Corporation Code

Jave Clouie R.
Magsalay ACA – 2 AEC 65 Business Laws and Regulations

Title I – General Provisions
1. Define corporation
Under Section 2 of the Revised Corporation Code, a corporation is an artificial being created by
operation of law, having the right of succession and the powers, attributes, and properties expressly
authorized by law or incidental to its existence.
2. Meaning of artificial being

A corporation is an artificial being in the sense that it has a personality separate and distinct from
the persons composing it, as well as from any other legal entity to which it may be related.
3. Characteristics of corporations
(1) It is an artificial being;
(2) Created by operation of law;
(3) It has the right of succession; and
(4) It has the powers, attributes, and properties expressly authorized by law or incidental to its
existence.
Note: only refers to private corporation
4. Partnership vs Corporation
A partnership is formed when two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among themselves whereas a
corporation is owned by shareholders and can be formed for profit or for non-profit. Profits are
reinvested in the business and then divided among shareholders as dividends.
5. Meaning of government-owned or controlled corporation

This refers to any agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned by the
government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least 51% of its capital stock. Examples are GSIS and
SSS.
6. What is the meaning of “piercing the veil of corporate entity”?

A corporation is a juridical entity vested with a legal personality separate and distinct from those
acting for and, in its behalf, and from the people comprising it. The corporate veil should not and
cannot be pierced unless it is clearly established that the separate and distinct personality of the
corporation was used to justify a wrong, protect fraud, or perpetrate a deception.
Under this doctrine, the courts would not hesitate to disregard the separate juridical personality if
such corporation is being used to commit a wrong.
7. What is the nationality of the corporation?

Under the Foreign Investments Act of 1991, a corporation is a “Philippine National” if it is organized
under the laws of the Philippines and at least 60% of its capital stock outstanding and entitled to
vote are owned and held by Filipino citizens. This definition echoes the ownership requirements
provided by the 1987 Constitution. - Atty. Nica Gasapo (2021, February 4)
8. Which of the two rules shall apply?

(1) The incorporation test serves as the primary test under Philippine jurisdiction;
(2) the control test must be used for purposes of compliance with the provisions of the
Constitution and of other laws on nationality requirements. Even if the corporation is a
Jave Clouie R. Magsalay ACA – 2 AEC 65 Business Laws and Regulations
creature of the State, there is a need to further safeguard/regulate certain areas of
investment and activities for the protection of the interests of Filipinos. For instance, the
control test is used to determine the eligibility of a corporation, which has foreign equity
participation in its ownership structure, to engage in nationalized or partly nationalized
activities.
9. Powers of a corporation
(1) Express powers – those expressly authorized by the Corporation Code and other laws, and
its Articles of Incorporation or Charter.
(2) Implied powers – those that can be inferred from or necessary for the exercise of the
express powers.
(3) Incidental powers – those that are incidental to the existence of the corporation.
(4) Ultra vires acts (optional to discuss) – acts committed outside the object for which the
corporation is created as defined by the law of its organization and therefore beyond the
power conferred upon it by the law.
10. Ownership of property

Property acquired by a corporation is the property of a corporation and not the property of
stockholders or members because it is a juridical entity vested with a legal personality separate and
distinct from the people comprising it.
11. What are the classes of corporations formed under the Code?
Under Section 3, corporations formed or organized under the Corporation Code may be stock or
non-stock corporations.
12. What is a stock corporation?

Corporations which have capital stock divided into shares and are authorized to distribute to the
shareholders dividends or allotments of the surplus profits on the basis of the shares.
13. What is a non-stock corporation?

It is one where no part of its income is distributable as dividends to its members, trustees, or
officers. Provided, that any profit which the corporation may obtain incidental to its operations shall,
whenever necessary or proper, be used for the furtherance of the purpose or purposes for which
the corporation was organized.
14. What are the other classes of corporations?

(1) As to purpose:
a. Public – organized for the government of a portion of the State for the general good and
welfare.
b. Private – formed for private purpose, benefit, or end.
c. GOCC – owned by the government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at least 51% of its
capital stock.
d. Quasi-public – Private corporation which has accepted from the State the grant franchise or
contract involving the performance of public duties but which is organized for profit.
(2) As to legal rights to corporate existence
a. De jure – created in strict or substantial conformity with the mandatory statutory
requirements for incorporation.
b. De facto – due corporation of any corporation claiming in good faith to be a corporation
under this Code.
c. Corporation by estoppel – all persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof.
d. Corporation by prescription – one which has exercised corporate powers for an indefinite
period without interference on the part of the government.
(3) As to laws of incorporation
a. Domestic – incorporated under the Philippines
b. Foreign – formed, organized, or existing under any laws other than those of the Philippines
and whose laws allow Filipino citizens and corporations to do business in its own country or
State.
(4) As to whether they are open to the public or not.
a. Open – open to any person who may wish to become a stockholder or member thereto.
b. Close – one whose articles of incorporation provide that: (1) All the corporations issued
stock of all classes shall be held of record by not more than a specified number of persons of
at most 20; All the issued stock of all classes shall be subject to one or more specified
restrictions on transfer; and (3) The corporation shall not list in any stock exchange of any
stock of any class.
(5) As to relationship of management and control
a. Parent or holding – that holds stocks in another corporation for purposes of control.
b. Subsidiary – more than 50% of the voting stock of which is controlled directly or indirectly
by another corporation, which thereby becomes its corporation.
(6) As to the number of persons who compose them
a. Corporation aggregate – consisting of more than one member
b. Corporation sole – consisting of only one member for the purpose of administering and
managing, as trustee, the affairs, property and temporalities of any religious denomination,
sect or church.
(7) As to whether they are for religious purposes or not
a. Ecclesiastical – organized for religious purposes
b. Lay – organized for purpose other than for religion
(8) As to whether they are for charitable purposes or not
a. Eleemosynary – organized for charitable purposes
b. Civil – organized for business or profit
15. Are there corporations created not under the Corporation Code?
Corporations are created, i.e., given juridical personality, either by general law or special law. The
general law refers to the Corporation Code. In a sense, there are corporations created not under
the Corporation Code but by special law, referred to often as a charter. An example is government-
owned or controlled corporations which may be created by special charters.
16. Components of a corporation

(1) Corporators – those who compose a corporation, whether as stockholders or as members.
(2) Incorporators – stockholders or members mentioned in the articles of incorporation as
originally forming and composing the corporation and who are signatories thereof.
(3) Stockholders – owners of shares of stock in a stock corporation
(4) Members – corporators of a non-stock corporation
(5) Board of Directors/Trustees – governing body in a stock corporation, while the Board of
Trustees is the governing body in a non-stock corporation.
(6) Corporate officers – The president, who shall be a director, a treasurer who may or may not
be a director, a secretary who shall be a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws. If the corporation is vested with public
interest, the board shall also elect a compliance officer.
(7) Subscribers – persons who have agreed to take and pay for original, unissued shares of a
corporation formed or to be formed.
(8) Underwriter – A person who guarantees on a firm commitment and/or declared best effort
basis the distribution and sale of securities of any kind by another company. A person or
entity, especially an investment banker, who guarantees the sale of newly issued securities
by purchasing all or part of the shares for resale to the public.
(9) Promoter – A person who brings about or cause to bring about the formation and
organization of a corporation by:
1. Bringing together the incorporators or persons interested in the enterprise;
2. Procuring subscriptions or capital for the corporation; and
3. Setting in notion the machinery which leads to the incorporations of the corporation itself.
A founder or organizer of a corporation or business venture; one who takes the
entrepreneurial initiative in funding or organizing business enterprise.
17. Can there be members in a stock corporation?

No.
18. Who classifies shares?
(1) Incorporators – it is to be determined by the incorporators by stating it in their articles of
incorporation which will be filed with the Securities and Exchange Commission.
(2) Board of Directors and stockholders – the original classification of shares made by the
incorporators which was stated in the articles of incorporation can be amended by a majority
vote of the board of directors and the vote or written assent of the stockholders representing
at least 2/3 of the outstanding capital stock.
19. What are the voting shares?

Shares with a right to vote. There shall always be a class or series of shares which have compete
voting rights. In stock corporations, the right to vote is inherent in and incidental to the ownership
of corporate stocks, unless otherwise provided in the articles of incorporation or declared
delinquent. Only stock actually issued and outstanding may be voted. On the other hand, voting
rights in non-stock corporations are attached to membership. Members vote as persons. Each
member shall be entitled to one vote unless so limited, broadened, or denied in the articles of
incorporation or by-laws.
20. What are non-voting shares?

Shares without a right to vote. The law provides that shares classified and issued as preferred or
redeemable shares may be deprived of voting right.
21. Common stock vs Preferred stock

(1) Common stock – class entitling the holder to vote on corporate matters, to receive dividends
after other claims and dividends have been paid, and to share in assets upon liquidation.
Common stock is often called as capital stock, if it is the corporation’s only class of stock
outstanding. Also termed ordinary shares.
(2) Preferred stock – one which entitles the holder thereof to certain preferences over the
holders of common stock. Most common forms of this stock may be classified into preferred
shares as to assets and preferred shares as to dividends.
22. Classification of shares and its definition
(1) Redeemable – may be issued when expressly so provided in the articles of incorporation.
They may be purchased or taken up by the corporation 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 as may be stated in the articles of incorporation.
(2) Par value – shares with a value fixed in the articles of incorporation and the certificate of
stock. Stocks shall not be issued for a consideration less than the par or issued price
thereof.
(3) No par value – shares with no par value.
(4) Promotion/Promotional – share issued to promoters or those in some way interested in the
company, for incorporating the company, or for services rendered in launching or promoting
the welfare of the company
(5) Share in escrow – subject to an agreement by virtue of which the share is deposited by the
grantor or his agent with a third person to be kept by the depositary until the performance of
certain condition or the happening of a certain event contained in the agreement.
(6) Fractional – share that is less than one full share
(7) Over-issued – issued in excess of the authorized capital stock. Such issuance is null and
void.
(8) Convertible – convertible by the stockholder from one class to another class at a certain
price and within a certain period.
(9) Founders’ – classified as such in the articles of incorporation which may be given certain
rights and privileges not enjoyed by the owners of other stocks.
23. Trust fund doctrine

Provides that subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims. It is the underlying principle in the
procedure for the distribution of capital assets which allows the distribution of corporate capital only
in three instances: (1) amendment of the articles of incorporation to reduce the authorized capital
stock; (2) purchase of redeemable shares by the corporation; and (3) dissolution and eventual
liquidation of the corporation.
24. Treasury shares

These are shares of stock which have been issued and fully paid for, but subsequently reacquired
by the issuing corporation by purchase, redemption, donation or through some other lawful means.
Title II – INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
1. How many incorporators should there be in a private corporation?
It is stated in Section 10 that the number of incorporators should be at least 2 and not exceed 15
persons.
2. What are the qualifications of incorporators?
Each incorporator of a stock corporation must own, or be a subscriber to, at least one share of the
capital stock. Each incorporator of a nonstock corporation must be a member of the corporation.
The incorporators may be composed of any combination of natural person/s, SEC-registered
partnership/s, SEC-registered domestic corporation/s or association/s, as well as foreign
corporation/s. Incorporators who are natural persons must be of legal age, and must sign the
Articles of Incorporation/Bylaws.
3. What is a one-person corporation?

It is a corporation with a single stockholder. Only a natural person, trust, or an estate may form a
One Person Corporation.
4. Incorporator distinguished from Corporator

Stockholders or members mentioned in the Those who compose a corporation, whether as
articles of incorporation as originally forming and stockholders or as members.
composing the corporation and who are
signatories thereof.
A signatory of the articles of incorporation. May or may not be a signatory of the articles of
incorporation.
Does not cease to be an incorporator upon sale Ceases to be a corporator by sale of his shares
of his shares. in case of stock corporation. In case of non-
stock, when the corporator ceases to be a
member.
Not more than 15 persons. There is no restriction as to number except for a
close corporation.
5. Steps in creation of a corporation
(1) Promotion – includes activities done by promoter for the founding and organizing of the
business or enterprise of the issuer.
(2) Incorporation
a. Execution of the articles of incorporation by the incorporators and other documents required
for registration of the corporation.
b. Filling of the articles of incorporation with the SEC together with the treasurer’s affidavit. In
case the corporation is governed by special law, a favorable recommendation of the
appropriate government agency that such articles of incorporation and by-laws is in
accordance with law.
(3) Formal organization and commencement of business transactions – examples are adoption
of by-laws and filing the same with the SEC, election of board of directors or trustees and
officers, and payment of shares.
6. How long is the corporate term of a corporation?

The general rule is that a corporation shall have perpetual existence unless the articles of
incorporation provides otherwise or if it provides for a specific period.
If there is a specific period, it may be extended or shortened by amending the articles of
incorporation: Provided, that no extension may be made earlier than 3 years prior to the original or
subsequent expiry date unless there are justifiable reasons for an earlier extension as may be
determined by the Commission: Provided, that such extension of the corporate term shall take
effect only on the day following the original or subsequent expiry date.
7. Can an expired corporation be revived?

Yes. The general rule is that upon approval by the SEC, the corporation shall be deemed revived
and a certificate of revival of corporate existence shall be issued, giving it perpetual existence.
Except when its application for revival provides otherwise or provides for a specific period.
Note: There are some corporations that require the favorable recommendation of the appropriate
government agency before the SEC will approve its application for revival of certificate of
incorporation.
8. Is there a minimum capital stock required of stock corporations?

It is stated in Section 12 that stock corporations shall not be required to have a minimum capital
stock, except if it is provided by special law.
9. Define subscription, paid-up capital

(1) Subscription – a written contract to purchase newly issued shares of stock or bonds. Also
termed as stock subscription.
(2) Paid up Capital – is that portion of the authorized capital stock which has been both
subscribed and paid. To reiterate, such must form part of the authorized capital stock of the
corporation, subscribed and then actually paid up.
10. Articles of Incorporation

(1) 3-fold nature – a contract between: (a) the State and the corporation; (b) the corporation and
its stockholders; and (c) the stockholders inter se.
(2) Corporate name, limitation and change – The general rule is that each corporation must
have a name by which it is to sue and be sued and do all legal acts. The name in this
respect designates the corporation in the same manner as the name of an individual
designates the person. The limitation is that the name must not be identical, deceptively, or
confusingly similar to that of any existing corporation or to any other name already protected
by law, or patently deceptive, confusing, or contrary to law. It must also contain the word
“Inc., Corporation, or OPC.” A corporation can change its name by amending its articles of
incorporation.
(3) Purpose clause – This will confer the powers which a corporation may exercise. Any act
beyond its powers is known as ultra vires acts. Where a corporation has more than one
stated purpose, the articles of incorporation shall state which is the primary purpose and
which is/are the secondary purpose or purposes to determine which investment of corporate
funds require the authority of both the Board and Stockholders.
(4) Principal office – The purpose of which is: (a) to fix the residence of the corporation in a
definite place; (b) to determine the venue of court cases involving the corporation; (c) for
purposes of stockholders or members meeting; and (d) to determine the place where the
books and records are ordinarily kept.
(5) Term of existence – A corporation shall have perpetual existence unless its articles of
incorporation provide otherwise.
(6) Number of Board of Directors/Trustees – Number of directors must not exceed 15 persons
while number of trustees may be more than 15.
(7) Authorized capital stock – The maximum amount fixed in the articles of incorporation that
may be subscribed and paid by the stockholders of the corporation.
11. May the Articles of Incorporation be amended? Limitations

Yes. Limitations are as follows:
(1) The amendment must be fore legitimate purposes and must not be contrary to the Code and
special laws;
(2) Amendment must be approved by a majority of the board of directs/trustees;
(3) Amendment requires the vote or written assent of stockholders’ representing 2/3 of the
outstanding capital stock or 2/3 members if it is a non-stock corporation;
(4) The original and amended articles together shall contain all provisions required by law to be
set out in the articles of incorporation. Such articles, as amended, shall be indicated by
underscoring the changes made;
(5) Certification under oath by the corporate secretary and a majority of the board of
directors/trustees stating the fact that said amendments have been duly approved by the
required vote of the stockholders or members, shall be submitted to the SEC;
(6) Amendment must be approved by the SEC;
(7) Amendment must be accompanied by a favorable recommendation of the appropriate
government agency in cases of:
a. Banks
b. Banking and quasi-banking institutions
c. Preneed
d. Insurance and trust companies
e. Nonstock savings and loan associations
f. Pawnshops
g. Other financial intermediaries
12. What are the grounds which the SEC may reject or disapprove any amendment
thereto?
The following are grounds for such disapproval:
a. The articles of incorporation or any amendment thereto is not substantially in accordance
with the form prescribed herein;
b. The purpose/s of the corporation are patently unconstitutional, illegal, immoral or contrary to
government rules and regulations;
c. The certification concerning the amount of capital stock subscribed and/or paid is false; and
d. The required percentage of Filipino ownership of the capital stock under existing laws or the
Constitution has not been complied with.
13. When does a corporation commence to have corporate existence and juridical
personality?
Since it is the certificate of incorporation that gives juridical personality to a corporation, a
corporation commences its corporate existence and juridical personality and is deemed
incorporated from the date the SEC issues certificate of incorporation under its official seal.
14. De facto corporation

Requirements before one can qualify as a de facto corporation:
(1) The existence of a valid law under which it may be incorporated;
(2) An attempt in good faith to incorporate; and
(3) Assumption of corporate powers.
15. What is the effect of non-use of the corporate charter?
Under Section 21, if a corporation does not formally organize and commence its business within 5
years from the date of its incorporation, its certificate of incorporation shall be deemed revoked as
of the day following the end of the 5-year period.
16. What is the effect if the corporation has organized but subsequently becomes
inactive?
If the corporation subsequently becomes inactive for a period of at least 5 consecutive years, the
SEC may, after due notice and hearing, place the corporation under delinquent status.
A delinquent corporation shall have a period of 2 years to resume operations and comply with all
requirements that the SEC shall prescribe. Failure to comply within the period given by the SEC
shall cause the revocation of the certificate of incorporation.
Title III – Board of Directors/Trustees/Officers
1. Correlation among the BOD/BOT, officers and stockholders.
Under the Corporation Code, stockholders or members periodically elect the board of directors or
trustees, who are charged with the management of the corporation. The board, in turn, periodically
elects officers to carry out management functions on a day-to-day basis. As owners though, the
stockholders or members have residual powers over fundamental and major corporate changes.
2. Acts of management vs ownership

While stockholders and members are entitled to receive profits, the management and direction of
the corporation are lodged with their representatives and agents – the board of directors or
trustees. In other words, acts of management pertain to the board; and those of ownership, to the
stockholders or members.
3. What is business judgment rule?

Contracts intra vires entered into by the BOD are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to amount to wanton
destruction to the rights of the minority, as when plaintiffs aver (declare) that the defendants, have
concluded a transaction among themselves as will result in serious injury to the plaintiffs.
4. Where do corporate powers reside?

Corporate powers reside with the shareholders because they have the right to choose the persons
who will manage the corporation. Once the directors or trustees are elected, the stockholders or
members relinquish corporate powers to the board in accordance with the law.
5. Who has power to manage the corporation?

The Board of Directors.
6. What is meant by apparent or ostensible authority?

Similar to authority by estoppel.
7. Derivative suit
It is the right of a stockholder to sue on behalf of a corporation. It has been proven to be an
effective remedy of the minority against the abuses of management. The suing stockholder is
regarded as the nominal party, with the corporation as the party in interest.
8. Authority of the BOD or BOT

They have the sole authority to determine policies, enter into contracts, and conduct the ordinary
business of the corporation within the scope of its charter. Such authority is restricted only to the
management of the regular business affairs of the corporation.
Note: There are instances where the Code requires stockholders’ approval for certain specific acts.
9. What are the 3 levels of control?

1. Board of Directors – responsible for corporate policies and general management of the
business affairs. They may delegate some of its functions to individual officers or agents.
2. The Officers – In theory, they execute the policies laid down by the board. In practice, they
often have wide latitude in determining the course of business operations.
3. The Stockholders – They have the residual power over fundamental corporate changes, like
amendments of the articles of incorporation.
10. Who has the power to decide whether a corporation can enter into a binding contract?
The Board of Directors. The general rule is that in the absence of authority from the BOD, no
person, not even its officers, can validly bind a corporation.
11. May the corporate powers be directly conferred upon corporate officers?
Yes. The directors of the corporation shall elect its corporate officers. They may represent and bind
the corporation in transactions with third persons to the extent that the authority to do so has been
conferred upon them. This includes powers intentionally conferred, as well as powers that are
incidental or implied in the usual course of the business.
12. Qualifications of BOD/BOT

1. For a stock corporation, ownership of at least 1 share of the capital stock of the corporation
in his own name. For a non-stock corporation, only members of the corporation can be
elected.
2. The director or trustee must be capacitated.
3. The director or trustee must be of legal age.
4. Other qualifications as may be prescribed in the by-laws of the corporation.
13. Who is an independent director?

