CORPORATION

(Cont’d)
 CAPITAL
STRUCTURE
 Capital Structure
 Number and Qualification of Incorporators:

 Number: Not more than fifteen [Sec. 10]

 The Revised Corporation Code removed the

prescribed minimum number of incorporators.
Previously, the incorporators must be no less than
five except for special corporations. [Herbosa, 2019]

 A corporation with a single stockholder is

considered a One Person Corporation
 Capital Structure
 Number and Qualification of Incorporators:

 Qualifications

 Any person, natural or juridical, may organize a

corporation [Sec. 10]
 Natural persons must be of legal age
 Each incorporator must subscribe to at least one
share of the capital stock

Note: The RCC removed the Philippine residency

requirement for the majority of the incorporators.
 Capital Structure
 Subscription Requirements:

 No minimum capital requirement

 Under the Old Corporation Code (CC), at least 25%

of the authorized capital stock as stated in the AOI
must be subscribed at the time of incorporation,
and at least 25% of the total subscription must be
paid upon subscription [Sec 13, CC].
 Capital Structure
 Subscription Requirements:

 No minimum capital requirement

 Section 13 has been removed in the Revised

Corporation Code, thus removing such minimum
capital requirements [Sec 12].

 However, the increase in capital remains subject to

the 25% subscription and 25% payment of
subscription rule [Sec. 37].
 Capital Structure
 Subscription Requirements:

 Subscription Agreements

 Any contract for the acquisition of unissued stock

in an existing corporation or a corporation still to
be formed shall be deemed a subscription
contract. This is notwithstanding the fact that the
parties may refer to it as a purchase or some other
contract. [Sec. 59]
 Capital Structure
 Subscription Requirements:

 Nature of Subscription Contracts

 A subscription contract is indivisible. Consequently,

where stocks were subscribed and part of the
subscription contract price was not paid, the
whole subscription shall be considered
delinquent, and not only the shares which
correspond to the amount not paid.
 Capital Structure
 Subscription Requirements:

 Nature of Subscription Contracts

 Nevertheless, holders of subscribed shares not fully paid,

which are not delinquent, shall have all the rights of a
stockholder. [Sec. 71]
 SEC has opined that the entire subscription, although not
yet fully paid, may be transferred to a single transferee,
who as a result of the transfer must assume the unpaid
balance. [SEC Opinion, 9 Oct. 1995]
 It is necessary, however, to secure the consent of the
corporation because such transfer contemplates a
novation which under Art. 1293 (NCC) cannot be made
without consent of the creditor.
 Capital Structure
 Subscription Requirements:

 Characteristics

There can be a subscription only with reference to unissued

shares of the Authorized Capital Stock (ACS), in the following
cases:

1. The original issuance of the ACS at the time of

incorporation.
2. The opening, during the life of the corporation, of the
portion of the original ACS previously unissued; or
3. The increase in ACS achieved through a formal
amendment of the Articles and registration thereof
with the SEC [Villanueva]
 Capital Structure
 Subscription Requirements:

 Status as Shareholder

One may become a stockholder in corporation in either

of two ways:

 By SUBSCRIPTION to shares before or after

incorporation becomes a stockholder upon
acceptance of the corporation of his offer to
subscribe whether the consideration is fully paid or
not
 Capital Structure
 Subscription Requirements:

 Status as Shareholder

One may become a stockholder in corporation in either

of two ways:

 By acquisition of already issued shares

 from an existing stockholder
 purchase of TREASURY SHARES from the
corporation
 Capital Structure
 Subscription Requirements:

 Types of Subscription Contracts

 Pre-incorporation subscription - It is a
subscription for shares of stock of a corporation still
to be formed.

 Post-incorporation subscription – Entered into

after incorporation. [Sundiang Sr. & Aquino, 2009]
 Capital Structure
 Subscription Requirements:

 Rules on Pre-Incorporation Subscription

 General Rule: A pre-incorporation subscription is

IRREVOCABLE:

o For a period of at least 6 months from the date

of subscription;

o Exceptions:
(1) All of the other subscribers consent to the
revocation, or
(2) The incorporation fails to materialize within 6
months or within a longer period as may be
stipulated in the contract of subscription
 Capital Structure
 Subscription Requirements:

 Rules on Pre-Incorporation Subscription

 General Rule: A pre-incorporation subscription is

IRREVOCABLE:

o After the submission of the Articles of

Incorporation to the SEC. [Sec. 60]
 Capital Structure
 Subscription Requirements:

 Interest on Unpaid Subscription

 General Rule: A stockholder is NOT liable to pay

interest on his unpaid subscription. He is not
considered a corporate debtor for the unpaid
amount of his subscription. [Herbosa, 2019]

 Exception: If expressly stipulated in the

subscription contract. [Sec 65]
CORPORATE
TERM
 Corporate Term
 Perpetual existence

 General Rule: The Revised Corporation Code provides

that a corporation shall have perpetual existence. The
AOIs of existing corporations shall be deemed
amended to reflect their perpetual term.

