REVISED COPORATION CODE (2019)

Definition of Terms

1. Incorporators – Those stockholders or members mentioned in the AOI as originally forming

and composing the corporation who are signatories thereof.
2. Corporator – Those who compose the corporation, whether as stockholders or members.
3. Stockholders – Corporator in a stock corporation; they are also known as shareholders.
4. Members – Corporators in a non-stock corporation.
5. Promoters – Person who bring about the formation and organization of a corporation by
bringing in together the incorporators.
6. Subscriber – Persons who have agreed to take and pay for original unissued shares of a
corporation formed or to be formed.
7. Underwriter – Person usually an investment bankers, who has agreed to buy or to sell the
securities or stock of the corporation.
8. Capital Stock – It is the money value assigned to a corporation„s issued shares, constituting
generally the legal capital of the corporation.
9. Authorized Stock – Refers to the amount of capital stock as specified in the AOI,
synonymous to capital stock in a stock corporation that have par value. If shares of stock are
non par value, corporation has no authorized stock.
10. Subscribed Stock – amount of capital stock originally acquired by a subscriber of an
unissued shares in a corporation.
11. Outstanding Capital Stock – portion of the capital stock which is issued and held by persons
other than the corporation itself.
12. Paid Up Capital Stock - portion of the subscribed or outstanding capital stock that is
actually paid.
13. Unissued Capital Stock – that portion of the capital stock that is not issued or subscribed.
14. Capital – the entire property or assets of the corporation.
15. Shares Of Stock –unit into which the capital stock is divided. It represents the interest or
right which the owner has in the corporation. It merely represents a distinct undivided share
or interest in the common property of the corporation.
16. Certificate Of Stock – is a written acknowledgment by the corporation of the interest, right
and participation of a person in the management, profits, and assets of a corporation.
17. Par Value Share – one with specific money value fixed in the AOI and appearing in the
certificate of stock. It does not change regardless the market value of the stock.
18. Watered Stock – shares issued less than the par value of the stock.

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). It is being invested by law with a personality separate and distinct
from those of the persons composing it, as well as from that of any other entity to which it
may be related. It was evolved to make possible the aggregation and assembling of huge
amounts of capital upon which big business depends. It also has the advantage of non-
dependence on the lives of those who compose it even as it enjoys certain rights and conducts
activities of natural persons. (Reynoso v. CA, 345 SCRA 355).

A corporation, being a creature of law, "owes its life to the state, its birth being purely
dependent on its will," it is "a creature without any existence until it has received the
imprimatur of the state acting according to law." A corporation will have no rights and
privileges of a higher priority than that of its creator and cannot legitimately refuse to yield
obedience to acts of its state organs. (Tanyag v. Benguet Corporation).
presentation
ATTRIBUTES OF A CORPORATION

1. It is an artificial being.
2. It is created by operation of law.
3. It enjoys the right of succession.
4. It has the powers, attributes and properties expressly authorized by law or incidental to its
existence.

Advantages of corporate organizations

1) Separate juridical personality - personality separate and distinct from individual

stockholders and members;
2) Limited liability to investors - stockholders are liable only to the extent of their contribution;
3) Free transferability of units of ownership - stockholders hold their shares as personal
property with rights to dispose, assign or encumber them as they may desire; and
4) Centralized Management – all corporate powers are vested in the board of directors.

Disadvantages

1. High capital requirement;

2. Takes time to organized;
3. Complexity of organization; and
4. Shareholders control is limited.

DOCTRINE OF SEPARATE PERSONALITY

A corporation has a juridical personality separate and distinct from that of its stockholders
or members.
Used for purposes of convenience and to subserve the ends of justice.
Consequences/significance:

1. Liability for acts or contracts – obligations incurred by a corporation, acting through its
authorized agents are its sole liabilities. (Creese vs.CA, 93 SCRA 483)

2. Right to bring actions – may bring civil and criminal actions in its own name in the same
manner as natural persons. (Art. 46, Civil Code)

3. Right to acquire and possess property – property conveyed to or acquired by the

corporation is in law the property of the corporation itself as a distinct legal entity and not
that of the stockholders or members. (Art. 44(3), Civil Code)

4. Acquisition of court of jurisdiction – service of summons may be made on the president,

general manager, corporate secretary, treasurer or in-house counsel. (Sec. 11, Rule 14, Rules
of Court).

5. Changes in individual membership – remains unchanged and unaffected in its identity by

changes in its individual membership. (The Corporation Code of the Philippines Annotated, H.
de Leon, 2002 ed.)

