AStudy Outilne of The Revised Corporation Code

[DOCUMENT TITLE]
A Study Outline
of the
Revised Corporation Code of the Philippines
(Republic Act 11232)
By
JOSE RIODIL D. MONTEBON

2
TABLE OF CONTENTS
I CORPORATION, IN GENERAL............................................................................................4
A. ATTRIBUTES OF A CORPORATION...............................................................................4
B. ARTIFICIAL PERSONALITY............................................................................................4
C. CREATED BY OPERATION OF LAW..............................................................................4
D. RIGHTS OF SUCCESSION..............................................................................................6
E. POWERS AND PROPERTIES EXPRESSLY AUTHORIZED BY LAW............................6
II TYPES OF BUSINESS ORGANIZATIONS...........................................................................7
III REGULATION OF PRIVATE CORPORATIONS.................................................................12
IV REGULATION OF PRIVATE CORPORATIONS................................................................27
V CONTENTS AND FORM OF THE ARTICLES OF INCORPORATION...............................37
A. NAME.............................................................................................................................. 37
B. PURPOSE....................................................................................................................... 39
B.1. Powers of Corporation..........................................................................................39
B.2. Increase or Decrease Capital Stock, Create/Increase Bonded Indebtedness...39
B.3. Sale or Disposition of All Assets..........................................................................42
B.4. Ultra Vires Acts......................................................................................................46
B.5. Adoption of Bylaws................................................................................................48
C. PRINCIPAL OFFICE.......................................................................................................50
C.1. Place and Time of Meeting of Stockholders or Members...................................51
D. TERM OR CORPORATE LIFE........................................................................................52
D.1. Commencement of Corporate Existence.............................................................53
D.2. Power to Extend/Shorten Corporate Life.............................................................54
D.3. Dissolution............................................................................................................. 54
E. INCORPORATORS.........................................................................................................55
E.1. Corporators, Incorporators, Stockholders, Members............................................55
F. INCORPORATING DIRECTORS OR TRUSTEES..........................................................58
F.1. Board of Directors or Trustees.................................................................................60
G. CAPITOL STOCK/CONTRIBUTION...............................................................................71
G.1. Classes of Corporation..........................................................................................71
G.2. Classes of Shares..................................................................................................71
G.3. Founders’ Shares...................................................................................................72
G.4. Redeemable Shares...............................................................................................72
G.5. Treasury Shares.....................................................................................................72
G.6. Power to Acquire Own Shares..............................................................................73
G.7. Minimum Capital....................................................................................................74
G.8. Dividends................................................................................................................ 75
G.9. Issuance of Stock Certificates..............................................................................78
G.10. Delinquent Stock....................................................................................................80
H. SUBSCRIPTION............................................................................................................. 81
H.1. Subscription contract............................................................................................81
H.2. Pre-incorporation subscription.............................................................................83
H.3. Interest on unpaid subscription............................................................................83
H.4. Payment of balance...............................................................................................83
I. TREASURER.................................................................................................................. 85
J. RESERVATION FOR NATIONALIZED CORPORATIONS.............................................86
K. SUMMARY OF THE CONTENTS OF THE ARTICLES OF CORPORATION.................87
VI MERGER AND CONSOLIDATIONS...................................................................................89
VII APPRAISAL RIGHT........................................................................................................... 91
VIII NON-STOCK CORPORATIONS........................................................................................93
IX CLOSE CORPORATIONS..................................................................................................96
X SPECIAL CORPORATIONS.............................................................................................100
XI DISSOLUTION AND WINDING UP OF CORPORATE AFFAIRS.....................................104
XII FOREIGN CORPORATION..............................................................................................121
A. Application to Existing Foreign Corporations...........................................................122
B. APPLICATION FOR A LICENSE..................................................................................126
C. ISSUANCE OF A LICENSE............................................................................................133
D. RESIDENT AGENT.......................................................................................................134
E. LAW APPLICABLE.......................................................................................................135
F. AMENDMENTS TO ARTICLES OF INCORPORATION, OR BYLAWS OF FOREIGN
CORPORATIONS......................................................................................................... 135
G. AMENDED LICENSE....................................................................................................136
H. MERGER OR CONSOLIDATION INVOLVING A FOREIGN CORPORATION LICENSED
IN THE PHILIPPINES....................................................................................................136
I. DOING BUSINESS WITHOUT A LICENSE..................................................................136
J. REVOCATION OF LICENSE........................................................................................141
K. ISSUANCE OF CERTIFICATE OF REVOCATION.......................................................142
L. WITHDRAWAL OF FOREIGN CORPORATIONS........................................................142
XIII SECURITIES AND REGULATION CODE......................................................................146
ANNEX A – FORM OF ARTICLES OF ARTICLES OF INCORPORATION............................148
I – CORPORATION, IN GENERAL
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 incidental to its
existence.1 In this sense, our law has created a juridical entity that possesses particular
powers, attributes and properties, having a legal personality separate and distinct from the
persons comprising and running it.2
A. ATTRIBUTES OF A CORPORATION
1. It is an artificial being
2. It is created by operation of law
3. It enjoys right of succession
4. It has powers, attributes and properties expressly authorized by law or incident to
its existence
B. ARTIFICIAL PERSONALITY
 Doctrine of Distinct and Separate Juridical Personality3

- A corporation has a juridical personality separate and distinct from that of its
stockholders or members.
- It may own properties, raise capital and deal with its own or independently of
its shareholders or members, with third parties.
- It may exist perpetually or for a limited time only, regardless of the life or term
of existence of its shareholders or members.
C. CREATED BY OPERATION OF LAW
 Theories on the Formation of a Corporation4

1. Concession or Fiat Theory (Philippine jurisprudence adopted this theory)
– espouses that a corporation is an artificial creature without any existence until it
has received the imprimatur of the state acting according to law, through the
SEC. (Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242)
2. Theory of corporate enterprise or economic unit

– espouses that the corporation is not merely an artificial being, but more of an
aggregation of persons doing business, or an underlying business unit.
(Philippine Corporate Law, Cesar Villanueva, 2001 ed.)
1
Section 2 of the Revised Corporation Code
2
Teresita J. Herbosa & Eric R. Recalde (2019). The Revised Corporation Code of the Philippines (It’s Theories and Applications). p.
29
3
Ibid.
4
Contents taken from San Beda Memory Aid in Commercial Law 2005
3. Genossenschaft Theory
– treats a corporation as “the reality of the group as a social and legal entity,
independent of state recognition and concession”. (Tayag vs. Benguet
Consolidated, Inc., 26 SCRA 242)
 Piercing the Veil of Corporate Fiction

- Requires the court to see through the protective shroud which exempts its
stockholders from liabilities that they ordinarily would be subject to, or
distinguishes a corporation from a seemingly separate one, were it not for the
existing corporate fiction.5
 Two (2) Classes of Piercing
(a) Fraud Cases – when a corporation is used as a cloak to cover fraud, or
to do wrong.
Requisites6:
 There must have been fraud or evil motive in the affected
transaction and the mere proof of control of the corporation by
itself would not authorize piercing.
 The main action should seek for the enforcement of pecuniary
claims pertaining to the corporation against corporate officers or
stockholders.
(b) Alter-ego Cases - when the corporate entity is merely a farce since
the corporation is an alter ego, business conduit or instrumentality of
a person or another corporation.
- It applies because of the direct violation of a central
corporate law principle of separating ownership from
management.
- If the stockholders do not respect the separate entity,
others cannot also be expected to be bound by the
separate juridical entity.
- Applies even when there are no monetary claims
sought to be enforced.
Requisites:
 There must be control, not mere majority or complete stock
control, but complete domination, not only of finances, but of
policy, and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had,
at that time, no separate mind, will or existence of its own
(control);
 Such control must have been used by the defendant to commit
fraud or wrong, to perpetrate the violation of a statutory or other
positive duty, or dishonest and unjust act in contravention of
plaintiff’s legal rights (breach of duty); and
5
Lim vs. CA, 323 SCRA 102
6
Memory Aid in Commercial Law 2005
 Such control and breach of duty must proximately cause the
injury to the plaintiff.7
D. RIGHTS OF SUCCESSION
A corporation has a capacity of continuous existence irrespective of the death, withdrawal,

insolvency, or incapacity of the individual stockholders or members and regardless of the
transfer of their interest or shares of stock.8
As amended by R.A. 11232, a corporation shall now have a perpetual existence unless its
articles of incorporation provides otherwise.9
E. POWERS AND PROPERTIES EXPRESSLY AUTHORIZED BY LAW
A corporation is granted with sufficient powers for it to pursue its purposes.10 In addition, the
law vests it with “such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in the articles of incorporation.”11
7
Concept Builders, Inc. vs. NLRC, 257 SCRA, 149
8
Hector S. De Leon and Hector M. De Leon, Jr. (2010). The Corporation Code of the Philippines
9
10
Teresita J. Herbosa & Eric R. Recalde (2019). The Revised Corporation Code of the Philippines (It’s Theories and Applications)
11
Section 35(k) of the Revised Corporation Code
[Document title]
II - TYPES OF BUSINESS ORGANIZATIONS
A. SOLE PROPRIETORSHIP
Characteristics:
 It is the simplest form of business organization.
 Regulation is far less complexed compared to a corporation.
 Created at will by owner.
 No personality separate and distinct with its owner.
 Unlimited liability for the owner, i.e. personal assets of owner can be used to pay
debts of the business.
 Term or duration of the business enterprise is determined by the owner or upon
owner’s death.
 Assets are transferable.
 Ownership and management belong to the owner.
 It is individually taxed.
 Capital of the business depends on the capability of owner.
 Owner may bind the business and himself in any contract in the name of the
business since it has no separate personality with its owner.
No personality separate and distinct with its owner
In Anita Mangila vs. Court Of Appeals and Loreta Guina,G.R. No. 125027 -
August 12, 2002, the Court held that: “A sole proprietorship does not possess a
juridical personality separate and distinct from the personality of the owner of the
enterprise. The law merely recognizes the existence of a sole proprietorship as a
form of business organization conducted for profit by a single individual and
requires its proprietor or owner to secure licenses and permits, register its
business name, and pay taxes to the national government. The law does not vest
a separate legal personality on the sole proprietorship or empower it to file or
defend an action in court.” Hence when filing a suit in court it should be under the
name of the owner whether he is petitioner or defendant in a given case.
B. PARTNERSHIP (Art. 1767 of the NCC)12
Characteristics:
● Created by agreement of the parties, for Commission’s recording only, not approval.
● There is personality separate and distinct from its owner.
12
Article 1767, NCC - By the contract of partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a
partnership for the exercise of a profession. (1665a)
[Document title]
● Unlimited liability except when partnership is a limited partnership.

● Terminated by: (EDWARD)
o Extinguishment of a particular undertaking or loss of the object of the
partnership
o Death, insolvency, incapacity or civil interdiction of one of the partner
o Withdrawal of one of the partner
o Agreement of the partners or admission of new partner
o Retirement of one of the partner
o Decree of court
● Partnership (economic) interest can be assigned, but assignee does not have full
rights of a partner.
● Ownership and management generally belong to the partners, subject to contrary
stipulation.
● Two-level taxation.
● Capitalization depends on the agreement of the partners.
● Any partner may act to represent the business in any contract within the normal
business activities.
● No power of succession.
Elements of Partnership:
 There must be a valid contract
 The parties have legal capacity to enter into the contract
 There must be a mutual contribution of money, property or industry to a common
fund
 The object must be lawful
 The purpose must be to obtain profits and to divide the same among the parties
C. CLOSE CORPORATION (Sec. 9613–105 of the RCC)
Characteristics:
 Its Articles of Incorporation has specific restrictions regarding the number of
shareholders (but in no case shall exceed 20), transfer of shares and listing in the
stock exchange.
 Its Articles of Incorporation must also specify that it is closed.
13
Section 96 of the Revised Corporation Code. Definition and applicability of Title. - A close corporation, within the meaning
of this Code, is one whose articles of incorporation provide that: (1) All the corporation’s issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) all the
issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; 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.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance
companies, public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the
provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other Titles of this Code shall
apply suppletorily except insofar as this Title otherwise provides.
[Document title]
 Usually family-owned corporations.14

 The shareholders treat each other as partners.15
The law does not consider a corporation a close corporation if ⅔ (two-thirds) of its voting
shares is owned or controlled by another corporation.16
In San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 357 Phil 631
(1998), Court held that “The [m]ere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personalities. So too, a narrow
distribution of ownership does not, by itself, make a close corporation. Courts must look
into the Articles of incorporation to find provisions expressly stating that: (1) the number
of stockholders shall not exceed twenty; or (2) a pre-emption of shares is restricted in
favour of any stockholder or of the corporation; or (3) the listing of the corporate stocks
in any stock exchange or making a public offering of those stocks is prohibited.”
D. LIMITED PARTNERSHIP (Art. 1843 of the NCC)17
Characteristics:
 It is formed by compliance with the statutory requirements.
 One or more general partners control the business and are personally liable to
creditors.
 One or more limited partners contribute to the capital and share in the profits but do
not participate in the management of the business and are not personally liable for
partnership obligations beyond their capital contributions.
 The limited partners may ask for the return of their capital contributions under
conditions prescribed by law.
 Partnership debts are paid out of common fund and the individual properties of
general partners (De Leon, 2014).
E. JOINT VENTURE
Joint venture is defined as an association of persons or companies jointly undertaking

some commercial enterprise; generally, all contribute assets and share risks. It requires
a community of interest in the performance of the subject matter, a right to direct and
govern the policy in connection therewith, and duty, which may be altered by agreement
14
Notes from Sir Montebon’s class lecture.
15
16
17
Article 1843, New Civil Code. A limited partnership is one formed by two or more persons under the provisions of the following
article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be
bound by the obligations of the partnership.
[Document title]
to share both in profit and losses (Kilosbayan, Incorporated vs. Guingona, Jr.)18. In this
jurisdiction, a joint venture is a form of partnership and is thus governed by the law on
partnerships (Del Mar vs. Philippine Amusement and Gaming Corporation)19.
In Aurbach et al. vs. Sanitary Wares Manufacturing Corporation20:
The legal concept of a joint venture is of common law origin. It has no precise
legal definition but it has been generally understood to mean an organization
formed for some temporary purpose. (Gates vs. Megargel, 266 Fed. 811 [1920])
It is in fact hardly distinguishable from the partnership, since their elements are
similar community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner vs. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau vs. Peterson, 95 P. 2d., 1043 [1939]; Buckley vs. Chadwick, 45 Cal.
2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature. (Tufts
vs. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111.
595, 71 NE 2d. 74 [1947]; Gates vs. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint venture is a form of partnership
and should thus be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At p. 12, Tuazon vs. Bolanos, 95
Phil. 906 [1954])21
F. BUSINESS TRUST (Art. 1440 of the NCC)22
Persons involved in the creation of a trust:

a. Trustor – the person who establishes the trust
b. Trustee – one in whom confidence is reposed as regards property for the benefit
of another person
18
G.R. No. 113375, May 5, 1994
19
G.R. No. 138298, August 24, 2001
20
G.R. No. 75875 December 15, 1989
21
Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981
22
Article 1440, New Civil Code. A person who establishes a trust is called the trustor; one in whom confidence is reposed as
regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been
created is referred to as the beneficiary.
[Document title]
c. Beneficiary or cestui que trust – person for whose benefit the trust has been
created
Trusts are either express or implied. Express trusts are created by the intention of the
trustor or of the parties. Implied trusts come into being by operation of law. (Article 1441
of the NCC)
[DOCUMENT TITLE]
III – REGULATION OF PRIVATE CORPORATIONS
A. CONGRESS
ARTICLE XII, 1987 CONSTITUTION: NATIONAL ECONOMY AND PATRIMONY
 Section 2. “ xxxxxx The Congress may, by law, allow small-scale utilization of

natural resources by Filipino citizens, as well as cooperative fish farming, with priority
to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons.xxxx ”
 Section 4. The Congress shall, as soon as possible, determine, by law, the specific
limits of forest lands and national parks, marking clearly their boundaries on the
ground. Thereafter, such forest lands and national parks shall be conserved and may
not be increased nor diminished, except by law. The Congress shall provide for such
period as it may determine, measures to prohibit logging in endangered forests and
watershed areas.
 Section 9. The Congress may establish an independent economic and planning
agency headed by the President, which shall, after consultations with the appropriate
public agencies, various private sectors, and local government units, recommend to
Congress, and implement continuing integrated and coordinated programs and
policies for national development.
Until the Congress provides otherwise, the National Economic and Development
Authority shall function as the independent planning agency of the government.
 Section 10. The Congress shall, upon recommendation of the economic and
planning agency, when the national interest dictates, reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose
capital is owned by such citizens, or such higher percentage as Congress may
prescribe, certain areas of investments. The Congress shall enact measures that will
encourage the formation and operation of enterprises whose capital is wholly owned
by Filipinos. In the grant of rights, privileges, and concessions covering the national
economy and patrimony, the State shall give preference to qualified Filipinos. The
State shall regulate and exercise authority over foreign investments within its
national jurisdiction and in accordance with its national goals and priorities.
 Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
[DOCUMENT TITLE]
 Section 15. The Congress shall create an agency to promote the viability and growth
of cooperatives as instruments for social justice and economic development.
 Section 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.
 Section 20. The Congress shall establish an independent central monetary
authority, the members of whose governing board must be natural-born Filipino
citizens, of known probity, integrity, and patriotism, the majority of whom shall come
from the private sector. They shall also be subject to such other qualifications and
disabilities as may be prescribed by law. The authority shall provide policy direction
in the areas of money, banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory powers as may be provided by law
over the operations of finance companies and other institutions performing similar
functions. Until the Congress otherwise provides, the Central Bank of the Philippines
operating under existing laws, shall function as the central monetary authority.
B. SECURITIES AND EXCHANGE COMMISSION (SEC)

(P.D. 902-A, P.D. 1758, Judiciary Reorganization Act, Revised Code of Corporate
Governance, Securities Regulation Code, Foreign Investments Act, E-Commerce Law)
1. Presidential Decree 902-A: SEC REORGANIZATION ACT as amended by PD

1758
- administrative supervision of SEC from Department of Trade to the
Office of the president
 SEC Composition
- (4) Associate Commissioners (7 years term)- appointed by the
President
- Provided, That the Chairman and the two (2) Associate Commissioners
of the Commission first appointed by the President shall serve for a
period of seven (7) years; five (5) years and three (3) years.
- the two additional Associate Commissioners first appointed by the
President under this Decree, as amended, shall serve for five (5) years
and three (3) years as fixed in their respective appointments;
- Provided, further, That upon the expiration of his term, a member shall
serve as such until his successor shall have been appointed and
qualified; And Provided, finally, That no vacancy shall be filled except for
the unexpired portion of the term.
 SEC Jurisdiction
- absolute jurisdiction, supervision and control over all corporations,
partnerships, or associations, who are the grantees of primary franchises
[DOCUMENT TITLE]
and/or a license or permit issued by the government to operate in the

Philippines.
- have the power to enlist the aid and support of and to deputize any and
all enforcement, agencies of the government, civil or military as well as
any private institution, corporation, firm, association or person."
 Civil Service Scope
- that except as to the technical staff and such other positions as the
Commission, with the approval of the President, may declare to be highly
technical, policy-determining or primarily confidential, all positions in the
Commission are subject to the Civil Service Law and Rules.
 Other Regulatory and Adjudicative functions
(a) Devices or schemes amounting to fraud and intra-corporate
controversies
(b) Controversies in the election or appointments officers
(c) Petitions for suspension of payments in cases
 SEC Powers
The Commission shall have the powers and functions provided by the
Securities Regulation Code, Presidential Decree No. 902-A, as amended, the
Corporation Code, the Investment Houses Law, the Financing Company Act,
and other existing laws.
Under Section 5 of the Securities Regulation Code, Rep. Act. 8799, the
Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or

associations who are the grantees of primary franchises and/or a license or
permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the
securities market, advise Congress and other government agencies on all
aspects of the securities market and propose legislation and amendments
thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration
statements, and registration and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure
compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges,
clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and
orders issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and
issue opinions and provide guidance on and supervise compliance with such
rules, regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all enforcement
agencies of the Government, civil or military as well as any private institution,
[DOCUMENT TITLE]
corporation, firm, association or person in the implementation of its powers

and functions under this Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing
public;
(j) Punish for contempt of the Commission, both direct and indirect, in
accordance with the pertinent provisions of and penalties prescribed by the
Rules of Court;
(k) Compel the officers of any registered corporation or association to call
meetings of stockholders or members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any
proceedings of the Commission and in appropriate cases, order the
examination, search and seizure of all documents, papers, files and records,
tax returns, and books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases before it, subject
to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or
certificate of registration of corporations, partnerships or associations, upon
any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those
which may be implied from, or which are necessary or incidental to the
carrying out of, the express powers granted the Commission to achieve the
objectives and purposes of these laws.
Under Section 5.2 of the Securities Regulation Code, the Commission’s

jurisdiction over all cases enumerated under Section 5 of PD 902-A has been
transferred to the courts of general jurisdiction or the appropriate
Regional Trial Court. The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of the Code. The
Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
Considering that only Sections 2, 4, and 8 of PD 902-A, as amended, have

been expressly repealed by the Securities Regulation Code, the Commission
retains the powers enumerated in Section 6 of said Decree, unless these are
inconsistent with any provision of the Code.
 SEC Recommendation
The Commission is authorized to recommend to the President the revision,
alteration, amendment or adjustment of the charges and fees, which by law, it
is authorized to collect.
2. Judiciary Reorganization Act

[DOCUMENT TITLE]
 Section 23. Special jurisdiction to try special cases. – The Supreme Court
may designate certain branches of the Regional Trial Courts to handle
exclusively criminal cases, juvenile and domestic relations cases, agrarian cases,
urban land reform cases which do not fall under the jurisdiction of quasi-judicial
bodies and agencies, and/or such other special cases as the Supreme Court
may determine in the interest of a speedy and efficient administration of justice.
3. Revised Code of Corporate Governance23
4. Securities and Regulation Code
 Purpose:
a) To establish a socially conscious, free market that regulates itself
b) To encourage the widest participation of ownership in enterprises
c) To enhance the democratization of wealth
d) To promote the development of the capital market
e) To protect investors
f) To ensure full and fair disclosure about securities
g) To minimize if not totally eliminate insider trading and other fraudulent or
manipulative devices and practices which create distortions in the free
market.
 These rules shall be implemented by the Commission as a collegial body
composed of a Chairperson and 4 Commissioners.
 It has 5 principal departments, each headed by a director
 Its core function of capital market regulation shall be performed by the
Market Regulation Department. Corporate Finance Department, and Non-
Traditional Securities and Instruments Department.
 Its company registration and enforcement functions shall be performed by
the Company Registration and Monitoring Department and Compliance
and Enforcement Department, respectively.
a) Market Regulation Department - develops the criteria for all market
participants and supervises to ensure compliance with registration
requirements and endorses infractions of the Code and rules and
regulations to the Compliance and Enforcement Department.
b) Corporation Finance Department - registers securities before they
are offered for sale or sold to the public and ensures that the
information needed about the securities are adequate.
c) Non-Traditional Securities and Instruments Department - registers
and licenses non-traditional securities and instrument including, but
not limited to, pre-need plans, commodity future contracts, proprietary
or non-proprietary membership certificates and other similar
instruments.
23
See qualifications of board of the directors /T. J. Herbosa & E. R. Recalde (2019). The Revised Corporation Code of the
Philippines (Its Theories and Applications). Chapter III-A
[DOCUMENT TITLE]
d) Company Registration and Monitoring Department - registers

domestic corporations, partnerships and associations, including
representative offices and foreign corporations intending to do
business in the Philippines.
e) Compliance and Enforcement Department - ensures compliance by
all market participants, issuers and individuals and takes appropriate
enforcement action against them for legal infraction of the Code and
other relevant laws, rules and regulations implemented by the
Commission.24
5. E-Commerce Law (Republic Act 8792)
 Salient features of Republic Act 8792:

a) It gives legal recognition of electronic data messages, electronic
documents, and electronic signatures. (Sections 6 to 13)
b) Allows the formation of contracts in electronic form. (Section 16)
c) Makes banking transactions done through ATM switching networks
absolute once consummated. (Section 16)
d) Parties are given the right to choose the type and level of security
methods that suit their needs. (Section 24)
e) Provides the mandate for the electronic implementation of transport
documents to facilitate carriage of goods. This includes documents such
as, but not limited to, multi-modal, airport, road, rail, inland waterway,
courier, post receipts, transport documents issued by freight forwarders,
marine/ocean bill of lading, non-negotiable seaway bill, charter party bill
of lading. (Sections 25 and 26)
f) Mandates the government to have the capability to do e-commerce within
2 years or before June 19, 2002. (Section 27)
g) Mandates RPWeb to be implemented. RPWeb is a strategy that intends
to connect all government offices to the Internet and provide universal
access to the general public.
The Department of Transportation and Communications, National
Telecommunications Commission, and National Computer Center will
come up with policies and rules that shall lead to substantial reduction of
costs of telecommunication and Internet facilities to ensure the
implementation of RPWeb. (Section 28)
h) Made cable, broadcast, and wireless physical infrastructure within the
activity of telecommunications. (Section 28)
i) Empowers the Department of Trade and Industry to supervise the
development of e-commerce in the country. It can also come up with
policies and regulations, when needed, to facilitate the growth of e-
commerce. (Section 29)
24
Retrieved from https://www.coursehero.com/file/20979303/RA-8799-Securities-Regulation-Code-of-PH-summary/
[DOCUMENT TITLE]
j) Provided guidelines as to when a service provider can be liable. (Section

30)
k) Authorities and parties with the legal right can only gain access to
electronic documents, electronic data messages, and electronic
signatures. For confidentiality purposes, it shall not share or convey to
any other person. (Sections 31 and 32)
l) Hacking or cracking, refers to unauthorized access including the
introduction of computer viruses, is punishable by a fine from 100
thousand to maximum commensurating to the damage. With
imprisonment from 6 months to 3 years. (Section 33)
m) Piracy through the use of telecommunication networks, such as the
Internet, that infringes intellectual property rights is punishable. The
penalties are the same as hacking. (Section 33)
n) All existing laws such as the Consumer Act of the Philippines also applies
to e-commerce transactions. (Section 33)25
UNION GLASS & CONTAINER CORPORATION V. SEC (126 SCRA 32)
Facts:
Carolina Hofileña, complainant in SEC Case No. 2035, is a stockholder of Pioneer Glass
Manufacturing Corporation. Since 1967, Pioneer Glass had obtained various loan
accommodations from the Development Bank of the Philippines [DBP]As security for said loan
accommodations, Pioneer Glass mortgaged and/or assigned its assets, real and personal.
Sometime in March, 1978, when Pioneer Glass suffered serious liquidity problems such that it
could no longer meet its financial obligations with DBP, it entered into a dacion en pago
agreement with the latter, whereby all its assets mortgaged to DBP were ceded to the latter in
full satisfaction of the corporation's obligations in the total amount of P59,000,000.00. Part of the
assets transferred to the DBP was the glass plant in Rosario, Cavite, which DBP leased and
subsequently sold to herein petitioner Union Glass and Container Corporation. Holifena
questioned the validity of the dacion en pago.the first cause of action concerned petitioner
Union Glass as transferee and possessor of the glass plant. Said first cause of action was
based on the alleged illegality resulting from: [1] the supposed unilateral and unsupported
undervaluation of the assets of Pioneer Glass covered by the agreement; [2] the self-dealing
indulged in by DBP, having acted both as stockholder/director and secured creditor of Pioneer
Glass; and [3] the wrongful inclusion by DBP in its statement of account of P26M as due from
Pioneer Glass when the same had already been converted into equity.
Issue:
Is it the regular court or the SEC that has jurisdiction over the case?
Ruling:
The SEC has no jurisdiction over the case. In the ordinary course of things, petitioner
Union Glass, as transferee and possessor of the glass plant covered by the dacion en pago
25
Retrieved from https://digitalfilipino.com/salient-features-of-republic-act-8792-the-e-commerce-law/
[DOCUMENT TITLE]
agreement, should be joined as party-defendant under the general rule which requires the
joinder of every party who has an interest in or lien on the property subject matter of the dispute.
But since petitioner Union Glass has no intra-corporate relation with either the complainant or
the DBP, its joinder as party-defendant in SEC Case brings the cause of action asserted against
it outside the jurisdiction of the respondent SEC.
The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows:

Sec. 5. In addition to the regulatory and adjudicative function of the Securities
and Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and
devices, it shall have original and exclusive jurisdiction to hear and decide cases
involving:
a] Devices and schemes employed by or any acts, of the board of
directors, business associates, its officers or partners, amounting to fraud
and misrepresentation which may be detrimental to the interest of the
public and/or the stockholders, partners, members of associations or
organizations registered with the Commission
b] Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members or associates;
between any or all of them and the corporation, partnership, or
association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to
exist as such entity;
c] Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships or
associations.
NOTE: Otherwise stated, in order that the SEC can take cognizance of a case, the controversy
must pertain to any of the following relationships: [a] between the corporation, partnership or
association and the public; [b] between the corporation, partnership or association and its
stockholders, partners, members, or officers; [c] between the corporation, partnership or
association and the state in so far as its franchise, permit or license to operate is concerned; and
[d] among the stockholders, partners or associates themselves.
ABEJO V. DE LA CRUZ (149 SCRA 654)
Facts:
Telectronic Systems Inc purchased 133, 000 minority shareholdings in the Pocket Bell
Ph Inc from the Sps. Abejo and 63, 000 shares from Sps. Braga (the former majority
stockholders). With the said purchases, Telectronics would become the majority stockholder,
holding 56% of the outstanding stock and voting power of the Pocket Bell corporation.
[DOCUMENT TITLE]
Norberto Braga, the corporate secretary and son of the sps Bragas, refused to register
the transfer of shares in the corporate books, asserting that the Bragas has preemptive rights
over the 133,000 Abejo shares and that Virginia Braga never transferred her 63, 000 shares to
Telectronics but had lost the five stock certificates representing those shares.
The Abejos and Telectronics filed two SEC cases, (1) praying for mandamus that SEC
orders Norberto Braga to register the transfer and sale of the Pocket Bell shares and (2) for
injunction and a temporary restraining order that the SEC enjoin the Bragas from disbursing
assets of Pocket Bell and from performing such other acts pertaining to the functions of
corporate officers.
Norberto filed a Motion to Dismiss the mandamus case contending that SEC has no
jurisdiction over it since it does not involve an intracorporate controversy between stockholders.
SEC hearing officer Joaquin Garaygay issued an order granting Braga’s motion and dismissed
the first SEC case. The Bragas filed a Motion to Dismiss the injuction case but the SEC Director
created a three-man committee to hear and decide the SEC cases.
The Bragas filed a petition for certiorari, prohibition and mandamus with the SEC en ban
to dismiss the two cases on the ground of lack of jurisdiction of the SEC. SEC dismissed the
petition, ruling that the issue is not the ownership of the shares but the nonperformance by the
corporate secretary of the ministerial duty of recording transfers of shares of stock of the
corporation.
The Bragas filed an action in CFI (RTC) for (1) annulment and rescission of the sale on
the ground that it violated the pre-emptive right over the Abejos’ shareholdings and (2)
declaration of nullity of transfer, that the said stock certificates were intended as security for a
loan application and were thus endorsed by her in blank, had been lost. RTC Judge de la Cruz
issued an order restraining Telectronics agents or representatives from assuming control of the
corporation and discharging their functions.
Issue:
Who between the RTC and SEC has original and exclusive jurisdiction over the dispute?
Ruling:
SEC. The Court ruled that the dispute is INTRACORPORATE one. It has arisen
between the principal stockholders of the corporation due to the refusal of the corporate
secretary, backed up by his parents as former majority shareholders, to perform his "ministerial
duty" to record the transfers of the corporation's controlling (56%) shares f stock, covered by
duly endorsed certificates of stock, in favor of Telectronics as the purchaser thereof. Mandamus
in the SEC to compel the corporate secretary to register the transfers and issue new certificates
in favor of Telectronics and its nominees was properly resorted to.
[DOCUMENT TITLE]
The claims of the Bragas, that they had an alleged perfected preemptive right over the
Abejos' shares as well as for annulment of sale to Telectronics of Virginia Braga's shares
covered by street certificates duly endorsed by her in blank, may in no way deprive the SEC of
its primary and exclusive jurisdiction to grant or not the writ of mandamus ordering the
registration of the shares so transferred. The Bragas' contention that the question of ordering
the recording of the transfers ultimately hinges on the question of ownership or right thereto
over the shares notwithstanding, the jurisdiction over the dispute is clearly vested in the SEC.
As to the sale and transfer of the Abejos' shares, the Bragas cannot oust the SEC of its
original and exclusive jurisdiction to hear and decide the case. As the SEC maintains, "There is
no requirement that a stockholder of a corporation must be a registered one in order that the
Securities and Exchange Commission may take cognizance of a suit.” This is because the SEC
by express mandate has "absolute jurisdiction, supervision and control over all corporations"
and is called upon to enforce the provisions of the Corporation Code, among which is the stock
purchaser's right to secure the corresponding certificate in his name under the provisions of
Section 63 of the Code. any problem encountered in securing the certificates of stock
representing the investment made by the buyer must be expeditiously dealt with through
administrative mandamus proceedings with the SEC, rather than through the usual tedious
regular court procedure.
Under the "sense-making and expeditious doctrine of primary jurisdiction . . . the courts
cannot or will not determine a controversy involving a question which is within the jurisdiction of
an administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and services of the administrative
tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential
to comply with the purposes of the regulatory statute administered.”
C. BOARD OF INVESTMENTS
The Board of Investments (BOI) provides tax breaks and other incentives to registered
entities that engage in activities identified as investment priorities or those which
promote the general economic development of the Philippines and those that are export-
oriented (where export is more than 50% of production or 70% if the enterprise is more
than 40% owned by foreign investors). The BOI, in consultation with the public sector,
comes up with an Investment Priorities Plan listing these industries.
The main advantage for an eligible BOI-registered firm are 4 to 8 year income tax
holidays and 4 to 6 year exemption from local business taxes for pioneer and non-
pioneer industries. To be eligible for BOI incentives, foreign investors will need to have
an equity investment in a Philippine corporation.
Pioneer and Non-pioneer projects have different requirements. 100% foreign-owned

enterprises may avail of incentives if they engage in pioneer projects, export at least
[DOCUMENT TITLE]
70% of their total production, or undertake projects in less-developed areas of the

country as identified by the BOI. These enterprises are obliged to attain 60% Filipino
ownership within 30 years from registration unless they export or will be exporting 100%
of their production. For enterprises engaged in non-pioneer projects, foreign ownership
is limited to 40%, unless the enterprise will export more than 70% of its annual
production.
Applying for BOI requires submission of a notarized application indicating the type of
projects, how the activity relates to those listed in the Investment Priorities Plan, the
production capacity geared to export, the capital structure of the enterprise, and the
nationality of its investors. In addition, the company must submit a feasibility report,
containing five-year projected financial statements.26
Pertinent Laws:
1. Omnibus Investments Code of 1987 - the law integrating,

clarifying, and harmonizing laws on investment thereby
encouraging domestic and foreign investments in the country.
2. Foreign Investments Act of 1991 - is the basic law that governs

foreign investments in the Philippines. Before a foreign
corporation can engage in business in the Philippines, it must first
secure the necessary licenses or registration certificates from the
appropriate government agencies. Generally, the registration
process starts with the Securities and Exchange Commission
(SEC).
If the proposed project or activity qualifies for incentives, the

foreign investor may file its application with the appropriate
government agency depending on the project‚ location.
Under this law, foreign investors are allowed to invest 100% equity
in companies engaged in almost all types of business activities
subject to certain restrictions as prescribed in the Foreign
Investments Negative List (FINL). The FINL is a shortlist of
investment areas or activities which may be opened to foreign
investors and/or reserved to Filipino nationals. The Foreign
Investments Negative Lists (FINL) are classified as follows:
1. List A - consists of areas of activities reserved to

