Type of Business Organization (SPJBJCSHUC)  Exception: A person paid less

1. Sole Proprietorship- single individual; does not than what is agreed in the
possess juridical personality separate and subscription contract
distinct from that of the owner of the enterprise  Continuity of existence
2. Partnership- formed by mere agreement of 2 or  Transferability of shares
more parties binding themselves to contribute  Centralized management of BoD
money, property, and industry to a common fund  Professional Management
with the intention of dividing the profits among  Standardized method of organization, and
themselves. finance
MOPATL Partnership Corporation  Easy Capital Generation
As to the Mere Issuance of Will parent company be liable to the creditors of
manner of agreement Certificate of
creation Incorporation
their subsidiaries?
As to the 2 or more Any number, a  NO. The parent company has a separate
number of partners single person personality with its subsidiaries.
organizers may form Purpose of RCCP:
corporation  Policies that would enhance the ease of doing
As to Limited as Has limited business in the PH
powers agreed upon by personality,  Rules that prioritize corporate and stockholder
partners limited power
protection
Authority of Mutual agency Stockholders
those who are not agents  Provision that instill corporate responsibility
compose of the  Amendments that will strengthen the Scottish
corporations in Policy and Regular tele-corporate framework
the absence of History of the Corporation Law
express  Act No. 1459- First corporation law; copied from
authority (BoD, US Corpo law
Officers)
 BP Blg 68 (1980-2019)
Transfer of Interest cannot Shares are
Interest be transferred transferable  Revised Corporation Code of the Philippines
w/o partners’ w/o What is new with RRCP? PaCaMa-PCV-MOVE
consent stockholders’ 1. Perpetual term
consent (unless o Old: Corporate term: 50 years (Subject
there is to renewal
stipulation) o RCCP: Perpetual Existence/Term unless
As to May be liable Limited to limited by the AoI
liability of beyond their investment
2. Composition of Corporations
those who investment
compose o Old: Minimum Incorporators: 5;
Directors: 5
Similarities of Partnership & Corporation o RCCP: One person is allowed
Juridical personality distinct from their components 3. Minimum Paid-up capital
Both are groups of persons o Old: Minimum subscription at the start of
Capitals are derived from Components the corporation- 25%+ 25% subscribed
Distibution of profits share must be paid; Minimum paid-up
They act through their agents capital = 5,000
Can be organized where there is law authorizing o RCCP: Minimum capital amount of
their organization capital stock is removed.
4. Corporations with Public Interest
3. Joint Accounts- accidental partnership o RCCP: New Classification of
4. Business Trust Corporation vested w/ public interest w/
5. Joint Venture- for a specific purpose; governed appointed directors (20% of the BoD)
by laws on partnership 5. Composition and Qualifications of the
6. Cooperation BoD/BoD
7. Syndicate o RCCP
8. Homeowner’s association
 Stock:
9. Unincorporated Association
a. Minimum BoD= from 5 to 1
10. Corporations
b. Maximum BoD= 15
(retained)
Advantages of Corporations (CLC-TCP-SE)
 Non-stock- Maximum number
 Capacity to act as legal unit of BoT is removed
 Limitation of or exemption from individual liability  Residency requirement is
of shareholders- Investment = Liability removed
o Limited Liability Principle/Risk Aversion  Term extended from 1 to 3
years
 6. Voting by stockholders/members through  Special Corporations- also “Public
remote communication method and voting in Corporations”, corporations created by law or
absentia charters.
o For purposes of quorum Special Private
7. Stockholders’ Meeting Corporation Corporation
o RCCP: If not provided by the AoI = April As to its Law Operations of Law
15 of every year governing
8. Corporate Officers rule
o RCCP As to General public Profit
 In company vested w/ Public Purpose welfare
interest, there must be a o How to apply the law in Private
compliance officer Corporations?
