THE CORPORATION CODE
A. CORPORATION
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.
B. CLASSES OF CORPORATION
IN RELATION TO STATE:
a. Public Corporation
 Formed or organized for the
government of the portion of the state.
b. Private Corporation
 Formed or organized for the
government of the portion of the state
c. Quasi-Public Corporations
 A cross between private corporations
and public corporations.
AS TO PLACE OF INCORPORATION:
a. Domestic
 A cross between private corporations
and public corporations.
b. Foreign
 One formed, organized or existing
under any law other than those of the
Philippines
AS TO GOVERNING LAW:
a. Public
 Special Laws and Local Government
Code
b. Private
 Corporation Code
c. Quasi- Public
 seems to be a cross between private
corporations and public corporations.
AS TO LEGAL STATUS:
a. De Jure Corporation
 A corporation organized in accordance
with the requirements of law.
b. De facto Corporation
 A corporation claiming in good faith to
be a corporation under the
Corporation Code.
c. Corporation by Estoppel
 One which in reality is not a
corporation but is considered one for
only those who are precluded from
asserting that it is not a corporation.
d. Corporation by Prescription
 One which have never exercised
corporate powers for an indefinite
period without interference on the
part of the sovereign power and
which, by fiction of law, is given the
status of corporation.
AS TO EXISTENCE OF STOCK
a. Stock Corporation
 One which has a capital stock divided
into shares and is to the holders such
authorized to distribute shares,
dividends or allotments of the surplus
profits
b. Non- stock Corporation
 A corporation where no part of its
income is distributable as dividends to
members, trustees or officers.
AS TO RELATIONSHIP OF MANAGEMENT AND
CONTROL
a. Holding Company
 one that controls another as a
subsidiary or affiliate by the power to
elect its management; one which holds
in other companies for the purpose of
control rather than for mere
investment.
b. Affiliate Company
 One that is subject to common control
to a mother or holding company and
operated as part of a system.
c. Parent and Subsidiary Companies
 when a corporation has a controlling
financial interest in one or more
 corporations, the one having in 2. Control Test
control is known as the  it is determined by the nationality of
the controlling SH or members.
AS TO FUNCTIONS
Filipino ownership of its capital stock
a. Public is at least 60%, and where the 60-40
 government of a portion of the State; Filipino-Alien equity ownership is
b. Private NOT in doubt
 usually for profit-making functions. 3. Grandfather Rule
 Determines the actual Filipino
AS TO PURPOSE OF INCORPORATION
Ownership and control in Corporation
a. Municipal Corporation by tracing both the direct and indirect
b. Religious Corporation shareholdings in the corporation.
c. Educational Corporation
D). CORPORATE JURIDICAL PERSONALITY
d. Charitable Corporation
e. Business Corporation a. Doctrine of Separate Juridical Personality

AS TO NUMBERS OF MEMBERS  A corporation has personality

separate and distinct from that of its
a. Aggregate
stockholders and members. The
 Corporation consisting of more than
liability of the corporation is not the
one member or corporator
liability of its SH. And vice versa.
b. Corporation Sole
 Liability for Torts
 A religious corporation which consist
As a separate juridical
of one member or corporator only and
personality, a corporation can
his successors, such as bishop
be held liable for tors
OTHER CLASSIFICATION committed by its officers for
corporate purpose.
a. Close Corporation
 Liability for crimes
 One which is limited to selected
Since a corporation is a mere
persons or members of a family
legal fiction, it cannot be
b. Open Corporation
proceeded against criminally
 One which is open to any person who
because it cannot commit a
may wish to become SH or member
crime in which personal
violence or malicious intent is
required.