 Exception: The AOIs of corporations created under the

effectivity of this Code provide for a specific period. [Sec
11]
 Corporate Term
 Perpetual existence

 A corporation already existing upon effectivity of the

RCC may opt out of the rule on perpetual existence by:

 Obtaining the vote of its stockholders representing

majority of the Outstanding Capital Stock, without
prejudice to the appraisal right of dissenting
stockholders
 Notifying the Commission that it elects to retain its
specific corporate term, as provided in its AOI.
[Herbosa, 2019]
 Corporate Term
 Perpetual existence

 It is presumed that shareholders, when they

incorporated, assented to the perpetual character of
their contract. Their corporate relations will only end
upon agreement between or among the prescribed
number of shareholders or involuntarily upon the
court’s or the SEC’s determination.
 Corporate Term
 Extending or shortening the corporate term

 General Rule: If a corporation wishes to extend its

corporate term, it may amend its AOI at least 3 years
prior to the expiration of its term. Previously, such
change should be made at least 5 years prior to the
expiration. [Sec. 11]

 Exception: When there exists justifiable reasons for an

earlier extension, to be determined by the SEC.
 Corporate Term
 Extending or shortening the corporate term

 Requisites: A private corporation may extend or

shorten its term as stated in the articles of incorporation
when –

1. Approved by a majority vote of the board of

directors or trustees, and
2. 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

Note: In case of extension of corporate term, a

dissenting stockholder may exercise the right of
appraisal [Sec. 36]
 Corporate Term
 Revival of Corporate Existence

 Corporations with an expired term upon the effectivity

of the RCC, may apply with the SEC for revival of its
corporate existence.

 Upon approval by the SEC, it will then issue a certificate

of revival giving it perpetual existence, with all its rights
and privileges, and subject to all its duties, debts and
liabilities prior to revival, unless it requests for a limited
term. [Sec. 11]

 This benefit does not extend to corporations whose

dissolution was decreed by the SEC or the courts.
 Corporate Term
 Revival of Corporate Existence

 Should the controlling stockholders or members wish

to file the application, they must represent the
prescribed number of stockholders or members the
application for voluntary dissolution (i.e. at least 2/3 of
OCS/membership). Dissenting stockholders may not
exercise their appraisal right. [Herbosa, 2019]
Corporate Term
 COMMON
STOCK VS.
PREFERRED
STOCK
INCORPORATION
AND
ORGANIZATION
 Incorporation and Organization
 Promoter

 Promoters – persons who, acting alone or with others,

take initiative in founding and organizing the business
or enterprise of the issuer and receives consideration
therefor. [Sec. 3.10, RA 8799, The Securities Regulation
Code]

 Promoter’s Contracts - Promoter’s contracts are those

types of contracts entered into in behalf of a
corporation which is in the process of organization and
incorporation, and such fact is acknowledged as an
essential ingredient in the process of perfection.
[Villanueva]
 Incorporation and Organization
 Liability of Promoter

 General rule: the promoter binds himself personally

and assumes the responsibility of looking to the
proposed corporation for reimbursement.

 The promoter binds himself to ensure that the

corporation, once formed, will ratify the contract
entered into in its name.

