entitled to any of the rights of a stockholder
except the right to dividends in accordance with the provisions of this Code,
until and unless payment is made by the holder of such delinquent stock for
the amount due on the subscription with accrued interest, and the costs and
expenses of advertisement, if any.
SECTION 71. Rights of Unpaid Shares, Nondelinquent. – Holders of subscribed
shares not fully paid which are not delinquent shall have all the rights of a
stockholder

The holders of subscribed shares not fully paid delinquent have all
the rights of a stockholder. Some of these rights, which may be exercised
personally or by proxy, are the following: (1) to attend and vote at corporate
meetings; (2) to take part in the election of directors to participate in
dividends and profits, and to receive their proportionate shares of the
corporate property or its proceeds upon dissolution or winding up, and after
payment of debts; (4) to demand issuance of stock certificate; and (5) to
exercise pre-emptive right.
SECTION 72. 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 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.
Where a certificate of stock has been lost or stolen, the corporations may
issue a new certificate in replacement of the former. Section 72, of the
Revised Code lays down the procedure to be followed in the issuance of
new certificates of stock to replace those that have been lost , stolen, or
destroyed.
The procedure is as follows:
1. The registered owner or her representative shall file an affidavit of loss in
triplicate. The affidavit should state the (a) circumstances surrounding the
loss, theft, or destruction of stock; b) number of shares covered by the
certificate; c) serial number of the stock certificates(s); d) the name of the
corporation which issued the stock certificate(s); and (e) other information
and evidence which may be necessary.
2. The corporation will check the adequacy of the affidavit of loss, other
information and evidence submitted and verify it with the records in the
books of the corporation.
3. The corporation shall cause the publication of a proper notice in a
newspaper of general circulation published in the place where the
corporation has its principal office, once a week for three 2 consecutive
weeks. Expenses for the publication shall be shouldered by the owner of the
stock certificates which were lost, stolen or destroyed. The notice should
state a) the name of the corporation, b) the name of the registered owner, c)
the serial number(s) of the stock certificate(s), d) the number of shares
represented by such certificate(s), and e) the fact 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.
4. If no contest or opposition is presented after the lapse of one of the last
published notice, the corporation shall cancel the lost, stolen, or destroyed
certificate(s) of stock in its books and shall issue new certificate(s) of stock
in lieu thereof. the registered owner of the lost. stolen or destroyed
certificate may, however, request that new ones be issued even before the
lapse of the one-year period if she files a bond or other surety duly approved
by the board of directors.
However, if a contest or opposition is presented to the corporation or if an
action is pending in court regarding the ownership of the certificate of stock
that has been reported lost, stolen or issuance of the new certificate shall be
suspended until the final judgment by the court regarding the ownership of
the stock certificate which has been reported as lost, stolen or destroyed.
The Board is given the authority to decidde on the kind of surety bond, its
amount and form, and the issuer of the surety. As an exception to the
general rule, a corporation may voluntarily issue a new certificate in lieu of
the original certificate of stock which has been lost without the publication
requirement if the corporation is certain as to the real owner to whom the
shall be the new certificate shall be issued. A corporation could also be
compelled to issue a new certificate without any bond or indemnity in cases
where the certificate was lost by the corporation itself by carelessness
No action may be brought against any corporation that issues replacement
certificates of stock according to the procedure described in Section 72
unless there was a fraud, bad faith, or negligence on the part of the
corporation and its officers.