6. Entitlement to constitutional guaranties:

a. Due process (Albert vs. University Publishing, 13 SCRA 84)
b. Equal protection of the law (Smith, Bell & Co. vs. Natividad, 40 Phil. 136)
c. Protection against unreasonable searches and seizures. (Stonehill vs. Diokno, 20 SCRA 383)
 A corporation is not entitled to invoke the right against self-incrimination. (Bataan Shipyard
vs. PCGG)

7.Liability for torts – a corporation is liable whenever a tortuous act is committed by an officer
or agent under the express direction or authority of the stockholders or members acting as a
body, or, generally, from the directors as the governing body. (PNB vs. CA, 83 SCRA 237)

8. A corporation is not entitled to moral damages because it has no feelings, no emotions, no

senses. (ABS-CBN vs. Court of Appeals)

9. Liability for Crimes – since a corporation is a mere legal fiction, it cannot be held liable for a
crime committed by its officers, since it does not have the essential element of malice; in such
case the esponsible officers would be criminally liable. (People vs. Tan Boon Kong, 54 Phil.607)

Piercing the Corporate Veil

It is a rule that allows the state to disregard for certain justifiable reasons the fiction of juridical
personality for the corporation, separate and distinct from the persons composing it.

Three classes of Piercing:

1. Fraud Cases – when a corporation is used as a cloak to cover fraud, or to do wrong;

2. Alter Ego Cases – when the corporate entity is merely a farce since the corporation is an
alter ego, business conduit or instrumentality of a person or another corporation; and

3. Equity cases – when piercing the corporate fiction is necessary to achieve justice or equity

Nationality of the corporation

The corporation is a national of the country under whose laws it is organized or incorporated:
the place of incorporation test.

1. Domestic corporations – organized and governed by the Philippine law.

2. Foreign corporations – organized under laws other than those of the Philippines

Grandfather Rule

Used to determine the nationality of a corporation by which the percentage of Filipino equity
in corporations engaged in nationalized and/or partly nationalized areas of activities, provided
for under the constitution and other nationalization laws, is computed, in cases where
corporate shareholders are present in the situation, by attributing the nationality of the
second or even subsequent tier of ownership to determine the nationality of the corporate
stockholder.

FORMATION OF THE CORPORATION

The first step in the formation of corporation is filing to SEC the AOI with
corresponding treasurer’s certification of the authorized the information regarding
authorized capital stock, shares subscribed capital stock, and that the paid-up portion of the
subscription in cash and/or property for the benefit and credit of the corporation has been
duly received. In case of banks, banking institution, insurance corporation etc. (see last par of
Sec. 16), favorable recommendation of the government agency is necessary before such
corporation may be formed. After payment of appropriate fees, SEC shall issue a certificate of
incorporation which commence the corporate existence of the corporation (Sec. 18).

Thereupon the incorporators, stockholders/members and their successors shall

constitute a body politic and corporate under the name stated in the AOI for the period of
time mentioned therein, unless said period is extended or the corporation is sooner dissolved
in accordance with law (Ibid).

TITLE I
GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
SEC. 1. TITLE OF THE CODE.
• The code shall be known as the “Revised Corporation Code of the Philippines”

SEC. 2. CORPORATION DEFINED.

• Corporation:
1. An artificial being;
2. Created by operation of law;
3. Having the right to succession;
4. Has the powers, attributes, and properties expressly authorized by law or incidental to its
existence.

SEC. 6. CLASSIFICATION OF SHARES.

• Banks, trust and 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, shall not be permitted to issue no-par value shares of stock.

SEC. 7. FOUNDERS’ SHARES

• Founders’ shares may be given certain rights and privleges not enjoyed by the owners of
other stocks.

• GR: 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 5 years from the date of incorporation.

• XPN: Such exclusive right shall not be allowed if its exercise will violate the following:
o CA 108 or “Anti-Dummy Law”;

o RA 7042 or “Foreign Investments Act of 1991”

SECTION 8. REDEEMABLE SHARES

• subject to rules and regulations issued by the Commission.
 TITLE II
INCORPORATION AND ORGANIZATION OF
PRIVATE CORPORATIONS

SEC. 10. NUMBER AND QUALIFICATIONS OF INCORPORATORS

GR: Any person, partnership, association or corporation, singly or jointly with others but not
more than 15 in number, may organize a corporation.

XPN: Following persons not allowed to organize as a corporation:

1. natural persons who are licensed to practice a profession; and

2. Partnerships or associations organized for the purpose of practicing a profession.

XPN to XPN: Unless otherwise provided by special laws.

NUMBER OF INCORPORATORS:

• Not more than 15.

• Note: RCC removed the minimum number of incorporators.

