DEFINITION OF A CORPORATION:

Within the context of Philippine law, a "corporation" is treated as an artificial being created by operation
of law, having the right of succession and the powers, attributes, and properties expressly authorized by
law or incident to its existence.
DEFINITION EXPLAINED:
Dissecting the meaning, a corporation is an artificial being because it is not a natural person. It is merely a
juridical entity that is created by law.
By operation of law, a corporation is formed because there are legal procedures and requirements that
need to be satisfied strictly otherwise, no corporation can be given life.
A corporation has the right of succession because it does not succumb upon the death of its stockholders
and members. Their heirs rather step into their shoes and claim their positions to continue their place in
the corporation. In effect, the corporation likewise continues its life and legitimate affairs in the hands of
the new breed of owners.
It has the powers, attributes and properties expressly authorized by law or incident to its existence.
These are more specifically discussed in the next page module.
ATTRIBUTES OF A CORPORATION:

1. It is a juridical entity with a separate and distinct personality.

2. It is created by operation of law.
3. It has the right of succession.
4. It has the powers, attributes, and properties expressly authorized by law or incident to its
existence.
DOCTRINE OF CORPORATE ENTITY:
Section 19 of Corporation Code of the Philippines provides:
Section 19. Commencement of corporate existence. - A private corporation formed or organized under this
Code commences to have corporate existence and juridical personality and is deemed incorporated from the
date the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders / members and their successors shall constitute a body politic and
corporate under the name stated in the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in accordance with law.
A corporation comes into existence upon the issuance of the certificate of incorporation. Then and only
then will it acquire a juridical personality to sue and be sued, enter into contracts, hold or convey
property or perform any legal act, in its own name. Corporations cannot come into existence by mere
agreement of the parties as in the case of business partnerships. They require special authority or grant
from the State. This power is exercised by the State through the legislature, either by a special
incorporation law or charter which directly creates the corporation or by means of a general corporation
law under which individuals desiring to be and act as a corporation may incorporate.

DOCTRINE OF SEPARATE PERSONALITY:

A corporation is an artificial being or a juridical person with a personality separate and distinct from its
individual stockholders or members and from any other legal entity to which it may be attached or
connected.
 
By virtue of the separate juridical personality of the corporation, the following consequences are
produced:

1. Restricted liability for acts or contracts:  The general rule is that obligations incurred by a
corporation, acting through its authorized agents are its sole liabilities. Similarly, a corporation
may not generally, be made to answer for acts or liabilities of its stockholders or members or
those of the legal entities to which it may be connected and vice versa.

2. It has the power to bring independent actions. It may bring civil and criminal actions in its own
name in the same manner as natural persons (Art. 46, NCC).

3. It has the right to acquire and possess property. Property conveyed to or acquired by the
corporation is in law the property of the corporation itself as a distinct legal entity and not that
of the stockholders or members (Art. 44(3), NCC).

4. Court can acquire jurisdiction over its person. Service of summons may be made on the
president, general manager, corporate secretary, treasurer or in-house counsel (Sec. 11, Rule
14, Rules of Court).

5. Stronger identity despite any change in its composition. Changes in individual membership

Corporation remains unchanged and unaffected in its identity by changes in its individual
membership.

6. Entitlement to constitutional guaranties. Ø Corporations are entitled to certain constitutional

rights, such as: (a) Due process; (b) Equal Protection of the law; and (c) Protection against
unreasonable searches and seizures.
NOTE: However, it is not entitled to certain constitutional rights such as political rights or purely
personal rights not only because it is an artificial being but also because it is a mere creature of law.

7. Entitlement to moral damages. - A corporation is not entitled to moral damages because it has
no feelings, no emotions, no senses (ABS-CBN vs. Court of Appeals, G.R. No. 128690, Jan. 21,
1999). In Filipinas Broadcasting vs. Ago Med., however, it was held that a juridical person such
as a corporation can validly complain for libel or any other form of defamation and claim for
moral damages. The SC had rationated that Art. 2219 (7) does not qualify whether the plaintiff
is a natural or a juridical person (Filipinas Broadcasting vs. Ago Medical Center-Bicol, et. al.,
448 SCRA 413).

8. Liability for damages to third persons. - A corporation is liable for damages to third person
whenever a tortuous act is committed by an officer or agent under the express direction or
authority of the stockholders or members acting as a body, or, generally, from the directors as
the governing body (PNB vs. CA, 83 SCRA 237 [1978]).

9. Liability for Crimes. - Since a corporation is a mere legal fiction, it cannot be held liable for a
crime committed by its officers since it does not have the essential element of malice, except if
 by express provision of law, the corporation is held criminally liable; In such case the
responsible officers would be criminally liable (People vs. Tan Boon Kong, 54 Phil. 607 [1930]).

