CORPORATIONS
TITLE 1 - GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Sec. 1. Title of the Code. — This Code shall
be known as “The Corporation Coder of the
Philippines’.
Sec. 2. Corporation defined. - A corporation
is an artificial being created by operation of
law having the right of succession and the
powers, attributes and properties expressly
authorized by law or incident to its
existence,
Definition
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.
Attributes
1. Itisan artificial being.
2. Itis created by operation of law.
3. Ithas the right of succession.4. It has only the powers, attributes and
properties expressly authorized by law
or incident to its existence.
Similarities between a partnership and a
corporation
1. Juridical personality separate and
distinct from the individuals composing
it
2. Act only through its agents.
3. Composed of an aggregate of
individuals,
4, Distribute profits to those who
contribute to capital.
5. May be organized only when there is 3
law authorizing it.
6. Subject to income tax.
Distinctions between a partnership and a
corporation
partnership.
Right of | No right of | Possesses
Succession | succession | right of
Extent of | Partners | Stockholders
Liability to | (except are liable only
Third Persons | limited to the exent
partners) | of their
are liable | investments
personally | as
and represented
subsidiarily | by the shares
for subscribed by
partnership | them.
debts to
thicd
persons,
Transferability | A partner | A stockholder
cofinterest | cannot fhas the right
transfer | to transfer
interest so | shares
astomake a without the
partner prior consent
without the | of the other
consent of | stockholders
Pr
ee cata
Manner of [By mere | By law or
Creation agreement | operation of
of the | law
parties
Womber oF | By a Requires at
Parties minimum of | least five (5)
two (2)| incorporators
persons
Commence | Generally | From the date
ment of | from the | of the
Juridical moment of | issuance of
Personality | execution of | the certificate
the contract | of
incorporation
of the
Securities and
Exchange
Commission
(sec)
Powers ‘May Can exercise
exercise | only the
powers | powers
authorized | expressly
by partners | granted by
provides the | law or
same are | incident to its
not contrary | existence.
to kaw,
morals,
00d
customs,
public policy
or public
order.
all other
existing
partners.
Term of | May be | May not be
existence | established | formed for 2
for any} term in excess
period of | of 50 years
time extendible to
stipulated | not more than
by the | Soyears.
partners,
Firmname | A — limited | A corporation
partnership | may adopt 2
is reguired | firm — name
to add the | provided it is
word ‘Ltd.’ | not identical
toitsname. | or deceptively
similar to any
registered
firm name oF
contrary to
existing laws.
Dissolution [May be | May only be
dissolved at | dissolved with
any time by | the consent of
the will of | the state.
Management | When it is | It is vested in
not agreed | the board of
upon, each | directors or
partners an | trustees.
agent of the
any or all
partners.
Governing | CivilCode | Corporation
Laws Code
Advantages of a corporate form of
business organizations
1. The capacity to hold property, to
contract, to sue and be sued as 2 legal
unit or distinct entity.
2. Exemption of shareholders from
individual liability.3. Continuity of existence in spite of death
or changes of members.
Transferability of shares.
Centralized management under a board
of directors.
6. Standardized methods of organization,
management and finance for the
protection of shareholders and
creditors under statutory regulations.
ve
advantages of a corporate form of
business organizations
1. The limited liability of the stockholders
serves to limit the credit available to
the corporation.
2. The transferability of shares permits the
Uniting of incompatible and conflicting
interests in one enterprise.
3. The minority stockholders are usually
subservient to the wishes of the
majority.
4, In big corporations, the stockholders’
voting rights have become largely
theoretical because of widespread
ownershig, —lukewarmness and
disinterest in management, inertia, and
inaccessible meeting places.
5. In large corporations, management and
control_has been separated from
‘ownership.
6. By and large corporations are subject to
governmental restrictions, controls, and
report requirements not imposed on
other forms of business organizations
7. Corporate sphere of activity is limited in
the transaction of its business to the
state of the organization
8 The corporate form involves “double
taxation” on corporation income.
