LAW ON BUSINESS ORGANIZATION

PARTNERSHIP

• Art. 1767. By the contract of partnership two

or more persons bind themselves to contribute
money, property, or industry to a common fund
with the intention of dividing the profits among
themselves.
 ELEMENTS

•1. Intention to form a contract of partnership

•2. Participation in both profits and losses
•3. Community of interests
 CHARACTERISTIC ELEMENTS OF
PARTNERSHIP

• 1. Consensual – there must be meeting of minds.

• 2. Nominate – it has name/designation.
• 3. Bilateral/Multilateral – there must be 2/more persons.
• 4. Onerous – the services/business of partnership has something
in return; it is not gratuitous in character.
5.Commutative – partnership has something in return.
(almost same meaning with onerous)
6. Principal – it can stand alone.
7.Preparatory – when you have put up a partnership, it
is being set up in preparation for future contracts.
 ESSENTIAL FEATURES/ATTRIBUTES OF
PARTNERSHIP

• 1. There must be a valid contract.

• 2. Parties must have legal capacity to enter into the contract
• 3. There must be mutual contribution of money, property, or
industry to a common fund.
• 4. The object must be lawful.
• 5. The primary purpose must to obtain profits and to divide the
same among the parties.
 PRINCIPLE OF DELECTUS PERSONAE
(CHOICE OF PERSONS)

•a person has the right to select persons with

whom he wants to be associated with in
partnership.
 JURIDICAL PERSONALITY

• Art. 1768. The partnership has a juridical

personality separate and distinct from that of each
of the partners even in case of failure to comply
with the requirements of Article 1772, first
paragraph.
Partnership, a juridical person
• As an independent juridical person, a partnership may enter into
contracts, acquire and possess property of all kinds in its name, as well as
incur obligations and bring civil or criminal actions.

• It may enter into contracts and may sue and be sued in its firm name or by
its duly authorized representative.

• Partners cannot be held liable for the obligations of the partnership unless it is
shown that the legal fiction of a different juridical personality is being used for
a fraudulent, unfair or illegal purpose.
Kinds of Persons

1. Natural Person – created by God.

2. Juridical Person – created by operation of law.

*If you want to be an incorporator you must be a natural person, but juridical persons can be
a stockholder.

*partnership rule:
dead partner = exclude in the partnership name.

*Who can form a partnership?

P= Partnership; C= Corporation; N= Natural Person

P and P (yes)
P and N (yes)
P and C (No)
C and C (No)
C and N (No)
N and N (Yes)
Effect of failure to comply with statutory requirements

Under Art 1772

Partnership still acquires personality despite failure to comply with the

requirements of execution of public instrument and registration of name in
SEC.

Under Arts 1773 and 1775

Partnership with immovable property contributed, if without requisite

inventory, signed and attached to public instrument, shall not acquire any
juridical personality because the contract itself is void. This is also true for
secret associations or societies.
 ART. 1769. IN DETERMINING WHETHER A
PARTNERSHIP EXISTS, THESE RULES SHALL APPLY:

• 1. Except as provided by Article 1825, persons who are not

partners as to each other are not partners as to third persons.

• 2. Co-ownership or co-possession does not of itself

establish a partnership, whether such co-ownership or
co-possessors do or do not share any profits made by the
use of the property.
3.The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived.

4.The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in
payment:

a. As a debt by installments or otherwise.

b. As wages of an employee or rent to a landlord.

c. As an annuity to a widow or representative of a deceased partner.

d. As interest on a loan, though the amount of payment vary with the profits of the business.

e.As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.
 PARTNERSHIP VS. CO-OWNERSHIP

• Created by law, may exist w/o a contract.

• Exists with a contract, either express or
implied.
• none
• Separate & distinct from that of each partner
• Common enjoyment of a thing/right
• Realization of profits
• No limits • Keep the thing undivided for more
than 10 years is NOT allowed
• Must have consent from other partners
• May do whatever he wants freely
• A partner may bind the partnership
• Cannot represent the co-ownership
• Death of one of the partners dissolves
partnership • Death of one of the co owner does not
dissolve the co-ownership
 PENAL PROVISION

• Art. 1770. A partnership must have a lawful object or

purpose, and must be established for the common benefit
or interest of the partners. When an unlawful partnership is
dissolved by a judicial decree, the profits shall be
confiscated in favor of the State, without prejudice to the
provisions of the Penal Code governing the confiscation of
the instruments and effects of a crime.
 Effects of an unlawful partnership

1. The contract is void and the partnership never existed in

the eyes of the law;
2.The profits shall be confiscated in favor of the
government;
3.The instruments or tools and proceeds of the crime shall
also be forfeited in favor of the government;
4.The contributions of the partners shall not be confiscated
unless they fall under #3.
CONTRIBUTION OF IMMOVABLE/REAL
PROPERTY

•Art. 1771. A partnership may be constituted in

any form, except where immovable property or
real rights are contributed thereto, in which case a
public instrument shall be necessary .Form of
partnership contract.
General rule

No special form required for validity or existence of the contract of

partnership. Contract maybe made orally or in writing regardless of
the value of the contributions.

Where immovable property or real rights are contributed

Execution of public instrument necessary for validity of contract of

partnership. To affect 3rd persons, the transfer of real property to the
partnership must be duly registered in the Registry of Property
 CONTRIBUTION OF MONEY/ PROPERTY
(PERSONAL)/ OR COMBINATION OF BOTH

•ART 1173.
•must have a public instrument if it is
three thousand pesos or more (P3000 or
more)
•-must be recorded & registered w/ Securities and
Exchange Commission (SEC).
•-failure to comply, shall not affect the liability of the
partnership & members to the 3rd persons.
 CONTRIBUTION OF IMMOVABLE/ REAL
PROPERTY

Art 1773.
• Where immovable property contributed, failure to
comply w/ the following requisites will render the
partnership contract void:
• 1. The contract must be in a public instrument;
• 2. An inventory of the property contributed must be made,
signed by the parties, and attached to the public
instrument.
 ART. 1775
ASSOCIATIONS & SOCIETIES, WHOSE
ARTICLES ARE KEPT SECRET AMONG
THE MEMBERS IS NOT A PARTNERSHIP
BUT A
CO-OWNERSHIP.
• Partnership relation is created only by the voluntary agreement
of the partners. It is essential that the partners are fully informed
not only of the agreement but of all mattersaffecting
the partnership. Secret partnerships are not
by nature partnerships. Secret partnerships shall
be governed by the provisions relating to
co-ownership.
 ART. 1776
CLASSIFICATIONS OF PARTNERSHIP

• 1. As to the extent of its subject matter

• A. Universal partnership. Art. 1777. A universal partnership may refer to all the
present property or to all the profits.
• a. Universal partnership of all present property. 1178 In a universal partnership of all
present property, the property which belongs to each of the partners at the time of the
constitution of the partnership becomes the common property of all the partners, as well as
all the profits which they may acquire there with.
• b. Universal partnership of profits. Art. 1780. A universal partnership of profits
comprises all that the partners may acquire by their industry or work during the existence of
the partnership. Movable or immovable property which each of the partners may possess at
the time of the celebration of the contract shall continue to pertain exclusively to each, only
the usufruct passing to the partnership.
Art. 1781. Articles of universal partnership, enteredinto without
specification of its nature, only constitute a universal partnership of profits.

b. Particular Partnership (Art. 1783) Art. 1783. A particular partnership has for its
object determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation.
 2. As to liability of the partners

a. General Partnership one consisting of general partners who are liable pro rata and subsidiary and
sometimes solidarily w/ their separate property for partnership debts.

b. Limited Partnership one formed by two or more persons having as members one or more general
partners and one or more limited partners, the latter not being personally liable for the obligations of
the partnership.

3. As to its duration

a. Partnership at will: one in w/c no time is specified and is not formed for a particular undertaking or
venture and w/c may be terminated at any time by mutual agreement of the partners, or by the will of
any one partner alone; or one for a fixed term or particular undertaking w/c is continued after the end
of the term or undertaking w/o express agreement.

b.Partnership with a fixed term: one w/c the term for w/c the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking.
 3. As to the legality of its existence

a.De jure partnership: one w/c has complied w/ all the legal requirements for its
establishment.

b.De facto partnership: one w/c has failed to comply w/ all the legal requirements for
its establishment.

4. As to representation to others

a. Ordinary or real partnership: one w/c actually exists among the partners and also
as to 3rd persons.

b.Ostensible partnership or partnership or partnership by estoppel: one w/c in

reality is not a partnership, but is considered a partnership only in relation to those
who, by their conduct or admission, are precluded to deny or disprove its existence.
 5. As to representation to others

a.Ordinary or real partnership: one w/c actually exists among the partners and also as
to 3rd persons.

b.Ostensible partnership or partnership or partnership by estoppel: one w/c in reality

is not a partnership, but is considered a partnership only in relation to those who, by their
conduct or admission, are precluded to deny or disprove its existence

6. As to publicity

a.Secret partnership: one wherein the existence of certain persons as partners is not
avowed or made known to the public by any of the partners.

b.Open or notorious partnership: one whose existence is avowed or made known to the
public by the members of the firm.
 7. As to purpose

a.Commercial or trading partnership: one formed or the

transaction of business.

b.Professional or non-trading partnership: one formed for the

exercise of a profession.
 KINDS OF PARTNERS

• 1. Capitalist Partner
-contributes money/property.
• 2. Industrial Partner
-contributes industry/ personal service.
• -is a general partner.
• 3. Capitalist-Industrial Partner
-contributes a combination of both money, property/ industry.
• 4. General Partner
-liable up to his personal property.
5. Limited Partner
-liable up to his capital contribution only.

6. Managing Partner
-manages the affairs / business of the partnership
-known as general/ real partner.

7. Liquidating Partner
-takes charge upon dissolution.

8. Partner by Estoppel
-not really a partner, but liable as a partner
-known as partner by implication/ nominal partner/ quasi-partner.
 9. Continuing Partner
-continues the business of the partnership after it has been dissolved.

10. Surviving Partner

-remains after partnership has been dissolved by death of any partner.

11. Subpartner
-not being a member of partnership, contracts w/ a partner w/ reference to latter’s
share in the partnership.
 Other classifications

1. Ostensible partner: one who takes active part and known to the public as a partner.

2.Secret partner: one who takes active part in the business but is not known to be a partner by outside parties nor
held out as a partner by the other partners. He is an actual partner.

