Corpo Summary - Aquino

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REVISED CORPORATION CODE REVIEWER EXC: General Banking Law as primary laws on banks; Insurance
Sources: companies under regulatory powers of Insurance Commission; or
Opinions other laws in general that primarily apply to certain institutions. In
these cases, the Corporation Code applies suppletorily.
Title I: General Provisions As between a general and special law, the latter shall prevail.
Definitions and Classifications
Other Applicable Laws and Rules
There are other special laws that apply to corporations such as the Securities
SEC. 1. Title of the Code. Revised Corporation Regulation Code and the Foreign Investment Act of 1997.
There are also missing details of Corporate Law that are supplied by the New
Civil Code.
CHANGES: New name!
SEC Rules and Regulations
History of PH Corporate Law SEC Opinions do NOT have the force and effect of SEC Rules and Regulations.
Corporation Law: first general law on corporations in the Philippines As a collegial body, only the SEC en banc can adopt rules and regulations.
(Old) Corporation Code of the Philippines (OCC): took effect May 1, 1980; Only the SEC en banc can issue opinions that have the force of rules
repealed Corporation Law and regulations.
Revised Corp Code of the Philippines (RCC): signed Feb. 20, 2019; Effectivity: This d
approximately March 7, 2019 (after 15 days) because SEC Officers implement the statutory provisions and even act in a
specific way in the absence of statutory rules promulgated by the SEC en banc.
Corporation Code NOTE: Most SEC Opinions were codified into the Revised Corp Code.
Art. XII, Sec. 16: mandates Congress to prescribe all criteria for the formation,
organization, or regulation of private corporations in a general law applicable
SEC. 2. Corporation Defined. A corporation is an artificial being created by
to all without discrimination.
operation of law, having the right of succession and the powers, attributes, and
Sec. 148 (RCC): all corporations lawfully existing on the date of effectivity of
properties expressly authorized by law or incidental to its existence.
this Code are given a period of not more than 2 yrs from effectivity to comply
with the new requirements.
CORPORATION
Purposes of Corporate Law An artificial being, invisible, intangible, and existing only in contemplation of
PURPOSES: law.
1. Defining the area within which the parties are free to allocate risk, A collection of many individuals united into one body, under a special
control, and profit as they wish; and denomination, having perpetual succession under an artificial form, and vested
2. Prescribing the allocation of these elements in the absence of by policy of law with the capacity of acting in several respect as an individual,
express agreement. according to the design of the institution or the powers conferred upon it either
The RCC, OCC, and the Corporation Law all provide for the formation and at the time of its creation or any subsequent period.
organization of corporations, define their powers, fix the duties of directors and
other officers thereof, declare the rights and liabilities of shareholders and Attributes of a Corporation
members and prescribe the conditions under which corporations may transact 1. It is an artificial being;
business. 2. It is created by operation of law;
Corporate Law seeks to regulate the relations between and within 3. It has the right of succession; and
stockholders, directors, officers, and creditors. 4. It has the powers, attributes, and properties expressly authorized by law or
Corporate Law seeks to lay down rules and regulations of the organization of incident to its existence.
corporations with a view to the protection of public interest, but at the same
time, promote the economic and social development of the country through the
development of the corporate vehicle as a means of doing business in the
Concession Theory A corporation owes its life to the State and its birth is purely
Philippines. ation is an artificial being
When the Corporation Code Applies Suppletorily

GenR: The Corporation Code is the primary law that should be applied in the
regulation of corporations.
[Recio, Ortiz, Gabito, Uy, Sampang, Albano, Sison C2021 - Revised Corp Code Reviewer] 1

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the Court after due notice. The same concept applies to its trade name
Genossenchaft A corporation is a creature without any existence until it has received
and capital stock. A trade name and capital stock are necessarily
Theory the imprimatur of the State according to law.
included in the enjoyment of the franchise.
2. Can a corporation invoke provisions of its by-laws to reject a court order?
a. No. In case of a conflict between a corporations by-laws and a
Realist Theory Views the corporation as a group whose activities are such as to
require separate legal recognition with many attributes of a natural command of a court decree, the latter is to be followed. A corporation
person. cannot exist until it has received the imprimatur of the state according
to law. It cannot have rights and privileges of a higher priority than its
Enterprise Theory Stresses the underlying commercial enterprise without emphasis on creator. It cannot legitimately refuse to yield obedience to acts of its
entity-aggregate distinctions of the components. state organs, including the judiciary.
Symbol Theory A corporation is a symbol for the aggregate of the associates in their Contract Theory
group personalities. Definition: Incorporation is deemed to involve contracts among the members,
between the members and the corporation, and between the members or the
corporation and the State.
Franchises
Effect: Since it is a contract between the corporation and the State, the
A corporation is granted by the State the right to exist by virtue of a PRIMARY
corporation is entitled to the right against non-impairment of contracts. This
FRANCHISE.
means that State cannot take the life of a corporation without due process.
Franchise - special privilege conferred by the governmental
Incorporation - a contract among those who compose the corporation and
authority, and which does not belong to citizens of the country
their contract is governed and evidenced by the Articles of Incorporation (AOI).
generally as a matter of common right. They are divisible into:
Corporate/General franchises
so stockholders/members cannot disregard the AOI/by-laws and vice versa.
corporation; vested in the individuals who compose the
corporation and cannot be conveyed in the absence of
Right of Succession
legislative authority to do so..
Right of Succession/Perpetual Succession - the continuous existence which
Special/Secondary franchises
enables a corporation to manage its affairs and hold property without the
privileges conferred (e.g. right to use the streets of a
necessity of perpetual conveyances, for purposes of transmitting it. In simpler
municipality to lay pipes of tracks); vested in the corporation
terms, a corporation continues to exist even if there is a change in those who
itself and may ordinarily be conveyed or mortgaged under a
compose it.
general power of the corporation to dispose of its property.
Effect: A corporation continues to exist even if there is a change in those who
The right to be and act as a corporation is not a natural/civil right. A
corporation may not be created except by or under a special authority of the
State.
[Doctrine of Separate Personality will be discussed later together with Doctrine of
A corporation is created by operation of law when it is:
Piercing the Corporate Veil]
1. Granted a franchise through special law; or
2. Organized under a general law.
Separate Obligations
Creation by Special Law The obligations of the corporation are not the obligations of its shareholders
and members and officers and vice versa.
Constitution provides that only GOCCs may be created by special law.
GenR: Directors and officers are not personally liable for the obligations of the
Special laws may also recognize that certain entities may acquire juridical
personality without directly conferring corporate status automatically by the corporation.
mere passage of the law. EXCEPTIONS:
1. Doctrine of Piercing the Veil of Corporate Fiction
Sample questions in the book: 2. Sec. 30: Directors or trustees who willfully and knowingly vote for or
1. assent to patently unlawful acts of the corporation or who are guilty
capital stock through a writ of execution? of gross negligence or bad faith in directing the affairs of the
a. corporation or acquire any personal or pecuniary interest in conflict
execution together and including all the property necessary for the with their duty as such directors or trustees shall be liable jointly and
enjoyment thereof. However, secondary franchises can only be sold severally for all damages resulting therefrom suffered by the
under execution when such sale is especially decreed and ordered in corporation, its stockholders or members and other persons.
A stockholder cannot condone an obligation of a third person to the

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corporation. The right pertains to the corporation alone. Properties belonging to a corporation cannot be attached to satisfy the debt of a
On BP22 cases: A corporation may be held civilly liable for the value of the stockholder. The stockholder only as an indirect interest in the assets and
checks if they were issued for corporation debts. A separate action may be business of the former.
maintained against the corporation.
Corporation as a Separate Juridical Entity
Limited Liability Rule GenR: DOCTRINE OF SEPARATE PERSONALITY - A corporation has a
A stockholder is personally liable for the financial obligations of the personality separate and distinct from its stockholders, officers, and members.
corporation to the extent of his unpaid subscription. Note that this is his only Art. 44 of the Civil Code which specifies corporations as among those
personal liability! considered juridical persons with juridical personality, separate and
REMEDY: Stockholders who are sought to be made liable for their unpaid distinct from that of each shareholder or member.
subscription should be impleaded. If not impleaded, a separate action should Art. 45 of the Civil Code provides that private corporations are
be filed against them to enforce any judgement obligation. regulated by laws of general application on the subject.
Reasons for the Rule: (1) investment in shares is encouraged because the task of Art. 46 of the Civil Code provides that juridical persons may acquire
evaluating equity investment is greatly simplified considering that of other and possess property of all kinds as well as incur obligation and bring
investors can already be ignored; (2) investment in risky venture is actions to court in conformity with the laws and regulations of its
encouraged; (3) banks and other financial intermediaries who are considered organization.
experts are encouraged to closely monitor corporate debtors. EXCEPTION: DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION -
Shares also become more fungible, because the value of shares is
determined by the present value of the income stream generated by abuse of the corporate form. The Supreme Court has given three variants
within this doctrine. They are expounded on below:
A. Instrumentality Doctrine/THREE-PRONGED CONTROL TEST
prices of shares, because shares may already be considered Three factors must be present: (CFP)
homogenous commodities. 1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
Separate Acts business practice in respect to the transaction attacked so
The acts of the stockholders do not bind the corporation, UNLESS they are that the corporate entity as to this transaction had at the
properly authorized. time no separate mind, will or existence of its own;
A corporation may enter into a contract with its stockholders. 2. Such control must have been used by the defendant to
GenR: A corporation is not the agent of its stockholders nor is a stockholder an commit fraud or wrong, to perpetrate the violation of the
agent of the corporation. statutory or other positive legal duty, or dishonest and
EXC: When a stockholder was duly appointed to be an agent. unjust act in contravention of plaintiffs legal rights; and
A corporation may even sue its stockholders and the latter may sue the 3. The aforesaid control and breach of duty must proximately
corporation. Moreover, even if the corporation and stockholders are co- cause the injury or unjust loss complained of.
defendants in an action, summons served on the corporation does not bind the (The absence of any of these elements will prevent the piercing
stockholders who must personally be served. the corporate veil.)
The filing of a case against shareholders is not ipso facto a complaint against the Fraud
corporation. There is fraud if there is deception that would lead an
ordinary prudent person into error after taking the
Separate Properties circumstances into account.
The properties of the corporation are not the properties of its shareholders, Fraud may exist if the government may be deprived of taxes.
members, or officers. A taxpayer may gain advantage of doing business through a
A shareholder has no right to file in his own name an action to quiet title of the corporation but the separate corporate entity may be
properties of the corporation due to this separate nature. This remains true disregarded where it serves but as a shield for tax evasion
even if the stockholder lent the corporation money that was used to purchase and treat the person who actually take the benefits of the
the property. transactions as the person taxable. In these cases, the
Physical acts like the offering of the property of the corporation for sale can Doctrine of Piercing the Corporate Veil may be invoked.
only be performed by the corporation through duly authorized officers or B. Identity Doctrine
agents. If the plaintiff can show that there was such a unity interest and
The properties of the stockholders are not part of the properties of ownership that the independence of the corporation had in effect
judicially declared insolvent corporation. ceased or had never begun, and adherence to the fiction of separate

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identity would serve only to defeat justice and equity, the Doctrine of Theory of Enterprise Entity: An alternative account of the Doctrine of Piercing
Piercing the Veil of Corporate Fiction may apply. the Veil of Corporate Fiction. It provides that where a corporate entity is
C. Alter Ego Doctrine defective, or otherwise challenged, its existence, extent, and consequences may
It must be shown that there is unity of interest and ownership that the be determined by the actual existence and extent and operations of the
separate personalities of the corporation and the individual no longer underlying enterprise, which by these very qualities acquires an entity of its
exist and that if the acts are treated as those of the corporation alone, own, recognized by law.
an inequitable result will follow. Three Basic Areas Where the Doctrine of Piercing the Veil of Corporate
In this case, a corporation may be a dummy/sham/serves no business Fiction May Be Applied:
purpose. 1. Where public convenience maybe defeated, as when the corporate
Under Alter Ego cases, FRAUD is NOT an essential element. fiction is used as a vehicle for the evasion of an existing obligation.
The Court has ruled in one case that even if there is no 2. Fraud cases or when the corporate entity is used to justify a wrong.
finding of fraud, the veil may be pierced when there is 3. Alter Ego cases where a corporation is merely an alter ego or
substantial ownership of all the stocks coupled with other business conduit of a person, or where the corporation is so organized
circumstances like failure to observe corporate formalities, and controlled, and its affairs are so conducted as to make it merely
non-payment of dividends, use of funds of the corporation an instrumentality, agency, conduit, or adjunct of another corporation.
by the stockholder, etc. To disregard the separate juridical personality of a corporation, the
When the corporation is owned by one person whereby the wrongdoing must be proven clearly and convincingly.
corporation functions only for the benefit of such individual owner,
the corporation and the individual should be deemed to be the same.
In one case, the Alter Ego doctrine was applied in piercing the GenR: The interest of the shareholder in the properties of the corporation is
Corporate Veil because of the presence of numerous circumstances indirect, contingent, and inchoate.
that support the conclusion that the corporation was an adjunct of the EXC: Such interest becomes actual, direct, and existing only upon liquidation of
subsidiary corporation: the assets of the corporation and the same property is assigned to the
Commonality of directors, officers, and stockholders shareholder concerned.
Sharing of office While shares of stock constitute personal property, they do not represent
Existence of financing and management arrangements property of the corporation. Said shares only represents an aliquot part of the
between the two companies allowing a corporate officer of
the first corporation to handle the other The stockholder is not a co-owner or tenant in common of the
Existence of a virtual domination, if not control, wielded by corporate property.
the same officer over the finances and business policies and
practices of the subsidiary. Totality of Circumstances Test
An alternative approach is to focus on a set of circumstances or factors that
***What appears from the foregoing is that cases when the doctrine of piercing the serve as indicia of the applicability of the doctrine of piercing the veil of
corporate veil may be applied to both: corporate fiction.
1. Cases when fraud or other wrongful acts or omission are present What is important is the totality of the circumstances and each case must
2. Cases when there is NO INTENT to commit a wrongful act/fraud in be decided on its own set of facts.
organizing the corporation but injustice and inequity may result if the Even under the Three-Pronged Control Test, the unique circumstances
corporate veil is not pierced. of each case are material in establishing the presence of the three
The first group applies to cases covered by the Instrumentality Doctrine and the factors under such test.
Alter Ego doctrine. The second group applies ONLY to Alter Ego doctrine. Certain circumstances that may indicate the applicability of the Doctrine of
Piercing the Corporate Veil, although it is not required that all of the
Other Discussions on Doctrine of Piercing the Veil of Corporate Fiction and its circumstances must concur:
Variants Commingling of funds and other assets of the corporation with those
Mere ownership by a single stockholder or by another corporation of all or of the individual shareholder;
nearly all of the capital stock of a corporation is not in itself sufficient ground Identity of the directors and officers of two entities who are
for disregarding the separate corporate personality. responsible for supervision and management;
The similarity of businesses of two corporations does not warrant the Sole ownership of all the stock by one individual or members of a
disregard of the corporate veil. single family;
The mere fact that a corporation owns all of the stocks of another corporation, Use of a corporate entity as a conduit to procure labor, services, or
taken alone is not sufficient to justify their being treated as one entity. merchandise for another person or entity

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(See p. 68-69 for more possible indicia) Judicial Function

Again, it is important to look at the TOTALITY of the circumstances. The mere Who may pierce the corporate veil?
presence of one of the listed circumstances above are present does not mean that 1. Courts; and
the doctrine of piercing the corporate veil must be applied already. Each case 2. Administrative Tribunals (such as the NLRC)
must be decided on its own circumstances and the different tests given by Hence, a sheriff who has a ministerial duty to enforce a final and executory
jurisprudence may be used as guides to determine the applicability of the decision cannot pierce the veil of corporate fiction by enforcing the decision
doctrine. against stockholders who are not parties to the action.
Probative Factors
Probative factors must be established in Fraud cases and Alter Ego cases. Jurisdiction Over the Alter Ego
There is no hard and fast rule that can be accurately laid down, but certainly, The principle of piercing the veil of corporate fiction, and the resulting
there are some probative factors that will justify the application of doctrine of treatment of two related corporations as one and the same juridical person
piercing the corporate veil, to wit: with respect to a given transaction, is basically applied only to determine
1. Stock ownership by one or common ownership of both corporations; established liability; it is not available to confer on the court a jurisdiction it has
2. Identity of directors and officers; not acquired in the first place over a party not impleaded in a case. Elsewise
3. The manner of keeping corporate books and records; put,
4. Methods of conducting the business. process of piercing the veil of its corporate fiction.
How to invoke the Doctrine of Piercing the Corporate Veil in Court:
Subsidiary 1. Court must first acquire jurisdiction over the corporation(s) involved
Subsidiary - a corporation more than 50% of the voting stock of which is owned before its/their separate personalities are disregarded; and
or controlled directly or indirectly through one or more intermediaries by 2. The Doctrine of Piercing the Corporate Veil can only be raised during
another corporation, which thereby becomes a parent company. a full-blown trial over a cause of action duly commenced involving
This is one of the instances where the Alter Ego doctrine is invoked. parties duly brought under the authority of the court by way of
GenR: If the subsidiary is service of summons or what passes as such service.
existence shall be respected, and the liability of the parent corporation as well The requirements of due process is not violated if the person who is sought to
as the subsidiary will be confined to those arising in their respective business. be made liable was not expressly impleaded or was not part of the original
EXC: When the subsidiary is a mere instrumentality or alter ego of the parties in the complaint. (Court may order the inclusion of another corporation
parent corporation (Alter Ego Doctrine), the Doctrine of Piercing the
Corporate Veil will apply. If the Doctrine of Piercing the Corporate Veil is successfully invoked, the
alter ego/liable officers who is/are not original
Traditional Piercing: Courts will disregard the separate personality to make directors party/parties can be deemed to have participated in the proceedings
or shareholders liable for corporate obligations. because of such piercing.
Reverse Piercing: A creditor of the shareholder is typically trying to hold the If the personalities of the persons and entities are merged into one,
corporation liable for debts of the shareholder. then both already participated in the trial on the merits although only
In the same manner, the doctrine may also be invoked when a new corporation one was impleaded.
may be ruled to be a mere continuation of an old corporation that has Arbitration agreements are now allowed to be included in the Articles of
stopped operation. Corporation under the RCC (Sec. 13). Although the arbitration agreement is
generally binding only on the corporation, its officers may be impleaded if the
Corporation as Plaintiff Obligee purpose is to make them solidarily liable. (Reason: the cause of action between
The Doctrine of Piercing the Corporate Veil was allowed in favor of a claimant the corporation and its officers is the same.)
corporation that sought to enforce a mortgage obligation. The mortgage was
sustained even if the obligations secured by such mortgage were incurred by Personality Not Abrogated
the President himself and before the mortgagee corporation was organized. When the veil of corporate fiction is pierced in proper cases, the corporate
This was because the mortgagee corporation was deemed as the alter ego of the character is not necessarily abrogated. It continues for legitimate objectives.
President. Courts will not disregard the corporate personality for purposes other than
Aquino disagrees with the ruling in this case. He explains that the Doctrine of the granting of the relief prayed for in the Complaint. Thus, for all other
Piercing the Corporate Veil seeks to prevent inequity and injustice. Hence, if a
mortgage debt pertained to an individual, a corporation cannot enforce such
debt using the doctrine. Doctrine of Piercing the Veil of Corporation Fiction and Limited Liability Rule
Limited Liability Rule: Stockholders of a corporation are liable for the debts of

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the corporation only up to the extent of their unpaid subscriptions. participates directly or indirectly in the management, control, or capital of the
Aquino believes that Limited Liability Rule and the Doctrine of Piercing the Veil other; or if the same persons participate directly or indirectly in the
of Corporate Fiction do not go hand in hand. He explains that if the Doctrine of management, control, or capital of the enterprises.
Piercing the Veil of Corporate fiction is applied, the stockholder will be liable Control: any kind of control, direct or indirect.
for the entire amount; whereas, if the Limited Liability Rule is applied, the
stockholder will be liable only to the extent of his unpaid subscription. Sample questions in the book:
EXAMPLE: Mr. G is the creditor of Corporation X in the amount of Php 200,000. 1. May a sheriff, in enforcing a writ of execution, levy the properties of a
Corp X does not have any asset to pay Mr. G. Mr. A has 200 shares with par corporation even if the judgement was rendered against a
value of Php 100 per share in Corp X, and he has paid only half of the
subscription price at par value (Php10,000), leaving a balance of Php10,000.
In the application of the doctrine of piercing the veil of corporate assets on the ground that the corporation is a mere conduit of the
fiction on the ground that Mr. A is using Corp X as a conduit, Mr. G stockholder/director.
who invokes the same doctrine must show circumstances that prove a. No. The sheriff does not have the authority to levy upon the properties
that there is fraud and that Corp X is just a conduit of Mr. A. of a corporation which is not a party to the case. He cannot do so
If the Doctrine of Piercing the Veil of Corporate Fiction is applied, Mr. G under the pretext that the doctrine of piercing the veil of corporate
can recover the entire amount of Php 200,000 from Mr. A, because fiction is applicable.
Mr. A will be considered the person who committed fraud through judicial prerogative. Only the courts can apply this doctrine.
conduit. 2. What is a one-man corporation? Do such corporations enjoy the attributes of
If the Limited Liability Rule is to be applied in the same example, Mr. G corporations? What should be done to assure this?
need not show circumstances or probative factors that show fraud or a. A one-man corporation is a corporation where all the outstanding
illegality. If Corp X cannot pay and Mr. G wants to recover, all that is shares belong to one person. Although there are other incorporators
needed is for Mr. G to prove that there is an unpaid subscription or directors, the same persons hold shares only as nominee of the
price to the amount of Php 10,000 from Mr. A. person who actually owns the shares. It is a corporation that functions
So what can we learn from this? To make out a prima facie case in a for the benefit of one individual.
suit against stockholders of an insolvent corporation to compel them b. In order to avoid the application of doctrine of piercing the corporate
to contribute to the payment of its debts by making good unpaid veil, the corporate businesses and properties of the corporation must
balances upon their subscriptions, it is only necessary to establish be kept separate from the person who owns the shares.
that the stockholders have not in good faith paid the par value of c. It is important to distinguish this from the now-allowed One-Person
the stocks of the corporation. Corporations (OPC) under the RCC, which is a corporation with only
one incorporator. On the other hand, a One-Man Corporation is a
Group of Companies corporation where all the outstanding shares of stock belong to one
Refers to corporations that are financially related to one another as parent person only. There may be more than one incorporator in the latter.
corporations, subsidiaries, and affiliates. 3. Plaintiff filed a collection case against Corporation X, but upon execution of the
no personality separate and distinct from each court decision, Corporation X was found to be without assets. Thereafter,
of the components corporations. plaintiff filed an action against Corporation
Under the Financial Rehabilitation and Insolvency Act of 2010 + new Rules of Corporation Y which owned substantially all of the stocks of Corporation X. The
Procedure on Corporate Rehabilitation, a Group of Companies may jointly file two corporations have the same board of directors and Corporation Y financed
a petition for rehabilitation when one or more of its constituent corporations the operations Corporation X. May Corporation Y be held liable for the debts of
foresee the impossibility of meeting debts when they respectively fall due. Corporation X? Why?
The present rules therefore allow corporations who are members of the group a. Yes. It is submitted that the doctrine of piercing the veil of corporate
of companies the unilateral right to disregard their separate personalities on fiction can be applied in the present case. Although mere
the sole consideration that the financial distress would likely adversely affect interlocking directorship is not by itself sufficient to justify the
the financial condition and/or operations of the other member companies of application of the doctrine, there are circumstances in the present
the group and/or the participation of the other member companies of the case that support such application. Thus, the ff. Facts are present: (1)
group. Corp. X is without assets; (2) The stockholders are the same; (3) The
The filing of actions against all members of the group of companies should be directors are identical; and (4) Y financed the activities of Corp X.
allowed even if the obligation was incurred by only one of the constituents.
Artificial Being
Associated Enterprises or Related Parties Although a corporation is treated
Associated Enterprises: two or more enterprises are associated if one has a physical existence - its existence is artificial.

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In a case, a plaintiff corporation cited the rule that execution pending appeal The place of incorporation will be disregarded in times of war.
may be granted if the plaintiff is already of advanced age and in danger of If the controlling stockholders are citizens of the enemy state, then the
extinction. The Supreme Court rejected the applicability of this rule, because corporation will be deemed a public enemy corporation.
the juridical existence of a corporation cannot be compared to a natural
person.
Investment Test: Voting Control Test and Beneficial Ownership Test [Summary
Primary Rules of Attribution and Illustration!!! I did my best to explain all the concepts here HAHA]
For investment purposes, there are cases when the Constitution and laws limit the
Due to the artificial nature of the existence of corporations, corporations can
perform physical acts or commit omissions only though natural persons. percentage of shares that foreigners may own. For example, the Constitution provides
Primary Rules of Attribution: the action of the Board of Directors will be that:
treated as an action of the corporation.
the operation of a public utility shall be granted except to citizens of the Philippines
Attribution of Knowledge
Consistent with Primary Rules of Attribution, notice to the Board of Directors or to corporations or associations organized under the laws of the Philippines at
should also be deemed notice to the corporation. least sixty per centum of whose CAPITAL is owned by such citizens
Jurisprudence: Knowledge of facts acquired or possessed by an officer or agent
of the corporation, in the course of his employment and in relation to
both the Voting Control Test and the Beneficial Ownership Test must be applied to
matter within the scope of his authority, is notice to the corporation.
determine W/N a corporation is a Philippine National. In other words, BOTH:
Law or rules may identify the officer or employee to whom notice should be
1. Total number of Common+Preferred+Redeemable Shares with
given. For example, summons in civil cases may only be effected to the
VOTING RIGHTS; (Voting Control Test) AND
following: President, General Manager, Corporate Secretary, Treasurer, In-House
2. Total number of outstanding shares of stock, whether or not
Counsel.
entitled to vote in the election of directors. (Beneficial
This list is exclusive.
Ownership Test)
HOWEVER, even if knowledge or even an act is properly attributed to the
corporation, it does not follow that all the stockholders are deemed to have
.
knowledge of the same fact or act.
Jurisprudence QUESTION: 2C Corporation wants to operate a public utility; thus, the Constitution
requires 60% of its CAPITAL to be owned by Filipino Citizens. It has a total outstanding
the meeting, the respondents could not have been informed of the capital stock of 10,000 shares. Such 10,000 shares are broken down into the ff:
Common Shares = 800
Voting Preferred Shares = 200
Non-Voting Preferred Shares = 9,000
[NOTE: Atty. Ampil SKIPPED most, if not all, of the next few parts, so I will summarize the
concepts and tests the best I can.] How can 2C Corporation comply with the 60% rule on public utilities?
ANSWER:
Nationality and Citizenship Voting Control Test 600 voting shares must be owned by Filipinos
A corporation cannot be considered a citizen, as the term (because 800+200 = 1,000 voting shares)
Beneficial Ownership Test 6,000 shares out of the total outstanding
understood in political law. In the political law sense, citizenship is limited to
capital stock must be owned by Filipinos.
natural persons.
NEVERTHELESS, there are instances when it is important to determine the
nationality of a corporation for certain purposes. Control Test and Grandfather Rule
CONTROL TEST: It means that if Filipino citizens own at least 60% of the
Two Tests Applied in Determining W/N a Corporation is Foreign or Domestic: all the shares of the corporation, including those
1. Control Test/Aggregate Test - Nationality of the corporation is determined by owned by foreigners, shall be considered of Philippine nationality.
the percentage of shares owned by Filipinos in a corporation. As long as Filipinos in their personal capacity or through a Filipino-
2. Place of Incorporation Test/Entity Test - Sovereignty by which corporation owned or-controlled corporation can prove that they own at least
was created, under whose laws it was organized, determines its national further inquiries shall be
character, and the fact that some of its incorporators were residents and made on the nationality of the owners of the remaining 40%. The
citizens of a foreign country does not change this rule. foreign-owned portion in the investing corporation is disregarded.
GRANDFATHER RULE: If the 60-40 rule is apparently met by the subject or
Wartime Control Test: investee corporation, a resort to the Grandfather Rule is necessary if double

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exists as to the locus of the beneficial ownership and control. A corporation may be civilly liable in the same manner as a natural person for
Thus, whenever the 60-40 corporation invests in another company torts.
that is also covered by the 60-40 ownership rule, the foreign The liability of corporations may either be vicarious or direct and may arise out
component in the cascade company is aggregated. of different sources of obligation.
Vicarious liability may be based on a quasi-delict.
Example of Grandfather Rule: Company A operates public utilities; thus, it must comply
with the 60-40 rule. 60% of Company A is owned by Company Z, and 40% by Company G. Doctrine of Corporate Responsibility/Corporate Negligence Doctrine
At face value/by using the Control Test, it seems like Company A follows the 60-40
This provides that liability may be imposed on a corporation that has a special
rule. relationship with or owes affirmative duties to the injured party.
This doctrine refers, but is not limited to, hospitals. This doctrine provides that
HOWEVER, if the Grandfather Rule is applied, the Filipino:Foreigner ratio of the in case of the negligence of a physician, the liability of the corporate entity is
investing corporation - Company Z in this case - will be investigated. If Company Z is direct and primary and not merely vicarious.
turns out to be also owned by 60% Filipinos and 40% Foreigners, then, as a whole,
Company A is not really only 40% owned by foreigners. In this situation, the 60-40 Right to Moral Damages
rule is evaded and runs contrary to the Constitution. GenR: The award of moral damages CANNOT be granted in favor of a
GenR: Use Control Test!; EXC: When in doubt, Grandfather Rule it out. corporation, because being an artificial being and having existence only in legal
contemplation, it has no feelings, no emotions, and no senses. [parang crush
Sample Questions from the book: mo]
1. May a 100% foreign-owned corporation be allowed to manage a hotel beach EXC:
resort in the Philippines? May the same foreign corporation own the land on commercial reputation is besmirched or defamed.
which the hotel beach resort will be located? NOTE: The Supreme Court has also noted that the cases where the the Court
a. YES, because the management of a resort is not a nationalized activity; ruled on a corporation not being entitled to moral damages is merely an obiter
hence, the law does not prohibit a foreign corporation from managing dicta. In fact, there are still a case wherein the Supreme Court did NOT
a resort in the country. eliminate the possibility that moral damages may be granted to corporation
b. NO, because the Constitution limits land ownership to Filipinos and aside from defamation cases.
corporations with Filipino ownership of not less than 60% obiter dicta, what now? Aquino said that the rule that generally,
outstanding capital. corporations cannot receive moral damages, except for defamation cases is a
2. What is the nationality of a corporation organized and incorporated under the BETTER RULE. It is also in line with the interpretation of the Civil Code
laws of a foreign country but owned 100% by Filipinos?
a. Applying the Control Test, a corporation organized and incorporated
under foreign laws but owned 100% by Filipinos is a Philippine Constitutional Rights
National. Furthermore, our investment laws provide that a corporation A corporation is a person, in proper cases, within the due process and equal
is a Philippine National if at least 60% of the directors are Filipinos. protection clause of the Constitution.
HOWEVER, as an artificial being and a mere creature of law, a
[NOTE: End of the part Atty, Ampil skipped in class.] corporation cannot exercise Constitutional rights that are not
consistent with its nature. Thus, a corporation cannot claim that it is
No Nationality for Corporation Sole
The Roman Catholic Church is one exceptional situation where the Supreme A corporation is entitled to the right against unreasonable searches and
Court ruled that such corporation has NO NATIONALITY. seizure. Where the properties of the corporation are unlawfully seized, the
right of that is invaded is the right of the corporation and NOT the right of its
Residence officers or stockholders. Hence, only the corporation can question such
A corporation may be considered a resident of a particular country for different unlawful invasion.
purposes. For example, a foreign corporation may be considered a resident of A corporation is NOT entitled to the right against self-incrimination.
the Philippines for tax purposes.
The RCC fixes the residence of a corporation. Under Sec. 14, the principal office Criminal Liability
of the corporation is one of the required contents of the Articles of No criminal action can lie against a corporation under the present rules. An
Incorporation. artificial being is incapable of intent nor can it perform an overt act.
Nevertheless, the officers or even the stockholders of the corporation may be
Tort Liability held criminally liable.

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Example: BP22 cases: The officer who signed the check is criminally liable, but the Corporation Code of the Philippines or the old Corporation Law
the corporation may be held civilly liable if the check was issued for a Corporations by prescription a corporation that was not formally
legitimate business purpose. organized as such but has been duly recognized by immemorial usage
as a corporation, with rights and duties enforceable under the law.
Contempt Cases As to legal status
Corporations may be punished for contempt. De Jure Corporation
The liability is present even if the contempt case involved is in the nature of a De Facto Corporation a corporation that is formed where there
criminal case. exists a flaw in its incorporation but there is colourable compliance
with the law.
Theory of Special or Limited Capacities Corporation by estoppel A group of persons which holds itself out as
This provides that a corporation has the powers, attributes, and properties a corporation and enters into a contract with a third person on the
expressly authorized by law or incident to its existence. strength of such appearance cannot be permitted to deny its existence
In fine, a corporation has EXPRESS, IMPLIED, and INCIDENTAL powers. in an action under said contract.
This should be distinguished from Theory of General Capacities which provides
that a corporation may exercise any all all powers that may be exercised by
Corporation by Estoppel Doctrine of Apparent Authority
natural persons.
SEC. 3. Classes of Corporations. Corporations formed or organized under this No corporation to begin with There is a corporation
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 Group of people cannot deny the existence The corporation cannot deny the authority
basis of the shares held. All other corporations are nonstock corporations. of the corporation of a person who acts on behalf of the
corporation
Estoppel: Purpose is to protect third persons Estoppel: Purpose is to protect third persons
SEC. 4. Corporations Created by Special Laws or Charters. Corporations created
who relied on the claims of the corporation who relied on the claims of the corporation
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.
As to existence of stocks
A stock corporation with capital stock is divided into shares and is
Corporation Code Classification authorized to distribute to holders thereof such shares, dividends,
Stock Corporations allotments of the surplus profits on the basis of the shares held.
Nonstock Corporations
Nonstock corporation-
Classifications in Other Statutes and Jurisprudence As laws of incorporation
As to the number of components Domestic corporation
Aggregate Corporation- corporation consisting of more than one Foreign Corporation
member.
Special Types of Corporations under the Corporation Code
Corporation Sole consists of only one person or member
Close corporation a corporation whose articles provide that
As to functions All the corporations issued stock of all cases, exclusive of
Public Corporation a corporation organized for the government of a treasury shares shall be held of record by not more than a
portion of a State (like cities and municipalities) for the purpose of
specified number of persons, not exceeding 20
serving general good and welfare
All the issued stock of all cases shall be subject to one or
Private Corporation a corporation formed for some private purpose more specified restrictions on transfer permitted by Title XII
or benefit
of the Corporation Code
As to manner of creation The Corporation shall not list in any stock exchange or make
Corporation created by special law a corporation directly created by
any public offering of any of its stock of any class.
Congress through a special law. Such corporation must be a GOCC
Special corporation includes an educational corporation and a
Corporation created under general law a corporation created under religious corporation

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Ecclesiastical and Lay corporations Agency organized as a stock or nonstock corporation

Eleemosynary (Charitable) Corporations and Civil Corporations vested with functions relating to public needs whether
As to relationship governmental or proprietary in nature, and
Subsidiary a corporation more than 50% of the voting stock of owned by the Government directly or through its
which is owned or controlled directly or indirectly through one or instrumentalities either wholly or where applicable as in case of
more intermediaries by another corporation, which thereby become a stock corporations to the extent of at least 51% of its capital stock
parent company GOCCs are regarded as private corporations
Affiliate a corporation that directly, or indirectory or through one or May be
more intermediaries is controlled by another corporation which CHARTERED GOCC - With original charter or created by special law
thereby becomes its parent company NONCHARTERED GOCC - Incorporated under a general law
Parent - controls ; owns all or substantially all the controlling shares (Corporation Code)
in the subsidiary SEC has no jurisdiction over GOCCs created by a special law because their
Going Public and Going Private charters primarily govern them
Corp Code is suppletorily applied
Public company any corporation with a class of equity securities Not all corporations which are NOT GOCCs are ipso facto considered private
listed on an Exchange or with assets in excess of 50M and having 200 corporations
or more holders, at least 200 of which are holding at least 100 shares Public corporations agencies or instrumentalities of the government
of a class of its equity securities. which are not subject to the tests of ownership or control and
Public company is NOT a public corporation. economic viability but to a criteria relating to their public
restriction of the shares to a certain group. purpose/interests or constitutional policies and objectives and
Stock and Nonstock Corporations
Stock Corporations The test of economic viability applies to GOCCs that perform economic or
Capital shares are divided into stocks commercial activities, and need to compete in the marketplace.
An authority to distribute to the holders of such shares, dividends, or
allotments of surplus profits on the basis of the shares held. GOCC MUST be organized as a stock or nonstock corporation
Nonstock corporation GI when the law vests a GI with corporate powers, it does not
There must be members become a corporation.
Corporation must not distribute any part of their income to the GI may have corporate powers (GICP GI with Corporate
members. Powers) / Government Corporate Entities (GCE) neither
Public and Private Corporations corporations, nor agencies integrated within the
Public corporation corporation created for the purpose of the government departmental framework, but vested by law with special
and management of public affairs founded by the State and managed by it for functions or jurisdiction endowed with some if not all
governmental purposes. corporate powers
Corporations are considered Public corporations according to the GFI financial institutions in which the government directly or
purpose for which they were organized. indirectly owns majority of the capital stock
Immunity from Suit whether or not the agency is engaged in private or Affiliates - refer to corporation 50% or less of the outstanding capital
proprietary function or governmental or sovereign function. stock of which is controlled directly or indirectly by the GOCC
Suits against State agencies in relation to matters in which they have
assumed to act in a private or non-governmental capacity are not
regarded as suits against the State.
Quasi-public corporations SEC. 5. Corporators and Incorporators, Stockholders and Members.
Corporators are those who compose a corporation, whether as stockholders or
Engaged in private business affected with public interest e.g. railroad and
canal corporations. shareholders in a stock corporation or as members in a nonstock corporation.
Government-Owned or Controlled Corporations (GOCCs) Incorporators are those stockholders or members mentioned in the articles of
Agency organized as a stock or nonstock corporation vested with functions incorporation as originally forming and composing the corporation and who are
relating to public needs whether governmental or proprietary in nature, signatories thereof.
and owned by the Government directly or through its instrumentalities
either wholly or where applicable as in case of stock corporations to the extent CHANGES: Mere change in form.
of at least 51% of its capital stock
Requisites: Components of the Corporation

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1. Shareholders or members
in all respects to every other share, except as otherwise provided in the articles
2. Directors or trustees
of incorporation and in the certificate of stock.
3. Officers
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
Corporators in a stock corporators are called stockholders or shareholders
ovided in this
Corporators in a non-stock corporation are called members
Code: Provided, That there shall always be a class or series of shares with
complete voting rights.
Incorporators
There is only one set of incorporators, these are those stockholders or
members that are mentioned in the Articles of Incorporation as originally Holders of nonvoting shares shall nevertheless be entitled to vote on the
forming and composing the corporation following matters:
They will remain as such until the termination of the life of the corporation (a)Amendment of the articles of incorporation;
(b)Adoption and amendment of bylaws;
The Articles cannot be amended to change the names of the incorporators since
the naming of the incorporators is an accomplished fact that can no longer be (c)Sale, lease, exchange, mortgage, pledge, or other disposition of all or
undone substantially all of the corporate property;
(d)Incurring, creating, or increasing bonded indebtedness;
Shareholders (e)Increase or decrease of authorized capital stock;
(f)Merger or consolidation of the corporation with another corporation or other
They are holders of shares in a corporation with interest over the management
(control), income (dividends) and assets (share upon liquidation) of the corporations;
corporation. (g)Investment of corporate funds in another corporation or business in
They participate in controlling the affairs of the corporation by exercising their accordance with this Code; and
right to vote by electing members of the board of directors. (h)Dissolution of the corporation.
Shareholders vote on or approve fundamental structural changes in 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
members are the following: only to stocks with voting rights.
Amendment of Articles of Incorporation
The shares or series of shares may or may not have a par value: Provided, That
Extend or shorten the corporate term
Increase or decrease the corporate stock banks, trust, insurance, and preneed companies, public utilities, building and
Incurring, creating and increasing bonded indebtedness loan associations, and other corporations authorized to obtain or access funds
Denial of pre-emptive right from the public, whether publicly listed or not, shall not be permitted to issue
no- par value shares of stock.
Sell, dispose, lease, encumber substantially all corporate assets
To invest in another corporation or business or for any purpose 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
To declare stock dividends
To enter into management contracts with the management of liquidation, or such other preferences: Provided, That preferred shares of
corporation (see Section 43 for conditions) 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
Delegating the power to the board to amend the by-laws
preferred shares of stock or any series thereof: Provided, further, That such
The following instances needs the concurrence of the majority of the
terms and conditions shall be effective upon filing of a certificate thereof with
stockholders of the outstanding capital or members:
the Securities and Exchange Commission, hereinafter referred to as
Entering management contract under certain conditions (See Section
43)
To adopt, amend, or repeal the by-laws
Shares of capital stock issued without par value shall be deemed fully paid and
The power to revoke the power of the board to amend the by-laws
non-assessable and the holder of such shares shall not be liable to the
which was previously delegated by the stockholders
corporation or to its creditors in respect thereto: Provided, That no-par value
To fix the issued value or price of no-par value shares
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
SEC. 6. Classification of Shares. The classification of shares, their corporation for its no-par value shares shall be treated as capital and shall not
corresponding rights, privileges, or restrictions, and their stated par value, if be available for distribution as dividends.
any, must be indicated in the articles of incorporation. Each share shall be equal

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Shares of stock representing residual ownership interest in the corporation.

A corporation may further classify its shares for the purpose of ensuring It is usually issued without extraordinary rights or privileges
compliance with constitutional or legal requirements.
Entitles the shareholder to a pro rata division of profits
CHANGES: Preferred shares

The ff are now NOT ALLOWED to issue NO PAR VALUE SHARES OF STOCK, Entitles a shareholder to some priority on the dividends and/or distribution
regardless of w/n they are publicly listed: They are not creditors by virtue of their preferred shares. This is because one
Banks cannot be a creditor by virtue of his own instrument.
Trusts The holder obtains neither an enforceable claim to an interest and repayment
Insurance of principal that is provided by debt nor the rights of a residual owner that is
Pre- provided by common shares.
and retirement plans; similar to insurance) Yet, all prefered contracts fundamentally attempts to endow certain owners
Public Utilities with rights analogous to creditor rights.
Building and loan associations Corporations issue preferred shares of stocks for the following reasons:
Other corporations authorized to obtain or access funds from the Avoiding use of bonds which has a fixed interest charge and must be
public. paid regardless of net income
Avoid issuing additional common shares that earnings per share will
The Concept of Shares be less in the current year than in the prior year
A share has been defined as the unit to which the proprietary interests in the ontrol of the corporation since
corporation are dibided. preferred shares usually have no voting rights.
It is an intangible interest or right which an owner has in the management, Preferred shareholders are also often excluded from the right to vote.
profit, and assets of the corporation. There is no guarantee that the holder of preferred shares will receive dividends
The shares comprise what is every fiscal year since the same is dependent upon the availability of surplus
CAPITAL STOCK - consists of all classes of shares issued to stockholders, which profit or unrestricted retained earnings.
are common and preferred shares. A certain class of shares may have rights or Thus, dividends are only paid when profits are earned by corporations
privileges or restrictions different from the others. GENERAL RULE: even if there are existing profits, the Board has the discretion
to determine whether or not dividends are to be declared
Reason for the Classification Preferred shares are also included in the computation of the nationalization
So that entrepreneurs who decide to go into business have a wide latitude of requirement.
flexibility and in order to assure that they will be able to raise capital and at the Also, they may be subject to an express stipulation in the AOI that they are
same time run the corporation in the manner which will be equitable to all excluded from dividend rates
investors.
The classification of shares is indicated in the Articles of Incorporation filed Kinds of preferred shares
with the SEC 1. PREFERRED SHARES AS TO ASSETS - share which gives the folder preference
in the distribution of assets of the corporation in case of liquidation
Kinds of Shares 2. PREFERRED SHARES AS TO DIVIDENDS - entitled to receive dividends on
1. Common or preferred shares said share to the extent agreed upon before any dividends at all are paid to the
2. Voting or non voting shares holders of common stock. It can be classified further by:
3. Par value or no par value shares a. CUMULATIVE - if a divided is omitted in any year, it must be made up
4. Treasury shares in a later year before any dividend may be paid on the common in the
5. Redeemable shares year later
6. b. NON-CUMULATIVE - no need to make up to the undeclared dividends
and the directors do not even have discretion to declare those past
Preferred shares may be: dividends subsequently.
1. Cumulative or non-cumulative c. PARTICIPATING PREFERRED SHARES - entitled to participate with
2. Participating or non-participating the common shares in excess distribution. Entitled to a fixed,
3. Preferred as to dividends cumulative dividend.
4. Preferred as to assets upon distribution d. NON-PARTICIPATING
Common Shares Convertible shares


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Preferred shares may be stipulated as convertible into common shares. 1. Shares of capital stock issued without par value shall be deemed fully paid and
It must, however, be stipulated in the AOI. nonassessable and the holder of such shares shall not be liable to the
Conversion is also subject to the appraisal right of dissenting stockholders. corporation or to its creditors in respect thereto
Conversion may also be mandated by law. Under the Rural Bank Act of 1992, if 2. Shares issued without par value may not be issued for a consideration less than
preferred stocks of government financial institutions are sold to private the value of PHP5.00 per share
shareholders, the same way may be converted into common stocks. 3. The entire consideration received by the corporation for the no-par value
shares shall be treated as a capital and shall not be available for distribution as
Doctrine of Equality of Shares dividends.
All stocks issued by the corporation are presumed to be equal with the same
privilege and liabilities provided that the AOI is silent on the differences.
The board cannot provide preference or additional rights if nothing is provided Shares that cannot be no par value shares
for in the AOI. 1. Preferred shares
2. Shares in banks
Reclassification 3. Shares in trust companies
Shares that are originally common shares may be reclassified into preferred 4. Shares in insurance companies
shares. 5. Shares in public utilities
6. Shares in building and loan association
In reclassification - it does not bring substantial alteration in the
Voting and Non-voting shares
In exchange of shares - there would be shifting of the balance of stock In the absence of provision in the AOI, a share is considered as a voting share.
features like priority in dividend declarations or absence of voting Under the present law, all shareholders regardless of the classification, other
rights. than holders of preferred or redeemable shares are entitled to vote
Nonetheless, non-voting shares may still vote on matters regarding:
Par Value and No Par Value Shares Amendment of AOI
PAR VALUE SHARES - those with fixed value stated in the articles of Amendment of by-laws
incorporation and the share certificate (an arbitrary amount). Sale, lease, exchange, mortgage, pledge or other disposition of all or
NO PAR VALUE SHARES - shares without such arbitrary amount. substantially all of the assets of the corporate property
The use if par value may sometimes result in confusion on the part of the Incurring, creating or increasing bonded indebtedness
investors who might be misled because the par value DOES NOT represent the Increase or decrease of capital stock
market value. Thus, no par value shares may be issued to avoid such confusion. Merger or consolidation of the corporation with another corporation
The issued value or stated value of shares may be higher than the par value. or other corporations
The Board is authorized to fix the amount for which the shares shall be Investment of corporate funds in another corporation or business in
subscribed. This is subject to the condition that the value fixed cannot be below accordance with this code
par. Dissolution of the corporation
With respect to no par value shares, the stated or issued value cannot be less Note that the issuance of non-voting shares is subject to the following
than P5.00. conditions under the corporation code:
Other values that are commonly associated with shares of stocks are as follows: Only preferred or redeemable shares may be made non-voting shares
MARKET VALUE - the price at which shares of capital stock is bought There must remain other shares with full voting rights
and sold by investors in the market The non voting shares may still vote in the matters enumerated above.
BOOK VALUE - amount per share that each shareholder would Any provision in the AOI restricting the right of common shareholders to vote is
receive if the corporation were liquidated without incurring any invalid.
further losses.
LIQUIDATION VALUE - amount a stockholder would receive upon the Nationalization Requirements
the dissolution and liquidation of the corporation Shares may be classified to facilitate the requirements of nationalization laws
REDEMPTION VALUE - the price per share at which the corporation
may redeem its share must comply with the nationalization requirements (example: Class A is for
ISSUED VALUE - the selling price of the shares fixed by the board or Filipino Citizens only which comprises 60% of the total outstanding shares)
Articles of incorporation
Escrow shares
Conditions for the issuance of No Par Value Shares Just like treasury shares, they are not reflected in the AOI

lOMoARcPSD|31111392
They result by virtue of a transaction to place shares in escrow until the

other terms and conditions stated in the articles of incorporation and the
happening of an event or fulfillment of a specified condition
certificate of stock representing the shares, subject to rules and regulations
They are deemed to be subjected to an agreement by virtue of which the shares
issued by the Commission.
is deposited by the grantor or his agent with the third person to be held by the
latter until the performance of a certain condition
An escrow deposit makes the depository a trustee under an express trust CHANGES:
Commission can now adopt rules and regulations regarding redeemable shares
Redeemable shares
privileges not enjoyed by the owners of other stocks. Where the exclusive right
Are shares of stocks issued by a corporation which said corporation can
to vote and be voted for in the election of directors is granted, it must be for a
purchase or take up from their holders as expressly provided for in the AOI and
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 certificates of stocks
The obligation to redeem must be indicated in the AOI and the Certificates of
-
Stocks
Rationale
The redemption feature of shares was envisaged to effectively eliminate the
CHANGES: market volatility risks on side of the shareowners.
Gave additional conditions re: The presence of redeemable shares will also facilitate the raising of badly
exclusive right shall not be allowed if its exercise will violate: needed capital by the corporation but at the same time would not deceive
Anti-Dummy Law creditors.
Foreign Investments Act
Other pertinent laws Unrestricted Retained Earnings is not required to redeem shares
Payment may come from capital
Anti-Dummy Law Redemption, may not be made where the corporation is insolvent or if such
This was created to spell out how Filipinos are punished when they participate redemption will cause insolvency or inability of the corporation to meet its
in evading the nationalization laws. The Anti-Dummy Law also prohibits debts as they mature.
foreigners from intervening in the management, operation, administration, or
control of any nationalized activity. Mandatory Redemption
This means that redemption must be made within a certain period.
Foreign Investments Act Mandatory redemption is not against public policy.
The implementing rules of the For All corporations which have issued redeemable shares with mandatory
the Philippine National. SINKING FUND - Cash is gradually set aside in order to accumulate the amount
The SEC explained that, based on the control test, further inquiry on the necessary to meet the redemption price of redeemable shares at specified days
nvesting and investee corporations shall be in the future. It shall be deposited with a trustee bank and is not supposed to be
dispensed with once it is clearly established that the participating corporations invested in risky or speculative ventures.
Non-Philippine nationals may own up to one hundred percent (100%) of Effect of Redemption
domestic market enterprises unless foreign ownership therein is prohibited or Redemption is repurchase or reacquisition of stock by a corporation which
limited by the Constitution and existing law or the Foreign Investment Negative issued the stock in exchange for property, whether or not the acquired share is
List under Sec. 8 hereof. cancelled, retured, or held in the treasury.
Essentially, the corporation gets back some of its stock, distributes cash or
property to the shareholder in payment of stock and continues in business as
SEC. 8. Redeemable Shares. Redeemable shares may be issued by the before.
corporation when expressly provided in the articles of incorporation. They are Redemption may be said to be a repurchase of the shares for cancellation.
shares which may be purchased by the corporation from the holders of such shares will not be considered retired and will become treasury shares if AOI
shares upon the expiration of a fixed period, regardless of the existence of
expressly provides.
unrestricted retained earnings in the books of the corporation, and upon such Problems:
Q: Block C Corp issued to Francis A. preferred dividends with the terms that it shall

lOMoARcPSD|31111392
receive a quarterly dividend of 1% cumulative and participating and that the shares may Retirement of treasury shares is effected by decreasing the capital stock of the
be redeemed by drawing lots, at any time after 2 years from the date of issue at the corporation.
options of the corporation. Francis A. sued Block C Corp. for specific performance on the Treasury shares may be declared as property dividend to be issued out of the
payment of dividends. Will it prosper? retained earnings previously used to support their acquisition provided that
A: No. the fact that Francis holds preferred shares does not give him the right to compel the amount of retained earnings has not been subsequently impaired by losses.
Block C Corp. to pay dividends. It is still within the business judgement of the Board of
Directors to declare dividends and the judgement of the Board is always subject to the
requirement that there must be unrestricted retained earnings. Holders of preferred TITLE II: INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
shares are not creditors and dividends are not interest that is due.
Incorporation
It means the performance of conditions, acts, deeds, andwritings by
SEC. 9. Treasury shares. Treasury shares are shares of stock which have been incorporators, and the official acts, certification or records, which give the
issued and fully paid for, but subsequently reacquired by the issuing corporation corporation its existence.
through purchase, redemption, donation, or some other lawful means. Such shares It is a mere grant of privilege from the state
may again be disposed of for a reasonable price fixed by the board of directors. In order to be granted such privilege the requirements and procedures must be
complied with
Treasury shares Corporations are creatures of law and can only come into existence in the
Shares of stock that have been issued and fully paid for, but subsequently manner provided for by law
reacquired by the issuing corporation by purchase, redemption and donation or Where there is no legal incorporation and organization of a corporation, the
through some other lawful means association of a group of men for business or other endeavors does absorb the
They do not have the status of outstanding shares personality of another separate and independent entity that is not given
Considered as owned by the corporation and not its shareholders. corporate life by mere formation of the group.
Stages in the life of the treasury shares Effect if not incorporated

FIRST STAGE: How treasury shares are created It is only through incorporation and registration with the SEC that private
Can be created not only through redemption but also through other corporations can acquire juridical personality under the corporation code.
modes of acquisition like purchase, donation and the like Incorporation is not necessary for liability to attach under the rule on
SECOND STAGE: the rights enjoyed by the corporation as the holder of corporation by estoppel.
treasury shares are restricted
No voting right and right to dividends Organized under existing laws
THIRD STAGE: Disposition of treasury shares
The discretion of the board to fix reasonable terms and conditions
through which treasury shares may cease to exist Hence, domestic corporations are often referred to as corporations organized
Board may provide for a reasonable price for the transfer and existing under the Philippine Laws.
Limitations Until organized or incorporated as authorized by the charter there is no
1. May be sold again as long as corporation holds them as such corporation nor does it possess franchises or faculties for it or others to
2. Cannot participate in dividends - dividends cannot be declared by corporation exercise until it acquires a complete existence.
to itself
3. Agreement to Incorporate
4. The amount of unrestricted retained earnings equivalent to cost of treasury Natural persons and/or corporations may validly enter into an agreement to
shares being held shall be restricted from being declared and issued as create a corporation.
dividends. Restrictions are lifted once treasury shares are re-issued. It may bea joint venture agreement
It may be reciprocal in nature where each party is not obligated to comply if the
Nature and effects other is also not in a position to comply
Treasury shares may be common or preferred
It is different from authorized but unissued shares.
SEC. 10. Number and Qualifications of Incorporators. Any person, partnership,
It does not reduce the number of issued shares or the amount of stated capital
The sale of treasury shares does not increase the number of issued shares or association or corporation, singly or jointly with others but not more than
amount of stated capital fifteen (15) in number, may organize a corporation for any lawful purpose or
Corporation has the option to retire the treasury shares purposes: Provided, That natural persons who are licensed to practice a

lOMoARcPSD|31111392
profession, and partnerships or associations organized for the purpose of date(s) unless there are justifiable reasons for an earlier extension as may be
practicing a profession, shall not be allowed to organize as a corporation unless determined by the Commission: Provided, further, That such extension of the
otherwise provided under special laws. Incorporators who are natural persons corporate term shall take effect only on the day following the original or
must be of legal age. subsequent expiry date(s).
Each incorporator of a stock corporation must own or be a subscriber to at least
one (1) share of the capital stock. A corporation whose term has expired may, at any time, apply for a revival of its
A corporation with a single stockholder is considered a One Person Corporation corporate existence, together with all the rights and privileges under its
as described in Title XIII, Chapter III of this Code. certificate of incorporation and subject to all of its duties, debts and liabilities
existing prior to revival. Upon approval by the Commission, the corporation
shall be deemed revived and a certificate of revival of corporate existence shall
CHANGES: be issued, giving it perpetual existence, unless its application for revival
NO MORE MINIMUM REQUIRED NUMBER OF INCORPORATORS. This means provides otherwise.
there may be single corporations. The maximum, however, is retained.
person, partnership, association, or corporation, No application for revival of certificate of incorporation of banks, banking and
quasi- banking institutions, preneed, insurance and trust companies, non-stock
This means that it is not only limited to natural persons but also
savings and loan associations (NSSLAs), pawnshops, corporations engaged in
juridical persons money service business, and other financial intermediaries shall be approved
by the Commission unless accompanied by a favorable recommendation of the
NO more requirement that majority shall be RESIDENTS. appropriate government agency.
Persons who can be incorporators
1. Any natural person CHANGES:
2. Partnership A corporation now has PERPETUAL EXISTENCE, unless its AOI provides
3. Association otherwise.
4. Corporation All corporations prior to effectivity will automatically have perpetual existence,
All singly or jointly with others unless upon vote of its stockholders representing a majority of its OCS notifies
the SEC that it wants to retain its specific corporate term;PROVIDED, that any
Accomplished Fact change in the corporate term under this section is w/o prejudice to the
An incorporator remains to be an incorporator even if he will later on cease to appraisal right of dissenting stockholders in accordance with the provisions of
be a corporator or shareholder this Code.
He will still be an incorporator even if he already transferred all his shares to APPRAISAL RIGHT (Sec. 81, RCC): If the proposed corporate action
another is implemented, the corporation shall pay the stockholder, upon
surrender of the certificate or certificates of stock representing the
SEC. 11. Corporate Term. A corporation shall have perpetual existence unless vote was taken, excluding any appreciation or depreciation in
its articles of incorporation provides otherwise. anticipation of such corporate action.
Filing for extension:
Corporations with certificates of incorporation issued prior to the effectivity 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
outstanding capital stock, notifies the Commission that it elects to retain its GenR: Upon expiry of term: corp may apply for REVIVAL with the SEC. When
specific corporate term pursuant to its articles of incorporation: Provided, that revived, it will be given perpetual existence, unless application provides
any change in the corporate term under this section is without prejudice to the
otherwise.
appraisal right of dissenting stockholders in accordance with the provisions of EXC: Revival of banks, banking and quasi-banking institutions,
this Code. preneed, insurance and trust companies, non-stock savings and loan
associations, pawnshops, corporations engaged in money service
A corporate term for a specific period may be extended or shortened by business, and other financial intermediaries need a favorable
amending the articles of incorporation: Provided, That no extension may be
recommendation of the appropriate government agency.
made earlier than three (3) years prior to the original or subsequent expiry Compared to the OCC where corporate life is arbitrary, the RCC gives a
corporation a chance to revive itself. This makes sense, because the

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RCC provides for a perpetual existence of a corporation. Section 13 of the OLD Corporation Code provided for the required amount of capital
You can now state in the AOI the life of your corporation. Must be read together stock to be subscribed and paid for the purposes of incorporation. (25-25 rule). This has
with Sec. 14 of the RCC (previously Sec. 15) which provides for a portion to been removed by the RCC. Wala siyang counterpart at all.
SEC. 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
Doctrine of Relations
The filing and recording of a certificate of extension after the term cannot relate may be allowed by the Commission, containing substantially the following
back to the date of the passage of the resolution of the stockholders to extend matters, except as otherwise prescribed by this Code or by special law:
the life of the corporation.
However, the doctrine of relations or relating back doctrine applies if the (a)The name of the corporation;
failure to file the application for extension within the term of the corporation is
due to the neglect of the officer with whom the certificate is required to be filed (b)The specific purpose or purposes for which the corporation is being formed.
orto a wrongful refusal on his part to receive it. Where a corporation has more than one stated purpose, the articles of
incorporation shall indicate the primary purpose and the secondary purpose or
application for extension was due to the EDSA Revolution that resulted to the purposes: Provided, That a non-stock corporation may not include a purpose
which would change or contradict its nature as such;
closure of the SEC. it does not apply however if there is negligence on part of
the corporations.
(c)The place where the principal office of the corporation is to be located, which
No annual Renewal must be within the Philippines;
The SEC cannot require the annual renewal of the certificate of registration of a
(d)The term for which the corporation is to exist, if the corporation has not
corporation
elected perpetual existence;
SEC. 12. Minimum Capital Stock Not Required of Stock Corporations. Stock (e)The names, nationalities, and residence addresses of the incorporators;
corporations shall not be required to have a minimum capital stock, except as
otherwise specifically provided by special law. (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);
CHANGES: Mere change in form.
(g)The names, nationalities, and residence addresses of persons who shall act as
directors or trustees until the first regular directors or trustees are duly elected
Minimum Authorized Capital
and qualified in accordance with this Code;
No minimum authorized capital is required under the corporation code.
AUTHORIZED CAPITAL STOCK - the amount fixed in the articles of
(h)If it be a stock corporation, the amount of its authorized capital stock,
incorporation to be subscribed and paid by the stockholders of the corporation
number of shares into which it is divided, the par value of each, names,
SUBSCRIBED CAPITAL - Is that portion of the authorized capital stock that is
nationalities, and residence addresses of the original subscribers, amount
covered by subscription agreements whether fully paid or not (NOTE THAT
subscribed and paid by each on the subscription, and a statement that some or
there is no minimum subscribed capital required under the corporation code
all of the shares are without par value, if applicable;
needed for purposes of incorporation.)
PAID-UP CAPITAL - the amount of outstanding capital stock and additional
(i)If it be a nonstock corporation, the amount of its capital, the names,
paid-in capital or premium paid over the par value of shares
nationalities, and residence addresses of the contributors, and amount
OUTSTANDING CAPITAL STOCK - Refers to the total shares of stock issued to
contributed by each;
subscribers or stockholders whether or not fully or partially paid except
treasury shares so long as there is a binding subscription agreement
(j)Such other matters consistent with law and which the incorporators may
CAPITAL - properties and assets of the corporation that are used for its
deem necessary and convenient.
business operation
STATED CAPITAL - the sum of the part value of all issued par value shares, the
An arbitration agreement may be provided in the articles of incorporation
entire amount received for no-par value shares and any amount transferred by pursuant to Section 181 of this Code.
a stock dividend or other corporate action from surplus to stated capital.

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The articles of incorporation and applications for amendments thereto may be Substantial Compliance
filed with the Commission in the form of an electronic document, in accordance
AOI must comply with the form prescribed by Articles 14 and 15 of the
corporation code. However, substantial compliance may not affect the de jure
existence of the corporation
CHANGES: Special laws may likewise impose additional provisions for strict compliance
Filing of AOI now needs to be acknowledged AND authenticated. such as minimum capitalization requirements.
perpetual existence. Name

The name of the corporation is necessary for identification purposes.
hall not be more than The incorporators constitute a body politic and corporate under the name
fifteen (15) or the number of trustees which may be more than fifteen stated in the certificate.
A corporation has the power of succession under its corporate name. The name
Basically integrates the new no-minimum rule. of the corporation is therefore essential to its existence.
NO NEED FOR ANYMORE. The right to use its name is, just like other privileges, part of the franchise
Makes sense because the RCC has abolished the 25-25 granted to the corporation.
minimum AC stock+subscription requirement. A corporate name cannot be levied upon because it is inseparable from the
Arbitration Agreement -laws) primary franchise
pursuant to Sec. 181 It is advisable to verify with the SEC if the proposed name of the corporation is
still available for registration.
incorporation or bylaws of a corporation. When such an The name of the corporation need not reflect the purpose of the corporation.
agreement is in place, disputes between the corporation, its
stockholders or members, which arise from the Purpose Clause
implementation of the articles of incorporation or bylaws, or It is important in order to assure that persons who invest in corporate entities
from intra-corporate relations, shall be referred to will be aware of the business the corporation is designed to engage in.
arbitration. A dispute shall be non-arbitrable when it Purposes may be grouped into two. It may be PRIMARY or SECONDARY.
i The primary purpose must only be one but the secondary purpose can be
(Sec. 181) several.
Before the RCC, intra-corporate disputes are settled in the As a general rule, the primary purpose determines the classification of the
RTC, but SEC can first handle intra-corporate disputes if such corporation.
is possible for mediation. Where a corporation engages in secondary purposes, it may also be classified
Under the RCC, RTC will dismiss the case if it finds an based on the secondary purpose.
arbitration agreement in the AOI/by-laws/separate Scenario:
agreement. A corporation is a mining corporation if mining is its primary
AOI may now be filed with the SEC through an electronic document. (subj to purpose.
rules of SEC re: electronic filing) If mining is only a secondary purpose, it may be considered a mining
A corporation now has PERPETUAL EXISTENCE by default. corporation only when it undertakes its mining purpose and is
actually engaged in it.
Articles of Incorporation as Charter and Contract If a corporation is engaged in establishing, operating, managing and
Articles of Incorporation has been described as a document that defines the investing in corporations engaged in mining activities, then such
charter of the corporation stating its name, purpose or purposes, its capital company cannot engage in the business of mining itself.
stock, as well as the description of its governing board as well as other A corporate purpose must always be specified with sufficient clearness to
stipulations under this section. define with certainty the scope of the business or undertaking prescribed.
The contents of the AOI are binding, not only on the corporation and its Vague and general terms must be avoided.
stockholders. It must be noted that not all powers of a corporation need be described in the
The AOI also binds the state. The state cannot disregard the provisions of the AOI. other powers may be implied or incidental.
Articles without any valid reason. It cannot whimsically revoke the AOI. All the clauses shall be considered together in association with another in
It constitutes the constitution of a corporation. determining what the corporation may do.
An entry in the articles of incorporation is evidence of the factual stipulations Why is the purpose of a corporation included in the AOI?
therein. So that the person who intends to invest his money in the business

lOMoARcPSD|31111392
will know where and in what kind of business or activity his money thus, amendment is not necessary if the corporation will transfer to a new
will be invested address within the same city or municipality.
The directors and officers will be informed regarding the scope of The problem, however, that may be encountered is that the incorporators are
business they are authorized to act now constrained to aggreewith the owner of the specific place indicated in the
A third person will be aware if the transaction he has with the AOI that the same specific place will be the principal office of the corporation.
corporation is within the authority of the corporation. It is not advisable to state a specific place if the owner or possessor
Purposes must not be unlawful. The following are the general limitations thereof has not yet given his consent thereto.
imposed on the purpose clause: The new rule invites an anomaly - there is no corporation to enter into
Cannot be formed for a purpose in which a company is incapable of the contract but the incorporators are forced to designate a specific
doing.
It cannot possess human personal qualifications for the practice of While in actual practice, the stockholders enter into a contract with
profession. prospective lessees to reserve the principal office, such agreement
It cannot be created for a purpose that is contrary to law, morals, exposes the stockholders to liability or forfeiture of deposit or
public policy. advance rentals
It cannot be organized for two or more incompatible purposes.
The corporation may not be organized for a purpose contrary to its Importance of Principal Office
nature. The principal office is considered as its place of residence.
For non-stock corporations, it may not include a purpose that would There may be laws wherein it is focused on the residence of corporations (i.e.
change or contradict its nature as such. for taxation purposes, or determining venue in cases)
The best proof of the purpose of a corporation is its AOI. if the purpose It may also determining where propose service of summons may be made.
indicated therein is lawful then the SEC has no authority to inquire whether the It is also the place where chattel mortgage over shares of stocks in the
corporation has purposes other than those stated. Mandamus will lie to corporation should be registered.
compel to issue the certificate of incorporation. Meetings of stockholders or members shall also be conducted in the city or
Collateral attack on the legality of the purpose of the corporation is NOT municipality where the principal place of business is located.
allowed. A case should be filed to directly attack the purpose of the
corporation. Term
The corporation NOW has perpetual existence unlike in the old law where
Principal Office the corporation only has 50 years of corporate life at a maximum.
The AOI must state the principal office where the corporation will hold office, Thus, a corporation must indicate its desired term, if it opts not to choose
which must be within the Philippines. perpetual existence, which is the default term of a corporation.
The location must be specifically identified.
The specifics must be stated, if feasible: Incorporators
Street number The AOI contains the names, citizenship and residences of the corporation.
Street name Incorporators must be natural persons.
Barangay All incorporators must sign and must subscribe or acknowledge the AOI.
City or municipality Necessarily, the names of incorporators specified must be their legal names,
If practicable, the name of the building. and not their fictitious names or aliases.
The specific address of the incorporators, directors, or trustees must also be
stated. Directors / Trustees
The SEC justified such requirements by stating that show cause letters and the Directors - shall not be more than 15
like issued by the commission have to be addressed to the specific place where Trustees - may be more than 15
the principal office of the corporation is to be found so that these can be The AOI states the names, nationalities and residences of persons who shall act
suitably received by the parties. as directors or trustees until the first regular directors or trustees are duly
Amendment of the AOI is needed for those who do not state their principal elected and qualified according to the corporation code. This means that the
office specifically original directors originally appearing in the AOI will be replaced by regular
If the corporation has moved to another location within the same city of directors after the issuance of the certificate of incorporation.
municipality, the corporation is NOT required to amend their AOI.
INSTEAD, they must declare its new or current specific address in the Capital Stock
General Information Sheet within 15 days of the transfer to the new For stock corporations, it is mandatory to include the following in the AOI:
location. Amount of authorized capital stock

lOMoARcPSD|31111392
Number of shares into which it is divided nationals by mandate of the Constitute and specific laws
The par value of each LIST B - which contain the areas of activities and enterprises
Names, nationalities and residence addresses of the original regulated pursuant to law.
subscribers The amendments to list B after the promulgation of the first
Amount subscribed and paid by each on the subscription, and a Regular Negative List shall not be made more often than
statement that some or all the shares are without par value (if every two years.
applicable) The following are included in List A, which includes activities limited to 40%
Capital stock may be divided into classes or series of shares or both. Any of foreign equity (foreign ownership) by the constitution:
which classes or series or shares may have such rights, privileges or Exploration, exploitation, development and utilization of natural
restrictions as may be provided in theAOI. resources
No share must be deprived of voting rights except preferred or redeemable Operation of public utilities
shares. Educational institutions
There shall always be a class or series of shares which may have complete Facility operators of a BOT project requiring public utility franchise
voting rights
Note that the old provision regarding minimum subscribed capital stock of Domestic Market Enterprise
25% and paid up capital of 25% IS NOT ANYMORE REQUIRED IN THE RCC. DOMESTIC MARKET ENTERPRISE - enterprise that produces goods for sales,
renders service or otherwise engages in any business in the Philippines.
Effect if Sole Proprietorship is Organized Under RA 7042, foreigners are limited to 40% equity in a domestic market if
A single proprietorship may be organized as a corporation. In such case, it is the paid-in equity capital is less than $200,000
required that there is a deed of assignment that must specify the liabilities of The threshold paid-in capital is $100,000 if the Domestic Market Enterprise
the sole proprietorship that are being assumed by the new corporation. involves advance technology.
The corporation would not be liable if there is no assumption of obligation. Holding companies are included within the term domestic market enterprise.
Proof must be shown to prove that a corporation has acquired the receivables
of its predecessor single proprietorship. Retail Business
The SC relied on Corpus Juris Secundum and explained that where an individual Limited to Filipinos depending on the capitalization.
or sole trader organizes a corporation to take over his business and all ihs The Retail Trade Liberalization Law act of 2000 provides that retail trade shall
assets, and it becomes in effect merely an alter ego of the incorporator, the mean any act, occupation, or calling of habitually selling direct to the general
corporation is liable for the incorporators pre-existing debts and liabilities. public merchandise, commodities or good for consumption.
The corporation, however, is not liable on an implied assumption of debts from To constitute a retail business, the following requisites must concur:
the receipt of assets where the incorporator retains sufficient assets to pay the The person or entity must be selling merchandise, commodities or
indebtedness, where no assets are transferred to the corporation, or where all goods
assets are transferred to the corporation but there is a change in the persons The sale must be direct to the general public
carrying on the business. The merchandise, commodities or goods are for consumption
Sale of goods is not retail if it is a mere incident to the primary purpose (i.e. sale
Foreign Equity of food in a restaurant and sale of goods in a gift shop inside a hotel)
For corporations that will engage in any business that is fully or partly reserved The items must be sold to the final and end users of the product.
for Filipino citizens, the following provision must be included: CONSUMER GOODS - defined as goods that are used or bought for use
educe the ownership of Filipino primarily for personal, family or household purposes. Such goods are not
citizens to less than the required percentage of the capital shall be intended for resale or further use in the production of other products.
allowed or permitted to be recorded in the proper books. This Consumer goods are goods which by their very nature are ready for
restriction shall be printed in all the stock certificates of the consumption.
PRODUCER GOODS - goods (as tools and raw material) that are factors in the
There are nationalization laws that are in force in the PH. human production of other goods and that satisfy wants only indirectly called
The percentage of equity participation of foreigners is reflected in E.O. 184 also auxiliary goods, instrumental goods and intermediate goods.
otherwise known as the Tenth Regular Foreign Investment Negative List. WHOLESALING - selling to retailers or jobbers rather than to consumers or a
This was issued pursuant to section 8 of RA 7042 also known as the sale in large quantity to one who intends to resell.
Foreign investments Act of 1991. The following are not considered as retail.
Section 8 of RA 7042 provides that the Negative List shall have two Sale of industrial machinery to be used in a coconut central - classified
components: as sale of production or consumer goods since the diesel generating
LIST A - enumerates the areas of activities reserved to Philippine item is not a consumer item

lOMoARcPSD|31111392
Sale of industrial cranes and cutting tools to firms engaged in Problems

construction, mining and similar activities does not constitute retail. Q:
Sale of motorbikes to industrial users or fleet users is also not A:
considered retail.
Sale of products to be used by real estate developers Q:
The sale of telecommunications and service processing equipment to A: No. the address must be stated specifically and with particularity.
banking institutions
Sale of mobile phone parts and accessories and other related Q:
materials, as replacement, does not constitute retail trade for (PHP1,000,000) sufficient?
corporations engaged in the business of repair. A: No. it must contain the amount of its authorized capital stock in lawful money in the
Auction of jewelry is not within the purview of retail business since Philippines, the number of shares into which it is divided, and in case the shares are par
the goods are not sold directly or readily available to the general value shares, the par value of each, and if some or all the shares are without par value,
public but only to those invited to participate in competitive building such fact must be stated.
process.
Q: While the incorporation papers of Block C Inc. was pending before the SEC, A, the
Mass Media treasurer in the AOI held real estate property worth P20,000 which E turned over for
For purposes of complying with the constitutional provision limiting ownership shares he purchased in Block C Inc. could be issued, H, who claims to be the owner of the
of mass media corporations to Filipinos, mass media means gathering, said real property, filed an action against the corporation for the recovery of possession
transmission of news, information, messages, signals and forms of written, oral of the same. Will it prosper?
and all visual communications. A: No. the issuance of the Certificate of Incorporation is an indispensable requisite for
Under PD No. 1018, mass media refers to the print medium of communication the existence of a corporation. In this case, it is still pending before the SEC.
which includes all newspapers, periodicals, magazines, journals and
publications and all advertising therein, and billboards, neon signs and the like, Q: May a corporation composed entirely of aliens be organized and incorporated in the
and the broadcast medium of communication which includes radio and Philippines? Yes
television broadcasting in all their aspects and all other cinematographic or A: Yes. if the nationalisation laws do not require ownership by Filipinos. There are,
radio promotions and advertising. (Sec. 1) however, instances where at least a majority or a higher percentage of the outstanding
The distinctive feature of mass media undertaking is the dissemination of shares of which are required by law to be owned by Filipino Citizens.
information and ideas to the public or the portion thereof
Q: Is a provision in the AOI disallowing stockholders to engage in business (primary
Real Estate Companies purpose) that is similar or competing with the corporation in which he is a stockholder
Only corporations with at least 60% of the outstanding capital stock belongs to valid?
Filipinos can own real properties. A: yes. The provision constitutes a reasonable exercise of corporate authority since a
This limitation is expressly provided for in the constitution. A corporation cor -
cannot own land if more than 40% of the OCS belongs to foreigners. and protect itself by excluding competitors or hostile interest.
However, the prohibition in the constitution is limited to private land and land
of public domain. Q: May the composition of the board of directors of the National Power Corporation
Corporations can still own real properties like houses or buildings unless (NPC) be validly reduced to three?
specifically belongs to foreigners. A: YES. The minimum number under the RCC is one incorporator.
An exception is with respect to condominium units because foreign
interest in the condominium corporation should not exceed 40%.
For non-stock corporations, its nationality in relation to the provision on land SEC. 14. Form of Articles of Incorporation. Unless otherwise prescribed by
special law, the articles of incorporation of all domestic corporations shall
acquisition is computed on the basis of nationality of its members and not
based on the capital contributions. comply substantially with the following form:
Articles of Incorporation
Anti-Dummy Law of __________________________ (Name of Corporation)
Violation of the requirements of the nationalization laws is subject to the The undersigned incorporators, all of legal age, have voluntarily agreed to form
a (stock) (non- stock) corporation under the laws of the Republic of the
criminal liability under the Commonwealth Act No. 108, known as the anti-
dummy law. Philippines and certify the following:
AOIs that are submitted contrary to this law may be rejected by the SEC.
;

