A.

GENERAL PRINCIPLES Exception:

1.When the legal entity is used as a means to perpetrate

1. NATION ALIT Y OF C OR PORATION S
fraud an illegal act as a vehicle for existing obligation and to
a. Place of incorporation Test: The nationality of the confuse legitimate issues.
corporation is determined by the state of incorporation. A
corporation is a Philippine national if it is organized and 2.When the act is done with bad faith.
existing under the laws of Philippines.
3. DOCTR IN E OF PIERC IN G T HE COR PORATE
b. Domiciliary test : The nationality of the corporation is VEIL
determined by the principal place of business of the
corporation. The state can disregard for certain justifiable reason the
notion or fiction that the corporation has the separate legal
personality from those composing it.
A. CON TROL TEST
If the capital of the investing corporation is at least 60% Geraldo vs Bill sender Oscares vs Magsaysay
Liable si president because
owned by Filipinos then the entire shareholding of the
there is a law making him
investing corporation shall be recorded as Filipino owned liable.
hence making both the investing corporation and the In this case, the court held In this case the court ruled
investee corporation a Philippine National. that the president cannot that the president is liable
be solidarily liable with the despite the absence of bad
Example: Nationality of a corporation organized and corporation absent any faith on his part. Under RA
incorporated under the laws of a foreign country but owned evidence of gross 8042 , the recruitment
by 100% by Filipinos. negligence and bad faith agency is a judicial agency
where his corporate officer
and director are jointly and
solidarily liable with the
B. GR AND FATH ER RULE
corporation or partnership
1. If the percentage of Filipino ownership in the corporation is for the claims and
less than 60% only the number of shares corresponding to damages. Since RA 8042
provides for joint and
such percentage is counted as Philippine nationality, or
solidary liability between
when there is a doubt based on the attendant circumstance the agency and foreign
of the case. employer the latter is
liable.
2. The control test and the grandfather are not as it were
incompatible ownership determinant method that can only be
applied alternatively. Rather these methods can if To pierce the corporate veil , it must show that the veil was
appropriate be used cumulatively in the determination of used to
ownership and control. (1) Defeat public convenience as when the corporate fiction
is used as a vehicle for the evasion of an existing obligation
Note: *If the 60% Filipino ownership is never in doubt, the (2) Fraud cases or when the corporate entity is use to justify
control test prevails-> as the corporation is already a wrong , protect fraud or defend a crime.
considered as Filipino there is no need to apply this test
(3) Alter EgoWhen two corporations are to be treated as one
anymore
of the same ( Godfrey v.Binswanger)
Test to Determine alter Ego.
2. DOCTR IN E OF SEPAR AT E JURIDICAL
PER SONALIT Y 1. Control test- control not mere majority or
complete stock control but complete dominion not only of
A corporation has a separate juridical personality distinct the finances but of policy and business practice in
from its individual stockholder or members who composes it respect to the transaction attacked so that the corporate
and it is not affected by personal rights, obligation and entity as to this transaction had at the time no separate mind,
will or existence of its own.
transaction of its stockholder and members. Therefore,
ownership by a single or small group of stockholder or nearly The first test is the ’instrumentality  or the control test. This
all of the capital stock of the corporation is not by itself test requires that the subsidiary be completely under the
control and dominion of the parent. It examines the parent
sufficient to disregard the separate juridical personality.
corporation’s relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and
Liability of officers controlled and its affairs are so conducted as to make it a
mere instrumentality or agent of the parent corporation such
General Rule: Corporate officers are not to be held that its separate existence as a distinct corporate entity will
personally liable for their official acts be ignored. It seeks to establish that the parent
corporation is merely operating directly for itself
through its subsidiary.
 
1. The fact that both companies have similar
stockholder does not mean that it was
organized as a mere instrumentality.
2. Where the corporation sells or otherwise
transfers all its assets to another corporation
for value, the latter is nt by the fact alone liable
for the debs and liabilities of the transferor.
2. FRAUD TEST- Such control must have been used
by the defendant to commit fraud or wrong to perpetuate the
violation of a statutory or other positive legal duty or
dishonest and unjust act in contravention of plaintiff’s legal
right and
Test: The parent corporation conducti n using the subsidiary
corporation be unjust, fraudulent and wrongful. It examines
the relationship of the plaintiff to the corporation.
3. HARM TEST- the aforesaid control and breach of
duty must have been proximately caused the injury or unjust
loss complained of
This test requires that the plaintiff to show that the
defendant’s control exerted in a fraudulent illegal or
otherwise unfair manner toward it, caused the harm suffered,
There must be a causal connection between the
fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered
or the damaged incurred by the plaintiff should be
established. The plaintiff must prove that unless the
corporate veil is pierced it will have been treated unjustly by
the defendant’s exercise of control and improper use of
corporate form and thereby suffer damages.
B. DE FACTO CORPOR AT IONS VER SU S
C OR PORAT IONS B Y EST OPPEL
CORPORATION DE FACTO
1. De facto: Is one that is organized with colorable
compliance with the requirement of incorporation under the
law and allowed to exist and exercise the power of
corporation until its corporate existence is assailed by the
state.
What are the elements of de facto corporation:
1. Existence of a valid law under which it can be
incorporated
2. Attempt in good faith to incorporate
Minimum Requirement: There must be an attempt in good
faith to incorporate at the very least obtain a certificate of
incorporation with the SEC. The execution of the articles of
incorporation or by laws per se is not enough to warrant the
de facto existence.
3. Actual use or exercise in good faith of corporate
powers.
Liabilities of Stockholder of De Facto Corporation
1. De facto corporation: Liable in the same way as
the stockholder of a de jure corporation. They are
only liable to the extent of their subscription.
CORPORATION BY ESTOPPEL
Definition: A corporation by estoppel is one that exist when
two or more person assume to act as a corporation knowing
fully well that it is without authority to do so.
Liabilities:
1. All person who assumes to ACT as a corporation
knowing fully well that it does not have authority to
do so is liable as GENERAL PARTNERS for the
debts, liabilities and damages arising as a result
thereto.
Note:
A mere passive subscriber without obtaining any benefit
from the subscription is not liable as general partner
If the passive subscriber obtained benefit from the
contract entered into by others with whom he previously
had an existing relationship is deemed to be part of the
said association and is covered by estoppel
2.The corporation is not allowed to use its lack of corporate
personality as a defense. Anyone who assumes an
obligation to an ostensible corporation cannot resist
performance thereon on the ground that there is no
corporation.
Q: Since a corporation by estoppel possess no juridical
capacity can it be sued?
A: Yes. A corporation by estoppel may still be impleaded as
a party defendant considering that it possess the attribute of
a juridical person otherwise it cannot be liable for the
damage and injuries it may inflict to others
Who can invoke corporation by estoppel?
A: A third party when he tries to escape liability on a contract
from which he has benefited on irrelevant ground of
defective corporation. In other words only those aggrieved
party who relied on such representation by others that they
are legally formed can invoke this. It cannot be invoked by
one who benefited from such transaction
Requisite:
1. A valid law which the corporation assumes power
2. Bona fide attempt to organize
3. Actual exercise of corporate powers
4. Issuance of certificate of incorporation
C . C ORPOR AT E POWERS
1. HOW POWERS AR E EXERC ISED
A. ULTRA VIRES DOCTRINE
As compared to illegal acts:
1. This contemplate acts that are contrary to law,
morals and public policy and are void and cannot
be ratified.
Ultravires:
General Rule: A corporation can exercise its power only
within the scope of those within definition. Those outside the
scope of definition under the law committee outside the
object of the corporation is ultra vires.
Exception:
 1. Incidental powers: Those acts that are necessary
and incidental to carry out a corporation’s purpose
and to the exercise of powers conferred by the
corporation and articles of incorporation
Q: How do you determine whether the act is within the
powers of the corporation?
