TITLE I.

GENERAL PROVISIONS, ation by

DEFINITIONS AND CLASSIFICATIONS the SEC
Liability Liable Liable Stockhol
up to the persona ders are
SEC 1. TITLE OF THE CODE extent of lly and liable to
Section 1. Title of the code. This code shall be personal subsidia the
known as the “Revised Corporation Code of the propertie ry for extent of
Philippines. s partners their
hip investm
INTRODUCTION
debts to ent as
3rd represen
The Revised Corporation Code of the persons ted by
Philippines (RCC) was signed into law by Pres. the
Rodrigo Duterte on 20 February 2019, and shares
became effective on 23 February 2019 prescrib
ed by
- Being a special law, it is a them
combination of substantive and
procedural law.
- The introduction of the OPC, or one- Managem Managed Absenc Power
person corporation; because many ent by the e of any to do
investors refrain from investing much sole agreem business
into businesses, because when they proprieto ent, is vested
invest into sole proprietorships, their r every in the
liability is unlimited. partner board of
is an directors
TYPES OF BUSINESS ORGANIZATIONS agent of (BOT)
the or board
Sole Partners Corporat partners of
Proprieto hips ion hip trustees
rship Transfera Transferr Needs Noes
Commenc Starts Created Created bility of able consent not need
ement upon by mere by interest through of all prior
selling agreem operatio asset sale partners consent
ent of n of law of the
parties stockhol
ders
No. of Sole At least New
incorporat proprieto 2 law: Rights of No rights There is
ors r persons One successio succession right of
person n successi
corporat on
ion is
allowed ADVANTAGES OF A CORPORATION
1. More capitalization
Old law: 2. Limited liability
at least 5 3. Right of succession
incorpor 4. Transferability of interest
ators 5. Easier management
Commenc No Executi From
ement of juridical on of the date
Juridical personali the of
personalit ty contract issuance DISADVANTAGE OF A CORPORATION
y of the 1. Higher income tax liability; corporate
certificat income tax and income tax to
e of stockholders
incorpor 2. Less participation in the management
3. No delectus personae
 4. Dissolution is granted by state, Constitutional rights
requires consent of the state because
of public interest 1. Right to due process and equal
5. Greater degree of government control protection of the law
and supervision 2. Right against unreasonable
6. Difficulty in meeting requirements searches and seizures
3. Right against non-impairment of
SEC 2. CORPOORATION DEFINED contracts
Section 2. Corporation Defined. A corporation 4. Right against self-incrimination
is an artificial being created by operation of
law, having the right of succession, and the Rights that a corporation cannot exercise
powers, attributes, and properties expressly 1. Political rights
authorized by law or incidental to its existence. 2. Right to life
3. Right to liberty
TYPES OF CORPORATIONS
1. Public corporations – govern a portion CRIMINAL LIABILITY OF A
of the state, purpose is for the general CORPORATION
good and welfare
2. Private corporations – private purpose,
benefit, aim or end. General rule: A corporation cannot be held
3. Publicly-listed corp – private criminally liable under the Revised Penal code
corporations whose stocks are listen in
the PSE (Philippine stock exchange) - Crimes under the RPC have the
4. Quasi-public corp – private element of intent which corporations
corporations performing public are not capable of, as it has no mind of
functions its own. As a creature of the law, its
5. Government-owned and controlled intention cannot be determined. It can
corp – private corporations created by also not be sent to jail because it has
the congress through a special charter no corporal or physical existence.
and the majority of its shareholdings PRINCIPLE OF LIBERALITY OF
are owned by the government. Has a CONTRACTS
personality of its own, separate and
Anyone can stipulate any provision in
distinct that of the government
a contract as long as such provision is not
The test to determine whether a GOCC contrary to law, morals, public policy, and
or private corporation: public order. This right is enjoyed by both
If a corporation is created by its own natural and juridical persons
charter for the exercise of a public You cannot just say that you can enter
function, then GOCC; if by into any contract under the principle of
incorporation under the general liberality of contracts but the contract must also
corporation law, then private be confined within the privilege granted by the
corporation (Baluyot vs. Holganza, State
2000)
LIABILITY OF CORPORATIONS IN
CASE OF DEBT
The debts of the corporation cannot be
demanded by the creditors against the
stockholders
RIGHTS OF A CORPORATION
Civil and economic rights Stockholders cannot be held
personally liable because their liability is
1. Right to sue or to be sued limited to the extent of their investments.
2. Right to own and dispose of
properties VEIL OF CORPORATION
3. Right to enter into contracts A corporation has a separate and
4. Right to non-impairment of distinct personality from its shareholders,
contracts officers, and directors. Once said corporate
fiction is created, the veil hides the
stockholders such that when a corporation
incurs liability, the stockholders are shielded
from liability. In so far as the law is concerned,
we are only dealing with the corporation.
The veil of corporate fiction only
applies to corporations.
RELATIONSHIPS OF A CORPORATION
1. Relationship between corporation and
the shareholders
2. Relationship among shareholders
themselves
3. Relationship between the corporation
and the state
4. Relationship between the corporation
and the public
In forming a corporation, the main purpose
is fundraising. Because when you do not have
money or investments, it will be difficult to run
a business.
DIFFERENCE BETWEEN LENDER AND
AN INVESTOR
LENDER INVESTOR
No risk presumed Takes the risk
because there is no
guarantee of success
or profits in business
RELATIONSHIP BETWEEN A
CORPORATION AND THE
SHAREHOLDERS
The relationship between the
corporation and the stockholders is well
established in the Articles of Incorporation
(AOI). The AOI is considered as the contract or
agreement of the Corporation and the
Stockholders. Since this is their agreement, the
AOI binds their relationship and regulates their
relationship.
RELATIONSHIP BETWEEN
CORPORATION AND STATE
A corporation is a creation of the law.
In other words, it is a privilege granted by the
State. The term extended or granted by the state
is subject to the condition that the corporation
will comply with the reportorial requirements
and behave within the bounds of the law.
Otherwise, the State may revoke or cancel the
license. It may also suspend and/or charge a
fine.
PARTNERSHIP VS CORPORATION
1. There are fewer members, and as a
result, it is easier to convene and
communicate, while in a partnership,
“everyone talks”.
2. Management is vested on persons with
expertise.
The veil of corporate fiction only applies
to corporations, and is not to sole
proprietorships or partnerships. A corporation,
such as a One Person Corporation (OPC)
enjoys the veil of corporate fiction and a
limited liability, whereas a sole proprietorship’s
liability may not be limited at all.
