Notes in Corporation Code

I. Background and Evolution of the Corporation Code

A. History

The Revised Corporation Code (RA 11232) took effect on May 1, 2018 which replaced BP. 68.

B. Advantages of establishing corporations

Corporations are more than entities intended for making money or advancing the interests of
certain groups; they make for an essential component of inclusive growth.Successful corporations create
jobs and unlocks more business opportunities. They also enable the government in delivering quality health
services, education and public infrastructure, among others.

C. Features of the Revised Corporation Code

New Corpo Code Old Corpo Code

1. One person corporation provides for the establishment of a requires at least 5 stockholders to
one- person corporation (OPC) form a corporation
2. Perpetual existence Perpetual existence unless Term limit is 50 years unless
otherwise provided in the Articles of extended
Incorporation
3. No minimum capital stock The New Code removed the 25% at least 25% of the authorized
subscription, payment and minimum capital stock must be subscribed,
paid-up capital requirements except and at least 25% of the total
as otherwise specifically provided subscription must be paid by the
by special law. stockholders, provided that the
minimum paid-up capital shall not
be lower than Php5,000.00.
4. Voting participation via A stockholder or member may Voting thru remote communication
remote communications in attend regular or special in absentia was not included in the
absentia stockholders’ meetings and exercise Old Code.
his vote in person, through a proxy,
through remote communication or in
absentia.
5. Emergency board Amendment also includes the None
provision of an emergency board
when a vacancy in a corporation’s
board of directors prevents the r e m
a i n i n g directors from consulting a
quorum
6. Electronic Filing and Register, apply or file None
Monitoring System online.

II. Purpose of revising the Corporation Code

 to enhance the ease of doing business

 The Revised Corporation Code fosters inclusive entrepreneurship, improves the ease of doing business
in the country and subsequently the economy’s competitiveness, promotes good corporate governance,
and increases protection afforded to corporations, investors and other stakeholders through
progressive provisions.
III. Corporation Defined

 Section 2:

“Is an artificial being created by operation of law, having the right of succession and the powers,
attributes and properties expressly authorized by law or incident to its existence.”

A. Artificial being

 corporation has a personality separate and distinct from the incorporators by virtue of its
separate juridical personality
 example the debts of the corporation is not considered as personal debts of the shareholders –
this is the principle of limited liability.

Limitation of an artificial being:

 cannot be awarded for moral damages in a suit because it is only artificial

Exception to the award for moral damages

 a corporation may have a good reputation which, if besmirched, may also be a
ground for the award of moral damages (Filipinas Broadcasting case)

 In cases of libel, slander or any other form of defamation item 7 of Article 2219 of the
Civil Code expressly authorizes the recovery of moral damages. It did not indicate
whether the claimant is a natural or juridical person.

Exception as a separate and distinct personality

 Piercing the Veil of Corporate Finction

B. Created by operation of law

 Created by special law or a general enabling act

C. Right of Succession

 Sometimes referred to as its immortality

Case 1: Abs-cbn vs. CA

Doctrine: Corporate powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers.

Moral damages, as an artificial being, a corporation cannot be moral awarded damages.

Reason: Cause of Action is Specific Performance

Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-
CBN an exclusive right to exhibit some VIVA films. According to the agreement, ABS-CBN shall have
the right of first refusal to the next 24 VIVA films for TV telecast under such terms as may be agreed
upon by the parties, however, such right shall be exercised by ABS-CBN from the actual offer in writing.

Case 2: Filipinas Broadcasting Network vs. AGO Medical

 Doctrine: A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock.

Exception: However, a corporation may have a good reputation which, if besmirched, may also
be a ground for the award of moral damages.

Facts:

In the morning of December 14-15, 1989, hosts Rima and Alegre, exposed thru the program
“Expose” over DZRC-AM owned by Filipinas Broadcasting, various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine
("AMEC") and its administrators.

Feeling aggrieved, AMEC filed a libel case against the hosts and Filipinas Broadcasting alleging
that the reputation of AMEC was destroyed. The trial court later issued a decision in favor of AMEC with
an award for moral damages amounting to P300,000.00.

Issue:
Whether AMEC, a corporation, is entitled to moral damages.

Held:
Yes. A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock.

However, in Mambulao Lumber Co. v. PNB, the court cited that "a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages.

Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil
Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or
any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages.