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Second: That the purpose or purposes for which such corporation is Tenth: That the incorporators undertake to change the name of the corporation
incorporated are: (If there is more than one purpose, indicate primary and immediately upon receipt of notice from the Commission that another
secondary purposes); corporation, partnership or person has acquired a prior right to the use of such
Third: That the principal office of the corporation is located in the name, that the name has been declared not distinguishable from a name already
City/Municipality of ______________________, Province of _______________________, registered or reserved for the use of another corporation, or that it is contrary
Philippines; to law, public morals, good customs or public policy.
Fourth: That the corporation shall have perpetual existence or a term of Eleventh: (Corporations which will engage in any business or activity reserved
______________ years from the date of issuance of the certificate of incorporation; for Filipino citizens shall provide the following):
Fifth: That the names, nationalities, and residence addresses of the
incorporators of the corporation are as follows: citizens to less than the required percentage of capital stock as provided by
Name Nationality Residence existing laws shall be allowed or permitted to be recorded in the proper books
_____________________________________ of the corporation, and this restriction shall be indicated in all stock certificates
_____________________________________
Sixth: That the number of directors or trustees of the corporation shall IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation,
be____________; and the names, nationalities, and residence addresses of the first this ................... day of .............................., 20........... in the City/Municipality of
directors or trustees of the corporation are as follows: ........................................, Province of ................................................., Republic of the
Name Nationality Residence Philippines.
_____________________________________ (Names and Signatures of the incorporators)
_____________________________________ (Name and Signatures of Treasurer)
Seventh: That the authorized capital stock of the corporation is ______________
PESOS (P________), divided into _____ shares with the par value of ____________ PESOS
(P_______________) per share. CHANGES:
Possible names OPC
(In case all the shares are without par value): That the capital stock of the
corporation is __________________________ shares without par value. OPC -
(In case some shares have par value and some are without par value): That the Provides a part to indicate what preferred corporate term is, if not perpetual
capital stock of said corporation consists of __________________________ shares, of existence.
which _______________________ shares have a par value of _________________ PESOS No more
of Incorporation.
(P____________) each, and of which _______________________ shares are without par value.
Eighth: That the number of shares of the authorized capital stock above stated Makes sense because the RCC has abolished the 25-25 minimum AC
has been subscribed as follows: stock+subscription requirement.
Incorporators now have to indicate that they are willing to change the name of
Name of Nationality No. of Shares Amount Amount Paid corp immediately if another corp has:
Subscriber Subscribed Subscribed
acquired a prior right to the use of such name,
that the name has been declared not distinguishable from a name
already registered or reserved for the use of another corporation,
(Modify No. 8 if shares are with no par value. In case the corporation is or that it is contrary to law, public morals, good customs or public
nonstock, Nos. 7 and 8 of the above articles may be modified accordingly, and it policy.
is sufficient if the articles state the amount of capital or money contributed or
donated by specified persons, stating the names, nationalities, and residence
addresses of the contributors or donors and the respective amount given by SEC. 15. Amendment of Articles of Incorporation. Unless otherwise prescribed
each.) by this Code or by special law, and for legitimate purposes, any provision or
Ninth: That _____________________ has been elected by the subscribers as Treasurer matter stated in the articles of incorporation may be amended by a majority
of the Corporation to act as such until after the successor is duly elected and vote of the board of directors or trustees and the vote or written assent of the
qualified in accordance with the bylaws, that as Treasurer, authority has been stockholders representing at least two-thirds (2/3) of the outstanding capital
given to receive in the name and for the benefit of the corporation, all stock, without prejudice to the appraisal right of dissenting stockholders in
subscriptions, contributions or donations paid or given by the subscribers or accordance with the provisions of this Code. The articles of incorporation of a
members, who certifies the information set forth in the seventh and eighth nonstock corporation may be amended by the vote or written assent of majority
clauses above, and that the paid-up portion of the subscription in cash and/or of the trustees and at least two-thirds (2/3) of the members.
property for the benefit and credit of the corporation has been duly received.

lOMoARcPSD|31111392
Amendment of the AOI and the amended provisions

The original and amended articles together shall contain all provisions required Vote of the directors or trustees and stockholders or
by law to be set out in the articles of incorporation. Amendments to the articles
members
shall be indicated by underscoring the change or changes made, and a copy Date and place of the stockholders meeting
thereof duly certified under oath by the corporate secretary and a majority of Tax identification number of the signatories
the directors or trustees, with a statement that the amendments have been duly Monitoring Clearance
approved by the required vote of the stockholders or members, shall be Secr - notarized document signed by the corporate
submitted to the Commission.
secretary certifying that no action or proceeding has been filed or is
pending before any Court or tribunal involving an intra-corporate
The amendments shall take effect upon their approval by the Commission or dispute or claim by any person or group against the directors, officers,
from the date of filing with the said Commission if not acted upon within six (6) or stockholders of the Corporation.
months from the date of filing for a cause not attributable to the corporation. Indorsement from government agencies are necessary in some cases.
Amendment of the AOI of banks requires indorsement of the Bangko
CHANGES: Sentral ng Pilipinas.
- If the CORPORATE NAME is to be amended, the ff. shall be submitted:
paragraph 1. Such change is wholly irrelevant. Name verification slip
Affidavit of a director, trustee, or officer undertaking to change
Requirements corporate name, as provided for in their AOI.
Section 16 imposes certain requirements for the amendment of the Articles of This is not necessary if the commitment to amend corporate
Incorporation: name is expressly stated in the present AOI.
The amendment must be for legitimate purposes and must not be
contrary to other provisions of the Corporation Code or special laws. Provisions to be Amended
It must be approved by a MAJORITY vote of the board of directors or Amendments cannot be allowed if it goes against the nature of the corporation.
trustees. There can be no amendment in the AOI of a non-stock corporation to
There must be a vote or written assent of the stockholders convert it into a stock corporation with the members as stockholders.
represen This will effect the distribution of assets to the members
members. which is contrary to the Code.
The original and amended articles together shall contain all
provisions required by ;aw to be set out in the AOI. Accomplished Fact Rule
Such articles as amended shall be indicated by These are provisions of the AOI that CANNOT be amended because they are
underscoring the change or changes made. accomplished facts.
The amendment must be approved by the SEC. Names of the incorporators and their number
Take note that the corporation cannot provide for another procedure to amend Original directors
its articles of incorporation. While the directors can adopt by-laws for the
corporation, it shall not be repugnant to the Corporation Code. Effect of Amendment of the Corporation Code
While the directors can create a committee tasked ti draft No right or remedy in favor of or against the corporation or its stockholders,
amendments to the AOI, the power of the committee can only be members, directors, or trustees nor any liability of those mentioned shall be
recommendatory. removed or impaired either by subsequent dissolution of the corporation or
by ANY SUBSEQUENT AMENDMENT or repeal of the Code.
Express and Implied Approval
Express approval: amendments shall TAKE EFFECT upon the approval of the Written assent of Stockholders
SEC. Silence or failure to object CANNOT be construed as approval by the
Implied approval: amendments shall TAKE EFFECT from the DATE OF FILING stockholders.
with the SEC if NOT acted upon within 6 months from the date of filing for a The law states that the stockholders must expressly approve amendment
cause not attributable to the corporation. through affirmative vote or an assent that is in writing.
Registration requirements for Amended Articles of Incorporation: A meeting is not required. What is needed is just a written assent - not needed
Amended Articles of Incorporation that this was done in a meeting.
- this is a notarized document Exceptions to this rule:
signed by a majority of the directors or trustees and the corporate Amendment to shorten or extend corporate term
secretary signifying: Amendment to increase or decrease capital stock

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recommendation of the appropriate government agency to the effect that such

Who can question amendments
articles or amendment is in accordance with law.
Only by a real party in interest like a shareholder or member.
When a person is not a member of a non-stock corporation (NSC) then he
CHANGES:
No substantial amendment.
Sample questions in the book:
1. Can a stock corporation amend its AOI to turn it into a charitable non-stock and Ministerial Duty
non-profit corporation?
a. Yes. This means that the stockholders waive their right to the share of compliance with the requirements of this Code.
the profit. But this amendment shall not prejudice the right of any But the SEC can REJECT the AOI or proposed amendment if the provisions of
creditor. the Corporation Code will be violated.
2. What if a non-stock corporation (NSC) amends its AOI to turn it into a stock Remedy for this: SEC will order the incorporators to correct or modify
corporation, is that valid? the objectionable portions within a reasonable time.
a. No. Members of an NSC do not have the right to the assets and profits
of the corporation. If the amendment will be pushed for - there will be Rejected NOT based on Submitted Articles
a distribution of asset hence contrary to the Code. What they should The SEC needs to go beyond the submitted AOI and the supporting papers if the
do is dissolve the stock corporation then reincorporate as a NSC. establishment or operation of such entity will be inconsistent with the declared
3. In a stockholders meeting where the required number of votes for an national policies.
amendment was not obtained, the directors opted for two options. Now, choose Usually, this is done by the SEC after consultation with the following agencies:
which of the two options can directors pursue - (a) get the votes of the present Board of Investments
stockholders and then convene another meeting to get the additional votes Department of Trade and Industry
needed or (b) solicit the remaining balance of the votes by writing the absent National Economic and Development Authority
stockholders? Any other appropriate agency
a. The board of directors can opt for either because the law does not AOI may be rejected if it does not substantially comply with the form
require a meeting for the vote of the stockholders to be valid. It just prescribed in SEC. 14 of this CODE.
says a vote or written assent.
Illegal or Immoral Purposes

SEC. 16. Grounds When Articles of Incorporation or Amendment may be
AOi can be rejected if the purpose of the corporation is patently
Disapproved. The Commission may disapprove the articles of incorporation or
unconstitutional, illegal, immoral, or contrary to government rules and
any amendment thereto if the same is not compliant with the requirements of
regulations. Examples:
this Code: Provided, That the Commission shall give the incorporators,
If the purpose of the corporation is to promote and enhance the
directors, trustees, or officers a reasonable time from receipt of the disapproval
incorporation of the PH as an American State
within which to modify the objectionable portions of the articles or amendment.
Purpose is to practice a profession except in certain cases
The following are grounds for such disapproval:
Corporation is organized to engage in illegal gambling
a. The articles of incorporation or any amendment thereto is not
Purpose if for mail order bride service
substantially in accordance with the form prescribed herein;
Purpose is to establish an LGU unit like a barangay
b. The purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral or contrary to government rules and
regulations;
The AOI or amendment thereof can be rejected if the TA stating the amount of
c. The certification concerning the amount of capital stock subscribed
capital stock subscribed and/or paid is false.
and/or paid is false; and
d. The required percentage of Filipino ownership of the capital stock
Nationalization Requirement
under existing laws or the Constitution has not been complied with.
AOI may be rejected if the percentage of ownership of the capital stock to be
owned by citizens of the PH has not been complied with as required by the
No articles of incorporation or amendment to articles of incorporation of banks,
existing laws or Constitution.
banking and quasi-banking institutions, preneed, insurance and trust
In a buying and selling realty, if foreigners own more than 40% of the
companies, NSSLAS, pawnshops, and other financial intermediaries shall be
subscribed capital - then AOI shall be rejected.
approved by the Commission unless accompanied by a favorable

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Endorsement by Government Agencies A corporation seeking to prevent another corporation from using its name
SEC will not approve the AOI if it is not accompanied by the required under Sec. 17 must prove that:
endorsement of a government agency. (Check page 207 of the book). Corporate has acquired a prior right over the use of the corporate
name.
In any of the following cases:
The name is identical, deceptively or confusingly similar to
SEC. 17. Corporate name. No corporate name shall be allowed by the that of any existing corporation including internationally
Commission if it is not distinguishable from that already reserved or registered
known foreign corporation though not used in the PH
for the use of another corporation, or if such name is already protected by law, Name is already protected by law
or when its use is contrary to existing law, rules and regulations. Name is contrary to law, morals, or public policy or is
patently deceptive, or confusing
A name is not distinguishable even if it contains one or more of the following: The protection of the corporate name is lodged exclusively on SEC.
a.
or an abbreviation of one of such words; and Similar Names
b. Punctuations, articles, conjunctions, contractions, prepositions, It is fraud to the corporation for one to use a similar name or a name with slight
abbreviations, different tenses, spacing, or number of the same word or variation to the one it is using in such a way that induces people to believe that
phrase. they are dealing with the corporation which has given a reputation to the same.
The Commission, upon determination that the corporate name is: (1) not Prior Right
distinguishable from a name already reserved or registered for the use of A corporation that is incorporated and adopts a corporate name earlier
another corporation; (2) already protected by law; or (3) contrary to law, rules acquires a prior right over the use of the corporate name.
and regulations, may summarily order the corporation to immediately cease A corporate name is a property right and is asserted against the whole
and desist from using such name and require the corporation to register a new
world.
one. The Commission shall also cause the removal of all visible signages, marks, Even a foreign corporation can sue a domestic corporation in these
advertisements, labels, prints and other effects bearing such corporate name. cases.
Upon the approval of the new corporate name, the Commission shall issue a The test is whether the similarity is such as to mislead a person using ordinary
certificate of incorporation under the amended name. care and discrimination and the Court must look to the record as well as the
name.
Dominancy Test - there is infringement if the mark contains the dominant
may hold the corporation and its responsible directors or officers in contempt feature of the mark of a trademark belonging to another.
and/or hold them administratively, civilly and/or criminally liable under this Universal Mills Corporation vs. Universal Textile Mills, Inc.
Code and other applicable laws and/or revoke the registration of the
Standard Philips Corporation vs. Philips Electrical Lamps, Inc. and
corporation. Philips Industrial Development Inc.
Purpose of the prohibition:
CHANGES: Avoidance of fraud
2nd to 4th paragraph has been added. Avoid evasion of legal obligations and duties
Second paragraph lays down specific factors that DOES NOT distinguish one Reduction of difficulties of administration and supervision over
corporate name to another. corporations
Third paragraph lays down 3 criteria on when SEC can summarily order the Generic, deceptive, and geographical terms CANNOT be exclusively
corporation to stop using an invalid corporate name. appropriated.
Fourth paragraph lays down liability of disobedient directors or officers of the Example: Filipino or Phil./Philippines
corporation.
Doctrine of Secondary Meaning
Basic Policy A word or phrase, which is originally incapable of exclusive appropriation
A corporation cannot use a name that belongs to another even as a trade name. because the word or phrase is geographic or otherwise descriptive, might
This practice prevents confusion and the opening of doors to frauds nevertheless have been used for so long and so exclusively by one producer
and evasions and difficulties of administration and supervision. with reference to an article and the purchasing public has considered the word
or phrase as associated to this product. Hence, the corporate name is such case
What must be proved by the oppositor is valid for the one who adopted it first.

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Name in the Articles of Incorporation

A person or group of persons desiring to incorporate shall submit the intended
A corporation cannot use any other corporate name other than what is
corporate name to the Commission for verification. If the Commission finds that
reflected in the AOI.
the name is distinguishable from a name already reserved or registered for the
Note that a corporation can use a trademark or trade name that is separate
use of another corporation, not protected by law and not contrary to law, rules
from its corporate name.
and regulations, the name shall be reserved in favor of the incorporators. The
Corporate name: Jolibee Foods Corporation
incorporators shall then submit their articles of incorporation and bylaws to the
Trade name: Greenwich or Jolibee
Commission.
The Court listed down the Omnibus Guidelines and Procedures on the Use of
Corporate and Partnership Names [pages 215-220; read it if you want but I
If the Commission finds that the submitted documents and information are fully
compliant with the requirements of this Code, other relevant laws, rules and
Stated in these rules that there shall be inclusion of the word Corp or
regulations, the Commission shall issue the certificate of incorporation.
Incorporated or the abbreviations Corp. or Inc.
Purpose is to distinguish corporations from partnerships
A private corporation organized under this Code commences its corporate
and unregistered associations.
existence and juridical personality from the date the Commission issues the
Only expired corporations may apply for re-registration using the
certificate of incorporation under its official seal and thereupon the
same corporate name.
incorporators, stockholders/members and their successors shall constitute a
If a new corporation is organized using the name of a dissolved
body corporate under the name stated in the articles of incorporation for the
corporation, the newly formed corporation cannot be considered as
period of time mentioned therein, unless said period is extended or the
the legal successor of the dissolved corporation.
corporation is sooner dissolved in accordance with law.
The new corporation has a personality separate and distinct
from the dissolved corporation.
CHANGES:
Change of Name Not much. It just expounded on the requirements.
A corporation may change its corporate just in the same right as individuals.
A general power to alter or amend the charter of a corporation necessarily Certification of Incorporation
includes the power to alter the name of the corporation. The issuance of the certificate of incorporation by the SEC marks the
An authorized change in the name of a corporation has no more effect upon its commencement of the corporate term.
identity as a corporation than a change of name of a natural person has upon This is the only when the incorporators, stockholders/members and
his identity. It does not affect the rights of the corporation or lessen or add to their successors shall constitute a body politic and corporate under
its obligations. After a corporation has effected a change in its name it should the name of the corporation.
sue and be sued in is new name. There is no corporation to speak of prior to its incorporation.
This means that a corporation, for example, is still liable for illegal No contract entered into before its incorporation can bind the
dismissal of employees under the guise that a new corporation was corporation.
created when the employer corporation was renamed. Hence, a management contract with a general manager that
The corporate who changed its name has no obligation to formally notify its
debtors. Notification to debtors is discretionary. incorporated is not binding on the corporation unless it is
The old corporate name must be indicated in the Certificate of Filing of later on ratified or adopted.
Amended AOI. The issuance of a certificate of incorporation is not needed if the corporation is
Another corporation cannot appropriate this old name. created through a special law.
The former corporate name cannot be registered by other individuals Corporate existence begins when the law takes effect.
with the SEC. When a condition precedent is needed before the existence of the
The amendment of the AOI to change the corporate name impliedly amends the corporation then it shall exist when there has been substantial
name appearing in the by-laws. performance of such condition.
Corporation with the Same Name (???) Contract Law under the Corporation Code
Even if 2 corporations have the same name, the corporations do not have the Certain contracts may bind a corporation even if the same are entered into
same legal personality. They are separate and distinct. before incorporation.
A pre-incorporation subscription agreement shall be binding on the
SEC. 18. Registration, Incorporation and Commencement of Corporate Existence. corporation even if by that time it negotiated with the subscriber it
was still legally non-existent.

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Other binding pre-incorporation contracts: Non-compliance with conditions precedent to incorporation may affect the de
A contracting party cannot claim that the contract is a personal jure existence of a corporation.
contract of the officer when he knew that it was really a contract with One condition precedent is getting a certificate of incorporation.
the corporation (but it was not yet incorporated). In this case, the Non-compliance with conditions subsequent may not affect the de
corporation can be bound by the contract when it ratifies the contract jure existence.
by reaping benefits from the contract. Like filing of by-laws, this is not mandatory after
incorporation and failure to submit this will not affect the
Promoters existence of the corporation at all.
General rule: acts of the promoter are NOT binding on the corporation. BUT - it may be a ground of revocation of the certificate of
Exception: Some contracts entered into by the promoter may bind the incorporation.
corporation.
Definition of promoters: persons who are acting alone or with others, take De Facto Corporations Requirements
initiative in founding and organizing the business or enterprise. A valid law under which the corporation is organized
Agents cannot act as agents for a projected corporation since that To be de facto, it must be possible for a corporation to be de jure. The
which does not have existence cannot have an agent. absence of law erases such possibility.
Promotional activities include: If the corporation is organized under a void law, there is no resulting
Discovery - finding the business opportunity to be developed de facto corporation.
Investigation - analysis of the proposed business to determine But some believe that an unconstitutional law is an
whether or not it is economically feasible operative fact that shall not affect the de facto existence of a
Assembly - bringing together of the necessary personnel, property, corporation.
and money to set the business in motion as well as the secondary An attempt in good faith to incorporate
details of setting up the corporation itself Good faith means a colorable compliance with the law
Stockholders and the corporation cannot be held personally liable for the There is no good faith is there is no certificate of incorporation to
compensation claimed by the promoter. begin with because the incorporators should know that this
BUT any benefit derived by the promoter for the corporation shall be commences their personality.
given to the corporation because of their fiduciary relationship. Defects that do not affect the de facto existence of a corporation:
For example, the promoter must account for the profits Corporate name resembles that of a pre-existing corporation
derived from transactions entered into in behalf of the Ineligibility of one or more incorporators
corporation. One of the purposes is not authorized by law
An assumption of corporate powers
Underwriter It is required that there shall be a user of corporate powers.
This is a person who guarantees on firm commitment and/or declared best A corporation must exercise its franchise by doing business under it.
effort basis the distribution and sale of securities of any kind by another There must be some corporate act or acts in attempt to execute the
company. powers listed in the articles of incorporation or by the special charter.
De Jure Corporation vs. De Facto Corporation

SEC. 19. De facto Corporations. The due incorporation of any corporation
De jure corporation has a right to corporate existence even against the state.
claiming in good faith to be a corporation under this Code, and its right to De facto corporation has a right to corporate existence even against the state if
exercise corporate powers, shall not be inquired into collaterally in any private the attack if collateral but not if the attack is direct.
suit to which such corporation may be a party. Such inquiry may be made by the
De facto corporations prevent collateral attack on the personality of
Solicitor General in a quo warranto proceeding. the corporation.
Policy considerations:
CHANGES: None. Merits of the controversy seldom uses the de facto doctrine
If any rights and franchises have been usurped, they are
De Jure or Defective Corporations rights and franchise of the state and the state alone can
Non-compliance with directory provisions of law or regulations will not affect object.
the de jure existence of a corporation. Stockholders in the two corporations just have the same rights unless
But non-compliance with mandatory provisions will affect the de jure otherwise provided by the statute but no greater rights shall be granted to the
existence. de jure corporation.
De facto corporations can only be attacked in a proper proceeding.

lOMoARcPSD|31111392
were a corporation
Dissolved Corporation
A group of employees who continued the operations of a dissolved corporation
whose registration has been revoked cannot acquire the status of a de facto The enterprise contracts Allowed to prosper Allowed to prosper
corporation. with the outsider, and because there is a juridical
Remember that once the charter of a corporation is forfeited or revoked, its subsequently brings action person that can file the
legal existence is terminated hence it neither be de facto or de jure. in corporate form as action.
though it were a
corporation
SEC. 20. Corporation by Estoppel. All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general The enterprise contracts Since there is no Case can be maintained
partners for all debts, liabilities and damages incurred or arising as a result with an outsider, and the corporation to speak of, against the components.
thereof: Provided, however, That when any such ostensible corporation is sued outsider brings action the case will prosper
on any transaction entered by it as a corporation or on any tort committed by it against the component against those composing
as such, it shall not be allowed to use its lack of corporate personality as a individuals the corporation
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 The enterprise contracts Case will prosper since Case cannot be maintained
corporation. with an outsider, and the there is no separate against the components
component individuals juridical personality to since the personality of the
seek to hold the outsider speak of components is separate
CHANGES: No changes. Phrase added.
liable on his contract and distinct from the
corporation.
Two parts of this provision:
An unincorporated association, which represented itself to be a corporation,
will be estopped from denying its corporate capacity in a suit against it by a Non-applicability of the rule
third person who relied in good faith on such representation. An application of this doctrine applies to a third party only when he tries to
A third party who, knowing an association to be unincorporated, nonetheless escape liability on a contract from which he has benefited on the irrelevant
treated it as a corporation and received benefits from it, may be barred from ground of defective corporation.
denying its corporate existence in a suit brought against the alleged It is NOT applicable is the party is not trying to escape liability from the
corporation. contract but rather is the one claiming from the contract.
Liability as General Partners: Cannot Override Jurisdictional Requirement

Those who assume to act as a corporation knowing it to be without authority to If the law will be passed granting an administrative tribunal jurisdiction to hear
do so shall be liable EVEN BEYOND their investment. cases involving corporations, the same tribunal cannot assume jurisdiction over
Their personal properties may be made to answer for what is a case filed against a non-existent corporation just because one party is
purportedly a corporate debt of the non-existent corporation. allegedly estopped from claiming that the corporation is non-existent.
NOTE that this also means that those WITHOUT knowledge of the non-
existence of the corporation are liable as if they are REGULAR STOCKHOLDERS
- meaning NOT BEYOND their investments unlike the first one mentioned. SEC. 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation. If
a corporation does not formally organize and commence its business within five
Consequences for enterprises that have not secured its creation (5) years from the date of its incorporation, its certificate of incorporation shall
be deemed revoked as of the day following the end of the five-year period.
Situation If corporation is in If the corporation is a de However, if a corporation has commenced its business but subsequently
estoppel facto one becomes inoperative for a period of at least five (5) consecutive years, the
Commission may, after due notice and hearing, place the corporation under
The enterprise contracts Allowed to prosper Allowed to prosper delinquent status.
with an outsider, who later because there is a juridical
brings actions against the person that can file the A delinquent corporation shall have a period of two (2) years to resume
enterprise as though it action. operations and comply with all requirements that the Commission shall

lOMoARcPSD|31111392
Making plans for the construction of the factory

prescribe. Upon compliance by the corporation, the Commission shall issue an
order lifting the delinquent status. Failure to comply with the requirements and
equipment
resume operations within the period given by the Commission shall cause the
revocation of the co TITLE III
BOARD OF DIRECTORS/ TRUSTEES AND OFFICERS
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 SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and
jurisdiction. Term. Unless otherwise provided in this Code, the board of directors or
trustees shall exercise the corporate powers, conduct all business, and control
all properties of the corporation.
CHANGES:
Defined what a delinquent corporation is.
Directors shall be elected for a term of one (1) year from among the holders of
It allowed for a corporation to be revived after inoperation of 2 years.
RCC deleted this sentence from the provision: This provision shall not apply if
term not exceeding three (3) years from among the members of the corporation.
the failure to organize, commence the transaction of its businesses or the
Each director and trustee shall hold office until the successor is elected and
construction of its works, or to continuously operate is due to causes beyond
qualified. A director who ceases to own at least one (1) share of stock or a
the control of the corporation as may be determined by the Securities and
trustee who ceases to be a member of the corporation shall cease to be such.
Exchange Commission.
The board of the following corporations vested with public interest shall have
Violations involved in this section:
independent directors constituting at least twenty percent (20%) of such board:
If a corporation does not formally organize and commence its business within 5
years
a. Corporations covered by Section 17.2 of Republic Act No. 8799,
Effect: certificate of incorporation shall be deemed revoked following
the end of the 5-year period
whose securities are registered with the Commission, corporations
If a corporation has commenced its business but subsequently becomes
listed with an exchange or with assets of at least Fifty million pesos
inoperative for a period of at least 5 consecutive years
(P50,000,000.00) and having two hundred (200) or more holders of
Effect: after due notice and hearing, the corporation will be put on
shares, with at least one hundred (100) shares of a class of its equity
delinquent status
shares;
Remedy: it shall have a period of 2 years to resume operations.
b. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in
Otherwise, certificate of incorporation will likewise be revoked.
money service business, pre-need, trust and insurance companies, and
other financial intermediaries; and
Meaning of Organization
c. Other corporations engaged in business vested with public interest
Relates to the systematization and orderly arrangement of the internal and
similar to the above, as may be determined by the Commission, after
managerial affairs and organs of the corporation.
taking into account relevant factors which are germane to the objective
It is the process of forming and arranging into suitable disposition the parties
and purpose of requiring the election of an independent director, such
who are to act together in and defining the objects of the compound body.
as the extent of minority ownership, type of financial products or
It includes:
securities issued or offered to investors, public interest involved in the
Election of officers, directors, or trustees
nature of business operations, and other analogous factors.
Providing for the subscription and payment of capital stock
Adoption of the by-laws
An independent director is a person who, apart from shareholdings and fees
Establishment of principal office
received from the corporation, is independent of management and free from
Taking such steps as are necessary to endow the legal entity with
any business or other relationship which could, or could reasonably be
capacity to transact the legitimate business for which it was created.
perceived to materially interfere with the exercise of independent judgment in
carrying out the responsibilities as a director.
Meaning of Commencement of Business
It is when the corporation has performed preparatory acts geared toward the
Independent directors must be elected by the shareholders present or entitled
fulfillment of the purpose for which it was established such as:
to vote in absentia during the election of directors. Independent directors shall
Entering into contracts or negotiations for lease or purchase of
be subject to rules and regulations governing their qualifications,
properties to be used as business or factory site

lOMoARcPSD|31111392
disqualifications, voting requirements, duration of term and term limit, institution.

maximum number of board memberships and other requirements that the
Commission will prescribe to strengthen their independence and align with Sui Generis Theory The directors are not agents of the
international best practices. stockholders who elect them. They are
fiduciaries whose duties run primarily to
the corporation. They are also not
CHANGES:
trustees in a strict sense since their
Added the concept of INDEPENDENT directors.
powers are derived from the state
Trustees are limited to having a term of not more than 3 years.
through the statute under which the
corporation is organized.
Corporate Management
All businesses of the corporation shall be conducted and all its properties shall
be controlled and held by the Board of Directors or Trustees. They are charged Independence
with the internal affairs and management. In the management of the affairs of the corporation, the directors are
The board is the central power that authorizes the executive agents to dependent solely upon their own knowledge of its business and their own
enter into contracts and to embark on a business.
The board can give authority to corporate officers to enter into or take The stockholders DO NOT control the directors and the concurrence of the
corporate properties. stockholders is not necessary for their actions unless the ff. provides otherwise:
Stockholders are investors that do not have a hand in running the day-to-day Corp Code
business operations of the corporations unless that are at the same time AOI
directors or officers of the corporation. By-laws
They have the right to vote who will become directors so that they can Stockholders cannot reverse the decisions of the board.
have a voice in the management of corporate affairs. POWER TO UNITE - power of the stockholders to remove and elect directors
hence they are not completely useless
Reason for concentration of power If the stockholders do not agree with the policies of the board, their
It is necessary for efficiency in any large organization. remedy is to wait for the election of the directors or to remove the
Stockholders are too numerous. directors if they have the required vote.
They are scattered and unfamiliar with the business of a corporation
to conduct its business directly. Business Judgment Rule
Remember these: This rule means that the will of the majority of the baord members control in
Speed and cost corporate affairs and contracts intra vires entered into by the board of
Expertise directors are binding on the corporation.
Motivation Courts will not interfere unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of rights of the minority.
Theories on Sources of Powers Court cannot undertake to control the discretion of the board of
directors about administrative matters as to which they have
legitimate powers of action.
Agency Theory All powers resides in the stockholders
Questions of policy and management are left solely to the honest decision
and are just deleted to the directors as
of the officers and directors of the corporation and the courts and the SEC
agents.
cannot disrespect this judgement. Hence, not reviewable by them.
Directors are also not liable to the stockholder in making these business
Concession Theory Power of directors are derived from the judgment.
state. It is the state that permits the As long as they are done in good faith, loyalty, and due care then it is
directors to perform only such functions
valid even if these will result to losses.
as the state allows. Reasons for NOT imposing liability for bad judgment:
Shareholders voluntarily undertake the risk of bad business
Platonic Guardian Theory The board if not a mere caretaker but it judgment.
exercises control over corporate affairs. After-the-fact litigation is unfavored.
The board is considered as an inviolable Business imperative needs quick decisions.

lOMoARcPSD|31111392
confront uncertainty. Term

A judgment cannot be reversed or rendered invalid just Term of trustees may be elected for not more than 3 years.
because at the time it was made it seemed like a wild hunch Term of directors expire after one year.
viewed years later against a background of perfect This is to protect the corporation as well as its creditors and the
knowledge. public dealing with it so that if an improvident act is performed by the
Potential profit means potential risk. board - the subsequent board can redress or prevent the perpetration
Reason for the RULE itself: of the wrong and thereby protect its stockholders, creditors, and the
If officers were liable for mere good faith errors in judgment, no one public.
would be willing to put themselves in financial and emotional risk. This is why a lifetime or unlimited term is prohibited.
Courts are generally ill equipped to evaluate the business judgment. THIS ONE YEAR TERM DOES NOT APPLY TO INCORPORATING
Management has the expertise to discharge the responsibility of DIRECTORS who shall act only as such until the first regular directors
making such determinations. are duly elected and qualified.
Business judgment shields the directors only when the following are Term - time during which the officer may claim to hold the office as of right and
present: fixes the interval after which the several incumbents shall succeed one another.
Presence of a business decision including decisions of policy, Tenure - represents the term during which the incumbent ACTUALLY holds
management, and administration office. This is shorter than a term.
Decision must be intra vires and must comply with procedural and
substantive requirements of law Effect of Pending Cases
Good faith IF the election of the new directors is questioned for being irregular in a case
Due care in making the decision duly filed for such purpose - the whole process will be overtaken by the yearly
Director must not have personal interest or not self-dealing or is
otherwise in breach of the duty of loyalty governed by the specific as mandated by law.
provisions of the Corp. Code. A subsequent valid election prevents from continuing as directors.
Resolution Sample questions from the book:

The board cannot act individually but only COLLECTIVELY as a body. Their 1. 3 out of 5 directors of X Corporation assigned its rights of redemption over the
actions are expressed in resolutions passed in its meetings. remaining assets to A through a deed of assignment. R, the highest bidder, later
Directors are not agents of the corporation individually. on assails this deed of assignment because the 3 directors who executed it were
Collective action is needed for discussion and exchange of view. not part of the stockholders list submitted by the corporation in its transfer
The action of one director does not bind the corporation without valid book. Is R correct?
delegation. A board resolution is needed to prove this. a. Yes. Only persons with at least one share of stock can be a director
Proof of Resolution and this is determined through the books of the corporation. Since
- this is not rendered invalid if not signed by a they are not listed as stockholders, they are automatically disqualified
notary public. What will give it probative value is the signature of the as directors.
secretary. 2. There was a case against NIA. The certificate of forum shopping was signed by
Minutes of the meeting - the board need not sign this but the A, the administrator of the agency, and the case was filed by B, the project
corporate secretary should. manager of the agency. There was no board resolution attached. Can the A and
Ratification B do the things they undertook?
Directors must act as a body in a meeting called pursuant to the by- a. No. NIA is a corporation hence all actions shall be done by the board
laws of the corporation, otherwise, any action may be questioned by of directors. Without being duly authorized by the board, the NIA
an objecting director or shareholder. cannot be bound by the petition.
But said actions can be ratified by the shareholders 3. A President of a corporation executed business with B. B was not paid for the
impliedly or expressly. service and is now trying to recover from the corporation. Is B right?
Ratification by the shareholders cannot be possible if there is a a. Yes. The president was duly authorized and has been in the habit of
separation of board management and stockholders. acting in similar matters on behalf of the corporation (this was stated
urthermore, a party
Quorum and Proxy under this Section in the book no longer dealing with the president of a corporation is entitled to assume that
applicable to the RCC since the sections he referred to have been deleted or trimmed down he has he authority to enter, on behalf of the corporation, into
in the RCC. Nonetheless, they will be discussed in other sections. contracts that are within the scope of the powers of said corporation

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and that do not violate any statute or rule on public policy. This is Shares or Membership
affected by apparent authority. While a corporation cannot be elected, its duly authorized officer or agent who
4. When A issued checks in payment of services rendered to the corporation, the has been designated as nominee may be eligible to be elected as director.
checks bounced. Now, the corporation is raising the defense that A lacked However the nominee can no longer be a director once the authority is revoked
authority and that A signed the checks in his personal capacity. Can the by the principal.
corporation raised this defense validly? A trustee in a voting trust agreement is qualified to run for director.
a. No. the corporation has the power to borrow funds and dispose of It has been opined that a person who is not a stockholder at the time of his
assets in ordinary courses of business. In the exercise of this, the election or appointment is not disqualified as a director if he becomes a
board can authorize one or more of its corporate officers. In this case, shareholder before assuming the duties of his office.
A was authorized (a real life case). A signed the deeds of assignment SEC is in the opinion that a holder of a non-voting share cannot be elected as a
as an agent hence binding to the corporation. director because non-voting shares cannot participate in the management.
5. Can the corporate officers like the general manager be held personally liable for Foreigners can be directors only in proportion to their allowable equity
damages on account of termination of services of employees? participation in the capital of the said activities based on the Anti-Dummy Law.
a. No. An officer acting in good faith within the scope of his authority to
terminate the services of employees cannot be held personally liable Dual Citizens
for damages in the absence of evidence of malice or bad faith. Natural born Filipinos who lost their citizenships by assuming foreign
6. A wants to recover backwages and separation pay from Corporation B. The citizenship may re-acquire and retain their Filipino citizenship under RA 9225.
court held that They can be directors and officers even for corporations engaged in
separation pay. Can the VP be liable? partly nationalised or nationalized industries even if they possessed
a. No. A corporation acts through its directors, officers, and employees. dual citizenship.
While acting for the corporation, they are not liable to persons with
whom they are transacting because those are corporate obligations. Special laws
7. Z Corp. gave cash dividends to its stockholders but the minority stockholders Other special laws may provide for qualifications and disqualifications.
did not want this because it would affect their taxable income. Hence, the Those officers elected by banks are subject to the General Banking
minority stockholders filed a case against the board of directors. The BoD used Law issued by the BSP.
the business judgment rule as a defense. Was the board correct? RA 6713: Code of Conduct and Ethical Standards for Public Officials
a. Yes, declaration of dividends is one of those actions that are within and Employees
the discretion of the Board. Thus the business judgment rule applies.
By Laws
Qualifications The corporation is empowered to provide in its by-laws the qualifications and
He must own at least one share of the capital stock of the corporation in his disqualifications of members of the board.
own name or if the corporation is a non-stock corporation, he shall be a If a disqualified director is elected, the stockholders do not waive their right to
member thereof. question his election.
One cannot be a director if he is merely an assignee of the share and The remedy is to amend the by-laws if the shareholders feel that
the assignment in his favor is not yet registered in the books of the qualifications prescribed in the by-laws should no longer operate.
corporation. Example:
Majority of the directors/trustees must be residents of the PH A provision in the by-laws stating that stockholders who are already
Residence is equivalent to domicile. directors in competing corporations is considered valid.
Domicile is the physical presence in the State and an intention to A provision which prevents an employee of a rural bank to become
remain therein. bank of its board is valid.
Must not be convicted by final judgment of an offense punishable by A provision that said the disqualification is subject to the judgment or
imprisonment for a period exceeding 6 years or a violation of the Corporation determination of the directors is INVALID. There must be a categorical
Code, committed within 5 years prior to the date of election provision.
Must possess other qualifications as may be prescribed by special laws or Provision that directors be elected by officers is invalid because such
regulations or in the by-laws of the corporation is only the power of shareholders.
Additional: He must be a natural person (but this is a given already).
No age requirement to become a director as long as there is no Ex-Officio Member
impediment to legal capacity. A person who is not stockholder in a corporation governed by the Corporation
Code cannot be a director but he can be an ex-officio member without voting
rights in the board.

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This refers to an individual who sit or acts as a member of the Board of Corporate Governance in the 2002 Code of Corporate Governance: a system
o another office and without further whereby shareholders, creditors, and other stakeholders of a corporation
warrant or appointment. ensure that management enhances the value of the corporate as it competes in
an increasingly global marketplace.
Effect of Disqualification Corporations are not mere business organizations exclusively
A disqualified stockholder cannot be elected as director. intended to serve the personal interests of shareholders or managers
If a disqualification was present at the time of the election, but the disqualified but are social institutions in which all sectors of society has an
stockholder was still elected but later on disqualified - this would not render interest.
the Board incapable of transacting business as long as they have quorum. Consequently, corporations can:
This would only result to a vacancy. Make reasonable donations
This also applies when at the time of the election the stockholder was qualified Uphold environmental, labor, insolvency and rehabilitation,
but was later on disqualified. and consumer protection laws
This applies to registered corporations and to branches and subsidiaries of
Re-election foreign corporations operating in the PH that:
Unless there is a provision in the AOI or by-laws that disqualifies an incumbent Sell equity and/or debt securities to the public that are required to be
director from seeking another term of office, such incumbent is not prevented registered with the SEC
from seeking re-election. Have assets in excess of P50 M or such other amount as the
Commission shall prescribe and having 200 or more shareholders
Hold-Over each holding at least 100 shares of a class of its equity securities
If no election is held, the directors and officers shall hold-over until their Whose equity securities are listed on an exchange
successors are re-elected. Grantees of secondary licenses from the SEC
There is no break in the exercise of duties of directors or officers. Purpose: In some corporations , there is a separation between management and
The term of office is NOT affected by the hold-over. ownership. Hence, it is necessary to provide for a framework that will focus on
The term is fixed by the statute - 1 year. This does not change because relationship between the directors and officers on one hand and the
of the hold-over or vacancy. stockholders on the other.
Even corporations that are not included in the above operation can voluntarily
term. It is part of his tenure. adopt the principles and rules on corporate governance.
Rationale for corporate governance:
Sample questions from the book: To overcome collective action problem resulting from the dispersion
1. A entered into a voting trust agreement with B for his shares in X Corporation. among stockholders
B announced his desire to run for the board. C, another stockholder, objected To ensure that the interests of all relevant constituencies are
and questioned the eligibility of B. Is C correct? represented
a. No. A trustee in a voting trust agreement has legal title over the
shares. B is eligible to run. Alternative Theories on Corporate Governance
2. A, B, C, D and E won as directors. E later on sold ALL of his shares to F. In a later 1. Shareholder Primary/Shareholder Wealth-Maximization Theory
board meeting, E and F appeared. E argues that he is still part of the board a. This is the conservative view.
because of the 1-year term allowed. F argues that he is now a director because b. Holds that the corporation should be run for the exclusive benefit of
he acquired the shares of E. Decide. the shareholders.
a. E is disqualified to continue as director since it is a requirement to c.
own at least one share of stock. Any one who ceases to be a corporation will use as a criterion for evaluating the performance of a
shareholder also ceases to be a director. corporation the maximization of the long-term market value of the
b. F cannot be a director because he was never elected in the meeting. firm.
i. This includes the sum of the values of all financial claims on
Corporate Governance the firm such as:
Definition from the 2009 Code of Corporate Governance: framework of rules, 1. Debts
systems, and processes in the corporation that governs the performance by the 2. Warrants
board of directors and management of their respective duties and 3. Preferred stocks
responsibilities to the stockholders and other stakeholders which include 4. Common shares
among others, customer, employees, suppliers, financiers, government and 2. Social Responsibility Theory
community it operates. a. This is the progressive view.

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b. This view prefers the limitation on excessive pursuit of profit and

promotion of employee, customer, and community voice in corporate
The election must be by ballot if requested by any voting stockholder or
governance.
member.
c. This is focus on the stakeholders which includes:
In stock corporations, stockholders entitled to vote shall have the right to vote
i. Employees
the number of shares of stock standing in their own names in the stock books of
ii. Creditors
the corporation at the time fixed in the bylaws or where the bylaws are silent, at
iii. Suppliers
the time of the election.
iv. Customers
v. Host communities
The said stockholder may: (a) vote such number of shares for as many persons
as there are directors to be elected; (b) cumulate said shares and give one (1)
Independent Directors
candidate as many votes as the number of directors to be elected multiplied by
This refers to a person, who apart from his fees and shareholdings, is
the number of the shares owned; or (c) distribute them on the same principle
independent of management and free from any business or other relationship
among as many candidates as may be seen fit: Provided, That the total number
which could, or could reasonably be perceived to, materially interfere with his
of votes cast shall not exceed the number of shares owned by the stockholders
exercise of independent judgment in carrying out his responsibilities as a
as shown in the books of the corporation multiplied by the whole number of
director in any corporation that meets the requirements of Section 17.2 of the
directors to be elected: Provided, however, That no delinquent stock shall be
Securities Regulation Code.
voted. Unless otherwise provided in the articles of incorporation or in the
bylaws, members of nonstock corporations may cast as many votes as there are
Rationale: directors bring expertise, independence, broadened experience and
trustees to be elected but may not cast more than one (1) vote for one (1)
perspective to the corporate decision making process.
candidate. Nominees for directors or trustees receiving the highest number of
Independent directors are unhampered b day-to-day involvement and
votes shall be declared elected.
self-interest.
They aim not only to protect the shareholders but also the different
If no election is held, or the owners of majority of the outstanding capital stock
constituencies of the corporation.
or majority of the members entitled to vote are not present in person, by proxy,
Cooling off periods before they can be nominated as independent directors:
or through remote communication or not voting in absentia at the meeting, such
2-year cooling off period - for those regular directors who resign or
whose term ends on the day of the election meeting may be adjourned and the corporation shall proceed in accordance
with Section 25 of this Code.
1-year cooling off period - persons appointed as Chairman Emeritus,
Ex-Officio directors/officers or members of any Executive Advisory
Board The directors or trustees elected shall perform their duties as prescribed by
law, rules of good corporate governance, and bylaws of the corporation.
SEC. 23. Election of Directors or Trustees. Except when the exclusive right is
CHANGES:
stockholder or member shall have the right to nominate any director or trustee GenR: Each stockholder/member shall have the right to NOMINATE ANY
who possesses all of the qualifications and none of the disqualifications set forth DIRECTOR OR TRUSTEE who possesses all the qualifications and none of the
disqualifications set forth in this Code.
in this Code.
EXC: when the right is reserved exclusively for
7)
At all elections of directors or trustees, there must be present, either in person
or through a representative authorized to act by written proxy, the owners of Now allows remote communication or in absentia for voting during the
majority of the outstanding capital stock, or if there be no capital stock, a election, PROVIDED:
majority of the members entitled to vote. When so authorized in the bylaws or (1) Exercised in corporations vested with public interest
(2) Absence of a provision in the bylaws
by a majority of the board of directors, the stockholders or members may also
vote through remote communication or in absentia: Provided, That the right to Such stockholder/member who makes use of the methods above shall be
vote through such modes may be exercised in corporations vested with public deemed present for purposes of quorum.
If no election held or owners of majority of OCS/members entitled to vote
interest, notwithstanding the absence of a provision in the bylaws of such
not present Sec. 25!
corporations.
A stockholder or member who participates through remote communication or

Book Notes:
in absentia, shall be deemed present for purposes of quorum.
Manner of Elections

lOMoARcPSD|31111392
Corporation CANNOT adopt any other manner of election except Can give all votes to one candidate or can distribute his votes
the manner prescribed in this section and give such number of votes to many candidates.
E.G. Cannot dispense quorum requirement Total votes cast cannot exceed number of shares owned by
E.G. cannot have appointment of directors instead of election him multiplied by number of directors to be elected.
E.G. cannot make past presidents automatic members of the Illustration: Mr. A has 10 shares and there are 5
board directors to be elected. He can cast 10 shares x 5
Stockholders elect directors AT LARGE. This cannot be done by directors= 50 votes.
REGION. 50 Votes can be given to one candidate or it may be
But, for non-stock corporation, election by region is distributed as he sees fit.
ALLOWED Advantages of Cumulative Voting
No Staggered Elections- Cannot be like the senate where they elect 12 Democratic since persons with large but minority holdings
of 24 senators this year and the other 12 senators after 3 years. would have a voice
Must be annual election of ALL directors Desirable to get many viewpoints on the BoD
Exception is for GOCCs Minority Director presence discourages conflict of interest
GCG Act of 2011 allows appointed directors/trustees in GOCCs whom by management since its discovery is more likely.
state is entitled to nominate of the extent of its percentage Oppositions to Cumulative Voting:
shareholdings in the GOCC. The president appoints these Appointive Introduction of Partisan on Board is inconsistent with notion
Directors in the GOCC. In addition, Ex Officio Directors are provided that the Board should represent the interests of the
for. corporation.
Plurality of votes Partisan director may cause disharmony in BoD
No need for majority vote to elect a director or trustee. Just need the Partisan director may criticize management unreasonably as
HIGHEST number of votes. to make it less willing to take risky but desirable actions.
Quorum Partisan director may leak confidential info
No Quorum, no election. It will be invalid. May give an insurgent group a toehold in the corporation in
For election purposes, quorum=majority of outstanding capital an effort to obtain control.
stock entitled to vote Distinguished from Straight Voting
All stockholders at the time of election should be considered as part of Straight voting: One vote per share for each director
quorum Illustration:
Included here are instances where remote communication Shareholder has 10 Shares and 5 Directors to elect.
or in absentia voting is allowed (NEW IN RCC) He can only give 10 votes to each of the 5 directors
By-laws may provide for record date. Eg. By-laws may say he wants to elect.
that only stockholders of record 2 days before election are Cannot cumulate his votes to 50 votes for one
entitled to vote, so that if you became a stockholder only 1 director.
day before the election, you cannot vote.
Presence of Candidate asked to compute. Just know that there are formulas) Atty. Ampil
A director may be elected in absentia. No need for him to be present in said there are 4 but I can only remember 3. :( Please add if you
the election to be elected. know the last one.
But, by-laws may require physical presence of a director in the To determine how many votes needed to be elected as a
election for him to be validly elected. director
Cumulative Voting The number of directors that can be elected by a specific
Allowed in Stock Corporation always. Cannot deny cumulative voting shareholder holding a specific number of shares
in a stock corporation. Number of votes needed to choose a majority of directors
For Non-Stock Corporation, Cumulative Voting must be provided for Missing 4th Formula :(
in the Articles of Incorporation. GR: Straight voting for non-stock Election of Incomplete Directors
corporations. Possible for an election not to elect a full BoD
Rationale: Increase the chances of the minority stockholders to elect a Can still function as long as there is a quorum.
director; ensures minority representation in the board. Failure to Hold Election
Cumulative voting Defined: concentrating votes devised to give If the board or the officer authorized to call a meeting like
sufficient opportunity to minority shareholders to secure the president refuses to call for an election, stockholders
representation. may ask assistance form SEC to compel the holding of

lOMoARcPSD|31111392
elections
provided in the bylaws and/or as resolved by the board of directors.
If a meeting was called but directors were not elected during
the meeting, the meeting can be adjourned
Adjournment must be to a day certain
Cannot be sine die or indefinite adjournment Changes:
This will prevent hold-over of directors. Treasurer must now be a resident unlike old law.
Election Contests: President must be a stockholder because he needs to be a director. President
Presumed to be valid. does NOT have to be citizen or resident.
Election contest defined: Secretary has same requirements as old law. Both citizen and resident of Phil.
Any dispute involving title or claim to any elective
office in a corporation vested with public interest
May involve the validation of proxy
May involve manner and validity of elections
May involve qualifications of candidates or REMOVED providing for what constitutes a quorum and how many votes
proclamation of winner are needed to make a valid corporate act.
Complaints regarding election contests should be filed in the REMOVED
RTC meetings.
Case must be filed 15 days from date of election
unless by-laws provide another method to resolve Book Notes:
the controversy Corporate Officers
If the method provided to resolve the controversy Are officers who are designated or specified as such or given that
fails, case may be filed 15 days from failed character in the law, AIC and the by-laws of the corp.
resolution of the controversy. Can be elected by majority of ALL members of the board. Not just
Plaintiff has exhausted all intra-corporate remedies majority of all board members present.
in election cases as provided by the by-laws Sec. 24 mentions 3 officers: President, Secretary, Treasurer
Questions regarding validity of election of BoD for a given Sec. 64 Recognizes existence of the VP and Assistant Secretary.
year may be declared moot and academic by a valid election Term of Office: 1 year because the officers are elected after the
of a new set of Bod for the next year. Directors are elected, and we all know the term of directors is one
Book Questions: year.
Q: AIC says Class A Shares entitled to one vote and Class B Shares Officers Specified by by-laws
entitled to 3 votes. Valid? By-laws may provide and usually do provide for other officers aside
No. Votes always based on number of shares. One share=one from the 3 mentioned in Sec. 24
vote. If the position of the officer is not expressly mentioned in the by-law,
Q: Class A shares vote 1 director and Class B can vote 3 directors. there can be no such position in the corporation. E.g. cannot elect a
Valid? assistant vice-president for marketing if the by-law does not provide
No. Cannot change manner of election of BoD provided by such position.
the corp. Code . It is not enough that the by-
-law really must specify
the positions of officers available in the corp.
SEC. 24. Corporate Officers. Immediately after their election, the directors of a
Therefore, if corp. wants to elect an assistant VP for
corporation must formally organize and elect: (a) a president, who must be a
marketing, first amend the by-law to create such a position.
director; (b) a treasurer, who must be a resident; (c) a secretary, who must be a
Dual-roles:
citizen and resident of the Philippines; and (d) such other officers as may be
Can have a dual role of corporate officer and employee. E.g.
provided in the bylaws. If the corporation is vested with public interest, the
secretary and managerial employee
board shall also elect a compliance officer. The same person may hold two (2) or
NLRC has juridsiction if the money claims were
more positions concurrently, except that no one shall act as president and
made as an employee and not as a corporate
secretary or as president and treasurer at the same time, unless otherwise
officer.
allowed in this Code.
The same person can hold 2 or more positions concurrently.
Exceptions:
The officers shall manage the corporation and perform such duties as may be
President cannot be secretary at the same

lOMoARcPSD|31111392
time stockholders or members, unless provided otherwise by by-

President cannot be treasurer at the same laws
time Sign stock certificates
Sign verification of a petition for dissolution of the corp.
Generally has general supervision and control over corporate
Therefore, President may be the secretary operations.
or treasurer at the same time if the code Has certain limited powers in the transaction of the usual
allows it. and ordinary business of the corporation.
No incompatible positions may be held In the absence of a charter or by-law provision to the
eg. internal and external auditor contrary, president is presumed to have the authority to act
cannot be same person. Or Pres and VP within the domain of the general objectives of the
at same time.
The board may still create appointive positions since the board has duties.
the prerogative in managing business affairs. But, these appointed President possesses the power to enter into a contract for
officers will not be Corporate officers within the meaning of Sec. 24.
They cannot exercise functions of corporate officers. (Law is strict
that corp. officers must be specified in by-laws) similar matters on behalf of the company and that the
Office and Employment Distinguished company had authorized him to act as such.
Office- creation of the charter of a corporation. E.g. corporation had approved, recognized or
Officer- person elected by the directors and stockholders ratified his similar actions in the past
Employee- occupies no office and is not employed by the directors or A party dealing with the president of the corp. Is entitled to
stockholders but by the managing officer of the corporation who also assume that he had the authority to enter, on behalf of the
determines his compensation. corporation, into contracts that are within the scope of the
powers of said corporation.
the RTC NOT the SEC according to the Securities Regulation Code Vice-President
Dismissal of a corporate officer is a corporate act and an intra- Sec. 62 of RCC recognizes there may be a vice-president in a
corporate controversy between a stockholder and corporation. It is corporation.
not a simple labor problem. Differentiate this with when a corporation GR: Absence of Pres., or if office of Pres becomes vacant, the VP acts in
dismisses a mere employee, which is a labor dispute. his stead
Qualification and Functions By-law may assign to a VP duty of succession to the position of chief
Minimum Qualifications and duties of corporate officers are provided executive in the absence or disability of the president.
by the Corp. Code and the by-laws. Chairman
By-laws may provide for the qualifications, duties and compensation Varying duties and functions across different corporations.
of directors or trustees, officers and employees President may be concurrently the chairman.
With respect to officers, the board may delegate their duties. Duties of Chairman according to 2009 Code of Corporate Governance:
President Ensure meetings of the board are held in accordance with
Only one president in a corp. And the AIC or by-laws cannot change by-laws
this. Supervise preparation of agenda of meeting in coordination
Must be a director (and consequently a stockholder) with Secretary
May not be concurrently the treasurer or secretary, unless otherwise Maintain lines communication and information between
provided in this Code. Board and Management
Not covered by compulsory retirement of employees unless by-laws Secretary
provide for this. Can work past 60 y/o. Must be BOTH Resident and Citizen of Phil. Other qualifications
SEC OGC Opinion provides for the duties of the President: for secretary can be provided for by bylaws
Order the calling by the Secretary of a special meeting of the Only one Corporate Secretary is allowed. By-laws may provide for the
stockholders or members of a corporation for the purpose of position of Assistant Secretary though.
removal of directors and trustees Foreigner cannot be even an assistant secretary
To call for a special meeting of the BOD or trustees at any Primary duty- Keep corporate records and make proper entries
time or as provided for by by-laws thereto
Preside at all meetings of the BOD or trustees as well as Other specific functions include:

lOMoARcPSD|31111392
There are some cases where corporate officers like the President
binding effect of a board resolution. can bind the corporation.
Calls meetings of stockholders for the removal of Authority of an corporate officer to bind is usually derived from:
director/trustee upon order of pres. Or written demand of Law
stockholders holding majority of cap. Stock. AIC
Take and certify minutes of meetings which do not have to By-Laws
be word-per-word but contains the highlights of the meeting Board Authorization
Send notices of meetings May be Express
Sign stock certificate Or Implied- by habit, custom, acquiescence in the
Maintains and makes entries on the stock and transfer book. general course of business.
Monitor and observe compliance with the provisions of Those actions inherent in the office
Filipino and foreign ownership requirements of a In the absence of law, corporate officers and other agents need board
corporation. This cannot be delegated by the secretary resolution OR By- -law no need for
without board approval. board resolution.
Treasurer A corporate officer or agent may bind the corporation in transactions
Must be a Resident of the Philippines. with third person to the extent of the authority granted to him
Does NOT have to be a citizen of the Philippines. including:
Custodian of funds and has authority to disburse them Powers in the usual course of business
Receives funds, issues receipts, and keeps corp. Money unless by-laws Powers implied from or incidental to those expressly
provide otherwise. provided. E.g. Colegio vs Lim case. The board gave the
Anti-Dummy Law authority to the president to file the suit on behalf of the
officers in BOTH wholly nationalized and partly corporation. Implied for this is the authority to send a
nationalized corporations. demand letter to the defendant.
What about directors? Powers added by custom and usage, as usually pertaining to
If its a wholly nationalized corporation, the director the particular officer or agent
be a foreigner. Apparent powers as the corporation has caused a person
partly nationalized corporation, the foreigner CAN be with the officer to believe that it has conferred- DOCTRINE
a director in proportion to the equity participation allowed OF APPARENT AUTHORITY
to foreigners. Implied Authority
Rationale: directors cannot act on their own while an officer can act What if officer entrusted with general management and
individually for the corporation control of the business?
Section 2-A of the Anti-Dummy Implied authority to make any contract or to do
intervene in the management, operation, administration and control anything necessary or appropriate to conduct the
of a nationalized or partly nationalized corporation whether as an ordinary business of the corporation.
officer, employee or laborer and regardless of remuneration Without board authority, may do all acts incident
EXCEPT technical personnel whose employment is to his office and may bind the corporation in any
specifically authorize by the President of the Philippines. matter arising in usual course of business.
The employment of a foreigner even in a minor or clerical or E.G. purchasing contract to replenish the
non-control position is PROHIBITED. flour needed for a baking business.
Rationale: Avoid circumvention of the nationalization Implied authority to represent a corporation in the
requirement. The foreigner may still have influence if part of usual course of business when the board gives it
the company even at the lowest level.
In one case, a foreigner may be Chairman of the Board in a Practice, Custom and Policy
partly nationalized corporation because the by-laws limited Where BoD approves similar acts as a matter of general
the power of the Chairman to mere presiding officer of the practice, custom and policy, the officer may bind corp.
board meetings. REMEMBER: Chairman of the board is only Without board authorization.
a director, and not a corporate officer, so the law does not How can you prove existence of such authority?
ban such if the corporation is merely partly nationalized. Proof of course of business- in the
See pages 295 to 298 for the codal of the Anti-Dummy Law.
Authority of Officers Usage and Practices of the Company

lOMoARcPSD|31111392
Knowledge that the BoD has or must have General manner in which corporation holds out an
presumed to have of such acts done by the officer. officer as having power to act, with which it clothes
Authority to act and bind a corporation may be presumed him
from ACTS OF RECOGNITION in other instances where the
power was exercised constructive knowledge that the acts of the agent is
E.G. the practice of the corporation is to allow the beyond his ordinary power.
general manager to negotiate and execute
contracts in copra trading activities without prior authority but the vesting of the officer with the power to
board approval. If this has been done by the bind the corporation with the 3rd person having little or no
general manager in the past without the board information as to what occurs in corporate meetings. 3rd
person, relies upon external manifestations of corporate
be presumed the general manager can execute a consent and is led to believe in good faith that the agent
future copra trading contract without board must have the authority to do such act for the corporation.
approval.
Ratification actions of the agent to establish apparent
Acts of officers that exceed their given authority can still be authority. This could be the first time the agent
binding on Corp. if the board ratifies or is estopped from is doing such an act on behalf of the corporation
disclaiming them. and it may still fall under the apparent
Ratification is confirmation after conduct, which substitutes authority doctrine if the corporation makes it
giving prior authority. appear that the agent had authority even
Can be BOTH EXPRESS AND IMPLIED
If IMPLIED, can be through silence or acquiescence
or other acts showing approval of the act. good faith on the representation of the agent
If the corporation continues to accept the benefits that he had authority.
of an unauthorized act, there is implied ratification. Very IMPORTANT NOTE: there is no apparent
Ratification purges contract or action from any defects. authority without acts or conduct on the part of
equivalent to original authority where the agent had the principal. Principal corporation must have
authority from the start. played a part in leading the 3rd party to believe
Agency by Estoppel
In proper cases, corporations may be estopped from Good faith of the 3rd party also requires
claiming that an officer is not an agent with regard to reasonable prudence on his part
specific transactions. Example of Apparent Authority- Sole management of
When the Corporation makes it appear that an officer has corporation left to the president and the treasurer since the
authority to do other stockholders, directors and officers never dealt in the
authority to do such act, the corporation will be estopped business of the corporation for 14 years and the
stockholders and BoD never had any meeting within this
the 3rd person dealing with the agent relied on such agency time. The president and Treasurer has broad powers to
in Good Faith, believing that the agent can bind the
corporation. without needing approval from non-performing board
Apparent Authority members.
Officer is clothed with apparent authority for specific acts. De Facto Officers
Similar to agency by estoppel actually. Officer acts as such under color of authority, through
If a corporation knowingly permits its officer or any election or appointment, although such appointment or
other agent to do acts within the scope of an apparent election was irregular or informal.
authority and holds the officer out to public as Official dealing of de facto officers with 3rd persons are
possessing such power to do those acts, the corporation sustained as valid on the ground of continuous acquiescence
is estopped from denying such authority against a 3rd by the corporation.
person dealing with the agent in good faith. Compensation of Officers
NOTE: Apparent authority is derived not only from Determined by Board of Directors regardless of whether
practice. Its existence may be determined by: there is a by-law for such or not.

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Questions from Book: of the corporation must now submit: names, nationalities, shareholdings, and
1. President of corporation authorized to sell stock authorized to make residence addresses.-Keep stockholders and the public transacting business
last proposal? with the corporation in
a. Yes. Its implied from his authority to sell that he can make a Any change in the information of the GIS between annual meetings must be
proposal at a lower price. He was clothed with the apparent reflected in an Amended GIS.
capacity to make a counter-offer. To be filed within 30 days of occurence of change.
2. Can single officer or director bind a corporation? ges must be
a. Yes. If it is within his express, implied or apparent authority. underscored.
3. President of corporation offered to sell a farmer 5,000 bags of E.g. If a new director is elected because of a vacancy, in the board, the
fertilizer. Farmer accepted. Board said a few days later to President Corp. Secretary should submit an Amended GIS sheet containing the
that it will NOT ratify the transaction. Now, the farmer is demanding change of director within 30 days from the occurrence of the change.
specific performance. Did the president bind the corporation? The GIS is evidence of who is a corporate officer, board member or stockholder.
a. No. No authorization from board. No apparent authority If your name is not on the list, the court will likely doubt your position
either coz the board immediately told President it was not as an officer or board member of the corporation.
ratifying the sale. GIS is only a piece of evidence and is subject to stronger proof that
may overturn it, but absent other evidence, GIS will be conclusive
stockholder of an corp.
SEC. 25. Report of Election of Directors, Trustees and Officers, Non-holding of
Election and Cessation from Office. Within thirty (30) days after the election of allegation that the alleged members of the board were duly elected
the directors, trustees and officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to the Commission, the names, If elections were not held -
nationalities, shareholdings, and residence addresses of the directors, trustees
to the SEC within 30 days from the date of scheduled election.
and officers elected. The report must specify a new date for the election, which shall not be
later than 60 days from the scheduled date.
The non-holding of elections and the reasons therefor shall be reported to the If no new date has been designated/new schedule is not held
Commission within thirty (30) days from the date of the scheduled election. The upon application of a stockholder, member, director, or trustee, and
report shall specify a new date for the election, which shall not be later than
verification of the unjustified non-holding of the election SUMMARILY
sixty (60) days from the scheduled date. ORDER that an election must be held.
Implies that if the reason for not giving a new date/new schedule not
If no new date has been designated, or if the rescheduled election is likewise not being upheld is JUSTIFIED, this rule does not apply.
held, the Commission may, upon the application of a stockholder, member,
SEC may order:
director or trustee, and after verification of the unjustified non-holding of the Any order that may be appropriate
election, summarily order that an election be held. The Commission shall have
Directing issuance of notice stating TIME and PLACE of election
the power to issue such orders as may be appropriate, including orders Designated presiding officer
directing the issuance of a notice stating the time and place of the election, Record date(s) for the determination of stockholders/members
designated presiding officer, and the record date or dates for the determination
entitled to vote
of stockholders or members entitled to vote. Rule re: QUORUM .
In case of death, resignation, or any cessation to hold office
Notwithstanding any provision of the articles of incorporation or bylaws to the
(director/trustee) within 7 days to the SEC.
contrary, the shares of stock or membership represented at such meeting and
entitled to vote shall constitute a quorum for purposes of conducting an election
under this section. Job to report is with the secretary, director, trustee or officer of the
Should a director, trustee or officer die, resign or in any manner cease to hold corp. In the OCC HEIRS had the duty to report to the SEC in case of
office, the secretary, or the director, trustee or officer of the corporation, shall, death. In the RCC,
within seven (7) days from knowledge thereof, report in writing such fact to the Rationale of section: give the public information of the nature of the business,
Commission.
financial condition and operational status, so that those dealing with it or
intending to do business with it may know or have the means of knowing the
Changes in Red. Combined with book notes because its short.
responsibility.

