Ilovepdf Merged

CORPORATE JURIDICAL
PERSONALITY
Doctrine of Separate Juridical Personality
A corporation has a personality separate and distinct from that of its
stockholders or members composing it, and the directors, trustees, and
officers that represent it.
Kukan International Corporation vs. Reyes (2010)
Similarity in majority shareholdings, standing alone, is insufficient to establish
identity.
Mere ownership by a single stockholder or by another corporation of a

substantial block of shares of a corporation does not, standing alone,
provide sufficient justification for disregarding the separate corporate
personality.
PNB v. Rittrato Group, Inc. (2001)
A suit against an agent cannot without compelling reasons, be considered a suit
against the principal.
Aside from the fact that the lender is a wholly-owned subsidiary, there is no showing
that it is a mere instrumentality of the parent company.
The parent-subsidiary relationship between the two corporations is not the significant
relationship involved in this case since the parent company was not sued because it is
the parent company of the lender. Rather, it was sued because it acted as attorney-in-
fact of the lender in initiating the foreclosure proceedings.
Spouses Nisce v. Equitable PCI Bank (2007)
When an investor has a claim against a subsidiary of another corporation, which subsequently became
the acquired corporation in a merger, the claim against the subsidiary can not be enforced against the
surviving corporation even though the latter corporation, by virtue of the merger, acquired all the shares
of the absorbed corporation.
The fact that a corporation owns almost all of the stocks of another corporation, taken alone, is not
sufficient to justify their being treated as one entity.
If the parent company cannot be held liable, the surviving corporation which merged with the former
cannot be held liable as well, even though the surviving corporation now owns the subsidiary liable.
Yamamoto v. Nishino Leather Industries, Inc.
(2008)
The lawyer of the controlling stockholder of the corporation advised another stockholder that he could
obtain possession of certain corporate properties by way of return for his equity investment but the
lawyer acted without board approval.
The advice is not binding on the corporation even though it had the approval of the controlling
stockholder.
The doctrine of piercing the veil of corporate fiction can not be invoked on the sole ground that the
presence of other stockholders in the corporation was only for the purpose of complying with the
statutory minimum requirements on number of directors.
Stronghold Insurance v. Cuenca, et al. (2013)
The personality of a corporation is distinct and separate from the personalities of
its stockholders.
Hence, its stockholders are not themselves the real parties in interest to claim
and recover compensation for the damages arising from the wrongful
attachment of its assets.
Only the corporation is the real party in interest for that purpose.
Lanuza v. BF Corporation (2014)
BF Corporation filed a collection complaint with the RTC against Shangri-
La and the members of its board of directors.
A corporation’s representatives are generally not bound by the terms of

the contract executed by the corporation.
They are not personally liable for obligations and liabilities incurred on or
in behalf of the corporation.
Liability for Torts and Crimes
Torts: A corporation can be held liable for torts committed by its officer
for a corporate purpose. (PNB vs. CA, 83 SCRA 137 [1978])
Crimes: Corporations are incapable of intent, hence, they cannot commit

felonies that are punishable under the Revised Penal Code. Crimes under
special laws are personal in nature as well. Imprisonment cannot also be
imposed on corporations, but fines may be imposed on corporations.
However, a corporation may be dissolved for violations of RCC.
PNB v. CA (1978)
A corporation is civilly liable in the same manner as natural persons for torts,
because the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be
a natural person or a corporation, and whether the servant or agent be a natural or
artificial person.
A corporation is liable, therefore, whenever a tortious act is committed by an

officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing
body.
MSHA v. MWSS and CMS Construction (2018)
When a right is exercised in a manner which discards the norms set under Art. 19 of
the Civil Code, resulting in damage to another, a legal wrong is committed for which
actor can be held accountable. In this case, MWSS failed to act with justice and give
MSHA what is due to it when the MWSS unceremoniously cut off the MSHA’s water
service connection.
MWSS and CMS Construction were held liable for damages to MSHA but not the
Cruzes who are the directors and stockholders of CMS Construction (since it wasn’t
shown how they have committed the acts in Sec. 31 to make them personally liable).
Recovery of Moral Damages
As a general rule laid down in ABS-CBN vs. CA, a corporation cannot be entitled to
moral damages since physical or mental suffering may only be experienced by one
who has a nervous system, which a corporation being an artificial being has none.
However, the said rule admits exceptions as already laid down in Filipinas
Broadcasting vs. AMEC and San Fernando vs. Cargill. In the former, a corporation may
recover damages if the case involves defamation covered under Article 2219(7) of the
Civil Code; while in the latter, if the actuations of the defendant debased or besmirched
the corporation's good reputation or a contractual breach is attended by fraud or bad
faith as provided under Article 2220 of the same Code, moral damages may be
awarded to the corporation.
Filipinas Broadcasting v. Ago Medical (2005)
A juridical person is generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article
2219 of the Civil Code which expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of defamation.
Filipinas Broadcasting v. Ago Medical (2005)
Article 2219(7) does not qualify whether the plaintiff is a natural or juridical
person.
Therefore, a juridical person such as a corporation can validly complain for

libel or any other form of defamation and claim for moral damages.
Manila Electric Company v. T.E.A.M. Electronics
Corporation (2007)
As a rule, a corporation is not entitled to moral damages because, not being a
natural person, it cannot experience physical suffering or sentiments like wounded
feelings, serious anxiety, mental anguish and moral shock.
The only exception to this rule is when the corporation has a reputation that is
debased, resulting in its humiliation in the business realm.
But in such a case, it is essential to prove the existence of the factual basis of the
damage and its causal relation to defendant's acts.
Manila Electric Company v. T.E.A.M. Electronics
Corporation (2007)
Thus, where the records are bereft of evidence that the name or reputation of the
corporation has been debased as a result of Meralco’s act (which in this case is
the disconnection without written notice of the disconnection of the electricity
supply to the building of the corporation due to alleged meter tampering), the
corporation is not entitled to moral damages.
Crystal v. BPI (2008)
While the Court may allow the grant of moral damages to corporations, it
is not automatically granted; there must still be proof of the existence of
the factual basis of the damage and its causal relation to the defendant’s
acts.
In this case, there being no wrongful or unjust act on the part of BPI in
demanding payment from the spouses and in seeking the foreclosure of
the chattel and real estate mortgages, there is no lawful basis for award
of damages in favor of the spouses.
Doctrine of Piercing the Corporate Veil
The courts will look at the corporation as an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of the
corporation in unifying the group to ascribe personal liability on its members.
It is only an equitable remedy. It is a remedy of last resort and is not available

when other remedies are still available. (Example: in case of fraud, seek
annulment first)
It is a judicial power and cannot be assumed improvidently by a sheriff.
It applies only to a particular transaction for which it was applied.

Grounds for Application
1. Equity piercing: Such personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate
issues;
2. Alter ego piercing or instrumentality test: When the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation or where the
corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another
corporation; and
3. Fraud piercing: When the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary to achieve equity or for the
protection of the creditors.
California Manufacturing Company, Inc. v.
Advanced Technology System, Inc. (2017)
Components of the Alter Ego Doctrine:
1) Instrumentality or Control Test

2) Fraud Test
3) Harm Test
The instrumentality or control test of the alter ego doctrine requires not
mere majority or complete stock control, but complete domination of
finances, policy and business practice with respect to the transaction in
question.
The corporate entity must be shown to have no separate mind, will, or

existence of its own at the time of the transaction.
The fraud test, which is the second of the three-prong test to determine
the application of the alter ego doctrine, requires that the parent
corporation's conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful.
Under the third prong, or the harm test, a causal connection between the
fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff
has to be established.
Test of Determining Applicability
1. CONTROL: Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
2. BREACH: 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 rights; and,
3. PROXIMATE CAUSATION: The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil.
Who has legal standing to invoke the piercing
doctrine?
The doctrine of piercing the veil cannot be availed of by one who is not a
victim. (Traders Royal Bank vs. CA, 269 SCRA 15 (1997))
Pacific Rehouse Corporation v. CA (2014)
Where the court rendered judgment against a stock brokerage firm
directing the latter to return shares of stock which it sold without
authority, but the writ of execution was returned unsatisfied, an alias
writ of execution could not be enforced against its parent company
because the court has not acquired jurisdiction over the latter.
While the parent company owns and controls the brokerage firm, there
is no showing that the control was used to violate the rights of the
plaintiff.
Gold Line Tours, Inc. v. Heirs of Lacsa (2012)
If the RTC had sufficient factual basis to conclude that the two corporations are
one and the same entity as when they have the same President and controlling
shareholder and it is generally known in the place where they do business that
both transportation companies are one, the third party claim filed by the other
corporation can be set aside and the levy on its property held valid even though
the latter was not made a party to the case.
The judgment may be enforced against the other corporation to prevent

multiplicity of suits and save the parties unnecessary expenses and delay.
Livesey v. Biswanger (2014)
Piercing the veil of corporate fiction is warranted when a corporation ceased
to exist only in name as it re-emerged in the person of another corporation,
for the purpose of evading its unfulfilled financial obligation under a
compromise agreement.
Thus, if the judgment for money claim could not be enforced against the
employer corporation, an alias writ may be obtained against the other
corporation considering the indubitable link between the closure of the first
corporation and incorporation of the other.
Villa Rey Transit v. Ferrer (1968)
“(4) The SELLER shall not, for a period of ten (10) years
from the date of this sale apply for any TPU service identical
or competing with the BUYER.”
Villa Rey Transit v. Ferrer (1968)
Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive
clause in the contract entered into by the latter and Pantranco is also
enforceable and binding against the said Corporation.
A seller or promisor may not make use of a corporate entity as a means of

