LAW ON CORPORATIONS

AMENDMENTS introduced by Republic Act No. 11232 or the Revised Corporation Code (RCC) are provided for in boxes
under provisions to which they relate.

DEFINITION: A corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or incident to its existence.

ATTRIBUTES:
1. ARTIFICIAL BEING – it has a juridical personality, separate and distinct from the persons composing it.

CORPORATE ENTITY THEORY

As a legal entity, the corporation is possessed with a juridical personality separate and distinct from the
individual stockholders or members and is not affected by the personal rights, obligations or transactions of
the latter. The properties it possesses belongs to it exclusively as a separate juridical entity such that the
personal creditors of its stockholders or members cannot attach corporate properties to satisfy their claims.

On the other hand, the corporation is not likewise liable for the debts, obligations or liabilities of its
stockholders. Neither may it properties be made answerable to satisfy the claim of creditors against its
stockholders or member even if the stockholder concerned is its president.

PIERCING THE VEIL OF CORPORATE ENTITY: The applicability of the corporate entity theory is confined to
legitimate transactions and is subject to equitable limitations to prevent its being used as a cloak or cover
for fraud or illegality, or to work injustice.

When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, defend
crime, the law will regard the corporation as a mere association of persons, or in the case of two corporations,
merge them into one, the one being merely regarded as part or instrumentality of the other. The same is true
where a corporation is a mere dummy and serves no business purpose and is intended only as a blind, or an
alter-ego or business conduit for the sole benefit of the stockholders.

In cases where the doctrine of piercing the veil of corporate fiction, the concept of a separate juridical
personality shall be set aside.

2. CREATED BY OPERATION OF LAW – the formal requirement of the State’s consent through compliance with the
requirements imposed by law is necessary for its creation such that the mere agreement of the persons composing
it or intending to organize it does not warrant the grant of its independent existence as a juridical entity;

COMMENCEMENT OF CORPORATE EXISTENCE: is at the time of the issuance of the Certificate of Incorporation or
Registration. It is only from this time that it acquires juridical personality and legal existence, EXCEPT:
a. Corporations by Estoppel;
b. Those created by special laws;
c. Sole Corporation – which is reckoned from the filing of verified articles.

3. RIGHT OF SUCCESSION – unlike in a partnership, the death, incapacity or civil interdiction of one or more of
its stockholder does not result in its dissolution; this is otherwise referred to as the corporation’s “strong”
juridical personality.

4. POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY AUTDHORIZED BY LAW – it can exercise only such powers and can hold
only such properties as are granted to it by the enabling statutes unlike natural persons who can do anything
as they please.

Powers of a corporation:
a. Express Powers – those expressly authorized by the Corporation Code and other laws, and its Articles of
Incorporation.
b. Implied Powers – Those that can be inferred from or necessary for the exercise of EXPRESS powers;
c. Incidental Powers – those that are incidental to the existence of the corporation.

under the Corporation Code, a Corporation has power and capacity:

a. To sue and be sued in its corporate name;
b. Of succession by its corporate name for the period of time stated in the articles of incorporation and the
certificate of incorporation;
c. To adopt and use a corporate seal;
d. To amend its articles of incorporation in accordance with the provisions of this Code;
e. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
f. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;
g. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction
of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
h. To enter into merger or consolidation with other corporations as provided in this Code;

AMENDMENT: Section 35 (formerly Section 36) par. (h) now expressly authorizes a corporation to enter
into a partnership and joint venture.
 i. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, that no corporation, domestic or foreign, shall give
donations in aid of any political party or candidate or for purposes of partisan political activity;

AMENDMENT: A domestic corporation can now give donations in aid of any political party or candidate or
for purposes of partisan political activity since under par. (i), the word “domestic” in corporations
prohibited from making such donations has already been removed limiting the prohibition to foreign
corporations only.

(1) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and
employees; and
(2) Implied Powers: To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.

ULTRA VIRES ACTS are those which cannot be executed or performed by a corporation because they are not within
its express, inherent, or implied powers as defined by its charter or AOI. Accordingly, it may be subject to
a collateral attack questioning the authority of the corporation to engage in such particular endeavor.

CLASSES OF CORPORATIONS:

STOCK CORPORATIONS
NON-STOCK CORPORATIONS
DOMESTIC CORPORATION
FOREIGN CORPORATION
CLOSE CORPORATIONS
OPEN CORPORATIONS
CORPORATION BY ESTOPPEL
DE JURE CORPORATION
DE FACTO CORPORATION
a. There exists a valid law under which it may be incorporated;
b. An attempt in good faith to incorporate;
c. Use of corporate powers.
PRIVATE CORPORATIONS
PUBLIC CORPORATIONS
ECCLESIASTICAL CORPORATIONS
LAY CORPORATIONS
AGGREGATE CORPORATIONS
CORPORATION SOLE
Corporations which have capital stock divided into shares and are authorized to
distribute to the holders of such shares dividends or allotments of the surplus
profits on the basis of the shares held are stock corporations.
Corporations which are not authorized to distribute surplus profits.
are those organized or created under or by virtue of the Philippine laws, either
by legislative act or under the provisions of the General Corporation Law.
are those formed, organized or existing under any laws other than those of the
Philippines
are those whose shares of stock are held by a limited number of persons like the
family or other closely-knit group. There are no public investors and the
shareholders are active in the conduct of the corporate affairs.
are those formed to openly accept outsiders as stockholders or investors. They
are authorized and empowered to list in the stock exchange and to offer their
shares to the public such that stock ownership can widely be dispersed. In which
case, they are called PUBLICLY-LISTED CORPORATIONS.
A group of persons which holds itself out as a corporation and enters into a
contract with third persons on the strength of such appearance cannot be permitted
to deny its existence in an action under the said contract.
A corporation organized in accordance with the requirements of law
A corporation where there exists a flaw in its incorporation. The requisites:
those formed for some private purpose, benefit, aim or end. They are created for
the immediate benefit and advantage of the individuals or members composing it
and their franchise may be considered as privileges conferred by the State to be
exercised and enjoyed by them in the form of the corporation.
those formed or organized for the government of a portion of the State or any of
its political subdivisions and which have for their purpose the general good and
welfare.
are composed exclusively of ecclesiastics organized for spiritual purposes or for
administering properties held for religious ones. They are organized to secure
public worship or perpetuating the right of a particular religion.
are those organized for purposes other than religion. They may further be
classified as:
a. ELEEMOSYNARY: created for charitable and benevolent purposes such as those
organized for the purpose of maintaining hospitals and houses for the sick, aged
or poor.
b. CIVIL: organized not for the purpose of public charity but for the benefit,
pecuniary or otherwise, of its members.
are those composed of a number of individuals vested with corporate powers.
those consist of one person or individual only and who are made as bodies corporate
and politic in order to give them some legal capacity and advantage which, as
natural persons, they cannot have. Under the Code, a corporation sole may be
formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding
elder or religious denominations, sects or churches.

ORGANIZATION AND INCORPORATION

1. PROMOTIONAL STAGE: undertaken by the organizers or promoters who bring together persons interested in the
business venture. They enter into contract either in their own names or in the name of the proposed corporation.

A promoter, although he may assume to act for and on behalf of a projected corporation and not for himself,
will be held personally liable on contracts made by him for the benefit of a corporation he intends to organize.
The personal liability continues even after the formation of the corporation unless there is novation or other
agreement to release him from liability.

2. PROCESS OF INCORPORATION: includes the drafting of the Articles of Incorporation, preparation and submission
of additional and supporting documents, filing with the SEC, and the subsequent issuance of the Certificate
of Incorporation.

Contents of the Articles of Incorporation:

a. The name of the corporation;

The name of the corporation is essential to its existence since it is through it that it can act and
perform all legal acts. Each corporation should therefore, have a name by which it is to sue and be sued
and do all legal acts.

A corporation, once formed, cannot use any other name, unless its Articles of Incorporation has been
amended in accordance with law as this would result in confusion and may open the door to fraud and evasion
as well as difficulties of administration and supervision.

Thus, the organizers must make sure that the name they intend to use as a corporate name is not similar or
confusingly similar to any other name already registered and protected by law since the SEC would refuse
registration if such be the case.

AMENDMENTS: The requirement with regards the registration of corporate name now specifically includes
those which are “already reserved for the use of another corporation”, and indicated that a corporate
name is NOT DISTINGUISHABLE EVEN IF it contains one or more of the following:
1. The word “corporation”, “company”, “incorporated”, “limited”, “limited liability”, or an abbreviation
of one of such words; and
2. Punctuations, articles, conjunctions, contractions, prepositions, abbreviations, different tenses,
spacing, or number of the same word or phrase.

The same provision likewise granted the following powers to the SEC:
1. Authority to summarily order the corporation to immediately cease and desist from using such name
and require the corporation to register a new one whenever its name is:
a. not distinguishable from a name already reserved or registered for the use of another corporation;
b. already protected by law; or
c. contrary to law, rules and regulations.
2. Cause the removal of all visible signages, marks, advertisements, labels, prints and other effects
bearing such corporate name; and
3. Hold the corporation and its responsible directors or officers in contempt and/or hold them
administratively, civilly and/or criminally liable and/or revoke the registration of the corporation
if the corporation fails to comply with the Commission’s order.

Prior checking of availability of name: It is now included under Section 18 that “[a] person or group
of persons desiring to incorporate shall submit the intended corporate name to the Commission for
verification.” Once allowed, only then will the Corporation submit its Articles of Incorporation.

b. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has
more than one stated purpose, the articles of incorporation shall state which is the primary purpose and
which is/are the secondary purpose or purposes: Provided, that a non-stock corporation may not include a
purpose which would change or contradict its nature as such;

The statement of the objects or purpose or powers in the charter results practically in defining the scope
of authority of the corporate enterprise or undertaking. This statement both congers and also limits the
actual authority of the corporate representatives.

The reasons for requiring a statement of the purposes or objects:

1. In order that the stockholder who contemplates on an investment in a business enterprise shall know
within what lines of business his money is to be put at risks;
2. So that the board of directors and management may know within what lines of business they are authorized
to act; and
3. So that anyone who deals with the company may ascertain whether a contract or transaction into which he
contemplates entering is one within the general authority of the management.

SECONDARY PURPOSE: Although the Corporation Code does not restrict nor limit the number of purpose or
purposes which a corporation may have, Sec. 14 thereof, requires that if it has more than one purpose, the
primary purpose as well as the secondary ones must be indicated therein.

PROHIBITION: The following are prohibited by special laws for having any other purpose not peculiar to
them:
1. Educational, religious, and other non-stock corporations cannot include any other purpose which would
change or contradict its nature or to engage in any enterprise to make profits for is members;
2. Insurance companies cannot engage in commercial banking at the same time, and vice-versa; and
3. Stock brokers can have no other line of business not peculiar to them.

