COMMERCIAL LAW REVIEW

CORPORATION LAW

PART I

TITLES I TO III
REVISED CORPORATION CODE OF THE PHILIPPINES
 TITLE I

GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
 GUIDE QUESTIONS
I.1. A judgment was obtained by the Aladdin Bank against the Lion King
Corporation (LKC) on a defaulted loan . It was executed upon LKI shares
registered in the name of its majority stockholder, Mr. Lee K. Chan, who
promptly claimed that the execution was improper. Is Mr. Chan’s claim valid?

I.2. Mr. Ben Cruz engaged the services of a SEC licensed broker, the Magic
Securities Corporation, to trade in listed shares of stock upon his instructions
for his account. Magic Securities through its salesperson, traded without Mr.
Cruz’ knowledge whose account suffered a loss of P10 million. Mr. Cruz sued
Magic Securities as well as its parent company BSP registered Magic Banking
Corporation for damages arising from fraud. Magic Bank asserted it cannot be
held liable for the alleged fraud committed by its subsidiary, even if 90% of the
latter ‘s shares are owned by Magic Bank and that both corporations have
their principal offices at the Magic Building BGC. Is Magic Bank’s claim valid?
 GUIDE QUESTIONS
I.3. The Doon Ka Corporation (DKC) is engaged in telecommunications thus
least 60% of its shares should be owned by Filipinos. If DKC has total
outstanding shares of 100,000 out of which 80,000 are voting and 20,000
non-voting:
a) How many voting shares must Filipinos own?
b) How many non-voting shares must Filipinos own?
c) How many voting and non-voting shares must Filipinos own?
d) How many voting shares may foreigners own?
e) How many non-voting shares may foreigners own?
f) How many voting and non-ting shares may foreigners own?
I.4. The owner of an office space leased it to the RIPLAW, a partnership. Since
it was unable to pay the rentals, RIPLAW was sued by the owner. The
founding partner of RIPLAW moved to dismiss the suit sayind that the owner
should have sued him as the real party in interest. Who is correct?
 GUIDE QUESTIONS
I.5. What are the major differences between a stock corporation and a non-
stock corporation?

I.6. Who are the stakeholders in the context of corporate governance?

I.7. Can a corporation deprive preferred shares of all voting rights?

I.8. What does no par shares being fully paid and non-assessable mean?

I.9. Distinguish redeemable shares from treasury shares.

I.10. In determining quorum, which prevails the AOI or the STB?

 GUIDE QUESTIONS

I.11. May preferred stockholders invoke the trust fund doctrine in their favor?
I.12. What is the difference between a chartered GOCC and a non-chartered GOCC?
I.13. Give at least 3 examples of corporations that are not under SEC as primary
regulator
I.14. May the redeemable shareholders compel the corporation to redeem their
shares?
I.15. What are the limitations on the power of the corporation to issue different
classes or series of shares?
1.16. What are the usual preferences given to preferred shareholders?
1.17. Why are treasury shares allowed to be bought back by the corporation only
when there is unrestricted retained earnings?
 DEFINITION AND CLASSES OF CORPORATIONS

Definition of a corporation
• an artificial being created by operation of law,
• having the right of succession and
• the powers, attributes, and properties
• expressly authorized by law or
• incidental to its existence.
Classes of corporation
• stock corporations
• have capital stock divided into shares
• authorized to distribute dividends to shareholders
• non-stock corporations
• no part of income is distributable as dividends to its members, trustees or officers
• non-profit provided any profit obtained incidental to its operations shall whenever necessary or proper be used for the furtherance
of the purpose or purposes for which the corporation was organized
• for charitable, religious educational, professional, cultural, fraternal, literary, scientific, social, civic service or similar purposes
• trade, industry, agricultural and like chambers, or
• any combination thereof
• corporations created by special laws or charters
 CORPORATE PROPERTY OR ASSET
Where the corporation is the registered owner of real property, the heirs of a
deceased stockholder may not claim such real property as part of the estate
of the said deceased stockholder. Nor may the probate court even
provisionally order the lessee to remit the rental to the estate and not to the
corporation. ,(Mayor v Tiu)

Where the owner of a property sued the corporation that owns the adjoining
property for encroachment and obtained a judgment against said corporation
for damages, said judgment cannot be executed against any of its directors or
stockholders who were not aware of the encroachment nor proven to have
acted unlawfully or were in bad faith. Under the circumstances, they are not
personally or solidarily liable with the corporation. (Vda De Roxas v Our Lady’s
Foundation Inc.)
 CORPORATION DISTINGUISHED FROM
SOLE PROPIETORSHIP OR PARTNERSHIP

A sole proprietorship has no juridical personality separate and distinct from

that of its owner. It need not be impleaded as party plaintiff and sufficient if
the proprietor himself is the party plaintiff. Usually, a sole proprietor is
indicated in the complaint as “Juan De La Cruz doing business under the
name and style of ’Juan’s Trading Co.’” or whatever is its name registered at
the DTI or not. (SC Megaworld v Engr Parada)

A law firm that is the lessee under a contract of lease is the party who
should be sued by the lessor in case of ejectment, not the managing
partner or any partner for that matter. As a partnership, the law firm is a
juridical entity and may be sued as the real party in interest. (Saludo v PNB)
 NATIONALITY OF CORPORATIONS
• Full beneficial ownership of 60% percent of the outstanding capital stock,
coupled with 60% percent of the voting rights, must be owned by filipino
nationals otherwise the corporation is a non-philippine national

• Both the voting control test and the beneficial ownership test must be applied
to determine whether a corporation is a philippine national
• A domestic corporation at least 60% of the capital stock outstanding and entitled to vote
is owned by philippine citizen is a philippine national

• SEC MC 8 – the required percentage of filipino ownership shall be applied to

BOTH (a) the total number of outstanding shares entitiled to vote in the
election of directors: and (b) the total number of outstanding shares of stock
whether or not entitled to vote.
 DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

• Separate juridical personality

• Corporation has a personality separate and distinct from that of its stockholders
• Corporation incurs its own liabilities and is legally responsible for payment of its obligations
• Property in name of corporation is not part of estate of deceased stockholder even if he had owned
96% of its shares
• Corporate debt or credit is not the debt or credit of the stockholder
• General rule is a corporation is not entitled to moral damages; a corporation with good reputation if
besmirched, a ground for award of moral damages (mere obiter)
• Separate juridical personality may be disregarded if it is used to:
• Perpetuate fraud
• Hide commission of an illegal act
• Evade an existing obligation or personal liability
• Circumvent statute (tax, labor)
• Confuse legitimate issues
 DOCTRINE OF PIERCING THE CORPORATE VEIL
• Applies in three basic situations
• Defeat of public convenience; when used as a vehicle for evasion of an existing obligation
• Fraud cases; when used to justify a wrong, protect fraud or defend a crime
• Alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person or merely an instrumentality, agency or conduit of another corporation

• Three pronged control test to establish when the alter ego doctrine should apply (all
three elements must concur):
• Control = complete domination of finances, policy and business practice (instrumentality of control)
• Control used to commit fraud or wrong, dishonest and unjust act (fraud)
• Control and breach of duty is the proximate cuase of injury or unjust loss complained of (harm)

• However, piercing the corporate veil should be done with caution.