Sec. 3. Classes of corporations. —
Corporations formed or organized under
this Code may be stock or non-stock
corporations. Corporations which have
capital stock divided into shares and are
authorized to distribute to the holders of
such shares dividends or allotments of the
surplus profits on the basis of shares held
‘are stock corporations, All other
‘corporations are non-stock corporations.
Other kinds of corporations
1. Quasi-corporations - from the word
“quasi’, meaning “as if", are entities
that are not absolutely corporations but
are considered as if they were. Eg.
Public boards created by law
10,
1,
12,
13,
14.
15.
16.
uw.
Quasi-public - are entities engaged in
rendering basic services of such public
importance as to entitle them to certain
privileges like eminent domain or use of
public property. Eg. Electric, gas, water
and telephone companies.
Government-owned or controlled - are
entities organized by the government
or corporations of which the
government is a majority stockholder.
Eg. Philippine Air Lines
Domestic - one incorporated under
Philippine laws.
Foreign - one formed, organized, or
existing under any laws other than
those of the Philippines.
Corporation aggregate — one composed
of more than one member or
corporator,
Corporation sole — consists of one
member or corporator and his
successors,
Religious corporations, sole or
aggregate ~ organized, either as sole or
aggregate, to administer properties of
the church.
Ecclesiastical ~ organized for religious
Purposes.
Lay ~ organized for a purpose other
‘than religious
Eleemosynary — organized for charitable
purposes.
Civil — are those than ecclesiastical and
eleemosynary, whether public or
private.
Close ~ one wherein all the outstanding
stock is owned by the persons who are
active in management and conduct of
‘the business.
(Open — one in which all the members or
corporations have a vote in the election
of the directors and other officers.
Multi-national - one having been
created or organized in one state
conducts business or activities across
national boundaries and but subject to
the legal sanctions of the countries in
which they operate.
Non-profit - organized without
contemplation of gains, profits or
dividends to their members on invested
capital.
De Jure - one created in strict or
substantial conformity with the
statutory requirements for
incorporation and whose right to exist
as a corporation cannot be successfullyattacked even in a direct proceeding for
‘that purpose by the State.
Sec. 4. Corporations created by special
laws or charters. ~ Corporations created by
special laws or charters shall be governed
primarily by the provisions of the special
law or charter creating them or applicable
to them, supplemented by the provisions of
this Code, insofar as they are applicable.
Sec. 5. Corporators and incorporators,
stockholders, and members. ~ Corporators
are those who compose a corporation,
whether as stockholders or members.
Incorporators are those stockholders or
members mentioned in the articles of
incorporation as originally forming and
composing the corporation and who ore
signatories thereof.
Corporators in a stock corporation are
called stock-holders or shareholders.
Corporators in a non-stock corporation are
called members.
Components of a Corporation
1. Corporators ~ are those who composed
a corporation, whether as stockholders
of members. The term includes
incorporators, stockholders. or
members.
2. Incorporators ~ are those stockholders
or members mentioned in the articles
of incorporation as originally forming
‘and composing the corporation and
who are signatories thereot
3. Stockholders or shareholders — are
those corporators. in. 2 stock
corporation.
4, Members ~ are those corporators in a
non-stack corporation
5. Promoters - is a self-constituted
organizer who finds an enterprise or
venture and helgs to attract investors,
form a corporation and launch it in
business, all with a view to promotion
profits
Promotion — is the act of procuring the
initial finances and the making of all
preparations necessary to. launch a
corporation.
Activities of a promoter
1. The discovery and investigation of a
promising business opportunity.
2. The formulation of business and
financial plans.
3. Assembling the enterprise by
negotiations and obtaining some
control over the subject matter by
option or contracts made on behalf of
the proposed corporation or on his own
credit.
4. The making of arrangements for
financing the enterprise and the
floatation of securities.
5. Arrange tactful and painless methods
for getting his own reward for the task
of promotion out of the prospective
investors and for reimbursement for his
expenses, contracts, and services
without frightening away those who are
expected to provide the funds.
General rule: A corporation is not bound by
any agreement made by a promoter.
Exception to the rule: Unless and until the
corporation approves the agreement.