QUALIFICATIONS OF INCORPORATORS
1. Natural persons
2. Legal age; and
3. Must own or be a subscribe to at least 1 share of the capital stock.
 SUMMARY OF ONE PERSON CORPORATION
(SEE TITLE XII, CHAPTER III OF THE CODE)

GR: A corporation with single stockholder, provided that only a natural person, trust, or an estate may form one-person
corporation.
XPN: Following are the corporations not allowed to form one person corporation:
1. Banks & Quasi-Banks
2. Preneed;
3. Trust;
4. Insurance;
5. Public & Public-listed companies;
6. Non-Charted GOCC; and
7. Natural persons who is licensed to exercise a profession.

MINIMUM CAPITAL STOCK

GR: OPC not required to have a minimum authorized Capital Stock.
XPN: Otherwise provided by special law.

ARTICLES OF INCORPORATION
GR: It shall file in accordance with the requirements under Sec. 14, of this code.

WHAT ADDITIONAL INFORMATION MUST CONTAIN IN THE AOI OF OPC.

1. If the single stockholder is a trustee or an estate;
a. Name, nationality & residence of the following:
i. Trustee; Administrator; Executor; Guardian; Conservator; Custodian; or Other persons exercising fiduciary duties together
with proof of authority to act on behalf of trust or estate.
2. Name, nationality, residence of the nominee & alternate nominee and the extent, coverage & limitation of the authority.

DOES OPC REQUIRE TO FILE/SUBMIT BY-LAWS?

No. OPCs are not required to submit their by-laws.

RULE ON DISPLAY OF CORPORATE NAME

• It shall indicate the letters “OPC” either below or at the end of its corporate name.

SINGLE STOCKHOLDER AS DIRECTOR & PRESIDENT

• Single stockholder shall be the sole director & president of the OPC.

WHO ARE THE CORPORATE OFFICERS OF OPC WHICH WILL BE APPOINTED BY THE SINGLE STOCKHOLDER:
1. Treasurer; 2. Corporate Secretary; and 3. Other officers as it may deem necessary.

MAY A SINGLE STOCKHOLDER APPOINT HIMSELF AS THE CORPORATE SECRETARY?

Not necessarily, according to the Code, single stockholder may not be appointed as the corporate secretary.

REQUISITES OF SELF-APPOINTED TREASURER

• A single stockholder who is likewise the selfappointed treasurer shall:
1. Give bond to the commission in such sum as may be required;
2. Shall undertake him in writing to be faithfully administer the OPC’s funds to be received as treasurer;
3. To disburse and invest the same according to its AoI as approved by the commission; and
4. Bond shall be renewed every 2 years or as often as may be required.

SPECIAL FUNCTIONS OF THE CORPORATE SECRETARY

1. Responsible for maintaining the minutes book and/or records of the corp.
2. Notify the nominee or alternate nominee of the death or incapacity of the single stockholder. (Notice shall be given not
later than 5 days from such occurrence)
3. Notify the commission of the death of the single stockholder within 5 days from such occurrence and stating such notice,
the following; a. Names; b. Residences; c. Addresses; d. Contact details; or e. Known Legal heirs
4. Call the nominee or alternate nominee and the known legal heirs to a meeting and avise the legal heirs with regard to
among others the election of a new director, amendment of the AoI and other ancillary and/or consequential matters.

RULE ON APPOINTMENT OF OFFICERS

1. Within 15 days from the issuance of its certificate of incorporation, one-person corporation shall appoint the above-
mentioned officers.
2. It must notify the commission within 5 days from the appointment.
WHO IS NOMINEE AND ALTERNATE NOMINEE?
• Those persons who are nominated by the single stockholder, in the event of latter’s death or incapacity.
• A nominee or alternate nominee shall take place the single stockholder if such events indicated above occurred.

SHOULD THEY BE INCLUDED IN AOI?

Yes, as provided by the Code, it shall state their names, residences, addresses, and contact details, as well as the extent &
limitations of their authority in managing affairs.

REQUISITES OF A VALID APPOINTMENT OF NOMINEE & ALTERNATE NOMINEE

1. It must have a written consent from the nominee and alternate nominee;
2. It shall be attached to the application for incorporation;
3. Consent may be withdrawn in writing before the death or incapacity of the sole stockholder.

LIABILITY OF SINGLE STOCKHOLDER

• Burden of Proof – Sole stockholder claiming limited liability has the burden of proof showing that the corporation was
adequately financed.
• Failure to prove limited liability – stockholders shall be jointly and severally liable for the debts and other liabilities of the
OPC

CAN I PIERCE THE VEIL OF OPC? Yes, principle of piercing the veil applies in equal force with this organization, as with other
types of corporation.