C). NATIONALITY OF CORPORATIONS
 Recovery of Damages
Serves as a legal basis for subjecting the General Rule: Moral damages
enterprise or its activities to the laws, the cannot be awarded in favor of
economic and fiscal powers, and various corporations because they do not
social and financial policies of the state to have feelings and mental state.
which it is supposed to belong. They may not even claim moral
damages for besmirched
Tests: reputation
1. Place of Incorporation Exceptions: A corporation
 Principal doctrine on the test of the can recover moral damages under
nationality of a corporate identity in Art. 2219 (7) if it was the victim of
the Philippines defamation

GENERAL RULE: Corporations cannot commit
felonies punishable under the RPC for it is
incapable of the requisite intent to commit these
crimes. Also, crimes are personal in nature
requiring personal performance of overt acts.
Finally, a corporation cannot be arrested and
imprisoned; hence, cannot be penalized for a
crime punishable by imprisonment.
EXCEPTIONS:
If the crime is committed by a corporation, the
directors, officers, employees or other officers
thereof responsible for the offense shall be
charged and penalized for the crime, precisely
because of the nature of the crime and the
penalty therefore. A corporation cannot be
arrested and imprisoned; hence, cannot be
penalized for a crime punishable by
imprisonment. However a corporation may be
charged and prosecuted for a crime if the
imposable penalty is fine.
b. Doctrine of Piercing the Corporate Veil
When it become inevitable, the doctrine of
piercing the corporate veil it is when the
corporation has been contradicted to social
justice or its purpose then will pinpoint the veil
of corporation of whose responsible behind
those decisions as a result the corporation
become now an aggregate person.
 Grounds for Application of
Doctrine
i. If done to defraud the
government of taxes due it.
ii. If done to evade payment of
civil liability.
iii. If done by a corporation which
is merely a conduit or alter ego
of another corporation.
iv. If done to evade compliance
with contractual obligations.
v. If done to evade compliance
with financial obligation to its
employees.
 Test in determining
applicability
General Rule: The mere fact that a
corporation owns all or substantially
all of the stocks of another
corporation is NOT sufficient to justify
their being treated as one entity.
Exceptions: The subsidiary is a mere
instrumentality of the parent
corporation.
E). CAPITAL STRUCTURE
a. Number and qualifications of Incorporators
Incorporators are stockholders or
members mentioned in the articles
originally forming and composing the
corporation and who are signatories
thereof.
 Natural persons
 Of legal age
 Must own or subscribe at least one
share of stock of the corporation
(Genuine interest)
 5 to 15 incorporators who must
sign the articles of incorporation
(AOI)
 Majority of the incorporators must
be residents of the Philippines
B). Subscription Requirement
 At least 25% of the total subscription must be
paid upon subscription, the balance to be
payable on a date or dates fixed in the contract of
subscription without need of call, or in the
absence of a fixed date or dates, upon call for
payment by the BOD.
 Call – term used when the Board formally
asks for payment of the balance of the
subscription or a part thereof.
C). Corporate Term
 A corporation shall have perpetual
existence unless its AOI provides
otherwise
 Not more than 50 years from date of
incorporation subject to extension for
periods not exceeding 50 years per
extension unless:
 Sooner dissolved, or
 Extended
Extensions:
 Not earlier than 5 years prior to expiry 
Unless earlier extension is for justifiable
reasons as determined by SEC.
 How to extend amend the AOI during the
life of – the corporation before the expiry of
its term. Any dissenting stockholder may
exercise his appraisal right.
D). Classifications of Shares
 Common Shares
- A common stock represents the
residual ownership interest in the
corporation. It is a basic class of
stock ordinarily and usually issued
without extraordinary rights or
privileges and entitles the
shareholder to a pro rata division
of profits.
 Preferred Shares
- Securities that represent
ownership in corporation, and that
have a priority claim over common
shares on the corporation’s asset
and earnings.
 Founders Shares
- Are given certain rights and
privileges not enjoyed by the
owners of other stock.
 Redeemable Shares
- stock that can be repurchased by
the issuing company on or after a
predetermined date or following a
specific event.
 Treasury Shares
- The portion of shares that a
company keeps in its own
treasury.
