Law on Corporation Reviewer 1

Law on Partnership and Corporation (Far Eastern University)

Studocu is not sponsored or endorsed by any college or university

Downloaded by Azi Prems (nter@studocubyazi.ml)
Corporation
Enabling Law – BP 68 as Amended by RA No. 11232 -
Revised Corporation Code of the Philippines (RCC)
A. Definition of Corporation – Sec. 2, RCC
SEC. 2. Corporation Defined. – A corporation is an artificial being
created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or
incidental to its existence.
Attributes
1. lt is an artificial being – a corporation has a juridical personality.
(Exception: Doctrine of Piercing the Veil of Corporate Fiction)
Piercing the veil of corporate entity – the applicability of the
corporate entity theory is confined to legitimate transactions
and is subject to equitable limitations to prevent its being
used as a cloak or cover for fraud or illegality, or to work
injustice.
2. Created by operation of law (state’s consent; compliance with
the requirements imposed by law)
3. Has the right of succession (it continues to exist regardless of the
changes in the ownership)
4. Has power, attributes, properties granted by law (Doctrine of
Limited Capacity, whereby a corporation can exercise only the
powers expressly conferred upon it by law and its articles of
incorporation, those implied from such powers expressly granted,
and those that are inherent to its existence.
B. Nature of Corporation
a. Composition
SEC. 5. Corporators and lncorporators, Stockholders and
Members. – Corporators are those who compose a corporation,
whether as stockholders or shareholders in a stock corporation or
as members in a nonstock corporation. lncorporators are those
stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation
and who are signatories thereof.
Corporators – are those who compose a corporation
Stockholders – corporators in a stock corporation
Members – corporators in a nonstock corporation
Incorporators – are those stockholders or members mentioned
in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
b. Juridical Personality
A private corporation organized under this Code commences its
corporate existence and juridical personality from the date the
Commission issues the certificate of incorporation under its
official seal and thereupon the incorporators,
stockholders/members and their successors shall constitute a body
corporate under the name stated in the articles of incorporation for
the period of time mentioned therein, unless said period is
extended or the corporation is sooner dissolved in accordance with
law. (RCC Sec. 18, Paragraph 3)
[A corporation obtains its juridical personality from the date of the
issuance of the certificate of incorporation of the Securities and
Exchange Commission (SEC)]
Juridical persons such as partnerships, associations, and
corporation may now incorporate a corporation. There is no more
minimum number of incorporators, but the maximum number
remains at 15. (Section 10; Section 10)
Downloaded by Azi Prems (nter@studocubyazi.ml)
c. Limited Liability Rule
Limited liability is achieved by creating a corporation to protect
the shareholders. The corporation separates the owners as a
different legal entity and makes the corporation responsible for all
debts and obligations. By using this corporate structure, the
shareholders are protected under what is referred to as the
"corporate veil." However, it is possible to remove the corporate
veil or pierce it when it is shown that the corporation has been
improperly run. This principle can also be applied to other
business entities, including limited liability companies and limited
partnerships.
C. Formation
a. Components
 two (2) or more persons, but not more than fifteen (15), may
organize themselves and form a corporation.
 Only a One Person Corporation (OPC) may have a single
stockholder, as well as a sole director. Accordingly, its
registration must comply with the corresponding separate
guidelines on the establishment of an OPC.
 Each incorporator of a stock corporation must own, or be a
subscriber to, at least one (1) share of the capital stock. Each
incorporator of a nonstock corporation must be a member of
the corporation.
 The incorporators may be composed of any combination of
natural persons/s, SEC-registered partnership/s SEC-
registered domestic corporation/s or association/s as well as
foreign corporation/s,
 lncorporators who are natural persons must be of legal age,
and must sign the Articles of lncorporation/Bylaws.
 Each jndividual signing the Articles of lncorporation/Bylaws
must indicate the capacity upon which he/she is affixing
his/her signature thereto. (i.e. lncorporator or Representative
of XYZ Corp.)
 An individual designated to sign the Articles of
lncorporation/Bylaws on behalf of an jncorporator, which is
not a natural person, must also indicate the corporate or
partnership name of the entity being represented and for
whom he/she is executing the Articles of
lncorporation/Bylaws.+
Components of a corporation
1. Corporators - those who compose a corporation
(stockholders or members)
2. lncorporators - are those stockholders or members
mentioned in the articles of incorporation as originally
forming and composing the corporation and who are
signatories thereof.
3. Stockholders – owners of shares of stock in a stock
corporation.
4. Members – corporators in a nonstock corporation
5. Board of Directors – is the governing body in a stock
corporation
Board of Trustees – is the governing body in a non- stock
corporation.
6. Corporate Officers – the president, who shall be a director, a
treasurer who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws. lf the
corporation is vested with public interest, the board shall
also elect a compliance officer.
7. Subscribers – persons who have agreed to take and pay for
original, unissued shares of a corporation formed or to be
formed.
8. Underwriter – a person who guarantees on a firm
commitment and/or declared best effort basis the
 distribution and sale of securities of any kind by another
company. A person or entity, especially an investment
banker, who guarantees the sale of newly issued securities
by purchasing all or part of the shares for resale to the
public.
9. Promoter – founder or organizer of a corporation or business
venture; one who takes the entrepreneurial initiative in
funding or organizing a business enterprise.
(a) Brings together the incorporators or the persons
interested in the enterprise;
(b) Procures subscriptions or capital for the
corporation; and
(c) Sets in motion the machinery which leads to the
incorporation of the corporation itself.
b. Certificate of Incorporation
lf the Commission finds that the submitted documents and
information are fully compliant with the requirements of this
Code, other relevant laws, rules and regulations, the Commission
shall issue the certificate of incorporation. (RCC Sec. 18,
Paragraph 2)
c. Articles of Incorporation
SEC. 13. Contents of the Articles of lncorporation. – 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 the corporation;
(b) The specific purpose or purposes for which the corporation is
being formed. Where a corporation has more than one stated
purpose, the articles of incorporation shall indicate the
primary purpose and the secondary purpose or purposes:
Provided, That a 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;
(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) lf 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 residence
addresses of the original 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) lf 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
Downloaded by Azi Prems (nter@studocubyazi.ml)
form of an electronic document, in accordance with the
Commission’s rules and regulations on electronic filing.
Bylaws – are the rules a corporation sets. They are established by
the board of directors during the time the corporation is being
formed. This process is called incorporation, and one of the first
tasks of this new corporation will be to form corporate bylaws.
Written bylaws tell organizations how to handle any new issues or
situations that might arise. Having bylaws in place will save time
that would've been spent on trying to work out complications
within the company. lt will also help keep things running smoothly
and define goals or missions.
d. Capital Requirement
SEC. 12. Minimum Capital Stock Not Required of Stock
Corporations. – Stock corporations shall not be required to have a
minimum capital stock, except as otherwise specifically provided
by special law.
D. Classes of Corporation
a. Stock v Non-Stock (Sec. 3, RCC)
SEC. 3. Classes of Corporations. – Corporations formed or
organized under this Code may be stock or nonstock corporations.
Stock corporations are those which have capital stock divided
into shares and are authorized to distribute to the holders of such
shares, dividends, or allotments of the surplus profits on the basis
of the shares held. All other corporations are nonstock
corporations.
SEC. 86. Definition. – For purposes of this Code and subject
to its provisions on dissolution, a nonstock corporation is one
where no part of its income is distributable as dividends to its
members, trustees, or officers: Provided, That any profit which a
nonstock corporation may obtain incidental to its operations shall,
whenever necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was organized,
subject to the provisions of this Title.
b. Created under RCC v. Special Charter (Sec. 4, RCC)
Corporations created under RCC – the provisions under
RCC will be followed.
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. (RCC, Sec.
4)
c. Public v. Private
Public Corporations – Those formed or organized for the
government of a portion of the state which have for their purpose
the general good and welfare. (Republic Act No. 1459 also known
as The Corporation Law, Sec. 3)
Private Corporations – Those formed for some private
purpose, benefit, aim or end. (The corporation Law, Sec. 3)
d. De Jure v. De Facto
De facto Corporation – exits but not in law; substantially
complied with the requirements of RCC.
De Jure Corporation – one created in strict conformity with the
statutory requirements for incorporation.
e. Corporation by Estoppel
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 partners for all
 debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use 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.
f. Domestic v. Foreign
Domestic corporation – one incorporated under Philippine
laws.
Foreign corporation – 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. lt shall have the right to transact business in the
Philippines after obtaining a license for that purpose in accordance
with this Code and a certificate of authority from the appropriate
government agency. (RCC Sec. 140)
g. Aggregate v. Sole v. One Person Corporation
Corporation aggregate – one composed of more than one
member or corporator.
Corporation sole – consists of one member or corporator and
his successors.
One Person Corporation – is a corporation with a single
stockholder, who can only be a natural person, trust or estate.
Alternate nominee, a person must be nominated before the OPC
take effect. The nominee will administer first and then assign
heirs. The heirs will continue the business.
h. Close Corporation
Close corporation – one wherein all the outstanding stock is
owned (exclusive) by the persons who are active in management
and conduct of the business (family or other closely-knit group)
i. Educational Corporation
SEC. 105. lncorporation. – Educational corporations shall be
governed by special laws and by the general provisions of this
Code.
SEC. 106. Board of Trustees. –Trustees of educational
institutions organized as nonstock corporations shall not be less
than five (5) nor more than fifteen (15): Provided, That the
number of trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of incorporation or
bylaws, the board of trustees of incorporated schools, colleges, or
other institutions of learning shall, as soon as organized, so
classify themselves that the term of office of one-fifth (1/5) of
their number shall expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a particular term,
shall hold office only for the unexpired period. Trustees elected
thereafter to fill vacancies 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 and authority
of trustees shall be defined in the bylaws.
For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on stock
corporations.
j. Religious Corporation
SEC. 107. Classes of Religious Corporations. – Religious
corporations may be incorporated by one (1) or more persons.
Such corporations may be classified into corporations sole and
religious societies.
Religious corporations shall be governed by this Chapter and
by the general provisions on nonstock corporations insofar as
applicable.