RESTRICTIONS AND/OR ADDITIONAL REQUIREMENTS:

1. As a general rule, the purpose or purposes must be lawful. Hence, the SEC is duty bound to determine
the legality of the corporate purpose/s before it issues the certificate of registration;
2. A corporation may not be formed for the purpose of practicing a profession like law, medicine or
accountancy, either directly or indirectly. These are reserved exclusively for professional
partnerships;
3. The retail trade, where the corporate capital is less than $2.5M, or its peso equivalent are reserved
exclusively for Filipinos, or for corporations or partnerships wholly owned by such citizen.
 4. As a general rule, corporations with foreign equity are not allowed to engage in restaurant business
but corporations with such foreign equity can purse such undertaking if it is incidental or in connection
with hotel or inn-keeping business.
5. Management consultants, advisers and/or specialists, must submit the personal information sheet of the
incorporators and directors in order that the SEC may be able to find out or determine whether or not
the applicant corporation is qualified to act as such.
6. As a matter of policy, financing companies are required by the SEC to submit certain additional
documents together with their applications for registration to verify compliance with RA 8556.
7. For bonded warehousing companies, an undertaking to comply with the General Bonded Warehousing Act
must be submitted along with the AOI.
8. In case the applicant proposes to engage in the business of hospital and/or clinic, the purpose clause
must contain the following proviso: “Provided that purely medical or surgical services in connection
therewith shall be performed by duly qualified physician and surgeon who may or may not be freely and
individually contracted by the parties.”
9. In the case of Customs Brokerage business, the applicant must submit the license of at least two customs
brokers connected with the applicant corporation;
10. Transfer Agents, Broker and Clearing Houses must submit the certificate of admission to the profession
of the CPA of any officer of the corporation;
11. Carriage of mails cannot be a purpose of a corporation unless a special franchise has been granted to
it.
12. If the corporate purpose or objective includes any purpose under the supervision of another government
agency, prior clearance and/or approval of the concerned government agencies or instrumentalities will
be required pursuant to the last paragraph of Sec. 17 of the Code.

GENERAL LIMITATIONS:
1. The purpose or purposes must be lawful;
2. The purpose must be specific or stated concisely although in broad or general terms;
3. If there is more than one purpose, the primary as well as the secondary ones must be specified; and
4. The purposes must be capable of being lawfully combined

c. The place where the principal office of the corporation is to be located, which must be within the
Philippines;

It must be located within the Philippines. The AOI must not only specify the province, but also the City
or Municipality where it is located. In this regard, it is to be observed that the principal office may be
in one place, but the business operations are actually conducted in other areas. The law does not, of
course, require a statement of the place of corporate operations and, therefore, may be dispensed with.

The principal office serves as the residence of the corporation and is thus important in:
i. venue of actions;
ii. registration of chattel mortgage of shares;
iii. validity of meetings of stockholders or members in so far as venue thereof is concerned.

d. The term for which the corporation is to exist;

The corporate term is necessary in determining at what point in time the corporation will cease to exist
or have lost its juridical personality. Once it ceases to exist, its legal personality also expires and
could not thereafter, act in its own name for the purpose of prosecuting it business.

EXTENSION: can be made no earlier than 5 years prior to expiry date unless there are justifiable reasons.

AMENDMENTS:
Perpetual Existence: The Revised Corporation Code removed the limitation of 50 years for corporate
existence, since under the revised Sec. 11, “[a] corporation shall have perpetual existence unless its
articles of incorporation provides otherwise.”

As to corporations already existing prior to the effectivity of the Code, and which continue to exist,
they shall have perpetual existence. Except if by majority vote of its stockholders, it notifies the
SEC to retain its specific corporate term. The same section provides that dissenting stockholders can
exercise their appraisal right.

Extension: The same section also changed the period of extension of corporate term from 5 years to 3
years prior to expiration and that such extension takes effect on the day following the original or
subsequent expiry dates.

Revival: Also under Sec. 11, after the expiration of the corporate term, a corporation may file for
revival of its corporate existence. Upon approval by the Commission, the corporation shall be deemed
revived and a certificate of revival of corporate existence shall be issued, giving it perpetual
existence, unless its application for revival provides otherwise

e. The names, nationalities and residences of the incorporators;

CORPORATORS apply to all who compose the corporation at any given time and need not be among those who
executed the AOI at the start of its formation or organization.

INCORPORATORS are those mentioned in the AOI as originally forming the corporation and who are signatories
in the AOI.
 An incorporator may be considered as a corporator as long as he continues to be a stockholder or a member,
but not all corporators are incorporators.

Number of Incorporators: not less than 5 but not more than 15.

Qualifications:
1. Must be natural persons.
2. Of Legal Age.
3. Must own or subscribe to at least 1 share.
4. Majority must be residents of the Philippines.

The law does not provide for citizenship requirements. EXCEPT: in certain areas of activity or industry
wherein ownership of shares of stock are reserved wholly or partially to Filipino citizens. Hence, all
incorporators may be foreigners provided majority of them are residents. Note that the requirement is
residence and not citizenship

AMENDMENT: The following are the changes on the rules concerning incorporators of a corporation:
1. A partnership, association or corporation are now included in the enumeration of who may be
incorporators, which used to have “natural persons” only.
2. The minimum of 5 incorporators has been removed, it is now just indicated as not more than 15.
3. The following are NOT allowed to organize a corporation:
a. Natural persons who are licensed to practice a profession and
b. Partnerships or associations organized to practice a profession

Unless otherwise provided under special laws.

It is also notable that the requirement that majority are residents of the Philippines and individuals
must be of legal age are also not in the amended provision. (Sec. 10, Revised Corporation Code)

Under the SEC Memorandum Circular No. 16-2019, implementing the amendment, the qualifications for
incorporators, are now accordingly revised as follows:
1. Number: 2 or more but not more than 15. Only an OPC may have a single stockholder and director.
2. Must own or subscribe to at least one share.
3. May be composed of a combination of:
a. Natural Persons
b. SEC-registered partnership/s (EXCEPT: Partnerships under “Dissolved” or “Expired” status)
c. SEC-registered domestic corporations or association/s (EXCEPT: Corporations under “Delinquent,
Suspended, or Revoked” status)
d. Foreign corporations.
4. Incorporators who are natural persons must be of legal age, and must sign the AOI/By-laws.

As it stands, it would be noted that:

1. Juridical persons may be incorporators
2. The residency requirement has already been removed
3. Natural persons who are incorporators are still required to be of legal age.

f. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);

DIRECTORS compose the governing board in stock corporations. TRUSTEES pertain to non-stock corporations.

AMENDMENTS:
1. The number of directors as indicated in the Articles is “not more than 15”, while for trustees, “may
be more than 15”
2. Section 22 of the RCC, the following corporations vested with public interest shall have independent
directors constituting at least 20% of such board:
a. Corporations covered by the Securities Regulations Code;
b. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-
need, trust and insurance companies, and other financial intermediaries; and
c. Other corporations engaged in business vested with public interest similar to the above, as may
be determined by the SEC.

An independent director is a person who, apart from shareholdings and fees received from the
corporation, is independent of management and free from any business or other relationship which
could, or could reasonably be perceived to materially interfere with the exercise of independent
judgment in carrying out the responsibilities as a director.

g. The names, nationalities and residences of persons who shall act as directors or trustees until the first
regular directors or trustees are duly elected and qualified in accordance with this Code;

h. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines,
the number of shares into which it is divided, and in case the share are par value shares, the par value
of each, the names, nationalities and residences of the original subscribers, and the amount subscribed
and paid by each on his subscription, and if some or all of the shares are without par value, such fact
must be stated;

The Corporation Code requires the AOI to state the authorized capital stock, the number of shares and/or
kind of shares into which the authorized capital is divided, the par value of each share, if there be any,
the names, nationalities and residences of the original subscribers, and the amount subscribed and paid by
 each. At least 25% of the authorized capital stock must be subscribed and at least 25% of the subscribed
capital must be paid and in no case may the paid-up capital be less than P5,000.

The 25% minimum paid-in capital can be paid by any shareholder, meaning that it is not particularly required
that each subscriber pay 25% of their subscription.

There are instances where the SEC, by virtue of an existing law, rules and regulations or policies, requires
the payment of more than the amount provided in the Code, such as Financing Companies where the required
minimum paid-up capital be P10,000,000 (within Metro Manila), P5,000,000 (other cities), and P2,000,000
(municipalities), HMOs which require P10M paid-up capital, Insurance Brokers which require P20M.

AMENDMENTS: The requirement under the old Section 13 that at least 25% of the Authorized Capital Stock
be subscribed and that at least 25% of the subscribed capital must be paid-up, has been removed.

Likewise, the provision in the AOI disclosing the 25%/25% subscribed/paid-up capital requirement has
been removed. (but this requirement still applies in case of increase of authorized capital stock under
Section 37).

Moreover, the RCC now authorizes the filing of the AOI and applications for amendments thereto in the
form of electronic document.

AUTHORIZED CAPITAL signifies the MAXIMUM amount fixed in the articles to be subscribed and paid-in or
secured to be paid by the subscribers. It may also refer to the maximum number of shares that a corporation
can issue.

SUBSCRIBED CAPITAL STOCK is the total number of shares and its total value for which there are contracts
for their acquisition or subscription. It is in effect, the stockholder’s equity account showing that part
of the authorized capital stock which has been paid or promised to be paid, or that portion of the
authorized capital stock which has been subscribed by the subscribers or stockholders.

PAID UP CAPITAL STOCK or paid-in capital is the actual amount or value which has been actually contributed
or paid to the corporation in consideration of the subscriptions made thereon.

Considerations for stocks:

1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary or convenient
for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock
issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.

AMENDMENT: Consideration for stocks under Section 61 (formerly Section 60) now includes:
1. Shares of stock in another corporation; and/or
2. Other generally accepted form of consideration.

Note:
• Stocks cannot be issued for a consideration less than the par or issue price thereof.
• Promissory notes or future service cannot be considered valid consideration for stocks.

OUTSTANDING CAPITAL STOCK: total number of shares issued, including those which are subscribed and not yet
fully paid, but excluding treasury shares.

i. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of
the contributors and the amount contributed by each; and

j. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and
convenient.

RESTRICTIONS AND PREFERENCES:

If the corporation desires to grant such options, restrictions and/or preferences, the same must be
indicated in the AOI AND in all of the stock certificates. Failure to provide the same in the AOI would
not bind the purchasers in good faith despite the fact that the said restriction and/or preference is
indicated in the by-laws of the corporation.

In a close corporation, however, such restrictions and preferences must not only appear in the articles of
incorporation and in the stock certificates BUT ALSO be embodied in the by-laws of that close corporation
otherwise it may not bind purchasers in good faith.

OTHER MATTERS TO BE INDICATED IN THE ARTICLES OF INCORPORATION:

1. The name of the Treasurer duly elected by the subscribers
2. No Transfer Clause: in case a corporation is required to maintain a required minimum Filipino ownership,
committing that no transfer shall be made which shall reduce the ownership of Filipino citizens to
less than the required percentage.
3. The Execution Clause: which will contain the names and signatures of the incorporators
4. Treasurer’s Affidavit which contains the certification of the Treasurer, under oath, that the required
 25% of the authorized capital stock has been subscribed, 25% of the subscription has been paid, in an
amount not less than P5,000.
5. Notarial Acknowledgment

GROUNDS FOR DISAPPORVAL BY THE SEC:

a. That the articles of incorporation or any amendment thereto is not substantially in accordance with the
form prescribed herein;
b. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary
to government rules and regulations;
c. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false;
d. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not
been complied with as required by existing laws or the Constitution.
e. That the required favorable recommendation from the appropriate government agency, for corporations
governed by special laws, was not obtained, e.g., Banks – BSP, Insurance Companies – Insurance Commission.

