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La Concepcion College, Inc.: Program Course Code: Business Law II Description
La Concepcion College, Inc.: Program Course Code: Business Law II Description
Learning 1. Analyze Sections 1 to 9 of the RCC and analyze the correlations of the provisions.
Outcomes: 2. Distinguish the basic and technical corporate terms in Sections 1 to 9 of the RCC.
3. Dissect and explore the usage of the basic corporate terms for future execution of
corporate documents in the succeeding modules.
References:
Textbooks
Herbosa, Teresita, 2019 Revised Corporation Code of the Philippines Annotated,
Rex Book Store
Soriano Fidelito, Notes in Business Law
Cesar Villanueva, The Revised Corporation Code of the Philippines
Other references:
Official Gazette on the whole test of R.A. 112321, the Revised Corporation Code of
the Philippines
R.A. 112321 can be downloaded through www.officialgazette.gov.ph 20190220
– RA 111232-RRD
The text of the Revised Corporation Code is already uploaded in EDMODO.
SEC website at sec.gov.ph
Key Words
1. Corporation - an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incidental to its existence.
2. Classes of Corporations - Corporations formed or organized under this Code may be stock or nonstock
corporations.
3. Stock corporations - with 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.
4. Nonstock corporations have no shares of stock and are not allowed by law to declare dividends.
They engage in activities like charitable, civic, religious, professional, cultural, educational among
others.
5. Corporations Created by Special Laws or Charters – refers to government owned and controlled
corporations with charters or GOCCs.
7. Common Stock – the ordinary stock of a corporation which entitles the holder to a pro rata division
of the dividends, without any preference or advantage over any other stockholders.
8. Preferred Stock – one which entitles the holder to certain preferences over other shareholders.
Such preferences may be as follows:
a. Preferred as to dividends – One which entitles the holder to preference in the distribution of
dividends over common stock.
b. Preferred stock as to asset – One which entitles the holder to preference in the distribution of
assets over common stock upon the liquidation of the corporation.
9. Par value stock – One the nominal value of which appears on the articles of incorporation and in
the certificate of stock.
10. No-Par Value Stock – the issue value is determined by the incorporators at the time of
incorporation, or by the by the board of directors or stockholders which amount in no case be less
than five (5) Pesos.
11. Voting shares – those entitled to vote in the meetings of the corporation.
12. Non-Voting Shares – those without voting rights except in certain cases.
13. Founders’ Shares - shares granted in the articles of incorporation with exclusive right to vote and be
voted for in the election of directors for a limited period not to exceed five (5) years from the date of
incorporation.
14. Redeemable Shares – are shares with redeemable features set forth in the articles of incorporation.
15. Treasury Shares - Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other
lawful means.
Session I
ASYNCHRONOUS
Five individual persons approached you relative to their intention to engage in a manufacturing
line of business. They asked your know how’s on how they could form and run smoothly said
business in the form of a corporation. Do you think you can answer them immediately? If so, what
would be your advice?
Your advice should be legit and shall be based on the provisions of the law governing registration,
operation and supervision of corporations in the Philippines. The law is R.A. 112321 known as the
Revised Corporation Code of the Philippines and the implementation of the said law is
supplemented by regulations issued or to be issued by the Securities and Exchange Commission
(the “SEC”), the authorized official agency to implement the law.
“SECTION 1. Title of the Code. – This Code shall be known as the “Revised Corporation Code of the Philippines”.
SECTION 2. Corporation Defined. – A corporation is an artificial being created by operation of law, having the right
of succession and the powers, attributes, and properties n authorized by law or incidental to its existence.
SECTION 3. Classes of Corporations. – Corporations formed or organized under this Code may be stock or nonstock
corporations. Stock corporations are those 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. All other corporations are nonstock corporations.
SECTION 4. Corporations Created by Special Laws or Charters. – Corporations created by special laws or charters
shall be governed primarily by the provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are applicable.