 Treasurer must be a resident 1. Make an application to form your AoI
of the PH. 2. Submit application to the state
9. Vacancy in the BoD/BoT if there is no more 3. Issuance of the Certificate of
quorum Incorporation
o RCCP: Additional Scenario- when the  Quasi-Public Corporations- private
board cannot constitute quorum corporations with public purpose
(namatay/nawala ang uban members) o Note that they are still a private
the BoD (instead of stockholders corporation
through stockholders’ meeting) may o Test to determine if a corporation is
appoint temporary member of BoD private or public: Totality of the relation
 Qualification: Action is required of the corporation to the state
to prevent grave, substantial, o Can the congress create private
and irreparable loss/damage to corporations? NO (Constitutionally
the corporation. restricted under Art. XII, Section 16)
10. Electronic Filing and Monitoring System  Corporators- those who compose a corporation
Definition of terms  Incorporators- stockholders/members
 Corporation- an artificial being created by mentioned in the AoI originally forming the
operation of law, having the right of succession corporation or signatories thereof; Cannot be
and the powers, attribute and properties changed.
expressly authorized by law or incidental to its  Share of Stock- represents the
existence (Sec. 2, RCCP) interest/ownership of a stockholder and his
 Stock Corporations- those which have capital status in the corporation.
stock divided into shares and are authorized to o Total stock
distribute to the holders of such shares,
o Outstanding stock = issued stocks.
dividends or allotments of the surplus profits on
o Prima facie evidence is the Certificate
the basis of the shares held
o Divided into shares or capital stocks of Stock
 Expresses the contract between
(ownership)
the corporation and stockholder
o Distribute to holders such shares,
 Classification of Stocks (CP)
dividends or allotments of the surplus
o Common shares- represents the
profits
residual ownership interest in the
 Corporators- people who compose the
corporation.; basic class of stock w/o
corporation or have ownership over the
rights or privileges; entitles the
corporation.
shareholder to a pro-rata division of
o Stock Corporation=
profit
stockholders/shareholders
 May not be deprived of voting
 Who governs? Board of
rights. (except under Sec. 6,
Directors
RCCP)
o Non-stock corporation = members
 A corporation must have 1
 Who governs? Board of classification w/ complete voting
Trustees rights= common shares
 Main governing body of o Preferred Shares- given preference as
the Corporation to distribution of dividends or assets
o Officers= appointed by the BoD/BoT; for during liquidation
the day-to-day operations of the  May be deprived of voting
Corporation. rights.
 Do they need to be  Only preferred and
stockowners? NO. redeemable shares can be
 Exception: President deprived of their right to vote.
  Doctrine of Equality of Shares- all stokcs (quo
issued by the corp. are presumed equal w/ same warranto)
privileges and liabilities, provided that the AoI is  Requisites
silent. 1. Existen
DEFINITION OF CORPORATION (Sec. 2, RCCP) ce of
5 attributes of corporation: (ACSPS) valid
Artificial being law
 A corporation cannot act by itself, it needs official 2. Attempt
acts of natural persons to
 Corporation cannot be imprisoned by reason incorpor
that it has no physical body and is incapable of ate in
criminal intent. good
Created by operation of law faith
 What does it mean? 3. Assump
a. There must be a general enabling law tion by
(RCCP) the
b. There must be compliance of the enterpri
requirements of the law se of
c. The issuance of Certificate of Incorporation corpora
 Franchise- a privilege conferred by government te
authorities powers.
o Primary- authority to exist and operate  Corporation by
o Secondary/Special- to conduct operation Estoppel
and operate certain activities regulated  For
by the state purposes of
 Are all required to pay the franchise tax? NO. liability
Only those who exercise the secondary b. Genossenchaft Theory
franchise.  Recognizes the right of the
people to organize themselves.
 Special Corporations- created by special
c. Realist or Inherence Theoy
laws/Charters
 Limited liability principle
 GOCCS= must be stock/non-stock; may be
 There are certain acts a single
created by operation of law (w/o original charter)
person cannot do by themselves
or created by special law.
so they need to associate.
o Test to identify GOCC- must be owned by
d. Symbol Theory- a corporation is a
the government (majority of stocks, or symbol for the aggregate of the
majority of members) associated in their group personality.
o Can still be audited by COA Rights of succession
 Agency- anything under the government,  Ownership of a corporation can be transferred
including its units. through will.
 Instrumentality- agent of the government outside  Reason why corporations are capable of
its departmental framework. perpetual existence.
o Performs governmental functions o Perpetual existence
o Enjoys operational autonomy  Effect if perpetual term under
 Can Congress create a private corporation? No. BP 68 and Act. No. 1459
Again, Sec. 16, Art. XII  Deemed to have
 Theories pertaining to the creation of a perpetual existence
corporation (CGRS) upon RCCP’s effectivity
a. Concession Theory/Fiat Theory/ without any action on
Government Paternity their part.