CONTENTS OF THE ARTICLES OF
INCORPORATION
1. Name of the corporation
2. Purpose
a. Primary purpose
b. Secondary purpose
3. Nature of the business
4. Term – perpetual term
5. Address
6. Name of the stockholders
7. Names of the incorporators
8. Capital structure of the corporation
CAPITAL STRUCTURE
1. Authorized capital stock (ACS) –
maximum amount that a corporation
intends to invest
2. Subscribed capital stock (SCS) - the
number of shares a stockholder
intends to invest in the corporation
which he commits himself to pay – it
is the committed investment of the
stockholder
3. Paid-up capital - The initial amount
that the stockholders are obliged to
pay. This is the initial amount that
shall be used in starting the
corporation.
RIGHT OF SUCCESSION
If a stockholder or a member dies,
withdraws, is insolvent, or suffers incapacity,
the corporation will still continue and not be
dissolved. When all the stockholders die, the
heirs will become stockholders.
The rights, as well as the interests of
the deceased stockholders will now be
transferred to the heirs at the moment of death
because succession starts at the moment of the
death of the deceased person.
EEFECTS OF INCOMPLETE
 INCORPORATION PAPERS
Failure to acquire or comply with the
requirements for an issuance of a Certificate of
Incorporation does not justify making it into a
partnership.
If the papers are not in order, the SEC
will not issue a Certificate of Incorporation.
The incorporators will have to make the
necessary corrections. If the incorporators will
not comply, the SEC will have to deny the
issuance of a Certificate of Incorporation
SEC 3. CLASSES OF CORPORATION
Section 3. Classes of Corporations.
Corporations formed or organized under this
Code may be stock or non-stock 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 non-stock corporations.
AS TO PURPOSE
1. Public corporation - created to govern
a portion of a State
2. Private corporation – for private ends
a. Publicly listed
b. Quasi-public corpos
c. Government owned and
controlled corpo (GOCC)
UNDER THE REVISED CORPORATION
CODE
1. Stock Corporation (corporation for
profit) - 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.
2. Non-stock Corporation - they do not
issue shares and do not distribute
profits to its members. However, they
still own profits for expenditures and
to improve their facilities. They
cannot distribute the profits to its
members
AS TO NUMBER OF CORPORATORS
1. Corporation sole – one member or
corporator, for purely religious
purpose
2. One person corporation – one member
or corporator also but not limited to
purely religious purposes
3. Corporation aggregate – consisting of
more than one corporator or member
Basis why the State is liberal in the
establishment of religious corporations as a
corporation sole: Constitutional right to
Freedom of Religion and Separation of Powers
between the Church and the State
AS TO WHERE IT IS OPEN OR CLOSE
1. Open Corporation - open to any
person who may wish to become
shareholders. Most of these are
publicly listed.
2. Close corporation - limited to selected
persons or members of a family.
Contained in the Articles of
Incorporation (AOI) and the Stock
Certificate. The stock certificate
indicates that these holders shall not
be allowed to dispose the shares
UNLESS he offers it to the existing
holders first.
It cannot be an absolute
prohibition. Otherwise, it will violate
the right of an owner which includes
the right to own, right to possess, and
right to dispose.
WHETHER IT IS FOR A RELIGIONS
PURPOSE OR NOT
1. Ecclesiastical corporation – for
religious purposes
2. Lay corporation – purpose other than
religion
3. Corporation sole - a corporation
formed for the purpose of
administering and managing, as
trustee, the affairs, properties and
temporalities of any religious
denomination, sect or church, by the
chief archbishop, bishop, priest, rabbi
or other presiding elder of such
religious denomination, sect or
church. Has no nationality but for the
purpose of applying nationalization
laws, nationality is determined not by
the nationality of its presiding elder,
but by the nationality of the its
members constituting the sect in the
Philippines
4. Corporation aggregate (religious
society) – religious organization
incorporated by more than one persons
 5. Eleemosynary corporation – charitable
purpose
AS TO FORMATION
1. Domestic corporation – existing under
the laws of the Philippines
2. Foreign corporation – under any laws
other than those of the Philippines
AS TO THEIR RELATION TO
ANOTHER CORPORATION
1. Parent Corporation - holds ownership
of various corporations, thereby
having control over such corporations.
It has the capacity to elect or control
other corporations.
2. Subsidiary Corporation - owned and
controlled by the holding or parent
corporation. The holding corporation
elects the Board of Directors (BOD)
for the subsidiary.
3. Affiliated corporation - those related
to the parent corporation or subsidiary
corporation
What is the difference between an affiliate
and a subsidiary?
A: The difference lies in the level of
ownership of the parent company in a
certain corporation. The terms “affiliate” and
“associate” corporation are used
synonymously to describe a company whose
parent only possesses a minority stake in the
ownership of the company. On the other
hand, a subsidiary is a business whose parent
holds a majority stake or is a majority
shareholder of 50% or more of all shares.
Some subsidiaries are even wholly owned,
meaning the parent corporation owns 100%
of the subsidiary.
4. Sister company - fellow subsidiary
with respect to another subsidiary;
both owned by the parent corporation
AS TO NATIONALITY
Citizenship of stockholders
1. Philippine National
2. Foreign-owned corporation
Tests to determine citizenship of stockholders
1. Control test – At least 60% of the
outstanding capital stock which are
entitled to vote are owned by Filipino
citizens
2. Grandfather rule - If the percentage of
Filipino ownership is less than 60%,
then only the number of shares
corresponding to such percentage shall
be counted as Philippine nationality.
SEC 4. CORPORATIONS CREATED BY
SPECIAL LAWS OR CHARATERS
Section 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 or applicable to them,
supplemented by the provisions of this Code,
insofar as they are applicable.
SEC 5. CORPORATIONS AND
INCORPORATORS STOCKHOLDERS
AND MEMBERS
Section 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.
INCORPORATORS
Incorporators are the organizers of the
corporation upon its inception. They are
mentioned in the AOI as originally forming and
composing the corporation, and who are
signatories thereof. Under the New Code,
juridical persons can now be incorporators.
CORPORATORS
Corporators are those who fund the
corporation. These refer to the stockholders,
investors, and incorporators themselves. They
are people who have interest over the
corporation.