E). Incorporators and Organization
 Promoter- are persons who, acting alone
or with others, take the initiative in
founding and organizing the business or
enterprise of the issuer and receives
consideration therefore.
 Subscription contract- Any contract for
the acquisition of unissued stock in an
existing corporation or a corporation still
to be formed. It is considered as such not
withstanding the fact that the parties
refer to it as purchase or some other
contract.
What are the kinds of subscription contracts?
1. Pre-incorporation subscription
- A subscription for shares of stock
of a corporation still to be formed
shall be irrevocable for a period of
at least 6 months from the date of
subscription.
2. . Post-Incorporation Subscription
Entered into after incorporation.
- No pre-incorporation subscription
may be revoked after the
submission of the articles of
incorporation to the SEC.
 Consideration for Stocks- Since the
capital stock of a corporation constitutes
the area or basis upon which the trust
fund doctrine operates, the law ensures
that the consideration received (which
becomes part of the assets of the
corporation) would have proper value to
support the capital stock.
 Articles of Incorporation
 Contents
 Name of corporation;
 Purpose/s, indicating the
primary and secondary
purposes;
 Place of principal office;
 Term which shall not be more
than 50 years;
 Names, citizenship and
residences of incorporators;
 Number, names, citizenships
and residences of directors;
 If stock corporation, amount of
authorized capital stock,
number of shares;
 In par value stock
corporations, the par value of
each share;
 Number of shares and
amounts of subscription of
subscribers which shall not be
less than 25% of authorized
“capital stock;
 Amount paid by each
subscriber on their
subscription, which shall not
be less than 25% of subscribed
capital and shall not be less
than P5,000.00;
 Name of treasurer elected by
subscribers;
 If the corporation engages in a
nationalized industry, a
statement that no transfer of
stock will be allowed if it will
reduce the stock ownership of
Filipinos to a percentage below
the required legal minimum.
Non-amendable Items
 Names of incorporators
 Names of incorporating
directors/trustees
 Names of original subscribers
to capital stock and subscribed
and paid- up capital
 Treasurer-in-trust elected by
original subscribers
 Members who contributed to
the initial capital of non-stock
corporation
 Place and date of execution
 Witnesses and
acknowledgments
 Corporate Name- Limitations on Use of
Corporate Name
 Must not be identical or
deceptively or confusingly similar
to that of any existing corporation
including internationally known
foreign corporation though not
used in the Philippines;
 Any other name already protected
by law;
 Name that is patently defective,
confusing or contrary to existing
laws, morals or public policy
 Must include the word
“Corporation/Corp” or
“Incorporated/Inc.”
 Registration, Incorporation, and
Commencement of Corporate
Existence
- A person or group of persons
desiring to incorporate shall
submit intended corporate name
to the SEC for verification.
- If the SEC finds that the name is
distinguishable from a name
already reserved or registered for
use of another corpo, not protected
by law and is not contrary to law,
rules and regulations, the name
shall be reserved in favor of the
incorporators.
- The incorporators shall then
submit their AOI and by-laws to
SEC.
- If the SEC finds that the submitted
docs and info are fully complaint
with the reqs in this code, other
relevant laws, rules, and
 regulations, the SEC shall issue the
Certificate of incorporation.
- A private corpo organized under
this code commences its corporate
existence and juridical personality
from the date the SEC issues the
COI under its official seal and there
upon the incorporators,
SH/members and their successor
shall constitute a body corporate
under the name stated in the AOI
for the period of time mentioned
therein, unless said period is
extended or the corpo is sooner
dissolved in accordance with law.
 Election of Directors or Trustees
-Directors are elected by the stockholders
of a corporation in an election held where
the owners of majority of the outstanding
capital stock, whether in person or
through proxy, are present.
 Adoption of By-Laws
After Incorporation – within one month
after receipt of official notice of the
issuance of its certificate on incorporation
by the SEC.
