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Law On Partnership and Corporation by Hector de Leon PDF
Law On Partnership and Corporation by Hector de Leon PDF
Law On Partnership and Corporation by Hector de Leon PDF
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3. The sharing of gross returns does not partnership, they become subject to
of itself establish a partnership, liabilities of partners (doctrine of
whether or not the persons sharing estoppel).Whether or not the parties call
them have a joint or common right or their relationship or believe it to be a
interest in any property from which the partnership is immaterial. Thus, with the
returns are derived. exception of partnership by estoppel, a
partnership cannot exist as to third persons
4. The receipt by a person of a share of if no contract of partnership has been
the profits of a business is prima entered into between the parties
facie evidence that he is a partner in the themselves.
business, but no such inference shall be
drawn if such profits were received in Co-ownership or co-possession
payment: There is co-ownership whenever the
ownership of an undivided thing or right
a. As a debt by installments or belongs to different persons.
otherwise.
Clear intent to derive profits from
b. As wages of an employee or rent to operation of business
a landlord. Co-ownership does not of itself establish
the existence of a partnership, although it is
c. As an annuity to a widow or one of its essential elements. This is true
representative of a deceased even if profits are derived from the joint
partner. ownership. The profits must be derived
from the operation of business by
d. As interest on a loan, though the the members of the association and
amount of payment vary with the not merely from property ownership. The
profits of the business. law does not imply a partnership between
co-owners because of the fact that they
e. As the consideration for the sale of develop or operate a common property,
a goodwill of a business or other since they may rightfully do this by virtue of
property by installments or their respective titles. There must be a clear
otherwise. intent to form a partnership.
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Reason for the rule asserting its termination. One who alleges
Partner interested in both failures and partnership cannot prove it merely by
successes; it is the chance of loss or gain evidence of an agreement using the term
that characterizes a business. Where “partner”. Non-use of the term, however,
the contract requires a given portion of is entitled to weight. The question of
gross returns to be paid over, the portion is whether a partnership exists is not always
paid over as commission, wages, rent, etc. dependent upon the personal arrangement
or understanding of the parties. Parties
Where there is evidence of mutual intending to do a thing which in law
management constitutes partnership are partners.
Where there is further evidence of mutual
management and control, partnership may Legal intention is the crux of partnership.
result. Parties may call themselves partners but
their contract may be adjudged something
Receipt of share in the profits strong quite different. Conversely, parties may
presumptive evidence of partnership expressly state that theirs in not a
An agreement to share both profits partnership yet the law may determine
and losses tends strongly to establish the otherwise on the basis of legal intent.
existence of a partnership. It is not However, courts will be influenced to some
conclusive, however, just prima facie and extent by what the parties call their
may be rebutted by other circumstances. contract.
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2. Both can only act through its agents; Right to return of contribution where
3. Both are organizations composed of an partnership is unlawful
aggregate of individuals; Partners must be reimbursed the amount of
4. Both distribute profits to those who their respective contributions. The partner
contribute capital to the business; who limits himself to demanding only the
5. Both can only be organized where there amount contributed by him need not resort
is a law authorizing is organization; to the partnership contract on which to
6. Partnerships are taxable base his claim or action. Since the purpose
as corporations. for which the contribution was made has
not come into existence, the manager or
Art. 1770. A partnership must have a lawful administrator must return it, and he who
object or purpose, and must be established has paid his share is entitled to recover it.
for the common benefit or interest of the
Right to receive profits where partnership
partners. When an unlawful partnership is
is unlawful
dissolved by a judicial decree, the profits Law does not permit action for obtaining
shall be confiscated in favor of the earnings from an unlawful partnership
State, without prejudice to the provisions because for that purpose, the partner will
of the Penal Code governing the have to base his action upon the
confiscation of the instruments and effects partnership contract, which is null and
of a crime. Object or purpose of partnership without legal existence by reason of its
unlawful object; and it is self-evident that
The provision of the 1st paragraph what does not exist cannot be a cause
reiterates 2 essential elements of a of action. Profits earned do not constitute
contract of partnership: or represent the partner’s contribution. He
1. Legality of the object; and must base his claim on the contract which is
2. Community of benefit or interest of the void. It would be immoral and unjust for the
partners. The parties possess absolute law to permit a profit from an industry
freedom to choose the transaction or prohibited by it. T he courts will refuse to
transactions they must engage in. The recognize its existence, and will not lend
only limitation is that the object must their aid to assist either of the parties
be lawful and for the common benefit thereto in an action against each other.
of the members. The illegality of the Therefore, there cannot be no accounting
object will not be presumed; it must demanded of a partner for the profits which
appear to be of the essence of the may be in his hands, nor can recovery be
relationship. had.
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Art. 1773. A contract of partnership is void, Since partnership has juridical personality of
whenever immovable property is its own, it may acquire immovable property
contributed thereto, if an inventory of said in its own name. Title so acquired can
property is not made, signed by the parties, be conveyed only in the partnership name.
and attached to the public instrument.
Partnership with contribution of immovable Art. 1775. Associations and societies, whose
property articles are kept secret among the
members, and wherein any one of the
Where immovable property contributed, members may contract in his own name
failure to comply w/ the following with third persons, shall have no juridical
requisites will render the partnership personality, and shall be governed by the
contract void: provisions relating to co-ownership. Secret
1. The contract must be in a public partnerships without juridical personality
instrument;
2. An inventory of the property Partnership relation is created only by the
contributed must be made, signed by voluntary agreement of the partners. It is
the parties, and attached to the public essential that the partners are fully
instrument. Art. 1773 is intended informed not only of the agreement but of
primarily to protect 3rd persons. W/ all matters affecting the partnership. Secret
regard to 3rdpersons, a de facto partnerships are not by nature
partnership or partnership by estoppel partnerships. Secret partnerships shall be
may exist. There is nothing to prevent governed by the provisions relating to co-
the court from considering the ownership.
partnership agreement an ordinary
contract from which the parties’ rights Importance of giving publicity to articles
and obligations to each other may be of partnership
inferred and enforced. It is essential that the arts of partnership be
given publicity for the protection not only of
When inventory is not required the members themselves but also 3rd
An inventory is required only whenever persons from fraud and deceit. A member
immovable property is contributed. If not who transacts business for the secret
contributed or if personal property, no partnership in his own name becomes
inventory required. personally bound to 3rd persons unaware of
the existence of such association.
Importance of making inventory of real Partnership liability may still
property in a p a r t n e r s h i p result, however, in cases of estoppel.
An inventory is very important in
a partnership to how much is due from each Art. 1776. As to its object, a partnership is
partner to complete his share in the either universal or particular. As regards the
common fund and how much is due to each liability of the partners, a partnership may
of them in case of liquidation. The be general or limited. Classifications of
execution of a public instrument of partnership
partnership would be useless if there is no
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As to extent of its subject matter not avowed or made known to the public by
1. Universal partnership. (Art. 1777) any of the partners.
a. Universal partnership of all present Open or notorious partnership: one whose
property. (Art. 1778) existence is avowed or made known to the
b. Universal partnership of profits. public by the members of the firm.
(Art. 1780)
2. Particular partnership. (Art. 1783) As to purpose
Commercial or trading partnership: one
As to liability of the partners formed or the transaction of business.
General partnership: one consisting of
general partners who are liable pro rata and Professional or non-trading partnership:
subsidiary and sometimes solidarily w/ their one formed for the exercise of a profession.
separate property for partnership debts.
Kinds of partners
Limited partnership: one formed by two or Under the Civil Code
more persons having as members one or 1. Capitalist partner: one who contributes
more general partners and one or more money or property to the common
limited partners, the latter not being fund.
personally liable for the obligations of the 2. Industrial partner: one who contributes
partnership. only his industry or personal service.
3. General partner: one whose liability to
As to duration 3rd persons extends to his separate
Partnership at will: one in w/c no time is property.
specified and is not formed for a particular 4. Limited partner: one whose liability to
undertaking or venture and w/c may be 3rd persons is limited to his capital
terminated at any time by mutual contribution.
agreement of the partners, or by the will of 5. Managing partner: one who manages
any one partner alone; or one for a fixed the entity.
term or particular undertaking w/c is 6. Liquidating partner: one who takes
continued after the end of the term or charge of the winding up of partnership
undertaking w/o express agreement. affairs upon dissolution.
Partnership with a fixed term: one w/c the 7. Partner by estoppel: one who is not
term for w/c the partnership is to exist is really a partner but is liable as a partner
fixed or agreed upon or one formed for for the protection of innocent 3rd
a particular undertaking. persons. He is one represented as being
a partner but who is not so between
As to the legality of its existence the partners themselves.
De jure partnership: one w/c has complied 8. Continuing partner: one who continues
w/ all the legal requirements for the business of a partnership after it
its establishment. has been dissolved by reason of the
De facto partnership: one w/c has failed to admission of a new partner, or the
comply w/ all the legal requirements for its retirement, death or expulsion of one
establishment. or more partners.
9. Surviving partner: one who remains
As to representation to others after a partnership has been dissolved
Ordinary or real partnership: one w/c by the death of any partner.
actually exists among the partners and also 10. Subpartner: one who, not being
as to 3rd persons. a member of the partnership, contracts
Ostensible partnership or partnership or w/ a partner w/reference to the latter’s
partnership by estoppel: one w/c in reality share in the partnership.
is not a partnership, but is considered a
partnership only in relation to those who, Other classifications
by their conduct or admission, are 1. Ostensible partner: one who takes
precluded to deny or disprove its existence. active part and known to the public as a
partner.
As to publicity 2. Secret partner: one who takes active
Secret partnership: one wherein the part in the business but is not known to
existence of certain persons as partners is be a partner by outside parties nor held
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out as a partner by the other partners. Property w/c belonged to each of them at
He is an actual partner. the time of the constitution of the
3. Silent partner: one who does not take partnership;
any active part in the business although Profits w/c they may acquire from the
he may be known to be a partner. property contributed.
4. Dormant partner: one who does not
take active part in the business and is Contribution of future property
not known or held out as a partner. He General rule: future properties cannot be
would be both a silent and a secret contributed. The very essence of the
partner. contract of partnership that the properties
5. Original partner: one who is a member contributed be included in the partnership
of the partnership from the time of its requires the contribution of things
organization. determinate. The position of a partner is
6. Incoming partner: a person lately, or like that of a donor, and donations
about to be, taken into an existing cannot comprehend future property. Thus,
partnership as a member. property subsequently acquired by
7. Retiring partner: one withdrawn from 1.inheritance; 2. Legacy; or 3. Donation
the partnership; a withdrawing partner. cannot be included by stipulation except
Art. 1777. A universal partnership may the fruits thereof. Hence, any stipulation
refer to all the present property or to including property so acquired is void.
all the profits. Profits from other sources (not from
properties contributed) will become
Art. 1778. A partnership of all present common property only is there’s a
property is that in which the partners stipulation.
contribute all the property which actually
belongs to them to a common fund, with Art. 1780. A universal partnership of profits
the intention of dividing the same among comprises all that the partners may acquire
themselves, as well as all the profits they by their industry or work during
may acquire therewith. the existence of the partnership. Movable
or immovable property which each of the
Art. 1779. In a universal partnership of all partners may possess at the time of the
present property, the property which celebration of the contract shall continue to
belongs to each of the partners at the time pertain exclusively to each, only the
of the constitution of the partnership usufruct passing to the partnership.
becomes the common property of all the
partners, as well as all the profits which Universal partnership of profits explained
they may acquire there with. A stipulation A universal partnership of profits is one w/c
for the common enjoyment of any other comprises all that the partners may acquire
profits may also be made; but the property by their industry or work during the
which the partners may acquire existence of the partnership and the
subsequently by inheritance, legacy or usufruct of movable or immovable property
donation cannot be included in such w/c each of the partners may possess at the
stipulation, except the fruits thereof. time of the celebration of the contract.
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Art. 1782. Persons who are prohibited from Business of partnership need not be
giving each other any donation or continuing in nature
advantage cannot enter into a universal The carrying on of a business of a
partnership. Limitations upon the right to continuing nature is not essential to
form a partnership constitute a partnership. An agreement to
undertake a particular piece of work or a
Persons who are prohibited by law to give single transaction or a limited number of
donations cannot enter into a universal transactions and immediately divide the
partnership for the reason that each of the resulting profits would seemt o fall w/in the
partners virtually makes a donation. To meaning of the term “partnership” as used
allow it would be permitting them to do in the law.
indirectly what the law expressly prohibits.
A partnership formed in violation of this Rule under American law
article is null and void. Consequently, no The above is not true under the Uniform
legal personality is acquired. A husband and Partnership Act w/c does not include joint
wife, however, may enter into a particular ventures w/c exists for a single transaction
partnership or be members thereof. or a limited number of transactions.
Relevant provisions:
Joint venture
Art. 87: Donations between spouses during While a joint venture is not a formal
marriage void, except moderate gifts on partnership in the legal or technical sense,
occasion of family rejoicing. Also applies both are governed, subject to certain
to those living together as husband and qualifications, practically by the same rules
wife w/o valid marriage. or principles of partnership. This is logical
Art. 739: The following donations are void: since in a joint venture, like in
Those made between persons who are a partnership, there is a community of
guilty of adultery or concubinage at the interest in the business and a mutual right
time of the donation (no need for of control and an agreement to share jointly
conviction; preponderance of evidence only in profits and losses.
required);
Those made between persons found guilty Corporation as a partner
of the same criminal offense, While under the Philippine Civil Code, a
inconsideration thereof; joint venture is a form of partnership w/ a
c.)Those made to a public officer or his wife, legal personality separate and distinct from
descendants and ascendants, by reason of the parties composing it, and should thus
his office. be governed by the law of partnership,
the Supreme Court has recognized the
distinction between these two business
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forms, and has held that although a have contributed it up to actual delivery
corporation cannot enter into a partnership without necessity of any demand;
contract, it may, however, engage in a joint 4. Shall preserve said properties with the
venture if the nature of the venture is diligence of a good father of a family
authorized by its charter. pending their delivery to the
partnership;
Art. 1784. A partnership begins from the 5. And shall indemnify the partnership for
moment of the execution of the contract, any damage caused it by the retention
unless it is otherwise stipulated. (1679) of said properties or by the delay in
their contribution.
Art. 1785. When a contract for a fixed term
or particular undertaking is continued after Art. 1787. When the capital or part thereof
the termination of such term or particular which a partner is bound to contribute
undertaking without any express consists of goods, their appraisal must be
agreement, the rights and duties of the made in the manner prescribed in the
partners remains the same as they were at contract of partnership, and in the absence
such termination, so far as is consistent of stipulation, it shall be made by experts
with a partnership at will. chosen by the partners, and according to
current prices, the subsequent changes
A continuation of the business by the thereof being for the account of the
partners or such of them as habitually acted partnership.
therein during the term, without any
settlement or liquidation of the partnership Art. 1788. A partner who has undertaken to
affairs, is prima facie evidence of a contribute a sum of money and fails to do
continuation of the partnership. so becomes a debtor for the interest and
damages from the time he should have
Partnership at will is one in which no term complied with his obligation.
of existence has been fixed and which may
be terminated at the will of any partners. The same rule applies to any amount he
may have taken from the partnership
Art. 1786. Every partner is a debtor of the coffers, and his liability shall begin from the
partnership for whatever he may have time he converted the amount to is own
promised to contribute thereto. use.
He shall also be bound for warranty in case Liability of partner for estafa
of eviction with regard to specific and Failure to return the money taken, there is
determinate things which he may have the element of fraudulent appropriation of
contributed to the partnership, in the same the money delivered to a partner with
cases and in the same manner as the specific instructions for the use of the
vendor is bound with respect to the vendee. partnership, then estafa is committed under
He shall also be liable for the fruits thereof the Revised Penal Code.
from the time they should have been
delivered, without the need of any demand. Art. 1789. An industrial partner cannot
engage in any business for himself, UNLESS
Obligations of partners to contribute: the partnership expressly permits him to do
1. Shall deliver at the beginning of the so; and if he should do so, the capitalist
partnership or, if a different date has partners may either exclude him from the
been agreed upon, at the stipulated firm or avail themselves of the benefits
time the properties he agreed to which he may have obtained in violation of
contribute; this provision, with a right to damages in
2. Shall answer for eviction, in case the either case.
partnership is deprived of the
ownership of any specific property he Industrial partner is one who contributes
contributed; his industry or labor in the partnership.
3. Shall answer to the partnership for the
fruits of the properties whose delivery Industrial partner barred from engaging in
he delayed from the date he should business
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To prevent any conflict of interest between compensate them with the profits and
the industrial and the partnership, and to benefits which he may have earned for the
insure faithful compliance by said partner partnership by his industry. However, the
with his prestation. courts may equitably lessen this
responsibility if through the partner’s
Art. 1790. Unless there is a stipulation to extraordinary efforts in other activities of
the contrary, the partners shall contribute the partnership, unusual profits have been
equal shares to the capital of the realized.
partnership.
Partner liable for damages caused the
Art. 1791. If there is no agreement to the partnership
contrary, in case of an imminent loss of the Art. 1794 follows the general rule of
business of the partnership, any partner contracts that where a person is at fault in
who refuses to contribute an additional the fulfillment of his obligations he shall be
share to the capital, except an industrial liable for the payment of damages. The
partner, to save the venture, shall be partner’s fault, however, must be
obliged to sell his interest to the other determined in accordance with the
partners. circumstances of person, time and place.
Art. 1793. A partner who has received, in Risk of Specific and determinate things
whole or in part, his share of a partnership The risk of specific and determinate things
credit, when the other partners have not which are not fungible, like a boat, only the
collected theirs, shall be obliged, if the use of which is contributed, shall be borne
debtor should thereafter become insolvent, by the partner as the ownership thereof is
to bring to the partnership capital what he not transferred to the partnership. This
received even though he may have given follows the general rule that the thing
receipt for his share only. perished with the owner.
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(perishable) like wine, oil, etc., even if they also receive a share in the profits in
are contributed only for the use of the proportion to his capital.
partnership, the risk of loss shall be for the
account of the partnership for the latter Rules in profit sharing:
cannot make use of them without their 1. The partners share the profits in
getting consumed or presumed. accordance with the ratio established
by their contract.
Things contributed to be sold 2. If there is no such stipulation in the
If the things contributed are to be sold, the partnership contract, then:
partnership bears the risk of loss, for 1. If all are capitalist partners they
obviously the partnership is the intended have the profits in proportion to
owner; otherwise, the firm cannot make the their capital contributions;
sale. 2. If there are capitalist as well as
industrial partners, the industrial
Things brought and appraised in inventory partner get a share each that is
The partnership bears the risk of loss of just and equitable while the
things brought and appraised in the capitalist partners divide the
inventory as this has the effect of an implied remainder in proportion to their
sale thus making the partnership the owner capital contributions; and
of said things. 3. If there is a capitalist-industrial
partner, he gets a share in the
Art. 1796. The partnership shall be profits as an industrial partner and
responsible to every partner for the an additional share in proportion to
amounts he may have disbursed on behalf his capital contribution to be
of the partnership and for the determined as in (b), above.
corresponding interest, from the time the
expenses are made; it shall also answer to Rules in loss sharing:
each partner for the obligations he may 1. The stipulation in the partnership
have contracted in good faith in the interest agreement regarding loss sharing must
of the partnership business, and for the risk be followed.
inconsequence of its management. 2. If there is no such agreement, but the
contract provides for a profit sharing
Responsibility of the partnership to a ration, the profit sharing ratio shall also
partner be the loss sharing ration.