Case 3: Tayag vs. Benguet Consolidated Mining

Facts:

In 1960, Idonah Slade Perkins, a US citizen died in New York City. Before her death, she
acquired properties in the Philippines including 33,002 shares of stocks issued by Benguet
Consolidated, Inc., which she brought in New York. After her death, her administrator Tayag filed a
case with CFI of Manila that domiciliary administrator, County Trust of New York deposit the shares of
stocks to the clerk of court of CFI Manila.

The order was not complied with by the County Trust of New York hence, Tayag filed with CFI
Manila a case to declare the stock cerrtificate as lost so that it can be replaced with new ones by
Benguet Consolidated, Inc of which the court granted.

Benguet opposed the order of the CFI alleging that the court cannot declare the stock
certificates as lost as they are in the possession of the County Trust of New York. They further alleged
that issuance of a new stock certificate would violate the by-laws of the corporation, hence, the present
petition.

Issue:
Whether Benguet Consolidated can ignore the court order as it would affect its by-laws.
 Held:

No. It cannot ignore the court order. A corporation is an artificial being created by operation of
law separate and distinct from its owners. A corporation as known to Philippine jurisprudence is a
creature without any existence until it has received the imprimatur of the state acting according to law.

It cannot logically therefore have rights and privileges of a higher priority than that of its creator.
More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not
excluding the judiciary, whenever called upon to do so. Correlatively, it is not immune from judicial
control in those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.

CFI order is affirmed.

*Doctrine of Concession - It is a principle in the creation of corporations, under which a corporation is

an artificial creature without any existence until it has received the imprimatur of the State acting according
to law, through SEC. The life of the Corporation is a concession made by the State.

IV. Powers, attributes and properties

 A corporation is only allowed to exercise powers that are granted to it by law, its articles of
incorporation and those incidental to its existence

 Any act not within its powers are ultra vires acts (ultra vires acts are voidable unless ratified by the
shareholders)

1. Express powers – expressly stated in the revised corporation code or its charter/articles of
incorporation

- to sue and be sued,

- to enter into contract,
- to sell/purchase/lease or mortgage properties,
- to adopt/use a corporate seal, to have perpetual existence unless the articles of
incorporation otherwise provides) ….Section 35

2. Implied powers – necessary to carry out its express powers (example if a corporation’s purpose is
to operate a bookstore, it also includes the power to hire employees, to sell products, to advertise
their products, etc.)

3. Incidental or inherent powers – powers incidental to its existence (right to have a corporate
name, right to hold properties, to make by-laws)

Example: Establishment of pharmacy and canteen in relation to a Medical Institution.

V. Piercing the veil of corporate fiction

 piercing the veil of corporate fiction forgoes the attribute that a corporation is separate and distinct from
its shareholders.

 the corporate mask may be removed or the corporate veil is pierced when the corporation is just an
alter ego of a person or of another corporation (when the corporation is just a shield for fraud, illegality
or inequity against third persons)
 Effect when the veil is pierced: The corporation is treated as a mere association of persons and that the
debtor of the corporation is also considered as debtor of the shareholders. An investor’s liability as to
corporate debtors is not just limited to his investment but extends to his personal assets.

 Purpose: It is a remedy to protect the rights of innocent third persons dealing with the corporation.
(cannot be used as a defense by a third person if he knew that the transaction is defective or contrary
to law)

3 Instances where piercing the veil of corporate fiction is allowed:

1. When it will defeat public convenience;

2. When it will justify wrong , protect fraud or defend crime and
3. When used as alter ego of a person or an instrumentality or another corporation

 Under the Alter Ego theory, there are 3 tests to determine whether the corporate mask may be removed or
pierced:

i. Instrumentality or control test where a subsidiary corporation is a mere agent or instrumentality of the parent
corporation and that the parent corporation is the one directly operating the business for the subsidiary;
(domination of the parent company in terms of policies, finances, practices, etc.)

ii. Fraud test where the parent corporation formed the subsidiary corporation to conduct illegal, fraudulent or
wrongful acts against third persons; and

iii. Harm test where there is harm or damage caused to the plaintiff by the unfair of fraudulent act of the
corporation.

Instances where the corporate veil were not pierced:

i. Mere allegation that the corporation is an alter ego of the individual stockholders;
ii. Mere substantial identity of the incorporators of 2 corporations in the absence of fraud
iii. Mere ownership of a single stockholder or by another of nearly all of the capital stock of a
corporation
iv. Existence of interlocking directors in the absence of fraud

Case 4: PNB vs. Hydro Resources (March 13, 2013)

Doctrine: By virtue of the separate juridical personality of a corporation, the corporate debt or credit
is not the debt or credit of the stockholder. This protection from liability for shareholders is the
principle of limited liability.