A: Whether the act in question is in direct and immediate
further of corporate ends, fairly incident to the express power
and reasonably necessary to its exercise otherwise it is ultra
vires. ( Magallanes vs Watercraft). If outside the incidental
power it is not valid.
B. TRUST FU ND D OCT RINE
Doctrine : The trust fund doctrine provides that subscription
to the capital stock of the corporation constitute as a fund to
which the creditor have a right to look for the satisfaction of
their claims.
Q: Are additional paid in capital part of trust fund
doctrine?
A: Yes. APIC as a premium forms a part of the capital of the
corporation and therefore falls within the purview of the trust
fund doctrine.
HALLEY vs Printwell
Printwell extended a thirty day credit accommodation in
favor of BMPI. BMPI failed to pay the loan hence a
collection case was filed. Printwell amended complaint to
implead the original stockholder and incorporator and to
recover from unpaid subscription. Can Printwell go
against the unpaid subscription of the incorporator?
Held:
Yes. The trust fund doctrine is not limited to unpaid
subscription but encompasses other property and asset
that are regarded as trust for the payment of corporate
debts. All assets of the corporation belong to the
corporation and held to be intrust regardless of payment.
In this case, the petitioner is liable pursuant to the trust
fund doctrine for the obligation of BMPI by virtue of her
subscription being unpaid.
An unpaid subscription is in the nature of a loan if the
corporation needs money it can simply compel the
stockholder to pay the subscription.
When is the trust fund violated?
1. The corporation has distributed its capital among
its stockholder without providing for payment to its
creditor
2. It transferred corporate property in fraud of its
creditor
3. It distributed properties to stockholder except by
way of dissolution and liquidation the redemption
of redeemable share and reduction of capital stock
4. When it declared dividends without unrestricted
retained earnings.
D . BOARD OF DIR EC TORS AN D TRU ST EES
1. BASIC PRINCIPLES
The board of directors and trustee shall exercise corporate
powers, exercise the corporate powers, conduct all business
and control all properties of the corporation. All corporate
action are to be approved by the board of directors
otherwise, the acts are not binding to corporation. Only the
acts of the BOD are binding to the corporation.
A. D OCT RINE OF CEN TRALIZED
M AN AGEM EN T
The concentration in the board the powers of control of the
corporate business and appointment of the corporate officers
and managers is necessary for efficiency in any large
organization as stockholders are too numerous and
unfamiliar to conduct the business directly. Therefore, the
plan of corporate organization is that it is the stockholder that
elects the directors. The board in turn elects officers to carry
out its management function to a day to day basis.
B. BUSIN ESS JUDGMENT RULE
The state cannot interfere with the acts of the board of
director. Questions of policy and management are left to the
honest discretion of the officers and directors of the
corporation and the courts cannot substitute judgment
absent bad faith.
Exception:
1. When the corporation code so provides
2. When the director acted in bad faith
3. When there is conflict of interest.
Example:
1. The closure is not impelled by any dishonest
motive to circumvent the rights of the employee
as the closure was due to substantial loses
suffered by the company as supported by
audited financial statement
Similarly, the stockholder cannot interfere with the judgment
of the BOD. They cannot revoke resolutution of the board or
repudiate their acts on account of mere disagreement. If the
stockholder is not satisfied with the act of the BOD it likewise
has two remedies 1. Derivative suit 2. Replacing the
members of the BOD.
2. T ENU RE AN D QU ALIF IC AT ION S OF
D IR ECT OR S OR TR USTEES
Term:This is the time during which the officer may claim to
hold the office as right and fixes the interval after which
several incumbent shall succeed one another. ( Fixed by the
statute)
1. Directors are elected for a term of : One year
2. Trustee: Elected for a term not exceeding three
years among the members of the corporation.
Tenure: This extends until the successor is elected.
1. Each director and trustee holds office until
the successor is elected and qualified. A
director who ceases to hold at least one
share of stock ceases to be a member.
*The holdover period is not a part of the term of the office of
director or trustee. If the holdover director resigns, the
vacancy is due to expiration of the term and not resignation.
NOTE: The minimum number of director is reduced from five
to one
Unless otherwise provided in this code, the corporate
powers of all corporation formed under this code
shall be exercised all business conducted and all the
property of such corporation controlled and held by
the board of directors or trustee to be elected form
among the holders of stock or where there is no stock
from the members of the corporation who shall hold office
for one year until their successors are elected.
The term of a director is for a year and expires after the
period.
a. After the expiration of the period, the
replacement must be appointed through a regular or
special election held for that purpose ( Valle Verde v.
Victor Africa).
Ratio: The business and affairs of the corporation must
be governed by a board of directors whose members
stood for election, and who have actually elected by
the shareholders on an annual basis. Therefore, it is
only when the vacancy is not due to the expiry of the term
that a board member can be appointed
Qualification of Directors
1. The directors and trustee must hold at least one
share of stock of the corporation and the trustee
must be a member of the corporation.
a. A provision in the by laws which allots a
permanent seat to a non member of the
association is contrary to law ( Grace
Christian College vs CA)
b. The shares of stock and membership of
the corporation is a continuing
requirement. If at anytime a director
ceases to be a stockholder or a trustee
ceases to be a member he shall
automatically cease to be a member of
such director and trustee.
Q: Is it necessary that the director be the owner of the
share of the corporation to qualify as such?
A:No. In lee vs CA, he SC held that a trustee under a voting
trust agreement can qualify as a director and that in order to
qualify as a director what is material is legal title to and not
beneficial ownership.
2. The number of directors must not be more than 15
and the number of trustee can be more than 15
3. Only a member of the corporation can be elected
as trustee.
4. Trustee of educational institution organized as non
stock corporation or religious society shall not be
less than five nor more than fifteen . However with
respect to educational institution the number of
trustee shall only be multiples of five.
5. There is no requirement that majority of the
director resides in the Philippines.
DISQUALIFICATION OF DIRECTORS
Amendment 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.
Amendment: Even though the imprisonment term is less
than six years the director is disqualified if the offense if
punishable under the 1. RCC 2. SRC
Independent Directors: The board of Corporations vested
with public interest shall have independent directors that
constitute at least twenty percent of such board. These
covers
a. Corporation under the Securities Regulation
Code
b. Banks, quasi – banks , non stock savings
C. Other corporation engaged with public interest.
Definition: An independent director is a person who apart
from shareholding and fees received from the management
of the corporation is independent of management and free
from any business relationship which could be perceived to
materially interfere with the exercise of independent
judgment
3. ELEC TION AND REM OVAL OF DIRECT OR S OR
TR USTEES
Election
1. Every stockholder or member has the right to
nominate a director or trustee to be elected.
2. The notice of meeting sent to the stockholder in
accordance with the by laws
3. The owners of the Majority of the outstanding
capital stock or majority of members entitled t vote
must be present or through a representative
authorized to act by a written proxy.
QUORUM: If the majority of the outstanding capital stock
stockholder or members are not present the meeting is to be
adjourned and the trustee is to hold a position in a hold over
capacity
Next step:
1. Report to the SEC within a period of thirty days
from the scheduled election. The report specify a
new date for the election which is not later than 60
days from the scheduled date.
a. If there is no date stated the SEC may
upon the application of the stockholder,
member or director or trustee and after
the verification of unjustified non holding
of the election summarily hold that
election is to be held.
Q: How many votes are the stockholder or members
entitled to cast?
A:
1.Stockholder : The stockholder may cast such number of
votes based on the shares registered in the names in the
books of the corporation at the time specified under the by
laws.
Example: If a stockholder owns one thousand 1,000 shares
and there are 15 directors to be voted = The stockholder is
entitled to cast a total of fifteen thousand votes.
2.Members: The members may cast as many vote as there
are trustees to be elected but may not cast more than one
vote for one candidate.
Example: If there are six trustee to be elected a member has
six votes but he cannot cast more than one vote for one
candidate , however if cumulative voting is allowed he can
cast all the six votes in favor of the nominees or spread out
the six votes among its nominees
Q: What are the methods for voting for election of
directors?