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SEC. 27. Removal of Directors or Trustees. Any director or trustee of a

SEC. 26. Disqualification of Directors, Trustees or Officers. A person shall be corporation may be removed from office by a vote of the stockholders holding
disqualified from being a director, trustee or officer of any corporation if, within or representing at least two-thirds (2/3) of the outstanding capital stock, or in a
five (5) years prior to the election or appointment as such, the person was: nonstock corporation, by a vote of at least two-thirds (2/3) of the members
entitled to vote: Provided, That such removal shall take place either at a regular
(a) Convicted by final judgment: meeting of the corporation or at a special meeting called for the purpose, and in
either case, after previous notice to stockholders or members of the corporation
(1) Of an offense punishable by imprisonment for a period exceeding six (6) of the intention to propose such removal at the meeting. A special meeting of the
years; stockholders or members for the purpose of removing any director or trustee
(2) For violating this Code; and must be called by the secretary on order of the president, or upon written
(3) demand of the stockholders representing or holding at least a majority of the
outstanding capital stock, or a majority of the members entitled to vote.
(b) Found administratively liable for any offense involving fraudulent acts; and If there is no secretary, or if the secretary, despite demand, fails or refuses to
(c) By a foreign court or equivalent foreign regulatory authority for acts, call the special meeting or to give notice thereof, the stockholder or member of
violations or misconduct similar to those enumerated in paragraphs (a) and (b) the corporation signing the demand may call for the meeting by directly
above. The foregoing is without prejudice to qualifications or other addressing the stockholders or members. Notice of the time and place of such
disqualifications, which the Commission, the primary regulatory agency, or the meeting, as well as of the intention to propose such removal, must be given by
Philippine Competition Commission may impose in its promotion of good publication or by written notice prescribed in this Code. Removal may be with
corporate governance or as a sanction in its administrative proceedings. or without cause: Provided, That removal without cause may not be used to
deprive minority stockholders or members of the right of representation to
which they may be entitled under Section 23 of this Code.
Changes in Red. Combined with book notes because its short.
Note the use of AND!!! The Commission shall, motu proprio or upon verified complaint, and after due
notice and hearing, order the removal of a director or trustee elected despite
A person shall be disqualified from being a director/trustee/officer if within 5 the disqualification, or whose disqualification arose or is discovered subsequent
years prior to the election or appointment, the person was:
to an election. The removal of a disqualified director shall be without prejudice
(a) Convicted by final judgement:
to other sanctions that the Commission may impose on the board of directors or
(1) Of an offense punishable by imprisonment for a period
trustees who, with knowledge of the disqualification, failed to remove such
exceeding six (6) years;
director or trustee
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise known as
(b) Found administratively liable for any offense involving fraudulent Changes:
acts; and Small changes in wording. Substantially the same for most of it.
(c) By a foreign court or equivalent foreign regulatory authority for SEC shall, on its own
acts, violations or misconduct similar to those enumerated in motion or upon verified complaint, after due notice and hearing, order the
paragraphs (a) and (b) above. REMOVAL of a director/trustee elected, despite his/her disqualification
The foregoing is without prejudice to qualifications or other arose/was discovered subsequent to an election.
disqualifications, which the Commission, the primary regulatory agency, or Without prejudice to any SANCTIONS the SEC may impose on the
the Philippine Competition Commission may impose in its promotion of good BOD/BOT who knew about such disqualification but failed to remove
corporate governance or as a sanction in its administrative proceedings such director/trustee
[NOTE: Book Notes:
assume that each ground is separate?] Applies to both stock and non-stock corporations
Rationale for Disqualification: Directors are in a position of trust. Fellow director cannot remove another director
Grounds in this section are non-exclusive and there may be additional grounds
for disqualification contemplated in other code provisions, AIC or by-laws. in non-stock corp.
Disqualifications are likewise provided under the 2009 Code of Corp Minority Director can only be removed with cause. Other
Governance see pp313 to P315 of book. directors may be removed with or without cause.

lOMoARcPSD|31111392
Removal takes place either: but Officer removal only needs board approval.
Regular meeting of the corporation OR
Special meeting called for the purpose
SEC. 28. Vacancies in the Office of Director or Trustee; Emergency Board. Any
Both Cases need a previous notice to stockholders or members of the
vacancy occurring in the board of directors or trustees other than by removal or
intention to propose such removal at the meeting
by expiration of term may be filled by the vote of at least a majority of the
Special meeting:
remaining directors or trustees, if still constituting a quorum; otherwise, said
Must be called by secretary on order of the president, OR
vacancies must be filled by the stockholders or members in a regular or special
Upon written demand of the stockholders representing MAJORITY
meeting called for that purpose.
entitled to vote
When the vacancy is due to term expiration, the election shall be held no later
NOTE: Special meeting to remove a director is void if called by an
than the day of such expiration at a meeting called for that purpose. When the
authorized committee and not the secretary as provided by Sec 27 or
vacancy arises as a result of removal by the stockholders or members, the
by the authorized officer identified in the by-laws. THIS DEFECT
election may be held on the same day of the meeting authorizing the removal
CANNOT BE RATIFIED
and this fact must be so stated in the agenda and notice of said meeting. In all
What if no secretary or if the secretary, despite demand, does not call the
other cases, the election must be held no later than forty-five (45) days from the
special meeting nor give notice of such special meeting?
time the vacancy arose. A director or trustee elected to fill a vacancy shall be
Stockholder or member of corp signing the demand can call for the
referred to as replacement director or trustee and shall serve only for the
meeting by directly addressing the stockholders or members
unexpired term of the predecessor in office.
Notice of time and place of such meeting is needed
However, when the vacancy prevents the remaining directors from constituting
Notice of intention to propose such removal must be given by
a quorum and emergency action is required to prevent grave, substantial, and
publication or written notice
irreparable loss or damage to the corporation, the vacancy may be temporarily
is the inherent power of stockholders to remove a director for
filled from among the officers of the corporation by unanimous vote of the
cause. Authority to remove directors is the prerogative of stockholders not the
remaining directors or trustees. The action by the designated director or trustee
board alone.
shall be limited to the emergency action necessary, and the term shall cease
5 Requisites of Removal:
within a reasonable time from the termination of the emergency or upon
Takes place either during regular meeting or special meeting called
election of the replacement director or trustee, whichever comes earlier. The
for the purpose.
corporation must notify the Commission within three (3) days from the creation
Call for special meeting must be called by secretary on order of the
of the emergency board, stating therein the reason for its creation.
president, OR upon written demand of the stockholders representing
Any directorship or trusteeship to be filled by reason of an increase in the
members entitled to vote
number of directors or trustees shall be filled only by an election at a regular or
Previous notice to stockholders/members of intention to remove
at a special meeting of stockholders or members duly called for the purpose, or
in the same meeting authorizing the increase of directors or trustees if so stated
-stock corp.
in the notice of the meeting.
Director who was elected by the minority must be removed only
for cause. Other directors may be removed with or without cause.
In all elections to fill vacancies under this section, the procedure set forth in
Election for replacement may be made during the same stockholders meeting
Sections 23 and 25 of this Code shall apply.
for removal
Removal is different from DISQUALIFICATION of director.
E.G. disqualified for selling all his stock in the corp making him not a Changes:
stockholder anymore Same rules as OCC re: vacancy NOT arising from removal or expiration.
No need to follow procedure for removal WHEN TO ELECT:
Simple declaration of disqualification as the cause of vacancy is If vacancy due to expiration no later than
enough. the day of such expiration at a meeting called for that purpose.
Removal of Director does not divest that director from his share. His share is a If vacancy due to removal held on the same day of
personal property that he can still keep despite his removal. the meeting authorizing such removal AND this fact must be stated
Corporate Officer Removal is by the BOARD only. No need for stockholder in the agenda for such meeting.
approval. Since the board appointed the officer, it has the authority to remove In all other cases no later than 45 days from
it-> corporate act. the time the vacancy arose.
Remember: Director needs to be removed through vote of stockholders Replacement Director/Trustee

lOMoARcPSD|31111392
for the unexpired term of office. Book Questions:

Emergency Board: 1. Can a corp amend its bylaws to provide that in case of vacancy, loser of last
ELEMENTS: election with highest votes fills up the vacancy?
(1) Vacancy prevents the remaining directors/trustees from a. No. Auto replacement not allowed. Must follow Sec. 29 and fill in thru
constituting a quorum; election of stockholders or the directors in certain cases.
(2) Emergency action is required to prevent a grave, 2. Can hold-over directors fill a vacancy?
substantial, and irreparable loss or damage to the a. No. Vacancy is by expiration of term. In fact, there should be a new
corporation election of all the board members.
When the elements above concur, the vacancy may be temporarily
filled from among the officers of the corporation by UNANIMOUS
SEC. 29. Compensation of Directors or Trustees. In the absence of any
VOTE from the remaining directors/trustees.
provision in the bylaws fixing their compensation, the directors or trustees shall
ACTIONS: LIMITED to the emergency action necessary
not receive any compensation in their capacity as such, except for reasonable
CESSATION: Term shall cease (whichever comes earlier):
per diems: Provided, however, That the stockholders representing at least a
(1) Within a reasonable time from the termination of the
majority of the outstanding capital stock or majority of the members may grant
emergency
directors or trustees with compensation and approve the amount thereof at a
(2) Upon election of the replacement director or trustee
regular or special meeting.
NOTIFICATION: Corp must notify SEC within 3 days from creation of
the emergency board + state reasons.
In no case shall the total yearly compensation of directors exceed ten percent
Book Notes:
(10%) of the net income before income tax of the corporation during the
Valle Verde Country Club Case- A resignation during the holdover period of a
preceding year.
director is an expiry of term and not a resignation.
Stockholders or Members shall replace/elect the director if vacancy is due to:
Directors or trustees shall not participate in the determination of their own per
Removal
Expiration of term diems or compensation.
A ground other than removal or term expiration like death,
Corporations vested with public interest shall submit to their shareholders and
a quorum the Commission, an annual report of the total compensation of each of their
directors or trustees.
Increase in number of directors
If vacancy is due to causes other than those specified above (cases reserved to
stockholders or members), the board (without the concurrence of stockholders Changes in Red. Combined with book notes because its short.
or members) can fill the vacancy if the remaining directors constitute a GenR: Directors or trustees shall not receive any compensation, except for
quorum. reasonable per diems.
2 Requisites: EXCEPTIONS
Vacancy not by reason of removal or expiration of term Provided in the by-laws.
Remaining directors constitute a quorum Provided by stockholders representing majority of OCS or
Filing vacancies by the remaining directors is not mandatory. They may opt not majority of members in a non-stock corp.
to elect a replacement and ask the stockholders to fill the vacancy instead. The Reasonable Per Diems
directors need to call a special stockholders meeting for such purpose. Who determines such compensation: Stockholders representing at least a
majority of the OCS or majority of the members; at a regular or special meeting.
there is a quorum. If no quorum anymore, need to fill vacancy or corporation PROHIBITION
cannot do business. preceding year.
Vacancy may also occur when director abandons his position e.g. accepts Directors or trustees CANNOT participate in the determination of per diems
another position with duties inconsistent with his duties as director. OR compensation.
Replacement only serves for the remaining period of unexpired term of the Corps w/ Public Interest ANNUAL REPORT of total
predecessor. compensation of each of their directors or trustees.
By -laws may provide for a procedure for filling up vacancy as long as NO SALARY
consistent with RCC and other laws. Eg. cannot provide that stockholder with Directors and trustees not entitled to salary or compensation for
biggest share will automatically take the place of the director in case of vacancy. doing nothing other than their usual duties.
But, may provide that stockholders must fill in vacancy instead of the remaining Rationale: They render their services gratuitously and that their
directors. returns on the shares that they own is enough motivation to work

lOMoARcPSD|31111392
hard.
SEC. 30. Liability of Directors, Trustees or Officers. Directors or trustees who
Per Diem
willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
expenses.
affairs of the corporation or acquire any personal or pecuniary interest in
Note: That the RCC made a change. Now, Directors and Trustees
conflict with their duty as such directors or trustees shall be liable jointly and
cannot set their own per diem or even participate in the
severally for all damages resulting therefrom suffered by the corporation, its
determination of such.
stockholders or members and other persons.
Different from Salary or Compensation , which need not imply
immediate payment but are usually paid at the end of the year.
A Director, Trustee or Officer shall not attempt to acquire, or acquire any
E.g. of Compensation are bonuses, gifts or incentives
interest adverse to the corporation in respect of any matter which has been
delivered for services rendered for the corporation
reposed in them in confidence, and upon which, equity imposes a disability
Per Diem must be REASONABLE.
upon themselves to deal in their own behalf; otherwise, the said director,
Before, the board determined their own per diem and if it
trustee or officer shall be liable as a trustee for the corporation and must
account for the profits which otherwise would have accrued to the corporation.
behalf of the corporation.
Now, with the RCC, the board cannot determine their own
Book Notes:
stockholders set an UNREASONABLE per diem for the Same as OCC. Just reworded.
directors. Rationale:
Limitations Board of Director/Officer/Trustee is a position a great responsibility
10% Limit means no compensation for directors if the corp did and high trust.
not earn any profit. They can only get per diems in this case. Try to prevent BOD/Officer/Trustee from acting to prejudice of corp
This protects both stockholders and the creditors of the because of personal or pecuniary interest of the directors
corp. Acts that make director, trustee or officer liable (1st Paragraph)
Knowingly vote for or assent to patently unlawful acts of the corp.
which the director served. Guilty of Gross Negligence or Bad Faith in directing corp. Affairs
Bonuses=Compensation. Need ratification of stockholders Acquires any personal or pecuniary interest in conflict with their
and cannot exceed 10% threshold. duty as director/trustee/officer
Trustees This makes them liable jointly and severally for all damages
Sec. 29 applies to trustees of Non-Stock non profit corporations too. resulting from this.
Compensation of Officers Damages caused can be to anyone: corp., stockholders,
Officers are determined by the board, so the board can also determine members and other persons injured because of the conflict
their compensation. Sec 29 only applies to Directors and Trustees. of interest.
Need board resolution to determine officer compensation and these (2nd Para.) Director/Officer/Trustee shall be liable as a trustee of the
resolutions fixing compensation are PROSPECTIVE in application. corporation and must account for the profits which otherwise would have
No 10% limit for compensation of officers, but it must be reasonable. accrued to the corp. When ALL these requisites concur
Compensation of officers is under the business judgement He attempts to acquire or actually acquires any interest adverse to the
rule and can only be questioned if there is clear abuse e.g. corporation
purpose of disposing of corp. profits. In respect of any matter which has been reposed to him in confidence
Remedy in case of abuse Upon which, equity imposes a disability upon himself to deal in his
Book says derivative suit. This makes sense if it were still the board own behalf.
fixing the per diem or compensation, but the RCC now bans the board 3 Duties of Director/Officer/Trustee
from doing so. Obedience
Can a derivative suit still be the remedy if it is now the stockholders Diligence
determining the per diem and compensation? Loyalty
Obedience
Comply with rules and law including Article of Incorporation and By-
Laws
Act within authority of duty-
Diligence

lOMoARcPSD|31111392
Exercise due case with regard to duties. Standard is: Reasonably other form other than cash valued in excess of its
Prudent Person. fair value.
Determination of exercise of case entails examination of Contractual stipulation to hold himself personally and
circumstances of the case (eg. magnitude of transaction and solidarily liable
immediacy of problem presented) But, mere signing does not make a person
Due diligence dictates that Director/Officer/Trustee must personally liable if he signs as a corporate
maintain familiarity with financial status of corp. representative. E.g. sign a president of X Corp.
Must also exercise Good faith in management of corporate affairs Piercing the veil of corporate fiction
Gross Negligence will make Director/Officer/Trustee liable. Note: sec. 30 is different from piercing the veil
Bad faith will also make Director/Officer/Trustee liable. since sec. 30 does not need fraud or alter ego
Simple mistakes or errors of judgement or simple negligence will not doctrine to apply. Nevertheless, in piercing the
make the Director/Officer/Trustee liable. (Business Judgement Rule) veil of corporate fiction, Director/Officer/Trustee
Mere fact that corporation suffered heavy losses not enough and Corp. are solidarily liable.
to make Director/Officer/Trustee liable. Other specific provisions of law that make a
Loyalty Director/Officer/Trustee personally liable for his corporate
Undivided allegiance that is influenced by no consideration under actions.
than welfare of corporation. (No to conflict of interest!) E.g. SSS Law which imposes on director personal
He must serve the corporation first before himself and not use his liability if the corporation fails to remit to SSS such
amount.
interest. Note: if Director/Officer/Trustee acted in excess of authority
Loyalty of the Director/Officer/Trustee not limited to the corporation as agent of corporation in entering a contract he would be
but also to other stakeholder PERSONALLY liable instead of the corporation
E.g. director cannot secure for himself any preference over even be solidarily liable with the corporation and only the
other creditors when corporation is insolvent and assets Director/Officer/Trustee will be liable. Corporation is not
need to be distributed to pay for debts. liable at all.
To preserve loyalty, Corp Code provides rules on Criminal Liability
Self-Dealing Directors- Sec. 31 Corporate officers or employees thru whose act or omission, the corp.
Contracts between corporation with interlocking Commits a crime may themselves be individually held answerable for
directorship-Sec 32 the crime.
-Sec Sec. 30 and 33 of the RCC are not subject to criminal liability.
33 Patently Unlawful Acts
Conflict of Interest- Sec 30 Requisites of this:
Oppression of Minority Shareholders- Sec 27 Acts declared unlawful by law
Liability of Director/Officer/Trustee: Imposes penalties for commission of such unlawful acts.
GenRule: Not liable solidarily with corporation Examples:
Personal and Solidary Liability Violation of Labor Code that provides penalty
Director/Officer/Trustee will be held solidary liable even if acting on Syndicated Estafa
behalf of corporation if:
Do one of the acts listed in Sec. 30 RCC (Assent to Patently not declared unlawful by law nor is there an imposable
Unlawful acts, BF or Gross Neg. in directing corp affairs, penalty.
guilty of conflict of interest to damage of corporation or Bad Faith and Fraud
others.) Not bad business judgement but connotes a dishonest purpose or ill
Director has consented to issuance of watered stocks or motive
BF must be established and not presumed
secretary a written objection to it. Fraud=all kinds of deception.
Note: Watered stock are shares of a company that Must be established with clear and convincing evidence.
are issued at a much greater value than its Gross Negligence
underlying assets, usually as part of a scheme to Gross Negligence amounts to bad faith
defraud investors. Want of even slight care.
They are stocks issued less than par value or in any Thoughtless disregard of consequences without exerting any effort to

lOMoARcPSD|31111392
avoid them solidarily liable for damages sustained for bad faith in directing the
Needs clear and convincing evidence. affairs of the corporation.
E.g. Magaling vs Ong case where President did not know when
corporation started operations, financial status of corporation, where
the documents of the company are because he delegated his duties to SEC. 31. Dealings of Directors, Trustees or Officers with the Corporation. A
another person. contract of the corporation with one (1) or more of its directors, trustees,
Length of time can be a factor of gross negligence. One mistake may be officers or their spouses and relatives within the fourth civil degree of
consanguinity or affinity is voidable, at the option of such corporation, unless all
ordinary negligence but prolonged failure to exercise oversight or
supervision is Gross Negligence. the following conditions are present:
Sanchez vs Republic- (a) The presence of such director or trustee in the board meeting in which the
earnings to the DECS despite contractual stipulation. They did no contract was approved was not necessary to constitute a quorum for such
meeting;
(b) The vote of such director or trustee was not necessary for the approval of the
required financial statements. The revenues were deposited in the
names of the Pres. and VP. This is Gross negligence.. contract;
Conflict of Interest (c) The contract is fair and reasonable under the circumstances;
3rd act of First Paragraph and the whole 2nd Paragraph of Sec. (d) In case of corporations vested with public interest, material contracts are
approved by at least two-thirds (2/3) of the entire membership of the board,
30
with at least a majority of the independent directors voting to approve the
material contract; and
E.g. agent liable for damages if he prefers his own interest instead of
hi (e) In case of an officer, the contract has been previously authorized by the
corporation) board of directors.
Where any of the first three (3) conditions set forth in the preceding paragraph
deliver to principal whatever he may receive by virtue of agency.
Director selling property of corporation should remit profits is absent, in the case of a contract with a director or trustee, such contract may
to corporation and not keep for himself the profit. be ratified by the vote of the stockholders representing at least two-thirds (2/3)
Labor Cases of the outstanding capital stock or of at least two-thirds (2/3) of the members in
SC said Art. 212 of Labor Code does not automatically make a meeting called for the purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at such meeting and the
director/officer solidarily liable with corporation in illegal dismissal
cases.
The governing law is still Sec. 30 of RCC and director/officer must do
an act under Sec. 30 to be solidarily liable with corporation. (eg. BF Changes in Red. Combined with book notes because its short.
termination of employee) Contracts of the corporation with 1 or more of its directors, trustees, officers,
Duties of Officers or their spouses and relatives within the fourth civil degree of
Officers, like Directors, also have duties of obedience, loyalty and consanguinity or affinity is
diligence. (a) The presence of such director or trustee in the board meeting in
Therefore, they may also be liable solidarily with corporation for which the contract was approved was not necessary to constitute a
breach of these duties. Eg. (acting beyond authority, conflict of quorum for such meeting;
interest, Gross Neg and BF) (b) The vote of such director or trustee was not necessary for the
Book Questions: approval of the contract;
1. Mine superintendent and stockholder of corp. was employed by corp. Due to a (c) The contract is fair and reasonable under the circumstances;
technical error in his design the corporation suffered a loss of P1M. The board (d) In case of corporations vested with public interest, material
accused officer of breach of trust and confiscated his share. Legal? contracts are approved by at least two-thirds (2/3) of the entire
a. No. Technical error is not gross negligence. Did not do any of the 3 membership of the board, with at least a majority of the independent
acts under Sec. 30 of the RCC. Moreover, corp. Cannot take law into its directors voting to approve the material contract.
own hands and confiscate shares. (e) In case of an officer, the contract has been previously authorized
2. Creditor is owed money by a corporation. What can be done if a corporation by the board of directors.
becomes insolvent due to the fraudulent practices within the corporation? RATIFICATION: Where any of the first 3 conditions are absent, in case of a
a. The creditor can file an action for damages against the director of the contract with a director or trustee, such contract may be ratified by vote of:
the stockholders representing at least two-thirds (2/3) of the
fraudulent practices. Sec. 30 of the RCC holds directors jointly and outstanding capital stock; or

lOMoARcPSD|31111392
at least two-thirds (2/3) of the members in a meeting called for the contract. Self-dealing director knew that the contract could lead to
purpose: disastrous consequences to the corporation since it was favorable to
PROVIDED: himself and his own interests. Said director remained silent and the
that a full disclosure of the adverse interest of the D/T other directors approved the contract. Is it voidable?
involved is made at such meeting, and Yes, it is voidable since it was the duty of the self-dealing
the contract is FAIR AND REASONABLE. director to disclose the consequences of the contract. It
Self-Dealing
Refers to Director/Officer/Trustee who personally contract with the contract. The contract is not fair and reasonable
corp in which they are Director/Officer/Trustee of.
Discouraged due to fiduciary relationship with the corp., and there
SEC. 32. Contracts Between Corporations with Interlocking Directors. Except in
can be no real bargaining where the same is acting on both sides of
cases of fraud, and provided the contract is fair and reasonable under the
the trade.
circumstances, a contract between two (2) or more corporations having
Status of Contract
interlocking directors shall not be invalidated on that ground alone: Provided,
The contract is voidable between the self-dealing
That if the interest of the interlocking director in one (1) corporation is
Director/Officer/Trustee and the corporation unless:
substantial and the interest in the other corporation or corporations is merely
(a) The presence of such director or trustee in the board
nominal, the contract shall be subject to the provisions of the preceding section
meeting in which the contract was approved was not
insofar as the latter corporation or corporations are concerned.
necessary to constitute a quorum for such meeting;
Stockholdings exceeding twenty percent (20%) of the outstanding capital stock
(b) The vote of such director or trustee was not necessary
shall be considered substantial for purposes of interlocking directors.
for the approval of the contract;
(c) The contract is fair and reasonable under the
circumstances;
Book Notes:
(d) In case of corporations vested with public interest,
Same as OCC.
material contracts are approved by at least two-thirds (2/3)
Effect of Interlocking Directors
of the entire membership of the board, with at least a
Not prohibited under RCC but by-laws may contain provisions that
majority of the independent directors voting to approve the
disallow interlocking directorship.
material contract.
A contract between 2 corps. With interlocking directors shall not be
(e) In case of an officer, the contract has been previously
invalidated on that ground alone
authorized by the board of directors.
Except in cases of fraud or when contract is not fair and
Rationale: voidable and not void because possible that these contracts
reasonable.
may be desirable and to the benefit of the corporation.
Meaning of Interlocking Directorship
Ratification
When one (or some or all) of the directors in one corp is a director in
Even if not all requirements are met, the contract with the self-dealing
another corporation.
Director/Officer/Trustee may be ratified:
Substantial Interest- When an interlocking director has
Vote of stockholders
stockholdings exceeding 20%. Has to be MORE THAN 20%. If equal
in a meeting called for the
to 20%, not substantial interest.
purpose
Nominal Interest- 20% or less stockholdings in a corporation.
Requires FULL DISCLOSURE of the adverse interest of the
Effect on Contracts
Director/Officer/Trustee involved
If interest of interlocking director in one corporation is nominal and is
Contract MUST STILL BE FAIR AND REASONABLE. ALWAYS.
substantial in another he is subject to the Sec. 31 provisions:
Fair and Reasonable
a) The presence of such director or trustee in the board
Indispensable requirement in all contracts
meeting in which the contract was approved was not
Fairness requires that the transaction reflect terms one would expect
necessary to constitute a quorum for such meeting;
(b) The vote of such director or trustee was not necessary
as his own.
for the approval of the contract;
Director/Officer/Trustee cannot act in conflict with t
(c) The contract is fair and reasonable under the
interest even to the slightest extent.
circumstances;
Globe Woolen Case: There is a proposed contract between the corp
(d) In case of corporations vested with public interest,
and a director. What if director, party to the contract, did not vote but
material contracts are approved by at least two-thirds (2/3)
was in the meeting. Other directors of the corp. voted to approve

lOMoARcPSD|31111392
of the entire membership of the board, with at least a

majority of the independent directors voting to approve the the act of director taking the business opportunity away
material contract. from the corporation.
Ratification Tests of Corporate Opportunity
Even if not all requirements are met, the contract with the Interest or Expectancy Test
may be ratified: Most restrictive and inflexible among all 3 tests
Vote of stockh Director cannot acquire business opportunity in which the
in a meeting
called for the purpose legal or equitable interest or expectancy growing out of pre-
Requires FULL DISCLOSURE of the adverse interest existing right or relationship
of the Director/Officer/Trustee involved Line of Business Test
Contract MUST STILL BE FAIR AND REASONABLE. Whenever director becomes involved in an activity
ALWAYS. intimately or closely associated with the existing or
prospective activities of the corp.
Flexible meaning- depends on the facts and circumstances of
SEC. 33. Disloyalty of a Director. Where a director, by virtue of such office, each particular case.
acquires a business opportunity which should belong to the corporation, Requisites:
thereby obtaining profits to the prejudice of such corporation, the director must
1. Corp is financially able to undertake the business
account for and refund to the latter all such profits, unless the act has been opportunity
ratified by a vote of the stockholders owning or representing at least two-thirds 2. From its nature, is in line with corporations
(2/3) of the outstanding capital stock. This provision shall be applicable, business and is of practice advantage to it
notwithstanding the fact that the director risked 3. Is one in which the corporation has an interest or
a reasonable expectancy
Fairness Test
Same as OCC. Determines existence of a corporate opportunity by applying
Trustees and Officers Not Covered ethical standards of what is fair and equitable under certain
This does not apply to trustees of non-stock corporations, nor to circumstances.
officers of the corporation. ONLY TO DIRECTORS. E.g. taking advantage of an opportunity when the interest of
Sec 30, on the other hand, applies to all 3 trustees and directors and the corporation justly calls for protection
officers. Mixed Test
Trustees are members of a non-stock corp. are not supposed to be Combination of 2 or all of the previous tests
engaged in business as a main purpose Example of Mixed Test asks these questions:
Doctrine of Corporate Opportunity WON business opportunity is sufficiently
important
Sec. 33 applies when: WON business opportunity is so closely related to
1. Corp is financially able to undertake the business the existing or prospective activity of the
opportunity corporation
2. From its nature, is in line with corporations business and WON the circumstances prior to, or at the time of,
is of practice advantage to it or after the acquisition by the director, show
3. Is one in which the corporation has an interest or a fairness and equity on the part of the director.
reasonable expectancy Book says we apply the Fairness Test or Mixed Test.
Here, the director, by virtue of his office, takes for himself the
business opportunity that should have belonged to the corporation. prohibit a director from entering into the same line of business as his
It should result to the director taking profits to the prejudice of such corporation. (Unless AIC or by-laws say so)
corporation. Burden of Proof and Financial Capability
This applies even if the director risked his own funds in the venture. On the director acquiring the business opportunity to his own
Consequence for director: advantage show why Sec. 33 should not apply to him.
He must account to the corporation for all such profits by Generally, these reasons in themselves are not sufficient
refunding the same. E.g. Director informed other board members of the
Exception: Ratification opportunity but they rejected it.

lOMoARcPSD|31111392
E.g. Corporation not financially capable of taking the

terms is not amendable or repealable; and
opportunity
(e) distribution of cash dividends to the shareholders.
The board of directors may create special committees of temporary or
funds so corporation can take the wonderful
permanent na
opportunity
compensation, powers, and responsibilities.
director may purposely fail his duties, so the corp
will have lack of funds to acquire the opportunity. Changes
Of course, if the director did all he can to convince the board
about the opportunity and all he could to raise enough funds Aside from an Executive Committee, the Board of Directors may create a
for the corporation to undertake the opportunity but it was Special Committee of temporary OR permanent nature to
still futile, this would be good enough justification.
and responsibilities
Book questions: Purpose of an Executive Committee:
1. Director of corporation A is also director of corporation B. Director acquired for The executive committee is a corporate body with standing in law, although in a
corporation B (not himself) a business opportunity identical to the business of sense, it is an agent of the Board of Directors because it performs what is
corporation A. He could not give the business opportunity to corporation A otherwise vested by law in the Board of Directors
allegedly because its policies strongly impede its chances of winning said Why? Because the board may not readily face the contingency of
business. Is RCC Sec. 33 violated? confronting urgent matters that required its attention
a. No. If corporation A cannot engage competitively in the subject It is difficult to muster a quorum at a time when the corporation must
business because of its policies, then it cannot be said that by giving act on a vital matter, and the only way not to paralyze a corporation
the opportunity to corporation B instead, the director was disloyal to By-laws
corporation A for giving the business to corporation B instead. There The executive committee can only be created by virtue of a provision in the by-
is no corporate opportunity where corporation A is definitely unable laws.
to avail itself of the opportunity. The board, by itself cannot create an executive committee if nothing is stated in
2. Can the by-laws provide for directors being relieved from all liability for any the by-laws.
contract entered into by the corporation with any firm which the directors may Composition
be interested? At least three members of the board, to be appointed by the board.
a. No. by-laws cannot be contrary to the provisions of the corporation This means that there can be members of the execomm who are NOT directors,
code. Sec. 33 of RCC disallows directors from taking advantage of provided that at least three members are directors.
corporate opportunities. Authority
3. Corp A is engaged in the business of raising and selling hogs. Director of corp A The executive committee has all the authority of the board to the extent
met a buyer that is interested in buying pig skins. Director of Corp. A set up a provided in the resolution of the board or in the by-laws.
separate company and started exporting pig skins not sourced from corp. A. The resolutions passed and approved by the executive committee are as valid
Should the director have given the business to Corp. A instead of making a as the resolutions of the board provided that the resolutions have been made at
separate company to deal with the buyer of pig skins? the time the execomm is constituted
a. No. No conflict because the two corps have different purposes. Corp. A However, there must be no undue abdication of the powers of the
is to raise and sell hogs while the new corp. is to export pigskins. board.
While the committed may manage the day-to-day operation of the
bsiness of the corporation, the business and affairs thereof shall be
SEC. 34. Executive, Management, and Other Special Committees. If the bylaws so
managed and all corporate powers shall be exercised under the
provide, the board may create an executive committee composed of at least
ultimate directions of the board.
three (3) directors. Said committee may act, by majority vote of all its members,
The rights of the minority cannot be impaired.
on such specific matters within the competence of the board, as may be
The decisions of the execomm are NOT appealable to the board of directors
delegated to it in the bylaws or by majority vote of the board, except with
However, the board may ratify the resolution of the execomm if the
respect to the:
resolution is invalid (e.g. it is not one of the powers conferred thereto)
ed;
The resolution of the execomm may be repealed by subsequent Board
(b) filling of vacancies in the board;
resolutions unless what is involved is an accomplished fact or a contract that is
(c) amendment or repeal of bylaws or the adoption of new bylaws;
binding on third persons.
(d) amendment or repeal of any resolution of the board which by its express
Quorum

lOMoARcPSD|31111392
Quorum requirements for executive committees are the same as that for
other commercial agreement with natural and juridical persons;
directors. A majority of the group constitutes the quorum.
(i)To make reasonable donations, including those for the public welfare or for
Required Vote
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That
Majority vote requirement for execomm shall be interpreted to mean, majority
no foreign corporation shall give donations in aid of any political party or
vote of ALL the committee members
De Facto Officers candidate or for purposes of partisan political activity;
If the executive committee was not validly constituted, the members thereof (j)To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and
may be considered de facto.
Board Committees (k)To exercise such other powers as may be essential or necessary to carry out
The Board may create committees that can give it assistance in the its purpose or purposes as stated in the articles of incorporation.
performance of their functions.
The actions of these committees require ratification and confirmation CHANGES:
by the board Corporations are now expressly allowed to enter into a partnership, joint
Problem: venture, merger, consolidation, or any other commercial agreement with
natural and juridical persons;
and delegate ALL its powers to the said committee. There is no provision in the Articles In the old Corporation Code, BOTH domestic and foreign corporations are
and By-laws conferring such powers. Is the creation of the Executive Committee valid? PROHIBITED from giving donations in aid of any political party or candidate or
for purposes of partisan political activity.
No. The executive committee may only be created IF the same is provided for in the By- Now, only foreign corporations are expressly disallowed from
laws. Even assuming there is a provision in the By-laws, NOT ALL powers can be donating in aid of any political party or candidate or for purposes of
conferred to the committee. partisan political activity.
Limited or Special Capacities
5 decisions that cannot be delegated to the Executive Committee: The law vests in a corporation rights, powers and attributes as if they are
natural persons with physical existence and capabilities to act on their own.
(b) filling of vacancies in the board; HOWEVER, it is also a fundamental principle that a corporation is a
(c) amendment or repeal of bylaws or the adoption of new bylaws; juridical entity created by law, and possesses no power other than
(d) amendment or repeal of any resolution of the board which by its express terms what is vested by law.
is not amendable or repealable; and Kinds of Powers
(e) distribution of cash dividends to the shareholders. Express powers
Powers expressly provided by the Corporation Code, applicable laws,
administrative regulations, and the Articles of Incorporation of the
SEC. 35. Corporate Powers and Capacity. Every corporation incorporated under
corporation
this Code has the power and capacity:
The express powers include
(a)To sue and be sued in its corporate name;
The general powers under Section 35
(b)To have perpetual existence unless the certificate of incorporation provides
The specific powers under sections 11, 15, 36, 44
otherwise;
(c)To adopt and use a corporate seal; The powers expressly provided in the Corporation Code are deemed
part of the Articles of Incorporation even if such powers are not
(d)To amend its articles of incorporation in accordance with the provisions of
this Code; enumerated therein.
(e)To adopt bylaws, not contrary to law, morals or public policy, and to amend Implied powers
or repeal the same in accordance with this Code; Implied powers include all powers that are reasonably necessary or
(f)In case of stock corporations, to issue or sell stocks to subscribers and to sell proper for the execution of the powers expressly granted and are not
expressly or impliedly excluded.
treasury stocks in accordance with the provisions of this Code; and to admit
members to the corporation if it be a nonstock corporation; It has been defined as one which the law will regard as existing by
(g)To purchase, receive, take or grant, hold, convey, sell, lease, pledge, implication
Such power must in a sense necessary needful, suitable and proper
mortgage, and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful to accomplish the object of the grant one that is directly and
immediately appropriate for the execution of specific powers; and not
business of the corporation may reasonably and necessarily require, subject to
the limitations prescribed by law and the Constitution; one that has slight, indirect or remote relation to the specific purposes
(h)To enter into a partnership, joint venture, merger, consolidation, or any Examples:
A cement factory has implied power to operate an electric

lOMoARcPSD|31111392
power plant for such factory.

An advertising company may pursue any and all related
activities covered by the purpose clause. allow the corporation to remit donations to a foreign organization.
SEC opined that manufacturing is not implied from or Specific Powers
incidental to the business of selling that is stated in the The specific powers of corporations are provided for in the Corporation Code
Articles of Incorporation. However, a manufacturer has an including the specific requirements of and/or procedure for their exercise
implied power to sell what it manufactures These include: (1) Power to extend/shorten the corporate term (2) to amend
A corporation cannot operate an online casino on the basis the Articles of Incorporation (3) To increase or decrease the capital stock etc.
of its secondary purpose to operate amusement centers for General Powers
various computer games Generally, the board exercises general powers of the corporation and the
A corporation with a primary purpose of trading goods can approval of a resolution by the board is enough for the exercise of such powers.
Power to sue and be sued
includes the activity of importation. One of the incidental powers of a corporation is the power to sue and be sued
When Implied: The corporation only has the powers expressly The power to sue is exercised by the corporation through the board and/or its
granted in its charter OR such powers as are necessary for the duly authorized officers and agents.
purpose of carrying out its express powers. Only such powers as Generally, corporations are required to attach:
are reasonably necessary to enable corporations to carry out the A copy of the Board Resolution authorizing the filing of the complaint
express powers grated and the purposes of the creation are implied. or petition.
Powers merely convenient or useful are NOT implied IF they are NOT Certificate on non-forum shopping
essential
In determining what business may be carried on by the corporation,
reference must be made to its Articles of Incorporation, and unless the to the petition or complaint, the pleading is not properly verified.
power to carry a particular business is expressly or impliedly General Rule: A person (including the counsel of the corporation), who alleges
conferred, thereby, then it does not exist. that he is duly authorized by the Board that specifically authorized him to
In construing the corporate powers, the language of the charter institute the action and execute the certification against forum shopping.
should in general neither be construed strictly nor liberally but Implied authority is not acceptable.
according to the fair and natural import of it, with reference to the Exception: The Supreme Court in certain cases relaxed the rule by
objects of the corporation. ruling that in exceptional cases, certain officers have implied
Incidental powers authority to sign the certification of non-forum shopping: (1) the
Incidental powers are powers that are deemed conferred on the Chairperson of the Board of Directors (2) the President of a
corporation because they are incidental to the existence of the corporation (3) the General Manager or Acting General Manager (4)
corporation Personnel Officer and (5) an Employment Specialist in a
Corporations are deemed given such powers because they are the labor case.
consequences of the fact that they exist as juridical persons. The rationale behind the rule is that these officers are in a position to
Incidental powers include: verify the truthfulness and correctness of the allegations in the
The right to succession petition.
The right to have a corporate name Power of succession
The right to make by-laws for its government GR: Corporations now have perpetual existence
The right to sue and be sued
The right to acquire and hold properties for purposes Certificate of Incorporation renewed every fifty years.
authorized by the charter. EXCEPTION: Unless the certificate of incorporation provides otherwise.
Stretching the Purpose Clause Power to adopt and use a corporate seal
A seal is not indispensable for the transactions or contracts of the corporation
meaning of the purpose clause to cover new and unexpected situations. A document may be considered valid and binding even in the absence of a seal
Situations and circumstances may arise which could not have been foreseen at Power to amend the Articles of Incorporation
The power to amend the Articles of Incorporation must be in accordance with
interpretation of the purpose clause the provisions of the Corporation Code.
There is no need to amend the Articles of Incorporation to accommodate Power to adopt By-laws
the new situations. A corporation may exist without the by-laws
Example: A provision in the Articles of Incorporation allowing a By-laws are meant to regulate the manner of conducting the internal affairs of

lOMoARcPSD|31111392
the corporation. outstanding capital stock is sufficient to approve the sale.

Powers regarding shares and membership Temporary lease of corporate property is allowed even if a corporation is not
The subscribers and not the stock corporation are the owners of the shares engaged in the business of leasing properties, subject to the ff requirements
therein. imposed by the SEC:
However, the corporation has certain powers relating to shares, The property is NOT presently used by the corporation and leasing
including the property is not made on a regular basis
The power to issue previously unsubscribed shares Leasing the property will make it productive instead of allowing them
The power to sell treasury stocks to remain idle
The power to sell delinquent shares There is no express restriction in the Articles of Incorporation and By-
The power to acquire its own shares in proper cases laws
The power to redeem redeemable shares Leasing the property is not used as a scheme to prejudice corporate
The power to increase or decrease par value of shares creditors or result in the infringement of the trust fund doctrine.
The power to resort to stock split. A corporation can acquire usufruct over an immovable property.
Non-stock corporations have the power to admit members if the Article 605 of the New Civil Code - usufruct cannot be constituted in
corporation. It may prescribe the qualifications of members and may favor of a corporation for more than 50 years.
provide for grounds for its disqualification. If the usufruct has been constituted in favor of the corporation and the
Power to acquire, sell, lease or otherwise deal with real or personal property. corporation is dissolved before the expiration of the period of the
A corporation has the power to purchase, receive, take or grant, hold, convey, usufruct, the usufruct shall be extinguished by reason thereof.
sell, lease, pledge, mortgage, and otherwise deal with such real and personal Power to enter into merger or consolidation
property, including securities and bonds of other corporations, as the Merger - when two or more corporations merge into a single corporation that
transaction of the lawful business of the corporation may reasonably and shall be one of the constituent corporations.
necessarily require, subject to the limitations prescribed by law and the Consolidation when two or more corporations form a new single
Constitution; corporation.
The power to sell, acquire, lease or convey real or personal property is vested Power to Make Reasonable Donations
in the Board of Directors. General Rule: Without an express grant of power, a corporation is not allowed
The corporation may appoint agents to negotiate for the purchase of real to donate portions of its assets.
property but the final say will have to be with the Board, whose approval will Exception: Consistent with the Corporate Social Responsibility
finalize the transaction. Theory, a corporation is allowed to make donation so long as the
If the power to sell is conferred to an agent, there must be written donation is (1) reasonable (2) for a valid purpose (3) and if the
contract of agency for such purpose and the special power of corporation involved is a foreign corporation, it should not be in aid
attorney, including the Board resolution, conferring authority to the of any political party or candidate or for purposes of partisan political
agent to sell the specific parcel of land. activity.
If the power is not expressly conferred, the sale is not yet binding on
the corporation even if the buyer already made a deposit. and not be so remote and fanciful.
The Board can exercise this power under this provision without concurrence of A corporation is empowered to accept donations when necessary to carry out
the stockholders. its express powers.
Power to establish pension, retirement and other plans
Sections 39 (Sale or Other Disposition of Assets) and 41 (Power to
Invest Corporate Funds in Another Corporation or Business or for Any The retirement fund established by the corporation may gain tax exempt status
Other Purpose) under the NIRC
Two basic requirements in order that a corporation can deal with real or Power to enter into a partnership
personal property A corporation may now enter into a contract of partnership.
It must be reasonably and necessarily required by the transaction of Power to enter into a Joint Venture
the lawful business of the corporation A corporation can enter into a joint venture agreement.
It is subject to limitations prescribed by law and the Constitution Joint venture is an organization formed for some temporary purpose.
Even in cases not covered by Sections 39 and 32, the By-laws o the corporation Power to Borrow Funds
may expressly require the approval of the stockholders for the sale of the The power to borrow money is auxiliary to the primary purposes of the
corporate property corporation. A board resolution is necessary for such purpose because a special
In absence of any provision in the By-laws as to the number of votes power of attorney is necessary to confer such power.
required, the vote of stockholders representing the majority of the Only duly authorized representatives may secure loans in behalf of the

lOMoARcPSD|31111392
corporation
If the loan is the personal debt of the corporate officer, the
SEC. 36. Power to Extend or Shorten Corporate Term. A private corporation
corporation is under NO obligation to pay the loan.
may extend or shorten its term as stated in the articles of incorporation when
Power to Act as Surety or Guarantor
approved by a majority vote of the board of directors or trustees, and ratified at
General Rule: A corporation may not be bound by a contract of guarantee or
a meeting by the stockholders or members representing at least two-thirds
surety for the benefit of third persons.
(2/3) of the outstanding capital stock or of its members. Written notice of the
Without an express power in the Articles of Incorporation, the power
proposed action and the time and place of the meeting shall be sent to
to act as a surety or guarantor cannot be justified.
This power is NOT a NECESSARY or INCIDENTAL power. stockholders or members at their respective place of residence as shown in the
However, guaranty may be given in the accomplishment of any object for which books of the corporation, and must either be deposited to the addressee in the
the corporation was created, or when the particular transaction is reasonably post office with postage prepaid, served personally, or when allowed in the by-
necessary or proper for the conduct of business. laws or done with the consent of the stockholder, sent electronically in
accordance with the rules and regulations of the Commission on the use of
A corporation cannot act as an accommodation party in a negotiable
electronic data messages. In case of extension of corporate term, a dissenting
instrument.
stockholder may exercise the right of appraisal under the conditions provided
A corporation cannot be bound by a signature that will make it an
in this Code.
accommodation maker, drawer or indorser of the instrument
Issuance or indorsement of a negotiable instrument without
consideration and for the accommodation of another is ultra vires. CHANGES:
Power to Mortgage Written notice of the proposed action and the time and place of the meeting
The conferment of the power to borrow money for corporate purposes includes may, when allowed in the by-laws or done with the consent of the stockholder,
the conferment of power to mortgage the properties of the corporation to be sent electronically in accordance with the rules and regulations of the
secure its obligation. Commission on the use of electronic data messages
General Rule: The corporation cannot mortgage its properties to secure the
obligation of third persons Not an Inherent Right
It can mortgage its properties to secure the obligations of a subsidiary. Since the life of the corporation is a concession of the State, the power to
REQUIREMENTS to mortgage the properties for the obligations of extend the corporate term is not an inherent right.
another corporation which is NOT its subsidiary On the other hand, shortening the corporate term can be done at the
There is no express restriction in the Articles of discretion of the corporation.
Incorporation and By-laws Sec. 135 voluntary dissolution may be effected by amending the articles of
The purpose of the mortgage is not illegal incorporation to shorten the corporate term pursuant to the provisions of this
The consent of all corporate creditors and stockholders must Code.
be secured Appraisal Right
The transaction is NOT used a scheme to defraud or In case of extension of corporate term, any dissenting stockholder may exercise
prejudice corporate creditors or result in the infringement of his appraisal right under the conditions provided in the Code.
the Trust Fund Doctrine Dissolution
The mortgage will not hamper the continuous business The shortening of the corporate term may be designed to have the effect of
operation of the corporation dissolving the corporation.
The accommodated third party involved in the mortgage is Dissolution takes effect on the date of the approval of the Amended Articles of
financially solvent and capable of paying its obligation. Incorporation by the SEC.
Practice of Profession The three-year liquidation period shall be reckoned from the date of the SEC
Corporate practice of any profession is not allowed approved Amended Articles of Incorporation.
Exceptions: certain professions allowed to incorporate Problems:
Architecture, Interior design profession, real estate Q: The primary pu
appraiser, metallurgical engineer, landscape architecture, manufacturing goods such as jewelry and to trade the same on wholesale. Is it qualified
electronics engineer, environmental planning, marine to engage in jewelry assaying and refining activities even if the same is not provided for
engineering, psychology, naval architecture. as a secondary purpose?
Architecture - Limited liability of shareholders
cannot be strictly applied because individual A: Yes. jewelry assaying and refining are implied powers of the corporation. The purpose
members shall be responsible even for their clause can be reasonably stretched to cover matter that could have not been explicitly
mentioned at the time of incorporation but is closely related to the expressed corporate

lOMoARcPSD|31111392
purpose or impliedly included therein.

Copies of the certificate shall be kept on file in the office of the corporation and
filed with the Commission and attached to the original articles of incorporation.
Q: The primary purpose of a Corporation A is to carry mineral exploration and
After approval by the Commission and the issuance by the Commission of its
exploitation. Can it engage in manning or crewing business if the same is not states as a
certificate of filing, the capital stock shall be deemed increased or decreased
secondary purpose?
and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the
A: No. Crewing business cannot be implied from the expressed purposes. It is allowed to
Commission shall not accept for filing any certificate of increase of capital stock
own, manage or operate vessels and recruit crew, only if it is necessary in carrying out its
mineral exploitation business. unless accompanied by a sworn statement of the treasurer of the corporation
lawfully holding office at the time of the filing of the certificate, showing that at
Q: Purpose clause: To engage in business of buying, acquiring, holding, assembling, least twenty-five percent (25%) of the increase in capital stock has been
importing computers and its peripherals, electronic and industrial engineering items of subscribed and that at least twenty-five percent (25%) of the amount
subscribed has been paid in actual cash to the corporation or that property, the
every kind. Cam the XYZ corporation enter into computer maintenance service
contracts? valuation of which is equal to twenty-five percent (25%) of the subscription, has
been transferred to the corporation: Provided further, That no decrease in
A: No. The purpose clause did not authorize it to enter into such. capital stock shall be approved by the Commission if its effect shall prejudice the
rights of corporate creditors.
SEC. 37. Power to Increase or Decrease Capital Stock; Incur, Create or Increase Nonstock corporations may incur, create or increase bonded indebtedness
Bonded Indebtedness. No corporation shall increase or decrease its capital when approved by a majority of the board of trustees and of at least two-thirds
stock or incur, create or increase any bonded indebtedness unless approved by (2/3) of the members in a meeting duly called for the purpose.
a majority vote of the board of directors and by two-thirds (2/3) of the Bonds issued by a corporation shall be registered with the Commission, which
shall have the authority to determine the sufficiency of the terms thereof.
purpose for said meeting must be sent to the stockholders at their places of
residence as shown in the books of the corporation and served on the CHANGES
stockholders personally, or through electronic means recognized in the The Revised Corporation Code now provides for a period within which to file
ode for service the application to increase or decrease in the capital stock or the incurring,
of notices. creating or increasing of any bonded indebtedness
Increase or Decrease of Capital Stock
A certificate must be signed by a majority of the directors of the corporation and
The exercise of the power to increase or decrease the authorized capital stock
setting forth: of the corporation results in the amendment of the Articles of Incorporation.
(a)That the requirements of this section have been complied with; This is different from the increase or decrease of the authorized capital stock or
paid-up capital that does not necessarily require amendment of the Articles of
(b)The amount of the increase or decrease of the capital stock;
(c)In case of an increase of the capital stock, the amount of capital stock or Incorporation.
number of shares of no-par stock thereof actually subscribed, the names, Ways to INCREASE the capital stock
nationalities and addresses of the persons subscribing, the amount of capital Increasing the number of shares ; retaining the par value
stock or number of no-par stock subscribed by each, and the amount paid by Increasing the par value of the existing shares without changing the
number of shares
each on the subscription in cash or property, or the amount of capital stock or
number of shares of no-par stock allotted to each stockholder if such increase is Increasing BOTH the number of shares and increasing the par value.
for the purpose of making effective stock dividend therefor authorized; Ways to DECREASE the capital stock
(d)Any bonded indebtedness to be incurred, created or increased; Decreasing the number of shares ; retaining the par value
(e)The amount of stock represented at the meeting; and Decreasing the par value of the existing shares without changing the
number of shares
(f)The vote authorizing the increase or decrease of the capital stock, or the
incurring,creating or increasing of any bonded indebtedness. Decreasing BOTH the number of shares and increasing the par value.
Any increase or decrease in the capital stock or the incurring, creating or A decrease of the capital stocks consequently amends the underlying
contractual relationship between the corporation and the shareholders.
increasing of any bonded indebtedness shall require prior approval of the
Commission, and where appropriate, of the Philippine Competition Commission. For this reason, the consent of the contracting parties is required to
give effect to such power of the corporation to decrease its capital
The application with the Commission shall be made within six (6) months from
the date of approval of the board of directors and stockholders, which period stock
may be extended for justifiable reasons. Stock Split/ Reverse Stock Split
Stock Split - a share is divided or converted into two or more shares but the

lOMoARcPSD|31111392
amount of the outstanding capital remains the same because the par value is holders exclusively, where no commission or remuneration is paid or
also divided in as many shares. given directly or indirectly in connection with the sale of such capital
The increase or decrease of capital will not necessarily result if there is a stock stock.
split. The sale of securities by an issuer to fewer than 20 persons in the
Reverse Stock Split the pro-rata combination of all the outstanding shares os Philippines during any 12-month period
a specified class into smaller number of shares of that class The sale of securities to the Bank, Insurance Company, Registered
A reverse stock split may be required to increase the market value per
share or it may be designed to eliminate minority stockholders Investment company or such other persons as the commission may
determine as qualified.
REQUIREMENTS:
Number of Shares Par Value Outstanding Cap.
The increase or decrease of the capital stock must be approved by a
majority vote of the Board of Directors;
2/3 of the outstanding
Stock Split 400,000 shares P50 /share 20,000,000
capital stock must favour the increase or dimunition of the capital stock.
In connection w
2,000,000 shares P10/share 20,000,000
sent to the stockholders at their places of residence as shown in the books of
the corporation
Reverse Stock Split 2,000,000 shares P10/share 20,000,000 This written notice may be served personally, or through electronic
400,000 shares P50/share 20,000,000 A certificate must be signed by a majority of the directors of the corporation
and countersigned by the chairperson and
meeting, setting forth:
Increase of Subscribed Capital That the requirements of this section have been complied with;
Increase in the capital stock of the corporation is necessary when additional The amount of the increase or decrease of the capital stock;
funds are required by the operation and the corporation opted to raise funds In case of an INCREASE of the capital stock, the amount of capital
through additional investments stock or number of shares of no-par stock thereof actually subscribed,
Mere approval of the board is sufficient to increase the subscribed capital. the names, nationalities and addresses of the persons subscribing, the
An increase in the authorized capital is required id the additional sunscription amount of capital stock or number of no-par stock subscribed by each,
cannot be covered by the original authorized capital. and the amount paid by each on the subscription in cash or property,
Increase in Paid-up Capital or the amount of capital stock or number of shares of no-par stock
Generally, there is no need to get the approval of the SEC for the creation of allotted to each stockholder if such increase is for the purpose of
additional paid up capital. making effective stock dividend therefor authorized;
Exempt from the Registration Requirement of the SEC Any bonded indebtedness to be incurred, created or increased;
General Rule: NO SEC approval is required for the ISSUANCE of additional The amount of stock represented at the meeting; and
shares, but there are instances where the issuance of shares is subject to the The vote authorizing the increase or decrease of the capital stock, or
registration requirement or at least, a request for exemption under the the incurring, creating or increasing of any bonded indebtedness.
Securities Regulation Code and its implementing rules. With respect to the INCREASE of capital stock, the
Shares of stock are not exempt securities. However, there are cases when the application to be filed with the SEC should be accompanied
issuance of shares is an exempt transaction. The requirement of registration by a sworn statement of the treasurer of the corporation
does not apply to the ff. cases lawfully holding office at the time of the filing of the
Sale of capital stock to its OWN stockholders exclusively, where no certificate, showing that at least twenty-five percent
commission or remuneration is paid or given directly or indirectly in (25%) of the increase in capital stock has been
connection with the sale of such capital stock. subscribed and that at least twenty-five percent (25%) of
Subscriptions for shares of the capital stock of a corporation prior to the amount subscribed has been paid in actual cash to the
the incorporation thereof when no expense is incurred or no corporation or that property, the valuation of which is
commission, compensation, or remuneration is paid or given in equal to twenty-five percent (25%) of the subscription
connection with the sale or disposition of such securities
The exchange of securities by the issuer with its existing security

lOMoARcPSD|31111392
The required 25% subscription under Section 37

shall be based on the additional amount by which be signed by a majority of the directors and the corporate
the capital stock is increased and NOT on the total secretary
SEC Approval
Any increase or decrease in the capital stock or the incurring, creating or newspaper of general circulation
increasing of any bonded indebtedness shall require prior approval of the The exercise of the power to decrease the capital stock is a management
Commission, and where appropriate, of the Philippine Competition prerogative.
Commission. The value of the decrease may be distributed to the stockholders as long as the
The application with the Commission shall be made within six (6) months rights of the creditors are not affected.
from the date of approval of the board of directors and stockholders, This is the reason why the consent of the creditors must be secured if
which period may be extended for justifiable reasons. the authorized capital is decreased.
Copies of the certificate shall be kept on file in the office of the corporation and Financial Statement necessary because the SEC will allow decrease in capital
filed with the Commission and attached to the original articles of incorporation. stock only if the capital of the corporation will not be impaired. Solvency of the
Documentary requirements prescribed by the SEC for the approval of the corporation must be assured
application for the increase of the authorized capital stock: Consent of the stockholders is needed for the decrease because this action
Certificate of Increase of Capital Stock amends the underlying contractual relationship between the corporation and
the stockholders.
amount subscribed and the amount received as payment There is NO INCREASE in the authorized capital stock even if the stockholders
List of stockholders as of the date of the meeting, apprising the already paid the additional subscription IF there is NO APPROVAL FROM THE
increase, indicating the nationalities of the subscribers and their SEC.
respective subscribed and paid-up capital on the existing authorized Any payment by the shareholder of the subscription shall be
capital stock, as certified by the corporate secretary. considered deposits only on future subscription.
The application for the increase in capital stock must be accompanied by a
The amendment of the Articles of Incorporation increasing Management Representation signed under oath by the President/CEO and
the authorized capital stock Treasurer/CFO.
The votes of the directors and the stockholders and Bonded Indebtedness
The date and pl Section 37 does not cover all kinds of indebtedness because a corporation has
be signed by a majority of the directors and the corporate an implied power to borrow money when necessary to carry out its purpose
secretary Bonded indebtedness refers to secured indebtedness or those secured by real
Endorsement / clearance from other government agencies if or personal property that are covered by certificates. They refer to negotiable
applicable corporate bonds secured by mortgage on property
- a notarized document signed by the Requirements
corporate secretary certifying that no action or proceeding Certificate of Creation of Bonded Indebtedness
has been filed or is pending before any Court or tribunal Audited Financial Statements for the current year period if item no. 2
involving an intra-corporate dispute or claim by any person is more than 6 mos old certified by the company accountant
or group against the directors, officers or stockholders.
The following are the documentary requirements prescribed by the SEC for the Projected financial statements
approval of the application for the decrease of the authorized capital stock Trust indenture executed by the corporation and the trustee
Certificate of Decrease of Authorized Capital Stock Sample form of the mortgaged bond certificate to be issued.
Audited Financial Statements as of the last fiscal year, stamped Problem:
received by SEC and BIR X Corporation has an authorized capital stock of Php 1M divided into 100,000 shares
If it involves a return of capital: Long form audit report and list of with par value of P10 each. Give two ways to increase the authorized capital stock to
creditors with the amount due to each certified by the auditor or P1.5M
certified under oath by company accountant and written consent of
each creditor. A: 1.) Increase the no of shares while maintaining the par value:
Amended Articles of Incorporation 100,000 to 150,000 shares
150,000 shares x P10.00 =P1.5M
The amendment of the Articles to decrease the authorized 2.) Increase the par value while maintaining the number of shares, that is increase the
capital stock par value of the 100,000 shares to P15.00
The votes of the director and the stockholders 100,000 shares x 15.00 = P1.5M

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SEC OPINION Benito ruling is no longer controlling under Sec.

Bonded Indebtedness Debentures
38. Section 38 covers ALL issues and disposition of shares
Preemptive right is NOT available:
When shares are issued on exchange for shares in another
- Long term - Short term
corporation if the same is the result of a merger to which the
corporations are parties.
When the right is denied in the Articles of Incorporation
- Secured by property - Secured by general credit
When shares are issued in compliance with laws requiring stock
offerings or minimum stock ownership by the public
When shares are issued in good faith with the approval of the
- Often offered to the general public
stockholders representing 2/3 of the outstanding capital stock, in
exchange for property needed for corporate purposes or in payment
of corporate debt.
Waiver
SEC. 38. Power to Deny Preemptive Right. All stockholders of a stock
corporation shall enjoy pre-emptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective Upon expiration of said period, stockholders who has not exercised
shareholdings, unless such right is denied by the articles of incorporation or an such right will be deemed to have waived it.
amendment thereto: Provided, That such pre-emptive right shall not extend to Transfer
shares issued in compliance with laws requiring stock offerings or minimum The right to subscribe to new issues and disposition may be transferred by the
stock ownership by the public; or to shares issued in good faith with the shareholder. Unless there is express restriction, preemptive right is
approval of the stockholders representing two-thirds (2/3) of the outstanding transferable.
capital stock, in exchange for property needed for corporate purposes or in Denial and Restriction
payment of a previously contracted debt. Preemptive right may be restricted or denied under the Articles of
Incorporation subject to certain exceptions and limitations
Not against Public Policy
Preemptive Right The power to deny preemptive right is not contrary to public policy
The right of the shareholders to subscribe to all issues or disposition of shares
of any class, in proportion to their respective shareholdings PROBLEMS
Rationale: to maintain the relative and proportionate voting strength and X Realty Corp, engaged in subdivision business has an authorized capital stock of
control of existing stockholders. It is aimed to maintain the existing ratio of the P800,000, decided at a special meeting, to purchase a 5-hectare parcel of lot ideal for its
business. The Board approved a resolution increasing the authorized capital stock from
Issues or Disposition P800,000 to P1,000,000, stipulating that the additional P200,000.00 worth of shares be
Preemptive right covers ALL issues and disposition. issued be in exchange for the five-hectare property and that the existing stockholders
This includes issuance of the unsubscribed shares that are part of the would have no pre emptive right to the additional shares as the same were being issued to
original capital stock and the increase of the capital stock. pay for the property. Was the Board of Directors correct?
Preemptive right is available:
In case the corporation decides to dispose its treasury shares ANSWER: Yes, the action of the Board was correct but insufficient. Sec.38 of the Corp.
To existing shareholders with respect to unsubscribed but Code requires that the resolution of the Board be approved by 2/3 of the outstanding
previously issued shares capital stock, and further to be approved by the SEC.
Benito v SEC if the shares are offered and are NOT subscribed by the 2nd issue: The stockholders cannot be denied the right to preemptive right by a mere
shareholders and later the shares are being offered again preemptive right is not resolution. The AoI should be amended first.
available with respect to the latter offer of shares
Rationale: The theory is that when the corporation at its inception X Corporation wanted to purchase a lot on which an additional factory would be
offers its first shares, it is presumed to have offered all those that it is constructed. Jose is selling his lot on the condition that he is paid in shares of stocks of
authorized to issue. A subscriber is deemed to have taken his shares, the corporation. The BoD accepted the terms but since the authorized cap. Stock of the
knowing they form a definite proportionate part of the whole number corp has been fully subscribed, it proposed to increase the capital stock so it can buy the
of authorized shares. When the shares are later re-offered, he cannot lot. Pedro, owner of 100 shares alleged that the stockholders should have a pre-emptive
claim dilution of interest right to the new shares. Is Pedro within his rights in claiming a pre-emptive right?

lOMoARcPSD|31111392
ANSWER: No. Pedro Reyes was not within his right to claim pre-emptive right. Sec 38 -
shown in the books of the corporation and deposited to the addressee in the
preemptive right does not exist when it is to be used in exchange for property needed
post office with postage prepaid, served personally, or when allowed by the by-
for corporate purposes or in payment of a previously contracted debt.
laws or done with the consent of the stockholder, sent electronically: Provided,
That any dissenting stockholder may exercise the right of appraisal under the
Y Corporation has an authorized capital stock of P100,000,000 divided into 10,000
conditions provided in this Code.
shares each with a par value of P10.00. The subscribed capital stock is P50,000.00 or
5,000.00. At the time of the incorporation, S subscribed to 1000 shares or P10,000. To
gain funds, Y proposed to offer the 5,000 unsubscribed shares to new stockholders at CHANGES
P15.00 per share. Does S have preemptive right. The Revised Corporation Code provides for two measures in determining
whether or not the sale involves all or substantially all of the
ANSWER: Yes, to only 1000 shares which is proportionate to the shares he bought at the Qualitative and Quantitative
time of incorporation. Qualitative: A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if thereby the
A Corp has an authorized capital stock of 1M, divided in to 50,000 common shares and corporation would be rendered incapable of continuing the business
50,000 preferred shares. At inception, A Corporation offered for subscription all the or accomplishing the purpose for which it was incorporated.
common shares. Only 40,000 shares were subscribed. Recently, the directors thought of Quantitative: The determination of whether or not the sale involves
raising additional capital and offered all the authorised shares at market value. Would all or substantially all of the
Mr. X a stockholder with 4000 shares have preemptive rights to the remaining 10,000 be computed based on its net asset value, as shown in its latest
shares? financial statements
REQUISITES:
ANSWER: Yes. Sec. 38 ALL stockholders of a stock corporation shall enjoy preemptive A sale, lease, exchange, mortgage, pledge, or other disposition of all or
rights to subscribe to all issues or disposition of shares. substantially all of the properties and assets of the corporation requires
(Alternative: Benito case there will be no pre-emptive right if the shares were not taken the ff:
when originally offered) It must be approved by the majority of the directors of trustees
There must be assent of stockholders representing 2/3 of the
outstanding capital stock or two-thirds of members in a meeting duly
SEC. 39. Sale or Other Disposition of Assets. Subject to the provisions of
called for the purpose after written notice.
It the transaction does not cover all or substantially all of the properties and
other related laws, a corporation may, by a majority vote of its board of
assets of the corporation, the decision of the board is sufficient and it is not
directors or trustees, sell, lease, exchange, mortgage, pledge, or otherwise
necessary to get the approval of the stockholders.
dispose of its property and assets, upon such terms and conditions and for such
If substantially all of the assets were already previously mortgaged by the
consideration, which may be money, stocks, bonds, or other instruments for the
payment of money or other property or consideration, as its board of directors
evidenced by a Mortgage Trust Indenture, the subsequent appointment of a
or trustees may deem expedient.
replacement of a new trustee of the MTI should only be considered a regular
business transaction.
including its goodwill must be authorized by the vote of the stockholders
The appointment needs to be approved by only at least a majority of
representing at least two-thirds (2/3) of the outstanding capital stock, or at
the directors present at the meeting which there was a quorum
least two-
(pursuant to Sec. 24)
duly called for the purpose.
However, the corporation may bind itself to secure the approval of the
In nonstock corporations where there are no members with voting rights, the
stockholders for the transfer of assets even if it does not involve all or
vote of at least a majority of the trustees in office will be sufficient authorization
substantially all of the assets of the corporation.
for the corporation to enter into any transaction authorized by this section.
Kinds of Corporate Acquisitions
The determination of whether or not the sale involves all or substantially all of
Asset Sales the corporate entity sells all or substantially all of its assets to
another entity
value, as shown in its latest financial statements. A sale or other disposition
Stock sales the individual or corporate shareholders sell a controlling block
shall be deemed to cover substantially all the corporate property and assets if
of stock to new or existing shareholders
thereby the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was incorporated.
Qualitative: substantially all if thereby the corporation would be rendered
Written notice of the proposed action and of the time and place for the meeting
incapable of continuing the business or accomplishing the purpose for which it
shall be addressed to stockholders or members at their places of residence as
was incorporated.

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Quantitative: The determination of whether or not the sale involves all or Anticipation of Insolvency
substantially all of Section 10 of RA 10142 (FRIA) directors and officers of a debtor shall be
based on its net asset value, as shown in its latest financial statements liable for double the value of the property sold, embezzled, or disposed of or
Section 39 does not apply: double the amount of the transaction involved, whichever is higher to be
If the sale of the entire property and assets is necessary in the usual recovered for the benefit of the debtor and creditors, having reason to believe
and regular course of business of the corporation that proceedings are about to be commenced, willfully commit the following
If the proceeds of the sale or other disposition of such property and acts:
assets will be appropriated for the conduct of its remaining business. Dispose or cause to be disposed of any property of the debtor other
Reason why stringent requirements are imposed if the conveyance involves all than in the ordinary course of business or authorize or approve
or substantially all of the properties: There is an implied contract among the any transaction in fraud of creditors or in a manner grossly
stockholders to pursue the business for which the corporation was created for disadvantageous to the debtor and/or creditors
the specified period of its existence and therefore, as a general rule, there Conceal or authorize the concealment from creditors or embezzles
should be no disposition of the property used by the corporation in its business any property of the debtor
until its dissolution. Business Enterprise Transfer Rule
The power to dispose corporate assets may be exercised where just Buyer is liable if the buyer is a mere continuation of the seller
and reasonable cause exists, provided the transaction is not in fraud 2 Requisites
of creditors Transferor-corporation sells all or substantially all of its assets to
Effect on Creditors another entity
The transferee-corporation of all or substantially all of the assets (even shares) Transferee-corporation continues the business of the transferee-
will not be liable for the debts of the transferor corporation. corporation
Nell Doctrine Effect of Stoppage of Operation
By way of EXCEPTION, the transferee-corporation is liable: Transfer cases are not the only instances covered by Section 39.
If there is an express or implied assumption of liabilities If there is a SALE of all or substantially all of the assets of the corporation but
The transaction amounts to a consolidation or merger the corporation will just cease operation, Section 39 still applies.
If the transaction is entered into fraudulently in order to escape Bulk Sales Law
liability from debtors or purchase was in fraud of creditors Sale of all or
If the purchaser becomes a continuation of the seller. binding on creditors if there is a violation of the Bulk Sales Law.
Assumption of Liabilities Anti-Competition Transfers
Assumption of liabilities may be embodied in the agreement between the Merger or Acquisition Agreements that substantially prevent, restrict, or lessen
transferor and transferee competition in the relevant market shall be prohibited.
Merger or consolidation Any transfer of all or substantially all of the assets of the corporation that is
There is NO SALE in a merger of consolidation. anti-competition is also prohibited.
The properties are NOT SOLD but are deemed automatically transferred to the Effect on Employees of Corporate Acquisitions
surviving corporation without further act or deed. Dismissal of employees in good faith is justified if the corporate entity sells all
A surviving corporation also automatically absorbs the obligations of the non- or substantially all of its assets.
surviving corporation However, the seller in good faith is liable for the payment of
The transaction amounts to merger or consolidation in case of de facto merger separation pay under the law.
In de facto merger, one corporation acquires all or substantially all of The buyer in good faith is not obliged to absorb the employees
the properties of another corporation in exchange of shares of stock affected by the sale, nor is it liable for the payment of their claims.
acquiring corporation.
Transfer in Fraud of Creditors PROBLEMS:
The transfer of all or substantially all the assets of the corporation should not B corporation is engaged in selling canned goods on wholesale and it merely rents a
prejudice the creditors of the assignor. bodega. 95% of its assets are stocks of goods. Mr. X purchased all the stocks of B
If the creditors did not consent, the only way the transfer can proceed is to hold corporation. Is this transaction equivalent to a sale of ALL or substantially all the assets
the assignee liable for the obligations of the assignor. of the corporation?
To allow an assignor to transfer all its business, properties and assets without
the consent of its creditors and without requiring the assignee to assume the ANSWER: No. It is a sale in the regular course of business because B Corp. is engaged in
wholesale business.
creditors X corporation is engaged in the business of milling of rice. About 60% of its assets

lOMoARcPSD|31111392
consists of cash in the bank, 30% milling machine. X corp sold the machines. Is this in
effect a sale of all or substantially all the assets? Requirements for acquisition
The acquisition is for a legitimate corporate purpose/purposes
ANSWER: Yes. It cannot continue its business without the equipment. The fact that it The corporation has unrestricted retained earnings
constitutes only 30% is immaterial. The SEC enumerated the ff. requirements for the exercise of the power to
C Corporation sold its assets to W, Inc., (complying with Bulk Sales Law). Then, one of the The capital is not impaired
creditors of C Corp tried to collect the amount due, they found out that W Inc had no A legitimate and proper corporate purpose is advanced
more assets. The creditor sued W Inc on the theory that W Inc is a mere alter ego of C The corporate affairs warrant it
Corp. The transaction is designed and carried out in good faith
There is no intention and there is no resulting undue advantage to
ANSWER: The suit will not prosper. The sale of C Corp to W Inc does not result in the favored stockholders at the expense of the remainder
transfer of liabilities of the latter on the assumption of the former. The facts do not The creditors are not prejudiced
indicate that the transfer was stipulated upon by the parties or that an assumption took The corporation acts in good faith and without prejudice to the
place. Furthermore, the sale of C Corp of its assets is a sale of property and not a sale of rights of the creditors and stockholders.
shares of stocks belonging to its stockholders. There must be unrestricted retained earnings to purchase the same
BoD of X Corp, with unanimous authority and approval of its stockholders sold to U corp
for 10M substantially all of its assets consisting of pieces of machinery used in the To eliminate fractional shares arising out of stock dividends;
business of X corp. Z, a creditor of X questions the sale. To collect or compromise an indebtedness to the corporation, arising
The sale is valid. The authority of the board was obtained, as well as the approval of the out of unpaid subscription, in a delinquency sale, and to purchase
stockholders. The sale was valid it does not constitute fraud. The creditor was not delinquent shares sold during said sale; and
defrauded by the sale. To pay dissenting or withdrawing stockholders entitled to payment
for their shares under the provisions of this Code.
What are the two instances when the sale, transfer, mortgage or assignment of stock of The power to acquire its own shares is applicable even if the mode of
goods, wares, merchandise, provision or materials otherwise than in the ordinary course acquisition is through donation
of trade and the regular prosecution of the business of the vendor are not deemed to be a The sponsor of the Corporation Code believes that unrestricted
sale or transfer in bulk? retained earnings are no longer necessary if the acquisition is through
donation.
ANSWER: Other cases when unrestricted retained earnings is required in corporate acts
If the sale and transfer is made: include redemption of redeemable shares under Section 8
By a vendor, mortgagor, transferor or assignor who produces and delivers a written General Rule: in absence of statutory authority, a corporation cannot acquire its
waiver of the provisions of Bulk Sales law. own shares.
By a vendor, mortgagor, transferor or assignor who is an executor, administrator, Reasons: (1)The corporation cannot increase or decrease the capital
receiver, assignee in insolvency or public officer acting under judicial process, the sale or without sanction of the legislature (2) the transaction is a fraud upon
transfer is not covered by Bulk Sales Law. creditors (3) it is foreign to the purpose for which the corporation is
created.
Purchase of shares can be considered a violation of the Trust Fund Doctrine
SEC. 40. Power to Acquire Own Shares. Provided that the corporation has because the portion of the capital is taken to the prejudice of the creditors.
unrestricted retained earnings in its books to cover the shares to be purchased
The investments of the shareholders are generally locked-in until the
or acquired, a stock corporation shall have the power to purchase or acquire its liquidation.
own shares for a legitimate corporate purpose or purposes, including the
The fact that the transaction may not necessarily be injurious to any person is
following cases:
(a)To eliminate fractional shares arising out of stock dividends;
(b)To collect or compromise an indebtedness to the corporation, arising out of shares really amounts to a , and that the
unpaid subscription, in a delinquency sale, and to purchase delinquent shares shares purchased do, in fact remain extinguished at least until reissue has taken
sold during said sale; and
place
(c)To pay dissenting or withdrawing stockholders entitled to payment for their It is for these reasons that a shareholder cannot be allowed to
shares under the provisions of this Code. withdraw from a corporation with his proportionate amount of
capital, either by a release and cancellation before the shares have

lOMoARcPSD|31111392
His investment will be exposed to additional risks not contemplated when he

made the investment.
Investment
Investment of funds includes not only the investment of money but also
SEC. 41. Power to Invest Corporate Funds in Another Corporation or Business or investment of property of the corporation.
for Any Other Purpose. Subject to the provisions of this Code, a private A corporation that is incorporated to engage in trading business may be
corporation may invest its funds in any other corporation, business, or for any allowed to lease its properties to interested parties. Lease of the property is
purpose other than the primary purpose for which it was organized, when
approved by a majority of the board of directors or trustees and ratified by the SEC imposes the ff. requirements
stockholders representing at least two-thirds (2/3) of the outstanding capital The property is NOT presently used by the corporation and leasing
stock, or by at least two thirds (2/3) of the members in the case of nonstock the property is not made on a regular basis
corporations, at a meeting duly called for the purpose. Notice of the proposed Leasing the property will make it productive instead of allowing them
investment and the time and place of the meeting shall be addressed to each
to remain idle
stockholder or member at the place of residence as shown in the books of the There is no express restriction in the Articles of Incorporation and By-
corporation and deposited to the addressee in the post office with postage laws
prepaid, served personally, or sent electronically in accordance with the rules Leasing the property is not used as a scheme to prejudice corporate
and regulations of the Commission on the use of electronic data message, when creditors or result in the infringement of the trust fund doctrine.
allowed by the by-laws or done with the consent of the stockholders: Provided,
There must be compliance with Section 41.
That any dissenting stockholder shall have appraisal right as provided in this Investment in shares
Code: Provided however, That where the investment by the corporation is The corporation with idle funds may invest in shares for the purpose of
reasonably necessary to accomplish its primary purpose as stated in the articles generating income.
of incorporation, the approval of the stockholders or members shall not be Investment in notes
necessary.
A corporation can invest its idle funds in corporate notes issued by private
corporations and GOCCs
Pursuing Primary Purpose This can be justified by Sec 35 empowers corporations to deal with real and
Investment of a corporation in a business, which is in line with its PRIMARY personal properties including securities and bonds of other corporations as the
purpose requires only the approval of the board. transaction of the lawful business of the corporation may reasonably and
Where the investment by the corporation is reasonably necessary to necessarily require.
accomplish its primary purpose as stated in the Articles of Incorporation, the
approval of the stockholders or members shall not be necessary. PROBLEM:
Only board approval is necessary if an investment is for the accomplishment of A corporation executed a promissory note binding itself to pay its President/Director,
the primary purpose.
interests in the company. The corporation defaulted in paying the full amount so former
Pursuing Secondary Purpose president filed a suit for collection before the SEC. Is the arrangement between the
If investment is in pursuance of a secondary purpose: former president and the corporation covered by the Trust Fund Doctrine?
There must be approval by majority of the board
It must be ratified by the stockholders representing 2/3 of the ANSWER: YES. It is covered by the Trust Fund Doctrine. The corp cannot return what
outstanding capital stock / 2/3 of the members in case of nonstock was paid by a stockholder for his shares because the subscribed capital is held in trust by
corporations. the corporation for its creditors.
Notice of the proposed investment and the time and place of the
meeting shall be addressed to each stockholder or member at the
place of residence as shown in the books of the corporation and
SEC. 42. Power to Declare Dividends. The board of directors of a stock
deposited to the addressee in the post office with postage prepaid, corporation may declare dividends out of the unrestricted retained earnings
served personally, or sent electronically in accordance with the rules which shall be payable in cash, property, or in stock to all stockholders on the
and regulations of the Commission on the use of electronic data
basis of outstanding stock held by them: Provided, That any cash dividends due
message, when allowed by the by-laws or done with the consent of the on delinquent stock shall first be applied to the unpaid balance on the
stockholders.
subscription plus costs and expenses, while stock dividends shall be withheld
Appraisal Right from the delinquent stockholders until their unpaid subscription is fully paid:
This is granted because the stockholder will be exposed to a line of business Provided, further, That no stock dividend shall be issued without the approval
that is not being pursued when he invested in the corporation.