Sec. 6, Classification of shares. — The
shares of stock of stock corporations may
be divided into classes or series of shares,
or both, any of which classes or series of
shares may have such rights, privileges or
restrictions 2s may be stated in the articles
of incorporation: Provided, That no share
may be deprived of voting rights except
those classified and issued as “preferred” or
“redeemable” shares, unless otherwise
provided in this Code: Provided, further,
That there shall always be a class or series
of shares which have complete voting
rights. Any or all of the shares or series of
shares may have a par value or have no par
value as may be provided for in the articles
of incorporation: Provided, however, That
banks, trust companies, insurance
companies, public utilities, and building and
loan associations shall not be permitted to
issue no-par value shares of stock.
Preferred shares of stock issued by any
corporation may be given preference in the
distribution of the assets of the corporation
In case of liquidation and in the distribution
of dividends, or such other preferences as
may be stated in the articles of
incorporation which are not violative of the
provisions of this Code: Provided, That
preferred shares of stock may be issued
only with a stated par value. The board of
directors, where authorized in the articles
of incorporation, may fix the terms andconditions of preferred shares of stock or
any series thereof: Provided, That such
terms and conditions shall be effective
upon the filing of a certificate thereof with
the Securities and Exchange Commission.
Shares of capital stock issued without par
value shall be deemed fully paid and non-
assessable and the holder of such shares
shall not be liable to the corporation or to
‘ts ereditors in respect thereto: Prouided:
That shares without par value may not be
Issued for a consideration less than the
value of five (P5.00) pesos per share:
Provided, further, That the entire
consideration received by the corporation
for its no-par value shares shall be treated
as capital and shall not be available for
distributionas dividends.
A corporation may, furthermore, classify its
shares for the purpose of insuring
compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles
‘of incorporation and stated in the
certificate of stock, each share shall be
‘equal in alll respects to every other share.
‘Where the articles of incorporation provide
for non-voting shares in the cases allowed
by this Code, the holders of such shares
shall nevertheless be entitled to vate on the
following matters:
1. Amendment of the articles of
incorporation.
2. Adoption and amendment of by-laws.
3. Sale, lease, exchange, mortgage, pledge
or other disposition of all or
substantially all of the corporate
property.
4, Incurring, creating or increasing bonded
indebtedness.
5. Increase or decrease of capital stock.
6. Merger or consolidation of the
corporation with another corporation
or other corporations.
7. Investment of corporate funds in
another corporation or business in
accordance with this Code.
8, Dissolution of the corporation.
Except as provided in the immediately
preceding paragraph, the vote necessary to
approve a particular corporate act as
Provided in this Code shall be deemed to
refer only to stacks with voting rights.
Definition
‘A “stock” or share of stock is one of the
units into which the capital stack has been
divided. It represents the interest or right
that the holder of the stock or stockholder
has in the corporation,
A stock certificate certifies that one is a
holder or owner of a certain number of
shares of stock in the corporation. It is a
mere documentary evidence of the holder's
ownership of shares and a convenient
Instrument for the transfer of title.
Classes or series of shares of stock subject
to restrictions
1. Shares shall not be deprived of voting
rights except preferred or redeemable
shares but non-voting shares must still
be entitles to vote on matters specified
in the last paragraph of Section 6 like
matters relating to amendment of the
articles of incorporation and dissolution
of the corporation,
2. Where non-voting shares are provided
for there must always be a class or
series of shares with complete voting
rights
3. Banks, trust companies, insurance
companies, public utilities, and building
and loan associations shall not be
permitted to issue no-par value shares
of stock.
4. Preferred shares of stock which may be
given preference in the distribution of
assets in case of liquidation and
distribution of dividends or other
preferences may be issued only with
stated par value.
5. The terms and conditions of preferred
shares or series thereof may be fixed by
the board of directors only when
authorized by the articles of
incorporation the effectivity thereof
shall be reckoned from the filing of
certificate with the SEC.
6. Shares without par value may not be
issued for a consideration less than the
value of five (P5.00) pesos per share.7. Unless otherwise provided by law the
rights, privileges or restrictions on
classes or series of shares must be
stated in the articles of incorporation
and in the stock certificates
Classes or series of shares
1. Voting and Non-Voting Shares;
General rule: Every member of a non’
stock corporation and every legal owner
of shares in a stock corporation, has a
right to be present and vote at all
corporate meetings.