ADVANTAGES OF A CORPORATION:
(a) Stockholders and owners have limited liability.
In a corporation, the owners of the company are only liable for the amount of money which they have
invested through purchasing shares. This means that if the company goes bankrupt and has no money left
to pay back the creditors and lenders, the money invested by its shareholders into the company (by
purchasing its shares) will be used to pay back the creditors and lenders. Hence, the shareholders will lose
the amount invested. Creditors and lenders, however, have no claim on the personal properties and
assets of the owners. This is what limited liability means: limited up to the extent of the amount invested.
(b) Convenient multiplicity of funds through investing public.
In a corporation, it is relatively easy to raise huge sums of capital through the public. Since the total
money a company wishes to raise is divided into thousands and lakhs of shares, the price of each share
comes out to be very small. A small price allows a number of people to purchase the shares of the
company. Hence, it becomes easy to raise a big amount for a corporation by dividing it into smaller units.
(c) Perpetual life of a corporation.
Prior to the advent of the Revised Corporation Code that took effect in March 2019, a corporation can
exist for a period not exceeding fifty (50) years, but it has now gained a perpetual existence upon the
effectivity of the new law. Ergo, the life of a corporation is perpetual and has no more limit, unless its
Articles of Incorporation provides for a shorter term. Likewise, a corporation whose term had already
expired may be revived upon application to and approval by SEC. This is known as the “Lazarus
provision”. Once revived, its term is likewise perpetual unless a shorter term is provided in its
articles. (Section 11, Revised Corporation Code) Consequently, corporations continue to exist beyond
the deaths of the Board of Directors, the executives, and the managers. Its life can come to an end only
when the same is dissolved according to law. Hence, investors don’t have to worry about an unexpected
death or illness of the executives and managers, somebody else will come and take their place. This also
allows the managers to plan for the long term and do better.
(d) Convenient transfer of ownership.
Ownership in a corporation is typically easy to transfer. In the case of a public company, the shares
(instruments of ownership) are freely transferrable. In the case of a private company however, it is
comparatively difficult to transfer shares as there are some restrictions. 
(e) Convenient identification of accountability.
Since the corporation has a separate personality of its own, clients are transacting to it as a person with
the power to do business in its own name.  On the part of the clients, it is safe and convenient to deal
with the corporation as they knew who is liable for every transaction since every officer or employee are
deemed to be acting only in the name of the corporation. Accountability therefore begins and ends with
the corporation.
DISADVANTAGES OF A CORPORATION:
(a) The process of formation is demanding and entails a lot of conditions.
Setting up a corporation is a very complex process. It takes heavy paperwork to set it up. It needs a
number of conditions to satisfy and permissions from different regulatory authorities. Likewise, many
norms of different regulatory bodies that a corporate must fulfill before it can start its business. For
instance, if you are setting up an educational corporation, you need prior permission from DepEd, CHED
or TESDA depending on the kind of school you are going to operate. A medical corporation requires
DOH intervention and a recruitment agency needs prior permit from the DOLE.
(b) Profits obtained from corporate activities are taxed twice.
Practically speaking, income obtained from corporate transactions faces two (2) modes of taxation.
Firstly, the corporation has to pay a flat Corporate Tax on its profits. And then the dividends received by
the shareholders are taxed in their hands. This makes it less attractive for business owners to set up a
corporation.
(c) The power to decide is concentrated on a select group of people.
Essentially, since the corporation is merely an artificial being, it needs real people to conduct its affairs.
This power resides in the group of people called the Board of Directors or the Board of Trustees who
elect officers among themselves. Sometimes, it happens that the Board of Directors and the executives
may fulfill their personal interests by taking certain decisions. These decisions may not be good for the
health of the corporation. For e.g., they may decide to pay themselves higher salaries out of the profits,
or, they may purchase luxury offices for them with expensive facilities, etc. All these types of personally
beneficial decisions may harm the corporate and its image especially if the corporate is not making good
profits.
(d) Restricted claim on the part of prejudiced creditors.
Since the corporation has a separate juridical personality distinct from its owners, the prejudiced
creditors can only run after the assets of the corporation. Save when the corporation is used for fraud
and illegal schemes and piercing the corporate veil is proper, the creditors can only collect what is left of
a drowning corporation. With nothing left after all assets are exhausted, the creditors’ claim become
futile in the end.

PARTNERSHIP
Definition: It is a contract of two or more
persons who bind themselves to
contribute money, property or
industry to a common fund, with
the intention of dividing the
profits among themselves.
Similarity: Both are juridical persons
Differences:
a) as to the manner of creation Created by mere agreement of
the parties
Exception:
CORPORATION
An artificial being created by
operation of law having the right
of succession, the powers and
attributes and properties
expressly authorized by law or
incidental to its existence.
Both are juridical persons
Created by operation of law or
by-law.

1. capitalization is over
 P3,000.00 (agreement
should be in writing)
2. real property
contributed (partners
should execute an
articles of partnership
with the list of
inventories
contributed then file
with the SEC)
3. forming a limited
partnership (execution
of articles of limited
partnership and file
with the SEC)

b) as to name General Rule: may use any name
 
Exception: not similar or
confusingly similar to the name
of existing partnership or
corporation
 
- (in limited partnership) the
word “limited” whether
complete or abbreviated (Ltd.)
must be added to the
partnership name.
The word “Corporation” or
“Incorporated” whether
complete or abbreviated (Corp.
or Inc.) must be added to the
corporate name. In case of One-
Person-Corporation, the
letters “OPC” shall be put either
below or at the end of its
corporate name.

c) as to purpose; Always for business profit. Maybe for other purposes.

Examples: educational, religious
or charitable corporations.
NOTE: An OPC is always stock
(for profit).

d) as to term Partners may agree on any term. Perpetual existence at present.

Prior to the Old Corporation
Code, the term limit is 50 years.
Under the new Code, no more
term limit unless clearly stated in
the Articles.
e) as to number of organizers
f) as to management;
g) as to distribution of profits
h) as to the rights of succession
i) as to the extent of liabilities
Minimum of 2, no maximum
Managed by all partners but
decisions are made by the
partner or partners having the
controlling interest.
Generally, profits are distributed
according to agreement of the
partners. In the absence of
agreement, profits are
divided pro rata.
No such right exists in the
partnership. (If a partner dies, or
becomes incapacitated or
insolvent, the partnership is
dissolved)
General partners may be obliged
to contribute some more in
order to pay for partnership
debts.
No more minimum for forming
STOCK CORPORATION, but
maximum is still 15. In case of
NON-STOCK however,
organizers must still be at least 5
but not more than 15.
Gen. Rule: Decisions are made
by majority of the members of
the Board of Directors or Board
of Trustees where there is
quorum without regard to
controlling interest.
Exceptions:
1. Close Corporation
- stockholders manage the
corporation directly, so BOD’s
are not needed
1. Corporation Sole
2. One-Person-
Corporation.
Profits in the form of dividends
are always distributed pro-rata.
Right of succession exists. Even
if all the stockholders would die,
the corporation continue to
exist.
Gen. Rule: Once a subscriber or
a stockholder has fully paid his
subscription, then he could not
be obliged to contribute some
more.
Exception:
When appropriate to apply the
doctrine of piercing the veil of
 corporate entity.

j) as to capitalization May be capitalized at any Before, the minimum Paid-Up

amount. Capital is Php5,000.00. No more
minimum capitalization under
the New Corporation Code
except specialized corporations
as required by special law.
 
