Art. 44.

The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or

purpose, created by law; their personality begins as soon as they have
been constituted according to law;

(3) Corporations, partnerships and associations for private interest or

purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.

Natural Persons: US! As long as we are breathing, we are natural person. Civil
personality may be extinguished by death

Revised Corporation Code of the Philippines - R.A. 11232

TITLE I

GENERAL PROVISIONS

DEFINITIONS AND CLASSIFICATIONS

Revised Corporation Code of the Philippines (RCC)

with
Corporation Code of the Philippines (CCP)

SECTION I. Title of the Code. – This Code shall be known as the “Revised
Corporation Code of the Philippines.”

SEC. 187. Repealing Clause. – Batas Pambansa Blg. 68, otherwise known as
“the Corporation Code of the Philippines”, is hereby repealed. Any law,
presidential decree or issuance, executive order, letter of instruction,
administrative order, rule or regulation contrary to or inconsistent with any
provision of this Act is hereby repealed or modified accordingly.

R.A. 11232’s Effectivity Date:

SEC. 188. Effectivity. – This Act shall take effect upon completion of its
publication in the Official Gazette or in at least two (2) newspapers of general
circulation.

Publication in the Official Gazette was completed on February 21, 2019

Publication in two newspapers of General Circulation was completed on

February 23, 2019.

Notice On Effectivity

To : ALL CONCERNED

SUBJECT : EFFECTIVITY OF REVISED

CORPORATION CODE

DATE : FEBRUARY 28, 2019

X………………………………………………………………X

Please be informed that Republic Act. No. 11232 otherwise known as the
Revised Corporation Code of the Philippines took effect on February 23, 2019,
upon completion of its publication in Manila Bulletin and the Business Mirror,
on Saturday, February 23, 2019.

This is pursuant to Section 188 of the RA 11232 which provides that

“SEC 188. Effectivity. – This Act shall take effect upon completion of its
publication in the Official Gazette or in at least two (2) newspapers of general
circulation.”

For your guidance

Office of the Commission Secretary

RCC’s Applicability to Existing Corporations

SEC. 185. Applicability to Existing Corporations. – A corporation lawfully

existing and doing business in the Philippines affected by the new
requirements of this Code shall be given a period of not more than two (2) years
from the effectivity of this Act within which to comply.

SEC. 141. Application to Existing Foreign Corporations. – Every foreign

corporation which, on the date of the effectivity of this Code, is authorized to do
business in the Philippines under a licensed issued to it shall continue to have
such authority under the terms and conditions of its license, subject to the
provisions of this Code and other special laws.

i.e.

Notice to SEC of a corporation to remain with its specific term.

Existing corporation’s provisions of bylaws provisions must conform with the

RCC within two years from effectivity of RCC.

POWER TO FORMULATE RULES

SEC. 179. Powers, Functions, and Jurisdiction of the Commission. – The

Commission shall have the power and authority to:

xxx

(o) Formulate and enforce standards, guidelines, policies, rules, and

regulations to carry out the provisions of this Code; and exercise such other
powers provided by law or those which may be necessary or incidental to
carrying out the powers expressly granted to the Commission.

i.e.

subject to the rules and regulations issued by the Commission; as may be

determined by the Commission; pursuant to the rules and regulations the
Commission may issue; other qualifications and disqualifications adopted by
the Commission; the Commission may prescribe.
Title I

TITLE I

GENERAL PROVISIONS

DEFINITIONS AND CLASSIFICATIONS

SECTION I. Title of the Code. – This Code shall be known as the “Revised
Corporation Code of the Philippines”.

Corporation Defined

SEC. 2. Corporation Defined. – A corporation is an artificial being created by

operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incidental to its existence

QUESTIONS:

1. What are the attributes of a corporation?

Answer: The attributes of a corporation can be derived from the definition of

the corporation under Sec. 2 of the RCC:

A. It is an artificial being

B. It is created by operation of law

C. It has the right of succession

D. It has the powers, attributes and properties expressly authorized by law or

incident to its existence.

2. Explain the attribute that the corporation is an artificial being.

Answer: the fact that a corporation does not have physical existence - its
existence is artificial. Hencce, the rights of corporations cannot be exactly the
same as the rights of natural persons. There are facets of law where the
juridical entity’s existence cannot be likened to a natural person precisely
because a corporation exists only by fiction of law… the juridical existence of a
corporation cannot be compared to a natural person.