AMENDMENT: The following were specifically included as those who would be needing a favorable
recommendation from the concerned government agency:
1. Non-Stock Savings and Loans Associations; and
2. Pawnshops.

On the other hand, the following were removed from the enumeration of entities requiring favorable
recommendations:
1. Educational Institutions; and
2. Other corporations governed by special laws.

AMENDMENT OF THE ARTICLES OF INCORORPATION, IN GENERAL WOULD REQUIRE:

a. Majority approval of the members of the Board;
b. Written assent of stockholders representing 2/3 of the outstanding stocks
c. Approval of the SEC. If the SEC did not act on the application within 6 months from the date of filing,
the amended is deemed approved.

BOARD OF DIRECTORS

The Board of Directors (or trustees or other designation allowed under Sec. 138) is the supreme authority in
matter of management of the regular and ordinary business affairs of the corporation.

However, this authority does not extend to the fundamental changes in the corporate charter such as amendments or
substantial changes thereof, which belong to the stockholders as a whole.

Classification of powers of the board members/corporate officers: The general rule is that a corporation is bound
by the acts of its corporate officers who act within the scope of the classifications of powers of corporate
agents, which are:
1. Those expressly conferred or those granted by the articles of incorporation, corporate by-laws or by the
official act of the board of directors;
2. Those that are incidental or those acts as are naturally and ordinarily done which are reasonable and necessary
to carry out the corporate purpose or purposes;
3. Those that are inherent or acts that go with the office;
4. Those that are apparent or those acts which although not actually granted, the principal knowingly allows or
permits it to be done; and
5. Powers arising out of customs, usage or emergency

QUALIFICATIONS AND DISQUALIFICATIONS: The by-laws of a corporation may provide for additional qualifications and
disqualifications of its members of the board of directors or trustees. However, it may not do away with the
minimum qualifications and disqualifications.

Qualifications of a Director/Trustee:
1. Must own at least 1 share in their own names or a member (in the case of trustees);
2. Majority must be resident of the Philippines. Even aliens may be elected as directors, provided that the
majority of such directors are residents of the Philippines. EXCEPT: in activities exclusively reserved to
Filipino citizens like the management of educational institutions and those governed by the Retail Trade Law

Disqualifications of a Director/Trustee: A person shall be disqualified from being a director, trustee or

officer of any corporation:
1. If, within 5 years prior to election or appointment as such, the person was Convicted by Final Judgment
a. Of an offense punishable by imprisonment for a period exceeding 6 years;
b. Violation of the Corporation Code;
c. Violation of the Securities Regulations Code
2. Found administratively liable for any offense involving fraud acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to
the disqualifications under the Code.
4. Such other disqualifications that may be provided in the by-laws.

AMENDMENT: Items underlined are new disqualifications provided under the Revised Corporation Code.

ELECTION OF MEMBERS OF THE BOARD/TRUSTEES

1. Majority of the outstanding capital stock, whether in person or by written proxy must be present at the
election of the directors; or majority of members entitled to vote, in the case of a non-stock corporation.
If the required quorum is not obtaining, the meeting may be adjourned;
2. On the request of any voting stockholder or member, the election may be held by ballot otherwise viva-voce
 would suffice.
3. The candidates receiving the highest number of votes shall be elected

AMENDMENT: Report Requirement: Section 25 of the RCC requires a report within 30 days to be submitted to the
SEC in case of non-holding of elections, which shall include a new date for the election, which shall not be
later than 60 days from the scheduled date.

If no new date has been designated, or if the rescheduled election is likewise not held, the SEC may, upon the
application of a stockholder, member, director or trustee, summarily order that an election be held.

Should a director, trustee or officer die, resign or in any manner cease to hold office, the secretary, or the
director, trustee or officer of the corporation, or in case of death, the officer’s heirs shall, within seven
(7) days from knowledge thereof, report in writing such fact to the SEC.

METHODS OF VOTING:
1. Straight Voting – every stockholder may vote such number of shares for as many persons as there are directors
to be elected
2. Cumulative Voting:
a. Cumulative voting gives the stockholder entitled to vote the right to give a candidate as many votes as the
number of directors to be elected multiplied by the number of his shares shall equal (Cumulative Voting for
one candidate) or he may distribute them among the candidates as he may see fit (Cumulative voting by
distribution)
b. This is granted by law to each stockholder with voting rights. However, in non-stock corporations, cumulative
voting is generally not allowed, UNLESS allowed by the AOI or by-laws.
c. Under this method, if there are 10 directors to be elected, a holder of 1,000 shares will have 10,000 votes
which he may cast in favor of one candidate or may apportion to any number of candidate he may wish
d. PURPOSE: to allow the minority to have a rightful representation in the board of directors.
e. Cumulative voting is not available in non-stock corporations.

REMOVAL AND FILLING-UP OF VACANCIES

1. By-laws may provide for causes or grounds for removal of a director;
2. A director representing the minority may not be removed except for those causes;
3. A director NOT representing the minority may be removed even without a cause.

AMENDMENT: The SEC is now empowered to motu proprio (not just upon verified complaint) and after due notice and
hearing, order the removal of a director or trustee elected despite the disqualification, or whose
disqualification arose or is discovered subsequent to an election.

Requirements for a valid removal:

1. The removal should take place at a general or special meeting duly call for that purpose;
2. The removal must be by the vote of the stockholders holding or representing 2/3 of the outstanding capital
stock or the members entitled to vote in cases of non-stock corporations; and
3. There must be a previous notice to the stockholders or members of the intention to propose such removal at the
meeting either by publication or on written notice to the stockholders or members.

Vacancy:

CAUSE OF VACANCY WHO WILL FILL THE VACANCY WHEN ELECTION WILL BE HELD*
Removal Stockholders Same day of the meeting
authorizing the removal

Expiration of the term Stockholders No later than the day of such

expiration at a meeting called for
that purpose

Other causes (death, Board of Directors – if they still No later than 45 days from the
resignation, constitute a quorum; time the vacancy arose
abandonment)
Stockholders – if the Directors no
longer constitute a quorum
Increase in the number Stockholders Same day of the meeting
of Directors authorizing the removal

AMENDMENTS: Section 28 of the RCC now provides when* should the election of the replacement member of the Board
will be held.

Replacement of Hold-Over Directors: in the event that a director, after the expiration of his term is not replace
since there was no election held, such director can continue to function in a holdover capacity. However, if he
resigns, the stockholders will be the one to replace him even if the remaining directors continue to constitute a
quorum. Note that the power of the Board to fill up the vacancy is only if the director resigns before the
expiration of his term. In this instance, the term of the director already expired, he just continued as such only
in a hold-over capacity.

AMENDMENT: EMERGENCY BOARD: When the vacancy prevents the remaining directors from constituting a quorum and
emergency action is required to prevent grave, substantial, and irreparable loss or damage to the corporation,
the vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the
remaining directors or trustees.
 The action by the designated director or trustee shall be limited to the emergency action necessary, and the
term shall cease within a reasonable time from the termination of the emergency or upon election of the
replacement director or trustee, whichever comes earlier. The corporation must notify the SEC within 3 days
from the creation of the emergency board, stating therein the reason for its creation

Compensation of Directors/Trustees: General Rule: Directors are not entitled to receive any compensation this is
because the office of a director is usually filled up by those chiefly interested in the welfare of the institution
by virtue of their interest in stock or other advantages and such interests are presumed to be the motive for
executing duties of the office without compensation. Except:
1. Reasonable per diems;
2. As provided in the by-laws
3. Upon a majority vote of the stockholders; and
4. If they are performing functions other than that of a director.

Limit: In no case shall the total yearly compensation of the directors (except number 4 above), exceed 10% of the
net income before tax of the corporation during the preceding year. (Section 30)

AMENDMENT: Section 29 of the RCC now specifically prohibits the Director/Trustee from participating in the
fixing of their own per diems or compensation.

Likewise, the same section requires corporations vested with public interest to submit to their shareholders
and the Commission, an annual report of the total compensation of each of their directors or trustees.

CORPORATE OPPORTUNITY DOCTRINE: it places a director of a corporation in the position of a fiduciary and prohibits
him from seizing a business opportunity and/or developing it at the expense and with the facilities of the
corporation. He cannot appropriate to himself opportunity which in fairness should belong to the corporation.

Ratification:
1. The second paragraph of Sec. 31 which makes a director liable to account for profits if he attempts to acquire
or acquires any interest adverse to the corporation in respect to any matter reposed in him in confidence as
to which equity imposes a disability upon him to deal in his own behalf is not subject to ratification.
2. Whereas, in Sec. 34, if a director acquires a business opportunity which should belong to the corporation, he
is bound to account for such profits unless his act is ratified by the stockholders owing or representing at
least 2/3 of the outstanding capital stock.

Example: A, B, C, D and E are directors of REALTY CORP., Z wanted to sell his property with a fair market value
of P100M for P90M.
a. If it was offered first to A, and A made a profit of P90M, this would fall under Sec. 34 and may be subject
to ratification; A merely acquired a business opportunity owing to the corporation.
b. If it was offered to REALTY CORP., and A, later on offered to buy it for P95 and sold it making a profit of
P5M, it would fall under Sec. 31 and not subject to ratification, A should return the profits to REALTY CORP.
It was a matter reposed in him in confidence.

SELF-DEALING DIRECTORS: is one who deals or transacts business with his own corporation.

Generally, A contract entered into by a director with his own corporation is voidable at the latter’s option,
except
1. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was nor necessary for the approval of the contract (see amendment
below);
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.

On the other hand, where any of the first two conditions is absent, the contract becomes voidable subject to the
ratification of the stockholders representing 2/3 of the outstanding capital stock – the requirements of which
are: (1) there must be a meeting called for that purpose; (2) full disclosure of the adverse interest of the
director; and (3) the contract is fair and reasonable under the circumstances.

If the self-dealing director owns all or substantially all of the shares of stock, thereby making ratification
easily possible, the reasonableness of the transaction shall be determined - to which there is no yardstick and
remains to be a question of fact depending on the circumstances.

AMENDMENT: The approval for transactions of self-dealing directors of corporations vested with public interest
shall require:
1. At least two-thirds (2/3) of the entire membership of the board, with
2. At least a majority of the independent directors.

INTERLOCKING DIRECTOR: is a director in one corporation who deals or transacts with another corporation of which
he is also a director. In such case, there may effectively be a dual agency, a divided allegiance where allegiance
in one corporation may be subordinated to the other.

