Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
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Corporation (RA 11232)
LECTURE NOTES
Corporation
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
incident to its existence. (Sec. 2, RCC)
Classes of Corporation
1. As to whether their membership is represented by
shares of stock or not:
a. Stock –one which has:
i. Capital stock divided into shares; and
ii. Are authorized to distribute to the holders
of such shares dividends or allotments
of the surplus profits on the basis of the
shares held.
b. Non-Stock – is one which does not issue
shares and is - created not for profit but for
public good and welfare and where no part of
its income is distributable as dividends to its
members, trustees, or officers
2. As to the number of persons who compose them:
a. One Person Corporation - corporation consisting
of a single stockholder: Provided, That only a
natural person, trust, or estate may form a One
Person Corporation
b. Corporation Aggregate - corporation consisting
of more than one member or corporator. The
RCC requires that these corporations must be
formed jointly with others
c. Corporation Sole - Religious corporation which
consists of one member which is the head of the
religious sect or corporator only and his
successor
3. As to state or country under or by whose laws
they have been created:
a. Domestic - incorporated and organized under
the laws of the Philippines.
b. Foreign - formed, organized, or existing under
any laws other than those of the Philippines and
whose laws allow Filipino citizens and
corporations to do business in its own country
or state
4. As to their legal right to corporate existence:
a. De jure - existing both in fact and in law.
b. De facto - existing in fact but not in law.
5. As to whether they are open to the public or not:
a. Close - limited to selected persons or members
of the family.
b. Open - open to any person who may wish to
become a stockholder or member thereto.
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VILLEGAS/APRADO/MAGUMUN/CELIS
OCTOBER 2023
6. As to whether they are corporations in a true
sense or only in a limited sense:
a. True - exists by statutory authority
b. Quasi - exist without formal legislative grant:
i. Corporation by prescription - has
exercised corporate powers for an
indefinite period without interference on
the part of the sovereign power and
which by fiction of law, is given the
status of a corporation;
ii. Corporation by estoppel - in reality is
not a corporation, either de jure or de
facto, because it is so defectively
formed, but is considered a corporation
in relation to those only who, by reason
of theirs acts or admissions, are
precluded from asserting that it is not a
corporation.
7. As to whether they are for public (government) or
private purpose:
a. Public - formed or organized for the government
of a portion of the State (like cities and
municipalities) for the purpose of serving the
general good and welfare.
b. Private - one formed for some private purpose,
benefit or end. It may either be a stock or non-
stock
Tests in determining the nationality of corporations
1. Control Test - In determining the nationality of a
corporation, the control test uses the nationality of
the controlling stockholders or members of the
corporation.
2. Grandfather Rule – It is used in determining the
nationality of a corporation engaged in a partly
nationalized activity. This applies in cases where the
stocks of a corporation are owned by another
corporation with foreign stockholders exceeding
40% of the capital stock of the corporation.
Doctrine of Separate Juridical Personality
The doctrine of corporate juridical personality states that a
corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it.
1. Liability for acts or contracts – As a general rule, the
obligation of the corporation is not the liability of the
stockholders, officers or directors.
2. Liability for torts or crimes - Since a corporation is a
mere creation of legal fiction, it cannot be held liable for
crimes committed by its officers; in such case the
responsible officers would be criminally liable
3. Right to bring actions – may bring civil and criminal
actions in its own name in the same manner as natural
persons. However, rights belonging to the corporation
cannot be invoked by the stockholders (or directors and
officers) even if the latter owns substantial majority of
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the shares in that corporation and rights of the
stockholders, directors and officers cannot be invoked
by the corporation.
4. Acquisition of jurisdiction – service of summons may be
made only on the president, general manager,
corporate secretary, treasurer or in-house counsel.
5. Recovery of damages - A corporation is not entitled to
moral damages because, being an artificial person and
having existence only in legal contemplation, it has no
feelings, no emotions, no senses.
Exceptions:
a. In cases of libel, slander, or any other form of
defamation.
b. When the corporation has a reputation that is
debased, resulting in its humiliation in the
business realm.
Doctrine of Piercing the Corporate Veil
The doctrine of piercing the corporate veil is the doctrine
that allows the State to disregard, for certain justifiable
reasons, the notion that a corporation has a personality
separate and distinct from the persons composing it.
Grounds for Application of Doctrine
1. If the fiction is used to perpetrate fraud (Fraud Test)
2. If the complete control of one corporate entity to
another which perpetuated the wrong is the
proximate cause of the injury (Control Test)
3. If a certain corporation is only an adjunct or an
extension of the personality of the corporation
(Alter ego or Instrumentality Test)
4. If the fiction is pierced to make the stockholders
liable for the obligation of the corporation (Objective
Test)
Test in Determining Applicability
1. Control, not mere majority or complete stock
control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked so that the
corporate entity as to this transaction had at the
time no separate mind, will or existence of its own
(Instrumentality or Control test);
2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of
plaintiff’s legal right (Fraud test); and
3. The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss
complained of (Harm test).
Capital Structure
Number and the qualifications of incorporators in a
stock corporation
1. As amended by RA No. 11232 (or the Revised
Corporation Code), any person, partnership,
association or corporation, singly or jointly with
others
2. Incorporators must not be more than 15, except in
case of educational institutions and close
corporations
3. An incorporator must be of legal age
4. Each must own or subscribe to at least one (1)
share of the capital stock.
Subscription Requirements
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Stock corporations shall not be required to have a minimum
authorized capital stock, except as may be provided by a
special law.
Corporate Term
As amended by RA No. 11232, corporations now have a
perpetual existence, unless its Articles of Incorporation
provides otherwise.
Classification of Shares
1. Common Shares - These are ordinarily and usually
issued stocks without extraordinary rights and
privileges, and entitle the shareholder to a pro rata
division of profits. It represents the residual
ownership interest in the corporation. The holders
of this kind of share have complete voting rights and
they cannot be deprived of the said rights except as
provided by law.
2. Preferred Shares - These entitle the shareholder to
some priority on distribution of dividends and assets
over those holders of common shares. Preferred
shares may be issued only with a stated par value.
3. Voting Shares - Shares with a right to vote. If the
stock is originally issued as voting stock, it may not
thereafter be deprived of the right to vote without
the consent of the holder.
4. Non-voting shares - Shares without right to vote.
The law only authorizes the denial of voting rights
in the case of redeemable shares and preferred
shares, provided that there shall always be a class
or series of shares which have complete voting
rights
5. Founder’s Shares - Shares classified as such in the
articles of incorporation and which may be given
special preference in voting rights and dividend
payments.
6. Redeemable Shares - These 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.
7. Treasury Shares - Shares that have been earlier
issued as fully paid and have thereafter been
acquired by the corporation by purchase, donation,
and redemption or through some lawful means.
Scope of Voting Rights Subject to Classification
Non-voting shares are not entitled to vote. The law only
authorizes the denial of voting rights in the case of
redeemable shares and preferred shares, provided that
there shall always be a class or series of shares which have
complete voting rights.
Note, however, that these redeemable and preferred
shares, when such voting rights are denied, shall
nevertheless be entitled to vote on the following
fundamental matters:
a. Amendment of the Articles of Incorporation;
b. Adoption and amendment of by-laws;
c. Sale, lease, exchange, other disposition of all or
substantially all of the corporate property;
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d. Incurring, creating or increasing bonded
indebtedness;
e. Increase or decrease of capital stock;
f. Merger and consolidation;
g. Investment of corporate funds in another
corporation or business; and
h. Dissolution of the corporation
Incorporation and Organization
Steps in the creation of a corporation
1. Promotion
2. Incorporation
3. Formal organization and commencement of
business operations
Promoter - is a person who, acting alone or with others,
takes initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor.
Incorporation - is the performance of conditions, acts,
deeds, and writings by incorporators, and the official acts,
certification or records, which give the corporation its
existence.
Subscription Contract - It is a contract for the acquisition of
unissued stock in an existing corporation or a corporation
still to be formed. It is considered as such notwithstanding
the fact that the parties refer to it as purchase or some other
contract.
Pre-incorporation Subscription Agreement - is irrevocable
for a period of six (6) months from the date of subscription
except if all of the other subscribers consent to the
revocation, or if the incorporation of said corporation fails
to materialize within said period or within a longer period as
may be stipulated in the contract of subscription.
However, no pre-incorporation subscription may be revoked
after the submission of the AOI to the Securities and
Exchange Commission.
Consideration for Stocks
Valid considerations in a subscription agreement:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible (i.e. patents or
copyrights), provided:
a. The property is actually received by the
corporation
b. The property is necessary or convenient for its
use and lawful purposes
c. It must be subject to a fair valuation equal to
the par or issued value of the stock issued
d. The valuation thereof shall initially be
determined by the incorporators; and
e. The valuation is subject to the approval by the
SEC.
3. Labor or services actually rendered to the corporation.
4. Prior corporate obligations or indebtedness. 5
5. Amounts transferred from unrestricted retained
earnings to stated capital (in case of declaration of
stock dividends).
6. Outstanding shares in exchange for stocks in the event
of reclassification or conversion.
7. Shares of stock in another corporation; and/or 8.
Other generally accepted form of consideration
Articles of Incorporation
It is one that defines the charter of the corporation and the
contractual relationships between the State and the
corporation, the stockholders and the State, and between
the corporation and its stockholders.
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Contents:
1. Name of corporation;
2. Purpose/s, indicating the primary and secondary
purposes (Purpose Clause);
3. PlAce of principal office;
4. Term of existence; if the corporation has not elected
perpetual existence;
5. Names, nationalities and residences of Incorporators;
6. Number of directors, which shall not be more than
fifteen (15) while the number of trustees which may be
more than fifteen (15) and the term of existence is
generally perpetual;
7. Names, nationalities, and residences of the persons who
shall Act as directors or trustees until the first regular
ones are elected and qualified;
8. If a Stock corporation, the amount of its authorized
capital stock, number of shares and in case the shares
are par value shares, the par value of each share;
9. Names, nationalities, number of shares, and the
amounts subscribed and paid by each of the Original
subscribers
10. If Non-stock, the amount of capital, the names,
residences, and amount paid by each contributor,
11. Other matters as are not inconsistent with law and
which the incorporators may deem necessary and
convenient.
Non-amendable Items in the Articles of Incorporation
Those matters referring to accomplished facts, except to
correct mistakes, such as:
1. Names of incorporators;
2. Names of original subscribers to the capital stock of the
corporation and their subscribed and paid up capital;
3. Names of the original directors;
4. Treasurer elected by the original subscribers;
5. Members who contributed to the initial capital of the
non-stock corporation; or
6. Witnesses to and acknowledgment with AOI
Corporate Name
Limitations on Use of Corporate Name
1. No corporate name shall be allowed by the Commission
if it is not distinguishable from that already reserved or
registered for the use of another corporation, or if such
name is already protected by law, or when its use is
contrary to existing law, rules and regulations.
2. If the name applied for is similar to the name of a
registered corporation, the applicant shall add one or
more distinctive words to the proposed name to remove
the similarity or differentiate it from the registered
name.