3.Silent partner: one who does not take any active part in the business although he may be known to be a partner.

4.Dormant partner: one who does not take active part in the business and is not known or held out as a partner. He
would be both a silent and a secret partner.

5. Original partner: one who is a member of the partnership from the time of its organization.

6. Incoming partner: a person lately, or about to be, taken into an existing partnership as a member.

7.Retiring partner:one withdrawn from the partnership; a withdrawing partner. Art. 1777. A
universal partnership may refer to all the present property or to all the profits.
 UNIVERSAL PARTNERSHIP WITHOUT
SPECIFICATION OF ITS NATURE

• Art. 1781. Articles of universal partnership, entered into

without specification of its nature, only constitute a
universal partnership of profits.

• Reason for presumption: universal partnership of profits

imposes less obligations on the partners, since they
preserve the ownership of their separate property.
 ART. 1782.
PERSONS WHO ARE PROHIBITED FROM GIVING EACH OTHER
DONATION/ADVANTAGE CANNOT ENTER INTO A
UNIVERSAL PARTNERSHIP.

•*Persons who can’t make

donation/advantage:
•• Husband & wife
•• Persons found guilty of adultery
•• Persons found guilty of concubinage
•• Clients to his lawyer & vice versa
•• Litigants to judges
•• Citizens to gov’t employees
 WHEN DOES PARTNERSHIP BEGINS?

• Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated.

• When is the corporation’s birthday?

• -from the time set/ issues certificate of incorporation.

• When is the corporation code’s effectivity date?

• -May 1, 1980

• When is the effectivity date of the Civil Code of the Philippines?

• -August 30, 1950
 PARTNERSHIP AT WILL

• Art. 1785. When a contract for a fixed term or particular

undertaking is continued after the termination of such
term or particular undertaking without any express
agreement, the rights and duties of the partners remains the
same as they were at such termination, so far as is
consistent with a partnership at will.
 Partnership at will
3 instances:

1. Partnership was created without a fixed term.

2.Partnership was created with a fixed term, but after the expiration of such term, the
partnership still continue transacting business.

3.Partnership was created for a particular purpose/ undertaking, after attaining such
purpose, the partnership still continue transacting business.
 ART. 1786
EVERY PARTNER IS A DEBTOR OF THE PARTNERSHIP FOR
WHATEVER HE MAY HAVE PROMISED TO CONTRIBUTE THERETO.

• He shall also be bound for warranty in case of eviction

with regard to specific and determinate things which he
may have contributed to the partnership, in the same cases
and in the same manner as the vendor is bound with respect
to the vendee. He shall also be liable for the fruits thereof
from the time they should have been delivered, without the
need of any demand.
 ART. 1787
PARTNERS CONTRIBUTE PERSONAL
PROPERTIES:

•a.Amount of contribution will be based on the

manner prescribed in the partnership.
•b.If there is no prescribed manner, manner,
consult an expert (professional appraiser)
 ART. 1788
PROMISSORY NOTE IS A VALID SUM OF
MONEY
• -if you failed to make your promises you will be considered
as partnership’s debtor for the interest & damages from the
time you should have complied with the obligation.

• -if the partner had taken from the partnership coffers

(funds), his liability shall begin from the time he converted
the amount to his own use.
 Liability of partner for estafa

Failure to return the money taken, there is the element of fraudulent

appropriation of the money delivered to a partner with specific
instructions for the use of the partnership, then estafa is committed
under the Revised Penal Code.
 ART 1789.
INDUSTRIAL PARTNER

• Art. 1789. An industrial partner cannot engage in any

business for himself, UNLESS the partnership expressly
permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in either
case.
Capitalist Partner (Art.1808)

-can engaged in other business, EXCEPT in a business with the same line of the partnership he
is engaged with.

*SANCTIONs if a capitalist partner engaged with a business with the same line of the
partnership he is engaged with, without the consent of the partnership:

Whatever profit he derives in such business, he has an obligation to give it in favour of the
partnership .
 ART 1790
CONTRIBUTION

•Art. 1790. Unless there is a stipulation to the

contrary, the partners shall contribute equal shares
to the capital of the partnership
 ART. 1791
IN CASE OF IMMINENT LOSS

• Art. 1791. If there is no agreement to the contrary, in case of

an imminent loss of the business of the partnership, any
partner who refuses to contribute an additional share to the
capital, except an industrial partner, to save the venture, shall
be obliged to sell his interest to the other partners.
 ART. 1792
OBLIGATION OF THE MANAGING PARTNER TO DIVIDE
THE PAYMENT IN PROPORTION TO THE TWO (2)
DEBTS

• Art. 1792. If a partner authorized to manage collects a demandable

sum, which was owed to him in his own name, from a person who
owned the partnership another sum also demandable,
• the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a
receipt for his own credit only; but should he have given it for the
account of the partnership credit, the amount shall be fully applied to
the latter.
Question: A (debtor) owes managing partner B P 4,000 & CDE Partnerhip P20, 000 at the
same time. He paid a total of P10, 000 to the managing partner. How should the payment of A
be divided?

Answer : The managing partner should divide it proportionately:

For B:
2/10 X P10, 000=P2000

For CDE:

8/10 x P10, 000=P8000

NOTE:

-There is NO need to divide the payment in proportion of the 2 debts if the debtor pays to the
partnership. Same rule shall apply if the debtor pays only the CAPITALIST PARTNER.
.
 ART. 1793
IF THE DEBTOR BECOMES INSOLVENT

• Art. 1793. A partner who has received, in whole or in part,

his share of a partnership credit, when the other partners
have not collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring to the
partnership capital what he received even though he may
have given receipt for his share only.
Ex. A owes B, C, D, E and F P100, 000. After paying B 25, 000
A became insolvent.

Is partner B obliged for the share of partners C, D, E, and F in the

payment given by the debtor?

-YES. B shall give C, D, E and F C P5, 000 each from that

P25,000 he received from A.
 ART. 1797
3 RULES IN THE DISTRIBUTION OF PROFITS
& LOSSES:

• 1. If there is an agreement as to division of profit &

losses, apply the agreement.
• 2. If there is no agreement as to the division of profit,
but there is an agreement as to division of losses, in case
of profit/income, apply the agreement of loss to the
profit.
• 3. If there is no agreement as to the division of profit &
losses, divide it in proportion of their capital
contribution.
SHARE OF INDUSTRIAL PARTNER IN PROFITS AND
LOSSES

• Unless agreed upon, the industrial partner shall receive

such share in the profits as may be just and equitable under
the circumstances. As for the losses, the industrial
partner is not liable. However, under Art. 1816, if the
partnership has a contractual debt and it cannot pay,
the industrial partner equally with the capitalist partners,
can be compelled by the creditor to pay his pro rata
share out of his own property or assets.
 ART. 1799. A STIPULATION WHICH EXCLUDES ONE OR
MORE PARTNERS FROM ANY SHARE IN THE PROFITS OR
LOSSES IS VOID.

• EXCEPTION: INDUSTRIAL PARTNER

• EXCEPTION TO THE EXCEPTION : Art. 1816

• REASON: An industrial partner is not liable for losses

because if the partnership fails to realize any profits, the
industrial partner would have contributed his labor in
vain.
 ART. 1800
A PARTNER APPOINTED AS MANAGER MAY EXECUTE ALL
ACTS OF ADMINISTRATION…

• Unless he should act in bad faith. His power is revocable

only upon just and lawful cause and upon the vote of the
partners representing the controlling interest.

• Appointment as manager after the constitution of the

partnership. Appointment may be revoked at any time
for any cause what so ever.
Scope of the power of the managing partner

General rule: partner appointed as manager has all the powers of a general
agent as well as all the incidental powers necessary to carry out the object of
the partnership in the transaction of its business.

Exception: When powers of manager is specifically restricted. A managing

partner may not bind the partnership by contract foreign to its business.
 ART. 1801. IF TWO OR MORE PARTNERS HAVE
BEEN ENTRUSTED WITH THE MANAGEMENT OF
THE PARTNERSHIP

• Without specification of their duties or without stipulation that one of them shall
not act without the consent of all others each one separately execute all acts of
administration.
• If one or more of the managing partners shall oppose the acts of the others,
then the decision of the majority of the managing partners shall prevail.
Right to oppose can be exercise only by those entrusted with mgt.
• In case of tie, matter shall be decided by the vote of the partners owning the
controlling interest.
 ART. 1802 WHEN UNANIMITY OF ACTION STIPULATED
CONCURRENCE NECESSARY FOR VALIDITY OF ACTS

• As a rule the partners may stipulate that none of the managing partners shall act without the consent
of the others. In such a case, the unanimous consent of all the managing partners shall be necessary
for the validity of their acts.

EXCEPTION: If one of the managing partner is absent, in case of irreparable injury, & not giving
immediate decision may lead to damages, remaining partners may decide even w/o the presence of
the said partner.

NOTE: Consent of managing partners not necessary in routine transactions

 ART. 1803. WHEN THE MANNER OF
MANAGEMENT HAS NOT AGREED UPON, THE
FOLLOWING RULES SHALL OBSERVED:

• 1. All partners are agents. All of them shall considered mgrs. and
agents and whatever any one of them may do alone shall bind the
partnership. If there is timely opposition same rule as Art. 1801.
• 2. None of the partners, w/o consent of others, can make important
alteration in the immovable property of the partnership, even if it may
be useful to the partnership, but if there ids refusal of the consent by
the other partners is manifestly prejudicial to the interest of the
partnership, the court’s intervention may be sought.
 ART. 1804
A PARTNER HAS A RIGHT TO ASSIGN HIS INTEREST TO 3RD
PERSONS, HOWEVER THE SAID ASSIGNEES CANNOT BE
AUTOMATICALLY HELD AS A PARTNER W/O CONSENT OF ALL THE
PARTNERS.
• Person for a division of the profits coming to him from the
partnership enterprise is termed subpartnership.
• Subpartnership agreements do not affect the composition,
existence, or operations of the firm. The subpartners are partners
interest,
• However, in the absence of the mutual assent of all the
parties, a subpartner does not become a member of the
partnership, even if the other partners know about the
agreement. Not being a member of the partnership, he does not
acquire the rights of a partner nor is he liable for its debts.
 PROHIBIBITION ON CAPITALIST PARTNERS

• Art. 1808
• Capitalist partner CANNOT engage in the same kind
of business of w/c the partnership.
• Any capitalist partner violating this prohibition, shall bring
to the common fund any profits derived from his
transactions, & shall PERSONALLY bear all the losses.
 PROPERTY RIGHTS OF A PARTNER

•Art. 1810
Three (3) property rights of a partner:
•1. His rights in specific partnership property
•2. His interest in the partnership
•3. His right to participate in the mgmt.
 ART. 1811
A PARTNER IS CO-OWNER W/ HIS PARTNERS OF
SPECIFIC PARTNERSHIP PROPERTY.
 ART. 1812. A PARTNER’S INTEREST IN THE PARTNERSHIP
IS HIS SHARE OF THE PROFITS AND SURPLUS.

