Revised Corporation Code – Bar Review 2022 Lecture by Atty. J.

Ranada

INCORPORATORS

• No residency requirement for incorporators

• At least 1 but not more than 15
• Licensed professionals and professional partnerships are allowed to form a corporation only if allowed under
special laws.

CORPORATE TERM

• All corporations now have a perpetual term of existence.

• If the corporation elects to retain its term, it will have to notify the SEC in the form prescribed (appraisal right
applicable)
• Corporations with expired term may apply for the revival of its corporate existence (Except banks, pre-need,
NSSLAs or Non-Stock Savings Loan Associations, pawnshops, money service, and financial intermediaries without
the necessary endorsements from their regulatory agencies.)

CAPITALIZATION

• Minimum capitalization of Php 5,000 has been deleted

• No minimum subscription or paid-up required (at the time of incorporation)
• Treasurer’s affidavit no longer required, but treasurer must sign the AOI
o Not required to sign the By-laws, only the AOI
• Minimum subscription of 25% and paid-up capital of 25% of subscribed still required upon application for the
increase in authorized capital stock
• Shares of stock in another corporation and “other generally accepted form of consideration” now accepted as
consideration for stock, subject to approval by the SEC (refer to Sec. 61)

CORPORATE STATUS

• Non-use of Corporate Charter – 5 years otherwise revoked

• Continuous Inoperation – 2 years otherwise delinquent
o Who will declare delinquency/revocation?
▪ SEC will follow due process, issue due notice to corporations for explanation
• 3 kinds:
o Registered (Active)
o Revoked
o Delinquent

DIRECTORS/TRUSTEES

• No minimum number of directors

• No residency requirement for directors
• Directors must still own at least 1 share, trustees must be members
• Corporations vested with public interest are required to have independent directors constituting at least 20% of
the board
o Independent directors – those apart from the shareholdings and fees they receive from the corporation,
they are independent from management, free from any business or other relationship which could or
could reasonably be perceived to materially interfere with their independent judgment as a director,
except for trustees of non-stock corporations vested with public interest.
▪ Code of Corporate Governance is applicable
• Directors shall have a term of 1 year, trustees have a term not exceeding 3 years
 • Voting through remote communication or in absentia

CORPORATE OFFICERS

• President – must be a director

• Treasurer – must be a resident
o Introduced to RCC due to the nature of the responsibilities of a treasure
• Corporate Secretary – must be a citizen and resident
• Compliance Officer – only if the corporation vested with public interest, not for regular corporations
• Other officers provided for in the By-Laws

DISQUALIFICATION AND REMOVAL OF DIRECTORS

• SEC shall, motu proprio or upon verified complaint, and after due notice and hearing, order the removal of a
disqualified director or whose disqualification arise or is discovered after an election

FILLING UP VACANCIES IN THE BOARD: DEPENDS ON CAUSE OF VACANCY

• Expiration of term – Shareholders shall elect replacement no later than the day of expiration at a meeting called
for that purpose.
• Removal by stockholders – Stockholders may elect the replacement on the same day of the meeting authorizing
the removal
• All other cases – the remaining directors constituting a quorum shall elect the replacement director not later than
45 days at the time of vacancy.

CREATION OF EMERGENCY BOARD

• Applicability:
o There is an absence of quorum
o There is an action required to prevent grave, substantial, and irreparable loss or damage to the corporation
• PURPOSE – Absence of quorum due to urgency and action is required to prevent grave, substantial, and irreparable
loss or damage to the corporation
• WHO – Position may be temporarily filled among the officers, with unanimous vote of the remaining directors
• SCOPE – Actions limited to emergency situations
• REPORT – Notify SEC within 3 days from the creation of the emergency board

COMPENSATION OF DIRECTORS

• Directors or trustees shall not participate in the determination of compensation

• Corporations vested with public interest shall submit to the stockholders and the SEC an annual report (total
compensation of each director)

DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH CORPORATION (self-dealing directors)

• Contracts between corporation and its directors, trustees, officers, or their spouses and relatives within the fourth
civil degree of consanguinity or affinity are voidable, unless certain conditions are met.
o Conditions:
▪ Presence of the director in the board meeting where the contract was approved was not necessary
to constitute a quorum
▪ The vote of the director was not necessary for the approval of the contract
▪ The contract is fair and reasonable under the circumstances
▪ In case of an officer – the contract has been previously authorized by the Board of Directors.
o Corporations vested with public interest:
▪ Material contract condition
 • Definition - 10% of the company’s total assets based on the SEC Rules on Material RPT for
Publicly Listed Companies
• Approved by 2/3 votes by the members of the Board with at least a majority of the
independent directors voting to approve the material contract.