• Misuse of corporate fiction causing injustice, fraud or crime
• Wrongdoing clearly and convincingly established
 DOCTRINE OF PIERCING THE CORPORATE VEIL
• Corporate finances, policies and practices dominated by another corporation/
assumption of management and control of one corporation by the
directors/officers of another
• Mere conduit, no separate mind, will or existence of its own
• One corporation had a hand in the act (of another corporation) that is
complained of
• Holding office in the same building/ same address
• Practical identity/similarity of the officers and directors of the two corporations
• Confluence of the following factors:
• First corporation is dissolved
• Assets of the first corporation transferred to a second corporation to avoid a financial
liability of the first corporation
• Both corporations are owned and controlled by the same persons such that second
corporation is only a continuation and successor of the first corporation
 PIERCING THE CORPORATE VEIL DOES NOT APPLY
“On the scales of justice precariously lie the right of a prevailing party to his victor’ cap, no
more no less and the rights of a separate entity from being dragged by the ball and chain
of the vanquished party”. (J. Reyes in Pacific Rehouse, et al v CA)

Petitioner sued his broker (E-Securities Corporation) for fraud or trading without his
authority. After obtaining judgment, petitioner sought to execute against a related
corporation on the ground of the broker being its mere alter ego. The SC ruled that the
related corporation not being a party to the suit cannot be proceeded against, the court
not having had jurisdiction over it. Further, there was no evidence for or against the
application of the doctrine of piercing the corporate veil. For said doctrine to apply, the
related corporation must have been in complete domination of E-Securities which in turn
had no corporate nor separate existence of its own and was shown to have been under the
control exercised by the former during the material time when the fraud was committed.
 STOCK v NON-STOCK CORPORATIONS
STOCK CORPORATION NON-STOCK CORPORATION

FOR PROFIT; MAY DECLARE DIVIDENDS OUT OF NO PART OF INCOME IS DISTRIBUTABLE AS DIVIDENDS
UNRESTRICTED RETAINED EARNINGS PROFIT INCIDENTAL TO OPERATIONS AND MAY BE USED ONLY FOR
PURPOSES, WHEN NECESSARY OR PROPER

ANY BUSINESS OR COMMERCIAL PURPOSE CHARITABLE, RELIGIOUS, EDUCATIONAL, PROFESSIONAL, CULTURAL,

FRATERNAL, LITERARY, SCIENTIFIC, SOCIAL, CIVIL SERVICE OR SIMILAR
PURPOSE LIKE CHAMBERS

STOCK OWNERSHIP TRANSFERRABLE SUBJECT TO MEMBERSHIP IS PERSONAL AND NONTRANSFERRABLE (UNLESS AOI OR
RESTRICTIONS IF ANY IN AOI BYLAWS PROVIDE OTHERWISE)

LIQUIDATION – CREDITORS TO BE PAID FIRST RULES OF DISTRIBUTION, NET ASSETS MAY BE DISTRIBUTED TO MEMBERS
THAN NET ASSETS DISTRIBUTABLE TO OR ANY CLASS OF MEMBERS AS PROVIDED IN AOI OR BY LAWS; IF NONE
STOCKHOLDERS TO OTHER PERSONS OR ORGANIZATION AS MAY BE SPECIFIED IN A PLAN
OF DISTRIBUTION
 CLASSIFICATION OF SHARES
• The AOI must indicate
• Classes of shares
• Rights
• Privileges
• Restrictions
• Par or no par
• Every share equal in all respect to every other share except as otherwise provided in the AOI

• Doctrine of equality of shares

• In the absence of any provision in the AOI to the contrary, all shares of stock are equal
in features, and have equal voting rights
 CLASSES OR SERIES OF SHARES
• PREFERRED SHARES
• Entitle the holder to certain preferences over the holders of common stock
• As to assets – preference in the distribution of corporate assets in case of
liquidation
• As to dividends – entitled to receive dividends to the extent agreed uon
before any given to holders of common stock but:
• Dividends may be declared only out of unrestricted retained earnings
• Board has discretion to determine whether or not dividends are to be
declared
• May be issued only with a stated par value
• Has terms and conditions that
• the board of directors, where authorized in the articles of incorporation,
may fix; and
• shall be effective upon filing of a certificate thereof with the SEC
 CLASSES OR SERIES OF SHARES
REDEEMABLE SHARES
• Usually preferred, which by their terms are redeemable
• At a fixed date
• At the option of either the issuer or stockholder or both at a certain redeemable price
• Subject to corporation, after redemption, still having assets to cover debts and liabilities
inclusive of capital stock (not insolvent or will cause insolvency; or in case of a bank,
chronic reserve deficiency)
• may be issued by the corporation when expressly provided in the articles of incorporation
• may be purchased by the corporation from shareholders 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 SEC rules and regulations
 CLASSES OR SERIES OF SHARES

• Voting shares
• Except as enumerated below, only voting shares may vote to approve a particular corporate
act