evading the obligation of his covenant.
Where the Corporation is substantially the alter ego of the covenantor to the
restrictive agreement, it can be enjoined from competing with the covenantee.
Times Transportation v. Sotelo (2005)
The following findings of the Labor Arbiter, which were cited and affirmed by the
Court of Appeals, have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the
daughter of respondent S. Rondaris of [Times] where she is/was also a
director, as proven by the articles of incorporation of [Mencorp];
2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza,
Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza,
Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris;
3. The timing of the sale evidently was to negate the employees/ complainants/
members’ right to organization as it was effected when their union (TEU) was
just organized/requesting [Times] to bargain;
4. [Mencorp] never obtained a franchise since its supposed incorporation in 10
May 1994 but at present, all the buses of [Times] are already being
run/operated by respondent [Mencorp], the franchise of [Times] having been
transferred to it.
The sale of Times’ franchise as well as most of its bus units to a company
owned by Rondaris’ daughter and family members, right in the middle of a labor
dispute, is highly suspicious.
It is evident that the transaction was made in order to remove Times’ remaining
assets from the reach of any judgment that may be rendered in the unfair labor
practice cases filed against it.
Zambrano v. Philippine Carpet Manufacturing
Corporation (2017)
May the separate corporate personality of Pacific Carpet be disregarded to make
it liable for the obligations of Phil. Carpet to the dismissed employees, the
former being a subsidiary of the latter?
Corporation (2017)
No. Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
Neither does existence of interlocking directors, corporate officers and

shareholders is not enough justification to pierce the veil of corporate fiction in
the absence of fraud or other public policy considerations.
Corporation (2017)
As to the transfer of Phil. Carpet's machines to Pacific Carpet, settled is the
rule that "where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the
debts and liabilities of the transferor.
Heirs of Uy v. International Exchange Bank
(2013)
When two business enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or one and the same.
Heirs of Uy v. International Exchange Bank
(2013)
While the conditions for the disregard of the juridical entity may vary, the following are
some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, as laid down in Concept Builders, Inc.,v NLRC:
(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.
Virata v. Wee (2017)
When the notion of separate juridical personality is used

(1) to defeat public convenience, justify wrong, protect fraud or defend crime;
(2) as a device to defeat the labor laws; or
(3) when the corporation is merely an adjunct, a business conduit or an alter
ego of another corporation,
this separate personality of the corporation may be disregarded or the veil of
corporate fiction pierced.
Virata v. Wee (2017)
Factors which justified disregarding the separate personality of Virata and Power Merge:
1. Virata was the President of Power Merge and exercised complete control of the stocks
thereof (374,996 out of 375,000 of its subscribed capital stock), the remainder was left
for the nominal incorporators of the business.
2. The reported address of Virata and the principal office of Power Merge are one and the
same.
3. Power Merge never operated to perform its business functions, but for the benefit of
Virata. It was merely created to fulfill his obligations under the Waiver and Quitclaim,
the same obligations for his release from liability arising from Hottick's default and
non-payment.
INCORPORATION AND
ORGANIZATION
Promoter and Liabilities Involving Promoter’s
Contracts
Promoter
A self-constituted organizer who finds an enterprise or venture and helps to

attract investors, forms a corporation and launches it in business, all with a view
to promotion profits
The promoter should remit profits that properly pertain to the corporation.
Promoter and Liabilities Involving Promoter’s
Contracts
Before incorporation
GR: Corporation is not liable (promoter shall be personally liable)
XPN: Ratified by the corporation

Incorporators
Salient features introduced by the RCC:
1. The RCC allows a partnership, association, or corporation to organize a

corporation without any minimum number of incorporators.
2. The RCC eliminated the residency requirement for incorporators.
3. Individual licensed professionals and associations or partnerships organized
for the purpose of practicing a profession may only organize a corporation if
allowed by a special law.
Incorporators
Qualifications:
- Owner or subscriber of at least one share (if stock); or a member (if

non-stock)
- If a natural person - of legal age
- If juridical entity: must be a partner (if partnership) or authorized
signatory (if corporation)
Incorporators
Special Requirements:
a) Partnership
- Partners’ Affidavit, authorizing the partnership to invest in the corporation to
be organized and designating one of the partners to be a signatory to the
incorporation documents
a) Domestic Corporation or Association
- Investment must be approved by majority of the board of directors/trustees
- Ratified by SHs representing at least ⅔ of the OCS (stock) or ⅔ of members
(non-stock)
- Directors’ or Trustees’ Certificate or Secretary’s Certificate
Incorporators
All incorporators must have a TIN (or passport for foreigners while
applying for a TIN).
Inclusion of foreign nationals shall be subject to foreign ownership

restrictions.
No minimum; maximum of fifteen (15) incorporators

Can a representative of a juridical incorporator
be named as director or trustee in the AOI?
GR: NO.
XPN: If the representative is also an owner of at least one (1) share of

stock, or is also a member of the corporation being formed.
Authorized Capital Stock
The amount fixed in the articles of incorporation to be subscribed and
paid by the stockholders of the corporation.
It is the maximum number of shares that the corporation is legally

allowed to issue without amending the articles of incorporation.
Subscribed Capital Stock
The portion of the ACS which is covered by subscription agreements
whether fully paid or not.
Outstanding Capital Stock
The total shares of stock issued under binding subscription contracts to
subscribers or stockholders, whether fully or partially paid, except
treasury shares.
Paid-up Capital Stock
The portion of the ACS which has been subscribed and paid by the
stockholders of the corporation.
Minimum Subscription
Under the RCC, the minimum subscription requirement has been dispensed
with, subject to provisions of special laws.
AFTER INCORPORATION
In case of increase of capital stock, at least 25% of the increase in capital

stock must be subscribed and at least 25% of the amount subscribed must be
paid in cash or in property, the valuation of which is equivalent to at least 25%
of the subscription. (Sec. 37(f), RCC)
Partial Payment of Subscription
Partial payment is allowed as can be inferred from the following:
- RCC provisions on delinquent shares

- AOI provides for separate columns for “amount subscribed” and
“amount paid”
EXCEPT: No par value shares - deemed fully paid and non-assessable.

(Sec. 6, RCC)
Articles of Incorporation
1. Nature and function
2. Contents
3. Amendment
Nature and Function
AOI is the document prepared by the incorporators containing the matters
required by the RCC and filed with the SEC. It offers the ultimate evidence of the
nature and purpose of a corporation and defines the contractual relationships
between:
1) the State and the corporation,
2) the stockholders and the State, and
3) the Corporation and the stockholders.

Contents
1. Name of the corporation
2. Specific purpose or purposes
3. Place where the principal office of the corporation is to be located, which
must be within the Philippines
4. The term for which the corporation is to exist (if not perpetual)
5. Names, nationalities, and residence address of the incorporators
6. Number of directors, which shall not be more than 15
7. Names, nationalities, and residence address of the persons who shall act as
directors/trustees until the first regular directors/trustees are elected
Contents
8. If it is a stock corporation:
a. Amount of its ACS

b. Number of shares into which it is divided
c. Par value of each share
d. Names, nationalities, and residence addresses of the original subscribers
e. Amount subscribed and paid by each upon subscription
f. Statement that some or all of the shares are without par value, if applicable
Contents
9. If it is a non-stock corporation:
a. The amount of capital

b. Names, nationalities, and residence addresses of the contributors; and
c. The amount contributed by each
10. Such other matters consistent with law and which the incorporators may
deem necessary and convenient.
Contents
Section 13, RCC
An arbitration agreement may be provided in the AOI pursuant to Section 181 of

the RCC.
Corporate Name and Limitations on Its Use
SEC MC 13, s. 2019:
- Must contain the word “Corporation” or “Incorporated” or its abbreviations

(Corp. or Inc.)
- If a one person corporation, must contain OPC either below or at the end of
name
- Foundations must use “Foundation”.
- A term that describes the business of the corporation should refer to its
primary purpose.
SEC MC 13, s. 2019:
- Name shall be distinguishable.