3. The corporate name shall contain the word
“Corporation” or “Incorporated,” or the abbreviations
“Corp.” or “Inc.” respectively. The corporate name of a
foundation shall use the word “Foundation”.
4. The name of a dissolved corporation or whose
registration has been revoked shall not be used by
another corporation within five (5) years from the
approval of dissolution or five (5) years from the date
of revocation, unless it has been allowed at the time of
the dissolution or revocation by the stockholders,
members or partners who represent a majority of the
outstanding capital stock or membership of the
dissolved corporation.
5. For as long as a corporation is existing regardless of
whether or not it is in operation, its corporate name
cannot be used by any other group or corporation.
6. The practice of a profession regulated by special law
which among others provides for the permissible use of
the profession’s name in a firm, partnership or
association shall govern the use of the name.
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Registration and Issuance of Certificate of
Incorporation
Basic requirements for the registration and issuance of a
certificate of incorporation of a stock corporation
1. A person desiring to incorporate shall submit the
intended corporate name to the Commission for
verification slip
2. AOI and by-laws
A corporation comes into existence upon the issuance of the
certificate of incorporation by the SEC under its official seal,
except in case of a corporation sole which commences
existence upon the filing of the articles of incorporation.
Election of Directors and Trustees
Requirements and limitations for the election of directors
or trustees
1. Presence of Stockholders representing a majority of
the outstanding capital stock of the corporation or
majority of the members, either in person or by proxy.
New ways to vote in RCC, Sec 24: Through remote
communication or in absentia
Note that it must be provided in the by-laws except
in corporations vested with public interest
2. The election must be by ballot, if requested by any
voting stockholder or member.
3. The total number of votes cast by him must not exceed
the number of shares owned by him as shown in the
books of the corporation multiplied by the whole
number of directors to be elected.
4. No delinquent stock shall vote or be voted for.
5. A stockholder cannot be deprived in the articles of
incorporation or in the by-laws of his statutory right to
use any of the methods of voting in the election of
directors.
6. The candidates receiving the highest number of votes
shall be declared.
Quorum – it shall consist of the stockholders representing a
majority of the outstanding capital stock or a majority of the
members in the case of nonstock corporations, unless
otherwise provided.
Adoption of By-laws
The by-laws supplement the AOI. The function of by-laws is
to define the rights and duties of corporate officers and
directors or trustees, and of stockholders or members
towards the corporation and among themselves with
reference to the management of corporate affairs and to
regulate transaction of the business of the corporation in a
particular way.
Contents:
1. Time, place and manner of calling and conducting
regular or special meetings of directors or trustees.
2. Time and manner of calling and conducting regular or
special meetings of the stockholder or members.
3. The required quorum in meeting of stockholders or
members and the manner of voting therein.
4. The modes by which a stockholder, member, director,
or trustee may attend meetings and cast their votes;
5. The form for proxies of stockholders and members and
the manner of voting them.
6. The directors’ or trustees’ qualifications, duties and
responsibilities, the guidelines for setting the
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compensation of directors or trustees and officers, and
the maximum number of other board representations
that an independent director or trustee may have which
shall, in no case, be more than the number prescribed
by the Commission;
7. Time for holding the annual election of directors or
trustees and the mode or manner of giving notice
thereof.
8. Manner of election or appointment and the term of office
of all officers other than directors or trustees.
9. Penalties for violation of the by-laws.
10. In case of stock corporations, the manner of issuing
certificates.
11. Such other matters as may be necessary for the proper
or convenient transaction of its corporate business and
affairs for the promotion of good governance and anti-
graft and corruption measures.
Binding Effects
The following are the binding effects of by-laws:
1. As to members/ stockholders, officers, trustees/
directors and corporation, they are bound by and
must comply with it. They are presumed to know
the provisions of the by-laws.
2. As to third persons, they are not bound, unless they
have knowledge or notice of the bylaws at the time
the contract was executed.
Amendments
1. Amendment may be made by stockholders together
with the Board – by majority vote of directors and
owners of at least a majority of the outstanding
capital stock/members; or
2. By the board only after due delegation by the
stockholders owning 2/3 of the outstanding capital
stock/members. Provided, that such power
delegated to the board shall be considered as
revoked whenever stockholders owning at least
majority of the outstanding capital stock or
members, shall vote at a regular or special meeting.
Effects of Non-use of Corporate Charter
If a corporation does not formally organize and commence
its business within five (5) years from the date of its
incorporation, its certificate of incorporation shall be
deemed revoked as of the day following the end of the five-
year period.
If a corporation has commenced its business but
subsequently becomes inoperative for a period of at least
five (5) consecutive years, the Commission may, after due
notice and hearing, place the corporation under delinquent
status.
A delinquent corporation shall have a period of two (2) years
to resume operations and comply with all requirements that
the Commission shall prescribe. Upon compliance by the
corporation, the Commission shall issue an order lifting the
delinquent status. Failure to comply with the requirements
and resume operations within the period given by the
Commission shall cause the revocation of the corporation’s
certificate of incorporation.
Corporate Powers
1. Express powers – granted by law, the Corporation
Code, and its Articles of Incorporation or Charter,
and administrative regulations;
2. Inherent/incidental powers – not expressly stated
but are deemed to be within the capacity of
corporate entities;
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3. Implied/necessary powers – exists as a necessary
consequence of the exercise of the express powers
of the corporation or the pursuit of its purposes as
provided for in the Charter.
General Powers; Theory of General Capacity
The general powers of a corporation also called Theory of
General Capacity are the following:
1. To Sue and be sued;
2. To have perpetual existence unless the certificate of
incorporation provides otherwise;
3. To adopt and use of Corporate seal;
4. To amend its Articles of Incorporation;
5. To adopt its By-laws;
6. For Stock corporations: issue and sell stocks to
subscribers and treasury stocks; for non-stock
corporations: admit members;
7. To Purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and deal with real and
personal property, securities and bonds subject to the
Constitution and existing laws;
8. To Enter into merger or consolidation, (To enter into a
partnership, joint venture, merger, consolidation, or
any other commercial agreement with natural and
juridical persons);
9. To make reasonable Donations, including those for
public welfare, or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, that no
foreign corporation shall give donations in aid of any
political party, candidate or partisan political activity
10. To establish pension, Retirement, and other plans for
the benefit of its directors, trustees, officers and
employees – basis of which is the Labor code; and
11. To exercise Other powers essential or necessary to
carry out its purposes.
Specific Powers; Theory of Specific Capacity
The specific powers of a corporation, also called Theory of
Specific Capacity, are the following:
1. Power to extend or shorten corporate term
2. Increase or decrease capital stock
3. Incur, create, or increase bonded indebtedness
4. Deny pre-emptive right
5. Sell, dispose, lease, encumber all or substantially all of
corporate assets
6. Purchase or acquire own Shares
7. Invest corporate funds in another corporation or
business for other purpose other than primary purpose
8. Declare dividends out of unrestricted retained earnings
9. Enter into management contract with another
corporation (not with an individual or a partnership –
within general powers) whereby one corporation
undertakes to manage all or substantially all of the
business of the other corporation for a period not longer
than five (5) years for any one term
10. Amend Articles of Incorporation
Power to Extend or Shorten Corporate Term
1. Majority vote of the BOD or BOT
2. Ratification by 2/3 of the stockholders representing
outstanding capital stock or by at least 2/3 of the
members in case of non-stock corporation.
3. Required notice duly complied with.
4. Copy of the amended AOI shall be submitted to the SEC
for its approval.
Note: The extension must be done during the lifetime of
the corporation not earlier than 3 years prior to the
expiry date unless exempted.
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Power to Increase or Decrease Capital Stock or
Incur, Create, Increase Bonded Indebtedness
1. Majority vote of the BOD;
2. Ratification by stockholders representing 2/3 of the
outstanding capital stock.
3. Required notice duly complied with.
4. Prior approval of the SEC.
Note: The required 25% subscription shall be based on the
additional amount by which the capital stock increased and
not on the total capital stock as increased.
Power to Deny Pre-Emptive Rights
Pre-emptive right - It is the preferential right of
shareholders to subscribe to all issues or disposition of
shares of any class in proportion to their present
shareholdings. This is to enable the shareholder to retain
his proportionate control in the corporation and to retain his
equity in the surplus.
a. It is available on re-issuance of treasury shares
b. It may be waived
c. It is transferrable unless there is express restriction
in the AOI
Instances when pre-emptive right is not available
1. Shares to be issued to comply with laws requiring
stock offering or minimum stock ownership by the
public.
2. Shares issued in good faith with the approval of the
stockholders representing 2/3 of the outstanding
capital stock in exchange for property needed for
corporate purposes.
3. Shares issued in payment of previously contracted
debts.
4. In case the right is denied in the AOI.
5. Waiver of the right by the stockholder.
Power to Sell or Dispose Corporate Assets
There is a sale, lease, exchange, mortgage, pledge, and any
other disposition of substantially all of corporate asset if in
the sale, lease, exchange, mortgage, pledge, and any other
disposition thereof, the corporation would be rendered:
1. Incapable of continuing the business; or
2. Incapable of accomplishing the purpose for which it
was incorporated.
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Requirements:
1. Majority vote of the BOD or BOT
2. Ratification by 2/3 of the stockholders representing
outstanding capital stock or by at least 2/3 of the
members in case of non-stock corporation, except
when:
a. sale is necessary in the usual and regular course
of business;
b. if the proceeds of the sale or other disposition
of such property and assets are to be
appropriated for the conduct of the remaining
business; or
c. if the transaction does not cover all or
substantially all of the assets.
3. Required notice duly complied with.
Power to Acquire Own Shares
Instances when a corporation may acquire its own shares:
1. To eliminate fractional shares arising out of stock
dividends
2. To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale and to purchase delinquent shares sold
during said sale
3. To pay dissenting or withdrawing stockholders (in the
exercise of the stockholder’s appraisal right)
4. To acquire treasury shares
5. To acquire redeemable shares regardless of existence
of retained earnings
6. To effect a decrease of capital stock
7. In close corporations, when there is a deadlock in the
management of the business, the SEC may order the
purchase at their fair value of the shares of any
stockholder by a corporation regardless of the
availability of unrestricted retained earnings in its
books.
Note that where a corporation reacquires its own shares, it
does not thereby become a subscriber thereof.
Power to Invest Corporate Funds in Another
Corporation or Business
As a rule, a corporation is not allowed to engage in a
business different from those enumerated in its AOI, except
when the purpose will be amended to include the desired
business activity among its secondary purpose.
Statutory requirements:
1. Approval by the majority vote of the BOD or BOT;
2. Ratification by stockholders representing at least
2/3 of the outstanding capital stock or by at least
2/3 of the members in case of nonstock
corporations;
3. Ratification must be made at a meeting duly called
for the purposes;
4. Required notice duly complied with.
Power to Declare Dividends
Requirements for the declaration of dividends
1. Existence of unrestricted retained earnings)
2. Resolution of the board.
In case stock dividend is to be declared, an additional
requirement of:
3. A vote representing 2/3 of outstanding capital.
4. A corporation must have also a sufficient number of
authorized unissued shares for distribution to
stockholders.