SEC. 11. CORPORATE TERM.

GR: Corporate term shall be perpetual existence

XPN: Unless the corporation, upon a vote of its stockholders representing a majority of its
outstanding capital stock, notifies the Commission that it elects to retain its specific corporate
term pursuant to its AoI.

XPN to XPN: Any chance in corporation term is without prejudice to the appraisal right of
dissenting stockholders.

EXTENSION OF CORPORATE TERM

• A corporate term for a specific period may be extended or shortened by amending the AOI,
provided that:
1. No extension may be made earlier than 3 years prior to the expiration;
2. If there are justifiable reasons; or
3. Such extension shall take effect only on the day following the original or subsequently
expiry date(s).

RULE ON CORPORATION WHOSE TERM EXPIRED

1. They may apply for a revival of its existence together with:
a. All rights & privileges under its certificate; and
b. All of its duties, debt & liabilities existing prior to its revival.

2. Such revival must be approved by the SEC, and shall only be deemed revived upon issuance
of certificate of revival of corporate existence.

SEC. 12. MINIMUM CAPITAL STOCK SHALL NOT BE REQUIRED OF STOCK CORPORATION.
GR: Min. capital stock not required.
XPN: otherwise provided by special law.
SEC. 13. CONTENTS OF ARTICLES OF INCORPORATION
GR: All corporations shall file with the SEC the AoI, in any of the official languages, duly signed
and acknowledged or authenticated, in such form and manner as be allowed by the
Commission.

SUBSTANTIAL CONTENTS OF ARTICLES OF INCORPORATION

1. Name of the corporation.

2. Specific purpose or purposes for which is being formed. Where a corporation has more than
one state purpose, it shall indicate the following: a. Primary purpose; b. Secondary purpose(s).
3. Principal office of the corporation, must be located within the Philippines;
4. Term of the corporation, if such has not elected perpetual existence;
5. Names, nationalities, and residence addresses of the incorporators;
6. Number of directors/trustees, which shall not be more than 15.
7. Names, nationalities, and residence addresses of persons who shall act as directors or
trustees;
8. (For stock corporation) amount of its authorized capital stock, number of shares which is
divided, par value of each, names, nationalities, and residence addresses of the original
subscription, and a statement that some or all of the shares are without par value, if
applicable.
9. (Non-stock Corp) amount of its capital, names, nationalities and residence addresses of the
contributors, and amount contributed by each; and
10. Other matters consistent and which incorporators may deem necessary and convenient.
11. Arbitration agreement – (not mandatory, as the word in the code provided that such
agreement “may be provided” in the articles.

FILING OF ARTICLES OF INCORPORATION

• The articles of incorporation and applications for amendments may be filed with the SEC in
the form of an electronic document, in accordance with the SEC’s rules and regulations on
electronic filing.

SEC. 17. CORPORATE NAME.

GR: No corporate name shall be allowed by the SEC 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.

A NAME IS NOT DISTINGUISHABLE, WHEN:

1. The word “corporation”, “company”, “incorporate”, “limited”, “limited liability”, an
abbreviation of one of such words; and
2. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different
tenses, spacing, or number of the same word or phrase.

INVALID CORPORATE NAMES

1. Not distinguishable from a name already reserved or registered for the use of another
corporation;
2. Protected by law; or
3. Contrary to law & rules and regulations.
RULES ON CORPORATE NAMES
1. If the corporate name is one of the invalid corporate names mentioned above, the Sec may
summarily order the corporation to immediately cease and desist from using such name and
require the corporation to register a new one.
2. SEC shall also cause the removal of all visible signages, marks, advertisements, labels, prints
and other effects bearing such corporate name.
3. If the change of corporate name is approved, SEC shall issue a certificate of incorporation
under the amended name.

EFFECT OF FAILURE TO COMPLY

• If the corporation fails to comply with the SEC’s order:
1. SEC may hold the corporation and its responsible directors or officers in contempt;
2. May hold them administratively, civilly, and/or criminally liable under this Code and other
applicable laws; and/or
3. Revoke the registration of the corporation.

SEC. 18. REGISTRATION, INCORPORATION AND COMMENCEMENT OF CORPORATION

EXISTENCE

PROCEDURE ON REGISTRATION
1. A person or group of persons desiring to incorporate shall submit the intended corporate
name to the SEC for verification.
2. If the SEC finds that the name is distinguishable (provided the requirements for corporate
name are followed), the name shall be reserved in favor of the incorporators.
3. Incorporators shall submit their articles of incorporation and by-laws to the SEC.
4. If SEC finds that the submitted documents and information are fully compliant with the
requirements of this Code, SEC shall issue the certificate of incorporation.