Capitalization of corporations
depends upon the nature of the
activity of the corporation.
 
Examples: HMO - minimum paid
up capital is P10M; Pawnshop –
minimum paid up is P100T: 
Security Agency – P500T

k) as to the cause of dissolution At will of any partner even by Cannot be dissolved at will even
one holding an insignificant by the controlling stockholder.
share.

DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY

The doctrine that a corporation is a legal entity distinct from the persons composing is a theory
introduced for purposes of convenience and to serve the ends of justice. But when the veil of corporate
fiction is used as a shield to defeat public convenience, justify wrong, protect fraud, or defend a crime,
this fiction shall be disregarded and the individuals composing it will be treated identically.
Actually, the piercing of the veil of corporate fiction is frowned upon and can only be done if it has been
clearly established that the separate and distinct personality of the corporation is used to justify a wrong,
protect fraud, or perpetrate a deception.
The doctrine requires the court to see through the protective shroud which exempts its stockholders
from liabilities that they ordinarily would be subject to, or distinguishes a corporation from a seemingly
separate one, were it not for the existing corporate fiction. In any cases where the separate corporate
identity is disregarded, the corporation will be treated merely as an association of persons and the
stockholders or members will be considered as the corporation, that is, liability will attach personally or
directly to the officers and stockholders. However, 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.

Nature and Objectives of Piercing Doctrine

(1) it has only res judicata effect;
(2) its purpose is to prevent fraud or wrong and not available for other purposes;
(3) The doctrine could not be employed by a corporation to complete its claims against another
corporation and cannot therefore be employed by the claimant who does not appear to be the victim of
any wrong or fraud;
(4) it is essentially a judicial prerogative only. To pierce the veil of corporate fiction being a power
belonging to the courts, a sheriff who has ministerial duty to enforce a final and executory decision
cannot pierce the veil of corporate fiction by enforcing the decision against the stockholders who are not
parties to the action;
(5) it must be shown to be necessary and with factual basis Ø To disregard the separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly established, it cannot be
presumed.
TYPES OF CORPORATION
BACKGROUND:
Corporations are either stock or non-stock in nature. Stock corporations are plainly intended to engage
in business and earn profit.
Stock Corporations – are those which have capital stocks divided into shares and are authorized to
distribute to the holders of such shares, dividends or allotment of the surplus profits on the basis of the
shares held.
Non-Stock Corporations – are those which are established not for profit purposes bur for some other
noble purposes such as educational, religious and charitable organizations. Since they are not intended
for profit, they have no capital stocks, no shareholders and are not allowed by law to declare dividends
for distribution to its owners/members.
In the Philippines, not-for-profit organizations (NPOs) are typically organized as "non-stock corporations"
registered under the Corporation Code. Non-stock corporations can be formed for charitable, religious,
educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes,
such as trade, industry, agricultural and similar chambers, or any combination thereof.
Our tax laws provide additional benefits to two categories of non-stock corporations: accredited “non-
stock, non-profit corporations or organizations” (hereinafter “non-stock, non-profit corporations”), and
accredited “non-governmental organizations” (NGOs).
Among other requirements, accredited non-stock, non-profit corporations must be organized exclusively
for one or more of the following purposes: religious, charitable, scientific, athletic, social welfare, or
cultural purposes, or the rehabilitation of veterans.

Stock Corporation Non-Stock Corporation

1.Originally formed by incorporators who
are Stockholders thereof. No required
minimum no. of incorporators, but not
more than 15;
2.After having been formed, all persons
who may have acquired shares of stocks
1. Originally formed by incorporators,
not less than 5 but not more than 15,
who must be Members thereof
2. Any person who desires to become a
Member must invest in the form of a
 thereat are called stockholders but only
those who originally formed the
corporation in the beginning are called
incorporators;
3.Corporators are those who compose the
corporation whether as incorporators or
stockholders in general;
4. Governed by the Board of Directors
except One Person Corporation, Sole and
Close Corp.
Contribution, (no shares of stocks)
but only those who originally formed
the corporation shall be called
incorporators;
3. Corporators are those who compose the
corporation whether as incorporators or
members in general;
4. Governed by the Board of Trustees.

TYPES OF TRADABLE STOCKS AND STOCK WARRANT

What are stocks and equities?
 A share of stock is evidence of a fractional ownership in a corporation. Buying a share of common stock
is in fact buying a share of a business. An individual who owns shares in any company has an ownership
interest in therein and is called a stockholder or shareholder. This ownership is also referred to as having
equity in a company, hence, stocks are also called equities or equity securities. The percentage or
proportion of ownership depends on how many of the company’s share one owns.
For example, 1,000 shares of common stock in a corporation that has 100,000 outstanding shares
represent 1,000/100,000 ownership interest. This means you have one percent (1%) ownership interest
in the company’s plant, its building, its inventories and other assets.