1. The contract between corporations with interlocking director is valid absent fraud and provided it is reasonable
under the circumstances;
2. If the interest of the interlocking director in one corporation exceeds 20% and in the other merely nominal,
the contract becomes voidable at the latter corporation’s option. In effect, the director would be treated as
a self-dealing director discussed above.
3. If the interest in both companies is either both substantial or both nominal, no. 1 would apply (i.e., valid).
REMEDIES AGAINST ERRING OFFICERS/DIRECTORS: In case of a wrongful or fraudulent act of a director, officer or
agent, stockholders have the following options:
1. Individual or Personal Action – for direct injury to his rights, such as denial of his right to inspect
corporate books and records or pre-emptive rights;
2. Representative or Class Suit – in which one or more members of a class sue for themselves as a class or for
all to whom the right was denied, either as an individual action or a derivative suit; and a
3. Derivative Suit – an action based on injury to the corporation – to enforce a corporate right – wherein the
corporation itself is joined as a necessary party, and recovery is in favor of and for the corporation. It is
a suit granted to any stockholder to institute a case to remedy a wrong done directly to the corporation and
indirectly to stockholders.

The requisites for a derivative suit are as follows:

a. the party bringing suit should be a shareholder as of the time of the act or transaction complained of,
the number of his shares not being material;
b. he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for
the appropriate relief but the latter has failed or refused to heed his plea; and
c. the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit.

EXECUTIVE COMMITTEE: The by-laws of a corporation may create an executive committee, composed of not less than
three members of the board, to be appointed by the board.

Said committee may act, by majority vote of all its members, on such specific matters within the competence of
the board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to:
1. Approval of any action for which shareholders’ approval is also required;
2. The filing of vacancies in the board;
3. The amendment or repeal of bylaws or the adoption of new by-laws;
4. The amendment or repeal of any resolution of the board which by its express terms is not so amendable or
repealable; and
5. A distribution of cash dividends to the shareholders.

AMENDMENT: The board of directors may create special committees of temporary or permanent nature and to determine
the members’ term, composition, compensation, powers, and responsibilities.

CORPORATE OFFICERS

ELECTION OF CORPORATE OFFICERS: Except in a close corporation where the corporate officers may be elected directly
by the stockholders, the Code requires the BOD to elect the said officers;

The officers that may be elected are the:

1. President – who must be a director;
2. Treasurer – who may or may not be a director;
3. Secretary – who should be a resident and citizen of the Philippines;
4. Such other officers as may be provided for in the by-laws.

AMENDMENTS: Section 24 now requires that the Treasurer of the Corporation be a resident.

Compliance Officer – is now a required corporate officer in corporations vested with public interest.

Any two or more positions may be held concurrently by the same person, except:
1. The president and the secretary;
2. The president and the treasurer.

AUTHORITY OF CORPORATE OFFICERS TO ACT IN BEHALF OF THE CORPORATION: a corporate officer or agent may represent
and bind the corporation in transactions with third person to the extent that authority has been conferred upon
him, and this includes powers which have been:
1. intentionally conferred, and
2. also, such powers as, in the usual course of business, are incidental thereto, or may be implied therefrom,
3. powers added by custom and usage, as usually pertaining to the particular officer or agent, and
4. such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that
it has conferred

LIABILITY OF CORPORATE OFFICERS: The general rule is that unless the law specifically provides a corporate officer
or agent is not civilly or criminally liable for acts done by him as such officer or agent, or when absent bad
faith or malice.

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation
may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or (c) gross negligence
in directing its affairs, or (d) conflict of interest, resulting in damages to the corporation, its stockholders
or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation;
4. He is made, by a specific provision of law, to personally answer for his corporate action.

ELECTION OF CORPORATE OFFICERS: require the majority of ALL MEMBERS of the Board, not just the usual majority of
those present in the meeting. Meaning, if there are 15 members of the Board, and 9 are present, 8 votes would be
necessary to elect a corporate officer.

CLASSES OF SHARES OF STOCK

Shares of Stock designate the units into which the proprietary interest in a corporation is divided. They represent
the proportionate integers or units, the sum of which constitutes the capital stock of the corporation. It is
likewise the interest or right which the owner, called the stockholders or shareholder, has in the management of
the corporation, and in the surplus profits and in case of distribution, in all of its assets remaining after the
payment of its debts.

Certificate of Stock is a document or instrument evidencing the interest of a stockholder in the corporation.

AMENDMENT: The SEC may require corporations whose securities are traded in trading markets and which can
reasonably demonstrate their capability to do so to issue their securities or shares of stocks in uncertificated
or scripless form in accordance with the rules of the SEC. (Section 62)

COMMON STOCKS are those which entitles its owner to an equal or pro-rata division of profits, if there are any,
but without any preference or advantage in that respect over any other stockholder or class of stockholders.

Voting Rights: A common share usually carries with it the right to vote, and frequently, the exclusive right to
do so. The only time a common stock’s right to vote may be limited is where there exists Founders’ Shares.

FOUNDER’S SHARES: are shares issued to the founders of the corporation which are granted certain right and
privileges such as the exclusive right to vote and be voted for in the election of directors, for a period not
to exceed 5 years, subject to the approval of the SEC.

The period of 5 years is non-extendable because it may result in the almost perpetual disqualification of other
stockholders to elect or be elected as members of the BOD resulting to the lack of proper representation
thereat.

AMENDMENT: the amended Section removed the requirement of “approval of the SEC,” from where the start of the
five-year period shall commence.

On the other hand, a limitation was added “That such exclusive right shall not be allowed if its exercise
will violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”; Republic Act No. 7042,
otherwise known as the “Foreign Investments Act of 1991”; and other pertinent laws.”

PREFERRED STOCKS is a stock that gives the holder preference over the holder of common stocks with respect to the
payment of dividends and/or with respect to distribution of capital upon liquidation.

LIMITATIONS imposed by the Code in the issuance of preferred stocks:

1. They can be issued only with a stated par value; and
2. The preference must be stated in the AOI and in the certificate of stock otherwise each share shall be, in all
respect, equal to every other share.

Preference as to Dividends
They have the privilege of being paid dividends first before any other stockholders are paid theirs. The guaranty
is not absolute so as to create a relation of debtor and creditor between the corporation and the holders of such
stock. The amount of preference is stated in the contract of subscription and is usually a fixed percentage or by
specified amount indicated therein.

Participating and Non-Participating Preferred Shares

If the preferred share is participating, they are entitled to participate in dividends with the common shareholders
beyond their stated preference. Non-participating preferred shares on the other hand are entitled to its fixed
priority or preference only.

Cumulative and Non-cumulative Preference Shares

Cumulative preferred shares are those that entitle the owner thereof to payment not only of current dividends but
also back dividends not previously paid whether or not, during the past years, dividends were declared or paid.
In light of the provision of the Code stating that all shares are equal in all respects unless otherwise stated
in the AOI, a preferred share to be considered cumulative, the same must be provided for and specified in the
certificate.

Non-cumulative preferred shares are those which grant the holders of such shares only to the payment of current
dividends but not back dividends, when and if dividends are paid, to the extent agreed upon before any other
stockholders are paid the same.

Voting Rights of Preferred Shares: same with redeemable shares, preferred shares are usually denied voting rights
– but this right must be clearly withheld. However, even if the right to vote is withheld, they shall have the
right to vote on the following:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;

AMENDMENTS: In determining whether the sale involved covers all or substantially all the properties and
assets of the corporation, the old Section 40 only provides “if thereby the corporation would be rendered
incapable of continuing the business or accomplishing the purpose for which it was incorporated”.
 Section 39, amending the above-mentioned provision now includes “The determination of whether or not the
sale involves all or substantially all of the corporation’s properties and assets must be computed based on
its net asset value, as shown in its latest financial statements.”

Also, the notice requirement can likewise now be sent through electronic means, if allowed by the by-laws
or done with the consent of the stockholders.

Amendment of by-laws: The submission of the amended by-laws no longer requires that it be filed with the SEC
attached to the original articles of incorporation and original bylaws.

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

AMENDMENT: Section 37 (formerly Section 38) of the RCC revised the requirements for the increase/decrease
of capital stock or creating/increasing any bonded indebtedness as follows:
1. The written notice requirement may now be sent through electronic means.
2. On the other hand, the certificate signed by the BOD and the chairperson and secretary of the stockholders’
meeting no longer includes the actual indebtedness of the corporation on the day of the meeting.
3. Whenever appropriate, the approval of the Philippine Competition Commission shall be secured also.
4. Submission with the SEC shall be within 6 months from the date of approval of the BOD and stockholders,
which period may be extended for justifiable reasons.

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.

Preference upon liquidation: this preference must be stated in the contract to accordingly grant such preference
in the distribution of the assets ahead of the common stockholders, including dividends in arrears in case the
preferred shares are cumulative.

PAR AND NO-PAR VALUE SHARES

Par Value Shares are those whose values are fixed in the Articles and shown on the certificate. The par value is
the minimum subscription or original issue price of the shares. If the shares are issued at less than its par
value, the shares sold is considered as watered stocks, and the stockholders will remain liable for the difference
of the par value and the amount paid therefor.

No Par Value Shares are those whose issued price are not stated in the certificate of stock but may be fixed in
the AOI, or by the BOD when so authorized the articles or the by-laws, or in the absence thereof, the stockholders
themselves. They do not purport to represent any stated proportionate interest in the capital measured by value,
but only an aliquot part of the whole number of shares of the corporation issuing it.

The Code allows the issuance of no par value shares, subject to the following limitations provided in Sec. 6:
1. Such shares once issued, are deemed fully paid and thus, non-assessable;
2. The consideration for its issuance should not be less than P5;
3. The entire consideration constitutes capital, hence, not available for dividend declaration;
4. They cannot be issued as preferred stock; and
5. They cannot be issued by banks, trust companies, insurance companies, public utilities and building and loans
associations.

WATERED STOCKS: Watering of stocks happened when the shares are issued at less than its par or issue price.

ILLUSTRATION: X Co. has P10M Authorized Capital Stock divided into: (1) 5M shares at P1.00 par value; and (2)
1M no par value shares with issued value at P5.00. A acquired 1M of the par value shares for P.80 and 100,000
no par value shares at P4.00:
1. LIABILITY FOR PAR VALUE SHARES: The directors who consented to the issuance or were passive about it,
without written dissent, are solidarily liable with A for the difference of P.20;
2. LIABILITY FOR NO PAR VALUE SHARES: A cannot be held liable because the no par value shares are “deemed fully
paid and non-assessable” (Sec. 6). Accordingly, only the directors or officers consenting to the issuance
are liable.

REDEEMABLE SHARES: are those subject to redemption, as indicated in the contract, usually attached to preferred
shares and other debt securities like bonds. This type of shares grants the corporation the right to repurchase
the shares at its option or at the option of the holder based on the face or issued value plus a specified premium.
The redemption may be optional or mandatory at a fixed future date.

The repurchase is not subject to the availability of unrestricted retained earnings.

TREASURY SHARES: are shares of stock which have been issued and fully paid for, but subsequently reacquired by
the issuing corporation by purchase, redemption, donation or through some other lawful means. Subsequently, the
corporation can re-issue the shares of stock or sell them or declare them as property dividends.