A person who, apart from shareholdings and fees received from the corporation, is independent of
management and free from any business or other relationship which could, or could reasonably be
perceived to materially interfere with the exercise of independent judgment in carrying out the
responsibilities as a director.
14. What are the requirements for the election of directors/trustees?

1. The owners of majority of the outstanding capital stock or if there be no capital stock, a
majority of the members entitled to vote, of the corporation must be present, either in person
or through a representative authorized to act by written proxy.
2. When so authorized in the bylaws or by a majority of the board of directors, the stockholders
or members may also vote through remote communication or in absentia.
3. The election must be by ballot, if requested by any voting stockholder or member.
4. In stock corporations, the total number of votes cast shall not exceed the number of shares
owned by the stockholder as shown in the books of the corporation multiplied by the whole
number of directors to be elected. Provided, that no delinquent stock shall be voted.
5. In non-stock corporations, the members of nonstock corporations may cast as many votes
as there are trustees to be elected but may not cast more than 1 vote for 1 candidate.
6. Nominees for directors or trustees receiving the highest number of votes shall be declared
elected.
15. Define corporate officer

Corporate officers are, immediately after the election of directors of a corporation and formal
organization and election of such officers, are those who shall manage the corporation and perform
such duties as may be provided in the bylaws and/or as resolved by the BOD.
16. Are the acts of corporate officers binding on the corporation?
As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them.
17. Who are the corporate officers?

Officer Requirement Citizenship Residency
President 1. Must be a director Need not be a Filipino Need not be a resident
2. Must be a stockholder citizen of the Philippines
Secretary May or may not be a director Must be a Filipino Must be a resident of
citizen the Philippines
Treasurer May or may not be a director Need not be a Filipino Must be a resident of
citizen the Philippines
Compliance If the corporation is vested with public interest
Officer
Other Qualification may be provided for in the by-laws
Officers
18. Who is a corporate employee?

The basis of a corporate employee is that it is employed by the action of the managing officer of the
corporation.
19. Quorum at the meeting of BOD/BOT

A majority of the directors or trustees shall constitute a quorum for the transaction of corporate
business. A majority of the number of directors or trustees shall constitute a quorum, and every
decision of at least the majority present at a meeting at which there is a quorum shall be valid as a
corporate act, except for the election of officers which shall require the vote of a majority of all the
board members.
Exception: If AOI or By-laws provide for a greater majority.
20. Requirement regarding report of election and its objectives?

By express mandate of the Corporation Code, all corporations duly organized pursuant thereto are
required to submit within the period therein stated to the SEC the names, nationalities,
shareholdings, and residences of the directors, trustees, and officers elected.
The non-holding of elections and the reasons therefor shall be reported to the SEC within 30 days
from the date of the scheduled election. The report shall specify a new date for the election, which
shall not be later than 60 days from the scheduled date.
If there is no date designated, or if the rescheduled election was not held, the SEC may summarily
order that an election be held provided that there is verification to the unjustified non-holding of the
election.
21. Grounds for disqualification of directors, trustees, or officers.

1. If within 5 years prior to the election or appointment as such, the Directors, Trustees, or
Officers were convicted by final judgment of an offense punishable by imprisonment for a
period exceeding 6 years:
a. For violating the RCC; and
b. For violating RA 8799, The Securities Regulation Code.
Officers were found administratively liable for any offense involving fraudulent acts.
Officers were found by a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated in par. 1 and 2.
22. Can a director be removed with or without cause?

Yes. The general rule is that removal of directors or trustees may be with or without cause. The
exception is that removal without cause may not be used to deprive minority stockholders or
members of the right of representation to which they may be entitled under Section 23 of this Code.
23. How are directors/trustees removed?

1. The removal should take place at a regular or special meeting duly called for the purpose;
2. The director/trustee can only be removed by a vote of stockholders representing at least 2/3
of the outstanding capital stock or 2/3 of the members entitled to vote.
3. Ther must be a previous notice to stockholders or members of the corporation of the
intention to propose such removal at the meeting.
4. The special meeting of the stockholders or members of a corporation for the purpose of
removal must be called by the secretary on order of the president or on the written demand
of the stockholders representing or holding at least a majority of the outstanding capital stock
or a majority of the members entitled to vote.
24. Who has the power to remove directors or trustees?

The power to remove directors or trustees belongs to the stockholders or members exclusively. The
SEC upon verified complaint and after due notice and hearing, shall order the removal of a director
or trustee elected despite the disqualification.
25. Requisites for the removal of directors or trustees?

1. The removal should take place at a regular or special meeting duly called for the purpose;
2. The director/trustee can only be removed by a vote of stockholders representing at least 2/3
of the outstanding capital stock or 2/3 of the members entitled to vote.
3. Ther must be a previous notice to stockholders or members of the corporation of the
intention to propose such removal at the meeting.
4. The special meeting of the stockholders or members of a corporation for the purpose of
removal must be called by the secretary on order of the president or on the written demand
of the stockholders representing or holding at least a majority of the outstanding capital stock
or a majority of the members entitled to vote.
26. In case of a special meeting for the removal of director/trustee, who shall call the
meeting?
The secretary on order of the president or on written demand of the stockholders representing or
holding at least a majority of the outstanding capital stock or a majority of the members entitled to
vote.
27. If the president does not order the special meeting to be called, who may call such
meeting?
Written demand of the stockholders representing or holding at least a majority of the outstanding
capital stock or a majority of the members entitled to vote.
28. Who may call the meeting if the secretary fails or refuses to call the special meeting
or fails or refuses to give notice?
The stockholder or members of the corporation signing the demand may call for the meeting by
directly addressing the stockholders or members.
29. In what manner shall notice of the time and place of such meeting as well as the
intention to propose such removal be made?
It must be given by publication or by written notice prescribed in the Code.
30. What vote is required for the removal of a director or trustee?

Stockholders holding or representing at least 2/3 of the outstanding capital stock. In the case of
non-stock corporation, by a vote of at least 2/3 of the members entitled to vote.
31. How are the vacancies in the office of the director/trustee to be filled?
A. By the stockholders or members
1. Removal by the stockholders or members;
2. Expiration of term;
3. Increase in the number of directors or trustees due to amendment of the AOI; and
4. Other than the removal or expiration of term, like death, resignation, abandonment, or
disqualification, if the remaining directors or trustees do not constitute a quorum for the
purpose of filling the vacancy.
B. By the members of the BOD/BOT
1. If still constituting a quorum, at least a majority of them are empowered to fill any vacancy
occurring in the board other than by removal by the stockholders or members or by
expiration of term.
OR
It may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders or members in
a regular or special meeting called for that purpose.
32. Rules in the filling of vacancies

1. When vacancy is due to term expiration, the election shall be held no later than the day of
such expiration at a meeting called for that purpose.
2. When vacancy arises as a result of removal by the stockholders or members, the election
may be held on the same day of the meeting authorizing the removal and this fact must be
so stated in the agenda and notice of said meeting.
3. In all other cases, election must be held no later than 45 days from time the vacancy arose.
4. When the vacancy prevents the remaining directors from constituting a quorum and
emergency action is required to prevent grave, substantial, and irreparable loss or damage,
the vacancy may be temporarily filled from among the corporate officers by unanimous vote
of the remaining directors. The corporation must notify the SEC within 3 days from the
creation of the emergency board.
5. Any directorship or trusteeship to be filled by reason of an increase in the number of
directors/trustees shall be filled only by an election at a regular or at a special meeting
authorizing the increase of directors or trustees if stated in the notice of the meeting.
33. How shall vacancy resulting from removal be filled?
When vacancy arises as a result of removal by the stockholders or members, the election may be
held on the same day of the meeting authorizing the removal and this fact must be so stated in the
agenda and notice of said meeting.
34. When may vacancies in the board be filled up by the remaining members of the
board?
Any vacancies occurring in the BOD/BOT other than by removal or by expiration of term may be
filled by the vote of at least a majority of the remaining directors or trustees, provided it is still
constituting a quorum. Such director or trustee elected to fill a vacancy shall be referred to as
replacement director/trustee and shall serve only for the unexpired term of the predecessor in
office.
35. In case of amendment of the AOI increasing the number of directors or trustees, how
shall such directorship or trusteeship be filled?
Any directorship or trusteeship to be filled by reason of an increase in the number of
directors/trustees shall be filled only by an election at a regular or at a special meeting authorizing
the increase of directors or trustees if stated in the notice of the meeting.
36. Give instances where vacancies in the board are filled by stockholders?
1. When directors/trustees are removed by the stockholders/members;
2. By the expiration of the term of the director/trustee;
3. When there is an increase in the number of directors/trustees due to amendment of the AOI;
and
4. Other cases such as death, resignation, abandonment, or disqualification, if the remaining
directors/trustees do not constitute a quorum for the purpose of filling the vacancy.
37. Do directors receive compensation as such directors?

No. The general rule is that directors or trustees shall not receive any compensation as such
directors/trustees, except for reasonable per diems.
38. May directors be granted compensation other than per diem?

Yes. When it is fixed by the corporation’s bylaws; or when the stockholders, representing at least a
majority of the outstanding capital stock, or majority of the members, vote to grant the same.
39. Is there a limit as to the compensation granted to the directors?

In no case shall the total yearly compensation of directors, as such directors, exceed 10% of the
net income before income tax of the corporation during the preceding year.
Note: Directors/Trustees shall not participate in the determination of their own per diems or
compensation.
40. How directors are therefore compensated?

When it is fixed by the corporation’s bylaws; or when the stockholders, representing at least a
majority of the outstanding capital stock, or majority of the members, vote to grant the same.
OR
Reasonable per diems
41. When are directors, trustees, or officers jointly and severally liable to the
corporation?
Directors or trustees who: (1) willfully and knowingly vote for or assent to patently unlawful acts of
the corporation; or (2) who are guilty of gross negligence or bad faith in directing the affairs of the
corporation; or (3) acquire any personal or pecuniary interest in conflict with their duty, as such
directors or trustees, shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.
42. What is the doctrine of corporate opportunity?

A director, by virtue of his office, acquires for himself a business opportunity which should belong to
the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to
the latter for all such profits by refunding the same.
The doctrine of corporate opportunity means that if the director acquired a business opportunity that
should belong to the corporation, he must account to the corporation for all the profits he obtained
unless his act was ratified by the stockholders representing at least two-thirds of the outstanding
capital stock. (Dean Divina)
43. When is a director accountable for secret profits obtained by him?

If director/trustee or officer attempts to acquire, or acquire any interest adverse to the corporation in
respect of any matter which has been reposed in them in confidence, and upon which, equity
imposes a disability upon themselves to deal in their own behalf.
44. May a director enter into a contract with the corporation of which he is a director?
Yes, however voidable. It is the general rule that a contract of the corporation with one or more of
its directors, or trustees, officers, or their spouses and relatives within the fourth civil degree of
consanguinity or affinity is voidable, at the option of such corporation.
Note: Voidable means valid until proven otherwise.
Except when 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; that the vote of such
director/trustee was not necessary for the approval of the contract; the contract is fair and
reasonable under the circumstances; in case of corporations vested with public interest, material
contracts are approved by at least 2/3 of the entire membership of the board, with at least a
majority of the independent directors; and that in case of an officer, the contract has been
previously authorized by the board of directors.
45. May a corporate officer enter into a contract with the corporation of which he is a
director?
No. It is the general rule that a contract of the corporation with one or more of its directors, or
trustees, officers, or their spouses and relatives within the fourth civil degree of consanguinity or
affinity is voidable, at the option of such corporation.
46. What is the status of the contract entered into by the director or trustee with the
corporation if the above conditions are not met?
Such contract may be ratified by the vote of the stockholders representing at least 2/3 of the
outstanding capital stock or of at least 2/3 of the members in a meeting called for the purpose;
Provided, that full disclosure of the adverse interest of the directors or trustees involved is made at
such meeting and the contract is fair and reasonable under the circumstances.
OR
Voidable
47. Can such contract be ratified?
Yes, however voidable. Such contract may be ratified by the vote of the stockholders representing
at least 2/3 of the outstanding capital stock or of at least 2/3 of the members in a meeting called for
the purpose; Provided, that full disclosure of the adverse interest of the directors or trustees
involved is made at such meeting and the contract is fair and reasonable under the circumstances.
48. Who are considered interlocking directors?

These are members of the board of directors in a certain corporation who are also directors in
another corporation.
49. What percentage of stock ownership is considered substantial for purposes of

interlocking directors?
Stockholdings exceeding 20% of the outstanding capital stock shall be considered substantial for
purposes of interlocking directors.
50. What is the status of contract entered into between corporations with interlocking
directors?
The general rule is that a contract between two or more corporation having interlocking directors
shall not be invalidated on that ground alone. The contract should not be fraudulent and is fair and
reasonable under the circumstances.
Exception is if the interest of the interlocking director in one corporation is substantial and his
interest in the other corporation is merely nominal, he shall be subject to the provisions of Sec. 31
insofar as the latter corporation are concerned.
51. On what ground may such contract be invalidated?

In cases of fraud and the contract is not fair and reasonable under the circumstances.
52. What conditions should be met in the event the interlocking director’s interest is
nominal?
a. when 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;
b. that the vote of such director/trustee was not necessary for the approval of the contract;
c. the contract is fair and reasonable under the circumstances;
d. in case of corporations vested with public interest, material contracts are approved by at
least 2/3 of the entire membership of the board, with at least a majority of the independent
directors; and
e. that in case of an officer, the contract has been previously authorized by the board of
directors.
53. If the interest of the interlocking director is substantial exceeding 20% of the
outstanding stock, what 2 basic conditions are required so that the contract be valid?
1. Contract is not fraudulent; and
2. Contract is fair and reasonable under the circumstances.
54. Who may appoint an executive committee and what are its functions?
If the bylaws so provide, the Board may create an executive committee composed of at least 3
directors. The executive committee has all the authority of the board of directors to the extent
provided in the bylaws, subject to statutory limitations.
55. What are the matters that cannot be delegated to the executive committee?
1. The approval of any action for which shareholders’ approval is also required;
2. Filling of vacancies in the board;
3. Amendment or repeal of by-laws or the adoption of new by-laws;
4. Amendment or repeal of any resolution of the board which by its express terms is not
amendable or cannot be repealed; and
5. Distribution of cash dividends to the shareholders.
56. How much vote of the members of the executive committee is required to approve any
act within its competency?
The committee may act, by majority vote of all its members, on such specific matters within the
competence of the board.
TITLE IV POWERS OF CORPORATIONS
1. How are corporate powers classified?
a. Express – expressly authorized by the Code and other laws, and its AOI.
b. Implied – those that can be inferred from or necessary for the exercise of the express
powers.
c. Incidental – those that are incidental to the existence of the corporation.
2. Who exercises the powers of the corporation?

The Board of Directors/Trustees and/or its duly authorized officers and agents, except in
instances where the Code requires stockholders’ approval for certain specific acts.
3. What are the express powers of the corporation?

I. General Powers
a. To sue and be sued in its corporate name;
b. To have perpetual existence unless certificate of incorporation provides otherwise;
c. To adopt and use a corporate seal;
d. To amend its AOI in accordance with the provisions of this Code;
e. Adopt, amend, or repeal bylaws;
f. For stock corporations – to issue stocks to subscribers and to sell treasury shares in
accordance with the Code;
g. For non-stock corporations – admit members to the corporation;
h. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise deal with real and personal property pursuant to its lawful business;
i. To enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and juridical persons;
j. To make reasonable donations for public welfare, hospital, charitable, cultural,
scientific, civic, or similar purposes provided that no foreign corporation shall give
donations in aid of any political party or candidate or for purposes of partisan political
activity;
k. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers, and employees; and
l. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in the AOI.
II. Specific Powers
a. Power to extend or shorten corporate term;
b. Power to increase or decrease capital stock;
c. Incur, create or increase bonded indebtedness;
d. Power to deny pre-emptive right;
e. Sell, dispose, lease, encumber all or substantially all of corporate assets;
f. Purchase or acquire own shares;
g. Invest corporate funds in another corporation or business for any other primary
purpose;
h. Power to declare dividends; and
i. Power to enter into management contract.
4. Give examples of implied powers of a corporation?

The power to acquire properties, acts to protect debts owing to a corporation, acts in part or
wholly to protect or aid employees, or acts to increase business.
5. What is a derivative suit
An action brought by a stockholder on behalf of the corporation to enforce corporate rights
against the corporation’s directors, officers or other insiders.
6. What is the life of a corporation?

Every corporation incorporated under the RCC has the power and capacity to have
perpetual existence unless the certificate of incorporation provides otherwise.
7. Can a corporation enter into a contract with other entities such as partnership,
joint venture, etc.?
Yes. It is stated in Section 35 of the RCC.
8. What is the limitation concerning foreign corporation in relation to giving

donations?
No foreign corporation shall give donations in aid of any political party or candidate or for
purposes of partisan political activity.
9. A certain corporation limits its existence or life in its AOI, may the corporate
term be extended or shortened?
Yes. The requirements to extend or shorten corporate term must be that there is approval by
a majority vote of the BOD/BOT; and ratification by the stockholders representing at least 2/3
of the outstanding capital stock or by at least 2/3 of members.
10. What are the requirements to extend or shorten corporate life?

1. Approval by a majority vote of the BOD/BOT;
2. and ratification by the stockholders representing at least 2/3 of the outstanding capital
stock or by at least 2/3 of members.
11. If the corporate term is extended, what is the right those stockholders who
dissented?
Appraisal right. The stockholder who dissented and voted against the proposed corporate
action, may choose to get out of the corporation by demanding payment of the fair market
value of his shares.
12. What is an appraisal right? Who may exercise it?

The stockholder/member who dissented and voted against the proposed corporate action,
may choose to get out of the corporation by demanding payment of the fair market value of
his shares.
13. What vote is necessary to increase or decrease capital stock?

Majority vote of the BOD/BOT and 2/3 of the outstanding capital stock.
14. What are the 3 instances when distribution of corporate capital is allowed?
(1) Amendment of AOI to reduce the authorized capital stock; (2) purchase of redeemable
shares by the corporation, regardless of the existence of unrestricted retained earnings, and
(3) dissolution and eventual liquidation of the corporation.
15. What are the requirements that must be complied with for the increase or
decrease of authorized capital stock?
a) Written notice of the proposed increase or diminution of the capital stock and of the
time and place of the stockholder’s meeting at which the proposed increase or
diminution of the capital stock is to be considered, must be addressed to each
stockholder at his place of residence as shown on the books of corporation and
deposited to the addressee by mail, or served personally, or through electronic means
recognized in the corporation’s bylaws and/or the Commission’s rules as a valid mode
for service of notices;
b) No decrease of the capital stock shall be approved if its effect shall prejudice the
rights of corporate creditors;
c) Approval by a majority vote of the BOD;
d) Ratification by the stockholders holding at least 2/3 of the outstanding capital stock;
e) A certificate must be signed by a majority of the directors of the corporation and
countersigned by the chairperson and secretary of the stockholders’ meeting;
f) Approval thereof by the SEC; and
g) Treasurer’s affidavit showing that at least 25% of such increased capital stock has
been subscribed and that at least 25% of the amount subscribed has been paid.
16. What is the duty of the SEC under the current regulations in respect of filing
certificate of increase of authorized capital stock?
After approval of the SEC and issuance by the SEC of its certificate of filing, the capital stock
shall be deemed increase or decreased and the incurring, creating or increasing of any
bonded indebtedness authorized, as the certificate of filing may declare: Provided, that the
commission shall not accept for filing any certificate unless accompanied by a sworn
statement of the treasurer showing that at least 25% of the amount subscribed has been
paid or that valuation of property is equal to 25% of the subscription, provided further that no
decrease in capital stock shall be approved by the SEC if it shall prejudice the rights of
corporate creditors.
17. Define bonded indebtedness

Long term indebtedness secured usually by real property.
18. What vote is necessary to incur or create bonded indebtedness?

Approval by a majority vote of the BOD; and ratification by the stockholders holding at least
2/3 of the outstanding capital stock. Similar for non-stock corporations.
19. May non-stock corporations incur, create or increase bonded indebtedness?

What is the requirement for non-stock corporations?
Yes. The requirements are similar to that of for stock corporations.
20. Is it necessary to register the bonds issued?

Yes. In order for the SEC to determine the sufficiency of the terms thereof.
21. What is pre-emptive right?

Preferential right of all stockholders of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective shareholdings.
22. What is the purpose of the pre-emptive right of stockholders?
To enable the shareholder to retain his proportionate control in the corporation.
23. Within what period should this be exercised?

Period stated in the AOI or the bylaws.
24. To what case may a stockholder exercise his pre-emptive right?