Theory/Franchise Theory  What if it wants to
 Issuance of the charter creates amend the AoI to
a corporation as legal fiction. embody its perpetual
 Corporation owes its life to the existence?
state, its existence is dependent o Allowed through
on its wll. amendment w.
o Exception: requirements:
 De facto corporation 1. (Maj of
 Must be BoD + Maj
attack of OCS w/n
directly voting)
 2. Certificate o Deemed conferred
from SEC o Consequence of their existence
re voting o Examples: (SSNO)
3. Accomplish 1. Right to succession
ed before 2. Right to sue and be sued
Feb 23, 3. Right to have a corporate name
2021 4. Right to own properties
(effectivity  Although AoI does
of the not provide, it is
RCCP) deemed conferred.
 Can they also retain the  If exercised beyond its power, it amounts to ultra
50 years? vires meaning “without authority”
o Yes. Same  Does a major stockholder need secretary’s
requirement certificate to represent the corporation in
o Failure to exercising its power? YES.
comply: Treated  Does a president need secretary’s certificate to
as perpetual represent the corporation in exercising its
 General rule in power? NO. The authority of the president
amending AoI: Maj of comes from the AoI
BoD + 2/3 of OCS w/n o Exception: Selling properties of
voting corporation, filing suit, act of domion
o Exception: Separate Juridical Personality
1. Reflecting  Stockholder enjoys the principle of limited
the new liability: corporate debt is not the debt of the
perpetual stockholder.
term o Liability proportionate to what he
2. Retaining invested.
the original  Even if you are an officer of a corporation, it
corporate does not mean that your property is the property
term of the corporation.
 What if you want to  Piercing the veil of corporate fiction
change it to a specific o allows a person to disregard the
term? (Not perpetual
corporation’s separate personality.
and not retain)
 Prove that the corporation is
o Requirement is
being use to: DFA
the General rule 1. defeat public convenience as
in amending AoI when corporate fiction is used
 What if the corporate as a vehicle for the evasion of
term has already existing obligation.
expired? 2. Fraud cases or when the
o Revival of corporate entity is used to
corporate justify a wrong, protect fraud
existence may or defend crime.
be applied with  Can be applied in
o Upon approval unfair labor practices
by SEC. 3. Alter ego cases, where a
o Revival = corporation is merely a farce
perpetual since it is a mere alter ego or
existence business conduit of a person.
Power, attributes, and properties expressly  Tests:
authorized by law or incidental to its existence 1. Control/
Separate juridical entity Instrumentality test-
 Express power provided in: subsidiary be
o RCCP completely under the
o AoI control/dominion of the
o Applicable Special laws parent.
o Applicable administrative regulations 2. Fraud test- parent’s
 Implied powers conduct in using
o Powers necessary to carry out the subsidiary corporation is
purposes as stated in the AoI unjust, fraudulent or
 Incidental Powers wrongful.
 3. Harm test- the
fraudulent/illegal or
unfair manner towards
the plaintiff caused
harms suffered.
 Wrongdoing must be clearly and
convincingly established, not
presumed.
 Instances when corporate
director, trustee or officer is held
solidarily liable w/ the
corporation: (VW
a. When they vote/assent to
patently unlawful acts of the
corporation, acted in bad
faith or w/ gross negligence
in directing corporate affairs
and guilty of conflict of
interest to the prejudice of
the corporation.
b. When they consented to the
issuance of watered stocks
(with knowledge, did not file
objection).
c. When they contractually
agreed/stipulated to hold
themselves personally and
solidarily liable w/ the Corp.
d. When made by the law
personally liable for his
corporate action.
o Can we apply the doctrine of piercing
the veil of corporate fiction to natural
person? YES. Through Reverse Piercing
of a corporate veil.
 2 types:
1. Outsider – party claiming
attempts to be repaid w/
assets of a corp. owned or
controlled by the
defendant
2. Insider
 Doctrine of separate juridical personality still
applies to OPC.
 Doctrine of Corporate Responsibility and
Corporate Negligence- duty of the corporation
to monitor the performance and competence of
its employees.
o Award of Moral Damage cannot be
granted in favor of a corporation.
 Why? No senses, no emotions.
 Exception; if it has a good
obligation that is debased
(Obiter Dictum.
o Can a corporation be imprisoned for the
criminal violation of its persons?
 NO. Although you may impose
fine or revoke its license or
impose damages.
 Doctrine of the Rights of the Corporations
against unlawful search and seizure
oUnlawful search and seizure is Purely
personal.
o Documents, papers, things seized from
the office and premises of the
corporation belongs exclusively to the
corporation.
