Brief Background

The Corporation Code of the Philippines has been in operation for almost
four (4) decades or thirty eight (38) years ago. It was amended by the
Revised Corporation Code which was signed into law last February 20,
2019. The new law took effect on February 23, 2019, upon completion of its
publication in Manila Bulletin and the Business Mirror.[1] The amendments
set forth by the new law makes the law on corporations more attuned,
responsive, and relevant with the changes in the Philippine business
climate and the developments in commercial practices. It also relaxes a few
procedures in setting up a business in the country which is intended to
attract more foreign investors.

[1] Notice dated February 28, 2019 issued by the Office of the Commission
Secretary of the SEC, Section 188 of the Revised Corporation Code.

Corporation defined

Attributes of a corporation

o It is an artificial being.
o It is created by operation of law.
o It has the right of succession.
o It has only the powers, attributes and properties expressly
authorized by law or incidental to its existence.

 
Similarities between a partnership and a corporation

o Juridical personality separate and distinct from the individuals
composing it.
o Act only through its agents.
o Composed of an aggregate of individuals, except a one person
corporation and a corporation sole.
o Distribute profits to those who contribute to capital.
o May be organized only when there is a law authorizing it.
o Subject to income tax

The corporation as an artificial being or person

There are two kinds of persons under the law: natural persons or human
beings, and artificial persons, such as a corporation. A corporation is a
legal entity separate and distinct from the stockholders (or members) and
which juridical personality commences upon the issuance of the certificate
of incorporation by the SEC.

Consequences of a separate juridical personality:


o The debts of the corporation are not the debts of its
stockholders and vice versa
o The stockholders are not the owners of the assets of the
corporation but have only indirect interest therein;
o As to corporate property or affairs, stockholders cannot
maintain actions in their own name nor do they have any right
to recover possession of property belonging to the corporation
or to recover damages or injury
o Income of the corporation is not the income of the stockholders
who may still be required to pay taxes on the dividends derived
from such income
 

The doctrine of piercing the veil of corporate entity

The separate personality of a corporation is intended to protect its
stockholders from liability for corporate acts. However, in order to promote
justice and prevent inequity, the courts will not hesitate to pierce the
corporate veil if such separate personality:

1.
1. Is used to defeat public convenience;
2. Is used to justify a wrong;
3. Is used to defend a crime;
4. In cases where a corporation serves as a mere alter ego or
conduit of a person, instrumentality, agency, or adjunct of
another corporation;
5. Is used to evade contracts and obligations; OR
6. To confuse legitimate legal or juridical issues.

Classes of Corporation (Section 3)

Figure 4.3. summarizes the classes of corporations.

Tests to determine the nationality of a corporation


o INCORPORATION TEST – the nationality of a corporation
follows that of the country under whose laws it was
incorporated. This is the test applied in our jurisdiction.
o CONTROL TEST – The nationality of a corporation follows that
of the stockholder owning the controlling interest, usually
applied during wartime for the purpose of the security of the
state.
 o BUSINESS DOMICILIARY TEST – The nationality of a
corporation is that of the country where its principal business is
conducted.

Application of the “Grandfather Rule”

This is used to determine the nationality of a corporation for purposes of
registration, in which the percentage of Filipino equity in corporations
engaged in nationalized and/or partly nationalized areas of activities,
provided for under the Philippine Constitution and other nationalization
laws, is accurately computed and the diminution of such equity is
prevented.

This applies with respect to the registration of the subsidiary if the capital
structure of both the parent corporation and its subsidiary does not comply
with the 60%:40% Filipino to foreign ownership ratio.

Laws governing corporations created by special law

(Section 4)
Corporations governed by special law shall be governed primarily by the
provisions of such special law, such as government owned and controlled
corporations, or any of the governmental subdivisions or instrumentalities.

Provisions of the Corporation Code: only by way of supplement insofar as

they are applicable.

Components of a Corporation (Section 5)


 o Corporators – those who compose a corporation, whether as
stockholders or members
o Incorporators – those stockholders or members mentioned in
the articles of incorporation as originally forming and composing
the corporation and are signatories of such instrument.
o Stockholders – corporators of a stock corporation
o Members – corporators of a non-stock corporation
o Promoter – is a person, natural or juridical, who usually
discovers a prospective business and brings persons interested
to invest in it through the formation of a corporation.

What is the liability of the corporation on

contracts entered into by a promoter?
A newly-formed corporation is not automatically liable for pre-
incorporation contracts entered into by the promoter in its
behalf unless there is adoption, ratification, or novation of such
contracts by the corporation.

