8/25/22

Corporation Outline
(Part 2)
Dissolution and Liquidation
Other Corporations
Merger and Consolidation
Investigations, Offenses, and Penalties
Securities

Ron Russell S. Magbalon, JD

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I. Modes of Dissolution
Voluntary Involuntary
Voluntary surrender of its charter by the Expiration of the shortened corporate
vote of the BOD/T and the term [Sec 36]
stockholders/members where no
creditors are affected [Sec 134]

Dissolution and By the judgment of the SEC after

hearing of petition for voluntary
dissolution, where creditors are affected
By legislative enactment

Liquidation
Amending the AOI to shorten its term Failure to organize and commence
[Sec 136] business within 2 years from
incorporation [Sec 21]

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I. Modes of Dissolution I. Modes of Dissolution

Voluntary
In case of a corporation sole, by
submitting to the SEC a verified
declaration of the dissolution for
approval
By merger or consolidation
Involuntary
Cessation of business for 5 years [Sec
21]
By order of the SEC on grounds under
existing laws [Sec 138]
By order of the Courts following a quo
warranto proceeding, a proceeding
involving a financially distressed
corporation, or for grounds under
existing laws
A. Voluntary
• Where No Creditors Are Affected
1. A meeting must be held on the call of directors or trustees;
2. Notice of the meeting should be given to the stockholders by
personal delivery or registered mail at least twenty (20) days prior to
the meeting;
3. The notice of meeting should also be published for once in a
newspaper published in the principal place of business, otherwise,
in a newspaper of general circulation
4. The resolution to dissolve must be approved by the majority of the
directors/trustees and approved by the stockholders representing at
least majority of the outstanding capital stock or majority of
members;

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I. Modes of Dissolution
A. Voluntary
• Where No Creditors are Affected
5. Verified request for dissolution is then filed with the SEC stating:
a. a. the reason for dissolution
b. b. the form, manner and time when the notices were given
c. c. names of the stockholders and directors or members and
trustees who approved the dissolution
d. d. the date, place, and time of the meeting in which the vote
was made; and
e. e. details of publication
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I. Modes of Dissolution
A. Voluntary
• Where Creditors are Affected
1. A verified petition for dissolution shall be filed with the SEC.
2. The petition shall be:
a. signed by a majority of the corporation’s board of directors or trustees
b. verified by its president or secretary or one of its directors or trustees
c. shall set forth all claims and demands against it
d. that its dissolution was resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3) of the outstanding
capital stock or at least two-thirds (2/3) of the members at a meeting of
its stockholders or members called for that purpose.
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I. Modes of Dissolution
A. Voluntary
• Where Creditors are Affected
5. By an order reciting the purpose of the petition, the SEC shall fix a
deadline for filing objections to the petition (shall not be less than
thirty (30) days nor more than sixty (60) days after the entry of the
order)
6. Publication: Before such the deadline, a copy of the order shall be
published at least once a week for three (3) consecutive weeks in a
newspaper of general circulation published in the municipality or
city where the principal office of the corporation is situated,
otherwise, in a newspaper of general circulation in the Philippines
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I. Modes of Dissolution
A. Voluntary
• Where No Creditors are Affected
6. In addition, the following shall be submitted to the SEC:
a. Copy of the resolution authorizing the dissolution, certified by
a majority of the board and countersigned by the secretary;
b. Proof of publication
c. Favorable recommendation from the appropriate regulatory
agency, when necessary.
7. The SEC shall, within 15 days from the receipt of the verified request
for dissolution, and in the absence of any withdrawal within said
period, approve the request and issue the certificate of dissolution,
upon which the dissolution will take effect. (Sec. 134)
I. Modes of Dissolution
A. Voluntary
• Where Creditors are Affected
3. The petition shall likewise state:
a. the reason for the dissolution;
b. the form, manner, and time when the notices were given;
c. the date, place, and time of the meeting in which the vote
was made
4. The corporation shall submit to the SEC the following:
a. a copy of the resolution authorizing the dissolution, certified
by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation; and
b. list of all its creditors
I. Modes of Dissolution
A. Voluntary
• Where Creditors are Affected
7. Posting: A similar copy shall be posted for three (3) consecutive
weeks in three (3) public places in such municipality or city.
8. After the expiration of the time to file objections, a hearing shall be
conducted upon prior five (5) day notice to hear the objections;
9. Judgment shall be rendered dissolving the corporation and
directing the disposition of assets; the judgment may include
appointment of a receiver.
10. The dissolution shall take effect only upon issuance by the SEC of a
certificate of dissolution (Sec. 135)
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I. Modes of Dissolution I. Modes of Dissolution

A. Voluntary A. Voluntary

• By Shortening Corporate Term • Withdrawal of Dissolution

1. A private corporation may extend or shorten its term by amending the the
articles of incorporation when approved by a majority vote of the board of
directors or trustees and ratified at a meeting by the stockholders or members
representing at least two-thirds (2/3) of the outstanding capital stock or of its
members.
2. Written notice of the proposed action and the time and place of the meeting
shall be sent to stockholders or members
3. In case of extension of corporate term, a dissenting stockholder may exercise
the right of appraisal under the conditions provided in this Code. (Sec. 137)
1. Withdrawal of Request of Dissolution: Not later than 15 days from the receipt
by SEC of the request for dissolution, the withdrawal thereof shall be made in
writing, duly verified by any incorporator, director, trustee, shareholder, or
member and signed by the same number of incorporators, directors, trustees,
shareholders, or members necessary to request for dissolution.
2. Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold
action on the request for dissolution and shall, after investigation:
a. Make a pronouncement that the request for dissolution is deemed
withdrawn;
b. Direct a joint meeting of the board of directors or trustees and the
stockholders or members for the purpose of ascertaining whether to
proceed with dissolution; or
c. Issue such other orders as it may deem appropriate. (Sec. 137)