E. Corporation as Distinguished from a Contract of Partnership:

Point of Comparison Partnership Corporation

Manner of Creation By mere agreement of the parties
Number of Parties By a minimum of two (2) persons
Commencement of Juridical Generally from the moment of execution of the
Personality contract
Powers May exercise powers authorized by partners
provided the same are not contrary to law, morals,
good customs, public policy or public order.
CANNOT be created without the consent of the
state
Not more than fifteen (15) in number
From the date of the issuance of the certificate of
incorporation of the SEC
Can exercise only the powers expressly granted
by law or incident to its existence.

Management ln absence of stipulation, partner is considered an lt is vested in the board of directors or trustees.
agent of the partnership
Right of Succession No right of succession Possesses right of succession
Extent of Liability to Third Persons Partners (except limited partners) are liable Stockholders are liable only to the extent of
personally and subsidiarily for partnership debts their investments as represented by the shares
to third persons. subscribed by them.
Transferability of interest A partner cannot transfer interest so as to A stockholder has the right to transfer his
make a partner without the consent of all other shares without the prior consent of the other
existing partners. stockholders.
Term of existence May be established for any period of time stipulated May not be formed for a term in excess of 50 years
by the partners. extendible to not more than 50 years.
Firm name A limited partnership is required to add the A corporation may adopt a firm name provided it
word ‘Ltd.’ to its name. is not identical or deceptively similar to any
registered firm name or contrary
to existing laws.
Dissolution May be dissolved at any time by the will of any May only be dissolved with the consent of the state.
or all partners.
Governing Laws Civil Code Revised Corporation Code

Downloaded by Azi Prems (nter@studocubyazi.ml)