If such stockholder wants to retain his proportionate control in the corporation.
25. To what cases is the pre-emptive right not applicable?

a) Shares to be issued in compliance with laws requiring stock offerings or minimum
stock ownership by the public; and
b) Shares to be issued in good faith with the approval of the stockholders representing
2/3 of the outstanding capital stock, in exchange for property needed for corporate
purposes or in payment of a previously contracted debt.
26. What are the limitations on the power of the corporation to sell or dispose all or
substantially all its corporate assets including goodwill?
The transfer should not prejudice the creditors of the assignor. It can only proceed without
prejudice is to hold the assignee liable for the obligations of the assignor.
27. What are the requirements of this proposed action?

a) Written notice of the proposed action and of the time and place of the meeting shall
be addressed to each stockholder/member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the post office with
postage prepaid, or served personally, or when allowed by the bylaws or done with
the consent of the stockholder, sent electronically;
b) Approval by the majority vote of its BOD/BOT;
c) Ratification by the vote of the stockholders representing at least 2/3 of the outstanding
capital stock, or in case of non-stock corporation, by the vote of at least 2/3 of the
members; and
d) Any dissenting stockholder may exercise his appraisal right.
28. Does it need SEC approval?

No.
29. What is the test to apply in order to determine whether the disposition is for all
or substantially all the assets of the corporation?
It must be computed based on its net asset value, as shown in its latest financial statements.
30. What may be the consideration for such sale or disposition?

A sale or other disposition shall be deemed to cover substantially all the corporate property
and assets if thereby the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was incorporated.
31. In case where are no members with voting rights in a non-stock corporation
who may approve the same disposition as mentioned?
The vote of at least a majority of the trustees in office will be sufficient authorization.
32. May such disposition after having been approved by the required vote of
stockholders or members be abandoned?
Yes. Stated so in the 6th paragraph of Section 39 that they may, nevertheless, in its
discretion, abandon such sale, lease, exchange, mortgage, pledge, or other disposition
subject to the rights of third parties under any contract relating thereto, without further action
or approval by the stockholders/members.
33. In cases of disposition of corporate assets in the course of business done by

the Board of Directors (or trustees, do they require the approval of the
stockholders or members?
Yes. However, ratification is not required: (1) if the same is necessary in the usual and
regular course of business of said corporation; or (2) if the proceeds of the sale or other
disposition of such property and assets be appropriated for the conduct of its remaining
business.
34. Suppose all or substantially all the corporate property or assets shall be
disposed of, is the corporation dissolved?
No.
35. Do stockholders of close corporations enjoy the same pre-emptive right?

Yes. This is because the law teaches us that the pre-emptive right of stockholders in close
corporations encompasses issued stocks that includes reissued treasury shares for
purposes defined by law unless otherwise the articles of incorporation so provides.
36. To what cases shall such pre-emptive right in close corporations extend?
The law teaches us that in close corporations, the pre-emptive right of stockholders extends
to all stock that is to be issued, including reissues of treasury shares, whether for money,
property, or personal services, or in payment of corporate debts, unless the articles of
incorporation stipulate otherwise.
37. May the pre-emptive right of stockholders in close corporations be limited?

Yes. The law teaches us that the pre-emptive right of stockholders in close corporations be
limited by the provisions provided by the articles of incorporation.
38. What are fractional shares?

These are shares which are less than one share. The acquisition of such share is expressly
to be eliminated under the law. Thus, it is imperative to purchase shares for a legitimate
purpose.
39. When may a corporation be allowed to acquire its own shares?

a) To eliminate fractional shares arising out of stock dividends;
b) To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during
said sale;
c) To pay dissenting or withdrawing stockholders entitled to payment for their shares
under the provisions of this Code;
d) To acquire treasury shares;
e) Redeemable shares regardless of existence of retained earnings;
f) To effect a decrease of capital stock; and
g) In close corporations, when there is a deadlock in the management of the business,
the SEC may order the purchase at their fair value of the shares of any stockholder by
a corporation regardless of the availability of unrestricted earnings in its books, or by
the other stockholders.
40. What basic conditions must be met before a corporation can acquire its own
shares?
The corporation has to have unrestricted retained earnings in its books to cover the shares
to be purchased or required. That its capital is not thereby impaired. That it be for legitimate
purpose. That the corporation acts in good faith and without prejudice to the rights of
creditors and stockholders. That the conditions of corporate affairs warrant it.
41. Basis of unrestricted retained earnings.

The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether
the corporation has unrestricted retained earnings to cover the payment for the shares and
whether the purchase is for a legitimate corporate purpose. It is based on the trust fund
doctrine which means that assets and capital stocks of a corporation are regarded as equity
in trust for the payment of corporate creditors.
42. Instances of distribution of corporate capital

a) Amendment of AOI to reduce the authorized capital stock;
b) Purchase of redeemable shares by the corporation, regardless of the existence of
unrestricted retained earnings; and
c) Dissolution and eventual liquidation of the corporation.
43. May a corporation invest its corporate funds in another corporation or for a
purpose other than its main purpose?
Yes. Subject to the provisions of this Code.
44. May such investment be made even without the approval of the stockholders or
members?
Yes, a private corporation may invest corporate funds in any other corporation or business if
it is for the primary purposes for which the corporation was organized.
45. Define dividend.

These are corporate profits set aside, declared, and ordered to be paid by the directors for
distribution among stockholders at a fixed time.
46. Who has the power to declare dividends in a corporation?

Board of Directors.
47. From what source shall dividends be declared?

Dividends are declared out of the unrestricted retained earnings which shall be payable in
cash, property, or in stock to all stockholders on the basis of outstanding stock held by them.
48. In what forms shall dividends be declared?
In the form of cash, property, or in stock to all stockholders on the basis of outstanding stock
held by them.
49. Which stockholders are entitled to dividends?

All stockholders, whether preferred or ordinary.
50. May delinquent stocks earn dividends?

Yes. However, any cash dividends they receive will be first applied to the unpaid balance on
the subscription plus costs and expenses, while stock dividends shall be withheld from them
until they have fully paid their unpaid subscription.
51. Can the Board alone declare stock dividends?

No. No stock dividends shall be issued without the approval of stockholders representing at
least 2/3 of the outstanding capital stock at a regular or special meeting duly called for the
purpose.
52. May stock corporations retain surplus profits without declaring them into
dividends?
No. Under the Code, stock corporations are prohibited from retaining surplus profits except
when justified by definite corporate expansion projects, when the corporation is prohibited
under any loan agreement from declaring dividends without their consent; or when it can be
clearly shown that such retention is necessary under special circumstances obtaining in the
corporation.
53. When may SEC compel corporations to declare dividends?

If its retained earnings shall be in excess of 100% of its paid-up capital stock.
54. What are the valid reasons acceptable to the SEC for retaining surplus profits in
excess of 100% of paid-in without having to declare said excess into
dividends?
a) When justified by definite corporate expansion projects;
b) When the corporation is prohibited under any loan agreement from declaring
dividends without their consent; or
c) When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation.
55. Is stock dividend taxable income to the stockholder?

According Pricewaterhouse Coopers (PWC), stock dividends are tax-free, proportionately to
all shareholders. However, subsequent cancellation or redemption of such stocks shall be
taxable to the extent that it represents a distribution of earnings.
56. Can stock dividends be issued to a person who is not a stockholder in payment
for services rendered?
No.
57. Can dividends be declared out of capital?
No, but in the case of wasting assets corporation, it may be.
58. What is a wasting assets corporation?

Corporation engaged in business that has wasting assets - assets whose useful life is
limited. Example are mining corporation or lumber corporations. Dividends are paid out of
capital.
59. Can dividends be declared out of re-appraisal surplus?

No. Dividends cannot be declared out of paid-in surplus and revaluation surplus.
60. May cash dividends be declared out of paid-in or premium surplus?

No. Dividends cannot be declared out of paid-in surplus and revaluation surplus.
61. May dividend declaration be revoked?

Yes. As long as there is still no approval by the stockholders.
62. May a corporation be managed by another corporation?

Yes. Through a management contract.
63. What two basic regulatory conditions are required before a corporation
conclude a management contract with another corporation?
If it is approved by the BOD and by the stockholders owning at least the majority of the
outstanding capital stock, or by at least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed corporation.
Where a stockholder representing the same interest of both corporations own or control
more than 1/3 of the total outstanding capital stock entitled to vote of the managing
corporation.
64. When shall a bigger vote of stockholders or members be required to approve

such management contract?
Where a majority of the members of the BOD of the managing corporation also constitute a
majority of the members of the BOD of the managed corporation, then the management
contract must be approved by at least 2/3 of the total outstanding capital stock entitled to
vote, or by at least 2/3 of the members in the case of a non-stock corporation.
65. What is the vote required in the above two cases?

a) More than 1/3 of the total outstanding capital stock entitled to vote of the managing
corporation; and
b) At least 2/3 of the total outstanding capital stock entitled to vote, or by at least 2/3 of
the members in the case of a non-stock corporation.
66. What is an ultra-vires act?
An act outside the powers conferred by the Code or by the AOI, or beyond what is necessary
or incidental to the exercise of the powers so conferred.
67. Is an ultra-vires act necessary illegal?

No.
68. What is an intra-vires act?

Act inside the powers conferred by the Code or by the AOI, expressly, implied, and
incidental.
69. What is the effect if an ultra-vires act is executory on both sides?

It is unenforceable.
70. Can an ultra vires act be ratified?

Yes.
Title V - By-Laws
1) Define By-Laws. Nature and purpose

By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate,
govern, and control its own actions, affairs and concerns and its stockholders or members and
directors and officers with relation thereto and among themselves in their relation to it. These are the
relatively permanent and continuing rules of action adopted by the corporation for its own
government and that of the individuals composing it and having the direction, management, and
control of its affairs, in whole or in part, in the management and control of its affairs and activities.
The purpose of a by-law is to regulate the conduct and define the duties of the members towards the
corporation and among themselves.
2) When shall By-laws be filed with the SEC?

(1) By-laws shall be filed with the SEC when there is an affirmative vote of the stockholders
representing at least a majority of the outstanding capital stock, or of at least a majority of the
members in case of nonstock corporations regarding the adoption of bylaws, and such bylaws shall
be signed by the stockholders or members voting for them. There should be a copy of the document,
duly certified by a majority of the directors or trustees and countersigned by the secretary of the
corporation. Such document copy shall be filed with the SEC and attached to the original AOI.
(2) Bylaws may also be filed prior to incorporation; in such case, such bylaws shall be approved and
signed by all the incorporators and submitted to the SEC together with the AOI.
(3)
3) Are third persons bound by by-laws?

The general rule is that third persons are not bound by bylaws, except when they have knowledge of
the provisions either actually or constructively.
4) Are by-laws necessary to the existence of the corporation?

Depends. By-laws may be necessary for the government of the corporation but these are only
subordinate to the AOI as well as to the Code and related statutes. In fact, there are cases where
bylaws are unnecessary to corporate existence or to the valid exercise of corporate powers.
5) How are by-laws adopted?

I. Before incorporation – bylaws must be signed and approved by all the incorporators and filed
with the SEC together with the articles of incorporation.
II. After incorporation – The affirmative vote of the stockholders representing at least a majority of
the outstanding capital stock, or of at least a majority of the members shall be necessary. Bylaws
shall be signed by the stockholders or members voting for them.
6) When will the by-laws take effect?

Bylaws shall be effective only upon the issuance by the SEC of a certification that the bylaws are in
accordance with the Corporation Code.
7) What is the function of the by-laws?

The purpose of a by-law is to regulate the conduct and define the duties of the members towards the
corporation and among themselves.
8) What are the contents of valid by-laws?

a) The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees;
b) The time and manner of calling and conducting regular or special meetings and mode of
notifying the stockholders or members thereof;
c) The required quorum in meetings of stockholders or members and the manner of voting
therein;
d) The modes by which a stockholders, member, director, or trustee may attend meetings and
cast their votes;
e) The form for proxies of stockholders and members and the manner of voting them;
f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting
the compensation of directors or trustees and officers, and the maximum number of other
board representations that an independent director or trustee may have which shall, in no
case, be more than the number prescribed by the Commission;
g) The time for holding the annual election of directors or trustees and the mode or manner of
giving notice thereof;
h) The manner of election or appointment and the term of office of all officers other than
directors or trustees;
i) The penalties for violation of the bylaws;
j) In the case of stock corporations, the manner of issuing stock certificates; and
k) Such other matters as may be necessary for the proper or convenient transaction of its
corporate affairs for the promotion of good governance and anti-graft and corruption
measures.
9) What are the requisites of valid by-laws?

a) Must be consistent with the Corporation Code, other pertinent laws and regulations;
b) Must likewise be consistent with the AOI;
c) Must not disturb vested rights, impair contract or property rights of stockholder or members.
Nor must it create obligation that are unknown to law.
10) Articles of Incorporation vs By-Laws

It is a condition precedent in the acquisition of Condition subsequent. Its absence merely
corporate existence furnishes a ground for the revocation of the
franchise or certificate of registration.
It constitutes the charter or fundamental law of It is the rules and regulations adopted by the
the corporation corporation
It is executed before incorporation It is executed before or after incorporation
It is amended by a majority of the BOD/BOT and It may be amended by a majority vote of the BOD
stockholders representing 2/3 of the outstanding and majority vote of outstanding capital stock or
capital stock or of the members majority of members
The power to amend or repeal the AOI cannot be The power to amend or repeal bylaws or adopt
delegated by the stockholders or members to the new bylaws may be delegated by the 2/3 of the
BOD/BOT outstanding capital stock or of members.
11) Which is superior AOI or by-laws?

AOI.
12) Procedure for amendment by laws.

The general rule is that the BOD/BOT, by a majority vote thereof, and the owners of at least a
majority of the outstanding capital stock, or at least a majority of the members, at a regular or special
meeting duly called for the purpose, may amend or repeal any bylaws or adopt new bylaws.
The exception is that owners of 2/3 of the outstanding capital or of the members may delegate to the
BOD/BOT the power to amend or repeal any bylaws or adopt new bylaws.
Title VI - Meetings
1. Purpose of meetings
Generally, meetings are called for the purpose of electing directors or trustees and transacting some
other business calling for or requiring the action or consent of the shareholders or members, such as
the amendment of the AOI and bylaws, sale or disposition of all or substantially all corporate assets,
consolidation and merger and the like, or any other business that may properly come before the
meeting.
2. Kinds of meeting of stockholders or members

Regular and Special meetings.
3. Necessity of meetings
A majority of the stockholders or members can bind the corporation only at a meeting regularly held
and conducted. To constitute a legal meeting, so as to render the acts and vote of the majority
binding the meeting must be regularly called by one having authority.
4. Requisites for a valid meeting of stockholders or members

a) It must be held at the proper place;
b) It must be held at the stated date and at the appointed time;
c) It must be called by the proper person;
d) The person or persons designated in the bylaws have authority to call stockholder’s or
member’s meeting;
e) In the absence of such provision in the bylaws, it may be called by a director or trustee or by
an officer entrusted with the management of the corporation;
f) A petitioning stockholder or member may make the call on order of the SEC whenever for any
cause, there is person authorized to call a meeting or the person authorized unjustly refuses
to call a meeting;
g) There must be a precious notice; and
h) There must be a quorum.
5. When is the regular meeting of stockholder or members?

Regular meetings shall be held annually on a date fixed in the bylaws, or if not so fixed, on any date
after April 15 of every year as determined by the BOD/BOT: Provided, that written notice of regular
meetings shall be sent to all stockholders or members of record at least 21 days prior to the meeting,
unless a different period is required in the bylaws, law, or regulation: Provided further that written
notice of regular meetings may be sent to all stockholders or members of record through electronic
mail or such other manner as the SEC shall allow under its guidelines.
6. What is required to be sent to all stockholders in relation to the meeting?

Provided, that written notice of regular meetings shall be sent to all stockholders or members of
record at least 21 days prior to the meeting, unless a different period is required in the bylaws, law, or
regulation: Provided further that written notice of regular meetings may be sent to all stockholders or
members of record through electronic mail or such other manner as the SEC shall allow under its
guidelines
7. Can the meeting be postponed? What is the rule?

Yes. Written notice of the postponement and the reason therefor shall be sent to all stockholders or
members of record at least 2 weeks prior to the date of the meeting, unless a different period is
required under the bylaws, law or regulation.
8. What should be attached to each notice of meeting?
a) The agenda for the meeting;
b) A proxy form which shall be submitted to the corporate secretary within a reasonable time
prior the meeting;
c) When attendance, participation, and voting are allowed by remote communication or in
absentia, the requirements and procedures to be followed when a stockholder or member
elects either option; and
d) When the meeting is for the election of directors or trustees, the requirements and procedure
for nomination and election.
9. Place and time of meetings of stockholders or members

Where: In the principal officer of the corporation as set forth in the AOI, or, if not practicable, in the
city or municipality where the principal office of the corporation is located. Any city or municipality in
Metro Manila, Metro Cebu, Metro Davao, and other Metropolitan areas shall, for purposes of the
stockholders’ or members’ meeting, be considered a city or municipality.
When (Regular): Annually on a date fixed in the bylaws, or if not fixed, on any date after April 15 of
every year as determined by the BOD/BOT.
When (Special): At any time deemed necessary or as provided in the bylaws.
Notice of such meetings shall be sent through the means of communication provided in the bylaws,
which notice shall state the time, place and purpose of the meetings.
All proceedings and any business transacted at a meeting of the stockholders or members, if within
the powers or authority of the corporation, shall be valid even if the meeting is improperly held or
called: Provided, that all the stockholders or members of the corporation are present or duly
represented at the meeting and not one of them expressly states at the beginning of the meeting that
the purpose of their attendance is to object to the transaction of any business because the meeting is
not lawfully called or convened.
10. For regular meetings- schedule, place and when will the notice be sent?
When: Annually on a date fixed in the bylaws, or if not fixed, on any date after April 15 of every year
as determined by the BOD/BOT.
Notice: Written notice of regular meetings must be given to stockholders or members of record at
least 21 days prior to the meeting unless otherwise provided in the bylaws, law, or regulation.
11. For special meetings – schedule, place and when will the notice be sent?
When: At any time deemed necessary or as provided in the bylaws.
Notice: At least one-week written notice shall be sent to all stockholders or members, unless a
different period is provided in the bylaws, law or regulation.
12. Proper person to call meetings

Regular meetings of stockholders or members shall be held annually on a date fixed in the bylaws, or
if not so fixed in the bylaws, or if not so fixed, on any date After April 15 of every year as determined
by the board of directors or trustees: Provided, further, That written notice of regular meetings may
be sent to all stockholders or members of record through electronic mail or such other manner as the
Commission shall allow under its guidelines.
A stockholder or member may propose the holding of a special meeting and items to be included in
the agenda.
Whenever for any cause, there is no person authorized or the person authorized unjustly refuses to
call a meeting, the Commission, upon petition of a stockholder or member on a showing of good
cause therefor, may issue an order, directing the petitioning stockholder or member to call a meeting
of he corporation by giving proper notice required by this Code or the bylaws. The petitioning
stockholder or member shall preside thereat until at least a majority of the stockholders or members
present have chosen from among themselves, a presiding officer.
13. Can the notice be waived?

Yes, expressly or impliedly, by any stockholder or member. General waivers of notice in the AOI or
the bylaws shall not be allowed. Attendance at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or convened.
14. What is the quorum required in meetings of stockholders or members?

Unless otherwise provided in the Code or in the bylaws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of the members in case of
nonstock corporations.
15. What should be the basis of quorum in meetings of stockholders or members?

For stock corporations, the quorum referred to is based on the number of outstanding voting stocks.
For nonstock corporations, only those who are actual, living members with voting rights shall be
counted. Thus, quorum is based on the totality of the shares which have been subscribed and
issued, whether it be founders’ shares or common shares.
OR
To base the computation of quorum only on the stock and transfer book, it would work injustice to the
owners and/or successors in interest of the said shares. Resort to documents other than the stock
and transfer books is necessary.
16. Articles of Incorporation vs. Stock and Transfer Book

The AOI has been described as one that defines A stock and transfer book is the book which
the charter of the corporation and the contractual records the names and addresses of all
relationships between the State and the stockholders arranged alphabetically, the
corporation, the stockholders and the State, and installments paid and unpaid on all stock for
between the corporation and its stockholders. which subscription has been made, and the date
of payment thereof; a statement of every
alienation, sale or transfer of stock made, the
date thereof and by and to whom made; and
such other entries as may be prescribed by law.
17. Kinds of meetings of BOD or BOT

Regular and special meetings.
18. What is the quorum at a regular or special meeting of directors or trustees?

The general rule is that majority of the number of directors or trustees as stated in the AOI. Except if
the AOI or the bylaws provide for a greater majority. Majority meaning 50% plus 1
19. Rule of quorum at a regular or special meeting of directors or trustees

The general rule is that majority of the number of directors or trustees as stated in the AOI shall
constitute a quorum for the transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at the meeting at which there is a quorum shall be valid
as a corporate act, except for the election of officers which shall require the vote of a majority of all
members of the board. Except if the AOI or the bylaws provide for a greater majority.
20. For regular meetings- schedule, place and when will the notice be sent?
When: Monthly, unless the bylaws provide otherwise.
Where: Anywhere in or outside of the Philippines, unless the bylaws provide otherwise.
Notice: Notice must be given to the directors at least 2 days prior to the scheduled date unless a
longer time is provided in the bylaws. Requirement may be waived, either expressly or impliedly.
21. For special meetings – schedule, place and when will the notice be sent?
When: Any time upon the call of the president or as provided in the bylaws.
Where: Anywhere in or outside of the Philippines, unless the bylaws provide otherwise.
Notice: Notice must be given to the directors at least 2 days prior to the scheduled date unless a
longer time is provided in the bylaws. Requirement may be waived, either expressly or impliedly.
22. Who presides the meeting?

