San Beda University

College of Arts & Sciences

Department of Legal Management

CORPORATION LAW
Republic Act No. (“RA”) 11232
Revised Corporation Code (“RCC”)
MIDTERM COVERAGE

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INTRODUCTION TO THE RCC

1. The RCC and its effectivity date (Secs. 1 & 188, RCC)

Section 1: The Title of this Code shall be Revised Corporation Code of the
Philippines

Section 188: Effectivity. - This Act shall take effect upon completion of its
publication in the Official Gazette or in at least two (2) newspaper of
general circulation.

2. Applicability of the RCC (Sec. 183, RCC)

Section 183. Applicability of the Code. - Nothing in this Act shall be

construed as amending existing provisions of special laws governing the
registration, regulation, monitoring and supervision of special corporations
such as banks, nonbank 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, nonbank
financial institutions, and insurance companies under their supervision
and regulation. Suppletory application of the RCC to corporations created
under special law(s) (Sec. 4, RCC)

3. Repeal of the Corporation Code and its effects (Secs. 184, 185
& 187, RCC)

Section 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.

Section 185. Applicability to Existing Corporations. –

A corporation lawfully existing and doing business in the Philippines

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

- It means that from the time of the effectivity of this Code, the
Corporation will be given a period of NOT MORE THAN 2 YEARS to

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comply with the new provisions of the Code.

Section 187. Repealing Clause. –

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Philippines", is hereby repealed.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hereby repealed or modified accordingly.

- It means lahat ng order, rule or regulation contrary to or

inconsistent with any provision of this Act is hereby repealed or
modified accordingly.

DEFINITION, ESSENCE, AND MAIN ATTRIBUTES OF A

CORPORATION

1. Definition and attributes (Sec. 2, RCC)

A corporation is an artificial being created by operation of law, having the

right of succession and the powers, attributes, and properties expressly
authorized by law or incident to its existence.

Attributes of a corporation:

 It is an artificial being
 It is created by operation of law
 It has the right of succession
- A corporation continues to exist even if there is a change in those
who compose it.
- A shift in the composition of the shareholders of a corporation
would not affect its existence and continuity.
 It has the powers, attributes, and properties expressly authorized
by law or incident to its existence.

2. Advantages and Disadvantages of a Corporate Medium

3. Difference with other types of business organizations (Sole
Proprietorship, Joint Venture & Partnership)
4. Power to create a corporation is legislative in character (Sec.
16, Article XII, 1987 Constitution)

CORPORATE JURIDICAL ENTITY

1. Doctrine of Separate Juridical Personality (Arts. 44 [2 & 3], 45

& 46, Civil Code)

Article 44. The following are juridical persons:

(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have been
constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member. (35a)

Article 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding

article are governed by the laws creating or recognizing
them.

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Private corporations are regulated by laws of general application on the

subject.

Partnerships and associations for private interest or purpose are governed

by the provisions of this Code concerning partnerships.
(36 and 37a)

Article 46. Juridical persons may acquire and possess property of all
kinds, as well as incur obligations and bring civil or criminal
actions, in conformity with the laws and regulations of their organization.
(38a)

 The properties of the corporation are not the properties of the its
shareholders, members or officers.

 A shareholder has no right to file in his own name an action to

quiet title of the properties of the corporation because of the
separate nature of the personality of the shareholder and the
corporation.

 Properties belonging to a corporation cannot be attached to satisfy

the debt of a stockholder.

 The interest of the shareholder in the properties of the corporation

is indirect, contingent and inchoate. The interest of the
shareholder on a particular property becomes actual, direct and
existing only upon liquidation of the assets of the corporation and
the same property is assigned to the shareholder concerned.

 The obligations of the corporation are not the obligations of its

shareholders and members and officers and vice versa.

- The president of the corporation may not be held liable for the
obligation arising from the tort committed by the employee the
corporation.
- The general rule is that the directors and officers are not
personally liable for the obligations of the corporation.

 The acts of the stockholders do not bind the corporation unless

they are properly authorized.

 The stockholders are not parties to an action by or against the

corporation alone.

2. Constitutional rights of a corporation

3. Limited Liability Rule

 Under this rule, a stockholder is personally liable for the financial

obligations of the corporation to the extent of his unpaid
subscriptions.

4. Trust Fund Doctrine

a. Halley v. Printwell, Inc., G.R. No. 157549, May 30,

2011

Corporate personality not to be used to foster injustice

Ruling: although a corporation has a personality separate and distinct from
those of its stockholders, directors, or officers; such separate and distinct
personality is merely a fiction created by law for the sake of convenience and

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to promote the ends of justice.

The corporation personality may be disregarded, and the individuals

composing the corporation will be treated as individuals, if the corporate
entity is being used as:

(1) a cloak or cover for fraud or stockholders

(2) as justification for a wrong
(3) as an alter go, an adjunct, or a business conduit for the sole benefit of the
stockholders.

As a general rule, a corporation is looked upon as legal entity, unless and

until sufficient reason to the contrary appears.

The court always presume good faith.

Trust fund doctrine

Ruling: xxx rule that the property of a corporation is a trust fund for the
payment of creditors, but such property can be called a trust fund ‘only by
way of analogy or metaphor.’ As between the corporation itself and its
creditors it is a simple debtor, and as between its creditors and stockholders
its assets are in equity a fund for the payment of its debts.32

It is established doctrine that subscriptions to the capital of a corporation

constitute a fund to which creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets for the payment of its
debts.

We clarify that the trust fund doctrine is not limited to reaching the
stockholder’s unpaid subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only the capital stock, but also
other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts.36All assets and property belonging to the
corporation held in trust for the benefit of creditors that were distributed or in
the possession of the stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in satisfaction of its claim.

b. Atilano II v. Asaali, G.R. No. 174982, September 10,

2012

c. Enano-Bote v. Alvarez, G.R. No. 223572, November 10,

2020

Issue: The Petition raises two main issues: (1) whether the CA committed an
error of law in applying the trust fund doctrine to make petitioners personally
and solidarily liable with CAIR for the unpaid rentals claimed by SBMA
against CAIR because of their supposedly unpaid subscriptions in CAIR's
capital stock;

Ruling:
"[x x x] The trust fund doctrine, first enunciated in the American case of Wood
v. Dummer, was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,
where this Court declared that:

It is established doctrine that subscriptions to the capital of a corporation

constitute a fund to which creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets for the payment of its

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debts. (Velasco vs. Poizat, 37 Phil., 802) ...

We clarify that the trust fund doctrine is not limited to reaching the
stockholder's unpaid subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only the capital stock, but also
other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts. All assets and property belonging to the
corporation held in trust for the benefit of creditors that were distributed or in
the possession of the stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine, a corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation of paying
for his shares, in whole or in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors. The creditor is allowed to maintain
an action upon any unpaid subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt. To make out a prima facie case
in a suit against stockholders of an insolvent corporation to compel them to
contribute to the payment of its debts by making good unpaid balances upon
their subscriptions, it is only necessary to establish that the stockholders
have not in good faith paid the par value of the stocks of the corporation. [x x
x]" (emphasis ours)

But it may be said that it is not claimed that the property of a going, solvent
corporation is a trust fund for its creditors; it is only when the corporation
becomes insolvent and ceases to do business that the assets become a trust
fund. Many cases may be found where it is so stated.