COMMENCEMENT OF CORPORATE EXISTENCE

GR: A private corporations commences its corporate existence and juridical personality from
the date the Commission issues the certificate of incorporation under its official seal and the
incorporators, stockholders/members and their successors shall constitute a body corporate
under the name state in the AoI for the period of time mentioned, unless said period is
extended or the corporation is sooner dissolved.

SEC. 21. EFFECTS OF NON-USE OF CORPORATE CHARTER AND CONTINUOUS INOPERATION

1. If a corporation does not formally organize and commence its business within 5 years from
the date of its corporation – certificate of incorporation shall be deemed revoked as of the
day following the end of the 5-year period.
2. If a corporation has commenced its business but subsequently becomes inoperative for a
period of at least 5-consecutive years – SEC may, after due notice and hearing, place the
corporation under delinquent status.

RULE ON DELINQUENT CORPORATION

• A delinquent corporation shall have a period of 2 years to resume operations and comply
with all requirements.
• Upon compliance by the corporation, SEC shall issue an order lifting the delinquent status.
• Failure to comply with the requirements and resume operations within the period, shall
cause the revocation of the corporation’s certificate of incorporation.
WHAT IS DUE NOTICE AND HEARING?

SEC shall give reasonable notice to, and coordinate with the appropriate regulatory agency
prior to the suspension or revocation of the certificate of incorporation of companies under
their special regulatory jurisdiction.

TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

SEC. 22. THE BOARD OF DIRECTORS OR TRUSTEES OF A CORPORATION; QUALIFICATIONS

AND TERM

ROLE OF BOARD OF DIRECTORS/TRUSTEES

• They shall exercise the corporate powers, conduct all business, and control all properties of
the corporation.

TERM OF BOARD OF DIRECTORS/TRUSTEES

1. Directors shall be elected for a term of 1 year from among the holders of stock registered in
the corporation’s books;
2. Trustees shall be elected for a term not exceeding 3 years from among the members of the
corporation.

INDEPENDENT DIRECTOS
• A person who is independent of management and free from any business or other
relationship which could, or could reasonably be perceived to materially interfere with the
exercise of independent judgment in carrying out the responsibilities as a director.
• Board of the following corporations vested with public interest shall have independent
directors constituting at least 20% of such board:
a. Corporations covered by Sec. 17.2 of RA 8799 (Securities Regulation Code), namely those
whose securities are registered with the Commission, corporations listed with an exchange or
with assets of at least Php 50 million, and having 200 or more holders of shares, each holding
at least 100 shares of a class of its equitiy shares;
b. Banks and quasi-banks, nonstock savings and loan associations, pawnshops, corporations,
engaged in money service business, preneed, trust and insurance companies, and other
financial intermediaries; and
c. Other corporations engaged in business vested with public interest.

ELECTION OF INDEPENDENT DIRECTORS

• It must be elected by shareholders present or entitled to vote in absentia during the election
of directors.

SEC. 23. ELECTION OF DIRECTORS OR TRUSTEES

GR: Each stockholder or member shall have the right to nominate any director or trustee who
possesses all of the qualifications and none of the disqualifications in this Code.

XPN: When the exclusive rights is reserved for holders of founders’ shares under Sec. 7 of this
Code.
RULE ON PROXY(IES)

1. At all elections of directors or trustees, there must be present, either in person or through
a representative authorized to act by written proxy, the owners of majority of the outstanding
capital stock, or if there beno capital stock, a majority of the members entitled to vote.

2. When so authorized in the by-laws or by a majority of the board of directors, the

stockholders or member may also vote through remote communications or in absentia.
a. Provided that the right to vote through such modes may be exercised in corporations
vested with public interest, notwithstanding the absence of a provision in the by-laws
of such corporations.
b. Stockholders or members who participates through remote communication or in
absentia shall be deemed present for purposes of quorum.

SEC. 24. CORPORATE OFFICERS

• Board of directors, after their election, must formally organize and elect the following
officers:
a. President, who must be a director;
b. Treasurer, must be a resident of the Philippines;
c. Secretary, must be a resident of the Philippines; and
d. Other officers as may be provided in the bylaws.
e. If the corporation vested with public interest – compliance officer.

SEC. 26. DISQUALIFICATION OF DRECTORS, TRUSTEES OR OFFICERS.