Philippine nationals where foreign equity participation in
any domestic or export enterprise engaged in any activity
listed therein shall be limited to a maximum of forty percent
26
Retrieved from https://kittelsoncarpo.com/tax-incentives/boi/
[DOCUMENT TITLE]
(40%) as prescribed by the Constitution and other specific

laws.
2. List B - consists of areas of activities where foreign

ownership is limited pursuant to law such as defense or
law enforcement-related activities, which have negative
implications on public health and morals, and small and
medium-scale enterprises.
The government encourages foreign investments which will

provide significant employment opportunities relative to the
amount of the capital being invested, improve productivity of
resources, increase volume and value of exports, and provide a
foundation for the future development of the economy.
Investment-related rules have been liberalized to facilitate entry of
foreign investments. This thrust is expected to continue.
3. Investors’ Lease Act - a flexible and dynamic policy of the

granting of long-term lease on private lands to foreign investors for
the establishment of industrial estates, factories, assembly or
processing plants, agro-industrial enterprises, land development
for industrial, or commercial use, tourism, and other similar priority
productive endeavors.
RULE II
Applicability
Section 1. Long-term lease of private lands by foreign investors
shall be authorised only for purposes of and in connection with the
establishment of industrial estates, factory , assembly or
processing plant, agro-industrial enterprises, land development for
tourism, industrial or commercial use and/or other similar priority
productive endeavors.
Section 2. “Private agricultural lands devoted to agricultural
activities, such as cultivation of soil, planting of crops, growing of
fruits and/or plantations, covered by the provisions of Republic Act
No. 6657, otherwise known as the Comprehensive Agrarian
Reform Law, (CARL) shall not qualify for the long-term lease
under this Act and these rules and regulations.
The provisions of the preceding paragraph not
withstanding, private agricultural lands approved for conversion by
DAR for non-agricultural purposes and areas classified as non-
agricultural prior to June 15, 1988 per town plans approved by the
HLURB and which will be devoted to the establishment of
industrial estates, factories, assembly or processing plants, agro-
[DOCUMENT TITLE]
industrial enterprises, land development for industrial or

commercial use, tourism and other similar priority productive
endeavors shall qualify for long-term lease under this Act and
these rules and regulations.
Section 3. Foreign investors with pre-existing lease agreements
entered into prior to the effectivity of the Act and which lease
agreements were entered into for anyone or a combination of the
purposes stated in Section 1, Rule II hereof, may opt to be
governed by this Act and these rules and regulations, provided,
however, that in no case shall the total lease period, including that
of the pre-existing lease agreement, exceeded a total of 75 years.
Section 4. Long-term lease of private lands of tourism projects
shall be limited to those involving investments of not less that 5
million dollars, seventy percent (70%) of which must be infused
into said project within three years from the signing of the lease
agreement.
RULE III
Area of Lease and Approval Thereof
Section 1. Any foreign investor investing in the Philippines shall
be allowed to lease private lands which shall comprise such area
as may reasonably required for the purpose of the investment,
subject, however, to the Comprehensive Agrarian Reform Law
and the Local Government Code. The area of the leased private
land as approved by the DTI or the BASECOM/CDC/SBMA shall
Be used solely for the purpose of the investment.
a. Application letter signed by the owner(s)/lessor(s) and
the foreign investor(s)/lessee signifying their intention to
enter into a long term lease agreement under the
provisions of Republic Act No. 7652;
4. The General Banking Law of 2000 – its purpose is to promote

and maintain a stable and efficient banking and financial system
that is globally competitive, dynamic and responsive to the
demands of a developing. General Banking Law scope of
Application primarily governs universal banks and commercial
banks. It suppletorily governs thrift banks, rural banks and other
banking institutions.27
Bank regulation is a form of government regulation which

subjects banks to certain requirements, restrictions
and guidelines, designed to create market transparent
27
Retrieved from https://www.academia.edu/35619856/GENERAL_BANKING_LAW_OF_2000_GBL_R.A._8791
[DOCUMENT TITLE]
between banking institutions and the individuals and corporations

with whom they conduct business, among other things.28
D. ADMINISTRATIVE BODIES EXERCISING SPECIAL JURISDICTION OVER SPECIFIC

INDUSTRIES OR ACTIVITIES
 SEC (Presidential Decree No. 902-A)

Section 3. The Commission shall have absolute jurisdiction, supervision and
control over all corporations, partnerships or associations, who are the
grantees of primary franchise and/or a license or permit issued by the
government to operate in the Philippines; and in the exercise of its authority,
it shall have the power to enlist the aid and support of any and all
enforcement agencies of the government, civil or military.
 Mining Corporations
- Registration with the Department of Environment and Natural
Resources (DENR)
- After registering with the SEC, companies engaging in mining in the
Philippines must also register their company with the Department of
Environment and Natural Resources (DENR) of the Philippines.
- If the company is involved in exploration, development, or utilization of
mineral resources, you may need to do business in the Philippines
through a 60-40 Philippine-owned corporation. Branches and
companies without the required foreign equity may enter into a financial
or technical assistance agreement under the terms and conditions of
the Philippine Mining Act.29
 Banking Corporations
- The operations and activities of banks shall be subject to supervision of
the Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards
of operation for uniform application to all institutions or functions
covered, taking into consideration the distinctive character of the
operations of institutions and the substantive similarities of specific
functions to which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by the
Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied
with;
28
Retrieved from https://en.wikipedia.org/wiki/Bank_regulation
29
Retrieved from https://kittelsoncarpo.com/business-registration/mining/
[DOCUMENT TITLE]
4.4. Regular investigation which shall not be oftener than once a year
from the last date of examination to determine whether an institution is
conducting its business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of
and exercise regulatory powers over quasi-banks, trust entities and
other financial institutions which under special laws are subject to
Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities

engaged in the borrowing of funds through the issuance, endorsement
or assignment with recourse or acceptance of deposit substitutes as
defined in Section 95 of Republic Act No. 7653 (hereafter the "New
Central Bank Act") for purposes of relending or purchasing of
receivables and other obligations. (2-Da)30
E. LOCAL GOVERNMENT UNITS
Local Government Code of 1991

 Section 156. Community Tax. - Cities or municipalities may levy a community
tax in accordance with the provisions of this Article.
For corporations:
Basic community tax………………………... PhP500.00
Additional tax –
 For every PhP5,000.00 worth of real property
….............................PhP2.00
 For every PhP5,000.00 worth of gross receipts/ earnings derived from
business……..................................................................................PhP2.00
The tax, however, shall in no case exceed PhP10,000.00.
In the Mining Act, it provides that local governments are entitled to a 40% share
from the gross collection of the national government from mining taxes, royalties
and other fees. In addition, occupation fees entitle the province to 30%, and host
municipalities to 70%. These provisions are strengthened by the Local
Government Code. Section 292 stipulates that if a natural resource is located in
the province, then the provincial government will have a share of 20%;
30
Section. 4, Republic Act No. 8791, The General Banking Law of 2000
[DOCUMENT TITLE]
municipality, 45%; and the barangay, 35% out of the 40% revenue that the
national government remits to the local government.31
31
Retrieved from https://journals.openedition.org/jso/7067
[DOCUMENT TITLE]
IV - REGULATION OF PRIVATE 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.32
A. STOCK CORPORATIONS
 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
 a corporation formed to provide monetary or material benefits to its owners
 it shall have stock divided into shares, on the basis of which their holders derive either
dividends from unrestricted retained earnings, or capital gains upon their
disposition33
1. Capital stock divided into shares; and
2. Are authorized to distribute to the holders such shares dividends or allotments
or the surplus profits on the basis of the shares held.34
 An incorporated partnership
consisting of shareholders numbering
from two to 20.
Close Corporation  It permits owners to do business as
partners, but with limited liability as
shareholders of a regular stock
corporation.
 Any one natural person, estate or
trust that forms one-person
One-Person Corporation
corporation (special corporation)
(Incorporated Sole Proprietorship)
NOTE: existing corporations may convert
into one person corporations
32
Section 3 of the Revised Corporation Code of the Philippines
33
pp. 37-40
34
Section 3 of the Revised Corporation Code of the Philippines
[DOCUMENT TITLE]
B. NON-STOCK CORPORATIONS
 a corporation established for any other purpose35 (i.e. other than providing monetary
or material benefits to persons comprising it)36
 one which does – not issue shares and is – created not for profit but for public good
and welfare and where no part of its income is distributable as dividends to its
members, trustees, or officers37
 Educational Corporations
Special Non-Stock Corporations
 Religious Corporations
 One-Person Corporation
Special Corporations  Educational Corporations38
 Religious Corporations
 1987 Constitution, Art. XII, Sec. 16: Congress shall not, except by general law,
provide for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or established by
special charters in the interest of common good and subject to the test of
economic viability.”
 Government-owned or Controlled Corporations (GOCC’s):

Congress cannot enact a law creating a private corporation with a special
charter.
Primarily governed by GOCC Governance Act39
 Treatment of incidental profits

- must be incidental to its not-for-profit activities
- may not be distributed as dividends, or disbursed by way of phantom expenses
or unreasonable payments, to its members
- must be used to implement its objectives
 Rule against diversion of assets and profits (Non-diversion Rule):

35
Section 87 of the Revised Corporation Code. Purposes. – Nonstock corporations may be formed or organized for charitable,
religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes
of nonstock corporations.
36
pp. 37-40
37
Section 86 of the Revised Corporation Code. Definition. – For purposes of this Code and subject to its provisions on dissolution,
a nonstock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers:
Provided, That any profit which a nonstock corporation may obtain incidental to its operations shall, whenever necessary or proper,
be used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this
Title.
The provisions governing stock corporations, when pertinent, shall be applicable to nonstock corporations, except as may be
covered by specific provisions of this Title.
38
Governed by special laws and by the general provisions of the Code
39
pp. 37-40
[DOCUMENT TITLE]
a. A nonstock corporation may not include a purpose which would change or

contradict its nature as such; and
b. Its assets upon liquidation will be distributed in accordance with the terms for
which such assets are contributed, or in the absence of any other condition,
to corporations in the Philippines having the same purposes.
Note: A nonstock corporation may not be converted into a stock corporation.
 Tax incentives under the Tax Code

The Tax Code exempts certain non-stock corporations from income tax, permits
contributions to them as tax deduction, and exempts the contributor from paying
donor’s tax, subject to the following requirements:
a. The entity must be engaged in any of the Tax Code’s sanctioned activities;
b. No part of the net income or asset shall belong to or inure to the benefit of
any member, organizer, officer or any specific person;
c. It must not pay dividends, must devote all its income to the accomplishment
and promotion of the purposes enumerated in its Articles of Incorporation;
d. The level of its administrative expense, on an annual basis, must not exceed
30% of its total expenses, and not more than 30% of the tax-exempt gifts it
receives shall be used for administrative purposes; and
e. Its assets, in the event of dissolution, must be distributed to another nonprofit
domestic corporation organized for similar purpose or purposes, or to the
state for public purpose, or must be distributed by a court to another
organization to be used in such manner as in the judgment of said court shall
best accomplish the general purpose for which the dissolved organization
was organized.
 Cooperatives
- generally considered as middle ground entities between stock and non-stock
corporations
- similar to stock corporations in the sense that they may engage in for profit
activities and distribute periodic “net surplus” to their members. They have
directors and officers, who are accountable to their stakeholders. In all other
aspects (save for certain matters), they are similar to non-stock corporations.
- registered with and regulated by the Cooperative Development Authority (CDA)
- operates under the principle of mutual cooperation among members for
common benefit, with democratic member control (mainly, members have equal
voting rights of one-member, one-vote, regardless of capital contribution).
Members contribute equitably to, and democratically control, the capital of their
cooperatives.
 Condominium Corporations
- another species of nonstock corporations governed by the Condominium Act
[DOCUMENT TITLE]
- specifically formed for the purpose of takin title over the common areas
(including the land) in a condominium project
- may also be formed as stock corporations
- a special purpose company meant to own and hold common areas of the
condominium project40
COLLECTOR V. CLUB FILIPINO, INC. DE CEBU (5 SCRA 321)
Facts:
Club Filipino is a civic corporation organized under the laws of the Philippines. Neither in
the articles or by-laws is there a provision relative to dividends and their distribution, although it
is covenanted that upon its dissolution, the Club’s remaining assets, after paying debts, shall be
donated to a charitable Philippine Institution in Cebu. The Club owns and operates a club hose,
a bowling alley, a golf course and a bar restaurant where it sells wines and liquors, soft drinks,
meals and short orders to its members and guests as a necessary incident to the operation of
the club and its golf-course. The profits were used to defray its overhead expenses and to
improve its golf course. In 1951, as a result of a capital surplus, arising from the re-valuation of
its real properties, the value or price of which increased, the Club declared stock dividends; but
no actual cash dividends were distributed to the stockholders. In 1952, BIR discovered that the
Club has never paid percentage tax on the gross receipts of its bar and restaurant and
assessed the Club for percentage taxes and surcharges.
Issue:
Is the Club liable for percentage taxes and surcharges in connection with the operation
of its bar and restaurant?
Ruling:
No. The Club Filipino, Inc. de Cebu was organized to develop and cultivate sports of all
class and denomination, for the healthful recreation and entertainment of its stockholders and
members; that upon its dissolution, its remaining assets, after paying debts shall be donated to
a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and
their guests; that there was in fact no cash dividend distribution to its stockholders and that
whatever was derived on retail from its bar and restaurant was used to defray its overall
overhead expenses and to improve its golf course (costplus-expenses-basis), it stands to
reason that the Club is not engaged in the business of an operator of bar and restaurant.
It is conceded that the Club derived profit from the operation of its bar and restaurant,
but such fact does not necessarily convert it into a profit-making enterprise. The bar and
restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived
therefrom are necessarily incidental to the primary object of developing and cultivating sports for
40
Teresita J. Herbosa & Eric R. Recalde (2019). The Revised Corporation Code of the Philippines (It’s Theories and Applications).
pp. 311-324
[DOCUMENT TITLE]
the healthful recreation and entertainment of the stockholders and members. That a Club makes
some profit, does not make it a profitmaking Club.
Having arrived at the conclusion that respondent Club is not engaged in the business as
an operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it
follows that it is not liable for any penalty, much less of a compromise penalty.
C. CORPORATION SOLE
Religious corporation which consists of one member which is the head of the
religious sect or corporator only and his successor41
A corporation sole is organized by mere filing the verified articles of incorporation

by the head of any religious denomination, sect or church with the SEC without the need
of an issuance of a certificate of incorporation. Once filed, a separate juridical character
is required which is separate and distinct from his natural character.
NOTE: A corporation sole is not required to file bylaws. It is governed by the rules,
regulations and discipline of its religious denomination, sect or church.42
EUGENIA M. SANTOS V. ROMAN CATHOLIC BISHOP OF NUEVA CACERES

G.R. NO. 21289. APRIL 5, 1924
Facts:
Appellant’s husband, Engracio Orense died leaving an estate which was worth the sum
of P43,382.27 over and above all debts, expenses of administration. The only claim presented
to the committee on claims and approved was one for P6,720 in favor of Asuncion Fortic de
Morata, which has been paid. The deceased left a will, according to which six parcels of land
were left to the Roman Catholic Church as trustee for various purposes, subject to a life estate
in favor of the appellant who, in the absence of descendants, ascendants and collateral heirs of
the deceased, was made his universal testamentary heir. The will was probated and the
appellants were appointed executrix. The appellant, as special administratrix of the estate, filed
a motion reciting that the deceased had obtained a franchise to establish and operate an
electric light plant and had signed a contract with the Pacific Commercial Company whereby the
latter agreed to furnish him the machinery for the plant; that the machinery had began to arrive
and that company was urgently demanding payment of the second installment of the purchase
price. She had no funds with which to meet the obligation except liberty bonds to the amount
and that it would be necessary to borrow P10,000 from the National Bank or mortgage certain
lands with Torrens titles to pay the balance of the purchase. She therefore asked for authority to
sell or mortgage the liberty bonds or obtain a loan of P10,000 from the bank. The appellant who
had then been appointed administratrix filed a motion with the Court of First Instance asking that
the declaration of heirs made by the testator in his will be confirmed, and that a commission be
41
UST. (2019) Golden Notes Faculty of Civil Law University of Sto. Tomas Manila (Mercantile Law), p. 168
42
Ibid., pp. 171-172
[DOCUMENT TITLE]
appointed to make a nominal division of the estate, the word "nominal" being used because,
according to the terms of the will, all of the property was to remain in possession of the
appellant in usufruct. This motion was granted. The court declaring the appellant the universal
heir of the testator and providing that the various legatees under the will should not take
possession of their respective legacies during the lifetime of the appellant or while "the debts of
the deceased occasioned by the establishment of the electric light plant in Guinobatan remained
unpaid." After various other allegations to the same effect, the motion concluded with a prayer
for authority to sell four parcels of land, three of which were devised to the Roman Catholic
Church. On June 30, 1921, the appellant filed another motion in which she stated that "in
conformity with the bank and the legatees she had been seeking buyers for the properties
included in the former motion and that offers had not reached even half of the debts owed and
she therefore asked for authority to sell three more parcels of land, all of which pertained to the
devise in favor of the Roman Catholic Church. This motion also contained the indorsement of
Julian Ope, the parish priest of Guinobatan. The court then dictated an order authorizing the
disposal of the aforesaid parcels of land, either at public or private sale as thought best, subject
to the confirmation of the court.
On July 27, 1922, the appellant reported to the court that she had sold the smallest of the
parcels willed to the Roman Catholic Church for P350 and asked the approval of the court. This
sale was approved by an order dated August 12, 1922.
On February 5, 1923, the appellant again filed a motion asking for authority to sell seven
small parcels of rice land which had been devised to different nephews and nieces of the
deceased. The motion states that these small parcels adjoin one of the large parcels of abaca
land devised to the church and that a buyer has been found who was willing to pay P8,000 for
the land provided these small parcels were included. Before this motion had been acted upon,
the Roman Catholic Archbishop of Nueva Caceres, a corporation sole, on February 12, 1923,
filed a motion asking that the order of June 16,1920, authorizing the sale of the property willed
to the Roman Catholic Church be revoked on the ground that parish priests have no control
over the temporalities of the Roman Catholic Church and that, therefore, the consent given by
Father Julian Ope was invalid and of no legal effect and that the debts to which the proceeds of
the sale are to be devoted are not the debts of the deceased, but were incurred during the
administration of the estate by the administratrix through the mismanagement of its property.
Upon argument by counsel for both parties, but without any testimony being offered or received,
the court, by an order dated July 3, 1923, revoked the license to sell granted by the order of
June 16, 1921, on the ground that the consent to the sale given by the parish priest at
Guinobatan was of no legal effect and that the license, therefore, was improvidently granted.
Issue:
WON the order of sale is void
Ruling:
Yes. At the time of the granting of the license, a distribution of the estate of the
deceased had been made, the order of distribution had become final and the title to the estate in
remainder devised to the Roman Catholic Church had become vested. As far as the title to the
[DOCUMENT TITLE]
property was concerned, the administration proceedings were then terminated and the court
had lost its jurisdiction in respect thereto. There might still be a lien on the property for the debts
of the deceased and legitimate expenses of administration, but it seems obvious that the court
could have no jurisdiction to foreclose this lien and order the property sold unless some sort of
notice was given the holder of the title. No notice, neither actual nor constructive, was given in
the present case. It does not even appear that the order of sale was recorded in the office of the
registry of deeds as required by subsection 7 of section 722 of the Code of Civil Procedure. The
order of sale was therefore void for want of jurisdiction in the court and could be vacated at
anytime before it had been acted upon and sale made and confirmed. (24 C. J., 615.)
The court could also properly take judicial notice of the fact that the corporation sole, the
Roman Catholic Archbishop of Nueva Caceres is the administrator of the temporalities of that
church in the diocese within which the land in question is situated and that the parish priest
have no control over it.
ROMAN CATH. APOSTOLIC ADM. OF DAVAO, INC. VS. LAND REG. COM., ET AL
102 PHIL. 596, NO. L-8451 DECEMBER 20, 1957
Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao,
executed a deed of sale of a parcel of land located in the same city covered by Transfer
Certificate of Title No. 2263, in favour of the Roman Catholic Administrator of Davao, Inc., a
corporation sole organized and existing in accordance with Philippine laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to the
Register of Deeds of Davao for registration, required said corporation sole to submit an affidavit
declaring that 60 per cent of the members thereof were Filipino citizens. However vendee was
unable to provide for the exact affidavit asked, no question that the present incumbent of the
corporation sole was a Canadian citizen. However he assails that the totality of the Catholic
population of Davao would become the owner of the property sought to be registered. It was
referred to the land registration commission en consulta which ordered the Register of Deeds of
Davao to deny registration of the deed of sale in the absence of proof of compliance with such
condition. After the motion to reconsider said resolution was denied, an action for mandamus
was instituted with this Court by said corporation sole, alleging that under the Corporation Law,
the Canon Law as well as the settled jurisprudence on the matter, the deed of sale executed by
Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church
which is qualified to acquire private agricultural lands for the establishment and maintenance of
places of worship, and prayed that judgment be rendered reserving and setting aside the
resolution of the Land Registration Commissioner in question.
Issue:
WON corporation sole can be registered owner of a property under the Register of
deeds?
Ruling:
[DOCUMENT TITLE]
YES. POWER AND QUALIFICATION TO PURCHASE IN ITS NAME PRIVATE LANDS; 60

PER CENTUM FILIPINO CAPITAL REQUIREMENT NOT INTENDED TO CORPORATION
SOLE.—Under the circumstances of the present case, it is safe to state that even before the
establishment of the Philippine Commonwealth and of the Republic of the Philippines every
corporation sole then organized and registered had by express provision of law (Corporation
Law, Public Act No. 1459) the necessary power and qualification to purchase in its name private
lands located in the territory in which it exercised its functions or ministry and for which it was
created, independently of the nationality of its incumbent unique and single member and head,
the bishop of the diocese. It can be also maintained without fear of being gainsaid that the
Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of
the Constitution did not have in mind the religious corporation sole when they provided that 60
per centum of the capital thereof be owned by Filipino citizens. Thus, if this constitutional
provision were not intended for corporation sole, it is obvious that this could not be regulated or
restricted by said provision.
D. PARENT/SUBSIDIARY; HOLDING COMPANIES; AFFILIATE CORPORATIONS
 Parent or Holding – related to another corporation that it has the power either,
directly or indirectly to, elect the majority of the director of such other corporation43
 Subsidiary – so related to another corporation that the majority of its directors can
be elected either, directly or indirectly, by such other corporation44
LA CAMPANA FACTORY, INC., ET. AL, V. KAISAHAN NG MGA MANGGAGAWA SA

LA CAMPANA, ET. AL, GR NO. L-5677, MAY 25, 1953
Facts:
La Campana Factory is a family corporation owned and managed by the family of Tan
Tong. Under which, the family corporation has two business names, namely; La Campana
Gaugau Packing and La Campana Coffee Factory Co., Inc. Petitioner had entered into
collective bargaining agreement with the Philippine Legion of Organized Workers (PLOW) a
year before the corporation was formed. Later on, the employees of La Campana formed its
own organization known as Kaisahan ng mga Manggagawa sa La Campana which was granted
as an affiliate with Kalipunan ng mga Mangagawa while pending registration with the
Department of Labor. The Kaisahan, respondent herein, now had 66 members working in both
La Campana Gaugau Packing and La Campana Coffee Factory and were demanding for higher
wages and more privileges. However, the demand was not granted and the reconciliation effort
made through mediation was also unsuccessful.
While the case was pending before the industrial court, the Secretary of Labor revoked
the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of
43
Ibid., pp. 168
44
Ibid.
[DOCUMENT TITLE]
information received that it was dominated by subversive elements, and, in consequence, also
suspended the permit of its affiliate, the respondent Kaisahan.
PLOW, which had been allowed to intervene as a party having an interest in the dispute,
filed separate motions for the dismissal of the case on the following grounds: the action was
directed to two different entities with distinct personalities; workers in the corporation is less than
31 employees; petitioner has no legal standing to sue since its registration had been revoked by
the Department of Labor; and existing valid contract between La Campana and PLOW still
binding the between contracting parties.
In the course of trial, ocular inspection was made and evidence received in the
observation that the La Campana Gaugau Packing was a mere business name operated by
petitioner herein and family; the contract of lease that La Campana Gaugau Packing occupied a
200 square meters bodega housing was made between Tan Tong, the owner and manager of
Gaugau and his son Tan Keng Lim, manager of La Campana Coffee Factory dated during the
pendency of the case; there is only one business entity as shown with their signboards and
advertisement on their delivery truck; employees salary were paid by the same person for both
employees of Gaugau and Coffee Factory; employees were transferred from Gaugau to Coffee
Factory and vice-versa when the management so requires. With these findings, the Industrial
Court denied its motion for dismissal, hence the instant motion for certiorari.
Issue:
WON a subsidiary or auxiliary corporation which is created by a parent corporation
merely as an agency for the latter may sometimes be regarded as identical with the parent
corporation, especially if the stockholders or officers of the two corporations are substantially the
same or their system of operation unified.
Ruling:
Yes, La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are
operating under one single management, that is, as one business though with two trade names.
True, the coffee factory is a corporation and, by legal fiction, an entity existing separate and
apart fro the persons composing it, that is, Tan Tong and his family. But it is settled that this
fiction of law, which has been introduced as a matter of convenience and to subserve the ends
of justice cannot be invoked to further an end subversive of that purpose. Under the doctrine of
disregarding corporate entity that a corporation is a legal entity existing separate and apart from
the person composing it is a legal theory introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot, therefore, be extended to a point beyond its
reason and policy, and when invoked in support of an end subversive of this policy, will be
disregarded by the courts. Thus, in an appropriate case and in furtherance of the ends of
justice, a corporation and the individual or individuals owning all its stocks and assets will be
treated as identical, the corporate entity being disregarded where used as a cloak or cover for
fraud or illegality.
[DOCUMENT TITLE]
 Holding companies – could only be an investing company

 not necessarily a parent company
 does not operate a business but only own shares of a corporation45
 Affiliate Corporations/Companies
 have interlocking directors  a director is a director of different sets of board
(these corporations are affiliates – somehow related to each other)46
45
Notes from Sir Montebon’s class lecture
46
Ibid.
[DOCUMENT TITLE]
V – CONTENTS AND FORM OF THE ARTICLES OF INCORPORATION
Articles of Incorporation represents the main contract:

a) between and among the shareholders of members;
b) between any or all of such shareholders or members and the corporation about to be
formed; and upon approval by the Commission with the issuance of a Certificate of
Incorporation;
c) between the corporation and the State insofar as it concerns the corporation’s franchise
or right to exist as a legal entity.47
The following items form part of the contents48 of the Articles of Incorporation:
A. NAME
Corporate name49 gives identity to the corporation as a legal person. The law specifically
regulates the use of corporate name to avoid confusion and fraud to third parties that
deal with the corporation.
A company may have more than one business or trade name. In case of a one-person
corporation, it must indicate the letters “OPC” either below or at the end of its corporate
name.50
PHILIPPINE FIRST INSURANCE COMPANY, INC. V. MA. CARMEN HARTIGAN, CGH

AND O. ENGKEE (74 SCRA 252)
Facts:
Plaintiff was originally organized as an insurance corporation under the name of ‘The
Yek Tong Lin Fire and Marine Insurance Co., Ltd.,’ in 1953 but later on changed the name of
the corporation to ‘Philippine First Insurance, Co., Inc.’ (PFI).
The case arose when PFI, acting in the name of Yek Tong, signed as co-maker together
with defendants Hartigan, CGH, and Engkee, a promissory note in favor of China Banking
Corporation. Subsequently, as form of security, defendants signed an indemnity agreement in
favor of plaintiff in case damages or loses arises thereof.
Defendant Hartigan failed to pay, hence, the complaint for collection of sum of money
with interest and other fees.
47
pp. 75-76
48
Section 13 of the Revised Corporation Code.
49
50
[DOCUMENT TITLE]
Defendants claim that there is no privity of contract between them and plaintiff since the
plaintiff did not conduct its business under the name of Yek Tong Insurance, hence not entitled
to the indemnification agreement which is named in favor of Yek Tong.
Issue:
WON a Philippine Corporation may change its name and still retain its original
personality and individuality?
Ruling:
YES. The change of name does not result in a corporation’s dissolution. In settled
jurisprudence, the Court held that an authorized change in the name of a corporation has no
more effect upon its identity as a corporation than a change of name of a natural person has
upon his identity. It does not affect the rights of the corporation or lessen or add to its
obligations. After a corporation has effected a change in its name it should sue and be sued in
its new name.
CONVERSE RUBBER CORP. VS UNIVERSAL RUBBER PRODUCTS INC.,