5. Practice of Profesion (Sec. 10, RCC; Sec. 37, RA 9266)

Section 10. Number and Qualifications of Incorporators.

Any person, partnership, association or corporation, singly or jointly with

others but not more than fifteen (15) in number, may organize a
corporation for any lawful purpose or purposes: Provided, That natural
persons who are licensed to practice a profession, and partnerships or
associations organized for the purpose of practicing a profession, shall not
be allowed to organize as a corporation unless otherwise provided under
special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at

least one (1) share of the capital stock.

A corporation with a single stockholder is considered a One Person

Corporation as described in Title XIII, Chapter III of this Code.

Basic qualifications of incorporators:

(1) the incorporator must be a natural or juridical entity
(2) there must not be more than 15 incorporators
(3) if the incorporator is a natural person, he or she must be of legal age
and
(4) each incorporator of a stock corporation must own or be a subscriber to
at least one share of the capital stock

 It is now allowed for a corporation to have only one incorporator if

the corporation is one person corporation.
 Local Government units may organize corporations but subject to
the limitations imposed under the Local Government Code of
1991.
 The RCC does not limit the number of original subscribers.
 An incorporator must have capacity to act.
 Married women can be incorporators.

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 Philippine residence not required.

 There is no requirement that the majority of the incorporators
must be citizens of the Philippines.
 Accomplished Fact. An incorporator remains to be a incorporator
even if he will later on cease to be a corporator or shareholder.

6. Moral Damages
a. ABS-CBN Broadcasting Corp. v. Court of Appeals, G.R. No.
128690, January 21, 1999
b. Filipinas Broadcasting Network, Inc. v. Ago Medical &
Educational Center-Bicol Christian College of Medicine, G.R.
No. 141994, January 17, 2005
7. Corporate Tort liability
8. Criminal Liability (Secs. 165, 166, 167, 170 & 171, RCC)
a. Ching v. Secretary of Justice, G.R. No. 164317, February 6,
2006

9. Doctrine of Piercing the Veil of Corporate Fiction

 Under the Doctrine of Piercing the Veil of Corporate Fiction, the

corporation’s separate juridical personality may be disregarded
when there is an abuse of the corporation form.
 “so to speak, no separate mind, will or existence of its own and is
but a conduit for its principal”
 Under the doctrine of "piercing the veil of corporate fiction," the
court looks at the corporation as a mere collection of individuals
or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine is that
when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as
identical or as one and the same.
 Example:

1) corporate personality may be disregarded when the corporate

entity is used to defeat public convenience, justify wrong, protect fraud
or defend crime.

a. Concept Builders, Inc. v. National Labor Relations

Commission, G.R. No. 108734, May 29, 1996

The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete

domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty or
dishonest and unjust act in contravention of plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate
veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are

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concerned with reality and not form, with how the corporation operated and
the individual defendant's relationship to that operation.

b. Kukan International Corporation v. Reyes, G.R. No.

182729, September 29, 2010

Ruling:
While a corporation may exist for any lawful purpose, the law will regard it
as an association of persons or, in case of two corporations, merge them into
one, when its corporate legal entity is used as a cloak for fraud or illegality.
This is the doctrine of piercing the veil of corporate fiction. The doctrine
applies only when such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, or when it is made as a shield
to confuse the legitimate issues, or where a corporation is the mere alter ego
or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.

To disregard the separate juridical personality of a corporation, the

wrongdoing must be established clearly and convincingly. It cannot be
presumed.33 (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first
acquire jurisdiction over the corporation or corporations involved before its or
their separate personalities are disregarded; and (2) the doctrine of piercing
the veil of corporate entity can only be raised during a full-blown trial over a
cause of action duly commenced involving parties duly brought under the
authority of the court by way of service of summons or what passes as such
service.

This Court has pierced the corporate veil to ward off a judgment credit, to
avoid inclusion of corporate assets as part of the estate of the decedent, to
escape liability arising from a debt, or to perpetuate fraud and/or confuse
legitimate issues either to promote or to shield unfair objectives or to cover up
an otherwise blatant violation of the prohibition against forum-shopping. Only
in these and similar instances may the veil be pierced and disregarded.
(Emphasis supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be shown
by clear and convincing proof that the separate and distinct personality of
the corporation was purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings.

In those instances when the Court pierced the veil of corporate fiction of two
corporations, there was a confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to

avoid a financial liability of the first corporation; and

3. Both corporations are owned and controlled by the same persons such
that the second corporation should be considered as a continuation and
successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously

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absent.

c. International Academy of Management and

Economics v. Litton and Co., Inc., G.R. No. 191525,
December 13, 2017

 It ruled that since the law does not make a distinction between a
stock and non-stock corporation, neither should there be a
distinction in case the doctrine of piercing the veil of corporate
fiction has to be applied.
 Piercing the Corporate Veil may Apply to Natural Persons
 Outsider reverse piercing occurs when a party with a claim against
an individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant.
 In the U.S. case Acree v. McMahan,54 the American court held that
"[o]utsider reverse veil-piercing extends the traditional veil-piercing
doctrine to permit a third-party creditor to pierce the veil to satisfy
the debts of an individual out of the corporation's assets."

d. Kho, Sr. v. Magbanua, G.R. No. 237246, July 29, 2019

However, being a mere fiction of law, this corporate veil can be pierced when
such corporate fiction is used:
(a) to defeat public convenience or as a vehicle for the evasion of an existing
obligation;
(b) to justify wrong, protect or perpetuate fraud, defend crime, or as a shield
to confuse legitimate issues;42 or
(c) as a mere alter ego or business conduit of a person, or is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit, or adjunct of another corporation.

Fundamental in the realm of labor law that corporate directors, trustees, or

officers can be held solidarily liable with the corporation when they assent to
a patently unlawful act of the corporation, or when they are guilty of bad
faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders, or other
persons. 44 However, it bears emphasis that a finding of personal liability
against a director, trustee, or a corporate officer requires the concurrence of
these two (2) requisites, namely:

(a) a clear allegation in the complaint of gross negligence, bad faith or malice,
fraud, or any of the enumerated exceptional instances; and

(b) clear and convincing proof of said grounds relied upon in the complaint45
sufficient to overcome the burden of proof borne by the complainant.

The key element is the presence of fraud, malice or bad faith.