Classification of share (Section 6)

As to non-voting shares
Non-voting shares may nevertheless vote in the following cases:

1.
1. Amendment in the articles of incorporation;
2. Adoption and amendment of bylaws;
3. Sale, lease, exchange, mortgage, pledge, or other disposition
of all or substantially all of the property;
4. Incurring, creating, or increasing bonded indebtedness;
5. Increase or decrease of authorized capital stock;
 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.

Power of a corporation to classify its own shares

A corporation may divide its shares in classes, or series of shares, or both
which may include the following:


o Voting and non-voting shares
o Common and preferred shares
o Par value and non-par value shares
o Classification to insure compliance with legal requirements, e.i.
Constitution

Any of such class, or series, or both may have such rights, privileges, or
restrictions as may be stated in the AOI. Without such stipulations in the
AOI, each share shall be equal in all respects to every other share
(Doctrine of Equality of Shares).

Treasury shares (Section 9)

Characteristics of treasury shares

o No voting rights as long as they remain in the treasury (Section
56)
o Though they are part of the subscribed capital stock, they are
not considered as outstanding shares (Section 173)
o Being owned by the corporation, they are not entitled to
dividends (Section 43)
o They may again be disposed of by the corporation at a
reasonable price fixed by the board of directors (Section 9)
 

Some useful definitions relating to shares of stock:

Capital stock – the amount specified in the articles of incorporation paid in,
or procured to be paid in for the carrying on of the business of the
corporation.

Authorized capital stock – the total amount of shares which a corporation

is allowed to issue if the shares have par value. If without par value, then
the corporation will have an authorized number of no-par shares that it may
issue.

Subscribed capital stock – this is the part of the capital stock which is
subscribed, whether paid or unpaid.

Outstanding capital stock- this refers to the total shares of stock issued
to subscribers or stockholders, whether or not fully or partially paid, except
treasury shares.

Paid-in capital stock- the part of the subscribed capital stock paid to the
corporation.

Unissued capital stock – that part of the capital stock which is not issued
or subscribed.

Legal capital – the total par value of all issued par value shares, or the
total cash or consideration received for all issued no-par value shares.

Stated capital – the capital by which the corporation issuing shares without
par value begins business, increased by any additions thereto, or
diminished by any deductions therefrom.

Capital – the actual property of the corporation in money or property.

 
Image subject to Copyright of  John Bonazzo and Michael Kaminer via the Observer.

Incorporation
          Number and qualifications of incorporators (Section 10)


o Any person, partnership, association or corporation, singly or
jointly with others
o Not more than 15 in number
o Natural persons must be of legal age
o Natural persons who are licensed to practice a profession, and
partnerships or associations organized for the purpose of
practicing a profession, shall not be allowed to organize
o Each incorporator in a stock corporation must subscribe to at
least 1 share

Corporate term (Section 11)


o Perpetual existence unless the AOI provides otherwise
o Those issued with certificates prior to the effectivity of the RCC
and still existing shall have perpetual existence, subject to
exception in para. 2.
o Corporate term for a specific period may be extended or
shortened by amending the articles of incorporation, subject to
exceptions in para. 3.
o Corporations whose term has expired: may apply for a revival of
its corporate existence, together 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,
subject to exception in para. 5.

Minimum capital stock (Section 12)

No such requirement in stock corporations, unless specifically provided by
special law, i.e. insurance companies, mining, pawnshops, recruitment
agencies, securities brokers or dealers, corporations with foreign equity (as
these companies have been required by special laws to have a minimum
paid-up capital)

Contents of the Articles of Incorporation (AOI)

[Section 13]
It may appear in any of the official languages, duly signed and
acknowledged or authenticated, in such form and manner as may be
allowed by the Commission.

Form of AOI (Section 14)

Unless otherwise prescribed by special law, the articles of incorporation of
all domestic corporations shall comply substantially with the provisions of
Section 14.

Amendment of Articles of Incorporation (Sections 15

to 16)
Any provision or matter stated in the articles of incorporation may be
amended by:

1.
1. For stock corporations: a majority vote of the board of
directors or trustees AND the vote or written assent of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, without prejudice to the appraisal
right of dissenting stockholders.
2. For non-stock corporations: a majority vote of the board of
trustees AND the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the members.
 

Manner of filing the amendment: amendments shall be indicated by

underscoring the change(s) made, and a copy thereof duly certified under
oath by the corporate secretary and a majority of the directors or trustees
with a statement on the required number of votes.