2. What are stock certificates?

 Ownership of a business is represented by stock certificates. When an individual becomes a stockholder
of any corporation, he receives a stock certificate – a written evidence of ownership certified to the
corporation. The certificate indicates the investor’s name, total number of shares purchased, the
certificate number, the par value and the name of the issuing corporation.
When shares are purchased, the stock certificates will be issued either in street name or in the investor’s
name. The difference is important to know since without notice form the investors all stock certificates
will be issued in street name, i.e. in the name of the brokerage firm. In this way, the brokerage firm – and
NOT the investor – will be the holder of the stock certificates. Only when the investor specifically asks
for it will the stock certificates be issued in the investor’s name.
Stock certificates that are in the street name facilitate the transactions by brokers. When the investor
decides to sell his shares, the street certificate simply be endorsed by the stockbroker. If it were in the
investor’s name, the process would be lengthier since it is the investor who needs to endorse it at the
back of the certificate. When shares are bought and sold frequently, it is advisable to have them issued in
street name since it will facilitate the quick transfer of ownership.

3. What type of stocks can you buy or sell?

 There are different types of stocks that you can buy or sell at the Philippine Stock Exchange
(PSE): common stock, preferred stock, cumulative preferred stock and convertible preferred stock. The
difference depends on the right and privileges which you receive as a stockholder.
The majority of securities traded in the PSE are common stocks. Common stocks are usually purchased for
participation in the profits and control of ownership and the management of the company – they have
voting rights. Common stock holders are entitled to an equal pro rata division of profits without
preference or advantage over another stockholder. However, they have the last claim on dividends and
are the last to collect in case of liquidation. Common shares can be classified into class A and class B
shares. Class A shares are reserved to Filipino investors, while Class B shares are open to foreign
investors as well as Filipinos. Thus, Filipinos can own both classes while foreigners can only avail of Class
B shares. Both classes have the same privileges and rights, and receive the same amount of dividends.
Preferred stocks are another type of securities issued by corporations. Its name is derived from the
preference given to the holders of this stock over holders of common stocks. Holders of the preferred
stocks are entitled to receive a fixed minimum amount of dividends (expressed either in pesos or as
percentage of the stock’s par value), to the extent declared by the company’s Board and if there are
sufficient retained earnings, before any dividends are paid to the holders of common stocks.
Cumulative preferred stocks are special preferred stocks that accumulate unpaid dividends for future
payment. Cumulative preferred stock has prior rights to dividends over common stock; therefore the
omitted cumulative preferred dividends must be paid before the common stock dividends can be
paid. Convertible preferred stocks are preferred stocks which are exchangeable into common stocks at the
option of the holder under specified terms and conditions. The conversion ratio specifies the number of
shares the holder receives upon surrender while the conversion price is effective price paid for the
common stock when conversion occurs.

4. What are warrants?

Warrants are another type of investment which you can buy or sell in the stock market. By definition, a
warrant is a security which grants the holder the right but not the obligation to buy (in the case of a call
warrant) or sell (in the case of a put warrant), a stated number of underlying shares of stock at a specified
price during a specified period of time.
Underlying shares are the shares, unissued or issued as the case may be, of a corporation which may
subscribed to or purchased by the warrant holder upon the exercise of the right granted under the
warrants. The number of underlying shares a warrant holder is entitled to  buy or sell for every warrant
he holds is known as the conversion ratio. The exercise period specifies the life of a warrant while
the expiration date  is the date at which the warrant expires. The exercise price is the stipulated stock
price at which the holder can buy or sell the underlying.
Warrants can be issued in a number of ways: (a) as part of an initial public offering; (b) attached to a rights
issue; (c) attached to bonds; or (d) as stand alone. In the case of debt or equity offerings, warrants are
used as “sweeteners” to enhance marketability of the issuances. Under the  SEC Rules Governing
Warrants, Issuers or warrants may be the issuer of the underlying shares or an entity other than the
company underlying the warrants and may be in the form of:
a)      Subscription Warrant– a warrant which grants the right to subscribe to the new or unissued shares
of stock of the Issuer;
b)      Covered Warrant –  a warrant which is issued by a party other than the Issuer of the underlying
shares and whose  performance of obligation is secured by the deposit of the underlying shares for the
Covered Warrant with an independent Trustee which is a reputable commercial bank;
c)      Non-collateralized Warrant  – a warrant issued by a party other than the Issuer of the underlying
shares and whose performance of obligation is not secured by a deposit of the underlying shares. Instead,
the Issuer normally adopts hedging strategies to provide for its obligations during the life of the Non-
collateralized Warrant.
Even if the trading of warrants is relatively new in the Philippine stock market, it has gained some
popularity. Currently, there are eight (8) warrants listed at the PSE. The warrant holder has the chance to
have the same exposure in the market, as with buying the stock itself, using lesser amounts of money and
the advantage of having more time, i.e. exercise period, in which to raise money to purchase more shares
(the underlying stock). Also, the investor is protected from the downside risk of the underlying stock’s
price depreciation since the exposure of their money is limited to only the price of the warrants.
CLASSES OF SHARES - VOTING AND NON-VOTING
The classification of shares, their corresponding rights, privileges, or restrictions, and their stated par
value, if any, must be indicated in the articles of incorporation. Each share shall be equal in all respects to
every other share, except as otherwise provided in the articles of incorporation and in the certificate of
stock. These are the relevant provisions in the Revised Corporation Code (Republic Act No. 11232).
CLASSES/SERIES OF SHARES
The shares in stock corporations may be divided into classes or series of shares, or both. A corporation
may further classify its shares for the purpose of ensuring compliance with constitutional or legal
requirements. 
PAR VALUE
The shares or series of shares may or may not have a par value. However, the following shall not be
permitted to issue no-par value shares of stocks:

 Banks
 Trust
 Insurance
 pre-need companies
 public utilities
 building and loan associations, and 
 other corporations authorized to obtain or access funds from the public, whether publicly
listed or not
NO-PAR VALUE
No-par value shares must be issued for a consideration of at least Five pesos (P5) per share. The entire
consideration received by the corporation for its no-par value shares shall be treated as capital and shall
not be available for distribution as dividends. 
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the corporation or to its creditors in respect thereto.