Stockholders – in a stock corporation
Members – in a non-stock corporation
BORAD OF DIRECTORS OR TRUSTEES
The Board of Directors or Board of
Trustees are the group of people who manage
the corporation.
PROMOTERS
Promote the corporation itself. They
convince the people to invest. They tell the
people that they are organizing such
corporation. However, they are not committed
to buy the shares, and are purely salesmen.
 Promoters are persons who, acting alone, or
with others, take initiative in founding and
organizing the business or enterprise of the
issuer and received consideration thereof
LIABILITY OF THE PROMOTER
Generally: The promoter binds himself
personally and assumes the responsibility of
looking to the proposed corporation for
reimbursement
Exceptions:
1. Express or implied agreement to the
contrary
2. Novation, note merely adoption or
ratification of the contract
LIABILITY OF THE CORPORATION FOR
THE PROMOTER’S ACTS
Generally: A corporation is not bound by the
contract. A corporation, until organized, has no
life and no legal existence. It could not have
had an agent (the promoter) who could legally
bind it.
Exceptions:
1. Adaptation or ratification of the entre
contract after corporation
2. Acceptance of the benefits under the
contract with knowledge of the terms
thereof
3. Performance of its obligation under
the contract
UNDERWRITERS
- Mostly banking companies
As distinguished from promoters who have no
commitment since they simply promote,
underwriters have commitment such that they
guarantee the sale of stocks and if these were
not sold, they will be the ones who will buy the
shares. The underwriters therefore assume
liability.
An underwriter is any party that evaluates
and assumes another party’s risk for a fee.
The fee is often a commission, premium,
spread, or interest.
Underwriting services are provided by some
large financial institutions, such as banks, or
insurance or investment houses, whereby
they guarantee payment in case of damage
or financial loss and accept the financial risk
for liability arising from such guarantee. An
underwriting arrangement may be created in
a number of situations including insurance,
issues of security in a public offering, and
bank lending, among others.
FOUNDERS
The founders are those who came about the
idea – they are the think tanks of the
corporation.
As a matter of fact, they are given privilege.
They are entitled to an exclusive right to vote
and be voted for, but limited for 5 years only
from date of inception of the Corporation.
Changes in founder’s share expressly
provided that the exclusive right to vote and
be voted on founders share in the election of
directors should not violate the Anti-Dummy
Law and the Foreign Investments Act.
Anti-Dummy Law
Persons not allowed to have an interest in
nationalized corporations often just
nominate Filipino citizens to be legal
stockholders when in reality, it is the
prohibited persons who are actually
controlling the corporation. This is a
violation of the Anti-Dummy Law, and is a
criminal offense.
SEC 6. CLASSIFICATION OF SHARES
Section 6. Classification of Shares. – The
classification of shares, their corresponding
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 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, that 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 preferences: 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 non-assessable
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 (₱5.00) 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.
SEC. 7 FOUNDERS’ SHARES
Section 7. Founders’ Shares. – Founders’
shares may be given certain rights and
privileges not enjoyed by the owners of other
stock. 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 otherwise
known as "Foreign Investments Act of 1991";
and other pertinent laws.
SEC 8. REDEEMABLE SHARES
Section 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. They are shares
which may be purchased by the corporation
from the holders of such shares upon the
expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in
the books of the corporation, and upon such
other terms and conditions stated in the articles
of incorporation and the certificate of stock
representing the shares, subject to rules and
regulations issued by the Commission
SEC 9. TREASURY SHARES
Section 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.
The terms “share” or “stock” may be used
interchangeably to refer to shares of stock in
a corporation.
A share of stock is a unit of division of the
capital stock of a corporation. The stock
represents:
1. The right interest or right of the
stockholder in the management of
 the corporation through the exercise
of his voting rights;
2. The interest or right of the
stockholder in the earnings of the
corporation in the form of the
dividends to be distributed (for a
discussion on dividends, see Sec.
42); and
3. The interest or right of the
stockholder in the residual assets of
the corporation upon its dissolution.
A stockholder may own a share even if he is
not holding a certificate of stock
COMMON VS. PREFERRED SHARES
COMMON SHARES
Entitle the holders to a pro rata share in the
profits of the corporation without preference
over the other stockholders. They are given
voting rights.
**The most common type of shares, which
enjoy no preference, but the owners thereof are
entitled to management of the corporation (via
the exclusive right to vote), and to equal pro-
rata division of profits after preference. It
represents a residual ownership interest in the
corporation
PREFERRED SHARES
Shares having certain rights and privileges not
available to holders of common shares.
Stocks which are given preference by the
issuing corporation in:
1. Distribution of dividends;
2. Distribution of the assets of the
corporation in case of liquidation;
or
3. Such other preferences as may be
stated in the AOI which do not
violate the Code.
Unless the right to vote is clearly withheld, a
preferred stockholder would have such right
as it is incident to stock ownership
Limitations:
1. Preferred shares can only be issued
with par value
2. Preferred shares must be stated in
the AOI and in the COS.
3. The BOD may fix the terms and
conditions only when so authorized
by the AOI, and such terms and
conditions shall be effective upon
the filing of a certificate with the
SEC.
PREFERENCE AS TO DIVIDENS
Participating vs. Non-participating
Participating Those which, after getting
their fixed dividend
preference, share with the
common stocks with the
rest of the dividends
Non- Those which, after getting
participating their fixed dividend
preference, have no more
right to share in the
remaining dividends with
the common stocks
Unless otherwise provided, preferred shares
are deemed non-participating
Cumulative Vs. Non-cumulative
Cumulative Regardless of lack of profits
in any given year, and lack
of declaration of dividends,
the arrears (amount of
dividends undeclared or
unpaid) have to be paid to
the preferred stocks in a
subsequent year (once
profits are made), before
any dividends can be paid
to the common stocks.
Non- Entitlement to receipt of
cumulative dividends essentially
depends on the declaration
of said dividends.
Unless otherwise provided, preferred shares
are deemed cumulative.
KINDS OF PREDERRED SHARES AS TO
DIVIDENDS
a. Preferred participating shares
b. Preferred cumulative shares
Preferred participating shares
Preferred shareholders already earned
premium for their preferred shares and they still
participate in the distribution of the common
shares. They take both – they have preference
and they also participate.
Cumulative preferred shares
 Shares which entitle the holder not
only to the payment of current dividends but
also to dividends in arrears.