SECTION 5. – Corporators and Incorporators, Stockholders and Members. – Corporators are those who compose a
corporation, whether as stockholders or shareholders in a stock corporation or as members in a nonstock
corporation. Incorporators are those stockholders or members mentioned in the articles of incorporation as
originally forming and composing the corporation and who are signatories thereof.
SECTION 6. Classification of Shares. – The classification of shares, their corresponding rights, privileges, or
restrictions, and their stated par value, if any, must be indicated in the articles of incorporation. Each share shall be
equal in all respects to every other share, except as otherwise provided in the articles of incorporation and in the
certificate of stock.
The shares in stock corporations may be divided into classes or series of shares or both. No share may be
deprived of voting rights except those classified and issued as “preferred” or “redeemable” shares, unless
otherwise provided in this Code: Provided, there shall always be a class or series of shares with complete voting
rights.
Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters:
Except as provided in the immediately preceding paragraph, the vote required under this Code to approve
a particular corporate act shall be deemed to refer only to stocks with voting rights.
The shares or series of shares may or may not have a par value: Provided, That banks, trust, insurance, and
preneed companies, public utilities, building and loan associations, and other corporations authorized to obtain or
access funds from the public, whether publicly listed or not, shall not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by a corporation may be given preference in the distribution of dividends
and in the distribution of corporate assets in case of liquidation, or such other preference: Provided, That
preferred shares of stock may be issued only with a stated par value. The board of directors, where authorized in
the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof:
Provided, further, That such terms and conditions shall be effective upon filing of a certificate thereof with the
Securities and Exchange Commission, hereinafter referred to as the “Commission”.
Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and the
holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided, That no-
par value shares must be issued for a consideration of at least Five pesos (P5.00) per share: Provided, further, That
the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall
not be available for distribution as dividends.
A corporation may further classify its shares for the purpose of ensuring compliance with constitutional or
legal requirements.
SECTION 7. Founders’ Shares. – Founders’ shares may be given certain rights and privileges not enjoyed by the
owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is granted, it
must be for a limited period not to exceed five (5) years from the date of incorporation: Provided, 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.
SECTION 8. – Redeemable Shares. – Redeemable shares may be issued by the corporation when expressly
provided in the articles of incorporation. They are shares which may be purchased by the corporation from the
holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained
earnings in the books of the corporation, and upon such other terms and conditions stated in the articles of
incorporation and the certificate of stock representing the shares, subject to the rules and regulations issued by
the Commission.
SECTION 9. – Treasury Shares. – Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful
means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.”
GENERALIZATION:
Self-study guide questions are prepared. The students will be guided to answer the questions
based on the provision as identified.
Doctrine of Corporate
Entity
1.
This is an exemption to the Doctrine of Corporate
The corporation is imbued with juridical
Entity. When the court finds legal bases to disregard
personality from the time the corporation
the doctrine’s shield, the stockholders may be held to
is issued certificate of registration is
answer the corporation’s liability,
issued by Securities and Exchange
Doctrine of Equality of
shares
Enabling Resolutions
COMPARISONS:
The comparative presentation below will enable you to further understand some key words.
II. Government Owned and Controlled Corporations with Charter Distinguished with Government Owned and
Controlled Corporations Without Charter.
SESSION 2
Synchronous Session:
Professor will deliver one and a half (1/1/2) hour lecture or conduct recitation through
Google Meet. The Google meet code will be uploaded trough EDMODO.
Based on your study of Sections 1 to 9 of the Revised Corporation Code of the Philippines,
do you think the subject matter is relevant to your Bachelor of Science in Accountancy
course? If you think that the subject is relevant to your course, state the reasons and the
areas where they are relevant to you as a student and as professional accountant in the
near future.
In your initial assessment, what do you think are the potential difficulties that you will
encounter in studying the subject matter? State the reasons why you deemed it a difficulty to
be encountered along the way in your study.
Is there a need to correlate or connect each and every provision that you have studied? If
your answer is in the affirmative, state the rationale of correlating the provisions of the law?
In your own view, what do you think are the potential advantages that may be derived by an
investor in carrying a business through a corporate form?