 Otherwise, he becomes personally liable for such

contract in the event that corporation does not
ratify.
 Incorporation and Organization
 Liability of Promoter

 Exceptions:

 Express or implied agreement to the contrary

 Novation, not merely adoption or ratification, of the
contract
 Incorporation and Organization
 Liability of Corporation for Promoter’s Acts

 General rule: A corporation is NOT bound by the

contract. A corporation, until organized, has no life and
no legal existence. It could not have had an agent [the
promoter] who could legally bind it. [Cagayan Fishing
Development Co., Inc. v. Sandiko, G.R. No. L-43350
(1937)]
 Incorporation and Organization
 Liability of Corporation for Promoter’s Acts

 Exceptions: A corporation may be bound by the

contract if it makes the contract its own by:

 Adoption or ratification of the ENTIRE contract

after incorporation.

o Novation or the intent to novate the original contract is required to

adopt or ratify the Pre-incorporation contract. [Campos]
o The Court’s ruling in Cagayan Fishing v. Teodoro Sandiko, that “a
corporation should have a full and complete organization and existence
as an entity before it can enter into any kind of a contract or transact
any business”, is not absolute. One of the exceptions recognized by
American courts is that “a contract made by the promoters of a
corporation on its behalf may be adopted, accepted or ratified by the
corporation when organized”. [Rizal Light v. PSC and Morong Electric
(1968)]
 Incorporation and Organization
 Liability of Corporation for Promoter’s Acts

 Exceptions: A corporation may be bound by the

contract if it makes the contract its own by:

 Acceptance of benefits under the contract with

knowledge of the terms thereof.
 performance of its obligation under the contract.

The contract must of course be one which is within the

powers of the corporation to enter. [Builders’ Duntile Co. v.
Dunn Mfg. Co. (1929)]

The corporation adopts the entire contract, not only parts

which are beneficial. [Campos]
 Incorporation and Organization
 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:

 Actual cash paid to the corporation;

 Property, tangible or intangible, which must be:
i. Actually received by the corporation; and
ii. Necessary or convenient for its use and lawful
purposes
iii. At a fair valuation equal to the par or issued
value of the stock issued;
 Labor performed for or services actually rendered to
the corporation;
 Previously incurred indebtedness of the corporation;
 Incorporation and Organization
 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:

 Amounts transferred from unrestricted retained

earnings to stated capital;
 Outstanding shares exchanged for stocks in the event
of reclassification or conversion;
 Shares of stock in another corporation; and/or
 Other generally accepted form of consideration. [Sec.
61]
 Incorporation and Organization
 Consideration for Stocks

 Invalid Consideration

The following cannot be exchanged for the issuance of

shares of stock: [Sec. 61]

 Promissory notes
 Future service

 Valuation of Consideration
Where the consideration is other than actual cash, or
consists of intangible property, the valuation thereof
shall initially be determined by the stockholders or the
board of directors, subject to the approval of the
Commission. [Sec. 61]
 ARTICLES OF
INCORPORATION
 Articles of Incorporation
 The Articles of Incorporation has been described as one
that defines the charter of the corporation and the
contractual relationships between the State and the
corporation, the stockholders and State, and between the
corporation and its stockholders.

 There is no gainsaying that the contents of the articles of

incorporation are binding, not only on the corporation, but
also on its shareholders.

 Three-fold nature of the articles of incorporation:

 A contract between the State and the corporation;
 A contract between the corporation and its
stockholders; and
 A contract between the stockholders inter se.
 Articles of Incorporation
 The Articles of Incorporation must contain:

 Corporate Name
 Purpose Clause;
 Principal Office;
 Corporate Term if the corporation has not elected
perpetual existence;
 Incorporators;
 Trustees/Directors;
 Capital Stock; and
 Other Matters
BY-LAWS
 By-Laws
 By-laws are regulations, ordinances, rules or laws adopted
by an association or corporation for its internal governance,
including rules for routine matters such as calling
meetings. [SMC v. Mandaue, G.R. No. 152356 (2005)]

 May be done either:

1. Prior to incorporation - approved and signed by all the

incorporators and submitted to SEC together with
Articles of Incorporation; or

2. After incorporation - The requirement of adoption of by-

laws one (1) month after receipt of the notice of
issuance of certificate of incorporation has been deleted
in the RCC. [Sec. 45]
 By-Laws
 Nature: It is a product of agreement of the stockholders or
members. [Campos]

 Function: It establishes the rules for internal government of

the corporation [Campos]. It also regulates the affairs and
relationship between and among stockholders, BOD and
corporation. [Lopez]

 Note: OPCs are not required to have by-laws.