CORPORATE NATIONALITY

1. Place of Incorporation Test (Sec. 140, RCC)

2. Control Test and Grandfather Rule
a. Gamboa v. Teves, G.R. No. 176579, June 28, 2011 and
Resolution dated October 9, 2012
b. Roy III v. Herbosa, G.R. No. 207246, November 22, 2016
and Resolution dated April 18, 2017
c. Narra Nickel Mining & Development Corp. v. Redmont

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Consolidated Mines Corp., G.R. No. 195580, April 21, 2014

and Resolution dated January 28, 2015
CLASSES OF CORPORATIONS Additional reading materials:
(SECS. 3 & 2)
1. SEC-OGC Opinion No. 22-
1. Stock Corporation vs. Non-Stock Corporation (Secs. 3 & 86, 17, Conversion of
RCC) Common/Preferred Shares
into Redeemable Shares, 23
Section 3. Classes of Corporations. - Corporations formed or organized November 2022
under this Code may be stock or nonstock corporations. Stock corporations 2. SEC Guidelines on the
are those which have capital stock divided into shares and are authorized Number and Qualifications of
to distribute to the holders of such shares, dividends, or allotments of the Incorporators Under the
surplus profits on the basis of the shares held. All other corporations are Revised Corporation Code
nonstock corporations. (SEC Memorandum Circular
No. 16, Series of 2019)
Section 86. Definition. - For purposes of this Code and subject to its 3. SEC Guidelines on Corporate
provisions on dissolution, a nonstock corporation is one where no part of Term (SEC Memorandum
its income is distributable as dividends to its members, trustees, or officers: Circular No. 22, Series of
2020)
Provided, That any profit which a nonstock corporation may obtain 4. SEC Amended Guidelines
incidental to its operations shall, whenever necessary or proper, be used for and Procedures on the Use of
the furtherance of the purpose of purposes for which the corporation was Corporate and Partnership
organized, subject to the provisions of this Title. Names (SEC Memorandum
Circular No. 13, Series of
The provisions governing the stock corporations, when pertinent, shall be 2019)
applicable to nonstock corporations except as may be covered by specific 5. Omnibus Guidelines on
provisions of this Title. Principal Office Address;
Address of Each
Classifications in other statues and jurisprudence: Incorporator, Director,
Trustee or Partner (SEC
a. as to the number of components: Memorandum Circular No. 6,
(1) aggregate corporation – a corporation consisting of more than one s. 2016, June 9, 2016)
member.
(2) corporation sole – a corporation consisting of only one person or
member.
(3) one person corporation – a corporation with a single stockholder.

b. as to functions
(1) public corporation – a corporation organized for the government of a
portion of a State for the purpose of serving good and welfare.
(2) private corporation – a corporation formed for some private purpose,
benefit, aim or end. They may be a stock or non stock corporation.

c. as to the manner of creation:

(1) corporation created by special law - a corporation directly created by
Congress though a special law.
(2) corporation created under a general law – a corporation created under
the RCCP, the Corporation Code or the Old Corporation Law.
(3) corporation by prescription – a corporation that was not formally
organized as such but has been duly recognized by immemorial usage

d. as to legal status:
(1) de jure corporation – a corporation organized in accordance with the
requirements of law.
(2) de facto corporation – a corporation that is formed where there exists a
flaw in its incorporation but there is colorable compliance with the
requirements of law.
(3) corporation by estoppel – a group of person which holds itself out as a
corporation and enters into a contract with a third person on the strength
of such appearance. It does not have a juridical personality.

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e. as to existence of stocks
(1) stock corporation – a corporation with capital stock that is divided into
shares and is authorized to distribute to holders of such shares, dividends,
or allotments of the surplus profits on the basis of the shares held.
(2) non stock corporation – a corporation that has no capital stock, does not
issue stocks, and does distribute dividends to its members.

f. as laws of incorporation
(1) domestic corporation – a corporation formed, organized or existing under
Philippine Laws.
(2) foreign corporation – a corporation formed, organized or existing under
laws other than the Philippine and whose laws allow Filipino citizens and
corporation to do business in its country or state.

Requisites for stock corporations

- A capital stock divided into shares
- An authority to distribute to the holders of such shares, dividends
or allotments of surplus profits on the basis of the shares held.
Note: if only one requisite is present, it cannot be properly classified as a
stock corporation.

In case of a non stock corporation, there must be members and the

corporations must not distribute any part of their income to members.

2. Corporations created under a general law and corporations

created by special law (Sec. 4, RCC; Sec. 16, Article XII, 1987
Constitution)

Section 4. Corporations Create by Special Laws or Charters. - Corporations

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

 Government – owned or controlled corporations.

May either be
(1) with original charter of created by special law
(2) incorporated under a general law

Despite common misconceptions, government owned or controlled

corporations are regarded as private corporation.

3. Domestic corporation and Foreign corporation (Sec 140, RCC)

Section 140. Definition of Righs of Foreign Corporations. –

For purposes of this Code, a foreign corporation is one formed, organized

or existing under laws other than those of the Philippines' and whose laws
allow Filipino citizens and corporations to do business in its own country or
State. It shall have the right to transact business in the Philippines after
obtaining a license for that purpose in accordance with this Code and
certificate of authority from the appropriate government agency.

COMPOSITION & CAPITAL STRUCTURE

(SECS. 5 – 9)

1. Corporators and Incorporators, Stockholders and Members

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(Sec. 5, RCC)

Section 5. Corporators and Incorporators, Stockholders and Members. -

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

The components of the corporation include:

(1) shareholders or members – are the holders of shares in a corporation

with interest over the management, income and assets of the corporation.
They participate in controlling the affairs of the corporation by exercising
their right to vote.
(2) directors or trustees
(3) officers

2. Classification of Shares (Sec. 6, RCC)

Section 6. Classification of Shares. - The classification of shares, their

corresponding rights, priviledges, restrictions, and their stated par value, if
any, must be indicated in the articles of incorporations. Each share shall be
equal in all respects to every other share, except as otherwise provided in
the articles of incorporation. Each share shall be equal in all respects to
every other share, except as otherwise provided in the articles of
incorporation and in the certificate of stock.

The share stock corporations may be divided into classes or series of

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

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

following matters;

(a) Amendment of the articles of incorporation;

(b) Adoption and amendment of bylaws;

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

substantially all of the corporate property;

(d) Incurring, creating, or increasing bonded indebtedness;

(e) Increase or decrease of authorized capital stock;

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

other corporations;

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

accordance with this Code; and

(h) Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote

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

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

Preferred shares of stock issued by a corporation may be given preference

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

Shares of capital stock issued without par value shall be deemed fully paid
and nonassessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto: Provided, That no-par
value shares must be issued for a consideration of at least Five pesos
(₱5.00) per share: Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be treated as capital
and shall not be available for distribution as dividends.

A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.

Shares may be classified into:

- Common or preferred shares – represent the residual ownership
interest in the corporation.
- Voting or non voting shares
- Par value or no par value shares
- Treasury shares
- Redeemable shares
- Founder’s share

Preferred shares may be:

- Cumulative or non cumulative
- Participating or non participating
- Preferred as to dividends and/or preferred as to assets upon
distribution

3. Outstanding Capital Stock (Sec. 173, RCC)

Section 173. Outstanding Capital Stock Defined. - The term "outstanding

capital stock", as used in this Code, shall mean the total shares of stock
issued under binding subscription contracts to subscribers or stockholders,
whether fully or partially paid, except treasury shares.

4. Founders’ Shares (Sec. 7, RCC)

Section 7. Founders' Shares. - Founders' shares may be given certain

rights and privileges not enjoyed by the owners of other stock. Where the
exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years from the
date of incorporation: Provided, That such exclusive right shall not be
allowed if its exercise will violate Commonwealth Act No. 108, otherwise
known as the "Anti-Dummy Law"; Republic Act No. 7042, otherwise known

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as the "Foreign Investments Act of 1991"; and otherwise known as "Foreign

Investments Act of 1991"; and other pertinent laws.

 They are given to those who helped organized the corporation.

 The special rights granted to founders shares are subject to the
approval of the SEC.