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Forms of dividends
1. Cash dividends due on delinquent stock shall first be
applied to the unpaid balance on the subscription plus
cost and expenses.
2. Stock dividends are withheld from the delinquent
stockholder until his unpaid subscription is fully paid.
3. Property Stockholders are entitled to dividends pro-rata
based on the total number of shares and not on the
amount paid on shares.
Power to Enter into a Management Contract
Management Contract is any contract whereby a
corporation undertakes to manage or operate all or
substantially all of the business of another corporation,
whether such contracts are called service contracts,
operating agreements or otherwise.
Requirements:
1. Contract must be approved by the majority of the BOD
or BOT of both managing and managed corporation.
2. Ratified by the stockholders owning at least the majority
of the outstanding capital stock, or members in case of
a non-stock corporation, of both the managing and the
managed corporation, at a meeting duly called for the
purpose.
3. Contract must be approved by the stockholders of the
managed corporation owning at least 2/3 of the
outstanding capital stock entitled to vote or 2/3 of the
members when:
a. Stockholders representing the same interest in
both of the managing and the managed
corporation own or control more than 1/3 of the
total outstanding capital stock entitled to vote
of the managing corporation (Interlocking
stockholders);
b. Majority of the members of the BOD of the
managing corporation also constitute a majority
of the BOD of the managed corporation.
(Interlocking Directors)
Ultra Vires Doctrine
An ultra vires act refers to an act outside or beyond express,
implied and incidental corporate powers. The concept also
includes those acts that may ostensibly be within such
powers but are, by general or special laws, either proscribed
or declared illegal.
They are merely voidable and may become binding and
enforceable when ratified by the stockholders.
Ultra vires acts entered into by the board of directors bind
the corporation, and the courts will not interfere unless
terms are oppressive and unconscionable.
Doctrine of Individuality of Subscription
Subscribed stocks cannot be divided into portions so that
the stockholder shall not be entitled to a certificate of stock
until he has remitted the fully payment of his subscription.
As a result, a stockholder cannot transfer portion or part of
his stock in view of the indivisible nature of the subscription
contract. It is only upon full payment of the whole
subscription that a stockholder can transfer the same to
several transferees.
Doctrine of Equality of Shares
Where the articles of incorporation do not provide for any
distinction of the shares of stock, all shares issued by the
corporation are presumed to be equal and enjoy the same
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rights and privileges and are also subject to the same
liabilities.
Trust Fund Doctrine
The subscribed capital stock of the corporation is a trust
fund for the payment of debts of the corporation which the
creditors have the right to look up to satisfy their credits,
and which the corporation may not dissipate. The creditors
may sue the stockholders directly for the latter’s unpaid
subscription.
Exceptions to the trust fund doctrine
The Code allows distribution of corporate capital only in
instances of:
1. Amendment of the AOI to reduce authorized capital
stock;
2. Purchase of redeemable shares by the corporation
regardless of existence of unrestricted retained
earnings; or
3. Dissolution and eventual liquidation of the
corporation.
Stockholders and Members
A person becomes a shareholder the moment he:
1. Enters into a subscription contract with an existing
corporation (he is a stockholder upon acceptance of
the corporation of his offer to subscribe whether the
consideration is fully paid or not);
2. Purchases treasury shares from the corporation; or
3. Acquires shares from existing shareholders by sale
or any other contract, or acquires shares by
operation of law like succession.
Rights of a Stockholder and Member
1. Management Right
a. To attend and vote in person or by proxy at a
stockholders’ meetings
b. To elect and remove directors
c. To approve certain corporate matters
d. To adopt and amend or repeal the by-laws of
adopt new by-laws
e. To compel the calling of the meetings
f. To enter into a voting trust agreement; and
g. To have the corporation voluntarily dissolved
2. Proprietary rights
a. To transfer stock in the corporate book
b. To receive dividends when declared
c. To the issuance of certificate of stock or other
evidence of stock ownership
d. To participate in the distribution of corporate
assets upon dissolution; and
e. To pre-emption in the issue of shares
3. Remedial Rights
a. To inspect corporate books
b. To recover stock unlawfully sold for delinquent
payment of subscription
c. To be furnished with most recent financial
statements or reports of the corporation’s
operation
d. To bring suits (derivative suit, individual suit,
and representative suit); and
e. To demand payment in the exercise of appraisal
right.
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Participation in Management
Acts of management pertain to the board; and those of
ownership, to the stockholders or members.
Proxy
While stockholders and members may vote in person or by
proxy in all meetings of stockholders or members, this right
may be denied under the articles of incorporation or by-laws
of a non-stock corporation.
Requirements of Valid Proxy
1. Proxies shall be in writing and shall be signed by the
stockholder or member concerned. Oral proxies are NOT
valid;
2. The proxy shall be filed within a reasonable time before
the scheduled meeting with the corporate secretary;
3. Unless otherwise provided (continuing in nature) in the
proxy, it shall be valid only for the meeting for which it
is intended. The authority may be general or limited;
and
4. No proxy shall be valid and effective for a period longer
than 5 years at any one time.
Voting Trust
A voting trust agreement (VTA) is an agreement whereby
one or more stockholders transfer their shares of stocks to
a trustee, who thereby acquires for a period of time the
voting rights (and/or any other specific rights) over such
shares; and in return, trust certificates are given to the
stockholder/s, which are transferable like stock certificates,
subject, to the trust agreement.
Requirements:
1. The agreement must be in writing and notarized and
specify the terms and conditions thereof.
2. A certified copy of such agreement shall be filed with
the corporation and with the SEC, otherwise, it is
ineffective and unenforceable.
3. The certificate/s of stock covered by the VTA shall be
cancelled.
4. A new certificate shall be issued in the name of the
trustee/s stating that they are issued pursuant to the
VTA.
5. The transfer shall be noted in the books of the
corporation, that it is made pursuant to said VTA.
6. The trustee/s shall execute and deliver to the
transferors voting trust certificates, which shall be
transferable in the same manner and with the same
effect as certificates of stock.
7. No VTA shall be entered into for a period exceeding 5
years at any one time (i.e., for every voting trust)
unless it requires a longer period as a condition in a loan
agreement, the period may exceed 5 years but shall
automatically expire upon full payment of the loan.
8. No VTA shall be entered into for the purpose of
circumventing the law against monopolies and illegal
combinations in restraint of trade.
9. The agreement must not be used for purposes of fraud.
Cases when a Stockholder’s Action is Required
Under Section 6 of the Corporation Code, each share of
stock is entitled to vote, unless otherwise provided in the
articles of incorporation or declared delinquent under
Section 67 of the Corporation Code.
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Corporate powers exercised jointly by the BOD and
stockholders
1. Amendment of the articles of incorporation;
2. Adoption and amendment of bylaws;
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 authorized capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Proprietary Rights
The following are the proprietary rights of the stockholders:
1. Appraisal Right - It refers to the right of the stockholder
to demand payment of the fair value of his shares, after
dissenting from a proposed corporate action involving a
fundamental change in the charter or articles of
incorporation in the cases provided by law.
2. Right to Inspect - The stockholder’s right of inspection
of the corporation’s book and records is based upon his
ownership of shares in the corporation and the necessity
for self-protection.
The mere fact that the shareholdings of a
stockholder is merely .001 per cent of the issued
shares of stock does not justify the denial of the
request of inspection of the corporate records.
3. Pre-emptive Right- see discussion above.
4. Right to vote - The stockholders can exercise their right
to vote through the election, replacement and removal
of Board of Directors or Trustees and on other corporate
acts which require stockholders’ approval. It is a right
inherent in and incidental to the ownership of corporate
stock, and such is a property right.
5. Right to dividends - It is the right of the stockholder to
demand payment of dividends after the board’s
declaration. Stockholders are entitled to dividends pro
rata based on the total number of shares that they own
and not on the amount paid for the shares.
Note: Stock corporations are prohibited from retaining
surplus profits in excess of 100% of their paid-in capital
stock, except:
a. When justified by definite corporate expansion
projects or programs approved by the board of
directors; or
b. When the corporation is prohibited under any
loan agreement with any financial institution or
creditor, whether local or foreign, from
declaring dividends without its/his consent, and
such consent has not yet been secured; or
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.
Remedial Rights
Actions that the stockholders or members can bring
1. Derivative suit – one brought by one or more
stockholders or members in the name and on behalf
of the corporation to redress wrongs committed
against it or to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to
sue or are the ones to be sued or hold control of the
corporation.
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Requisites:
a. The cause of action must devolve upon the
corporation itself;
b. The party bringing the suit must be a
stockholder at the time the acts or transactions
subject of the action occurred; and at the time
the action was filed
2. Individual suit – an action brought by a stockholder
against the corporation for direct violation of his
contractual rights as such individual stockholder,
such as the right to vote and be voted for, the right
to share in the declared dividends, the right to
inspect corporate books and records, and others.
3. Representative suit – one brought by a person in his
own behalf and on behalf of all similarly situated.
Obligations of a Stockholder
1. Liability to the corporation for unpaid subscription
2. Liability to the corporation for interest on unpaid
subscription if so required by the subscription
contract
3. Liability to the creditors of the corporation for
unpaid subscription
4. Liability for watered stock
5. Liability for dividends unlawfully paid; and
6. Liability for failure to create corporation
Meetings
1. Regular
a. Annually on date fixed in the by-laws; or
b. If there is no date in the by-laws – any
date in April as determined by the board
The notice shall be sent to the stockholder within
the period provided in the by-laws or in the
absence of provision in the by-laws – at least 2
weeks prior to the meeting.
2. Special
a. Any time deemed necessary; or
b. As provided in the by-laws
The notice shall be sent to the stockholder within
the period provided in the by-laws or if no provision
in the by-laws – at least 1 week prior to the
meeting.
Quorum
Shall consist of the stockholders representing majority of
the outstanding capital stock or a majority of the actual and
living members with voting rights, in the case of non-stock
corporation, unless otherwise provided in the law or by-
laws.
Minutes of the Meetings
The minutes are a brief statement not only of what
transpired at a meeting, usually of stockholders/ members
or directors/ trustees, but also at meeting of an executive
committee.
Remote communication
Attendance, participation, and voting through remote
communication must be provided in the by-laws.
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Board of Directors and Trustees
Doctrine of Centralized Management
It states that all corporate powers are exercised by the
BOD or BOT.
Board is the body which:
1. Exercises all powers provided for under the
Corporation Code;
2. Conducts all Business of the corporation; and
3. Controls and holds all the properties of the
corporation
Term of Office of BOD/BOT
Directors shall be elected for a term of one (1) year from
among the holders of stocks registered in the corporation’s
books, while trustees shall be elected for a term not
exceeding three (3) years from among the members of the
corporation.
Term - time during which the officer may claim to hold the
office as a matter of right, and fixes the interval after which
the several incumbents shall succeed one another. The term
of office is not affected by the holdover. It is fixed by statute
and does not change simply because the office may have
become vacant, nor because the incumbent holds office
beyond his term when a successor has not been elected.
Tenure - represents the term during which the incumbent
actually holds office. The tenure may be shorter (or, in case
of holdover, longer) than the term for reasons within or
beyond the power of the incumbent.