- Business or trade name different from corporate name shall be indicated in
the AOI.
- A corporation may have more than one business or trade name.
- Personal names may be used, subject to conditions.
- Internationally known foreign corporate names may only be used by a
subsidiary with parent’s consent.
SEC MC 13, s. 2019:
- Name of a local geographic unit or location must be accompanied by a

descriptive word. (Example: Pasay Food Store)
- Take note of special purpose names that are subject to restrictions.
- Profession’s name may be used if permitted by special law that regulates it.
- Names of expired corporations and those amended may be re-registered,
subject to procedure.
- Even if registered, must be changed if another entity has acquired a prior
right.
PC Javier & Sons v. CA (2005)
A change in the corporate name does not make a new corporation, whether
effected by a special act or under a general law. It has no effect on the identity of
the corporation, or on its property, rights, or liabilities.
The corporation, upon such change in its name, is in no sense a new corporation,
nor the successor of the original corporation.
It is the same corporation with a different name, and its character is in no respect
changed.
Zuellig Freight v. NLRC (2013)
A change of name is not a change of being.
In short, Zeta and Zuellig Freight remained one and the same corporation. The
change of name did not give Zuellig Freight the license to terminate employees of
Zeta like San Miguel without just or authorized cause.
The situation was not similar to that of an enterprise buying the business of
another company where the purchasing company had no obligation to rehire
terminated employees of the latter.
Zuellig Freight v. NLRC (2013)
Zuellig Freight, despite its new name, was the mere continuation of Zeta’s
corporate being, and still held the obligation to honor all of Zeta’s obligations, one
of which was to respect San Miguel’s security of tenure.
The dismissal of San Miguel from employment on the pretext that Zuellig Freight,
being a different corporation, had no obligation to accept him as its employee,
was illegal and ineffectual.
De La Salle Montessori v. De La Salle Brothers
(2018)
The phrase "De La Salle" is not merely a generic term.
De La Salle Brothers’s use of the phrase being suggestive and may properly be
regarded as fanciful, arbitrary and whimsical, it is entitled to legal protection.
De La Salle Montessori's use of the phrase "De La Salle" in its corporate name is
patently similar to that of De La Salle Brothers that even with reasonable care and
observation, confusion might arise.
(2018)
The SC noted not only the similarity in the parties' names, but also the business
they are engaged in. They are all private educational institutions offering pre-
elementary, elementary and secondary courses.
As aptly observed by the SEC En Banc, De La Salle Montessori’s name gives the
impression that it is a branch or affiliate of De La Salle Brothers. It is settled that
proof of actual confusion need not be shown. It suffices that confusion is
probable or likely to occur.
(2018)
The enforcement of the protection accorded by Section 18 of the Corporation
Code to corporate names is lodged exclusively in the SEC. By express mandate,
the SEC has absolute jurisdiction, supervision and control over all corporations.
It is the SEC's duty to prevent confusion in the use of corporate names not only for
the protection of the corporations involved, but more so for the protection of the
public.
(2018)
It has authority to de-register at all times, and under all circumstances, corporate
names which in its estimation are likely to generate confusion.
Clearly, the only determination relevant to this case is that one made by the SEC in
the exercise of its express mandate under the law.
Purpose
May the AOI provide for more than one purpose?
YES, provided that the purposes are not contrary to law, capable of being
combined, and there is only one primary purpose.
Rationale behind having a primary purpose:
The SHs have the right to expect that the funds and assets of the
corporation should be primarily devoted to attain its primary purpose.
Purpose
Investment of funds for primary purpose: ONLY BOARD APPROVAL
Investment of funds for purposes other than primary: APPROVAL OF AT

LEAST A MAJORITY OF THE ENTIRE BOARD AND SH REPRESENTING ⅔
OF THE OCS (Sec. 41, RCC)
Principal Place of Business
It determines the residence or domicile of the corporation. As such, the place
indicated in the corporation’s AOI becomes controlling in determining the venue
for filing of legal actions involving the corporation.
The principal office of the corporation is that which is stated in the AOI and not
the place of its actual operations. (See Hyatt Elevators and Escalators Corporation
v. Goldstar Elevator Phils., Inc., G.R. No. 161026, 24 October 2005)
SEC MC 6, s. 2016: address must be as specific as possible (unit number, building

name, street number, street name, barangay, city)
Corporate Term
The time or period the corporation is allowed to exercise its corporate powers to
attain the purpose of its incorporation
- Perpetual existence unless AOI provides otherwise

- Period to extend:
- Three years prior to expiration of original term
- Revival of corporation is possible even after the expiration of its original term
Note: Condominium corporations last as long as the condominium building.

Corporate Term
What if the corporation was incorporated prior to the effectivity of the
RCC?
Section 11. Corporate Term. -- x x x Corporations with certificates of

incorporation issued prior to the effectivity of this Code, and which
continue to exist shall have perpetual existence.
Amendment
Procedure: Majority of BOD; ⅔ of OCS or members
Effectivity: Upon approval of SEC, or after 6 months of SEC’s inaction for

a cause not attributable to the corporation
Amendment
If the amendment pertains to the increase of capital stock, the certificate
of amendments must contain the matters set forth in Sec. 37 of the RCC.
Amendments which require the meeting of the
SH or members for approval
1. Extension or shortening of corporate term
2. Increase or decrease of capital stock
3. Merger or consolidation
4. Amendment to the AOI of a close corporation which seeks to delete or
remove any required provision or to reduce a quorum or voting requirement in
the AOI
5. Voluntary dissolution where no creditors are affected
6. Voluntary dissolution where creditors are affected
Remedy of a SH in case of an amendment to the
AOI
SH may exercise his/her appraisal right. He/she may get out of the
corporation and demand the payment of the fair value of his shares, after
dissenting to the proposed amendment.
Not available to all kinds of amendment. (See Sec. 80, RCC)

Matters that may not be amended in the AOI
Matters of accomplished fact, such as names and addresses of the

incorporators, date and place of incorporation, and the notary public
before whom the AOI was acknowledged.
Matters that may not be amended in the AOI
Can an incorporator whose marriage was declared null and void request
an amendment in the AOI such that the last name of her ex-husband be
dropped therefrom?
NO, but her name as a SH may be changed.

Grounds for Disapproval of AOI or Amendments
thereto
1. Substantial non-compliance with the prescribed form;
2. The purpose or purposes of the corporation are patently unconstitutional,
illegal, immoral, or contrary to government rules and regulations;
3. The certification concerning the amount of capital stock subscribed and/or
paid is false;
4. The required percentage of Filipino ownership in case of corporations
engaged in nationalized activities is not complied with
Registration and Issuance of Certificate of
Incorporation
Steps:
1. Submit the intended corporate name to the SEC for verification.

2. Submit the documentary requirements.
3. Pay filing fees.
If the SEC finds that the submitted documents and the information therein are
fully compliant with the requirements of the RCC and other pertinent laws, the SEC
shall issue a certificate of incorporation.
Registration and Issuance of Certificate of
Incorporation
Required documents:
1. Name verification slip

2. AOI and Bylaws
3. Joint Affidavit of two incorporators to change corporate name (if not included in the AOI)
4. List of members certified by the corporate secretary (if not included in the AOI)
5. List of contributors or donors and the amounts contributed or donated as certified by the treasurer
6. Endorsement/clearance from the appropriate government agency, if necessary
Commencement of Corporate Existence
Sec. 18, RCC: upon issuance of the Certificate of Incorporation by the
SEC
Duration:
- General rule: perpetual existence

- Exception: specific term provided in the AOI
- Exception to the exception: term is extended or corporation is sooner
dissolved in accordance with law
By-Laws
● Nature and function

● Requisites
● Binding effect
● Contents
● Adoption
● Amendment or revision
Nature and Function
Relatively permanent and continuing rules of action adopted by the corporation
for its own government and that of the individuals composing it those having the
direction, management and control of its affairs, in whole or in part, in the
management and control of its affairs and activities. (China Banking Corporation
vs. CA, 270 SCRA 503 [1997])
Forest Hills Golf and Country Club, Inc. v.
Gardpro, Inc. (2014)
The by-laws are self-imposed rules resulting from the agreement

between Forest Hills and its members to conduct the corporate business
in a particular way. Every stockholder governed by the by-laws was
entitled to access them. The prevailing rule is that the provisions of the
articles of incorporation and the by-laws must be strictly complied with
and applied to the letter.
Requisites
1. It must be consistent with RCC, other pertinent laws and regulations.
2. It must be consistent with the AOI.
3. It must be reasonable and not arbitrary or oppressive.
4. It must not disturb vested rights, impair contract or property rights of
stockholders or members or create obligations unknown to law.
Binding Effect
It is effective only upon issuance by the SEC of a certification that it is not
inconsistent with the RCC.
a. As to the Corporation and its components - binding not only upon the
corporation but also on its stockholder, members, and those having direction,
management and control of its affairs.
b. As to Third Persons - not binding, unless there is actual knowledge.
Ching v. Quezon City Sports Club (2016)
In that sense, the by-laws are the private "statutes" by which the country club is
regulated, and will function.
Until repealed, the by-laws are the continuing rules for the government of the
country club and its officers, the proper function being to regulate the transaction
of the incidental business of the country club. The by-laws constitute a binding
contract as between the country club and its members, and as among the
members themselves. The by-laws are self-imposed private laws binding on all
members, directors, and officers of the country club.
Content
It may contain any matter provided that:
1. They are not contrary to law, morals, or public policy.