Such shares, though paid for already, do not form part of outstanding shares and accordingly, do not have the
right to vote and receive dividends.

SUBSCRIPTION CONTRACT: Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription, notwithstanding the fact that the parties refer to
it as a purchase or some other contract.
Pre-incorporation subscriptions: refer to subscriptions for shares of stock of a corporation still to be formed
while post-incorporation subscriptions are those made or executed after the formation or organization of the
corporation, and are deemed irrevocable:
1. For a period of at least 6 months from the date of subscription unless (a) all the subscribers consent to the
revocation; or (b) the incorporation fails to materialize within said period or within a longer period as may
stipulated in the contract of subscription; and
2. After submission of the AOI to the SEC

Issuance of certificates of stock; requisites:

1. It must be signed by the president or vice-president and countersigned by the secretary or assistant secretary;
2. It must be sealed with the corporate seal, and
3. The entire value thereof (together with the interest or expenses, if any) should have been paid.

Indivisibility: Subscription to shares of stock are deemed indivisible and no certificate of stock can be issued
unless and until the full amount of his subscription including interest and expenses, if any is paid.

Rights of a SUBSCRIBER: a subscriber, even if not yet fully paid, is entitled to exercise all the rights of a
stockholder and the corresponding liability that attach thereunder, except:
1. For the issuance of a certificate of stock;
2. If his shares are declared delinquent; or
3. When he exercises appraisal right.

Delinquent Shares of Stock: a subscription to shares of stock become delinquent if there no payment made on the
balance of all or any portion of the subscription within 30 days on the date or dates fixed in the contract of
subscription without need of call, or on the date specified by the BOD pursuant to a call.

Effect of Delinquency:
General Rule: the stockholder thereof immediately loses the right to vote and be voted upon or represented in any
stockholders meeting as well as all the rights pertaining to a stockholder

Except: the right to receive dividends:

1. Cash dividend - shall first be applied to the unpaid balance on his subscription plus cost and expenses; while
2. Stock dividends - shall be withheld until his unpaid subscription is paid in full.

Delinquent shares; enforcement of payment of subscriptions: Unpaid subscription or any percentage thereof, together
with interest if required by the by-laws or the contract of subscription, shall be paid either:
1. On the date or dates fixed in the contract or subscription;
2. On the date or dates that may be specified by the BOD pursuant to a “call” declaring any or all unpaid portion
thereof to be so payable

To enforce payment, the following remedies are available:

1. By board action; and
2. By a collection case in court.

Failure or refusal of the BOD to enforce or collect payment of unpaid subscription will not prevent the creditors
or the receiver of the corporation to institute a court action to collect the unpaid portion thereof.

Delinquency Sale:
1. Amount to be paid includes:
a. The balance due on each subscription
b. All accrued interest
c. Costs of advertisement
d. Expenses of sale

2. Bids: shall all be for the amount due above and shall differ only on the number of shares that the bidders are
willing to accept in exchange of the said amount.
3. Highest Bidder: shall be the bid made for the least number of shares in exchange for the total amount due.
4. Effect of Delinquency Sale: The stock so purchased shall be transferred to such purchaser in the books of the
corporation and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall
be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a
certificate of stock covering such shares.
5. No bidder: Should there be no bidder at the public auction, the corporation may bid for the same, and the
total amount due shall be credited as paid in full in the books of the corporation. Title to all the shares
of stock covered by the subscription shall be vested in the corporation as treasury shares.

RIGHTS OF A STOCKHOLDER:
1. Participation in the management of the corporate affairs by exercising their right to vote and be voted upon
either personally or by proxy as provided for under Sec. 50 and 58 of the Code;

Instances where the concurrence of the stockholders are necessary for the exercise of the powers of the
corporations
a. Requiring majority vote of the BOD and concurrence of the stockholders representing 2/3 of the outstanding
capital stock:
i. Increase/decrease corporate stock
ii. Incur or create bonded indebtedness;
iii. Sell, dispose, lease, encumber all or substantially all of corporate assets;
iv. Invest in another corporation other than the primary purpose;
v. Amend the articles of incorporation.
vi. Merger or consolidation
 vii. Voluntary dissolution of the corporation

AMENDMENT: Voluntary dissolution now requires a majority vote only of the stockholders for instances
with NO creditors affected. For voluntary dissolutions where creditors are affected, the voting
requirement remains to be 2/3.

viii. Extend or shorten the corporate term;

ix. Deny pre-emptive right
x. Declare stock dividends
xi. Enter into a management contract - where a stockholder(s) own 1/3 of the capital stock of the managing
corporation or where a majority of the members of the board of the managing corporation also constitute
a majority of the board of the managed corporation;

AMENDMENT: Section 43 of the RCC now limits the term for a management contract to 5 years for any 1
term.

b. Majority of the BOD + majority of the outstanding capital:

i. Enter into a management contract other than above;
ii. adopt, amend or repeal the by-laws

c. Without board resolution, 2/3 of the stockholders may:

i. Delegate to the board the power to amend the by-laws
ii. Remove a member of the Board of Directors – vote required
iii. Ratify a business opportunity entered into by a member of the Board (corporate opportunity doctrine)
iv. Ratification of contracts of self-dealing directors, where his presence is required to constitute a
quorum and/or his vote is required for its approval by the BOD.

d. Without board resolution, majority of the stockholders may:

i. Revoke delegated power to amend by-laws
ii. Calling a special meeting to remove directors
iii. To fix compensation of directors
iv. To fix the issue price or stated value of no-par value shares.

2. To enter into a voting trust agreement subject to the procedure, requirements and limitations imposed under
Sec. 50;
3. To receive DIVIDENDS and to compel their declaration if warranted under Sec. 43;

If the dividends to be declared are stock dividends, it requires not only the majority vote of the BOD but also
the approval of stockholders owning at least 2/3 of the outstanding capital stock.

The BOD can be compelled to declare dividends if the retained earnings are in excess of 100% of the paid-up
capital. However, the BOD can still refuse, if:
a. Justified by a definite corporate expansion/projects/programs approved by the Board;
b. The corporation is prohibited under a loan agreement to declare dividends without the creditor’s consent
and such consent has not yet been secured;
c. It can be clearly shown that such retention is necessary under special circumstances obtaining in the
corporation.

If there are no retained earnings, dividends, as a rule, cannot be declared out of capital stock. EXCEPT:
a. Liquidating dividends
b. Investments in wasting assets such as mining, oil, well, etc.

4. To transfer shares of stock subject only to reasonable restrictions such as the options and preferences as may
be allowed by law inclusive of the right of the transferee to compel the registration of the transfer in the
books of the corporation as provided for in Sec. 63;
5. To be issued a certificate of stock for fully paid-up shares in accordance with Sec. 64;
6. To exercise pre-emptive rights as provided for in Sec. 39;

A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of shares of any class
in proportion to his present holdings, the purpose being to enable the shareholder to retain his proportionate
control in the corporation and to retain his equity in the surplus. Except in the following cases:
a. Shares to be issued to comply with the laws requiring stock offering or minimum stock ownership by the
public;
b. Shares issued in good faith in exchange for property needed for corporate purposes;
c. Shares issued in payment for previously contracted debt;
d. In case the right is denied in the Articles of Incorporation;

If one shareholder does not want to exercise his pre-emptive right, the other shareholders are not entitled to
purchase the corresponding shares of the shareholder who declined. But if nobody purchased the same and later
on the board re-issued the shares, the pre-emptive right applies.

7. To exercise their appraisal right in accordance with the provision of Sec. 81 and in those instances allowed
by law such as Sec. 42 and 105;

APPRAISAL RIGHT: Right is the method of paying a shareholder for the taking of his property. It is a statutory
means whereby a stockholder can avoid the conversion of this property into another property not of his own
choosing.

When may it be exercised:

 a. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights
of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of
outstanding shares of any class, or of extending or shortening the term of corporate existence;

Not all amendments: the right may only be exercised in cases of amendment which “has the effect of changing
or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any
respect superior to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence”.

Accordingly, if the amendment is to increase or decrease the number of directors, or change the corporate
name, or change of principal office, the appraisal right is not available.

b. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially
all of the corporate property and assets as provided in the Code;
c. In case of merger or consolidation;
d. Investment of funds in another corporation or business or for any other purpose other than its primary
purpose;
e. In a close corporation, a stockholder has the unbridled right to compel the corporation “for any reason”
to purchase his shares at their fair value which shall not be less than the par or issued value, when the
corporation has sufficient assets to cover its debts and liabilities, exclusive of capital stock.

Suspension of rights: the stockholder concerned is regarded as having made an election to withdraw from the
corporate enterprise and take the value of his stock. Such a procedure suspends (for a maximum period of 30
days) certain ownership rights associated with stockholder status, such as the right to receive dividends or
distribution and the right to vote which cannot be restored without compliance with the governing statutory
conditions.

8. To institute and file a derivative suit;

9. To recover shares of stock unlawfully sold for delinquency as may be allowed under Sec. 69;
10. To inspect the books of the corporation subject only to the limitations imposed by Sec. 75;

AMENDMENTS: Section 73 (formerly Section 74) introduced the following amendments:

1. Includes an enumeration of, and specified, the records to be kept in the principal place of business.
2. Specifies that the inspection of the books and records are bound by the Intellectual Property Law, the
Data Privacy Act, the Securities Regulations Code and the Rules of Court.
3. A requesting party who is not a stockholder or member of record, or is a competitor or otherwise represents
the interests of a competitor shall have no right to inspect or demand reproduction of corporate records.
4. Abuse of the right to inspect is punishable under Section 158.
5. If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved
party may report such to the SEC. Within five (5) days from receipt of such report, the SEC shall conduct
a summary investigation and issue an order directing the inspection or reproduction of the requested
records.
6. the SEC may require stock corporations which transfer and/or trade stocks in secondary markets to have
an independent transfer agent.

11. To be furnished by the most recent financial statement of the corporation as by Sec. 75;

AMENDMENT: Changes introduced by Section 74 (formerly Section 75) concerning the issuance of the corporation’s
financial statements are as follows:

Section 75 (old) Section 74 (RCC)

Certification Independent CPA In accordance with the Code and the rules
the SEC may prescribe

Alternative If paid-up capital is less than P50,000, the
Certification FS may be certified under oath by the
Treasurer or any responsible officer of the
corporation
If the total assets or total liabilities of
the corporation is less than P600,000, or
such other amount as may be determined
appropriate by the DoF, the financial
statements may be certified under oath by
the treasurer and the president.

12. To be issued a new stock certificate in lieu of the lost or destroyed one subject to the procedure laid down
in Sec. 73;
13. To have the corporation dissolved under Sec. 118 to 121, and Sec. 105 in a close corporation;
14. To participate in the distribution of assets of the corporation upon dissolution under Sec. 122;
15. In the case of a close corporation, to petition the SEC to arbitrate in the event of a deadlock as allowed
under Sec. 104; and
16. Also, in the case of a close corporation, to withdraw therefrom, for any reason, and compel the corporation
to purchase his shares as provided for in Sec. 105.