 By-Laws
EFFECT OF FAILURE TO FILE THE BYLAWS

 Does not imply the "demise" of the corporation. By-laws

may be required by law for an orderly governance and
management of corporations but they are not essential to
corporate birth. Nonetheless, failure to file them within the
period required by law by no means tolls the automatic
dissolution of a corporation. [Loyola Grand Villas
Homeowners Association v. CA G.R. No. 117188 (1997)]

 Note: Sec. 21 on the effect of failure to formally organize

within 5 years from incorporation, the corporation’s
corporate powers cease and the corporation is deemed
dissolved. Organization includes: the filing and approval of
by-laws with the SEC and the election of directors and
officers. [Campos]
 By-Laws
REQUISITES OF VALID BY-LAWS

 Approval requirement: Must be approved by the

affirmative vote of the stockholders representing at least a
MAJORITY of the outstanding capital stock, or majority of
members. [Sec. 45]

 If filed pre-incorporation: Must be approved and signed by

all incorporators.

 Record-Keeping: Must be kept in the principal office of the

corporation, subject to inspection by any director, trustee,
stockholder or member of the corporation in person or by a
representative at reasonable hours on business days. [Sec.
45]
 By-Laws
REQUISITES OF VALID BY-LAWS

 Filing with SEC: A copy of the by-laws 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. [Sec. 45]

 No provision of the by-laws can be adopted if it is contrary

to law. Since the provision in question is contrary to law, the
fact that for fifteen years it has not been questioned or
challenged but, on the contrary, appears to have been
implemented by the members of the association cannot
forestall a later challenge to its validity. [Grace Christian
High School v. CA, G.R. No. 108905 (1997)]
 By-Laws
Contents of By-laws

 The time, place and manner of calling and conducting

regular or special meetings of the directors or trustees;

 The time and manner of calling and conducting regular or

special meetings and mode of notifying the stockholders or
members thereof;

 The required quorum in meetings of stockholders or

members and the manner of voting therein;

 The modes by which a stockholder, member, director, or

trustee may attend meetings and cast their votes;
 By-Laws
Contents of By-laws

 The form for proxies of stockholders and members and the

manner of voting them;

 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;

 The time for holding the annual election of directors or

trustees and the mode or manner of giving notice thereof;
 By-Laws
Contents of By-laws

 The manner of election or appointment and the term of office

of all officers other than directors or trustees;

 The penalties for violation of the bylaws;

 In the case of stock corporations, the manner of issuing stock

certificates; and

 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 RCC. [Sec. 46]
 By-Laws
Contents of By-laws

 Note: In close corporations - restrictions on the right to

transfer shares must appear in both the articles of
incorporation and in the by-laws as well as in the certificate of
stock; otherwise, restriction shall not be binding on any
purchases of good faith. [Sec. 97]
 By-Laws
Matters That Cannot Be Provided for in the By-laws (must be in
the AOI)

 Classification of shares of stock and preferences

granted to preferred shares
 Provisions on founder’s shares
 Providing for redeemable shares
 Provisions on the purposes of the corporation
 Providing for the corporate term of existence
 Capitalization of stock corporations
 Corporate Name
 Denial of pre-emptive rights [Villanueva]
 By-Laws
Binding Effects

When Binding: ONLY from date of issuance of SEC of a

certification that the by-laws are not inconsistent with the
Code [Sec. 45] Pending such approval, they cannot bind
stockholders or corporation.

Effect on third parties: Mere internal rules among

stockholders cannot affect or prejudice 3rd persons who deal
with the corporation unless they have knowledge of the same
[China Banking Corp v CA G.R. No. 117604 (1997)].
 By-Laws
Amendments

Effected by: majority vote of the members of the board and

majority vote of owners of the Outstanding Capital Stock or
members, in a meeting duly called for the purpose. [Sec. 47] Unless a
higher requirement is provided in the by-laws

Delegation to BOD of power to amend

By vote of stockholders representing 2/3 of the Outstanding Capital
Stock or 2/3 of the members. [Sec. 47]

Delegation to BOD may be revoked

Any power delegated to the BOD or trustees to amend or repeal any
by-laws or adopt new bylaws shall be considered as revoked
whenever stockholders owning or representing a majority of the
outstanding capital stock or a majority of the members in non-stock
corporations, shall so vote at a regular or special meeting. [Sec. 47]
 By-Laws
Amendments

Filing with SEC

Whenever the bylaws are amended or new bylaws are
adopted, the corporation shall file with the Commission:

(1) Such amended or new bylaws; and,

(2) 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. [Sec. 47]
 By-Laws
Amendments

Effectivity of Amended By-Laws

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. [Sec.
47]
 NON-USE OF
CORPORATE
CHARTER AND
CONTINOUS
INOPERATION
Non-Use of Corporate Charter and Continous Inoperation

 Section 21 states that if a corporation does not formally

organize and commence its business within five (5) years.
(Note: two (2) years in the Corporation Code) 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.
Non-Use of Corporate Charter and Continous Inoperation
 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 of the corporation.