When amendments shall take effect: Upon approval by the

Commission from the date of filing with the said Commission if not
acted upon within six (6) months from the date of filing for a cause not
attributable to the corporation.

Grounds when AOI or amendment may be disapproved (Section 16).

Here are the grounds for rejection or disapproval of the AOI or any
amendment thereto:


o No substantial compliance with the prescribed form
o The purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral or contrary to government
rules and regulations
o The certification concerning the amount of capital stock
subscribed and/or paid is false;
o The required percentage of Filipino ownership of the capital
stock under existing laws or the Constitution has not been
complied with; and
o Absence of favorable recommendation from the appropriate
government agency in the case of the following corporations:
o banks, banking and quasi-banking institutions
o preneed, insurance and trust companies
o non-stock savings and loan associations (NSSLAS)
o Pawnshops
o Other financial intermediaries

 
Corporate Name (Section 17)
NO corporate shall be allowed if it is not distinguishable from that already
reserved or registered for the use of another corporation, or if such name is
already protected by law, or when its use is contrary to existing law, rules
and regulations. In such a case, the Commission may SUMMARILY order
the corporation to immediately cease and desist from using such name and
require the corporation to register a new one, and it may cause the removal
of all visible signages, marks, advertisements, labels, prints and other
effects bearing such corporate name.

Effect of non-compliance with the order. The Commission may:

1.
1. Hold the corporation and its responsible directors or officers in
contempt and/or hold them administratively, civilly and/or
criminally liable;
2. Revoke the registration of the corporation.

Registration, Incorporation and Commencement of

Corporate Existence (Section 18)
A person or group of persons desiring to incorporate shall:

1.
1. Submit the intended corporate name to the Commission for
verification. If the Commission approves the name in
accordance with Section 17 and special laws, name shall be
reserved in favor of the incorporators; and
2. Submit their articles of incorporation and by-laws to the
Commission.

If the submitted documents and information are fully compliant with the
RRC and other laws, a certificate of incorporation shall be issued.

 
When juridical personality of a corporation commences: from the date
the Commission issues the certificate of incorporation under its official seal
and thereupon the incorporators, stockholders/members and their
successors shall constitute a body corporate under the name stated in the
articles of incorporation for the period of time mentioned therein.

De facto corporations (Section 19)

Requisites of a de facto corporation


o A valid law in which it is incorporated
o An attempt in good faith to incorporate
o Actual exercise of corporate powers
o A certificate of incorporation is issued despite a defect in its
incorporation

Existence of such corporations shall not be inquired into collaterally in any

private suit to which such corporation may be a party, except through a quo
warranto proceeding made by the Solicitor General.

Corporation by estoppel (Section 20)

Effect of liability: all persons who assume to act as a corporation knowing it
to be without authority shall be liable as GENERAL PARTNERS for all
debts, liabilities and damages incurred or arising as a result thereof.

Lack of corporate personality as a defense: such ostensible corporation

shall NOT be allowed to raise this defense if it is sued on any transaction
entered by it as a corporation or on any tort committed by it as such.

 
Effects of Non-Use of Corporate Charter and
Continuous Inoperation (Section 21)
Effect of failure to formally organize and commence its business
within five (5) years from the date of incorporation: its certificate of
incorporation shall be deemed revoked as of the day following the end of
the 5-year period

Effect if corporation commenced business but failed to continue

operations for at least five (5) consecutive years: the Commission may,
after due notice and hearing, place the corporation under delinquent
status.

Effect of being placed under delinquent status: such corporation shall

have a period of two (2) years to resume operations and comply with all
requirements that the Commission shall prescribe. If complied with, the
Commission shall issue an order lifting the delinquent status. If not
complied with, the Commission shall cause the revocation of the
corporation’s certificate of incorporation.

Board of Directors (BOD)/ Board of Trustees (BOT) of

a Corporation: Qualifications and Term (Section 22)
The BOD/BOT is the top governing body of a corporation. Although a
corporation is a juridical person in contemplation of law, it can only act
through its natural agents of the persons duly elected by the stockholders
or members. The BOD/BOT, however, cannot act as agent for the
corporation and bind the latter in his individual capacity, unless he is so
authorized by the AOI, the by-laws, or a resolution of the BOD/BOT.