BY-LAWS

BY-LAWS are rules made by a corporation for its own government; to regulate the conduct and define the duties of
the stockholders or members towards the corporation and among themselves. They are the rules and regulations or
private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and
its stockholder or members and directors and officers with relation thereto and among themselves in their relation
to it.

Effectivity: After approval by the SEC.

Adoption of by-laws: may be made:

1. Prior to incorporation – it must be signed by all the incorporators without need of the majority vote of
outstanding stocks or members as long as it is submitted together with the AOI;
2. After incorporation – must be submitted within 1 month after receipt of the notice of issuance of certificate
of registration or incorporation and must be approved by majority of the outstanding capital stock or members.
Failure to file within the 1 month period may be a ground for suspension or revocation of the corporate
franchise.

AMENDMENT: Section 45 (amending Section 46) of the RCC removed the one-month (from receipt of the notice
of issuance of the certificate of incorporation) requirement to submit the by-laws.

Amendment of by-laws; two modes:

1. By a majority vote of the directors or trustees and the majority vote of the outstanding capital stock or
members, at a regular or special meeting called for that purpose; or
2. By the board of directors alone when delegated by stockholders owning 2/3 of the outstanding capital stock or
2/3 of the members. This power, however, is considered revoked, when so voted by a majority of the outstanding
capital stock or members in a regular or special meeting.

AMENDMENTS: Section 46(d) of the RCC now includes “The modes by which a stockholder, member, director, or
trustee may attend meetings and cast their vote.”

It likewise includes that an arbitration agreement may be provided in the bylaws.

The submission of the amended by-laws no longer requires that it be filed with the SEC attached to the original
articles of incorporation and original bylaws.

MEETINGS

DIRECTORS STOCKHOLDERS
Quorum Majority Majority of the Outstanding Capital Stock
Date of Regular Monthly as fixed in the by-laws Annual as fixed in the by-laws. If no such
Meeting date is fixed, any date in April as the BOD/T
may determine.

AMENDMENT: Any date after April 15.

Date of Special At any time deemed necessary or as provided
Meeting for in the by-laws
Notice Regular/Special Meetings – 1 day prior to the Regular Meetings – 2 weeks (now 21 days)
meeting. Special Meetings – 1 week

AMENDMENT: 2 days prior to the meeting.

Place Anywhere City or Municipality where the principal
office is located. For this purpose, Metro
Manila shall be considered as one city.

AMENDMENT: the meeting shall not be at the

principal office itself, unless it is not
practicable, in the city or municipality where
the principal office is located.

Moreover, Metro Cebu and Metro Davao, as well

as other Metropolitan Areas are now considered
a city or municipality.
Proxy Voting Not allowed for a director or trustee, since Generally allowed
he was supposedly elected because of his
personal qualifications and thus must
personally attend and vote on matters brought
before the meeting.
Voting General Rule: Majority of those present shall Refer to voting requirements under Rights of
Requirement be valid as a corporate act. Stockholders

Exceptions:
a. Election of corporate officers: majority of
all the members of the board.
b. When the by-laws provide for higher voting
requirement.

Validity of Stockholders’ Meetings despite defect: If the voting requirement is met, any resolution passed in the
meeting, even if improperly held or called will be valid if ALL the stockholders or members are present or duly
represented thereat, as provided under the last paragraph of Sec. 51: “All proceedings had and any business
transacted at any meeting of the stockholders or members, if within the powers or authority of the corporation,
shall be valid even if the meeting be improperly held or called, provided all the stockholders or members of the
corporation are present or duly represented at the meeting.”
AMENDMENT: The meeting is still considered valid even if improperly held as long as ALL the stockholders or members
are present or duly represented, EXCEPT if the purpose of their attendance is only object to the transaction of
any business because the meeting is not lawfully called or convened.

OTHER AMENDMENTS TO STOCKHOLDERS’ MEETINGS:

1. Notice of meetings can now be sent through electronic means and shall be accompanied by:
a. The agenda for the meeting
b. A proxy form which shall be submitted to the corporate secretary within a reasonable time prior to the
meeting
c. When attendance, participation, and voting are allowed by remote communication or in absentia, the
requirements and procedures to be followed when a stockholder or member elects either option; and
d. When the meeting is for the election of directors or trustees, the requirements and procedure for
nomination and election
2. Unless the bylaws provide for a longer period, the stock and transfer book or membership book shall be closed
at least 20 days for regular meetings and 7 days for special meetings before the scheduled date of the
meeting.
3. Postponement can be validly made if there is a notice of at least 2 weeks prior to the meeting.
4. The revised provision likewise authorizes the voting in absentia or through remote communication.
5. A director, trustee, stockholder, or member may propose any other matter for inclusion in the agenda at any
regular or special meeting.
6. In the stockholders’ meeting for the election of directors/trustees, Section 23 of the RCC now specifically
allows the stockholders or members to vote through remote communication or in absentia, in case the by-laws
or majority of the BOD authorizes the same, or even without such authorization in case of corporations vested
with public interest.

A stockholder or member who participates through remote communication or in absentia, shall be deemed present
for purposes of quorum.

Notice: Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.

However, under the revised Section 49 of the RCC, general waivers of notice in the articles of incorporation
or the bylaws shall not be allowed.

The attendance at a meeting shall constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting to the transaction of any business because the meeting is not
lawfully called or convened.

OTHER AMENDMENTS TO DIRECTORS’ MEETINGS: The following are the changes introduced by Section 52 (formerly
Section 53) of the RCC:
1. Directors/trustees are now allowed to attend the meeting through remote communication such as
videoconferencing, teleconferencing, or other alternative modes of communication that allow them reasonable
opportunities to participate. Directors or trustees cannot attend or vote by proxy at board meetings.
2. A director or trustee who has a potential interest in any related party transaction must recuse from voting
on the approval of the related party transaction without prejudice to compliance with the requirements for
Self-Dealing Directors.

REORGANIZATION; MERGER AND CONSOLIDATION

REORGANIZATION: is generally entered into to put the company upon a sound financial basis and to enable it to take
care of its obligations thereby avoiding liquidation or bankruptcy. But in some cases, a reorganization is effected
notwithstanding the fact that the corporation is solvent.

MERGER: is a union effected by absorbing one or more existing corporations by another which survives and continues
the combined business. It is the uniting of two or more corporations by the transfer of property to one of them
which continue in existence, the other or the others being dissolved and merged therein.

Example: It was agreed that B Company will take over and acquire all the business, assets, properties, rights
and liabilities of C Corporation and by virtue of which B will absorb C which is to be dissolved.

CONSOLIDATION: is the uniting or amalgamation of two or more existing corporations to form a new corporation. It
signifies a union as necessarily results in the creation of a new corporation and the termination of existence of
old ones. The united concern resulting from such union is called consolidated corporation.

Thus, in the example given, if B and C agreed to form a new corporation, A Company, which will absorb both
business, and all of B’s and C’s assets, properties, rights and liabilities are transferred to A which will
continue their combined business while B and C will be dissolved, a consolidation takes place.

In effect, in a consolidation, the constituent corporations are all dissolved, while in a merger, the absorbing
or surviving corporation is not, only the absorbed.

REQUIREMENTS AND PROCEDURE TO ACCOMPLISH MERGER OR CONSOLIDATION:

1. The BOD/T of each constituent corporations shall approve a plan or merger or consolidation setting for the
matters required in Sec. 76;
2. Approval of the plan by the stockholders representing 2/3 outstanding capital stock or 2/3 of the member in
non-stock corporations of each of such corporations at separate corporate meetings called for the purpose;
3. Prior notice of such meeting, with a copy or summary of the plan of merger or consolidation shall be given to
all stockholders or members at least 2 weeks prior to the scheduled meeting, either personally or by registered
mail stating the purpose thereof;
4. Execution of the articles of merger or consolidation by each constituent corporations to be signed by the
president or vice-president and certified by the corporate secretary or assistant secretary setting forth the
matters required in Sec. 78;
5. Submission of the articles of merger or consolidation in quadruplicate to the SEC subject to the requirement
of Sec. 79 that if it involve corporations under direct supervision of any other government agency or governed
by special laws the favorable recommendation of the government agency concerned shall first be secured; and
6. Issuance of the certificate of merger or consolidation by the SEC at which time the merger or consolidation
shall be effective. If the plan, however, is believed to be contrary to law, the SEC shall set a hearing to
give the corporations concerned an opportunity to be heard upon notice and thereafter, the Commission shall
proceed as provided in the Code.

EFFECTS OF MERGER OR CONSOLIDATION:

1. There will only be a single corporation. In case of merger, the surviving corporation or the consolidate
corporation in case of consolidation;
2. The termination of corporate existence of the constituent corporations, except that of the surviving corporation
or the consolidated corporation;
3. The surviving corporation or the consolidated corporation will possess all the rights, privileges, immunities
and powers and shall be subject to all the duties and liabilities of a corporation organized under the Code;
4. The surviving or consolidated corporation shall possess all the rights, privileges, immunities and franchises
of the constituent corporations, and all property and all receivables due, including subscriptions to shares
and other choses in action, and every other interest of, or belonging to or due to the constituent corporations
shall be deemed transferred to and vested in such surviving or consolidated corporation without further act
or deed; and
5. The rights of creditors or any lien on the property of the constituent corporations shall not be impaired by
the merger or consolidation.
6. There would be no need to liquidate or wind-up the affairs of the corporation because (1) there are no assets
to distribute; (2) no debts and liabilities to pay – since all these are transferred to the surviving or
consolidated corporation.

AMENDMENTS: The contents of the Articles of Merger or Consolidation now includes:

1. The carrying amounts and fair values of the assets and liabilities of the respective companies as of the
agreed cut-off date;
2. The method to be used in the merger or consolidation of accounts of the companies;
3. The provisional or pro-forma values, as merged or consolidated, using the accounting method; and
4. Such other information as may be prescribed by the SEC.

Section 78 (amending Section 79) now removed the requirement that the Articles of Merger/Consolidation must be
submitted in quadruplicate.

NON-STOCK CORPORATIONS

A non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees,
or officers, except upon dissolution. Any profit which a non-stock corporation may obtain as an incident to its
operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which
the corporation was organized.

The provisions governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except
as may be covered by specific provisions pertaining to non-stock corporations.

Differences:

STOCK CORPORATION NON-STOCK CORPORATION

Purpose Generally, for profit Primarily organized for charitable, religious,
educational, professional, cultural, scientific, social,
civic service, or similar purposes, like trade, industry,
agricultural and like chambers or any combination thereof
Distribution of Authorized Not authorized
dividend
Term of office of the 1 year until their successor 1/3 of the number of directors shall expire every year;
directors/trustees is elected and qualified and subsequent elections of trustees comprising 1/3 shall
be held annually and trustees so elected shall have a term
of 3 years

The RCC removed the staggered term requirement

Voting Cumulative Straight voting unless authorized under the by-laws or AOI
Manner of voting Either in person or by proxy By mail or other similar means as may be authorized by the
by-laws

AMENDMENT: Section 88 of the RCC (amending Section 89)

removed the paragraph on voting by mail or other similar
means by members and now specifies that “[t]he bylaws may
xxx authorize voting through remote communication and/or
in absentia.”
Transferability of Transferable Membership is personal and non-transferable, unless the
interest AOI or by-laws provide otherwise
Ownership of director At least one share Member
 AMENDMENT: independent trustees are not required to be a
member
Place of meeting of City or municipality where Any place in the Philippines
stockholders/members the principal office is
located (now Principal Office
unless not practicable)

Membership: non-stock corporations have the right to adopt rules prescribing the mode and manner in which membership
thereat can be obtained or maintained. This includes the right to limit membership in accordance with its by-laws.