G.R. NO. L-27906 JANUARY 8, 1987
Facts:
Petitioner Converse Rubber corp opposed the registration of the trademark “Universal
Converse and Device” contending that the trademark is confusingly similar to the word
“CONVERSE” which is part of the petitioner’s corporate name and is likely to deceive
consumers resulting in an unfair advantage. the director of patents denied the motion of
opposition and motion for reconsideration on the ground that there was not enough proof to
establish damage caused by the use of the word “CONVERSE”. Converse Rubber then filed the
instant petition for review.
Issue:
Should respondent’s trademark application be denied on the basis of being confusingly
similar to the corporate name of the petitioner?
Ruling:
Yes, the registration of the trademark should be denied. Converse rubber has had
“CONVERSE” as its dominant corporate name since 1946 and has since then become the
corporation’s identifying designation. this serves to deny the right of Universal to use the word
CONVERSE. Furthermore, the witness presented by Universal itself does not know the reason
behind the use of the word CONVERSE. Such unexplained use by respondent of the dominant
word of petitioner's corporate name lends itself open to the suspicion of fraudulent motive to
trade upon petitioner's reputation. Anent the damage caused by the use of word converse,
Converse Rubber admitted the best proof of the same, the sales invoices. the manner of which
Universal Rubber places their trademark on their products is another factor for the denial.
Converse rubber places their trademark on their products in a circular design, and so does
[DOCUMENT TITLE]
Universal. The confusing similarity of the two trademarks are clear to see and so serves as
ground to deny the registration.
B. PURPOSE
The formation of corporations need not be limited to a specific purpose. The articles of
incorporation must indicate the primary purpose and the secondary purpose/purposes. If
there is more than one stated purpose, specify which is the main or primary purpose and
which is or are the secondary or subsidiary purpose/s.
This specification is important in the application of the prohibition under Sec. 41 RCC
which states that the corporation is prohibited from investing corporate funds “for any
purpose other than the primary purpose for which it was organized” unless such
investment is approved by both majority of the BOD or BOT and ratified by the
stockholders representing at least 2/3 of the outstanding capital stock or by at least 2/3
of the members in the case of a non-stock corporation.
Corporate action pursuant to its specific purpose needs only the approval by the Board.
On the other hand, if corporate action is pursuant to any secondary purposes, the Board
must seek prior approval from the shareholders or members before it implements such
action. Further, it may lead to partial return of capital in case of dissenting shareholders.
B.1. Powers of Corporation
By nature of its separate juridical personality and the capacity to enter into a contract, a
corporation may sue and be sued in its corporate name, adopt and use a corporate seal.
It may deal with real and personal properties, whether tangible or intangible. It may enter
into any commercial agreement with natural and juridical persons. It may also make
reasonable donations, including campaign and political contributions. Further, it may
provide for the pension, retirement, health, and other plans for the benefit of its directors,
trustees, officers, and employees.51
B.2. Increase or Decrease Capital Stock, Create/Increase Bonded Indebtedness
No corporation shall increase or decrease its capital stock or incur, create or increase
any bonded indebtedness unless:
 Majority vote of the Board of Directors;
 Ratification by stockholders representing 2/3 of the outstanding capital stock
 Written notice of the proposed increase or diminution of the capital stock and of
the time and place of the stockholder’s meeting at which the proposed increase
or diminution of the capital stock must be addressed to each stockholder at his
51
pp. 176
[DOCUMENT TITLE]
place of residence as shown on the books of the corporation and deposited to

the addressee in the post office with postage prepaid, or served personally or
through electronic means recognized in the corporation’s bylaws and/or the
Commission’s rules as a valid mode for service of notices.;
 A certificate in duplicate must be signed by a majority vote of the directors of
the corporation and countersigned by the chairman (chairperson) and the
secretary of the stockholder’s meeting, setting forth:
a. That the foregoing requirements have been complied with;
b. The amount of increase or diminution of the capital stock;
c. If an increase of the capital stock, the amount of capital stock or
number of shares of no par stock actually subscribed, the names,
nationalities and residences 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 his 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 authorized (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);
d. The amount of stock represented at the meeting; and
e. The vote authorizing the increase or diminution of the capital stock, or
the incurring, creating or increasing of any bonded indebtedness.
NOTE: The increase or decrease in the capital stock or the incurring, creating or
increasing bonded indebtedness shall require prior approval of the SEC.
 Treasurer’s Affidavit – is required in increasing capital stock, NOT in decreasing

capital stock. Prior to the approval of the SEC of the increase in the authorized
capital stock, such payments cannot yet be deemed part of the corporation’s paid-up
capital, technically speaking, because its capital stock has not yet been legally
increased. Such payments constitute deposits on future subscriptions, money which
the corporation will hold in trust for the subscribers until it files a petition to increase
its capitalization and a certificate of filing of increase of capital stock is approved and
issued by the SEC (Central Textile Mills, Inc. vs. NWPC, et al.)52
The application to be filed with the SEC shall be accompanied by the sworn
statement of the treasurer of the corporation, showing that at least 25% of the
increase in the capital stock was subscribed and 25% of the said amount has been
paid either in actual cash to the corporation or that there has been transferred to the
corporation property the valuation of which is equal to 25% of the subscription.
52
GR No. 104102, August 7, 1996
[DOCUMENT TITLE]
 Bonded indebtedness - is a long-term indebtedness secured by real or personal

property (corporate assets).
 Registration of the bonds issued by the corporation

Bonds issued by a corporation shall be registered with the SEC which
shall have the authority to determine the sufficiency of the terms thereof.
Stockholders’ approval is not required for all borrowings of the

corporation. Not all borrowings of the corporation need stockholders’
approval. Only bonded indebtedness requires such approval. The
requirements for the power to incur, create or increase bonded
indebtedness is also the same with the power to increase or decrease
capital stock.
 Philippine Competition Commission (PCC) Approval

The law requires prior PCC approval when a private placement
(i.e. investment in shares or bonds by a non public) amounts to
“acquisition” (business acquisition) or “joint venture”, and meets the
prescribed notification thresholds.
In addition to size of person test and size of transaction test, the

PCC’s regulations adopt the control test in determining whether the
private placement requires PCC approval. The control test is met when
the acquiring entity directly or indirectly gains control or further control
(i.e. 35% or 50% voting control, respectively) of the company.
Where the entity acquires less than the 35% threshold, PCC
approval is only required when such entity acquires ex post joint control
with existing controllers of the company. In this case there is a joint
venture.
 Period to file
The application with the Commission shall be made with 6 months
from the date of approval of the board of directors and stockholders,
which period may be extended for justifiable reasons.
ONG YONG VS TIU, GR 144476, 8 APRIL 2003
Facts:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with
stoppage \when its owner, the First Landlink Asia Development Corporation (FLADC), which
was owned by the Tius, encountered dire financial difficulties. It was heavily indebted to the
Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the
[DOCUMENT TITLE]
two lots where the mall was being built, the Tius invited the Ongs, to invest in FLADC. Under the
Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal
shareholdings in FLADC. Furthermore, they agreed that the Tius were entitled to nominate the
Vice-President and the Treasurer plus 5 directors while the Ongs were entitled to nominate the
President, the Secretary and 6 directors (including the chairman) to the board of directors of
FLADC. Moreover, the Ongs were given the right to manage and operate the mall.
The business harmony between the Ongs and the Tius in FLADC, however, was
shortlived because the Tius, on 23 February 1996, rescinded the Pre-Subscription Agreement.
The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their
real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the
positions of and performing their duties as Vice-President and Treasurer, respectively, and (3)
refusing to give them the office spaces agreed upon. The controversy finally came to a head
when the case was commenced by the Tius on at SEC, seeking confirmation of their rescission
of the Pre-Subscription Agreement
Issue:
WON the Pre-Subscription Agreement executed by the Ongs is actually a subscription
contract.
Ruling:
YES. FLADC was originally incorporated with an authorized capital stock of 500,000
shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius
invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock
became necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-
Subscription Agreement.
Thus, the subject matter of the contract was the 1,000,000 unissued shares of FLADC
stock allocated to the Ongs. Since these were unissued shares, the parties' Pre-Subscription
Agreement was in fact a subscription contract as defined under Section 60, Title VII of the
Corporation Code. Hence, the subscription contract (denominated by the parties as a Pre-
Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock
was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs
and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the
Ongs since they were not selling any of their own shares to them.
B.3. Sale or Disposition of All Assets
Subject to the provisions of Republic Act No. 10667, otherwise known as the "Philippine
Competition Act", and other related laws a corporation may, by a majority vote of its
board of directors or trustees, sell, lease, exchange, mortgage, pledge, or otherwise
dispose of its property and assets, upon such terms and conditions and for such
consideration, which may be money, stock, bonds, or other instruments for the payment
of money or other property or consideration, as its board of directors or trustees may
deem expedient.
[DOCUMENT TITLE]
A sale of all or substantially all of the corporation's properties and assets,

including its goodwill, must be with:
 Majority vote of the BOD or BOT
 Ratification by stockholders representing at least 2/3 of the outstanding capital
stock or by at least 2/3 of the members in case of non-stock corporation
 Written notice of the proposed action and of the time and place of the meeting
addressed to each stockholder or member at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post office
with postage prepaid, or served personally (ALLOWANCE OF ELECTRONIC
NOTICE IN ACCORDANCE WITH E-COMMERCE AND WHEN ALLOWED BY
THE BY-LAWS)
NOTE: The sale of the assets shall be subject to the provisions of existing laws on
illegal combinations and monopolies.
Further, in case of non-stock corporations, where there are no members with voting
rights, the vote of at least a majority of the trustees in office will be sufficient
authorization for the corporation to enter into any transaction authorized by this section.
STOCKHOLDERS OF F. GUANZON AND SONS, INC. VS

REGISTER OF DEEDS OF MANILA (6 SCRA 373)
Facts:
Petitioners presented before the Register of Deeds of Manila a certificate of liquidation of
assets of the corporation reciting among others that they would distribute the assets of the
corporation, including real properties located in Manila, in proportion to their shareholdings.
However, the Register denied the registration of the properties on several grounds. Petitioners
questioned the said decision, particularly the requirement for the payment of 450 pesos
registration fee, 940 pesos documentary stamps, and the inclusion of the number of parcels of
land in the certificate. The Commissioner ruled in favor of the Register sustaining the said
requirements on the ground that the certificate does not merely involves a distribution of the
corporation's assets, but is considered a transfer or conveyance. Petitioners then brought this
matter before this Court raising the issue….
Issue:
WON the Certificate should be treated as distribution of corporation’s assets, not transfer
or conveyance, which will render the requirements inapplicable?
Ruling:
[DOCUMENT TITLE]
No. It is a transfer or conveyance of the corporation’s properties. The Court ruled that
though it involves a distribution of the corporation's assets, nevertheless it represents a transfer
of said assets from the corporation to the stockholders. A corporation is a juridical person
distinct from the members composing it. Properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its members. Meanwhile, the stockholder is
not a co-owner or tenant in common of the corporate property. A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in its proceeds to that extent when
distributed according to law and equity, but its holder is not the owner of any part of the capital
of the corporation. Nor is he entitled to the possession of any definite portion of its property or
assets. Thus, it is clear that the act of liquidation made by the stockholders of the F. Guanzon
and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community
property, but rather a transfer or conveyance of the title of its assets to the individual
stockholders.
 Disposal - may include the lease, mortgage, or pledge of assets. In a lease, the
corporation permits a third party to use its assets, than to use them for its business.
The mortgage or pledge could lead to their foreclosure and, consequently, deny the
corporation to use them for its business.
DELPHER TRADES CORPORATION VS. INTERMEDIATE APPELLATE COURT,

G.R. NO. L-69259, JANUARY 26, 1988
Facts:
Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square
meters of real located in then province of Bulacan. In 1974, the said co-owners leased to
Construction Components International Inc. the same property and providing that during the
existence or after the term of this lease the lessor should he decide to sell the property leased
shall first offer the same to the lessee and the latter has the priority to buy. Lessee Construction
Components International, Inc. assigned its rights and obligations under the contract of lease in
favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin
and Pelagia. A deed of exchange was executed between lessors Delfin and Pelagia and
defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased
property together with another parcel of land also located in Malinta Estate, Valenzuela, Metro
Manila for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00.
On the ground that it was not given the first option to buy the leased property pursuant to
the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended
complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those
whereby Delpher Trades Corporation acquired the property from Pelagia and Delphin. After trial,
the Court of First Instance of Bulacan ruled in favor of the plaintiff. The lower court's decision
was affirmed on appeal by the Intermediate Appellate Court. The defendants-appellants, now
the petitioners, filed a petition for certiorari to review the appellate court's decision. The
[DOCUMENT TITLE]
Supreme Court initially denied the petition but upon motion for reconsideration, it set aside the
resolution denying the petition and gave it due course.
Issue:
WON the "Deed of Exchange" of the properties executed by the Pachecos on the one
hand and the Delpher Trades Corporation on the other was meant to be a contract of sale
which, in effect, prejudiced the private respondent's right of first refusal over the leased property
included in the "deed of exchange"
Ruling:
No. After incorporation, one becomes a stockholder of a corporation by subscription or
by purchasing stock directly from the corporation or from individual owners thereof. In the case
at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par
value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription. "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a corporation, formed or to be
formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no
par value shares in exchange for their properties. It is to be stressed that by their ownership of
the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity
capital is 55% as against 45% of the other stockholders, who also belong to the same family
group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of
their properties and at the same time save on inheritance taxes.
The records do not point to anything wrong or objectionable about this "estate planning" scheme
resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot
be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing
Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual ownership
interests by the Pachecos to a third party. The Pacheco family merely changed their ownership
from one form to another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease contract.
 De facto merger - when a corporation (transferring corporation) exchanges all or

substantially all of its assets for the shares of another (transferee corporation).
A corporation may forego the ratification by stockholders / members if:

[DOCUMENT TITLE]
1. Sale is necessary in the usual and regular course of business;

2. The proceeds of the sale or other disposition of such property and assets are
to be appropriated for the conduct of the remaining business; or
3. The transaction does not cover all or substantially all of the assets.
NOTE: What is the remedy of a stockholder who disagrees with the plan of sell, lease,
exchange, mortgage, pledge, or otherwise dispose (SLEMPAD) of its property and assets
of all or substantially all of corporate assets?
Any dissenting stockholder shall have the option to exercise his appraisal right.
 Abandonment of the plan for SLEMPAD even after the vote of the
stockholders or members
The BOD, in its discretion, may abandon the plan for SLEMPAD even
after such authorization or approval by the stockholders, subject to the rights of
third parties under any contract relating thereto, without further action or approval
by the stockholders or members.
The corporation who acquired all or substantially all of the assets of the
selling corporation shall not be liable for the debts of the latter.
Exceptions:
 Express or implied assumption of liabilities;
 Merger or consolidation;
 If the purchase was in fraud of creditors;
 If the purchaser becomes a continuation of the seller; and
 If there is violation of the Bulk Sales Law.
B.4. Ultra Vires Acts
An ultra vires act refers to an act outside or beyond express, implied and
incidental corporate powers. The concept also includes those acts that may
ostensibly be within such powers but are, by general or special laws, either
proscribed or declared illegal.
Unlike illegal acts which contemplate the doing of an act that is contrary to law,
morals, or public policy or public duty, and are void, ultra vires acts are not illegal
but not merely within the scope of the articles of incorporation and the by-laws.
[DOCUMENT TITLE]
They are merely voidable and may become binding and enforceable when
ratified by the stockholders. (Maria Clara Pirovana, et al. vs. the De La Rama
Steamship Co., G.R. No. L-5377, December 29, 1954).
 Test of the Ultra Vires Character of the Act

In Querubin vs. COMELEC, the Supreme Court adopted the
following test in ascertaining whether the act in question is ultra vires:
“whether the act in question is in direct and immediate furtherance of the
corporation’s business, fairly incident to the express powers and
reasonably necessary to their exercise”
 Types of Ultra Vires Act

1. Acts done beyond the powers of the corporation (through BOD)
2. Ultra vires acts by corporate officers
3. Acts or contract
 Effects of Ultra Vires Acts.

 There are essentially two types of ultra vires acts: those which are
contrary to law, morals, or public policy and those merely
performed outside the scope of the powers granted to the
corporation by its articles of incorporation.
 An ultra vires act to pursue an illegal or unlawful purpose is void. A
contract with an illegal or unlawful purpose is void. As such, the act
is not subject to ratification. The action for declaration of its nullity
does not prescribe. Whereas, when the action is not illegal per se
but merely prohibited by the corporation’s charter, it is
unenforceable. The fact that the members of the board acted
beyond their authority shall prejudice third parties acting in good
faith. Shareholders or members may ratify the action, or present its
enforcement and if proper, institute a derivative suit. There may
also be implied ratification by form of silence, acquiescence, acts
consistent with the approval of the act or acceptance or retention of
benefits.
 Consequences of Ultra Vires Acts.

 Ultra vires acts entered into by the board of directors bind the
corporation, and the courts will not interfere unless terms are
oppressive and unconscionable. (Gamboa vs. Victoriano, G.R. No.
L-43324. May 5, 1979).
 These are the effects for the specific acts:
[DOCUMENT TITLE]
1. Executed contract – courts will not set aside or interfere with

such contracts;
2. Executory contracts – no enforcement even at the suit of
either party (void and unenforceable);
3. Partly executed and partly executory – principle of “no unjust
enrichment at expense of another” shall apply;
4. Executory contracts apparently authorized but ultra vires –
the principle of estoppel shall apply.
 Remedies in case of ultra vires act:

1. State
i. Obtain a judgment of forfeiture; or
ii. The SEC may suspend or revoke the certificate of registration
2. Stockholders
i. Injunction; or
ii. Derivative suit
3. Creditors
i. Nullification of contract in fraud of creditors
B.5. Adoption of Bylaws
By-laws are rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and of its
stockholders or members and directors and officers in relation thereto and
among themselves in their relation to it (Valley Golf & Country Club, Inc. vs. Vda.
De Caram, GR 158805, April 16, 2009).
Bylaws must be consistent with law, particularly in the promotion of good

corporate government, the protection of minority investors, and “the prevention of
fraud and abuses on the part of the controlling stockholders, members, directors,
trustees or officers.”
 Requisites of valid bylaws.

The following are the requisites for the validity of by-laws:
 Must be consistent with the Corporation Code, other pertinent laws
and regulations;
 Must not be contrary to Morals and public policy;
 Must not impair obligations and contracts or property rights of
stockholders;
 Must be reasonable;
 Must be consistent with the charter or AOI; and
[DOCUMENT TITLE]
 Must be of General application and not directed against a particular

individual.
In case of conflict between the by-laws and the AOI, the AOI prevails
because the by-laws are intended merely to supplement the former.
 Binding Effects
1. As to members/ stockholders, officers, trustees/ directors and corporation
They are bound by and must comply with it. They are presumed to know
the provisions of the by-laws.
2. As to third persons
General Rule: They are not bound.
Exception: They have knowledge or notice of the by-laws at the time the c
contract was executed
 Ways of amending, repealing or adopting new by-laws.

1. Amendment may be made by stockholders together with the Board – by
majority vote of directors and owners of at least a majority of the outstanding
capital stock/members; or
2. By the board only after due delegation by the stockholders owning 2/3 of the
outstanding capital stock/members. Provided, that such power delegated to the
board shall be considered as revoked whenever stockholders owning at least
majority of the outstanding capital stock or members, shall vote at a regular or
special meeting.53
 Board amendment
Shareholders or members may delegate to the board the power to
adopt, amend or repeal bylaws. The delegated authority is temporary
in nature. It may be revoked anytime by a majority vote of the
shareholders or members.
 Quorum
The Code provides the prescribed quorum in order for the body to
transact lawful business. A meeting that is inquorate has no
jurisdiction to transact business and cannot even start. It is the
primary responsibility of the chairman to ensure that before it
proceeds to do business there is quorum and such fact must be noted
in the minutes. In general, bylaws may provide a greater (and not
lesser) quorum for the protection of minority shareholders.
GOKONGWEI VS SEC, GR NO. L-45911, APRIL 11, 1979
53
[DOCUMENT TITLE]
Facts:
Petitioner who is president and controlling shareholder of URC and CFC purchased
5,000 shares of stock of SMC. SMC amended its By-laws specifically disqualifying any
competitor from becoming a member of the board, thus, petitioner was rejected by the
stockholders in his bid to secure a seat in the Board of Directors. Petitioner filed for a
declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws
and damages against the majority of the members of the Board of Directors. Respondents
reason out that petitioner is engaged in businesses competitive and antagonistic to that of
respondent SMC and that the Board realized the clear and present danger in competitors being
directors because they would have easy and direct access to SMC’s business and trade
secrets.
Issue:
WON the amended by-laws of SMC disqualifying a competitor from nomination or
election to the Board of Directors of SMC are valid and reasonable?
Ruling:
Yes, they are valid and reasonable. Section 21 of the Corporation Law, a corporation
may prescribed in its by-laws “the qualifications, duties and compensation of directors, officers
and employees. This refers to a qualification in addition to that specified by section 30 of the
Corporation Law, which provides that “every director must own in his right at least one share of
the capital stock of the stock corporation of which he is a director.” Although in the strict and
technical sense, directors of a private corporation are not regarded as trustees, there cannot be
any doubt that their character is that of a fiduciary insofar as the corporation for the collective
benefit of the stockholders, “they occupy a fiduciary relation, and in these sense the relation is
one of trust.” It is obviously to prevent the creation of an opportunity for an officer or director of
San Miguel Corporation, who is also the officer or owner of competing corporation, from taking
advantage of the information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the
questioned amendment of the by-laws was made. Certainly, where two corporations are
competitive in a substantial sense, it would seem improbable, if not impossible, for the director,
if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place
the performance of his corporate duties above his personal concerns.
C. PRINCIPAL OFFICE
The principal office is where the corporation is required to maintain its basic corporate
records. It is also where the corporation must hold its shareholders’ or member’s
meetings. Such meetings may be held in any city or municipality where the corporation
is based, specifically if indicated in the bylaws. It further determines the LGU where it
should register and principally pay the local tax.
NOTE: Principal office as indicated in the AOI is not necessarily the venue of actions
for insolvency cases.
The proper venue for a petition for voluntary insolvency is the RTC of the province or
city where the insolvent debtor has resided in for 6 months before the filing of the
petition. In Pilipinas Shell Petroleum Corporation vs Royal Ferry Services, the Court
[DOCUMENT TITLE]
C.1. Place and Time of Meeting of Stockholders or Members
RCC requires that an actual meeting be held at a place where stockholders or members
expect to attend. i.e., at the corporation’s principal office.
 When meeting at the principal office not practicable – meeting must be
held in its vicinity – specifically “city or municipality where the principal
office of the corporation is located – no flexibility in the venue of meetings
 No recognized alternative venue of meetings
As much as possible, the venue should be at the principal office itself. Only if not
practicable will the meeting be held at another place, provided it is within the city or
municipality where the principal office is located
ii. Notice of the Meeting – sent through the means of communication

provided in the bylaws; must state the time, place and purpose of the
meetings
 RCC prescribes the contents and accompanying documents of the notice
(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.
 Formal defects in the notice or the improper holding of the meeting will
not invalidate the proceedings
 Cure of formal defects or impropriety of the conduct of the meeting is the
presence of ALL shareholders or members without timely objection (at
the commencement of the meeting). Such act constitutes as a waiver.
HYATT ELEVATORS AND ESCALATORS CORPORATION VS. LG OTIS ELEVATOR

COMPANY, G.R. NO. 169835, JULY 3, 2007
[DOCUMENT TITLE]
Facts:
Petitioner Hyatt is a domestic corporation. Makati City is the address indicated in its
Articles of Incorporation. When this case started, Hyatt listed its office address as located at
Mandaluyong City. It was the Philippine distributor until 1997 of elevators and escalators of
LUCKY GOLDSTAR & GOLDSTAR INDUSTRIAL. Respondent LG Otis Elevator Company (LG
Otis), on the other hand, evolved as a result of a joint venture agreement between LG
Electronics, Inc., of South Korea and Otis Elevator Company of Connecticut, U.S.A. LG Otis
purchased the business of LG Industrial Systems Co. Ltd. (LGISC), a Korean corporation which,
at the time of said purchase, was the principal stockholder of LG Industrial Systems Philippines,
Inc. (LGISP), a domestic corporation established in 1998.
On March 28, 2000, LGISP changed its name to Goldstar Elevators Philippines, Inc.
(GOLDSTAR). In the RTC of Mandaluyong, Hyatt filed a complaint for unfair trade practices and
damages against LGISC and LG International Corporation, alleging that defendant LGISC was
formerly known as Goldstar Industrial and co-defendant LG International Corporation was
formerly known as Lucky Goldstar. Hyatt claimed that after establishing a Philippine market for
defendants’ elevators and escalators pursuant to a distributorship agreement executed in 1988,
the defendants unfairly committed trade practices intended to establish their own company,
ease out Hyatt and cripple its business operations as the exclusive distributor of LG elevators,
escalators and parking equipment in the Philippines. Petitioner LG Otis [and Goldstar Elevators]
filed a motion to dismiss the amended complaint on the ground that venue was improperly laid
and failure to state a cause of action. RTC of Mandaluyong denied motion to dismiss. CA set
aside Orders of the RTC of Mandaluyong City. CA DISMISSED the case on the ground of
improper venue.
Issue:
WON the CA is correct in dismissing the case for improper venue.
Ruling:
Yes. Petitioner Hyatt could not successfully initiate this civil suit in Mandaluyong City,
because its place of business, as stated in its Articles of Incorporation, being in Makati City.
Since the principal place of business of a corporation determines its residence or

domicile, then the place indicated in petitioner’s [Hyatt’s] articles of incorporation becomes
controlling in determining the venue for this case.
Jurisprudence has settled that the place where the principal office of a corporation is located, as
stated in the articles, indeed establishes its residence. This ruling is important in determining the
venue of an action by or against a corporation.
D. TERM OR CORPORATE LIFE
Newly established corporations will automatically have a perpetual term, unless their
articles of incorporation specifically indicate a specific corporate term
[DOCUMENT TITLE]
 PRESUMPTION: Shareholders when they incorporated assented to the

perpetual character of their contact
 How does a corporation end?
o Upon agreement between or among the prescribed number of
stockholders OR
o Involuntarily upon the Court’s or Commission’s determination
 Commission – has regulatory authority to periodically or as need arises
monitor compliance and impose sanctions
For existing corporations, their articles of corporation shall be deemed amended to

reflect their perpetual term, unless the corporation elects to retain its existing term. This
requires MAJORITY VOTE of shareholders or members.
 How does an existing corporation opt out of the perpetual term introduced by
the RCC?
o By notifying the Commission, following approval of its shareholders
(This is without prejudice to the appraisal right of dissenting
shareholders)
o Board Approval is not explicitly required by the RCC
o What is required – vote of stockholders representing MAJORITY of
the corporation’s outstanding capital stock, excluding non-voting
stocks
o Holders of non-voting stocks do not have the right to vote on the
rejection
 Board action, when necessary:
o When exigencies of business demand and business owners may not
have anticipated the change
o Business owners must confirm whether they agree to the board’s
proposed change
o RCC requires the approval of shareholders who contributed
substantial amount of capital (including holders of non-voting shares)
For corporations with expired terms, they may apply with the Commission’s approval,
they will have perpetual term unless they prefer a fixed term as indicated in their
application.
For corporations with a limited term, the period within which to file an application for
extension of such term has been shortened to three years prior to the expiration of term,
unless there are justifiable reasons for an earlier extension.
D.1. Commencement of Corporate Existence
Processes on the formation of a corporation

[DOCUMENT TITLE]
(a) Submission and reservation of corporate name

(b) Initial submission of the articles of incorporation and bylaws for the review of the
Commission’s processors
(c) The submission of the signed and notarized articles of incorporation and bylaws
(d) Upon approval and payment of the registration fees, the issuance of the
certificate of incorporation with the attached signed and notarized articles of
incorporation and bylaws
 Commencement of corporate existence – issuance of the certificate of

incorporation
 Signals the grant of corporate charter
 Corporation acquires juridical personality
D.2. Power to Extend/Shorten Corporate Life
A corporation has perpetual existence, unless the corporation (by majority vote of
shareholders or members) elects to retain its limited term. A corporation with limited term
may be extended or shortened through an amendment of its articles of incorporation An
extension may be made no earlier than 3 years prior to the end of its term. The
Commission may grant an earlier extension for justifiable reasons.
The RCC requires the shareholders’ or members’ approval. Dissenting shareholder may
exercise his appraisal right
D.3. Dissolution
Methods of Dissolution
(a) Voluntary Dissolution – through its board and shareholders or members may
initiate dissolution when:
 Completion of objectives
 Determined that it will not be in the interest of shareholders or members
to pursue its objectives
 Section 134 – describes procedure in implementing the corporation’s
immediate dissolution
 Section 136 – covers a dissolution that only takes effect upon expiration of a
certain period, following shortening of its corporate term
 Section 135 – applicable when the dissolution may prejudiced or not
consented by all creditors: Commission will conduct an administrative
proceeding where it shall hear the objections of the non-consenting creditors
(b) Involuntary Dissolution – when the dissolution of the corporation is ordered by

the Commission or the courts.
[DOCUMENT TITLE]
 Commission may on its own or upon the petition of a concerned

shareholder dissolve the corporation
 Courts may order the dissolution of the corporation following:
 A quo warranto proceeding
 Proceeding involving a financially distressed
corporation
 Corporation formed for the purpose of or found to be
committing, concealing or aiding the commission of
securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices
E. INCORPORATORS
Incorporators are those stockholders or members mentioned in the articles of incorporation

as originally forming and composing the corporation and who are signatories thereof.
E.1. Corporators, Incorporators, Stockholders, 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.54
 Qualifications55
 Any person, partnership, association or corporation, singly or jointly with
others but not more than fifteen (15) in number,
 Except natural persons who are licensed to practice a profession,
and partnerships or associations organized for the purpose of
practicing a profession.
 Must be for any lawful purpose or purposes,
 Incorporators who are natural persons must be of legal age,
 Each incorporator of a stock corporation must own or be a subscriber to
at least one (1) share of the capital stock.
 Rights of unpaid share56

o Holders of subscribed shares not fully paid which are not delinquent shall have
all the rights of a stockholder.
 Lost or destroyed certificate57
54
55
56
57
[DOCUMENT TITLE]
oProcedure to follow in lieu of the lost, stole, or destroyed certificates:

 The registered owner of a certificate of stock in a corporation or his legal
representative shall file with the corporation an affidavit in triplicate setting
forth, if possible, the following:
 the circumstances as to how the certificate was lost, stolen or
destroyed, the number of shares represented by such certificate,
the serial number of the certificate and the name of the
corporation which issued the same.
 The owner of such certificate of stock shall also submit such other
information and evidence as may be deemed necessary.
 The corporation shall then publish a notice in a newspaper of general
circulation in the place where the corporation has its principal office, once
a week for three (3) consecutive weeks at the expense of the registered
owner of the certificate of stock which has been lost, stolen or destroyed.
 The notice shall state the name of the corporation, the name of
the registered owner, the serial number of the certificate, the
number of shares represented by such certificate, and shall state
that after the expiration of one (1) year from the date of the last
publication.
 If no contest is made, the right to contest shall be barred and the
corporation shall cancel the lost, destroyed or stolen certificate of stock in
its books.
 the corporation shall then issue a new certificate of stock.
 Unless the registered owner files a bond effective for a period of
one (1) year.
 If a contest has been presented to the corporation or if an action is
pending in court the issuance of the new certificate of stock in lieu thereof
shall be suspended until the court renders a final decision regarding the
ownership of the certificate of stock which has been lost, stolen or
destroyed.
 Only in case of fraud, bad faith, or negligence on part of the corporation
or its officer can there arise an action against a corporation.
 Books to be Kept58
o The articles of incorporation and bylaws of the corporation and all their
amendments;
o The current ownership structure and voting rights of the corporation, including
lists of stockholders or members, group structures, intra-group relations,
ownership data, and beneficial ownership;
o The names and addresses of all the members of the board of directors or
trustees and the executive officers;
o A record of all business transactions;
o A record of the resolutions of the board of directors or trustees and of the
stockholders or members;
58
Ibid.
[DOCUMENT TITLE]
o
Copies of the latest reportorial requirements submitted to the Commission; and
o
The minutes of all meetings of stockholders or members, or of the board of
directors or trustees.
 Right to financial statements59
o A corporation shall furnish a stockholder or member, within ten (10) days from
receipt of their written request, its most recent financial statement, in the form
and substance of the financial reporting required by the Commission.
o At the regular meeting of stockholders or members, the board of directors or
trustees shall present to such stockholders or members a financial report of the
operations of the corporation for the preceding year, which shall include financial
statements, duly signed and certified in accordance with this Code, and the rules
the Commission may prescribe.
 Approval of merger/consolidation60
o Upon approval by a majority vote of each of the board of directors or trustees of
the constituent corporations of the plan of merger or consolidation, the same
shall be submitted for approval by the stockholders or members of each of such
corporations at separate corporate meetings duly called for the purpose.
o The affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock of each corporation in the case of stock corporations or
at least two-thirds (2/3) of the members in the case of nonstock corporations
shall be necessary for the approval of such plan.
 Appraisal right61
o Right of Appraisal may be exercise in the following instances:
 In case an 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;
 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 this Code;
 In case of merger or consolidation; and
 In case of investment of corporate funds for any purpose other than the
primary purpose of the corporation.
o How Right is Exercised
 The dissenting stockholder who votes against a proposed corporate
action may exercise the right of appraisal by making a written demand on
the corporation for the payment of the fair value of shares held within
thirty (30) days from the date on which the vote was taken.
 Provided, that failure to make the demand within such period shall
be deemed a waiver of the appraisal right.
59
60
61
Sections 80-85 of the Revised Corporation Code.
[DOCUMENT TITLE]
 If the proposed corporate action is implemented, the corporation shall pay

the stockholder, upon surrender of the certificate or certificates of stock
representing the stockholder’s shares, the fair value thereof as of the day
before the vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action.
o Effect of Demand and Termination of Right
 All rights accruing to such shares, including voting and dividend rights,
shall be suspended in accordance with the provisions of this Code,
except the right of such stockholder to receive payment of the fair value
thereof: Provided, That if the dissenting stockholder is not paid the value
of the said shares within thirty (30) days after the award, the voting and
dividend rights shall immediately be restored.
o Right to Payment Ceases
 No demand for payment under this Title may be withdrawn unless the
corporation consents thereto.
 If, however, such demand for payment is withdrawn with the consent of
the corporation, or if the proposed corporate action is abandoned or
rescinded by the corporation or disapproved by the Commission where
such approval is necessary, or if the Commission determines that such
stockholder is not entitled to the appraisal right, then the right of the
stockholder to be paid the fair value of the shares shall cease, the status
as the stockholder shall be restored, and all dividend distributions which
would have accrued on the shares shall be paid to the stockholder.
o Who Bears Costs of Appraisal
 The costs and expenses of appraisal shall be borne by the corporation,
unless the fair value ascertained by the appraisers is approximately the
same as the price which the corporation may have offered to pay the
stockholder, in which case they shall be borne by the latter
o Notation on Certificates; Rights of Transferee
 Within ten (10) days after demanding payment for shares held, a
dissenting stockholder shall submit the certificates of stock representing
the shares to the corporation for notation that such shares are dissenting
shares.
 If shares represented by the certificates bearing such notation are
transferred, and the certificates consequently cancelled, the rights of the
transferor as a dissenting stockholder under this Title shall cease and the
transferee shall have all the rights of a regular stockholder; and all
dividend distributions which would have accrued on such shares shall be
paid to the transferee.
F. INCORPORATING DIRECTORS OR TRUSTEES
Doctrine of Centralized Management