• Share of profits and surplus – The partner’s interest in the partnership consists of his
share in the undistributed profits during the life of the partnership as a going concern
and his share in the undistributed surplus after its dissolution.
• Profits: the excess of returns over expenditure in a transaction or series of transactions;
or the net income of the partnership for a given period.
• Surplus: the assets of the partnership after partnership debts and liabilities are paid and
settled and the rights of the partners among themselves are adjusted. It is the excess of
assets over liabilities. If the liabilities are more than the assets, the difference
represents the extent of the loss.
 ART. 1815. EVERY PARTNERSHIP SHALL OPERATE UNDER A FIRM
NAME, WHICH MAY OR MAY NOT INCLUDE THE NAME OF ONE
OR MORE OF THE PARTNERS, THOSE WHO, NOT BEING MEMBERS
OF THE PARTNERSHIP, INCLUDE THEIR NAMES IN THE FIRM NAME,
SHALL BE SUBJECT TO LIABILITY OF A PARTNER
• Right of the partners to choose firm name
• The partners enjoy the utmost freedom in the selection of the partnership name.
• As a general rule, they may adopt any firm name desired.
• Use of misleading name – The partners cannot use a name that is identical or
deceptively confusingly similar to that of any existing partnership or corporation or to
any other name already protected by law or is patently deceptive, confusing or
contrary to existing laws, as to mislead the public by passing itself off as another
partnership or corporation, or its goods or services as those of such other company.
Liability inclusion of name in the firm name – Persons who, not being partners,
include their names in the firm name do not acquire the rights of a partner but
shall be subject to the liability of a partner insofar as 3rd Persons without notice
are concerned.

Art. 1815 does not cover the case of a limited partner who allows his name to
be included in the firm name, orof a person continuing the business of a
partnership after dissolution, who uses the name of the dissolved partnership or the
name of a deceased partner as part thereof.
 LIABILITY

• Art. 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any partner
may enter into a separate obligation to perform a partnership contract.
Pro rata liability – Literally, pro rata liability means proportionate distribution of
liability. In the law of obligations, the concurrence of two or more debtors in one and the
same obligation makes it prima facie a joint (pro rata) obligation, and the debts is
presumed divided into as many equal shares as there are debtors and each one of them is
bound to pay only his share.
ADMISSION/REPRESENTATION AS EVIDENCE

• Art.1820
•
An admission/representation made by partner
concerningpartnershipaffairs w/in any the of his
authority in accordance w/ this Title is evidence
scope
against the
partnership.
 ART. 1821
NOTICE TO A PARTNER IS A NOTICE TO ALL THE
PARTNERS.

• Notice to partner is notice to partnership Clearly a third

person desiring to give notice to a partnership of some
matter pertaining to the partnership business need not
communicate with all of the partners. If notice is delivered
to a partner, that is an effective communication to the
partnership.
 PARTNER LIABLE FOR WRONGFUL ACT OF A
PARTNER

• Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of
co-partners, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.
• Partnership may proceed against negligent partner
• Where a partnership is liable to a third person, there is a right of indemnity against
the partner whose negligence caused the injuries.
ART. 1823. THE PARTNERSHIP IS BOUND TO MAKE
GOOD THE LOSS:

• 1. Where one partner acting within the scope of his apparent

authority receives money or property of a third person and
misapplies it.

• 2. Where the partnership in the course of its business receives

money or property of a third person and the money or property
so received is misapplied by any partner while it is in the
custody of the partnership.
 ART. 1824. ALL PARTNERS ARE LIABLE SOLIDARILY
WITH THE PARTNERSHIP FOR EVERYTHING
CHARGEABLE TO THE PARTNERSHIP UNDER
ARTICLES 1822 AND 1823.

• Law imposes solidary liability

• The law imposes solidary liability upon the partners and the partnership in
cases of torts and acts of conversion by a partner as provided in Art. 1824. It
may be stated that the liability of a partner for a debt of the partnership
depends upon whether the debts is contractual or it arises from tort or
conversion. If it arises from contract, the liability is subsidiary and pro
rata; if it arises from tort or conversion, the liability is solidary.
 ART. 1825
PARTNERSHIP BY ESTOPPEL

• Estoppel – A preclusion, in law, which prevents a man from alleging or

denying a fact, in consequence of his own previous act, allegation, or
denial of a contrary tenor.
• Person bound by his representation A person who hold himself out as
a partner in a business, or consents to his being so held out, is liable on
contracts made with third persons who deal with the persons carrying on
the business on the faith of the representation. He is stopped to deny the
apparent agency.
 ART. 1826
ADMISSION OF A NEW PARTNER INTO A
PARTNERSHIP WITH AN EXISTING OBLIGATION…

• Incoming partner liable for existing obligations A newly admitted partner is

liable for obligations of the partnership at the time of his admission. The
obligation of the incoming partner shall be satisfied only out of partnership
property. This is not a harsh rule because the incoming partner “partakes of the
benefit of the partnership property, and an established business. He has every
means of obtaining full knowledge of protecting himself, because he may insist
on the liquidation or settlement of existing partnership debts. On the other hand,
the creditors have no means of protecting themselves.
ART. 1827. THE CREDITORS OF THE PARTNERSHIP
SHALL BE PREFERRED TO THOSE OF EACH
PARTNER AS REGARDS THE PARTNERSHIP
PROPERTY. WITHOUT PREJUDICE TO THIS RIGHT,
THE PRIVATE CREDITORS OF EACH PARTNER MAY
ASK THE ATTACHMENT AND PUBLIC SALE OF THE
SHARE OF THE LATTER IN THE PARTNERSHIP
ASSETS.
 CHAPTER 3
DISSOLUTION & WINDING UP
• Art. 1828
• Dissolution- is the change in relation of the partners caused by any partner ceasing to
be associated in the carrying on of the business.
• - partners cease to carry on the business together.
• - represents the demise of the partnership.
• Winding Up – is the process of setting the business/ partnership affairs after
dissolution.
• - only unfinished transactions are being made during winding up.
• Termination- is that point in time when all partnership affairs are completely wound up
& finally settled.
• -end of partnership life.
 ART. 1830 (AUTOMATIC DISSOLUTION) (NO NEED
TO FILE A PETITION SA REGIONAL TRIAL COURT
FOR DISSOLUTION)

• Dissolution is caused:
• (1) Without violation of the agreement bet. the partners…
• a. By termination of definite term/particular undertaking…
• b. By express will of any partner…
• c. By express will of all partners…
• d. By expulsion of any partner from the business…
 (2) In contravention of the agreement bet. partners…
(3)Any event w/c makes it unlawful for the business of the partnership to
be carried on…
(4)When a specific thing, w/c a partner promised to contribute to the
partnership, perishes before the delivery…
(5) By the death of any partner
(6) By the insolvency of any partner/ of the partnership.
(7) By civil interdiction of any partner.
(8) By decree of court.
 ART. 1831 (JUDICIAL DISSOLUTION) (NEED TO FILE
A PETITION SA REGIONAL TRIAL COURT FOR
JUDICIAL DISSOLUTION)

• On application by/ for a partner, the court shall decree a dissolution whenever:
• (1) A partner has been declared insane in any judicial proceeding/ is to be shown to be of unsound
mind.
• (2) Incapacitated partner
• (3) A partner has been guilty of such conduct…
• (4) A partner wilfully/persistently commits a breach of partnership agreement…
• (5) The business of the partnership can only be carried @ a loss.
• (6) Other circumstances render a dissolution equitable.
General Rule
Dissolution terminates the authority of the partners to bind

partnership. Exceptions

Any act appropriate for winding-up partnership affairs or completing

transactions unfinished at dissolution
If third persons that transacted had no actual knowledge of the dissolution.
*Persons extending credit prior to dissolution are entitled to notice of
dissolution. If they had no notice or knowledge of dissolution, they may hold the
retired partner for obligations made by continuing partners after dissolution.
General Rule

Dissolution of a partnership does not itself discharge the existing

liability of any partner.

Exception

A partner can be discharged from any existing liability upon

dissolution of the partnership provided that there is an agreement
between the partnership creditor and the person or partners
continuing the business.

*Individual properties of the deceased partner shall be liable to all

obligations of the partnership made while he was a partner.
 ART. 1839
IN SETTLING ACCOUNTS BET.THE PARTNERS
AFTER DISSOLUTION, THE FF. RULES SHALL BE
OBSERVED, SUBJ. TO AGREEMENT TO THE
CONTRARY:
• (1) The assets of the partnership are:
• a. The partnership property
• b. The contributions of the partners…

• (2) The liabilities of the partnership shall rank in order of payment:

• a. Those owing to creditors other than partners
• b. Those owing to partners other than for capital & profits
• c. Those owing to partners in respect of capital
• d. Those owing to partners in respect of profits
3) Where a partner has become insolvent/ his estate is insolvent,
the claims against his separate property shall rank in the ff. order:
a. Those owing to separate creditors
b. Those owing to partnership creditors
c. Those owing to partners by way of contribution
 CHAPTER 4
LIMITED PARTNERSHIP
• Art. 1843
• A limited partnership is one formed by two or more persons under the provisions of the
following article, having as members one or more general partners and one or more limited
partners. The limited partners as such shall not be bound by the obligations of the partnership.

• Art. 1845
• The contributions of a limited partner may be cash/ other property, but not services.
 ART. 1846
THE SURNAME OF A LIMITED PARTNER SHALL
NOT APPEAR IN THE PARTNERSHIP NAME

• UNLESS:
• 1. It is also a surname of a general partner.
• 2. Prior to the time when the limited partner became such, the business had been
carried on under such name in w/c his surname appeared.
• A limited partner whose surname appears in a partnership name contrary to the
provisions of the first paragraph is liable as a general partner to partnership
creditors who extend credit to the partnership without actual knowledge that he is
not a general partner.
 ART. 1848
A LIMITED PARTNER SHALL NOT BECOME LIABLE AS GENERAL
PARTNER UNLESS, IN ADDITION TO THE EXERCISE OF HIS RIGHTS
& POWERS AS A LIMITED PARTNER, HE TAKES PART IN THE
CONTROL OF THE BUSINESS.