5. Redeemable Shares (Sec. 8, RCC)

Section 8. Redeemable Shares. - Redeemable shares may be issued by the

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

 Redeemable shares are shares of stocks issued by a corporation

which said corporation can purchase or take up from their holders
as expressly provided for in the articles of incorporation.
 They are usually preferred shares.
 The obligation to redeem must be indicated in the AOI.

6. Treasury Shares (Sec. 9, RCC)

Section 9. Treasury Shares. - Treasury shares are shares of stock which

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

 Treasury shares are shares of stock that have been issued and
fully paid for, but subsequently reacquired by the issuing
corporation by purchase, redemption, and donation or though
some other lawful means.
 They are currently owned by the corporation and not its
shareholders.
 They are previously issued shares and they do not revert to
unissued shares once they become part of the properties of the
corporation.

Three stages in the life of treasury shares:

 Treasury shares can also be created not only though redemption

but also through other modes like purchase, donation and the
like.
 The rights enjoyed by corporation as the holder of treasury shares
are restricted.
 Board of Directors may provide for the reasonable price for the

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transfer of treasury shares.

a. Salido, Jr. v. Aramaywan Metals Development Corp.,

G.R. No. 233857, March 18, 2021

FORMATION & ORGANIZATION OF A PRIVATE CORPORATION

(SECS. 10 – 21)

1. Number and Qualifications of Incorporators (Sec. 10, RCC)

Section 10. Number and Qualifications of Incorporators. - Any person,

partnership, association or corporation, singly or jointly with others but not
more than fifteen (15) in number, may organize a corporation for any lawful
purpose or purposes: Provided, That natural persons who are licensed to
practice a profession, and partnerships or associations organized for the
purpose of practicing a profession, shall not be allowed to organize as a
corporation unless otherwise provided under special laws. Incorporators
who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at

least one (1) share of the capital stock.

A corporation with a single stockholder is considered a One Person

Corporation as described in Title XIII, Chapter III of this Code.

 Incorporation means the performance of conditions, acts, and

writings by incorporators, and the official acts, certification or
records, which give the corporation its existence.
 Corporations are creatures of law, and can only come into
existence in the manner prescribed by law.
 The life of the corporation will not commence if the SEC will not
issue a Certificate of Incorporation.
 Articles of incorporation and amendments thereto may be filed
with the SEC in the form of electronic document in accordance
with the rules and regulations to be promulgated by the SEC on
electronic filing.
 It is only upon the approval and issuance of a certificate of
incorporation by the SEC that the applicant corporation becomes
a juridical person.
 Natural persona and/or corporations may validly enter into an
agreement to create a corporation.

Basic qualifications of incorporators:

(1) the incorporator must be a natural or juridical entity
(2) there must not be more than 15 incorporators
(3) if the incorporator is a natural person, he or she must be of legal age
and
(4) each incorporator of a stock corporation must own or be a subscriber to
at least one share of the capital stock

 It is now allowed for a corporation to have only one incorporator if

the corporation is one person corporation.
 Local Government units may organize corporations but subject to
the limitations imposed under the Local Government Code of
1991.
 The RCC does not limit the number of original subscribers.
 An incorporator must have capacity to act.
 Married women can be incorporators.
 Philippine residence not required.
 There is no requirement that the majority of the incorporators
must be citizens of the Philippines.
 Accomplished Fact. An incorporator remains to be a incorporator

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even if he will later on cease to be a corporator or shareholder.

2. Corporate Term (Sec. 11, RCC)

Section 11. Corporate Term. - A corporation shall have perpetual existence

unless its articles of incorporation provides otherwise.

Corporations with certificates of incorporation issued prior to the 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 articles of incorporation: Provided, That any change in the
corporate right of dissenting stockholders in accordance with the provisions
of this Code.

A corporate term for a specific period may be extended or shortened by

amending the articles of incorporation: Provided, That no extension may be
made earlier than three (3) years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an earlier extension as may
be determined by the Commission: Provided, further, That such extension
of the corporate term shall take effect only on the day following the original
or subsequent expiry date(s).

A corporation whose term has expired may apply for revival of its corporate
existence, together with all the rights and privileges under its certificate of
incorporation and subject to all of its duties, debts and liabilities existing
prior to its revival. Upon approval by the Commission, the corporation shall
be deemed revived and a certificate of revival of corporate existence shall be
issued, giving it perpetual existence, unless its application for revival
provides otherwise.

No application for revival of certificate of incorporation of banks, banking

and quasi-banking institutions, preneed, insurance and trust companies,
non-stock savings and loan associations (NSSLAs), pawnshops,
corporations engaged in money service business, and other financial
intermediaries shall be approved by the Commission unless accompanied
by a favorable recommendation of the appropriate government agency.

 As a general rule, a corporate term is perpetual.

 The AOI of new corporations can specify a fixed term.
 Corporations duly incorporated prior to the effective date of the
RCCP and still existing shall also automatically have perpetual
term. If they do not want a perpetual term, they must notify the
SEC that they want to maintain their fixed term.
 A corporation with a fixed term may be dissolved by shortening its
term.
 Corporations with fixed terms may extend their term
 No extension can be made earlier than 3 years prior to the original
or subsequent expiry date.
 The first day of the term is the date of incorporation, stated in the
Certificate of Incorporation.
 It is called arbitrary limit if the term is fixed.
 The privilege of extension is purely statutory.
 It cannot be required by the SEC to file an application for the
annual renewal of the cert of registration of a corporation.
 Doctrine of Relations. This doctrine applies if the failure to file
the application for extension within the term of the corporation is
due to the neglect of the SEC officer with whom the certificate is
required to be filed or to a wrongful refusal on his part to receive
it.
 Revival of corporate existence. Upon approval by the SEC, the
corporation shall be deemed revived and a certificate of revival of
corporate existence shall be issued, giving it perpetual existence,

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unless its application for revival provides otherwise.

3. Minimum Capital Stock (Sec. 12, RCC)

Section 12. Minimum Capital Stock Not Required of Stock Corporations. -

Stock corporations shall not be required to have minimum capital stock,
except as otherwise specially provided by special law.

 Authorized capital stock – is the amount fixed in the AOI to be

subscribed and paid by the stockholders of the corporation.
 Subscribed capital – is that portion of the authorized capital stock
that is covered by subscription agreements whether fully paid or
not.
 Paid up capital – is the portion of the authorized capital that is
subscribed and paid.
 Paid in capital – is the amount of outstanding capital stock and
additional paid in capital or premium paid over the par values of
the shares. (nature of donation)
 Outstanding capital stock – refers to the total shares of stock
issued to subscribers or stockholders, whether or not fully or
partially paid.
 Capital – includes properties and assets of the corporation that are
used for its business or operation.
 Stated capital – is the sum of the par value of all issued par value
shares, the entire amount received for no par value share..

 The RCCP requires that a portion of the authorized capital is

subscribed in a stock corporation.
 There is no required minimum subscribed capital and paid up
capital under the RCCP. The exceptions are corporations governed
by special laws that require minimum subscribed and/or paid up
capital.