[DOCUMENT TITLE]
"The governing body of a corporation is its board of directors. xxx. The concentration in the
board of the powers of control of corporate business and of the appointment of corporate
officers and managers is necessary for efficiency in any large organization. Stockholders
are too numerous, scattered and unfamiliar with the business of a corporation to conduct its
business directly. And so the plan of corporate organization is for the stockholders to
choose the directors who shall control and supervise the conduct of the corporate business."
(Filipinas Port Services, Inc. vs. Go, G.R. No. 161886, March 16, 2007)
Zone of Insolvency
As a rule, the management of the financially distressed corporation shall remain with its
existing board or management. "However, all disbursements, payments or sale, disposal,
assignment, transfer or encumbrance of property, or any other act affecting title or interest in
property, shall be subject to the approval of the rehabilitation receiver and/or the court. In
proper cases, the court may appoint and direct the rehabilitation receiver to assume the
powers of the board, or appoint a management committee.
Authority to Bind the Corporation

"Under this provision (referring to Section 24 of the Revised Corporation Code), the power
and responsibility to decide whether the corporation should enter into a contract that will
bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or
relevant provisions of the law. However, just as a natural person who may authorize
another to do certain acts for and on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or implied by habit, custom or acquiescence in
the general course of business:
A corporate officer or agent may represent and bind the corporation in

transactions with third persons to the extent that (the) authority to do so has
been conferred upon him, and this includes powers as, in the usual course
of the particular business, are incidental to, or may be implied from the
powers intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such apparent
powers as the corporation has caused person dealing with the officer or
agent to believe that it has conferred.
Apparent authority is derived not merely from practice. Its existence may be ascertained
through:
1) the general manner in which the corporation holds out an officer or agent as having the
power to act or, in other words that apparent authority to act in general, with which it clothes
him; or
2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, within or beyond the scope of his ordinary powers. It requires presentation of
[DOCUMENT TITLE]
evidence of similar act(s) executed either in its favor or in favor of other parties. It is not
quantity of similar acts which establishes apparent authority, but the vesting of a corporate
officer with the power to bind the corporation.
xxx
"Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such officer has certain limited powers
in the transaction of the usual and ordinary business of the corporation." "In the absence of
a charter or bylaw provision to the contrary, the president is presumed to have the authority
to act within the domain of the general objectives of its business and within the scope of his
or her usual duties." (Advance Paper Corporation vs. Arma Traders Corporation, et. al.,
G.R. No. 176897, December 11, 2013)
“The authority of the subordinate agent of a corporation often depends upon the course of
dealings which the company or its director have sanctioned. It may be established
sometimes without reference to official record of the proceedings of the board, by proof of
the usage which the company had permitted to grow up in business, and of the
acquiescence of the board charged with the duty of supervising and controlling the
company's business.” (J. F. RAMIREZ, THE ORIENTALIST CO., and RAMON J.
FERNANDEZ, G.R. No. 1189, September 24, 1918)
Business Judgment Rule

Courts will not interfere in the decisions made by the Board of Directors as regards the
internal affairs of the corporation.
Unless such contracts are so unconscionable and oppressive as to amount to a wanton

destruction of rights of the minority. (Ingersoll v. Malabon Sugar Co., G.R. No. L-‐ 16977,
Apr. 21, 1922)
F.1. Board of Directors or Trustees
F.1.1. Term of Directors and Trustees

(a) Director - term of one year
(b) Trustees - not exceeding three years
NOTE: The law mandates each director or trustee to hold office until his
successor is elected or qualified.
F.1.2. Independent Directors
Corporation vested with public interest must have at least 20% independent director
members in the Board.
 Test of Independence:
[DOCUMENT TITLE]
1. Free from any “business or other relationship”

2. Such relationship “could or could reasonably be perceived to” cause
interference
3. The likelihood of interference must be “material”
 Additional Requirements under Code of Corporate Governance:

1. Not or has not been a Senior officer or employee
2. Nor or has not been a director three years prior to election
3. Has not been appointed as Chairman “Emeritus”, “Ex-Officio”
Directors/Officers or Members of any advisory Board
4. Not an owner of more than 2% of the outstanding shares
5. Not a relative of a director, officer, or substantial shareholder
6. Not acting as a nominee or representative of any director
7. Nota securities broker-dealer of listed companies and registered issuers
of securities
8. Not a retainer adviser, auditor, consultant, agent or counsel
9. Not engage in any transaction with the company
10. Not affiliated in any non-profit organization that receives funding from the
company
11. Not employed as an executive officer of another company where any of
the covered company's executive serve as director
F.1.3. Election Process
A. Nomination - Generally, the Board has the responsibility to nominate who will sit as
Directors or Trustees. Shareholders or members may nominate another shareholder
or member with the prescribed qualifications and none qualifications set by law
 Full Disclosure of Candidates Information:

1. Profiles, e.g. qualifications, relevant experience, length of service in the
corporation, trainings and continuing education attended, and their board
representations in other corporations.
2. Attendance Report
3. Appraisals and performance report
B. Election - To be a valid election, “there must be present, either in person or through

a representative authorized to act by written proxy, the owners of the majority of the
outstanding capital stock, or if there be no capital stock, a majority of the members
entitled.”
 Manner of casting votes:

(a) in person
(b) written proxy
(c) remote communication
[DOCUMENT TITLE]
(d) in absentia
(e) show by hands – “one man one vote”; non-stock corporation
(f) poll or ballot – “one share one vote”; stock corporation
 Prescribed vote:
(a) Plurality voting - The nominees who receive the highest number of
votes shall be elected as members of the board. A director or trustee
need not have the support of “majority of the outstanding capital
stock, or if there be no capital stock, a majority of the members
entitled to vote.”
(b) Majority Voting - A vote will not carry if the majority of the votes are
withheld.
 Distribution of votes:
 Straight voting - Stockholders entitled to vote shall have the right to vote
the number of shares of stock standing in their own names, xxx vote such
number of shares for as many persons a there are directors to be elected,
xxx (and) distribute them on the same principle among as many
candidates as may seen fit.
 Cumulative voting - Stockholders entitled to vote shall have the right to
vote the number of shares of stock standing in their own names, xxx vote
such number of shares for as many persons as there are directors to be
elected, xxx (and) cumulate said shares and give one (1) candidates as
many votes as the number of directors to be elected multiplied by the
number of shares owned.
Election Contest - refers to any controversy or dispute involving the title or claim to
any elective office in a stock or non-stock corporation, the validation of proxies, the
manner and validity of elections, and the qualifications of candidates, including the
proclamation of winners, to the office of director, trustee or other officer directly
elected by the stockholders in a close corporation or by members of a non-stock
corporation where the article of incorporation or by-laws so provide.
C. Report -Within thirty (30) days after the election of the directors, trustees and officers
of the corporation, the secretary, or any other officer of the corporation, shall submit
to the Commission, the names, nationalities, shareholdings, and residence
addresses of the directors, trustees, and officers elected.
QUESTION:
Is permanent representation allowed in the Board of Directors?
ANSWER:
No, the board of directors of corporations must be elected from among the
stockholders or members directors every year. Estoppel does not set in to
legitimize what is wrongful. (Grace Christian High School vs. CA, G.R. No.
108905, October 23, 1997)
[DOCUMENT TITLE]
QUESTION:
What are the limitations on the election of directors/trustees?
ANSWER:
1. At the meeting of stockholders or members called for the election of directors
or trustees, there must be present either in person or by representative
authorized to act by written proxy, the owners of the majority of the members
entitled to vote.
2. The election must be by ballot if requested;
3. A stockholder cannot be deprived in the articles of incorporation or in the by-
laws of his statutory right to use any of the methods of voting in the election of
directors;
4. No delinquent stock shall be voted;
5. The candidates receiving the highest number of votes shall be declared
elected.
F.1.4. Corporate Officers62
 Chairman - not a statutory corporate officer.

- he generally sets meeting and its agenda (Kosmin and Roberts,
“Company Meetings, Law, Practice and Procedure,” Oxford,
p.325.)
- he may be an independent director, provided he must not hold
an executive position and should not be involved in the
corporation’s day-to-day operations
Roles and Responsibilities of the Chairman:
1) Makes certain that the meeting agenda focuses on strategic
matters, including the overall risk appetite of the corporation,
considering the development in the business and regulatory
environments, key governance concerns, and contentious issues
that will significantly affect operations;
2) Guarantees that the Board received accurate, tinely, relevant,
insightful, concise, and clear information to enable it to make
sound decisions;
3) Facilitates discussions on key issues by fostering an environment
conducive for constructive debate and leveraging on the skills and
expertise of individual directors;
4) Ensures that the Board sufficiently challenges and inquiries on
reports submitted and representations made by Management
5) Assures the availability of proper orientation for first-time directors
and continuing training opportunities for all directors; and
6) Makes sure that the performance of the Board is evaluated at
least once a year and discussed/followed up on.”
62
[DOCUMENT TITLE]
 President - primary officer tasked to implement the decision of the board

- must be a director
- main signatory of stock certificates, and in exception case, the
financial statements
 Treasurer - control over the funds and/or other assets of the corporation
- one of the main signatories of financial statements
- must be a resident of the Philippines
 Corporate Secretary - maintain corporate records, including the stock and

transfer book
- send notices and takes minutes of meetings
- make prescribed reports to the Commission
- attest to corporate resolutions, such as the articles of
merger or consolidation
- must be a resident citizen of the Philippines
 Compliance Officer
Duties and Responsibilities:
1. Ensures proper onboarding of new directors
2. Monitors, reviews, evaluates and ensures the compliance by the
corporation, its officers and directors with the relevant laws, rules and
regulations and all governance issuances o regulatory agencies
3. Reports to the Board if violations are found and recommends the
imposition of appropriate disciplinary action
4. Ensures the integrity and accuracy of all documentary submissions to
regulators
5. Appears before the SEC when summoned in relation to compliance
6. Collaborates with other departments to properly address compliance
issues, which may be subject to investigation
7. Identifies possible area of compliance issues and works towards the
resolution of the sam
8. Ensures the attendance of board members and key officers to
relevant trainings;
9. Performs such other duties and responsibilities as may be provided by
the Board and SEC
 Other Corporate Officers

“A position must be expressly mentioned in the bylaws in order to be
considered as a corporate office. (The) creation of an office pursuant to or
under a By-Law enabling provision is not enough to make a position a
corporate office. Xxx (The) the only officers of a corporation were those
given character either by the Corporation Code or by the By-Laws; the rest of
[DOCUMENT TITLE]
the corporate officers could be considered only as employees or subordinate

officiates. Xxx (Matlin industries and Commercial Corporation vs Coros, G.R.
No. 157802, October 13, 2010).
 Test of Distinction:
1) Status or relationship of the parties
2) Nature of the question that is the subject of their controversy
 Dismissal of Stockholder as an Employee or Subordinate

The NLRC and not the regular court has jurisdiction over the issue of such
stockholder’s separation from service of the company
 Removal of an Executive Director

The regular court has jurisdiction
 Board Appointment
The vote of a majority of all the members of the board
 Term of Officers
The bylaws may provide a longer term of office for “all officers other than
directors or trustees.” Purely corporate officers and/or executive directors enjoy
protection from their respective contracts with the corporation.
Golden Parachute - refers to a large compensation package to a corporate

officer in case of separation from office, normally when there is corporate
takeover.
 Rule on Holding Concurrent Offices

a) The positions of the Chairman of the Board and Chief Executive Officer
should be held by separate individuals.
b) The Corporate Secretary should be a separate individual from the
Compliance Officer and should not be a member of the Board of
Directors.
 Foreigners as Officers:
May be appointed as corporate officers, except if the corporation is engaged
in nationalized activities.
Doctrine of Apparent Authority

1) The general manner in which the corporation holds out an officer or agent
as having the power to act or, in other words, the apparent authority to act
in general, with which it clothes him
2) The acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the scope of his
[DOCUMENT TITLE]
ordinary powers. (Peoples Aircaro and Warehousing Co., Inc. vs. CA, G.R.
No. 117847, October 7, 1998).
F.1.5. Vacancies in the Office of Director or Trustee; Emergency Board63
 Term Expiration
Directors or trustees are generally elected during the annual meeting, so their
term expires and their replacement is elected on the day of the next annual
meeting.
 Removal by Stockholders or Members

The election may be held on the same day of the meeting authorizing the
removal and this fact must be stated in the agenda and the notice of the said
meeting.
 Increase in the Number of Directors or Trustees

Shall be filled only by an election at a regular or at a special meeting of
stockholders or members duly called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so stated in the notice of
meeting.
 Others
Maybe triggered by death, resignation or any cause. The law permits a
longer period (45 days from vacancy) when a special meeting for election of a
replacement director or trustee must be made.
F.1.6. Compensation of Directors or Trustees64
Per Diem
 Director or Trustee - only entitled to reasonable per diem enough to cover the
costs of attending meeting.
- not subject to tax; not considered income
 Compensation of Non-executive directors and trustees

o Directors or Trustee is entitled to compensation if authorized in the by-laws or
by majority vote of shareholders or members
- Must not exceed 10% of the corporations income before tax
- Trustees cannot be better off than directors
 Compensation of Executive Directors and Trustees

The product of negotiation between the corporation and the corporate officer, for
his services and not for his appointment as a member of the board
63
64
[DOCUMENT TITLE]
 Stock Option Plans and Other Share-Based Compensation Schemes

Involve the grant to key officers and employees of the right to receive or acquire
the subject shares at a fixed price (or strike price) after a certain period (or strike
date).
 Say-on-Pay Rule
The stockholders representing at least a majority of the outstanding capital stock
or majority of the members may rant directors or trustees with compensation and
approve the amount thereof at a regular or special meeting.
F.1.7. Liability of Directors, Trustees or Officers
 3 Duties of Directors, Trustees or Officers in directing the corporation (COL)

1. Care – exercising great care in directing the affair of the corporation.
Gross negligence (simple negligence does not give rise to such
liability) or bad faith in the performance of their duty will make them
personally liable. Directors, trustees or officers must observe two
standard of care, to wit:
a. Process due care – primarily focuses on the procedure which
is the safe harbour for decision making in terms of discharging
their duty to inquire and supervise delegated work to corporate
officers and employees; risk monitoring and responding to the
warnings thrown up by the internal control systems.
b. Substantive due care – is the business judgment of the
actual abilities of the concerned director or trustee. Courts are
precluded from substituting their judgment to that of the board,
unless there is irrational business purpose and obvious
corporate waste (wastage of corporate assets serving no
corporate purpose).
o DIRECTORS OR TRUSTEES may use Business Judgment

Rule as a defense when:
(1) The act is intra vires or within the powers of the
corporation;
(2) Directors or trustees observed process due care; and
(3) Action has a rational business purpose with no obvious
corporate waste.
2. Obedience – adherence and performance of duties as prescribed by

law, rules of good corporate governance and bylaws of the
corporation. Disobedience may arise from ultra vires acts (Sec. 44) or
unlawful acts (Sec. 159 & 169). The former shall not prejudice third
parties acting in good faith as a result from the act of the members of
[DOCUMENT TITLE]
the board beyond their authority; while the latter cannot be ratified. A
director or trustee may exclude himself from such liability upon filing of
written objection to the corporate secretary.
3. Loyalty – the duty to promote the interest of their respective
beneficiaries-their basic fiduciary duty.
 RCC provides consequences for breached of these duties: (JAF)

1. Joint and several liability for damages suffered by the corporation
2. Administrative and criminal liability
3. Fiduciary liability for breach of confidence reposed upon them
 RCC permits a shareholder or member to enforce civil liability of the concerned

directors or trustees for breach of their fiduciary duties through DERIVATIVE
SUIT.
In San Miguel v. Kahn, the court ruled that the three requisites for derivative suit,
to wit:
1. The party bringing suit should be a shareholder as of the time of the act
or transaction complained of,
2. He has exhausted 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
3.The cause of action actually devolves on the corporation, the,
wrongdoing or harm having been caused to the corporation and not to the
particular stockholder bringing the suit;
F.1.8. Dealings of Directors, Trustees or Officers with the Corporation
“Self-dealing” is a legal concept which is applied to a transaction in which a fiduciary

(such as a trustee, general partner, controlling shareholder, director, or officer) derives a
personal benefit from a transaction with or involving the entity to which he owes the
fiduciary duty.65
Exemptions:
1. When a director can establish inherent fairness of the transaction.
2. Does not participate in the approval of the transaction.
3. His presence does not constitute quorum in the board meeting.
Absence of any of the exemptions will make the contract voidable, at the option of the
corporation, however it can be ratified through vote of the stockholders of at least 2/3 of
outstanding capital stock or 2/3 votes of the members in a meeting called for the
purpose.
65
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[DOCUMENT TITLE]
 In order to prevent the nullity of the transaction, not to prejudice the third party
acting in good faith, RCC requires either:
(a) The approval of disinterested board;
(b) The approval of shareholders or members
RCC provides sanctions upon conflicted director who fails or refuses to disclose
or recuses from voting, especially when the contract is not fair and reasonable
under the circumstances.
 As a rule, a self-dealing director or trustee is not in breach of his duty of loyalty

since the transaction is voidable and the corporation is allowed to annul the
contract four (4) years from discovery of the defect as governed under the Civil
Code. Contract affecting third party’s right, who acted in good faith, the
corporation may demand restitution and claim damages, including the profits that
would have been incurred by the corporation.
F.1.9. Contracts between Corporations with Interlocking Directors
Interlocking directorates is a business practice wherein a member of one company's

board of directors also serves on another company's board or within another company's
management which is not illegal for as long as the corporations involved do not compete
with each other.66 It must not be tainted with fraud or misrepresentation and the contract
must be fair and reasonable.
The interest of the interlocking director in one corporation must be substantial for having
more than 20% threshold of the outstanding capital stock. Interlocking directors or
trustees must have a good corporate governance in balancing the interests of a
corporation’s stakeholders by setting up internal controls, risk assessment and
framework in achieving company’s objectives.
F.1.10. Disloyalty of a Director

This section deals with corporate opportunities which a disloyal director or trustee takes
away business opportunity that properly belongs to the corporation.
When a Director has breached his duty (known as a fiduciary duty – akin to an obligation
of loyalty), the Court can order all of the losses suffered by the company to be restored
to it. The court can also order the profits to be handed over that the Director has made
from their misconduct – and this can apply to anyone else who has received those
profits such as family or co-conspirators.67
 Remedy of the corporation:
66
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67
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[DOCUMENT TITLE]
1. Enjoin the disloyal director from further exploiting the corporate

opportunity
2. Sue for damages on account of breach of his duty
 Exemption: Shareholders ratify his action by a vote of at least
2/3 of the outstanding capital stock.
F.1.11. Executive, Management, and Other Special Committees
Main purpose of having committees are for operational efficiency.
 A board of directors may create one or more committees and appoint members
of the board to serve on them. These committees may exercise the powers of the
board. However, by law, there are certain matters that the board must act upon
itself and cannot delegate to committees. For example, in some states, directors’
committees cannot authorize dividends and other distributions, propose to
shareholders’ actions that require their approval, fill vacancies on the board, or
adopt, amend, or repeal bylaws. The corporation may further restrict the powers
of directors’ committees in its articles or bylaws.
 Common committees include audit committees (which select the corporation’s

auditor and discuss the corporation’s financial performance with management),
compensation committees (which review compensation and benefit levels), and
nominating committees (which make recommendations with respect to senior
management and board positions).68
F.1.12. Power to Enter into Management Contract
A management contract is one whereby the corporation undertakes to manage or

operate all or substantially all of the business of another corporation. A management
contracts must not be longer than 5 years for any one term. However, service
contracts which relate to the exploitation, development, exploration or utilization of
natural resources may be entered into for such periods provided by law or regulation.
 Requirements:
 Resolution of a quorum of the Board of Directors/Trustees; and
 -Ratified by a majority vote by the stockholders representing the
outstanding capital stock or members, as the case may be, in a meeting
called for the purpose;
 -In both cases, such votes must be made by both the managing and
managed corporation.
Except: That 2/3 votes shall be necessary if:
68
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[DOCUMENT TITLE]
-Stockholder who represents the interest of both

corporations owns 1/3 of the outstanding capital stock of
the managing corporation.
-Majority of the members of the Board of the managing
corporation compose also majority of the members of the
board of the managed corporation. (Villanueva,
Commercial Law Reviewer, 2009)
F.1.13. Liability of Directors for Watered Stocks
 Watered stock - shares of stock of a corporation which have been issued at a

price far greater than true value. In this case, the actual value of all shares is less
than the value carried on the books of the corporation.69
KEY TAKEAWAYS:
Watered stock is usually intended to defraud investors.
Watered stock is issued at a higher value than it is actually worth.
Watered stock is difficult to sell, and if sold, is typically at a much lower rate than
the original price.
 This term is believed to have originated from ranchers who would make their
cattle drink large amounts of water before taking them to market. The weight of
the consumed water would make the cattle deceptively heavier, enabling the
ranchers to fetch higher prices for them.70
 RCC imposes solidary liability on the director or trustee who actively or passively
consents to its issuance. Its liability it the difference between the value of the
actual consideration and the par or issued value of the shares.
 The remedy of a director or trustee is to file a written objection for
its issuance before the corporate secretary.
G. CAPITOL STOCK/CONTRIBUTION
G.1. Classes of Corporation
(a) Stock Corporation - is a corporation formed to provide monetary or material

benefits to its owners. It shall have a stock divided into shares, on the basis
of which their holders derive either dividends from unrestricted retained
earnings, or capital gains upon their disposition.
(b) Non-stock Corporation - is a corporation established for any other purpose
other than providing monetary or material benefits to persons comprising it.
69
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70
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[DOCUMENT TITLE]
G.2. Classes of Shares
A Stock corporation raises capital generally through the issuance of shares of stock.
It may issue different classes of shares with different economic and political rights in
order to entice prospective funders with varying requirements in terms of risks and
benefits to invest in. It may issue:
.
(a) Preferred Shares - is one which entitles the holder to certain preferences
over the holders of common stock. The most common forms may be
classified into two:
1. Preferred shares as to assets - this refers to share which gives the
holder thereof preference in the distribution of the assets of the
corporation in case of liquidation.
2. Preferred shares as to dividends - mean as a share the holder is
entitled to receive dividends on said share to the extent agreed upon
before any dividends at all are paid to the holders of common stock.
(b) Redeemable Shares
(c) Convertible Shares
(d) Voting Shares
(e) Non-voting Shares
(f) Par or No Par Shares
1. Par Value Shares may be issued for a consideration equal to or more
than their nominal value. Preferred shares may only be issued with a
stated par value.
2. No Par Value Shares are shares without nominal value and may be
issued for the amount stipulated in the articles of incorporation, or fixed
by the Board which must not be less than five pesos.
However, there will always be common shares with full voting rights issued to residual
owners of the corporation.
 Economic Rights refer to the rights of shareholders to receive dividends and
capital in case of liquidation.
 Political Rights refer to the rights of shareholders to be elected to the board and
to approve certain corporate actions.
Shares with no preferences are called “Common Shares.” In a failing business venture,
they run the risks of not receiving anything even their capital contributions. In a
successful business venture, common shareholders receive most of the venture’s
profits.
G.3. Founders’ Shares
To ensure the success of the business despite the entry of third parties, the law permits
them to have certain rights and privileges not enjoyed by other corporators such as the
[DOCUMENT TITLE]
exclusive right to vote and be voted for in the election of directors, it must be for a limited
period not to exceed five (5) years from the date of incorporation.
G.4. Redeemable Shares
Redeemable shares 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
G.5. Treasury Shares
Treasury Shares are treated as “assets” of the corporation. They 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. These
are re-acquired but unretired shares. Treasury shares may arise when the corporation
redeems its shares pursuant to its contract with shareholders, or when permitted or
required by law.
 The Board may also retire or distribute Treasury Shares as property
dividends. However, treasury shares have no voting rights and are not
considered outstanding.
 Treasury shares are treated as assets of the corporation. The law permits
their subsequent disposal for “reasonable price.” A reasonable price is not
necessarily the par or original issue price of the shares.
G.6. Power to Acquire Own Shares
 Requirements for the power to acquire own shares?

1. Unrestricted retained earnings - are retained earnings that are neither
restricted nor appropriated for other corporate purposes.
2. Legitimate purpose
The law provides a list of cases when the corporation may acquire its own
shares:
a) To eliminate fractional shares arising out of stock dividends;

b) To collect or compromise in indebtedness to the corporation, arising
out of unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale; and
c) To pay dissenting or withdrawing stockholders entitled to payment for
their shares under the provisions of this Code.
The corporation cannot compel the concerned shareholders to surrender their

shares but they can be compelled to surrender fractional shares arising out of
capital stock dividends.
[DOCUMENT TITLE]
 Trust Fund Doctrine

The Trust Fund doctrine provides that subscriptions to the capital stock of a
corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. This doctrine is the underlying principle in the
procedure for the distribution of capital assets, embodied in the Corporation
Code, which allows the distribution of corporate capital only in three instances:
(1) amendment of the Articles of Incorporation to reduce the authorized
capital stock,
(2) purchase of redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings, and
(3) dissolution and eventual liquidation of the corporation.
o Furthermore, the doctrine is articulated in Section 40 on the power of a

corporation to acquire its own shares and in Section 139 on the
prohibition against the distribution of corporate assets and property
unless the stringent requirements therefor are complied with.
o The distribution of corporate assets and property cannot be made to

depend on the whims and caprices of the stockholders, officers or
directors of the corporation, or even, for that matter, on the earnest
desire of the court a quo "to prevent further squabbles and future
litigations" unless the indispensable conditions and procedures for the
protection of corporate creditors are followed.
G.7. Minimum Capital
The Old Code provided that there be no minimum authorized capital stock whereas the
Revised Code provides for capital stock in general.
 Authorized Capital Stock - is the minimum amount of capital the corporation will
receive when it issues all its shares. This permits government regulators issuing
a secondary license and major corporate creditors to assess the ability of the
corporation to raise their prescribed capital without further approval from the
Commission and its shareholders. Those 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 for this purpose.
Par value of each share x total number of shares that the corporation is
authorized to issue under its charter = Authorized Capital Stock
A corporation that will solely issue no par shares has no authorized capital stock.
[DOCUMENT TITLE]
 Subscribed Capital Stock - is the committed amount of capital which the

corporation will receive from its existing subscribers. Its paid portion forms part of
the “paid-up capital” while the unpaid portion is the “subscription receivable”. Its
amount represents the value of assets that are considered as a corporate trust
fund.
Par value of subscribed share x total subscribed shares

= Subscribed Capital Stock
A corporation that solely issues no par shares has no subscribed capital stock.
No pre-incorporation subscription may be revoked after the articles of

incorporation is submitted to the Commission unless all of the other subscribers
consent to the revocation, or the corporation fails to incorporate within six (6)
months from the date of subscription or within a longer period stipulated in the
contract of subscription.
 Paid-up Capital - refers to the amount of capital which the corporation already
received from its subscribers. It represents the value of assets that are available
to the corporation for its use. It is also the reference point of the extent of
corporate earnings that the board may retain for the use of the corporation.
o Additional Paid in Capital (APIC) - represents the aggregate amount of
premium arising from capital stock subscriptions, donations received
including creditors’ claims waived in favor of the corporation and gains
from other share capital transactions.
G.8. Dividends
As a general rule, corporate earnings are not part of the corporate trust fund. As to how
they are used is generally subject to the sole control and discretion of the board.
 The power to declare dividends

The board of directors of the stock company may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, property, or in
stock to all stockholders on the basis of outstanding stock held by them.
 Retained earnings - are the accumulated profits realized out of normal and
continuous operations of the business after deducting therefrom distributions to
stockholders and transfers to capital stock or other accounts. The Retained
Earnings shall be the amount as shown in the financial statements audited by the
company's independent auditor.
[DOCUMENT TITLE]
 Unrestricted retained earnings - refers to the amount of accumulated profits

and gains realized out of the normal and continuous operations of the company
after deducting therefrom distributions to stockholders and transfers to capital
stock or other accounts, and which is:
1. Not appropriated by its Board of Directors for corporate expansion
projects or programs
2. Not covered by a restriction for dividend declaration under a load
agreement and;
3. Not required to be retained under special circumstances obtaining in
the corporation such as when there is a need for a special reserve for
probable contingencies.
o Dividends may only be distributed out of unrestricted retained earnings.