Due to the artificial nature of the existence of corporations, it can perform

physical acts or commit omissions only through natural persons. It can only
exercise its rights and powers thru its directors, officers and agents, etc. who
are natural persons.

3. Explain the attribute that the corporation is created by operation of

law.

Answer: The corporation owes its life to the State because it is a creation of
statute that defines its powers and prescribes rules for the regulation of its
internal and outside affairs. In other words, corporation is an artificial being
created by law for certain specific purposes.

4. Explain the attribute that it has the right of succession.

Answer: It is like “Perpetual succession” or continuous existence which enables

a corporation to manage its affairs, for the purpose of transmitting it from hand
to hand. In short, a corporation continues to exist even if there is a change in
those who created it. A shift in composition of the shareholders of a corporation
would not affect its existence and continuity.

5. Explain the attribute that it has the powers , attributes and properties
expressly authorized by law or incidental to its existence.

Answer: Theory of Special Capacities/Limited Capacity Doctrine

- No corporation under the Corporation Code shall possess or exercise any

corporate powers, except those:
1) conferred by law
2) stated in its Articles of Incorporation
3) those implied from express powers and those necessary or incidental to the
exercise of the powers so conferred

- If the act of the corporation is not one of those express, implied or incidental
powers, the act is ULTRA VIRES (beyond the power)

Explanation:

Advantageous Attributes and Disadvantages of the Corporation

 Strong/Solemn Juridical Personality (Sec. 2; Arts. 44[3], 45 and 46,

Civil Code)

 While not in fact a person, the corporation is treated through fiction by

the law as though it were a person—an artificial person distinct and
separate from its stockholders. Remo, Jr. v. IAC, 172 SCRA 405 (1989).

 Stockholders are not co-owners of corporate assets; the transfer of

corporate assets to the stockholders by way of dissolution is an act of
conveyance and not a partition among co-owners. Stockholders of F.
Guanzon and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373
(1962).

 Execution pending appeal may be allowed when “the prevailing party is

already of advanced age and in danger of extinction,” but not in this
case a corporation whose “juridical entity’s existence cannot be likened
to a natural person—its precarious financial condition is not by itself a
compelling circumstance warranting immediate execution and does not
outweigh the long standing general policy of enforcing only final and
executory judgment.” Manacop v. Equitable PCIBank, 468 SCRA 256
(2005).

Doctrine of Separate Juridical Personality

A corporation is vested by law with a personality separate from that of its

stockholders or members. It has a personality separate and distinct from those
of the persons composing it as well as from that of any other entity to which it
may be related. Mere ownership by a single or by another corporation of all or
nearly all of the capital stock of a corporation is not in itself sufficient ground
for disregarding the separate corporate personality. A corporation’s authority to
act and its liability for its actions are separate and apart from the individuals
who own it. The veil of corporate fiction treats as separate and distinct with the
affairs of a corporation and its officers and stockholders. As a general rule, a
corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears.
(Suldao vs. CIMECH System Construction, Inc., G.R. No. 171392, October 30,
2006.)

 Rights can be enforced for and against the corporation and the filing of a
complaint against the stockholder is not ipso facto a complaint against the
corporation.

2. CENTRALIZED MANAGEMENT (Sec. 22)

 Under [Section 22 of the Revised Corporation Code], save in those instances

where the Code requires stockholders’ approval for certain specific acts, it
is the Board of Directors/Trustees which exercises all the corporate powers
in a corporation. Great Asian Sales Center Corp. v. Court of Appeals, 381
SCRA 557 (2002).

3. . Liability to Stockholders and Non-Liability to Directors/Trustees and

Officers for the Liabilities of the Corporation

 An important advantage of the corporation is the limitation of an investor’s

liability to the amount of investment, which flows from the legal theory that
a corporate entity is separate and distinct from its stockholders. San Juan
Structural and Steel ..., Inc. v. CA, 296 SCRA 631 (1998).
 By virtue of the principle separate juridical personality, the corporate debts
or credits are not the those of the stockholders. This protection from
corporate liability for shareholders is the principle of limited liability. PNB
v. Hydro Resources Contractors Corp., 693 SCRA 294 (2013).
 Where the creditor sues not only the company but also all stockholders to
reach their unpaid subscription which appear to be the only visible assets
of the company, the controlling doctrine is that “a stockholder is personally
liable for the financial obligations of the corporation to the extent of his
unpaid subscription.” Halley v. Printwell, Inc. 649 SCRA 116 (2011).
 It is horn book law that corporate personality is a shield against personal
liability of its officers—a corporate officer and his spouse cannot be made
personally liable under a trust receipt where he entered into and signed the
contract clearly in his official capacity. Consolidated Bank and Trust Corp.
v. Court of Appeals, 356 SCRA 671 (2001).
 Obligations incurred by the corporation through its directors and officers,
are its sole liabilities. Malayang Samahan ng mga Manggagawa sa M.
Greenfield v. Ramos, 357 SCRA 77 (2001).
 ( Aboitiz Equity Venture v. Chiongbian, 729 SCRA 580 (2014).
 Ever Electrical Manufacturing, Inc. (EEMI) v. Samahang Manggagawa ng
Ever Electrical/NAMAWU Local 224, 672 SCRA 562 (2012); Gotesco
Properties v. Fajardo, 692 SCRA 319 (2013).