CLASSES OF CORPORATION
 Main Classification (only relevant to private
corps)
o Stock- capital stock divided into shares,
authorized to distribute dividends.
o Non-stock- all other corporations not
covered by the definition of stock
corporation.
 As to the number of the components
o Aggregate corporation- composed of
several people.
o Corporation sole- state’s recognition of
a certain entity for religious purposes
 Single member = head of
sect/church.
 How to determine nationality
of corporation sole?
Nationality of majority of its
constituents.
 Non-stock.
o One person corporation- single
stockholder; can onle be classified as
stock.
 Private vs. Public Corporation
o Special/Public- created and governed
by special laws/charters; for public
purpose.
o Private- all the other corporations,
created by operation of law.
 As to legal status
o De Jure- organized in accordance w/
law’s requirements.
o De Facto- defect in its application.
 Requisites:
1. Enabling law
2. Bonafide act/effort to
organize as corporation
(application for COI)
3. Issuance of CoI
 Can only be attacked directly
through quo warranto initiated
by the OSG
o Corporation by Estoppel-
unauthorized acting as a corporation
shall be liable for all debts, liabilities and
damages incurred.
 A person who contracted w/ a
non-existent corporation is
estopped to deny the latter’s
existence.
 As to laws of Incorporation
o Domestic Incorporation- formed,
organized or existing under PH laws.
 Others
o Close Corporations- AoI provides that:
  All corp’s issued stock exclusive o Enforcement of the Foreign Investment
of treasury shares shall be held Act of 1991
of record bt not more than a  Voting Control Test- look into the shares with
specified number of persons, voting rights.
not exceeding 20.  Full Beneficial Ownership test- look into the
 All the issued stock be subject voting rights + dividends and other kinds of
to 1 or more specified restriction benefits
on transfer. Grandfather rule
 The corporation shall not list in  Attributing the nationality of the second or
any stock exchange or make subsequent tier of the ownership to determine
public offering its stock of any the nationality of the corporate shareholder.
class.  Can only be applied if the Control Test is
 If 2.3 of the voting stock or complied with.
voting rights is owned/controlled  Corporate layering- the kind of set up to
by another corporation that is circumvent the constitutional and legal
not a close corporation, then it is requirement.
not deemed a close corp. CAPITAL STRUCTURE
o Subsidiary corp- more than 50% is Incorporators- originally forming and composing the
owned/controlled directly/indirectly by corporation and who are signatories of AoI
another corp (parent corp)  In the AoI, you cannot change the Incorporators.
o Affiliate Corp- controlled
 Number and qualifications of Incorprators:
directly/indirectly by another corp. o BP 68: 5-15
o Parent Corp- has control over another
o RCCP: 2-15 (Except OPC)
corporation directly/indirectly.
o Qualification
o Municipal Corps- also known as local
 Each incorporator of a stock
governments; not covered by RCCP
corporation must own or be a
o Ecclesiastical
subscriber to at least 1 share of
o Lay Corporations capital stock.
o Eleemosynary/Charitable  Subscribe = “promise to
o Civil buy a stock”
o Corporation by Prescription  Bought stocks =
NATIONALITY OF CORPORATIONS issuances of certificate
Place of Incorporation Test (PDW) of share
 General rule: A corporation is a national of the  For Non-stock= must be a
country where it is incorporated. member of the corp.
 This will not apply if there is an express foreign o Incorporators may be a combination of:
restriction or requirement of minimum Filipino 1. Natural person
ownership 2. SEC-registered partnership
Domicile Test 3. SEC- registered domestic
 Nationality is determined by the state where it is corporations or association/s
domiciled = principal office + place of business. 4. Foreign Corporations
 Test in ordinary civil matters o Foreigners and non residents can be
Wartime Test incorporators
 Nationality of the controlling stockholders.  Exception:
 Purpose: to know whether or not the corporation Statutory/Constitutional
is an enemy of the state restriction
 Context: PH is at war with Japan. o No minimum subscription requirement
Control test  The 25% subscribed and 25%
 Determine the nationality of a corporation with paid for the creation of a new
alien equity based on percentage capital owned corp was removed in the RCCP
by Filipino Citizen.  The minimum capital amount of
 Can only be applicable when there is an capital stock of 5,000 has been
enforcement/constitutional provision with removed.
regards to minimum Filipino o A corp can increase capitalization (issue
ownership/maximum foreign ownership more shares)
 If non-stock = members Corporate term
 Looks at the shares, immediate stockholder  Perpetual term
 Instances wherein the test is applicable  This may be shortened or extended.