2. They cannot contravene provisions of the AOI.
3. They must not be discriminatory, or be unreasonable.
Grace Christian High School v. CA (1997)
A provision in the by-laws of the corporation stating that of the 15 members

of its Board of Directors, only 14 members would be elected while the
remaining member would be the representative of an educational institution
located in the village of the homeowners, is invalid for being contrary to law.
The fact that it was not questioned for several years will never amount to a
waiver of invalidity.
Adoption
Original By-Laws
1. May accompany the Articles of Incorporation and SEC will approve it together
with the AOI; or
2. Filed within one month from notice of issuance of certificate of
incorporation, in which case it must be: (i) approved by stockholders
constituting at least a majority of outstanding capital and (ii) a copy (signed
by approving stockholders or members, certified by majority of directors or
trustees, and countersigned by corporate secretary) must be filed with the
SEC.
Amendment or Revision
May be made
● Stockholders together with the Board: with majority of board plus

majority of outstanding capital stock; or
● Board only: As delegated by ⅔ of outstanding capital stock or ⅔ of
members
○ May be revoked by majority vote of OCS or members
CAPITAL STRUCTURE
Subscription Agreements
- Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed, regardless of how
parties call it
- Pre-incorporation:
- Irrevocable for at least 6 months from date of subscription, UNLESS:
- ALL of the other subscribers consent; OR
- Corporation fails to incorporate within 6 months or stipulated period
- ABSOLUTELY irrevocable once AOI is submitted to SEC
- Not governed by the ordinary rules on sales due to Trust Fund Doctrine
- A consensual contract
SEC MC 11, s. 2016
❖ Bank certificate of deposit is no longer required to prove subscription
paid in cash. Non-cash subscription shall be proven by the
appropriate supporting documents.
❖ Special audit report is no longer required for applications for increase

of ACS; instead, a notarized Subscription Contract.
Trust Fund Doctrine
Subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims.
It regards the capital stock and assets of the corporation as equity in trust for the
payment of corporate creditors.
A corporation has no legal capacity to release an original subscriber to its capital

stock from the obligation of paying for his/her shares, in whole or in part, without
a valuable consideration, or fraudulently, to the prejudice of creditors.
Sample Balance Sheet
ASSETS [YEAR]
Due from Stockholders 10,000,000.00
TOTAL ASSETS 10,000,000.00
LIABILITIES
-- --
EQUITY
Capital 10,000,000.00
TOTAL LIABILITIES AND EQUITY 10,000,000.00

PNB v. Sawmill (1968)
A corporation has no power to release an original subscriber to its

capital stock from the obligation of paying for his shares, without a
valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and under
the conditions prescribed by the statute or the charter or the articles of
incorporation.
Shares of Stock
1. Nature
2. Classes
a. Common
b. Par value
c. No-Par value
d. Preferred
e. Redeemable
f. Founder’s
g. Escrow
h. Treasury
3. Watered stocks
Nature
GENERAL RULE: The shares of stock in a corporation may be divided into classes
or series of shares, or both, any of which classes or series of shares may have
such rights, privileges, or restrictions, but must be stated in the AOI, EXCEPT:
- Only preferred or redeemable shares may be deprived of voting rights

- XPN to the XPN: common shares may be deprived of voting rights if there are founders
shares
- At least one class or series has complete voting rights
- May not have a par value
- XPN to the XPN: banks, trust companies, insurance companies, public utilities, building and
loan associations
Nature
Shares are personal property.
If subject of a chattel mortgage, the mortgage must be registered in the

Chattel Mortgage Registry where:
1. The mortgagor is residing; AND

2. The issuing corporation has its principal place of business. (SITUS OF
SHARES)
Valley Golf and Country Club, Inc. v. Vda. de Caram
(2009)
Membership shares are considered as movable or personal

property, and they can be constituted as security to secure a
principal obligation, such as the dues and fees.
Valley Golf and Country Club, Inc. v. Vda. de Caram
(2009)
If the stockholder had not signed any document that manifests his agreement
to constitute his Golf Share as security in favor of the Corporation to answer
for his obligations to the club and there is no document that it is substantially
compliant with the form of chattel mortgages, the by-laws could not suffice
for that purpose since it is not designed as a bilateral contract between the
stockholder and the Corporation or a vehicle by which the stockholder
expressed his consent to constitute his Share as security for his account with
the Corporation.
Consideration
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation
equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital;
6. Outstanding shares exchanged for stocks in the event of reclassification or
conversion;
7. Shares of stock in another corporation; and/or
8. Other generally accepted form of consideration.
Consideration
VALUATION: initially determined by the SHs or the BOD, subject to SEC
approval
PROHIBITED EXCHANGE: for promissory notes or future service
APPLICABILITY TO BONDS: same consideration

Classes
1. Common
2. Par Value
3. No-Par value
4. Preferred
5. Redeemable
6. Founders
7. Escrow
8. Treasury
Common Shares
The basic class of shares usually without extraordinary rights
and privileges
Under the RCC, owners of common shares are entitled to pro

rata share in the profits of the corporation and in the assets
upon dissolution and likewise in the management of its affairs
without preference or advantage whatsoever.
Par Value Shares
Its value is fixed in the AOI, which nominal value remains the
same regardless of the profitability of the corporation.
No-Par Value Shares
It has no assigned value. Its value depends on the changes in the profits of the
corporation and the market value of the shares themselves at the time the shares
are issued.
Minimum consideration: P5.00 each
Cannot be issued by:

- Banks
- Insurance companies
- Trust companies
- Building and loan associations
- Public utilities
No-Par Value Shares
How to determine its value:
1. By majority vote of OCS; OR

2. By BOD, if conferred upon by AOI; OR
3. By amendment of AOI
Why issue no-par value shares? To give corporations flexibility to set

higher prices for shares to be issued in future public offerings
Preferred Shares
Those issued by a corporation which are given preference in
the:
1. distribution of dividends;
2. distribution of corporate assets in case of liquidation; or
3. such other preferences (i.e. voting).
It can only be issued with par value.

Redeemable Shares
It is only issued if expressly authorized in the AOI, subject to the terms and
conditions provided therein.
How redeemed: at redemption price regardless of existence of unrestricted

retained earnings
1. Fixed date; OR
2. At the instance of the corporation; OR
3. At the instance of the shareholder.
Once redeemed, it is considered retired (cannot be re-issued), UNLESS contrary is

provided in the AOI.
Founders’ Shares
If provided under the AOI, it has the exclusive right to vote and be voted as directors to the
BOD.
Such privilege cannot last longer than 5 years from date of incorporation. After expiration, it
forms part of common shares, and no conversion is needed.
It should not operate to violate Anti-Dummy Law and/or FIA.
Example: Even if the common shares comply with Gamboa v. Teves and SEC Control Test,
founders’ shares may restrict exercise of control of common shareholders.
Escrow Shares
It is specifically segregated and to be issued subject to a condition.
Shares are held by a third-party until certain conditions have been met in order to reduce counterparty risk
in a transaction.
Shares are escrowed in three common cases:
1. merger and acquisition transactions; (TO PROTECT THE BUYER FROM BREACHING WARRANTIES)
2. bankruptcy or reorganization of a company; (TO PRESERVE THE SHARES) and
3. granting of restricted shares to an employee of a firm. (TO ENSURE EMPLOYEES STAY LONGER)
Treasury Shares
Those that have been issued and fully paid for (except for delinquent shares), but
subsequently re-acquired by the issuing corporation by:
1. Purchase,
2. Redemption,
3. Donation, or
4. Other lawful means (bidding for delinquent shares in the absence of other
bidders)
REQUIREMENT: unrestricted retained earnings, EXCEPT redeemable shares

Treasury Shares
It enjoys no stockholders’ rights while being held by the corporation.
It may be held indefinitely, retired, or disposed of for a reasonable price (need not
be at least par value).
WHY ACQUIRE OWN SHARES?
- To complete fractional shares

- To collect indebtedness
- To acquire delinquent shares, where there is no bidder
- To acquire shares of dissenting stockholders exercising appraisal right
To complete fractional shares
Assume X and Y as owners of shares in ABC Corp. with 50 shares each. If ABC
Corp. declares to issue 25 shares as stock dividends, X and Y having 50%
ownership each is entitled to divide the 25 shares between them. But since
fractional shares cannot be issued, 0.50 share for X and 0.50 for Y shall be
acquired by ABC Corp.
X and Y remains to have equal number of shares each at 62 (50 plus 12).
Can there be reclassification or conversion of
shares?
YES, by amending the AOI.
If the reclassification or conversion will involve changing the rights of

shareholders, those who dissented to the proposed amendment are entitled to
exercise their appraisal right.
Watered Stocks
Shares issued by a corporation for which it has in fact intentionally or knowingly
received or agreed to receive nothing at all for them or less than its par value
either in money or in property or in service [reference: time of issuance]
Can stock dividends be considered watered stocks? Yes, if there is no

unrestricted retained earnings
Liability of Officers/Directors: if he/she consented or who has knowledge thereof

but did not object by filing a written objection
Certificate of Stock
1. Nature
2. Negotiability
a. Valid transfer
b. Binding effect
3. Issuance upon full payment
4. Lost and destroyed certificates
Nature
It is only an evidence of the share covered.
It is a prima facie evidence that the holder is a shareholder.
It merely expresses the contract between the corporation and the stockholder, but
it is not essential to the existence of a share or the creation of the relation of
shareholder to the corporation. [Ponce v. Alsons Cement, 393 SCRA 602 (2002)]
It cannot be transferred to anyone if the corporation holds any unpaid claim

against the shares.
Doctrine of Individuality of Subscription
It provides that subscription to shares of stock are deemed
indivisible and no certificate of stock can be issued, unless and
until the full amount of the subscription including interest and
expenses, if any, is paid.
Issuance upon full payment
Sec. 63, RCC: No certificate of stock shall be issued to a

subscriber until the full amount of the subscription together
with interest and expenses (in case of delinquent shares), if
any is due, has been paid.
Doctrine of Equality of Shares
It provides that where the Articles of Incorporation do not provide
for any distinction of the shares of stock, all shares issued by the
corporation are presumed to be equal and enjoy the same rights
and privileges and are also subject to the same liabilities.
Quasi-negotiability
The endorsement of the certificate of stock by the owner or his or her attorney-in-fact or any
other person legally authorized to make the transfer, shall be sufficient to effect the transfer
of shares only if the same is coupled with delivery.
Requirements of a valid transfer:
- Delivery of stock certificate