The general rule is that the chairman or, in his absence, the president shall preside at all meetings of
the directors or trustees as well as of the stockholders or members. Unless the bylaws provide
otherwise.
23. Who has the right to vote?

In case a stockholder grants security interest in his or her shares, the stockholder-grantor shall have
the right to attend and vote at meetings of stockholders, unless the secured creditor is expressly
given by the stockholder-grantor such right in writing which is recorded in the appropriate corporate
books. Executors, administrators, receivers, and other legal representatives duly appointed by the
court may attend and vote in behalf of the stockholders or members without need of any written
proxy.
24. Manner of voting

Stockholders and members may vote in person or by proxy in all meetings of stockholders or
members. If authorized by the bylaws or by a majority of the BOD/BOT, stockholders or members
may also vote through remote communication or in absentia provided that the votes are received
before the corporation finishes the tally of votes. Stockholder or member participating through remote
communication or in absentia shall be deemed present for quorum. The corporation shall establish
the appropriate requirements and procedures for voting through remote communication and in
absentia.
25. What is representative voting?

Also known as proxy voting, is a process in which a shareholder or member of a corporation appoints
another person to vote on their behalf at a meeting of the corporation. The appointed person, known
as a proxy, is authorized to cast votes according to the instructions of the shareholder or member
who appointed them.
26. Voting in case of joint ownership of stock

The general rule is that in case of shares of stock owned jointly by two or more persons, in order to
vote the same, the consent of all the co-owners shall be necessary. Exceptions are: (1) there is a
written proxy, signed by all the co-owners, authorizing one or some of them or any other person to
vote such share of shares; and (2) the shares are owner in an “and/or” capacity by the holders
thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.
27. Do treasury shares have voting right?

Treasury shares shall have no voting right as long as such shares remain in the Treasury.
28. Meaning of proxies

It may refer to the person duly authorized by a stockholder to vote in his behalf in a stockholder’s
meeting. It may also refer to the document which evidences this authority. (Alburo, Alburo and
Associates)
29. Requirements for validity of a proxy

a) It shall be in writing in any form authorized in the bylaws;
b) It shall be signed by the stockholder or member;
c) It shall be filed before the scheduled meeting with the corporate secretary;
d) Unless otherwise provided in the proxy, it shall be valid only for the meeting which it is
intended; and
e) No proxy shall be valid and effective for a period longer than 5 years at any one time.
30. Purposes of proxy

a) For convenience.
b) It assures the presence of a quorum.
c) It enables those who do not wish to attend the meeting to protect their interest.
d) It secures voting control.
31. Instances when the right to vote by proxy may be exercised

a) Election of the BOD/BOT;
b) Voting in case of joint ownership stock;
c) Voting by trustee under voting trust agreement;
d) Voting by members in nonstock corporation;
e) In cases of pledge or mortgage of shares;
f) In all meetings of stockholders or members; and
g) In all other matters as may be provided in the bylaws.
32. Is there a limitation as to who may be a proxy?

No.
33. How to revoke proxies?

a) Formal notice;
b) Verbal communication; or
c) Conduct
34. Revocation of proxy

a) Formal notice;
b) Verbal communication; or
c) Conduct
35. If there are many proxies issued, who will be considered the valid proxy?
The last proxy given revokes all previous proxies.
36. What is VTA?

An agreement in writing whereby one or more stockholders of a corporation consent to transfer his or
their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for
a period not exceeding 5 years upon the fulfillment of statutory conditions and such other terms and
conditions specified in the agreement.
37. What is voting trust?

Trust created by an agreement between a group of stockholders of a corporation and the trustee or
by a group of identical agreements between individual stockholders and a common trustee, whereby
it is provided that for a term of years, or for a period contingent upon a certain event, or until the
agreement is terminated, control over the stock owned by such stockholders, is to be lodged in the
trustee, either with or without a reservation to the owners, or persons designated by them, of the
power to direct how such control shall be used.
38. Nature of VTA

It results in the separation of the voting rights of a stockholder from his other rights such as the right
to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests
in the assets of the corporation and other rights to which a stockholder may be entitled until the
liquidation of the corporation.
39. Tests of VTA

In order to distinguish a VTA from proxies and other voting pools and agreements, it must pass three
tests, namely:
a) That the voting rights of the stock are separated from other attributes of ownership;
b) That the voting rights granted are intended to be irrevocable for a definite period of time; and
c) That the principal purpose of the grant of voting rights is to acquire voting control of the
corporation.
40. Requirements and limitation imposed on the VTA

a) The agreement must be in writing and notarized and specify the terms and conditions thereof;
b) A certified copy of ush agreement shall be filed with the corporation and with the SEC;
otherwise, said agreement is ineffective and unenforceable;
c) The certificate of stock covered by the VTA shall be cancelled and new ones shall be issued
in the name of the trustee or trustees stating that they are issued pursuant to said agreement;
d) The books of the corporation shall state that the transfer in the name of the trustee or trustees
is made pursuant to said VTA;
e) The trustees shall execute and deliver to the transferors voting trust certificates, which shall
be transferable in the same manner and with the same effect as certificates of stock;
f) A VTA shall be entered into for a period not exceeding 5 years at any time. However, in the
case of a voting trust specifically required as a condition in a loan agreement, said voting trust
may be for a period exceeding 5 years but shall automatically expire upon full payment of the
loan; and
g) No VTA shall be entered into for purposes of circumventing the laws against anti-competitive
agreements, abuse of dominant position, anti-competitive mergers and acquisitions, violation
of nationality and capital requirements, or for the perpetuation of fraud.
Title VII - Stocks and Stockholders
1. What is the distinction between shareholdings and membership in terms of transfer?
Shareholders may generally transfer their Membership in and all rights arising from a
shares. nonstock corporation are personal and non-
transferable, unless AOI or Bylaws provide
otherwise.
2. Define derivative suit

A derivative suit is an action brought by minority shareholders in the name of the corporation to
redress wrongs committed against it, for which the directors refuse to sue. Also, it is a remedy
designed by equity and has been the principal defense of the minority shareholders against abuses
by the majority.
3. Requisites of complaint for derivative suit.

a) The party bringing suit should be a shareholder as of the time of the act of transaction
complained of, the number of his shares not being material;
b) He has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refuse to heed his plea; and
c) The cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the
suit.
4. Requirements for derivative suit

Minority shareholder who is suing must allege in his complaint before the proper forum that he is
suing on a derivate cause of action on behalf of the corporation and all other shareholders similarly
situated who wish to join. This is necessary to vest jurisdiction upon the tribunal in line with the rule
that it is the allegations on the complaint that vests jurisdiction upon the court of quasi-judicial body
concerned over the subject matter and nature of the action.
5. Is the right to file derivative suit expressly granted in the Corporation Code?
The stockholder’s right to file a derivative suit is not based on any express provision of The
Corporation Code, but is impliedly recognized when the law makes corporate directors or officers
liable for damages suffered by the corporation and its stockholders for violation of their fiduciary
duties.
6. What are the classes of suits that may be filed by the stockholders or members?
a) Derivative Suit - When the acts complained of constitute a wrong to the corporation itself,
the cause of action belongs to the corporation and not to the individual stockholder or
member.
b) Individual Suit - Where a stockholder or member is denied the right of inspection, his suit
would be individually because the wrong is done to him personally and not to the other
stockholders or the corporation.
c) Class/Representative Suit - Where the wrong is done to a group of stockholders, as where
preferred stockholders’ rights are violated, a class or representative suit will be proper for the
protection of all stockholders belonging to the same group.
7. Reasons for not allowing direct individual suit

1. To allow shareholders to sue separately would conflict with the separate corporate entity
principle;
2. The prior rights of the creditors may be prejudiced;
3. The filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
4. It would produce wasteful multiplicity of suits; and
5. It would involve confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act.
8. Define subscription contract

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to
be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact
that the parties refer to it as a purchase or some other contract. (Sec. 59, RCC)
9. What is the nature of subscription contract

It is a consensual contract and an indivisible contract.
10. Kinds of subscription. Rules and exception

I. Pre-incorporation subscription - A subscription for shares of stock of a corporation still to be
formed.
RULES: A pre-incorporation subscription is irrevocable for a period of at least 6 months from
the date of subscription.
EXCEPTIONS: (a) All of the other subscribers consent to the revocation; (b) The corporation
fails to incorporate within the same period or within a longer period stipulated
in the contract of subscription.
II. Post-incorporation subscription - A subscription entered into after the incorporation for the
acquisition of unissued stock.
NOTE: As a rule, a subscriber becomes a stockholder upon perfection of the subscription
contract even though he has not paid for his shares. As long as the shares are not
considered delinquent, stockholders are entitled to all rights granted to it whether or not
subscribed capital stocks are fully paid.
11. How may one become a stockholder?

As a rule, a subscriber becomes a stockholder upon perfection of the subscription contract even
though he has not paid for his shares. As long as the shares are not considered delinquent,
stockholders are entitled to all rights granted to it whether or not subscribed capital stocks are fully
paid.
12. What may be the consideration for the issuance of shares? (Sec. 61, RCC)
(a) Actual cash paid to the corporation;
(b) Property, tangible or intangible, actually received by the corporation and necessary or
convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the
stock issued;
(c) Labor performed for or services actually rendered to the corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification or conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
13. What is the limit of the amount of consideration? (Sec. 61, RCC)
Shares of stock shall not be issued in exchange for promissory notes or future service. The same
considerations provided in this section, insofar as applicable, may be used for the issuance of
bonds by the corporation.
14. Requisites for consideration of property (Sec. 61, RCC)

Where the consideration is other than actual cash, or consists of intangible property such as
patents or copyrights, the valuation thereof shall initially be determined by the stockholders or the
board of directors, subject to the approval of the Commission.
Requisites:
1. It must be subject to a fair valuation equal to the par or issued value of the stock issued;
2. The property is actually received by the corporation; and
3. If it consists of intangible property, the valuation thereof shall initially be determined by the
incorporators or the BOD subject to the approval by the SEC.
15. What are the rights of stockholders whose shares are not delinquent?
Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a
stockholder.
16. Shares of stock vs certificate of stock

Shares of stock Certificate of stock
Unit of interest in a corporation Evidence of the holder’s ownership of the stock
and of his right as a shareholder
Intangible personal property Tangible personal property
May be issued by the corporation even if the May be issued only if the subscription is fully
subscription is not fully paid paid
17. Can treasury shares be sold below its par?

Yes, treasury shares may again be disposed of for a reasonable price fixed by the board of
directors.
18. Are unpaid subscriptions entitled to vote in stockholders’ meetings?

Yes. Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of
a stockholder. Otherwise, no delinquent stock shall be voted for, be entitled to vote, or be
represented at any stockholder's meeting, nor shall the holder thereof be entitled to any of the
rights of a stockholder except the right to dividends in accordance with the provisions of this Code.
19. Can unpaid subscriptions earn dividends?

Yes. Provided, that any cash dividends due on delinquent stock shall be first be applied to the
unpaid balance on the subscription plus costs and expenses, while stock holders until their unpaid
subscription is fully paid.
20. Is a subscription contract revocable?

A subscription of shares in a corporation still to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription, unless all of the other subscribers consent to the
revocation, or the corporation fails to incorporate within the same period or within a longer period
stipulated in the contract of subscription. No pre-incorporation is submitted to the Commission.
21. Are shares of stock personal property?
Shares of stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner, his attorney-in-fact, or any other person legally
authorized to make the transfer.
22. Are shares of stock transferrable?

May be transferred by delivery of the certificate or certificates indorsed by the owner, his attorney-
in-fact, or any other person legally authorized to make the transfer.
23. When shall a transfer of share or shares be valid as against the corporation?
When the transfer is recorded in the books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates, and the number
of shares transferred.
24. When are shares not transferable in the books of the corporation?
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.
25. What is the importance of the stock and transfer book?

It shall contain a record of all stocks in the names of the stockholders alphabetically arranged; the
installments paid and unpaid on all stocks for which subscription has been made, and the date of
payment of any installment; a statement of every alienation, sale or transfer of stock made, the date
thereof, by and to whom made; and such other entries as the bylaws may be prescribed.
26. What are the requisites for the issuance of COS

(1) The certificates must be signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation;
(2) Delivery of the certificate is an essential element of its issuance;
(3) The par value, as to par value shares, or the full subscription as to no par value shares, must
first be fully paid; and
(4) The original certificate must be surrendered where the person requesting the issuance of a
certificate is a transferee from a stockholder.
27. Meaning of unpaid claim

It refers to any unpaid claim arising from unpaid subscription and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any other transaction.
28. Requisites for the transfer of shares of stock

a. There must be delivery of the stock certificate;
b. The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and
c. To be valid against third parties, the transfer must be recorded in the books of the
corporation.
29. Transfer of shares by means of succession, when is this binding to the corporation?
The transfer of title by means of succession, though effective and valid between the parties
involved, does not bind the corporation and third parties. The transfer must be registered in the
books of the corporation to make the transferee-heir a stockholder entitled to recognition as such
both by the corporation and by third parties.
30. May a certificate of stock be issued on a partially paid subscription?

No certificate of stock shall be issued to a subscriber until the full amount of subscription together
with interest and expenses (in case of delinquent shares), if any is due, has been paid.
31. Who shall be liable to the corporation for watered stock?

A director or officer of a corporation who: (a) consents to the issuance of stocks for a consideration
less than its par or issued value: (b) consents to the issuance of stocks for the consideration other
than cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file written objection with the corporate secretary, SHALL BE LIABLE to
the corporation or its creditors, solidarily with the stockholder concerned for the difference between
the value receive at the time of issuance of the stock and the par or issued value of the same.
32. Does unpaid subscription earn interest?

Yes. Subscribers to stock shall be liable to the corporation for interest on all unpaid subscriptions
from the date of subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract, the prevailing legal rate shall
apply
33. How much interest is payable on unpaid subscription?

At the rate of interest fixed in the subscription contract. If no rate of interest is fixed in the
subscription contract, the prevailing legal rate shall apply.
34. When shall the balance of subscription be due?

Subject to the provisions of the subscription contract, the board of directors may, at any time,
declare due and payable to the corporation unpaid subscription and may collect the same or such
percentage thereof, in either case, with accrued interest, if any, as it may deem necessary.
35. Within what time shall balance and interest on unpaid subscription be due?
Payment of unpaid subscription or any percentage thereof, together with any interest accrued, shall
be made on the date specified in the subscription contract or on the date stated in the call made by
the board. Failure of such, render the entire balance due and payable and shall make the
stockholder liable for interest at the legal rate on such balance, unless a different interest at the
legal rate on such balance, unless a different interest rate is provided in the subscription contract.
36. Who may order the sale of delinquent stock?

The board of directors may, by resolution, order the sale of delinquent stock and shall specifically
state the amount due on each subscription plus all accrued interest, and the date, time and place of
the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the
stock become delinquent.
37. What are the modes of payment of unpaid subscription?

I. Voluntary
Payment shall be made on the date specified in the contract of subscription or on the date
stated in the call made by the board.
II. Involuntary
1. Extrajudicial
a. Delinquency sale - the board of directors may, by resolution, order the sale of
delinquent stock.
b. Application of dividends - the cash dividends due on delinquent stock shall first be
applied to the unpaid balance on the subscription plus costs
and expenses, while stock dividends shall be withheld from
the delinquent stockholder until his unpaid subscription is
fully paid.
2. Judicial
The corporation can collect by action in a court of proper jurisdiction the amount due on
any unpaid subscription, with accrued interest, costs, and expenses.
38. Within what period shall the sale be held?

Not be less than thirty (30) days nor more than sixty (60) days from the date the stock become
delinquent
39. How shall delinquent stock be sold?

Notice of the sale, with a copy of the resolution, shall be sent to every delinquent stockholder either
personally, by registered mail, or through other means provided in the bylaws. The same shall be
published once a week for two (2) consecutive weeks in newspaper of general circulation in the
province or city where the principal office of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on the former's subscription, plus accrued interest,
costs of advertisement and expenses of sale, or unless the board of directors otherwise orders,
said delinquent stock shall be sold at a public auction to such bidder who shall offer to pay the full
amount of the balance on the subscription together with accrued interest, costs of advertisement
and expenses of sale, for the smallest number of shares or fraction of a share. The stock so
purchased shall be transferred to such purchaser in the books of the corporation and a certificate
for such stock shall be issued in the purchaser's favor. The remaining shares, if any, shall be
credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a
certificate of stock covering such shares.
40. Can such sale be stopped?

Unless the delinquent stockholder pays to the corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on the former's subscription, plus accrued interest,
costs of advertisement and expenses of sale, or unless the board of directors otherwise orders,
said delinquent stock shall be sold at a public auction to such bidder who shall offer to pay the full
amount of the balance on the subscription together with accrued interest, costs of advertisement
and expenses of sale, for the smallest number of shares or fraction of a share.
41. Who is considered the highest bidder in such sale?

Bidder who shall offer to pay the full amount of the balance on the subscription together with
accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or
fraction of a share.
42. Suppose, there is only one bidder who responded to the bid, may the corporation accept
the bid?
Yes.
43. How shall delinquent stock be disposed if there is no bidder in the auction sale?
Should there be no bidder at the public auction who offers to pay the full amount of the balance on
the subscription together with accrued interest, costs of advertisement, and expenses of sale, for
the smallest number of shares or fraction of a share, the corporation may, subject to the provisions
of this Code, bid for the same, and the total amount due shall be credited as fully paid in the books
of the corporation.
44. What conditions must be present before any action to recover delinquent stock can be
sustained?
No action to recover delinquent stock sold can be sustained upon the ground of irregularity or
defect in the notice of sale, or in the sale itself of the delinquent stock, unless the party seeking to
maintain such action first pays or tenders to the party holding the sum for which the same was sold
with interest from the date of sale at the legal rate. No such action shall be maintained unless a
complaint is filed within six (6) months from the date of sale.
45. What are the effects when stocks become delinquent?

No delinquent stock shall be voted for, be entitled to vote, or be represented at any stockholder's
meeting, nor shall the holder thereof be entitled to any of the rights of a stockholder except the right
to dividends in accordance with the provisions of this Code, until and unless payment is made by
the holder of such delinquent stock for the amount due on the distribution with accrued interest, and
the costs and expenses of advertisement, if any.
46. What are the rights of holders of shares which are unpaid but not declared delinquent?
Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a
stockholder.
RIGHTS OF STOCKHOLDERS
I. Management Rights
1. To attend and vote in person or by proxy at a stockholders’ meetings
2. To elect and remove directors
3. To approve certain corporate acts
4. To adopt and amend or repeal the by-laws or adopt new by-laws
5. To compel the calling of the meetings
6. To enter into a voting trust agreement
7. To have the corporation voluntarily dissolved
II. Proprietary Rights
1. To transfer stock in the corporate book
2. To receive dividends when declared
3. To issuance of certificate of stock
4. To participate in the distribution of corporate assets upon dissolution
5. To pre-emption in the issue of shares
III. Remedial Rights
1. To inspect corporate books
2. To recover stock unlawfully sold for delinquent payment of subscription
3. To be furnished with most recent financial statements
4. To bring suits (derivative, individual, and representative suit)
5. To demand payment in the exercise of appraisal right
IV. Liabilities of Stockholders
1. Liability for the unpaid subscription
2. Liability for interest on unpaid subscription
3. Liability to creditors of the corporation on the unpaid subscription
4. Liability for watered stock
5. Liability for dividends unlawfully paid
47. What is the procedure for the issuance of new certificate of stock in lieu of the lost one?
The following procedure shall be followed by a corporation in issuing new certificates of stock in lieu
of those which have been lost, stolen or destroyed:
(a) The registered owner of a certificate of stock in a corporation or such person's legal
representative shall file with the corporation an affidavit in triplicate setting forth, if possible, the
circumstances as to how the certificate was lost, stolen or destroyed, the number of shares
represented by such certificate, the serial number of the certificate and the name of the corporation
which issued the same. The owner of such certificate of stock shall also submit such other
information and evidence as may be deemed necessary; and
(b) After verifying the affidavit and other information and evidence with the books of the corporation
shall publish a notice in a newspaper of general circulation in the place where the corporation has
its principal office, once a week for three (3) consecutive weeks at the expense of the registered
owner of the certificate of stock which has been lost, stolen or destroyed. The notice shall state the
name of the corporation, the name of the registered owner, the serial number of the certificate, the
number of shares represented by such certificate, and shall state that after the expiration of one (1)
year from the date of the last publication, if no contest has been presented to the corporation
regarding the certificate of stock, the right to make such contest shall be barred and the corporation
shall cancel the lost, destroyed or stolen certificate of stock, the right to make such contest shall be
barred and the corporation shall cancel the lost, destroyed or stolen certificate of stock in its books.
In lieu thereof, the corporation shall issue a new certificate of stock, unless the registered owner
files a bond or other security as may be required, effective for a period of one (1) year, for such
amount and in such form and with such sureties as may be satisfactory to the board of directors, in
which case a new certificate may be issued even before the expiration of one (1) year period
provided herein. If a contest has been presented to the corporation or if an action is pending in
court regarding the ownership of the certificate of stock which has been lost, stolen in lieu thereof
shall be suspended until the court renders a final decision regarding the ownership of the certificate
of stock which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no
action may be brought against any corporation which shall have issued certificate of stock in lieu of
those lost, stolen or destroyed pursuant to the procedure above-described.
Title VIII - Corporate Books and Records
1. What are the books and records to be kept by the corporation under the
code?
(a) The articles of incorporation and bylaws of the corporation and all their
amendments;
(b) The current ownership structure and voting rights of the corporation, including lists
of stockholders or members group structures, intra-group relations, ownership data,
and beneficial ownership.
(c) The names and addresses of all the members of the board of directors or trustees
and the executive officers;
(d) A record of all business transactions;
(e) A record of the resolutions of the board of directors or trustees and of the
stockholders or members;
(f) Copies of the latest reportorial requirements submitted to the Commission; and
(g) The minutes of all meetings of stockholders or members, or of the board of
directors or trustees.
2. Where must these books and records be kept? General Rule and exception
General Rule: Every corporation shall keep and carefully preserve at its principal
office all information relating to the corporation.
Exceptions: The stock and transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall be open or inspection
by any director or stockholder of the corporation at reasonable hours on business
days.
3. Who is the custodian of the books, minutes and official records of the
corporation?
The proper custodian of the books, minutes and official records of a corporation is
usually the CORPORATE SECRETARY. Being the custodian of corporate records,
the corporate secretary has the duty to record and prepare the minutes of the
meeting. The signature of the corporate secretary gives the minutes of the meeting
probative value and credibility.
4. Can the stockholders or members examine these books?

Corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in
person or by a representative at reasonable hours on business days, and a demand
in writing may be made by such director, trustee or stockholder at their expense, for
copies of such records or excerpts from said records.
5. What are the incidents to the right of stockholders to inspect the corporate
books and records?
It is an incident of ownership of the corporate property, whether this ownership or
interest be termed an equitable ownership, a beneficial ownership, or a quasi-
ownership.
6. What are the duties of the inspecting or reproducing party?
The inspecting or reproducing party shall remain bound by confidentiality rules under
prevailing laws, such as the rules on trade secrets or processes under Republic Act
No. 8293, otherwise known as the "Intellectual Property Code of the Philippines", as
amended, Republic Act No. 10173, otherwise known as the "Data Privacy Act of
2012" Republic Act No. 8799, otherwise known as "The Securities Regulation Code",
and the Rules of Court.
7. What is the basis of stockholder’s right of inspection?

The stockholder’s right of inspection of the corporation’s books and records is based
upon their ownership of the assets and property of the corporation.
8. Is it absolute?
The right of inspection granted by Section 74 of the Corporation Code is not
absolute, as when the stockholder is not acting in good faith and for a legitimate
purpose or when the demand is purely speculative or merely to satisfy curiosity.
9. When may the right inspection be not availed of? Limitations

1. The person demanding the right has not improperly used any information
obtained through any previous examination of the books and records of the
corporation;
2. The demand is made in good faith or for a legitimate purpose; and
3. The person demanding the right is not a competitor, director, officer, controlling
stockholder or otherwise represents the interests of a competitor.
10. Who is a stock and transfer agent?

One engaged principally in the business of registering transfer of stocks in behalf of a
stock corporation shall be allowed to operate in the Philippines upon securing a
license from the Commission and the payment of a fee to be fixed by the
Commission, which shall be renewable annually. Provided, that a stock corporation
is not precluded from performing or making transfer of its own stocks, in which case
all the rules and regulations imposed on stock transfer agents, except the payment of
a license fee herein provided, shall be applicable: Provided, further, That the
Commission may require stock corporations which transfer and/or trade stocks in
secondary markets to have an independent transfer agent.
11. May a third party such one who is not a stockholder or member of record, or
is a competitor, director, officer, controlling stockholder or one who represents
the interest of a competitor inspect or demand reproduction of corporate
records?
A requesting party who is not a stockholder or member of record, or is a competitor,
director, officer, controlling stockholder or otherwise represents the interests of a
competitor shall have no right to inspect or demand reproduction of corporate records.
12. May a stockholder examine the books of records of a wholly-owned

subsidiary of the corporation in which he is a stockholder?
The right of a stockholder to examine the books and records of a corporation for a
lawful purpose is a matter of law and IS NOT THE SAME with right to examine the
books of records of a wholly-owned subsidiary of the corporation in which he is a
stockholder
13. May a stockholder or member ask for a financial statement from the
corporation?
At the regular meeting of stockholders or members, the board of directors or trustees
shall present to such stockholders or members a financial report of the operations of
the corporation for the preceding year, which shall include financial statements.
14. How soon shall the corporation furnish the demanding stockholder with a
copy of the financial statement?
A corporation shall furnish a stockholder or member, within ten (10) days from receipt
of their written request, its most recent financial statement, in the form and substance
of the financial reporting required by the Commission.
15. What are the requirements in the preparation of the financial statements?
At the regular meeting of stockholders or members, the board of directors or trustees
shall present to such stockholders or members a financial report of the operations of
the corporation for the preceding year, which shall include financial statements, duly
signed and certified in accordance with this Code, and the rules the Commission may
prescribe.
However, if the total assets or total liabilities of the corporation are less than six
hundred thousand pesos (₱600,000.00), or such other amount as may be
determined appropriate by the Department of Finance, the financial statements may
be certified under oath by the treasurer and the president.
Title IX - Merger and Consolidation
1. Define merger.
A union whereby one or more existing corporations are absorbed by another corporation that
survives and continues the combined business.
2. Define consolidation.
The union of two or more existing entities to form a new entity called the consolidated corporation.
3. Distinguish consolidation and merger from reorganization.

Reorganization is a broader term that refers to any change in the corporate structure or operations
of a company. It includes mergers and consolidations, but also encompasses other types of
transactions, such as spin-offs, divestitures, and recapitalizations.
In merger, one or more existing corporations are absorbed by another corporation that survives
and continues the combined business.
In consolidation, two or more existing entities to form a new entity called the consolidated
corporation.
4. Will the acquiring corporation be liable for the debts of the acquired corporation? Rules
The surviving or the consolidated corporation shall possess all the right, privileges, immunities and
franchises of each constituent corporation; and all real or personal property, all receivables due on
whatever account, including subscriptions to shares and other choses in action, and every other
interest of, belonging to, or due to each constituents corporation, shall be deemed transferred to
and vested in such surviving or consolidated corporation as though such surviving or consolidated
corporation had itself incurred such liabilities or obligations; and any pending claim, action or
proceeding brought by or against any constituent corporation may be prosecuted by or against the
surviving or consolidated corporation. The rights of creditors or liens upon the property of such
constituent corporations shall not be impaired by the merger or consolidation.
5. What happens after the merger or consolidation?

a. The constituent corporations shall become a single corporation shall become a single
corporation which, in case of merger, shall be the surviving corporation designated in the
plan of merger; and in case of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
b. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
c. The surviving or the consolidated corporation shall possess all the right, privileges,
immunities and franchises of each constituent corporation; and all real or personal property,
all receivables due on whatever account, including subscriptions to shares and other choses
in action, and every other interest of, belonging to, or due to each constituents corporation,
shall be deemed transferred to and vested in such surviving or consolidated corporation as
though such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or against any
constituent corporation may be prosecuted by or against the surviving or consolidated
corporation. The rights of creditors or liens upon the property of such constituent
corporations shall not be impaired by the merger or consolidation.
6. How are the corporations’, parties’ or a merger or consolidation called?

Two or more corporations may merge into a single corporation which shall be one of the
constituent corporations or may consolidate into a new single corporation which shall be the
consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or consolidation, shall
approved a plan of merger or consolidation, shall approved a plan of merger or consolidation, shall
approve a plan of merger or consolidation setting forth the following:
(a) The names of the corporations proposing to merge or consolidate hereinafter referred to as the
constituent corporations;
(b) The terms of the merger or consolidation and the mode of carrying the same into effect;
(c) A statement of the changes, if any, in the articles of incorporation of the surviving corporation in
case of merger; and, in case of consolidation, all the statements required to be set forth in the
articles of incorporation for corporations organized under this Code; and
(d) Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable.
7. What is the requirement for a valid merger or consolidation?

Approval by a majority vote of each of the board of directors or trustees of the constituent
corporations of the plan of merger or consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate corporate meetings duly called
for the purpose. Notice of such meetings shall be given to all stockholders or members of the
respective corporations in the same manner as giving notice of regular or special meetings under
Section 49 of this Code. The notice shall state the purpose of the meeting and include a copy or a
summary of the plan of merger or consolidation. The affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in
the case of stock corporations or at least two-thirds (2/3) of the members in the case of
nonstock corporations shall be necessary for the approval of such plan.
After the approval by the stockholders or members as required by the preceding section, articles of
merger or articles of consolidation shall be executed by each of the constituent corporations, to be
signed by the president or vice president and certified by the secretary or assistant
secretary of each corporation setting forth:
a) The plan of the merger or the plan of consolidation;
b) As to stock corporations, the number of shares outstanding, or in the case of nonstock
corporations, the number of members;
c) As to each corporation, the number of shares or members voting for or against such plan,
respectively;
d) The carrying amounts and fair values of the assets and liabilities of the respective
companies as of the agreed cut-off date;
e) The method to be used in the merger or consolidation of accounts of the companies;
f) The provisional or pro forma values, as merged or consolidated, using the accounting
method; and
g) Such other information as may be prescribed by the Commission.
8. What are the steps to accomplish a merger or consolidation?

1. The board of each corporation draws up a plan of merger or consolidation.
2. Submission of plan to stockholders or members of each corporation for approval.
3. Execution of the formal agreement, referred to as the articles of merger or consolidation, by the
corporate officers of each constituent corporation.
4. Submission of said articles of merger or consolidation to the SEC for approval.
5. If upon investigation, the Commission has reason to believe that the proposed merger or
consolidation is contrary to or inconsistent with the provisions of this Code or existing laws, it
shall set a hearing to give the corporations concerned the opportunity to be heard.
6. Issuance of certificate of merger or consolidation.
9. When will the merger become effective?

Merger shall only be effective upon the issuance of a certificate of merger by the SEC. Where a
party to the merger is a special corporation governed by its own charter, the Code particularly
mandates that a favorable recommendation of the appropriate government agency should first be
obtained.
10. When will the consolidation become effective?

Consolidation shall only be effective upon the issuance of a certificate of merger by the SEC. When
the SEC, upon processing and examining the articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes the reorganization official.
11. What are the effects of merger or consolidation?

a. The constituent corporations shall become a single corporation shall become a single
corporation which, in case of merger, shall be the surviving corporation designated in the
plan of merger; and in case of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
b. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
c. The surviving or the consolidated corporation shall possess all the right, privileges,
immunities and franchises of each constituent corporation; and all real or personal property,
all receivables due on whatever account, including subscriptions to shares and other choses
in action, and every other interest of, belonging to, or due to each constituents corporation,
shall be deemed transferred to and vested in such surviving or consolidated corporation as
though such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or against any
constituent corporation may be prosecuted by or against the surviving or consolidated
corporation. The rights of creditors or liens upon the property of such constituent
corporations shall not be impaired by the merger or consolidation.
Title X - Appraisal Right
1. What is meant by the appraisal right of a stockholder?
A right given to a stockholder who dissented and voted against the proposed corporate action, may
choose to get out of the corporation by demanding payment of the fair market value of his shares.
2. What is its nature?

When a person invests in the stocks of a corporation, he subjects his investment to all the risks of
the business and cannot just pull out such investment should the business not come out as he
expected. His only way out before dissolution is to sell his shares should he find a willing buyer. If
there is no buyer, then he has no recourse but to stay with the corporation.
However, in certain specified instances, the Code granted the stockholder the right to get out of the
corporation even before its dissolution because there has been a major change in his contract of
investment with which he does not agree and which the law presumes he did not foresee when he
bought the shares. Since the will of two-thirds of the stocks will have to prevail over his objections,
the law considers it only fair to allow him to get back his investment and withdraw from the
corporation.
3. Who may exercise this right?

Any stockholder of a corporation shall have the right to dissent and demand payment of the fair
value of the shares
4. Under what instances may a stockholder exercise his right of appraisal?

a) In case an amendment to the articles of incorporation has the effect of (1) changing or
restricting the rights of any stockholder or class of shares; or of (2) authorizing preferences
in any respect superior to those of outstanding shares of any class; or of (3) extending or
shortening the term of corporate existence;
b) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in this Code;
c) In case of merger or consolidation; and
d) In case of investment of corporate funds for any purpose other than the primary purpose of
the corporation.
5. What is the rule pertaining to appraisal right in a close corporation?

Any stockholder of a close corporation may, for any reason, compel the said corporation to
purchase his shares at their fair value, which shall not be less than their par or issued value, when
the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital
stock.
6. What is the procedure for the exercise of the right of appraisal?

The dissenting stockholder who votes against a proposed corporate action may exercise the right
of appraisal by making a written demand on the corporation for the payment of the fair value of
shares held within thirty (30) days from the date on which the vote was taken.
7. How is the right exercised?

Stockholder may exercise the right if he or she voted against the proposed corporation action and if
he made a written demand for payment on the corporation within thirty (30) days after the date of
voting.
8. What is the effect of failure to demand within the period of 30 days from demand?
Failure to make the demand within such period shall be deemed a waiver of the appraisal right. If
the proposed corporate action is implemented, the corporation shall pay the stockholder, upon
surrender of the certificate or certificates of stock representing the stockholder's shares, the fair
value thereof as of the day before the vote was taken excluding any appreciation or depreciation in
anticipation of such corporate action.
9. What is the valuation date?

The fair value of the shares of the dissenting stockholder is determined as of the day prior to the
date on which the vote was taken excluding any appreciation or depreciation in value of the shares
in anticipation of such corporate action.
10. If within 60 days from approval of the corporate action by stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value of the share, who shall
determine the value?
It shall be determined and appraised by three (3) disinterested persons, one of whom shall be
named by the stockholder, another by the corporation and the third by the two (2) thus chosen.
11. What is the composition?

One of whom shall be named by the stockholder, another by the corporation and the third by the
two (2) thus chosen.
12. Whose decision shall prevail among the appraisers?

The findings of the majority of the appraisers shall be final, and their award shall be paid by the
corporation within thirty (30) days after such award is made.
13. What is the restriction regarding payment of the appraisal?

Provided, that no payment shall be made to any dissenting stockholder or unless the corporation
has unrestricted retained earnings in its books to cover such payment: Provided, further, that upon
payment by the corporation of the agreed or awarded price, the stockholder shall forthwith transfer
the shares to the corporation.
14. What is the effect if demand and termination of right?

1. From the time of demand for payment of the fair value of a stockholder’s shares until either the
abandonment of the corporate action involved or the purchase of the said shares by the
corporation, all rights accruing to such shares, including voting and dividend rights, shall be
suspended.
2. The dissenting stockholder shall be entitled to receive payment of the fair value of his shares as
agreed upon between him and the corporation or as to be determined by the appraisers chosen
by them.
3. If the dissenting stockholder is not paid the value of his shares within the 30 days after the
award, his voting and dividend rights shall immediately be restored.
4. Upon such payment, all his rights are terminated, not merely suspended. But if before he is paid
the proposed corporate action is abandoned, his rights and status as a stockholder shall
thereupon be permanently restored.
5. Payment may be made only if the corporation has unrestricted retained earnings in its books to
cover the same.
15. Is the corporation bound to pay the agreed or awarded price of the shares of the
withdrawing stockholder?
The dissenting stockholder shall be entitled to receive payment of the fair value of his shares as
agreed upon between him and the corporation or as to be determined by the appraisers chosen by
them.
16. What is the effect of a demand for appraisal and payment upon the rights of the
Upon such payment, all his rights are terminated, not merely suspended. But if before he is paid the
proposed corporate action is abandoned, his rights and status as a stockholder shall thereupon be
permanently restored.
17. What is the effect of the failure of the corporation to pay the dissenting stockholder
within 30 days from date of award?
If the dissenting stockholder is not paid the value of his shares within the 30 days after the award,
his voting and dividend rights shall immediately be restored.
18. Can the demand for appraisal and payment be withdrawn? General Rule and exception.
No demand for payment under this Title may be withdrawn unless the corporation consents thereto.
If, however, such demand for payment is withdrawn with the consent of the corporation, or if the
proposed corporate action is abandoned or rescinded by the corporation or disapproved by the
Commission where such approval is necessary, or if the Commission where such stockholder is not
entitled to the appraisal right, then the right of the stockholder to be paid the fair value of the shares
shall cease, the status as the stockholder shall be restored, and all dividend distributions which
would have accrued on the shares shall be paid to the stockholder.
19. Who bears the cost of appraisal? General Rule

The costs and expenses of appraisal shall be borne by the corporation, unless the fair value
ascertained by appraisers is approximately the same as the price which the corporation may have
offered to pay the stockholder, in which the corporation may have offered to pay the stockholder,
in which case they shall be borne by the latter. In the case of an action to recover such fair
value, all costs and expenses shall be assessed against the corporation, unless the refusal of the
stockholder or receive payment was unjustified.
20. Under what instances shall the right of a withdrawing stockholder to payment of the fair
value of his shares cease?
a) The corporation consents to the withdrawal;
b) The proposed corporate action is disapproved by the SEC where its approval is necessary;
c) The proposed corporate action is abandoned or rescinded by the corporation; and
d) The SEC determines that such stockholder is not entitled to appraisal right.
21. What is the duty of a withdrawing stockholder from the time he files his written demand
for appraisal and payment?
Within ten (10) days after demanding payment for shares held, a dissenting stockholder shall
submit the certificates of stock representing the shares to the corporation for notation that such
representing the shares to the corporation for notation that such shares are dissenting shares.
22. What is the effect, should the dissenting stockholder fail to submit his certificate of
stock within ten (10) days from demand to the corporation?
Failure to do so shall, at the option of the corporation, terminate the rights under this Title.
23. What are the rights of a transferee of shares represented by a certificate bearing the
notation that such shares are dissenting?
If shares represented by the certificates bearing such notation are transferred, and the certificates
consequently cancelled, the rights of the transferor as a dissenting stockholder under this Title shall
cease and the transferee shall have all the rights of a regular stockholder; and all dividend
distributions which would have accrued on such shares shall be paid to the transferee.
Title XI - Non-stock Corporations
1. Define a Non-stock corporation.
is one where no part of its income is distributable as dividends to its members, trustees, or officers.
Any profit which a nonstock corporation may obtain incidental to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose of purposes for which the
corporation was organized.
2. What are the purposes for which a non-stock corporation may be formed or organized?
Formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes. like trade industry, agricultural and like
chambers, or any combination thereof, subject to the special provisions of this Title governing
particular classes of nonstock corporations.
3. Characteristics of a non-stock corporation

1. It does not have capital stock divided into shares.
2. No part of its income during its existence is distributable as dividends to its members, trustees, or
officers.
3. As a general rule, it is not empowered to engage in business with the object of making income or
profits directly or indirectly. However, it is not prohibited to make income or profits as an incident
to its operation;
4. There is non-transferability of membership.
5. The right to vote of members may be limited, broadened, or even denied in the articles of
incorporation or the by-laws.
6. Non-stock corporation may, through their articles of incorporation or their by-laws, designate their
governing boards by any name other than as board of trustees.
7. By-laws may provide that the members may hold their meeting at any place even outside the
place where the principal office of the corporation is located, provided that such place is within
the Philippines.
8. A non-stock corporation is not allowed to distribute any of its assets or any incidental income or
profit made by the corporation during its existence.
9. A non-stock corporation cannot be converted into a stock corporation by mere amendment of its
articles of incorporation because the conversion would change the corporate nature from non
profit to profit.
4. Are rights of members arising from a non-stock corporation transferable?

Membership in a nonstock corporation and all rights arising therefrom are personal and
nontransferable, unless the articles of incorporation or the bylaws otherwise provide.
5. How is membership in NSC terminated?

Membership shall be terminated in the manner and for the cause provided in the articles of
incorporation or the bylaws. Termination of membership shall extinguish all rights of a member in
the corporation or in its property, unless otherwise provided in the articles of incorporation or the
bylaws.
6. What are the requirements for termination of membership?