Formative Assessment
Written:
Essay:
1. The shares of stock in the capital structure of a corporation are classified into classes of shares and
series or sub-series thereof. However, the rights privileges and restriction for each class of shares are
not expressly set forth in the articles of incorporation. What is the consequence of having a
classifications and series of shares thereof without the rights, privileges and restriction for each class
expressly provided in the articles of incorporation? Explain.
2. XYZ Corporation was incorporated with shares of stocks. Its articles of incorporation expressly provide
however that the stockholders are not entitled of dividends. Is XYZ Corporation a stock corporation?
Cite reasons.
3. Between stock and nonstock corporation, what are their similarities that you have observed based on
the provisions of law that you have studied? ANSWER: Corporations formed or organized under
this Code may be stock or nonstock corporations. Stock corporations are those 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. All
other corporations are nonstock corporations.
4. Between par value shares and nopar value shares what are their similarities based on the provisions of
law that you have studied? ANSWER: The Par Value Share is voting share while the No Par
Value is non voting shares. The Par Value Share is preferred shares (not allowed as No Par”
but can be voting or non-voting) while the No Par Value has Redeemable Shares- can be
voting or nonvoting shares. Always with Par Value if it’s a redeemable preferred shares.
The Par Value Share is Founder’s shares while the No Par Value is Treasury shares.
5. Nonvoting shares are entitled to vote in eight instances of corporate acts set forth by law. In what
instance the nonvoting shares are not entitled to vote? Explain.
6. What are the restrictions on founders’ shares having exclusive right to vote and be voted in the election
of directors? Explain. ANSWER: Founders' shares may be given certain rights and privileges
not enjoyed by the owners of other stock. Where the exclusive right to vote and be voted
for in the election of directors is granted, it must be for a limited period not to exceed five
(5) years from the date of incorporation: Provided, 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 otherwise known as "Foreign Investments Act of 1991"; and other
pertinent laws.
7. Distinguish preferred shares with common shares.
Can there be preferred shares voting and nonvoting in the capital structure of a corporation? Explain.
ANSWER: The main difference between preferred and common stock is that preferred stock
gives no voting rights to shareholders while common stock does and main difference is
that preferred stock usually do not give shareholders voting rights, while common stock
does, usually at one vote per share owned. Common shares generally carries voting rights,
while preferred shares does not. Preferred shares may or may not have a fixed liquidation
value (or par value) associated with it. This represents the amount of capital that was
contributed to the corporation when the shares were first issued. Preferred shares has a
claim on liquidation proceeds of a stock corporation equal to its par (or liquidation) value,
unless otherwise negotiated. This claim is senior to that of common stock, which has only
a residual claim.
8. What does doctrine of corporate entity mean? ANSWER: A corporation has personality
separate and distinct with stockholders/members. The properties of the corporation are
not the properties of the stockholdrs/members of the corporation. The debts of the
corporation are not the debts of the stockholders.
9. What does piercing the veil of corporate fiction mean? ANSWER: A corporation has personality
separate and distinct with stockholders/members. The properties of the corporation are
not the properties of the stockholdrs/members of the corporation. The debts of the
corporation are not the debts of the stockholders.
10. What are the exemptions under doctrine of corporate entity? ANSWER: It is said that the
principle of separate legal entity “forms the foundation of modern company law. Any
exceptions to this principle must therefore be seen as challenges to those foundations.”
[1] Thompson in Piercing the Corporate Veil: An Empirical Study states: [2] “As a general
principle, corporations are recognized as legal entities separate from their ………. liability
of the entity and not of the shareholders, directors, or officers who own and/or act for the
entity.” Therefore the way in which the law challenges the doctrine of separate legal
entity is through a process called lifting the corporate veil. [3] It is the purpose of this
essay to demonstrate the instances in which the courts have been prepared to pierce the
corporate veil, together with examples of when the courts have been reluctant to do so.