Before Incorporation – approved and
signed by all the incorporators and
submitted to SEC together with AOI.
a). Nature and Functions
- By-laws are mere internal rules
among stockholders and cannot
affect or prejudice third persons
who deal with the corporation
unless they have knowledge of the
same.
b). Requisites of Valid By-Laws (Sec.
46)
 Must be approved by the affirmative vote of the
stockholders representing the majority of the
outstanding capital stock or majority of
members (if filed prior to incorporation,
approved and signed by all incorporators).
 Must be kept in the principal office of the
corporation; subject to inspection of
stockholders or members during office hours
 It must be consistent with the Corporation
Code, other pertinent laws and regulations. iv. It
must be consistent with the AOI.
 It must be reasonable and not arbitrary or
oppressive. vi. It must not disturb vested rights,
impair contracts or property rights of
stockholders or members or create obligations
unknown to law.
c) Binding Effects
- Only from the issuance of SEC certification that
by laws are not inconsistent with the Code.
Cannot bind stockholders or corporation
pending approval.
As to the Corporation and its Components -
Binding not only upon the corporation but also
on its stockholders, members and those having
direction, management and control of its affairs.
They have the force of contract between
stockholders/members.
As to Third Persons - Not binding unless there
is actual knowledge. Third persons are not even
bound to investigate the content because they
are not bound to know the by-laws which are
merely provisions for the government of a
corporation and notice to them will not be
presumed.
d) Amendment or Revision (Sec. 48)- Majority
vote of the members of the Board and majority
vote of the owners of OCS or members, in a
meeting duly called for the purpose; or
Delegation to the BOD of power to amend or
repeal by-laws by vote of stockholders
representing 2/3 of OCS or 2/3 of the members.
Such delegated power is considered revoked by
majority vote only of stockholders representing
2/3 of OCS or 2/3 of the members.
 Effects on non-use of corporate charter
- If a corporation does not formally
organize and commence the
transaction of its business or the
construction of its works within
two (2) years from the date of its
incorporation, its corporate
 powers cease and the corporation
shall be deemed dissolved.
- However, if a corporation has
commenced the transaction of its
business but subsequently
becomes continuously inoperative
for a period of at least five (5)
years, the same shall be a ground
for the suspension or revocation of
its corporate franchise or
certificate of incorporation.
F. CORPORATE POWERS
a). General Powers
Every corporation has the power and capacity:
- To sue and be sued in its corporate
name
- Of succession by its corporate
- To adopt and use a corporate seal;
- To amend its articles of
incorporation;
- To adopt by-laws, not contrary to
law, morals, or public policy, and
to amend or repeal the same;
- In case of stock corporations, to
issue or sell stocks to subscribers
and to sell treasury stocks, or
admit members to the corporation
if it be non-stock corporation;
- Purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage and otherwise deal with
such real and personal property,
including securities and bonds of
other corporations;
- To enter into merger or
consolidation with other
corporations;
- To make reasonable donations,
provided, that no corporation shall
give donations in aid of any
political party or candidate or for
purposes of partisan political
activity;
- To establish pension, retirement,
and other plans for the benefit of
its directors, trustees, officers and
employees;
- To exercise other powers as may
be essential or necessary to carry
out its purpose or purposes stated
in the articles of incorporation.
b). Specific Powers
- Power to Extend or Shorten Corporate
Terms
Requirements:
- Majority vote of the Board of Directors or
Trustees
- Ratification at a meeting by 2/3 of the
outstanding capital stock or members
An extension of corporate term allows a
dissenting stockholder to exercise his appraisal
right.
- Power to Increase or Decrease Capital
Stock or Incur, Create, Increase
Bonded Indebtedness
Requirements:
- Majority vote of the board of directors
- Favored by 2/3 of the outstanding capital
stock
Ways to increase or decrease capital stock:
i. By increasing/decreasing the number
of shares authorized to be issued
without increasing/decreasing the par
value thereof;
ii. ii. By increasing/decreasing the par
value of each share without
increasing/decreasing the number
thereof;
iii. By increasing/decreasing both the
number of shares authorized to be
issued and the par value thereof.