A:
1.Straight voting: A stockholder is allowed to concentrate
his vote and give one candidate as many votes as the
number of directors to be elected multiplied by the number of
shares shall be equal
Example: A stockholder owns 200 shares and there are five
directors to be elected = He is entitled to 1,000 where he can
cast all of it in ONE CANDIDATE.
2.Cummulative voting: He may cumulate said shares and
give one candidate as many vote as the numbe of directors
to be elected multiplied by the number of shares owned or
distribute them on the same principle among many candidate
as it may seem fit provided that the total number of votes
cast does not exceed the number of shares owned by the
stockholder.
Example: A stockholder with 100 shares of stock is entitled
to 500 votes if there are 5 directors. He ay cast his vote in
any combination desired by him provided it does not exceed
500 ( Ex Director 1. 100 Director 2 200 Director 3 200= Does
not exceed 500)
Q: What are the shares of stock not included in the
determination of the majority outstanding capital stock
to elect directors of a stock corporation?
A: 1.Non voting 2. Delinquent 3. Treasury.
Removal:
The power to remove is with the stockholder, since it is the
stockholder who appoints the BOD it is also the stockholder
who can remove them.
Procedure:
1. A previous notice of the meeting to the stockholder
or member and the procedure as stated in the
RCC must be followed. The notice must specify
the intention to remove the director
2. The removal is approved by the stockholder
representing at least 2/3 of the outstanding capital
stock o by at least 2/3 of the members entitled to
vote.
3. The removal may be with or without cause, but if
the intention is to deprive the minority of their
representative it must be with cause.
Who can remove?
1. General Rule: Only the stockholder can remove the
director
*A BOD cannot remove its members as the removal powers
lies solely within the stockholder.
Exception:
a. The SEC can remove a director or trustee motu
proprio or upon a verified complaint. The removal
however cannot be carried out without due notice
and hearing.
VACANCIES
*VACANCY: The replacement director shall only fill the
unexpired porition of the term
1. Expiration Of the term , removal of the trustee
or increase in the number of board seats :
TERM EXPIRATION: The election shall be held
no later than the day of such expiration
REMOVAL OF STOCKHOLDER: The election is
to be held on the same day of the meeting
authorizing the removal.
All other cases the election shall be held no later
than 45 days from the time vacancy arose.
2. Resignation, retirement, withdrawal death
abandonment or similar grounds other than
those stated in the paragraph
EMERGENCY BOARD
A. The vacancy prevents the remaining directors form
constituting a quorum.
B. Emergency action is required to prevent a grave
and irreparable damage to the corporation
C. The vacancy may be temporarily filed from among
the officer of the corporation
D. The appointment must be made by the unanimous
vote of remaining director and trustee
E. The action by the designated director and trustee
is limited to the emergency action necessary and
the term shall cease within a reasonable time form
the termination of emergency or upon the election
of director and trustee whichever comes first
4. DUT IES, RESPON SIBILITIES AN D LIABILIT IES
F OR UN LAWF UL ACTS
General Rule : Directors , officers and agent are not liable for
the obligation they incurred for the corporation in lined with
their function
Exception:
1. Knowingly voting for assenting to patently
unlawful acts of the corporation
Note: It is not just to vote for but to assent likewise to a
patently unlawful act which makes a director, trustee or
officer personally liable. It is not enough that the act is
unlawful, it must be patently unlawful act meaning without
doubt whatsoever that the act is unlawful.
2. Gross negligence or bad faith in directing the
affairs of a corporation
The complaint must allege in the complaint that the director
or officer assented to patently unlawful act of corporation or
that the officer was guilty of gross negligence or bad faith
and the complaint must clearly and convincingly prove that
such unlawful act, negligence or bad faith
3. Acquiring personal or pecuniary interest in
conflict with his duty as a director or trustee
resulting to damage
Corporate Responsibility: A director by virtue of his office,
acquires for himself a business opportunity which should
belong to the corporation thereby obtaining profit to the
prejudice of such corporation.
4. He consents to the issuance of watered stock
or who having knowledge thereof does not
forthwith file with the corporate secretary
written objection thereto
Definition:Shares issued as fully paid up when in fact
the consideration agreed to and accepted by the
directors of the corporation was something known to be
less than the par value of share
5. He agrees to hold himself personally liable
6. Made by specific provision of law to be
personally liable
Trust Receipt law: The director, officer who signed the tust
receipt agreement did not receive the goods under the trust
receipt . He did not get the loan himself nor derived any
personal benefit from the transaction. However these are not
valid justification to negate his liability because the law on
trust receipt makes him liable regardless.
7. Officers and members of the corporation other that the
board of directors can be held criminally liable for such act if
it can be proven that they participated therien
E. ST OC KH OLDERS AND MEM BERS
Q: How does one become a stockholder of a corporation?
A: Through the acquisition of share either 1. Purchase 2.
Subscription.
1. RIGH TS AN D OBLIGAT ION S OF
STOCKHOLD ER S AND M EMBER S
A. DOC TRINE OF EQUALITY OF SHARES
All stocks issued by the corporation are presumed to be
equal with the same privilege and liabilities, provided that its
articles of incorporation is silent on such difference. All
shares have the same rights and privilege unless classified
differently under the Articles of Incorporation.
Restrictions:
1. This Must be stated in the articles of incorporation
otherwise it is not valid. ( Mere restrictions stated in the by
laws is not enough)
2. PART IC IPAT ION IN M ANAGEMENT
1. The right to vote on all corporate acts that requires the
approval of the stockholder.
2.Right to elect the directors or members of the corporation.
A. PR OXY
This is a written instrument signed by the stockholder
authorizing the voting rights of the former. Through proxies,
the stockholder can ensure that their interest is protected
even though they are not physically present.
Who may be a proxy? Any natural person who has legal
capacity to act may be a proxy. He is basically an agent with
the stockholder granting the proxy as his principal.
*Therefore kahit di ka qualified to be a principal you can be a
proxy since all you need is to have a legal capacity to
represent the principal
Limitation:
1. Proxy must be in writing signed and filed by the
stockholder or members in any form authorized by
the by laws and received by the corporate
secretary on the date fixed in the by laws but not
later than reasonable time before the meeting.
Duration :
`The proxy is only valid during the meeting for which it is
intended unless otherwise provided.
“Unless otherwise provided”: No proxy shall be valid and
effective for a period longer than five yeas at any one time.
Dapat irenew
C. VOT IN G TRU ST
One where the stockholder transfers to the trustee certain
rights. The transferring stockholder parts away with the
voting rights but remains equitable or beneficial ownership
over the stock.
Stockholder : PROPRIETARY RIGHTS ARE RETAINED:
Retains the right to receive dividends and other rights a
stockholder is entitled to until the dissolution and liquidation
of the corporation. He also retains the right to inspection
which he can exercise concurrently with the voting trustee.
Since the voting rights are transferred, ( ie legal title) the
transferring stockholder is disqualified from being elected as
a director.
Scope:
1. A voting trust must not exceed five years at any time
provided that in case of a voting trust specifically required as
a condition in a loan agreement the said voting trust may be
for a period exceeding five years but shall automatically
expire upon full payment of loan.