• Limited partner has no control in business. A limited partner is excluded

from any active voice in the control of the affairs of the firm.
• Limited partner cannot perform acts of administration. Limited partners
may not perform any act of administration with respect to the interests of the
partnership, not even in the capacity of agents of the managing partners.
 ART. 1853
A PERSON MAY BE A GENERAL & A LIMITED
PARTNER @ THE SAME TIME, THIS FACT MUST BE
INDICATED IN THE CERTIFICATE.

• A person who is a general, and also at the same time a

limited partner, shall have all the rights and powers and be
subject to all restrictions of a general partner; except that, in
respect to his contribution, shall have the rights against the
other members which he would have had if he were not
also a general partner.
REVISED CORPORATION CODE (2019)

Republic Act No. 11232

TITLE I - GENERAL PROVISIONS DEFINITIONS
AND CLASSIFICATIONS

• SEC. 2. Corporation Defined. – A corporation is an

artificial being created by operation of law, having the right
of succession and the powers, attributes, and properties
expressly authorized by law or incidental to its existence.
 *Attributes of a corporation*

1. It is an artificial being

1 Legal/juridical person w/ a personality separate & apart from its stockholders/

individual members.

2. It is created by operation of law

3. It has the right of succession

4.It has only the powers, attributes, & properties expressly authorized by
law/incident to its existence.
Doctrine of Piercing the Veil of Corporate Fiction. What is it?

1 EXCEPTION to the application of the corporate separate legal personality.

1 Disregarding the separate personality of a corporation.
1 Considering the corp as an aggregation of persons undertaking a business.
1 Ascribing personal liability to the members constituting it.
1 Shredding of corporate legal veil and regarding it as a mere association of persons.

Q: How does one pierce the veil of corporate fiction?

The veil of corporate fiction may be pierced by proving in court that the notion of legal entity is
being used to defeat public convenience, justify wrong, protect fraud, or defend crime or the
entity is just an instrument or alter ego or adjunct of another entity or person.
Grounds for Application of Doctrine / Basic Areas where Piercing is Allowed

1. PUBLIC CONVENIENCE –

“Equity Piercing” Where necessary to achieve equity or for the protection of

the creditors Ex. Vehicle for the evasion of an existing legal obligation

1 In taxation to minimize payment of tax

1 In agrarian cases
1 To ward off a judgment credit, to avoid inclusion of corporate assets as part of the
estate of the decedent, to escape liability arising from debt
Requirement: The corporate fiction was the very tool used to evade obligation
 2. FRAUD – “Fraud Piercing”

Ex. Justify wrong, protect fraud, defend crime In FRAUD PIERCING:

a. When it is proven that the corporate officer has used the corporate fiction to defraud a third
party, or that he has acted negligently, maliciously or in bad faith, the corporate fiction may
be pierced to make both the corp and the officer liable

b. When corporate officers do fraudulent or illegal acts in the name of the corp, such as illegal
dismissal or unfair labor practices, they become personally liable for the consequences of
their fraudulent or illegal acts done in behalf of the corp

c. When one tries to evade civil liability by incorporating the properties or the business to
insulate them from judgment creditors and employing the doctrine of limited liability
3. ALTER EGO / INSTRUMENTALITY – “alter ego
piercing” / “ instrumentality test”

Ex. Corp is a farce, business conduit of a person, an adjunct, an alter ego of

another corp or where the corp is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corp.
 SEC. 3. CLASSES OF CORPORATIONS.

• SEC. 3. Classes of Corporations. – Corporations formed or organized under

this Code may be stock or nonstock corporations. Stock corporations are
those which have capital stock divided into shares and are authorized to
distribute to the holders of such shares, dividends, or allotments of the surplus
profits on the basis of the shares held. All other corporations are nonstock
corporations.
(1) As to number of persons who compose them:

a. Corporation aggregate – consisting of more than 1 member/corporator.

• several leaders

b.Corporation Sole – or a religious corporation w/cconsists of 1

member/corporator only & his successors, such as bishop.
• ex. Roman Catholic Church headed by Pope.

(2) As to whether they are for religious purpose or not:

a. Ecclesiastical corporation – organized for religious purposes.

b. Lay corporation – organized for a purpose other than for religion.(eleemosynary/civil)

(3) As to whether they are for charitable purposes or not:

a. Eleemosynary corporation – established for charitable purposes.

b. Civil corporation – established for business/profit.

(4) As to state/country under/by whose laws they have been created:

a. Domestic Corporation- If Formed, Organized & Existing in the PH

b. Foreign Corporation

(5) As to their legal right to corporate existence

a. De jure corporation – existing in fact & in law.
• Complied w. SEC requirements; SEC issues cert. of incorporation.

b. De facto corporation – existing in fact but NOT in

law. There is a defect in their incorporation.
(6) As to whether they are open to the public or not:

a. Close corporation – limited to selected persons/members of a family.

* 20 maximum stockholders
b.Open corporation – open to any person who may wish to become a stockholder or
member thereto.
• shares of stock traded in public.

(7) As to their relation to another corporation:

b.Parent/holding corporation – has the power either directly/indirectly to, elect the
majority of the directors of such other corp.
c.Subsidiary corporation – majority of its directors can be elected either
directly/indirectly, by such another corp.
(8) As to whether they are corporations in a true sense/ only in a limited sense:

a. True corporation – exists by statutory authority.

b. Quasi-corporation – exists w/o formal legislative grant.
• Exception to the general rule that a corporation can exist only by authority of law, &
it may be:

1 Corporation by prescription – one w/c has exercised corporate powers for an

indefinite period w/o interference on the part of the sovereign power…
1 Corporation by estoppel – in reality is not a corporation, either de jure/de facto,
considered as corporation by reason of theiracts/admissions, are precluded from
asserting that it is not a corporation.
(9) As to whether they are for public (gov’t) or private purpose:

a. Public corporation – formed/organized for the gov’t of a portion of the State,

b. Private corporation – formed for some private purpose, benefit, or end.
* may be:
1 Stock Corporation
1 Non-stock Corp.
1 Gov’t-owned/ controlled Corp.
- directly created by special law.
1 Quasi-public Corp.
- also known as “public utilities” or “public service corp.”
 SEC. 5. CORPORATORS AND INCORPORATORS,
STOCKHOLDERS, AND MEMBERS. –

• Components of a Corporation
• 1. Corporators – are those who composed a corporation,
whether as stockholders of members. The term includes
incorporators, stockholders or members.
• 2. Incorporators – are those stockholders or members
mentioned in the articles of incorporation as originally forming
and composing the corporation and who are signatories thereof.
• 3. Stockholders or shareholders – are those corporators in a stock corporation.
• 4. Members – are those corporators in a non-stock corporation.
• 5. Promoters – is a self-constituted organizer who finds an enterprise or venture and helps to
attract investors, form a corporation and launch it in business, all with a view to promotion
profits.

• Promotion – is the act of procuring the initial finances and the making of all preparations
necessary to launch a corporation

• General rule: A corporation is not bound by any agreement made by a promoter.

• Exception to the rule: Unless and until the corporation approves the agreement.
 SECTION 6 CLASSIFICATION OF SHARES

• 1)Par Value share- Specific money value fixed in the articles of incorporation &
appearing in the certificate of stock.
• 2)No Par Value share-Without stated/par value appearing on the face of certificate
of stock.
• 3) Voting share-hare with a right to vote. rule: not “one stockholder, one vote”
but instead “one share, one vote”
(4) Non-voting share-Share without right to vote. “no share must be deprived of voting rights
except those “preferred”/”redeemable” shares, unless otherwise provided in the Code.

Instances when non-voting shares may vote

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation of business in accordance with the Corporation Code;
and
8. Dissolution of the corporation
 General rule: Every member of a non-stock corporation and every legal owner
of shares in a stock corporation, has a right to be present and vote at all
corporate meetings.

Exception to the rule: Unless there is a stipulation in contrary

(5)Common share of stock-Entitles the holder thereof to pro rata division of the
profits, if any, w/o any preference over other stockholder. They are the residual
owners of the corporation.

(6)Promotion share- Issued to promoters/ those in some way interested in the

company for incorporating the company/for services.

(7)Convertible stock- Convertible/changeable by the stockholder from one class to

another class
 (8) Preferred share of stock- Entitles the holder thereof to certain preferences over the holders of
common stock. Entitles the holder thereof to certain preferences over the holders of common
stock.

It may be:

1 Voting, convertible, redeemable.

a) Preferred as to assets in case of liquidation

b) Preferred as to dividends, may be:
i. Cumulative -entitles the holder in dividend in arrears.
ii. Non-cumulative – entitles the holder only in current year.
iii.Participating – right of the holder to participate w/ the common shareholders in the remaining profits
pro rata after common shares have been paid.
iv. Non-participating –receive the stipulated preferred dividend & nothing more.
v.Cumulative-participating –combination of 2, meaning he is entitled of dividend in arrears & able to
participate in remaining profits after common shareholders have been paid.
(8) Share in escrow- Share subject to an agreement by virtue of w/c the share is deposited by the grantor/ his
agent w/ a 3rd person…
Are shares of stocks deposited with a person to be delivered to another upon fulfilment of a condition.
-
Additional Classes of Shares/Stocks:

Watered Stock - shares of stock being issued without consideration/inadequate consideration.

1 Over issued Shares – are shares of stock issued beyond the authorized capital stock & are considered void.

1 Retired Shares – are shares of stocks which have been withdrawn & have been disappeared altogether.

1 Promotional Shares – are those issued by mining corporation to owners of mines who transferred their rights
over the latter to the former, or those shares issued to promoters who brought about the formation of the
corporation.
Vetoing Shares – are shares of stock issued with the right to vote only in specific questions/ proposals.

1 Debenture Shares – are those which are more of certificate of indebtedness not guaranteed by any
specific property of the issuing corporation.

1 Blue Chip Stocks – shares of well-established & financially sound companies that have demonstrated
their ability to pay dividends in both good & bad times.