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I. Modes of Dissolution I. Modes of Dissolution

A. Voluntary
• Procedure on Withdrawal of Dissolution
B. Involuntary
o A withdrawal of the petition for dissolution shall be in the
form of a motion and similar in substance to a withdrawal • A corporation may be dissolved by the SEC
of request for dissolution but shall be verified and filed
prior to publication of the order setting the deadline motu proprio or upon filing of a verified
for filing objections to the petition. (Sec. 137) complaint by any interested party (Sec. 138)

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I. Modes of Dissolution I. Modes of Dissolution

B. Involuntary
B. Involuntary
• Grounds
• Grounds 5. Upon finding by final judgment that the corporation:
1. Non-use of corporate charter as provided under Section 21 of this a. Was created for the purpose of committing, concealing or
Code; aiding the SEC of securities violations, smuggling, tax evasion,
2. Continuous inoperation of a corporation as provided under money laundering, or graft and corrupt practices;
Section 21 of this Code; b. Committed or aided in the SEC of securities violations,
3. Upon receipt of a lawful court order dissolving the corporation; smuggling, tax evasion, money laundering, or graft and corrupt
4. Upon finding by final judgment that the corporation procured its practices, and its stockholders knew of the same; and
incorporation through fraud; c. Repeatedly and knowingly tolerated the SEC of graft and
corrupt practices or other fraudulent or illegal acts by its
directors, trustees, officers, or employees. (Sec. 138)

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I. Modes of Dissolution II. Methods of Liquidation

B. Involuntary
Liquidation
• Non-use of corporate charter (Sec. 21)
o If a corporation does not formally organize and commence its business within
5 years • Process by which all the assets of the corporation are converted
o Effect: certificate of incorporation shall be deemed revoked following the end
into liquid assets in order to facilitate the payment of obligations to
of the 5-year period
creditors, and the remaining balance if any is to be distributed to
• Continuous Inoperation (Sec. 21) the stockholders.
o If a corporation has commenced its business but subsequently becomes
inoperative for a period of at least 5 consecutive years
o Effect: after due notice and hearing, the corporation will be put on delinquent
• There is no time limit within which the trustees must complete
status a liquidation placed in their hands (Vigilla et.al. v. Philippine
o Remedy: it shall have a period of 2 years to resume operations. Otherwise, College of Criminology, G.R. No. 200094, 2013).
certificate of incorporation will likewise be revoked .

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II. Methods of Liquidation II. Methods of Liquidation

B. Methods of Liquidation
A. Liquidation
• Through Board of Directors or Trustees (Normal method of procedure)
o Even if no trustee is appointed or designated during the three-year
• Process by which all the assets of the corporation are converted period of the liquidation of the corporation, the Court has held that
into liquid assets in order to facilitate the payment of obligations to the Board of Directors may be permitted to complete the corporate
creditors, and the remaining balance if any is to be distributed to liquidation by continuing as trustees by legal implication (Vigilla et al.
the stockholders. v Philippine College of Criminology, G.R. No. 200094, 2013)

• There is no time limit within which the trustees must complete
a liquidation placed in their hands (Vigilla et.al. v. Philippine
College of Criminology, G.R. No. 200094, 2013).
o Note:
§ This only concerns the matters/actions that are initiated during
the 3 year grace period. The Board cannot be considered as
trustees for matters initiated after the 3-year period.

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II. Methods of Liquidation II. Methods of Liquidation

B. Methods of Liquidation
• Through Trustee
o At any time during the three years of liquidation, a corporation is
authorized and empowered to convey all of its property to trustees
for the benefit of stockholders, members, creditors, and other
persons in interest.
o The three (3)-year limitation will not apply provided the designation
of the trustee is made within said period.
• Through Receiver
o Created by means of judicial or quasi-judicial appointment of the
receiver. The receiver is actually an officer of the court and must
therefore be accountable to the court.
B. Methods of Liquidation
• Note:
o If there is no Board of Directors or Trustees, those
having pecuniary interest in the assets, including not
only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, may liquidate
(Alabang Dev’t v. Alabang Hills Village Ass’n, G.R. No.
196950, 2014)

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II. Methods of Liquidation
B. Methods of Liquidation
• Liquidation After Three Years
o If full liquidation can only be effected after the 3-year period and
there is no trustee, the directors may be permitted to complete the
liquidation by continuing as trustees by legal implication (Reburiano
v. CA, G.R. No. 102965, 1999)
o The trustee may continue to prosecute a case commenced by the
corporation within three years from its dissolution until rendition of
the final judgment, even if such judgment is rendered beyond the
three-year period allowed by Section [139]. However, an already
defunct corporation cannot initiate a suit after the lapse of the
three-year period (Alabang Dev’t v. Alabang Hills Village Ass’n, G.R. No.
196950, 2014)
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C. Winding Up
• Effects of Winding Up of Affairs: (Sec. 139)
1. Continues as a corporate body for 3 years to prosecute and defend
suits against it, close its affairs, dispose and convey its property and
distribute assets
2. Cannot continue business for which it was established
3. Can convey property to trustees for the benefit of the
stockholders/members, creditors and other persons in interest
a. Legal interest vests in business
b. Beneficial interest remains with stockholders/ members,
creditors
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Other Corporations
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C. Winding Up
• When a Corporation must Wind up (Sec. 139)
o If it is dissolved by:
1. By expiry of term or
2. Is annulled by forfeiture, or otherwise, or
3. Is terminated In any other manner
C. Winding Up
• Effects of Winding Up of Affairs: (Sec. 139)
4. Assets distributable to unknown creditors, stockholders/ members,
persons in interest or those who cannot be found shall be escheated
to the city or municipality where the assets are located.
5. Distribution of assets only upon lawful dissolution and payment of
all debts and liabilities.
• Exceptions:
a. Decrease of capital stock
b. As otherwise allowed in the Corporation Code
I. Non-Stock Corporation
A.Definition
o A non-stock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers,
subject to the provisions of the Corporation Code on dissolution
o Any profit which a non-stock corporation may obtain as an
incident 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. (Sec. 86)
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I. Non-Stock Corporation I. Non-Stock Corporation