Hold-over Period - the time from the lapse of one year from
a member’s election to the Board and until his successor’s
election and qualification. It is not part of the director’s
original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure.
Duties of Directors/Trustees:
1. Duty of Obedience
2. Duty of Diligence
3. Duty of Loyalty
Common qualifications and disqualifications of a
director and trustee
1. He must not have been, within five (5) years prior
to the election or appointment as such:
a. Convicted by final judgment of an offense
punishable by imprisonment for a period
exceeding 6 years; violation of the
Corporation Code; or Violation of RA 8799
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
2. He must be of legal age; and
3. Other qualifications as may be prescribed in special
laws or regulations or in the by-laws of the
corporation.
Independent Directors
At least two (2) independent directors are required in the
following companies:
1. Any corporation with a class of equity securities
listed for trading on an Exchange;
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2. Banks; and
3. Corporations with secondary franchise.
The board of the following corporations vested with public
interest shall have independent directors constituting at
least twenty percent (20%) of the board:
1. Corporations whose:
a. Securities are registered with the
Commission;
b. Corporations listed with an exchange;
c. Corporations with:
i. assets of at least 50 Million Pesos;
ii. having 200 or more shareholders;
iii. each shareholder holding at least 100
shares of a class of its equity shares
2. Banks, quasi-banks, preneed, insurance and trust
companies, nonstock savings and loan associations,
pawnshops, corporations engaged in money service
business and other financial intermediaries; and
3. Other corporations engaged in business vested with
public interest similar to the above, as may be
determined by the Commission, after taking into
account relevant factors which are germane to the
objective and purpose of requiring the election of
independent director.
Removal
The power to remove, with or without cause, belongs to the
stockholders representing at least 2/3 of the outstanding
capital stock or if non stock corporation, by a vote of at least
2/3 of the members entitled to vote.
Note, however, that if the director was elected by the
minority, there must be cause for removal because the
minority may not be deprived of the right to representation
which they may be entitled under Sec. 23 of the Code.
Filling of Vacancies
Ways of filling up the vacancies in the board
1. Vacancies to be filled up by stockholders or members:
a. Expiration of term;
b. Removal;
c. Grounds Other than removal or expiration of
term, where the remaining directors do not
constitute a quorum for the purpose of filling the
vacancy;
d. If the vacancy may be filled by the remaining
directors or trustees but the board Refers the
matter to stockholders or members; or
e. Increase in the number of directors results to
vacancy.
2. Vacancies filled up by members of the board -If still
constituting a quorum, at least a majority of the
members are empowered to fill any vacancy occurring
in the board other than by removal by the stockholders
or members or by expiration of term.
However, if the by-laws prescribe the specific mode of filling
up existing vacancies, the provisions of the by-laws should
be followed.
Compensation
Directors, in their capacity as such, are not entitled to
receive any compensation except for reasonable per diems.
However, they may receive compensation:
1. When their compensation is fixed in the bylaws;
2. When granted by the vote of stockholders
representing at least a majority of the outstanding
capital stock at a regular or special meeting; or
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3. If they perform services other than as directors of
the corporation (i.e. where directors are also
corporate officers or employees of the corporation)
Disloyalty
The director must account for and refund to the office all
such profits, which such 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, 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.
Business Judgment Rule
Questions of policy or management are left solely to the
honest decision of officers and directors of a corporation and
the courts are without authority to substitute their judgment
for the judgment of the board of directors; the board is the
business manager of the corporation and so long as it acts
in good faith, its orders are not reviewable by the courts or
the SEC, unless:
1. Unconscionable and oppressive as to amount to wanton
destruction to the rights of the minority; or
2. When there is bad faith or gross negligence by the
directors.
Personal Liability
The officers of a corporation are not personally liable for
their official acts unless it is shown that they exceeded their
authority, such as:
1. When they willfully and knowingly vote for or assent to
patently unlawful acts of the corporation;
2. When they are guilty of gross negligence or bad faith in
directing the affairs of the corporation;
3. When they acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees
4. When they consent to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection
thereto
5. When they are made, by a specific provision of law, to
personally answer for their corporate action
6. When they agree to hold themselves personally and
solidarily liable with the corporation; or
7. When the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend
crime.
Responsibility for Crimes
A director or officer can be held liable for a criminal offense
only when there is a specific provision of law making a
particular officer liable because being a corporate officer by
itself is not enough to hold him criminally liable.
Special Fact Doctrine
The special fact doctrine is an exception to the majority rule
doctrine. It states that where special circumstances or facts
are present which make it inequitable for the director to
withhold information from the stockholder, the duty to
disclose arises, and concealment is fraud.
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Inside Information
Any material non-public information about the issuer of the
securities (corporation) or the security obtained by being an
insider, which includes:
1. The Issuer;
2. A Director or officer (or any person performing similar
functions) of, or a person controlling the issuer;
3. A person whose Relationship or former relationship to
the issuer gives or gave him access to material
information about the issuer or the security that is not
generally available to the public;
4. A Government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material information
about an issuer or a security that is not generally
available to the public; or
5. A person who Learns such information by a
communication from any forgoing insiders.
Contracts
By Self-Dealing Directors with the Corporation
A contract of the corporation with one or more of its
directors, trustees, officers, or their spouses and relatives
within the fourth civil degree of consanguinity or affinity is
voidable, at the option of the corporation unless all the
following conditions are present:
1. That the presence of such director or trustee in the
board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not
necessary for the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances;
4. In case of corporations vested with public interest,
material contracts are approved by at least 2/3 of the
entire membership of the board, with at least a majority
of the independent directors voting to approve the
material contract; and
5. That in the case of an officer, the contract with the
officer has been previously authorized by the board of
directors.
By Corporations with Interlocking Directors
A contract between two or more corporations having
interlocking directors shall not be invalidated on that ground
alone. Provided that:
1. Contract is not fraudulent;
2. Contract is fair and reasonable under the
circumstances; and
3. If the interest of the interlocking director in one
corporation or corporations is merely nominal (not
exceeding 20% of the outstanding capital stock), he
shall be subject to the provisions of Sec. 32 insofar
as the latter corporation or corporations are
concerned.
Executive Committee
An executive committee is a body created by the by-laws
and composed of not less than three (3) members of the
board which, subject to the statutory limitations, has all the
authority of the board to the extent provided in the board
resolution or by-laws. The committee may act by a majority
vote of all of its members.
Executive committees provided in the Revised Code of
Corporate Governance
1. Audit Committee;
2. Nomination Committee;
3. Compensation and Remuneration Committee
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Creation of Special Committees
The Board of directors may create special committees of
temporary or permanent nature and determine the
members’ term, composition, powers, and responsibilities.
Meetings
Requisites for valid tele/videoconferencing
R.A. 8792, as implemented by SEC Memo. Circular No. 15
on November 30, 2001, provides that:
1. Directors must express their intent on
teleconferencing;
2. Proper identification of those attending; and
3. The corporate secretary must safeguard the
integrity of the meeting by recording it.
Who Presides
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.
Quorum
Majority of the number of directors or trustees as stated in
the articles of incorporation shall constitute quorum, unless
the articles of incorporation or the bylaws provide for a
greater number.
Rule on Abstention
No inference can be drawn in a vote of abstention. When a
director or trustee abstains, it cannot be said that he
intended to acquiesce in the action taken by those who
voted affirmatively. Neither, for that matter, can such
inference be drawn from the abstention that he was
abstaining because he was not then ready to make a
decision.
Capital Affairs
Certificate of Stock
A certificate of stock 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 its stock. It indicates the name of the
holder, the number, kind and class of shares represented,
and the date of issuance.
Watered Stocks
A watered stock is a stock issued in exchange for cash,
property, share, stock dividends, or services lesser than its
par value or issued value. These include stocks:
1. Issued without consideration (bonus share);
2. Issued for a consideration other than cash, the fair
valuation of which is less than its par or issued value;
3. Issued as stock dividend when there are no sufficient
retained earnings to justify it; and
4. Issued as fully paid when the corporation has received
a lesser sum of money than its par or issued value
(discount share).
Payment of balance of subscription
Time when the balance of the subscription should be paid:
1. On the date specified in the subscription contract,
without need of demand or call;
2. If no date of payment has been specified, on the
date specified in the call made by the BOD (Sec. 66,
RCC);
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3. If no date of payment has been specified in the call
made, within 30 days from the date of call; and
4. When insolvency supervenes upon a corporation
and the court assumes jurisdiction to wind it up, all
unpaid subscriptions become payable on demand,
and are at once recoverable, without necessity of
any prior call.
Sale of Delinquent Shares
If no payment is made within thirty (30) days from the date
specified in the subscription contract or on the date stated
in the call made by the board, all stocks covered by the
subscription shall thereupon become delinquent and shall
be subject to sale, unless the board of directors orders
otherwise.
Alienation of Shares
If represented by a certificate, the following must
be strictly complied with:
1. Indorsement by the owner and his agent;
2. Delivery of the certificate;
3. To be valid to third parties and to the corporation,
the transfer must be recorded in the books of the
corporation; and
4. No shares of stock against which the corporation
holds any unpaid claim shall be transferrable.
Corporate Books and Records
Records to be Kept at Principal Office
Every corporation shall keep and carefully preserve at its
principal office all information relating to the corporation
including, but not limited to:
1. The articles of incorporation and bylaws of the
corporation and all their amendments;
2. The current ownership structure and voting rights of the
corporation, including lists of stockholders or members,
group structures, intra-group relations, ownership data,
and beneficial ownership;
3. The names and addresses of all the members of the
board of directors or trustees and the executive officers;
4. A record of all business transactions;
5. A record of the resolutions of the board of directors or
trustees and of the stockholders or members;
6. Copies of the latest reportorial requirements submitted
to the Commission; and
7. The minutes of all meetings of stockholders or
members, or of the board of directors or trustees.
Stock corporations must also keep a stock and transfer
book, which shall contain a:
1. record of all stocks in the names of the stockholders
alphabetically arranged;
2. the installments paid and unpaid on all stocks for which
subscription has been made, and the date of payment
of any installment;
3. a statement of every alienation, sale or transfer of stock
made, the date thereof, by /to whom made;
4. such other entries as the bylaws may prescribe.
Right to Inspect Corporate Records
Corporate records, regardless of the form in which they are
stored, shall be open to inspection by any director, trustee,
stockholder or member of the corporation in person or by a
representative at reasonable hours on business days, and a
demand in writing may be made by such director, trustee
or stockholder at their expense, for copies of such records
or excerpts from said records.
Effect of Refusal to Inspect Corporate Records
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Any officer or agent of the corporation who shall refuse to
allow the inspection and/or reproduction of records in
accordance with the provisions of this Code shall be liable
to such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an offense which
shall be punishable under Section 161 of this Code.
Dissolution and Liquidation
Dissolution
It is the extinguishment of the franchise of a corporation
and the termination of its corporate existence.