F. Nationality of Corporations
a. Control Test
Control test (general rule) – Test used to determine the eligibility of
a corporation, which has foreign equity participation in its
ownership structure, to engage in nationalized or partly
nationalized activities. (SEC-OGC Opinion No. 12-02) lf a
corporation is at least 60% Filipino- owned, the all shares (100%)
are recorded as Filipino shares. There is no need to further trace the
ownership of the 60% (or more) Filipino stockholdings since a
corporation which is at least 60% Filipino-owned is considered as
Filipino.
i. Gamboa v. Teves, G.R. No 176579, June 28, 2011
ii. Roy lll v. Herbosa, G.R. No. 207246, November 22 2016
iii. Section 2, SEC- Memorandum Circular No. 8
b. Grandfather Rule
Grandfather rule (strict rule) – lf a corporation is less than 60%
Filipino-owned, then the corresponding percentage belonging to
Filipino shall be the only shares to be recorded as Filipino shares.
Grandfather rule is applied to corporations where 60- 40 Filipino-
foreign ownership is in doubt. Under this rule, the combined totals
of the foreign and filipino-owned corp. must be traced (i.e.,
“grandfathered”) to determine the total percentage of Filipino
ownership.
ii.
i. Read: Narra Nickel Mining and Dev. Corp. vs. Redmont
Consolidated Mines, G.R. No. 195580, Apr. 21, 2014
c. Corporate Juridical Personality:
Can a corporation become a partner in a partnership?
General rule: NO
Exceptions: The authority to enter into a partnership relation is
expressly conferred by the charter of (or) the articles of
incorporation of the corporation and the nature to be undertaken by
the partnership is in line with business of the corporation.
lf it is a foreign corporation, must obtain license to transact
business in the Philippines.
i. Doctrine of Separate Personality
As a general rule, a corporation has a separate and distinct
personality from those who represent it. lts officers are solidarily
liable only when exceptional circumstances exist, such as cases
enumerated in Sec. 31 of the corporation code. (Pioneer
lnsurance Surety Corp. vs. Morning Star Travel & Tours, lnc., et.
al., G.R. No. 198436, July 08, 2015)
1. Read: Shrimp Specialists, lnc., vs. Fuji-Triumph Agri-
Ind’l Corp., G.R. No. 168756, Dec. 7, 2009
2. Limited Liability for Torts and Crimes
Is a corporation liable for torts?
YES, whenever a tortuous act is committed by an officer or
agent under the express direction or authority of the
stockholders or members acting as a body, or, generally,
from the directors as the governing body. (PNB v. CA, G.R.
No. L-27155, May 18, 1978)
Is a corporation liable for crimes?
NO, since a corporation is a mere legal fiction, it cannot be
held liable for a crime committed by its officers, since it does
not have the essential element of malice; in such case the
responsible officers would be criminally liable.
Downloaded by Azi Prems (nter@studocubyazi.ml)
(People v. Tan Boon Kong, G.R. No. L35262, Mar. 15,
1930)
Exception: lf the penalty of the crime is only fine or
forfeiture of license or franchise. (Ching v. Secretary of
Justice, G.R. No 164317, Feb. 6, 2006)
3. Recovery for Damages
a. Read: Filipinas Broadcasting Network v. Ago Medical
and Educational Center, G.R. 141994,
JanuException:ary 17, 2005
Can a corporation recover damages? YES
Exception: Moral damages
Is a corporation entitled to moral damages?
Exception: The corporation may recover moral
damages under item 7 of article 2219 of the New Civil Code
because said provision expressly authorizes the recovery of
moral damages in cases of libel, slander, or any other form of
defamation. Article 2219 does not qualify whether the
injured party is a natural or juridical person. Therefore, a
corporation, as a juridical person, can validly complain for
libel or any other form of defamation and claim for moral
damages.
Doctrine of Piercing the Corporate Veil
Disregards the separate personality of a corporation if this
separate personality is used as an alter ego of another entity and
was used to justify wrong, protect fraud, perpetrate deception, or
defeat public convenience. This doctrine may also be used to
achieve equity.
The three-pronged test to determine the application of the alter ego
theory, which is also known as the instrumentality theory, namely:
(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;
[It is the “instrumentality” or “control” test. This test
requires that the subsidiary be completely under the control
and domination of the parent. lt examines the parent
corporation’s relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a
mere instrumentality or agent of the parent corporation such
that its separate existence as a distinct corporate entity will
be ignored. lt seeks to establish whether the subsidiary
corporation has no autonomy and the parent corporation,
though acting through the subsidiary in form and
appearance, “is operating the business directly for itself.”]
(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 right; and [It
is the “fraud” test. This test requires that the parent
corporation’s conduct in using the subsidiary
corporation be unjust, fraudulent or wrongful. lt
examines the relationship of the plaintiff to the
corporation. lt recognizes that piercing is appropriate
 only if the parent corporation uses the subsidiary in a way
that harms the plaintiff creditor. As such, it requires a
showing of “an element of injustice or fundamental
unfairness.”]
(3) The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss complained of.
[It is the “harm” test. This test requires the plaintiff to show
that the defendant’s control, exerted in a fraudulent, illegal
or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent
conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by
the plaintiff should be established. The plaintiff must prove
that, unless the corporate veil is pierced, it will have been
treated unjustly by the defendant’s exercise of control and
improper use of the corporate form and, thereby, suffer
damages.]
To summarize, piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements: (1) control of
the corporation by the stockholder or parent corporation, (2)
fraud or fundamental unfairness imposed on the plaintiff, and (3)
harm or damage caused to the plaintiff by the fraudulent or
unfair act of the corporation. The absence of any of these
elements prevents piercing the corporate veil.
Elements of Piercing the Veil of Corporate Fiction
1. Control - not mere stock control, but complete domination -
not only of finances, but of policy and business practice in
respect to the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of