o Enforcement of Sec. 11, Art. XII of the  Corporations incorporated under BP No. 68 (50
Constitution to the ownership of public years term)
utilities (60%) o Automatic deemed perpertual term
 o No need to amend, although you may
do so to reflect the perpetual term in
your AoI
 Amend your AoI through Maj of
the BoD + Maj of the OCS w/n
voting power
 Treasury shares
 Issued by the corp but were
bought back.
o Not considered an
OCS
 All issued shares are
outstanding shares
o Issued = subscribed
and paid
o Exception:
1. Subscribed
shares-
outstanding
although not
paid
2. Treasury
shares- issued
but not
outstanding.
 Specific corporate term
o Amendment of AoI
 Maj of BoD
+ 2/3 of
OCS w/n
voting
 What if the corporate term
already expired?
o Revival- must be
done with 2 years of
RCCP’s effectivity
CLASSIFICATION OF SHARES (CVPRF)
1. Common or preferred
2. Voting or nin-voting
3. Par value or no par value shares
4. Redeemable shares
5. Founder’s shares
 Where to find the classification of shares?
AoI and Cert of Stock.
 Status of shares:
o Treasury shares
o Subscribed shares- portion of the
authorized capital stock that are already
subscribed by shareholders.
 Unpaid
 Paid
 Common & Preferred Shares
o Common- represents the residual
ownership interest in the corp.
 May not be deprived of voting
rights.
 w/o Common shares, the
application for CoI will not be
granted.
o Preferred shares- given preference as
to distribution of dividents/assets during
liquidation.
 May be deprived of voting
rights.
o The AoI can issue shares more than
what is provided in the AoI. But it cannot
issue less than what is provided.
 Violative of the Trust Fund
Doctrine.
 Ang sobra kay “Additional in
Paid Capital or Share premium”
 Cannot be distributed
as dividend, only trust
fund.
o Unrestricted Retained Earnings- can
be distributed as dividends
o Preferred shares with Preference rate =
multiply par value to the rate.
 Cumulative vs. Non-cumulative
o Non-cumulative- will only receive
dividends for a certain year.
 Cumulative- will receive
dividends for the preceding
years w/o dividends.
o Only preferred or redeemable shares
can be deprived of voting rights.
o Participating- will receive both the
preference share and common share.
 Founders shares
o Usually granted to those who created
and organized the corporation.
o May be given rights and privileges not
enjoyed by other owners.
o If there is a provision that only founder
shares can be elected as directors it
must only be for 5 years w/in the date of
incorporation.
 Treasury Shares
o Status, not classification.
o Issued and fully paid but subsequently
acquired by the issuing corporation.
o Not considered OCS
 Not OCS = no right to vote
o May be reissued.
o Represented under the stockholders’
equity portion, not under the Asset.
o Rules governing treasury shares
1. May be issued and classified
against as outstanding as long as
not yet retired
2. Have no right to dividends
3. Cannot vote and cannot be
voted/represented during voting
4. There should be
restriction/appropriation of a portion
of unrestricted retained earnings
equivalent to the cost of reacquiring
treasury shares.
 Based on the Trust fund
doctrine
  Exception: redeemable shares
may be redeemed/reacquired
w/o the need of unrestricted
retained earnings.
o Power to acquire shares (Art. 40)
purpose: (Not an exclusive list)
1. Eliminate fractional shares
2. Collect/Compromise
indebtedness to the corporation
arising out of unpaid subscription, in
a Delinquency sale and to purchase
delinquent shares sold during the
said sale.
3. Pay dissenting/withdrawing
stockholder entitled to payment for
their shares under the provisions of
this code.
 Subscribed Shares
o Given a specific period to pay the
subscribed share, If beyond the time
given, but has not yet paid, can be
declared delinquent.
o What happens when a subscribed
shares is declared delingquent?
 Not entitled to the rights of the
shareholder except dividend
 Cash dividends will be applied
first to unpaid balance and if
stock dividends will be withheld
until paid.
 Redeemable Shares
o Can be redeemed even if no restrict
retained earnings or appropriate
retained earnings.
o There must be sufficient assets to cover
the debts and liabilities of the
corporation.
o May be
 Mandatory- required if you issue
redeemable shares to maintain
a sinking fund.