1. Notice to the member; and
2. Opportunity to be heard.
7. How many members of the BOT shall there be in a non-stock corporation?
The number of trustees shall be fixed in the articles of incorporation or bylaw which may or may
not be more than fifteen (15).
8. What is their term of office?

They shall hold office for not more than three (3) years until their successors are elected and
qualified. Trustees elected to fill vacancies occurring before the expiration of a particular term shall
hold office for the unexpired period.
Except with respect to independent trustees of nonstock corporation shall be elected as trustee.
Unless otherwise provided in the articles of incorporation or the bylaws, the members may directly
elect officers of a nonstock corporation.
9. What are the lists to be kept?

The corporation shall, at all times, keep a list of its members and their proxies of record twenty (20)
days prior to any scheduled election.
10. At what place shall the Member’s meeting be held?

The bylaws may provide that the members of a nonstock corporation may hold their regular or
special meetings at any place even outside the place where the principal office of the corporation is
located: Provided, that proper notice is sent to all members indicating the date, time, and place of
meeting: Provided, further, that the place of meeting shall be within the Philippine territory.
11. Rules of distribution

a) All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or
adequate provision shall be made therefor:
b) Assets held by the corporation upon a condition requiring return, transfer or conveyed in
accordance with such requirements;
c) Assets received and held by the corporation subject to limitations permitting their use only for
charitable religious, benevolent, educational or similar purpose, but not held upon a condition
requiring return, transfer or conveyance by reason of the dissolution, shall be transferred or
conveyed to one (1) or more corporations, societies or organizations engaged in activities in the
Philippines substantially similar to those of the dissolving corporation according to a plan of
distribution adopted pursuant to this Chapter;
d) Assets other than those mentioned in the preceding paragraphs, if any, shall be distributed in
accordance with the provisions of the articles of incorporation or the bylaws, to the extent that the
articles of incorporation or the bylaws extent that the articles of incorporation or the bylaws
determine the distributive rights of members, or any class or classes of members, or provide for
distribution; and
e) In any other case, assets may be distributed to such person, societies, organizations or
corporations, whether or not organized for profit, as may be specified in a plan of distribution
adopted pursuant to this Chapter.
12. Plan of distribution

A plan providing for the distribution of assets, consistent with the provisions of this Title, may be
adopted by a nonstock corporation in the process of dissolution in the following manner:
a) The board of trustees shall, by majority vote, adopt a resolution recommending a plan of
distribution and directing the submission thereof to a vote at a regular or special meeting of
members having voting rights;
b) Each member entitled to vote shall be given a written notice setting forth the proposed plan
of distribution or summary thereof and the date, time and place of such meeting within the
time and in the manner provided in this Code for the giving of notice of meetings; and
c) Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the
members having voting rights present or represented by proxy at such meeting.
13. Stock corporation vs. non-stock corporation

Has capital stock divided into shares Has no capital stock
Organized for profit Not organized for profit
Profits are distributed to the stockholders Profits are not distributed to members
through dividends.
Directors cannot exceed 15 in number Trustees may exceed 15 in numbers
The term of a director is 1 year The term of a trustee is not more than 3 years
Officers are elected by the board of directors Officers may be directly elected by the members
unless otherwise provided in the articles of
incorporation or by-laws
Stockholders’ meetings shall be held in the city Members’ meetings may be held at any place
or municipality where the principal office of the outside the principal office of the corporation
corporation is located, and if practicable in the provided it shall be within the Philippines
principal office
Shares may be transferred by the stockholder Membership is personal in character and is not
with or without the consent of the corporation transferable unless allowed by the articles of
incorporation or by-laws
Title XII - Close Corporations
1. Define a close corporation.
One whose articles of incorporation provides that:
a) all the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20)’
b) all the issued stock of all classes shall be subject to one (1) or more specified restrictions on
transfer permitted by this Title; and
c) the corporation shall not list in any stock exchange or make any public offering of its stocks
of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close corporation within the meaning of this
Code.
2. Which corporation cannot be incorporated as close corporation?

Mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational
institutions and corporations declared to be vested with public interest in accordance with the
provisions of this Code.
3. Characteristics of a close corporation

1. Where the articles of incorporation provide that the business of the corporation shall be managed
by the stockholders themselves rather than by the board of directors, then the stockholders shall
be deemed to be the directors with all the liabilities imposed by the Corporation Code on
directors. The directors shall likewise by personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance.
2. Quorum may be greater than mere majority.
3. Restrictions on transfer of shares can be validly imposed.
4. Any action by the directors of a close corporation without a meeting shall nevertheless be
deemed valid.
5. Pre-emptive right extends to all stock issuances.
6. Deadlock in the board is settled by the SEC upon the written petition by any stockholder.
7. A stockholder may withdraw and avail of his right of appraisal.
4. What other matters may be provided for by the articles of incorporation of a close
corporation?
a) A classification of shares or rights, the qualifications for owning or holding the same, and
restrictions on their transfers, subject to the provisions of the following section;
b) A classification of director into one (1) or more classes, each of whom may be voted for and
elected solely by a particular class of stock; and
c) Greater quorum or voting requirements in the meetings of stockholders or directors than those
provided in this Code.
5. What two conditions must be set for the validity of restrictions on transfer of shares?
Restrictions on the right to transfer shares must appear in the articles of incorporation, in the
bylaws, as well as in the certificate of stock; otherwise, the same shall not be binding on any
purchaser in good faith. Said restrictions shall not more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of the transferring stockholder
may sell their shares to any third person.
6. Right of first refusal, defined.
The stockholder who wants to sell his shares to any third person must first offer it either to the
corporation or to the other existing stockholders usually under the same terms and conditions. The
right pertains to shares already issued to stockholders. If the existing stockholders or the
corporation fails to exercise the option to purchase within the period stated in the articles of
incorporation, by-laws and certificate of stock, the transferring stockholder may sell his shares to
any third person.
7. What are the effects arising from a provision in the articles of incorporation of a close
corporation providing that the business of the corporation shall be managed by the
stockholders?
So long as this provision continues in effect, no meeting of stockholders need to be called to elect
directors: Provided, that the stockholders of the corporation shall be deemed to be directors for the
purpose of applying the provisions of this Code, unless the context clearly requires otherwise:
Provided, further, that the stockholders of the corporation shall be subject to all liabilities of
directors.
The articles of incorporation may likewise provide that all officers or employees or that specified
officers or employees shall be elected or appointed by the stockholders, instead of by the board of
directors.
8. To what kind of shares of stock does the pre-emptive right of stockholders in close
corporation extend?
The preemptive right of stockholders in close corporations shall extend to all stock to be issued,
including reissuance of treasury shares, whether for money, property or personal services, or in
payment or corporate debts, except when AOI provides otherwise.
9. What are the requirements prescribed for the amendment of the articles of incorporation
of close corporations?
Approved by the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether
with or without voting rights. Exception is when greater proportion of shares as may be specifically
provided in the articles of incorporation for amending, deleting or removing any provisions.
10. What do you mean by “Deadlock” as it refers to close corporation?

If the directors or stockholders are so divided respecting the management of the corporation’s
business and affairs that the votes required for any corporate action cannot be obtained, with the
consequence that the business and affairs of the corporation can no longer be conducted to the
advantage of the stockholders generally.
11. What is the remedy in case a “deadlock” arises?

The Commission, upon written petition by any stockholder, shall have the power to arbitrate the
dispute. In the exercise of such power, the Commission shall have authority to make appropriate
orders, such as:
a) cancelling or altering any provision contained in the articles of incorporation, bylaws, ot any
stockholders' agreement;
b) cancelling, altering or enjoining a resolution or act of the corporation or its board of directors,
stockholders, officers;
c) directing or prohibiting any act of the corporation or its board of directors, stockholders,
officers, or other person party to the action;
d) requiring the purchase at their fair value of shares of any stockholder, either by the
corporation regardless of the availability or unrestricted retained earnings in its, books or by
the other stockholder;
e) appointing a provisional director;
f) dissolving the corporation; or
g) granting such other relief as the circumstances may warrant.
12. What are the qualifications of a provisional director?

An impartial person who is neither a stockholder nor a creditor of the corporation or of any
subsidiary or affiliate of the corporation, and whose further qualifications, if any, may be determined
by the SEC.
13. What are the rights and powers of a provisional director?

A provisional director shall have all the rights and powers of a duly elected director, including the
right to be notified of and to vote at meetings of directors until removed by order of the Commission
or by all the stockholders.
14. Does a provisional director receive compensation as such director?

The compensation of the provisional director shall be determined by agreement between such
provisional director and the corporation, subject to approval of the Commission, which may fix the
compensation absent an agreement or in the event of disagreement between the provisional
director and the corporation.
15. Has a provisional director a fixed tenure of office?

A provisional director shall have all the rights and powers of a duly elected director, including the
right to be notified of and to vote at meetings of directors until removed by order of the Commission
or by all the stockholders.
16. For what reasons may a stockholder of a close corporation withdraw from the
corporation?
Without prejudice to other rights and remedies available under this Title, any stockholder of a close
corporation may, for any reason, compel the corporation to purchase shares held at fair value,
which shall not be less than the par or issued value, when the corporation has sufficient assets in
its books to cover its debts and liabilities exclusive of capital stock.
17. When shall the close corporation be bound to purchase back the shares of the
Without prejudice to other rights and remedies available under this Title, any stockholder of a close
corporation may, for any reason, compel the corporation to purchase shares held at fair value,
which shall not be less than the par or issued value, when the corporation has sufficient assets in
its books to cover its debts and liabilities exclusive of capital stock.
18. Under what circumstances may a stockholder compel the close corporation to be
dissolved?
Provided, that any stockholder of a close corporation may, by written petition to the Commission,
compel the dissolution of such corporation whenever any acts of the directors, officers or those in
control whenever any acts of the directors, officers, or those in control of the corporation are illegal,
fraudulent, dishonest, oppressive or unfairly prejudicial to the corporation or any stockholder, or
whenever corporate assets are being misapplied or wasted.
19. Remedies available to a stockholder.
1. Any stockholder of a close corporation may compel the said corporation to purchase his share at
their fair value, which shall not be less than their par or issued value, when the corporation has
sufficient assets in its books to cover its debts and liabilities exclusive of capital stock.
2. Any stockholder of a close corporation may, by written petition to the Securities and Exchange
Commission, compel the dissolution of such corporation whenever:
a. Any acts of the directors, officers or those in control of the corporation is illegal, or
fraudulent, or dishonest, or oppressive, or unfairly prejudicial to the corporation or any
stockholder,
b. Corporate assets are being misapplied or wasted.
20. Stock corporation vs. close corporation

Its articles of incorporation need only contain the Its articles of incorporation must contain the
general matters enumerated in Section 13 of the provisions required by Section 96 as well as the
Revised Corporation Code general matters enumerated in Section 13 of the
Revised Corporation Code
The business of the corporation is managed by The business of the corporation is managed by
the board of directors the board of directors, however, it may be
managed by the stockholders if the articles of
incorporation so provide, but they are liable as
directors
The corporate officers are elected by a majority The corporate officers may be elected or
vote of all the members of the board of directors appointed by the stockholders, if provided in its
articles of incorporation
Arbitration in case of deadlock by the SEC is not Arbitration in case of deadlock by the SEC is a
a remedy in case the directors are so divided remedy in case the directors are so divided
respecting the management of the corporation respecting the management of the corporation
The purchase by the corporation of its own stock The corporation may be ordered by the SEC in
must always be made from the unrestricted case of deadlock to purchase its own shares
retained earnings, except as regards from the stockholders regardless of the
redeemable shares availability of unrestricted retained earnings
Title XIII - Special Corporations
Which are the corporations classified by the Corporation Code as “special corporations”?
1. Education Corporations
2. Religious Corporations
3. One Person Corporations
EDUCATIONAL CORPORATIONS
1. Define Educational Corporation.
A corporation formed not for profit but for an educational purpose, particularly the establishment
and maintenance of a school, college, or university.
2. What are the laws applicable to educational corporations?

Shall be governed by special laws and by the general provisions of this Code.
3. Which are the special laws governing educational corporations?

1. Higher Education Act of 1994 (RA 7722) - This law created the Commission on Higher
Education (CHED) as the governing body for higher education institutions in the Philippines.
CHED is responsible for regulating and supervising the establishment, operation, and
accreditation of higher education institutions, including educational corporations.
2. Education Act of 1982 (Batas Pambansa Blg. 232) - This law provides for the establishment
and maintenance of an integrated system of education in the Philippines, including the regulation
of private schools and higher education institutions.
3. Philippine Qualifications Framework Act of 2012 (RA 10968) - This law created the Philippine
Qualifications Framework (PQF) as a national policy for the development, recognition, and
validation of qualifications in the Philippines, including those offered by higher education
institutions.
4. Technical Education and Skills Development Act of 1994 (RA 7796) - This law created the
Technical Education and Skills Development Authority (TESDA) as the governing body for
technical-vocational education and training (TVET) in the Philippines. TESDA is responsible for
regulating and supervising TVET programs offered by educational corporations and other
institutions.
5. Accrediting Agency of Chartered Colleges and Universities in the Philippines (AACCUP) –
AACCUP is a private accrediting agency recognized by CHED that evaluates the quality of
higher education programs offered by educational corporations and other higher education
institutions in the Philippines.
6. Policies and guidelines issued by CHED - CHED also issues policies, standards, and
guidelines for the establishment, operation, and accreditation of higher education institutions,
including educational corporations. These include the policies on the Minimum Requirements for
Programs and Institutions Offering Bachelor's Degree, and the Guidelines for Quality Assurance
in Higher Education Institutions.
4. How many trustees shall there be in educational corporations?

Trustees of educational institutions organized as nonstock corporations shall not be less than five
(5) nor more than fifteen (15): Provided, that the number of trustees shall be in multiples of five (5).
5. What is the composition of the board?

1. Non-stock educational corporation - The board of trustees shall not be less than 5 nor more
than 15 provided that the number of trustees shall be in multiples of 5 (either 5 or 10 or 15 only).
2. Stock educational corporation - The board of directors shall be the same as in ordinary stock
corporation which is not less than 5 and not more than 15.
6. What is the term of office of the trustees of educational institutions?
Unless otherwise provided in the articles of incorporation or bylaws, the board of trustees of
incorporated schools, colleges, or other institutions of learning shall, as soon as organized, so
classify themselves that the term of office of one-fifth (1/5) of their number shall expire every
year. Trustees thereafter elected to fill vacancies, occurring before the expiration of a particular
term shall hold office only for the unexpired period. Trustees elected thereafter to fill vacancies
caused by expiration of term shall hold office for five (5) years.
7. How many trustees shall constitute quorum for the transaction of business?
A majority of the trustees shall constitute a quorum for the transaction of business. The powers and
authority of trustees shall be defined in the bylaws.
8. How many directors should there be in educational institutions organized as stock

corporations?
For institutions organized as stock corporations, the number and term of directors shall be
governed by the provisions on stock corporations.
RELIGIOUS CORPORATIONS
1. How many classes of religious corporations are there?
Religious corporations may be incorporated by one (1) or more persons. Such corporations may be
classified into corporations sole and religious societies.
2. Define Corporation Sole.

A corporation consisting of only one member for the purpose of administering and managing, as
trustee, the affairs, property and temporalities of any religious denomination, sect or church. A
corporation aggregate is one formed for the same purpose as corporation sole. It consists of two or
more persons.
3. Who may form a corporation sole?

A corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi, or other
presiding elder of such religious denomination, sect or church.
4. What is the purpose of a corporation sole?

For the purpose of administering and managing, as trustee, the affairs, property and
temporalities of any religious denomination, sect or church, a corporation sole may be formed
by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of such religious
denomination, sect or church.
5. When will the corporation sole become effective?

In order to become a corporation sole, the chief archbishop, bishop, priest, minister, rabbi, or
presiding elder of any religious denomination, sect or church must file with the Commission articles
of incorporation setting forth the following:
a) That the applicant chief archbishop, bishop, priest. Minister, rabbi, or presiding elder
represents the religious denomination, set or church which desires to become a corporation
sole;
b) That the rules, regulations and discipline of the religious denomination, sect or church are
consistent with becoming a corporation sole and do not forbid it;
c) That such chief archbishop, bishop, priest, minister, rabbi or presiding elder is charged with
the administration of the temporalities and the management of the affairs, estate and
properties of the religious denomination, sect or church within the territorial jurisdiction, so
described succinctly in the articles of incorporation;
d) The manner by which vacancy occurring in the office of chief archbishop, bishop, priest,
rabbi or presiding elder is required to be filled, according to the rules, regulations or
discipline of the religious denomination, sect or church; and
e) The place where the principal office of the corporation sole is to be established and located,
which place must be within the territory of the Philippines.
The articles of the incorporation must be verified, by affidavit or affirmation of the chief
archbishop, bishop, priest, minister, rabbi, presiding elder, as the case may be, and
accompanied by a copy of the commission, certificate of election or letter of appointment of
such chief archbishop, bishop, priest, minister, rabbi or presiding elder, as the case may be,
and accompanied by a copy of the commission, certificate of election or letter of appointment of
such chief archbishop, bishop, priest, minister, rabbi, or presiding elder, duly certified to be correct
by any notary public.
From and after filing with the Commission of the said articles of incorporation, verified by affidavit or
affirmation, and accompanied by the documents mentioned in the preceding paragraph, such chief
archbishop, bishop, priest, minister, rabbi, or presiding elder shall become a corporation sole and
all temporalities, estate and properties of the religious denomination, sect or church theretofore
administered or manage as such chief archbishop, bishop, priest, minister, rabbi, or presiding elder
shall be personally held in trust as a corporation sole, for the use, purpose, exclusive benefit and on
behalf of the religious denomination, sect or church, including hospitals, schools, colleges, orphan
asylums parsonages, and cemeteries thereof.
6. May a corporation sole acquire and alienate property? Rules (General and exception)
General Rule:
A corporation sole may sell or mortgage real property held by it by obtaining an order for that
purpose from the Regional Trial Court of the province where the property is situated upon proof that
the notice of the application for leave to sell or mortgage has been made through publication or as
directed by the Court, and that it is in the interest of the corporation that leave to sell or mortgage
be granted.
Exception:
In case where the rules, regulations, and discipline of the religious denomination, sect or
church, religious society, or order concerned represented by such corporation sole regulate the
method of acquiring, holding, selling, or mortgaging real estate and personal property, such rules,
regulations and discipline shall govern, and the intervention of the courts shall not be necessary.
7. How are vacancies filled?

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

A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the
Commission a verified declaration of dissolution, setting forth:
a) The name of the corporation;
b) The reason of dissolution and winding up;
c) The authorization for the dissolution of the corporation by the particular religious
denomination, sect or church; and
d) The names and addresses of the persons who are to supervise the winding up of the affairs
of the corporation.
9. Who may incorporate into a religious society?

Any religious society, religious order, diocese, or synod, or district organization of any religious
denomination, sect or church, may, upon written consent and/or by an affirmative vote at a meeting
called for the purpose of at least two-thirds (2/3) of its membership, incorporate for the
administration of its temporalities or for the management of its affairs, properties, and estate by
filing the management of its affairs, properties, and estate by filing with the Commission, articles of
incorporation verified by the affidavit of the presiding elder, secretary, or clerk or other member of
such religious society or religious denomination, sect or church.
10. What is the purpose of a religious society?

For the administration of its temporalities or for the management of its affairs, properties, and
estate.
ONE PERSON CORPORATIONS

1. One Person Corporation defined
A One Person Corporation is a corporation with a single stockholder.
2. Who may incorporate a one person corporation?

a natural person, trust, or an estate may form a One Person Corporation.
3. Who are not allowed to form OPCs?

1. Banks and quasi-banks,
2. Preneed,
3. Trust,
4. Insurance,
5. Public and publicly-listed companies, and
6. Non-chartered government-owned and-controlled corporations
4. Are licensed professionals allowed to incorporate as OPC? Rule

A natural person who is licensed to exercise a profession may not organize as a One Person
Corporation for the purpose of exercising such profession. Unless otherwise provided under
special laws.
The term of the existence of the OPC shall be perpetual. However, in case of the trust or estate,
its term of existence shall be co-terminous with the existence of the trust or estate.
5. Is there a minimum capital stock required for OPCs? Rule

A One Person Corporation shall not be required to have a minimum authorized capital stock.
Unless otherwise provided under special laws.
6. What must be contained in the AOI of OPC?

a) If the single stockholder is a trust or an estate, the name, nationality, and residence of the
trustee, administrator, executor, guardian, conservator, custodian, or other person exercising
fiduciary duties together with the proof of such authority to act on behalf of the trust or estate;
and
b) Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage
and limitation of the authority.
7. Is an OPC required to submit and file corporate by-laws?
The One Person Corporation is not required to submit and file corporate bylaws.
8. How is the corporate name of a one person corporation displayed?

A One Person Corporation shall indicate the letters "OPC" either below or at the end of its
corporate name.
9. Who is the director and president?