• Non-voting shares
• Only preferred or redeemable may be deprived of voting rights; however,
• Holders of non-voting shares shall nevertheless be entitled to vote on the following matters:
• Amendment of the articles of incorporation;
• Adoption and amendment of bylaws;
• Sale, lease, echange, mortgage, pledge, or other disposition of all or substantially all of the corporate
property;
• Incurring, creating, or increasing bonded indebtedness;
• Increase or decrease of authorized capital stock;
• Merger or consolidation of the corporation with another corporation or other corporations;
• Investment of corporate funds in another corporation or business in accordance with this Code; and
• Dissolution of the corporation.
 CLASSES OR SERIES OF SHARES
• Par value shares
• No par value shares
• The following cannot issue no par value shares:
• banks, trust,
• insurance and preneed companies,
• public utilities,
• building and loan associations, and
• other corporations authorized to obtain or access funds from the public whether publicly listed or not
• Deemed fully paid and nonassessable and the holder of such shares shall not be liable to the corporation or
to its creditors in respect thereto: 
• Must be issued for a consideration of at least Five pesos (₱5.00) per share
• The entire consideration received no-par value shares:
• Shall be treated as capital and
• Shall not be available for distribution as dividends.
• The issued price of no par value shares may be fixed in the AOI or by the BOD pursuant to authority conferred
by the AOI or the bylaws, or if not so fixed, by the stockholders representing at least a majority of the OCS at a
meeting duly called for the purpose (Sec. 61).
• Other classes or series of shares may be issued to comply with constitutional or legal
requirements
 CLASSES OR SERIES OF SHARES
• Founders' shares
• may be given certain rights and privileges not enjoyed by the owners of other stock.
• such as exclusive right to vote and be voted for in the election of directors
• not to exceed five (5) years from the date of incorporation: 
• shall not be allowed if violative of the
• Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law";
• Republic Act No. 7042, otherwise known as the "Foreign Investments Act of 1991"; and,
• other pertinent laws.

• Treasury shares
• issued and fully paid for
• subsequently reacquired by the issuing corporation through
• purchase,
• redemption,
• donation, or
• some other lawful means.
• may again be disposed of for a reasonable price fixed by the board of directors
 DOCTRINE OF EQUALITY OF SHARES
Castillo et al v Balinghasay

The sole issue is whether the exclusive voting right and right to be voted upon
granted under the articles of incorporation to a class of shares is null and void.
The right of a corporation to classify its shares is subject to the provision that
“no share may be deprived of voting rights except those classified and issued as
preferred or redeemable shares unless otherwise provided” in the old
Corporation Code (which provision was re-enacted in the Revised Corporation
Code). Further, there shall always be a class or series of shares which have
complete voting rights. So, unless said class of shares were categorized as
having no voting rights in the articles, and it appears not to have been so
classified, such shares have voting rights.
 PREVIEW OF THE TRUST FUND DOCTRINE
Halley v Printwell Inc.
Halley was an original incorporator and former director of Business Media Philippines, Inc.
(BMPI) which was sued by Printwell for unpaid fees. Printwell amended its complaint to
implead the original stockholders and incorporators to recover on their unpaid subscription.
The SC held that under the trust fund doctrine, property of a corporation is a trust fund for
the payment of creditors but such property can be called a trust fund only by way of analogy
or metaphor. As between the corporation itself and its creditors it is a simple debtor, and as
between its creditors and stockholders its assets are ;in equity a fund for the payment of its
debts. The doctrine encompasses stockholders’ unpaid subscription but also other property
and assets generally even those distributed or in possession of stockholders regardless of
full payment of their subscriptions. Under this doctrine a creditor is allowed to maintain an
action upon any unpaid subscription and steps into the shoes of the corporation for the
satisfaction of its debts. Here, the stockholder were not in good faith in claiming they have
paid par value of the shares and the purported ORs for payment of their subscription were
irregular. Worse, the stock and transfer book was not presented to show who are are
stockholders to whome stock certificates may have been issued.
 TITLE II

INCORPORATI0N AND ORGANIZATION OF

PRIVATE CORPORATIONS
 GUIDE QUESTIONS
I.18. The AOI that BB Corporation submitted to the SEC for registration stated that its
primary purpose was to engage in mass media; however, among its incorporators,
directors and stockholders, were an American and a British national. The SEC ‘s
Corporate Registration and Monitoring Department (CRMD) immediately disapproved
the same. Do you agree with CRMD’s denial?
I.19. On February 14, 2019, the White Cheese Corporation (WCC) applied with the CRMD
to shorten its corporate term to one ending on June 14, 2019, which application was
granted on February 21, 2019. A few days after, the RCC became effective. What should
WCC do, if any, to pursue its intention to end its term on June 14, 2019.
I.20. Four brothers decided to form a corporation. Because of their love for their
deceased grandmother and to comply with minimum of 5 incorporators, , they included
her as one of the incorporators in the AOI. The CRMD unknowingly approved the AOI
and issued the SEC certificate of registration. Later, a whistleblower tipped the CRMD
about the anomaly. If you were the CRMD Director, how will you decide the matter?
 GUIDE QUESTIONS
I.21. Is the corporate name “Indian Chamber of Commerce Phils., Inc.”
distinguishable from “Filipino Indian Chamber of Commerce in the Philippines,
Inc.”?
Philips Export BV and Standard Philips Corporation?
GSIS Family Bank and BPI Family Bank?
De La Salle Montessori International of Malolos Inc v De La Salle University?

I.22. In The Missionary Sisters of Our Lady of Fatima v Alzona, the SC ruled that
the donee was a corporation by estoppel. What were the factual and legal bases
in support of such ruling?