 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.
 RIGHTS OF
STOCKHOLDERS
AND MEMBERS
 Rights of Stockholders and Members

Fundamental Rights of a Stockholder

 Direct or indirect participation in management [Sec. 6]

 Voting rights [Sec. 6]
 Right to remove directors [Sec. 27]
 Proprietary rights
(a) Right to dividends [Sec. 42 and 70]
(b) Appraisal rights [Sec. 80]
(c) Right to issuance of stock certificate for fully paid
shares [Sec. 63]
(d) Proportionate participation in the distribution of
assets in liquidation [Sec. 139]
(e) Right to transfer of stocks in corporate books [Sec.
62]
(f) Pre-emptive right [Sec. 38]
 Rights of Stockholders and Members

Fundamental Rights of a Stockholder

 Right to inspect books and records [Sec. 73]

 Right to be furnished with the most recent financial
statements/reports [Sec. 73]
 Right to recover stocks unlawfully sold for delinquent
payment of subscription [Sec. 68]
 Right to file individual suit, representative suit and
derivative suits
 Rights of Stockholders and Members

Nature of the Rights of Members

The eleemosynary nature (i.e. charitable) of every non-stock

corporation defines the characteristic of membership therein
as being essentially personal in character and therefore
essentially non-transferable in nature. [Villanueva]

Sec. 88 of the Revised Corporation Code specifically provides

that in a non-stock corporation, the right of members of any
class or classes to vote “may be limited, broadened or denied
to the extent specified in the articles of incorporation or the
by-laws.”
CORPORATE
BOOKS AND
RECORDS
 Corporate Books and Records

The proper custodian of the books, minutes and official records of

a corporation is usually the corporate secretary. Being the
custodian of a corporate records, the corporate secretary has the
duty to record and prepare the minutes of the meeting. The
signature of the corporate secretary gives the minutes of the
meeting probative value and credibility.

Thus, without the certification of the corporate secretary, it is

incumbent upon the other directors or stockholders as the case
may be, to submit proof that the minutes of the meeting is
accurate and reflective of what transpired during the meeting.
 Corporate Books and Records
Basis of stockholder’s right of inspection

The stockholder’s right of inspection of the corporation’s books and records

is based upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-ownership. This right is
predicated upon the necessity of self-protection. It is generally held by
majority of the courts that where the right is granted by statute to the
stockholder, it is given to him as such and must be exercised by him with
respect to his interest as a stockholder and for some purpose germane
thereto or in the interest of the corporation.

In other words, the inspection has to be germane to the individual’s

interest as a stockholder, and has to be proper and lawful in character and
not inimical to the interest of the corporation.
 Corporate Books and Records
Right of inspection not absolute

The right of inspection granted by Sec. 74 of the Corporation Code (Now

Section 73, Revised Corporation Code) is not absolute, as when the
stockholder is not acting in good faith and for a legitimate purpose or
when the demand is purely speculative or merely to satisfy curiosity.
 Corporate Books and Records
Books and records required to be kept by the corporation

 The articles of incorporation and by-laws of the corporation and all their
amendments;
 The current ownership structure and voting rights of the corporation,
including lists of stockholders or members, group structures, intra-
group relations, ownership data, and beneficial ownership;
 The names and addresses of all the members of the board of directors
or trustees and the executive officers;
 A record of all business transactions;
 A record of the resolutions of the board of directors or trustees and of
the stockholders or members;
 Copies of the latest reportorial requirements submitted to the
Commission; and
 The minutes of all meetings of stockholders or members, or of the board
of directors or trustees.
 Corporate Books and Records
Books and records required to be kept by the corporation

General Rule: All of the enumerated books and records must be kept at
the principal office of the corporation.

Exception: The stock and transfer book may be kept in the principal office
of the corporation or in the office of its stock and transfer agent, if any.