Exception to the rule: Unless there is a
stipulation in contrary.
2. Par Value and No-Par Value Shares
Par value is the given fixed or definite
value of a share in the articles of
incorporation.
3. Common and Preferred Shares.
Preferred shares of stock may be: (a]
Preferred as to assets; (b) preferred as
to dividends, Preferred as to dividends
may either be cumulative or non:
cumulative, or participating or non-
participating
4, Promotion Shares - are such stocks
issued to those who may originally own
the mining ground or valuable rights
connected therewith, in consideration
of their deeding the same to the mining
company when the company is
incorporated, or it may mean such stock
asis issued to promoters.
5. Shares of Escrow — are shares subject to
‘an escrow agreement, that is, an
agreement under which the shares are
deposited by the grantor or his agent
with a third person, to be delivered by
the depositary to the vendee or
subscriber only upon the happening of
certain conditions,
Founder's Shares;
Redeemable “Callable” Shares;
Treasury Shares;
2 ese
Other shares classified to comply with
constitutional or legal requirements.
Instances when non-voting shares may
vote
1. Amendment of the articles of
incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge
or other disposition of all or
substantially all of the corporate
property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the
corporation with another corporation
‘or other corporations;
7. Investment of corporate funds in
another corporation of business in
accordance with the Corporation Code;
and
8, Dissolution of the corporation.
See. 7. Founders’ shares, ~ Founders’ shares
classified as such in the articles of
incorporation may be given certain rights
and privileges not enjayed by the owners of
other stocks, provided that where the
exclusive right to vote and be voted for in
the election of directors is granted, it must,
be for a limited period not to exceed five (5)
years subject to the approval of the
Securities and Exchange Commission. The
five-year period shall commence from the
date of the aforesaid approval by the
Securities and Exchange Commission
Definition
Founders’ shares, generally common stock,
are given to the founders or promoters of a
corporation in payment of money expended
or services rendered in the promotion of it.
Sec. 8. Redeemable shares. ~ Redeemable
shares may be issued by the corporation
when expressly so provided in the articles
of incorporation. They may be purchased or
taken up by the corporation 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
‘as may be stated in the articles of
incorporation, which terms and conditions
must also be stated in the certificate of
stock representing said shares.
Definition
Asdeemable (“Callable”| shares of stock
which are usually preferred are frequently
issued subject to redemption at the option
of either the corporation, the stockholder,
or both, at a definite price representing
premium above the amount originally paid.
Sinking fund refers to a fund set-up by the
corporation where cash is gradually set
aside in order to accumulate the amount
necessary to meet the redemption price ofredeemable shares of specified dates in the
future.
Sec. 9, Treasury shares. - Treasury shares
are shares of stack which have been issued
and fully paid for, but subsequentiy
reacquired by the issuing corporation by
purchase, redemption, donation or through
some other lawful means. Such shares may
again be disposed of for a reasonable price
fixed by the board of directors. (n)
Definition
Treasury shares are owned by the
corporation having been reacquired by the
issuing corporation by “purchase,
redemption, donation or through some
other lawful means.” It has no voting rights,
Or rights as to dividends or distributions.
TITLE Il - INCORPORATION AND
ORGANIZATION OF PRIVATE
CORPORATIONS
Definition
Incorporation is the act of creating a
corporation.
Sec. 10. Number and qualifications of
incorporators. — Any number of natural
persons not less than five (5) but not more
than fifteen (15), all of legal age and a
majority of whom are residents of the
Philippines, may form a private corporation
for any lawful purpose or purposes. Each of
the incorporators of s stock corporation
must own or be a subscriber to at least one
(2) share of the capital stock of the
corporation.
Qualifications of incorporators
1. Must be a natural person.
2, Must be of legal age.
Sec. 11. Corporate term. - A corporation
shall exist for a period not exceeding fifty
(50) years from the date of incorporation
unless sooner dissolved or unless said
period is extended. The corporate term as
originally stated in the articles of
incorporation may be extended for periods
not exceeding fifty (50) years in any single
instance by an amendment of the articles of
incorporation, in accordance with this Code;
Provided, That no extension can be made
earlier than five (5) 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
Securities and Exchange Commission.