4. Articles of Incorporation and its amendment (Secs. 13, 14, 15

& 16, RCC)

Section 13. Contents of the Articles of Incorporation. - All corporations

shall file with the Commission articles of incorporation in any of the official
languages, duly signed and acknowledged or authenticated, in such form
and manner as may be allowed by the Commission, containing
substantially the following matters, except as otherwise prescribed by this
Code or by special law:

(a) The name of corporation;

(b) The specific purpose or purposes for which the corporation is being
formed. Where a corporation has more than one stated purpose, the articles
of incorporation hsall indicate the primary purpose and the secondary
purpose or purposes: Provided, That a nonstock corporation may not
include a purpose which would change or contradict its nature as such;

(c) The place where the principal office of the corporation is to be located,
which must be within the Philippines;

(d) The term for which the corporation is to exist, if the corporation has not
elected perpetual existence;

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

(f) The number of directors, which shall not be more than fifteen (15) or the
number of trustees which may be more than fifteen (15);

(g) The names, nationalities, and residence addresses of persons who shall
act as directors or trustees until the first regular directors or trustees are
duly elected and qualified in accordance with this Code;

(h) If it be a stock corporation, the amount of its authorized capital stock,

number of shares into which it is divided, the par value of each, names,
nationalities, and subscribers, amount subscribed and paid by each on the
subscription, and a statement that some or all of the shares are without par
value, if applicable;

(i) If it be a nonstock corporation, the amount of its capital, the names,

nationalities, and residence addresses of the contributors, and amount
contributed by each; and

(j) Such other matters consistent with law and which the incorporators may
deem necessary and convenient.

An arbitration agreement may be provided in the articles of incorporation

pursuant to Section 181 of this Code.

The Articles of incorporation and applications for amendments thereto may

be filed with the Commission in the form of an electronic document, in
accordance with the Commission's rule and regulations on electronic filing.

 Articles of incorporation defines the contractual relationship

between the state.
 The AOI binds the state and constitutes the constitution of a
corporation.
 An entry in the AOI is evidence of the actual stipulations therein.
 Substantial compliance. Section 13 provides that the AOI must
contain “substantially” the matters indicated therein.
 A corporate name and purpose clause in the AOI are
indispensable.

Name of the corporation is necessary for identification purposes.

 The name of the corporation need not reflect the purpose of the
corporation.

Purpose clause. This is important in order to assure that persons who

invest in corporate entities would be aware of the business the
corporation is designed to engage in.
 The primary purpose must be only but the secondary purposes
may be several.
 Other purposes not allied or incidental to the primary purposes
should be classified as secondary purposes.
 As a general rule, the primary purpose determines the
classification of a corporation.
Exception: where the corporation actually engages in one of its
secondary purpose/s.
 There should be a specification of the corporate purpose with
sufficient clearness to define with certainty the scope of the
business or undertaking prescribed and to enable one to see that
the purpose specified is one provided for the statute.
 Corporation cannot be incorporated for the purpose of practicing a
profession.
 The best proof of the purpose of corporation is the AOI.
 Collateral attack on the legality of the purpose of the corporation
is not allowed in this jurisdiction.

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Principal Office. It is where the corporation shall hold office, which

must be within the Philippines.
 Circular no 3, series of 2006 states that all corporations applying
for registration must state in their AOI the specifics of their
principal office which shall include, IF FEASIBLE, street number,
street name, barangay, city or municipality and the specific
address of the incorporator, director or trustee.
 If only a general address as their principal office is indicated, they
are required to amend their AOI to reflect specific addressed.
Otherwise, a one time penalty can be imposed.
 If the corporation moved to another corporation WITHIN THE
SAME CITY OR MUNICIPALITY, the corporation is not required to
file an amended AOI. Instead it must declare its new or current
specific address in the GIS within 15 days from the transfer to its
new location.
 They must submit an amended AOI if the new address is in
another city of municipality.
 The importance of principal office may be important for tax
purposes, or to determine the venue in cases or even in
determining if proper noticed was served.
 It is not necessary that all the businesses of the corporation be
conducted in the principal place of the business.
Corporate Term
 A corporation may also choose to have a fixed term.
 Where the term of corporation expires but instead of liquidating its
affairs it continues the business in good faith, not knowing that
the term has expired, some court hold that it may be deemed
corporation de facto.
Incorporators.
 The AOI contains the names, nationalities and residence
addressed of the incorporators.
 They must sign and acknowledge the AOI together with the
treasurer.
 They must indicate their legal names not fictitious names or
aliases.

Directors.
 Number of directors shall not be more than 15.
 The number of directors cannot exceed even after the
incorporation.

Capital stock.
 It is mandatory to state the authorized capital stock, the number
of shares into which it is divided and the par value of the shares.
 The RCCP do not imposed a minimum capital stock.

Paid up capital
 Portion of the authorized capital stock that has been subscribed
and paid.
 The paid up capital may be subject to different minimum
requirements under special laws.
 If the paid up capital consists of property, verifications of its
ownership, physical existence and reasonableness of the valuation
at which it is being transferred to the corporation is made by the
SEC.
 The applicant corporation shall submit to the SEC proof of the
transfer of certificate.
 If form of land; within 120 days
 Property other than land ; within 90 days
 A single proprietorship may be organized as a corporation through

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deed of assignment.
 The SEC may prescribed the documentary requirements for the
different modes of satisfying the paid up capital requirement.

Treasurer’s certification.
 The ninth clause of the AOI must state the name of the Treasure
who has been elected by the subscribes to act as such until after
the successor is duly elected and qualified in accordance with the
By laws.
 The treasurer is responsible for the certification because the
treasurer also signs the AOI.
 The treasurer may be made liable if the information stated in the
7th and 8th clauses are false.

Foreign equity
 There are nationalization laws that are in force in the Philippines.
There business that are fully nationalized and businesses that are
only partly nationalized.
 The following are activities where the foreign equity is limited 40%
by the constitution like:
(1) exploration, development and utilization of natural resources
(2) operation of public utilities
(3) educational institutions
(4) facility operators of a BOT project requiring a public utility
franchise

Domestic market enterprise.

 Under RA no. 7042, foreigners are limited to 40% equity in
Domestic market enterprise if the paid in equity capital is less
than US200,000.00.
 Holding companies are included within the term DME.

Mass media
 The PH constitution reserves ownership of mass media
corporations to Filipinos.

Real estate companies

 Only corporations at least 60% of the outstanding capital stock of
which belongs to Filipinos can own land.
 Corporation cannot own land if more than 40% of the outstanding
capital stock belongs to foreigners. However, the prohibition in the
constitution is limited to private land and land of the public
domain.
 Corporations can still own real properties like houses or buildings
unless specifically prohibited by law even if more than 40% of its
outstanding capital stock belongs to foreigner.
Example: condominium
 With respect to a non stock corporation, its nationality in relation
to the provision on land acquisition is computed on the basis of
nationality of its members and not based on the capital
contribution of the members.

Anti dummy law

 The AOI that is submitted to the SEC may be rejected if there is
patent non compliance with the anti dummy law and the different
nationalization requirements.

Other provisions.
 Other provisions may be inserted in the AOI as long as they are
not contrary LAMOG PUPU.

Section 15. Amendment of Articles of Incorporation. - Unless otherwise

prescribed by this Code or by special law, and for legitimate purposes, any

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provision or matter stated in the articles of incorporation may be amended

by a majority vote of the board of directors or trustees and the vote or
written assent of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the provisions of this Code. The
articles of incorporation of a nonstock corporation may be amended by the
vote or written assent of majority of the trustees and at least two-thirds
(2/3) of the members.