Note:
Corporate records, regardless of the form in which they are stored, shall be
open to inspection by any director, trustee, stockholder or member of the
corporation in person or by a representative at reasonable hours on
business days, and a demand in writing may be made by such director,
trustee or stockholder at their expense, for copies of such records or
excerpts from said records.
 Corporate Books and Records
Books and records required to be kept by the corporation

Note:
A requesting party who is not a stockholder or member of record, or is a
competitor, director, officer, controlling stockholder or otherwise
represents the interests of a competitor shall have no right to inspect or
demand reproduction of corporate records.
 Corporate Books and Records
Limitation on the right of inspection

 The person demanding the right has not improperly used any
information obtained through any previous examination of the books
and records of the corporation;

 The demand is made in good faith or for a legitimate purpose;

 The person demanding the right is not a competitor, director, officer,

controlling stockholder or otherwise represents the interests of a
competitor.
 Corporate Books and Records
Stock Transfer Agent

 A stock transfer agent or one engaged principally in the business of

registering transfers of stocks in behalf of a stock corporation shall be
allowed to operate in the Philippines upon securing a license from the
Commission and the payment of a fee to be fixed by the Commission,
which shall be renewable annually.

 Note: A stock corporation is not precluded from performing or making

transfers of its own stocks, in which case all the rules and regulations
imposed on stock transfer agents, except the payment of a license fee,
shall be applicable.

 Note: The SEC may require stock corporations which transfer and/or
trade stocks in secondary markets to have an independent transfer
agent.
 0NE-PERSON
CORPORATION
 One–Person Corporation
Section 116, Revised Corporation Code

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, preneed, 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.
 One–Person Corporation
Section 116, Revised Corporation Code

 The incorporator of an OPC being a natural person must be of legal age.

 As an incorporator, the “trust” as used by the law does not refer to a

trust entity, but the subject being managed by a trustee.

 If the single stockholder is a trustee, administrator, executor, guardian,

conservator, custodian, or other person exercising fiduciary duties, proof
of authority to act on behalf of the trust or estate must be submitted at
the time of incorporation.

 Note: Only a natural person, trust, or an estate may form a One Person
Corporation. In case of a natural person, the incorporator must be of
legal age.
 One–Person Corporation
Section 116, Revised Corporation Code

 Who are not allowed to form OPCs?

 Banks and quasi-banks
 Pre-need
 Trust
 Insurance
 Public and publicly-listed companies, and
 Non-chartered government-owned and controlled corporations
 One–Person Corporation
Section 116, Revised Corporation Code

 General Rule: 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.

 Exception: Unless otherwise provided under special laws.

 Foreign National – A foreign natural person may put up an OPC, subject

to the applicable capital requirement and constitutional and statutory
restrictions on foreign participation in certain investment areas or
activities.
 One–Person Corporation
Section 116, Revised Corporation Code

 Term of Existence
The term of existence of the OPC shall be perpetual. However, in case of
the trust or estate, its term of existence shall be co-terminous with the
existence of the trust or estate,.

The OPC under the name of the estate may be dissolved upon proof of
partition, such as Order of Partition issued by the Court in case of
Judicial Settlement and Deed of Extrajudicial Settlement in case of
summary settlement of the estate.

The OPC under the name of the Trustee may be dissolved upon proof of
termination of the trust.
 One–Person Corporation
Section 117, Revised Corporation Code

Minimum Capital Stock Not Required for One Person

Corporation.— A One Person Corporation shall not be
required to have a minimum authorized capital stock except
as otherwise provided by special law.
 One–Person Corporation
Section 117, Revised Corporation Code

 General Rule: A One Person Corporation shall not be required to have a

minimum authorized capital stock.

 Exception: Unless otherwise provided by special law.

 Further, unless otherwise required by applicable laws or regulations, no

portion of the authorized capital is required to be paid-up at the time of
incorporation.
 One–Person Corporation

Section 118, Revised Corporation Code

Articles of Incorporation.— A One Person Corporation shall file
articles of incorporation in accordance with the requirements under
Section 14 of this Code. It shall likewise substantially contain the
following:

1.If the single stockholder is a trust or an estate., the name,

nationality, and residence of the trustee, administrator, executor,
guardian, conservator, custodian, or other person exercising
fiduciary duties together with the proof of such authority to act on
behalf of the trust or estate; and
2.Name, nationality, residence of the nominee and alternate
nominee, and the extent, coverage and limitation of the authority.
 One–Person Corporation
Section 118, Revised Corporation Code

 The OPC shall file its Articles of Incorporation in accordance with the
requirements of Section 14 of the Revised Corporation Code of the
Philippines.