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issuance of said stocks

of stockholders representing at least two-thirds (2/3) of the outstanding capital It is the distribution of current or accumulated earnings to the
stock at a regular or special meeting duly called for the purpose.
shareholders of a corporation pro rata based on the number of shares
owned.
Stock corporations are prohibited from retaining surplus profits in excess of It cannot be said that no consideration is involved in the issuance of
one hundred percent (100%) of their paid-in capital stock, except: (a) when stock dividends. The declaration of stock dividends is akin to a forced
justified by definite corporate expansion projects or programs approved by the purchase of stocks.
board of directors; or (b) when the corporation is prohibited under any loan
When stocks are distributed the amount declared ceases to belong to the
agreement with financial institutions or creditors, whether local or foreign, corporation but is distributed among the shareholders.
from declaring dividends without their consent, and such consent has not yet
been secured; or (c) when it can be clearly shown that such retention is Discretion of Board
necessary under special circumstances obtaining in the corporation, such as General rule: The Board has the discretion to determine whether or not
when there is need for special reserve for probable contingencies.
dividends are declared
Exception: Stock corporations are prohibited from retaining surplus
***Same as OCC profits in excess of 100% of their paid in capital
Exception to the Exception:
Board Discretion i. It is justified by the definite corporate expansion
The Board of Directors has the discretion to declare dividends projects/programs approved by the Board
The decision of the board alone is necessary to declare cash/property ii. Corp is prohibited under any loan agreement, with any
dividends financial institution or creditor, whether local or foreign,
In case of stock dividends, the decision of the board is subject to the approval of from declaring dividends without its/his consent, and such
consent is not yet secured
corporation. iii. It can clearly be shown that such retention is necessary
If the Board does not want to declare stock dividends, the stockholders could under special circumstances
not require them to do so.
Retained Earnings
Requirements for dividend declaration Accumulated profits realized out of normal and continuous operations of the
1. Unrestricted retained earnings business after deducting therefrom distributions to stockholders and transfers
2. Resolution of the board to capital stock or other accounts
3. If stock dividends are declared there must be a resolution of the board with the
Unrestricted Retained Earnings
Accumulated profits and gains realized out of the normal and continuous
Property Dividends operations of the company after deducting therefrom distributions of
Dividends paid in property instead of cash where the surplus is in that form stockholders and transfers to capital stocks or other accounts which is
and it is practicable to so distribute them among the shareholders. a. Not appropriated by the Board for corporate expansion
SEC rules provide that the property to be distributed as dividends shall consist projects/programs
only of property which is no longer intended to be used in the operation of the b. Not covered by a restriction for dividend declaration under a loan
business of the corporation and which are practicable to be distributed as agreement
dividends c. Not required to be retained under special circumstances obtaining in
When the distribution of dividends is made where some stockholders will the corporation (like need for special reserve for probable
receive cash and others will receive property contingencies)
The prevailing market value of the property, as agreed upon by the Basis for existence of unrestricted retained earnings is the audited financial
stockholders, shall be considered in determining the equitable statement of the corporation as of the last fiscal year immediately preceding the
distribution of total dividends declaration
Stock Dividends Trust Fund Doctrine

Earnings are distributed to the stockholders in the form of shares of stock a principle of judicial invention which says that corporate assets are held as a
Involves the conversion of surplus/undivided profits into capital trust fund for the benefit of shareholders and creditors and that the corporate
Nature of Stock Dividends officers have a fiduciary duty to deal with them properly.
The value of stock dividends is the actual value of the original Dividends cannot be declared out of capital

lOMoARcPSD|31111392
Doctrine will be violated if dividends are declared out of capital the rule because re-evaluation surplus is not the result of income from operation
Exception:
i. Liquidating dividends Gain from Sale of Real Property
ii. Dividends from investments in Wasting Assets Corporation. Available for dividend declaration because they are part of retained earnings.However,
there must be surplus profits.
What is Included in Retained Earnings Treasury Shares

Existence of surplus profits arising from the operation of corporate business is required Cannot be declared as stock or cash dividends because they are not considered part of
before dividends can be declared (Memo Circ No.11) earned or surplus profits.
When can treasury shares be declared as property dividends? If the amount of the
Paid- retained earnings previously used to support their acquisition has not been
Difference between the par value and the issued value or selling price of the shares and subsequently impaired by losses.
are not considered profits earned in the conduct of business of the corporation.
Additional Paid-in Capital involves the infusion of cash or Interim Income
property by a stockholder whenever no additional shares The presence of unrestricted retained earnings can be determined only at the end of the
are issued in consideration thereof; cannot be used for fiscal year. There can be no dividend declaration for profits in a fiscal year that has not
dividend declaration yet expired.
[SEC] Exception:
Distribution of Paid-in Surplus allowed when: a. Amount of dividends would not be impaired by losses during
a. They be declared only as stock dividends and not cash dividends the remaining period of the year
b. No creditor shall be prejudiced b. Projected income for the remaining period shall be
c. There is no resulting impairment of capital submitted to the SEC
(SEC opinion) c. Should the company sustain losses during the remaining
period, the dividends should be refunded.
Reduction Surplus
Surplus arises from the reduction of the par value of the issued shares of stocks. Who is Entitled to Dividends
GR: No dividend declaration if there is a reduction surplus Stockholders [at the time of the declaration], pro rata based on the total number
Exception: same as in distribution of paid-in capital of shares and not on the amount paid for the shares
A record date (future date specified in the resolution declaring dividend) may
Aquino: be provided for. Dividends are then payable to stockholders of record on such
However, it is believed that the exceptions are no longer applicable in present rules. date.
Section 5 of the same Circular provides the existence of surplus profits arising from the Unpaid subscribers are entitled to dividends,
however, cash dividends must first be applied to unpaid balance on
the subscription plus cost and expenses
Revaluation Surplus Stock dividends shall be withheld until unpaid subscription is fully
Refers to an increase in the value of assets paid
Generally cannot be declared as dividend because they cannot be considered
earnings of the corporation Vesting
SEC, by way of exception, allowed the distribution provided the following are Right of the stockholders to be paid dividends accrues as soon as the
complied with: declaration is made in accordance with the Code.
1. The company has sufficient income from the operations from which Corporation becomes the debtor
the depreciation on the appraisal increase is charged Board cannot revoke the declaration of a legally declared dividend without
2. The company has no deficit at the time the depreciation on the
reappraisal increase was charged to operations Exception: Stock dividends all formalities necessary to a valid
3. Such depreciation on the appraisal increase previously charged to increase of stock before stockholders are entitled to
operations is not erased or impaired by subsequent losses Otherwise, anything
only that portion not impaired by subsequent losses is available for For cash dividends, the stockholders are not entitled to any preference over
dividend general creditors.
Rationale: Funds are not set apart from the general mass of the
-in surplus applies . There should be no exception to

lOMoARcPSD|31111392
of dividend that has been declared statements

5. Certification under oath by the president that the property is no longer needed
Amount in the operation of the company
Amount to be declared as dividends upon the amount of the unrestricted
retained earnings PROBLEMS
GR: After determining available amount, dividends shall be declared pro rata
Exception: there are preferred shares entitled to a fixed percentage
Corporation is not required to pay stock dividend according to their par values; shares have been subscribed. Total payment of the shares in at P200k. As of Sept. 30,
they could be declared at a premium (higher that par) 2005 the corporation had an unrestricted retained earnings (URE) of P150k. May
When the amount of earned surplus capitalized per share of dividend stock corporation declare stock dividend? If so, to what extent?
exceeds its par or stated value, the excess should be credited to capital surplus
Yes, X Corp may declare stock dividends. X corporation has 20k unissued shares and
Reportorial Requirement with SEC URE amounting to P150k. It can declare stock dividends up to 15k shares because the
Rules Governing the Distribution of Excess Profits of Corporations provides that a par value thereof is equal to the URE that are available. The fact that the shareholders
declaration of dividend shall be reported to the SEC 15 days from the date of declaration have not yet fully paid their shares is not material because they are already entitled to all
the rights of shareholders
Cash Dividend Declaration Requirements (CAIPR)
1. Certification under oath by the corporate secretary of the board resolution
declaring cash dividends P300k. May the board declared a cash dividend out of the surplus?
2. Audited financial statements as of the last fiscal year, stamped and received by
the SEC and BIR No.They cannot be declared as dividends because they cannot be considered earnings of
3. Interim audited financial statements used as basis for such declaration the corporation. They are by nature subject to fluctuations. Additionally, SEC rules
a. to be submitted even if the basis is other than #2 require that dividends should come from income from operations.
4. Projected income statement for the remaining period certified by the company
accountant Q: X Corp presented to Y Corp the draft of its proposed management contract where X
5. Reconciliation of retained earnings available for dividend declaration certified would be entitled to 10% of any stock dividends which Y Corp may declare during the
by an independent auditor [SEC Memo Circ No. 11] lifetime of the contract. Would you approve such a provision? If not, what would you
suggest as an alternative?
Stop Dividend Declaration (CAIPRAn)
1. Certification under oath by the corporate secretary of the declaration of stock No. Only stockholders are entitled to dividends, hence, the managing corporation could
dividends by not be entitled to any stock dividends declared. Instead of giving dividends, the
a. majority of directors; and managing corporation should instead be given net profit participation.They can then use
b. stockholders representing 2/3 of outstanding capital stock the money to acquire shares of Y Corp.
2. Audited financial statements as of the last fiscal year, stamped and received by
the SEC and BIR Q: Notice of the annual meeting did not mention anything about a stock dividend
3. Interim audited financial statements used as basis for such declaration to be declaration, is the declaration valid?
submitted even if the basis is other than #2
4. Projected income statement for the remaining period Yes. The annual meeting, although not a special one called for the purpose of declaring
5. Reconciliation of retained earnings available for dividend declaration certified dividends, is a regular meeting contemplated by the Code. Under the corp code, a written
by an independent auditor [SEC Memo Circ No. 11] notice of the regular meeting will suffice.
6. Analysis of Capital Structure signed under oath by the treasurer
Q: A subscribed to 100k shares of X corp (P1/share par value). He paid P25k and
Property Dividend Declaration (CLAS-C) promised to pay the balance before Dec. 31 2008. X Corp declared a cash dividends on
1. Certification under oath by the corporate secretary , on the board resolution Oct 15, 2008 payable on Dec 1, 2008. For how many shares is A entitled to be paid in
declaring property dividends dividends?
2. List of stockholders and the allocation of the property dividend (certified by the
corp secretary) For all 100k shares covered by his subscription.Sec 42 provides that dividends are
3. Audited financial statements as of the last fiscal year, stamped and received by payable on the basis of outstanding capital stocks held by them. Sec 71 also provides that
the SEC and BIR a shareholder is entitled to the right to dividends even if he has not fully paid for his
4. Detailed Schedule of the property account appearing in the audited financial shares. Delinquent shareholder is entitled to dividends provided that cash dividends

lOMoARcPSD|31111392
shall be first applied to unpaid balance of the subscription, while stock dividends shall be both the managing and the managed corp own or control
withheld until full payment.
managing corporation
Majority of members of the Board of managing corp also
constitute majority of Board of the managed corp
SEC. 43. Power to Enter into Management Contract. No corporation shall
conclude a management contract with another corporation unless such contract
is approved by the board of directors and by stockholders owning at least the
majority of the outstanding capital stock, or by at least a majority of the SEC. 44. Ultra Vires Acts of Corporations. No corporation shall possess or
members in the case of a non- stock corporation, of both the managing and the exercise corporate powers other than those conferred by this Code or by its
managed corporation, at a meeting duly called for the purpose: Provided, That articles of incorporation and except as necessary or incidental to the exercise of
(a) where a stockholder or stockholders representing the same interest of both the powers conferred.
the managing and the managed corporations own or control more than one-
third (1/3) of the total outstanding capital stock entitled to vote of the managing
Ultra Vires Act
corporation; or (b) where a majority of the members of the board of directors of
Powers that are not conferred to the corporation by-laws, by its articles of
the managing corporation also constitute a majority of the members of the
incorporation and those that are not implied, necessary or incidental to the
board of directors of the managed corporation, then the management contract
exercise of the powers so conferred.
must be approved by the stockholders of the managed corporation owning at
Corporate officers, in their case, may act on such matters as may be authorized
least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or
either
by at least two-thirds (2/3) of the members in the case of a non-stock
expressly by the by-laws or Board resolutions
corporation.
Impliedly such as by general practice or policy or implied by express
powers
These shall apply to any contract whereby a corporation undertakes to manage
or operate all or substantially all of the business of another corporation,
Distinguished from other acts
whether such contracts are called service contracts, operating agreements or
otherwise: Provided however, That such service contracts or operating
agreements which relate to the exploration, development, exploitation or Ratifiable/Estoppel? Effect
utilization of natural resources may be entered into for such periods as may be
provided by the pertinent laws or regulations. Illegal NO Void and unenforceable
No management contract shall be entered into for a period longer than five (5) Within corporate YES Voidable
years for any one (1) term. powers but
irregular/unauthor
ized execution
Changes:
Defective due to YES Voidable
Moved the prohibition failure to observe a (by parties for whose
requirement of law benefit the
enacted to protect requirement by
Management Contract enacted)
An agreement whereby one undertakes to manage or operate all or certain classes
substantially all of the business of another.
Provision does not apply to a contract with a natural person who will be [okay so this is a pretty confusing part in the book. Conflicting views, but help
appointed as manager because the same is covered by general powers of the clarifying if u can]
corporation.
Period is subject to renewal Effect of Ultra Vires Act
GR: Contract is subject to the approval of the Board and stockholders owning at It is observed that an UV act can be ratified and parties may be estopped from
least the majority of the capital stock/majority of the members of both the raising such defense [NOTE: OBITER IN 2 CASES]
managing and managed corporation Aquino: It is believed that a UV contract is void and cannot be ratified
stockholders/stockholders representing the same interest of


lOMoARcPSD|31111392
Ratification requires that at the time of the ratification, the cause of NOTE: PD No. 902-A Section 6 on the jurisdiction of the SEC states
nullity has already ceased to exist. In a UV act, the act is not within the that the SEC has the power to suspend or revoke, after proper notice
power of the corp hence, the ground for being UV cannot cease. and hearing, the franchise or certificate of registration of corporations
Effect of UV contracts for both partially executed and wholly executed contacts for failure to file the by-laws within the required period (possibly no
can still be maintained on the basis of estoppel. longer applicable because no more required period)
HOWEVER, estoppel cannot be invoked against the State
Proper notice and hearing are necessary; incorporators must be given
the chance to explain their neglect or omission and remedy the same.
SEC. 45. Adoption of Bylaws. For the adoption of bylaws by the corporation, the
affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members in case of By-laws is a permanent rule of action and Board Resolution only applies to a
nonstock corporations, shall be necessary. The bylaws shall be signed by the mode of conduct of corporate affairs single act of the corporation
stockholders or members voting for them and shall be kept in the principal
office of the corporation, subject to the inspection of the stockholders or
Procedure
members during office hours. A copy thereof, duly certified by a majority of the
By-laws may be adopted before or after incorporation
directors or trustees and countersigned by the secretary of the corporation,
It takes effect upon the issuance by the SEC of a certification that the by-laws
shall be filed with the Commission and attached to the original articles of
are not inconsistent with the corp code
incorporation.
Pre-incorporations
Notwithstanding the provisions of the preceding paragraph, by-laws may be
1. Approved and signed by all incorporatiors
adopted and filed prior to incorporation; in such case, such by-laws shall be
2. Submitted to the SEC together with AoI
approved and signed by all the incorporators and submitted to the Commission,
together with the articles of incorporation.
Post-Incorporation
1. Adopted by the corporation by the affirmative vote of:
In all cases, bylaws shall be effective only upon the issuance by the Commission
a. Stock Corp: Stockholders representing at least a majority of the
of a certification that the bylaws are in accordance with this Code.
outstanding capital stock
b. Non-stock Corp: Majority members
The Commission shall not accept for filing the bylaws or any amendment thereto
2. By-laws shall be signed by the stockholders/members voting for them
of any bank, banking institution, building and loan association, trust company,
3. Shall be kept in the principal office of the corporation and sunject to the
insurance company, public utility, educational institution, or other special
inspection of the stockholders/members during office hours
corporations governed by special laws, unless accompanied by a certificate of
4. A copy must be filed with the SEC and shall be attached to the original AoI.
the appropriate government agency to the effect that such bylaws or
a. Duly certified by a majority of directors/trustees
amendments are in accordance with law.
b. Countersigned by the secretary of the corporation
Limitations imposed for the validity of the by-laws

Changes: 1. Consistent with the Constitution, Corp Code, other pertinent laws and regulations
Removed the provision stating that a corporation MUST provide for by-laws. The fact that the provision of the by-laws, which are contrary to law,
The language of the new provision seems to state that by-laws are no longer have not been questioned for several years cannot forestall the
necessary challenge to their validity
The one month period to adopt the bylaws is now DELETED. By-law provisions cannot attain validity thru acquiescence because if
it is contrary to law, it cannot be waived.
By-laws Action to have a provision of by-laws be declared null and void =
Relatively permanent and continuing rules of action adopted by the IMPRESCRIPTIBLE
corporation for its own government and that of the individuals composing it Remedy to void provision? Amendment.
and those having the direction, management and control, in whole or in part, of
its affairs and activities. 2. Consistent with AoI
Power to make and adopt by-laws is interent in every private corporation In case of conflict between by-laws and AoI, THE LATTER SHALL
By-laws are unnecessary to corporate existence or to the valid exercise of PREVAIL
corporate powers By-laws cannot specify powers not expressly provided for or implied
from the AoI

lOMoARcPSD|31111392
Note that certain matters must be stated in the AoI and not the by-
laws. (eg: number of shares, par value of shares, authorized capital Changes:
stock, etc) Addition of paragraph (d)
Arbitration agreements are expressly allowed
3. Not contrary to morals or public policy
Provisions must not be discriminatory, arbitrary, or oppresive Contents
List provided for in 46 is not
4. Must not disturb vested rights
Eg: by-laws must not undermine the security of tenure of an employee
When By-laws Prevail
5. Must not impair contract or property rights of stockholders or member By-Laws v. Board Resolutions-- BY-LAWS PREVAIL
6. Must not create obligations not sanctioned by law. By-laws v. Agreements among shareholders-- BY-LAWS PREVAIL
` By-laws v. AoI-- AOI PREVAILS
Binding Effect
Binding not only upon the corporation but also on its stockholder, members,
SEC. 47. Amendment to Bylaws. A majority of the board of directors or
and those having direction, management, and control of its affairs
trustees, and the owners of at least a majority of the outstanding capital stock,
By-laws not binding upon:
or at least a majority of the members of a nonstock corporation, at a regular or
Subordinate employees having no knowledge of its provisions
special meeting duly called for the purpose, may amend or repeal the bylaws or
Third persons having no knowledge of its provision
adopt new bylaws. The owners of two- thirds (2/3) of the outstanding capital
Notice to third persons is not presumed
stock or two- thirds (2/3) of the members in a non-stock corporation may
delegate to the board of directors or trustees the power to amend or repeal the
SEC. 46. Contents of Bylaws. A private corporation may provide the following bylaws or adopt new bylaws: Provided, That any power delegated to the board
in its bylaws: of directors or trustees to amend or repeal the bylaws or adopt new bylaws shall
(a)The time, place and manner of calling and conducting regular or special be considered as revoked whenever stockholders owning or representing a
meetings of the directors or trustees; majority of the outstanding capital stock or majority of the members shall so
(b)The time and manner of calling and conducting regular or special meetings vote at a regular or special meeting.
and mode of notifying the stockholders or members thereof;
(c)The required quorum in meetings of stockholders or members and the Whenever the bylaws are amended or new by-laws are adopted, the corporation
manner of voting therein; shall file with the Commission such amended or new bylaws and, if applicable,
(d)The modes by which a stockholder, member, director, or trustee may attend
meetings and cast their votes; power to amend and/or adopt new bylaws, duly certified under oath by the
(e)The form for proxies of stockholders and members and the manner of voting corporate secretary and a majority of the directors or trustees.
them;
The amended or new bylaws shall only be effective upon the issuance by the
guidelines for setting the compensation of directors or trustees and officers, and Commission of a certification that the same is in accordance with this Code and
the maximum number of other board representations that an independent other relevant laws.
director or trustee may have which shall, in no case, be more than the number
prescribed by the Commission; (g)The time for holding the annual election of
directors of trustees and the mode or manner of giving notice thereof; Changes:
(h)The manner of election or appointment and the term of office of all officers Changes in wording
other than directors or trustees; olution
must be filed with the SEC
(i)The penalties for violation of the bylaws;
(j)In the case of stock corporations, the manner of issuing stock certificates; and
Two Ways to Amend By Laws
(k)Such other matters as may be necessary for the proper or convenient
1. By the stockholders, together with the board
transaction of its corporate affairs for the promotion of good governance and
GR: Amendments must be done by the majority of the Board, by the
anti-graft and corruption measures.
majority vote thereof, and the owners of at least a majority of
outstanding capital stock/members at a regular or special meeting
An arbitration agreement may be provided in the bylaws pursuant to Section
duly called for the purpose
181 of this Code.

lOMoARcPSD|31111392
-laws absent a provision Special Meeting

in the AoI or by-laws Meetings held whenever it is deemed necessary
2. Delegation to the Board
stock/members may authorize Atty. Ampil: A Corp may go its entire lifetime without holding a special meeting, but a
Board to amend or repeal the by-laws regular meeting is required by law.
Revocation of Delegated Power

SEC. 49. Regular and Special Meetings of Stockholders or Members. Regular
Power may be revoked when majority of outstanding capital stock/members vote so at a
regular/special meeting meetings of stockholders or members shall be held annually on a date fixed in
the bylaws, or if not so fixed, on any date after April 15 of every year as
Stockholders Meeting Required determined by the board of directors or trustees: Provided, That written notice
Such a meeting is required both for the delegation and revocation of the power of regular meetings shall be sent to all stockholders or members of record at
least twenty- one (21) days prior to the meeting, unless a different period is
required in the bylaws, law, or regulation: Provided further, That written notice
Modification of Requirements in the Bylaws
of regular meetings may be sent to all stockholders or members of record
The required vote of the stockholders and members under Sec 47 is REQUIRED
through electronic mail or such other manner as the Commission shall allow
Even if by-laws provide for a different quorum, the Corp Code still
under its guidelines.
prevails
At each regular meeting of stockholders or members, the board of directors or
What must be filed with the SEC?
trustees shall endeavor to present to stockholders or members the following:
1. Amended/New by-laws
a) The minutes of the most recent regular meeting which shall include, among
2. Resolution of Stockholders or Members (if applicable)
others:
3. Requirements must be duly certified under oath by the corporate secretary and
(1) A description of the voting and vote tabulation procedures used in
a majority of the directors or trustees
the previous meeting;
(2) A description of the opportunity given to stockholders or members
PROBLEMS:
to ask questions and a record of the questions asked and answers
Q: Stockholders passed a resolution to amend the corporate bylaws disqualifying a
given;
stockholder who is also a director/stockholder of a competing business from being
(3) The matters discussed and resolutions reached;
elected to the Board. By-laws were amended. A, a stockholder who is now disqualified
(4) A record of the voting results for each agenda item;
by the amendment, was nominated but his nomination was denied. Could he question
(5) A list of the directors or trustees, officers and stockholders or
the disqualification provision?
members who attended the meeting; and
(6) Such other items that the Commission may require in the interest
A: No. Well-settled that a provision in the by-laws disqualifying such stockholders is
of good corporate governance and the protection of minority
valid. The provision is not inconsistent with the Corporation Code. [different question, but
stockholders.
similar facts and ruling] There is a danger that the director will give preference to one
corporation. The disqualification is a measure of self-protection.
-stock corporations and, for stock corporations,
material information on the current stockholders, and their voting rights;
Q; Can the by-laws provide for a provision making the term of an employee the same as
c) A detailed, descriptive, balanced and comprehensible assessment of the
A: No. Amendments to the bylaws cannot impair the obligation of existing contracts or
ffairs;
any vested right. Security of tenure cannot be affected by an amendment of the by-laws
d) A financial report for the preceding year, which shall include financial
SEC. 48. Kinds of Meetings. Meetings of directors, trustees, stockholders, or statements duly signed and certified in accordance with this Code and the rules
members may be regular or special. the Commission may prescribe, a statement on the adequacy of the
trols or risk management systems, and a statement of
all external audit and non-audit fees;
Regular Meetings
The meeting required by the Code with may either be annually on a fixed date, or on any e) An explanation of the dividend policy and the fact of payment of dividends or
date after the 15th of April if no date is provided the reasons for nonpayment thereof;

lOMoARcPSD|31111392
membership book shall be closed at least twenty (20) days for regular meetings
f) Director or trustee profiles which shall include, among others, their and seven (7) days for special meetings before the scheduled date of the
qualifications and relevant experience, length of service in the corporation, meeting.
trainings and continuing education attended, and their board representations in
other corporations;
notice thereof and the reason therefor shall be sent to all stockholders or
g) A director or trustee attendance report, indicating the attendance of each members of record at least two (2) weeks prior to the date of the meeting,
director or trustee at each of the meetings of the board and its committees and unless a different period is required under the bylaws, law or regulation.
in regular or special stockholder meetings;
The right to vote of stockholders or members may be exercised in person,
h) Appraisals and performance reports for the board and the criteria and through a proxy, or when so authorized in the bylaws, through remote
procedure for assessment; communication or in absentia. The Commission shall issue the rules and
regulations governing participation and voting through remote communication
i) A director or trustee compensation report prepared in accordance with this
Code and the rules the Commission may prescribe; or members, structure, and other factors consistent with the protection and
j) Director disclosures on self-dealings and related party transactions; and/or
k) The profiles of directors nominated or seeking election or reelection.

Changes:
A director, trustee, stockholder, or member may propose any other matter for Added a date for the annual regular meeting if none is provided for in the by-
inclusion in the agenda at any regular meeting of stockholders or members. laws
Written notice must be sent 21 days prior to the meeting
Unless bylaws provide otherwise
Special meetings of stockholders or members shall be held at any time deemed
Allows notice through electronic means or other means allowed by the
necessary or as provided in the bylaws: Provided however, That at least one (1)
Commission
week written notice shall be sent to all stockholders or members, unless a
List of content of the minutes, as well as what the Board shall endeavor to
different period is provided in the bylaws, law or regulation.
present in the meeting
Proposal of other matters to be included in the agenda
A stockholder or member may propose the holding of a special meeting and
Stockholder/members proposal of holding a special meeting and items to be
items to be included in the agenda.
included in agenda is recognized
General waivers of notice are not allowed
Notice of any meeting may be waived, expressly or impliedly, by any stockholder
Attendance in the meeting constitutes a waiver of such meetinh
or member: Provided, That general waivers of notice in the articles of
EXCEPT when the person attends for the express purpose of objecting
incorporation or the bylaws shall not be allowed: Provided, further, That
to the transaction of any business because the meeting is not lawfully
attendance at a meeting shall constitute a waiver of notice of such meeting,
called
except when the person attends a meeting for the express purpose of objecting
Stock and Transfer Book/Membership Book shall be closed AT LEAST 20 days
to the transaction of any business because the meeting is not lawfully called or
for regular meetings, 7 days for special meeting
convened.
UNLESS by-laws provide for a LONGER period
Written notice in case of postponement
Whenever for any cause, there is no person authorized or the person authorized
Right to vote may be exercised in person, through proxy, or when authorized by
unjustly refuses to call a meeting, the Commission, upon petition of a
by-laws through remote communication or in absentia
stockholder or member on a showing of good cause therefor, may issue an order
directing the petitioning stockholder or member to call a meeting of the
Requisites for a Valid
corporation by giving proper notice required by this Code or the bylaws. The
1. Must be held on the proper date provided by the By-Laws or Article 49 of the
petitioning stockholder or member shall preside thereat until at least a majority
RCC
of the stockholders or members present have chosen from among themselves, a
2. There must be previous notice
presiding officer.
3. Must be called by the proper person
4. Must be held in the proper place
Unless the bylaws provide for a longer period, the stock and transfer book or
5. There must be a quorum

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Petitioning stockholder presides until a majority of

Date stockholders/members have chosen one of their members as
presiding officer
Kind Date Required Notice
Regular Date in by-laws; or Period provided by by- SEC. 50. Place and Time of Meetings of Stockholders or Members.
in the absence of a laws; or in the principal
provision in the by- 21 days prior office of the corporation as set forth in the articles of incorporation, or, if not
laws, any date after practicable, in the city or municipality where the principal office of the
April 15 corporation is located: Provided, That any city or municipality in Metro Manila,
Metro Cebu, Metro Davao, and other Metropolitan areas shall, for purposes of
Special Anytime deemed Period in by-laws; or this section, be considered a city or municipality.
necessary; or in the absence of a Notice of meetings shall be sent through the means of communication provided
by-laws provision in the by- in the bylaws, which notice shall state the time, place and purpose of the
laws, any date after meetings.
April 15 Each notice of meeting shall further be accompanied by the following:
(a) The agenda for the meeting;
(b) A proxy form which shall be submitted to the corporate secretary within a
Date and Time reasonable time prior to the meeting;
Annual meetings CANNOT be postponed (c) When attendance, participation, and voting are allowed by remote
Exception: Annual meeting cannot be held on the appointed time for communication or in absentia, the requirements and procedures to be followed
valid reasons. when a stockholder or member elects either option; and
For Public Companies and Stockholders Meetings, SRC Rules require a notice to (d) When the meeting is for the election of directors or trustees, the
be given to the SEC 10 days from the date of postponement for a justifiable requirements and procedure for nomination and election.
reason All proceedings and any business transacted at a meeting of the stockholders or
Must be in writing and signed under oath by the Pres or Secretary members, if within the powers or authority of the corporation, shall be valid
even if the meeting is improperly held or called: Provided, That all the
Notice stockholders or members of the corporation are present or duly represented at
Procedure in sending notices is governed by by-laws the meeting and not one of them expressly states at the beginning of the meeting
Absent any procedure, Sec 50 governs that the purpose of their attendance is to object to the transaction
Notices must be sent to the addresses found in the books of any business because the meeting is not lawfully called or convened.
If the stockholder is unknown, all available means of identifying the
stockholder and giving the latter notice should be resorted to, including notice
by publication Changes:
Waiver of Notice it may be held in the CITY OR MUNICIPALITY.

Expressly; or a. For metropolitan areas, any city or municipality therein falls within
Impliedly
If all stockholders are present, and none object to the lack of notice Eg: Principal office in Pasig, meeting could be held in QC.
Mode of sending notice may also be waived Notice sent through means of communication recognized by the by-laws
Contents of a Notice:
Call of Meeting a. Time, place, and purpose of the meetings
By-laws may fix who is authorized to call the meeting b. Agenda
Absent such provision, power to call rests with the Board c. Proxy form
Whenever no person is authorized to call a meeting: Submitted to the corporate secretary within a reasonable
A stockholder/member showing good cause for the meeting, may file time
a petition with the SEC d. Requirements and procedures to be followed in cases of remote
SEC may then direct such stockholder/member to call a meeting of the communication or voting in absentia
corporation e. Requirements and procedure for nomination and election of directors
or trustees

lOMoARcPSD|31111392
All proceedings and business transacted at the meeting is VALID even if the One member, one vote
meeting is not lawfully called or convened PROVIDED that all the Unless limited, broadened, or denied by Articles or By-laws
stockholders/members of the corporation are present or duly represented at
the meeting, and that none of them attended for the purpose of objecting Effect of failure to Call
Agenda an election, but who shall deliberately avoid of cause the failure of holding such
meeting shall be punishable as officers of the corporation
Failure to state such = IRREGULAR MEETING UNLESS JUSTIFIED for valid and meritorious reasons
Matters requiring a meeting to be DULY CALLED for specific purposes: Joint Meetings
1. Approval of Stock Dividends No provision of law or ruling prohibiting joint meeting of stockholders and
2. Removal of directors directors of different corporation
3. Filling up of Board vacancies Sound practice to keep separate minutes
4. Ratification of contract with directos
5. Extension/Shortening of corporate term
SEC. 51. Quorum in Meetings. Unless otherwise provided in this Code or in the
6. Increase/decrease of capital stock
bylaws, a quorum shall consist of the stockholders representing a majority of
7. Creating and incurring bonded indebtedness
the outstanding capital stock or a majority of the members in the case of
8. Sale of all or substantially all of the corporate assets
nonstock corporations.
9. Investment other than primary purpose
10. Approval of mgmt contract
11. Amendment of repeal of by-laws Quorum
12. Fixing the issued value of no-par value shares Number of members of the corporation, board, or committee who must be
13. Approval of merger or consolidation present in order to take action
14. Voluntary dissolution Generally consists of the stockholders representing a majority of the
outstanding capital stock entitled to vote in a stock corporation or a majority of
Stockholders and Members the members entitled to vote in case of non-stock corporations
All the stockholders and members have the right to attend the special and A different quorum may be provided for in the by-laws
regular meetings SEC opined that a corporation could state in its by-laws that the quorum shall
Stockholders: best evidence is the Stock and Transfer Book be less than the majority or greater than what was provided for in the
Mere inclusion in the General Information Sheet submitted to the SEC
is insuffucient proof
STB is not the exclusive evidence; certificate or deed of transfer may of outstanding capital/members
prove it In such a case, Corp Code prevails even if by-laws provide for a
Delinquent stockholder or a member who is suspended cannot attend different quorum
Same rule applies if a number of stockholders/members is necessary
AoI or by-laws of NON-STOCK must provide that delinquent to constitute a quorum as prescribed by statute in a mandatory
members cannot attend/vote manner
Right to Vote
Every member of a non-stock corp and every legal owner of shares has a right Fees not Precondition
to be present and to vote in all corporate meetings
Unissued stocks or treasury shares may not be voted or considered in Eg: imposition of registration fees as a precondition for the exercise of the right
determining whether to attend the meeting unduly restricts such right
a quorum is present
A requisite proportion of the stock is voted to adopt a certain measure Bases of Quorum
or act Stock Corporations-
Counted on the basis of the outstanding capital stock
One-share-One Vote Policy Non-Stock Corporations
Corp cannot issue multiple voting and non-voting common shares voting rights attach to membership in accordance with the law and
the by-laws of the corporation;
Non-Stock Corporation

lOMoARcPSD|31111392
ONLY ACTUAL MEMBERS WITH VOTING RIGHTS SHOULD BE

A director or trustee who has a potential interest in any related party
COUNTED
transaction must recuse from voting on the approval of the related party
Each member shall be entitled to one vote
transaction without prejudice to compliance with the requirements of Section
Unless limited/broadened/denied by by-laws/AoI
31 of this Code.
Delinquent shareholders/members and non-voting shares should not be
included in determining the existence of the required quorum
Best evidence of who are present members of the corporation? Changes:
Membership book in non-stock First paragraph
Stock and Transfer Book in stock corporations Notice must be sent at least 2 days prior
Participation through remote communication
PROBLEM: Director/trustee with any potential interest must recuse from voting
X corp
its stock and transfer book only in 1978 and recorded only 33 common shares A special Compliance with Rules
Board should act in the manner and within the formalities prescribed by law,
its charter and its by-laws (eg: quorum, notice, other formalities)
A: Presence of stockholders holding 290 -voting Directors must act as a body in a meeting called pursuant to law or the by-laws.
shares, hence the outstanding capital is the total of the founding shares and common OTHERWISE, any objecting shareholder/director may question such
shares and the quorum is 50% + 1. Number of shares appearing in the AoI is controlling action
and binding on the corp and shareholders. Meetings are generally held monthly, unless by-laws provide otherwise
Hence, could be quarterly instead of monthly
Quorum
SEC. 52. Regular and Special Meetings of Directors or Trustees; Quorum.
Majority of directors is determined by the formula ½ plus one of the numbers
Unless the articles of incorporation or the by-laws provides for a greater
of directors fixed in the AoI notwithstanding the existence of vacancies in the
majority, a majority of the directors or trustees as stated in the articles of
board
incorporation shall constitute a quorum to transact corporate business, and
By-laws may require more than the majority of the number of the directors
every decision reached by at least a majority of the directors or trustees
fixed in the AoI to constitute a quorum BUT may not provide for a quorum that
constituting a quorum, except for the election of officers which shall require the
is lessed than majority of the number of directors
vote of a majority of all the members of the board, shall be valid as a corporate
Note the differences. For STOCKHOLDER MEETINGS, by-laws could fix
act.
quorum that is less or more than majority.For BOARD MEETINGS by-
laws could provide for quorum more than the majority but not less.
Regular meetings of the board of directors or trustees of every corporation shall
Quorum remains the same despite a vacancy
be held monthly, unless the bylaws provide otherwise.
If required quorum could not be satisfied because of the vacancy, the
remedy is to fill the vacancy
Special meetings of the board of directors or trustees may be held at any time
If there is a quorum at the start of the meeting, the meeting can still continue
upon the call of the president or as provided in the bylaws.
even if some directors leave after
Meetings of directors or trustees of corporations may be held anywhere in or
Proxy Not Allowed
outside of the Philippines, unless the bylaws provide otherwise. Notice of
A director cannot participate in a meeting by proxy or any representative or
regular or special meetings stating the date, time and place of the meeting must
alternate
be sent to every director or trustee at least two (2) days prior to the scheduled
Voting by proxy allowed in all meetings of stockholders, but the same is expresly
meeting, unless a longer time is provided in the bylaws. A director or trustee
prohibited with respect to directors
may waive this requirement, either expressly or impliedly.
Notice
Directors or trustees who cannot physically attend or vote at board meetings
Must state the date, time, and place of the meeting and sent to every director or
can participate and vote through remote communication such as
trustee at least 2 days before the scheduled meeting. By-laws could provide
videoconferencing, teleconferencing, or other alternative modes of
otherwise
communication that allow them reasonable opportunities to participate.
Special meeting conducted without notice is invalid
Directors or trustees cannot attend or vote by proxy at board meetings.
Director/trustee may waive the requirement expressly or impliedly

lOMoARcPSD|31111392
Action of the Board which was irregular for lack of notice may be ratified
expressly (action of directors in subsequent meeting) or impliedly Presiding Officer can Vote
Presiding officer is also a member of the Board, hence, the by-laws cannot provide that
he can vote only in case of a tie.
Agenda
Regular Meeting: Notice need not indicate the agenda
Exception: Extraordinary measure shall be passed during the regular SEC. 54. Right to Vote of Secured Creditors and Administrators. In case a
stockholder grants security interest in his or her shares in stock corporations,
meeting
Special Meeting: Agenda should be included the stockholder-grantor shall have the right to attend and vote at meetings of
stockholders, unless the secured creditor is expressly given by the stockholder-
Place grantor such right in writing which is recorded in the appropriate corporate
books.
Meetings of directors or trustees of corporations may be held anywhere in or out of the
Philippines, unless by- -Streegan,
Executors, administrators, receivers, and other legal representatives duly
2019]
appointed by the court may attend and vote in behalf of the stockholders or
members without need of any written proxy.
Teleconference or Video-conference
Directors/trustees expressly allowed by the provision to participate via remote
communication Changes:
Memo Circ No. 15 imposes electronic or tape recording of the proceedings as a Provision applicable not only to pledgors/mortgagors/administrators, but to all
mandatory requirement cases when the stockholder grants security interest in his/her shares
PROBLEM: GR: the stockholder-grantor does not lose his right to attend and vote at meetings of
stockholders
X Corp principal place of business is Pasig. Principal corporate offices are at Ortigas Exception: secured creditor expressly given such right in writing, which is recorded in
Ce the appropriate corporate books
Manila Hotel; Board meetings at a hotel in Makati. By-laws are silent as to place of
meetings. Proof of such right
Secured creditor: the written instrument
Q: Who shall preside at the meeting of directors? Executor, administrator, receivers, and other legal representatives: court order
A: The chairman or, in his absence, the president
SEC. 55. Voting in Case of Joint Ownership of Stock. The consent of all the co-
the validity of resolutions issued in such meeting? owners shall be necessary in voting shares of stock owned jointly by (2) two or
A: Yes. more persons, unless there is a written proxy, signed by all the co-owners,
principal office is located, as provided for in the AoI. HOWEVER, AoI of X Corp stated that authorizing (1) one or some of them or any other person to vote such share or
the principal place of business is Pasig, Metro Manila. Since the meeting was held in shares:
Metro Manila, it is believed that the meeting was proper [SEC Opinion 15-02] the holders thereof, any one of the joint owners can vote said shares or appoint
a proxy therefor.
Q:Can the same stockholder question the validity of the resolutions by the Board in the
Makati meetings? Changes:
A: No. Board meetings may be held anywhere. Only changes in wording
Unanimity
SEC. 53. Who Shall Preside at Meetings. The chairman or, in his absence, the Acts of co-ownership require unanimity among the co-owners
president shall preside at all meetings of the directors or trustees as well as of Exception:
the stockholders or members, unless the bylaws provide otherwise. Written proxy signed by all the co-owners authorizing any or
some to vote; or
Changes:
Chairman primarily presides; President presides only in his absence

lOMoARcPSD|31111392
For non-stock corps-- member must be a member of record

SEC. 56. Voting Right for Treasury Shares. Treasury shares shall have no voting NOTE: There are other ways of establishing the fact that a person is a
right as long as such shares remain in the Treasury.
shareholder/member, like the AoI. [Laznuza et al v. CA]
Rationale Proxy
Treasury shares are not part of the outstanding capital. Hence, no voting rights. Written authorization given by one person to another so that the latter may act
When a corp reacquires its own shares, it does not become a subscriber thereof for the former
and the only right that a corp has over the treasury shares is to reissue the Shareholder may vote in person or by proxy
same for valuable consideration. Formalities of a proxy may be provided for in the by-laws
Absent such provisons in the by-laws, proxy need only comply with
Disqualified Shares the minimum requirements in the Cor Code
Whenever general corp law disqualifies shares from voting on any matter, they are not Power of proxy is merely to vote; no legal title over shares
considered outstanding for the determination of the quorum at any meeting to act on Hence, cannot be elected as director
such matter
Requirements for Proxies
1. Shall be in writing
SEC. 57. Manner of Voting; Proxies. Stockholders and members may vote in Must show the intention to empower the person to act as agent in
person or by proxy in all meetings of stockholders or members. voting the stock and to enable the officers to know that such authority
is given
When so authorized in the by-laws or by a majority of the board of directors, the 2. Shall be signed by the stockholder or member
stockholders or members of corporations may also vote through remote 3. Shall be filed before the scheduled meeting with the corporate secretary
communication or in absentia: Provided, That the votes are received before the 4. Shall be valid only for the meeting for which it was intended
corporation finishes the tally of votes. Unless otherwise provided in the proxy
5. No proxy shall be valid and effective for a period longer than five years at any
A stockholder or member who participates through remote communication or one time
in absentia, shall be deemed present for purposes of quorum.
Submission and Validation of Proxies [2015 IRR-SRC]
The corporation shall establish the appropriate requirements and procedures Absent a provision for a cut-off date in the by-laws, proxies shall be submitted
for voting through remote communication and in absentia, taking into account
A special committee of inspectors shall be designated by the Board to pass
factors consistent with the basic right of corporate suffrage. upon the validity of proxies
Proxies shall be in writing, signed and filed, by the stockholder or member, in Duration of Proxy
any form authorized in the bylaws and received by the corporate secretary 1. Specific Proxy
within a reasonable time before the scheduled meeting. Unless otherwise One where authority granted to the proxy holder is merely for a
provided in the proxy form, it shall be valid only for the meeting for which it is particular meeting, on a specific date
intended. No proxy shall be valid and effective for a period longer than five (5) 2. Continuing Proxy
years at any one time. Not limited to a specific meeting and continues for a certain period
Note that the period for a continuing proxy cannot be more that 5
Changes: years at a time-- MAY BE EXTENDED!
Codified matters on remote communication or in absentia By-laws may provide for a shorter duration of a continuing proxy
Right to Vote Number

Such right depends upon the ownership of the stock as disclosed by the Stock By-laws may impose restrictions as to the person who can be proxies and the
and Transfer Book. manner of voting them
By-laws may provide for a record date Absent such, anybody can be appointed as proxy without limitation as
Eg: By-laws may provide that Stock and Transfer Books be closed 5 to the number of members to be represented
days before the meeting and only stockholders of record are entitled A proxy can be given to two or more persons jointy
to vote If three people are appointed and all of them attended, three of them
must agree upon the vote

lOMoARcPSD|31111392
certificates as well as the certificates of stock in the name of the trustee or

Quorum
trustees shall thereby be deemed cancelled and new certificates of stock shall be
Proxy should be filed or registered with the corporate secretary before the meeting.
reissued in the name of the trustors.
After the registration, the same shall be counted i determining existence of the quorum
The voting trustee or trustees may vote by proxy or in any manner authorized
under the bylaws unless the agreement provides otherwise.
Revocation
One who has given a proxy the right to vote may revoke the same at anytime
unless said proxy is coupled with interest, even though it may appear by its Voting Trust Agreement (VTA)
terms to be irrrevocable An agreement whereby a stockholder of stock corporation confers upon a trustee or
May be revoked in writing, orally, or by conduct trustees the right to vote and other rights pertaining to the shares for a period not
When two or more persons are given separate proxies but they are not exceeding 5 years at any time
intended to be joint proxies, the last proxy given is a revocation of all previous
proxies. Limitations
If both proxies undated and mailed to the corporate secretary, the one 1. Must not exceed the period of five years at any time
bearing the latest time of day of postmark is counted 2. In case of a voting trust specifically required as a condition in a loan agreement,
said voting trust may be for a period exceeding 5 years
a. BUT shall automatically expire upon full payment of the loan
3. In writing and notarized
SEC. 58. Voting Trusts. One or more stockholders of a stock corporation may
4. It shall specify the terms and conditions of the Voting Trust Agreement
create a voting trust for the purpose of conferring upon a trustee or trustees the
right to vote and other rights pertaining to the shares for a period not exceeding
Procedural Requirements
five (5) years at any time: Provided, That in the case of a voting trust specifically
Voting Trust Agreement undergoes the following stages:
required as a condition in a loan agreement, said voting trust may be for a
1. Execution and notarization of the agreement
period exceeding five (5) years but shall automatically expire upon full payment
2. Certified copy filed with the corporation and with the SEC
of the loan. A voting trust agreement must be in writing and notarized, and shall
a. Failure to comply renders the agreement ineffective and
specify the terms and conditions thereof. A certified copy of such agreement
unenforceable
shall be filed with the corporation and with the Commission; otherwise, the
3. Cancellation of the Certificate/Certificate of stocks covered by the vVTA
agreement is ineffective and unenforceable. The certificate or certificates of
4. New certificates issued in the name of the trustee/trustees stating that they are
stock covered by the voting trust agreement shall be cancelled and new ones
issued pursuant to the VTA
shall be issued in the name of the trustee or trustees, stating that they are issued
5. The transfer and the fact that it was done pursuant to a VTA shall be noted in
pursuant to said agreement. The books of the corporation shall state that the
the books of the corporation
transfer in the name of the trustee or trustees is made pursuant to the voting
6. Trustee/Trustees shall execute and deliver to the transferors voting trust
trust agreement.
certificates
The trustee or trustees shall execute and deliver to the transferors, voting trust
a. Such certificates shall be transferable in the same manner and with
certificates, which shall be transferable in the same manner and with the same
the same effect as certification of stock
effect as certificates of stock.
The voting trust agreement filed with the corporation shall be subject to
Rights of Trustee
examination by any stockholder of the corporation in the same manner as any
1. Right to vote and other rights pertaining to shares
other corporate book or record: Provided, That both the trustor and the trustee
2. Right to inspection of corporate books
or trustees may exercise the right of inspection of all corporate books and
3. Vote by Proxy
records in accordance with the provisions of this Code.
Any other stockholder may transfer the shares to the same trustee or trustees
NOTE: Trustee may be elected by the trustee because he acquires legal title to the
upon the terms and conditions stated in the voting trust agreement, and
shares
thereupon shall be bound by all the provisions of said agreement.
No voting trust agreement shall be entered into for purposes of circumventing
Distinguished from Proxy
the laws against anti- competitive agreements, abuse of dominant position, anti-
competitive mergers and acquisitions, violation of nationality and capital
requirements, or for the perpetuation of fraud. VOTING TRUST AGREEMENT PROXY
Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period. The voting trust

lOMoARcPSD|31111392
Irrevocable Generally revocable
Legal title is transferred to trustee No transfer of title
Share certificate shall be cancelled and No cancellation of the certificate

transferred to trustee
Must be notarized Need not be notarized
Trustor-shareholder cannot vote Shareholder retains the right to vote
Cannot be for a specific meeting Can be for a specific meeting
Trustee can vote by proxy Proxy cannot further delegate his

authority to vote; must vote in persoon
Trustee votes in his own right as holder The proxy is the agent of the shareholder
of legal title
Trustee can be elected as a director Proxy cannot be elected
A group of shareholders may actually agree and vote in a certain manner

Eg: certain number of shareholders may for a block to elect a director
May be made informally or verbally, depending on the discretion of the parties
This provision does NOT
PROBLEMS:
Q: X corp executed a VTA for a period of 3 years with trustee-bank(TB). X Corp

mortgaged all its properties to TB. X Corp insolvency, hence foreclosure. TB was the
highest bidder, 3-year period expired, X Corp demanded turn-over and transfer of all
assets and properties. Does the demand tally with the concept of VTA?
A: NO. VTA does not entitle trustee the possession and control of the properties of the
corporation, nor does it vest management of the corp on the trustee. VTAs merely
CONVEY to the trustee the right to vote the shares of grantor/s.

lOMoARcPSD|31111392
DOCTRINES OF SEC OPINIONS 2. Regular directors with the highest vote cast in their favor would be elected; and
3. The losing nominee for regular director, even if he/she gets a higher number of
Incorporation and Organizations votes than the independent director, would still not be elected.
Revised Corporation Code, Sec. 10-21
And whether the settling of deadlock by drawing lots is acceptable?
SEC-OGC Opinion No. 12-12 (August 9, 2012) YES. The procedure is not contrary to the Revised Corporation Code, or the Securities
Inquiry: Can a corporation transfer to its new principal office address, prior to the Regulation Code, and its Implementing Rules and Regulations. Such procedure is a
amendment of its Articles of Incorporation (AOI), without incurring any penalty? practical device in order to ensure that at least two independent directors are elected.
NO. There is no need to amend the articles of incorporation of a corporation when it YES. The manner of resolving deadlocks is acceptable, in the absence of specific
changes its principal office address or office address from one street to another or from provisions on the matt -laws.
one floor to another of the same building, for as long as the address is in the same
municipality or city as the one indicated in the articles of incorporation file with the
Commission. The corporation only has to reflect this change in the General SEC Opinion June 13, 1991
Information Sheet submitted to the SEC that will form part of the official records of the
corporation's file with the Commission. (From SEC Opinion No. 06-24) This is already
changed!!! Not anymore holding. Inquiry: Whether the total yearly compensation of directors mentioned in Section 29 of the
RCC is not meant to include per diems?
However, if the change is from one building to another building, even if within the
same city, it requires amendment to the AOI. It is now more with reason that the YES. Per diems are allowances of money for expenses each day. A reading of the Batasan
AOI should be amended when the transfer is from one street to another. This is a
development of Opinion 06-24. as synonymous and interchangeably, which salary connotes a fixed compensation, per
diems related to expense reimbursement.
Inquiry: Whether the ceiling provided for therein can be exceeded upon the unanimous
SEC-OGC Opinion No. 08-01 (December 13, 2007) votes of holders of all the outstanding shares of stock of the corporation?
Inquiry: Can an attack on the existence of a de facto corporation be made collaterally or
directly? NO. Per diems must be reasonable. Thus, stockholders may review such board resolution
fixing or increasing per diems of the members of the Board and may inquire into its
DIRECTLY. Based upon the ground, not of equitable estoppel, but of public policy. reasonableness, and if found to be excessive, to afford adequate relief therefrom.
Moreover this is because:
1. Individual right is not invaded. There is bereft of legal standing to file the case; Moreover, it does not admit of an exception. The 10% limit is intended for the protection
2. It collateral attacks are done, it would produce endless confusion and hardship not only of the stockholders, but also for the corporate creditors and prospective
and probably destroy the corporation if the legality of its existence is investors.
questioned in every suit; and
3. Direct attack is in the interest of the public and is essential to the validity of
business transactions with corporations. SEC Opinion August 19, 1992
Board of Directors, Trustees, and Officers
Revised Corporation Code, Sec. 22-34 Inquiry: When such directors receiving compensations as such directors, apart from per
diem, receive also other compensations such as incentives, without the benefit of the require
approval or vote of stockholders, should such other compensation be included in the 10%
limit prescribed in Sec. 29?
SEC-OGC Opinion No. 19-11 (March 23, 2011)
YES. Directors can receive compensation, other than per diems, only if:
Inquiry: Whether the segregation of votes for regular and independent directors is 1. The by-laws fix the same; or
acceptable, such that: 2. If the stockholders, representing a majority of the OCS agree to give it to them.
1. One vote case for independent director would already be sufficient to elect them;

lOMoARcPSD|31111392
Inquiry: When the directors also serve as the officers of the corporation, should their salary
as officers be computed within the 10% limit prescribed in Sec. 29? NO. It should be clearly spelled out in the by-laws.
NO. It Inquiry: If no, what would be the statues of the executive committee that is created without
Considering that the BOD and officers have different functions, the above 10% limitation an express authority in the by-law?
excludes salaries for services rendered by officers.
De facto officers. This can be applicable insofar as third parties are concerned. A person
Inquiry: Are the directors receiving compensation, apart from per diem, individually liable is a de facto where he acts as such, under color of an election or appointment. In other
to return what they have received without the approval of the stockholders? words, he holds office, under color of authority. This was introduced as a matter of policy
and justice for continuous acquiescence.
YES.
Powers of Corporations
Revised Corporation Code, Sec. 35-39, 44
SEC-OGC Opinion No. 04-14 (April 21, 2014)
SEC Opinion August 17, 1995

Inquiry: Corporation A with the similar primary purpose as with Corporation B, was
registered with the Commission. Corporation A was 80% owned by the daughter of owner Inquiry: Can a corporation or other non-natural persons become a limited partner in a
of Corporation B. Corporation B was contending that his business was depleting as some of Philippine limited partnership?
their clients are not renewing their contracts because they are transferring to Corporation
A. Issue is whether there is conflict of interest? YES. As a general rule, a corporation cannot enter into a contract of partnership with an
individual or another corporation on the premise that if a corporation enters into a
YES. A qualification that a director shall not be the immediate member of the family of partnership agreement, it would be bound by the acts of the persons who are not its duly
any stockholder in any other firm, company, or association, which competes with the appointed and authorized agents, which is entirely inconsistent with the policy of the law
subject corporation is a qualificational by-aw which may be added to those specified in that the corporation shall manage its own affairs separately and exclusively. This admits
the RCC. These qualification are effective only when the by-laws of the Corporation of exceptions:
expressly provides for the same. 1. Expressly conferred to by the charter of AOI;
2. Agreement on the articles of partnership must provide that all partner shall
Section 30 (Liability of Directors, trustees and officers) and Section 33 (Disloyalty of a manage the partnership, and that all partners shall be jointly and severally
director) is applicable in this case. It is stated that the director who caused damage to the liable for all obligations; and
corporation is liable to the company and must account for the profits which otherwise 3. If it is a foreign corporation which is legally allowed to conduct business in the
would have accrued to the corporation. Owner of Corporation B is liable for the lost country.
business taken over her daughter in Corporation A. Therefore, B is liable.
The SEC must change its view that it should allow corporations to be limited partners in
Moreover, according to Section 33, when a director acquires for himself a business a partnership agreement as what is contemplated here is not actual management of the
opportunity which should belong to the corporation, he must also be liable for the same partnership but just limited to investing funds and the likes. This in turn results to it
being completely loyal to the corporation.
SEC Opinion September 27, 1993 SEC-OGC Opinion No. 16-22 (October 4, 2016)
Inquiry: Whether a corporation can legally enter into a Joint Venture Agreement with
Inquiry: Is it mandatory that the by-laws expressly provide for the creation of an executive another company having a similar purpose?
committee?
YES. As a general rule, a corporation cannot enter into a contract of partnership with an
YES. It is codal. They cannot just simply create or appoint an executive committee to individual or another corporation. The exception is when it is expressly conferred by the
perform some of its functions if there is no such authority in the by-laws. charter of AOI or when it it is a foreign corporation which has license to contract
business in the Philippines.
Inquiry: If yes, will not a pr

lOMoARcPSD|31111392
While a corporation has no power to enter into a partnership, nevertheless, it may

validly enter into a joint venture agreement, where the nature of that venture is in line Debts secured by real property are usually referred to as bonds, while debts secured by
with the business authorized by its charter. Moreover, a JVA is essentially a partnership the personal property of the issuer are commonly referred to as collateral trust bonds. A
agreement. bond is a long-term debt security supported by a mortgage on corporate property.
The normal distinction between a corporate bond and a corporate debenture is that the
former is usually secured by mortgage, while the latter usually is not.
SEC-OGC Opinion No. 07-14 (July 18, 2007)
Inquiry: Whether or not manufacturing is incidental to or in furtherance of the business of Inquiry: Whether debentures, which are unsecured, and merely debt instruments covered
selling? by the term bonded indebtedness?
NO. The underlying reason is that it is not necessary or indispensable that a trader or NO. Debentures are issued on the basis of general credit of the corporation, and since
dealer of goods must also be the manufacturer or producer of the goods it sells. The debentures are not secured by collaterals, they are not bonded indebtedness. It will not
fundamental difference in the nature of business of a manufacturer from that of a seller require approval of the stockholders.
could be inferred from the reading of the Retail Trade Liberalization Act which excludes
SEC-OGC Opinion No. 06-17 (July 24, 2017)

If manufacturing is incidental to the business of trading or selling, there would have been
no need for the distinction under the law since it could be assumed that selling
necessarily entails manufacturing the goods being traded or sold. Legal opinion regarding the intended equity restructuring of a company:
Number of shares: 2,000,000 shares
Authorized capital stock: P20,000,000
Par value: P10.00
SEC Opinion No. 43-04 (October 26, 2004)
Inquiry: What will happen if there will be an increase in the par value while maintaining
Inquiry: Does the resolution and approval of the majority of the Board of Directors in its the number of shares?
special meeting constituting a quorum to temporarily stop business operation of the
corporation for reason beyond its control still needs ratification by the stockholders on Increasing the par value from P10 to P50 while maintaining the number of shares will
record? necessarily increase the ACS from P20 Million to P100 Million. If the company intends
such an increase in ACS it may undertake the following:
It needs to be decided not only by the board, but also by the stockholders themselves 1. Reverse Stock Split
who stand to be primarily affected by such event. a. The reduction of shares by increasing the par value thereof, as a valid
mode of restructuring.
Inquiry: Does it need ratification by 2/3 of the stockholders or simply majority? b. This can be done by Amending the Articles of Incorporation by
changing the equity structure from an ACS of P20M divided into 2
Considering the critical nature of the issue, which is not a mere exercise of management million shares with a par value of 10 to an ACS of P20M divided into
prerogative, the 2/3 vote of the outstanding capital stock is required either prior to the 400,000 shares with a par value of P50.
voting of the board or by subsequent ratification. 2. Increase ACS
a. Proceeding from the reverse stock split, the company may increase its
Inquiry: If so, is the ratification in a meeting or not? ACS from 20 to 100M by amending the AOI and submitting the
requirements necessary.
It must be in a meeting called for such purpose.
Inquiry: What will happen if there will be an increase in the par value while maintaining
the same amount of authorized capital stock?
SEC Opinion April 29, 1987 (Bonded indebtedness) Increasing the par value from P10 to P50 while maintaining the ACS will result in the
reduction of shares from 2 million shares to 400,000 shares. If the company intends such
a reduction in the number of shares, it may undertake the following:
whether it cover all forms of indebtedness whether secured or unsecured? 1. Reverse Stock Split
a. Same as the example in the first scenario.

lOMoARcPSD|31111392
2. Buy back (as treasury shares) the fractional shares Inquiry: Whether pre-emptive right are available to shares offered to strategic investors
Both restructuring scenarios will necessarily result in the cancellation of the current
stock certificates and the issuance of new ones in replacement thereof, which should YES. Section 40 does not distinguish between newly issued shares and previously
reflect the new number of shares and/or par value thereof, as applicable. unsubscribed shares. Pre-emptive right is available to existing shareholders of a
corporation upon its issuance of unsubscribed ACS to potential strategic investors.
-emptive
right is allowed.
SEC Opinion January 25, 1990 (Pre-emptive right)
Inquiry: Whether pre-emptive rights can be exercised by shareholders even if they exceeded
Inquiry: Who has the right to subscribe to the additional authorized capital stock? their ownership threshold?
According to the Revised Corporation, the pre-emptive right of stockholders to all issues NO.
and disposition of shares of any class, in proportion to their respective shareholdings.
Thus, unless specifically denied in the AOI or the issuance falls under the exceptions,
when a corporation increases its ACS, all existing shareholders at the time of the increase
SEC Opinion July 8, 1987 (sale or disposition of assets)
have the right, in preference to any other person, and as between themselves, to
subscribe to the new stocks in proportion to the number of shares held by them.
Inquiry: Whether the sale and disposition of all or substantiall all the assets of a
Inquiry: Can the original stockholders waive their rights to subscribe to the additional ACS obligation with its foreign creditors can be done?
in favor of present stockholders?
YES. Nothing in Section 41 of the RCC is intended to restrict the power of any
YES. A stockholder who neither desires nor intends to buy any of the stocks may waive corporation, without authorization by the stockholders or members, to sell. Lease,
such right, in which event, the shares may be offered to any interested persons exchange, mortgage, pledge, or otherwise dispose of any of its property and assets if the
acceptable to the corporation. same is necessary in the usual and regular course of business of said corporation.
Inquiry: As to what extent may the present stockholders subscribe to the additional ACS? The sell-out statutes gives the directors acting with the requisite vote of shareholders an
absolute power to dispose of the corporate assets in their discretion. However, such
In proportion to their respective shareholdings. transaction must not be done to freeze out a minority, or to exercise their power in a way
to buy the property for themselves and exclude the minority from a fair participation in
the fruits of the sale.
SEC Opinion No. 03-05 (April 27, 2005) Moreover, such will be subject to the provisions of Bulk Sales Law. And lastly, a transfer
of all property of a corporation does not necessarily dissolve the corporation or
Inquiry: Whether the issuance of additional shares out of the unissued portion of the ACS of terminate corporate existence.
the corporation requires only the board of directors approval?
YES. Well settled is the rule that issuance of shares out of the unsubscribed shares of ACS
SEC Opinion (September 22, 1987)
may be exercised by the BOD without the need of stockholders approval. Issuance of
additional shares out of such is not expressly granted to the stockholders.
Inquiry: When is a sale or disposition a sale or disposition of all or substantially all
Inquiry: Whether pre-emptive right can be exercised? corporate property and assets?
NO. This right is only recognized in newly issued shares and not with respect to the A sale shall be deemed to cover all or substantially all the corporate property and assets
additional shares of originally authorized shares. if thereby the corporation would be rendered incapable of continuing the business or
accomplishing the purpose for which it was incorporated.
Inquiry: What are requirements under the law for such sale or disposition of all or
SEC-OGC Opinion No. 41-11 (October 5, 2011) substantially all of its property and assets of a corporation?

lOMoARcPSD|31111392
According to Sec. 41 of the RCC, the voting requirements are: YES. As part of the implied powers of a corporation under Sec. 37, in relation to Sec. 42
1. which gives the corporations the power to invest corporate funds in another corporation
of stock corporations; or or business for any other purposes. In summary, these voting requirements are needed if
2. -stock corporations. investing in a different company for:
1. Furtherance of Primary Purpose: Majority vote of the BOD
Inquiry: Can the board of directors subsequently abandon such sale? 2. Furtherance of Secondary Purpose: Majority vote of the BOD and ratification
he OCS or members in case of
YES. In its discretion, they can abandon such sale, subject to the rights of third parties non-stock corporations.
under any contract relating thereto, without the need of further action or approval of the
stockholders or members, as the case may be. If there is a change in the material contract which may have financial, technological, or
administrative impact on the company is reportable event. If it has serious financial
impact, it should be reported to the Commission 5 days from the occurrence.
Powers of Corporations
SEC-OGC Opinion No. 16-16 (June 27, 2016)
Inquiry: When investing in another corporation in furtherance of a primary purpose, what
Inquiry: May a corporation treat treasury shares as part of issued shares? is the voting requirement?
YES. A corporation may treat it as part of issue shares as long as they are not cancelled or Only the majority vote of the board of directors or trustees.
retired. Treasury shares do not revert back to being unissued shares but are regarded as
property reacquired by the corporation which can be reissued or resold again.
Inquiry: Considering that a corporation is now planning to make available for subscription SEC Memorandum Circular No. 11-08 (December 5, 2008)
or sale said treasury shares, can it sell the same directly without having to ask the SEC for
exemption from the registration requirements of the Revised Security Code? Retained Earnings
- The accumulated profits realized out of normal and continuous operations of
NO. Reissuance of treasury shares is subject to the provisions in the Revised Security the business after deducting therefrom distributions to stockholders and
Code considering that the reissuance thereof may constitute distribution of securities to transfers to capital stock or other accounts.
the public, and consequently, new or additional stockholders may come in. But may still Unrestricted Retained Earnings
apply for exemption because such reissuance is of limited character because - The amount of accumulated profits and gains realized out of the normal and
corporations does not normally acquire its own shares and the number of disposed continuous operations of the company after deducting therefrom distributions
shares are minimal only. to stockholders and transfers to capital stock or other accounts which is:
a. Not appropriated by the BOD for corporate expansion;
Inquiry: Can a corporation merely amend its financial statements and indicate therein b. Not covered by restriction for dividend declaration under a loan
treasury shares? agreement; and
c. Not required to be retained under special circumstances.
YES. It must be properly disclosed. Any declaration and issuance of TS as property
dividend shall be disclosed and properly designated as property dividend in the books of A corporation cannot declare dividends when it has zero or negative retained earnings
the corporation and in its financial statements. otherwise known as retained earnings deficit.
SEC-OGC Opinion No. 04-10 (January 27, 2010) SEC Amended Rules Governing Distribution of Excess Profits
(July 28, 1994)
Inquiry: Are there legal impediments or existing SEC rules and regulation applicable to a It hereby promulgates the following rules:
private corporation and/or GOCCs?

lOMoARcPSD|31111392
1. All domestic stock corporations which have surplus profits in excess of

necessary requirements for capital expansion and reserves shall declare and
distribute the excess profits as dividends to stockholders.
2. Prohibition to retain surplus profits in excess of 100% of its paid-in capital, Inquiry: Whether a corporation is required by law to include the qualifications of the
except: Board of Directors in the By-Laws?
a. When justified by definite corporate expansion;
b. When the corporation is prohibited under any loan agreement YES. The by-laws signifies the rules and regulations or private laws enacted by the
from declaring dividends without the financial institutions consent or corporation to regulate, govern, and control its own actions, affairs, and concerns. By-
its consent is not yet secured; or laws are relatively permanent and continuing rules of action adopted by the corporation
c. When such retention is necessary under special circumstances. for its own government and that of the individuals composing it.
3. All appropriations out of the surplus profits shall have the prior approval of the
BOD. Mere board resolution or approval is not sufficient to legally enforce such qualifications
4. Failure to neglect to declare dividends, disclose appropriations or disclose the because it has to be clearly provided for in the corporate by-laws. Guidelines requiring
justification for non-distribution, there will be a corresponding penalty. additional qualifications may only be effective if such are stated in the by-laws.
SEC Opinion No. 28-04 (April 27, 2004) SEC-OGC Opinion No. 02-06 (January 3, 2006)
Inquiry: What are the voting requirements needed to be able to delegate to BOD the power
Inquiry: Whether preferred shares may be given common shares as dividends? to amend by-laws or adopt new by-laws?
YES. Under Section 42 (Power to declare dividends), all stockholders, without -stock corporation. This can be found
qualification as to what kind of shares held by them, are entitled to receive dividends by under Sec. 47 of the Revised Corporation Code.
the corporation, whether it be in stock, cash, or property.
Inquiry: Why is there a higher voting requirement for delegating the power to amend by-
What is given only to them is the preferential right in the distribution of dividends laws than mere amendment of the by-laws by the shareholders?
among others. There is nothing in the law which prevents preferred shares from
acquiring whatever class by way of stock dividend. This is because this is an unusual act. The law has properly made it difficult to do so
because the BOD have already enough power in their hands, and adding an additional
power can be susceptible to abuse. Moreover, this was made harder than revocation of
SEC-OGC Opinion No. 13-17 (November 3, 2017) such delegated power which only requires a majority vote of the shareholders.
Inquiry: Whether Section 42 (Power to declare dividends) and its requirements are
applicable to general partnerships? SEC-OGC Opinion No. 08-18 (April 20, 2018)
Inquiry: Whether such delegation to amend or adopt new by-laws under Section 47 should
NO. This is because it is not a stock corporation, it does not have the power to declare be put in the By-laws or only in Board Resolutions?
dividends out of its net profits, its profits are deemed distributed to its partners at the
end of the year without need of dividend declaration, and their partners are directly Board Resolutions only. Delegation powers must not be put in the By-laws because this
entitled to its net profits. delegated authority is temporary in nature and may be revoked anytime by a majority
vote of the stockholders. If the power is provided in the by-laws, the authority may have
Moreover, a partnership has neither shares of stocks or capital stocks, nor does it have been revoked already, but may still apper therein until the corresponding amendment is
BOD that can declare dividends out of its unrestricted retained earnings. made and filed with the Commission.
Thus, they not governed by the Corporation Code but by the pertinent provisions of the The actual delegation must only be written in a Board Resolution while the general
Civil Code on Partnerships. power to grant delegation can be put in the By-laws. The opinion also opined that the
verbatim provision can be put in the By-laws.
By-laws and Meetings

lOMoARcPSD|31111392
SEC Opinion March 13, 1996 SEC Memorandum Circular No. 04-04 (March 17, 2004)
Inquiry: What are the alternatives open to a corporation to be able to serve sufficient notice Voting by mail of a proxy can be made in pursuant to the by-laws.
to minority stockholders in the event that the latter cannot be located?
One share-one vote policy. Voting shall always be on the basis of the number of shares
Notice to the meeting in writing is mandatory. A notice in writing to each of the
stockholders cannot be dispensed with. In the absence of the information, the last known
post office address as shown in the stock and transfer book of the corporation. The articles of incorporation and the certificate of stocks cannot deprive preferred
shares of the right to vote.
SEC-OGC Opinion No. 10-13 (October 25, 2013)

SEC-OGC Opinion No. 37-06 (November 9, 2006)
meetings through electronic mail (e-mail) and the validity of the resolutions passed by the Whether the by-laws can provide for a less than or greater than majority for deciding
corporation in meetings held wherein only email notices were sent, are valid notices? business decisions?
YES. The opinion stated that actual emails comply with the codal requirement that all YES. Corporations are authorized to define what constitutes a quorum. They are
notices must be made in writing at least one week prior to the scheduled meeting. authorized to provide in its by-laws a specific number of stockholders or members
necessary to constitute a quorum for the transaction of a corporate business.
The by-laws must provide for the mechanics of such sending of notices through email.
And absent such specific provision on notice requirements, the general or default rule of However, by-laws provision on quorum will not apply where the Corporation Code
a written notice sent through regular postal mail, applies. explicitky requires a specific number of stockholders or members necessary to resolve a
particular corporate act, such as:
1. Amendment of AOI - ers
2. Removal of directors or trustees -
SEC Opinion October 28, 1991 3. Extension or shortening of corporate term -
Inquiry: Are undated proxies valid? stockholders or members
4. Sale, lease, exchange, mortgage, pledge, or any disposition of all, or
YES. Where a corporation receives undated proxy, the post mark date or actual date of substantially all of the corporate assets -
presentation is considered. Dating of proxy is not an essential requirement for the stockholders or members.
validity of the authority.
Inquiry: Can a proxy be redesignated to another under the same proxy?