• A person shall be disqualified from being a director, trustee, or officer of any corporation if,
within 5 years prior to the election or appointment as such, the person was:
1. Convicted by final judgment: a. Offense punishable by imprisonment for a period exceeding
6 years; b. Violating this code; and c. Violating RA 8799 (Securities Regulation Code;
2. Found administratively liable for any offense involving fraudulent t acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations, or
misconduct similar to those enumerated in paragraphs (a) and (b) above.

SEC. 27. REMOVAL DIRECTORS OR TRUSTEES.

• SEC shall motu proprio, or upon verified complaint, and after due notice and hearing, order
the removal of a director or trustee elected despite the disqualification, or whose
disqualification arose or is discovered subsequent to an election.
• The removal of a disqualified of directors shall be without prejudice to other sanctions that
the SEC may impose on the board of directors or trustees who, with knowledge of
disqualification, failed to remove such director or trustee.

SEC. 31. DEALINGS OF DIRECTORS, TRUSTEES, OR OFFICERS WITH THE CORPORATION

GR: A contract of the corporation with 1 or more of its directors, trustees, officers, or their
spouses and relatives within the 4thcivil degree of consanguinity or affinity is voidable, at the
option of such corporation.

XPN: Unless all the following conditions are present:

1. 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. The vote of such director or trustee was not necessary for the approval of the contract; 3.
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. In case of an officer, the contract has been previously authorized by the board of directors.

EFFECT; WHERE ANY OF THE FIRST 3 CONDITIONS ARE ABSENT

• Where any of the set forth in the preceding paragraph is absent, in the case of 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.

TITLE IV
POWERS OF CORPORATION

SEC. 35. CORPORATE POWERS AND CAPACITY

1. To sue and be sued in its corporate name;
2. To have perpetual existence unless the certificate of incorporation provides otherwise; 3.
Adopt and use a corporate seal;
4. Amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the
same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks
in accordance with the provisions of this Code; and to admit members to the corporation if it
be a nonstock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;
8. 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 the 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 or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers, and employees; and
11. To exercise such other powers as may be essential to necessary to carry out its purpose or
purposes as stated in the articles of incorporation.

Ultra Vires Acts

Ultra vires literally means “beyond granted powers.” These are acts which a corporation is
not empowered to do or perform because they are not based on the powers conferred by its
AOI or by the Corporation Code on corporations in general, or because they are not necessary
or incidental to the exercise of the powers so conferred.

Ultra vires act and Illegal Act: Distinguished

An ultra vires act is voidable which may be enforced by performance, ratification, or estoppel,
while the illegal act is void and cannot be validated. (Atrium v. CA) Ultra vires act is not
necessarily illegal but an illegal act is necessarily ultra vires.
Wasting Asset Doctrine

It permits corporations solely or principally engaged in the exploitation of “wasting assets”

to distribute the net proceeds derived from exploitation of their holdings such as mines, oil
wells, patents and leaseholds, without allowance or deduction for depletion. The justification
of such rule is that as the business of Wasting Asset Corporation is to exploit and exhaust its
assets, no one can expect that its capital would be kept intact. Hence, that dividend cannot
be paid out of the capital but only from the profits must not be applied as a rule.

Effects of Ultra Vires

1. Executed contract – courts will not set aside or interfere with such contracts;

2. Executory contracts – no enforcement even at the suit of either party (void and
unenforceable);

3. Partly executed and partly executory – principle of “no unjust enrichment at expense of
another” shall apply; and 4. Executory contracts apparently authorized but ultra vires – the
principle of estoppel shall apply.

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

• Notice can also be allowed through by-laws, or done with the consent of the stockholder,
sent electronically in accordance with the rules and regulations of the Commission on the use
of electronic data messages.

TITLE V
BY-LAWS
SEC. 45. ADOPTION OF BY-LAWS.

• The one-month period to adopt by-laws was deleted.

SEC. 46. CONTENTS OF BY-LAWS

(a) The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees;
(b) The time and manner of calling and conducting regular or special meetings and mode of
notifying the stockholders or members thereof;
(c) The required quorum in meetings of stockholders or members and the manner of voting
therein;
(d) The modes by which a stockholder, member, director, or trustee may attend meetings and
cast their votes;
(e) The form for proxies of stockholders and members and the manner of voting them;
(f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for
setting the 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;
(g) The time for holding the annual election of directors or trustees and the mode or manner
of giving notice thereof;
(h) The manner of election or appointment and the term of office of all officers other than
directors or trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing stock certificates; and
(k) Such other matters as may be necessary for the proper or convenient transaction of its
corporate affairs for the promotion of good governance and antigraft and corruption
measures.

