CORPO - DIMAAMPAO REVIEWER NOTES
A. General Principles
B. De Facto Corporations vs. Corporations by Estoppel
• CORPORATION
o An artificial being created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to its
existence.
o Attributes
• Artificial being
• Created by operation of law
• Has right of succession
• Has powers, attributes, properties conferred by law or incident to its
existence
o Doctrines
• Separate Juridical Personality
§ A corporation has a legal personality separate and distinct from that
of the people comprising it.
• Limited Liability
§ The corporate debt is not the debt of the stockholder.
• Alter Ego (a.k.a. Instrumentality Theory)
§ The corporate personality may be disregarded, and the individuals
composing the corporation will be treated as individuals, if the
corporate entity is being used as a cloak or cover for fraud or
illegality; as a justification for a wrong; as an alter ego, an adjunct,
or a business conduit for the sole benefit of the stockholders.
§ Elements:
• CONTROL. Control amounting to complete domination of
finances, policy, and business practice with respect to the
transaction attacked, effectively espousing that the
corporate entity has no separate mind, will, or existence of
its own;
• FRAUD. Such control had been used to commit fraud or
wrong, perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in
contravention of a legal right; and
• HARM. The control and breach of duty must have
proximately caused the injury or unjust loss complained of.
• Piercing the Veil of Corporate Entity
§ The veil of corporate fiction, i.e., corporations have personalities
separate and distinct from the persons composing it, may be
pierced if it is used:
• To defeat public convenience; (i.e., to avoid liability)
• To justify a wrong, protect fraud, or defend a crime; or
• In alter ego cases (as mentioned above)
• Vicarious Liability of Employers
§ Employers may be relieved of responsibility for the negligent acts of
their employees if they can shoe that they observed all the diligence
of a good father of a family to prevent damage.
• Grandfather Rule
§ The percentage of Filipino equity in a corporation engaged in
nationalized and/or partly nationalized areas of activities is
computed by attributing the nationality of the second or even
subsequent tier of ownership to determine the nationality of the
corporate shareholder.
§ The combined totals in the Investing Corporation and the Investee
Corporation must be traced, i.e., "grandfathered" to determine the
total percentage of Filipino ownership.
o Liabilities
• Tort
§ Yes, when act committed by an officer or agent under express
direction or authority from the stockholders or members acting as a
body, or generally, from the directors as the governing body.
• Crime
§ No; a corporation is an artificial being incapable of intent, which
cannot be held criminally liable nor receive the penalty of
imprisonment.
• Exception
• Anti-Money Laundering Act
• A corporation may be held criminally liable
for violation(s) thereof; the responsible
officers therefor shall respond to the
charges.
 CORPO - DIMAAMPAO REVIEWER NOTES

§ Corporate officers or employees, through whose act, default, or § Domestic Corporation - one formed, organized, or existing under Philippine
omission the corporation commits a crime, may themselves be law.
individually held answerable for the crime. § Foreign Corporation - one formed, organized, or existing under laws OTHER
• Damages THAN those of the Philippines' and whose laws allow Filipino citizens and
GENERAL RULE EXCEPTION corporations to do business in its own country or State.
• As to how it is created and its function -
Corporations may not be awarded moral damages, Libel, slander, any § Private - generally created under the provisions of the RCC< for profit or
being artificial entities and not natural persons who other form of other private purpose.
suffer physical injury, etc. defamation. § Public - created under special laws and the Local Government Code; usually
created for the government or a portion of the State and for the purpose of
o CLASSES OF CORPORATIONS
serving the general good and welfare.
• As to existence of stocks -
§ Stock corporation - has a capital stock divided into shares and is authorized • As to the relationship of management and control -
§ Parent - corporations controlling financial interest of one or more
to distribute to the holders of such dividends or allotments of the surplus
profits on the basis of shares held. corporations.
§ Subsidiary - corporation controlled by the parent corporation; so related to
§ Non-stock corporation - no part of income distributable as dividends to its
members, trustees, or officers; not organized for profit, but for public good another that the majority of its directors can be elected either directly or
indirectly by such other corporation.
and welfare.
§ Affiliate - one related to another by owning or being owned by common
• As to legal status -
management or by a long-term lease of its properties or other controlled
§ De Jure Corporation
device.
• Organized in accordance with the requirements of the law
• Also known as corporations that are "controlled," "controlling," or
• SUBSTANTIAL COMPLIANCE
"under common control."
§ De Facto Corporation - corporation where there exists a flaw in its
§ Holding - one which controls another as a subsidiary by the power to elect
incorporation
management; holds stocks in other companies for purposes of control
• Requisites
rather than for mere investment.
• Existence of a valid law under which it may be incorporated;
• As to whether it is for religious purpose or not -
• An attempt in good faith to incorporate or comply with the
§ Lay - organized for a purpose other than religion
formalities of the law; and
§ Ecclesiastical - organized for religious purposes
• Use of corporate powers.
• Eleemosynary corporation - established for charitable purposes
• COLORABLE COMPLIANCE
• Corporation sole - one established for the purpose of administering and managing,
• Cannot be attacked collaterally, only directly.
as trustee, the affairs, property, and temporalities of any religious denomination,
• Corporation by estoppel - a group of persons who assume to act as a corporation
knowing it to be without authority to do so; "By estoppel" because such persons are sect, or church.
• One person corporation - a corporation with a single stockholder which may be a
estopped from claiming lack of corporate life to avoid liability.
natural person, trust or estate.