STOCKHOLDERS MEETING BOARD MEETINGS

Annual Meeting – fixed by the By-Laws or after April 15 of Notice – at least 2 days prior unless the By-Laws otherwise
every year, as determined by the Board provides
Reason for April 15:
• the time that the Audited Financial Statement
would have been available.
• One of the agenda to be presented in the SH
meeting – the AFS or financial condition of the
company has to be reported to the SH

Waivers of Notices – general waivers not allowed, Adopted SEC rules on attendance of directors through
attendance to the meeting is not considered a waiver if it remote communication.
is for the purpose of objecting to the agenda where the
meeting was not lawfully called or convened.
Venue – Metro Manila, Metro Cebu, Metro Davao, and Quorum – majority of the directors
other metropolitan areas are considered a city or
municipality.
New requirements to be presented to stockholders – Board Decision – majority of directors constituting a
appraisal and performance report of the board, director or quorum
trustee compensation report, directors disclosures on self-
dealing and RPTs
Right to Vote – exercised through remote communication Election of Officers – majority of ALL the members of the
or in absentia, if allowed in the By-Laws Board
Corporations vested with public interest – stockholders Presiding Officer – Chairman, in his absence anyone
have the right to vote in absentia regardless of any designated by the By-Laws
provision in the By-Laws

POWERS OF THE CORPORATION

1. Corporate Powers and Capacity (Sec. 35)

a. The Corporation can enter into a partnership and joint venture
b. Prohibition of foreign corporations from donating to any political party/candidate or aid in partisan
political activity
2. Extension/Shorten Corporate Term (Sec. 36) – note Sec. 36 vs. Sec. 15
a. Sending of notices can be done electronically, provided that it is allowed by the By-Laws or with the
consent of the stockholder
b. Special amendment, compare with the rules on amendments of AOI under Sec. 15
3. Increase/Decrease Capital Stock; Incur, Create, Increase Bonded Indebtedness (Sec. 37)
a. With prior approval of the Phil. Competition Commission, where applicable
b. Sworn Statement by the Treasurer showing that the 25-25% rule was complied with
i. Not required during incorporation, only for increase of capital stock
ii. Applicability is only to the increase, not to the whole amount after the increase
4. Sales or Other Disposition of Assets (Sec. 39)
a. Compliance with the rules under the Phil. Competition Act
 b. Computation is based on the net asset value of the properties and assets as can be seen in the
corporation’s latest financial statements.

NEW TYPES OF CORPORATIONS

1. Corporation Vested with Public Interest (Sec. 22)

a. Includes
i. Corporations governed by Sec. 17.2 of the SRC
ii. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business,
preneed, trust and insurance companies and other financial intermediaries
iii. Corporations engaged in business vested with public interest similar to above, as determined by
SEC
b. Additional requirements
i. 20% of the board should be independent directors
ii. Stockholders have the right to vote in absentia, regardless of any provision in the By-Laws
iii. Must submit an annual report of total compensation of each of the directors or trustees
iv. Must elect a compliance officer
v. Material contracts involving directors, officers, spouses and 4th degree relatives must be approved
by at least 2/3 vote of the entire membership of the board with at least the majority of the
independent directors voting to approve the material contract
vi. Must submit annually a director or trustee appraisal or performance report and the standards or
criteria used to assess each director or trustee.
c. Note: The SEC is authorized to determine corporations engaged in business vested with public interest
after taking into account relevant factors that are germane to the objective and purpose of requiring the
election of independent directors.
2. One Person Corporation (OPC)
a. May be formed by a natural person, trust, or an estate.
i. NOT ALLOWED – banks, NSSLAs, etc. (cannot have just 1 SH), and natural person licensed to
exercise a profession (Sec. 116)
b. No minimum capital stock required (Sec. 117)
c. The sole stockholders shall also be the sole director and president (Sec. 121)
d. The sole stockholder may not be the corporate secretary (Sec. 122)
e. If he is also the treasurer, he must give a bond to the SEC in the amount to be determined by the SEC,
renewable every 2 years (Sec. 122)
f. Sole stockholder must provide name of nominee and alternate nominee in the AOI of the OPC, as well as
their authority in the managing the affairs of the OPC
g. Required reports for OPCs (Sec. 129)
i. AFI’s audited by independent CPA for OPCs with total assets and liabilities in excess of P600k
ii. Report containing explanations made by the President for every qualification, remark or adverse
remark made by the auditor
iii. Disclosure on all self-dealings and RPTs, entered into between the OPC and the single stockholder
iv. Other reports as may be required by the SEC
h. An ordinary corporation may be converted to an OPC (Sec. 131) and vice versa (Sec. 132)
OTHER REVISIONS