- By the owner or his attorney-in-fact or any other person legally authorized to make the
transfer
- To be valid against third persons, recorded in the books of the corporation
Torres, Jr. v. CA (1997)
It is the corporate secretary's duty and obligation to register valid

transfers of stocks and if said corporate officer refuses to comply, the
transferor-stockholder may rightfully bring suit to compel performance.
In other words, there are remedies within the law that petitioners could
have availed of, instead of taking the law in their own hands, as the cliche
goes.
Razon v. IAC (1992)
In order for a transfer of stock certificate to be effective, the certificate

must be properly indorsed and that title to such certificate of stock is
vested in the transferee by the delivery of the duly indorsed certificate of
stock.
Rural Bank of Salinas v. CA (1992)
Where a stockholder executed a Special Power of Attorney in favor of

his wife who, by virtue of said SPA, sold the shares, the corporation
cannot refuse to register the shares in favor of the assignee on the
ground that upon the death of the stockholder, the shares of stock
became the property of his estate which should be settled and
liquidated first before any distribution could be made.
Fil-Estate Golf and Development Inc. v. Vertex Sales
and Trading, Inc. (2013)
Section [62] of the Corporation Code provides that shares of stock so issued
are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. The failure of the stockholder to
deliver the stock certificate to the buyer within a reasonable time constitutes
a substantial breach that entitles the buyer to rescind the sale under Article
1191 of the Civil Code.
Teng v. SEC (2016)
Is the surrender of the certificates of stock a requisite before registration

of the transfer may be made in the corporate books and for the issuance
of new certificates in its stead?
Teng v. SEC (2016)
YES.
Section [62] of the Corporation Code provides that no transfer, however, shall
be valid, except as between the parties, until the transfer is recorded in the
books of the corporation. Surrender and cancellation of the old certificates
serve to protect not only the corporation but the legitimate shareholder and
the public as well, as it ensures that there is only one document covering a
particular share of stock.
Teng v. SEC (2016)
Valid transfer of stocks:
(a) there must be delivery of the stock certificate;
(b) the certificate must be endorsed by the owner or his attorney-in-fact

or other persons legally authorized to make the transfer; and
(c) to be valid against third parties, the transfer must be recorded in the
books of the corporation
Florete, Sr. v. Florete, Jr. (2018)
The AOI of a close corporation provides that “in case a stockholder

intends to sell his shares, the stockholder seller must notify in writing the
Board of Directors of his intention to sell, who, in turn, must notify all the
stockholders of record within 5 days upon receipt of such letter, and the
stockholder must exercise the preemptive right within ten days from
notice of the Board, otherwise, the sale shall be null and void.”
Here, Teresita's 3,464 Marsal shares were sold by petitioner estate to

petitioner Rogelio in a Compromise Agreement and Deed of Assignment
they entered into which was approved by the Probate Court.
There was already substantial compliance with paragraph 7 of the AOI

when respondents obtained actual knowledge of the sale of Teresita's
3,464 Marsal shares to petitioner Rogelio as early as 1995. In fact,
respondents had already given their consent and conformity to such sale
by their inaction for 17 years despite knowledge of the sale. Moreover,
they had already waived the procedure of the stockholder's sale of stocks
as provided under Paragraph 7 of the AOI.
Even if the transfer of stocks is made in violation of the restrictions

enumerated under Section [98], such transfer is still valid if it has been
consented to by all the stockholders of the close corporation and the
corporation cannot refuse to register the transfer of stock in the name of
the transferee.
Sec. 97, Tax Code
Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. -
There shall not be transferred to any new owner in the books of any
corporation, … … organized or established in the Philippines any share, …
… by way of gift inter vivos or mortis causa, legacy or inheritance, unless
a certification from the Commissioner that the taxes fixed in this Title
[ESTATE TAX] and due thereon have been paid is shown.
Garcia v. Jomouad (200)
Section [62] of the Corporation Code strictly requires the recording of

the transfer in the books of the corporation, and not elsewhere, to be
valid as against third parties.
Tee Ling Kiat v. Ayala Corporation (2016)
Will a sale of shares of stock evidenced by a photocopied document but

not recorded in the books of the corporation binding upon the
corporation?
Tee Ling Kiat v. Ayala Corporation (2016)
No. Here, the only evidence adduced by Tee Ling Kiat to support his claim that a
valid sale of shares transpired are a cancelled check issued by Tee Ling Kiat and a
photocopy of the Deed of Sale of Shares of Stock. A photocopy of a document has
no probative value and is inadmissible in evidence.
Even if it could be assumed that the sale of shares of stock contained in the
photocopies had indeed transpired, such transfer is only valid as to the parties
thereto, but is not binding on the corporation if the same is not recorded in the
books of the corporation.
Payment of Balance of Subscription
1. Call by the board

2. Notice
3. Delinquency
4. Sale of delinquent shares
a. Extra-judicial
b. Judicial: file for collection of the sum of money
Call by the Board and Notice
CALL: Subject to the provisions of the contracts of subscription, the
BOD may at any time declare due and payable to the corporation
unpaid subscriptions and collect the same or such percentage, with
interest accrued, as it may deem necessary.
NOTICE: resolution demanding SH to pay the balance; served to the

SH either personally, or by registered mail
Delinquency
If within 30 days from the date the subscriber was demanded to pay, no
payment was made, all stocks covered by said subscription shall
thereupon become delinquent and shall be subject to delinquency sale.
EFFECT: SH shall be denied the right to vote, or be represented in the

meetings, to examine books, pre-emptive right or any other right EXCEPT
right to dividends (to be applied to the unpaid subscription)
Extra-Judicial Sale of Delinquent Shares
NOTICE [jurisdictional]: served to the SH either personally, or by
registered mail plus publication (weekly for 2 consecutive weeks) in a
newspaper of general circulation in the province or city where the
principal office of the corporation is located
DATE: not less than 30 days but not more than 60 days from the date
the stocks become delinquent
Can the delinquent SH prevent the sale?
Yes, but the SH must pay to the corporation on or before the date of
sale, the:
- Balance due on the subscription

- Accrued interest
- Cost of advertisement
- Expenses of sale
Extra-judicial Sale of Delinquent Shares
SALE: The winning bidder shall be the one who is willing to pay the
amount of the balance of the subscription for the least number of
shares.
NO BIDDER: The corporation may, if it has unrestricted retained

earnings, bid for the same and the amount due shall be credited as
fully paid. The shares acquired shall become treasury shares.
EXAMPLE: X subscribed for 100 shares for P100.00 each (total:
P10,000). X became a delinquent SH for not paying the balance of
P5,000 and accrued interest amounting to P500. Cost of publication is
P1,000. Total amount due: P6,500
Bids: To pay P6,500 for

A: 100 shares
B: 50 shares
C: 10 shares
A: 100 shares
B: 50 shares
C: 10 shares (WINNER)
Certificates to be issued:
C: 10 shares (bid)
X: 90 shares (remaining)
Note: There is no right of redemption.

To question the sale, the party must first pay or tender to the winning
bidder the sum for which the same was sold with interest from the
date of sale at the legal rate (6%).
Prescriptive period: 6 months from date of sale

Lost and Destroyed Certificates
1. SH must file an affidavit of loss.
2. The corporation shall publish a notice (weekly for 3 consecutive weeks) in a newspaper
of general circulation in the place where the corporation has its principal office at the
expense of the SH.
3. One year after the last publication and no contest has been filed, the lost or destroyed
certificates shall be cancelled.
4. A new certificate shall be issued.
NOTE:
- No need to wait for one year to issue the new certificate if the registered SH files a
bond effective for one year.
- If there is a contest, suspend issuance until there is a final decision.
Stock and Transfer Book
The book which records the:
- Names and addresses of all stockholders arranged alphabetically

- Installments paid and unpaid on all stock for which subscription has been made, and
the date of payment thereof
- Statement of every alienation, sale, or transfer of stock made and the date thereof and
by and to whom made
- Such other entries as may be prescribed by law
Not in any sense a public record, and thus is not exclusive evidence of the matters and
things which ordinarily are or should be written therein
Stock and Transfer Book
Entries made on the STB by any person other than the