Qualifications of directors or trustees in a stock or non-stock

corporation


 o A director must own at least one (1) share of stock which shall
stand in his name in the books and the a trustee in a non-stock
corporation must be a member thereof;
o Majority of directors or trustees must be residents of the
Philippines;
o The number of directors or trustees must not be more than
fifteen (15);
o A director or trustee must not have been convicted or
administratively liable for crimes or offences enumerated under
Section 26; and
o Other qualifications as may be provided in the by-laws.

Other requirements under the third paragraph of

Section 22

The board of the following corporations vested with public interest

shall have independent directors constituting at least twenty percent
(20%) of such board:

1.
1. Corporations whose securities are registered, corporations
listed with an exchange or with assets of at least Fifty million
pesos (P50,000,000.00) and having two hundred (200) or more
holders of shares, each holding at least one hundred (100)
shares of a class of its equity shares (Section 17.2 of the
Securities Regulations Code);
2. Banks and quasi-banks, NSSLAs, pawnshops, corporations
engaged in money service business, pre-need, trust and
insurance companies, and other financial intermediaries; and
 3. Other corporations engaged in business vested with public
interest.

Election of directors or trustees (Section 23)

Each stockholder or member shall have the right to nominate any director
or trustee who possesses all of the qualifications and none of the
disqualifications set forth in this Code, except if such right is reserved to
holders of founder’s shares.

Required in all elections: Presence of the owners of majority of the

outstanding capital stock, or if there be no capital stock, a majority of the
members entitled to vote, either in person or through a representative
authorized to act by written proxy.

Voting through remote communication or voting in absentia: allowed if

so authorized in the bylaws or by a majority of the board of directors (by
resolution), except that such is allowed in corporations vested with public
interest in the absence of such provision in the by-laws.

Effect of voting in absentia for purposes of determining quorum:

stockholder or member participating thru voting in absentia shall be
deemed present for purposes of quorum.

Methods of voting

In a stock corporation: a stockholder may –


o vote such number of shares for as many persons as there are
directors to be elected;
 o cumulate said shares and give one (1) candidate as many
votes as the number of directors to be elected multiplied by the
number of the shares owned (cumulative voting); OR
o distribute them on the same principle among as many
candidates as may be seen fit.

In non-stock corporations: member may cast as many votes as there are

number of trustees to be elected but may not cast more than one vote for
one candidate.

Report on the results of the election: such report on the election of

directors or trustees, officers, non-holding of elections, and cessation from
office shall be submitted to the Commission in the manner provided for in
Section 25.

Duties of directors and trustees

Covers their duties prescribed by law, rules of good corporate governance,

and by-laws of the corporation.

The corporate officers (Section 24)

1.
1. President – must be a director
2. Treasurer – must be a resident of the Philippines
3. Secretary – must be a citizen and resident of the Philippines
4. Other officers as may be provided for in the by-laws.

On the concurrent holding of two positions: allowed by the law but NO

ONE shall act as president and secretary or as president and
treasurer at the same time.
 

Disqualification of directors, trustees, or officers

(Section 26)
A person shall be disqualified from being a director, trustee, or officer
if within five (5) years prior to the corporate election, such person
was:


o Convicted by a final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years or for
violating the RCC or the Securities Regulation Code;
o Found administratively liable for any offenses involving
fraudulent acts; and
o If found guilty by a foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct similar to those
enumerated in paragraphs (a) and (b) above.

Removal of directors or trustees (Section 27)

Requisites for removal


o Must take place in a regular meeting of the corporation or in a
special meeting called for such purpose
o Previous notice of the intention to propose such removal bust
have been given to the stockholders or members
o The following votes must be obtained to effect the removal:
o Stock corporations: by stockholders representing at least 2/3 of
the outstanding capital stock entitled to vote
o Non-stock corporations: by at least 2/3 of the members entitled
to vote

 
Cause of removal: Generally, may be with or without cause with the
exception that such removal may not be used to deprive minority
stockholders or members of the right of representation in the BOD/BOT.

Removal by the Commission: may be done motu propio or upon a

verified complaint and after due notice and hearing if a person is so elected
as director or trustee despite the disqualification, or whose disqualification
arose or is discovered subsequent to the election.

Vacancies in the Office of the Director or Trustee

(Section 28)
Causes of vacancy in the BOD/BOT:


o Removal
o Expiration of term
o Increase in the number of directors
o Resignation
o Death
o Abandonment
o Disqualification

Power to fill the vacancy

By the stockholders or members


o If the cause of vacancy is REMOVAL, EXPIRATION OF TERM,
OR INCREASE IN THE NUMBER OF DIRECTORS OR
TRUSTEES (ReXIn)
o If the cause of removal is other than those three mentioned
above (ReXIn), but the remaining directors or trustees DO NOT
constitute a quorum for the purpose of filing the vacancy.
By the remaining board of directors or trustees if the cause of vacancy
is other than the three mentioned above (ReXIn) and the remaining
directors or trustees still constitute quorum.