The Commission has clarified that the same must arise from a bona fide
income founded upon actual earnings or profits. This is normally
determined from the corporation’s audited net income, net of unrealized
items normally considered in computing the corporation’s income for
financial reporting purposes.
o Unrestricted Retained Earnings Requirements71:

The following which are considered not available for dividend declaration:
a. Share/equity in net income of the associate or joint venture
accounted for equity as the same is not yet actually earned or
realized.
b. Unrealized foreign exchange gains, except those attributable to
cash and cash equivalents, for the time being that they are not yet
actual income prior to realization of such foreign exchange gain;
c. Unrealized actuarial gains which is the result when the
company chooses the option of recognizing actuarial gains or
losses directly to profit or loss statement;
d. Fair value adjustment or the gains arising only from marked-to-
market valuation which are not yet realized;
e. The amount of recognized deferred tax asset that reduced the
amount of income tax expense and increased the net income and
retained earnings, until realized;
f. Adjustment due to deviation from PFRS/GAAP of the audited
financial statements which results to gain;
g. Other unrealized gains or adjustments to the retained earnings
brought about by certain transactions accounted for under the
PFRS such as accretion income under IAS 39, Day 1 gains initial
recognition of financial instruments, reversal of revaluation
71
SEC Memorandum Circular No. 11 S. of 2008: Guidelines on the Determination of Retained Earnings Available for Dividend
Declaration
[DOCUMENT TITLE]
increment to retained earnings, and negative goodwill on

investments in associate;
h. Other adjustments that the Commission may prescribe by
amending the Annex “A” of the Guidelines.
 Exceptions to the mandatory distribution of dividends:

The company is only permitted to use internally generated funds up to the
amount of its paid-in capital. It may retain additional funds:
a. When justified by definite corporate expansion projects or programs
approved by the board of directors
b. When the corporation is prohibited under any loan agreement with
financial institutions or creditors, whether local or foreign, from declaring
dividends without their consent, and such consent has not yet been
secured
c. When it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when there is
need for special reserve for probable contingencies.”
 Three Forms of Dividends:

1. Cash Dividends – Dividends are commonly paid in cash. Shareholders
generally prefer to receive cash than properties, which may result in
valuation and tax complications.
2. Property Dividends – Dividends may be in the form of property.
Property dividends:
(a) must consist only of the properties which are no longer
intended to be used in the operation of the business and which
are practicable to be distributed as dividends.
(b) must not result to an inequitable distribution of property to the
stockholders in terms of the book values and market values, if
any, of the property distributed
(c) must consider the prevailing market value of the properties
when some stockholders will receive cash and the others will
receive property.
3. Stock Dividends – The law permits the corporation to convert its
earnings into capital through the declaration of “stock dividends.”
NIELSON & COMPANY INC. VS. LEPANTO CONSOLIDATED MINING COMPANY,

G.R. NO. L-21601, DECEMBER 28, 1968
Facts:
Lepanto seeks the reconsideration of the decision rendered on December 17, 1966.
Lepanto maintains that the Court erred in ordering Lepanto to issue and deliver to Nielson
shares of stock together with fruits thereof. On November 28, 1949, Lepanto declared stock
[DOCUMENT TITLE]
dividends worth P1,000,000. The Court held in its decision that Nielson is entitled to receive
10% of the stock dividends declared, or shares of stock worth P300,000.00 at the par value of
P0.10 per share. It ordered Lepanto to issue and deliver to Nielson those shares of stocks as
well as all the fruits or dividends that accrued to said shares. Lepanto contends that the
payment to Nielson of stock dividends as compensation for its services under the management
contract is a violation of the Corporation Law, and that it was not, and it could not be, the
intention of Lepanto and Nielson — as contracting parties — that the services of Nielson should
be paid in shares of stock taken out of stock dividends declared by Lepanto.
Issue:
WON Nielson can be paid in shares of stocks for the services it rendered under the
management contract.
Ruling:
No. Under Section 16 of the Corporation Law, the consideration for which shares of
stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock
are given the special name "stock dividends" only if they are issued in lieu of undistributed
profits. If shares of stocks are issued in exchange of cash or property then those shares do not
fall under the category of "stock dividends". A corporation may legally issue shares of stock in
consideration of the services rendered to it by a person not a stockholder, or in payment of its
indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock
issued in exchange of property, because services is equivalent to property.14 Likewise a share
of stock issued in payment of indebtedness is equivalent to issuing a stock in exchange for
cash. But a share of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the increase of the
capitalization of a corporation is properly authorized. In other words, it is the shares of stock that
are originally issued by the corporation and forming part of the capital that can be exchanged for
cash or services rendered, or property; that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a
person already a stockholder in exchange for services rendered or for cash or property. But a
share of stock coming from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.In the case at bar Nielson cannot be paid in shares of stock which
form part of the stock dividends of Lepanto for services it rendered under the management
contract. We sustain the contention of Lepanto that the understanding between Lepanto and
Nielson was simply to make the cash value of the stock dividends declared as the basis for
determining the amount of compensation that should be paid to Nielson, in the proportion of
10% of the cash value of the stock dividends declared.
G.9. Issuance of Stock Certificates

[DOCUMENT TITLE]
The law complements Sec. 43 of the SRC72 which provides the cases in which a
corporation may issue shares such as when: a) resolved by its Board of directors and
agreed by a shareholder, investor or securities intermediary and b) provided in its
articles of incorporation and by-laws. Sec. 43 also provides that the Commission by rule
may allow other corporations to provide in their articles of incorporation and by-laws for
the use of uncertified securities.
 Stock certificates facilitate the transfer of shares to third persons. There may
be transfer if ownership between parties upon delivery with the indorsement
of stock certificates. There is no need to verify the reflected information with
the records of the corporation or of the Commission. They may assume that
the shares are fully paid.
 Subscription is indivisible. A subscriber may not demand the application of his

partial payment as full payment against a fraction of the entire subscription
 One of the remedies of the corporation to collect on unpaid subscription is to

deny recognition of share transfers. In such a case, the corporation may not
be compelled to extend to the transferee the rights of shareholders. The
parties must fully pay for the subscription if they were to make the transfer
effective as against the corporation.
J. SANTAMARIA V. HONGKONG SHANGHAI BANKING CORP

G.R. NO. L-2808, AUGUST 31, 1951
Facts:
Plaintiff Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc.
Plaintiff placed an order for the purchase of 10,000 shares of the Crown Mines, Inc. with R.J.
Campos & Co., a brokerage firm. The stock Certificate was delivered to R.J. Campos & Co., Inc.
After two days, Mrs. Santamaria went to R.J. Campos & Co., Inc. to pay for her order of 10,000
Crown Mines shares and to get back the Certificate.
Plaintiff was informed that R.J. Campos & Co., Inc. was prohibited by the SEC to
transact business and that her Stock certificate was indorsed and is in the possession of the
defendant Hongkong and Shanghai Banking Corporation.
Plaintiff informed Taplin (bank representative) that the certificate belonged to her,
demanded that it be returned. Taplin replied that the bank did not know anything about the
transaction had between her and R.J. Campos & Co., Inc., and that he could not do anything.
R.J. Campos & Co., Inc. was declared insolvent R.J. Campos & Co., Inc., and securities listed
were sold. 10,000 shares of Batangas Minerals were sold to the same bank. R.J. Campos, was
72
Securities Regulation Code
[DOCUMENT TITLE]
convicted for estafa and was to indemnify the plaintiff in the amount representing the value of
the shares, Inc. CA confirmed.
When plaintiff failed to force the civil judgment , she filed her complaint in this case. At
the trial both parties agreed that the 10,000 Batangas Minerals shares have no actual market
value.
Issue:
Was the defendant Bank obligated to inquire into the real owner of the shares
represented by the certificate of stock, and could it be charged with negligence for having failed
to do so?
Ruling:
No. The Bank was not obligated to look beyond the certificate to ascertain the ownership
of the stock at the time it received the same from R.J. Campos & Co., Inc., for it was given to
the Bank pursuant to their letter of hypothecation. Even if said certificate had been in the name
of the plaintiff but indorsed in blank, the Bank would still have been justified in believing that R.J.
Campos & Co., Inc. had title thereto for the reason that it is a well-known practice that a
certificate of stock, indorsed in blank, is deemed quasi negotiable, and as such the transferee
thereof is justified in believing that it belongs to the holder and transferor.
A mere claim and of ownership does not establish the fact of ownership. The right of the
plaintiff in such a case would be against the transferor. In fact, this is the attitude plaintiff has
adopted when she filed a charge for estafa against Rafael J. Campos, which culminated in his
prosecution and conviction, and it is only when she found him to be insolvent that she decided
to go against the Bank. The most that plaintiff could claim is the return to her of the said
certificate of stock. The Court is inclined to grant the formal tender made by the defendant to the
plaintiff of said certificate
G.10. Delinquent Stock
A delinquent stock is a stock subscribed to but not paid.
 Delinquency sale
Procedure:
1. The board of directors passes a resolution declaring payable
the whole or certain percentage of the unpaid subscription stating
the date fixed for payment. If the date of payment is specified in
the contract of subscription, no call is necessary.
2. The stockholders are given notice of the resolution by the
secretary of the corporation. If the stockholders fails to pay within
30 days from date specified, the stocks becomes delinquent.
3. The board of directors, by resolution, orders the sale of
delinquent stocks, stating the amount due and the date, time, and
[DOCUMENT TITLE]
place of sale with notice to the delinquent stockholders which

notice shall be published.
4. On the date of sale, will be sold at public auction to higher
bidder for cash.
 Effects of Stocks declared delinquent:

1. Cannot be voted for or be entitled to vote in corporate meetings or be
represented by proxy at any stockholders’ meeting.
2. The holder of delinquent stock is not entitled to exercise the rights of a
stockholder (i.e. to inspect books and records, etc.).
3. The holder of delinquent stocks is entitled to dividends. Section 42 of
the RCC provides however, that “any cash dividends due on delinquent
stock shall first be applied to the unpaid balance on the subscription plus
costs and expense, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid”.
 Highest bidder – the person offering at the sale to pay the full
amount of the balance on the subscription together with accrued
interest, cost of advertisement and expenses of sale, for the
smallest number of shares.
 In the absence of bidders or highest bidder, the corporation may
purchase for itself the delinquent stock.
The delinquent shareholder may recover the auctioned shares through a court auction.
As a condition precedent, he must tender to pay the winning bidder, and must file the
complaint within six months from the date of sale. Otherwise, the corporation and/or the
winning bidder may cause the dismissal of his action.73
H. SUBSCRIPTION
 Subscribed capital stock - refers to the committed amount of capital which the
corporation will receive from its existing subscribers, more
specifically when it does not require upfront full payment
from its subscribers.74
- the amount of subscribed capital stock represents the
value of assets that are considered as corporate trust fund,
which the prospective creditors may rely on as buffer fund
against corporate losses.75
73
74
Ibid.
75
Ibid.
[DOCUMENT TITLE]
 Paid-up capital - the paid portion of the subscribed capital.

- the old requirement that 25% of the authorized capital stock be
subscribed at the time of the incorporation and that at least 25% of
the total subscription be paid, was removed in the Revised
Corporation Code.
 Subscription receivable - the unpaid portion of the subscribed capital.
 The Articles of Incorporation, if the corporation is a stock corporation, must

contain “the amount of its authorized capital stock, number of shares into which it
is divided, the par value of each, names, nationalities, and subscribers, amount
subscribed and paid by each on the subscription, and a statement that some or
all of the shares are without par value, if applicable.”
H.1. Subscription contract
 Stock subscription - a contact between the corporation and the subscriber.

- need not be in writing and explicitly require a promise to pay the
subscribed amount. The law implies a promise to pay on the part of the
subscriber.76
- 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 some
other contract.
VELASCO V. POIZAT (37 PHIL. 802)
Facts:
The Philippine Chemical Product Company was a corporation originally organized by
several residents of the City of Manila with a capital of P50, 000.00 divided into 500 shares. The
plaintiff Velasco is an assignee in insolvency (Assignee in insolvency is the assignee in trust for
the benefit of creditors. Assignee in insolvency represents the interest of the creditors, and may
recover the property for their benefit.) of The Philippine Chemical Product Company. He was
seeking to recover P1, 500 from defendant Poizat upon a subscription made by him to the
corporate stock of the company. Poizat was a subscriber for 20 shares of the stock of the
company and paid in upon his subscription the sum of P500, the par value of 5 shares. He also
acted as the company's treasurer and manager where he collected all subscriptions to the
capital stock of the company except the 15 shares subscribed by him and another 15 owned by
one Infante.
On July 1914, a meeting of the board of directors of the company was held. 2 resolutions
were adopted. The first was a proposal that the directors, or shareholders, of the company
76
[DOCUMENT TITLE]
should make good by new subscription, in proportion to their respective holdings, 15 shares
which had been surrendered in Infante. It seems that this shareholder had already paid 25% of
his subscription upon 20 shares, leaving 15 shares unpaid for, and an understanding had been
reached by him and the management by which he was to be released from the obligation of his
subscription, it being understood that what he had already paid should not be refunded.
Accordingly, the directors present at this meeting subscribed P1,200 toward taking up his
shares, leaving a deficiency of P300 to be recovered by voluntary subscription from
stockholders not present at the meeting.
The other proposition was to the effect that Poizat, who was absent, should be required
to pay the amount of his subscription upon the 15 shares for which he was still indebted to the
company. The resolution further provided that, in case he should refuse to make such payment,
the management of the corporation should be authorized to undertake judicial proceedings
against him. The action was brought to recover the amount subscribed upon the remaining
shares.
Issue:
WON Poizat is liable upon this subscription?
Ruling:
The Court thinks that Poizat is liable upon this subscription. A stock subscription is a
contract between the corporation on one side, and the subscriber on the other, and courts will
enforce it for or against either. It is a rule, accepted by the Supreme Court of the United States,
that a subscription for shares of stock does not require an express promise to pay the amount
subscribed, as the law implies a promise to pay on the part of the subscriber. (7 Ruling Case
Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a stock subscription is
a subsisting liability from the time the subscription is made, since it requires the subscriber to
pay interest quarterly from that date unless he is relieved from such liability by the by-laws of the
corporation. The subscriber is a much bound to pay the amount of the share subscriber by him
as he would be to pay any other debt, and the right of the company to demand payment is no
less incontestable.
H.2. Pre-incorporation subscription
Pre-incorporation subscription is allowed under the law. It is in the form of preparatory

contract among incorporators and initial subscribers, generally irrevocable within the
stipulated period no earlier than six months from the subscription.
As a rule, a pre-incorporation subscription “shall be irrevocable for a period of at least six

month from the date of subscription, unless all of the other subscribers consent to the
revocation, or the corporation fails to incorporate within the same period or within a longer
period stipulated in the contract of subscription. No pre-incorporation subscription may be
revoked after the articles of incorporation is submitted to the commission.”77
77
Ibid.
[DOCUMENT TITLE]
H.3. Interest on unpaid subscription
GENERAL RULE: There is no interest on unpaid subscription

EXCEPTION: When expressly stipulated in the subscription contract
The subscriber is not considered a corporate debtor for the unpaid amount of his subscription.78
H.4. Payment of balance
GENERAL RULE: Unpaid subscription must be paid in accordance with the terms of the
subscription contract.
EXCEPTION: When there is no stipulation, the payment must be made upon call by the
board and on the date specified on such call.
NOTE: The corresponding interest, if stipulated, must be paid together with the unpaid
subscription that is due on the stipulated date or call.79
If there is no stipulation on the subscription contract of the due date for the balance of
the subscription, the board may allow the installment payment of the unpaid
subscription.
 Non-discrimination in making call for payment

The call for payment must uniformly apply to all subscribers.
 Effect of failure to pay on due date

Non-payment of the amount due renders the entire balance due and payable.
The same applies even if the subscriber only fails to pay an instalment that is
due.
Under the law, the subscriber is entitled to a 30 day grace period to pay the
amount due and if he still fails to pay within such grace period, all the subscribed
shares will become delinquent.
PHIL. TRUST CO. V. RIVERA

G.R. NO. 19761, JANUARY 29, 1923
Facts:
Cooperativa Naval Filipina was duly incorporated under the Philippine law where among
its incorporators was defendant (Marciano Rivera) who subscribed for 450 shares representing
a value of P45,000, the remainder of the stock being taken by other persons. However, the
company became insolvent and went into the hands of plaintiff (Philippine Trust Company), as
78
79
Ibid.
[DOCUMENT TITLE]
assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock
subscription of the defendant, which admittedly has never been paid. In his defense, he gave
out his reason that the Cooperativa Naval Filipina, not long after its corporation, has a meeting
with its stockholders where in a resolution it adopted to the effect that the capital should be
reduced by 50 per centum and the subscribers are released from the obligation to pay any
unpaid balance of their subscription in excess of 50 per centum of the same. As a result of this
resolution it seems to have been supposed that the subscriptions of the various shareholders
had been cancelled to the extent stated; and fully paid certificates were issued to each
shareholder for one-half of his subscription. It does not appear that the formalities prescribed in
section 17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction of
capital stock in corporations were observed, and in particular it does not appear that any
certificate was at any time filed in the Bureau of Commerce and Industry, showing such
reduction.
Issue:
WON the shareholders can be released from their obligation of their unpaid balance
through a corporate resolution.
Ruling:
NO, a corporation has no power to release an original subscriber to its capital stock from
the obligation of paying for his shares, without a valuable consideration, for such release; and
as against creditors a reduction of the capital stock can take place only in the manner and under
the conditions prescribed by law. Here, the resolution releasing the shareholders from their
obligation to pay 50 per centum of their respective subscriptions was an attempted withdrawal of
so much capital from the fund upon which the company’s creditors were entitled ultimately to
rely and, having been effected without compliance with the statutory requirements, was wholly
ineffectual.
I. TREASURER
The corporate secretary or any other authorized corporate officer must immediately
inform the Commission of any change in the composition of the board and the set of
corporate officers.
The law uses a more objective test in evaluating compliance, rather than the old Code’s
subjective test of “immediate reporting”. Further, the corporate secretary or authorized
corporate office (not the resigned director himself, or the heirs in case of death) has the
obligation to report such matter to the Commission.
It should be recalled that members of the board have limited term of office. Classified
board, or one whose members have staggered terms, is generally not possible. while the
holdover provision permits a director or trustee to hold office until his successor is
[DOCUMENT TITLE]
elected and qualified, the law requires a timely report on the non- holding or failure of
election.
Under the old code, the Commission believed it had no authority to call for a special
election “as the conduct of an election is xxx an intra-corporate matter,” properly falling
under the jurisdiction of a commercial court. To address this issue, the Code has vested
the Commissions explicit authority to intervene and call a special election, upon property
petition by a shareholder, member, director or trustee.
In a public interest company (especially in a corporation with widely dispersed

shareholdings), shareholders may vote through remote communication or in absentia.
Shareholders with minimal shares need not physically attend the meeting to be counted
for quorum purposes and cast their vote.
The law guarantees cumulative voting. The same may not be removed by contrary
stipulation in the bylaws of the corporation.
J. RESERVATION FOR NATIONALIZED CORPORATIONS
A foreign corporation wishing to do business in the Philippines may create a separate

corporation under Philippine law, or secure a license to do business in the Philippines.
The first creates a so-called “subsidiary” while the second a “branch”, of a foreign
corporation.
A foreign corporation is confronted with the issue of whether it will do business in the
Philippines through a subsidiary or branch office. The answer depends on the:
1. Nature, extent, and duration of business –Tax, capital and other factors shall be
considered when setting up a branch office or a subsidiary.
2. Legal and Practical Requirements – for a foreign corporation to open a branch
office, it may take some time for the applicant to complete the document process.
There requirements generally do not apply in setting up subsidiary.
3. Costs and taxes – the tax code similarly treats the business profit of the
subsidiary and branch office. The difference lies on its treatment of dividends and
branch profits.
ROMAN CATHOLIC APOSTOLIC ADM. OF DAVAO, INC. VS. LAND REGISTRATION

COMMISSION., ET AL (102 PHIL. 596)
Facts:
[DOCUMENT TITLE]
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao,
executed a deed of sale of a parcel of land located in the same city covered by Transfer
Certificate of Title No. 2263, in favour of the Roman Catholic Administrator of Davao, Inc., a
corporation sole organized and existing in accordance with Philippine laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to the
Register of Deeds of Davao for registration, required said corporation sole to submit an affidavit
declaring that 60 per cent of the members thereof were Filipino citizens. However, vendee was
unable to provide for the exact affidavit asked, no question that the present incumbent of the
corporation sole was a Canadian citizen. He assails that the totality of the Catholic population of
Davao would become the owner of the property sought to be registered. It was referred to the
land registration commission en consulta which ordered the Register of Deeds of Davao to deny
registration of the deed of sale in the absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was
instituted with this Court by said corporation sole, alleging that under the Corporation Law, the
Canon Law as well as the settled jurisprudence on the matter, the deed of sale executed by
Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church
which is qualified to acquire private agricultural lands for the establishment and maintenance of
places of worship, and prayed that judgment be rendered reserving and setting aside the
resolution of the Land Registration Commissioner in question.
Issue:
WON corporation sole can be registered owner of a property under the Register of
Deeds?
Ruling:
YES. POWER AND QUALIFICATION TO PURCHASE IN ITS NAME PRIVATE LANDS;
60 PER CENTUM FILIPINO CAPITAL REQUIREMENT NOT INTENDED TO CORPORATION
SOLE.—Under the circumstances of the present case, it is safe to state that even before the
establishment of the Philippine Commonwealth and of the Republic of the Philippines every
corporation sole then organized and registered had by express provision of law (Corporation
Law, Public Act No. 1459) the necessary power and qualification to purchase in its name private
lands located in the territory in which it exercised its functions or ministry and for which it was
created, independently of the nationality of its incumbent unique and single member and head,
the bishop of the diocese. It can be also maintained without fear of being gainsaid that the
Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of
the Constitution did not have in mind the religious corporation sole when they provided that 60
per centum of the capital thereof be owned by Filipino citizens. Thus, if this constitutional
provision were not intended for corporation sole, it is obvious that this could not be regulated or
restricted by said provision.
K. SUMMARY OF THE CONTENTS OF THE ARTICLES OF CORPORATION

[DOCUMENT TITLE]
a. The name of the corporation;

b. The specific purpose or purposes for which the corporation is being formed.
Where a corporation has more than one stated purpose, the articles of
incorporation shall indicate the primary purpose and the secondary purpose or
purposes: Provided, that a nonstock corporation may not include a purpose
which would change or contradict its nature as such;
c. The place where the principal office of the corporation is to be located, which
must be within the Philippines;
d. The term for which the corporation is to exist, if the corporation has not elected
perpetual existence;
e. The names, nationalities, and residence addresses of the incorporators;
f. The number of directors, which shall not be more than fifteen (15) or the number
of trustees which may be more than fifteen (15);
g. The names, nationalities, and residence addresses 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, number of
shares into which it is divided, the par value of each, names, nationalities, and
residence addresses of the original subscribers, amount subscribed and paid by
each on the subscription, and a statement that some or all of the shares are
without par value, if applicable;
i. If it be a nonstock corporation, the amount of its capital, the names, nationalities,
and residence addresses of the contributors, and amount contributed by each;
and
j. Such other matters consistent with law and which the incorporators may deem
necessary and convenient.
[DOCUMENT TITLE]
VI - MERGER AND CONSOLIDATIONS
Merger or Consolidation – is a special action of the corporation needing the approval by:
 majority vote of each of the board of directors or trustees of the constituent corporations
 the stockholders representing at least 2/3 of the outstanding capital stock of each
corporation in the case of stock corporations or at least 2/3 of the members in the case
of non-stock corporations
Articles of Merger or Consolidation:

 Reflects the proposed contract between the corporation and the state.
 Each constituent corporation is required to have this.
 It incorporates:
a) the agreement or plan of merger or consolidation
b) statement of the votes for or against the plan
c) carrying amounts and respective fair values of assets and liabilities as of cut-off
dates
d) the accounting method to be used
e) the provisional or pro forma values of the accounts of the merged or
consolidated corporations
f) other additional information as the commission may prescribe
 The merger or consolidation takes effect upon the Commission’s issuance of a

certificate of merger or consolidation. Before the approval of the certificate, the
commission must require the presentation of applicable clearances from the
concerned agencies:
 Favorable recommendation for the special regulator
 BIR clearance
 PCC clearance
Effect of a merger or consolidation results in:

 The automatic dissolution of the constituent corporations
 The surviving or consolidated corporation shall immediately possess all rights,
privileges, immunities, powers and assume all the duties and liabilities of the
constituent corporation.
 The law does not require a separate subscription contract and consent from
corporate creditors. There is novation of contract by operation of law.
 Limitation under the Tax Code – The tax code qualifies the effect with respect to
the tax benefit of operating losses of the corporation that is a party to a merger or
consolidation
[DOCUMENT TITLE]
THE EDWARD J. NELL COMPANY VS. PACIFIC FARMS, INC.

G.R. NO. L-20850, NOVEMBER 29, 1965
Facts:
J. Nell secured a judgment for the sum of P1,853.80 representing the unpaid balance of
the price of a pump sold by appellant to Insular Farms with interest on said sum, plus P125.00
as attorney's fees and P84.00 as costs. A writ of execution, issued after the judgment had
become final and was returned unsatisfied, stating that Insular Farms had no leviable property.
On November 13, 1959, J.Nell filed with said court the present action against Pacific Farms, Inc.
for the collection of the judgment aforementioned, upon the theory that appellee is the alter ego
of Insular Farms, which Pacific Farms has denied. In due course, the municipal court rendered
judgment dismissing J.Nell's complaint. J.Nell appealed but still had the same result hence
elevated to Court of Appeals which affirmed the decision. Hence this appeal by certiorari.
Issue:
WON Pacific Farms is an alter ego of Insular Farms hence liable for debts of Insular
Farms
Ruling:
No. The Court ruled in Fletcher Cyclopedia Corporations as follows: where one
corporation sells or otherwise transfers all of its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or
impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or
merger of the corporations; (3) where the purchasing corporation is merely a continuation of the
selling corporation; and (4) where the transaction is entered into fraudulently in order to escape
liability for such debts.
In the case at bar, there is neither proof nor allegation that Pacific Farms had expressly
or impliedly agreed to assume the debt of Insular Farms in favor of J.Nell or that Pacific Farms
is a continuation of Insular Farms, or that the sale of either the shares of stock or the assets of
Insular Farms to the Pacific farms has been entered into fraudulently, in order to escape liability
for the debt of the Insular Farms in favor of J.Nell. In fact, these sales took place (March, 1958)
not only over six (6) months before the rendition of the judgment (October 9, 1958) sought to be
collected in the present action, but, also, over a month before the filing of the case (May 29,
1958) in which said judgment was rendered. Moreover, appellee purchased the shares of stock
of Insular Farms as the highest bidder at an auction sale held at the instance of a bank to which
said shares had been pledged as security for an obligation of Insular Farms in favor of said
bank. It has also been established that Pacific Farms had paid P285,126.99 for said shares of
stock, apart from the sum of P10,000.00 it, likewise, paid for the other assets of Insular Farms.
Neither is it claimed that these transactions have resulted in the consolidation or merger of the
Insular Farms and appellee herein. On the contrary, J.Nell's theory to the effect that Pacific
Farms is an alter ego of the Insular Farms negates such consolidation or merger, for a
corporation cannot be its own alter ego.
[DOCUMENT TITLE]
VII – APPRAISAL RIGHT
The right of the stockholder to demand payment of the fair value of his shares, after dissenting
from a proposed corporate action involving a fundamental change in the charter or articles of
incorporation in the cases provided by law. (De Leon, 2010)
When there are material amendment in the articles of incorporation; and when there is merger
and acquisition, the shareholder may withdraw from the corporation and compel it to pay for
the fair value of his shares.
 Requisites:
 Any ground for appraisal must be present.
 A written demand on the corporation must be made within 30 days after the date
when the vote was taken
 The dissenting stockholders attend the meeting of the stockholders and voted
against the proposed action.
 The price of the Fair Market Value of the shares on the day before the date of
voting.
NOTE: In case of disagreement, the value will be determined by appraisal of 3

disinterested persons.80
 The corporation has sufficient unrestricted retained earnings to pay (Turner vs.
Lorenzo)81
Once the dissenting stockholder demands payment of the fair value of his shares:
a. All rights accruing to such shares including voting and dividend rights shall be
suspended; and
b. He shall be entitled to receive payment of the fair value of his shares as agreed upon
between him and the corporation or as determined by the appraisers chosen by him;
GENERAL RULE: He is not allowed to withdraw his demand for payment of his shares
EXCEPTION: Unless the corporation consents thereto.
If the dissenting stockholder was not paid the value of his shares within 30 days after the award,
his voting and dividend rights shall be immediately restored until payment of his shares.82
The corporation bear the costs of appraisal. However, if the initial offer of the corporation is
approximately the same as the value determined by the appraiser, the shareholder shall bear
such costs.
80
81
636 SCRA 137
82
[DOCUMENT TITLE]
The dissenting shareholder, within 10 days from demand, must surrender his stock certificate
for notation. Otherwise, the corporation may validly deny the exercise of his appraisal right.
[DOCUMENT TITLE]
VIII – NON-STOCK CORPORATIONS
Non-Stock Corporations are those which does not issue shares and is created not for profit but
for public good and welfare and where no part of its income is distributable as dividends to its
members, trustees, or officers.
The Revised Corporation Code permits bylaws of non-stock corporations to fix the term of
trustees to less than or not more than three years. Unlike in the old Code that fixed their term to
three years. Further, the law does not anymore mandate a classified board.
A. CHARACTERISTICS OF A NON-STOCK CORPORATION
1. It does not have capital stock divided into shares.

2. No part of its income during its existence is distributable as dividends to its members,
trustees, or officers.
3. As a general rule, it is not empowered to engage in business with the object of
making income or profits directly or indirectly. However, it is not prohibited to make
income or profits as an incident to its operation
4. There is non-transferability of membership
5. The right to vote of members may be limited, broadened, or even denied in the AOI
or the bylaws
6. Non-stock corporations may, through their articles of incorporation or their by-laws
designate their governing boards by any name other than as BOT
7. By-laws may provide that the members may hold their meetings at any place even
outside the place where the principal office of the corporation is located, provided
that such place is within the Philippines
8. A non-stock corporation is not allowed to distribute any of its assets or any incidental
income or profit made by the corporation during its existence.
9. Non-availability of conversion into stock corporation.
B. MEMBERS
The right of the members of any class or classes to vote may be limited, broadened, or
denied to the extent specified in the articles of incorporation or the bylaws.
 Unless so limited, broadened, or denied, each member, regardless of class,
shall be entitled to one (1) vote.
 Unless otherwise provided in the articles of incorporation or the bylaws, a
member may vote by proxy, in accordance with the provisions of this Code.
The bylaws may likewise authorize voting through remote communication
and/or in absentia.
[DOCUMENT TITLE]
Membership in a nonstock corporation and all rights arising therefrom are personal and
non-transferable, unless the articles of incorporation or the bylaws otherwise provide.
Membership shall be terminated in the manner and for the causes provided in the
articles of incorporation or the bylaws. Termination of membership shall extinguish all
rights of a member in the corporation or in its property, unless otherwise provided in the
articles of incorporation or the bylaws.
C. TRUSTEES AND OFFICERS
Termination of Membership
The power to admit members pertains to the Board in the absence of any contrary
provisions on the AOI and by-laws. Consistently, it is also the Board who has the power
to terminate membership.
1. Standards - A non-stock corporation is authorized to terminate the
membership in accordance with the standards fixed in the AIO or the by-laws.83
2. When property rights are involved – Membership may involve property rights.
Example: Membership in a golf club where the purchase of the share is a sine
qua non (Valley Golf & Country Club Inc. vs. Caram, G.R. No. 158805, April 16,
2009).
3. Lien – Non-payment of dues may be a ground for termination or suspension of
membership. The AOI or the by-laws of a non-stock corporation may provide that
unpaid dues shall constitute a lien on the member’s share. However, Section 68
of the Corporation Code does not apply if the membership shares are sold under
the provisions that provide for the constitution of lien (Calatagan Golf & Country
Club Inc. vs. Caram, G.R. No. 165443, April 16, 2009);
4. Notice - For the termination of membership to be valid, there should be
reasonable notice to the member concerned and he must be given a fair
opportunity to be heard in his defense;
5. Effect of death of a member - Membership in and all rights arising from a non-
stock corporation are personal and non-transferable, unless the AOI or the by-
laws of the corporation provide otherwise. Deceased members who are dropped
from the membership roster in the manner and for the cause provided for in the
by-laws are not to be counted in determining the requisite vote in corporate
matters or the requisite quorum for the annual member’s meeting (Tan vs. Sycip,
G.R. No. 153468, August 17, 2006).
D. DISTRIBUTION OF ASSETS IN NONSTOCK CORPORATIONS
Order of distribution of assets on dissolution of non-stock corporations:

1. All liabilities of the corporation shall be paid or adequate provision thereof shall
be made;
83
[DOCUMENT TITLE]
2. Assets held upon a condition requiring return, transfer or conveyance upon,

and which condition occurs by reason of the dissolution, shall be returned,
transferred or conveyed;
3. Assets received and held by the corporation subject to limitations permitting
their use only for charitable, religious, benevolent, educational or similar
purposes shall be transferred or conveyed to one or more corporations,
societies or organizations engaged in activities in the Philippines substantially
similar to those of the dissolving corporation.
4. All other assets shall be distributed to the members as provided by the articles
of incorporation or the by-laws.
5. In the absence of provision in the AOI or bylaws, distribution may be made in
accordance to a plan of distribution adopted by the board of trustees by
majority vote and by at least 2/3 of the members.
6. The assets of a non-stock corporation undergoing the process of dissolution
for reasons other than those set forth in Section 139 of this Code shall be
applied and distributed to such enumeration. (Revised Corporation Code, Sec.
93)
7. A non-stock corporation cannot offset unused contributions of members
against the balance of receivables from the same members
The unused contributions of members cannot be offset against the balance of

receivables because this would amount to distribution of the capital of the corporation.
Members of non-stock corporation are not entitled to distribution of capital. They are only
entitled to distribution of capital upon dissolution when it is provided for in the articles of
incorporation or by-laws (SEC Opinion, November 27, 1985).
[DOCUMENT TITLE]
IX – CLOSE CORPORATIONS
A close corporation84 is one which Articles of Incorporation provides that:

1. All of 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 20;
2. All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by the provisions on close corporations; and
3. The corporation shall not list in any stock exchange or make any public offering of any
of its stock of any class.
4. Notwithstanding the foregoing, a corporation shall be deemed NOT a close
corporation when at least 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.
NOTE: Stockholders of close corporations are personally liable for corporate torts unless the
corporation has obtained adequate liability insurance.
A. EFFECTS OF ISSUANCE OR TRANSFER OF STOCK IN BREACH OF QUALIFYING

CONDITIONS:
(a) If a stock of a close corporation is issued or transferred to any person who is not
eligible to be a holder thereof under any provision of the articles of incorporation, and if
the certificate for such stock conspicuously shows the qualifications of the persons
entitled to be holders of record thereof, such person is conclusively presumed to have
notice of the fact of the ineligibility to be a stockholder.
(b) If the articles of incorporation of a close corporation states the number of persons,
not exceeding twenty (20), who are entitled to be stockholders of record, and if the
certificate for such stock conspicuously states such number, and the issuance or transfer
of stock to any person would cause the stock to be held by more than such number of
persons, the person to whom such stock is issued or transferred is conclusively
presumed to have notice of this fact.
(c) If a stock certificate of a close corporation conspicuously shows a restriction on
transfer of the corporation’s stock and the transferee acquires the stock in violation of
such restriction, the transferee is conclusively presumed to have notice of the fact that
the stock was acquired in violation of the restriction.
Whenever a person to whom stock of a close corporation has been issued or transferred
has or is conclusively presumed under this section to have notice of:
(1) the person’s ineligibility to be a stockholder of the corporation;
(2) that the transfer of stock would cause the stock of the corporation to be held
by more than the number of persons permitted under its articles of incorporation;
84
[DOCUMENT TITLE]
(3) that the transfer violates a restriction on transfer of stock, and the corporation
may, at its option, refuse to register the transfer in the name of the transferee.
B. AGREEMENTS BY STOCKHOLDERS:
Agreements duly signed and executed by and among all stockholders before the
formation and organization of a close corporation shall survive the incorporation and
shall continue to be valid and binding between such stockholders, if such be their intent,
to the extent that such agreements are consistent with the articles of incorporation,
irrespective of where the provisions of such agreements are contained, except those
required by this Title to be embodied in said articles of incorporation.
A written agreement signed by two (2) or more stockholders may provide that in
exercising any voting right, the shares held by them shall be voted as provided or as
agreed, or in accordance with a procedure agreed upon by them.
No provision in a written agreement signed by the stockholders, relating to any phase of

corporate affairs, shall be invalidated between the parties on the ground that its effect is
to make them partners among themselves.
A written agreement among some or all of the stockholders in a close corporation shall
not be invalidated on the ground that it relates to the conduct of the business and affairs
of the corporation as to restrict or interfere with the discretion or powers of the board of
directors: Provided, that such agreement shall impose on the stockholders who are
parties thereto the liabilities for managerial acts imposed on directors by this Code.
Stockholders actively engaged in the management or operation of the business and

affairs of a close corporation shall be held to strict fiduciary duties to each other and
among themselves. The stockholders shall be personally liable for corporate torts unless
the corporation has obtained reasonably adequate liability insurance.
C. WHEN A BOARD MEETING IS UNNECESSARY OR IMPROPERLY HELD
Unless the bylaws provide otherwise, any action taken by the directors of a close
corporation without a meeting called properly and with due notice shall nevertheless be
deemed valid if:
(a) Before or after such action is taken, a written consent thereto is signed by all
the directors;
(b) All the stockholders have actual or implied knowledge of the action and make
no prompt objection in writing;
(c) The directors are accustomed to take informal action with the express or
implied acquiescence of all the stockholders;
(d) All the directors have express or implied knowledge of the action in question
and none of them makes a prompt objection in writing.
[DOCUMENT TITLE]
An action within the corporate powers taken at a meeting held without proper call or
notice, is deemed ratified by a director who failed to attend, unless after having
knowledge thereof, the director promptly files his written objection with the secretary of
the corporation.
D. PREEMPTIVE RIGHT IN CLOSE CORPORATIONS – shall extend to all stock to be issued,

including reissuance of treasury shares, whether for money, property or personal
services, or in payment of corporate debts, unless the articles of incorporation provide
otherwise.
E. AMENDMENT OF ARTICLES OF INCORPORATION