It has thus been stated that in the absence of charter or statutory restrictions, non-stock corporations may
determine who shall be admitted to membership and how they shall be admitted. It may exclude any person whom it
deems unfit for membership. Indeed, in the absence of restrictions, it may act arbitrarily and exclude any persons
it may see fit, and the courts have no power to interfere. In other words, it is free to fix qualifications for
membership and to provide for termination of membership.

Classification of membership: the by-laws or the AOI may provide for classification as to members with voting or
non-voting rights, since it is provided that “the right of the members of any class or classes to vote may be
limited, broadened or denied”.

Termination of membership: membership may be terminated in the manner and for causes provided in the AOI or by-
laws and when a member is so terminated it shall extinguish all his rights in the corporation or in its property
unless otherwise provided in the said articles or by-laws.

The power or authority to terminate members in non-stock corporations is said to be inherent but strict compliance
with the manner and procedure laid down in the by-laws must be observed, otherwise it may render the expulsion
ineffective and invalid.

In the absence of any provision in the AOI or by-laws relative to the manner and causes of termination or expulsion
of member, the decided weight of authority is to the effect that the power is inherent and may be exercised in
certain situations, namely:
1. When an offense is committed which, although it has no immediate relation to a member’s duty as such, it is
so infamous as to render him unfit for society of honest men, and which is indictable at common law;
2. When the offense is a violation of his duty as member of the corporation; and
3. When the offense is of a mixed nature, being both against his duty as a member of the corporation, and also
indictable at common law.

As to whether or not a member should be expelled or maintained is the established right of the corporation to
determine and the courts are without authority to strip a member of his membership without cause.

CLOSE CORPORATIONS

DEFINITION: A close corporation 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; and
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 within the meaning of this Code.

Business with public interest: may not be formed as close corporation. Sec. 140 of the Code lays down a similar
policy authorizing NEDA to recommend to the legislature the setting of maximum limits to family or group ownership
of stock in corporations vested with public interest, and the determination of whether or not it should be vested
with public interest within its domain. The following cannot be a close corporation:
1. Mining companies;
2. Oil companies;
3. Stock exchanges;
4. Banks;
5. Insurance companies;
6. Public utility;
7. Educational institutions

Differences with an Ordinary Stock Corporation:

CLOSE CORPORATION ORDINARY STOCK CORPORATION

The number of stockholders cannot exceed 20 No limitation as to number of shareholder
Shares of stock are subject to specified restrictions Generally no restriction on transfer of shares
Shares of stock are prohibited from being listed in the stock No prohibition
exchange or offered for sale to the public
Stockholders may take an active part in corporate management Management is lodged in the Board of Directors
by vesting management to them rather than a Board of Director
To the extent that all stockholders can be deemed directors, Maximum number of directors is 15
the number of directors can effectively be more than 15
To the extent that directors may be classified into one or Ordinarily, no such classification and no
 more classes and to be voted solely by a particular class of
stock, cumulative voting may, in effect, be restricted
The articles of incorporation may provide that all officers
shall be elected or appointed by the stockholders
Restriction on transfer of shares should be indicated in the
articles of incorporation, by-laws and stock certificates
Pre-emptive right of stockholders is broader as it includes
all issues without exception
Appraisal right may be exercised for any reason with the
limitation only that the corporation has sufficient assets to
cover its liabilities exclusive of capital stock
restrictions on cumulative voting
Officers are elected by the Board of Directors
Valid and binding if indicated in the articles
of incorporation and stock certificates
Pre-emptive rights may be denied as provided for
in section 39
Appraisal right may be exercised only on
specific grounds

ONE PERSON CORPORATION:

A One Person Corporation is one formed by a natural person, a trust or an estate, who is the sole stockholder
thereof. The provision of the new Chapter III of the Revised Corporation Code shall apply to an OPC and other
provisions of the Code shall apply suppletorily (Section 115);

Corporate Name: must contain the words “OPC”.

Not Applicable to OPC:

1. Authorized Capital Stock
2. By-Laws
3. Minutes of the Meetings of the Board of Directors (in lieu of which shall be the resolutions recorded in a
Minutes Book)

Not allowed to incorporate as an OPC:

1. Banks, quasi-banks, pre-need, trust, insurance companies
2. Public and publicly-listed companies
3. Non-chartered GOCCs
4. Natural persons for the purpose of exercising their profession.

Articles of Incorporation: shall be the same as an ordinary corporation with the following additional provisions:
1. If the single stockholder is a trust or an estate, the name, nationality, and residence of the trustee,
administrator, executor, guardian, conservator, custodian, or other person exercising fiduciary duties together
with the proof of such authority to act on behalf of the trust or estate; and
2. Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage and limitation of
the authority.

Corporate Officers: The sole stockholder shall automatically be the sole director and the President. Within 15
days from the issuance of its certificate of incorporation, an OPC shall appoint a treasurer, corporate secretary,
and other officers as it may deem necessary, and notify the SEC thereof within 5 days from appointment.

Other positions of the president/sole stockholder:

1. Corporate Secretary: not allowed

Corporate Secretary: In addition to the functions designated by the OPC, the corporate secretary shall:
a. Be responsible for maintaining the minutes book and/or records of the corporation;
b. Notify the nominee or alternate nominee of the death or incapacity of the single stockholder, which notice
shall be given no later than 5 days from such occurrence;
c. Notify the SEC of the death of the single stockholder within 5 days from such occurrence and stating in
such notice the names, residence addresses, and contact details of all known legal heirs; and
d. Call the nominee or alternate nominee and the known legal heirs to a meeting and advise the legal heirs
with regard to, among others, the election of a new director, amendment of the articles of incorporation,
and other ancillary and/or consequential matters.

2. Treasurer: allowed provided ge shall give a bond to the SEC in such a sum as may be required and a written
undertaking to faithfully administer the OPC’s funds to be received as treasurer, and to disburse and invest
the same according to the Articles as approved by the SEC.

Nominee and Alternate Nominee: The single stockholder shall designate a nominee and an alternate nominee who
shall, in the event of the single stockholder’s death or incapacity, take the place of the single stockholder as
director and shall manage the corporation’s affairs.

The articles of incorporation shall state the names, residence addresses and contact details of the nominee and
alternate nominee, as well as the extent and limitations of their authority in managing the affairs of the OPC.

The written consent of the nominee and alternate nominee shall be attached to the application for incorporation.
Such consent may be withdrawn in writing any time before the death or incapacity of the single stockholder

Term of the Nominee: When the incapacity of the single stockholder is temporary, the nominee shall sit as director
and manage the affairs of the OPC until the stockholder, by self-determination, regains the capacity to assume
such duties.

In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director and manage
the affairs of the OPC until the legal heirs of the single stockholder have been lawfully determined, and the
heirs have designated one of them or have agreed that the estate shall be the single stockholder of the OPC.
The alternate nominee shall sit as director and manage the OPC in case of the nominee’s inability, incapacity,
death, or refusal to discharge the functions as director and manager of the corporation, and only for the same
term and under the same conditions applicable to the nominee.

Change of Nominee: The single stockholder may, at any time, change its nominee and alternate nominee by submitting
to the SEC the names of the new nominees and their corresponding written consent. For this purpose, the articles
of incorporation need not be amended.

Liability of Single Stockholder: A sole shareholder claiming limited liability has the burden of affirmatively
showing that the corporation was adequately financed.

Where the single stockholder cannot prove that the property of the OPC is independent of the stockholder’s personal
property, the stockholder shall be jointly and severally liable for the debts and other liabilities of the OPC.

The principles of piercing the corporate veil applies with equal force to OPC as with other corporations.

Conversion from Ordinary Corporation to OPC: When a single stockholder acquires all the stocks of an ordinary
stock corporation, the latter may apply for conversion into n OPC, subject to the submission of such documents as
the SEC may require.

If the application for conversion is approved, the Commission shall issue certificate of filing of amended articles
of incorporation reflecting the conversion. The OPC converted from an ordinary stock corporation shall succeed
the latter and be legally responsible for all the latter’s outstanding liabilities as of the date of conversion.

Conversion from OPC to Ordinary Corporation: An OPC may be converted into an ordinary stock corporation after due
notice to the SEC (within 60 days from occurrence) of such fact and of the circumstances leading to the conversion,
and after compliance with all other requirements for stock corporations under the RCC. If all requirements have
been complied with, the Commission shall issue an amended certificate of incorporation reflecting the conversion.

In case of death of the single stockholder, the nominee or alternate nominee shall transfer the shares to the duly
designated legal heir or estate within 7 days from receipt of either an affidavit of heirship or self-adjudication
executed by a sole heir, or any other legal document declaring the legal heirs of the single stockholder and
notify the SEC of the transfer. Within 60 days from the transfer of the shares, the legal heirs shall notify the
SEC of their decision to either wind up and dissolve the OPC or convert it into an ordinary stock corporation.

The ordinary stock corporation converted from an OPC shall succeed the latter and be legally responsible for all
the latter’s outstanding liabilities as of the date of conversion.

FOREIGN CORPORATIONS

A FOREIGN CORPORATION is one formed, organized or existing under any laws other than those of the Philippines.

Incorporation Test: is applied in determining whether a corporation is domestic or foreign. If it is incorporated

in another state, it is a foreign corporation, while if it is registered under Philippine laws, it is deemed a
Filipino or domestic corporation irrespective of the nationality of its stockholders.

Control Test: on the other hand, is used to determine corporate nationality for purposes of applying laws, e.g.,
prohibition to acquire lands applicable to corporations more than 40% of which is owned by non-Filipinos.

Grandfather Rule: a method of determining the nationality of a corporation which in turn is owned by another
corporation by breaking down the entity structure of the shareholders of the corporation. The true Filipino
ownership is traced all the way to the individual stockholders of the corporation (A) owning shares in another
corporation (B), by multiplying the Filipino ownership of the first corporation (A) to the corresponding ownership
of the other corporation (B).

It applies to nationalized activities or those which require whole or partial Filipino ownership.

Example: 60% of ABC Corporation’s voting stocks are owned by XYZ Corporation and 40% is owned by foreign
individuals. XYZ Corporation’s outstanding stocks, on the other hand, are 70% owned by Filipino individuals
while 30% is owned by foreign nationals. Is ABC Corporation treated as a Philippine national?

Answer: No. Applying the grandfather rule, ABC Corporation would be considered as 42% Filipino-owned only (60%
* 70%)

RESIDENT AGENT: As a condition precedent to the grant of license to do or transact business in the Philippines,
the foreign corporation is required to designate its resident agent on whom summons and other legal processes may
be served in all actions or legal proceedings against such corporation.