The original and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation. Amendments
to the articles shall be indicated by underscoring the change or changes
made, and a copy thereof duly certified under oath by the corporate
secretary and a majority of the directors or trustees, with a statement that
the amendments have been duly approved by the required vote of the
stockholders or members, shall be submitted to the Commission.

The amendments shall take effect upon their approval by the Commission
or from the date of filing with the said Commission if not acted upon within
six (6) months from the date of filing for a cause not attributable to the
corporation.

 Amendments of the AOI to change the corporate name, the place

of the principal office, and the purpose of the corporation must
comply with section 15.

Requirements: section 15 of the RCCP imposes certain requirements

for the amendment of the AOI :
 It must be for legitimate purpose and not contrary to other
provisions of RCCP
 It must be approved by majority vote of the board of directors or
trustees
 There must be a vote or written assent of the stockholders
representing atleast 2/3 of the outstanding capital stock, or in a
case of non capital stock, the members
 The original and amended articles shall contain all provisions
required by law to be set out in the AOI.
 A copy of the amended articles shall be duly certified under oath
by the corporate secretary and a majority of the directors or
trustees have been duly approved by the required vote of the
stockholders or members.
 The amendment must be approved by the SEC

Express and implied approval.

 The amendments shall take effect upon their approval by the SEC.
 Express approval is not indispensable; the amendments shall take
effect from the date of filing with the said Commission if not acted
upon within 6 months from the date of filing for a cause not
attributable to the corporation.

Documentary requirements:
 Amended AOI
 Directors or trustee’s certificate
 Monitoring clearance
 Secretary’s certificate

Provisions to be amended. The amendment may involve a change of

corporate name, increased in the authorized capital stock and other similar
changes.
 Amendments cannot be allowed if they go against the nature of
the corporation.
 There can be no amendment of the AOI of a non stock corporation
to convert it into a stock corporation with the members as

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shareholder.

Accomplished fact rule. There are provisions in the AOI that cannot be
amended because they are accomplished facts.
 The names of the incorporators cannot be changed and their
number cannot be increased because the names and number of
the original incorporators are accomplished facts.

Effect of amendment. Check section 134.

 A requirement that the AOI must specify the city or municipality
and province of the principal office may be imposed on the
corporation since no vested rights is affected.

Written assent of stockholders. Silence or failure to object cannot be

construed as approval by stockholders.
 The law requires the express approval of the stockholders through
an affirmative vote or an assent that is in writing.
 The law does not require that the approval by the stockholders be
made in a meeting duly called for the purpose.
 Exceptions: amendment of the AOI to extend or shorten the
corporate term and amendment involving an increase or decrease
of the capital stock. In the two cases mentioned, the applicable
provisions require approval in a meeting of the shareholders.

Who can question amendments.

 Amendments to the AOI and by laws can be questioned only by a
real party in interest like a shareholder or member.

Note: stock to non stock = allowed

Non stock to stock = prohibited

Section 16. Grounds When Articles of Incorporation or Amendment

May be Disapproved.

The Commission may disapprove the articles of incorporation or any

amendment thereto if the same is not compliant with the requirements of
this Code: Provided, That the Commission shall give the incorporators,
directors, trustees, or officers as reasonable time from receipt of the
disapproval within which to modify the objectionable portions of the articles
or amendment. The following are ground for such disapproval:

(a) The articles of incorporation or any amendment thereto is not

substantially in accordance with the form prescribed herein;

(b) The purpose or purposes of the corporation are patently

unconstitutional, illegal, immoral or contrary to government rules and
regulations;

(c) The certification concerning the amount of capital stock subscribed

and/or paid is false; and

(d) The required percentage of Filipino ownership of the capital stock under
existing laws or the Constitution has not been complied with.

No articles of incorporation or amendment to articles of incorporation of

banks, banking and quasi-banking institutions, preneed, insurance and
trust companies, NSSLAs, pawnshops and other financial intermediaries
shall be approved by the Commission unless accompanied by a favorable
recommendation of the appropriate government agency to the effect that
such articles or amendment is in accordance with law.

Ministerial duty
 The duty of the SEC to approve an application for registration is

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ministerial provided that all the requirements of law are complied

with.
 The SEC must give reasonable time within which to correct or
modify the objectionable portions of the articles or amendments.
 The AOI or any amendment thereto may be rejected if its not
substantially in accordance with the form prescribed in the RCCP.
 The AOI or any amendment thereto may be rejected if the
certification incorporated therein concerning the amount of capital
stock subscribed and/or paid is false.
 The AOI or any amendment thereto may also 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
existing laws or the constitution.
 No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi-banking institutions,
preneed, insurance and trust companies, NSSLAs, pawnshops and
other financial intermediaries shall be approved by the
Commission unless accompanied by a favorable recommendation
of the appropriate government agency to the effect that such
articles or amendment is in accordance with law.

5. Corporate Name (Sec. 17, RCC)

Section 17. Corporation Name. –

No corporate name shall be allowed by the Commission if it is not

distinguishable from that already reserved or registered for the use if
another corporation, or if such name is already protected by law, rules and
regulations.

A name is not distinguishable even if it contains one or more of the

following:

(a) The word "corporation", "company", incorporated", "limited", "limited

liability", or an abbreviation ofone if such words; and

(b) Punctuations, articles, conjunctions, contractions, prepositions,

abbreviations, different tenses, spacing, or number of the same word or
phrase.

The Commission upon determination that the corporate name is: (1) not
distinguishable from a name already reserved or registered for the use of
another corporation; (2) already protected by law; or (3) contrary to law,
rules and regulations, may summarily order the corporation to immediately
cease and desist from using such name and require the corporation to
register a new one. The Commission shall also cause the removal of all
visible signages, marks, advertisements, labels prints and other effects
bearing such coroporate name. Upon the approval of the new corporate
name, the Commission shall issue a certificate of incorporation under the
amended name.

If the corporation fails to comply with the Commission's order, the

Commission may hold the corporation and its responsible directors or
officers in contempt and/or hold them administratively, civilly and/or
criminally liable under this Code and other applicable laws and/or revoke
the registration of the corporation.

Basic Policy
 a corporation cannot use a name that belongs to another even as
a trace name. this practice would result in confusion and open the
door to frauds.

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What must be proved by oppositor

(1) the corporation has acquired a prior right over the use of such
corporation name
(2) it is any of the names mentioned under Section 17 of the RCCP, that is:
(a) the name is not distinguishable from that already reserved or
registered for the use of another corporation
(b) the name is already protected by law; or
(3) the use of the name is contrary to existing law, rules and regulations

Power of SEC
(1) reject the AOI
(2) summarily order the corporation to cease and desist from using such
name
(3) summarily order the corporation to register a new name and amend its
AOI bearing the new name
(4) cause the removal of all visible signages, marks, advertisements, labels,
prints and all other effects bearing such corporate name
 the enforcement of the protection accorded by Section 17 of the
RCCP to corporate name is lodged exclusively in the SEC.
 the SEC has absolute jurisdiction, supervision and control over all
corporations

Prior right
 a corporation that is incorporated and adopts a corporate name
earlier acquires a prior right over the use of the corporate name.

Dominancy Test
 the name cannot be used if the name indicated in AOI adopts the
dominant features of an existing corporate name or even a
trademark belonging to another.

Doctrine of Secondary Meaning

 if a corporate name, though descriptive, has been used for so long
and exclusively by one corporation and has become associated
with that corporation alone in the mind of the public, another
corporation cannot register said name as a corporate name.