11. What does doctrine of corporate opportunity mean? ANSWER: Simply stated, under the Doctrine
of Corporate Opportunity, a director who acquires for himself a business opportunity
which should belong to the corporation, obtaining profits to the prejudice of such
corporation is guilty of disloyalty and should therefore account for all such profits by
refunding the same
Research Work:
To submit research work through EDMODO:
Apart from easing barriers to establishing corporations, RA No. 11232 also promotes
corporate and stockholder protection. Reforms in this regard include the following:
The requirement of having independent directors has been expanded to cover
corporations engaged in business vested with public interest, as identified in RA No.
11232 and as may be later identified by the Securities and Exchange Commission;
and
The grounds for the disqualification of corporate directors, trustees, and officers have
been expanded.
The law took effect on February 23 2019 after it was published in two newspaper in
general circulations.
1. Organization of Corporations
The RCC removed the absolute requirement of having a minimum of five (5)
individuals in the formation of corporations.
Stock corporations are still not required to have a minimum capital stock, unless
specifically provided by special law. Notably, in the revised form of the Articles of
Incorporation (AOI), it is no longer required that the capitalization be in “lawful money
of the Philippines” (Sec. 14). Moreover, the RCC removed the requirement that 25% of
the authorized capital stock be subscribed and that 25% of the subscribed capital
stock be paid for purposes of incorporation as previously mandated under Section 13
of the Corporation Code, which was deleted in its entirety (Sec. 12). However, the
25%-25% requirement was retained for any increase in the authorized capital stock
(Sec. 27).
The corporate term limit of 50 years has been removed such that a corporation can
now enjoy perpetual existence unless expressly limited by its AOI. Such perpetual
corporate term shall also apply to corporations incorporated prior to the RCC, unless
said corporations elect to retain a specific corporate term. The new law also states
that a corporation whose term has expired can apply with the Securities and
Exchange Commission (SEC) for the revival of its corporate existence, with all the
rights and privileges under its certificate of incorporation and subject to all of its
duties, debts and liabilities existing prior to its revival. Upon the SEC’s approval, 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 (Sec. 11). The RCC also extends the allowable period for non-use of
corporate charter from 2 years to 5 years from the date of incorporation. The
certificate of incorporation shall be deemed revoked as of the day following the end of
the 5-year period. Meanwhile, a corporation which has commenced its business but
subsequently becomes inoperative for a period of at least 5 years may be deemed a
delinquent corporation and shall have a period of 2 years to resume operations.
Failure to resume operations within the period given by the SEC shall cause the
revocation of its certificate of incorporation (Sec. 21).
a. Publicly-held corporations under the SRC whose securities are registered with the
SEC, corporations listed with an exchange or with assets of at least P50,000,000.00
and having 200 or more holders of shares, each holding at least 100 shares of a class
of its equity shares;
c. Other corporations engaged in businesses vested with public interest similar to the
above, as may be determined by the SEC.
3. Board of Directors/Trustees
With the introduction of the OPC, the minimum number of directors to incorporate is
reduced from 5 to 1, while the maximum is retained at 15 directors. For trustees,
however, the RCC has removed the maximum number which can be elected. Some of
the changes in the qualification and term of the board of director or trustees include
the removal of the residency requirement for a majority of the board and the
extension of the term of trustees from 1 year to 3 years (Sec. 22).
The new law allows stockholders or members, when authorized by the By-Laws or by
a majority of the board of directors, to vote through remote communication methods
or inabsentia. A stockholder or member who participates through remote
communication or inabsentia will still be considered present for purposes of
determining the existence of a quorum (Sec. 23).
The RCC empowers the SEC, unilaterally or upon a verified complaint, and after due
notice and hearing, to remove members of the Board of Directors/Trustees who are
determined to be disqualified to be elected to or to hold such position (Sec. 27).
When there is a vacancy in the Office of the Director/Trustee which prevents the
remaining directors from constituting a quorum and emergency action is required to
prevent irreparable loss or damage to the corporation, the remaining directors are
allowed to temporarily fill the vacancy from among the officers of the corporation,
thereby constituting an emergency board, subject to certain requirements (Sec. 28).