 Compulsory
 Voting or Non-voting
o Voting- Can vote
o Non-voting- cannot vote
 Exceptions (Sec. 6)- A non-
voting share can vote:
1. Amendment of the AoI
2. Adoption and Amendment of
By-laws
3. Sale, lease, exchange,
mortgage, pledge or other
disposition of all
substantially all corporate
property
4. Incurring, creating,
increasing bonded
indebtedness
5. Increasing or decreasing
authorized capital stock
6. Merger/Consolidation of
corp with another corp
7. Investment of corporate
funds to another corp or
business in accordance w/
this code
8. Dissolution of the Corp
an o Trust fund doctrine
 Subcriptions to the capital of a
corporation constitute a fund to
which creditors have the right to
look for satisfaction of their
claims and that the assignee in
insolvency can maintain an
action upon any unpaid stock
subscription in order to realize
assets for the payment of its
debts.
 Can only be use to buy assets,
pay creditors but never as
dividend.
 General rule: Shareholders
cannot be held liable for the
debt of the corporation
 Exception: if he/she has
unpaid subscription.
 Can also be applied to different
situations where there is a
violation of the money reserve
for the creditors.
 Otherwise, may be
cause of action:
1. Where debtor
corporation release
the subscriber to its
capital stock from
the obligation of
paying for their
shares w/o valuable
consideration or
fraudulently to the
prejudice of the
creditors
2. Where debtor
corporation is
insolvent or has
been dissolved w/o
providing the
creditors payment.
 Par value vs. Non par value shares
o Par-value shares
 There is par value mentioned in
the AoI and Certificate of Share
or
 Cannot be issued less than the
par value stated in the AoI
o Non- par value shares
 Cannot be issued less than 5
pesos
 Classes of corporations not
allowed to issue non-par value
shares:
1. Banks
 2. Trust companies
3. Insurance Companies
4. Preneed Companies
5. Public utilities
6. Building and Loan
Associations
7. Other Corporations
authorized to obtain/access
funds from the public
(whether publicly listed or
not)
 Issued price = price of the share
(fixed in the AoI)
 Valuation of shares:
o Market value- fair market value/current
value pertains to the value of shares
wherein a willing buyer is willing to buy
from the seller in an arm’s length
transaction.
o Book value- asset of the corporation
w/o liabilities, transposition, etc./ number
of remaining shares
 Asset = liabilities + capital
 Capital= provided by the owners
 Liabilities = provided by
creditors
o Liquidation value- value of the share
you will receive if the corporation is
liquidated
o Issued value- common shares
BEFORE INCORPORATION
 Incorporators- natural persons (of legal age)
and juridical persons
 Promoters & Underwriters- they will help one
sell the corporation and find investors
o Promoter- acting alone/with others take
initiative in founding and organizing the
business/enterprise of the issuer and
receives consideration thereof.
o Underwriter- person who guarantees
on a commitment and/or declared best
effort basis the distribution and sale of
securities of any kind by another
company.
 Subscription contract- will be signed by those
who will subscribe to the shares of the
corporation
o Is this contract valid even with the
absence of consent (wala pa nag exist
si Corp)? YES and irrevocable.
 The Civil Code will only be
applied suppletorily with the
Corporation Code.
o May either be:
1. Pre-incorporation subscription
2. Post-incorporation subscription
o A person can be a stockholder of a
corporation by acquiring a share
through:
1. Purchase (can also be referred as
issuance)- paid in whole amount;
immediate issuance of CoS
2. Subscription- not yet paid, but has
all the rights of a SH except the right
to be issued a CoS
o Subscription of share is not subject to
statutes of fraud. But the purchase of
shares is.
o Subscriber is not allowed to rescind a
subscription contract in violation of the
Trust Fund Doctrine, Corporation Code,
SEC rules and Rules of Court.
o Stock Options and Warrants’
 Stock option- privilege granted
to a party to subscribe toa.
Certain portion of the unissued
capital stock of a corporation
w/in a specified period and
under the terms and conditions
of the grant, exercisable by the
grantee at any time w/in the
period granted.
 Warrant- type of security
entitling the holder to the right to
subscribe to the unissued
capital stock of a corp or
purchase issued shares in the
future as evidenced by a
warrant certificate.
 Pre-Incorporation Subscription
o Subscription of shares still to be formed
o Irrevocable for a period of 6 months
unless:
 all subscribers consent to the
revocation, or
 Corporation fails to incorporate
w/in 6 months or longer period
stipulated in the CoS
o Cannot be revoked after the AoI is
submitted to the Commission
o How about if after the issuance of CoI?