Proxy Voting Trust Agreement
The RCC clarified that proxy It must be in writing signed
must be in any form as long by the stockholder and
as the same is authorized by notarized a copy of the
the by law voting trust agreement is
sent to the SEC for it to be
valid
C. CASES WHEN STOCKHOLDERS’ ACTION IS
REQUIRED
I. BY A MAJORITY VOTE
The concurrence of the stockholder to board resolution:
1. To enter into management contract
2. To amend and repeal by laws
3. To dissolve a corporation when the creditors are
not affected
II. BY A TWO-THIRDS VOTE
1. To amend the articles of incorporation except
when ere written assent is allowed
2. To extend or shorten the corporate term
3. To increase or decrease capital stock and create
or incur bonded indebtedness
4. To amend the articles of incorporation to deny pre-
emptive right
5. To sell or dispose of all or substantially all of the
corporate asset
6. To invest corporate funds in another corporation or
business or for any other purpose
7. To declare stock dividends
8. To enter into management contract if
1. A stockholder or stockholder representing th
same interest of both he managing and managed
corporation own more than 1/3 of the total
outstanding capital stock entitled to vote or
2. Majoirty of the members of the board of
directors of the managing corporation also
constitute as majority of the members of the BOD
of managed corporation
9. Merger or consolidation
10. Dissolution where the creditors are affected.
In the following cases , the stockholder may act even without
the concurrence of board of directors :
1. Delegation to the board the power to amend,
repeal or adopt new by laws by at least 2/3 of the
outstanding capital stock
2. Ratification of contracts of the corporation with one
or more of directors , trustee officer or their
spouses and relatives within the fourth civil degree
of consanguinity or affinity by at least 2/3 of the
outstanding capital stock
3. Revocation of the power delegated to the board to
amend, repeal or adopt new by laws by at least
majority of the outstanding capital stock
4. Grant of compensation to directors by at least
majority of the outstanding capital stock
5. Election of the director by at least majority of the
outstanding capital stock
6. Filing of vacancies in the board due to expiration
of term, removal of board seat or if the cause of
vacancy is not due to the expiration of ter, removal
or increase int the number of the board seat but
the remaining director or trustee does not
constitute a quorum by at least majority of the
outstanding stock
7. Removal of directors by at least 2/3 of the
outstanding capital stock
8. Fixing of the issue price of no par value share
9. Amendment of the articles of incorporation of a
close corporation that seek to delete or remove
any provision required in the articles of
incorporation of a close corporation by at least 2/3
of the outstanding capital stock
III. BY CUMULATIVE VOTING
Definition: A stockholder may either vote such number of
share in favor of specific director or he may cumulate the
share and give one or more candidates a total of votes equal
to the number of directors to be elected multiplied by the
number of his shares
3. PR OPRIET AR Y R IGHT S
1. The right to receive dividends
2.The right to participate in the assets of the corporation
upon dissolution and liquidation.
A. RIGHT TO DIVIDEND S
The shareholder has the right to receive dividends.
Notwistanding this right, no payment is to be made to any
dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover the
payment.
The requirement of unrestricted retained earnings is based
on the trust fund doctrine. Under the doctrine, the capital
stock or property and other assets of the corporation are
regarded as equity in trust for the payment of corporate
creditors who are preferred in the distribution of corporate
asset. The creditors of the corporation have the right to
assume that the board of directors will not use the asset of
the corporation to purchase Its own stock as long as the
corporation has outstanding debts and liabilities, there can
be no distribution of assets among stockholders before
paying the debts.
B. RIGHT TO IN SPEC T
The records of all business transaction of the corporation
and the minutes of any meetings shall be open to inspection
by any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he
may demand a copy of the said record or minutes.
If the officer or agent refuses to allow any director, trustee or
stockholder or member of the corporation to examine and
copy the excerpts from the record, he shall be liable to
such director, trustee, stockholder or member for
damages and in addition is to be held liable under
Section 144 of the Code. However, if the refusal is made
pursuant to the resolution or order of the board of directors
or trustee, the liability under this section for such action
shall be imposed upon the directors who voted for the
refusal. Provided that it shall be a defense to any action
under this section that the person demanding to examine
and copy excepts from the record of the corporation has
improperly used the information secured .
General Rule: A stockholder has the right to inspect the
books of the corporation and records based on their
ownership of assets and property of the corporation. It is
an incident of ownership of corporate property. However, the
inspection must be germane to the interest of the petitioner
as stockholder and has to be proper and lawful in character.
Limitation : 1. When one who request the information has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or
of any other corporation or was not acting in good faith or for
a legitimate purpose in making demand.
The requesting party must not have been guilty of using
improper information secured through prior examination or
that the person asking such examination is acting in good
faith for a legitimate purpose in making his demand.
Death of the Stockholder/ When can heirs inspect
Upon the death of the shareholder, the heirs do not
automatically become stockholders of the corporation and
acquire the rights and privileges of the deceased.1. The
stock must fist be distributed in an estate proceeding 2. It
must be recorded in the stock transfer book of the
corporation
Comparisson of Cases: Abaya, Yujuico and Chua
1. ABAYA
In this case, Eduardo was not given the right to
inspect the books. The court ruled that for a stockholder to
be given a right to inspect the books it must be germane
to his or her interest as a stockholder and must be
lawful. The court ruled that, one cannot inspect corporate
records if the stockholder had improperly used the
information secured through prior examination of the record
or was not acting in good faith or legitimate purpose in
making his demand.
In this case, Eduardo was not acting in good faith,
official documents and board resolution as well as affidavit
shows that the charges against Eduardo was proper. ( ie:
Eduardo’s lavish lifestyle pressured the petitioner to
improperly transfer ownership of building to him 2. Forcing
the petitioner to sell his share in order for him to pay his
monetary loans)
1. Yujuico vs. Quiambao
Not liable : because they were not able to establish that they
acted for the corporation. A criminal action based on
violation of Section 74 can only e maintained against
corporate officers or such other person acting on behalf of
the corporation. In this case, the petitioner did not establish
that the respondent acted as officers of STRADEC it merely
provides that they are corporate officers who withheld and
refused him the documents.
2. Chua v People
LIABLE: Even if the corporation is in the process of winding
up, the corporation continues within three years after its
dissolution. Therefore, the stockholder’s right to inspect
corporate record subsist during the period of liquidation.
Hence, Joselyn has the right to demand the inspection of the
record during that time. Here, Alfredo ( President) , Tomas
( Corporate Secretary) and Mercedes ( accountant) is to be
held liable)
The court ruled that Sections 122 and 145 of the
Corporation Code explicitly provide for the continuation
of the body corporate three years after dissolution. The
rights and remedies against or liabilities of the officers shall
not be removed or impaired by reason of dissolution of the
corporation. Therefore, the stockholder’s right to inspect
corporate records subsist during the period of liquidation
D. PRE-EMPTIVE RIGH T
Pre-Emptive Right: All stockholders of a stock corporation
enjoys pre-emptive right to subscribe to all issues or
disposition of shares in any class in proportion to their
respective shareholdings unless such right is denied y the
articles of incorporation or amendment thereto.
This right refers to the right of the stockholder of a stock
corporation to subscribe to all issues or disposition of
any shares of any class in proportion to their respective
shareholdings. The right may be restricted or denied under
the articles of incorporation and subject to certain limitation.
The stockholder is given reasonable time to exercise pre-
emptive rights. Upon the expiration of the period, any
stockholder who does not exercise this right will be demed to
have waived it.
This right was designed to protect both the proprietary and
voting rights of the stockholder in a corporation. The
proportionate power to vote in corporate affairs where the
law gives stockholder a right to affirm or deny board action.
E. R IGHT OF F IR ST R EF USAL
Right of first refusal: The right of first refusal is the right of
the stockholder to demand from the other stockholder who
may wish to sell or assign their shares to first offer their
shares to the corporation or existing stockholders
4. REMEDIAL R IGHT S
1 This happens when there is a fundamental change in the
charter or articles of incorporation that substantially
prejudices the right of the stockholder, this does not vest
until there is objectionable corporate action.
Notwistanding this , no payment is to be made until the
corporation has unrestricted retained earnings.
The requirement of unrestricted retained earnings is based
on the trust fund doctrine. Under the said doctrine, the
captial of the stock or property and other asset are regarded
to be as equity in trust for the payment of corporate creditors
who are preferred in the distribution of corporate asset.