4. Free-Transferability of “Units of Ownership” (Shares) (Sec. 62)

 It is the inherent right of the stockholder to dispose of his shares of stock

(which he owns as any other property) anytime he so desires. Remo, Jr. v.
IAC, 172 SCRA 405 (1989).
 No corporation can restrict the right of a stockholder to transfer shares, but
merely has authority to adopt regulations on the formalities and procedure
to be followed in effecting such sale or transfer. Thomson v. Court of
Appeals, 298 SCRA 280 (1998).

EMANATING FROM THE PRIMARY ATTRIBUTE OF SEPARATE JURIDICAL

PERSONALITY:
1. Doctrine of Limited Liability: Stockholders/Members Cannot be Held
Liable for the Liabilities of the Corporation, Except to the Extent of Their
Investments or Promised Investments.

a) A stockholder is personally liable for the financial obligations of the

corporation to the extent of his upaid subscription. While stockholders
are generally not liable, they may be liable if they have not fully paid the
subscription price.

b) Joint Venture Agreement

Reasons for the Limited Liability Rule:

A. Investment in shares is encouraged because the task of evaluating equity

investment is greatly simplified considering that the low-probability even of
insolvency and the financial condition of other investors can already be
ignored;
B. Investors in risky ventures is encouraged;
C. Banks and other financial intermediaries who are considered experts are
encouraged to closely monitor corporate debtors more closely.

2. Agency Law Principle: Directors/Trustees, Officers and Other

Corporate Agents Do Not Become Personally Liable for Corporate Contracts
That They Enter Into in Behalf of the Corporation.

 Corporate debt or credit is not the debt or credit of the stockholder nor is
the stockholder’s debt or credit that of the corporation. Traders Royal Bank
v. Court of Appeals, 177 SCRA 789 (1989).

 Debts incurred by directors, officers, and employees acting as corporate

agents are not their direct liability but of the corporation they represent.
Crisologo v. People, 686 SCRA 782 (2012).

 The obligations of a stockholder in one corporation cannot be offset from

the obligation of the stockholder in a second corporation, since the
corporation has a separate juridical personality. CKH Industrial and Dev.
Corp v. Court of Appeals, 272 SCRA 333 (1997).

 A consequence of a corporation’s separate personality is that its consent

made through its representatives is not consent of the representative,
personally. Its obligations, incurred through official acts of its
representatives, are its own. A director or officer does not become a party to
a contract just because a corporation executed a contract through such
individual. Hence, a corporation’s representatives are generally not
personally bound by the terms of the contract executed in behalf of the
corporation. Lanuza, Jr. v. BF Corp., 737 SCRA 275 (2014).

 Heirs of Fe Tan Uy v. International Exchange Bank, 690 SCRA 519 (2013);

Land Bank of the Philippines v. Belle Corp., 769 SCRA 46 (2015); Ferro
Chemicals, Inc. v. Garcia, 804 SCRA 528 (2016).

 Land Bank of the Philippines v. Belle Corp., 769 SCRA 46 (2015).

Doctrine of piercing the veil of corporate fiction.

Under the “Doctrine of Piercing the Corporate Veil” of corporate entity, the
principle on separate identity of a corporation from its stockholders may be
disregarded when it is used to defeat public convenience, justify wrong, protect
or cover fraud or defend crime or work an injustice. If used in those situations,
the corporation and the stockholders composing it should be treated as one
and the same. Consequently, the stockholders can be held personally liable to
corporate debts. However, application of said doctrine is for the proper court to
decide. The proper court will not hesitate to pierce the corporate veil or
corporate fiction when it would defeat the ends envisaged by law, as the theory
of corporate entity was not meant to promote unfair objectives.