I.23. Distinguish between non-use and inoperation, and the effects of each.
 REQUIREMENTS FOR INCORPORATION AND
REGISTRATION
• Incorporators may be
• Natural persons of legal age except those licensed to practice a profession; and/or
• Juridical persons such as a partnership, association or corporation except those organized
for the purpose of practicing a profession;
• Unless, under special laws, such excepted persons are allowed to be incorporators.
• Incorporators may not be more than 15 in number
• Each incorporator of a stock corporation must own or be a subscriber to at least one (1)
share of the capital stock.
• No minimum capital stock is required
• Articles of incorporation shall be:
• In any official language
• Duly signed and acknowledged or authenticated
• In such form and manner allowed by SEC
• May be filed with the SEC in the form of an electronic document, in accordance with its
rule and regulations on electronic filing.
 REQUIREMENTS FOR INCORPORATION AND
REGISTRATION
• Except as otherwise prescribed by the Code or by special laws, containing the
following substantive matters:
• name of corporation;
• specific purpose or purposes for which the corporation is being formed. Where a
corporation has more than one stated purpose, the articles shall indicate the primary
purpose and the secondary purpose or purposes: Provided, That a nonstock corporation
may not include a purpose which would change or contradict its nature as such;
• place where the principal office of the corporation is to be located, which must be within
the Philippines;
• term for which the corporation is to exist, if the corporation has not elected perpetual
existence;
• names, nationalities, and residence addresses of the incorporators;
• number of directors, which shall not be more than fifteen (15) or the number of trustees
which may be more than fifteen (15);
• names, nationalities, and residence addresses of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified in
accordance with this Code;
 REQUIREMENTS FOR INCORPORATION AND REGISTRATION
• if it be a stock corporation,
• the amount of its authorized capital stock,
• number of shares into which it is divided,
• the par value of each,
• names, nationalities, and subscribers, amount subscribed and paid by each on the subscription, and
• a statement that some or all of the shares are without par value, if applicable;
• if it be a nonstock corporation,
• amount of its capital,
• names, nationalities, and residence addresses of the contributors, and
• amount contributed by each;
• name of the treasurer who shall
• act as such until after the successor is duly elected and qualified in accordance with the bylaws,
• receive in the name and for the benefit of the corporation, all subscriptions, contributions or donations paid or
given by the subscribers or members,
• certify the information set forth in the seventh and eighth clauses of the articles, including the paid-up portion
of the subscription in cash and/or property received for the benefit and credit of the corporation.
• such other matters consistent with law and which the incorporators may deem necessary and
convenient such as an arbitration agreement.
 REQUIREMENTS FOR INCORPORATION AND REGISTRATION
• Corporations which will engage in any business or activity reserved for Filipino
citizens shall provide in its articles that
"No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less
than the required percentage of capital stock as provided by existing laws shall be allowed
or permitted to be recorder in the proper books of the corporation, and this restriction shall
be indicated in all stock certificates issued by the corporation."
• If the submitted document s and information are fully compliant with the Code,
other relevant laws, rules and regulations, the SEC shall issue the certificate of
incorporation which means that:
• The corporation has commenced its corporate existence and juridical personality from
such date of issuance
• The incorporators, stockholders/members and their successors shall constitute a
body corporate under the name stated in the articles for the period of time
mentioned therein, unless said period is extended or the corporation is sooner
dissolved in accordance with law.
 CORPORATE TERM
• Perpetual term is the default term upon effectivity of this Code
• Corporations existing as of such date automatically acquired perpetual term
• However, a corporation existing as of such date may continue with its specific
term upon a vote of its stockholders representing a majority of its articles of
incorporation: 
• A corporate term for a specific period may be extended or shortened by
amending the articles of incorporation:
• no extension may be made earlier than three (3) years prior to the original or
subsequent expiry date(s)
• unless there are justifiable reasons for an earlier extension as may be
determined by the Commission
• such extension of the corporate term shall take effect only on the day
following the original or subsequent expiry date(s).
 REVIVAL OF CORPORATE EXISTENCE

• A corporation whose term has expired may apply (within a definite period from
effectivity of the Code) for revival of its corporate existence whereby:
• It retains all the rights and privileges under its certificate of incorporation
• It is subject to all of its duties, debts and liabilities existing prior to its revival
• It shall be deemed revived upon approval by the SEC and
• It shall be issued a certificate of revival of corporate existence
• giving it perpetual existence,
• unless its application for revival provides otherwise.
• However, banks, banking and quasi-banking institutions, preneed,
insurance and trust companies, non-stock savings and loan associations
(NSSLAs), pawnshops, corporations engaged in money service business,
and other financial intermediaries may apply for revival only with the
favorable recommendation of the appropriate
 CORPORATE NAME
• A person or group of persons desiring to incorporate shall submit the intended
corporate name to the SEC for verification.
• If the name is distinguishable, it shall be reserved in favor of the incorporators.
The incorporators shall then submit their articles of incorporation and bylaws to
the Commission.
• The name must be distinguishable from that
• already reserved or
• registered for the use if another corporation, or
• already protected by law, rules and regulations.
• A name is not distinguishable even if it contains one or more of the following:
• The word "corporation", "company", incorporated", "limited", "limited
liability", or an abbreviation of one if such words; and
• Punctuations, articles, conjunctions, contractions, prepositions, abbreviations,
different tenses, spacing, or number of the same word or phrase.
 CORPORATE NAME
• All incorporators shall state in the articles that they undertake to change the name immediately
upon receipt of notice from the SEC that another corporation, partnership or person has
acquired a prior right to the use of such name, that the name has been declared not
distinguishable from a corporation, or that it is contrary to law, public morals, good customs or
public policy.
• The SEC shall determine whether the name is
• not distinguishable from a name already reserved or registered for the use of another corporation;
• already protected by law; or
• contrary to law, rules and regulations,
• SEC may then summarily order the corporation to
• immediately cease and desist from using such name
• require the corporation to register a new one
• cause the removal of all visible signages, marks, advertisements, labels prints and other effects bearing such
corporate name
• hold the corporation and its responsible directors or officers in contempt and/or hold them administratively,
civilly and/or criminally liable under the Code and other applicable laws and/or
• revoke the registration of the corporation.
 CASES ON THE CONTENTS OF THE AOI
Fong v Duenas GR 185592 Jun 15, 2015 – pre-incorporation agreement

Leo Y. Querubin et al v Comelec GR 218787 Dec 8, 2015; Asuncion v De Ynarte

28 Phil 67 (1914) – primary purpose

Pilipinas Shell Petroleum Corp. v Royal Ferry Services Inc. GR 188146 Feb 1,
2017; Golden Arches Dev Corp v St Francis Square GR 183843 Jan 19, 2017 –
principal place of business v actual location

Central Textile Mills v NWPC GR 104102 Aug 7, 1996 – authorized and paid up
capital
 AMENDMENT OF THE AOI
• Unless otherwise prescribed or by special law, any provision or matter in the articles may be amended
• for legitimate purposes
• by the majority vote of the board of directors or trustees and
• upon the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock,
• without prejudice to the appraisal right of dissenting stockholders
• the articles of a nonstock corporation may be amended by the vote or written assent of majority of the trustees
and at least two-thirds (2/3) of the members.

• The procedure and form shall be as follows

• The original and amended articles together shall contain all provisions required by law to be set out in the
articles.
• Amendments to the articles shall be indicated by underscoring the change or changes made.
• A copy duly certified under oath by the corporate secretary and a majority of the directors or trustees, with a
statement that the amendments have been duly approved by the required vote of the stockholders or
members, shall be submitted to the SEC.