 
NONVOTING SHARES
Certain shares may be deprived of voting rights under the articles of incorporation, provided that there
shall always be a class or series of shares with complete voting rights. This fact must be reflected in the
certificate of stock. Nonvoting shares may nevertheless vote in certain instances.  
Only shares classified and issued as “preferred” or “redeemable” shares, unless otherwise provided in the
Revised Corporation Code, shall have no voting rights.
 PREFERRED SHARES
Preferred shares of stock issued by a corporation may be given preference in the distribution of
dividends and in the distribution of corporate assets in case of liquidation, or such other preferences.
Preferred shares must always be issued with a stated par value. 
The board of directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof. Such terms and conditions shall be effective
upon filing of a certificate thereof with the Securities and Exchange Commission.
FOUNDERS’ SHARES
Founders’ shares may be given certain rights and privileges not enjoyed by the owners of other stocks.
Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a
limited period not to exceed five (5) years from the date of incorporation: Provided, That such exclusive
right shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the
“Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”;
and other pertinent laws. 
REDEEMABLE SHARES
Redeemable shares may be issued by the corporation when expressly provided in the articles of
incorporation. They are shares which may be purchased by the corporation from the holders of such
shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings
in the books of the corporation, and upon such other terms and conditions stated in the articles of
incorporation and the certificate of stock representing the shares, subject to rules and regulations issued
by the Securities and Exchange Commission (SEC). 
TREASURY SHARES
Treasury shares are shares of stock which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful
means. Such shares may again be disposed of for a reasonable price fixed by the board of directors. 
RIGHT TO VOTE OF NONVOTING SHARES
Notwithstanding any provision in the articles of incorporation, holders of nonvoting shares shall
nevertheless be entitled to vote on the following matters: 
(a) Amendment of the articles of incorporation; 
(b) Adoption and amendment of bylaws; 
(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the corporate
property; 
(d) Incurring, creating, or increasing bonded indebtedness; 
(e) Increase or decrease of authorized capital stock; 
(f) Merger or consolidation of the corporation with another corporation or other corporations; 
(g) Investment of corporate funds in another corporation or business in accordance with the Revised
Corporation Code; and 
(h) Dissolution of the corporation. 
Except the foregoing instances, the vote required under the Revised Corporation Code to approve a
particular corporate act shall be deemed to refer only to stocks with voting rights. 
FUNDAMENTAL STEPS IN FORMING A PRIVATE CORPORATION:
1. Have a pre-approved proposed name of the corporation; (www.sec.gov.ph)
2. The SEC Company Registration System allows you to follow the step by step guide in registering online
your intended company. The first and foremost consideration however is for you to come up with a
proposed corporate name that will be acceptable to the SEC criteria. Allow verification of name if original
or confusingly similar. (If your proposed name is denied, you can submit a motion for reconsideration).
CASE 1: In 2002, Refractories Corp. of the Philippines was patented. In 2003, Industrial Refractories Corp. of
the Philippines was formed on the same line of business. Is the latter confusingly similar with the former?
ANSWER: YES BEC. THE WORD “INDUSTRIAL” IS JUST A MERE DESCRIPTION OF THE NATURE OF THE
BUSINESS. WITH OR WITHOUT IT, IT CREATES A DAMAGING SENSE OF DOUBT OR CONFUSION TO A
CORPORATE NAME THAT HAS ALREADY BEEN EXISTING.
CASE 2: PHILLIPS INC. has been in the industry of lights for many years. Phillips Sy came up with his own
lighting products and he wants to call it STANDARD PHILLIPS INC., the latter from his very own name.
PHILLIPS contended that it was confusingly similar but Phillips Sy argued that he is entitled to use his very own
name. Is the latter confusingly similar with the former?
ANSWER: YES BEC. ONE COULD NOT HAVE AN EXCLUSIVE USE OF HIS NAME ESPECIALLY SO IF THAT
NAME IS SO COMMON THAT IT WAS ALREADY LONG EXISTING FOR BUSINESS USE. FURTHER, THE USE
OF THE ADDED WORD “STANDARD” IS OBVIOUSLY RESORTED TO MERELY SET OUT A VERY SLIM
DIFFERENCE YET THE EFFECT OF WHICH STILL CONFUSES THE PUBLIC CONSUMERS.
CASE 3: CROCOS is a well-known mark in the industry as a registered popular brand of clothing owned by
Crocos Fashion Inc. X, a veteran chef on the other hand applied for registration of mark “CROCOS” at the
Intellectual Property Office for the burger that he is planning to sell to the public. He plans to introduce it as
“CROCOS BURGER”. Crocos Fashion is opposing X’s application. Q: Should the application for registration of X
be allowed?
ANSWER: NO. because it violates the Confusion of Business Test. The goods of the contending parties are
actually different although claiming under the same trademark but the one with prior registration has the better
right and should prevail. The danger if registration will be allowed is that the defendant’s product may be
falsely assumed to originate from the plaintiff who is the owner of the similar trademark. Since the trademark is
well-known and identified to one person, the buying public may patronize it under a false belief that it belongs
to the same owner.
(Societe Des Prod Nestle vs. Dy citing Sterling Products vs. Farbenfabriken Bayer, 2010)
3. Approval of your corporate name necessarily includes your “Undertaking to Change Corporate Name” in
case the same is later on found to be pre-existing already and is being claimed ownership by others.
4. Fill-up the online form and provide all the necessary information required by the online registration
system about your company. The information you provide online will automatically translate to your
Articles of Incorporation and By-Laws.
5. When the system accepts your submissions, you will be required to print your Articles of
Incorporation, By-Laws and Treasurer's Affidavit. Have them signed by all the incorporators, Treasurer
and have them notarized. Thereafter, you will need to upload them to the same SEC website for their
perusal.
6. The Treasurer’s Affidavit shows that 25% OF THE ACS HAVE BEEN SUBSCRIBED AND 25% OF THE
SCS HAVE BEEN PAID-UP.
7. Once accepted by SEC, you will receive an Order of Payment indicating the amount of Registration
Fees you will need to pay. Print the same and proceed to Landbank or other accredited payment centers.
Then upload again to SEC website your proof of payment.
8. Wait for an email directive from SEC. Once your online submissions are all satisfactory, SEC will order
you to proceed to the SEC Head Office and submit personally the hard copies of the same documents
you sent them online (AOI, BL, TA) together with Bank Certificate of Deposit to show real deposits of
minimum 25% paid-up capital. (The Bank Issues This In the Name of the Treasurer. Ex. “Ian Cruz, In Trust
for ABC Corp. in the Process of Incorporation)”.
9. Submit Authority To Inspect Bank Documents. (TO AVOID HASSLE UNDER THE BANK SECRECY
LAW).
10. The SEC will evaluate again your personal submissions and once approved, you will receive your
CERTIFICATE OF INCORPORATION which means that your corporation is finally born beginning on the
date indicated therein.
CONTENTS OF THE ARTICLES OF INCORPORATION