Modes of Dissolution
The following are the modes of dissolution of the
corporation:
1. Voluntary
a. By the vote of the BOD/ BOT and the
stockholders/ members where no creditors
are affected;
b. By the judgment of the SEC after hearing of
petition for voluntary dissolution, where
creditors are affected;
c. By amending the AOI to shorten the
corporate term. In case of a corporation sole,
by submitting to the SEC a verified
declaration of the dissolution for approval
and
d. Merger or consolidation
2. Involuntary
a. Non-use of corporate charter as provided
under Section 21 of this Code;
b. Continuous inoperation of a corporation as
provided under Section 21;
c. Upon receipt of a lawful court order
dissolving the corporation;
d. Upon finding by final judgment that the
corporation procured its incorporation
through fraud;
e. Upon finding by final judgment that the
corporation:
i. Was created for the purpose of
committing, concealing or aiding
the commission of securities
violations, smuggling, tax evasion,
money laundering, or graft and
corrupt practices;
ii. Committed or aided in the
commission of securities violations,
smuggling, tax evasion, money
laundering, or graft and corrupt
practices, and its stockholders
knew; and
iii. Repeatedly and knowingly tolerated
the commission of graft and corrupt
practices or other fraudulent or
illegal acts by its directors, trustees,
officers, or employees.
Liquidation
It is the process by which all the assets of the corporation
are converted into liquid assets (cash) in order to facilitate
the payment of obligations to creditors and the remaining
balance if any is to be distributed to the stockholders.
Methods of Liquidation
1. By the corporation itself or its board of directors or
trustees;
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Sec 122 authorizes the dissolved corporation’s
board of directors to conduct its liquidation within 3
years from its dissolution. Jurisprudence has even
recognized the board’s authority to act as trustee
for persons in interest beyond the said 3-year
period.
2. By conveyance to a trustee within a three-year
period;
At any time during the 3-year period for liquidation,
said corporation is authorized and empowered to
convey all of its property to trustees for the benefit
of its stockholders, members, creditors and other
persons in interest.
From and after any such conveyance by the
corporation of its property in trust for the benefit
of its stockholders, members, creditors and others
in interest, all interest which the corporation had
in the property terminates, the legal interest vests
in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons
in interest.
3. By a management committee or rehabilitation
receiver appointed by SEC.
In the case of a dissolution order where creditors
are affected, the SEC may appoint a receiver to take
charge of the liquidation of the corporation.
Corporate Rehabilitation
It refers to the restoration of the debtor to a
condition of successful operation and solvency, if it
is shown that its continuance of operation is
economically feasible and its creditors can recover
by way of the present value of payments projected
in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated.
Other Corporations
Non-stock Corporation
It is one where no part of its income is distributable as
dividends to its members, trustees or officers. Any profit
which it may obtain as an incident to its operations shall
whenever necessary or proper, be used in furtherance of
the purpose or purposes for which it was organized.
Non-stock corporations may be formed or organized for:
1. Charitable,
2. Religious,
3. Educational,
4. Professional,
5. Cultural,
6. Fraternal,
7. Literary,
8. Scientific,
9. Social,
10. Civic service, or
11. Similar purposes, like trade, industry, agriculture
and like chambers, or any combination thereof.
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Educational Corporations
Educational corporations shall be governed by special laws
and by the general provisions of the Revised Corporation
Code.
Trustees of educational institutions organized as nonstock
corporations shall not be less than five (5) nor more than
fifteen (15).
Religious Corporations
Religious corporations may be incorporated by one or more
persons. Such corporations may be classified into:
1. 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.
2. Religious societies
Unless forbidden by competent authority, the
Constitution, pertinent rules, regulations, or
discipline of the religious denomination, sect, or
church of which it is a part, any religious society,
religious order, diocese, synod, or district
organization of any religious denomination, sect, or
church, may, upon written consent and/or by an
affirmative vote at a meeting called for the purpose
of at least two-thirds (2/3) of its membership,
incorporate for the administration of its
temporalities or for the management of its affairs,
properties, and estate by filing with the
Commission, articles of incorporation verified by
the affidavit of the presiding elder, secretary, or
clerk or other member of such religious society or
religious order, or diocese, synod, or district
organization of the religious denomination, sect, or
church.
One Person Corporation
A corporation with a single stockholder: Provided, That only
a natural person, trust, or an estate may form a One Person
Corporation.
Excepted Corporations
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.
Capital Stock Requirement
A One Person Corporation shall not be required to have a
minimum authorized capital stock except as otherwise
provided by special law.
Articles of Incorporation and By-Laws
One Person Corporation shall file articles of incorporation in
accordance with the requirements under Section 14 of this
Code. It shall likewise substantially contain the following:
1. If the single stockholder is a trust or an estate, the
name, nationality, and residence of the trustee,
administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary
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duties together with the proof of such authority to
act on behalf of the trust or estate; and
2. Name, nationality, residence of the nominee and
alternate nominee, and the extent, coverage and
limitation of the authority.
On the other hand, the One Person Corporation is not
required to submit and file corporate bylaws.
Corporate Name
A One Person Corporation shall indicate the letters “OPC”
either below or at the end of its corporate name.
Corporate Structure and Officers
The single stockholder shall be the sole director and
president of the One Person Corporation.
Within fifteen (15) days from the issuance of its certificate
of incorporation, the One Person Corporation shall appoint
a treasurer, corporate secretary, and other officers as it
may deem necessary, and notify the Commission thereof
within five (5) days from appointment.
The single stockholder may not be appointed as corporate
secretary. A single stockholder who is likewise the self-
appointed treasurer of the corporation shall give a bond to
the Commission in such a sum as may be required. The
bond shall be renewed every two (2) years or as often as
may be required.
Nominee
The single stockholder shall designate a nominee and an
alternate nominee who shall, in the event of the single
stockholder’s death or incapacity, take the place of the
single stockholder as director and shall manage the
corporation’s affairs.
Liability
A sole shareholder claiming limited liability has the burden
of affirmatively showing that the corporation was
adequately financed. Where the single stockholder cannot
prove that the property of the One Person Corporation is
independent of the stockholder’s personal property, the
stockholder shall be jointly and severally liable for the debts
and other liabilities of the One Person Corporation.
Conversion of Corporation to One Person Corporation
When a single stockholder acquires all the stocks of an
ordinary stock corporation, the latter may apply for
conversion into a One Person Corporation, subject to the
submission of such documents as the Commission may
require.
The One Person Corporation converted from an ordinary
stock corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as of the
date of conversion.
Conversion from One Person Corporations to Ordinary Stock
Corporation
A One Person Corporation may be converted into an
ordinary stock corporation after due notice to the
Commission of such fact and of the circumstances leading
to the conversion, and after compliance with all other
requirements for stock corporations under this Code and
applicable rules. Such notice shall be filed with the
Commission within sixty (60) days from the occurrence of
the circumstances leading to the conversion into an ordinary
stock corporation.
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Foreign Corporations
A foreign corporation is done, formed, organized or existing
under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do
business in its own country or State.
Bases of Authority over Foreign Corporation
The following are the two bases of authority
(jurisdiction) over foreign corporations:
1. A corporation may give actual consent to judicial
jurisdiction manifested normally by compliance with
the State’s foreign corporation qualification
requirements (licensing requirements and other
requisites to lawfully transact business in the
Philippines); and
2. A corporation, even though not qualified (not
licensed), by engaging in sufficient activity (doing
business) within the State, established judicial
jurisdiction over the foreign corporation.
Necessity of a License to do Business
The purpose of the law in requiring that a foreign
corporation doing business in the Philippines be licensed to
do so is to subject such corporation to the jurisdiction of the
courts. The object is not to prevent foreign corporation from
performing single acts but to prevent it from acquiring a
domicile for the purpose of business without taking steps
necessary to render it amenable to suits in local courts.
Personality to Sue
As a rule, only foreign corporations that have been issued a
license to operate a business in the Philippines have the
personality to sue.
However, under the rule on estoppel, a party is estopped to
challenge the personality of a foreign corporation to sue,
even if it has no license, after having acknowledged the
same by entering to a contract with it.
Suability of Foreign Corporations
A foreign corporation, which was granted a license to
transact business in the Philippines, is suable before local
courts or administrative agencies.
It is suable since any foreign corporation lawfully doing
business in the Philippines shall be bound by all laws, rules
and regulations applicable to domestic corporations of the
same class, save and except:
1. Such only as provided for the creation, formation,
organization or dissolution of the corporations or
2. Those which fix the relations, liabilities,
responsibilities, or duties of stockholders, members
or officers of corporations to each other or to the
corporation.
Instances when an Unlicensed Foreign Corporation be
Allowed to Sue:
1. Isolated transaction.
2. A license subsequently granted enables the foreign
corporation to sue on contracts executed before the
grant of the license.
3. In an action for infringement of patent or other
intellectual property rights, provided that the
country of the foreign corporation is a party to the
Paris Convention.
4. If the foreign corporation is co-plaintiff with a
domestic corporation and the domestic corporation
is the one who instituted the suit in the Philippines;
-or
5. By reason of the doctrine of estoppel.
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Grounds for Revocation of License
Without prejudice to other grounds provided by special
laws, the license of a foreign corporation to transact
business in the Philippines may be revoked or suspended by
the SEC upon any of the following grounds:
1. Failure to file its annual report or pay any fees as
required by the Code;
2. Failure to appoint and maintain a resident agent in
the Philippines;
3. Failure, after change of its resident agent or of his
address, to submit to the Securities and Exchange
Commission a statement of such change;
3. Failure to submit to the SEC an authenticated copy
of any amendment to its articles of incorporation or
by-laws or of any articles of merger or consolidation
within the time prescribed by the Corporation Code;
4. A misrepresentation of any material matter in any
application, report, affidavit or other document
submitted by such corporation pursuant to this
Title;
5. Failure to pay any and all taxes, imposts,
assessments or penalties, if any, lawfully due to the
Philippine Government or any of its agencies or
political subdivisions;
6. Transacting business in the Philippines outside of
the purpose or purposes for which such corporation
is authorized under its license;
7. Transacting business in the Philippines as agent of
or acting for and in behalf of any foreign corporation
or entity not duly licensed to do business in the
Philippines; or
8. Any other ground as would render it unfit to transact
business in the Philippines.
Merger and Consolidation
1. Sale of assets – One corporation sells all or
substantially all of its assets to another. Such sale,
usually, though not necessarily made in the course
of the dissolution of the vendor corporation.
2. Lease of assets – A corporation, without being
dissolved, leases its property to another corporation
for which the lessor merely receives rental paid by
the lessee. This is similar to the sale of assets,
except that under a lease, nothing passes, except
the right to use the property leased.
3. Sale of stock – The purpose of a holding corporation
is to acquire a sufficient amount of the stock of
another corporation for the purpose of acquiring
control. The acquiring corporation is called the
parent/ holding company. The corporation whose
stocks were acquired is the subsidiary.
4. Merger – One where a corporation absorbs another
corporation and remains in existence while others
are dissolved.
5. Consolidation - One where a new corporation is
created and consolidating corporations are
extinguished.
a. Constituent Corporation – one of the parties
to a merger or consolidation
b. Consolidated Corporation – A completely
new corporation formed when two or more
corporations combined.