• Corporation by prescription - one not formally organized but has been recognized by
o SOLE PROPRIETORSHIP: a form of business organization conducted for profit by a single
immemorial usage as a corporation, with rights and duties under the law.
individual and requires its proprietor or owner to secure licenses and permits, register its
• As to laws of incorporation -
 CORPO - DIMAAMPAO REVIEWER NOTES

business name, and pay taxes to the national government; the law does not vest a separate o CORPORATE NATIONALITY
legal personality nor empower it to file or defend an action in court. • Place of incorporation test
o Factors to Consider in Determining W/N a Subsidiary is a Mere Conduit of its Parent § Corporations are considered nationals of the country where they are
Corporation: incorporated, regardless of the nationalities of their stockholders
• Ownership of capital stock • Control test (applicable only in certain instances)
• Common directors or officers § War - nationality of corporation is determined by the nationality of its
• Finances controlling stockholders
• Subscription to capital stock § Exploitation of Natural Resources - only Filipino corporations may do so;
• Incorporation requirement is at least 60% of capital stock should be Filipino-owned
• Capital § Public utilities - same rule as in Exploitation of Natural Resources
• Salaries and other expenses or losses of the subsidiary § Investment purposes - same rule as in Exploitation of Natural Resources
• Business(es) and asset(s) ***those corporations who do not meet the 60%
• Articles of Incorporation Filipino ownership threshold shall be considered as
• Properties non-Filipino owned corporations.
• Interests o Term Definitions
• Conformity with Formal Legal Requirements • CAPITAL - shares which are entitled to vote; non-voting shares not included; thus, in
o STEPS IN PIERCING THE VEIL OF CORPORATE FICTION reference to COMMON shares only; preferred shares are generally not included
• Show adequate ground exists unless given the right to participate in the control or management of the
• Disregard the separate personality of the corporation corporation, as is evidenced by one's right to vote in the election of directors.
• Hold corporate officer liable for corporate obligation o SEC-MC No. 8, "Guidelines on Compliance with the Filipino-Foreign Ownership
• Regard corporation as an association of persons or in case of two corporations, treat Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged
them as one and hold them liable as such in Nationalized and Partly Nationalized Activities."
o REVERSE PIERCING (also reverse corporate piercing or piercing the corporate veil "in • All covered corporations shall, at all times, observe the constitutional or statutory
reverse") ownership requirement. For purposes of determining compliance therewith, the
• Where plaintiff seeks to reach the assets of a corporation to satisfy claims against a required percentage of Filipino ownership shall be applied to BOTH (a) the total
corporate insider. number of outstanding shares of stock entitled to vote in the election of directors;
• Corporations shall be liable for the debt of shareholders. AND (b) the total number of outstanding shares of stock, whether or not entitled to
• KINDS OF REVERSE PIERCING vote in the election of directors. (Voting Control Test/Controlling Interest
§ Outsider Requirement)
• When a party with a claim against an individual or corporation C. Corporate Powers
attempts to be repaid with assets of a corporation owned or • Powers of a Corporation, as per the Theory of General Capacity
substantially controlled by the defendant. o Sue and be sued in its corporate name;
§ Insider o Have perpetual existence, unless COI provides otherwise;
• The controlling members will attempt to ignore the corporate o Adopt and use personal seal;
fiction in order to take advantage of a benefit available to the o Amend AOI;
corporation, such as an interest in a lawsuit or protection of o Adopt bylaws;
personal assets.
 CORPO - DIMAAMPAO REVIEWER NOTES
o Issue or sell stocks to subscribers (Stock Corporations);
o Sell treasury stocks in accordance with the provisions of the RCC (Stock
Corporation);
o Admit members to the corporation (Nonstock Corporations);
o Purchase, receive, take, or grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal property as the transaction of the lawful
business of the corporation may reasonably and necessarily require;
o Enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and judicial persons;
o Make reasonable donations, as long as not for the aid of political parties or
candidates, or some partisan political activity, if foreign corporation;
o Establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers, and employees; and
o Exercise such other powers as may be essential to or necessary to carry out its
purpose or purposes.
• Specific Powers of a Corporation
o Extend or shorten corporate term;
o Increase or decrease capital stock;
o Incur, create or increase bonded indebtedness;
o Deny preemptive right;
o Sell, lease, exchange, mortgage, pledge, or otherwise dispose of all or substantially
all of its property, assets, and goodwill;
o Purchase or acquire own shares;
o Invest in another corporation or business or for any purpose other than the primary
purpose;
o Declare dividends;
o Enter into management contracts; and
o Amend Articles of Incorporation.
• What is an ultra vires act? It is an act committed outside the purpose for which a
corporation is created, as defined by the law and its organization. To wit, it is an done by a
corporation which is beyond the powers conferred upon it.
o Generally null and void; cannot be given any effect.
o However, ultra vires acts may be validly ratified. To effect such, all stockholders
must consent to the ratification; the rights of the State should not be involved;
creditors should not be prejudiced; the act or contract must be wholly executed.
• When concurrence (Majority of the Board + 2/3 Vote of Stockholders representing
Outstanding Capital) of stockholders necessary for the exercise of corporate powers: ***
o Extension or shortening of corporate term;
o Increase or decrease of capital stock;
o Incur, create, or increase bonded indebtedness;
o Sell, dispose, lease, encumber or dispose all or substantial all corporate assets;
• How to determine if "all"?