Hence, these creditors have the right to assume that the
BOD will not use the asset of the corporation to purchase its
own stock as long as the corporation has outstanding debts
and liabilities, there can e no distribution of asset among
stockholders. ( Turner v. Lorenzo Shipping)
Section 80: Appraisal right refers to the right of any
stockholder of a corporation to dissent and demand
payment of the fair value of his or her shares in the
corporation this right may be exercised in the ff :
1. In case of amendment to the articles of incorporation
that has the effect of changing or restricting the right of
any stockholder or class of share or authorizing
preferences in any respect superior to those of outstanding
of any class or extending or shortening the term of corporate
existence.
2. In case of sale, lease, exchange and transfer mortgage
pledge or other disposition of substantially all of the
corporate property and asset
3. In case or merger or consolidation
4. In case of investment of corporate funds for any
purpose other than the primary purpose of the corporation.
The dissenting stockholder who voted against the proposed
corporate action may exercise his or her right of appraisal by
making a written demand on the corporation for the
payment of fair value of shares held. The written demand
is made within thirty days from the date when the vote was
taken. If the stockholder failed to make the demand within
thirty days from the date on which the vote as taken, the
dissenting stockholder is deemed to have wiaved his or
her appraisal right. If the said action is implemented, the
corporation shall pay the stockholder the fair market value of
the share upon the surrender of the certificate or certificates
of stock representing the shares of the stockholder. The
basis of the value is the day before the vote was taken.
If within 60 days from the approval of the corporate action,
the stockholder and the withdrawing stockholder cannot
agree on the fair value of the share. It shall be appraised by
three disinterested person. One of whom shall be named by
the withdrawing stockholder another y the corporation an the
third member of appraiser shall be chosen by both of them.
The finding of the appraiser is deemd as final and their
award shall be paid by the corporation within thirty days after
such award is made. However, note that the right of
appraisal is only invoked when the corporation has
unrestricted retained earning to cover the payment
Process
1. Stockholders must have voted against the proposed
corporate Acton
2. There must be a written demand on the corporation for
payment of the fair market value of the share
3. Such demand must have been made within 30 days after
the date on which the vote is taken
4. Surrender of the stock certificate
5. Unrestricted retained earnings in the books of the
corporation.
5. IN TRA-C OR PORATE D ISPU TES (INDIVIDU AL
VS. R EPRESENT AT IVE VS.
D ER IVAT IVE SU IT S)
As a general rule, the power to sue is lodged before the
board of directors acting as a collegial body, absent any
clear authority from the board ,charter or by laws no suit can
be maintained in behalf of the corporation.
Exception: In certain instances the law recognizes when
minority stockholders may bring suit on behalf of a
corporation. When the board of directors is a party to the
wrong either because it is the author thereof or because it
refuses to take remedial action.
Ratio: The wrong done are committed by the directors or
trustee themselves , a stockholder can be allowed to institute
a proceeding on behalf of the corporation wherein he is a
stock holder in order to vindicate corporate rights.
Q: Can the Majority stockholder institute a suit?
A: Yes. The law does not prohibit, however it would be
illogical to file a derivative suit because a derivate suit is
instituted to protect the cororation when those in the majority
refuses to act.
Requisite:
1. He is a stockholder or member at the time the acts or
transaction was filed.
2. He exerted all reasonable efforts and alleged the same in
particularity in the complaint
3. No appraisal rights are available for the acts complained
of
4. The suit is not nuisance or harassment. ( Ago realty v.
Ago)
NB : In the case of Ago v Ago, the stockholder could not
exhaust administrative remedy because of their own doing
as it is their fault why a board of director does not exist.
Test: When the object off the wrong done is the corporation
itself, or the whole body of its stock and property, an action
seeking to nullify and invalidate the duly constituted
acts of the corporation entails a cause of action that
pertains to the corporation itself which can only be
exercised in a derivative suit (Florente v. Florente)
Kinds of Remedies that Stockholder can Institute to vindicate
their rights
1. Individual Suit: Suit instituted on his own name. ( Ie: right
to insepct).
2. Class Suit: A group of stockholder having a common
interest . Here the stockholder protects their common
interest.
3. Derivative Suit : A stockholder files his suit not for himself
but for the protection of the corporation. In this case, the real
party in interest is the corporation, and the corporation is
merely a nominal party.
F . C APIT AL ST RUCT URE
1. SH AR ES OF STOCK
a. Authorized capital: Amount fixed in the articles of
incorporation maximum number of shares that the
corporation is allowed to issue without amending the articles
of incorporation.
b.subscribed capital stock: This portion of the authorized
capital stock covered by the agreement
-Paid up capital stock: Is the portion of the authorized
capital stock which has been subscribed and paid by the
stockholder of the corporation.
c. Outstanding capital stock: The total shares issued under
the subscription agreement whether paid or not.
A. NATUR E OF SH AR ES OF STOCK
Shares of stock are forms of securities that represents equity
ownership of a corporation divided into units. They are the
measure of the stockholder’s proportionate interest in the
corporation in terms of the right to vote, and the right to
receive dividends as well as the right to the share of the
assets of the corporation.
Classes of Shares :
1. Common shares
Common shares of stock are those stock that are issued
without any privilege or disadvantages except that they
cannot be deprived the right to vote. The owners of the
common share are entitled to the pro rata share in the profits
of the corporation upon the dissolution and liquidation
2. Preferred shares
Preferred shares of stock are those that are given certain
preferences as may be provided under the articles of
incorporation but may be denied the right to vote.
Q: What are the preference?
This can be in the form of preferred shares as to the asset
and preferred shares as to the dividends. The former is a
share which gives the holder preference as to the distribution
of asset , while the latter gives him the preference to receive
dividends to the extent agreed upon
Note: Despite being preferred shareholders, they are not
considered to be creditors of the corporation. Therefore, the
preferred creditors does not have a lien on the partnership
property as what they merely have is the right to dividends
based on unrestricted retrained earnings
Kinds of Preferred shares as to dividends:
1. Cumulative Preferred share : The dividend in the
present year if not paid during that year is to be
paid in the following year and the holders of the
said preferred share shall be paid the accumulated
dividends during the period before dividends are
paid to the common shares ( Ung di mo nabayaran
this year bayad mo next)
2. Non cumulative preferred share: If the dividend
is not declared for the particular year within the
covered period the right to receive dividend is
extinguished.
3. Participating preferred share: After the payment
of dividend due to the shares the holder thereof is
entitled to participate in the remaining dividends
with the holder of the common sare based on the
amount specified in the agreement
4. Non participating preferred share: This means
that after receiving the dividend due to the share
the remaining dividend are to be distributed
proportionately to the common share
3. Par value shares
4. Non par value share
5. Voting shares : These are the shares which can
vote on all corporate acts requiring the approval of
the stockholder. The corporation should always
have voting shares
6. Founders share : Certain rights and privilege not
enjoyed by the owner of other stock are given to
those who possess founder share.
Limit: Where the exclusive right to be vote and to be voted
for the election of director is granted it must be for a limited
period not exceeding five years from the date of
incorporation ( Only the right to vote and to be voted is
subject oto limitation)
7. Treasury shares
These are shares of stock that have been issued and fully
paid for but subsequently reaquired by the issuing
corporation through purchase , redemption donation or some
other lawful means. Such shares may be disposed again of
by the BOD.
Note:
Treasury shares have no voting right and dividends. The
corporation cannot declare dividend to themselves. Note
also that this is subject ot the trust fund rule that a stock
corporation shall have the power to purchase its own share
provided that there is unrestricted retained earnings.
8. Redeemable share
These are shares to be purchased by the corporation from
the holders of such shares upon the expiration of the fixed
period regardless of the existence of unrestricted retained
earnings in the books or the corporation. The corporation
can redeem the share despite not having unrestricted
retained earnings.
9. Watered share
10. Other Classification as may be provided by law.
B. CON SIDERATION F OR SH AR ES OF ST OC K
a. Actual cash paid to the corporation
b. Property tangible or intangible actually received by the
corporation as necessary and convenient for its use and
lawful purpose at a fair valuation equal to the par value of the
stock issued
c. Labor performed for, or service actually rendered to the
corporation
d. Previously instituted indebtedness of the corporation
i. The debts must be existing thus shares cannot
be used in payment but only as security for future
debts.