a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiff's legal right; and
3. The said control and breach of duty must have proximately
caused the injury or unjust loss complained of.
1. Grounds
2. Test in Determining its Applicability
 Fraud test
 Alter-ego or instrumentality test (or conduit cases)
 Public convenience or objective test
 Equity cases/test
a. READ: Zambrano v. Philippine Carpet
Manufacturing Corp., G.R. No. 224099, June 21,
2017
d. Capital Structure
i. Number and Qualifications of incorporators – (Sec. 5,
10, RCC)
RCC Sec. 10
 Natural or artificial person
 Not more than 15 (5-15 before)
 Natural persons, partnerships or associations cannot
organize corporations for practice of profession (not
allowed to organize as a corporation unless otherwise
provided under special laws)
 Legal age (if natural person)
Downloaded by Azi Prems (nter@studocubyazi.ml)
 Holder or subscriber of at least 1 stock (required only
during the incorporation)
ii. Subscription Requirements – (Sec. 10, RCC but see
also the old requirements provided under BP 68 for
better appreciation)
 lnitial subscription requirements were removed in the
revised corporation code
 Stock corporations shall not be required to have minimum
capital stock, except as otherwise specifically provided by
special law. (ex. Pawnshop – P100,000, elementary school
for stock corporations – 1,000,000, security agency –
500,000) (RCC Sec. 12)
 2015PR_MinimumPaidUpCapital.pdf (sec.gov.ph)
iii. Corporate Term – (Sec. 11, RCC)
SEC. 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 outstanding capital
stock, notifies the Commission that it elects to retain its specific
corporate term pursuant to its articles of incorporation: Provided,
That any change in the corporate term under this section is
without prejudice to the appraisal 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 a
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 quasibanking 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.
iv. Classification of Shares – (Sec. 6, RCC)
SEC. 6. Classification of Shares. – The classification of
shares, their corresponding rights, privileges, or restrictions, and
their stated par value, if any, must be indicated in the articles of
incorporation. Each share shall be equal in all respects to
every other share, except as otherwise provided in the articles of
incorporation and in the certificate of stock. The shares in stock
corporations may be divided into classes or series of shares,
or both. No share may be deprived of voting rights except
those classified and issued as “preferred” or “redeemable”
shares, unless otherwise
 provided in this Code: Provided, That there shall always be a
class or series of shares with complete voting rights.
Holders of nonvoting shares shall nevertheless be entitled to
vote on the following matters:
(b) Amendment of the articles of incorporation;
(c) Adoption and amendment of bylaws;
(d) Sale, lease, exchange, mortgage, pledge, or other
disposition of all or substantially all of the corporate
property;
(e) lncurring, creating, or increasing bonded indebtedness;
(f) lncrease or decrease of authorized capital stock;
(g) Merger or consolidation of the corporation with
another corporation or other corporations;
(h) lnvestment of corporate funds in another corporation or
business in accordance with this Code; and
(i) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph,
the vote required under this Code to approve a particular
corporate act shall be deemed to refer only to stocks with voting
rights.
The shares or series of shares may or may not have a par
value: Provided, That banks, trust, insurance, and preneed
companies, public utilities, building and loan associations,
and other corporations authorized to obtain or access funds from
the public, whether publicly listed or not, shall not be permitted
to issue no-par value shares of stock.
Preferred shares of stock issued by a corporation may be
given preference in the distribution of dividends and in the
distribution of corporate assets in case of liquidation, or such
other preferences: Provided, That preferred shares of stock may
be issued only with a stated par value. The board of directors,
where authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any series
thereof: Provided, further, That such terms and conditions shall
be effective upon filing of a certificate thereof with the Securities
and Exchange Commission, hereinafter referred to as the
“Commission”.
Shares of capital stock issued without par value shall be
deemed fully paid and 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 l east Five pesos (P5.00) per
share: Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
A corporation may further classify its shares for the purpose
of ensuring compliance with constitutional or legal requirements.
v. Classification of Shares
1. Preferred v. Common Shares (Sec. 6, RCC) Preferred
shares – may be deprived of voting rights. However,
corporations usually give holders of preferred shares certain
benefits or preference not enjoyed by common
shareholders. The preferences are designed to induce
persons to subscribe for shares of a corporation. Most
common forms:
(a) Preferred shares as to assets – gives the holder
preference in the distribution of the assets of the
corporation in case of liquidation.
(b) Preferred shares as to dividends – a share the holder
of which is entitled to receive dividends on said share
to the extent agreed upon before any dividends at all
are paid to the holders of common stock. There is no
guaranty, however, that the share will receive any
dividends.
Downloaded by Azi Prems (nter@studocubyazi.ml)
Common shares – a class of stock entitling the holder to
vote on corporate matters, to receive dividend after other
claims and dividends have been paid (especially to preferred
shareholders), and to share in assets upon liquidation. Also
called as ordinary shares and capital stock (if it is the
corporation’s only class of stock outstanding).
* lt has no preference and entitles the shareholder to a pro
rata division of the profits, if any. The common stock
shareholders have complete voting rights.
2. Scope of voting rights subject to classification (Sec. 6,
RCC)
The Right to Vote in STOCK Corporations
The right to vote is inherent in and incidental to the
ownership of corporate stocks. lt is settled that unissued
stocks may not be voted or considered in determining
whether a quorum is present in a stockholders’ meeting, or
whether a requisite proportion of the stock of the
corporation is voted to adopt a certain measure or act. Qnly
actually stock issued and outstanding may be voted. Under