• The amendments shall take effect upon their approval by the SEC or if not acted upon for a cause not attributable
to the corporation, within six (6) months from the date of filing.
 DISAPPROVAL OF THE AOI OR ANY AMENDMENT
• The articles or any amendment may be disapproved if
• not compliant with the requirements of the Code: 
• not substantially in accordance with the form prescribed herein;
• the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or
contrary to government rules and regulations;
• the certification concerning the amount of capital stock subscribed and/or paid is false; and
• the required percentage of Filipino ownership of the capital stock under existing laws or the
Constitution has not been complied with.
• PROVIDED: The incorporators, directors, trustees, or officers shall be give reasonable
time from receipt of the disapproval within which to modify the objectionable
portions of the articles or amendment. (see Care Best International Inc v SEC)
• No articles or amendment to articles of banks, banking and quasi-banking
institutions, preneed, insurance and trust companies, NSSLAs, pawnshops and other
financial intermediaries shall be approved unless accompanied by a favorable
recommendation of the appropriate government agency.
 DE FACTO CORPORATION v. CORPORATION BY
ESTOPPEL
DE FACTO CORPORATION
• The filing of articles of incorporation and issuance of the certificate of incorporation are essential
for the existence of a de facto corporation
• It is the act of registration with sec through issuance of a certificate of incorporaiton that marks
the beginning of an entity’s corporate existence
• Corporation claims in good faith to be a corporation
CORPORATION BY ESTOPPEL
• No SEC registration
• The persons who assume to act as a corporation knew it to be without authority (not in good faith)
• Such persons liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof
• Ostensible corporation if sued for a transaction entered or tort committed cannot use as defense
its lack of corporate personality
• A person who assumed an obligation to an ostensible corporation cannot resist performance of his
obligation on the ground that it was not a corporation
 DE FACTO CORPORATION CORPORATION BY ESTOPPEL
ACTUAL STATUS THERE WAS INCORPORATION AND REGISTRATION PERSONS ASSUMED TO ACT AS A CORPORATION
BUT WAS DEFECTIVE BUT THERE WAS NO INCORPORATION/
REGISTRATION THUS NO AUTHORITY TO ACT AS
A CORPORATION

CLAIM THE CORPORAITON IS IN GOOD FAITH THAT IT THEY KNEW THAT THEY WERE WITHOUT
WAS DULY INCORPORATED AND HAS RIGHT TO AUTHORITY TO ACT AS A CORPORATION
EXERCISE CORPORATE POWERS

CONSEQUENCE ITS INCORPORATION MAY NOT BE INQUIRED INTO
COLLATERALLY IN ANY PRIVATE SUIT TO WHICH IT
IS A PARTY
IF SUED ON ANY TRANSACTION THEY ENTERED
INTO AS A CORPORATION OR ANY TORT
COMMITTED BY THEM AS SUCH, THEY CANNOT
USE LACK OF CORPORATE PERSONALITY AS
DEFENSE;
OTH, ANYONE WHO ASSUMED AN OBLIGATION
TO SAID OSTENSIBLE CORPORATIN CANNOT
RESIST PERFORMANCE ON GROUND THAT THERE
WAS NO CORPORATION

LIABILITY SUCH INQUIRY MAY BE MADE ONLY BY OSG IN A PERSONS SHALL BE LIABLE AS GENERAL
QUO WARRANTO PROCEEDING PARTNERS FOR ALL DEBTS, LIABILITIES AND
DAMAGES AS A RESULT
 CORPORATION BY ESTOPPEL IN REVERSE
• Doctrine may be applied IN REVERSE:

• When the person who contracted or dealt with a non-existent corporation is estopped to
deny its legal existence in any action leading out of or involving such contract or dealing

• As along as there is no fraud and when the existence of the corporation is attacked for
causes attendant at the time the contract or dealing sought to be enforced was entered
into, and not thereafter

• If unjust enrichment (as some form of benefit have already accrued on the part of one
party) will result if not applied

• There is unequivocal ratification (validation) that is express or implied (by conduct)

• See The Missionary Sisters of Our Lady of Fatima v Alzona GR 203993 Apr 3, 2015
 NON-USE OF CORPORATE CHARTER VS CONTINUOUS INOPERATION

NON-USE CONTINUOUS INOPERATION

CORPORATIONDOES NOT FORMALLY ORGANIZE AND CORPORATION HAS COMMENCED ITS BUSINESS BUT
COMMEND ITS BUSINESS SUBSEQUETLY BECOMES INOPERATIVE

WITHIN 5 YEARS FROM DATE OF ITS INCORPORATION FOR A PERIOD OF AT LEAST 5 CONSECUTIVE YEARS

CERTIFICASTE OF INCORPORATION SHALL BE DEEMED AFTER NOTICE AND HEARING, SEC MAY PLACE IT UNDER
REVOKED DEQLINQUENT STATUS

AS OF THE DAY FOLLOWING THE END OF THE 5 YEAR DELINQUEST CORPORAITN HAS 2 YEARS TO RESUME
PERIOD OPERATIONS AND COMPLY WITH SEC REQWUIREMENTS
TO LIFT DELINQUENT STATUS

SEC NOTIFIES AND COORDINATES WITH APPROPRIATE SEC NOTIFIES AND COORDINATES WITH APPROPRIATE
REGULATORY AGENCY PRIOR TO REVOCATION OF REGULATORY AGENCY PRIOR TO REVOCATION OF
COMPANIES UNDER ITS REGULATION COMPANY UNDER ITS REGULATION
 TITLE III

BOARD OF DIRECTORS/TRUSTEES AND

OFFICERS
 GUIDE QUESTIONS
I.24. Why was the doctrine of apparent authority not applied to the sale
negotiated and concluded by the treasurer in the case of San Juan Structural
and Steel Fabricators Inc. v CA ?
I.25. What is the main consideration for classifying certain corporations as
vested with public interest?
I.26. What is the remedy where there was unjustified non-holding of election of
directors?
I.27. What are the requirements of a contract involving a self-dealing director in
the case of a corporation vested with public interest? What is the consequence
of non-compliance with any of the requirements?
I.28. When are directors or trustees personally liable or liable solidarily with the
corporation?
 GUIDE QUESTIONS
I.29. Out of four directors of the Zombies Corporation, one died due to Covid,
two others got infected and remained in critical condition at the hospital. The
remaining director wants to know whether he can form an emergency board
considering that the Corporation has to adopt certain urgent measures under
the new normal otherwise it might go bankrupt. What will your advice be?
I.30. Mr. Joe Misu was found by the US SEC to be administratively liable for
insider trading and imposed a fine as penalty. Immediately after paying such
fine, Mr. Misu came home to the Philippines and was invited by his friend Mr.
Jake Bimpop to be his co- director at the Pluto Construction Corporation (PCC).
Mr.Misu agreed thus Mr. Bimpop assigned to him one share of PCC . That same
day, both of them were elected directors at the PCC regular stockholders
meeting. Later, the Board learned about Mr. Misu’s US SEC case however ,Mr.
Bimpop prevailed upon the other directors to just keep quiet about it. After
several weeks, the SEC got an anonymous tip. How should the SEC proceed on
the matter.
 DOCTRINE OF CENTRALIZED MANAGEMENT