1. Corporate Name;
2. Primary and Secondary Purpose;
3. Principal Office or Location;
4. Term;
5. Names, Nationalities and the Residences of Incorporators;
6. Number, Names, Nationalities & Residences of the first Directors or Trustees;
7. Authorized Capital Stocks and Division of Shares;
8. Name and Nationality of Subscriber, No. of shares subscribed and the amount
subscribed;
9. Total paid-in of the amount subscribed;
10. Name of the Treasurer;
NOTE: If it is a Non-Stock Corporation, it must also state the amount of its capital consisting of
CONTRIBUTIONS by the MEMBERS thereof.

What is a Close Corporation?

Aside from a Family Corporation, it is one whose Articles of Incorporation provides that:  
(1) all issued stocks of all classes, exclusive of treasury shares, shall be held of record by not exceeding
twenty (20) persons;
(2) the issued stocks shall be subject to one or more restrictions on permissible transfer; and
(3) the corporation shall not list in any stock exchange or public offering. Despite these requirements
however, a corporation shall not be deemed as close corp. if at least two-thirds (2/3) of its voting stocks
are owned or controlled by another corporation which is not a close corporation within the meaning of
the Code. (Sec. 95; Revised Corp. Code)

 The following cannot incorporate as a Close Corporation: (Sec. 95, RCC)

 Mining or oil companies;

 Stock exchange;
 Banks;
 Insurance companies;
 Public utilities;
 Educational institutions; and
 Other corporations vested with public interests.
What is a One Person Corporation (OPC)?
It is a corporation with a single stockholder: Provided, That only a natural person, trust or an estate may
form a one person corporation. The following cannot incorporate as a One-Person Corporation: (Sec.
116, RCC)

1. Banks and quasi-banks;

2. Pre-need companies;
3. Trust companies;
4. Insurance companies;
5. Public and publicly-listed companies;
6. Non-chartered GOCCs; and
7. Professionals for the exercise of a profession.
NOTE: There is no required minimum capital stock for One Person Corporation except as otherwise provided by
special law (Sec. 117, RCC).  It is also not required to submit and file Corporate By-Laws (Sec. 119, RCC) but it
shall file Articles of Incorporation (Sec. 118, RCC) stating the identity of the natural person, trustee, executor,
guardian or administrator of estate.
The Articles of Incorporations shall also state the name, nationality and residence of the NOMINEE and
ALTERNATE NOMINEE and the extent and limitations of his authority. Nominee is important because in
case of death or incapacity of the single stockholder, the NOMINEE shall take over as Director and shall
manage the corporate affairs (Sec. 124; RCC) until such time that the Single Stockholder has recovered in
case of temporary incapacity; or until such time that the heirs have designated one of them as
replacement (Sec. 125; RCC).
Likewise, in case of death of the single stockholder, the NOMINEE, along with the known legal heirs of
the single stockholder, shall facilitate the election of the new director and the amendment of the article
of incorporation. (Section 123; RCC) It is the duty of Corporate Secretary to inform SEC of the death of
single stockholder.
 