- Power to deny pre-emptive right
 Whenever the capital stock of a
corporation is and increased new shares
of stock are issued, the new issue must be
offered first to the stockholders who are
such at the time the increase was made in
 proportion to their existing shareholdings
and on equal terms with other holders of
the original stocks before subscriptions
are received from the general public
- Power to Sell or Dispose All or
Substantially All of the Corporate
Assets
Requirements:
- Majority vote of its board of directors
- Authorization by 2/3 of stockholders of
the OSC or members. Provided, that in
non-stock corporations, where there are
no members with voting rights, the vote
of at least a majority of the trustees will
be sufficient for authorization.
- Authorization must be done at a
stockholders’ or members’ meeting duly
called for that purpose after written
notice.
- Power to Acquire Its Own Shares
 A stock corporation shall have the power
to purchase or acquire its own shares for
a legitimate corporate purpose, provided
that the corporation has unrestricted
retained earnings
- Power to Invest Corporate Funds in
Another Corporation or Business
 A private corporation may invest its funds
in any other corporation or business or
for any purpose other than the primary
purpose for which it was organized.
Requirements:
- Majority vote of board of directors or
trustees
- Ratification by the 2/3 stockholders
representing the OSC or members.
However, if the investment is reasonably
necessary to accomplish the corporation’s
primary purpose, the approval of the
stockholders or members shall not be
necessary.
- Power to Declare Dividends
 The board of directors of a stock corporation
may declare dividends out of the unrestricted
retained earnings which shall be payable in
cash, in property, or in stock to all stockholders
on the basis of outstanding stock held by them;
- Power to enter into Management
Contract
 A management contract is one whereby
the corporation undertakes to manage or
operate all or substantially all of the
business of another corporation. A
management contracts must not be longer
than 5 years for any one term. However,
service contracts which relate to the
exploitation, development, exploration or
utilization of natural resources may be
entered into for such periods provided by
law or regulation.
- Ultra Vires Acts
These are acts not within the express,
implied, and incidental powers of the
corporation conferred by the Corporation
Code or its articles of incorporation.
There are three types of ultra vires acts
1. Those outside the express, implied or
incidental powers of the corporation;
2. Those which are effected by corporate
representatives who act without authority;
3. Those which are contrary to laws or public
policy.
Applicability of Ultra Vires Acts
The term is distinguished from an illegal act
since ultra vires the the former is merely
voidable which may be enforced by
performance, ratification, or estoppels, while
the latter is void and cannot be validated.
- TRUST FUND DOCTRINE
Under the trust fund doctrine, the capital stock,
property and other assets of a corporation are
regarded as equity in trust for the payment of the
corporate creditors.
G). Stockholders and Members
 Fundamental rights of a SH -
stockholders are entitled to proprietary
rights such as right to receive dividend,
right of appraisal, right to inspect
corporate books, and right to vote.
Further they are entitled to institute
derivative suit to protect or vindicate
corporate rights.
 Participation in Management
PROXY - Stockholders and members may vote in
person or by proxy in all meetings of
stockholders or members.
- A written given by one person to another so
authorization that the second person can act for
the first.
- A proxy is a special form of agency. The proxy
holder is in the eye of the law an agent and as
such a fiduciary.

Requirements for Validity: (Sec. 58)

i. Unless otherwise provided in the proxy, it

shall be valid only for the meeting which it
was intended.
ii. It shall be signed by the stockholder or
member concerned;
iii. Proxies shall be in writing;
iv. It shall be filed before the scheduled
meeting with the corporate secretary;
v. No proxy shall be valid and effective for a
period longer than 5 years at any one time.

VOTING TRUST - An arrangement created by

one or more stockholders for the purpose of
conferring upon a trustee or trustees the right to
vote and other rights pertaining to the shares for a
period not exceeding five (5) years at any time. The
trustee can also be voted as director.