 The corporation’s separate juridical personality may be disregarded

when there is an abuse of the corporate form.

What is the doctrine of reverse piercing of the corporate veil?

In a traditional veil-piercing action, the court disregards the existence of the

corporate entity so a claimant can reach the assets of a corporate insider
(meaning, the directors, stockholders, and officers). In reverse piercing
action, however, the plaintiff seeks to reach the assets of the corporation to
satisfy claims against corporate insider. Reverse piercing flows in the opposite
direction (of traditional corporate veil piercing) and makes the corporation
liable for the debt of the shareholders or members.

International Academy of Management and Economics (I/AME) Litton and

Company Inc G.R. No. 191526, December 13, 2017.

Alter Ego Doctrine

Where the capital stock is owned by one person and it functions only for the
benefit of such individual owner [rather than the business interest for which
the corporation was formed], the corporation and the individual should be
deemed the same. Arnold v. Willets and Patterson, Ltd., 44 Phil. 634 (1923).

When corporation is merely an adjunct, business conduit or alter ego of

another corporation [i.e., operated for the benefit of the business enterprise of
the other corporation, and not for its own benefit], the fiction of separate and
distinct corporation entities should be disregarded. Tan Boon Bee & Co. v.
Jarencio, 163 SCRA 205 (1988).

Unlike in fraud piercing, alter ego piercing does not require establishing fraud
or wrongdoing, but only that the corporate personality has been used as an
instrumentality for the personal agenda of its controlling stockholder. Lipat v.
Pacific Banking Corp., 402 SCRA 339 (2003).

 International Academy of Management and Economics (I/AME) Litton

and Company Inc G.R. No. 191526, December 13, 2017.

 In this case, a lawyer-lessee failed to pay his rentals. The lessor filed a
complaint for unlawful detainer and secured a favorable judgment.
Judgment was not immediately executed but it was eventually revived.
The sheriff levied a piece of real property in the name of International
Academy of Management and Economics Incorporated (I/AME), a
nonstock corporation, in order to execute the judgment against the
lessee, who is a member of I/AME. The Supreme Court agreed with the
Court of Appeals and sustained the levy, ruling that the corporation is
an alter ego of the lessee and the lessee – the natural person is the alter
ego of the corporation. The lessee falsely represented himself as
president of the corporation in the Deed of Sale when he bought the
property at a time when the corporation had not yet existed.
Uncontroverted facts also revealed that the lessee and the corporation
are one and the same person . The lessee is the conceptualizer and
implementor of the corporation and the majority contributor of the
 corporation. I?AME is basically the corporate entity used by the lessee
as his alter ego for the purpose of shielding his assets from the reach of
the dreditors.

Doctrine of Piercing THE CORPORATE VEIL

Under the doctrine of piercing the veil of corporate fiction, when the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend a crime, the law will regard the corporation as an association of
persons. Also, the corporate entity may be disregarded in the interest of justice
in such cases as fraud may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both instances,
there must have been fraud and proof of it. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be clearly
and convincingly established. It cannot be presumed.

(Suldao vs. CIMECH System Construction, Inc., G.R. No. 171392, October 30,
2006.)

Corporations Can Be Held Liable for Torts/Quasi-Delicts

A corporation is civilly liable for torts in the same manner as natural persons,
because the rules governing the liability of a principal for a tort committed by
an agent are the same whether the principal be a natural person or a
corporation, and whether the agent be a natural or artificial person. Philippine
National Bank (PNB) v. Court of Appeals, 83 SCRA 237 (1978).

“Corporate tort” consists in the violation of a right given or the omission of a

duty imposed by law; a breach of a legal duty. The failure of the corporate
employer to comply with the duty under the Labor Code to grant separation
pay to employees in case of cessation of operations constitutes tort and its
stockholder who was actively engaged in the management or operation of the
business should be held personally liable. Sergio F. Naguiat v. NLRC, 269
SCRA 564 (1997).

Classes of Corporations

SEC. 3. Classes of Corporations. – Corporations formed or organized under

this Code may be stock or nonstock corporations. Stock corporations are
those 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. All other corporations are nonstock
corporations.

Nonstock Corporations

SEC. 86. Definition. – For purposes of this Code and subject to its provisions
on dissolution, a nonstock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers: Provided, that
any profit which a nonstock corporation may obtain incidental to its operations
shall, whenever necessary or proper, be used for the furtherance of the purpose
or purposes for which the corporation was organized, subject to the provisions
of this Title.

