Corporations

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 45  May 2023 CPA Licensure Examination

RFBT-06
REGULATORY FRAMEWORK for BUSINESS TRANSACTIONS J. DOMINGO  N. SORIANO
LAW ON CORPORATIONS
DEFINITION AND ATTRIBUTES
DEFINITION: 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 incident to its existence.
ATTRIBUTES:
1. ARTIFICIAL BEING – it has a juridical personality, separate and distinct from the persons composing it.
CORPORATE ENTITY THEORY
As a legal entity, the corporation is possessed with a juridical personality separate and distinct from the individual
stockholders or members and is not affected by the personal rights, obligations or transactions of the latter.
PIERCING THE VEIL OF CORPORATE ENTITY: The applicability of the corporate entity theory is confined to legitimate
transactions and is subject to equitable limitations to prevent its being used as a cloak or cover for fraud or illegality, or to
work injustice.
When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, defend crime, the law
will regard the corporation as a mere association of persons, or in the case of two corporations, merge them into one, the
one being merely regarded as part or instrumentality of the other. The same is true where a corporation is a mere dummy
and serves no business purpose and is intended only as a blind, or an alter-ego or business conduit for the sole benefit of
the stockholders.
In cases where the doctrine of piercing the veil of corporate fiction, the concept of a separate juridical personality shall be
set aside.
2. CREATED BY OPERATION OF LAW – the formal requirement of the State’s consent through compliance with the
requirements imposed by law is necessary for its creation such that the mere agreement of the persons composing it or
intending to organize it does not warrant the grant of its independent existence as a juridical entity.
COMMENCEMENT OF CORPORATE EXISTENCE: is at the time of the issuance of the Certificate of Incorporation or
Registration. It is only from this time that it acquires juridical personality and legal existence, EXCEPT:
a. Corporations by Estoppel;
b. Those created by special laws;
c. Sole Corporation – which is reckoned from the filing of verified articles.
3. RIGHT OF SUCCESSION – unlike in a partnership, the death, incapacity or civil interdiction of one or more of its
stockholder does not result in its dissolution; this is otherwise referred to as the corporation’s “strong” juridical personality.
4. POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY AUTDHORIZED BY LAW – it can exercise only such powers
and can hold only such properties as are granted to it by the enabling statutes unlike natural persons who can do anything
as they please.
Powers of a corporation:
a. Express Powers – those expressly authorized by the Corporation Code and other laws, and its Articles of Incorporation.
b. Implied Powers – Those that can be inferred from or necessary for the exercise of EXPRESS powers;
c. Incidental Powers – those that are incidental to the existence of the corporation.
Under the Corporation Code, a Corporation has power and capacity:

a. To sue and be sued in its corporate name;
b. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of
incorporation;
c. To adopt and use a corporate seal;
d. To amend its articles of incorporation in accordance with the provisions of this Code;
e. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with
this Code;
f. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury
stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock
corporation;
g. To 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, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
h. To enter into merger or consolidation with other corporations as provided in this Code (now, a corporation can also
enter into a partnership and joint venture);
i. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, that no corporation, domestic or foreign (now only foreign), shall give donations
in aid of any political party or candidate or for purposes of partisan political activity;
j. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and
k. Implied Powers: To exercise such other powers as may be essential or necessary to carry out its purpose or purposes
as stated in the articles of incorporation.
ULTRA VIRES ACTS are those which cannot be executed or performed by a corporation because they are not within its
express, inherent, or implied powers as defined by its Articles of Incorporation.
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
LAW on CORPORATIONS RFBT-06
CLASSES OF CORPORATIONS
STOCK CORPORATIONS Corporations which have capital stock divided into shares and are authorized to distribute
to the holders of such shares dividends or allotments of the surplus profits on the basis of
the shares held are stock corporations.
NON-STOCK CORPORATIONS Corporations which are not authorized to distribute surplus profits.
DOMESTIC CORPORATION are those organized or created under or by virtue of the Philippine laws, either by legislative
act or under the provisions of the General Corporation Law.
FOREIGN CORPORATION are those formed, organized or existing under any laws other than those of the Philippines
CLOSE CORPORATIONS are those whose shares of stock are held by a limited number of persons like the family or
other closely-knit group. There are no public investors and the shareholders are active in
the conduct of the corporate affairs.
OPEN CORPORATIONS are those formed to openly accept outsiders as stockholders or investors. They are
authorized and empowered to list in the stock exchange and to offer their shares to the
public such that stock ownership can widely be dispersed. In which case, they are called
PUBLICLY-LISTED CORPORATIONS.
PRIVATE CORPORATIONS those formed for some private purpose, benefit, aim or end. They are created for the
immediate benefit and advantage of the individuals or members composing it and their
franchise may be considered as privileges conferred by the State to be exercised and
enjoyed by them in the form of the corporation.
PUBLIC CORPORATIONS those formed or organized for the government of a portion of the State or any of its political
subdivisions and which have for their purpose the general good and welfare.
ECCLESIASTICAL are composed exclusively of ecclesiastics organized for spiritual purposes or for
CORPORATIONS administering properties held for religious ones. They are organized to secure public
worship or perpetuating the right of a particular religion.
LAY CORPORATIONS are those organized for purposes other than religion. They may further be classified as:
a. ELEEMOSYNARY: created for charitable and benevolent purposes such as those
organized for the purpose of maintaining hospitals and houses for the sick, aged or poor.
b. CIVIL: organized not for the purpose of public charity but for the benefit, pecuniary or
otherwise, of its members.
AGGREGATE CORPORATIONS are those composed of a number of individuals vested with corporate powers.
CORPORATION SOLE those consist of one person or individual only and who are made as bodies corporate and
politic in order to give them some legal capacity and advantage which, as natural persons,
they cannot have. Under the Code, a corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi, or other presiding elder or religious
denominations, sects or churches.
Classes of Corporations according to validity of formation:
Compliance with requirements for valid Separate and distinct Questioning the personality of the
incorporation personality from corporation
stockholders Direct Attack* Collateral
Attack**
De Jure Full compliance Yes No No
Corporation
De Facto Requisites for existence: Yes Yes, via quo No
Corporation 1. There exists a valid law under warranto
which it may be incorporated;
2. An attempt in good faith to
incorporate (colorable compliance)
3. Use of corporate powers
Corporation No compliance at all. The persons who None, stockholders Yes Yes
by Estoppel compose it only set themselves out as a are liable as general
corporation. partners
*Direct Attack: means the very subject of the case is the legal existence or personality of the corporation. This is allowed in a
de facto corporation via a quo warranto proceeding.
**Collateral Attack: means that the main subject of the case is other than attacking the personality of the corporation, but it is
questioned as a side subject.
ORGANIZATION AND INCORPORATION
1. PROMOTIONAL STAGE: undertaken by the organizers or promoters who bring together persons interested in the business
venture. They enter into contract either in their own names or in the name of the proposed corporation.
A promoter, although he may assume to act for and on behalf of a projected corporation and not for himself, will be held
personally liable on contracts made by him for the benefit of a corporation he intends to organize. The personal liability
continues even after the formation of the corporation unless there is novation or other agreement to release him from
liability.
2. PROCESS OF INCORPORATION: includes the drafting of the Articles of Incorporation, preparation and submission of
additional and supporting documents, filing with the SEC, and the subsequent issuance of the Certificate of Incorporation.
Contents of the Articles of Incorporation:

a. The name of the corporation;
The name of the corporation is essential to its existence since it is through it that it can act and perform all legal acts.
Each corporation should therefore, have a name by which it is to sue and be sued and do all legal acts.
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Thus, the organizers must make sure that the name they intend to use as a corporate name is not similar or
confusingly similar to any other name already registered and protected by law since the SEC would refuse
registration if such be the case.
This requirement is now specifically indicated in the Revised Corporation Code.
b. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has
more than one stated purpose, the articles of incorporation shall state which is the primary purpose and
which is/are the secondary purpose or purposes: Provided, that a non-stock corporation may not include
a purpose which would change or contradict its nature as such;
The statement of the objects or purpose or powers in the charter results practically in defining the scope of authority
of the corporate enterprise or undertaking. This statement both congers and also limits the actual authority of the
corporate representatives.
The reasons for requiring a statement of the purposes or objects:

1. In order that the stockholder who contemplates on an investment in a business enterprise shall know within what
lines of business his money is to be put at risks;
2. So that the board of directors and management may know within what lines of business they are authorized to
act; and
3. So that anyone who deals with the company may ascertain whether a contract or transaction into which he
contemplates entering is one within the general authority of the management.
SECONDARY PURPOSE: Although the Corporation Code does not restrict nor limit the number of purpose or purposes
which a corporation may have, Sec. 14 thereof, requires that if it has more than one purpose, the primary purpose as
well as the secondary ones must be indicated therein.
GENERAL LIMITATIONS:
1. The purpose or purposes must be lawful;
2. The purpose must be specific or stated concisely although in broad or general terms;
3. If there is more than one purpose, the primary as well as the secondary ones must be specified; and
4. The purposes must be capable of being lawfully combined
c. The place where the principal office of the corporation is to be located, which must be within the
Philippines;
It must be located within the Philippines. The AOI must not only specify the province, but also the City or Municipality
where it is located.
The principal office serves as the residence of the corporation and is thus important in:
i. venue of actions;
ii. registration of chattel mortgage of shares;
iii. validity of meetings of stockholders in so far as venue thereof is concerned.
d. The term for which the corporation is to exist, if the corporation has not elected perpetual existence;
A corporation now generally has perpetual existence since the Revised Corporation Code removed the limitation of
50 years unless the Articles of Incorporation would provide otherwise.
This equally applies to already existing corporations, except if by majority vote of its stockholders, it notifies the SEC
to retain its specific corporate term.
Definite Term: If the corporation would opt to have a definite term for its existence, any extension thereof can be
made no earlier than 3 years (from 5 years) prior to expiry date, unless there are justifiable reasons to allow earlier
extension.
Revival: Also under Sec. 11, after the expiration of the corporate term, a corporation may file for revival of its
corporate existence. Upon approval by the Commission, the corporation shall be deemed revived and a certificate of
revival of corporate existence shall be issued, giving it perpetual existence, unless its application for revival provides
otherwise.
e. The names, nationalities and residence addresses of the incorporators;
CORPORATORS apply to all who compose the corporation at any given time and need not be among those who
executed the AOI at the start of its formation or organization.
INCORPORATORS are those mentioned in the AOI as originally forming the corporation and who are signatories in
the AOI.
An incorporator may be considered as a corporator as long as he continues to be a stockholder or a member, but not
all corporators are incorporators.
Number of Incorporators: not more than 15 (previously 5 to 15)
Qualifications:
1. Must be natural persons (now can also include a partnership, association or corporation)
2. Of Legal Age (still a requirement for natural person-incorporators under SEC MC No. 16-2019)
3. Must own or subscribe to at least 1 share.
4. Majority must be residents of the Philippines (already removed)

f. The number of directors which shall not be more than fifteen (15) or the number of trustees which may
be more than fifteen (15);
DIRECTORS compose the governing board in stock corporations which should not exceed 15.
TRUSTEES pertain to non-stock corporations which may exceed 15.
INDEPENDENT DIRECTORS: Section 22 of the RCC, the following corporations vested with public interest shall have
independent directors constituting at least 20% of such board:
1. Corporations covered by the Securities Regulations Code;
2. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust
and insurance companies, and other financial intermediaries; and
3. Other corporations engaged in business vested with public interest similar to the above, as may be determined by
the SEC.
An independent director is a person who, apart from shareholdings and fees received from the corporation, is
independent of management and free from any business or other relationship which could, or could reasonably be
perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a
director
g. The names, nationalities and residences of persons who shall act as directors or trustees until the first
regular directors or trustees are duly elected and qualified in accordance with this Code;
h. If it be a stock corporation, the amount of its authorized capital stock, the number of shares into which it
is divided, the par value of each, the names, nationalities and residences of the original subscribers, and
the amount subscribed and paid by each on his subscription, and a statement that some or all of the shares
are without par value, if applicable;
This requirement that at least 25% of the authorized capital stock must be subscribed and that 25% of the subscription
must be paid-up has already been removed under the Revised Corporation Code, but still applies to increase in
authorized capital stock.
AUTHORIZED CAPITAL signifies the MAXIMUM amount fixed in the articles to be subscribed and paid-in or secured
to be paid by the subscribers. It may also refer to the maximum number of shares that a corporation can issue.
SUBSCRIBED CAPITAL STOCK is the total number of shares and its total value for which there are contracts for their
acquisition or subscription.
PAID UP CAPITAL STOCK or paid-in capital is the actual amount or value which has been actually contributed or
paid to the corporation in consideration of the subscriptions made thereon.
Considerations for stocks:

1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and
lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.
AMENDMENT: Consideration for stocks under Section 61 (formerly Section 60) now includes:
1. Shares of stock in another corporation; and/or
2. Other generally accepted form of consideration.
Note:
• Stocks cannot be issued for a consideration less than the par or issue price thereof.
• Promissory notes or future service cannot be considered valid consideration for stocks.
OUTSTANDING CAPITAL STOCK: total number of shares issued, including those which are subscribed and not yet
fully paid, but excluding treasury shares.
i. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residence addresses
of the contributors and the amount contributed by each; and
j. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and
convenient.
RESTRICTIONS AND PREFERENCES:
If the corporation desires to grant such options, restrictions and/or preferences, the same must be indicated in the
AOI AND in all of the stock certificates. Failure to provide the same in the AOI would not bind the purchasers in good
faith despite the fact that the said restriction and/or preference is indicated in the by-laws of the corporation.
In a close corporation, however, such restrictions and preferences must not only appear in the articles of incorporation
and in the stock certificates BUT ALSO be embodied in the by-laws of that close corporation otherwise it may not bind
purchasers in good faith.
OTHER MATTERS TO BE INDICATED IN THE ARTICLES OF INCORPORATION:

1. The name of the Treasurer duly elected by the subscribers
2. No Transfer Clause: in case a corporation is required to maintain a required minimum Filipino ownership,
committing that no transfer shall be made which shall reduce the ownership of Filipino citizens to less than the
required percentage.