Any amendment to the articles of incorporation which seeks to delete or remove any
provision required by this Title or to reduce a quorum or voting requirement stated in
said articles of incorporation shall require the affirmative vote of at least two-thirds (2/3)
of the outstanding capital stock, whether with or without voting rights, or of such greater
proportion of shares as may be specifically provided in the articles of incorporation for
amending, deleting or removing any of the aforesaid provisions, at a meeting duly called
for the purpose.
F. DEADLOCKS – occur when the directors or stockholders are so divided on the management
of the corporation’s business and affairs that the votes required for a corporate action
cannot be obtained, with the consequence that the business and affairs of the
corporation can no longer be conducted to the advantage of the stockholders.
 In cases of deadlock, generally, the Commission, upon written petition by any

stockholder, shall have the power to arbitrate the dispute.
 In the exercise of such power, the Commission shall have authority to make
appropriate orders, such as:
(a) cancelling or altering any provision contained in the articles of
incorporation, bylaws, or any stockholder’s agreement;
(b) cancelling, altering or enjoining a resolution or act of the corporation or
its board of directors, stockholders, or officers;
(c) directing or prohibiting any act of the corporation or its board of
directors, stockholders, officers, or other persons party to the action;
(d) requiring the purchase at their fair value of shares of any stockholder,
either by the corporation regardless of the availability of unrestricted
retained earnings in its books, or by the other stockholders;
(e) appointing a provisional director;
(f) dissolving the corporation; or
(g) granting such other relief as the circumstances may warrant.
 A provisional director shall be an impartial person who is neither a stockholder

nor a creditor of the corporation or any of its subsidiaries or affiliates, and whose
[DOCUMENT TITLE]
further qualifications, if any, may be determined by the Commission. A

provisional director is not a receiver of the corporation and does not have the title
and powers of a custodian or receiver. A provisional director shall have all the
rights and powers of a duly elected director, including the right to be notified of
and to vote at meetings of directors until removed by order of the Commission or
by all the stockholders.
 The compensation of the provisional director shall be determined by agreement
between such director and the corporation, subject to approval of the
Commission, which may fix the compensation absent an agreement or in the
event of disagreement between the provisional director and the corporation.
G. WITHDRAWAL OF STOCKHOLDER OR DISSOLUTION OF CORPORATION

Any stockholder of a close corporation may, for any reason, compel the corporation to
purchase shares held at fair value, which shall not be less than the par or issued value,
when the corporation has sufficient assets in its books to cover its debts and liabilities
exclusive of capital stock.
o Provided, that any stockholder of a close corporation may, by written
petition to the Commission, compel the dissolution of such corporation
whenever any of acts of the directors, officers, or those in control of the
corporation is illegal, fraudulent, dishonest, oppressive or unfairly
prejudicial to the corporation or any stockholder, or whenever corporate
assets are being misapplied or wasted.
This is in addition and without prejudice to other rights and remedies available.
[DOCUMENT TITLE]
X – SPECIAL CORPORATIONS
Special corporations are those corporations organized under special circumstances and are
generally dealt with differently from other corporations. These corporations enjoy tax
exemptions.
A. EDUCATIONAL CORPORATIONS
Educational Corporations shall be governed by special laws and by the general provisions of
this Code.85
Board of Trustees
 Trustees of educational institutions organized as nonstock corporations shall not
be less than five (5) nor more than fifteen (15)
o Provided, That the number of trustees shall be in multiples of five (5).
 Unless otherwise provided in the articles of incorporation or
bylaws, the board of trustees of incorporated schools, colleges, or
other institutions of learning shall, as soon as organized, so
classify themselves that the term of office of one-fifth (1/5) of their
number shall expire every year.
 Trustees thereafter elected to fill vacancies, occurring before the expiration of a
particular term, shall hold office only for the unexpired period.
 Trustees elected thereafter to fill vacancies caused by expiration of term shall
hold office for five (5) years.
 A majority of the trustees shall constitute a quorum for the transaction of
business.
 The powers and authority of trustees shall be defined in the bylaws.
 For institutions organized as stock corporations, the number and term of directors
shall be governed by the provisions on stock corporations.
B. RELIGIOUS CORPORATIONS
A Religious Group is not required to be registered as a corporation. The Corporation Code

does not require any religious groups to be registered as a corporation but if it wants to
acquire legal personality, its members should incorporate under the Code.
Classes of Religious Corporations

 Religious corporations may be incorporated by one or more persons.
 Such corporations may be classified into:
85
[DOCUMENT TITLE]
(1) corporations sole - may be formed by the chief archbishop, bishop, priest,
minister, rabbi, or other presiding elder of such religious
denomination, sect, or church.
- is created as a trustee, having legal personality to
administer and manage the affairs, property and
temporalities of any religious denomination, sect or church.
 In order to become a corporation sole, the chief archbishop, bishop, priest,

minister, rabbi or presiding elder of any religious denomination, sect or
church must file with the Commission articles of incorporation setting forth the
following:
(a) That the applicant chief archbishop, bishop, priest, minister, rabbi, or
presiding elder represents the religious denomination, sect, or church
which desires to become a corporation sole;
(b) That the rules, regulations and discipline of the religious
denomination, sect or church are consistent with becoming a corporation
sole and do not forbid it;
(c) That such chief archbishop, bishop, priest, minister, rabbi, or presiding
elder is charged with the administration of the temporalities and the
management of the affairs, estate and properties of the religious
denomination, sect or church within the territorial jurisdiction, so
described succinctly in the articles of incorporation;
(d) The manner by which any vacancy occurring in the office of chief
archbishop, bishop, priest, minister, rabbi, or presiding elder is required to
be filled, according to the rules, regulations or discipline of the religious
denomination, sect or church; and
(e) The place where the principal office of the corporation sole is to be
established and located, which place must be within the territory of the
Philippines.
 The articles of incorporation may include any other provision not contrary to
law for the regulation of the affairs of the corporation.
 The articles of incorporation must be verified, by affidavit or affirmation of the
chief archbishop, bishop, priest, minister, rabbi, or presiding elder, as the
case may be, and accompanied by a copy of the commission, certificate of
election or letter of appointment of such chief archbishop, bishop, priest,
minister, rabbi, or presiding elder, duly certified to be correct by any notary
public.
 From and after filing with the Commission of the said articles of incorporation,
verified by affidavit or affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such chief archbishop, bishop, priest,
minister, rabbi, or presiding elder shall become a corporation sole and all
temporalities, estate and properties of the religious denomination, sect or
church theretofore administered or managed as such chief archbishop,
[DOCUMENT TITLE]
bishop, priest, minister, rabbi, or presiding elder shall be personally held in

trust as a corporation sole, for the use, purpose,
 A corporation sole may purchase and hold real estate and personal property
for its church, charitable, benevolent, or educational purposes, and may
receive bequests or gifts for such purposes.
 Such corporation may sell or mortgage real property held by it by obtaining
an order for that purpose from the Regional Trial Court of the province where
the property is situated upon proof that the notice of the application for leave
to sell or mortgage has been made through publication or as directed by the
Court, and that it is in the interest of the corporation that leave to sell or
mortgage be granted.
 The application for leave to sell or mortgage must be made by petition, duly
verified, by the chief archbishop, bishop, priest, minister, rabbi, or presiding
elder acting as corporation sole, and may be opposed by any member of the
religious denomination, sect or church represented by the corporation sole.
o Provided, that in cases where the rules, regulations, and discipline of
the religious denomination, sect or church, religious society, or order
concerned represented by such corporation sole regulate the method
of acquiring, holding, selling, and mortgaging real estate and personal
property, such rules, regulations and discipline shall govern, and the
intervention of the courts shall not be necessary.
 The successors in office of any chief archbishop, bishop, priest, minister,

rabbi, or presiding elder in a corporation sole shall become the corporation
sole on their accession to office and shall be permitted to transact business
as such upon filing a copy of their commission, certificate of election, or
letters of appointment, duly certified by any notary public with the
Commission.
 During any vacancy in the office of chief archbishop, bishop, priest, minister,
rabbi, or presiding elder of any religious denomination, sect or church
incorporated as a corporation sole, the person or persons authorized by the
rules, regulations or discipline of the religious denomination, sect or church
represented by the corporation sole to administer the temporalities and
manage the affairs, estate, and properties of the corporation sole shall
exercise all the powers and authority of the corporation sole during such
vacancy.
 A corporation sole may be dissolved and its affairs settled voluntarily by

submitting to the Commission a verified declaration of dissolution, setting
forth:
(a) The name of the corporation;
(b) The reason for dissolution and winding up;
[DOCUMENT TITLE]
(c) The authorization for the dissolution of the corporation by the

particular religious’ denomination, sect or church; and
(d) The names and addresses of the persons who are to
supervise the winding up of the affairs of the corporation.
 Upon approval of such declaration of dissolution by the Commission, the
corporation shall cease to carry on its operations except for the purpose of
winding up its affairs.
(2) religious societies – comprised of a group of persons or a religious

organization within a religious denomination, sect or
church.
- the law requires the consent of two-thirds (2/3) of its
membership to form a religious society.
 For a religious society to incorporate for the administration of its temporalities

or for the management of its affairs, properties, and estate by filing with the
Commission, articles of incorporation verified by the affidavit of the presiding
elder, secretary, or clerk or other member of such religious society or
religious order, or diocese, synod, or district organization of the religious
denomination, sect or church, setting forth the following:
(a) That the religious society or religious order, or diocese, synod,
or district organization is a religious organization of a religious
denomination, sect or church;
(b) That at least two-thirds (2/3) of its membership has given
written consent or has voted to incorporate, at a duly convened
meeting of the body;
(c) That the incorporation of the religious society or religious order,
or diocese, synod, or district organization is not forbidden by
competent authority or by the Constitution, rules, regulations or
discipline of the religious denomination, sect or church of which it
forms part;
(d) That the religious society or religious order, or diocese, synod, or district
organization desires to incorporate for the administration of its affairs,
properties and estate;
(e) The place within the Philippines where the principal office of the
corporation is to be established and located; and
(f) The names, nationalities, and residence addresses of the trustees, not
less than five (5) nor more than fifteen (15), elected by the religious society or
religious order, or the diocese, synod, or district organization to serve for the
first year or such other period as may be prescribed by the laws of the
religious society or religious order, or of the diocese, synod, or district
organization.
[DOCUMENT TITLE]
.
[DOCUMENT TITLE]
XI – DISSOLUTION AND WINDING UP OF CORPORATE AFFAIRS
Dissolution - is the extinguishment of the franchise of a corporation and the termination of its
corporate existence. (Sundiang Sr. & Aquino, 2009)
Liquidation – is the process by which all the assets of the corporation are converted into liquid
assets (cash) in order to facilitate the payment of obligations to creditors and the remaining
balance if any is to be distributed to the stockholders. (Sundiang Sr. & Aquino, 2014)
Methods of Dissolution:
(a) Voluntary Dissolution – through its board and shareholders or members may
initiate dissolution when:
 Completion of objectives
 Determined that it will not be in the interest of shareholders or members to
pursue its objectives
 Section 134 – describes procedure in implementing the corporation’s
immediate dissolution
 Section 136 – covers a dissolution that only takes effect upon expiration
of a certain period, following shortening of its corporate term
 Section 135 – applicable when the dissolution may prejudiced or not
consented by all creditors: Commission will conduct an administrative
proceeding where it shall hear the objections of the non-consenting
creditors
(b) Involuntary Dissolution – when the dissolution of the corporation is ordered by the
Commission or the courts
 Covered by Sec 138
 Commission may on its own or upon the petition of a concerned shareholder
dissolve the corporation
 Courts may order the dissolution of the corporation following:
o A quo warranto proceeding
o Proceeding involving a financially distressed corporation
o Corporation formed for the purpose of or found to be committing,
concealing or aiding the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt
practices.
[DOCUMENT TITLE]
A. VOLUNTARY DISSOLUTION
A.1. Voluntary Dissolution where No Creditors are Affected86
This is initiated by the corporation that does not prejudice the rights of any creditor
having a claim against it.
 How may the dissolution be effected under this provision?

o by majority vote of the board of directors or trustees, and
o by a resolution adopted by the affirmative vote of the stockholders owning at
least majority of the outstanding capital stock or majority of the members of a
meeting to be held upon the call of the directors or trustees.
 Notice Requirement: At least twenty-one (21) days prior to the meeting, notice shall be
given to each shareholder or member of record (in the manner provided by Sec. 49)
o personally,
o by registered mail, or
o by electronic mail
o by any means authorized under its bylaws whether or not entitled to vote at the
meeting
 The notice shall state that the purpose of the meeting is to vote on the dissolution of the
corporation.
 Publication Requirement: Notice of the time, place, and object of the meeting shall be
published once prior to the date of the meeting in:
o a newspaper published in the place where the principal office of said corporation
is located, or
o if no newspaper is published in such place, in a newspaper of general circulation
in the Philippines.
 A verified request for dissolution shall be filed with the Commission 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.
 The corporation shall submit the following to the Commission:
(1) a copy of the resolution authorizing the dissolution, certified by a majority of
the board of directors or trustees and countersigned by the secretary of the
corporation;
(2) proof of publication; and
86
[DOCUMENT TITLE]
(3) favorable recommendation from the appropriate regulatory agency, when

necessary.
 Approval by the Commission: The Commission shall approve the request and issue the
certificate of dissolution:
o Within fifteen (15) days from receipt of the verified request for dissolution,
o and in the absence of any withdrawal within said period,
 The dissolution shall take effect only upon the issuance by the Commission of a
certificate of dissolution.
 No application for dissolution of banks, banking and quasi-banking institutions, preneed,
insurance and trust companies, nonstock savings and loan associations, pawnshops,
and other financial intermediaries shall be approved by the Commission unless
accompanied by a favorable recommendation of the appropriate government agency.
A.2. VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED;

PROCEDURE AND CONTENTS OF PETITION87
The corporation is not under financial distress or is in a state of insolvency.
 Where the dissolution of a corporation may prejudice the rights of any creditor, a verified
petition for dissolution shall be filed with the Commission.
 The petition shall be:
 signed by a majority of the corporation’s board of directors or trustees,
 verified by its president or secretary or one of its directors or trustees,
 and shall set forth all claims and demands against it,
 and that its dissolution was resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or at least two-thirds (2/3) of the members at a meeting of its
stockholders or members called for that purpose.
 The petition shall likewise state:
(a) the reason for the dissolution;
(b) the form, manner, and time when the notices were given; and
(c) the date, place, and time of the meeting in which the vote was made.
 The corporation shall submit to the Commission the following:
(1) a copy of the resolution authorizing the dissolution, certified by a majority of
the board of directors or trustees and countersigned by the secretary of the
corporation; and
(2) a list of all its creditors.
 If the petition is sufficient in form and substance, the Commission shall, by an order
reciting the purpose of the petition, fix a deadline for filing objections to the petition which
date shall not be less than thirty (30) days nor more than sixty (60) days after the entry
of the order.
87
[DOCUMENT TITLE]
 Publication Requirement: Before the deadline for filing objections to the petition, a copy
of the order reciting the purpose of the petition shall be published at least once a week
for three (3) consecutive weeks in a newspaper of general circulation published
o in the municipality or city where the principal office of the corporation is
situated, or
o if there be no such newspaper, then in a newspaper of general circulation in
the Philippines, and a similar copy shall be posted for three (3) consecutive
weeks in three (3) public places in such municipality or city.
 Petition when heared: Upon five (5) days’ notice, given after the date on which the right
to file objections as fixed in the order has expired, the Commission shall proceed to hear
the petition and try any issue raised in the objections filed;
o and if no such objection is sufficient, and the material allegations of the petition
are true, it shall:
 render judgment dissolving the corporation
 and directing such disposition of its assets as justice requires,
o and the Commission may appoint a receiver to collect such assets and pay
the debts of the corporation.
 The dissolution shall take effect only upon the issuance by the Commission of a
certificate of dissolution.
A.3. DISSOLUTION BY SHORTENING CORPORATE TERM88
 Voluntary dissolution may be effected by amending the articles of incorporation to

shorten the corporate term.
 To shorten corporate term - requires approval by the board and by shareholders
representing at least 2/3 of the outstanding capital stock or at least 2/3 of the
membership
 A copy of the amended AOI shall be submitted to the Commission
 Upon the expiration of the shortened term, as stated in the approved amended AOI, the
corporation shall be deemed dissolved without any further proceedings, subject to
liquidation.
 Generally, no publication is required.
 In 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 AOI, without the need
for the issuance by the Commission of a certificate of dissolution.
 When the shortening of the corporate term has the effect of an immediate dissolution,
publication is required. There should be proof that there will be no prejudice to or with
consent of all creditors.
A.4. WITHDRAWAL OF REQUEST AND PETITION for DISSOLUTION89
 A motion of withdrawal of the request for dissolution shall be made

88
89
[DOCUMENT TITLE]
o in writing,
o duly verified by any incorporator, director, trustee, shareholder, or member
o and signed by the same number of incorporators, directors, trustees,
shareholders, or members necessary to request for dissolution.
 Period of Withdrawal of petition or application: The withdrawal shall be submitted no
later than fifteen (15) days from receipt by the Commission of the request for dissolution.
 The motion must be supported by the board and prescribed vote of shareholder or
members
 Upon receipt of a withdrawal of request for dissolution, the Commission 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.
 Commission may immediately grant the motion or direct the joint meeting of the board
and shareholders or members
 A withdrawal of the petition for dissolution shall be in the form of a motion and similar in
substance to a withdrawal of request for dissolution but shall be verified and filed prior to
publication of the order setting the deadline for filing objections to the petition.
B. INVOLUNTARY DISSOLUTION90
 The Commission authorized to grant corporate charter, has the ultimate authority to
revoke such charter and/or dissolved the corporation
 A corporation may be dissolved by the Commission:
(1) motu proprio or
(2) upon filing of a verified complaint by any interested party
 Liquidation proceeding follows the Commission’s order of involuntary dissolution
 Under Section 138 of RCC, the following may be grounds for dissolution of the
corporation:
(a) Non-use of corporate charter as provided under Section 21 of this Code;
(b) Continuous inoperation of a corporation as provided under Section 21 of this
Code;
(c) Upon receipt of a lawful court order dissolving the corporation;
(d) Upon finding by final judgment that the corporation procured its incorporation
through fraud;
(e)Upon finding by final judgment that the corporation:
(1) 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;
90
[DOCUMENT TITLE]
(2) Committed or aided in the commission of securities violations,

smuggling, tax evasion, money laundering, or graft and corrupt practices,
and its stockholders knew; and
(3) Repeatedly and knowingly tolerated the commission of graft and
corrupt practices or other fraudulent or illegal acts by its directors,
trustees, officers, or employees.
 This provision reflects the authority of the Commission to “suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration of corporations upon
any of the grounds provided by law, including the following:
1. Fraud in procuring its certificate of registration
2. Serious misrepresentation as to what the corporation can do or is doing to the
great prejudice of or damage to the general public
3. 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;
4. Continuous non operation for a period of at least 5 years
5. Failure to file by laws within the required period
6. Failure to file required reports in appropriate forms as determined by the
Commission within the prescribed period
 Fraud or Misrepresentation
o Law penalizes - corporate registration through fraud
- fraudulent conduct of business
o The RCC authorizes the Commission to either:
(1) suspend the operation or
(2) decree the dissolution of the corporation- when the Commission’s
finding of fraud has become final and executory
In Care Best International Inc. vs SEC: The Commission’s revocation of

the petitioner’s certificate of registration was upheld. Incorporators must
have stated their legal names, not fictitious names or aliases that they
were not authorized to use. “Incorporation is a mere grant of privilege
from the State and, in order to be entitled to such privilege, the
requirements and the procedures for the grant must be complied with”
 Continuous non-operation
o Delinquent Status - The Commission is permitted to place a corporation in a
delinquent status for continuous non-operation within five
years.
- It is only when a delinquent corporation FAILS to resume

operation within TWO YEARS may the Commission cause
the revocation of its certificate of registration
[DOCUMENT TITLE]
o Non-use of Corporate Charter – The non-use of corporate charter (when a

corporation fails to formally organize and commence
its business) within five years from the date of its
incorporation shall result in the automatic revocation
of the corporation’s charter.
o Revocation of a corporate charter does not necessarily lead to the involuntary
dissolution and ultimately, liquidation of the corporation
o The corporation may petition the Commission to lift its delinquent status and
comply with the Code’s requirements and/or the order of revocation
o Liquidation will ONLY follow when no petition is filed and Commission proceeds
with involuntary dissolution with notice and hearing
 Dissolution following an order in a judicial proceeding

o Commission may dissolve the corporation in compliance with an order of the
court or upon the proper finding by final judgment. May arise from:
 A quo warranto proceeding
 Insolvency proceeding under the FRIA (The Financial Rehabilitation and
Insolvency Act of 2010)
 Insolvency proceeding under the New Central Bank in case of banks
 Criminal proceeding for securities violations, smuggling, tax evasion,
money laundering, or graft and corrupt practices
 Where the grounds for involuntary dissolution are provided by paragraph (e), the
Commission may file a petition with the APPROPRIATE COURT for the forfeiture of
corporate properties without prejudice to the rights of innocent shareholders and
employees , nor the application of other penalties or sanctions under the RCC or special
laws
o For the first two grounds namely:
(1) 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; and
(2) Committed or aided in the commission of securities violations,

smuggling, tax evasion, money laundering, or graft and corrupt practices,
and its stockholders knew;
- The corporation itself may not be the accused or the respondent

in the criminal or administrative case. It is enough that the
corporation was found in the final judgment of that case either: (a)
to have been created for the purpose of committing, concealing or
aiding the commission of the specific offense or violation; or (b)
had Committed or aided in the commission of the specific offense
or violation in that its stockholders knew of the same
[DOCUMENT TITLE]
o For the third ground namely:
(3) Repeatedly and knowingly tolerated the commission of graft and

corrupt practices or other fraudulent or illegal acts by its directors,
trustees, officers, or employees.
- It is enough that there is a finding by final judgment that the

corporation had repeatedly and knowingly tolerated the
commission of : (a) graft and corrupt practices or (b) other
fraudulent or illegal acts by its directors, trustees, officers, or
employees. The final judgment refers to one rendered in a criminal
case or an administrative proceeding under the relevant
provisions of the RCC
 FRIA - The Financial Rehabilitation and Insolvency Act of 2010

o A corporation in a financial distress must secure approval by the Board and the
prescribed vote of its shareholders or members in order to seek rehabilitation
and/or relief from the actions of the creditor
o Similarly, FRIA permits a group of unsecured creditors to seek rehabilitation of a
financially distressed corporation (esp. when secured creditors initiated
foreclosure proceeding against the corporation)
o The rehabilitation court in these cases determines that the rehabilitation is not
feasible and it is more beneficial to dissolve and liquidate the corporation
- it is the Commission that DECREES the dissolution in compliance with an order
of the court
o Immediate dissolution – corporation files a petition with the Commission
o FRIA – Commission’s authority is limited to a corporation not in financial distress
needing assistance from the court for financial rehabilitation
o Creditors may not directly petition the Commission for the immediate dissolution
of the corporation. A petition premised on the insolvency of the corporation must
be filed with the court.
 Other Administrative cases

(a) The Commission may order the dissolution of a close corporation when there is
deadlock, or upon petition in a proper case by a shareholder
(b) The Commission may place the corporation under a delinquent status “in case of
failure to submit the reportorial requirements 3 times, consecutively or intermittently,
within a period of five years”. Ordinarily, this should only lead to a fine. However,
when noncompliance amounts to a grave violation of its franchise, the Commission
may either suspend or revoke the delinquent corporation’s certificate of registration.
The same is true where there is violation of the Corporation Code, its rules or
regulations, or any of the Commission’s orders.
(c) The Commission may place the corporation under a delinquent status “in case of
failure to submit the reportorial requirement requirements three (3) times,
[DOCUMENT TITLE]
consecutively or intermittently, within a period of five years.” In the past, this led only
to a fine. However, the Code now prescribes that the erring corporation be placed on
delinquent status. Failure to lift such delinquent status or to comply with
requirements of lifting the same, will lead to revocation. Where despite notice and
hearing, revocation is not lifted, the Commission may decree the corporation’s
involuntary dissolution.
WILSON P. GAMBOA VERSUS FINANCE SECRETARY MARGARITO B. TEVES, ET AL,

G.R. NO. 176579, JUNE 28, 2011
Facts:
Foreigners own 62.27% of the commons shares of PLDT. The foreigners control PLDT
as owners of the common shares have the sole right to vote in the election of directors. Filipinos
did not control PLDT as only 35.73% of the common shares were owned by them. However,
99.44% of preferred shares are owned by Filipinos but these have no voting rights and only
earn 1/70 of the dividends that common shares earn. Preferred shares have twice the par value
of common shares and it only constitutes 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%. The court did not rule on whether PLDT violated the 60-40
ownership requirement in favor of Filipinos under Sec. 11, Art. XII of the 1987 Constitution.
Issue:
What does the term "capital" ín Sec. 11, Art. XII of the 1987 Constitution mean?
Ruling:
The use of the term "capital" was intended to replace the word "stock" because
associations without stocks can operate public utilities as long as they meet the 60-40
ownership requirement in favor of Filipino citizens prescribed in Sec. 11, Art XII of the
Constitution. However, this does not change the intent of the framers of the Constitution to
reserve exclusively to Philippine Nationals (Filipino citizens or domestic corporation at least 60%
of voting stock is owned by Filipinos) the "controlling interest" in public utilities. It refers to
shares with voting rights, as well as with full beneficial ownership that translates to effective
control of a corporation.
HALL VS. PICCIO, G.R. NO. L-2598, JUNE 29, 1950
Facts:
On May 28,1947, petitioners Arnold and Bradley Hall and respondents Fred Brown ,
Emma Brown, Hipolita Chapman and Ceferino Abella, signed and acknowledged the articles of
incorporation of the Far Eastern Lumber and Commercial Co. engaged in general lumber
[DOCUMENT TITLE]
business. Immediately after the corporation adopted their By-laws and had an election of
officers.
Then on December 2, 1947 the said articles were filed in Securities and Exchange
Commission for issuance of certificate of incorporation. While pending registration in SEC,
respondents filed a civil case alleging that Far Eastern Lumber and Commercial Co. was an
unregistered partnership and they wished for it to be dissolved because of bitter dissension
among members and mismanagement and fraud by the managers and heavy financial losses.
Thus the court of First instance of Leyte through Hon. Piccio ordered the dissolution of the
company, which is contrary to the claim of respondents that Section 19 of the Corporation Code
applies” the due incorporation of any corporations claiming in good faith to be a corporation
under this Act and its right to exercise corporate powers shall not be inquired into collaterally in
any private suit to which the corporation may be a party, but such inquiry may be had at the suit
of the Insular Government on information of the attorney-General.
Issue:
WON the court has jurisdiction to decree the dissolution of the company it being a de
facto corporation?
Ruling:
YES. Section 19 of the Corporation Code does not apply in this case. Not having
obtained the certificate of incorporation, they may not claim in good faith to be a corporation.
Section 11 of the same code expressly provides that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and industry which calls a corporation
into being. Their claim of immunity against collateral attack is misplaced. Such a claim is
compatible only with the existence of errors and irregularities; but not total disregard of the law.
Second, this is not a suit in which corporation is a party. This is a litigation between stockholders
of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a
de jure corporation may be terminated in a private suit for its dissolution between stockholders,
without the intervention of the state.
MEAD VS. MCCULLOUGH (21 PHIL 95)
Facts:
Mead comes before the court seeking Mead was an incorporator of the philippine
engineering and construction company. The organizers of said company bought in by paying up
2000 dollars each but mead in lieu thereof turned over cash instead. He was subsequently
elected as general manager of the same company. After the company started incurring losses
however, the Directors met in quorum (without mead because at the time he was working in
shanghai) and decided to assign the company property to one McCollough to organize a new
corporation/venture. After hearing about this, mead went to the courts to oppose the same
decision alleging violations of his rights as a stockholder/organizer/director of PECC.
[DOCUMENT TITLE]
Issue:
WON The BoD has the authority to assign all of the property of the company including
the personal property of mead.
Ruling:
Yes, following the provisions of the statutes of incorporation, it shows that there is no
prohibition towards the actions of the BoD. similarly, the pertinent provisions of the civil code,
namely articles 1700 - 1708 which govern dissolution of corporations, do not prohibit the same
action. The facts justify the action of the BoD voting in majority with the sole absence of plaintiff.
Plaintiff at the time of the meeting had already left the company as manager and pursued a job
opportunity in shanghai that gave him no chance to join the same meeting as the company’s
sphere was limited to the Philippine islands. Such inability does not come as a consequence to
the authority of BoD decisions in majority. As provided in article XIII of the statutes of
incorporation - Article XIII reads: "In all the meetings of the stockholders, a majority vote of the
stockholders present shall be necessary to determine any question discussed."
BONIFACIO LUMANLAN VS. JACINTO CURA, G.R. NO. L-39861 MARCH 21, 1934
Facts:
Bonifacio Lumanlan subscribed for 300 shares of stock with par value of P50 or a total of
P15,000.00 to Dizon Co., Inc. The latter corporation had creditors, Julio Valenzuela, Pedro
Santos and Francisco Escoto, who filed a suit against it and praying for an appointment for a
receiver which was granted. The corporation had owed P8,000.00 plus interest of 12% per
annum to Julio Valenzuela.
While the appeal was pending in court, some of the directors and the majority of the
stockholders held several meetings in which it was agreed in substance that subscribers for the
capital stock who were in default should pay the creditors; Lumanlan was designated to pay the
debt of the corporation to Julio Valenzuela which plaintiff agreed in the condition that the latter
will withdraw his appeal civil case no. 37007 and the corporation would collect only 50 per cent
of the amount subscribed by him for stock, provided that in case the 50 per cent was insufficient
to pay Valenzuela he should pay an additional amount which should not exceed the amount of
the judgment against him in that case.
Plaintiff paid Valenzuela P13,840 leaving a balance of P1,609 from P15,100 which
consist of 13,500 unpaid subscription of the petitioner and the P1,609 for the advances and
loans by the corporation to plaintiff. Plaintiff appealed the decision of the Court of First Instance
of Tarlac, hence this case.
Issue:
WON a corporation’s debt be assigned to delinquent subscribers of share of stocks.
Ruling:
[DOCUMENT TITLE]
Yes, the Corporation Law clearly recognizes that a stock subscription is a subsisting
liability from the time the subscription is made, since it requires the subscriber to pay interest
quarterly for that date unless he is relieved from such liability by the by-laws of the corporation.
The subscriber is as much bound to pay the amount of the share subscribed by him as he would
be to pay any other debt, and the right of the company to demand payment is no less
incontestable. It is established doctrine that subscriptions to the capital of a corporation
constitute a fund to which the creditors have a right to look for satisfaction of their claims and
that the assignee is insolvency can maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debts.
FINANCING CORPORATION OF THE PHILIPPINES AND J. AMADO ARANETA V. HON.