B. Requisites C. Conversion between Stock and Non-Stock Corporation
• A non-stock corporation cannot be converted into a stock corporation through
1. Does not have a capital stock divided into share mere amendment of its Articles of Incorporation as this would be in violation of
Section 87 which prohibits distribution of income as dividends to members. (SEC
Opinion, 20 March 1995).
2. No part of its income is distributable as • However, a non-stock corporation can be. The result isconverted into a stock
dividends to its member corporation only if the members dissolve it first and then organize a stock
corporation a new corporation. (SEC Opinion, 13 May 1992)

3. They must be formed or organized for purposes • On the other hand, a stock corporation may be converted into a non-stock
specified in Sec. 87 corporation by mere amendment provided all the requirements are complied with.
Its rights and liabilities will remain.

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I. Non-Stock Corporation I. Non-Stock Corporation

D. Purposes D. Purposes
• A non-stock corporation may be formed or organized for the following i. Scientific,
purposes: j. Social,
a. Charitable, k. Civic Service,
b. Religious, l. Similar purposes, like trade, industry, agriculture and like
c. Educational, chambers, or
d. Professional, m. Any combination of thereof (Sec. 87)
e. Cultural,
f. Recreation, • In the Articles of Incorporation, a non-stock corporation may not include
g. Fraternal, a purpose which would change or contradict its nature as such.
h. Literary,

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I. Non-Stock Corporation II. Educational Corporations

E. Treatment of Profits
• Non-stock non-profit corporations may actually earn profits
incidentally from its operations, provided that the profits are A. Governing Laws
devoted to their purpose.

• The mere fact that a non-stock corporation may earn profit does not
• Educational corporations shall be governed by:
make it a profit-making corporation, where such profit is used to carry 1.Special laws (e.g. “Education Act of 1982”)
out the purposes set forth in the Articles of Incorporation and is not 2.General provisions of the Revised Corporation
distributed to its incorporators, members, trustees, or officers. (SEC
Opinion, 13 November 1990, XXIV SEC Quarterly Bulletin 63) Code (Sec. 105)

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II. Educational Corporations
B. Board of Trustees of Educational Corporations
• 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).(Sec 106)
C. Quorum
• 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.(Sec. 106)
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III. Religious Corporations
• Religious corporations may be incorporated
by one or more persons.
• Such corporations may be classified into:
1. Corporations sole; and
2. Religious societies (Sec. 107, RCC)
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III. Religious Corporations
B. Composition
• A corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi, or
other presiding elder of such religious
denomination, sect or church, for the purpose
of administering and managing, as trustee, the
affairs, property and temporalities of any
religious denomination, sect or church.
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II. Educational Corporations
D. Term of Office
• 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. (Sec. 106)
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III. Religious Corporations
A. Corporation Sole; Nationality
• Special form of corporation, usually associated with the clergy
and consists of one person only and his successors, who are
incorporated by law to give some legal capacities and
advantages.
• A corporation sole does not have any nationality but for
purposes of applying our nationalization laws, nationality is
determined by the nationality of the members (Roman
Catholic Apostolic Church v. LRC, G.R. No. 8451, 1957).
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III. Religious Corporations
C. Acquisition and Alienation of Property
• A corporation sole may purchase and hold real estate and personal
property for its church, charitable, benevolent, or educational purposes,
and may receive bequests or gifts for such purposes. (Sec. 111)
• Such corporation may sell or mortgage real property held by it by obtaining
an order for that purpose from the Regional Trial Court of the province
where the property is situated upon proof that the notice of the application
for leave to sell or mortgage has been made through publication or as
directed by the Court, and that it is in the interest of the corporation that
leave to sell or mortgage be granted. (Sec. 111)
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III. Religious Corporations III. Religious Corporations

D. Dissolution of a Corporation Sole
• A corporation sole may be dissolved and its affairs settled voluntarily by
submitting to the SEC a verified declaration of dissolution, setting forth:
1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the corporation by the
particular religious denomination, sect or church; and
4. The names and addresses of the persons who are to supervise
the winding up of the affairs of the corporation.
E. Religious Society
• A religious corporation incorporated by more than one person. Also called “corporation
aggregate.”
• Incorporation
o General Rule:
o Any religious society, religious order, diocese, synod, or district organization of any
religious denomination, sect, or church, may incorporate for the administration of its
temporalities or for the management of its affairs, properties, and estate – (1) Upon
written consent of at least two-thirds (2/3) of its membership; and/or (2) By an
affirmative vote at a meeting called for the purpose of at least two-thirds (2/3) of its
membership

o Exception:
• Upon approval of such declaration of dissolution by the SEC, the o Unless forbidden by competent authority, the Constitution, pertinent rules,
corporation shall cease to carry on its operations except for the purpose regulations, or discipline of the religious denomination, sect, or church of which it is
a part. [Sec. 114, RCC]
of winding up its affairs. (Sec. 113)

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IV. One Person Corporation IV. One Person Corporation