1 Growth Stocks – “Glamour Stocks” shares of corporation whose earnings are expected to grow @ an
average rate relative to the market.

1 Defensive Stocks – shares that provide regular dividends & stable earnings, regardless of overall
condition of stock market, remain stable under difficult economic conditions.

1 Cyclical Stock – sensitive to business conditions/cycles

Speculative Stock – rise quickly when economic growth is strong & falls rapidly when growth is
slowing down.
Definition of terms

A “stock” or share of stock is one of the units into which the capital stock has been
divided. It represents the interest or right that the holder of the stock or stockholder
has in the corporation.

A stock certificate certifies that one is a holder or owner of a certain number of

shares of stock in the corporation. It is a mere documentary evidence of the
holder’s ownership of shares and a convenient instrument for the transfer of title.
*Authorized Capital Stock – capital stock where the shares of the corp. has par
value.

*Subscribed Capital Stock – amount of capital stock where the subscribed

whether fully paid/not
.
*Outstanding Capital Stock - issued & held by persons other than the corporation.

*Paid-up Capital Stock – subscribed/ outstanding capital stock that is paid.

*Unissued Capital Stock – capital stock that is not issued/subscribed.

THINGS TO REMEMBER

*Banks, trust companies, insurance companies & building & loan associations shall not
be permitted to issue no par value shares of stock.

*Preferred shares may be issued ONLY with a stated par value.

*Shares issues without par value shall be deemed FULLY PAID & non-assessable & the
holder of such shares shall not be liable to the corporation/ to its creditors.

*Shares without par value may NOT be issued for a consideration less than of P5.00 per
share.

*The entire consideration received by the corporation for its no par value shares shall be
treated as capital & shall not be available for distributions as dividends.
 SEC. 7. FOUNDERS’ SHARES.

• SEC. 7. Founders’ Shares. – Founders’ shares may be given certain rights

and privileges not enjoyed by the owners of other stocks. Where the exclusive
right to vote and be voted for in the election of directors is granted, it must be for
a limited period not to exceed five (5) years from the date of incorporation:
Provided, That such exclusive right shall not be allowed if its exercise will
violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy
Law”; Republic Act No. 7042, otherwise known as the “Foreign Investments Act
of 1991”; and other pertinent laws
 SEC. 8. REDEEMABLE SHARES

• SEC. 8. Redeemable Shares. – Redeemable shares may be issued by the

corporation when expressly provided in the articles of incorporation. They
are shares which may be purchased by the corporation from the
holders of such shares upon the expiration of a fixed period, regardless
of the existence of unrestricted retained earnings in the books of the
corporation, and upon such other terms and conditions stated in the articles
of incorporation and the certificate of stock representing the shares,
subject to rules and regulations issued by the Commission.
• Redemption may not be made where the corporation is INSOLVENT, or
if such redemption will cause insolvency/inability of the corporation to
meet it debts as they mature.

• 1 May be deprived of voting rights in the articles of incorporation, unless

otherwise provided in the Code.
 SECTION 9
TREASURY SHARES

•SEC. 9. Treasury Shares. – Treasury shares are shares

of stock which have been issued and fully paid for,
but subsequently reacquired by the issuing
corporation through purchase, redemption, donation,
or some other lawful means. Such shares may again be
disposed of for a reasonable price fixed by the board of
directors.
• 1 Treasury are NOT retired shares.

• 1 Do NOT have the status of outstanding shares.

• 1 Being unrealized income, they are not considered as part of

retained earned/surplus profits, & therefore NOT distributable as
dividends, either cash/stock.

• 1 Have NO voting rights.

• 1 Owned by the corporation.

 TITLE II INCORPORATION & ORGANIZATION OF
PRIVATE CORPORATIONS

• SEC. 10. Number and Qualifications of Incorporators. – Any person, partnership, association
or corporation, singly or jointly with others but not more than fifteen (15) in number, may
organize a corporation for any lawful purpose or purposes: Provided, That natural persons
who are licensed to practice a profession, and partnerships or associations organized for
the purpose of practicing a profession, shall not be allowed to organize as a corporation
unless otherwise provided under special laws. Incorporators who are natural persons
must be of legal age.
• Each incorporator of a stock corporation must own or be a subscriber to at least one (1)
share of the capital stock.
• A corporation with a single stockholder is considered a One Person Corporation as
described in Title XIII, Chapter III of this Code.
 SEC. 11. CORPORATE TERM

• SEC. 11. Corporate Term. – A corporation shall have

perpetual existence unless its articles of incorporation
provides otherwise.
• A corporate term for a specific period may be extended or
shortened by amending the articles of incorporation: Provided, That
no extension may be made earlier than three (3) years prior to the
original or subsequent expiry date(s) unless there are justifiable
reasons for an earlier extension as may be determined by the
Commission: Provided, further, That such extension of the corporate
term shall take effect only on the day following the original or
subsequent expiry date(s).
 SEC. 12. MINIMUM CAPITAL STOCK NOT
REQUIRED OF STOCK CORPORATIONS

• Stock corporations shall not be required to have a

minimum capital stock, except as otherwise specifically
provided by special law.
 SECTION 14
CONTENTS OF ARTICLES OF INCORPORATION

• 1. Name of corporation
• 2. Purpose/s
• 3. Principal place of office
• 4. Term of corporation
• 5. Names, nationalities & residences of incorporation
• 6. # of directors/trustees not more than 15
• 7. Names, nationalities & residences of directors/trustees
• 8. If it is a stock corporation, the authorized capital stock & the par value per share
• 9. If it is a non-stock corporation, the names, nationality & residences of the contributors & the amount
of contribution by each of them
• 10. Such other means consistent with law and which the incorporators may deem necessary and
convenient.
 SECTION 15
FORMS OF ARTICLES OF INCORPORATION

Articles of Incorporation--is the document prepared by the persons

establishing a corporation filed with the Securities & Exchange Commission
(SEC) containing the matters required by the Code.

For the template please check this website.

https://www.sec.gov.ph/wp-content/uploads/2019/11/2018MNRCFORM_TE
MPLATE_AIBL_181205.pdf
Treasurer’s Affidavit

-this is a notarial acknowledgment, required for the issuance

of certificate of incorporation

-attached to the articles of incorporation

-signatories of president & treasurer can be noticed in the

corporate check
 SECTION 16
AMENDMENT OF ARTICLES OF INCORPORATION

• Articles of Incorporation may be amended by: (both sectors must have a meeting)
• 1 Majority of the Board of Directors/Trustees
• 1 2/3 of the OutstandingCapital Stock of Stockholders/Members if non-stock
corporation

• The amendments to the articles of incorporation shall take effect upon its approval by
the Securities and Exchange Commission or from the filing with the said Commission
if not acted upon within six months from the date of filing for a cause not
attributable to the corporation.
Amendment of Articles of Incorporation

The articles of incorporation may be amended for legitimate purposes that refer to
any matter stated in the articles of incorporation. It may refer to:

1. Change of corporate name;

2. Extension of term of corporation;
3. Change in classes or series of shares;
4. Change in rights, privileges or restrictions in share ownership;
5. Increase or decrease in the number of directors; and
6. Change in purpose or purposes and other necessary changes.
 SECTION 16
GROUNDS WHEN ARTICLES OF
INCORPORATION/ AMENDMENT MAY BE
REJECTED/DISAPPROVED

• Amendment is NOT with the prescribed form

• Purpose is illegal
• Treasurer’s affidavit is void/false
• Violation of stock ownership that must belong to Filipinos
 SECTION 17
CORPORATE NAME

• No corporate name shall be allowed by the Commission

if it is:
• 1 Identical
• 1 Confusingly similar
• 1 Deceptive
• 1 Contrary to law
 SEC. 18. REGISTRATION, INCORPORATION AND
COMMENCEMENT OF CORPORATE EXISTENCE.

• Commencement of Corporate existence:

• Corporation commences at the time SEC issues Certificate
of Incorporation under its official seal .
 SEC. 19. DE FACTO CORPORATIONS.

• SEC. 19. De facto Corporations. – The due incorporation of

any corporation claiming in good faith to be a corporation
under this Code, and its right to exercise corporate powers,
shall not be inquired into collaterally in any private suit
to which such corporation may be a party. Such inquiry
may be made by the Solicitor General in a quo warranto
proceeding.
De facto corporation – generally refer to organizations exercising corporate power under
colour of a more or less legally constituted corporation.

Elements of De facto corporation

1. Existence of a valid law under which a corporation can be organized.

2. An attempt in good faith to incorporate.
3. Actual exercise of incorporate powers.
Quo warranto – an inquiry made into the right of a corporation to conduct business.
 SEC. 20. CORPORATION BY ESTOPPEL

• SEC. 20. Corporation by Estoppel. – All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use its lack of corporate personality as a defense. Anyone who assumes an
obligation to an ostensible corporation as such cannot resist performance thereof on
the ground that there was in fact no corporation.
Corporation by Estoppel

-has NO real existence, in law.

-neither a “de jure” nor “de facto” corporation.
-a mere “fiction” existing for the particular case where the element of estoppel is present.
-exists only between the persons who misrepresented their status & the parties who relied on
the misrepresentation.

Estoppel – It is preclusion, which prevent a man from denying a fact in consequences of his own
previous act, allegations, or denial of a contrary tenor. The object of the principle of estoppel is to
prevent injustice to an otherwise innocent person.
 SECTION 22
EFFECTS OF NON-USE OF CORPORATE CHARTERS
& CONTINUES INOPERATION OF A
CORPORATION.

• 1. Non-use of corporate charter for 2 years, corporate

powers cease & the corporation shall be deemed dissolved.
• 2. Continuous non-operation for 5 years, the same shall be
a ground for suspension/revocation of its corporate
franchise/certificate of incorporation.
 TITLE III
BOARD OF DIRECTORS/TRUSTEES AND
OFFICERS

• SEC. 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. – Unless otherwise
provided in this Code, the board of directors or trustees shall exercise the corporate powers, conduct all
business, and control all properties of the corporation.
• Qualifications of directors
• 1. He must own at least one (1) share of the capital stock of the corporation in his name.
• 2. Majority of the directors must be a resident citizen of the Philippines.
• 3. A director must not have been convicted by final judgement of an offense punishable by imprisonment
exceeding six (6) years or a violation of the provisions of the Corporation Code committed within five (5)
years prior to the date of election or appointment.
 SEC. 24. CORPORATE OFFICERS.

