CORPO 1 Lecture Notes
October 22, 2022
Brief Run-down
Non-Stock Corporations
Membership in a non-stock
corporation is non-assignable.
In a stock corporation, you can
transfer your ownership in the
corporation by means of sale,
subscription, donation, or
succession – but its
membership is non-
transferrable, it is personal.
Religious Corporations
Corporate Sole. It is not a one-
person corporation but it can
also be organized by one
person but not in his capacity
as an individual. It is in his
capacity as a cleric of a
religious organization.
Religious corporations may
establish their own corporation
only for purposes of
propagating their faith. If it is
incidental that they may
acquire properties or transact
in behalf of a corporate sole,
then, they may do so.
It is associated most of the
time with corporate sole – the
extent of their authority and
the manner by which they are
going to transact.
X ------------------- X
Dissolution, Liquidation, and
Winding Up
Dissolution
It is the extinguishment of the
franchise of a juridical entity
that was granted in its favor,
by the state, and the
termination of its corporate
existence.
Who grants the franchise of a
corporation? The State.
Bar question: Is merger and/or
consolidation a form of
dissolution?
In a merger, one corporation
retains its identity and absorbs
another corporation.
In consolidation, two
corporations lose their identity
and become another entity
which is the consolidated
corporation.
Answer: No. There is no
extinguishment of corporate
existence. There is merely a
change in order for the
purpose of continuing the
existence of the two merging or
consolidating corporations, i.e.,
there is an abrupt termination
of the corporate existence.
In merger and consolidation,
there is merely a change in the
circumstances of their
existence such as losing their
personality.
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Illustrative example:
Corporations A and B Commission or upon the
consolidated in order to form
Corporation C. Creditors went
after Corporation A but A
contended that it has already
been dissolved and the claim of
the creditors was not filed
within the period required
provided by law and therefore
it is deemed terminated/
waived/ prescribed. Is the
contention of A correct?
No, the contention of A is not
correct because it was not
dissolved. There was a merely
a consolidation which is a
mere continuity of the
existence of A.
Dissolution contemplates a
situation wherein there is a
termination of corporate
existence.
How does a corporation
dissolve?
What are the grounds or modes
by which a corporation may be
dissolved?
There are two ways by which a
corporation may be dissolved:
1. Voluntary;
2. Involuntary.
There is voluntary dissolution
when the termination of the
corporate existence is upon the
discretion of the Board of
Directors and the Stockholders
of the corporation.
In involuntary dissolution, the
termination of the corporate
existence is upon an instance
of the Securities and Exchange
instance of any interested
person.
The SEC may motu proprio
declare a corporation
dissolved.
Procedure:
In voluntary dissolution, the
procedure will depend on
whether there are creditors
who are affected or not
affected.
If there are no creditors that
are affected, then, the first
step that must be done is that
there must be a meeting of the
BOD wherein the majority of
the BOD will vote for the
voluntary dissolution of the
corporation.
There must be a resolution to
be adopted by the majority of
all of the members of the BOD
to dissolve the corporation.
After the resolution has been
adopted, a notice must be sent
to all of the stockholders
within a period of 20 days from
the date when the resolution
was adopted. There should be
a general meeting of all of the
stockholders wherein the
resolution must be agreed
upon or ratified by the majority
of all the votes of the
outstanding capital stock.
If the majority of the
shareholders agree that the
resolution voluntarily
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dissolving the corporation will the termination of the
be affirmed, then, a verified corporate personality. After
petition must be filed with the which, within the three-year
SEC for the dissolution of the period, the corporation
corporation. engaged in a transaction
wherein they decided to sell
What must the verified petition the four remaining lots – not
contain? Date/ time, reason for for the purposes of liquidation
the dissolution, and so on. but for the purposes of
transacting its normal
If the SEC finds out that there business.
are valid grounds for the
dissolution of the corporation, The buyer claims that he is a
it will issue a Certificate of buyer in good faith.
Dissolution. The issuance of
the Certificate of Dissolution What was the status of the
is the operative act dissolves transaction entered into by the
the corporation. corporation?

However, after the Certificate of Can the buyer claim that he is

Dissolution has been issued, a buyer in good faith?
the corporation can still exist
for three years. The three-year
period is provided for purposes The status of the transaction
of winding up and liquidating that are entered into by a
the assets of the corporation. corporation after it was
dissolved is null and void. A
Liquidation is a part of winding person who deals with a
up. It is the process by which corporation that has been
the corporation converts its dissolved cannot claim that he
assets into cash (liquid assets). is a buyer in good faith
So that, it can pay its because due diligence
obligations and pay the demands that it should
corresponding shares of each ascertain first the status of the
and every shareholder. party whom he is dealing with.