A. Excepted Corporation B. Capital Stock Requirement
• The following are not allowed to incorporate as OPC: • General Rule:
1. Banks, o A One Person Corporation is not required to have a
2. Non-bank financial institutions,
3. Quasi-banks,
minimum authorized capital stock.
4. Pre-need,
5. Trust, • Exception: As otherwise provided by special law.
6. Insurance public and publicly listed companies,
7. Non-chartered GOCCs; and • Note:
8. Natural person who is licensed to exercise a profession may not o Unless required by applicable laws or regulations, no portion
organize an OPC for the purpose of exercising such a profession. of the authorized capital is required to be paid up at the time
• EX: unless otherwise provided by special laws. (Sec. 116) of incorporation. (SEC Circular No. 7, Series of 2019)

45 46

IV. One Person Corporation IV. One Person Corporation

C. Articles of incorporation and by-laws
• Requirements for filing the Articles of Incorporation:
1. In accordance with Sec. 14 of the RCC. D. Corporate Name
2. If the single stockholder is a trust or an estate - the name, nationality,
and residence of the trustee, administrator, executor, guardian,
conservator, custodian, or other person exercising fiduciary duties • It should indicate the letters “OPC” either
together with the proof of such authority to act on behalf of the trust
or estate
below or at the end of their corporate
3. Name, nationality, residence of the nominee and alternate nominee, name. (Sec. 120)
and the extent, coverage and limitation of the authority. (Sec. 118)

• Note: OPCs are NOT required to file their corporate bylaws. (Sec. 119)

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IV. One Person Corporation IV. One Person Corporation

E. Corporate Structure and Officers E. Corporate Structure and Officers
• Who may form?
• Who may not form?
1. Natural person – must be of legal age
a. A foreign natural person may put up an OPC subject to applicable capital
1. Banks and quasi-banks, non-bank financial institutions (SEC
requirement and constitutional and statutory restrictions on foreign Memorandum 7-2019)
participation in certain investment areas or activities (SEC Memorandum 7- 2. Pre-need, trust, insurance, public and publicly-listed companies
2019)
b. Trust – does not refer to a trust entity, but the subject being managed by a
3. Non-chartered government-owned and -controlled
trustee. If the single stockholder is a trustee, administrator, executor, 4. Natural person who is licensed to exercise a profession to form
guardian, conservator, custodian, or other person exercising fiduciary an OPC for the purpose of exercising such profession
duties
i. proof of authority to act on behalf of the trust or estate must be
submitted at the time of incorporation (SEC Memorandum 7-2019)
• Exception: as provided under special laws
c. Estate

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IV. One Person Corporation IV. One Person Corporation

E. Corporate Structure and Officers F. Nominee
• Single Stockholder as Director, President • The single stockholder shall designate in the AOI a nominee and an
o The single stockholder shall be the sole director and president of the One
alternate nominee who shall, in the event of the single stockholder’s
Person Corporation (Sec. 121, RCC)
death or incapacity:
• Treasurer, Corporate Secretary, and Other Officers 1. Take the place of the single stockholder as director; and
o Within fifteen (15) days from the issuance of its certificate of incorporation, the 2. Manage the corporation’s affairs. [Sec. 124, RCC]
OPC shall appoint:
1. A treasurer;
• Consent of Nominee and Alternate Nominee
2. A corporate secretary; and
3. Other officers as it may deem necessary o The written consent of the nominee and alternate nominee shall
be attached to the AOI.
o Note: o Such consent may be withdrawn in writing any time before the
§ The single stockholder may NOT be appointed as the corporate
death or incapacity of the single stockholder. [Sec. 124, RCC]
secretary.

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IV. One Person Corporation IV. One Person Corporation

F. Nominee F. Nominee
• Term of Nominee
• When the single stockholder is temporarily incapacitated: • Term of Alternate Nominee
1. The nominee shall sit as director and manage the affairs of the OPC • In case of the nominee’s inability, incapacity, death, or
2. The nominee shall serve only until the stockholder, by self-determination,
regains the capacity to assume such duties. [Sec. 125, RCC]
refusal to discharge the functions as director and
manager of the corporation:
In case of death or permanent incapacity of the single stockholder:
•
1. The nominee shall sit as director and manage the affairs of the OPC
1. The alternate nominee shall sit as director and
2. The nominee shall serve until: manage the One Person Corporation; and
a. The legal heirs of the single stockholder have been lawfully 2. The alternate nominee shall serve only for the same
determined; and
b. The heirs have designated one of them or have agreed that the estate term, and under the same conditions applicable to
shall be the single stockholder of the OPC. [Sec. 125, RCC] the nominee. [Sec. 125, RCC]

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IV. One Person Corporation
F. Nominee
• Change of Nominee or Alternate Nominee
o The single stockholder may, at any time, change its nominee
and alternate nominee by submitting to the Commission:
1. The names of the new nominees; and
2. The new nominees’ corresponding written consent.
o Note:
§ For this purpose, the AOI need not be amended (Sec. 126,
RCC)
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IV. One Person Corporation
G. Liability
• Liability of Single Shareholder
o A sole shareholder claiming limited liability has the burden
of affirmatively showing that the corporation was
adequately financed.
o Where the single stockholder cannot prove that the property
of the OPC is independent of the stockholder’s personal
property, the stockholder shall be jointly and severally liable
for the debts and other liabilities of the OPC.
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IV. One Person Corporation
H. Conversion of corporation to one person corporations
and vice-versa
• Conversion from an Ordinary Corporation to an OPC
o When a single stockholder acquires ALL the stocks of an ordinary stock
corporation, the latter may apply for conversion into a One Person
Corporation, subject to the submission of such documents as the Commission
may require.
o If the application for conversion is approved:
1. The Commission shall issue certificate of filing of amended articles of
incorporation reflecting the conversion
2. The OPC converted from an ordinarystock corporation shall succeed the
latter, and be legally responsible for all the latter’s outstanding liabilities as
of the date of conversion. [Sec. 131, RCC]
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IV. One Person Corporation
G. Liability
• Limited Liability
o An important advantage of the corporation is the
limitation of an investor’s liability to the amount of
investment, which flows from the legal theory that a
corporate entity is separate and distinct from its
stockholders. [San Juan Structural and Steel, Inc. v. CA,
296 SCRA 631 (1998).]
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IV. One Person Corporation
G. Liability
• Applicability of the Doctrine of Piercing the Corporate Veil
o The principles of piercing the corporate veil applies with
equal force to OPCs, as with other corporations. [Sec. 130,
RCC]
o When the veil of corporate fiction is pierced:
§ The corporation will be considered as a mere
association of persons; and
§ The liability will directly attach to the stockholders or to
the other corporation
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IV. One Person Corporation
H. Conversion of corporation to one person corporations
and vice-versa
• Conversion from a OPC to an Ordinary Stock Corporation
o A One Person Corporation may be converted into an ordinary stock
corporation after:
1. Due notice to the Commission of such fact and of the
circumstances leading to the conversion; and
§ Such notice shall be filed with the Commission within sixty
(60) days from the occurrence of the circumstances
leading to the conversion into an ordinary stock
corporation
2. Compliance with all other requirements for stock
corporations under this Code and applicable rules.
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IV. One Person Corporation V. Foreign Corporations

H. Conversion of corporation to one person corporations A. Foreign Corporation
and vice-versa
• In case of death of the single stockholder: • Those formed, organized, or existing under any laws
1. Within seven (7) days from receipt of either an affidavit of heirship or self-
adjudication executed by a sole heir, or any other legal document declaring
other than those of the Philippines and whose laws
the legal heirs of the single stockholder, the nominee or alternate nominee allow Filipino citizens and corporations to do
shall:
a. Transfer the shares to the duly designated legal heir or estate; and business in its own country or state (Sec. 140)
b. Notify the Commission of the transfer.

2. Within sixty (60) days from the transfer of the shares, the legal heirs shall
notify the Commission of their decision to either:
a. Wind up and dissolve the One Person Corporation; or
b. Convert it into an ordinary stock corporation.

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V. Foreign Corporations V. Foreign Corporations

B. Bases of Authority Over Foreign Corporations
• Consent
• As a rule, a foreign corporation can have no legal existence
or status beyond the bounds of the State or sovereignty by
which it is created or incorporated and organized.
• It exists only in contemplation of law and by force of the law
where that law ceases to operate, the corporation can have
no existence.
• However, this principle does not prevent a corporation from
acting in another State or country with the latter’s express
or implied consent.
B. Bases of Authority Over Foreign Corporations
• Doctrine of “doing business”
• When a foreign corporation undertakes business activities
within the territorial jurisdiction of a host state, then it
ascribes to the host state standing to enforce its laws, rules
and regulations.
• Said business activities serves as the basis by which a host
state is deemed to have authority over a foreign corporation
within its territorial jurisdiction.

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V. Foreign Corporations V. Foreign Corporations

C. Necessity of a License to do Business C. Necessity of a License to do Business

• Every foreign corporation, which on the date of • Issuance of License

the effectivity of this Code, is authorized to do o Upon issuance of the license, such foreign corporation may
commence to transact business in the Philippines and continue to
business in the Philippines under a license do so for as long as it retains its authority to act as a corporation
issued to it, shall continue to have such under the laws of the country or State of its incorporation, unless
such license is:
authority under the terms and conditions of its 1. Surrendered;
license, subject to the provisions of this Code 2. Revoked;
3. Suspended; or
and other special laws (Sec 141, RCC) 4. Annulled in accordance with this Code or other special laws.
[Sec. 143, RCC]

65 66

11

V. Foreign Corporations
C. Necessity of a License to do Business
• Amendment of License
o A foreign corporation shall obtain an amended license in
the event it changes its corporate name, or desires to
pursue other or additional purposes in the Philippines
o Said amendment may be made by submitting an application
with the Commission, endorsed by the appropriate
government agency (Sec. 148, RCC)
67
V. Foreign Corporations
E. Suability of Foreign Corporations
• Every foreign corporation
o Doing business in the Philippines with a license may sue
and can be sued in the Philippines
o Doing business in the Philippines without a license cannot
sue, but may be sued in the Philippines
o Not doing business in the Philippines, or on isolated
transactions may sue and can be sued (if jurisdiction can
be acquired)
69
V. Foreign Corporations
F. Instances When Unlicensed Foreign
Corporation may be Allowed to Sue
• Doctrine on Isolated Transactions
• Foreign corporations are not required to obtain a license in
order to obtain relief from local courts or agencies.
• In an isolated transaction, there is no intent on the part of
the foreign corporation to engage in a progressive pursuit of
the purpose of a business transaction [Eriks Ltd. v. CA, 267
SCRA 567 (1997)]
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V. Foreign Corporations
D. Personality to Sue
• A foreign corporation transacting business in the
Philippines is required to secure a license to have the
personality to sue before, or intervene in, any court or
administrative proceeding (Sec. 150, RCC)
• By filing an action before Philippine courts, a foreign
corporation puts itself under their jurisdiction
[Communication Materials v. CA, 260 SCRA 673 (1996)]
68
V. Foreign Corporations
F. Instances When Unlicensed Foreign
Corporation may be Allowed to Sue
1. Isolated transactions;
2. Action to protect good name, goodwill, and reputation of a foreign
corporation;
3. The subject contracts provide that Philippine Courts will be venue to
controversies;
4. A license subsequently granted enables the foreign corporation to sue
on contracts executed before the grant of the license (Eriks Ltd. v.
Court of Appeals, G.R. No. 118843, 1997);
5. Recovery of misdelivered property;
6. Where the defendant is estopped.
70
V. Foreign Corporations
F. Instances When Unlicensed Foreign
Corporation may be Allowed to Sue
• General Rule:
• No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines
• Exception:
• It may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized
under Philippine laws. [Sec. 150, RCC]
72
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V. Foreign Corporations V. Foreign Corporations

F. Instances When Unlicensed Foreign
Corporation may be Allowed to Sue
• General Rule:
• No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines
• Exception:
• It may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized
under Philippine laws. [Sec. 150, RCC]
G. Grounds for Revocation of License
• Section 151 provides that the SEC may cancel the certificate or
license of a foreign corporation on any of the following grounds:
1. Failure to file its annual report or pay any fees as required
by Code;
2. Failure to appoint and maintain a resident agent;
3. Failure to inform SEC of the change of resident agent or the
latter’s change of address;
4. Failure to submit a copy of amended articles of
incorporation or by- laws; or articles of merger or
consolidation;

73 74

V. Foreign Corporations
G. Grounds for Revocation of License

5. A misrepresentation of any material matters in reports;

6. Failure to pay any and all taxes, imposts, assessments or
penalties;
7. Engaged in a business not authorized by SEC;
8. Acting as a dummy of a foreign corporation not licensed to
do business in the Philippines; or
9. Any other ground as would render it unfit to transact
Merger and
Consolidation
business in the Philippines.

75 76

I. Concept II. Constituent v. Consolidated Corporation

A. Merger v. Consolidation A. Constituent v. Consolidated Corporation

• Merger
o A union whereby one or more existing corporations are
absorbed by another corporation that survives and
continues the combined business
• Consolidation
o The union of two or more existing corporations. A new
corporation is created, and consolidating corporations are
extinguished (PNB v. Andrada Electric & Engineering Co., G.R.
No. 142936, [April 17, 2002], 430 PHIL 882-903)
• Constituent
o The corporations that shall cease to exist after joining together
through consolidation (Bank of Commerce v. Radio Philippines
Network, Inc., G.R. No. 195615, [April 21, 2014], 733 PHIL 491-581)
o The names of the corporations proposing to merge or consolidate,
hereinafter referred to as the constituent corporations
• Consolidation
o The corporation formed after the consolidation of two constituent
corporations

77 78

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III. Plan of Merger or Consolidation
• The plan of merger or consolidation shall set forth the ff:
1. The names of the constituent corporations;
2. The terms of the merger or consolidation and the mode of
carrying the same into effect;
3. A statement of the changes, if any, in the articles of
incorporation of the surviving corporation in case of merger;
and, in case of consolidation, all the statements required to be
set forth in the articles of incorporation for corporations
organized under this Code; and
4. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable (Sec. 75)
79
IV. Articles of Merger or Consolidation
• The articles must be signed by the president or vice president and certified by
the secretary or assistant secretary setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding, or in the
case of non-stock corporations, the number of members;
3. As to each corporation, the number of shares or members voting for or
against such plan, respectively;
4. The carrying amounts and fair values of the assets and liabilities of the
respective companies as of the agreed cut-off date;
5. The method to be used in the merger or consolidation of accounts of the
companies;
6. The provisional or pro-forma values, as merged or consolidated, using
the accounting method; and
7. Such other information as may be prescribed by the SEC (Sec. 78)
81
V. Procedure, Effectivity, Limitations, Effects
B. Effectivity
1. Upon issuance of the certificate of merger or consolidation, such
merger or consolidation shall become effective
2. Merger or consolidation does not become effective by mere
agreement of the constituent corporations. The approval of the SEC is
required [PNB v. Andrada Electric and Engr. Co., Inc. (2002)]
3. Notwithstanding now, sec. 78, parties may stipulate a specific effective
date of merger (or consolidation) where no 3rd party will be prejudiced
[SEC Opinion No. 09-13, July 1, 2009]
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III. Plan of Merger or Consolidation
• Note:
o The plan of merger has to be approved by majority of the board of
each constituent corporation;
o It has to be approved by affirmative vote of stockholders
representing ⅔ of the outstanding capital stock or ⅔ of the
members in case of a non-stock corporation.
80
V. Procedure, Effectivity, Limitations, Effects
A. Procedure
1. Drawing up of the Plan of Merger or Consolidation
2. Approval of Plan of Merger or Consolidation by BOD and
Stockholders of Constituent Corporations
3. Execution of Articles of Merger or Consolidation
4. Submission to SEC of the Articles
5. Action by SEC
82
V. Procedure, Effectivity, Limitations, Effects
C. Limitations
• Consent of appropriate government agency:
o In the case of merger or consolidation of banks or banking
institutions, building and loan associations, trust companies,
insurance companies, public utilities, educational
institutions and other special corporations governed by
special laws, the favorable recommendation of the
appropriate government agency shall first be obtained
84
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V. Procedure, Effectivity, Limitations, Effects V. Procedure, Effectivity, Limitations, Effects

D. Effects D. Effects
1. Constituent corporations become a single corporation
a. Merger: surviving corporation
b. Consolidation: consolidated corporation under the plan of
consolidation
2. Separate existence of constituent corporations cease EXCEPT
that of the surviving or consolidated corporation
3. Surviving or consolidated corporation possesses the rights
privileges immunities; and powers and is subject to all duties and
liabilities of a corporation organized under this Code
4. ALL of the following are deemed transferred to and vested in such
surviving or consolidated corporation: (BY OPERATION OF LAW)
a. Rights
b. Privileges
c. Immunities
d. Franchises of each constituent corporation
e. Real or personal property
f. Receivables due on whatever account (hence surviving /
consolidated corporation has the power to file an action for
recovery) including:
i. subscriptions to shares and other choses in action
ii. and every other interest of, belonging to, or due to each
constituent corporation

85 86

V. Procedure, Effectivity, Limitations, Effects

D. Effects
5. Regarding liabilities and pending claims:
a. Liabilities and obligations of each constituent corporation:
i. Surviving or consolidated corporation shall be responsible
b. Pending claim, action or proceeding brought by or against any
constituent corporation
Investigations,
offenses, and
i. may be prosecuted by or against the surviving or consolidated
corporation
c. The rights of creditors or liens upon the property of such constituent
corporations are not impaired

penalties
87 88

I. Authority of Commissioner I. Authority of Commissioner

• Under Sec. 154 of the RCC, the SEC has the power
to:
1. Power to Investigate
o The SEC is expressly granted the power to investigate any
alleged violation of the RCC, or of a rule, regulation, or order
issued pursuant thereto.
2. Power to Public Findings
o The SEC is expressly authorized to publish its findings, orders,
opinions, advisories, or information concerning any such
violation as may be relevant to the general public or to the
parties concerned, subject to the provisions of Republic Act No.
10173 (Data Privacy Act of 2012) and other pertinent laws.
• Under Sec. 154 of the RCC, the SEC has the power to:
3. Power to Coordinate with Other Agencies
o SEC is expressly granted the power to give reasonable notice to and
coordinate with the appropriate regulatory agency prior to any such
publication involving companies under their special regulatory jurisdiction.
4. Administration of oath and issuance of subpoena of Witnesses and Documents
o The SEC, through its designated officer has the power to:
1. To administer oaths and affirmations issue subpoena and subpoena
duces tecum take testimony in any inquiry or investigation, and
2. To perform other acts necessary to the proceedings or to the
investigation. [Sec 155, RCC]

89 90

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I. Authority of Commissioner I. Authority of Commissioner

• Under Sec. 154 of the RCC, the SEC has the power to: • Contempt (Sec. 157)
5. Cease and desist power
• Whenever the SEC has reasonable basis to believe that a person has violated, or is about to o Any person who, without justifiable cause, fails or refuses to
violate, the RCC, rule, regulation, or order of the SEC, it may direct such person to desist
from committing the act constituting the violation.
comply with any lawful order, decision, or subpoena issued by
the Commission shall, after due notice and hearing, be held in
• The SEC may issue a cease and desist order ex parte to enjoin an act or practice which is contempt and fined in an amount not exceeding P30,000
fraudulent or can be reasonably expected to cause significant, imminent, and irreparable
danger or injury to public safety or welfare. The ex parte order shall be valid for a maximum
period of twenty (20) days, without prejudice to the order being made permanent after due o When the refusal amounts to clear and open defiance of the
notice and hearing.
Commission’s order, decision, or subpoena, the Commission
• Thereafter, the SEC may proceed administratively against such person in accordance with
Section 158, and/or transmit evidence to the Department of Justice for preliminary
may impose a daily fine of P1,000 until the order, decision,
investigation or criminal prosecution and/or initiate criminal prosecution for any violation of or subpoena is complied with
this Code, rule, or regulation.

91 92

II. Sanctions for Violations II. Sanctions for Violations

A. Administrative Sanctions B. Prohibited Acts and Penalties

• If, after due notice and hearing, the SEC finds that any provision of this 1.
Code, rules or regulations, or any of the SEC’s orders has been violated,
the SEC may impose any or all of the following sanctions, taking into
consideration the extent of participation, nature, effects, frequency and 2.
seriousness of the violation:
1. Imposition of a fine ranging from P5,000.00) to P2,000,000.00, and
not more than P1,000.00 for each day of continuing violation but in
no case to exceed P2,000,000.00;
2. Issuance of a permanent cease-and-desist order; 3.
3. Suspension or revocation of the certificate of incorporation; and
4. Dissolution of the corporation and forfeiture of its assets under the
conditions in Title XIV of the RCC
Unauthorized Use of Corporate Name (Sec. 159)
• The penalty for violations under this provision ranges from Php10,000 to Php200,000
pesos.
Violation of Disqualification Provision (Sec. 160)
• Penalty:
• Punished by a fine ranging from Php 10, 000 to Php 200,000 at the court’s discretion,
permanently disqualified from being a director, trustee, or officer of any corporation.
• If violation is injurious or detrimental to the public – penalty ranges from Php 20,000 to
Php 400,000.
Violation of Duty to Maintain Records, to Allow their Inspection or Reproduction (Sec.
161)
• Penalty: shall be punished with a fine ranging from 10,000 to 200,000 pesos. The
penalties imposed under this section shall be without prejudice to the Commission’s
exercise of its contempt powers under Section 157 hereof.

93 94

II. Sanctions for Violations III. Who are Liable?

B. Prohibited Acts and Penalties • Who are liable (Sec. 171-172)

1. Willful Certification of Incomplete, Inaccurate, False, or Misleading
Statements or Reports (Sec. 162) 1. Corporation- Penalty may be imposed upon its directors,
• Penalty: trustees, stockholders, members, officers, or employees
• a. fine ranging from Php 20,000 to Php 200,000 pesos,
• b. If wrongful certification is injurious or detrimental to the public
responsible for the violation or indispensable to its
– the auditor or the person responsible may be fined ranging from commission.
40,000 to 400,000 pesos if the report be injurious or detrimental
to the public. 2. Aiders and Abettors- Penalty would be a punishment of
a fine not exceeding that imposed on the principal
2. Collusion with the Independent Auditor (Sec. 163)
• Penalty: shall be penalized with a fine ranging from 80,000 to offenders, at the discretion of the Court, after taking into
500,000 pesos, or 100,000 to 600,000 pesos if injury was caused to account their participation in the offense.
the public.

95 96

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IV. Authority of the SEC
• What are the functions, powers, and jurisdiction of the SEC? (Sec. 179)
• SEC shall have the power and authority to:
1. Exercise supervision and jurisdiction over all corporations and all
persons acting on their behalf, except otherwise provided by RCC;
2. Retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution. (PD 902-A);
3. The SEC shall retain jurisdiction over pending suspension of
payment/ rehabilitation cases filed as of 30 June 2000 until finally
disposed.
4. Impose sanctions for the violation of the RCC, its implementing rules
and orders of the SEC;
97
IV. Authority of the SEC
11. Suspend or revoke the certificate of incorporation after proper
notice and hearing;
12. Dissolve or impose sanctions on corporations, upon final court
order, for committing, aiding in the SEC of, or in any manner
furthering securities violations, smuggling, tax evasion, money
laundering, graft and corrupt practices, or other fraudulent or
illegal acts;
13. Issue writs of execution and attachment to enforce payment of
fees, administrative fines, and other dues collectible under this
Code;
14. Prescribe the number of independent directors and the minimum
criteria in determining the independence of a director;
99
Securities
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IV. Authority of the SEC
5. Promote corporate governance and the protection of minority
investors, through, among others, the issuance of rules and
regulations consistent with international best practices;
6. Issue opinions to clarify of laws, rules, and regulations;
7. Issue cease and desist orders ex parte to prevent imminent fraud
or injury to the public;
8. Hold corporations in direct or indirect contempt;
9. Issue subpoena duces tecum and summon witnesses to appear in
proceedings before the SEC;
10. In appropriate cases, order the examination, search and seizure of
documents, papers, files and records, and books of accounts of any
entity or person under investigation as may be necessary for the
proper disposition of the cases, subject to the provisions of existing
laws;
98
IV. Authority of the SEC
15. Impose or recommend new modes by which a stockholder,
member, director, or trustee may attend meetings or cast their
votes, as technology may allow, taking into account the company’s
scale, number of shareholders or members, structure, and other
factors consistent with the basic right of corporate suffrage;
16. Formulate and enforce standards, guidelines, policies, rules, and
regulations to carry out the provisions of this Code; and
17. Exercise such other powers provided by law or those, which may
be necessary or incidental to carrying out, the powers expressly
granted to the SEC.
100
I. Kinds of Securities
1. “Per Se” Securities:
• Those enumerated specifically under Sec. 3 of the SRC to fall
within the definition of “securities”.
o Examples of those named as securities are shares of stock,
bonds, fractional undivided interests in oil/gas/other mineral
rights, derivatives like options and warrants, proprietary or
non-proprietary membership certificates in corporations,
etc.
102
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I. Kinds of Securities II. Procedure for Registration

2. Investment Contracts: 1. Filing

• As defined under the 2015 IRR of the SRC, An investment 2. Signature
contract means a contract, transaction or scheme (collectively 3. Payment of Filing Fee
"contract") whereby a person invests his money in a common
enterprise and is led to expect profits primarily from the 4. Publication
efforts of others. 5. Order
• An investment contract is presumed to exist whenever a 6. Entry of Order
person seeks to use the money or property of others on the
7. Oath of an Issuer
promise of profits.
8. Offer Period of Securities
3. Catch-all 9. Termination or Completion of Offering
• Other instruments as SEC may determine in the future.

103 104

III. Prohibition on Fraud, Manipulation, and Insider Trading III. Prohibition on Fraud, Manipulation, and Insider Trading

A. Fraudulent Transactions B. Manipulation of Security Prices (Sec. 24)

• It shall be unlawful for any person, directly or indirectly, in connection
• It shall be unlawful for any person acting for himself or through a dealer
with the purchase or sale of any securities to:
1. Employ any device, scheme, or artifice to defraud; [Sec. 26.1] or broker, directly or indirectly:
1. To create a false or misleading appearance of active trading in
2. Obtain money or property by means of any untrue statement of
any listed security traded in an Exchange or any other trading
a material fact or any omission to state a material fact necessary
market ("Exchange");
in order to make the statements made, in the light of the
2. To effect, alone or with others, a series of transactions in
circumstances under which they were made, not misleading
securities that:
[Sec. 26.2]
a. Raises their price to induce the purchase of a security
3. Engage in any act, transaction, practice or course of business
b. Depresses their price to induce the sale of a security
which operates or would operate as a fraud or deceit upon any
person [Sec. 26.3] c. Creates active trading to induce such a purchase or sale
through manipulative devices

105 106

III. Prohibition on Fraud, Manipulation, and Insider Trading IV. Protection of Shareholder Interest

C. Insider Trading A. Tender Offer Rule

• Unlawful Acts Of An Insider • Tender Offer is a publicly announced intention by a person

• To sell or buy a security of the issuer, while in possession of acting alone or in concert with other persons to acquire:
material information with respect to the issuer or the security that
is not generally available to the public, unless:
a. Outstanding equity securities of a public company, or
1. The insider proves that the information was not gained
b. Outstanding equity securities of an associate or related
from such relationship; or company of such public company which controls the said
2. If the other party selling to or buying from the insider (or his public company
agent) is identified, the insider proves: That he disclosed the
information to the other party, or That he had reason to
believe that the other party otherwise is also in possession
of the information. [Sec. 27.1]

107 108

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IV. Protection of Shareholder Interest IV. Protection of Shareholder Interest

B. Proximity Solicitation C. Disclosure Rule

• Proxy Solicitation involves the securing and • Issuers, equity holders, and insiders are
submission of proxies.
subject to certain reportorial requirements
• It is where the corporation obtains proxies of under the SRC.
the stockholders to vote on corporate matters
[GSIS v. CA, G.R. No. 183905 (2009)]

109 110

19