REVISED CORPORATION CODE
SECTION 1
History of Law:
Act (during American Regime) -
Commonwealth Act (CA) – Republic Act
(RA) – Presidential Decree (PD) – Batas
Pambansa (BP) – Letter of Instruction
(LOI) – Republic Act (RA)
HISTORY OF CORPORATION CODE:
Act 1459 (Took effect – April 1, 1906)
Corporation Law
BP 68 (Took effect – May 1, 1980)
Corporation Code
RA 11232 (Took effect – February 23,
2019) Revised Corporation Code
SECTION 2 – CORPORATION
DEFINED
A corporation is an artificial being created
by operation of law, having the right of
succession and the powers, attributed
and properties expressly authorized by
law or incident to its existence.
Attributes of a Corporation:
 It is an artifical being – Juridical
Person
 It is ceated by operation of law
– articles of incorporation is
needed and certificate of
incorporation by SEC. In
partnership, registration is not
mandatory. In corporation,
mandatory ang registration or
kailangan sya iregister sa SEC – if
there is no registration there is no
corporation.
 Right of Succesion
 3 Powers/Attributes/Properties
expressly authorized by law or
incident to its existence:
In partnership, we have the acts of
administration and acts of
ownership.
In corporation, they have three
powers: express power, implied
power, and incidental power or
inherent power.
Advantages vs. Disadvantages
of Corporation
Advantages: (READ THE
BOOK)
 BOD, BOT ang nagdedecide
 Stockholders are not liable to their
separate property
 Have the right of succession
Disadvantages: (READ THE
BOOK)
They cannot choose their partners
unlike in partnership that they
have the choice to choose their
partners because of delectus
personarum principle.
Right of Succession
In partnership, if namatay,
nagwithdraw, nagresign ang
partner, the partnership is
dissolved. In corporation. if
namatay, nagwithdraw,
nagresign ang isang Doctrine of Corporate Fiction
stockholder – the corporation
- This doctrine explains that
continues to exist (ang tawag
corporation has separate ang
sa principle na ito is right of
distinct personality. The
succession)
properties of the corporation are
not the properties of stockholders,
Trust Fund Doctrine
and vice versa.
- The unpaid subscription
Example 1:
constitutes a trust fund in the
event that the corporation will not ABC is a corporation. Meron
be able to pay its corporate syang 5 stockholders, si
obligation. (It constitutes a trust D,E,F,G,H.
fund for the benefit of the
creditors.) Questions:

- Only up to the extent of the Yung properties ba ni ABC,

stockholders unpaid subscription. property din ni D, E, F, G or H?
– NO, because corp has
In partnership, the GPs are liable separate and distinct
up to the extent of their separate personality.
property. In corporation, What if D ang majority stockholder
stockholders are not liable with and he controls 60% of the shares
their separate property. They of the corporation. Does it mean
are only liable up to the extent na yung property ng corporation
of their unpaid subscription. ay property na rin ni D? – NO,
(Para maging isang stockholder, because corp has separate and
dapat bibili ng shares. Pagkabili distinct personality.
nila, yung mga shares na hindi nila
binayaran, doon sila magiging Yung utang ba ng stockholders ay
liable. Ito yung tinatawag na trust magiging utang din ng
fund doctrine) corporation? – NO, because corp
has separate and distinct
QUESTION: Yung stockholder personality.
may biniling subscription at the Example 2:
same time may separate property
sya, if later on, nadissolved ang Supposed there are two
corporation, liable ba ang corporations. First is the ABC
separate property ng stockholder? Corp and second is the XYZ Corp.
– NO, liable lang sya up to the So magkaibang corporation sila.
extent dun sa share na hindi Questions: Yung properties ba ni
nya binayaran. ABC Corp ay properties din ni

XYZ Corp? – NO, separate and
distinct personality.
Yung utang ba ni ABC Corp ay
utang din ba ni XYZ Corp? – NO,
separate and distinct.
Exception under this doctrine:
DOCTRINE OF PIERCING THE
VEIL OF CORPORATE FICTION
Another word for piercing:
Disregarding/Removing
 Under this doctrine or exception,
the separate and distinct
personality will be disregarded. (It
means under this exception, we
are going to consider the
corporation and stockholders as
one and the same. So dito, yung
properties or liability ng
corporation, magiging properties
or liability din ng stockholders or
other corporation)
Why it will be disregarded or
bakit magiging as one and the
same nalang yung corporation
and stockholders?
– Because separate and distinct
personality is used for illegal
purposes or may illegal na
nangyayari.
Example 1: Si ABC Corporation
ayaw nyang magbayad ng utang
sa mga corporate creditors, so
nagcreate sila ng panibagong
corporation and everything is the
same like the stockholders and
BOD.
QUESTION: Can we consider the
new corporation created as the
same as the other corporation
which is yung ABC Corp? –YES,
because their purpose is to
evade corporate obligation.
Example 2: Supposed ABC
Corporation may mga employees
sila and may unpaid wages,
unpaid benefits, unpaid salaries,
etc. Ayaw nila magbayad, so they
dissolve their corporation and
created another or new
corporation. Ang purpose nila is to
evade its liabilities to the laborers
or employees.
QUESTION: Can we consider the
two corporations as one and the
same? –YES.
Example 3: Supposed there are 5
stockholders, si A,B,C,D,E. Si A
ang nagdedecide or nasusunod.
All decisions are made by one
which is A. Yung ibang
stockholders walang ginagawa.
QUESTION: Pwede ba na ang
decision is only made by one
which is si A? – NO, because ang
nagdedecide sa corporation ay
BOD or BOT. Hindi pwedeng
magdecide ang isang
stockholder.
Example 4: Supposed it is a
nationalized corporation but hindi
mga pinoy ang may ari ay mga
foreigners 100% or more than
 60% are owned by them. So hindi
pwede yun.
QUESTION: Can we pierce or
disregard the distinct and
separate personality? –YES.
What is the TEST APPLIED to
determine kung ipipierce or
ididisregard natin yung separate and
distinct personality?
 ALTER EGO DOCTRINE OR
INSTRUMENTALITY RULE
DOCTRINE OF LIMITED CAPACITY
 May tatlong powers and
corporation: Express, Implied
and Inherent. Kung hindi sya
kasama dito sa tatlo, then the
corporation cannot exercise that
power because limited nga lang
ang powers ng corporation. The
corporation can only exercise
those power which are express,
implies, and inherent or
incidental to its existence.
Nationality of Corporation
QUESTION: Bakit importante ang
nationality dito sa corporation? –
Because dito sa corporation, pag
Philippine Corporation ka, mayroong
certain privileges or rights,
What are the certain privileges or certain
rights?
 You can acquire properties
 Under ka sa jurisdiction ng SEC
4 Test of Nationality of Corporation:
1. Incorporation Test – place of
incorporation
Example: Yung ABC Corporation
created sya dito sa SEC sa Philippines.
So niregister sya sa SEC PH.
Question: Ano ang nationality nung
corporation? – It is a Domestic or
Philippine Corporation.
Why? – Because nationality is based
on the place when it was incorporated.
2. Control Test – exact opposite of
incorporation test. In this test, the
nationality is based on the citizenship of
the majority of the stockholders. Hindi ito
inaapply sa Philippines but there is one
scenario when it was applied in the
Philippine setting during World War II.
Control test is based on ownership not on
the place where it was incorporated.
3. Business Domicile or Center of
Management Rule
- the nationality of the corp is based on
the place where the business operates
Example: ABC Corp was registered or
incorporated in the Philippinesbut it is
operating in the US. Based on the place
of operation, we can say that this is not a
Philippine Corporation, this is an
American Corporation.
4. Grandfather Rule – inaaply ng SEC in
certain instances because it involves
securities. In here, in order to determine
the nationality of the corp we need to
know the nationality of the stockholders
of the investee corporation.
Example: ABC Corporation may
stockholders, si 1,2,3,4,5. Si 5, isang
corporation din sya and may
stockholders sya si 6,7,8,9,10. For us to
know the nationality of ABC Corp,
titingnan din natin yung nationality nung
mga stockholders ni 5 Corporation. Since
may corporation yung isang stockholder
which is si 5 nga, in order to determine
the nationality of the corp we need to
know the stockholders of the investee
corporation.
Among these tests of nationality, ano ang
pinakaimportante? –INCORPORATION
TEST, because ito ang inaapply sa
Philippines.
SECTION 3 – Classes of Corporation
Stock vs. Non-Stock Corporation
Stock Corp – may shares and dividends
Non-Stock Corp – walang shares and
dividends
Corporation can be classified into
two:
1. Public Corp – referring to provinces,
cities, municipalities, barangay
2. Private Corp – referring to those
corporation created under BP68 (former
law) or those created under RA 11232
(present law). It can also refer to GOCC
(Government Owned and Control
Corporation). Also, it can refer to quasi
public.
OTHER CLASSIFICATION/KINDS OF
CORPORATION (SEE BOOK)
(1) As to number of persons who
compose them:
(a) Corporation Aggregate – more than
one corporator
(b) Corporation Sole – one corporator
One Person Corporation – one
corporator
(2) As to whether they are for religious
purpose or not:
(a) Ecclesiastical Corporation –
created for religious purposes
(b) Lay Corporation – not created for
religious purposes
(3) As to whether they are for charitable
purposes or not:
(a) Eleemosynary Corporation –
established for charitable purposes
(b) Civil Corporation – established for
business or profit
(4) As to state or country under or by
whose laws they have been created:
(a) Domestic Corporation – created in
the Philippines by virtue of the
incorporation test.
Ano ang need ng domestic corp? –
Certificate of Incorporation
(b) Foreign Corporation – formed,
organized or existing under any laws
other than those of the Philippines.
Ano ang need ng foreign corp? –
License to operate
QUESTION: Why is it important to know
the distinction of domestic and foreign
corp?
 Because magkaiba yung power,
rights, and duties ng domestic and
foreign
(5) As to their legal right to corporate
existence
(a) De Jure Corporation – corporation
existing in fact or in law, lahat ng
requirements ay nacomply.
(b) De Facto Corporation – corporation
existing in fact but not in law, pag hindi
nacomply ang requirements.
(6) As to whether they are open to the
public or not:
(a) Close Corporation – limited to
selected persons or members of a family
3 basic characteristics of Close Corp:
 The stockholders should not
exceed 20
 May restriction on transfer of
shares, hindi pwedeng ibenta
yung shares sa public
 The shares cannot also be sold in
the stock exchange
(b) Open Corporation – open to the
public, the public can buy the shares
(7) As to their relation to another
corporation:
(a) Parent or Holding Corporation –
majority of directors controlling the
subsidiary
(b) Subsidiary Corporation – related to
another corporation that the majority of
its directors can be elected either, directly
or indirectly, by such other corporation.
(8) As to whether they are corporations in
a true sense of only in a limited sense:
(a) True Corporation – may statutory
authority or grant
(b) Quasi-Corporation – walang
legislative grant
Quasi-Public vs. Quasi-Corporation
Quasi-Public
 Merong franchise given by
congress/government. In other
words, there is a contract between
the government and the
corporation.
 Public duties in profit.
Quasi-Corporation
 no legislative grant
 Not a corporation in a full sense
SECTION 4 – Corporation Created by
Special Law
General Incorporation Law – ito yung
batas mismo, RA 11232.
Special Incorporation Law – Example:
law creating SSS, Medicare, PCSO,
GSIS. Meron silang special law created
by Congress or may separate law sila.
What law will governs or apply in
corporations created under special
incorporation law?
Primarily – law creating it
Supplitorily/Secondarily – Pag kulang SECTION 6 – Classification of Shares
yung law, ang mag-apply ay RA 11232.
Doctrine of Equality of Shares – all
shares are presumed to be equal.
SECTION 5 – Components of Capital Stock – these are the total
Corporation numbers of shares of the corporation.
4 classes or persons composing a Authorized Capital Stock (ACS) –
corporation:
Subscribed Capital Stock (SCS)– 25%
1. Corporators – compose the of the ACS
corporation, whether stockholders or
Paid-up Capital Stock (PCS) – 25% of
members.
the SCS
2. Incorporators – persons originally
Unissued Capital Stock (UCS) – portion
creating the corporation or the founders
of the capital stock that is not yet issued
of the corporation.
to the public.
3. Stockholders – persons constituting a
Outstanding Capital Stock (OCS) –
stock corporation
portion of the capital stock which is
4. Members – persons constituting a issued and held by persons other than
non-stock corporation the corporation itself.
3 Other Classes: (SEE THE BOOK) Example:
Promoters ACS – 100,000
Subscribers SCS – 25,000 (25% of 100,000)
Underwriter PCS – 6,250 (25% of 25,000)
Issued Capital Stock – 75,000
QUESTION: Pwede bang incorporator
and stockholder at the same time?
Capital vs. Capital Stock
 YES
Capital
Lahat ba ng incorporator ay
 actual property of the corp, it could
stockholder? – YES.
be buildings, land
Lahat ba ng stockholder ay  nagpafluctuate ang value or
incorporator? – NO. nagdedepreciate
 Capital belongs to the corporation
 It can be real/personal property
Capital Stock
 Something which is abstract
 Amount fixed
 When the capital stock is issued –
it belongs to the stockholders
 It is always personal property
Shares of Stock – M/P/A
(Management/Profit/Asset)
 If you are a stockholder: may
part ka sa management so you
can vote, may share ka sa profit
– dividends, may share ka sa
leftover ng assets ng corp.
Characteristics of Share of Stock:
1. Personal/Movable Property
2. Intangible
3. It does not constitute an indebtedness
on the part of the corp
Shares of Stock vs. Certificate of
Stock
Shares of Stock
 It constitutes the interest or may
share or ownership ka sa corp.
 It is intangible
 Shares of stock can be issued
even though it is not fully paid
Certificate of Stock
 Written evidence or ito yung
katibayan
 It is tangible
 Must be fully paid
Doctrine of Individuality of
Subscription – hindi pwedeng iissue
ang certificate of stock unless it is fully
paid.
QUESTION: Kailangan pa ba ang
certificate of stock para tawagin kang
isang stockholder? – NO, because the
mere fact na nagsubscribe ka, you are
considered as a stockholder.
Classes of Share
1. Par Value vs. No Par Value
Par Value – nakalagay yung amount sa
face ng certificate of stock.
No Par Value – hindi nakalagay yung
stated value pero merong issued price.
May not be issued for a consideration
less than the value of P5.00 per share.
QUESTIONS: Pwede bang lahat ng
shares ay par value? –NO, because
walang bibili ng share mo. Hindi rin
pwedeng lahat ay no par value.
2. Voting vs. Non-Voting
Voting – share with right to vote, sila
yung bumoboto sa corporation or sa
election ng BOD.
GR: Voting ang bumoboto
Non-Voting – share without the right to
vote.
EXCEPTION: 8 Instances under the
law wherein non-voting shares can
vote:
ASIMID
Amendment of the articles
Amendement of the by laws
Sale/Lease/Exchange/Mortgage
Incurring/Creating/Increasing Bonded
Indebtedness
Increase or Decrease of capital stock
Merger or consolidation
Investment of corporate funds
Dissolution of the Corporation
REMEMBER: Ang shares pwedeng
lahat voting, pero hindi pwedeng lahat ay
non-voting because walang mag-eelect
ng BOD.
QUESTION: Pwede bang voting at non-
voting? –YES, they can co-exist.
3. Common vs. Preferred
Common - all shares are presumed to be
equal or it entitles the stockholder to pro
rata division of the profits.
Preferred – mayroong certain privileges
like for example may right sya sa
dividends, may preference sya sa voting
rights and sa asset at the time of
dissolution.
4. Promotion vs. Founder
Promotion – ito yung ibinibigay sa
promoter or the person convincing the
incorporators to incorporate.
Founder – ito naman yung ibinibigay sa
incorporators, mayroon silang privilege
like the right to vote and to be elected for
a period of 5 yrs.
5. Share in Escrow/Escrow Stock
Escrow – meaning “in trust”
Example: ABC Corp nagissue kay D ng
share but hindi pa bayad ni D yung share.
Habang hindi pa bayad ni D, hawak ni E
yung share ni D. In trust si E for the
benefit of D. Ang tawag dun sa share na
hawak ni E in trust for D is yung tinatawag
natin share in escrow. In the event that D
will be able to pay, that is the time
wherein E give the shares to D.
6. Convertible – it is changeable,
pwedeng common, pwedeng preferred,
vice versa.
7. Redeemable vs. Treasury
Redeemable – can be redeemed by the
corp regardless of the existence of
unrestricted retained earnings.
Treasury – shares which have been
issued and fully paid for and
subsequently reacquired by the corp
(exception to watered stock)
Similarities: They are both reacquired by
the corp
8. Watered Stock – void, ito yung stock
na ibinigay pero walang bayad or hindi pa
fully paid.
9. Over-issued/Spurious Stock - fake
Example: 100k ang authorized capital
stock but ang inissue is 110k, so ito yung
over-issued.
10. Original/Formative – this is the
original number of shares from the
beginning.

11. Increased – pag itinaas yung original
number of shares from the beginning
Voting vs. Non-Voting Shares
5 Statutory restrictions/limitations
regarding the issuance no par shares:
1. 7 Entities not allowed to issue no
par shares:
 Banks
 Trust Companies
 Insurance Companies
 Pre-need Companies
 Public Utilities
 Building and Loan Associations
 Other corporations authorized to
obtain or access funds from the
public
2. Preferred shares of stock may be
issued only with a stated par value. In
other words, lahat ng preferred shares ay
may stated par value.
3. No par shares shall be deemed fully
paid, non-assessable, and not liable
for corporate creditors.
QUESTION: Saan applicable ang trust
fund doctrine? Sa par value or no par
value? – Sa par value, since yung no
par value is fully paid na and hindi sya
liable for corporate creditors.
4. No par value – the minimum
amount is P5.00.
5. The entire consideration for no par
shares shall be treated as capital and
they shall not be distributable as
dividends.
Par Value vs. No Par Value
Par Value
ADVANTAGES: (SEE THE BOOK)
 It is easily sold as the public is
more attracted to buy this kind of
shares since protected dito ang
creditor because nakalagay kung
magkano yung amount.
 There is greater protection to
creditors.
 There is unlikelihood of sale of
subsequently issued at a lower
price; and
 There is unliklihood of the
distribution of dividends that are
only ostensible profits.
DISADVANTAGES:
 Liable to corporate creditors
 The stated face value of the share
is not an accurate criterion of its
true value
No Par Value
ADVANTAGES:
 Issued as fully paid, non-
assessable, and not liable for
corporate creditors.
DISADVANTAGES
 They promote the issuance of
watered stock since hindi nga
alam dito yung true amount ng
value.
 They legalize large issues of stock
for property
  They conceal the money or
property represented by the
shares.
3 Limitations Regarding Issuance of
Preferred Shares
 They can vote but under ASIMID.
 They are always issued by a
stated par value
 The BOD fixes the consideration
thereof.
4 Shares deprived of voting rights or
shares na bawal bumoto:
 Redeemable
 Preferred
 Treasury
 Delinquent
SECTION 7 – Founder’s Shares
 Exclusive right to vote and be
voted for
 5 year limitation – duration of
founder’s shares right
 Approval of SEC is required
Redeemable vs. Treasury
Questions:
Kailangan ba ang stipulation para
maging redeemable? – YES
Kailangan ba ang stipulation para
maging treasury? – NO
Kailangan ba ang URE (Unrestricted
Retained Earnings) sa redeemable?
– NO
Kailangan ba ang URE (Unrestricted
Retained Earnings) sa treasury? - YES
Redeemable Treasury
Stipulation / x
URE x /
SECTION 8 – Redeemable Shares – no
votings rights/ no need for unrestricted
retained earnings (URE)
 These are the shares reacquired
by the corporation with the
stipulation that it can be
reacquired notwithstanding the
absence of URE.
SECTION 9 – Treasury Shares
Characteristics of TS:
 No voting rights/not entitled to
dividends
 Not part of outstanding/do not
revert to unissued shares
 It may be resold to a lesser price,
exception ito sa watered stock
since TS are shares which are
been fully paid but reacquired by
the corp either by purchase or
through other similar means.
 Not distributable as dividends
(Exception: property dividend)
 If ibinenta yung TS, the moment it
is resold – it is entitled to all the
rights and dividends. In other
words, hindi na sya considered as
treasury.
SECTION 10 – Number and
Qualifications of Incorporators
Corporators vs. Incorporators
Corporators
 Pertains to stockholders,
members of the corp
 The status is not permanent
because you can cease to be
 such the moment you sell your
shares
 No limit as to number
Incorporators
 They are signatories to the
articles of incorporation
 Does not cease to be such
because the status is permanent,
once an incorporator, forever an
incorporator.
 Minimum of 2, maximum of 15
Incorporator
Any person, partnership, corporation or
association, SINGLY OR JOINTLY.
QUESTION: Can an incorporator be a
combination of natural and juridical
person? –YES.
Can it be all natural person? – YES
Can it be all juridical person? –YES
Qualifications:
Natural person
- legal capacity (must sign AOI)
- must own 1 share
Juridical Person
- must own 1 share
SECTION 11 – Corporate Term
Prospective – the date of the effectivity
of the Revised Corp Code is Feb 23,
2019. What is the general rule for those
corp created after feb 23, 2019?
GR: Perpetual – meaning starting Feb
23, 2019, all corporations are now
perpetual
Exception: Fixed – if the corporation
have chosen fixed
GR in Exception: 3 years – period to
extend
Exception: It can be extended earlier if
there is justifiable reason which
should be approved by SEC.
Retroactive - the date of the effectivity of
the Revised Corp Code is Feb 23, 2019.
But what about those corp prior to feb 23,
2019? What is the general rule?
GR: Perpertual – they will also become
perpetual
Exception: If they have chosen fixed
What is the vote to decide or vote for
them to choose fixed? – Majority of OCS
(Outstanding Capital Stock)
What is the period to decide? – 2 years
Revival of Corporation
GR: Perpetual
Exception: Fixed
QUESTION: Are all corps entitled to be
revived? – NO.
What are those corporations allowed
to be revived?
 Corporations whose term expired
and they are not able to extend it
prior to the date of the effectivity.
 If their certificate was revoked
because of non-filing of reports
(they have to file a petition to lift
the revocation)
  If they were suspended (they have
to file a petition to lift the
suspension)
 If they were revived but their name
is now being used by other corp
(they have to change their corp
name because that is the
requirement under the present law
under the name verification)
What are those corporations not
allowed to be revived?
 They have already registered or
they have already extended their
term
 Their certificate was revoked
 Other than non-filing of reports,
they violated PD 902-A
 If the corporation is already
liquidated
What will happen?
- They will file a verified petition for
revival of corporate existence
- There are 5 procedure or process
and one of them is publication
Afterwards, SEC will issue:
 Certificate of Revival of Corporate
Existence
 Favorable recommendation of
appropriate government agency
There are memorandum circulars
issued by SEC in so far the incorporator
and corporator is concern.
SECTION 12 – Minimum Capital Stock
GR: There is no minimum capital stock
or there is requirement but there is
citizenship or percentage requirement
under the law.
Exception: If required by special laws
Percentage Requirement:
100% - example: mass media is
concerned
70%/30% - example: advertising industry
– meaning 70% Filipino, 30% any
nationality
60/40% - general rule here in the
Philippines. Examples: public utilities,
eduacational institution, exploration of
natural resources. 60% Filipino, 40% any
nationality.
Old Section 13 – REPEALED, but still
part of Sec.37
SECTION 13 – Contents of AOI
QUESTION: Are the provisions in here is
mandatory? –YES, you cannot remove
them but you can add other terms or
provision.
A. Name of Corporation – the name
should be distinguishable.
B. Primary Purpose and Secondary
Purposes – it is important because it
talks about express powers of the corp.
There could only be one primary purpose
and there could be so many secondary
purposes. The secondary purposes
should be related to primary purpose.
 If within the power of the corp –
Intra Vires
  If outside the power of the
corp– Ultra Vires
REMEDY if outside the power: It will be
ratify by 2/3 of OCS.
C. Principal Office – it is where the
stockholders meet and where they keep
books of corporation.
D. Term of Corporation – already
discussed in SEC 11
E. Stock Requirements – it is important
in so far as the certificate of treasurer is
concern.
F. Arbitration Agreement – may be
provided in the articles of incorporation
pursuant to 181 of the code. not
mandatory, only optional.
g. Non-stock Corp Requirements –
electronic filing is now allowed
SECTION 14 – Form of AOI
1st Provision – The name of the corp
should contain Inc, Corporartion, OPC.
That is to tell to the public that it is a
corporation.
5th Provision – Incorporators – the
name, nationality, and residence of
incorporators should also be provided
6th Provision – Incorporating Directors
– temporary directors
7th Provision – Authorized Capital
Stock requirements – the authorized
capital stock of the corp is ___ divided to
the number per share and the par value
of each.
8th Provision – No. of shares of ACS
9th Provision – Certification of
Treasurer - the 7th and 8th provisions
must be specified in the certification of
treasurer.
10th provision – Undertaking to change
the name
Voting Requirements
QUESTION: Who runs the corporation
or who is the governing body? – BOD,
initially they are the ones who will decide.
But there are instances where the
stockholders will decide. There are also
instances where both them will decide.
Stockholders
- Majority of OCS
- 2/3 of OCS – bigger in terms of
vote
BOD
- Majority of BOD
- Majority of Quorum of BOD
2 Provisions which are new voting
requirements under the Revised Corp
Code:
- Unanimous consent of remaining
BOD
- Self-dealing director
SECTION 15 – Amendment of AOI
Amendment – only a portion will be
changed.
Revised – the whole will be changed.
Non-Amendable Provisions:
- Name of Incorporators
- Original number of incorporators
- Date when they file or sign the AOI
Certain Instances or Powers which
require a different voting requirement
or Comparative Analysis of the Voting
Requirements:
Amendment of AOI – Majority + 2/3
Amendment of By-Laws – Majority +
Majority
Amendment of Close Corp – 2/3 of
OCS
Amendment in Co-op – 2/3 of MS
Amendment of Plan of Merger or
Consolidation – Majority + 2/3 Majority
+ 2/3
Amendment in Foreign Corporations
– there is no such vote but you have to
file it within 60 days.
Vote Required for Amendment –
Majority + 2/3
Date of Effectivity:
GR: Upon approval of SEC, issuance
of Amended COI
Exception: If not acted upon within 6
months, from the date of filing.
Meaning ang magiging date of effectivity
is yung date of filing na.
Example: ABC Corp files on Oct. 1,
2019. Normally, within the span of 2
weeks, the SEC is going to issue.
Supposed SEC issued on Oct. 16, 2019,
so this is the date of effectivity because
this is the date of issuance of the
amended COI.
But if for example 6 months na but hindi
pa rin inaapprove or dinidisapprove ni
SEC yung amendment, according to the
law by way of exception, we go back to
the date of filing and that will be the date
of effectivity. Sa example oct. 1 yung
date of filing so pag 6 months na and di
pa rin nag aapprove ang SEC, yung oct.1
ang magiging date of effectivity.
Appraisal Right:
Concurring - votes YES
Dissenting – votes NO. The dissenting
stockholder will be the one to withdraw
because he does not agree to the
amendment.
GR: Meeting is required
Exception: Meeting is not required
because what is required only is the
written assent of stockholders.
7 Favorable Recommendations of
Appropriate Government Agency:
 Banks
 Banking and Quasi Banking
 Pre-need
 Insurance and trust companies
 Non-stock savings and loan
associations (NSSLA)
 Pawnshops
 Other financial intermediaries
SECTION 16 – 5 Grounds when AOI or
Amendment thereto may be
disapproved or reject by SEC:
a. not in prescribed form (sec.14)–
meaning they did not comply with sec.14
b. illegal purpose (sec.13) – example: it
is engaged in prostitution
c. certification is false (sec.14)
d. percentage required not complied
(sec.12)
e. no favorable recommendation
PD 902-A (Presidential Decree No.
902-A) – Suspension or Revocation of
Certificate of Incorporation. This is the
law creating the SEC.
Under this law, the SEC can suspend
or revoke the COI under 6 grounds or
instances:
Mnemonic: FRA SE RE CO FA FA
1. Fraud in procuring the COI
2. Serious misrepresentation as to what
the corporation can do
3. Refusal to comply with the SEC order
4. Continous in operation for a period of
at least 5 years
5. Failure to file by-laws
6. Failure to file the required reports
SECTION 17 – Corporate Name
QUESTION: Can you change corporate
name? – YES
Vote required to change – Majority +
2/3
Effect of change of name – same corp
but under a diff name
Why is a corporate name not
distinguishable? - Name shall not be
allowed if – not distinguishable (3
instances):
1. Already reserved or registered
2. Already protected by law
3. When it is contrary to existing laws,
rules or regulations
When is a corporate name not
distinguishable? - A corporate name
is not distinguishable even if it
contains one or more of the following:
a. Corp/Company/Incorporated
b. Punctuations, Conjunctions,
Contractions, Prepositions,
Abbreviations, Different Tenses,
Spacing, Number of the same word or
phrase
Effect of violation if corporate name is
not distinguishable and the
corporation is still using it
SEC will summarily order:
1. Cease and desist order
2. Removal of all visible signages
3. Not withstanding the first two orders,
the corp fails to comply – CONTEMPT
4. Administratively/Civilly or Criminally
liable
5. Revoke the COI
The SEC will issue a certificate of
incorporation under the amended
name if the corporate name is
distinguishable.
SECTION 18 – Registration,
Incorporation and commencement of
corporate existence
Before – the corp will file the AOI and
the SEC will issue COI
Now - name verification is required.
The name will be verified under section
17 if it is distinguishable because if it is
not distinguishable, the SEC will not
allow it.
 If distinguishable - the SEC
requires the corporation to submit
the AOI.
 If compliant - meaning there is no
illegality and all reqs have been
complied – SEC will issue COI.
Issuance of COI – it is the start of the
corporation
Effect of Issuance of COI:
Right to Exist – YES. The corporation is
already existing.
Right to Operate – NO, because there
are 3 things that the corporation must
do:
1. Elect the BOD
2. Elect the Officers
3. File the by-laws
Effect of non-issuance of COI (If the
SEC does not issue the COI but the
reqs have been met by the corp)
 The corporation can file the case
for MANDAMUS – to compel the
issuance or performance of an
act. Mandamus is a remedy to be
filed against the SEC if the SEC
refuses to issue the COI.
Discretionary Act vs. Ministerial Act
Discretionary Act – it is optional on the
part of SEC to issue
Ministerial Act – it is mandatory on the
part of SEC to issue
Question: If the corp has met all the
reqs, is it discretionary or ministerial act
on the part of the SEC to issue?
– Ministerial Act
SECTION 19 – De Facto Corporation
De Jure – all legal reqs have been met
De Facto – some of the reqs have not
been complied
4 Requisites of De Facto Corp:
1. Valid Law – RA 11232
2. Attempt to incorporate/organize –
meaning the corp has file the name
verification, the articles
3. Actual user of corporate name –
meaning the corp elected the BOD, the
officers and file the by-laws, it is
operating.
4. Issuance of COI despite non-
compliance with the legal
requirements
QUESTION: Does de facto have
Articles of Incorp and Certificate of
Incorp? – YES
The problem is the certificate is
issued but there is something
violated, the examples are:
1. Corp name resembles – it is not
distinguishable
2. Forgery in AOI
3. Citizenship
4. Percentage Requirement
Technically, is de jure and de facto
corp the same? – YES, the only
distinction is that de facto corp can be
subjected to direct attack or quo warranto
proceeding which will be filed by the
solicitor general.
Remedy against De Facto – QUO
WARRANTO
 Quo Warranto is questioning the
legal existence of the corporation.
The solicitor general or Sol Gen
is the only one or will be the one to
file the case questioning the legal
existence.
Direct Attack vs. Collateral Attack
Direct Attack – directly questioning the
legal existence of the corp, it is the QUO
WARRANTO proceeding tfiled file by the
Sol Gen.
Collateral Attack – it is not allowed or
not subjected against de facto
corporation.
Example: ABC Corp is a de factor corp.
The corp extended a loan to D. D does
not want to pay because according to him
the corp is a de facto corp. The act made
by D is collateral because even though
ABC corp is a de facto corp, only the Sol
Gen who can file the case. Anyone
questioning the legal existence of the
corp which is not a QUO WARRANTO
proceeding or not filed by a Sol Gen, it is
a collateral attack.
SECTION 20 – Corporation by
Estoppel/Ostensible Corporation
De Jure vs. De Facto vs. Estoppel
De Jure – complied with all the reqs of
the law
De Facto – it has AOI and COI but it
failed to satisfied one or some of the reqs
under the law which is why it can be
subjected to quo warranto proceeding.
Corporation by Estoppel – no AOI and
COI, basically it is not a corp, it is not de
jure, it is also not de facto
Effect if it is Corporation by Estoppel
– the persons comprising it are liable as
general partners and as GP, they are
liable up to the extent of their separate
property.
Ostensible Corporation/Estoppel –
not allowed to use it as a defense. If
you are corp by estoppel/ostensible corp,
you cannot use it as a defense so that
you cannot be liable or you can evade
your liability.
SECTION 21 –
Non-Use of Corporate Charter – From
the issuance of COI, the corp did not do
anything for the first 5 years, the corp did
not elect the BOD, the officers, and not
file by-laws.
Continuous Inoperation – From the
issuance of COI, the corp did something
for the first 5 years, but afterwards for the
period again of 5 years, they stop the
operation.
Why is it important to know the
distinction? – To know the effect.
Effect of Non-Use – the COI is deemed
revoked
Effect of Continuous Inoperation – the
corp will be placed under delinquent
status for 2 years. During the 2 year
period, the corp will be given time to
operate again and if it is:
If compliant – order is lifted, meaning it
is now again a valid corporation
If not compliant – revocation of COI will
happen
Old Revised Co-Op
Non Use 2 yrs 5 yrs
Continuous 2 yrs 5 yrs
Mandamus vs. Quo Warranto
Mandamus – compelling
performance of an act
Quo Warranto – questioning the legal
existence of the corp, it is a legal or direct
attack
Non-Use vs. Continous Inoperation
– both 5 years
Section 16 vs. PD 902-A
Section 16 – 5 grounds
PD 902-A – 6 grounds – FRA SE RE CO
FA FA
SECTION 22 - Talks abt BOD/BOT and
Officers
Stock Corporation
Stockholders will elect -- BOD will
appoint – Officers
Non-Stock Corporation
Members will elect -- BOD Members
will also appoint – Officers
Close Corporation
There is no need to elect for the BOD
because stockholders will
automatically become the members of
the BOD. Stockholders will be the one
to appoint the officers and employees.
SECTION 22 – Stockholders will elect -
- BOD will appoint – Officers
What is the main function of the
2 yrs Stockholders? – They have indirect
control
2 yrs
What is the main function of the BOD?
– Governing body, meaning they are the
one deciding
the
What is the main function of the
Officers? – Manage the day-to day
affairs
*In other words, the BOD lays out the
policies and the officers execute the
policies.*
General Rule: The BOD decides
Exception: There are 3 instances when
it’s not the BOD who decides:
1. Close Corporation – the stockholders
will decide
2. Executive Committee – they are
going to create a smaller BOD
3. Management Contract – meaning
another corporation will be the one
deciding instead of BOD of the said corp.
Term of Office – 1,2,3,5
1 year – for the BOD
2 years - for the cooperatives
3 years – for the non-stock corporation
5 years – for the non-stock educational
corporation
No. of Directors
GR: 1-15
Exception:
1. Corporation Sole – only one
incorporator and he will be the director
also
2. OPC – only one director
3. Non-stock corporation – the
minimum is 5 but it can be more than 15
4. Close Corporation – BOD should not
exceed 20
5. Non-Stock Educational Corp – 5-15
BOD
Qualifications of BOD
Old Rule/Law – 4 qualifications
Now/Present Law - 3 qualifications:
1. He must own at least 1 share
2. The share must be registered in his
name
3. It must be continuously registered in
his name for the period of 1 year
QUESTION: What if the BOD losses all
the shares in 1 year? - He ceases to be
a BOD, because he must own at least
1 share to be qualified as a BOD.
Requirements for Corporations
vested with public interest:
3 Corporations Vested with public
interest: (S,B,O)
 Securities
 Banks
 Other Cases
The board of the following corporation
vested with public interest shall have
independent director constituting at
least 20% of BOD. For the director, you
need independent director.
Independent Directors – must be
elected by the shareholders present or
entitled to vote during the election.
Independent directors shall be subject to
the rules and regulations governing the
qualification, voting reqs, etc.
Doctrine of Hold-Over – the term of the
BOD is 1 year, supposed the 1 year
period lapsed and still they have not
elected the BOD, the one who will serve
as the BOD is still the previous BOD
meaning they will continue to function as
such until a new set of BOD is elected.
7 Limitations/Conditions for Elections
or for the BOD that will be elected:
1. Stockholders presence in person or
by written proxy or by remote
communication or absentee voting
2. Election by ballot if requested (if not
viva voce) – normally in the election of
BOD, it is by viva voce voting or by
raising of hands.
3. No delinquent stock shall be voted
Unpaid shares vs. Delinquent stock
 Can vote - Cannot vote
4. Plurality of votes – BOD are elected
by plurality of votes, not majority.
5. Required notice must be given
6. Quorum:
 For stock corp – the requirement
is majority of OCS
 For non-stock corp – the
requirement is majority of the
members
If there is no quorum, they cannot
hold the meeting.
7. Only voting shares can vote
Methods of Voting (Section 23)
Formula: No. of shares x No. of
directors to be elected = Votes
Example: Supposed A has 20 shares
and there are 5 directors to be elected.
(20 shares x 5 directors = 100 votes)
3 Methods of Voting
1. Straight Voting – the votes will be
given or divided among all the directors
equally. In our example we have 100
votes in total, so out of 100 votes, we are
going to give 20 votes each or equally to
the 5 directors.
2. Cumulative Voting For One
Candidate – we are going to choose 1
director among all the directors and give
him all the votes.
3. Cumulative Voting by Distribution –
you can choose 2 or 3 persons but not all
will be given the necessary votes.
Voting in Non-Stock Corporation
- May cast as many votes but may
not cast more than 1 vote for a
candidate
GR: No cumulative voting – it is not
allowed
Exception: Unless allowed by by-laws/
by AOI
SECTION 23 – Election of BOD/BOT by
the Stockholders
2 Manners of Voting:
 Direct Voting – the stockholder
will be the one to attend
 Indirect Voting – by proxy, by
executor, by administrator
QUESTION: How do we classify voting
by remote communication? – Direct
Voting because it is still the stockholder
who will vote but he will be voting in a
remote communication or by
online/internet.
Theory of Original Power – BOD’s
power is original and undelegated.
Remedies in case of BOD
Mismanagement: (RID)
 Receivership – the corporation will
be manage by another entity or
person
 Injunction – the SEC is going to
order the stoppages
 Dissolution
 Derivative Suit – it is a suit filed by
the stockholder in the name of the
corporation for the benefit of the
corp in case BOD does not like to
file or mismanagement
GR: Inherent Power of Amotion
QUESTION: Can the stockholders
remove the BOD at any point in time?
– YES, we call it inherent power of
amotion. The BOD are removable at any
point in time with or without valid ground
by the stockholders.
Exception: if BOD was elected by
minority through cumulative voting - there
must be a valid ground for the removal
SECTION 24 – Corporate Officers
GR: Officers are elected/appointed by
the BOD
Exception:
1. In non-stock – members elect the
officers
2. In close corporation – stockholders
elect the officers
Term of Office – it may be fixed in By-
Laws but they can be removed anytime
by BOD.
QUESTION: If you are a stockholder,
BOD, or officer of another corporation,
can you be a BOD, stockholder, or officer
of another corp? – YES.
GR: There is no prohibition, the law
does not cover the situation
Exception: If it is prohibited in the by-
laws
Qualifications of Officers
President – must be a director
Secretary – must be both a resident
and citizen because he is the one who
keeps the corporate books and he is the
one to call the meetings.
Treasurer – must be resident
PROHIBITION:
Can the president be the secretary at the
same time? –NO.
Can the president be the treasurer at the
same time? –NO.
Exception: One Person Corporation –
because they allowed the president and
treas to be the same person subject only
to the condition that the treasurer must
give a bond.
Compliance Officer – Corps vested of
public interest, mandatory requirement
meaning for the officer, they need
compliance officer.
Requisites for Board Meeting:
- In this meeting, the BOD/BOT will be
the one to hold the meeting
1. Meeting of BOD/BOT duly assembled
2. Presence of Quorum
3. Decision of Majority of Quorum
4. Meeting at time place and manner
provided in the by-laws
Quorum vs. Majority of the Quorum
Quorum – 50% of the BOD + 1
Majority of the Quorum – based on the
BOD/BOT present which means 50% of
the quorum + 1
Example: Supposed the BOD is 15, the
quorum is 8 (50% of the BOD +1) and
the majority of the quorum is 5 (50% of
the quorum +1).
REMEMBER:
To hold the meeting – we need the
quorum
To decide on the meeting – we need
the majority of the quorum
*If there is majority of the quorum –
there is VALID CORPORATE ACT,
meaning the decision of BOD/BOT will
become valid.
Example: Supposed there is 15 BOD.
Out of 15, 5 died. So only 10 remains.
What is the quorum? – Still 8 (50% of
BOD + 1) because we are going to base
the 8 on the original 15 BOD, and not on
the 10 remaining.
REMEMBER: Regardless of whether the
BOD died, resigns, or withdraw, we are
still going to base the quorum on the
original number of BOD or on the stated
number of BOD in the AOI.
SHs BOD
Proxy Voting / x
Telecom/Telecon / /
SECTION 25 – Report of Election of
BOD/Officers
Reporting – within 30 days after the
election, you are supposed to report the
election.
Non-Holding – supposed the election
originally scheduled did not push
through, are we going to report it? – YES,
the non-holding must be report within 30
days from the date of the scheduled
election.
New date of election – not later than 60
days from the scheduled date
Effect of no election is still held – SEC
can summarily order that an election be
held because the corp failed to hold the
election for the new date.
If Director/Trustee/Officer dies,
resigns, withdraws, etc. - must be
report it within 7 days from knowledge.
SECTION 26 – Disqualification of
Directors/Trustees/Officers
3 Major Grounds for Disqualification
of D/T/O: (Mnemonic - FFF)
1. Final Judgment
2. Fraudulent Act
3. Foreign Court
A person shall be disqualified from
being a D/T/O of any corporation:
If within 5 years prior to the election or
appointment – he committed or was
found guilty on any of the 3 major
grounds for disqualification:
1. Convicted by FINAL JUDGMENT
3 Offenses:
1. Offense exceeding 6 years (Example:
Robbery, homicide, theft, estafa, rape)
2. Violating corporation code
3. Violating RA 8799 (Securities
Regulation Code)
2. Found administratively liable for
any offense involving FRAUDULENT
ACT
Example of fraudulent acts: Meeting for Removal – majority of OCS
Misappropriation of the funds of the corp, is required
forgery of document Removal of BOD – 2/3 votes of OCS is
required
3. FOREIGN COURT – (violation of
either first or second ground for QUESTION: What is easier, electing or
disqualification in a foreign law or removing the BOD? – It is easier to elect
country) the BOD because the only required is
majority of OCS.
Evidence Required:
Criminal/Delict – proof beyond GR: Inherent Power of Amotion
reasonable doubt  BOD are removable at any point in
Civil/Quasi-Delict – preponderance of time with or without valid reason/
evidence ground by the stockholders.
Administrative – substantial evidence Exception: if BOD was elected by
minority through cumulative voting –
REMEMBER: SEC and PCC there must be a valid ground for the
(Philippine Competition Commission) removal.
can impose additional or other
qualifications or disqualifications for SECTION 28 – Vacancy in BOD
D/T/O aside from the mentioned. Who will fill out the vacancy? – the
stockholders or BOD
SECTION 27 – Removal of
Directors/BOT 5 instances when the stockholders
can fill out the vacancy:
Who elected the BOD? – Stockholders 1. Expiration of term – the term of BOD
Who will remove the BOD? is 1 year, after 1 year the stockholder can
– Stockholders fill out the vacancy
Can the BOD remove another BOD? 2. Removal of BOD
–NO. 3. Increase in number of BOD
Can the officer remove the BOD? – 4. No Quorum
NO. 5. Quorum + Delegation
*Under the new rules: SEC can now
remove the BOD if he is found to be When can BOD fill out the vacancy? 2
disqualified Instances
1. Quorum + No delegation
Required:  Grounds: Death of BOD,
Vote for election – majority of OCS is resignation, Withdrawal
required 2. Emergency Board
Period to Fill Out the Vacancy:
a. If term expires – no later than the
day of the expiration (example:
supposed today is the expiration, so
today is also they day they must fill out
the vacancy)
b. Removal – same day (if the BOD is
removed today, they must also fill out the
vacancy today)
c. Other grounds – within 45 days
from the vacancy (if the grounds are
resignation or withdrawal)
REMEMBER:
Who can elect? – STOCKHOLDERS
Who can remove? – STOCKHOLDERS
Who can fill out vacancy? –
STOCKHOLDER OR BOD
Emergency Board
Creation of the emergency board:
Vote – unanimous consent of all
remaining directors/trustees
Example: Supposed there are 15 BOD
and 10 of them died. There are 5 BOD
remaining. So we need the unanimous
consent of the 5 remaining BOD/BOT
in order to create emergency board.
Ground: To prevent grave, substantial or
irreparable loss to the corporation.
 There is no quorum + vote
required is unanimous consent.
 Limited to emergency action
 Shall cease within reasonable
time
 From officers (we will get the
members of emergency board
from the officers)
 Notification should be made within
3 days
SECTION 29 – Compensation of
Directors
GR: Directors are not entitled to
compensation
Exception: If the by-laws provide or the
vote of the stockholders will give them
the right to compensation.
Vote to grant compensation: Majority
of OCS
 The stockholders will give the
BOD a compensation by the
vote of majority of OCS.
 The BOD will give the
stockholders a dividend by the
vote of the majority of quorum
of BOD.
QUESTION: Can the directors give to
themselves compensation? –NO,
directors cannot grant compensation
to themselves.
Limitation to the grant of
compensation – 10% rule (in no case
shall the total yearly compensation of the
directors exceed 10% of the net income
before income tax of the corp during the
preceding year)
*Annual Report Requirements for
corporations vested of public interest
– they supposed to submit the annual
report reqs to the SEC.
SECTION 30 – Liability of Directors,
Trustees, or Officers (DTO)
GR: Business Judgment Rule
– Members of the BOD are not liable
for their decisions made in good faith
even though the corporation later on
suffered loss.
Exception: Instances when the BOD
become liable - if the 3 fold duty will be
violated:
3 Fold Duty/Rule for BOD: (Mnemonic:
OLD)
- Obedient
- Loyal
- Diligent
1st paragraph – Violation of OLD (D/T)
3 violations or 3 instances of Solidary
Liability: *If any of these three is
violated, the director will be solidarily
liable for damages:
1. Willfully and knowingly vote or assent
to potently unlawful acts of the
corporation. (In here, the
director/trustee violated the duty of
obedience)
2. Guilty of gross negligence or bad faith
in directing the affairs of the corp. (In
here, the director/trustee violated the
duty of diligence)
3. Acquires any personal or pecuniary
interest in conflict of his duty as a director
or trustee. (In here, the director/trustee
violated the duty of loyalty)
2nd paragraph – Special Fact Doctrine
(D/T/O)
QUESTION: Who knows the secret of
the corporation? – Primarily it is the
directors, trustees or officers.
Special Fact Doctrine - The director
takes advantage of ANY information
acquired by virtue of his office to the
disadvantage of the corporation.
Question: Supposed the D/T/O were
able to get profits because of the
information, what are the effects?
2 EFFECTS:
1. Liable as trustee
2. Must account for the profits
SECTION 31 – Dealing of Directors,
Trustees, or Officers of the Corporation -
“Self-Dealing Director”
*Section 31 not only covered D/T/O
but now covered/included also the –
spouses/relatives in the 4th civil
degree of consanguinity (by blood) or
affinity (by law relationship).
GR: Dealing is valid provided all the 4
or 5 requisites are present: 4
requisites if it is not a corporation vested
with public interest. 5 requisites if it is a
corporation vested with public interest.
Vote required if it is corporation
vested with public interest – 2/3 of the
entire membership of the board +
majority of the independent directors.
5 requisites:
1. The presence of such director or
trustee in the board meeting in which the
contract was approved was not
necessary to constitute a quorum for
such meeting;
2. The vote of such director or trustee
was not necessary for the approval of the
contract;
3. The contract is fair and reasonable
under the circumstances;
4. In case of corporations vested with
public interest, material contracts are
approved by at least two-thirds (2/3) of
the entire membership of the board, with
at least a majority of the independent
directors voting to approve the material
contract; and
5. In case of an officer, the contract has
been previously authorized by the board
of directors.
If any of the first 3 conditions or
requisites are absent– it becomes
VOIDABLE at the option of corporation.
First 3 conditions/requirements:
1. Quorum Requirement
2. Approval of the act
3. The contract is fair and reasonable
REMEDY if it is violated: Ratification by
vote of 2/3 of OCS approving the act +
full disclosure of the adverse interest.
Normally, BOD votes in this manner –
by the majority of BOD and by majority of
the Quorum of BOD.
2 New Votes:
1. Emergency Board
2. Self-Dealing Director
REMEMBER: Is self-dealing director
valid or voidable?
Valid - if the 4 or 5 requisites are not
violated.
Voidable - if the first 3 requisites are
violated but it can be ratified by the vote
of 2/3 of OCS.
SECTION 32 – Contracts between
corporations with Interlocking
Directors
Interlocking Doctrine – when one,
some, or all of the directors are basically
the same.
GR: VALID (the interlocking doctrine is
valid)
Exception: It becomes invalid only if:
a. In case of fraud
b. Contract is not fair and reasonable.
TEST:
If the share of stockholder is minimal
– it is not violated
If it is substantial – stockholdings
exceeding 20% of the OCS shall be
considered substantial. If it is violated, it
is voidable but it can be ratified by the
vote of 2/3 of OCS.
Example: Suppose ABC Corp has 10
BOD and XYZ Corp has 8 BOD. They
have the same set of directors.
QUESTION: Is that a violation of Section
32? – No, provided it will not violate
the substantial rule or the stockholdings
of the same directors of the corp will not
exceed 20% of the OCS.
SECTION 33 – Disloyalty of Director or
Seizing Corporate Opportunity
Section 30 vs. Section 33
Section 30
 covers 3 kinds of persons:
Director, Trustee, and Officer
 covers any interest
 no vote to ratify
Section 33
 covers only 1 person: Director
 covers business opportunity
 vote of the 2/3 of OCS to ratify
SECTION 33 – Director acquires a
business opportunity which should
belong to the corporation, thereby
obtaining profits to the prejudice of the
corporation.
REMEMBER: The director is occupying
a position which entails a confidential
information and he used it to acquire a
business opportunity.
Effect of Violation or Disloyalty of the
Director:
1. Must account for the profits
2. Refund all profits to the corporation
*This provision of Section 33 is
applicable not withstanding that the
director risked his own fund.
SECTION 34 – Executive,
Management, and other special
committees
BOD will create a smaller BOD
ExCom - smaller BOD, one of the
reasons why excom or smaller bod is
created because they want to have a
lesser quorum requirement.
Requisites in creating ExCom:
1. By-laws must provide for it
2. It must composed of not less than 3
members of BOD
3. Must be directors of corporation
4. BOD will create the EXCOM
Vote to create the ExCom – majority of
the BOD
Vote to decide – majority of all its
members
5 instances when ExCom cannot vote
or cannot change the decision of SHs
and BOD:
1. Approval of any action for which
shareholders’ approval is also required;
2. Filling of vacancies in the board;
3. Amendment or repeal of bylaws or the
adoption of new bylaws;
4. Amendment or repeal of any resolution
of the board which by its express terms is
not amendable or repealable; and
5. Distribution of cash dividends to the
shareholders.
*In all these instances, it’s either the
BOD or stockholders or both of them
who will decide. The ExCom cannot
change the decision of the
stockholders or BOD.
*The BOD can also create special
committees (whether the committee is
permanent or temporary nature)
POWERS OF CORPORATION
SECTION 35 – Corporate Powers and
Capacity
Doctrine of Limited Capacity - (E/I/I)
– the corporation cannot exercise the
power which is not found in the express,
implied, inherent. It is only limited to the
E,I, and I power. This is what we followed
in the Philippines, not the theory of
general capacity and special capacity.
Theory of General Capacity – the
corporation can exercise any power
except those which are prohibited.
Theory of Special Capacity – the
corporation can exercise those powers
which are specially prohibited meaning
everything is prohibited except those
which are expressly allowed.
3 kinds/Classes of Powers
1. Express – the power is stated in RA
11232 or the Revised Corp Code or
primarily in the AOI
2. Implied – it is reasonably necessary
to carry out the express power. In other
words, implied power it is not mentioned
in the AOI but the corporation has to do
that otherwise, the express power will not
materialized. Implied is not written but it
can be exercised by the corp because it
is reasonably necessary.
3. Inherent/Incidental – automatically
given to the corporation by the mere fact
that it is a corporation. Example: power of
succession, power to sue/be sued, power
to create by-laws, power to have
corporate name.
Express Powers: Important
Provisions of Sec 35. Every
corporation incorporated under this
Code has the power and capacity:
a) Sue and be sued - If the corporation
is not registered, that’s a problem
because it can be sued but it cannot sue.
QUESTION: Is the corporation entitled to
moral damage?
GR: NO, because it has no feelings. Only
natural persons can recover moral
damages.
Exception: In case of tainted or ruined
reputation, corp can now recover moral
damages.
b. Power to acquire properties:
Private Lands – YES, the corp can
acquire it.
Public Lands – NO, the corp cannot
acquire it but it can lease the said public
lands up to the extent of 1,000 hectares
and for a period of 25 years only.
c. Acquire Shares
Own shares – the corp can acquire its
own shares. There are two requisites
which must be present: (1) presence of
unrestricted retained earnings and (2)
there must be a legitimate corporate
purpose
Shares of another corporation – can
the corp acquire shares of another corp?
– if it is the primary purpose – YES. If it is
not – you need the vote of the
stockholders and BOD to exercise the
power because it is not an express
power.
d. Contribute to Charity/Political Party
– domestic corporation are allowed to
contribute under the revised code and
the prohibition only applied to foreign
corp.
e. Such other powers as may be
necessary (Implied) – the corp can
exercise other powers as may be
reasonably necessary.
Doctrine of Corporate Immunity – it
protects a person acting in behalf of the
corporation from being personally liable
for its authorized actions.
SECTION 36 – Power to extend or
shorten corporate term (FIXED)
Electronic sending of notice – no
problem with that, it is allowed
Vote required to extend or shorten
corporate term – Majority of BOD + 2/3
of OCS
Appraisal Right – available in case of
extension of corporate term
SECTION 37 – Power to Increase or
Decrease Capital Stock; Power to
Incur or Increase Bonded
Indebtedness
The corp has the power to increase or
decrease Capital Stock.
Limitations:
1. Over-issued Stock – Increase of
Capital Stock
 If the corp will increase the Capital
Stock – they cannot increase if it
is not yet authorized by the BOD
and stockholders. Otherwise, it
will result to over-issued stock.
2. Trust Fund Doctrine – Decrease of
Capital Stock
 If the corp will decrease the
Capital Stock – they cannot
decrease it if you will violate the
trust fund doctrine. The corp
cannot decrease capital stock if it
will prejudice the corporate
creditors.
How the corp increased the Capital
Stock? There are 3 ways:
1. By increasing the number of shares
2. By increasing the par value of the
shares
3. By increasing both the number of
shares and par value of the shares
Vote required to increase or decrease
capital stock – Majority of BOD +2/3 o
OCS
Prior approval of SEC and PCC
– prior approval of SEC is needed in
increasing or decreasing capital stock but
with regards to PCC requirement, it is
only needed in some instances or if the
law requires it to be approved by the
PCC.
Application in SEC for the increase or
decrease of CS
GR: the application for the increase or
decrease of CS must be made within 6
months from the date of the approval of
the BOD and stockholders.
Exception: Only if there is justifiable
reasons, the corp can ask for the
extension.
Requirement for Increase of CS – 25%
25% requirement. At least twenty-five
percent (25%) of the increase in capital
stock has been subscribed and that at
least twenty-five percent (25%) of the
amount subscribed has been paid in
actual cash to the corporation or that
property.
- This 25% 25% requirement has
been removed in section 13 but it
is still present in section 37.
If the corp will going to incur bonded
indebtedness:
Requirement: Bonds must be
registered in SEC
Section 38 – Power to Deny Pre-
emptive Right
Pre-emptive Right – before the shares
of the corp are sold to the 3rd person or to
the public, it must be first offered to the
existing stockholders.
Why? Because it will affect the
Management, Profit, Asset of the
stockholder.
GR: Pre-emptive right is given
Exception: Denial or the corp is going to
remove the right
2 ways of removing the right:
1. If from the start it is stated in the AOI
that there is no pre-emptive right.
2. If the denial is not in the AOI, it can be
denied by the vote of the Majority of the
BOD + 2/3 of the OCS.
Exception to the Exception: No need to
deny the pre-emptive right because it is
already denied under 3 instances:
(Mnemonic: LCD)
L – Laws requiring minimum stock
offerings
C – Corporate purposes
D – Contracted Debt
Remaining Unsubscribed Shares
Do we always exercise or is the pre-
emptive right always given?
Example scenario: If all the shares are
sold at the START for example the corp
has 100,000 shares and the corp sold all
the shares to the public. However, only
80% of shares are sold to the public, and
later on the corp wants to sell the
remaining 20% shares. Do they have
the pre-emptive right over the 20%
remaining? – NONE, because all the
shares was initially sold.
Another example: Shares sold are
specified, supposed out of the 100,000
shares given in the 1st example, only 50%
were sold. So here, there is a certain
portion specified. We have remaining
50%. In the 50% remaining, does the
corp has pre-emptive right? –YES.
*In conclusion, if all the shares are
sold at the START, there is no pre-
emptive right at the remaining shares.
On the other hand, if shares sold are
specified, there is a pre-emptive right
over the remaining shares.
Section 39 – Sale or Other Disposition
of Stock
The disposition includes not only selling,
it includes leasing, exchanging,
mortgaging, pledging, or otherwise
disposing of the property.
Can the corporation sale asset?
– YES.
GR – If the selling is necessary in the
regular and usual course of business, the
corp can sell assets.
Vote required in selling asset: If the
selling is for a primary purpose
because it is done in the regular course
of business – Majority of the BOD,
because the BOD is the governing body.
Exception – If it is not for a primary
purpose because it is not done in the
regular course – the vote required is
Majority of the BOD + 2/3 of OCS
Exception to the exception – Vote to
abandon or if the corp decided not to sell
the asset anymore – vote required is
Majority of the BOD
*Section 39 must comply with RA
10667 – the law says that it must comply
with the PCA (Philippine Competition
Act) in certain instances.
When is the selling a selling of all or
substantially all?
TEST: If it would render the corporation
incapable of continuing the business, the
approval of Majority of the BOD + 2/3 of
the OCS is required.
Can the corp exercise the appraisal
right if they are going to sell? – YES.
Who exercises the appraisal right?
– Only the dissenting stockholder.
SECTION 40 – Power to acquire own
shares
2 requisites to acquire own shares:
1. It must be for legitimate corporate
purpose
2. The presence of Unrestricted Retained
Earnings
Corporation shall have the power to
purchase or acquire its own shares for a
legitimate corporate purpose or purposes
under these instances:
3 Grounds/Instances
1. To eliminate fractional shares
2. To collect or compromise an
indebtedness to the corporation
3. To pay the dissenting or withdrawing
stockholders entitled to payment for their
shares
Other Instances:
Redeemable/Treasury/Sec 103 under
close corporation
SECTION 41 – Power to invest
corporate funds in another
corporation or for another purpose
GR: If the investment of corporate funds
in another corporation or for another
purpose is the primary purpose – the
vote required is Majority of the BOD
Exception: Other than primary purpose
– vote required is Majority of BOD +
2/3 of OCS
Exception to the exception – if
reasonably necessary to accomplish its
primary purpose (meaning it is IMPLIED),
the vote required is Majority of BOD
SECTION 42 – Power to declare
DIVIDEND
2 Requisites to declare dividend:
1. The presence of URE
2. A valid BOD Resolution
Kinds/Classes of Dividend
 Scrip Dividend
 Cash Dividend
 Stock Dividend
 Property Dividend
 Optional Dividend
Vote required to declare dividend:
GR: Majority of the Quorum of the BOD
Exception: If Stock Dividend – the vote
required is Majority of the Quorum of the
BOD + 2/3 of the OCS
 QUESTION: Why is the approval
of the OCS is needed when it is
stock dividend? – Because of the
pre-emptive right
Declaration of Dividend
GR: It is not mandatory for the corp to
declare dividend because that’s the
prerogative of the BOD.
Exception: If it is in excess of 100% of
Paid-in Capital Stock (PCS), it becomes
mandatory on the part of the corp
Exception to the exception
– declaration of dividend is not
mandatory even if it is in excess of 100%
of PCS under 3 instances: (Mnemonic:
ELS)
1. Expansion projects
2. Loan agreement
3. Special circumstances
Effect of Delinquency of Stock
GR: If the stock becomes delinquent, all
the rights are suspended or withheld
except the right to receive dividend.
Are delinquent stock entitled to
dividends? - YES
Cash Dividend – under the law, it will
be applied to the delinquent stocks
Stock Dividend – it will be withheld
from the stockholder
Cash Dividend vs. Stock Dividend
Cash Dividend
 The vote required is Majority of
the Quorum of the BOD.
 If the cash dividend is issued, it
belongs to the stockholders
 Does not increase the corporate
capital
 It creates a debt on the part of the
corp
Stock Dividend
 The vote required is Majority of
the Quorum of the BOD + 2/3 of
the OCS
 If the stock dividend is issued, it is
still in the property of the corp.
 It increase the corporate capital
 No debt is created
SECTION 43 – Power to Enter in
Management Contract
There are 2 corporations here:
1. The managing corporation
2. The managed corporation
Why is it necessary for the
corporation to enter into a Effect: Valid
management contract? – Because
another corp will be managing it for the
reason if they obtain a loan in another
institution like bank or another entity and
part of the condition is that the said bank
or entity will be the one to manage the
corp.
In managing corporation:
GR: Vote Required - Majority of the
BOD + Majority of the Stockholders
In managed corporation
GR: Vote Required - Majority of the
BOD + Majority of the Stockholders
Exception: The managed corp will
increase it vote – the vote required will
be Majority of the BOD + 2/3 of the
OCS if under these 2 instances:
1. The stockholders control more than
1/3 of the OCS of the same managing
and managed corp.
2. If they have interlocking directors –
majority of the BOD are the same
Period for Management Contract
GR: 5 years
Exception - More than 5 years if it is an
exploration of natural resources
SECTION 44 – Ultra Vires Act
Presumption - the act of the corporation
is within corporate powers
Intra Vires vs. Ultra Vires vs. Illegal Act
Intra Vires – within the power of the corp.
Ultra Vires - outside the power of the
corp, meaning it is not stated/found in the
AOI. Voidable. It can be ratified. The vote
to ratify is 2/3 of the OCS. When the corp
ratified, the ultra vires will become valid
since the stockholders have given their
consent.
EFFECT if it is an Ultra Vires Act: the
corporation is not liable because it is
outside its power. Unless it is ratified by
the stockholders, that is the time the corp
will be liable.
Illegal Act – it is prohibited by law, the
corporation cannot exercise such act or
power. It cannot be ratify.
BY-LAWS – internal rules of the
corporation
AOI vs. By-laws 3. Adoption/Creation of by-laws (Section
AOI 45)
 Condition precedent
 Filed at the start 3 QUESTIONS OF BY-LAWS:
 AOI is for third persons because
they want to know if it is within the When made or when do you file by-
power of the corp. laws?
 It is the fundamental law It can be made:
 The AOI is superior Prior to Incorporation – simultaneously
 with AOI or filed with AOI
By-laws After the issuance of COI – there is no
 Condition subsequent period
 There is 2 options, filed at the
When is it effective or approved?
start or after. It means the corp
If filed prior or simultaneously with
can file it simultaneously with the
AOI – issuance of COI
AOI or after the issuance of COI.
If file after – separate approval of the
 It is for the stockholders
SEC
 It is interal rules
 The by-laws is inferior
Vote required?
If filed prior – consent of all the
QUESTION: Can a corporation exist
incorporators
without AOI? –NO, because AOI is a
If filed after – vote of the Majority of OCS
condition for the existence of the
corp.
*Under the last paragraph of this
section, the corporation need the
Can a corporation exist without by-laws?
certificate of approval from the
–YES, because it is not a condition for
appropriate government agency.
the existence of the corp and it is only
a condition after the issuance of the
SECTION 46 – Contents of By-Laws
COI.
(READ THE REVISED CORP CODE
PDF)
SECTION 45 – Adoption of By-Laws
Section 46 vs. Section 13
REMEMBER: After the COI has been
Sec 46
issued, there are 3 basic things that
 talks abt contents of by-laws
corp must do:
 it contains specific provisions
1. Election of BOD (Section 23)
2. Election of Officers (Section 24)
Sec 13
 talks abt contents of AOI
 it contains broad provisions
SECTION 47 – Amendment of By-Laws
GR: Majority of the BOD + Majority of the
OCS
Exception – Delegation. If the
stockholders decided that they don’t want
to participate, they will delegate the right
to amend to the BOD. The vote required
to delegate is 2/3 of the OCS.
Exception to the exception
- Revocation of Delegation. If the
stockholders changed their mind and
they want to participate, they are going to
revoke the delegation. The vote
required is the majority of the OCS.
Which is easier, delegating or
revoking? – Revoking, because the
vote required is only majority of the OCS.
When is the amended or new by-laws
effective?
- It shall only be effective upon the
issuance by the Commission of a
certification that the same is in
accordance with this Code and
other relevant laws.
LIST OF DOCTRINES:
1. Trust Fund Doctrine (Section 2) -
considers the subscribed capital as a
trust fund for the payment of the debts of
the corporation, to which the creditors
may look for satisfaction.
2. Doctrine of Corporate Fiction
(Section 2) - this doctrine explains that a
corporation has separate and distinct
personality. The properties of the
corporation are not the properties of
stockholders, and vice versa.
3. Doctrine of Piercing The Veil of
Corporate Fiction (Section 2) – this is
the exception of doctrine of corporate
fiction. Under this doctrine, the separate
and distinct personality will be
disregarded. It means, we are going to
consider the corporation and
stockholders as one and the same. It will
be disregarded because the separate
and distinct personality is used for illegal
purposes or may illegal na nangyayari.
4. Alter Ego Doctrine or
Instrumentality Rule (Section 2) – this
is the TEST APPLIED to determine kung
ipipierce or ididisregard natin yung
separate and distinct personality.
5. Doctrine of Limited Capacity
(Section 2 & 35)
– under this doctrine, the corporation
cannot exercise the power which is not
found in the express, implied, and
inherent power. It means that it is only
limited to the Express, Implied, and
Inherent power.
6. Doctrine of Equality of Shares
(Section 6) – all shares are presumed to
be equal.
7. Doctrine of Individuality of
Subscription (Section 6) – under this
doctrine, hindi pwedeng iissue ang
certificate of stock unless it is fully paid.
8. Doctrine of Hold-Over (Section 22) –
the term of the BOD is 1 year, supposed
the 1 year period lapsed and still they
have not elected the BOD, the one who
will serve as the BOD is still the previous
BOD meaning they will continue to
function as such until a new set of BOD
is elected.
9. Special Fact Doctrine (Section 30) -
The director takes advantage of ANY
information acquired by virtue of his
office to the disadvantage of the
corporation.
10. Interlocking Doctrine (Section 32)
– when one, some, or all of the directors
are basically the same.
11. Doctrine of Corporate Immunity
(Section 35) – it protects a person acting
in behalf of the corporation from being
personally liable for its authorized
actions.
12. Corporate Opportunity Doctrine
(Section 33) – acquires a business
opportunity which should belong to the
corporation.
PERIOD/TERM MENTIONED:
5 years limitation – duration of founder’s
shares right (Under Section 7)
6 months – if the SEC did not approve or
reject the amendment of AOI within 6
months, the date of effectivity of the
amendment of AOI will be from the date
of filing. (Under Section 15)
6 months - application for the increase
or decrease of Capital Stock must be
made within 6 months from the date of
the approval of the BOD and
stockholders (Under Section 37)
3 years – period to extend the fixed term
of the corporation (Under Section 11 –
Corporate Term)
2 years - period to decide or to choose
fixed (Under Section 11 – Corporate
Term)
5 years - Non-Use of Corporate Charter
(Under Section 21)
5 years - Continous Inoperation (Under
Section 21)
2 years - effect of Continuous
Inoperation – the corp will be placed
under delinquent status for 2 years.
During the 2 year period, the corp will be
given time to operate again. (Under
Section 21)
Term of Office – 1,2,3,5 (Under Section
22)
1 year – for the BOD
2 years - for the cooperatives
3 years – for the non-stock corporation
5 years – for the non-stock educational
corporation
If within 5 years prior to the election or
appointment - A person shall be
disqualified from being a D/T/O of any
corporation if he committed or was found
guilty on any of the 3 major grounds for
disqualification (Under Section 26)
1 year - instances when the
stockholders can fill out the vacancy,
after 1 year the stockholder can fill out
the vacancy (Under Section 28 –
Vacancy of BOD)
25 years - the corp cannot acquire public
lands it but it can lease the said public
lands up to the extent of 1,000 hectares
and for a period of 25 years only. (Under
Section 35)
5 years - Period for Management
Contract (Under Section 43)
Period to Fill Out the Vacancy (Under
Section 28):
If term expires – no later than the day of
the expiration
Removal – same day
45 days - other grounds like resignation
or withdrawal – period to fill out the
vacancy is within 45 days

30 days – Reporting of election of

BOD/Officers must be made within 30
days after the election (Under Section
25)
30 days - the non-holding of election
must be report within 30 days from the
date of the scheduled election (Under
Section 25)
60 days – the new date of election must
be made not later than 60 days from the
scheduled date (Under Section 25)
7 days - if Director/Trustee/Officer dies,
resigns, withdraws, etc. it must be report
it within 7 days from knowledge (Under
Section 25)
3 days – notification of the creation of the
emergency board should be made within
3 days (Under Section 28)