PAR VALUE VS. NON-PAR VALUES
SHARES
PAR VALUE SHARES
Par value is the minimum issue price of a share
of stock which must be stated in the AOI and in
the Certificate of Stock (COS). If the
incorporators agreed to the price, which is the
price at which the shares will be sold to the
public.
These are shares with a stated value set out
in the AOI. This remains the same regardless
of the profitability of the corporation (in
comparison, the market or fair value of a
share of stock fluctuates depending on the
company’s profitability). This gives rise to
financial stability and is the reason why
banks, trust corporations, insurance
companies and building and loan
associations must always be organized with
par value shares.
NO-PAR VALUE SHARES
These are shares without a stated value.
You still have to pay for these shares, but its
value is not stated in the AOI and in the COS.
There is no fixed value stated in the Articles of
Incorporation but issued for a consideration not
less than five (5) pesos per share.
A no-par share does not purport to represent
any stated proportionate interest in the
capital stock measured by value, but only an
aliquot part of the whole number of such
shares of the issuing corporation (Agbayani)
No-par value shares cannot have an issue
price of less than P5.00 per share
Once issued, they shall be deemed fully paid
and non-assessable, and the holders of such
shares shall not be liable to the corporation
or to its creditors in respect thereto.
The entire consideration received by the
corporation shall be treated as capital, and
shall not be available for distribution as
dividends.
The AOI must state the fact that the
corporation issues no-par value shares and
the number of such shares
No-par shares cannot be issued as preferred
stocks
If the assets of the corporation have all been
exhausted and there are still creditors, can the
creditors go after the shareholders?
Non-par value Par-value
No – the creditors Yes – the creditors
cannot go after such can go after the
holders. The non-par shareholders.
value shares are The subscribers are
deemed fully paid. liable to corporate
creditors for their
unpaid subscriptions.
WATERED STOCK
These are stocks sold or issued at a price less
than the stocks’ par value. The value of these
shares is diluted, in that the public is not
apprised of the real value of the corporation.
The corporation is misleading the public. It
is not fair to the public, and does not
anymore reflect the actual capital structure
of the corporation
FOUNDERS’ SHARES
These are shares, classified as such in the AOI,
which are given certain rights and privileges
not enjoyed by the owners of other stocks.
Where exclusive right to vote and be voted for
in the election of directors is granted, such right
must be for a limited period not to exceed 5
years subject to the approval of the SEC. The
5- year period shall commence from the date of
approval by the SEC.
If the exclusive right to vote and be voted
for in the election of directors is granted,
such right must be limited for a period not
exceeding five (5) years.
- The limit is non-extendible.
- The limitation is designed to
prevent possible abuse of the
Board. A lifetime term of the Board
absolutely deprives other
stockholders/members of the
opportunity to participate in the
management of the corporation.
REDEEMABLE SHARES
These are shares which permit the issuing
corporation to redeem or purchase its shares.
Redeemable shares are redeemable at a fixed
date or at the option of either the issuing
corporation or the stockholder or both at a
certain redemption price.
These shares may be issued by the corporation
when expressly provided in the articles of
incorporation.
They are shares which may be purchased by the
corporation from the holders of such shares
upon the expiration of a fixed period,
regardless of the existence of unrestricted
retained earnings in the books of the
corporation, and upon such other terms and
conditions stated in the articles of incorporation
and the certificate of stock representing the
shares, subject to rules and regulations issued
by the Commission.
LIMITATIONS:
1. Redeemable shares may be issued
only when expressly provided for in
the AOI.
2. The terms and conditions affecting
said shares must be stated both in the
AOI and in the COS.
3. Redeemable shares may be deprived
of voting rights in the AOI.
4. The corporation is required to
maintain a sinking fund to answer for
redemption price if the corporation is
required to redeem.
5. The redeemable shares are deemed
retired upon redemption unless
otherwise provided in the AOI.
6. Unrestricted RE is not necessary
before shares can be redeemed, but
there must be sufficient assets to pay
the creditors and to answer for
operations (Republic Planters Banks
vs. Agana, G.R. No. 51765, 1997)
7. Redemption cannot be made if such
redemption will result in insolvency or
inability of the corporation to meet its
obligations.
Instead of borrowing from banks, the
corporation is borrowing money from the
public.
There are many ways of acquiring funds from
the corporation:
1. Borrow from the banks
2. Borrow from the public
You have heard that bonds are floated, this
is just the corporation issuing bonds to the
public, telling the public that if you buy
these bonds, we will buy this back from you
in 5 years with interest or premium. Or,
redeemable shares, this is an option to raise
more money with the public.
We distinguish redeemable shares from the
bank, in that banks are lenders and
redeemable shareholders are investors
Restricted or not, if you have surplus, pay.
The corporation has to pay, so long as there
is surplus, unrestricted or not.
The only situation where the corporation can
refuse to pay is when the corporation is
insolvent, otherwise, the corporation will be
touching their capital and will be violating
the trust fund doctrine
TREASURY SHARES
These are stocks and were fully paid, but were
reacquired by the corporation through:
1. Purchase,
2. Donation,
3. Sale, and
4. Other lawful means
Treasury shares are part of capital. When these
shares were bought or reacquired, surplus
money will be used and not capital money.
Otherwise, we will be violating the Trust Fund
Doctrine. Being part of capital, the treasury
shares can be sold again. As to how much, it is
the Board that will decide.
They can only be reacquired if there are
unrestricted retained earnings.
Unrestricted retained earnings – assets less
liabilities; not allocated for anything; absolutely
free; no restrictions or appropriations.
Generally: When it comes to treasury shares,
the corporation is not always free to buy back
the shares. It requires that there should be
unrestricted retained earnings, otherwise, the
corporation will violate the Trust Fund
Doctrine because if they were to buy it back
without unrestricted retained earnings, the
creditors cannot go after the corporation to
satisfy unpaid debts because there is no more
capital to speak of.
Exceptions: Redeemable Shares – which can be
issued regardless of WON there are
unrestricted retained earnings
Such shares may be disposed of again for a
reasonable price fixed by the BOD.
Treasury shares have no voting right as long
as such shares remain in the Treasury.
Pre-emptive right of stockholders in close
corporations shall extend to reissuance of
treasury shares unless otherwise provided in
the AOI.
Generally, is the corporation authorized to buy
back all of its shares?
A: No.
THE TRUST FUND DOCTRINE
The Trust Fund Doctrine means that the
capital stock, properties and other assets of a
corporation are regarded as equity in trust
for the payment of corporate creditors.