Time to conduct election to fill vacancy

If due to expiration of term: election shall be held no later than the day of
expiration at a meeting called for that purpose.

If due to removal: may be held on the same day of the meeting

authorizing the removal and such fact must be stated in the meeting
agenda.

In all other cases: must be held no later than forty-five (45) days from the
time the vacancy arose.

Emergency Board

An emergency board may be constituted 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.

Compensation of directors or trustees (Section 29)

General Rule: Shall not receive any compensation in their capacity as
such, except for reasonable per diems, except when provided for in the by-
laws. They shall not participate in the determination of their own per diems
or compensation.
In no case shall the total yearly compensation of directors exceed 10%
percent of the net income before income tax of the corporation during the
preceding year.

Stockholders representing at least a majority of the outstanding capital

stock or majority of the members may grant directors or trustees with
compensation and approve the amount thereof at a regular or special
meeting.

Liability of Directors, Trustees or Officers (Section 30)

Fiduciary duties of directors: duty of obedience, duty of diligence, and
duty of loyalty

Who are liable and for what acts: directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or
who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with
their duty as such directors or trustees.

Nature of liability: shall be liable jointly and severally for all damages

resulting therefrom suffered by the corporation, its stockholders or
members and other persons.

Liability as a trustee for the corporation: A director, trustee, or officer

shall not attempt to acquire, or acquire any interest adverse to the
corporation in respect of any matter which has been reposed in them in
confidence, and upon which, equity imposes a disability upon themselves
to deal in their own behalf.

Dealings of Directors, Trustees or Officers with the

Corporation (Section 31)
What contract is deemed voidable: A contract of the corporation with (1)
one or more of its directors, trustees, officers or their spouses and relatives
within the fourth civil degree of consanguinity or affinity at the option of
such corporation, UNLESS ALL the following conditions are present –


o 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;
o The vote of such director or trustee was not necessary for the
approval of the contract;
o The contract is fair and reasonable under the circumstances;
o In case of corporations vested with public interest, material
contracts are approved by at least two-thirds (2/3) of the entire
membership of the board, with at least a majority of the
independent directors voting to approve the material contract;
and
o In case of an officer, the contract has been previously
authorized by the board of directors.

Where the first three conditions are absent in a contract with a director or
trustee, where a full disclosure of adverse interest and the contract is fair
and reasonable, such a contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or of at least two-thirds (2/3) of the members in a meeting called for
the purpose.

Contracts between corporations with interlocking

directors (Section 32)

There is no express prohibition in the RCC on interlocking directorate.

Hence, a contract entered into between two or more corporations with
interlocking directors shall be valid, provided the following REQUISITES
are present:


o There is no fraud
o The contract is fair and reasonable under the circumstances
o If the interest of the interlocking director in one corporation is
substantial, while it is merely nominal in the other, he shall be
subject to the following conditions:
 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; and
 The vote of such director or trustee was not necessary for
the approval of the contract.

When is interest deemed substantial: Stockholdings exceeding twenty

(20%) percent of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.

Disloyalty of a director (Section 33)

How committed: when a director, by virtue of such office, acquires a

business opportunity which should belong to the corporation, thereby
obtaining profits to the prejudice of such corporation.

Resulting liability: the director must account for and refund to the latter all
such profits.

Exception from liability: if the act has been ratified by a vote of the
stockholders owning or representing at least two thirds (2/3) of the
outstanding capital stock.
 

Executive, Management, and Other Special

Committees (Section 34)

Functions of the executive committee

It 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 bylaws
or by majority vote of the board.

Acts that cannot be delegated

1.
1. approval of any action for which shareholders’ approval is also
required;
2. filling of vacancies in the board;
3. amendment or repeal of bylaws or the adoption of new bylaws;
4. amendment or repeal of any resolution of the board which by its
express terms is not amendable or repealable; and
5. distribution of cash dividends to the shareholders.

2. Kinds of powers of a corporation

3.  EXPRESS POWERS – powers expressly granted to a corporation by
its charter. For corporations organized under Code, its charter
consists of the corporation code (RCC or the old code), the AOI, and
other laws applicable to the corporation. If formed under a special
law, its charter includes the special law, the RCC or old code, and
other laws applicable to the corporation.
4. IMPLIED POWERS – those which are necessary to carry into effect
the powers that are expressly granted, and which must therefore be
presumed to have been the intention of the franchise.