JOSE TEODORO, G.R. NO. L-4900, AUGUST 31, 1953
Facts:
Lizares et al., in their own behalf and in behalf of the other minority stockholders of the
Financing Corporation of the Philippines sued the Corporation and J Amado Araneta, its
President and GM, alleging gross mismanagement and fraudulent conduct of the corporate
affairs by Araneta and asking that (1) the corporation be dissolved, (2) Araneta be declared
personally accountable for the unauthorized and fraudulent disbursements of the corporate
assets and violations of the Corporation Law and the by-laws of the Corporation, and (3) the
best means to protect and preserve the assets of Corporation is the appointment of a receiver.
Among the allegations specified in the complaint were wrongful and unauthorized acts by
Araneta and the corporation. Judge Teodoro granted petition for appointment of a receiver
(Yulo). The Corporation filed the present petition for certiorari with preliminary injunction to
revoke and set aside the order appointing a receiver. The lower court granted the writ of
preliminary injunction upon the filing of a bond by the Corporation.
Issue:
WON the appointment of a receiver by the lower court was proper.
Ruling:
Yes. Although as a rule minority stockholders of a corporation may not ask for its
dissolution in a private suit and such action should be brought by the Government through its
legal officer in a quo warranto case at their instance and request, there might be exceptional
cases wherein the intervention of the State, for one reason or another, cannot be obtained, as
when the State, is not interested because the complaint is strictly a matter between the
stockholders and does not involve, in the opinion of the legal officer of the Government, any of
the acts or omissions warranting quo warranto proceedings in which minority stockholders are
entitled to have such dissolution. When such action or private suit is brought by them, the trial
court has jurisdiction and may or may not grant the prayer, depending upon the facts and
circumstances attending it. Action having been properly brought and the trial court having
[DOCUMENT TITLE]
entertained the same, it is within the power of said court upon proper showing to appoint a
receiver pendente lite for the corporation. Although the appointment of a receiver upon
application of the minority stockholders is a power to be exercised with great caution,
nevertheless it should be exercised when necessary in order not to entirely ignore and disregard
the rights of said minority stockholders, especially when said minority stockholders are unable to
obtain redress and protection of their rights within the corporation itself.
Petition denied. Writ of Preliminary Injunction dissolved.
C. CORPORATE LIQUIDATION
Liquidation is settlement of corporate affairs following a dissolution of the corporation. Its end
goal is the distribution of the corporation’s residual assets to its stakeholders.
Delinquency may lead to revocation of corporate charter. In the absence of petition for the
lifting of such delinquency and/or revocation may eventually result in the dissolution and
liquidation of the corporation.
The end of corporate relations does not immediately terminate the corporate existence. A
corporation shall have an extended term of three (3) years to wind up its corporate affairs and
liquidate its assets.
In the winding up of corporate affairs, corporation loses the power to enter into further legal
relations with other person. Rights are limited into those required by liquidation processes
which involves:
 Payment of corporation’s debt

 Collection of its receivables
 Settlement of claims against the corporation
 Reducing its assets to cash
 Prosecution of claims
 Continued defense against suits
 Dispose and convey its properties purely for liquidation
Methods of Corporate Liquidation
(1) Liquidation through the Last Board

o Normal method of liquidation – charge the winding up of operation
through its board and/or executive officers
o Liquidation as a matter of internal concern
o No approval of the Commission is required
[DOCUMENT TITLE]
(2) Liquidation through a trustee or assignee (to whom all the corporate assets are
conveyed)
o By resolution of stockholders at any time during the three-year period
o Corporation may limit the period of the trusteeship
o No time limit fixed – trustee may close the affairs of the corporation even
after the three-year period
o Commission’s guidelines relative to corporate liquidation
a. The extended life of a dissolved corporation is only for purposes of
winding up its corporate affairs:
 Prosecuting and defending suit and enabling the dissolved
corporation to settle and close its affairs
 To dispose and convey its property
 To distribute the corporate assets
b. A dissolved corporation cannot file an action in its name (as a defunct
corporation) after the three-year period
c. An action may be brought for the benefit of stakeholders of a defunct
corporation even after the three-year period. The action may be
brought by the receiver, assignee, trustee, members of the last board,
or other stakeholders having pecuniary interest in the assets of the
defunct corporation
o May petition the courts for the appointment of a different trustee/s in
liquidation:
 Corporate creditor
 Shareholder
 Member
 Other person-in-interest
o Appointment of replacement trustee/s – person chosen by the majority of
the corporate creditors and shareholders, provided that such person will
be able to discharge the functions of a trustee for the benefit of all the
concerned parties is generally considered by the court
o Non diminution of vested rights of the corporation’s stakeholders despite
dissolution – explicitly recognized by the RCC
(3) Liquidation through a Receiver

o Upon dissolution, Commission may appoint a RECEIVER to collect the
assets and pay the debts of the corporation
o Appointment of receiver – suspends authority of corporation, directors,
officers over the properties of the corporation
o Receiver – shall act as representative of the corporation and its
stockholders
o Receivership – shall exist indefinitely until the affairs of the corporation
have been completely settled and liquidated, unless specifically limited in
its duration
[DOCUMENT TITLE]
o Commission’s approval in the liquidation and distribution of the dissolved

corporation’s assets – not required by law
o Commission has the authority to dissolve corporation but no authority to
settle disputes arising from its liquidation (intra-corporate dispute)
o Commercial court- best position to convene all stakeholders (including
creditors), ascertain their claims and determine their preferences
o The Code explicitly retains the jurisdiction of the Commission “over
pending suspension of payment / rehabilitation cases involving insolvent
juridical debtors until finally disposed
Distribution of Remaining Assets
o Remaining assets shall be distributed to all stakeholders (creditors and

corporators)
o Claims of creditors shall be satisfied ahead of those of corporators
o Rules on concurrence and preference of credits apply among corporate creditors
o Any disputable asset to an unknown creditor or corporator shall be escheated in
favor of the National Government
 Special Rules for Liquidation of Banks

Banks shall be liquidated in accordance with the New Central Bank Act and the
Philippine Deposit Insurance Corporation Charter
 Requirement for a Tax clearance

o Commission shall require an exit clearance from the BIR before it approves any
application for dissolution or reorganization of corporations
o With the clearance requirement, the BIR may ascertain whether the corporation
has unpaid taxes before it distributes assets to its shareholders
o BIR-SEC Regulations No. 1: BIR issues the corresponding tax clearance within
30 days from receipt of the prescribed documents
o BIR-SEC Regulations No. 1, Sec 3 –“The SEC shall issue the final order of
dissolution only after a certificate of tax clearance has been submitted by the
dissolving corporation : Provided, that in case of involuntary dissolution , the SEC
may nevertheless proceed with the dissolution if 30 days after receipt of the
suspension order no tax clearance has yet been issued
o Mandate of the Ease of Doing Business Act – requires Commission and BIR to
timely act (20 days’ subject to a reasonable extension) on every application upon
acceptance following the submission of the prescribed supporting documents.
Otherwise, the application shall be deemed approved
o BIR may run after the shareholders who received assets up to the extent of their
respective interest at the time of the corporation’s dissolution
 Tax clearance when required –
[DOCUMENT TITLE]
 SC ruled: tax clearance requirement only applies to a voluntary

dissolution and/or liquidation of a corporation, or an involuntary
dissolution of a corporation by order of the Commission. It does
not apply to an involuntary dissolution decreed by the court
 Tax clearance not required –
 when a corporation is placed in liquidation pursuant to the FRIA or
the New Central Bank Act
o For the BIR may examine and determine the insolvent debtor’s tax liabilities, and
file claims for unpaid taxes in court - BIR may request the insolvency court to
order the corporation file its final tax return
 Tax consequences of Dissolution and Liquidation

 Dissolution ends corporate relations:
 Does not automatically give rise to a tax liability on the part of
shareholders with respect to the remaining assets of the corporation
 Shareholders shall not yet be deemed to be in receipt of their respective
share in the net assets of the corporation
o Complete liquidation of a corporation shall have the following tax consequence:
(a) The mere assignment of the remaining assets of the corporation to a
trustee is a mere transfer to a trust and shall not be subject to tax;
(b) Any sale of property by the trustee stands in the stead of the
corporation, and shall be treated as if made by the corporation;
(c) The shareholders themselves will only become subject to income tax
on the liquidating gains, if any, once the liabilities of the trust are
settled there is no impediment to the distribution of the net assets of
the trust, whether or not there is in fact an actual distribution of such
assets;
(d) The gain realized (or the loss sustained, if any) by the shareholders is
measured by comparing the fair market value of the assets which they
receive as liquidating dividends and their costs of investment;
(e) The shareholders’ capital gain from investment is subject to the
ordinary income tax (and not subject to the capital gains tax), while
the capital loss from the investment may be claimed as deduction,
subject to the rules provided under the Tax Code;
(f) The transfer by the liquidating corporation of its remaining assets to its
shareholders is not considered a sale of these assets, and the
liquidating corporation does not realize gain or loss in partial or
complete liquidation;
(g) The liquidating corporation shall not be liable for withholding tax on
the distribution of liquidating dividends;
(h) If the liquidating dividends consist of real properties, the transfer of the
same from the corporation to its shareholders shall not be subject to
DST;
[DOCUMENT TITLE]
(i) If the liquidating dividends consist of shares of stocks in another

corporation, there is DST due on the transfer of such shares to the
shareholders;
(j) If the liquidating dividends consist of inventories of taxable goods
existing as of the date of liquidation, the transfer shall be considered
as a “deemed sale” subject to VAT;
(k) No DST shall be due on the surrender by the shareholders of their
shares in the liquidating corporation and the subsequent cancellation
of such shares:
Should the shareholders subsequently sell the property which they
have received as liquidating dividends, such sale will be subject to
taxes, the type of which depends on the character of the property
in the hands of the selling shareholders
 Other deregistration requirements

Corporation must likewise deregister with other government agencies.
Specifically:
A. DOLE
o The corporation must serve written notice of termination of
employment of its employees (cessation of operations) to the
employees and to the Regional Office of the Dole where the
corporation is located, at least one month before the intended date of
termination of employment
o The Corporation shall pay the severance pay of its employees
equivalent to no less than one month pay or at least ½ month pay for
every year of service, whichever is higher, or the amount of severance
pay indicated in the collective bargaining agreement, if any, or any
applicable retirement plan
o Cipriano vs San Miguel Corporations: SC upheld the position that
regular employees who are separated from the service are only
entitled to the amount prescribed in the retirement plan, or the
separation pay provided by law, whichever is higher
o Cruz et al vs Phil Global Communications: SC held that the
employees’ right to payment of retirement benefits and/or separation
pay is governed by the retirement plan of the parties. The retirement
plan may provide that the grant of retirement benefits and separation
pay is mutually exclusive
B. LGU
o Upon closure or cessation of the business of a corporation in
contemplation of dissolution, the corporation must apply for the
cancellation of its business permit and settle its local tax liabilities with
the concerned LGU
[DOCUMENT TITLE]
o In some instances, LGU will require the opening and examination of

the books of accounts of the corporation before issuing the relevant
approval for such retirement business
C. SSS, PhilHealth, Pag-IBIG

o Upon closure, the corporation must also cancel and/or update its
registrations with the SSS, PhilHealth and Pag-IBIG
[DOCUMENT TITLE]
XII - FOREIGN CORPORATION
A foreign corporation is one formed, organized or existing under the laws other than those of the
Philippines' and whose laws allow Filipino citizens and corporations to do business in its own
country or State.
General Rule: The legal personality of foreign corporations cannot extend beyond the
reach of the law creating them.
Exception: By international comity, a country may recognize the effect of such law,
subject to certain conditions.
 Rights of a foreign corporation?

It has the right to transact business in the Philippines after
(1) obtaining a license for that purpose in accordance with the
Revised Corporation Code and
(2) a certificate of authority from the appropriate government
agency.
PHIL. PRODUCTS CO. V. PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE

EXTERIEUR: PRIMATERIA (PHIL.) INC., GR NO. L-17160, NOVEMBER 29, 1965
Facts:
Primateria Phil., a foreign juridical entity engaged in international trade and with main
office in Zurich, Switzerland, entered into an agreement with Phil. Products, whereby the latter
undertook to buy copra in the Phils. for the account of Primateria Zurich during “tentative
experimental period of one month from date”. The contract was renewed by mutual agreement.
As a result, the total amount due to the plaintiff as of May 30, 1995, was P33,009.71 which was
proven at the trial before the CIF-Manila. It was undisputed that Baylin (officer) and Primateria
Phils acted as duly authorized agents of Primateria Zurich; and that Primateria Zurich had no
license to transact business in the Philippines. For failure to file an answer, Primateria Zurich
was declared in default and held liable for the sums with legal interest while Baylin, Crame
(officer) and Primateria Phils. were absolved. The lower court ruled that Primateria Zurich was
not duly proven to be a foreign corporation. Plaintiff appealed from that portion dismissing its
complaint as regards the three defendants. It is plaintiff’s theory that Primateria Zurich is a
foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law, and since
it has transacted business in the Phils without the necessary license, as required by said
provisions, its agents here are personally liable for contracts made in its behalf.
Issue:
WON Primateria Zurich may be considered a foreign corporation within the meaning of
Secs. 68 & 69 of the Corporation Law and consequently whether its agents may be held
personally liable on contracts made in the name of the entity with third persons in the
Philippines
[DOCUMENT TITLE]
Ruling:
No, Primateria Zurich was not duly proven to be a foreign corporation; nor that a societe
anonyme (“sociedad anonima”)is a corporation; and that failing such proof, the societe cannot
be deemed to fall within the prescription of Sec. 68 of the Corporation Law. An association not
duly proven to be a foreign corporation does not fall within the prescription of Sec. 68 of the
Corporation Law. The Corporation recognizes the difference between sociedades anonimas and
corporations.
There is no proof that, as agents, they exceeded the limits of their authority. In fact, the
principal - Primateria Zurich - who should be the one to raise the point, never raised it, denied its
liability on the ground of excess of authority. At any rate, Art. 1897 of the NCC does not hold
that in cases of excess of authority, both the agent and the principal are liable to the other
contracting party.
In the absence of express legislation, the liability of the agent of a foreign corporation
doing business, but not licensed in the Philippines, is premised on the inability to sue the
principal or non-liability thereof. Judgment affirmed.
A. Application to Existing Foreign Corporations
 Options of a Foreign Corporation:

1. Subsidiary - a separate corporation under Philippine law
2. Branch - secure a license to do business in the Philippines law
 How to determine which option to choose? It depends on:
 Nature, extent and duration of business
 Legal and practical requirements in setting up, operating and
closing the business, and the costs and taxes of doing business
 Costs and taxes of doing business
 Nature, extent and duration of business

It is generally regarded as expedient to initially set up a branch office if the
foreign investor is tentative of it's business in the Philippines. When the foreign
investor decides to permanently do business in the Philippines, it may convert its
branch office into a subsidiary.
 How to convert from branch to subsidiary?

The foreign investor may efficiently do so through the tax-free (in reality, tax-
deferred) incorporation provision of the Tax Code.
[DOCUMENT TITLE]
AS TO OPERATIONS
*Limited to the following operations:
1. Warehousing operations
BRANCH 2. Operations of a representative office
3. Regional headquarters
4. Regional operating headquarters
There are no similar incentives extended to a
subsidiary covering such activities.
SUBSIDIARY The subsidiary's capital once infused may not
simply be withdrawn and must first secure
creditors' and SEC's approval.
*ADVANTAGES:
o Under both the Omnibus Investment Code and the Tax Code, a branch is extended
with certain tax and non-tax incentives subject to compliance with certain
requirements.
NOTE: A tax treaty exempts the business profit of the qualified foreign corporation if
it has limited presence or no established branch office (or "permanent
establishment") in the Philippines.
o It may infuse limited capital, and periodically manage its level sufficient to meet its
requirements thus, can easily withdraw from and close down its operation in the
Philippines.
o It may only retain sufficient assets to settle unpaid taxes and claims of creditors.
AS TO LEGAL AND PRACTICAL REQUIREMENTS

BRANCH  Considered as “doing business in the
Philippines.
 Liability is not limited to the branch
capital.
 Required to post a security bond for
the benefit of its present and future
creditors in the Philippines.
 May not withdraw the security bond
without approval of SEC.
 Not required to appoint key corporate
officers (director, president, treasurer
[DOCUMENT TITLE]
and corporate secretary).

 Required to appoint a resident agent
whose only role is to receive
summons or legal processes meant
for the foreign corporation.
(NOTE: Notice to resident agent
constitutes notice to the foreign
corporation.)
 Limited only to its purpose and may
only pursue activities that are
consistent with its head office’s
permitted activities.
(RATIONALE: It is a mere extension
of the foreign corporation’s legal
personality.)
 There are no similar incentives
extended to a subsidiary covering
such activities.
SUBSIDIARY  The subsidiary's capital once infused
may not simply be withdrawn and
must first secure creditors' and SEC's
approval.
AS TO COST AND TAXES91

 Branch profits (or business profits
after corporate income tax) arising
from PEZA-registered activities are
exempt from tax.
 Not subject to penalty in not
BRANCH repatriating its branch profits.
 May not have “export sales” to its
head office. As consequence, it may
not claim the refund of corresponding
input VAT. It may claim as tax
deduction.
SUBSIDIARY  No exemption on dividends from its
PEZA-registered subsidiary.
 Generally subject to penalty for not
repatriating its dividends, specifically
for improperly accumulating earnings
91
The Tax Code similarly treats the business profit of the subsidiary and branch, the difference is the treatment of dividends and
branch profits. Tax on branch profits is generally lower than tax on dividends, specifically when the Tax Code’s tax-sparing provision
does not apply. (Sec. 28(B)(5)(b), NIRC)
[DOCUMENT TITLE]
to avoid tax on its parent company.

 May only be exempt from penalty if it
operated in economic or freeport
zones.
 No limitation as to “export sales” to
head office since it is regarded as
independent from its parent company.
CLAUDE NEON LIGHTS VS PHIL. ADVERTISING CORPORATION,

G.R. NO. L-37682, NOVEMBER 26, 1932
Facts:
Petitioner is foreign corporation and is duly licensed to do business in the Philippines.
Respondent Corporation filed a suit against the petitioner on the basis of alleged breach of the
agency contract existing between them. At the same time, said respondent filed in said court an
application for writ of attachment on the basis of paragraph 2 of section 424 of the Code of Civil
Procedure, which provides that plaintiff may have the property of the defendant attached "in an
action against a defendant not residing in the Philippine Islands". Petitioner opposed the
application contending that paragraph 2 of section 424 of the Code of Civil Procedure is
inapplicable since it complied with all the requirements of the Philippines law and was duly
licensed to do business in the Philippines, same as a domestic corporation.
Issue:
WON petitioner, a foreign corporation licensed to do business in the Philippines, shall be
deemed as "not residing in the Philippine Islands" in the sense in which that expression would
apply to a natural person?
Ruling:
No. The Court ruled that Paragraph 2 of section 424, does not apply to a domestic
corporation, and our laws and jurisprudence indicate a purpose to assimilate foreign
corporations, duly licensed to do business here, to the status of domestic corporations, for it is
entirely out of line with this policy should we make a discrimination against a foreign corporation,
like the petitioner, and subject its property to the harsh writ of seizure by attachment when it has
complied not only with every requirement of law made especially of foreign corporations, but in
addition with every requirement of law made of domestic corporations.
AS TO DISTRIBUTION OF ASSETS
BRANCH  It is NOT restricted by the same
requirements for the subsidiary.
 It may only retain sufficient assets to
settle unpaid taxes and claims of
creditors. However, it must await
approval of the SEC before it can
[DOCUMENT TITLE]
withdraw its security deposit.

 The resident agent does not assume
the fiduciary duty of a director or
trustee in liquidation.
 As a rule, the subsidiary may not
distribute assets to the foreign
investor unless it has satisfied all
claims of its creditors, including the
government.
 The TRUST FUND DOCTRINE
mandates the board to follow their
fiduciary duties of care and
obedience.
 In case of voluntary dissolution, SEC
will not approve the application for
dissolution without consent of
creditors and the tax clearance.
SUBSIDIARY
 Following its dissolution, the
subsidiary through its board or
designated trustee in liquidation has 3
years to wind down its affairs and
settle claims of its creditors, including
deficiency assessments of the BIR.
 In case of fraud warranting the
application of a longer prescriptive
period, the BIR may run after the
shareholders who received assets up
to the extent of their respective
interest at the time of the
corporation’s dissolution.
B. APPLICATION FOR A LICENSE

 Conditions for issuance of license:
1. It is a corporation formed in a country that grants reciprocity right to
Philippine corporations
2. It is a corporation of good standing
3. It is solvent and in a sound financial condition
4. For foreign banking, financial and insurance corporations, must
comply with the special requirements imposed under relevant laws.
 Must submit the Securities and Exchange Commission (SEC):
1. Copy of Articles of Incorporation
2. Copy of Bylaws
[DOCUMENT TITLE]
NOTE: Both must be (1) certified in accordance with law, (2) their
translation to an official language of the Philippines, if necessary, (3) must
be under oath and, (4) unless already stated in its articles of
incorporation, shall specify:
1. Date and term of incorporation
2. Address, including the street number, of the principal office of the
corporation in the country or State of incorporation
3. Name and address of its resident agent authorized to accept
summons and process in all legal proceedings and all notices
affecting the corporation, pending the establishment of a local
office
4. The place in the Philippines where the corporation intends to
operate
5. Specific purpose or purposes which the corporation intends to
pursue in the transaction of its business in the Philippines
(NOTE: Purpose or purposes are those specifically stated in the
certificate or authority issued by the appropriate government
agency)
6. Names and addresses of the present directors and officers of the
corporation
7. A statement of its authorized capital stock and the aggregate
number of shares which the corporation has authority to issue,
itemized by class, par value of shares, shares without par value,
and series, if any
8. A statement of its outstanding capital stock and the aggregate
number of shares which the corporation has issued, itemized by
class, par value of shares, shares without par value, and series, if
any
9. A statement of the amount actually paid in
10. Such additional information as may be necessary or appropriate in
order to enable the SEC to determine whether such corporation is
entitled to a license to transact business in the Philippines, and to
determine and assess the fees payable
Attachments:
1. Certificate under oath duly executed by the authorized official
or officials of the jurisdiction of its incorporation
a. Must attest to the fact that the laws of the country or
State of the applicant allow Filipino citizens and
corporation to do business therein
b. Must state that the applicant is an existing corporation
in good standing
c. If certificate is in a foreign language, a translation in
English under oath of translator
[DOCUMENT TITLE]
d. Statement under oath of the president or any other

person authorized by the corporation
e. Must show that applicant is solvent and in sound
financial condition, setting forth the assets and
liabilities of the corporation as of the date not
exceeding 1 year immediately prior to the filing of the
application
NOTE: In addition to the above requirements, foreign

banking, financial, and insurance corporations shall
comply with the existing laws applicable to them.
No application for license to transact business in the

Philippines shall be accepted by SEC without previous
authority from the appropriate government agency,
whenever required by law.
 “Doing Business” in Relation to Foreign Corporations

 Doing business means the actual performance of specific commercial
acts within the territory of the Philippines, i.e. perform specific business
transactions on a continuing basis in its own name and for its own
account. This is for the plain reason that the Philippines has no
jurisdiction over commercial acts performed in foreign territories.
 It shall include soliciting orders, service contracts, opening offices,
whether called ‘liaison’ offices or branches; appointing representative or
distributors domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totaling 180 days or more;
participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the
business organization.
 Acts which does not constitute doing business in the Philippines:
1. Mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or
the exercise of rights as such investor
2. Having nominee director or officer to represent its interests in
such corporation
3. Appointing a representative or distributor domiciled in the
Philippines that transacts business in its own name and for its
own account
 How to determine if a corporation is doing business:
[DOCUMENT TITLE]
1. Each case must be judged on its peculiar circumstances,

peculiar facts and language of applicable statute:
a. Continuity test - the business transaction of a foreign
corporation is continuous, and not one of a temporary
character
b. Substantive test - the performance of acts or works or
the exercise of some of the functions of the foreign
corporation in the Philippines is normally incident to,
and in progressive prosecution of, commercial gain or
for the purpose and object of the foreign corporation
c. Full control test or independence test
d. Sliding scale test - used to determine whether an
online platform that enables account holders to buy
various content and services to be doing business in
the Philippines; it looks at the scale of commercial
interactivity in the website and classifies the same into
active or passive websites
 How to identify if a branch or a permanent establishment (PE) exists

 A tax treaty typically identifies instances when a branch or PE exists.
 Not a branch or PE (operating through agents or brokers):
i. Independent
ii. Operating in its ordinary course of business
iii. Does not devote wholly or almost wholly of its operations for the
foreign corporation
o Agent is not independent (or dependent) when:
1. It has and habitually exercises authority to conclude
contracts in the name of the foreign corporation; OR
2. No such authority, but habitually maintains stock of goods
or merchandise from which the agent regularly delivers
goods or merchandise in behalf of the non-resident
taxpayer.
THE MENTHOLATUM CO., INC., ET AL. V. ANACLETO MANGALIMAN ET AL.,

GR NO. 47701, JUNE 27, 1941
Facts:
The Mentholatum Co., Inc., a foreign corporation, and the Philippine-American Drug Co.,
Inc., the former’s exclusive distributing agent of the product “Mentholatum” in the Philippine
Islands, instituted an action against Anacleto Mangaliman, Florencio Mangaliman and the
Director of the Bureau of Commerce for infringement of trade mark and unfair competition,
praying for the issuance of an order restraining Anacleto and Florencio Mangaliman from selling
their product “Mentholiman,” and directing them to render an accounting of their sales and
profits and to pay damages. Mentholatum, not licensed to do business in the Philippines, claims
[DOCUMENT TITLE]
that they have not sold personally any of their products in the Philippines and that products were
imported from them by local entities including Philippine-American Drug under their own
account.
Issue:
1. WON Mentholatum Co. Inc. is “doing business” in the Philippines
2. WON Mentholatum Co. Inc. is allowed to prosecute its action
Ruling:
1. Yes. The test is whether the foreign corporation is continuing the body or substance of
the business or enterprise for which it was organized or whether it has substantially retired from
it and turned it over to another. The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of, the
purpose and object of its organization. Here, the Philippine-American Drug Co., Inc., is the
exclusive distributing agent in the Philippine Islands of the Mentholatum Co., Inc., in the sale
and distribution of its product known as the Mentholatum. It follows that whatever transactions
the Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum Co.,
Inc., did it itself.
2. No. Section 69 of Act No. 1459 provides that “No foreign corporation or corporation
formed, organized, or existing under any laws other than those of the Philippine Islands shall be
permitted to… maintain by itself or assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license xxx.” The Mentholatum Co., Inc., being a
foreign corporation doing business in the Philippines without the license required by section 68
of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair
competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here for
the reason that the distinguishing features of the agent being his representative character and
derivative authority.
FAR EAST INTERNATIONAL IMPORT AND EXPORT CORPORATION VS.

NANKAI KOGYO LTD., G.R. NO. L-13525
Facts:
On December 26, 1956, the Far East International Import & Export Corporation,
organized under Philippine Laws, entered into a Contract of Sale of Steel Scrap with the Nankai
Kogyo Co., Ltd., a foreign corporation organized under Japanese Laws with an address at
Osaka, Japan. The buyer signed in Japan and the seller in Manila.
On March 15, 1957, only four (4) days before the expiration of the Far East licence,
three (3) boats sent by Nankai arrived in the Philippines, one to load in Manila, the other two at
Poro Point, San Fernando, La Union, and Tacloban, Leyte, respectively. On March 19, 1957,
the expiration of the export license, only 1,058.6 metric tons of scrap steel was loaded on the
[DOCUMENT TITLE]
SS Mina (loading in Manila). The loading was accordingly stopped. The boat at Poro Point
unloaded 200 metric tons. An agreement was reached whereby the Far East would seek an
extension of the license. However, the untimely death of President Magsaysay and the taking
over by President Garcia changed the picture, for the latter and/or his agents refused to extend
the license. Nankai confirmed and acknowledged delivery of the 1,058.6 metric tons of steel
scrap, but asked for damages amounting to $148,135.00. On May 4, 1957, Far East wrote the
Everett Steamship Corporation, requesting the issuance of the Bill of Lading for the shipment, in
order that payment thereof be effected against the Letter of Credit. Under date of May 7, 1957,
the Everett informed Far East that they were not in a position to comply because the Bill of
Lading was issued and signed in Tokyo by the Master of the boat, upon request of the
Charterer, defendant herein.
As repeated requests, both against the shipping agent and the buyers (Nankai), for the
issuance of the of Bill Lading were ignored, Far East filed the present complaint for Specific
Performance, damages, a writ of preliminary mandatory injunction directed against Nankai and
the shipping company. The lower court issued an ex parte writ of preliminary injunction, after
Far East had posted a bond in the amount of P50,000.00.
By Special Appearance Defendant Nankai filed a Motion to Dismiss the complaint and
dissolve the preliminary mandatory injunction on the following grounds: lack of jurisdiction over
the person of the defendant and the subject matter: and failure to state a cause of action against
the said defendant. Before these could be ruled upon by the court a quo, plaintiff filed a Motion
to file amended complaint, it appearing that Nankai had already taken the Bill of Lading for the
shipment from the Master of the SS Mina and used the same to secure the delivery of the
1,058.6 metric tons of scrap. The most important amendments introduced are the allegation that
defendant is doing business in the Philippines with office address at R-517 Luneta Hotel,
Manila, represented by Mr. Issei Ishida and Mr. Tominaga, and the additional prayer to order the
defendant Nankai to pay plaintiff the price of the scrap amounting to $68,809.00 or its equivalent
in Philippine currency.
The motions to dismiss the complaint and to dissolve the Writ of Preliminary Mandatory
Injunction were denied, the Court holding that the grounds therefore "do not appear to be
indubitable".
The lower court rendered judgment absolving, defendants Everett Steamship Company
and China Banking Corporation from liability and denied the claim for damages of the parties. It
also found that the question of jurisdiction over the person of defendant and the subject matter
has become moot and renders judgment in favor of the plaintiff and against defendant Nankai
Kogyo Co., Ltd.
Defendant contends that Philippine Courts have no jurisdiction to take cognizance of the
case because the Nankai is not doing business in the islands; and that while it has entered into
the transaction in question, same, however, does not constitute "doing business", so as to make
it amenable to summons and subject it to the Court's jurisdiction.
[DOCUMENT TITLE]
Issue:
WON the trial court acquired jurisdiction over the subject matter and over the person of
the defendant-appellant
Ruling:
Yes. The rule that the doing of a single act does not constitute business within the
meaning of statutes prescribing the conditions to be complied with the foreign corporations must
be qualified to this extent, that a single act may bring the corporation. In such a case, the single
act of transaction is not merely incidental or casual, but is of such character as distinctly to
indicate a purpose on the part of the foreign corporation to do other business in the state, and to
make the state a basis of operations for the conduct of a part of corporation's ordinary business.
In this case, the testimony of Atty. Pablo Ocampo that appellant was doing business in
the Philippines corroborated by no less than Nabuo Yoshida, one of appellant's officers, that he
was sent to the Philippines by his company to look into the operation of mines, thereby
revealing the defendant's desire to continue engaging in business here, after receiving the
shipment of the iron under consideration, making the Philippines a base thereof.
GENERAL CORPORATION OF THE PHILIPPINES VS.

UNION INSURANCE SOCIETY OF CANTON, LTD.
G.R. NO. L-2684, SEPTEMBER 14, 1950
Facts:
The Fireman's Fund Insurance Co. (FFIC) is a foreign insurance corporation duly
organized and existing under the laws of the State of California, U.S.A. It has been duly
registered with the Insurance Commissioner of the Bureau of Commerce as such insurance
company and authorized to do business in the Philippines. Union Insurance Society of Canton,
Ltd. (UISC), a foreign insurance corporation, duly authorized to do business in the Philippines
has been acting as settling agent of and settling insurance claims against the FFIC. In a civil
case, domestic corporations General Corporation of the Philippines (GCP) and Mayon
Investment Co. (MIC), as plaintiffs, sued UISC and FFIC for the payment of 12 marine
insurance policies. After hearing, the trial court absolved the defendant UISC from the complaint
but condemned FFIC to pay the plaintiffs. UISC petitioned the trial court to quash the summons
issued thru it on its co-defendant FFIC on the ground that the said company was not doing
business in the Philippines, and that UISC had no authority from its co- defendant to receive
summons on its behalf. The trial court overruled said petition on the ground that according to the
complaint, FFIC was doing business in the Philippines and a mere denial of said allegation was
not sufficient to justify the court in quashing the summons, and that the matter of doing business
in the Philippine was a question of fact to be determined at the hearing of the case.
[DOCUMENT TITLE]
Issue:
WON the Fireman's Fund Insurance Co. was then doing business in the Philippines
within legal contemplation and whether or not it could be held amenable to process and
jurisdiction of local courts.
Ruling:
Yes, FFIC was certainly doing business in the Philippines. In order that a foreign
corporation may be regarded as doing business within a State, there must be continuity of
conduct and intention to establish a continuous business, such as the appointment of a local
agent, and not one of a temporary character. A foreign corporation actually doing business in
this jurisdiction, with or without license or authority to do so, is amenable to process and the
jurisdiction of local courts. If such foreign corporation has a license to do business, then
summons to it will be served on the agent designated by it for purpose, or otherwise in
accordance with the provisions of the Corporation Law. Where such foreign corporation actually
doing business here has not applied for license to do so and has not designated an agent to
receive summons, then service of summons on it will be made pursuant to Rule 7, Section 14 of
the Rules of Court. Furthermore, where a foreign insurance corporation engages in regular
marine insurance policies abroad to cover foreign shipments to the Philippines, said policies
being made payable here, and said insurance company appoints and keeps an age here to
receive and settle claims flowing from said policies, then said foreign corporation will be
regarded as doing business here in contemplation of law.
C. ISSUANCE OF A LICENSE
Upon issuance of license, the foreign corporation may commence to transact business in
the Philippines and continue to do so for as long as it retains its authority to act as a
corporation under the laws of the country or State of its incorporation unless such
license is sooner surrendered, revoked, suspended, or annulled in accordance with this
Code or other special laws.
 Bond requirement:
 Within sixty (60) days after the issuance of the license to transact
business in the Philippines, the licensee, except foreign banking
or insurance corporations, shall deposit with the Commission for
the benefit of present and future creditors of the licensee in the
Philippines, securities satisfactorily to the Commission.
 What does the security consist of?
1. Bonds or other evidence of the indebtedness of the Government of
the Philippines, its political subdivisions and instrumentalities, or of
government-owned or -controlled corporations and entities
[DOCUMENT TITLE]
2. Shares of stock or debt securities that are registered under Republic

Act No. 8799, otherwise known as "The Securities Regulation Code"
3. Shares of stock in domestic corporations listed in the stock exchange
4. Shares of stock in domestic insurance companies and banks, any
financial instrument determined suitable by the Commission, OR
5. Any combination thereof with an actual market value of at least Five
hundred thousand pesos (₱500,000.00) or such other amount that
may be set by the Commission:
 Within six (6) months after each fiscal year of the licensee, the
licensee is required to deposit additional securities or financial
instruments equivalent in actual market value to two percent (2%)
of the amount by which the licensee's gross income for that fiscal
year exceeds Ten million pesos (₱10,000,000.00).
 If the actual market of the deposited securities or financial
instruments has decreased by at least ten percent (10%) of their
actual market value at the time they were deposited, the licensee
is also required to deposit additional securities or financial
instruments. The SEC may, at its discretion, release part of the
additional deposit if the gross income of the licensee has
decreased, or if the actual market value of the total deposit has
increased, by more than ten percent (10%) of their actual market
value at the time they were deposited.
 The Commission may, from time to time, allow the licensee to
make substitute deposits of those already on deposit as long as
the licensee is solvent. Such licensee is entitled to collect the
interest or dividends on such-deposits.
 When licensee ceases to do business in the Philippines, its
deposits shall be returned, upon the licensee's application and
upon proof to the satisfaction of the Commission that the licensee
has no liability to the Philippine residents, including the
Government of the Republic of the Philippines.
 In computing the securities deposits, the composition of gross
income and allowable deductions therefrom shall be in
accordance with the rules of the Commission.
D. RESIDENT AGENT
A resident agent may be either:

1. an individual residing in the Philippines; or
REQUISITES:
(a) of good moral character
(b) of sound financial standing
2. a domestic corporation lawfully transacting business in the Philippines
REQUISITES:
[DOCUMENT TITLE]
(a) of sound financial standing

(b) must show proof that it is in good standing as certified by the SEC
NOTE: The resident agent must immediately notify the SEC of any change in
its registered address to permit the SEC to update its records.
 How to appoint a resident agent?