How are Officers determined and elected in One Person Corporation?
NOTE: The single stockholder shall be the Sole Director and President of the One-Person-Corporation
(OPC) (Sec. 121, RCC).
During the process of incorporation, the single stockholder who is also the self-appointed Treasurer of
the OPC shall give a bond to the SEC in a sum as may be required. The bond is renewable every two (2)
years (Sec. 122, RCC). He shall submit also a written undertaking to faithfully administer its funds,
disburse and invest the same according to its registration.
As a rule, the single stockholder may not be appointed as the Corporate Secretary (Sec. 122, RCC) 
It is important to note though that the New Code requires the single stockholder to prove that the OPC
is sufficiently financed, and its assets are independent from his personal property, in order to claim
limited liability. Otherwise, he shall be jointly and severally liable for the liabilities of the OPC.
Within fifteen (15) days from issuance of the certificate of incorporation, the OPC shall appoint its
Treasurer, Corporate Secretary and other officers as it may deem necessary, and shall notify the SEC
thereof within five (5) days from appointment.
The Doctrine of Piercing the Veil of Corporate Entity also applies to OPC (Sec. 130)
When OPC acquired all the stocks of an ordinary stock corporation, the latter may be converted into
OPC. In the same manner, OPC may be converted into an ordinary Stock Corporation. In either case,
application to the SEC shall be made and subject to its approval. (Sec. 131; 132, RCC) 
How is One Person Corporation differentiated from Sole Corporation?
A Sole Corporation is a religious corporation hence a non-stock corporation whereas a One-Person-
Corporation is always a stock corporation intended for profit.
How is One Person Corporation differentiated from Sole Proprietorship?
A Sole Proprietorship has no juridical personality of its own that is separate from the proprietor. It cannot
acquire properties, conduct transaction with other juridical entities or exercise separate rights or powers
in its own name;
Whereas a One-Person-Corporation has juridical personality that is separate and distinct from the single
stockholder. It can acquire properties, conduct transaction with other juridical entities or exercise
separate rights or powers in its own name.
ADDITIONAL REVISIONS UNDER THE NEW LAW
A. From date of incorporation, a corporation is given five (5) years to commence operation (Sec. 21; Revised
Corporation Code). Revocation in case of failure.
B. However, if a corporation has commenced its business but subsequently becomes inoperative for a period of
at least five (5) consecutive years, the SEC may, after due notice and hearing, place the corporation under a
delinquent status.
C. A delinquent corporation shall have a period of two (2) years to resume operations and comply with all the
SEC requirements. Upon compliance, the SEC shall issue an order lifting the delinquent status. Otherwise,
failure to comply and resume operations within 2-years, the SEC shall cause the revocation of the Certificate of
Incorporation.
D. Shares of stocks may be the subject of pledge or sale just like any other incorporeal rights which are
evidenced by negotiable instruments. Ownership of shares of stock is evidenced by Certificate of Shareholding
issued by the duly-elected Corporate Secretary of the corporation.
E. What are the qualifications of incorporators?     
      (a) May be natural or juridical persons; singly or jointly with others; (Sec.10, New Code)
      (b) Any number but not more than fifteen (15);
      (c) Natural person of legal ages; juridical persons should be duly-registered;
      (d) Majority of whom are residents of the Philippines;
      (e) In the case of a stock corporation, each must own or subscribe at least one (1) share of the capital stock
thereof.
F. Citizenship is not a strict requirement in forming a corporation except in cases where the law requires the
minimum Filipino participation. Example: Meralco may only be run by Filipinos owning at least 60% of the
capital thereof.
G. The life of a corporation is perpetual and has no more limit, unless its Articles of Incorporation provides for a
shorter term. Likewise, a corporation whose term had already expired may be revived upon application to and
approval by SEC. This is known as the “Lazarus provision”. Once revived, its term is likewise perpetual unless a
shorter term is provided in its articles. (Section 11, Revised Corporation Code)
H. A Corporation can’t be formed in the Philippines if its principal office is situated abroad.
I. Corporate existence commences from the date the SEC issues a Certificate of Incorporation under the official
seal.
J. As a general rule, there is no more minimum capitalization for a stock corporation. However, special laws set
minimum paid-up capital stocks on certain businesses exclusive for specialized corps. such as bank, HMO etc.
K. In case of a non-stock corporation such as a Foundation, the minimum total contribution is P1 Million.
L. QUORUM is the presence of required number to sustain the validity of an act. Quorum depends on what kind
of meeting is conducted whether it be a Stockholders’ Meeting or Board Meeting. In BM, quorum is established
by declared majority. In SM, quorum is the presence of controlling interest, not necessarily majority, to a certain
meeting in order to make the conduct thereof valid and binding. Without quorum, the meeting is invalid.
Consequently, a decision arrived out of an invalid meeting is also defective & invalid.
M. Unless otherwise stated in the by-laws, Quorum in the Board Meeting refers to the majority of number of
Directors in Articles of Incorporation who are present in the meeting regardless of their shareholdings. Further,
each Director is equal to only one vote.
N. On the other hand, Quorum in the Stockholders’ Meeting is based on the majority of the outstanding shares
of stock represented by the stockholders who are present at the meeting. Further, issues are decided by votes
based on controlling interests of the stockholders.
O. The Corporate Officers under the law are the President; the Secretary; and the Treasurer. Any other position
may be deemed as Corporate Officer only if so declared as such under the By-Laws.
P.  Any 2 or more positions may be held concurrently by the same person, except that no one shall act as
President and Secretary or as President and Treasurer at the same time.
Q. As a rule, in order to approve the incorporation of a registering stock corporation, at least 25% of the
AUTHORIZED Capital Stocks must be subscribed; and then at least 25% of the SUBSCRIBED Capital Stocks
must be PAID-UP. Ex: ACS = P1,000,000.00; SCS = P250,000.00;  PCS = P62,500.00.
R. CORPORATION BY ESTOPPEL – All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts and liabilities incurred or arising as a result
thereof. It cannot invoke the veil of corporate fiction as a defense.
S. Anyone who assumes an obligation to an ostensible corporation as such cannot resist performance thereof
on ground that there was in fact no corporation.
T. A CORPORATION BY ESTOPPEL can never have assets because it lacks legitimate personality to exercise
that power. However, the Supreme Court ruled that it may be sued considering that it possesses the attributes
of a juridical person; otherwise if it cannot be sued, then it cannot be held liable for damages and injuries to
other persons. (Macasaet vs. Francisco; G.R. No. 156759; June 05, 2013)
Q: How many Trustees are there in a non-stock corporation?
A: The number of Trustees in a non-stock corporation shall be fixed in the Articles of Incorporation or By-Laws
which may or may not be more than fifteen (15). They shall hold office for not more than three (3) years until
their successors are elected and qualified. Trustees elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period. (Section 91 of R.A. 11232)
Q: What is the term of office of Directors as compared to Trustees?
A: Unlike Trustees which shall hold office for not more than three (3) years, Directors shall hold office for a
period of one (1) year until their successors are elected and qualified. Directors elected to fill vacancies
occurring before the expiration of a particular term shall hold office only for the unexpired period. (Title III,
Section 22 of R.A. 11232; The Revised Corporation Code of the Philippines; signed into law on July 2018 and
became effective on March 10, 2019)
==============================
Moreover, the New Code reiterated the requirement to elect independent directors in corporations
vested with public interest such as: (a) public companies, (b) banks and quasi-banks, non-stock savings
loan associations, etc., and (c) other corporations as may be determined by the SEC. The independent
directors shall constitute at least 20% of the entire board membership.
The New Code also allows the creation of an “emergency board” when the vacancy in the board prevents
the remaining directors from constituting a quorum and emergency action is required to prevent grave,
substantial, and irreparable loss or damage to the corporation. During an emergency, the remaining
directors or trustees may fill the vacancy temporarily from among the officers of the corporation to pass
the necessary emergency action.
Section 24 of the New Code retained the officers and its qualifications under the Old Code, except for
the treasurer, who is now required to be a resident of the Philippines. In addition, corporations vested with
public interest are now obliged to appoint a compliance officer.
REMOTE COMMUNICATION AND “IN ABSENTIA”  VOTING:
Following the concept of allowing board meetings by way of videoconferencing, teleconferencing, or
other alternative modes of communication which have been made explicit under the New Code,
stockholders or members are now allowed to exercise their right to vote through remote communication
or in absentia when authorized under the by-laws. With this amendment, it appears that they need not be
physically present or represented by proxies in meetings, as required before. 
Existing corporations affected by certain provisions of the New Code are given two (2) years from its
effectivity within which to comply with the requirements thereon.
Filipino Percentage Ownership Requirement Regarding Corporate Capital:
(at least 60% of the capital must be owned by Filipino citizens)
1. Corporations for exploration, development and utilization of natural resources;
2. Public service corporations.
3. Educational corporations, other than those established by religious orders and mission boards;
4. Banking corporations;
5. Corporations engaged in coastwise shipping.
6. Financing companies; and
7. Corporations engaged in power-generating and electric distribution.
(100% of  the capital must be owned by Filipino citizens)
1. Corporations engaged in mass media;
2. Corporations engaged in retail trade; except that foreign retailers and investors can participate with a
minimum paid-up capital of P25M; and P10M per store in case of foreign retailers with single-owned
proprietorship if it has more than one (1) physical store, pursuant to RA 11595 which amended RA 8762;
3. Rural banks; and
4. Corporations engaged in the operation of a private detective, watchman or security guard agencies.
5. Those relating to practice of professions, except if subject to reciprocity in certain special laws;
6. Small-scale mining;
7. Utilization of marine resources in archipelagic waters as well as of natural resources in rivers, lakes, bays and
lagoons;
8. Ownership and operation of cockpits;
9. Manufacture, repair, stockpiling and/or distribution of nuclear & biochemical weapons; &
10. Manufacture of firecrackers and other pyrotechnic devices.
Source: EO 175 (Foreign Investment Negative List) June 2022
(at least 75% of the capital must be owned by Filipino citizens)