If a partner has advanced funds for the 3. In the absence of loss sharing and profit
partnership, he is entitled to recover the sharing stipulations in the contract,
amounts advanced by him with interest. then the loss shall be borne by the
This must be so for the reason that a partners in proportion to their capital
partner is a mere agent of the partnership contributions; but a purely industrial
and under the rules of agency, an agent partner is exempted from participation
who advances funds for his principal may in the loss.
recover the same interest.
Share of industrial partner in profits and
Art. 1797. The profits and losses shall be losses
distributed in conformity with the Unless agreed upon, the industrial partner
agreement. If only the share of each partner shall receive such share in the profits as
in the profits has been agreed upon, the may be just and equitable under the
share of each in the losses shall be in the circumstances. As for the losses, the
same proportion. industrial partner is not liable. However,
In the absence of stipulation, the share of under Art. 1816, if the partnership has a
each partner in the profits and losses shall contractual debt and it cannot pay, the
be in proportion to what he may have industrial partner equally with the capitalist
contributed, but the industrial partner shall partners, can be compelled by the creditor
not be liable for the losses. As for the to pay his pro rata share out of his own
profits, the industrial partner shall receive property or assets.
such share as may be just and equitable
under the circumstances. If besides his Art. 1798. If the partners have agreed to
services he has contributed capital, he shall entrust to a third person the designation of
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the share of each one in the profits and partner’s capital contribution.
losses, such designation may be impugned
only when it is manifestly inequitable. In no Appointed as manager after the
case may a partner who has begun to constitution of the partnership
execute the decision of the third person, or Partner appointed in arts of partnership
who has not impugned the same within a may execute all acts of administration
period of three months from the time he notwithstanding the opposition of the other
had knowledge thereof, complain of such partners, unless he should act in bad faith.
decision. His power is revocable only upon just and
lawful cause and upon the vote of the
The designation of profits and losses cannot partners representing the controlling
be entrusted to one of the partners. interest.
Reason: revocation represents change in
Reason for the provision terms of contract.
Admittedly, the designation of profits and In case of mismanagement: Usual remedies
losses cannot be entrusted to one of the allowed by law including dissolution.
partners as the fulfillment of a contract
cannot be left to one of the contracting Appointment as manager after the
parties. It may, however, be entrusted to a constitution of the partnership
third person by common interest. Appointment may be revoked at any time
for any cause what so ever.
Art. 1799. A stipulation which excludes one
or more partners from any share in the Reason: revocation not founded on a
profits or losses is void. change of will on the part of the partners.
Appointment not condition of contract. It is
Stipulation to exclude a partner from merely a simple contract of agency, which
profits and losses is void may be revoking at any time. It is believe
The law does not allow a provision in the that the vote for revocation must also
contract of partnership excluding one or represent the controlling interest.
more partners from sharing in the profits
and losses. The reason is that a partnership Scope of the power of the managing
is organized for the common benefit or partner
interest of the partners. General rule: partner appointed as manager
has all the powers of a general agent as well
Reason for exclusion of industrial partner as all the incidental powers necessary to
An industrial partner is not liable for losses carry out the object of the partnership in
because if the partnership fails to realize the transaction of its business.
any profits, the industrial partner would Exception: When powers of manager is
have contributed his labor in vain. specifically restricted. A managing partner
Furthermore, the industrial partner cannot may not bind the partnership by contract
withdraw the work already done by him for foreign to its business.
the partnership.
Compensation for service rendered
Art. 1800. The partner who has been Partner Generally not entitle to
appointed manager in the articles of the compensation, In the absence of an
partnership may execute all acts of the agreement to the contrary, each member of
administration despite the opposition of his the partnership assumes the duty to give his
partners, unless he should act in Bad faith., time, attention, and skill to the
and his powers is irrevocable without the management of its affairs, as may be
just or lawful cause. The vote of the reasonably necessary to the success of the
partners representing the controlling common enterprise; and for this service a
interest shall be necessary for such share of the profits is his only
revocation of power. A power granted after compensation. In managing partnership
the partnership has constituted may affairs, a partner is practically taking care of
revoked at any time. Each partner has a his own interest or managing his own
right to an equal voice in the conduct of the business. In the absence of any prohibition
partnership business. This right is not in the arts. Of partnership for the payment
dependent on the amount or size of the of salaries to general partners, there is
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Rules when manner of the management not become a member of the partnership,
that has not agreed upon all partners even if the other partners know about the
considered as managers and agents agreement. Not being a member of
All partners shall have equal rights in the the partnership, he does not acquire the
mgmt. and conduct of partnership affairs. rights of a partner nor is he liable for its
All of them shall considered mgrs. and debts.
agents and whatever any one of them may
do alone shall bind the partnership. If there Reason for the rule
is timely opposition, however, the matter Partnership is based on mutual trust and
shall decided by majority vote. In case confidence among the partners. Inclusion of
of tie, vote of partners representing new partner would be a modification of the
controlling interest. original contract of partnership requiring
unanimous consent of all the partners.
Unanimous consent required for alteration Prohibition applies even if person
of immovable property associated is already a partner.
The consent need not be express. It may
presume from the fact of knowledge of the Art. 1805. The partnership books shall be
alteration without interposing any kept, subject to any agreement between the
objection. Prohibition only applies partners, at the principal place of the
to immovable property because of the business of the partnership, and every
greater importance of this kind of property, partner shall at any reasonable hour have
and the alteration thereof must be access to and may inspect and copy any of
important. This would be an act of strict them.
dominion. If refusal to give consent is
manifestly prejudicial to the interest of Keeping of partnership books
the partnership, court intervention maybe Partner with duty to keep partnership
sought. Consent may presume from silence books
(lack of opposition despite knowledge).If The duty to keep true and correct books
alteration is necessary for preservation of showing the firm’s accounts, such books
the property, consent of the other partners being at all times open to inspection of all
not required. members of the firm, primarily rests on the
managing or active partner. It is presume
Art. 1804. Every partner may associate that the partners have knowledge of the
another person with him in his share, but contents of the partnership books and that
the associates shall not admitted into the said books state accurately the state
partnership without the consent of all other of accounts, but errors can corrected.
partners, even of the partner having an
associate should be a manager of Rights with the respect to partnership
subpartnership nature books
Books should kept at the principal place of
The partnership formed between a business as each partner has the right to
member of a partnership and a third free access to them and to inspect or copy
Person for a division of the profits coming to any of them at any reasonable time, even
him from the partnership enterprise is after dissolution. Inspection rights not
termed subpartnership. absolute can restrained from using info
It is a partnership within a partnership and for other than partnership purpose.
is distinct and separate from the main or
principal partnership. Access to partnership books
Rights can exercise at any reasonable hour.
This means reasonable hours on business
Right of the person associated with the
days throughout the year and not merely
partnership’s share
during some arbitrary period of a few days
Subpartnership agreements do not
chosen by the managing partners.
affect the composition, existence, or
operations of the firm. The subpartners are
Art. 1806. Partners shall render on demand
partners interest,
true and full information of all things
affecting the partnership to any partner or
However, in the absence of the mutual
the legal representative of any deceased
assent of all the parties, a subpartner does
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partner or of any partner under legal i.e. the winding up of partnership affairs
disability. Duty to render information, there is completed.
must be no concealment between partners
in all matters affecting the partnership. Duty to account for secret and similar
Information must use only for partnership profits
purpose. Not just on demand but partner The duty of a partner to account as a
also has duty of voluntary disclosure. fiduciary operates to prevent from making a
However, duty to render info does notarise secret profit out of the operation of the
with respect to matters appearing partnership and from carrying on the
in partnership books since each partner has business for his private advantage or
the right to inspect those. Good faith not a business in competition w/ the firm
only requires that a partner should not w/o consent of other partners. Violation
make a false statement but also that he may be ground for dissolution.
should abstain from any false concealment.
Duty to account for earnings accruing even
Art. 1807. Every partner must account the after termination of partnership
partnership for any benefit, and hold as If a partner uses info obtained by him from
trustee for it any profits derived from him the partnership for his own account w/o the
without the consent of the partners from consent of the other partners, he is liable to
any transaction connected with the account for any benefit he might obtain.
formation, conduct, or liquidation of the
partnership or from any use by him of his Duty to make full disclosure of information
property. belonging to partnership
A partner is also subject to the fiduciary
The relation between the partners duty of undivided loyalty and complete
is essentially fiduciary involving trust and disclosure of info of all things affecting the
confidence, each partner considered in law, partnership. By Information is meant
as he is, in fact, the confidential agent of the information, which can be used for the
others. The duties of a partner are purposes of the partnership. Info cannot
analogous to those of a trustee. use for a partner’s private gain – even if
after termination.
Duty to act for common benefit
Cannot use and apply exclusively to own Duty not to acquire interest or right
individual benefit partnership assets or adverse to partnership
results of knowledge and info gained in If partner does, he holds it in trust for the
character of partner. Managing partners benefit of the partnership and must account
particularly owe a fiduciary duty to inactive to the firm for the profits of the transaction,
partners. unless it appears that the others consented
Duty begins during the formation of Art. 1808. The Capitalist partners cannot
partnership engage for their own account in any
Principle of good faith applies not only operation, which is of the kind of business
during partnership but during the in which the partnership is engaged, unless
negotiations leading to the formation of the there is a stipulation to the contrary. Any
partnership. Also, a person who agreed w/ capitalist partner violating this prohibition
another to form a partnership has the shall bring to the common funds any profit
obligation to account for commissions and accruing to him from his transactions, and
discounts received in acquiring property for shall personally bear all the losses.
the future partnership.
Prohibition against partner engaging the
Duty continues even after the dissolution business
of the partnership Prohibition relative – Prohibition against
Duty of partner to act w/ utmost good faith capitalist partner to engage in business is
towards his co-partners continues relative, unlike the industrial partner who is
throughout the entire life of the partnership absolutely prohibited from engaging in any
even after dissolution for whatever reason business for himself. Capitalist partner is
or whatever means, until the relationship is only prohibited from engaging for his own
terminated, account in any operation which is the same
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2. If the right exists under the terms of any Partnership property and partnership
agreement; capital distinguished
Partnership Partnership
3. Provided by article 1807; property capital
Changes Variable: its Constant: it
4. Whenever other circumstances render value value may remains
it just and reasonable, Right of the vary from day unchanged
partner to a formal account. today w/ as the
changes in amount is fix
General rule: During existence of market value by
partnership, a partner is not entitled to a agreement
formal account of partnership affairs. of the
Reason: rights of partner amply protected in partners,
arts1805 and 1806. In addition, it would and is not
cause much inconvenience and unnecessary affected by
waste of time. fluctuations
in the value
Exception: In the special and unusual of the
situations enumerated under art. 1809. partnership
Right of partner to demand an accounting property,
w/o bringing about dissolution is although it
a necessary corollary to right to share in may be
profits. A formal account is a necessary increased
incident to the dissolution of the and
partnership. decreased by
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unanimous partners;
consent of
the partners. 2. A partner’s right in specific partnership
Assets Includes not The property is not assignable except in
Included only the aggregate connection with the assignment of rights of
original of the all the partners in the same property;
capital individual
contributions, contributions 3. A partner’s right in specific partnership
but also all made by the property is not subject to attachment or
property partners in execution, except on a claim against the
subsequently establishing partnership;
acquired or continuing
because of the 4. A partner’s right in specific partnership
the partnership. property is not subject to legal support
partnership under art. 291 nature of a partner’s right in
or w/ specific partnership property
partnership
funds, Art. 1811 contemplates tangible property
including but not intangible things. A partner is a co-
partnership owner w/ his partners of specific
name and partnership property, but the rules on co-
goodwill. ownership do not necessarily apply. The
legal incidents of this tenancy in partnership
Ownership of certain property are distinctively characteristic of the
Property use by the partnership – Where partnership relation. They are as follows:
there is no express agreement that property
used by a partnership constitutes Equal rights of possession - Ordinarily, a
partnership property, such use does not partner has an equal right to possess
make it partnership property, and whether specific partnership property for
it is so depends on the intention of the partnership purposes. None of the partner
parties, w/c may be shown by proving an scan possesses and uses the
express agreement or acts of particular specific partnership property other than for
conduct. The intent of the parties is the partnership purposes w/o the consent
controlling factor. of the other partners. Should any of them
Property acquired by a partner with use the property for his own benefit, he
partnership funds – Unless a contrary must account, like a stranger, to the others
intention appears, property acquired by a for the profits derived there from or the
partner in his own name w/ partnership value of his wrongful possession or
funds is partnership property. However, occupation. A partner wrongfully excluded
if the property was acquired after from possession of partnership property
dissolution but before the winding up of the by a co-partner has a right to formal
partnership affairs, it would be his separate account and may even apply for a
property but he would be liable to account judicial decree of dissolution. On the death
to the partnership for the funds used in its of a partner, his right in specific partnership
acquisition. property vests in the surviving partners. By
agreement, the right to possess specific
Art. 1811. A partner is co-owner with his partnership property may surrender. In the
partners of specific partnership property. absence of special agreement, however,
The incidents of this co-ownership are such neither partner separately owns, or has the
that; exclusive right of possession of any
partnership property or any proportional
1. A partner, subject to the provision of this part thereof. Each has dominion over
title and any agreement between the the entire partnership property. The
partner, has an equal right with his partners possession of partnership property by one
to possess specific partnership property for partner is the possession of all until his
partnership purposes; but he has no right to possession becomes adverse. A partner
possess such property for any other cannot initiate title by adverse possession
purpose without the consent of his until and unless he makes an adverse claim.
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his interest in the partnership to any of his preferred rights of the partnership creditors
co-partners or to a third Person irrespective on due application to a competent court by
of the consent of the other partners, in the any judgement creditor of the partner, the
absence of agreement to the contrary. court which entered the interest of the
debtor partner with payment of the
Rights withheld from assignee unsatisfied amount of such judgement debt
1. To interfere in the management. with the interest thereon; and may then or
2. To require any information or account. later appoint a receiver of his share of the
3. To inspect any of the partnership books. profits, and of any other money due or to
fall due to him in respect of the partnership,
No one can be compelled to be partners w/ and make all other orders, directions and
someone else. The assignment does not accounts and inquiries which the debtor
divest the assignor of his status and rights partner might have made, or which
as a partner nor operate as dissolution. circumstances of the case may require. The
The law, however, provides the non- interest charged may redeem at any time
assigning collaborates w/ a ground before foreclosure, or in any case of a sale
for dissolving the partnership if they being directed by the court, may be
so desire. purchase without thereby causing
dissolution:
Remedy of other partners
Dissolution of partnership not intended – 1. With separate property, by any one or
Many partnership agreements are made more of the partners;
merely as security for loans, the assigning
partner never intending to destroy the 2. With partnership property, by any one
partnership relation. If the assigning partner or more of the partners with the
neglects his duties after assignment, consent of all the partners a whose
the other partners may dissolve the interest are not so charged or sold,
partnership under art. 1830. nothing in this title shall be held to
Dissolution of partnership intended – A deprive a partner of his right, if any,
partner’s conveyance of his interest in the under the exemption laws, as regards
partnership operates as dissolution of the his interest in the partnership.
partnership only when it is clear that the
parties contemplated and intended the Application for a charging order after
entire withdrawal from the partnership of securing judgement on his credit
such partner and the termination of the While a separate creditor of a partner
partnership as between the partners. cannot attach or levy upon specific
partnership property for the satisfaction of
Rights of assignee of partner’s interest his credit because partnership assets are
1. To receive in accordance w/ his contract reserved for partnership creditors, he can
the profits accruing to the assigning secure a judgment on his credit and then
partner; apply to the proper court for a “charging
2. To avail himself of the usual remedies order”, subjecting the interest of the debtor
provided by law in the event of fraud in partner in the partnership w/ the payment
the management; of the unsatisfied amount of such judgment
3. To receive the assignor’s interest in case w/ interest thereon w/ the least
of dissolution; interference w/ the partnership business
4. To require an account of partnership and the rights of the other partners.
affairs, but only in case the partnership By virtue of the charging order, any amount
is dissolved, and such account shall or portion thereof w/c the partnership
cover the period from the date only of would otherwise pay to the debtor-partner
the last account agreed to by all should instead be given to the judgment
partners. The purchaser of a partner’s creditor. This remedy, however, is w/o
interest may apply to the court for prejudice to the preferred rights of
dissolution after the termination of the partnership creditors whose claims should
specified term or undertaking or at any be satisfied first.
time if the partnership is one at will.
Availability of other remedies
Art. 1814. Without prejudice to the Art. 1814 have made this an exclusive
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remedy so that a writ of execution will not synonymous with “company,” “house,” and
be proper. However, if the judgment debt “concern.”
remains unsatisfied, the court may resort to
other courses of action notwithstanding the Importance of having a firm name
issuance of the charging order. A partnership must have a firm name under
which it will operate. A firm name is
Redemption or purchase of interest necessary to distinguish the partnership,
charged which has a distinct and separate juridical
Redemptioner – The interest of the debtor- personality from the individuals composing
partner so charged may be redeemed or the partnership and from other
purchased w/ the separate property of any partnerships and entities.
one or more of the partners, or w/
partnership property but w/ the consent of Right of the partners to choose firm name
all the partners whose interests are not so The partners enjoy the utmost freedom in
charged or sold. the selection of the partnership name.
As a general rule, they may adopt any firm
Redemption Price – The value of name desired.
the partner’s interest in the partnership has
no bearing on the redemption price w/c is Use of misleading name – The partners
likely to be lower since it will be dependent cannot use a name that is identical or
on the amount of the unsatisfied judgment deceptively confusingly similar to that
debt. of any existing partnership or corporation or
to any other name already protected by law
Right of redeeming non-debtor partner – or is patently deceptive, confusing or
There deeming non-debtor partner does contrary to existing laws, as to mislead the
not acquire absolute ownership over the public by passing itself off as another
debtor-partner’s interest but holds it in partnership or corporation, or its goods or
trust for him consistent w/ principles of services as those of such other company.
fiduciary relationship.
Liability inclusion of name in the firm name
Rights of partner under exemption laws – Persons who, not being partners, include
A partner cannot claim any right under the their names in the firm name do not acquire
homestead laws or exemption laws when the rights of a partner but shall be subject
specific partnership property is attached for to the liability of a partner insofar as 3rd
partnership debt. W/ respect, however, to Persons without notice are concerned. Such
the partner’s interest in the partnership as persons become partners by estoppel. Art.
distinguished from his interest in specific 1815 does not cover the case of a limited
partnership property, the partner may avail partner who allows his name to be included
himself of the exemption laws after in the firm name, orof a person continuing
partnership debts have been paid. A the business of a partnership after
partner’s interest or share in the dissolution, who uses the name of the
partnership property is really his property. dissolved partnership or the name of
a deceased partner as part thereof.
Art. 1815. Every partnership shall operate
under a firm name, which may or may not Art. 1816. All partners, including industrial
include the name of one or more of the ones, shall be liable pro rata with all their
partners, those who, not being members of property and after all the partnership assets
the partnership, include their names in the have been exhausted, for the contracts
firm name, shall be subject to liability of a which may be entered into in the name and
partner for the account of the partnership, under its
signature and by a person authorized to act
Requirement of the firm name for the partnership. However, any partner
Meaning of word “firm” – The name, title, may enter into a separate obligation to
or style under which a company transacts perform a partnership contract.
business; a partnership of two or more
persons; a commercial house. In its Article 1816 distinguished from article
common acceptation, the term implies a 1787
partnership. The term is also used as
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Article 1816 applies in cases where third Art. 1818. Every partner is an agent of the
party creditors are concerned as it falls partnership for the purpose of its business,
under the heading of section 3. “Obligations and the act of every partner, including the
of the Partners with Regard to Third execution in the partnership name of any
Persons.” Article 1797 applies only where instrument, for apparently carrying on in
the issue is among the partners as it falls the usual way the business of the
under the heading of Section 1, Chapter 2, partnership of which he is a member binds
which states: “Obligations of the Partners the partnership, unless the partner so
Among Themselves.” The pro rata liability acting has in fact no authority to act for the
of partners to third persons under Article partnership in the particular matter, and
1816 being a clear mandate of the law, any the person with whom he is dealing has
stipulation changing or modifying such knowledge of the fact that he has no
liability is void except as among the such liability.
partners.
An act of a partner which is not apparently
Refers to partnership obligations for the carrying on of business of the
Article 1816 which refers to the payment of partnership in the usual way does not bind
partnership obligations arising from the partnership unless authorized by the
contracts clearly imposes subsidiary and other partners.
joint (pro rata) liability for contractual debts
owing to third persons upon all the Except when authorized by the other
partners, including industrial partners who partners or unless they have abandoned the
ordinarily are not liable for losses. The business, one or more but less than all the
liability is subsidiary because the partners partners have no authority to:
cannot be made answerable with their
separate property unless the partnership 1. Assign the partnership property in trust
property has first been exhausted. for creditors or on the assignee’s
promise to pay the debts of the
Pro rata liability – Literally, pro rata liability partnership.
means proportionate distribution of
liability. In the law of obligations, the 2. Dispose of the goodwill of the business.
concurrence of two or more debtors in one
and the same obligation makes it prima 3. Do any other act which would make it
facie a joint (pro rata) obligation, and the impossible to carry on the ordinary
debts is presumed divided into as many business of a partnership.
equal shares as there are debtors and each
one of them is bound to pay only his share. 4. Confess a judgment.
Art. 1817. Any stipulation against the 5. Enter into a compromise concerning a
liability laid down in the preceding article partnership claim or liability.
shall be void, except as among the partners.
6. Submit a partnership claim or liability to
Industrial partner cannot exempt himself
arbitration.
from liability to third persons
Each one of the industrial partners is liable
to third persons for the debts of the firm 7. Renounce a claim of the partnership.
and if he has paid such debts out of his
private property during the life of the No act of a partner in contravention of a
partnership, when its affairs are settled he restriction on authority shall bind the
is entitled to credit for the amount so paid, partnership to persons having knowledge of
and if its results that there is not enough the restriction.
property in the partnership to pay him, then
the capitalist partners must pay him. Our Art. 1819. Where title to real property is in
conclusion is that neither on principle nor the partnership name, any partner may
on authority can the industrial partner be convey title to such property by a
relieved from liability to third persons for conveyance executed in the partnership
the debts of the partnership. name; but the partnership may recover
such property unless the partner's act binds
the partnership under the provisions of the
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first paragraph of article 1818, or unless partnership, except in the case of fraud on
such property has been conveyed by the the partnership, committed by or with the
grantee or a person claiming through such consent of that partner.
grantee to a holder for value without
knowledge that the partner, in making the Notice to partner is notice to partnership
conveyance, has exceeded his authority. Clearly a third person desiring to give notice
to a partnership of some matter pertaining
Where title to real property is in the name to the partnership business need not
of the partnership, a conveyance executed communicate with all of the partners. If
by a partner, in his own name, passes the notice is delivered to a partner, that is an
equitable interest of the partnership, effective communication to the partnership.
provided the act is one within the authority
of the partner under the provisions of the Knowledge before becoming partner
first paragraph of Article 1818. Where the knowledge or notice had been
received by the partner before he became a
Where title to real property is in the name partner, and his partners are ignorant of
of one or more but not all the partners, and this, and he is not the partner acting in the
the record does not disclose the right of the particular matter, there is no doubt that
partnership, the partners in whose name there has been neither knowledge of nor
the title stands may convey title to such notice to the partnership.
property, but the partnership may recover
such property if the partners’ act does not Art. 1822. Where, by any wrongful act
bind the partnership under the provisions or omission of any partner acting in the
of the first paragraph of Article 1818, unless ordinary course of the business of the
the purchaser or his assignee, is a holder for partnership or with the authority of co-
value, without knowledge. partners, loss or injury is caused to any
person, not being a partner in the
Where the title to real property is in the partnership, or any penalty is incurred, the
name of one or more or all the partners, or partnership is liable therefor to the same
in a third person in trust for the extent as the partner so acting or omitting
partnership, a conveyance executed by a to act.
partner in the partnership name, or in his
own name, passes the equitable interest of Partner liable for wrongful act of a partner
the partnership, provided the act is one The partners are liable for the negligent
within the authority of the partner under operation of a vehicle by a partner, acting in
the provisions of the first paragraph of the course of business, which results in a
Article 1818. traffic accident.
Art. 1821. Notice to any partner of any Art. 1823. The partnership is bound to
matter relating to partnership affairs, and make good the loss:
the knowledge of the partner acting in the
particular matter, acquired while a partner 1. Where one partner acting within the
or then present to his mind, and the scope of his apparent authority receives
knowledge of any other partner who money or property of a third person
reasonably could and should have and misapplies it.
communicated it to the acting partner,
operate as notice to or knowledge of the
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2. Where the partnership in the course of and if he has made such representation or
its business receives money or property consented to its being made in a public
of a third person and the money or manner he is liable to such person, whether
property so received is misapplied by the representation has or has not been
any partner while it is in the custody of made or communicated to such person so
the partnership. giving credit by or with the knowledge of
the apparent partner making the
Partnership bound by partner’s breach of representation or consenting to its being
trust made:
The partnership is liable for the conversion
(misappropriation) of money or property 1. When a partnership liability results, he
entrusted to the partnership by a third is liable as though he were an actual
person. The effect under Article 1824 is the member of the partnership.
same whether by the partnership and
subsequently misappropriated by a partner. 2. When no partnership liability results, he
is liable pro rata with the other persons,
Art. 1824. All partners are liable solidarily if any, so consenting to the contract or
with the partnership for everything representation as to incur liability,
chargeable to the partnership under otherwise separately.
Articles 1822 and 1823.
When a person has been thus represented
Law imposes solidary liability to be a partner in an existing partnership, or
The law imposes solidary liability upon the with one or more persons not actual
partners and the partnership in cases of partners, he is an agent of the persons
torts and acts of conversion by a partner as consenting to such representation to bind
provided in Art. 1824. It may be stated that them to the same extent and in the same
the liability of a partner for a debt of the manner as though he were a partner in fact,
partnership depends upon whether the with respect to persons who rely upon the
debts is contractual or it arises from tort or representation. When all the members of
conversion. If it arises from contract, the the existing partnership consent to the
liability is subsidiary and pro rata; if it arises representation, a partnership act or
from tort or conversion, the liability is obligation results; but in all other cases it is
solidary. the joint act or obligation of the person
acting and the persons consenting to the
Business partners solidarily liable representation.
Arts. 1711 and 1712 of the New Civil Code
and Sec. 2 of the Workmen’s Compensation Estoppel – A preclusion, in law, which
Act reasonably indicate that in prevents a man from alleging or denying a
compensation cases, the liability of business fact, in consequence of his own previous
partners should be merely joint and not act, allegation, or denial of a contrary tenor.
solidary, and one of them happens to be
insolvent, the amount awarded to the Person bound by his representation
dependents of the deceased employee A person who hold himself out as a partner
would only be partially satisfied, which is in a business, or consents to his being so
evidently contrary to the intent and held out, is liable on contracts made with
purpose of the law to give full protection to third persons who deal with the persons
the employee. carrying on the business on the faith of the
representation. He is stopped to deny the
Art. 1825. When a person, by words spoken apparent agency.
or written or by conduct, represents
himself, or consents to another Art. 1826. A person admitted as a partner
representing him to anyone, as a partner in into an existing partnership is liable for all
an existing partnership or with one or more the obligations of the partnership arising
persons not actual partners, he is liable to before his admission as though he had been
any such persons to whom such a partner when such obligations were
representation has been made, who has, on incurred, except that this liability shall be
the faith of such representation, given satisfied only out of partnership property,
credit to the actual or apparent partnership, unless there is a stipulation to the contrary.
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Incoming partner liable for existing b. By the express will of any partner,
obligations who must act in good faith, when
A newly admitted partner is liable for no definite term or particular is
obligations of the partnership at the time of specified.
his admission. The obligation of the
incoming partner shall be satisfied only out c. By the express will of all the
of partnership property. This is not a harsh partners who have not assigned
rule because the incoming partner their interests or suffered them to
“partakes of the benefit of the partnership be charged for their separate debts,
property, and an established business. He either before or after the
has every means of obtaining full termination of any specified term or
knowledge of protecting himself, because particular undertaking.
he may insist on the liquidation or
settlement of existing partnership debts. On d. By the expulsion of any partner
the other hand, the creditors have no from the business bona fide in
means of protecting themselves. accordance with such a power
conferred by the agreement
Art. 1827. The creditors of the partnership between the partners
shall be preferred to those of each partner
as regards the partnership property. 2. In contravention of the agreement
Without prejudice to this right, the private between the partners, where the
creditors of each partner may ask the circumstances do not permit a
attachment and public sale of the share of dissolution under any other provision of
the latter in the partnership assets. this article, by the express will of any
partner at any time.
Art. 1828. The dissolution of a partnership
is the change in the relation of the partners 3. By any event which makes it unlawful
caused by any partner ceasing to be for the business of the partnership to
associated in the carrying on as be carried on or for the members to
distinguished from the winding up of the carry it on in partnership.
business.
4. When a specific thing which a partner
Art. 1829. On dissolution the partnership is
had promised to contribute to the
not terminated, but continues until the
partnership, perishes before the
winding up of partnership affairs is
delivery; in any case by the loss of the
completed.
thing, when the partner who
contributed it having reserved the
“Dissolution,” “Winding up,” and
ownership thereof, has only transferred
“Termination” explained
to the partnership the use or enjoyment
Dissolution, winding up, and termination
of the same; but the partnership shall
should not be confused because they are
not be dissolved by the loss of the thing
distinct terms in law. Dissolution
when it occurs after the partnership has
“designates the point in time when the
acquired the ownership thereof.
partners cease to carry on the business
together: termination is the point in time
when all partnership affairs are wound up; 5. By the death of any partner.
winding up is the process of settling
partnership affairs after dissolution.” 6. By the insolvency of any partner or of
the partnership.
Art. 1830. Dissolution is caused:
7. By the civil interdiction of any partner.
1. Without violation of the agreement
between the partners: 8. By decree of court under the following
article.
a. By the termination of the definite
term or particular undertaking Causes of dissolution in general
specified in the agreement. Generally, a partnership may be dissolved
by causes: (1) without violation of the
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2. A partner becomes in any other way 2. With respect to persons not partners,
incapable of performing his part of the as declared in article 1834.
partnership contract.
General Rule
3. A partner has been guilty of such If the cause of dissolution is not by act,
conduct as tends to affect prejudicially death, or insolvency of a partner, the
the carrying on of the business. authority ceases immediately.
Exception
4. A partner willfully or persistently For the purposes of winding-up partnership
commits a breach of the partnership affairs.
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Art. 1836. Unless otherwise agreed, the b. The right, as against each partner
partners who have not wrongfully dissolved who has caused the dissolution
the partnership or the legal representative wrongfully, to damages breach of
of the last surviving partner, not insolvent, the agreement.
has the right to wind up the partnership
affairs, provided, however, that any 2. The partners who have not caused the
partner, his legal representative or his dissolution wrongfully, if they all desire
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3. A partner who has caused the Art. 1838. Where a partnership contract is
dissolution wrongfully shall have: rescinded on the ground of the fraud or
misrepresentation of one of the parties
a. If the business is not continued thereto, the party entitled to rescind is,
under the provisions of the second without prejudice to any other right,
paragraph, No. 2, all the rights of a entitled:
partner under the first paragraph,
subject to liability for damages in 1. To a lien on, or right of retention of, the
the second paragraph, No. 1 (b), of surplus of the partnership property
this article. after satisfying the partnership
liabilities to third persons for any sum
b. If the business is continued under of money paid by him for the purchase
the second paragraph, No. 2, of this of an interest in the partnership and for
article, the right as against his co- any capital or advances contributed by
partners and all claiming through him.
them in respect of their interests in
the partnership, to have the value 2. To stand, after all liabilities to third
of his interest in the partnership, persons have been satisfied, in the
less any damage caused to his co- place of the creditors of the partnership
partners by the dissolution, for any payments made by him in
ascertained and paid to him in cash, respect of the partnership liabilities.
or the payment secured by a bond
approved by the court, and to be 3. To be indemnified by the person guilty
released from all existing liabilities of the fraud or making the
of the partnership; but in representation against all debts and
ascertaining the value of the liabilities of the partnership.
partner's interest the value of the
good-will of the business shall not Right of partner to rescind contract of
be considered. partnership
If one is induced by fraud or
Rights of partners upon dissolution misrepresentation to become a partner, the
1. Dissolution is caused without violation contract is voidable. If the contract is
of the agreement. annulled, the injured party is entitled to
2. In contravention of the agreement. restitution. Here, the fraud or
misrepresentation vitiates consent.
If partnership is dissolved without However, until the partnership contract is
violation of the agreement annulled by a proper action in court, the
1. All partners may have the property sold partnership relations exist and
for payment of partnership liabilities. the defrauded partner is liable for all
2. If there is surplus, after paying the obligations to third persons.
liabilities of the firm, it shall be given in 1. Right of injured partner where
cash to the partners. partnership contract rescinded
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3. When any partner retires or dies and The use by the person or partnership
the business of the dissolved continuing the business of the partnership
partnership is continued as set forth in name, or the name of a deceased partner as
Nos. 1 and 2 of this article, with the part thereof, shall not of itself make the
consent of the retired partners or the individual property of the deceased partner
representative of the deceased liable for any debts contracted by such
partner, but without any assignment of person or partnership.
his right in partnership property.
Dissolution of a partnership by change of
4. When all the partners or their members
representatives assign their rights in Causes
partnership property to one or more 1. New partner is admitted
third persons who promise to pay the 2. Partner retires
debts and who continue the business 3. Partner dies
of the dissolved partnership. 4. Partner withdraws
5. Partner is expelled from partnership
5. When any partner wrongfully causes a 6. Other partners assign their rights
dissolution and the remaining partners to sole remaining partner
continue the business under the 7. All the partners assign their rights in
provisions of article 1837, second partnership property to third persons.
paragraph, No. 2, either alone or with *Any change in membership dissolves a
others, and without liquidation of the partnership and creates a new one
partnership affairs. *When a business of a dissolved
partnership is continued by former or
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without new partners, the old creditors are person or partnership continuing the
creditors of the person or partnership that business, at the date of dissolution, in the
is continuing the business. absence of any agreement to the contrary.
Art. 1841. When any partner retires or dies, Right to demand an accounting of
and the business is continued under any of partnership affairs must be directed
the conditions set forth in the preceding against
article, or in article 1837, second paragraph, 1. Winding-up partners
No. 2, without any settlement of accounts 2. Surviving partners
as between him or his estate and the 3. The person the partnership continuing
person or partnership continuing the the business
business, unless otherwise agreed, he or his
legal representative as against such person Art. 1843. A limited partnership is one
or partnership may have the value of his formed by two or more persons under the
interest at the date of dissolution provisions of the following article, having as
ascertained, and shall receive as an ordinary members one or more general partners and
creditor an amount equal to the value of his one or more limited partners. The limited
interest in the dissolved partnership with partners as such shall not be bound by the
interest, or, at his option or at the option of obligations of the partnership.
his legal representative, in lieu of interest,
the profits attributable to the use of his General partner Limited partner
right in the property of the dissolved Personally liable for Liability extends
partnership; Provided, That the creditors of partnership only to his capital
the dissolved partnership as against the obligations contribution.
separate creditors, or the representative of Have equal right in No share in
the retired or deceased partner, shall have management of management of
priority on any claim arising under this partnership partnership.
article, as provided article 1840, third May contribute May contribute
paragraph. money, property or money and property
industry
Rights of retiring of properties of Proper party to Not proper party to
deceased, partner when business proceedings proceedings
continued Interest cannot be Interest is assignable
To have the value of the interest of assigned to make with assignee
the retiring partner or deceased partner in new partner acquiring all rights of
the partnership determined as of the date the limited partner
of dissolution. His name may Name not included
appear in the firm in firm name
To receive thereafter, as an ordinary name
creditor, an amount equal to the value of Prohibited from No prohibition
his share in the dissolved partnership with engaging in a
interest, or, at his option, in place of business like
interest, the profits attributable to the use partnership’s
of his right. His retirement, His retirement,
insolvency and insolvency and
General Rule death dissolves the death does not
When partner retires from the partnership, partnership dissolve the
he is entitled to the payment of what may partnership
be due to him after liquidation.
Exception Characteristics of limited partnership
No liquidation needed when there is 1. Must be formed in accordance with the
settlement as to what retiring partner shall requirements of the law.
receive. 2. There must be one or more general
partners who control the management
Art. 1842. The right to an account of his of the business.
interest shall accrue to any partner, or his 3. There must be one or more limited
legal representative as against the winding partners contributing to the capital and
up partners or the surviving partners or the
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sharing in the profits but have nothing l. The right, if given, of one or more of
to do with the management. the limited partners to priority over
4. Obligations of the partnership must be other limited partners, as to
paid out of common fund and in the contributions or as to
separate properties of the general compensation by way of income,
partners. and the nature of such priority.
Art. 1844. Two or more persons desiring to m. The right, if given, of the remaining
form a limited partnership shall: general partner or partners to
continue the business on the death,
1. Sign and swear to a certificate, which retirement, civil interdiction,
shall state — insanity or insolvency of a general
partner.
a. The name of the partnership,
adding thereto the word "Limited". n. The right, if given, of a limited
partner to demand and receive
b. The character of the business. property other than cash in return
for his contribution.
c. The location of the principal place
of business. 2. File for record the certificate in the
Office of the Securities and Exchange
d. The name and place of residence of Commission.
each member, general and limited
partners being respectively A limited partnership is formed if there has
designated. been substantial compliance in good faith
with the foregoing requirements.
e. The term for which the partnership
is to exist. Qualifications of limited partnership
f. The amount of cash and a 1. The partners must sign and swear to a
description of and the agreed value certificate of limited partnership
of the other property contributed 2. Must file for record the certificate in
by each limited partner. the office of the Securities and
Exchange Commission
g. The additional contributions, if any,
to be made by each limited partner Art. 1845. The contributions of a limited
and the times at which or events on partner may be cash or property, but not
the happening of which they shall services.
be made.
Limited partners can only contribute money
h. The time, if agreed upon, when the and property and cannot contribute
contribution of each limited partner services to the partnership to protect
is to be returned. persons dealing with the firms with frauds.
i. The share of the profits or the other Art. 1846. The surname of a limited partner
compensation by way of income shall not appear in the partnership name
which each limited partner shall unless:
receive by reason of his
contribution. 1. It is also the surname of a general
partner.
j. The right, if given, of a limited
partner to substitute an assignee as 2. Prior to the time when the limited
contributor in his place, and the partner became such, the business has
terms and conditions of the been carried on under a name in which
substitution. his surname appeared.
k. The right, if given, of the partners to A limited partner whose surname appears
admit additional limited partners. in a partnership name contrary to the
provisions of the first paragraph is liable as
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ART. 1855. Where there are several limited the return of the contribution or for the
partners the members may agree that one dissolution of the partnership.
or more of the limited partners shall have a
priority over other limited partners as to In the absence of any statement in the
the return of their contributions, as to their certificate to the contrary or the consent of
compensation by way of income, or as to all members, a limited partner, irrespective
any other matter. If such an agreement is of the nature of his contribution, has only
made it shall be states in the certificate, and the right to demand and receive cash in
in the absence of such a statement all the return for his contribution.
limited partners shall stand upon equal
footing. A limited partner may have the partnership
dissolved and its affairs wound up when:
ART. 1856. A limited partner may receive
from the partnership the share of the 1. He rightfully but unsuccessfully
profits or the compensation by way of demands the return of his contribution.
income stipulated for in the certificate;
provided, that after such payment is made, 2. The other liabilities of the partnership
whether from the property of the have not been paid, or the partnership
partnership or that of a general partner, the property is insufficient for their
partnership assets are in excess of all payment as required by the first
liabilities of the partnership except liabilities paragraph, No. 1, and the limited
to limited partners on account of their partner would otherwise be entitled to
contributions and to general partners. the return of his contribution.
ART. 1857. A limited partner shall not Conditions of a limited partner entitled to
receive from a general partner or out of return of his contribution
partnership property any part of his 1. All liabilities of the partnership have
contributions until: been paid or there are assets sufficient
to pay partnership liabilities.
1. All liabilities of the partnership, except 2. The consent of all the partners is
liabilities to general partners and to obtained.
limited partners on account of their 3. The certificate is cancelled or so
contributions, have been paid or there amended as to set forth the withdrawal
remains property of the partnership or reduction of the contribution.
sufficient to pay them.
When limited partner may demand return
2. The consent of all members is had, 1. The partnership is dissolved
unless the return of the contribution 2. The date specified for its return has
may be rightfully demanded under the arrived
provisions of the second paragraph. 3. If no term is specified, after six months’
notice in writing to all other partners.
3. The certificate is cancelled or so
amended as to set forth the withdrawal Limited partner to receive cash
or reduction. It will be noted that the limited partner has
a right to demand and receive cash only in
Subject to the provisions of the first return for his contribution even when he
paragraph, a limited partner may rightfully contributed property.
demand the return of his contribution:
ART. 1858. A limited partner is liable to the
1. On the dissolution of a partnership. partnership:
2. When the date specified in the 1. For the difference between his
certificate for its return has arrived. contribution as actually made and that
stated in the certificate as having been
3. After he has given six months’ notice in made.
writing to all other members, if no time
is specified in the certificate, either for 2. For any unpaid contribution which he
agreed in the certificate to make in the
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future at the time and on the return of his contribution, to which his
conditions stated in the certificate. assignor would otherwise be entitled.
A limited partner holds a trustee for the An assignee shall have the right to become
partnership: a substituted partner if all the members
1. Specific property stated in the consent thereto or if the assignor, being
certificate as contributed by him, but thereunto empowered by the certificate,
which was not contributed or which has gives the assignee that right.
been wrongfully returned.
An assignee becomes a substituted limited
2. Money or other property wrongfully partner when the certificate is
paid or conveyed to him on account of appropriately amended in accordance with
his contribution. Article 1865.
The liabilities of a limited partners as set The substituted limited partner has all the
forth in this article can be waived or rights and powers, and is subject to all the
compromised only by the consent of all restrictions and liabilities of his assignor,
members; but a waiver or compromise shall except those liabilities of which he was
not affect the right of a creditor of a ignorant at the time he became a limited
partnership who extended credit or whose partner and which could not be ascertained
claim arose after the filling and before a for the certificate.
cancellation or amendment of the
certificate, to enforce such liabilities. The substitution of the assignee as a limited
partner does not release the assignor from
When a contributor has rightfully received liability to the partnership, under article
the return in whole or in part of the capital 1847 and 1858.
of his contribution, he is nevertheless liable
to the partnership for any sum, not in Limited partner’s interest assignable
excess of such return with interest, A limited partner’s interest in the
necessary to discharge its liabilities to all partnership is assignable. The assignee,
creditors who extended credit or whose
however, of a limited partner’s interest
claims arose before such return.
does not necessarily become a substituted
Limited partner liable to partnership for limited partner.
sum returned
A limited partner whose contribution has ART. 1860. The retirement, death,
been rightfully returned is still liable to the insolvency, insanity or civil interdiction of a
partnership for an amount not in excess of general partner dissolves the partnership,
the sum returned plus interest as may be unless the business is continued by the
necessary to pay the claims of persons who remaining general partners:
extended credit or whose claims arose
before the return. 1. Under a right so to do stated in the
certificate.
ART. 1859. A limited partner’s interest is
assignable. 2. With the consent of all members.
A substitute limited partner is a person It must be observed that the death, etc., of
admitted to all the rights of a limited a general partner dissolves the partnership
partner who has died or has assigned his while the death of a limited partner does
interest in a partnership. not cause the dissolution of the firm, unless
there is only one limited partner.
An assignee, who does not become a
substituted limited partner, has no right to ART. 1861. On the death of a limited
require any information or account of the partner his executor or administrator shall
partnership transactions or to inspect the have all the rights of a limited partner for
partnership books; he is only entitled to the purpose of settling his estate, and such
receive the share of the profits or other power as the deceased had to constitute his
compensation by way of income, or the assignee a substituted limited partner.
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Sec. 9. Treasury shares. - Treasury shares Sec. 12. Minimum capital stock required of
are shares of stock which have been issued stock corporations. – Stock corporations
and fully paid for, but subsequently incorporated under this Code shall not be
reacquired by the issuing corporation by required to have any minimum authorized
purchase, redemption, donation or through capital stock except as otherwise
some other lawful means. Such shares may specifically provided for by special law, and
again be disposed of for a reasonable price subject to the provisions of the following
fixed by the board of directors. (n) section.
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stock is required, the abuse of the privileges the Philippines, and no association,
of a corporation would be minimized. partnership, or corporation the capital
of which is not wholly owned by citizens
Capital stock requirements under the of the Philippines, shall engage directly
special laws or indirectly in the retail trade business.
1. In case of mining and agricultural
incorporation, or corporation organized 7. Only vessels of domestic ownership are
for the purpose of the disposition , authorized to engage in coastwise
exploitation, development or utilization shipping in the Philippines. Vessels are
of natural resources of the Philippines, considered of domestic ownership
as well as corporation organized for the when such ownership is vested in some
operations of public utilities, the one or more of the following: (1)
Constitution provides that at least 60 % Citizens of the Philippines; (2) any
of the capital stock of such corporation corporation or any company composed
must be owned by citizens of the wholly of the citizens of the Philippines;
Philippines. (3) any corporation or company created
under the laws of the Philippines,
2. The Insurance Code provide that “no provided at least 75% of the capital
domestic insurance company shall, if a stock thereof or of any interested in
stock corporation, engage in business in said capital is wholly owned by the
the Philippines unless posses of a paid citizens of the Philippines.
up capital stock equal to at least two
million pesos”. Where the insurance Sec.14. Contents of articles of the
company is to engage in insurance incorporations. – All corporation organized
business it must have a “paid-up capital under this Code shall file with the Securities
stock of at least five million pesos” to and Exchange Commission articles of
be invested in securities specified by incorporation in any of the official
law, which securities are to be languages, duly signed and acknowledged
deposited with the Insurance by all of the incorporators containing
Commissioner. substantially the following matters, except
as otherwise prescribed by this Code or by
3. The Financing Company Act requires special laws:
that “at least sixty per centum of the
capital of financing companies must be 1. The name of the corporation.
owned by citizens of the Philippines and
shall have a paid-up capital of not less 2. The specific purpose or purposes for
than five hundred thousand pesos”. which the corporation is being
incorporated. Where the corporation
4. Commercial banks are required to have have more than one stated purpose,
a paid-up capital of 100 million pesos. the article of incorporation shall state
When a commercial bank having licence which the primary is and which is/are
to operate an expanded foreign the secondary purpose or purposes:
currency deposit system it must have a Provided, That a non-stock corporation
paid-up capital of at least 150 million may not include a purpose which would
pesos and when a commercial bank is change or contradict its nature as such.
authorized to engage in universal
banking it must have a paid up capital 3. The place where the principal office of
of at least 500 million pesos. the corporation is to be located, which
must be within the Philippines.
5. The New Constitution provides that:
“The ownership and management of 4. The term for which the corporation is to
mass media shall be limited to citizens exist.
of the Philippines or to corporations or
association wholly-owned and manage 5. The names, nationalities and residences
by such citizen”. of the incorporators.
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6. The number of directors or trustees Incorporators may choose any name they
which shall not be less than five (5) nor see fit , however strange, uneuphonious, or
more than fifteen (15). unrhetorical it may be , provided it is one
not identical with or prejudicially similar to
7. The names, nationalities and residences a name which has previously been adopted
of the person who shall act as directors by and is being use by another corporation
or trustees until the first regular as its corporate name
directors or trustees are duly elected
and qualified accordance with this Change of Corporate name
Code. The change of the corporate name
doesn’t mean a new corporation, nor the
8. If it be a stock corporation, the amount successor of the original corporation. It is
of its authorized capital stock in lawful the same corporation with a different name
money of the Philippines, the number having its character with no respect change.
of shares which it is divided, and in case The corporation continues, as before,
the shares are par value shares, the par responsible in its new name for all debts or
value of each, the names, nationalities other liabilities it had previously contracted
and residences of the original or incurred.
subscriber, and the amount subscribed
and paid by each on his subscription, 2. Specific purpose or purposes.
and if some or all of the shares are The statement of the purpose has its
without par value, such fact must be principal function the affirmative
stated. authorization of the management to enter
into those contracts and business
9. If it be a non-stock corporation, the transactions which may be considered as
amount of its capital, the names, incidental to its attainment of the purposes.
nationalities and residences of the It also imposes implied limitations of their
contributors and the amount, authority by the exclusion of lines of activity
contributed by each. which are not covered.
10. Such other matters are not inconsistent 3. Principal office of the Corporation.
with law and which the incorporators The principal office of the corporation must
may deem necessary and convenient. be within the Philippines. It is where the
books of the corporation are kept and its
The Securities and Exchange Commission officers usually and ordinarily meet for the
shall not accept the articles of incorporation purpose of managing the affairs and
of any stock corporation unless transactions of the business of the
accompanied by a sworn statement of the corporation.
Treasurer elected by the subscriber
showing that at least 25% of the authorized 4. Terms of Existence of the Corporation.
capital stock of the corporation has been The corporation shall exist for a period not
subscribed, and at least 25% of the total exceeding fifty (50) years from the date of
subscription has been fully paid to him in incorporation unless sooner dissolved or
actual cash and/or in property the fair unless said period is extended.
valuation of which are equal to at least 25%
of the said subscription , such paid up 5. Names, Nationalities and residences of
capital being not less than five-thousand incorporators.
pesos (P5,000). The names, nationalities and residences of
the incorporators must be stated in the
Sec.15. Forms of Articles of Incorporation. articles of the corporation for the purpose
– Unless otherwise prescribed by special of complying with legal requirement that
law, articles of incorporation of all domestic majority of the incorporators must be
corporations shall supply substantially the residents of the Philippines and complying
following requirements in the form as with the statutory requirement on share
provided for by the SEC: ownership and in other instances where
Filipino Citizens are required.
1. The name of the corporation.
6. Number of directors and trustees.
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5. Written authority to verify bank Law reserves the rights to modify the
deposit signed by the corporate charter
treasurer empowering the SEC and The constitution and the Corporation Code
/or the Central bank to check and reserved the right to amend the charter of a
inspect the existence of the bank private corporation. The constitution
deposit of the corporate paid-up provides that “no franchise or right be
capital. granted except under the condition that it
6. Taxpayer account number of the shall be subject to amendment, alteration,
incorporators pursuant to Executive or repeal by the National Assembly when
order No. 213. public interest so requires.
7. Registration Data Sheet, a
statement in statistical data form, Amendment of Articles of Incorporation
signed by an authorized The articles of incorporation may be
representative of the corporation amended for legitimate purposes that refer
regarding important information to any matter stated in the articles of
about the corporate seal, incorporation. It may refer to:
corporate name, principal office, 1. Change of corporate name;
capital structure, their subscription 2. Extension of term of corporation;
and TAN (SEC Bulletin, Oct. 1982). 3. Change in classes or series of shares;
4. Change in rights, privileges or
Sec. 16. Amendment of Articles of restrictions in share ownership;
Incorporation. – Unless otherwise 5. Increase or decrease in the number of
prescribed by this Code or by special law, directors; and
and for legitimate purposes, any provision 6. Change in purpose or purposes and
or matter stated in the articles of other necessary changes.
incorporation may be amended by a
majority vote of the board of directors or Vote or recent assent required in
trustees and the vote or written assent of amendment of the articles of incorporation
the stockholders representing at least two- shall be as follows:
thirds (2/3) of the outstanding capital stock, Stock Corporation – A majority vote of the
without prejudice to the appraisal rights of directors or trustees and the vote or written
dissenting stockholders in accordance with assent of the stockholders representing at
the provision of this Code, or the vote or least two- thirds (2/3) of the outstanding
written assent of two-thirds (2/3) of the capital stock. Under section 81 of the Code,
members if it be a non-stock corporation. a dissenting stockholder may exercise his
appraisal right if he is against the
The original and amended articles amendment to be made and demand
altogether shall contain all provision payment of the fair value of his shares.
required by law to be set out in the articles
of incorporation. Such articles, as amended Non-stock Corporation – A majority vote of
shall be indicated by underscoring the board of directors and the vote or written
change or changes made, and the copy assent of 2/3 of the members.
thereof duly certified under oath by the
corporate secretary and the majority of the The amendments to the articles of
directors or trustees stating the fact that incorporation shall take effect upon its
said amendments have been duly approved approval by the Securities and Exchange
by the required vote of the stockholders or Commission or from the filing with the said
members, shall be submitted to the Commission if not acted upon within six
Securities and Exchange Commission. months from the date of filing for a cause
not attributable to the corporation.
The amendment shall take effect upon its
approval by the Securities and Exchange Sec. 17. Grounds when articles of
Commission or from the date of filing with incorporation or amendment may be
the said Commission if not acted upon rejected or disapproved. – The Securities
within six (6) months from the date of filing and Exchange Commission may reject the
for a cause not attributable to the articles of incorporation or disapproved any
corporation. amendment thereto if the same is not in
compliance with the requirements of this
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Code: Provided, That the Commission shall by which the corporation can be identified
give the incorporators a reasonable time and distinguished from other corporation,
within which to correct or modify the firms or entities.
objectionable portions of the articles or
amendment. The following are grounds for Change of corporate name
such amendment or disapproval: A corporation may change its name by
merely amending its charter in the manner
1. That the articles of incorporation or any prescribed by law. The change of name of
amendment thereto is not substantially the corporation does not result in
in accordance with the form prescribed dissolution. The changing of the name of a
herein. corporation is no more the creation of a
corporation than the changing of the name
2. That the purpose or purposes of the of a natural person.
corporation are patently
unconstitutional, illegal, immoral, or Restriction in use in certain names of
contrary to government rules and words
regulation. There are special laws prohibiting the use of
certain names and/or words. Thus, under
3. That the Treasurer’s Affidavit the General Banking Act, no person or
concerning the amount of capital stock entity not conducting the business of
subscribed and/or paid is false. commercial banking shall use the words
“bank”, “banking”, “banker”, “building and
4. That the required percentage of loan association”, “trust corporation”, etc.
ownership of the capital stock to be or words of similar import. The word
owned by citizens of the Philippines has “National” under Act 2612 may not be use
not been complied with as required by by those doing business as bankers,
existing laws of the constitution. brokers, or savings institutions. “United
Nations” both in its full and abbreviated
No articles of incorporation or amendment forms, for commercial and business
to articles of incorporation of banks, purposes. There are other names or words
banking and quasi-banking institutions, which pursuant to other special laws may
building and loan association, trust not be used.
companies, public utilities, educational
institution, and other corporations Sec. 19. Commencement of Corporate
governed by special laws shall be accepted Existence. – A private corporation formed
or approved by the Commission unless or organized under this Code commences to
accompanied by a favourable have corporate existence and juridical
recommendation of the appropriate personality and is deemed incorporated
government agency to the effect that such from the date the Securities and Exchange
articles or amendment is in accordance with Commission issues a certificate of
law. incorporation under its official seal; and
thereupon the incorporators,
Sec. 18. Corporate name. – No corporate stockholders/members, and their
name may be allowed by the Securities and successors shall constitute a body politic
Exchange Commission if the proposed name and corporate under the name stated in the
is identical or deceptively or confusingly articles of incorporation for the period of
similar to that of any existing corporation or time mentioned therein, unless said period
to any other name already protected by law is extended or the corporation is sooner
or its patently deceptive, confusing or dissolved in accordance with law.
contrary to existing laws. When the change
in a corporate name is approved, the Sec. 20. De Facto corporation. – The due
commission shall issue an amended incorporation any corporation claiming in
certificate of incorporation under the good faith to be a corporation under this
amended name. Code, and its right to exercise corporate
powers, shall not be inquired into
Necessity of Corporate name collaterally in any private suit to which such
It is necessary that a corporation should corporation may be a party. Such inquiry
have a name because that is the only way
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may be made by the Solicitor General in a of a contrary tenor. The object of the
quo warranto proceeding. principle of estoppel is to prevent injustice
to an otherwise innocent person.
De facto corporation – generally refer to
organizations exercising corporate power Sec. 22. Effect of non-use of corporate
under colour of a more or less legally charter and continuous in operation of a
constituted corporation. corporation. – If a corporation does not
formally organize and commence the
Elements of De facto corporation transaction of its business or the
1. Existence of a valid law under which a construction of its works within two (2)
corporation can be organized. years from the date of its incorporation, its
2. An attempt in good faith to incorporate. corporate powers cease and the
3. Actual exercise of incorporate powers. corporation shall be deemed dissolved.
However, if a corporation has commenced
Quo warranto – an inquiry made into the the transaction of its business but
right of a corporation to conduct business. subsequently becomes continuously
inoperative for a period of at least five (5)
Illustration years, the same shall be ground for the
Seven competent individual organized a suspension or revocation of its corporate
corporation by filing the articles of franchise or certificate of incorporation.
incorporation and securing a certificate of
incorporation with the SEC. However, the This provision shall not apply if the failure
addresses of two of the original subscribers to organize, commence the transactions of
were omitted in the articles of its businesses or the construction of its
incorporation. In suit filed by X, a creditor, works, or to continuously operate is due to
against the corporation he alleged that the causes beyond the control of the
corporation has no valid existence and corporation as may be determined by the
sought to hold the seven incorporators (also Securities and Exchange Commission.
directors) liable personally on the
obligation. X’s allegation that the Organization
corporation had no valid existence would The idea of organization in reference to
constitute a collateral (side) attack in a corporations means executive structure,
private suit. Only the Solicitor General as election of officers, providing for
government lawyer may raise the question subscription and payment of capital,
by quo warranto proceeding. (Literally by adoption of by-laws, and other steps
“what right”). necessary to endow the legal entity with
capacity to transact business for which it
Sec. 21. Corporation by estoppel. – All was created.
persons who assume to act as a corporation
knowing it to be without authority to do so The Grant of corporate existence, conferred
shall be liable as general partners for all by the issuance of certificate of
debts, liabilities and damages incurred or incorporation, is subject to two subsequent
arising as a result thereof: Provided, conditions, to wit:
however, That when any such ostensible 1. The corporation must “formally
corporation is sued on any transaction organize”.
entered by it as a corporation or on any tort 2. The corporation must actually begin the
committed by it as such, it shall not be “transaction of its business”.
allowed to use as a defense its lack of
corporate personality. Failure to comply with either or both of
these conditions within two (2) years from
One who assumes an obligation to an the date of its incorporation, its corporate
ostensible corporation as such cannot resist power cease and the corporation must be
performance thereof on the ground that deemed dissolved.
there was in fact no corporation.
Sec. 23. The board of directors or trustees.
Estoppel – It is preclusion, which prevent a – Unless otherwise provided in this Code,
man from denying a fact in consequences of the corporate powers of all corporation
his own previous act, allegations, or denial formed under this Code shall be exercised ,
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all business conducted and all property of 3. Domestic air carrier, the directing head
such corporations controlled and held by or 2/3 of the board of directors and
the board of directors or trustees to be other managing officers shall be citizens
elected from among the holders of stock, of the Philippines.
or where there is no stock, from among 4. Registered investments companies, the
the members of the corporation, who shall directors thereof must be Filipino
hold office for one (1) year and until their citizen.
successors are elected and qualified. 5. Private development banks, all the
members of the board of directors shall
Every director must own at least one (1) be citizen of the Philippines.
share of the capital stock of the corporation 6. In case of financing corporation, at least
of which he is a director, which share shall 2/3 of all members of the board of
stand in his name on the books of the directors shall be citizen of the
corporation. Any director who ceases to be Philippines.
the owner of at least one (1) share of the
capital stock of the corporation of which he Sec. 24. Election of directors or trustees. –
is the director shall thereby cease to be a At all elections of directors or trustees,
director. Trustees of non-stock corporations there must be present, either in person or
must be members thereof. A majority of the by representative authorized to act by
directors or trustees of all corporations written proxy, the owners of the majority of
organized under this Code must be the outstanding capital stock, or if there be
residents of the Philippines. no capital stock, a majority of the members
entitled to vote. The election must be by
Qualifications of directors ballot if requested by any voting
1. He must own at least one (1) share of stockholder or member. In stock
the capital stock of the corporation in corporations, every stockholder entitled to
his name. vote shall have the right to vote in person
2. Majority of the directors must be a or by proxy the number of shares of stock
resident citizen of the Philippines. standing, at the time fixed in the by-laws, in
3. A director must not have been his own name on the stock books of the
convicted by final judgement of an corporation, or where the by-laws are
offense punishable by imprisonment silent, at the time of the election; and said
exceeding six (6) years or a violation of shareholder may vote such number of
the provisions of the Corporation Code shares for as many persons as there are
committed within five (5) years prior to directors to be elected or he may cumulate
the date of election or appointment. said shares and give one candidate as many
votes as the number of directors to be
The directors, once elected, become the elected multiplied by the number of his
representatives of the corporation itself, shares shall equal, or he may distribute
not its stockholders. The directors of a non- them on the same principle among as many
stock corporation are required to be candidate as he shall see fit; Provided, That
members thereof and like stock the total number of votes cast by him shall
corporations “majority of the directors and not exceed the numbers of shares owned
trustees of all corporations organized under by him as shown in the books of the
the Corporation Code must be residents corporation multiplied by the whole
citizen of the Philippines”. There are some number of directors to be elected: Provided,
special corporation not organized with the however, that no delinquent stocks shall be
Corporation Code where directors are voted. Unless otherwise provided in the
required to be citizens of the Philippines. articles of incorporation, or in the by- laws,
They are as follows: members of corporation which have no
1. Bank and banking institution, at least capital stock may cast as many votes as
2/3 of the members of the board of there are trustees to be elected but may
directors shall be citizen of the not cast more than one vote for one
Philippines. candidate. Candidates receiving the highest
2. Rural banks, every member of the number of votes shall be declared elected.
board of directors shall be citizens of Any meeting of the stockholders or
the Philippines. members called for an election may
adjourn from day to day or from time to
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time but not sine die or definitely if, for any Sec. 25. Corporate officers, quorum. –
reason, no election is held, or if there are Immediately after their election, the
not present or represented by proxy, at the directors of a corporation must formally
meeting, the owners of the majority of the organized by the election of a president,
outstanding capital stock, or if there be no who shall be a director, a treasurer who
capital stock, a majority of the members may or may not be a director, a secretary
entitled to vote. who shall be a resident citizen of the
Philippines, and such other officers as may
Methods of voting be provided for in the by-laws. Any two (2)
The voting methods which may be resorted or more positions may be held concurrently
to by a voting stockholder are as follows: by the same person, except that no one
1. Straight voting. shall act as president and secretary or as
2. Cumulative voting for one candidate. president and treasurer at the same time.
3. Cumulative voting by distribution.
The directors or trustees and officers to be
Example of Straight Voting elected shall perform the duties enjoined
A owns 100 shares of stock in X corporation. on them by law and by the by-laws of the
During the meeting for the purpose of corporation. Unless the articles of
electing five directors, he may cast his vote incorporation or the by-laws provide form a
by giving each of the five candidates 100 greater majority, a majority of the number
votes, hence, he distribute equally his vote of directors or trustees as fixed in the
without preference or discrimination. articles of incorporation shall constitute a
quorum for the transaction of corporate
Example of Cumulative voting for one business, and every decision of at least a
candidate majority of the directors or trustees present
In the preceding illustration, if A owns 100 at a meeting at which there is a quorum
voting shares and there are five directors to shall be valid as a corporate act , except for
be elected, A is entitled to 500 votes which the election of the officers which shall
he may “cumulate” by giving it to candidate require the vote of a majority of all the
Z alone. members of the board.
Example of Cumulative voting by Qualification of corporate officer
distribution 1. President. He must be a director.
As in the same example above, if A owns 2. Treasurer. He may or may not be a
100 voting shares, and there are five director.
directors to be elected, A is entitled to 500 3. Secretary. He must be a resident and
votes which he may distribute to candidate citizen of the Philippines
Y and Z giving the former 300 and the latter 4. Other officers provided for in the by-
200 provided that the total number of laws.
votes cast by him does not exceed 500
votes. Three levels of corporate control
1. The board of director which is
Voting of sequestered shares of stock responsible for the corporate policies
It has been held that the “Presidential and the general management of the
Commission on Good Government may business affairs of the corporation.
properly exercise the prerogative to vote 2. The officers, who in theory execute the
sequestered stock of corporation, granted policies lay down by the board , but in
to it by the President of the Philippines xxx practice often have wide latitude in
pending the outcome of proceeding to determining the course of business
determine the ownership of sequestered operations.
shares of stock. xxx Substitution of 3. Stockholders who like amendments of
directors is not be done without reason or the articles of incorporation.
rhyme, and undertaken only when essential
to prevent disappearance or wastage of Teleconferencing of Board Members
corporate property, and always under such In the Philippines, teleconferencing and
circumstance as assure that replacements videoconferencing of members of board of
are truly processed of competence, directors of private corporation is a reality,
experience and probity. in light of the Republic Act No. 8792.The
Securities and Exchange Commission issued
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SEC Memorandum Circular No. 15, on has authority to act in his stead, and to
November 30, 2001, providing the perform the duties of the office.
guidelines to be complied with related to
such conferences. Thus, the court agrees Secretary
with the RTC that persons in the Philippines A secretary must be a resident citizen of the
may have a teleconference with a group of Philippines. It is generally its duty to make
persons in South Korea relating to business and keep corporate records; to make
transactions or corporate governance. proper entries of the votes, resolution and
proceedings of the shareholders and
Directors and officers distinguished directors in the management of the
The officers of a corporation, unlike the corporation, and of all other matters
directors, are true agent of the corporation. required to be entered in the records. The
Each officer may bind the corporation by his secretary is the ministerial officer who
individual acts within the actual or apparent cannot bind the corporation unless he is
scope of authority. On the other hand, a authorized to do so.
director has no authority to act for the
corporation. Treasurer
The treasurer of the corporation “may or
Authority of corporate officers may not be a director”. He is the proper
The corporation transact its business officer and the only proper officer in the
through its officers or agents. An officer’s absence of express provision to the
power as an agent of the corporation must contrary, to receive and keep the money of
be sought from the statute, charter, and the the corporation and to disburse them as he
by-laws or in a delegation of authority to may be authorized.
such officers, from the acts of board of
directors, formally expressed or implied Other officers
from a habit or custom of doing business. The by-laws of the corporation may
provide for such other officers and agent as
Chairman of the Board may be necessary and convenient
A chairman of the board of directors must considering the nature and needs of the
himself director be a director of the business. Their compensation is provided
corporation. His duty as presiding officer is for by the by-laws and the board of
not an executive one. It has been suggested directors in a suitable manner.
that he well be given advisory duties in
determining executive salaries, bonus plans Quorum – signifies the number of persons
and pensions, determining dividend policy, belonging to a corporation required to
selecting auditors, and dealing questions transact business.
with labor and company policy.
Section 25 of the Corporation Code
President requires more people than a simple
The president must be a director of the majority to form a quorum. If no such
corporation. The powers of the president of defining number is determined, a quorum is
a corporation are vested in him by law or a simple majority.
the by-laws; otherwise, he has no power
over the corporate property and business Directors cannot vote by proxy
than has any other director. However, he The directors cannot vote by proxy but
may be given actual authority to make must personally present, and act by
particular contracts, or to execute themselves.
conveyances, borrow money, execute
mortgages, and do other acts, by the Sec. 26. Report of election of directors,
charter, the by-laws, resolutions of trustees and officers. – Within thirty (30)
directors or their informal acquiescence. days after the election of the officers,
trustees and directors of the corporation,
Vice- President the secretary, or any other officer of the
In the absence of the president, or if the corporation shall submit to the Securities
office of the president becomes vacant, as a and Exchange Commission, the names,
rule, the vice president elected and nationalities and residences of the
appointed by the shareholders or directors directors, trustees and officers elected.
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Should a director, trustee or officer die, for the purpose, and in either case, after
resign or in any manner cease to hold previous notice to stockholders or members
office, his heirs in case of his death, the of the corporation of the intention to
secretary or any other officer of the propose such removal at the meeting. A
corporation, or the director, trustee or special meeting of the stockholders or
officer himself, shall immediately report members of the corporation for the
such fact to the Securities and Exchange purpose of removal of directors or trustees,
Commission. or any of them, must be called by the
secretary on order of the president or on
Sec. 27. Disqualification of directors, the written demand of the stockholders
trustees or officers. – No person convicted representing or holding at least a majority
by final judgement of an offense punishable of the outstanding capital stock, or, if it be a
by imprisonment for a period exceeding six non-stock corporation, on the written
(6) years, or a violation of this Code, demand of a majority of the members
committed within five (5) years prior to the entitled to vote. Should the secretary failed
date of his election or appointment, shall to refuse to call the special meeting upon
qualify as a director, trustee or officer of such demand, or fail or refuse to give the
any corporation. notice, or if there is no secretary, the call
for the meeting may be addressed directly
Sec. 27 of the Corporation Code is an to the stockholders or members of any by
additional safeguard that only upright and any stockholder or member of the
honest individuals be entrusted with corporation signing the demand. Notice of
management of the corporate affairs. the time and place of such meeting, as well
as the intention to propose such removal,
A director of a cooperative who is must be given by publication or by written
subsequently elected as member of the notice as prescribed in this Code. The
Sangguniang Panglungsod (City Council) vacancy resulting from removal pursuant to
becomes automatically disqualified from this section may be filled by election at the
continuing as such director by virtue of the same meeting without further notice, or at
clear mandate of PD No. 269 providing that any regular or at any special meeting called
except for “barrio captains and councillors” for the purpose after giving notice as
elective officials are ineligible to become prescribed in this Code. Removal may be
officers and/or directors of any cooperative. with or without cause: Provided, That
removal without cause may not be used to
The SEC ruled that firms engage in wholly or deprived minority stockholders or members
partially nationalized activities, aliens are of the right of representation to which they
banned from being appointed to may be entitled under Section 24 of this
management position such as president, Code.
vice-president, treasurer, auditor, secretary,
etc. of said companies. However, they can Directors or trustee may be removed even
be elected directors in preparation to their without cause
allowable participation or share in the The legislative policy is that the
capital of such activities, in accordance with shareholders shall be the ultimate masters,
the Commonwealth Act No. 108, as not the directors. The shareholders should
amended by PD 715, otherwise known as be clothed with the power of judging the
the Anti- Dummy Law. competency and fitness of the directors and
of choosing a board that will carry out of
Sec. 28. Removal of director or trustees. – their business policy.
Any director or trustee of the corporation
may be removed from office by a vote of Directors representing minority may not be
the stockholders holding or representing at removed without cause. The power to
least two- thirds (2/3) of the outstanding removed director or trustee even without
capital stock, or if the corporation be a non- cause given to shareholders or members
stock corporation , by a vote of at least two- may not be used to deprived minority
thirds (2/3) of the members entitled to shareholders or members of the right of
vote: Provided, That such removal shall take representation to which they may be
place either at a regular meeting of the entitled under Section 24 of the
corporation or at the special meeting called Corporation Code. Cumulative voting of
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necessary to constitute a quorum for with such officers or agents. (Yao Ka Sin
such meeting. Trading vs. Court of Appeals, G.R. No.
53820, June 15, 1992, citing Francisco vs.
2. That the vote of such director or GSIS, 7 SCRA 577)
trustee was not necessary for the
approval of the contract. Corporate president presumed to have
authority
3. That the contract is fair and reasonable As a strict rule, the corporate president has
under the circumstances. no inherent power to act for the
corporation, slowly giving way to realization
4. That in the case of an officer, the that such officer has certain limited powers
contract with the officer has been in the transaction of the usual and ordinary
previously authorized by the Board of business of the corporation. In the absence
Directors. of agreement or by law provision to the
contrary, the president is presumed to have
Where any of the first two conditions set the authority to act within the domain of
forth in the preceding paragraph is absent, the general of his or her usual duties.
in the case of a contract with a director or (People’s Aircargo, and Warehousing Co.,
trustee, such contract may be ratified by Inc. vs. Court of Appeals, G.R. No. 117847,
the vote of the stockholders representing Oct. 7, 1998)
at least two-thirds (2/3) of the outstanding
capital stock or of two-thirds (2/3) of the Sec. 33. Contracts between corporations
members in a meeting called for the with interlocking directors. – Except in
purpose: Provided, That full disclosure of cases of fraud, and provided the contract is
the adverse interest of the directors or fair and reasonable under the
trustees involved is made at such meeting: circumstances, a contract between two or
Provided, however, That the contract is fair more corporations having interlocking
and reasonable under the circumstances. directors shall not be invalidated on that
ground alone; Provided, That if the interest
Director disqualified to vote if he has of the interlocking director in one
personal interest corporation or corporations is merely
A director is disqualified to vote at a nominal, he shall be subject to the
meeting of the board if he has any personal provisions of the preceding section insofar
interest in a matter before the board; in as the latter corporation or corporations are
such case, his vote cannot be counted in concerned.
making up a quorum. Stockholdings exceeding twenty
percent (20%) of the outstanding capital
Disclosure of adverse interest by director stock shall be considered substantial for
It has been held that in dealing with their purposes of interlocking directors.
corporation the directors must make full
disclosure of all relevant facts or the Interlocking directors – Interlocking
transaction is voidable. The failure of a directors are persons who serve as member
director to inform his fellow directors of his of the board of directors of two or more
adverse bargaining position and other competing corporations or corporations
material circumstances should be seriously engaged in practically the same kind of
considered and inspected by the courts as business.
manner on the fairness and good faith of
the transaction and whether it is just and Effect of Corporate contracts with
reasonable as to the corporation. interlocking directors
Interlocking directors of corporations does
Exceptions in Signing contract without not make a contract between or among the
authority of Board of Directors is void corporations void and of no effect provided
If a private corporation intentionally or there in no fraud and reasonable under the
negligently clothed its officers or agents circumstances.
with apparent power to perform acts of it,
the corporation will be estopped to deny Sec. 34. Disloyalty of a director. – Where a
that such apparent authority is real, as to director, by virtue of his office, acquires for
innocent third persons dealing in good faith himself a business opportunity which
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should belong to the corporation, thereby majority vote of the board, except with
obtaining profits to the prejudice of such respect to: (1) approval of any action for
corporation, he must account to the latter which shareholders’ approval is also
for all such profits by refunding the same, required; (2) the filling of vacancies in the
unless his act has been ratified by a vote of board; (3) the amendment or repeal of by-
the stockholders owning or representing at laws or the adoption of new by-laws; (4) the
least two-thirds (2/3) of the outstanding amendment or repeal of any resolution of
capital stock. This provision shall be the board which by it express terms is not
applicable notwithstanding the fact that the so amenable or repealable; and (5) a
director risked his own funds in the venture. distribution of cash dividends to the
shareholders.
Duties of directors Sec. 36. Corporate powers and
Directors owe a three-fold duty to the capacity. – Every corporation incorporated
corporation. First, they must be obedient; under this Code has the power and
they owe a duty to keep within the powers capacity:
of the corporation as well as within those of
the board of directors. Second, they must 1. To sue and be sued in its corporation
be diligent; they owe a duty to exercise name.
reasonable care and prudence. The third
duty owing by directors is that of individual 2. Of succession by its corporate name for
loyalty. the period of time stated in the articles
of incorporation and the certificate of
Concept of “corporate or business incorporation.
opportunity.”
The doctrine of “corporate opportunity” is 3. To adopt and use a corporate seal.
but one phase of the cardinal rule of
undivided loyalty on the part of the 4. To amend its articles of incorporation in
fiduciaries. If there is a presented to a accordance with the provisions of this
corporate officer or director a business code.
opportunity which the corporation is 5. To adopt by-laws, not contrary to law,
financially able to undertake, is from its morals, or public policy, and to amend
nature, in the line of the corporation’s or repeal the same in accordance with
business and is of practical advantage to it, this Code.
is one in which the corporation will be
brought into conflict with that of his 6. In case of stock corporations, to issue or
corporation, the law will not permit him to sell stocks to subscribers and to sell
seize the opportunity for himself. treasury stocks in accordance with the
provisions of this code; and to admit
Director is a fiduciary. members to the corporation if it be a
He who is in such fiduciary position cannot non-stock corporation.
serve himself first and his cestuis
(beneficiary) second. He cannot manipulate 7. To purchase, receive, take or grant,
the affairs of his corporation to their hold, convey, sell, lease, pledge,
disadvantage and in disregard of the mortgage and otherwise deal with such
standards of common decency. He cannot real and personal property, including
by the intervention of a corporate entity securities and bonds of other
violate the ancient principle against serving corporations, as the transaction of the
two masters. lawful business of the corporation may
be reasonably and necessarily require,
Sec. 35. Executive Committee. – The by- subject to the limitations prescribed by
laws of a corporation may create an law and the Constitution.
executive committee, composed of not less
than three members of the board, to be 8. To enter into with other corporations
appointed by the board. Said committee merger or consolidation as provided in
may act, by majority vote of all its this code.
members, on such specific matters within
the competence of the board, as may be 9. To make reasonable donations,
delegated to it in the by-laws or on a including those for the public welfare or
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shown on the books of the corporation and incorporation. From and after approval by
deposited to the addressee in the post the Securities and Exchange Commission
office with postage prepaid, or served and the issuance by the Commission of its
personally. certificate of filing, the capital stock shall
stand increased or decreased and the
A certificate in duplicate must be signed by incurring, creating or increasing of any
a majority of the directors of the bonded indebtedness authorized, as the
corporation and countersigned by the certificate of filing may declare: Provided,
chairman and secretary of the stockholders’ That the Securities and Exchange
meeting, setting forth: Commission shall not accept for filing any
certificate of increase of capital stock unless
1. That the requirements of this section accompanied by the sworn statement of
have been complied with. the Treasurer of the corporation lawfully
holding office at the time of the filing of the
2. The amount of the increase or certificate, showing that at least twenty-five
diminution of the capital stock. percent (25%) of such increased capital
stock has been subscribed and that at least
3. If an increase of the capital stock, the twenty-five percent (25%) of the amount
amount of capital stock or number of subscribed has been paid either in actual
shares of no-par stock thereof actually cash to the corporation or that there has
subscribed, the names, nationalities been transferred to the corporation
and residences of the persons property the valuation of which is equal to
subscribing, the amount of capital stock twenty-five percent (25%) of the
or number of shares of no-par stock subscription: Provided, further, That no
subscribed by each, and the amount decrease of the capital stock shall be
paid by each on his subscription in cash approved by the Commission, if its effect
or property, or the amount of capital shall prejudice the rise of corporate
stock or number of shares of no-par creditors.
stock allotted to each stockholder if Non-stock corporations may incur or create
such increase is for the purpose of bonded indebtedness, or increase the
making effective stock dividend same, with the approval by a majority vote
therefor authorized. of the board of trustees and of at least two-
thirds (2/3) of the members in a meeting
4. Any bonded indebtedness to be duly called for the purpose.
incurred, created, or increased.
Bonds issued by a corporation shall be
5. The actual indebtedness of the registered with the Securities and Exchange
corporation on the day of the meeting. Commission, which shall have the authority
to determine the sufficiency of the terms
6. The amount of the stock represented at thereof.
the meeting.
Bonds – Bonds are in form and effect similar
7. The vote authorizing the increase or to promissory notes, secured by mortgage
diminution of the capital stock, or the or trust deed upon specified property of the
incurring, creating or increasing of any debtor corporation.
bonded indebtedness.
Properties to a bond
Any increase or decrease in the capital Every bond issue usually involve three
stock or the incurring, creating or increasing parties: (1) the debtor – corporation; (2) the
of any bonded indebtedness shall require creditor – bondholder; and (3) the trustee.
prior approval of the Securities and
Exchange Commission. Bonds classified
Bonds are classified into: coupon or
One of the duplicate certificate shall be registered bonds, mortgage bonds,
kept on file in the office of the corporation debentures, convertible bonds,
and the other shall be filed with the participating bonds, collateral trust bands,
Securities and Exchange Commission and and guaranteed bonds.
attached to the original articles of
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Sec. 39. Power to deny pre-emptive right. – A sale or other disposition shall be
All stockholders of a stock corporation shall deemed to cover substantially all the
enjoy pre-emptive right to subscribe to all corporate property and assets if thereby
issues or disposition of shares of any class, the corporation would be rendered
in proportion to their respective incapable of continuing the business or
shareholdings, unless such right is denied accomplishing the purpose for which it was
by the articles of incorporation or an incorporated.
amendment thereto: Provided, That such
pre-emptive right shall not extend to shares After such authorization or
to be issued in compliance with laws approval by the stockholders or members,
requiring stock offerings or minimum stock the board of directors or trustees may,
ownership by the public; or to shares to be nevertheless, in its discretion, abandon
issued in good faith with the approval of the such sale, lease, exchange, mortgage,
stockholders representing two-thirds (2/3) pledge or other disposition of property and
of the outstanding capital stock, in assets, subject to the rights of third parties
exchange for property needed for corporate under any contract relating thereto,
purposes or in payment of a previously without further action or approval by the
contracted debt. stockholders or members.
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natural resources may be entered into for deprive either the corporation or the other
such periods as may be provided by the part of money or property acquired under
pertinent laws or regulations. the contract. On the other hand, the great
weight of authority is to consider executor
Concept of management contract
A management contract is an agreement contracts as unenforceable.
under which the board of directors of a
corporation delegates the powers of Ultra vires contracts accepted doctrines
management to another person or 1. If the contract is fully executed on both
corporation for a period of time provided sides, the contract is effective and the
for in the agreement. courts will not interfere to deprive
either part of what has been acquired
Effects of Management contracts
Contracts by which the board of directors under it.
delegates the power of supervision and 2. If the contract is executor on both sides,
management to another person or as a rule either party can maintain an
corporation for a specified period are action for its non-performance.
invalid if they involve a surrender by the 3. Where the contract is executor on side
board of its power and duty of supervision only, and has been fully performed on
and control.
the other, the courts differ as whether
Management prerogatives an action will lie on the contract against
An owner of a business enterprise is given the party who has received benefits of
considerable margin in managing his performance under it. Majority of the
business because it is deemed important to courts hold that the party who has
society as a whole that he should succeed. received benefits from the performance
is stopped” to set up that the contract
Sec. 45. Ultra vires acts of corporations. –
us ultra vires to defeat an action on the
No corporation under this Code shall
contract. There is, however, a rule
possess or exercise any corporate powers
which is widely recognized by the
except those conferred by this Code or by
courts that ultra vires. “Should not be
its articles of incorporation and except such
allowed to prevail, when involved for or
as are necessary or incidental to the
against the corporation, where it will
exercise of the powers so conferred.
defeat the ends of justice or work a
legal wrong.
Intra vires – The acts of a corporation within
its express or implied powers.
Acts which are ultra vires are voidable but
Ultra vires – The acts of a corporation
may be ratified. In order that such ultra
outside its express or implied powers.
vires may be ratified it must be shown that
1. The act was consummated or executed.
It denotes some act or transaction on the
2. No creditors are prejudiced or they
part of a corporation which, although not
have given their consent thereto.
unlawful or contrary to public policy of
3. The right of the public or the state are
executed by an individual, is yet beyond the
not involved.
legitimate powers of the corporation as
4. All of the stockholders consent thereto.
they are defined by the statute under which
it is formed, or which are applicable to it, or
A corporation, like an individual, may ratify
by its charter or incorporation papers.
and thereby render binding upon it the
originally authorized acts of its officers or
Admittedly, if the contract is executed on
other agents. This is true because the
both sides neither party can maintain an
questioned investment is neither contrary
action to set aside the transaction or to
to law, morals, public order or public policy.
recover what has been parted with. The
It is a corporate transaction or contract
courts will not interfere in such a case to
which is within the corporate powers but
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which is defective from a purported failure the appropriate government agency to the
to observe in its execution the requirement effect that such by-laws or amendments are
of the law that the investment must be in accordance with law.
authorized by the affirmative vote of the
Necessity of by-laws
stockholders holding 2/3 of the voting The corporation must adopt the code of by-
power. laws for its internal government.
Sec. 46. by-laws Adoption. – Every Corporation has inherent power to adopt
corporation formed under this code, must, by-laws
within one month after receipt of official One of its legal incidents and is usually
notice of the issuance of its certificate of expressly granted by law of the charter
incorporation by the Securities and subject to such limitations as may be
Exchange Commission, adopt a new code of contained in the statute or the charter,
by-laws for its government not inconsistent subject to such limitations as may be
with this code. For the adoption of by-laws contained in the statute or charter, and the
by the corporation the affirmative vote of general requirements of validity. If a
the stockholders representing at least a corporation fails to file its by-laws within
majority of the outstanding capital stock, or the period required by law its certificate of
of at least a majority of the outstanding incorporation may be suspended or even
capital stock, or of at least a majority of the revoked.
members, in the case of non-stick
corporations, shall be necessary. The by- Section 46 allows the adoption and filing of
laws shall be signed by the stockholders or the by-laws before incorporation provided
members voting for them and shall be kept the same is approved by all the
in the principal office of the corporation, incorporators and submitted to the
subject to the inspection of the Securities and Exchange Commission
stockholders or members during office together with the articles of incorporation.
hours; and a copy thereof, duly certified to
by a majority of the directors or trustees By-laws cannot provide for unreasonable
and countersigned by the secretary of the restriction
corporation, shall be filed with the Restriction upon the traffic in stock must
Securities and Exchange Commission which have their source in legislative enactment,
shall be attached to the original articles of as the corporation itself cannot create such
incorporation. impediments. By-laws are created for
protection and not for restriction.
Notwithstanding the provisions of the
preceding paragraph, by-laws may be Elements of valid by-laws
adopted and filed prior to incorporation; in 1. Must not be inconsistent with the
such case, such by-laws shall be approved general law and the Corporation Code.
and signed by all the incorporators and 2. Must not be inconsistent with public
submitted to the Securities and Exchange policy.
Commission, together with the articles of 3. Must be general in application and not
incorporation. directed against particular individuals.
4. Must not be inconsistent with the
In all cases, by-laws shall be effective only articles of incorporation.
upon the issuance by the Securities and 5. Must not impair obligations and
Exchange Commission of a certification that contracts.
the by-laws are not inconsistent with the 6. Must not be in restraint of trade.
Code. 7. Must not restrict religious freedom.
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8. The penalties for violation of the by- Amender or new by-laws shall only be
laws. effective upon the issuance by the SEC of a
certification that the same are not
9. In the case of stick corporations, the inconsistent with this code.
manner of issuing stock certificates.
The authority to make or adopt the original
10. Such other matter as may be necessary by-laws of a corporation cannot be given to
for the proper or convenient the board of directors or trustees. The
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Sec. 53. Regular of special meetings of A person who appears on the books of a
directors or trustees. – The meetings shall corporation or otherwise as the absolute
be held monthly, unless the by-laws provide owner of stock clearly has the right to
otherwise. vote, although in face he may hold it as
trustee.
Special meetings of the board of directors
or trustees may be held at any time upon Executor and administrator has the right, to
the call of the president or as provided in vote shares belonging to the estate of his
the by-laws decedent, and it can make no difference
that the share stand on the books of the
Meetings of directors or trustees of corporation in the name of the decedent.
corporations may be held anywhere in or
outside of the Philippines, unless the by- Sec. 56. Voting in case of joint ownership
laws provide otherwise. Notice of regular or of stock. – In case of share of stock owned
special meetings stating the date, time and jointly by 2 or more persons, in order to
place of the meeting must be sent to every vote the same, the consent of all the co-
director or trustee at least 1 day prior to the owners shall be necessary, unless there is a
scheduled meeting, unless otherwise written proxy, signed by all the co-owners.
provided in the by-laws. A director or Authorizing one or some of them or any
trustee may waive this requirement, either other person to vote such share or shares:
expressly or impliedly. provided, that when the shares are owned
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2. Absolute Subscription – one not subject Sec. 62. Considering for stocks. – Stocks
to any condition or happening of shall not be issued for a consideration less
certain unknown events. than the par or issued price thereof.
3. Conditional Subscription – its fulfillment Consideration for the issuance of stock may
depends upon the happening of be any or a combination of any two or more
uncertain events of contingencies. It of the following:
does not make the subscriber a
stockholder or render him liable to pay 1. Actual cash paid to the corporation.
the amount of the subscription, until
performance or fulfillment of the 2. Property, tangible or intangible, actually
condition. received by the corporation and
4. Subscription upon special terms – where necessary or convenient for its use and
“the corporation agreed, as an lawful purposes at a fair valuation equal
independent element, to do a certain to the par or issued value of the stock
thing or things, but not as condition to issued.
the accrual of liability of the subscriber
or the acquisition of the rights of a 3. Labor performed for or services actually
stockholder. rendered to the corporation.
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action in a court of proper jurisdiction the SEC. 72 Before unpaid shares become
amount due on any unpaid subscription, delinquent, the holder thereof is not
with accrued interest, costs and expenses. considered to have violated any contract
with the corporation, and, therefore, he has
As a general rule, a corporation may not all the rights of a stockholder which rights
maintain a suit for the enforcement of include the right to vote.
unpaid subscription without first making a
call. Sec. 73. Lost or destroyed certificates. –
The following procedure shall be followed
Judicial remedy is limited to the amount for the issuance by a corporation of new
due on any unpaid subscription with certificates of stock in lieu of those which
accrued interest, costs and expenses have been lost, stolen or destroyed:
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form and with such sureties as may be every act done or ordered done at the
satisfactory to the board of directors, in meeting. Upon the demand of any director,
which case a new certificate may be trustee, stockholder or member, the time
issued even before the expiration of the when any director, trustee, stockholder or
one (1) year period provided herein: member entered or left the meeting must
Provided, That if a contest has been be noted in the minutes; and on a similar
presented to said corporation or if an demand, the yeas and nays must be taken
action is pending in court regarding the on any motion or proposition, and a record
ownership of said certificate of stock thereof carefully made. The protest of any
which has been lost, stolen or director, trustee, stockholder or member on
destroyed, the issuance of the new any action or proposed action must be
certificate of stock in lieu thereof shall recorded in full on his demand. The records
be suspended until the final decision by of all business transactions of the
the court regarding the ownership of corporation and the minutes of any
said certificate of stock which has been meetings shall be open to inspection by any
lost, stolen or destroyed. director, trustee, stockholder or member of
the corporation at reasonable hours on
Except in case of fraud, bad faith, or business days and he may demand, writing,
negligence on the part of the corporation for a copy of excerpts from said records or
and its officers, no action may be brought minutes, at his expense.
against any corporation which shall have
issued certificate of stock in lieu of those Any officer or agent of the corporation who
lost, stolen or destroyed pursuant to the shall refuse to allow any director, trustees,
procedure above-described. stockholder or member of the corporation
to examine and copy excerpts from its
SEC. 73 The registered owner of certificates records or minutes, in accordance with the
of stock in a corporation or his legal provisions of this Code, shall be liable to
representative shall file with the such director, trustee, stockholder or
corporation an affidavit setting forth how member for damages, and in addition, shall
certificate were lost, stolen or destroyed, be guilty of an offense which shall be
the number of shares represented by each punishable under Section 144 of this Code:
certificate, the serial numbers of the Provided, That if such refusal is made
certificate and name of the corporation pursuant to a resolution or order of the
which issued the same. board of directors or trustees, the liability
under this section for such action shall be
The affidavit shall be verified imposed upon the directors or trustees who
Corporation shall publish a notice in a voted for such refusal: and Provided,
newspaper in general circulation published further, That it shall be a defense to any
in the place where the corporation has its action under this section that the person
principal office for 3 consecutive weeks. demanding to examine and copy excerpts
from the corporation's records and minutes
After 1 year from the date of the last has improperly used any information
publication, if no contest presented to the secured through any prior examination of
corporation, corporation shall cancel in the the records or minutes of such corporation
books the lost certificates and issue new or of any other corporation, or was not
certificates. acting in good faith or for a legitimate
purpose in making his demand.
Sec. 74. Books to be kept; stock transfer
agent. – Every corporation shall keep and Stock corporations must also keep a book to
carefully preserve at its principal office a be known as the "stock and transfer book",
record of all business transactions and in which must be kept a record of all stocks
minutes of all meetings of stockholders or in the names of the stockholders
members, or of the board of directors or alphabetically arranged; the installments
trustees, in which shall be set forth in detail paid and unpaid on all stock for which
the time and place of holding the meeting, subscription has been made, and the date
how authorized, the notice given, whether of payment of any installment; a statement
the meeting was regular or special, if special of every alienation, sale or transfer of stock
its object, those present and absent, and made, the date thereof, and by and to
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whom made; and such other entries as the 1. Certificated changing the
by-laws may prescribe. The stock and composition of the board of
transfer book shall be kept in the principal directors and officers
office of the corporation or in the office of 2. Certificates changing the ownership
its stock transfer agent and shall be open of the controlling interest in the
for inspection by any director or corporation
stockholder of the corporation at
reasonable hours on business days. Management contracts duly approved by
the stockholders.
No stock transfer agent or one engaged
principally in the business of registering Sec. 75. Right to financial statements. –
transfers of stocks in behalf of a stock Within ten (10) days from receipt of a
corporation shall be allowed to operate in written request of any stockholder or
the Philippines unless he secures a license member, the corporation shall furnish to
from the Securities and Exchange him its most recent financial statement,
Commission and pays a fee as may be fixed which shall include a balance sheet as of the
by the Commission, which shall be end of the last taxable year and a profit or
renewable annually: Provided, That a stock loss statement for said taxable year,
corporation is not precluded from showing in reasonable detail its assets and
performing or making transfer of its own liabilities and the result of its operations.
stocks, in which case all the rules and
regulations imposed on stock transfer At the regular meeting of stockholders or
agents, except the payment of a license fee members, the board of directors or trustees
herein provided, shall be applicable. shall present to such stockholders or
members a financial report of the
Books and records to be kept by operations of the corporation for the
Corporation preceding year, which shall include financial
1. Record of all business transactions statements, duly signed and certified by an
2. Minutes of all meetings of stockholders independent certified public accountant.
or members, or of board of directors or
trustees However, if the paid-up capital of the
3. Stock and transfer books corporation is less than P50,000.00, the
4. Optional records and supplementary financial statements may be certified under
books as many be necessary or required oath by the treasurer or any responsible
by special laws officer of the corporation.
SEC Rules requiring filing of documents. The Stockholder’s rights to financial statements
SEC requires all corporations whose and reports
securities are listed in any stock exchange 1. Balance sheet as of the end of the last
or with permits to sell shares to the public taxable year.
or with twenty or more stockholders shall 2. A profit and loss statement for said
hereafter submit to this Commission within taxable year.
thirty (30) days after approval of the 3. The board of directors or trustees shall
corporate action, certified true copies of present “a financial report” to
the following documents evidencing the stockholders or members.
same, to wit:
a. Minute of meetings SEC REPORTORIAL REQUIREMENTS
1. Calling for payment of unpaid Period Requirements
subscriptions Within 30 days from a) Set up books of
2. Increasing or decreasing the capital registration of accounts duly
stock articles onaf registered with the
3. Changing the nomenclature of incorporation BIR wherein receipts
shares of stock or certificates of and disbursements
indebtedness made are
4. Authorizing the borrowing of immediately
material sums of money recorded.
b. Other documents, such as:
b) Set up and
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constituent corporation at least two (2) corporation, as the case may be.
weeks before said hearing. The Commission Neither the rights of creditors nor any
shall thereafter proceed as provided in this lien upon the property of any of such
Code. constituent corporations shall be
impaired by such merger or
Sec. 80. Effects of merger or consolidation. consolidation.
– The merger or consolidation, as provided
in the preceding sections shall have the Steps to achieve merger or consolidation
following effects: 1. The BoD of each corporation must draw
up a plan of merger or consolidation.
1. The constituent corporations shall 2. A plan must be submitted to the S/M of
become a single corporation which, in each corporation for approval. The vote
case of merger, shall be the surviving or two-thirds (members) or two-thirds
corporation designated in the plan of of the outstanding capital stock
merger; and, in case of consolidation, (stockholders) would be required.
shall be the consolidated corporation 3. There has to be a formal agreement
designated in the plan of consolidation. known as the articles of M/C by the
officers of each of the constituent
2. The separate existence of the corporations.
constituent corporations shall cease, 4. The articles of M/C must be submitted
except that of the surviving or the to the SEC for approval.
consolidated corporation. 5. The SEC shall if it deems necessary set a
hearing giving notice to all corporations
3. The surviving or the consolidated concerned.
corporation shall possess all the rights, 6. The SEC issues the certificate of M/C.
privileges, immunities and powers and The M/C becomes effective upon the
shall be subject to all the duties and issuance of the corresponding
liabilities of a corporation organized certificate.
under this Code.
Remedy of creditors of constituent
4. The surviving or the consolidated corporations
corporation shall thereupon and The only remedy is either against the united
thereafter possess all the rights, corporation, or to pursue the assets of the
privileges, immunities and franchises of constituents into its hands on the ground of
each of the constituent corporations; fraudulent conveyance.
and all property, real or personal, and
all receivables due on whatever Sec. 81. Instances of appraisal right. – Any
account, including subscriptions to stockholder of a corporation shall have the
shares and other chooses in action, and right to dissent and demand payment of the
all and every other interest of, or fair value of his shares in the following
belonging to, or due to each constituent instances:
corporation, shall be taken and deemed
to be transferred to and vested in such 1. In case any amendment to the articles
surviving or consolidated corporation of incorporation has the effect of
without further act or dead. changing or restricting the rights of any
stockholders or class of shares, or of
5. The surviving or consolidated authorizing preferences in any respect
corporation shall be responsible and superior to those of outstanding shares
liable for all the liabilities and of any class, or of extending or
obligations of each of the constituent shortening the term of corporate
corporations in the same manner as if existence.
such surviving or consolidated
corporation had itself incurred such 2. In case of sale, lease, exchange,
liabilities or obligations; and any claim, transfer, mortgage, pledge or other
action or proceeding pending by or disposition of all or substantially all of
against any of such constituent the corporate property and assets as
corporations may be prosecuted by or provided in this Code.
against the surviving or consolidated
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Sec. 85. Who bears costs of appraisal. – The important thing to consider in arriving
The costs and expenses of appraisal shall be at the appraisal value is whether the
borne by the corporation, unless the fair valuation arrived at is fair, just and
value ascertained by the appraisers is reasonable to all parties concerned.
approximately the same as the price which
the corporation may have offered to pay Other instances when appraisal right may
the stockholder, in which case they shall be be granted
borne by the latter. In case of an action to 1. Amendment of “any provision or matter
recover such fair value, all costs and stated in the articles of incorporation.”
expenses shall be assessed against the 2. When the corporate term is extended.
corporation, unless the refusal of the 3. Any purpose other than the primary
stockholder to receive payment was purpose.
unjustified. 4. Close corporation – a stockholder may
compel the corporation to purchase FV
Consideration of the costs of appraisal “for any reasons.”
Expenses of appraisal: Exercise of appraisal right provided
Appraisers’ fees compensatory alternative to investor
Attorneys’ fees Appraisal statutes extending to corporate
Expert accountants’ fees purpose or duration amendments would
Witnesses before the appraisers’ seem to be of limited value.
fees
Thus, clarifies an otherwise delicate aspect Appraisal rights cannot challenge this power
of appraisal proceeding. but they can provide a compensatory
alternative to an investor faced with a loss
Sec. 86. Notation on certificate(s); right of of existing stock rights and should be so
transferee. – Within ten (10) days after employed.
demanding payment for his shares, a
dissenting stockholder shall submit the When right of stockholder to payment
certificate(s) of stock representing his ceases
shares to the corporation for notation 1. The demand for payment is withdrawn
thereon that such shares are dissenting with the consent of the corporation.
shares. His failure to do so shall, at the 2. The proposed corporate action is
option of the corporation, terminate his abandoned or rescinded by the
rights under this Title. If shares represented corporation.
by the certificate(s) bearing such notation 3. Proposed action is disapproved by the
are transferred, and the certificate(s) SEC where such approval is necessary.
consequently cancelled, the rights of the 4. Such stockholder is not entitled to
transferor as a dissenting stockholder under exercise his appraisal right.
this Title shall cease and the transferee shall
have all the rights of a regular stockholder; Sec. 87. Definition. – For the purposes of
and all dividend distributions which would this Code, a non-stock corporation is one
have accrued on such shares shall be paid where no part of its income is distributable
to the transferee. as dividends to its members, trustees, or
officers, subject to the provisions of this
Valuation of shares of dissenting Code on dissolution: Provided, That, any
shareholders profit which a non-stock corporation may
Appraisers should consider the elements obtain as an incident to its operation shall,
that tend to affect market quotations: whenever necessary or proper, be used for
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the furtherance of the purpose or purposes under such conditions which may be,
for which the corporation was organized, prescribed by, the Securities and Exchange
subject to the provisions of this Title. Commission.
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Sec.93. Place of meetings. – The by-laws 1. All liabilities and obligations of the
may provide that the members of a non- corporation shall be paid, satisfied and
stock corporation may hold their regular or discharged, or adequate provision shall
special meetings at any place even outside be made therefore.
the place where the principal office of the
corporation is located: Provided, That 2. Assets held by the corporation upon a
proper notice is sent to all members condition requiring return, transfer or
indicating the date, time and place of the conveyance, and which condition
meeting: and Provided, further, That the occurs by reason of the dissolution,
place of meeting shall be within the shall be returned, transferred or
Philippines. conveyed in accordance with such
requirements.
Supporting papers required to be
submitted to the Securities and Exchange 3. Assets received and held by the
Commission: corporation subject to limitations
1. LETTER OF UNDERTAKING addressed to permitting their use only for charitable,
the Commission signed by at least a religious, benevolent, educational or
majority of the incorporators or by a similar purposes, but not held upon a
duly authorized representative, to the condition requiring return, transfer or
effect that the association will change conveyance by reason of the
its corporate name in the event another dissolution, shall be transferred or
person, firm or entity has acquired a conveyed to one or more corporations,
prior right to use the same name or societies or organizations engaged in
similar to it. (3 copies) activities in the Philippines substantially
2. MODUS OPERANDI or a detailed similar to those of the dissolving
explanation as to how the association corporation according to a plan of
shall carry out its objectives signed by distribution adopted pursuant to this
atleast a majority of the incorporators Chapter.
or by a duly authorized representative.
(3 Copies) 4. Assets other than those mentioned in
3. RESOLUTION of the Board signed by the preceding paragraphs, if any, shall
atleast a majority of the Directors or be distributed in accordance with the
certified under oath by the Secretary in provisions of the articles of
the following tenor to wit: (3 Copies) incorporation or the by-laws, to the
extent that the articles of incorporation
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stockholders of the corporation rather than identity and personality of each shareholder
by a board of directors. So long as this are important to his associates, so that
provision continues in effect: although they may consider their business
as corporation in their dealings with third
1. No meeting of stockholders need be persons, among themselves the
called to elect directors. stockholders act and feel as partners.”
2. Unless the context clearly requires Entities which may not be organized as
otherwise, the stockholders of the close corporations
corporation shall be deemed to be Mining or oil companies
directors for the purpose of applying Stock exchanges
the provisions of this Code. Banks
Insurance companies
3. The stockholders of the corporation Public utilities
shall be subject to all liabilities of Educational institutions
directors. Corporations declared to be vested
with public interest
The articles of incorporation may likewise
provide that all officers or employees or Stockholders authorized to manage close
that specified officers or employees shall be corporations
elected or appointed by the stockholders, As a rule, management of stock corporation
instead of by the board of directors. is normally given to board of directors or
trustees. However, the Corporation Code
Requisites of Close Corporation provides: “The articles of incorporation of a
Within the meaning of a close corporation close corporation may provide that the
under the Corporation Code the following business of the corporation shall be
are its attributes: managed by the stockholders of the
1. Its stockholders are limited not corporation rather than by a board of
exceeding 20 persons. directors.” Also, “The articles of
2. Its shares of stock are subject to one or incorporation may likewise provide that all
more restrictions on transfer. officers or employees or that specified
3. Its shares of stock are not listed in any officers or employees shall be elected or
stock exchange. appointed by the stockholders, instead of by
the board of directors.”
Salient Feature of Close Corporations
1. It has only a few stockholders, who if Sec. 98. Validity of restrictions on transfer
not related by blood or marriage, know of shares. – Restrictions on the right to
each other well and are aware of each transfer shares must appear in the articles
other’s business skills. of incorporation and in the by-laws as well
2. All or more of them are active in the as in the certificate of stock; otherwise, the
corporate business, either as directors, same shall not be binding on any purchaser
officers or as key men in management. thereof in good faith. Said restrictions shall
3. The stocks of the corporation are not not be more onerous than granting the
listed on the exchange nor is there existing stockholders or the corporation the
trading in them outside the stock option to purchase the shares of the
market. transferring stockholder with such
*It would seem that base on these reasonable terms, conditions or period
features many corporations in the stated therein. If upon the expiration of said
Philippines would be close period, the existing stockholders or the
corporations. corporation fails to exercise the option to
purchase, the transferring stockholder may
Reasons for formation of close sell his shares to any third person.
corporations
“The existence of close corporations can be Sec. 99. Effects of issuance or transfer of
attributed to the desire of intimate groups stock in breach of qualifying conditions. –
of business associates to obtain the 1. If stock of a close corporation is issued
advantages of a corporate organization, like or transferred to any person who is not
that of limited liability. However, the entitled under any provision of the
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Rule and Exceptions when board meeting 2. Canceling, altering or enjoining any
unnecessary resolution or act of the corporation or
General Rule: the directors of a corporation its board of directors, stockholders, or
cannot act individually or separately in officers.
order to bind the corporation. They must
act as a board at a meeting duly called for 3. Directing or prohibiting any act of the
the purpose. corporation or its board of directors,
Exception: Section 101. It enumerates the stockholders, officers, or other persons
instances when a board at a meeting is party to the action.
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4. Requiring the purchase at their fair provided either for directorial disputes or
value of shares of any stockholder, for stockholder disputes. Although there
either by the corporation regardless of are some disadvantages of arbitration
the availability of unrestricted retained proceedings, nevertheless, the advantages
earnings in its books, or by the other of arbitration, in saving both money and
stockholders. hard feelings, would seem to outweigh the
disadvantages in most cases.
5. Appointing a provisional director.
Provisional director and SEC supervised
6. Dissolving the corporation. management
In accordance with Section 104, the SEC
7. Granting such other relief as the may in case of deadlocks in the close
circumstances may warrant. corporation appoint a provisional director.
“A provisional director shall be an impartial
A provisional director shall be an impartial person who is neither a stock-holder nor a
person who is neither a stockholder nor a creditor of the corporation and whose other
creditor of the corporation or of any qualifications, may be determined by the
subsidiary or affiliate of the corporation, SEC.”
and whose further qualifications, if any,
may be determined by the Commission. A Under Section 2 (Pres Decree No. 1653), the
provisional director is not a receiver of the SEC has the power “to create and appoint a
corporation and does not have the title and management committee, board, or body to
powers of a custodian or receiver. A undertake the management of
provisional director shall have all the rights corporations, partnership or other
and powers of a duly elected director of the associations in appropriate cases wherein
corporation, including the right to notice of there is imminent danger or dissipation,
and to vote at meetings of directors, until loss or wastage or destruction of assets or
such time as he shall be removed by order other properties or paralization of business
of the Commission or by all the operations of such corporations or entities
stockholders. His compensation shall be prejudicial to the interest of the minority,
determined by agreement between him party-litigants or the general public.”
and the corporation subject to approval of
the Commission, which may fix his Sec. 105. Withdrawal of stockholder or
compensation in the absence of agreement dissolution of corporation. – In addition
or in the event of disagreement between and without prejudice to other rights and
the provisional director and the remedies available to a stockholder under
corporation. this Title, any stockholder of a close
corporation may, for any reason, compel
Deadlock – Deadlock signifies a standstill in the said corporation to purchase his shares
the management of the corporate affairs at their fair value, which shall not be less
resulting from the evenly divide action of than their par or issued value, when the
directors or stockholders in a close corporation has sufficient assets in its books
corporation. to cover its debts and liabilities exclusive of
capital stock: Provided, That any
In the event of deadlocks SEC may stockholder of a close corporation may, by
arbitrate written petition to the Securities and
In the event of a deadlock in a close Exchange Commission, compel the
corporation, the SEC has the power to dissolution of such corporation whenever
arbitrate the deadlock “upon written any of acts of the directors, officers or those
petition of any stockholder.” In close in control of the corporation is illegal, or
corporations that are subject to a checks fraudulent, or dishonest, or oppressive or
and balances system because of control unfairly prejudicial to the corporation or
devices there are bound to be deadlocks, any stockholder, or whenever corporate
and some steps must be taken to cope with assets are being misapplied or wasted.
them. Many of the problems that arise can
be settled by arbitration, Arbitration (the • Appraisal rights in regular corporations
determination of a matter of difference can be opted by the dissenting stockholder
between contending parties) may be only in cases where the fundamental
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The articles of incorporation may include as said court may have directed, and that it
any other provision not contrary to law for is to the interest of the corporation that
the regulation of the affairs of the leave to sell or mortgage should be granted.
corporation. The application for leave to sell or mortgage
must be made by petition, duly verified, by
Sec. 112. Submission of the articles of the chief archbishop, bishop, priest,
incorporation. – The articles of minister, rabbi or presiding elder acting as
incorporation must be verified, before corporation sole, and may be opposed by
filing, by affidavit or affirmation of the chief any member of the religious denomination,
archbishop, bishop, priest, minister, rabbi sect or church represented by the
or presiding elder, as the case may be, and corporation sole: Provided, That in cases
accompanied by a copy of the commission, where the rules, regulations and discipline
certificate of election or letter of of the religious denomination, sect or
appointment of such chief archbishop, church, religious society or order concerned
bishop, priest, minister, rabbi or presiding represented by such corporation sole
elder, duly certified to be correct by any regulate the method of acquiring, holding,
notary public. selling and mortgaging real estate and
personal property, such rules, regulations
From and after the filing with the Securities and discipline shall control, and the
and Exchange Commission of the said intervention of the courts shall not be
articles of incorporation, verified by necessary.
affidavit or affirmation, and accompanied
by the documents mentioned in the Filling of vacancies
preceding paragraph, such chief archbishop, Sec. 114. Filling of vacancies. – The
bishop, priest, minister, rabbi or presiding successors in office of any chief archbishop,
elder shall become a corporation sole and bishop, priest, minister, rabbi or presiding
all temporalities, estate and properties of elder in a corporation sole shall become the
the religious denomination, sect or church corporation sole on their accession to office
theretofore administered or managed by and shall be permitted to transact business
him as such chief archbishop, bishop, priest, as such on the filing with the Securities and
minister, rabbi or presiding elder shall be Exchange Commission of a copy of their
held in trust by him as a corporation sole, commission, certificate of election, or
for the use, purpose, behalf and sole letters of appointment, duly certified by any
benefit of his religious denomination, sect notary public.
or church, including hospitals, schools,
colleges, orphan asylums, parsonages and During any vacancy in the office of chief
cemeteries thereof. archbishop, bishop, priest, minister, rabbi
or presiding elder of any religious
Need for by-laws denomination, sect or church incorporated
No need for by-laws since the business as a corporation sole, the person or persons
is conducted by only one man. authorized and empowered by the rules,
regulations or discipline of the religious
Power to acquire and alienate property denomination, sect or church represented
Sec. 113. Acquisition and alienation of by the corporation sole to administer the
property. – Any corporation sole may temporalities and manage the affairs,
purchase and hold real estate and personal estate and properties of the corporation
property for its church, charitable, sole during the vacancy shall exercise all the
benevolent or educational purposes, and powers and authority of the corporation
may receive bequests or gifts for such sole during such vacancy.
purposes. Such corporation may sell or
mortgage real property held by it by Dissolution
obtaining an order for that purpose from Sec. 115. Dissolution. – A corporation sole
the Court of First Instance of the province may be dissolved and its affairs settled
where the property is situated upon proof voluntarily by submitting to the Securities
made to the satisfaction of the court that and Exchange Commission a verified
notice of the application for leave to sell or declaration of dissolution.
mortgage has been given by publication or
otherwise in such manner and for such time
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4. The names and addresses of the 4. That the religious society or religious
persons who are to supervise the order, or diocese, synod, or district
winding up of the affairs of the organization desires to incorporate for
corporation. the administration of its affairs,
properties and estate.
Upon approval of such declaration of
dissolution by the Securities and Exchange 5. The place where the principal office of
Commission, the corporation shall cease to the corporation is to be established and
carry on its operations except for the located, which place must be within the
purpose of winding up its affairs. Philippines.
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places like the bulletin board of a municipal corporation for every infraction, the
hall, post office, the plaza and then the SEC infraction must be serious, because
will set that for hearing and determine w/n dissolution is imposing the death penalty
the corporation should be dissolved. upon the corporation.
The third one you will just shorten the The Court said the employees of a railroad
corporate life and this is the simplest and are required to wear uniform indicating
fastest way of dissolving the corporation their positions in their nameplate, now tell
voluntarily like when Ford Philippines me if one employee did not have such a
decided to close its subsidiary they simply nameplate you are going to dissolve a
amended the articles of corporation that corporation because that is a legal
the corporation will exist until December requirement?
31, 1978. It has to be a serious violation! But in one
The SEC will require getting a tax clearance case, the SC dissolved a corporation which
from the BIR and the stockholders will be was engaging in banking without
required to sign an undertaking that they authorization from the monetary board, it
will answer for the claim of the creditors to was accepting deposits from the public, the
the extent of the liquidating dividends they court considered that as a serious violation.
will receive. When a minority stockholder files a case
Then you can have an involuntary and asks to dissolve the corporation, the
dissolution. This could be done by filing a court said that that is a harsh remedy unless
quo warranto case under rule 66 of the ROC the situation is really beyond redemption
on the ground mentioned there or a you should not impose that remedy.
corporation can be dissolved for certain The corporation has three years after it
violation of the corporation code as should have been dissolved for the purpose
mentioned in the Corporation Code or PD of winding up its affairs. The SEC has said
902-A and also a minority stockholder may the three year period should be counted
file a petition to dissolve the corporation from the time the dissolution was approved
where the majority is mismanaging the by the SEC even if the directors and
assets of the corporation, dissipating its stockholders pass a resolution dissolving
assets, and fraudulently disposing of its the corporation that is not effective until it
properties and a receiver may be appointed has been approved by the SEC.
in an action for involuntary dissolution. For three years, the corporation will
The SC held in the leading case of El Hogar continue to exist it will no longer be a going
Filipino, 50 Phil. 399(1927) the first concern but only for the purpose of winding
corporation organized under the up that is why the SC has said that the
Corporation Act, the government filed a corporation cannot for example renew its
case to dissolve that corporation and contract of lease because it is no longer a
invoked 17 grounds, the SC denied the going concern.
petition. During the three year period, it should
Building and loans association like banks are devote its time prosecuting and defending
required to dispose of within 5 years of any law suits, winding up its affairs disposing its
properties they foreclosed they disposed of properties so they can be used to pay off its
the properties after 6 years but they creditors and to distribute balance to the
exerted their best efforts, they hired real stockholders.
estate brokers, they advertised in There are two ways of providing for the
newspapers but they just could not find winding up of its affairs under the law. This
buyers, they acquired this land and building, is voluntary either the directors themselves
the SC held that it is not illegal, that they may take care of winding up the affairs of
leased the space that they did not need for the corporation or they may appoint a
their office, that is not illegal they are trustee like when Ford Philippines decided
maximizing their property, that they to close its subsidiary here one of the last
provide a provision in the by-laws that acts of the BOD was to pass a resolution
stockholders can be compelled to surrender appointing Ricardo Romulo as trustee
their shares, to be bought out well the court vesting upon him legal title to all the assets
said that that is void but that is not of Ford Philippines to be used to pay off its
sufficient ground to dissolve the creditors and to dispose of its properties of
corporation. In other words the court is Ford Philippines. to distribute the balance
saying that you do not dissolve a as liquidating dividends.
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Supposed to be, this was the rule before if object of the meeting for three (3)
any case is not finished within the three consecutive weeks in a newspaper
year period, the case will be abated published in the place where the principal
whether the corporation is plaintiff or office of said corporation is located; and if
whether it is defendant but recent no newspaper is published in such place,
jurisprudence has rendered that obsolete. then in a newspaper of general circulation
That rule is applicable if it is the directors in the Philippines, after sending such notice
winding up the corporation. if the to each stockholder or member either by
corporation is under receivership, it is the registered mail or by personal delivery at
receiver who may wind up the affair of the least thirty (30) days prior to said meeting.
corporation. But if it is the trustee that will A copy of the resolution authorizing the
not apply, the trust will subsist until the dissolution shall be certified by a majority of
affairs of the corporation are wound up and the board of directors or trustees and
until any creditor can sue the trustee countersigned by the secretary of the
provided that the applicable prescriptive corporation. The Securities and Exchange
period has not yet lapsed. So if his cause of Commission shall thereupon issue the
action is based on a written contract he has certificate of dissolution.
ten (10) years to sue the trustee.
The Court has said that the remedy there if When a corporation is contemplating
the three years will end and there are still dissolution, it must submit tax return on
pending cases, is for the board to appoint a the income earned by it from the
trustee but more recent jurisprudence has beginning of the year up to the date of
fashioned a practicable solution to that the its dissolution and pay the
lawyer handling the cases may be corresponding tax due. BPI v. Court of
considered as trustee of the corporation Appeals, 363 SCRA 840 (2001).
and therefore the cases will not be abated
but should continue. Requirements where creditors are affected
In one case, the SC held that the directors Sec. 119. Voluntary dissolution where
may be considered as trustees after three creditors are affected. – Where the
years so that they can continue to wind up dissolution of a corporation may prejudice
the affairs of the corporation and in effect the rights of any creditor, the petition for
the three year period has become dissolution shall be filed with the Securities
ineffectual. and Exchange Commission. The petition
shall be signed by a majority of its board of
What are the various methods of directors or trustees or other officers having
dissolving corporations? the management of its affairs, verified by its
Sec. 117. Methods of dissolution. – A president or secretary or one of its directors
corporation formed or organized under the or trustees, and shall set forth all claims and
provisions of this Code may be dissolved demands against it, and that its dissolution
voluntarily or involuntarily. was resolved upon by the affirmative vote
of the stockholders representing at least
Voluntary two-thirds (2/3) of the outstanding capital
Requirements where no creditors are stock or by at least two-thirds (2/3) of the
affected. members at a meeting of its stockholders or
members called for that purpose.
Sec. 118. Voluntary dissolution where no
creditors are affected. – If dissolution of a If the petition is sufficient in form and
corporation does not prejudice the rights of substance, the Commission shall, by an
any creditor having a claim against it, the order reciting the purpose of the petition,
dissolution may be effected by majority fix a date on or before which objections
vote of the board of directors or trustees, thereto may be filed by any person, which
and by a resolution duly adopted by the date shall not be less than thirty (30) days
affirmative vote of the stockholders owning nor more than sixty (60) days after the
at least two-thirds (2/3) of the outstanding entry of the order. Before such date, a copy
capital stock or of at least two-thirds (2/3) of the order shall be published at least once
of the members of a meeting to be held a week for three (3) consecutive weeks in a
upon call of the directors or trustees after newspaper of general circulation published
publication of the notice of time, place and in the municipality or city where the
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laws allow Filipino citizens and corporations 3. The name and address of its resident
to do business in its own country or state. agent authorized to accept summons
and process in all legal proceedings and,
Section 124. Application to existing foreign pending the establishment of a local
corporations. – Every foreign corporation office, all notices affecting the
which on the date of the effectivity of this corporation.
Code is authorized to do business in the
Philippines under a license therefore issued 4. The place in the Philippines where the
to it, shall continue to have such authority corporation intends to operate.
under the terms and condition of its license,
subject to the provisions of this Code and 5. The specific purpose or purposes which
other special laws. the corporation intends to pursue in the
transaction of its business in the
A foreign corporation can have no legal Philippines: Provided, That said purpose
existence beyond the bounds of the state or or purposes are those specifically stated
sovereignty by which it is created. It exists in the certificate of authority issued by
only in contemplation of law and by force of the appropriate government agency.
the law, and where that law ceases to
operate, the corporation can have no 6. The names and addresses of the
existence. It must dwell in the place of its present directors and officers of the
creation, and cannot migrate to another corporation.
sovereignty.
7. A statement of its authorized capital
Foreign corporations may do business in the stock and the aggregate number of
Philippines either by directly entering into shares which the corporation has
transactions with resident persons, firms or authority to issue, itemized by classes,
corporations or by creating a domestic par value of shares, shares without par
subsidiary corporation which would have its value, and series, if any.
own distinct personality.
8. A statement of its outstanding capital
Licensed foreign corporations is authorized stock and the aggregate number of
to do business in the Philippines shall shares which the corporation has
continue to have such authority under the issued, itemized by classes, par value of
terms and condition of its license, subject to shares, shares without par value, and
the provisions of the Code and other special series, if any.
laws.
9. A statement of the amount actually
Section 125. Application for a license. – A paid in.
foreign corporation applying for a license to
transact business in the Philippines shall 10. Such additional information as may be
submit to the Securities and Exchange necessary or appropriate in order to
Commission a copy of its articles of enable the Securities and Exchange
incorporation and by-laws, certified in Commission to determine whether such
accordance with law, and their translation corporation is entitled to a license to
to an official language of the Philippines, if transact business in the Philippines, and
necessary. The application shall be under to determine and assess the fees
oath and, unless already stated in its payable.
articles of incorporation, shall specifically
set forth the following: Attached to the application for license shall
be a duly executed certificate under oath by
1. The date and term of incorporation. the authorized official or officials of the
jurisdiction of its incorporation, attesting to
2. The address, including the street the fact that the laws of the country or
number, of the principal office of the state of the applicant allow Filipino citizens
corporation in the country or state of and corporations to do business therein,
incorporation. and that the applicant is an existing
corporation in good standing. If such
certificate is in a foreign language, a
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some portion of them, in the usual and 1. That the operation or activity is not
regular course of the prosecution of the inconsistent with the Investment
corporate enterprise for profit. Priorities Plan.
2. That the business or economic activity
The Corporation Code outlines the will contribute to the sound and
procedural requirements for the application balanced development of the national
and issuance of a license before a foreign economy on a self-sustaining basis.
corporation may transact business in the 3. That the activity will not conflict with
Philippines. Except in the case of foreign the Constitution and laws of the
banking, financial and insurance Philippines.
corporations and other subject to special 4. That the nosiness or economic activity
laws, rules and regulations, if the applicant is not one (1) adequately exploited by
foreign corporation has complied with all Philippine Nationals.
the requirements of issuance of a license, 5. That the entry of the applicant will not
the SEC shall issue such license and pose a clear and present danger of
thereafter the foreign corporation may promoting monopolies or combination
transact business in the Philippines. in restraint of trade.
Republic Act No. 5455. Regulates the entry Presidential Decree No. 151 allows citizens
of foreign investments whenever foreign of the Philippines or corporations which
equity participation exceeds 30 percent of have acquired lands of the public domain or
the capital stock. which or any other law, to enter into service
contracts for financial, technical,
Under Republic Act no. 5455 “doing management or other forms of assistance
business includes”: with any foreign person or entity whenever
a. Soliciting orders, purchases, service and wherever such contracts are vital to
contracts, opening offices whether achieve sound and more expeditious
called liaison offices or branches. exploration, development, exploitation or
b. Appointing representatives or utilization of such lands owned, held or
distributors who are domiciled in the controlled by such citizens or corporations.
Philippines or who in any calendar year
stay in the Philippines for a period or Section 127. Who may be a resident agent.
periods totalling one hundred eighty – A resident agent may be either an
days or more. individual residing in the Philippines or a
c. Participating in the management, domestic corporation lawfully transacting
supervision, or control of any domestic business in the Philippines: Provided, That
business firm, entity, or corporation in in the case of an individual, he must be of
the Philippines. good moral character and of sound financial
d. Any other act or acts that imply a standing.
continuity of commercial dealings or
arrangements, and contemplates to Section 128. Resident agent; service of
that extent the performance of acts or process. – The Securities and Exchange
works, or the exercise of some of the Commission shall require as a condition
function normally incident to, and in precedent to the issuance of the license to
progressive prosecution of, commercial transact business in the Philippines by any
gain or of the purpose and object of the foreign corporation that such corporation
business organization. file with the Securities and Exchange
Commission a written power of attorney
The Board of Investments requires license designating some person who must be a
not only of corporations organized abroad resident of the Philippines, on whom any
but also of domestic corporations, if more summons and other legal processes may be
than 40% of its voting shares are owned served in all actions or other legal
and held by aliens or more than 30% of its proceedings against such corporation, and
total capitalization is in the hands of aliens. consenting that service upon such resident
agent shall be admitted and held as valid as
Guidelines for issuance of certificate of if served upon the duly authorized officers
authority to do business under BOI (Rep. of the foreign corporation at its home
Act No.5455) office. Any such foreign corporation shall
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likewise execute and file with the Securities Section 129. Law applicable. – Any foreign
and Exchange Commission an agreement or corporation lawfully doing business in the
stipulation, executed by the proper Philippines shall be bound by all laws, rules
authorities of said corporation, in form and and regulations applicable to domestic
substance as follows: corporations of the same class, except such
only as provide for the creation, formation,
“The (name of foreign corporation) does organization or dissolution of corporations
hereby stipulate and agree, in consideration or those which fix the relations, liabilities,
of its being granted by the Securities and responsibilities, or duties of stockholders,
Exchange Commission a license to transact members, or officers of corporations to
business in the Philippines, that if at any each other or to the corporation.
time said corporation shall cease to transact
business in the Philippines, or shall be Licensed foreign corporations lawfully doing
without any resident agent in the business in the Philippines shall be subject
Philippines on whom any summons or other to our laws just like domestic corporations
legal processes may be served, then in any of the same class.
action or proceeding arising out of any
business or transaction which occurred in Philippine laws will not apply when it refers
the Philippines, service of any summons or to the creation, formation, organization or
other legal process may be made upon the dissolution of corporations or such as fux
Securities and Exchange Commission and the relations, liabilities, responsibilities, or
that such service shall have the same force duties of stockholders, members, or officers
and effect as if made upon the duly- of corporations to each other or to the
authorized officers of the corporation at its corporation.
home office.”
Section 130. Amendments to articles of
Whenever such service of summons or incorporation or by-laws of foreign
other process shall be made upon the corporations. – Whenever the articles of
Securities and Exchange Commission, the incorporation or by-laws of a foreign
Commission shall, within ten (10) days corporation authorized to transact business
thereafter, transmit by mail a copy of such in the Philippines are amended, such
summons or other legal process to the foreign corporation shall, within sixty (60)
corporation at its home or principal office. days after the amendment becomes
The sending of such copy by the effective, file with the Securities and
Commission shall be necessary part of and Exchange Commission, and in the proper
shall complete such service. All expenses cases with the appropriate government
incurred by the Commission for such service agency, a duly authenticated copy of the
shall be paid in advance by the party at articles of incorporation or by-laws, as
whose instance the service is made. amended, indicating clearly in capital letters
In case of a change of address of the or by underscoring the change or changes
resident agent, it shall be his or its duty to made, duly certified by the authorized
immediately notify in writing the Securities official or officials of the country or state of
and Exchange Commission of the new incorporation. The filing thereof shall not of
address. itself enlarge or alter the purpose or
purposes for which such corporation is
The SEC shall require as a condition authorized to transact business in the
precedent to the issuance of the license to Philippines.
transact business in the Philippines by any
foreign corporation that such corporation Section 131. Amended license. – A foreign
file with the SEC, a written power of corporation authorized to transact business
attorney designating some person who in the Philippines shall obtain an amended
must be a resident of the Philippines, on license in the event it changes its corporate
whom any summons and other legal name, or desires to pursue in the
processes may be served in all actions or Philippines other or additional purposes, by
other legal proceedings against such submitting an application therefor to the
corporation. Securities and Exchange Commission,
favorably endorsed by the appropriate
government agency in the proper cases.
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Section 132 covers two legal situations: Section 134. Revocation of license. –
1. The merger of a licensed foreign Without prejudice to other grounds
corporation with a domestic provided by special laws, the license of a
corporation. foreign corporation to transact business in
Must be accomplished by the Philippines may be revoked or
complying with the provisions of suspended by the Securities and Exchange
the Corporation Code. Commission upon any of the following
2. The merger of a licensed foreign grounds:
corporation with another corporation in
its country of origin which is not doing 1. Failure to file its annual report or pay
business in the Philippines. any fees as required by this Code.
If the licensed foreign corporation is
absorbed by merger or 2. Failure to appoint and maintain a
consolidation, it must withdraw its resident agent in the Philippines as
license to do business in the required by this Title.
Philippines.
Nevertheless, if the foreign 3. Failure, after change of its resident
absorbing corporation desire to agent or of his address, to submit to the
continue the business of the Securities and Exchange Commission a
absorbed corporation in the statement of such change as required
Philippines, it has to file an by this Title.
application for a license to do
business pursuant to the 4. Failure to submit to the Securities and
requirements of Philippines law on Exchange Commission an authenticated
the matter. copy of any amendment to its articles of
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6. Failure to pay any and all taxes, 3. The petition for withdrawal of license
imposts, assessments or penalties, if has been published once a week for
any, lawfully due to the Philippine three (3) consecutive weeks in a
Government or any of its agencies or newspaper of general circulation in the
political subdivisions. Philippines.
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of individuals related to each other by Sec. 143. Rule making power of the
consanguinity or affinity or by close Securities and Exchange Commission. – The
business interests, or whenever it is Securities and Exchange Commission shall
necessary to achieve national objectives, have the power and authority to implement
prevent illegal monopolies or combinations the provisions of this Code, and to
in restraint or trade, or to implement promulgate rules and regulations
national economic policies declared in laws, reasonably necessary to enable it to
rules and regulations designed to promote perform its duties hereunder, particularly in
the general welfare and foster economic the prevention of fraud and abuses on the
development. part of the controlling stockholders,
members, directors, trustees or officers.
In recommending to the Batasang
Pambansa corporations, business or Sec. 144. Violations of the Code. –
industries to be declared vested with a Violations of any of the provisions of this
public interest and in formulating proposals Code or its amendments not otherwise
for limitations on stock ownership, the specifically penalized therein shall be
National Economic and Development punished by a fine of not less than one
Authority shall consider the type and nature thousand (P1,000.00) pesos but not more
of the industry, the size of the enterprise, than ten thousand (P10,000.00) pesos or by
the economies of scale, the geographic imprisonment for not less than thirty (30)
location, the extent of Filipino ownership, days but not more than five (5) years, or
the labor intensity of the activity, the export both, in the discretion of the court. If the
potential, as well as other factors which are violation is committed by a corporation, the
germane to the realization and promotion same may, after notice and hearing, be
of business and industry. dissolved in appropriate proceedings before
the Securities and Exchange Commission:
Sec. 141. Annual report or corporations. – Provided, That such dissolution shall not
Every corporation, domestic or foreign, preclude the institution of appropriate
lawfully doing business in the Philippines action against the director, trustee or
shall submit to the Securities and Exchange officer of the corporation responsible for
Commission an annual report of its said violation: Provided, further, That
operations, together with a financial nothing in this section shall be construed to
statement of its assets and liabilities, repeal the other causes for dissolution of a
certified by any independent certified corporation provided in this Code.
public accountant in appropriate cases,
covering the preceding fiscal year and such Sec. 145. Amendment or repeal. – No right
other requirements as the Securities and or remedy in favor of or against any
Exchange Commission may require. Such corporation, its stockholders, members,
report shall be submitted within such directors, trustees, or officers, nor any
period as may be prescribed by the liability incurred by any such corporation,
Securities and Exchange Commission. stockholders, members, directors, trustees,
or officers, shall be removed or impaired
Sec. 142. Confidential nature of either by the subsequent dissolution of said
examination results. – All interrogatories corporation or by any subsequent
propounded by the Securities and Exchange amendment or repeal of this Code or of any
Commission and the answers thereto, as part thereof.
well as the results of any examination made
by the Commission or by any other official Sec. 146. Repealing clause. – Except as
authorized by law to make an examination expressly provided by this Code, all laws or
of the operations, books and records of any parts thereof inconsistent with any
corporation, shall be kept strictly provision of this Code shall be deemed
confidential, except insofar as the law may repealed.
require the same to be made public or
where such interrogatories, answers or Sec. 147. Separability of provisions. –
results are necessary to be presented as Should any provision of this Code or any
evidence before any court. part thereof be declared invalid or
unconstitutional, the other provisions, so
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