 The foreign corporation must file with SEC a (1) written power of
attorney designating a person who must be a resident of the
Philippines, on whom summons and other legal process may be
served in all actions or other legal proceedings against such
corporation, and consenting that service upon such resident agent
shall be admitted and held as valid as if served upon the duly
authorized officers of the corporation at its home office.
 The foreign corporation must execute and file with the SEC an (2)
agreement or stipulation to the effect that the service of summons or
other legal processes may be served to the SEC, in lieu of service to
the resident agent when there is an absence of such.
 Service of Process: (procedure)
1. The service of summons or any other legal processes is served to the
SEC.
2. Within 10 days, SEC must transmit a copy of such summons or other
legal process to the corporation at its home or principal office.
NOTE: The service of summons or any other legal processes to the

SEC constitutes service to the duly authorized officers of the foreign
corporation at its home office.
E. LAW APPLICABLE
Philippine laws equally apply to foreign corporations.
General Rule: A foreign corporation lawfully doing business in the Philippines

shall be bound by all laws, rules and regulations applicable to domestic
corporations of the same class. They must register and/or secure the
corresponding permits with other government agencies, such as the DOLE, the
SSS, the BOC, the BIR, and the concerned LGU. Non-registration with such
government agencies does not preclude the exercise of their prerogatives
relative to the enforcement of laws under their specific mandate.
Exception: The laws of the foreign corporation's place of incorporation shall
continue to apply relative to its formation, dissolution, and intra-corporate
relations. This includes the creation, formation, organization or dissolution of
corporations or those which fix the relations, liabilities, responsibilities, or duties if
stockholders, members, or officers of corporations to each other or to the
corporation.
[DOCUMENT TITLE]
F. AMENDMENTS TO ARTICLES OF INCORPORATION, OR BYLAWS OF

FOREIGN CORPORATIONS
Within 60 days after the amendment becomes effective, the foreign corporation must file
with the SEC, and in proper cases, with the appropriate government agency, a duly
authenticated copy of the amended articles of incorporation or bylaws, indicating clearly
in capital letters or underscoring the change or changes made, duly certified by the
authorized official or officials of the county or State of incorporation.
NOTE: Filing shall not enlarge or alter the purposes for which such corporation is
authorized to transact business in the Philippines.
G. AMENDED LICENSE
 When to amend the license:

1. Changes in corporate name
2. Desires to pursue other or additional purposes in the Philippines
 How to amend the license
To amend the license, the foreign corporation must submit an
application with the SEC, favorably indorsed by the appropriate government
agency in the proper cases.
NOTE: The amendment of its purpose or purposes does not in itself enlarge
or alter its permitted activities under its license.
H. MERGER OR CONSOLIDATION INVOLVING A FOREIGN CORPORATION

LICENSED IN THE PHILIPPINES
There may be cross merger or consolidation between or among foreign corporations and
domestic corporations, if permitted under Philippine laws and the laws of their respective
place of incorporation.
Within 60 days after the effectivity of the merger or consolidation, the foreign corporation
shall file with SEC, and in proper cases, with the appropriate government agency, a copy
of the articles of merger or consolidation duly authenticated by the proper official or
officials of the country or State under whose laws the merger or consolidation was
effected.
If the foreign corporation is the absorbed or constituent corporation, such corporation

must file with the SEC the corresponding petition for withdrawal of license (Sec. 153) to
[DOCUMENT TITLE]
do business in the Philippines. (If A + B = A then B is the absorbed or constituent

corporation.)
I. DOING BUSINESS WITHOUT A LICENSE
General Rule: No foreign corporation transacting business in the Philippines without

license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the
Philippines. [cannot sue] DOCTRINE OF LACK OF CAPACITY TO SUE
Exception: Such foreign corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws. [can be sued]
NOTE: The doctrine of lack of capacity to sue can be used as a defense, must prove
that:
1. Plaintiff is a foreign corporation
2. It is doing business in the Philippines
3. It has not obtained the prescribed license
 May be held liable to sanctions prescribed by special laws, such as the Tax Code
for non-compliance with its requirements and/or non-payment of taxes.
 Any contract made with a foreign corporation without license to do business in
the Philippines is enforceable. The requirement of registration affects only the
remedy.
 The foreign corporation may cure its lack of capacity to sue and enforce the
contract, through subsequent registration.
ATLANTIC MUTUAL INS. CO. VS. CEBU STEVEDORING CO., INC. (17 SCRA 1037)
Facts:
These appellants—Atlantic Mutual Insurance Company and Continental Insurance
Company—are both foreign corporations existing under the laws of the United States. They
sued the Cebu Stevedoring Co., Inc., a domestic corporation, for. recovery of a sum of money
on the following allegations: that defendant, a common carrier, undertook to carry a shipment of
copra for delivery to Procter & Gamble Company, at Cebu City; that upon discharge, a portion of
the copra was found damaged; that since the copra had been previously insured with plaintiffs
they paid the shipper and/or consignee, upon proper claim and assessment of the damage, the
sum of P15,980.30; and that as subrogee to the shipper’s and/or consignee’s rights, plaintiffs
demanded, without success, settlement from defendant by reason of its failure to comply with its
obligation, as carrier, to deliver the copra in good order.
Issue:
[DOCUMENT TITLE]
WON appellant foreign corporation has the capacity to sue in the Philippine courts?
Ruling:
NO. A foreign corporation engaged in business in the Philippines can maintain suit in
this jurisdiction if it is duly licensed. If a foreign corporation is not engaged in business in the
Philippines, it can maintain such suit if the transaction sued upon is singular and isolated, in
which case no license is required. In either case, compliance with the requirement of license, or
the fact that the suing corporation is exempt therefrom, as the case may be, cannot be inferred
from the mere fact that the party suing is a foreign corporation. The qualifying circumstance,
being an essential part of the element of the plaintiff’s capacity to sue, must be affirmatively
pleaded which the appellant corporation failed to do.
LA CHEMISE LACOSTE, S.A. V. FERNANDEZ. G.R. NO. L-63796-97, MAY 2, 1984
Facts:
The petitioner La Chemise Lacoste, S.A is a foreign corporation, organized and existing
under the laws of France and not doing business in the Philippines. Hemandas & Co., a duly
licensed domestic firm applied for and was issued the trademark "CHEMISE LACOSTE &
CROCODILE DEVICE" by the Philippine Patent Office.
Two years later, it applied for the registration of the same trademark under the Principal
Register. The Patent Office allowed the application, however, such registration is now being
contested in a Petition for Cancellation . Thereafter, Hemandas & Co. assigned to respondent
Gobindram Hemandas all rights, title, and interest in the trademark "CHEMISE LACOSTE &
DEVICE".
The petitioner filed its application for registration of the trademark "Crocodile Device"
and "Lacoste". The former was approved for publication while the latter was opposed by Games
and Garments (owned by Hermandas)
The petitioner filed with NBI a letter-complaint alleging unfair competition being
committed by Hemandas. The respondent court issued Search Warrant for violation of Article
189 of the RPC, The NBI agents executed the two search warrants.
Hemandas filed a motion to quash the search warrants alleging that the trademark used
by him was different from petitioner's trademark and that pending the resolution before the
Patent Office, any action on the same subject matter and between the same parties would be
premature.
The petitioner filed its opposition to the motion. The respondent court recalled the search
warrants.The petitioner asks to set aside as null and void, the order of NCR RTC judge
Fernandez, granting the motion to quash the search warrants previously issued by him and
ordering the return of the seized items.
[DOCUMENT TITLE]
Issue:
WON the petitioner, a foreign corporation not doing business in the Philippines, has
capacity to sue before the Philippine Courts.
Ruling:
Yes. Even if petitioner failed to allege material facts in its petition relative to its capacity
to sue, the petitioner may still maintain the present suit against respondent Hemandas. As early
as 1927, this Court was, and it still is, of the view that a foreign corporation not doing business
in the Philippines needs no license to sue before Philippine courts for infringement of trademark
and unfair competition.
In upholding the right of the petitioner to maintain the present suit , we are moreover recognizing
our duties and the rights of foreign states under the Paris Convention for the Protection of
Industrial Property to which the Philippines and France are parties.
We are obligated to assure to nationals of countries of the Union an effective protection

against unfair competition in the same way that they are obligated to similarly protect Filipino
citizens and firms.
HOME INSURANCE CO. V. EASTERN SHIPPING LINES, G.R. NO. L-34382 JULY 20, 1983
Facts:
S. Kajikita & Co. shipped on board the SS “Eastern Jupiter‟ that is owned by the
respondent, from Osaka, Japan, coils of “Black Hot Rolled Copper Wires Rods.” The vessel
carrying the said coils is owned and operated by defendant Eastern Shipping Lines. The
shipment was covered by Bill of Lading with arrival notice to the Phelps Dodge Copper Products
Corporation, the consignee. It was also insured with the plaintiff against all risks. The coils
discharged from the vessel were, however, in bad order, consisting of loose and partly cut coils
that had to be considered scrap. The plaintiff paid the consignee under insurance the amount of
P3,260.44 for the loss/damage suffered by the cargo. Plaintiff, a foreign insurance company
duly authorized to do business in the Philippines, made demands for payment of the aforesaid
amount against the carrier (Eastern Shipping Lines) and transportation (Angel Jose
Transportation) companies for reimbursement of the aforesaid amount, but both refused to pay
the same. Plaintiff then filed a case and made the averment regarding its capacity to sue. The
Eastern Shipping Lines filed its answer and denied the allegations that refer to the plaintiff‟s
capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth
thereof. Angel Jose Transportation, on the other hand, admitted the jurisdictional averments.
The Court of First Instance dismissed the complaint on the ground that the appellant had failed
to prove its capacity to sue. The petitioner then filed a petition for review on certiorari.
Issue:
Whether or not that the trial court erred in dismissing the finding that plaintiff-appellant
has no capacity to sue?
[DOCUMENT TITLE]
Ruling:
The court ruled that the object of the statute was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object of the statute was not to
prevent the foreign corporation from performing single acts, but to prevent it from acquiring a
domicile for the purpose of business without taking the steps necessary to render it amenable to
suit in the local courts. The Corporation Law must be given a reasonable, not an unduly harsh,
interpretation which does not hamper the development of trade relations and which fosters
friendly commercial intercourse among countries. Counsel for appellant contends that at the
time of the service of summons, the appellant had not yet been authorized to do business. But
the lack of capacity at the time of the execution of the contracts was cured by the subsequent
registration is also strengthened by the procedural aspects of the case. The petitioner averred in
its complaints that it is a foreign insurance company, that it is authorized to do business in the
Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building
at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules
of Court. The petitioner sufficiently alleged its capacity to sue.
AETNA CASUALTY & SURETY CO. V. PACIFIC STAR LINE

G.R. NO. L-26809 DECEMBER 29, 1977
Facts:
On February 11, 1963, Smith Bell & Co Inc. and Aetna Surety Casualty & Surety Co.
Inc., as subrogee, instituted Civil Case No. 53074 in the Court of First Instance of Manila
against Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila Railroad
Company, Inc. to recover the amount of US $2,300.00 representing the value of the stolen and
damaged cargo plus litigation expenses and exemplary damages.
In their answer, the defendants Manila Port Service and Manila Railroad Company, Inc. alleged
that they have exercised due care and diligence in handling and delivering the cargoes
consigned to Judy Philippines, Inc. They also alleged that the plaintiff, Aetna casualty & Surety
Company, is a foreign corporation not duly licensed to do business in the Philippines and,
therefore. without capacity to sue and be sued
The trial court dismissed the complaint because the plaintiff, as a foreign corporation,
cannot file a suit in the Philippines.
Issue:
Whether or not the appellant, Aetna Casualty & Surety Company, has been doing
business in the Philippines, thus may sue or be sued.
Ruling:
No. It is settled that if a foreign corporation is not engaged in business in the Philippines,
it may not be denied the right to file an action in Philippine courts for isolated transactions.
In Mentholatum Co., Inc. et al. vs. Mangaliman, et al., this Court ruled that:
[DOCUMENT TITLE]
No general rule or governing principle can be laid down as to what constitutes

'doing' or 'engaging in' or 'transacting' business. Indeed, each case must be
judged in the light of its peculiar environmental circumstances. The true test,
however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise. for which it was organized or whether it
has substantially retired from it and turned it over to another The term implies a
continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and object of
its organization.
Based on the rulings cited, it cannot be said that the Aetna Casualty & Surety Company
is transacting business of insurance in the P ' Philippines for which it must have a license. The
contract of insurance was entered into in New York, U.S.A., and payment was made to the
consignee in its New York branch. It appears from the list of cases issued by the Clerk of Court
of the Court of First Instance of Manila that all the actions, except two (2) cases filed by Smith,
Bell & Co., Inc. against the Aetna Casualty & Surety Company, are claims against the shipper
and the arrastre operators just like the case at bar.
Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in
the business of insurance in the Philippines but is merely collecting a claim assigned to it by the
consignee, it is not barred from filing the instant case although it has not secured a license to
transact insurance business in the Philippines.
J. REVOCATION OF LICENSE
Grounds for Revocation of License:

1. Failure to file annual report or pay any fees as required by the Revised
Corporation Code
2. Failure to appoint and maintain a resident agent in the Philippines as required
by this Title
3. Failure to submit to the SEC a statement of change of resident agent or
address after such change
4. Failure to submit to the SEC an authenticated copy of any amendment to the
articles of incorporation or bylaws or of any articles of merger or Consolidation
within the time prescribed by this Title
5. A misrepresentation of any material matter in any application, report, affidavit
or other document submitted by such corporation pursuant to this Title
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any,
lawfully due to the Philippines Government or any of its agencies or political
subdivisions
7. Transacting business in the Philippines outside of the purpose or purposes for
which such corporation is authorized under its license
[DOCUMENT TITLE]
8. Transacting business in the Philippines as agent of or acting on behalf of any

foreign corporation or entity not duly licensed to do business in the Philippines
9. Any other ground as would render it unfit to transact business in the
Philippines:
a. Failure to comply with the conditions prescribed in the license, such
as (1) non-filing of periodic reports, (2) non-payment of prescribed
taxes, fees and charges, (3) failure to keep a resident agent, and (4)
misusing or going beyond the terms of such license
b. Foreign corporations commit any representation in procuring, or it
commits acts rendering it unfit for such license
K. ISSUANCE OF CERTIFICATE OF REVOCATION
 How to revoke the license of a foreign corporation

The SEC may revoke the license of a foreign corporation by issuing a
certificate of revocation, and sending the same to the foreign corporation's
registered address in the Philippines. The SEC shall likewise inform the
concerned government agencies.
L. WITHDRAWAL OF FOREIGN CORPORATIONS
A foreign corporation licensed to transact business in the Philippines may be allowed to

withdraw from the Philippines by filing a petition for withdrawal of license.
 Requirements to obtain a certificate of withdrawal:

1. All claims which have accrued in the Philippines have been paid,
compromised or settled
2. All taxes, imposts, assessments, and penalties, if any, lawfully due to
the Philippine Government or any of its agencies or political
subdivisions, have been paid
3. The petition for withdrawal of license has been published once a week
for 3 consecutive weeks in a newspaper of general circulation in the
Philippines
NOTE: The requirements are similar for both branches and subsidiaries.
 EXIT CLEARANCE
For subsidiaries, an exit clearance for dissolution is necessary. [Refer to Sec.
52(C) and Sec. 235 of NIRC]
 Sec. 52, NIRC: Return of Corporation Contemplating Dissolution or

Reorganization. - Every corporation shall, within thirty (30) days after the
adoption by the corporation of a resolution or plan for its dissolution, or for
[DOCUMENT TITLE]
the liquidation of the whole or any part of its capital stock, including a
corporation which has been notified of possible involuntary dissolution by
the Securities and Exchange Commission, or for its reorganization,
render a correct return to the Commissioner, verified under oath, setting
forth the terms of such resolution or plan and such other information as
the Secretary of Finance, upon recommendation of the commissioner,
shall, by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the

issuance by the Securities and Exchange Commission of the
Certificate of Dissolution or Reorganization, as may be defined by
rules and regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, secure a certificate
of tax clearance from the Bureau of Internal Revenue which
certificate shall be submitted to the Securities and Exchange
Commission.
 Sec. 235, NIRC: xxx All corporations, partnerships or persons that retire
from business shall, within ten (10) days from the date of retirement or
within such period of time as may be allowed by the Commissioner in
special cases, submit their books of accounts, including the subsidiary
books and other accounting records to the Commissioner or any of his
deputies for examination, after which they shall be returned. Corporations
and partnerships contemplating dissolution must notify the Commissioner
and shall not be dissolved until cleared of any tax liability.
The subsidiary has a legal obligation to secure an exit clearance,

otherwise its board and concerned officers may be held liable
under the Tax Code. However, it should not be sanctioned if it fails
to produce such, as long as it filed the prescribed final returns and
submitted its records to BIR for audit.
 Under the Ease of Doing Business Act, both SEC and BIR are required to
timely act on every application, specifically 20 days subject to a
reasonable extension, upon acceptance following the submission of the
prescribed supporting documents. OTHERWISE, the application is
deemed submitted.
 The application for exit clearance (together with the submission of
complete documents) has the same effect of notice to change in address.
(Refer to Sec. 145, RCC)
 DELINQUENCY RISK
 The SEC may impose sanctions on corporations that fail to submit period
reports. (Refer to Sec. 177 and Sec 158, RCC)
[DOCUMENT TITLE]
 In any of this cases, SEC must notify BIR before it decrees dissolution or
revocation of license. However, it may proceed with the dissolution if 30
days after receipt of the suspension order no tax clearance has yet been
issued.
 The SEC sha consider the extent of participation, nature, effects,
frequency and seriousness of the violation. The penalty may be minimal
(or no penalty at all) if it properly filed the application and no inordinate
delay or total inaction of its application, for dissolution or withdrawal of
license.
 TAX RISK
 The BIR is bound to immediately act on the application and may issue a
deficiency assessment within 3 years following the filing of prescribed
returns. It may not issue such assessment beyond the 3-year prescriptive
period, unless the same is suspended.
 Ground for suspension of the 3-year prescriptive period: (Refer to Sec
223, NIRC)
 Sec. 223, NIRC: xx when the taxpayer cannot be located in the

address given by him in the return filed upon which a tax is being
assessed or collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the
Statute of Limitations will not be suspended; when the warrant of
distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient
discretion, and no property could be located; and when the
taxpayer is out of the Philippines.
GREY V. INSULAR LUMBER CO.

G.R. NO. 45144, APRIL 3, 1939
Facts:
The defendant (Insular Lumber Company) was and is a corporation organized and
existing under the laws of the State of New Your, licensed to engage in business in the
Philippines, with offices in the City of Manila, in Fabrica, Occidental Negros, in New York and in
Philidelphia. Under the law of New York, the rights of a stockholder to examine the books and
records of a corporation organized under the laws of that State, consist in making a written
request to the treasurer or other fiscal officer thereof for a statement of its affairs, under oath,
embracing a particular account of all its assets and liabilities, and the treasurer shall make such
statement and deliver it to the person making the request within thirty days thereafter.
[DOCUMENT TITLE]
The plaintiff (M.E. Grey) was and is the owner and possessor of 57 shares of the capital
stock of the defendant corporation, registered in his name in the books thereof. However, he
does not own three per cent of the total capital stock of the corporation, nor does he represent
stockholders who own three per cent of its capital which is a requirement under Sec. 77 of the
Stock Corporation Law of New York. In his defense, plaintiff relied on the Philippine Corporation
Law, under which the defendant company was registered to do business in the Philippines, the
plaintiff, as stockholder, is entitled to inspect the records of the transactions of the defendant
corporation (Sec. 51, Act No. 1459), and this right, which is recognized in the common law, has
not been altered by section 77 of the Stock Corporation Law of New York and can be enforced
by mandamus. The lower court based its judgment on the parties’ stipulation of facts and denied
the mandamus against the defendant and absolving it from the complaint.
Issue:
WON a stockholder of a foreign company doing business in the Philippines can inspect
and examine the books and records of the transactions of said company.
Ruling:
NO, the plaintiff, not being a stockholder owning at least three per cent of the capital
stock of the defendant corporation, has no right to examine the books and records of the
corporation nor to require a statement of its affairs embracing a particular account of all its
assets and liabilities.. Under the common law, the right to inspect and examine the books and
records of the transactions of the company can only be granted under certain conditions:
(1) That the stockholder of a corporation in New York has the right to inspect its books
and records if it can be shown that he seeks information for an honest purpose, or to protect his
interests as stockholder; and
(2) that said right to examine and inspect the books of the corporation must be exercised
in good faith, for a specific and honest purpose, and not to gratify curiosity, or for speculative or
vexatious purposes. Here, the appellant has made no effort to prove or even allege that the
information he desired to obtain through the examination and inspection of the defendant’s
books was necessary to protect his interests as stockholder of the corporation, or that it was for
a specific and honest purpose, and not to gratify curiosity, nor for speculative or vexatious
purposes.
[DOCUMENT TITLE]
XIII - SECURITIES AND REGULATION CODE92
This was established to promote a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in enterprises, enhance the democratization of
wealth, promote the development of the capital market, protect investors, ensure full and fair
disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent
or manipulative devices and practices which creates distortions in the free market.
The Securities Regulation Code of the Philippines or Republic Act No. 8799 is a landmark
legislation that aims to regulate the issuance and trading of equity securities and debt securities
in the Philippines. Enacted on July 19, 2000 and amended in 2015, this code is focused on
creating a fairer and self-regulating free market. The Securities Regulation Code, which is
currently divided into 78 sections and classified into 13 chapters, also ensures the protection of
investors and the Philippine securities market system.
7) Securities are shares or interests that raise more capital for profit-making
businesses. These securities typically come in the form of the following:
 shares of stocks, bonds, debentures
 investment contracts
 options and warrants
 certificates (assignment, participation, trust, etc.)
 proprietary and non-proprietary membership certificates
 There are several actors that engage in the issuance and trading of securities.
For instance, issuers create the securities. They are composed of corporations,
domestic governments, foreign governments, and investment trusts. Brokers are
agents who buy and sell securities for others, while dealers buy and sell
securities for themselves.
 For securities to be legitimate, they must indicate that they are securities with a
written or electronic certificate or contract. Without proper registration, securities
are not allowed to be sold or distributed in the Philippines.
8) Objectives of the Securities Regulation Code of the Philippines:93

1. To establish a socially aware and self-regulating free market;
2. To encourage more participation in owning an enterprise;
3. To enhance the democratization of wealth;
4. To promote the capital market’s development;
5. To protect investors;
6. To ensure full and fair disclosure of securities and;
7. To minimize or eliminate fraudulent activities such as insider trading in the free
market.
92
Retrieved from http://www.filepino.com/the-securities-regulation-code-of-the-philippines/
93
Section 2, SEC
[DOCUMENT TITLE]
9) Requirements and procedures to register securities:

 To register a security or securities, it must first be filed and approved by the
Securities and Exchange Commission (SEC). A record will then be kept in the
Register Securities. The documentary requirements for the registration of
securities are:
1. Three (3) copies of SEC Form 12-1
2. Duly signed and notarized statement of management responsibilities on
the audited financial statements
3. Consolidated/Audited/Interim Financial Statements (if applicable)
4. Additional components of the Audited Financial Statements
5. Material Contracts
6. Exhibits
7. Payment Assessment Form (PAF)
For foreign registrants, the registration statement must be signed by its

resident agent in the Philippines, along with your principal executive officer,
principal operating officer, principal financial officer, controller, principal
accounting officer, and corporate secretary.
10) Exempted securities

 The following securities are exempt from an SEC registration:
1. Securities issued by the Philippine government
2. Securities issued by the government of a country that has diplomatic
relations with the Philippines
3. Certificates issued by a trustee in bankruptcy
4. Securities under the Office of the Insurance Commission, Housing and
Land Rule Use Regulatory Board, and the Bureau of Internal Revenue
5. Securities issued by a bank that are not its own shares of stock
[DOCUMENT TITLE]
ANNEX A – FORM OF ARTICLES OF ARTICLES OF INCORPORATION
Articles of Incorporation of
(Name of Corporation)
The undersigned incorporators, all of legal age, have voluntarily agreed to form a (stock)
(nonstock) corporation under the laws of the Republic of the Philippines and certify the
following:
First: That the name of said corporation shall be “ , Inc., Corporation or

OPC”;
Second: That the purpose or purposes for which such corporation is incorporated are: (If
there is more than one purpose, indicate primary and secondary purposes);
Third: That the principal office of the corporation is located in the City/Municipality of
, Province of , Philippines;
Fourth: That the corporation shall have perpetual existence or a term of _

years from the date of issuance of the certificate of incorporation;
Fifth: That the names, nationalities, and residence addresses of the incorporators of the
corporation are as follows:
Name Nationality Residence
Sixth: That the number of directors or trustees of the

corporation shall be ; and the names, nationalities, and residence addresses of the first
directors or trustees of the corporation are as follows:
Name Nationality Residence
[DOCUMENT TITLE]
Seventh: That the authorized capital stock of the corporation is _________PESOS

(P_______) divided into ______ shares with the par value of __________ PESOS (P ) per
share. (In case all the shares are without par value): That the capital stock of the corporation is
shares without par value.
(In case some shares have par value and some are without par value): That the capital stock of
said corporation consists of ______ shares, of which shares have a par value of PESOS
(P _______ ) each, and of which shares are without par value.)
Eighth: That the number of shares of the authorized capital stock above-stated has been
subscribed as follows:
Name of Nationality No. of Shares Amount Amount Paid

Subscriber Subscribed Subscribed
(Modify No. 8 if shares are with no-par value. In case the corporation is nonstock, Nos. 7
and 8 of the above articles may be modified accordingly, and it is sufficient if the articles state
the amount of capital or money contributed or donated by specified persons, stating the names,
nationalities, and residence addresses of the contributors or donors and the respective amount
given by each.)
Ninth: That has been elected by the subscribers as Treasurer

of the Corporation to act as such until after the successor is duly elected and qualified in
accordance with the bylaws, that as Treasurer, authority has been given to receive in the name
and for the benefit of the corporation, all subscriptions, contributions or donations paid or given
by the subscribers or members, who certifies the information set forth in the seventh and eighth
clauses above, and that the paid-up portion of the subscription in cash and/or property for the
benefit and credit of the corporation has been duly received.
Tenth: That the incorporators undertake to change the name of the corporation immediately
upon receipt of notice from the Commission that another corporation, partnership or person has
acquired a prior right to the use of such name, that the name has been declared not
distinguishable from a name already registered or reserved for the use of another corporation, or
that it is contrary to law, public morals, good customs or public policy.
Eleventh: (Corporations which will engage in any business or activity reserved for Filipino
citizens shall provide the following):
[DOCUMENT TITLE]
“No transfer of stock or interest which shall reduce the ownership of Filipino citizens to
less than the required percentage of capital stock as provided by existing laws shall be allowed
or permitted to be recorded in the proper books of the corporation, and this restriction shall be
indicated in all stock certificates issued by the corporation.”
IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this

day of , 20 in the City/Municipality of ,
Province of , Republic of the Philippines.
(Names and signatures of the incorporators)
(Name and signature of Treasure

[DOCUMENT TITLE]

AStudy Outilne of The Revised Corporation Code

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JOSE RIODIL D. MONTEBON

 Doctrine of Distinct and Separate Juridical Personality3

C. CREATED BY OPERATION OF LAW

 Theories on the Formation of a Corporation4

2. Theory of corporate enterprise or economic unit

 Piercing the Veil of Corporate Fiction

A corporation has a capacity of continuous existence irrespective of the death, withdrawal,

E. POWERS AND PROPERTIES EXPRESSLY AUTHORIZED BY LAW

II - TYPES OF BUSINESS ORGANIZATIONS

No personality separate and distinct with its owner

B. PARTNERSHIP (Art. 1767 of the NCC)12

● Unlimited liability except when partnership is a limited partnership.

C. CLOSE CORPORATION (Sec. 9613–105 of the RCC)

 Usually family-owned corporations.14

D. LIMITED PARTNERSHIP (Art. 1843 of the NCC)17

Joint venture is defined as an association of persons or companies jointly undertaking

In Aurbach et al. vs. Sanitary Wares Manufacturing Corporation20:

F. BUSINESS TRUST (Art. 1440 of the NCC)22

Persons involved in the creation of a trust:

III – REGULATION OF PRIVATE CORPORATIONS

ARTICLE XII, 1987 CONSTITUTION: NATIONAL ECONOMY AND PATRIMONY

 Section 2. “ xxxxxx The Congress may, by law, allow small-scale utilization of

B. SECURITIES AND EXCHANGE COMMISSION (SEC)

1. Presidential Decree 902-A: SEC REORGANIZATION ACT as amended by PD

and/or a license or permit issued by the government to operate in the

(a) Have jurisdiction and supervision over all corporations, partnerships or

corporation, firm, association or person in the implementation of its powers

Under Section 5.2 of the Securities Regulation Code, the Commission’s

Considering that only Sections 2, 4, and 8 of PD 902-A, as amended, have

2. Judiciary Reorganization Act

3. Revised Code of Corporate Governance23

4. Securities and Regulation Code

d) Company Registration and Monitoring Department - registers

5. E-Commerce Law (Republic Act 8792)

 Salient features of Republic Act 8792:

j) Provided guidelines as to when a service provider can be liable. (Section

UNION GLASS & CONTAINER CORPORATION V. SEC (126 SCRA 32)

The jurisdiction of the SEC is delineated by Section 5 of PD No. 902-A as follows:

ABEJO V. DE LA CRUZ (149 SCRA 654)

Pioneer and Non-pioneer projects have different requirements. 100% foreign-owned

70% of their total production, or undertake projects in less-developed areas of the

1. Omnibus Investments Code of 1987 - the law integrating,

2. Foreign Investments Act of 1991 - is the basic law that governs

If the proposed project or activity qualifies for incentives, the

1. List A - consists of areas of activities reserved to

(40%) as prescribed by the Constitution and other specific

2. List B - consists of areas of activities where foreign

The government encourages foreign investments which will

3. Investors’ Lease Act - a flexible and dynamic policy of the

industrial enterprises, land development for industrial or

4. The General Banking Law of 2000 – its purpose is to promote

Bank regulation is a form of government regulation which

between banking institutions and the individuals and corporations

D. ADMINISTRATIVE BODIES EXERCISING SPECIAL JURISDICTION OVER SPECIFIC

 SEC (Presidential Decree No. 902-A)

For the purposes of this Act, "quasi-banks" shall refer to entities

E. LOCAL GOVERNMENT UNITS

Local Government Code of 1991

The tax, however, shall in no case exceed PhP10,000.00.

IV - REGULATION OF PRIVATE CORPORATIONS

 Government-owned or Controlled Corporations (GOCC’s):