§ Based on net asset value, as shown in latest financial statements;
§ If thereby the corporation would be rendered incapable of
continuing the business of accomplishing the purpose for which it
was incorporated.
o Invest in another corporation, business other than the primary purpose;
o Declare stock dividends;
o Merger/consolidation;
o Amend AOI;
• Majority of Stockholders Holding Capital Stock (+ Approval of Director, but not necessarily
a majority vote of the Board of Directors) Necessary for the Following: ***
o Fixing of compensation of directors;
o Adoption of bylaws;
o Election of directors or trustees;
o Fixing the issued price of no-par value shares;
o Filling of vacancies in the Board; and
o Entering into management contracts.
*** only when stock dividends are declared that consent of stockholders
needed for declaration to be made.
• Procedure to Secure Abovementioned Approvals:
o Notice to Board of Directors and Stockholders, informing them that a meeting has
been set with the proposed investments as agenda;
o Notice to stockholders, mailed, or served personally.
• NEIL DOCTRINE
o Where one corporation sells or otherwise transfers all of its assets to another
corporation, the latter is not liable for the debts and liabilities of the transferor,
EXCEPT:
• Where the purchaser expressly or impliedly agrees to assume such debts;
• Where the transaction amounts to a consolidation or merger of the
corporation;
• Where the purchasing corporation is merely a continuation of the selling
corporation; and
 CORPO - DIMAAMPAO REVIEWER NOTES
• Where the transaction is entered into fraudulently in order to escape
liability from such debts.
• TRUST FUND DOCTRINE
o Capital stock, property and other assets of the corporation are regarded as equity in
trust for the payment of the corporate creditors; the subscribed capital stock of the
corporation is a trust fund for the payment of the debts of the corporation which
the creditors have the right to look into to satisfy their credits, and which the
corporation may not dissipate.
• Exceptions
§ Distribution of corporate capital ALLOWED in these instances:
• Amendment of the AOI to reduce authorized capital stock;
• Purchase of redeemable shares by the corporation;
• Dissolution and eventual liquidation of the corporation;
• Dividends from investments in wasting asset corporation
• What is a wasting asset corporation? One solely or
principally engaged in the exploitation of "wasting
assets," distributing net proceeds from
exploitation of their holdings, without allowance
or deduction for depletion.
• In case of deadlock (For Close Corporations)
• Purchase own shares of stock
• Payment for the fair value of the shares of dissenting
stockholders.
o Corporations shall have no legal capacity to release original subscriber from the
obligation of paying for his shares without a valuable consideration, or fraudulently,
to the prejudice of creditors.
• Cumulative Participating Preferred Shares - those which entitle the shareholder to: (1)
receive current and back dividends not previously paid; and (2) participate with the common
shares after receiving its dividends at a preferred rate.
D. Board of Directors and Trustees
• DOCTRINE OF CORPORATE DEMOCRACY
o A corporation is always presumed to operate upon the democratic principle that the
rule of the majority prevails, in the absence of clear and express statutory provisions.
• BUSINESS JUDGMENT RULE
o Corporate businesses are conducted and properties of the corporation are controlled
and held by the Board of Directors or Trustees.
o General Rule: Officers cannot be held personally liable with the corporation,
whether civilly or otherwise, for the consequences of his acts, if he acted for and in
behalf of the corporation, within the scope of his authority and in good faith.
o Exception: The director/trustee or officer is personally and solidarily liable if he:
• Willfully and knowingly votes for or assent to patently unlawful acts of the
corporation;
• Is guilty of gross negligence or bad faith in directing the affairs of the
corporation;
• Acquires any personal or pecuniary interest in conflict with his duty as such
director or trustee;
• Acquires a business opportunity which should belong to the corporation,
thereby obtaining profits to the prejudice of such corporation;
• Consents to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written
objection thereto;
• Contractually agrees or stipulates to hold himself personally and solidarily
liable with the Corporation; and/or
• Is made, by specific provision of law, personally liable for his corporate
action.
• Qualifications of Directors or Trustees
o Legal age;
o Ownership of at least one (1) share of the capital stock of the corporation which he
is a director, which share shall stand in his name on the books of the corporation;
o Must not be:
• Convicted by final judgment of an offense punishable by imprisonment for a
period exceeding six (6) years;
• A violation of the RCC committed within five (5) years prior to the date of his
election or appointment;
• For violating R..A. No 8799 (Securities Regulation Code);
• Found administratively liable for any offense involving fraudulent acts;
• By a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated above.
o Must possess other such qualifications prescribed in the bylaws.
• Process for Voting Directors or Trustees
o Required is the presence, in person or through a representative authorized to act by
written proxy, the owners of majority of the outstanding capital stock or the
members entitled to vote.
 CORPO - DIMAAMPAO REVIEWER NOTES
o Available Means of Voting
• Straight - stockholder votes such number of shares for as many persons as
there are directors to be elected;
• Cumulative (for one candidate) - stockholder may cumulate his shares and
give one candidate as many votes as the number of directors to be elected
multiplied by the number of his shares; or
• Cumulative (by distribution) - stockholders may distribute his shares among
as many candidates he shall see fit.