5. INCIDENTAL POWERS – powers that a corporation may exercise by

reason of its very existence as a corporation.
 6.

Power to extend or shorten corporate term (Section

36)
 Requisites for the exercise of this power:
 Vote required- the act must be approved by:

1. Majority of the BOD/BOT; AND

2. Two-thirds (2/3) of the outstanding capital stock OR 2/3 of the
members in a meeting called for that purpose (voting and non-voting)

 The AOI is amended to effect the extension or shortening of the

corporate term.

A dissenting stockholder may exercise his appraisal right.

Power to increase or decrease capital stock; incur,

create or increase bonded indebtedness (Section 37)
Requisites to increase or decrease capital stock
 Vote required: The act must be approved by:

1. Majority of the BOD; AND

2. Two-thirds (2/3) of the outstanding capital stock in a meeting called
for that purpose

 A certificate in duplicate must be signed by a majority of the directors

and countersigned by the chairman and secretary, setting forth:

1. That the requirements of this section has been complied with;

2. Amount of the increase or decrease of the capital stock;
3. In case of an increase of the capital stock, the amount of capital stock
or number of shares of no par stock thereof actually subscribed, the
names, nationalities and addresses of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by
each, and the amount paid by each on the subscription in cash or
property, or the amount of capital stock or number of shares of no-par
stock allotted to each stockholder if such increase is for the purpose
of making effective stock dividend therefor authorized;
 4. The amount of stock represented at the meeting; and
5. The vote authorizing the increase or decrease of the capital stock.

 In case of an increase, the treasurer must execute a sworn statement

attesting to the fact that at least 25% of the increase in capital stock
has been subscribed and at least 25% of the subscription has been
paid
 In case of decrease, the same should not violate the Trust Fund
Doctrine
 It must be approved by the SEC and the Philippine Competition
Commission if applicable.

Ways to increase capital stock

 Increasing the number of shares without increasing the par value

 Increasing the par value without increasing the number of shares
 Increasing both the number of share and par value

Ways to decrease capital stock

 Decreasing the number of shares without decreasing the par value

 Decreasing the par value without decreasing the number of shares
 Decreasing both the number of share and par value

Power to increase or decrease bonded indebtedness

Requisites to increase or decrease bonded indebtedness

 Vote required: The act must be approved by:

 1. Majority of the BOD/BOT; AND
2. Two-thirds (2/3) of the outstanding capital stock or 2/3 of the
members in a meeting called for that purpose

 A certificate in duplicate must be signed by a majority of the directors

and countersigned by the chairman and secretary, setting forth:

1. That the requirements of this section has been complied with;
2. Any bonded indebtedness to be incurred, created or increased;
3. The amount of stock represented at the meeting;
4. The vote authorizing the incurring, creating or increasing of any
bonded indebtedness; and
 It must be approved by the SEC and the Philippine Competition
Commission if applicable.

Power to deny pre-emptive right (Section 38)

Sale or other disposition of assets (Section 39)

Power to sell, lease, exchange, mortgage, pledge, or otherwise dispose of
all or substantially all property and assets (subject to R.A. No. 10667,
otherwise known as “Philippine Competition Act” and other related laws)

Meaning of “sale or disposition of all or substantially

all corporate property”
 
It refers to sale or disposition of assets which has the effect of the
corporation being unable to or incapable of continuing the business or
accomplishing the purpose for which it was incorporated.

Vote required

1. Majority vote of its board of directors or trustees; and

2. Two-thirds (2/3) of the outstanding capital stock or 2/3 of the
members in a meeting called for that purpose.

Instances when ONLY the vote of the directors or trustees is deemed

sufficient

 When such sale or other disposition is necessary in the usual and

regular course of business
 When the proceeds of such sale or other disposition are to be
appropriated for the conduct of the remaining business of the
corporation

Power to acquire own shares (Section 40)

Requisites

 The corporation must have unrestricted retained earnings to cover

the purchase of the shares
 The acquisition must be for a legitimate purpose or purposes, such as
but not limited to:

1. Eliminate fractional shares arising out of stock dividends;

2. Collect or compromise an indebtedness to the corporation, arising out
of unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale; and
3. Pay dissenting or withdrawing stockholders entitled to payment for
their shares.
 