 The Articles of Incorporation must set forth its primary purpose,

principal office address, term of existence, names and details of the
single stockholder, the nominee and alternate nominee and the
authorized, subscribed and paid-up capital and such other matters
consistent with law and which may be deemed necessary and
convenient.
 One–Person Corporation

Section 119, Revised Corporation Code

Bylaws.— The One Person Corporation is not

required to submit and file corporate bylaws.
 One–Person Corporation

Section 120, Revised Corporation Code

Display of Corporate Name.— A One Person

Corporation shall indicate the letters “OPC” either
below or at the end of its corporate name.
 One–Person Corporation

Section 121, Revised Corporation Code

Single Stockholder as Director, President.— The

single stockholder shall be the sole director and
president of the One Person Corporation.
 One–Person Corporation

Section 122, Revised Corporation Code

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.
 One–Person Corporation
Section 122, Revised Corporation Code

 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

but may assume the role of a treasurer. The single stockholder who
assumes the position of Treasurer shall post a surety bond.
 One–Person Corporation

Section 123, Revised Corporation Code

Special Functions of the Corporate Secretary.— In addition to the functions
designated by the One Person Corporation, the corporate secretary shall:

1. Be responsible for maintaining the minutes book and/or records of the

corporation;
2. Notify the nominee or alternate nominee of the death or incapacity of
the single stockholder, which notice shall be given no later than five
(5) days from such occurrence;
3. Notify the Commission of the death of the single stockholder within
five (5) days from such occurrence and stating in such notice the
names, residence addresses, and contact details of all known legal
heirs; and
4. Call the nominee or alternate nominee and the known legal heirs to a
meeting and advise the legal heirs with regard to, among others, the
election of a new director, amendment of the articles of incorporation,
and other ancillary and/or consequential matters.
 One–Person Corporation

Section 124, Revised Corporation Code

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.
 One–Person Corporation
Section 124, Revised Corporation Code

 The single stockholder is required to designate a nominee and an

alternate nominee named in the Articles of Incorporation who shall
replace the single stockholder in the event of death and incapacity of
the single stockholder. The nominee and the alternate nominee shall
take the place of the single stockholder as director and shall manage
the corporation’s affairs.

 The written consent of both the nominee and alternate nominee shall
be attached to the application for incorporation. Such consent may be
withdrawn in writing at any time before the death or incapacity of the
single stockholder.
 One–Person Corporation

Section 125, Revised Corporation Code

Term of Nominee and Alternate Nominee.— When the incapacity of the single
stockholder is temporary, the nominee shall sit as director and manage the
affairs of the One Person Corporation until the stockholder, by self
determination, regains the capacity to assume such duties.

In case of death or permanent incapacity of the single stockholder, the

nominee shall sit as director and manage the affairs of the One Person
Corporation until the legal heirs of the single stockholder have been lawfully
determined, and the heirs have designated one of them or have agreed that
the estate shall be the single stockholder of the One Person Corporation.

The alternate nominee shall sit as director and manage the One Person
Corporation in case of the nominee’s inability, incapacity, death, or refusal
to discharge the functions as director and manager of the corporation, and
only for the same term and under the same conditions applicable to the
nominee.
 One–Person Corporation
Section 125, Revised Corporation Code

 Incapacity or Death of the Single Stockholder

In case the single stockholder becomes incapacitated, the nominee can take over
the management of the OPC as director and president. At the end of the
incapacity, the single stockholder can resume the management of the OPC.

In case of death or permanent incapacity of the single stockholder, the nominee

will take over the management of the OPC until the legal heirs of the single
stockholder have been lawfully determined and the heirs have agreed among
themselves who will take the place of the deceased.

Nominee’s inability, incapacity, death, or refusal to discharge the functions as

director and manager of the corporation.

The alternate nominee shall sit as director and manage the One Person
Corporation only for the same term and under the same conditions applicable to
the nominee.
 One–Person Corporation

Section 126, Revised Corporation Code

Change of Nominee or Alternate Nominee.— The single
stockholder may, at any time, change its nominee and
alternate nominee by submitting to the Commission the
names of the new nominees and their corresponding written
consent. For this purpose, the articles of incorporation need
not be amended.
 One–Person Corporation
Section 126, Revised Corporation Code

 Note: The single stockholder may, at any time, change its nominee and
alternate nominee by submitting to the SEC the names of the new
nominees and their corresponding written consent. The articles of
incorporation need not be amended.
 One–Person Corporation