§ NO TO DELINQUENT STOCKS
§ Not allowed in Nonstock Corporations.
o Quorum in Board Meetings
• Majority of the number of directors or trustees as fixed in the articles of
incorporation;
§ Applicable unless the AOI or bylaws provide for a greater majority.
o Corporate Officers to be Elected
• President - must be a director
• Treasurer - must be a resident
• Secretary - must be a citizen and resident of the Philippines
• Such other officers as may be provided in the bylaws
• Compliance officer - only if so elected by a corporation vested with public
interest;
*** same person may hold two or more positions concurrently; HOWEVER, no one may act as
president and secretary or president and treasurer AT THE SAME TIME, unless otherwise allowed by
the RCC
o Within 30 days from election, the names, nationalities, shareholdings, and residence
addresses of the directors, trustees, and officers elected must be submitted to the SEC.
o Consequence of non-holding of elections
• Such must be reported to the SEC within 30 days from the date scheduled. Contents
of the report must include a new date, not later than 60 days from the originally
scheduled date.
• If no new date is scheduled, or if the new schedule is not followed as well, the SEC,
upon application of a stockholder/member/director/trustee, and after verification
of the non-holding, may summarily order that an election be held.
• REMOVAL AND FILLING UP OF VACANCIES IN THE BOARD
o Requisites for Removal
• A director may be removed:
§ By a vote of the stockholders holding at least 2/3 of the outstanding
capital stock, or if in non-stock corporation, by a vote of at least 2/3
of the members entitled to vote;
§ In case of meetings held precisely for this purpose, previous notice
must be given to stockholders on the intention to remove; and
§ With or without cause; except if removal is to deprive minority of its
representation, it must be for a cause.
o Requisites for Filling up Vacancies
• Vacancies may be filled up:
§ By a majority of the board, if there is still a quorum, for causes other
than removal of a director or expiration of his term;
§ By stockholders/members - if there is no more quorum, and if the
vacancy is due to the removal or other causes.
o Prescribed Periods Therefor
• Vacancies due to term expiration - no later than 60 days from day of such
expiration, at a meeting called for that purpose.
• Vacancies due to removal by the stockholders or members - election may be
held on the same day of the meeting authorizing the removal.
• All other cases - not later than 45 days from time vacancy arose.
o Special Terms to Take Note Of
• Replacement Director/Trustee - director/trustee elected to fill a vacancy,
who shall only serve for the unexpired term of the predecessor in office.
• Emergency Board - created when vacancy prevents the remaining directors
from constituting a quorum and emergency action is required to prevent
grave, substantial, and irreparable loss or damage to the corporation;
creation thereof must be reported to the SEC within 3 days, stating the
reason for such.
• Interlocking Director - a director in two or more corporations.
§ Contracts entered into by such a director generally valid UNLESS his
interest is substantial in one corporation (at least 20% of the OCS)
and nominal in the other (less than 20%);
• Contracts entered into by the latter kind of interlocking
directors MAY still be valid, provided:
• Presence of board/trustee in the board meeting in
which the contract was approved was not necessary
to constitute a quorum for such meeting;
 CORPO - DIMAAMPAO REVIEWER NOTES
• The vote of such director or trustee was not
necessary for the approval of the contract;
• The contract is FAIR AND REASONABLE under the
circumstances.
• DOCTRINE OF CORPORATE OPPORTUNITY
o GENERAL RULE: Disqualifies a director/trustee/officer from appropriating for his
personal benefit a transaction or opportunity that pertains to a corporation, and
which under the duty of loyalty he should first bring to the corporation for its use or
exploitation.
o EXCEPTION: Directors need not refund the profits if his act is ratified by a vote of
the stockholders owning or representing at least 2/3 of the outstanding capital
stock.
• On Contracts Entered into by Corporations with their Director(s)/Trustee(s)/Officer(s)
o GENERAL RULE: VOIDABLE
o EXCEPTION: When the following conditions are present---
• The presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
• The vote of such director or trustee was not necessary for the approval of
the contract;
• WHICH IS FAIR AND REASONABLE UNDER THE CIRCUMSTANCES;
• In case of corporations vested with public interest, material contracts are
approved by at least 2/3 of the entire membership of the board, with at
least a majority of the independent directors voting to approve the material
contract; and
• In case of an officer, the contract has been previously authorized by the
board of directors.
o When any of the first three abovementioned requirements for the exception to apply
is not present, a contract may still be ratified provided the following conditions are
met:
• Stockholders representing at least 2/3 of the capital stock or of at least 2/3
of the members in a meeting called for the purpose must vote to ratify or
approve the contract;
• Full disclosure of the adverse interest of the directors or trustees involved is
made; and
• THE CONTRACT MUST BE FAIR AND REASONABLE.
• Corporate Powers That May Not Be Delegated
o Approve action requiring concurrence of stockholders;
o Fill up vacancies in the board;
o Adopt new bylaws;
o Amend or repeal bylaws;
o Amend or repeal board resolutions (which, by its express terms, cannot be amended
or repealed); and
o Distribute cash dividends to the shareholders.
• DOCTRINE OF APPARENT AUTHORITY
o Though an officer or agent acts without, or in excess of, his actual authority, if he
acts within the scope of an APPARENT authority with which the corporation has
clothed him by holding him out or permitting him to appear as having such
authority, the corporation is bound thereby in favor of a person who deals with him
in good faith in reliance on such apparent authority.
o How AA derived?
• General manner in which the corporation holds out an officer or agent as
having the power to act or the "apparent authority" to act in general, with
which it clothes him; OR
• The acquiescence of his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the scope of his
ordinary powers.