• Board shall exercise the corporate powers, conduct all business, and
control all corporate properties
• General rule is that in the absence of authority from the BOD, no
person, not even an individual director or its officers, can validly bind a
corporation
• Directors must act as a body in a meeting called pursuant to the law or
the corporation’s by laws, otherwise, any action taken therein may be
questioned by an objecting director or stockholder
• Corporation being a juridical entity may act only through its directors,
officers and employees. Debts incurred by these individual acting as
corporate agents are not their own but the direct liability of the
corporation
 BUSINESS JUDGMENT RULE

THE POWER AND RESPONSIBILITY TO DECIDE WHETHER THE CORPORATION

SHOULD ENTER INTO A CONTRACT THAT WILL BIND THE CORPORATION IS
LODGED IN ITS BOARD OF DIRECTORS, SUBJECT TO THE ARTICLES OF
INCORPORATION, BY-LAWS, OR RELEVANT PROVISIONS OF LAW.

DOCTRINE OF APPARENT AUTHORITY

IF A CORPORATION KNOWINGLY PERMITS ONE OF ITS OFFICERS OR ANY OTHER

AGENT TO ACT WITHIN THE SCOPE OF AN APPARENT AUTHORITY, IT HOLDS HIM
OUT TO THE PUBLIC AS POSSESSING THE POWER TO DO THOSE ACTS, THE
COPORATION WILL, AS AGAINST ANYONE WHO HAS IN GOOD FAITH DEALT WITH
IT THROUGH SUCH AGENT, BE ESTOPPED FROM DENYING AGENT’S AUTHORITY
 VIOLATION OF THE BUSINESS JUDGMENT RULE
Where the board approved the credit line of a corporation that:

• Has only been in existence for two years when it was granted a credit facility
• Was thinly capitalized
• Was not an ongoing concern since it never secured the necessary permits and
licenses to conduct business, it never engaged in any lucrative business, and it
did not file the necessary reports with the sec
• Was unable to furnish any security other than the promissory notes

The directors who participated in the board approval may have violated the
business judgment rule which underlies sec 30 thereby becoming personally
liable for gross negligence in directing the affairs of the corporation.
 QUALIFICATION, NOMINATION, ELECTION
 
Qualification
Nomination (except when the
exclusive right is reserved for
founders’ shares)
Quorum (either in person or by
proxy and those participating
through remote communication or
in absentia)
Modes of voting in addition to in
person or by proxy (when
authorized by the bylaws OR by
majority of the board EXCEPT in
corporations vested with public
interest, no need for bylaw
provision)
Manner of voting
Director, if stock corporation
Must own at least 1 share of stock
registered in his name prior to the
election
Each stockholder has the right to
nominate
Owners of majority of the
outstanding capital stock entitled to
vote
Remote communication or in
absentia
By ballot if requested by voting
stockholder
Trustee, if non-stock corporation
Must be a member
Each member has the right to
nominate
Majority of the members entitled
to vote
Remote communication or in
absentia
By ballot if requested by voting
member
 ELECTION RESULTS, NON-ELECTION AND SUMMARY ELECTION
HOW DIRECTORS/TRUSTEES ARE
ELECTED
Report of non-election to the SEC
(1) If no election held, meeting may be adjourned,
but fact of non-holding and reasons to be
reported within 30 days from date of scheduled
election.
(2) Report should indicate a new date for election
not later than 60 days from scheduled date
Summary election or when no new date set, or
no election again held, SEC after verification of
unjustified non-holding of election may order
that an election be held and direct issuance of
notice, designate presiding officer and set the
record date for determination of who are
entitled to vote
Cumulative – a stockholder may (1) vote his
number of shares for as many directors to be
elected; (2) cumulate said shares giving 1
candidate all of his votes equivalent to the
number of directors to be elected multiplied by
number of his shares or (3) distribute them
among as many candidates
Total number of votes shall not exceed number
of his shares multiplied by number of directors
to be elected
No delinquent stock shall be voted
Owners of majority of outstanding capital stock
entitled to vote were not present in person, by
proxy, through remote communication or did
not vote in absentia
Upon application of stockholder or director
Notwithstanding articles or bylaws to the
contrary, shares of stock represented at such
meeting and entitled to vote shall constitute a
quorum for purpose of the summary election
Unless provided in the articles or bylaws,
members may cast as many votes as there are
trustees to be elected but may not cast more
than 1 vote for 1 candidate.
Majority of the members entitled to vote were
not present in person, by proxy, through remote
communication or did not vote in absentia
Upon application of member or trustee
Notwithstanding articles or bylaws to the
contrary, membership represented at such
meeting and entitled to vote shall constitute a
quorum for purpose of the summary election
 TERM, COMPENSATION, DUTY TO REPORT VACANCY
Term
Compensation
(1) none or reasonable per diem only unless the
bylaws had fixed such compensation
(2) total yearly compensation shall not exceed
10% of net income before income tax of the
preceding year
Report to the SEC on the removal, or
vacancy arising from death, resignation or
any manner, of a director ceasing to hold
office
One year until successor is elected and
qualified
When he ceases to own at least 1 share
Stockholders representing at least a
majority of the outstanding capital
stock may grant compensation and
approve amount at regular or
special meeting
Directors shall not participate in the
determination of their
compensation or per diems
Secretary, director or officer shall
within 7 days from knowledge
report in writing to the SEC
Not exceeding 3 years until the
successor is elected and qualified
 When he ceases to be a member
Majority of the members may grant
compensation and approve amount at
regular or special meeting
Trustees shall not participate in the
determination of their compensation or
per diems
Secretary, trustee or officer shall within
7 days from knowledge report in writing
to the SEC
DUTIES OF DIRECTORS, TRUSTEES AND OFFICERS
• FIDUCIARY DUTY
• LOYALTY
• DILIGENCE
• OBEDIENCE