Can the corporation still (Rich v. Paloma III, G.R. No.

undertake to do business for 210538)
the purpose of which it was
organized during this three- When a corporation is
year period? dissolved, normally, it is
published in the newspaper.
Illustrative example: The purpose of the publication
is to give notice to the whole
There is a subdivision where world that a particular act was
there are four remaining lots. approved by the government.
They declared dissolution. The
SEC issued a Certificate of
Dissolution, thus resulting to

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What about if the voluntary
dissolution of a corporation
affects creditors?
The procedure is almost the
same. However, the required
number of votes by the
outstanding capital stock is a
bit higher.
The first step is that there
must be a resolution to be
adopted by the BOD or BOT,
and such resolution for the
voluntary dissolution of the
corporation must be approved
by the majority of the
BOD/BOT. After the resolution
has been prepared, it must be
presented in a meeting, general
or special, called for that
purpose for the ratification of
the members or the
outstanding capital stock. A
vote of at least 2/3 of the total
number of the outstanding
capital stock shall ratify the
adoption of the resolution.
There must be a verified
petition to be filed with the
SEC.
A verified petition means to say
that the matters that are
stated in the petition are the
act of the BOD, that everything
that are stated there are true
and correct to the best of there
personal knowledge and based
on authentic documents.
Who files the verified petition
on behalf of the corporation?
It must be filed by the BOD
who voted for the dissolution of
the corporation and it must be
attested to by the President or
the Secretary or the Treasurer
of the corporation.
Upon receipt of the verified
petition, what will the SEC do?
It will determine if the verified
petition is sufficient in form
and substance. If sufficient,
the SEC will issue two orders:
1. Order of Publication –
Why? Because it affects
the general public. It
must be published in a
newspaper of general
circulation where the
corporation has its main
office, once a week for
three consecutive weeks.
2. Order Directing to Send
to All the Creditors Copy
of the Verified Petition –
amount of the obligation
and the addresses of the
creditors are indicated
therein. Why? So,
creditors may properly file
their claim against the
corporation.
The order must specify
that the claim must be
filed not less than 30
days and not more than
60 days from the date of
filing of the verified
petition. If creditor fails to
file a claim within a
period of 60 days, it is
deemed waived. However,
there are exigencies that
gives exception.
If there is a creditor who
filed his claim, and later
on, he does not claim the
amount due after the
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 liquidation, it will be outlined by law? No, since it is
escheated in favor of the involuntary.
government.
What are the grounds for the
Is there a de facto involuntary dissolution of a
dissolution of a corporation? corporation to be conducted by
the SEC?
Can a corporation claim that it
has dissolved in a de facto 1. Non-use of the corporate
manner? charter;

No. In a SEC opinion, it says 2. Continuous inoperation

that there is no such thing as a within the period
de facto dissolution of a prescribed by law (Section
corporation especially when it 21, RCCP);
comes to voluntary dissolution.
The dissolution of a Section 21
corporation is a mere privilege “Effects of Non-Use of
granted by law and as a Corporate Charter and
privilege, it must comply Continuous Inoperation.
strictly with the procedures — If a corporation does
provided for by law. not formally organize and
commence its business
There is no such thing as de
within five (5) years from
facto voluntary dissolution of a
corporation because it is a the date of its
mere privilege granted by the incorporation, its
state to juridical entity for it to certificate of
surrender its franchise and incorporation shall be
therefore, must strictly comply deemed revoked as of the
with the procedure outlined by day following the end of
law for its dissolution or the five (5)-year period.
termination of corporate However, if a corporation
existence. has commenced its
business but
When may an involuntary subsequently becomes
dissolution of a corporation
inoperative for a period of
take place?
at least five (5)
The SEC may motu proprio consecutive years, the
dissolve a corporation for Commission may, after
cause provided for by law. due notice and hearing,
How? By giving notice that the place the corporation
corporation has already been under delinquent status.
dissolved. A delinquent corporation
shall have a period of two
Is it necessary that the (2) years to resume
procedure may have been operations and comply
with all requirements that

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 the Commission shall 4. If there is a violation of a
prescribe. Upon lawful order dissolving
compliance by the the corporation;
corporation, the
Commission shall issue 5. If there is a final
an order lifting the judgment that the
delinquent status. Failure corporation is
fraudulently organized or
to comply with the
it misrepresents the
requirements and resume
purpose for which it was
operations within the organized;
period given by the
Commission shall cause 6. If the corporation is
the revocation of the organized for the purpose
corporation’s certificate of of violating SEC laws, tax
incorporation. evasion, etc.;
The Commission shall
give reasonable notice to, 7. Those which were
and coordinate with the provided by PD 902-A
appropriate regulatory (the law that removes the
agency prior to the quasi-judicial power of
suspension or revocation the SEC and transfers it
to the Regional Trial
of the certificate of
Court - Special Corporate
incorporation of
Court):
companies under their
special regulatory a. Fraud in procuring its
jurisdiction.” articles or certificate of
registration;