E. Stockholders and Members
F. Capital Structure
• Classifications of Shares of Stock
o Common - represents the residual ownership interest in the corporation; a basic
class of stock ordinarily and usually issued without extraordinary rights and
privileges, and the owners thereof are entitled to a pro rata share in the profits;
SHARES WHICH HAVE THE RIGHTS TO VOTE, DIVIDENDS, AND EXAMINE CORPORATE
BOOKS.
o Preferred - may enjoy a right of preference in dividends, voting, corporate property
upon dissolution, or such as may be stated in the AOI or as determined by the
Board. PAR VALUE ONLY.
• Cumulative - entitles shareholder to recover dividends in arrears.
• Non-cumulative - entitles shareholders to receive present dividends, not
arrears.
• Participating - entitles shareholder to participate with common shares after
receiving its dividends at a preferred rate.
 CORPO - DIMAAMPAO REVIEWER NOTES

• Non-participating - no such participation granted. • Indorsement by the owner or his attorney-

• Cumulative Participating - a combination of cumulative and participating. in-fact, or other legally auth’d person.
o Par Value - with fixed value as stated in the AOI; nominal value shall remain • RIGHTS OF A STOCKHOLDER
regardless of corporation's profitability. • Direct/indirect participation in corporate management;
o No Par Value - with no assigned value; value dependent on changes in the profits of • Voting rights;
the corporation and the market value of the shares themselves. • Right to remove directors; Appraisal Right – that of a stockholder to withdraw
o Founder's - classified as such in the AOI; for a limited period of not more than 5 • Proprietary rights: from the corporation + demand payment of the fair
years from SEC approval only. • To dividends; value of his shares ff. dissent on certain corporate acts;
o Redeemable - shares which may only be issued when expressly authorized by the • Appraisal rights; CANNOT BE REMOVED BY CORP’S ARTS OF INCORP.
AOI; may be purchased or taken up by the corporation upon expiration of a fixed • To issuance of stock certificate for fully paid shares;
period, etc. • Proportionate participation in distribution of assets in liquidation;
o Treasury - those issued and fully paid for, but subsequently reacquired by the issuing • To transfer of stocks in corporate books; and
corporation by purchase, redemption, donation, or some other lawful mean; NOT • Preemptive rights.
ENTITLED TO DIVIDENDS NOR RIGHT TO VOTE, unless reissued. • Remedial rights:
o Escrow - those subject to an agreement whereby the shares are deposited by the • To inspect books and records;
grantor or his agent with a third person too be held by the latter until the • To be furnished most recent financial statement/report;
performance of a certain condition. • To recover stocks unlawfully sold for delinquent payment of subscription;
• WATERED STOCK - a stock issued for a consideration less than its par or issued value, or for and
a consideration in any form other than cash, valued in excess of its fair value; issuance • To file individual, representative, and derivative suits.
thereof is a violation of the Trust Fund Doctrine. • Voting Stock Agreement – confers upon trustee(s) the right to vote, etc. for a period not
*** director(s)/officer(s) of a corporation who CONSENTS TO THE ISSUANCE OF STOCKS FOR A exceeding five (5) years at any time: PROVIDED, in cases of voting trusts specifically required
CONSIDERATION LESS THAN ITS PAR/ISSUED VALUE; or CONSENTS TO THE ISSUANCE OF STOCKS FOR as a condition in a loan agreement, such may exceed five (5) years but shall automatically
A CONSIDERATION OTHER THAN CASH, valued in excess of its fair value; or having knowledge of the expire upon full payment of the loan.
insufficient consideration, DOES NOT FILE A WRITTEN OBJECTION WITH THE CORPORATE SECRETARY • Must be (a) in writing; (b) notarized; and (c) specific in re: terms & conditions
shall be liable to the corporation or its creditors, solidarily with the stockholder concerned for the • General Rule: Preferred and redeemable shares may be deprived of voting rights
difference between the value received at the time of issuance of the stock and the par or issued • Exceptions:
value of the same. • AOI amendment;
• What is a Certificate of Stock? A written evidence of ownership of shares of stock; will not • Bylaws adoption & amendment;
be issued to a subscriber until the full amount of his subscription + interest and expenses, if • Sale, lease, exchange, mortgage, pledge, other disposition of all or substantially all
any, has been paid. corporate property;
* Generally, stock-
• DOCTRINE OF EQUALITY OF SHARES • Incurring/creating/increasing bonded indebtedness;
holders cannot
• Where the AOI do not provide for any distinction of the shares of stock, all shares • Increase/decrease of capital stock;
compel corporations
issued by the corporation are presumed to be equal and enjoy the same rights and • Merger/consolidation;
to declare dividends,
privileges, subject to the same liabilities. • Investment of corporate funds in another corp./busns; and
* for transfer to be binding on corp., a merely discre-
• Exclusive Mode of Transferring Shares of Stock • Dissolution of corporation.
transfer must be recorded in corp. books! * tionary act on the
• Delivery of the certificate(s); and • DECLARATION OF DIVDENDS proper when:
part of the BOD.
• There is a resolution of the board; or
 CORPO - DIMAAMPAO REVIEWER NOTES

• A majority of board w/ concurrence of • Representative Suit – filed by shareholder in his AND other similarly situated
2/3 of outstanding capital. stockholders’ behalf, against corp.