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Plan of Merger or Consolidation
The plan of merger or consolidation is a plan created by the
representatives of the constituent corporations, providing
for the details of such merger to wit:
1. The names of the corporations proposing to merge
or consolidate, hereinafter referred to as the
constituent corporations;
2. The terms of the merger or consolidation and the
mode of carrying the same into effect;
3. A statement of the changes, if any, in the AOI of the
surviving corporation in case of a merger; and, with
respect to the consolidated corporation in case of
consolidation, all the statements required to be set
forth in the AOI for corporations organized under
the RCC; and
4. Such other provisions with respect to the proposed
merger or consolidation as are deemed necessary
or desirable.
Articles of Merger and Consolidation
After the approval by the stockholders or members as
required by the preceding section, articles of merger or
articles of consolidation shall be executed by each of the
constituent corporations, to be signed by the president or
vice president and certified by the secretary or assistant
secretary of each corporation setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares
outstanding, or in the case of nonstock
corporations, the number of members;
3. As to each corporation, the number of shares or
members voting for or against such plan,
respectively;
4. The carrying amounts and fair values of the assets
and liabilities of the respective companies as of the
agreed cut-off date;
5. The method to be used in the merger or
consolidation of accounts of the companies;
6. The provisional or pro-forma values, as merged or
consolidated, using the accounting method; and
7. Such other information as may be prescribed by
the Commission.
Effectivity
The merger or consolidation shall become effective upon
issuance by the SEC of the certificate of merger and
consolidation.
Effects and Limitations
1. The constituent corporations shall become a single
corporation which:
a. In case of merger, shall be the surviving
corporation designated in the plan of merger.
b.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
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liabilities of a corporation organized under this
Code.
d. The surviving or the consolidated corporation shall
thereupon and thereafter possess:
a. All the rights, privileges, immunities and
franchises of each of the constituent
corporations;
b. All property, real or personal, and all
receivables due on whatever account,
including subscriptions to shares and other
choses in action, and all and every other
interest of, or belonging to, or due to each
constituent corporation.
e. These shall be deemed transferred to and vested in
such surviving or consolidated corporation without
further act or deed.
Investigations, Offenses and Penalties
Authority of Commissioner
The Commission may investigate an alleged violation of this
Code, or of rule, regulation, or order of the Commission.
Contempt
Any person who, without justifiable cause, fails or refuses
to comply with any lawful order, decision, or subpoena
issued by the Commission shall, after due notice and
hearing, be held in contempt and fined in an amount not
exceeding Thirty thousand pesos (P30,000.00).
When the refusal amounts to clear and open defiance of the
Commission’s order, decision, or subpoena, the Commission
may impose a daily fine of One thousand pesos (P1,000.00)
until the order, decision, or subpoena is complied with.
Sanctions for violations
Administrative Sanctions
If, after due notice and hearing, the Commission finds that
any provision of this Code, rules or regulations, or any of
the Commission’s orders has been violated, the Commission
may impose any of the following sanctions, taking into
consideration the extent of participation, nature, effects,
frequency and seriousness of the violation:
a. Imposition of a fine ranging from P5,000.00 to
2,000,000.00, and not more than One
thousand pesos P1,000.00 for each day of
continuing violation but in no case to exceed
2,000,000.00;
b. Issuance of a permanent cease and desist
order;
c. Suspension or revocation of the certificate of
incorporation; and
d. Dissolution of the corporation and forfeiture of
its assets under the conditions in Title XIV of
this Code.
Who are Liable
1. Directors, Trustees, Officers, or Other Employees
If the offender is a corporation, the penalty may, at
the discretion of the court, be imposed upon such
corporation and/or upon its directors, trustees,
stockholders, members, officers, or employees
responsible for the violation or indispensable to its
commission. (Sec. 171, RCC)
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2. Aiders and Abettors and Other Secondary Liability
Anyone who shall aid, abet, counsel, command,
induce, or cause any violation of this Code, or any
rule, regulation, or order of the Commission shall be
punished with a fine not exceeding that imposed on
the principal offenders, at the discretion of the
court, after taking into account their participation in
the offense.
Securities
Securities are shares, participation or interests in a
corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract,
instrument, whether written or electronic in character.
Kinds of Securities
1. Debt instruments – bonds, debentures, notes,
evidence of indebtedness, asset-backed securities.
2. Other instruments as may in the future be
determined by the SEC.
3. Derivatives– options and warrants
4. Investments instruments – Investment contracts,
fractional undivided interests in oil, gas, or other
mineral rights.
Howey Test
For an investment contract to exist, the following elements
must concur:
a. A contract, transaction or scheme;
b. An investment of money;
CORPORATION MC QUESTIONS
1. A private corporation commences to have corporate
existence and juridical personality from the date:
a. the officers of the corporation are elected by the
stockholders
b. the incorporators sign the Articles of incorporation
c. the Articles of incorporation and the by-laws are
presented to the SEC
d. the SEC issues a certificate of incorporation under
its official seal
e. all of the above
2. One of the following is not required and does not form
part of the three-fold duties of a director of a
corporation. Which one is it?
a. Duty of diligence
b. Duty of loyalty
c. Duty of obedience
d. Duty of efficiency
3. It is one brought by one or more of the stockholders or
members in the name and on behalf of the corporation
to redress wrongs committed against it or to protect or
vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or
hold control of the corporation.
a. mandamus
b. quo warranto
c. appraisal right
d. derivative suit
e. individual suit
4. A corporation cannot exist if:
a. there are incorporators who are juridical persons
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c. Investment is made in a common
enterprise;
d. Expectation of profits; and
e. Profits arising primarily from the effort of
others.
5. Equity instruments – Shares of stock, certificates of
interest or participation in a profit sharing
agreement, certificates of deposit for a future
subscription, proprietary or non-proprietary
membership certificates in corporations.
6. Trust instruments – Certificates of assignments,
certificates of participation, trust certificates, voting
trust certificates or similar instruments.
Insider Trading
A purchase or sale made by an insider, or such insider’s
spouse or his relative by affinity or consanguinity within the
second degree, legitimate or common-law, shall be
presumed to be effected while in possession of material
non-public information if transacted after such information
came into existence but prior to the public dissemination of
such information, and lapse of reasonable time for the
market to absorb such information.
Protection of Investors
Tender Offer Rule
Tender offer means a publicly announced intention by a
person acting alone or in concert with other persons to
acquire equity securities of a public company. It is also an
offer by the acquiring person to stockholders of a public
company for them to tender their shares therein on the
terms specified in the offer.
b. there are no articles of incorporation
c. no incorporating directors or trustees
d. there is no name provided for in the articles of
incorporation
e. a, b and c only
f. b, c and d only
5. Unless otherwise provided by the Corporation Code or
special law, the number of directors must be:
a. not less than five (5) nor more than fifteen (15)
b. not more than fifteen (15)
c. not less than fifteen (15) not more than twenty-five
(25)
d. more than five (5) nor more than fifteen (15)
e. more than five (5) but not less than fifteen (15)
6. Which of the following does not belong in the
enumeration?
a. serious misrepresentation as to what the
corporation can do or is doing
b. the articles of incorporation is not substantially in
the form prescribed by law
c. the purpose is patently unconstitutional, illegal or
immoral
d. the treasurer’s certification is false.
7. Which of the following is not a characteristic of
certificate of stock?
a. tangible
b. may not be issued even if the subscription is not
fully paid
c. written evidence of ownership of the shares
d. intangible
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8. The appraisal right can be exercised by a stockholder
under the conditions provided by law, which one of the
following is the ground in case of close corporation?
a. merger or consolidation
b. sale, lease, exchange, transfer, mortgage, pledge
or other disposition of all or substantially all of the
corporate property
c. amendment of articles of incorporation
d. investment of corporate funds in another purpose
e. for any reason
9. The by-laws of the non-stock corporation may provide
that the meetings of the members of the non-stock
corporation may be held:
a. within the principal place of business only
b. within the Philippines only
c. at any place even outside the place where the
principal office of the corporation is located provided
within the Philippines
d. at any place even outside the place where the
principal office of the corporation is located and
even outside the Philippines
e. anywhere
10. In case of a delinquent stockholder, the following rights
are not given to him, except:
a. right to receive dividends in accordance with the
provisions of the law
b. right to vote
c. right to be voted for
d. right of representation at any stockholders’ meeting
11. A corporation commences its existence from the
issuance of the certificate of incorporation, which one is
the exception?
a. close corporation
b. widely-held corporation
c. religious corporation
d. non-stock corporation
e. educational corporation
12. Stocks which are previously issued and fully paid for and
reacquired by the corporation either by purchase,
donation, forfeiture or some other lawful means.
a. scrip shares
b. treasury shares
c. scrip shares
d. redeemable shares
e. delinquent shares
13. A religious corporation acquires juridical personality
from –
a. execution of the articles of incorporation and by-
laws
b. filing of the articles of incorporation and other
documents
c. issuance of the certificate of incorporation from SEC
d. approval of the Securities and Exchange
Commission
e. None of the above
14. Which of the following is not an Involuntary dissolution
of the corporation?
a. by the vote of the board of directors and
stockholders, where no creditors are affected
b. non-use of corporate charter
c. receipt of a lawful order of the court dissolving the
corporation
d. continuous inoperation of a corporation
15. Voting requirement for the amendment of the by-laws.
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a. 2/3 of the outstanding capital stock
b. majority of the board of directors
c. majority of the board consented to by 2/3 of the
outstanding capital stock
d. majority of the board of directors consented to by
majority of the outstanding capital stock
16. One of the characteristics of treasury shares is that:
a. they have the status of outstanding shares
b. they may not be reissued or sold again
c. they can vote in the election of directors
d. they participate neither in dividends not in the
meetings of the corporation as voting stocksa
e. they can be reacquired by the corporation
regardless of the existence of unrestricted retained
earnings
17. It means the total shares of stock issued to subscribers
or stockholders, whether or not fully or partially paid (as
long as there is a binding subscription agreement),
except treasury shares.
a. authorized capital stock
b. paid-up capital stock
c. shares in escrow
d. voting stock
e. outstanding capital stock
18. The following are the advantages of par value shares,
which is one is not?
a. easily sold
b. easily issued as fully paid and non-assessable
c. greater protection to creditors
d. unlikelihood of distribution of dividends that are
only ostensible profits
e. unlikelihood of sale of subsequently issued shares
at a lower price
19. The following are some of the corporate acts that need
the vote of stockholders holding 2/3 of the authorized
capital stock. Which should not be included?
a. Adoption, amendment or repeal of by-laws.
b. Amendment of articles to increase or decrease
capital stock.
c. Incurring, creation or increase of bonded
indebtedness.
d. Approval of merger or consolidation.
20. Statement No. I – Dividends shall be deemed non-
cumulative in the absence of an agreement.
Statement No. 2 – Shares without par value may be
issued for a consideration less than the value of P5.00
per share
a. No.1 is true; No.2 is false
b. No.1 is false; No.2 is true
c. Both are true
d. Both are false
e. None of the above
21. I - Stock corporations are formed by not less than 2 but
not more than 15 incorporators who are natural or
juridical persons
II - Corporation sole is composed of only one natural
person
II - Corporation may exist perpetually or for a fixed
period from the date of incorporation unless sooner
dissolved or unless said period is extended.