Stated simply, the trust fund doctrine states
that all funds received by the corporation in
payment of the shares of stock shall be held
in trust for the corporate creditors and other
stockholders of the corporation. Under such
doctrine, no fund shall be used to buy back
the issued shares of the stock except only in
instances specifically allowed by the Code.
(Boman Environmental Development
Corporation vs. CA, G.R. No. 77860, 1988)
CONVERTIBLE SHARES
A type of preferred stock that the holder can
exchange for a predetermined number of
common shares at a specified time.
VOTING VS. NON-VOTING SHARES
Generally: No share may be deprived of voting
rights
Exceptions:
1. Preferred non-voting shares
2. Redeemable shares
3. Shares as provided by the code
There shall always be a class/series of shares
which have complete voting rights
VOTING SHARES
Shares that are provided with voting rights on
any issue on the corporation. The voter can
participate in any meeting and on any issue that
may be raised during the meeting
A shareholder is a part-owner of the
corporation. Since the shareholder cannot
interfere with the management, he can only
exercise his ownership by voting on certain
issues. As partowner, he has the right to protect
his ownership. Hence, entitles him to vote
NON-VOTING SHARES
Shares that are not provided with voting rights
but subject to exceptions.
Exceptions: Holders of non-voting shares shall
nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of
incorporation
2. Adoption and amendment of the
bylaws
3. Sale, lease, exchange, mortgage,
pledge, or other disposition of all or
substantially all of the corporate
property
Note: In determining whether there is a
disposition of all or substantially all of the
corporate property, the guide is when such
sale already affects the operations of the
corporation. When the corporation could
no longer carry out its business, then that
will be the point when it will have to be
open for voting, including non-voting
shares. SC ruled that 80% is considered
“substantially all”.
4. Incurring, creating, or increasing
bonded indebtedness
5. Increase or decrease of authorized
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
RIGHT OF APPRAISAL
For those who dissent the proposed
agreement, they could exercise their right of
appraisal. Such right can be exercised by a
stockholder who disagrees with the decision of
the Board of Directors to amend the Articles of
Incorporation. The dissenting stockholder can
demand the corporation to buy back his shares
at their fair market value.
SHARES IN ESCROW
 Issued or committed to a particular
shareholder, but deposited with a 3rd person or
a deposit account pending the fulfilment by that
3rd person for which it was reserved of the
conditions expressly provided in the certificate
of stocks
Share is subject to an agreement; share
is deposited with a 3rd person to be kept by the
depositary until the performance of a certain
condition.
TITLE II. INCORPORATION AND
ORGANIZATION OF PRIVATE
CORPORATIONS
SEC 10. NUMBER AND
QUALIFICATIONS OF
INCORPORATORS
Section 10. Number and Qualifications of
Incorporators. – Any person, partnership,
association or corporation, singly or jointly
with others but not more than fifteen (15) in
number, may organize a corporation for any
lawful purpose or purposes: Provided, That
natural persons who are licensed to practice a
profession, and partnerships or associations
organized for the purpose of practicing a
profession, shall not be allowed to organize as a
corporation unless otherwise provided under
special laws. Incorporators who are natural
persons must be of legal age.
Each incorporator of a stock corporation must
own or be a subscriber to at least one (1) share
of the capital stock.
A corporation with a single stockholder is
considered a One Person Corporation as
described in Title XIII, Chapter III of this
Code.
The law does not prescribe a residency
requirement. Unlike the old code, majority
of the incorporators need not be residents of
the Philippines.
SEC 11. CORPORATE TERM
Section 11. Corporate Term. – A corporation
shall have perpetual existence unless its articles
of incorporation provides otherwise.
Corporations with certificates of incorporation
issued prior to the effectively of this Code and
which continue to exist shall have perpetual
existence, unless the corporation, upon a vote
of its stockholders representing a majority of its
articles of incorporation: Provided, That any
change in the corporate right of dissenting
stockholders in accordance with the provisions
of this Code.
A corporate term for a specific period may be
extended or shortened by amending the articles
of incorporation: Provided, That no extension
may be made earlier than three (3) years prior
to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier
extension as may be determined by the
Commission: Provided, further, That such
extension of the corporate term shall take effect
only on the day following the original or
subsequent expiry date(s).
A corporation whose term has expired may
apply for revival of its corporate existence,
together with all the rights and privileges under
its certificate of incorporation and subject to all
of its duties, debts and liabilities existing prior
to its revival. 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.
No application for revival of certificate of
incorporation of banks, banking and quasi-
banking institutions, preneed, insurance and
trust companies, non-stock savings and loan
associations (NSSLAs), pawnshops,
corporations engaged in money service
business, and other financial intermediaries
shall be approved by the Commission unless
accompanied by a favorable recommendation
of the appropriate government agency.
When the Effect
corporation was
formed
After February 3, The corporation
2019 shall have a
perpetual existence,
unless its AOI
provides otherwise.
Before February 3, The corporation
2019 shall be deemed to
have a perpetual
existence, unless the
corporation, upon a
 vote of its
stockholders
representing a c. The place where the principal office of
majority of its
outstanding capital
stock, notifies the
SEC that they intend
to retain its original
term pursuant to the
corporation’s AOI.
SEC 12. CAPITAL STOCK
Section 12. Minimum Capital Stock Not
Required of Stock Corporations. —Stock
corporations shall not be required to have a
minimum capital stock, except as otherwise
specifically provided by special law.
Authorized Capital
Stock Refers to the maximum amount
of capital which the corporation will receive
when it issues all its shares.
Subscribed Capital Stock
Refers to the committed amount of
capital which the corporation will receive from
its existing subscribers
Paid-Up Capital
Refers to the amount of capital which
the corporation already received from its
subscribers. This represents the paid portion of
the subscribed capital.
SEC 13. CONTENTS OF THE ARTICLES
OF INCORPORATION
Section 13. Contents of the Articles of
Incorporation. - All corporations shall file with
the Commission articles of incorporation in any
of the official languages, duly signed and
acknowledged or authenticated, in such form
and manner as may be allowed by the
Commission, containing substantially the
following matters, except as otherwise
prescribed by this Code or by special law:
a. The name of corporation;
b. The specific purpose or purposes for
which the corporation is being formed.
Where a corporation has more than
one stated purpose, the articles of
incorporation shall indicate the
primary purpose and 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 corporation is to be located, which
must be within the Philippines;
d. The term for which the corporation is
to exist, if the corporation has not
elected perpetual existence;
e. The names, nationalities, and
residence addresses of the
incorporators;
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);
g. The names, nationalities, and
residence addresses of persons who
shall act as directors or trustees until
the 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, number
of shares into which it is divided, the
par value of each, names, nationalities,
and subscribers, amount subscribed
and paid by each on the subscription,
and a statement that some or all of the
shares are without par value, if
applicable;
i. If it be a nonstock corporation, the
amount of its capital, the names,
nationalities, and residence addresses
of the contributors, and amount
contributed by each; and
j. Such other matters consistent with law
and which the incorporators may deem
necessary and convenient.
An arbitration agreement may be provided in
the articles of incorporation pursuant to Section
181 of this Code.
The Articles of incorporation and applications
for amendments thereto may be filed with the
Commission in the form of an electronic
document, in accordance with the
Commission's rule and regulations on
electronic filing.
NAME OF CORPORATION
Essential to the existence of the corporation
since it is through it that the corporation can
sue and be sued, and perform all legal acts.
Importance: For identification purposes; the
name is important in order to distinguish it
from other organizations.
A corporate name shall be disallowed by the
SEC if the proposed name is either:
1. Identical or deceptively or confusingly
similar to that of any existing
corporation or to any other name
already protected by law; or
2. Patently deceptive, confusing, or
contrary to existing laws
A corporation cannot use a name:
1. That is already reserved or registered
for the use of another corporation;
2. That is protected by law;
3. That is contrary to law, rules and
regulations;
4. That is identical or confusingly similar
with other corporations’ names.
Right to a Corporate Name – A
corporation’s right to use its corporate and
trade name is a property right, a right in rem,
which it may assert or protect against the
whole world in the same manner as it may
protect its tangible property against trespass
or conversion.
Doctrine of Secondary Meaning as Applied
to Corporation Names – The doctrine of
secondary meaning originated in the field of
trademark law. Its application has, however,
been extended to corporate names since the
right to use a corporate name to the
exclusion of others is based upon the same
principle which underlies the right to use a
particular trademark or tradename (Lyceum
of the Philippines vs. CA, G.R. No. 101897,
1993)
PURPOSE CLAUSE
Primary Franchise – right to exist as a
corporation
Secondary Franchise – intended for the
carrying out of a specific business
Once you are issued a certificate of
incorporation, this is called primary franchise –
this means you have the right to exist as a
corporation.
The fact that you are given a primary
franchise is not a guarantee that you can
immediately pursue any business that you
want, especially if the business that you are
trying to pursue would involve public
interest or public utilities.
A corporation can only have one (1) primary
purpose. However, it can have several
secondary purposes.
A corporation has only such powers are as
expressly granted to it by law and by its
AOI, those which may be incidental to such
conferred powers, those reasonably
necessary to accomplish its purposes, and
those which may be incident to its existence.
A corporation may not be formed for the
purpose of practicing a profession like law,
medicine or accountancy.
Limitations on the Purpose of a Corporation
(1) A non-stock corporation may not include
a purpose which would change or contradict
its nature as such.
(2) The SEC shall reject the AOI or
disapprove any amendment when the stated
purpose/s of the corporation are patently
unconstitutional, illegal, immoral, or
contrary to government rules or regulations.
PRINCIPAL OFFICE
For the SEC to be able to locate and identify
where the corporation is and to know where to
serve summons and notices.
1. Must be located in the Philippines;
2. Must specify the city or province;
3. The street/number is not necessary;
4. Important in determining venue in an
action by or against the corporation, or
on determining the province where a
chattel mortgage of shares should be
registered.
TERM OF EXISTENCE
The corporate term is necessary in determining
at what point in time the corporation will cease
to exist or have lost its juridical personality.
DIRECTORS/TRUSTEES
to be a director, it is a requirement that such is
at least a holder of one (1) share.
Requirements for a President and Vice
President
President – must be a director, thus, a holder of
1 share
Vice President – does not require to be a holder
of 1 share but once he assumes presidency, he
is required to be a holder of at least 1 share
SEC 14. FORM OF ARTICLES OF
INCORPORATION
The SEC has the ministerial duty to approve an
application for registration and issue the
Certificate of Incorporation provided all the
requirements of law with respect to the AOI are
complied with.
A corporation commences to have corporate
existence and juridical personality and is
deemed incorporated only from the moment the
SEC issues to the incorporators a Certificate of
Incorporation under its official seal.
SEC 15. AMENDMENT OF THE
ARTICLES
Section 15. Amendment of Articles of
Incorporation. - Unless otherwise prescribed
by this Code or by special law, and for
legitimate purposes, any provision or matter
stated in the articles of incorporation may be
amended by a majority vote of the board of
directors or trustees and the vote or written
assent of the stockholders representing at least
two-thirds (2/3) of the outstanding capital
stock, without prejudice to the appraisal right
of dissenting stockholders in accordance with
the provisions of this Code. The articles of
incorporation of a nonstock corporation may be
amended by the vote or written assent of
majority of the trustees and at least two-thirds
(2/3) of the members.
The original and amended articles together
shall contain all provisions required by law to
be set out in the articles of incorporation.
Amendments to the articles shall be indicated
by underscoring the change or changes made,
and a copy thereof duly certified under oath by
the corporate secretary and a majority of the
directors or trustees, with a statement that the
amendments have been duly approved by the
required vote of the stockholders or members,
shall be submitted to the Commission.
The amendments shall take effect upon their
approval by the Commission or from the date
of filing with the said Commission if not acted
upon within six (6) months from the date of
filing for a cause not attributable to the
corporation
When amendment takes effect?
1. From date of approval by the SEC
2. From of filing when there is
inaction by the SEC within 6
months from filing
SEC 16. GROUNDS FOR DISAPPROVAL
OF AOI OR AMENDMENTS
Section 16. Grounds When Articles of
Incorporation or Amendment May be
Disapproved. The Commission may disapprove
the articles of incorporation or any amendment
thereto if the same is not compliant with the
requirements of this Code: Provided, that the
Commission shall give the incorporators,
directors, trustees, or officers as reasonable
time from receipt of the disapproval within
which to modify the objectionable portions of
the articles or amendment. The following are
ground for such disapproval:
a. The articles of incorporation or any
amendment thereto is not substantially
in accordance with the form
prescribed herein;
b. The purpose or purposes of the
corporation are patently
unconstitutional, illegal, immoral or
contrary to government rules and
regulations;
c. The certification concerning the
amount of capital stock subscribed
and/or paid is false; and
d. The required percentage of Filipino
ownership of the capital stock under
existing laws or the Constitution has
not been complied with.