4. Corporate Officers
The RCC mandates a corporation vested with public interest to appoint a Compliance
Officer, in addition to the mandatory positions of President, Treasurer and Corporate
Secretary. The law now also expressly requires that the Treasurer be a resident of the
Philippines (Sec. 24).
The election or non-holding of election of the directors, trustees and officers of the
corporation is required to be reported to the SEC, which is empowered under certain
conditions to summarily order that an election be held (Sec. 25).
5. Corporate Powers
Under Section 35 of the RCC, additional powers are expressly granted to corporations,
namely: the power to enter into a partnership, joint venture or any other commercial
agreement with a natural person or another corporation [Sec. 35 (h)]; and, for
domestic corporations, the power to donate to a political party or candidate or for
purposes of partisan political activity [Sec. 35 (j)].
6. Shareholder Actions
The RCC now provides that if the date of the regular meeting of the stockholders or
members is not fixed in the By-Laws, the same shall be held on any date after April 15
of every year as determined by the Board of Directors/Trustees. Written notices of
regular meetings may now be sent to stockholders and members through electronic
mail and such other means as may be allowed by the SEC. The right of stockholders
or members to vote may now also be exercised through remote communication or in
absentia, under rules and regulations to be issued by the SEC governing participation
and voting through remote communication or in absentia, taking into account the
company’s scale, number of shareholders or members, structure, and other factors
consistent with the protection and promotion of shareholders’ or members’ meetings
(Sec. 49 and 57).
The law also allows an arbitration agreement to be included in the AOI or By-Laws of a
corporation (Sec. 181).
If the corporation denies or does not act on a demand for inspection and/or
reproduction of corporate records, the aggrieved stockholder or member may report
such denial or inaction to the SEC, which shall, within 5 days from receipt of such
report, conduct a summary investigation and issue an order directing the inspection
or reproduction of the requested records. This right to inspect is expressly made
subject to confidentiality rules under prevailing laws (Sec. 73).
With regard to the financial statements of a corporation, the RCC provides that if the
paid-up capital of the corporation is less than P600,000.00 or such other amount as
may be determined appropriate by the Department of Finance, the financial
statements may be certified under oath by the President and the Treasurer, and need
not be certified by an independent certified public accountant (Sec. 74).
8. Foreign Corporations
The new law provides that within 60 days from issuance by the SEC of a license to
transact business to a branch office of a foreign corporation, said branch must deposit
acceptable securities to the SEC with an actual market value of at least P500,000.00
for the benefit of present and future creditors of the licensee. In addition, within 6
months after the fiscal year of the licensee, the SEC may require the licensee to
deposit additional securities or financial instruments equivalent in market value to 2%
of the amount by which the licensee’s gross income exceeds P10,000,000.00 (Sec.
143).
Under the new law, jurisdiction over party-list organizations is transferred from the
SEC to the Commission on Elections (COMELEC), subject to the implementing rules to
be jointly promulgated by the SEC and the COMELEC (Sec. 182).
The RCC also enumerates the various specific offenses and their corresponding
penalties, with special emphasis on fraud and graft and corrupt practices:
Aside from recognizing stockholder or member votes cast in absentia via remote
communication methods, the new law also allows the AOI and applications for
amendments thereto to be filed with the SEC in the form of electronic documents, in
accordance with the rules on electronic filing that the SEC will promulgate (Sec. 13).
The SEC is further mandated to implement an electronic filing and monitoring system
to expedite corporate name reservation and registration, incorporation, submission of
reports, notices and documents required by the RCC (Sec. 180).
Multiple Choice Test: Directions: Read carefully each question then choose the letter of the correct answer.
Explanation
a. relate the lesson to the current issues, trends and problems in the community, in the
country and the entire world.
b. Create plan of action or solution to the problem using explanation of the lesson.
Reflection
a. state how the LCC vision, mission, core values, 21 st century skills and program outcomes
are realized in the application of the learned knowledge and skills.
ASSIGNMENT: