TITLE X
APPRAISAL RIGHT 1. Procedure
Appraisal right is a right of a
stockholder to demand payment of the
fair value of his shares, after dissenting
from a proposed corporate action
involving fundamental changes in the
corporation.
These fundamental changes in the
corporation include the following
instances:
1. Amendment of Articles of
Incorporation which has an effect of
changing or restricting the rights of any
stockholders of any class or authorizing
preferences in any respect superior to
outstanding shares or extending or
shortening the corporate term;
2. In case of sale, lease, exchange,
transfer, mortgage, pledge or
disposition of all or substantially all of
the corporate property and assets. (Sec.
81)
3. Merger or consolidation. (Sec. 81);
4. Investing corporate funds in another
corporation or business (Sec. 42); and
5. For any reason in close corporation
(Sec. 105).
a) Written demand on the
corporation within thirty (30)
days after the date on which the
vote was taken;
b) Surrender of Stock Certificate
within 10 days for notation (Sec.
86);
c) Payment of fair value of share;
and
d) Stockholder shall transfer his
shares to the corporation. (Sec.
82)
2. Amount to be paid to the dissenting
Stockholder
a) The dissenting stockholder shall
be paid the fair value of his
shares as of the day prior to the
date on which the vote was
taken, excluding any
appreciation or depreciation in
anticipation of such corporate
action.
b) If within 60 days after the
corporate action was approved
and the dissenting
(uncooperative) stockholders
and the corporation cannot agree
in the fair value of the shares, it
shall be determined by three
disinterested person: one chosen
by the stockholder, one by the
corporation and the other one
chosen by
the two. Their determination of
the fair value is final and shall be
paid within 30 days.
(Sec. 82)
Conditions for Valid Exercise of
Appraisal Rights
1. The demand for payment of shares
arise from the instances provided in
Corporation Code;
2. Existence of unrestricted retained
earnings;
3. The demand was made within 30
days after the corporate action; failure
to exercise of such constitutes waiver of
this right (Sec. 82)
Effect of Demand of Payment of
Stockholder’s Share
1. All rights accruing to such shares,
including voting and dividend rights,
shall be suspended;
2. The stockholder is entitled to
payment of his shares;
3. If the dissenting stockholder is not
paid within 30 days, his voting and
dividend will be restored. (Sec. 83); and
4. Demand for payment may not be
withdrawn unless with consent of the
corporation (Sec. 84).
Termination of Right of Appraisal
1. If demand for payment is withdrawn
with the consent of the corporation;
2. If the proposed corporate action is
abandoned or rescinded by the
corporation;
3. If the proposed corporate action
disapproved by the SEC; and
4. If the SEC determines that such
shareholder is not entitled to the
appraisal right. In these cases, the right
of appraisal of the stockholder ceases,
his status as a stockholder
shall be restored, and all dividend
distributions which would have accrued
on his shares shall be paid to
him (Sec. 84).
Costs of Appraisal
1. By the corporation:
a) If the value as determined by the
appraiser is higher than what
was offered by the corporation;
and;
b) If the action is filed to recover the
fair value of the shares and the
stockholder’s refusal to receive
payment is justified.
2. By the stockholder:
a) If the value is determined by the
approximately the same as the
price offered by the corporation;
and;
b) Where an action to recover is
filed and the refusal of such
stockholder to receive payment is
unjustified.
Notation on Certificate Covering
Dissenting Shares
Within 10 days after demanding
payment for his shares, the dissenting
stockholder shall submit the stock
certificate representing his shares to
the corporation for notation thereon
that such shares are dissenting shares.
Effect on failure to do so, at the
option of the corporation terminate the
right of a stockholder to demand
payment of the fair value of his shares.
Purpose of Notation
Notation is necessary so as to
guide the secretary of the corporation
who shall deny to the dissenting
stockholder the right to vote and the
right to receive dividends in the proper
situation contemplated
under Section 83. Failure to do so shall
give right to the corporation to
terminate the rights of the stockholder
(Sec. 86).
Transfer of Dissenting Shares
When the shares of a dissenting
stockholder are transferred or assigned,
the assignee becomes a regular
stockholder and the appraisal right of
the dissenting stockholder shall cease
(Sec. 86). All dividends which accrue on
such shares shall be paid to the
transferee.
TITLE XI
NON-STOCK OPERATION
Sec. 87. Definition. – For the purposes
of this Code, a non-stock corporation
is one where no part of its income is
distributable as dividends to its
members, trustees, or officers,
subject to the provisions of this Code
on dissolution: Provided, That, any
profit which a non-stock corporation
may obtain as an incident to its
operation shall, whenever necessary or
proper, be used for the furtherance of
the purpose or purposes for which the
corporation was organized, subject to
the provisions of this Title.
The provisions governing stock
corporations, when pertinent, shall be
applicable to non-stock corporations,
except as may be covered by specific
provisions of this Title.
Query: Is it possible for a non-stock
corporation to have a capital stock?
Yes, because Sec. 87 does not
define a non-stock corporation as one
not having capital stock dividend into
shares. It merely says that a non-stock
corporation is one whose income is not
distributable as dividends to its
members, trustees or officers. Thus, if a
corporation has a capital stock but it is
not authorized to distribute dividends
to its members, trustees or officers, the
corporation will be more of a non-stock,
rather than a stock corporation.
Sec. 88. Purposes. – Non-stock
corporations may be formed or
organized for charitable, religious,
educational, professional, cultural,
fraternal, literary, scientific, social, civic
service, or similar purposes, like trade,
industry, agricultural and like
chambers, or any combination thereof,
subject to the special provisions of this
Title governing particular classes of
non-stock corporations.
Distinction between a stock corporation
and a non-stock corporation
Point of Stock Non-Stock
Comparison Corporation Corporation
Membership Ownership Consent of
of stock the
associates

Purpose of Non-Stock Corporation
 Charitable/ Religious
 Educational/ Professional
 Cultural, Recreational, Social
 Fraternal
 Literary, Civic service, Scientific
 Similar purposes like trade,
industry, agriculture, and like
chambers, or a combination
thereof.
NOTE: Non- Stock Corporation, as
indicated in the foregoing purposes,
does not exist for profit. It does not
follow, however, it cannot make profits.
It may obtain profits as an incident to
its operations, which profits are not to
be distributed as dividends but for the
furtherance of its purposes.
CHAPTER 1
MEMBERS
Sec. 89. Right of members to vote.
a. Number of votes to which a member
is entitled
Each member is entitled to one
vote, except:
1. If the right is limited, broadened
or denied in the articles of
incorporation or the by-laws.
2. In the election of the trustees,
members may cast as many
votes as there are trustees to be
elected, but they may not cast
more than one vote for one
candidate, unless otherwise
provided by the articles of
incorporation or the by-laws.
Thus if there are (9)
trustees to be elected, a member
shall be entitled to (9) votes,
except that he cannot cast more
than (1) vote in favor of one
candidate.
b. How members may vote
Members may vote through any
of the following ways:
1) In person
2) By proxy
3) By mail (or by other means), if
authorized by the by-laws with
the approval of, and under such
conditions which may be,
prescribed by, the Securities and
Exchange Commission.
Voting by proxy may be denied in
articles or by-laws. The law makes
voting by proxy merely directory in the
case of non-stock corporations and
even allows the articles of incorporation
or by-laws thereof to deny proxy voting.
If proxy voting may be denied out
rightly in the articles or by-laws of non-
stock corporations, it necessarily
follows that the qualifications or
limitations on who should be appointed
proxies may also be made therein.
Sec.90. Non-transferability of
membership. – Membership in a non-
stock corporation and all rights arising
therefrom are personal and non-
transferable, unless the articles of
incorporation or the by-laws otherwise
provide.
Sec.91. Termination of membership. –
Membership shall be terminated in the
manner and for the causes provided in
the articles of incorporation or the by-
laws. Termination of membership shall
have the effect of extinguishing all
rights of a member in the corporation or
in its property, unless otherwise
provided in the articles of incorporation
or the by-laws.
 v. Other
qualifications may
CHAPTER 2 be provided in the
TRUSTEES AND OFFICERS by-laws. (Sec. 47)
c) Term of the office of the
Sec.92. Election and term of trustees. Trustees
1. Trustees Unless otherwise
a) The trustees may be more provided in the articles of
than fifteen (15) in incorporation or by-laws,
number as may be fixed in the term of the office of
the articles of the trustees shall be as
incorporation or the by- follows;
laws. (Sec. 92) Apparently, i. The term of office of
the purpose is to allow trustees shall be
greater involvement on the three (3) years.
part of the members in the ii. The trustee first
affairs of the corporation elected shall
since the corporation. classify themselves
b) Qualifications of Trustees that the term of
i. Trustees must be a office of one-third
member of the (1/3) of their
corporation. (Sec. number shall expire
92) every year. Trustees
ii. Majority of them thereafter elected to
must be residents fill vacancies shall
of the Philippines. serve only for the
(Sec. 23) unexpired portion
iii. The number of of their
trustees must not predecessor.
be less than five (5) 2. Election of Officers
but may be more Officers may be elected
than fifteen (15). directly by the members, unless the
(Sec. 92) articles of incorporation or the by-
iv. A trustee must not laws provided otherwise. (Sec. 92)
have been convicted
by final judgment of Sec.93. Place of meetings. – The by-
an offense laws may provide that the members of a
punishable by non-stock corporation may hold their
imprisonment for regular or special meetings at any place
period of exceeding even outside the place where the
6 years, or a principal office of the corporation is
violation of the located: Provided, that proper notice is
Corporation Code, sent to all members indicating the date,
committed within 5 time and place of the meeting: and
years prior to his Provided, further, That the place of
election. (Sec. 27) meeting shall be within the Philippines.

1) Place of meeting of members
Meeting of members shall be
held in the city or municipality
where the principal office of the
corporation is located. (Sec. 61) The
by-laws however, may provide that
the members may hold their
meetings, whether regular or
special, at any place even outside
the place where the principal office
of the corporation is located;
provided that proper notice is sent
to all members indicating the date,
time and place of the meeting, and
that the place of meeting shall be
within the Philippines. (Sec. 93).
CHAPTER 3
DISTRIBUTION OF ASSETS IN
NON-STOCK CORPORATION
Sec. 94. Rules of distribution. – In case
dissolution of a non-stock corporation
in accordance with the provisions of
this Code, its assets shall be applied
and distributed as follows:
1. All liabilities and obligations of the
corporation shall be paid, satisfied and
discharged, or adequate provision shall
be made therefore.
2. Assets held upon a condition
requiring return, transfer or
conveyance, and which condition
occurs by reason of the dissolution,
shall be returned, transferred or
conveyed in accordance with such
requirements.
3. Assets received and held subject to
limitations permitting their use only for
charitable, religious, benevolent,
educational or similar purposes, shall
be transferred or conveyed to one or
more corporations having similar
purposes.
4. Assets other than those mentioned in
the preceding paragraphs, if any, shall
be distributed in accordance with the
provisions of the articles of
incorporation or the by-laws, to the
extent that the articles of incorporation
or the by-laws, determine the
distributive rights of members, or any
class or classes of members, or provide
for distribution.
5. Assets to be distributed in
accordance with a plan of distribution
adopted by the majority vote of the
board of trustees approved by at least
two-thirds (2/3) of the voting members.
Sec. 95. Plan of distribution of assets. –
A plan providing for the distribution of
assets, not inconsistent with the
provisions of this Title, may be adopted
by a non-stock corporation in the
process of dissolution in the following
manner:
`
The board of trustees shall, by majority
vote, adopt a resolution recommending
a plan of distribution and directing the
submission thereof to a vote at a
regular or special meeting of members
having voting rights. Written notice
setting forth the proposed plan of
distribution or a summary thereof and
the date, time and place of such
meeting shall be given to each member
entitled to vote, within the time and in
the manner provided in this Code for
the giving of notice of meetings to
members. Such plan of distribution
shall be adopted upon approval of at
least two-thirds (2/3) of the members
having voting rights present or
represented by proxy at such meeting.
1. Distribution to members
As provided in Sec. 87, no part of
the income of a non-stock corporation
shall be distributed as dividends to its
members but shall be used for the
furtherance of its purposes. However,
upon dissolution, its remaining assets
[after the satisfaction of items (a), (b),
and (c) above], may be distributed to its
members in accordance with their
distributive rights provided in the
articles of incorporation or the by-laws.
Before such time, the members cannot
avail themselves of any profits obtained
by non-stock corporation as an incident
to its operations.
2. Distribution to members organized
for profit
It may be noted that the plan
may include distribution to persons or
entities organized for profit. (Sec. 94,
par. 5.)
TITLE XII
CLOSE CORPORATIONS
Sec. 96. Definition and applicability of
Title. – A close corporation, within the
meaning of this Code, is one whose
articles of incorporation provide that:
1. All the corporation's issued stock of
all classes, exclusive of treasury shares,
shall be held of record by not more than
a specified number of persons, not
exceeding twenty (20).
2. All the issued stock of all classes
shall be subject to one or more specified
restrictions on transfer permitted by
this Title.
3. The corporation shall not list in any
stock exchange or make any public
offering of any of its stock of any class.
Notwithstanding the foregoing, a
corporation shall not be deemed a close
corporation when at least two-thirds
(2/3) of its voting stock or voting rights
is owned or controlled by another
corporation which is not a close
corporation.
Any corporation may be
incorporated as a close corporation,
except mining or oil companies, stock
exchanges, banks, insurance
companies, public utilities, educational
institutions and corporations declared
to be vested with public interest in
accordance with the provisions of this
Code. The provisions of this Title shall
primarily govern close corporations:
Provided, That the provisions of other
Titles of this Code shall apply
suppletorily except insofar as this Title
otherwise provides.
Sec. 97. Articles of incorporation. – The
articles of incorporation of a close
corporation may provide:
1. For a classification of shares or
rights and the qualifications for owning
or holding the same and restrictions on
their transfers as may be stated
therein, subject to the provisions of the
following section.
2. For a classification of directors into
one or more classes, each of whom may
be voted for and elected solely by a
particular class of stock.
3. For a greater quorum or voting
requirements in meetings of
stockholders or directors than those
provided in this Code.
4. That the business shall be managed
by the stockholders of the corporation
rather than by a board of directors.
5. That all or some specified officers or
employees shall be elected or appointed
by the stockholders, instead of the
board of directors
The articles of incorporation of a
close corporation may provide that the
business of the corporation shall be
managed by the stockholders of the
corporation rather than by a board of
directors. So long as this provision
continues in effect:
1. No meeting of stockholders need be
called to elect directors.
2. Unless the context clearly requires
otherwise, the stockholders of the
corporation shall be deemed to be
directors for the purpose of applying the
provisions of this Code.
3. The stockholders of the corporation
shall be subject to all liabilities of
directors.
Sec. 98. Validity of restrictions on
transfer of shares.
1. Requirements for the validity of
restrictions on transfer of shares
a. The restriction on transfer must
appear (1) in the articles of
incorporation, (2) in the by-laws,
and (3) in the stock certificate;
otherwise the same shall not be
binding on any purchaser thereof
in good faith.
b. The restrictions shall not be
more onerous than granting the
existing stockholders or the
corporation the option to
purchase the shares of the
transferring stockholder with
such reasonable terms,
conditions or period stated
therein.
2. Effect
If upon the expiration of said
period, the existing stockholders or the
corporation fails to exercise the option
to purchase, the transferring
stockholder may sell his shares to any
third person.
Sec. 99. Issuance or transfer of stock of
a close corporation in breach of
qualifying conditions:
1. If stock of a close corporation is
issued or transferred to any person who
is not entitled under any provision of
the articles of incorporation to be a
holder of record of its stock, and if the
certificate for such stock conspicuously
shows the qualifications of the persons
entitled to be holders of record thereof,
such person is conclusively presumed
to have notice of the fact of his
ineligibility to be a stockholder.
2. If the articles of incorporation of a
close corporation states the number of
persons, not exceeding twenty (20), who
are entitled to be holders of record of its
stock, and if the certificate for such
stock conspicuously states such
number, and if the issuance or transfer
of stock to any person would cause the
stock to be held by more than such
number of persons, the person to whom
such stock is issued or transferred is
conclusively presumed to have notice of
this fact.
3. If a stock certificate of any close
corporation conspicuously shows a
restriction on transfer of stock of the
corporation, the transferee of the stock
is conclusively presumed to have notice
of the fact that he has acquired stock in
violation of the restriction, if such
acquisition violates the restriction.
4. Whenever any person to whom stock
of a close corporation has been issued
or transferred has, or is conclusively
presumed under this section to have,
notice either (a) that he is a person not
eligible to be a holder of stock of the
corporation, or (b) that transfer of stock
to him would cause the stock of the
corporation to be held by more than the
number of persons permitted by its
articles of incorporation to hold stock of
the corporation, or (c) that the transfer
of stock is in violation of a restriction
on transfer of stock, the corporation
may, at its option, refuse to register the
transfer of stock in the name of the
transferee.
5. The provisions of subsection (4) shall
not applicable if the transfer of stock,
though contrary to subsections (1), (2)
of (3), has been consented to by all the
stockholders of the close corporation, or
if the close corporation has amended its
articles of incorporation in accordance
with this Title.
6. The term "transfer", as used in this
section, is not limited to a transfer for
value.
7. The provisions of this section shall
not impair any right which the
transferee may have to rescind the
transfer or to recover under any
applicable warranty, express or implied.
Restrictions on transfer of shares of
stock
The corporation may provide in
its articles of incorporation, in its by-
laws as well as in the certificate of stock
restrictions on the right of stockholders
to transfer their shares of stocks. If not
so provided as aforesaid the same “shall
not be binding on any purchaser
thereof in good faith.” Charter
restrictions on the transfer of shares are
binding on all who become shareholders,
as they become parties to the charter
contract and take their shares subject
to it. Considerable latitude allowed
incorporators and shareholders in
imposing transfer restrictions in the
articles of incorporation and they will
not usually be declared against public
policy unless palpably unreasonable
under the circumstances.
“Stock in the corporation is not merely
property. It also creates a personal
relation analogous otherwise than
technically to a partnership. There
seems to be no greater objection to
retaining the right of choosing one’s
associates in a corporation than in a
firm.”
Reasons for restriction on shares of
stock
In a close corporation, the
identity of the other stockholders is
important to each; the incorporators
have confidence in one another which
they may not have in an outsider.
Furthermore, the incorporators may
feel that the success of the enterprise
depends upon the retention of the
personnel who formed it, or they may
be manufacturing under secret
processes which they do not want
outsiders to learn. In the family
corporation it is often the desire of the
father to pass the corporation to his son
without interference from other outside
the family. Any one of these factors may
induce the incorporators to attempt to
restrict the transfer of stock.
1. Effects of issuance or transfer of
stock in breach of qualifying conditions
The corporation may, at its
option, refuse to register the transfer of
stock in the name of the transferee
when he is conclusively presumed to
have notice:
a. That he is ineligible to be a
holder of stock of the corporation
if the articles of incorporation
and stock certificate show the
qualifications to be a holder.
b. That the transfer to him would
cause the number of
stockholders to exceed that
which is shown in the articles of
incorporation and stock
certificate.
c. That the transfer to him was in
violation of the restrictions on
transfer, which restrictions are
shown in the stock certificate.
2.When the corporation is bound by the
transfer in violation of the restrictions
The corporation may not refuse
to register the transfer of shares in the
following cases:
a. If the transfer was consented to
by all stockholders
b. If the close corporation has
amended its articles of
incorporation in order to
accommodate the transfer.
Section 100. Agreement by
stockholders of a close corporation.
1. Any written agreement by the
stockholders of a close corporation even
if not embodied in the articles shall be
valid among the parties, such as:
a. Agreements executed by
stockholders before
incorporation which to their
intent shall continue after
incorporation provided that the
agreements are not inconsistent
with the articles of incorporation.
b. Any agreement between two or
more stockholders on how they
may exercise their voting rights.
c. Agreements among the
stockholders to the effect that
they are partners among
themselves.
d. Agreements among some or all of
the stockholders relating to the
conduct of the business and the
affairs of the corporation that
restrict or interfere with the
discretion or powers of the board
of directors. The parties thereto
are liable as directors.
2. Liability of stockholders for corporate
torts
Stockholders who are actively
engaged in the management or
operation of the business and affairs of
a close corporation shall be personally
liable for corporate torts, unless the
corporation has obtained reasonably
adequate liability insurance.
Sec. 101. When board meeting is
unnecessary or improperly held.
1. Validity of action by the board of
directors without a meeting
Unless the by-laws provide
otherwise, any action by the directors of
a close corporation without a meeting
shall nevertheless be deemed valid in
the following cases:
a. When written consent thereto is
signed by all the directors before
or after such action was taken.
b. All the stockholders have
knowledge, whether actual or
implied, of the action and make
no prompt objection thereto in
writing.
c. The directors are accustomed to
take informal action with the
express or implied acquiescence
of all the stockholders.
d. All the directors have express or
implied knowledge of the action
and none of them makes prompt
objection thereto in writing.
2. Ratification of action taken in the
board meeting without proper call or
notice
An action taken in the meeting of
the board of directors without proper
call or notice is deemed ratified by a
director who failed to attend the
meeting, unless he promptly files his
objection with the secretary of the
corporation after having obtained
knowledge of thereof.
Sec. 102. Pre-emptive right in close
corporations. - The pre-emptive right of
stockholders in close corporations shall
extend to all stock to be issued,
including reissuance of treasury shares,
whether for money, property or
personal services, or in payment of
corporate debts, unless the articles of
incorporation provide otherwise.
Pre-emptive right in close
corporations; Issuance of new Stock
A stockholder in a close
corporation has a right to purchase his
pro rata share of the new stock. If the
pre-emptive right is violated he can sue
the corporation for damages, enjoin the
stock issue, obtain an order permitting
him to subscribe, or obtain cancellation
of the issue. But even where the
stockholder’s pre-emptive right is
preserved. The right may be inadequate
as a protective devise for the
stockholder in a close corporation
because the lack of a market for his
stock leaves him with the alternatives of
investing more capital or having the
value of his stock diluted.
Sec. 103. Amendment of articles of
incorporation. – Any amendment to the
articles of incorporation which seeks to
delete or remove any provision required
by this Title to be contained in the
articles of incorporation or to reduce a
quorum or voting requirement stated in
said articles of incorporation shall not
be valid or effective unless approved by
the affirmative vote of at least two-
thirds (2/3) of the outstanding capital
stock, whether with or without voting
rights, or of such greater proportion of
shares as may be specifically provided
in the articles of incorporation for
amending, deleting or removing any of
the aforesaid provisions, at a meeting
duly called for the purpose.
1. Vote required for validity of
amendment of articles of incorporation
of close corporation
a. Two-Thirds (2/3) of the
outstanding capital stock,
voting and non-voting, or
b. Such greater proportion of
shares as may be
specifically provided in the
articles of incorporation.
2. Purpose of amendment
a. To remove or delete any
provision required to be
stated in the articles of
incorporation in order that
one may be considered a
close corporation.
b. To reduce a quorum or
voting requirement stated
in the articles of
incorporation.
Sec. 104. Deadlocks (signifies a
standstill in the management of the
corporate affairs resulting from the
evenly divide action of directors or
stockholders in a close corporation.) -
Notwithstanding any contrary provision
in the articles of incorporation or by-
laws or agreement of stockholders of a
close corporation, if the directors or
stockholders are so divided respecting
the management of the corporation's
business and affairs that the votes
required for any corporate action
cannot be obtained, with the
consequence that the business and
affairs of the corporation can no longer
be conducted to the advantage of the
stockholders generally, the Securities
and Exchange Commission, upon
written petition by any stockholder,
shall have the power to arbitrate the
dispute.
In the exercise of such power,
the Commission shall have authority to
make such order as it deems
appropriate, including an order:
1. Canceling or altering any provision
contained in the articles of
incorporation, by-laws, or any
stockholder's agreement.
2. Canceling, altering or enjoining any
resolution or act of the corporation or
its board of directors, stockholders, or
officers.
3. Directing or prohibiting any act of
the corporation or its board of directors,
stockholders, officers, or other person’s
party to the action.
4. Requiring the purchase at their fair
value of shares of any stockholder,
either by the corporation regardless of
the availability of unrestricted retained
earnings in its books, or by the other
stockholders.
5. Appointing a provisional director.
a. A provisional director shall
be an impartial person who
is neither a stockholder nor
creditor of the corporation or
any of its subsidiary or
affiliate. He is not a receiver
of the corporation.
b. He shall have all the rights
and powers of a duly elected
director, including the right
to notice of and to vote at
meetings of directors, until
such time when he is
removed by order of the
Securities and Exchange
Commission or by all the
stockholders.
6. Dissolving the corporation.
7. Granting such other relief as the
circumstances may warrant.
Sec. 105. Withdrawal of stockholder or
dissolution of corporation. – In addition
and without prejudice to other rights
and remedies available to a stockholder
under this Title:
1. Stockholder’s right to withdraw from
close corporation
 Any stockholder of a close
corporation may, for any reason,
compel the corporation to purchase his
shares at their fair value, which shall
not be less than their par or issued
value. The reason for such withdrawal
therefore is not limited to those
enumerated in Sec. 81. The
corporations, however, must have
sufficient funds in its books to cover its
debts and liabilities exclusive of capital
stock, before it can be compelled to
make such purchase. This is to protect
the interest of creditors who have
preferential rights to the assets of the
corporation.
2. Stockholder’s right to compel
dissolution of close corporation
Any stockholder of a close
corporation may, by written petition to
the Securities and Exchange
Commission, compel the dissolution of
such corporation whenever any of the
acts of the directors, officers or those in
control of the corporation is illegal or
fraudulent, or dishonest, or oppressive
or unfairly prejudicial to the
corporation or any stockholder, or
whenever corporate assets are being
misapplied or wasted.
TITLE XIII
SPECIAL CORPARATIONS
CHAPTER 1
EDUCATIONAL CORPORATIONS
Sec. 106. Incorporation. – Educational
corporations shall be governed by
special laws and by the general
provisions of this Code.
Laws governing Educational
corporations:
 Special Laws- Education Act of
1982
 The general provisions of this
Code.
Sec. 107. Pre-requisites to
incorporation. – Except upon favorable
recommendation of the Ministry of
Education and Culture, the Securities
and Exchange Commission shall not
accept or approve the articles of
incorporation and by-laws of any
educational institution.
The favorable endorsement of the
following government agencies required
to be included in the registration papers
to be filed for the incorporation of an
educational corporation whether stock
or non-stock:
a. DepED (Department of
Education)- Elementary to High
School
 b. CHEd (Commission on Higher
Education)- College, Tertiary
Course
c. TESDA (Technical Education
Skills and Development
Authority)- Technical Vocational
Course
Sec. 108. Board of trustees. – Trustees
of educational institutions organized as
nonstock corporations shall not be less
than five (5) nor more than fifteen (15):
Provided, however, That the number of
trustees shall be in multiples of five (5).
Unless otherwise provided in the
articles of incorporation on the by-laws,
the board of trustees of incorporated
schools, colleges, or other institutions
of learning shall, as soon as organized,
so classify themselves that the term of
office of one-fifth (1/5) of their number
shall expire every year. Trustees
thereafter elected to fill vacancies,
occurring before the expiration of a
particular term, shall hold office only
for the unexpired period. Trustees
elected thereafter to fill vacancies
caused by expiration of term shall hold
office for five (5) years. A majority of the
trustees shall constitute a quorum for
the transaction of business. The powers
and authority of trustees shall be
defined in the by-laws.
For institutions organized as stock
corporations, the number and term of
directors shall be governed by the
provisions on stock corporations.
 Stock educational corporations
a. Number of trustees: shall the
same as that of stock
corporations in general, not
less than 5 but not more than
15.
b. Term of office: shall the same
as that of stock corporations
in general, thus, the trustees
will hold office for one (1) year
and until their successors are
elected and qualified
 Non-stock educational
corporations
a. Number of trustees: not less
than 5 but not more than 15
and should be in multiples of
5.
b. Term of office: five (5) years
(unless the articles of
incorporation on the by-laws
provided otherwise). The
trustees first elected shall so
classify themselves that the
term of office of one-fifth (1/5)
of their number shall expire
every year.
CHAPTER 11
RELIGIOUS CORPORATIONS
Sec. 109. Classes of religious
corporations. – Religious corporations
may be incorporated by one or more
persons. Such corporations may be
classified into corporation’s sole and
religious societies. Religious
corporations shall be governed by this
Chapter and by the general provisions
on non-stock corporations insofar as
they may be applicable.
Religious corporations
One that is formed for the service
and worship of God or the
supernatural, or for perpetuation of its
religious beliefs and observances as
well as for the proper management of
its properties and affairs.
Kinds of Religious corporations
a. Corporation Sole
b. Religious society
Sec. 110. Corporation sole. – For the
purpose of administering and
managing, as trustee, the affairs,
property and temporalities of any
religious denomination, sect or church,
a corporation sole may be formed by the
chief archbishop, bishop, priest,
minister, rabbi or other presiding elder
of such religious denomination, sect or
church.
Corporation sole
 may constitute of one person
only so the head of a religious
sect would incorporate himself
for the purpose of administering
the properties of a religious sect.
 a special form of corporation
usually associated with the
clergy and consists of one person
only and his successors, who are
incorporated by law to give some
legal capacities and advantages.
 does not have any nationality
but for purposes of applying our
nationalization laws, nationality
is determined not by the
nationality of its head but by the
nationality of the members
constituting the sect in the
Philippines even if it is headed by
the Pope.
Sec. 111. Articles of incorporation. – In
order to become a corporation sole, the
chief archbishop, bishop, priest,
minister, rabbi or presiding elder of any
religious denomination, sect or church
must file with the Securities and
Exchange Commission articles of
incorporation setting forth the
following:
1. That he is the chief archbishop,
bishop, priest, minister, rabbi or
presiding elder of his religious
denomination, sect or church
and that he desires to become a
corporation sole.
2. That the rules, regulations and
discipline of his religious
denomination, sect or church
are not inconsistent with his
becoming a corporation sole and
do not forbid it.
3. That as such chief archbishop,
bishop, priest, minister, rabbi or
presiding elder, he is charged
with the administration of the
temporalities and the
management of the affairs,
estate and properties of his
religious denomination, sect or
church within his territorial
jurisdiction, describing such
territorial jurisdiction.
4. The manner in which any
vacancy occurring in the office
of chief archbishop, bishop,
priest, minister, rabbi of
presiding elder is required to be
filled, according to the rules,
regulations or discipline of the
 religious denomination, sect or
church to which he belongs.
5. The place where the principal
office of the corporation sole is
to be established and located,
which place must be within the
Philippines.
The articles of incorporation may
include any other provision not
contrary to law for the regulation of the
affairs of the corporation.
Sec. 112. Submission of the articles of
incorporation. – The articles of
incorporation must be verified, before
filing, by affidavit or affirmation of the
chief archbishop, bishop, priest,
minister, rabbi or presiding elder, as
the case may be, and accompanied by a
copy of the commission, certificate of
election or letter of appointment of such
chief archbishop, bishop, priest,
minister, rabbi or presiding elder, duly
certified to be correct by any notary
public.
From and after the filing with the
Securities and Exchange Commission of
the said articles of incorporation,
verified by affidavit or affirmation, and
accompanied by the documents
mentioned in the preceding paragraph,
such chief archbishop, bishop, priest,
minister, rabbi or presiding elder shall
become a corporation sole and all
temporalities, estate and properties of
the religious denomination, sect or
church theretofore administered or
managed by him as such chief
archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in
trust by him as a corporation sole, for
the use, purpose, behalf and sole
benefit of his religious denomination,
sect or church, including hospitals,
schools, colleges, orphan asylums,
parsonages and cemeteries thereof.
Need for by-laws (effect)
 No need for by-laws since the
business is conducted by only
one man.
Sec. 113. Acquisition and alienation of
property. – Any corporation sole may
purchase and hold real estate and
personal property for its church,
charitable, benevolent or educational
purposes, and may receive bequests or
gifts for such purposes. Such
corporation may sell or mortgage real
property held by it by obtaining an
order for that purpose from the Court of
First Instance of the province where the
property is situated upon proof made to
the satisfaction of the court that notice
of the application for leave to sell or
mortgage has been given by publication
or otherwise in such manner and for
such time as said court may have
directed, and that it is to the interest of
the corporation that leave to sell or
mortgage should be granted. The
application for leave to sell or mortgage
must be made by petition, duly verified,
by the chief archbishop, bishop, priest,
minister, rabbi or presiding elder acting
as corporation sole, and may be
opposed by any member of the religious
denomination, sect or church
represented by the corporation sole:
Provided, That in cases where the rules,
regulations and discipline of the
religious denomination, sect or church,
religious society or order concerned
represented by such corporation sole
regulate the method of acquiring,
holding, selling and mortgaging real
estate and personal property, such
rules, regulations and discipline shall
control, and the intervention of the
courts shall not be necessary.
Corporation Sole
 May purchase and hold real
estate and personal property for
its church, charitable,
benevolent or educational
purposes and may receive
bequests or gifts for such
purposes. –acquisition
 May mortgage or sell its property
by obtaining an order from the
Regional Trial Court (Court of
First Instance) for that purpose.
However, such court intervention
shall not be necessary if the
rules, regulations and discipline
of the religious denomination,
sect or church, religious society
or order concerned represented
by such corporation sole regulate
the method of acquiring, holding,
selling and mortgaging real
estate and personal property.
-alienation
Sec. 114. Filling of vacancies. – The
successors in office of any chief
archbishop, bishop, priest, minister,
rabbi or presiding elder in a corporation
sole shall become the corporation sole
on their accession to office and shall be
permitted to transact business as such
on the filing with the Securities and
Exchange Commission of a copy of their
commission, certificate of election, or
letters of appointment, duly certified by
any notary public.
During any vacancy in the office
of chief archbishop, bishop, priest,
minister, rabbi or presiding elder of any
religious denomination, sect or church
incorporated as a corporation sole, the
person or persons authorized and
empowered by the rules, regulations or
discipline of the religious denomination,
sect or church represented by the
corporation sole to administer the
temporalities and manage the affairs,
estate and properties of the corporation
sole during the vacancy shall exercise
all the powers and authority of the
corporation sole during such vacancy.
Sec. 115. Dissolution. – A corporation
sole may be dissolved and its affairs
settled voluntarily by submitting to the
Securities and Exchange Commission a
verified declaration of dissolution.
The declaration of dissolution shall set
forth:
1. The name of the corporation.
2. The reason for dissolution and
winding up.
3. The authorization for the
dissolution of the corporation by
the particular religious’
denomination, sect or church.
4. The names and addresses of the
persons who are to supervise the
winding up of the affairs of the
corporation.
Upon approval of such declaration of
dissolution by the Securities and
Exchange Commission, the corporation
shall cease to carry on its operations
except for the purpose of winding up its
affairs.
Sec. 116. Religious societies. – Any
religious society or religious order, or
any diocese, synod, or district
organization of any religious
denomination, sect or church, unless
forbidden by the constitution, rules,
regulations, or discipline of the religious
denomination, sect or church of which
it is a part, or by competent authority,
may, upon written consent and/or by
an affirmative vote at a meeting called
for the purpose of at least two-thirds
(2/3) of its membership, incorporate for
the administration of its temporalities
or for the management of its affairs,
properties and estate by filing with the
Securities and Exchange Commission,
articles of incorporation verified by the
affidavit of the presiding elder,
secretary, or clerk or other member of
such religious society or religious order,
or diocese, synod, or district
organization of the religious
denomination, sect or church, setting
forth the following:
1. That the religious society or
Religious Society
religious order, or diocese,
synod, or district organization is
a religious organization of a
religious denomination, sect or
church.
2. That at least two-thirds (2/3) of
its membership have given their
written consent or have voted to
incorporate, at a duly convened
meeting of the body.
3. That the incorporation of the
religious society or religious
order, or diocese, synod, or
district organization desiring to
incorporate is not forbidden by
competent authority or by the
constitution, rules, regulations
or discipline of the religious
denomination, sect, or church of
which it forms a part.
4. That the religious society or
religious order, or diocese,
synod, or district organization
desires to incorporate for the
administration of its affairs,
properties and estate.
5. The place where the principal
office of the corporation is to be
established and located, which
place must be within the
Philippines.
6. The names, nationalities, and
residences of the trustees elected
by the religious society or
religious order, or the diocese,
synod, or district organization to
serve for the first year or such
other period as may be
prescribed by the laws of the
religious society or religious
order, or of the diocese, synod, or
district organization, the board of
trustees to be not less than five
(5) nor more than fifteen (15).
 Is incorporated by an aggregate
of persons consisting of at least
2/3 of the membership of a
religious order, synod, or district
organization of any religious
denomination by filing with the
SEC articles of incorporation
verified by the affidavit of the
presiding elder or other member
 Is incorporated for the purpose of
administering its temporalities
and the management of its
affairs, properties and estate.