IV – Corporation is automatically dissolved if it fails to
do any business within 2 years from date of
incorporation
a. I, II, III and IV are true
b. I and II are true, III and IV are false
c. I, II and III are true, IV is false
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d. I, II, III are true, IV are false
e. I, III and IV are false, II is true
22. Sebastian, one of the stockholders of Longan Corp
was convinced by Fernando, one of the directors of said
corporation to sell to him (Fernando) his stockholding
for a certain price. Since the offer was good, Sebastian
consented to the sale. Unknown to Sebastian, at the
time of the sale, Fernando was the chief negotiator of
Longan Corp. in selling its substantial property to the
government at a price which greatly enhanced the value
of the stock. Under what doctrine is Fernando as
director of the corporation liable?
a. Doctrine of Corporate Opportunity
b. Special Fact Doctrine
c. Business Judgment Rule
d. Trust Fund Doctrine
e. Doctrine of Alter Ego
f. Doctrine of Special Theory
23. Hokkaido, Hakone, Ajinamoto, Nissin and Oishi are five
Japanese citizens who organized a corporation in the
Philippines and registered in the same in the office of
the Securities and Exchange Commission
a. It is a foreign corporation
b. It is a domestic corporation
c. It is a nationalized corporation
d. It is partly nationalized
e. Answer not given
24. The corporate existence may be disregarded where the
entity is formed or used for illegal purposes.
a. Doctrine of Limited Capacity
b. Doctrine of Piercing the Veil of Corporate Fiction
c. Doctrine of Corporate Fiction
d. Alter Ego Doctrine
25. A corporation can be formed for the practice of law,
medicine or other professions.
a. True, the rights are granted explicitly under the law
b. True, since the same right is allowed in partnerships
c. False, because the principle of delectus personarum
applies in corporation.
d. False, because consent of all the corporators is
necessary.
e. None of the following
Choices from Question Nos. 26-31
a. All are true f. I is false; II and III are true
b. All are false g. I/II are false; III is true
c. I is true; II/III are false h. I/III are false; II is true
d. I/II are true, III is false i. None of the above
e. I/III are true; II is false
26. Statement No. 1 - The remedy against a corporation de
jure is a quo warranto proceeding against the said
corporation to oust it from the exercise of corporate
powers usurped by it and to have it dissolved.
Statement No. 2 - The issuance of the certificate of
incorporation gives the corporation the legal personality
and the authority to do business.
Statement No. 3 - The vote of the majority of the
outstanding capital stock is sufficient for the removal of
the directors. B
27. Statement No. 1 - Proxy voting is allowed in the election
of the board of directors.
Statement No. 2 - Under the law, the secretary of the
corporation must be a director of the corporation.
Statement No. 3 - Under the law, the secretary of the
corporation must be a resident and citizen of the
Philippines. E
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28. Statement No. 1 - If the vacancy results by reason of
increase in the number of directors or trustees and the
remaining directors or trustees still constitute a
quorum, the remaining directors or trustees can be filled
by them.
Statement No. 2 - The acts done by a disloyal director
may be ratified by the vote of the stockholders owning
or representing at least 2/3 of the outstanding capital
stock.
Statement No. 3 - In case of the abandonment of the
contract for the sale or disposition of all or substantially
all of the corporate assets, approval of the stockholders
is not necessary. F
29. Statement No. 1 - After the incorporation of the
corporation, it is given one year after official notice of
the issuance of certification from SEC to make by-laws.
Statement No. 2 - A stockholder’s indebtedness to a
corporation under a subscription agreement cannot be
compensated or set-off with the amount of his shares in
the same corporation there being no relation of creditor
and debtor with regard to such shares.
Statement No. 3 - The stockholders have the power to
declare dividends in case of stock dividends. H
30. Statement No. 1 - Two-thirds (2/3) vote on the part of
the board of directors is required to declare cash
dividends.
Statement No. 2 - The declaration of cash dividends
creates a debt from the corporation in favor of its
stockholders.
Statement No. 3 - A corporation can be an incorporator.
F
31. Statement No. 1 - If the shares of stock have no par
value, the corporation has no authorized capital stock,
but it has capital stock, the amount of which is not
specified in the articles of incorporation as it cannot be
determined until all the shares have been issued.
Statement No. 2 - No par values shares may not be
issued without being fully paid.
Statement No. 3 - Stockholders are liable with their
separate property for the payment of the debts of the
corporation. D
32. A writing or certificate issued to a stockholder entitling
him to the payment of money or the like at some future
time inasmuch as the corporation at the time of such
dividends are declared has profits in cash, or has no
sufficient cash, or has cash but wishes to reserve it from
some corporate purposes.
a. optional dividend
b. bond dividend
c. stock dividend
d. scrip dividend
e. liquidating dividend
33. Which of the following does not belong to the limitation
of the Executive Committee?
a. filling of the vacancies in the board
b. the amendment or repeal of by-laws or the adoption
of new by-laws
c. determination of the presence of the quorum
d. distribution of cash dividends
e. amendment or repeal of any board resolution
34. Which of the following does not require the 2/3 vote of
the stockholders?
a. entering into management contracts
b. power to shorten or extend corporate term
c. sale or disposition of corporate assets
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d. investment of corporate funds in another
corporation
35. Which of the following does not belong in the
enumeration?
a. elimination of fractional shares
b. redemption of redeemable shares
c. satisfaction of indebtedness to the corporation
d. payment of shares of dissenting or withdrawing
stockholders
e. satisfaction of corporation’s indebtedness
36. Stikki Cement corporation (STIKKI) was organized
primarily for cement manufacturing. Anticipating
substantial profits, its president proposed that STIKKI
invest in (a) a power plant project, (b) concrete road
project, and (c) quarry operations for limestone used in
the manufacture of cement. What vote is needed if the
aforementioned are reasonably necessary to
manufacture of the cement?
a. majority of the board and 2/3 vote of the
outstanding capital stock
b. majority of the board of directors
c. majority of the stockholders and majority of the
board of directors
d. majority of the stockholders
e. 2/3 vote of the outstanding capital stock
37. These do not form part of the outstanding capital stock:
a. bonus shares
b. treasury shares
c. redeemable shares
d. founder’s shares
e. preferred shares
38. The distinction between subscription of shares from
purchase of shares is that in subscription of shares:
a. it is an independent agreement between the
individual and the corporation to buy shares of stock
from it at a stipulated price.
b. it takes place before or after incorporation and is
generally paid in installment or upon a call.
c. in case on insolvency of the corporation, the
subscription price cannot be enforced on the theory
that the corporation can no longer perform its
obligation to deliver the certificate of stock.
d. answer not given
39. One of the characteristics of treasury shares is that:
a. they have the status of outstanding shares
b. they may not be reissued or sold again
c. they participate neither in dividends nor in the
meetings of the corporation as voting stocks
d. answer not given
40. Watered stocks are shares of stock issued by the
corporation for a consideration less than its par or
issued value or for a consideration in any form other
than cash, valued in excess of its fair value. In this
regard:
a. the issue itself is void
b. the agreement that it shall be paid for less than its
par value is illegal and void and cannot be enforced.
c. the subscriber or purchaser shall not be liable for
the full par value of the shares
d. answer not given
41. An officer of a corporation may hold two or more
positions in the corporation but not as:
a. Chairman of the Board and President
b. President and Treasurer
c. Secretary and Treasurer
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d. Vice-President and Secretary
42. The right of the corporation to exist as a juridical person
during its term as stated in its Articles of Incorporation
despite the death of any of its stockholders is:
a. right of existence
b. right of redemption
c. right of succession
d. pre-emptive right
43. The nationalilty of a corporation is determined by the
place of the controlling stockholders, This test is:
a. Control test
b. Domicile test
c. Incorporation test
d. Management test
44. Contracts between a corporation and third persons must
be made by or under the authority of its:
a. Board of Directors
b. Stockholders
c. President and chief Operating Officer
d. General Manager
45. Purely ultra vires acts of the officers of corporation to
invest corporate funds in another business or
corporation, i.e acts not contrary to law, morals, public
policy may be ratified by:
a. the stockholders holding two-thirds (2/3) of the
voting power
b. majority vote of all the members of the Board
c. The stockholders holding one-half (1/2) of the
voting power
d. majority vote of the Board of Directors present
46. The following are the requisites, except one for a valid
declaration of stock dividend:
a. existence of original and unissued shares
b. dividend declarations is made by the Board of
Directors and approved by 2/3 of the outstanding
capital stocks
c. it is issued to increase the authorized capital
d. existence of the unrestricted retained earnings
47. Which of the following is a disadvantage of forming a
corporation:
a. the shareholders are not liable for the debts of the
business
b. the subservience of minority stockholders to the
wishes of the majority subject only to equitable
restraints
c. Because of the power of succession, the existence
of the entity is not affected by the personal
vicissitudes of the individual shareholders.
d. the free and ready transferability of ownership
48. The corporation shall be deemed dissolved and its
corporate powers cease, if from the of its incorporation,
it does not formally organize and commence the
transaction of its business
a. 4 years
b. 3 years
c. 2 years
d. 5 years
49. A representative action where a stockholder brings an
action in the name and in behalf of the corporation and
any relief obtained belongs to the corporation and not
to the stockholders individually or collectively.
a. Individual suit
b. Derivative suit
c. Representative suit
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EXCEL PROFESSIONAL SERVICES, INC.
d. Corporate suit
50. Cash dividend as distinguished from stock dividend
a. needs stockholders approval
b. declared by the board of directors
c. not a taxable income
d. results to withdrawal of assets from the corporation
51. A non-voting stock may vote in the following acts,
except in the case of:
a. approval of the compensation of directors
b. merger or consolidation
c. increase or decrease of capital stock
d. sale, lease, exchange of all or substantially all of
corporate property
52. Under this theory, the nationality of the corporation is
that of the country under whose laws it was formed
a. Control test
b. Incorporation test
c. Corporation by estoppel
d. corporation by prescription
53. This is a characteristic of a stock corporation as
distinguished from a non-stock corporation
a. the powers are vested in the Board
b. the members can vote by mail
c. it is formed by at least 5 but not more than 15
persons
d. it is organized for profit
54. Amount equal to the aggregate par value or issued
value of the outstanding capital stock
a. Legal Capital
b. Unissued capital stock
c. Outstanding capital stock
d. authorized capital stock
55. Shares without par value may not be issued for a
consideration
a. less than P1 per share
b. less than P5 per share
c. Outstanding capital stock
d. less than P100 per share
56. If the remaining directors constitute a quorum, they can
fill up the vacancy
a. in case of removal of the director
b. in case of expiration of the term of director
c. if there is an increase in the number of directors
d. in case of resignation of a director
57. Stock dividends differ from cash dividend in that stock
dividends
a. do not increase capital stock
b. involves the disbursements of corporate funds
c. require the approval of both the board of directors
and the stockholders
d. once received by the stockholders, are beyond the
reach of corporate directors
58. Rules of action adopted by the corporation for its
internal government and for the government of its
officers and of its stockholders or members
a. contract
b. Articles of Incorporation
c. Ultra vires act
d. By-Laws
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59. A stockholders’ option to subscribe to allotment of
shares in proportion to his holding of outstanding
shares.
a. Voting right c. Pre-emptive right
b. Ultra vires act d. Appraisal right
60. For purposes of interlocking directors, the stockholdings
shall be considered substantial if:
a. exceeding 10% of the authorized capital stock
b. exceeding 10% of the outstanding capital stock
c. exceeding 20% of the authorized capital stock
d. exceeding 20% of the outstanding capital stock
61. Shares deposited by the seller or his agent with a bank
or third party to be delivered to the buyer or subscriber
only upon the fulfillment of the stipulated suspensive
condition.
a. Promotion shares c. Founder’s shares
b. Redeemable shares d. Escrow stock
62. X Corporation posted a P1M profit in its realty business
and its real estate has appreciated in value to the tune
of P4M. The board then declared dividends to its
stockholders computed on the basis of representing
profits and appreciation in value of its real estate. Is the
dividend declaration valid?
a. Not valid because there was no approval of 2/3 of
the outstanding capital stock.
b. Valid because it was based on profit and increment
in the value of the corporate assets.
c. Not valid because the dividends must only come
from unrestricted retained earnings
d. Valid if no creditors shall be prejudiced and
approved by the required votes of the directors and
stockholders.