3. The Execution Clause: which will contain the names and signatures of the incorporators
4. Notarial Acknowledgment
AMENDMENT: The following were specifically included as those who would be needing a favorable recommendation
from the concerned government agency:
1. Non-Stock Savings and Loans Associations; and
2. Pawnshops.
On the other hand, the following were removed from the enumeration of entities requiring favorable
recommendations:
1. Educational Institutions; and
2. Other corporations governed by special laws.
AMENDMENT OF THE ARTICLES OF INCORORPATION, IN GENERAL WOULD REQUIRE:

a. Majority approval of the members of the Board;
b. Written assent of stockholders representing 2/3 of the outstanding stocks or 2/3 of the members in case of non-stock
corporations.
c. Approval of the SEC. If the SEC did not act on the application within 6 months from the date of filing, the amended is
deemed approved.
BOARD OF DIRECTORS
The Board of Directors (or trustees or other designation allowed under Sec. 138) is the supreme authority in matter of
management of the regular and ordinary business affairs of the corporation.
However, this authority does not extend to the fundamental changes in the corporate charter such as amendments or substantial
changes thereof, which belong to the stockholders as a whole.
Classification of powers of the board members/corporate officers: The general rule is that a corporation is bound
by the acts of its corporate officers who act within the scope of the classifications of powers of corporate agents,
which are:
1. Those expressly conferred or those granted by the articles of incorporation, corporate by-laws or by the official act of
the board of directors;
2. Those that are incidental or those acts as are naturally and ordinarily done which are reasonable and necessary to carry
out the corporate purpose or purposes;
3. Those that are inherent or acts that go with the office;
4. Those that are apparent or those acts which although not actually granted, the principal knowingly allows or permits it to
be done; and
5. Powers arising out of customs, usage or emergency
QUALIFICATIONS AND DISQUALIFICATIONS: The by-laws of a corporation may provide for additional qualifications and
disqualifications of its members of the board of directors or trustees. However, it may not do away with the minimum
qualifications and disqualifications.
Qualifications of a Director/Trustee: Must own at least 1 share in their own names or a member (in the case of trustees).
A director who ceases to own at least 1 share or a trustee who ceases to be a member of the corporation shall cease to be as
such.
Residency: the requirement that majority of the directors must be residents has already been removed by the Revised
Corporation Code.
Disqualifications of a Director/Trustee: A person shall be disqualified from being a director, trustee or officer of any
corporation:
1. If, within 5 years prior to election or appointment as such, the person was Convicted by Final Judgment
a. Of an offense punishable by imprisonment for a period exceeding 6 years;
b. Violation of the Corporation Code;
c. Violation of the Securities Regulations Code
2. Found administratively liable for any offense involving fraud acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to the
disqualifications under the Code.
4. Such other disqualifications that may be provided in the by-laws.
ELECTION OF MEMBERS OF THE BOARD/TRUSTEES

1. Majority of the outstanding capital stock, whether in person or by written proxy must be present at the election of the
directors; or majority of members entitled to vote, in the case of a non-stock corporation. If the required quorum is not
obtaining, the meeting may be adjourned;
2. On the request of any voting stockholder or member, the election may be held by ballot otherwise viva-voce would suffice.
3. The candidates receiving the highest number of votes shall be elected
Report Requirement: Section 25 of the RCC requires a report within 30 days to be submitted to the SEC in case of non-
holding of elections, which shall include a new date for the election, which shall not be later than 60 days from the scheduled
date.
If no new date has been designated, or if the rescheduled election is likewise not held, the SEC may, upon the application of a
stockholder, member, director or trustee, summarily order that an election be held.
Should a director, trustee or officer die, resign or in any manner cease to hold office, the secretary, or the director, trustee or
officer of the corporation, or in case of death, the officer’s heirs shall, within seven (7) days from knowledge thereof, report in
writing such fact to the SEC.

METHODS OF VOTING:
1. Straight Voting – every stockholder may vote such number of shares for as many persons as there are directors to be
elected. E.g., If a stockholder has 1,000 shares, he gets 1,000 votes.
2. Cumulative Voting:
a. Cumulative voting gives the stockholder entitled to vote the right to give a candidate as many votes as the number of
directors to be elected multiplied by the number of his shares shall equal (Cumulative Voting for one candidate) or he
may distribute them among the candidates as he may see fit (Cumulative voting by distribution)
b. This is granted by law to each stockholder with voting rights. However, in non-stock corporations, cumulative voting
is generally not allowed, UNLESS allowed by the AOI or by-laws.
c. PURPOSE: to allow the minority to have a rightful representation in the board of directors.
REMOVAL AND FILLING-UP OF VACANCIES

1. By-laws may provide for causes or grounds for removal of a director;
2. A director representing the minority may not be removed except for those causes;
3. A director NOT representing the minority may be removed even without a cause.
AMENDMENT: The SEC is now empowered to motu proprio (not just upon verified complaint) and after due notice and
hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose
or is discovered subsequent to an election.
Requirements for a valid removal:

1. The removal should take place at a general or special meeting duly call for that purpose;
2. The removal must be by the vote of the stockholders holding or representing 2/3 of the outstanding capital stock or the
members entitled to vote in cases of non-stock corporations; and
3. There must be a previous notice to the stockholders or members of the intention to propose such removal at the meeting
either by publication or on written notice to the stockholders or members.
Vacancy:
CAUSE OF VACANCY WHO WILL FILL THE VACANCY WHEN ELECTION WILL BE HELD
Removal Stockholders Same day of the meeting authorizing the removal
Expiration of the term Stockholders No later than the day of such expiration at a
meeting called for that purpose
Other causes (death, Board of Directors – if they still No later than 45 days from the time the vacancy
resignation, abandonment) constitute a quorum; arose
Stockholders – if the Directors no

longer constitute a quorum
Increase in the number of Stockholders In a general or special meeting called for the
Directors purpose or in the same meeting authorizing the
increase in the number of directors
Replacement of Hold-Over Directors: in the event that a director, after the expiration of his term is not replace since there
was no election held, such director can continue to function in a holdover capacity. However, if he resigns, the stockholders will
be the one to replace him even if the remaining directors continue to constitute a quorum. Note that the power of the Board to
fill up the vacancy is only if the director resigns before the expiration of his term. In this instance, the term of the director
already expired, he just continued as such only in a hold-over capacity.
EMERGENCY BOARD: When the vacancy 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, the vacancy may be temporarily
filled from among the officers of the corporation by unanimous vote of the remaining directors or trustees.
The action by the designated director or trustee shall be limited to the emergency action necessary, and the term shall cease
within a reasonable time from the termination of the emergency or upon election of the replacement director or trustee,
whichever comes earlier. The corporation must notify the SEC within 3 days from the creation of the emergency board, stating
therein the reason for its creation.
DIRECTORS’ DUTY OF LOYALTY
CORPORATE OPPORTUNITY DOCTRINE: it places a director of a corporation in the position of a fiduciary and prohibits him
from seizing a business opportunity and/or developing it at the expense and with the facilities of the corporation. He cannot
appropriate to himself opportunity which in fairness should belong to the corporation.
Ratification: if a director acquires a business opportunity which should belong to the corporation, he is bound to account for
such profits unless his act is ratified by the stockholders owing or representing at least 2/3 of the outstanding capital stock.
ACQUIRING ADVERSE INTEREST ON A MATTER REPOSED IN HIM IN CONFIDENCE: A director liable is to account for
profits if he attempts to acquire or acquires any interest adverse to the corporation in respect to any matter reposed
in him in confidence as to which equity imposes a disability upon him to deal in his own behalf. This is not subject to
ratification.
SELF-DEALING DIRECTORS: is one who deals or transacts business with his own corporation.
Generally, A contract entered into by a director with his own corporation is voidable at the latter’s option. This is because the
director might take advantage of his position to make the terms of the transaction more favorable to him to the detriment of
the corporation.

Except (in which case the transaction will be valid)
1. All of the following are present:
a. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
b. That the vote of such director or trustee was not necessary for the approval of the contract (see amendment
below);
The approval for transactions of self-dealing directors of corporations vested with public interest shall require:
• At least two-thirds (2/3) of the entire membership of the board, with
• At least a majority of the independent directors.
c. That the contract is fair and reasonable under the circumstances; and
2. Where any of the first two conditions is absent, the contract becomes voidable subject to the ratification of the
stockholders representing 2/3 of the outstanding capital stock – the requirements of which are:
a. there must be a meeting called for that purpose;
b. full disclosure of the adverse interest of the director; and
c. the contract is fair and reasonable under the circumstances.
3. If the self-dealing director owns all or substantially all of the shares of stock, thereby making ratification easily
possible, the reasonableness of the transaction shall be determined - to which there is no yardstick and remains to
be a question of fact depending on the circumstances.
Self-Dealing Officers: Generally voidable as well, except if the contract has been previously authorized by the board of
directors.
INTERLOCKING DIRECTOR: is a director in one corporation who deals or transacts with another corporation of which he is
also a director. In such case, there may effectively be a dual agency, a divided allegiance where allegiance in one corporation
may be subordinated to the other.
General Rule: The contract between corporations with interlocking director is valid provided it is reasonable under the
circumstances;
Exceptions:
1. If there is fraud; or
2. If the interest of the interlocking director in one corporation exceeds 20% (substantial) and in the other merely nominal,
the contract becomes voidable at the latter corporation’s option. In effect, the director would be treated as a self-dealing
director discussed above.
If the interest in both companies is either both substantial or both nominal, the transaction is valid.
REMEDIES AGAINST ERRING OFFICERS/DIRECTORS: In case of a wrongful or fraudulent act of a director, officer or agent,
stockholders have the following options:
1. Individual or Personal Action – for direct injury to his rights, such as denial of his right to inspect corporate books and
records or pre-emptive rights;
2. Representative or Class Suit – in which one or more members of a class sue for themselves as a class or for all to whom
the right was denied, either as an individual action or a derivative suit; and a
3. Derivative Suit – an action based on injury to the corporation – to enforce a corporate right – wherein the corporation
itself is joined as a necessary party, and recovery is in favor of and for the corporation. It is a suit granted to any stockholder
to institute a case to remedy a wrong done directly to the corporation and indirectly to stockholders.
COMMITTEES
EXECUTIVE COMMITTEE: The by-laws of a corporation may create an executive committee, composed of not less than three
members of the Board, to be appointed by the Board.
Said committee may act, by majority vote of all its members, on such specific matters within the competence of the
board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to:
1. Approval of any action for which shareholders’ approval is also required;
2. The filing of vacancies in the board;
3. The amendment or repeal of bylaws or the adoption of new by-laws;
4. The amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and
5. A distribution of cash dividends to the shareholders.
AMENDMENT: The board of directors may create special committees of temporary or permanent nature and to determine
the members’ term, composition, compensation, powers, and responsibilities.
COMPENSATION OF DIRECTORS
Compensation of Directors/Trustees: General Rule: Directors are not entitled to receive any compensation this is because
the office of a director is usually filled up by those chiefly interested in the welfare of the institution by virtue of their interest
in stock or other advantages and such interests are presumed to be the motive for executing duties of the office without
compensation. Except:
1. Reasonable per diems;
2. As provided in the by-laws
3. Upon a majority vote of the stockholders; and
4. If they are performing functions other than that of a director.
Limit: In no case shall the total yearly compensation of the directors (except number 4 above), exceed 10% of the net income
before tax of the corporation during the preceding year. (Section 30)