Corporate Secretary cannot be given any valid effect.
[Torres, Jr. v. CA, 278 SCRA 793 (1997)]
CORPORATE POWERS
Powers of the Corporation
Section 2. Corporation Defined. - A corporation is an artificial being created by operation of
law, having the right of succession and the powers, attributes, and properties expressly
authorized by law or incidental to its existence.
Kinds:
(1) EXPRESS: those expressly authorized by the RCC and other laws, and its AOI and by-
laws
(2) IMPLIED: those that can be inferred from or necessary for the exercise of the express
powers
(3) INCIDENTAL: those that are incidental to the existence of the corporation
General Powers and Theory of General Capacity
Theory of General Capacity: “A corporation is said to hold such powers as
are not prohibited/withheld from it by general law.”
● Sue and be sued in its corporate name;
● Succession;
● Adopt and use a corporate seal;
● Amend Articles of Incorporation;
● Adopt, amend or repeal by-laws;
● For stock corporations - issue stocks to subscribers and to sell treasury stocks;
for non-stock corporations - admit members;
● Purchase, receive, take, or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with real and personal property pursuant to its lawful business;
● Enter into merger or consolidation;
● Make reasonable donations for public welfare, hospital, charitable, cultural,
scientific, civil or similar purposes;
● Establish pension, retirement and other plans for the benefit of directors, trustees,
officers and employees; and
● Other power essential or necessary to carry out its purposes.
National Power Corporation v. Vera (1989)
If that act is one which is lawful in itself and not otherwise prohibited
and is done for the purpose of serving corporate ends, and reasonably
contributes to the promotion of those ends in a substantial and not
in a remote and fanciful sense, it may be fairly considered within the
corporation's charter powers.
National Power Corporation v. Vera (1989)
The pier located at Calaca, Batangas, which is owned by NPC, receives the
various shipments of coal which is used exclusively to fuel the Batangas Coal-
Fired Thermal Power Plant of the NPC for the generation of electric power.
The stevedoring services which involve the unloading of the coal shipments
into the NPC pier for its eventual conveyance to the power plant are incidental
and indispensable to the operation of the plant. NPC is empowered under its
Charter to undertake such services, it being reasonably necessary to the
operation and maintenance of the power plant.
Mid-Pasig Land and Development v. Tablante
(1989)
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation
Code, clearly enunciates that all corporate powers are exercised, all business
conducted, and all properties controlled by the board of directors.
A corporation has a separate and distinct personality from its directors and
officers and can only exercise its corporate powers through the board of
directors.
Mid-Pasig Land and Development v. Tablante
(1989)
Thus, it is clear that an individual corporate officer cannot solely exercise any
corporate power pertaining to the corporation without authority from the board of
directors.
Specific Powers and Theory of Specific Capacity
Theory of Specific Capacity: “The corporation cannot exercise powers
except those expressly/impliedly given.”
Specific Powers and Theory of Specific Capacity
● To extend or shorten corporate term
● To increase or decrease capital stock, or incur, create, or increase bonded
indebtedness
● To deny pre-emptive rights
● To sell or dispose of corporate assets
● To acquire own shares
● To invest corporate funds in another corporation or business
● To declare dividends
● To enter into management contracts
Guidelines
LEGAL REFERENCE: Section __, RCC
BOD: vote required in order to be considered approved
SH: vote required in order to be considered approved (OCS or members: entitled to vote)
Notice: SH approval requires a meeting where a notice is required to inform the SH in

advance of the agenda to be taken up
Appraisal right: right of a dissenting SH to be paid for the fair value of his/her shares
To Extend or Shorten Corporate Term
Section 36, RCC
BOD: majority
SH: ⅔
Notice: YES
Appraisal right: YES

To Increase or Decrease Capital Stock, or Incur,
Create, or Increase Bonded Indebtedness
Section 37, RCC
BOD: majority
SH: ⅔
Notice: YES
Appraisal right: NO
Increase of ACS: 25% subscribed; 25% of which paid up

To Increase or Decrease Capital Stock, or Incur,
Create, or Increase Bonded Indebtedness
Original ACS: PHP 20,000,000
Increase: PHP 10,000,000
Total ACS: PHP 30,000,000
Required Subscription: PHP 2,500,000 (25% of increase)
Required Paid-up: PHP 625,000 (25% of subscribed)

To Deny Pre-Emptive Rights
Section 38, RCC
When denied:
(1) To shares issued in compliance with laws requiring stock offerings or

minimum stock ownership by the public;
(2) To shares issued in good faith with the approval of the SHs representing ⅔ of
OCS in exchange for property needed for corporate purposes or in payment of
previously contracted debt
To Sell or Dispose of Corporate Assets
Section 39, RCC
BOD: majority
SH: ⅔ (if non-stock and no members with voting rights, majority of trustees with
sufficient authorization)
Notice: YES
Appraisal right: YES
Effect of non-compliance: disposition is VOID

How to compute: use net asset value (Assets less Liabilities)
When substantially all: the corporation would be rendered incapable of continuing the business or
accomplishing the purpose of which it was incorporated
The BOD may abandon such plan without approval of SHs.
Disposition allowed without SHs’ approval:
(1) necessary in the usual and regular course of business of the corporation; or
(2) if the proceeds of the sale or other disposition of such property and assets shall be
appropriated for the conduct of its remaining business.
For publicly listed companies:
Sale of all or substantially all of corporate property and assets = at least 51% of the
corporation’s total assets, whether in a single transaction OR in several transactions
taking place within 1 year from the date of the first transaction (aggregate sale
transactions)
Other laws which govern the disposition of corporate assets:
1. The Philippine Competition Act (RA 10667)

a. Anti-Competitive Agreements
b. Abuse of Dominant Position
c. Anti-Competitive Mergers and Acquisitions
2. The Bulk Sales Law
3. The General Banking Law
Islamic Directorate of the Philippines v. CA (1997)
Where an asset constitutes the only property of the corporation, its sale to a third-
party is a sale or disposition of all the corporate property and assets of said
corporation falling squarely within the contemplation of Section 40 of the
Corporation Code.
Hence, for the sale to be valid, the majority vote of the legitimate Board of
Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the
corporation should have been obtained.
Y-I Leisure Philippines, Inc. v. Yu (2015)
Must fraud exist in the transfer of all the corporate assets in order for
the transferee to assume the liabilities of the transferor?
If the transferee acquires the assets of the transferor corporation and
continues the business of the transferor, the transferee should be liable to
pay the claims of the transferor’s creditors.
NELL DOCTRINE: Generally, where one corporation sells or otherwise transfers all
of its assets to another corporation, the latter is not liable for the debts and
liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the
corporations;
3. Where the purchasing corporation is merely a continuation of the selling
corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability
for such debts.
To Acquire Own Shares
Section 40, RCC
BOD: majority
SH: None
Notice: No
Appraisal right: No
To Acquire Own Shares
Required: unrestricted retained earnings
When allowed:
(1) To eliminate fractional shares arising out of stock dividends;

(2) To collect or compromise an indebtedness to the corporation, arising out of
unpaid subscription, in a delinquency sale, and to purchase delinquent shares
sold during said sale; and
(3) To pay dissenting or withdrawing stockholders entitled to payment for their
shares.
Boman Environmental Development Corporation v. CA
(1988)
A withdrawing stockholder filed a suit against the corporation to enforce
payment of the balance due on the consideration for the surrender of his
shares of stock and interests in the corporation.
Boman Environmental Development Corporation v. CA
(1988)
The SEC must first determine whether the corporation has unrestricted retained
earnings to cover the payment for the shares, and whether the purchase is for a
legitimate corporate purpose as provided in the Corporation Code.
The requirement of unrestricted retained earnings to cover the shares is based

on the trust fund doctrine which means that the capital stock, property and other
assets of a corporation are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a corporation are preferred
over the stockholders in the distribution of corporate assets.
To Invest Corporate Funds in Another
Corporation or Business
Section 41, RCC
BOD: majority
SH: ⅔ (not necessary: investment by the corporation is reasonably necessary to

accomplish its primary purpose)
Notice: Yes
Appraisal right: Yes

To Invest Corporate Funds in Another
Corporation or Business
The rule must be followed if the corporation is an incorporator or a
subscriber in a corporation to be formed.
Heirs of Pael v. Court of Appeals (2000)
PFINA Properties, Inc. acquired by virtue of a deed of assignment dated January
25, 1983, certain parcels of land from the heirs of Antonio Pael. It appears that at
the time PFINA acquired the land, it was known to be a mining company. The
transfer was also replete with badges of fraud and irregularities. Furthermore, the
heirs of Pael had earlier disposed of their rights over the subject property long
before the transfer to PFINA was made.
Was the acquisition of PFINA of the disputed properties within its power and
hence a valid corporate act?
Heirs of Pael v. Court of Appeals (2000)
No.
At the time of PFINA acquired the disputed properties in 1983, its

corporate name was PFINA Mining and Exploration, Inc., a mining
company which had no valid grounds to engage in the highly speculative
business of urban real estate development.
To Declare Dividends
Kinds of dividends:
(1) Cash
(2) Property
(3) Stock
Section 42, RCC
BOD: majority
SH: None, except for stock dividends (2/3)
Notice: No, except for stock dividends
Appraisal right: No
Are corporations required to declare dividends?
- GR: No
- XPN: if the retained earnings exceeds 100% of paid-in capital stock
- XPN to the XPN:
- when justified by the definite corporate expansion projects or programs approved by the board of directors;
or
- when the corporation is prohibited under any loan agreement with financial institutions or creditors, whether
local or foreign, from declaring dividends without their consent, and such consent has not yet been secured; or
- when it can be clearly shown that such retention is necessary under special circumstances obtaining in the
corporation, such as when there is need for special reserve for probable contingencies
Are profits same as dividends?
Profits are the sources of dividends. Profits are dividends only when they
have been set aside for distribution to stockholders under the conditions
specified by law.
Profits - corporation
Dividends - stockholders
To Enter into Management Contracts
Section 43, RCC
BOD: majority
SH: majority (⅔ if there is a SH(s) which has more than ⅓ in both corporations OR
if there is a same majority in the BOD in both corporations)
Notice: Yes
Appraisal right: No
Maximum term: 5 years