1. The following transactions may now require Phil. Competition Commission approval/intervention:
a. Increase or decrease in capital stock (Sec. 37)
b. Sale or disposition of assets (Sec. 39)
c. Incurring, creating or increasing bonded indebtedness (Sec. 37)
2. Stocks and Stockholders – additional consideration for shares of stock, provision for uncertificated or scripless
form.
3. Corporate Books and Records – list is provided; inspection subject to Intellectual Property Code (on reproduction),
Data Privacy Act, Securities Regulation Code, Rules of Court, summary investigation by the SEC; re: AFI’s total
assets/liabilities is less than P600k submit Balance Sheet signed by the President and Treasurer.
a. Note: >P600k – AFS; <P600k – Balance Sheet
4. Merger – Notices similar to regular/special meeting, additional financial information required in the Articles of
Merger, applicability of the Phil. Competition act.
5. Appraisal Right – additional ground: Sec. 41 on the investment of corporate funds, for any purpose other than
primary purpose.
a. Note: W/N corporate fund was invested for the furtherance of the primary purpose or versus that of the
secondary purpose or not included in the primary purpose (vis-à-vis approval requirement)
6. New Rules for Non-Stock Corporations:
a. Trustees of non-stock corporations vested with public interest are not required to be members (Sec. 91)
b. Staggered term of trustees has been deleted
c. Proxies list should be updated at least 20 days prior to the election
7. Education Corporations – requirement on endorsements deleted.
8. Dissolution –
a. Creditors not affected (Sec. 114) – 20 days; documentary requirements; endorsements
b. Creditors affected (Sec. 135) – effectivity date of dissolution
c. Shortening of Term (Sec. 136) - effectivity date of the dissolution
d. Involuntary Dissolution (Sec. 138) – additional grounds
e. Grounds for Dissolution
i. Finding that corporation procured its incorporation through fraud
ii. Finding by final judgment that the corporation was (Assets of corporations dissolved under this
par. shall upon petition of SEC, be forfeited in favor of the national government)
1. Created for the purpose of committing, concealing or aiding the commission of securities
violation, smuggling, tax evasion, money laundering, or graft or corrupt practices.
2. Committed or aided in the commission of securities violation, smuggling, tax evasion,
money laundering, or graft or corrupt practices and its stockholders knew of the same.
3. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or
other fraudulent or illegal acts by its directors, trustees, officers or employees.
9. Foreign Corporations – update on securities deposit requirements and resident agent.
a. Value and documentary requirements
10. Reportorial Requirements (Sec. 177) – corporations vested with public interest are required to also submit a
Directors/Trustees compensation report and appraisal performance report together with the criteria used by the
corporation.
11. The SEC may issue CEASE AND DECEASE EX PARTE, valid for 20 days (Sec. 156) to enjoin fraudulent act/s that is/are
expected to cause significant, imminent, and irreparable danger to public safety or welfare.
 OFFENSES WHO IS LIABLE
Contempt for failure to comply with SEC order (Sec. 157) Any person who fails to comply
Despite knowledge of existence of ground for Director, Trustee or Officer
disqualification under Sec. 26, willfully holds office or
willfully conceals such disqualification
Willful certification of incomplete, inaccurate, false or Any person who certifies a report
misleading statements or reports (Sec. 162) (may be AFS of
GIS)
Collusion with independent auditor (Sec. 163) Director or representatives
Obtaining corporate registration through fraud (Sec. 164) Any person responsible for the incorporation
Fraudulent conduct of business (Sec. 165) The Corporation
Acting as intermediary for graft and corrupt practices act The Corporation
(Sec. 166)
Appointing an intermediary who engages in graft and The Corporation
corrupt practices for the corporation’s benefit or interest
(Sec. 167)
Failure to sanction, report or file for the appropriate action Director, Trustee or Officer
with proper agencies or toleration of the graft and corrupt
practices act (Sec. 167)
Retaliation against whistleblowers (Sec. 169) Any person
Aiders and abettors, and anyone who abets, counsels, Any person
commands, induces or causes any violation of the Code
shall be punished.