SEC-OGC Opinion No. 23-11 (April 13, 2011)
NO. This is personal in nature. Same as the one above.
Inquiry: When two or more individuals are assigned as proxies by one and the same person,
who shall prevail?
SEC-OGC Opinion No. 01-16 (January 19, 2016)
The latest delegatee. In shall conform to whether there are different dates, if sent Inquiry: Whether the appearance and voting via teleconferencing and videoconferencing
through email, or both presented at the same time.
Inquiry: How is a proxy revoked? YES. This means an interactive group communication through electronic medium. This is
A general rule is that one who has given a proxy the right to vote the stock owned by him cannot be conducted via teleconferencing or videoconferencing.
may revoke the same at anytime, unless said proxy is coupled with an interest, even
though it may in terms be irrevocable.

lOMoARcPSD|31111392
allegations that such joint meeting adversely affected the interest of the individual
SEC Memorandum Circular No. 15-01 (November 20, 2001) corporations and their stockholders.
Board Meeting Through Teleconferencing or Videoconferencing: Inquiry: Whether a joint meeting by the interlocking directors and stockholders of several
1. Secretary shall assume the following responsibilities: corporations without constituting quorum is valid?
a. Safeguarding the integrity of the meeting;
b. Find good equipment; NO. Any act of the the members of the BOD constituting a quorum maybe considered
c. Record the proceedings; valid and enforceable. Corollary thereto, if there is no quorum, the meeting is void.
d. Safely keep all items.
2. Secretary shall send notices of meeting to all directors.
3. Notice shall include whether the director will attend physically or through
SEC Opinion January 21, 1992
tele/video conferencing, contact number of director, agenda of the meeting, etc.
4. If chose tele/video, notify 5 days before the meeting.
5. In the absence of agreement, presumed to be attending personally. Inquiry: Can a stockholder, who is neither an officer nor a member of the board, service
6. A roll call should be made at the start of the meeting. notice to the Chairman or Secretary that he intends to observe the board meeting of the
7. All participants should identify themselves for the record. corporation, even without an invitation?
8. Secretary must let all BOD sign the minutes to dispel all doubts on the matters
taken up during the meeting. NO. The RCC does not confer upon any stockholder the right to attend board meetings. It
is entirely discretionary on the part of the BOD. This conforms with the principle that the
BOD is entrusted by the stockholders with the management of corporate affairs and
SEC Opinion July 8, 1987
unless tainted with bad faith or fraud, the stockholders cannot interfere with the exercise
of business judgment by the Board relating to the management of corporation.
Inquiry: Whether the sale and disposition of all or substantiall all the assets of a
Inquiry: If there is no prohibition under the By-laws or in the RCC for a stockholder to invite
himself to observe Board Meetings for a legitimate purpose, can the Board deny him access
YES. Nothing in Section 41 of the RCC is intended to restrict the power of any to the meeting?
corporation, without authorization by the stockholders or members, to sell. Lease,
exchange, mortgage, pledge, or otherwise dispose of any of its property and assets if the YES.
same is necessary in the usual and regular course of business of said corporation.
The sell-out statutes gives the directors acting with the requisite vote of shareholders an END FOR MIDTERMS COVERAGE.
absolute power to dispose of the corporate assets in their discretion. However, such
transaction must not be done to freeze out a minority, or to exercise their power in a way
to buy the property for themselves and exclude the minority from a fair participation in
the fruits of the sale.
Moreover, such will be subject to the provisions of Bulk Sales Law. And lastly, a transfer
of all property of a corporation does not necessarily dissolve the corporation or
terminate corporate existence.
SEC-OGC Opinion No. 09-06 (February 8, 2006)
Inquiry: Is there an irregularity when in the joint meeting of interlocking directors, all the
NO. It is a sound practice. However, there must be prepared separate minutes of

meetings for the different corporations. Such can be allowed, especially if there are no

lOMoARcPSD|31111392
REVISED CORPORATION CODE REVIEWER Mere inclusion in the GIS is not sufficient. As between the GIS and the corporate
Sources: records, the corporate records prevail.
Opinions
With respect to the original subscribers, when do they become shareholders?
Title VII They become shareholders at the issuance of the Certificate of Incorporation. It does not
Stocks and Stockholders matter that they are not recorded in the STB. As long as they are subscribers whose names
appear in the AOI they are already stockholders by then.
SEC. 59. Subscription Contract. Any contract for the acquisition of unissued stock Can you acquire shares through different modes of acquiring ownership?
in an existing corporation or a corporation still to be formed shall be deemed a Yes, like succession and donation.
subscription within the meaning of this Title, notwithstanding the fact that the
parties refer to it as a purchase or some other contract. Subscription contract
It is a contract by which the subscriber agrees to take certain number of shares of the
Voluntary onerous acquisition of shares can be through: capital stock of a corporation, paying the consideration therefor or expressly or impliedly
1. Purchase promising to pay for the same.
2. Subscription
What is the title and mode of the subscription contract?
Purchase may be from: Title subscription contract
1. The corporation itself Mode tradition or delivery
2. One of its stockholders
Stock option
Difference between purchase and subscription It is a privilege granted to a party to subscribe to a certain portion of the unissued capital
stock of a corporation within a specified period and under the terms and conditions of the
Purchase Subscription grant, exercisable by the grantee at any time within the period granted.
Warrant
Purchase can only be made AFTER Subscription can be made before or after It is a type of security which entitled the holder to the right to subscribe to the unissued
incorporation the incorporation capital stock of a corporation or to purchase issued shares in the future, evidenced by a
warrant certificate, whether detachable or not which may be sold or offered for sale to the
public but does not apply to a right granted under an option plan duly approved by the
Sale is reciprocal. Purchase under a deed of If there is no agreement on time of SEC for the benefit of the employees, officers, and/or director of the issuing corporation.
absolute assignment or sale must FULLY payment, the subscriber need NOT pay
pay the purchase price at the time the UNLESS there is a call [I deliberately did not include the different types of warrant because Sir Ampil never
shares are transferred
507.]
Seller can condone the payment of shares Subscriber CANNOT be released from his
obligation to pay the subscription price Can the subscribers withdraw from the pre-incorporation subscription agreement
without the consent of all shareholders? NO.
The SOF applies to purchase if the price is Statute of frauds does NOT apply Can shares be issued in trust for another person?
not less than P500 Yes. This occurs when shares are registered in the name of one person but the beneficial
ownership may belong to another.
Who is a nominee?
When does the right of the shareholder accrue?
It is a person in whose name a stock certificate is registered but who is NOT the actual
Only upon the entry of his name in the books of the corporation.
owner thereof.
Instances when one is NOT recognized as a stockholder:
A person cannot be recognized as a stockholder by mere presentation of
dividend coupons if his ownership is NOT recorded. What is the principle of indivisibility of contract?
[Recio, Ortiz, Gabito, Uy, Sampang, Albano, Sison, Agapito C2021 - Revised Corp Code Reviewer] 1

lOMoARcPSD|31111392
It means that even if it the subscription agreement covers two or more shares, the General rule: The corporation has NO legal capacity to release an original subscriber to
subscription agreement is considered indivisible. A subscriber can subscribe to the capital its capital stock from the obligation of paying for his shares, in whole or in part, without a
stock under several subscription contracts. valuable consideration, or fraudulently, to the prejudice of his creditors.
Is there a prescribed form for subscription? Exception: A release that is given to bona fide compromise or to set off a debt from the
No. It need not be in writing. Mutual dealing is enough. corporation, a release supported by consideration will be effectual as against the
Example, if a person accepts a certificate stock in his name or if he exercised the rights of dissenting stockholders and subsequent and existing creditors.
shareholders, he is liable for the unpaid subscription even if there was no express contract.
Note: Release of subscription is also possible if there is unanimous consent of stockholders
Kinds of subscription contract and creditors.
1. Pre-incorporation
2. Post-incorporation Distribution of assets is only allowed when there is:
1. Amendment of the AOI to reduce the ACS
A subscription contract may pertain to: 2. Purchase of redeemable shares by the corporation, regardless of the existence of
1. Those that are part of the Authorized Capital Stock appearing in the AOI the unrestricted/retained earnings
2. Those that involve shares in the increase of capital stock 3. Dissolution and eventual liquidation of the corporation
Can subscription contracts be conditional? Can treasury shares be subject to subscription agreements?
Yes, they only take effect or confer rights until the condition is satisfied. NO. However, when they are reissued the shareholders are entitled to exercise their pre-
emptive right.
What is the TRUST FUND DOCTRINE?
The subscribed capital stock of the corporation is a trust fund for the payment of What are escrow shares?
debts of the corporation which the creditors have the right to look up to satisfy This is a situation wherein the shares to be issued shall be held in escrow until actual
their credits. The corporation may not dissipate this and the creditor may sue payment is received by the corporation.
stockholders directly for the unpaid subscriptions.
When the corporation is insolvent or cannot pay its obligations, the capital Know the difference:
stock, property, and other assets of the corporation are also regarded as equity 1. Capital refers to all properties and assets of the corporation
in trust for the payment of the corporate creditors. 2. Authorized Capital Stock amount fixed in the Articles of Incorporation to be
Addition paid in capital (APIC) is included in the trust fund. subscribed and paid by the SH of the corporation
APIC shall not be declared as dividend nor shall it be reclassified to 3. Subscribed Capital portion of the ACS that is covered by subscription
absorb deficiency except through an organization restricting duly agreements whether fully paid or not
approved by the SEC. 4. Paid-Up Capital portion of the ACS that has been subscribed and actually paid
A stockholder has NO right to demand for the return of his investment. His
investment is locked in until the liquidation of the corporation. How can the corporation increase its subscribed capital?
Release can only be done with the consent of ALL stockholders. 1. Issuing the remaining balance of the ACS
But he cannot withdraw even if ALL stockholders consented when 2. Increasing the CAS that necessarily involves additional subscription
there is prejudice to the creditors.
Do the issuance of the unsubscribed shares of the ACS need SH approval?
The Trust Fund Doctrine is VIOLATED in the following instances: No. We only need a board resolution.
1. When the corporation releases or condones the payment of unpaid subscription
and the stockholder (let me use SH from now on para shortcut) has no right to [When reviewing for the exam, you may skip this part about the debts. Parang di siya
demand the refund of his investment relevant.]
2. When there is payment of dividends without unrestricted retained earnings Advantages of debt:
3. When properties are transferred in fraud of creditors 1. Current shareholders do not have to surrender their control of the corporation
4. When the properties are disposed or undue preference is given to some creditors when funds are obtained by borrowing rather than issuing more shares of stock
even if the corporation is insolvent 2. Depending on the tax law, it may be less expensive to issue debt rather than
5. When the capital stock is decreased which has the effect of relieving the additional stock if the interest payments made to bondholders are tax-deductible
stockholders of the obligation to pay their respective obligation while dividends are not

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3. The issue of bonds may increase the earning of the corporation through This is to prevent injustice on subscribers who already exerted efforts to
favorable financial leverage when the borrowed shares are used to increase the organized the corporation and who have committed financial resources therefor.
earnings per share of common stock.
Pre-incorporation contracts can only be revoked in the following instances:
Disadvantages of debt: 1. If all other subscribers consent to the revocation before the expiration of the 6-
1. Borrower has fixed interest payment that must be met each period to avoid month period
default 2. Upon the expiration of the 6-month period (but before the filing of the AOI with
2. The the SEC) even without the consent of the other subscribers or within a longer
3. It causes the corporation to experience unfavorable financial leverage when period as may be stipulated in the subscription agreement
income from operations falls below a certain level when the cost of borrowing
funds exceeds the revenue they generate
SEC. 61. Consideration for Stocks. Stocks shall not be issued for a consideration
4. Loan agreements usually require maintenance of a certain amount of working
less than the par or issued price thereof. Consideration for the issuance of stock
capital and place limitations on dividends and additional borrowings
may be:
a. Actual cash paid to the corporation;
Creditors
b. Property, tangible or intangible, actually received by the corporation
1. Commercial creditors normally short-term creditors including banks and
and necessary or convenient for its use and lawful purposes at a fair
other institutional lenders who extend revolving lines of short-term credit
valuation equal to the par or issued value of the stock issued;
2. Investment creditors those who acquire bonds or debentures issued by the
c. Labor performed for or services actually rendered to the corporation;
corporation
d. Previously incurred indebtedness of the corporation;
e. Amounts transferred from unrestricted retained earnings to stated
Q: The incorporations (who are also the directors) of Corporation X decided that the
capital;
unpaid balance of their subscription will be paid out from the expected dividends.
f. Outstanding shares exchanged for stocks in the event of reclassification
However, dividends were never declared. Hence, they decided to condone their unpaid
or conversion;
subscriptions. Can the creditors recover?
g. Shares of stock in another corporation; and/or
A: Yes. This violates the TFD. h. Other generally accepted form of consideration.
Where the consideration is other than actual cash, or consists of intangible
property such as patents or copyrights, the valuation thereof shall initially be
Q: Y asked the President of Corporation X to release her from her unpaid subscriptions.
This was granted provided that Y shall forfeit all her previous payments to the corporation. determined by the stockholders or the board of directors, subject to the approval
When Corporation X became insolvent, the assignee went after Y for the payment of her of the Commission.
unpaid subscriptions. Is Y liable?
Shares of stock shall not be issued in exchange for promissory notes or future
A: Yes. First, the release a violation of TFD. Second, when the corporation becomes service. The same considerations provided in this section, insofar as applicable,
may be used for the issuance of bonds by the corporation.
insolvent, the unpaid subscriptions automatically become demandable.
The issued price of no-par value shares may be fixed in the articles of
SEC. 60. Pre-incorporation Subscription. A subscription of shares in a incorporation or by the board of directors pursuant to authority conferred by the
corporation still to be formed shall be irrevocable for a period of at least six (6) articles of incorporation or the bylaws, or if not so fixed, by the stockholders
months from the date of subscription, unless all of the other subscribers consent representing at least a majority of the outstanding capital stock at a meeting duly
to the revocation, or the corporation fails to incorporate within the same period called for the purpose.
or within a longer period stipulated in the contract of subscription. No pre-
incorporation subscription may be revoked after the articles of incorporation is
This section imposes the following conditions:
submitted to the Commission.
1. Stocks shall not be issued for a consideration less than the par or issued price
thereof fixed in the AOI
Despite the non-existence of the corporation, the subscription contract before 2. Shares of stock shall not be issued in exchange for promissory notes or future
incorporation is valid and binding. services
The pre-incorporation subscription contract is also irrevocable AFTER the filing 3. Where the consideration is property, whether tangible or intangible such as
of the AOI with the SEC and the issuance of the certification of incorporation. patents or copyrights, the valuation thereof shall initially be determined by the
After issuance of the certificate, the subscription agreement is already covered incorporators or the board of directors, subject to the approval of the SEC
in the trust fund doctrine.

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What else is required from corporations with foreign subscribers who want to 3. When not in AOI or power not delegated to the board, the SH representing at
register their investment with the BSP? least majority of the outstanding capital stock at a meeting duly called for the
A bank certificate in the form prescribed by the BSP to prove the existence of inward purpose will fix it.
remittance
Can the issue price be higher than its par value?
What are the conditions when property is to be used as consideration? Yes. FMV or book value may be greater than the par value.
1. Property is actually received by the corporation
2. Property is necessary or convenient for its use and lawful purpose Who determines the issued value when there are only no-par value shares?
3. It must be subject to fair valuation equal to the par value or issued value of the Board of directors
stock issued
4. The valuation thereof shall be initially determined by the incorporators or board Is the deposit for the subscription contract subject to documentary stamp tax? NO.
of directors
5. The valuation is subject to approval by the SEC Q: How can you buy shares in a corporation wherein you are also its legal counsel?
Examples of intangible property as consideration: A: Remember that compensation for services actually rendered to the corporation is credit
1. Patents or copyrights the corporation must submit to the SEC a copy of the that is property with ascertainable value. Hence, you can continue to perform services for
certificate of registration of the intellectual property right together with an the company after its organization and thereafter ask as payment shares in the
appraisal report by an accredited appraisal company that is not more than 6 corporation. It should be noted that services performed prior to incorporation are NOT
months old and deed of assignment in favor of the corporation necessarily binding on the corporation unless they ratify it.
2. A mining claim the mining permit shall be submitted with the SEC. The actual
mining claim must be appraised by the Bureau of Mines and Sciences and
confirmed by SEC.
SEC. 62. Certificate of Stock and Transfer of Shares. The capital stock of
3. Undivided interest of a co-owner
a. The property must be something that corporation may acquire in corporations shall be divided into shares for which certificates signed by the
carrying out its purpose president or vice president, countersigned by the secretary or assistant
b. Interest in the co-ownership must have a pecuniary value capable of secretary, and sealed with the seal of the corporation shall be issued in
ascertainment accordance with the bylaws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the
c. Right over the property must actually be transferred to the corporation
and no creditors shall be prejudiced by such transfer owner, his attorney-in- fact, or any other person legally authorized to make the
d. There shall be an affidavit by the co-owner stating that he gave notice transfer. No transfer, however, shall be valid, except as between the parties, until
to the other co-owners and that the redemption period has already the transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate
expired.
4. FUTURE SERVICES ARE NOT ACCEPTABLE hence movie star contracts cannot or certificates, and the number of shares transferred. The Commission may
require corporations whose securities are traded in trading markets and which
be accepted as payment for subscription since they are not yet actually rendered.
5. Payment dependent on dividends IS INVALID this can result into a situation can reasonably demonstrate their capability to do so to issue their securities or
wherein there might never be payment for the subscription agreement at all. shares of stocks in uncertificated or scripless form in accordance with the rules
of the Commission.
What is the consideration in conversion of a single-proprietorship or partnership
into a corporation or a spin-off of one or more division of the company? No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
It is the actual net assets of those enterprise or units. In this case, creditors must consent
to the conversion hence SEC requires the list of creditors with the amount due to each and
the written consent of the creditor. Stock certificates are non-negotiable instruments. They have no promise or order to
pay money. However, some say they are quasi-negotiable because they can be transferred
What are watered stocks? by indorsement coupled with delivery.
Those stocks that are issued for a consideration less than the par or issue price thereof.
How do you fix the issue price? Is there a restriction to transfer the certificate of stock?
1. AOI No. It is considered as personal property. As owner of the personal property, the
2. Board resolution when such power is conferred in the AOI or by-laws shareholder is at liberty to dispose of them in favor or whomsoever he pleases, without
any other limitation in this respect than the general provisions of the law.

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What is a street certificate? 2. To afford to the corporation an opportunity to object or refuse its consent to the
It is when a stock is endorsed in blank by the owner thereof. The holder then is entitled to transfer in case it has any claim against the stock sought to be transferred or for
demand its transfer to his name from the issuing corporation. any other valid reasons
3. It informs the corporation of any change in share ownership so that it can
How is the transfer made? ascertain the persons entitled to the rights and subject to the liabilities of a
1. There must be delivery. stockholder to know who the actual shareholders are at all times
2. The share must be indorsed by the owner or his agent. 4. To avoid fictitious transfers
3. To be valid to the corporation and third parties, the transfer must be recorded in
the books of the corporation. Is there a presumption on the ownership of a share?
Yes when you are the recorded owner of the share.
Does the above procedure apply to subscription contracts entered into between the When registration is not necessary because they are not considered as transfers:
corporation and the subscriber? 1. Chattel mortgage
No. The subscriber becomes a shareholder even if the corporation has not yet issued the 2. Attachment
stock certificate.
When is transfer not allowed?
What is the operative act of the transfer? When the corporation holds any unpaid claim (unpaid subscription) on the stock.
It is the delivery of the certificate and the endorsement of the owner or his duly authorized
representative. When the share of stock is assigned to an assignee, who becomes liable?
The assignee. Novation.
Can shares be held in trust by an employee of a corporation with the condition that
the trust is terminated when he is separated from the employment of the What happens during the death of a shareholder? Do the heirs become automatic
corporation for any reason? YES. stockholders?
NO. There is a procedure to be followed:
What if there is no certificate? 1. Stocks must be distributed first to the heirs in estate proceedings
Obviously, the transfer cannot be complied with. The transferee cannot demand for the 2. Transfer of the stocks then must be recorded in the books of the corporation
issuance of the certificates of stock in his name. Remember the STB is the basis for 3. Until such distribution is done, the executor or administrator duly appointed by
ascertaining the persons entitled to the rights of a stockholder. the court is vested with the legal title of the stocks
a. Hence, they can vote without written proxy.
Will mandamus lie on the corporate secretary when the name of the transferee is
not recorded in the STB? No. Can the corpo
Yes, but it shall not restrict the right of the SH to transfer his shares. The corporation can
Should the transferee have possession of the certificate? only adopt regulations or procedures to effect such transfer.
At the very least yes. Once the transferee can show that he has possession of the certificate,
the burden to disprove such transfer now is with the corporation. Example: Stamps stating that certificates are non-transferable is an unreasonable
limitation on the ownership of the SH and is a restraint on trade.
When mandamus can lie the following can be done:
1. Registration of the transfer Can the restriction be contained in a separate document?
2. Issuance of new certificates Yes. For instance, a separate document can be made indicating the right of first refusal in
favor of the transferor. But it shall not be binding to a transferee who did not know of the
What is registration? separate document.
It is the recording of the transfer in the STB by the Corporate Secretary. Only after this
shall the transferee have all the rights of a stockholder. This enables the transfer to be valid Will mandamus lie if there is no indorsement by the owner? NO.
to third persons and the corporation itself.
When can rescission be done?
What shall be done so that new certificate of stocks be issued? 1. If the transferor failed to deliver the stock certifications within reasonable time
There shall be surrender of the old certificate. This serves to protect the corporation and from the point the shares should have been delivered.
the legitimate shareholder and the public. 2. When there is no indorsement, the transferee can compel the transferor to do so.
However, the same cannot be considered as an intra-corporate controversy since
Rationale for the registration: the transferee is not yet a shareholder.
1. Enable transferee to exercise all rights of a shareholder

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When shall the right to registration acrrue? What is a stock certificate?

Since there is no law on it, it shall accrue upon demand. Hence, it can be filed even 24 years It is a written instrument signed by the proper officer of a corporation stating or
after the transfer. acknowledging that the person named in the document is the owner of a
designated number of shares of its stock.
What should be paid before the registration of transfer in the STB and issuance of It is only a paper representation of the stock but it is not the stock
the new certificate can be effected? It is his evidence of interest and status in the corporation. It is the prima facie
1. Documentary stamp tax evidence that the holder is a shareholder in the corporation.
2. Capital gains tax
In fact, the Corporate Secretary shall require the submission of the Certificate of Authority OWNERSHIP. Other factors:
to register (CAR) issued by the BIR before transfer in the books of the corporation is made. STB
AOI
Can the stockholders have the right to first refusal to a transfer? Official receipts of payment of subscriptions
Yes, the corporation can provide for such. This will allow SHs to purchase the share for 15 Proof of issuance of part of the authorized and unissued capital stock
days from the offer. in favor of the person who claims to be a shareholder
Q: A is an SH of X corporation. A assigned GIS

Minutes of meetings
claim the dividends but also B. Who has the better right?
When can a certificate of stock be issued?
can only be recognized if it is recorded 1. The certificate must be signed by the president, VP, countersigned by the
in the STB but in this case it is not. secretary or assistant secretary
2. Certificate must be sealed with the seal of the corporation
Q: A purchased shares from B. The shares were indorsed by C who is the recorded owner 3. The certification must be delivered
of the shares. Apparently, the shares have been stolen by B. Who is entitled to the shares? 4. The par value as to par value shares or full subscription as to no par value shares,
must first be fully paid
A: C is entitled to the shares. B cannot transfer the shares to A since B does not have title 5. The original certificate must be surrendered where the person requesting the
to the shares. Since the transfer to B is not recorded it only follows that the transfer to A issuance of a certificate is a transferee from a stockholder
is also not recorded.
How can the transfer be effected for and/or certificates of stock indicating that they
Q: A has 1000 shares. The shares were delivered to B who paid for all of the subscription. are co-owners of the stock?
B now contends that her name shall be registered in the books of the corporation. Is she Through the endorsement of both or either of the stockholders
correct?
Can the certificate of stock be issued to bearer?
A: No, hence refusal to register is justified. The transfer must be indorsed by the owner No, it shall be issued to the subscriber or the registered owners.
before it can be recorded. There is no indorsement from A here.
What is the relevance of the corporation having the power to issue stocks?
Where there is an inherent lack of power in the corporation to issue the shares, neither
on the indorsement of A in the stock. Can A still have a claim to the stocks? Would your the corporation nor the person to whom the stock is issued can invoke estoppel when its
answer be the same if the stock has been stolen by B from A? validity is being questioned since an estoppel cannot operate to create a stock which under
the law cannot have existence.
A: Yes, A can question the transfer since his indorsement stated that he merely entrusts
the stock to B. And yes, the answer is the same since the transfer is without title when the What is the duty of the corporation once the subscription has been paid?
stock has been stolen from A. Issue the certificates
What is the principle of indivisibility of subscription?

It means that the subscription is one, entire, and indivisible whole contract. It
SEC. 63. Issuance of Stock Certificates. No certificate of stock shall be issued to a
cannot be divided into portions so that the stockholder shall not be entitled to a
subscriber until the full amount of the subscription together with interest and certificate of stock until he has remitted the full payment of his subscription
expenses (in case of delinquent shares), if any is due, has been paid. together with any interest and expenses, if any is due.

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All partial payments on one subscription shall be deemed applied

Mere change in form
proportionately among the number of shares.
To permit the issuance of stock certificate for payment of a subscription that
does not cover the entire number and value of the shares subscribed would be Watered Stocks
in violation of this section. · Watered Stocks are stocks that are issued for a consideration less than the par
or issued price thereof.
Can the entire subscription although not fully paid be transferred to a single · It should be distinguished from bonus stocks that are issued without any
transferee? valuable consideration.
Yes, and the effect would be is for the transferee to assume the liability for the unpaid
balance. This shall be made with the consent for the corporation since this is technically a Prohibition on Watered Stocks
novation which requires consent of the creditor. · It is consistent with the general rule that an agreement between the corporation
and a particular subscriber by which the subscription is not payable or is to be
What cannot be done: payable in part only cannot be either enforced by the subscriber or interposed as a
1. Assignment of the balance of subscription to third persons in such a manner that defense in an action on the subscription.
the stock certificates will be issued to the SH for the paid portion and the balance · This is for the purpose of preventing predominance of certain stockholders or
of the third person who assumes the payment of the balance of subscription. for any other purpose which is illegal and void.
2. Neither can the stockholder assign the paid portion to one transferee and the
unpaid portion for another transferee.
SEC. 65. Interest on Unpaid Subscriptions.
Remedies for non-issuance: Subscribers to stocks shall be liable to the corporation for interest on all unpaid
1. Specific performance subscriptions from the date of subscription, if so required by and at the rate of
2. Action for damages if specific performances is unavailable interest fixed in the subscription contract. If no rate of interest is fixed in the
3. Mandamus subscription contract, the prevailing legal rate shall apply.
4. Rescind the subscription agreement with consequent mutual restitution
What happens to a forged certificate? SEC. 66. Payment of Balance of Subscription.

It is considered void even if the holder is a holder in good faith and for value. Subject to the provisions of the subscription contract, the board of directors may,
at any time, declare due and payable to the corporation unpaid subscriptions and
Q: A subscribed to 100 shares of X Corporation. He only paid 25% of it. When the may collect the same or such percentage thereof, in either case, with accrued
corporation became insolvent, A asked for the issuance of certificates for the 25% he paid interest, if any, as it may deem necessary.
for and refused to pay the remaining unpaid balance. Is A correct?
Payment of unpaid subscription or any percentage thereof, together with any
A: No. Since he only paid for 25% and not fully he is not entitled to issuance of the interest accrued, shall be made on the date specified in the subscription contract
certificates. And since the corporation is insolvent, it is automatic and demandable that or on the date stated in the call made by the board.
the unpaid subscription be asked for from him.
Failure to pay on such date shall render the entire balance due and payable and
shall make the stockholder liable for interest at the legal rate on such balance,
unless a different interest rate is provided in the subscription contract. The
SEC. 64. Liability of Directors for Watered Stocks. A director or officer of a interest shall be computed from the date specified, until full payment of the
corporation who: subscription. If no payment is made within thirty (30) days from the said date, all
(a) consents to the issuance of stocks for a consideration less than its par or stocks covered by the subscription shall thereupon become delinquent and shall
issued value; be subject to sale as hereinafter provided, unless the board of directors orders
(b) consents to the issuance of stocks for a consideration other than cash, valued otherwise.
in excess of its fair value; or
(c) having knowledge of the insufficient consideration, does not file a written
objection with the corporate secretary, shall be liable to the corporation or its Liability
creditors, solidarily with the stockholder concerned for the difference between · A stock subscription is a subsisting liability from the time the subscription is
the value received at the time of issuance of the stock and the par or issued value made
of the same. · Stock subscriptions are considered as debt of a shareholder to the corporation.

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What is a call?
SEC. 67. Delinquency Sale. The board of directors may, by resolution, order the
· A call is a resolution or formal declaration of a board that the unpaid
sale of delinquent stock and shall specifically state the amount due on each
subscriptions are due and payable.
subscription plus all accrued interest, and the date, time and place of the sale
· the subscription cannot be due and payable without a call.
which shall not be less than thirty (30) days nor more than sixty (60) days from
· A corporation cannot file an action to recover the unpaid price if the action is not
the date the stocks become delinquent.
preceded by a call. Thus, until a call is made, no cause of action accrues.
· The call can be for the total or partial unpaid subscription or it can be for
Notice of the sale, with a copy of the resolution, shall be sent to every delinquent
installment basis. Nonetheless, it presupposes that there is no agreement as to the
stockholder either personally, by registered mail, or through other means
time of payment in the subscription contract.
· It must be made uniformly to ALL subscribers (no singling out!) provided in the bylaws. The same shall be published once a week for two (2)
consecutive weeks in a newspaper of general circulation in the province or city
When is a call not necessary? where the principal office of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on or before the date
1. When date of payment is specified in the subscription agreement
2. When the corporation becomes insolvent
subscription, plus accrued interest, costs of advertisement and expenses of sale,
Set-Off is not allowed or unless the board of directors otherwise orders, said delinquent stock shall be
· sold at a public auction to such bidder who shall offer to pay the full amount of
the balance on the subscription together with accrued interest, costs of
unpaid subscription of shares.
· No set off is allowed if there is no notice or call for the payment of unpaid advertisement and expenses of sale, for the smallest number of shares or fraction
subscription of a share. The stock so purchased shall be transferred to such purchaser in the
· A stockholders indebtedness to a corporation for unpaid subscriptions cannot be books of the corporation and a certificate for such stock shall be issued in the
compensated with the amount of his shares in the corporation. This rule against non- s, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance of a
application applies even if the shares are delinquent because the rule is that stock
dividends are only withheld. certificate of stock covering such shares.
When the shares are delinquent Should there be no bidder at the public auction who offers to pay the full amount
· Under Section 66, If no payment is made within thirty (30) days from the said of the balance on the subscription together with accrued interest, costs of
advertisement, and expenses of sale, for the smallest number of shares or fraction
date, all stocks covered by the subscription shall thereupon become delinquent and
shall be subject to sale as hereinafter provided. of a share, the corporation may, subject to the provisions of this Code, bid for the
· same, and the total amount due shall be credited as fully paid in the books of the
the removal of the delinquent status of unpaid subscription. Hence, the delinquent corporation. Title to all the shares of stock covered by the subscription shall be
vested in the corporation as treasury shares and may be disposed of by said
remains unless there is an order from the board.
corporation in accordance with the provisions of this Code.
Problems
Q: Jon Snow was employed in the Iron Bank Co. He subscribed to 100 shares costing 100
each, for a total of P10,000. He made an initial payment of P5,000. He was appointed as SEC. 68. When Sale may be Questioned. No action to recover delinquent stock
president thereafter but because of his disagreement with Dany and the other BOD, he sold can be sustained upon the ground of irregularity or defect in the notice of
resigned and demanded payment of his salaries, cost of living allowance, etc. The Iron sale, or in the sale itself of the delinquent stock, unless the party seeking to
Bank acknowledged that it owed Jon P4,000 worth of salaries, etc. but told him that this maintain such action first pays or tenders to the party holding the stock the sum
will be applied to the unpaid subscription of Jon. No call or notice was made. May the Iron for which the same was sold, with interest from the date of sale
at the legal rate. No such action shall be maintained unless a complaint is filed
same if there is a call? within six (6) months from the date of sale.
A: No. The Iron bank cannot set-

without a call. This is necessary to make the unpaid subscription due and demandable. The SEC. 69. Court Action to Recover Unpaid
answer would be reversed if there had been a call for the unpaid subscription. The reason Subscription. Nothing in this Code shall prevent the corporation from collecting
is that Jon is entitled to his payment of his salaries. Labor laws will be violated if the salary through court action, the amount due on any unpaid subscription, with accrued
will be withheld for the payment of the unpaid subscription. interest, costs and expenses.

lOMoARcPSD|31111392
Available Remedies
· the first remedy consists in permitting the corporation to put up the unpaid
SEC. 70. Effect of Delinquency. No delinquent stock shall be voted for, be entitled
shares for sale and dispose it in a delinquency sale for the account of the delinquent
meeting, nor shall the holder
subscriber.
thereof be entitled to any of the rights of a stockholder except the right to
·
dividends in accordance with the provisions of this Code, until and unless
stock is merely a remedy in addition to that which proceeds by action in court. it has
payment is made by the holder of such delinquent stock for the amount due on
been held that the original remedy exists even though no express mention thereof is
the subscription with accrued interest, and the costs and expenses of
made in the statute.
advertisement, if any.
Delinquency Sale
· The steps that must be strictly complied with in a delinquency sale may be Unavailable Rights of Delinquents
outlined in the following manner: · Not entitled to right of the stock holder
1. Resolution order by the board to sell the delinquent stock · He cannot vote and not entitled to representation in the meetings
2. Notice Notice and resolution of said sale shall be sent to all · He cannot be elected as a director
delinquent Stockholders · The only exception is the right to dividends. Nonetheless, if cash dividends are
3. Publication for once a week for 2 consecutive weeks in a declared, the dividends shall be applied to the subscription price that is due to the
newspaper of general circulation in the province or city corporation
where the principal office is located · He is not included in determination of Quorum
4. Sale sold at public auction to be held not less than 30 days · He is not entitled to assign his rights
nor more than 60 days from date the stocks became
delinquent Problem
5. Transfer of the stock to the purchaser in the books of the Q: the BOD of a corporation, by a vote of 10 in favor and 1 against (delinquent SH who is
corporation. A certificate of stock shall also be made also a director), declared due and demandable all unpaid subscription to the capital stock
6. Credit of remainder the remaining shares if any shall be on the 19th of September. On the 23rd of September, he was informed by the BOD that
credited to the delinquent stockholder. unless due payment is made, he could no longer serve as a director of the corporation and
· Contents of the resolution would not be entitled to cash and stock dividends and his power to vote in the meetings
o Amount due on subscription will also be removed. He was not allowed to vote in the meeting conducted in the 25 th of
o Accrued interest September. Was the action of the BOD correct?
o Date, time and place of sale
· Who is a winning bidder? A: No. the period of 30 days within which the delinquent SH can pay unpaid subscription
o One who has offered to pay the full amount of the subscription plus has not yet expired.
the interests, costs of advertisement and the expenses of sale for
the smallest number of shares or fraction of shares
SEC. 71. Rights of Unpaid Shares, Non-delinquent.
Holders of subscribed shares not fully paid which are not delinquent shall have
Cancellation of sale
all the rights of a stockholder.
· Delinquent SH may actually stop the delinquent sale if he pays to the corporation
the amount of the delinquent stock before the set date of the sale. This is automatic
stoppage of the sale.
· Nonetheless, the sale may also be stayed upon the order of the BOD. Accrual of Rights of Shareholders
· A subscriber becomes a shareholder from the moment the certificate of
Action to Recover incorporation is issued (pre-incorporation subscriber)
· Made by the delinquent SH · For post-incorporation subscribers, he becomes a shareholder from the
· The following requirements must be complied with: perfection of the subscription contract. It is not important that the subscription price
1. Action is filed on the ground of irregularity in the notice of sale or in the has been fully paid.
sale itself · A right not available if shares are not fully paid is the right to secure a stock
2. Party seeking to recover must pay or tender payment with interest certificate or to have a subsequent transfer of shares be recorded in the books of the
from the date of sale at the legal rate corporation
3. Complaint is filed within six months from the date of sale
Basic Rights

lOMoARcPSD|31111392
· A shareholder has interest over the management, income and assets of a · Nobody is allowed to file the same derivative suit twice, resulting in the violation
corporation. of the rules against multiplicity of suits and even against forum shopping.
· The shareholder has the following right even if he has not yet fully paid his shares · Although the fifth requisite is not included in the Interim Rules, it is a settled
o Voting rights jurisprudence that the action brought by the stockholders must be in the name of the
o Right to remove directors corporation. It is a condition sine qua non that the corporation is impleaded and made
o Dividends party to the case.
o Appraisal · A derivative suit is proper when the action is based on the devices and schemes
o Issuance of stock certificate for fully paid shares employed by the Board of Directors that amounts to mismanagement,
o Proportionate participation in the distribution of assets in misrepresentation, fraud and bad faith.
liquidation
o Right to transfer of stocks in corporate books Exhaustion of Intra-Corporate Remedies
· In order that a stockholder may sue on behalf of the corporation, he must allege
o Pre-emptive right
with some particularity in his complaint that he has exhausted his remedies within
o Inspect books and records
the corporation by making a sufficient demand upon the directors or other officers
o Right to be furnished the most recent financial statement / financial for appropriate relief with the expressed intent to sue if relief is denied,
report · Where the corporation is under the complete control of the directors who are
o Right to recover stocks unlawfully sold for delinquent payment of the alleged wrongdoers, there is no necessity of making a demand upon the directors.
subscription A demand upon the board to institute an action and prosecute the same effectively
o To file individual suit, representative suit and derivative suits would have been useless and an exercise in futility.
· The following are the obligations of a stockholder:
o Liability to the corporation for unpaid subscriptions Individual Actions
o Liability to the corporation for interest on unpaid subscription · Actions brought by the shareholder in his own name against the corporation
o Liability for watered stock when a wrong is directly inflicted against him personally and to determine his
o Liability for dividends unlawfully paid individual right. the cause of action pertains to the shareholder and the action is
meant directly to protect his interest.
Right to file an action · An example of when a SH can bring an individual action is when he is denied
· A shareholder has the right to file for 3 types of actions: access to corporate books or if there is denial of dividends to a stockholder.
o Derivative actions
o Individual actions Representative Actions
o Representative actions · Actions brought by the stockholder in behalf of himself and all other
stockholders similarly situated when a wrong is committed against a group of
Derivative Actions stockholders.
· Suits brought by one or more stockholders/members in the name and on behalf · Where the wrong is done to a group of stockholders, as where the preferred
of the corporation to redress wrongs committed against it or to protect or vindicate lass or representative suit will be proper for the
corporate rights. protection of all shareholders belonging to the same group.
· Derivative actions are not expressly provided for in the corporation code
although the same is implicit from the rights of shareholders. Problems
· in this case, the shareholder is merely a nominal party and the corporation is the Q: Tito Bhoy subscribed to 10 shares of stock in The Bhuzz Corporation. He paid 25% of
real party in interest. said subscription. Can he vote all her subscribed shares?
· Requisites for a valid derivative suit A: Yes. Full payment of subscription is not required to make one a stockholder. He is
1. He was a stockholder or member at the time the acts or transactions entitled to all the rights of a stockholder upon the perfection of the subscription
subject of the action occurred and the time the action was filed agreement.
2. He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under Q: Krizy became a stockholder of The Bhuzz Coroporation on July 10, 1991 when he was
the AOI, by-laws or laws and rules governing corporation or given one share by another shareholder to qualify her as a director. She was not re-elected
partnership to obtain the relief he desires as a director in 1992 but continued to be a registered stockholder of the corporation. When
3. No appraisal rights are available for the acts or acts complained of she was stil la director, she discovered that on January 10, 1991, the corporation issued
4. The suit is not a nuisance or harassment suit free of change 10,000 shares to Tito Bhoy, a lawyer who assisted in a court case involving
5. The action is filed in the name of the corporation the corporation.

lOMoARcPSD|31111392
1. Q1: Can Krizy bring a derivative suit?

Except in case of fraud, bad faith, or negligence on the part of the corporation and
2. Q2: Can Tito Bhoy question the right of Krizy to sue him in behalf of the
its officers, no action may be brought against any corporation which shall have
corporation on the ground that she has only have one share under her name
issued certificate of stock in lieu of those lost, stolen or destroyed pursuant to the
3. Can shares issued to tito Bhoy be considered as a watered stock?
procedure above-described.
A1: No. to institute a derivative suit, it is important that the petitioner is a SH at the time
of the transaction. Rationale
A2: No. the right to file a derivative suit pertains to all shareholders. even a shareholder · This provision is designed to protect not only the real owner but the corporation
owning one share is entitled to such right. as well.
A3: No. watered stocks are those sold by the corporation for less that the par or book · The real owner is protected against improvident issuance of another certificate
value. In this case, there must be proof that the value of the services rendered by Bhoy is and at the same time, the provision gives a shield to the corporation and its officers
less than the total par value of the shares. to prevent them from being made liable.
· Except in cases of fraud, bad faith or negligence on part of the corporation and
SEC. 72. Lost or Destroyed Certificates. The following procedure shall be its officers, no action may be brought against any corporation.
followed by a corporation in issuing new certificates of stock in lieu of those
When Applicable
which have been lost, stolen
or destroyed: · This section only applies only if the certificates are lost, stolen or destroyed.
· If the certificate is only worn out, it will not apply and it is up to the corporation
(a) The registered owner of a certificate of stock in a corporation or such
to decide if it will replace the certificates.
triplicate setting forth, if possible, the circumstances as to how the certificate · It is also not applicable if the certificate was never issued to the shareholder
was lost, stolen or destroyed, the number of shares represented by such because it was not delivered by the corporation.
certificate, the serial number of the certificate and the name of the
Summary of Procedure
corporation which issued the same. The owner of such certificate of stock
shall also submit such other information and evidence as may be deemed 1. Affidavit registered owner shall execute and file an affidavit regarding share
necessary; and the circumstances regarding its loss
(b) After verifying the affidavit and other information and evidence with the 2. Verification the corporation shall verify the affidavit and the evidence
books of the corporation, the corporation shall publish a notice in a presented
3. Publication publish in the newspaper of general circulation in the place where
newspaper of general circulation in the place where the corporation has its
principal office, once a week for three (3) consecutive weeks at the expense the office is located once a week for 3 consecutive weeks at the expense of the
of the registered owner of the certificate of stock which has been lost, stolen stockholder
or destroyed. The notice shall state the name of the corporation, the name of 4. One year waiting period from the date of the publication, a contest can be
interposed
the registered owner, the serial number of the certificate, the number of
shares represented by such certificate, and shall state that after the 5. Contest if a contest is presented, the issuance of the new stock certificate shall
expiration of one (1) year from the date of the last publication, if no contest be suspended until the final decision by the court regarding the ownership of the said
has been presented to the corporation regarding the certificate of stock, the stock certificate.
right to make such contest shall be barred and the corporation shall cancel 6. Replacement if there is no contest, then the corporation shall replace the said
certificate. The replacement of share can only be made before the expiration of the
the lost, destroyed or stolen certificate of stock in its books. In lieu thereof,
the corporation shall issue a new certificate of stock, unless the registered one year period if a bond is posted.
owner files a bond or other security as may be required, effective for a period
of one (1) year, for such amount and in such form and with such sureties as Contents of the notice
may be satisfactory to the board of directors, in which case a new certificate · Name of the corporation
· Name of the registered owner
may be issued even before the expiration of the one (1) year period provided
herein. If a contest has been presented to the corporation or if an action is · The serial number of the said certificate
pending in court regarding the ownership of the certificate of stock which · That after the expiration of one year from the date of last publication, if no
contest has been presented, the right to make such contest shall be bared and said
has been lost, stolen or destroyed, the issuance of the new certificate of stock
in lieu thereof shall be suspended until the court renders a final decision corporation shall cancel in its books the certificate of stock that is lost, stolen or
destroyed.
regarding the ownership of the certificate of stock which has been lost, stolen
or destroyed.

lOMoARcPSD|31111392
CASE DOCTRINES Where there is an inherent lack of power in the corporation to issue the stock,
Title VII: Stocks and Stockholders neither the corporation nor the person to whom the stock is issued is estopped
to question its validity since an estoppel cannot operate to create stock which
When insolvency supervenes, all unpaid subscriptions at once become at once under the law cannot have existence.
due and enforceable. For a valid transfer of stocks, there must be strict compliance with the mode
A corporation has no power to release an original subscriber to its capital of transfer prescribed by law. The requirements are:
stock from the obligation of paying for his shares, without a valuable There must be delivery of the stock certificate
consideration for such release; and as against creditors a reduction of the The certificate must be endorsed by the owner or his attorney-in-
capital stock can take place only in the manner an under the conditions fact or other persons legally authorized to make the transfer
prescribed by the statute or the charter or the articles of incorporation. To be valid against third parties, the transfer must be recorded in the
The subscription to the capital stock of a corporation, unless otherwise books of the corporation.
stipulated, is not payable at the moment of the subscription but on a Sec 63. contemplates no restriction as to whom the stocks may be transferred.
subsequent date which may be fixed by the corporation. Hence, section 38 of It does not suggest that any discrimination may be created by the corporation
the Corporation Law, amended by Act No. 3518, provides that: "The board of in favor of, or against a certain purchaser. The owner of shares, as owner of
directors or trustees of any stock corporation formed, organized, or existing personal property, is at liberty, under said section to dispose them in favor of
under this Act may at any time declare due and payable to the corporation whomever he pleases, without limitation in this respect, other than the
unpaid subscriptions to the capital stock. general provisions of law. The only limitation imposed by Section 63 of the
A subscription contract necessarily involves the corporation as one of the Corporation Code is when the corporation holds any unpaid claim against the
contracting parties since the subject matter of the transaction is property shares intended to be transferred.
owned by the corporation its shares of stock. Hence, civil case for rescission Where a transferee is not yet recognized as a stockholder, the
on the ground of breach of contract filed by the corporate officials in their corporation is under no specific legal duty to issue stock certificates in
personal capacities will not prosper.
Trust Fund Doctrine provides that subscriptions to the capital stock of a Clearly, the right of a transferee/assignee to have stocks transferred to his
corporation constitute a fund to which the creditors have a right to look for name is an inherent right owing from his ownership of the stocks. In
the satisfaction of their claims. It is the underlying principle in the transferring stock, the secretary of a corporation acts in purely ministerial
procedure for the distribution of capital assets, which allows the capacity, and does not try to decide the question of ownership. The duty of the
distribution of corporate capital only in three instances: corporation to transfer is a ministerial one and if it refuses to make such
amendment of the Articles of Incorporation to reduce the authorized transaction without good cause, it may be compelled to do so by mandamus.
capital stock;
purchase of redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings;
TITLE VIII
dissolution and eventual liquidation of the corporation.
Shares of stock so issued are personal property and may be transferred by CORPORATE BOOKS AND RECORDS
delivery of the certificate indorsed by the owner or his attorney in fact or other
person legally authorized to make the transfer. No transfer, however, shall be SEC. 73. Books to be Kept; Stock Transfer Agent.
valid, except as between the parties, until the transfer is entered and noted Every corporation shall keep and carefully preserve at its principal office all
upon the books of the corporation so as to show the names of the parties to information relating to the corporation including, but not limited to:
the transaction, that date of the transfer, the number of the certificate, and the (a) The articles of incorporation and bylaws of the corporation and all their
number of shares transferred. amendments;
The purpose of the notice requirement in Article 10 of the ETPI Articles of (b) The current ownership structure and voting rights of the corporation,
Incorporation is to give the stockholders knowledge of the intended sale of including lists of stockholders or members, group structures, intra-group
shares of stock of the corporation, in order that they may exercise their relations, ownership data, and beneficial ownership;
preemptive right. Where it is shown that a stockholder had actual (c) The names and addresses of all the members of the board of directors or
knowledge of the intended sale within the period prescribed to exercise trustees and the executive officers;
the right, the notice requirement had been sufficiently met, which is (d) A record of all business transactions;
what happened in this case when PCGG found out about the sale as early (e) A record of the resolutions of the board of directors or trustees and of
the stockholders or members;
Stock issued without authority and in violation of law is void and confers no
rights on the person to whom it is issued and subjects him to no liabilities.

lOMoARcPSD|31111392
(f) Copies of the latest reportorial requirements submitted to the director, officer, controlling stockholder or otherwise represents the interests of
Commission; and a competitor.
(g) The minutes of all meetings of stockholders or members, or of the board
of directors or trustees. Such minutes shall set forth in detail, among others: If the corporation denies or does not act on a demand for inspection and/or
the time and place of the meeting held, how it was authorized, the notice reproduction, the aggrieved party may report such denial or inaction to the
given, the agenda therefor, whether the meeting was regular or special, its Commission. Within five (5) days from receipt of such report, the Commission
object if special, those present and absent, and every act done or ordered shall conduct a summary investigation and issue an order directing the
done at the meeting. Upon the demand of a director, trustee, stockholder or inspection or reproduction of the requested records.
member, the time when any director, trustee, stockholder or member
entered or left the meeting must be noted in the minutes; and on a similar Stock corporations must also keep a stock and transfer book, which shall contain
demand, the yeas and nays must be taken on any motion or proposition, and a record of all stocks in the names of the stockholders alphabetically arranged;
a record thereof carefully made. The protest of a director, trustee, the installments paid and unpaid on all stocks for which subscription has been
stockholder or member on any action or proposed action must be recorded made, and the date of payment of any installment; a statement of every alienation,
in full upon their demand. sale or transfer of stock made, the date thereof, by and to whom m ade; and such
other entries as the bylaws may prescribe. The stock and transfer book shall be
Corporate records, regardless of the form in which they are stored, shall be open kept in the principal office of the corporation or in the office of its stock transfer
to inspection by any director, trustee, stockholder or member of the corporation agent and shall be open for inspection by any director or stockholder of the
in person or by a representative at reasonable hours on business days, and a corporation at reasonable hours on business days.
demand in writing may be made by such director, trustee or stockholder at their
expense, for copies of such records or excerpts from said records. The inspecting A stock transfer agent or one engaged principally in the business of registering
or reproducing party shall remain bound by confidentiality rules under transfers of stocks in behalf of a stock corporation shall be allowed to operate in
prevailing laws, such as the rules on trade secrets or processes under Republic the Philippines upon securing a license from the Commission and the payment of
de of the a fee to be fixed by the Commission, which shall be renewable annually: Provided,
That a stock corporation is not precluded from performing or making transfers
of its own stocks, in which case all the rules and regulations imposed on stock
transfer agents, except the payment of a license fee herein provided, shall be
applicable: Provided, further, That the Commission may require stock
A requesting party who is not a stockholder or member of record, or is a corporations which transfer and/or trade stocks in secondary markets to have an
competitor, director, officer, controlling stockholder or otherwise represents the independent transfer agent.
interests of a competitor shall have no right to inspect or demand reproduction
of corporate records. Any stockholder who shall abuse the rights granted under
Mandatory
this section shall be penalized under Section 158 of this Code, without prejudice
· All rights under this section is mandatory because all those rights are just the
same underpinned by the same policy consideration of keeping public confidence in
the corporate vehicle through an assurance of transparency in the operations of the
ot
company.
Any officer or agent of the corporation who shall refuse to allow the inspection
Corporate Books
and/or reproduction of records in accordance with the provisions of this Code
1. etings
shall be liable to such director, stockholder or member for damages, and in
2. Book of minutes of board meetings
addition, shall be guilty of an offense which shall be punishable under Section 161
3. Record or book of all business transactions
of this Code: Provided, That if such refusal is made pursuant to a resolution or
4. Stock and transfer book
order of the board of directors or trustees, the liability under this section for such
action shall be imposed upon the directors or trustees who voted for such refusal:
Book of Minutes
Provided, further, That it shall be a defense to any action under this section that
The book of minutes shall contain the following:
the person demanding to examine and copy excerpts from the corp
1. Date and time of meeting
records and minutes has improperly used any information secured through any
2. Place of holding the meeting
prior examination of the records or minutes of such corporation or of any other
3. How meeting was authorized
corporation, or was not acting in good faith or for a legitimate purpose in making
4. The fact that notice was given
the demand to examine or reproduce corporate records, or is a competitor,
5. Whether the meeting is special or regular

lOMoARcPSD|31111392
6. If special meeting, the objective must be stated o To ascertain the financial condition of the company or propriety of
7. The present and absent stockholders dividends
8. Every act done at the meeting o The value of the. Shares o stock for sale or investment
o Whether there has been mismanagement
· Minutes need not be word for word o In anticipation of shareholders meetings to obtain a mailing list of
· Nonetheless, it shall contain the time when the director, stockholder or trustee shareholders to solicit proxies or influence voting.
left the meeting, the yeas and the naes, the protest of any of the attendees. o To obtain information in aid of litigation.
· While the minutes can be signed by the directors upon their approval thereof, · The following are held to be improper purposes:
such signature is not necessary. The mere certification of the corporate secretary o Obtaining information as to business secrets to aid a competitor
gives the minutes probative value. o To secure business prospects or investment or advertising lists
o To find technical defects in corporate transactions in order to bring
Stock and Transfer book
The STB shall contain the following:
· The right to inspect may be exercised by the stockholder himself or he may ask
1. All stocks in the name of the stockholders
for the assistance of an accountant or lawyer who may be appointed as his
2. Amount paid and unpaid on all stocks and the date of payment of any installment
representative.
3. Alienation, sale and transfer of stocks
· The remedy if the stockholder is being improperly deprived of his right to inspect
4. Other entries which the by-laws shall provide
is to file a complaint under rule 7 of the Interim Rule of Intra-Corporate
Controversies. Hence, the complaint must state the following under section 2 thereof:
· The details above are for the protection of the SHs so that the books may be open
o
to examination to aid the state in exercising its visitorial powers.
· Only the corporate secretary is authorized to make entries on the STB. All other corporate orders or records
entries by other officers are invalid o A demand for inspection and copying of books and records and/or
· The STB is the best evidence of the transactions that must be entered or stated to be furnished with financial statements made by the plaintiff
therein. However, the entries are considered as prima facie evidence only and may upon the defendant
be subject to proof to the contrary. o The refusal of the defendant to grant the demands of the plaintiff
· As between the AOI and the STB, the articles of incorporation will prevail. and the reasons given for such refusal
· The STB is also admissible as evidence to prove fraud in corporate acts, to o The reasons why the refusal of defendant to grant the demands of
ascertain the financial status of the company. It is also the best evidence of corporate the plaintiff is unjustified and illegal, stating the law and
acts and proceedings. jurisprudence in support thereof.
· Note that in the old civil code, unlawful denial imposes a criminal liability
Loss of the STB under section 144. Now, only a fine is imposed under section 164 of the RCC.
· When the original STB has been lost or destroyed, secondary or extrinsic evidence The punishment of imprisonment has been removed.
may be introduced to reconstitute its contents
· However, the new stock and transfer book should be presented to the SEC for Requisites for the exercise of the right to inspect
registration, accompanied by a sworn statement executed by any responsible officer 1. It must be exercised at reasonable hours on business days
setting forth the circumstances attending such loss 2. The stockholder has not improperly used any information he secured through
any previous examination
The right of a SH to inspect the STB 3. The demand is made in good faith and for a legitimate purpose
· It is a right that is personal to each stockholder. Hence it can be granted only upon
the demand of the stockholder.
· The corporation code grants the right to inspect to all stockholders and in doing
so has not required any specific amount of interest for the exercise of the right to
inspect.
· The right to inspection is based upon his interest over the assets and properties
of the corporation. It is an incident of such interest though the interest is merely
inchoate in character.
· The SC said that the right is also predicated upon the necessity of self-protection
·
proper and lawful in character and not inimical to the interest of the corporation.
· Among the purposes held to justify a demand for inspection are the following:

lOMoARcPSD|31111392
SEC. 74. Right to Financial Statements. A corporation shall furnish a stockholder that the records and minutes of a corporation are not conclusive even against
or member, within ten (10) days from receipt of their written request, its most the corporation but are prima facie evidence only. thus, parol evidence may
recent financial statement, in the form and substance of the financial reporting be admitted to supply omissions in the records or explain ambiguities, or to
required by the Commission. contradict such records.
While it may be true that petitioners were named as shareholders in the
At the regular meeting of stockholders or members, the board of directors or General Information Sheet submitted to the SEC, that document alone does
trustees shall present to such stockholders or members a financial report of the not conclusively prove that they are shareholders of PFSC. The information in
operations of the corporation for the preceding year, which shall include the document will still have to be correlated with the corporate books of PFSC.
financial statements, duly signed and certified in accordance with this Code, and In order that the rule above stated may not be taken in too sweeping a sense,
the rules the Commission may prescribe. we deem it advisable to say that there are some things which a corporation
may undoubtedly keep secret, notwithstanding the right of inspection given
However, if the total assets or total liabilities of the corporation are less than Six by law to the stockholder; as for instance, where a corporation, engaged in the
hundred thousand pesos (P600,000.00), or such other amount as may be business of manufacture, has acquired a formula or process, not generally
determined appropriate by the Department of Finance, the financial statements known, which has proved of utility to it in the manufacture of its products.
may be certified under oath by the treasurer and the president. All transfers NOT recorded in the STB is non-existent. As between the
corporation, shareholders, and third parties, the corporation looks only to its
books for the purpose of determining who the shareholders are.
Right to financial statements
Upon the death of a shareholder, the heirs do not automatically become
· The stockholder or member is also entitled to the financial statements of the stockholders of the corporation and acquire the rights and privileges of the
corporation. deceased as shareholder of the corporation. The stocks must be distributed
· The same must be furnished within 10 days from the receipt of a written request. first to the heirs in estate proceedings, and the transfer of the stocks must be
recorded in the books of the corporation. Until a settlement and division of the
Problems
estate is effected, the stocks of the decedent are held by the administrator or
Q: X owns shares in in ABC Company and he filed a suit against B for alleged breach of executor.
contract. X secures a favorable judgement, but B failed to satisfy the same. A received a top The defense of improper use or motive is in the nature of a justifying
that B has a big-time deposit in Bank MNO. A goes to the bank and demands the right to circumstance that would exonerate those who raise and are able to prove the
inspect the records of the bank. Is A entitled to look at those records? same. The following elements must be present for the exercise of the right to
A: No. the sto
inspect: corporate books:
under the Secrecy of Bank Deposits Law.
records or minutes;
Q: Any officer or agent refuse to allow the said director, trustee,
subsidiary which is a foreign subsidiary. Can Tyrion i
stockholder or member;
books? What are the limitations to inspect? If such refusal is made pursuant to a resolution the liability shall be
A: Yes, Tyrion can demand the inspection. The right of a stockholder to inspect the books imposed upon the directors or trustees who voted for such refusal;
and records of a corporation extends to a subsidiary wholly owned by the corporation. It and,
is in consonance with equity, good faith and fair dealing. The right must only be exercised Where the officer or agent of the corporation sets up the defense that
during reasonable hours on business days, when the stockholder has not improperly used
the person has improperly used any information secured or was not
any information he secured through a previous examination and when the demand is acting in good faith or for a legitimate purpose in making his
made in good faith and for a legitimate purpose. demand, the contrary must be shown or proved.
Title IX
CASE DOCTRINES Merger and Consolidation
TITLE VIII: Corporate Books and Records
A stock and transfer book, like other corporate books and records, is not in SEC. 75. Plan of Merger or Consolidation. Two (2) or more corporations may
any sense a public record, and this is not exclusive evidence of the matters and merge into a single corporation which shall be one of the constituent
things which ordinarily are or should be written therein. It is generally held corporations or may consolidate into a new single corporation which shall be the

lOMoARcPSD|31111392
consolidated corporation. Loss of separate existence by the absorbed No loss of separate existence
The board of directors or trustees of each corporation, party to the merger or corp (in mergers) or the constituent
consolidation, shall approve a plan of merger or consolidation setting forth the corporations (in consolidation)
following:
(a) The names of the corporations proposing to merge or consolidate, hereinafter
referred to as the constituent corporations; Combination
(b) The terms of the merger or consolidation and the mode of carrying the same - An alliance or confederation or sale or other transaction between two or more
corporations
into effect;
(c) A statement of the changes, if any, in the articles of incorporation of the - Includes execution of a voting trust agreement, formation of a holding company,
or transfer of assets
surviving corporation in case of merger; and, in case of consolidation, all the
statements required to be set forth in the articles of incorporation for - Combination, in a broad sense, INCLUDES merger and consolidation
corporations organized under this Code; and - A partnership can enter into a combination with a corporation, but a partnership
cannot merge or consolidate with a corporation
(d) Such other provisions with respect to the proposed merger or consolidation
as are deemed necessary or desirable. - WHY? Because Sec. 75 expressly states two or more corporations
may merge or consolidate
Concept of Merger and Consolidation

- Merger or Consolidation does not become effective by mere agreement of the Upon approval by a majority vote
of each of the board of directors or trustees of the constituent corporations of the
constituent corporations
- In the PH, the approval of the SEC is required plan of merger or consolidation, the same shall be submitted for approval by the
- The merger/consolidation becomes effective upon the issuance of a stockholders or members of each of such corporations at separate corporate
meetings duly called for the purpose. Notice of such meetings shall be given to all
certificate of merger or consolidation
stockholders or members of the respective corporations in the same manner as
giving notice of regular or special meetings under Section 49 of this Code. The
MERGER CONSOLIDATION notice shall state the purpose of the meeting and include a copy or a summary of
the plan of merger or consolidation.
Corporation ABSORBS another A NEW corporation is created, and
corporation and REMAINS IN EXISTENCE consolidating corporations are The affirmative vote of stockholders representing at least two-thirds (2/3) of the
while the other is DISSOLVED EXTINGUISHED. outstanding capital stock of each corporation in the case of stock corporations or
at least two- thirds (2/3) of the members in the case of non- stock corporations
shall be necessary for the approval of such plan. Any dissenting stockholder may
Triangular Merger exercise the right of appraisal in accordance with this Code: Provided, That if
- Purchasing corp creates a subsidiary corp and transfers to the subsidiary shares after the approval by the stockholders of such plan, the board of directors decides
in the parent company that will be used for the share exchange that will be to abandon the plan, the right of appraisal shall be extinguished.
provided in the merger plan.
- The actual merger is NOT between the Purchasing corp and the target corp, but Any amendment to the plan of merger or consolidation may be made: Provided,
between the subsidiary and the target corporation. That such amendment is approved by a majority vote of the respective boards of
directors or trustees of all the constituent corporations and ratified by the
Rationale for Mergers or Consolidations affirmative vote of stockholders representing at least two-thirds (2/3) of the
1. Economies of Scale outstanding capital stock or of two-thirds (2/3) of the members of each of the
a. A combination of two production units enlarges the production output constituent corporations. Such plan, together with any amendment, shall be
over which the fixed cost of production is spread and thereby reducing considered as the agreement of merger or consolidation.
the average fixed cost per unit of the output
2. Economies of Scope
a. The costs are spread across a broader range of related activities CHANGES:
3. Costs are reduced through vertical integration Clarification that manner of notice is similar to manner laid down under Section
a. Merger with a supplier or a customer 49 (for regular or special meeting)
Article Breakdown:
Merger/Consolidation Transfer of Property Plan of Merger or Consolidation

lOMoARcPSD|31111392
- Approved by MAJORITY of Board of each constituent corporation

Code or existing laws, it shall set a hearing to give the corporations concerned the
-
opportunity to be heard. Written notice of the date, time, and place of hearing
called for the purpose
shall be given to each constituent corporation at least two (2) weeks before said
- Notice is NECESSARY (In accordance with Sec 49):
hearing. The Commission shall thereafter proceed as provided in this Code.
- Purpose of the meeting
- Copy or summary of the plan of merger or consolidation shall
be attached CHANGES:
- Right of appraisal may be exercised by any dissenting stockholder
- Right is extinguished if plan is abandoned by Board provided by the provision
- Amendment may be made PROVIDED that required votes are acquired
- Plan + Any Amendment = Agreement of Merger or Consolidation Outline of Procedure
1. Board of constituent corporations draw up a plan of merger or consolidation
2. Plan is approved by the majority vote of the board of the constituent
SEC. 77. Articles of Merger or Consolidation. After the approval by the
stockholders or members as required by the preceding section, articles of merger corporations
or articles of consolidation shall be executed by each of the constituent 3.
4. Articles of Merger or Consolidation shall be executed by constituent
corporations, to be signed by the president or vice-president and certified by the
secretary or assistant secretary of each corporation setting forth: corporations
a. Signed by President/Vice President
(a) The plan of the merger or the plan of consolidation;
(b) As to stock corporations, the number of shares outstanding, or in the case of b. Certified by Secretary or Asst. Secretary
non-stock corporations, the number of members; 5. A copy of the Articles of Merger/Consolidation submitted to SEC for approval
(c) As to each corporation, the number of shares or members voting for or against a. Attach favorable recommendation of pertinent government agency if
such plan, respectively; necessary
6. SEC issues a certificate of merger or consolidation if it is satisfied that the
(d) The carrying amounts and fair values of the assets and liabilities of the
corporations is not inconsistent with the Corp Code provisions
respective companies as of the agreed cut-off date;
a. If upon investigation, SEC has reason to believe otherwise, it shall set a
(e) The method to be used in the merger or consolidation of accounts of the
hearing
companies;
b. Written notice shall be given at least 2 weeks before the hearing
(f) The provisional or pro-forma values, as merged or consolidated, using the
accounting method; and
(g) Such other information as may be prescribed by the Commission.
CHANGES:
(d) to (g) was added
SEC. 78. Effectivity of Merger or Consolidation. The articles of merger or of

consolidation, signed and certified as required by this Code, shall be submitted to
the Commission for its approval: Provided, That in the case of merger or
consolidation of banks or banking institutions, loan associations, trust
companies, insurance companies, public utilities, educational institutions, and
other special corporations governed by special laws, the favorable
recommendation of the appropriate government agency shall first be obtained. If
the Commission is satisfied that the merger or consolidation of the corporations
concerned is consistent with the provisions of this Code and existing laws, it shall
issue a certificate approving the articles and plan of merger or of consolidation,
at which time the merger or consolidation shall be effective.
If, upon investigation, the Commission has reason to believe that the proposed
merger or consolidation is contrary to or inconsistent with the provisions of this

lOMoARcPSD|31111392
- Reorganization involving at least two corporations which has the effect of

Majorit merger or consolidation and which entitles the dissenting stockholders to an
DRA appraisal right
y vote of SH
W up - (essentially a merger in all but its name and without the formalities)
of or
plan - SCENARIO:
BOAR MEMS - A transaction ensues between two corporations. The transaction has
the effect of dissolving one corporation, the assumption of liabilities by
the surviving corp, executives and directors of surviving corp takes over
ARTICLE EXECUTI the management, and the shareholders acquire a majority of the shares
S ON of of the survivor
- The transaction is not a mere purchase of shares, but it amounts to a
submitted ARTICLES
merger.
to SEC
- De-Facto Merger when one corp acquires all or substantially all of the property
of one corporation in an exchange of shares
- No De-Facto Merger where there was merely a sale with assumption of
ISSUANCE of HEARING if
cert if NECESSARY - In cases where the transaction amounts to a de facto merger, liability was
imposed under the doctrine of piercing of the corporate veil
Send NOTICE SEC. 79. Effects of Merger or Consolidation. The merger or consolidation shall
have the following effects:
(a) The constituent corporations shall become a single corporation which, in case
***Note: The plan may still be amended before it is filed with the SEC
of merger, shall be the surviving corporation designated in the plan of merger;
Must still be approved by
and, in case of consolidation, shall be the consolidated corporation designated in
OCS/mems
the plan of consolidation;
(b) The separate existence of the constituent corporations shall cease, except that
Effect of Philippine Competition Act
of the surviving or the consolidated corporation;
- Section 20 provides:
(c) The surviving or the consolidated corporation shall possess all the rights,
Merger or acquisition agreements that substantially prevent, restrict, or lessen
privileges, immunities, and powers and shall be subject to all the duties and
competition in the relevant market or in the market for goods or services as may
liabilities of a corporation organized under this Code;
(d) The surviving or the consolidated corporation shall possess all the rights,
- Applies to HORIZONTAL (merger of competitors) and VERTICAL (merger of
privileges, immunities and franchises of each constituent corporation; and all
client and customer)
real or personal property, all receivables due on whatever account, including
subscriptions to shares and other choses in action, and every other interest of,
Religious Corporations
belonging to, or due to each constituent corporation, shall be deemed transferred
- May merge with another religious corporation
to and vested in such surviving or consolidated corporation without further act
- May involve a religious corporation and a corporation sole
or deed; and
- HOWEVER, constituent corporation must belong to the same religious
(e) The surviving or consolidated corporation shall be responsible for all the
denomination
liabilities and obligations of each constituent corporation as though such
surviving or consolidated corporation had itself incurred such liabilities or
Reorganization
obligations; and any pending claim, action or proceeding brought by or against
- Merger and Consolidation are included in the forms of corporate reorganization
any constituent corporation may be prosecuted by or against the surviving or
resorted to by financially weak corporations
consolidated corporation. The rights of creditors or liens upon the property of
such constituent corporations shall not be impaired by the merger or
Quasi-Reorganization
consolidation.
- An accounting procedure or principle where:
a. Reappraisal surplus is used to wipe out deficit
b. AoI is amended to reduce capital stock Effects of a Merger/Consolidation
- Reduction is used to wipe out deficit 1. Constituent corporations become a single corporation
De-Facto Merger and Consolidation a. Merger: surviving corporation

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b. Consolidation: consolidated corporation under the plan of

consolidation (THE NEW CORP!) Q3: A case is filed against a customer to collect on the P/N issued by him AFTER the date
2. Separate existence of constituent corporations cease EXCEPT that of the of the merger agreement. Customer raised the defense that while the receivables as of the
surviving or consolidated corporation date of the merger agreement were transferred to the SC, the receivables created AFTER
3. Surviving or consolidated corporation possesses the rights privileges the merger agreement remained to be owned by the AC. Receivables would be distributed
immunities; and powers and is subject to all duties and liabilities of a corporation to the stockholders in accordance with RCC procedures on liquidation and dissolution
organized under this Code A: ARGUMENT NOT MERITORIOUS. The receivables pertain to the SC, regardless of when
4. ALL of the following are deemed transferred to and vested in such surviving or it was incurred.. No distinction as to the assets and liabilities of the AC that the SC would
consolidated corporation: (BY OPERATION OF LAW) inherit.
a. Rights
b. Privileges
c. Immunities
CASE DOCTRINES
d. Franchises of each constituent corporation
TITLE IX: Merger and Consolidation
e. Real or personal property,
f. Receivables due on whatever account (hence surviving/consolidated
The merger shall only be effective upon the issuance of a certificate of merger
corp has the power to file an action for recovery) including:
by the SEC.
i. subscriptions to shares and other choses in action
The issuance of the certificate of merger is crucial because not only
ii. and every other interest of, belonging to, or due to each
constituent corporation
the consequences of a merger take place. By operation of law, upon
5. Regarding liabilities and pending claims:
the effectivity of the merger, the absorbed corporation ceases to
a. Liabilities and obligations of each constituent corporation:
exist but its rights and properties, as well as liabilities, shall be taken
i. Surviving or consolidated corporation shall be responsible
and deemed transferred to and vested in the surviving corporation.
b. Pending claim, action or proceeding brought by or against any
The same rule applies to consolidation.
constituent corporation
Merger is legally distinct from a sale of assets. Where one corporation
i. may be prosecuted by or against the surviving or
(transferor) sells or otherwise transfers all its assets to another corporation
consolidated corporation.
(transferee) for value, the transferee is not, by that fact alone, liable for the
c. The rights of creditors or liens upon the property of such constituent
debts and liabilities of the transferor.
corporations are not impaired
As a rule, a corporation that purchases the assets of another will not be liable
for the debts of the selling corporation, provided the former acted in good
Effect on Employees
faith and paid adequate consideration for such assets, except when any of the
- The surviving/consolidated corporation assumes the employees of the dissolved
following circumstances is present:
corporation/constituent corporations
where the purchaser expressly or impliedly agrees to assume the
- The tenure should be treated as having started when they started with the
debts;
dissolved/constituent corporation
where the transaction amounts to a consolidation or merger of the
- Surviving/consolidated corporation still has the right to terminate for a lawful
corporations
or authorized cause
where the purchasing corporation is merely a continuation of the
- Employees have the right to retire or resign
selling corporation; and
where the selling corporation fraudulently enters into the
PROBLEMS:
transaction to escape liability for those debts.
Two corporations agreed to merge. They executed an agreement specifying that the
The terms of merger between two corporations, when determinative of their
surviving corporation (SC) and the absorbed corporation (AC). Under the agreement, SC
joint or respective liabilities towards third parties, cannot be assumed. The
acquires ALL the rights, properties, and liabilities of AC.
party alleging the corporations' joint liabilities should establish the
allegation. Otherwise, the liabilities of each of them shall be separate. (TLDR;
Q1: What happens to the AC? Must AC undertake dissolution and winding up procedures?
MERGERS ARE NEVER ASSUMED!)
A: NO. Not necessary. Once merger is approved by SEC, the AC is AUTOMATICALLY
Documentary Stamp Tax does not apply to a merger because mergers do not
DISSOLVED. Assets and liabilities are acquired by SC.
involve a sale or purchase transaction.
Q2: Pending approval, may the SC already institute suits to collect all receivables due to
the AC?
A: NO. Approval of the SEC is the operative fact that makes the merger effective

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Title X - Remedy of the stockholder in case appraisal right is not allowed is to transfer
Appraisal Right his share as provided for under the Code
SEC. 80. When the Right of Appraisal May Be Exercised. Any stockholder of a SEC. 81. How Right is Exercised. The dissenting stockholder who votes against a
corporation shall have the right to dissent and demand payment of the fair value proposed corporate action may exercise the right of appraisal by making a
of the shares in the following instances: written demand on the corporation for the payment of the fair value of shares
(a) In case an amendment to the articles of incorporation has the effect of held within thirty (30) days from the date on which the vote was taken: Provided,
changing or restricting the rights of any stockholder or class of shares, or of That failure to make the demand within such period shall be deemed a waiver of
authorizing preferences in any respect superior to those of outstanding shares of the appraisal right. If the proposed corporate action is implemented, the
any class, or of extending or shortening the term of corporate existence; corporation shall pay the stockholder, upon surrender of the certificate or
(b) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition
of all or substantially all of the corporate property and assets as provided in this as of the day before the vote was taken, excluding any appreciation or
Code; depreciation in anticipation of such corporate action.
(c) In case of merger or consolidation; and
(d) In case of investment of corporate funds for any purpose other than the If, within sixty (60) days from the approval of the corporate action by the
primary purpose of the corporation. stockholders, the withdrawing stockholder and the corporation cannot agree on
the fair value of the shares, it shall be determined and appraised by three (3)
disinterested persons, one of whom shall be named by the stockholder, another
CHANGES: by the corporation, and the third by the two (2) thus chosen. The findings of the
Addition of (d), investment of corporate funds in another purpose majority of the appraisers shall be final, and their award shall be paid by the
corporation within thirty (30) days after such award is made: Provided, That no
Appraisal Right payment shall be made to any dissenting stockholder unless the corporation has
- The right of a shareholder to dissent and demand payment of the fair value of his
unrestricted retained earnings in its books to cover such payment: Provided,
shares in the instances provided for under the Corp Code: (ASMI) further, That upon payment by the corporation of the agreed or awarded price,
a. Amendment to the articles of incorporation: the stockholder shall forthwith transfer the shares to the corporation.
- changes/restricts the rights of any stockholder or class of
shares
- authorizes preferences in any respect superior to those of Conditions for Exercise
outstanding shares of any class, Enumeration of conditions for a valid exercise of the Right:
- extends/shortens corp term 1. Any of the instances set forth by law must be present
b. Sale, lease, exchange, transfer, mortgage, pledge or other disposition of 2. Dissenting stockholder must have voted against the proposed action
all or substantially all of the corporate property and assets 3. Demand for payment must be made by the dissenting stockholder within 30 days
c. Merger/consolidation from the date of the vote
d. Investment of corporate funds for any purpose other than the primary a. Failure to make such demands shall be deemed a waiver of the right
purpose of the corporation 4. Price of the shares must be based on the fair value as of the day prior to the
- Appraisal right is more extensive in Close Corporations date on which the vote was taken
- Sec 104 allows exercise of appraisal right for any reason PROVIDED 5. Submission by the withdrawing stockholder of his share certificates to the
that corporation has sufficient assets to cover its debts and liabilities, corporation for notation as dissenting shares within 10 days from written
exclusive of capital demand
6. Payment must be made only when the corporation has unrestricted retained
Rationale of the Right earnings to cover such
To provide stockholders a right to get out of the corporation even before its dissolution 7. Stockholder must transfer his shares to the corporation upon payment of the
because there has been a major change in his contract of investment with which he does latter
not agree and which the law presumes he did not foresee.
Remedy
Exclusivity of Grounds If corporation unjustifiably refuses to pay the dissenting stockholder:
- SEC opines that the list is exclusive - aggrieved stockholder may file the appropriate action before the RTC to
- No appraisal right in the absence of an express provision because there may be compel the corporation to allow him to exercise his appraisal right
a violation of the Trust Fund Doctrine

lOMoARcPSD|31111392
SEC. 82. Effect of Demand and Termination of Right. From the time of demand to pay the stockholder, in which case they shall be borne by the latter. In the case
of an action to recover such fair value, all costs and expenses shall be assessed
abandonment of the corporate action involved or the purchase of the said shares against the corporation, unless the refusal of the stockholder to receive payment
by the corporation, all rights accruing to such shares, including voting and was unjustified.
dividend rights, shall be suspended in accordance with the provisions of this
Code, except the right of such stockholder to receive payment of the fair value
thereof: Provided, That if the dissenting stockholder is not paid the value of the Costs
GR: Costs and expenses of appraisal shall be borne by the corporation
said shares within thirty (30) days after the award, the voting and dividend rights
shall immediately be restored. EX: Fair value ascertained by the appraisers is approximately the same as the price
which the corporation may have offered to pay the stockholder
- in which case they shall be borne by the latter.
Suspension of Rights GR: In the case of an action to recover such fair value, all costs and expenses shall be
Shareholder is still a shareholder even if he or she demanded payment of the fair value of assessed against the corporation
his shares in the exercise of his right EX: Refusal of the stockholder to receive payment was unjustified.
SEC. 83. When Right to Payment Ceases. No demand for payment under this Title SEC. 85. Notation on Certificates; Rights of Transferee. Within ten (10) days after
may be withdrawn unless the corporation consents thereto. If, however, such demanding payment for shares held, a dissenting stockholder shall submit the
demand for payment is withdrawn with the consent of the corporation, or if the certificates of stock representing the shares to the corporation for notation that
proposed corporate action is abandoned or rescinded by the corporation or such shares are dissenting shares. Failure to do so shall, at the option of the
disapproved by the Commission where such approval is necessary, or if the corporation, terminate the rights under this Title. If shares represented by the
Commission determines that such stockholder is not entitled to the appraisal certificates bearing such notation are transferred, and the certificates
right, then the right of the stockholder to be paid the fair value of the shares shall consequently cancelled, the rights of the transferor as a dissenting stockholder
cease, the status as the stockholder shall be restored, and all dividend under this Title shall cease and the transferee shall have all the rights of a regular
distributions which would have accrued on the shares shall be paid to the stockholder; and all dividend distributions which would have accrued on such
stockholder. shares shall be paid to the transferee.
Cases When Payment Should Not Be Made Dissenting stockholder shall submit the certificates of stock representing the
1. When demand is withdrawn with the consent of the corporation shares to the corporation for notation that such shares are dissenting shares
2. Proposed corporate action is abandoned or rescinded Within 10 days after demanding payment for shares held
3. Proposed corporate action is disapproved by the SEC when such approval is Failure to do so shall, at the option of the corporation, terminate the
necessary rights under this Title.
4. SEC determines that the stockholder is not entitled to the right If shares represented by the certificates bearing such notation are transferred,
5. Failure to make a demand within the 30-day period and the certificates consequently cancelled
6. Shares transferred by dissenting shareholder the rights of the transferor as a dissenting stockholder under this Title
7. Dissenting shareholder failed to submit stock certificate within 10 days from shall cease
demand transferee shall have all the rights of a regular stockholder
all dividend distributions which would have accrued on such shares
Unrestricted Retained Earnings shall be paid to the transferee
- This requirement is designed to protect creditors who may be prejudiced by the
withdrawal of the shareholder (RECALL TRUST FUND DOCTRINE) PROBLEMS:
- Complaint to recover fair value of shares will be dismissed upon motion for lack
of cause of action if the corporation does not have enough Unrestricted Q: AoI of X Corp provides that preferred shares shall earn cumulative dividends of 6% to
Retained Earnings 16%, as the Board may determine.. Can a shareholder exercise an appraisal right every
time the Board declares dividends and fixes the rate thereof within the limitations
provided for in the by-laws?
SEC. 84. Who Bears Costs of Appraisal. The costs and expenses of appraisal shall
A: NO. Appraisal right does not arise each time Board fixes the terms and conditions of
be borne by the corporation, unless the fair value ascertained by the appraisers
preferred shares.
is approximately the same as the price which the corporation may have offered
- Authority given to the Board at the outset.

lOMoARcPSD|31111392
As to existence of No capital stock divided into shares Capital stock divided into shares
shares
CASE DOCTRINES Dividends No dividends are declared. Dividends are declared.