1. Corporations engaged in the recruitment and placement of workers, locally or overseas;

2. Corporations subject to Under the Flag Law. --- In the purchase of articles for the Government,
preference shall be given to materials and supplies produced, made or manufactured in the
Philippines and to domestic entities or corporations at least 75% of the capital of which is
owned by Filipino citizens.
=============================  
Q: Does our law allow 100% foreign equity on business corporations?
ANSWER: As a general rule, micro and small domestic market enterprises with paid-in equity capital of less
than the equivalent of US$ 200,000.00 are reserved to Philippine nationals.
However, RA 11647, which took effect on April 01, 2022, amending Foreign Investments Act of 1991,
provides that in the following instances, a business corporation with a minimum paid-in capital of
US$100,000.00 shall be fully allowed to foreign nationals:
(a) If the business involves advanced technology as determined by the DOST;
(b) Those endorsed as startup or startup enablers by the lead host agency pursuant to RA 11337 or the
Innovative Startup Act (such as the DOST, DTI, DICT, among others); or
(c) When majority of their direct employees are Filipinos, but in no case shall the number of the Filipino
employees be less than fifteen (15).
RA 11647 reiterates that one hundred percent (100%) foreign capital investment in domestic enterprises
is allowed unless foreign participation is prohibited or limited by other laws or the Constitution. These foreign-
welcoming domestic enterprises include:
(a) Subways; Railways;
(b) Airports; Airlines;
(c) Tollways; and
(d) Transport Network Vehicle Services (TNVS).
Full foreign ownership under the foregoing entities that are traditionally considered as “public utilities”, is
now allowed under RA 11647.
Furthermore, under EO 175, effective June 2022,  full foreign participation is allowed  to business re:
manufacture and distribution of products requiring clearance from DND such as guns, ammunitions,
military communication gadgets and the likes.
On the other hand, all other “public utilities” businesses such as electricity distribution and transmission,
petroleum products, pipeline systems and distribution, seaports and public utility vehicles (PUVs) are
subject to a maximum of 40% foreign equity restriction under the 1987 Constitution.
Stockholders’ Vote Requirements
1.Amendments of the Articles of Incorporation (must be approved by the stockholders representing at least
2/3 of the outstanding capital stock);
2.Adoption and amendment of by-laws; (majority)
3.Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property; (2/3)
4.Incurring, creating or increasing bonded indebtedness; (2/3)
5. Increase or decrease of capital stocks; (2/3)
6.Merger or consolidation of the corporation with another corporation (2/3)
7.Investment of corporate funds in another corporation or business in accordance with law; (2/3)
8.Dissolution of the corporation. (2/3)

MINIMUM CAPITALIZATION OF CERTAIN BUSINESSES

Minimum AUTHORIZED CAPITAL STOCK for Universal Banks – (P3.5 Billion)
Minimum AUTHORIZED CAPITAL STOCK for Construction Corporations – (P100 Thousand)
Minimum PAID-UP CAPITAL STOCK for Insurance Corporation – (P50 Million)
Minimum PAID-UP CAPITAL STOCK for Investment House – (P20 Million)
Minimum PAID-UP CAPITAL STOCK for Local Recruitment Business – (P500 Thousand)
Minimum AUTHORIZED CAPITAL STOCK for Pawnshop Corporations – (P100 Thousand)