• ADVERSE INTEREST (CONFLICT OF INTEREST)

• SELF-DEALING TRANSACTIONS

• RELATED PARTY TRANSACTIONS (INTERLOCKING DIRECTORSHIPS)

• CORPORATE OPPORTUNITY DOCTRINE (DISLOYALTY)

WHEN DIRECTORS AND TRUSTEES OR, IN APPROPRIATE CASES, OFFICERS
INCUR PERSONAL OR SOLIDARY LIABILITY WITH THE CORPORATION

• Those who willfully and knowingly

• Vote for or assent to patently unlawful acts of the corporation
• Act in bad faith or with gross negligence in directing the corporate affairs
• Guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members and other persons
• When a director or officer has consented to the issuance of watered stocks or
who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection thereto
• When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the corporation
• When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action (e.G. Labor law in case of termination
of employees done with malice or in bad faith)
 COMPARATIVE LIABILITIES OF DIRECTORS, TRUSTEES AND OFFICERS
  Sec 30 (first par) Sec 30 (last par) Sec 33
Illegal act, gross negligence, bad faith, conflict of interest Taking advantage of corporate opportunity Disloyalty

Who may be Director, trustee or officer Director, trustee or officer Director

liable

Prohibited (1) Willfully and knowingly vote for or Attempt to acquire or acquire any interest Acquire by virtue of his office
act or assent to patently unlawful acts adverse to the corporation in respect of as director a business
transaction (2) Are guilty of gross negligence any matter which has been reposed to the opportunity which should
(3) Bad faith in directing corporate affairs in confidence, and upon which equity belong to the corporation,
(4) Acquire any personal or pecuniary imposes a disability upon themselves to thereby obtaining profits to
interest in conflict with their duty deal in their own behalf the prejudice of the
corporation,
Notwithstanding that he risked
his own funds in the venture
Nature of Liable jointly and severally for all Liable as trustee for the corporation Account for and refund all such
liability damages suffered by the corporation, and must account for the profits profits
its stockholder or members and third which otherwise would have accrued
persons to the corporation
To whom Corporation, stockholders or Corporation Corporation unless act is
liable members and third persons ratified by vote of
stockholders owning or
representing at least 2/3 of
the outstanding capital stock
RELATED PARTY TRANSACTIONS

SELF DEALING DIRECTORS

INTERLOCKING DIRECTORS
  Sec 31 dealings of directors, trustees or officers with corporation
Parties to the Directors, trustees or officers or their spouses and relatives within the fourth
contract civil degree of consanguinity or affinity
Conditions for a (a) The presence of such director or trustee in the board meeting in which the
valid contract contract was approved was not necessary to constitute a quorum for such meeting;
(b) The vote of such director or trustee was not necessary for the approval of the
contract;
(c) The contract is fair and reasonable under the circumstances;
(d) 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 approved the material contract; and
(e) In case of an officer, the contract has been previously authorized by the board of
directors.
 
Voidable contract Where any of the first three (3) conditions is absent, in the case of a contract with a
but may be ratified director or trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of at least
two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That
full disclosure of the adverse interest of the directors or trustees involved is made at
such meeting and the contract is fair and reasonable under the circumstances.
When is contract In case of corporations vested with public interest, material contracts are approved
not valid and not by at least 2/3 of the entire membership of the board and at least a majority of the
subject to independent directors; and
ratification In case of an officer, the contract has been previously authorized by the board of
directors.
The reason why non-compliance with any of these two conditions renders the
contract not subject to ratification is because the remedy of ratification applies to
non-compliance with the first 3 conditions only.
Sec 32 contracts between corporation and interlocking
directors
Counter party is a corporation, and the director is also a director in the
other corporation
(a) There is no fraud involved
 
(b) The contract is fair and reasonable under the circumstances
 
(c) The contract will not be invalidated on the ground alone of an interlocking
director
 
(d) But where the interest of the interlocking director n one corporation is
substantial and his interest in the other corporation is merely nominal, the
contract shall be subject to provisions of Sec 31 insofar as the latter
corporation is concerned
In case (d) above applies, the contract becomes voidable only if any of the
first 3 conditions in Sec 31 not complied with.
 
Similarly, such contract may be ratified by the required vote under Sec 31
and subject to full disclosure and that the contract is fair and reasonable.
 
In case the corporation in which the interlocking director has nominal interest is a
corporation vested with public interest, then the contract must be approved by at
least 2/3 of the entire membership of its board and at least a majority of its
independent directors.
The reason why the contract is not subject to ratification in the above situation
under Sec 31 is because the remedy of ratification therein applies to the first 3
conditions only.
 
 DISQUALIFICATION OF DIRECTOR, TRUSTEE OR
OFFICER
• Person shall be disqualified from being a director, trustee or officer shall be
disqualified if within 5 years prior to election or appointment, s/he was
• Convicted by final judgment
• Of an offense punishable by imprisonment for a period exceeding 6 years
• For violating the Code
• For violating the Securities Regulation Code
• Found administratively liable for any offense involving fraudulent acts
• By a foreign court or equivalent foreign regulatory authority for acts, violation or
misconduct similar the foregoing
• This is without prejudice to qualifications or other disqualifications, which the
SEC, the primary regulatory agency, or Philippine Competition Commission
may impose in its
• promotion of good corporate governance or as a sanction in its administrative
proceedings.
 REMOVAL OF DIRECTOR/TRUSTEE
Precedents Stock corporation Non-stock corporation
Who may By vote of the stockholders holding or representing By a vote of at least two-thirds (2/3) of the member entitled to
remove at least two-thirds (2/3) of the outstanding capital vote
stock entitled to vote