Priority of Adoption Rule

 the corporation that first adopts a corporation name has the right
thereto and a subsequent corporation cannot use the same name.
 a corporate name is a property right that cannot be impaired or
defeated if another corporation will appropriate the same.
 A corporation can use a trademark or trade name that is separate
from its corporate name.

 The name of a corporation o partnership that has been dissolved

or whose registration has been revoked shall not be used by
another corporation or partnership within 5 years from the
approval dissolution or 5 years from the date of revocation, unless
it ise has been allowed at the time of the dissolution of revocation
by the stockholders, members, or partners who represent a
majority……..
 Only expired corporations may apply for a re registration using the
same corporate name.
a. Lyceum of the Philippines, Inc. v. Court of Appeals,
G.R. No. 101897, March 5, 1993
b. Ang mga Kaanib sa Iglesia ng Dios kay Kristo Hesus v.
Iglesia ng Dios kay Cristo Jesus, G.R. No. 137592,
December 12, 2001
c. Northern Mindanao Industrial Port and Services Corp.
v. Iligan Cement Corp., G.R. No. 215387, April 23,

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2018
6. Registration, Incorporation and Commencement of Corporate
Existence (Sec. 18, RCC)
7. De Facto Corporations (Sec. 19, RCC)

Section 19. De facto Corporations.

The due incorporation of any corporation claiming in good faith to be a

corporation under this Code, and its right to exercise corporate powers,
shall not be required into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the Solicitor
General in a quo warranto proceeding.

Requisites of De Facto Corporation

(1) a valid law under which the corporation is organized

(2) an attempt in good faith to incorporate; and
(3) an assumption of corporate powers

Good Faith
 Attempt in good faith to incorporate means that there must be
colorable compliance with the law.

a. Seventh Day Adventist Conference Church of Southern

Phil. Inc. v. Northeastern Mindanao Mission of Seventh
Day Adventist, Inc., G.R. No. 150416, July 21, 2006

 The filing of articles of incorporation and the issuance of the

certificate of incorporation are essential for the existence of a de
facto corporation.12 We have held that an organization not
registered with the Securities and Exchange Commission (SEC)
cannot be considered a corporation in any concept, not even as a
corporation de facto.
 Corporate existence begins only from the moment a certificate of
incorporation is issued. No such certificate was ever issued to
petitioners or their supposed predecessor-in-interest at the time of
the donation. Petitioners obviously could not have claimed
succession to an entity that never came to exist. Neither could the
principle of separate juridical personality apply since there was
never any corporation 15 to speak of. And, as already stated, some
of the representatives of petitioner Seventh Day Adventist
Conference Church of Southern Philippines, Inc. were not even
members of the local church then, thus, they could not even claim
that the donation was particularly for them.16

8. Corporation by Estoppel (Sec. 20, RCC)

Section 20. Corporation by Estoppel. –

All persons who assume to act as a corporation knowing it to be without the

authority to do so shall be liable as general partners for all debts, liabilities

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and damages incurred or arising as a result thereof: Provided, however, That

when any such ostensible corporation is sued on any transaction entered by
its as a corporation or on any tort committed by it as such, it shall not be
allowed to use on any its lack of corporate personality as a defense. Anyone
who assumes an obligation to an ostensible corporation as such cannot resist
performance thereof on the ground that there was in fact no corporation.

a. Lim Tong Lim v. Philippine Fishing Gear Industries,

Inc., G.R. No. 136448, November 3, 1999

 One who assumes an obligation to an ostensible corporation as

such cannot resist performance thereof on the ground that there
was in fact no corporation.
 When a third person has entered into a contract with an
association which represented itself to be a corporation, the
association will be estopped from denying its corporate capacity in
a suit against it by such third person.
 Those who assume to act as a corporation knowing it to be
without authority to do shall be liable as general partners. They
are liable even beyond their investment; their personal properties
may be made to answer for what is purportedly a corporate debt of
the non existent corporation.
 A third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from
it, may be ESTOPPED from denying its corporate existence in a
suit brought against the alleged corporation.

All those who benefited from the transaction made by the

ostensible corporation, despite knowledge of its legal defects, may
be held liable for contracts they impliedly assented to or took
advantage of.

The doctrine of corporation by estoppel may apply to the alleged corporation

and to a third party. In the first instance, 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 third person who relied in good
faith on such representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.

On the other hand, a third party who, knowing an association to be

unincorporated, nonetheless treated it as a corporation and received benefits
from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation, despite knowledge of its
legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.

b. International Express Travel & Tour Services, Inc. v.

Court of Appeals, G.R. No. 119020, October 19, 2000
c. Missionary Sisters of Our Lady of Fatima v. Alzona,
G.R. No. 224307, August 6, 2018

Ruling:

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Purification is estopped. Haha ok na yan kung nakinig ka kay Atty : D

Jurisprudence settled that "[t]he filing of articles of incorporation and the

issuance of the certificate of incorporation are essential for the existence of a
de facto corporation."38 In fine, it is the act of registration with SEC through
the issuance of a certificate of incorporation that marks the beginning of an
entity's corporate existence.

One who assumes an obligation to an ostensible corporation as such, cannot

resist performance thereof on the ground that there was in fact no
corporation. (Emphasis Ours)

The doctrine of corporation by estoppel is founded on principles of equity and

is designed to prevent injustice and unfairness. It applies when a non-
existent corporation enters into contracts or dealings with third persons.41 In
which case, the person who has contracted or otherwise dealt with the non-
existent corporation is estopped to deny the latter's legal existence in any
action leading out of or involving such contract or dealing.

9. Effects of Non-Use of Corporate Charter and Continuous (Sec.

21, RCC)

Section 21. Effects of Non-Use of Corporate Charter and Continous

Inoperation.

- If a corporation does not formally organize and commence its business

within five (5) year from the date of its incorporation, its certificate of
incorporation shall be deemed revoked as of the day following the end of the
five (5)-year period.

However, if a corporation has commence its business but subsequently

becomes inoperative for a period of at least five (5) consecutive years, the
Commission may, after due notice and hearing, place the corporation under
delinquent status.

A delinquent corporation shall have a period of two (2) years to resume

operations and comply with all requirements that the Commission shall
prescribed. Upon the compliance by the corporation, the Commission shall
issue an order lifting the delinquent status. Failure to comply with the
requirements and resume operations within the period given by the
Commission shall cause the revocation of the corporation's certificate of
incorporation.

The Commission shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the suspension or revocation of the
certificate of incorporation of companies under their special regulatory
jurisdiction.

Violations of conditions subsequent:

(1) failure to organize within 5 years from incorporation
(2) failed to commenced business within 5 years from incorporation
(3) becoming continuously for a period of at least 5 consecutive years

 Even if the corporation has been operating for 10 years, there is a

ground to revoke the franchise it if ceased to operate continuously
thereafter for at least five years.
 Under RCCP, the effect of failure to organize and commence
business is that it’s the corporation’s certificate of incorporation
shall be deemed revoked as of the day following the end of the five
year period.
 The SEC may place a corporation under delinquent status if it
fails to operate for atleast five consecutive years. There must be a
positive action on the part of the government.