• ON SURPLUS PROFITS • Derivative Suit – 1+ stockholders/members filing in name and on behalf of corp. to
• Stock corporations are prohibited from retaining surplus profits in excess of 100% of redress wrong committed against it, OR protect/vindicate corporate rights when
their paid-in capital, unless: officials refuse to sue/are ones to be sued/have control of the corporation.
• Justified by definite corporate expansion projects/programs approved by • REQUISITES:
BOD; or 1. Subsisting stockholder/member;
• When corporation is prohibited under any loan agreement with a financial 2. Demands to sue;
institution or creditor from declaring dividends w/o their consent; or 3. Having exhausted all intra-corporate remedies;
• When it can be shown that such retention is necessary under special 4. In the name of the corporation.
circumstances obtaining in the corporation • Right to Inspect Corporate Books and Records
• BOD may declare due and payable unpaid subscriptions AT ANY TIME; may also collect the • Conditions:
same or such percentage thereof as it may deem necessary; • Confidentiality Rules apply;
• Failure to pay shall result in loss of right: • Only available to stockholders and/or members of record; and
• To be voted for; • Not available to competitors, directors, officers, controlling stockholders,
• To vote; etc. representing interests of a competitor.
• To representation at any • REMEDY IN CASE OF DENIAL: report to Commission who shall investigate and issue
stockholder’s meeting; and relevant order within five (5) days.
• To all proprietary and Not included: Right to dividends, G. Dissolution & Liquidation
remedial rights. w/c extends until eventual sale of stock • MODES OF DISSOLUTION:
• REMEDIES TO ENFORCE PAYMENT OF STOCKS a. Voluntary;
• Extrajudicial sale at public auction/delinquent sale; i. Where no creditors affected
• Judicial action; and
1. Majority vote of BOD/BOT + reso adopted by affirmative vote
• Collection from cash dividends & withholding of stock dividends.
of majority stockholders/members of meeting called by board;
• Preemptive Right [old stockholder > (potential) new stockholder]
• to subscribe to all issues or disposition of shares of any class, in proportion to their
2. Verified request for dissolution to be filed with SEC, stating:
respective shareholdings so as to enable the stockholder to retain his proportionate a. Ratio;
control in the corporation or to retain his equity in the surplus. b. Form, manner, time notices given;
• NOT AVAILABLE WHEN: c. Names of approving stockholders &
• Shares to be issued in compliance with laws requiring stock offerings or directors/members & trustees;
minimum stock ownership by the public; d. Date, place, time of meeting when vote made; and
• Shares to be issued in good faith in exchange for property needed for e. Details of publication.
corporate purposes or in payment of a previously contracted debt; and 3. Other documents to be submitted to SEC for dissol. Purposes:
• When right denied by AOI. a. Copy of reso auth’ng dissol, certif’d by majority of
• STOCKHOLDERS’ RIGHT TO SUE
BOD/BOT & countersigned by corp sec.;
• Individual Action – in own name, against corp.
b. Publication proof; and
 CORPO - DIMAAMPAO REVIEWER NOTES
c. Favorable recommendation from appropriate
regulatory agency, if necessary
i. When necessary? For banks, banking & quasi-
banking institutions, preneed/insurance/trust
companies, NSSLAs, pawnshops, etc.
4. Approval of request + issuance of cert of dissol w/in fifteen
(15) days from receipt of request
- ministerial IF no withdrawal w/in same period
- Note: dissolution effective only upon issuance of cert
ii. Where creditors affected
1. Stockholders representing at least 2/3 of the outstanding
capital stock; OR 2/3 of the members of a non-stock
corporation MUST VOTE TO DISSOLVE THE CORP.:
2. MEETING
3. Filing of PETITION TO DISSOLVE
a. Signed by majority of board, etc.;
b. Verified by president/secretary/director;
c. Accompanied by (1) certified and countersigned copy
of dissolution reso; and (2) list of all creditors; and
d. STATING (1) ratio; (2) form, manner, time when notices
given; & (3) date, place, time of mtg when vote made.
4. Fixing of date for objections
- only if petition sufficient in form
- date shall not be less than thirty (30) days nor more than
sixty (60) days after entry of order
5. PUBLICATION of order
- at least 1x a week for 3 consecutive weeks in municipality
or city where principal office of corporation situated (or
newspaper of gen. circ.) BEFORE DATE FOR OBJECTIONS
- copy thereof to be published for same period of time in
three (3) other public places in same municipality/city
6. HEARING
7. SEC JUDGMENT
b. Involuntary;
GROUNDS
1. Non-use of corporate charter;
2. Continuous inoperation;
3. Lawful court order dissolving corporation;
4. Finding by final judgment corp procured incorp thru fraud; &
5. Finding by final judgement that the corporation:
a. Was created for purpose of committing/concealing/
aiding commission of securities violations/smuggling/
tax evasion/money laundering/graft & corrupt practices
b. Committed/aided in commission of securities
violations/smuggling/tax evasion/money laundering/
graft & corrupt practices, and stockholders were aware
c. Repeatedly & knowingly tolerated commission of graft
& corrupt practices, etc. by its directors/trustees/
officers/employees.
c. By shortening corporate term; (Note: automatic upon arrival of term) and
d. Upon expiration of term.
• EFFECTS OF DISSOLUTION:
(1) Legal title to properties = transferred to stockholders (now co-owners);
(2) Corporation ceases as body corporate to continue business for w/c it was
est., EX: for a period of THREE YEARS, it shall cont. to exist for winding
up purposes only; &
(3) Stockholders may convey their respective shareholdings to create a new
corporation to continue business of the old corporation.
