THE LAW ON

CORPORATION

B.P. Blg. 68, as amended by

RA No. 11232 (Feb. 23, 2019)
GENERAL PRINCIPLES
Corporation
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. (Section 2, Revised
Corporation Code [RCC])
GENERAL PRINCIPLES
Advantage over partnership:
Centralized management of the
corporation through board of directors
or trustees.
GENERAL PRINCIPLES
Test (nationality of Corporation)
1. incorporation test – nationality
is determined by the state where
it was incorporated regardless of
nationality of stockholders.
GENERAL PRINCIPLES
Domestic corporation –
organized under Philippine
Laws
 Foreign corporation –
organized under the laws of
another country
GENERAL PRINCIPLES
2. Domicile Test – determined by the
state where it is domiciled

3. Control Test – determined by the

nationality of the controlling
stockholders or members
GENERAL PRINCIPLES
As to management & control
Holding corp. - holds stocks
in other companies for
purposes of controlling such
other companies as
subsidiaries
GENERAL PRINCIPLES
As to management & control
Subsidiary corp. – w/c is so
related to another corp. that the
majority of its directors can be
elected directly or indirectly by
such other corporation
GENERAL PRINCIPLES
As to management & control
Affiliate or company– w/c is
subject to common control of a
mother holding company and
operates under it.
GENERAL PRINCIPLES
As to management &
control
One-person corp.
GENERAL PRINCIPLES
A corporation has a juridical
personality separate and distinct
from that of the stockholders,
shareholders and members.
GENERAL PRINCIPLES
Ivana owns 95% of the capital
stocks of Alawi Corp. She also
owns 89% of Panday Corp. Alawi
Corp. had a loan with Andrea
Bank but defaulted.
GENERAL PRINCIPLES

Since Ivana owns both

corporation, can Panday Corp.
be liable for the loan of Alawi
Corporation?
GENERAL PRINCIPLES
No. Although both are owned
by Ivana, they are two distinct
corporations with separate
juridical personalities.
CONSEQUENCES OF SEPARATE JURIDICAL
PERSONALITY
May bring civil and criminal
actions in its own name in the
same manner as natural
persons.
CONSEQUENCES OF SEPARATE JURIDICAL
PERSONALITY
May acquire property in the
name of the corporation.
CONSEQUENCES OF SEPARATE JURIDICAL
PERSONALITY
Personality remains unaffected
by changes in person
composing it.
CONSEQUENCES OF SEPARATE JURIDICAL
PERSONALITY
Cannot be held liable for
crimes committed by its officer.
(mere legal fiction)
CONSEQUENCES OF SEPARATE JURIDICAL
PERSONALITY
May be held liable only if acts
of the BOD were performed in
accordance with the powers
granted articles of
incorporation or its bylaws
CONSEQUENCES OF SEPARATE JURIDICAL
PERSONALITY
Not entitled to moral damages
because it has no feelings, no
emotions or senses. (General
Rule)
When a corporation has a
reputation that is debased, resulting
in its humiliation, in w/c case it can
complain for libel, defamation and
claim moral damages (Besmirched
reputation as exception)
CLASSES OF CORPORATION AS TO EXISTENCE OF SHARES
OF STOCK

Stock Corporations Non-Stock Corporations

Stock corporations are those which Non-stock corporations are those
have capital stock divided into which have no capital stock, do
shares and are authorized to not issue stocks, and do not
distribute to the holders of such distribute dividends to its
shares, dividends, or allotments of members.
the surplus profits on the basis of
the shares held. All other
corporations are nonstock
corporations. (Sec. 3, RCC)
CLASSES OF CORPORATION AS TO ITS PURPOSE
❖ Public corporation
A public corporation is created for the
purpose of government and
management of public affairs founded
by the State and managed by it for
governmental purposes.
CLASSES OF CORPORATION AS TO ITS PURPOSE