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 A delinquent corporation shall have a period of 2 years to resume

operations and comply with all the requirements that the SEC
shall prescribe.
 A corporation may also be placed under delinquent status if it fails
to comply with the reportorial requirements 3 times consecutively
or intermittently within a period of 5 years.

CONTROL & MANAGEMENT OF A PRIVATE CORPORATION Additional reading materials:

(THE BOARD OF DIRECTORS, TRUSTEES & OFFICERS)
(Secs. 22 – 34) 1. SEC-OGC Opinion No. 22-
07, Re: Board of Directors or
1. The Board of Directors or Trustees of a Corporation; Trustees of a Corporation;
Qualification and Term (Sec. 22, RCC) Residency Requirement, 26
May 2022

2. SEC Guidelines re:

Disqualifications of
Section 22. The Board of Directors or Trustees of a Corporation; Directors, Trustees and
Qualification and Term. – Officers of Corporations; and
Unless otherwise provided in this Code, the board of directors or trustees the Guidelines on the
shall exercise the corporate powers, condict all business, and control all Procedure for their Removal
properties of the corporation. (SEC Memorandum Circular
No. 04, Series of 2022)
Directors shall be elected for a term of one (10 Year from among the holders
of stocks registered in the corporation's book while trustees shall be elected
for a term not exceeding three (3) years from among the members of the
corporation. Each director and trustee shall hold office until the successor is
elected and qualified. A director who ceases to own at least one (1) share of
stock or a trustee who ceases to be a member of the corporation shall cease
to be such.

The board of the following corporations vested with public interest shall have
independent directors constituting at least twenty percent (20%) of such
board:

(a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise
known as "The Securities Regulation Code", namely those whose securities
are registered with the Commission, corporations listed with an exchange or
with assets of at least Fifty million pesos (50,000,000.00) and having two
hundred (200) or more holders of shares, each holding at least one hundred
(100) shares of a class of its equity shares;

(b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in

money service business, preneed, trust and insurance companies and other
financial intermediaries; and

(c) Other corporations engaged in businesses vested with public interest

similar to the above, as may be determined by the Commission, after taking
into account relevant factors which are germane to the objective and purpose
of requiring the election of an independent director, such as the extent of
minority ownership, type of financial products or securities issued or offered
to investors, public interest involved in the nature of business operations, and
other analogous factors.

An independent director is a person who apart from shareholdings and fees

received from any business or other relationship which could, or could
reasonable be received to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a director.

Independent directors must be elected by the shareholders present or entitled

to vote in absentia during the election of directors. Independent directors

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shall be subject to rules and regulations governing their qualifications,

disqualifications, voting requirements, duration of term and term limit,
maximum number of board membership and other requirements that the
Commission will prescribed to strengthen their independence and align with
international best practices.

 Sui generis theory

- The directors are not agents of the stockholders who elect them;
they are fiduciaries whose duties run primarily to the corporation.
- They are not trustees in the strict sense.
- Their powers are derived from the state through the statue under
which the corporation is organized yet they do not qualify solely as
platonic guardians.
 Business judgement rule.
- Lahat ng mga control at corporate affairs entered by BOD ay
binding sa mga corporation.
- Dishonest purpose and some moral obliquity
- It is clear that the business judgement rule shields the directors
only if the following are present decisions on policy, procedure and
substantive requirements of law, good faith, due care, self dealing.
 The BOD and BOT shall perform their duties as prescribed by law,
rules of good corporate governance, by laws of the corporation.
 A secretary’s certificate is sufficient proof of the existence of a
resolution adopted by the Board.
 Directors shall be elected for a term of one year from among the
holders or stocks registered in the corporation’s books;
 Trustees shall be elected for a term not exceeding three years from
among the members of the corporation; and
 Each director and trustee shall hold office until the successor is
elected and qualified
Qualifications:
- He must atleast one share of the capital stock of the corporation in
his own name or if the corporation is a non stock corporation, he
must be a member
- He must not be disqualified under the RCCP or any applicable
special laws or rules
- He must be of legal age
- He must possess other qualifications as may be prescribed in
special laws or regulations or in the by laws of the corporation
 A director or trustee must be a natural person. The RCCP
expressly allows corporations, partnerships and associations to be
incorporators.
 There is no residence requirement under the RCCP.
 They must be of legal age
 The right to be a candidate cannot be delegated. The right is
peculiar only to members or stockholders of the corporation.
 There is no citizenship requirement for directors and trustees
under the RCCP.
 By laws are internal to the corporation
 If no election is held, the directors and officers shall hold over
until their successors are elected.
 It is during the annual stockholders/members’ meeting that the
independent directors are elected.
2. Election of Directors or Trustees (Sec. 23, RCC)
 A corporation cannot adopt a procedure other than what is
prescribed in Section 23 for stock corporation
 It cannot be provided in the by laws that past presidents
are automatically members of the board.
 The requirement that quorum must be present cannot be
dispensed with.
 Every qualified stockholder or member can be candidate in
the election of the members of the board.

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 Election by region is feasible only in a non stock

corporation.

The stockholders and members may vote in the election of directors

either:
1. personally by attending the meeting
2. though a proxy
3. through remote communication or in absentia

 Majority vote is not necessary for the election of each

director or trustee. The candidates who will receive the
highest number of votes shall be declared as duly elected.
 It is necessary that there is a quorum and in the absence
thereof, the election shall be considered invalid.
 It is not necessary that the candidate stockholder be
present during the meeting before he can elected as
director.
 A director can be elected in absentia.
 Pwede sila humingi ng tulong sa SEC kapag yung
authorize to call a meeting refuses to call an election of
directors.
 The date for the election shall not be later than 60 days
from the scheduled date.
3. Corporate Officers (Sec. 24, RCC)
a. People's Aircargo and Warehousing Co., Inc. v. Court of
Appeals, G.R. No. 117847, October 7, 1998
b. Marc II Marketing, Inc. v. Joson, G.R. No. 171993,
December 12, 2011
c. Cacho v. Balagtas, G.R. No. 202974, February 7, 2018
4. Report of Election of Directors, Trustees and Officers, Non-
Holding of Election and Cessation from Office (Sec. 25, RCC)
5. Disqualification of Directors, Trustees or Officers (Sec. 26,
RCC)
6. Removal of Directors or Trustees (Sec. 27, RCC)
a. Bernas v. Cinco, G.R. Nos. 163356-57 & 163368-69, July
1, 2015
7. Vacancies in the Office of Director or Trustee; Emergency
Board (Sec. 28, RCC)
a. Tan v. Sycip, G.R. No. 153468, August 17, 2006
b. Valle Verde Country Club, Inc. v. Africa, G.R. No. 151969,
September 4, 2009
8. Compensation of Directors or Trustees (Sec. 29, RCC)
9. Liability of Directors, Trustees or Officers (Sec. 30, RCC)
a. Kho, Sr. v. Magbanua, G.R. No. 237246, July 29, 2019
b. Total Office Products and Services (TOPROS), Inc. v.
Chang, Jr., G.R. Nos. 200070-71, December 7, 2021
10. Dealings of Directors, Trustees or Officers with the Corporation
(Sec. 31, RCC)
11. Contracts Between Corporations with Interlocking Directors
(Sec. 32, RCC)
12. Disloyalty of a Director (Sec. 33, RCC)
13. Executive, Management, and Other Special Committees (Sec.
34, RCC)
MIDTERM EXAMINATIONS

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