Vote Required from Right of Holders Availability of
Vote Required from the
Powers ExercisedRCC the Board of of Non-Voting Appraisal
Stockholders/Members
Trustees/Directors Shares to Vote Right
Yes, by
Extend or shorten corporate term36 Majority 2/3 Yes36, 80
implication6
2/3 (none required in case of nonstock

Sale or other disposition of all or
Majority corporations where members have no Yes6 Yes39, 80
substantially all of its assets39
voting rights)
Investment of corporate funds in another

corporation or business or for any other Majority 2/3 Yes6 Yes41, 80
purpose41
Increase or decrease capital stock37 Majority 2/3 Yes6 No

Right of
Vote Required from
Vote Required from the Holders of
Powers ExercisedRCC the Board of Availability of Appraisal Right
Stockholders/Members Non-Voting
Trustees/Directors
Shares to Vote
Incur, create or increase bonded

Majority 2/3 Yes6 No
indebtedness37
Declare stock dividends42 Majority 2/3 No No
2/3, in case of good faith

issuance of shares in
exchange for property
Deny pre-emptive right38 Majority No No
needed for corporate
purposes or in payment of a
previously contracted debt
Right of
Vote Required from Availability
Holders of
Powers ExercisedRCC the Board of Vote Required from the Stockholders/Members of Appraisal
Non-Voting
Trustees/Directors Right
Shares to Vote
Majority; or
2/3, ((1) where a stockholder or stockholders

representing the same interest of both the managing
Enter into management and the managed corporations own or control more
Majority No No
contract43 than 1/3 of the total outstanding capital stock in the
managing corporation; or (2) where a majority of the
members of the board of directors of the managing
corporation also constitute a majority of the members
of the board of directors of the managed corporation)
Acquire own shares40 Majority NONE N/A N/A
Declare cash or property

Majority NONE N/A N/A
dividends42
Ultra Vires Acts and Its Consequences
Definition: those committed outside the object for which a corporation is created
Versus illegal acts: UVAs are merely voidable which may be enforced or ratified
Types:
(1) First type: outside of the corporation’s express, implied, or incidental powers
(2) Second type: effected by corporate agents without authority
(3) Third type: contrary to laws or public policy
Ultra Vires Acts and Its Consequences
Effects:
(1) Executed contracts: cannot be set aside
(2) Executory contracts: cannot be enforced
(3) Partly executed and partly executory: apply principle of unjust

enrichment
Doctrine of Ratification
The corporation may ratify the unauthorized acts of its corporate officer.
Ratification means that the principal voluntarily adopts, confirms, and gives
sanction to some unauthorized act of its agent on its behalf. [Yasuma v. Heirs of
De Villa, 499 SCRA 466 (2006)]
Requisites:
(1) Act or contract must be consummated, not merely executory;

(2) The creditors are not prejudiced, or all of them have given their consent;
(3) The rights of the public or the State are not involved; and
(4) All the SHs must give their consent.
Doctrine of Estoppel
The principle of estoppel precludes a corporation and its Board of
Directors from denying the validity of the transaction entered into by its
officer with a third party who in good faith, relied on the officer’s
authority to act on behalf of the corporation. [Lipat v. Pacific Banking, 402
SCRA 339 (2003)]
Doctrine of Apparent Authority
If a corporation knowingly permits one of its officers, or any other agent,
to act within the scope of apparent authority, it holds him/her out to the
public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent’s authority.
[Soler v. CA, 358 SCRA 57 (2001)]
Doctrine of Apparent Authority
Requirements:
(1) Acts of the purported corporate officer or agent justifying belief in

the agency by the principal corporation;
(2) Knowledge thereof by the principal corporation which is sought to be
held; and
(3) Reliance thereon by the principal corporation consistent with ordinary
care and prudence
Atrium Management Corporation v. CA (2001)
Hi-Cement Corporation through its corporate signatories, the treasurer and

chairman, issued checks in favor of E.T. Henry and Co. Inc. to extend financial
assistance to the latter. E.T. Henry and Co., Inc., in turn, endorsed the four checks
to Atrium Management Corporation for valuable consideration.
The checks bounced in view of a stop-payment order by Hi-Cement.

Atrium Management Corporation v. CA (2001)
An ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the power
conferred upon it by law.
The act of issuing the checks was well within the ambit of a valid corporate act,
for it was for securing a loan to finance the activities of the corporation, hence, not
an ultra vires act.
University of Mindanao, Inc. v. BSP (2016)
University of Mindanao’s Vice President for Finance, Saturnino Petalcorin,

executed several deeds of real estate mortgage over University of Mindanao’s
property in Cagayan de Oro City to secure the loans obtained by a thrift bank
incorporated by one of the university’s BOT.
A corporation may exercise its powers only within those definitions. Corporate
acts that are outside those express definitions under the law or articles of
incorporation or those committed outside the object for which a corporation is
created are ultra vires.
University of Mindanao, Inc. v. BSP (2016)
As an educational institution, it may not secure the loans of third persons.
Acquiring shares in another corporation is not a means to create new powers for
the acquiring corporation. Being a shareholder of another corporation does not
automatically change the nature and purpose of a corporation’s business.
DBP v. COA (2018)
Whether the BOD of the DBP acted within its powers when it granted
Governance Forum Productivity Award (GFPA) to DBP's officers and
employees on the basis that it was in the nature of a compromise
agreement to settle a labor dispute
DBP v. COA (2018)
DBP:
- Section 9 of its charter mentions that its BOD was authorized to compromise
claims against it
- Section 13 of its charter grants the BOD a free hand in the fixing of
compensation and allowances of its officers and employees
DBP v. COA (2018)
SC: The grant of GFPA was indeed an ultra vires act or beyond the authority of
DBP's BOD.
Sec. 13 concludes by expressly stating that DBP's system of compensation shall

nonetheless conform to the principles under the SSL.
How Exercised
1. By the shareholders
2. By the board of directors
3. By the officers
By the Shareholders
- In cases where SH approval is required under RCC;
- Delegation of power to adopt, amend, or repeal the by-laws to the
BOD;
- Revocation of delegation of such power;
- Approval of directors’ compensation;
- When the SHs of a close corporation do not elect directors and opted
to manage the corporation by themselves.
By the Board of Directors
Generally, the BOD alone, without the concurrence of the SHs, may
exercise the powers.
The SHs cannot overrule the directors.
The BOD may delegate some of its powers to an Executive Committee

(for further discussion).
Terp Construction Corporation v. Banco Filipino
Savings and Mortgage Bank (2019)
A corporation exercises its corporate powers through its board of directors. This
power may be validly delegated to its officers, committees, or agencies.
The authority of such individuals to bind the corporation is generally derived from
law, corporate bylaws or authorization from the board, either expressly or
impliedly by habit, custom or acquiescence in the general course of business.
The authority of the board of directors to delegate its corporate powers may
either be: (1) actual; or (2) apparent.
Actual authority may be express or implied. Express actual authority refers to the
corporate powers expressly delegated by the board of directors. Implied actual
authority, on the other hand, "can be measured by his or her prior acts which
have been ratified by the corporation or whose benefits have been accepted by
the corporation.”
Terp's subsequent act of twice paying the additional interest Escalona committed
to during the term of the Margarita Bonds is considered a ratification of
Escalona's acts.
Its only defense that they were "erroneous payment[s]" since it never obligated
itself from the start cannot stand.
Corporations are bound by errors of their own making.

By the Officers
Their authority to bind the corporation is generally derived from:
(1) Law;
(2) By-laws;
(3) Authorization from the BOD.
By the Officers
An officer may also bind the corporation if he/she has apparent authority through:
(1) The general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words the apparent authority to act in
general, with which it clothes him/her; or
(2) The acquiescence in his/her acts of a particular nature, with actual or
constructive knowledge thereof, within or beyond the scope of his/her
ordinary powers.
By the Officers
A corporate officer or agent may represent and bind the corporation in transactions with
third persons to the extent that the authority to do so has been conferred upon him or her,
and these include:
(1) Powers that, in the usual course of the particular business, are incidental to those
expressly provided;
(2) Powers that may be implied from the powers intentionally conferred;
(3) Powers added by custom and usage, as usually pertaining to the particular officer or
agent; and
(4) Such apparent powers as the corporation has caused a person dealing with the officer
or agent to believe that it has conferred.
Advance Paper Corporation v. Arma Traders Corporation
(2013)
When the sole management of the corporation was entrusted to two of its
officers/incorporators, with the other officers never had dealings with the
corporation for 14 years, and that the board and the stockholders never
had its meeting, the corporation is now estopped from denying the
officers’ authority to obtain loan from the lender on behalf of the
corporation under the doctrine of apparent authority.
Calubad v. Ricarcen Development Corporation (2017)
The doctrine of apparent authority provides that even if no actual

authority has been conferred on an agent, his or her acts, as long as they
are within his or her apparent scope of authority, bind the principal.
However, the principal's liability is limited to third persons who are

reasonably led to believe that the agent was authorized to act for the
principal due to the principal's conduct.
Calubad v. Ricarcen Development Corporation (2017)
Apparent authority is determined by the acts of the principal and not by