OTHER IMPORTANT AMENDMENTS:

FILLING IN VACANCIES

• The Code has a provision for an emergency board when a vacancy in a

corporation's board of directors prevents the remaining directors from constituting
a quorum and consequently from making emergency actions required to prevent
grave, substantial, and irreparable loss or damage.

• The vacancy may be temporarily filled from among the officers of the corporation
by a unanimous vote of the remaining directors or trustees.

• The corporation must then notify the SEC within 3 days from the creation of the
emergency board.

E-FILING SYSTEM

• The new code mandates the SEC to develop and implement an electronic filing and
monitoring system to improve the ease of doing business in the country.

• This includes the process of corporate name reservation and registration,

incorporation, submission of reports, notices, and other documents required under
the code.

• At present, The SEC already has a fully automated and online company registration
system for pre-processing of corporations and partnerships and amendments of the
articles of incorporation, among others.

MEETINGS

Meetings of directors/trustees or stockholders/members may be regular or special

(Sec. 48). Regular meetings of stockholders/members are those held annually on the date
fixed in the by laws or on the absence of which, on any date after April 15 of every year as
determined by the board of directors or trustees on the absence of which (Sec. 49.) Regular
meeting of BOD is conducted monthly (Sec. 52) unless provided by the by-laws otherwise.
Special meetings of stockholders/members are those called for good cause, as ordered by
SEC, upon petition of stockholders/members (ibid). Notice in writing, indicating the time and
place, is required before a meeting can be held (Sec. 50). Special meetings of BOD/BOT are
those called by the President or as provided in the by-laws.

Meetings of stockholders shall be held in the city/municipality where the principal

office of the corporation is located (Sec. 50). In a non-stock corporation, the by-laws may
allow the meeting of its members to be held anywhere in the Philippines (Sec. 92). Meetings
of BOD/BOT may be held in or outside of the Philippines unless the by-laws provide otherwise
(Section 52).

Quorum in a stockholder‟s meeting consists of the stockholders representing the

majority of the outstanding capital stock/members except the by-laws provide for a greater
number (Sec. 51). Quorum in the election of BOD/T‟s consists of majority of numbers of
director fixed in AOI unless the AOI or by-laws provides for higher number (Sec. 25)

The president shall preside at all meetings of the directors or trustee as well as of the
stockholders or members, unless the by-laws provide otherwise (sec. 53).

Right to Vote

A mortgaged/pledge shares of stock does not give the authority to the pledgee or
mortgagee the right to vote unless expressly given such right in writing and was recorded in
the corporate book (Sec. 54). In case of co-ownership of stocks, consent of all the co-owners
is necessary in order to vote for the said stocks unless there is a written proxy signed by all
the co-owners (Sec. 55). If the shares are owned in an “and/or” capacity, anyone can vote or
appoint a proxy (ibid).

Treasury shares have no voting right (Sec. 56). In a BOD/BOT meeting, no proxy is
allowed to vote for the director or trustee.

Proxy and Voting trust: Distinguished (Secs. 57 and 58).

1. The proxy votes as agent: the trustee votes as owner;

2. The proxy must vote in person: the trustee may vote by person or by proxy;
3. Principal does not cease to become stockholder: the ownership is transferred to the
trustee;
4. Agreement need not notarized: notarized;
5. Agreement revocable: irrevocable; and
6. Limited to a particular meeting: includes rights and all meetings within 5 years

STOCKS AND STOCKHOLDERS

Subscription is an offer to acquire a specified number of unissued shares of an existing

corporation or one still to be formed. It is an entire and indivisible whole contract; it cannot
be divided into portions (Doctrine of Indivisibility of Subscription Contract). Any contract for
the acquisition of the unissued stock is considered subscription notwithstanding the fact that
the parties considered it as a purchase or any other contract (Sec. 59). However, sale of
treasury stock by the corporation is a contract of sale because the stock referred was already
issued and was reacquired by the corporation.

Subscription of shares of stock of a corporation still to be formed shall be irrevocable

at least six months from date of subscription, unless all of the other subscribers consent to
the revocation or the incorporation of said corporation fails to materialize within six months
or within a longer period as stipulated in the contract. If AOI was submitted to SEC, pre-
incorporation subscription cannot be revoked (Sec.60).

Considerations in Subscription Agreement (Sec. 61)

(a) Actual cash paid to the corporation;

(b) Property, tangible or intangible, actually received by the corporation and necessary or
convenient for its use and lawful purposes at a fair valuation equal to the par or issued value
of the stock issued;
(c) Labor performed for or services actually rendered to the corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification or conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.