63. S1 - After dissolution but within the three-year period
of liquidation a corporation’s term may still be extended
by amendment of its articles of incorporation.
S2 - The dissolution of a corporation shall take place
because it has been in continuous non-operation for 2
years.
a. Both statements are false
b. Both are true.
c. First is false, second is true.
d. First is true, second is false
64. The doctrine of corporate opportunity rests on the
unfairness of an officer or director of a corporation
taking advantage of an opportunity for his own personal
benefit adverse to the corporation.
The by-laws must be filed with the SEC for the
corporation to acquire juridical personality.
a. Both statements are true
b. Both are false.
c. First is true, second is false
d. First is false, second is true.
65. The executive committee cannot act on this matter
except:
a. Filling of vacancy in the board of directors
b. Cash dividend declaration
c. Board resolution on depository bank of the
corporation
d. Stock dividend declaration
66. At the annual meeting of ABC Corporation for the
election of five directors, A, B, C, D, E, F and G were
nominated. A, B, C, D and E received the highest
number of votes and proclaimed elected. F received ten
votes less than E. Subsequently, E sold his shares to F.
Who between E and F has the right to attend as director
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EXCEL PROFESSIONAL SERVICES, INC.

in the board meeting? The transfer of shares having d. at least 1 year

been registered with the corporation.
a. E is the director because his term is one year until 75. Period for notation of Certificate of Stock in case of
his successor is elected and qualified exercise of Appraisal Right
b. F is the director for he has acquired all the shares a. 20 days
of E. b. 3 days
c. Either of them shall be the director c. 15 days
d. Neither of them shall be the director d. 10 days
e. 30 days
67. S1 The merger or consolidations of corporations become
effective upon approval by the constituent corporations 76. Annual Financial Statements need not need an
of the plan of merger or consolidation as the case may independent CPA if the total assets or liabilities is –
be. a. below 50,0000
S2 After the merger the absorbed corporation must b. below 100,000
undertake dissolution and winding-up procedures. c. below 500,000
a. Both statements are false d. below 600,000
b. Both are true. e. below 1 Million
c. First is false, second is true.
d. First is true, second is false. 77. The following are penalties imposable by SEC, except:
a. Escheat
68. The corporation has nine-member board. Two of the b. Contempt
members have sold their shares while two others are c. Dissolution
abroad. To have a quorum, the number required is: d. permanent cease and desist
a. Seven e. Suspension of COI
b. Five
c. Three 78. Shanky’s Corp. operates a call center that received
d. Four orders for pizzas on behalf of Domina Corp. which
operates a chain of pizza restaurants. The two
69. A director of a corporation may be removed from the companies have the same set of corporate officers.
office by a vote of the stockholders holding After 2 years, Shanky’s Corp. dismissed its call center
representing: agents for no apparent reason. The agents filed a
a. Majority of the outstanding capital stock collective suit for illegal dismissal against both Shanky’s
b. 2/3 of the stockholder Corp. and Domina Corp. based on the doctrine of
c. 2/3 of the OCS piercing the veil of corporate fiction. The latter set up a
d. Majority of the stockholders defense that the agents are in the employ of Shanky’s
Corp. which is a separate juridical entity. Is the defense
70. The effectivity of the Founders’ Shares. appropriate?
a. 3 years a. No, since the doctrine would apply, the two
b. 4 years companies having the same set of corporate
c. 5 years officers.
d. 10 years b. No, the real employer is Domina Corp., the pizza
company, with Shanky’s Corp. serving as an arm for
71. Vote in Corporations vested with public interest in case receiving its outside orders for pizzas.
of Self-dealing director. c. Yes, it is not shown that one company completely
a. majority of the BOD and 2/3 of OCS dominates the finances, policies, and business
b. majority of the BOD and majority of OCS practices of the latter.
c. majority of the BOD and 2/3 of Independent d. Yes, since the two companies perform two distinct
directors businesses.
d. 2/3 of the BOD and majority of the independent
directors 79. Sunny, the proprietor of a fleet of 10 taxicabs, decides
e. Answer not given to adopt, as his business name, “Sunny Transport Co.,
Inc.” May this be allowed?
72. Period to notify in case of election of Regular Meeting of a. No, it would be deceptive since he is a proprietor,
Stockholders. not a corporation.
a. At least 20 days b. No, since “Sunny” is a generic name, not suitable
b. At least 21 days for registration.
c. 1 week c. Yes, since his line of business is public
d. 2 weeks transportation.
e. 10 days d. Yes, since such name would give his business a
corporate identity.
73. Percentage requirement to consider stockholdings
substantial 80. The rule is that no stock dividend shall be issued without
a. exceeds 10% the approval of stockholders representing at least 2/3
b. exceeds 100% of the outstanding capital stock at a regular or special
c. exceeds 20% meeting called for the purpose. As to other forms of
d. exceeds 25% dividends:
e. exceeds 30% a. A mere majority of the entire Board of Directors
applies.
74. Period for Pre-Incorporation Subscription Contract b. A mere majority of the quorum of the Board of
a. at least 1 month Directors applies.
b. at least 3 months c. A mere majority of the votes of stockholders
c. at least 6 months representing the outstanding capital stock applies.

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EXCEL PROFESSIONAL SERVICES, INC.
d. The same rule of 2/3 votes applies.
81. What vote is needed to consider every decision to be
valid corporate act?
a. A majority of the directors present at the meeting
b. 2/3 of the directors present at the meeting
c. A majority of the directors present at the meeting
at which there is a quorum
d. 2/3 of the directors present at the meeting at
which there is a quorum
82. Facundo, the President of AAA Corporation, was
authorized by the Board of Directors of AAA Corporation
to obtain a loan from BPO Bank and to sign documents
in behalf of the corporation. Facundo personally
negotiated for the loan and got the loan at very low
interest rates. Upon maturity of the loan, AAA
Corporation was unable to pay. Which statement is
most accurate?
a. Because Facundo was personally acting in behalf of
the Corporation, he can be held personally liable
b. Facundo, as President, cannot be personally held
liable for the obligation of the corporation even
though he signed all the loan documents, because
the loan was authorized by the Board
c. BPO Bank can choose as to who it wants to hold
liable for the loan;
d. If AAA Corporation cannot pay, Facundo can be
held subsidiarily liable.
83. It is settled that neither par value nor book value is an
accurate indicator of the fair value of a share of stock of
a corporation. As to unpaid subscriptions to its shares
of stock, as they are regarded as corporate assets, they
should be included in the
a. Capital value.
b. Par value.
c. Book value
d. Market value.
84. South China Airlines is a foreign airline company. South
China Airlines tickets are sold in the Philippines though
PAL as their general agent. South China Airlines is not
registered to do business as such with the Philippine
SEC. which statement is most accurate?
a. Although unlicensed to do business in the
Philippines, South China Airlines can sue before
the Philippine Courts and can also be sued.
b. South China Airlines can sue but cannot be sued.
c. South China Airlines cannot sue and cannot be
sued also.
d. South China Airlines can be sued in the Philippine
Courts but it cannot sue.
85. The term of JGY Corporation in accordance with its
Articles of Incorporation ended last January 30, 2022.
The term was not extended. What will happen to the
corporation?
a. The corporation is dissolved ipso facto.
b. There is a need to pass a board resolution to
formally dissolve the corporation.
c. The Board of Directors must pass a resolution for
the corporation to formally go into liquidation.
d. The stockholders must pass a resolution to
dissolve the corporation.
86. Gemma subscribed 10,000 shared in the capital stocks
of NCA Corporation. She paid 50% of the 10,000 shares.
Gemma asked the Corporate Secretary to issue her the
corresponding stock certificate representing the 50% of
what she already paid. The Corporate Secretary of the
Page 22 of 22 www.teamprtc.com.ph
corporation refused. Was the Corporate Secretary
correct?
a. The Corporate Secretary cannot refuse because a
Stock Certificate can be issued corresponding to
the percentage of shares which were paid.
b. The Corporation Secretary cannot refuse because a
certificate of Stock can be issued provided it is
indicated in the Certificate the actual percentage of
what has been paid.
c. The Corporate Secretary cannot refuse because it
is his legal duty to issue a stock certificate
corresponding to the number of shares actually
subscribed regardless of the actual payment.
d. The Corporate Secretary is correct because the
Corporation Code provides that no certificate of
stock shall be issued to a subscriber until the
shares as subscribed have been fully paid.
87. The BIR assessed ABS Corp. for deficiency income tax
for taxable year 2020 in the amount of P16,731,208.00,
inclusive of surcharge and penalties. The BIR can
_______.
a. Run after the directors and officers of the ABS
Corp. to collect the deficiency tax and their liability
will be solidary.
b. Run after the stockholders of ABS Corp. and their
liability will be joint.
c. Run after the stockholders of ABS Corp. and their
liability will be solidary.
d. Run after the unpaid subscriptions still due to ABS
Corp., if any.
88. In case of amendments of the AOI, the date of the
approval of the SEC is the reckoning point of the
approval. However, if after _______, then the date of
filing shall be the approval.
a. 30 days c. 6 months
b. 3 months d. 12 months
89. S1 – Under the Revised Corporation Code, the resident
agent of a foreign corporation must be a resident and
citizen of the Philippines.
S2 – The period to elect the officers for an ordinary
corporation is 30 days from the issuance of the COI.
a. All are correct
b. All are incorrect
c. Only S1 is incorrect
d. Only S2 is incorrect
90. S1 – Period to extend the life of corporation if fixed is 5
years before its expiration.
S2 – Period to extend the life of a cooperative is 3 years
before its expiration.
a. All are correct
b. All are incorrect
c. Only S1 is incorrect
d. Only S2 is incorrect
Forget all the reasons it won’t work and believe the one
reason that it will.”
- Carpe Diem –
God is with you. Have faith!
End of RFBT.3505
RFBT.3505