*If the shares will be acquired by bank in payment of a debt
the acquisition has to be approved by the BOD as well as the
stockholder holding at least 2/3 of the outstanding capital
stock. Otherwise it is a violation of the pre-emptive right.
e. Amount transferred from unrestricted retained earnings to
stated capital
 i. When the corporation declares stock dividends it
issues a share of stokc to the stockholder in
proportion to their shareholding in the corporation.
They do not directly pay for these additional share.
The consideration therefore is the corresponding
amount transferred from retained earnings of
corporation to capital.
f. outstanding shares exchanged for stocks in the event of
reclassification or conversion
i. The corporation may issue common share in
exchange of preferred shares meaning the
preferred share may be converted to common
shares if the corporation refuses to redeem the
share on the date specified in the agreement.
g. Shares of stock in another corporation and or
h. Other generally accepted form of consideration.
C . WATERED STOCK
D . SIT US OF TH E SHARES OF ST OC K
The situs of the share of stock is deemed to be the state
where the issuing corporation has its domicile which is
ordinarily the state under whose laws are created while a
certificate of stock may have a situs at the place where it is
located or at the domicile of the owner even if the
corporation is domiciled elsewhere.
E. CLASSES OF SHAR ES OF STOCK
2. CERTIFICATE OF STOCK
This is a written instrument signed by the proper officer of
the corporation stating or acknowledging that the person
named therein is the owner of the designated number of
shares of its stock. ( Nakasulat na ung person named is the
owner)
A. N ATU RE OF THE CERTIFICATE
Once issued it is considered to be the personal property of
the stockholder. This does not represent the property of the
corporation it only signifies a aliquot part of the corporation
or the right to share in the proceeds.
B. UN CERTIFICATED SH AR ES
Uncertificated shares: These are book entry shares or
shares that are issued without a certificate. The certificate
here is merely recorded in the electronic cash register
C. N EGOT IABILITY; REQU IR EM EN TS FOR
VALID TRANSFER OF
The certificate is non negotiable because the holder thereof
takes it without prejudice to such rights or defenses as the
registered owner or creditor may have under the law except
insofar as such rights and defenses are subject to limitation
imposed by principles governing estoppel. Therefore, the
holder cannot be the owner of the shares as the ownership is
ascertained in proper proceeding.
Process of Transferring * Stockholder to another
1. The mere endorsement of certificate of title
even without executing a deed of assignment
provided that it is coupled with delivery and
recorded in the stock transferred book is
enough to effect transfer.( Endorsement +delivery)
*If the transfer is not recorded in the stock transfer books: It
is only binding between two parties and not to the
corporation. The right of the transferee only accrues from the
time his name was entered in the books of corporation.
ENDORSEMENT
Documentary Requirement
1. If the stockholder is in possession of
certificate : The stock certificate must be
endorsed by the owner or his attorney in fact or
any other person legally authorized to make the
transfer.
2. If the stockholder is NOT in possession: There
is a necessity to issue deed of assignment
DELIVERY
This pertains to the delivery of the certificate with the
endorsement by the owner or his duly authorized
representative that his operative act of transfer of shares
from the original owner to the transferee
Other steps that may be material:
1. Pay the taxes due on the transaction if any
2. In order for the corporation to issue a new share of
stock , the old certificate of stock is necessary to
be surrendered before the issuance of the new
one so that the old certificate can be cancelled but
you do not need to effect certificate of stock in
order to effect the registration in the stock transfer
books.
D. ISSUANC E
Formalities :
1. Signed by the president or vice president,
countersigned by the secretary or assistance
secretary and sealed with the seal of corporation.
2. No certificate of stock is issued to a subscriber
until the full amount of the subscription together
with the interest and expenses if any is due and
paid.
Kinds of Payment
1. Full payment: A bearer instrument is not allowed.
Certificate of stock may be issued only to
registered owner of a stock.
-The unpaid claim only refers to any unpaid claim
arising from unpaid subscription it does not include
any indebtedness which a subscriber or
stockholder owes to the corporation as to any
subscription.
2. Pro rata: A corporation cannot issue certificate of
stock for portion of the subscription that is paid
 and cancel the portion that remains unpaid as it
violates the indivisibility of contract.
Doctrine of Indivisibility: The subscription, is one entire
and indivisible whole contract.
E. LOST OR DEST ROYED CER TIFICATES
1. The registered owner files with the corporation an
affidavit in triplicate setting forth the circumstance
as to how the certificate was lost stolen or
destroyed.
2. The corporation publishes a notice in a newspaper
of general circulation in the place where the
corporation has its principal office once a week for
three consecutive week at the expense of the
registered owner of certificate of stock.
3. After one year from the date of publication if no
contest has been presented to the corporation
regarding the certificate of stock the right to make
such contest is now barred. The corporation then
issues a new certificate of stock unless the
registered owner files a bond or security effective
for a period of one year on such case the
certificate is issued even prior to one year. ( The
waiver of the one year period is discretionary on
the part of the corporation)
Note: Absent fraud, bad faith or negligence on the part of the
corporation no action may be bought against the corporation
which shall have issued the certificate of stock in lieu of
those lost, destroyed pursuant to procedure stated by law.
If there is a contest
The issuance of the certificate of stock is to be suspended
until the court renders a final decision regarding the
ownership of the certificate of stock that is lost, stolen or
destroyed.
3. D ISPOSITION AND ENCUM BR AN CE OF
SHARES
A. SALE OF SH AR ES
The share of stock is deemed perfected only upon the
issuance of the certificate of stock.
B. ALLOWABLE R ESTR IC TION S ON TH E SALE
OF SHARES
This pertains to the right of refusal.
The Corporation may impose restriction on the transfer of
shares but it is subject to the ff :
1. It must appear in the articles of incorporation, in
the by laws as well as in the certificate of stock
otherwise the same is not binding upon any
purchaser in good faith.
2. Restriction must not be more onerous that granting
existing stockholder the option to purchase the
shares of the transferring stockholder with such
reasonable terms condition or period stated
3. Upon the expiration of the period the existing
stockholder or corporations fails to exercise the
option to purchase the transferring stockholder
may sell their shares to third person
Note Third person are only bound with the restriction if t is
stated in the stock certificate.
Partial payments
1. Here there is no stock certificate yet hence the owner can
only assign his right to the contract of subscription in favor of
the assignee.
Note : This is subject to the refusal or consent of the
corporation. The assignment of shares with unpaid
subscription is a novation as there will be a change of debtor
from the subscriber to the assignee.
C . R EQUISITES OF A VALID TR AN SF ER
Requisite for a valid transfer :
1. There must be a delivery of stock certificate
2. The certificate must be endorsed by the owner or
his attorney in fact or other person legally
authorized to make the transfer
3. No transfer is valid except between the parties
until it is registered or recorded in the books of the
corporation
D . INVOLUN TARY D EALINGS
Note that only transfer of shares resulting in a change of
ownership is required to be registered in the books of the
corporation. Those encumbrance like security interest need
not be registered I the corporations books in order to bind
third person it is enough that they are registered with
appropriate registry
G. DISSOLUT ION AND LIQUIDATION
1. M ODES OF DISSOLUT ION
. Dissolution where no creditors are affected
A. a meeting must be held on the call of the director or
trustee.
b. A notice of meeting given to the stockholder by personal
delivery of registered mail at least 20 days before the
meeting
c. Published once in a newspaper in the principal office or
newspaper of general circulation
Resolution: Approved by majority of the board of
directors and trustee and approved by the stockholder
representing majority of the outstanding capital stock
and majority of the members
The SEC issued a letter to dissolve after 15 days.
b. Dissolution of Corporations by shortening the
corporate term shall take effect immediately
in the case of expiration of corporation term,
dissolution shall automatically take effect on the day
following the last day of the corporate term stated in the
articles of incorporation without the need for the
issuance of the SEC by a certificate of dissolution
( Section 136 Ra 11232). There is no need for the issuance
of the certificate of dissolution, all that is needed to be done
is to amend the articles of incorporation and file the same
with the SEC. A corporation is deemed dissolved upon the
expiration of a new term.
c. Where creditors are affected
Approval f the stockholder representing at least 2/3 of the
outstanding capital stock or 2/3 of its members. There
must be a verified petition fled with the SEC signed by
majority of director or trustee or other official having
management of the affair ( Verified).