No. Although not covered under the Sec.
60, it can be considered violative of the
Trust Fund Doctrine.
 Consideration for Stocks
o Actual cash
o Property
o Labor actually rendered
o Previously incurred liability of the
corporation
o Amounts transferred from unrestricted
retained earnings to stated capital
o Outstanding shares exchanged for
stocks in the event of reclassification or
conversion
o Guidelines in issuing shares of stock:
1. Shall not be issued less than the par
value/issued price
2. Shall not be issued in exchange of
promissory notes or future services
 3. Properties’ valuation shall be
determined by the stockholders or
the BoD subject to SEC’s approval.
o Watered Stock- stocks issued for a
consideration less than the par value or
the issued price.
CONTENTS OF AOI
 Name of the Corporation
o Can be amended
o Limitations:
1. Shall contain the word
“Corporation”, “Corp.” or “Inc.”
2. For OPCs= “OPC
3. For Partnership = “Company”, “Co”
a. If limited = “Limited” or “Ltd”
b. If professional = “Company”,
“Associates” or “Partners”
4. Foundation = “Foundation”
5. Engaged in Microfinance = ownership of capital stock has not been
“Microfinancing” or “Microfinance”
 Must be distinguishable from
that already reserved or
registered for the use of another
corporation/partnership
 If it describes the business of a
corporation in its name, it must
be the primary purpose.
 Business name different from
the corporate or partnership
shall be indicated in the AoI.
 A company may have.1
or more business/trade
name.
 An OPC may use his/her name
+ “OPC”
 Another person’s name
may be used, as long
as w/ his/her consent or
if decased, his estate’s
consent.
 Specific Purpose
o If more than 1, primary or secondary
shall be stated/
o Non-stock corp may not include a
purpose contradictory to its nature.
o A corporation cannot be organized
for the purpose of practice of
profession
 Place where the Principal Office of the Corp
is to be located, which must be in the PH
o For foreign corps = permanent resident
agent, specific places in PH where they
intend to operate
o Also the residences of their
incorporators, stockholders, directors or
trustee.
o Non-amendable items:
 Incorporators
 Original Pre-incorporation
subscribers
 Original set of directors/trustees
 Corporate term (see discussion above)
Amendments of AoI
 Maj of BoD + 2/3 of OCS w/n voting
 If Amendment of by-laws = Maj of BoD + Maj of
OCS w/n voting
 Shall take effect upon the approval of the SEC
or from the date of filing (if not acted upon w/in 6
months for causes not attributable to the corp)
 Grounds for disapproval:
o AoI/Amendments is not substantially in
accordance to the prescribed form.
o Purpose/s are patently unconstitutional,
illegal, immoral or contrary to gov’t rules
and regulations
o Certification concerning the amount of
Capital stock subscribed and/or paid is
false
o The required percentage of Filipino
complied with.
o The ff. corporations require the
favorable recommendation from
appropriate gov’t agency before the
approval of their AoI/Amendment:
1. Banks, banking and quasi-banking
institution
2. Preneed, insurance and trust
companies
3. Non-stock savings and loan
associations
4. Pawnshops
5. Other financial intermediaries
Registration, Incorporation and Commencement of
Corporate Existence
 Steps:
1. Incorporators shall submit intended
corporate name to SEC for verification.
2. Incorporators shall submit the AoI and By
laws to SEC. If compliant, SEC will issue the
AoI
o Issuance of AoI= date of the
commencement of the corporation’s
corporate existence.
 General rule: Corporation is created by
operation of law
o Exception:
 De facto Corp
 Corp by Estoppel
 Effects of Non-use of Corporate Charter and
Continuous Inoperation
o Violations of conditions subsequent:
1. Failure to organize w/in 5 years from
Incorporation.
2. Failure to commence business w/in
5 years from incorporation
3. Becoming continuously inoperative
for a period of at least 5 consecutive
years
 First two = automatic revocation
after SEC’s determination
  Third = only a ground for in a regular/special meeting
revocaction called for said purpose
 Must be place first in a a. May be revoked:
delinquent status maj of OCS in a
 If after 2 years, the meeting called for
corporation has not said purpose.
operated/explained to  Amendment shall only take
SEC = revocation. effect after SEC approval
 Meaning of “Commence its business” = o Election of Directors/Trustees and of
preparatory acts Officers
o Entering into contracts/negotiations for  Each stockholder/member shall
lease/purchase of properties to be used have the right to nominate
as business or factory site  May be participated through
o Making plans for and the construction of remote communication or in
the factory absentia
o Taking steps to expedite the  Vote = number of shares; 1 vote
construction of the company’s working = 1 member
equipment  Members of non-stock not cast
 Meaning of “to organize” more than 1 vote for a
o Adoption, filing by the corp and approval  Who may be voted?