The single stockholder shall be the sole director and president of the One Person Corporation.
10. Within what period shall the treasurer, corporate secretary and other officers be
appointed?
Within fifteen (15) days from the issuance of its certificate of incorporation, the One Person
Corporation shall appoint a treasurer, corporate secretary, and other officers as it may deem
necessary, and notify the Commission thereof within five (5) days from appointment.
11. Can the single stockholder appoint himself as the secretary?

The single stockholder may not be appointed as the corporate secretary.
12. Can the single stockholder assume the role of a treasurer? If yes, what is the
requirement?
A single stockholder who is likewise the self-appointed treasurer of the corporation shall give a
bond to the Commission in such a sum as may be required: Provided, That the said
stockholder/treasurer shall undertake in writing to faithfully administer the One Person
Corporation's funds to be received as treasurer, and to disburse and invest the same according to
the articles of incorporation as approved by the Commission. The bond shall be renewed every two
(2) years or as often as may be required.
13. What are the special functions of the corporate secretary of a one person corporation
displayed?
1. The corporate secretary shall be responsible for maintaining the minutes book and/or records of
the corporation;
2. The corporate secretary shall notify the nominee or alternate nominee of the death or incapacity
of the single stockholder, which notice shall be given no later than five (5) days from such
occurrence;
3. The corporate secretary shall notify the Commission of the death of the single stockholder within
five (5) days from such occurrence and stating in such notice he names, residence addresses,
and contact details of all known legal heirs; and
4. The corporate secretary shall call the nominee or alternate nominee and the known legal heir to
a meeting and advise the legal heirs with regard to, among others, the election of a new director,
amendment of the articles of incorporation, and other ancillary and/or consequential matters.
14. What is required of the stockholder in relation to his death or incapacity?

The single stockholder shall designate a nominee and an alternate nominee who shall, in the event
of the single stockholder's death or incapacity, take the place of the single stockholder as director
and shall manage the corporation's affairs.
The articles of incorporation shall state the names, residence addresses and contact details of the
nominee and alternate nominee, as well as the extent and limitations of their authority in managing
the affairs of the One Person Corporation.
The written consent of the nominee and alternate nominee shall be attached to the application for
incorporation. Such consent may be withdrawn in writing any time before the death or incapacity of
the single stockholder.
15. What is the term of nominee and alternate nominee?

The term of nominee shall depend whether the incapacity of the single stockholder is temporary or
permanent. The term of alternate nominee is only for the same term and under the same conditions
applicable to the nominee.
16. What is the effect of temporary incapacity?

When the incapacity of the single stockholder is temporary, the nominee shall sit as director and
manage the affairs of the One Person Corporation until the stockholder, by self-determination,
regains the capacity to assume such duties.
17. What is the effect of permanent incapacity or death

In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director
and manage the affairs of the One Person Corporation until the legal heirs of the single stockholder
have been lawfully determined, and the heirs have designated one of them or have agreed that the
estate shall be the single stockholder of the One Person Corporation.
The alternate nominee shall sit as director and manage the One Person Corporation in case the
nominee’s inability, incapacity, death, or refusal to discharge the functions as director and manager
of the corporation, and only for the same term and under the same conditions applicable to the
nominee.
18. In case of nominee’s inability, incapacity, death or refusal to discharge the functions as
director and manager who shall sit as director and manager of OPC?
The alternate nominee shall sit as director and manage the One Person Corporation in case the
nominee’s inability, incapacity, death, or refusal to discharge the functions as director and manager
of the corporation, and only for the same term and under the same conditions applicable to the
nominee.
19. May a nominee or his alternate nominee be changed?

The single stockholder may, at any time, change its nominee and alternate nominee by submitting
to the Commission the names of the new nominees and their corresponding written consent. For
this purpose, the articles of incorporation need not be amended.
20. What book must be maintained by a one person corporation?

A One Person Corporation shall maintain a minutes book which shall contain all actions, decisions,
and resolutions taken by the One Person Corporation.
21. What if an action is needed on the matter, what is required pertaining to records in lieu of
meetings?
When action is needed on any matter, it shall be sufficient to prepare a written resolution, signed
and dated by the single stockholder; and recorded in the minutes book of the One Person
Corporation. The date of recording in the minutes for all purposes under this Code.
22. What are the reportorial requirements for a one person corporation?
a) Annual financial statements audited by an independent certified public accountant: Provided,
That if the total assets or total liabilities of the corporation are less than six hundred thousand
pesos (₱600,000.00), the financial statements shall be certified under oath by the corporation's
treasurer and president;
b) A report containing explanations or comments by the president on every qualification,
reservation, or adverse remark or disclaimer made by the auditor in the latter's report;
c) A disclosure of all self-dealings and related party transactions entered into between the One
Person Corporation and the single stockholder; and
d) Other reports as the Commission may require.
23. What would be the accounting year for a one person corporation?
For the purpose of this provision, the fiscal year of a One Person Corporation shall be that set forth
in its articles of incorporation or, in the absence thereof, the calendar year.
24. What is the effect for failure of a one person corporation to submit the reportorial
requirements 3 times, consecutively or intermittently, within a period of 5 years?
The Commission may place the corporation under delinquent status should the corporation fail to
submit the reportorial requirements three (3) times, consecutively or intermittently, within a period of
five (5) years.
25. What is the liability of the single shareholder? What is the requirement for limited
liability?
A sole shareholder claiming limited liability has the burden of affirmatively showing that the
corporation was adequately financed.
26. What is the effect when the single stockholder cannot prove that the property of the OPC
is independent from his personal property?
Where the single stockholder cannot prove that the property of the One Person Corporation is
independent of the stockholder's personal property, the stockholder shall be jointly and severally
liable for the debts and other liabilities of the One Person Corporation.
27. Is the principle or doctrine of piercing the veil of corporate entity applicable to OPCs?
The principles of piercing the corporate veil applies with equal force to One Person Corporations as
with other corporations.
28. May an ordinary corporation be converted into a one person corporation?

When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may
apply for conversion into a One Person Corporation.
29. What are the requirements for conversion into a one person corporation?
When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter
may apply for conversion into a One Person Corporation, subject to the submission of such
documents as the Commission may require. If the application for conversion is approved,
the Commission shall issue a certificate of filing of amended articles of incorporation reflecting
the conversion. The One Person Corporation converted from an ordinary stock corporation shall
succeed the later and be legally responsible for all the latter's outstanding liabilities as of the date of
conversion.
30. On the other hand, may a one person corporation be converted into an ordinary
corporation?
A One Person Corporation may be converted into an ordinary stock corporation.
31. What are the requirements for conversion into an ordinary corporation?
A One Person Corporation may be converted into an ordinary stock corporation after due notice to
the Commission of such fact and of the circumstances leading to the conversion, and after
compliance with all other requirements for stock corporations under this Code and applicable rules.
Such notice shall be filed with the Commission within sixty (60) days from the occurrence of the
circumstances leading to the conversion into an ordinary stock corporation. If all requirement a
have been complied with, the Commission shall issue a certificate of filing or amended articles of
incorporation reflecting the conversion.
32. What is the effect of the conversion of an ordinary stock corporation from a one person
corporation?
The ordinary stock corporation converted from One Person Corporation shall succeed the latter and
be legally responsible for all the latter's outstanding liabilities as of the date of conversion.
33. What happens in case of death of the single stockholder?

In case of death if the single stockholder, the nominee or alternate nominee shall transfer the
shares to the duly designated legal heir or estate within seven (7) days from receipt of either an
affidavit of heirship or self-adjudication executed by a sole heir, or any other legal document
declaring the legal heirs of the single stockholder and notify the Commission of the transfer. Within
sixty (60) days from the transfer of the shares, the legal heirs shall notify the Commission of their
decision to either wind up and dissolve the One Person Corporation or convert it into an ordinary
stock corporation.
Title XIV - Dissolution
1. Define dissolution as applied to a corporation?
It refers to the process of terminating the existence of a corporation. It involves the winding up of
the corporation's affairs, the liquidation of its assets, and the distribution of the proceeds to its
creditors and stockholders.
2. In how many ways may a corporation be dissolved?

A corporation formed or organized under the provisions of this Code may be dissolved voluntarily
or involuntarily.
3. What are the two legal steps involved in corporate dissolution?

1. Voluntary dissolution
a) By the vote of the board of directors or trustees and the resolution adopted by the
stockholders or members where no creditors are affected;
b) By the judgment of the SEC after hearing of petition for voluntary dissolution where creditors
are affected;
c) By amending the articles of incorporation to shorten the corporate term;
d) In case of a corporation sole, by submitting to the SEC a verified declaration of the
dissolution for approval; and
e) In case of merger or consolidation.
2. Involuntary dissolution
a) By expiration of corporate term provided for in the articles of incorporation;
b) By legislative enactment;
c) Upon receipt of a lawful court order dissolving the corporation;
d) By failure to formally organize and commence its business within 5 years from the date of
incorporation;
e) If a corporation has commenced its business but subsequently becomes inoperative for a
period of at least five (5) consecutive years, the SEC may, after due notice and hearing,
place the corporation under delinquent status. A delinquent corporation shall have a period
of two (2) years to resume operations and comply with all requirements that the SEC shall
prescribe. Failure to comply with the requirements and resume operations within the period
given by the SEC shall cause the revocation of the corporation’s certificate of incorporation;
and
f) By order of the SEC on grounds under existing laws.
4. In how many ways may voluntary dissolution be effected?

1. By the vote of the board of directors or trustees and the resolution adopted by the stockholders
or members where no creditors are affected;
2. By the judgment of the SEC after hearing of petition for voluntary dissolution where creditors are
affected;
3. By amending the articles of incorporation to shorten the corporate term;
4. In case of a corporation sole, by submitting to the SEC a verified declaration of the dissolution for
approval; and
5. In case of merger or consolidation.
5. Procedures for voluntary dissolution where no creditors are affected

1. A meeting must be held upon call of the directors or trustees;
2. At least 20 days prior to the meeting, notice shall be given to each shareholder or member of
record personally, by registered mail, or by any means authorized under its bylaws, whether or
not entitled to vote at the meeting. Notice of the time, place, and object of the meeting shall be
published once prior to the date of the meeting in a newspaper published in the place where the
principal office of said corporation is located, or if no newspaper is published in such place, in a
newspaper of general circulation in the Philippines;
3. A resolution to dissolve must be approved by majority vote of the board of directors or trustees,
and by a resolution duly adopted by the affirmative vote of the stockholders owning at least
majority of the outstanding capital stock or of at least majority of the members;
4. A verified request for dissolution shall be filed with the Commission stating:
a) the reason for the dissolution;
b) the form, manner, and time when the notices were given;
c) names of the stockholders and directors or members and trustees who approved the
dissolution;
d) the date, place, and time of the meeting in which the vote was made; and
details of publication.
5. The corporation shall submit the following to the Commission:
a) a copy of the resolution authorizing the dissolution, certified by a majority of the board of
directors or trustees and countersigned by the secretary of the corporation;
b) proof of publication; and
c) favorable recommendation from the appropriate regulatory agency, when necessary; and
6. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution.
6. Procedures for voluntary dissolution where creditors are affected

1. The petition for dissolution shall be filed with the Securities and Exchange Commission;
2. The petition shall be signed by a majority of its board of directors or trustees and that its
dissolution was resolved upon by the affirmative vote of the stockholders representing at least
2/3 of the outstanding capital stock or by at least 2/3 of the members at a meeting of its
stockholders or members called for that purpose.;
3. The SEC shall, by an order reciting the purpose of the petition, fix a date on or before which
objections thereto may be filed by any person, which date shall not be less than 30 days nor
more than 60 days after the entry of the order;
4. The copy of the order shall be published at least once a week for 3 consecutive weeks in a
newspaper of general circulation published in the municipality or city where the principal office of
the corporation is situated, or if there be no such newspaper, then in a newspaper of general
circulation in the Philippines, and a similar copy shall be posted for 3 consecutive weeks in 3
public places in such municipality or city;
5. The SEC shall proceed to hear the petition and try any issue made by the objections filed;
6. If no such objection is sufficient, and the material allegations of the petition are true, the SEC
shall render judgment dissolving the corporation and directing such disposition of its assets as
justice requires, and may appoint a receiver to collect such assets and pay the debts of the
corporation; and
7. The dissolution shall take effect only upon the issuance by the Commission of a certificate of
dissolution.
7. What are the contents of the petition?

1. The reason for the dissolution;
2. The form, manner, and time when the notices were given; and
3. The date, place, and time of the meeting in which the vote was made.
8. Procedure for dissolution by shortening corporate term

1. A voluntary dissolution may be effected by amending the articles of incorporation;
2. A copy of the amended articles of incorporation shall be submitted to the SEC; and
3. Approval of the SEC of the amended articles of incorporation.
9. What are the grounds for involuntary dissolution

1. Non-use of corporate charter;
2. Continuous inoperation of a corporation;
3. Upon receipt of a lawful court order dissolving the corporation;
4. Upon finding by final judgment that the corporation procured its incorporation through fraud; and
5. Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the commission of
securities violations, smuggling, tax evasion, money laundering, or graft and corrupt
practices;
b. Committed or aided in the commission of securities violations, smuggling, tax evasion,
money laundering, or graft and corrupt practices, and its stockholders knew of the same;
and
c. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees.
10. How is involuntary dissolution effected?

1. By expiration of corporate term provided for in the articles of incorporation;
2. By legislative enactment;
3. Upon receipt of a lawful court order dissolving the corporation;
4. By failure to formally organize and commence its business within 5 years from the date of
incorporation;
5. If a corporation has commenced its business but subsequently becomes inoperative for a period
of at least five (5) consecutive years, the SEC may, after due notice and hearing, place the
corporation under delinquent status. A delinquent corporation shall have a period of two (2) years
to resume operations and comply with all requirements that the SEC shall prescribe. Failure to
comply with the requirements and resume operations within the period given by the SEC shall
cause the revocation of the corporation’s certificate of incorporation; and
6. By order of the SEC on grounds under existing laws.
11. What are the effects of dissolution?

If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in
subparagraph (e) hereof, its assets, after payment of its liabilities, shall upon petition of the
Commission with the appropriate court, be forfeited in favor of the national government. Such
forfeiture shall be without prejudice to the rights of innocent stockholders and employees for
services rendered, and to the application for other penalty or sanction under this Code or other
laws.
The Commission shall give reasonable notice to, and coordinate with, the appropriate regulatory
agency prior to the involuntary dissolution of companies under their special regulatory jurisdiction.
12. What are the methods of corporate liquidation or winding-up?

For the purpose of prosecuting and defending suits by or against it and enabling it to settle and
close its affairs, dispose of and convey its property, and distribute its assets, but not for the purpose
of continuing the business for which it was established.
13. How much time is given to the corporation to liquidate its affairs if the liquidation is done
by the board of directors or trustees themselves?
Every corporation whose charter expires pursuant to its article of incorporation is annulled by
forfeiture, or whose corporate existence is terminated in any other manner, shall nevertheless
remain as a body corporate for three (3) years after the effective date of dissolution.
14. How much time is given to a receiver or trustee to liquidate the affairs of the
corporation?
At any time during said three (3) years, the corporation is authorized and empowered to convey all
of its property to trustees for the benefit of stockholders, members, creditors, and other persons in
interest.
15. What is the order of distribution of the corporate assets upon liquidation?
At any time during said three (3) years, the corporation is authorized and empowered to convey all
of its property to trustees for the benefit of stockholders, members, creditors, and other persons in
interest. After any such conveyance by the corporation of its property in trust for the benefit of its
stockholders, members, creditors and others in interest, all interest which the corporation had in the
property terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons-in-interest.
Except as otherwise provided for in Section 93 and 94 of this Code, upon the winding up of
corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown
or cannot be found shall be escheated in favor of the national government.
Title XV - Foreign Corporations
1. Define “Foreign Corporation”.
One formed, organized or existing under laws other than those of the Philippines' and whose laws
allow Filipino citizens and corporations to do business in its own country or State.
2. Requisites.
1. It must be formed, organized, or existing under any laws other than those of the Philippines; and
2. The laws of the country where the corporation was organized allow Filipino citizens and
corporations to do business in its own country or state.
3. May a foreign corporation transact business in the Philippines?

It shall have the right to transact business in the Philippines after obtaining a license for that
purpose in accordance with this Code and certificate of authority from the appropriate government
agency.
4. What is the meaning of “doing business”?

The determination of whether a foreign corporation is doing business in the Philippines must be
based on the facts of each case. Importance of the element of continuity of commercial activities to
constitute doing business in the Philippines.
5. What constitutes “doing business”?

The activity undertaken in the Philippines should involve profit-making. Activities within the
Philippines jurisdiction that do not create earnings or profits to the foreign corporation do not
constitute doing business in the Philippines.
6. How to apply and to obtain license to do business in the Philippines? Procedure involved
and documents to be submitted.
A foreign corporation applying for a license to transact business in the Philippines shall submit to
the Commission a copy of its articles of incorporation and bylaws, certified in accordance with law,
and their translation to an official language of the Philippines, if necessary. The application shall be
under oath and, unless already stated in its articles of incorporation, shall specifically set forth the
following:
a) The date and term of incorporation;
b) the address including the street number, of the principal office of the corporation in the
country or State of incorporation;
c) The name and address of its resident agent authorized to accept summons and process in
all legal proceedings and all notices affecting the corporation, pending the establishment of a
local office;
d) The place in the Philippines where the corporation intends to operate;
e) The specific purpose or purposes which the corporation intends to pursue in the transaction
of its business in the Philippines: Provided, that said purpose or purposes are those
specifically stated in the certificate of authority issued by the appropriate government
agency;
f) The names and addresses of the present directors and officers of the corporation;
g) A statement of its authorized capital stock and the aggregate number of shares which the
corporation has authority to issue, itemized by class, par value of shares, shares without par
value, and series, if any;
h) A statement of its outstanding capital stock and the aggregate number of shares which the
corporation has issued, itemized by class, par value of shares, shares without par value, and
series, if any;
i) A statement of the amount actually paid in; and
j) Such additional information as may be necessary or appropriate in order to enable the
Commission to determine whether such corporation is entitled to a license to transact
business in the Philippines, and determine and assess the fees payable.
Attached to the application for license shall be a certificate under oath duly executed by the
authorized official or officials of the jurisdiction of its incorporation, attesting to the fact the laws of
the country or State of the applicant allow Filipino citizens and corporations to do business therein,
and that the applicant is an existing corporation in good standing. If the certificate is in a foreign
language, a translation thereof in English under oath of the translator shall be attached to the
application.
The application for a license to transact business in the Philippines shall likewise be accompanied
by a statement under oath of the president or any other person authorized by the corporation,
showing to the satisfaction of the Commission and when appropriate, other governmental agencies
that the applicant is solvent and in sound financial condition, setting forth the assets and liabilities of
the corporation as of the date not exceeding one (1) year immediately prior to the filing of the
application.
7. What must be complied by foreign banking, financial and insurance corporations?

In addition to the above requirements, comply with the provisions of existing laws applicable to
them. In the case of all other foreign corporations, no application for license to transact business in
the Philippines shall be accepted by the Commission without previous authority from the
appropriate government agency, whether required by law.
8. Are foreign corporation authorized to do business in the Philippines on the date of the
effective of the New Corporation Code subject to it?
Every foreign corporation which, on the date of the effectivity of this Code, is authorized to do
business in the Philippines under a license issued to it shall continue to have such authority under
the terms and conditions of its license, subject to the provisions of this Code and other special laws.
9. What is the effect it a foreign corporation transact business in the Philippines without first
obtaining a license to do so?
No foreign corporation shall be permitted to transact business in the Philippines, as this phrase is
understood under the Corporation Code, unless it shall have the license required by law. It is not
the absence of the prescribed license but “doing business” in the Philippines without such license
which debars the foreign corporation from access to our courts.
10. Who issues the license to transact business in the Philippines?