Grounds for Involuntary Dissolution
1. Non-use of corporate charter
2. Upon a finding by a final judgment that
a. The corporation procured its incorporation
through fraud
b. The corporation was created for the purpose of
concealing or aiding the commission of securities
transaction
c. When it repeatedly tolerated the graft practices
of its officers.
Investigation , offenses and penalties
1. Unauthorized use of corporate name ( Section 159 Ra
11232)
2. Violation of disqualification ( Section 160 RA 11232)
3. Violation of duty to maintain records to allow inspection or
reproduction
4. Willful certification of incomplete and inaccurate false or
misleading statement or reports
5. Independent auditor collusion
6. Obtaining corporate registration through fraud
7. Fraudulent conduct of business
8. Acting as intermediaries for graft and corrupt practice
Adoption of New Techniques
1. SEC was mandated to implement an electronic filing and
monitoring system to expedite corporate name reservation
and registration incorporation , submission of report notice
and document required by the law.
A. VOLU NT AR Y AN D IN VOLU NT AR Y
D ISSOLU TION
2. METHODS OF LIQU ID AT ION
H . OTHER C ORPOR AT IONS
1. CLOSE C ORPOR AT IONS
2. NON-STOCK CORPOR AT IONS
3. FOREIGN C OR PORATION S
A. WHAT CONSTITUT ES “D OING BU SINESS”
Doing Business :
. The term doing business shall include soliciting orders,
service contracts, opening offices, whether liaison
offices or branches; appointing representatives or
distributors, operating under full control of the foreign
corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period totalling one
hundred eighty [180] days or more; participating in the
management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that
extent the performance of acts or works, or the exercise
of some of the functions normally incident to and in
progressive prosecution of commercial gain or of the
purpose and object of the business organization. (
continue in commercial dealing and exercise function
incident to the purpose of the business organization
The term doing business is not deemed to include mere
investment as shareholder by a foreign entity, in a domestic
corporation duly registered to do business and exercise the
right as such of investor it provides an element of control
The Implementing Rules and Regulations of RA 7042
provide under Section 1(f), Rule I, that "doing business"
does not include the following acts:
1. Mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such
investor;
2. Having a nominee director or officer to
represent its interests in such corporation;
3. Appointing a representative or distributor
domiciled in the Philippines which transacts
business in the representative's or distributor's
own name and account;
4. The publication of a general advertisement
through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines
solely for the purpose of having the same
processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment
with a local company to be used in the processing
of products for export;
7. Collecting information in the Philippines; and
 8. Performing services auxiliary to an existing
isolated contract of sale which are not on a
continuing basis, such as installing in the
Philippines machinery it has manufactured or
exported to the Philippines, servicing the same,
training domestic workers to operate it, and similar
incidental services
Test: To determine whether one is doing business
1. Substance Test: Whether a foreign/ domestic
corporation is a continuing body of the business
2. Continuity: Whether the terms of the commercial dealing
contemplates to the extent that the performance of acts is in
lined with the objective of the corporation
B. NEC ESSITY OF A LICENSE T O DO BU SINESS
General Rule: An unlicensed foreign corporation doing
business here in the Philippines has no capacity to sue
before local courts. In order to do business here in the
Philippines, it must get a license from the SEC and
appoint an agent for such purpose. ( Global v Surecomp)
Nb: Actual transaction of business within the Philippine
territory is required for the Philippines to acquire jurisdiction
over foreign corporation
Exemption:
1. When the transaction is merely isolated as not to amount
to doing business in the Philippines.
2. When the foreign corporation engages in the right of
subrogation. Eg. Insurance Cases ( CV Gaspar v Lighterage)
Q: How do you determine whether the appointment of
distributor constitute as doing business?
A : If the distributor is an independent entity which buys and
distributes products other than those of foreign
corporation for its own name or its own account, the foreign
corporation is not doing business here in the Philippines
( Steelcase v Design). And the distributor foreign corporation
exercises full control over a domestic corporation.
NB: In the case of Witness by design it was proven that DISI
sells product other than those of Steelcase, therefore
Steelcase is engaged in Business without a license
Exception to the Exception: Estoppel: When a domestic
corporation enters into a contract with a foreign corporation
and benefits thereto, it cannot later alleged the capacity of
the said foreign corporation. ( Steelcase v. Design)
C . R EQUISITES F OR ISSUANC E OF A LIC EN SE
ISSUANCE OF A LICENSE
a. Within 60 days from the issuance by the SEC of a license
to transact business to a branch office of a foreign
corporation, said branch must deposit acceptable
securities to the SEC with an actual market value of at
least P500,000 for the benefit of the present and future
creditors of the licensee.
D . R ESID EN T AGENT
E. PERSON ALIT Y TO SU E AND SUABILIT Y
4. ON E- PERSON C OR PORATION S
AMENDMENT: SEC. 116. One Person Corporation. – A
One Person Corporation is a corporation with a single
stockholder: Provided, That only a natural person, trust,
or an estate may form a One Person Corporation. Banks
and quasi-banks, pre-need, trust, insurance, public and
publicly-listed companies, and non-chartered
government-owned and -controlled corporations may
not incorporate as One Person Corporations: Provided,
further, That a natural person who is licensed to
exercise a profession may not organize as a One Person
Corporation for the purpose of exercising such
profession except as otherwise provided under special
laws.
Who may form?
1. Natural person 2. Trust 3. Estate
The trust here is not synonymous to a trust corporation. This
pertains to when the property is assigned to a trustor when
the trustee is not of age
Limitation:
1. Prohibited to create OPC for profession
2. OPC is not required to have a minimum authorized capital
stock
SEC. 119. Bylaws. – The One Person Corporation is not
required to submit and file corporate bylaws.
The OPC is required to have articles of incorporation but not
required to file a by law.
SEC. 120. Display of Corporate Name. – A One Person
Corporation shall indicate the letters “OPC” either below
or at the end of its corporate name.
Ratio: To inform the parties that they are dealing with the
OPC
Corporate Structure
AMENDMENT: SEC. 122. Treasurer, Corporate Secretary,
and Other Officers. – Within fifteen (15) days from the
issuance of its certificate of incorporation, the One
Person Corporation shall appoint a treasurer, corporate
secretary, and other officers as it may deem necessary,
and notify the Commission thereof within five (5) days
from appointment. The single stockholder may not be
appointed as the corporate secretary. A single
stockholder who is likewise the self-appointed treasurer
of the corporation shall give a bond to the Commission
in such a sum as may be required: Provided, That the
said stockholder/treasurer shall undertake in writing to
faithfully administer the One Person Corporation’s funds
to be received as treasurer, and to disburse and invest
the same according to the articles of incorporation as
approved by the Commission. The bond shall be
renewed every two (2) years or as often as may be
required
 A single stockholder can be a president, director ,
treasurer but cannot Be considered as a
corporate secretary . This is different from a
aggregate corporation where the president cannot
be a treasurer and secretary
AMENDMENT :SEC. 124. Nominee and Alternate
Nominee. – The single stockholder shall designate a
nominee and an alternate nominee who shall, in the
event of the single stockholder’s death or incapacity,
take the place of the single stockholder as director and
shall manage the corporation’s affairs.
The articles of incorporation shall state the names,
residence addresses and contact details of the nominee
and alternate nominee, as well as the extent and
limitations of their authority in managing the affairs of
the One Person Corporation.