No articles of incorporation or
amendment to articles of incorporation
of banks, banking and quasi-banking
institutions, preneed, insurance and
trust companies, NSSLAs, pawnshops
and other financial intermediaries
shall be approved by the Commission
unless accompanied by a favorable
recommendation of the appropriate
government agency to the effect that
such articles or amendment is in
accordance with law
DUE PROCESS IN THE REJECTION OF
AOI
Before rejecting the AOI, the SEC should give
the incorporators reasonable time within which
to correct or modify the objectionable portions
of the articles or amendments.
Any decision of the Commission rejecting the
AOI or disapproving any amendment thereto is
appealable by Petition for Review to the CA in
accordance with the pertinent provisions of the
Rules of Court.
SEC 17. CORPORATION NAME
Section 17. Corporation Name. - No corporate
name shall be allowed by the Commission if it
is not distinguishable from that already
reserved or registered for the use if another
corporation, or if such name is already
protected by law, rules and regulations.
A name is not distinguishable even if it
contains one or more of the following:
a. The word "corporation", "company",
incorporated", "limited", "limited
liability", or an abbreviation of one of
such words; and
b. Punctuations, articles, conjunctions,
contractions, prepositions,
abbreviations, different tenses,
spacing, or number of the same word
or phrase.
The Commission upon determination that the
corporate name is: (1) not distinguishable from
a name already reserved or registered for the
use of another corporation; (2) already
protected by law; or (3) contrary to law, rules
and regulations, may summarily order the
corporation to immediately cease and desist
from using such name and require the
corporation to register a new one. The
Commission shall also cause the removal of all
visible signages, marks, advertisements, labels
prints and other effects bearing such corporate
name. Upon the approval of the new corporate
name, the Commission shall issue a certificate
of incorporation under the amended name.
If the corporation fails to comply with the
Commission's order, the Commission may hold
the corporation and its responsible directors or
officers in contempt and/or hold them
administratively, civilly and/or criminally liable
under this Code and other applicable laws
and/or revoke the registration of the
corporation.
REQUIRMENTS FOR A VALID
CORPORATE NAME
1. Distinguishable from a name already
reserved or registered for the use of
another corporation.
2. One that is not yet protected by law;
3. Not contrary to law, rules, and
regulations.
Upon determination by the Commission that
the corporate name violates either of the
three requirements, it may summarily order
the corporation to immediately cease and
desist from using such name, and to register
a new one. It shall also cause the removal of
visible signages, marks, ads, etc. bearing
such corporate name.
Upon approval of the new corporate name,
the Commission shall issue a certificate of
incorporation under the amended name.
TEST IN DETERMINING IDENTITY /
SIMILARITY
What if the corporation desires to incorporate a
subsidiary?
Usually you will have the same name. The SEC
allows it, provided that the corporation which
had a priority right will send you a letter of
consent. In this case, you cannot reserve your
name online. You will have to write a letter to
the SEC main office in Manila to basically
grant permission for the subsidiary to use the
name of the parent. So, just because it’s similar,
it’s automatically not allowed. So, if the
corporation with the prior right consents, then,
it will be allowed. But it has to be proven that
there is a parent-subsidiary/affiliate.
SEC 18. REGISTRATION,
INCORPORATION AND
COMMENCEMENT OF CORPORATION
EXISTENCE
Section 18. Registration, Incorporation and
Commencement of Corporation Existence. - A
person or group of persons desiring to
incorporate shall submit the intended corporate
name to the Commission for verification. If the
Commission finds that the name is
distinguishable from a name already reserved
or registered for the use of another corporation,
not protected by law and is not contrary to law,
rules and regulation, the name shall be reserved
in favor of the incorporators. The incorporators
shall then submit their articles of incorporation
and bylaws to the Commission.
If the Commission finds that the submitted
documents and information are fully compliant
with the requirements of this Code, other
relevant laws, rules and regulations, the
Commission shall issue the certificate of
incorporation.
A private corporation organized under this
Code commences its corporate existence and
juridical personality from the date the
Commission issues the certificate of
incorporation under its official seal thereupon
the incorporators, stockholders/members and
their successors shall constitute a body
corporate under the name stated in the articles
of incorporation for the period of time
mentioned therein, unless said period is
extended or the corporation is sooner dissolved
in accordance with law.
SEC 19. DE FACTO CORPORATION
Section 19. De Facto Corporations. - The due
incorporation of any corporation claiming in
good faith to be a corporation under this Code,
and its right to exercise corporate powers, shall
not be required into collaterally in any private
suit to which such corporation may be a party.
Such inquiry may be made by the Solicitor
General in a quo warranto proceeding
De Jure Corporation - it is one created with
substantial conformity to the mandatory
statutory requirements in the Corporation Code
of the Philippines
De Facto Corporation - An association of
persons existing under a valid law under which
it may be incorporated after having attempted
in good faith to incorporate, and assuming
corporate powers.
Requisites:
1. There is a valid law that deems to
establish a corporation;
2. Substantial compliance with the
requirements or a colorable attempt to
organize a corporation under such law;
3. Good faith on the part of the
corporation in exercising corporate
powers.
The State must bring a direct proceeding to
question the validity of its corporate
existence through the Solicitor General by
filing a quo warranto proceeding. Its
existence as a corporation cannot be
collaterally attacked either by the State or by
private individuals.
SEC 20. CORPORATION BY ESTOPPEL
Section 20. Corporation by Estoppel. - All
persons who assume to act as a corporation
knowing it to be without the authority to do so
shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a
result thereof: Provided, however, That when
any such ostensible corporation is sued on any
transaction entered by its as a corporation or on
any tort committed by it as such, it shall not be
allowed to use on any its lack of corporate
personality as a defense. Anyone who assumes
an obligation to an ostensible corporation as
such cannot resist performance thereof on the
ground that there was in fact no corporation
These are corporations who have exercised
rights as a corporation and has undertaken
obligations as a corporation, even without
validly incorporating. In which case, the
persons who made up the corporation are
estopped from claiming that they are not.
But they cannot, because there is no real
corporation, they will not be liable as a
corporation. They will be liable as partners.
They will be solidarily liable in their
personal capacity.
Lack of corporate personality is not a
defense that it can avail.