If the Commission is satisfied that the applicant has complied with all the requirements of this Code
and other special laws, rules and regulations, the Commission shall issue a license to transact
business in the Philippines to the applicant for the purpose or purposes specified in such license.
11. What is the purpose of the law in requiring license to transact business?
Upon issuance of the license, such foreign corporation may commence to transact business in the
Philippines and continue to do so for as long as it retains authority to act as a corporation under the
laws of the country or State of its incorporation, unless such license is sooner surrendered, revoked
suspended, or annulled in accordance with this Code or other special laws. Within sixty (60) days
after the issuance of the license to transact business in the Philippines, the licensee, except foreign
banking or insurance corporations, shall deposit with the Commission for the benefit of present and
future creditors of the licensee in the Philippines, securities satisfactorily to the Commission,
consisting of bonds or other evidence of the indebtedness of the Government of the Philippines, its
political subdivisions and instrumentalities, or of government-owned or -controlled corporations and
entities, shares of stock or debt securities that are registered under Republic Act No. 8799,
otherwise known as "The Securities Regulation Code", shares of stock in domestic corporations
listed in the stock exchange, shares of stock in domestic insurance companies and banks, any
financial instrument determined suitable by the Commission, or any combination thereof with an
actual market value of at least Five hundred thousand pesos (₱500,000.00) or such other amount
that may be set by the Commission: Provided, however, That within six (6) months after each fiscal
year of the licensee, the Commission shall require the licensee to deposit additional securities or
financial instruments equivalent in actual market value to two percent (2%) of the amount by which
the licensee's gross income for that fiscal year exceeds Ten million pesos (₱10,000,000.00). The
Commission shall also require the licensee to deposit additional securities financial instruments if
the actual market of the deposited securities or financial instruments has decreased by at least ten
percent (10%) of their actual market value at the time they were deposited, The Commission may,
at its discretion, release part of the additional deposit if the gross income of the licensee has
decreased, or if the actual market value of the total deposit has increased, by more than ten
percent (10%) of their actual market value at the time they were deposited. The Commission may,
from time to time, allow the licensee to make substitute deposits of those already on deposit as
long as the licensee is solvent. Shall licensee is entitled to collect the interest or dividends on such-
deposits. In the event the licensee ceases to do business in the Philippines, its deposits shall be
returned, upon the licensee's application and upon proof to the satisfaction of the Commission that
the licensee has no liability to the Philippine residents, including the Government of the Republic of
the Philippines. For purposes of computing the securities deposits, the composition of gross income
and allowable deductions therefrom shall be in accordance with the rules of the Commission.
12. What is the meaning of not doing business?

A foreign corporation will not be regarded as doing business in the State simply because it enters
into contracts with residents of the State, where such contracts are consummated outside the
State.
13. Are foreign corporations allowed to bring suit?

1. If a foreign corporation does business in the Philippines without a license, it cannot sue before
the Philippine courts;
2. If a foreign corporation is not doing business in the Philippines it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of any
business transaction.
3. If a foreign corporation does business in the Philippines without a license, a Philippine citizen or
entity which has contracted with said corporation may be estopped from challenging the foreign
corporation’s corporate personality in a suit brought before Philippine courts; and
4. If a foreign corporation does business in the Philippines with the required license, it can sue
before Philippine courts on any transaction.
14. What is the meaning of “transacting business?”

The term implies a continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions normally incident
to or in progressive prosecution of the purpose and subject of its organization.
15. Under what cases a foreign corporation may be permitted to sue Philippine courts
though it has not obtained a license to transact business?
If a foreign corporation is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of any
business transaction.
16. Explain the doctrine of isolated transaction.
Foreign corporations, even unlicensed ones, can sue or be sued on a transaction or series of
transactions set apart from their common business in the sense that there is no intention to engage
in a progressive pursuit of the purpose and object of business transaction.
17. Is a foreign corporation’s by laws effective in the Philippines?

A foreign corporation applying for a license to transact business in the Philippines must submit,
among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in
accordance with law. Unless these documents are submitted, the application cannot be acted by
the SEC. Section 143 of the Revised Corporation Code specifies when the SEC can grant the
license applied for. A foreign corporation’s by-laws, though originating from a foreign jurisdiction,
are valid and effective in the Philippines.
18. Who is a “resident agent?”

1. An individual residing in the Philippines and he must be of good moral character and of sound
financial standing.
2. A domestic corporation lawfully transacting business in the Philippines and must likewise be of
sound financial standing and must show proof that it is in good standing as certified by the SEC.
19. What is the principal duty of or purpose of appointing a resident agent?

For the purpose of accepting and receiving on behalf of the foreign corporation:
1. Notice affecting the corporation pending the establishment of its local office; and
2. Summons and other legal processes in all proceedings for or against the corporation.
20. What are the ways of serving summons to foreign corporation?

When summons is served on a foreign juridical entity, there are three prescribed ways:
1. Service on its resident agent designated in accordance with law for that purpose;
2. Service on the government official designated by law to receive summons if the corporation
does not have a resident agent; and
3. Service on any of the corporation’s officers or agents within the Philippines.
21. What is the purpose of summons?

Not only to acquire jurisdiction over the person of the defendant, but also to give notice to the
defendant that an action has been commerce against it and to afford it an opportunity to be heard
on the claim made against it.
22. If the requirements on the rule of summons are not strictly followed, what is the effect?
The requirements of the rule on summons must be strictly followed otherwise, the trial court will not
acquire jurisdiction over the defendant.
23. What laws are applicable to foreign corporations licensed to do business in the
Philippines? General Rule and Exception
General Rule: A foreign corporation lawfully doing business in the Philippines shall be bound by all
laws, rules and regulations applicable to domestic corporations of the same class.
Exception: (a) Those which provide for the creation, formation, organization, or dissolution of the
corporations; or (b) those which fix the relations, liabilities, responsibilities, or duties to
stockholders, members, or officers of corporations to each other or to the corporation.
24. Is the amendment of the AOI or BL of foreign corporation allowed?

Whenever the article of incorporation or bylaws of a foreign corporation authorized to transact
business in the Philippines are amended, such foreign corporation shall, within sixty (60) days after
the amendment becomes effective, file with the Commission, and in proper cases, with the
appropriate government agency, a duly authenticated copy of the amendment articles of
incorporation or bylaws, indicating clearly in capital letters or underscoring the change or changes
made, duly certified by the authorized official or officials of the country or State of incorporation.
Such filing shall not in itself enlarge or alter the purpose or purposes for which such corporation is
authorized to transact business in the Philippines.
25. Can a foreign corporation amend its license?

A foreign corporation authorized to transact business in the Philippines shall obtain an amended
license:
1. In the event it changes its corporate name; or
2. Desires to pursue other or additional purposes in the Philippines.
26. Is merger or consolidation involving a foreign corporation licensed in the Philippines

allowed?
One or more foreign corporations authorized to transact business in the Philippines may merge or
consolidate with any domestic corporation or corporations if permitted under Philippine laws and by
the law of its incorporation: Provided, that the requirements on merger or consolidation as
provided in this Code are followed.
Whenever a foreign corporation authorized to transact business in the Philippines shall be a party
to merger or consolidation in its home country or State as permitted by the law authorizing its
incorporation, such foreign corporation shall, within sixty (60) days after the effectivity of such
merger or consolidation, file with the Commission, and in proper cases, with the appropriate
government agency, a copy of the articles of merger or consolidation was effected: Provided,
however, that if the absorbed corporation is the foreign corporation doing business in the
Philippines, the latter shall at the same time file a petition for withdrawal of its license in accordance
with this Title.
27. What is the status of contracts entered into by a foreign corporation in the course of
transacting business in the Philippines without a license? General rule and exception
No foreign corporation transacting business in the Philippines without a license, or its successor or
assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or proceeded against
before the Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
28. What are the grounds for the revocation of the license to transact business in the
Philippines?
a) Failure to file its annual report or pay any fees as required by this Code;
b) Failure to appoint and maintain a resident agent in the Philippines as required by this Title;
c) Failure, after change of its resident agent or address, to submit to the Commission a statement
of such change as required by this Title;
d) Failure to submit to the Commission an authenticated copy of any amendment to its articles of
incorporation or bylaws or of any articles of merger or consolidation within the time prescribed by
this Title;
e) A misrepresentation of any material mater in any application, report, affidavit or other document
submitted by such corporation pursuant to this Title;
f) Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the
Philippine Government or any of its agencies or political subdivisions;
g) Transacting business in the Philippines outside of the purpose or purposes for which such
corporation is authorized under its license;
h) Transacting business in the Philippines as agent of or acting on behalf of any foreign corporation
or entity not duly licensed to do business in the Philippine; or
i) Any other ground as would render it unfit to transact business in the Philippines.
29. What is the procedure concerning revocation?

1. The SEC shall issue a corresponding certificate of revocation, furnishing a copy thereof to the
appropriate government agency in the proper cases; and
2. The SEC shall also mail to the corporation at its registered office in the Philippines a notice of
such revocation accompanied by a copy of the certificate of revocation.
30. May a foreign corporation licensed to do business in the Philippines withdraw from the
Philippines?
Subject to existing laws and regulations, a foreign corporation licensed to transact business in the
Philippines may be allowed to withdraw from the Philippines by filing a petition for withdrawal of
license. No certificate of withdrawal shall be issued by the Commission unless all the following
requirements are met:
a) All claims which have accrued in the Philippines have been paid, compromised or settled;
b) All taxes, imposts, assessments, and penalties, if any, agencies or political subdivisions,
have been paid; and
c) The petition for withdrawal of license has been published once a week for three (3)
consecutive weeks in a newspaper of general circulation in the Philippines.
Title XVI - Investigations, Offenses, and Penalties
1. When may SEC investigate and prosecute offenses?
The Commission may investigate an alleged violation of this Code, or of a rule, regulation, or order
of the Commission.
2. What may be published by SEC?

The Commission may publish its findings, orders, opinions, advisories, or information concerning
any such violation, as may be relevant to the general public or to the parties concerned, subject to
the provisions of Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012", and
other pertinent laws.
The Commission shall give reasonable notice to and coordinate with the appropriate regulatory
agency prior to any such publication involving companies under their regulatory jurisdiction.
3. What are the powers that SEC may exercise in relation to its investigation and
prosecution of offenses?
The Commission, through its designated officer, may administer oaths and affirmations, issue
subpoena and subpoena duces tecum, take testimony in any inquiry or investigation, and may
perform other acts necessary to the proceedings or to the investigation.
4. What orders may SEC issue?

The SEC may issue a cease and desist order ex parte to enjoin an act or practice which is
fraudulent or can be reasonably expected to cause significant, imminent, and irreparable danger or
injury to public safety or welfare.
5. When may SEC declare any person in contempt? What is the consequence?
Any person who, without justifiable cause, fails or refuses to comply with any lawful order, decision,
or subpoena issued by the Commission shall, after due notice and hearing, be held in contempt
and fined in an amount not exceeding Thirty thousand pesos (₱30,000.00). When the refusal
amounts to clear and open defiance of the Commission's order, decision, or subpoena, the
Commission may impose a daily fine of One thousand pesos (₱1,000.00) until the order,
decision, or subpoena is complied with.
6. What sanctions may SEC impose?

If, after due notice and hearing, the Commission finds that any provision of this Code, rules or
regulations, or any of the Commission's orders has been violated, the Commission may impose any
or all of the following sanctions, taking into consideration the extent of participation, nature,
effects, frequency and seriousness of the violation:
a) Imposition of a fine ranging from Five thousand pesos (₱5,000.00) to Two million pesos
(₱2,000,000.00), and not more that One thousand pesos (₱1,000.00) for each day of
continuing violation but in no case to exceed Two million pesos (₱2,000,000.00);
b) Issuance of the permanent cease and desist order;
c) Suspension or revocation of the certificate of incorporation; and
d) Dissolution of the corporation and forfeiture of its assets under the conditions in Title XIV of
this Code.
7. What are the penalties of the following?

Instance Fine Injurious or Detrimental to
Public
Unauthorized use of corporate name (8) 10K – 200K
Violation of disqualification provision of 10K – 200K 20K – 400K

directors, trustees, or officers (9)
Violation of duty to maintain records, to 10K – 200K 20K – 400K

allow their inspection or reproduction (10)
Willful certification of incomplete, inaccurate, 20K – 200K 40K – 400K

false, or misleading statements or reports
(11)
Independent auditor collusion (12) 80K – 500K 100K – 600K
Obtaining corporate registration Through 200K – 2M 400K – 5M

fraud (13)
Fraudulent conduct of business penalties 200K – 2M 400K – 5M

(14)
Acting as intermediaries for graft and 100K – 5M

corrupt practices (15)
Engaging intermediaries for graft and 100K – 1M

corrupt practices (16)
Tolerating graft and corrupt practices (17) 500K – 1M
Retaliation against whistleblowers (18) 100K – 1M
Other violations of the Code (19) 10K – 1M
20. What is the scope of liability of the offenders?

Liability for any of the foregoing offenses shall be separate from any other administrative, civil, or
criminal liability under this Code and other laws.
21. What is the liability of directors, trustees, officers, or other employees?

If the offender is a corporation, the penalty may, at the discretion of the court, be imposed upon
such corporation and/or upon its directors, trustees, stockholders. members, officers, or employees
responsible for the violation or indispensable to its commission.
22. What is the liability of aiders and abettors and other secondary liability?
Anyone who shall aid, abet, counsel, command, induce, or cause any violation of this Code, or any
rule regulation or order of the Commission shall be punished with a fine not exceeding that imposed
on the principal offenders, at the discretion of the court, after taking into account their participation
in the offense.
Title XVII - Miscellaneous Provisions
1. Define outstanding capital stock
Means the total shares of stock issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares.
2. What is the designation of governing Boards?

The provisions of specific provisions of this Code to the contrary notwithstanding, nonstock or
special corporations may, through their articles of incorporation or their bylaws, designated their
governing boards by any other than as board of trustees.
3. For the effective implementation of the Corporation Code, what is the SEC authorized to
do?
The Commission is hereby authorized to collect, retain and use fees, fines, and other charges
pursuant to this Code and its rules and regulations. The amount collected shall be deposited and
maintained in a separate account which shall form a fund for its modernization and to augment its
operational expenses such as, but not limited to, capital outlay, increase in compensation and
benefits comparable with prevailing rates in the private sector, reasonable employee allowance,
employee health care services, and other insurance, employee career advancement and
professionalization, legal assistance, seminars, and other professional fees.
4. Aside from SEC, which other government agency is authorized to regulate corporations?
The National Economic and Development Authority (NEDA) shall, from time to time, determine
if the corporate vehicle has been used by any corporation, business, or industry to frustrate the
provisions of this Code or applicable laws, and shall submit to Congress, whenever deemed
necessary, a report of its findings, including recommendations for their prevention or correction.
5. What is the limitation of stock ownership in corporations vested with public interest?
The Congress of the Philippines may set maximum limits for stock ownership of individuals or
groups of individuals related to each other by consanguinity, affinity, or by close business interests,
in corporations declared to be vested with public interest pursuant to the provisions of this section,
or whenever necessary to prevent anti-competitive practices.
In recommending to the Congress which corporations, businesses and industries will be declared
as vested with public interest, and in formulating proposals for limitations on stock ownership, the
NEDA shall consider the type and nature of the industry, size of the enterprise, economies of scale,
geographic location, extent of Filipino ownership, labor intensity of the activity, export potential, as
well as other factors which are germane to the realization and promotion of business and industry.
6. What are the annual reportorial requirements of corporations?

a) Annual financial statements audited by an independent certified public accountant: Provided,
That if the total assets or total liabilities of the corporation are less than Six hundred
thousand pesos (₱600,000.00), the financial statements shall be certified under oath by the
corporation’s treasurer or chief financial officer; and
b) A general information sheet.
7. What other requirement must be submitted annually by those corporations vested with
public interest?
1) A director or trustee compensation report; and
2) A director or trustee appraisal or performance report and the standards or criteria used to
assess each, director or trustee.
8. What is visitorial power and which agency exercises the same?
The Commission shall exercise visitorial powers over all corporations, which powers shall include
the examination and inspection of records, regulation and supervision of activities, enforcement of
compliance, and imposition of sanctions in accordance with this Code.
9. What is the nature of such power? General Rule and exception

General Rule: All interrogatories propounded by the SEC and the answers thereto, as well as the
results of any examination made by the SEC or by any other official authorized by law to make an
examination of the operations, books, and records of any corporation, shall be kept strictly
confidential.
Exceptions: (1) When the law requires the same to be made public; (2) when necessary for the
SEC to take action to protect the public or to issue orders in the exercise of its powers under this
Code; or (3) where such interrogatories, answers or results are necessary to be presented as
evidence before any court.
10. What is the effect of refusal or obstruction of the exercise of visitorial power?
Should the corporation, without justifiable cause, refuse or obstruct the Commission’s exercise of
its visitorial powers, the Commission may revoke its certificate of incorporation, without prejudice to
the imposition of other penalties and sanctions under this Code.
11. What are the powers, functions and jurisdiction of the SEC?
1. Exercise supervision and jurisdiction over corporations and persons acting on their behalf
2. Retain jurisdiction over pending intra-corporate disputes and rehabilitation cases
3. Impose sanctions for violating the Code and its orders
4. Promote corporate governance and protect minority investors
5. Issue opinions to clarify application of laws and rules
6. Issue cease and desist orders to prevent fraud or injury to the public
7. Hold corporations in direct and indirect contempt
8. Issue subpoena duces tecum and summon witnesses
9. Order examination, search, and seizure of documents in appropriate cases
10. Suspend or revoke certificate of incorporation after notice and hearing
11. Dissolve or impose sanctions on corporations for securities violations and other illegal acts
12. Issue writs of execution and attachment to enforce payment of fees and fines
13. Prescribe independent director requirements
14. Impose or recommend new voting modes for stockholders and directors
15. Formulate and enforce standards and regulations for the Code
16. Exercise other powers provided by law or necessary to carry out its powers.
12. What is to be developed and implemented by the SEC pertaining filing and monitoring?
The Commission shall develop and implement an electronic filing and monitoring system. The
Commission shall promulgate rules to facilitate and expedite, among others, corporate name
reservation and registration, incorporation, submission of reports, notices, and documents required
under this Code, and sharing of pertinent information with other government agencies.
13. May corporations enter into arbitration agreement?

Yes. An arbitration agreement may be provided in the articles of incorporation or bylaws of a
corporation. When such an agreement is in place, disputes between the corporation, its
stockholders or members, which arise from the implementation of the articles of incorporation or
bylaws, or from intra-corporate relations, shall be referred to arbitration. A dispute shall be non-
arbitrable when it involves criminal offenses and interests of third parties.
14. What is the rule on arbitration agreement?
The arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and
executives or managers.
To be enforceable, the arbitration agreement should indicate the number of arbitrators and the
procedure for their appointment.
The arbitral tribunal shall have the power to rule on its own jurisdiction and on questions relating to
the validity of the arbitration agreement. The arbitral tribunal shall have the power to grant interim
measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, or
otherwise protect the rights of the parties.
A final arbitral award under this section shall be executory after the lapse of fifteen (15) days from
receipt thereof by the parties and shall be stayed only by the filing of a bond or the issuance by the
appellate court of an injunctive writ.
15. What disputes which are non-arbitrable?

When it involves criminal offenses and interests of third parties.
16. Which has jurisdiction over party-list organization?

The powers, authorities, and responsibilities of the Commission involving party-list organizations
are transferred to the Commission on Elections (COMELEC). For this purpose, the COMELEC,
in coordination with the Commission, shall promulgate the corresponding implementing rules for the
transfer of jurisdiction over the abovementioned corporations.
17. Which regulatory body exercises primary authority over special corporations such as
banks, nonbank financial institutions and insurance companies?
Bangko Sentral ng Pilipinas and the Insurance Commission shall exercise primary authority
over special corporations such as banks, nonbank financial institutions, and insurance companies
under their supervision and regulation.

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Jave Clouie R.

Magsalay ACA – 2 AEC 65 Business Laws and Regulations

2. Meaning of artificial being

5. Meaning of government-owned or controlled corporation

6. What is the meaning of “piercing the veil of corporate entity”?

7. What is the nationality of the corporation?

8. Which of the two rules shall apply?

10. Ownership of property

12. What is a stock corporation?

13. What is a non-stock corporation?

14. What are the other classes of corporations?

16. Components of a corporation

17. Can there be members in a stock corporation?

19. What are the voting shares?

20. What are non-voting shares?

21. Common stock vs Preferred stock

23. Trust fund doctrine

24. Treasury shares

3. What is a one-person corporation?

4. Incorporator distinguished from Corporator

6. How long is the corporate term of a corporation?

7. Can an expired corporation be revived?

8. Is there a minimum capital stock required of stock corporations?

9. Define subscription, paid-up capital

10. Articles of Incorporation

11. May the Articles of Incorporation be amended? Limitations

14. De facto corporation

2. Acts of management vs ownership

3. What is business judgment rule?

4. Where do corporate powers reside?

5. Who has power to manage the corporation?

6. What is meant by apparent or ostensible authority?

8. Authority of the BOD or BOT

9. What are the 3 levels of control?

12. Qualifications of BOD/BOT

13. Who is an independent director?

14. What are the requirements for the election of directors/trustees?

15. Define corporate officer

17. Who are the corporate officers?

18. Who is a corporate employee?

19. Quorum at the meeting of BOD/BOT

20. Requirement regarding report of election and its objectives?

21. Grounds for disqualification of directors, trustees, or officers.

22. Can a director be removed with or without cause?

23. How are directors/trustees removed?

24. Who has the power to remove directors or trustees?

25. Requisites for the removal of directors or trustees?

30. What vote is required for the removal of a director or trustee?

32. Rules in the filling of vacancies

37. Do directors receive compensation as such directors?

38. May directors be granted compensation other than per diem?

39. Is there a limit as to the compensation granted to the directors?

40. How directors are therefore compensated?

42. What is the doctrine of corporate opportunity?

43. When is a director accountable for secret profits obtained by him?

48. Who are considered interlocking directors?

49. What percentage of stock ownership is considered substantial for purposes of

51. On what ground may such contract be invalidated?