• SEC. 24. Corporate Officers. – Immediately after their election, the directors of a corporation must
formally organize and elect: (a) a president, who must be a director; (b) a treasurer, who must be a
resident; (c) a secretary, who must be a citizen and resident of the Philippines; and (d) such other
officers as may be provided in the bylaws. If the corporation is vested with public interest, the board shall
also elect a compliance officer. The same person may hold two (2) or more positions concurrently, except
that no one shall act as president and secretary or as president and treasurer at the same time, unless
otherwise allowed in this Code.
• The officers shall manage the corporation and perform such duties as may be provided in the bylaws
and/or as resolved by the board of directors.
 SEC. 26. DISQUALIFICATION OF DIRECTORS,
TRUSTEES OR OFFICERS.
• SEC. 26. Disqualification of Directors, Trustees or Officers. – A person shall be disqualified from being a
director, trustee, or officer of any corporation if, within five (5) years prior to the election or appointment as
such, the person was:
• (a) Convicted by final judgment:
• (1) Of an offense punishable by imprisonment for a period exceeding six (6) years;
• (2) For violating this Code; and
• (3) For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”;
• (b) Found administratively liable for any offense involving fraudulent acts; and
• (c) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar
to those enumerated in paragraphs (a) and (b) above.
 SECTION 28
REMOVAL OF DIRECTORS/TRUSTEES
• may be removed by 2/3 votes of the stockholders holding Outstanding Capital Stock
- If you are a director and you’ve been electedby the OCS
representing the majority group.
• -you can be removed with/without just cause.
-If you are a director and you’ve been electedby the OCS
representing the minority group.
• -you can be only removed with a just cause.
 SECTION 28
VACANCIES IN THE OFFICE OF
DIRECTOR/TRUSTEE
• Four (4) instances that vacancies must be filled by the OCS.

• 1. Expiration of term
• 2. Removal by 2/3 votes by the OCS
• 3. Board no longer constitute a quorum
• 4. Amendment of articles resulting to the increase of the number of directors.

• Note: if the reason of the vacancy is not included in the aforementioned instances, the
REMAINING BOD will fill the vacancy.
• Ex. Death of BOD, abandonment
 SEC. 29. COMPENSATION OF DIRECTORS OR
TRUSTEES.

• In the absence of any provision in the by-laws fixing their compensation, the directors or
trustees shall not receive any compensation in their capacity as such, except for reasonable per
diems: Provided however, That the stockholders representing at least a majority of the
outstanding capital stock or majority of the members may grant directors or trustees with
compensation and approve the amount thereof at a regular or special meeting.
• In no case shall the total yearly compensation of directors exceed ten (10%) percent of the net
income before income tax of the corporation during the preceding year.
 SEC. 30. LIABILITY OF DIRECTORS, TRUSTEES
OR OFFICERS.

Any director/ trustee/ officer who consented in a

wilfull/illegal/unlawful action, then the corporation
suffered damages. = he/she/they will be jointly &
severally (solidary) liable.
 SEC. 31. DEALINGS OF DIRECTORS, TRUSTEES OR
OFFICERS WITH THE CORPORATION

• -a contract of corporation w/ 1/more of its directors/trustees/officers is VOIDABLE (valid until annulled), unless ALL of the
following conditions are present:

• 1. His presence is not required to constitute a quorum

• 2. His vote is not necessary for the approval of the project
• 3. Project is fair and reasonable
• 4. If he is a corporate officer, it must have been previously approved by the board.

• Note: if all conditions are present = contract is VALID.

• If any of the condition is not present = contract is VOIDABLE.
• Only VOID contracts cannot be ratified.
• Ratification can be made by 2/3 votes of OCS/members.
 SEC. 32. CONTRACTS BETWEEN CORPORATIONS
WITH INTERLOCKING DIRECTORS.

• Except in cases of fraud, and provided the contract is fair and reasonable under the
circumstances, a contract between two (2) or more corporations having interlocking directors
shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking
director in one (1) corporation is substantial and the interest in the other corporation or corporations
is merely nominal, the contract shall be subject to the provisions of the preceding section insofar as
the latter corporation or corporations are concerned.
• Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.
Interlocking directors – Interlocking directors are persons who serve as
member of the board of directors of two or more competing corporations or
corporations engaged in practically the same kind of business.

Effect of Corporate contracts with interlocking directors

Interlocking directors of corporations does not make a contract between or

among the corporations void and of no effect provided there in no fraud and
reasonable under the circumstances.
 SEC. 33. DISLOYALTY OF A DIRECTOR.

• Where a director, by virtue of such office, acquires a business opportunity

which should belong to the corporation, thereby obtaining profits to the
prejudice of such corporation, the director must account for and refund to
the latter all such profits, unless the act has been ratified by a vote of the
stockholders owning or representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be applicable, notwithstanding
the fact that the director risked one’s own funds in the venture.
Concept of “corporate or business opportunity.”

The doctrine of “corporate opportunity” is but one phase of the cardinal rule of
undivided loyalty on the part of the fiduciaries. If there is a presented to a
corporate officer or director a business opportunity which the corporation is
financially able to undertake, is from its nature, in the line of the corporation’s
business and is of practical advantage to it, is one in which the corporation will be
brought into conflict with that of his corporation, the law will not permit him to
seize the opportunity for himself.
 TITLE IV
POWERS OF CORPORATIONS

SEC. 35. Corporate Powers and Capacity. – Every corporation incorporated under this Code has the
power and capacity:

1. Power of succession.
Corporation has continuity.
Law on succession-part of Civil Law
Death of a stockholder is not a ground for dissolution.

2. Power to sue & be sued in its corporate name.

Corporation must have its Board Resolution, for its representative, when filing a case against a
particular person. If there is no board resolution complaint may be dismissed.
 3. Power to adopt & use a corporate seal.

All official documents that will be released by the corporation must have corporate seal.

4.Power to amend, adopt & repeal Articles of Incorporation.

Extension & shortening the corporate term.

5. Power to amend, adopt & repeal By-laws.

By-laws are “body politics of the corporation”, rules & regulations.

OCS can delegate to BOD the power to amend by-laws, after obtaining 2/3 votes
OCS cannot delegate to BOD the power to amend articles of incorporation.

6. Power to invest in shares of stocks of other corporation.

 7. Power to enter into a merger/consolidation.

Merger – 2 corporations uniting, one will lose its existence & the other will survive.
A+B=A
Consolidation- both corporations after uniting will lose their existence & a new
corporation exists.
A+B=C

8. Power to own & dispose properties of all kinds.

9. Power to make donation except to partisan political parties.

10. Power to make gifts, bonuses, gratuities & annuities to it employees.

11. Such other powers/matters.

 SEC. 36. POWER TO EXTEND OR SHORTEN
CORPORATE TERM.

A private corporation may extend or shorten its terms as stated

in the articles of incorporation when improved by a majority
vote of the board of directors or trustees and ratified at a
meeting by the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or by at least two-thirds
(2/3) of the members in case of non-stock corporations.
 SECTION 39
PRE-EMPTIVE RIGHT

All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues
or disposition of shares of any class, in proportion to their respective shareholdings, unless
such right is denied by the articles of incorporation or an amendment thereto: Provided,
That such preemptive right shall not extend to shares issued in compliance with laws requiring
stock offerings or minimum stock ownership by the public; or to shares issued in good faith
with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for corporate purposes or in payment of a previously
contracted debt.
 Pre-emptive right

1 Right of a shareholder to have preferences in all kinds of stock issuances before it is offered to the
public.

1 Limitations in exercising pre-emptive right

1.You can only exercise pre-emptive right in proportion to your capital contribution/ stock
ownership.

2.You cannot exercise pre-emptive right, if it will violate the constitutional provision about the 60%
stock ownership that must controlled by the Filipinos.

3. If the corporation issued new shares for the payment of property to be used by the corporation.

4.If the corporation issued new shares for the payment of previously contracted debt/obligation of
the corporation.
 SEC. 42. POWER TO DECLARE DIVIDENDS

• The board of directors of a stock corporation may declare dividends out of the unrestricted
retained earnings which shall be payable in cash, property, or in stock to all stockholders on the
basis of outstanding stock held by them : Provided,
• That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on
the subscription plus costs and expenses, while stock dividends shall be withheld from the
delinquent stockholders until their unpaid subscription is fully paid
• That no stock dividend shall be issued without the approval of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for
the purpose.
Stock corporations are prohibited from retaining surplus profits in excess of one hundred
percent (100%) of their paid-in capital stock, except:

(a) when justified by definite corporate expansion projects or programs approved by the board
of directors;

b) when the corporation is prohibited under any loan agreement with financial institutions or
creditors, whether local or foreign, from declaring dividends without their consent, and such consent
has not yet been secured;

(c) when it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation, such as when there is need for special reserve for probable
contingencies.
Concept of dividends

A dividend is a corporate profit set aside, declared and ordered by the directors to be paid to the
stockholders on demand or at a fixed time.

Dividends distinguished from profits

“Dividends” means the profits or that portion of the profits of the corporation which its board of
directors, by proper resolution, sets apart for rotable distribution among the stockholders. It is
distinguished from “profits” for the profits in the hands of a corporation do not become dividends
until they have been set apart, or at least declared, as dividends and transferred to the separate
property of the individual stockholders.

Surplus profits –

Surplus or net profits of a corporation is the difference between the total present value of its assets,
after deducting losses and liabilities, and the amount of its capital stock.
Basis of dividend declaration

The board of directors of a stock corporation may declare dividends on the

basis of outstanding stock held by the stockholders. The basis therefore is the
stockholder’s total subscription and not on the amount paid by him on the
subscription. This is for the reason that his entire subscription represents his
holding in the corporation for which he pays interests on any unpaid portion.
 Classes of Dividends

1. Cash Dividend- Dividend payable in cash.

2.Property Dividend- Dividend distributed to the stockholders in the form of property, real or
personal

3. Stock Dividend- Dividend payable on unissued/ increased/additional shares of the corp.

4.Optional Dividend- Dividend w/c gives the stockholder an option to receive cash/stock
dividend

5.Composite Dividend- Dividend w/c is partly in cash & partly in stocks. There is no option
involved.

6.Scrip Dividend- Corp. declared dividend at time they have profits not in cash, or has no
sufficient cash, or has cash but wishes to reserve it for some corporate purposes.
 7. Bond Dividend- Dividend distributed in bonds of the corp. to the stockholders.