❖ Private corporation
A private corporation is
formed for some private
purpose, welfare, benefit, aim,
or end.
 CLASSES OF CORPORATION AS TO ITS PURPOSE
❖ Quasi-public corporations
Quasi-public corporations are corporations like
railroad and canal corporations that are engaged
in private business affected with public interest.
(Philippine National Railways vs. Intermediate
Appellate Court, G.R. No. 70547 January 22,
1993)
 CLASSES OF CORPORATION AS TO GOVERNING LAW
❖ Government –owned and controlled
corporations
GOCCs are regarded as private corporations.
That the government may own the controlling
shares in the corporation does not diminish the
fact that the latter owes its existence to the
Corporation Code.
What governs GOCCs with original charter or
created by special law?
GOCCs with original charter or created by special law
are governed by the special law creating it; civil
service laws Section 16, Article XII of the 1987
Constitution expressly prohibits the creation or
establishment of private corporations through special
laws except government-owned or controlled
corporations.
CLASSES OF CORPORATION
❖ Eleemosynary
Eleemosynary corporations are
corporations for charitable and
benevolent purposes
CLASSES OF CORPORATION
❖ Corporation Sole
A corporation sole is a corporation formed for the
purpose of administering and managing, as trustee,
the affairs, property and temporalities of any
religious denomination, sect, or church, by the chief
archbishop, bishop, priest, rabbi, or other presiding
elder of such religious denomination, sect or church.
(Sec. 108, RCC)
 CLASSES OF CORPORATION

❖ Ecclesiastical
Ecclesiastical corporations are exclusive of
spiritual persons; established for the furtherance
of religion and for the perpetuation of church
rights
Components of a corporation:
Corporators- those who compose
a corporation, whether as
stockholders, or shareholders or
as member in a non-stock
corporation
Incorporators-those who
originally formed and composed
the corporation, having signed
the articles of incorporation
Stockholders – owners of shares
of stocks in a corporation

Members – corporators of a
nonstock corporation
Promoter – one who takes
initiative in founding/organizing
the business or enterprise; an
agent of the incorporators but not
of the corporation
Subscriber – someone who has
agreed to take and pay for
original unissued shares of a
corporation
CLASSES OF CORPORATION AS TO LEGAL RIGHT TO
CORPORATE EXISTENCE

❖ De Jure Corporation
A de jure corporation or “a matter of
law” corporation is a corporation that
fulfilled all requirements mandated by
law.
CLASSES OF CORPORATION AS TO LEGAL RIGHT TO CORPORATE
EXISTENCE
❖ De Facto Corporation
A de facto corporation or “a matter of
fact” corporation is a corporation
organized with colorable compliance
with the requirements mandated by
law.
CORPORATION BY ESTOPPEL
❖ A corporation by estoppel is a group of
persons who holds itself out as a corporation
and enters into a contract with a third person
on the strength of such appearance. Anyone
who assumes an obligation to an ostensible
corporation as such cannot resist performance
thereof on the ground that there was in fact no
corporation. (Sec. 20, RCC))
❖Classification of Shares
Common Shares – basic class of
stocks ordinarily and usually issued
without extraordinary rights and
privileges.
❖Classification of Shares
Preferred Shares – issued with par
value and may be given preference
in distribution of dividends and in
distribution of corporate assets in
case of liquidation.
❖Classification of Shares
Par Value Shares – have a value
fixed in the certificates of stocks
and articles of incorporation.
❖Classification of Shares
No Par Value Shares – do not have
par value shares but issued for a
consideration of at least P5.00 per
share.
❖Classification of Shares
❖Corporations not allowed to issue no-par
value shares of stock:
❖Banks, trust companies, insurance
companies, public utilities, building and
loan associations, and other corporations
authorized to obtain or access funds from
the public
❖Classification of Shares
Voting Shares – have the right to
vote.
Non-voting Shares – do not have
the right to vote.
❖Classification of Shares
Shares without voting rights:
1. Redeemable shares
2. Preferred shares
❖Classification of Shares
❖Non-voting shares can only vote on the
following sections:
-Amendment of articles of incorporation;
-Adoption & amendment of by laws;
-Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all
properties
❖Classification of Shares
❖Non-voting shares can only vote on the
following sections:
-Incurring, creating, or increasing bonded
indebtedness
-Increase/decrease capital stock
-Merger or consolidation with another
corporation
❖Classification of Shares
❖Non-voting shares can only vote on the
following sections:
-Investment of corporate funds in another
corporation or business purpose;
-Corporate dissolution
❖Classification of Shares
❖Founder’s share – issued to organizers
and promoters of a corporation with
certain rights and privileges not enjoyed
by the owners of other stock such as
preference in voting rights and dividend
payments.
❖Classification of Shares
❖Redeemable shares – may be purchased
by the corporation from the holders of such
shares upon the expiration of a fixed
period provided that the corporation should
still have sufficient assets to cover debts &
liabilities inclusive of capital stock.
❖Classification of Shares
❖Treasury shares – shares of stocks that
have been issued and fully pais for, but
subsequently reacquired by the issuing
corporation through purchase, redemption,
donation, or some lawful means. It has no
voting rights and dividends.
❖Doctrine of Equality of Shares
❖If the articles of incorporation do not
provide for any distinction of shares of
stocks, all shares issued are presumed to
be equal and enjoy the same rights &
privileges and subject to liabilities.
❖Other Kinds of Stocks/Shares
❖Escrow Stocks – are deposited with a
third person to be delivered to a
stockholder or his assign after complying
with certain conditions, usually payment of
full subscription price.
❖Other Kinds of Stocks/Shares
❖Over-Issued/Spurious Stocks – are issued
in excess of the authorized capital stock. It
is considered null and void.
❖Fractional Shares – with value of less
than one full share.
❖Other Kinds of Stocks/Shares
❖Watered Stocks – issued not in exchange
for their equivalent.
❖Convertible Shares – grant the
stockholder the right to convert said shares
from one class to another at a certain price
and within certain period.
❖Doctrine of Piercing the Veil of
Corporate Entity
The veil of corporate existence is a
fiction of law that should not defeat the
ends of justice.
The doctrine of piercing the corporate veil
requires the court to see through the
protective shroud that exempts the
stockholders from liabilities that they
ordinarily would be subject to.
The corporate existence may be
disregarded if formed or used as a vehicle
for the evasion of an existing obligation.
When the corporate veil is pierced, the
corporation and its stockholders are treated
as one person such that when the corporation
is held liable, the stockholders also become
liable as if they were the corporation.
The corporate existence may be
disregarded when the corporation is merely
a farce because it is an alter ego, business
conduit, or instrumentality of a person or
another corporation.
Three-Pronged Test to determine application
of alter ego theory:
1. Control test
2. Fraud test
3. Harm test
Piercing is also warranted when a
corporation ceased to exist only in
name and re-emerged as another
corporation to evade its unfulfilled
obligation.
Terms:
Capital Stock – amount fixed in the
articles of incorporation to be
subscribed and paid in cash, kind or
property. The fund is used to conduct
its operation.
Terms:
Capital – value of the actual
property (money and/or property)
of the corporation.
Terms:
Authorized capital stock – Capital
stock divided into shares with par
value.
Subscribed Capital stock – total
amount of capital stock subscribed
fully paid or not.
Terms:
Outstanding capital stock – portion
of capital stock issued to subscribers
minus treasury stocks.
Terms:
Stated Capital – capital stock
divided into no-par value shares.
Paid-up capital – amount paid by
stockholders
3 steps in creating a corporation:
1. Drafting and execution of AOI and
other documents;
2. Filing with the SEC of the AOI
3. Payment of fees
4. Issuance by the SEC of Certificate of
Incorporation
Number & Qualification of
Incorporators

Singly or jointly with the others, not

exceeding fifteen (15).
Number & Qualification of
Incorporators
Natural persons who are licensed to
practice a profession, partnerships or
assn’s organized for practicing a
profession are prohibited to form
corporations.
Number & Qualification of
Incorporators
Incorporators may be natural or
juridical persons, not more than 15,
and owning or subscribing to at least
one share of the capital stock.
Term of corporate existence
A corporation has perpetual
existence unless its AOI provides
otherwise.
Capital Stock Requirement
No required minimum capital stock.

However, there are some with capital

stock requirement:
Capital Stock Requirement
Insurance company-minimum of
P1billion; investment houses-
P300million; Pawnshops-P100K;
mining companies-P100million
minimum capitalization
Contents of the Articles of
Incorporation:
1. Name of corporation
2. Specific purpose/s
3. Place of principal office
4. Term of existence
Contents of the Articles of
Incorporation:
5. name, nationality, residence of
incorporators
6. Number of directors (NMT15)
trustees (may be MT15)
Contents of the Articles of
Incorporation:
7. name, nationality, residence of
persons who shall act as
directors/trustees until regular
directors/trustees are duly elected in
accordance with RCC
Contents of the Articles of
Incorporation:
8. If stock corp., amount of
authorized capital stock , No. of
shares, par value, original
subscribers, subscriptions, and shares
without par value if applicable
Contents of the Articles of
Incorporation:
9. If non-stock corp., amount of
capital, name, nationalities, residence
of contributors and amount
contributes by each
Amendment of the Articles of
Incorporation:
Not allowed when it will be contrsry
to the provisions or requirements
prescribed by RCC or by special law
Amendment of the Articles of
Incorporation:
Must be approved by the majority
vote of the BOD/trustees and the
vote of stockholders representing at
least 2/3 of outstanding capital
stock
Grounds when AOI may be
disapproved:
1. Amendment not in accordance with
form prescribed;
2. Purpose/s patently unconstitutional,
illegal, immoral, contrary to govt
rules & regulations
Grounds when AOI may be
disapproved:
3. Certification on amount of capital
stock subscribed/paid is false;
4. Required percentage of Filipino
ownership of capital stock has not
been complied with
Corporate Name
SEC shall not allow a corporate name if
it is not distinguishable from that already
reserved or registered for use by
another corporation, or if such name is
already protected by laws, rules and
regulations.
Corporation by Estoppel – results when
a corporation represented itself to the
public as such despite its not being
incorporated.
*It shall not be allowed to use its lack
of corporate personality as a defense.
Effects of non-use of Corporate Charter
and Continuous Inoperation
If corporation does not organize and
commence its business within 5 years
from date of incorporation, its certificate
of incorporation shall be deemed
revoked as of the day following the end
of the 5year period.
Effects of non-use of Corporate Charter
and Continuous Inoperation
If corporation has commenced its
business but subsequently becomes
inoperative for a period of at least 5
consecutive years, SEC may place the
corporation under delinquent status.
A delinquent corporation shall have a
period of 2 years to resume operations
and comply with requirements in order
for SEC to lift delinquent status.
Allowable period for non-use of a
corporate charter is 5 years from date
of incorporation. The certificate of
incorporation shall be deemed revoked
as of the day following the end of the
five year period.
Board of Directors-exercises corporate
powers, conducts all business, controls all
properties of the corporation.
Elected for a term of 1 year from
among the holders of stocks registered
in the corporation’s book.
Trustees-are elected for a term not
exceeding three years from among the
members of the corporation.
A director who ceases to own at least
one share of stock or a trustee who
ceases to be a member of the
corporation shall cease to be a director
or a trustee.
An independent director is a person who,
apart from his fees and shareholdings, is
independent of management and free
from any business or other relationship
which could , or could materially
interfere with his exercise of
independent judgement in carrying out
his responsibilities as a director.
Number of Directors: (stock) cannot
exceed 15, term: 1 year each

Number of Trustees: (non-stock) can

exceed 15, term: 3 years each
Disqualification:
1. Convicted by final judgment of an
offense punishable by imprisonment for
a period exceeding 6 years, for
violating RA No. 8799 (The Securities
Regulation Code)
Disqualification:
2. Found administratively liable for any
offense involving fraudulent acts;
3. Found liable by a foreign court or
foreign regulatory authority for acts,
violations, or misconduct similar to those
enumerated in nos. 1 & 2.
Director/Trustee shall possess all of the
qualifications and none of the
disqualifications set forth under the RCC.
Election of Directors/Trustees
Owners of the majority of the
outstanding capital stock or majority of
the members entitled to vote must be
present in person or by representative
authorized to act by written proxy.
Election of Directors/Trustees
Must be by ballot if requested by
any voting member or stockholder
A stockholder cannot be deprived of
his statutory right to use any of the
methods of voting in the election of
directors.
Election of Directors/Trustees
No delinquent stock shall be voted.

Candidates receiving the highest

number of votes shall be declared
elected.
Limitations on the stockholder’s right to
vote:
Non-voting shares are not entitled to
vote except as provided for in the last
para of Sec. 6 (sale, mortgage etc;
amendment of AOI, merger,
consolidation etc)
Limitations on the stockholder’s right to
vote:
preferred or redeemable shares may
be deprived of the right to vote unless
otherwise provided in the RCC
Limitations on the stockholder’s right to
vote:
fractional shares of stock cannot be
voted

treasury shares have no voting rights

as long as they remain in the treasury
Limitations on the stockholder’s right to
vote:
holders of delinquent stocks are not
entitled to vote or a representation at
any stockholder’s meeting
a transferee of stock cannot vote if
his transfer is not registered in the stock
and transfer book of the corporation
Corporate Officers:
President-must be a director
Treasurer-must be a resident of the
Philippines
Secretary-citizen and resident of the
Philippines
Other officers as may be provided in the
bylaws