Power to invest corporate funds in another

corporation or business or for any other purpose
other than the primary purpose (Section 41)
This power is subject to the exercise of appraisal right.

Vote required

1. Majority vote of its board of directors or trustees; and

2. Two-thirds (2/3) of the outstanding capital stock or 2/3 of the
members in a meeting called for that purpose (voting or non-voting)

Instances when ONLY the vote of the directors or trustees is deemed

sufficient: if the investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the AOI.

Power to declare dividends (Section 42)

The BOD has the power and discretion to declare dividends and they
cannot be compelled by the stockholders to make such declaration unless
the board’s refusal is unjustified or except in cases when the law makes
such declaration mandatory.

Voting requirement for the exercise of this power

 Stock dividends: declaration thereof must be approved by

 o Majority vote of the directors present provided there is quorum
(not majority based on the number of directors as indicated in
the AOI); and
o Two-thirds (2/3) of the outstanding capital stock entitled to vote
in a meeting called for that purpose.
 Cash dividends: the declaration thereof requires only the vote of
directors present provided there is quorum.

Sources of dividends: surplus profits (or retained earnings) and paid-in

surplus (or paid-in capital in excess of par value, however, this may be
declared only as stock dividends but not as cash dividends based on SEC
ruling).

Payment when the stockholder is delinquent

1. Cash dividend – payment shall first be applied to the unpaid balance

on the subscription plus costs and expenses.
2. Stock dividend – the stock dividend shall be withheld from the
delinquent stockholder until he has paid in full the amount of his
subscription plus costs and expenses.

By-Laws: Concept, Requisites, Filing, and Adoption

(Section 45)
The BYLAWS are the rules of action adopted by a corporation for its
internal government and the rules that govern its stockholders or members
and those having the direction, management, and control of its affairs. They
supplement the articles of incorporation by defining more precisely the
powers, rights, responsibilities, and obligations of the corporation, its board
of directors or trustees, officers, stockholders or members, and stating
other rules under which the corporation and its activities will be governed.

Requisites of valid bylaws

  They must be consistent with the charter of the corporation (i.e. AOI,
special law);
 They must be consistent with public policy;
 They must be uniform in application and not directed against a
particular individual;
 They must be reasonable; and
 They must not disturb vested rights or impair and evade obligation of
contracts.

When to file and adopt bylaws and by whom

1. Prior to incorporation
o Submitted together with the AOI to the SEC; and
o Approved and signed by all the incorporators.
2. After incorporation
o Affirmative vote of the stockholders representing at least a
majority of the outstanding capital stock, or of at least a majority
of the members in case of non-stock corporations;
o Signed by the stockholders or members voting for them;
o Certified by a majority of the directors or trustees and
countersigned by the secretary of the corporation and filed
together with the AOI to the SEC.

In both cases, the by-laws shall be effective only upon the issuance by the
Commission of a certification that the bylaws are in accordance with this
Code and Commission shall not accept for filing the bylaws or any
amendment thereto of any bank, banking institution, building and loan
association, or other special corporations governed by special laws, unless
accompanied by a certificate of the appropriate government agency. The
by-laws shall be kept in the principal office of the corporation, subject to the
inspection of the stockholders or members during office hours. 

Contents of Bylaws (Section 46)

Under the Revised Corporation Code, in addition to the enumeration in the
old Code, the corporation may provide for the modes by which a
stockholder, member, director, or trustee may attend meetings and cast
their votes. An arbitration agreement is likewise advised to be included in
accordance with Section 181 of the RCC.

Amendment of the Bylaws (Section 47)

Voting requirement:

1. Majority vote of the BOD/BOT; and

2. Majority of the outstanding capital stock or majority of the members
(voting and non-voting) in a meeting called for that purpose.

Delegation of power to amend, repeal, or adopt new by-laws to the

BOD/BOT

The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds

(2/3) of the members may cause such delegation. However, the same may
be REVOKED upon the vote of stockholders owning or representing a
majority of the outstanding capital stock or majority of the members at a
regular or special meeting. The amended or new bylaws shall only be
effective upon the issuance by the Commission of a certification that the
same is in accordance with this Code and other relevant laws.