TITLE X: Appraisal Right
Purposes The primary purpose is non-profit; it is The purpose is primarily business.
limited to those specified under Sec. 86
NO payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to cover the Business Activities It can conduct business but only if it is The business purpose is the primary
payment. incidental to the primary purpose business.
In case the corporation has no available unrestricted retained Voting Rights The voting rights can be One share = one vote
earnings in its books, the Corporation Code provides that if the modified, limited, or broadened.
dissenting stockholder is not paid the value of his shares within 30
days after the award, his voting and dividend rights shall Transferability of Membership is generally Shares are transferable.
Interest non-transferable.
immediately be restored.
Termination Membership can be terminated. Ownership of shareholder cannot be
terminated until the transfer of the
shares or upon liquidation
Title XI
Effect of Death Death of a member terminates the Shares can be acquired through
NON-STOCK CORPORATIONS membership. succession
Generally, membership is not
transferred.
SEC. 86. Definition. For purposes of this Code and subject to its provisions on
dissolution, a non-stock corporation is one where no part of its income is Dues Payment of dues can be required. No dues are paid
distributable as dividends to its members, trustees, or officers: Provided, That
any profit which a non-stock corporation may obtain incidental to its operations
Voting Cumulative voting is not allowed Cumulative voting is expressly
shall, whenever necessary or proper, be used for the furtherance of the purpose unless provided for in the AOI or By- allowed
or purposes for which the corporation was organized, subject to the provisions laws; Sec. 23 is limited to stock
of this Title. corporations
Liquidation GR: the members will not get a share Shareholders will get their share in
The provisions governing stock corporations, when pertinent, shall be in the assets unless provided for in the the net assets known as liquidated
applicable to non-stock corporations, except as may be covered by specific AOI or by-laws dividends.
provisions of this Title.
NON-STOCK CORPORATION
- a corporation where no part of its income is distributable as dividends to its
SEC. 87. Purposes. Nonstock corporations may be formed or organized for members
charitable, religious, educational, professional, cultural, fraternal, literary, - CIR v. Filipino de Cebu: Even if there is a statement of capital stock, the
scientific, social, civic service, or similar purposes, like trade, industry, corporation is still not a stock corporation if dividends are not supposed to be
agricultural and like chambers, or any combination thereof, subject to the declared, that is, there is no distribution of retained earnings
special provisions of this Title governing particular classes of non-stock
corporations. Requisites
1. Does not have a capital stock divided into shares
2. No part of its income is distributable as dividends to its member
a. Implicit from the essential requisites is that a non-stock corporation
-stock if it
NON-STOCK CORPORATION STOCK CORPORATION

3. They must be formed or organized for
a. Charitable
Components Members Shareholders b. Religious
c. Educational
Board Members Trustees Directors d. Professional

lOMoARcPSD|31111392
e. Cultural d. If all members of a foreign non-stock corporation licenced to do

f. Fraternal business by the SEC are PH citizens
g. Literary - The Anti-Dummy Law does not allow foreigners to hold management or
h. Scientific executive positions in a corporation engaged in a partly nationalized activity.
i. Social Social, cultural, and education non-profit activities cannot be read in the context
j. civic service; or of partly nationalized activity which would justify the banning of foreign
k. similar purposes, like trade, industry, agricultural and like chambers, nationals who are members of the corporation from holding management or
or any combination thereof executive positions.
Purposes Profitable Business

- Sports club meant primarily for income generation cannot organize as a non- GR: Non-stock corporations are not empowered to venture in profitable business.
stock corporation, but legislative deliberations indicate that sports clubs for EX: When such profitable business is an incident to its operations, whenever necessary or
fraternal purposes may be organized as non-stock corporations. proper for the furtherance of the purpose or purposes for which the corporation was
organized.
so I just placed the definition for the purpose
of comparison) Distribution of Income
Foundation - A corporation is not non-stock if charter allows distribution of income
- A non-stock, non-profit corporation established for purpose of extending - Income does not merely refer to cash
grants and endowments to support its goals or raising funds to accomplish - Benefits in the form of commissary privileges, such as the importation
charitable, religious, educational, athletic, cultural, literary scientific, social of goods duty-free, purchase of food and other items at minimum or
welfare or similar objective reduced prices, and return or refund of the capital at the end of
membership or upon dissolution of corporation are indicators of a
Capital corporation
- Articles of Incorporation of a non-stock corporation must also state
a. the amount of capital Conversion
b. Names
c. nationalities; and
Can be
d. residences of the contributors + the amount contributed by each
- Capital is used for the operation of the corporation converted by EFFECT
- May be increased if there are additional contributions but there is not need to amendment of
amend the articles of incorporation AoI?
Non-Profit Not allowed because effect will be

- A corporation is considered non- ot distribute any part of its distribution of assets to its members
to that it can become shareholders
- NONSTOCK TO STOCK (inconsistent w/ nature of non-
- Charitable-- stock corp)
the benefit of an indefinite number of persons, either by bringing their REMEDY? Dissolve and organize
minds and hearts under the influence of education or religion, by Non-Stock Corp
assisting them to establish themselves in life, or by otherwise lessening
After conversion, stockholders will
no longer have pecuniary interest in
Nationality the corporate assets, nor be entitled
- In a non-stock corporation, it is computed on the basis of the nationality of its STOCK TO NONSTOCK to any share in any profit that may
members and not on the membership contribution be obtained out of the operations or
- SEC rules provide that a non-stock corporation is a Philippine National if: activities of the non-stock
a. All members are Filipino corporation
b. At least 60% of the members entitled to vote are citizens of the PH
c.
bylaws are held by PH citizens

lOMoARcPSD|31111392
CHAPTER I
personal and nontransferable, unless the articles of incorporation or the bylaws
MEMBERS
otherwise provide.
SEC. 88. Right to Vote. The right of the members of any class or classes to vote
Rationale
may be limited, broadened, or denied to the extent specified in the articles of
GR: Membership in a non-stock corporation and the rights arising therefrom are not
incorporation or the bylaws.
transferrable.
- Membership has personal elements which require qualification by social and
Unless so limited, broadened, or denied, each member, regardless of class, shall
other ties
be entitled to one (1) vote.
EX: May be provided in the articles of incorporation subject to terms and conditions.
Unless otherwise provided in the articles of incorporation or the bylaws, a
Tranfer
member may vote by proxy, in accordance with the provisions of this Code. The
- Includes all transactions whereby the property of one person becomes that of
bylaws may likewise authorize voting through remote communication and/or in
another, whether by descent and purchase.
absentia.
- Proscription under Sec 89 applies to inheritance
CHANGES: - HENCE, Heirs of deceased member will not inherit the membership
Old provision provided that voting through remote communication and/o UNLESS AoI or By-laws provides for such transfer
in absentia needed prior approval of and under such conditions that the
SEC may prescribed. This was deleted.
SEC. 90. Termination of Membership. Membership shall be terminated in the
manner and for the causes provided in the articles of incorporation or the by-
Voting Rights
laws. Termination of membership shall extinguish all rights of a member in the
-
corporation or in its property, unless otherwise provided in the articles of
expressly in the Articles of Incorporation or By-laws
incorporation or the by-laws.
- Absence of such provision: ONE MEMBER = ONE VOTE!
- BROADENED: May be broadened by providing a formula in determining the
number of votes to which a member is entitled CHANGES: None.
- DENIED: For instance, by stating in the by-laws that members who are
delinquent in the payment of dues may not be allowed to vote. Acceptance of Membership
Non-stock, non-profit corporations may usually accept or refuse members as
Right to Vote they choose, subject to the provisions of its:
- In non-stock corporations, the voting rights attach to membership. Articles of Incorporation; or
- The AOI or Bylaws of a non-stock corporation may prohibit proxy voting in any By-laws
meeting or measure of the corporation. A non-stock corporation may determine:
WHO shall be admitted; and
Quorum HOW they shall be admitted.
- Principle for determining the quorum for stock corporations is applied by In the absence of restrictions, the courts may NOT intervene.
analogy to non-stock corporations While a non-stock corporation cannot be compelled to accept any person
only those who are actual members with voting rights should be as member, the director or officers may be subject to an ACTION FOR
counted DAMAGES if they exercised their right to reject with abuse of right under
- The majority refers to the members representing the actual number of voting Art. 19, 20, and 21 of the Civil Code.
rights, not the numerical constant that may originally be specified
- Best evidence of who are present members: membership book Termination of Membership
- Delinquent members are not included in the determination of the quorum Since the power to admit members pertains to the Board in the absence of any
- Unless there is specific requirement in the Code, the bylaws of non-stock contrary provision in the AOI and/or by-laws, it must logically be the Board of
- corporations may provide for a quorum that is more or less than majority of the Trustees who has the power to terminate a membership.
members. Sec. 91 provides that membership shall be terminated in the manner and for
the causes provided in the AOI and/or by-laws.
SEC. 89. Non-transferability of Membership.
Membership in a nonstock corporation and all rights arising therefrom are

lOMoARcPSD|31111392
Members may be expelled for non-payment of dues and for non-attendance of delinquency, such shares may be ordered sold by the Board of
meetings as expressly sanctioned by the by-laws of the corporation. However, it Directors in the manner provided in the By-laws to satisfy said dues
is crucial that the said member is accorded the right to due process. The sale that occurs here is DIFFERENT from the sale of delinquent stock
A non-stock corporation should not be powerless to discipline its members. under Section 67 of the RCC.
Sale of delinquent stock -payment of the subscription price for the
Suspension share of stock itself
There are instances when the by-laws provide only suspension of membership Sale by virtue of a lien
instead of termination. sale will take place merely due to UNPAID MEMBERSHIP DUES
A member who was validly suspended cannot complain and claim for damages if NOTE: Abuse of Right Doctrine applies, since this involves a deprivation of
the suspension was done in accordance with the reasonable provisions of the a property right! Take note of Articles 19, 20, and 21 of the Civil Code!
corporate By-laws and with sufficient evidence.
The situation calls for the application of the maxim, Oui Jure suo utitur The power to EXPEL members may be exercised in the following situations:
nullum dammum facit (One who makes use of his own legal right 1. When an offense is committed which, although it has no immediate relation to a
does no injury.)
of honest men, and which is indictable;
When Property Rights are Involved 2. When the offense is a violation of his duty as a member of the corporation;
There are instances when the membership involves property rights (e.g. 3. Violation of a mixed nature, being both against his duty as a member and
membership in a club) where the purchase of a share is sine qua non. indictable;
In those cases where the loss of membership also entails loss of property rights, 4. Where the member is guilty of acts of disloyalty for making false matters, ot
the manner of deprivation of such property right should be in accordance acting in any way in bad faith, dishonesty, or dishonorably.
with:
Articles of Incorporation and/or By-laws; AND For the TERMINATION of membership to be valid, there should be:
Art. 19, 20, 21 of the Civil Code. (provisions against abuse of right) 1. Reasonable notice to the member concerned; and
PRESCRIPTIVE PERIOD: The member whose membership was terminated and 2. Fair opportunity to be heard in his defense.
who was deprived of his property right over the shares can file an action within 3. If the by-laws indicate the manner of giving notice, the same should be complied
the period of EIGHT YEARS (prescriptive period to recover movables). with.
so- Proprietary shares Liability for Damages

Proprietary Share A non-stock corporation is not exempt from the obligation to act in good faith in
corporation which gives the shareholder the right to use the facilities its treatment of its members.
covered by such certificates and to receive dividends or earnings from Consequently, a non-stock corporation may be liable for damages sustained by
the corporation. (2015 IRR-SRC) a member for the termination of his membership in bad faith.
Non-Proprietary
property of the corporation. Effect of Death of Member
Membership in and all rights arising from a non-stock corporation are personal
Non-Payment of Dues and non-transferrable, UNLESS THE AOI OR BY-LAWS SAY OTHERWISE.
Non-payment of dues may be a ground for termination or suspension of Thus, the AOI or by-
membership. through their executor or administrator.
A non-stock corporation may collect from its members reasonable fees or
dues that are necessary to accomplish the purpose of the corporation. Effect of Death on Quorum
Approval of the SEC is not necessary, and the dues may be collected The by-laws of a non-stock corporation may provide that membership in the
even in the absence of a provision in the by-laws. corporation shall be terminated by the death of the member.
Accordingly, dead members who are dropped from the membership
Unpaid Dues as Lien roster are not to be counted in determining the requisite vote in
In a non-stock corporation where the purchase of shares is a sine qua non of
membership, their AOI or By-laws may provide that unpaid dues shall meeting.
.
EXAMPLE
club, shall constitute a first lien on the shares, second only to any lien Chapter II
in favor of the national or local government, and in the event of TRUSTEES AND OFFICERS

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Cumulative voting may be adopted under the mandate of

Section 88 that provides the right of the members of any class
SEC. 91. Election and Term of Trustees. The number of trustees shall be fixed in
or classes of a non-stock corporation to vote may be limited,
the articles of incorporation or bylaws which may or may not be more than fifteen broadened, or denied.
(15). They shall hold office for not more than three (3) years until their Hence, by-laws may provide for election by district. This is a form of limitation
successors are elected and qualified. Trustees elected to fill vacancies occurring of voting rights of the members of a non-stock corporation.
before the expiration of a particular term shall hold office only for the unexpired
period.
Vacancy
Except with respect to independent trustees of non- stock corporations vested Trustees may fill vacancies in the Board, provided that those remaining still
with public interest, only a member of the corporation shall be elected as trustee. constitute a quorum.
Unless otherwise provided in the articles of incorporation or the bylaws, the the
members may directly elect officers of a nonstock corporation. board by the remaining trustees (w/ a quorum) is merely permissive, not
mandatory.
CHANGES: The by-laws may provide for a specific mode of filling up existing vacancies.
Took out the staggering system of the OCC which set different expiry of terms for
SEC. 92. List of Members and Proxies, Place of Meetings. The corporation shall,
each portion of Trustee.
at all times, keep a list of its members and their proxies in the form the
Commission may require. The list shall be updated to reflect the members and
Number of Trustees
proxies of record twenty (20) days prior to any scheduled election. The bylaws
A non-stock corporation may have more than 15 trustees.
may provide that the members of a nonstock corporation may hold their regular
HOWEVER, SEC has adopted a policy of requiring registrant corporations to
or special meetings at any place even outside the place where the principal office
submit an explanation if its AOI or by-laws provide for more than 15
of the corporation is located: Provided, That proper notice is sent to all members
members of the Board.
indicating the date, time and place of the meeting: Provided, further, That the
place of meeting shall be within Philippine territory.
In the election of officers, what procedure should be followed?
The provisions of the AOI and the by-laws should be followed. CHANGES:
If the AOI and by-laws are silent, the officers may be elected directly by the A corporation is now required to keep a LIST of its members and their proxies.
members. Must be UPDATED twenty (20) days prior to any scheduled
election.
Qualifications
Only ONE qualification under Sec. 92: Membership in the corporation. Where can the members hold their meetings?
NEVERTHELESS, the member who may be elected as trustee may just be a Anywhere, as long as it is within the Philippines.
nominee.
What happens if a trustee is expelled from the corporation? Chapter III

A trustee who ceases to be a member of the corporation can no longer act as a Distribution of Assets in Non-Stock Corporations
trustee.
SEC. 93. Rules of Distribution. The assets of a nonstock corporation undergoing
Term
the process of dissolution for reasons other than those set forth in Section 139 of
- -stock corporations
this Code, shall be applied and distributed as follows:
may provide for a desired term in the AOI or by-laws.
(a) All liabilities and obligations of the corporation shall be paid, satisfied and
However, lifetime terms are NOT allowed.
discharged, or adequate provision shall be made therefor;
(b) Assets held by the corporation upon a condition requiring return, transfer or
Mode of Election
conveyance, and which condition occurs by reason of the dissolution, shall be
GenR: Members may cast as many votes as there are trustees to be elected but
returned, transferred or conveyed in accordance with such requirements;
may cast only one vote per candidate.
(c) Assets received and held by the corporation subject to limitations permitting
EXC: A non-stock corporation may adopt other modes of casting votes
their use only for charitable, religious, benevolent, educational or similar
like cumulative voting under its AOI or by-laws.

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a. They shall be transferred or conveyed to one or more corporations,

purposes, but not held upon a condition requiring return, transfer or conveyance societies, or organizations engaged in activities in the Philippines
by reason of the dissolution, shall be transferred or conveyed to one (1) or more
substantially similar to those of the dissolving corporation according to
corporations, societies or organizations engaged in activities in the Philippines a plan of distribution.
substantially similar to those of the dissolving corporation according to a plan of
distribution adopted pursuant to this Chapter; PROBLEMS
(d) Assets other than those mentioned in the preceding paragraphs, if any, shall 1. If members of a corporation contributed an amount for a corporate activity and
be distributed in accordance with the provisions of the articles of incorporation
what was contributed was more than sufficient, leaving a balance of Php500,000,
or the bylaws, to the extent that the articles of incorporation or the bylaws, can the non-stock corporation offset the Php500,000 against the balance of the
determine the distributive rights of members, or any class or classes of members, receivables from the said members?
or provide for distribution; and a. NO. Offsetting will amount to distribution of the assets of the
(e) In any other case, assets may be distributed to such persons, societies, corporation.
organizations or corporations, whether or not organized for profit, as may be
b. The properties of a non-stock corporation cannot be distributed and
specified in a plan of distribution adopted pursuant to this Chapter. the members cannot reduce the corporate capital, unless the
corporation is dissolved.
2. May a Foundation, incorporated to establish and maintain a library and museum
SEC. 94. Plan of Distribution of Assets. A plan providing for the distribution of in honor of the deceased parents of incorporators, operate a specialty restaurant
assets, consistent with the provisions of this Title, may be adopted by a non-stock that caters to the general public in order to augment its funds?
corporation in the process of dissolution in the following manner: a. NO. The action is ultra vires. The purpose of the corporation are
a) The board of trustees shall, by majority vote, adopt a resolution recommending limited to the establishment and maintenance of the library and
a plan of distribution and directing the submission thereof to a vote at a regular museum as stated in the problem; thus, the foundation cannot operate
or special meeting of members having voting rights; a specialty restaurant that caters to the general public.
b) Each member entitled to vote shall be given a written notice setting forth the b. HOWEVER, it may also be possible to establish that the act of the
proposed plan of distribution or a summary thereof and the date, time and place corporation is justified, because it was done in order to raise funds
of such meeting within the time and in the manner provided in this Code for the to support the library and museum.
giving of notice of meetings; and
c) Such plan of distribution shall be adopted upon approval of at least two-thirds
(2/3) of the members having voting rights present or represented by proxy at CASE DOCTRINES
such meeting. Title XI: Non-Stock Corporations
For stock corporations, the "quorum" referred to in Section 52 of the

CHANGES: Mere change in wording. Corporation Code is based on the number of outstanding voting stocks. For
nonstock corporations, only those who are actual, living members with
Can a non-stock corporation distribute assets to its members upon dissolution? voting rights shall be counted in determining the existence of a quorum
YES, distribution of assets to members upon dissolution is allowed IF during members' meetings. Dead members shall not be counted.
EXPRESSLY PROVIDED for in the: A by-law which gives one of the Board members a permanent seat is contrary
Articles of Incorporation; or to the provisions of the (Revised) Corporation Code and can never be ratified.
By-laws. Practice, no matter how long continued, cannot give rise to any vested right if
HOWEVER, there are a few assets that may not be distributed [See below]. it is contrary to law.
GenR: The Board of a non-stock and non-profit corporation has the right
Assets that CANNOT be distributed by the corporation despite such express under its Articles of Incorporation to approve or disapprove the application of
provision are those that are included in or will answer for the following: membership.
1. All liabilities and obligations of the corporation; EXCEPTION: When the disapproval was done arbitrarily or in Bad
2. Assets held by the corporation upon a condition requiring return, transfer, or Faith (Abuse of Right Doctrine)
conveyance, and the condition occurs by reason of the dissolution. They shall be Abuse of Right Doctrine
returned, transferred, or conveyed in accordance with such requirements; Art. 19 and 21,
3. Assets received and held by the corporation subject to limitations permitting resulting in damage to another person.
their use only for charitable, religious, benevolent, educational, or similar Valley Golf Country Club v. V.da de Caram [NOTE: I have a strong feeling sir
purposes, but not held upon a condition requiring return, transfer, or will ask about this case]
conveyance by reason of the dissolution.

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A share can only be deemed delinquent and sold at public auction That other Titles in this Code shall apply suppletorily, except as otherwise
only upon the failure of the stockholder to pay the unpaid provided under this Title.
subscription. Delinquency in monthly club dues is merely an
ordinary debt enforceable by judicial action in a civil case. Thus,
in the absence of a provision in the by-laws or the AOI providing CHANGES:
A corporation is now required to keep a LIST of its members and their proxies.
for the establishment on a lien upon shares of stock for unpaid
debts, liabilities, or assessments of stockholders to the
Requisites for a valid close corporation:
corporation, the non-stock corporation CANNOT sell the
1.
delinquent member
be held of record by not more than a specified number of persons, not exceeding
Failure to pay unpaid subscription
Failure to pay monthly club dues judicial action in a 20;
CIVIL CASE; BUT may create a lien and sell in public 2. All the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by Title XII of the Revised Corporation Code;
auction if provided in AOI OR by-laws
The right of a non-stock corporation to expel a member through the and
forfeiture of the Golf Share may be established in the by-laws alone. 3. The corporation shall not list in any stock exchange or make any public offering
of any of its stock of any class.
1. Termination of membership. Membership shall
be terminated in the manner and for the causes provided NOTE: These requisites must be seen in the Articles of Incorporation.
in the articles of incorporation OR the by-laws
Re: Requisites
The by-laws of a non-stock corporation should provide for a formal
Mere ownership by a single stockholder of all or nearly all of the capital stock
notice and hearing procedure before
does NOT make one a close corporation if the above-specified requirements
are not stated in the Articles of Incorporation.
-
A close corporation can be a family corporation.
stock corporation.
Close corporations are often little more than incorporated partnerships.
The Doctrine of Piercing the Veil of Corporate Fiction applies to non-stock
This is because the relationship between the participants, like the
corporations, as well.
relationship of partners, is one that requires close cooperation and a
high degree of good faith and mutual respect.
TITLE XII
CLOSE CORPORATIONS Distinguished from Ordinary Corporations
The main difference between the two: identity of stock ownership and active
[NOTE: ] management.
CLOSE CORPORATION ORDINARY CORPORATION
SEC. 95. Definition and Applicability of Title. A close corporation, within the
meaning of this Code, is one whose articles of incorporation provides that: (a) all 1. There is a limitation on the 1. There is no limit as to the
number of stockholders to a number of shareholders.
held of record by not more than a specified number of persons, not exceeding maximum of 20. 2. A restriction need not be
twenty (20); (b) all the issued stock of all classes shall be subject to one or more 2. There must be a restriction on provided fr.
specified restrictions on transfer permitted by this Title; and (c) the corporation the transfer of shares. 3. Qualifications of stockholders
shall not list in any stock exchange or make any public offering of its stocks of any 3. Specific qualifications to be are not normally prescribed.
class. Notwithstanding the foregoing, a corporation shall not be deemed a close eligible as stockholder are 4. Public offering of shares is NOT
corporation when at least two-thirds (2/3) of its voting stock or voting rights is usually provided for. prohibited.
owned or controlled by another corporation which is not a close corporation 4. Public offering of shares is 5. It is managed by the board of
within the meaning of this Code. prohibited. directors, not the stockholders.
Any corporation may be incorporated as a close corporation, except mining or oil 5. May be managed directly by 6. There are no rules on deadlock.
companies, stock exchanges, banks, insurance companies, public utilities, stockholders. 7. Generally, a shareholder cannot
educational institutions and corporations declared to be vested with public 6. There are rules on deadlock. withdraw and compel the
interest in accordance with the provisions of this Code. 7. A shareholder may withdraw corporation to purchase his
The provisions of this Title shall primarily govern close corporations: Provided, and may ask the corporation to share. (EXC: Section 40, RCC)

lOMoARcPSD|31111392
purchase his share. of applying the provisions of this Code, unless the context clearly requires
otherwise: Provided, further, That the stockholders of the corporation shall be
subject to all liabilities of directors.
The following CANNOT be a Close Corporation:
The articles of incorporation may likewise provide that all officers or employees
1. or that specified officers or employees shall be elected or appointed by the
which is not a close corporation; and stockholders, instead of by the board of directors.
2. Mining or oil companies, stock exchanges, banks, insurance companies, public
utilities, educational institutions, and corporations declared to be vested with
public interest. CHANGES: Mere change in form.
Numerical Limit Articles of Incorporation

The requirement that stockholders must NOT exceed 20 is MANDATORY. The AOI of a close corporation MUST comply with Section 13 of the Revised
In case of death of one of the shareholders, the close corporation is still subject to Corporation Code.
the same restriction even if the deceased has two or more heirs whose presence Section 13 provides what must be included in the Articles of
will result in the presence of more than 20 shareholders. Incorporation.
In which case, the heirs have two options:
1. The shares of the deceased may be placed in the name of one The AOI of a close corporation, in addition to those mentioned under Sec. 13, must
of the heirs who will be the nominee or representative of the contain the following:
heirs; or 1. Classification of shares or rights and the qualifications for owning or holding the
2. A corporation can be organized by the heirs to hold all the same, and restrictions on their transfers, subject to the provisions of the
shares. following section;
The limitation on the number of shareholders apply to juridical persons. 2. Classification of directors into one (1) or more classes, each of whom may be
Hence, if a group of heirs incorporate a close corporation and then later voted for and elected solely by a particular class of stock;
have the heir represented by corporations, the limitation is still 3. A greater quorum or voting requirements in meeting of stockholders or directors
applicable. than those provided in this Code; and
4. [OPTIONAL] The business of the corporation shall be managed by the
stockholders of the corporation rather than by a board of directors. [NOTE:
close corporation
the AOI, or by-laws, the components thereof opted to close its doors on other
persons and effectively bar such other persons from becoming shareholders. Does the close corporation need to call a meeting of stockholders for the election of
Closely Held Corporation the corporation are owned by a directors?
relatively limited number of stockholders. Focuses more on the actual number NO, provided the close corporation is managed by the stockholders.
of shareholders.
SEC. 97. Validity of Restrictions on Transfer of Shares. Restrictions on the right
SEC. 96. Articles of Incorporation. The articles of incorporation of a close to transfer shares must appear in the articles of incorporation, in the by-laws, as
corporation may provide for: well as in the certificate of stock; otherwise, the same shall not be binding on any
(a) A classification of shares or rights, the qualifications for owning or holding the purchaser in good faith. Said restrictions shall not be more onerous than granting
same, and restrictions on their transfers, subject to the provisions of the the existing stockholders or the corporation the option to purchase the shares of
following section; the transferring stockholder with such reasonable terms, conditions or period
(b) A classification of directors into one (1) or more classes, each of whom may stated. If upon the expiration of said period, the existing stockholders or the
be voted for and elected solely by a particular class of stock; and corporation fails to exercise the option to purchase, the transferring stockholder
(c) Greater quorum or voting requirements in meetings of stockholders or may sell their shares to any third person.
directors than those provided in this Code.
The articles of incorporation of a close corporation may provide that the business
of the corporation shall be managed by the stockholders of the corporation rather SEC. 98. Effects of Issuance or Transfer of Stock in Breach of Qualifying Conditions.
than by a board of directors. So long as this provision continues in effect, no
meeting of stockholders need be called to elect directors: Provided, That the (a) If a stock of a close corporation is issued or transferred to any person who is
stockholders of the corporation shall be deemed to be directors for the purpose not eligible to be a holder thereof under any provision of the articles of

lOMoARcPSD|31111392
incorporation, and if the certificate for such stock conspicuously shows the discretion or powers of the board of directors: Provided, That such agreement
qualifications of the persons entitled to be holders of record thereof, such person shall impose on the stockholders who are parties thereto the liabilities for
is conclusively presumed to have notice of the fact of the ineligibility to be a managerial acts imposed on directors by this Code.
stockholder. (e) Stockholders actively engaged in the management or operation of the
(b) If the articles of incorporation of a close corporation states the number of business and affairs of a close corporation shall be held to strict fiduciary duties
persons, not exceeding twenty (20), who are entitled to be stockholders of record, to each other and among themselves. The stockholders shall be personally liable
and if the certificate for such stock conspicuously states such number, and the for corporate torts unless the corporation has obtained reasonably adequate
issuance or transfer of stock to any person would cause the stock to be held by liability insurance.
more than such number of persons, the person to whom such stock is issued or
transferred is conclusively presumed to have notice of this fact.
CHANGES: NONE for Sections 97-99.
(c) If a stock certificate of a close corporation conspicuously shows a restriction
Restrictions on Transfer:
violation of such restriction, the transferee is conclusively presumed to have
1. It is mandatory for the AOI of a close corporation to provide that all of the issued
notice of the fact that the stock was acquired in violation of the restriction.
stocks of all cases shall be subject to one or more restriction.
(d) Whenever a person to whom stock of a close corporation has been issued or
2. Restriction should not be more onerous than granting the existing stockholders
transferred has or is conclusively presumed under this section to have notice of:
of the corporation the option to purchase the shares of the transferring
stockholder with such reasonable terms, conditions, or period stated therein.
transfer of stock would cause the stock of the corporation to be held by more than
the number of persons permitted under its articles of incorporation; or (3) that a. THUS, the restriction on transfer is in the nature of a right of first
the transfer violates a restriction on transfer of stock, and the corporation may, refusal in favor of the stockholders.
at its option, refuse to register the transfer in the name of the transferee. b. waived, because under Section 97, if
(e) The provisions of subsection (d) shall not be applicable if the transfer of stock, upon the expiration of the period, the existing stockholders or the
corporation fail to exercise the option to purchase, the transferring
though contrary to subsections (a), (b) or (c), has been consented to by all the
stockholders of the close corporation, or if the close corporation has amended its stockholder may sell his shares to any third person.
articles of incorporation in accordance with this Title. 3. Any transfer should not result in exceeding the maximum number of
(f stockholders.
(g) The provisions of this section shall not impair any right which the transferee 4. No public offering is allowed.
may have to either rescind the transfer or recover the stock under any express or
implied warranty. Is good faith a defense in the violation of the restrictions on transfer?
Good faith is NOT a defense! There is a conclusive presumption of knowledge of
the restrictions!
SEC. 99. Agreements by Stockholders.
Transfer in violation of the restrictions may still be registered in the books fo the
(a) Agreements duly signed and executed by and among all stockholders before
corporation in the ff. Cases:
the formation and organization of a close corporation shall survive the
1. All the stockholders consent;
incorporation and shall continue to be valid and binding between such
2. The Articles of Incorporation were duly amended.
stockholders, if such be their intent, to the extent that such agreements are
HOWEVER, in both of the above cases, the corporation will cease to be a close corporation
consistent with the articles of incorporation, irrespective of where the provisions
if conditions for its existence are not present. (Ex: transfer results in more than 20
of such agreements are contained, except those required by this Title to be
shareholders)
embodied in said articles of incorporation.
(b) A written agreement signed by two (2) or more stockholders may provide that
Allowable Agreements Among Shareholders:
in exercising any voting right, the shares held by them shall be voted as provided 1. Pre-incorporation agreement
or as agreed, or in accordance with a procedure agreed upon by them.
2. Voting agreement
(c) No provision in a written agreement signed by the stockholders, relating to 3. Agreement on the conduct of corporate business and affairs
any phase of corporate affairs, shall be invalidated between the parties on the
ground that its effect is to make them partners among themselves. Stockholders as Managers
(d) A written agreement among some or all of the stockholders in a close Section 96 and Section 99 recognize the right of the stockholders to manage
corporation shall not be invalidated on the ground that it relates to the conduct
the business and affairs of the close corporation.
of the business and affairs of the corporation as to restrict or interfere with the This is what mainly distinguishes close corporation from a normal
corporation.

lOMoARcPSD|31111392
Because many close corporations are organized based on personal relationships,

certain reasonable expectations arise on the part of those acquiring an interest Can the stockholders vote in absentia or through videoconferencing? Viber?
in the close corporation. WeChat? Facetime? Facebook?
YES to all! Section 49 of the RCC now allows vote by remote communication or
Effects of Stockholders as Managers: in absentia!
1. It is no longer necessary to elect directors;
2. The stockholders are deemed the directors;
3. The stockholders shall have the same liabilities as directors;
SEC. 101. Preemptive Right in Close Corporations. The preemptive right of
4. To the extent that the stockholders are actively engaged in the management or
stockholders in close corporations shall extend to all stock to be issued, including
operation of the business and affairs of a close corporation, the stockholders
reissuance of treasury shares, whether for money, property or personal services,
shall be held to strict fiduciary duties to each other and among themselves; and
or in payment of corporate debts, unless the articles of incorporation provide
5. The stockholders shall be personally liable for corporate torts; unless, the
otherwise.
corporation has obtained reasonable adequate liability insurance.
SEC. 100. When a Board Meeting is Unnecessary or Improperly Held. Unless the SEC. 102. Amendment of Articles of Incorporation. Any amendment to the
bylaws provide otherwise, any action taken by the directors of a close articles of incorporation which seeks to delete or remove any provision required
corporation without a meeting called properly and with due notice shall by this Title or to reduce a quorum or voting requirement stated in said articles
nevertheless be deemed valid if: of incorporation shall require the affirmative vote of at least two-thirds (2/3) of
(a) Before or after such action is taken, a written consent thereto is signed by all the outstanding capital stock, whether with or without voting rights, or of such
the directors; or greater proportion of shares as may be specifically provided in the articles of
(b) All the stockholders have actual or implied knowledge of the action and make incorporation for amending, deleting or removing any of the aforesaid
no prompt objection in writing; or provisions, at a meeting duly called for the purpose.
(c) The directors are accustomed to take informal action with the express or
implied acquiescence of all the stockholders; or
(d) All the directors have express or implied knowledge of the action in question SEC. 103. Deadlocks. Notwithstanding any contrary provision in the close
and none of them makes a prompt objection in writing.
An action within the corporate powers taken at a meeting held without proper
call or notice, is deemed ratified by a director who failed to attend, unless after business and affairs that the votes required for a corporate action cannot be
having knowledge thereof, the director promptly files his written objection with obtained, with the consequence that the business and affairs of the corporation
the secretary of the corporation. can no longer be conducted to the advantage of the stockholders generally, the
Commission, upon written petition by any stockholder, shall have the power to
CHANGES: Mere change in form. arbitrate the dispute. In the exercise of such power, the Commission shall have
authority to make appropriate orders, such as: (a) cancelling or altering any
GenR: Actions taken by the Board without a meeting is INVALID.
EXC: agreement; (b) cancelling, altering or enjoining a resolution or act of the
1. Before or after such action is taken, a written consent thereto is signed by all the corporation or its board of directors, stockholders, or officers; (c) directing or
directors; or prohibiting any act of the corporation or its board of directors, stockholders,
2. All the stockholders have actual or implied knowledge of the action and make no officers, or other persons party to the action; (d) requiring the purchase at their
prompt objection in writing; or fair value of shares of any stockholder, either by the corporation regardless of the
3. The directors are accustomed to take informal action with the express or implied availability of unrestricted retained earnings in its books, or by the other
acquiescence of all the stockholders; or stockholders; (e) appointing a provisional director; (f) dissolving the
4. All the directors have express or implied knowledge of the action in question and corporation; or (g) granting such other relief as the circumstances may warrant.
none of them makes a prompt objection in writing. A provisional director shall be an impartial person who is neither a stockholder
nor a creditor of the corporation or any of its subsidiaries or affiliates, and whose
Board Meetings further qualifications, if any, may be determined by the Commission. A
The general rule requiring board meetings is still applicable to close provisional director is not a receiver of the corporation and does not have the
corporations with the exception of cases provided under this Section. title and powers of a custodian or receiver. A provisional director shall have all
If any of the situations provided in this section takes place, a meeting of the the rights and powers of a duly elected director, including the right to be notified
board is NOT necessary to approve corporate transactions.

lOMoARcPSD|31111392
1. For any reason: He may compel the close corporation to purchase his shares
of and to vote at meetings of directors until removed by order of the Commission at their fair value, which shall not be less than their par or issued value, when
or by all the stockholders. The compensation of the provisional director shall be
the corporation has sufficient assets in its books to cover its debts and liabilities,
determined by agreement between such director and the corporation, subject to exclusive of capital stock;
approval of the Commission, which may fix the compensation absent an 2. When any acts of the directors, officers, or those in control of the close corporation
agreement or in the event of disagreement between the provisional director and is illegal, or fraudulent, or dishonest, or oppressive, or unfairly prejudicial to the
the corporation. corporation/stockholder, or when corporate assets are being misapplied or
wasted: He may, by written petition to the SEC, compel the dissolution of such
corporation.
SEC. 104. Withdrawal of Stockholder or Dissolution of Corporation. In addition
and without prejudice to other rights and remedies available under this Title, any PROBLEMS:
stockholder of a close corporation may, for any reason, compel the corporation 1. Mr. A, a board member of XYZ Corp., a closed corporation, engaged the services
to purchase shares held at fair value, which shall not be less than the par or issued of Mr. X to provide technical service to the corporation. No meeting was held to
value, when the corporation has sufficient assets in its books to cover its debts approve the contract with Mr. X, but all the directors signed the contract. Is the
and liabilities exclusive of capital stock: Provided, That any stockholder of a close contract valid?
corporation may, by written petition to the Commission, compel the dissolution a. YES. Section 100 of the RCC states that any action by the board of
of such corporation whenever any of acts of the directors, officers, or those in directors of a close corporation without a meeting shall nevertheless
control of the corporation is illegal, fraudulent, dishonest, oppressive or unfairly be valid if, among, others, before or after such action is taken, written
prejudicial to the corporation or any stockholder, or whenever corporate assets consent thereto is signed by all the directors.
are being misapplied or wasted. 2. Can stockholders of a close corporation invoke the doctrine of separate
CHANGES: None for Sections 101-104! unlawfully withheld pay? Assume that the stockholders were the ones managing
the close corporation.
When is there a DEADLOCK? a. NO. The stockholders are LIABLE. Section 99 of the Corporation Code
1. When the directors or stockholders are so divided respecting the management specifically imposes personal liability upon stockholders who are
actively managing or operating the business and affairs of the
corporate action cannot be obtained; corporation. This case covers cases involving tort liability. In this case,
2. With the consequence that the business affairs of the corporation can no longer there was an omission of a duty to pay a separation pay.
be conducted to the advantage of the stockholders generally. 3. Person X inherited 10,000 shares of Sta. Ana Corp, a close corporation, from his
uncle. X notified Sta. Ana that he was selling his shares at Php70 per share. There
Deadlock being no takers among the stockholders, X sold the same to his brother, Y (who
In case of Deadlock, the SEC, upon written petition by ANY STOCKHOLDER, is not a stockholder).
shall have the power to arbitrate the dispute.
Stockholder P opposed the transfer on the ground that such transfer violated the
Authority of the SEC in case of Deadlock: by-laws.
1. Cancelling or altering any provision contained in the AOI, by-laws, or any While the by-laws of Sta. Ana provides that the right of first refusal can be
exercised at a price not exceeding 25% more than the par value of such shares, the
2. Cancelling, altering, or enjoining any resolution or act of the corporation or its
board of directors, stockholders, or officers; preferential right to purchas
3. Directing or prohibiting any act of the corporation or its board of directors, pricing.
stockholders, officers, or other persons party to the action; Is X bound by the pricing proviso in the by-laws?
4. Requiring the purchase at their fair value of shares of any stockholder, either by a. No, Rafael is not bound by the pricing proviso under the By-laws of Sta
the corporation regardless of the availability of unrestricted retained earnings in Ana Corporation. Under the corporation law, the restrictions on the
its books, or by other stockholders; right to transfer shares must appear in the articles of incorporation and
5. Appointing a provisional director; in the by-laws as well as in the certificate of stock, otherwise, the same
6. Dissolving the corporation; shall not be binding on any purchaser thereof in good faith. Moreover
7. Granting such other relief as the circumstances may warrant. the restriction shall not be more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of
Remedies of Stockholders under Section 104: the transferring stockholder with such reasonable term or period

lOMoARcPSD|31111392
stated therein. [Note: This only a suggested answer for a 1994 Bar exam
SEC. 106. Board of Trustees. Trustees of educational institutions organized as
question and not an actual case.]
nonstock corporations shall not be less than five (5) nor more than fifteen (15):
4. If a close corporation has 3 stockholders and the 3 of them could not agree on
Provided, That the number of trustees shall be in multiples of five (5).
the business in which to invest the funds of the close corporation in resulting in
Unless otherwise provided in the articles of incorporation or bylaws, the board
a deadlock, what are the remedies available to any of the 3 stockholders to break
of trustees of incorporated schools, colleges, or other institutions of learning
the deadlock?
shall, as soon as organized, so classify themselves that the term of office of one-
a. Petition the SEC to arbitrate the dispute.
fifth (1/5) of their number shall expire every year. Trustees thereafter elected to
b. While such petition to break deadlock is pending litigation, the
fill vacancies, occurring before the expiration of a particular term, shall hold
appropriate RTC can appoint a rehabilitation receiver or a
office only for the unexpired period. Trustees elected thereafter to fill vacancies
management committee.
caused by expiration of term shall hold office for five (5) years. A majority of the
trustees shall constitute a quorum for the transaction of business. The powers
CASE DOCTRINES and authority of trustees shall be defined in the bylaws.
Title XII: Close Corporations For institutions organized as stock corporations, the number and term of
directors shall be governed by the provisions on stock corporations.
In a close corporation, a board resolution authorizing the sale or mortgage
of the subject property is not necessary to bind it for the action of its
president. At any rate, a corporate action taken at a board meeting without CHANGES: None for both Section 105 and 106!
proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the What laws apply to educational corporations?
secretary of the corporation after having knowledge of the meeting. Educational corporations shall be governed by:
A narrow distribution of ownership does not, by itself, make a close
corporation. General provisions of the Revised Corporation Code
For a corporation to be considered a close corporation, courts must look into
the articles of incorporation to find provisions expressly stating that: Board of Trustees
The number of trustees shall always be in multiples of FIVE. (Mandatory)
(1) the number of stockholders shall not exceed 20; or
RE: FOREIGNERS
(2) a preemption of shares is restricted in favor of any stockholder
Foreigners are NOT allowed to be members of the Board of
or of the corporation; or
Directors/Trustees of educational institutions pursuant to Article XIV,
(3) the listing of the corporate stocks in any stock exchange or
Sec. 4(2) of the Constitution.
making a public offering of those stocks is prohibited.
Foreigners are NOT allowed to be elected as chairman of said
Even if the transfer of stocks is made in violation of the restrictions
governing body.
enumerated under Section 98, such transfer is still valid and the corporation
These prohibitions applies to all persons who are not citizens of the
cannot refuse to register the transfer of stock in the name of the transferee if
Philippines, including natural-born citizens who have lost their PH
it has been:
citizenship by acquiring naturalized citizenship.
(1) Consented to by all the stockholders of the close corporation; OR
This rule also applies to an online tutorial school that issues
(2) If the close corporation has amended its articles of incorporation
Certificate of Training or Diplomas, because it would then be
in accordance with the Title governing close corporations.
considered an educational institution.
Is the staggering system mandatory?

TITLE XIII YES, the staggering system under Section 106 is mandatory.
SPECIAL CORPORATIONS -
2nd paragraph of Sec. 106 refers to the option to provide a different
Chapter I percentage of staggered term, not that it can provide for a fixed term
EDUCATIONAL CORPORATIONS for all trustees!
To rule otherwise would make the requirement that trustees should be
in multiples of 5 useless.
SEC. 105. Incorporation. Educational corporations shall be governed by special
laws and by the general provisions of this Code.
Summary of what is MANDATORY:
1. Number of trustees in the Board should be in multiples of five.
2. Only Filipinos are allowed to be members of the BOD/BOT.

lOMoARcPSD|31111392
3. Only a Filipino can be elected as chairman of the Board.

into corporations sole and religious societies.
4. Staggering system.
Religious corporations shall be governed by this Chapter and by the general
provisions
Can an educational corporation provide for a term for its Board of Trustees shorter
than 5 years?
YES, if a shorter term is provided in the Articles of Incorporation and By-laws of the Same as OCC
corporation. Classifications of religious corporations:
Corporation Sole
What articles in the Constitution talks about education? Religious Society
all give priority to education Ordinary non-stock religious corporation under RCC Sec. 87
[...] to foster patriotism and nationalism, accelerate social progress, and promote Religious corporations shall be governed by this Chapter and by the
general provisions
Article XIV also contains provisions relating to education. Registration not Mandatory
No registration with SEC means it will not acquire juridical personality,
GenR: Article XIV, Sec. 4 of the Constitution requires: but even if not registered, members of religious organizations may
1. That educational institutions shall be: perform acts not contrary to law or public policy
a. Solely owned by Filipino citizens; OR However, an unregistered religious gro
b. If owned by a corporation, at least 60% of the capital must be owned of a juridical person.
by Filipino citizens. E.g. since the religious organization has no separate legal
2. The control and administration shall be vested in Citizens of the Philippines. personality, the members of an unincorporated religious
3. No educational institution shall be established exclusively for aliens. [Subject to group may be sued and held personally liable for their acts,
the exceptions #2 and #3 below.] Term of religious corporation is perpetual.
4. But AoI can fix a term.
[Subject to the exceptions #2 and #3 below.] After expiration of term in AoI, religious corp. deemed legally dissolved.
EXC: The 60% ownership requirement does NOT apply to: Merger between a corporation sole and another religious corporation is allowed
1. Educational institutions established by religious groups and mission boards; he rules of the religious
2. Schools established for foreign diplomatic personnel and their dependents; denomination.
3. Other foreign temporary residents (unless otherwise provided by law).
Education Act SEC. 108. Corporation Sole. For the purpose of administering and managing, as
GenR: Any private school must incorporate as either non-stock or stock. trustee, the affairs, property and temporalities of any religious denomination,
EXC: Family-administered pre-school institutions. sect or church, a corporation sole may be formed by the chief archbishop, bishop,
priest, minister, rabbi, or other presiding elder of such religious denomination,
Requirements for Stock Corporations (educational): [ this is impt to sect or church.
memorize tho]
1. Minimum paid-up capital stock:
a. Same as OCC
b. Corporation sole is formed by one person only
c. Elementary, secondary, tertiary, and post- Priest, Bishop, Rabbi, etc.
2. Existing educational institutions organized as stock corporations may retain Can be other presiding elder of such religious denomination, sect or
their original capitalization. church.
3. Stock educational institutions may be allowed only in capital intensive courses Such corporation sole is mere trustee who manages affairs and property of the
of study. religious denomination.
Chapter II such priest, bishop, etc. be a Filipino citizen.

Religious Corporations No need to file by-laws if corporation sole:
Governed by rules of its religious sect
SEC. 107. Classes of Religious Corporations. Religious corporations may be -laws unnecessary.
incorporated by one (1) or more persons. Such corporations may be classified

lOMoARcPSD|31111392
A corporation sole can convert into a corporation aggregate or a religious society The articles of incorporation may include any other provision for the
by mere amendment of the AoI regulation of the affairs of the corporation as long as not against the law.
No need to first dissolve corporation sole, just amend the AoI.
SEC. 110. Submission of the Articles of Incorporation. The articles of
SEC. 109. Articles of Incorporation. In order to become a corporation sole, the incorporation must be verified, by affidavit or affirmation of the chief archbishop,
chief archbishop, bishop, priest, minister, rabbi, or presiding elder of any bishop, priest, minister, rabbi, or presiding elder, as the case may be, and
religious denomination, sect or church must file with the Commission articles of accompanied by a copy of the commission, certificate of election or letter of
incorporation setting forth the following: appointment of such chief archbishop, bishop, priest, minister, rabbi, or
(a) That the applicant chief archbishop, bishop, priest, minister, rabbi, or presiding elder, duly certified to be correct by any notary public.
presiding elder represents the religious denomination, sect or church which
desires to become a corporation sole; From and after filing with the Commission of the said articles of incorporation,
(b) That the rules, regulations and discipline of the religious denomination, sect verified by affidavit or affirmation, and accompanied by the documents
or church are consistent with becoming a corporation sole and do not forbid it; mentioned in the preceding paragraph, such chief archbishop, bishop, priest,
(c) That such chief archbishop, bishop, priest, minister, rabbi, or presiding elder minister, rabbi, or presiding elder shall become a corporation sole and all
is charged with the administration of the temporalities and the management of temporalities, estate and properties of the religious denomination, sect or church
the affairs, estate and properties of the religious denomination, sect, or church theretofore administered or managed as such chief archbishop, bishop, priest,
within the territorial jurisdiction, so described succinctly in the articles of minister, rabbi, or presiding elder shall be personally held in trust as a
incorporation; corporation sole, for the use, purpose, exclusive benefit and on behalf of the
(d) The manner by which any vacancy occurring in the office of chief archbishop, religious denomination, sect or church, including hospitals, schools, colleges,
bishop, priest, minister, rabbi, or presiding elder is required to be filled, orphan asylums, parsonages, and cemeteries thereof
according to the rules, regulations or discipline of the religious denomination,
sect or church; and
(e) The place where the principal office of the corporation sole is to be
established and located, which place must be within the territory of the Same as OCC
Philippines. While Sec. 109 describes what the AoI must contain, this Sec. 110 describes the
procedure for submitting the AoI for a corporation sole.
The articles of incorporation may include any other provision not contrary to law AoI must be verified by affidavit or affirmation of presiding elder.
for the regulation of the affairs of the corporation. Note: No need for the presiding elder to APPROVE the AoI. He
only needs to verify such.
Document that such presiding elder was duly elected or appointed as
Changes are very minor and are more of change of form rather than a substantial such and this document must be certified by notary public:
change in the provision. The document can be any of the following:
Basically, this provision just enumerates what the AoI must contain when filing Copy of the commission of the presiding elder
with the SEC the AoI to become a corporation sole. Certificate of election of presiding elder
Person applying (Presiding elder of the religious denomination, sec or Letter of appointment of presiding elder
church) actually represents such religious denomination, sect or What is the point in time when the presiding elder becomes corporation sole?
church. After the filing with the SEC of the AoI, verified affidavit and affirmation
Rules of religious denomin and certified documents proving presiding elder was duly elected or
becoming of corporation sole. appointed
Such presiding elder is charged with the administration and
management of the affairs, estate and property of the religious a corporation sole is formed.
denomination with the territorial jurisdiction. Reason: SEC is careful not to tamper with rules of a religious
Such territorial jurisdiction must be described succintly in the
AoI What is the effect when a corporation sole is formed?
How a vacancy occurring in the office of such presiding elder is All temporalities, estate and properties of the religious denomination
required to be filled according to the rules of the religious administered and managed by such presiding elder shall now be
denomination. personally held in trust as a corporation sole for the use and exclusive
Place of the principal office of the corporation benefit of such religious denomination
MUST be WITHIN the Philippine Territory.

lOMoARcPSD|31111392
Including hospitals, schools, colleges, orphan asylums, Ecclesiastical affair- relates to an affair involving the relationship
parsonages, and cemeteries thereof between Church and its members and relate to matters of faith,
religious doctrine, worship and governance of the congregation.
Eg. sacraments, excommunication, ordination of ministers.
SEC. 111. Acquisition and Alienation of Property. A corporation sole may If not purely ecclesiastical affair, court may take cognizance.
purchase and hold real estate and personal property for its church, charitable, Eg. the court may take cognizance of a case involving the
benevolent, or educational purposes, and may receive bequests or gifts for such validity of disaffiliation of a member.
purposes. Such corporation may sell or mortgage real property held by it by
Religious corporations organized by Corp Code and registered with
obtaining an order for that purpose from the Regional Trial Court of the province SEC are subject to SEC jurisdiction if the matter is legal and corporate.
where the property is situated upon proof that the notice of the application for
leave to sell or mortgage has been made through publication or as directed by the
Court, and that it is in the interest of the corporation that leave to sell or mortgage SEC. 112. Filling of Vacancies. The successors in office of any chief archbishop,
be granted. bishop, priest, minister, rabbi, or presiding elder in a corporation sole shall
become the corporation sole on their accession to office and shall be permitted to
The application for leave to sell or mortgage must be made by petition, duly transact business as such upon filing a copy of their commission, certificate of
verified, by the chief archbishop, bishop, priest, minister, rabbi, or presiding election, or letters of appointment, duly certified by any notary public with the
elder acting as corporation sole, and may be opposed by any member of the Commission.
religious denomination, sect, or church represented by the corporation sole:
During any vacancy in the office of chief archbishop, bishop, priest, minister,
Provided, That in cases where the rules, regulations, and discipline of the rabbi, or presiding elder of any religious denomination, sect or church
religious denomination, sect or church, religious society, or order concerned incorporated as a corporation sole, the person or persons authorized by the rules,
represented by such corporation sole regulate the method of acquiring, holding, regulations or discipline of the religious denomination, sect, or church
selling, and mortgaging real estate and personal property, such rules, regulations represented by the corporation sole to administer the temporalities and manage
and discipline shall govern, and the intervention of the courts shall not be the affairs, estate, and properties of the corporation sole shall exercise all the
necessary. powers and authority of the corporation sole during such vacancy.
Same as OCC. Same as OCC

Ampil said this section is useless because the judiciary will never tamper with This section talks about vacancies. What if the presiding elder of the corporation
the rules of a religious sect. sole ceases to hold such position?
If the rules of the religious denomination regulate the manner of The successor in office becomes the new corporation sole when the
acquiring, holding, selling or mortgaging property, courts will not assumes office.
interfere and such rules will govern. He needs to file documentary evidence with the SEC showing that he
If there are no rules, obtain an order to sell or mortgage from the RTC of the was validly elected or appointed to assume office. IMPT that the
province where property is located before selling, or mortgaging property. document is duly certified by a notary public.
(Note: this is only required for SELLING or MORTGAGING real or personal The document can be any of the following:
property. Not for buying or holding property) Copy of the commission of the new presiding elder
Also need an application for leave to sell or mortgage verified by Certificate of election of the new presiding elder
presiding elder acting as corporation sole. Letter of appointment of the new presiding elder
However, this application for leave to sell or mortgage can be opposed The successor in office to become corporate sole cannot transact
by any member of the religious denomination. business for the corporation sole unless he submits the above
As Ampil said, this provision is useless and the procedure can easily be documentary requirements.
evaded since all the corporation sole has to do is say is that the religious Once he files these documents, he can then transact business.
denomination has its own rules for selling or mortgaging property. Who administers the temporalities and manages the affairs and property of the
No requirements for a corporation sole in holding or buying property. corporation sole during such vacancy?
It may purchase and hold real estate and personal property for its Person or persons authorized by the rules of the religious
church, charitable, benevolent, or educational purposes, and may denomination represented by the corporation sole.
receive bequests or gifts for such purposes.
The courts have no jurisdiction over Ecclesiastical Affairs
SEC. 113. Dissolution. A corporation sole may be dissolved and its affairs settled

lOMoARcPSD|31111392
voluntarily by submitting to the Commission a verified declaration of dissolution, Constitution, rules, regulations or discipline of the religious denomination, sect
setting forth: or church of which it forms part;
(d) That the religious society or religious order, or diocese, synod, or district
(a) The name of the corporation; organization desires to incorporate for the administration of its affairs,
(b) The reason for dissolution and winding up; properties and estate;
(c) The authorization for the dissolution of the corporation by the particular (e) The place within the Philippines where the principal office of the corporation
religious denomination, sect or church; and is to be established and located; and
(d) The names and addresses of the persons who are to supervise the winding up (f) The names, nationalities, and residence addresses of the trustees, not less than
of the affairs of the corporation. five (5) nor more than fifteen (15), elected by the religious society or religious
order, or the diocese, synod, or district organization to serve for the first year or
Upon approval of such declaration of dissolution by the Commission, the such other period as may be prescribed by the laws of the religious society or
corporation shall cease to carry on its operations except for the purpose of religious order, or of the diocese, synod, or district organization.
winding up its affairs.
Same as OCC but change in form only.
Same as OCC Any religious society, diocese or district organization of any religious
What needs to be submitted to SEC to dissolve a corporation sole? denomination or sect may incorporate for the administration of its temporalities
Verified declaration of dissolution and management of its affairs and properties.
What should the verified declaration of dissolution contain? Exception: Competent authority, constitution or other laws (including
Name of corp the rules of the religious sect itself) forbids such religious sect from
doing so.
Authorization from religious denomination for such dissolution
Names and addresses of persons to supervise the winding up of Either one of these 2 ways:
corporate affairs. Written consen
SEC must approve the declaration of dissolution. Not enough to just file it religious society, diocese or organization of any religious
Once approved, corporation shall stop all its operations except winding up its denomination or sect that wants to incorporate. (Here no
affairs. meeting called for the purpose is required)
or Affirmative Vote at a meeting called for the purpose where
SEC. 114. Religious Societies. Unless forbidden by competent authority, the diocese or organization of any religious denomination or sect
Constitution, pertinent rules, regulations, or discipline of the religious that wants to incorporate votes for such. (Here there must be
denomination, sect or church of which it is a part, any religious society, religious a meeting called for the purpose)
order, diocese, or synod, or district organization of any religious denomination,
File with the SEC the Articles of Incorporation, verified by an affidavit
sect or church, may, upon written consent and/or by an affirmative vote at a
of either of the following persons:
meeting called for the purpose of at least two-thirds (2/3) of its membership, Presiding elder
incorporate for the administration of its temporalities or for the management of Secretary
its affairs, properties, and estate by filing with the Commission, articles of Clerk
incorporation verified by the affidavit of the presiding elder, secretary, or clerk
Other member of such religious society, diocese or district
or other member of such religious society or religious order, or diocese, synod, organization.
or district organization of the religious denomination, sect, or church, setting ust file the requisites needed.
forth the following: Reason: SEC careful not to violation separation of Church and State.
What should the Articles of Incorporation contain?
(a) That the religious society or religious order, or diocese, synod, or district
That the religious society is a religious organization of a religious
organization is a religious organization of a religious denomination, sect or denomination, sect or church.
church; Th
(b) That at least two-thirds (2/3) of its membership has given written consent or incorporate in a meeting for this purpose.
has voted to incorporate, at a duly convened meeting of the body; Incorporation of the religious society is not forbidden by competent
(c) That the incorporation of the religious society or religious order, or diocese,
authority or by law.
synod, or district organization is not forbidden by competent authority or by the That the religious society desires to incorporate for the administration
of its affairs and properties.

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The place of the principal office which must be in the Philippines. Single Stockholder as a Nominee - There is nothing in Chapter III of Title XIII
Names, nationalities and residence address of the trustees of the that disqualifies a Single Stockholder holding such shares as a nominee for
religious society to serve for the first year or such other period another person or persons who may not be natural persons from becoming an
prescribed by the laws of the religious society. an OPC.
Trustees must be not less than 5 but not more than 15. In - t refer to
other words, it can be from 5 to 15 trustees.
Chapter III: One Person Corporations person which can organize a One Person Corporation. A trustee on the other
hand, is a natural person allowed to organize an OPC.
- similarly, an estate in this provision refers to the natural person - the
SEC. 115. Applicability of Provisions to One Person Corporations. The provisions executor, or administrator/administratrix and not the actual estate.
of this Title shall primarily apply to One Person Corporations. Other provisions A foreign natural person may put up an OPC, subject to the applicable capital
of this Code apply suppletorily, except as otherwise provided in this Title.
requirement and constitutional and statutory restrictions on foreign
Disadvantage of OPC with sole prop. Is tax. Corporate tax is higher. participation in certain investments areas or activities.
SEC. 116. One Person Corporation. A One Person Corporation is a corporation Persons NOT Allowed to Form OPCs
with a single stockholder: Provided, That only a natural person, trust, or an estate A corporation, partnership or any other juridical person cannot organize an OPC
may form a One Person Corporation. constituting itself as the Single Stockholder. (Sec 116 is clear that only natural
persons may form OPCs)
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed CLV however notes that it is possible to have an ordinary stock corporation with
companies, and non-chartered government-owned and -controlled corporations one juridical entity as its incorporator.
may not incorporate as One Person Corporations: Provided, further, That a However, such ordinary stock corporation will not be covered by the
natural person who is licensed to exercise a profession may not organize as a One provisions of Chapter III, Title XIII of the RPC on OPCs.
Person Corporation for the purpose of exercising such profession except as In addition, such an ordinary stock corporation would eventually have
otherwise provided under special laws. to assign some of the shares to natural persons to allow the constitution
A corporation cannot form a one person corporation. of a Board of Directors that would have a quorum to properly pursue
The limitation in the second paragraph is only for the practice of profession. the business for which the corporation was formed.
Therefore, a doctor can form a one person corporation so long as the
purpose of the corporation is not the practice of medicine.
CLV Lecture SEC. 117. Minimum Capital Stock Not Required for One Person Corporation. A
Concept and Nature One Person Corporation shall not be required to have a minimum authorized
A One Person Corporation (OPC) is a stock corporation with a Single Stockholder, capital stock except as otherwise provided by special law.
who must be: (i) a natural person of legal age; (ii) a trust; or (iii) an estate, which
The rules on partially nationalized activities are not applicable for one person
is governed by the provisions of Chapter III, Title XIII of the Revised Corporation corporations. Why?
Code. A natural person cannot be 80% Philippine National and 20% Chinese
Close corporation - - National. This is only for corporations.
proprie CLV Lecture
The provisions of Chapter III, Title XIII seek to extend the commercially
Unless otherwise required by special law, an OPC is not required to have a
advantageous features of separate juridical personality and limited liability
minimum capital stock, whether it be in the form of authorized, subscribed, or
to entrepreneurs and proprietors of micro-, small-, or medium-enterprises
paid-up capital; nor shall any portion of its authorized capital stock required to
(MSMEs), and to promote the ease of doing business.
be paid-up at the time of incorporation.
The OPC is primarily a - corporate vehicle and generally cannot be
The impetus of this rule is to encourage MSME proprietors to take advantage of
employed by a natural person as a means to practice a profession, unless
the corporate medium to pursue their businesses. In others words, the creation
expressly allowed by special law. Although theoretically there can be a nonstock
of the OPC is intended to help MSMEs operating under the sole proprietorship
corporation with a single member, such institution would not fall within the
set-up to be able to take advantage of some of the commercially viable features
ambit of Chapter III, Title XIII of the Revised Corporation Code.
of the corporate medium (i.e., strong juridical personality and limited liability).
An incorporated sole proprietorship
Natural Person as a Single Stockholder in an OPC
the small businessmen.

lOMoARcPSD|31111392
(b)OPC under the Name of Trustee: May be dissolved upon proof of

termination of the trust.
SEC. 118. Articles of Incorporation. A One Person Corporation shall file articles
of incorporation in accordance with the requirements under Section 14 of this
Code. It shall likewise substantially contain the following:
(a) If the single stockholder is a trust or an estate, the name, nationality, and SEC. 119. Bylaws. The One Person Corporation is not required to submit and file
residence of the trustee, administrator, executor, guardian, conservator, corporate bylaws.
custodian, or other person exercising fiduciary duties together with the proof of
such authority to act on behalf of the trust or estate; and
(b) Name, nationality, residence of the nominee and alternate nominee, and the
extent, coverage and limitation of the authority. The purpose of bylaws are to regulate the activity of the corporation and the
stockholders of the corporation.
CLV Lecture In a OPC, one can make his own decisions. No need to have bylaws regulating the
There is no limit as to the number of OPCs a Single Stockholder may create behavior of multiple stockholders or members.
The non-adoption of the prohibition in the original Senate bill for a Single
Stockholder to organize only one OPC also means that big businessmen can SEC. 120. Display of Corporate Name. A One Person Corporation shall indicate
organize as many OPCs as they may want, to incorporate separately as many
business or properties they may have, and being able to take advantage of the
lower income tax rate covering corporations (currently at 30%) from the higher
rate (35%) covering high net income businesses (in excess of P8.0 million) SEC. 121. Single Stockholder as Director, President. The single stockholder shall
applicable to sole proprietorships. be the sole director and president of the One Person Corporation.
Articles of Incorporation Advantage of OPC- it's a sole proprietorship with a separate juridical personality.
In addition to the same requirements as those provided for ordinary stock Limited liability
corporations, the articles of incorporation of an OPC must provide for the Your personal assets are protected because of the separate juridical
following: personality of OPC and the single stockholder
(a) Corpo Again, disadvantage of OPC compared to Sole Prop. is higher corporate tax.
either below or at the end of its corporate name;
(b) OPC Under the Name of the Estate/Trustee: If the stockholder SEC. 122. Treasurer, Corporate Secretary, and Other Officers. Within fifteen (15)
is a trust or an estate, the name, nationality, and residence of the days from the issuance of its certificate of incorporation, the One Person
trustee, administrator, executor, guardian, conservator, custodian, or Corporation shall appoint a treasurer, corporate secretary, and other officers as
other person exercising fiduciary duties, together with the proof of it may deem necessary, and notify the Commission thereof within five (5) days
such authority to act on behalf of the trust or estate; and from appointment.
(c) Nominee/Alternate Nominee: Names, nationality, residences
of the Nominee and Alternate Nominee, and the extent, coverage and The single stockholder may not be appointed as the corporate secretary.
limitation of the authority.
Except for the administrative sanctions that the SEC may impose, there seems to A single stockholder who is likewise the self-appointed treasurer of the
be no other adverse legal consequences when an OPC operates or transacts corporation shall give a bond to the Commission in such a sum as may be
business not indicating clearly that it is an OPC. required: Provided, That, the said stockholder/treasurer shall undertake in
As part of the reforms to achieve further easing of doing business in the
corporate form, an OPC is not required to submit and file corporate bylaws. as treasurer, and to disburse and invest the same according to the articles of
Term of Existence incorporation as approved by the Commission. The bond shall be renewed every
Under the OPC GUIDELINES (from SEC), the term of existence of an OPC shall be two (2) years or as often as may be required.
perpetual. In other words, the SEC does not seem to want to grant an option to
OPC to adopt a definite term of existence under its articles of incorporation.
Last paragraph is a strange provision as you must post bond to protect yourself
The Guidelines provide that in case of the trust or estate that has been
from your own mismanagement.
constituted into the OPC, its term of existence shall be co-terminous with the
CLV Lecture
existence of the trust or estate, under the following terms:
Corporate Secretary
(a) OPC Under the Name of the Estate: May be dissolved upon proof of
Even in the OPC setting, the Single Stockholder as President, cannot act as
partition, such as order of partition issued by the courts in case of
Corporate Secretary. This validates the role of the Corporate Secretary as the
judicial settlement and Deed of Extrajudicial Settlement in case of
corporate gatekeeper who owes fiduciary duties not only to the OPC and the
summary settlement of the estate.