ALLEGATIONS OF GRAFT AND CORRUPT PRACTICES

Finding that any Directors, officers, employees, agents or representatives, corporations’ failure to install:

a) Safeguards for the transparent and lawful delivery of services, and

b) Policies, code of ethics, and procedures against graft and corruption

are prima facie evidence of corporate liability under Sec. 166.

JURISPRUDENCE

1. ENANO-BOTE et. al vs. ALVAREZ – Applicability of the Trust Fund Doctrine, Recovery of Unpaid Subscription in an
Insolvent Company.
a. Facts: A lease contract was entered into between the Subic Bay Metropolitan Authority and Centennial Air
Incorporated (CARE). CARE became insolvent, remised payments. Due to their continued refusal to settle
payments, SBMA filed a complaint against CARE and SH (including Enan-Bote). SH alleged that at the time
that the lease agreement was executed, they were no longer SH of the company because they issued a
Deed of Assignment under the name of Alvarez who undertook in paying their unpaid subscriptions. As a
result, Alvarez would have been the one liable.
b. Held: SC declared CARE solely liable to the SMA.
c. Doctrine: A corporate creditor cannot immediately invoke the trust fund doctrine to proceed against
unpaid subscriptions of SH of the debtor corporation without alleging and proving the corporation’s
insolvency or any of the other acceptable grounds where the trust fund doctrine has been applied. The
capital stock of a corporation is a trust to be managed during its corporate life for the benefit of the SH, it
is only in the event of dissolution or insolvency, does the capital stock become a trust fund for the benefit
of its creditors.
 i. Trust Fund Doctrine (Definition) - The subscriptions to capital stock of the corporation constitute
a fund which the creditors have a right to look up for the satisfaction of their claims. Accordingly,
if the decrease would affect the rights of creditors, the same would not be approved by the SEC.
d. Notes:
i. Velasco vs. Poizat: Subscriptions to the capital of a corporation constitute a fund to which creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain
an action any unpaid stock subscription in order to realize the assets for the payment of their
debts.
ii. Halley vs. Printwell Inc: 2 instances when the creditor is allowed to maintain an action upon any
unpaid subscription based on the Trust Fund Doctrine:
1. Where the debtor corporation released the subscriber to its capital stock from the
obligation of paying for their shares, in whole or in part without a valuable consideration,
or fraudulently to the prejudice of the creditors; and
2. Where the debtor corporation is insolvent or has been dissolved without providing for the
payment of its creditors
a. To make out a prima facie case to a suit against SH of an insolvent corporation, to
compel them to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that the
stockholders have not in good faith paid the par value of the stocks of the
corporation.
b. Relevance: SBMA did not plead or allege insolvency of CARE or CARE’s dissolution.
Complaint was merely a collection suit, evidence presented was only to prove
unpaid rentals. SBMA failed to either prove or allege any of the 2 grounds where
the Trust Fund Doctrine may be applied to compel the SH to contribute to the
payment of CARE’s debts by compelling them to pay the unpaid balances upon
their subscriptions.