Requirements of a corporation by Estoppel:
1. Representation by a group to the
public;
2. Knowing that they do not have the
authority to act as a corporation; and
3. Third parties contracting with them
are induced to believe that they have
the authority to act as a corporation
CORPORATION DE FACTO VS.
CORPORATION BY ESTOPPEL
Corporation de facto Corporation by
estoppel
A corporation that A group of persons
exists in fact, but not who assume to act as
in law. a corporation
knowing it to be
without authority to
do so, who shall be
liable as general
partners for debts,
liabilities and
damages incurred or
arising as a result
thereof.
PURPOSE OF DE FACTO DOCTRINE
 1. To promote the security of business
transactions and to eliminate quibbling
over irregularities.
2. A third person dealing with a
corporation will rarely be prejudiced if
the company is recognized as a
corporation in spite of minor defects
in formation.
3. Seldom would it be just to allow a
wrongdoer to quibble over such
objections to escape liability or
wrongdoing.
4. It would be unjust to allow a claimant
against a supposed company to assert
the individual liability of innocent
passive investors on the ground of
flaws in the formal steps of
incorporation, when they have
attempted in good faith to comply
with the statutory requirements and
the objecting party is not prejudiced.
(Villanueva, Corporate Law)
CONSEQUENCES OF DE FACTO
STATUS
For all intents and purposes, a de facto
corporation has all the same rights, powers,
obligations, and liabilities as a de jure
corporation. The only difference is that the due
incorporation of a de facto corporation may be
directly inquired into by the Solicitor General
in a quo warranto proceeding.
Conversely, in contrast to a de facto
corporation, a de jure corporation can
successfully resist a suit brought by the State
challenging its existence.
SEC 21. EFFECT OF NON-USE OF
CORPORATE CHARTER AND
CONTINUOUS INOPERATION
Section 21. Effects of Non-Use of Corporate
Charter and Continuous Inoperation. - If a
corporation does not formally organize and
commence its business within five (5) year
from the date of its incorporation, its certificate
of incorporation shall be deemed revoked as of
the day following the end of the five (5)-year
period.
However, if a corporation has commenced its
business but subsequently becomes inoperative
for a period of at least five (5) consecutive
years, the Commission may, after due notice
and hearing, place the corporation under
delinquent status.
A delinquent corporation shall have a period of
two (2) years to resume operations and comply
with all requirements that the Commission shall
prescribed. Upon the compliance by the
corporation, the Commission shall issue an
order lifting the delinquent status. Failure to
comply with the requirements and resume
operations within the period given by the
Commission shall cause the revocation of the
corporation's certificate of incorporation.
The Commission shall give reasonable notice
to, and coordinate with the appropriate
regulatory agency prior to the suspension or
revocation of the certificate of incorporation of
companies under their special regulatory
jurisdiction.
EFFECT OF FAILURE TO ORGANIZE
AND COMMENCE
When the corporation does not formally
organize and commence its business within five
(5) years FROM the date of its incorporation –
the Certificate of Incorporation (COI) will be
deemed revoked or cancelled on the day
following the end of the five-year period
EFFECT OF FAILURE TO OPERATE
If the corporation becomes subsequently
inoperative for at least five (5) consecutive
years – AFTER due notice and hearing, the
Commission will place the Corporation under
delinquent status
There is no automatic revocation. The SEC will
place the corporation under a delinquent status
and the delinquent corporation shall be given a
period of two (2) years to resume the
operations and comply with the prescribed
requirements of the Commission.
GROUNDS FOR SUSPENSION
a. The articles of incorporation or any
amendment thereto is not substantially
in accordance with the form
prescribed herein;
b. The purpose or purposes of the
corporation are patently
unconstitutional, illegal, immoral or
contrary to government rules and
regulations;
c. The certification concerning the
amount of capital stock subscribed
and/or paid is false; and (D) The
required percentage of Filipino
ownership of the capital stock under
existing laws or the Constitution has
not been complied with.
 TITLE III. BOARD OF The power to purchase real property is vested
DIRECTORS/TRUSTEES AND in the Board of Directors or Trustees. While a
OFFICERS corporation may appoint agents to negotiate for
the purchase of real property needed by the
corporation, the final say will have to be with
The Corporation Code follows the stakeholder- the Board, whose approval will finalize the
centered rather than the shareholder-centered transaction. A corporation can only exercise its
model. Under this model, owners are only one powers and transact its business through its
of the many corporate stockholders, who have Board of Directors, and through its officers and
diverse and varied interests. The corporation, agents when authorized by a board resolution
through its board, must take into account and or by its by-laws. (Sps. Firme vs. Ukal
rank such interests in its actions. Enterprises and Development Corp., G.R. No.
146608, 2003)
Note: Stakeholders are different from
shareholders. WHEN DOCTRINE OF CENTRALIZED
Shareholders are those individuals or entities MANAGEMENT NOT APPLICABLE
who own the corporation by holding the 1. In the case of an Executive Committee
corporation’s share of stocks. On the other duly authorized in the by-laws;
hand, stakeholders are those who have an 2. Where a corporate officer acts within
interest in the operations of the corporation, an the scope of his authority under the
interest which is not necessarily pecuniary or by-laws or board resolution;
financial. While a shareholder is always a 3. In case of close corporations, the
stakeholder, a stakeholder is not always a stockholders may directly manage the
shareholder business of the corporation instead, if
the AOI so provides.
DOCTRINE OF CENTRALIEZED
MANAGEMENT
All business of the corporation shall be
conducted and all its properties shall be
controlled and held by the Board of Directors
or Trustees. A corporation can act only through
its directors and officers. Acts of management
pertain to the board and those of ownership to
the stockholders. (PSE vs. Litonjua, G.R. No.
204014, 2016)
While stockholders and members are entitled to
receive profits, the management and the
direction of the corporation are lodged with
their representatives and agents – the board of
directors/trustees. Acts of management pertain
to the board; and those of ownership to the
stockholders/members. (Tan vs. Sycip, G.R.
No. 153468, 2006)
The concentration in the board of the powers of
control of corporate business and of
appointment of corporate officers and managers
is necessary for efficiency in any large
organization. Stockholders are too numerous,
too scattered, and unfamiliar with the business
of a corporation to conduct its business
directly. And so the plan of corporate
organization is for the stockholders to choose
the directors who shall control and supervise
the conduct of corporate business. (Filipinas
Port vs. Go, G.R. No. 161886, 2007)