The provisions governing stock corporations, when pertinent, shall be

applicable to nonstock corporations, except as may be covered by specific
provisions of this Title.

Purposes of Nonstock
SEC. 87. Purposes. – Nonstock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof, subject to the
special provisions of this Title governing particular classes of nonstock
corporations.

Corporations Created by Special Laws or Charters.

SEC. 4. Corporations Created by Special Laws or Charters. – Corporations

created by special laws or charters shall be governed primarily by the
provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are applicable.

Questions:

1. What are the classes of corporations as to the existence of shares of

stock?

Answer: a. Stock Corporation: a corporation with capital stock that is

divided into shares and is authorized to distribute to holders of
such shares, dividends or allotments of the surplus profits on the basis of the
shares held.

b. Non-stock corporation: a corporation that has no capital stock, does

not issue stocks, and does not distribute dividends to its members.

2. What are the classes of corporations as to organizers?

Answer: a. Aggregate corporation which is a corporation consisting of

more than one member.

B. Corporate Sole which consists of only one person or member

C. One Person Corporation (OPC) which consists of a single

stockholder. (who may be a natural person, a trust, or an estate)

2. What are the classes of corporations as to function?

Answer: a. Public Corporation: a corporation organized for the

government of a portion of a State for the purpose of serving general good
and welfare.

B. Private Corporation: a corporation formed for some private purpose,

benefit, aim or end. They may be stock or non-stock corporations.

3. What are the classes of corporations as to governing law?

A. Domestic Corporations: a corporation formed, organized or existing

under Philippine Laws

B. Foreign Corporation: corporation formed, organized or existing

under laws other than those of the Philippines and whose laws allow
Filipino citizens and corporations to do business in its own country of
State.

4. What are the classes of corporations as to legal status?

A. De Jure Corporation: organized in accordance with requirements of law.

B. De Facto corporation: formed where there exists a flaw in its incorporation
but there is colorable compliance with the requirements of law.

C. Corporation by Estoppel: a group of persons which holds itself out as a

corporation and enters into a contract with a third person on the strength of
such appearance. It cannot be permitted to deny its existence in an action
under said contract. However, a corporation by estoppel does not have juridical
personality.

5. What are the classes of corporations as to relationship of management

and control?

A. Subsidiary: a corporation more than 50% of the voting stock of which is

owned or controlled directly or indirectly thru one or more intermediaries by
another corporation, which thereby become a parent company.

B. Affiliate: a corporation that directly or indirectly, thru one of more

intermediaries, in controlled by, or is under the control of another corporation,
which thereby becomes its parent company.

C. Parent corporation: a corporation that has control over another

corporation directly or indirectly thru one of more intermediaries. It is the
corporation that owns all or substantially all or the controlling shares in the
subsidiary.

6. What are the classes of corporations as to place of incorporation?

A.

Other Classifications: Closed Corporation; Special Corporations and One-

Person Corporation

Question:

The law creating the Bases Conversion and Development Authority (“BCDA”)
provides that it has an authorized capital stock of One Hundred Billion Pesos
(P100,000,000,000.00) which may be subscribed by the Republic of the
Philippines and shall either be paid up from the proceeds of the sales of its
land assets.

It is created , among others, to own, hold and/or administer military

reservations in the country and implement its conversion to other productive
use.

Is it a stock or nonstock corporation?

Ans: It is neither a stock or nonstock corporation but a government authority

vested with corporate powers.

Corporators and Incorporators, Stockholders and Members

SEC. 5. – Corporators and Incorporators, Stockholders and Members. –

Corporators are those who compose a corporation, whether as stockholders or
shareholders in a stock corporation or as members in a nonstock corporation.
Incorporators are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof.

1. Classification of Shares
SEC. 6. Classification of Shares. – The classification of shares, their
corresponding rights, privileges, or restrictions, and their stated par value, if
any, must be indicated in the articles of incorporation. Each share shall be
equal in all respects to every other share, except as otherwise provided in the
articles of incorporation and in the certificate of stock.

The shares in stock corporations may be divided into classes or series of

shares or both. No share may be deprived of voting rights except those
classified and issued as “preferred” or “redeemable” shares, unless otherwise
provided in this Code: Provided, there shall always be a class or series of
shares with complete voting rights.