2. SALIDO vs. ARAMAYWAN METALS DEV’T CORP. et. al – Trust Fund Doctrine
a. Facts: At the time of incorporation, SH San Juan advanced P2.5M, issued in his name as Treasurer-In-Trust
of the corporation (no regular Treasurer yet at the time of incorporation). After incorporation, BOD had
meeting, where one of the SH (Salido faction) delivered only P932k in cash during the incorporation, the
P2.5M remained undelivered and still under San Juan’s name. Salido faction claimed that San Juan was in
breach of his undertaking to advance the payment of Aramaywan’s capital stock. Salido faction then made
a proposal to reduce San Juan’s shares to Aramaywan, from 55% to 15%. In a special board meeting, a
resolution was passed confirming the reduction.
i. Release of a stockholder from unpaid subscription
1. A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and
as against creditors a reduction of the capital stock can take place only in the manner and
under the conditions prescribed by the statute or the charter or the AOI.
2. Held: Invalid for the BOD to waive such payment for it would amount to decrease the
corporation’s capital stock which could not be accomplished without the formalities under
the RCC which includes, among others, prior approval of the SEC. In any event, if it were
true that San Juan had unpaid subscriptions, the Corporation Code has provided a
procedure for the demand of such payment and the holding of a delinquency sale in case
of continued non-payment. Thus, even assuming it was true that San Juan had unpaid
subscriptions, simply agreeing in a meeting for their reduction, thereby releasing the
stockholder from his obligation to pay the unpaid subscriptions, cannot be the mode by
 which said unpaid subscriptions are settled. To allow corporations to do such an act would
violate the aforementioned trust fund doctrine in corporation law.
ii. Validity of the board resolution reducing the shares
1. San Juan alleged that the BOD meeting was invalid because he, as Chairman did not
convene to the special meeting.
2. Held: The business of the corporation is conducted by the board of directors who were
elected from among the holders of stock. This means that with regard to the ordinary
business and affairs of the corporation, it is enough that there be a resolution from the
board of directors, in a meeting duly called for that purpose. Although the special board
meeting was not convened by San Juan who was the Chairman of the board, the
resolutions may not be invalidated on this ground alone because the corporation's by-
laws allows such meetings called upon the request of the majority of the directors.
iii. Conversion of shares to treasury shares requires that the corporation have unrestricted retained
earnings
1. Aramaywan had only been existing for a few months and had not engaged in mining
activities yet. Highly undoubtful and unsupported on record that it already had UREs to
be able to purchase its own shares.
a. UREs – profits of the corporation, determined by the end of FY or CY as found in
the By-Laws
2. Held: Apart from reacquiring the shares through some lawful means, the Corporation
Code is also explicit that while a corporation has the power to purchase or acquire its own
shares, the corporation must have unrestricted retained earnings in its books to cover the
shares to be purchased or acquired. In addition, in cases where the reason for reacquiring
the shares is because of the unpaid subscription, the Corporation Code is likewise explicit
that the corporation must purchase the same during a delinquency sale.

3. UCPB vs SECRETARY OF JUSTICE et. al – Liability of Directors and Officers

a. Facts: Involves practice of the bank in granting bonuses based on profits without a board resolution.
Alleges such practice was never questioned through the years and was ratified by the Board themselves.
b. Held: Sec. 30 – Liability of directors, trustees or officers vs. Sec. 70 – Other violations of the Code
i. Sec. 70 is the all-encompassing provision on the liability of a director, trustee or officer.
4. ROY vs. HERBOSA (read with Gamboa vs. Teves) – Beneficial Ownership
a. Issue: Interpretation of Section 11, Article XII of the Constitution, which provides: "No franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by such citizens x x x."
b. Held: In Gamboa, in no uncertain terms that what the corporation requires is full and legal beneficial
ownership of 60% of the outstanding capital stock coupled with 60% voting rights must rest in the hands
of Filipino nationals.

SEC issued MC No. 8 – for the purposes of determining compliance with the constitutional or statutory
ownership, the required percentage of Filipino ownership shall be applied to both the total number of
outstanding shares of stock entitled to vote in the election of the directors and the total number of
outstanding shares of stock whether or not entitled to vote.

This took the beneficial ownership requirement under the IRR of the SRC in consonance to the beneficial
ownership provisions under the Foreign Investment Act IRR.

c. Grandfather vs. Control rule – when applicable.