Facts:
Sometime in 1984, DBP and PNB foreclosed on certain mortgages made on the properties of
Marinduque Mining and Industrial Corporation (MMIC), hence, DBP now owns 57% and PNB owns
43% of those acquired mortgaged assets. Both banks agreed to resume the operations of the mines
under a new name of Nonoc Mining Industrial Corporation (NMIC). Members of the board of directors of
NMIC were either from DBP or PNB.

After sometime NMIC entered into a contract with Hercon for the construction of mine stripping
amounting to P35,770,120. NMIC however failed to pay the balance of P8, 370, 934 thereby prompting
Hercon to file a collection suit against NMIC, DBP and PNB in the RTC of Makati.

During the pendency of the case, Hercon was later on acquired by respondent Hydro
Resources Contractors Corporation (HRCC).

Both PNB and DBP invoked a lack of cause of action against respondent HRCC contending that
they are not a party to the contract entered into by NMIC with Hercon and that they cannot be held
liable because NMIC has a separate judicial personality and that they cannot be held liable for the
unpaid debts.
 The RTC later decided in favor of respondent HRCC and held DBP and PNB arer solidarily
liable with NMIC by piercing the veil of corporate personality which the CA also affirmed on appeal,
hence, the present petition.

HRCC on its part contends that NMIC is the alter ego of DBP and PNB which owned and
conducted NMIC hence, the corporate veil must be pierced for fair play and justice.

Issue:
Whether DBP and PNB are liable to the unpaid debts of NMIC.

Held:
No, DBP and PNB cannot be held liable. The court ruled that the general rule is that a
corporation has a separate and distinct personality where the debts of the corporation is not the debt of
the stockholders based on the principle of limited liability.

There are only 3 instances where the doctrine of piercing the veil of corporate fiction may be
applied:

1. defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation;
2. fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or
3. alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation

Under the Alter Ego theory, there are 3 tests to determine whether the corporate mask may be
removed or pierced:

1. Instrumentality or control test where a subsidiary corporation is a mere agent or instrumentality

of the parent corporation and that the parent corporation is the one directly operating the
business for the subsidiary;

2. Fraud test where the parent corporation formed the subsidiary corporation to conduct illegal,
fraudulent or wrongful acts against third persons; and

3. Harm test where there is harm or damage caused to the plaintiff by the unfair of fraudulent act
of the corporation.

In this case however, nothing in the records shows that the policies, practices and finances of
NMIC were dominated by PNB and DBP or that NMIC is a mere alter ego of both banks.

There was also not enough evidence to show that NMIC was established to defraud its
creditors, hence, PNB and DBP cannot be held liable for the debts of NMIC.

Case 5: Umali vs. CA

Doctrine: Piercing the veil of corporate entities, not proper remedy when the corporation
employed fraud in the foreclosure proceedings.

Facts:

The Castillo family are the owners of a lot in Lucena City. They mortgaged portions on the lot as
security for a loan from DBP. Since they could not pay for the amortizations, they decided to sell the lot
 adjacent to the mortgaged one. Santiago Rivera, president of Slobec Realty, proposed the conversion
of 4 lots into a subdivision.

A MOA was executed by Slobec Realty represented by its President Rivera to carry out the
project. In connection with the project, Rivera entered into sales agreement with Bormaheco for the
purchase of 2 tractors where the balance of P180,000.00 will be paid in installments. As a requirement,
Slobec obtained a security with Insurance Corporation of the Phils. (ICP) for the P180,000 balance to
Bormaheco covered by a counter guaranty of the 4 lots owned by the Castillos.

When the balance was not paid by Slobec, ICP foreclosed the mortgaged lot and as the highest
bidder during the foreclosure, ICP was granted title to the 4 lots.
Later, ICP sold the 4 lots to PM parts (Phil. Parts Manufactring). PM parts later requested that
the Castillos vacate the lot. The Castillos then filed an annulment of title before the CFI of Quezon for
the titles issued to PM parts alleging that foreclosure was fraudulent because of the presence of
interlocking directors.

Issue:
Whether the corporate veil of Bormaheco, ICP and PM parts should be pierced.

Held:
No. Under the doctrine of piercing the veil of corporate entity, when valid grounds exist, the
corporation may be regarded as mere association of persons and its officers and shareholders are
directly liable with the corporation’s obligations.

In this case however, piercing the veil of corporate entity is not the proper remedy in order that
the foreclosure proceeding may be declared a nullity under the circumstances.

The petitioners do not seek to impose a claim against the individual members of the 3
corporations involved, petitioners are merely seeking the declaration of the nullity of the foreclosure
sale which may be obtained without the need to pierce the veil of corporate entity.

VI. Classes of Corporation

Section 3. Corporations formed or organized under this Code may be stock or nonstock corporations.
Stock corporations are those which have for 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
shares held.

A. Stock Corporations

 It must have a capital stock divided into shares and it is authorized to distribute dividends or
allotments of surplus profits to its stockholders

B. Non-stock Corporation

 Corporations that exist other than the pursuit of profit (formed charitable, religious, educational,
cultural etc., Diocese of Baguio, LGUs)

Stock Non-stock
Distributes profits Does not distribute its profits
 C. Other Classes

a. As to Nationality

i. Domestic Corporation – formed and incorporated according to the laws of the Phils. (San Miguel
Corpo., Jollibee Food Corp., Abs-cbn, GMA)

ii. Foreign Corporation – formed and incorporated by virtue of the laws of its country of origin
(Samsung, Honda, Toyota, etc.)

*Control test and grandfather rule – 2 test to determine whether a corporation is a domestic or
not (refer to case 6)

b. As to Number of Corporators

i. Corporation aggregate – composed of more than 1 corporator

ii. Corporation sole- composed of only 1 person

c. As to Purpose

i. Public corporation – organized for the government like cities, municipalities , brgys and
provinces
ii. Private corporations – formed for commercial purposes (also includes GOCCs and quasi-public
corporations)
iii. Religious and charitable corporations – formed for religious activities or charitable endeavors

d. As to Existence

i. De Jure Corporation – complied with the requirements of law

ii. De Facto Corporation – attempted to comply with the requirements of law but was defectively
created

e. As to Corporate Relationship

i. Parent, mother or holding corporation – corporations which owns the shares of another
corporation
ii. Subsidiary Corporation – its stocks are owned by another corporation

f. As to nature of shares

i. Close corporations – whose shares are limited to a pre-selected number or individuals with
restrictions to its transfer and sale
ii. Open corporations – whose shares are available to the public

g. Other
i. Corporation by prescription – has exercised its powers for a long period of time
ii. Corporation by estoppel – not been incorporated but are deemed as though thru the acts and
admissions of people comprising it

Case 6: Narra Nickel Mining vs Redmont Consolidated Mines Corp

Doctrine: Test to determine whether a corporation is domestic or not. Control test

Facts:
 Respondent Redmont is a domestic corporation incorporation under Philippine laws took interest in
mining some parts of Palawan. When it inquired with DENR, it found out that the areas it intends to mine were
already granted to petitioners Narra, Tereso Mining and Mc Arthur Mining.

Hence, Redmont filed a petition before the Panel of Arbitrators of DENR for the cancellation of the
mining and exploration permits granted to petitioners alleging that 60% of the capital stocks of petitioners are
owned by MBMI Resources, a 100% Canadian corporation, hence, since they are considered as foreign
corporations, they should be disqualified in mining activities reserved only for Filipinos.

Petitioners on the other hand contends that owners of petitioner corporations are Filipinos and that 60%
of their capital stocks are owned by Filipinos and that only 40% of the shares of both corporations are owned
by MBMI. They further alleged that they only have an FTAA agreement with MBMI where the later would
financially provide them with the necessary funds.

The POA in its decision disqualified the petitioners for being considered as foreign corporations,
petitioners then filed an appeal with the Mines Adjudication Board where it decided in favor of petitioners. On
appeal to the CA, the CA decided in favor of Redmont hence the present petition.

Issue:
Whether petitioners are foreign corporations, thus, not qualified to mine.

Held:
Yes. The court ruled that there are 2 tests in determining whether a corporation is a domestic one or
not.

The first one is the control test where shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality. (all shares
shall be considered as Filipino). Under the liberal Control Test, there is no need to further trace the ownership
of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least
60% Filipino-owned is considered as Filipino.

The second test is the grandfather rule where if the percentage of Filipino ownership in the corporation
or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted
as of Philippine nationality (100k shares and only 50% is Filipino, then only the 50% is filipino. Grandfather
Rule applies only when the 60–40 Filipino–foreign equity ownership is in doubt.

In this case, since there is doubt as to who owns the 60% shares in the shares of Narra and Teroso,
the grandfather rule shall be applied.

Using the grandfather rule, Tereso Mining, Mc Arthur and Narra mining have the same corporate
shares, investors and amount of investments from MBMI where MBMI owns 3,998 shares out of the 10,000
shares. MBMI is also an investor in the investors of the 3 petitioners and other similar mining investors such as
MMI, SMMI and PLMDC leading to the conclusion that it owns 60% of the corporate shares of the petitioners.

Noticeably, the ownership of the “layered” corporations boils down to MBMI, Olympic or corporations
under the “Alpha” group wherein MBMI has joint venture agreements with, practically exercising majority
control over the corporations mentioned.

Hence, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of
their capital stocks or equity interests are owned by MBMI

D. Corporations created by special laws or charter

Section 4. Corporations Created by Special Laws or Charters. – Corporations created by special laws
or charters shall be governed primarily by the provisions of the special law or charter creating them or
applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.
 i. Congress cannot enact a law creating private corporations, they can only create a corporation
with a special charter if it is a GOCC

ii. GOCCs – can be created thru a law enacted by congress (SSS, GSIS, Phil. National Red
Cross, PEZA, National Housing Authority, PAGCOR, NAPOCOR etc.)

iii. Test to determine if a corporation is a GOCC or private – if created by its own charter for the
exercise of a public function or by incorporation under the corporation code.

Case 7: Baluyot vs. Holganza

Doctrine: The test to determine whether a corporation is government owned or controlled, or private in
nature is simple. Is it created by its own charter for the exercise of a public function, or by incorporation
under the general corporation law.

Those with special charters are government corporations subject to its provisions, and its employees
are under the jurisdiction of the Civil Service Commission, and are compulsory members of the
Government Service Insurance System.

Facts:

During the spot audit of the Philippine National Red Cross (PNRC) a cash shortage was
discovered in the amount of P154K was discovered where petitioner Francisca Baluyot was the
accountable officer. Thereafter, respondent Holganza as member of the board of directors filed a complaint
before the Office of the Ombudsman charging Baluyot for malversation of funds.

In Baluyot’s counter-affidavit, she stated that the Ombudsman has no jurisdiction over her case
because the PNRC is not classified as a GOCC which is within the jurisdiction of the Ombudsman. She
further alleges that PNRC does not receive any budgetary support from the government and that it is under
the International Federation of Red Cross where the discipline of the employees belongs to the Secretary
General.The Ombudsman denied her motions to dismiss, hence, the present petition to the SC.

Issue:
Whether PNRC is a private corporation.

Held:
No. The court ruled that the test to determine whether a corporation is government owned or controlled,
or private in nature is if it is created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law.

When a corporation is created by its own charter, it is considered as a GOCC and when organized
under the general corporation code, it is a private corporation.

In this case, PNRC has its own charter created by RA 95, hence, it is a GOCC where its employees are
under the jurisdiction of the Ombudsman and the Civil Service Commission.

VII. People Comprising a Corporation

A. Corporators and Incorporators

Section 5. Corporators and Incorporators, Stockholders and Members:

i. Corporators - are those who compose a corporation, whether as stockholders or shareholders in a

stock corporation or as members in a nonstock corporation.
 ii. Incorporators - are those stockholders or member mentioned in the articles of incorporation as
originally forming and composing the corporation and who are signatories thereof.

*Corporators in stock corporations – stock/shareholders

*Corporators in non-stock corporations – members

VIII. Classification of Shares

Section 6. Classification of Shares. – The classification of shares, their corresponding rights, privileges, or
restrictions, and their stated par value, if any, must be indicated in the articles of incorporation. Each share
shall be equal in all respects to every other share, except as otherwise provided in the articles of
incorporation and in the certificate of stock.

The shares in stock corporations may be divided into classes or series of shares, or both.

No share may be deprived of voting rights except those classified and issued as “preferred” or
“redeemable” shares, unless otherwise provided in this Code: Provided, That there shall always be a class
or series of shares with complete voting rights.

Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of bylaws;
3. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property;
4. Incurring, creating, or increasing bonded indebtedness;
5. Increase or decrease of authorized capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote required under this Code to approve
a particular corporate act shall be deemed to refer only to stocks with voting rights.

The shares or series of shares may or may not have a par value: Provided, That banks, trust, insurance,
and preneed companies, public utilities, building and loan associations, and other corporations authorized
to obtain or access funds from the public, whether publicly listed or not, shall not be permitted to issue no-
par value shares of stock.

Preferred shares of stock issued by a corporation may be given preference in the distribution of dividends
and in the distribution of corporate assets in case of liquidation, or such other preferences: Provided, That
preferred shares of stock may be issued only with a stated par value.

The board of directors, where authorized in the articles of incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof: Provided, further, That such terms and conditions shall be
effective upon filing of a certificate thereof with the Securities and Exchange Commission, hereinafter
referred to as the “Commission”.

Shares of capital stock issued without par value shall be deemed fully paid and nonassessable and the
holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided,
That no-par value shares must be issued for a consideration of at least Five pesos (P5.00) per share:
Provided, further, That the entire consideration received by the corporation for its no-par value shares shall
be treated as capital and shall not be available for distribution as dividends.

A corporation may further classify its shares for the purpose of ensuring compliance with
 constitutional or legal requirements.

A. Shares with complete voting rights

 refers to classes of shares that allow the owners or holders thereof complete voting rights and
privileges as provided in the articles of incorporation

B. Shares with partial voting rights

 refers to classes of shares that allow the owners or holders thereof some voting rights and privileges
subject to certain restrictions as provided in the articles of incorporation

C. Shares issued in compliance with the law

 shares in compliance with constitutional or legal requirements

D. Share with no voting rights

 usually known as preferred or redeemable shares but they can vote in the following instances:

1. Amendment and adoption of the articles of incorporation and by-laws;

2. Disposition of property of the corporation (sell, lease, mortgage, etc.)
3. Indebtedness (increase or create corporate debt)
4. Capital stock (increase or decrease capital stock)
5. Corporate restructuring (merger or consolidation)
6. Investment (investment of funds in another corporation)
7. Dissolution

a. Preferred shares

 owners of preferred shares cannot vote but they are given preferences in the distribution of the
following:

i. Assets – preferred shares are given preference in the distribution of assets in case of
liquidation;
ii. Dividends – preferred shares are given preference in the distribution of dividends
iii. Other preferences – preferences stated in the articles of incorporation

 Preferred shares may be issued only with a stated par value.

b. Redeemable shares

 Section 8. Redeemable Shares. – Redeemable shares may be issued by the corporation when
expressly provided in the articles of incorporation. They are shares which may be purchased by
the corporation from the holders of such shares upon the expiration of a fixed period, regardless
of the existence of unrestricted retained earnings in the books of the corporation, and upon such
other terms and conditions stated in the articles of incorporation and the certificate of stock
representing the shares, subject to rules and regulations issued by the Commission.

i. Shares that the corporation may redeem again at a fixed date, at the option of the
corporation or at the option of the shareholder.

ii. Under the old law, corporations cannot redeem their shares if there are no unrestricted
retained earnings but was now revised in the new law but subject to the condition that the
assets shall be sufficient to cover the debts and liabilities of the corporation.
 iii. Redemption cannot be made if the corporation is insolvent or the purchase of the shares will
result to insolvency.

E. Par Value

 refers to the amount one pays for a share of the capital stock. It is the value of the stock in relation to
the outstanding capital stock.

 Genera rule: Each share shall be equal in all respects

 Exception: If otherwise provided in the articles of incorporation and stated in the certificate of stock

i. Shares without par value

 corporation can issue shares without par value

 deemed to have been fully paid and non-assessable and the holder shall not be liable to the
corporation and its creditors
 they shall not be issued for less than five (5) pesos per share
 selling price shall be treated as capital and not to be distributed as dividends

*Banks, trust companies, insurance companies, public utilities, and building and loan
associations are not permitted to issue no-par value shares. (no-par value shares help the
corporation to avoid liability in case the stock price decreases).

F. Founder’s shares

 Section 7. Founders’ Shares. – Founders’ shares may be given certain rights and privileges not
enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted for in the
election of directors is granted, it must be for a limited period not to exceed five (5) years from the
date of incorporation: Provided, That such exclusive right shall not be allowed if its exercise will
violate Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”; Republic Act No.
7042, otherwise known as the “Foreign Investments Act of 1991”; and other pertinent laws.