the acts of the agent.
Ayala Land, Inc. v. ASB Realty Corp. (2018)
A perusal of the August 3, 1993 letter shows that EMRASON, through Ramos,
Sr. authorized Ramos, Jr. and Antonio merely to "collaborate and continue
negotiating and discussing with [ALI] terms and conditions that are mutually
beneficial" to the parties therein. Nothing more, nothing less.
To construe the letter as a virtual carte blanche for the Ramos children to enter
into a Contract to Sell regarding the Dasmariñas Property would be unduly
stretching one's imagination.
"[A]cts done by [the] corporate officers beyond the scope of their authority cannot
bind the corporation unless it has ratified such acts expressly or is estopped from
denying them.“
What is clear from the letter is that EMRASON authorized the Ramos
children only to negotiate the terms of a potential sale over the Dasmariñas
Property, and not to sell the property in an absolute way or act as signatories in
the contract.
It is a settled rule that persons dealing with an agent are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of the agent's authority, and in case either is
controverted, the burden of proof is upon them to establish it.
Engineering Geoscience, Inc. vs. Philippine Savings Bank
(2019)
As mentioned above, the records of the case show no evidence that EGI
authorized Santos to file a Complaint and enter into a Compromise Agreement
on its behalf. Neither was there any showing that EGI's By-Laws authorize its
President to do such acts.
EGI's grant of authority to Santos, however, falls under the doctrine of apparent
authority.
(2019)
Under this doctrine, acts and contracts of the agent, as are within the apparent
scope of the authority conferred on him, although no actual authority to do such
acts or to make such contracts has been conferred, bind the principal.
Furthermore, the principal's liability is limited only to third persons who have been
led reasonably to believe by the conduct of the principal that such actual
authority exists, although none was actually given.
(2019)
Apparent authority is determined only by the acts of the principal and not by the
acts of the agent.
EGI does not repudiate the act of Santos in signing the Promissory Notes; in fact,
EGI made partial payments, offering the authority of Santos to borrow and sign
the Promissory Notes.
(2019)
EGI, however, repudiates the act of Santos in entering into the Compromise
Agreement extending the repayment of the loan under the Promissory Notes,
which extension is actually beneficial to EGI. In fact, the Compromise Agreement
bought time for EGI to pay the loan under the Promissory Notes but EGI still
failed to pay. Having availed of benefits under the Compromise Agreement, EGI
is estopped from repudiating it.
Since EGI's Board of Directors questioned Santos' authority to enter into a

Compromise Agreement only after 12 years, laches had already set in.
Trust Fund Doctrine
The capital stock, property, and other assets of the

corporation are regarded as equity in trust for the payment of
the corporate creditors.
Trust fund: subscribed (fully paid or not) capital of the

corporation
Trust Fund Doctrine
Examples: When the doctrine is violated
(1) The corporation releases or condones payment of the unpaid

subscription;
(2) There is payment of dividends without unrestricted retained earnings;
(3) Properties are transferred in fraud of creditors; or
(4) Properties are disposed or undue preference is given to some creditors
even if the corporation is insolvent;
Trust Fund Doctrine
RCC provisions that articulates the doctrine:
(1) Distribution of capital only in:

(a) Amendment of AOI to reduce ACS
(b) Purchase of redeemable shares
(c) Dissolution and eventual liquidation of the corporation
(2) Corporate power to acquire its own shares
(3) Distribution of corporate assets and property, unless stringent
requirements therefor are complied with
Ong Yong v. Tiu (2003)
The distribution of corporate assets and property cannot be made to depend on
the whims and caprices of the stockholders, officers or directors of the
corporation, or even, for that matter, on the earnest desire of the court a quo "to
prevent further squabbles and future litigations" unless the indispensable
conditions and procedures for the protection of corporate creditors are followed.
Otherwise, the "corporate peace" laudably hoped for by the court will remain
nothing but a dream because this time, it will be the creditors' turn to engage in
"squabbles and litigations" should the court order an unlawful distribution in
blatant disregard of the Trust Fund Doctrine.
In the instant case, the rescission of the Pre-Subscription Agreement will
effectively result in the unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust Fund Doctrine and the
Corporation Code, since rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of the corporation is
allowed.
Apparently, the Tius do not realize the illegal consequences of seeking rescission
and control of the corporation to the exclusion of the Ongs.
Such an act infringes on the law on reduction of capital stock.
Ordering the return and distribution of the Ongs' capital contribution without
dissolving the corporation or decreasing its authorized capital stock is not only
against the law but is also prejudicial to corporate creditors who enjoy absolute
priority of payment over and above any individual stockholder thereof.
Halley v. Printwell, Inc. (2011)
Halley argues that the trust fund doctrine was inapplicable because she had
already fully paid her subscriptions to the capital stock of BMPI. She thus insists
that both lower courts erred in disregarding the evidence on the complete
payment of the subscription, like receipts, income tax returns, and relevant
financial statements.
The petitioner’s argument is devoid of substance.

It is established doctrine that subscriptions to the capital of a corporation
constitute a fund to which creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the payment of its debts.
The trust fund doctrine is not limited to reaching the stockholder’s unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent
encompasses not only the capital stock, but also other property and assets
generally regarded in equity as a trust fund for the payment of corporate debts.
All assets and property belonging to the corporation held in trust for the benefit of
creditors that were distributed or in the possession of the stockholders,
regardless of full payment of their subscriptions, may be reached by the creditor
in satisfaction of its claim.
The creditor is allowed to maintain an action upon any unpaid subscriptions and
thereby steps into the shoes of the corporation for the satisfaction of its debt.
To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making
good unpaid balances upon their subscriptions, it is only necessary to establish
that the stockholders have not in good faith paid the par value of the stocks of the
corporation.
SEC and IC v. College Assurance Plan,
Philippines Inc. (2018)
The dispute concerns the use of the assets of the trust fund of the
respondent as a pre-need company.
The law clearly establishes the trust fund for the sole benefit of the
planholders, and its assets cannot be used to satisfy the claims of the
creditors of the company.
In respect of pre-need companies, the trust fund is set up from the
planholders' payments to pay for the cost of benefits and services,
termination values payable to the planholders and other costs
necessary to ensure the delivery of benefits or services to the
planholders as provided for in the contracts.
The trust fund is to be treated as separate and distinct from the paid-
up capital of the company, and is established with a trustee under a
trust agreement approved by the Securities and Exchange Commission
to pay the benefits as provided in the pre-need plans.

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CORPORATE JURIDICAL

Mere ownership by a single stockholder or by another corporation of a

A corporation’s representatives are generally not bound by the terms of

Crimes: Corporations are incapable of intent, hence, they cannot commit

A corporation is liable, therefore, whenever a tortious act is committed by an

Therefore, a juridical person such as a corporation can validly complain for

It is only an equitable remedy. It is a remedy of last resort and is not available

It is a judicial power and cannot be assumed improvidently by a sheriff.

It applies only to a particular transaction for which it was applied.

1) Instrumentality or Control Test

The corporate entity must be shown to have no separate mind, will, or

The judgment may be enforced against the other corporation to prevent

A seller or promisor may not make use of a corporate entity as a means of

Neither does existence of interlocking directors, corporate officers and

(1) Stock ownership by one or common ownership of both corporations;

When the notion of separate juridical personality is used

A self-constituted organizer who finds an enterprise or venture and helps to

GR: Corporation is not liable (promoter shall be personally liable)

XPN: Ratified by the corporation

1. The RCC allows a partnership, association, or corporation to organize a

- Owner or subscriber of at least one share (if stock); or a member (if

Inclusion of foreign nationals shall be subject to foreign ownership

No minimum; maximum of fifteen (15) incorporators

XPN: If the representative is also an owner of at least one (1) share of

It is the maximum number of shares that the corporation is legally

In case of increase of capital stock, at least 25% of the increase in capital

- RCC provisions on delinquent shares

EXCEPT: No par value shares - deemed fully paid and non-assessable.

1) the State and the corporation,

2) the stockholders and the State, and

3) the Corporation and the stockholders.

a. Amount of its ACS

a. The amount of capital

An arbitration agreement may be provided in the AOI pursuant to Section 181 of

- Must contain the word “Corporation” or “Incorporated” or its abbreviations

- Name shall be distinguishable.

- Name of a local geographic unit or location must be accompanied by a

Rationale behind having a primary purpose:

Investment of funds for purposes other than primary: APPROVAL OF AT

SEC MC 6, s. 2016: address must be as specific as possible (unit number, building

- Perpetual existence unless AOI provides otherwise

Note: Condominium corporations last as long as the condominium building.

Section 11. Corporate Term. -- x x x Corporations with certificates of

Effectivity: Upon approval of SEC, or after 6 months of SEC’s inaction for

Not available to all kinds of amendment. (See Sec. 80, RCC)

Matters of accomplished fact, such as names and addresses of the

NO, but her name as a SH may be changed.

1. Submit the intended corporate name to the SEC for verification.

1. Name verification slip

- General rule: perpetual existence

● Nature and function

The by-laws are self-imposed rules resulting from the agreement

1. They are not contrary to law, morals, or public policy.

A provision in the by-laws of the corporation stating that of the 15 members

● Stockholders together with the Board: with majority of board plus

❖ Special audit report is no longer required for applications for increase

A corporation has no legal capacity to release an original subscriber to its capital

Due from Stockholders 10,000,000.00

TOTAL ASSETS 10,000,000.00

TOTAL LIABILITIES AND EQUITY 10,000,000.00

A corporation has no power to release an original subscriber to its

- Only preferred or redeemable shares may be deprived of voting rights