• LIQUIDATION is the process by w/c the assets of the corporation are converted into
liquid assets (or cash) to facilitate the payment of obligations to creditors, the
remaining balance thereof, if any, to be distributed among stockholders.
• METHODS OF LIQUIDATION:
If liquidation not completed w/in
a.) by corporation itself, through BOD/BOT;
3 years, Board permitted to
b.) through conveyance to a trustee (w/in 3-yr period); complete same by continuing as
and trustee for the purpose of
settling & closing corp’s affairs.
c.) by management committee/rehabilitation receiver.
 CORPO - DIMAAMPAO REVIEWER NOTES
H. Other Corporations
a. Close Corporations
• Definition: a corporation whose AOI provide:
1. All issued stock of all classes, excl. of treasury shares, shall be
held of record by not more than specified # of persons (20);
2. Issued stock of all classes shall be subject to 1+ specified
restrictions on transfer;
- must appear in bylaws; AND
- should not be more onerous than granting existing stock-
holders option to purchase shares of transferring stock-
holder w/ such reasonable terms/conditions/period stated.
3. It shall not list in any stock exchange or make any public offering
of any of its stock of any class; and
4. At least 2/3 of its voting stock/rights should not be owned/
controlled by another corporation not a close corp.
• Characteristics of a Close Corporation
• AOI may provide that stockholders can directly manage corporation and
perform functions of directors w/o need of election;
• Stockholders are liable as directors;
• No need to call meeting to elect directors;
• Stockholders w/ all liabilities of directors; and
• Quorum/voting reqs MAY be more than that req’d by RCC.
• Preemptive right extends to all stocks;
• May be exercised for any reason, provided the corporation has
sufficient assets in its books to cover its debts, liabilities exclusive of
capital stock.
• Deadlocks in the board are settled by the SEC upon written petition by any
stockholder;
• Stockholder may w/draw & avail of right of appraisal; and
• Transfer of stocks to others w/c would increase the # of stockholders to more
than the max INVALID.
• Mining companies, oil companies, stock exchanges, banks, insurance companies,
public utilities, educational institutions, and corporations declared to be vested with
public interest CANNOT QUALIFY AS CLOSE CORPORATIONS.
• GROUND FOR DISSOLUTION: when any of the acts of the directors, officers, or those
in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or
unfairly prejudicial to the corporation or any stockholder, or whenever corporate
assets are being misapplied or wasted.
b. Non-stock Corporations
• Definition: a corporation organized for an eleemosynary (charitable) purpose AND
where no part of income distributable as dividends to its members/trustees/ officers.
• Membership is non-transferable.
• Right to Vote: AOI/bylaws may dictate, absent such–EACH MEMBER HAS 1 VOTE.
* NON-STOCK CORPORATIONS MAY NOT BE CONVERTED INTO STOCK CORPORATIONS but
STOCK CORPORATIONS may be converted into a NON-STOCK CORPORATION via
amendment of AOI, provided all the req’ts for a non-stock corporation are complied with.
• Procedure for Asset Distribution in the Event of Dissolution:
1. Pay all creditors;
2. Reconvey assets subject to return;
3. Transfer assets not subject to return;
4. Distribute all other assets in acc. w/ AOI, bylaws, or duly-adopted plan of
distribution;
c. Foreign Corporations
• Definition: one formed/organized/existing under laws other than those of PH, and
whose laws allow Filipino citizens & corps. to do business in its own country/ State.
• Doctrine of Doing Business – “DOING BUSINESS” shall inc. soliciting orders, service
contracts, opening offices, w/n liaison offices/branches; appointing represent-
tatives/distributors domiciled in the PH or who in any calendar year stay in the country
for (a) period(s) totaling 180 days or more; participating in the
management/supervision/control of any domestic business/firm/entity/corporation
in the PH; & any other act(s) implying a continuity of comm. dealings/arrangements,
& contemplate to that extent the perf. of acts/works, or exercise of some functions
normally incident to, & in progressive prosecution of, comm. gain or of the purpose &
object of the business org: Provided, however, the phrase shall not be deemed to inc.
 CORPO - DIMAAMPAO REVIEWER NOTES
mere investment as a shareholder by a foreign entity in domestic corps. duly reg’d to
do business, and/or the exercise of rights such as investor; nor appointing a
rep/distributor domiciled in PH w/c transacts business in own name & for own account.
• For purposes of corporation law, the term “Philippine National” shall mean:
i. Philippine citizen;
ii. Domestic partnership/association wholly owned by PH citizens;
iii. Domestic corp. organized under PH laws, of w/c @ least 60% of OCS &
voting entitlement is owned & held by PH citizens;
iv. Foreign corp. doing business in the PH, of w/c 100% of OCS & voting
entitlement wholly owned by PH citizens; and
v. Trustee of funds for pension or other employee retirement or
separation benefits where trustee is PH national & @ least 60% of fund
will accrue to benefit of PH nationals
- where corp. & non-PH stockholders own stocks in SEC-reg’d
enterprise, @ least 60% of OCS & voting entitlement of each
of both corps MUST be owned & held by PH citizens AND @
least 60% of BOD members of each also PH citizens.
• A Foreign Corporation Doing Business in the Philippines
• one continuing the body or substance of its business or enterprise for which it
was organized + INTENT THEREOF to do so in the country.
• Jurisprudential Tests
a.) SUBSTANCE – W/N FC continuing body/substance of business/enterprise for w/c it
was organized; OR W/N FC has substantially retired fr. it and turned it over to another;
b.) CONTRACT – W/N contracts FC/agent entered into consummated & perfected in PH;
c.) INTENTION – W/N there is intention to continue body of business in PH; and
d.) ACTUAL PERFORMANCE – W/N there is actual perf. of specific commercial acts w/in
PH territory.
• What is an isolated transaction? That set apart from the common business of a
foreign enterprise, in the sense that there is no intention to engage in a progressive
pursuit of the purpose & object of the business organization.
* activities w/in PH jurisdiction
THAT DO NOT CREATE EARNINGS OR PROFITS to the FC
=/= doing business in the Philippines.
d. One Person Corporations
• Definition: one with a single stockholder: Provided, that only a natural person, trust,
or an estate may form such; no minimum authorized capital stock required.
• it is required that there be an indication that a corporation is a one-person
corporation by indicating therein the letters “OPC,” either below or at the
end of the corporate name.
• Banks, quasi-banks, pre-need/trust/insurance/public/publicly-listed compa-
nies + non-chartered GOCCs MAY NOT INCORPORATE as OPC.
• natural persons licensed to exercise a profession MAY NOT INCOR-
PORATE as OPC either. OPC w/ limited liability; separate
• AOI, Bylaws fr. personal assets, but doctrine
of piercing corporate veil applies.
• RCC, Section 14 applies, contents must include:
1. Name, nationality, residence of trustee, administrator,
executor, guardian, conservator, custodian, or other person
exercising fiduciary duties + proof of authority to act on behalf
of, if single stockholder is a trust or estate; and
2. Name, nationality, residence of nominee & alternate nominee
+ extent, coverage, limitation of authority.
• Option only, SUBMISSION & FILING THEREOF NOT REQUIRED.
• Corporate Structure Single Stockholder (SS)
1. President, Sole Director – Single Stockholder - may not be appointed as
2. Treasurer, Corporate Secretary, etc. Corporate Secretary
- req’d to post a bond if to be
*to be appointed w/in 15 days fr. issuance of AOI self-appointed as Treasurer
• On Nominees & Alternate Nominees
• SS req’d to designate;
• Ratio: To take place of SS as director, & manage corp’s affairs, in event of SS’s
death or incapacity;
• Temporary incapacity – extent & limits of auth to be set forth in AOI
• Permanent incapacity – only UNTIL legal heirs of SS take over (w/in 7 days)
* Minutes Book – REQUIRED, shall contain all actions, decisions, & resolutions OPC has taken.
CONVERSION PROCEDURES (all reqs for respective
corp. class to be
Ord. Corp to OPC upon app, after SS acquires all stocks of Ord. Stock Corp.
converted to must be
upon due notice to SEC, stating circs leading to conversion.
OPC to Ord. Corp. (submit w/in 60 days fr. occurrence of circs)
complied with)
 CORPO - DIMAAMPAO REVIEWER NOTES

I. Mergers and Consolidations - Approval by stockholders/members representing 2/3 of

• Merger – where 1+ corporations absorbed by another corporation which outstanding capital stock of each, if stock corps., or 2/3 of
survives and remains in existence while the others are dissolved; new members, if non-stock corps
corporation called the surviving corporation. 3. EXECUTE ARTICLES
- Absorbed corp need not undergo dissolution and winding up; 1. Signed by President or Vice President; and
automatic dissolution takes effect upon approval of merger 2. Certified by Secretary or Asst. Secretary of each consti corp;
DE FACTO MERGER – when one corporation acquires all or substantially all of the properties 3. Setting forth:
of another corporation in exchange of shares of stock of acquiring corporation a. Merger or Consolidation Plan;
® Acquiring Corporation – ends up with business enterprise of target corporation; b. Number of outstanding shares (stock corps)/members (non-stock corps);
® Target Corporation – only remaining assets thereof shall continue to exist but as c. Number of shares or voting members of each consti corp.;
shares of acquiring corporation d. Carrying amounts & fair values of assets and liabilities; and
• Consolidation – where 2+ existing corporations are combined to form a new e. Method to be used (merger or consolid?)
corporation called the consolidated corporation. Parties to mergers and 4. SUBMIT ARTICLES FOR APPROVAL w/ SEC
• Effects consolidations are known ® approved – Certificate of Merger or Incorporation shall be issued
as CONSTITUENT CORPS
® consti corps become single corp; ® not approved – Hearing may be set; notice to be given to parties
® ceasing of consti corps’ sep. existences; ®
® rights, privileges, immunities, and powers + duties & liabilities of new
corp.;
® transfer of properties, receivables, subscriptions, interests to new
corp.;
® new corp. to acquire of responsibility. no legal personality for
new corp. UNTIL there is
• Procedure: approval by the SEC
1. DRAW PLAN
Contents for Merger/Consolidation Plan:
IN CASE OF AMENDMENTS
1. names of constituent corporations; - approval of majority vote
2. terms and mode of merger/consolidation; of BOD/BOT of consti
3. statement of changes in AOI, if any (merger)/ new AOI corps. REQ’D; &
- must be ratif’d by
(consolid); and affirmative vote (2/3) of
4. other necessary/desirable provisions. stockholders or members.
2. APPROVE PLAN
requirements
- Majority vote of each of the board of directors or trustees of
the consti corps; and