If a corporation does not b. Serious

undertake to do its business misrepresentation as to
for a period of 5 continuous its purpose;
years from the time of its
incorporation, it shall be c. Refusal to comply or
deemed automatically defiance with the
dissolved. Under such lawful order of the
circumstance, the SEC may SEC;
then issue a Certificate of
d. Continuous
Dissolution.
inoperation for 5 years;

e. Failure to file the by-

3. When the corporation
laws within the time
does not continuously
prescribed by law;
operate for a period of 5
years;
f. Failure to file the
required reports.

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A corporation is required
under the law to file
updated financial
statements and certificate
of information.
Is it only the SEC that can
dissolve a corporation?
Under the RCCP, it says that
any interested may also file for
a verified petition for the
dissolution of a corporation on
any of the following grounds
for which the SEC may motu
proprio dissolve a corporation.
File a verified petition with the
RTC.
What kind of cause of action
are you going to file?
Under the Rules of Court,
when a corporation has lost its
charter or has lost its
personality in order to
continue to operate, based on
any of the foregoing grounds,
file a petition for Quo
Warranto. When a corporation
continuously discharge its
function, notwithstanding the
fact that it has reason to do so,
then one can file a Petition for
Quo Warranto.
If a person files a petition for
voluntary dissolution of a
corporation or a petition for
dissolution is filed in court, may
the corporation withdraw the
petition? Or, may a shareholder
withdraw the petition on behalf
of the corporation?
The Corporation Code allows
the withdrawal of a petition for
voluntary dissolution of a
corporation.
What about involuntary
dissolution of a corporation?
Can it be withdrawn?
No, it cannot be withdrawn
because that is already the act
of the State.
Filing the withdrawal of a
petition for dissolution
File a written motion within 15
days from the date the verified
petition was filed. Filing after
the 15-day period is not
allowed since the requisite here
is that it must take its course.
Winding Up
The winding up of a
corporation must be
undertaken within a period of
three years from the date of the
issuance of the Certificate of
Dissolution. The three-year
period is only for the purposes
of winding up.
Winding up is the act of the
corporation in settling its
remaining affairs which has
nothing to do with the main
purpose for which it was
organized.
What transactions that have
something to do with winding
up that are considered valid?
If a corporation is declared to
be insolvent, must it also wind
up its affairs?
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In all instances, a corporation in settlement proceedings,
can only be dissolved by means then, it is deemed that best
of a court decree. See FRIA that a receiver be appointed.
However, it is not the receiver
It is not actually the who determines who is
corporation that winds up its entitled.
business but it is the court.

The Code is silent on how a The function of the receiver is

corporation must wind up its
operation. Under the Rules of
Civil Procedure, when you
wind up the affairs of a
corporation by virtue of quo
warranto proceedings, a themselves who will be in
trustee or receiver may be
appointed.
In a SEC opinion, it says that
it is not necessary to appoint a
trustee or receiver because the
BOD themselves may act as
trustees and be the ones to
wind up the corporation. The
appointment of a trustee or a
receiver may only entail
additional expenses.
But, there are instances
wherein the appointment of a
trustee or a receiver becomes
necessary: When there is a
danger that the property which
is the subject matter of a
litigation, for that matter, is in
danger of being dissipated or
being destroyed.
If there are contending parties
who interpose divergent or
different interest on the assets
of a corporation, then, it will be
best that a receiver be
appointed. Normally, this
happens in family business.
If there is a dispute on who is
truly entitled to the shares of
stocks and it cannot be settled
merely to preserve the property
pending litigation.
A trustee is a person
appointed by the parties
charge to take care of the
property and hold it in trust for
them.
A receiver is appointed by the
court while a trustee is
appointed by the parties.
Emphasis: Liquidation is a part
of winding up. Liquidation is
the act of liquifying for
disposing all of the assets of a
corporation, for the purpose of
satisfying its obligation to its
creditors or against its
shareholders.
Can a corporation retain some
properties that are not
distributed?
Any properties that are not
liquidated or are not
distributed by the corporation
will be escheated in favor of the
State.
Definitely, there is an escheat
proceeding as a matter of due
process of law to govern the
State’s act of taking a property.
There is a specific proceeding
on escheat provided for under

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the rules on special
proceedings.

Eof/mjac2022

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