Section 127, Revised Corporation Code

Minutes Book.— A One Person Corporation shall maintain a
minutes book which shall contain all actions, decisions, and
resolutions taken by the One Person Corporation.
 One–Person Corporation

Section 128, Revised Corporation Code

Records in Lieu of Meetings.— When action is needed on any
matter, it shall be sufficient to prepare a written resolution,
signed and dated by the single stockholder, and recorded in
the minutes book of the One Person Corporation. The date of
recording in the minutes book shall be deemed to be the date
of the meeting for all purposes under this Code.
 One–Person Corporation
Sections 127 and 128, Revised Corporation Code

 Note: A One Person Corporation shall maintain a minutes book which

shall contain all actions, decisions, and resolutions taken by the One
Person Corporation for purposes of record keeping.
 One–Person Corporation

Section 129, Revised Corporation Code

Reportorial Requirements.— The One Person Corporation shall submit the following within such period
as the Commission may prescribe:

1. Annual financial statements audited by an independent certified public accountant: Provided,

That if the total assets or total liabilities of the corporation are less than Six hundred thousand
pesos (₱600,000.00), the financial statements shall be certified under oath by the corporation’s
treasurer and president;
2. A report containing explanations or comments by the president on every qualification,
reservation, or adverse remark or disclaimer made by the auditor in the latter’s report;
3. A disclosure of all self-dealings and related party transactions entered into between the One
Person Corporation and the single stockholder; and
4. Other reports as the Commission may require.

For purposes of this provision, the fiscal year of a One Person Corporation shall be that set forth in
its articles of incorporation or, in the absence thereof, the calendar year.

The Commission may place the corporation under delinquent status should the corporation fail to
submit the reportorial requirements three (3) times, consecutively or intermittently, within a
period of five (5) years.
 One–Person Corporation
Section 129, Revised Corporation Code

 Note: The SEC may place the corporation under delinquent status
should the corporation fail to submit the reportorial requirements three
(3) times, consecutively or intermittently, within a period of five (5) years.
 One–Person Corporation

Section 130, Revised Corporation Code

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.
 One–Person Corporation
Section 130, Revised Corporation Code

 Note: Where the single stockholder cannot prove that the property of
the OPC is independent of the stockholder’s personal property, the
stockholder shall be jointly and severally liable for the debts and other
liabilities of the OPC.

 Note: The principles of piercing the corporate veil applies with equal
force to OPC as with other corporations.
 One–Person Corporation

Section 131, Revised Corporation Code

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.
 One–Person Corporation
Section 131, Revised Corporation Code

 Note: When a single stockholder acquires all the stocks of an ordinary

stock corporation, the latter may apply for conversion into a One Person
Corporation.

If the application for conversion is approved, the SEC shall issue a

certificate of filing of amended articles of incorporation reflecting the
conversion.

 Note: The OPC 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.
 One–Person Corporation

Section 132, Revised Corporation Code

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 fifing of amended articles of incorporation reflecting the
conversion.

In case of death of the single stockholder, the nominee or alternate nominee shall transfer the shares
to the duly designated legal heir or estate within seven (7) days from receipt of either an affidavit of
heirship or self-adjudication executed by a sole heir, or any other legal document declaring the legal
heirs of the single stockholder and notify the Commission of the transfer. Within sixty (60) days from
the transfer of the shares, the legal heirs shall notify the Commission of their decision to either wind
up and dissolve the One Person Corporation or convert it into an ordinary stock corporation.

The ordinary stock corporation converted from a One Person Corporation shall succeed the latter and
be legally responsible for all the latter’s outstanding liabilities as of the date of conversion.
 One–Person Corporation
Section 132, Revised Corporation Code

 Note: A One Person Corporation may be converted into an ordinary

stock corporation after due notice to the SEC of such fact and of the
circumstances leading to the conversion. If all requirements have been
complied with, the Commission shall issue a certificate of filing of
amended articles of incorporation reflecting the conversion.

 Note: The ordinary stock corporation converted from a One Person

Corporation shall succeed the latter and be legally responsible for all the
latter’s outstanding liabilities as of the date of conversion.
 One–Person Corporation
Section 132, Revised Corporation Code

 In case of death of the single stockholder

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

nominee shall transfer the shares to the duly designated legal heir or
estate and notify the SEC of the transfer.

Within sixty (60) days from the transfer of the shares, the legal heirs shall
notify the SEC of their decision to either wind up and dissolve the OPC
or convert it into an ordinary stock corporation.
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