Where Regular meeting or special meeting called for the
purpose
What is Previous notice shall be given to stockholders of the
required intention to propose such removal at the meeting.
Notice of the time, place and intention must be
given by publication or by written notice prescribed
in the Code.
Who may (1) By the secretary on order of the president or
call the (2) Upon written demand of stockholders
special representing or holding at least a majority of the
meeting outstanding capital stock, entitled to vote.
(3) If there is no secretary, or the secretary, despite
demand, fails or refuses to call the special
meeting or to give notice thereof, the
stockholder signing the demand may call the
special meeting or to give notice thereof, said
stockholder may call for the meeting by directly
addressing the stockholders or members.
Regular meeting or special meeting called for the purpose
Previous notice shall be given to members of the intention to
propose such removal at the meeting. Notice of the time, place
and intention must be given by publication or by written notice
prescribed in the Code.
(1) By the secretary on order of the president or
(2) Upon written demand of a majority of the members
entitled to vote.
(3) If there is no secretary, or the secretary, despite demand,
fails or refuses to call the special meeting or to give notice
thereof, the member signing the demand may call the
special meeting or to give notice thereof, said member
may call for the meeting by directly addressing the
members.
 VACANCIES IN THE OFFICE OF DIRECTOR OR TRUSTEE
Filling up of vacancy (Procedure per Secs 23 When
and 25)
TERM EXPIRATION Election at a regular or special meeting called No later than the day of such expiration at a
for that purpose meeting called for that purpose
REMOVAL Election at a regular or special meeting called Same day of the meeting for removal; to be
for that purpose stated in the agenda and notice .
ALL OTHER CAUSES (DEATH, (1) Vote of at least majority of the remaining No later than forty-five (45) days from the
INCAPACITY , RESIGNATION) directors or trustees, with quorum; time the vacancy arose.
(2) Or vacancy filled by the stockholders or
members at a regular or special meeting
called for that purpose.
 

WHO MAY REPLACE A director or trustee elected to fill a vacancy The replacement director or trustee shall
shall be referred to as replacement director serve only for the unexpired term of the
or trustee predecessor in office
 

INCREASE IN THE NUMBER Election at a regular or special meeting of In the same meeting authorizing the increase
OF DIRECTORS / TRUSTEES stockholders or members duly called for the of directors or trustees if so stated in the
purpose notice of the meeting.
 
 EMERGENCY BOARD
• Requisites
• when the vacancy prevents the remaining directors from constituting a quorum
• emergency action is required to prevent grave, substantial, and irreparable loss or
damage to the corporation
• Procedure
• the vacancy may be temporarily filled from among the officers of the corporation by
unanimous vote of the remaining directors or trustees.
• Limitation
• The action by the designated director or trustee shall be limited to the emergency action
necessary
• His term shall cease within a reasonable time
• from the termination of the emergency or
• upon election of the replacement director or trustee, whichever comes earlier.
• The corporation must notify SEC within three (3) days from the creation of the emergency
board, stating therein the reason for its creation.
 CORPORATIONS VESTED WITH PUBLIC INTEREST

• What are corporations vested with public interest?

• Corporations covered by Section 17.2 of the Securities Regulation Code namely
• those whose securities are registered with SEC;
• publicly listed corporations or those listed with an exchange or
• public corporations or those with assets of at least Php 50,000,000.00 and having at least 200
shareholders, each holding at least 100 shares of a class of its equity shares;
• Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service
business, preneed, trust and insurance companies and other financial intermediaries;
• Other similar corporations, as may be determined by the SEC, after taking into account
relevant factors in requiring an independent director, such as
• the extent of minority ownership,
• type of financial products or securities issued or offered to investors,
• public interest involved in the nature of business operations, and
• other analogous factors.
 CORPORATIONS VESTED WITH PUBLIC INTEREST
• What is the main consideration for this category?
• The board of corporations vested with public interest is required to have independent directors
constituting at least twenty percent (20%) of such board for good corporate governance.
• See related provision in the SRC

• Corporations vested with public interest are further required to

• submit to their shareholders and the SEC, an annual report of the total compensation
of each of their directors or trustees.
• have compliance officers
• submit additional reportorial requirements to the SEC
• not be organized as close corporations
• not issue no par value shares
• comply with stricter requirements concerning related party transactions
 INDEPENDENT DIRECTOR

• A person who apart from shareholdings and fees received from the
corporation, is independent of management and free from any business or
other relationsihip which could, or could reasonably be perceived to materially
interfere with the exercise of independent judgment in carrying out the
responsibilities as a director.
• Elected by the shareholders present or entitled to vote in absentia during the
election of directors.
• Subject to rules and regulations governing
• qualifications,
• disqualifications,
• voting requirements,
• duration of term and term limit,
• maximum number of board membership and
• other requirements that SEC will prescribe to strengthen his independence and align
with international best practices.
 EXECUTIVE, MANAGEMENT AND OTHER SPECIAL
COMMITTEES
• The bylaws must provide the creation of an executive committee which
shall
• Have at least 3 directors
• May act, by majority vote of all its members
• On specific matter within the competence of the board as may be delegated to it
in the bylaws or by majority vote of the board, EXCEPT
• approval of any action for which shareholders' approval is also required;
• filing of vacancies in the board;
• amendment or repeal of bylaws or the adoption of new bylaws;
• amendment or term is not amendable or repealable; and
• distribution of cash dividends to the shareholders
• The board of directors may create special committees of temporary or
permanent nature and determine the members' term, composition,
compensation, powers, and responsibilities.
 CORPORATE OFFICERS

• Immediately after their election, the directors must formally organize

and elect:
• a president, who must be a director;
• a treasurer, who must be a resident of the Philippines; and
• such other officers as may be provided in the bylaws.
• If the corporation is vested with public interest, the board shall also
elect a compliance officer.
• The same person may hold two (2) or more positions concurrently,
except that no one shall act as president and secretary or as president
and treasurer at the same time, unless otherwise allowed in this Code.
 CORPORATE OFFICERS
• Unless the position or office is expressly mentioned in the by laws, the person
appointed or hired to said position or office is NOT a corporate officer but an
employee. The dismissal of a corporate officer may give rise to an intra-
corporate dispute but the dismissal of an employee is within the jurisdiction of
the NLRC. (Velasco v Lopez Inc 419 SCRA 422 [2004])
• An enabling clause in the bylaws empowering the its board to create additional
officers even with passage of a board resolution to that effect cannot transform
such position into a corporate office unless the bylaws are amended to include
such newly created corporate office. (Mark II Marketing v Joson 662 SCRA 35
[2011]; Cosare v Broadcom Asia Inc. GR 201298 Feb 5, 2014).
• Contracts entered into by the corporate president without express prior board
approval bind the corporation when such officer’s apparent authority is
established and when these contracts are ratified by the stockholders. (People’s
Aircargo and Warehousing v CA 297 SCRA 170 [1989])