Sec. 12. Minimum capital stock required of
stock corporations. — Stock corporations
incorporated under this Code shall not be
required to have any minimum authorized
capital stock except. as otherwise
‘specifically provided for by special law, and
subject to the provisions of the following
section.
Sec.13. Amount of capital stock to be
subscribed and paid for purpose of
incorporation. - At least twenty-five
percent (25%) of the authorized capital
stock as stated in the articles of
incorporation must be subscribed at the
time of incorporation, and at least twenty:
five percent (25%) of the total subscription
must be paid upon subscription, the
balance to be payable on a date or dates
fixed in the contract of subscription without
need of call, or in the absence of fixed date
‘or dates, upon call for payment by the
board of directors: Provided, however, that
in no case shall the paid-up capital be less
than five thousand (P5,0000) pesos.
Amount to be subscribed and pai
Mustration:
If X, Inc, has authorized capital
stock of PL00, 000 divided into 1,000 shares
with par value of P100.00 per share, it must
be shown that at least P25, 000 or 250
shares of the authorized capital stock must
be subscribed. Of the total subscrigtion of
P25, 000, at least P6, 250.00 or 25% of total
subscription must be paid. it is not
necessary that each subscriber pay Twenty-
five percent (25%) on his subscription. On
the other hand, where the authorized
capital stock is stated at 2,000 no par value
shares , it must be shown that at least S00-
no par value share have been subscribed.
The basis of computation is on the number
of shares.
Securities and Exchange
Commission (SEC) may conduct compliance
with paid-up capital requirements because
it has come to the knowledge of the
Commission that some corporation have
been organized merely as fronts for some
hidden objectives with no real intention of
carrying out the purported purposes in their
articles of incorporation. if a bigger capitalstock is required, the abuse of the privileges
of a corporation would be minimized.
Capital stock requirements under the
special laws,
1. In case of mining and agricultural
incorporation, or corporation organized
for the purpose of the disposition ,
exploitation, development or utilization
of natural resources of the Philippines,
‘as well as corporation organized for the
operations of public utilities, the
Constitution provides that atleast 60%
of the capital stock of such corporation
must be owned by citizens of the
Philippines.
2. The Insurance Code provide that “no
domestic insurance company shall, if a
stock corporation, engage in business in
the Philippines unless posses of a paid
up capital stock equal to at least two
million pesos”. Where the insurance
company is to engage in insurance
business it must have a “paid-up capital
stock of at least five million pesos” to
be invested in securities specified by
law, which securities are to be
deposited with the Insurance
Commissioner.
3. The Financing Company Act requires
that “at least sity per centum of the
capital of financing companies must be
owned by citizens of the Philippines and
shall have a paid-up capital of not less
than five hundred thousand pesos”.
4, Commercial banks are required to have
2 paid-up capital of 100 million pesos.
When a commercial bank having licence
to operate an expanded foreign
currency deposit system it must have a
paid-up capital of at least 150 million
pesos and when a commercial bank is
authorized to engage in universal
banking it must have a paid up capital
of at least 500 million pesos.
5. The New Constitution provides that:
“The ownership and management of
mass media shall be limited ta citizens
of the Philippines or to corporations or
association wholly-owned and manage
by such citizen”.
6. Under the Retail Trade Nationalization
law “no person who is not a citizen of
‘the Philippines, and no association,
partnership, or corporation the capital
‘of which is not wholly owned by citizens
cof the Philippines, shall engage directly
‘or indirectly in the retail trade business.
7. Only vessels of domestic ownership are
authorized to engage in coastwise
shipping in the Philippines. Vessels are
considered of domestic ownership
‘when such ownership is vested in some
‘one or more of the following: (1)
Citizens of the Philippines; (2) any
‘corporation or any company composed
wholly of the citizens of the Philippines;
(3) any corporation or company created
under the laws of the Philippines,
provided at least 75% of the capital
stock thereof or of any interested in
said capital is wholly owned by the