Section 6 of the Corporation Code (Also, Section 6, Revised
Corporation Code), each share of stock is entitled to vote,
unless otherwise provided in the articles of incorporation or
declared delinquent under Section 67 of the Code (Now
Section 66, Revised Corporation Code).
The Right to Vote in NON-STOCK Corporations
ln non-stock corporations, the voting rights attach,
membership. Members vote as persons, in accordance with
the law and the by-laws of the corporation. Each member
shall be entitled to one vote unless so limited, broadened, or
denied in the articles of incorporation or bylaws. We hold
that when the principle for determining the quorum for
stock corporations is applied by analogy to nonstock
corporations, only those who are actual members with
voting rights should be counted.
3. Founder’s Share (Sec. 7, RCC)
SEC. 7. Founders’ Shares. – Founders’ shares may be
given certain rights and privileges not enjoyed by the
owners of other stocks. Where the exclusive right to vote
and be voted for in the election of directors is granted, it
must be for a limited period not to exceed five (5) years
from the date of incorporation: Provided, That such
exclusive right shall not be allowed if its exercise will
violate Commonwealth Act No. 108, otherwise known as
the “Anti-Dummy Law”; Republic Act No. 7042, otherwise
known as the “Foreign lnvestments Act of 1991”; and other
pertinent laws.
4. Redeemable Shares (Sec. 8, RCC)
SEC. 8. Redeemable Shares. – Redeemable shares may
be issued by the corporation when expressly provided in the
articles of incorporation. They are shares which may be
purchased by the corporation from the holders of such
shares upon the expiration of a fixed period, regardless of
the existence of unrestricted retained earnings in the books
of the corporation, and upon such other terms and
conditions stated in the articles of incorporation and the
certificate of stock representing the shares, subject to rules
and regulations issued by the Commission.
  Liability of a corporation(hindi nilalagay sa equity
portion) dahil mandatory ang redemption.
5. Treasury Shares (Sec. 9, RCC)
SEC. 9. Treasury Shares. – Treasury shares are shares
of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through
purchase, redemption, donation, or some other lawful
means. Such shares may again be disposed of for a
reasonable price fixed by the board of directors.
 The existence of unrestricted retained earnings is
important.
e. Incorporation and organization
i. Promoter
Promoter – founder or organizer of a corporation or business
venture; one who takes the entrepreneurial initiative in funding
or organizing a business enterprise.
(a) Brings together the incorporators or the persons
interested in the enterprise;
(b) Procures subscriptions or capital for the corporation; and
(c) Sets in motion the machinery which leads to the
incorporation of the corporation itself.
ii. Subscription contract
SEC. 59. Subscription Contract. – Any contract for the
acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription
within the meaning of this Title, notwithstanding the fact that the
parties refer to it as a purchase or some other contract.
* involves the corporation as one of the contracting parties since
the subject matter of the transaction is property owned by the
corporation ~ its shares of stock.
iii. Pre-incorporation for subscription agreements – (Sec.
60, RCC)
Pre-incorporation subscription – a subscription for shares of stock
of a corporation still to be formed.
Rules:
1. A pre-incorporation subscription is irrevocable for a
period of at least 6 months from the date of subscription.
Exceptions:
a. All of the other subscribers consent to the
revocation.
b. The corporation fails to incorporate within the same
period or within a longer period stipulated in the
contract of subscription.
Corporation
Corporation Code of the Philippines (RCC)
Downloaded by Azi Prems (nter@studocubyazi.ml)
2. No pre-incorporation subscription may be revoked after
the submission of the articles of incorporation to the SEC.
iv. Consideration for stocks
SEC. 61. Consideration for Stocks. – Stocks shall not be
issued for a consideration less than the par or issued price
thereof. Consideration for the issuance of stock may be:
(a) Actual cash paid to the corporation;
(b) Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and
lawful purposes at a fair valuation equal to the par or
issued value of the stock issued;
(c) Labor performed for or services actually rendered to the
corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained
earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the
event of reclassification or conversion;
(g) Shares of stock in another corporation; and/or
(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 determined by the
stockholders or the board of directors, subject to the approval of
the Commission.
Shares of stock shall not be issued in exchange for
promissory notes or future service. The same considerations
provided in this section, insofar as applicable, may be used for
the issuance of bonds by the corporation.
The issued price of no-par value shares may be fixed in the
articles of incorporation or by the board of directors pursuant to
authority conferred by the articles of incorporation or the
bylaws, or if not so fixed, by the stockholders representing at
least a majority of the outstanding capital stock at a meeting
duly called for the purpose.
Requisites:
(a) lt must be subject to a fair valuation equal to the par or
issued value of the stock issued;
(b) The property is actually received by the corporation; and
(c) lf it consists of intangible property, the valuation thereof
shall initially be determined by the incorporators or the
board of directors subject to the approval by the SEC.
Enabling Law – BP 68 as Amended by RA No. 11232 - Revised
corporation code had several amendments and in it actually introduced who guarantees the sale of newly issued
several amendments and deleted also some provisions this revised securities by purchasing all or part of the
corporation code became shares for resale to the public. 22
effective February 23 2019. 9. Promoter Is a person who brings about or
cause to bring about the formation and
organization of a corporation by:
A. Definition of Corporation – Sec. 2, RCC
1. Bringing together the incorporators or the
Section 2. A corporation is an artificial being created by operation of law, persons interested in the enterprise;
having the right of succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence.
2. Procuring subscriptions or capital for the
corporation; and
Artificial Being- (“Capacity to Contract and Transact Business”)