The written consent of the nominee and alternate
nominee shall be attached to the application for
incorporation. Such consent may be withdrawn in
writing any time before the death or incapacity of the
single stockholder
The Articles of Incorporation is a basic contract document in
corporation law that defines the charter of the corporation.
Section 13 of the Corporation Code provides that the articles
of incorporation is not to be considered as binding until they
have been filed with and registered with the SEC.
Note: The designation of an alternate nominee and another
alternate who shall take the place of a single stockholder and
shall manage the corporate affairs upon the death or
incapacity.
The Single Stockholder may also change the nominee
and alternate nominee without amending the articles of
incorporation. This law merely provides that the same is
written in the articles of incorporation.
Requiring for amending the articles of incorporation:
1. Majority vote of directors or trustees and the vote or
written assent of the stockholder representing at least two
thirds of the outstanding capital stock without prejudice to the
appraisal right of dissenting stockholder if available or if it be
non-stock corporation two thirds of its members.
( MaJORITY +2/3)
Liability of Single Stockholder
AMENDMENT: SEC. 130. Liability of Single Shareholder.
– A sole shareholder claiming limited liability has the
burden of affirmatively showing that the corporation was
adequately financed.
Where the single stockholder cannot prove that the
property of the One Person Corporation is independent
of the stockholder’s personal property, the stockholder
shall be jointly and severally liable for the debts and
other liabilities of the One Person Corporation.
The principles of piercing the corporate veil applies with
equal force to One Person Corporations as with other
corporations
Amendment: The law recognizes separate personality, but
the burden to prove that the property is separate and distinct
lies with the single shareholder. Therefore, it is incumbent
upon the shareholder to prove that the properties are
separate properties of the officer.
SEC. 131. Conversion from an Ordinary Corporation to a
One Person Corporation. – When a single stockholder
acquires all the stocks of an ordinary stock corporation,
the latter may apply for conversion into a One Person
Corporation, subject to the submission of such
documents as the Commission may require. If the
application for conversion is approved, the Commission
shall issue a certificate of filing of amended articles of
incorporation reflecting the conversion. The One Person
Corporation converted from an ordinary stock
corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as
of the date of conversion.
1. A single stockholder can acquire all the share of stock
2. Make an application for conversion and amend the articles
of incorporation
3. The SEC must approve the application for conversion
AMENDMENT :SEC. 132. Conversion from a One Person
Corporation to an Ordinary Stock Corporation. – A One
Person Corporation may be converted into an ordinary
stock corporation after due notice to the Commission of
such fact and of the circumstances leading to the
conversion, and after compliance with all other
requirements for stock corporations under this Code
and applicable rules. Such notice shall be filed with the
Commission within sixty (60) days from the occurrence
of the circumstances leading to the conversion into an
ordinary stock corporation. If all requirements have
been complied with, the Commission shall issue a
certificate of filing of amended articles of incorporation
reflecting the conversion.
1.Applciation for conversion and the filing of amendment of
articles of incorporation
2. Approval
I. MER GERS AND C ON SOLIDATION S
1. CONCEPT
In a merger of two or more existing corporation, one of
the corporation survive and continues the combined
business while the other is dissolved and all rights ,
properties and liabilities are acquired by the surviving
corporation. Although there is dissolution , there is no
winding up of affairs or liquidation of assets because the
surviving corporation automatically acquires all rights,
privilege and power as well as liabilities.
The steps necessary to accomplish a merger or
consolidation, as provided for in Sections
76,24 77,25 78,26 and 7927 of the Corporation Code, are:
(1) The board of each corporation draws up a
plan of merger or consolidation. Such plan must
include any amendment, if necessary, to the
articles of incorporation of the surviving
corporation, or in case of consolidation, all the
statements required in the articles of incorporation
of a corporation.
Plan of Merger: It is a plan crated by the representatives of
the constituent corporation providing for the details of such
merger.
Articles of Merger: The articles of merger or consolidation is
a document signed by the president or vice president of each
corporation and signed by their secretary or assistant
secretary
(2) Submission of plan to stockholders or
members of each corporation for approval. A
meeting must be called and at least two (2) weeks’
notice must be sent to all stockholders or
members, personally or by registered mail. A
summary of the plan must be attached to the
notice. Vote of two-thirds of the members or of
stockholders representing two-thirds of the
outstanding capital stock will be needed.
Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred
to as the articles of merger o[r] consolidation, by
the corporate officers of each constituent
corporation. These take the place of the articles of
incorporation of the consolidated corporation, or
amend the articles of incorporation of the surviving
corporation.
(4) Submission of said articles of merger or
consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing,
notifying all corporations concerned at least two
weeks before.
(6) Issuance of certificate of merger or
consolidation.28
NB: a merger is only effective upon the issuance of the
certificate of merger by the SEC subject to its prior
determination that a merger is not consistent with the
Corporation Code and existing laws. If however, the party of
the merger is a special corporation, the law provides that a
favorable recommendation of appropriate government
agency is to be obtained (Mindanao v. Edward)
Effect of a Defective Merger
Two corporation not being separate entity the
property of one corporation cannot be considered the
property of another. Therefore, the successor had no
legal standing to contest the sale. ( Mindanao v.
Wilkom)

Sale of Assets vs Merger

3. EFFECTS AND LIMITATIONS
Merger
1. Sale of asset is always
Section 80. Effects of merger or consolidation. - The involved
merger or consolidation shall have the following effects: 2. There is an automatic
assumption by the surviving
Definition: corporation of the liabilities
of the constituent
a. Constituent Corportation: ung na dissolve the corporation
corporation 3.There is a continuance of
the enterprise and of the
stockholder therein through
b. Surviving: The corporation that survived in the altered form
4. The title of the asset to
the constituent corporation is
1. The constituent corporations shall become a single by law transferred to the new
corporation which, in case of merger, shall be the corporation
surviving corporation designated in the plan of merger; 5. The constituent
and, in case of consolidation, shall be the consolidated corporation is automatically
dissolved
corporation designated in the plan of consolidation;
Sale of Asset
1. This is not always
involved
2. The purchasing
corporation is not generally
liable for the debts and
liabilities of the selling
corporation
3. The selling corporation
contemplates liquidation of
the enterprise
4. The transfer is by virtue of
the contract
5. The selling corporation is
not dissolved by mere
transfer of all its property.

2. The separate existence of the constituent

corporations shall cease, except that of the surviving or
the consolidated corporation;
3. The surviving or the consolidated corporation
shall possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and
liabilities of a corporation organized under this Code;
Sale of All Assets
General Rule: ( Nell Doctrine) : The transfer of all
assets of a corporation to another shall not render the
latter liable for the liabilities of the transferor.
Exception:

4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the
constituent corporations; and all property, real or
personal, and all receivables due on whatever account,
including subscriptions to shares and other choses
in action, and all and every other interest of, or
belonging to, or due to each constituent corporation,
shall be deemed transferred to and vested in such
surviving or consolidated corporation without further act
or deed; and
1. When the purchaser expressly or impliedly
agrees to assume the debts.
2. Where the transaction amounts to consolidation r
merger of corporation
3. Where the purchasing corporation is merely a
continuation of the selling corporation
4. Where the transaction was entered into fraudulently
to escape liability for debts. ( Nell v. Pacific Farms)
Comparison of Mindanao Savings vs. Sumifru

5. The surviving or consolidated corporation shall
be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the
same manner as if such surviving or consolidated
corporation had itself incurred such liabilities or
obligations; and any pending claim, action or
proceeding brought by or against any of such
constituent corporations may be prosecuted by or
against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by
such merger or consolidation.
1. Mindanao Saving: In this case, the merger is not
valid because there was no issuance of the certificate
of merger. A merger does not become effective upon a
mere agreement of the constituent corporation since
the merger or consolidation involves a change, there
must be an express provision that authorize them. ( In
this case the certificate of Merger). The certificate of
merger must be approved by the SEC
2. Sumifru v. Baya: In this case the merger between
Sumifru and DFC the latter is liable for the liabilities of
AMFSC