By-Laws: Concept, Requisites, Filing, and Adoption

(Section 45)
Necessity of meetings

Meetings are necessary so that any corporate act may be decided upon
only after deliberation and consultation among themselves. It gives the
stockholders or members the opportunity to scrutinize, deliberate, and vote
on matters affecting the corporation.
Matters to present at regular and special meetings

At each regular meeting of stockholders or members, the BOD/BOT shall

present to the following:

1. The minutes of the most recent regular meeting;

2. A members’ list for non-stock corporations and, for stock
corporations, material information on the current stockholders, and
their voting rights;
3. Comprehensible assessment of the corporation’s performance;
4. Financial report for the preceding year;
5. Explanation of the dividend policy and the fact of payment of
dividends or the reasons for nonpayment thereof;
6. Director or trustee profiles;
7. Director or trustee attendance report;
8. Appraisals and performance reports for the board and the criteria and
procedure for assessment;
9. Director or trustee compensation report;
10. Director disclosures on self-dealings and related party
transactions; and/or
11. The profiles of directors nominated or seeking election or
reelection.

When no person is authorized to call a meeting OR there is unjust

refusal to call a meeting

Upon petition by a stockholder or member on a showing of good cause

therefor, the Commission may issue an order directing the petitioning
stockholder or member to call a meeting of the corporation. The petitioning
stockholder or member shall preside thereat until at least a majority of the
stockholders or members present have chosen from among themselves, a
presiding officer.

Place and time of meetings of stockholders or

members (Section 50)
All meetings shall be held in the principal office of the corporation as set
forth in the AOI, OR, if not practicable, in the city or municipality where the
principal office of the corporation is located.

Notice of meetings, how sent: through the means of communication

provided in the bylaws, which notice shall state the time, place and purpose
of the meetings.

Matters that must be included in the notice of meeting

1. Agenda
2. Proxy form
3. When attendance, participation, and voting are allowed by remote
communication or in absentia, and requirements or procedures for
the same; and
4. When the meeting is for the election of directors or trustees, the
requirements and procedure for nomination and election.

Quorum in meetings of stockholders or members

(Section 51)
 

A quorum shall consist of the stockholders representing a MAJORITY of

the outstanding capital stock or a MAJORITY of the members in the case
of non-stock corporations, unless provided otherwise by the Code or the
bylaws.

Meetings of directors or trustees (Section 52)

 

Quorum and validity of corporate acts: A MAJORITY of the directors or

trustees as stated in the articles of incorporation shall constitute a quorum
to transact corporate business, and every decision reached by at least a
majority of the directors or trustees constituting a quorum, except for the
election of officers which shall require the vote of a majority of all the
members of the board, shall be valid as a corporate act.

When to hold regular meetings: monthly or accdg to bylaws

When to hold special meetings: may be held at any time upon the call of
the president or accdg to bylaws

When to send notices: at least two (2) days prior to the scheduled
meeting or accdg to bylaws

Who shall preside at meetings (Section 53): the chairman or, in his

absence, the president

 
Right to vote of secured creditors and administrators
(Section 54)
 

The stockholder-grantor shall have the right to attend and vote at meetings
of stockholders, unless he gives such right to the secured creditor in
writing.

Executors, administrators, receivers, and other legal representatives duly

appointed by the court may attend and vote in behalf of the stockholders or
members without need of any written proxy.

Voting in case of joint ownership of stock (Section 55)

 
The consent of all the co-owners shall be necessary in voting shares of
stock in such case, unless there is a written proxy, signed by all the co-
owners to authorize one or some.

Voting right for treasury shares (Section 56)

 

No voting right as long as treasury shares remain in the treasury.

Proxies (Section 57)

 

Proxies shall be in writing, signed and filed, by the stockholder or member,

in any form authorized in the bylaws and received by the corporate
secretary within a reasonable time before the scheduled meeting. It shall
be valid only for the meeting for which it is intended. No proxy shall be valid
and effective for a period longer than five (5) years at any one time.

Voting trusts (Section 58)

Requisites and limitations of VTAs

 It must be in writing and duly notarized, and shall specify the terms
and conditions thereof;
 A certified true copy must be filed with the SEC;
 It shall not exceed five (5) years at any one time, except if specifically
required under a loan agreement;
 Unless renewed, all rights granted therein shall automatically expire
upon the expiration of the VTA; and
  It shall not be entered into to circumvent laws against monopolies and
illegal combinations (Section 59).

Procedure on transfer of shares covered by voting trust

1. The stock certificate(s) shall be surrendered by the stockholder to the

corporation for cancellation.
2. New stock certificate(s) shall be issued by the corporation in the
name of the trustee(s).
3. The trustee(s) shall execute and deliver to the transferring
stockholder voting trust certificates in the same manner and with the
same effect as stock certificates.