CORPORATE OFFICERS
ELECTION OF CORPORATE OFFICERS: Except in a close corporation where the corporate officers may be elected directly by
the stockholders, the Code requires the BOD to elect the said officers;
The officers that may be elected are the:

1. President – who must be a director;
2. Treasurer – who may or may not be a director (now required to be a resident);
3. Secretary – who should be a resident and citizen of the Philippines;
4. Such other officers as may be provided for in the by-laws.
Compliance Officer – is now a required corporate officer in corporations vested with public interest.
Any two or more positions may be held concurrently by the same person, except:
1. The president and the secretary;
2. The president and the treasurer.
AUTHORITY OF CORPORATE OFFICERS TO ACT IN BEHALF OF THE CORPORATION: a corporate officer or agent may
represent and bind the corporation in transactions with third person to the extent that authority has been conferred upon him,
and this includes powers which have been:
1. intentionally conferred, and
2. also, such powers as, in the usual course of business, are incidental thereto, or may be implied therefrom,
3. powers added by custom and usage, as usually pertaining to the particular officer or agent, and
4. such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has
conferred
LIABILITY OF CORPORATE OFFICERS: The general rule is that unless the law specifically provides a corporate officer or
agent is not civilly or criminally liable for acts done by him as such officer or agent, or when absent bad faith or malice.
PERSONAL LIABILITY of a corporate director, trustee or officer along (although not necessarily) with the corporation may so
validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or (c) gross negligence in directing its
affairs, or (d) conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation;
4. He is made, by a specific provision of law, to personally answer for his corporate action.
ELECTION OF CORPORATE OFFICERS: require the majority of ALL MEMBERS of the Board, not just the usual majority of
those present in the meeting. Meaning, if there are 15 members of the Board, and 9 are present, 8 votes would be necessary
to elect a corporate officer.
SHARES OF STOCK
Shares of Stock designate the units into which the proprietary interest in a corporation is divided. They represent the
proportionate units, the sum of which constitutes the capital stock of the corporation. It is likewise the interest or right which
the owner, called the stockholders or shareholder, has in the management of the corporation, and in the surplus profits and
in case of distribution, in all of its assets remaining after the payment of its debts.
Certificate of Stock is a document or instrument evidencing the interest of a stockholder in the corporation.
COMMON STOCKS are those which entitles its owner to an equal or pro-rata division of profits, if there are any, but without
any preference or advantage in that respect over any other stockholder or class of stockholders.
Voting Rights: A common share usually carries with it the right to vote, and frequently, the exclusive right to do so. The only
time a common stock’s right to vote may be limited is where there exists Founders’ Shares.
FOUNDER’S SHARES: are shares issued to the founders of the corporation which are granted certain right and privileges such
as the exclusive right to vote and be voted for in the election of directors, for a period not to exceed 5 years.
The period of 5 years is non-extendable because it may result in the almost perpetual disqualification of other stockholders to
elect or be elected as members of the BOD resulting to the lack of proper representation thereat.
PREFERRED STOCKS is a stock that gives the holder preference over the holder of common stocks with respect to the payment
of dividends and/or with respect to distribution of capital upon liquidation.
Limitations imposed by the Code in the issuance of preferred stocks:

1. They can be issued only with a stated par value; and
2. The preference must be stated in the AOI and in the certificate of stock otherwise each share shall be, in all respect, equal
to every other share.
Preference as to Dividends: They have the privilege of being paid dividends first before any other stockholders are paid
theirs.
Participating and Non-Participating Preferred Shares

If the preferred share is participating, they are entitled to participate in dividends with the common shareholders beyond their
stated preference. Non-participating preferred shares on the other hand are entitled to its fixed priority or preference only.

Cumulative and Non-cumulative Preference Shares
Cumulative preferred shares are those that entitle the owner thereof to payment not only of current dividends but also back
dividends not previously paid whether or not, during the past years, dividends were declared or paid. In light of the provision
of the Code stating that all shares are equal in all respects unless otherwise stated in the AOI, a preferred share to be considered
cumulative, the same must be provided for and specified in the certificate.
Non-cumulative preferred shares are those which grant the holders of such shares only to the payment of current dividends but
not back dividends, when and if dividends are paid, to the extent agreed upon before any other stockholders are paid the same.
Voting Rights of Preferred Shares: same with redeemable shares, preferred shares are usually denied voting rights – but
this right must be clearly withheld. However, even if the right to vote is withheld, they shall have the right to vote on the
following:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
AMENDMENTS: In determining whether the sale involved covers all or substantially all the properties and assets of the
corporation, the old Section 40 only provides “if thereby the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was incorporated”.
Section 39, amending the above-mentioned provision now includes “The determination of whether or not the sale involves
all or substantially all of the corporation’s properties and assets must be computed based on its net asset value, as shown
in its latest financial statements.”
4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Preference upon liquidation: this preference must be stated in the contract to accordingly grant such preference in the
distribution of the assets ahead of the common stockholders, including dividends in arrears in case the preferred shares are
cumulative.
PAR AND NO-PAR VALUE SHARES

Par Value Shares are those whose values are fixed in the Articles and shown on the certificate. The par value is the minimum
subscription or original issue price of the shares.
No Par Value Shares are those whose issued price are not stated in the certificate of stock but may be fixed in the AOI, or by
the BOD when so authorized the articles or the by-laws, or in the absence thereof, the stockholders themselves.
The Code allows the issuance of no par value shares, subject to the following limitations:
1. Such shares once issued, are deemed fully paid and thus, non-assessable;
2. The consideration for its issuance should not be less than P5;
3. The entire consideration constitutes capital, hence, not available for dividend declaration;
4. They cannot be issued as preferred stock; and
5. They cannot be issued by banks, trust companies, insurance companies, public utilities and building and loans associations.
WATERED STOCKS: Watering of stocks happened when the shares are issued at less than its par value or issue price.
REDEEMABLE SHARES: are those subject to redemption, as indicated in the contract. This type of shares grants the
corporation the right to repurchase the shares at its option or at the option of the holder based on the face or issued value plus
a specified premium. The redemption may be optional or mandatory at a fixed future date.
The repurchase is not subject to the availability of unrestricted retained earnings.
TREASURY SHARES: are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing
corporation by purchase, redemption, donation or through some other lawful means. Subsequently, the corporation can re-
issue the shares of stock or sell them or declare them as property dividends.
Such shares, though paid for already, do not form part of outstanding shares and accordingly, do not have the right to vote and
receive dividends.
SUBSCRIPTION CONTRACT: Any contract for the acquisition of unissued stock in an existing corporation or a corporation still
to be formed shall be deemed a subscription, notwithstanding the fact that the parties refer to it as a purchase or some other
contract.
Pre-incorporation subscriptions: refer to subscriptions for shares of stock of a corporation still to be formed and are deemed
irrevocable:
1. For a period of at least 6 months from the date of subscription unless (a) all the subscribers consent to the revocation; or
(b) the incorporation fails to materialize within said period or within a longer period as may stipulated in the contract of
subscription; and
2. After submission of the AOI to the SEC
While post-incorporation subscriptions are those made or executed after the formation or organization of the corporation.
Issuance of certificates of stock; requisites:

1. It must be signed by the president or vice-president and countersigned by the secretary or assistant secretary;
2. It must be sealed with the corporate seal, and
3. The entire value thereof (together with the interest or expenses, if any) should have been paid.

Indivisibility: Subscription to shares of stock are deemed indivisible and no certificate of stock can be issued unless and until
the full amount of his subscription including interest and expenses, if any is paid.
Rights of a SUBSCRIBER: a subscriber, even if not yet fully paid, is entitled to exercise all the rights of a stockholder and the
corresponding liability that attach thereunder, except:
1. For the issuance of a certificate of stock;
2. If his shares are declared delinquent; or
3. When he exercises appraisal right.
Delinquent Shares of Stock: a subscription to shares of stock become delinquent if there no payment made on the balance
of all or any portion of the subscription within 30 days on the date or dates fixed in the contract of subscription without need of
call, or on the date specified by the BOD pursuant to a call.
Effect of Delinquency:
General Rule: the stockholder thereof immediately loses the right to vote and be voted upon or represented in any
stockholders meeting as well as all the rights pertaining to a stockholder
Except: the right to receive dividends:

1. Cash dividend - shall first be applied to the unpaid balance on his subscription plus cost and expenses; while
2. Stock dividends - shall be withheld until his unpaid subscription is paid in full.
Delinquent shares; enforcement of payment of subscriptions: Unpaid subscription or any percentage thereof, together
with interest if required by the by-laws or the contract of subscription, shall be paid either:
1. On the date or dates fixed in the contract or subscription;
2. On the date or dates that may be specified by the BOD pursuant to a “call” declaring any or all unpaid portion thereof to
be so payable
To enforce payment, the following remedies are available:

1. By board action; and
2. By a collection case in court.
Failure or refusal of the BOD to enforce or collect payment of unpaid subscription will not prevent the creditors or the receiver
of the corporation to institute a court action to collect the unpaid portion thereof.
Delinquency Sale:
1. Amount to be paid includes:
a. The balance due on each subscription
b. All accrued interest
c. Costs of advertisement
d. Expenses of sale
2. Bids: shall all be for the amount due above and shall differ only on the number of shares that the bidders are willing to
accept in exchange of the said amount.
3. Highest Bidder: shall be the bid made for the least number of shares in exchange for the total amount due.
4. Effect of Delinquency Sale: The stock so purchased shall be transferred to such purchaser in the books of the corporation
and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares.
5. No bidder: Should there be no bidder at the public auction, the corporation may bid for the same, and the total amount
due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by the subscription
shall be vested in the corporation as treasury shares.
RIGHTS OF A STOCKHOLDER
1. Participation in the management of the corporate affairs by exercising their right to vote and be voted upon either
personally or by proxy;
Instances where the concurrence of the stockholders are necessary for the exercise of the powers of the
corporations
a. Requiring majority vote of the BOD and concurrence of the stockholders representing 2/3 of the outstanding
capital stock:
i. Increase/decrease corporate stock
ii. Incur or create bonded indebtedness;
iii. Sell, dispose, lease, encumber all or substantially all of corporate assets;
iv. Invest in another corporation other than the primary purpose;
v. Amend the articles of incorporation.
vi. Merger or consolidation
vii. Voluntary dissolution of the corporation
AMENDMENT: Voluntary dissolution now requires a majority vote only of the stockholders for instances with
NO creditors affected. For voluntary dissolutions where creditors are affected, the voting requirement remains
to be 2/3.
viii. Extend or shorten the corporate term;

ix. Deny pre-emptive right
x. Declare stock dividends
xi. Enter into a management contract - where
a. a stockholder(s) representing the same interest in the managed and the managing corporation, owns or
controls 1/3 of the capital stock of the managing corporation; or
b. where a majority of the members of the board of the managing corporation also constitute a majority of the
board of the managed corporation.

b. Majority of the BOD + majority of the outstanding capital:
i. Enter into a management contract, as a general rule (other than above);
ii. adopt, amend or repeal the by-laws
c. Without board resolution, 2/3 of the stockholders may:

i. Delegate to the board the power to amend the by-laws
ii. Remove a member of the Board of Directors – vote required
iii. Ratify a business opportunity entered into by a member of the Board (corporate opportunity doctrine)
iv. Ratification of contracts of self-dealing directors, where his presence is required to constitute a quorum and/or his
vote is required for its approval by the BOD.
d. Without board resolution, majority of the stockholders may:

i. Revoke delegated power to amend by-laws
ii. Calling a special meeting to remove directors
iii. To fix compensation of directors
iv. To fix the issue price or stated value of no-par value shares.
2. To enter into a voting trust agreement;

3. To receive DIVIDENDS and to compel their declaration if warranted;
If the dividends to be declared are stock dividends, it requires not only the majority vote of the BOD but also the approval
of stockholders owning at least 2/3 of the outstanding capital stock.
The BOD can be compelled to declare dividends if the retained earnings are in excess of 100% of the paid-up capital.
However, the BOD can still refuse, if:
a. Justified by a definite corporate expansion/projects/programs approved by the Board;
b. The corporation is prohibited under a loan agreement to declare dividends without the creditor’s consent and such
consent has not yet been secured;
c. It can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation.
If there are no retained earnings, dividends, as a rule, cannot be declared out of capital stock. EXCEPT:
a. Liquidating dividends
b. Investments in wasting assets such as mining, oil, well, etc.
4. To transfer shares of stock subject only to reasonable restrictions such as the options and preferences as may be allowed
by law inclusive of the right of the transferee to compel the registration of the transfer in the books of the corporation;
5. To be issued a certificate of stock for fully paid-up shares;
6. To exercise pre-emptive rights;
A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of shares of any class in proportion to
his present holdings, the purpose being to enable the shareholder to retain his proportionate control in the corporation and
to retain his equity in the surplus. Except in the following cases:
a. Shares to be issued to comply with the laws requiring stock offering or minimum stock ownership by the public;
b. Shares issued in good faith in exchange for property needed for corporate purposes;
c. Shares issued in payment for previously contracted debt;
d. In case the right is denied in the Articles of Incorporation;
If one shareholder does not want to exercise his pre-emptive right, the other shareholders are not entitled to purchase the
corresponding shares of the shareholder who declined. But if nobody purchased the same and later on the board re-issued
the shares, the pre-emptive right applies.
7. To exercise their appraisal right
APPRAISAL RIGHT: Right is the method of paying a shareholder for the taking of his property. It is a statutory means
whereby a stockholder can avoid the conversion of this property into another property not of his own choosing.
When may it be exercised:

a. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any
stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of
any class, or of extending or shortening the term of corporate existence;
Not all amendments: the right may only be exercised in cases of amendment which “has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to
those of outstanding shares of any class, or of extending or shortening the term of corporate existence”.
Accordingly, if the amendment is to increase or decrease the number of directors, or change the corporate name, or
change of principal office, the appraisal right is not available.
b. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the
corporate property and assets as provided in the Code;
c. In case of merger or consolidation;
d. Investment of funds in another corporation or business or for any other purpose other than its primary purpose;
e. In a close corporation, a stockholder has the unbridled right to compel the corporation “for any reason” to purchase
his shares at their fair value which shall not be less than the par or issued value, when the corporation has sufficient
assets to cover its debts and liabilities, exclusive of capital stock.
Suspension of rights: the stockholder concerned is regarded as having made an election to withdraw from the corporate
enterprise and take the value of his stock. Such a procedure suspends (for a maximum period of 30 days) certain ownership
rights associated with stockholder status, such as the right to receive dividends or distribution and the right to vote which
cannot be restored without compliance with the governing statutory conditions.

8. To institute and file a derivative suit;
9. To recover shares of stock unlawfully sold for delinquency;
10. To inspect the books of the corporation;
AMENDMENTS: Section 73 (formerly Section 74) introduced the following amendments:

a. Includes an enumeration of, and specified, the records to be kept in the principal place of business.
b. Specifies that the inspection of the books and records are bound by the Intellectual Property Law, the Data Privacy
Act, the Securities Regulations Code and the Rules of Court.
c. A requesting party who is not a stockholder or member of record, or is a competitor or otherwise represents the
interests of a competitor shall have no right to inspect or demand reproduction of corporate records.
d. Abuse of the right to inspect is punishable under Section 158.
e. If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may
report such to the SEC. Within five (5) days from receipt of such report, the SEC shall conduct a summary
investigation and issue an order directing the inspection or reproduction of the requested records.
f. the SEC may require stock corporations which transfer and/or trade stocks in secondary markets to have an
independent transfer agent.
11. To be furnished by the most recent financial statement of the corporation;
AMENDMENT: Changes introduced by Section 74 (formerly Section 75) concerning the issuance of the corporation’s
financial statements are as follows:
Section 75 (old) Section 74 (RCC)

Certification Independent CPA In accordance with the Code and the rules the SEC
may prescribe
Alternative If paid-up capital is less than P50,000, the FS may If the total assets or total liabilities of the
Certification be certified under oath by the Treasurer or any corporation is less than P600,000, or such other
responsible officer of the corporation amount as may be determined appropriate by the
Department of Finance, the financial statements
may be certified under oath by the treasurer and
the president.
12. To participate in the distribution of assets of the corporation upon dissolution;

13. In the case of a close corporation, to petition the SEC to arbitrate in the event of a deadlock;
14. Also, in the case of a close corporation, to withdraw therefrom, for any reason, and compel the corporation to
purchase his shares.
BY-LAWS
BY-LAWS are rules made by a corporation for its own government; to regulate the conduct and define the duties of the
stockholders or members towards the corporation and among themselves. They are the rules and regulations or private laws
enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholder or members
and directors and officers with relation thereto and among themselves in their relation to it.
Effectivity: After approval by the SEC.
Adoption of by-laws: may be made:

1. Prior to incorporation – it must be signed by all the incorporators without need of the majority vote of outstanding stocks
or members as long as it is submitted together with the AOI;
2. After incorporation – must be submitted within 1 month after receipt of the notice of issuance of certificate of registration
or incorporation and must be approved by majority of the outstanding capital stock or members. Failure to file within the
1 month period may be a ground for suspension or revocation of the corporate franchise.
AMENDMENT: Section 45 (amending Section 46) of the RCC removed the one-month (from receipt of the notice of
issuance of the certificate of incorporation) requirement to submit the by-laws.
Amendment of by-laws; two modes:

1. By a majority vote of the directors or trustees and the majority vote of the outstanding capital stock or members, at a
regular or special meeting called for that purpose; or
2. By the board of directors alone when delegated by stockholders owning 2/3 of the outstanding capital stock or 2/3 of the
members. This power, however, is considered revoked, when so voted by a majority of the outstanding capital stock or
members in a regular or special meeting.
AMENDMENTS: Section 46(d) of the RCC now includes “The modes by which a stockholder, member, director, or trustee
may attend meetings and cast their vote.”
It likewise includes that an arbitration agreement may be provided in the bylaws.
The submission of the amended by-laws no longer requires that it be filed with the SEC attached to the original articles of
incorporation and original bylaws.

MEETINGS
DIRECTORS STOCKHOLDERS
Quorum Majority Majority of the Outstanding Capital Stock
Date of Regular Monthly as fixed in the by-laws Annual as fixed in the by-laws. If no such date is
Meeting fixed, any date after April 15.
Date of Special At any time deemed necessary or as provided for At any time deemed necessary or as provided for in
Meeting in the by-laws the by-laws
Notice Regular/Special Meetings – 2 days prior to the Regular Meetings – 21 days (from 2 weeks)
meeting (from 1 day prior to the meeting) Special Meetings – 1 week
Place Anywhere (even outside the Philippines) The meeting shall not be at the principal office
itself, unless it is not practicable, in the city or
municipality where the principal office is located.
Moreover, Metro Cebu and Metro Davao, as well as

other Metropolitan Areas are now considered a city
or municipality.
Proxy Voting Not allowed for a director or trustee, since he was Generally allowed
supposedly elected because of his personal
qualifications and thus must personally attend
and vote on matters brought before the meeting.
Voting General Rule: Majority of those present shall be Refer to voting requirements under Rights of
Requirement valid as a corporate act. Stockholders
Exceptions:
a. Election of corporate officers: majority of all
the members of the board.
b. When the by-laws provide for higher voting
requirement.
Validity of Stockholders’ Meetings despite defect: If the voting requirement is met, any resolution passed in the meeting, even
if improperly held or called will be valid if ALL the stockholders or members are present or duly represented thereat, as provided
under the last paragraph of Sec. 51: “All proceedings had and any business transacted at any meeting of the stockholders or
members, if within the powers or authority of the corporation, shall be valid even if the meeting be improperly held or called,
provided all the stockholders or members of the corporation are present or duly represented at the meeting.”
AMENDMENT: The meeting is still considered valid even if improperly held as long as ALL the stockholders or members are
present or duly represented, EXCEPT if the purpose of their attendance is only object to the transaction of any business because
the meeting is not lawfully called or convened.
Notice: Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.
However, under the revised Section 49 of the RCC, general waivers of notice in the articles of incorporation or the bylaws
shall not be allowed.
The attendance at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
Attending the meeting in absentia: In the stockholders’ meeting for the election of directors/trustees, Section 23 of the RCC
now specifically allows the stockholders or members to vote through remote communication or in absentia, in case the by-laws
or majority of the BOD authorizes the same, or even without such authorization in case of corporations vested with public
interest.
Directors/trustees are also now allowed to attend the meeting through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them reasonable opportunities to participate.
A stockholder or member who participates through remote communication or in absentia, shall be deemed present for
purposes of quorum.
STOCK AND TRANSFER BOOK OR MEMBERSHIP BOOK: The stock and transfer book contains a record of:
1. All stocks in the names of the stockholders alphabetically arranged;
2. The installments paid and unpaid on all stocks for which subscriptions has been made, the date of payment of any
installment;
3. A statement of every alienation, sale or transfer of stock made, the date thereof, by and to whome made;
4. Such other entries as the bylaws may prescribe
Unless the bylaws provide for a longer period, the stock and transfer book or membership book shall be closed at least 20
days for regular meetings and 7 days for special meetings before the scheduled date of the meeting
REORGANIZATION, MERGER AND CONSOLIDATION
REORGANIZATION: is generally entered into to put the company upon a sound financial basis and to enable it to take care of
its obligations thereby avoiding liquidation or bankruptcy. But in some cases, a reorganization is effected notwithstanding the
fact that the corporation is solvent.

MERGER: is a union effected by absorbing one or more existing corporations by another which survives and continues the
combined business. It is the uniting of two or more corporations by the transfer of property to one of them which continue in
existence, the other or the others being dissolved and merged therein.
CONSOLIDATION: is the uniting or amalgamation of two or more existing corporations to form a new corporation. It signifies
a union as necessarily results in the creation of a new corporation and the termination of existence of old ones. The united
concern resulting from such union is called consolidated corporation.
In effect, in a consolidation, the constituent corporations are all dissolved, while in a merger, the absorbing or surviving
corporation is not, only the absorbed.
REQUIREMENTS AND PROCEDURE TO ACCOMPLISH MERGER OR CONSOLIDATION:

1. The BOD/T of each constituent corporations shall approve a plan of merger or consolidation setting for the matters
required in Sec. 76;
2. Approval of the plan by the stockholders representing 2/3 outstanding capital stock or 2/3 of the member in
non-stock corporations of each of such corporations at separate corporate meetings called for the purpose;
3. Prior notice of such meeting, with a copy or summary of the plan of merger or consolidation shall be given to all
stockholders or members in the same manner as in regular/special meetings of stockholders (from 2 weeks, either
personally or by registered mail stating the purpose thereof);
4. Execution of the articles of merger or consolidation by each constituent corporations to be signed by the president or
vice-president and certified by the corporate secretary or assistant secretary setting forth the matters required in Sec. 78;
5. Submission of the articles of merger or consolidation in quadruplicate (AMENDMENT: the requirement to submit in
quadruplicate has been removed) to the SEC subject to the requirement of Sec. 79 that if it involve corporations under
direct supervision of any other government agency or governed by special laws the favorable recommendation of the
government agency concerned shall first be secured; and
6. Issuance of the certificate of merger or consolidation by the SEC at which time the merger or consolidation shall be
effective. If the plan, however, is believed to be contrary to law, the SEC shall set a hearing to give the corporations
concerned an opportunity to be heard upon notice and thereafter, the Commission shall proceed as provided in the Code.
EFFECTS OF MERGER OR CONSOLIDATION:

1. There will only be a single corporation - the surviving corporation or the consolidated corporation.
2. The termination of corporate existence of the constituent corporations and the absorbed corporation.
3. The surviving or consolidated corporation shall possess all the rights, privileges, immunities and franchises of the
constituent corporations, and all property and all receivables due, including subscriptions to shares and other choses in
action, and every other interest of, or belonging to or due to the constituent corporations shall be deemed transferred to
and vested in such surviving or consolidated corporation without further act or deed; and
4. The rights of creditors or any lien on the property of the constituent corporations shall not be impaired by the merger
or consolidation.
5. There would be no need to liquidate or wind-up the affairs of the absorbed or constituent corporation because
(1) there are no assets to distribute; (2) no debts and liabilities to pay – since all these are transferred to the surviving or
consolidated corporation.
NON-STOCK CORPORATIONS
A non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or
officers, except upon dissolution. Any profit which a non-stock corporation may obtain as an incident to its operations shall,
whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized.
The provisions governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except as may be
covered by specific provisions pertaining to non-stock corporations.
Differences:
STOCK CORPORATION NON-STOCK CORPORATION

Purpose Generally, for profit Primarily organized for charitable, religious, educational,
professional, cultural, scientific, social, civic service, or
similar purposes, like trade, industry, agricultural and like
chambers or any combination thereof
Distribution of dividend Authorized Not authorized
Term of office of the 1 year until their successor is 3 years
directors/trustees elected and qualified
Voting Cumulative Straight voting unless cumulative voting is authorized

under the by-laws or AOI
Manner of voting Either in person or by proxy By mail or other similar means as may be authorized by the
by-laws
Transferability of interest Transferable Membership is personal and non-transferable, unless the

AOI or by-laws provide otherwise
Ownership of director At least one share Member
Independent trustees are not required to be a member
CLOSE CORPORATIONS
DEFINITION: A close corporation is one whose articles of incorporation provide that:

1. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20);

2. All the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by the
Title on Close Corporations in the Corporation Code; and
3. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting
stock or voting rights is owned or controlled by another corporation which is not a close corporation.
Business with public interest: may not be formed as close corporation. Sec. 140 of the Code lays down a similar policy
authorizing NEDA to recommend to the legislature the setting of maximum limits to family or group ownership of stock in
corporations vested with public interest, and the determination of whether or not it should be vested with public interest within
its domain. The following cannot be a close corporation:
1. Mining companies;
2. Oil companies;
3. Stock exchanges;
4. Banks;
5. Insurance companies;
6. Public utility;
7. Educational institutions
Differences with an Ordinary Stock Corporation:
CLOSE CORPORATION ORDINARY STOCK CORPORATION

The number of stockholders cannot exceed 20 No limitation as to number of shareholder
Shares of stock are subject to specified restrictions Generally no restriction on transfer of shares
Shares of stock are prohibited from being listed in the stock No prohibition
exchange or offered for sale to the public
Stockholders may take an active part in corporate management Management is lodged in the Board of Directors
by vesting management to them rather than a Board of Director
To the extent that all stockholders can be deemed directors, the Maximum number of directors is 15
number of directors can effectively be upto 20.
To the extent that directors may be classified into one or more Ordinarily, no such classification and no restrictions on
classes and to be voted solely by a particular class of stock, cumulative voting
cumulative voting may, in effect, be restricted
The articles of incorporation may provide that all officers shall be Officers are elected by the Board of Directors
elected or appointed by the stockholders
Restriction on transfer of shares should be indicated in the articles Valid and binding if indicated in the articles of
of incorporation, stock certificates and by-laws. incorporation and stock certificates
Pre-emptive right of stockholders is broader as it includes all Pre-emptive rights may be denied on certain grounds
issues without exception
Appraisal right may be exercised for any reason with the limitation Appraisal right may be exercised only on specific
only that the corporation has sufficient assets to cover its liabilities grounds.
exclusive of capital stock
ONE PERSON CORPORATION
A One Person Corporation (OPC) is one formed by a natural person, a trust or an estate, who is the sole stockholder
thereof. The provision of the new Chapter III of the Revised Corporation Code shall apply to an OPC and other provisions of the
Code shall apply suppletorily.
Corporate Name: must contain “OPC”.
Not Applicable to OPC:

1. Authorized Capital Stock
2. By-Laws
3. Minutes of the Meetings of the Board of Directors (in lieu of which shall be the resolutions recorded in a Minutes Book)
Not allowed to incorporate as an OPC:

1. Banks, quasi-banks, pre-need, trust, insurance companies
2. Public and publicly-listed companies
3. Non-chartered GOCCs
4. Natural persons for the purpose of exercising their profession.
Articles of Incorporation: shall be the same as an ordinary corporation with the following additional provisions:
1. If the single stockholder is a trust or an estate, the name, nationality, and residence of the trustee, administrator, executor,
guardian, conservator, custodian, or other person exercising fiduciary duties together with the proof of such authority to
act on behalf of the trust or estate; and
2. Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage and limitation of the
authority.
Corporate Officers: The sole stockholder shall automatically be the sole director and the President. Within 15 days from the
issuance of its certificate of incorporation, an OPC shall appoint a treasurer, corporate secretary, and other officers as it may
deem necessary, and notify the SEC thereof within 5 days from appointment.
Other positions of the president/sole stockholder:

1. Corporate Secretary: not allowed
Corporate Secretary: In addition to the functions designated by the OPC, the corporate secretary shall:
a. Be responsible for maintaining the minutes book and/or records of the corporation;

b. Notify the nominee or alternate nominee of the death or incapacity of the single stockholder, which notice shall be
given no later than 5 days from such occurrence;
c. Notify the SEC of the death of the single stockholder within 5 days from such occurrence and stating in such notice the
names, residence addresses, and contact details of all known legal heirs; and
d. Call the nominee or alternate nominee and the known legal heirs to a meeting and advise the legal heirs with regard
to, among others, the election of a new director, amendment of the articles of incorporation, and other ancillary and/or
consequential matters.
2. Treasurer: allowed provided e shall give a bond to the SEC in such a sum as may be required and a written undertaking to
faithfully administer the OPC’s funds to be received as treasurer, and to disburse and invest the same according to the
Articles as approved by the SEC.
Nominee and Alternate Nominee: The single stockholder shall designate a nominee and an alternate nominee who shall, in
the event of the single stockholder’s death or incapacity, take the place of the single stockholder as director and shall
manage the corporation’s affairs.
The articles of incorporation shall state the names, residence addresses and contact details of the nominee and alternate
nominee, as well as the extent and limitations of their authority in managing the affairs of the OPC.
The written consent of the nominee and alternate nominee shall be attached to the application for incorporation. Such consent
may be withdrawn in writing any time before the death or incapacity of the single stockholder
Term of the Nominee: When the incapacity of the single stockholder is temporary, the nominee shall sit as director and
manage the affairs of the OPC until the stockholder, by self-determination, regains the capacity to assume such duties.
In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director and manage the affairs
of the OPC until the legal heirs of the single stockholder have been lawfully determined, and the heirs have designated one
of them or have agreed that the estate shall be the single stockholder of the OPC.
The alternate nominee shall sit as director and manage the OPC in case of the nominee’s inability, incapacity, death, or refusal
to discharge the functions as director and manager of the corporation, and only for the same term and under the same conditions
applicable to the nominee.
Change of Nominee: The single stockholder may, at any time, change its nominee and alternate nominee by submitting to
the SEC the names of the new nominees and their corresponding written consent. For this purpose, the articles of incorporation
need not be amended.
Liability of Single Stockholder: A sole shareholder claiming limited liability has the burden of affirmatively showing that the
corporation was adequately financed.
Where the single stockholder cannot prove that the property of the OPC is independent of the stockholder’s personal property,
the stockholder shall be jointly and severally liable for the debts and other liabilities of the OPC.
The principle of piercing the corporate veil applies with equal force to OPC as with other corporations.
Conversion from Ordinary Corporation to OPC: When a single stockholder acquires all the stocks of an ordinary stock
corporation, the latter may apply for conversion into n OPC, subject to the submission of such documents as the SEC may
require.
If the application for conversion is approved, the Commission shall issue certificate of filing of amended articles of incorporation
reflecting the conversion. The OPC converted from an ordinary stock corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as of the date of conversion.
Conversion from OPC to Ordinary Corporation: An OPC may be converted into an ordinary stock corporation after due
notice to the SEC (within 60 days from occurrence) of such fact and of the circumstances leading to the conversion, and after
compliance with all other requirements for stock corporations under the RCC. If all requirements have been complied with, the
Commission shall issue an amended certificate of incorporation reflecting the conversion.
In case of death of the single stockholder, the nominee or alternate nominee shall transfer the shares to the duly designated
legal heir or estate within 7 days from receipt of either an affidavit of heirship or self-adjudication executed by a sole heir, or
any other legal document declaring the legal heirs of the single stockholder and notify the SEC of the transfer. Within 60 days
from the transfer of the shares, the legal heirs shall notify the SEC of their decision to either wind up and dissolve the OPC or
convert it into an ordinary stock corporation.
The ordinary stock corporation converted from an OPC shall succeed the latter and be legally responsible for all the latter’s
outstanding liabilities as of the date of conversion.
FOREIGN CORPORATIONS
A FOREIGN CORPORATION is one formed, organized or existing under any laws other than those of the Philippines.
Incorporation Test: is applied in determining whether a corporation is domestic or foreign. If it is incorporated under Philippine
laws, it is deemed a domestic corporation; if it is incorporated in another state, it is a foreign corporation, while if it is created,
irrespective of the nationality of its stockholders.
Control Test or Liberal Rule and the Grandfather Rule/Test: The Control Test is used to determine corporate nationality
for purposes of applying laws, e.g., prohibition to acquire lands applicable to corporations more than 40% of which is owned by
non-Filipinos.

Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of
the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino.
On the other hand, the Grandfather Rule is a method of determining the nationality of a corporation which in turn is owned
by another corporation by breaking down the entity structure of the shareholders of the corporation. The true Filipino ownership
is traced all the way to the individual stockholders of the corporation (A) owning shares in another corporation (B), by multiplying
the Filipino ownership of the first corporation (A) to the corresponding ownership of the other corporation (B).
It applies to nationalized activities or those which require whole or partial Filipino ownership.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather
rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation
of natural resources owned by Filipino citizens, provides:
1. Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality. (Control Test)
2. But if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. (Grandfather Rule)
Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or
capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if
less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to
aliens.
In Narra Nickel Mining and Development Corporation vs. Redmont Consolidated Mines Corporation (GR No. 195580, Jan.
28, 2015), the SC held that the grandfather rule shall be applied when:
a. The Corporation’s Filipino equity falls below the threshold required; or
b. There exists “doubt” as to the Filipino or Foreign equity
This would thus require the application first of the control test. When after applying the Control Test, and it meets the
required nationality requirement but there exists a “doubt” as to the Filipino ownership of the Corporation, the grandfather
rule would be supplementally applied.
RESIDENT AGENT: As a condition precedent to the grant of license to do or transact business in the Philippines, the foreign
corporation is required to designate its resident agent on whom summons and other legal processes may be served in all actions
or legal proceedings against such corporation.
AMENDMENT: A resident agent corporation for a foreign corporation is now required that it is of sound financial standing
and must show proof that it is in good standing as certified by the SEC.
LICENSE REQUIREMENT AND DOING BUSINESS WITHOUT ONE: A foreign corporation must secure the necessary license
before it can transact or do business in the Philippines.
What constitutes “doing business”: Doing business in the Philippines may be determined using the following tests:
1. Continuity test – doing business implies a continuity of commercial dealings and arrangements and contemplates to some
extent the performance of acts or works or the exercise of some functions normally incident to and in progressive
prosecution of the purpose and object of its organization;
2. Substance test – a foreign corporation is doing business in the country if it is continuing the body or substance of the
enterprise of business for which it was organized
3. Contract test – actual performance of specific commercial acts within the territory of the Philippines
“DOING BUSINESS” under the Foreign Investment Act (Sec. 3, d), “doing business” would include:
1. Soliciting orders, service contracts;
2. Opening offices, whether called “liaison offices” or branches;
3. Appointing representatives or distributor domiciled in the Philippines or who in any calendar year stay in the country for a
period or periods totaling 180 days or more;
4. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the
Philippines;
5. Any other act that imply a continuity of commercial dealings or arrangements and contemplate to that extent the
performance of acts or works, or the exercise of functions normally incident to and in progressive prosecution of commercial
gain or of the purpose and object of the business organization.
Provided, however, that the phrase “doing business” shall not be deemed to include:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or
exercise of rights as such investor, nor
2. Having a nominee director or officer to represent its interest in such corporation; nor
3. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its
own account.
Doing Business without a license: a foreign corporation shall NOT be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.
“It is not the lack of required license but doing business without a license which bars a foreign corporation from
access to our courts” (Universal Shipping vs. IAC)

EXCEPTIONS:
1. Foreign corporations can sue before the Philippine Courts if the act or transaction involved is an “isolated transaction”
or the corporation is not seeking to enforce any legal or contractual rights arising from, or growing out of, any business
which it has transacted in the Philippines (Western Equipment Supply vs. Reyes)
2. Neither is a license required before a foreign corporation may sue before the forum if the purpose of the suit is to protect
its trademark, trade name, corporate name, reputation or goodwill; (Western Equipment Supply vs. Reyes)
3. Or where it is based on a violation of the Revised Penal Code (Le Chemise Lacoste, SA vs. Fernandez);
4. Or merely defending a suit filed against it (Time, Inc. vs. Reyes)
5. Or where a party is estopped to challenge the personality of the corporation by entering into a contract with it
(Communications Materials and Design, Inc. vs. CA and ITEC)
DISSOLUTION
DISSOLUTION is the extinguishment of the corporate franchise and the termination of corporate existence.
When a corporation is dissolved, it ceases to be a juridical entity and can no longer pursue the business for which it was
incorporated. It will nevertheless continue as a body corporate for another period of three years from the time it is dissolved
but only for the purpose of winding up its affairs and the liquidation of its assets.
THREE WAYS OF DISSOLUTION:

1. Expiration of its corporate term
Extension: should be made before the expiration of the original term, but not earlier than 3 years prior to such expiration,
otherwise the corporation is dissolved, ipso facto.
Dissolution by shortening the term of corporate existence: The stockholders may cause the amendment of the Articles to
shorten the term and have the corporation dissolved. This, however, requires the vote of the stockholders to be cast in a
meeting therefor, not only “written assent” as for general amendments. Moreover, this requires the approval of the SEC
and its inaction is not deemed an approval therefor.
2. Voluntary surrender of its primary franchise (voluntary dissolution); and

Formal and Procedural Requirements when no creditors are affected.
a. Majority vote of the board of directors or trustees;
b. Sending of notice of each stockholders or member either by registered mail or personal delivery at least thirty (30)
days prior (now 20 days) to the meeting (scheduled by the board for the purpose of submitting the board action to
dissolve the corporation for approval of the stockholder or members.);
c. Publication of the notice of time, place and subject of the meeting for three (3) consecutive weeks (now once) in a
newspaper published in the place where the principal office of said corporation is located or in a newspaper of general
circulation in the Philippines;
d. Resolution adopted by the affirmative vote of the stockholders owning at least 2/3 of the outstanding capital stock or
2/3 of the members (now majority) at the meeting duly called for the purpose;
e. A copy of the resolution authorizing the dissolution must be certified by a majority of the board of directors or trustees
and countersigned by the corporate secretary (now A verified request for dissolution shall be filed with the SEC
stating: (a) the reason for the dissolution; (b) the form, manner, and time when the notices were given; (c) names of
the stockholders and directors or members and trustees, who approved the dissolution; (d) the date, place, and time
of the meeting in which the vote was made; and (e) details of publication.)
Withdrawal:
i. A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator, director,
trustee, shareholder, or member and signed by the same number of incorporators, directors, trustees,
shareholders, or members necessary to request for dissolution.
ii. The withdrawal shall be submitted no later than fifteen (15) days from receipt by the SEC of the request for
dissolution.
iii. Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold action on the request for dissolution
and shall, after investigation: (a) make a pronouncement that the request for dissolution is deemed withdrawn;
(b) direct a joint meeting of the board of directors or trustees and the stockholders or members for the purpose
of ascertaining whether to proceed with dissolution; or (c) issue such other orders as it may deem appropriate.
f. Issuance of a certificate of dissolution by the SEC.
Where creditors are affected, the voting requirement remains to be 2/3 of the stockholders and what is filed with the SEC is a
petition not a request.
3. The revocation of its corporate franchise (involuntary dissolution)
Grounds:
a. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the
general public;
b. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would
amount to a grave violation of its franchise;
c. Continuous inoperation for a period of at least five (5) years;
Continuous inoperation: If a corporation has commenced its business but subsequently becomes inoperative
continuously for a period of at least 5 years, the same shall be merely a ground for suspension or revocation
of its corporate franchise or certificate of registration.
AMENDMENTS: In case of continuous non-operation for 5 years, it is no longer considered a ground for revocation, at
least not immediately. In such case, the SEC may, after due hearing and notice, place the corporation under delinquent
status and allow the corporation to resume operations within 2 years upon compliance with the requirements of the SEC;
where upon compliance, the SEC shall issue an order lifting the delinquent status.

In case of non-compliance, with the requirements and to resume operations, only then will the SEC cause the revocation of
the corporation’s certificate of incorporation.
Notably, the Section 21 no longer includes the exception that the provision on failure to commence and continuous non-
operation shall not apply if the failure to organize, commence the transaction of its businesses or the construction of its works,
or to continuously operate is due to causes beyond the control of the corporation as may be determined by the SEC.
COMMENCEMENT OF BUSINESS: Once the certificate of incorporation has been issued, the corporation MUST formally
organize and commence its business.
Non-Use of Corporation Charter: the failure of the corporation to organize within 2 years would result in it
automatic dissolution, unless, of course, its failure to do so is due to causes beyond its control.
AMENDMENT: The period for the automatic revocation of the corporate charter has been increase from 2 to 5 years in case
of failure to organize.
Formal Organization: refers to the process of structuring the corporation to enable it to effectively pursue the purpose for
which it was organized.
d. Failure to file by-laws within the required period;

e. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period.
Other grounds provided under the Corporation Code:

a. Violation of any provision of the Code under section 144;
b. In case of deadlock in a close corporation as provided for in section 105;
c. In a close corporation, any acts of directors, officers or those in control of the corporation which is illegal or fraudulent
or dishonest or oppressive or unfairly prejudicial to the corporation or any stockholder or whenever corporate assets
are being misapplied or wasted under section 105.
AMENDMENTS: Aside from empowering the SEC to motu proprio dissolve a corporation, the following grounds are
now specified under Section 138:
1. Non-use of corporate charter
2. Continuous inoperation of a corporation
3. Upon receipt of a lawful court order dissolving the corporation
4. Upon finding by final judgment that the corporation procured its incorporation through fraud
5. Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or
graft and corrupt practices, and its stockholders knew; and
c. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal
acts by its directors, trustees, officers, or employees.
If the corporation is ordered dissolved by final judgment pursuant to the above grounds (a), (b) and (c) under no. 5, its
assets, after payment of its liabilities, shall, upon petition of the SEC with the appropriate court, be forfeited in favor of
the national government. Such forfeiture shall be without prejudice to the rights of innocent stockholders and employees
for services rendered, and to the application of other penalty or sanction under the RCC or other laws
EFFECTS OF DISSOLUTION: Dissolution terminates its power to enter into contracts or to continue the business as a going
concern.
Despite its dissolution, a corporation nonetheless, continues to be a body corporate for a period of 3 years for purposes of
liquidation and winding up its affairs (Sec. 122, now Sec. 139). Upon expiration of the 3-year period to wind up its affairs,
the juridical personality of the corporation ceases for all intent and purposes, and as a general rule, it can no longer sue and be
sued.
But if the liquidation is to be pursued by appointing a trustee or a receiver, the 3-year period will not apply.
LIQUIDATION AND WINDING-UP:

1. The assets are collected and sold;
2. The rights and claims of creditors are settled;
3. The remaining assets, if any, are distributed to the stockholders.
THE SECURITIES REGULATION CODE

PURPOSE: The Securities Regulations Code or RA No. 8799 aims to protect the investing public primarily through a system
of disclosure and provide punishment for fraudulent practices.
PROTECTION OF THE PUBLIC: The Securities Regulations Code protects the public as follows:
1. Requiring full disclosure of information to the public regarding the securities that are being offered and the issuers,
including the filing and approval of the registration statement and the approval of the prospectus;
2. The requirement of regularly submitting material information to the SEC;
3. Close monitoring of the securities and other circumstances that may affect the same as well as the persons involved
including brokers, issuers, the exchange itself, etc. in order to ensure compliance with pertinent laws and regulations;
4. Prohibiting and penalizing different fraudulent practices and transactions; and
5. Providing the SEC the powers and functions.

SECURITIES
Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instruments, whether written or electronic in character. (Section 3.1)
The main feature of a security is that a person purchases or acquires the same in the expectation of obtaining passive income
or asset appreciation, that is income or gain obtained through the effort of another person. This feature makes them attractive
and desirable and necessitates the protection of the investing public.
They include:
1. Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities;
2. Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies of deposit for a future
subscription;
3. Fractional undivided interests in oil, gas or other mineral rights;
4. Derivatives like option and warrants;
5. Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments
6. Proprietary or nonproprietary membership certificates in corporations; and
7. Other instruments as may in the future be determined by the Commission.
Investment contract is a contract, transaction, or scheme whereby a person invests his money in a common enterprise and
is led to expect profits primarily from the efforts of others.
Requisites:
1. An investment of money;
2. In a common enterprise;
3. With expectation of profits;
4. Primarily from the efforts of others (this modifies the Howey Test which requires profits to be derived “solely” from the
efforts of others)
REGISTRATION AND REPORTORIAL REQUIREMENTS
REGISTRATION
The Securities Regulations Code (SRC) provides that securities shall not be sold or offered for sale or distribution within the
Philippines, without a registration statement duly filed with and approved by the SEC (Commission). Prior to such sale,
information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available
to each prospective purchaser.
The Commission may audit the financial statements, assets and other information of firm applying for registration of its securities
whenever it deems the same necessary to insure full disclosure or to protect the interest of the investors and the public in
general.
Procedure:
1. Filing of SWORN REGISTRATION STATEMENT containing the information as the SEC may by rule require.
a. Signatories to registration statement: Executive officer, principal operating officer, principal financial officer,
comptroller, principal accounting officer, corporate secretary.
b. Written consent of the expert named as having certified any part of the registration statement, whenever necessary.
c. Where the registration statement includes shares to be sold by selling shareholders, a written certification by such
selling shareholders as to the accuracy of any part of the registration statement contributed to by such selling
shareholders shall also be filed.
2. PAYMENT of the filing fees which shall not exceed 1/10 of 1% of the aggregate price at which such securities are proposed
to be offered.
3. PUBLICATION of notice of the filing of the registration statement in two newspapers of general circulation once for two
consecutive weeks.
4. Within 45 days after the date of filing, or by such later date to which the issuer has consented, the SEC shall give an ORDER
declaring the registration statement effective or rejecting it.
5. PROSPECTUS under oath that all requirements satisfied and all statements in registration statement and in such prospectus
are correct.
SECURITIES exempt from registration: (GRIB)
1. Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof,
or by any person controlled or supervised by, and acting as an instrumentality of said Government.
2. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic
relations, or by any state, province or political subdivision thereof on the basis of reciprocity: Provided, That the SEC may
require compliance with the form and content for disclosures the SEC may prescribe.
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body.
4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of
the Insurance Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of Internal Revenue.
5. Any security issued by a bank except its own shares of stock.
TRANSACTIONS exempt from registration: (BISCEPS SMILE)

1. BROKER’S transaction, executed upon customer’s orders, on any registered Exchange or other trading market.
2. An ISOLATED transaction in which any security is sold, offered for sale, subscription or delivery by the owner thereof, or
by his representative for the owner’s account, such sale or offer for sale or offer for sale, subscription or delivery not being
made in the course of repeated and successive transaction of a like character by such owner, or on his account by such
representative and such owner or representative not being the underwriter of such security.
3. The distribution by a corporation actively engaged in the business authorized by its articles of incorporation, of securities
to its stockholders or other security holders as a STOCK dividend or other distribution out of surplus.
4. The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of
CONVERSION entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the
security so surrendered has been registered under the SRC or was, when sold, exempt from the provision of the SRC, and
that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall

within the class of securities entitled to registration under the SRC. Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are
sold.
5. EXCLUSIVE SALE: The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.
6. PRIVATE PLACEMENT: The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines
during any twelve-month period.
7. SUBSCRIPTIONS for shares of the capitals stocks of a corporation prior to the incorporation thereof or in pursuance
of an increase in its authorized capital stocks under the Corporation Code, when no expense is incurred, or no
commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities,
and only when the purpose for soliciting, giving or taking of such subscription is to comply with the requirements of such
law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and
duly incorporated, or its authorized, capital increase.
8. Sale to SOPHISTICATED (Qualified) Buyers: The sale of securities to any number of the following qualified buyers:
a. Bank;
b. Registered investment house;
c. Insurance company;
d. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision
thereof or manage by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
e. Investment company or
f. Such other person as the SEC may rule by determine as qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under
management
9. MORTGAGE-BACKED SECURITIES: The issuance of bonds or notes secured by mortgage upon real estate or tangible
personal property, when the entire mortgage together with all the bonds or notes secured thereby are sold to a single
purchaser at a single sale.
10. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in INSOLVENCY or bankruptcy.
11. By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder selling of offering for sale or delivery
in the ordinary course of business and not for the purpose of avoiding the provision of SRC, to LIQUIDATE a bonafide debt,
a security pledged in good faith as security for such debt.
12. The EXCHANGE of securities by the issuer with the existing security holders exclusively, where no commission or
other remuneration is paid or given directly or indirectly for soliciting such exchange.
The SEC may exempt other transactions where not necessary in public interest or for protection of investors such as small
amount or limited character of public offering. However, an exemption fee of 1/10 of 1% of the maximum aggregate price or
issued value of the securities should be paid.
REPORTORIAL REQUIREMENTS
1. Annual report composed of a Balance Sheet, Profit and Loss Statement, and a Statement of Cash Flows certified by a CPA
and a management discussion and analysis of results of operation
2. Other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the SEC
may prescribe as necessary to keep current information on the operation of the business and financial condition of the
issuer.
These reportorial requirements shall apply to an issuer:

1. Which has sold a class of its securities pursuant to a registration
2. With a class of securities listed for trading in an Exchange
3. With assets of at least Fifty million pesos (50,000,000.00) or such other amount as the SEC shall prescribe, and having
two hundred (200) or more holders each holding at least one hundred (100) share of a class of its equity
securities: Provided, however, That the obligation of such issuer to file report shall be terminated ninety (90) days after
notification to the SEC by the issuer that the number of its holders holding at least one hundred (100) share reduced to
less than one hundred (100)
The issuer shall likewise furnish to each holder of such equity security an annual report in such form and containing such
information as the SEC shall prescribe.
FILING OF GENERAL INFORMATION SHEET (GIS)
All corporations shall file their GIS within 30 calendar days from:
1. Stock Corporations – date of annual stockholders’ meeting
2. Non-Stock Corporations – date of annual members’ meeting
3. Foreign Corporations – anniversary date of the issuance of SEC license
FILING OF ANNUAL FINANCIAL STATEMENTS (AFS)
1. Corporations using the calendar year: depending on the last numerical digit of their SEC registration or license number
in accordance with the schedule set by the SEC.
However, any corporations may file their AFS regardless of the last numerical digit or license number on or before the first
day stated in the coding schedule.
2. Corporations using the fiscal year:
a. General Rule: 120 calendar days from the end of the fiscal year;
b. Exceptions:
i. Broker dealers – 110 calendar days from the end of the fiscal year;
ii. Listed companies and Public Companies – 105 days from the end of the fiscal year.
The AFS, other than the consolidated financial statements, shall have the stamped “received by the Bureau of Internal Revenue
(BIR)” or its authorized banks, unless the BIR allows an alternative proof of submission for its authorized banks.

INSIDER TRADING AND OTHER FRAUDULENT TRANSACTIONS
INSIDER TRADING: is committed whenever an insider, in possession of a material non-public information, transacts on the
securities.
Material Non-Public Information: Information that will affect the price of the security or would influence a person in deciding
whether to buy, sell, or hold a security which is not available to the public.
Insider:
1. The issuer.
2. A director or officer of the issuer or a person controlling the issuer.
3. A person whose relationship or former relationship to the issuer gives or gave him access to material non-public information.
4. A government employee, or director, or officer of an exchange, clearing agency, and/or self-regulatory organization who
has access to material non-public information.
5. A person who learns such information by a communication from any of the foregoing insiders.
Exceptions: a person in possession of material non-public information can buy or sell securities:
1. When he can prove that the information was not gained from an insider;
2. If the other party is identified and that he:
a. Disclosed the information; or
b. Had reason to believe that the other party is also in possession of the information.
Presumption: a purchase or sale of a security of the issuer made by an insider or such insider’s spouse or relatives by affinity
or consanguinity within the 2nd degree, legitimate or common-law, shall be presumed to have been effected while in possession
of material non-public information if transacted:
1. After such information came into existence;
2. But prior to the dissemination of such information to the public and the lapse of a reasonable time for the market to absorb
such information.
Insider Trading vis a vis Tender Offer: the answer above (Illustration 2) will not apply if the information is relative to a
tender offer, because it is unlawful for any person (other than the tender offeror, and not just an “insiders”) who is in possession
of material nonpublic information relating to such tender offer, to buy or sell the securities of the issuer that are sought or to
be sought by such tender offer if such person knows or has reason to believe that the information is nonpublic and has been
acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the securities sought or to be
sought by such tender offer, or any insider of such issuer.
Liability for disclosure: It shall be unlawful for any insider to communicate material nonpublic information about the issuer
or the security to any person who, by virtue of the communication, becomes an insider, where the insider communicating the
information knows or has reason to believe that such person will likely buy or sell a security of the issuer whole in possession
of such information.
This is regardless of whether the one to whom the communication was given actually traded on the securities.
FRAUDULENT TRANSACTIONS AND OTHER MARKET MANIPULATIONS

1. Wash sale – any transaction in a security which involves no change in the beneficial ownership. A series of buy and sale
transaction may be placed by one and the same beneficial owner in the exchange which would not affect any change of
ownership of the shares transacted.
2. Matched Order – refers to an order or orders for the purchase or sale of security with the knowledge that a simultaneous
order or orders of substantially the same size, time and price for the sale or purchase of such security has, or wil be entered
by or for the same or different parties.
Wash Sale and Matched Orders are not in themselves illegal. But they are considered fraudulent whenever they are resorted to
in order to create a false or misleading appearance of active trading.
3. Marking the close – placing of purchase or sale order, at or near the close of the trading period in order to affect the
closing price likewise affecting the opening price the following day.
4. Painting the tape – akin to marking the close but the activity is made during normal trading hours which involves buying
activity among nominee accounts at increasingly higher or lower prices or causing fictitious reports to appear on the ticker
tape.
5. Squeezing the float – part or portion of the issue/security which is outstanding but intentionally held by dealers or other
person with a view of reselling them later for profit. Thereby affecting supply of the security or its availability while demand
remains the same or increases, driving the prices up.
6. Hype and Dump – involves the following steps:

a. Purchase of outstanding capital stock of a dormant public shell company for a nominal amount;
b. Merger of the shell company with the privately held company of the person or group of persons involved to gain control
of the majority of the stocks of the merged entity;
c. Reverse-split of the shares
d. Reissuance of the shares certificates in the name of the merged entity to relatives and associates;
e. Hiring a broker-dealer who would market the stocks of the newly merged entity;
f. Hiring a promoter to “hype” the virtues of the company;
g. When the market reaches the high price, they would “dump” their shareholdings and bail out.
7. Boiler Room Operations – involves an intensive selling campaign through numerous salesmen by telephone or through
direct mail offerings for securities of either a certain type or from a specific issuer. Investors are induced to purchase
through hard-sell techniques based on unfounded predictions and mailing of misleading market letters.

All 5 above (3 to 7) become illegal/unlawful if they are effected to:
a. Raise the price or induce the purchase of a security or of a controlling, controlled or commonly controlled company by
others;
b. Depresses their price to induce the sale of a security, whether of the same or of a different class, of the same issuer or of
a controlling, controlled company, or commonly controlled company by others; and
c. Creates active trading to induce such purchase or sale through said devices or schemes.
8. Circulating or Disseminating Information on Share Price Movement – involves people providing information that
the price of any security listed in the exchange will or is likely to rise or fall because of manipulative market operations of
any one or more persons conducted for the purpose of raising or depressing the price of the security and thus inducing the
purchase or sale of such security.
9. Making False or Misleading Statements – with respect to any material fact, which he knew or had some reasonable
grounds to believe was so false or misleading for the purpose of inducing the purchase or sale of any security.
10. Pegging or Fixing or Stabilizing the price of security effected either alone or with others through any series of
transactions for the purchase or sale thereof, if done for such purpose.
11. Short Sale – selling the security which the vendor does not own and borrowed only from another. This is not illegal per se
but only regulated.
MANDATORY TENDER OFFER RULE
A tender offer is an offer by a person or group of persons to the stockholders of a corporation to tender their shares for
purchase.
Purpose: The rule on mandatory tender offer seeks to protect minority shareholders and provide them with a fair price for their
share whenever a person or group of persons intends to buy a sizable number of shares in the company.
Mandatory Tender Offer: applies to any person who intends to acquire at least 35% over a period of 12 months
(previously 30, increased by the SEC pursuant to Section 72.1 of the SRC) of any class of any equity security of a:
1. Listed corporations; or
2. Corporations with:
a. Assets of at least P50M and
b. Having at least 200 shareholders who each have at least 100 shares
The rule shall likewise apply even if the acquisition is less than 35% but will result in ownership of over 50% of the total
outstanding equity securities of the public company.
The offeror would be required to accept any and all securities thus tendered.
Note that the percentage requirements likewise applies even in indirect acquisitions.
Transactions EXEMPT from the Mandatory Tender Offer Requirement:

1. Any purchase of shares from the unissued capital stock provided that the acquisition will not result to a 50% or more
ownership of shares by the purchaser;
2. Any purchase of shares from an increase in authorized capital stock.
3. Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security arrangement where
the acquisition is made by the debtor or creditor.
4. Purchases in connection with privatization undertaken by the government of the Philippines.
5. Purchases in connection with corporate rehabilitation under court supervision.
6. Purchases through an open market at the prevailing market price
7. Merger or consolidation.
Process:
1. The offeror will make an announcement of his intention in a newspaper of general circulation, prior to the commencement
of the offer;
2. At least 2 business days prior to the date of the commencement of the tender offer:
a. File SEC Form 19-1 with the SEC including all exhibits thereto and pay the prescribed filing fees
b. Hand deliver a copy of such form including all exhibits to the target company at its principal executive office and to
each Exchange where such class of the target company’s securities are listed for trading.
3. Report the results of the tender offer by filing with the Commission, not later than ten (10) calendar days after the
termination of the tender offer, copies of the final amendments to the form.
INSIDER TRADING WHERE INFORMATION RELATES TO A TENDER OFFER: if the information is relative to a tender offer,
it is unlawful for any person (other than the tender offeror) who is in possession of material nonpublic information relating to
such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person
knows or has reason to believe that the information is nonpublic and has been acquired directly or indirectly from the tender
offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of such
issuer.
1. An ultra vires act is an act or a transaction of a corporation which:

A. Is considered illegal
B. Is contrary to morals, public policy, good customs
C. Not within the express, implied or incidental powers of the corporation
D. All of the above
2. Under the Revised Corporation Code, a foreign corporation has power and capacity to do all of the following, except:
A. Form joint ventures C. Give aid for political partisan activities
B. Adopt and use a corporate seal D. Acquire properties in its own name

3. Under the Revised Corporation Code, a foreign corporation has power and capacity to do all of the following, except:
A. Form joint ventures C. Give aid for political partisan activities
B. Adopt and use a corporate seal D. Acquire properties in its own name
4. Mr. X was invited by his friends to invest in XYZ Corp., a newly organized firm where he was appointed president. He
entered into a contract of sale with ABC Corp. to purchase equipment, in accordance with the primary purpose of the
corporation. Later on, however, it was discovered that the Articles of Incorporation had not been filed by his friends. He
hurriedly attended to the matter and when the SEC issued the Certificate of Registration, the corporation became bankrupt
and Mr. X is now being sued by ABC Corp. in his personal capacity. In this case,
A. Mr. X cannot be made liable since XYZ Corp. is considered a de facto corporation which has a separate personality.
B. Mr. X cannot be made liable since the de facto status of the corporation has not been attacked by the State.
C. Mr. X can be made liable upto his personal assets since he is the president of XYZ Corporation which is a corporation
by estoppel.
D. Mr. X can be made liable only upto his investment since he had no knowledge that the corporation was not validly
incorporated.
5. Mr. X invested his property in exchange for shares in ABC Corporation. Later on, the same property mortgaged as security
for the loan of ABC Corporation from M Bank. For failure to pay, the mortgage was foreclosed and proceeds were less than
the amount of the outstanding balance of the loan which M Bank sought from Mr. X contending that the property was
invested by him. Mr. X cannot be made liable under which principle:
A. Corporate Entity Theory C. Limited Liability Principle
B. Piercing the Veil of Corporate Entity D. All of the choices
6. Under the Revised Corporation Code, a corporation has:

A. A maximum of 50 years of existence
B. A maximum of 50 years of existence but renewable not earlier than 5 years prior to expiration of the term
C. A maximum of 50 years of existence but renewable not earlier than 3 years prior to expiration of the term
D. Perpetual existence
7. Which of the following is still a requirement that applies to incorporators under the Revised Corporation Code:
A. Majority must be residents of the Philippines C. Natural persons must be of legal age
B. Must be natural persons D. None of the choices
8. A, B, C, D and E is organizing a corporation whose Authorized Capital Stock is P64,000. How much is the minimum paid-
up capital requirement under the Revised Corporation Code for the corporation to incorporate?
A. P0 C. P5,000
B. P4,000 D. P16,000
9. A restriction as to transfer of shares in an ordinary stock corporation must be indicated in:

I. Articles of Incorporation III. Certificate of Stock
II. By-Laws
A. I, II and III C. I and III

B. I and II D. II and III
10. The existence of a corporation sole begins from:

A. The time the parties came to an agreement to form a corporation and contribute money or property.
B. Filing of the verified articles of incorporation.
C. Issuance of a certificate of registration.
D. First day of the year following the filing of the Articles of Incorporation
11. The following are qualifications of a director, except:

A. They must own at least 1% share.
B. They meet all the qualifications under the by-laws
C. They do not possess any of the disqualifications under the Corporation Code.
D. None of the choices is an exception
12. A, is a stockholder of Silvestre Corporation, who holds 10,000 shares thereof. A stockholders meeting was called to elect
members of a 5-man Board. How many votes can A cast in favor of B if they employ cumulative voting?
A. 10,000 votes C. 50,000 votes
B. 25,000 votes D. 100,000 votes
13. A, B, C, D and E are members of the Board of Directors. A retired and D died. In this case, who shall fill-up the vacancy?
A. Stockholders in a meeting called for the purpose, regardless if the directors still have a quorum
B. A, B and C, since they still constitute a quorum
C. A, B and C, regardless if they still constitute a quorum
D. Stockholders in a meeting called for the purpose since the directors no longer have a quorum
14. A, B, C, D, E, F, G, H, I are members of the Board of Directors. In the meeting to appoint corporate officers, only A, B, C,
D and E are present. How many votes are required to elect corporate offices?
A. 2 C. 4
B. 3 D. 5
15. A, B, C, D and E are directors of REALTY CORP., Z wanted to sell his property with a fair market value of P100M for P90M.
Z offered the property first to A, who acquired it for P90M and eventually sold the same for P100M. In this case,
A. A can keep the profits provided the sale is ratified by the stockholders.
B. A can keep the profits because it was offered to him and not to REALTY CORP.
C. The sale is not subject to ratification and A may be required to remit the profits to REALTY CORP
D. None of the above

16. Mr. X is a Director of both XYZ Corporation and ABC Corporation. XYZ and ABC entered into a contract of sale, the contract
between XYZ and ABC, is considered valid absent fraud and provided it is reasonable under the circumstances. But it is
considered voidable if the shareholdings of Mr. X in the two corporations are:
ABC XYZ
A. 25% 25%
B. 5% 5%
C. 25% 5%
D. 3% 20%
17. Which of the following corporate officer position may be held by the same person?
A. President and Secretary C. President and Treasurer
B. Treasurer and Secretary D. None of the choices
18. Mr. X, as the president of ABC Corporation, signed the check in his official capacity. Later on, the check bounced due to
insufficiency of funds and he is now being sued for violation of BP Blg. 22. Can Mr. X be made personally liable?
A. Yes, because he acted in bad faith in allowing the issuance of a worthless check
B. No, because he merely signed in his official capacity
C. Yes, because he is made personally liable by law
D. No, because of the corporate entity theory
19. Which of the following is false with regards preferred shares?

A. Preferred share is a stock that gives the holder preference over the holder of common stocks with respect to the
payment of dividends and/or with respect to distribution of capital upon liquidation.
B. A preferred share can be issued without a par value provided it is not issued for less than P5.
C. The preference must be stated in the Articles of Incorporation and the Certificate of Stock.
D. None of the above.
20. As a general rule, preferred shares do not give the holder the right to vote. However, they shall have the right to vote on
the following, except:
A. Amendment of the Articles of Incorporation C. Sale of all or substantially all of the inventories
B. Adoption and amendment of the by-laws D. Increase or decrease of capital stock
21. X Co. has P10M Authorized Capital Stock divided into: (1) 5M shares at P1.00 par value; and (2) 1M no par value shares
with issued value at P5.00. If A acquired 100,000 no par value shares at P4.00 and the same were issued. In this case,
A. There is no issuance of watered stocks
B. A and the directors of X Co. are solidarily liable for the P1.00 per share difference.
C. Only A is liable for the P1.00 per share difference.
D. Only the directors of X Co. is liable for the P1.00 per share difference
22. Mr. A subscribed to 10,000 shares of P1 par value for P10 per share. He was able to pay 50% of the subscription price. In
this case, which of the following is not a right granted to Mr. A?
A. He can receive dividends attributable to the whole 10,000 shares
B. He has the right to vote equivalent to the 10,000 shares
C. He can demand the issuance of certificate of stock for the 5,000 shares already paid
D. None of the choices.
23. Which of the following grounds to deny pre-emptive right requires the approval of 2/3 of the outstanding capital stock?
A. Shares to be issued in order to comply with the laws requiring stock offering or minimum stock ownership by the public
B. Shares issued in good faith in exchange for property needed for corporate purposes
C. In case the right is denied in the By-Laws
D. None of the choice
24. The appraisal right of a stockholder may be exercised in the following actions of the corporation, except:
A. In case of merger or consolidation.
B. Sale of all or substantially all the assets of the corporation.
C. Investment of funds in another corporation or business or for any other purpose other than the primary purpose.
D. Amendments to the Articles of Incorporation to change the name of the corporation
25. Under the revised corporation code, which of the following is a valid requirement for the validity of the annual stockholders’
meeting?
A. If there is no date fixed in the by-laws, it can be held on any date in April
B. There must be notice 2 weeks prior to the meeting
C. It must be held in the city where the principal office is located
D. It must be called by the proper party
26. The delegation of the power to amend the by-laws would require __ vote of the stockholders, while its revocation would
require __ vote.
A. Majority; Majority C. 2/3; 2/3
B. Majority; 2/3 D. 2/3; Majority
27. A Corp. and B Corp. agreed to a business combination. In the agreement, A. Corp. will absorb all the assets and liabilities
of B Corp. and the latter will cease to exist. The business combination entered into is a:
A. Merger C. Reorganization
B. Consolidation D. Quasi-reorganization

28. The merger or consolidation is deemed effective starting:
A. On the date the parties agreed to a consolidation or merger
B. On the date the stockholders ratified the Board resolution for consolidation or merger
C. Upon submission of the articles of merger or consolidation to the SEC
D. Upon issuance of the certificate of merger or consolidation
29. As a general rule, ____ of the outstanding capital stock is required to constitute a quorum; and majority of _____________
is the voting requirement.
A. Majority; outstanding capital stock C. 2/3; outstanding capital stock
B. Majority; those present D. 2/3; those present
30. The regular meetings of _____ are to be held monthly:

A. Stockholders C. Board of Directors
B. Members D. All of the choices
31. The following does not apply to an OPC, except:

A. Articles of Incorporation C. Authorized Capital Stock
B. By-Laws D. Minutes of the Meetings of BoD
32. What will be the term of the nominee in case of temporary incapacity of the sole stockholder?
A. Until declaration of the court of the sole stockholder’s capacity to take over
B. Upon self-determination of the sole stockholder that he regained capacity
C. Until the legal heirs of the stockholder have been determined
D. Once the heirs have designated one of them to take over management
33. The place of meetings of members in a non-stock corporation:

A. Anywhere C. The principal office
B. Anywhere in the Philippines D. The city or municipality where the principal office is located
34. In order to be considered as a close corporation, the following are required to appear in the Articles of Incorporation,
except:
A. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than
a specified number of persons, not exceeding twenty.
B. All the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this
Title.
C. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
D. None of the choices is an exception.
35. Which of the following business is allowed to incorporate as a close corporation?

A. Banks and insurance companies C. Educational institutions
B. Mining companies D. Hospitals
36. To qualify as a foreign corporation, the consideration is

A. Ownership of the shares of stock C. Agreement of the parties
B. Appointment of a resident agent D. Under what country’s law it was incorporated
37. The following are effects of dissolution, except:

A. The corporate entity ceases to exist except for liquidation purposes.
B. It can no longer enter into contracts for furthering its purpose
C. It can no longer apply for a secondary franchise
D. Existing contracts are deemed terminated
38. In case a corporation has been continuously inoperative for a period of 5 years, under the Revised Corporation Code, it:
A. Is automatically dissolved C. Will be placed under delinquent status by the SEC
B. Provides for a ground to dissolve the corporation D. Shall no longer be allowed to operate
39. Under the Revised Corporation Code, any asset distributable to any creditor or stockholders or members who is unknown
or cannot be found shall be escheated in favor of:
A. The national government C. A charitable institution designated by the corporation
B. The city or municipality where the asset is located D. The other stockholders
40. A corporation doing business in the Philippines without the requisite license:
A. Can sue and be sued in Philippine courts C. Can be sued but cannot sue in Philippine courts
B. Can sue but cannot be sued in Philippine courts D. Cannot sue and be sued in Philippine courts
1. C 11. A 21. D 31. A

2. C 12. C 22. C 32. B
3. C 13. B 23. B 33. B
4. D 14. D 24. D 34. D
5. A 15. A 25. D 35. D
6. D 16. C 26. D 36. D
7. C 17. B 27. A 37. D
8 A 18. C 28. D 38. C
9. C 19. B 29. B 39. A
10. B 20. C 30. C 40. C

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPA Licensure Examination

CORPORATE ENTITY THEORY

Under the Corporation Code, a Corporation has power and capacity:

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Classes of Corporations according to validity of formation:

ORGANIZATION AND INCORPORATION

Contents of the Articles of Incorporation:

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This requirement is now specifically indicated in the Revised Corporation Code.

The reasons for requiring a statement of the purposes or objects:

e. The names, nationalities and residence addresses of the incorporators;

Number of Incorporators: not more than 15 (previously 5 to 15)

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Considerations for stocks:

RESTRICTIONS AND PREFERENCES:

OTHER MATTERS TO BE INDICATED IN THE ARTICLES OF INCORPORATION:

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AMENDMENT OF THE ARTICLES OF INCORORPATION, IN GENERAL WOULD REQUIRE:

ELECTION OF MEMBERS OF THE BOARD/TRUSTEES

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REMOVAL AND FILLING-UP OF VACANCIES

Requirements for a valid removal:

Stockholders – if the Directors no

DIRECTORS’ DUTY OF LOYALTY

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The officers that may be elected are the:

Limitations imposed by the Code in the issuance of preferred stocks:

Participating and Non-Participating Preferred Shares

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4. Incurring, creating or increasing bonded indebtedness;

PAR AND NO-PAR VALUE SHARES

The repurchase is not subject to the availability of unrestricted retained earnings.

Issuance of certificates of stock; requisites:

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Except: the right to receive dividends:

To enforce payment, the following remedies are available:

viii. Extend or shorten the corporate term;

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c. Without board resolution, 2/3 of the stockholders may:

d. Without board resolution, majority of the stockholders may:

2. To enter into a voting trust agreement;

7. To exercise their appraisal right

When may it be exercised:

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AMENDMENTS: Section 73 (formerly Section 74) introduced the following amendments:

11. To be furnished by the most recent financial statement of the corporation;

Section 75 (old) Section 74 (RCC)

12. To participate in the distribution of assets of the corporation upon dissolution;

Effectivity: After approval by the SEC.

Adoption of by-laws: may be made:

Amendment of by-laws; two modes:

It likewise includes that an arbitration agreement may be provided in the bylaws.

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Moreover, Metro Cebu and Metro Davao, as well as

REORGANIZATION, MERGER AND CONSOLIDATION

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REQUIREMENTS AND PROCEDURE TO ACCOMPLISH MERGER OR CONSOLIDATION:

EFFECTS OF MERGER OR CONSOLIDATION:

STOCK CORPORATION NON-STOCK CORPORATION

Voting Cumulative Straight voting unless cumulative voting is authorized

Transferability of interest Transferable Membership is personal and non-transferable, unless the

Independent trustees are not required to be a member