AMENDMENT: A resident agent corporation for a foreign corporation is now required that it is of sound financial
standing and must show proof that it is in good standing as certified by the SEC.

LICENSE REQUIREMENT AND DOING BUSINESS WITHOUT ONE: A foreign corporation must secure the necessary license before
it can transact or do business in the Philippines.

Without a license: a foreign corporation shall NOT be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.
What constitutes “doing business”: Doing business in the Philippines may be determined using the following tests:
1. Continuity test – doing business implies a continuity of commercial dealings and arrangements and contemplates
to some extent the performance of acts or works or the exercise of some functions normally incident to and in
progressive prosecution of the purpose and object of its organization;
2. Substance test – a foreign corporation is doing business in the country if it is continuing the body or
substance of the enterprise of business for which it was organized
3. Contract test – actual performance of specific commercial acts within the territory of the Philippines

“DOING BUSINESS” under the Foreign Investment Act (Sec. 3, d), “doing business” would include:
1. Soliciting orders, service contracts;
2. Opening offices, whether called “liaison offices” or branches;
3. Appointing representatives or distributor domiciled in the Philippines or who in any calendar year stay in the
country for a period or periods totaling 180 days or more;
4. Participating in the management, supervision or control of any domestic business, firm, entity or corporation
in the Philippines;
5. Any other act that imply a continuity of commercial dealings or arrangements and contemplate to that extent
the performance of acts or works, or the exercise of functions normally incident to and in progressive
prosecution of commercial gain or of the purpose and object of the business organization.

Provided, however, that the phrase “doing business” shall not be deemed to include:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or exercise of rights as such investor, nor
2. Having a nominee director or officer to represent its interest in such corporation; nor
3. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own
name and for its own account.

DISSOLUTION

DISSOLUTION is the extinguishment of the corporate franchise and the termination of corporate existence.

When a corporation is dissolved, it ceases to be a juridical entity and can no longer pursue the business for
which it was incorporated. It will nevertheless continue as a body corporate for another period of three years
from the time it is dissolved but only for the purpose of winding up its affairs and the liquidation of its assets.

THREE WAYS OF DISSOLUTION:

1. Expiration of its corporate term

Extension: should be made before the expiration of the original term, but not earlier than 5 years prior to
such expiration, otherwise the corporation is dissolved, ipso facto.

Dissolution by shortening the term of corporate existence: A corporation may exist for 50 years, but there is
no law which prevents the shareholders thereof to shorten that period and effect a dissolution of the
corporation. This, however, requires the vote of the stockholders to be cast in a meeting therefor, not only
“written assent” as for general amendments. Moreover, this requires the approval of the SEC and its inaction
is not deemed an approval therefor.

AMENDMENT: Section 136 now explicitly provides that “[i]n the case of expiration of corporate term,
dissolution shall automatically take effect on the day following the last day of the corporate term stated
in the articles of incorporation, without the need for the issuance by the Commission of a certificate of
dissolution.”

2. Voluntary surrender of its primary franchise (voluntary dissolution); and

Formal and Procedural Requirements when no creditors are affected.

a. Majority vote of the board of directors or trustees;
b. Sending of notice of each stockholders or member either by registered mail or personal delivery at least
thirty (30) days prior (now 20 days) to the meeting (scheduled by the board for the purpose of submitting
the board action to dissolve the corporation for approval of the stockholder or members.);
c. Publication of the notice of time, place and subject of the meeting for three (3) consecutive weeks (now
once) in a newspaper published in the place where the principal office of said corporation is located or
in a newspaper of general circulation in the Philippines;
d. Resolution adopted by the affirmative vote of the stockholders owning at least 2/3 of the outstanding
capital stock or 2/3 of the members (now majority) at the meeting duly called for the purpose;
e. A copy of the resolution authorizing the dissolution must be certified by a majority of the board of
directors or trustees and countersigned by the corporate secretary (now A verified request for dissolution
shall be filed with the SEC stating: (a) the reason for the dissolution; (b) the form, manner, and time
when the notices were given; (c) names of the stockholders and directors or members and trustees, who
approved the dissolution; (d) the date, place, and time of the meeting in which the vote was made; and (e)
details of publication.)

Withdrawal:
i. A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator,
director, trustee, shareholder, or member and signed by the same number of incorporators, directors,
trustees, shareholders, or members necessary to request for dissolution.
ii. The withdrawal shall be submitted no later than fifteen (15) days from receipt by the SEC of the request
for dissolution.
iii. Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold action on the
 request for dissolution and shall, after investigation: (a) make a pronouncement that the request for
dissolution is deemed withdrawn; (b) direct a joint meeting of the board of directors or trustees and
the stockholders or members for the purpose of ascertaining whether to proceed with dissolution; or
(c) issue such other orders as it may deem appropriate.
f. Issuance of a certificate of dissolution by the SEC.

Where creditors are affected, the voting requirement remains to be 2/3 of the stockholders and what is filed
with the SEC is a petition not a request.

3. The revocation of its corporate franchise (involuntary dissolution)

Grounds:
a. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage
to the general public;
b. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which
would amount to a grave violation of its franchise;
c. Continuous inoperation for a period of at least five (5) years;

Continuous inoperation: If a corporation has commenced its business but subsequently becomes inoperative
continuously for a period of at least 5 years, the same shall be merely a ground for suspension or
revocation of its corporate franchise or certificate of registration.

AMENDMENTS: In case of continuous non-operation for 5 years, it is no longer considered a ground for
revocation, at least not immediately. In such case, the SEC may, after due hearing and notice, place the
corporation under delinquent status and allow the corporation to resume operations within 2 years upon
compliance with the requirements of the SEC; where upon compliance, the SEC shall issue an order lifting
the delinquent status.

In case of non-compliance, with the requirements and to resume operations, only then will the SEC cause
the revocation of the corporation’s certificate of incorporation.

Notably, the Section 21 no longer includes the exception that the provision on failure to commence and
continuous non-operation shall not apply if the failure to organize, commence the transaction of its
businesses or the construction of its works, or to continuously operate is due to causes beyond the
control of the corporation as may be determined by the SEC.

COMMENCEMENT OF BUSINESS: Once the certificate of incorporation has been issued, the corporation MUST
formally organize and commence its business.

Non-Use of Corporation Charter: the failure of the corporation to organize within 2 years would result in
it automatic dissolution, unless, of course, its failure to do so is due to causes beyond its control.

AMENDMENT: The period for the automatic revocation of the corporate charter has been increase from 2 to
5 years in case of failure to organize.

Formal Organization: refers to the process of structuring the corporation to enable it to effectively
pursue the purpose for which it was organized.

d. Failure to file by-laws within the required period;

e. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed
period.

Other grounds provided under the Corporation Code:

a. Violation of any provision of the Code under section 144;
b. In case of deadlock in a close corporation as provided for in section 105;
c. In a close corporation, any acts of directors, officers or those in control of the corporation which 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 under section 105.

AMENDMENTS: Aside from empowering the SEC to motu proprio dissolve a corporation, the following grounds are
now specified under Section 138:
1. Non-use of corporate charter
2. Continuous inoperation of a corporation
3. Upon receipt of a lawful court order dissolving the corporation
4. Upon finding by final judgment that the corporation procured its incorporation through fraud
5. Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its stockholders knew; and
c. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent
or illegal acts by its directors, trustees, officers, or employees.

If the corporation is ordered dissolved by final judgment pursuant to the above grounds (a), (b) and
(c) under no. 5, its assets, after payment of its liabilities, shall, upon petition of the SEC with
the appropriate court, be forfeited in favor of the national government. Such forfeiture shall be
without prejudice to the rights of innocent stockholders and employees for services rendered, and to
the application of other penalty or sanction under the RCC or other laws
EFFECTS OF DISSOLUTION: Dissolution terminates its power to enter into contracts or to continue the business as a
going concern.

The SC held that a corporation, whose corporate life expired, cannot lawfully pursue the business for which it
was organized. It cannot apply for a new certificate or a secondary franchise for it is incapable of receiving a
grant (Buenaflor vs. Camarines Sur Industry Corp). Neither can it enforce a contract executed prior to its
dissolution for the purpose of continuing the business of its organization (Cebu Ports vs. State Marine).

Debts due to or by a corporation are not extinguished. It has thus been held that the termination of the life of
a juridical entity does not, by itself, imply the diminution or extinction of rights demandable against such
juridical entity (Gonzales vs. Sugar Regulatory Adm.)

Despite its dissolution, a corporation nonetheless, continues to be a body corporate for a period of 3 years for
purposes of liquidation and winding up its affairs (Sec. 122). Upon expiration of the 3-year period to wind up
its affairs, the juridical personality of the corporation ceases for all intent and purposes, and as a general
rule, it can no longer sue and be sued.

LIQUIDATION AND WINDING-UP:

1. The assets are collected and sold;
2. The rights and claims of creditors are settled;
3. The remaining assets, if any, are distributed to the stockholders.

Liquidation can be taken up in any of the following manner:

1. By the corporation itself through the BOD - This is the usual method or procedure of liquidating a corporation
(China Banking Corp vs. Michelin) and although there is no law authorizing it, neither is there anything that
prohibits the BOD from undertaking the same.
a. If this method is resorted to, the board will only have a period of 3 years to finish its task of liquidation
b. Claims for or against the corporate entity not filed within the period will become unenforceable as there
exist no corporate entity against which they can be enforced.
c. Actions pending for or against the corporation when the 3-year period expires are abated, since after the
period, the corporation ceases for all intents and purposes and is no longer capable of suing or being sued
(National Abaca & Other Fibers Co. vs. Pore)

2. By a trustee appointed by the corporation - The corporation may opt to convey all corporate assets to a trustee
who will take charge of liquidation
a. If this method is used, the three-year period limitation imposed by section 122 will not apply provided the
designation of the trustee is made within that period.
b. Thus, during the period of liquidation, but before the completion thereof, a dissolved corporation is still
liable for all its debts and liabilities in an action filed against it through its trustee even if the case
is filed beyond the 3-year period of liquidation.

3. By appointment of a receiver - A receiver may be appointed by the proper forum on petition or moto proprio upon
the dissolution of the corporation (Sec. 119)
a. If a receiver is appointed, the 3-year period fixed by law within which to complete the task of liquidation
will not likewise apply because the dissolved corporation is substituted by the receiver who may sue or be
sued even after that period (Sumera vs. Valencia).
b. Thus, it has been held that when a corporation is dissolved and the liquidation of assets is placed in the
hands of a receiver or assignee, the 3 year period is not applicable and the assignee may institute all
actions leading to the liquidation of the corporation even after the expiration of 3 years.
c. Note however, that a receiver may be appointed by the court even while the corporation is a going concern
and does not always imply dissolution of a corporation.

AMENDMENTS: Section 139 of the RCC introduced the following amendments concerning Corporate Liquidation:
1. The exclusion of Banks is now specifically provided, given that they are governed by the New Central Bank
Act and the PDIC Law;
2. Upon the winding up of corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall now be escheated in favor of the national government, which used to
be the city or municipality where the property is located under the old Section 122.