lOMoARcPSD|31111392
Single Stockholder, but that he/she also certifies to the integrity of corporate
acts, transactions and resolutions, and the corporate records that memorializes
The written consent of the nominee and alternate nominee shall be attached to
such corporate acts upon which the public can rely upon.
the application for incorporation. Such consent may be withdrawn in writing any
Treasurer
time before the death or incapacity of the single stockholder.
The Single Stockholder can choose to appoint himself/herself as the Treasurer
of the OPC. When the Single Stockholder is also the Treasurer, then he/she is
required to:
(a) Give a bond to the SEC in such sum as may be required, which
shall be renewed every 2 years, or as often as the SEC may require; and SEC. 125. Term of Nominee and Alternate Nominee. When the incapacity of the
(b) Execute a written undertaking to faithfully administer the single stockholder is temporary, the nominee shall sit as director and manage the
OPC funds to be received as treasurer, and to disburse and invest the affairs of the One Person Corporation until the stockholder, by self
same according to the articles of incorporation approved by the SEC. determination, regains the capacity to assume such duties.
Under the OPC GUIDELINES, the SEC requires that the posting of the surety bond
shall be a continuing requirement for so long as the Single Stockholder is the self- In case of death or permanent incapacity of the single stockholder, the nominee
appointed Treasurer; and that it may be cancelled only upon proof of shall sit as director and manage the affairs of the One Person Corporation until
appointment of another person as Treasurer. the legal heirs of the single stockholder have been lawfully determined, and the
When the Single Stockholder is the Treasurer, it is legally impossible for the heirs have designated one of them or have agreed that the estate shall be the
Treasurer to steal corporate funds that pertains also to him/her as the Single single stockholder of the One Person Corporation.
Stockholder. Therefore, the posting of the bond by the Single Stockholder-
Treasurer can only be construed to be for the benefit of the creditors of the OPC. The alternate nominee shall sit as director and manage the One Person
nability, incapacity, death, or refusal to
discharge the functions as director and manager of the corporation, and only for
SEC. 123. Special Functions of the Corporate Secretary. In addition to the the same term and under the same conditions applicable to the nominee.
functions designated by the One Person Corporation, the corporate secretary
shall:
(a) Be responsible for maintaining the minutes book and/or records of the for the incapacitated stockholder to be the one to determine when he is ready to
corporation; assume such duties again?
(b) Notify the nominee or alternate nominee of the death or incapacity of the
single stockholder, which notice shall be given no later than five (5) days from SEC. 126. Change of Nominee or Alternate Nominee. The single stockholder may,
such occurrence; at any time, change its nominee and alternate nominee by submitting to the
(c) Notify the Commission of the death of the single stockholder within five (5) Commission the names of the new nominees and their corresponding written
days from such occurrence and stating in such notice the names, residence consent. For this purpose, the articles of incorporation need not be amended.
addresses, and contact details of all known legal heirs; and
(d) Call the nominee or alternate nominee and the known legal heirs to a meeting
and advise the legal heirs with regard to, among others, the election of a new
director, amendment of the articles of incorporation, and other ancillary and/or SEC. 127. Minutes Book. A One Person Corporation shall maintain a minutes
consequential matters. book which shall contain all actions, decisions, and resolutions taken by the One
Additional functions to regular secretary. Person Corporation.
SEC. 124. Nominee and Alternate Nominee. The single stockholder shall SEC. 128. Records in Lieu of Meetings. When action is needed on any matter, it
designate a nominee and an alternate nominee who shall, in the event of the shall be sufficient to prepare a written resolution, signed and dated by the single
stockholder, and recorded in the minutes book of the One Person Corporation.
The date of recording in the minutes book shall be deemed to be the date of the
meeting for all purposes under this Code.
The articles of incorporation shall state the names, residence addresses and
contact details of the nominee and alternate nominee, as well as the extent and
limitations of their authority in managing the affairs of the One Person
SEC. 129. Reportorial Requirements. The One Person Corporation shall submit
Corporation.
the following within such period as the Commission may prescribe:

lOMoARcPSD|31111392
CLV Lecture
(a) Annual financial statements audited by an independent certified public Piercing the Veil of Corporate Fiction
accountant: Provided, That if the total assets or total liabilities of the corporation
It is the first time in the history of Philippine Corporate Law that the piercing
are less than Six Hundred Thousand Pesos (P600,000.00), the financial doctrine has been given statutory recognition (i.e. the first time the law used the
president; CLV opines that the reason why the
(b) A report containing explanations or comments by the president on every
qualification, reservation, or adverse remark or disclaimer made by the auditor
Separate Juridical Personality and Limited Liability.
To apply the piercing doctrine, the burden of proving the fraud, malice or equity
(c) A disclosure of all self-dealings and related party transactions entered into demands is on the part of the third party seeking to lift the corporate veil. In
between the One Person Corporation and the single stockholder; and other words, stockholders can invoke the limited liability rule as a matter of
(d) Other reports as the Commission may require. course.
Limited Liability Rule
For purposes of this provision, the fiscal year of a One Person Corporation shall In the case of an OPC, the burden of proof to avail of the limited liability rule is
be that set forth in its articles of incorporation or, in the absence thereof, the placed upon the shoulders of the Single Stockholder. In other words, all that the
calendar year. creditors of the OPC have to show is either that the OPC is not adequately
The Commission may place the corporation under delinquent status should the financed (i.e., that is undercapitalized at the time of incorporation or began to
corporation fail to submit the reportorial requirements three (3) times,
consecutively or intermittently, within a period of five (5) years.
-invested properties), then the Single Stockholder becomes
CLV Lecture
In the ordinary stock corporation setting, especially for publicly-held and
publicly-listed companies, the requirement for the disclosure of self-dealing and has
related party transactions by the directors, officers and majority stockholders become insolvent.
are part of the corporate governance principles of transparency and
accountability for the benefit of the minority shareholders. SEC. 131. Conversion from an Ordinary Corporation to a One Person Corporation.
In an OPC setting, where there are obviously no minority shareholders, the When a single stockholder acquires all the stocks of an ordinary stock
disclosure requirements, including a report of the explanations by the Single
corporation, the latter may apply for conversion into a One Person Corporation,
Stockholder-President on every qualification, reservation, or adverse remark or subject to the submission of such documents as the Commission may require. If
disclaimer made by the auditor, are intended for the protection of the creditors the application for conversion is approved, the Commission shall issue a
of the OPC. certificate of filing of amended articles of incorporation reflecting the conversion.
This is a peculiar application of the corporate governance principles in the OPC
The One Person Corporation converted from an ordinary stock corporation shall
setting where the company is prohibited from engaging in a business vested
business with public interests, and where the principles of the Stakeholder liabilities as of the date of conversion.
Theory are least applicable.
SEC. 130. Liability of Single Shareholder. A sole shareholder claiming limited SEC. 132. Conversion from a One Person Corporation to an Ordinary Stock
liability has the burden of affirmatively showing that the corporation was Corporation. A One Person Corporation may be converted into an ordinary
adequately financed. stock corporation after due notice to the Commission of such fact and of the
circumstances leading to the conversion, and after compliance with all other
Where the single stockholder cannot prove that the property of the One Person requirements for stock corporations under this Code and applicable rules. Such
notice shall be filed with the Commission within sixty (60) days from the
stockholder shall be jointly and severally liable for the debts and other liabilities occurrence of the circumstances leading to the conversion into an ordinary stock
of the One Person Corporation. corporation. If all requirements have been complied with, the Commission shall
issue a certificate of filing of amended articles of incorporation reflecting the
The principles of piercing the corporate veil applies with equal force to One conversion.
Person Corporations as with other corporations.
In case of death of the single stockholder, the nominee or alternate nominee shall

lOMoARcPSD|31111392
transfer the shares to the duly designated legal heir or estate within seven (7) AOI by a decision of its lone member with the concurrence of 2/3 of its
days from receipt of either an affidavit of heirship or self-adjudication executed membership.
by a sole heir, or any other legal document declaring the legal heirs of the single A corporation sole or a juridical person is disqualified to acquire or hold
stockholder and notify the Commission of the transfer. Within sixty (60) days alienable lands of the public domain because of the constitutional prohibition
from the transfer of the shares, the legal heirs shall notify the Commission of their and Sec48(b) of the Public Land Act applies only to Filipino citizens or natural
decision to either wind up and dissolve the One Person Corporation or convert it persons. A corporation sole has no nationality.
into an ordinary stock corporation.
Condominium Corporations
The ordinary stock corporation converted from a One Person Corporation shall As a member of the condominium corporation, the unit owner is legally bound
to pay the corporation its assessments and dues to maintain the common
liabilities as of the date of conversion. areas and facilities of the Condominium. Its obligation arises from both the
law and its contract with the Condominium developer and other unit owners.
In the exercise of its functions to regulate the real estate trade and business
Ampil says this provision is the reverse of sec. 131 the HLURB shall have exclusive jurisdiction to hear and decide cases
involving specific performance of contractual and statutory obligations
filed by buyers of subdivision lots or condominium units against the
CASE DOCTRINES owner, developer, dealer, broker or salesman.
Title XIII: Special Corporations Section 2 of the condominium act (excerpt): . Title to the common areas,
including the land, or the appurtenant interests in such areas, may be held by
Chapter I: Educational Corporations a corporation specially formed for the purpose (hereinafter known as the
Although the Corporation Code sets the term of the members of the Board of "condominium corporation") in which the holders of separate interest shall
Trustees at 5 years, it contains a proviso expressly subjecting the duration to automatically be members or shareholders, to the exclusion of others, in
what is otherwise provided in the articles of incorporation or by-laws of the proportion to the appurtenant interest of their respective units in the
educational corporation. Thus, the AOI or the by-laws of an educational common areas
institution for a different term than 5 years. Non-members of a condominium corporation cannot be elected
to its board
Chapter II: Religious Corporations
A corporation sole does not have any nationality but for purposes of applying
nationalization laws, nationality is determined not by the nationality of its Title XIV
presiding elder but by the nationality of its members, constituting the sect in Dissolution
the Philippines. Thus, the Roman Catholic Church can acquire lands in the
Philippines even if it is headed by the Pope.
The presiding elders are mere administrators of SEC. 133. Methods of Dissolution. A corporation formed or organized under the
the"temporalities" or properties titled in their name and for the provisions of this Code may be dissolved voluntarily or involuntarily.
benefit of the members of their respective religion composed of
an overwhelming majority of Filipinos. THEY ARE NOT
OWNERS, so a presiding elder need not be Filipino to own Same as RCC
Modes of dissolution of a corporation:
property here.
Voluntary
The fact that there are other non-stock religious societies or corporations
using the names Church of the Living God, Inc., Church of God Jesus Christ the Involuntary
Son of God the Head, etc., does not authorize the use of the petitioner of the Shortening of term
essential and distingu Expiration of term
Revocation of the certificate of incorporation
corporate name. (Ang mga Kaanib sa Iglesia ng Dios Case)
A corporation sole may be converted into a corporation aggregate by a Once dissolved, a corporation ceases to have a separate juridical personality. The
mere amendment of its AOI. Although the Corporation Code does not
provide for a manner by which a corporation sole may amend its AOI, Sec. 109 When a natural person dies, his estate is left behind to pay the following:
allows the application to religious corporations of the general provisions BIR always first for taxes
Pay Creditors
governing non-stock corporations. Thus, a corporation sole may amend its
Distribute remaining assets

lOMoARcPSD|31111392
directors or trustees and countersigned by the secretary of the corporation; (2)

corporation are left behind.
proof of publication; and (3) favorable recommendation from the appropriate
When a natural person dies, an executor is named in the will to take care of the
regulatory agency, when necessary.
estate of the dead person.
If no executor is appointed, the court appoints an administrator who is
Within fifteen (15) days from receipt of the verified request for dissolution, and
also a court officer to manage the estate.
in the absence of any withdrawal within said period, the Commission shall
For juridical persons, the trustee is the equivalent of the executor since the
approve the request and issue the certificate of dissolution. The dissolution shall
trustee is appointed to manage assets during liquidation when the corporation
take effect only upon the issuance by the Commission of a certificate of
is dissolved.
dissolution.
If no trustee is appointed by the corporation, the court appoints a
receiver to manage the assets. The receiver is the equivalent of the
No application for dissolution of banks, banking and quasi-banking institutions,
administrator.
preneed, insurance and trust companies, nonstock savings and loan associations,
pawnshops, and other financial intermediaries shall be approved by the
called liquidation.
Commission unless accompanied by a favorable recommendation of the
De Jure and De Facto Dissolution
appropriate government agency
De jure dissolution is one that goes through one of the modes of
olved either because the SEC
issued the certificate of dissolution or because its corporate term has Changes:
expired. In the RCC the affirmative vote needed for voluntary dissolution where no
De Facto dissolution is one, which takes place in substance such as creditors are affected is at least majority of the outstanding capital stock owned
when the corporation ceases business due to insolvency. It enters by stockholders or at least majority of members in a meeting.
liquidation proceedings but still retains its primary franchise to be a
corporation.
This section talks about voluntary dissolution where no creditors are affected.
For this voluntary dissolution method to apply, the corporation dissolution must
SEC. 134. Voluntary Dissolution Where No Creditors are Affected. If dissolution
not affect or prejudice the rights of any creditor.
of a corporation does not prejudice the rights of any creditor having a claim
Both the BoD and stockholders must affirm the dissolution:
against it, the dissolution may be effected by majority vote of the board of
Majority vote of the BoD or trustees is required
directors or trustees, and by a resolution adopted by the affirmative vote of the
Affirmative vote of at least majority of the Outstanding Capital Stock
stockholders owning at least majority of the outstanding capital stock or majority
or at least Majority of the members
of the members of a meeting to be held upon the call of the directors or trustees.
The vote must be at a meeting held upon the call of the BoD
or trustees
At least twenty (20) days prior to the meeting, notice shall be given to each
Notice of the meeting must be given to each
shareholder or member of record personally, by registered mail, or by any means
shareholder/member of the records
authorized under its bylaws, whether or not entitled to vote at the meeting, in the
Notice must be given at least 20 days prior to
manner provided in Section 50 of this Code and shall state that the purpose of the
meeting date
meeting is to vote on the dissolution of the corporation. Notice of the time, place,
Notice must state purpose of meeting
and object of the meeting shall be published once prior to the date of the meeting
Both those entitled and not entitled to vote should
in a newspaper published in the place where the principal office of said
get a notice
corporation is located, or if no newspaper is published in such place, in a
Method of notice should be
newspaper of general circulation in the Philippines.
Personally
Registered Mail or
A verified request for dissolution shall be filed with the Commission stating: (a)
Any means provided by by-laws
the reason for the dissolution; (b) the form, manner, and time when the notices
In manner provided by Sec. 50
were given; (c) names of the stockholders and directors or members and trustees
Publication requirement:
who approved the dissolution; (d) the date, place, and time of the meeting in
Notice of the time, place and purpose of meeting
which the vote was made; and (e) details of publication.
should be published once before the actual date of
the meeting
The corporation shall submit the following to the Commission: (1) a copy of the
Which newspaper?
resolution authorizing the dissolution, certified by a majority of the board of

lOMoARcPSD|31111392
Publication must be in a newspaper in the

place where the principal office of the
If the petition is sufficient in form and substance, the Commission shall, by an
corporation is located
order reciting the purpose of the petition, fix a deadline for filing objections to
If no newspaper is published in such place,
the petition which date shall not be less than thirty (30) days nor more than sixty
any newspaper of general circulation in
(60) days after the entry of the order. Before such date, a copy of the order shall
the Philippines.
be published at least once a week for three (3) consecutive weeks in a newspaper
What must be filed with the SEC for dissolution?
of general circulation published in the municipality or city where the principal
Verified request for dissolution.
office of the corporation is situated, or if there be no such newspaper, then in a
Note that this is different from a verified petition which is required
newspaper of general circulation in the Philippines, and a similar copy shall be
for voluntary dissolution where creditors are affected
posted for three (3) consecutive weeks in three (3) public places in such
What does the verified request have to state?
municipality or city.
Reason for dissolution
Form, manner and time notices of meeting were given
ch the right to file objections
Names of BoD and stockholders who approved dissolution.
as fixed in the order has expired, the Commission shall proceed to hear the
Date, place and time of the meeting in which vote was made.
petition and try any issue raised in the objections filed; and if no such objection
Publication details
is sufficient, and the material allegations of the petition are true, it shall render
Aside from the verified request, what else must the corporation submit to SEC?
judgment dissolving the corporation and directing such disposition of its assets
Copy of resolution authorizing dissolution
as justice requires, and may appoint a receiver to collect such assets and pay the
Must be certified by majority of BoD or trustees
debts of the corporation.
Must be countersigned by corporate secretary
Proof of publication
The dissolution shall take effect only upon the issuance by the Commission of a
Favorable recommendation from appropriate regulatory agency, if
certificate of dissolution.
needed.
After 15 days from receipt of the verified request for dissolution, the
commission shall approve the request and issue the certificate of dissolution
Note: this is as long as the corporation has not withdrawn the request
for dissolution within the 15 days.
IMPT Note: dissolution takes effect only upon ISSUANCE by SEC of This applies when the corporation wants to voluntarily dissolve but
the certificate of dissolution. creditors will be affected
The affirmative vote requirement of stockholders or members in this
SEC. 135. Voluntary Dissolution Where Creditors are Affected; Procedure and section is of the OCS or members at the meeting calling for the
purpose of dissolution. In Sec.134 involving voluntary dissolution
Contents of Petition. Where the dissolution of a corporation may prejudice the
where creditors are not affected, the vote requirement for stockholders
rights of any creditor, a verified petition for dissolution shall be filed with the
or members is only majority.
Commission.
In this section, a verified petition
a verified request
rs
In this section, the SEC gives a period of time for others to file an
or trustees, verified by its president or secretary or one of its directors or
trustees, and shall set forth all claims and demands against it, and that its objection to the petition for dissolution, but this is not done in a
dissolution was resolved upon by the affirmative vote of the stockholders voluntary dissolution where creditors are not affected.
representing at least two-thirds (2/3) of the outstanding capital stock or at least In this section, there is also hearing done by the SEC on the petition for
two-thirds (2/3) of the members at a meeting of its stockholders or members dissolution and to try the issues raised in the objections filed. This is
not done in the previous section.
called for that purpose.
Outline of the procedure for voluntary dissolution of corporation where
The petition shall likewise state: (a) the reason for the dissolution; (b) the form, creditors are affected:
What are the requirements of a verified petition for dissolution that is
manner, and time when the notices were given; and (c) the date, place, and time
of the meeting in which the vote was made. The corporation shall submit to the to be filed with the SEC?
Must be or
Commission the following: (1) a copy of the resolution authorizing the
trustees
dissolution, certified by a majority of the board of directors or trustees and
Verified by its president or secretary or one of its directors
countersigned by the secretary of the corporation; and (2) a list of all its creditors.
or trustees

lOMoARcPSD|31111392
Sets forth all claims and demands by creditors against

further proceedings, subject to the provisions of this Code on liquidation.
corporation
Sets forth that there was an affirmative vote of
In the case of expiration of corporate term, dissolution shall automatically take
of
effect on the day following the last day of the corporate term stated in the articles
members at a meeting called for that purpose.
of incorporation, without the need for the issuance by the Commission of a
What else should the petition for dissolution state:
certificate of dissolution.
Reason for dissolution
Form, manner and time notices of meeting were given
Date, place and time of the meeting in which vote was made. This section provides another way for dissolving a corporation voluntarily:
What other documents must the corporation submit to the SEC? Amend the AoI to shorten the corporate term.
Copy of resolution authorizing dissolution Once term expires, the corporation is deemed dissolved without further
Must be certified by majority of BoD or trustees proceedings. NO NEED FOR CERTIFICATE OF DISSOLUTION FROM SEC.
Must be countersigned by corporate secretary Deemed dissolved the day after the last day of the corporate term.
List of all its creditors E.g. AoI says corporate term until May 29, 2019
What shall the SEC do if it deems the petition for dissolution to be On May 30, 2019, the corporation is automatically dissolved.
sufficient in form and substance? 2 Requisites for voluntary dissolution of corporation by shortening
Order the fixing of a deadline for filing objections to the corporate term (IMPT since Ampil repeated this 3 times.)
petition. Length of period is from 30-60 days after entry of Term must expire.
order AoI amending the corporate term must be approved by SEC.
Publication of the order:
Before such date, a copy of the order shall be published at still required since SEC is still the one approving the AoI. SEC will issue a
least once a week for three (3) consecutive weeks in a certificate approving the amended AoI.
newspaper of general circulation published in the However, if a corporation has creditors, Ampil said better to just amend AoI to
municipality or city where the principal office of the shorten corporate term if corporation wants to dissolve.
corporation is situated No need for the publication and hearing requirements set forth in Sec.
If there be no such newspaper, then in a newspaper of general 135.
circulation in the Philippines, and a similar copy shall be Can you extend the corporate term of a corporation after the expiration of
posted for three (3) consecutive weeks in three (3) public
places in such municipality or city. No. By that time, the corporation has ceased to exist so you cannot
What happens after the expiration of the period for filing amend AoI to extend corporate term anymore.
objections to the petition for dissolution?
objections raised SEC. 137. Withdrawal of Request and Petition for Dissolution. A withdrawal of
If objections are insufficient and allegations of the petition for the request for dissolution shall be made in writing, duly verified by any
dissolution are true, a judgement rendered is by SEC incorporator, director, trustee, shareholder, or member and signed by the same
dissolving the corporation number of incorporators, directors, trustees, shareholders, or members
SEC directs disposition of assets and may appoint a receiver necessary to request for dissolution as set forth in the foregoing sections. The
to collect such assets to pay debts of corporation. withdrawal shall be submitted no later than fifteen (15) days from receipt by the
Dissolution will only take place upon issuance of the Commission of the request for dissolution. Upon receipt of a withdrawal of
CERTIFICATE OF DISSOLUTION by SEC. request for dissolution, the Commission shall withhold action on the request for
dissolution and shall, after investigation: (a) make a pronouncement that the
request for dissolution is deemed withdrawn; (b) direct a joint meeting of the
SEC. 136. Dissolution by Shortening Corporate Term. A voluntary dissolution board of directors or trustees and the stockholders or members for the purpose
may be effected by amending the articles of incorporation to shorten the of ascertaining whether to proceed with dissolution; or (c) issue such other
corporate term pursuant to the provisions of this Code. A copy of the amended orders as it may deem appropriate.
articles of incorporation shall be submitted to the Commission in accordance
with this Code. A withdrawal of the petition for dissolution shall be in the form of a motion and
similar in substance to a withdrawal of request for dissolution but shall be
Upon the expiration of the shortened term, as stated in the approved amended verified and filed prior to publication of the order setting the deadline for filing
articles of incorporation, the corporation shall be deemed dissolved without any

lOMoARcPSD|31111392
objections to the petition. (1) Was created for the purpose of committing, concealing or aiding the
commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices;
This section contemplates a situation where the corporation filed a voluntary
(2) Committed or aided in the commission of securities violations,
request or voluntary petition for dissolution of the corporation, but the smuggling, tax evasion, money laundering, or graft and corrupt
corporation wants to withdraw such request. practices, and its stockholders knew of the same; and
This section provides the procedure for 2 kinds of withdrawal: (3) Repeatedly and knowingly tolerated the commission of graft and
Withdrawal of request for dissolution (w/o creditors)
corrupt practices or other fraudulent or illegal acts by its directors,
Here, only need a written request to withdraw (can be a trustees, officers, or employees.
letter)
Deadline is 15 days after receipt by SEC of the request for If the corporation is ordered dissolved by final judgment pursuant to the grounds
dissolution. set forth in subparagraph (e) hereof, its assets, after payment of its liabilities,
Withdrawal of petition for dissolution (w/ creditors)
shall, upon petition of the Commission with the appropriate court, be forfeited in
Here, the withdrawal must be in the form of a motion favor of the national government. Such forfeiture shall be without prejudice to
Deadline is before publication of the order setting the the rights of innocent stockholders and employees for services rendered, and to
deadline for filing objections to the petition
the application of other penalty or sanction under this Code or other laws.
Procedure for withdrawal of request of dissolution:
Withdrawal must be made in writing
The Commission shall give reasonable notice to, and coordinate with, the
Duly verified by any incorporator, director or stockholder appropriate regulatory agency prior to the involuntary dissolution of companies
Signed by same number of directors and stockholders needed under their special regulatory jurisdiction.
to request for dissolution (majority for each)
Withdrawal must be submitted no later than 15 days after receipt by
SEC of the request for dissolution. This section contemplate involuntary dissolution
Once SEC receives withdrawal, it must investigate first before acting on 2 methods for Involuntary Dissolution:
it. After such investigation, it shall: Dissolved by SEC motu proprio
(a) make a pronouncement that the request for dissolution is Filing of verified complaint by any interested party
deemed withdrawn; Grounds for dissolution of a corporation:
(b) direct a joint meeting of the board of directors or trustees Non-use of corporate charter as provided under Sec 21 (Does not
and the stockholders or members for the purpose of formally organize and commence business within 5 years from the date
ascertaining whether to proceed with dissolution; or of incorporation, so certificate of incorporation revoked)
(c) issue such other orders as it may deem appropriate. Continuous inoperation of the corporation as provided under Sec 21
Procedure for withdrawal of petition of dissolution: (corporation has commenced its business but stopped for at least 5
Must be in the form of a MOTION not mere written request. consecutive years, SEC may after due notice and hearing place
Deadline for filing of this motion is before publication of the order corporation under delinquent status. Thereafter, corporation has 2
setting the deadline for filing objections to the petition
However, the the form of withdrawal is different, the substance of the incorporation will be revoked.
motion is similar to that of a written request to withdraw. Upon receipt of a lawful court order dissolving the corporation (e.g. in
FRIA)
Final judgement that corporation incorporated through fraud
SEC. 138. Involuntary Dissolution. A corporation may be dissolved by the
Upon finding by final judgement that the corporation:
Commission motu proprio or upon filing of a verified complaint by any interested
WAS CREATED to do graft and corrupt practices
party. The following may be grounds for dissolution of the corporation:
COMMITTED or AIDED graft and corrupt practices
(a) Non-use of corporate charter as provided under Section 21 of this Code;
REPEATEDLY AND KNOWINGLY TOLERATED commission
(b) Continuous inoperation of a corporation as provided under Section 21 of this
of graft and corrupt practices by directors, officers of
Code;
employees of corp. (Passive participation)
(c) Upon receipt of a lawful court order dissolving the corporation;
What happens if corporation is ordered dissolved due to grounds in
(d) Upon finding by final judgment that the corporation procured its
subparagraph e (created, committed or tolerated graft and corrupt practices)?
incorporation through fraud;
First pay liabilities of corporation
(e) Upon finding by final judgment that the corporation:
Then, assets of corporation, upon petition of SEC with the appropriate
court, are forfeited in favor of national government.

lOMoARcPSD|31111392
Such forfeiture shall be without prejudice to rights of innocent

the effective date of dissolution, for the purpose of prosecuting and defending
stockholders and employees for services rendered
suits by or against it and enabling it to settle and close its affairs, dispose of and
This protects innocent employees and stockholders who
convey its property, and distribute its assets, but not for the purpose of
were just doing their jobs and were unaware of the
continuing the business for which it was established.
corruption being done in and through the corporation.
Other penalties and sanctions under the RCC or other laws will apply
At any time during said three (3) years, the corporation is authorized and
aside from the dissolution of the corporation.
empowered to convey all of its property to trustees for the benefit of
Is the failure to file bylaws a ground to dissolve the corporation?
stockholders, members, creditors and other persons in interest. After any such
No. The corporation must be given a chance to file the bylaws and
conveyance by the corporation of its property in trust for the benefit of its
explain why it failed to file in the first place.
stockholders, members, creditors and others in interest, all interest which the
SEC shall give reasonable notice to, and coordinate with, the appropriate
corporation had in the property terminates, the legal interest vests in the
regulatory agency prior to the involuntary dissolution of companies under
trustees, and the beneficial interest in the stockholders, members, creditors or
their special regulatory jurisdiction.
other persons-in-interest.
Other notes:
Except as otherwise provided for in Sections 93 and 94 of this Code, upon the
winding up of corporate affairs, any asset distributable to any creditor or
and dissolution?
stockholder or member who is unknown or cannot be found shall be escheated in
In revocation, the corporation can still be resurrected like Jesus, but in
favor of the national government.
dissolution, the corporation is dead and cannot be brought back to life.
The usual reason for revocation is non-submission of reportorial
Except by decrease of capital stock and as otherwise allowed by this Code, no
requirements.
corporation shall distribute any of its assets or property except upon lawful
The usual reason SEC will grant petition to lift order of revocation is if
dissolution and after payment of all its debts and liabilities.
there is substantial evidence that the corporation is an on-going
concern or has not stopped operation even during the period of
suspension or revocation. Dissolution- extinguishment of the franchise of a corporation and the
termination of its corporate existence
er occurred. Liquidation- conversion of corporation assets to liquid assets to pay off creditors
The reinstatement of the corporation has the effect of and the remaining balance is distributed to stockholders.
ratifying and confirming all acts and proceedings of the
corporate body for 3 years for the purpose of prosecuting and defending suits,
would have been legal and valid but for the dissolution. and settling/closing affairs and liquidating property.
Illustration: The 3 years cannot be used to continue business of the corporation.
E.g. Corporation entered contract Jan 1 The only thing the BoD can do is wind up operations.
Jan 10 certificate of incorporation revoked During this 3 year period, the corporation may convey all of its property to
Feb 1, order to lift revocation trustees for the benefit of stockholders, creditors and other person in interest.
As if the contract was continuous from Jan 1 to Feb 1 without After doing so, corporation loses all interest in such property.
interruption. Now, the legal interest in the properties are transferred and vested in
If the corporation is involved in a pending intra-corporate controversy the trustees while the beneficial interest in the properties is vested in
between 2 groups claiming ownership of the shares, the petition to lift the stockholders, creditors or other persons-in interest.
the order of the revocation shall be granted only upon the finality of Upon the winding up of corporate affairs, any asset distributable to any creditor
any decision in the intra-corporate controversy.
in favor of the National Government.
SEC. 139. Corporate Liquidation. Except for banks, which shall be covered by the Except by decrease of capital stock and as otherwise allowed by this Code, no
corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities.
This is basically the trust fund doctrine.
The investment of stockholders are locked in until the end of the
corporation whose charter expires pursuant to its articles of incorporation, is
annulled by forfeiture, or whose corporate existence is terminated in any other
manner, shall nevertheless remain as a body corporate for three (3) years after Other notes:
Who appoints a trustee and who appoints a receiver?

lOMoARcPSD|31111392
Board of Directors appoint the trustee Through Board of directors (failure of directors to appoint a trustee
Court appoints the receiver within the 3 year period after dissolution automatically makes the BoD
Can a lawyer be appointed as trustee? in charge of liquidation.)
YES. In fact, lawyers who are handling cases for the corporation can be Through a trustee (appointed by directors during 3 year period after
considered the trustees of the assets of the dissolved corporation after dissolution)
the 3 year period. Through a receiver appointed by the court.
The court cannot convert a derivative suit into a liquidation proceeding. Effect of dissolution or revocation of corporation on business
Who has jurisdiction concerning dissolution and liquidation? Corporation can no longer conduct usual business provided for in its
SEC has jurisdiction concerning dissolution primary purpose or even secondary purpose.
Courts have jurisdiction with regard to liquidation. RTC usually. Existence of the corporation continues only for purpose of liquidation
See NIRC 1997 Sec 52 subsection c and winding up of affairs.
Corporation needs to obtain certificate of tax clearance before If a liquidation is through a receiver, the authority of a corporation and its
dissolution to make sure it pays tax. directors and officers over its properties and effects is suspended.
BUT, when the corporation has not yet organized or commenced Some nuances of the 3-year period to liquidate after the dissolution of a
business, no need for certificate of tax clearance if it wants to dissolve corporation
Again, no need to finish liquidating within 3 year period. It can extend
past period to finish liquidation.
tax clearance is needed. Effect on claims- nothing that bars recovery of debts of the corporation
Ampil says the 3 year period to liquidate is useless and need not be followed. past the 3 year period. The claim of the creditors follows the assets of
If the BoD fails to appoint trustee within the 3 year period, then the the corporation and so they can still collect from the corporation past
BoD becomes trustee. the 3 years after it has been dissolved.
Effect on rights- corporation may still enforce its rights as a corporation
still undergoing liquidation past the 3 year period, it will still be after the 3 year period.
allowed to finish liquidation.-> VERY USELESS DEADLINE See RCC sec. 184-
What are liquidating dividends? any corporation, its stockholders, members, directors,
Distributed to stockholders after corp is dissolved and all its creditors trustees, or officers, nor any liability incurred by any such
are paid. corporation, stockholders, members, directors, trustees, or
business acts of officers, shall be removed or impaired either by the
the corporation. subsequent dissolution of said corporation or by any
subsequent amendment or repeal of this Code or of any part
after the corporation has been dissolved and undergoes liquidation.
Tancinco case: Similarly, the termination of the life of a corporation does
Termination of the life of a juridical entity does not by itself cause the not automatically extinguish or diminish the rights of
extinction of rights and liabilities of such entity stockholders.
Paramount case: The right to inspect books and records of the
A dissolved corporation may still file an appeal. corporation is not lost after dissolution of the
corporation.
Book notes on liquidation: ( will skip FRIA procedure pp700-717 since Ampil never Filing of new cases after 3 years
discussed or asked about it) A trustee may continue to prosecute a case commenced by the
Dissolution does not require approval of liquidation or distribution of assets of a corporation within the 3 year period.
dissolved corporation by SEC. However, a trustee cannot start a suit after the 3 year period.
Liquidation is an internal concern and falls within the power of the Exception: If it's in the furtherance of the liquidation
directors and stockholders or duly appointed trustee. process.
jurisdiction over liquidation but rather the RTC. In addition, the trustee has legal title that can serve as basis
This is because liquidation involves the settlement of claims for filing of cases as a real party in interest after the 3 year
for and against the corporation which is under the period
jurisdiction of the regular courts.
Trial court is in the best position to convene all creditors, but the trustee who now has legal title over the
ascertain their claims and determine their preferences. properties.
Modes of liquidation: Rehabilitation

lOMoARcPSD|31111392
If a corporation is in distress (usually financial due to debts to

many creditors) but the directors and shareholders believe
that it can still continue, the corporation may consider
rehabilitation rather than outright dissolution.
It contemplates the continuance of corporate life and
activities in an effort to restore and reinstate the corporation
to its former position of successful operation and solvency.
corporation has to maintain its assets to continue business

but in liquidation, corporation preserves assets to sell them
and satisfy creditors and stockholders.
2 purposes of rehabilitation proceedings:
Efficiently and equitably distribute the assets of the
insolvent debtor to its creditors
Provide debtor with fresh start by relieving them of
the weight of their debts and allowing them to
reorganize their affairs.
Book Questions:
1.
legal capacity to sue since it no longer existed a week before the suit was filed
Is the defense of Y valid?

a.
certificate of dissolution. Second, even if dissolution was approved by
SEC, the corporate existence does not automatically cease. The
corporation has 3 years after dissolution to liquidate its affairs and it
can still commence suit during these 3 years.
2. If a suit extends past the 3 year liquidation period for dissolved corporations,
will the suit be automatically terminated?
a. No. Pending suits upon the expiration of the 3 year period after its
dissolution may be prosecuted by the lawyer who is handling the case
and the latter will act as the trustee for such purpose.
3. What happens if no trustee or receiver is appointed by the corporation within
the 3 year period of liquidation and the period expires?
a. BoD can still continue winding up the corporate affairs past the 3 year
period.

lOMoARcPSD|31111392
implication and the fact that a corporation did not convey its assets to a
CASE DOCTRINES receiver or assignee was of no consequence. (This is what Ampil meant when
Title XIV: Dissolution he said the 3 year period to appoint trustee is useless since if no trustee is
appointed, the directors will be the trustees to handle liquidation).
The requirements under the law should have been strictly complied with by GR: A defunct corporation loses the right to sue and be sued in its name upon
the members of the club to effect dissolution. Submission of the minute of the the expiration of the three-year period provided by law.
board meeting and board resolution is not enough without following notice ER: When a corporation is dissolved and the liquidation of its assets
and publication requirements for voluntary dissolution. is placed in the hands of a receiver or assignee, the three-year period
shall not apply and the assignee may institute all actions leading to
life anymore during the 3 year period for liquadation. The corp is already the liquidation of the assets of the corporation even after the
deemed dissolved when the corp term expires and life cannot be extended expiration of three years. (Based on jurisprudence)
through amending the AoI.
Failure to file by-laws within the required period is only a ground
for suspension or revocation of the certificate of registration of corporations,
and NOT A CAUSE FOR ITS AUTOMATIC DISSOLUTION.
A corpor
dissolution. Since Section 122 allows a corporation to continue its existence
for a limited purpose, necessarily there must be a board that will continue
acting for and on behalf of the dissolved corporation for that purpose. In fact,
conduct its liquidation within three years from its dissolution. Jurisprudence
for persons in
interest beyond the said three-year period.
An existing intra corporate dispute which does not constitute a
corporate business is not affected by the subsequent dissolution of
the corp. It can still be resolved in SEC (now RTC) despite
dissolution.
The trustee of a corporation may continue to prosecute a case commenced by
the corporation within three years from its dissolution until rendition of the
final judgment, even if such judgment is rendered beyond the three-year
period allowed by Section 122 of the Corporation Code. However, an already
defunct corporation cannot initiate a suit after the lapse of the said three-year
period.
A corporation which has already been dissolved, be it voluntarily or
involuntarily, has no juridical personality to conduct its business. It may only
perform activities related to liquidation.
A derivative suit is fundamentally distinct and independent from liquidation
proceedings. They are neither part of each other nor the necessary
consequence of the other. There is totally no justification for courts to convert
what was supposedly a derivative suit instituted by the parties, on their own
behalf and on behalf of the corporation against another party, to a proceeding
for the liquidation of the corporation.
Dissolution or even the expiration of the three-year liquidation
period should not be a bar to a corporation's enforcement of its rights as a
corporation.
The termination of the life of a juridical entity does not by itself cause the
extinction of rights and liabilities of such entity
The mere revocation of the charter of a corporation does not result in the
abatement of proceedings. Directors are considered trustees by legal

lOMoARcPSD|31111392
TITLE XV Consent and presence, each as a separate requisite for jurisdiction over the
FOREIGN CORPORATIONS
and fair play.
Presence
SEC. 140. Definition and Rights of Foreign Corprations. For purposes of this Code, corporation there have not only been continuous and systematic but also give
a foreign corporation is one formed, organized or existing under laws other than rise to liabilities sued on, even though no consent to be sued or
authorization to an agent to accept service of process has been given.
business in its own country or State. It shall have the right to transact business in In summary, a foreign corporation may be subjected to the jurisdiction of the
the Philippines after obtaining a license for that purpose in accordance with this forum by reason of:
Code and a certificate of authority from the appropriate government agency. o Consent
CHANGES: o Ownership of property within the state
o By reason of activities within or having effect within the state.
No changes
Host state
I. procity Rule under the doctrine of within the territorial
jurisdiction of the host state.
Foreign Corporation under the RCC1 o When a corporation does business w/in the territorial jurisdiction of a
(a) The corporation must be formed, organized or existing under laws other than host state, then it ascribes to the host state standing to enforce its laws,
(Legal Existence) rules and regulations.
(b) Its laws allow Filipino citizens and corporations to do business in its own
country or State. (Reciprocity Rule) Definition of a Foreign Corporation
Misconception:
CLV
Nature of the Corporate Creature existing other than under PH Laws are foreign corporations irrespective of the
A corporation is a creature of the state under the laws of which it has been issue of reciprocity. (Same view w/ De Leon)
endowed its juridical personality.
A corporation has NO existence beyond the territories of such creating state, Legal Implications of the Reciprocity Rule
jurisdiction of the State under which it is created. NOTE: there was NO reciprocity rule in the Corp56oration Law! It was just
Therefore, a foreign corporation is one that owes its existence to the laws of introduced in the Old Corporation Code (BP 68)
another state and strictly speaking, it has no legal existence within the state
in which it is foreign. AQUINO
GR in international jurisdiction: no state can by its laws, no court which is only a
Incorporation Test2
creature of the state, can by its judgments directly bind or affect property or
persons beyond the limits of that state Under this test, a corporation is determined to be foreign based on the place of
o HOWEVER, under the doctrine of state comity incorporation
corporation created by the laws of one state is usually allowed to However, there is a restrictive provision insofar as it requires reciprocity.
transact business in other states and to sue in courts of the forum If Philippine corporations are not recognized in the country where the foreign
o The legal standing of a foreign corporation in the host state is founded corporation was organized, the latter will likewise not be recognized in the
under IL on the basis of consent by voluntary surrender of jurisdiction Philippines.
over its person in a pending suit before the host state or by establishing Reciprocity basis: a foreign corporation is one which owes its existence to the
a presence in the host state. laws of another State and generally, it has no existence within the State in which it
is foreign.
1 2
De - Under the Corp Code, the existence of a foreign law allowing Filipino Should be distinguished from Control Test
citizens and corporations to do business in the country of the foreign corporation (reciprocity rule)
is prescribed only as a condition for securing a license to transact business in the Philippines. It is
NOT an essential element of being a foreign corporation.

lOMoARcPSD|31111392
o A corporation has no legal status beyond the bounds of sovereignty by FCs shall not be permitted to transact or do business in the Philippines until they
which they are created. have secured a license for that purpose from the SEC and a certificate of authority
o It is widely accepted that foreign corporations are, by reason of state
comity allowed to transact business in other states and to sue in the o However, the fact that a foreign corporation may not transact business
courts of such fora. in the PH until they have secured a license does not make that
corporation any less a juridical person.
o An exception to the license requirement has been recognized where a
II. Right to Transact Business in the Philippines after Obtaining a License for
foreign corporation sues on an isolated transaction
that Purpose
III. Meaning of Doing Business (see FIA 1991)
AQUINO
License AQUINO
Before a foreign corporation can transact business in the Philippines, it must Modes of Doing Business
secure proper authorizations under existing laws. A foreign corporation can use any of the following forms:
If a foreign corporation does business in the Philippines without the required o Subsidiary
license, the following effects are expressly provided in Sec. 1503 of the RCC. o Branch Office
o The foreign corporation may be sued o Representative Office
o It shall not be allowed to maintain or intervene in an action, suit or
o Regional Headquarters (RHQ)/ Regional Operating Headquarters
proceeding for its own account in any court or tribunal or agency in the (ROHQ)
Philippines. SUBSIDIARY is a corporation that will be organized in the Philippines through
Purpose of requiring foreign corporations doing business in the Philippines to
the SEC
obtain a license: o It is a corporation more than 50% voting stock of which is owned or
o To subject the foreign corporations to the jurisdiction of the local
controlled directly or indirectly through one or more intermediaries by
courts another corporation, which thereby becomes the parent company.
o Otherwise, a foreign corporation illegally doing business here because o Subsidiary is a domestic corporation and there is therefore no need to
of refusal or neglect to obtain the license and authority to do business secure a license to do business.
may successfully though unfairly plead such neglect or illegal act so as
o The parent company is just a shareholder in the domestic corporation
to avoid service and thereby impugn the jurisdiction of the local courts.
which has a personality that is separate and distinct from the said
parent company.
o If a FC does not do business here, there would be no reason for it to be REPRESENTATIVE OR LIAISON OFFICE - deals directly with the clients of the
subject to the St parent company but does not derive income from the host country and is
concerned, such foreign corporation has no legal existence.
fully subsidized by its head office.
o
o It undertakes activities such as, but not limited to info dissemination
of sovereignty. ontrol of
DE LEON products.
Objectives of regulation of foreign corporations o The representative office may only engage in activities that support the
To place them on an equality with domestic corporations business activities of the parent company.
REGIONAL OR AREA HQ OF MULTINATIONAL COMPANIES may be
To subject them to inspection so that their condition may be known
organized under P.D. 218. A multinational company is a foreign firm or entity
To protect the residents of the State doing business with them by subjecting
engaged in international trade with affiliates, subsidiaries or branches in the
them to the courts of the State.
Asia-Pacific Region.
o Provisions of revenue requiring the payment of fees and taxes are only
incidental.4 o Asia-Pacific Region all countries bordering the Pacific Ocean on the
side of Asia + New Zealand and Australia
License and certificate of authority required of foreign corporations BRANCHES instead of incorporating a subsidiary, a foreign corporation may
create a branch in the Philippines which would not be a legally independent
unit and simply obtain a license in the Philippines.
3 4
Previously Sec. 133 of the OCC (No changes) 17 Fletcher, p. 424

lOMoARcPSD|31111392
o A branch of a foreign corporation is without legal personality that is issued to it, then, it may continue to have such authority even if the
separate from the parent company. reciprocity requirement is not met.
o A branch office of a foreign company carries out the business activities o However, under the Code, it is given a period of not more than 2 years
of the head office and derives income from the host country. from the effectivity of the Code within which to comply w/ the same
o A branch office is required to deposit securities with the SEC which will (Sec 185 RCC)
be returned upon withdrawal of the foreign corporation.
WHY? To provide reasonable assurance that the branch shall
be able to settle its obligations to the Philippine government SEC. 142. Application for a License. A foreign corporation applying for a license
and residents. to transact business in the Philippines shall submit to the Commission a copy of
Failure to comply with the obligation to deposit may result in its articles of incorporation and bylaws, certified in accordance with law, and
the imposition of admin fines their translation to an official language of the Philippines, if necessary. The
Reportorial requirements A representative office and a branch office of a foreign application shall be under oath and, unless already stated in its articles of
corporation shall submit a GIS within 30 days from the anniversary date of the incorporation, shall specifically set forth the following:
y (a) The date and term of incorporation;
the BIR within 120 days after the end of the fiscal year indicated in the FS. (b) The address, including the street number, of the principal office of the
Notification Update Form (NUF) the SEC now additionally requires the corporation in the country or State of incorporation;
submission of a NUF within 30 days from the occurrence of certain changes that
(c) The name and address of its resident agent authorized to accept summons and
occur before the submission of the GIS. The NUF is a report to be accomplished
process in all legal proceedings and all notices affecting the corporation, pending
by the president or the resident agent of concerned foreign corporation
the establishment of a local office;
containing all information subject of any change in its principal office address,
accounting period, list of directors and officers, subsidiaries and affiliates and (d) The place in the Philippines where the corporation intends to operate;
other notifications to the SEC. (e) The specific purpose or purposes which the corporation intends to pursue in
the transaction of its business in the Philippines: Provided, That said purpose or
purposes are those specifically stated in the certificate of authority issued by the
SEC. 141. Application to Existing Foreign Corporations. Every foreign appropriate government agency;
corporation which on the date of the effectivity of this Code is authorized to do
business in the Philippines under a license issued to it, shall continue to have (f) The names and addresses of the present directors and officers of the
such authority under the terms and conditions of its license, subject to the corporation;
provisions of this Code and other special laws. (g) A statement of its authorized capital stock and the aggregate number of
shares which the corporation has authority to issue, itemized by class, par value
of shares, shares without par value, and series, if any;
DE LEON
(h) A statement of its outstanding capital stock and the aggregate number of
Where license is issued before the effectivity of the Code shares which the corporation has issued, itemized by class, par value of shares,
A foreign corporation authorized to transact business in the Philippines under a shares without par value, and series, if any;
license issued pursuant to the Corporation Code shall be bound by the terms and (i) A statement of the amount actually paid in; and
conditions of such license and the provisions of the Code.
If the license was issued before the (j) Such additional information as may be necessary or appropriate in order to
enable the Commission to determine whether such corporation is entitled to a
license to transact business in the Philippines, and to determine and assess the
o Thus a FC is not required by the Code to obtain a NEW license to be able fees payable.
to continue transacting business in the Philippines
NOTE: BP 68 (Old Corporation Code) expanded the definition of a foreign Attached to the application for license shall be a certificate under oath duly
corporation to include the requirement that the laws of the foreign corporation executed by the authorized official or officials of the jurisdiction of its
siness in its own State or incorporation, attesting to the fact that the laws of the country or State of the
[reciprocity rule] applicant allow Filipino citizens and corporations to do business therein, and that
o Presently, unless reciprocity rule is satisfied, a FC cannot be licensed to the applicant is an existing corporation in good standing. If the certificate is in a
transact business in the Philippines. foreign language, a translation thereof in English under oath of the translator
o But if on the date of the effectivity of the Code, the foreign corporation shall be attached to the application.
is already authorized to do business here under a license theretofore

lOMoARcPSD|31111392
The application for a license to transact business in the Philippines shall likewise Foreign banking, financial and insurance corporations shall, in addition to the
be accompanied by a statement under oath of the president or any other person above requirements, comply with the provisions of existing laws applicable to
authorized by the corporation, showing to the satisfaction of the Commission and them
when appropriate, other governmental agencies that the applicant is solvent and
in sound financial condition, setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1) year immediately prior to the SEC. 143. Issuance of a License. If the Commission is satisfied that the applicant
filing of the application. has complied with all the requirements of this Code and other special laws, rules
and regulations, the Commission shall issue a license to transact business in the
Philippines to the applicant for the purpose or purposes specified in such license.
Foreign banking, financial, and insurance corporations shall, in addition to the Upon issuance of the license, such foreign corporation may commence to transact
above requirements, comply with the provisions of existing laws applicable to business in the Philippines and continue to do so for as long as it retains its
them. In the case of all other foreign corporations, no application for license to authority to act as a corporation under the laws of the country or State of its
transact business in the Philippines shall be accepted by the Commission without incorporation, unless such license is sooner surrendered, revoked, suspended,
previous authority from the appropriate government agency, whenever required or annulled in accordance with this Code or other special laws.
by law. Within sixty (60) days after the issuance of the license to transact business in the
Philippines, the licensee, except foreign banking or insurance corporations, shall
DE LEON deposit with the Commission for the benefit of present and future creditors of the
licensee in the Philippines, securities satisfactory to the Commission, consisting
Submission of required documents of bonds or other evidence of indebtedness of the Government of the Philippines,
It shall submit to the Securities and Exchange Commission a certified copy of its its political subdivisions and instrumentalities, or of government-owned or -
articles of incorporation, with a translation to an official language if the controlled corporations and entities, shares of stock or debt securities that are
Philippines, if necessary, and the application for a license which shall be under
oath and shall specifically set forth the matters enumerated by law, unless
already stated in its articles of incorporation exchange, shares of stock in domestic insurance companies and banks, any
financial instrument determined suitable by the Commission, or any
combination thereof with an actual market value of at least Five hundred
Accompanying documents to application
thousand (P500,000.00) pesos or such other amount that may be set by the
A duly executed certificate under oath by the authorized official or officials of the Commission: Provided however, That within six (6) months after each fiscal year
jurisdiction of its incorporation, attesting to the fact that of the licensee, the Commission shall require the licensee to deposit additional
o the laws of the country or State of the applicant allow Filipino citizens securities or financial instruments equivalent in actual market value to two (2%)
and corporation to do business therein and percent
o the applicant is an existing corporation of good standing exceeds Ten million pesos (P10,000,000.00).
o with translation of the certificate in English under oath of the translator
The Commission shall also require the deposit of additional securities or
if it is in a foreign language
financial instruments if the actual market value of the deposited securities or
A sworn statement of the president or any authorized officer of the corporation,
financial instruments has decreased by at least ten (10%) percent of their actual
showing to the satisfaction of the SEC and other government agency in proper
market value at the time they were deposited. The Commission may, at its
cases that the applicant is solvent and in sound financial condition and setting
discretion, release part of the additional deposit if the gross income of the
forth the assets and liabilities of the corporation as of the date not exceeding one
licensee has decreased, or if the actual market value of the total deposit has
(1) year immediately prior to the filing of the application.
increased, by more than ten (10%) percent of their actual market value at the
y, whenever required
time they were deposited. The Commission may, from time to time, allow the
by law
licensee to make substitute deposits for those already on deposit as long as the
A written power of attorney designating a resident agent on whom summons and
licensee is solvent. Such licensee shall be entitled to collect the interest or
other legal processes against the corporation may be served and a written
dividends on such deposits. In the event the licensee ceases to do business in the
agreement or stipulation consenting that such service may be made upon the SEC
if at any time it shall cease to transact business in the Philippines, or shall be
therefor and upon proof to the satisfaction of the Commission that the licensee
without any resident agent
has no liability to Philippine residents, including the Government of the Republic
of the Philippines. For purposes of computing the securities deposit, the
Compliance with the provisions of special laws composition of gross income and allowable deductions therefrom shall be in
accordance with the rules of the Commission.

lOMoARcPSD|31111392
CHANGES: A resident agent is one on whom any summons and other legal processes may be
Deposit of Securities: OCC 5M; RCC 10M served in all actions or other legal proceedings against the foreign corporation
doing business in the Philippines.
The power of a resident agent is limited to receive, for and on behalf of the
CLV corporation, services and other legal process in all actions and other legal
Effects of being issued license proceedings against the foreign corporation.
He is not the attorney-in-fact of the corporation. The resident agent cannot
When a foreign corporation doing business in the Philippines is issued the
necessary license, it may commence to transact its business in the Philippines even sign the certificate on non-forum shopping that is requirement in filing an
initiatory pleading in court
and continue to do so for as long as it retains authority to act as a corporation
o WHY? While a resident agent may be aware of actions filed against his
under the laws of the country or state of its incorporation,
principal, he may NOT be aware of the actions initiated by the
o UNLESS such license is sooner surrendered, revoked, suspended, or
principal whether in the Philippines against a domestic corporation or
annulled in accordance with this Code or other special laws.
Marshall-Wells Co. v. Henry Elser Co private individual, or in the country where such corporation was
organized and registered, against a Philippine registered corporation
foreign corporation doing business in the Philippines to the jurisdiction of its
or a Filipino citizen.
courts. The object of the statute was NOT to prevent the foreign corporation from
performing a single act, but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amenable to SEC. 145. Resident Agent; Service of Process. As a condition to the issuance of the
suit in the local courts license for a foreign corporation to transact business in the Philippines, such
Eriks Pte Ltd v CA - A FC doing business in the PH is bough by all laws, rules and corporation shall file with the Commission a written power of attorney
regulations applicable to domestic corporations designating a person who must be a resident of the Philippines, on whom
summons and other legal processes may be served in all actions or other legal
SEC. 144. Who May be a Resident Agent. A resident agent may be either an proceedings against such corporation, and consenting that service upon such
individual residing in the Philippines or a domestic corporation lawfully resident agent shall be admitted and held as valid as if served upon the duly
transacting business in the Philippines: Provided, That an individual resident authorized officers of the foreign corporation at its home office. Such foreign
agent must be of good moral character and of sound financial standing: Provided corporation shall likewise execute and file with the Commission an agreement or
further, that in case of a domestic corporation who will act as a resident agent, it stipulation, executed by the proper authorities of said corporation, in form and
must likewise be of sound financial standing and must show proof that it is in substance as follows:
good standing as certified by the Commission.
CHANGES: consideration of being granted a license to transact business in the Philippines,

that if the corporation shall cease to transact business in the Philippines, or shall
that in case of a domestic corporation who will act as a resident agent, it must
be without any resident agent in the Philippines on whom any summons or other
likewise be of sound financial standing and must show proof that it is in good
legal processes may be served, then service of any summons or other legal process
standing as certified by the Commission.
may be made upon the Commission in any action or proceeding arising out of any
business or transaction which occurred in the Philippines and such service shall
DE LEON have the same force and effect as if made upon the duly-authorized officers of the
an individual who must be of (a) good moral character and of (b) sound financial
standing, (c) residing in the Philippines or Whenever such service of summons or other process is made upon the
a domestic corporation (a) lawfully transaction business (b) in the Philippines; Commission, the Commission shall, within ten (10) days thereafter, transmit by
(c) likewise be of sound financial standing and (d) must show proof that it is in mail a copy of such summons or other legal process to the corporation at its home
good standing as certified by the SEC or principal office. The sending of such copy by the Commission shall be a
necessary part of and shall complete such service. All expenses incurred by the
AQUINO Commission for such service shall be paid in advance by the party at whose
Appointment of a Resident Agent instance the service is made.
The appointment of a resident agent is a requirement for the issuance of license
to do business.

lOMoARcPSD|31111392
It shall be the duty of the resident agent to immediately notify the Commission in AQUINO
When foreign law applies
The ff. matters are governed by the law of the country of the foreign corporation
AQUINO and not the Philippine laws:
Summons under the Rules of Court o Creation, formation or organization of the foreign corporation
o Dissolution of the foreign corporation
Rule 14, Sec 12 of the Rules of Civil Procedure provides that when the o Rules which fix the relations, liabilities, responsibilities or duties of
defendant is a foreign private juridical entity which has transacted business in stockholders, members, or officers of the corporation to each other or
the Philippines, service may be made on its resident agent designated in to the corporation
accordance with law for that purpose, or if there be no such agent, on the Generally, the law of the state of incorporation normally governs issues relating
government official designated by law to that effect, or on any of its officers or to internal affairs of a corporation.
agents within the Philippines. o Application of that body of law achieves the need for certainty and
Substitution or Addition predictability of result while generally protecting the justified
In case of substitution or addition of a resident agent, the foreign corporation expectations of parties with interests in the corporation
shall file with the SEC a petition for change or substitution of resident agent Different conflicts principles apply, where the rights of third parties external to
within thirty (30) days after the acceptance of the appointment by the new the corporation are at issue.
resident agent.5 CLV
Application of this principle
CLV Grey v. Insular Lumber a foreign corporation (1) organized under the laws of
Agreement of Service of Summons with SEC New York and (2) licensed to do business in the Philippines.
In consideration of being granted a license to do business in the Philippines, the o The Stock Corporation Law of NY mandated that only stockholders
foreign corporation shall execute and file with the SEC an agreement or owning 3% of the shares of the corporation may inspect the books and
stipulation that if at any time the corporation shall cease to transact business in records of the corporation.
the Philippines, or shall be without any resident agent in the Philippines on whom o Plaintiff Grey who held less than 3% stockholdings invoked the
any summons or other legal processes may be served, then service of any provision of Philippine laws which allowed ALL stockholders
summons or other legal process may be made upon the Commission in any action irrespective of size of shareholdings to inspect the books of the
or proceeding arising out of any business or transaction which occurred in the corporation.
Philippines and such service shall have the same force and effect as if made upon The Court held that intramural matters such as the qualification to inspect
the duly-authorized officers of the corporation at its home office. corporate records are governed by the laws where the corporation was
When service of summons is made upon the SEC, the SEC shall within 10 days, incorporated.
transmit by mail a copy of such summons or other legal process to the corporation
at its home or principal office SEC. 147. Amendments to Articles of Incorporation or Bylaws of Foreign
The sending of such copy by the Commission shall be a necessary part of and Corporations. Whenever the articles of incorporation or bylaws of a foreign
shall complete such service. corporation authorized to transact business in the Philippines are amended,
All expenses incurred by the Commission for such service shall be paid in such foreign corporation shall, within sixty (60) days after the amendment
advance by the party at whose instance the service is made. becomes effective, file with the Commission, and in the proper cases, with the
appropriate government agency, a duly authenticated copy of the amended
SEC. 146. Law Applicable. A foreign corporation lawfully doing business in the articles of incorporation or bylaws, indicating clearly in capital letters or
Philippines shall be bound by all laws, rules and regulations applicable to underscoring the change or changes made, duly certified by the authorized
domestic corporations of the same class, except those which provide for the official or officials of the country or state of incorporation. Such filing shall not in
creation, formation, organization or dissolution of corporations or those which itself enlarge or alter the purpose or purposes for which such corporation is
fix the relations, liabilities, responsibilities, or duties of stockholders, members, authorized to transact business in the Philippines.
or officers of corporations to each other or to the corporation. Changes:
No Changes.
5
Aquino no citation; basis?

lOMoARcPSD|31111392
corporation shall, within sixty (60) days after the effectivity of such merger or
DE LEON consolidation, file with the Commission, and in proper cases, with the
appropriate government agency, a copy of the articles of merger or consolidation
Amendment of Articles of Incorporation and By-Laws
duly authenticated by the proper official or officials of the country or state under
Effectivity the amendments to the AoI or BL of a foreign corporation licensed whose laws, the merger or consolidation was effected: Provided however, That if
to transact business in the Philippines may become effective even before they the absorbed corporation is the foreign corporation doing business in the
are filed with the SEC or appropriate government agency Philippines, the latter shall at the same time file a petition for withdrawal of its
o With respect to domestic corporations, amendments to he AoI shall license in accordance with this Title.
take effect only upon its approval by the SEC.
AQUINO
Need for amended license The filing of the amended articles of incorporation
or by-laws by the foreign corporation, however, does not itself enlarge or alter Merger
the purpose or purposes for which it is authorized to transact business. If the FC will merge with another FC, the laws of their country will apply
o The FC must first obtain an amended license showing the other or If FC will merge with a DC, the provisions of the Corporation Code on merger and
additional purposes which it intends to pursue in the transaction of its consolidation will apply.
business in the Philippines o Nevertheless, there is still no law that provides for this type of merger.
o If it engages in isolated transactions different the purpose stated in the o Hence, foreign corporations are still not allowed to merge with
AoI, an amended license is not needed. domestic corporations.
If the FC doing business in the Philippines will merge w/ another foreign
corporation and the absorbed corporation is the foreign corporation doing
SEC. 148. Amended License. A foreign corporation authorized to transact
business in the Philippines, the latter shall at the same time file a petition for
business in the Philippines shall obtain an amended license in the event it
withdrawal of its license in accordance with Section 153.
changes its corporate name, or desires to pursue other or additional purposes in
o Its license to do business is NOT an asset; it is not deemed transferred
the Philippines, by submitting an application with the Commission, favorably
to the surviving corporation. If the surviving corporation will continue
endorsed by the appropriate government agency in the proper cases.
the business of the licensed dissolved foreign corporation, then it must
CHANGES: file its own application to do business in the Philippines.
No Changes DE LEON
Merger or Consolidation with a Domestic Corporation
DE LEON Merger or consolidation is allowed provided that such is permitted (1) under
Section 131 requires a foreign corporation authorized to transact business in the Philippine laws and by the (2) law of incorporation in the home country of the
Philippines to obtain an amended license in case: licensed foreign corporation
It changes its corporate name; or The requirements on merger or consolidation under the RCC should be followed.
It desires to pursue in the Philippines other or additional purposes. In other words, there must be concurrent legislation in each State of
o In the first case, the amendment is necessary because the foreign constituent foreign and domestic corporations authorizing the merger, for
corporation is authorized to do business under its original corporate neither corporation can have authority to merge or consolidate except by virtue
name as stated in its articles of incorporation and not in its new name, of the State creating it.
o Domestic corporations have NO inherent power to merge or
such license consolidate with FC. WHY? No provision in the Corp Code providing for
merger or consolidation with a foreign corporation (such merger is not
allowed under the PH laws)
SEC. 149. Merger or Consolidation Involving a Foreign Corporation Licensed in the o Should such merger take place in foreign jurisdiction, the
Philippines. One or more foreign corporations authorized to transact business corresponding dissolution of the domestic corporation should be
in the Philippines may merge or consolidate with any domestic corporation or effected in accordance with the Code to guard the interest of 3rd parties.
corporations if permitted under Philippine laws and by the law of its one obvious
incorporation: Provided, That the requirements on merger or consolidation as solution is to have one of the corporations to sell its assets to the other in
provided in this Code are followed.
Whenever a foreign corporation authorized to transact business in the o If the acquiring corporation also assumes the payment of the
Philippines shall be a party to a merger or consolidation in its home country or
State as permitted by the law authorizing its incorporation, such foreign liquidates and distributed the stock received to its stockholders in
exchange for its own stock, as a liquidating distribution, the parties

lOMoARcPSD|31111392
would end up in the same position they would have been under the Sec. 150 of the RCC provides that a foreign corporation doing business in the
statutory provisions on merger or consolidation. Philippines without first obtaining a license to do business
Merger or consolidation with another Foreign Corporation o Shall not be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines
If the licensed foreign corporation is a party to the merger or consolidation in its o But may be sued or proceeded against before Philippine courts or
home country or State as permitted by the law of its incorporation, it must file administrative tribunals on any valid cause of action recognized under
the articles of merger or consolidation (in accordance with the PH Corp Code) Philippine laws.
and at the same time, if it is the absorbed corporation, a petition for withdrawal
It is implied from Sec. 150 and 151 that the failure of a foreign corporation
of its license as provided in Sec. 153 of the RCC. to secure a license before transacting business does not affect the validity
It is in effect dissolved because of the merger or consolidation.
of the transactions of such corporation but simply removes the legal
standing of such foreign corporation to sue.
SEC. 150. Doing Business Without a License. No foreign corporation transacting o Although such foreign corporation may still be sued, the provisions fail
business in the Philippines without a license, or its successors or assigns, shall be to indicate that if sued, whether such corporation can interpose
permitted to maintain or intervene in any action, suit or proceeding in any court counterclaims in the same suit.
or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any On the Validity of the Contracts Entered Into
valid cause of action recognized under Philippine laws. Contracts entered into by the foreign corporation BEFORE obtaining a license to
do business shall remain VALID and ENFORCEABLE
AQUINO o Subsequent procurement of license does not cure the defect
WHY?
Summary of Rules
o General Corp v. Union Insurance - The FACT of doing business in the
If a FOREIGN corporation does business in the Philippines without a license, it Philippines and NOT the non-obtaining of license is the more crucial
cannot sue before Philippine courts. point
If a FOREIGN corporation does NOT do business in the Philippines, it needs NO o Marshall-Wells doctrine The object of the statute was not to prevent
license to sue before the Philippine courts on an isolated transaction or on a the foreign corporation from performing single acts but to prevent it
cause of action entirely independent of any business transaction. from acquiring domicile for the purpose of business without taking the
If a FOREIGN corporation does business in the Philippines with the required steps necessary to render it amenable to suit in local courts.
license, it can sue before the Philippine courts on any transaction
If a FOREIGN corporation does business in the Philippines without a license, a
Philippine national who has contracted with said corporation might be estopped DE LEON
from challenging the foreign corporation Suit by foreign corporation
courts. It is not the lack of the prescribed license but doing business without such a
Criminal Liability license which bars a foreign corporation from access to our courts.
The prohibition against doing business without first securing a license is subject If a foreign corporation operated in the Philippines without submitting to its
to penal sanctions. (Obiter in Home Insurance Co.) laws, it is only just that it be not allowed to invoke them in our courts when it
should need them for later for its protection.
Contract NOT Void
Suit against a foreign corporation
The contract entered into by a foreign corporation is not necessarily void ab
initio. Such FC may however be sued or proceeded against before Philippine courts or
If a foreign corporation which is doing business without a license enters into a administrative tribunals on any valid cause of action recognized under
contract with another party, any defect is cured if it will subsequently obtain a Philippine laws under the doctrine of quasi-estoppel by acceptance of benefits.
license to do business. Application of the principle of estoppel
The contract is enforceable and his requirement of registration affects only the An exception to this section (that a FC w/o a license from the SEC cannot institute
remedy (not the validity of the contract) a suit in the Philippines) is the doctrine of estoppel.
A party is estopped to challenge the personality of a corporation after having
CLV acknowledged the same by entering into a contract with it.
Consequences of NOT Obtaining a License to Do Business Suit by an unlicensed foreign corporation

lOMoARcPSD|31111392
A foreign corporation is not ipso facto barred from bringing an action in The Commission shall also mail the notice and copy of the certificate of
Philippine courts. revocation to the corporation, at its registered office in the Philippines.
A foreign corporation NOT transacting business in the Philippines may maintain
action in our courts even if it has no license:
1. To seek redress for an isolated business transaction AQUINO
2. To protect its corporate reputation, name, goodwill. Revocation Not Penalty
3. To enforce its right not arising out of a business transaction. The revocation of the license to do business given to a foreign corporation is not
AMPIL an infliction of a penalty. It is also not a deprivation of a right but a withdrawal
General Rule: A foreign corporation transacting business in the Philippines of privilege.
cannot SUE but can be SUED Revocation must still comply with the requirements provided for under the
o Exception #1: If it obtains a license Corporation Code.
o SEC Op 07-10 A foreign corporation may still maintain an action based on
intention to do business in the Philippines) contracts entered into before the revocation of the license.
o Exception #3: Doctrine of Estoppel o The rule that revocation of license does not affect the validity of
contracts
Grounds for Revocation
SEC. 151. Revocation of License. Without prejudice to other grounds provided
under special laws, the license of a foreign corporation to transact business in the A
Philippines may be revoked or suspended by the Commission upon any of the revocation of authority by the host state.
following grounds: Generally, the certificate may be revoked whenever the foreign corporation failed to
(a) Failure to file its annual report or pay any fees as required by this Code; comply with the law.
(b) Failure to appoint and maintain a resident agent in the Philippines as
required by this Title; SEC. 153. Withdrawal of foreign corporations. Subject to existing laws and
(c) Failure, after change of its resident agent or address, to submit to the regulations, a foreign corporation licensed to transact business in the Philippines
Commission a statement of such change as required by this Title; may be allowed to withdraw from the Philippines by filing a petition for
withdrawal of license. No certificate of withdrawal shall be issued by the
(d) Failure to submit to the Commission an authenticated copy of any amendment Commission unless all the following requirements are met:
to its articles of incorporation or bylaws or of any articles of merger or
consolidation within the time prescribed by this Title; (a) All claims which have accrued in the Philippines have been paid,
compromised or settled;
(e) A misrepresentation of any material matter in any application, report,
affidavit or other document submitted by such corporation pursuant to this Title; (b) All taxes, imposts, assessments, and penalties, if any, lawfully due to the
Philippine Government or any of its agencies or political subdivisions have been
(f) Failure to pay any and all taxes, imposts, assessments or penalties, if any, paid; and (c) The petition for withdrawal of license has been published once a
lawfully due to the Philippine Government or any of its agencies or political week for three (3) consecutive weeks in a newspaper of general circulation in the
subdivisions; Philippines.
(g) Transacting business in the Philippines outside of the purpose or purposes
for which such corporation is authorized under its license;
AQUINO
(h) Transacting business in the Philippines as agent of or acting on behalf of any
foreign corporation or entity not duly licensed to do business in the Philippines; State Discretion
or It is discretionary upon the State to grant foreign corporations the privilege of
(i) Any other ground as would render it unfit to transact business in the engaging in business in the Philippines. The foreign corporation must comply
Philippines. with the rules prescribed by the SEC.
After the license is issued, however, the foreign corporation may voluntarily
leave the country at its discretion.
SEC. 152. Issuance of Certificate of Revocation. Upon the revocation of the license The State cannot force the foreign corporation to continue its business in the
to transact business in the Philippines, the Commission shall issue a country.
corresponding certificate of revocation, furnishing a copy thereof to the Withdrawal
appropriate government agency in the proper cases.

lOMoARcPSD|31111392
While a corporation has the discretion to withdraw, it will not be allowed to domiciled in the Philippines which transacts business in its own name and for its
formally withdraw and no certificate of withdrawal will be issued unless its own account;
obligations are paid.
The publication requirement is imposed to protect third persons who may have
claims against the foreign corporation. DE LEON
Rule under the Foreign Investments Act of 1991
Philippine National
REPUBLIC ACT NO. 7042 1. A citizen of the Philippines, or
(as amended by REPUBLIC ACT NO. 8179) 2. A domestic partnership or association wholly owned by citizens of
the Philippines; or
FOREIGN INVESTMENTS ACT OF 1991 3. A corporation organized under the laws of the Philippines of which
SEC. 3. Definitions. As used in this Act: at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines or
shall mean a citizen of the Philippines or a 4. A corporation organized abroad and registered as doing business
domestic partnership or association wholly owned by citizens of the Philippines; in the Philippines under the Corporation Code of which one hundred
or a corporation organized under the laws of the Philippines of which at least percent (100%) of the capital stock outstanding and entitled to
sixty percent (60%) of the capital stock outstanding and entitled to vote is owned vote is wholly owned by Filipinos or
and held by citizens of the Philippines or a corporation organized abroad and 5. A trustee of funds for pension or other employee retirement or
registered as doing business in the Philippine under the Corporation Code of separation benefits, where the trustee is a Philippine national and at
which one hundred percent (100%) of the capital stock outstanding and entitled least sixty percent (60%) of the fund will accrue to the benefit of
to vote is wholly owned by Filipinos or a trustee of funds for pension or other Philippine nationals.
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino Two rules in Determining the Nationality of Corporations with Foreign Equity:
stockholders owns stocks in a Securities and Exchange Commission (SEC) Incorporation Test and Control Test
registered enterprise, at least sixty percent (60%) of the capital stock Incorporation Test the nationality of a corporation is that of the state of
outstanding and entitled to vote of each of both corporations must be owned and incorporation regardless of the nationality of its stockholders
held by citizens of the Philippines and at least sixty percent (60%) of the Control Test the nationality of the corporation depends upon the nationality
members of the Board of Directors of each of both corporations must be citizens of the controlling stockholders
of the Philippines, in order that the corporation shall be considered a Philippine While the incorporation test serves as the primary test under Philippine
national; (as amended by R.A. 8179) jurisdiction, the is applied to determine compliance with the
Constitution and other laws on nationality requirements.
xxx o Grandfather Rule the combined totals in the investing corporation
and the investee corporation must be traced
determine the total percentage of Filipino ownership.
The SEC used either control test or grandfather rule in determining the
representatives or distributors domiciled in the Philippines or who in any
eligibility of a corporation, which has foreign equity participation in its
calendar year stay in the country for a period or periods totaling one hundred
ownership structure, to engage in nationalized or partly nationalized activities.
eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the Philippines;
and any other act or acts that imply a continuity of commercial dealings or Basis of Computation of 60-40 percentage requirement
arrangements, and contemplate to that extent the performance of acts or works, Under existing laws, the basis is the total outstanding capital stock, irrespective
or the exercise of some of the functions normally incident to, and in progressive of the amount of the par value of the shares.
prosecution of, commercial gain or of the purpose and object of the business Once it is established that the corporation is at least 60% owned by
organization: Provided, however, Filipinos, it is no longer necessary to conduct any further inquiry as to the
deemed to include mere investment as a shareholder by a foreign entity in ownership of the shareholders of the investing corporation since the entire
domestic corporations duly registered to do business, and/or the exercise of company at least 60% Filipino owned is already considered a Filipino
rights as such investor; nor having a nominee director or officer to represent its entity.
interests in such corporation; nor appointing a representative or distributor However, a Filipino entity (60% Filipino-owned) is not qualified to invest in or
enter into a joint venture agreement with corporations or partnerships, the

lOMoARcPSD|31111392
capital or ownership of which, under the Constitution or special laws, are limited Seventy percent (70%) of the outstanding shares entitled to
to Filipinos. vote in X Corporation are owned by Mr. F, a Filipino.
The shares of former Filipino citizens who became citizen of foreign countries FOUR out of FIVE directors are Filipinos.
but who reacquired Philippine citizenship under the RA 9225 (Citizenship o Is A Corporation a Philippine national? YES. A corporation is a
Philippine National.
Example 2:
AQUINO o X Corporation owns 70% of the outstanding shares entitled to vote in
A Corporation.
Control Test and Grandfather Rule Seventy percent (70%) of the outstanding shares entitled to
The control test is still the prevailing mode of determining whether or not a vote in X Corporation are owned by Japanese nationals.
corporation is a Filipino corporation, within the ambit of the 1987 Constitution. FOUR out of FIVE directors are Filipinos.
When in the mind of the Court there is doubt based on the attendant facts and o Is A Corporation a Philippine national? NO. A corporation is NOT a
circumstances of the case, in the 60-40 Filipino-equity ownership in the Philippine National
corporation, then it may apply the Grandfather Rule. Example 3:
o Doubt exists for instance if the ff. indicators are present: o X Corporation owns 70% of the outstanding shares entitled to vote in
That the foreign investors provide practically all the funds for A Corporation.
the investment jointly undertaken with Filipinos Forty percent (40%) of the outstanding shares entitled to
That the foreign investors undertake to provide practically all vote in X Corporation are owned by Japanese nationals. Sixty
the technological support for the venture percent (60%) of the outstanding shares entitled to vote in X
That foreign investors, while being minority stockholders Corporation belong to Filipinos.
manage the company and prepare all economic viability FOUR out of FIVE directors are Japanese
studies. o Is A Corporation a Philippine national? NO. A corporation is NOT a
The Grandfather Rule is a supplement to the Control Test so that the Constitution Philippine National
Redmont Consolidated Mines)

The Control Test contemplated by the SEC has been adopted under Sec. 3 of RA Grandfather Rule
7042 as amended by RA 8179 otherwise known as the Foreign Investments Act It should be noted that the Grandfather Rule is a method of determining the
of 1991 which provides that a corporation shall be considered a nationality of a corporation which in turn is owned by another corporation by
if it is: breaking down the equity structure of the shareholders of the corporation.
o A corporation organized under Philippine laws of which 60% of the The percentage of Filipino equity in the corporation is computed by attributing
capital stock outstanding and entitled to vote is owned and held by the nationality of the second or even subsequent tier of ownership to determine
Filipino Citizens the nationality of the corporate shareholder.
o A corporation organized abroad and registered as doing business in the Example 1:
Philippines under the Corporation Code of which 100% of the capital o Corporation A, a corporation organized in the Philippines, wants to
stocks entitled to vote belong to Filipinos. pursue an activity that is limited under a statute to corporations where
Sec. 1(b) of the IRR of Act 7042 expressly provides that the control test shall the equity participation of foreigners is limited to only 40% of the
be applied Outstanding Capital Stock.
o Where the corporation and its non-Filipino stockholders own stocks in A Corporation
a SEC registered enterprise,
At least 60% of the capital stock outstanding and entitled to OCS of Corporation A P 10,000,000.00 1,000,000 shares
vote of each of BOTH corporations must be owned and held Owned by Corporation B P 6,000,000.00 600,000 shares
by citizens of the Philippines AND Owned by Mr. X (an P 4,000,000.00 400,000 shares
At least 60% of the members of the Board of Directors of each American)
of BOTH corporations must be citizens of the Philippines in
order that the corporation shall be considered a Philippine
national B Corporation (60% Filipino; 40% Japanese)
Example 1: OCS of Corporation B P 10,000,000.00 1,000,000 shares
o X Corporation owns 70% of the outstanding shares entitled to vote in
Owned by FILIPINOS P 6,000,000.00 600,000 shares
A Corporation.
Owned by JAPANESE P 4,000,000.00 400,000 shares

lOMoARcPSD|31111392
CONTROL TEST: Under the Control Test, the 60% of the Outstanding Capital in No general rule or governing principles can be laid down as to what constitutes
Corporation A owned by Corporation B shall be considered as belonging to
Philippine Nationals. In other words, ALL the shares of Corporation B in
Corporation A or 600,000 shares shall be deemed owned by Filipinos agents and is there engaged in carrying on and transacting through them some
GRANDFATHER RULE: If the Grandfather Rule will be strictly applied in the substantial part of its ordinary or customary business, usually continuous in the
preceding example, 600,000 shares owned by Corporation B CANNOT be said to sense that it may be distinguished from merely casual, sporadic or occasional
be entirely Filipino-owned. The percentage which can be said to be Filipino transactions and isolated acts.
owned can be determined using the formula: The element of continuity is important for a foreign corporation to be deemed
o doing business in the Philippines.
o Applied this case, 600,000 shares x 60/100 = 360,000. Thus 360,000 Actual Transaction of Business Required that is perform specific business
shares are deemed owned by Filipinos and the balance of 240,000 will transaction within the Philippine territory on a continuing basis in its own name
be deemed owned by Japanese nationals. and for its own account.
o If 240,000 will be added to the shares of Mr. X in Corporation A o Actual transaction of business within the Philippine territory is an
(400,000), then the total number of shares owned by foreigners in essential requisite for the Philippines to acquire jurisdiction over a
Corporation A is 640,000 or 64% foreign corporation.
o On the other hand, the 360,000 belong to Filipinos of only 36% of the o If a corporation does not transact such kind of business in the
OCS in Corporation B. Philippines, even if it exports products to the Philippines, the Philippines
o THEREFORE, under the GRANDFATHER RULE, Corporation A CANNOT has no jurisdiction to require such foreign corporation to secure a
pursue activities that require 60% Filipino equity because of the limit Philippine business license.
of equity participation of foreigners (40%) is exceeded. o
because there is no actual performance of commercial acts
CLV o Participating in a bidding process constitutes doing business because it
Control Test and Grandfather Rule are NOT incompatible. pursue its main business.
Gamboa v. Teves - the activity has to be profit-making. It includes any act or
Constitution refers to total common shares or total OCS (combined total of acts that imply a continuity of commercial dealings or arrangements and
common and non-voting preferred shares) of PLDT, a public ultility, Capital contemplate to that extent the performance of acts or works, or the exercise of
refers to the VOTING shares. (Main Opinion)
some functions normally incident to and in the progressive prosecution of
o commercial gain or of the purpose and object of the business organization.
(whether voting or non-voting The acts include but are not limited to the ff:
Roy III v Herbosa (1) Total Outstanding Capital Stock (2) Voting shares. o Soliciting orders
o Entering into service contracts
AQUINO o
o Appointing representatives or distributors domiciled in the Philippines
o Appointing representatives or distributors who in any calendar year
Test to determine if a corporation is doing business in the Philippines is
stay in the country for a period or periods totalling one hundred eighty
expressed in the leading case of Mentholatum Co. v. Mangaliman which is
(180) days or more
o Participating in the management, supervision or control of any
Twin Characterization Test doing business implies a continuity of
domestic business, firm entity, or corporation in the Philippines
commercial dealings and arrangements and contemplates to that extent the
Sec 1 of the IRR of the FIA of 1991 provides that the ff.
performance of acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object of its
organization. o Mere investment as a shareholder by a foreign equity in domestic
corporations duly registered to do business, and/or the exercise of
Substance Test Continuity Test
rights as such investor;
GR: The acts of the FC doing business should be distinguished from a single or
o Having a nominee director or officer to represent its interest in such
isolated business transactions or occasional, incidental, and casual transactions
corporation
that do not come within the meaning of the law.
o XPN: Where a single transaction is NOT merely incidental or casual but o Appointing a representative or distributor domiciled in the Philippines
name and account;

ness in the Philippines.