Shares of stock shall not be issued in exchange for promissory notes or future services
(Sec. 61). After payment of such shares, a certificate of stock, signed by the president or vice
president, countersigned by the secretary or assistant secretary, and sealed with the seal of
the corporation shall be issued in accordance with the bylaws (Sec. 62). However, no
certificate of stock shall be issued until the full amount of his subscription, including interest,
has been paid (Sec. 63).

Shares of stock are considered personal property and may be transferred by delivery
of the certificate of stock. The transfer will be valid to the contracting parties but not to the
corporation unless said transfer is recorded to the book of corporation (ibid). However, if the
corporation has an unpaid claim to that stock, the corporation may refuse to record such
transfer (ibid).

The purpose of registration is to enable the transferee to exercise all the rights of a
stockholder and to inform the corporation of any changes in share ownership so that the
latter may ascertain the persons entitled to the rights and liabilities of shareholders. Until the
transfer has not been recorded to the book of the corporation, the transferee cannot vote or
voted for; has inferior rights over attaching creditor; is not entitled to dividends; and cannot
participate in the meeting.

Watered Stocks

Watered stocks are those issued less than the par value of the stock. “Water” in the
stock refers to the difference between the fair market value at the time of the issuance of the
stock and the par value of the said stock. The existence of such “water” is determined at the
time of the issuance of stock. Section 64 held the consenting director or officer liable for the
“Water” in the stock with the stockholder who inadequately paid the stock.

Payment of delinquent stock

Payment of stock becomes due and payable in the following manner:
1. The term prescribed in the subscription contract; and
2. In the absence of the provision contract, at any time specified by BOD.

Failure to pay on such period shall render the entire balance due and payable and renders the
stockholder liable to interest. If no payment was made within 30 days after such period, the
stock shall be considered delinquent stock (Sec 66), which is subject to delinquency sale.

EFFECTS OF DELINQUENCY
1. Stockholder have no right to vote or be voted upon; and
2. Not entitled to any right except dividends

APPRAISAL RIGHT (Sec. 80)

Appraisal right is a right to demand payment of the fair value of his shares, after dissenting
from a proposed corporate action involving fundamental changes in the corporation.
These fundamental changes in the corporation include the following instances:
1. Amendment of AOI which has an effect of changing or restricting the rights of any
stockholders or authorizing preferences in any respect superior to outstanding shares or
extending or shortening the corporate term;
2. Encumbering all or substantially all of its corporate properties;
3. Merger or consolidation;
4. Investing corporate funds in another corporation or business ; and
5. For any reason in close corporation (Sec. 104).

Procedure (Sec. 81)

1. Written demand on the corporation within thirty (30) days after the date on which the
vote was taken;
2. Surrender of certificate of stock within 10 days for notation (Sec. 85);
3. Payment of fair value; and
4. Shareholder shall transfer his shares to the corporation.(Sec. 81)
If within 60 days after the corporate action was approved and the dissenting
(uncooperative) stockholders and the corporation cannot agree in the fair value of the
shares, it shall be determined by three disinterested person: one chosen by the stockholder,
one by the corporation and the other one chosen by the two. Their determination of the fair
value is final and shall be paid within 30 days.
Purpose of Notation
Notation is necessary so as to guide the secretary of the corporation who shall deny to the
dissenting stockholder the right to vote and the right to receive dividends in the proper
situation contemplated under Section 82. Failure to do so shall give right to the corporation
to terminate the rights of the stockholder (Sec. 85).

Conditions for Valid Exercise of Appraisal Rights

1. The demand for payment of shares arise from the instances provided in Corporation Code;
2. Existence of unrestricted retained earnings;
3. The demand was made within 30 days after the corporate action; failure to exercise of
such constitutes waiver of this right (Sec. 82)

Effect of Demand of Payment of Stockholder’s Share

1. All rights accruing to such shares, including voting and dividend rights, shall be suspended;
2. The stockholder is entitled to payment of his shares;
3. If the dissenting stockholder is not paid within 30 days, his voting and dividend will be
restored. (Sec. 82); and
4. Demand for payment may not be withdrawn unless with consent of the corporation (Sec.
83).

Termination of Right of Appraisal

1. If demand for payment is withdrawn with the consent of the corporation;
2. If the proposed corporate action is abandoned or rescinded by the corporation;
3. If the proposed corporate action disapproved by the SEC; and
4. If the SEC determines that such stockholder is not entitled to the appraisal right
In these cases, the right of appraisal of the stockholder ceases, his status as a stockholder
shall be restored, and all dividend distributions which would have accrued on his shares shall
be paid to him (Sec. 83).

 GN – General Rule
 XPN – Exception to the GR
 XPN to XPN – Exception to the Exception