8.Preferred Dividend- Dividend payable in one class of stockholders in priority to be paid to

another class.

9.Cumulative Dividend- Dividend payable @ a certain rate @ stated times & if the stipulated
dividend is not paid in any period, the dividend in arrears must also be paid the ff. period.

10.Liquidating Dividend- Distributions of the assets of the corp. upon dissolution/winding up of

the same.
 SEC. 44. ULTRA VIRES ACTS OF
CORPORATIONS

• SEC. 44. Ultra Vires Acts of Corporations. – No

corporation shall possess or exercise corporate powers
other than those conferred by this Code or by its articles of
incorporation and except as necessary or incidental to the
exercise of the powers conferred.
Intra vires – The acts of a corporation within its express or implied powers.

Ultra vires – The acts of a corporation outside its express or implied powers.

It denotes some act or transaction on the part of a corporation which, although not unlawful or
contrary to public policy of executed by an individual, is yet beyond the legitimate powers of the
corporation as they are defined by the statute under which it is formed, or which are applicable to it,
or by its charter or incorporation papers.
Acts which are ultra vires are voidable but may be ratified. In order that such
ultra vires may be ratified it must be shown that

1. The act was consummated or executed.

2. No creditors are prejudiced or they have given their consent thereto.
3. The right of the public or the state are not involved.
4. All of the stockholders consent thereto.
 TITLE V
BYLAWS

• SEC. 45. Adoption of Bylaws. For the adoption of bylaws by the

corporation, the affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or of at least a majority
of the members in case of nonstock corporations, shall be necessary.
Elements of valid by-laws

1. Must not be inconsistent with the general law and the Corporation Code.
2. Must not be inconsistent with public policy.
3. Must be general in application and not directed against particular individuals.
4. Must not be inconsistent with the articles of incorporation.
5. Must not impair obligations and contracts.
6. Must not be in restraint of trade.
7. Must not restrict religious freedom.
 SEC. 46. CONTENTS OF BYLAWS

• SEC. 46. Contents of Bylaws. – A private corporation may provide the following in its
bylaws
• 1. Time, place, manner of meeting of BOD.
• 2. Time, place, manner of meeting of OCS.
• 3. Required quorum.
• 4. Form of proxies
• 5. Qualifications, duties, & compensation of directors/trustees, officers & employees.
 6. Time for holding the election.
7.Manner of election/appointment & the term of office of all officers other
than directors/trustees.
8. Penalties for violation of by-laws.
9. In case of stock corp., the manner of issuing certificates.
10. Creation of executive committee.
11. Such other matters.
 SEC. 47. AMENDMENT TO BYLAWS.

• In amending by-laws, majority votes of OCS &

majority votes of BOD are required.
• Power to amend by-laws can be delegated by the OCS to
the BOD, after obtaining 2/3 votes.
 TITLE VI
MEETINGS
SECTION 49 TO 43

• Stockholder’s Meeting • Board1 Regular meeting

• 1 Regular meeting/Annual/General • -held monthly
• -held once in a year, wherein election of • -1 day prior notice of Director’s Meeting
directors & officers is also conducted.
• -held annually usually in the month of
April, unless otherwise provided for in
the by-laws.
• -2 weeks prior notice
• Special meeting • 1 Special meeting
• -made whenever it is necessary • -made whenever it is necessary
• -1 week prior notice • -1 day prior notice

• 1 Where is it held? • Where is it held?

• 1 If practicable – principal place of office. • -Inside or outside the Philippines
• 1 If not practicable – w/in the vicinity of
the principal place of office.
• without the vicinity if both of these
conditions are followed:
• 1 All of the OCS are present/duly
represented
• 1 Agenda is within the corporate
owers/authority.
• Proxy is allowed • Proxy is not allowed.
• “you cannot delegate what has been
delegated.”
 SECTION 54
WHO SHALL PRESIDE AT MEETINGS?

• SEC. 53. Who Shall Preside at Meetings. – The chairman

or, in his absence, the president shall preside at all
meetings of the directors or trustees as well as of the
stockholders or members, unless the bylaws provide
otherwise.

• Corporate presidents normally do not vote, unless there is a tie.

 SEC. 54. RIGHT TO VOTE OF SECURED
CREDITORS AND ADMINISTRATORS.

• In case a stockholder grants security interest in his or her shares in

stock corporations, the stockholder-grantor shall have the right to
attend and vote at meetings of stockholders, unless the secured
creditor is expressly given by the stockholder-grantor such right in
writing which is recorded in the appropriate corporate books.
• Executors, administrators, receivers, and other legal representatives
duly appointed by the court may attend and vote in behalf of the
stockholders or members without need of any written proxy.
 SEC. 56.VOTING RIGHT FOR TREASURY
SHARES

• SEC. 56. Voting Right for Treasury Shares. – Treasury

shares shall have no voting right as long as such shares
remain in the Treasury.
 TITLE VII
STOCKS AND STOCKHOLDERS

• SEC. 59. Subscription Contract. – Any contract for the acquisition of

unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a purchase or some
other contract.
• “Trust Fund Doctrine” – stock subscriptions are in the nature of a
trust fund in the sense that they are to be maintained unimpaired for the
protection of corporate creditors.
 SEC. 60. PRE-INCORPORATION
SUBSCRIPTION.

• A subscription of shares in a corporation still to be formed shall

be irrevocable for a period of at least six (6) months from the
date of subscription, unless all of the other subscribers consent
to the revocation, or the corporation fails to incorporate within
the same period or within a longer period stipulated in the
contract of subscription. No pre-incorporation subscription may
be revoked after the articles of incorporation is submitted to the
Commission.
 -ifyou hadalreadysubscribed, As a rule, it is
IRREVOCABLE, except in these 2 instances wherein it will
be revocable:

1. If all of other stockholders consented to its revocation

2.If the corporation fail to materialize within six (6) months

from the date of subscription.
 SEC. 61. CONSIDERATION FOR STOCKS.

• SEC. 61. Consideration for Stocks. – Stocks shall not be issued for a consideration less than the par or
issued price thereof. Consideration for the issuance of stock may be:(a) Actual cash paid to the corporation;
• (b) Property, tangible or intangible, actually received by the corporation and necessary or convenient for its
use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
• (c) Labor performed for or services actually rendered to the corporation;
• (d) Previously incurred indebtedness of the corporation;
• (e) Amounts transferred from unrestricted retained earnings to stated capital;
• (f) Outstanding shares exchanged for stocks in the event of reclassification or conversion;
• (g) Shares of stock in another corporation; and/or
• (h) Other generally accepted form of consideration
 SECTION 62
CERTIFICATE OF STOCK

• Certificate of Stock -written instrument signed by the

proper officer of a corporation stating or acknowledging
that the person named therein is the owner of a designated
number of shares of its stock.
 Nature of a certificate of stock

1.It is a written instrument signed by the proper officer of a corporation stating or

acknowledging that the person named therein is the owner of a designated number
of shares of stock.
2.It indicates the name of the holder, the number, kind and class of shares
represented, and the date of issuance.
3.It i merely the evidence of the holder's interest in the corporation, his ownership of
the share represented thereby.
4. It is not essential to make one a stockholder in a corporation.
Two requirements to effect transfer of stocks

Endorsement and delivery of stock certificate

-the usual practice is for the stockholder to sign the form on the back of
the stock certificate.

-if the holder of the certificate desires to assume the legal right of the
stockholder he fills up the blank in the form inserting his name as
transferee.

-then he delivers the certificate to the secretary of the corporation so

that the transfer may be entered in the books.
 SEC. 63. ISSUANCE OF STOCK CERTIFICATES

• SEC. 63. Issuance of Stock Certificates. – No certificate of

stock shall be issued to a subscriber until the full amount of
the subscription together with interest and expenses (in case
of delinquent shares), if any is due, has been paid.
 SEC. 64. LIABILITY OF DIRECTORS FOR
WATERED STOCKS. –

• SEC. 64. Liability of Directors for Watered Stocks. – A director or officer of a corporation
who:
(a) consents to the issuance of stocks for a consideration less than its par or issued value;
• (b) consents to the issuance of stocks for a consideration other than cash, valued in excess
ofits fair value; or
• (c) having knowledge of the insufficient consideration, does not file a written objection
with the corporate secretary,
• shall be liable to the corporation or its creditors, solidarily with the stockholder concerned
for the difference between the value received at the time of issuance of the stock and the par
or issued value of the same.
watered stocks – stock issued for no value at all or for a value less than its equivalent
either in cash, property, shares, stock dividends, or services the law prohibits the issuance
of watered stocks (only refers to original issue)

Who are liable for watered stocks?

Both consenting director or officer and the stockholder concerned for the whole amount
of difference.

Trust Fund Theory – involves an implied promise to the corporation to pay the par value
of the shares in money or its equivalent, supplementing it by a legal restriction against
release or fictitious payment of this obligation to the prejudice of creditors.
 SEC. 65. INTEREST ON UNPAID
SUBSCRIPTIONS.

• SEC. 65. Interest on Unpaid Subscriptions. – Subscribers to

stocks shall be liable to the corporation for interest on all
unpaid subscriptions from the date of subscription, if so
required by and at the rate of interest fixed in the
subscription contract. If no rate of interest is fixed in the
subscription contract, the prevailing legal rate shall apply.
 SEC. 66. PAYMENT OF BALANCE OF
SUBSCRIPTION.

• SEC. 66. Payment of Balance of Subscription. – Subject to

the provisions of the subscription contract, the board of
directors may, at any time, declare due and payable to the
corporation unpaid subscriptions and may collect the same
or such percentage thereof, in either case, with accrued
interest, if any, as it may deem necessary.
 SEC. 67. DELINQUENCY SALE

• The board of directors may, by resolution, order the sale of

delinquent stock and shall specifically state the amount due
on each subscription plus all accrued interest, and the date,
time and place of the sale which shall not be less than thirty
(30) days nor more than sixty (60) days from the date the
stocks become delinquent.
 SEC. 70. EFFECT OF DELINQUENCY

• SEC. 70. Effect of Delinquency. – No delinquent stock shall be voted

for, be entitled to vote, or be represented at any stockholder’s meeting,
nor shall the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in accordance with the
provisions of this Code, until and unless payment is made by the holder
of such delinquent stock for the amount due on the subscription with
accrued interest, and the costs and expenses of advertisement, if any.
 SEC. 71. RIGHTS OF UNPAID SHARES,
NONDELINQUENT.