lOMoARcPSD|31111392
o The publication of a general advertisement through any print or

(Dissenting Opinion, Justice Velasco) -
broadcast media
common and preferred shares, voting and non-voting shares. Since non-
o Maintaining a stock of goods in the Philippines solely for the purpose
voting shares are nonetheless allowed to vote on certain key fundamental
of having the same processed by another entity in the Philippines
corporate matters (under section 6 of the Corporation Code) they have
o Consignment by a foreign entity of equipment with a local company to
voting rights.
be used in the processing of products for export
[MR] Heirs of Gamboa v. Teves - Both the Voting Control Test and the
o Collecting information in the Philippines
Beneficial Ownership Test must be applied to determine whether a
o Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis such as installing in the Philippines
even preferred shares must be 60% owned by Filipinos. This is because
machinery it has manufactured or exported to the Philippines
preferred shares, denied the right to vote in the election of directors, are
Essential condition- actual performance of specific commercial acts within
anyway still entitled to vote on the eight specific corporate matters
the territory of the Philippines
mentioned in the Corporation Code. In short, the 60- 40 requirement in favor
o Insurance Corporation a foreign corporation with a settling agent in
of Filipino citizens must apply separately to each class of shares, whether
the Philippines that issued 12 marine policies covering different
common, preferred non-voting, preferred nonvoting, preferred voting, or any
shipments to the Philippines is considered doing business in the
other class of shares.
Philippines. One of its employees in its country was sent as a settling
Actual transaction of business within the Philippine territory is an essential
agent.
requisite for the Philippines to acquire jurisdiction over a foreign
o Exporter may export its products without performing in importing
corporation and thus require the foreign corporation to secure a Philippine
countries specific commercial acts that would constitute doing
business license. If a foreign corporation does not transact such kind of
business in the importing countries.
business in the Philippines, even if it exports its products to the Philippines,
o Liaison Office if a foreign corporation establishes a fully subsidized
the Philippines has no jurisdiction to require such foreign corporation to
extension or liaison office in the Ph, the liaison office may be charged
secure a Philippine business license. (B. Van Zuiden v. GTVL)
with the abilities of the foreign corporation. The liability may be
Activities within Philippine jurisdiction that do not create earnings or profits
solidary.
to the foreign corporation do not constitute doing business in the
Philippines. (Cargill v Intrastrata)
A foreign corporation doing business in the Philippines without license may
CASE DOCTRINES sue in Philippine courts a Filipino citizen or a Philippine entity that had
Title XV: Foreign Corporations
contracted with and benefited from it. A party is estopped from challenging
the personality of a corporation after having acknowledged the same by
1987 Constitution, Article 12, Section 11. No franchise, certificate, or any other form of entering into a contract with it. (Global Business Holdings v Surecomp)
authorization for the operation of a public utility shall be granted except to citizens of The appointment of a distributor in the Philippines is not sufficient to
the Philippines or to corporations or associations organized under the laws of the
constitute "doing business" unless it is under the full control of the foreign
Philippines, at least sixty per centum of whose capital is owned by such citizens; nor corporation; domestic corporations are estopped from denying the legal
shall such franchise, certificate, or authorization be exclusive in character or for a capacity to sue of foreign corporations doing business in the Philippines
longer period than fifty years. x x x The State shall encourage equity participation in without license if they have transacted with them and aware that the latter
public utilities by the general public. The participation of foreign investors in the do not have license. (Steelcase v Design International)
governing body of any public utility enterprise shall be limited to their proportionate
Doing business means implies a continuity of commercial dealings and
share in its capital, and all the executive and managing officers of such corporation or arrangements, and contemplates, to that extent, the performance of acts or
association must be citizens of the Philippines. works or the exercise of the functions normally incident to and in
progressive prosecution of the purpose and object of its organization.(Avon v
Gamboa v. Teves: Issue: Whether the term "capital" in Section 11, Article XII CA)
of the Constitution refers to the total common shares only or to the total
outstanding capital stock (i.e. combined total of common and non-voting quantity of the transactions, but, more importantly, the intention of an entity
preferred shares) of PLDT, a public utility. to continue the body of its business in the country. The number and quantity
(Main Opinion, Carpio J.) -
are merely evidence of such intention. It was also made clear in this case that
Constitution refers only to shares of stock (regardless of classification) that a foreign corporation doing business in the Philippines without a license is
can vote in the election of directors. The legal and beneficial ownership of 60
barred from availing of judicial remedies or recourse.(Eriks v CA)
percent of the outstanding capital stock must rest in the hands of Filipino Under the Rules of Court, if the defendant is a foreign corporation doing
nationals in accordance with the constitutional mandate. business in the Philippines, summons may be served on (a) its resident agent

lOMoARcPSD|31111392
shall, after due notice and hearing, be held in contempt and fined in an amount
designated in accordance with law; (b) if there is no resident agent the
not exceeding Thirty thousand pesos (P30,000.00). When the refusal amounts to
government official designated by law to that effect or (c) any of its officer or
agent within the Philippines. (FOMMCO v CA)
Commission may impose a daily fine of One thousand pesos (P1,000.00) until the
A wholly-owned subsidiary of a private foreign juridical entity which have
order, decision, or subpoena is complied with.
resident agent if it was never registered to be such before the SEC. (Luzon
Iron v Bridestone) SEC. 158. Administrative Sanctions. If, after due notice and hearing, the
Commission finds that any provision of this Code, rules or regulations, or any of
orders has been violated, the Commission may impose any or
TITLE XVI all of the following sanctions, taking into consideration the extent of
INVESTIGATIONS, OFFENSES, AND PENALTIES participation, nature, effects, frequency and seriousness of the violation:
1. Imposition of a fine ranging from Five thousand pesos (P5,000.00) to Two
SEC. 154. Investigation and Prosecution of Offenses. The Commission may million pesos (P2,000,000.00), and not more than One thousand pesos
investigate an alleged violation of this Code, rule, regulation, or order of the (P1,000.00) for each day of continuing violation but in no case to exceed Two
Commission. million pesos (P2,000,000.00);
The Commission may publish its findings, orders, opinions, advisories, or 2. Issuance of a permanent cease-and-desist order;
information concerning any such violation, as may be relevant to the general 3. Suspension or revocation of the certificate of incorporation; and
public or to the parties. concerned, subject to the provisions of Republic Act No. 4. Dissolution of the corporation and forfeiture of its assets under the conditions
10173, otherwise known as the in Title XIV of this Code.
laws.
The Commission shall give reasonable notice to and coordinate with the CLV Lecture
appropriate regulatory agency prior to any such publication involving companies The Commission now has the power to impose Administrative Sanctions
under their special regulatory jurisdiction.
Offenses under the Revised Corporation Code

SEC. 155. Administration of Oaths, Subpoena of Witnesses and Documents. The
Dean CLV (lecture) - called Sections 159 -Ease of Doing
Commission, through its designated officer, may administer oaths and
Criminal
affirmations, issue subpoena and subpoena duces tecum, take testimony in any
inquiry or investigation, and may perform other acts necessary to the
proceedings or to the investigation.
penalty of imprisonment was intentionally omitted by the Congress.
CLV Lecture
SEC. 156. Cease and Desist Orders. Whenever the Commission has reasonable
basis to believe that a person has violated, or is about to violate, this Code, rule, Summary
regulation, or order of the Commission, it may direct such person to desist from Unauthorized use of corporate name (Sec. 159)
committing the act constituting the violation. Violation of Disqualification Provision (Sec 160)
The Commission may issue a cease and desist order ex parte to enjoin an act or Violation of duty to maintain records, to allow their inspections or reproductions
practice which is fraudulent or can be reasonably expected to cause significant, (Sec 161)
imminent, and irreparable danger or injury to public safety or welfare. The ex Certification of incomplete, inaccurate, false, misleading statements/reports
parte order shall be valid for a maximum period of twenty (20) days, without (Sec. 162)
prejudice to the order being made permanent after due notice and hearing. Collusion by independent auditor (Sec. 163)
Thereafter, the Commission may proceed administratively against such person Obtaining corporate registration through fraud (Sec. 164)
in accordance with Section 158 of this Code, and/or transmit evidence to the Fraudulent Conduct of Business (Sec. 165)
Department of Justice for preliminary investigation or criminal prosecution Acting as Intermediaries for Graft and Corrupt Practices (Sec. 166)
and/or initiate criminal prosecution for any violation of this Code, rule, or Engaging Intermediaries for Graft and Corrupt Practices (Sec. 167)
regulation. Tolerating Graft and Corrupt Practices (Sec. 168)
Retaliation Against Whistleblowers (Sec. 169)
Other Violations of the Code (Sec. 170)
SEC. 157. Contempt. Any person who, without justifiable cause, fails or refuses Aiders and Abettors (Sec. 172)
to comply with any lawful order, decision, or subpoena issued by the Commission

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SEC. 159. Unauthorized Use of Corporate Name; Penalties. The unauthorized use SEC. 162. Willful Certification of Incomplete, Inaccurate, False, or Misleading
of a corporate name shall be punished with a fine ranging from Ten thousand Statements or Reports; Penalties. Any person who willfully certifies a report
pesos (P10,000.00) to Two hundred thousand pesos (P200,000.00). required under this Code knowing that the same contains incomplete, inaccurate,
false, or misleading information or statements, shall be punished with a fine
SEC. 160. Violation of Disqualification Provision; Penalties. When, despite the ranging from Twenty thousand pesos (P20,000.00) to Two hundred thousand
knowledge of the existence of a ground for disqualification as provided in Sec. 26 pesos (P200,000.00). When the wrongful certification is injurious or detrimental
of this Code, a director, trustee, or officer willfully holds office, or willfully to the public, the auditor or the responsible person may also be punished with a
conceals such disqualification, such director, trustee, or officer shall be punished fine ranging from Forty thousand pesos (P40,000.00) to Four hundred thousand
by a fine ranging from Ten thousand pesos (P10,000.00) to Two hundred pesos (P400,000.00).
thousand pesos (P200,000.00) at the discretion of the Court, and shall be
permanently disqualified from being a director, trustee or officer of any
corporation. When the violation of this provision is injurious or detrimental to AMPIL
the public, the penalty shall be a fine ranging from Twenty thousand pesos Usually the person liable is the President or the Corporate Secretary
(P20,000.00) to Four hundred thousand pesos (P400,000.00). The certification of the incomplete, inaccurate,
false or misleading information or statements has to be done WILLFULLY.
SEC. 161. Violation of Duty to Maintain Records, to Allow their Inspection or o Thus, Negligence and Mistake are proper defenses.
Reproduction; Penalties. The unjustified failure or refusal by the corporation, or
by those responsible for keeping and maintaining corporate records, to comply SEC. 163. Independent Auditor Collusion; Penalties. An independent auditor who,
with Sections 45, 73, 92, 128, 177 and other pertinent rules and provisions of this
Code on inspection and reproduction of records shall be punished with a fine
ranging from Ten thousand pesos (P10,000.00) to Two hundred thousand pesos failure to give a fair and accurate presentation of the corpora
(P200,000.00), at the discretion of the Court, taking into consideration the despite containing false or misleading statements, shall be punished with a fine
seriousness of the violation and its implications. When the violation of this ranging from Eighty thousand pesos (P80,000.00) to Five hundred thousand
provision is injurious or detrimental to the public, the penalty is a fine ranging pesos (P500,000.00). When the statement or report certified is fraudulent, or has
from Twenty thousand pesos (P20,000.00) to Four hundred thousand pesos the effect of causing injury to the general public, the auditor or responsible
(P400,000.00). officer may be punished with a fine ranging from One hundred thousand pesos
The penalties imposed under this section shall be without prejudice to the (P100,000.00) to Six hundred thousand pesos (P600,000.00).
SEC. 164. Obtaining Corporate Registration Through Fraud; Penalties. Those

AMPIL responsible for the formation of a corporation through fraud, or who assisted
Read with Sec. 74 of OCC and Sec. 74 of RCC directly or indirectly therein, shall be punished with a fine ranging from Two
specific penalty hundred thousand pesos (P200,000.00) to Two million pesos (P2,000,000.00).
for the offense of Violation of duty to maintain records, to allow their inspections When the violation of this provision is injurious or detrimental to the public, the
or reproductions. penalty is a fine ranging from Four hundred thousand pesos (P400,000.00) to
The penalty of imprisonment from Sec. 144 of OCC was intentionally removed in Five million pesos (P5,000,000.00).
the RCC.
CLV Lecture SEC. 165. Fraudulent Conduct of Business; Penalties. A corporation that conducts
its business through fraud shall be punished with a fine ranging from Two
Stockholders now have a remedy when a corporation refuses to allow them to
hundred thousand pesos (P200,000.00) to Two million pesos (P2,000,000.00).
inspect the corporate books and records.
When the violation of this provision is injurious or detrimental to the public, the
The stockholder can report the matter to the SEC.
penalty is a fine ranging from Four hundred thousand pesos (P400,000.00) to
o The SEC, pursuant to Sec. 154 may conduct an investigation. If the
Five million pesos (P5,000,000.00).
Corporation does not comply, it may cite the corporation in contempt
under Sec. 157.
o Furthermore, the SEC can hold the corporation liable under Sec. 161. CLV Lecture
The SEC need not go to RTC Special Commercial Courts because it has he Courts
investigative & contempt powers of its own.

lOMoARcPSD|31111392
o Are the courts allowed to do that? When a person is charged with an (P10,000.00) but not more than One million pesos (P1,000,000.00). If the
offense, he/she must be allowed to exercise his/her right to be informed violation is committed by a corporation, the same may, after notice and hearing,
of the nature and cause of accusation against him. be dissolved in appropriate proceedings before the Commission: Provided, That
AMPIL such dissolution shall not preclude the institution of appropriate action against
the director, trustee, or officer of the corporation responsible for said violation:
False advertising is normal in business. It does not amount to Fraud
Provided, further, That nothing in this section shall be construed to repeal the
o
other causes for dissolution of a corporation provided in this Code.
knows that the burger patty is not made of 100% Pure Beef. This is
Liability for any of the foregoing offenses shall be separate from any other
advertising it does not amount to Fraud.
administrative, civil, or criminal liability under this Code and other laws.
SEC. 166. Acting as Intermediaries for Graft and Corrupt Practices; Penalties. A
corporation used for fraud, for committing or concealing graft and corrupt
practices shall be liable for a fine ranging from One hundred thousand pesos SEC. 171. Liability of Directors, Trustees, Officers, or Other Employees. If the
(P100,000.00) to Five million pesos (P5,000,000.00). offender is a corporation, the penalty may, at the discretion of the court, be
When there is a finding that any of its directors, officers, employees, agents, or imposed upon such corporation and/or upon its directors, trustees,
stockholders, members, officers, or employees responsible for the violation or
failure to install: (a) safeguards for the transparent and lawful delivery of indispensable to its commission.
services; and (b) policies, code of ethics, and procedures against graft and
corruption, shall be prima facie evidence of corporate liability under this section. SEC. 172. Liability of Aiders and Abettors and Other Secondary Liability. Anyone
who shall aid, abet, counsel, command, induce, or procure any violation of this
Code, or any rule, regulation, or order of the Commission shall be punished with
SEC. 167. Engaging Intermediaries for Graft and Corrupt Practices; Penalties. A
a fine not exceeding that
corporation that appoints an intermediary who engages in graft and corrupt
imposed on the principal offenders, at the discretion of the Court, after taking
into account their participation in the offense.
ranging from One hundred thousand pesos (P100,000.00) to One million pesos
(P1,000,000.00).
AMPIL CASE DOCTRINES

The corporation used a dummy to engage in a business with another corporation. Title XVI: Investigations, Offenses and Penalties
An ultra vires act is one committed outside the object for which a
SEC. 168. Tolerating Graft and Corrupt Practices; Penalties. A director, trustee, corporation is created as defined by the law of its organization and therefore
or officer who knowingly fails to sanction, report, or file the appropriate action beyond the power conferred upon it by law. It is distinguished from an illegal
with proper agencies, allows or tolerates the graft and corrupt practices or act for the former is merely voidable which may be enforced by performance,
ratification, or estoppel, while the latter is void and cannot be validated.
employees, shall be punished with a fine ranging from Five hundred thousand (Atrium v CA)
pesos (P500,000.00) to One million pesos (P1,000,000.00). Corporate officers or employees through whose acts the corporation
commits a crime, may themselves be individually held answerable for a
SEC. 169. Retaliation Against Whistleblowers. A whistleblower refers to any crime. However, before a stockholder may be held criminally liable for acts
person who provides truthful information relating to the commission or possible committed by the corporation, it must be shown that he had knowledge of
commission of any offense or violation under this Code. Any person who, the criminal act committed in the name of the corporation and that he took
knowingly and with intent to retaliate, commits acts detrimental to a part in the same or gave his consent to its commission. (Espiritu v Petron)
whistleblower such as interfering with the lawful employment or livelihood of Solidary liabilities may at times be incurred but only when exceptional
the whistleblower, shall, at the discretion of the Court, be punished with a fine circumstances warrant such as, generally, in the following cases:
ranging from One hundred thousand pesos (P100,000.00) to One million pesos (1) When directors and trustees or, in appropriate cases, the officers of a
(P1,000,000.00). corporation
a. Vote for or assent to patently unlawful acts of the corporation;
SEC. 170. Other Violations of the Code; Separate Liability. Violations of any of the b. act in bad faith or with gross negligence in directing the corporate affairs;
other provisions of this Code or its amendments not otherwise specifically c. are guilty of conflict of interest to the prejudice of the corporation, its
penalized therein shall be punished by a fine of not less than Ten thousand pesos stockholders or members, and other persons.

lOMoARcPSD|31111392
SEC. 174. Designation of Governing Boards. The provisions of specific provisions

(2) When a director or officer has consented to the issuance of watered
of this Code to the contrary notwithstanding, nonstock or special corporations
stocks or who, having knowledge thereof, did not forthwith file with the
may, through their articles of incorporation or their bylaws, designate their
corporate secretary
governing boards by any name other than as board of trustees.
his written objection thereto;
(3) When a director, trustee or officer as contractually agreed or stipulated
to hold himself personally and solidarily liable with the Corporation. DE LEON
(4) When a director, trustee or officer is made, by specific provision of law, This provision only covers non-stock corporations and special corporations
personally liable for his corporate action. (MSMG-UWP v Ramos) It accommodates the practice in various non-stock corporation where their
As a general rule, the officers of a corporation are not personally liable for
their official acts unless it is shown that they have exceeded their authority Thus, the governing board of a non-stock educational corporation may be
or he acted with evident malice and bad faith in terminating their
employment. (Pamplona Plantation v Acosta)
When an injury is caused by the negligence of an employee, there instantly SEC. 175. Collection and Use of Registration, Incorporation and Other Fees. For a
arises a presumption that there was negligence on the part of the employer more effective implementation of this Code, the Commission is hereby authorized
either in the selection of his employee or in the supervision over him after to collect, retain, and use fees, fines, and other charges pursuant to this Code and
such selection. The presumption, however, may be rebutted by a clear its rules and regulations. The amount collected shall be deposited and
showing on the part of the employer that it exercised the care and diligence
maintained in a separate account which shall form a fund for its modernization
of a good father of a family in the selection and supervision of his employee.
and to augment its operational expenses such as, but not limited to, capital
Hence, to evade solidary liability for quasi-delict committed by an employee,
outlay, increase in compensation and benefits comparable with prevailing rates
the employer must adduce sufficient proof that it exercised such degree of
in the private sector, reasonable employee allowance, employee health care
care. (Secosa v Heirs of Francisco)
services, and other insurance, employee career advancement and
On BP22, If the drawer or maker is an officer of a corporation, the notice of
professionalization, legal assistance, seminars, and other professional fees.
dishonor to the said corporation is not notice to the employee or officer who
CHANGES:
drew or issued the check for an in its behalf. Personal notice of dishonor is
necessary. (Marigomen v People) The amount collected shall be deposited and maintained in a separate account
which shall form a fund for its modernization and to augment its operational
expenses such as, but not limited to, capital outlay, increase in compensation and
TITLE XVII benefits comparable with prevailing rates in the private sector, reasonable
MISCELLANEOUS PROVISIONS employee allowance, employee health care services, and other insurance,
employee career advancement and professionalization, legal assistance,
seminars, and other professional fees.
SEC. 173. Outstanding Capital Stock Defined.
DE LEON
binding subscription agreements to subscribers or stockholders, whether fully
or partially paid, except treasury shares. The SEC is authorized to collect and receive fees as authorized by law (Such as
PD No. 902-A, RA No. 1143, RA No. 3531 and BP Blg. 178) and by rules and
regulations promulgated by it.
DE LEON
Nature of fees the Incorporation fee is not a tax. The fees collected by SEC are
Outstanding Capital Stock as defined in this section includes all shares of stock purely regulatory purposes in the exercise of police power; hence they should
issued to subscribers or stockholders of a stock corporation which are fully paid, only be sufficient to cover the expenses of direct regulation and incidental
and in case they are unpaid or only partially paid, as long as there is a binding purposes.
subscription agreement between the subscriber or stockholder and the
corporation.
SEC. 176. Stock Ownership in Corporations. Pursuant to the duties specified by
Article XIV of the Constitution, the National Economic and Development
includes unpaid subscriptions except when the subscription agreement provides
Authority (NEDA) shall, from time to time, determine if the corporate vehicle has
otherwise
been used by any corporation, business, or industry to frustrate the provisions of
Except treasury shares, this section makes no distinction between the different
this Code or applicable laws, and shall submit to Congress, whenever deemed
classes of shares
necessary, a report its findings, including recommendations for their prevention
or correction.

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SEC. 178. Visitorial Power and Confidential Nature of Examination Results. The
The Congress of the Philippines may set maximum limits for stock ownership of Commission shall exercise visitorial powers over all corporations, which powers
individuals or groups of individuals related to each other by consanguinity, shall include the examination and inspection of records, regulation and
affinity, or by close business interests, in corporations declared to be vested with supervision of activities, enforcement of compliance, and imposition of sanctions
public interest pursuant to the provisions of this section, or whenever necessary in accordance with this Code.
to prevent anti-competitive practices as provided in Republic Act No. 10667, Should the corporation, without justifiable cause, refuse or obstruct the
, or to implement national
economic policies designed to promote general welfare and economic certificate of incorporation, without prejudice to the imposition of other
development, as declared in laws, rules, and regulations. penalties and sanctions under this Code.
In recommending to the Congress which corporations, businesses and industries All interrogatories propounded by the Commission and the answers thereto, as
will be declared as vested with public interest, and in formulating proposals for well as the results of any examination made by the Commission or any other
limitations on stock ownership, the NEDA shall consider the type and nature of official authorized by law to make an examination of the operations, books, and
the industry, size of the enterprise, economies of scale, geographic location, records of any corporation, shall be kept strictly confidential, except when the
extent of Filipino ownership, labor intensity of the activity, export potential, as law requires the same to be made public, when necessary for the Commission to
well as other factors which are germane to the realization and promotion of take action to protect the public or to issue orders in the exercise of its powers
business and industry. under this Code, or where such interrogatories, answers or results are necessary
to be presented as evidence before any Court.
SEC. 177. Reportorial requirements of corporations. Except as otherwise CHANGES:
provided in this Code or in the rules issued by the Commission, every This provision is NEW. With the exception of the last paragraph, which used to be Sec. 142.
corporation, domestic or foreign, doing business in the Philippines shall submit
to the Commission:
AMPIL
(a) Annual financial statements audited by an independent certified public
accountant: Provided, That if the total assets or total liabilities of the corporation Constitutional or Unconstitutional? Juridical persons, despite being such are
are less than Six hundred thousand pesos (P600,000.00) the financial statements still protected by the Bill of Rights.
al
officer; and SEC. 179. Powers, functions, and jurisdiction of the Commission. The Commission
(b) A general information sheet. shall have the power and authority to:
Corporations vested with public interest must also submit the following: (a) Exercise supervision and jurisdiction over all corporations and persons
(1) A director or trustee compensation report; acting on their behalf, except as otherwise provided under this Code;
(2) A director or trustee appraisal or performance report and the standards or (b) Pursuant to Presidential Decree 902-A, retain jurisdiction over pending cases
criteria used to assess each director or trustee. involving intracorporate disputes submitted for final resolution. The
The reportorial requirements shall be submitted annually and within such Commission shall retain jurisdiction over pending suspension of
period as may be prescribed by the Commission. payment/rehabilitation cases filed as of 30 June 2000 until finally disposed.
(c) Impose sanctions for the violation of this Code, its implementing rules, and
The Commission may place the corporation under delinquent status in case of orders of the Commission;
failure to submit the reportorial requirements three (3) times, consecutively or (d) Promote corporate governance and the protection of minority investors,
intermittently, within a period of five (5) years. The Commission shall give through, among others, the issuance of rules and regulations consistent with
reasonable notice to and coordinate with the appropriate regulatory agency international best practices;
prior to placing under delinquent status companies under their special (e) Issue opinions to clarify the application of laws, rules, and regulations;
regulatory jurisdiction. (f) Issue cease and desist orders ex parte to prevent imminent fraud or injury to
the public;
Any person required to file a report with the Commission may redact confidential (g) Hold corporations in direct and indirect contempt;
information from such required report: Provided, That such confidential (h) Issue subpoena duces tecum and summon witnesses to appear in proceedings
information shall be filed in a supplemental report prominently labelled before the Commission;
(i) In appropriate cases, order the examination, search and seizure of documents,
and the specific grounds for the grant thereof. papers, files and records, and books of accounts of any entity or person under
investigation as may be necessary for the proper disposition of the cases, subject
to the provisions of existing laws;

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(j)Suspend or revoke the certificate of incorporation after proper notice and Intra-corporate Controversies.
hearing; Between the corporation, partnership or association and the public
(k) Dissolve or impose sanctions on corporations, upon final court order, for Between the corporation, partnership or association and its
committing, aiding in the commission of, or in any manner furthering securities stockholders, partners, members, or officers.
violations, smuggling, tax evasion, money laundering, graft and corrupt practices, Between the corporation, partnership or association and the State as
or other fraudulent or illegal acts; far as its franchise, permit or license to operate is concerned
(l) Issue writs of execution and attachment to enforce payment of fees, Among the stockholders, partners or associates themselves.
administrative fines, and other dues collectible under this Code; Relationship Test - existence of any of the above was enough to confer
(m) Prescribe the number of independent directors and the minimum criteria in jurisdiction, regardless of the subject matter of the dispute
determining the independence of a director; Nature of the Controversy Test - it is not the mere existence of the intra-
(n) Impose or recommend new modes by which a stockholder, member, director, corporate relationship that gives rise to an intra-corporate controversy; to rely
or trustee may attend meetings or cast their votes, as technology may allow, on the relationship alone with divest the regular courts of their jurisdiction for
the sole reason that the dispute involves a corporation, its directors, officers or
structure, and other factors consistent with the basic right of corporate suffrage; stockholders.
(o) Formulate and enforce standards, guidelines, policies, rules, and regulations The controversy must not only be rooted in the existence of an intra-
to carry out the provisions of this Code; and corporate relationship, but must as well pertain to the enforcement of
(p) 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. Code and the internal and intra-corporate regulatory rules of the
corporation.
In imposing penalties and additional monitoring and supervision requirements, AMPIL
the Commission shall take into consideration the size, nature of the business, and Management Committee / Rehabilitation Receiver
capacity of the corporation.
Presidential Decree No. 902-A is clear that "all actions for claims against
corporations, partnerships or associations under management or receivership
No court below the Court of Appeals shall have jurisdiction to issue a restraining
pending before any court, tribunal, board or body shall be suspended
order, preliminary injunction, or preliminary mandatory injunction in any case,
accordingly." (Rubberworld v NLRC)
dispute, or controversy that directly or indirectly interferes with the exercise of
o Kinds of claims suspended: (1) Pecuniary claims money claims (2) all
the powers, duties and responsibilities of the Commission that falls exclusively
actions for claims before the regular courts or quasi-judicial bodies.
within its jurisdiction.
o -A, refers to debts or demands of a
CHANGES: pecuniary nature and the assertion of the right to have money paid.
Clearly, the suspension contemplated refers only to claims involving
authority to implement the provisions of this Code, and to promulgate rules and actions which are pecuniary in nature. (Rosario v. Co) Prosecution of
regulations reasonably necessary to enable it to perform its duties hereunder, particularly Criminal offenses like B.P. 22 shall not be suspended.
in the prevention of fraud and abuses on the part of the controlling stockholders, A Management Committee is different from a Rehabilitation Receiver.
o The former is tasked to manage, take custody of and control all existing
AQUINO assets, funds and records of the corporation, and to determine the best
way to protect the interest of its stockholders and creditors.
Transferred Jurisdiction. Section 5.2 of the SRC provi o The latter is appointed when the corporation is in financial distress.
over al cases enumerated under Section 5 of PD 902-A has been transferred to to rehabilitate
the courts of general jurisdiction. The ff. Are within the jurisdiction of the RTC.
[Please take note of this. In the cases that Atty. Ampil assigned (2003, 2000, 1997), Jurisdiction of the SEC
it was still the SEC that had jurisdiction. In 2015, the SRC transferred the Rules: (It is important to know if the person is a corporate officer or merely an
jurisdiction to RTC] employee to determine which body has jurisdiction)
Fraudulent devices and schemes employed by directors detrimental to o The SEC has jurisdiction over intra-corporate controversies (involving
the public interest and to other firms corporate officers).
Intra-corporate dispute and with the state in relation to their franchise o The NLRC on the other hand, has jurisdiction over labor issues
and right to exist (involving employees)
Controversies in election, appointment of directors or trustees and Who is a corporate officer?
petition to be declared in the state of suspension of payments. SEC. 24. Corporate Officers. Immediately after their election, the directors of
Appointment of Rehab Receiver or Management Committee a corporation must formally organize and elect: (a) a president, who must be a

lOMoARcPSD|31111392
director; (b) a treasurer, who must be a resident; (c) a secretary, who must be a o Dissolution when the corporation is dissolved, it dies and loses its
citizen and resident of the Philippines; and (d) such other officers as may be corporate existence. When it decides to reincorporate, the new
provided in the bylaws. If the corporation is vested with public interest, the board corporation will gain a NEW juridical personality. based on a SEC
shall also elect a compliance officer. The same person may hold two (2) or more opinion6
positions concurrently, except that no one shall act as president and secretary or
as president and treasurer at the same time, unless otherwise allowed in this SEC. 180. Development and Implementation of Electronic Filing and Monitoring
Code. System. The Commission shall develop and implement an electronic filing and
monitoring system. The Commission shall promulgate rules to facilitate and
The officers shall manage the corporation and perform such duties as may be expedite, among others, corporate name reservation and registration,
provided in the bylaws and/or as resolved by the board of directors. (Revised incorporation, submission of reports, notices, and documents required under
Corporation Code) this Code, and sharing of pertinent information with other government agencies.
o Tabang v. NLRC Tabang was appointed
Trustees thus she is deemed a corporate officer.
o Nacpil v IBC elected by the directors or SEC. 181. Arbitration for Unlisted Corporations. An arbitration agreement may
be provided in the articles of incorporation or by-laws of an unlisted corporation.
is generally employed not by action of the directors or stockholders but When such an agreement is in place, disputes between the corporation, its
stockholders or members, which arise from the implementation of the articles of
o Matling v Coros created by the charter of the incorporation or by-laws, or from intracorporate relations, shall be referred to
corporation and (2) the officer is elected by the directors or arbitration. A dispute shall be non-arbitrable when it involves criminal offenses
and interests of third parties.
is generally employed not by action of the directors or stockholders but The arbitration agreement shall be binding on the corporation, its directors,
trustees, officers, and executives or managers.
n, restricted
the jurisdiction of the SEC. To be enforceable, the arbitration agreement should indicate the number of
o WHY? In Tabang and Nacpil, mere election/appointment of the Board arbitrators and the procedure for their appointment. The power to appoint the
of Directors or Trustees is enough to create an office. arbitrators forming the arbitral tribunal shall be granted to a designated
o In Matling (the rule now), to be considered a corporate officer, the independent third party. Should the third party fail to appoint the arbitrators in
position must be EXPRESSLY mentioned in the By-Laws, Corporation the manner and within the period specified in the arbitration agreement, the
Code or Articles of Incorporation. Now, if the person is merely parties may request the Commission to appoint the arbitrators. In any case,
appointed by the Board of Directors or Trustees but the position does arbitrators must be accredited or must belong to organizations accredited for the
not appear in the BL, he will only be treated as an employee. purpose of arbitration.
The Commission has the authority to issue SEC Opinions The arbitral tribunal shall have the power to rule on its own jurisdiction and on
However, in the Philippines (Supreme Court) generalists > (SEC) specialists questions relating to the validity of the arbitration agreement. When an
The Commission has the authority to REVOKE Certificates of Registration intracorporate dispute is filed with a Regional Trial Court, the Court shall dismiss
the case before the termination of the pretrial conference, if it determines that
The most common reason for revocation is the failure to file the General
Information Sheet.
by-laws, or in a separate agreement.
Sometimes, the SEC conducts a mass revocation. The affected corporation may
file a Petition to Lift Revocation
The arbitral tribunal shall have the power to grant interim measures necessary
Revocation is different from Dissolution
to ensure enforcement of the award, prevent a miscarriage of justice, or
o Revocation After the Commission lifts the revocation, the
otherwise protect the rights of the parties.
corporation resumes its existence. It will be resurrected like Jesus. It
will have the SAME juridical personality.
6
In my humble its certificate of incorporation and subject to all of its duties, debts and liabilities existing prior
reincorporation. It is possible for a dissolved corporation to resume its corporate existence. Under to revival. Upon approval by the Commission, the corporation shall be deemed revived and a
Sec. 11, para 4, REVIVAL is allowed. (Sec. 11. Para 4 - A corporation whose term has expired may, at certificate of revival of corporate existence shall be issued, giving it perpetual existence, unless its
any time, apply for a revival of its corporate existence, together with all the rights and privileges under application for revival provides otherwise.) Also just like baby Jesus or Jon Snow!

lOMoARcPSD|31111392
A final arbitral award under this section shall be executory after the lapse of
fifteen (15) days from receipt thereof by the parties and shall be stayed only by SEC. 185. Applicability to Existing Corporation. A corporation lawfully existing
the filing of a bond or the issuance by the appellate court of an injunctive writ. and doing business in the Philippines affected by the new requirements of this
The Commission shall formulate the rules and regulations, which shall govern Code shall be given a period of not more than two (2) years from the effectivity of
arbitration under this section, subject to existing laws on arbitration. this Act within which to comply.
CHANGES:
SEC. 186. Separability clause. If any provision of this Act is declared invalid or
AMPIL unconstitutional, other provisions hereof which are not affected thereby shall
continue to be in full force and effect.
Arbitration there is a judgment; one party wins. It has two kinds:
o Voluntary when parties both agree to submit themselves ti the
jurisdiction of the arbitrators. The parties choose who the arbitrators SEC. 187. Repealing clause.
will be.
o Compulsory the judge is a stranger. There is still a decision. This kind decree or issuance, executive order, letter of instruction, administrative order,
rule or regulation contrary to or inconsistent with any provision of this Act is
are the judges of the courts (MTC, RTC etc.) hereby repealed or modified accordingly.
Mediation (Conciliation) there is no judgment; no winner or loser; the
mediator only makes the parties agree on an agreement. SEC. 188. Effectivity. This Act shall take effect upon completion of its publication
o Compromise agreement both parties need to give up something; in the Official Gazette or in at least two (2) newspapers of general circulation.
parties need to come up with an agreement. Published in Manila Bulletin and Business Mirror on February 23, 2019.
SEC. 182. Jurisdiction over Party-List Organizations. The powers, authorities,
and responsibilities of the Commission involving party-list organizations are
transferred to the Commission on Elections (COMELEC).
Within six (6) months after the effectivity of this Act, the monitoring, supervision,
and regulation of such corporations shall be deemed automatically transferred
to the COMELEC.
For this purpose, the COMELEC, in coordination with the Commission, shall
promulgate the corresponding implementing rules for the transfer of
jurisdiction over the above-mentioned corporations.
SEC. 183. Applicability of the Code. Nothing in this law shall be construed as
amending existing provisions of special laws governing the registration,
regulation, monitoring and supervision of special corporations such as banks,
non-bank financial institutions and insurance companies.
Notwithstanding any provision to the contrary, regulators such as the Bangko
Sentral ng Pilipinas and the Insurance Commission shall exercise primary
authority over special corporations such as banks, non-bank financial
institutions, and insurance companies under their supervision and regulation.
SEC. 184. Effect of Amendment or Repeal of This Code, or the Dissolution of a

Corporation. No right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred
by any such corporation, stockholders, members, directors, trustees, or officers,
shall be removed or impaired either by the subsequent dissolution of said
corporation or by any subsequent amendment or repeal of this Code or of any
part thereof.

lOMoARcPSD|31111392
POST MIDTERMS Inquiry: May the stockholders and the BOD validly approve a resolution saying that the Vice-
DOCTRINES OF SEC OPINIONS Chairman shall automatically be the Chairman of the succeeding Board?
NO. The By-laws and the AOI cannot impair the voting rights of the stockholders. A
Stocks and Stockholders director cannot be deprived of the right to vote as he is elected as such purposely to
Revised Corporation Code, Section 59-72 participate in the management of the corporation.
Inquiry: Whether the BOD and the SH validly approve a resolution which would provide that
the Chairman would only vote in case of a tie?
BIR Ruling DA-542-98 (December 2, 1998)
Inquiry: Whether the transfer of shares of stock from one stockholder to another stockholder NO. If there is a tie, the issue or proposition simply loses. A director cannot be deprived of
which is the trustor is exempt from capital gains tax and the documentary stamp tax? the right to vote.
YES. As the trustees of the said shares of stock conveying the same in favor of the beneficial
owners or their duly appointed trustees there would be no actual transfer of ownership SEC Opinion (September 1, 1995)
over the aforementioned shares. Moreover, it is coupled with the fact that the
conveyance is without any valuable consideration.There is no actual transfer of ownership Inquiry: Whether certain shares can be negotiated without endorsement and shall be
as there is only a trust agreement. transferable by delivery?
NO. According to Section 62 of the RCC, shares of stocks must be transferred by delivery
and must be indorsed by the owner or his attorney-in-fact or other person legally
SEC Opinion (March 5, 1980)
authorized to make the transfer. Moreover, no transfer will be valid if such transfer is
Inquiry: Whether assigning several shares as trust to different stockholders is allowed to not recorded in the books of the corporation so as to show the names of the parties, the
allow them to qualify and be elected as part of the Board? date, the number of the certificate and the shares transferred.
YES. The SEC does not see any legal impediment in entering into a trust agreement in order
for that stockholder to be elected as part of the Board. Beneficial ownership is not SEC-OGC Opinion No. 08-08 (March 31, 2008)
necessary and the person who holds the legal titled to the stock is qualified to do so.
A director may hold his stock as a mere trustee and yet still be legally qualified. So to whom Inquiry: Does the waiver of pre-
one share of stock has been transferred for the express purpose of qualifying him as a -emptive right?
director is eligible.
NO. A stockholder cannot be forced to waive this right even if the majority of the
Moreover, such transfer of share is more of in the nature of a trust and not in the nature of stockholders opt to waive it. A stockholder can only be denied this right when it is
a sale. Therefore, right of first refusal is not impaired. provided for in the AOI or the By-laws.
SEC Opinion (May 21, 1991) SEC-OGC Opinion No. 10-27 (August 27, 2010)
Inquiry: Would the restriction of transfer of shares apply to transfer to previously undisclosed Inquiry: Whether a delinquent
principals or beneficiaries? meeting?
YES. When one subscribes in his name for undisclosed real owner without any description NO. Such stockholder loses the right to vote, therefore, loses also the right to be notified.
in the corporate books that he holds the stocks merely as an agent or trsutee, he is liable
to the same extent as if he had taken them in his own name and it shall be presumed that Inquiry: What is the effect if the delinquent stockholder continuously ignores the notices for
he is investing in his own personal capacity.
It is deemed as an implied waiver. The Code is silent on the matter.

SEC Opinion (August 4, 1995)

lOMoARcPSD|31111392
Inquiry: If the subscription of the delinquent stockholder amounted to 59.99% of the stocks with and recorded by the secretary of the corporation pursuant to Section 11 of RR. No.
of the corporation, will previously decided matters resolved upon by the remaining SH valid? 06-08.
Not valid. This is because there is an absence of quorum. The matter decided by the
remaining stockholders representing 40.01% of its stocks are not constitutive of quorum.
SEC Opinion (January 12, 1994)
Inquiry: Can the payment of delinquent shares be paid in installments? Inquiry: Whether stock certificates already issued by your corporation may all be cancelled
and new ones issued and recorded in a new stock and transfer book?
NO. The payment must be made in full at the time of the sale, and not subject to terms, or
in installment basis. In the sale of delinquent stocks, the highest bidder is the person who The same is a matter that only the corporation can resolve. Corporate books and records
offers to pay or is willing to pay the full amount of the balance on the subscription are merely private books and records and are only considered as prima facie evidence of
together with the accrued interest, costs of advertisement, and expenses of sale. the matters recorded therein. It is not to be implied from the foregoing that original books
and records are the exclusive evidence of the matters and things which are ordinarily are
or should be written therein since parol or other extraneous evidence are admissible in
SEC OGC Opinion No. 10-15 (April 23, 2010) many situations.
Inquiry: What is the effect of delinquency on the voting rights of the stockholder? Does it When the original STB has been lost, destroyed, or unavailable, secondary or extrinsic
affect only the unpaid shares or the whole subscription of the delinquent stockholder? evidence may be introduced to reconstitute its contents. Moreover, they should follow the
procedure listed in the RCC.
It affects the whole subscription. Section 63 says that full amount of the subscription
together with the interest and expenses, if any is due, should be paid. This implicitly sets
forth the doctrine that a subscription is one, entire, and indivisible contract. It cannot
be divided into portions. The entire delinquent share cannot be voted or be entitled to SEC OGC Opinion No. 11-16 (March 14, 2011)
vote. Inquiry: May the shares of known stockholders who have failed or refused to present their
stock certificates for reconstitution be recorded as shares held in trust by the corporation?
Inquiry: Is there a limit to the number of times that unpaid subscriptions may be auctioned?
NO. Certificate of stock certificate is merely evidence of a share of stock and not the share
No limit. The Code provides nothing to the limit to the number of times that unpaid itself. It was opined that the corporation cannot by itself cancel a recorded ownership of
subscriptions may be auctioned. The Code moreover provides for two remedies for the shares of stock just because the stockholder failed to comply with a directive to surrender
enforcement of liability for unpaid subscriptions: the stock certificate for replacement. Moreover, the corporation can present secondary
1. To put up the delinquent share for sale; or evidence, in relation to Sec 4, Rule 130 of the Rules of Court.
2. To file an action in court.
Inquiry: Can the corporation sell portions of the delinquent shares in small pieces?
NO. This is because of the principle of indivisibility of subscription under Section 63 of the Inquiry: Whether a partnership may be allowed to merge with a corporation?
RCC.
NO. It is very clear that only corporation can merge into a single corporation.
Corporate Books and Records; Merger and Consolidation; Appraisal Right Inquiry: If the merger is not possible, would the former be allowed to transfer all its assets
Revised Corporation Code, Section 73-85 and liabilities to the latter for it to issue its shares of stocks for the net assets which in turn
will be distributed or issued to the partners of the former in proportion to their respective
interest in said partnership?
Revenue Memorandum Circular No. 37-2012 (August 03, 2012)
YES. The same may be allowed provided the partnership shall be dissolved in accordance
with law. Moreover, they can enter into a combination.
In order to transfer ownership of shares of stock not traded in the Stock Exchange, it is
necessary to secure a Certificate of Authorizing Registration (CAR) pursuant to the process
laid down in RMO No. 15-03. The receipts of the payment of the tax should also be filed

lOMoARcPSD|31111392
Inquiry: Whether it is legally possible to amend the AOI of a corporation engaged in research
SEC Opinion No. 14-02 (November 15, 2002) to engage in printing and publishing a community newspaper as a means to inform the public
Inquiry: What are the requirements needed to effect an application for merger? of the result of its researches and investigations on scientific, educational, and social issues?
The audited financial statements of the constituent corporations (surviving and absorbed) YES. While non-stock corporations are not empowered to venture on profitable business
as of the date not earlier than 120 days prior to the date of filing of the application and the activities, they may, as incident to their purposes, engage in such business activities which
long-form audit report for the absorbed corporation. In addtion, the following are are reasonably necessary or essential to carry out the purpose for which they are
required: organized.
1. List of creditors of the absorbed company;
2. List of creditors of the surviving corporation; But unlike stock corporations, any profit that may be derived from such business activities
3. Consent of creditors of insolvent constituent corporation; are not distributable to the directors, officers, or members, but are used for the
4. List of stockholders of record of the constituent corporation; furtherance of the corporate purposes.
5. Affidavit of publication; and
6. Company data maintenance form.
Inquiry: Whether the proposed activity of taking over the ownership, operation, and
SEC Opinion No. 09-13 (July 1, 2009) management of a Memorial Park can be considered as a non-stock corporation?
Inquiry: Whether the corporations engaging in an application for merger can stipulate the
date as their effective date of merger? NO. The purpose of the corporation does not fall under any of the foregoing purposes for
which a non-stock corporation may be organized. To allow the proposed corporation to
YES. As a general rule, merger shall be effective upon the issuance by the Commission of purpose clause presented would run
the certificate of merger. However, the stipulation may be allowed in view of the following: counter to the very nature of a non-stock non-profit corporation.
1. Public policy considerations
a. The Corporation Code should be given a reasonable or liberal
construction which will best execute its purpose.
SEC Opinion No. 11-11 (March 8, 2011)
2. That no party will be prejudiced thereby
a. Prior to the approval of the proposed stipulation, a confirmation must Inquiry: Whether a non-stock foundation is allowed to acquire funds from solicitations, sales,
be reached where the applicant that the same would not adversely and payment for services it renders to the public?
affect any third party, not would it cause a decrease in tax dues of the
corporations involved. YES. The law clearly allows non-stock corporations to raise funds as long as it is incidental
for which it was established. Moreover, the activity of acquiring profit does not make them
Non-stock corporations; Close Corporations a profit-making corporation, as long as these profits are not distributed to its officers,
Revised Corporation Code, Section 86-104 members, or shareholders.
Inquiry: Whether a foundation is exempt from payment of income tax, real property tax, VAT
and business permit fees?
SEC Opinion (May 12, 1995)
Inquiry: Whether beneficial ownership is required for one to be an incorporator in a non- It depends. Not all non-stock corporations are classified as non-profit under the BIR. It is
stock corporation? up to the corporation to make sure that they comply with all the requirements given under
the BIR.
NO. The Commission had occasions to rule that in stock corporations beneficial ownership
is not necessary for one to become a director. Hence a trustee or qualifying shareholder Inquiry: Can a local governm
may be eligible as director notwithstanding absence of beneficial interest in the stock. foundation for tax purposes?
YES. The power to tax entities engaged in business within their respective territorial
jurisdictions. While the power to approve the amendment of a non-stock corporat
SEC Opinion (September 7, 1995) charter or to revoke the same, resides solely with the Commission, the power to reclassify

lOMoARcPSD|31111392
for the purposes of making them liable to pay taxes resides within the taxing authority -
the LGUs.
SEC Opinion (December 11, 1996)
-stock
corporation and be entitled to the rights and privileges attached thereto?
conformity of members to the amendment of the AOI should be based NO. According to Section 89 of the RCC, membership in a non-stock corporation, and all
on the general membership at large or only the active and non-delinquent members of the rights arising therefrom, are personal and non-transferrable, unless the AOI or the By-
club? laws otherwise provide.
It depends. While Section 6 of the Revised Corporation Code allows non-voting shares to Thus as a general rule, membership in a non-stock corporation are non-transferable. The
vote on corporate transactions enumerated therein, which includes the amendment of the reasons is that membership in a non-stock corporation has personal elements which
AOI, said provision does not apply to non-stock corporations. Non-stock corporations require qualifications accompanied by social and other ties. However, it admits of an
- exception, which states that such terms of transferability can be effected and spelled-out
laws. in the AOI and By-laws.
SEC Opinion (May 13, 1992) SEC Opinion (December 3, 1991)

Inquiry: Whether a corporation can convert its status as an ordinary non-stock non-profit Inquiry: Whether a non-stock non-profit corporation can validly refuse a proprietary share
corporation into a cooperative? for the registration in its books of an assignee of a portion of his share as co-
owner thereof, and whether said assignee is entitled to the exercise of the same rights and
NO. First of all, a cooperative is in the same nature as a stock corporation which is privileges as the original member-assignor?
completely different to the nature and purpose of a non-stock corporation. A cooperative
is defined as a duly registered association of persons, with a common bond of interest, who YES. As a general rule, membership in a non-stock corporation is personal and non-
have voluntarily joined together to achieve a lawful common social or economic end, transferrable. As an exception, the AOI or the By-laws may provide otherwise. It is worth
making equitable contributions to a capital required and accepting a fair share of mentioning that private voluntary organizations, including such corporation, may usually
the risks and benefits of the undertaking in accordance with universally accepted accept or refuse members as they choose, subject only to the enabling or governing statute
cooperative principles. and the charter or statutory restrictions.
Thus while stock corporations may be converted into cooperatives as both of them have
the same objectives, conversion may not be legally feasible with respect to non-stock
SEC Opinion (April 2, 1998)
non-profit corporations as it would change its very nature from non-profit to monetary
gain. Inquiry: Whether there is still a need to file with the SEC an amendment of the AOI to reflect
an increase in the contributed capital of a non-stock corporation?
NO. Increase in the contributed capital of a non-stock non-profit corporation does not
SEC Opinion (July 19, 1999)
require an amendment of the AOI. Neither does it require prior approval by the
Inquiry: What are the effects of conversion of a stock corporation to a non-stock corporation? Commission. It is sufficient that it must be reflected in the financial statements, an annual
reportorial requirement required under existing SEC rules and regulations.
As aptly defined in Section 86 of the RCC, a non-stock corporation is one where no part of
its income is distributed as dividends to its members, trustees or officers, and that any
profit which a non-stock corporation may obtain as an incident to its operation shall only
SEC Opinion No. 11-31 (July 13, 2011)
be used for the furtherance of the purpose for which it was established.
Inquiry: Is the presence of at least a majority of the members entitled to vote mandatory for
Until the corporation is dissolved and unless it is so provided in the AOI or the By- the election of the trustees even if the by-laws provide for a lower quorum requirement?
laws, the members are not entitled to any vested interest over the assets of the non-
stock corporation. YES. Section 23 of the RCC specifically applies to the election of trustees. It is clear from
the aforequoted provision that for the election of the members of the Board of a non-stock

lOMoARcPSD|31111392
corporation, it is mandatory that at least a majority of all members entitled to vote must the BOT. The Commission may question the propriety of a larger number, especially if it
be present either in person or by proxy at the meeting held for the purpose. Thus, in the feels that the number is unreasonable under the surrounding circumstances.
absence of the required quorum, there cannot be a valid election of the Board.
The lower quorum requirement can only apply to meetings where the RCC does not
provide for a specific quorum requirement. SEC Opinion (May 22, 1998)
Inquiry: Whether a proxy can vote or be voted and/or elected as member of the Board of
Inquiry: Is it within the prerogative of the BOT to decide not to conduct another special Trustees?
election to save on expenses and resources?
NO. The RCC expressly grants the right of stockholders to be represented by proxy in a
NO. The general rule is that there must be an annual election of trustees on the date fixed stockholders meeting. However, while voting by proxy is allowed in meeting of
in the by-laws. This is because in non-stock corporations, the term of office must be at least stockholders or members, the same is explicitly prohibited
3 years. Moreover, high expenses is not an excuse to do away with an election. It is not a meetings. Directors or trustees cannot attend or vote by proxy at board meetings. (Section
valid and a justifiable reason. 24, RCC)
SEC-OGC Opinion No. 16-11 (May 24, 2016) SEC Opinion No. 09-27 (September 9, 2009)
Inquiry: Whether a provision on residual voting which entitles the Chairman of the BOT to Inquiry: Whether a proxy can be elected as part of the BOT?
cast the remaining registered number of cotes after deducting the total votes cast by the
members present or represented by proxies from the total registered number of votes of NO. They do not possess the qualifications to be part of the BOT.
qualified members is allowed?
YES. Section 88 of the RCC provides that the rights of the members to vote may be limited,
broadened, or denied. As a general rule, each members is entitled to one vote, regardless SEC-OGC Opinion No. 06-09 (March 16, 2009)
of the amount of contribution. The exception is when the rights of members of any class to Inquiry: Whether a member who has committed acts constitutive of grounds for his expulsion
vote is limited, broadened or denied to the extent specified in the AOI or the By-laws. can be undertaken by the corporation?
YES. As long as the termination must be with just cause and with notice and hearing. It is
SEC-OGC Opinion No. 16-12 (May 24, 2016) mandated that membership shall be terminated only in the manner and for the causes
provided in the AOI or the By-laws. In the absence of any provision on the matter, it is
Inquiry: Whether a non-stock non-profit corporation not engaged in any nationalized or understood that the expulsion of a member must be based on just and reasonable ground
party nationalized activity in the Philippines is entitled to have an alien trustee in its board, after notice and hearing of the charge against him.
and a foreigner as its President or Chairman?
YES. This is pursuant to the Anti-Dummy Law.

SEC-OGC Opinion No. 14-23 (August 26, 2014)
Inquiry: What are the requisites for a close corporation?
1. All the
Inquiry: Whether a non-stock corporation can have more than 15 Trustees? shall be held of record by not more than a specified number of persons, not
exceeding 20;
YES. A non-stock corporation can have more than 15 trustees as to give more 2. All of the issued stocks of all classes shall be subject to restrictions on transfer
representation to the BOT of nationwide membership associations. However, while there permitted by the Code; and
appears to have no maximum limit, the number should not exceed the number of the 3. The corporation shall not list in any stock exchange or make any public offering
members of the corporation. of any of its stock of any class.
Further, the Commission has adopted a policy to require a registrant corporation to

submit an explanation or justification if its AOI provide for more than 15 membership in Educational, Religious, One Person, and Condominium Corporations

lOMoARcPSD|31111392
Revised Corporation Code, Section 105-132

Inquiry: May an alleged purchaser of a unit in the condominium, who merely possesses a
document of sale of the unit owner but has not submitted the same for approval by the
SEC Opinion (November 17, 1994)
Inquiry: Whether it is mandatory that the number of Board of Trustees in an educational as a unit-owner and member of the corporation?
institution shall be in multiples of 5?
YES. Ownership in a condominium corporation is conferred only upon FULL PAYMENT.
YES. It can either be 5, 10, or 15. Only those persons under whose names the Condominium Certificate of Titles are issued
are considered as the members of the condominium corporation.
Inquiry: Whether it is mandatory to follow the staggering term provision under Section 107
of the RCC for the term of office of the BOT?
YES. -
required staggered term, It refers to an option to provide for a different percentage of Inquiry: Whether restrictions as to manner of enjoying the property or condominium needs
staggered term, not that it can provide for a fixed term for all trustees. In other words, the to be written in the master deed?
nugatory the intention of the first paragraph which requires that the number of trustees YES. Any restriction as to the transfer, lien, or encumbrance of condominium units, to be
shall be in multiples of 5. valid, must be expressly provided in the enabling or master deed or the declaration of
restrictions duly annotated in the certificate of title registered under the Land Registration
The rationale behind the staggering so that there would be no possibility of disruption of or Cadastral Acts.
the prevailing policies of educational institutions to the detriment of the student body.

Inquiry: Whether it is within the corporate powers of a condominium corporation to conduct
Inquiry: Whether a corporation sole with an American Citizen as an incorporator is qualified fundraising activities to augment its corporate funds, such as bingo socials, movie premiers,
to acquire land in the Philippines? bazaars, raffles, etc.?
NO. All laws must be consistent with the constitutional provisions for acquiring land. It depends. If the fundraising is not embodied in the purposes of the corporation or not
Acquisition of land in the Philippines can be given only to citizen or to corporation or necessary to the business, then the condominium corporation cannot do so. However, the
associations at least 60% of the capital which is owned by such citizens. corporation can amend to include such purpose in the AOI. They must just follow the
Solicitation Permit Law.
SEC Opinion (December 10, 1981)

SEC Opinion (June 22, 1998)
Inquiry: Whether a religious corporation can have more than 15 Trustees?
Inquiry: Whether a condominium corporation, a non-stock corporation, can legally and
NO. There is a special provision for religious corporations. validly amend its by-laws and Master Deed to authorize its management to disconnect utility
services for condo units whose owners fail to timely remit and pay association dues,
assessments for insurance, and other special assessments due from them?
SEC Opinion (March 28, 1990)
YES. As long as it is necessary or proper to ensure prompt payment by the members of
Inquiry: Whether merger with a religious corporation can be done? their dues and assessments for the corporation to effectively run its corporate affairs.
YES. It is perceived however that the merged corporation must belong to the same
religious denomination, sect, or church for practical reasons.
SEC-OGC Opinion No. 09-17 (September 5, 2017)

lOMoARcPSD|31111392
Condominium Act or the Revised Corporation Code? YES. An association which is not engaged in profitable business and not desirous of
acquiring juridical personality need not be registered with the Commission. However, it
Condominium Act. The term of a condominium corporation shall be co-terminus with the cannot exercise the powers, rights and privileges expressly granted under the Corporation
duration of the condo project. The Special Law must prevail since it envinces the Code to registered corporation, and is not subject to the provisions thereof, and hence,
legislative intent more clearly than that of a general law and must be taken as intended to may be governed by its own rules and regulations. Furthermore, since it has no legal
constitute exception to the general act. personality separate from its members, the members and officers thereof can be sued and
be held responsible for their acts.
SEC-OGC Opinion No. 20-14 (August 5, 2014)

Inquiry: Whether foreign stockholders may act as directors in the corporation formed as an
English Language School in proportion to their allowable participation or share in the
SEC-OGC OPINION No. 09-18 dated June 04, 2018
capital of the said corporation?
Inquiry: W/N a corporation has legal standing to institute and file action in court during
NO. The election of foreigners to the board of directors may be allowed as long as the liquidation.
corporation is not engaged in wholly nationalized activity and only in proportion to their
share in the capital of such corporation. According to the 1987 Constitution, educational YES. However, it is limited to 3 years...
institutions shall be owned solely by citizens of the Philippines or corporation or
association at least 60% of the capital which is owned by such citizens. Moreover, the GR: A corporation, whose registration has been revoked, has three years from dissolution
control and administration of educational institutions shall be vested in citizens of the to continue to be a body corporate but only for purposes of winding up its affairs.
Philippines. Specifically, these actions should be for the purpose of:
(1) prosecuting and defending suits by or against it and enabling the dissolved
Corporation to settle and close its affairs,
SEC-OGC Opinion No. 08-09 (March 27, 2009) (2) to dispose and convey its property,
Inquiry: Whether Congress can prohibit the establishment of schools which would be strictly (3) and to distribute the corporate assets.
for diplomatic personnel or foreign temporary residents?
ER: In Sumera v. Valencia, If a receiver or assignee is appointed, with or without a transfer
NO. Unless there is a law that specifically lifts or repeals the exemption granted in the of its properties within three years, said assignee may bring an action, prosecute that
Constitution for schools established for other foreign temporary residents or for which has already been commenced for the benefit of the corporation, or defend the latter
diplomatic personnels, the ownership, management, and operation of the school can be against any other action already instituted or which may be instituted even outside of the
undertaken by foreign nationals. period of three years fixed for the offices of the corporation.
Moreover, it bears emphasis that they are merely exempted from the restrictions on EER: In Gelano vs. Court of Appeals, if the three-year extended life has expired without
ownership, control, and administration of educational institutions. They do not by any a trustee or receiver having been expressly designated by the corporation within that
stretch of imagination authorize doing away with any and all requirements as may be period, the board of directors (or trustees) itself may be permitted to so continue as
prescribed by the Corporation Code or any other statute and applicable rules and 'trustees' by legal implication to complete the corporate liquidation.
regulations.
BIR Ruling No. 242-86
Dissolution and Liquidation Inquiry: W/N a corporation which has not formally organized and commenced transaction
Revised Corporation Code, Section 133-139 of its business and commenced transaction of its business within two years from its
incorporation required to secure a certificate of tax clearance.
Relevant Law: NIRC 1997, Sec 52(c) ...The dissolving corporation prior to the issuance
SEC OPINION DATED SEPTEMBER 25, 1995 of the Certificate of Dissolution by the Securities and Exchange Commission shall secure
a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall
Inquiry: Can a non-stock corporation, dissolved due to non-submission of SEC requirements
be submitted to the Securities and Exchange Commission.
continue to exist?

lOMoARcPSD|31111392
NO. Under the above quoted provision, the certificate of tax clearance is required in cases Inquiry: whether the proposed structure and the equity investment of the members of the
of corporations which are already organized but are contemplating dissolution, either Consortium for the Concessionaire qualifies insofar as the ownership requirement for
voluntarily or involuntarily. grantees of public utility franchise as provided in Article XII, Section 11 of the Constitution is
concerned?
SEC-OGC OPINION No. 11-30 YES. In order to determine the nationality of a corporation with foreign equity, the
Inquiry: W/N the corporation can start distributing liquidating dividends intending to Commission employs the "control test," the method which provides "Shares belonging to
dissolve. corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
Not yet. Liquidating dividends are dividends which are actually distributions of assets of ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationalit
corporation shall distribute any of its assets or property except upon lawful dissolution
and after p SEC is of the opinion that the proposed structure of Two Rivers Pacific Holdings
distribute liquidating dividends: Corporation ("Two Rivers") would seem to satisfy the nationality requirement as called
1. after it is dissolved and for in the Constitution. Sixty Percent (60%) of Two Rivers will be owned by Pilipinas First
2. all its creditors have been paid. Transmission Holdings Corporation ("Pilipinas First"), a corporation registered under
Philippine laws whose equity is distributed as follows: Manuel V. Pangilinan-29.4%
Preferred Participating shares; Philippine Pacific First Transmission Management
SEC-OGC OPINION No. 20-07 Corporation; 30.6% and First Pacific International Limited-40% (a foreign corporation)
Inquiry: W/N a corporation which has been revoked, re-registered, but did not liquidate, can
continue as a corporation. SEC-OGC OPINION No. 26-11
Senior Corporation - Revoked corporation Inquiry: Is the control, ownership or investment by MPIC and FPCLHK in PLDT, SMART,
Junior Corporation - Re-registered corporation (it was the senior corp before) PILTEL and MERALCO a violation of the Constitution and laws of the Constitution and laws
of the Philippines?
NO. In the absence of corporate liquidation, the properties and any rights of the Senior
Corporation cannot be deemed to be transferred to the Junior Corporation even if the two Did not answer, but imparted that there are two cases in determining the nationality of
corporations have the same name albeit different set of incorporators. The new entity is the Investee Corporation.
separate and distinct from the dissolved corporation. Thus, the junior corporation can
only succeed ownership over the properties after the liquidation proceeding is carried out First, Control Test, which states that shares belonging to corporations or partnerships at
and the shares distributed to the stockholders. least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality.' Under this, there is no need to further trace the ownership of
the 60% (or more) Filipino stockholdings of the Investing Corporation since a
SEC-OGC OPINION No. 14-22 corporation which is at least 60% Filipino-owned is considered as Filipino.
Inquiry: Is a corporation automatically dissolved upon revocation of its certification of
Registration or does it have to secure a Certificate of Dissolution from the SEC. Second, Strict Rule or the Grandfather Rule Proper which states, "but if the percentage
of Filipino ownership in the corporation or partnership is less than 60%, only the number
Automatic. Once a corporate franchise is revoked, the corporation is dissolved. The effect of shares corresponding to such percentage shall be counted as of Philippine nationality."
of the Order of Dissolution is automatic and there is no more need for the SEC to issue any Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Certificate of Dissolution. Corporation and the Investee Corporation must be traced to determine the total
percentage of Filipino ownership.
Foreign Corporation Basically, the Grandfather Rule applies only when the 60-40 Filipino-foreign equity
Revised Corporation Code, Section 140-153 ownership is in doubt. Stated differently, where the 60-40 Filipino-foreign equity
ownership is not in doubt, the Grandfather Rule will not apply."
SEC-OGC OPINION No. 20-07 SEC-OGC OPINION No. 19-16

lOMoARcPSD|31111392
Inquiry: W/N the control test is the prevailing rule in determining the nationality of
SEC-OGC OPINION No. 18-16
corporations.
Inquiry: W/N an online English school can be undertaken 100% by a foreign company?
YES. Absent any doubt, the Control Test shall be used in determining the nationality of a
corporation specially in cases where foreign ownership restrictions apply. Facts are insufficient but the following info was imparted by SEC:
1. If the domestic corporation offers English program for a fee and at the end of
the training program is issuing any Certificate of Training or Diploma for
Program Completion to its successful students, it is considered engaged in
formal technical vocational education (hence, an education institution),
Inquiry: W/N audiowav is engaged in neither mass media nor advertising, hence should not regardless of whether the same is performed on-line or within a regular
be made subject to the foreign equity limitations on such activities. (Note: mass media must classroom atmosphere and regardless of whether its students are foreigners or
be 100% Filipino-owned) not, and hence, under the jurisdiction of TESDA.
2. GR: All educational institutions is subject to 40% foreign ownership
Yes, in so far as its WavSight, WavSound and WavSphere products/services are limitation.
concerned. The term "mass media" in the Constitution refers to any medium of ER: other than those established:
communication designed to reach the masses and that tends to set the standards, ideals a. by religious orders and mission boards;
and aims of the masses, the distinctive characteristic of which is the dissemination of b. for foreign diplomatic personnel and their dependents; and
information and ideas to the public, or a portion thereof. c. for other foreign temporary residents.
SEC-OGC OPINION No. 4-16 SEC-OGC OPINION No. 12-02

Inquiry: Whether the Commission will allow the registration of a domestic corporation with Inquiry: whether or not a foreign citizen can become a) a member or b) an officer of a non-
foreign equity that will engage in the practice of interior design in the Philippines? stock corporation.
NO. Section 14, Article XII of the 1987 Constitution, which declares that "the practice of all YES. Save for the position of the Secretary, who must be a Filipino citizen and a resident
professions in the Philippines shall be limited to Filipino citizens, save in cases prescribed of the Philippines, the prohibition on foreign citizens becoming officers in corporations
by law". The provision clearly sets the standard with regard to the practice of profession, engaged in business does not apply to the instant case for the simple reason that the
as well as the exception thereto. As a general rule, the practice of all professions in the activities of a non-stock corporation do not fall within the coverage of a nationalized
country is exclusively reserved to Filipino citizens, except when there is a law which industry or area of business, which is reserved by law exclusively to Filipino citizens.
provides otherwise.
In the instant case, the PIDA of 2012 is the law referred to in the Constitution that could
have provided an exception to the prohibition against foreign participation in the
corporate practice of interior design. However, as stated earlier, the law is silent on the Inquiry: What is the nationality of the Non-stock corporation established for charitable
matter. activities.
Facts are insufficient but the following info was imparted by SEC:
1. The nationality of non-stock corporation, in relation to the constitutional
Inquiry: W/N ground handling services constitute an operation of a public utility. provision on land acquisition, is computed on the basis of the nationality of its
members and not premised on the membership contribution.
YES. "public utility" is defined as one organized for hire or compensation to serve the 2. The extent of voting power of the members should also be taken into
public which is given the right to demand its service should they like to do so. It is a consideration, not only the number of members. This is because it is the power
business or service engaged in regularly supplying the public with some commodity or to vote that determines control in a corporation.
service of public consequence such as electricity, gas, water, transportation, telephone or
telegraph service. Ground-handling services which include both aircraft movement and
baggage handling, are activities essential to airport (considered as a public utility or
business of public utilities. certain activities?

lOMoARcPSD|31111392
YES, however limited only to information dissemination, promotion and quality Further, an essential condition to be considered as "doing business" in the Philippines is
control of the company's products or similar acts. Under the IRR of FIA of 1991, the actual performance of specific commercial acts within the territory of the Philippines
Representative or liaison office deals directly with the clients of the parent company for the plain reason that the Philippines has no jurisdiction over commercial acts
but does not derive income from the host country is fully subsidized by its head office. It performed in foreign territories. In this case, it involves a mere acquisition of several
undertakes activities such as but not limited to information dissemination and promotion condominium units wherein GAT's officers and directors shall stay during visits in the
of the company's products as well as quality control of products. Philippines, such transaction is an activity that is not contemplated by the definition of
"doing or transacting business."
Based on the foregoing, the allowed activities of a Representative Office are those aligned
with information dissemination, promotion and quality control of the company's products.
In other words, a Representative Office may only engage in activities which support the
business activities of the parent company. In addition, it is imperative that a Inquiry: whether or not Sony Computer Entertainment Hong Kong (SCEH) will be required
Representative Office does not derive income from activities performed in the Philippines. to obtain a license to do business in the Philippines?
YES. It satisfies the twin-characterization test:

1. transactions must be for the pursuitof the main business, and
2. with intent to continue the same for sometime.
Philippines.
First, the following activities indicate that SCEH will be continuing the body or substance
NO. While Corporation Code of the Philippines does not itself define or categorize what of the business of SCEH for which it was organized in the Philippines, to wit: (i) funding of
acts constitute doing or transacting business, it is, however, recognized that a foreign the SEN online wallet; (ii) offering and selling SEN services; (iii) accepting online payments
corporation is doing, transacting, engaging in, or carrying on a business in the State when, for using SEN in any currency, including Philippine currency; (iv) marketing or
and ordinarily when, it has entered the State by its agent and is there engaged in advertising; and (v) hiring Independent Contractors for marketing or advertising of its
carrying on and transacting through them some substantial part of its ordinary or products and the selling of prepaid cards in relation to its online gaming services.
customary business, usually continuous in the sense that it may be distinguished
from merely casual, sporadic, or occasional transactions or isolated acts. Second, enumerated activities are transactions consummated within the Philippines
although they are done in a virtual plane.
In this case:
1. It will not perform functions normally incidental to its business;
2. Function of internal auditor is advisory; It is just part of the corporation's
management control process. It is by no means transacting business. SEC-OGC OPINION No. 21-14
3. The objective of a non profit organization is something other than earning
profits. engaged in 1 contract to be perform in the Philippines.
NO. It has been held by the SC that participating in the bidding process constitutes
"doing business" because it shows the foreign corporation's intention to engage in
Inquiry: whether the purchase or acquisition of condominium units by the foreign business here.
corporation would be considered as doing or transacting business.
NO. The SC laid down the test to determine whether a foreign corporation
can be considered as "doing business" in the Philippines: Inquiry: W/N a Philippine branch office of an absorbed foreign corporation in a merger can
1. Substance test - whether the foreign corporation is continuing the body of the continue its juridical existence despite the merger.
business or enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. It did not answer but it said that if the surviving foreign corporation will continue the
2. Continuity test - continuity of commercial dealings and arrangements, and business of the absorbed corporation in the Philippines, it must file its own application for
contemplates, to that extent, the performance of acts or works, or the exercise of a license to do business in the Philippines.
some of the functions normally incident to, and in the progressive prosecution
of, the purpose and object of its organization.
Investigation, Offenses, Penalties


lOMoARcPSD|31111392
NONE
Miscellaneous Provisions

Inquiry: W/N the status and rights of a stockholder in a dissolved corporation with assets
that remain unliquidated and is still doing business remains.
YES. In Gonzales v. Sugar Regulatory Administration,

of the life of a juridical entity does not by itself cause the extinction or diminution of the
rights and liabilities of such entity
As for the right to inspect the corporate books, the right to inspect corporate books and
records is based on the principle that "a stockholder has the right to be fully informed on
the status and condition of the corporation. Such right can only be exercised for a
legitimate purpose and should be germane to the interest of the stockholder as such,
as where the purpose is to find out the actual financial condition of the corporation and
how his investment is being used.

Inquiry: W/N the Order of Revocation issued by the SEC is tantamount to the dissolution of a
Corporation.
No. (Ampil: Revocation is not Dissolution) the Commission provided a schedule for
corporations revoked via mass revocation within which to file petitions to lift the orders
of revocation issued against them. Considering the foregoing, a Corporation may still file a
Petition to lift the Order of Revocation if and when it's license is revoked by the SEC.

Inquiry: W/N a corporation which was revoked and later on re-registered as a new
corporation, one and the same.
NO. The original PNA corporation organized in 1974 is separate and distinct from the one
registered in 2010, and the former cannot be said to be a continuation of the latter.
Dissolution is a condition of law and fact which ends the capacity of the body corporate
to act as such, and necessitates a liquidation and extinguishment of all legal relations
existing in respect of the corporate enterprise. As such, the re-registered corporation is a
newly registered corporation separate and distinct from the one registered in 1974.

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lOMoARcPSD|31111392

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When the Corporation Code Applies Suppletorily

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(See p. 68-69 for more possible indicia) Judicial Function

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Ecclesiastical and Lay corporations Agency organized as a stock or nonstock corporation

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Shares of stock representing residual ownership interest in the corporation.

CHANGES: Preferred shares

Common Shares Convertible shares

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They result by virtue of a transaction to place shares in escrow until the

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Stages in the life of the treasury shares Effect if not incorporated

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perpetual existence. Name

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Sale of industrial cranes and cutting tools to firms engaged in Problems

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Amendment of the AOI and the amended provisions

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recommendation of the appropriate government agency to the effect that such

Illegal or Immoral Purposes

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Name in the Articles of Incorporation

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De Jure Corporation vs. De Facto Corporation

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Liability as General Partners: Cannot Override Jurisdictional Requirement

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Making plans for the construction of the factory

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disqualifications, voting requirements, duration of term and term limit, institution.

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confront uncertainty. Term

Resolution Sample questions from the book:

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b. This view prefers the limitation on excessive pursuit of profit and

A stockholder or member who participates through remote communication or

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time stockholders or members, unless provided otherwise by by-

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