Treated by Law as a separate person a separate person that is distinct from 3. Setting in motion the machinery which
the investors or the incorporators that are making up the Corporation and leads to the incorporation of the corporation
this is what we call the doctrine of corporate entity because of such itself. A founder or organizer of a
doctrine the corporation then can be liable for acts or contracts that are corporation or business venture; one who
entered into in the name of the corporation. takes the entrepreneurial initiative in
funding or organizing a business
enter into contracts in its own name it can sue and it can also be sued again enterprise.23
separately and distinctly
from the stockholders or the members composing the corporation b. Juridical Personality=It is one that is created by law, it is
not really a person but by operation of law it is treated
Created by Operation of Law (“Creature of the Law ”) as such as if it is a person. Hence, it can act only
Mere consent of the parties is not sufficient. The State must give its through its directors, officers, and employees.
consent either through a special law (in case of government corporations) c. Limited Liability Rule
or a general law (i.e., Corporation Code in case of private corporations). C. Formation
a. Components
Has the Right of Succession (“Strong Juridical Personality ”) b. Certificate of Incorporation
A corporation has the capacity for continuous existence despite changes in
c. Articles of Incorporation
stockholders/members or by any transfer of shares by a stockholder to a
d. Capital Requirement
3rd person.
D. Classes of Corporation
Has the Powers, Attributes, and Properties Expressly Authorized by a. Stock v Non-Stock (Sec. 3, RCC)
Law or Incident to Its Existence (“A Creature of Limited Powers”) b. Created under RCC v. Special Charter (Sec. 4, RCC)
As a mere creature of law, it can exercise only such powers as the law c. Public v. Private
may choose to grant it, either expressly or impliedly. d. De Jure v. De Facto
e. Corporation by Estoppel
B. Nature of Corporation f. Domestic v. Foreign
g. Aggregate v. Sole v. One Person Corporation (there is
a. Composition
1. Corporators- those who compose corp. only one incorporator-sole stockholder)
whether as stockholders or as members h. Close Corporation
2. Incorporators- mentioned in the articles of i. Educational Corporation
incorporation and signatories thereof. j. Religious Corporation
3. Stockholders (shareholders) - The owners of E. Corporation as Distinguished from a Contract of Partnership:
shares of stock in a stock corporation. F. Nationality of Corporations https://youtu.be/e-c-UYB91J0?
4. Members- The corporators of a non-stock si=54rmV7pJj20DIYCo
corporation. a. Control Test
5. Board of Directors or Board of Trustees The i. Gamboa v. Teves, G.R. No 176579, June 28,
board of directors is the governing body in a
2011
stock. corporation, while the Board of
ii. Roy III v. Herbosa, G.R. No. 207246,
Trustees is the governing body in a non-
stock corporation. November 22 2016
6. Corporate Officers The president, who shall iii. Section 2, SEC- Memorandum Circular No.
be a director, a treasurer who may or may 8
not be a director, a secretary who shall be a b. Grandfather Rule
resident and citizen of the Philippines, and i. Read: Narra Nickel Mining and Dev. Corp.
such other officers as may be provided for in vs. Redmont Consolidated Mines, G.R. No.
the by-laws. If the corporation is vested with 195580, Apr. 21, 2014
public interest, the board shall also elect a c. Corporate Juridical Personality: https://youtu.be/e-c-
compliance officer. UYB91J0?si=54rmV7pJj20DIYCo
7. Subscribers Persons who have agreed to i. Doctrine of Separate Personality
take and pay for original, unissued shares of 1. Read: Shrimp Specialists, Inc., vs. Fuji-Triumph Agri-Ind’l Corp.,
a corporation formed or to be formed. G.R. No. 168756, Dec. 7, 2009
8. Underwriter A person who guarantees on a 2. Limited Liability for Torts and Crimes
firm commitment and/or declared best effort 3. Recovery for Damages
basis the distribution and sale of securities
a. Read: Filipinas
of any kind by another company. A person
Broadcasting Network
or entity, especially an investment banker,
vs. Ago Medical and
Downloaded by Azi Prems (nter@studocubyazi.ml)
 Educational Center, G.R. the SEC that the majority interest in the corporation has voted upon
141994, January 17, retaining the original corporate term
2005
ii. Doctrine of Piercing the Corporate Veil now remember that what is only required to retain the original corporate
1. Grounds term is the vote of the stakeholders representing the majority interest and
2. Test in Determining its Applicability that such decision to retain as voted upon by the stockholders
a. READ: Zambrano v. representing the majority interest Classification of Shares – (Sec. 6, RCC)
Philippine Carpet
Manufacturing Corp., For extension- amendment, not earlier than 3 years from the time that
G.R. No. 224099, June the renewed term will expire
21, 2017
d. Capital Structure
Effectivity- the day after the expiration of the original term
i. Number and Qualifications of incorporators
– (Sec. 5, 10, RCC)
If not extended-they can still continue by applying for revival of
corporate existence-the same rights and obligations.
No minimum but not more than 15