• SEC. 71. Rights of Unpaid Shares, Nondelinquent. –

Holders of subscribed shares not fully paid which are not
delinquent shall have all the rights of a stockholder.
 SECTION 72
LOST OR DESTROYED CERTIFICATES

• Procedures for the issuance of new certificates:

• 1. File with the corporation an affidavit of triplicate setting.
• (Affidavit of Lost)
• 2. After verifying the affidavit, corporation shall publish a notice in a
newspaper, once a week for three (3) consecutive weeks at the expene
of the registered owner of the stock certificate lost, stolen/destroyed.
• (Affidavit of Publication)
 TITLE VIII
CORPORATE BOOKS AND RECORDS

• SEC. 73. Books to be Kept; Stock Transfer Agent. – Every corporation

shall keep and carefully preserve at its principal office all information
relating to the corporation

• Books to be kept; stock transfer agent

• Stock and transfer book –books of negotiation/ transactions
involving shares.
• *Corporation will not be binding if transactions are not recorded in the
stock & transfer book.
 SEC. 74. RIGHT TO FINANCIAL STATEMENTS

• SEC. 74. Right to Financial Statements. – A corporation shall furnish a

stockholder or member, within ten (10) days from receipt of their
written request, its most recent financial statement, in the form and
substance of the financial reporting required by the Commission.
 TITLE IX
MERGER AND CONSOLIDATION

• SEC. 75. Plan of Merger or Consolidation. – Two (2) or

more corporations may merge into a single corporation
which shall be one of the constituent corporations or may
consolidate into a new single corporation which shall be the
consolidated corporation
Consolidation – the uniting or amalgamation of two or more
existing corporations to form a new corporation. The united
concern resulting from the union is called the consolidated
corporation.

Merger – a union effected by the absorbing of one or more

existing corporations by another which survives and continues the
combined business. The parties to a combination by consolidation
or merger are called the “constituent” corporations.
 SEC. 79. EFFECTS OF MERGER OR
CONSOLIDATION.

• SEC. 79. Effects of Merger or Consolidation. – The merger or

consolidation shall have the following effects:
• a) The constituent corporations shall become a single corporation which,
in case of merger, shall be the surviving corporation designated in the plan
of merger; and, in case of consolidation, shall be the consolidated
corporation designated in the plan of consolidation;
• (b) The separate existence of the constituent corporations shall cease,
except that of the surviving or the consolidated corporation;
c) The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities, and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;

(d) The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and franchises of each constituent corporation; and all real or personal
property, all receivables due on whatever account, including subscriptions to shares and
other choses in action, and every other interest of, belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
(e) The surviving or consolidated corporation shall be responsible for all
the liabilities and obligations of each constituent corporation as though
such surviving or consolidated corporation had itself incurred such
liabilities or obligations; and any pending claim, action or proceeding
brought by or against any constituent corporation may be prosecuted by
or against the surviving or consolidated corporation. The rights of
creditors or liens upon the property of such constituent corporations
shall not be impaired by the merger or consolidation.
 TITLE X
APPRAISAL RIGHT

• SEC. 80. When the Right of Appraisal May Be Exercised. – Any stockholder of a corporation shall
have the right to dissent and demand payment of the fair value of the shares
• (a) In case an amendment to the articles of incorporation has the effect of changing or restricting the
rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to
those of outstanding shares of any class, or of extending or shortening the term of corporate existence;
• (b) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in this Code;
• (c) In case of merger or consolidation; and
• (d) In case of investment of corporate funds for any purpose other than the primary purpose of the
corporation. in the following instances:
 TITLE XI
NONSTOCK CORPORATION

• SEC. 86. Definition. – For purposes of this Code and subject to its provisions on dissolution, a
non-stock corporation is one where no part of its income is distributable as dividends to its
members, trustees, or officers: Provided, That any profit which a non-stock corporation may obtain
incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was organized, subject to the provisions of this Title.
• The provisions governing stock corporations, when pertinent, shall be applicable to
non-stock corporations, except as may be covered by specific provisions of this Title.
 SEC. 87. PURPOSES.

• SEC. 87. Purposes. – Non-stock corporations may be formed or

organized for charitable, religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service, or similar purposes,
like trade, industry, agricultural and like chambers, or any combination
thereof, subject to the special provisions of this Title governing
particular classes of non-stock corporations.
 SECTION 89
NON-TRANSFERABILITY OF MEMBERSHIP

• Non-transferability of membership
• If you are a contributor/ a member, you cannot transfer
your membership.
• -it is personal & non-transferrable, unless the articles of
incorporation & by-laws otherwise provide.
 SECTION 91
ELECTION & TERM OF TRUSTEES

• SEC. 91. Election and Term of Trustees. – The number of trustees shall be fixed in the articles of
incorporation or bylaws which may or may not be more than fifteen (15). They shall hold office for
not more than three (3) years until their successors are elected and qualified. Trustees elected to fill
vacancies occurring before the expiration of a
• Illustration:
• 21 Board of trustees. 21/3=7
• 1st 7 = serve for 3 years
• 2nd 7 = serve for 2 years
• 3rd 7 = serve for 1 year
• *subsequent elections of trustees comprising one-third of the BOT shall be held annually & trustees
so elected shall have a term of three (3) years.
 SEC. 95.
CLOSE CORPORATIONS

• CLOSE CORPORATION- All the corporation's issued

stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of
persons, not exceeding twenty (20).
 SECTION 105
EDUCATIONAL INSTITUTION

• Board of Trustees of Educational Institutions organized as Non-stock

corporation shall not be less than five (5) nor more than fifteen (15).
Provided, however, that the number of trustees shall be in multiples of
5.
• Illustration: same as in SEC 92 except in its denominator will be
changed by 5.
 SEC. 107.
RELIGIOUS CORPORATIONS

• SEC. 107. Classes of Religious Corporations. – Religious

corporations may be incorporated by one or more persons.
Such corporations may be classified into corporations sole
and religious societie
 SEC. 108. CORPORATION SOLE

• SEC. 108. Corporation Sole. – For the purpose of

administering and managing, as trustee, the affairs,
property and temporalities of any religious denomination,
sect or church, a corporation sole may be formed by the
chief archbishop, bishop, priest, minister, rabbi, or other
presiding elder of such religious denomination, sect, or
church.
 SEC. 116
ONE PERSON CORPORATIONS

• SEC. 116. One Person Corporation. – A One Person Corporation is a corporation with a
single stockholder: Provided, That only a natural person, trust, or an estate may form a
One Person Corporation.
• Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies,
and non-chartered government-owned and -controlled corporations may not incorporate as
One Person Corporations: Provided further, That a natural person who is licensed to
exercise a profession may not organize as a One Person Corporation for the purpose of
exercising such profession except as otherwise provided under special laws.
 SEC. 117. MINIMUM CAPITAL STOCK REQUIRED
FOR ONE PERSON CORPORATION.

• SEC. 117. Minimum Capital Stock Required for One

Person Corporation. – A One Person Corporation shall not
be required to have a minimum authorized capital stock
except as otherwise provided by special law.
 SEC. 121. SINGLE STOCKHOLDER AS
DIRECTOR, PRESIDENT.

• SEC. 121. Single Stockholder as Director, President. – The

single stockholder shall be the sole director and president of
the One Person Corporation.
 SEC. 140
FOREIGN CORPORATIONS

• SEC. 140. Definition and Rights of Foreign Corporations. – For

purposes of this Code, a foreign corporation is one formed,
organized or existing under laws other than those of the
Philippines’ and whose laws allow Filipino citizens and
corporations to do business in its own country or State. It shall
have the right to transact business in the Philippines after
obtaining a license for that purpose in accordance with this Code
and a certificate of authority from the appropriate government
agency.
 DISSOLUTION

• DISSOLUTION - Dissolution of a corporation is the extinguishment of the franchise of

a corporation and termination of its corporate existence.

• Modes of Dissolution:
• 1. Voluntary Dissolution
• 2. Involuntary Dissolution
• 3. Shortening of term
• 4. Expiration of term (JRS at 311)
• 5. Failure to organize and commence business within two years from the date of issuance
of certificate of incorporation
• 6. Legislative Dissolution
• The termination of the life of a juridical entity does not by itself cause the extinction or
diminution of the rights and liability of such entity, since it is allowed to continue as a
juridical entity for 3 years for the purpose of prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to dispose of and convey its property, and to
distribute its assets.
 SEC. 118.VOLUNTARY DISSOLUTION WHERE
NO CREDITORS ARE AFFECTED

• If dissolution of a corporation does not prejudice the rights of any creditor having a claim
against it, the dissolution may be effected by majority vote of the board of directors or
trustees, and by a resolution duly adopted by the affirmative vote of the stockholders
owning at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds
(2/3) of the members of a meeting to be held upon call of the directors or trustees after
publication of the notice of time, place and object of the meeting for three (3) consecutive
weeks in a newspaper published in the place where the principal office of said corporation is
located;
 SEC. 119.VOLUNTARY DISSOLUTION WHERE
CREDITORS ARE AFFECTED

• Where the dissolution of a corporation may prejudice the rights of any creditor, the
petition for dissolution shall be filed with the Securities and Exchange Commission. The
petition shall be signed by a majority of its board of directors or trustees or other officers
having the management of its affairs, verified by its president or secretary or one of its
directors or trustees, and shall set forth all claims and demands against it, and that its
dissolution was resolved upon by the affirmative vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the
members at a meeting of its stockholders or members called for that purpose.
 SEC. 120. DISSOLUTION BY SHORTENING
CORPORATE TERM.

• A voluntary dissolution may be effected by amending the articles of incorporation to

shorten the corporate term pursuant to the provisions of this Code. A copy of the
amended articles of incorporation shall be submitted to the Securities and Exchange
Commission in accordance with this Code. Upon approval of the amended articles of
incorporation of the expiration of the shortened term, as the case may be, the
corporation shall be deemed dissolved without any further proceedings, subject to the
provisions of this Code on liquidation.
 SECTION 121. INVOLUNTARY DISSOLUTION

• Section 121. Involuntary dissolution. – A corporation may

be dissolved by the Securities and Exchange Commission
upon filing of a verified complaint and after proper notice
and hearing on the grounds provided by existing laws, rules
and regulations.