G. Treasury shares

 Section 9. Treasury shares. – Treasury shares are shares of stock which have been issued and
fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption,
donation, or some other lawful means. Such shares may again be disposed of for a reasonable
price fixed by the board of directors.

i. Once a share is reacquired, the share becomes treasury shares and may be disposed
again.

IX. Incorporation and Organization

Section 10. Number and Qualifications of Incorporators. – Any person, partnership, association or
corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a
corporation for any lawful purpose or purposes: Provided, That natural persons who are licensed to
practice a profession, and partnerships or associations organized for the purpose of practicing a
profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws.

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.

A corporation with a single stockholder is considered a One Person Corporation asdescribed in Title XIII,
Chapter III of this Code.
A. Incorporators

 individuals whose respective names, ages , residences and nationalities are indicated in the articles
of incorporation
 they are the ones who file the articles of incorporation along with the by-laws

B. Qualifications

1. Either be natural person, corporation, association or partnership (If natural person – must be of
Legal age and Resident of the Philippines)
2. Owner or subscriber of at least 1 share

*Exception: Natural, partnership and association cannot organize a Corporation for the practice of
profession unless otherwise provided under special laws.

C. Corporate Term

Section 11. Corporate Term. – A corporation shall have perpetual existence unless its articles of
incorporation provides otherwise. Corporations with certificates of incorporation issued prior to the
effectivity of this Code, and which continue to exist, shall have perpetual existence, unless the
corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock,
notifies the Commission that it elects to retain its specific corporate term pursuant to its articles of
incorporation: Provided, That any change in the corporate term under this section is without prejudice to
the appraisal right of dissenting stockholders in accordance with the provisions of this Code.

A corporate term for a specific period may be extended or shortened by amending the articles of
incorporation: Provided, That no extension may be made earlier than three (3) years prior to the original
or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be
determined by the Commission: Provided, further, That such extension of the corporate term shall take
effect only on the day following the original or subsequent expiry date(s).

A corporation whose term has expired may apply for a revival of its corporate existence, together with
all the rights and privileges under its certificate of incorporation and subject to all of its duties, debts and
liabilities existing prior to its revival. Upon approval by the Commission, the corporation shall be
deemed revived and a certificate of revival of corporate existence shall be issued, giving it perpetual
existence, unless its application for revival provides otherwise.

No application for revival of certificate of incorporation of banks, banking and quasibanking institutions,
preneed, insurance and trust companies, non-stock savings and loan associations (NSSLAs),
pawnshops, corporations engaged in money service business, and other financial intermediaries shall
be approved by the Commission unless accompanied by a favorable recommendation of the
appropriate government agency.

i. Corporate term in the new code is ad infinitum – perpetual existence

ii. For corporations established before the new code, they may opt to stick with its original
corporate term upon a vote of its shareholders while those whose term have expired may apply
with the SEC for its revival.
iii. When a term of a corporation ends, it will continue to exist for 3 years until it winds-up but
cannot seek extension of its life within the 3 year period.

D. Minimum Capital Stock Not required of stock corporations

Section 12. Minimum Capital Stock Not Required of Stock Corporations. – Stock corporations shall not
be required to have a minimum capital stock, except as otherwise specifically provided by special law.
E. Contents of the Articles of Incorporation

Section 13. Contents of the Articles of Incorporation. – All corporations shall file with the
Commission articles of incorporation in any of the official languages, duly signed and acknowledged or
authenticated, in such form and manner as may be allowed by the Commission, containing
substantially the following matters, except as otherwise prescribed by this Code or by special law:

1. The name of the corporation;

2. 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;

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

4. The term for which the corporation is to exist, if the corporation has not elected perpetual
existence;

5. The names, nationalities, and residence addresses of the incorporators;

6. The number of directors, which shall not be more than fifteen (15) or the number of trustees
which may be more than fifteen (15);

7. 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;

8. 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;

9. 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

10. Such other matters consistent with law and which the incorporators may deem necessary and
convenient.

An arbitration agreement may be provided in the articles of incorporation pursuant to Section 181 of
this Code.

The articles of incorporation and applications for amendments thereto may be filed with the
Commission in the form of an electronic document, in accordance with the Commission’s rules and
regulations on electronic filing.

Articles of Incorporation

 refers to the document papers drawn up by or on behalf of the incorporators of a proposed

corporation to be presented for approval by the SEC. It contains the following:

1. The corporate name -