iv. Classification of Shares

Can be a natural person -be of legal age, holder of at least 1 share of stock
1. Preferred v. Common Shares (Sec. 6, RCC)
or at least subscribed to a share of stock, sign the articles of incorporation
2. Scope of voting rights subject to classification (Sec. 6, RCC)
3. Founder’s Share (Sec. 7, RCC)
Can be a juridical person- 4. Redeemable Shares (Sec. 8, RCC)
5. Treasure Shares (Sec. 9, RCC)
Partnership- sec registered, partners must execute an affidavit stating e. Incorporation and organization
that they have agreed that the partnership will invest in the corporation i. Promoter
and they will also have to designate a partner who will sign the articles of ii. Subscription contract
incorporation in behalf of the partnership iii. Pre-incorporation for subscription
agreements – (Sec. 12, RCC)
Exception: Partnerships which are created for the practice of profession iv. Consideration for stocks
cannot form a corporation because practicing a profession is supposedly v. Articles of Incorporation
for public service and not for business purposes. 1. Contents – Sec.13
2. Non-Amendable Items –
Corporation: SEC registered, their certificate of incorporation rather must vi. Corporate Name; Limitations – (Sec. 17,
not have been revoked or suspended to become an incorporator of RCC)
another corporation, it is required that the decision to invest in another vii. Registration, incorporation and
corporation as of course you invest when you become an incorporator, commencement of corporate existence –
such decision must be approved by majority of the board of directors or (Sec. 18, RCC)
trustees and ratified by stockholders representing at least two-thirds of viii. Election of Directors or Trustees (Sec. 23,
the outstanding capital stock if it's a stock corporation or two-thirds of RCC)
the members if it be non-stock corporation And of course there must be ix. Adoption of By-Laws – (Sec. 45, RCC)
the submission of the directors or trustees certificate or secretary 1. Contents – (Sec. 46, RCC)
certificate to show this decision to invest that there was already such an 2. Binding Effects – (Sec. 45, RCC)
approval by the board of directors or trust trustees and ratification by the 3. Amendments – (Sec. 47, RCC)
stockholders representing at least two-thirds of the outstanding capital x. Effect of Non-Use of Corporate Charter –
stock or two-thirds of the members (Sec. 21, RCC)

The board of directors must designate an authorized signatory because of

course an incorporator must sign the articles of incorporation the
corporation of course is not a real it's not a natural person
rather so it cannot sign and so there must be a designated person who
will sign in behalf of the corporation
ii. Subscription Requirements – (Sec. 10, RCC
but see also the old requirements provided
under BP 68 for better appreciation) 1.
iii. Corporate Term – (Sec. 11, RCC) 2.
Perpetual Existence- It will live forever (General Rule) 3.
4.
Exception: if the incorporators have actually decided to put a particular 5.
term or a particular number of years for the corporation to exist and such is 6.
indicated or stated in the articles of incorporation
7.
Corporations existing prior to revision- Perpetual Existence however if the 8.
stockholders would want to retain the original term they need to notify 9.
f. Corporate Powers
i. Kinds -
ii. General Powers; theory of general capacity
- (Sec. 35, RCC)
iii. Specific Powers; theory of specific capacity
-
Power to Extend or Shorten Corporate Term - (Sec. 36, RCC)
Power to increase or decrease capital stock or incur, create,
increase bonded indebtedness - (Sec. 37, RCC)
Power to deny pre-emptive rights - (Sec. 38, RCC)
Power to sell or dispose corporate assets - (Sec. 39, RCC)
Power to acquire own shares - (Sec. 40, RCC)
Power to invest corporate funds in another corporation or
business or for any other purpose - (Sec. 41, RCC)
Power to declare dividends - (Sec. 42, RCC)
Power to enter into management contracts - (Sec. 43, RCC)
Ultra Vires Acts - (Sec. 44, RCC)