 Possessing all of the
by the SEC of the corporate by-laws
after incorporation qualifications and non of
 Contents of by-laws: the disqualifications of
1. Time, place, manner of for the position of
calling and conducting director
regular/special meetings of o Stockholder
BoD/BoT o Legal Age
2. Time and manger of calling o Did not violate
and conducting RCCP
regular/special meetings  Take note of the
and mode of notifying the Founders’ Shares effect
stockholders/members  Is staggered election allowed?
3. Required quorum in  NO. Violative of the rule
meetings and manner of providing for the annual
voting therein election of directors.
4. Modes by which SH,  This was also removed
members, directors, by the RCCP
trustees may attend  How do stockholders/members
meetings and cast their vote?
votes  By attending the
 Guidelines: meeting
1. Must be consistent w/ the  Through proxy
Constitution, RCCP, other o Voting trust
laws and regulations. agreement-
2. Must be consistent with AoI assigned for a
3. Must not be contrary to definite term
morals/public policy  Remote communication/
4. Must not disturb vested In absentia
rights, impair contract or o Requirements:
property rights of  Authori
stockhiolders or members or zed by
create obligations not b-laws
sanctioned by law.  Authori
 2 ways to amend by laws zed by
1. Amendment by the Board + Maj of
Stockholders= Maj of BoD + BoD
maj of OCS w/in voting (in a  Corpora
regular meeting or special tion is
meeting called for said vested
purpose) w/Publi
2. Delegation to the Board =
w/ 2/3 of OCS w/n voting, in
 c o In the absence
Interest of provision,
 General rule for Stock authorized to
and Non-stock of votes receive funds,
o Only plurality of issue receipts
votes is and keep
required money of the
 Manner of elections in stock corporation.
corp  Compliance Officer (if
 Number of directors X vested with Public
Number of shares Interest)
entitled to vote = Total  Vice President
number of votes o In the absence
 General rule: Cumlative of the Pres/
voting- concentration of vacancy of the
one vote to one person. OP, has the
 Can a person holding authority to act
multiple shares as the President
distribute her votes to  Chairman of the BoD
multiple people? YES. o Presider of the
She can distribute her meeting
votes according to her o Can
discretion concurrently
 Manner of elections in non-stock hold the
corps position of Pres
 Number of trustees x  Bylaws may provide for
Members = total other positions such as
number of votes o General
 A member cannot manager
concentrate her 10 o Controller
votes to 1 person. o CFO
Casting more than 1 o COO
vote for 1 candidate is o CEO
not allowed.
 Who may remove the
 Jurisdiction over Election
president? BoD/BoT
contests = RTC designated as
Intra-Corporate Court  Corporate officers are
 Corporate Officers not regular employees
 President o 2 circumstance
o Director to be
considered
o Stockholder
Corporate
o cannot hold
Officer:
position of 1. Posiion is
treasurer or created
secretary at the under the
same time charter/by-
 Secretary/Corporate law
Secretary 2. Election of
o Resident & Officer is by
Citizen the
o Main function: Directors/St
keep corporate ockholders
records and  Removal of Corporate Officers
make proper o How to determine if the
entries dispute falls w/in the ambit
 Treasurer of the RTC:
o Resident of the 1. Relationship Test
PH a. Between court &
o Takes care of public
the funds b. Between corp & SH
 c. Between corpo &
state
d. Among SH
2. Nature of Controversy
test
a. In the enforcement
of the rights and
obligations under
the Corp Code and
Internal and
Intracorporate
regulatory rules of
the Corp.
o No Officer can validly bind
the Corp w/o express
authority from BoD
 Board Resolution is
required
 Exception:
Doctrine of
Apparent
authority
 2 kinds of authority
 Actual-
express in
by laws or
resolutions
 Apparent-
can be
imlied by
acquiesce
 Based on
the principle
of estoppel
o Establishment of Principal Office
o Providing for the subscription and
payment of the capital stock
o Taking such steps as are necessary to
endow the legal entity w/ capacity to
transact the legitimate business for
which it was created.