Holders of nonvoting shares shall nevertheless be entitled to vote on the

following matters:

a) Amendment of the articles of incorporation;

b) Adoption and amendment of bylaws;

c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or

substantially all of the corporate property;

d) Incurring, creating, or increasing bonded indebtedness;

e) Increase or decrease of authorized capital stock;

f) Merger or consolidation of the corporation with another corporation or

other corporations;

g) Investment of corporate funds in another corporation or business in

accordance with this Code; and

h) Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote

required under this Code to approve a particular corporate act shall be deemed
to refer only to stocks with voting rights.

The shares or series of shares may or may not have a par value:
Provided, That banks, trust, insurance, and preneed companies, public
utilities, building and loan associations, and other corporations authorized to
obtain or access funds from the public, whether publicly listed or not, shall not
be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by a corporation may be given

preference in the distribution of dividends and in the distribution of corporate
assets in case of liquidation, or such other preference: Provided, That preferred
shares of stock may be issued only with a stated par value. The board of
directors, where authorized in the articles of incorporation, may fix the terms
and conditions of preferred shares of stock or any series thereof: Provided,
further, That such terms and conditions shall be effective upon filing of a
certificate thereof with the Securities and Exchange Commission, hereinafter
referred to as the “Commission”.

Shares of capital stock issued without par value shall be deemed fully
paid and nonassessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto: Provided, That no-par value
shares must be issued for a consideration of at least Five pesos (P5.00) per
share: Provided, further, That the entire consideration received by the
corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends.
 A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.

*Concept of Shares

As the unit into which the proprietary interests in a corporation are

divided. It is the intangible interest or right which an owner has in the
management, profit and assets of the corporation.

Doctrine of Equality of Shares

The doctrine of equality of shares means that all stocks issued b the
corporation are presumed equal, with the same privileges and liabilities ,
provided that the articles of incorporation is silent on such differences.
(Commissioner if Internal Revenue v. Court of Appeals, G.R. No. 108576,
January 20, 1999). Stated otherwise, each share shall be equal in all respects
to every other share, except as otherwise provided in the articles of
incorporation and the certificate of stock (Section 6 of RCC). Thus, all shares
have the same rights and privileges unless classified differently in the articles
of incorporation, and such classification is not contrary to law. Preferred
shares, therefore. Have the same voting rights similar to common shares
unless the preferred shares are denied such right in the articles of
incorporation.

As restriction on shares should also be stated in the articles of incorporation,

otherwise it is not valid. In a couple of cases, the Supreme Court held that any
lien on shares , like being held as security for payment of dues and
assessments , must be in the articles of incorporation, not only in the bylaws,
otherwise, it is invalid.

 All stocks issued by the corporation are presumed to be equal with

the same privileges and liabilities, provided that the Articles of
Incorporation is silent on such differences.

Founders’ Shares

SEC. 7. Founders’ Shares. – Founders’ shares may be given certain rights and
privileges not enjoyed by the owners of other stocks. Where the exclusive right
to vote and be voted for in the election of directors is granted, it must be for a
limited period not to exceed five (5) years from the date of incorporation:
Provided, That such exclusive right shall not be allowed if its exercise will
violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy
Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act
of 1991”, and other pertinent laws.

Redeemable Shares

SEC. 8. – Redeemable Shares. – Redeemable shares may be issued by the

corporation when expressly provided in the articles of incorporation. They are
shares which may be purchased by the corporation from the holders of such
shares upon the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation, and upon such
other terms and conditions stated in the articles of incorporation and the
certificate of stock representing the shares, subject to the rules and regulations
issued by the Commission.

Treasury Shares

SEC. 9. – Treasury Shares. – Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently reacquired by the issuing
corporation through purchase, redemption, donation, or some other lawful
means. Such shares may again be disposed of for a reasonable price fixed by
the board of directors.

(SALIDO, JR. V. ARAMAYWAN METALS, G.R. NO. 233857, MARCH 18, 2021)

The law sets out the parameters when a corporation may reacquire its shares
and convert them into treasury shares. According to Section 9 of the
Corporation Code, “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.” Apart
from reacquiring the shares through some lawful means, the Corporation Code
is also explicit that while a corporation has the power to purchase or acquire
its own shares, the corporation must have unrestricted retained earnings in its
books to cover the shares to be purchased or acquired. In addition, in cases
where the reason for reacquiring the shares is because of the unpaid
subscription, the Corporation Code is likewise explicit that the corporation
must purchase the same during a delinquency sale and not to direct the
reduction on the number of shares subscribed to what has been paid.

Nota Bene (NB):

This ruling still holds under the RCC, given that there is no change in the
concept of treasury shares and available remedy to the corporation in case of
delinquent shares.