Downloaded by Azi Prems (nter@studocubyazi.ml)

 - University of LIM AND
Mindanao v ALL
Bangko PERSONS
Sentral ng CLAIMIN
Pilipinas, G UNDER
GR. No. HER,
194964-65, RESPOND
ENT, GR
July 11,
212034,
2016.
July 02,
10. Doctrine of individuality of subscription (Sec. 62-63, RCC) 2018
11. Doctrine of equality of shares – 2. Tenure, qualifications and disqualifications of directors (Sec. 22,
- Commission RCC)
er of 3. Corporations vested with public interest (Sec. 22, RCC)
Intemal 4. Independent directors (Sec. 22, RCC)
Revenue vs. 5. Election (Sec. 23, RCC)
CA, et aI., 6. Removal (Sec. 27, RCC)
G.R. No. 7. Filing of vacancies (Sec. 28, RCC)
108576, 8. Compensation of directors (Sec. 29, RCC)
January 20, 9. Disloyalty
1999. a. Business Judgment
12. Trust fund doctrine Rule
- Philip b. Solidary Liability for
Turner v. Damages (Sec. 30,
Lorenzo RCC)
Shipping 10. Personal liabilities (Sec. 30, RCC)
Corporation 11. Responsibility for Crimes
, G.R. 12. Special fact doctrine
157479, 13. Inside information
2010. 14. Contracts (Sec. 31, RC sC)
g. Stockholders and members 15. Between corporations with interlocking directors (Sec.32, RCC)
i. Fundamental rights of stockholders 16. Executive and other special committees (Sec. 34, RCC)
ii. Participation in management 17. Meetings
1. Proxy – (Sec. 57, RCC) a. Regular and Special
2. Voting Trust Agreement – (Sec. 58, RCC) Meetings (Sec. 52,
3. Cases when stockholder’s action is required RCC)
4. Manner of voting - (Sec. 54-68, RCC) b. Who presides (Sec. 53,
iii. Proprietary rights RCC)
1. Appraisal right- (Sec. 80-85, RCC) c. Quorum (Sec. 52,
2. Right to inspect – (Sec. 73, RCC) RCC)
3. Preemptive right – (Sec. 38, RCC) d. Remote communication
4. Right to dividends – (Sec. 42, 70, 82-83, RCC) (Sec. 52, RCC)
iv. Remedial rights e. Rule on abstention Sec.
1. Individual suit 52, RCC)
a. Florente v Florente, GR viii. Capital Affairs
No. 174909, January 20, 1. Certificate of stocks (Sec. 62, RCC)
2016 2. Watered stocks (Sec. 61, 64, RCC)
2. Representative suit 3. Payment of balance of subscription (Sec. 66, RCC)
a. Florente v Florente, GR 4. Sale of delinquent shares (Sec. 67, RCC)
No. 174909, January 20, 5. Alienation of shares (Secs. 68-71, RCC)
2016 6. Corporate books and records
3. Derivative suit a. Records to be kept at
a. Florente v Florente, GR principal office (Sec.
No. 174909, January 20, 73, RCC)
2016 b. Right to inspect
v. Obligation of stockholders corporate books (Sec.
vi. Meetings 73, RCC)
1. Regular or special (Secs. 48-49, RCC) c. Effect of refusal to
2. Notice (Sec. 49, RCC) inspect corporate books
3. Place and Time of Meetings (Sec. 50, RCC) (Sec. 73, RCC)
4. Minutes and Agenda of Meetings (Sec. 49, RCC) 7. Dissolution and liquidation
5. Remote communication (Sec. 49, RCC) a. Modes of dissolution
vii. Board of Directors and Trustees (Sec. 133-138, RCC)
1. Repository of Corporate Powers (Sec. 23, RCC) b. Methods of liquidation
- COLEGIO (Sec. 139, RCC)
MEDICO- ix. Other Corporation
FARMACE 1. Non-stock corporation (Sec. 86-94, RCC)
UTICO DE 2. Educational corporation (Sec. 105-105, RCC)
FILIPINAS, 3. One person corporation
INC., a. Excepted corporation
PETITIONE (Sec. 116, RCC)
R, V. LILY
Downloaded by Azi Prems (nter@studocubyazi.ml)
 b. Capital stock
requirement (Sec. 117,
RCC)
c. Articles of incorporation
and by-laws (Sec. 118-
119, RCC)
d. Corporate Name (Sec.
120, RCC)
e. Corporate structure and
officers (Sec. 121-122,
RCC)
f. Nominee (Sec. 124, 125,
RCC)
g. Liability (Sec. 130,
RCC)
h. Conversion (Secs. 131-
132, RCC)
4. Foreign Corporation
a. Bases of authority over
foreign corporation
b. Necessity of a license to
do business (Secs. 141-
143, RCC)
c. Personality to sue (Sec.
145, RCC)
d. Suability of foreign
corporations
e. Instances when foreign
corporations without
license may be allowed
to sue (Sec. 150, RCC)
x. Merger and Consolidation
1. Definition and concept
2. Distinguish: constituent and consolidated corporation
3. Plan of merger or consolidation (Sec. 75, RCC)
4. Articles of merger or consolidation (Sec. 77, RCC)
5. Procedure, effectivity, limitations, and effect (Secs. 76, 78, 79,
RCC)

Downloaded by Azi Prems (nter@studocubyazi.ml)